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, 2002.
OR
[ ] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES
EXCHANGE ACT OF 1934.
Commission file number 333-07429
333-07429-01
Remington Products Company, L.L.C.
Remington Capital Corp.
(Exact name of registrants as specified in their charters)
06-1451076
Delaware 06-1451079
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(State or other jurisdiction of (IRS Employer
incorporation or organization) Identification Nos)
60 Main Street, Bridgeport, Connecticut 06604
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(Address of principal executive offices) (Zip Code)
Registrant's telephone number, including area code: (203) 367-4400
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Securities registered pursuant to Section 12(b) of the Act:
Title of Each class Name of each exchange on which registered
None None
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Securities registered pursuant to Section 12(g) of the Act:
None
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(Title of Class)
Indicate by check mark whether the registrant (1) has filed all reports
required to be filed by Section 13 or 15(d) of the Securities Exchange Act of
1934 during the preceding 12 months (or for such shorter period that the
registrant was required to file such reports), and (2) has been subject to such
filing requirements for the past 90 days. Yes X No
----- -----
Indicate by check mark if disclosure of delinquent filers pursuant to Item
405 of Regulation S-K is not contained herein, and will not be contained, to the
best of registrant's knowledge, in definitive proxy or information statements
incorporated by reference in Part III of this Form 10-K or any amendment to this
Form 10-K. []
Indicate by check mark whether the registrant is an accelerated filer (as
defined in Rule 12b-2 of the Act). Yes No X
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PART I
ITEM 1. Business
General
Remington Products Company, L.L.C. and its wholly-owned subsidiaries (the
"Company" or "Remington") is a leading consumer products company focusing on the
development and marketing of personal care products. The Company designs and
distributes electric shavers and accessories, grooming products, hair care
appliances, wellness products and other small electrical consumer products.
The Company is a Delaware limited liability company that will continue in
existence until December 31, 2016 or dissolution prior thereto as determined
under the Company's Amended and Restated Limited Liability Company Agreement
(the "LLC Agreement"). The Company was formed by Vestar Shaver Corp. and RPI
Corp. ("RPI") to acquire the operations of Remington Products Company and its
subsidiaries ("RPC") in May of 1996. Vestar Razor Corp. was formed in May of
1996 to hold an interest in the Company. Vestar Shaver Corp. and Vestar Razor
Corp. (together, the "Vestar Members") are wholly owned by Vestar Equity
Partners, L.P. ("Vestar"), an institutional equity capital fund and affiliate of
Vestar Capital Partners ("Vestar Capital").
Forward Looking Statements
This annual report on Form 10-K may contain forward-looking statements
which include assumptions about future market conditions, operations and
results. These statements are based on current expectations and are subject to
risks and uncertainties. They are made pursuant to safe harbor provisions of the
Private Securities Litigation Reform Act of 1995. Among the many factors that
could cause actual results to differ materially from any forward-looking
statements are the success of new product introductions and promotions, changes
in the competitive environment for the Company's products, changes in economic
conditions, foreign exchange risk, outcome of litigation, and other factors
discussed herein and in prior Securities and Exchange Commission filings by the
Company. The Company assumes no obligation to update these forward-looking
statements or advise of changes in the assumptions on which they were based.
Description of Business
The Company distributes its products through three operating segments which
are comprised of 1) the North American segment, which sells product through
mass-merchant retailers, department stores and drug store chains throughout the
United States and Canada, 2) the International segment, which sells product
through an international network of subsidiaries and distributors, and 3) the
U.S. Service Stores segment consisting of Company-owned and operated service
stores throughout the United States. Additional financial information relating
to Remington's three operating segments is set forth in Note 13 (Business
Segment and Geographic Information) of the "Notes to the Consolidated Financial
Statements" of the Company appearing elsewhere herein.
2
Products
The Company's principal personal care products consist of the following
product categories:
Shaver and Grooming Products. The Company distributes a complete line of
shaver and grooming products, including men's and women's shavers, beard and
mustache trimmers, nose and ear trimmers, haircut kits and related accessories.
The Company's primary men's electric shavers consist of the MicroScreen(R) line
of single, dual and triple foil shavers as well as the MicroFlex(R) line of
rotary shavers marketed in North America and the Fast Track(R) line of rotary
shavers marketed internationally. The women's electric shaver category includes
a full line of women's Smooth & Silky(R) wet/dry shavers as well as epilators.
The Company distributes electric shaver accessories consisting of shaver
replacement parts (primarily foils and cutters), preshave products and cleaning
agents. Grooming products consist of the Precision(R) line, including beard and
mustache trimmers, nose hair and ear hair trimmers, and personal groomers, which
offer a selection of grooming accessories, as well as a line of home haircut
kits. Shaver and grooming products accounted for approximately 64%, 58% and 52%
of the Company's net sales for the years ended December 31, 2002, 2001 and 2000,
respectively.
Hair Care and Wellness. The hair care products consist of hair dryers,
hairsetters, curling irons, hair crimpers and straighteners, hot air brushes and
lighted mirrors. The hair dryer products include the Company's Vortex(R) hair
dryer, and Pro Air(R) chrome dryers. The Company's hairsetter products include
the Remington Twisters(R), Express Set(R) hairsetter and the Smart Setter(R)
hairsetter, all of which incorporate proprietary technologies of color change
and wax core. The curling iron products include Remington's Super Smooth(R)
brand using Teflon(R) non-stick technology which is exclusive to Remington's
haircare products. Wellness products consist primarily of Remington's paraffin
wax hand spas and foot spas. The Company has decided to de-emphasize its
wellness products by eliminating fad products and continuing to offer only
certain more established products. Hair care and wellness products accounted for
approximately 25%, 29% and 31% of the Company's net sales for the years ended
December 31, 2002, 2001 and 2000, respectively.
Other Products. Remington sells a variety of Remington and non-Remington
brand personal care products through the Company's service stores, and has also
distributed other small appliances, such as vacuums and electric irons, in
certain markets.
Distribution
The Company's products are sold in the United States and internationally in
many countries through mass merchandisers, catalog showrooms, drug store chains
and department stores, in addition to the Company's service stores.
In the United States, the Company sells products through mass-merchant
retailers such as Wal-Mart, K-Mart and Target, department stores such as Sears,
Federated and Kohls, drug store chains including Walgreens, Rite Aid and Eckerd,
and Remington's own service stores. Throughout the United States, the Company's
products are sold through in excess of 20,000 retail outlets. In addition, the
Company markets and distributes its products through television direct to
consumer retailing with stations such as QVC and Internet retailers such as
drugstore.com, as well as the Company's own website, remington-products.com.
3
On a worldwide basis, Wal-Mart accounted for approximately 30% of the
Company's net sales during the years ended December 31, 2002 and 2001 and
approximately 25% of the Company's net sales during the year ended December 31,
2000. No other customer accounted for more than 10% of the Company's net sales
in the three year period ended December 31, 2002.
U.S. Service Stores
As of March 1, 2003, the Company owned and operated a chain of 69 service
stores in the United States. During 2002 there were an average of 77 stores open
compared to an average of 88 stores in 2001 and 93 stores in 2000. The number of
stores has declined over the last several years as the Company has determined to
de-emphasize this segment in favor of investing in its other businesses. The
stores are primarily located in shopping malls and outlet malls and sell and
service a variety of Remington and non-Remington shavers, personal care and
other products. The service stores also oversee sales of replacement parts to
approximately 300 independent authorized shaver service dealers across the
United States. In 2002, 2001 and 2000 the Company's U.S. Service Stores segment
generated approximately 9%, 11% and 12%, respectively, of the Company's net
sales.
Suppliers
All of the Company's finished goods inventories are manufactured for the
Company by third party suppliers primarily located in China and Japan. The
Company maintains ownership of tools and molds used by many of its suppliers.
The Company's most significant suppliers, Izumi Products, Inc., Raymond
Industrial Ltd., and Specialife Industries, Ltd., accounted for approximately
45% of the Company's overall cost of sales in 2002. Remington has had a
relationship with its suppliers for many years and management considers its
present relationships to be good.
The Company continues to manufacture certain foil cutting systems and
accessories in Bridgeport, Connecticut using proprietary cutting technology and
a series of specially designed machines. These systems are then shipped to third
party suppliers for inclusion in the finished product.
Research and Product Development
The Company believes that research and development activities are an
important part of the Company's business and are essential to its long-term
prospects. Research and development efforts at Remington allow the Company to
maintain its unique manufacturing strength in cutting systems for shavers. The
Company is continuously pursuing new innovations for its line of shavers
including foil improvements and new cutting and trimmer configurations. The
Company also devotes resources to the development of new technologies for its
other products.
During 2002, 2001 and 2000, research and development expenditures by the
Company amounted to approximately $3.4, $4.3 and $4.2 million, respectively.
4
Patents and Trademarks
The Company owns over 400 patent and patent applications in various
countries for both design and utility. The Company's patents primarily cover
electric shavers, cutting and trimming mechanisms and hair care and wellness
products. In addition, the Company maintains over 1,300 different trademarks
around the world which are utilized in connection with its products.
As a result of the common origins of the Company and Remington Arms
Company, Inc. ("Remington Arms"), the Remington mark is owned by each company
with respect to its principal products as well as associated products. Thus, the
Company owns the Remington mark for shavers, shaver accessories, grooming
products and personal care products, while Remington Arms owns the mark for
firearms, sporting goods and products for industrial use, including industrial
hand tools. The terms of a 1986 agreement between the Company and Remington Arms
provides for their respective rights to use the Remington trademark on products,
which are not considered "principal products of interest" for either company. A
separate company, Remington Licensing Corporation, owns the Remington trademark
in the U.S. with respect to any overlapping uses and the Company and Remington
Arms are each licensed to use the trademarks owned by Remington Licensing
Corporation in their respective areas of interest. The Company retains the
Remington trademark for nearly all products which it believes can benefit from
the use of the brand name in the Company's distribution channels.
Competition
The Company operates in highly competitive markets. Competition for retail
sales to consumers is based on several factors, including brand name
recognition, value, quality, price and availability. Primary competitive factors
with respect to selling such products to retailers are brand reputation, product
categories offered, broad coverage within each product category, support and
service in addition to price.
Remington competes with established producers of foil and rotary shavers,
such as Koninklijke Philips Electronics, N.V. ("Philips") and The Gillette
Company, including its Braun Division, in the U.S. and International electric
shaver and grooming markets. The Company's major competitors in the hair care
market are Conair and Helen of Troy. There are no substantial barriers to entry
for new competitors in the personal care products industry. However, companies
that are able to maintain or increase the amount of retail shelf space allocated
to their respective products may gain a competitive advantage.
The rotary shaver market is significant outside the United States. The
continued expansion of sales of the Company's rotary shavers outside the United
States will be affected by, among other factors, the outcome of ongoing legal
actions between the Company and Philips with respect to trademarks and designs
registered by Philips outside the United States. See Item 3. Legal Proceedings.
5
Employees
As of March 1, 2003, the Company employed approximately 750 people
worldwide of which approximately 90 were employed part-time in the Company's
service stores. None of the Company's employees are represented by a union.
Remington believes that its relations with its employees are good.
Environmental Matters
The Company's manufacturing operations in Bridgeport, Connecticut are
subject to federal, state and local environmental laws and regulations. The
Company believes it is in substantial compliance with all such environmental
laws, which are applicable to its operations. In addition, as part of routine
reporting requirements in connection with past property transfers, the Company
has reported to the Connecticut Department of Environmental Protection (the
"CTDEP") that it has detected petroleum, metals and solvent compounds in soil
and ground water samples taken from its Bridgeport facility. The general
remedial strategies have been selected by the Company and those strategies which
require CTDEP approvals have been submitted for approval. All other strategies
do not require approval for implementation. In addition to its ongoing program
of environmental compliance, the Company has accruals of approximately $0.7
million to cover the anticipated costs of the remediation. The Company believes
that any required change to the reserves due to the inherent uncertainties as to
the ultimate costs for the remediation activities which are eventually
undertaken would not be material to the Company's financial position or results
of operations.
International Operations and Distribution
Remington's International segment generated approximately 27% of the
Company's net sales in 2002 and 2001, respectively and approximately 31% of the
Company's net sales in 2000. The Company's international network of subsidiaries
and distributors currently extends to over 85 countries worldwide. The Company
distributes its products through direct sales forces located in the United
Kingdom, Germany, Italy, France, Ireland, Australia and New Zealand. In all
other parts of the world the Company distributes its products through local
distributors.
The Company distributes products internationally through department stores,
catalog showrooms, mass merchandisers, drug stores, specialized shaver shops and
mail order distributors as well as through the Company's 10 service stores in
the United Kingdom. In June 2000, the Company sold its 12 service stores in
Australia.
Additional financial information relating to Remington's international
operations is set forth in Note 13 (Business Segment and Geographic Information)
of the "Notes to Consolidated Financial Statements" of the Company appearing
elsewhere herein.
6
Risk Factors
In connection with a review of this Annual Report on Form 10-K, the
following risk factors should be considered carefully.
Debt. Remington has a significant amount of indebtedness. As of December
31, 2002 the Company had outstanding indebtedness of approximately $187 million
or approximately $154 million net of cash and cash equivalents. Remington's
substantial indebtedness could have important consequences. For example, it
could:
- - make it more difficult for the Company to meet its obligations to
creditors, including holders of its Senior Subordinated Notes, who could
then require the Company to do such things as restructure its indebtedness,
sell assets, or raise additional debt or equity capital;
- - limit the Company's ability to borrow additional amounts for working
capital, capital expenditures, acquisitions, debt service requirements,
execution of the Company's growth strategy, research and development costs
or other purposes;
- - require the Company to dedicate a substantial portion of its cash flow to
pay principal and interest on its debt, which will reduce the funds
available for working capital, capital expenditures, acquisitions and other
general corporate purposes;
- - limit the Company's flexibility in planning for and reacting to changes in
its business and in the industry in which the Company operates that could
make it more vulnerable to adverse changes in general economic, industry
and competitive conditions and adverse changes in government regulation;
and
- - place the Company at a disadvantage compared to its competitors that have
less debt.
Any of the above listed factors could have a material adverse affect on
Remington's business and results of operations and its ability to meet its
obligations.
The credit agreement governing the Company's revolving credit facility
restricts management's discretion in operating the Company's business. In
addition, the credit agreement requires the Company to maintain specified
financial ratios and tests, among other obligations. In addition, the credit
agreement governing the Company's revolving credit facility restricts, among
other things, the Company's:
- - ability to incur additional indebtedness;
- - ability to make acquisitions; and
- - ability to make capital expenditures.
Market Uncertainties. The markets in which Remington competes are highly
competitive. The Company competes with large and established national and
multinational companies, as well as smaller companies, in all of its product
lines. Some of these competitors have, and new competitors may have,
substantially greater resources than Remington has. Consequently, it cannot be
assured that Remington will be able to compete effectively in the future.
7
Manufacturing Uncertainties. The Company depends on comparatively few
suppliers. The vast majority of finished goods are manufactured by suppliers
located in China and Japan. The Company's three most significant suppliers of
finished goods in 2002 accounted for approximately 45% of the total cost of
sales, with the largest supplier comprising approximately 21% of the total cost
of sales. Any adverse change in any of the following could have a material
adverse effect on Remington's business:
- - relationships with these suppliers;
- - the financial condition of these suppliers;
- - the ability to import outsourced products; or
- - these suppliers' ability to manufacture and deliver outsourced products
on a timely basis.
Although the Company has long-established relationships with many of its
suppliers, it does not have long-term contracts with any of its suppliers. It
cannot be assured that the Company could quickly or effectively replace any of
its suppliers if the need arose, and it cannot be assured that the Company could
retrieve tooling and molds possessed by any of its suppliers. Remington's
dependence on these few suppliers could also adversely affect its ability to
react quickly and effectively to changes in the market for its products. In
addition, international manufacturing is subject to significant risks,
including:
- - labor unrest;
- - political instability;
- - restrictions on transfer of funds;
- - domestic and international customs and tariffs;
- - unexpected changes in regulatory environments; and
- - potentially adverse tax consequences.
It cannot be assured that Remington's business will not be adversely
affected by the aforementioned risks, each of which could have an adverse effect
on its ability to increase or maintain its international importing activities
and/or on its results of operations.
Remington depends on a single manufacturing facility for certain essential
parts of its products. Remington manufactures the majority of its foil cutting
systems, using specially designed machines and proprietary cutting technology,
at its sole company-owned manufacturing facility in Bridgeport, Connecticut.
This manufacturing facility is subject to the normal hazards that could result
in any material damage to any such facility. Damage to this facility, or
prolonged interruption in the operations of this facility for repairs or other
reasons, would have a material adverse effect on Remington's financial position
and its results of operations.
Product Introductions. The Company cannot be certain that its product
innovations and marketing successes will continue. The Company believes that its
future success will depend, in part, upon its ability to continue making
innovations in its existing products and to develop, manufacture and market new
products. The Company cannot assure that it will be successful in the
introduction, marketing and manufacture of any new products or product
innovations. Furthermore, there can be no assurance that the Company will be
able to develop and introduce new products or improvements to its existing
products which satisfy customer needs or achieve market acceptance. The failure
to develop products and introduce them successfully in a timely manner could
adversely affect Remington's financial condition and its results of operations.
8
Customer Concentration. A small number of major customers account for a
significant percentage of Remington's total net sales, and a decrease in orders
from these major customers would cause the Company's net sales and profitability
to decline.
Net sales to the Company's five largest customers accounted for
approximately 50% of its total net sales in 2002. Wal-Mart accounted for
approximately 30% of its net sales worldwide during 2002. No other customer
accounted for more than 10% of the Company's worldwide net sales in 2002.
Although the Company has long-established relationships with many of its
customers, it does not have long-term contracts with any of its customers. A
decrease in business from any of the Company's major customers could have a
material adverse effect on the Company's financial condition and results of
operations.
On January 22, 2002, Kmart, one of the Company's largest U.S. customers,
filed for protection under Chapter 11 of the U.S. Bankruptcy Code. While the
outcome of the bankruptcy case can not be predicted, the Company continues to
ship product to Kmart and is hopeful that the customer will successfully
reorganize and emerge from bankruptcy in 2003, as announced. However, if the
customer is unsuccessful in reorganizing, there could be a short-term material
adverse effect to the Company's operating results. It is the Company's belief
that continued consumer demand for its products would ultimately be absorbed by
the Company's other customers, although there can be no assurance of this. Kmart
accounted for approximately 7% of the Company's net sales for each of the fiscal
years ended December 31, 2002, 2001 and 2000. The Company has no pre-petition
receivables from Kmart.
Currency Risk. The Company is subject to foreign currency fluctuations as a
result of its foreign operations. In 2002, 31% of the Company's net sales were
made outside the United States. The U.S. dollar value of the Company's sales
varies with currency exchange rate fluctuations. Changes in currency exchange
rates could have an adverse effect on results of operations and the Company's
ability to meet interest and principal obligations on its debt. The Company's
results of operations are affected by changes in exchange rates. The Company's
foreign subsidiaries sell products in local currency. While many of the
Company's selling and distribution costs are also denominated in these
currencies, a large portion of product costs are U.S. dollar denominated. The
Company takes precautions against these fluctuations by entering into foreign
exchange forward contracts, which, in effect, lock in U.S. dollar exchange rates
for products which the Company's foreign subsidiaries purchase. However, there
can be no assurance that significant changes in currency exchange rates will not
have an adverse impact on the Company's business or results of operations.
Managing Growth. The Company may be unsuccessful in managing the growth of
its business or integrating possible future acquisitions. It cannot be assured
that the Company will be able to either identify and acquire attractive
acquisition candidates at prices and on terms favorable to it or succeed at
effectively and profitably managing the integration of an acquired business.
9
Reliance on Key Personnel. The loss of the services of any members of the
Company's senior management team could adversely affect its business. The
Company is dependent on the continued services of its senior management team.
The loss of any key personnel could have an adverse effect on the Company's
business. The Company does not maintain key-person insurance for any of its
officers, employees or directors.
Litigation. The Company is engaged in a number of active litigations. In
addition to litigation arising in the ordinary course of business, the Company
is involved in a series of legal disputes with Philips. In each of several
related actions which are pending in the United Kingdom, Philips has alleged
that the sale of Remington's rotary shavers infringes upon registered trademarks
owned by Philips. Accordingly, Philips is seeking damages and injunctions
relating to the rotary shavers which Remington sells in the United Kingdom.
Remington is defending these actions vigorously and has filed counterclaims
alleging the invalidity of Philip's trademarks. The Company has filed preemptive
claims against Philips in each of France and Italy seeking to nullify rotary
shaver trademarks held by Philips in these countries. In response to Remington's
claims and the sale by Remington of its rotary shavers, Philips has filed
counterclaims alleging trademark infringement by Remington. It cannot be assured
that the consequences of any adverse findings against Remington in these
litigations will not have an adverse effect on the Company's financial position
or results of operations.
ITEM 2. Properties
The following table sets forth information as of March 1, 2003 concerning
the principal facilities of the Company.
Facility Function Square Feet
Bridgeport, CT Headquarters (Owned) 40,000
Bridgeport, CT Manufacturing (Owned) 167,000
In addition to these properties, Remington leases offices and/or warehouse
space in the United States, Canada, the United Kingdom, Germany, France, Italy,
Ireland, Australia, New Zealand, Hong Kong and China. Remington also leases
retail space for its 79 service stores, of which 69 are in the United States and
10 are in the United Kingdom. Leases for service stores generally extend up to
five years. The majority of the leases contain escalation clauses, which provide
for increases in rent to enable the lessor to recover future increases in
certain operating costs. Certain leases require additional payments based on
sales volume.
10
ITEM 3. Legal Proceedings
The Company is involved in a number of international litigations with
Philips relative to intellectual property rights, including trademarks owned by
Philips, relating to the shape of the head portion of Philips' three headed
rotary shaver. It is essential to the Company's efforts to continue to sell
rotary shavers in countries where such trademark and other intellectual property
rights are in dispute and that it be successful in these litigations. Following
is a summary of these litigations.
Koninklijke Philips Electronics N.V. v. Remington Consumer Products Limited
(U.K.)
This action involves a claim by Philips that Remington's sale of rotary
shavers in the United Kingdom infringed its design patent and trademark. Philips
had been seeking an injunction and damages with respect to all rotary shavers
sold by Remington. Remington is vigorously defending the action. Pursuant to the
judgment after trial, the court found that Remington did not infringe Philips'
design patent or trademark and that Philips' trademark was invalid. Philips
appealed the judgment with respect to the trademark issue and on May 5, 1999,
the Court of Appeal, in a "provisional view," upheld the decision of the High
Court that there was no infringement by Remington of the registered trademark
and that the registered trademark was invalid. The Court of Appeal held that the
issues between the parties raised difficult questions of construction of the
Trademark Directive of the European Community and referred questions relating to
the construction of this Directive to the European Court of Justice (the "ECJ")
for its opinion.
On June 18, 2002, the ECJ rendered its decision in the case. In its
decision, which will govern the trademark laws of each of the fifteen member
countries of the European Union, the ECJ ruled in conformity with the arguments
that had been advanced by the Company to the effect that a shape consisting
exclusively of the shape of a product is unregistrable as a trademark (or is
subject to being declared invalid if it had been registered as a trademark) if
it is established that the essential functional features of that shape are
attributable only to the technical result. The ECJ further ruled that the
inability to register such a shape as a trademark (or the trademark being
subject to being declared invalid) cannot be overcome by establishing that there
are other shapes which allow the same technical result to be obtained.
Management of the Company believes that the decision of the ECJ will result in
the affirmation by the U.K. Court of Appeal of its provisional decision,
although no assurance can be given in this regard.
On February 15, 2000, Philips commenced a second action against Remington
in the High Court of Justice of the United Kingdom. This second suit alleges
that the sale of Remington's rotary shavers infringes a registered trademark of
Philips. Philips seeks injunctive relief, mandatory delivery or destruction of
the allegedly infringing articles, money damages, and other relief. This second
case differs from the first action described above only in that it involves a
registered trademark which differs in minor respects from the registered
trademark at issue in the first action. The Company believes that the issues are
the same in both actions and that the outcome of the second action will
ultimately be determined based on the outcome of the first action. The second
suit had been stayed by agreement of the parties pending the determination of
the ECJ in the first action. It is currently expected that this second action
will proceed to trial in the High Court later in 2003.
11
Remington Consumer Products Limited v. Koninklijke Philips Electronics N.V.
(France)
This action involves a preemptive claim filed by Remington against Philips
in the Paris First Instance Court on May 17, 2000, seeking the nullification of
Philips rotary shaver head trademarks in France. On or about October 4, 2000,
Philips filed a Writ of Summons with the Paris Lower Civil Court asserting
trademark infringement against Remington and seeking an injunction and damages
with respect to all rotary shavers sold by Remington. Remington is vigorously
defending the action.
On or about October 26, 2000, Philips filed a second Writ of Summons in the
Paris Lower Civil Court seeking a preliminary injunction to prohibit Remington
from selling its rotary shavers. The hearing in this matter occurred on November
15, 2000 and, on December 4, 2000, the Court issued its order denying Philips'
request for an injunction. On December 22, 2000, Philips filed a Writ of Summons
with the Paris Court of Appeal seeking the injunction referred to above. The
hearing in this matter occurred on January 10, 2001 and, on February 7, 2001,
the Court of Appeal affirmed the denial of Philips' request for an injunction. A
hearing on the merits in the principal action is currently expected to occur in
April 2003.
Remington Consumer Products Limited v. Koninklijke Philips Electronics NV
(Italy)
This action involves a preemptive claim filed by Remington against Philips
in the Tribunal of the City of Milan on May 15, 2000 seeking the nullification
of Philips' rotary shaver head trademarks in Italy and a declaration that the
sale of Remington's rotary shavers does not constitute trademark infringement or
unfair competition on the part of Remington. On or about November 15, 2000,
Philips filed a Writ of Summons with the Court asserting trademark infringement
against Remington and seeking an injunction and damages with respect to all
rotary shavers sold by Remington. Remington is vigorously defending the action.
A hearing on the matter was held on March 6, 2001, at which time Philips
withdrew its request for an injunction. A hearing on the merits in the principal
action is currently expected to occur later in 2003.
Koninklijke Philips Electronics N.V. v Remington Products GmbH (Germany)
On August 16, 2002, Philips commenced an action against Remington Products,
GmbH, a subsidiary of Remington, in the District Court of Cologne, Germany. This
suit seeks to enjoin the sale of Remington's rotary shavers in Germany and other
relief, and alleges that the sale of Remington's rotary shavers infringes
Philips' registered trademark and constitutes unfair competition under German
law. On August 20, 2002, the Cologne court granted an injunction to Philips
under the German Unfair Competition Act, thereby prohibiting the offer and sale
of these shavers in Germany. Remington has appealed this decision and this
appeal is currently scheduled to be heard by the Cologne Second Instance Court
on April 4, 2003. On September 5, 2002, Philips commenced a main action against
Remington Products, GmbH in the District Court of Cologne to accompany the suit
for an injunction described above. This action seeks to enjoin the sale of
Remington rotary shavers, money damages and other relief. A hearing on the
merits of the principal action is currently expected to occur later in 2003.
12
Koninklijke Philips Electronics N.V. v River International, S.A. (Spain)
On December 5, 2002, Philips commenced an action against River
International, S.A. ("River"), the distributor of Remington's rotary shavers in
Spain, in the Court of First Instance of Barcelona. This suit seeks to enjoin
the sale of Remington rotary shavers in Spain, withdrawal from the Spanish
market of the Remington rotary shavers, money damages and other relief. Pursuant
to an indemnity agreement between the parties, Remington has undertaken to
indemnify River for all of River's costs and expenses associated with this
litigation. On January 27, 2003, the court granted an injunction to Philips and
required that it post a bond with the court in the amount of 700,000 Euros per
year in order to enforce the injunction. However, the Court also indicated that
the injunction would not be enforced in the event River also posted a bond in
the identical amount with the court. River has appealed this decision, and a
hearing relative to the appeal is currently expected to occur later in 2003. A
hearing on the merits in the principal action is also currently expected to
occur later in 2003. On March 12, 2003, Remington commenced an action against
Philips in the Court of First Instance of Barcelona seeking to cancel Philips'
registered trademark in Spain. No hearings have been scheduled as yet in this
litigation.
In view of the decision of the ECJ, the Company believes that the law
within the European Union with respect to the registrability by Philips as a
trademark of the shapes of its rotary shaver heads as currently in existence has
been resolved in Remington's favor and is therefore settled. However, the
Company believes that it is likely that Philips will continue to initiate
litigation against it based on trademark infringement in countries where the
Company seeks to sell its rotary shavers. The Company further believes that
pending and future litigation within the European Union between the Company and
Philips based on the sale by Remington of three-headed rotary shavers will also
involve questions as to whether the sale of the Remington shavers violates
national laws of member countries which govern unfair competition. The Company
does not believe that such sales violate any such unfair competition laws. No
assurance, however, can be given as to the ultimate outcome of pending or future
litigation between the parties with respect to these matters. At the present
time, the Company cannot assess the damages that it would incur in the event it
were to lose one or more of the pending or future litigations with Philips,
although it does believe that such a loss or losses would not have a material
adverse effect on its consolidated financial position or results of operations.
Pursuant to the terms of an agreement with Izumi Products Company dated April 1,
1996, as amended, all expenses and losses, including any potential damages,
arising from or in connection with these litigations will be shared equally with
Izumi.
The Company is a party to other lawsuits and administrative proceedings
which arise in the ordinary course of business. Although the final results of
such suits and proceedings cannot be predicted, the Company presently believes
that any liability that may ultimately result will not have a material adverse
effect on the Company's financial position or results of operations.
ITEM 4. Submission of Matters to a Vote of Securities Holders
No matters were submitted to a vote of securities holders during the fourth
quarter of 2002.
13
PART II
ITEM 5. Market for Registrant's Common Equity and Related Stockholder Matters
(a) Market Information
The Company's capital structure consists of common units (the "Common
Units"), which represent the common equity of the Company, and preferred
members' equity (the "Preferred Equity"), together, with the Common Units, the
"Equity". There is no established public trading market for the Equity.
(b) Holders
As of March 1, 2003, there were two beneficial owners of the Equity.
(c) Dividends
Pursuant to the Amended and Restated Limited Liability Company Agreement,
the Company is required to make cash distributions to the members in order to
reimburse them for tax liabilities incurred on earnings of the Company. A cash
dividend of $104 thousand was paid to Vestar affiliated entities in 2001. No
other cash distributions have been paid with respect to the Equity since its
inception in May 1996. In addition, the Company's long-term debt arrangements,
which are discussed in Note 6 of the "Notes to Consolidated Financial
Statements," significantly restrict the payment of dividends.
(d) Recent Sales of Unregistered Securities
None.
ITEM 6. Selected Financial Data
The following table summarizes selected financial information and should be
read in conjunction with "Management's Discussion and Analysis of Financial
Condition and Results of Operations" and the Consolidated Financial Statements
and accompanying notes thereto appearing elsewhere herein (in thousands):
14
Year Ended December 31,
-----------------------------------------------------------------------------
2002 2001 2000 1999 1998
-------- -------- -------- -------- --------
Statement of Operations Data:
Net sales $365,061 $356,022 $342,180 $299,500 $252,300
Operating income 40,157 1,903 38,255 29,120 6,016
Interest expense, net 24,196 26,341 24,368 21,494 20,499
Net income (loss) (1) 16,773 (23,381) 12,737 6,035 (15,337)
Depreciation and amortization 3,402 5,834 5,753 5,555 5,169
Balance Sheet Data (at period end):
Working capital $82,552 $87,446 $106,039 $85,053 $68,294
Total assets 235,116 241,736 242,487 223,990 195,727
Total debt 187,090 213,042 203,266 195,841 187,668
Total debt, net of cash & cash
equivalents 154,244 208,955 192,924 185,970 183,419
Cumulative Preferred Dividend (2) 73,335 58,243 44,835 32,921 22,336
- -------------------------------
(1) Due to the fact that the Company is a limited liability company
("L.L.C.") federal income taxes on net earnings of the Company are payable
directly by the members pursuant to the Internal Revenue Code. Accordingly, no
provision has been made for federal income taxes for the Company. However,
certain state and local jurisdictions do not recognize L.L.C. status for taxing
purposes and require taxes to be paid on net earnings. Furthermore, earnings of
certain foreign operations are taxable under local statutes.
(2) Dividend payments are subject to restrictions by the terms of the
Company's debt agreements. See Note 6 of the "Notes to Consolidated Financial
Statements."
15
ITEM 7. Management's Discussion and Analysis of Financial Condition and Results
of Operations
Results of Operations
The following table sets forth the Company's consolidated statements of
operations, including net sales by its North American, International and U.S.
Service Stores operating segments, as well as the Company's consolidated results
of operations expressed as a percentage of net sales for the years ended
December 31, 2002, 2001 and 2000 (in millions except for percentages). In
accordance with new accounting profession guidelines, net sales for all periods
reflect reductions for certain costs which have been reclassified, primarily the
cost of cooperative advertising with trade customers which were previously
included in selling, general and administrative expenses. The discussion should
be read in connection with the Consolidated Financial Statements and
accompanying notes thereto appearing elsewhere herein.
2002 2001 2000
------------------ ---------------------- --------------------
$ % $ % $ %
----- ---- ----- ----- ----- -----
Net Sales:
North America $232.7 63.8 $220.5 61.9 $192.1 56.1
International 99.0 27.1 96.8 27.2 107.4 31.4
U.S. Service Stores 33.4 9.1 38.7 10.9 42.7 12.5
------- ------ ------- ------ ------- ------
365.1 100.0 356.0 100.0 342.2 100.0
Cost of sales 210.0 57.5 230.5 64.7 196.5 57.4
------- ------ ------- ------ ------- ------
Gross profit 155.1 42.5 125.5 35.3 145.7 42.6
Selling, general and
administrative expenses 114.4 31.4 121.7 34.3 105.4 30.8
Amortization of intangibles 0.5 0.1 1.9 0.5 2.0 0.6
------- ------ ------- ------ ------- ------
Operating Income:
North America 37.4 10.2 21.3 5.9 32.4 9.5
International 4.6 1.3 (15.3) (4.3) 8.5 2.5
U.S. Service Stores 1.6 0.4 1.7 0.5 3.2 0.9
Depreciation and
amortization (3.4) (0.9) (5.8) (1.6) (5.8) (1.7)
------- ------ ------- ------ ------- ------
Total operating income 40.2 11.0 1.9 0.5 38.3 11.2
Interest expense, net 24.2 6.6 26.3 7.4 24.4 7.2
Other expense (income) (1.0) (0.3) 2.1 0.5 0.8 0.2
------- ------ ------- ------ ------- ------
Income (loss)before
income taxes 17.0 4.7 (26.5) (7.4) 13.1 3.8
Provision (benefit)for
income taxes 0.2 0.1 (3.1) (0.8) 0.4 0.1
------- ------ ------- ------ ------- ------
Net income (loss) $ 16.8 4.6% $(23.4) (6.6%) $ 12.7 3.7%
======= ====== ======= ====== ======= ======
16
Year Ended December 31, 2002 Compared to the Year Ended December 31, 2001
Net Sales. Net sales for the year ended December 31, 2002 were $365.1
million, an increase of 3% compared to $356.0 million for the year ended
December 31, 2001. This increase is attributable primarily to the North American
segment which experienced continued strong growth. Net sales in the
International segment increased over the prior year as a result of the positive
impact of foreign currency fluctuations while sales in the U.S. Service Stores
segment decreased. Excluding the positive impact of foreign currency
consolidated net sales increased 1% over the prior year.
Despite a weak retail environment in 2002, net sales in North America for
the year ended December 31, 2002 increased 6% to $232.7 million compared to
$220.5 million for the year ended December 31, 2001. Shaver and grooming sales
continued to drive the growth while sales of haircare products also experienced
moderate growth. Both of these increases were primarily the result of new
product introductions occurring over the last two years and increased
distribution, primarily at existing customers. Sales of wellness products
decreased significantly as a result of the Company's decision to de-emphasize
this product line by eliminating fad products and continuing to offer only
certain more established products.
International net sales were $99.0 million for the year ended December 31,
2002, an increase of 2% compared to $96.8 million for the year ended December
31, 2001. Excluding the $6.2 million positive impact of foreign currency, sales
in the International segment actually decreased 4% from the prior year. Higher
sales of shaver, grooming and haircare products were offset by lower sales of
wellness products.
Net sales through the Company's U.S. Service Stores decreased 14% to $33.4
million for the year ended December 31, 2002 compared to $38.7 million for the
year ended December 31, 2001. The decrease was due to an average of eleven fewer
stores open during the year ended December 31, 2002 as well as a 6% decrease in
same store sales, defined as all stores operating for twelve months in 2002 and
in 2001. The number of stores has declined over the last several years as the
Company de-emphasizes this segment in favor of investing in its other
businesses.
Gross Profit. Gross profit was $155.1 million or 42.5% of net sales for the
year ended December 31, 2002 compared to $125.5 million or 35.3% of net sales
for the year ended December 31, 2001. The increase in gross profit was due
primarily to $19.4 million in charges incurred in the second and fourth quarters
of 2001, as referred to below. Also contributing to the improved gross profit in
2002 was the increase in sales and margin percentage of shaver, grooming and
haircare products.
Selling, General and Administrative Expenses. Selling, general and
administrative expenses decreased to $114.4 million or 31.4% of net sales for
the year ended December 31, 2002 compared with $121.7 million or 34.3% of net
sales for the year ended December 31, 2001. The decrease was due primarily to
$7.0 million in charges incurred in the second and fourth quarters of the prior
year, as referred to below. Also impacting selling general and administrative
expenses in 2002 were lower distribution expenses resulting from process
improvements in the area of logistics and a shift in product mix away from
heavier and bulkier wellness products. This decrease in distribution expense was
mostly offset by an increase in other administrative expenses, relating
principally to an increase in incentive bonus expense.
17
Operating Income. Operating income for the year 2002 increased to $40.2
million compared to $1.9 million in 2001. The increase in operating income is
attributable to the higher sales and margins and lower selling, general and
administrative expenses. Also impacting operating income was a decrease of $1.4
million in intangible amortization as a result of the discontinuance of goodwill
and tradename amortization in accordance with new accounting rules under SFAS
No. 142, Goodwill and Other Intangible Assets.
Net Interest Expense. Net interest expense decreased to $24.2 million for
the year ended December 31, 2002 compared to $26.3 million for the year ended
December 31, 2001. The decline was the result of lower average borrowings during
2002. Partially offsetting this decline were slightly higher average interest
rates during 2002 resulting from the sale of $50 million of additional senior
subordinated notes in April 2001.
Other Expense (Income). Other income was $1.0 million for the year ended
December 31, 2002 compared to other expense of $2.1 million for the year ended
December 31, 2001. The change from year to year is due principally to the impact
of fluctuations in foreign currency rates on U.S. dollar denominated obligations
of the Company's International segment and the resulting recognition of
unrealized currency gains and losses in 2002 and 2001, respectively.
Provision (Benefit) for Income Taxes. The net provision for income taxes
was $0.2 million for the year 2002 compared to a net benefit in 2001 of $3.1
million. The current year provision was the result of pretax earnings generated
within the Company's International segment, while the prior year's provision was
the result of pretax losses generated within the Company's International
segment.
Year Ended December 31, 2001 Compared to the Year Ended December 31, 2000
Overview. For the year ended December 31, 2001, the Company reported net
sales and operating income of $356.0 million and $1.9 million, respectively,
compared to $342.2 million and $38.3 million, respectively, in the prior year.
Higher sales versus year ago were attributable to the strength of the Company's
North American business, particularly its shaver and grooming line. Offsetting
higher operating income from the higher sales were the following factors: (1)
Fourth quarter charges of $9.9 million related primarily to obsolete products;
(2) $13.0 million in unexpected costs recognized in the second quarter of 2001
primarily related to the Company's U.K. subsidiary; (3) Higher customer returns
provisions, and higher distribution and other costs, and (4) Other one-time
fourth quarter charges of $3.5 million for customer credit and other costs.
Of the $9.9 million of costs recognized in the fourth quarter of 2001,
inventory charges and other related costs amounted to $7.7 million to recognize
the estimated market value of certain products primarily within the haircare and
wellness line that have become obsolete. Tooling and component write-offs for
discontinued products amounted to $1.1 million. Further, the Company incurred
$0.6 million of severance costs and $0.5 million of costs associated with
consolidating two adjacent office buildings in the U.K. into one.
Of the $13.0 million of unexpected second quarter costs, $11.0 million
related to the Company's business in the U.K. This $11.0 million was comprised
of $5.9 million associated with logistics operations, $2.7 million of inventory
write-downs, $1.5 million of higher trade promotion costs and $0.9 million of
other costs. Logistics costs in the U.K. business were impacted by unnecessary
complexities in that business, including the proliferation of stock keeping
units ("sku's") and the support required of the U.K. distribution facility for
the Company's operations in Continental Europe. In order to address this
situation, the Company in the third quarter of 2001 completed its transition to
new third party distribution centers in the U.K. and, to support the Company's
business in Continental Europe, Germany. The second quarter of 2001 was impacted
further by a $1.0 million charge to inventory to reflect product
discontinuations in North America. An additional $1.0 million of severance costs
was recognized by the Company in the second quarter in connection with the
initiative undertaken by it in the second quarter to simplify product offerings.
Of the $13.0 million of unexpected costs recorded in the second quarter, $10.6
million negatively impacted gross profit and the balance of $2.4 million
impacted selling, general and administrative costs.
18
Provisions for sales returns were higher, due primarily to disappointing
results from certain of the Company's promotional programs occasioned by the
impact of a general economic and retail slowdown during the critical holiday
period. Higher distribution costs were incurred primarily because of a shift in
product mix to heavier and bulkier haircare and wellness items and to continuing
transition costs of moving to new distribution centers in the U.S. the U.K. and
Germany. Other factors impacting gross margin were lower pricing with respect to
haircare and wellness products in order to meet competitive activity and the
weak holiday retail environment, and the impact on cost of sales of a stronger
dollar.
Net Sales. Net sales for the year ended December 31, 2001 increased 4% to
$356.0 million compared to $342.2 million for the year ended December 31, 2000.
The sales increase was driven by stronger sales in the Company's North American
segment predominately in its shaver and grooming category. This increase was
partially offset by decreased sales in the International and U.S. Service Stores
segments.
Net sales in North America increased 15% to $220.5 million for the year
ended December 31, 2001, compared to net sales in the prior year of $192.1
million. Shaver and grooming sales continued their strong growth as a result of
increased distribution at new and existing customers and new product
introductions during the last two years. The haircare and wellness category also
experienced sales growth in 2001 primarily as a result of the introduction of
new products. The sales increase in each of these product lines was in part
offset by higher provisions for sales returns and, in the case of haircare and
wellness products, by lower pricing, all of which resulted from a weaker than
expected holiday retail environment and competitive issues.
Net sales for the International business decreased 10% to $96.8 million in
2001 compared to $107.4 million in 2000. Most of this decline was due to the
negative impact of foreign currency. The balance of the decline was due
primarily to the combination of weaker sales in the U.K., due in part to
logistics difficulties and lower sales in Australia resulting from a weaker
economic environment and the sale of the Australian Service Stores in the third
quarter of 2000, partially offset by sales increases in continental Europe.
19
Net sales in the Company's U.S. Service Stores segment decreased 9% to
$38.7 million for the year ended December 31, 2001 compared to $42.7 million in
2000. A weaker retail environment, together with an average of five fewer stores
during 2001, were the primary factors for the decrease. As a result of this
weaker environment, same store sales, defined as all stores operating for twelve
months in 2001 and in 2000, decreased 5% from 2000 to 2001. The number of stores
has declined over the last couple of years as the leases on underperforming
stores have not been renewed and as the Company pursues a strategy of limiting
the opening of new stores in favor of investing in its other businesses.
Gross Profit. Gross profit was $125.5 million, or 35.3% of net sales for
the year ended December 31, 2001 compared to $145.7 million, or 42.6% of net
sales for the year ended December 31, 2000. The positive margin impact of
increased shaver and grooming sales in North America was more than offset by
fourth quarter charges of $8.8 million primarily associated with obsolete
haircare and wellness products and $10.6 million of the second quarter
unexpected costs referred to above. The gross margin was further impacted by
higher provisions for sales returns, as well as the lower pricing in the
haircare and wellness category resulting from a weaker holiday retail
environment and competitive issues. Also impacting gross profit was the negative
impact of foreign currency on product costs in the International segment.
Selling, General and Administrative Expenses. Selling, general and
administrative expenses increased to $121.7 million or 34.3% of net sales for
the year ended December 31, 2001, compared to $105.4 million or 30.8% of net
sales for the year ended December 31, 2000. Included in selling, general and
administrative expenses in 2001 are $4.6 million of fourth quarter charges
primarily associated with customer credit, office consolidation and other
charges, and $2.4 million of the unexpected costs recorded in the second
quarter. In addition, higher distribution costs related to heavier and bulkier
wellness products and the moving and consolidation of distribution centers in
the U.S. and Europe also impacted the increase over the prior year.
Operating Income. Operating income for the year ended December 31, 2001 was
$1.9 million, or 0.5% of net sales, compared to $38.3 million or 11.2% in 2000.
Despite an increase in net sales, the lower gross profit and higher selling,
general and administrative expenses, as discussed above, resulted in the
significant decline in operating income.
Net Interest Expense. Net interest expense increased to $26.3 million in
2001 compared to $24.4 million in 2000. The increase was the result of higher
average borrowings in 2001 versus 2000 and was partially offset by lower
interest rates and lower amortization of deferred financing costs.
Other Expense (Income). Other expense was $2.1 million in 2001 compared to
$0.8 million in 2000. The higher expense is due primarily to unrealized currency
losses incurred by the International segment.
20
Provision (Benefit) for Income Taxes. The net benefit for income taxes was
$3.1 million in 2001 compared to a net provision of $0.4 million in 2000. The
net benefit in 2001 relates primarily to pretax losses generated by the
Company's U.K. operations.
Liquidity and Capital Resources
For the year ended December 31, 2002, the Company generated $58.5 million
in cash from operating activities, compared to a usage in the prior year of $4.3
million. As a result of process improvements in the area of logistics and the
simplification of product offerings, inventory levels at the end of 2002 were
$26.1 million lower than at the end of 2001. This reduction, along with a
significant improvement in earnings and reduction in accounts receivable, were
the primary reasons for the improvement in cash flows from operations.
The Company's operations are not capital intensive. During 2002 and 2001,
the Company's capital expenditures, including tooling for new products, amounted
to $2.1 million and $4.3 million, respectively. The decline in 2002 was
primarily the result of a lower investment in tooling stemming from a reduction
in new product introductions and the de-emphasis of the wellness product line.
Capital expenditures for 2003 are anticipated to be approximately $4 million as
tooling for new products is expected to increase.
During 2002, the Company's total borrowings, excluding currency impacts,
decreased by $27.8 million. Cash increased by $28.3 million excluding currency
impacts, thereby reducing net borrowings by $56.1 million. This reduction in net
borrowings was the result of the significant improvement in cash flows from
operations.
The Company's primary sources of liquidity are cash and funds generated
from operations and borrowings under its $110.0 million asset based revolving
credit facility (the "Facility"). Borrowings under the Facility are subject to a
borrowing base of 85% of eligible receivables and 60% of eligible inventories
and mature on March 31, 2006. On November 22, 2002 the Facility was amended to
allow the Company, subject to certain restrictions, to repurchase up to a
maximum of $20 million of Senior Subordinated Notes during 2003 and up to $10
million per year thereafter, not to exceed $40 million in the aggregate during
the term of the Facility.
As of December 31, 2002 the Company was in compliance with all covenants
under the Facility and availability under the Facility was approximately $62
million in addition to the Company's cash of $32.8 million. The Company believes
that its cash balances together with cash generated from operations and
borrowing resources will be adequate to permit the Company to meet its working
capital requirements, debt service requirements and capital expenditure
requirements for the next twelve months, although no assurance can be given in
this regard.
21
The following table summarizes the Company's contractual obligations as of
December 31, 2002:
Payments due by period (in millions)
-------------------------------------------------------------
Less than 1 to 3 4 to 5 After 5
1 year years years years Total
---------- -------- -------- -------- -------
Short Term Borrowings $1.6 $ - $ - $ - $ 1.6
Senior Subordinated Notes - - 180.0 - 180.0
Revolving Credit Facility - - 5.0 - 5.0
Capital Leases 0.4 0.2 - - 0.6
Operating Leases 4.0 4.5 2.1 3.8 14.4
Purchase Obligations 37.9 2.0 0.4 - 40.3
Other Long-Term Obligations - - - 0.7 0.7
------ ---- ------ ---- ------
Total Contractual Obligations $43.9 $6.7 $187.5 $4.5 $242.6
===== ==== ====== ==== ======
In addition to the items listed in the table above, the Company had
outstanding letters of credit of $1.3 million as of December 31, 2002. The
Company does not engage in any activities involving special purpose entities or
off-balance sheet financing.
Critical Accounting Policies
The Company's accounting policies are more fully described in Note 1 to the
"Notes to the Consolidated Financial Statements" of the Company appearing
elsewhere herein. As disclosed in Note 1, the preparation of financial
statements in conformity with accounting principles generally accepted in the
United States of America requires management to make certain estimates and
assumptions that affect the amounts reported in the consolidated financial
statements and accompanying notes. Future events and their effects cannot be
determined with absolute certainty. Therefore, the determination of estimates
requires the exercise of judgment. Actual results inevitably will differ from
those estimates, and such differences may be material to the Consolidated
Financial Statements. The following accounting policies affect the Company's
more significant estimates used in the preparation of its consolidated financial
statements:
Revenue Recognition:
Revenue from product sales is recognized, net of estimated sales returns,
and other allowances when goods are shipped and title passes to the customer.
The Company recognizes an estimated allowance for sales returns when the
sale is recorded. The Company continuously monitors historical return rates from
customers. Using this information, the Company estimates the allowance for sales
returns and adjusts this estimate for any specific knowledge that would not be
reflected in the historical return rates.
22
The Company recognizes allowances for certain promotional incentives to
customers, primarily cooperative advertising, when the sale is recorded. The
majority of these promotional incentives are covered by contract with the
customer. Upon recognition of a sale, the Company estimates and records an
allowance for promotional incentives based upon the terms of the contract and
any other specific incentives offered to customers.
Allowance for Doubtful Accounts:
The Company maintains an allowance for doubtful accounts receivable for
estimated losses resulting from the inability of customers to make required
payments. The allowance is based upon specific knowledge of customers from whom
collection is determined to be doubtful and the Company's historical collection
experience with such customers.
Warranty Reserves:
The Company maintains a reserve for its liability under the warranty
provided on its products. The reserve is estimated based upon current sales
volumes and past experience of warranty claims by the end consumer. In addition
the Company considers other known factors including the current level of product
quality in relation to historical levels.
Inventory Reserves:
The Company's inventory is valued at the lower of cost or estimated market
value. The Company regularly reviews inventory quantities on hand for slow
moving or obsolete items based upon expected future demand. For such items, if
it is estimated that the market value is below the original cost, the Company
reduces the book value to the net amount expected to be realized upon sale. This
reduction in value is charged to cost of sales. If demand does not meet
management's expectations, additional inventory write-downs may be required.
Recent Accounting Pronouncements
As more fully described in Note 1 and Note 4 of Notes to Consolidated
Financial Statements, the Company is subject to new accounting standards. For a
discussion of the impact of those new accounting standards upon the Company, see
Note 1 and Note 4.
Seasonality
Sales of the Company's products are highly seasonal, with a large
percentage of net sales occurring during the Christmas selling season. The
Company typically derives on average approximately 45% of its annual net sales
in the fourth quarter of each year. As a result of this seasonality, the
Company's inventory and working capital needs fluctuate substantially during the
year. In addition, Christmas orders from retailers are often made late in the
year, making forecasting of production schedules and inventory purchases
difficult. Any adverse change in the Company's results of operations in the
fourth quarter would have a material adverse effect on the Company's financial
condition and results of operations for the year.
23
Inflation
In recent years, inflation has not had a material impact upon the results
of the Company's operations.
Item 7A. Quantitative and Qualitative Disclosures About Market Risk
The Company is exposed to market risks, which include changes in interest
rates as well as changes in foreign currency exchange rates as measured against
the U.S. dollar. The Company has an established foreign exchange risk management
policy and, in the normal course of business, uses derivative financial
instruments, primarily foreign currency forward contracts and options, to manage
its foreign currency risk. The Company uses these instruments only for risk
management purposes and does not use them for speculation or for trading.
The Company measures its interest rate risk and foreign currency risk, as
outlined below, utilizing a sensitivity analysis. The sensitivity analysis
measures the potential loss in fair values, cash flows, and earnings based on a
hypothetical 10% adverse change in interest rates and currency exchange rates.
The Company uses year-end market rates on its financial instruments to perform
the sensitivity analysis. Certain items such as lease contracts, insurance
contracts, and obligations for pension were not included in the analysis.
Interest Rate Risk. As of December 31, 2002 the Company's debt portfolio
was comprised of fixed rate debt consisting of $180.0 million of Senior
Subordinated Notes and $6.6 million of variable rate debt, primarily borrowings
under the Facility. For further details, refer to Note 6, of the "Notes to the
Consolidated Financial Statements" of the Company appearing elsewhere herein.
The Company's primary interest rate exposures relate to its fixed and
variable rate debt, and any cash holdings. For the purposes of the sensitivity
analysis, the potential loss in fair values is based on an immediate change in
the net present values of the Company's interest rate sensitive exposures
resulting from an immediate 10% adverse change in interest rates. The potential
loss in cash flows and earnings is based on the change in the net interest
expense over a one year period due to an immediate 10% adverse change in rates.
A hypothetical 10% adverse change in interest rates does not have a material
impact on the fair values, cash flows or earnings of the Company for either 2002
or 2001.
Foreign Currency Risk. Foreign currency risk is managed by the use of
foreign currency forward contracts and options. The Company's principal currency
exposures are in British pounds, euros and Australian and Canadian dollars.
The Company's primary currency rate exposures relate to its intercompany
debt, cash and foreign currency forward contracts and options. For the purposes
of this sensitivity analysis, the potential loss in fair values is based on an
immediate change in the U.S. dollar equivalent balances of the Company's
currency exposures due to a 10% adverse shift in currency exchange rates. The
potential loss in cash flows and earnings is based on the change in cash flow
and earnings over a one-year period resulting from an immediate 10% adverse
change in currency exchange rates. A hypothetical 10% adverse change in the
currency exchange rates does not have a material impact on the fair values, cash
flows or earnings of the Company for either 2002 or 2001.
24
ITEM 8. Financial Statements and Supplementary Data
The Company's financial statements and supplementary data are included
elsewhere herein as outlined on page F-1.
ITEM 9. Changes in and Disagreements With Accountants on Accounting and
Financial Disclosure
None
PART III
ITEM 10. Directors and Executive Officers of the Registrant.
The following table sets forth certain information as of March 1, 2003 with
respect to each executive officer of the Company and individuals who are
directors on the Remington Management Committee.
Name Age Positions and Offices
- ---- --- ---------------------
Neil P. DeFeo 56 Chairman, Chief Executive Officer, President and Director
Joel K. Bedol 51 Vice President, General Counsel and Secretary
Alexander R. Castaldi 52 Executive Vice President, Chief Financial and Administrative Officer
Lester C. Lee 43 President, Remington North America
Timothy G. Simmone 37 Senior Vice President, Chief Technical Officer
Norman W. Alpert 44 Director
Vernon A. Brunner 62 Director
William B. Connell 62 Director
Stephen P. Donovan, Jr. 62 Director
Victor K. Kiam, III 43 Director
Kevin A. Mundt 49 Director
Arthur J. Nagle 64 Director
Daniel S. O'Connell 48 Director
Robert L. Rosner 43 Director
Steven M. Silver 34 Director
25
Neil P. DeFeo has been Chairman of Remington since September 2001 and has
been Chief Executive Officer, President and a Director of the Company since
January 1997. From 1993 to 1996, Mr. DeFeo was Group Vice President, U.S.
Operations of The Clorox Company. For 25 years prior to 1993, Mr. DeFeo worked
for Procter & Gamble in various executive positions, including Vice President
and Managing Director, Worldwide Strategic Planning, Laundry and Cleaning
Products. Mr. DeFeo is a director of Cluett American Investment Corporation, a
Company in which Vestar or its affiliates has a significant equity interest,
Driscoll's Strawberry Association, Inc. and Manhattan College.
Joel K. Bedol has been Vice President, General Counsel and Secretary of
Remington since January 2000. From 1992 to 1999, Mr. Bedol was Executive Vice
President, General Counsel and Secretary of Nine West Group Inc.
Alexander R. Castaldi has been Executive Vice President, Chief Financial
and Administrative Officer of the Company since January 2000. Mr. Castaldi held
the title Executive Vice President and Chief Financial Officer of Remington
since November 1996. From 1995 to 1996, Mr. Castaldi was Vice President and
Chief Financial Officer of Uniroyal Chemical and from 1990 to 1995, he held the
position of Senior Vice President and Chief Financial Officer of Kendall
International, Inc.
Lester C. Lee was appointed to President, Remington North America in
January 2002. Previously, Mr. Lee held the position of President, U.S. Shaver &
Grooming Division since January 2000 and was Senior Vice President Sales and
Integrated Logistics of the Company since July 1997. From 1995 until 1997, Mr.
Lee was employed by Pacific Bell Mobile Services, a Division of Pacific Telesis,
most recently as Vice President of Sales, and from 1989 until 1995, he was
employed by Norelco Consumer Products Company in various sales positions,
including Director of Sales, Western Division.
Timothy G. Simmone has been Senior Vice President, Chief Technical Officer,
since February 14, 2001. Prior to this time he held the position of Vice
President, Chief Technical Officer of the Company to which he was appointed in
June 1997. From 1988 until 1997, he was employed by The Stanley Works
Corporation in various engineering positions, most recently as Vice President,
Product Development of the Stanley Fastening Systems Division.
Norman W. Alpert has been a Director of Remington since May 1996. Mr.
Alpert is a Managing Director of Vestar Capital and was a founding partner at
its inception in 1988. Mr. Alpert is a director of Aearo Corporation, Cluett
American Investment Corporation, Siegelgale Holdings, Inc., and MCG Capital
Corp., all companies in which Vestar or its affiliates have a significant equity
interest.
Vernon A. Brunner has been a director of Remington since September 2001.
Mr. Brunner is currently the President of Brunner Marketing Solutions. Mr.
Brunner was employed with Walgreens for over 35 years where he held a wide range
of positions, most recently, Executive Vice President, Marketing from 1990 to
2001 and Director from 1999 to 2001. In addition to Remington, Mr. Brunner is
also a director of First Midwest Bancorp, Inc., and Natrol, Inc.
26
William B. Connell has been a Director of Remington since 1996 and served
as a director of Remington Products Company from 1990 to 1996. Mr. Connell is
currently Chairman of EDB Holdings, Inc., a private venture capital group. Mr.
Connell previously served as Vice Chairman of Whittle Communications, L.P. from
1992 to 1994 and served as its President and Chief Operating Officer from 1990
to 1992. In addition to Remington, Mr. Connell is currently a director of
Dolphin Software, Inc., Information Resources, Inc. and Aurora Foods, Inc.
Stephen P. Donovan, Jr. has been a director of Remington since February
2001. Mr. Donovan was employed with the Procter and Gamble Company, for more
than 30 years holding a wide range of executive positions, most recently
President, Global Beverage and North America Food & Beverage.
Victor K. Kiam, III has been a Director of Remington since May 1996 and
served as a director of Remington Products Company from 1992 to 1996. Mr. Kiam
has been President of RPI Corp. since 1999 and previously served as Executive
Vice President of RPI Corp. since 1996. He was employed by Remington Products
Company from 1986 until 1996 in a variety of positions in manufacturing, sales
and marketing, including Vice President Corporate Development In addition to
Remington, Mr. Kiam is currently Chairman of PIC Design and Cirrus Healthcare
Products.
Kevin A. Mundt has been a Director of Remington since 1997. Mr. Mundt has
been Vice President, Group Business Head of Mercer Management Consulting since
1997 and was co-founder and Managing Director of Corporate Decisions, Inc. since
its inception in 1983 until its merger with Mercer Management Consulting in
1997. Mr. Mundt is a director of Telephone and Data Systems, Inc. and Michael
Foods, Inc.
Arthur J. Nagle has been a Director of Remington since May 1996. Mr. Nagle
is a Managing Director of Vestar Capital and was a founding partner at its
inception in 1988. Mr. Nagle is a director of Advanced Organics Holdings, Inc.,
Aearo Corporation, Gleason Corporation and Sheridan Healthcare, Inc., companies
in which Vestar or its affiliates have a significant equity interest.
Daniel S. O'Connell has been a Director of Remington since May 1996. Mr.
O'Connell is founder and the Chief Executive Officer of Vestar Capital. Mr.
O'Connell is a director of Aearo Corporation, Cluett American Investment
Corporation, Insight Communications Company, Inc., Sunrise Medical, Inc., St.
John Knits, Inc. and Bird's Eye Foods Corporation, companies in which Vestar or
its affiliates have a significant equity interest.
Robert L. Rosner has been a Director of Remington since May 1996. Mr.
Rosner is a Managing Director of Vestar Capital and was a founding partner at
its inception in 1988. Mr. Rosner is also a director of SAB WABCO, AB and ZML
Industries S.p.A. Mr. Rosner presently also serves as Managing Director of
Vestar Capital Partners Europe.
Steven M. Silver has been a Director of Remington since February 2001. Mr.
Silver is a Managing Director of Vestar Capital and has been employed in various
positions at Vestar Capital since 1995. Mr. Silver serves as a director of
Cluett American Investment Corporation, Red Prairie Corporation, Inc. and
Sunrise Medical, Inc., companies in which Vestar or its affiliates have a
significant equity interest.
27
ITEM 11. Executive Compensation
Compensation of Executive Officers
The following Summary Compensation Table includes individual compensation
information during each of the last three years for the Company's Chief
Executive Officer and each of the next four most highly compensated executive
officers of the Company who were serving as executive officers of the Company at
the end of 2002 (collectively, the "Named Executive Officers") for services
rendered in all capacities to the Company. The Named Executive Officers'
respective titles are those in effect as of December 31, 2002.
Annual Compensation(1) All Other
Name and Principal Position Year Salary ($)(2) Bonus ($)(3) Compensation ($)(4)
- --------------------------- ---- ------------- ------------ --------------------
Neil P. DeFeo, CEO, President, and 2002 $600,000 $1,207,600 $6,000
Director 2001 600,000 - 5,100
2000 596,828 953,800 5,250
Alexander R. Castaldi, Executive V.P. 2002 354,038 546,088 5,790
and Chief Financial and 2001 347,307 - 3,583
Administrative Officer 2000 324,231 351,488 4,601
Lester C. Lee, President, U.S. Shaver and 2002 324,616 470,800 5,500
Grooming Division 2001 276,769 67,340 5,100
2000 250,404 222,450 4,811
Joel K. Bedol, Vice President, 2002 245,366 267,940 -
General Counsel and Secretary 2001 240,169 - -
2000 214,615 186,300 15,000(5)
Timothy G. Simmone, Senior V.P., 2002 213,365 215,072 4,733
Chief Technical Officer 2001 206,308 - 4,502
2000 194,651 146,724 4,574
- -----------------------
(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 after the end of the
year and include amounts deferred pursuant to the Company's Deferred
Compensation Plan.
(4) The amounts shown consist of Company matching contributions to the
Company's 401(k) Plan unless otherwise noted.
(5) Amount represents sign-on bonus.
28
Compensation of Directors
Messrs. Vernon A. Brunner, William B. Connell, Stephen P. Donovan, Jr., and
Kevin A. Mundt, members of the Management Committee of the Company, each receive
annual compensation of $20,000 payable quarterly for services in such capacity.
Messrs. Brunner, Connell, Donovan and Mundt, each of whom also serve on the
Company's Audit Committee, receive an additional $1,000 for each Management
Committee and Audit Committee meeting attended. No other Director of the Company
receives any compensation for services in such capacity. Each of the Directors
of Remington are reimbursed for out-of-pocket expenses incurred in connection
with their attendance at meetings. Messrs. Brunner, Connell, Donovan and Mundt
have also received awards pursuant to the Company's "Phantom Equity Plan", as
described below under the heading "Phantom Equity Program".
Compensation Committee Interlocks and Insider Participation
The compensation committee of the Management Committee of Remington is
comprised of Messrs. Norman W. Alpert, Victor K. Kiam, III and Arthur J. Nagle.
Other Arrangements
The Company has an employment agreement with Mr. DeFeo which, as amended,
provides for his continued employment as President and Chief Executive Officer
through January 2004, which will automatically renew for a period of two years,
unless earlier terminated. The agreement provides for a base salary of not less
than $600,000, and an annual bonus not less than 95% of base salary in the event
the Company achieves 100% of the criteria established by the Management
Committee for such year. The agreement provides for Mr. DeFeo to receive 24
months of salary continuation plus the annual bonuses he would have been
entitled to if his employment is involuntarily terminated other than for "cause
" or if he resigns for "good reason" (which includes a "change of control" of
the Company), or 18 months of salary continuation plus 150% of his annual bonus
in the event the agreement is not renewed by the Company or he resigns for "good
reason" (by reason of a "change of control"). Change of control is defined in
this agreement as when Vestar's beneficial ownership falls below 50% of the
common equity interests in the Company, and Vestar no longer has the legal right
to control management of the Company, provided that such change of control is
not in connection with or after an initial public offering of the Company's
stock. The Company is also required to provide Mr. DeFeo with term life
insurance in the amount of not less than the sum of two times base salary plus
$500,000.
The Company has entered into an Executive Severance Agreement with Mr.
Castaldi, which provides for the payment of severance benefits to Mr. Castaldi
in the event of: (i) the termination of his employment by the Company without
cause (or by reason of disability); (ii) Mr. Castaldi's resignation for Good
Reason; (iii) any reduction in Mr. Castaldi's base salary; or (iv) any failure
by the Company to provide Mr. Castaldi with benefits in which he participated at
the inception of the agreement. For purposes of the agreement, "good reason" is
defined as the assignment to Mr. Castaldi of duties materially and adversely
inconsistent with those in effect at the inception of the agreement or the
occurrence of a "Change of Control" of the Company (defined as the acquisition
by non-affiliated persons of greater than 60% of the Common Units of the Company
or the common stock of a corporation controlling, or serving as successor to,
the Company). In any such event, and subject to the Change of Control Agreement
described below, Mr. Castaldi is entitled to receive his base salary for a
period of 12 months (the "Severance Term") following the termination of his
employment, either by the Company or Mr. Castaldi, continuing medical benefits
during the Severance Term and, to the extent permissible under the terms of
applicable plans, continuing life insurance and long-term disability benefits.
All medical and insurance benefits will cease in the event that Mr. Castaldi
becomes employed on a full-time basis prior to the expiration of the Severance
Term. Mr. Castaldi is also entitled to receive bonus payments in certain
circumstances in connection with the termination of his employment and in the
event of a termination of employment following a Change of Control.
29
The Company has entered into an agreement with each of Messrs. Lee, Bedol
and Simmone whereby each would be entitled to salary continuation for 6 months
if his employment was involuntarily terminated other than for "cause" during the
term of the applicable agreement, subject to the Change of Control Agreement
described below.
The Company has entered into Change of Control Agreements with Messrs.
Castaldi, Lee, Bedol and Simmone pursuant to which they will be entitled to
payments under certain circumstances in the event of the termination of their
employment following a change of control of the Company (generally, a reduction
of Vestar's ownership which renders it unable to elect a majority of the board
of directors and significant changes in the composition of the board of
directors of the Company). The agreements continue in effect until December 31,
2003, and are thereafter extendable for additional one-year periods, subject to
termination by the Management Committee of the Company in the event the Company
does not achieve annual earnings before interest, taxes, depreciation and
amortization of at least $50 million. In the event of a "change of control" of
the Company and subsequent termination of the employment of the executive within
a period of twelve months following the change of control either by the
executive for "good reason" or by the Company "without cause", the executive
shall be entitled to an amount calculated as two years of salary and one year of
bonus (based on the Company's existing bonus plan for the year in which the
termination occurs), together with a continuation of benefits for a two-year
period. The executive will be subject to a non-competition restriction during
the two-year period following the termination of employment. The Change of
Control Agreements supercede other severance programs, if any, that the
executive may have with respect to termination of employment following a change
of control.
Bonus Plan
The Company has an annual bonus plan (the "Bonus Plan") which is designed
to motivate each employee participant. Approximately 300 employees in the United
States and 200 employees in the international operations will participate in the
Bonus Plan in the year 2003. Under the Bonus Plan, each participating employee
is assigned a target bonus award, representing a percentage of the employee's
annual base salary that will be paid if predetermined performance goals are
achieved. The target bonus awards represent up to 95% of annual base salary if
the base performance goal is achieved, with additional amounts being payable to
the extent such base performance goal is exceeded. Performance goals for the
various divisions of the Company are established annually by the Compensation
Committee of the Company.
30
Deferred Compensation Plan
The Company has a Deferred Compensation Plan pursuant to which eligible
executive employees (including the Named Executive Officers) may elect to defer
all or a portion of the bonus otherwise payable under the Company's Bonus Plan
and up to 50% of their annual salary, and such amounts are placed into a
deferral account. For each employee who elects to participate in the Deferred
Compensation Plan and makes a contribution thereto, the Company makes a matching
contribution of 25% of an employee's contribution, up to a maximum contribution
by the employee of $300,000, subject to the achievement by the Company of its
performance goals for the fiscal year with respect to which the contribution was
made. The participants may select various mutual funds in which all or a part of
their deferral accounts shall be deemed to be invested. Distributions from a
participant's deferral accounts will be paid in a lump sum or in equal annual
installments over a period of up to 15 years beginning upon their termination of
employment, death or retirement. All amounts deferred by the participants
pursuant to the Deferred Compensation Plan are paid to a Trust to be held in
order to fund the Company's obligations under the Deferred Compensation Plan.
The assets of the Trust, however, are subject to the claims of the creditors of
the Company in certain circumstances.
Phantom Equity Program
The Company has a Phantom Equity Program under which a maximum of
approximately 20.2% of the value of the Company's Equity can be awarded to
selected officers and other key employees of the Company and its affiliates. The
Phantom Equity Program is comprised of time based, performance based and super
performance based awards. All awards grant to the recipient a specified
percentage of the Equity (the "applicable percentage").
A time based award vests in five equal annual installments, upon the sale
of the Company or upon an initial public offering of the Company's stock
("IPO"), whichever comes first. If the individual's employment with the Company
is terminated for any reason other than death or disability within three years
of the date of grant of the award, the entire award is automatically terminated.
The amount received under the award and how it is paid is based upon the event
which gave rise to the payment. If the payment is due to a Company sale, the
individual will receive the applicable percentage of the net amount available
for distribution to the outstanding Equity. This amount will be payable, at the
Company's option, in a lump sum upon the closing of the sale or in the same
manner as the selling members. If the payment is due to an IPO, the payment is
an amount equal to the applicable percentage of the Equity implied in the public
offering payable, at the option of the Company, either entirely in cash or 40%
in cash and the remainder in Company stock. If the payment is due to termination
of employment, the participant will receive the applicable percentage of the
fair market value of the Equity, determined by the Management Committee of the
Company, payable at the Company's option, in cash, in up to five equal annual
installments or upon an IPO or Company sale.
The performance and super performance based awards are similar to the time
based awards except that performance based award vests in stages as the Company
achieves specified performance targets while the super performance based award
vests entirely upon the achievement of a single target. Payment of the awards
does not occur until and is dependent upon the achievement of both a performance
criteria and an event criteria. The event criterion is either a Company sale or
Vestar's ownership falling below 10% of the Common Units. The Company has
achieved the specified performance targets required for full vesting of the
outstanding performance based awards. Any super performance based award which is
not fully vested by December 31, 2004 will be automatically terminated.
31
The Phantom Equity Program and all awards granted thereunder are subject to
readjustment in the event of a reorganization of the Company required in
connection with a refinancing, and the applicable percentages of such awards are
subject to readjustment to take into consideration new issuances of Common Units
or Preferred Equity.
During 2002, Mr. Lee was granted time based awards and super performance
based awards representing 0.1% and 0.09% of the Company's equity, respectively.
No other additional phantom awards were issued to Named Executive Officers
during 2002.
The following table contains information with respect to outstanding
phantom awards for each of the Named Executive Officers as of December 31, 2002:
Amount of Equity Value of
Name Underlying Awards (1) Unexercised Awards (2)
- ---- --------------------- ----------------------
Neil P. DeFeo 5.00 (3) N/A
2.00 (4) N/A
Alexander R. Castaldi 1.30 (3) N/A
0.50 (4) N/A
0.22 (5) N/A
Lester C. Lee 1.00 (3) N/A
0.35 (4) N/A
0.25 (5) N/A
Joel K. Bedol 0.24 (3) N/A
0.24 (4) N/A
0.12 (5) N/A
Timothy G. Simmone 0.60 (3) N/A
0.30 (4) N/A
0.13 (5) N/A
- ------------------------------------
(1) Indicates the applicable percentage of the Company's Equity underlying the
awards.
(2) The Company's Equity is not registered under the Securities Act of 1933 and
is therefore not publicly traded. Accordingly, there is no market price for
the Company's Equity. Payments to holders of phantom equity awards are
dependent upon the realized value of the Equity upon a sale of the Company
or an IPO. See above for a complete description of the Phantom Equity
Program and the determination of payouts.
(3) Time based awards, which expire on December 31, 2009 of which approximately
93% of the total 8.14 outstanding time based awards presented above have
vested as of March 1, 2003.
(4) Performance based awards which are fully vested.
(5) Super performance based awards which are not vested and expire on December
31, 2004.
32
Messrs. Brunner, Connell, Donovan and Mundt have each been granted awards
equal to 0.1% of the value of the Company's equity. Each such agreement provides
for a time based award that vests in three equal annual installments and is
otherwise on substantially the same terms as time based awards made to employees
of the Company generally.
401(k) Plan
The Company maintains a savings plan (the "Savings Plan") qualified under
Sections 401 (a) and 401(k) of the U.S. Internal Revenue Code. Generally, all
employees of the Company in the United States who have completed at least three
months of service with the Company are eligible to participate in the Savings
Plan. For each employee who elects to participate in the Savings Plan and makes
a contribution thereto, the Company makes a matching contribution of 50% of the
first 6% of annual compensation contributed. Effective early 2003 the Company
amended its matching contribution to 60% of the first 6% of annual compensation
contributed.
ITEM 12. Security Ownership of Certain Beneficial Owners and Management and
Related Stockholder Matters
Set forth below is certain information regarding the ownership of the
Preferred Equity and Common Units of Remington by each person known by Remington
to beneficially own 5.0% or more of the outstanding interests of either the
Preferred Equity or Common Units, each Director and Named Executive Officer and
all Directors and executive officers as a group as of March 1, 2003.
Preferred Equity Common Units
----------------- ------------
Name Capital(1) % Number %
----------- ------------- --- -------- ---
Vestar Equity Partners, L.P. (2)(3)............................$30,000,000 48.4% 34,400 50%
245 Park Avenue, 41st Floor
New York, New York 10167
RPI Corp. (3).................................................. 32,000,000 51.6% 34,400 50%
555 Madison Avenue, 23rd Floor
New York, New York 10022
Ellen Kiam (3)(4).............................................32,000,000 51.6% 34,400 50%
Norman W. Alpert (5)............................................30,000,000 48.4% 34,400 50%
Arthur J. Nagle (5).............................................30,000,000 48.4% 34,400 50%
Daniel S. O'Connell (5).........................................30,000,000 48.4% 34,400 50%
Robert L. Rosner (5)........................................... 30,000,000 48.4% 34,400 50%
Steven M. Silver (5)............................................30,000,000 48.4% 34,400 50%
Directors and executive officers as a group
(6 persons)..................................................$62,000,000 100.0% 68,800 100%
-----------------------
(1) Amounts, in dollars, represent the capital contribution to the Preferred
Equity beneficially owned by each person and entity set forth below. The
Preferred Equity has not been denominated in units or shares.
33
(2) Vestar Equity Partners' interest in the Company is owned by Vestar Razor
Corp. and Vestar Shaver Corp., which are controlled by Vestar Equity
Partners. Vestar Razor Corp. and Vestar Shaver Corp. have assigned a
portion of their interests in the Company to certain co-investors, although
such co-investors will not directly hold any Common Units. Mr. Connell
Holds an economic interest in one such co-investor. The general partner of
Vestar Equity Partners is Vestar Associates L.P., a limited partnership
whose general partner is Vestar Associates Corporation ("VAC"). In such
capacity, VAC exercises sole voting and investment power with respect to
all of the equity interests held of record by the Vestar Razor Corp. and
Vestar Shaver Corp. Messrs. Alpert, Nagle, O'Connell, Rosner and Silver,
who are Directors of Remington, are affiliated with Vestar Equity Partners
in the capacities described under Item 10, Directors and Executive
Officers, and are stockholders of VAC. Individually, no stockholder,
director or officer of VAC has or shares such voting or investment power
within the meaning of Rule 13d-3 under the Exchange Act. Accordingly, no
part of the Preferred Equity or Common Units is beneficially owned by
Messrs. Alpert, Nagle, O'Connell, Rosner or Silver or any other
stockholder, director or officer of VAC. Further, no part of any of such
Preferred Equity or Common Units is beneficially owned by any co-investor,
including Mr. Connell.
(3) Vestar Razor Corp. and Vestar Shaver Corp. and RPI have entered into the
LLC Agreement which gives Vestar Equity Partners effective control over the
management of the Company.
(4) Ellen Kiam serves as the personal representative of the estate of Victor K.
Kiam, II. Mr. Kiam's estate's interest in Remington is owned by RPI. The
shareholders of RPI are Mr. Kiam's estate, his children, grandchildren and
trusts for their benefit. The address of Ms. Kiam is 230 Barton Avenue,
Palm Beach, FL 33480.
(5) Messrs. Alpert, Nagle, O'Connell, Rosner and Silver are affiliated with
Vestar in the capacities described in Item 10, Directors and Executive
Officers. Amounts reported for these individuals consist of the $30,000,000
of Preferred Equity and 34,440 Common Units beneficially owned by Vestar
Equity Partners through Vestar Razor Corp. and Vestar Shaver Corp., of
which such persons disclaim beneficial ownership of this equity. Each such
person's business address is c/o Vestar Equity Partners, L.P., 245 Park
Avenue, 41st Floor, New York, New York 10167.
ITEM 13. Certain Relationships and Related Transactions
Pursuant to a management agreement (the "Management Agreement") entered
into in connection with the reorganization of the Company in 1996, Vestar
Capital Partners receive an annual advisory fee equal to the greater of $500,000
or 1.5% of EBITDA (as defined in such agreement) of the Company on a
consolidated basis for rendering advisory and consulting services in relation to
strategic financial planning and other affairs of the Company. Vestar Capital
will also be paid reasonable and customary investment banking fees in connection
with an initial public offering, sale of the Company and other financings. The
Management Agreement will be in effect until May 23, 2006, provided that the
Management Agreement will terminate on the earlier to occur of: (i) a qualified
public offering or (ii) the first date that Vestar Razor Corp. and Vestar Shaver
Corp. own less than 25% of the number of the Company's Common Units owned by
Vestar Equity Partners on May 23, 1996.
Pursuant to a consulting and transitional services agreement (the
"Consulting Agreement") entered into in connection with the reorganization of
the Company in 1996, RPI receives an annual fee equal to the greater of $500,000
or 1.5% of EBITDA (as defined in such agreement) of the Company on a
consolidated basis for rendering advisory and consulting services in relation to
strategic financial planning, product development and evaluation of mergers,
acquisitions and divestitures. The Consulting Agreement will be in effect until
May 23, 2006, provided that the Consulting Agreement will terminate on the
earlier to occur of: (i) a qualified public offering or (ii) the first date that
RPI owns less than 25% of the number of the Company's Common Units owned by RPI
on May 23, 1996, and provided further that Vestar Capital Partners may terminate
the Consulting Agreement at any time (but only to the extent that Vestar Capital
Partners also terminate similar provisions of the Management Agreement).
34
Pursuant to a Non-Competition Agreement (the "Non-Competition Agreement")
dated May 23, 1996, between the Company and Vestar Razor Corp. and Vestar Shaver
Corp., Victor K. Kiam, III may not compete with, solicit any customers of, own,
manage or operate any business in competition with or perform any action
substantially detrimental to the Company's businesses. The provisions of the
Non-Competition Agreement will apply during the period Mr. Kiam has a
"Significant Interest" in the Company and thereafter for: (i) five years, with
respect to electric shavers, shaver accessories and grooming products, and (ii)
three years, with respect to personal care appliances, home health appliances,
travel appliances, environmental products, dental products and small kitchen
appliances. "Significant Interest" is defined as serving as a consultant to the
Company pursuant to the Consulting Agreement, serving as a member of the
Management Committee of the Company, or beneficial ownership of more than 10% of
the outstanding Equity of the Company. The Non-Competition Agreement allows Mr.
Kiam to continue to market certain competing travel appliance products developed
by an affiliate of Mr. Kiam.
Pursuant to a reimbursement and indemnification agreement (the
"Indemnification Agreement") between the Company, Vestar and Victor K. Kiam, II
entered into in June 1999 in connection with the guarantee of the unsecured
supplemental loans to the Company under the former senior credit agreement,
Vestar and Mr. Kiam each received an annual guarantee fee of $100,000 from the
Company. This Agreement was terminated in April 2001, when the unsecured
supplemental loans under the guarantee were paid in full.
ITEM 14. Controls and Procedures
Within 90 days prior to the filing date of the annual report, the Chief
Executive Officer (CEO) and Chief Financial Officer (CFO) performed an
evaluation of the effectiveness of the design and operation of the Company's
disclosure controls and procedures. Based on that evaluation, the CEO and CFO
concluded that the Company's disclosure controls and procedure were effective.
There have been no significant changes in the Company's internal controls
or in other factors that could significantly affect internal controls subsequent
to the date of their evaluation.
PART IV
ITEM 15. Exhibits, Financial Statement Schedules, and Reports on Form 8-K
(a) 1. Financial Statements
2. Financial Statement Schedule
3. Exhibits
35
3.1 Amended and Restated Limited Liability Company Agreement dated as of May
16, 1996, by and among Vestar Shaver Corp. (formerly Vestar/Remington
Corp.) ("Vestar Corp. I"), Vestar Razor Corp. ("Vestar Corp. II" and,
together with Vestar Corp. I, the "Vestar Members"), RPI Corp. (formerly
known as Remington Products, Inc.) ("RPI"), and certain members of senior
management of the Company. Incorporated herein by reference to Exhibit 3.1
in Registration Statement on Form S-4 (File Number 333-07429).
3.2 Certificate of Formation of Remington Products Company, L.L.C.
("Remington"). Incorporated by reference to Exhibit 3.2 in Registration
Statement on Form S-4 (File Number 333-07429).
4.1 Indenture dated as of May 23, 1996 between Remington, Remington Capital
Corp. ("Capital") and The Bank of New York, as trustee. Incorporated by
reference to Exhibit 4.1 in Registration Statement on Form S-4 (File Number
333-07429).
4.2 Form of 11% Series B Senior Subordinated Notes. Incorporated by reference
to Exhibit 4.2 in Registration Statement on Form S-4 (File Number
333-07429).
4.3 Purchase Agreement dated May 16, 1996 between Remington, Capital and Bear
Stearns & Co. Inc. Incorporated by reference to Exhibit 4.3 in Registration
Statement on Form S-4 (File Number 3