ITEM 1. Business
General
Remington Products Company, L.L.C. (the "Company" or "Remington") is a major manufacturer and marketer of men's and women's electrical personal care appliances. The Company distributes on a worldwide basis men's and women's electric shavers and accessories, women's personal care appliances, including hairsetters, curling irons and hair dryers, men's electric grooming products, travel products and other small electric consumer appliances.
The Company is a Delaware limited liability company that will continue in existence until December 31, 2016 or dissolution prior thereto as determined under the Company's LLC Agreement.
Description of Business
Products
Electric Shavers. The Company's primary men's electric shaver line is the MicroScreen(R) line of single, dual and triple foil shavers, each with the MicroScreen(R) cutting system. In addition, the Company also has a line of men's Dual Track(TM), rotary shavers and certain specialty shavers such as the "sport shaver". The Company has recently introduced its new Intercept(TM) line of premium shavers, with the intercept shaving system that sandwiches a trimmer-style cutter between two foil heads. The women's electric shaver lines primarily include the women's wet/dry Dual Foil shaver, the women's wet/dry battery operated shaver and the wet/dry Swirl(TM) rotary shavers. The Company also manufactures and distributes electric shaver accessories consisting of shaver replacement parts (primarily foils and cutters), preshave products and cleaning agents. Electric shavers and shaver accessories accounted for approximately 42%, 44% and 44% of the Company's total net sales for the years ended December 31, 1997, 1996 and 1995 respectively.
Women's Personal Care Appliances. Women's personal care appliances consist primarily of hairsetters, hair dryers, curling irons, hot air brushes and make-up mirrors. The Company's hairsetter products include flocked rollers (both dry and mist), and Remington Express Set(R) hairsetter, which heats in 90 seconds, the Smart Setter(R) hairsetter, which incorporates a proprietary technology that indicates to users when optimum heat levels have been reached by changing the color of the rollers, and the Style Setter(R) hairsetter. Women's personal care appliances accounted for approximately 25%, 28% and 30% of the Company's total net sales for the years ended December 31, 1997, 1996 and 1995, respectively.
Men's Grooming Products. Men's grooming products consist of beard and mustache trimmers, nose hair and ear hair trimmers and home haircut kits.
Other Products. Remington's travel appliances consist of products that provide personal grooming and other general household functions for domestic and international travel. These items include travel hair dryers, steamers, irons, voltage converter/adapter plugs and shavers. In the home health appliance
product category, Remington sells foot spas and back massagers currently outside the United States, as well as other small appliances such as vacuums.
Distribution
The Company's products are sold in the United States and internationally in over 85 countries through mass merchandisers, catalog showrooms, drug store chains and department stores in addition to the Company's 112 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, catalog showrooms such as Service Merchandise, drug store chains including Walgreens, Eckerd and Revco, and Remington's own service stores. Throughout the United States, the Company's products are sold in excess of 10,000 retail outlets.
On a worldwide basis, Wal-Mart accounted for 15%, 16% and 16% of the Company's net sales during the years ended December 31, 1997, 1996 and 1995. No other customer accounted for more than 10% of the Company's net sales during the years ended December 31, 1997, 1996, and 1995.
Service Stores
As of December 31, 1997, the Company owned and operated a chain of 112 service stores with 93 in the United States, ten in the United Kingdom and nine in Australia. During 1997, the Company opened a net of ten service stores in the United States, one store in the United Kingdom and six stores in Australia. The stores in the United States are in many of the major markets with concentrations on the East Coast and in the major cities of the South and West. The majority of the stores are located in shopping malls and outlet malls within large metropolitan areas. The stores sell and service a variety of Remington and non-Remington shavers and accessories, personal care appliances, knives, scissors, travel appliances and other related products. The service stores also oversee sales of replacement parts to approximately 300 independent authorized shaver service dealers across the United States. In 1997, the Company's service stores generated worldwide net sales of $46.5 million, with $38.6 million in the U.S. and $7.9 million internationally. Sales of Remington products accounted for approximately 40% of the service stores net sales.
Manufacturing Operations
Remington conducts all in-house manufacturing at its Bridgeport, Connecticut facility. The Company assembles foil shavers and manufactures foil cutting systems in Bridgeport using proprietary cutting technology and a series of specially designed machines. The electric shaver business is highly seasonal, with significant production swings during the course of the year. As a result of such swings, Remington's manufacturing process has been structured to utilize seasonal workers. As a result of these factors, during peak periods approximately 30% of Remington's work force (excluding that of the service stores) is composed of seasonal workers.
Suppliers
The majority of the Company's finished goods inventories are manufactured for the Company by third party suppliers primarily located in China, Japan and Thailand. While Remington sources a large portion of its materials and products
from third-party suppliers, it continues to manufacture its MicroScreen(R) 3 and certain other shavers in-house and maintains ownership of tools and molds used by many of its suppliers. The Company's two most significant suppliers, Izumi Products, Inc. ("Izumi") and Raymond International, accounted for approximately 35% of the Company's overall cost of sales in 1997. These two suppliers' manufacturing facilities are located in China and Japan. Remington has had a relationship with these suppliers for many years and management considers its present relationships to be good.
Research and Product Development
The Company believes that research and development activities are an important part of the Company's business and are essential to its long-term prospects. Research and development efforts at Remington allow the Company to maintain its unique manufacturing strength in cutting systems for shavers. The Company is continuously pursuing new innovations for its line of shavers including foil improvements and new cutting and trimmer configurations. The Company also devotes resources to the development of new technology for other products such as women's personal care products, including hairsetters, hair dryers and curling irons, as well as for men's grooming products.
The Company has continued to increase its investment in research and development activities in recent years. During 1997, 1996 and 1995, research and development expenditures for the Company amounted to approximately $2.8. $2.1 and $1.9 million, respectively.
Patents and Trademarks
The Company owns approximately 180 patent and patent applications for both design and utility that are maintained in approximately 40 countries. The Company's patents cover electric shavers, cutting and trimming mechanisms and women's personal care products such as hairsetters, hair dryers and curling irons. In addition, the Company maintains over 300 different trade names in approximately 100 countries covering a variety of products. These trade names have resulted in the issuance of over 1,300 registered trademarks.
As a result of the common origins of the Company and Remington Arms, the Remington mark is owned by each company with respect to its principal products as well as associated products. Thus, the Company owns the Remington mark for shavers, shaver accessories, grooming products and health care products, while Remington Arms owns the mark for firearms, sporting goods and products for industrial use, including industrial hand tools. The terms of a 1986 agreement between the Company and Remington Arms provided for their respective rights to use the Remington trademark on products which are not considered "principal products of interest" for either company. A separate company, Remington Licensing Corporation, owns the Remington trademark in the U.S. with respect to any overlapping uses and the Company and Remington Arms are each licensed to use the mark in their respective areas of interest. The Company retains the Remington trademark for nearly all products which it believes can benefit from the use of the brand name in the Company's distribution channels. The Company has aggressively enforced its ownership of the Remington brand name.
Competition
The Company believes that the markets for all of its product lines are highly competitive and that competition for retail sales to consumers is based
on several factors, including brand name recognition, value, quality, price and availability. Primary competitive factors with respect to selling such products to retailers are brand reputation, product categories offered, broad coverage within each product category, support and service in addition to price.
Remington competes with established companies, several of which have substantially greater resources than those of the Company. There are no substantial regulatory barriers to entry for new competitors in the electric personal appliance industry. However, suppliers that are able to maintain, or increase, the amount of retail shelf space allocated to their respective products may gain a competitive advantage. The Company believes that the allocation of space by retailers is influenced by many factors, including brand name recognition by consumers, product quality and prices, service levels provided by the supplier and the supplier's ability to support promotions.
The rotary shaver market is significant outside the United States. The future expansion of sales of the Company's rotary shavers outside the United States will be affected by, among other factors, the outcome of ongoing legal actions against Philips Electronics, N.V. ("Philips"). Philips holds patents and trademarks outside the United States on certain of its shaver designs that restrict the Company from entering these markets. The Company is currently challenging such trademarks and patents in the United Kingdom and Australia.
Employees
As of December 31, 1997, the Company employed approximately 1,145 people in the United States and abroad of which approximately 200 were seasonal manufacturing workers and 250 were employed part-time in the Company's service stores. None of the Company's employees are represented by a union. Remington believes relations with its employees are good.
Environmental Matters
The Company's manufacturing operations are subject to federal, state and local environmental laws and regulations. The Company believes it is in substantial compliance with all such environmental laws which are applicable to its operations. The Company has reported to the Connecticut Department of Environmental Protection that it has detected petroleum and solvent compounds in soil and ground water samples taken from its Bridgeport facility at levels which may require further investigation or cleanup. In addition to its ongoing program of environmental compliance, the Company has provided reserves to cover the anticipated costs of remediation which may be necessary at its Bridgeport facility. The Company believes that the costs for any remediation activities which are eventually undertaken would not be material to the Company's financial position and results of operations.
International Operations and Distribution
Remington's international operations (excluding export sales from the U.S.) generated approximately 43%, 39% and 36% of the Company's net sales in 1997, 1996 and 1995, respectively. The Company's international network of subsidiaries
and distributors currently extends to over 85 countries worldwide. The Company markets products throughout Europe, the Middle East, Africa, and a portion of South America through its subsidiary in the United Kingdom, throughout Asia through its subsidiary in Australia and distributes products to Japan, Central America and the remainder of South America from its United States headquarters. The Company distributes its products directly in the United Kingdom, Australia, Canada, Germany, France, New Zealand and South Africa. In all other parts of the world the Company distributes its products through strategic alliances with local distributors. As in the United States market, the primary asset of the Company's international operations is the Remington brand name.
The Company distributes products internationally through electric product stores, drug stores, specialized shaver shops, catalog showrooms, department stores, mail order and television and the Company's service stores. As in the United States, Remington has established direct relationships with many of the leading international retailers.
Additional financial information relating to Remington's international operations is set forth in Note 14 (Geographic Information) of the "Notes to Consolidated Financial Statements" of the Company appearing elsewhere herein.
ITEM 2.
ITEM 2. Properties
The Company's executive offices and sole manufacturing facility are located at 60 Main Street, Bridgeport, Connecticut, 06604. The following is additional information concerning the principal facilities of the Company.
Facility Function Square Feet
Bridgeport, CT Headquarters (Owned) 40,000 Bridgeport, CT Manufacturing (Owned) 167,000 Milford, CT Warehouse (Leased) 100,000
In addition to these properties, Remington leases offices and warehouse space in Canada, United Kingdom, Germany, France, Australia, New Zealand, South Africa, Ireland, Sweden and Hong Kong, and 112 service stores, of which 93 are in the United States, ten are in the United Kingdom and nine are in Australia.
ITEM 3.
ITEM 3. Legal Proceedings
The Company and Philips are engaged in litigation in the United Kingdom and Australia relating to certain trademarks and designs issued to Philips relating to Philips' triple head rotary shaver. In these proceedings, Philips alleged infringement of its trademarks and designs by the Company and the Company counter-claimed that Philips' trademark and design registrations are invalid. The U.K. trial court found in favor of the Company and Philips has appealed that
decision. The trial in the Australian action is scheduled for mid-1998. The costs of defending the U.K. and Australian litigation are, in certain circumstances, shared with Izumi, the Company's supplier of rotary shavers. Izumi is also pursuing actions against Philips in Sweden to contest the validity of certain of Philips' trademarks. If such litigation is ultimately determined adversely to the Company or Izumi, the Company's ability to sell rotary shavers in such countries could be limited or prohibited. In 1997, the Company's net sales of rotary shavers in Europe were not material.
In December 1997, the Company settled all litigation with Dickson Industries Co., Ltd. and Charles W. Howard which was pending in the U.S. District Court for the Eastern District of California. The litigation, which was commenced against Remington in December 1996 alleged that Remington infringed a patent owned by Mr. Howard, which was licensed to Dickson, relating to certain curling irons sold by the Company. The Company agreed to cease distribution of the product and the settlement had no material effect on the Company's 1997 financial position or results of operations.
The Company is a party to other lawsuits and administrative proceedings that arose in the ordinary course of business. Although the final results in such suits and proceedings cannot be predicted, the Company presently believes that any liability that may ultimately result will not have a material adverse effect on the Company's financial position or results of operations.
ITEM 4.
ITEM 4. Submission of Matters to a Vote of Securities Holders
No matters were submitted to a vote of securities holders.
PART II
ITEM 5.
ITEM 5. Market for Registrant's Common Equity and Related Stockholder Matters
(a) Market Information
All of the Company's outstanding equity securities are privately held.
(b) Holders
As of March 15, 1998, there were two holders of the common equity securities of the Company.
(c) Dividends
No cash distributions have been paid on the common and preferred equity of the Company since the Closing Date. Prior to the reorganization of the Company in May 1996, as discussed in Note 2 of the "Notes to the Financial Statements", the Company operated as a general partnership and cash distributions were made to the partners. In addition, the Company's long-term debt arrangements, which are discussed in note 7 of the "Notes to Consolidated Financial Statements" of the Company appearing elsewhere herein, significantly restrict the payment of dividends.
(d) Recent Sales of Unregistered Securities
None.
ITEM 6.
ITEM 6. Selected Financial Data
The following table summarizes selected financial information and should be read in conjunction with "Management's Discussion and Analysis of Financial Condition and Results of Operations" and the Financial Statements and accompanying notes thereto appearing elsewhere herein (in thousands):
- ---------------------------- (1) Dividend payments are subject to restrictions by the terms of the Company's debt agreements.
ITEM 7.
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 statement of operations, including its net sales by its U. S. operations (including export sales from the U.S.), U.S. service stores, and international operations (including service
stores in the United Kingdom and Australia) and the Company's results of operations as a percentage of net sales for the years ended December 31, 1997, 1996 and 1995. To facilitate comparison of the operating results of the periods set forth below, results of operations for the year ended December 31, 1996 were obtained by combining, without adjustment, the results of operations of the predecessor company from January 1, 1996 to May 23, 1996 (the "Predecessor Period") with those of the Company for the period from May 24, 1996 to December 31, 1996 (the "Successor Period"). The discussion should be read in connection with the Consolidated Financial Statements and accompanying notes thereto appearing elsewhere herein.
Year Ended December 31, 1997 compared to the year ended December 31, 1996
Net Sales. Net sales for the year ended December 31, 1997 were $241.6 million compared to $242.0 million for the previous year. International net sales and U.S. service store sales demonstrated strong results for 1997 with
increases of 8.7% and 14.5%, respectively over the prior year. These results were more than offset by a decline in net sales in the United States.
Net sales in the United States decreased 12.0% from $113.2 million for the year ended December 31, 1996 to $99.6 million in 1997. This decrease was primarily related to lower sales of certain men's and women's shavers. Men's shaver sales were impacted by the effect of transitioning to the updated line of MicroScreen(R) shavers, competitive actions in rotary shavers as well as the decision not to repeat certain promotional programs offered during 1996. The introduction of the new line of MicroScreen(R) 2 shavers in the third quarter of 1997 helped sales of the mid-priced and largest line of Remington shavers come in on line with the prior year, while the impact of the announced 1998 introduction of the new MicroScreen(R) 3 shavers resulted in lower transitional sales of the older Triple Foil(TM) line of shavers in 1997. Women's shaver sales were impacted by an overall decline in the market for women's shavers. Additionally, domestic sales of women's personal care appliances were negatively impacted by competitive actions in hairsetters and the cancellation of a new line of curling irons.
Net sales through the Company's U.S. service stores increased 14.5% to $38.6 million in 1997 from $33.7 million in 1996. This increase is primarily attributable to the opening of a net of 10 additional stores for a total of 93 stores open during the holiday shopping season. Additionally, same store sales increased 4.3% from 1996 to 1997 as a result of a strong holiday selling season.
International net sales increased to $103.4 million in 1997 from $95.1 million in 1996 as a result of the United Kingdom and Australian operations. Net sales in the United Kingdom increased 14.0% in 1997 as a result of strong demand, particularly in the personal care product sales. Despite a negative currency impact, net sales in Australia increased 11.0% in 1997 due to strong demand for new personal care products and growth in retail service stores from three stores in 1996 to nine stores at December 31, 1997. These results were somewhat offset by lower net sales in Germany in 1997 due to lower demand and a negative currency impact, while Canadian net sales remained flat year to year.
Gross Profit. Gross profit increased to $100.3 million, or 41.5% of net sales, in 1997 from $89.3 million or 36.9% of net sales in 1996. Approximately 2.0% of the gross profit margin percentage increase was due to inventory valuation adjustments recorded in 1996, while the remaining increase was due to slightly lower costs and improved mix.
Selling, General and Administrative. Selling, general and administrative expenses decreased to $84.3 million in 1997, or 34.9% of net sales, from $91.9 million, or 37.9% of net sales in 1996. The 1996 expenses included $10.9 million in non-recurring charges related to the reorganization and a $1.3 million charge related to the bankruptcy of the Company's largest customer in Canada. After considering the effect of these charges in 1996, expenses in 1997 increased over 1996, as a result of a 25% increase in advertising expenses and investments the Company has made in marketing and new product development.
Operating Income (Loss). Operating income increased to $14.1 million in 1997, or 5.8% of net sales, from an operating loss of $(4.5) million in 1996, or (1.8)% of net sales.
Interest Expense. Interest expense increased to $19.3 million in 1997 from $14.4 million in 1996. This increase is primarily attributable to a full year of interest charged on senior subordinated notes in 1997 in connection with the May 1996 reorganization, as well as increased average borrowings on revolving credit facilities.
Provision for Income Taxes. The provision for income taxes was $2.2 million in 1997 and in 1996 and relates to the Company's foreign operations.
Year Ended December 31, 1996 compared to the year ended December 31, 1995
Net Sales. Net sales for the year ended December 31, 1996 were $242.0 million compared to $255.3 million for the previous year, a decrease of 5.0%. The decrease in net sales in 1996 was due to a decline in net sales in the United States to $113.2 million in 1996 from $131.2 million in 1995 and was partially offset by a 4.0% increase in international net sales to $95.1 million in 1996 from $91.2 million in 1995.
Net sales in the United States were down 14% primarily as a result of a decline in hair dryer sales due to competitive pricing and the late arrival of certain new curling irons which delayed introduction past the key fall season which were subsequently cancelled. In addition, lower average pricing of shaver products and inventory reduction programs instituted by certain major retailing customers also negatively impacted sales in 1996.
Net sales through the Company's U.S. service stores increased 2.0% to $33.7 million in 1996 from $32.9 million in 1995. Same store sales declined 1.2% from 1995 to 1996. The decrease in same store net sales was due to a decision to eliminate certain knife product offerings and the impact of five fewer shopping days in the Thanksgiving to Christmas holiday selling season. Sales increased overall due to the opening of 4 permanent stores and 12 seasonal stores for a total of 88 stores open through the 1996 holiday shopping season. The seasonal stores were operated on a temporary basis with no future lease commitment and 8 were closed before December 31, 1996.
International net sales increased 4.0% to $95.1 million in 1996 from $91.2 million in 1995. Most of this increase occurred in Australia which increased 22.4% in 1996 as a result of volume increases across most product lines and the acquisition of a chain of 3 service stores in July 1996. Net sales in the United Kingdom increased 5.1% in 1996 due to strong sales of personal care products which more than offset a modest decline in shaver and accessory sales. These results were somewhat offset by lower net sales in Germany and Canada due to continued weakness in the German economy and the bankruptcy of Canada's largest customer in July 1996.
Gross Profit. Gross profit decreased to $89.3 million, or 36.9% of net sales, in 1996 from $112.1 million or 43.9% of net sales in 1995. The largest factor contributing to the decline in margin was the lack of new shaver product offerings in the U.S., which resulted in reduced selling prices on certain shaver lines and higher costs associated with promotional gifts. Margins were down slightly in the United Kingdom, Germany and Canada, but were offset by strength in Australia. In addition, approximately 2.0% of the gross profit margin percentage decline is due to inventory valuation adjustments.
Selling, General and Administrative. Selling, general and administrative expenses increased to $91.9 million in 1996, or 37.9% of net sales, from $83.9 million, or 32.9% of net sales in 1995. The increase was primarily due to the
$10.9 million in non-recurring expenditures related to the reorganization in May 1996. In addition, advertising expenses decreased due to the year to year difference in new product introductions and selling and marketing expenses increased slightly due to costs associated with new service stores.
Operating Income (Loss). Operating income decreased to a loss of $(4.5) million, or (1.8)% of net sales, in 1996 from income of $26.5 million, or 10.4% of net sales, in 1995.
Interest Expense. Interest expense increased to $14.4 million in 1996 from $7.6 million in 1995. Approximately $8.7 million of this increase is due to the new senior subordinated notes issued May 23, 1996. This increase was partially offset by lower rates on the refinanced term and revolving credit borrowings.
Provision for Income Taxes. The provision for income taxes was $2.2 million in 1996 as compared to $1.3 million in 1995. The 1996 provision for foreign income taxes increased by $0.8 million primarily due to the benefit in 1995 from the utilization of foreign net operating loss carryforwards and the reversal of valuation allowances on foreign deferred tax asset balances.
Liquidity and Capital Resources
For the year ended December 31, 1997, the Company used approximately $8.0 million in cash for operating activities, compared to providing cash of $5.8 million in 1996. The primary reasons for the lower cash flow in 1997 were lower receivable collections resulting from lower fourth quarter sales in 1996 versus 1995 and increased interest payments as a result of the new Senior Subordinated Notes issued May 23, 1996.
The Company's operations are not capital intensive. During 1997 and 1996, the Company purchased property, plant and equipment of $5.1 million and $3.7 million, respectively. The Company's 1998 capital expenditure budget is $4.7 million, of which approximately $1.7 million will be used for purchases of tools and molds for new products.
During 1997, the Company repaid aggregate scheduled principal amounts on term loans of $1.0 million, and increased its net borrowings under revolving credit agreements by $10.9 million.
The Company's primary sources of liquidity are funds generated from operations and borrowings available pursuant to the Senior Credit Agreement. The Senior Credit Agreement provides for $70 million in Revolving Credit Facilities and $10 million in Term Loans. The Term Loans are repayable quarterly through March 31, 2002. Borrowings under the Revolving Credit Facilities mature on June 30, 2002. The Company believes that cash generated from operations and borrowing resources will be adequate to permit the Company to meet both its debt service requirements and capital requirements for the next twelve months, although no assurance can be given in this regard.
Effects of Changes in Exchange Rates
The Company's results of operations are affected by changes in exchange rates as the Company prices its products in certain foreign markets such as Europe, Canada and Australia in local currency. While many of the Company's foreign selling and distribution costs are also denominated in these currencies, a large portion of the product costs are U.S. dollar denominated. As a result, a decline in the value of the U.S. dollar relative to these other currencies can have a favorable effect on the profitability of the Company and, conversely, an increase in the value of the U.S. dollar relative to these other currencies can have a negative effect on the profitability of the Company. The Company takes precautions against these fluctuations by entering into foreign exchange forward contracts, which, in effect, lock in the cost for products the Company's foreign subsidiaries purchase. As of December 31, 1997, forward contracts to sell $15.3 million U.K. Pounds Sterling were outstanding, all of which mature in 1998.
Seasonality
Sales of the Company's products are highly seasonal, with a large percentage of net sales occurring during the Christmas selling season. The Company typically derives more than 40% of its annual net sales in the fourth quarter of each year. As a result of this seasonality, the Company's inventory and working capital needs fluctuate substantially during the year. In addition, Christmas orders from retailers are often made late in the year, making forecasting of production schedules and inventory purchases difficult. Any adverse change in the Company's results of operations in the fourth quarter would have a material adverse effect on the Company's financial condition and results of operations.
Inflation
In recent years, inflation has not had a material impact upon the results of the Company's operations.
Year 2000 Compliance
The Company continues to assess its exposure related to the impact of the Year 2000 date issue. The Year 2000 date issue arises from the fact that many computer programs use only two digits to identify a year in a date field. The Company's key financial and operational systems have been reviewed and it has been determined that the majority of the systems do not require modification. Accordingly, management does not expect that any costs to be incurred will have a material adverse impact on the Company's financial position, results of operations or cash flows. However, the Company could be adversely impacted by the Year 2000 date issue if suppliers, customers and other businesses do not address this issue successfully. Management continues to assess these risks in order to reduce the impact on the Company.
ITEM 8.
ITEM 8. Financial Statements and Supplementary Data
The Company's financial statements and supplementary data are included elsewhere herein as outlined on page.
ITEM 9.
ITEM 9. Changes in and Disagreements With Accountants on Accounting and Financial Disclosure
None
PART III
ITEM 10.
ITEM 10. Directors and Executive Officers.
The following table sets forth certain information (ages as of March 15, 1998) 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 51 Chief Executive Officer,President and Director Alexander R. Castaldi 47 Executive Vice President and Chief Financial Officer Lawrence D. Handler 52 President, Remington Service Stores Geoffrey L. Hoddinott 54 Vice President, Remington Europe, Africa and Middle East H. Graham Kimpton 62 Vice President, Remington Australia and Asia Lester C. Lee 37 Senior Vice President Sales and Integrated Logistics Michael A. Linton 41 Vice President, Marketing Allen S. Lipson 55 Vice President, Administration, General Counseland Secretary Timothy G. Simmone 32 Vice President, Chief Technical Officer Victor K. Kiam, II 71 Chairman and Director Norman W. Alpert 39 Director William B. Connell 57 Director Victor K. Kiam, III 38 Director Kevin A. Mundt 44 Director Arthur J. Nagle 59 Director Daniel S. O'Connell 43 Director Robert L. Rosner 38 Director
Neil P. DeFeo has served as President, Chief Executive Officer and a Director of the Company since January 1997. From 1993 to 1996, Mr. DeFeo was Group Vice President, U.S. Operations for The Clorox Company. For 25 years prior to 1993, Mr. DeFeo worked for Procter & Gamble in various executive positions, including Vice President and Managing Director, Worldwide Strategic Planning, Laundry and Cleaning Products.
Alexander R. Castaldi has been the Executive Vice President and Chief Financial Officer of the Company since November 1996. From 1995 to 1996, Mr Castaldi was Vice President and Chief Financial Officer of Uniroyal Chemical and from 1990 to 1995, he was Senior Vice President and Chief Financial Officer of Kendall International, Inc.
Lawrence D. Handler has been President, Remington Service Stores, since June 1996 and was Vice President and Chief Financial Officer of the Service Stores from January 1995 when he joined the Company until June 1996. From January 1994 until December 1994, Mr. Handler was a private financial consultant, specializing in retail operations and from May 1993 until December 1993 he was Vice President and Chief Financial Officer of Terrific Promotions, Inc. From March 1992 until May 1993, he was Vice President and Controller of Value Merchants, Inc.
Geoffrey L. Hoddinott is Vice President, Remington Europe, Africa and Middle East. Mr. Hoddinott has been managing director of the United Kingdom operation since he joined the Company in November 1981.
H. Graham Kimpton is Vice President, Remington Australia and Asia. Mr. Kimpton joined the Company in April 1988 and has been managing the Australian/New Zealand operation since that time.
Lester C. Lee has been Senior Vice President Sales and Integrated Logistics of the Company since July 1997. From 1995 until 1997, he was with Pacific Bell Mobile Services, a Division of Pacific Telesis, most recently as Vice President of Sales, and from 1989 until 1995, he was with Norelco Consumer Products Company in various sales positions, including Director of Sales, Western Division.
Michael A. Linton, was appointed Vice President Marketing in March 1997. Prior to joining the Company, he was with James River Corporation since 1993 as Marketing Director and most recently as Vice President, General Manager, Towel and Tissue Category. From 1987 to 1993, Mr. Linton held various positions with Progressive Insurance Company, including Division General Manager and Assistant Vice President.
Allen S. Lipson is Vice President, Administration, General Counsel and Secretary of Remington since May 1996. Mr. Lipson has been the General Counsel of the Company since October 1988.
Timothy G. Simmone was appointed Vice President, Chief Technical Officer of the Company in June 1997. From 1988 until 1997, he was with The Stanley Works Corporation in various engineering position, most recently as Vice President, Product Development of the Stanley Fastening Systems Division.
Victor K. Kiam, II has served as Chairman since 1979 and served as Chief Executive Officer of the Company from 1979 to 1996. Mr. Kiam is the Chairman of RPI Inc., and a director of Citadel Technology and News Communication.
Norman W. Alpert has been a Director of Remington since May 1996. Mr. Alpert is a Managing Director of Vestar Capital Partners and was a founding partner of Vestar at its inception in 1988. Mr. Alpert is Chairman of the Board of Directors of International AirParts Corporation, Aearo Corporation and Advanced Organics, Inc., and a director of Clark-Schwebel, Inc. and Russell Stanley Corporation, all companies in which Vestar or its affiliates have a significant equity interest.
William B. Connell has been a Director of Remington since 1990. Mr. Connell is currently Chairman of EBD Holdings, Inc., a private venture capital group. Mr. Connell previously served as Vice Chairman of Whittle Communications, L.P. from 1992 to 1994 and served as its President and Chief Operating Officer from 1990 to 1992. In addition to Remington, Mr. Connell is currently a director of Baldwin Piano & Organ Company, Dolphin Software, Inc., EDB Holdings, Inc., New Day Schools, Inc. and Retail Optical Holdings.
Victor K. Kiam, III has been a Director of Remington since 1992. Mr Kiam has been Executive Vice President of RPI Corporation since 1996 and was with the Company from 1986 until 1996 in a variety of positions in manufacturing, sales and marketing, including Vice President Corporate Development. He is the son of Victor K. Kiam, II.
Kevin A. Mundt has been a Director of Remington since July 1996. Mr. Mundt is Vice President, Group Business Head of Mercer Management Consulting since 1997 and was co-founder and Managing Director of Corporate Decisions, Inc. since its inception in 1983 until its merger with Mercer Management Consulting in 1997. Mr. Mundt is a director of Russell Stanley Corporation, Advanced Organics, Inc. and Reid Plastics, companies in which Vestar or its affiliates have a significant equity interest and in Telephone Data Systems, Inc.
Arthur J. Nagle has been a Director of Remington since May 1996. Mr. Nagle is a Managing Director of Vestar Capital Partners and was a founding partner of Vestar at its inception in 1988. Mr. Nagle is a director of Aearo Corporation, Chart House Enterprises, Inc., Clark-Schwebel, Inc. and La Petite Holdings Corporation, all companies (other than Chart House Enterprises, Inc.) in which Vestar or its affiliates have a significant equity interest.
Daniel S. O'Connell has been a Director of Remington since May 1996. Mr. O'Connell is founder and the Chief Executive Officer of Vestar Capital Partners. Mr. O'Connell is a director of Advanced Organics, Inc., Aearo Corporation, Clark-Schwebel, Inc., Pinnacle Automation, Inc., Reid Plastics Holdings, Inc., Sun Apparel, Inc. and Russell-Stanley Corporation, all companies in which Vestar or its affiliates have a significant equity interest.
Robert L. Rosner has been a Director of Remington since May 1996. Mr. Rosner is a Managing Director of Vestar Capital Partners and was a founding partner of Vestar at its inception in 1988. Mr. Rosner serves as Chairman of the Board of Directors of Russell-Stanley Corporation, a company in which Vestar or its affiliates have a significant equity interest.
ITEM 11.
ITEM 11. Executive Compensation
Compensation of Executive Officers
The following Summary Compensation Table includes individual compensation information during each of the years ended December 31, 1996 and 1997 for each individual who served in the position of the Company's Chief Executive Officer ("CEO") during 1997 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 1997 (collectively, the "Named Executive Officers") for services rendered in all capacities to the Company.
- ----------------------- (1) Includes compensation earned during the year but deferred pursuant to the Company's Deferred Compensation Plan.
(2) Bonus amounts shown are those accrued for and paid in or after the end of the year and include amounts deferred pursuant to the Company's Deferred Compensation Plan.
(3) Mr. DeFeo became President and CEO in January 1997.
(4) The amounts shown include Company matching contributions to the Company's 401(k) Plan of $ 2,415 and $211,633 of relocation and travel expenses.
(5) Mr. Castaldi became Executive Vice President and CFO in November 1996.
(6) Company matching contribution to the Company's 401(k) Plan.
(7) The amounts shown include Company matching contributions to the Company's 401 (k) Plan of $ 2,631 and $3,738 for 1997 and 1996 and disability insurance premium payments of $1,782 for 1997 and 1996.
(8) A special bonus paid in connection with the reorganization of the Company which occurred in May 1996.
(9) Includes a special bonus of $39,315 paid in connection with the reorganization of the Company which occurred in May 1996.
(10) Mr. Linton became Vice President Marketing in March 1997.
(11) Mr. Cuneo ceased to be employed by the Company in January 1997.
(12) The amounts shown include payments upon termination pursuant to a termination agreement totaling $150,512, Company matching contributions to the Company's 401 (k) Employee Savings Plan of $646 and $2,250 in 1997 and 1996 and disability insurance premium payments of $325 and $3,906 in 1997 and 1996.
Compensation of Directors
Messrs. William B. Connell and Kevin A. Mundt, Directors of the Company, each receive annual compensation of $20,000 payable quarterly for services in such capacity. No other Director of the Company receives any compensation for services in such capacity. Each of the Directors of Remington are reimbursed for out-of-pocket expenses incurred in connection with attending meetings.
Compensation Committee Interlocks and Insider Participation
The compensation committee of the Management Committee of Remington is comprised of Messrs. Arthur J. Nagle, Robert L. Rosner and Victor K. Kiam, III. None of these individuals, other than Mr. Kiam, was an officer of or employed by the Company. Mr. Kiam was employed by the Company prior to the Reorganization. Other Arrangements
The Company has an employment agreement with Mr. DeFeo which provides for his continued employment as President and Chief Executive Officer through the year 2000, unless earlier terminated. The agreement provides for a base salary of not less than $400,000, of which $100,000 is deferred, and an annual bonus not less than $200,000 in the event the Company achieves 100% of the criteria established by the Management Committee for such year. The agreement provides for Mr. DeFeo to receive 18 months of salary continuation plus the annual bonus he would have been entitled to if his employment is involuntarily terminated other than for "cause" or if he resigns for "good reason ", or 12 months of salary continuation plus annual bonus in the event the agreement is not renewed by the Company. The Company is required to provide Mr. DeFeo with a letter of credit equal to the severance benefit payable to Mr. DeFeo until such time as the Company's earnings (before interest, taxes, depreciation and amortization) exceeds $26 million. The Company is also required to provide Mr. DeFeo with term life insurance in the amount of not less than $500,000.
The Company has entered into agreements with Messrs. Castaldi, Lipson, Linton and Handler whereby such employees would be entitled to salary continuation for a specified period if their employment was involuntarily terminated other than for "cause" during the term of the agreement and, for Mr. Castaldi, if he resigns for "good reason". Messrs. Castaldi and Lipson are each entitled to 12 months of salary continuation and Messrs. Linton and Handler are each entitled to 6 months of salary continuation.
Deferred Compensation Plan
During 1997, the Company established a Deferred Compensation Plan pursuant to which eligible executive employees (including the Named Executive Officers) may elect to defer all or a portion of the bonus otherwise payable under the Company's Bonus Plan and up to 33% of their annual salary, and such amounts are placed into a deferral account. The participants may select various mutual funds in which all or a part of their deferral accounts shall be deemed to be invested. Distributions from a participant's deferral accounts will be paid in a lump sum or in equal annual installments over a period of up to 15 years
beginning upon their termination of employment, death or retirement. All amounts deferred by the participants in the Plan are paid to a Deferred Compensation Plan Trust to be held in order to fund the Company's obligations under the Deferred Compensation Plan. The assets of the trust, however, are subject to the claims of the creditors of the Company in the event the Company is Insolvent, as such term is defined in the trust agreement.
Bonus Plan
The Company has an annual bonus plan (the "Bonus Plan") which is designed to motivate each employee participant. Approximately 125 employees in the United States and 125 employees in the international operations participate in the Bonus Plan. Under the Bonus Plan, each participating employee is assigned a target bonus award, representing up to 75% of his or her annual base salary that will be paid if predetermined performance goals are achieved. Performance goals for the various areas of the Company are established annually by the Compensation Committee of the Company.
Phantom Equity Program
In January 1998, the Company replaced its Management Option Program and adopted a Phantom Equity Program under which a maximum of 21% of the value of the Company's Common Units and Preferred Equity (together, the "Equity") can be awarded to selected officers and other key employees of the Company and its affiliates. Awards under the Phantom Equity Program replaced all of the Management options previously issued to management and also resulted in the Company repurchasing from management all Common Units originally purchased in connection with the reorganization of the Company in May 1996. See Item 13, Certain Relationships and Related Transactions. The Phantom Equity Program is comprised of time based (consisting of 12 1/2% of the Equity), performance based (6 1/2%) and super performance (2%) based awards. All awards grant to the recipient a specified percentage of the Equity (the "applicable percentage").
A time based award vests in five equal annual installments, upon the sale of the Company or upon an initial public offering of the Company's stock ("IPO"), whichever comes first. If the individual's employment with the Company is terminated for any reason other than death or disability within three years of the date of grant of the award, the award is automatically terminated. The amount received under the award and how it is paid is based upon the event which gave rise to the payment. If the payment is due to a Company sale, the individual will receive the applicable percentage of the net amount available for distribution for the outstanding Equity payable, at the Company's option, in a lump sum upon the closing of the sale or in the same manner as the selling shareholders. If the payment is due to an IPO, the payment is an amount equal to the applicable percentage of the Equity implied in the public offering payable, at the option of the Company, either entirely in cash or 40% in cash and the remainder in Company stock. If the payment is due to termination of employment, the participant receives the applicable percentage of the fair market value of the Equity, determined by the Management Committee payable, at the Company's option, in up to five equal annual installments or upon an IPO or Company sale.
The performance and super performance based awards are similar to the time based awards except that performance based award vests in stages as the Company achieves specified performance targets while the super performance based award vests entirely upon the achievement of a single target. Payment of the awards does not occur until and is dependent upon the achievement of both a performance criteria and an event criteria. The event criteria is a Company sale or when Vestar's ownership falls below 10% of the Common Units. The performance criteria
for the performance based award vests in segments as the Company achieves specified performance targets while there is only one target for the super performance based award. Any performance or super performance based award which is not fully vested by December 31, 2002 is automatically terminated.
The Phantom Equity Program and all awards are subject to readjustment in the event of a reorganization of the Company required in connection with a refinancing, and the applicable percentages are subject to readjustment to take into consideration new issuances of Common Units or Preferred Capital.
The following table contains information with respect to grants of phantom awards to each of the Named Executive Officers in January, 1998:
- --------------------- (1) Indicates the applicable percentage of the Company's Equity underlying each award granted.
(2) Indicates the % of total time, performance and super performance based award granted.
(3) There is no exercise price and as of the time of the grant, there was no market price for the Company's Equity.
(4) The Company's Equity is not registered under the Securities Act of 1933 and is therefore not publically 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 and IPO. See above for a complete description of the Phantom Equity Program and the determination of payouts.
(5) Grant of Time Based award.
(6) Performance Based award.
(7) Super Performance Based award.
401(k) Plan
The Company maintains a savings plan (the "Savings Plan") qualified under Sections 401 (a) and 401(k) of the Internal Revenue Code. Generally, all employees of the Company in the United States who have completed three months of service are eligible to participate in the Savings Plan. For each employee who
elects to participate in the Savings Plan and makes a contribution thereto, the Company makes a matching contribution of 40% of the first 5% of annual compensation contributed. The maximum contribution for any participant for any year is 15% of such participant's eligible compensation.
ITEM 12.
ITEM 12. Security Ownership of Certain Beneficial Owners and Management
Set forth below is certain information regarding the ownership of the Preferred Equity and Common Units of Remington by each person known by Remington to beneficially own 5.0% or more of the outstanding interests of either the Preferred Equity or Common Units, each Director and Named Executive Officer and all Directors and executive officers as a group as of March 15, 1998. Except as indicated below, the address for each of the persons listed below is c/o Remington Products Company, L.L.C., 60 Main Street, Bridgeport, Connecticut, 06604.
- ----------------------- (1) Amounts, in dollars, represent the capital contribution to the Preferred Equity beneficially owned by each person and entity set forth below. The Preferred Equity has not been denominated in units or other shares.
(2) Vestar's interest in the Company is owned by the Vestar Members, which are controlled by Vestar. The Vestar Members have assigned a portion of their interests in the Company to certain coinvestors, although such co-investors will not directly hold any Common Units. The general partner of Vestar is Vestar Associates L.P., a limited partnership whose general partner is Vestar Associates Corporation ("VAC"). In such capacity, VAC exercises sole voting and investment power with respect to all of the equity interests held of record by the Vestar Members. Messrs. Alpert, Nagle, O'Connell, and Rosner, who are Directors of Remington, are affiliated with Vestar in the capacities described under Item 10 Directiors and Executive Officers, and are stockholders of VAC. Individually, no stockholder, director or officer of VAC is deemed to have or share such voting or investment power within the meaning of Rule 13d-3 under the Exchange Act. Accordingly, no part of the Preferred Equity or Common Units is beneficially owned by Messrs. Alpert, Nagle, O'Connell or Rosner or any other stockholder, director or officer of VAC.
(3) The Vestar Members and RPI have entered into the LLC Agreement which gives Vestar effective control over the management of the Company.
(4) Mr. Kiam's interest in the Company is owned by RPI. The shareholders of RPI are Mr. Kiam and two Kiam family trusts. Mr. Kiam is a trustee of each of these trusts. Mr. Kiam disclaims beneficial ownership of the shares of Remington owned by RPI. The address of Mr. Kiam is 11097 Isle Brook Court, West Palm Beach, Florida, 33414.
(5) Messrs. Alpert, Nagle, O'Connell and Rosner are affiliated with Vestar in the capacities described in Item 10 Directors and Executive Officers.
Ownership of Remingtonequity interests for these individuals includes the $30,000,000 of Preferred Equity and 34,440 Common Units included in the above table beneficially owned by Vestar through the Vestar Members, of which such persons disclaim beneficial ownership. Each such person's business address is c/o Vestar Equity Partners, L.P., 245 Park Avenue, 41st Floor, New York, New York 10167.
ITEM 13.
ITEM 13. Certain Relationships and Related Transactions
Pursuant to a management agreement (the "Management Agreement") entered into in connection with the reorganization of the Company in 1996, Vestar Capital Partners ("Vestar Capital") receives an annual advisory fee equal to the greater of $500,000 or 1.5% of EBITDA (as defined in such agreement) of the Company on a consolidated basis for rendering advisory and consulting services in relation to strategic financial planning and other affairs of the Company. Vestar Capital will also be paid reasonable and customary investment banking fees in connection with an initial public offering, sale of the Company and other financings. The Management Agreement will be in effect until May 23, 2006, provided that the Management Agreement will terminate on the earlier to occur of: (i) a qualified public offering or (ii) the first date that Vestar Capital owns less than 25% of the number of the Company's Common Units owned by Vestar Capital on May 23, 1996, and provided further that Vestar Capital may terminate the Management Agreement at any time. Vestar Capital owns, indirectly through Vestar Corp., 50% of the Common Units of the Company and possesses the right to designate five of the nine individuals who comprise the Management Committee of the Company.
Pursuant to a consulting and transitional services agreement (the "Consulting Agreement") entered into in connection with the reorganization of the Company in 1996, RPI receives an aggregate annual fee equal to the sum of: (i) the greater of $500,000 or 1.5% of EBITDA (as defined in such agreement) of the Company on a consolidated basis and (ii) $250,000 in 1997 and 1998 if the Company's net revenues or EBITDA (as defined in such agreement) exceed certain targets in such years, for rendering advisory and consulting services in relation to strategic financial planning, product development and evaluation of mergers, acquisitions and divestitures. The Consulting Agreement will be in effect until May 23, 2006, provided that the Consulting Agreement will terminate on the earlier to occur of: (i) a qualified public offering or (ii) the first date that RPI owns less than 25% of the number of the Company's Common Units owned by RPI on the May 23, 1996, and provided further that Vestar Capital may terminate the Consulting Agreement at any time (but only to the extent that Vestar Capital also terminates similar provisions of the Management Agreement). RPI, an entity controlled by the Kiams, owns 50% of the Common Units of the Company and possesses the right to designate two of the nine individuals who comprise the Management Committee of the Company.
Pursuant to a Non-Competition Agreement (the "Non-Competition Agreement") dated May 23, 1996, between the Company, Vestar Corp. and Victor K. Kiam, II and Victor K. Kiam, III (the "Kiams"), the Kiams may not compete with, solicit any customers of, own, manage or operate any business in competition with or perform any action substantially detrimental to the Company's businesses. The provisions of the Non-Competition Agreement will apply during the period the Kiams have a Significant Interest (as defined in the Non-Competition Agreement) in the Company and thereafter for: (i) five years, with respect to electric shavers, shaver accessories and men's grooming products, and (ii) three years, with respect
to women's personal care appliances, home health appliances, travel appliances, environmental products, dental products and small kitchen appliances. The Non-Competition Agreement allows the Kiams to continue to market certain competing travel appliance products developed by an affiliate of the Kiams.
In connection with the adoption of the Phantom Equity Program and the issuance of Phantom Equity Agreements in January 1998, the Company repurchased from Messrs. Lipson, Hoddinott and Kimpton all shares of Common Units they had purchased from the Company in May 1996 in connection with the reorganization of the Company at the same price they had originally paid for such units. The Company paid for the repurchased Common Units by issuing promissory notes for the full purchase price, payable within 60 days following the termination of employment for reasons other than cause (as defined in the promissory note) or upon the payment of any phantom equity award to such individuals. The phantom equity agreements with each of these individuals provided that any payment under the promissory note would reduce, dollar for dollar, the applicable phantom equity payment. The promissory note issued to Mr. Lipson was for $150,000, together with interest of 6 1/2% and the non-interest bearing notes issued to Messrs. Hoddinott and Kimpton were each for $46,000.
PART IV
ITEM 14.
ITEM 14. Exhibits, Financial Statement Schedules, and Reports on Form 8-K
(a) 1. Financial Statements
2. Financial Statement Schedule
3. Exhibits
3.1 Amended and Restated Limited Liability Company Agreement dated as of May 16, 1996, by and among Vestar Shaver Corp. (formerly Vestar/Remington Corp.) ("Vestar Corp. I"), Vestar Razor Corp.("Vestar Corp. II" and, together with Vestar Corp. I, the "Vestar Members"), RPI Corp. (formerly known as Remington Products,Inc.)("RPI"), and certain members of senior management of the Company. Incorporated by reference to Exhibit 3.1 in Registration Statement onForm S-4 (File Number 333-07429).
3.2 Certificate of Formation of Remington Products Company, L.L.C.("Remington"). Incorporated by reference to Exhibit 3.2 in Registration Statement on Form S-4(File Number 333-07429).
4.1 Indenture dated as of May 23, 1996 between Remington, Remington Capital Corp. ("Capital") and The Bank of New York, as trustee. Incorporated by reference to Exhibit 4.1 in Registration Statement on Form S-4(File Number 333-07429).
4.2 Form of 11% Series B Senior Subordinated Notes. Incorporated by reference to Exhibit 4.2 in Registration Statement on Form S-4(File Number 333-07429).
4.3 Purchase Agreement dated May 16, 1996 between Remington, Capital and Bear, Sterns & Co. Inc. Incorporated by reference to Exhibit 4.3 in Registration Statement on Form S-4(File Number 333-07429).
4.4 Registration Rights Agreement dated as of May 23, 1996 between Remington, Capital and Bear Stearns & Co. Inc. Incorporated by reference to Exhibit 4.4 in Registration Statement on Form S-4(File Number 333-07429).
10.1 Credit and Guarantee Agreement dated as of May 23, 1996 among Remington, certain of its subsidiaries, varius lending institutions,Fleet National Bank and Banque Nationale de Paris, as co-documentation agents, and Chemical Bank,as administrative agent (the "Credit and Guarantee Agreement"). Incorporated by reference to Exhibit 10.1 in Registration Statement on Form S-4 (File Number 333- 07429).
10.2 First Amendment and Waiver Number 1,dated as of December 27,1996, to the Credit and Guarantee Agreement. Incorporated by reference to Exhibit 10.1 in the Company's Current Report on Form 8-K dated December 24, 1996.
10.3 Second Amendment, dated as of March 30, 1997 to the Credit and Guarantee Agreement. Incorporated by reference to Exhibit 10.1 in the Company's Quarterly Report on Form 10-Q for the quarter ended March 29, 1997.
10.4 Third Amendment, dated as of May 16, 1997 to the Credit and Guarantee Agreement. Incorporated by reference to Exhibit 10.1 in the Company's Quarterly Report on Form 10-Q for the quarter ended June 28, 1997.
10.5 Fourth Amendment, dated as of March 20, 1998 to the Credit and Guarantee Agreement.
10.6 Company Security Agreement dated as of May 23, 1996 made by Remington in favor of the Agent. Incorporated by reference to Exhibit 10.2 in Registration Statement on Form S-4(File Number 333-07429).
10.7 Form of Subsidiaries Security Agreement dated as of May 23, 1996 made by each of Capital, Remington Corporation, L.L.C. ("IP Subsidiary")and Remington Rand Corporation ("Rand") in favor of the Agent. Incorporated by reference to Exhibit 10.3 in Registration Statement on Form S-4(File Number 333-07429).
10.8 Conditional Assignment of and Security Interest in Patent Rights(United States) dated as of May 23, 1996 made by IP Subsidiary in favor of the Agent. Incorporated by reference to Exhibit 10.4 in Registration Statement on Form S-4(File Number 333-07429).
10.9 Conditional Assignment of and Security Interest in Patent Rights(United Kingdom) dated as of May 23, 1996 made by IP Subsidiary in favor of the Agent. Incorporated by reference to Exhibit 10.5 in Registration Statement on Form S-4(File Number 333-07429).
10.10 Conditional Assignment of and Security Interest in Trademark Rights(United States) dated as of May 23, 1996 made by IP Subsidiary in favor of the Agent. Incorporated by reference to Exhibit 10.6 in Registration Statement on Form S- 4(File Number 333-07429).
10.11 Conditional Assignment of and Security Interest in Trademark Rights(United Kingdom) dated as of May 23, 1996 made by IP Subsidiary in favor of the Agent. Incorporated by reference to Exhibit 10.7 in Registration Statement on Form S- 4(File Number 333-07429).
10.12 Members Limited Recourse Pledge Agreement dated as of May 23, 1996 made by Remington in favor of the Agent. Incorporated by reference to Exhibit 10.8 in Registration Statement on Form S-4(File Number 333-07429).
10.13 Company Pledge Agreement dated as of May 23, 1996 made by Remington in favor of the Agent. Incorporated by reference to Exhibit 10.9 in Registration Statement on Form S-4(File Number 333-07429).
10.14 Subsidiaries Pledge Agreement dated as of May 23, 1996 made by Rand in favor of the Agent. Incorporated by reference to Exhibit 10.10 in Registration Statement on Form S-4(File Number 333-07429).
10.15 Subsidiaries Guarantee dated as of May 23, 1996 made by Capital, IP subsidiary and Rand in favor of the Agent. .Incorporated by reference to Exhibit 10.11 in Registration Statement on Form S-4(File Number 333-07429).
10.16 Purchase Agreement dated as of May 1, 1996 by and among Vestar Corp I., Remington, Remsen, Isaac Perlmutter, RPI and Victor K. Kiam, II. Incorporated by reference to Exhibit 10.12 in Registration Statement on Form S-4(File Number 333- 07429).
10.17 Agreement and Plan of Merger dated as of May 23, 1996 between Remington Products Company and Remington. Incorporated by reference to Exhibit 10.13 in Registration Statement on Form S-4(File Number 333-07429).
10.18 Securityholders Agreement dated as of May 16, 1996 among the Vestar Members, Vestar Equity Partners, L.P. ("Vestar"), RPI, Victor K. Kiam,II and the other parties signatory thereto. Incorporated by reference to Exhibit 10.14 in Registration Statement on Form S-4(File Number 333-07429).
10.19 Management Agreement dated as of May 23, 1996 between Remington and Vestar Capital Partners. Incorporated by reference to Exhibit 10.15 in Registration Statement on Form S-4(File Number 333-07429).
10.20 Consulting and Transitional Services Agreement dated as of May 23,1996 between Remington and RPI. Incorporated by reference to Exhibit 10.16 in Registration Statement on Form S-4(File Number 333-07429).
10.21 Employment Agreement made as of January 8, 1997 between the Company and Neil P. DeFeo. Incorporated by reference to Exhibit 10.2 in the Company's Quarterly Report on Form 10-Q for the quarter ended March 29, 1997.
10.22 Form of Executive Severance Agreement dated as of May 23, 1996 by and between Remington and Allen S.Lipson is incorporated herein by reference to Registration Statement on Form S-4(File Number 333-07429).
10.23 Executive Severance Agreement dated as of November 25, 1996 between Remington and Alexander R. Castaldi. Incorporated by reference to Exhibit 10.20 in the Company's Annual Report on Form 10-K for the year ended December 31, 1996.
10.24 Form of Severance Agreement
10.25 Form of Time Based Phantom Equity Agreement with participants in the Phantom Equity Program.
10.26 Form of Performance Based Phantom Equity Agreement with participants in the Phantom Equity Program.
10.27 Form of Super Performance Based Phantom Equity Agreement with participants in the Phantom Equity Program.
10.28 Promissory Note dated January 14, 1998 from Remington to Allen S. Lipson for $150,000.
10.29 License Agreement made May 23, 1996 by and between IP Subsidiary and Act II Jewelry, Inc. Incorporated by reference to Exhibit 10.23 in Registration Statement on Form S-4 (File Number 333-07429).
10.30 License Agreement made May 23, 1996 by and between IP Subsidiary and VKK Equities Corporation. Incorporated by reference to Exhibit 10.24 in Registration Statement on Form S-4 (File Number 333-07429).
10.31 Tradename Agreement made May 23, 1996 by and between IP Subsidiary and Remington Apparel Company, Inc.. Incorporated by reference to Exhibit 10.25 in Registration Statement on Form S-4 (File Number 333-07429).
10.32 License Agreement dated as of May 23, 1996 by and between Remington and IP Subsidiary. Incorporated by reference to Exhibit 10.26 in Registration Statement on Form S-4 (File Number 333-07429).
10.33 1998 Remington Bonus Plan.
21 Subsidiaries of Remington.
24. Powers of Attorney.
27 Financial Data Schedule.
SIGNATURES
Pursuant to the requirements of Section 13 or 15(d) of the Securities Exchange Act of 1934, the registrant has duly caused this report to be signed on its behalf by the undersigned, thereunto duly authorized.
REMINGTON PRODUCTS COMPANY, L.L.C.
By:/s/ Kris J. Kelley ---------------------------- Kris J. Kelley, Vice President and Controller
Date: March 27, 1998
Pursuant to the requirements of the Securities Exchange Act of 1934, this report has been signed below by the following persons on behalf of the registrant and in the capacities on March 27, 1998.
* * - -------------------------------------- ---------------------------------- Neil F. DeFeo, Chief Executive Officer, Alexander R. Castaldi, Executive Vice President and Director President and Chief Financial Officer
/s/ Kris J. Kelley - ------------------------------------- ---------------------------------- Kris J. Kelley, Vice President and Victor K. Kiam II, Chairman and Director Controller
* * - ------------------------------------- ---------------------------------- Victor K. Kiam III, Director Norman W. Alpert, Director
* * - ------------------------------------- ---------------------------------- Arthur J. Nagle, Director Daniel S. O'Connell, Director
* * - ------------------------------------- ----------------------------------- Robert L. Rosner, Director William B. Connell, Director
* - ------------------------------------ Kevin A. Mundt, Director
*By /s/ Allen S. Lipson - ------------------------------------ Allen S. Lipson, as Attorney-in-Fact
Certain schedules are omitted because they are not applicable or the required information is provided in the Financial Statements or related notes thereto.
Independent Auditors' Report
To the Management Committee of REMINGTON PRODUCTS COMPANY, L.L.C.:
We have audited the accompanying consolidated balance sheets of Remington Products Company, L.L.C. and subsidiaries (the "Company") as of December 31, 1997 and 1996, and the related consolidated statements of operations, members' deficit/partners' capital, and cash flows for the year ended December 31, 1997 and for the thirty-one week period ended December 31, 1996 and for Remington Products Company and subsidiaries (the "Predecessor") for the twenty-one week period ended May 23, 1996. Our audits also included the consolidated financial statement schedule for 1997 and 1996 listed in the index to the consolidated financial statements. The 1997 and 1996 consolidated financial statements and financial statement schedule are the responsibility of the Company's management. Our responsibility is to express an opinion on these consolidated financial statements and financial statement schedule based on our audits.
We conducted our audits in accordance with generally accepted auditing standards. Those standards require that we plan and perform the audit to obtain reasonable assurance about whether the financial statements are free of material misstatement. An audit includes examining, on a test basis, evidence supporting the amounts and disclosures in the financial statements. An audit also includes assessing the accounting principles used and significant estimates made by management, as well as evaluating the overall financial statement presentation. We believe that our audits provide a reasonable basis for our opinion.
In our opinion, such consolidated financial statements referred to above present fairly, in all material respects, the financial position of the Company as of December 31, 1997 and 1996, and the results of their operations and their cash flows for the year ended December 31, 1997 and the thirty-one week period ended December 31, 1996 and of the Predecessor for the twenty-one week period ended May 23, 1996 in conformity with generally accepted accounting principles. Also, in our opinion, such 1997 and 1996 consolidated financial statement schedule, when considered in relation to the basic consolidated financial statements taken as a whole, presents fairly in all material respects, the information set forth therein.
DELOITTE & TOUCHE L.L.P.
Stamford, Connecticut March 20, 1998
Report of Independent Accountants
To the Management Committee of REMINGTON PRODUCTS COMPANY:
We have audited the accompanying consolidated statements of operations, total partners' capital and cash flows of Remington Products Company and Subsidiaries (the "Company") for the year ended December 31, 1995. These financial statements are the responsibility of management of the Company. Our responsibility is to express an opinion on these financial statements based on our audit.
We conducted our audit in accordance with generally accepted auditing standards. Those standards require that we plan and perform the audit to obtain reasonable assurance about whether the financial statements are free of material misstatement. An audit includes examining, on a test basis, evidence supporting the amounts and disclosures in the financial statements. An audit also includes assessing the accounting principles used and significant estimates made by management, as well as evaluating the overall financial statement presentation. We believe that our audit provides a reasonable basis for our opinion.
In our opinion, the financial statements referred to above present fairly, in all material respects, the consolidated results of operations and cash flows of Remington Products Company and Subsidiaries for the year ended December 31, 1995, in conformity with generally accepted accounting principles.
COOPERS & LYBRAND L.L.P.
Stamford, Connecticut March 4, 1996.
Remington Products Company, L.L.C.
Consolidated Balance Sheets (in thousands)
See notes to consolidated financial statements.
Remington Products Company, L.L.C.
Consolidated Statements of Operations (in thousands)
See notes to consolidated financial statements.
Remington Products Company, L.L.C.
Consolidated Statements of Members' Deficit/Partners' Capital (in thousands)
See notes to consolidated financial statements.
Remington Products Company, L.L.C.
Consolidated Statements of Cash Flows (in thousands)
See notes to consolidated financial statements. Remington Products Company, L.L.C.
Notes to Consolidated Financial Statements
1. Summary of Significant Accounting Policies
Remington Products Company, L.L.C. and its wholly owned subsidiaries, (the "Company") manufacture and market electrical personal care appliances. The Company distributes on a worldwide basis men's and women's electrical shavers and accessories, women's personal care appliances, including hairsetters, curling irons and hair dryers, men's electrical grooming products, travel products and other small electrical consumer appliances. The Company's products are sold worldwide through mass merchandisers, catalog showrooms, drugstore chains and department stores in addition to the Company's own service stores.
Organization:
Remington Products Company, L.L.C., a Delaware limited liability company, was formed by Vestar Shaver Corp. ("Vestar Corp. I") and RPI Corp. ("RPI") to acquire (the "Reorganization") the operations of Remington Products Company and its subsidiaries ("RPC"). In May 1996, Vestar Razor Corp. ("Vestar Corp. II") was formed to hold an interest in the Company, Vestar Corp. I and Vestar Corp. II (together, the "Vestar Members") are wholly owned by Vestar Equity Partners, L.P.
Basis of Presentation:
The consolidated balance sheets as of December 31, 1997 and 1996 include the accounts of Remington Products Company, L.L.C. and Subsidiaries, the "Successor" company following the change in ownership on May 23, 1996 (the "Closing Date") (see Note 2) and the consolidated results of operations and cash flows include the accounts for the successor company for the year ended December 31, 1997 and for the period from May 24, 1996 to December 31, 1996. The statements also include the results of operations and cash flows of RPC, the "Predecessor" company, prior to the Closing Date. All significant intercompany accounts and transactions are eliminated in consolidation.
The preparation of financial statements in conformity with generally accepted accounting principles requires management to make certain estimates and assumptions that affect the reported amount of assets and liabilities and disclosure of contingent assets and liabilities at the date of the financial statements and the reported amounts of revenues and expenses during the reported periods. Actual results could differ from those estimates.
Cash and Cash Equivalents:
All highly liquid debt instruments purchased with a maturity of three months from their date of acquisition or less are considered cash equivalents.
Inventories:
The inventories of foreign subsidiaries and purchased product for resale by the merchandising and service store operations are valued at the lower of cost or market utilizing the first-in, first-out (FIFO) method. Domestic manufactured inventories, which represent approximately 15% of the consolidated inventories as of December 31, 1997 and 28% at 1996, are stated at the lower of cost or market, with cost determined by the last-in, first-out (LIFO) method. As of December 31, 1997 and 1996, the excess of current replacement cost over LIFO cost of inventories was not significant. In the fourth quarter of 1996, the Company recorded a charge of approximately $3.9 million for certain inventory valuation adjustments.
Remington Products Company, L.L.C.
Notes to Consolidated Financial Statements (continued)
Property, Plant and Equipment:
Property, plant and equipment is recorded primarily at cost. In conjunction with the Reorganization (See Note 2), property, plant and equipment was restated to reflect fair value excluding the ownership percentage retained by RPI. Depreciation is provided for principally on a straight-line basis over the estimated useful lives of the assets, which range from 3 to 20 years. Leasehold improvements are amortized over the lesser of the lease term or the estimated useful lives of the improvements.
Intangibles:
Patents are being amortized on a straight-line basis over a period of ten years. All other intangibles are amortized on a straight-line basis over 40 years. The Company periodically evaluates the recoverability of goodwill and measures the amount of impairment, if any, by assessing whether the amortization of the goodwill balance over its remaining life can be recovered through undiscounted future operating cash flows.
Costs associated with obtaining financing arrangements are included in other assets and are being amortized over the term of the related borrowings.
Options:
Financial Accounting Statement No. 123, "Accounting for Stock Based Compensation", (SFAS 123) requires expanded disclosures of employee stock based compensation arrangements and encourages, but does not require, employers to adopt a fair value based method of accounting for employee stock based compensation. Under the fair value based method, compensation cost is measured at the grant date based on the value of the option and is recognized over the service period, which is usually the vesting period. As provided by SFAS 123, the Company follows Accounting Principles Board Opinion No. 25, "Accounting for Stock Issued to Employees", for employee stock compensation measurement, which does not require compensation expense recognition when the exercise price of stock options is greater than or equal to current market value at the date of the stock option grant.
Research and Development:
Research and development costs related to both present and future products are expensed as incurred. Such costs totaled $2.8 million for the year ended December 31, 1997; $1.3 million for the thirty-one weeks ended December 31, 1996; $0.8 million for the twenty-one weeks ended May 23, 1996; and $1.9 million for the year ended December 31, 1995.
Income Taxes:
Federal income taxes on net earnings of the Company are payable directly by the partners. In jurisdictions where partnership status is not recognized or foreign corporate subsidiaries exist, the Company provides for income taxes currently payable as well as for those deferred because of temporary differences between the financial and tax bases of assets and liabilities.
Translation of Foreign Currencies:
Assets and liabilities of the Company's foreign subsidiaries are translated at the exchange rate in effect at each balance sheet date. Statement of operations accounts are translated at the weighted average exchange rate for the period. Translation adjustments arising from the use of differing exchange rates from period to period are included in the cumulative translation adjustment account in members' deficit or total partners' capital. Foreign currency transaction gains and losses, including mark-to-market gains and losses on forward contracts are recognized in earnings and totaled $(0.7) million for the year ended December 31, 1997; $(0.7) million for the thirty-one weeks ended December 31, 1996; $(0.1) million for the twenty-one weeks ended May 23, 1996 and $0.2 million for the year ended December 31, 1995.
Remington Products Company, L.L.C.
Notes to Consolidated Financial Statements (continued)
Recent Accounting Pronouncements:
In June of 1997, the Financial Accounting Standards Board ("FASB") issued SFAS No. 130, "Reporting Comprehensive Income," which requires disclosures of comprehensive income to be included in the financial statements for fiscal years beginning after December 15, 1997. The Company will include such statement, if applicable, beginning with the first quarter of 1998.
In addition, in June of 1997, the FASB issued SFAS No. 131, "Disclosure About Seqments of an Enterprise and Related Information." SFAS No. 131 requires disclosures of certain information about operating segments and about products and services, the geographic areas in which a company operates, and their major customers. The Company is presently in the process of evaluating the effect this new standard will have on disclosures in the Company's financial statements and the required information will be reflected in its financial statements for the year eneded December 31, 1988.
Reclassifications:
Certain prior year amounts have been reclassified to conform with the current year presentation.
2. Reorganization
RPC was a general partnership, jointly owned and controlled by RPI and Remsen Partners ("Remsen"). As a result of the Reorganization of RPC, the following transactions occurred: (i) RPC made cash payments to Remsen and RPI totalling $135.4 million (less the amount of certain excluded obligations and net of a working capital adjustment), (ii) the Vestar Members purchased Remsen's interest in RPC for $33.4 million in cash; (iii) certain members of senior management of RPC (the "Management Investors") acquired an equity interest in the Company, for $1.12 million (including a cash purchase of $0.86 million and assuming exercise of certain management options with an aggregate exercise price of $0.26 million), (iv) RPI retained an equity investment in the Company with an implied value of $35.4 million, and (v) RPC merged with and into the Company. In addition, $41.3 million of existing indebtedness of RPC was refinanced.
The Reorganization has been accounted for as a purchase transaction effective as of the Closing Date, in accordance with Accounting Principles Board Opinion No. 16, Business Combinations, and EITF Issue No. 88-16, Basis in Leveraged Buyout Transactions, and accordingly, consolidated financial statements for periods subsequent to the Closing Date reflect the purchase price, including transaction costs, allocated to tangible and intangible assets acquired and liabilities assumed, based on their estimated fair values as of the Closing Date. The valuation of assets and liabilities acquired reflect carryover basis for the percentage ownership retained by RPI.
The Reorganization reflected the following adjustments (in thousands):
Remington Products Company, L.L.C.
Notes to Consolidated Financial Statements (continued)
(1) Consists of cash payments to Remsen and RPI of $90,351 and $45,049 (net of the final working capital adjustment), respectively, which were reduced by $13,708 for certain excluded obligations, and $4,350 of direct acquisition costs.
(2) The fair value of equity interests issued to RPI consists of Preferred Equity with a liquidation preference of $32,000 and Common Units with a fair value of $3,400, based on the cash paid by the Vestar members and certain Management Investors for their respective equity interests. RPI's predecessor basis in RPC was $8,208.
(3) Represents historical total partners' capital of RPC adjusted to reflect $13,708 for certain excluded obligations.
(4) Represents adjustments to decrease the fair value of the interests retained by RPI and certain Management Investors to reflect their carryover basis.
(5) Represents the adjustments required to record the allocation of the excess of the consideration paid over RPC's historical basis in the net assets acquired, adjusted to reflect their carryover basis. The acquired assets are recorded 53.07% at fair value (for the common equity interest acquired by the Vestar members and certain of the Management Investors) and 46.93% at carryover basis (for the residual common equity interests retained by RPI and certain of the Management Investors).
(6) Represents debt issuance costs of $9,075 net of a $612 write-off of deferred financing costs related to existing debt being repaid.
3. Inventories
Inventories were comprised of the following as of December 31, 1997 and 1996 (in thousands):
Remington Products Company, L.L.C.
Notes to Consolidated Financial Statements (continued)
4. Property, Plant and Equipment
Property, plant and equipment as of December 31, 1997 and 1996 consisted of (in thousands):
5. Intangibles
Intangibles were comprised of the following (net of accumulated amortization of $3,129 and $1,195 thousand) as of December 31, 1997 and 1996, respectively (in thousands):
6. Accrued Liabilities
Accrued liabilities were comprised of the following as of December 31, 1997 and 1996 (in thousands):
7. Debt
Senior Credit Agreement
On the Closing Date, the Company entered into a credit agreement (the "Senior Credit Agreement") with a syndicate of banks. The Senior Credit Agreement, as amended, provides for a term loan of $5.0 million to the Company and $5.0 million to the Company's U.K. subsidiary (the "Term Loans") and a revolving credit facility of $50.0 million to the Company and $20.0 million to the Company's U.K. subsidiary (the "Revolving Credit Facilities"). The Senior Credit Agreement expires on June 30, 2002. The initial borrowings under the Senior Credit Agreement, along with the proceeds of the Senior Subordinated Notes, were used to repay the debt of the predecessor company.
Remington Products Company, L.L.C.
Notes to Consolidated Financial Statements (continued)
The Revolving Credit Facilities are subject to a borrowing base of 85% of eligible accounts receivable and 60% of eligible inventory for the applicable borrower. As of December 31, 1997, availability under the Revolving Credit Facilities was approximately $12.5 million. The availability has been reduced by approximately $1.9 million in short-term commercial and stand-by letters of credit outstanding as of December 31, 1997. The term loans under the Senior Credit Agreement are payable in quarterly installments. Aggregate scheduled installments over the next five years ending December 31, 2002 are $1.4, $1.6, $1.9, $3.1 and $1.0 million, respectively. The obligations under the Senior Credit Agreement are guaranteed by each of the Company's domestic subsidiaries and secured by their assets and properties and pledge of the common equity interests.
At the Company's option, the interest rates per annum applicable to the loans under the Senior Credit Agreement will be based upon (a) in the case of the Company, a Eurodollar rate ("LIBOR") plus 2.25% or the greater of (i) the prime rate plus 1.0% and (ii) the federal funds rate plus 1.5% and (b) in the case of loans to the Company's U.K. subsidiary, a EuroSterling Rate (the "EuroSterling Rate") plus 2.25% or the Sterling Base Rate plus 1.0%; provided, however, the interest rates are subject to reduction if certain requirements of financial performance are met. Interest is payable quarterly in arrears, including a commitment fee of 0.5% on the average daily unused portion of the Revolving Credit Facilities.
11% Senior Subordinated Notes
The 11% Series B Senior Subordinated Notes due 2006 (the "Senior Subordinated Notes") are general unsecured obligations of the Company which mature on May 15, 2006. Interest accrues at the rate of 11% per annum and is payable semi-annually in arrears. The Senior Subordinated Notes are redeemable, in whole or in part, at the option of the Company at any time on or after May 15, 2001 at a redemption price ranging from 105.5% to 100.0% of the principal amount then outstanding plus accrued and unpaid interest, depending when redeemed, and any applicable damages. In addition, on or prior to May 15, 1999, the Company may redeem up to 35% in aggregate principal amount of the Senior Subordinated Notes at a redemption price of 111.0% of the principal amount plus accrued and unpaid interest and any applicable damages with the net proceeds of one or more offerings of capital stock subject to certain terms and conditions.
Short Term Borrowings
Short Term Borrowings consist of local revolving credit lines at certain of the Company's foreign subsidiaries. These facilities are collateralized by assets of the subsidiaries or are guaranteed by the Company. The weighted average interest rate under these facilities was approximately 5.9% in 1997 and 5.1% in 1996.
Debt Covenants
The Senior Credit Agreement requires the Company to meet certain financial tests, the more restrictive of which require the Company to maintain certain interest coverage and leverage ratios, as defined. The Senior Subordinated Note indenture and the Senior Credit Agreement also contain a number of operating covenants which limit the discretion of Management with respect to certain business matters, including the amount and terms under which the Company can obtain additional financing in the future. In addition, these agreements limit the amount of dividends that the Company is permitted to pay.
Subsequent to December 31, 1997, the Company amended the Senior Credit Agreement to adjust the financial covenants prospectively based upon a review of expected future operating performance. As a result of the amendment,
Remington Products Company, L.L.C.
Notes to Consolidated Financial Statements (continued)
the Revolving Credit Facilities' borrowing base can be increased as needed by $10 million over the applicable percentage of eligible receivables and inventories, (still limited to the $70 million total facilities) for the period April 1, 1998 through June 30, 1999. In addition, the interest rate on borrowings under the Revolving Credit Facilities will be increased by one quarter percent during any period that any of the additional $10 million in borrowing base is utilized.
Details of long-term debt at December 31, 1997 and 1996 are as follows (in thousands):
8. Members' Equity
The Vestar Members, RPI and certain Management Investors (collectively the "Members") have entered into an Amended and Restated Limited Liability Company Agreement (the "LLC Agreement"). The Company was organized as a limited liability company because such an entity would (i) shield the members from unlimited liability and (ii) qualify as a pass-through entity for tax purposes. The LLC Agreement will govern the relative rights and duties of the Members.
The ownership interests of the Members in the Company consist of preferred members' equity (the "Preferred Equity") and common units (the "Common Units"). The Common Units represent the common equity of the Company. The Preferred Equity is entitled to a preferred yield of 12% per annum, compounded quarterly, and to an aggregate liquidation preference of $62 million (net of any prior repayments of Preferred Equity) plus any accrued but unpaid preferred yield. As of December 31, 1997 the aggregate unpaid Preferred Equity dividend amounted to $12.9 million.
As a result of the Reorganization, on the Closing Date, RPI had a $35.4 million equity interest in the Company ($32.0 million in Preferred Equity) and the Vestar Members had a $33.4 million equity interest in the Company ($30.0 million in Preferred Equity). As of December 31, 1997, the Company's Common Units were owned 49.8% by the Vestar Members, 49.8% by RPI and 0.4% by certain Management Investors. Vestar Corp. I controls the Management Committee and the affairs and policies of the Company.
On the Closing Date, certain Management Investors were granted options (the "Management Options") to acquire in the aggregate, up to 2,580 Common Units at an exercise price of $100 per unit, the fair market value of the Common Units as of the Closing Date. The effect of applying the fair value method as prescribed by SFAS No. 123 to the Comany's stock-based awards results in net losses that are not materially different than those reported.
In January 1998, the Company repurchased the remaining outstanding common units owned by the Management Investors and cancelled all outstanding Management Options and adopted a new Phantom Equity Program. Under this program a maximum of 21% of the value of the Company's Common Units and Preferred Equity (together, the "Equity") can be awarded to selected officers and other key employees of the Company . The Phantom Equity Program is comprised of time based (consisting of 12 1/2% of the Equity), performance based (6 1/2%) and super performance (2%) based awards. All awards grant to the recipient a specified percentage of the Equity (the "applicable percentage").
A time based award vests in five equal annual installments, upon the sale of the Company or upon an initial public offering of the Company's stock ("IPO"), whichever comes first. The performance and super performance based awards are similar to the time based awards except that performance based award vests in stages as the Company achieves
Remington Products Company, L.L.C.
Notes to Consolidated Financial Statements (continued)
specified performance targets while the super performance based award vests entirely upon the achievement of a single target. Payment of the performance based awards does not occur until and is dependent upon the achievement of both a performance criteria and an event criteria. The event criteria is a Company sale or when Vestar's ownership falls below 10% of the Common Units. The performance criteria for the performance based award vests in segments as the Company achieves specified performance targets while there is only one target for the super performance based award. Any performance or super performance based award which is not fully vested by December 31, 2002 is automatically terminated.
The Phantom Equity Program and all awards are subject to readjustment in the event of a reorganization of the Company required in connection with a refinancing, and the applicable percentages are subject to readjustment to take into consideration new issuances of Equity.
9. Income Taxes
Federal income taxes on net earnings of the Company are payable directly by the partners pursuant to the Internal Revenue Code. Accordingly, no provision has been made for Federal income taxes for the Company. However, certain state and local jurisdictions do not recognize partnership status for taxing purposes and require taxes be paid on net earnings. Furthermore, earnings of certain foreign operations are taxable under local statutes. Foreign pretax earnings/(losses) were $6,023, $7,785, $(2,433) and $7,632 thousand for the year ended December 31, 1997, the 31 weeks ended December 31, 1996, the 21 weeks ended May 23, 1996, and the year ended December 31, 1995, respectively.
The provision (benefit) for income taxes consists of the following (in thousands):
Current deferred tax assets of the foreign subsidiaries as of December 31, 1997 and 1996 totaled $145 and $101 thousand, respectively.
Remington Products Company, L.L.C.
Notes to Consolidated Financial Statements (continued)
10. Commitments and Contingencies
The Company is liable under the terms of noncancelable operating leases of real estate and equipment for minimum annual rent payments as follows (in thousands):
Rent expense was $6,014, $3,760, $2,095 and $5,469 thousand for the year ended December 31, 1997, the thirty-one weeks ended December 31, 1996, the twenty-one weeks ended May 23, 1996 and for the year ended December 31, 1995, respectively.
The majority of the leases contain escalation clauses which provide for increases in base rentals to recover future increases in certain operating costs. The future minimum rental payments shown above include base rentals with known escalations. Lease agreements may include renewal options and usually require that the Company pay for utilities, taxes, insurance and maintenance expenses.
The Company is involved in legal and administrative proceedings and claims of various types. While any litigation contains an element of uncertainty, management believes that the outcome of each such proceeding or claim which is pending or known to be threatened, or all of them combined, will not have a material adverse effect on the Company's consolidated financial position or results of operations.
11. Employee Savings Plan
UK Pension Plan. The Company's UK subsidiary has a contributory defined benefit pension plan which covers substantially all of the UK subsidiary's employees. Pension benefits are based upon length of service and compensation under a final compensation averaging formula. The Company's funding policy is to make contributions consistent with statutory requirements. The plan's assets are primarily invested in equity instruments. Net pension cost for the years ended December 31, 1997 and 1996 were approximately $271and $388 thousand, respectively.
The plan's funded status as of December 31, 1997 and 1996 are as follows (in thousands):
Remington Products Company, L.L.C.
Notes to Consolidated Financial Statements (continued)
Employee Savings Plan. The Company has a savings accumulation plan (the "Plan") under Section 401(k) of the Internal Revenue Code covering substantially all regular employees. The Plan is subject to the provisions of ERISA and has been updated for subsequent amendments. The Plan allows for employees to defer up to the lesser of 15% of their annual earnings or within limitations on a pre-tax basis through voluntary contributions to the plan. The Plan provides for contributions in an amount equal to 40% of their employees' contributions up to a maximum of 5% of their total salary. The Company's matching contributions were $237, $94, $52 and $104 thousand for the year ended December 31, 1997, the thirty-one weeks ended December 31, 1996, the twenty-one weeks ended May 23, 1996 and for the year ended December 31, 1995, respectively.
12. Financial Instruments, Credit Risk and Other
Fair Value of Financial Instruments:
The carrying amounts for cash and cash equivalents, accounts receivable, short-term borrowings, accounts payable and accrued liabilities approximate fair value due to the short maturities of these instruments. At December 31, 1997, the difference between contract rate and fair value on the Company's foreign currency forward contracts was not material. The fair value of long-term debt was approximately $157.3 million (book value of $178.1 million). Concentration of Credit Risk:
Financial instruments, which potentially subject the Company to concentration of credit risk, consist principally of cash and accounts receivable. The Company places its cash with high credit quality institutions. At times such amounts may be in excess of the FDIC insurance limits. As of December 31, 1997, the Company had uncollateralized receivables with two mass-merchant retailers which represented approximately 22% of the Company's accounts receivable balance. During calendar 1997, sales to these two customers represented approximately 19% of the Company's net sales. The Company performs ongoing credit evaluations of its customers' financial condition but does not require collateral to support customer receivables. The Company establishes an allowance for doubtful accounts based upon factors surrounding the credit risk of specific customers, historical trends and other information.
Foreign Currency Exposure Management:
The Company has entered into foreign currency forward contracts to mitigate the effect of fluctuating foreign currencies on intercompany transactions and balances between U.S. and foreign operations. Realized and unrealized gains and losses on such contracts are recognized in income as an offset to gains or losses on the underlying intercompany transactions. At December 31, 1997, forward contracts to sell 15.3 million UK Pounds Sterling were outstanding, all of which mature in 1998. At December 31, 1996, forward contracts to sell 18.7 million UK Pounds Sterling were outstanding and matured at various dates through 1997.
Other
A substantial portion of the Company's finished goods are manufactured for the Company by certain third-party suppliers located in China, Japan and Thailand. Although the Company considers its present relationships with these suppliers to be good, any adverse change in the relationships with these suppliers, the financial condition of such
Remington Products Company, L.L.C.
Notes to Consolidated Financial Statements (continued)
suppliers, the Company's ability to import outsourced products or the suppliers' ability to manufacture and deliver outsourced products on a timely basis would have a material adverse effect on the Company.
13. Related Party Transactions
Pursuant to a management agreement (the "Management Agreement") entered into by the Company as of the Closing Date, Vestar Capital Partners ("Vestar Capital"), an affiliate of the Vestar Members, will receive an annual advisory fee equal to the greater of $500 thousand and 1.5% of EBITDA (as defined in such agreement) of the Company on a consolidated basis for rendering advisory and consulting services in relation to strategic financial planning and other affairs of the Company. Vestar Capital will also be paid reasonable and customary investment banking fees in connection with an initial public offering, sale of the Company and other financing. In addition, Vestar Capital received a fee in the amount of $2.0 million from the Company on the Closing Date. The Management Agreement will be in effect until the tenth anniversary of the Closing Date, provided that the Management Agreement will terminate on the earlier to occur of: (i) a qualified public offering or (ii) the first date that an affiliate of Vestar Capital owns less than 25% of the number of the Company's Common Units owned by Vestar Capital on the Closing Date, and provided further that Vestar Capital may terminate the Management Agreement at any time.
Pursuant to a consulting and transitional services agreement (the "Consulting Agreement") entered into by the Company as of the closing Date, RPI will receive an aggregate annual fee equal to the sum of (i) the greater of $500 thousand or 1.5% of EBITDA (as defined in such agreement) of the Company on a consolidated basis and (ii) $250 thousand in 1996, 1997 and 1998 if the Company's net revenues or EBITDA (as defined in such agreement) exceed certain targets in such years, for rendering advisory and consulting services in relation to strategic financial panning, product development and evaluation of mergers, acquisitions and divestitures. The Consulting Agreement will be in effect until the tenth anniversary of the Closing Date, provided that the Consulting Agreement will terminate on the earlier to occur of: (i) a qualified public offering or (ii) the first date that RPI owns less than 25% of the number of the Company's Common Units owned by RPI on the Closing Date, and provided further that Vestar Capital may terminate the Consulting Agreement at any time (but only to the extent that Vestar Capital also terminates similar provisions of the Management Agreement).
The Company utilized consultants from an entity controlled by a director of the Company for a limited duration project during 1996. The Company recorded fees to the consultants of $323 thousand for this project which has been completed.
During January 1995, RPC entered into a barter transaction with an entity controlled by one of RPC's partners. RPC exchanged inventory with a cost of $4,275 thousand for barter credits that can be used to pay for media advertising at a predetermined rate of cash and barter credits. During 1995, RPC incurred $2,948 thousand for media advertising purchased through the related entity, of which $521 thousand represented utilization of the barter credits. The entity ceased being a related party as of the Closing Date.
RPC utilized various consultants (principally in its computer and service store operations) from an entity controlled by one of RPC's partners. RPC was billed based upon a prearranged hourly amount and was charged $37 and $381 thousand for related services during the twenty-one weeks ended May 23, 1996 and for the year ended December 31, 1995, respectively. Fees paid to an entity controlled by the other RPC partner amounted to $54 thousand for transportation services and reimbursement of the partner's expenses during the year ended December 31, 1995.
Remington Products Company, L.L.C.
Notes to Consolidated Financial Statements (continued)
RPC acquired certain products for resale in its service stores from companies owned by each of RPC's partners. Such purchases aggregated approximately $80 and $94 thousand during the twenty-one weeks ended May 23, 1996 and for the year ended December 31, 1995, respectively.
In 1995, RPC paid $984 thousand of costs incurred on behalf of the partners. Approximately $800 thousand of such costs related to various change in ownership transactions, which were not completed. The remaining $184 thousand was paid to one of RPC's partners.
14. Geographic Information
The Company operates in one industry segment, the manufacture and marketing of electrical personal care appliances. The Company sells its products principally through mass merchandisers and its own service stores in the United States and also has merchandising operations in Europe (principally U.K. and Germany) and other countries (principally Australia and Canada).
Information by geographical location is as follows (in thousands):
*Net Sales exclude sales from the United States to affiliate companies and sales between affiliates of $8,638, $7,812, $2,716 and $11,366 thousand for the year ended December 31, 1997, the 31 weeks ended December 31, 1996, the 21 weeks ended May 23, 1996 and the year ended December 31, 1995, respectively.
Export sales to unaffiliated customers are included in the United States and are not significant. Identifiable assets in the United States includes the majority of the Company's intangible assets.
Report of Independent Accountants
To the Management Committee of REMINGTON PRODUCTS COMPANY:
Our report on the consolidated statements of operations, total partner's capital and cash flows of Remington Products Company is included on page of this Form 10-K. In connection with our audit of such financial statments, we have also audited the related financial statement schedule listed in the index on page of this Form 10-K.
In our opinion, this financial statement schedule referred to above, when considered in relation to the basic financial statements taken as a whole, presents fairly, in all material respects, the information required to be included therein.
COOPERS & LYBRAND L.L.P.
Stamford, Connecticut March 4, 1996
S-1
REMINGTON PRODUCTS COMPANY
Schedule II--Valuation & Qualifying Accounts (in thousands)
S-2