-----BEGIN PRIVACY-ENHANCED MESSAGE----- Proc-Type: 2001,MIC-CLEAR Originator-Name: webmaster@www.sec.gov Originator-Key-Asymmetric: MFgwCgYEVQgBAQICAf8DSgAwRwJAW2sNKK9AVtBzYZmr6aGjlWyK3XmZv3dTINen TWSM7vrzLADbmYQaionwg5sDW3P6oaM5D3tdezXMm7z1T+B+twIDAQAB MIC-Info: RSA-MD5,RSA, QDbGmiFTiwBd71SBL/I6ohOdFSWLxJOL1uItHpT0Q2cte5SdxfkjnH36MLZdTGs8 vwBrUqLU+iN9439fd947sg== 0001017710-99-000003.txt : 19990402 0001017710-99-000003.hdr.sgml : 19990402 ACCESSION NUMBER: 0001017710-99-000003 CONFORMED SUBMISSION TYPE: 10-K PUBLIC DOCUMENT COUNT: 6 CONFORMED PERIOD OF REPORT: 19981231 FILED AS OF DATE: 19990331 FILER: COMPANY DATA: COMPANY CONFORMED NAME: REMINGTON PRODUCTS CO LLC CENTRAL INDEX KEY: 0001017710 STANDARD INDUSTRIAL CLASSIFICATION: ELECTRIC HOUSEWARES & FANS [3634] IRS NUMBER: 061451076 STATE OF INCORPORATION: DE FISCAL YEAR END: 1231 FILING VALUES: FORM TYPE: 10-K SEC ACT: SEC FILE NUMBER: 333-07429 FILM NUMBER: 99581627 BUSINESS ADDRESS: STREET 1: 60 MAIN STREET STREET 2: 60 MAIN STREET CITY: BRIDGEPORT STATE: CT ZIP: 06604 BUSINESS PHONE: 2033674400 10-K 1 ANNUAL REPORT ON FORM 10-K SECURITIES AND EXCHANGE COMMISSION Washington, D.C. 20549 FORM 10-K [X] ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 - For the fiscal year ended December 31, 1998. OR [ ] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934. Commission file number 333-07429 Remington Products Company, L.L.C. ------------------------------------------------- (Exact name of registrant as specified in its charter) Delaware 06-1451076 - ------------------------------- ---------------------- (State or other jurisdiction of (IRS Employer incorporation or organization) Identification No.) 60 Main Street, Bridgeport, Connecticut 06604 - ---------------------------------------- ----------------- (Address of principal executive offices) (Zip Code) Registrant's telephone number, including area code: (203) 367-4400 -------------- Securities registered pursuant to Section 12(b) of the Act: Title of Each class Name of each exchange on which registered - ------------------- ----------------------------------------- None None Securities registered pursuant to Section 12(g) of the Act: 11% Series B Senior Subordinated Notes due 2006 ----------------------------------------------- (Title of Class) Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days. Yes x/ No _____ Indicate by check mark if disclosure of delinquent filers pursuant to Item 405 of Regulation S-K is not contained herein, and will not be contained, to the best of registrant's knowledge, in definitive proxy or information statements incorporated by reference in Part III of this Form 10-K or any amendment to this Form 10-K. [x/] PART I ITEM 1. Business General Remington Products Company, L.L.C. (the "Company" or "Remington") is a leading developer and marketer of men's and women's electrical personal care appliances. The Company distributes men's and women's electric shavers and accessories, women's personal care appliances, including hairsetters, hair dryers and curling irons, men's electric grooming products and other small electric consumer appliances. The Company is a Delaware limited liability company that will continue in existence until December 31, 2016 or dissolution prior thereto as determined under the Company's LLC Agreement. Description of Business The Company distributes men's and women's electrical personal care appliances through its three operating segments which are comprised of 1) the United States segment, which sells product through mass-merchant retailers, department stores and drug chains, 2) the U.S. Service Stores segment comprised of more than 100 Company-owned and operated service stores, and 3) the International segment, which sells product through an international network of subsidiaries and distributors. Products On a worldwide basis, the Company's electrical personal care products are relatively similar and consist of the following: Electric Shavers. The Company's primary men's electric shaver line is the MicroScreen(R) line of single, dual and triple foil shavers, each with the MicroScreen(R) cutting system. In addition, the Company also has the Intercept(R) line of premium shavers, with the intercept shaving system that sandwiches a trimmer-style cutter between two foil heads, a line of men's MicroFlex((TM)) rotary shavers and certain specialty shavers such as the "Wet/Dry Sport" shaver. The women's electric shaver line primarily includes the women's Smooth & Silky(R) wet/dry shaver and the women's wet/dry battery operated shaver. The Company distributes electric shaver accessories consisting of shaver replacement parts (primarily foils and cutters), preshave products and cleaning agents. Electric shavers and shaver accessories accounted for approximately 46%, 42% and 44% of the Company's total net sales for the years ended December 31, 1998, 1997 and 1996, respectively. Women's Personal Care Appliances. Women's personal care appliances consist primarily of hairsetters, hair dryers, curling irons, hot air brushes and make-up mirrors. The Company's hairsetter products include the Remington Express Set(R) hairsetter, which heats in 90 seconds, the Smart Setter(R) hairsetter, which incorporates a proprietary technology that indicates to users when optimum heat levels have been reached by changing the color of the rollers, and the Style Setter(R). Women's personal care appliances accounted for approximately 22%, 25% and 28% of the Company's total net sales for the years ended December 31, 1998, 1997 and 1996, respectively. -2- Men's Grooming Products. Men's grooming products consist of the Precision (TM) lines of beard and mustache trimmers and nose hair and ear hair trimmers as well as a line of home haircut kits. Total men's grooming products accounted for approximately 10% of the Company's total net sales for the years ended December 31, 1998, 1997 and 1996. Other Products. Remington distributes a line of home health appliances including foot spas, facial steamers and other personal comfort items, as well as other small appliances such as vacuums which are sold primarily outside the United States. Distribution The Company's products are sold in the United States and internationally in over 85 countries through mass merchandisers, catalog showrooms, drug store chains and department stores in addition to the Company's 126 service stores. In the United States, the Company sells products through mass-merchant retailers such as Wal-Mart, K-Mart and Target, department stores such as Sears, drug store chains including Walgreens, Eckerd and Rite Aid, and Remington's own service stores. Throughout the United States, the Company's products are sold in excess of 10,000 retail outlets. On a worldwide basis, Wal-Mart accounted for approximately 19%, 15% and 16% of the Company's net sales during the years ended December 31, 1998, 1997 and 1996, respectively. No other customer accounted for more than 10% of the Company's net sales in the three year period ended December 31, 1998. Service Stores As of December 31, 1998, the Company owned and operated a chain of 126 service stores with 104 in the United States, 12 in the United Kingdom and 10 in Australia. During 1998, the Company opened a net of 11 service stores in the United States, two stores in the United Kingdom and one store in Australia. The stores in the United States are in many of the major markets with concentrations on the East Coast and in the major cities of the South and West. The majority of the stores are located in shopping malls and outlet malls within large metropolitan areas. The stores sell and service a variety of Remington and non-Remington shavers and accessories, personal care appliances, knives, scissors, travel appliances and other related products. The service stores also oversee sales of replacement parts to approximately 300 independent authorized shaver service dealers across the United States. In 1998, the Company's service stores generated approximately 19% of the worldwide net sales. Manufacturing Operations During 1998, the Company ceased the assembly of foil shavers in Bridgeport and moved the operation to Raymond Industrial Ltd. ("Raymond"), an existing Remington partner-vendor in Asia. The shutdown of the assembly operation resulted in the elimination of approximately 220 positions in the Bridgeport -3- facility. Remington continues to manufacture foil cutting systems at its Bridgeport, Connecticut facility using proprietary cutting technology and a series of specially designed machines. Suppliers The Company's finished goods inventories are manufactured for the Company by third party suppliers primarily located in China, Japan and Austria. The Company maintains ownership of tools and molds used by many of its suppliers. The Company's two most significant suppliers, Izumi Products, Inc. ("Izumi") and Raymond, accounted for approximately 40% of the Company's overall cost of sales in 1998. These two suppliers' manufacturing facilities are located in China and Japan. Remington has had a relationship with these suppliers for many years and management considers its present relationships to be good. Research and Product Development The Company believes that research and development activities are an important part of the Company's business and are essential to its long-term prospects. Research and development efforts at Remington allow the Company to maintain its unique manufacturing strength in cutting systems for shavers. The Company is continuously pursuing new innovations for its line of shavers including foil improvements and new cutting and trimmer configurations. The Company also devotes resources to the development of new technology for other products such as women's personal care products, including hairsetters, hair dryers and curling irons, as well as for men's grooming products. The Company has continued to increase its investment in research and development activities in recent years. During 1998, 1997 and 1996, research and development expenditures for the Company amounted to approximately $3.1, $2.8 and $2.1 million, respectively. Patents and Trademarks The Company owns approximately 180 patent and patent applications for both design and utility that are maintained in approximately 40 countries. The Company's patents cover electric shavers, cutting and trimming mechanisms and women's personal care products such as hairsetters, hair dryers and curling irons. In addition, the Company maintains over 300 different trade names in approximately 100 countries covering a variety of products. These trade names have resulted in the issuance of over 1,300 registered trademarks. As a result of the common origins of the Company and Remington Arms Company, Inc. ("Remington Arms"), the Remington mark is owned by each company with respect to its principal products as well as associated products. Thus, the Company owns the Remington mark for shavers, shaver accessories, grooming products and health care products, while Remington Arms owns the mark for firearms, sporting goods and products for industrial use, including industrial hand tools. The terms of a 1986 agreement between the Company and Remington Arms provided for their respective rights to use the Remington trademark on products which are not considered "principal products of interest" for either company. A separate company, Remington Licensing Corporation, owns the Remington trademark in the U.S. with respect to any overlapping uses and the Company and Remington Arms are each licensed to use the mark in their respective areas of interest. The Company retains the Remington trademark for nearly all products which it believes can benefit from the use of the brand name in the Company's distribution channels. The Company has aggressively enforced its ownership of the Remington brand name. -4- Competition The Company believes that the markets for all of its product lines are highly competitive and that competition for retail sales to consumers is based on several factors, including brand name recognition, value, quality, price and availability. Primary competitive factors with respect to selling such products to retailers are brand reputation, product categories offered, broad coverage within each product category, support and service in addition to price. Remington competes with established companies, several of which have substantially greater resources than those of the Company. There are no substantial regulatory barriers to entry for new competitors in the electric personal appliance industry. However, suppliers that are able to maintain, or increase, the amount of retail shelf space allocated to their respective products may gain a competitive advantage. The Company believes that the allocation of space by retailers is influenced by many factors, including brand name recognition by consumers, product quality and prices, service levels provided by the supplier and the supplier's ability to support promotions. The rotary shaver market is significant outside the United States. The future expansion of sales of the Company's rotary shavers outside the United States will be affected by, among other factors, the outcome of ongoing legal actions against Philips Electronics, N.V. ("Philips"). Philips holds patents and trademarks outside the United States on certain of its shaver designs that restrict the Company from entering these markets. The Company is currently involved in litigation challenging such trademarks and patents in the United Kingdom and Australia. Refer to Item 3. Legal Proceedings. Employees As of December 31, 1998, the Company employed approximately 970 people in the United States and abroad of which approximately 220 were employed part-time in the Company's service stores. None of the Company's employees are represented by a union. Remington believes relations with its employees are good. Environmental Matters The Company's manufacturing operations are subject to federal, state and local environmental laws and regulations. The Company believes it is in substantial compliance with all such environmental laws which are applicable to its operations. The Company has reported to the Connecticut Department of Environmental Protection (the "CTDEP") that it has detected petroleum and solvent compounds in soil and ground water samples taken from its Bridgeport facility. Investigations have been conducted and the results and remediation plan will be submitted to the CTDEP for approval. In addition to its ongoing program of environmental compliance, the Company has provided reserves to cover the anticipated costs of the remediation required at its Bridgeport facility to be incurred over the next three to five years. The Company believes that any required change to the reserves due to the inherent uncertainties as to the ultimate costs for the remediation activities which are eventually undertaken would not be material to the Company's financial position and results of operations. -5- International Operations and Distribution Remington's international operations generated approximately 39%, 43% and 39% of the Company's net sales in 1998, 1997 and 1996, respectively. The Company's international network of subsidiaries and distributors currently extends to over 85 countries worldwide. The Company markets products throughout Europe, the Middle East, Africa, Asia and a portion of South America through its subsidiary in the United Kingdom, and distributes products to Japan, Central America and the remainder of South America from its United States headquarters. The Company distributes its products through direct sales forces located in the United Kingdom, Australia, Canada, Germany, France, New Zealand, South Africa, Sweden, Ireland and Italy. In all other parts of the world the Company distributes its products through strategic alliances with local distributors. As in the United States market, the primary asset of the Company's international operations is the Remington brand name. The Company distributes products internationally through department stores, catalog showrooms, mass merchandisers, drug stores, specialized shaver shops and mail order distributors as well as the Company's service stores in the United Kingdom and Australia. As in the United States, Remington has established direct relationships with many of the leading international retailers. Additional financial information relating to Remington's international operations is set forth in Note 15 (Business Segment and Geographic Information) of the "Notes to Consolidated Financial Statements" of the Company appearing elsewhere herein. ITEM 2. Properties The following table sets forth information as of December 31, 1998 concerning the principal facilities of the Company. Facility Function Square Feet Bridgeport, CT Headquarters (Owned) 40,000 Bridgeport, CT Manufacturing (Owned) 167,000 In addition to these properties, Remington leases offices and warehouse space in the United States, Canada, United Kingdom, Germany, France, Italy, Australia, New Zealand, South Africa, Ireland, Sweden and Hong Kong, and 126 service stores, of which 104 are in the United States, 12 are in the United Kingdom and 10 are in Australia. -6- ITEM 3. Legal Proceedings The Company and Philips are engaged in litigation in the United Kingdom and Australia relating to certain trademarks and designs issued to Philips relating to Philips' triple head rotary shaver. In these proceedings, Philips alleged infringement of its trademarks and designs by the Company and the Company counter-claimed that Philips' trademark and design registrations are invalid. The U.K. trial court found in favor of the Company and Philips has appealed that decision. The trial in the Australian action was completed in September 1998 and the Company is awaiting the decision of the trial judge. The costs of defending the U.K. and Australian litigation are, in most circumstances, shared with Izumi, the Company's supplier of rotary shavers. Izumi is also pursuing actions against Philips in Sweden to contest the validity of certain of Philips' trademarks. If such litigation is ultimately determined adversely to the Company or Izumi, the Company's ability to sell rotary shavers in such countries could be limited or prohibited. In 1998, the Company's net sales of rotary shavers in Europe and Australia were not material. The Company is a party to other lawsuits and administrative proceedings that arose in the ordinary course of business. Although the final results in such suits and proceedings cannot be predicted, the Company presently believes that any liability that may ultimately result will not have a material adverse effect on the Company's financial position or results of operations. ITEM 4. Submission of Matters to a Vote of Securities Holders No matters were submitted to a vote of securities holders. PART II ITEM 5. Market for Registrant's Common Equity and Related Stockholder Matters (a) Market Information All of the Company's outstanding equity securities are privately held. (b) Holders As of March 15, 1999, there were two holders of the common equity securities of the Company. -7- (c) Dividends No cash distributions have been paid on the common and preferred equity of the Company since the Closing Date. Prior to the reorganization of the Company in May 1996, as discussed in Note 2 of the "Notes to the Financial Statements", the Company operated as a general partnership and cash distributions were made to the partners. In addition, the Company's long-term debt arrangements, which are discussed in Note 7 of the "Notes to Consolidated Financial Statements", significantly restrict the payment of dividends. (d) Recent Sales of Unregistered Securities None. Item 6. Selected Financial Data The following table summarizes selected financial information and should be read in conjunction with "Management's Discussion and Analysis of Financial Condition and Results of Operations" and the Financial Statements and accompanying notes thereto appearing elsewhere herein (in thousands):
Successor Predecessor ------------------------------------------------ ------------------------------------------ Year Year 31 Weeks 21 Weeks Year Ended Ended Ended Ended Ended December 31, December 31, December 31, December 31, May 23, -------------------------- 1998 1997 1996 1996 1995 1994 ----------- -------------- ----------- ---------- ----------- ---------- Statement of Operations Data: Net sales $ 268,357 $ 241,572 $ 185,286 $ 56,713 $ 255,323 $ 261,446 Operating income (loss) 6,016 (1) 14,146 12,508 (16,951) 26,516 21,228 Interest expense 20,499 19,318 12,164 2,228 7,604 6,414 Net income (loss) (15,337) (7,923) (3,172) (18,191) 17,240 14,725 Depreciation and amortization 5,169 4,767 2,379 2,005 4,938 4,243 Balance Sheet Data (at period end): Working capital $ 68,294 $ 76,361 $ 77,860 N/A $ 47,223 $ 62,862 Total assets 195,727 205,245 214,823 N/A 170,922 160,543 Total debt 187,668 181,240 171,631 N/A 56,990 55,093 Cumulative Preferred Dividend (2) 22,336 12,932 4,576
- ---------------------------- (1) Includes non-recurring charges related to restructuring and reorganization activities of $9.6 million. (2) Dividend payments are subject to restrictions by the terms of the Company's debt agreements. -8- ITEM 7. Management's Discussion and Analysis of Financial Condition and Results of Operations Results of Operations The following table sets forth the Company's consolidated statements of operations, including net sales by its U. S., U.S. service stores, and International operating segments, as well as the Company's consolidated results of operations as a percentage of net sales for the years ended December 31, 1998, 1997 and 1996. To facilitate comparison of the operating results of the periods set forth below, results of operations for the year ended December 31, 1996 were obtained by combining, without adjustment, the results of operations of the predecessor company from January 1, 1996 to May 23, 1996 with those of the Company for the period from May 24, 1996 to December 31, 1996. The discussion should be read in connection with the Consolidated Financial Statements and accompanying notes thereto appearing elsewhere herein. Year Ended Year Ended Combined Year Ended December 31, 1998 December 31, 1997 December 31, 1996 ------------------------- ------------------------ ------------------------ Net Sales: $ % $ % $ % ------ ------ ------ ------ ------ ----- U.S. $122.5 45.6 $ 99.6 41.2 $113.2 46.7 U.S. service stores 42.4 15.8 38.6 16.0 33.7 13.9 International 103.5 38.6 103.4 42.8 95.1 39.4 ------ ------ ------ ------ ------ ----- 268.4 100.0 241.6 100.0 242.0 100.0 Cost of sales 159.2 (1) 59.3 141.3 58.5 152.7 63.1 ------ ------ ------ ------ ------ ----- Gross profit 109.2 40.7 100.3 41.5 89.3 36.9 Selling, general and administrative 94.4 35.2 84.3 34.9 91.9 37.9 Restructuring and reorganization charge 6.8 2.5 Intangible amortization 2.0 0.7 1.9 0.8 1.9 0.8 ------ ------ ------ ------ ------ ------ Operating income (loss) 6.0 2.3 14.1 5.8 (4.5) (1.8) Interest expense 20.5 7.6 19.3 8.0 14.4 5.9 Other expense 0.4 0.2 0.5 0.2 0.3 0.1 ------ ------ ------ ------ ------ ----- Income (loss) before income taxes (14.9) (5.5) (5.7) (2.4) (19.2) (7.9) Provision for income taxes 0.4 0.2 2.2 0.9 2.2 0.9 ------- ------- ------- ------ ------- ----- Net income (loss) $(15.3) (5.7) $(7.9) (3.3) $(21.4) (8.8) ====== ======= ======= ======= ======= =====
(1) Includes a $2.8 million charge for inventory write-downs related to restructuring and reorganization activities. -9- Year Ended December 31, 1998 Compared to the Year Ended December 31, 1997 Net Sales. Net sales for the year ended December 31, 1998 were $268.4 million compared to $241.6 million for the previous year, an increase of 11.1% primarily as a result of strong sales in the United States. Net sales in the United States increased 23.0% from $99.6 million for the year ended December 31, 1997 to $122.5 million in 1998. This increase was primarily related to increased sales of men's and women's shavers. Demand increased for men's shavers as a result of the introductions of the updated line of the Microscreen(R)3 shaver and the Intercept(R) shaver line in the first quarter of 1998 and the MicroFlex((TM)) rotary line in the fourth quarter. Sales of women's shavers increased as a result of demand for the wet/dry Dual Foil shaver, although this was not a new product. Additionally, sales of women's hair dryers and men's grooming were positively impacted by the introduction of new hair dryers and the new men's Precision((TM)) line of beard & mustache trimmers in 1998. Net sales by the Company's U.S. service stores increased 9.8% to $42.4 million in 1998 from $38.6 million in 1997. This increase was primarily attributable to the opening of a net of 10 additional stores and one temporary store for a total of 104 stores open during the holiday shopping season. Additionally, same store sales increased 2.3% from 1997 to 1998. Net sales for the international businesses on a combined basis remained flat from 1997 to 1998. Increased sales in the United Kingdom were offset by decreases in Australia and the international export business due to slowing economies, particularly in Asia and negative currency impacts. Gross Profit. Gross profit of $109.2 million in 1998, or 40.7% of net sales, decreased as a percentage of sales from 41.5% in 1997. Excluding the $2.8 million non-recurring charge to 1998 cost of sales related to the restructuring of the Company's Connecticut shaver assembly operations, the gross profit percentage actually increased slightly to 41.7% of net sales. The gross profit percentages in the United States increased by more than two percentage points in 1998, excluding the non-recurring charge. The increase was primarily due to a combination of lower costs and improved product mix, as well as lower product returns. The gross profit percentage for the International businesses declined by almost three percentage points in 1998. The decline was primarily attributable to decreases in Australia and the international export markets, due to weak economies and negative currency impacts on cost of sales as inventory purchases are made in U.S. dollars. Selling, General and Administrative. Selling, general and administrative expenses increased to $94.4 million, or 35.2% of net sales for calendar year 1998 compared to $84.3 million, or 34.9% of net sales in 1997 as a result of several factors. In 1998, the Company increased its investment in advertising and promotion and continued to invest in marketing and new product development. The Company continued to invest in its retail service stores and opened a net total of 14 stores worldwide. Distribution expenses in 1998 increased as the Company transitioned from its Connecticut warehouse to a third party warehouse in California. Additionally, the Company increased its provision for bad debt, due to the financial difficulties of one of the large U.S. mass merchandisers. -10- Restructuring and Reorganization Charge. In the second quarter of 1998, the Company announced a plan to restructure its Connecticut shaver assembly and warehousing operations ("the Plan"). The Plan consisted of relocating the shaver assembly operations to an existing Remington partner-vendor located in Asia and relocating the warehousing function to a third party provider in California. Savings of approximately $6.0 million annually will accrue from these changes of which $3.0 million was realized in 1998, with an additional $2.0 million anticipated for 1999 and the full benefit being realized by the year 2000. The Plan resulted in affecting the employment of approximately 235 employees located at the Company's two Connecticut facilities, the majority of which were factory employees. During 1998, the Company recorded total non-recurring charges of $9.6 million related to the Plan, of which $2.8 million was charged to cost of sales for inventory write-downs associated with the Plan and $6.8 million was charged to restructuring and reorganization. Included in the restructuring charge are items such as severance and other employee costs, lease obligations and write-offs of certain equipment and tooling. Operating Income (Loss). Operating income decreased to $6.0 million, or 2.3% of net sales in 1998 compared to $14.1 million or 5.8% in 1997. This decrease was the direct result of the $9.6 million of non-recurring charges recorded in 1998 related to the restructuring and reorganization. Excluding the non-recurring charges, operating income was $15.6 million, or 5.8% of net sales. Interest Expense. Interest expense increased to $20.5 million in 1998 compared to $19.3 million in 1997 as a result of higher average borrowings in 1998. Provision for Income Taxes. The provision for income taxes was $0.4 million in 1998 compared to $2.2 million in 1997 and relates to the Company's foreign operations. Year Ended December 31, 1997 Compared to the Year Ended December 31, 1996 Net Sales. Net sales for the year ended December 31, 1997 were $241.6 million compared to $242.0 million for the previous year. International net sales and U.S. service store sales demonstrated strong results for 1997 with increases of 8.7% and 14.5%, respectively over the prior year. These results were more than offset by a decline in net sales in the United States. Net sales in the United States decreased 12.0% from $113.2 million for the year ended December 31, 1996 to $99.6 million in 1997. This decrease was primarily related to lower sales of certain men's and women's shavers. Men's shaver sales were impacted by the effect of transitioning to the updated line of Microscreen(R) shavers, competitive actions in rotary shavers as well as the decision not to repeat certain promotional programs offered during 1996. The introduction of the new line of MicroScreen(R) 2 shavers in the third quarter of 1997 helped sales of the mid-priced and largest line of Remington shavers come in on line with the prior year, while the impact of the announced 1998 introduction of the new MicroScreen(R) 3 shavers resulted in lower transitional sales of the older Triple Foil(TM) line of shavers in 1997. Women's shaver sales were impacted by an overall decline in the market for women's shavers. Additionally, domestic sales of women's personal care appliances were negatively impacted by competitive actions in hairsetters and the cancellation of a new line of curling irons. Net sales through the Company's U.S. service stores increased 14.5% to $38.6 million in 1997 from $33.7 million in 1996. This increase is primarily attributable to the opening of a net of 10 additional stores for a total of 93 stores open during the holiday shopping season. Additionally, same store sales increased 4.3% from 1996 to 1997 as a result of a strong holiday selling season. -11- International net sales increased to $103.4 million in 1997 from $95.1 million in 1996 as a result of the United Kingdom and Australian operations. Net sales in the United Kingdom increased as a result of strong demand, particularly in the personal care product sales. Despite a negative currency impact, net sales in Australia increased due to strong demand for new personal care products and growth in retail service stores from three stores in 1996 to nine stores at December 31, 1997. Gross Profit. Gross profit increased to $100.3 million, or 41.5% of net sales, in 1997 from $89.3 million or 36.9% of net sales in 1996. Approximately 2.0% of the gross profit margin percentage increase was due to inventory valuation adjustments recorded in 1996, while the remaining increase was due to slightly lower costs and improved product mix. Selling, General and Administrative. Selling, general and administrative expenses decreased to $84.3 million in 1997, or 34.9% of net sales, from $91.9 million, or 37.9% of net sales in 1996. The 1996 expenses included $10.9 million in non-recurring charges related to the May 1996 reorganization and a $1.3 million charge related to the bankruptcy of the Company's largest customer in Canada. After considering the effect of these charges in 1996, expenses in 1997 increased over 1996, as a result of a 25% increase in advertising expenses and investments the Company has made in marketing and new product development. Operating Income (Loss). Operating income increased to $14.1 million in 1997, or 5.8% of net sales, from an operating loss of $(4.5) million in 1996, or (1.8)% of net sales. Interest Expense. Interest expense increased to $19.3 million in 1997 from $14.4 million in 1996. This increase is primarily attributable to a full year of interest charged on senior subordinated notes in 1997 in connection with the May 1996 reorganization, as well as increased average borrowings on revolving credit facilities. Provision for Income Taxes. The provision for income taxes was $2.2 million in 1997 and in 1996 and relates to the Company's foreign operations. Liquidity and Capital Resources For the year ended December 31, 1998, the Company used approximately $3.1 million in cash for operating activities, compared to $8.0 million in 1997. The increase in cash flow in 1998 is the result of lower disbursements, primarily inventory, somewhat offset by lower collections on receivables. The Company's operations are not capital intensive. During 1998 and 1997, the Company purchased property, plant and equipment, including tooling for new products, of $3.9 million and $5.1 million, respectively. Capital expenditures for 1999 are anticipated to be approximately $4.3 million. During 1998, the Company repaid aggregate scheduled principal amounts on term loans of $1.4 million, and increased its net borrowings under revolving credit agreements by $7.6 million. -12- The Company's primary sources of liquidity are funds generated from operations and borrowings available pursuant to the Senior Credit Agreement. The Senior Credit Agreement provides for $70 million in Revolving Credit Facilities and $10 million in Term Loans. The Term Loans are repayable quarterly through March 31, 2002. Borrowings under the Revolving Credit Facilities mature on June 30, 2002. The Company believes that cash generated from operations and borrowing resources will be adequate to permit the Company to meet both its debt service requirements and capital requirements for the next twelve months, although no assurance can be given in this regard. Market Risk Disclosure The Company is exposed to market risks, which include changes in interest rates as well as changes in currency exchange rates as measured against the U.S. dollar. The Company attempts to reduce these risks by utilizing financial instruments, primarily foreign currency forward contracts. The Company uses derivative financial instruments only for risk management purposes and does not use them for speculation or for trading. The Company has elected to disclose its interest rate risk and foreign currency risk utilizing a sensitivity analysis approach based on hypothetical changes in foreign exchange rates and interest rates. Certain items such as lease contracts and obligations for pension were not included in the analysis. Interest Rate Risk. The Company's debt portfolio is comprised of fixed rate debt consisting primarily of $130 million of Senior Subordinated Notes and approximately $57 million of variable rate debt, primarily borrowings under the Senior Credit Agreement. For further details, refer to Note 7 (Debt), of the "Notes to Consolidated Financial Statements" appearing elsewhere herein. The Company is exposed to interest risk as a result of its fixed rate notes and its variable rate debt and any cash holdings. Interest rate changes would result in gains or losses in the market value of the Company's fixed rate debt due to differences between the current market interest rates and the rates governing these instruments. With respect to the Company's financial instruments referred to above, at December 31, 1998, a ten percent change in interest rates would have no material effect on fair values, cash-flows or earnings of the Company. Foreign Currency Risk. Foreign currency risk is managed by the use of foreign currency forward contracts. The use of these contracts allows the Company to manage its exposure to exchange rate fluctuations because the gains or losses incurred on the derivative instruments will offset in whole, or in part, losses or gains on the underlying foreign currency exposure. The Company's principal currency exposures are in the British pounds, Australian and Canadian dollars and German marks. Foreign currency contracts are sensitive to changes in foreign exchange rates. Due primarily to the relatively short maturities of these contracts, a ten percent change in the foreign currency exchange rates against the U.S. dollar, with all other variables held constant, would have no material effect on the fair value of these foreign currency financial instruments as of December 31, 1998. -13- Seasonality Sales of the Company's products are highly seasonal, with a large percentage of net sales occurring during the Christmas selling season. The Company typically derives more than 40% of its annual net sales in the fourth quarter of each year. As a result of this seasonality, the Company's inventory and working capital needs fluctuate substantially during the year. In addition, Christmas orders from retailers are often made late in the year, making forecasting of production schedules and inventory purchases difficult. Any adverse change in the Company's results of operations in the fourth quarter would have a material adverse effect on the Company's financial condition and results of operations. Inflation In recent years, inflation has not had a material impact upon the results of the Company's operations. Year 2000 Compliance The Year 2000 date issue arises from the fact that many computer programs use only two digits to identify a year in a date field. The Company's key financial and operational systems have been reviewed, and the majority of the systems did not require modifications. With the exception of one minor communication program, all required modifications have been completed and the systems have been tested and are properly functioning. The modification required to the communication program will be completed by the end of the first quarter of 1999. Costs incurred to date are not material due to the nature of the modifications required and the fact that these modifications did not involve hiring outside consultants. Management does not expect that any remaining costs to be incurred will have a material adverse impact on the Company's financial position, results of operations or cash flows. The Company could be adversely impacted by the Year 2000 date issue if suppliers, customers and other businesses, as well as government agencies in the U.S. and elsewhere, do not address this issue successfully. The Company has contacted its major suppliers, customers and financial institutions and has received written assurances of Year 2000 compliance from all of its major suppliers. Based upon the Company's assessment of each supplier's progress to adequately address the Year 2000 issue, the Company expects to develop a supplier action list and contingency plan by June 1999. However, no assurance can be provided as to the effect or timely implementation of such action list or contingency plans, or that suppliers will effectively address their Year 2000 issues to enable them to continue providing the Company with products and services. EURO Conversion On January 1, 1999, eleven of fifteen member countries of the European Union entered a three-year transition phase during which one common legal currency (the "euro") was introduced. Beginning in January 2002, new euro-denominated bills and coins will be issued, and local currencies will be removed from circulation. Although the Company's international businesses -14- affected by the euro-conversion comprise less than 5% of the Company's net sales for the year ended December 31, 1998, the Company has established various plans to address the issues raised by the euro currency conversion. These issues include, among others, the need to adapt computer and financial systems and business processes to accommodate euro-denominated transactions and the impact of one common currency on pricing. Based on its evaluation to date, Management believes that the introduction of the euro, including total costs for the conversion, will not have a material adverse impact on the Company's financial position, results of operations or cash flows. The Company will continue to evaluate the impact of the euro introduction. Forward Looking Statements This Management's Discussion and Analysis may contain forward-looking statements which include assumptions about future market conditions, operations and results. These statements are based on current expectations and are subject to risks and uncertainties. They are made pursuant to safe harbor provisions of the Private Securities Litigation Reform Act of 1995. Among the many factors that could cause actual results to differ materially from any forward-looking statements are the success of new product introductions and promotions, changes in the competitive environment for the Company's product, changes in economic conditions, foreign exchange risk and other factors discussed in prior Securities and Exchange Commission filings by the Company. The Company assumes no obligation to update these forward-looking statements or advise of changes in the assumptions on which they were based. ITEM 8. Financial Statements and Supplementary Data The Company's financial statements and supplementary data are included elsewhere herein as outlined on page F-1. ITEM 9. Changes in and Disagreements With Accountants on Accounting and Financial Disclosure None PART III ITEM 10. Directors and Executive Officers. The following table sets forth certain information (ages as of March 15, 1999) with respect to each executive officer of the Company and individuals who are directors on the Remington Management Committee. -15- Name Age Positions and Offices ---------- --- --------------------- Neil P. DeFeo 52 Chief Executive Officer, President and Director Alexander R. Castaldi 48 Executive Vice President and Chief Financial Officer Wilan van den Berg 37 Executive Vice President International Lester C. Lee 38 Senior Vice President Sales and Integrated Logistics Ann Buivid 46 Vice President Worldwide Marketing and Business Development Lawrence D. Handler 53 President, Remington Service Stores H. Graham Kimpton 63 Vice President, Remington Australia and Asia Allen S. Lipson 56 Vice President, Administration, General Counsel and Secretary Timothy G. Simmone 33 Vice President, Chief Technical Officer Victor K. Kiam, II 72 Chairman and Director Norman W. Alpert 40 Director William B. Connell 58 Director Victor K. Kiam, III 39 Director Kevin A. Mundt 45 Director Arthur J. Nagle 60 Director Daniel S. O'Connell 44 Director Robert L. Rosner 39 Director Neil P. DeFeo has served as President, Chief Executive Officer and a Director of the Company since January 1997. From 1993 to 1996, Mr. DeFeo was Group Vice President, U.S. Operations for The Clorox Company. For 25 years prior to 1993, Mr. DeFeo worked for Procter & Gamble in various executive positions, including Vice President and Managing Director, Worldwide Strategic Planning, Laundry and Cleaning Products. Mr. DeFeo is a director of Cluett American Corporation, a Company in which Vestar or its affiliates has a significant equity interest and Driscoll's Strawberry Association, Inc. Alexander R. Castaldi has been the Executive Vice President and Chief Financial Officer of the Company since November 1996. From 1995 to 1996, Mr Castaldi was Vice President and Chief Financial Officer of Uniroyal Chemical and from 1990 to 1995, he was Senior Vice President and Chief Financial Officer of Kendall International, Inc. Wilan van den Berg has been Executive Vice President International since September 1998. From 1995 to 1998 he was President and Chief Executive Officer of Payer Electric Shaver and from 1987 until 1995, he was with the Philips International Domestic Appliances and Personal Care division of Philips Electronics N.V.in various sales and marketing positions, including Sales and Marketing Director for Philips France. Lester C. Lee has been Senior Vice President Sales and Integrated Logistics of the Company since July 1997. From 1995 until 1997, he was with Pacific Bell Mobile Services, a Division of Pacific Telesis, most recently as Vice President of Sales, and from 1989 until 1995, he was with Norelco Consumer Products Company in various sales positions, including Director of Sales, Western Division. -16- Ann Buivid has been Vice President Worldwide Marketing and New Business Development since September 1998. From 1995 to 1998, Ms. Buivid was Vice President, North American Marketing and New Business Development, for the Household Products Group of Black & Decker Inc. and from 1993 to 1995, she was Vice President of Marketing for the Beverages Category of Campbell Soup Company. Lawrence D. Handler has been President, Remington Service Stores, since June 1996 and was Vice President and Chief Financial Officer of the Service Stores from January 1995 when he joined the Company until June 1996. From January 1994 until December 1994, Mr. Handler was a private financial consultant, specializing in retail operations and from May 1993 until December 1993 he was Vice President and Chief Financial Officer of Terrific Promotions, Inc. H. Graham Kimpton is Vice President, Remington Australia and Asia. Mr. Kimpton joined the Company in April 1988 and has been managing the Australian/New Zealand operation since that time. Allen S. Lipson is Vice President, Administration, General Counsel and Secretary of Remington since May 1996. Mr. Lipson has been the General Counsel of the Company since October 1988. Timothy G. Simmone was appointed Vice President, Chief Technical Officer of the Company in June 1997. From 1988 until 1997, he was with The Stanley Works Corporation in various engineering position, most recently as Vice President, Product Development of the Stanley Fastening Systems Division. Victor K. Kiam, II has served as Chairman since 1979 and served as Chief Executive Officer of the Company from 1979 to 1996. Mr. Kiam is the Chairman of RPI Inc., Chairman of the Board of Ronson P.L.C. and a director of Citadel Technology and News Communication. Norman W. Alpert has been a Director of Remington since May 1996. Mr. Alpert is a Managing Director of Vestar Capital Partners and was a founding partner of Vestar at its inception in 1988. Mr. Alpert is Chairman of the Board of Directors of International AirParts Corporation, Aearo Corporation and Advanced Organics, Inc., and a director of Russell-Stanley Corporation, Cluett American Corporation and Siegel & Gale, all companies in which Vestar or its affiliates have a significant equity interest. William B. Connell has been a Director of Remington since 1990. Mr. Connell is currently Chairman of EBD Holdings, Inc., a private venture capital group. Mr. Connell previously served as Vice Chairman of Whittle Communications, L.P. from 1992 to 1994 and served as its President and Chief Operating Officer from 1990 to 1992. In addition to Remington, Mr. Connell is currently a director of Baldwin Piano & Organ Company, Dolphin Software, Inc. and EDB Holdings, Inc. Victor K. Kiam, III has been a Director of Remington since 1992. Mr Kiam has been Executive Vice President of RPI Corporation since 1996 and was with the Company from 1986 until 1996 in a variety of positions in manufacturing, sales and marketing, including Vice President Corporate Development. He is the son of Victor K. Kiam, II. -17- Kevin A. Mundt has been a Director of Remington since July 1996. Mr. Mundt is Vice President, Group Business Head of Mercer Management Consulting since 1997 and was co-founder and Managing Director of Corporate Decisions, Inc. since its inception in 1983 until its merger with Mercer Management Consulting in 1997. Mr. Mundt is a director of Russell-Stanley Corporation and Advanced Organics, Inc., companies in which Vestar or its affiliates have a significant equity interest and in Telephone Data Systems, Inc. Arthur J. Nagle has been a Director of Remington since May 1996. Mr. Nagle is a Managing Director of Vestar Capital Partners and was a founding partner of Vestar at its inception in 1988. Mr. Nagle is a director of Aearo Corporation and Russell-Stanley Corporation, companies in which Vestar or its affiliates have a significant equity interest. Daniel S. O'Connell has been a Director of Remington since May 1996. Mr. O'Connell is founder and the Chief Executive Officer of Vestar Capital Partners. Mr. O'Connell is a director of Advanced Organics, Inc., Aearo Corporation, Clark-Schwebel, Inc., Pinnacle Automation, Inc., Reid Plastics Holdings, Inc., Sun Apparel, Inc. and Russell-Stanley Corporation, all companies in which Vestar or its affiliates have a significant equity interest. Robert L. Rosner has been a Director of Remington since May 1996. Mr. Rosner is a Managing Director of Vestar Capital Partners and was a founding partner of Vestar at its inception in 1988. Mr. Rosner serves as Chairman of the Board of Directors of Russell-Stanley Corporation, a company in which Vestar or its affiliates have a significant equity interest. ITEM 11. Executive Compensation Compensation of Executive Officers The following Summary Compensation Table includes individual compensation information during each of the three years ended December 31, 1998 for Company's Chief Executive Officer and each of the next four most highly compensated executive officers of the Company who were serving as executive officers of the Company at the end of 1998 (collectively, the "Named Executive Officers") for services rendered in all capacities to the Company. Annual Compensation (1) All Other Name and Principal Position Year Salary ($)(2) Bonus ($)(3) Compensation ($) - --------------------------- ---- -------------- ------------ ----------------- Neil P. DeFeo, President, CEO and 1998 $400,000 $300,000 $ 2,569(5) Director(4) 1997 392,000 200,000 214,048(5) Alexander R. Castaldi, Executive VP 1998 265,000 172,250 3,348(7) and CFO(6) 1997 265,000 132,000 3,189(7) 1996 25,500 Lester C. Lee, Sr. VP Sales and 1998 205,000 104,612 3,265(7) Integrated Logistics(8) 1997 96,981 79,229 71,621(9) Allen S. Lipson, VP, Administration 1998 196,000 88,200 4,488(11) General Counsel & Secretary 1997 195,400 78,400 4,413(11) 1996 188,900 425,123(10) 5,521(11) Lawrence D. Handler, President, 1998 160,000 64,800 2,717(7) Remington Service Stores 1997 154,100 65,500 2,745(7) 1996 133,200 76,065(12) 1,394(7)
-18- - ----------------------- (1) Does not include value of perquisites and other personal benefits for any named executive officer since the aggregate amount of such compensation is the lesser of $50,000 or 10% of the total of annual salary and bonus reported for the named executive. (2) Includes compensation earned during the year but deferred pursuant to the Company's Deferred Compensation Plan. (3) Bonus amounts shown are those accrued for and paid in or after the end of the year and include amounts deferred pursuant to the Company's Deferred Compensation Plan. (4) Mr. DeFeo became President and CEO in January 1997. (5) The amounts shown include Company matching contributions to the Company's 401(k) Plan of $2,492 and $2,415 for 1998 and 1997 and $211,633 of relocation and travel expenses for 1997. (6) Mr. Castaldi became Executive Vice President and CFO in November 1996. (7) The amounts shown include Company matching contributions to the Company's 401(k) Plan. (8) Mr. Lee became Senior Vice President Sales and Integrated Logistics in July 1997. (9) The amounts shown include relocation and travel expenses for 1997. (10) A special bonus paid in conjunction with the reorganization of the Company which occurred in May 1996. (11) The amounts shown include Company matching contributions to the Company's 401 (k) Plan of $ 3,106, $2,631 and $3,738 for 1998, 1997 and 1996, and disability insurance premium payments of $1,782 for 1998, 1997 and 1996. (12) Includes a special bonus of $39,315 paid in conjunction with the reorganization of the Company which occurred in May 1996. Compensation of Directors Messrs. William B. Connell and Kevin A. Mundt, Directors of the Company, each receive annual compensation of $20,000 payable quarterly for services in such capacity. No other Director of the Company receives any compensation for services in such capacity. Each of the Directors of Remington are reimbursed for out-of-pocket expenses incurred in connection with attending meetings. Compensation Committee Interlocks and Insider Participation The compensation committee of the Management Committee of Remington is comprised of Messrs. Arthur J. Nagle, Robert L. Rosner and Victor K. Kiam, III. None of these individuals, other than Mr. Kiam, was an officer of or employed by the Company. Mr. Kiam was employed by the Company prior to the Reorganization. Other Arrangements The Company has an employment agreement with Mr. DeFeo which provides for his continued employment as President and Chief Executive Officer through the year 2000, unless earlier terminated. The agreement provides for a base salary of not less than $300,000, plus a deferral of an additional $100,000, and an annual bonus not less than $200,000 in the event the Company achieves 100% of the criteria established by the Management Committee for such year. The agreement provides for Mr. DeFeo to receive 18 months of salary continuation plus the annual bonus he would have been entitled to if his employment is involuntarily terminated other than for "cause " or if he resigns for "good reason", or 12 months of salary continuation plus annual bonus in the event the agreement is not renewed by the Company. The Company is required to provide Mr. DeFeo with a letter of credit equal to the severance benefit payable to Mr. DeFeo until such time as the Company's earnings (before interest, taxes, depreciation and amortization) exceeds $26 million. The Company is also required to provide Mr. DeFeo with term life insurance in the amount of not less than $500,000. -19- The Company has entered into agreements with Messrs. Castaldi, Lee, Lipson and Handler whereby such employees would be entitled to salary continuation for a specified period if their employment was involuntarily terminated other than for "cause" during the term of the agreement and, for Mr. Castaldi, if he resigns for "good reason". Messrs. Castaldi and Lipson are each entitled to 12 months of salary continuation and Messrs. Lee and Handler are each entitled to 6 months of salary continuation. Deferred Compensation Plan The Company has a Deferred Compensation Plan pursuant to which eligible executive employees (including the Named Executive Officers) may elect to defer all or a portion of the bonus otherwise payable under the Company's Bonus Plan and up to 33% of their annual salary, and such amounts are placed into a deferral account. The participants may select various mutual funds in which all or a part of their deferral accounts shall be deemed to be invested. Distributions from a participant's deferral accounts will be paid in a lump sum or in equal annual installments over a period of up to 15 years beginning upon their termination of employment, death or retirement. All amounts deferred by the participants in the Plan are paid to a Deferred Compensation Plan Trust to be held in order to fund the Company's obligations under the Deferred Compensation Plan. The assets of the trust, however, are subject to the claims of the creditors of the Company in the event the Company is Insolvent, as such term is defined in the trust agreement. Bonus Plan The Company has an annual bonus plan (the "Bonus Plan") which is designed to motivate each employee participant. Approximately 140 employees in the United States and 125 employees in the international operations participate in the Bonus Plan. Under the Bonus Plan, each participating employee is assigned a target bonus award, representing up to 75% of his or her annual base salary that will be paid if predetermined performance goals are achieved. Performance goals for the various areas of the Company are established annually by the Compensation Committee of the Company. Phantom Equity Program The Company has a Phantom Equity Program under which a maximum of 21% of the value of the Company's Common Units and Preferred Equity (together, the "Equity") can be awarded to selected officers and other key employees of the Company and its affiliates. The Phantom Equity Program is comprised of time based (consisting of 12 1/2% of the Equity), performance based (6 1/2%) and super performance (2%) based awards. All awards grant to the recipient a specified percentage of the Equity (the "applicable percentage"). A time based award vests in five equal annual installments, upon the sale of the Company or upon an initial public offering of the Company's stock ("IPO"), whichever comes first. If the individual's employment with the Company is terminated for any reason other than death or disability within three years of the date of grant of the award, the award is automatically terminated. The amount received under the award and how it is paid is based upon the event which gave rise to the payment. If the payment is due to a Company sale, the -20- individual will receive the applicable percentage of the net amount available for distribution for the outstanding Equity payable, at the Company's option, in a lump sum upon the closing of the sale or in the same manner as the selling shareholders. If the payment is due to an IPO, the payment is an amount equal to the applicable percentage of the Equity implied in the public offering payable, at the option of the Company, either entirely in cash or 40% in cash and the remainder in Company stock. If the payment is due to termination of employment, the participant receives the applicable percentage of the fair market value of the Equity, determined by the Management Committee payable, at the Company's option, in up to five equal annual installments or upon an IPO or Company sale. The performance and super performance based awards are similar to the time based awards except that performance based award vests in stages as the Company achieves specified performance targets while the super performance based award vests entirely upon the achievement of a single target. Payment of the awards does not occur until and is dependent upon the achievement of both a performance criteria and an event criteria. The event criteria is a Company sale or when Vestar's ownership falls below 10% of the Common Units. The performance criteria for the performance based award vests in segments as the Company achieves specified performance targets while there is only one target for the super performance based award. Any performance or super performance based award which is not fully vested by December 31, 2002 is automatically terminated. The Phantom Equity Program and all awards are subject to readjustment in the event of a reorganization of the Company required in connection with a refinancing, and the applicable percentages are subject to readjustment to take into consideration new issuances of Common Units or Preferred Capital. The following table contains information with respect to grants of phantom awards to each of the Named Executive Officers in 1998: Assumed Annual Rate of Stock Individual Grants Appreciation for Award Term(4) -------------------------------------------------------------------------- ----------------------------- Number of Securities Exercise or Underlying % of Total Base Price Expiration Name Awards Granted (1) Awards Granted (2) ($/SH) (3) Date 5%($) 10%($) - --------------------- ----------------- ----------------- ----------- ---------- ------ ------ Neil P. DeFeo 4.00 (5) 33.2 N/A 12/31/2009 N/A N/A 2.00 (6) 33.5 N/A 12/31/2002 N/A N/A Alexander R. Castaldi 1.30 (5) 10.8 N/A 12/31/2009 N/A N/A 0.50 (6) 8.4 N/A 12/31/2002 N/A N/A 0.22 (7) 13.1 N/A 12/31/2002 N/A N/A Lester C. Lee 0.90 (5) 7.5 N/A 12/31/2009 N/A N/A 0.35 (6) 5.9 N/A 12/31/2002 N/A N/A 0.16 (7) 9.6 N/A 12/31/2002 N/A N/A Allen S. Lipson 0.90 (5) 7.5 N/A 12/31/2009 N/A N/A 0.35 (6) 5.9 N/A 12/31/2002 N/A N/A 0.16 (7) 9.6 N/A 12/31/2002 N/A N/A Lawrence D. Handler 0.35 (5) 2.9 N/A 12/31/2009 N/A N/A 0.20 (6) 3.4 N/A 12/31/2002 N/A N/A 0.09 (7) 5.4 N/A 12/31/2002 N/A N/A
-21- - ------------------------------------ (1) Indicates the applicable percentage of the Company's Equity underlying each award granted. (2) Indicates the % of total time, performance and super performance based awards granted as of December 31, 1998. (3) There is no exercise price and as of the time of the grant, there was no market price for the Company's Equity. (4) The Company's Equity is not registered under the Securities Act of 1933 and is therefore not publicly traded. Accordingly, there is no market price for the Company's Equity. Payments to holders of phantom equity awards are dependent upon the realized value of the Equity upon a sale of the Company or an IPO. See above for a complete description of the Phantom Equity Program and the determination of payouts. (5) Grant of Time Based award. (6) Performance Based award. (7) Super Performance Based award. 401(k) Plan The Company maintains a savings plan (the "Savings Plan") qualified under Sections 401 (a) and 401(k) of the Internal Revenue Code. Generally, all employees of the Company in the United States who have completed three months of service are eligible to participate in the Savings Plan. For each employee who elects to participate in the Savings Plan and makes a contribution thereto, the Company makes a matching contribution of 40% of the first 5% of annual compensation contributed. Effective March 15, 1999, the Company amended its matching contribution from 40% to 50% of the first 5% of annual compensation contributed. The maximum contribution for any participant for any year is 15% of such participant's eligible compensation. ITEM 12. Security Ownership of Certain Beneficial Owners and Management Set forth below is certain information regarding the ownership of the Preferred Equity and Common Units of Remington by each person known by Remington to beneficially own 5.0% or more of the outstanding interests of either the Preferred Equity or Common Units, each Director and Named Executive Officer and all Directors and executive officers as a group as of March 15, 1999. Except as indicated below, the address for each of the persons listed below is c/o Remington Products Company, L.L.C., 60 Main Street, Bridgeport, Connecticut, 06604. Name Preferred Equity Common Units -------------------------- Capital (1) % Number % ----------- ----- ------ ---- Vestar Equity Partners (2)(3)................................$30,000,000 48.4% 34,400 50% 245 Park Avenue, 41st Floor New York, New York 10167 RPI Corp. (3)................................................32,000,000 51.6% 34,400 50% 555 Madison Avenue, 23rd Floor New York, New York 10022 Victor K. Kiam, II (3)(4)................................32,000,000 51.6% 34,400 50% Norman W. Alpert (5)...................................30,000,000 48.4% 34,400 50% Arthur J. Nagle (5)..........................................30,000,000 48.4% 34,400 50% Daniel S. O'Connell (5)......................................30,000,000 48.4% 34,400 50% Robert L. Rosner (5).........................................30,000,000 48.4% 34,400 50% Directors and executive officers as a group 5 persons).............................................$62,000,000 100.0% 68,800 100%
-22- - ----------------------- (1) Amounts, in dollars, represent the capital contribution to the Preferred Equity beneficially owned by each person and entity set forth below. The Preferred Equity has not been denominated in units or other shares. (2) Vestar's interest in the Company is owned by the Vestar Members, which are controlled by Vestar. The Vestar Members have assigned a portion of their interests in the Company to certain coinvestors, although such co-investors will not directly hold any Common Units. The general partner of Vestar is Vestar Associates L.P., a limited partnership whose general partner is Vestar Associates Corporation ("VAC"). In such capacity, VAC exercises sole voting and investment power with respect to all of the equity interests held of record by the Vestar Members. Messrs. Alpert, Nagle, O'Connell, and Rosner, who are Directors of Remington, are affiliated with Vestar in the capacities described under Item 10 Directors and Executive Officers, and are stockholders of VAC. Individually, no stockholder, director or officer of VAC is deemed to have or share such voting or investment power within the meaning of Rule 13d-3 under the Exchange Act. Accordingly, no part of the Preferred Equity or Common Units is beneficially owned by Messrs. Alpert, Nagle, O'Connell or Rosner or any other stockholder, director or officer of VAC. (3) The Vestar Members and RPI have entered into the LLC Agreement which gives Vestar effective control over the management of the Company. (4) Mr. Kiam's interest in the Company is owned by RPI. The shareholders of RPI are Mr. Kiam and two Kiam family trusts. Mr. Kiam is a trustee of each of these trusts. Mr. Kiam disclaims beneficial ownership of the shares of Remington owned by RPI. The address of Mr. Kiam is 11097 Isle Brook Court, West Palm Beach, Florida, 33414. (5) Messrs. Alpert, Nagle, O'Connell and Rosner are affiliated with Vestar in the capacities described in Item 10 Directors and Executive Officers. Ownership of Remington equity interests for these individuals includes the $30,000,000 of Preferred Equity and 34,440 Common Units included in the above table beneficially owned by Vestar through the Vestar Members, of which such persons disclaim beneficial ownership. Each such person's business address is c/o Vestar Equity Partners, L.P., 245 Park Avenue, 41st Floor, New York, New York 10167. ITEM 13. Certain Relationships and Related Transactions Pursuant to a management agreement (the "Management Agreement") entered into in connection with the reorganization of the Company in 1996, Vestar Capital Partners ("Vestar Capital") receives an annual advisory fee equal to the greater of $500,000 or 1.5% of EBITDA (as defined in such agreement) of the Company on a consolidated basis for rendering advisory and consulting services in relation to strategic financial planning and other affairs of the Company. Vestar Capital will also be paid reasonable and customary investment banking fees in connection with an initial public offering, sale of the Company and other financings. The Management Agreement will be in effect until May 23, 2006, provided that the Management Agreement will terminate on the earlier to occur of: (i) a qualified public offering or (ii) the first date that Vestar Capital owns less than 25% of the number of the Company's Common Units owned by Vestar Capital on May 23, 1996, and provided further that Vestar Capital may terminate the Management Agreement at any time. Vestar Capital owns, indirectly through Vestar Corp., 50% of the Common Units of the Company and possesses the right to designate five of the nine individuals who comprise the Management Committee of the Company. Pursuant to a consulting and transitional services agreement (the "Consulting Agreement") entered into in connection with the reorganization of the Company in 1996, RPI receives an aggregate annual fee equal to the sum of: (i) the greater of $500,000 or 1.5% of EBITDA (as defined in such agreement) of the Company on a consolidated basis and (ii) $250,000 in 1997 and 1998 if the Company's net revenues or EBITDA (as defined in such agreement) exceed certain targets in such years, for rendering advisory and consulting services in relation to strategic financial planning, product development and evaluation of mergers, acquisitions and divestitures. The Consulting Agreement will be in effect until May 23, 2006, provided that the Consulting Agreement will terminate on the earlier to occur of: (i) a qualified public offering or (ii) the first date that RPI owns less than 25% of the number of the Company's Common Units owned by RPI on the May 23, 1996, and provided further that Vestar Capital may -23- terminate the Consulting Agreement at any time (but only to the extent that Vestar Capital also terminates similar provisions of the Management Agreement). RPI, an entity controlled by the Kiams, owns 50% of the Common Units of the Company and possesses the right to designate two of the nine individuals who comprise the Management Committee of the Company. Pursuant to a Non-Competition Agreement (the "Non-Competition Agreement") dated May 23, 1996, between the Company, Vestar Corp. and Victor K. Kiam, II and Victor K. Kiam, III (the "Kiams"), the Kiams may not compete with, solicit any customers of, own, manage or operate any business in competition with or perform any action substantially detrimental to the Company's businesses. The provisions of the Non-Competition Agreement will apply during the period the Kiams have a Significant Interest (as defined in the Non-Competition Agreement) in the Company and thereafter for: (i) five years, with respect to electric shavers, shaver accessories and men's grooming products, and (ii) three years, with respect to women's personal care appliances, home health appliances, travel appliances, environmental products, dental products and small kitchen appliances. The Non-Competition Agreement allows the Kiams to continue to market certain competing travel appliance products developed by an affiliate of the Kiams. In connection with the adoption of the Phantom Equity Program and the issuance of Phantom Equity Agreements in January 1998, the Company repurchased from Messrs. Lipson and Kimpton all shares of Common Units they had purchased from the Company in May 1996 in connection with the reorganization of the Company at the same price they had originally paid for such units. The Company paid for the repurchased Common Units by issuing promissory notes for the full purchase price, payable within 60 days following the termination of employment for reasons other than cause (as defined in the promissory note) or upon the payment of any phantom equity award to such individuals. The phantom equity agreements with each of these individuals provided that any payment under the promissory note would reduce, dollar for dollar, the applicable phantom equity payment. The promissory note issued to Mr. Lipson was for $150,000, together with interest of 6 1/2% and the non-interest bearing note issued to Mr. Kimpton was for $46,000. PART IV ITEM 14. Exhibits, Financial Statement Schedules, and Reports on Form 8-K (a) 1. Financial Statements 2. Financial Statement Schedule 3. Exhibits -24- 3.1 Amended and Restated Limited Liability Company Agreement dated as of May 16, 1996, by and among Vestar Shaver Corp. (formerly Vestar/Remington Corp.) ("Vestar Corp. I"), Vestar Razor Corp. ("Vestar Corp. II" and, together with Vestar Corp. I, the "Vestar Members"), RPI Corp. (formerly known as Remington Products, Inc.)("RPI"), and certain members of senior management of the Company. Incorporated herein by reference to Exhibit 3.1 in Registration Statement on Form S-4(File Number 333- 07429). 3.2 Certificate of Formation of Remington Products Company, L.L.C. ("Remington"). Incorporated by reference to Exhibit 3.2 in Registration Statement on Form S-4(File Number 333-07429). 4.1 Indenture dated as of May 23, 1996 between Remington, Remington Capital Corp. ("Capital") and The Bank of New York, as trustee. Incorporated by reference to Exhibit 4.1 in Registration Statement on Form S-4(File Number 333-07429). 4.2 Form of 11% Series B Senior Subordinated Notes. Incorporated by reference to Exhibit 4.2 in Registration Statement on Form S-4(File Number 333-07429). 4.3 Purchase Agreement dated May 16, 1996 between Remington, Capital and Bear, Sterns & Co. Inc. Incorporated by reference to Exhibit 4.3 in Registration Statement on Form S-4(File Number 333-07429). 4.4 Registration Rights Agreement dated as of May 23, 1996 between Remington, Capital and Bear Sterns & Co. Inc. Incorporated by reference to Exhibit 4.4 in Registration Statement on Form S-4(File Number 333-07429). 10.1 Credit and Guarantee Agreement dated as of May 23, 1996 among Remington, certain of its subsidiaries, various lending institutions, Fleet National Bank and Banque Nationale de Paris, as co-documentation agents, and Chemical Bank, as administrative agent (the "Credit and Guarantee Agreement"). Incorporated by reference to Exhibit 10.1 in Registration Statement on Form S-4(File Number 333-07429). 10.2 First Amendment and Waiver Number 1, dated as of December 27, 1996, to the Credit and Guarantee Agreement. Incorporated by reference to Exhibit 10.1 in the Company's Current Report on Form 8-K dated December 24, 1996. 10.3 Second Amendment, dated as of March 30, 1997 to the Credit and Guarantee Agreement. Incorporated by reference to Exhibit 10.1 in the Company's Quarterly Report on Form 10-Q for the quarter ended March 29, 1997. -25- 10.4 Third Amendment, dated as of May 16, 1997 to the Credit and Guarantee Agreement. Incorporated by reference to Exhibit 10.1 in the Company's Quarterly Report on Form 10-Q for the quarter ended June 28, 1997. 10.5 Fourth Amendment, dated as of March 20, 1998 to the Credit and Guarantee Agreement. Incorporated by reference to Exhibit 10.5 in the Company's Annual Report on Form 10-K for the year ended December 31, 1997. 10.6 Fifth Amendment, dated as of March 11,1999 to the Credit and Guarantee Agreement. 10.7 Company Security Agreement dated as of May 23, 1996 made by Remington in favor of the Agent. Incorporated by reference to Exhibit 10.2 in Registration Statement on Form S-4(File Number 333-07429). 10.8 Form of Subsidiaries Security Agreement dated as of May 23, 1996 made by each of Capital, Remington Corporation, L.L.C. ("IP Subsidiary") and Remington Rand Corporation ("Rand") in favor of the Agent. Incorporated by reference to Exhibit 10.3 in Registration Statement on Form S-4(File Number 333-07429). 10.9 Conditional Assignment of and Security Interest in Patent Rights (United States) dated as of May 23, 1996 made by IP Subsidiary in favor of the Agent. Incorporated by reference to Exhibit 10.4 in Registration Statement on Form S-4(File Number 333- 07429). 10.10 Conditional Assignment of and Security Interest in Patent Rights (United Kingdom) dated as of May 23, 1996 made by IP Subsidiary in favor of the Agent. Incorporated by reference to Exhibit 10.5 in Registration Statement on Form S-4(File Number 333- 07429). 10.11 Conditional Assignment of and Security Interest in Trademark Rights (United States) dated as of May 23, 1996 made by IP Subsidiary in favor of the Agent. Incorporated by reference to Exhibit 10.6 in Registration Statement on Form S-4(File Number 333- 07429). 10.12 Conditional Assignment of and Security Interest in Trademark Rights (United Kingdom) dated as of May 23, 1996 made by IP Subsidiary in favor of the Agent. Incorporated by reference to Exhibit 10.7 in Registration Statement on Form S-4(File Number 333-07429). -26- 10.13 Members Limited Recourse Pledge Agreement dated as of May 23, 1996 made by Remington in favor of the Agent. Incorporated by reference to Exhibit 10.8 in Registration Statement on Form S-4(File Number 333-07429). 10.14 Company Pledge Agreement dated as of May 23, 1996 made by Remington in favor of the Agent. Incorporated by reference to Exhibit 10.9 in Registration Statement on Form S-4(File Number 333-07429). 10.15 Subsidiaries Pledge Agreement dated as of May 23, 1996 made by Rand in favor of the Agent. Incorporated by reference to Exhibit 10.10 in Registration Statement on Form S-4(File Number 333-07429). 10.16 Subsidiaries Guarantee dated as of May 23, 1996 made by Capital, IP subsidiary and Rand in favor of the Agent. Incorporated by reference to Exhibit 10.11 in Registration Statement on Form S-4(File Number 333-07429). 10.17 Purchase Agreement dated as of May 1, 1996 by and among Vestar Corp i., Remington, Remsen, Isaac Perlmutter, RPI and Victor K. Kiam, II. Incorporated by reference to Exhibit 10.12 in Registration Statement on Form S-4(File Number 333- 07429). 10.18 Agreement and Plan of Merger dated as of May 23, 1996 between Remington Products Company and Remington. Incorporated by reference to Exhibit 10.13 in Registration Statement on Form S-4(File Number 333-07429). 10.19 Securityholders Agreement dated as of May 16, 1996 among the Vestar Members, Vestar Equity Partners, L.P. ("Vestar"), RPI, Victor K. Kiam, II and the other parties signatory thereto. Incorporated by reference to Exhibit 10.14 in Registration Statement on Form S-4(File Number 333-07429). 10.20 Management Agreement dated as of May 23, 1996 between Remington and Vestar Capital Partners. Incorporated by reference to Exhibit 10.15 in Registration Statement on Form S-4(File Number 333-07429). 10.21 Consulting and Transitional Services Agreement dated as of May 23, 1996 between Remington and RPI. Incorporated by reference to Exhibit 10.16 in Registration Statement on Form S-4(File Number 333-07429). 10.22 Employment Agreement made as of January 8, 1997 between the Company and Neil P. DeFeo. Incorporated by reference to Exhibit 10.2 in the Company's Quarterly Report on Form 10-Q for the quarter ended March 29, 1997. 10.23 Form of Executive Severance Agreement dated as of May 23, 1996 by and between Remington and Allen S. Lipson is incorporated herein by reference to Registration Statement on Form S-4(File Number 333-07429). 10.24 Executive Severance Agreement dated as of November 25, 1996 between Remington and Alexander R. Castaldi. Incorporated by reference to Exhibit 10.20 in the Company's Annual Report on Form 10-K for the year ended December 31, 1996. -27- 10.25 Letter Agreement dated June 6, 1997 between the Company and Lester Lee. 10.26 Form of Severance Agreement. Incorporated by reference to Exhibit 10.24 in the Company's Annual Report on Form 10-K for the year ended December 31, 1997. 10.27 Form of Time Based Phantom Equity Agreement with participants in the Phantom Equity Program. Incorporated by reference to Exhibit 10.25 in the Company's Annual Report on Form 10-K for the year ended December 31, 1997. 10.28 Form of Performance Based Phantom Equity Agreement with participants in the Phantom Equity Program. Incorporated by reference to Exhibit 10.26 in the Company's Annual Report on Form 10-K for the year ended December 31, 1997. 10.29 Form of Super Performance Based Phantom Equity Agreement with participants in the Phantom Equity Program. Incorporated by reference to Exhibit 10.27 in the Company's Annual Report on Form 10-K for the year ended December 31, 1997. 10.30 Promissory Note dated January 14, 1998 from Remington to Allen S. Lipson for $150,000. Incorporated by reference to Exhibit 10.28 in the Company's Annual Report on Form 10-K for the year ended December 31, 1997. 10.31 License Agreement made May 23, 1996 by and between IP Subsidiary and Act II Jewelry, Inc. Incorporated by reference to Exhibit 10.23 in Registration Statement on Form S-4 (File Number 333-07429). 10.32 License Agreement made May 23, 1996 by and between IP Subsidiary and VKK Equities Corporation. Incorporated by reference to Exhibit 10.24 in Registration Statement on Form S-4 (File Number 333-07429). 10.33 Tradename Agreement made May 23, 1996 by and between IP Subsidiary and Remington Apparel Company, Inc. Incorporated by reference to Exhibit 10.25 in Registration Statement on Form S-4 (File Number 333-07429). 10.34 License Agreement dated as of May 23, 1996 by and between Remington and IP Subsidiary . Incorporated by reference to Exhibit 10.26 in Registration Statement on Form S-4 (File Number 333-07429). 21 Subsidiaries of Remington. 24. Powers of Attorney. 27 Financial Data Schedule. -28- SIGNATURES Pursuant to the requirements of Section 13 or 15(d) of the Securities Exchange Act of 1934, the registrant has duly caused this report to be signed on its behalf by the undersigned, thereunto duly authorized. REMINGTON PRODUCTS COMPANY, L.L.C. By: /s/ Kris J. Kelley Kris J. Kelley, Vice President and Controller Date: March 31, 1999 Pursuant to the requirements of the Securities Exchange Act of 1934, this report has been signed below by the following persons on behalf of the registrant and in the capacities on March 31, 1999. * * - -------------------------------------- ------------------------------------- Neil F. DeFeo, Chief Executive Officer, Alexander R. Castaldi, Executive Vice President and Director President and Chief Financial Officer /s/Kris J. Kelley * - -------------------------------------- ------------------------------------- Kris J. Kelley, Vice President and Victor K. Kiam II, Chairman and Director Controller * * - -------------------------------------- -------------------------------------- Victor K. Kiam III, Director Norman W. Alpert, Director * * - -------------------------------------- -------------------------------------- Arthur J. Nagle, Director Daniel S. O'Connell, Director * * - -------------------------------------- -------------------------------------- Robert L. Rosner, Director William B. Connell, Director * - -------------------------------------- Kevin A. Mundt, Director *By /s/ by Allen S. Lipson ---------------------------------------- Allen S. Lipson, as Attorney-in-Fact -29- INDEX TO FINANCIAL STATEMENTS Pages Financial Statements ----- - -------------------- Independent Auditors' Report F-2 Consolidated Balance Sheets as of December 31, 1998 and December 31, 1997 F-3 Consolidated Statements of Operations for each of the years in the three-year period ended December 31, 1998 F-4 Consolidated Statements of Members' Deficit/Partners' Capital for each of the years in the three-year period ended December 31, 1998 F-5 Consolidated Statements of Cash Flows for each of the years in the three-year period ended December 31,1998 F-6 Notes to Consolidated Financial Statements F-7 Financial Statement Schedule - ---------------------------- Schedule II - Valuation and Qualifying Accounts for each of the years in the three-year period ended December 31,1998 S-1
Certain schedules are omitted because they are not applicable or the required information is provided in the Financial Statements or related notes thereto. F-1 Independent Auditors' Report To the Management Committee of REMINGTON PRODUCTS COMPANY, L.L.C.: We have audited the accompanying consolidated balance sheets of Remington Products Company, L.L.C. and subsidiaries (the "Company") as of December 31, 1998 and 1997, and the related consolidated statements of operations, members' deficit/partners' capital, and cash flows for the years ended December 31, 1998 and 1997 and for the thirty-one week period ended December 31, 1996 and for Remington Products Company and subsidiaries (the "Predecessor") for the twenty-one week period ended May 23, 1996. Our audits also included the consolidated financial statement schedule listed in the index to the consolidated financial statements. The consolidated financial statements and financial statement schedules are the responsibility of the Company's management. Our responsibility is to express an opinion on these consolidated financial statements and financial statement schedule based on our audits. We conducted our audits in accordance with generally accepted auditing standards. Those standards require that we plan and perform the audit to obtain reasonable assurance about whether the financial statements are free of material misstatement. An audit includes examining, on a test basis, evidence supporting the amounts and disclosures in the financial statements. An audit also includes assessing the accounting principles used and significant estimates made by management, as well as evaluating the overall financial statement presentation. We believe that our audits provide a reasonable basis for our opinion. In our opinion, such consolidated financial statements referred to above present fairly, in all material respects, the financial position of the Company as of December 31, 1998 and 1997, and the results of its operations and its cash flows for the years ended December 31, 1998 and 1997 and the thirty-one week period ended December 31, 1996 and of the Predecessor for the twenty-one week period ended May 23, 1996 in conformity with generally accepted accounting principles. Also, in our opinion, the consolidated financial statement schedule, when considered in relation to the basic consolidated financial statements taken as a whole, presents fairly in all material respects, the information set forth therein. DELOITTE & TOUCHE L.L.P. Stamford, Connecticut March 11, 1999 F-2 Remington Products Company, L.L.C., Consolidated Balance Sheets (in thousands) December 31, December 31, 1998 1997 ----------- ------------ ASSETS Current assets: Cash and cash equivalents $ 4,249 $ 5,408 Accounts receivable, less allowance for doubtful accounts of $2,749 in 1998 and $734 in 1997 59 ,998 53,052 Inventories 50,163 60,507 Prepaid and other assets 1,879 1,525 ----------- ------------ Total current assets 116,289 120,492 Property, plant and equipment, net 13,135 16,033 Intangibles, net 58,573 60,538 Other assets 7,730 8,182 ----------- ------------ Total assets $195,727 $205,245 =========== ============ LIABILITIES AND MEMBERS' DEFICIT Current liabilities: Accounts payable $ 15,981 $ 13,359 Short-term borrowings 5,192 1,300 Current portion of long-term debt 1,842 1,417 Accrued liabilities 24,980 28,055 ----------- ------------ Total current liabilities 47,995 44,131 Long-term debt 180,634 178,523 Other liabilities 1,839 869 Commitments and contingencies Members' deficit: Members' deficit (31,473) (15,894) Accumulated other comprehensive income (3,268) (2,384) ----------- ----------- Total members' deficit (34,741) (18,278) ----------- ----------- Total liabilities and members' deficit $ 195,727 $ 205,245 =========== ===========
See notes to consolidated financial statements. F-3 Remington Products Company, L.L.C. Consolidated Statements of Operations (in thousands) Year Year Year Ended December 31, 1996 Ended Ended ---------------------------- December 31, December 31, 31 Weeks 21 Weeks 1998 1997 Ended Ended December 31 May 23 ------------- ------------ ------------ ----------- (Predecessor) Net sales $ 268,357 $ 241,572 $185,286 $ 56,713 Cost of sales 159,175 141,296 117,723 35,102 ---------- ---------- ---------- ---------- Gross profit 109,182 100,276 67,563 21,611 Selling, general and administrative 94,415 84,194 53,860 37,912 Restructuring and reorganization charge 6,806 - - - Amortization of intangibles 1,945 1,936 1,195 650 ---------- ---------- ---------- ---------- Operating income (loss) 6,016 14,146 12,508 (16,951) Interest expense 20,499 19,318 12,164 2,228 Other expense (income) 472 526 498 (115) ---------- ---------- ------------ ---------- Income (loss) before income taxes (14,955) (5,698) (154) (19,064) Provision (benefit) for income taxes 382 2,225 3,018 (873) ---------- ---------- --------- ---------- Net income (loss) $ (15,337) $ (7,923) $ (3,172) $ (18,191) ========== ========== ========= ========== Net loss applicable to common units $ (24,741) $ (16,279) $ (7,748) ========== ========== =========
See notes to consolidated financial statements. F-4 Remington Products Company, L.L.C. Consolidated Statements of Members' Deficit/Partners' Capital (in thousands) Total Accumulated Partners' Other Capital/ Preferred Common Other Accumulated Comprehensive Members' Equity Units Capital Deficit Income Deficit ---------- -------- --------- ----------- ------------ ---------- PREDECESSOR Balance, December 31, 1995 $ 76,736 $ (791) $ 75,945 Comprehensive income (loss): Net loss (18,191) Foreign currency translation (217) Elimination of cumulative translation 1,008 Total comprehensive income (loss) (17,400) Effects of recapitalization: Issuance of equity units $ 62,000 $ 7,742 69,742 Excess of fair value over predecessor basis (73,921) (73,921) Cancellation of predecessor partners' capital (58,545) (58,545) --------- ------- ----------- ------------- --------- Balance, May 23, 1996 $ 62,000 $ 7,742 $ (73,921) $ - $ (4,179) ========= ======== =========== ============== ========== SUCCESSOR Balance, May 24, 1996 $ 62,000 $ 7,742 $ (73,921) $ (4,179) Preferred dividend 4,576 $ (4,576) - Comprehensive income (loss): Net loss (3,172) Foreign currency translation $ (356) Total comprehensive income (loss) (3,528) -------- -------- ----------- ---------- ------------ ---------- Balance, December 31, 1996 66,576 7,742 (73,921) (7,748) (356) (7,707) Repurchase of common units (620) (620) Preferred dividend 8,356 (8,356) - Comprehensive income (loss): Net loss (7,923) Foreign currency translation (2,028) Total comprehensive income (loss) (9,951) -------- --------- ----------- ---------- ----------- ----------- Balance, December 31, 1997 $ 74,932 $ 7,122 $ (73,921) $ (24,027) $ (2,384) $ (18,278) Preferred Dividend 9,404 (9,404) - Repurchase of common units (242) (242) Comprehensive income (loss): Net loss (15,337) Foreign currency translation (708) Cumulative effect of adoption of SFAS 133 (105) Unrealized hedging loss (71) Total comprehensive income (loss) (16,221) -------- --------- ------------ ---------- ------------ ----------- Balance, December 31, 1998 $ 84,336 $ 6,880 $ (73,921) $ (48,768) $ (3,268) $ (34,741) ======== ======== ============ ========== ============ ===========
See notes to consolidated financial statements. F-5 Remington Products Company, L.L.C. Consolidated Statements of Cash Flows (in thousands) Year Year Year Ended December 31,1996 Ended Ended ---------------------------- December 31, December 31, 31 Weeks 21 Weeks 1998 1997 December 31 May 23 ---------- ------------ ------------ ------------ (Predecessor) Cash flows from operating activities: Net income (loss) $ (15,337) $ (7,923) $ (3,172) $ (18,191) Adjustment to reconcile net income (loss) to net cash provided by (used in) operating activities: Depreciation 3,224 2,831 1,184 1,355 Amortization of intangibles 1,945 1,936 1,195 650 Amortization of deferred financing fees 1,110 1,072 1,260 262 Restructuring and reorganization charge 6,806 - - - Inventory write-down 2,760 - - - Deferred income taxes (26) (44) 1,251 (561) Foreign currency forward losses (35) 115 1,501 - ---------- --------- --------- --------- 447 (2,013) 3,219 (16,485) Changes in assets and liabilities: Accounts receivable (6,946) 1,210 (27,291) 41,043 Inventories 7,584 3,278 (2,546) (8,339) Accounts payable 2,622 (3,055) 5,392 1,187 Accrued liabilities (5,518) (5,267) 10,731 (933) Other, net (1,295) (2,133) ( 70) (158) --------- --------- ----------- -------- Cash provided by (used in) operating activities (3,106) (7,980 ) (10,565) 16,315 --------- --------- ---------- -------- Cash flows from investing activities: Capital expenditures (3,879) (5,078) (2,399) (1,310) Payment for purchase of Company, net - - (139,750) - Proceeds from working capital adjustment - 2,500 - - Other - 204 (181) - ---------- --------- ---------- -------- Cash used in investing activities (3,879) (2,374) (142,330) (1,310) ---------- --------- ---------- -------- Cash flows from financing activities: Proceeds from sale of senior subordinated notes - - 129,026 - Net repayments under term loan facilities (1,426) (965) (3,463) (3,600) Net borrowings (repayments) under credit facilities 7,632 10,938 1,564 (12,353) Equity investments (repurchases) (242) (620) 34,302 - Debt issuance costs - - (9,075) - Other, net (221) (251) 1,595 - ---------- ---------- ---------- -------- Cash provided by (used in) financing activities 5,743 9,102 153,949 (15,953) Effect of exchange rate changes on cash 83 (539) 503 (214) ---------- ---------- ---------- -------- Increase (decrease) in cash and cash equivalents (1,159) (1,791) 1,557 (1,162) Cash and cash equivalents, beginning of period 5,408 7,199 5,642 6,804 ---------- ---------- ---------- -------- Cash and cash equivalents, end of period $ 4,249 $ 5,408 $ 7,199 $ 5,642 ========== ========== ========== ======== Supplemental cash flow information: Interest paid $ 19,144 $ 18,756 $ 9,121 $ 1,874 Income taxes paid $ 2,331 $ 2,493 $ 1,563 $ 440
See notes to consolidated financial statements. F-6 Remington Products Company, L.L.C. Notes to Consolidated Financial Statements 1. Summary of Significant Accounting Policies Remington Products Company, L.L.C. and its wholly owned subsidiaries, (the "Company") develop and market electrical personal care appliances. The Company distributes on a worldwide basis men's and women's electrical shavers and accessories, women's personal care appliances, including hairsetters, hair dryers and curling irons, men's electrical grooming products, travel products and other small electrical consumer appliances. The Company's products are sold worldwide through mass merchandisers, catalog showrooms, drugstore chains and department stores in addition to the Company's own service stores. Organization: Remington Products Company, L.L.C., a Delaware limited liability company, was formed by Vestar Shaver Corp. ("Vestar Corp. I) and RPI Corp. ("RPI") to acquire (the "Reorganization") the operations of Remington Products Company and its subsidiaries ("RPC"). In May 1996, Vestar Razor Corp. ("Vestar Corp. II") was formed to hold an interest in the Company, Vestar Corp. I and Vestar Corp. II (together, the "Vestar Members") are wholly owned by Vestar Equity Partners, L.P. Basis of Presentation: The consolidated balance sheets as of December 31, 1998 and 1997 include the accounts of Remington Products Company, L.L.C. and Subsidiaries, the "Successor" company following the change in ownership on May 23, 1996 (the "Closing Date") (see Note 2) and the consolidated results of operations and cash flows include the accounts for the successor company for the years ended December 31, 1998 and 1997 the period from May 24, 1996 to December 31, 1996. The financial statements also include the results of operations and cash flows of RPC, the "Predecessor" company, prior to the Closing Date. All significant intercompany accounts and transactions are eliminated in consolidation. Use of Estimates: The preparation of financial statements in conformity with generally accepted accounting principles requires management to make certain estimates and assumptions that affect the amounts reported in the consolidated financial statements and accompanying notes. Actual results could differ from those estimates. Estimates are used for, but not limited to the establishment of the allowance for doubtful account, reserves for sales returns and allowances, product warranty costs, taxes and contingencies. Cash and Cash Equivalents: All highly liquid debt instruments purchased with a maturity of three months from their date of acquisition or less are considered cash equivalents. Inventories: The inventories of foreign subsidiaries and purchased product for resale by the merchandising and service store operations are valued at the lower of cost or market utilizing the first-in, first-out (FIFO) method. Domestic manufactured inventories, which represent approximately 16% of the consolidated inventories as of December 31, 1998 and 15% at 1997, are stated at the lower of cost or market, with cost determined by the last-in, first-out (LIFO) method. As of December 31, 1998 and 1997, the excess of current replacement cost over LIFO cost of inventories was not significant. During 1998, the Company recorded non-recurring charges of $2.8 million for certain inventory write-downs associated with the Company's restructuring and reorganization plan. Property, Plant and Equipment: Property, plant and equipment is recorded primarily at cost. In conjunction with the Reorganization (See Note 2), property, plant and equipment was restated to reflect fair value excluding the ownership percentage retained by RPI. Depreciation is provided for principally on a straight-line basis over the estimated useful lives of the assets, which range from 3 to 20 years. Leasehold improvements are amortized over the lesser of the lease term or the estimated useful lives of the improvements. During 1998, the Company recorded non-recurring charges of $3.5 million for write-downs on certain equipment and tooling associated with the restructuring and reorganization. F-7 Remington Products Company, L.L.C. Notes to Consolidated Financial Statements (continued) Intangibles: Patents are being amortized on a straight-line basis over a period of ten years. All other intangibles are amortized on a straight-line basis over 40 years. Costs associated with obtaining financing arrangements are included in other assets and are being amortized over the term of the related borrowings. Long Lived Assets: Impaired losses are recorded on long lived assets when indicators of impairment are present and the anticipated undiscounted operating cash flow generated by those assets are less than the assets' carrying value. Research and Development: Research and development costs related to both present and future products are expensed as incurred. Such costs totaled $3.1 million for the year ended December 31, 1998; $2.8 million for the year ended December 31, 1997; $1.3 million for the thirty-one weeks ended December 31, 1996; and $0.8 million for the twenty-one weeks ended May 23, 1996. Income Taxes: Federal income taxes on net earnings of the Company are payable directly by the partners. In jurisdictions where partnership status is not recognized or foreign corporate subsidiaries exist, the Company provides for income taxes currently payable as well as for those deferred because of temporary differences between the financial and tax basis of assets and liabilities. Hedging Activity: Effective July 1, 1998, the Company adopted SFAS No. 133, Accounting for Derivative Instruments and Hedging Activities. SFAS No. 133 requires the Company to recognize all derivatives at fair value. Depending on the nature of the underlying exposure being hedged, changes in the fair value of derivatives are recognized either in the statement of operations or other comprehensive income (OCI). The ineffective portion of the change in fair value of the derivative is recognized in earnings. In accordance with the Company's foreign exchange risk management policy, the Company's foreign subsidiaries hedge the forecasted purchases of inventory denominated in currencies different then the subsidiary's functional currency. The derivative contracts related to these hedges primarily consist of forward foreign exchange contracts, which are designated as cash flow hedges. These forward contracts generally have maturities not exceeding 12 months. For cash flow hedges, the fair value changes of the derivative instruments related to the effective portion of the hedges are initially recorded as a component of other comprehensive income. Unrealized gains and losses on cash flow hedges accumulate in OCI and are reclassified into earnings in the periods in which earnings are impacted by the variability of the cash flows of the hedged item. For forecasted purchases of inventory, amounts are reclassified when the hedged inventory is reflected in cost of goods sold. As of December 31, 1998, other than forward foreign exchange contracts, the Company was not party to any other derivatives as defined by SFAS No. 133. At December 31, 1998, the Company had unrealized losses of $176 thousand, net of tax, classified in OCI for its outstanding hedge contracts related to forecasted inventory purchases. A significant portion of this amount is expected to be reclassified to cost of goods sold in the first six months of 1999. As of December 31, 1998, the losses classified in other income (expense) related to the ineffective portion of the Company's outstanding hedge contracts were immaterial. The cumulative effect of a change in accounting principle due to adoption of SFAS No. 133 as of July 1, 1998 had an immaterial impact on earnings and a $105 thousand impact to OCI. Reclassifications from OCI during the six month period ended December 31, 1998 (since the adoption date) were not significant. Prior to the adoption of SFAS No. 133, the Company accounted for its forward foreign exchange contracts at mark to market through earnings, unless the contracts were effectively hedging firm commitments, for which unrealized gains and losses were deferred and recognized as an adjustment of the hedged item. F-8 Remington Products Company, L.L.C. Notes to Consolidated Financial Statements (continued) Translation of Foreign Currencies: Assets and liabilities of the Company's foreign subsidiaries are translated at the exchange rate in effect at each balance sheet date. Statement of operations accounts are translated at the average exchange rate for the period. Translation adjustments arising from the use of differing exchange rates from period to period are included in the cumulative translation adjustment account in members' deficit or total partners' capital. Foreign currency transaction gains and losses, including gains and losses on forward contracts are recognized in earnings and totaled $(0.7) million for both of the years ended December 31, 1998 and 1997; $(0.7) million for the thirty-one weeks ended December 31, 1996 and $(0.1) million for the twenty-one weeks ended May 23, 1996. Reclassifications: Certain prior year amounts have been reclassified to conform with the current year presentation. 2. Reorganization RPC was a general partnership, jointly owned and controlled by RPI and Remsen Partners ("Remsen"). As a result of the Reorganization of RPC, the following transactions occurred: (i) RPC made cash payments to Remsen and RPI totalling $135.4 million (less the amount of certain excluded obligations and net of a working capital adjustment), (ii) the Vestar Members purchased Remsen's interest in RPC for $33.4 million in cash; (iii) certain members of senior management of RPC (the "Management Investors") acquired an equity interest in the Company, for $1.12 million (including a cash purchase of $0.86 million and assuming exercise of certain management options with an aggregate exercise price of $0.26 million), (iv) RPI retained an equity investment in the Company with an implied value of $35.4 million, and (v) RPC merged with and into the Company. In addition, $41.3 million of existing indebtedness of RPC was refinanced. The Reorganization has been accounted for as a purchase transaction effective as of the Closing Date, in accordance with Accounting Principles Board Opinion No. 16, Business Combinations, and EITF Issue No. 88-16, Basis in Leveraged Buyout Transactions, and accordingly, consolidated financial statements for periods subsequent to the Closing Date reflect the purchase price, including transaction costs, allocated to tangible and intangible assets acquired and liabilities assumed, based on their estimated fair values as of the Closing Date. The valuation of assets and liabilities acquired reflect carryover basis for the percentage ownership retained by RPI. The Reorganization reflected the following adjustments (in thousands): Cash payments and distributions (1) $ 139,750 Implied fair value of equity interests issued to RPI (2) 35,440 --------- Total consideration and direct acquisition costs 175,190 Less RPC's historical cost of net assets acquired (3) (71,246) --------- Excess of consideration paid over RPC's historical cost 103,944 Less excess of fair value over predecessor basis (4) (73,921) --------- 30,023 Debt issuance costs 9,075 --------- Net adjustment $ 39,098 ========= Allocation of net adjustment (5): Inventories (865) Prepaid and other current assets (1,752) Property, plant and equipment, net (1,554) Goodwill 11,387 Tradenames 26,534 Patents 4,670 Other assets (6) 8,463 Accrued liabilities (7,785) --------- $ 39,098 =========
F-9 Remington Products Company, L.L.C. Notes to Consolidated Financial Statements (continued) (1) Consists of cash payments to Remsen and RPI of $90,351 and $45,049 (net of the final working capital adjustment), respectively, which were reduced by $13,708 for certain excluded obligations, and $4,350 of direct acquisition costs. (2) The fair value of equity interests issued to RPI consists of Preferred Equity with a liquidation preference of $32,000 and Common Units with a fair value of $3,400, based on the cash paid by the Vestar members and certain Management Investors for their respective equity interests. RPI's predecessor basis in RPC was $8,208. (3) Represents historical total partners' capital of RPC adjusted to reflect $13,708 for certain excluded obligations. (4) Represents adjustments to decrease the fair value of the interests retained by RPI and certain Management Investors to reflect their carryover basis. (5) Represents the adjustments required to record the allocation of the excess of the consideration paid over RPC's historical basis in the net assets acquired, adjusted to reflect their carryover basis. The acquired assets are recorded 53.07% at fair value (for the common equity interest acquired by the Vestar members and certain of the Management Investors) and 46.93% at carryover basis (for the residual common equity interests retained by RPI and certain of the Management Investors). (6) Represents debt issuance costs of $9,075 net of a $612 write-off of deferred financing costs related to existing debt being repaid. 3. Inventories Inventories were comprised of the following as of December 31, 1998 and 1997 (in thousands): 1998 1997 ------- ------- Finished goods $46,454 $55,099 Work in process and raw materials 3,709 5,408 ------- ------- $50,163 $60,507 ======= =======
4. Property, Plant and Equipment Property, plant and equipment as of December 31, 1998 and 1997 consisted of (in thousands): 1998 1997 ------- -------- Land and buildings $ 2,517 $ 2,459 Leasehold improvements 4,058 3,308 Machinery, equipment and tooling 8,234 9,237 Furniture, fixtures and other 4,523 4,769 -------- ---------- 19,332 19,773 Less accumulated depreciation (6,197) (3,740) -------- ---------- $13,135 $ 16,033 ======== ==========
F-10 Remington Products Company, L.L.C. Notes to Consolidated Financial Statements (continued) 5. Intangibles Intangibles were comprised of the following (net of accumulated amortization of $5,074 and $3,129 thousand) as of December 31, 1998 and 1997, respectively (in thousands): 1998 1997 ------- --------- Goodwill $30,309 $ 31,142 Tradenames 24,809 25,473 Patents 3,455 3,923 -------- --------- $ 58,573 $ 60,538 ======== =========
6. Accrued Liabilities Accrued liabilities were comprised of the following as of December 31, 1998 and 1997 (in thousands): 1998 1997 -------- --------- Advertising and promotion expenses $ 7,229 $ 7,953 Compensation and benefits 4,900 4,182 Income and other taxes payable 2,377 3,790 Interest 2,056 1,900 Restructure and reorganization 2,196 - Other 6,222 10,230 --------- --------- $ 24,980 $ 28,055 ========= =========
7. Debt Long-term debt at December 31, 1998 and 1997 consisted of (in thousands): 1998 1997 --------- --------- Senior Subordinated Notes $ 130,000 $ 130,000 Revolving Credit Facilities 43,895 40,523 Term Loans 7,611 9,008 Capital Leases 970 409 ---------- ---------- 182,476 179,940 Less current portion (1,842) (1,417) ---------- ---------- $ 180,634 $ 178,523 ========== ==========
F-11 Remington Products Company, L.L.C. Notes to Consolidated Financial Statements (continued) 11% Senior Subordinated Notes: The 11% Series B Senior Subordinated Notes due 2006 (the "Senior Subordinated Notes") are general unsecured obligations of the Company which mature on May 15, 2006. Interest accrues at the rate of 11% per annum and is payable semi-annually in arrears. The Senior Subordinated Notes are redeemable, in whole or in part, at the option of the Company at any time on or after May 15, 2001 at a redemption price ranging from 105.5% to 100.0% of the principal amount then outstanding plus accrued and unpaid interest, depending when redeemed, and any applicable damages. In addition, on or prior to May 15, 1999, the Company may redeem up to 35% in aggregate principal amount of the Senior Subordinated Notes at a redemption price of 111.0% of the principal amount plus accrued and unpaid interest and any applicable damages with the net proceeds of one or more offerings of capital stock subject to certain terms and conditions. Senior Credit Agreement: On the Closing Date, the Company entered into a credit agreement (the "Senior Credit Agreement") with a syndicate of banks. The Senior Credit Agreement, as amended, provides for a term loan of $5.0 million to the Company and $5.0 million to the Company's U.K. subsidiary (the "Term Loans") and a revolving credit facility of $50.0 million to the Company and $20.0 million to the Company's U.K. subsidiary (the "Revolving Credit Facilities"). The Senior Credit Agreement expires on June 30, 2002. The initial borrowings under the Senior Credit Agreement, along with the proceeds of the Senior Subordinated Notes, were used to repay the debt of the predecessor company. As of December 31, 1998, the Revolving Credit Facilities are subject to a borrowing base of 85% of eligible accounts receivable and 60% of eligible inventory for the applicable borrower. In addition, the borrowing base can be increased as needed by $10 million over the applicable percentage of eligible receivables and inventories, (still limited to the $70 million total facilities) through June 30, 1999. As of December 31, 1998, availability under the Revolving Credit Facilities was approximately $9.5 million. The availability has been reduced by approximately $1.3 million in short-term commercial and stand-by letters of credit outstanding as of December 31, 1998. The Term Loans under the Senior Credit Agreement are payable in quarterly installments. Aggregate scheduled installments over the next four years ending December 31, 2002 are $1.7, $1.8, $3.1 and $1.0 million, respectively. The obligations under the Senior Credit Agreement are guaranteed by each of the Company's domestic subsidiaries and secured by their assets and properties and pledge of the common equity interests. At the Company's option as of December 31, 1998, the interest rates per annum applicable to the loans under the Senior Credit Agreement will be based upon (a) in the case of the Company, a Eurodollar rate ("LIBOR") plus 2.25% or the greater of (i) the prime rate plus 1.0% and (ii) the federal funds rate plus 1.5% and (b) in the case of loans to the Company's U.K. subsidiary, a EuroSterling Rate (the "EuroSterling Rate") plus 2.25% or the Sterling Base Rate plus 1.0%; provided, however, the interest rates are subject to reduction if certain requirements of financial performance are met. In addition, the interest rate on borrowings under the Revolving Credit Facilities will be increased by one quarter percent during any period that any of the additional $10 million in borrowing base is utilized. Interest is payable quarterly in arrears, including a commitment fee of 0.5% on the average daily unused portion of the Revolving Credit Facilities. Debt Covenants: The Senior Credit Agreement requires the Company to meet certain financial tests, the more restrictive of which require the Company to maintain certain interest coverage and leverage ratios, as defined. The Senior Subordinated Note indenture and the Senior Credit Agreement also contain a number of operating covenants which limit the discretion of Management with respect to certain business matters, including the amount and terms under which the Company can obtain additional financing in the future. In addition, these agreements limit the amount of dividends that the Company is permitted to pay. As of December 31, 1998, the Company was in compliance with its debt covenants. F-12 Remington Products Company, L.L.C. Notes to Consolidated Financial Statements (continued) Subsequent to December 31, 1998, the Company amended the Senior Credit Agreement to adjust the financial covenants prospectively based upon a review of expected future operating performance. As a result of the amendment, the Revolving Credit Facilities' borrowing base can be increased as needed by $10 million over the applicable percentage of eligible receivables and inventories, (limited to total eligible receivables and inventories) through November 30, 1999 and then reduced to $5 million for the period December 1, 1999 through June 30, 2000. In addition, the interest rate on loans under the Senior Credit Agreement were increased by one half of one percent. Short Term Borrowings: Short Term Borrowings consist of local revolving credit lines at certain of the Company's foreign subsidiaries. These facilities are collateralized by assets of the subsidiaries or are guaranteed by the Company. The weighted average interest rate under these facilities was approximately 5.7% in 1998 and 5.9% in 1997. 8. Membership Equity The Vestar Members and RPI (collectively the "Members") have entered into an Amended and Restated Limited Liability Company Agreement (the "LLC Agreement"). The Company was organized as a limited liability company because such an entity would (i) shield the Members from unlimited liability and (ii) qualify as a pass-through entity for tax purposes. The LLC Agreement will govern the relative rights and duties of the Members. The ownership interests of the Members in the Company consist of preferred members' equity (the "Preferred Equity") and common units (the "Common Units"). The Common Units represent the common equity of the Company. The Preferred Equity is entitled to a preferred dividend of 12% per annum, compounded quarterly, and to an aggregate liquidation preference of $62 million (net of any prior repayments of Preferred Equity) plus any accrued but unpaid preferred dividends. As of December 31, 1998 the aggregate unpaid Preferred Equity dividend amounted to $22.3 million. As a result of the Reorganization, on the Closing Date, RPI had a $35.4 million equity interest in the Company ($32.0 million in Preferred Equity) and the Vestar Members had a $33.4 million equity interest in the Company ($30.0 million in Preferred Equity). As of December 31, 1998, the Company's Common Units were owned 50% by the Vestar Members and 50% by RPI. Vestar Corp. I controls the Management Committee and the affairs and policies of the Company. In January 1998, the Company repurchased the remaining outstanding common units owned by the Management Investors and cancelled all outstanding related options and adopted a new Phantom Equity Program. Under this program a maximum of 21% of the value of the Company's Common Units and Preferred Equity (together, the "Equity") can be awarded to selected officers and other key employees of the Company . The Phantom Equity Program is comprised of time based (consisting of 12 1/2% of the Equity), performance based (6 1/2%) and super performance (2%) based awards. All awards grant to the recipient a specified percentage of the Equity (the "applicable percentage"). A time based award vests in five equal annual installments, upon the sale of the Company or upon an initial public offering of the Company's stock ("IPO"), whichever comes first. The performance and super performance based awards are similar to the time based awards except that performance based award vests in stages as the Company achieves specified performance targets while the super performance based award vests entirely upon the achievement of a single target. Payment of the performance based awards does not occur until and is dependent upon the achievement of both a performance criteria and an event criteria. The event criteria is a Company sale or when Vestar's ownership falls below 10% of the Common Units. The performance criteria for the performance based award vests in segments as the Company achieves specified performance targets while there is only one target for the super performance based award. Any performance or super performance based award which is not fully vested by December 31, 2002 is automatically terminated. F-13 Remington Products Company, L.L.C. Notes to Consolidated Financial Statements (continued) The Phantom Equity Program and all awards are subject to readjustment in the event of a reorganization of the Company required in connection with a refinancing, and the applicable percentages are subject to readjustment to take into consideration new issuances of Equity. 9. Restructure and Reorganization Charge In the second quarter of 1998, the Company announced a plan to restructure its Connecticut shaver assembly and warehousing operations ("the Plan"). The Plan consisted of relocating the shaver assembly operations to an existing Remington partner-vendor located in Asia and relocating the warehousing function to a third party provider in California. The Plan resulted in affecting the employment of approximately 235 employees located at the Company's two Connecticut facilities, the majority of which were factory employees. During 1998, the Company recorded total non-recurring charges of $9.6 million related to the Plan, of which $6.8 million was charged to restructuring and reorganization and $2.8 million was charged to cost of sales related to inventory write-downs associated with the Plan. The Company substantially completed the relocation of the Connecticut shaver assembly to Asia, and the relocation of the Connecticut warehousing facility to a third party in California in the fourth quarter of 1998. In December 1998, the Company terminated substantially all of the affected employees, and approximately $0.5 million of severance and other benefit costs were charged against the restructuring reserve. The remaining amounts are expected to be paid out in the first half of 1999. As of December 31, 1998, the company terminated its lease obligations with respect to certain equipment and machinery utilized in the factory and warehouse, however, the Company must continue to pay non-cancelable lease obligations for its Connecticut warehouse facility through the end of 1999. Total cash outlays for 1998 restructuring activities were $1.1 million. The following table summarizes the major components and activity related to the restructuring and reorganization through December 31, 1998 (in thousands): Balance 1998 1998 Activity December 31, Provision --------------------------- 1998 Cash Non Cash -------- ---------- ----------- ------------ Severance and Benefit Costs $ 1,997 $ (501) - $ 1,496 Lease Obligations 871 (171) - 700 Equipment and Tooling Write-Down 3,534 - (3,534) - Other Related Costs 404 (404) - - ------- --------- --------- --------- Total Restructuring and Reorganization Charge 6,806 (1,076) (3,534) 2,196 Inventory Write-Downs 2,760 - (2,760) - ------- --------- --------- --------- Total $ 9,566 $ (1,076) $(6,294) $ 2,196 ======= ========= ========= =========
10. Income Taxes Federal income taxes on net earnings of the Company are payable directly by the partners pursuant to the Internal Revenue Code. Accordingly, no provision has been made for Federal income taxes for the Company. However, certain state and local jurisdictions do not recognize partnership status for taxing purposes and require taxes be paid on net earnings. Furthermore, earnings of certain foreign operations are taxable under local statutes. Foreign pretax earnings/(losses) were $(1,613), $6,023, $7,785 and $(2,433) thousand for the years ended December 31, 1998, December 31, 1997, the 31 weeks ended December 31, 1996 and the 21 weeks ended May 23, 1996, respectively. F-14 Remington Products Company, L.L.C. Notes to Consolidated Financial Statements (continued) The provision (benefit) for income taxes consists of the following (in thousands): Year Year Year Ended December 31, 1996 Ended Ended ---------------------------- December 31, December 31, 31 Weeks 21 Weeks 1998 1997 Eended Ended December 31 May 23 ---------- ------------ ----------- ----------- (Predecessor) Current: State and local $ 79 $ 15 $ 5 $ - Foreign 329 2,254 1,762 (312) Deferred: Foreign (26) (44) 1,251 (561) ---------- --------- ------- --------- Total $ 382 $ 2,225 $ 3,018 $ (873) ========== ========= ======= =========
Reconciliation of income taxes computed at the U.S. Federal statutory income tax rate to the income taxes as reported. Income taxes computed at statutory U.S. Federal income tax rate $ (5,234) $ (1,994) $ (54) $(6,672) Partnership status for U.S. federal income tax purposes 4,670 4,102 2,779 5,821 State and local income taxes 79 15 5 - Adjustment for foreign income tax rates 867 102 288 (22) ---------- --------- ------- --------- Income taxes as reported $ 382 $ 2,225 $ 3,018 $ (873) ========== ========= ======= =========
The components of the Company's deferred tax assets included on the balance sheet at December 31 are as follows (in thousands): 1998 1997 1996 ------- ------- ------- Depreciation and other $ 171 $ 145 $ 101 Foreign tax loss carryforwards 1,853 1,012 396 ------ ------- ------ Total 2,024 1,157 497 Less valuation allowance (1,853) (1,012) (396) ------ ------- ------ Total deferred tax assets, net $ 171 $ 145 $ 101 ====== ======= ======
The valuation allowance relates to foreign tax loss carryforwards, which have been fully resinded due to the uncertain nature of their ultimate realization based upon past performance. Approximately $0.4 million of the $4.1 million in foreign tax loss carryforwards expire betweeen 2003 through 2005, while the remaining $3.7 million has no expiration date. F-15 Remington Products Company, L.L.C. Notes to Consolidated Financial Statements (continued) 11. Commitments and Contingencies The Company is liable under the terms of noncancelable leases of real estate and equipment for minimum annual rent payments as follows (in thousands): Operating Capital Leases --------- ------- 1999 $ 7,985 $ 444 2000 6,987 374 2001 6,330 190 2002 1,335 148 2003 809 66 2004 and thereafter 575 - --------- ------- Total minimum lease payments $ 24,021 1,222 ========= Less: Amount representing interest (252) Present value of minimum lease payments $ 970 =======
Rent expense was $7,077, $6,014, $3,760 and $2,095 thousand for the years ended December 31, 1998, December 31, 1997, the thirty-one weeks ended December 31, 1996 and the twenty-one weeks ended May 23, 1996, respectively. The majority of the leases contain escalation clauses which provide for increases in base rentals to recover future increases in certain operating costs. The future minimum rental payments shown above include base rentals with known escalations. Lease agreements may include renewal options and usually require that the Company pay for utilities, taxes, insurance and maintenance expenses. The Company is involved in legal and administrative proceedings and claims of various types. While any litigation contains an element of uncertainty, management believes that the outcome of each such proceeding or claim which is pending or known to be threatened, or all of them combined, will not have a material adverse effect on the Company's consolidated financial position or results of operations. 12. Employee Savings Plan UK Pension Plan. The Company's UK subsidiary has a contributory defined benefit pension plan which covers substantially all of the UK subsidiary's employees. Pension benefits are based upon length of service and compensation under a final compensation averaging formula. The Company's funding policy is to make contributions consistent with statutory requirements. The plan's assets are primarily invested in equity instruments. F-16 Remington Products Company, L.L.C. Notes to Consolidated Financial Statements (continued) Information regarding the Company's pension plan as of December 31, 1998 and 1997 are as follows (in thousands): Year Ended December 31, ------------------------ Change in Benefit Obligation: 1998 1997 ------ ------ Benefit obligation at beginning of year $6,222 $4,788 Service cost 513 464 Interest cost 461 410 Amendments 259 1,444 Actuarial loss (gain) (387) (585) Benefits paid (204) (195) Currency exchange rate effects 38 (104) ------- ------- Benefit obligations at end of year 6,902 6,222 ------- ------- Change in Plan Assets: Fair value of plan assets at beginning of year $5,996 $5,369 Actual return on plan assets 697 580 Employer contributions 287 272 Participant contributions 96 92 Benefits paid (204) (195) Currency exchange rate effects 37 (122) -------- ------- Fair value of plan assets at end of year 6,909 5,996 -------- ------- Funded Status 7 (226) Unrecognized net actuarial (gain) loss 75 (323) Prepaid (accrued) benefit cost $ 82 $ 97 ======== ======= Amounts recognized in the balance sheet are comprised of: the prepaid benefit costs as noted above. Weighted average assumptions: Discounted rate 6.0% 7.5% Expected return on plan assets 7.0% 8.0% Rate of compensation increase 3.5% 6.0% Health care cost trend rate, current year - -
Year Ended December 31, ----------------------------- 1998 1997 1996 ------- ------ ------- Components of Net Periodic Benefit Cost: Service cost $ 359 $ 387 $ 477 Interest cost 461 410 543 Expected return on plan assets (529) (526) (632) ------- ------- ------ Net periodic benefit cost $ 291 $ 271 $ 388 ======= ======= ======
F-17 Remington Products Company, L.L.C. Notes to Consolidated Financial Statements (continued) Employee Savings Plan. The Company has a savings accumulation plan (the "Plan") under Section 401(k) of the Internal Revenue Code covering substantially all regular employees. The Plan is subject to the provisions of ERISA and has been updated for subsequent amendments. The Plan allows for employees to defer up to the lesser of 15% of their annual earnings or within limitations on a pre-tax basis through voluntary contributions to the plan. The Plan provides for contributions in an amount equal to 40% of their employees' contributions up to a maximum of 5% of their total salary. The Company's matching contributions were $267, $237, $94 and $52 thousand for the years ended December 31, 1998, December 31, 1997, the thirty-one weeks ended December 31, 1996 and the twenty-one weeks ended May 23, 1996, respectively. 13. Financial Instruments, Credit Risk and Other Fair Value of Financial Instruments: The carrying amounts for cash and cash equivalents, accounts receivable, short-term borrowings, accounts payable and accrued liabilities approximate fair value due to the short maturities of these instruments. The fair value and book value at December 31, 1998 of long-term fixed rate debt was approximately $97.5 million and $130.0 million, respectively. The fair value and book value at December 31, 1997 of long-term fixed rate debt was approximately $109.0 million and $130.0, respectively. Concentration of Credit Risk: Financial instruments, which potentially subject the Company to concentration of credit risk, consist principally of cash and accounts receivable. The Company places its cash with high credit quality institutions. At times such amounts may be in excess of the FDIC insurance limits. As of December 31, 1998, the Company had an uncollateralized receivable with one mass-merchant retailer which represented approximately 18 % of the Company's accounts receivable balance. During calendar 1998, sales to this customer represented approximately 19% of the Company's net sales. The Company performs ongoing credit evaluations of its customers' financial condition but does not require collateral to support customer receivables. The Company establishes an allowance for doubtful accounts based upon factors surrounding the credit risk of specific customers, historical trends and other information. Foreign Currency Exposure Management: The Company is exposed to foreign currency risk primarily to the extent that its foreign subsidiaries purchase inventory in U.S. dollars. The Company has entered into foreign currency forward contracts to mitigate the effect of fluctuating foreign currencies. The Company uses derivative financial instruments only for risk management purposes and does not use them for speculation or trading. At December 31, 1998, forward contracts to sell approximately 4.4 million UK Pounds Sterling, 6.3 million Australian dollars and 0.6 million German marks were outstanding, all of which mature in 1999. At December 31, 1997, forward contracts to sell 15.3 million UK Pounds Sterling were outstanding and matured at various dates through 1998. The accounting for hedges is discussed separately under Hedging Activity within Footnote 1. Other: The Company's finished goods are manufactured for the Company by certain third-party suppliers located in China, Japan and Austria. Although the Company considers its present relationships with these suppliers to be good, any adverse change in the relationships with these suppliers, the financial condition of such suppliers, the Company's ability to import outsourced products or the suppliers' ability to manufacture and deliver outsourced products on a timely basis would have a material adverse effect on the Company. F-18 Remington Products Company, L.L.C. Notes to Consolidated Financial Statements (continued) 14. Related Party Transactions Pursuant to a management agreement (the "Management Agreement") entered into by the Company as of the Closing Date, Vestar Capital Partners ("Vestar Capital"), an affiliate of the Vestar Members, will receive an annual advisory fee equal to the greater of $500 thousand and 1.5% of EBITDA (as defined in such agreement) of the Company on a consolidated basis for rendering advisory and consulting services in relation to strategic financial planning and other affairs of the Company. Vestar Capital will also be paid reasonable and customary investment banking fees in connection with an initial public offering, sale of the Company and other financing. In addition, Vestar Capital received a fee in the amount of $2.0 million from the Company on the Closing Date. The Management Agreement will be in effect until the tenth anniversary of the Closing Date, provided that the Management Agreement will terminate on the earlier to occur of: (i) a qualified public offering or (ii) the first date that an affiliate of Vestar Capital owns less than 25% of the number of the Company's Common Units owned by Vestar Capital on the Closing Date, and provided further that Vestar Capital may terminate the Management Agreement at any time. Pursuant to a consulting and transitional services agreement (the "Consulting Agreement") entered into by the Company as of the closing Date, RPI will receive an aggregate annual fee equal to the sum of (i) the greater of $500 thousand or 1.5% of EBITDA (as defined in such agreement) of the Company on a consolidated basis and (ii) $250 thousand in 1996, 1997 and 1998 if the Company's net revenues or EBITDA (as defined in such agreement) exceed certain targets in such years, for rendering advisory and consulting services in relation to strategic financial panning, product development and evaluation of mergers, acquisitions and divestitures. The Consulting Agreement will be in effect until the tenth anniversary of the Closing Date, provided that the Consulting Agreement will terminate on the earlier to occur of: (i) a qualified public offering or (ii) the first date that RPI owns less than 25% of the number of the Company's Common Units owned by RPI on the Closing Date, and provided further that Vestar Capital may terminate the Consulting Agreement at any time (but only to the extent that Vestar Capital also terminates similar provisions of the Management Agreement). The Company utilized consultants from an entity controlled by a director of the Company for a limited duration project during 1996. The Company recorded fees to the consultants of $323 thousand for this project which has been completed. RPC utilized various consultants (principally in its computer and service store operations) from an entity controlled by one of RPC's partners. RPC was billed based upon a prearranged hourly amount and was charged $37 thousand for related services during the twenty-one weeks ended May 23, 1996. RPC acquired certain products for resale in its service stores from companies owned by each of RPC's partners. Such purchases aggregated approximately $80 thousand during the twenty-one weeks ended May 23, 1996. 15. Business Segment and Geographical Information The Company adopted Statement of Financial Accounting Standards No. 131, "Disclosures About Segments of an Enterprise and Related Information", during the fourth quarter of 1998. The Statement established standards for reporting information about operating segments in annual financial statements and in interim financial reports. Operating segments are defined as components of an enterprise about which separate financial information is available that is evaluated on a regular basis by the Company's chief operating decision maker in deciding how to allocate resources to an individual segment and in assessing performance of the segment. The Company's three operating segments, all of which distribute men's and women's personal care appliances, are comprised of 1) the United States segment, which sells product through mass-merchant retailers, department stores and drug store chains, 2) the U.S. Service Store segment, comprised of more than 100 Company-owned and operated service stores and 3) the International segment which sells product through an international network of subsidiaries and distributors. The segment's performance is evaluated based on segment operating profit, which is defined as income before interest, taxes, depreciation and amortization and any unusual charges. All corporate related costs and assets, such as intangible and deferred financing fees, are included in the United States segment and are not allocated to the other segments' operating profit or assets, respectively. Segment net sales are evaluated excluding intersegment sales which are not material. F-19 Remington Products Company, L.L.C. Notes to Consolidated Financial Statements (continued) Information by segment and geographical location is as follows (in thousands): Year Ended December 31, 1996 ---------------------------------- Year Year For The For The Ended Ended 31 Weeks 21 Weeks December 31, December 31, Ending Ending 1998 1997 December 31. 1996 May 23,1996 ------------ -------------- ----------------- ------------ Net Sales: United States $ 122,469 $ 99,612 $ 87,641 $ 25,513 U.S. Service Stores 42,430 38,590 24,512 9,234 International 103,458 103,370 73,133 21,966 --------- ---------- ----------- ----------- Total $ 268,357 $ 241,572 $ 185,286 $ 56,713 ========= ========== =========== =========== Operating Profit: United States $ 10,200 $ 6,269 $ 732 $ (13,340) U.S. Service Stores 3,613 3,441 2,611 (203) International 6,938 9,203 11,544 (1,403) Depreciation and amortization (5,169) (4,767) (2,379) ( 2,005) Restructuring and reorganization charge (6,806) - - - Inventory write-down (2,760) - - - --------- ---------- ----------- ---------- Total $ 6,016 $ 14,146 $ 12,508 $ (16,951) ========= ========== ============ =========== Segment Assets: United States $ 116,985 $ 118,164 $ 133,008 U.S. Service Stores 11,390 11,165 9,787 International 67,352 75,916 72,028 ---------- ----------- ----------- Total $ 195,727 $ 205,245 $ 214,823 ========= =========== =========== Capital Expenditures: United States $ 1,734 $ 2,856 $ 1,170 $ 1,070 U.S. Service Stores 1,167 1,251 867 85 International 978 971 362 155 ------------ ------------- ------------- ---------- Total $ 3,879 $ 5,078 $ 2,399 $ 1,310 ========== =========== ============= ==========
Net sales in the United Kingdom represented approximately 19%, 20% and 17% of the Company's consolidated net sales during the years ended December 31, 1998, 1997 and 1996, respectively. No other country contributed more than 10% of consolidated net sales. The Company's largest customer, Wal-Mart, accounted for approximately 19%, 15% and 16% of the Company's consolidated net sales during the years ended December 31, 1998, 1997 and 1996 and is serviced by both the United States and International segments. No other customer accounted for more than 10% of the Company's net sales during the years ended December 31, 1998, 1997 and 1996. F-20 REMINGTON PRODUCTS COMPANY Schedule II--Valuation & Qualifying Accounts (in thousands) Additions Balance of Charged to Balance at Beginning Costs and End of Period Expenses Deductions of Period ---------- ---------- ---------- ---------- Successor Year Ended December 31, 1998 Allowance for doubtful accounts $ 734 $ 2,242 $ 227 $ 2,749 Allowance for cash discounts and returns 8,925 15,299 16,569 7,655 Year Ended December 31, 1997 Allowance for doubtful accounts 1,340 188 794 734 Allowance for cash discounts and returns 9,419 16,007 16,501 8,925 31 Weeks Ended December 31, 1996 Allowance for doubtful accounts 2,487 341 1,488 1,340 Allowance for cash discounts and returns 3,937 14,123 8,641 9,419 Predecessor 21 Weeks Ended May 23, 1996 Allowance for doubtful accounts 1,366 1,441 320 2,487 Allowance for cash discounts and returns 7,852 4,331 8,246 3,937
S-1 EX-10.6 2 FIFTH AMENDMENT Exhibit 10.6 FIFTH AMENDMENT FIFTH AMENDMENT, dated as of March 11, 1999 (this "Amendment"), to the Credit and Guarantee Agreement, dated as of May 23, 1996 (as amended, supplemented or otherwise modified from time to time, the ("Credit Agreement"), among: (a) REMINGTON PRODUCTS COMPANY, L.L.C., a Delaware limited liability company (the "Company"); (b) REMINGTON CONSUMER PRODUCTS LIMITED, a corporation organized and existing under the laws of the United Kingdom (the "UK Borrower"); (c) each Acquisition Subsidiary from time to time party thereto (together with the Company and the UK Borrower, the "Borrowers"); (d) FLEET NATIONAL BANK and BANQUE NATIONALE DE PARIS, as Co- Documentation Agents (in such capacity, the "Co-Documentation Agents:); and (e) THE CHASE MANHATTAN BANK (formerly known as CHEMICAL BANK), a New York banking corporation, as administrative agent (in such capacity, the "Agent") for the Lenders hereunder. W I T N E S S E T H : WHEREAS, the Borrowers, the Lenders and the Agent are parties to the Credit Agreement; WHEREAS, the Borrowers have requested that the Agent and the Lenders agree to amend certain provisions of the Credit Agreement in accordance with the terms hereof; WHEREAS, the Agent, the Lenders and The Chase Manhattan Bank (as Issuing Lender) are willing to amend such provisions of the Credit Agreement, but only upon the terms and subject to the conditions set forth herein; NOW THEREFORE, in consideration of the premises contained herein, the parties hereto agree as follows: 1. Defined Terms: Unless otherwise defined herein, capitalized terms which are used herein shall have the meanings assigned thereto in the Credit Agreement. 2. Amendment of Subsection 1.1. (a) Subsection 1.1 of the Credit Agreement hereby is amended by deleting therefrom in their entireties the definitions of the terms "Applicable Margin," "Domestic Borrowing Base" and "Overadvance Period" contained therein. (b) Subsection 1.1 of the Credit Agreement hereby is amended by inserting therein, in proper alphabetical order, the following definitions: "Applicable Advance Rate:" with respect to (a) Eligible Domestic Accounts, 85% and (b) Eligible Domestic Inventory, 60% (collectively, the "Basic Advance Rates"); provided that, during each period set forth below, the Basic Advance Rates shall be increased to the extent necessary to cause the Domestic Borrowing Base to be increased by the amount equal to the "Increase Amount" set forth below opposite such period: Period Increase Amount ------ --------------- 02/01/99 - 11/30/99 $10,000,000 12/01/99 - 06/30/00 $5,000,000 "Applicable Margin": for each Type of Loan, or with respect to commitment fees, as applicable, the rate per annum set forth under the relevant column heading below, based upon the Leverage Ration in effect from time to time as described below: Eurodollar, Domestic Sterling and Sterling ABR Fee Base Rate Loans Rate Loans Percentage ------------------- ---------- ---------- Leverage Ratio of greater 2.75% 1.50% 0.50% than or equal to 5.00 to 1.00 Leverage Ratio of less than 2.50% 1.25% 0.50% 5.00 to 1.00 and greater than or equal to 4.00 to 1.00 Leverage Ration of less than 2.25% 1.00% 0.50% 4.00 to 1.00 and greater than or equal to 3.50 to 1.00 Leverage Ratio of less than 2.00% 0.75% 0.375% 3.50 to 1.00 Notwithstanding the foregoing, at all times prior to the date upon which the Company delivers the financial statements required pursuant to subsection 13.4(b) for its fiscal quarter ended June 30, 1996, the Company shall be deemed (for purposes of this definition only) to have a Leverage Ratio of greater than 5.00 to 1.00. Any changes in the Applicable Margin shall become effective on the date which is three Business Days following the date of delivery by the Company of its financial statements for the relevant fiscal period in accordance with the provisions of subsection 13.4(a) or (b), as the case may be. "Domestic Borrowing Base": as of any date of determination an amount equal to the sum, without duplication of (a) the Applicable Advance Rate of the total of Eligible Domestic Accounts of the Company and in Domestic Subsidiaries as of such date less the Domestic Dilution Reserve then in effect, (b) the Applicable Advance Rate of the Eligible Domestic Inventory of the Company and its Domestic Subsidiaries as of such date and (c) during any Overadvance Period, $10,000,000 minus any Seasonal Overadvance Utilization then in effect. For purposes of determining the Domestic Borrowing Base from time to time, Eligible Domestic Accounts and Eligible Domestic Accounts of the Company and its Domestic Subsidiaries shall be determined from time to time by the Agent by reference to the Domestic Borrowing Base Certificate then most recently delivered to it; provided that the information contained in such Domestic Borrowing Base Certificate shall not be conclusive in calculating the amount of Eligible Domestic Accounts and Eligible Domestic Inventory and, after consultation with the Company, the Agent shall be entitled to adjust the amounts and other information contained therein to the extent that it believes in its reasonable credit judgment that such adjustment is appropriate to reflect (x) the then current amount of Eligible Domestic Accounts and Eligible Domestic Accounts or (y) changes in the business practices of the Company and its Domestic Subsidiaries (or newly disclosed matters with respect to them). "Overadvance Period": shall mean the period from April 1, 1998 through the date of effectiveness of the Fifth Amendment, dated as of March 11, 1999, to this Agreement. (c) Subsection 1.1 of the Credit Agreement hereby is amended by deleting from clause (a) (iii) of the definition of the term "Inventory Reserves" contained therein and by substituting therefor the following: any favorable variances (production material, production manufacturing, purchase price variance or other variance categories) that result when standard costs are greater than the actual costs and are remaining in the ending inventory balance (with such favorable variance inventory reserve to (x) be subject to review, testing and, if appropriate, adjustment by the Agent, (y) be calculated on the last day of the accounting period for each calendar quarter, commencing on March 31, 1999, on an individual product basis and (z) remain in effect until the next calculation). 3. Amendment of Subsection 5.1(c). Subsection 5.1(c) of the Credit Agreement hereby is amended by inserting at the end of said subsection 5.1(c) the following: Notwithstanding anything to the contrary contained herein, the Domestic Swing Line Lender shall (unless any of the events described in paragraph (g) or (h) of Section 16 shall have occurred) request each Domestic Lender to make such a Domestic Revolving Credit Loan for the purpose of refunding outstanding Domestic Swing Line Loans not less frequently than every 15 days. 4. Amendment of Section 8.1(c). Subsection 8.1(c) of the Credit Agreement hereby is amended by inserting at the end of said subsection 8.1(c) the following: Notwithstanding anything to the contrary contained herein, the UK Swing Line Lender shall (unless any of the events described in paragraph (g) or (h) of Section 16 shall have occurred) request each UK Lender to make such a UK Revolving Credit Loan for the purpose of refunding outstanding UK Swing Line Loans not less frequently than every 15 days. 5. Amendment of Subsection 10.7(d). Subsection 10.7(d) of the Credit Agreement hereby is amended by deleting said subsection 10.7(d) in its entirety and by substituting therefor the following: (d) The Company agrees to pay to the Agent, for the account of each Lender, a utilization fee for each day upon which the Domestic Revolving Credit Exposure exceeds the amount which would be available under the Domestic Borrowing Base if the Domestic Borrowing Base were determined using the Basic Advance Rates (i.e., without giving effect to any Increase Amount then In effect). Such utilization fee shall be in the amount equal to 1/4% of 1% per annum on the then outstanding amount of such Lender's Domestic Revolving Credit Exposure, UK Revolving Credit Exposure, Domestic Term Loans and shall be payable quarterly, in arrears, on the last day of each March, June, September and December. Nothing contained herein shall be deemed to permit the Domestic Revolving Credit Exposure at any date to exceed the Domestic Borrowing Base then in effect. 6. Amendment of Subsection 14.14. Subsection 14.14 of the Credit Agreement is amended by deleting therefrom the dates set forth under the heading "Period" and the ratios set forth under the heading "Ratio" contained therein and by substituting therefor the following: Period Ratio -------------- ----------- 04/01/99 - 12/30/99 0.70 to 1.0 12/31/99 - 06/29/00 0.85 to 1.0 06/30/00 - thereafter 1.05 to 1.0 7. Amendment of Subsection 14.15. Subsection 14.15 of the Credit Agreement hereby is amended by deleting therefrom the dates set forth under the heading "Period" and the ratios set forth under the heading "Ratios" contained therein and by substituting therefor the following: Period Ratio ---------------- ---------------- Closing Date - 12/30/99 1.00 to 1.0 12/31/99 - 06/29/00 1.25 to 1.0 06/30/00 - 12/30/00 1.60 to 1.0 12/31/00 - 06/30/01 1.70 to 1.0 07/01/01 - 12/31/01 1.80 to 1.0 01/01/02 - thereafter 2.00 to 1.0 8. Amendment to Subsection 14.16(a). Subsection 14.16(a) of the Credit Agreement hereby is amended by deleting therefrom the dates set forth under the heading "Period" and the ratios set forth under the heading "Ratio" contained therein and by substituting therefor the following: Period Ratio ---------------- -------------- 04/01/99 - 12/30/99 3.20 to 1.0 12/31/99 - thereafter 3.00 to 1.0 9. Amendment to Subsection 14.16(b). Subsection 14.16(b) of the Credit Agreement hereby is amended by deleting therefrom the dates set forth under the heading "Period" and the ratios set forth under the heading "Ratio" contained therein and by substituting therefor the following: Period Ratio ------------------- -------------- 04/01/99 - 12/30/99 9.00 to 1.0 12/31/99 - 06/29/00 8.00 to 1.0 06/30/00 - 09/29/00 5:00 to 1.0 09/30/00 - 06/30/01 4.50 to 1.0 07/01/01 - thereafter 4.00 to 1.0 10. Conditions to Effectiveness. This Amendment shall become effective on the date upon which the Agent receives (a) counterparts hereof, executed and delivered by a duly authorized officer of each Borrower and the Required Lenders and (b) an amendment fee, for ratable account of the Lenders which execute and deliver this Amendment on or prior to March 26, 1999 (or such later date as the Agent and the Borrower shall agree), in the amount equal to 1/8 of 1% of the amount of the Domestic Revolving Credit Commitments then then in effect, the UK Revolving Credit Commitments then in effect and the aggregate then outstanding principal amount of the Domestic Term Loans and the UK Term Loans. Upon the effectiveness of this Amendment, the Applicable Margin shall be adjusted to the rates set forth therein, without regard to whether such effectiveness occurs on a day which is not the last day of an Interest Period. 11. Representations and Warranties. The Borrowers hereby confirm, reaffirm and restate the representations and warranties set forth in Section 6 of the Credit Agreement; provided that each reference to the Credit Agreement therein shall be deemed to be a reference to the Credit Agreement giving effect to this Amendment. The Borrowers represent and warrant that no Default or Event of Default has occurred and is continuing. 12. Continuing Effect of Credit Agreement. This Amendment shall not constitute a waiver or amendment of any other provision of the Credit Agreement not expressly referred to herein and shall not be construed as a waiver or consent to any further or future action on the part of a Borrower that would require a waiver or consent of the Agent or the Lenders. Except as expressly amended hereby, the provisions of the Credit Agreement are and shall remain in full force and effect. 13. Counterparts. This Amendment may be executed by the parties hereto in any number of counterparts, and all of such counterparts taken together shall be deemed to constitute one and the same instrument. 14. GOVERNING LAW. THIS AMENDMENT SHALL BE GOVERNED BY, AND CONSTRUED AND INTERPRETED IN ACCORDANCE WITH, THE LAWS OF THE STATE OF NEW YORK. IN WITNESS WHEREOF, the parties hereto have caused this Amendment to be executed and delivered by their respective duly authorized offices as of the date first above written. REMINGTON PRODUCTS COMPANY, L.L.C. By: --------------------------- Title: THE CHASE MANHATTAN BANK, as Administrative Agent, as a Lender and as (or on behalf of) the Issuing Bank By: ----------------------------- Title: BANQUE NATIONALE DE PARIS, as a Co- Documentation Agent and as a Lender By:------------------------------- Title: FLEET NATIONAL BANK, as a Co- Documentation Agent and as a Lender By:---------------------------- Title: FIRST UNION NATIONAL BANK S/ By:-------------------------- Title: THE FIRST NATIONAL BANK OF BOSTON By:-------------------------------- Title: FIRST UNION BANK OF CONNECTICUT By:----------------------------------- Title: HELLER FINANCIAL, INC. By:------------------------------------- Title: PEOPLE'S BANK By:------------------------------------ Title: PNC BANK, NATIONAL ASSOCIATION By:------------------------------------ Title: THE PROVIDENT BANK By:----------------------------------- Title: EX-25 3 LETTER AGREEMENT Exhibit 10.25 June 7, 1997 Mr. Lester Lee 563 Grimsby Lane Danville, CA 94506 Dear Lester: It is with great pleasure that I offer you the position of Senior Vice President of Sales and Integrated Logistics for Remington Products Company, L.L.C. As discussed, this position is of critical importance to the future of the Remington Products' organization, and will provide an excellent venue for your personal success and professional accomplishments. In this position, you will have direct responsibility for Remington U.S. sales efforts. In addition, you will have general management responsibilities for the companies business in Canada, Mexico and Japan. The terms of the offer are as follows: 1. Base Salary Your annual base salary will be $250,000. 2. Annual Incentive Award You shall be included in the Company's bonus plan for the fiscal year commencing on January 1, 1997 with a target bonus of 45% of your annual base salary. The amount of your actual bonus, including when paid, etc., will be in accordance with all of the provisions of the bonus program. Furthermore, you are guaranteed a minimum of 50% of your bonus for 1997, pro-rated for the number of months employed during 1997. 3. Equity There are three parts to the equity portion of the offer, all tied to the long term growth of the business as follows: (a) Phantom Equity Plan You will be included in the Company's Phantom Equity Plan which achieves value based upon increases in the Company's earnings before interest, taxes, depreciation and amortization ("EBITDA"). You will receive phantom equity under the Plan equal to 1.25% of the total Common Equity. The actual amount you will receive under the plan, including timing of payment, etc., will be subject to the terms of the Plan, a copy of which is attached hereto as Exhibit A. (b) Stock Options You will receive an option to purchase up to 1.25% of the total Common Units of the Company at an exercise price of $100 per unit on the terms and conditions contained in the standard form of option agreement. (c) You will be eligible to participate in the Company's Long Term Option Plan when approved by the Management Committee. The plan, which is expected to be approved this month, will provide further stock options to selected executives which will vest based on achievement of agreed to long term targets. 4. Sign-On Bonus You will received a $35,000 sign-on bonus, subject of course to applicable withholding taxes. 5. Benefit Plans You will be entitled to benefit plans available to all executives of the Company and shall be reimbursed for your reasonable and necessary travel and other expenses incurred in connection with the business of the Company in accordance with the reimbursement policies of the Company. You shall be entitled to four weeks vacation in each calendar year. You will be eligible to participate in the Company's medical plans from your first day of employment. 6. Retirement Plan You will be immediately eligible to participate in the Company's 401K Plan. 7. Deferred Compensation Plan You will be eligible to participate in the Company's Deferred Compensation Plan which is expected to be approved by the Management Committee this month. Under the Plan, you may defer pre-tax up to 33% of your salary and 100% of any bonus into a self directed account. Details of this plan will be available in early July 1997. 8. Relocation Costs The Company shall reimburse you for reasonable costs related to relocation customarily paid by employers, including but not limited to (a) costs of moving you, your family and your property to Connecticut (b) transportation and related costs for reasonably required trips by your wife to Connecticut to assist in locating a house, (c) costs of temporary housing for you from the date of employment until the date you move into a permanent residence in Connecticut and (d) reasonable closing costs associated with the sale of your existing house and the purchase of a new house; provided, however, that the amount payable under item (d) shall not include more than one and one half points payable in order to obtain a mortgage. All amounts payable to you under this Section 6 shall be "grossed up" to reimburse you forincome taxes payable on such amounts, but only to the extent such amounts are not deductible by you. Separately, the Company will give you a $10,000 miscellaneous moving allowance. Taxes on this allowance will be your responsibility. The Company will assume responsibility for the lease on your current car for the remaining lease period which we understand is 21 months. 9. Severance If your employment is terminated by the Company, without cause, during your first year, you shall be paid a monthly severance payment of $17,083 per month for twelve (12) months and if such termination occurs on or after one year of employment, the Company will continue to pay you your annual base salary at the rate of pay in effect on the date of termination for a period of six (6) months. It is anticipated that the terms of this letter will be incorporated into an Employment Agreement between the Company and you. I am delighted at the prospect of your joining Remington Products. With your leadership Lester, I am confident we can achieve great things and have some fun in the process. Please feel free to call me with any questions you may have. If this offer is acceptable, please sign on the indicated line below and return a copy to me. Cordially, Neil DeFeo President and CEO Accepted this ___ day of June, 1997 - ----------------------------- Lester Lee EX-21 4 SUBSIDIARIES EXHIBIT 21 SUBSIDIARIES State or Other Jurisdiction of Incorporation or Registrant Subsidiary Organization - ---------- ---------- ------------ Remington Remington Capital Corp. Delaware Remington Remington Consumer Products United Kingdom Limited Remington Remington Corporation, L.L.C. Delaware Remington Remington Licensing Corporation Delaware Remington Remington Products Australia Victoria,Australia Pty. Ltd. Remington Shaver Shop Pty. Ltd. Victoria,Australia Remington Remington Products (Canada), Inc. Canada Remington Remington Products GmbH Germany Remington Remington Products New Zealand New Zealand Limited Remington Remington Rand Corporation Delaware EX-24 5 POWERS OF ATTORNEY Exhibit 24 POWER OF ATTORNEY REMINGTON PRODUCTS COMPANY, L.L.C. KNOW ALL MEN BY THESE PRESENTS, that each person whose name appears below constitutes and appoints Alexander R. Castaldi, Allen S. Lipson and Kris J. Kelley and each of them, his true and lawful attorneys-in-fact and agents, with full power of substitution and resubstitution, for and in his name, place and stead, in any and all capacities which such person serves or may serve with respect to Remington Products Company, L.L.C. and Remington Capital Corp., to sign the Annual Report on Form 10-K of Remington Products Company, L.L.C. and Remington Capital Corp. for the fiscal year ended December 31, 1997, and any or all amendments to such Annual Report, and to file the same, with all exhibits thereto, and other documents in connection therewith, with the Securities and Exchange Commission, granting unto said attorneys-in-fact and agents, and each of them, full power and authority to do and perform each and every act and thing requisite and necessary to be done in and about the premises, as fully to all intents and purposes as he might or could do in person, hereby ratifying and confirming all that said attorneys-in-fact and agents or any of them, or their or his substitutes, may lawfully do or cause to be done by virtue hereof. This power of attorney has been signed as of the 30 day of March, 1999, by the following persons: /s/ Neil P. DeFeo /s/ - ----------------------------------- -------------------------- Neil P. DeFeo, Victor K. Kiam, II, Chief Executive Officer, President and Director Chairman and Director /s/ Victor K. Kiam, III /s/Robert L. Rosner - ----------------------------------- -------------------------- Victor K. Kiam, III, Robert L. Rosner, Director Director /s/ Norman W. Alpert - ----------------------------------- -------------------------- Norman W. Alpert, Kevin Mundt, Director Director /s/Arthur J. Nagle /s/Daniel S. O'Connell - ----------------------------------- -------------------------- Arthur J. Nagle, Daniel S. O'Connell, Director Director /s/William B. Connell /s/Kris J. Kelley - ----------------------------------- -------------------------- William B. Connell, Kris J. Kelley, Director Vice President and Controller /s/Alexander R. Castaldi - ----------------------------------- Alexander R. Castaldi, Executive Vice President and Chief Financial Officer EX-27 6 FDS FOR YEAR ENDED DECEMBER 31, 1998
5 EXHIBIT 27 This schedule contains summary financial information extracted from the audited financial statements of the Company for the year ended December 31, 1998, and is qualified in its entirety by reference to such financial statements. 0001017710 REMINGTON PRODUCTS COMPANY,L.L.C. 1,000 YEAR DEC-31-1998 JAN-01-1998 DEC-31-1998 4,249 0 59,998 2,749 50,163 116,289 13,135 6,197 195,728 47,995 180,634 0 0 0 (34,741) 195,727 268,357 268,357 159,175 159,175 103,166 0 20,499 (14,955) 382 (15,337) 0 0 0 (15,337) 0 0
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