10-Q 1 tenqsept01.txt SEPTEMBER 30, 2001 SECURITIES AND EXCHANGE COMMISSION Washington, D.C. 20549 FORM 10-Q [X] QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 - For the quarter ended September 30, 2001. OR [ ] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934. Commission file number 333-07429 / 333-67498 333-07429-01 / 333-67498-01 Remington Products Company, L.L.C. ---------------------------------- Remington Capital Corp. ----------------------- (Exact name of registrant as specified in its charter) 06-1451076 Delaware 06-1451079 -------------------------------------- ---------------------- (State or other jurisdiction of (IRS Employer incorporation or organization) Identification Nos.) 60 Main Street, Bridgeport, Connecticut 06604 --------------------------------------- ---------- (Address of principal executive offices) (Zip Code) Registrant's telephone number, including area code: (203) 367-4400 --------------- 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: None --------------------------------------------------- (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 ----- ----- REMINGTON PRODUCTS COMPANY, L.L.C. QUARTERLY REPORT ON FORM 10-Q FOR THE QUARTER ENDED SEPTEMBER 30, 2001 INDEX ----- PAGE ---- PART I. FINANCIAL INFORMATION Item I. Financial Statements (unaudited): Consolidated Balance Sheets - September 30, 2001 and December 31, 2000 3 Consolidated Statements of Operations - For the three and nine months ended September 30, 2001 and 2000 4 Consolidated Statements of Cash Flows - For the nine months ended September 30, 2001 and 2000 5 Notes to Unaudited Consolidated Financial Statements 6 Item 2. Management's Discussion and Analysis of Financial Condition and Results of Operations 8 Item 3. Quantitative and Qualitative Disclosures about Market Risk 12 PART II. OTHER INFORMATION Item 6. Exhibits and Reports on Form 8-K 13 Signature 14 2 Remington Products Company, L.L.C. Consolidated Balance Sheets (unaudited, in thousands)

See notes to unaudited consolidated financial statements. 3 Remington Products Company, L.L.C. Consolidated Statements of Operations (unaudited, in thousands)

See notes to unaudited consolidated financial statements. 4 Remington Products Company, L.L.C. Consolidated Statements of Cash Flows (unaudited, in thousands)

See notes to unaudited consolidated financial statements. 5 Remington Products Company, L.L.C. Notes to Unaudited Consolidated Financial Statements 1. Basis of Presentation The statements have been prepared by the Company without audit, pursuant to the rules and regulations of the Securities and Exchange Commission and according to generally accepted accounting principles, and reflect all adjustments consisting only of normal recurring accruals which, in the opinion of management, are necessary for a fair statement of the results of the interim periods presented. Results of interim periods may not be indicative of results to be expected for the entire year. These financial statements do not include all disclosures associated with annual audited financial statements and, accordingly, should be read in conjunction with the Company's audited consolidated financial statements for the year ended December 31, 2000. Certain prior year amounts have been reclassified to conform with current year presentation. Remington Capital Corp. is a wholly-owned subsidiary of Remington Products Company, L.L.C. and has no significant operations of its own. 2. Recent Accounting Pronouncement On June 29, 2001, SFAS No. 142, "Goodwill and Other Intangible Assets" was approved by the FASB. SFAS No. 142 changes the accounting for goodwill from an amortization method to an impairment-only approach. Amortization of goodwill by the Company will cease upon its adoption of this statement. The Company is required to implement SFAS No. 142 on January 1, 2002 and is in the process of determining the impact that this statement will have on its consolidated financial position and results of operations. 3. Inventories Inventories were comprised of the following (in thousands): September 30, December 31, 2001 2000 ------------- ----------- Finished goods $123,228 $63,673 Work in process and raw materials 4,291 3,181 -------- ------- $127,519 $66,854 ======== ======= 4. Income Taxes Federal income taxes on net earnings of the Company are payable directly by the members pursuant to the Internal Revenue Code. Accordingly, no provision has been made for Federal income taxes for the Company. However, certain state and local jurisdictions do not recognize L.L.C. status for taxing purposes and require taxes to be paid on net earnings. Furthermore, earnings of certain foreign operations are taxable under local statutes. In jurisdictions where L.L.C. status is not recognized or foreign corporate subsidiaries exist, deferred taxes on income are provided for as temporary differences between the financial and tax basis of assets and liabilities. 6 5. Commitments and Contingencies The Company is involved in legal and administrative proceedings and claims of various types. While any litigation contains an element of uncertainty, management believes that the outcome of each such proceeding or claim which is pending or known to be threatened, or all of them combined, would not have a material adverse effect on the Company's consolidated financial position or results of operations. 6. Comprehensive Income Comprehensive income consists of the following (in thousands):

7. Debt The Company entered into a new $110.0 million asset based revolving credit facility (the "Facility") on August 21, 2001. The initial drawdown under the Facility was used to repay all outstanding borrowings under the Company's former $70.0 million senior credit facility. The Facility provides for $70.0 million in revolving credit to the Company and $40.0 million in revolving credit to certain of its subsidiaries. Borrowings under the Facility are subject to a borrowing base of 85% of eligible receivables and 60% of eligible inventories. The borrowing base can be increased by up to $10.0 million over the applicable percentage of eligible receivables and inventories, (still limited to the $110.0 million of total facilities) from August 21 through September 30, 2001 and, in calendar years subsequent to 2001, from March 15 through June 15 and August 1 through November 15. The Facility expires on March 31, 2006. Interest rates per annum applicable to the Facility are based, at the Company's option, upon a Eurodollar rate ("LIBOR") plus 3.0% or the greater of (i) prime rate plus 1.75% and (ii) the federal funds rate plus 2.00%; provided, however, that the interest rates are subject to adjustment based on certain levels of financial performance. Interest is payable quarterly in arrears, including a commitment fee of 0.375% per annum on the average daily unused portion of the Facility. The Facility requires the Company to meet certain financial tests, the more restrictive of which require the Company to maintain certain leverage and interest coverage ratios, as defined. The Facility also contains a number of operating covenants which impose restrictions with respect to certain business matters, including the amount and terms under which the Company can obtain additional financing in the future. In addition, the Facility limits the amount of dividends that the Company is permitted to pay. As of September 30, 2001, the Company was in compliance with its debt covenants, as amended. 7 On September 6, 2001, the Company filed a registration statement (the "Exchange Offer") with the Securities and Exchange Commission for the purpose of enabling holders of its $130.0 million 11% Series B Senior Subordinated Notes issued on May 23, 1996 ("Series B Notes") and its $50.0 million 11% Series C Senior Subordinated Notes issued on April 18, 2001 ("Series C Notes") to exchange them for a like principal amount of 11% Series D Senior Subordinated Notes ("Series D Notes") registered under the Securities Act of 1933, as amended. The Series D Notes have substantially the same terms as the Company's Series B Notes and Series C Notes and are similarly due May 15, 2006. The Exchange Offer was completed on October 10, 2001, and the Company now has outstanding approximately $15.0 million in principal amount of Series B Notes and approximately $165.0 million in principal amount of Series D Notes. ITEM 2. Management's Discussion and Analysis of Financial Condition and Results of Operations General The Company is a leading consumer products company focusing on the development and marketing of personal care products. The Company designs and distributes electric shavers and accessories, grooming products, hair care appliances, wellness products and other small electrical consumer products. The Company distributes its products through three operating segments which are comprised of 1) the North American segment, which sells products through mass-merchant retailers, department stores and drugstore chains throughout the United States and Canada, 2) the International segment, which sells products to similar customers through an international network of subsidiaries and distributors, and 3) the U.S. Service Stores segment consisting of Company-owned and operated service stores located throughout the United States. Sales of the Company's products are highly seasonal, with a large percentage of net sales occurring during the Christmas selling season. The Company typically derives approximately 40% of its annual net sales in the fourth quarter of each year while the first quarter of each year is generally the Company's weakest quarter. As a result of this seasonality, the Company's inventory and working capital needs fluctuate substantially during the year. Results of Operations The following table sets forth the Company's unaudited consolidated statements of operations, including net sales and operating income by its North American, International and U.S. Service Stores operating segments, as well as the Company's consolidated results of operations as a percentage of net sales for the three and nine months ended September 30, 2001 and 2000 (in millions except for percentages). 8

Third Quarter Ended September 30, 2001 Versus September 30, 2000 Net Sales. Net sales for the third quarter ended September 2001 were $84.2 million, up slightly from $84.0 million in the third quarter of 2000. The increase was driven entirely by increases in the North American segment. Net sales in the International segment were down slightly from the prior year period due to the negative impact of foreign currency. Sales in the U.S. Service Stores segment were lower due to fewer stores operating in 2001 and a weaker specialty retail environment. Excluding the negative impact of foreign currency, consolidated net sales were 2.1% higher than the prior year's quarter. Net sales in North America increased 3.6% to $49.2 million for the three months ended September 2001, compared to $47.5 million for the same period in 2000. Sales were higher in both the shaver and grooming and haircare and wellness categories primarily as a result of the introduction of new wellness and grooming products. In addition, sales were higher due to increased distribution to new and existing customers. International net sales were $27.0 million for the third quarter of 2001 compared with $27.4 million in the third quarter of 2000. Excluding the negative impact of foreign currency, net sales for the International segment were 4.0% higher in the third quarter of 2001 compared to the third quarter of 2000. This increase was the result of higher sales in Europe, partially offset by lower sales in Australia due to the weaker economy. 9 U.S. Services Stores' net sales decreased 12.1% to $8.0 million in the third quarter of 2001 compared to $9.1 million in the third quarter of 2000. The decrease was the result of six fewer stores on average and a weaker specialty retail environment during the quarter. Same store sales for the quarter ended September 2001 were 6.3% lower than in the same period of 2000. Gross Profit. Gross profit was $35.8 million or 42.5% of net sales for the three months ended September 2001 compared to $37.4 million or 44.5% of net sales for the same period in 2000. The negative impact of the sale of discontinued products and a change in product mix in the North American segment were the primary factors causing the decrease in the gross profit percentage. Selling, General and Administrative Expenses. Selling, general and administrative expenses were $27.7 million or 32.9% of net sales in the third quarter of 2001 compared with $26.0 million or 30.9% in the third quarter of 2000. The increase is due primarily to increased costs associated with the Company's transition to three new third party distribution centers, which was completed during the third quarter. Interest Expense. Interest expense increased to $6.9 million for the quarter ended September 2001 compared to $6.2 million in same period of 2000. Lower average interest rates were offset by higher average borrowings during the period which were required to fund increased inventory levels to support an anticipated increase in sales during the fourth quarter of 2001. Other (Income) Expense. Other income was $0.9 million during the third quarter of 2001 compared with approximately zero in the same period of the prior year. Although foreign currencies continued to be weaker relative to the U.S. dollar versus the prior year, they strengthened during the third quarter of 2001. As a result, approximately $0.7 million of unrealized foreign currency gains were recognized on U.S. dollar denominated obligations of the Company's International segment. Income Taxes. The net benefit for income taxes during the third quarter of 2001 was $0.2 million compared to a provision of $0.2 million in the third quarter of 2000. The change from the prior year period was due to pretax losses generated in portions of the Company's International segment. Nine Months Ended September 30, 2001 Versus September 30, 2000 Net Sales. Net sales for the nine months ended September 2001 were $204.6 million, 1.4% higher than the $201.8 million in the first nine months of 2000. The increase was due to higher sales in the North American segment which were partially offset by decreases in the International and U.S. Service Stores segments. Excluding the negative impact of foreign currency, net sales for the period were 4.0% higher than the prior year period. North American net sales for the first nine months of 2001 were $123.0 million, a 12.7% increase compared to $109.1 million in the first nine months of 2000. The increase was the result of new product introductions in all major product categories and increased distribution to new and existing customers. Net sales in the International segment were $58.6 million in the first nine months of 2001, a decrease of 13.1% from $67.4 million in the first nine months of 2000. The decrease was due to weaker sales in the U.K., due in part to logistics difficulties experienced in the first half of 2001, coupled with lower sales in Australia due to a weaker economy and the sale of the Australian service stores in the third quarter of 2000. Excluding the negative impact of foreign currency and the effect of the sale of the Australian service stores, net sales decreased 2.6% in the nine months ended September 2001 compared to the same period of the prior year. U.S. Service Stores net sales were $23.0 million in the first nine months of 2001, a decrease of 9.1% compared to $25.3 million in the first nine months of 2000. The decrease was due to five fewer stores on average during 2001 and the negative impact of a weaker specialty retail environment during the year. Same store sales decreased 4.0% versus the same period a year ago. 10 Gross Profit. Gross profit for the nine months ended September 2001 was $80.7 million or 39.4% of net sales compared with $89.5 million or 44.4% of net sales for the nine months ended September 2000. The gross profit percentage decreased as a result of $8.2 million in unexpected costs in the U.K during the second quarter and the sale of discontinued products in North America. Also impacting the gross profit percentage for the first nine months of 2001 was the positive effect of a change in product mix and the negative effect of foreign currency on International product costs. Selling, General and Administrative Expenses. Selling, general and administrative expenses were $82.1 million or 40.1% of net sales for the first nine months of 2001 compared to $70.3 million or 34.9% of net sales for the comparable period of the prior year. Selling, general and administrative expenses in 2001 reflect the recognition in the second quarter of $2.8 million in unexpected costs in the U.K. and $1.0 million of severance relating principally to the Company's initiative to centralize its product development process. The increase over the prior year period was also impacted by higher distribution costs associated with the Company's initiative to improve its logistics capabilities. In addition, increased marketing and administrative costs were incurred for the nine months ended September 2001 to support the introduction of new products and the planned fourth quarter sales growth. Interest Expense. Interest expense increased to $19.1 million for the nine months ended September 2001 compared with $17.4 million for the nine months ended September 2000. The increase was due to higher average borrowings needed to support the growth of the business partially offset by lower interest rates during the period. In addition, the increased interest expense was impacted by higher amortization of deferred financing fees. Other (Income) Expense. Other expense for the first nine months of 2001 was $0.1 million compared to $0.5 million in the first nine months of 2000. The decrease was due to lower net unrealized currency losses during the current period. The year to date devaluation of foreign currency was larger in the prior year and resulted in the recognition of higher unrealized currency losses on U.S. dollar denominated obligations of the Company's International segment. Income Taxes. The net benefit for income taxes was $5.0 million for the first nine months of 2001 compared with a net benefit of $1.0 million for the same period in 2000. The increase in the net benefit is due primarily to higher pre-tax losses generated in 2001 by the Company's U.K. operations. Liquidity and Capital Resources Net cash used in operating activities for the first nine months of 2001 was $60.8 million versus $35.3 million during the first nine months of 2000. The increased cash used in operations was due to the net loss and increased working capital requirements, represented primarily by higher inventories to support an anticipated increase in sales during the fourth quarter. The Company's operations are not capital intensive. The Company's capital expenditures totaled $3.8 million and $2.5 million during the first nine months of 2001 and 2000, respectively. The higher capital expenditures in 2001 are due to increased investments in tooling for new products. Capital expenditures for 2001 are anticipated to be approximately $5 million. The Company's primary sources of liquidity are funds generated from operations and borrowings under its new $110.0 million asset based revolving credit facility (the "Facility") entered into on August 21, 2001. The initial draw down under the Facility was used to repay all outstanding borrowings under the Company's former $70.0 million senior credit facility. Borrowings under the Facility are subject to a borrowing base of 85% of eligible receivables and 60% of eligible inventories and mature on March 31, 2006. The borrowing base can be increased by up to $10.0 million (the "Seasonal Overadvance") over the applicable percentage of eligible receivables and inventories, (still limited to the $110.0 million of total facilities) from August 21 through September 30, 2001 and, in calendar years subsequent to 2001, from March 15 through June 15 and August 1 through November 15. Additional information with respect to the Facility is included in Note 6 to the "Notes to Unaudited Consolidated Financial Statements". As of September 30, 2001, the Company was in compliance with all covenants under the Facility, as amended, and availability under the Facility, excluding the Seasonal Overadvance, was approximately $15.6 million. 11 On September 6, 2001, the Company filed a registration statement (the "Exchange Offer") with the Securities and Exchange Commission for the purpose of enabling holders of its $130.0 million 11% Series B Senior Subordinated Notes issued on May 23, 1996 ("Series B Notes") and its $50.0 million 11% Series C Senior Subordinated Notes issued on April 18, 2001 ("Series C Notes") to exchange them for a like principal amount of 11% Series D Senior Subordinated Notes ("Series D Notes") registered under the Securities Act of 1933, as amended. The Series D Notes have substantially the same terms as the Company's Series B Notes and Series C Notes and are similarly due May 15, 2006. The Exchange Offer was completed on October 10, 2001, and the Company now has outstanding approximately $15.0 million in principal amount of Series B Notes and approximately $165.0 million in principal amount of Series D Notes. The Company believes that cash generated from operations and borrowings 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. Forward Looking Statements This Management's Discussion and Analysis may contain forward-looking statements which include assumptions about future market conditions, operations and results. These statements are based on current expectations and are subject to risks and uncertainties. They are made pursuant to safe harbor provisions of the Private Securities Litigation Reform Act of 1995. Among the many factors that could cause actual results to differ materially from any forward-looking statements are the success of new product introductions and promotions, changes in the competitive environment for the Company's products, changes in economic conditions, foreign exchange risk, outcome of litigation and other factors discussed in prior Securities and Exchange Commission filings by the Company. The Company assumes no obligation to update these forward-looking statements or advise of changes in the assumptions on which they were based. ITEM 3. Quantitative and Qualitative Disclosures about Market Risk There are no material changes to the disclosure on this matter made in the Company's report on Form 10-K for the year ended December 31, 2000. 12 PART II OTHER INFORMATION ITEM 6. Exhibits and Reports on Form 8-K (a) Exhibits 10.1 Amendment No. 1, dated as of September 30, 2001 to the Credit and Guarantee Agreement by and among Remington Products Company, L.L.C., Fleet Securities, Congress Financial Corporation and Fleet Capital Corporation. (b) Reports on Form 8-K On September 4, 2001, the Company filed a Current Report on Form 8-K, reporting under Item 5 the announcement that the Company entered into a new $110.0 million asset-based revolving credit facility with Fleet Capital Corporation, as Administrative Agent, and Congress Financial Corporation, as co-arranger. 13 SIGNATURE Pursuant to the requirements of the Securities Exchange Act of 1934, the registrant has duly caused this report to be signed on its behalf by the undersigned, thereunto duly authorized. REMINGTON PRODUCTS COMPANY, L.L.C. By: /s/ Kris J. Kelley --------------------------------------------- Kris J. Kelley, Vice President and Controller Date: November 14, 2001 14

REMINGTON CAPITAL CORP 10-Q