<PAGE> 1
UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, DC 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, 1996
[ ] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES
EXCHANGE ACT OF 1934 For the transition period from ____________
to ______________________
Commission File Number 0-19431
-------
ROYAL APPLIANCE MFG. CO.
- - ------------------------------------------------------------------------------
(Exact name of registrant as specified in its charter)
<TABLE>
<S> <C>
Ohio 34-1350353
- - ---------------------------------------------------------------------------------------------------
(State or other jurisdiction of incorporation or organization) (I.R.S. Employer Identification)
650 Alpha Drive, Cleveland, Ohio 44143
- - ---------------------------------------------------------------------------------------------------
(Address of principal executive offices) (Zip Code)
(216) 449-6150
- - ---------------------------------------------------------------------------------------------------
(Registrant's telephone number, including area code)
Securities Registered Pursuant to Section 12(b) of the Act:
Common Shares, Without Par Value New York Stock Exchange
-------------------------------- ------------------------------------------
(Title of Each Class) (Name of Each Exchange on which Registered)
</TABLE>
Securities Registered Pursuant to Section 12(g) of the Act: None
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 (Sec. 229.405 of this chapter) 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].
The aggregate market value of the voting shares held by non-affiliates of
the Registrant, as reported on the New York Stock Exchange, based upon the
closing sale price of Registrant's Common Shares on March 26, 1997 was
$116,392,698. Common Shares held by each officer and director have been excluded
in that such persons may be deemed to be affiliates. This determination of
affiliate status is not necessarily a conclusive determination for other
purposes.
The number of outstanding shares of the Registrant's common shares as of
March 26, 1997 was 23,942,740.
DOCUMENTS INCORPORATED BY REFERENCE
Applicable portions of the Proxy Statement for the Annual Meeting of
Shareholders to be held on Tuesday, April 29, 1997 are incorporated by reference
in Part III of this form.
The Exhibit index appears on sequential page 34.
1
<PAGE> 2
PART I
ITEM 1. BUSINESS
- - ----------------
General
- - -------
Royal Appliance Mfg. Co. ("Royal" or the "Company"), an Ohio corporation
with its corporate offices in the Cleveland, Ohio metropolitan area, develops,
assembles and markets a full line of cleaning products for home and commercial
use under the Dirt Devil(R) and Royal(R) brand names. In 1984, the Company
introduced the first in a line of Dirt Devil(R) hand-held vacuum cleaners, which
the Company believes has become the largest selling line of hand-held vacuum
cleaners in the United States. The Company has used the Dirt Devil(R) brand name
recognition to gain acceptance for other Dirt Devil(R) products. The Company
continues to market certain metal vacuum cleaners for home and commercial use
under the Royal(R) brand name.
The Company's business strategy is primarily focused on leveraging the
well known Dirt Devil(R) brand to new and innovative products associated with
cleaning and other household chores. The Company's goal is to expand the number,
visibility and volume of its products sold by retailers, as well as to increase
the number of major retailers carrying its products. The Company also seeks to
increase the sale of its products through independent dealers by offering
dealer-exclusive product lines and cooperative promotional programs.
The Company's marketing strategy is essential to its success. The Company
uses television, print and cooperative advertising to build and maintain brand
awareness and consumer demand, as well as to gain shelf space for its product
lines from major retailers. In order to provide the retailers with distinct
product alternatives, the Company offers different Dirt Devil(R) products in a
variety of styles and colors and with various features. Major retailers
currently carrying some portion of the Dirt Devil(R) product line include
Walmart, Kmart, Target, Service Merchandise, Sears Roebuck, and Canadian Tire.
The Company also sells its Dirt Devil(R) products through independent dealers,
who also sell the metal line of Royal(R) vacuum cleaners.
Products
- - --------
The Company sells a full line of plastic and metal vacuum cleaners. The
Company's Dirt Devil(R) vacuum cleaners are intended for home use. The Company's
metal vacuum cleaners are intended for home and commercial use.
DIRT DEVIL(R) AND PLASTIC RELATED PRODUCT LINES. The Company's primary
retail product lines are sold under the Dirt Devil(R) name. The first Dirt
Devil(R) product, the Hand Vac, a corded, hand-held vacuum cleaner, was
introduced in 1984. The Dirt Devil(R) line has since been expanded by the
introduction of upright and canister vacuum cleaners, electric brooms, and
non-electric sweepers. The Dirt Devil(R) line was expanded in 1996 by the
introduction of the Dirt Devil(R) Broom Vac(R), a cordless rechargeable broom,
the Dirt Devil(R) Ultra MVP(TM), a higher priced full-featured upright, and the
Dirt Devil(R) Ultra Hand Vac, a corded hand vac with an on-board hose and
crevice tool.
During 1996, 1995, and 1994 plastic products accounted for approximately
88%, 84%, and 85%, respectively, of the Company's net sales.
METAL PRODUCT LINES. The Company has produced durable metal vacuum
cleaners since the early 1900's. Currently, the Company markets a full line of
metal upright and canister vacuum cleaners for home and commercial use. The
Company sells its metal vacuum cleaners exclusively through its network of
independent dealers. During 1996, 1995, and 1994, metal products accounted for
approximately 5%, 6%, and 6%, respectively, of the Company's net sales.
2
<PAGE> 3
ITEM 1. BUSINESS (CONTINUED)
- - ----------------
Products (continued)
- - --------
OTHER PRODUCTS. The Company sells accessories, attachments, refurbished
cleaners and replacement parts for each of its product lines. These products are
sold through retailers and dealers, and are also available directly from the
Company. During 1996, 1995, and 1994, these products accounted for approximately
7%, 10%, and 9%, respectively, of the Company's net sales.
NEW PRODUCTS. The Company introduces new products and enhances its
existing products on a regular basis for both the retail and dealer markets.
During the second quarter of 1997, the Company will introduce the Dirt Devil(R)
Swivel Glide(TM), a full size upright vacuum cleaner with enhanced
maneuverability, the Dirt Devil(R) RoomMate(TM), a lightweight portable upright
vacuum cleaner, and the Dirt Devil(R) Mop Vac(TM), a cordless rechargeable mop.
The Dirt Devil(R) Mop Vac(TM), which represents a new category for the Company
and its retailers, will be introduced via direct response television until the
fall of 1997 when it will be shipped to the Company's retail customers. In order
to support its product development efforts, the Company engages in research and
development activities, particularly with respect to engineering. The Company's
engineering and product development expenditures were approximately, $3.9
million, $3.3 million and $2.2 million in 1996, 1995 and 1994, respectively.
In addition to internally developing products, the Company may purchase
product tooling, license product designs and patents, and outsource certain
product assembly for products to be marketed under the Dirt Devil(R) brand name.
The Company may also license its trademarks and patents.
Marketing and Customers
- - -----------------------
The Company markets its Dirt Devil(R) products primarily through major
retailers, including mass market retailers (e.g., Walmart, Kmart, and Target),
catalog showrooms (e.g., Service Merchandise), warehouse clubs (e.g. Sam's
Club), regional chains and department stores. During 1996, Walmart (including
Sam's Club) and Kmart (including Builder's Square) accounted for approximately
33.0% and 11.3%, respectively, of the Company's net sales, compared to
approximately 28.6% and 15.5%, respectively, of the Company's net sales in 1995.
These were the only customers who accounted for more than 10% of the Company's
net sales during such periods. During 1996 and 1995, the Company's net sales in
the aggregate to its five largest customers were 59.3% and 56.8%, respectively,
of its total net sales. The loss of any of these customers could have a
significant impact on the Company's operations. The Company anticipates that the
significant percentage of the Company's net sales attributable to a limited
number of major retail customers will continue. The Company believes that its
relations with its customers are good. The Company sells most of its products to
retailers that are serviced directly by the Company's internal sales staff.
Since Dirt Devil(R) products are targeted to sell to the mass market, the
Company believes that brand name recognition is critical to the success of these
products. The Company provides advertising and promotional support for its Dirt
Devil(R) products through television and cooperative advertising with retailers
and believes that these promotional activities, as well as those of its major
customers, affect brand name awareness and sales. The Company's cooperative
advertising program is established based upon planning with its mass market
retail customers. Some of the Company's advertising and promotional activities
are tied to holidays and also to specific promotional activities of retailers,
and historically have been higher during the Christmas shopping season. The
Company's advertising and promotional expenditures are not proportional to
anticipated sales. In addition, the Company has generated a small portion of its
sales from consumer direct orders using the Company's toll-free number and from
direct response infomercials, in which consumers may order directly from the
Company.
The Company devotes considerable attention to the design and appearance
of its products and packaging in order to enhance their appeal to consumers and
to stand out among other brands on retailers' shelves. For example, Dirt
Devil(R) products sold by mass merchants are generally bright red in color. In
order to increase the presence of its Dirt Devil(R) products in major retail
outlets, the Company provides retailers with distinct product alternatives by
offering its Dirt Devil(R) product lines in a variety of styles and colors and
with various features.
3
<PAGE> 4
ITEM 1. BUSINESS (CONTINUED)
- - ----------------
Marketing and Customers (continued)
- - -----------------------
The Company also strives to meet the packaging and product merchandising
needs of retailers. The Company endeavors to have sufficient quantities of
products in stock in order to process and fill orders in a timely manner. Since
orders are typically shipped within 10 days of the receipt of a purchase order,
the Company does not have a significant order backlog. The Company permits
cancellation of orders up to 72 hours prior to shipment.
The Company's line of metal vacuum cleaners is sold exclusively through a
network of over 2,500 independent vacuum cleaner dealers. As part of its effort
to support its independent dealer network, the Company has attempted to meet
independent dealers' needs for distinctive product offerings not available to
mass merchants.
The Company's metal product lines are targeted at consumers and
commercial customers who are interested in purchasing more durable and higher
quality vacuum cleaners. The Company focuses its promotional activities with its
independent dealers on cooperative advertising.
Many of the Company's independent dealers also provide warranty service
for Royal(R) and Dirt Devil(R) products. This allows the consumer to have prompt
access to local service outlets and is an important component of the Company's
efforts to be responsive to consumers. The Company's products are generally sold
with a one to six-year limited warranty.
The Company has generally accepted over-the-counter product returns from
its customers for any reason, reflecting the retailers' return policies. Certain
major retailers have indicated that they intend to, or have recently implemented
more restrictive return policies for their customers. To the extent that such
policies are implemented and are effective, the Company may benefit.
Each of the Company's products has a toll-free number printed on it that
consumers may use to contact the Company's customer service representatives.
Through its customer service computer system, the Company can provide a prompt
response to consumer inquiries concerning the availability of its products and
service in the consumer's vicinity.
The Company has generated a small portion of its sales from consumer
direct orders using the Company's toll-free number and from direct response
infomercials, in which consumers may order directly from the Company.
Competition
- - -----------
The Company's most significant competitors are Hoover and Eureka and, in
the hand-held market, Black & Decker. These competitors and several others are
subsidiaries or divisions of companies that are more diversified and have
greater financial resources than the Company. The Company believes that the
domestic vacuum cleaner industry is a mature industry with modest annual growth
in many of its products but with a decline in certain other products.
Competition is dependent upon price, quality, extension of product lines, and
advertising and promotion expenditures. Additionally, competition is influenced
by innovation in the design of replacement models and by marketing and
approaches to distribution. The Company has experienced heightened competition
in the upright market segment since 1992, and believes that its net sales and
market share in the domestic upright market segment remain under pressure as a
result of increased advertising expenditures and new product introductions by
its competitors.
4
<PAGE> 5
ITEM 1. BUSINESS (CONTINUED)
- - ----------------
Trademarks and Patents
- - ----------------------
The Company holds numerous trademarks and holds or licenses the use of
patents registered in the United States and foreign countries for various
products and processes. The Company has registered trademarks in the United
States and a number of foreign countries for the Dirt Devil(R), Royal(R) and
other names and logos, which are used in connection with the sale of its vacuum
cleaners and accessory parts. The Company considers the Dirt Devil(R) trademark
to be of considerable value and critical to its business. No challenges to its
rights to this trademark have arisen and the Company has no reason to believe
that any such challenges will arise in the future.
The Company holds or licenses the use of numerous domestic and
international patents, including design patents. The Company may also license
its trademarks and patents. The Company believes that its product lines are
generally not dependent upon any single patent or group of patents.
Seasonality
- - -----------
The Company's business is highly seasonal. The Company believes that a
significant percentage of certain of its products, particularly the Dirt
Devil(R) Hand Vac and the Dirt Devil(R) Broom Vac(R), are given as gifts and
therefore, sell in larger volumes during the Christmas shopping season. Because
of the Company's continued dependency on its major customers, the timing of
purchases by these major customers could cause quarterly fluctuations in the
Company's net sales. As a consequence, results in prior quarters are not
necessarily indicative of future results of operations.
Production
- - ----------
The Company assembles most of its products in its facilities located in
the Cleveland, Ohio metropolitan area. Unlike many of its competitors, the
Company does not manufacture components for its products. Substantially all
component parts for the Company's products are manufactured by suppliers,
frequently using molds and tooling owned by the Company and built to its
specifications. Since the Company's production operations are limited to
assembly, it believes that its fixed costs are lower than many of its
competitors. The Company also believes that this lack of vertical integration
permits it increased flexibility in the introduction and modification of
products. The Company also outsources some or all assembly of certain products.
The Company's engineering department is primarily responsible for the
design and testing of its products. The Company has computer-aided design
systems to assist its engineers in developing new products and modifying
existing products. The Company also retains outside design firms to assist its
engineers in designing new products. In addition to internally developing
products, the Company may purchase tooling, license intellectual property, or
otherwise sell products produced by others to the Company's specifications which
may be marketed under the Dirt Devil(R) brand name.
A majority of the raw materials purchased by the Company are component
parts, such as motors, bags, cords, and plastic parts, which are available from
multiple suppliers. The amount of time required by suppliers to fill orders
released by the Company varies from three to four months in the case of motors
and cords and one to four days for plastic parts. The Company does not believe
that it is dependent on any single source for any significant portion of its raw
material or component purchases. The Company believes that it has good
relationships with its suppliers and outsource assemblers and has not
experienced any significant raw material or component shortages.
5
<PAGE> 6
ITEM 1. BUSINESS (CONTINUED)
- - ----------------
Employees
- - ---------
As of December 31, 1996, the Company employed approximately 615 full-time
employees, a decrease of 15 employees from the prior year-end resulting
primarily from attrition. In addition, the Company generally utilizes temporary
personnel during the period when the Company is responding to its peak selling
season. During 1996, the peak temporary personnel level reached approximately
530. The Company's employees are not represented by any labor union. The Company
considers its relations with its employees to be good.
Governmental Regulation
- - -----------------------
The Company's facilities are subject to numerous federal, state and local
laws and regulations designed to protect the environment from waste, emissions,
and from hazardous substances. The Company is also subject to the Federal
Occupational Safety and Health Act and other laws and regulations affecting the
safety and health of employees in the production areas of its facilities. The
Company is not a party to any investigation or litigation by the Environmental
Protection Agency or any state environment agency. The Company believes that it
is in compliance, in all material respects, with applicable environmental and
occupational safety regulations.
Business Segment Information
- - ----------------------------
For description, see Note 11 of Notes to Consolidated Financial
Statements.
6
<PAGE> 7
ITEM 2. PROPERTIES
- - ------------------
On December 31, 1996, the Company and its subsidiaries owned or leased
the properties listed on the following table.
<TABLE>
<CAPTION>
Approximate
Square Footage
-------------- Lease Expirations
Location and Address Owned Leased (excluding renewals) Function
-------------------- ----- ------ -------------------- --------
<S> <C> <C> <C>
650 Alpha Drive -- 57,000 01/01 Corporate Headquarters
Highland Heights, Ohio and Assembly
1340 East 289th Street 106,000 -- 11/11 Assembly
Wickliffe, Ohio (1)
8120 Tyler Blvd. 300,000 -- N/A Shipping
Mentor, Ohio
6100 Heisley Road 188,000 -- N/A Assembly
Mentor, Ohio
855 E. Greg Street -- 46,000 01/99 Shipping
Sparks, Nevada
</TABLE>
(1) This leased property is reflected as owned because it contains a bargain
purchase option of $1. For further description, see Note 4 of Notes to
Consolidated Financial Statements.
In addition, the Company utilizes public warehouses where appropriate.
The Company believes that these arrangements are more cost effective than
leasing its own warehouses.
The Company considers its present facilities suitable and adequate for
the anticipated needs of the Company.
During the second quarter of 1996, the Company sold two facilities which
were previously closed in 1995. The aggregate net proceeds were $2.2 million in
cash and the assumption of a $3.7 million capital lease liability by one of the
buyers.
7
<PAGE> 8
ITEM 3. LEGAL PROCEEDINGS
- - -------------------------
The Company is involved in various claims and litigation arising in the
normal course of business. In the opinion of management, the ultimate resolution
of these actions will not materially affect the consolidated financial position,
results of operations, or cash flows of the Company.
ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS
- - -----------------------------------------------------------
None
EXECUTIVE OFFICERS OF THE REGISTRANT
- - ------------------------------------
Set forth below is certain information with respect to all executive
officers of the Company.
<TABLE>
<CAPTION>
Position and Offices
Name Age with the Company
-------- ------- -----------------------------------------------
<S> <C> <C>
Michael J. Merriman 40 Chief Executive Officer and President
Gary J. Dieterich 51 Senior Vice President - Administration
James A. Holcomb 46 Vice President - Marketing & Strategic Planning
Jeremiah J. Lynch 36 Vice President - Operations
T. Keith Moone 41 Vice President - Sales
</TABLE>
The following is a brief account of the business experience during the
past five years of each such executive officer:
Michael J. Merriman was appointed Chief Executive Officer in July 1995,
President and Chief Operating Officer in January 1995, and Director in October
1993. From May 1992 until his appointment as President he served as Vice
President - Finance, Treasurer and Secretary of the Company. Prior thereto, he
was employed for 14 years as a certified public accountant with the
international accounting firm Arthur Andersen & Co. He was a partner in the firm
from 1990 to 1992.
Gary J. Dieterich has been Senior Vice President - Administration since
December 1994. Prior to that time, he served as the Company's Vice President -
Information Systems from 1991 to 1994 and Director of Information Systems from
1988 to 1991.
James A. Holcomb has been Vice President - Marketing and Strategic
Planning since August 1994. Prior to that time, he served 2 years as Vice
President of Marketing and Strategic Planning with the Regina Company and one
year as Global Manager for Thompson Consumer Electronics.
Jeremiah J. Lynch has been Vice President - Operations since September
1996. Mr. Lynch joined the Company in April, 1996 as Manager-Quality. Prior to
joining the Company, he was employed for 5 years at Little Tikes, a division of
Rubbermaid, where he held several positions including Director of Quality.
T. Keith Moone has been Vice President - Sales since December 1995.
Prior to that he served as the Company's National Sales Manager from May 1994 -
December 1995. Prior to joining the Company, he was employed for 7 years with
Western Publishing as Director - National Accounts
8
<PAGE> 9
PART II
ITEM 5. MARKET FOR THE COMPANY'S COMMON EQUITY AND RELATED SHAREHOLDER MATTERS
- - ------------------------------------------------------------------------------
The Company's common shares are quoted on the New York Stock Exchange
(NYSE) under the symbol RAM. The following table sets forth, for the periods
indicated, the high and low sales price for the Company's Common Shares as
reported by the New York Stock Exchange.
<TABLE>
<CAPTION>
Year Ended December 31,
1996 1995
----------- ------------
High Low High Low
---- --- ---- ---
<S> <C> <C> <C> <C>
Quarters:
First 4 1/4 2 5/8 4 2 5/8
Second 7 1/4 4 1/8 3 3/4 2 5/8
Third 6 7/8 4 5/8 4 5/8 2 7/8
Fourth 9 6 1/8 3 3/4 2 1/2
</TABLE>
The Company has not declared or paid any cash dividends and currently
intends not to pay any cash dividends in 1997. The Board of Directors intends to
retain earnings, if any, to support the operations and growth of the business.
In addition, the Company's credit agreement permits the payment of cash
dividends up to 50% of its net income from the preceding year and stock
repurchases up to $7.5 million.
On March 14, 1997, there were approximately 1,500 shareholders of record
of the Company's Common Shares, as reported by National City Corporation, the
Company's Registrar and Transfer Agent, which maintains its corporate offices at
National City Center, Cleveland, Ohio 44101-0756.
9
<PAGE> 10
ITEM 6. SELECTED CONSOLIDATED FINANCIAL DATA
- - --------------------------------------------
The following table sets forth selected consolidated financial data of
the Company. The selected Consolidated Statements of Operations and Consolidated
Balance Sheet data for each of the five years during the period ended December
31, 1996, are derived from the audited Consolidated Financial Statements of the
Company. Prior period amounts have been restated to reflect reclassifications to
conform to a 1995 change in the valuation method of accounting for inventory
from the LIFO method to the FIFO method. The data presented below should be read
in conjunction with the Consolidated Financial Statements and notes thereto
included elsewhere herein.
<TABLE>
<CAPTION>
Year Ended December 31,
----------------------------------------------------------------------
1996 1995 1994 1993 1992
------ ------ ------ ------ ------
Consolidated Statements of Operations: (Dollars in thousands, except per share amounts)
<S> <C> <C> <C> <C> <C>
Net sales $286,123 $270,564 $278,322 $313,899 $ 394,980
Cost of sales 204,000 201,555 200,568 229,581 250,832
-------- -------- -------- -------- ---------
Gross margin 82,123 69,009 77,754 84,318 144,148
Advertising and promotion 40,443 40,496 42,298 61,280 79,397
Other selling 8,977 11,898 12,914 12,530 14,875
General and administrative 11,515 12,971 12,309 12,893 13,301
Engineering and product development 3,905 3,281 2,176 2,589 2,544
Special charges -- 16,294 -- -- --
-------- -------- -------- -------- ---------
Income (loss) from operations 17,283 (15,931) 8,057 (4,974) 34,031
Interest expense 2,559 4,001 4,483 5,475 3,155
Other (income) expense, net (622) 311 460 1,674 (23)
-------- -------- -------- -------- ---------
Income (loss) before taxes 15,346 (20,243) 3,114 (12,123) 30,899
Income tax expense (benefit) 5,910 (6,487) 1,152 (4,346) 12,046
-------- -------- -------- -------- ---------
Net income (loss) $ 9,436 $(13,756) $ 1,962 $ (7,777) $ 18,853
======== ======== ======== ========= =========
Net income (loss) per common share $ .39 $ (57) $ .08 $ (.32) $ .76
======== ======== ========= ========== =========
Weighted average number of common
shares and equivalents outstanding
(in thousands) 24,213 23,999 24,011 24,000 24,946
Consolidated Balance Sheet Data (at end of period)
Working capital $ 29,638 $ 46,045 $ 51,151 $ 56,692 $ 79,727
Total assets 126,141 131,261 141,208 153,351 187,097
Long-term debt 15,743 45,999 46,927 59,609 68,106
Shareholders' equity 56,234 46,575 60,155 58,004 65,692
</TABLE>
10
<PAGE> 11
ITEM 7. MANAGEMENT'S DISCUSSION AND ANALYSIS OF RESULTS OF OPERATIONS AND
- - -------------------------------------------------------------------------
FINANCIAL CONDITION
- - --------------------
(In thousands, except per share amounts)
The following table sets forth, for the years indicated, the percentages
of net sales of certain items in the Consolidated Statements of Operations and
the percentage change in such items as compared to the indicated prior year.
Prior period percentages have been restated to reflect reclassifications to
conform to a 1995 change in the valuation method of accounting for inventory
from the LIFO method to the FIFO method.
<TABLE>
<CAPTION>
Year to Year
Year Ended December 31, Increases (Decreases)
---------------------- ---------------------
1996 1995 1994 1996 vs. 1995 1995 vs. 1994
------ ------ ------ ------------- -------------
<S> <C> <C> <C> <C> <C>
Net sales 100.0% 100.0% 100.0% 5.8% (2.8)%
Cost of sales 71.3 74.5 72.1 1.2 .5
----- ----- ----- ---- -----
Gross margin 28.7 25.5 27.9 19.0 (11.2)
Advertising and promotion 14.1 15.0 15.2 (.1) (4.3)
Other selling 3.1 4.4 4.6 (24.6) (7.9)
General and administrative 4.0 4.8 4.4 (11.2) 5.4
Engineering and product development 1.4 1.2 .8 19.0 50.8
Special charges -- 6.0 -- -- --
----- ----- ----- ---- -----
Income (loss) from operations 6.1 (5.9) 2.9 N/A N/A
Interest expense .9 1.5 1.6 (36.0) (10.8)
Other (income) expense, net (.2) .1 .2 N/A (32.4)
----- ----- ----- ---- -----
Income (loss) before income taxes 5.4% (7.5)% 1.1% N/A% N/A%
===== ===== ===== ==== =====
</TABLE>
1996 VS. 1995
Net sales for 1996 were $286,123, an increase of 5.8% from 1995. The
overall increase in net sales was due primarily to sales of the new Dirt
Devil(R) Broom Vac(R), the Dirt Devil(R) Ultra MVP(TM) and Dirt Devil(R) Ultra
Hand Vac. The increase in net sales was partially offset by decreases in unit
sales of the Company's other product lines. Overall sales to the top 5 customers
for 1996 (all of which are major retailers) accounted for approximately 59.3% of
net sales as compared with approximately 56.8% in 1995. The Company believes
that its dependence on sales to its largest customers will continue. Recently,
many major retailers have experienced significant financial difficulties and
some have filed for protection from creditors under applicable bankruptcy laws.
The Company sells its products to certain customers that are in bankruptcy
proceedings.
Gross margin, as a percent of net sales, increased from 25.5% for 1995 to
28.7% in 1996. The gross margin percentage was positively affected in 1996
primarily by the introduction of new products, lower product returns, lower cost
of certain parts and the elimination of the Company's European operations.
Advertising and promotion expenses for 1996 were $40,443, comparable with
1995. Increases in domestic advertising and promotion expenditures, including
media and co-op spending, were offset by savings from the divesture of European
operations. In general, the Company's advertising expenditures are not
specifically proportional to anticipated sales. For example, the amount of
advertising and promotional expenditures may be concentrated during critical
retail shopping periods during the year, particularly the fourth quarter, and
during product and promotional campaign introductions. The Company has recently
utilized direct response infomercials for the introduction of its new products.
The Company began a major new advertising campaign in the first quarter of 1997.
Other selling expenses for 1996 were $8,977, a decrease of 24.6% from
1995. The largest component of other selling expenses are internal sales and
marketing personnel compensation and commissions to manufacturers'
representatives. The Company has reduced its dependency on outside
manufacturers' representatives, resulting in the decrease in other selling
expenses. The decrease in manufacturers' representatives commissions was
partially offset by increases in internal sales and marketing personnel.
General and administrative expenses for 1996 were $11,515, a decrease of
11.2% from 1995. General and administrative expenses decreased as a percentage
of net sales from 4.8% to 4.0%. The principal components are compensation
(including benefits), insurance, travel, provision for doubtful accounts, and
professional services. The decrease is principally attributable to the
elimination of the Company's European operations and a decrease in the provision
for doubtful accounts in 1996 as compared to 1995. In 1995, the Company
increased the provision for doubtful accounts due to concerns with respect to
the economic health of certain retail customers.
11
<PAGE> 12
ITEM 7. MANAGEMENT'S DISCUSSION AND ANALYSIS OF RESULTS OF OPERATIONS AND
- - -------------------------------------------------------------------------
FINANCIAL CONDITION (CONTINUED)
- - -------------------------------
1996 VS. 1995 (CONTINUED)
Engineering and product development expenses for 1996 were $3,905, an
increase of 19.0% from 1995, as the Company intensified its new product
innovation efforts. The principal components are engineering salaries, outside
professional engineering and design services and other related product
development expenditures. The amount of outside professional engineering and
design services and other related product development expenditures are dependent
upon the number and complexity of new product introductions in any given year.
The increase in 1996 was primarily due to costs associated with the three new
product introductions in 1996 and three new products scheduled for introduction
in 1997.
Interest expense for 1996 was $2,559, a decrease of 36.0% from 1995. The
decrease in interest expense resulted primarily, from lower levels of variable
rate borrowings to finance working capital and capital expenditures, and a lower
effective borrowing rate.
Other expense (income) principally reflects the effect of foreign
currency transaction gains or losses related primarily to the Company's
international assets and the cost of the Company's trade accounts receivable
securitization program. The amount also includes the gain from the sale of a
facility of $638, and the proceeds from insurance reimbursement of legal
expenses of $319 in 1996.
Due to the factors discussed above, the Company had income before income
taxes for 1996 of $15,346, as compared to a loss before income taxes for 1995 of
$20,243, which included special charges of $16,294. The components of the
Company's effective income tax expense rate of 38.5% are described in Note 6 of
the Company's Consolidated Financial Statements.
1995 VS. 1994
Net sales for 1995 were $270,564, a decrease of 2.8% from 1994. The
overall decrease in net sales was due primarily to lower European net sales from
the Company's European subsidiaries which the Company sold in the fourth quarter
of 1995. Domestic net sales experienced continued decreases in unit sales of the
Dirt Devil(R) Hand Vac, the original Dirt Devil(R) Broom Vac(R) and the Dirt
Devil(R) Stick Vac, partially offset by sales of the new Dust Devil(R) Cordless
Hand Vac and increased unit sales of upright vacuum cleaners, in particular the
new Dirt Devil(R) Impulse(TM). Overall sales to the top 5 customers for 1995
(all of which are major retailers) accounted for approximately 56.8% of net
sales as compared with approximately 52.5% in 1994.
Gross margin, as a percent of net sales, decreased from 27.9% for 1994 to
25.5% in 1995. The gross margin percentage was negatively affected in 1995
primarily by cost increases for plastic component parts and other materials and
continued competitive pricing and promotional pressures.
Advertising and promotion expenses for 1995 were $40,496, a decrease of
4.3% from 1994. The decrease in advertising and promotional expenditures
resulted from significant reductions in European advertising and promotional
expenditures and the elimination of racecar sponsorships, partially offset by an
increase in domestic television expenditures.
Other selling expenses for 1995 were $11,898, a decrease of 7.9% from
1994. The largest component of other selling expenses are commissions to
manufacturers' representatives, however, no such commissions are incurred on
sales made directly to certain large retail customers. Although manufacturers'
representatives commissions declined in 1995 compared with 1994, the decline was
partially offset by increases in internal sales and marketing personnel.
General and administrative expenses for 1995 were $12,971, an increase of
5.4% from 1994. General and administrative expenses increased as a percentage of
net sales from 4.4% to 4.8%. The principal components are compensation
(including benefits), insurance, travel, provision for doubtful accounts, and
professional services. The increase is principally attributable to an increase
in the provision for doubtful accounts.
12
<PAGE> 13
ITEM 7. MANAGEMENT'S DISCUSSION AND ANALYSIS OF RESULTS OF OPERATIONS AND
- - -------------------------------------------------------------------------
FINANCIAL CONDITION (CONTINUED)
- - -------------------------------
1995 VS. 1994 (CONTINUED)
Engineering and product development expenses for 1995 were $3,281, an
increase of 50.8% from 1994, as the Company intensified its new product
innovation efforts. The increase in engineering and product development expenses
in 1995 were primarily due to increases in internal engineering personnel and
increase in outside professional engineering and design services and other
related product development expenditures due to two new product introductions in
1995 and three new products scheduled for introduction in 1996.
In 1995, the Company recorded special charges of $16,294, primarily
related to losses resulting from the disposal of certain inventory, molds and
tooling and other intangibles primarily resulting from the decisions made to
refocus the Company's primary operating and marketing efforts on the North
American market. The special charges include a $11,567, write-down to the net
realizable value of certain molds, tooling, inventory, and other assets being
disposed of or held for sale, a $2,598, restructuring charge related to the
Company's sale of its European operations, and $2,129, of special charges
related to losses from the discontinuation of the Dirt Devil(R) Cyclone(TM)
product line and executive severance. The Company's European operations, which
have been less than 10% of the Company's total net sales, have generated
approximately $30,000 in pre-tax losses before special charges since 1991. The
Company sold substantially all of its European assets during the fourth quarter
of 1995. In connection with the sale of its European operations, the Company has
licensed certain foreign trademarks and patents.
Interest expense for 1995 was $4,001, a decrease of 10.8% from 1994. The
decrease in interest expense resulted primarily, from lower levels of variable
rate borrowings to finance working capital and capital expenditures, but was
partially offset by a higher effective borrowing rate.
Other expense (income) principally reflects the effect of foreign
currency transaction gains or losses related primarily to the Company's European
operations.
Due to the factors discussed above, the Company incurred a loss before
income taxes for 1995 of $20,243, as compared to income before income taxes for
1994 of $3,114.
LIQUIDITY AND CAPITAL RESOURCES
The Company has used working capital generated from operations and the
proceeds from the sale of two facilities and certain trade receivables to fund
its operations, capital expenditures and its reduction in long-term debt.
Working capital was $29,638 at December 31, 1996, a decrease of 35.6% over
December 31, 1995 level. Current liabilities increased by $15,477 reflecting in
part an increase in trade accounts payable, accrued advertising and promotions,
accrued salaries, benefits and payroll taxes and accrued income taxes. Current
assets in 1996 were comparable to 1995. A trade accounts receivable reduction of
$3,797 (net of a $14,300 sale of trade receivables, as described below) and a
reduction in refundable and deferred income taxes of $5,070 were partially
offset by an increase in inventory of $5,644 and an increase in prepaid expenses
and other of $1,292.
In 1996, the Company utilized $9,592 of cash for capital expenditures,
including approximately $6,877 for tooling related to the Dirt Devil(R) Ultra
MVP(TM), the Dirt Devil(R) Ultra Hand Vac, the Dirt Devil(R) Swivel Glide(TM)
and the Dirt Devil(R) Mop Vac(TM).
The Company's revolving credit facility has a maturity date of April 1,
1999, and is classified as long-term at December 31, 1996. The facility provides
for revolving credit up to $50,000, subject to a borrowing base formula as
defined in the agreement. The maximum amount allowable to the Company under the
borrowing base formula was approximately $42,000 as of December 31, 1996,
resulting in availability of approximately $39,000. The agreement requires
monthly payments of interest only through maturity. The facility provides for
pricing options at the bank's base lending rate and LIBOR plus a rate spread as
defined in the Agreement. At December 31, 1996, the bank's base lending rate was
8.25%. The Company's effective interest rate was 8.86% and 9.60% for the years
1996 and 1995. In addition, the Company pays a commitment fee at the annual rate
of .375% on the unused portion of the facility.
13
<PAGE> 14
ITEM 7. MANAGEMENT'S DISCUSSION AND ANALYSIS OF RESULTS OF OPERATIONS AND
- - -------------------------------------------------------------------------
FINANCIAL CONDITION (CONTINUED)
- - -------------------------------
LIQUIDITY AND CAPITAL RESOURCES (CONTINUED)
The revolving credit facility contains covenants which require, among
other things, the achievement of minimum net worth levels and the maintenance of
certain financial ratios. The Company was in compliance with all applicable
covenants as of December 31, 1996. The revolving credit facility is
collateralized by the Company's inventories, trade accounts receivable,
equipment and general intangibles.
In October 1996, the Company entered into a revolving trade accounts
receivable securitization program to sell, through a wholly-owned subsidiary,
certain trade accounts receivables. The maximum amount of receivables that can
be sold is seasonally adjusted. The maximum amount allowed at any given time
through February 28, 1997, is $16,000, $9,000, thereafter. At December 31, 1996,
the Company received approximately $14,300 from the sale of trade accounts
receivables. The proceeds from the sales were used to reduce borrowings under
the Company's revolving credit facility. Costs of the program, which primarily
consist of the purchaser's financing cost of issuing commercial paper backed by
the receivables, totaled $161 in 1996, and have been classified as Other expense
in the accompanying Consolidated Statements of Operations. The Company, as agent
for the purchaser of the receivables, retains collection and administrative
responsibilities for the purchased receivables.
During the second quarter of 1996, the Company sold two facilities which
were closed in 1995. The aggregate net proceeds included $2,237 in cash and the
assumption of $3,690 of capital lease liability by one of the buyers.
In February 1997, the Company's Board of Directors authorized a common
share repurchase program that provides for the Company to purchase, in the open
market and through negotiated transactions, up to 1,200 of its outstanding
common shares. Through March 26, 1997, the Company has repruchased 115 shares
for an aggregate purchase price of $754. The program is scheduled to expire on
March 1, 1998.
The Company believes that its revolving credit facilities along with cash
generated by operations will be sufficient to provide for the Company's
anticipated working capital and capital expenditure requirements for the next
twelve months, and stock repurchases, if any.
QUARTERLY OPERATING RESULTS (UNAUDITED)
The following table presents certain unaudited consolidated quarterly
operating information for the Company and includes all adjustments (consisting
only of normal recurring adjustments and reclassification to conform with a 1995
change in the valuation method of accounting for inventory from the LIFO method
to the FIFO method) that the Company considers necessary for a fair presentation
of such information for the interim periods.
<TABLE>
<CAPTION>
Three Months Ended (a)
-----------------------------------------------------------------------------------------
Dec. 31, Sept. 30, June 30, March 31, Dec. 31, Sept. 30, June 30, March 31,
1996 1996 1996 1996 1995 1995 1995 1995
-------- --------- -------- --------- -------- --------- -------- ---------
<S> <C> <C> <C> <C> <C> <C> <C> <C>
Net sales $97,204 $73,688 $62,969 $52,262 $96,303 $66,990 $58,255 $49,016
Gross margin 30,633 21,223 16,504 13,763 27,502 16,253 14,018 11,236
Net income (loss) 4,625 3,151 1,328 332 2,789 (12,279) (1,888) (2,378)
Net income (loss) per
common share (b) .19 .13 .05 .01 .12 (.51) (.08) (.10)
(a) See Note 1 of Notes to Consolidated Financial Statements.
(b) The sum of 1996 quarterly net income per common share does not equal annual net income per common share due to
the effect of rounding.
</TABLE>
The Company's business is highly seasonal. The Company believes that a
significant percentage of certain of its products, particularly the Dirt
Devil(R) Hand Vac and Dirt Devil(R) Broom Vac(R), are given as gifts and
therefore sell in larger volumes during the Christmas shopping season. Because
of the Company's continued dependency on its major customers, the timing of
purchases by these major customers could cause quarterly fluctuations in the
Company's net sales. As a consequence, results in prior quarters are not
necessarily indicative of future results of operations.
14
<PAGE> 15
ITEM 7. MANAGEMENT'S DISCUSSION AND ANALYSIS OF RESULTS OF OPERATIONS AND
- - -------------------------------------------------------------------------
FINANCIAL CONDITION (CONTINUED)
- - -------------------------------
OTHER
The Company believes that the domestic vacuum cleaner industry is a
mature industry with modest annual growth in many of its products but with a
decline in certain other products. Competition is dependent upon price, quality,
extension of product lines, and advertising and promotion expenditures.
Additionally, competition is influenced by innovation in the design of
replacement models and by marketing and approaches to distribution. The Company
has experienced heightened competition in the upright market segment since 1992,
and believes that its net sales and market share in the domestic upright market
segment remain under pressure as a result of increased advertising expenditures
and new product introductions by its competitors. The Company's most significant
competitors are Hoover and Eureka, and Black & Decker in the hand-held market.
These competitors and several others are subsidiaries or divisions of companies
that are more diversified and have greater financial resources than the Company.
INFLATION
The Company does not believe that inflation by itself has had a material
effect on the Company's results of operations. However, as the Company
experiences price increases from its suppliers, which may include increases due
to inflation, retail pressures may prevent the Company from increasing its
prices.
ACCOUNTING STANDARDS
The Company will be required to implement Statement of Financial
Accounting Standards "SFAS" No. 125, Accounting for Transfers and Servicing of
Financial Assets and Extinguishments of Liabilities, in the first quarter of
1997. The Company expects the implementation of SFAS No. 125 will not have a
material impact on its consolidated financial position and results of
operations.
The Company will also be required to implement SFAS No. 128, Earnings Per
Share, in the fourth quarter of 1997. The Company expects the implementation of
SFAS No. 128 will not have a material impact on its calculation of earnings per
share.
The Company adopted the disclosure-only option of SFAS No. 123,
Accounting for Stock-Based Compensation, as of December 31, 1996. The impact of
implementing SFAS No. 123 is discussed in Note 8 to the consolidated financial
statements.
FORWARD LOOKING STATEMENTS
Forward-looking statements in this Form 10-K are made pursuant to the
safe harbor provisions of the Private Securities Litigation Reform Act of 1995.
Such forward-looking statements are subject to certain risks and uncertainties
that could cause actual results to differ materially from those projected.
Readers are cautioned not to place undue reliance on these forward-looking
statements which speak only as of the date hereof. Potential risks and
uncertainties include, but are not limited to, general business and economic
conditions; the financial strength of the retail industry particularly the major
mass retail channel; the competitive pricing environment within the vacuum
cleaner segment of the floor care industry; the cost and effectiveness of
planned advertising, marketing and promotional campaigns, the success at retail
of the Company's new products, and the dependence upon the Company's ability to
continue to successfully develop and introduce innovative products.
15
<PAGE> 16
ITEM 8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA
- - ---------------------------------------------------
REPORT OF INDEPENDENT ACCOUNTANTS
To the Shareholders and Board of Directors of
Royal Appliance Mfg. Co.
We have audited the consolidated financial statements and the financial
statement schedule of Royal Appliance Mfg. Co. and Subsidiaries listed in the
index on page 31 of this Form 10-K. These financial statements and the
financial statement schedule are the responsibility of the Company's
management. Our responsibility is to express an opinion on these financial
statements and the 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, the financial statements referred to above present
fairly, in all material respects, the consolidated financial position of Royal
Appliance Mfg. Co. and Subsidiaries as of December 31, 1996 and 1995, and the
consolidated results of their operations and their cash flows for each of the
three years in the period ended December 31, 1996, in conformity with generally
accepted accounting principles. In addition, in our opinion, the financial
statement schedule referred to above, when considered in relation to the basic
financial statements taken as a whole, presents fairly, in all material
respects, the information required to be included therein.
Coopers & Lybrand L.L.P.
Cleveland, Ohio
February 11, 1997
16
<PAGE> 17
ROYAL APPLIANCE MFG. CO. AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS
(DOLLARS IN THOUSANDS)
<TABLE>
<CAPTION>
December 31, December 31,
1996 1995
----------- -----------
<S> <C> <C>
ASSETS
Current assets:
Cash $ 1,001 $ --
Trade accounts receivable, less allowance for doubtful accounts
of $1,350 and $2,000 at December 31, 1996 and 1995, respectively 39,761 43,558
Inventories 34,052 28,408
Deferred income taxes 6,552 7,230
Refundable income taxes, net -- 4,392
Prepaid expenses and other 2,436 1,144
-------- --------
Total current assets 83,802 84,732
-------- --------
Property, plant and equipment, at cost:
Land 2,356 3,405
Buildings 13,117 14,463
Molds, tooling, and equipment 44,716 37,596
Furniture and office equipment 5,221 5,352
Assets under capital leases 4,810 9,058
Leasehold improvements and other 2,717 2,565
-------- --------
72,937 72,439
Less accumulated depreciation and amortization 35,654 30,760
-------- --------
37,283 41,679
-------- --------
Tooling deposits 3,962 4,047
Other 1,094 803
-------- --------
Total assets $126,141 $131,261
======== ========
LIABILITIES AND SHAREHOLDERS' EQUITY
Current liabilities:
Trade accounts payable $ 20,679 $16,073
Accrued liabilities:
Advertising and promotion 11,682 7,253
Salaries, benefits, payroll taxes 5,980 3,056
Warranty and customer returns 7,975 7,600
Income taxes 3,503 --
Interest and other 3,680 3,963
Current portions of capital lease obligations and notes payable 665 742
-------- --------
Total current liabilities 54,164 38,687
-------- --------
Revolving credit agreement 2,886 28,839
Capitalized lease obligations, less current portion 3,307 7,174
Notes payable, less current portion 9,550 9,986
-------- --------
Total long-term debt 15,743 45,999
-------- --------
Total liabilities 69,907 84,686
-------- --------
Commitments and contingencies (Notes 4 and 5) -- --
Shareholders' equity:
Serial preferred shares; authorized - 1,000,000 shares;
none issued and outstanding -- --
Common shares, at stated value; authorized - 101,000,000 shares;
issued and outstanding - 25,231,100 and 25,200,000 at December 31, 1996
and 1995, respectively 210 210
Additional paid-in capital 41,500 41,583
Retained earnings 27,611 18,175
Cumulative translation adjustment (107) (413)
-------- --------
69,214 59,555
Less treasury shares, at cost (1,201,000 shares at
December 31, 1996 and 1995, respectively) (12,980) (12,980)
-------- --------
Total shareholders' equity 56,234 46,575
-------- --------
Total liabilities and shareholders' equity $126,141 $131,261
======== ========
</TABLE>
The accompanying notes are an integral part of these financial statements.
17
<PAGE> 18
ROYAL APPLIANCE MFG. CO. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF OPERATIONS
(DOLLARS IN THOUSANDS, EXCEPT PER SHARE AMOUNTS)
<TABLE>
<CAPTION>
1996 1995 1994
--------- --------- ----------
(Note 1)
<S> <C> <C> <C>
Net sales $ 286,123 $ 270,564 $ 278,322
Cost of sales 204,000 201,555 200,568
--------- --------- ---------
Gross margin 82,123 69,009 77,754
Advertising and promotion 40,443 40,496 42,298
Other selling 8,977 11,898 12,914
General and administrative 11,515 12,971 12,309
Engineering and product development 3,905 3,281 2,176
Special charges -- 16,294 --
--------- --------- ---------
Income (loss) from operations 17,283 (15,931) 8,057
Interest expense, net 2,559 4,001 4,483
Other (income) expense, net (622) 311 460
--------- --------- ---------
Income (loss) before income taxes 15,346 (20,243) 3,114
Income tax expense (benefit) 5,910 (6,487) 1,152
--------- --------- ---------
Net income (loss) $ 9,436 $(13,756) $ 1,962
========= ======== ========
Net income (loss) per common share $ .39 $ (.57) .08
Weighted average number of common shares
and equivalents outstanding (in thousands) 24,213 23,999 24,011
</TABLE>
The accompanying notes are an integral part of these financial statements.
18
<PAGE> 19
ROYAL APPLIANCE MFG. CO. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF SHAREHOLDERS' EQUITY
FOR YEARS ENDED DECEMBER 31,
(DOLLARS IN THOUSANDS, EXCEPT SHARE AMOUNTS)
<TABLE>
<CAPTION>
Common Shares Additional Cumulative Treasury Shares Total
------------- Paid-In Retained Translation Shareholders'
Number Amount Capital Earnings Adjustment Number Amount Equity
------ ------ ---------- -------- ---------- ------ --------- ------
<S> <C> <C> <C> <C> <C> <C> <C> <C>
Balance at December 31, 1993 25,200,000 $ 210 $ 41,467 $ 29,969 $ (662) 1,201,000 $ (12,980) $ 58,004
Translation adjustment 131 131
Compensatory effect of
stock options 58 58
Net income 1,962 1,962
---------- --------- --------- --------- --------- --------- --------- ---------
Balance at December 31, 1994 25,200,000 210 41,525 31,931 (531) 1,201,000 (12,980) 60,155
Translation adjustment 118 118
Compensatory effect of
stock options 58 58
Net loss (13,756) (13,756)
---------- --------- --------- --------- --------- --------- --------- ---------
Balance at December 31, 1995 25,200,000 210 41,583 18,175 (413) 1,201,000 (12,980) 46,575
Translation adjustment 306 306
Compensatory effect of
stock options (199) (199)
Shares issued from
stock option plan 31,100 116 116
Net income 9,436 9,436
---------- --------- --------- --------- --------- --------- --------- ---------
Balance at December 31, 1996 25,231,100 $ 210 $ 41,500 $ 27,611 $ (107) 1,201,000 $ (12,980) $ 56,234
========== ========= ========= ========= ========= ========= ========= =========
</TABLE>
The accompanying notes are an integral part of these financial statements.
19
<PAGE> 20
ROYAL APPLIANCE MFG. CO. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS
FOR YEARS ENDED DECEMBER 31,
(DOLLARS IN THOUSANDS)
<TABLE>
<CAPTION>
1996 1995 1994
------ ------ -----
(Note 1)
<S> <C> <C> <C>
Cash flows from operating activities:
Net income (loss) $ 9,436 $(13,756) $ 1,962
-------- -------- --------
Adjustments to reconcile net income (loss) to net cash
from operating activities:
Depreciation and amortization 8,719 11,586 12,089
Compensatory effect of stock options (199) 58 58
(Gain) loss on disposal of tooling, property & equipment (467) 9,170 --
(Increase) decrease in assets:
Trade accounts receivable, net 3,797 1,787 (8,120)
Inventories (5,644) 268 11,233
Refundable, deferred and accrued income taxes 8,573 (7,248) 5,408
Prepaid expenses and other (1,288) 1,030 (181)
Other (305) (67) (677)
Increase (decrease) in liabilities:
Trade accounts payable 4,587 5,988 (2,119)
Accrued advertising and promotion 4,429 (1,731) (1,266)
Accrued salaries, benefits, and payroll taxes 2,924 46 (160)
Accrued warranty and customer returns 375 100 --
Accrued interest and other (47) 1,783 109
-------- -------- --------
Total adjustments 25,454 22,770 16,374
-------- -------- --------
Net cash from operations 34,890 9,014 18,336
-------- -------- --------
Cash flows from investing activities:
Purchases of tooling, property, plant, and equipment, net (9,677) (8,872) (5,868)
Proceeds from sale of plants and equipment 2,237 -- --
Decrease (increase) in tooling deposits 85 (2,634) (417)
Cash proceeds from sale of European operations -- 3,548 --
-------- -------- --------
Net cash from investing activities (7,355) (7,958) (6,285)
-------- -------- --------
Cash flows from financing activities:
Payments on bank debt, net (25,953) (11,179) (11,823)
Proceeds from notes payable -- 10,450 --
Payments on notes payable (398) (45) --
Proceeds from exercise of stock options 116 -- --
Payments on capital lease obligations (293) (325) (302)
-------- -------- --------
Net cash from financing activities (26,528) (1,099) (12,125)
-------- -------- --------
Effect of exchange rate changes on cash (6) 43 74
-------- -------- --------
Net decrease in cash 1,001 -- --
Cash at beginning of year -- -- --
-------- -------- --------
Cash at end of year $ 1,001 $ -- $ --
======== ======== ========
Supplemental disclosure of cash flow information:
Cash payments for:
Interest, net of capitalized interest $ 3,018 $ 4,378 $ 4,687
======== ======== ========
Income taxes, net of refunds $ (2,663) $ 761 $ (4,251)
======== ======== ========
Supplemental schedule of noncash investing and financing activities:
Exchange of certain tooling for the forgiveness of
related note payable $ -- $ 586 $ --
======== ======== ========
Assignment of capital lease obligation to buyer $ 3,690 $ -- $ --
======== ======== ========
</TABLE>
The accompanying notes are an integral part of these financial statements.
20
<PAGE> 21
ROYAL APPLIANCE MFG. CO. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(IN THOUSANDS, EXCEPT PER SHARE AMOUNTS)
1. ACCOUNTING POLICIES:
DESCRIPTION OF BUSINESS - Royal Appliance Mfg. Co. ("Royal" or the
"Company"), an Ohio corporation with its corporate offices in the Cleveland,
Ohio metropolitan area, develops, assembles and markets a full line of cleaning
products for home and commercial use under the Dirt Devil(R) and Royal(R) brand
names. In 1984, the Company introduced the first in a line of Dirt Devil(R)
hand-held vacuum cleaners, which the Company believes has become the largest
selling line of hand-held vacuum cleaners in the United States. The Company has
used the Dirt Devil(R) brand name recognition to gain acceptance for other Dirt
Devil(R) products.
The following is a summary of significant policies followed in the
preparation of the accompanying Consolidated Financial Statements.
BASIS OF PRESENTATION - The Consolidated Financial Statements include the
accounts of the Company and its wholly owned subsidiaries after elimination of
all intercompany accounts and transactions. The companies are hereinafter
referred to as "Royal" or the "Company".
The preparation of financial statements in conformity with generally
accepted accounting principles requires management to make estimates and
assumptions that affect reported amounts and related disclosures. Actual results
could differ from those estimates.
Certain prior year amounts have been reclassified to conform to the 1996
presentation.
Net income (loss) per common share is computed based on the weighted
average number of common and common equivalent shares outstanding and is
adjusted for the assumed conversion of shares issuable upon exercise of options,
after the assumed repurchase of common shares with the related proceeds.
The Company's revenue recognition policy is to recognize revenues when
products are shipped.
Foreign operations are conducted in their local currency. Assets and
liabilities of Royal's international operations are translated at current
exchange rates, and income and expenses are translated using weighted average
exchange rates. The effects of these translation adjustments are reported as a
separate component of shareholders' equity. The net effect of currency gains and
losses realized on business transactions is included in the determination of net
income (loss).
ADVERTISING AND PROMOTIONAL EXPENDITURES - Cost incurred for producing
and communicating advertising are expensed during the period incurred, including
cost incurred under the Company's cooperative advertising program.
INVENTORIES - Inventory is stated at the lower of cost or market. In
September 1995, the Company changed its method of accounting for domestic
inventories from the last-in, first-out (LIFO) method to the first-in, first-out
(FIFO) method. As required by generally accepted accounting principles, the
Company has retroactively adjusted prior years' financial statements for this
change. Management believes the FIFO method will provide a better matching of
current costs and current revenues due to past and future decreases in costs and
changes in the mix of products as the Company's ability to introduce new
products into the marketplace increases.
21
<PAGE> 22
ROYAL APPLIANCE MFG. CO. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
1. ACCOUNTING POLICIES: (CONTINUED)
The effect of the change in accounting method was insignificant for the
year 1995, and increased income and earnings per common share for the year 1994
as follows:
<TABLE>
<CAPTION>
Effect of Change in Accounting Method
-------------------------------------
1994
--------
<S> <C>
Increase in net income $407
Increase in net income
per common share $.02
</TABLE>
Inventories at December 31 consisted of the following:
<TABLE>
<CAPTION>
December 31, December 31,
1996 1995
------------ ------------
<S> <C> <C>
Finished goods $ 23,177 $ 15,400
Work in process and
component parts 10,875 13,008
-------- --------
$ 34,052 $ 28,408
======== ========
</TABLE>
PROPERTY, PLANT AND EQUIPMENT - the Company capitalizes as additions to
property, plant and equipment expenditures at cost for molds, tooling, land,
buildings, equipment, furniture, and leasehold improvements. Expenditures for
maintenance and repairs are charged to operating expense as incurred. The asset
and related accumulated depreciation or amortization accounts are adjusted to
reflect retirements and disposals and the resulting gain or loss is included in
the determination of net income (loss).
Plant and equipment are depreciated over the estimated useful lives of
the respective classes of assets. Leasehold improvements and assets held under
capital leases are amortized over their respective lease terms. Accumulated
amortization on assets under capital leases totaled $1,902 and $2,302 at
December 31, 1996 and 1995, respectively.
Depreciation for financial reporting purposes is computed on the
straight-line method using the following depreciable lives:
Buildings..............................................40 years
Buildings under capital lease .........................20 years
Molds, tooling, and equipment .........................3-10 years
Furniture and office equipment ........................3-10 years
Vehicles ..............................................3 years
Accelerated methods as permitted by the applicable tax law are used for
tax reporting purpose.
FAIR VALUE OF FINANCIAL INSTRUMENTS - Financial instruments consist of a
revolving credit agreement and notes payable and are carried at amounts which
approximate fair value.
NEW ACCOUNTING PRONOUNCEMENTS - The Company will be required to implement
Statement of Financial Accounting Standards "SFAS" No. 125, Accounting for
Transfers and Servicing of Financial Assets and Extinguishments of Liabilities,
in the first quarter of 1997. The Company expects the implementation of SFAS No.
125 will not have a material impact on its consolidated financial position and
results of operations.
The Company will also be required to implement SFAS No. 128, Earnings Per
Share, in the fourth quarter of 1997. The Company expects the implementation of
SFAS No. 128 will not have a material impact on its calculation of earnings per
share.
22
<PAGE> 23
ROYAL APPLIANCE MFG. CO. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
1. ACCOUNTING POLICIES: (CONTINUED)
The Company adopted the disclosure-only option of SFAS No. 123,
Accounting for Stock-Based Compensation, as of December 31, 1996. The impact of
implementing SFAS No. 123 is discussed in Note 8 to the consolidated financial
statements.
2. SPECIAL CHARGES:
In 1995, pursuant to a board approved plan, the Company recorded special
charges of $16,294, primarily related to losses from the disposal of certain
inventory, molds and tooling and other intangibles primarily resulting from a
decision to refocus the Company's primary operating and marketing efforts on the
North American market. The special charges include a $11,567 write-down to the
net realizable value of certain molds, tooling, inventory and other assets
disposed of or held for sale, $2,598 restructuring charge related to the
Company's sale of its European operations, and $2,129 of special charges related
to losses from the disposal of certain inventory and intangibles resulting from
discontinuing the Dirt Devil(R) Cyclone(TM) product line and executive
severance. The Company completed the sale of its European operations in 1995 and
liquidated its European real estate in 1996.
Of the initial special charges, $369 remained as a reserve as of December
31, 1996. The balance of the reserve is primarily comprised of warranty
obligations and other related charges. A summary of the special charges reserve
account is presented below:
<TABLE>
<CAPTION>
1996 1995
----------- --------
<S> <C> <C>
Reserve balance at beginning of year $ 1,548 $ --
Expenses charged to operations -- 16,294
Realized loss on disposal of property,
equipment and inventories (666) (12,372)
Severance and other cash outflows (513) (2,374)
------- -------
Reserve balance at end of year $ 369 $ 1,548
======= =======
</TABLE>
3. DEBT:
The Company's revolving credit facility has a maturity date of April 1,
1999, and is classified as long-term at December 31, 1996. The facility provides
for revolving credit up to $50,000, subject to a borrowing base formula as
defined in the agreement. The maximum amount allowable to the Company under the
borrowing base formula was approximately $42,000 as of December 31, 1996,
resulting in availability of approximately $39,000. The agreement requires
monthly payments of interest only through maturity. The facility provides for
pricing options at the bank's base lending rate and LIBOR plus a rate spread as
defined in the Agreement. At December 31, 1996, the bank's base lending rate was
8.25%. The Company's effective interest rate was 8.86% and 9.60% for the years
1996 and 1995. In addition, the Company pays a commitment fee at the annual rate
of .375% on the unused portion of the facility. The carrying amount of the
facility approximates fair value.
The revolving credit facility contains covenants which require, among
other things, the achievement of minimum net worth levels and the maintenance of
certain financial ratios. The Company was in compliance with all applicable
covenants as of December 31, 1996. The revolving credit facility is
collateralized by the Company's inventories, trade accounts receivable,
equipment and general intangibles.
23
<PAGE> 24
ROYAL APPLIANCE MFG. CO. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
3. DEBT: (CONTINUED)
In October 1996, the Company entered into a revolving trade accounts
receivable securitization program to sell, through a wholly-owned subsidiary,
certain trade accounts receivables. The maximum amount of receivables that can
be sold is seasonally adjusted. The maximum amount allowed at any given time
through February 28, 1997, is $16,000, $9,000, thereafter. At December 31, 1996,
the Company received approximately $14,300 from the sale of trade accounts
receivables. The proceeds from the sales were used to reduce borrowings under
the Company's revolving credit facility. Costs of the program, which primarily
consist of the purchaser's financing cost of issuing commercial paper backed by
the receivables, totaled $161 in 1996, and have been classified as Other expense
in the accompanying Consolidated Statements of Operations. The Company, as agent
for the purchaser of the receivables, retains collection and adminstrative
responsibilites for the purchased receivables.
The Company has a variable rate mortgage note payable in the amount of
$4,204. The note is collateralized by one of the Company's assembly facilities.
Monthly payments of principal and interest are payable through July 1, 2000, at
which time the balance of approximately $3,485 is due. Interest is at a 2.35%
spread above the 30 day commercial paper rate. At December 31, 1996, the 30 day
commercial paper rate was 5.38%. The carrying amount of the mortgage note
payable approximates fair value.
The Company has a 7.9% fixed rate mortgage note payable in the amount of
$5,764. The note is collateralized by the Company's distribution facility.
Monthly payments of principal and interest are payable through November 1, 2000,
at which time the balance of approximately $4,775 is due. The carrying amount of
the mortgage note payable approximates fair value.
During the second quarter of 1996, the Company sold two facilities which
were closed in 1995. The aggregate net proceeds were $2,237 in cash and the
assumption of a $3,690 capital lease liability by the buyer.
Aggregate maturities of the notes payable and revolving credit facility
at December 31, 1996, are as follows:
<TABLE>
<S> <C>
1997 $ 418
1998 452
1999 3,375
2000 8,609
-------
$12,854
=======
</TABLE>
24
<PAGE> 25
ROYAL APPLIANCE MFG. CO. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
4. LEASES:
Royal leases various facilities, equipment and vehicles under capital and
operating lease agreements. Operating lease payments totaled $677, $1,255 and
$1,548 for the years ended December 31, 1996, 1995, and 1994, respectively.
Minimum commitments under all capital and operating leases at December
31, 1996 are as follows:
<TABLE>
<CAPTION>
Year Capital Operating
---- ------- ---------
<S> <C> <C>
1997 ................................................$ 552 $ 445
1998 ................................................ 551 291
1999 ................................................ 553 159
2000 ................................................ 555 69
2001 ................................................ 244 50
Thereafter .......................................... 3,471 15
--------- --------
Total minimum lease payments ........................ 5,926 $ 1,029
========
Less amount representing interest ................... 2,372
---------
Total present value of capital obligation ........... 3,554
Less current portion ................................ 247
---------
Long-term obligation under capital leases............$ 3,307
=========
</TABLE>
5. COMMITMENTS AND CONTINGENCIES:
At December 31, 1996, the Company estimates having contractual
commitments for future advertising and promotional expense of approximately
$9,600 including commitments for television advertising through March 31, 1997.
Other contractual commitments for items in the normal course of business total
approximately $3,100.
The Company is self-insured with respect to workers' compensation
benefits in Ohio and carries excess workers' compensation insurance covering
aggregate claims exceeding $350 per occurrence.
The Company is involved in various claims and litigation arising in the
normal course of business. In the opinion of management, the ultimate resolution
of these actions will not materially affect the consolidated financial position,
results of operations, or cash flows of the Company.
25
<PAGE> 26
ROYAL APPLIANCE MFG. CO. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
6. INCOME TAXES:
The income tax provision (benefit) consisted of the following (1994
amounts have been restated to reflect the Company's election off the Last-In,
First-Out (LIFO) method of valuing inventory. See Note 1):
<TABLE>
<CAPTION>
1996 1995 1994
------ ------ -----
<S> <C> <C> <C>
Current (Refundable)
Federal $ 4,643 $ (4,601) $ 832
State and local 589 10 39
Deferred (benefit) 678 (1,896) 281
------------- ------------- -------------
Total $ 5,910 $ (6,487) $ 1,152
============= ============= =============
</TABLE>
Deferred income taxes reflect the impact for financial statement
reporting purposes of temporary differences between the financial statement
carrying amounts and tax basis of assets and liabilities. At December 31, 1996
and 1995, the components of the net deferred tax asset were as follows:
<TABLE>
<CAPTION>
1996 1995
------ -----
<S> <C> <C>
Deferred tax assets:
Warranty and customer returns $ 3,694 $ 3,188
Bad debt reserve 527 782
Inventory basis difference 590 617
Accrued vacation, salaries and wages 398 258
AMT credit carry forward -- 762
State and local taxes 756 356
Basis difference in fixed assets 1,037 577
Accrued advertising -- 576
Self insurance reserves 137 150
Charitable contributions carryforward -- 197
Other 191 276
Deferred tax liabilities:
State and local taxes (521) (425)
Other (257) (84)
---------- ----------
Net deferred tax asset $ 6,552 $ 7,230
========== ==========
</TABLE>
As of December 31, 1996, the Company has state and local tax net
operating loss carryforward tax benefits of approximately $571 which will
substantially expire between 2008 and 2010.
The differences between income taxes at the statutory federal income tax
rate of 34% and those reported in the Consolidated Statements of Operations are
as follows:
<TABLE>
<CAPTION>
Year Ended December 31,
------------------------------------------------------------------------------
% of Pre-tax % of Pre-tax % of Pre-tax
1996 Income 1995 Loss 1994 Income
------ -------- ------ ------ ------- -------
<S> <C> <C> <C> <C> <C> <C>
Tax (benefit) provision at statutory rate $ 5,218 34.0% $(6,883) (34.0)% $ 1,059 34.0%
Capital losses on disposition of foreign
subsidiaries and other non deductible
expenses 87 .6 461 2.3 -- --
State and local income taxes,
net of federal benefit 257 1.7 (400) (1.9) 36 1.2
Federal surtax on income over $10 million 70 .5 -- -- -- --
Other, net 278 1.7 335 1.6 57 1.8
------- ------ ------- ------ ------- ------
$ 5,910 38.5% $(6,487) (32.0)% $ 1,152 37.0%
======= ====== ======== ====== ======= ======
</TABLE>
26
<PAGE> 27
ROYAL APPLIANCE MFG. CO. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
7. MAJOR CUSTOMERS:
Royal's two largest customers represented approximately 33.0% and 11.3% of
total net sales in 1996, 28.6% and 15.5% in 1995 and 24.5% and 14.4% of total
net sales in 1994. Additionally, a significant concentration of Royal's business
activity is with major domestic mass market retailers whose ability to meet
their financial obligations with Royal is dependent on economic conditions
germane to the retail industry. During recent years, many major retailers have
experienced significant financial difficulties and some have filed for
protection from creditors under applicable bankruptcy laws. The Company sells
its products to certain customers that are in bankruptcy proceedings.
The Company provides credit, in the normal course of business, to the
retail industry which includes mass market retailers, warehouse clubs, and
independent dealers. The Company performs ongoing credit evaluations of its
customers and establishes appropriate allowances for doubtful accounts based
upon factors surrounding the credit risk of specific customers, historical
trends and other information.
8. STOCK OPTIONS:
Under the terms of the Company's stock option plans for employees,
outside directors and consultants, all outstanding options have been granted at
prices at least equal to the then current market value on the date of grant,
except for 50,000 options granted to a consultant below market value in
November, 1996. The compensation element of these 50,000 options is being
recognized as compensation expense over the two year vesting period. Certain
stock options granted become exercisable in cumulative 20% installments,
commencing one-year from date of grant with full vesting occurring on the fifth
anniversary date, and expire in ten years, subject to earlier termination in
certain events related to termination of employment. Other stock options granted
vest at the end of five years ("5 year cliff vesting") and expire in six years,
subject to earlier termination in certain events related to termination of
employment. Vesting may be accelerated in certain events relating to change of
the Company's ownership.
The following summarizes the changes in the number of Common Shares under
option:
<TABLE>
<CAPTION>
1996 1995 1994
------ ------ -----
<S> <C> <C> <C>
Options outstanding at beginning
of the year 1,141 1,051 762
Options granted during the year 1,639 446 330
Options exercised during the year (31) -- --
Options canceled during the year (263) (356) (41)
--------------- --------------- ---------------
Options outstanding at end of year 2,486 1,141 1,051
=============== =============== ===============
Options exercisable at end of the year 439 326 298
Option price range per share $3.00 to $10.25 $3.25 to $10.00 $3.75 to $10.00
</TABLE>
The 439 exercisable options at December 31, 1996, are exercisable at an
average exercise price of $5.33. The Company's current option plans, which
provide for a total of 3,060 options, have 543 options remaining for future
grants at December 31, 1996.
The Company accounts for employee stock options under Accounting
Principles Board "APB" Opinion No. 25, under which no compensation cost has been
recognized, except for options granted below market value. The Company adopted
the disclosure-only option of SFAS No. 123, Accounting for Stock-Based
Compensation, as of December 31, 1996. Had compensation cost been determined
based upon the fair market value at the grant date for awards granted in 1996
and 1995 consistent with the methodology prescribed in SFAS No. 123, the effect
on 1996 and 1995 net income (loss) and earnings (loss) per share would have been
immaterial.
27
<PAGE> 28
ROYAL APPLIANCE MFG. CO. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
9. SHAREHOLDER RIGHTS PLAN:
The Company has a Shareholder Rights Plan which provides that under
certain circumstances each Right will entitle the shareholder to purchase one
one-hundredth of a share of Series A Participating Preferred Stock at an
exercise price of $40. Upon the occurrence of certain other events, including if
a "Person" becomes the beneficial owner of more than 20% of the outstanding
Common Shares or an "Adverse Person" becomes the beneficial owner of 10% of the
outstanding Common Shares, the holder of a Right will have the right to receive,
upon exercise, Common Shares of the Company, or Common Stock of the acquirer,
having a value equal to two times the exercise price of the Right. The
Shareholder Rights Plan is designed to deter abusive market manipulation or
unfair takeover tactics and to prevent an acquirer from gaining control of the
Company without offering a fair price to all shareholders. The Rights expire on
November 2, 2003, unless redeemed prior to that date. The Rights can be redeemed
at a price of $.01 per Right.
10. BENEFIT PLANS:
The Company sponsors a 401(k) defined contribution plan which covers
substantially all of its employees who have satisfied the plan's eligibility
requirements. Participants may contribute to the plan by voluntarily reducing
their salary up to a maximum of 15% of qualified compensation subject to annual
I.R.S. limits. All contributions vest immediately. For 1996, the matching
contribution was 100%, up to the first 2% of qualified compensation, and 50% of
the next 4% of such compensation. The Company has also made discretionary
contributions to the plan. The Company's provisions for matching and
discretionary contributions totaled approximately $797, $754 and $692 for the
years ended December 31, 1996, 1995 and 1994, respectively.
Voluntary after-tax contributions and certain rollover contributions are
also permitted.
During 1996, the Company established a voluntary, non-qualified deferred
compensation plan for key executives. The Company has recorded a deferred
compensation liability of $180 as of December 31, 1996.
The Company does not offer any other post-retirement benefits,
accordingly, it is not subject to the provisions of Statement of Financial
Accounting Standards "SFAS" No. 106, "Employers' Accounting for Post Retirement
Benefits Other Than Pensions."
28
<PAGE> 29
ROYAL APPLIANCE MFG. CO. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
11. BUSINESS SEGMENT INFORMATION:
Prior to the sale of the Company's European operations in the fourth
quarter of 1995 (Note 2), sales and marketing operations of the Company were
principally located in both the United States and Europe. All Company operated
assembly facilities have been and are located in the United States. Included in
the amounts disclosed for the United States are amounts attributable to all
North American countries. Included in the Europe loss from operations is
approximately $1,800 and $5,197 of advertising, promotion and certain selling
expenditures for 1995 and 1994, respectively, which represents the parent
Company's funding of market penetration, including television advertising for
the European market.
Business Segment Information
by Geographic Area
<TABLE>
<CAPTION>
1996 1995 1994
------ ------ -----
(Note 1)
<S> <C> <C> <C>
Net sales
United States $ 286,123 (A) $ 259,727 $ 259,522
Europe -- 10,837 18,800
---------- ---------- ----------
$ 286,123 $ 270,564 $ 278,322
========== ========== ===========
Income (loss) from operations
United States $ 17,283 $ (14,664) (B) $ 13,012
Europe -- (1,267) (4,955)
---------- ---------- ----------
$ 17,283 $ (15,931) $ 8,057
========== =========== ===========
Identifiable assets
United States $ 126,141 $ 128,287 $ 130,547
Europe -- 2,974 10,661
---------- ---------- ----------
$ 126,141 $ 131,261 $ 141,208
========== =========== ===========
Capital expenditures (includes cash and
noncash acquisitions)
United States $ 9,592 $ 10,691 $ 5,860
Europe -- 815 425
---------- ---------- ----------
$ 9,592 $ 11,506 $ 6,285
========== =========== ===========
Depreciation and amortization expense
United States $ 8,719 $ 11,398 $ 11,909
Europe -- 188 180
---------- ---------- ----------
$ 8,719 $ 11,586 $ 12,089
========== =========== ===========
</TABLE>
(A) Includes export sales originating from the United States in 1996.
(B) Amount includes special charges of $16,294
12. SUBSEQUENT EVENT:
In February 1997, the Company's Board of Directors authorized a common
share repurchase program that provides for the Company to purchase, in the open
market and through negotiated transactions, up to 1,200 of its outstanding
common shares. Through March 26, 1996, the Company has repurchased 115 shares
for an aggregate purchase price of $754. The program is scheduled to expire on
March 1, 1998.
29
<PAGE> 30
ITEM 9. CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND
- - -----------------------------------------------------------------------
FINANCIAL DISCLOSURES
---------------------
None
PART III
ITEM 10. DIRECTORS AND EXECUTIVE OFFICERS OF THE REGISTRANT
- - -----------------------------------------------------------
Information required by this Item with respect to Executive Officers of
the Company is set forth in Part I of this Annual Report on Form 10-K.
Information required by this Item with respect to members of the Board of
Directors of the Company contained under the headings "Nominees for Terms
Expiring in 1999" and "Directors whose Terms Expire in 1998" in the Company's
Proxy Statement, dated March 28, 1997, is incorporated herein by reference.
Information required by this Item with respect to compliance with Section
16 of the Exchange Act contained under the heading "Section 16(a) Beneficial
Ownership Reporting Compliance" in the Company's Proxy Statement, dated March
28, 1997, is incorporated herein by reference.
ITEM 11. EXECUTIVE COMPENSATION
- - -------------------------------
The information required by this Item relating to executive compensation
contained under the headings "Compensation of Directors", "Executive Officers'
Compensation", "Options Grants in 1996", "Aggregated Option Exercises in 1996
and Year-End Option Values", and "Change-in-Control and Other Employment
Arrangements" in the Company's Proxy Statement, dated March 28, 1997, is
incorporated herein by reference.
ITEM 12. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT
- - -----------------------------------------------------------------------
The information required by this Item contained under the headings
"Security Ownership of Certain Beneficial Owners" and "Security Ownership of
Management", in the Company's Proxy Statement, dated March 28, 1997, is
incorporated herein by reference.
ITEM 13. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS
- - -------------------------------------------------------
None
30
<PAGE> 31
PART IV
ITEM 14. EXHIBITS, FINANCIAL STATEMENT SCHEDULES, AND REPORTS ON FORM 8-K
- - -------------------------------------------------------------------------
<TABLE>
<CAPTION>
PAGE
----
<S> <C>
(a)(1) Financial Statements
--------------------
Report of Independent Accountants 16
Consolidated Balance Sheets at December 31, 1996 and 1995 17
Consolidated Statements of Operations - Years Ended
December 31, 1996, 1995 and 1994 18
Consolidated Statement of Shareholders' Equity - Years Ended
December 31, 1996, 1995 and 1994 19
Consolidated Statements of Cash Flows - Years Ended
December 31, 1996, 1995 and 1994 20
Notes to Consolidated Financial Statements 21-29
(2) Financial Statement Schedules
-----------------------------
The following consolidated financial statement schedule of Royal Appliance Mfg. Co. and
Subsidiaries is included in Item 14(d):
Schedule II - Valuation and Qualifying Accounts 33
All other schedules for which provision is made in the
applicable accounting regulations of the Securities and Exchange
Commission are not required under the related instructions, are
inapplicable, or the information has been included in the Notes
to Consolidated Financial Statements
(3) Exhibits
--------
The exhibits filed herewith are set forth on the Index to Exhibits filed as part of
this report. 34 - 35
(b) Reports on Form 8-K
No reports on Form 8-K were filed during the quarter ended December 31, 1996. --
</TABLE>
31
<PAGE> 32
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, on this 26th day of March,
1997.
ROYAL APPLIANCE MFG. CO.
Registrant
By /s/ Michael J. Merriman
---------------------------------------------
Michael J. Merriman
Chief Executive Officer and President
Date March 26, 1997
-------------------------------------------
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 indicated, as of the 26th day of March 1997.
<TABLE>
<CAPTION>
Signature Title
- - --------- -----
<S> <C>
/s/ Michael J. Merriman Chief Executive Officer, President and Director
- - --------------------------------- (Principal Executive and Financial Officer)
Michael J. Merriman
/s/ Richard G. Vasek Controller, Secretary and Chief Accounting Officer
- - --------------------------------- (Principal Accounting Officer)
Richard G. Vasek
R. Louis Schneeberger * Chairman of the Board
- - ---------------------------------
R. Louis Schneeberger
Jack Kahl Jr.* Director
- - ---------------------------------
Jack Kahl Jr.
E. Patrick Nalley * Director
- - ---------------------------------
E. Patrick Nalley
J.B. Richey * Director
- - ---------------------------------
J.B. Richey
John P. Rochon * Director
- - ---------------------------------
John P. Rochon
</TABLE>
* The undersigned, by signing his name hereto, does hereby sign this Form 10-K
on behalf of Royal Appliance Mfg. Co., and the above named directors and
officers of Royal Appliance Mfg. Co., pursuant to a Power of Attorney
executed on behalf of Royal Appliance Mfg. Co. and each of such directors
and officers and which has been filed with the Securities and Exchange
Commission.
/s/ Michael J. Merriman
------------------------------------------
Michael J. Merriman, Chief Executive Officer, President
and Director, and Attorney-in-Fact
32
<PAGE> 33
ROYAL APPLIANCE MFG. CO. AND SUBSIDIARIES
Schedule II - VALUATION AND
QUALIFYING ACCOUNTS
For Years Ended December 31, 1994, 1995, and 1996
(Dollars in thousands)
<TABLE>
<CAPTION>
Balance at Additions Charged to Balance at
Description Beginning of Year Expenses and Costs Deductions End of Year
----------- ----------------- ------------------ ---------- -----------
Allowance for Doubtful Accounts:
- - --------------------------------
<S> <C> <C> <C> <C>
Year Ended
December 31, 1994 $ 913 $ 75 $ 60 (A) $ 928
Year Ended
December 31, 1995 $ 928 $ 1,062 $ (10) (A) $ 2,000
Year Ended
December 31, 1996 $ 2,000 $ 144 $ 794 (A) $ 1,350
Inventory Reserve:
- - ------------------
Year Ended
December 31, 1994 $ 4,265 $ 41 (B) $ 2,149 (C) $ 2,157
Year Ended
December 31, 1995 $ 2,157 $ 2,434 (B) $ 2,902 (C) $ 1,689
Year Ended
December 31, 1996 $ 1,689 $ 760 (B) $1,048 (C) $ 1,401
</TABLE>
Note: (A) Uncollectible accounts charged off, less recoveries.
(B) Reserve for product model changes.
(C) Disposal of obsolete inventory.
33
<PAGE> 34
ROYAL APPLIANCE MFG. CO. AND SUBSIDIARIES
Index to Exhibits
for Form 10-K
<TABLE>
<CAPTION>
Exhibit Description
------- -------------
<S> <C>
3(a) Articles of Incorporation, amended and restated May 4, 1992, N/A
filed as Exhibit 3.1 of Registrant's Quarterly Report on Form
10-Q for the quarter ended June 30, 1992, filed with the
Commission on August 13, 1992, and incorporated herein by
reference.
3(b) Code of Regulations, amended and restated May 4, 1992, filed as
Exhibit 3.2 of Registrant's Quarterly Report on Form 10-Q for
the quarter ended June 30, 1992, filed with the Commission on
August 13, 1992, incorporated herein by reference.
3(c) Amendment to Amended and Restated Articles of Incorporation
October 21, 1993, filed as an Exhibit to Registrant's Form 8-K
filed with the Commission on November 1, 1993, and incorporated
herein by reference.
4(a) Restated Credit and Security Agreement dated as of March 27,
1996, by and among the Registrant and various banks including
National City Commercial Finance, Inc. as agent. Filed as
Exhibit 4(a) to the Annual Report on Form 10-K for the
year-ended December 31, 1995, incorporated by reference.
4(b) Amendment No. 1 to Restated Credit and Security Agreement dated
as of October 1, 1996, by and among the Registrant and various
banks including National City Commercial Finance, Inc. as Agent.
Filed as Exhibit 4(a) of Registrant's Quarterly Report on Form
10-Q for the quarter ended September 30, 1996, filed with the
Commission on November 11, 1996, and incorporated herein by
reference.
4(c) Receivable Purchase and Servicing Agreement dated as of October
1, 1996, by the Registrant, Royal Appliance Receivables, Inc.,
as Seller, and Capital USA Funding L.P., as Purchaser. Filed as
Exhibit 4(b) of Registrant's Quarterly Report on Form 10-Q for
the quarter ended September 30, 1996, filed with the Commission
on November 11, 1996, and incorporated herein by reference.
The Registrant agrees to furnish copies of certain of its other
long-term debt to the Commission upon request.
4(d) Shareholder Rights Agreement dated as of October 21, 1993, filed
as an Exhibit to Registrant's Form 8-K filed with the Commission
on November 1, 1993, and incorporated herein by reference.
10(a) Royal Appliance Mfg. Co. 1991 Stock Option Plan for Outside
Directors, filed as Exhibit 10.12 to the Registrant's
Registration Statement on Forms S-1, filed with the Commission
on August 6, 1991, file number 33-41211 (the "Initial
Registration Statement"), incorporated herein by reference.
10(b) Royal Appliance Mfg. Co. Employees and Consultants Stock Option
Plan, filed as Exhibit 10.13 to the Initial Registration
Statement, incorporated herein by reference.
10(c) Form of Indemnity Agreement for Directors and Officers of the
Registrant, filed as Exhibit 10.38 to the Initial Registration
Statement, incorporated herein by reference.
10(d) Lease dated December 11, 1981 by and between Syndicated
Properties and the Registrant, as amended, filed as Exhibit 10.7
to the Initial Registration Statement, incorporated herein by
reference.
</TABLE>
34
<PAGE> 35
ROYAL APPLIANCE MFG. CO. AND SUBSIDIARIES
Index to Exhibits
for Form 10-K
<TABLE>
<CAPTION>
Exhibit Description
------- -------------
<S> <C>
10(e) Annual Management Incentive Plan Description. Filed as Exhibit
10(f) to the Annual Report on Form 10-K for the year ended
December 31, 1993, incorporated herein by reference.
10(f) Royal Appliance Mfg. Co. Key Executive Long-Term Incentive Pla
filed as Exhibit 10(f) to the Annual Report on Form 10-K for
the year ended December 31, 1995, incorporated herein by reference.
10(g) Form of Severance and Employment Agreement between the
registrant and Mssrs. Merriman, Dieterich, Holcomb, Lynch
and Moone, respectively, filed as Exhibit 10(g) to the Annual
Report on Form 10-K for the year ended December 31, 1994,
incorporated herein by reference.
10(h) Employment Agreement dated September 15, 1995, between the
Registrant and Mr. Merriman filed as Exhibit 10(l) to the
Annual Report on Form 10-K for the year ended December 31, 1995,
incorporated herein by reference.
10(i) Royal Appliance 401(k) Plus Plan, effective July 1, 1996.
11 Statement regarding computation of per share earnings.
21 Subsidiaries of Registrant
23 Consent of Coopers & Lybrand regarding S-8 Registration.
24 Powers of Attorney of the Registrant, Directors and Principal
Financial Officer of the Registrant.
27 Financial Data Schedule
99.1 Form 11-K Annual Report for Royal Appliance Mfg. Co. Employees
Profit Sharing Retirement Plan and Trust.
99.2 Consent of independent accounts
</TABLE>
35
<PAGE> 1
Exhibit 10(i)
ROYAL APPLIANCE
401(K) PLUS PLAN
EFFECTIVE: JULY 1, 1996
<PAGE> 2
401(K) PLUS PLAN
This Plan is hereby adopted on this ___ day of June, 1996, effective July
1, 1996, by ROYAL APPLIANCE MFG. CO. (the "Company"), on its behalf and on
behalf of certain of its subsidiaries and affiliated companies which are
Participating Employers hereunder.
I. NAME AND PURPOSE
1.1. NAME. The name of this Plan shall be the ROYAL APPLIANCE 401(K)
PLUS PLAN.
1.2. PURPOSE. This Plan is hereby established to provide unfunded
deferred compensation to certain management and highly compensated
employees of the Company and other Participating Employers under
certain conditions specified herein.
1.3. PLAN FOR A SELECT GROUP. This Plan shall only cover employees of a
Participating Employer who are members of a "select group of
management or highly compensated employees" as provided in
Sections 201(2), 301(a)(3), 401(a)(1) and 4021(b)(6) of ERISA.
This Plan shall be administered in such a manner, and benefits
hereunder shall be so limited, notwithstanding any contrary
provision of this Plan, that this Plan shall constitute such a
plan.
1.4. NOT A FUNDED PLAN. It is the intention and purpose of the Company
that this Plan shall be deemed to be "unfunded" for tax purposes
as well as being such a plan as would properly be described as
"unfunded" for purposes of Title I of ERISA. This Plan shall be
administered in such a manner, notwithstanding any contrary
provision of this Plan, that it will be so deemed and would be so
described.
II. DEFINITIONS
2.1. "ACCOUNTS" mean the Participants' Elective Accounts and Match
Accounts maintained on the books of a Participating Employer for a
Participant under this Plan. A Participant's Accounts shall not
constitute or be treated as a trust fund of any kind.
2.2. "ADMINISTRATOR" means the person, persons, corporation,
partnership or other entity designated as Administrator under
Section 7.1.
2.3. "AGREEMENT" means the 401(k) Plus Plan Deferral Agreement(s)
executed between a Participant, the Company,
<PAGE> 3
and the Participant's Participating Employer (if other than the
Company) whereby a Participant agrees to defer a portion of his
Compensation, Salary, Bonus or other remuneration pursuant to the
provisions of the Plan, and his Participating Employer agrees to
make benefit payments in accordance with the provisions of the
Plan.
2.4. "APPEALS COMMITTEE" means the Appeals Committee established
pursuant to Article VII.
2.5. "BENEFICIARY" means the person, persons or entity so designated,
or deemed to be so designated, by a Participant pursuant to
Section 4.10.
2.6. "BOARD OF DIRECTORS" means the Board of Directors of the Company.
2.7. "BONUS" means gross monies payable from a Participating Employer
under a pay incentive plan unreduced by any amounts deferred under
the Retirement Savings Plan or this Plan. In all respects, the
amount of Bonus shall be determined in accordance with the
information contained in the payroll records of the Company and
its subsidiaries and affiliated companies.
2.8. "CODE" means the Internal Revenue Code of 1986, as amended and any
lawful regulations or other pronouncements promulgated thereunder.
2.9. "COMPANY" means Royal Appliance Mfg. Co, and any successor
corporation or business organization which shall assume the duties
and obligations of Royal Appliance Mfg. Co. under this Plan.
2.10. "COMPENSATION" means for any Participant his Compensation under
the Retirement Savings Plan, except that such amount shall not be
subject to the limitation on the annual compensation which may be
taken into account under the Retirement Savings Plan pursuant to
Section 401(a)(17) of the Code. In all respects, the amount of
Compensation shall be determined in accordance with the
information contained in the payroll records of the Company and
its subsidiaries and affiliated companies.
2.11. "DETERMINATION DATE" means the last day of each calendar quarter,
and with respect to each Participant's Retirement Savings Plan
Contribution Amount, either the transfer date of such amount as
set forth in Section 3.11 below or the date of distribution of
such amount as set forth in Section 4.1 below.
2.12. "DISABILITY" shall have the same meaning as the phrase "Total and
Permanent Disability" under the Retirement Savings Plan.
2
<PAGE> 4
2.13. "EFFECTIVE DATE" means the date this Plan shall become effective
which date shall be July 1, 1996.
2.14. "ELECTION YEAR" means the period from the Effective Date through
December 31, 1996 and any calendar year thereafter.
2.15. "ELECTIVE AMOUNT" means for each Participant an amount equal to
the amount by which his Compensation, Salary, Bonus or other
remuneration are reduced pursuant to Section 3.4 hereof.
2.16. "ENTRY DATE" means, with respect to any Participant with respect
to any Election Year, the beginning of such Election Year or, if,
pursuant to Section 3.2, such Participant first participates for
such Deferral Year as of July 1, then July 1 of such Election
Year.
2.17. "ERISA" means the Employee Retirement Income Security Act of 1974,
as amended and any lawful regulations or other pronouncements
promulgated thereunder.
2.18. "MATCH ACCOUNTS" mean for each Participant the bookkeeping account
maintained by his Participating Employer on his behalf to reflect
his Match Amounts for an Election Year and all earnings, gains and
losses thereon.
2.19. "MATCH AMOUNTS" mean for each Participant the amounts credited to
a Match Account on behalf of such Participant pursuant to Section
3.6 which match a portion of his Elective Amounts.
2.20. "NORMAL RETIREMENT DATE" means the date a Participant attains age
65.
2.21. "PARTICIPANT" means an employee of a Participating Employer who is
designated to be an eligible employee pursuant to Section 3.1 who
enters into an Agreement, and who has commenced Compensation,
Salary, Bonus or other remuneration reductions pursuant to such
Agreement. A Participant shall cease to be a Participant, and
shall become a former Participant, upon the earlier of his
Termination of Employment and the date the employee ceases to be
designated by the Company to be eligible to participate. However,
the word Participant may also include, where the context
indicates, any former Participant in this Plan.
2.22. "PARTICIPANT ELECTIVE ACCOUNT" means for each Participant the
bookkeeping account maintained by his Participating Employer on
his behalf to reflect his Elective Amounts for an Election Year
and all earnings, gains and losses thereon.
3
<PAGE> 5
2.23. "PARTICIPATING EMPLOYER" means the Company and such subsidiaries
and affiliated companies of the Company which participate in the
Plan with the consent of the Board of Directors.
2.24. "PLAN" means the Royal Appliance 401(k) Plus Plan as set forth in
this instrument, as amended from time to time.
2.25. "RETIREMENT SAVINGS PLAN" means the Royal Appliance 401(k)
Retirement Savings Plan, as amended from time to time.
2.26. "RETIREMENT SAVINGS PLAN CONTRIBUTION AMOUNT" means with respect
to each Participant the lesser of:
(a) the amount that is permitted to be made to the Retirement
Savings Plan for an Election Year on behalf of each
Participant as a Participant's salary reduction election
deemed to be an Employer's Elective Contribution in excess
of any such amounts already contributed for such Election
Year on behalf of such Participant taking into account any
limitations under the Retirement Savings Plan as determined
by the Company for such Election Year;
(b) the Elective Amount contributed by a Participant to this
Plan for such Election Year pursuant to Section 3.4 below;
or
(c) the value on the date of transfer as set forth in Section
3.11 below to the Retirement Savings Plan of the Elective
Amount contributed by a Participant to this Plan for such
Election Year pursuant to Section 3.4 below.
2.27. "RETIREMENT SAVINGS PLAN TRANSFER AMOUNT" means an amount equal to
(a) plus (b) where:
(a) equals a Participant's Retirement Savings Plan Contribution
Amount; and
(b) the percentage, if any, as determined by the Company under
the Retirement Savings Plan, of the amount set forth in
paragraph (a) above that is permitted to be made to the
Retirement Savings Plan as a matching contribution for such
Participant taking into account any limitations under the
Retirement Savings Plan as determined by the Company for
the appropriate Election Year.
2.28. "SALARY" means the Participant's gross base salary, unreduced by
any amounts deferred under the Retirement Savings Plan or this
Plan, payable during a calendar year. In all respects, the amount
of Salary shall be
4
<PAGE> 6
determined in accordance with the information contained in the
payroll records of the Company and its subsidiaries and affiliated
companies.
2.29. "TERMINATION OF EMPLOYMENT" means the Participant's cessation of
his service with a Participating Employer for any reason
whatsoever, whether voluntarily or involuntarily, including by
reason of retirement, death, or Disability.
2.30. "TRUST" means any trust established pursuant to Article VI hereof.
2.31. "YEARS OF SERVICE" means a Participant's period of continuous
employment with the Company and a Participating Employer
commencing on his most recent date of hire and ending on his
Termination of Employment.
III. PARTICIPATION, COMPENSATION REDUCTIONS AND ACCOUNTS
3.1. ELIGIBILITY. An employee of a Participating Employer shall be
eligible to participate in the Plan for any Election Year if the
employee is designated by the Company to qualify as a member of a
"select group of management or highly compensated employees" as
provided in Sections 201(2), 301(a)(3), 401(a)(1) and 4021(b)(6)
of ERISA for such Election Year and as a "highly compensated
employee" as provided in Section 414(q) of the Code for such
Election Year.
3.2. PARTICIPATION. Each employee who has satisfied the eligibility
requirements set forth in Section 3.1 shall become a Participant
and actively participate for an Election Year by completing and
filing an Agreement described in Section 3.3 with his
Participating Employer prior to the first day of the Election Year
(June 30, 1996, in the case of the initial Election Year). In the
event an employee first meets such eligibility requirements after
the beginning of a Election Year, such employee may become a
Participant and actively participate for the period commencing on
the first day of the month coincident with or after which he meets
the eligibility requirements until the end of such Election Year
by completing and filing an Agreement described in Section 3.3
with his Participating Employer prior to the first day of such
month. Such Agreement shall contain such provisions as the Company
shall require and shall otherwise be in such form as the
Administrator shall determine.
3.3. DEFERRAL ELECTIONS UNDER AN AGREEMENT. With respect to each
Election Year, each eligible employee may elect, under his
Agreement for such Election Year, to make one
5
<PAGE> 7
or more of the deferrals described below for which he is eligible.
(a) Salary Deferral: Each eligible employee may defer a whole
percentage of up to 100% of the Salary for the Election
Year which is payable each payroll period commencing on or
after such employee's Entry Date.
(b) Bonus Deferral: (1) Each eligible employee may defer up to
100% of his Bonus otherwise payable thereunder (to the
extent payable after his Entry Date) in 1% increments.
(c) Retirement Savings Plan Deferral: Each eligible employee
may defer all or a portion of his Retirement Savings Plan
Contribution Amount.
(d) Other Deferrals: In addition, the Administrator, with the
consent of the Company, may establish procedures to permit
some or all Participants to elect to make additional or
other deferrals of their Compensation, Salary, Bonus or
other remuneration. Such elections must be made at least a
reasonable time, as determined by the Company in its sole
discretion, prior to the time any such deferred amounts
would otherwise be payable to such Participants. Any such
other deferral shall be evidenced by an Agreement in a form
acceptable to the Administrator.
3.4. COMPENSATION REDUCTIONS AND DEFERRAL AMOUNTS.
(a) A Participant's election to defer pursuant to 3.3(a) shall
cause an equivalent reduction in the Participant's Salary
at the time such Salary would otherwise be payable.
(b) A Participant's election to defer pursuant to 3.3(b) shall
cause an equivalent reduction in the Participant's Bonus at
the time such Bonus would otherwise be payable.
(c) A Participant's election to defer pursuant to 3.3(c) shall
cause his Retirement Savings Plan Contribution Amount to be
transferred to the Retirement Savings Plan pursuant to
Section 3.11 below instead of such amount being paid to
such Participant pursuant to Section 4.1 below.
(d) A Participant's election to defer in accordance with 3.3(d)
shall cause an equivalent reduction in the Participant's
Compensation, Salary, Bonus or other remuneration at the
time such amounts would otherwise be payable.
6
<PAGE> 8
An amount equal to such reductions in a Participant's
Compensation, Salary, Bonus and other remuneration pursuant to
(a), (b) and (d) above shall constitute an Elective Amount
hereunder and shall be credited to such Participant's Elective
Account as of the time of such reductions.
3.5. ALTERATION OF DEFERRALS. A Participant's deferral election made
pursuant to Section 3.3 above shall be irrevocable except that in
the event that the Participant has received a distribution on
account of an unforeseeable financial emergency pursuant to
Section 4.2, the Administrator may, at its option, discontinue the
Participant's deferrals for the remainder of the then current
Election Year, and preclude the Participant from making any
deferrals for all or part of the succeeding Election Year.
3.6. MATCH AMOUNTS. In the event that a Participant has elected to make
deferrals under Section 3.3 above then, for each Election Year,
his Participating Employer shall credit his Match Account with an
amount equal to the same amount that would have been allocated to
the Participant's account under the Retirement Savings Plan for
such Election Year, computed as provided therein, but without
regard to the limitations of Code Sections 401(a)(17), 401(k)(3),
401(m)(2) and 415. Notwithstanding the foregoing, a Participant
under this Plan who is not a participant under the Retirement
Savings Plan shall be entitled to a Match Amount under this Plan
only with respect to deferrals made under this Plan commencing on
the date that he first becomes eligible to participate in the
Retirement Savings Plan.
3.7. ESTABLISHMENT OF ACCOUNTS. Each Participating Employer shall
establish a Participant Elective Account and a Match Account in
the name of each Participant who is employed by it on the books
and records of such Participating Employer. All amounts so
credited to the Accounts of any Participant or former Participant
shall constitute a general, unsecured liability of such
Participating Employer to such person.
3.8. ALLOCATION OF ELECTIVE AMOUNTS AND MATCHING AMOUNTS. At the time a
Participant's Compensation, Salary, Bonus or other remuneration
are reduced pursuant to Section 3.4 hereof, the Participating
Employer employing such Participant shall credit the Participant
Elective Account of such Participant with the Participant's
Elective Amount with respect to such Compensation, Salary, Bonus
or other remuneration, respectively. At the end of each calendar
month, such Participating Employer shall credit each Participant's
Match Account with his Match Amount for such calendar month, if
any.
7
<PAGE> 9
3.9. CREDITING OF EARNINGS. Each Participating Employer shall credit
each Account of each Participant who is an employee for it with
earnings, gains and losses under one of the following methods, as
determined by the Company:
(a) crediting earnings, gains and losses on such Account as if
an amount equal to the Participant's Account balance had
been invested in accordance with any investment directions
the Company permits such Participant to make pursuant to
Section 6.4 hereof;
(b) crediting earnings, gains and losses on such Account as if
an amount equal to the Participant's Account balance had
been invested in the same manner as the assets of any Trust
established under Section 6.1 hereunder; or
(c) in such other manner as the Company may determine.
3.10. DETERMINATION OF ACCOUNT. The balance of each Participant's
Accounts as of each Determination Date shall be calculated as
follows, using the terms and methods in the order defined below:
(a) Earnings, gains and losses determined pursuant to Section
3.9 shall be allocated based on the Participant's Adjusted
Account. A Participant's Adjusted Account is equal to the
Participant's Account as of the prior Determination Date,
plus transfers posted into the investment fund, plus 50% of
Elective and Match Amounts, less transfers posted out of
the investment fund, less forfeitures, and less
distributions, which occurred after the prior Determination
Date and up through and including the current Determination
Date.
(b) In the event that a Participant receives an Emergency
Benefit pursuant to Section 4.4 below, the Participant's
Adjusted Account will be reduced by the Weighted
Distribution Amount instead of the full distribution
amount. The Weighted Distribution Amount shall be equal to
the Emergency Benefit multiplied by the ratio of the number
of days that have elapsed between the Emergency Benefit
payment date and the current Determination Date, to 90. In
no event shall the ratio exceed 1.0.
3.11. RETIREMENT SAVINGS PLAN TRANSFER AMOUNT. On a date determined by
the Company which shall be on or before the March 15 after the
end of an Election Year, each Participating Employer shall
transfer from this Plan to the Retirement Savings Plan an amount
credited to the Accounts of a Participant hereunder who is an
eligible
8
<PAGE> 10
participant in the Retirement Savings Plan on the last day of such
Election Year and who has made a Retirement Savings Plan Deferral
election for such Election Year equal to the Retirement Savings
Plan Transfer Amount. The amount of such Retirement Savings Plan
Transfer Amount attributable to Elective Amounts shall be debited
against the Participant Elective Account of the Participant and
the amount attributable to Match Amounts shall be debited against
the Participant's Match Account.
IV. BENEFITS
4.1. DISTRIBUTION OF RETIREMENT SAVINGS PLAN CONTRIBUTION. On or before
the March 15 after an Election Year, a Participating Employer
shall pay to a Participant his Retirement Savings Plan
Contribution Amount in a lump sum; provided, however, that such
payment shall not be made in the event that a Participant has made
a Retirement Savings Plan Deferral election pursuant to Section
3.3(c) above to have his Retirement Savings Plan Contribution
Amount transferred to the Retirement Savings Plan in accordance
with Section 3.11 above.
4.2. IN-SERVICE DISTRIBUTION. A Participant who is in the active employ
of the Company may request to withdraw all or a portion of his
Accounts, provided that any such amounts have been credited to his
Accounts for two (2) or more calendar years at the time of
distribution. Such request shall be made in writing in a form and
manner specified by the Company and must specify the amounts to be
withdrawn and the date upon which such amounts shall be paid which
must be as soon as administratively possible following a
Determination Date that is at least one (1) year after the date on
which the request is made. Any such request shall be irrevocable
unless, prior to payment, the Participant has a Termination of
Employment, dies, or becomes disabled, at which time the request
shall become null and void and the Participant's Accounts shall be
paid as provided in Section 4.5, 4.6, 4.7, 4.8 or 4.9 hereof,
whichever shall be applicable.
4.3. PARTICIPANT CALL PROVISION. A Participant (or the Participant's
Beneficiary in the case of the death of the Participant) at any
time may request an accelerated distribution of all or a portion
of the amounts credited to his Accounts except those amounts that
have been contributed during the Election Year when such request
is made, subject to the forfeiture of an amount equal to ten
percent (10%) of such accelerated amount. Such request shall be
made in writing in a form and manner specified by the Company. The
Company shall distribute to the Participant or Beneficiary such
accelerated amount in the form of a lump sum as soon as
administratively possible after the Determination Date that
coincides with or is
9
<PAGE> 11
immediately after the date on which the Company receives the
request. Such distribution shall completely discharge the Company
from all liability with respect to the Participant's or
Beneficiary's Accounts or portion thereof that is either
distributed or forfeited as set forth herein. Further, if the
Participant is in the active employ of the Company at the time of
the distribution, the Participant may not make any further
deferrals into the Plan until January 1 of the second calendar
year following the calendar year in which the Participant receives
the distribution.
4.4. EMERGENCY BENEFIT. In the event that the Administrator, upon
written petition of the Participant or his Beneficiary, determines
in its sole discretion, that the Participant or his Beneficiary
has suffered an unforeseeable financial emergency, a Participating
Employer shall pay to the Participant or his Beneficiary as soon
as practicable following such determination, an amount, not in
excess of the Participant's Accounts necessary to satisfy the
emergency, excluding, however, those amounts that have been
contributed during the Election Year when such unforeseeable
financial emergency occurs. The Administrator may, if it decides
in its sole discretion that it is necessary to do so, pay a
portion of an amount distributable under this Section 4.4 based
upon the value of the Participant's Accounts as of the immediately
prior Determination Date and the balance of such amounts as soon
as administratively possible after the Determination Date that
coincides with or is immediately after the final determination
that an amount is payable under this Section 4.4. For purposes of
this Plan, an unforeseeable financial emergency is an
unanticipated emergency that is caused by an event beyond the
control of the Participant or Beneficiary and that would result in
severe financial hardship to the individual if the emergency
distribution were not permitted, as may result from illness,
casualty loss or sudden financial reversal. Cash needs arising
from foreseeable events, such as the purchase of a residence or
education expenses for children shall not be considered the result
of an unforeseeable financial emergency.
4.5. SHORT SERVICE TERMINATION BENEFIT. Upon the Termination of
Employment of a Participant, for reasons other than death or
Disability, before the date that he has completed five (5) Years
of Service, he shall be entitled to receive a distribution of the
balance of his Accounts. Unless otherwise directed by the
Administrator, this termination benefit shall be payable in a lump
sum as soon as administratively as possible after the December
31st of the calendar year in which his Termination of Employment
occurs.
10
<PAGE> 12
4.6. LONG SERVICE TERMINATION BENEFIT. Upon the Termination of
Employment of a Participant, for reasons other than death or
Disability, on or after the date that he has completed at least
five (5) Years of Service, he shall be entitled to receive a
distribution of the balance of his Accounts. Such distribution
shall be in the form of benefit provided in Section 4.10 and shall
be paid or commence to be paid as soon as administratively
possible after a Determination Date that is at least one (1) year
after the date on which such a Participant makes a written request
for distribution; provided, however, that such payment or
commencement date shall in no event be later than a date which is
as soon as administratively possible after the January 1st
coinciding with or immediately after the later of either the
Participant's Normal Retirement Date or his date of actual
retirement.
4.7. DEATH PRIOR TO BENEFIT COMMENCEMENT. Upon the Participant's death
prior to commencement of benefits hereunder, the Beneficiary of
the deceased Participant shall be entitled to a death benefit
equal to the balance of the Participant's Accounts. Such
distribution shall be in the form of benefit determined under
Section 4.10, shall commence as of the date determined under
Section 4.11 and shall be in lieu of all other benefits under this
Plan.
4.8. DEATH SUBSEQUENT TO BENEFIT COMMENCEMENT. Upon the death of a
Participant subsequent to commencement of his benefits, the
Beneficiary of the deceased Participant shall be entitled to
receive a distribution of the Participant's remaining Accounts.
Such distribution shall be in the form of benefit determined under
Section 4.10, shall commence as of the date determined under
Section 4.11 and shall be in lieu of all other benefits under this
Plan.
4.9. DISABILITY. In the event the Administrator has determined that the
Participant has incurred a Termination of Employment due to a
Disability of at least six months duration which first manifests
itself after the Effective Date and prior to his Normal Retirement
Date, a disabled Participant shall be entitled to receive a
distribution of the balance of his Accounts. Such distribution
shall be in the form of benefit determined under Section 4.10 and
shall commence as of the date determined under Section 4.11;
provided, however, that the payment or commencement date shall not
be later than a date which is as soon as administratively possible
after the Determination Date coinciding with or immediately
following the Participant's Normal Retirement Date.
11
<PAGE> 13
4.10. FORM AND AMOUNT OF BENEFIT PAYMENT.
(a) Subject to such rules, procedures, limits and restrictions
as the Administrator may establish from time to time, a
Participant, may elect that distributions payable under
Sections 4.6, 4.7, 4.8 and 4.9 shall be made in a single
sum or in the form of annual installments over a period of
no less than two (2) calendar years and no more than ten
(10) calendar years.
(b) Initially, the amount of any installments under any
installment form of payment shall be equal to the balance
of the Accounts to be distributed divided by the number of
installments to be paid. The amount of the installment
payments shall be recomputed annually and the installment
payments shall be increased or decreased to reflect any
changes in the Accounts due to fluctuations in earnings,
gains and losses on the remaining balance and the number of
remaining installments.
(c) In the event of the death of the Participant, as described
in Sections 4.7 or 4.8, the Participant's Beneficiary may,
with the consent of the Administrator, request an
alternative form of benefit payment, such as a lump-sum
payment or an installment form with an installment period
of less than ten (10) years. Such request shall be made in
accordance with such procedures as the Administrator may
establish. Any such procedures shall either require such
request be made a reasonable period of time, as determined
by the Company in its sole discretion, before the amounts
affected by such a request shall be distributable, or
require a forfeiture of a significant portion of such
amounts. The Administrator may, but is not required to,
grant any such requests.
(d) The Administrator, with the consent of the Company, may
establish procedures to permit some or all Participants to
request to change their prior elections regarding the form
of their benefit payments hereunder, provided that any such
procedures shall either require such request be made a
reasonable period of time, as determined by the Company in
its sole discretion, before the amounts affected by such
request shall be distributable, or require a forfeiture of
a significant portion of such amounts. The Administrator
may, but is not required to, grant any such requests.
(e) Notwithstanding anything in this Section IV to the
contrary, in no event shall any distribution under
12
<PAGE> 14
Section 4.2, 4.3 or 4.4 hereunder be less than the lesser
of One Thousand Dollars ($1,000.00) or the entire balance
of the Participant's Accounts hereunder.
4.11. COMMENCEMENT OF PAYMENTS.
(a) Except as otherwise provided, commencement of payments
under this Plan shall be as soon as administratively
possible following receipt of notice by the Administrator
of an event which entitles a Participant or a Beneficiary
to payments under this Plan. All payments shall be made as
of the first day of the month.
(b) Subject to such rules, procedures, limits and restrictions
as the Administrator may establish from time to time, a
Participant may elect that any single sum distributions
payable under this Article IV be made as soon as
administratively possible after the start of any calendar
year after the event permitting payment.
(c) In the event of the death of the Participant, as described
in Sections 4.7 or 4.8, the Participant's Beneficiary may,
with the consent of the Administrator, request to change
the time of commencement of benefits hereunder. Such
request shall be made in accordance with such procedures as
the Administrator may establish. Any such procedures shall
either require such request be made a reasonable period of
time, as determined by the Company in its sole discretion,
before the amounts affected by such a request shall be
distributable, or require a forfeiture of a significant
portion of such amounts. The Administrator may, but is not
required to, grant any such requests.
(d) The Administrator, with the consent of the Company, may
establish procedures to permit some or all Participants to
request to change their prior elections regarding the time
of commencement of benefits hereunder, provided that any
such procedures shall either require that the request be
made a reasonable period of time, as determined by the
Company in its sole discretion, before the amounts affected
by such request shall be distributable, or require a
forfeiture of a significant portion of such amounts. The
Administrator may, but is not required to, grant any such
requests.
4.12. DESIGNATION OF BENEFICIARY. Subject to rules and procedures
promulgated by the Administrator, a
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Participant may sign a document designating a Beneficiary or
Beneficiaries. In the event that a Participant fails to designate
any Beneficiary in accordance with the provisions of this Section,
he shall be deemed to have designated his spouse, or if no spouse
is then living, his estate, as his Beneficiary.
4.13. PROTECTIVE DISTRIBUTIONS. In the event that the Administrator
determines, in its sole discretion, that a Participant is not, or
may not be, a member of a "select group of management or highly
compensated employees" within the meaning of Sections 201(2),
301(a)(3), 401(a)(1) or 4021(b)(6) of ERISA or a "highly
compensated employee" within the meaning of Section 414 (q) of the
Code, then the Administrator may, in its sole discretion,
terminate such Participant's participation in this Plan, and
distribute all amounts credited to such Participant's Accounts in
a single lump sum payment. Any such distribution shall be made at
such time as the Administrator determines in its sole discretion.
4.14. TAX WITHHOLDING. A Participating Employer may withhold from any
payment made by it under the Plan of such amount or amounts as may
be required for purposes of complying with the tax withholding or
other provisions of the Code or the Social Security Act or any
state or local income or employment tax act or for purposes of
paying any estate, inheritance or other tax attributable to any
amounts payable hereunder.
V. RIGHTS OF PARTICIPANTS
5.1. CREDITOR STATUS OF PARTICIPANTS. The Elective Amounts and Match
Amounts of a Participant shall be merely unfunded, unsecured
promises of the Participating Employer by which he is employed to
make benefit payments in the future and shall be liabilities
solely against the general assets of such Participating Employer.
The Company and the other Participating Employers shall not be
required to segregate, set aside or escrow the Elective Amounts or
Match Amounts nor any earnings, gains and losses credited thereon.
With respect to amounts credited to any Accounts hereunder and any
benefits payable hereunder, a Participant and his Beneficiary
shall have the status of general unsecured creditors of the
Participating Employer by which such Participant is employed, and
may look only to such Participating Employer and its general
assets for payment of such Accounts and benefits.
5.2. RIGHTS WITH RESPECT TO THE TRUST. Any trust, and any assets held
thereby to assist the Company or other Participating Employer in
meeting its obligations under
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the Plan, shall in no way be deemed to controvert the provisions
of the preceding Section.
5.3. INVESTMENTS. In the Company's sole discretion, the Participating
Employers may acquire insurance policies, annuities or other
financial vehicles for the purpose of providing future assets of
Participating Employers to meet their anticipated liabilities
under this Plan. Such policies, annuities or other investments,
shall at all times be and remain unrestricted general property and
assets of the Participating Employers or property of a trust
established pursuant to Article VI hereof. Participants and
beneficiaries shall have no rights, other than as general
creditors, with respect to such policies, annuities or other
acquired assets.
VI. TRUST.
6.1. ESTABLISHMENT OF TRUST. Notwithstanding any other provision or
interpretation of this Plan, the Company may establish a Trust in
which to hold cash, insurance policies or other assets to be used
to make, or reimburse the Company or any other Participating
Employer for, payments to the Participants or beneficiaries of all
or part of the benefits under this Plan. Any Trust assets shall at
all times remain subject to the claims of general creditors of the
Company or any other Participating Employer in the event of their
insolvency as more fully described in the Trust.
6.2. OBLIGATION OF THE PARTICIPATING EMPLOYERS. Notwithstanding the
fact that a Trust may be established under Section 6.1, the
Participating Employers shall remain liable for paying the
benefits under this Plan. However, any payment of benefits to a
Participant or Beneficiary made by such a Trust shall satisfy the
appropriate Participating Employer's obligation to make such
payment to such person.
6.3. TRUST TERMS. A Trust established under Section 6.1 may contain
such terms as the Company may determine to be necessary or
desirable. The Company may terminate or amend a Trust established
under Section 6.1 at any time, and in any manner it deems
necessary or desirable, subject to the terms of any agreement
under which any such Trust is established or maintained.
6.4. INVESTMENT FUNDS AND ELECTIONS. The Company from time to time may
permit all or some of the Participants, former Participants, and
beneficiaries of deceased Participants to elect that their
Accounts shall be credited with earnings, gains and losses as if
such accounts held actual assets and such assets were invested in
accordance with such individuals' directions among such Investment
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Funds as the Company may designate. Any such direction of
investment shall be subject to such rules as the Company and
Administrator may prescribe, including, without limitation, rules
concerning the manner of providing investment directions, the
frequency of changing such investment directions, and method of
crediting earnings, gains and losses for any portion of an Account
which is not covered by any valid investment directions. The
Investment Funds which the Company may designate shall include but
not be limited to the following types of funds, which can be
managed on an individual basis or as part of a mutual fund, as the
Company shall determine:
(a) money market funds;
(b) common stock funds;
(c) bond funds;
(d) balanced funds; and
(e) investment funds which are primarily invested in insurance
contracts; and
(f) investment funds which are provided for under insurance
contracts.
The Company shall have the sole discretion to determine the number
of Investment Funds to be designated hereunder and the nature of
the funds and may change or eliminate the Investment Funds
provided hereunder from time to time. The Company shall in its
sole discretion determine the rate of earnings, gains and losses
to be credited to Accounts under this Plan with respect to any
such Investment Fund for any period, taking into account the
return, net of any expenses, of such Investment Funds for such
period.
VII. ADMINISTRATION AND CLAIMS PROCEDURE
7.1. ADMINISTRATOR. The Company shall be the Administrator unless and
until the Board shall appoint some other person, persons,
committee, corporation, partnership or other entity as
Administrator.
7.2. GENERAL RIGHTS, POWERS, AND DUTIES OF ADMINISTRATOR. The
Administrator shall be the Plan Administrator under ERISA. The
Administrator shall be responsible for the general administration
of the Plan and shall have all powers as may be necessary to carry
out the provisions of the Plan and may, from time to time,
establish rules for the administration of the Plan and the
transaction of the Plan's business. In addition to any powers,
rights and
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duties set forth elsewhere in the Plan, it shall have the
following powers and duties:
(a) To enact such rules, regulations, and procedures and to
prescribe the use of such forms as it shall deem advisable;
(b) To appoint or employ such agents, attorneys, actuaries,
accountants, assistants or other persons (who may also be
Participants in the Plan or be employed by or represent a
Participating Employer) at the expense of the Participating
Employers, as it may deem necessary to keep its records or
to assist it in taking any other action authorized or
required hereunder;
(c) To interpret the Plan, and to resolve ambiguities,
inconsistencies and omissions, to determine any question of
fact, to determine the right to benefits of, and the amount
of benefits, if any, payable to, any person in accordance
with the provisions of the Plan and resolve all questions
arising under the Plan;
(d) To administer the Plan in accordance with its terms and any
rules and regulations it establishes;
(e) To maintain such records concerning the Plan as it deems
sufficient to prepare reports, returns and other
information required by the Plan or by law; and
(f) To direct a Participating Employer to pay benefits under
the Plan, and to give such other directions and
instructions as may be necessary for the proper
administration of the Plan.
7.3. INFORMATION TO BE FURNISHED TO ADMINISTRATOR. A Participating
Employer shall furnish the Administrator with such data and
information as it may reasonably require. The records of a
Participating Employer shall be determinative of each
Participant's period of employment, termination of employment and
the reason therefor, leave of absence, reemployment, years of
service, personal data, and data regarding Compensation, Salary,
Bonus and other remuneration, and all reductions thereof under
this Plan. Participants and their Beneficiaries shall furnish to
the Administrator such evidence, data or information and execute
such documents as the Administrator requests.
7.4. CLAIM FOR BENEFITS. Any claim for benefits under the Plan shall be
made in writing to the Administrator in such a manner as the
Administrator shall prescribe. The Administrator shall process
each such claim and determine
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entitlement to benefits within ninety (90) days following its
receipt of a completed application for benefits unless special
circumstances require an extension of time for processing the
claim. If such an extension of time for processing is required,
written notice of the extension shall be furnished to the claimant
prior to the termination of the initial ninety (90) day period. In
no event shall such extension exceed a period of ninety (90) days
from the end of such initial period. The extension notice shall
indicate the special circumstances requiring an extension of time
and the date as of which the Administrator expects to render the
final decision.
If such claim is wholly or partially denied by the Administrator,
the Administrator shall notify the claimant of the denial of the
claim in writing, delivered in person or mailed by first class
mail to the claimant's last known address. Such notice of denial
shall be in writing and shall contain:
(a) the specific reason or reasons for denial of the claim;
(b) a reference to the relevant Plan provisions upon which the
denial is based;
(c) a description of any additional material or information
necessary for the claimant to perfect the claim, together
with an explanation of why such material or information is
necessary; and
(d) an explanation of the Plan's claim review procedure.
If no such notice is provided, the claim shall be deemed denied.
The interpretations, determinations and decisions of the
Administrator shall be final and binding upon all persons with
respect to any right, benefit and privilege hereunder, subject to
the review procedures set forth in this Article.
7.5. REQUEST FOR REVIEW OF A DENIAL OF A CLAIM FOR BENEFITS. Any
claimant or any authorized representative of such claimant whose
claim for benefits under this Plan has been denied or deemed
denied, in whole or in part, by the Administrator may upon written
notice to the Appeals Committee request a review by the Appeals
Committee of such denial of her or his claim for benefits. Such
claimant shall have sixty (60) days from the date the claim is
deemed denied, or sixty (60) days from receipt of the notice
denying the claim, as the case may be, in which to request a
review by written application delivered to the Appeals Committee,
which must specify the relief requested and the reason such
claimant believes the denial should be reversed.
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7.6. APPEALS PROCEDURE. The Appeals Committee is hereby authorized to
review the facts and relevant documents as well as this Plan, to
interpret this Plan and other relevant documents and to render a
decision on the claim of the claimant. Such review may be made by
written briefs submitted by the claimant and the Administrator or
at a hearing, or by both as shall be deemed necessary by the
Appeals Committee. Any such hearing shall be held in the main
offices of the Company or such other location as the Appeals
Committee shall select on such date and at such time as the
Appeals Committee shall designate upon not less than fifteen (15)
days notice to the claimant and the Administrator unless both of
them accept shorter notice. The notice shall specify that such
claimant must indicate in writing, at least five (5) days in
advance of the time established for such hearing, his intention to
appear at the appointed time and place, or the hearing will be
automatically cancelled. The reply shall specify any other persons
who will accompany him to the hearing, or such other persons will
not be admitted to the hearing. The Appeals Committee shall make
every effort to schedule the hearing on a day and at a time which
is convenient to both the claimant and the Administrator. The
claimant, or his duly authorized representative, may review all
pertinent documents relating to the claim in preparation for the
hearing and may submit issues and comments in writing prior to or
during the hearing.
7.7. DECISION UPON REVIEW OF DENIAL OF CLAIM FOR BENEFITS. After the
review has been completed, the Appeals Committee shall render a
decision in writing, a copy of which shall be sent to both the
applicant and the Administrator. In making its decision the
Appeals Committee shall have full power and discretion to
interpret the Plan, and to resolve ambiguities, inconsistencies
and omissions, to determine any question of fact, to determine the
right to benefits of, and the amount of benefits, if any, payable
to, any person in accordance with the provisions of the Plan. The
Appeals Committee shall render a decision on the claim review
promptly, but no more than sixty (60) days after the receipt of
the claimant's request for review, unless special circumstances
(such as the need to hold a hearing) require an extension of time,
in which case the sixty (60) day period shall be extended to one
hundred twenty (120) days. Such decision shall include specific
reasons for the decision and contain specific references to the
relevant Plan provisions upon which the decision is based. The
decision on review shall be furnished to the claimant within the
appropriate time described above. If the decision on review is not
furnished within such time, the claim shall be deemed denied on
review. The decision of the Appeals Committee shall be final and
binding in all respects on the Administrator and the Participating
Employer and claimant involved. The review
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procedures of this Article shall be the sole and exclusive remedy
and shall be in lieu of all actions at law, in equity, pursuant to
arbitration or otherwise.
7.8. ESTABLISHMENT OF APPEALS COMMITTEE. The Company shall appoint the
members of an Appeals Committee which shall consist of three (3)
or more members. The Company may appoint one Appeals Committee to
hear all appeals of denied benefits that may arise under the Plan
or a number of Appeals Committees with different members to hear
the appeals of denied benefits that arise from Participants
employed by a Participating Employer or group of Participating
Employers. The members of the Appeals Committee shall remain in
office at the will of the Company and the Company, from time to
time, may remove any of said members with or without cause. A
member of the Appeals Committee may resign upon written notice to
the remaining member or members of the Appeals Committee and to
the Company, respectively. The fact that a person is a Participant
or a former Participant or a prospective Participant shall not
disqualify him from acting as a member of the Appeals Committee,
nor shall any member of the Appeals Committee be disqualified from
acting on any question because of his interest therein, except
that no member of the Appeals Committee may act on any claim which
such member has brought as a Participant, former Participant, or
Beneficiary under this Plan. In case of the death, resignation or
removal of any member of the Appeals Committee, the remaining
members shall act until a successor-member shall be appointed by
the Company. At the Administrator's request, the Secretary of the
Company shall notify the Administrator in writing of the names of
the original members of the Appeals Committee, of any and all
changes in the membership of the Appeals Committee, of the member
designated as Chairman, and the member designated as Secretary,
and of any changes in either office. Until notified of a change,
the Administrator shall be protected in assuming that there has
been no change in the membership of the Appeals Committee or the
designation of Chairman or of Secretary since the last
notification was filed with it. The Administrator shall be under
no obligation at any time to inquire into the membership of the
Appeals Committee or its officers. All communications to the
Appeals Committee shall be addressed to its Secretary at the
address of the Company.
7.9. OPERATIONS OF APPEALS COMMITTEE. On all matters and questions, the
decision of a majority of the members of the Appeals Committee
shall govern and control; but a meeting need not be called or held
to make any decision. The Appeals Committee shall appoint one of
its members to act as its Chairman and another member to act as
Secretary. The terms of office of these members shall be
determined by the Appeals Committee, and the Secretary and/or
Chairman may be removed by the other members of
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the Appeals Committee for any reason which such other members may
deem just and proper. The Secretary shall do all things directed
by the Appeals Committee. Although the Appeals Committee shall act
by decision of a majority of its members as above provided,
nevertheless in the absence of written notice to the contrary,
every person may deal with the Secretary and consider his acts as
having been authorized by the Appeals Committee. Any notice served
or demand made on the Secretary shall be deemed to have been
served or made upon the Appeals Committee.
7.10. LIMITATION OF DUTIES. The Company, the Participating Employers,
the Administrator, the Appeals Committee, and their respective
officers, members, employees and agents shall have no duty or
responsibility under the Plan other than the duties and
responsibilities expressly assigned to them herein or delegated to
them pursuant hereto. None of them shall have any duty or
responsibility with respect to the duties or responsibilities
assigned or delegated to another of them.
7.11. EXPENSES OF ADMINISTRATION AND THE APPEALS COMMITTEE. No fee or
compensation shall be paid to the Administrator or any member of
the Appeals Committee for his or its services as such, but the
Administrator and Appeals Committee may be reimbursed for its
expenses from any Trust established by the Company in connection
herewith, or, if no funds exist therein or if the Company
determines that they should not be paid by such Trust, by one or
more of the Participating Employers as directed by the Company.
The Appeals Committee and the Administrator may hire such
attorneys, accountants, actuaries, agents, clerks, and secretaries
as it may deem desirable in the performance of its functions, any
of whom may also be advisors to any Participating Employer or any
affiliated company, and the expense associated with the hiring or
retention of any such person or persons shall be paid directly by
the Company or from such Trust, as directed by the Company.
7.12. INDEMNIFICATION. In addition to whatever rights of indemnification
any individual who serves as a delegate of the Administrator,
Company or other Participating Employer hereunder and the members
of the Appeals Committee may be entitled to under the articles of
incorporation, regulations or bylaws of the Participating
Employers, under any provision of law or under any other
agreement, including the Retirement Savings Plan, the
Participating Employers shall satisfy any liability actually
incurred by any such individual including reasonable expenses and
attorneys' fees, and any judgments, fines, and amounts paid in
settlement, in connection with any threatened, pending or
completed action, suit or proceeding which is related to the
21
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exercise or failure to exercise by such individual of any powers,
authority, responsibilities or discretion provided under this Plan
or reasonably believed by such member to be provided hereunder,
and any action taken by such individual in connection therewith.
This indemnification for all such acts taken or omitted is
intentionally broad, but shall not provide indemnification for
embezzlement or diversion of Plan funds for the benefit of any
such individual. Such indemnification will not be provided to any
person who is not a present or former employee of a Participating
Employer or a subsidiary or affiliated company thereof nor shall
it be provided for any claim by a Participating Employer or a
subsidiary or affiliated company thereof against any such person.
No indemnification shall be provided to any person who is not an
individual.
7.13. LIMITATION OF ADMINISTRATIVE LIABILITY. Neither the Administrator
nor the Appeals Committee while acting on behalf of the
Administrator, nor any of their respective officers, members,
employees, agents and delegates shall be liable for any act taken
by such person or entity pursuant to any provision of the Plan
except for gross abuse of the discretion given it and them
hereunder. No member of the Appeals Committee shall be liable for
the act of any other member. No member of the Board of Directors
of the Company shall be liable to any person for any action taken
or omitted in connection with the administration of this Plan.
7.14. LIMITATION OF SPONSOR LIABILITY. Any right or authority
exercisable by the Company or Board pursuant to any provision of
this Plan shall be exercised in the Company's capacity as sponsor
of the Plan, or on behalf of the Company in such capacity, and not
in a fiduciary capacity, and may be exercised without the approval
or consent of any person in a fiduciary capacity. Neither the
Company, nor the Board, nor any of their respective officers,
members, employees, agents and delegates, shall have any liability
to any party for its exercise of any such right or authority.
VIII. AMENDMENT AND TERMINATION
8.1. AMENDMENT, MODIFICATION AND TERMINATION. This Plan may be amended,
modified or terminated by the Company at any time, or from time to
time, by a document executed on behalf of the Company by an
officer thereof, which amendment, modification or termination is
authorized or ratified by the Board. No such amendment,
modification or termination shall reduce the amounts credited to
any Participant's Accounts, all determined as of the date of such
amendment, modification or termination.
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8.2. ACTIONS BINDING ON PARTICIPATING EMPLOYERS. Any amendments made to
this Plan shall be binding on all the Participating Employers
without the approval or consent of such Participating Employers.
The Company may, by amendment, also terminate this Plan on behalf
of all or any one of the Participating Employers in its sole
discretion.
8.3. DISTRIBUTIONS ON TERMINATION. In the event this Plan is
terminated, the amounts then credited to all Participants'
Accounts may, in the Company's sole discretion, (i) be distributed
to the Participants in quarterly installments over such period not
more than fifteen (15) years as the Company may determine, (ii) be
distributed to the Participants in a lump sum, or (iii) continue
to be credited with earnings, gains and losses pursuant to Article
III and be distributed pursuant to Article IV.
IX. PARTICIPATING EMPLOYERS
9.1. LIST OF PARTICIPATING EMPLOYERS. The initial Participating
Employers as of the Effective Date are as follows:
Participating Employers
-----------------------
Royal Appliance Mfg. Co.
The Company may designate additional Participating Employers or
remove Participating Employers during the period of the Plan's
existence by action of an appropriate officer of Company
authorized or ratified by the Board. Such addition or deletion
shall not require a formal amendment hereto.
9.2. DELEGATION OF AUTHORITY. The Company is hereby fully empowered to
act on behalf of itself and the other Participating Employers as
it may deem appropriate in maintaining this Plan and any Trust.
Furthermore, the adoption by the Company of any amendment to the
Plan or any Trust, or the termination of the Plan or any Trust,
will constitute and represent, without any further action on the
part of any Participating Employer, the approval, adoption,
ratification or confirmation by each Participating Employer of any
such amendment or termination. In addition, the appointment of or
removal by the Company of any Appeals Committee member, any
Administrator, any trustee or other person under the Plan or any
Trust shall constitute and represent, without any further action
on the part of any Participating Employer, the appointment or
removal by each Participating Employer of such person.
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X. MISCELLANEOUS
10.1. NO IMPLIED RIGHTS. Neither the establishment of the Plan nor any
amendment thereof shall be construed as giving any Participant,
Beneficiary or any other person any legal or equitable right
unless such right shall be specifically provided for in the Plan
or conferred by specific action of the Company in accordance with
the terms and provisions of the Plan. Except as expressly provided
in this Plan, neither the Company nor any other Participating
Employer shall be required or be liable to make any payment under
the Plan.
10.2. NO RIGHT TO PARTICIPATING EMPLOYER ASSETS. Neither the Participant
nor any other person shall acquire by reason of the Plan any right
in or title to any assets, funds or property of a Participating
Employer whatsoever including, without limiting the generality of
the foregoing, any specific funds, assets or other property which
a Participating Employer, in its sole discretion, may set aside in
anticipation of a liability hereunder. Any benefits which become
payable hereunder shall be paid from the general assets of a
Participating Employer. The Participant shall have only a
contractual right to the amounts, if any, payable hereunder
unsecured by any asset of a Participating Employer. Nothing
contained in the Plan constitutes a guarantee by a Participating
Employer that the assets of a Participating Employer shall be
sufficient to pay any benefit to any person.
10.3. NO EMPLOYMENT RIGHTS CREATED. This Plan shall not be deemed to
constitute a contract of employment between any of the
Participating Employers and any Participant, nor confer upon any
Participant or employee the right to be retained in the service of
any Participating Employer for any period of time, nor shall any
provision hereof restrict the right of any Participating Employer
to discharge or otherwise deal with any Participant or other
employees, with or without cause. Nothing herein shall be
construed as fixing or regulating the Compensation, Salary, Bonus
or other remuneration payable to any Participant or other employee
of a Participating Employer.
10.4. OFFSET. If, at the time payments or installments of payments are
to be made hereunder, the Participant or the Beneficiary or both
are indebted or obligated to a Participating Employer, then the
payments remaining to be made to the Participant or the
Beneficiary or both may, at the discretion of the Company, be
reduced by the amount of such indebtedness or obligation,
provided, however, that an election by the Company not to reduce
any such payment or payments shall not constitute a waiver of its
claim for such indebtedness or obligation.
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10.5. NON-ASSIGNABILITY. Neither the Participant nor any other person
shall have any voluntary or involuntary right to commute, sell,
assign, pledge, anticipate, mortgage or otherwise encumber,
transfer, hypothecate or convey in advance of actual receipt the
amounts, if any, payable hereunder, or any part thereof, and any
attempt to do so shall be void. All benefits or amounts credited
to Accounts under this Plan are expressly declared to be
unassignable and non-transferable. No part of the benefits or
amounts credited to Accounts under this Plan shall be, prior to
actual payment, subject to seizure or sequestration for the
payment of any debts, judgments, alimony or separate maintenance
owed by the Participant or any other person, or be transferable by
operation of law in the event of the Participant's or any other
person's bankruptcy or insolvency.
10.6. NOTICE. Any notice required or permitted to be given under the
Plan shall be sufficient if in writing and hand delivered, or sent
by registered or certified mail, and if given to the Company,
delivered to the principal office of the Company, directed to the
attention of the Vice President of Human Resources. Such notice
shall be deemed given as of the date of delivery or, if delivery
is made by mail, as of the date shown on the postmark or the
receipt for registration or certification.
10.7. GOVERNING LAWS. The Plan shall be construed and administered
according to the laws of the State of Ohio to the extent not
preempted by the laws of the United States of America.
10.8. INCAPACITY. If the Administrator determines that any Participant
or Beneficiary entitled to payments under the Plan is incompetent
by reason of physical or mental disability and is consequently
unable to give a valid receipt for payments made hereunder, or is
a minor, the Administrator may order the payments becoming due to
such Participant or Beneficiary to be made to another person for
the benefit of such Participant or Beneficiary, without
responsibility on the part of the Administrator to follow the
application of amounts so paid. Payments made pursuant to this
Section shall completely discharge the Plan, any Trust, the
Administrator, the Participating Employers and the Appeals
Committee with respect to such payments.
10.9. ADMINISTRATIVE FORMS. All applications, elections and designations
in connection with the Plan made by a Participant or Beneficiary
shall become effective only when duly executed on forms provided
by the Administrator and filed with the Administrator.
10.10. INDEPENDENCE OF PLAN. Except as otherwise expressly provided
herein, this Plan shall be independent of, and
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in addition to, any other employee benefit agreement or plan or
any rights that may exist from time to time thereunder.
10.11. RESPONSIBILITY FOR LEGAL EFFECT. Neither the Company, any other
Participating Employer, the Administrator, the Appeals Committee,
nor any officer, member, delegate or agent of any of them, makes
any representations or warranties, express or implied, or assumes
any responsibility concerning the legal, tax, or other
implications or effects of this Plan.
10.12. SUCCESSORS. The terms and conditions of this Plan shall inure to
the benefit of and bind the Company, the Participating Employers,
the Administrator, the Appeals Committee and its members, the
Participants, their beneficiaries, and the successors, assigns,
and personal representatives of any of them.
10.13. HEADINGS AND TITLES. The Section headings and titles of Articles
used in this Plan are for convenience of reference only and shall
not be considered in construing this Plan.
10.14. GENERAL RULES OF CONSTRUCTION. The masculine gender shall include
the feminine and neuter, and vice versa, as the context shall
require. The singular number shall include the plural, and vice
versa, as the context shall require. The present tense of a verb
shall include the past and future tenses, and vice versa, as the
context may require.
10.15. SEVERABILITY. In the event that any provision or term of this
Plan, or any agreement or instrument required by the Administrator
hereunder, is determined by a judicial, quasi-judicial or
administrative body to be void or not enforceable for any reason,
all other provisions or terms of this Plan or such agreement or
instrument shall remain in full force and effect and shall be
enforceable as if such void or nonenforceable provision or term
had never been a part of this Plan, or such agreement or
instrument.
10.16. ACTIONS BY THE COMPANY. Except as otherwise provided herein, all
actions of the Company under this Plan shall be taken by the
Board, by any officer of the Company, or by any other person
designated by any of the foregoing.
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IN WITNESS WHEREOF, the Company, by two of its appropriate officers duly
authorized, has executed this 401(k) Plus Plan as of the date first above
written.
ROYAL APPLIANCE MFG. CO.
("Company")
By______________________________
Title___________________________
And_____________________________
Title___________________________
27
<PAGE> 1
Exhibit 11
- - ----------
ROYAL APPLIANCE MFG. CO. AND SUBSIDIARIES
FORM 10-K
COMPUTATION OF EARNINGS PER COMMON SHARE
For Years Ended December 31, 1996,
1995, and 1994
(in thousands, except per share amounts)
<TABLE>
<CAPTION>
1996 1995 1994
------ ------ -----
<S> <C> <C> <C>
Net income (loss) applicable to share $ 9,436 $(13,756) $ 1,962(A)
======= ======== =======
Primary:
Weighted average common shares
outstanding for the period 24,030 23,999 23,999
Dilutive stock options - based on
the treasury stock method using average
market price 183 -- 12
------- -------- -------
Totals 24,213 23,999 24,011
======= ======== =======
Fully diluted:
Weighted average common shares
outstanding for the period 24,030 23,999 23,999
Dilutive stock options - based on the treasury stock method
using the year-end market price if higher than the
average market price 242 -- 12
------- ------- -------
Totals 24,272 23,999 24,011
======= ======= =======
Earnings (loss) per common and common equivalent share:
Primary $ .39 $ (.57) $ .08
Fully diluted (B) $ .39 $ (.57) $ .08
</TABLE>
(A) Amount has been restated to reflect a change in the valuation method of
accounting for inventory from the LIFO method to the FIFO method.
(B) This calculation is submitted in accordance with Regulations S-K Item
601(b)(11) although not required for statement of income presentation
because it results in dilution of less than 3 percent.
<PAGE> 1
Exhibit 21
- - ----------
<TABLE>
SUBSIDIARIES
<CAPTION>
Jurisdiction of
Name Incorporation
- - ------------------------------------ -------------------------
<S> <C>
Dirt Devil, Inc. (1) Ohio
Royal Appliance Receivable, Inc. (1) Ohio
Royal Appliance FSC Inc. (1) U.S.V.I.
Royal Appliance International Co. (1) Delaware
Dirt Devil, Ltd. (2) United Kingdom
</TABLE>
- - ---------------
(1) Company is a wholly-owned subsidiary of the Registrant.
(2) Company is a wholly-owned subsidiary of Royal Appliance International Co.
<PAGE> 1
Exhibit 23
- - ----------
CONSENT OF INDEPENDENT ACCOUNTANTS
We consent to the incorporation by reference in the registration statement of
Royal Appliance Mfg. Co. on Form S-8 (File No. 33-44802) of our report dated
February 11, 1997, on our audits of the consolidated financial statements and
financial statement schedule of Royal Appliance Mfg. Co. and Subsidiaries as of
December 31, 1996 and 1995, and for the years ended December 31, 1996, 1995 and
1994, which report is included in this Annual Report on Form 10- K.
Coopers & Lybrand L.L.P.
Cleveland, Ohio
March 25, 1997
<PAGE> 1
EXHIBIT 24
POWER OF ATTORNEY
-----------------
ROYAL APPLIANCE MFG. CO.
------------------------
KNOW ALL MEN BY THESE PRESENTS; that Royal Appliance Mfg. Co. and each
person whose name is signed below hereby constitute and appoint Michael J.
Merriman and Richard G. Vasek, or both of them, their attorney-in-fact and
agent, with full power of substitution and resubstitution, for and on behalf of
Royal Appliance Mfg. Co. and the undersigned Directors and officers of Royal
Appliance Mfg. Co., to sign Royal Appliance Mfg. Co.'s Annual Report on Form
10-K, any or all amendments thereto, and to file the same, with exhibits thereto
and other documents in connection therewith, with the Securities and Exchange
Commission, granting such attorney-in-fact and agent full power and authority to
do and perform each and every act and thing requisite and necessary in
connection with such matters and hereby ratifying and confirming all that such
attorney-in-fact and agent or his substitute or substitutes may do or cause to
be done by virtue hereof.
This Power of Attorney of Royal Appliance Mfg. Co. and the Directors and
officers of Royal Appliance Mfg. Co. may be executed in multiple counterparts,
each of which shall be deemed an original with respect to the person executing
it.
IN WITNESS WHEREOF, this Power of Attorney has been signed at Cleveland,
Ohio this 14th day of March, 1997.
ROYAL APPLIANCE MFG. CO.
By: /s/ Richard G. Vasek
----------------------------------------
Richard G. Vasek, Controller, Secretary
and Chief Accounting Officer
DIRECTORS
/s/ Jack Kahl Jr. /s/ Michael J. Merriman
- - ------------------------------------ ---------------------------------
Jack Kahl Jr. Michael J. Merriman
/s/ E. Patrict Nalley /s/ Joseph B. Richey, II
- - ------------------------------------ ---------------------------------
E. Patrick Nalley Joseph B. Richey, II
/s/ John P. Rochon /s/ R. Louis Schneeberger
- - ------------------------------------ ---------------------------------
John P. Rochon R. Louis Schneeberger
<TABLE> <S> <C>
<ARTICLE> 5
<LEGEND>
THIS SCHEDULE CONTAINS SUMMARY FINANCIAL INFORMATION EXTRACTED FROM THE
REGISTRANT'S FORM 10K FOR THE YEAR ENDED DECEMBER 31, 1996 AND IS QUALIFIED IN
ITS ENTIRETY BY REFERENCE TO SUCH FINANCIAL STATEMENTS.
</LEGEND>
<CIK> 0000085462
<NAME> ROYAL APPLIANCE MFG. CO.
<MULTIPLIER> 1,000
<S> <C>
<PERIOD-TYPE> YEAR
<FISCAL-YEAR-END> DEC-31-1996
<PERIOD-START> JAN-01-1996
<PERIOD-END> DEC-31-1996
<CASH> 1,001
<SECURITIES> 0
<RECEIVABLES> 39,761
<ALLOWANCES> 0
<INVENTORY> 34,052
<CURRENT-ASSETS> 83,802
<PP&E> 72,937
<DEPRECIATION> 35,654
<TOTAL-ASSETS> 126,141
<CURRENT-LIABILITIES> 54,164
<BONDS> 15,743
<COMMON> 210
0
0
<OTHER-SE> 56,024
<TOTAL-LIABILITY-AND-EQUITY> 126,141
<SALES> 286,123
<TOTAL-REVENUES> 286,123
<CGS> 204,000
<TOTAL-COSTS> 204,000
<OTHER-EXPENSES> 0
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 2,559
<INCOME-PRETAX> 15,346
<INCOME-TAX> 5,910
<INCOME-CONTINUING> 9,436
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 9,436
<EPS-PRIMARY> .39
<EPS-DILUTED> .39
</TABLE>
<PAGE> 1
Exhibit 99.1
EXHIBIT 99.1 TO
FORM 10-K
FORM 11-K
ANNUAL REPORT
Pursuant to Section 15(d) of the
Securities Exchange Act of 1934
For the Fiscal Years Ended December 31, 1995 and 1996
ROYAL APPLIANCE MFG. CO.
EMPLOYEES PROFIT SHARING RETIREMENT PLAN AND TRUST
--------------------------------------------------
(Full title of the plan)
ROYAL APPLIANCE MFG. CO.
------------------------
(Name of issuer of the securities held pursuant to the plan)
650 ALPHA DRIVE, CLEVELAND, OHIO 44143
--------------------------------------
(Address of principal executive office)
<PAGE> 2
INDEX OF FINANCIAL STATEMENTS
-------------------------
PAGES
-----
Report of Independent Accountants 2
Financial Statements:
Statement of Net Assets Available for Plan
Benefits at December 31, 1995 3
Statement of Net Assets Available for Plan
Benefits at December 31, 1996 4
Statement of Changes in Net Assets Available for
Plan Benefits for the year ended December 31, 1995 5
Statement of Changes in Net Assets Available for
Plan Benefits for the year ended December 31, 1996 6
Notes to Financial Statements 7-9
Supplemental Schedule:
Schedule of Reportable Transactions for the
years ended December 31, 1995 and 1996 10
1
<PAGE> 3
REPORT OF INDEPENDENT ACCOUNTANTS
-------------------------
To the Trustees of the
Royal Appliance Mfg. Co. Employees
Profit Sharing Retirement Plan and Trust
We have audited the accompanying statements of net assets available for plan
benefits of the Royal Appliance Mfg. Co. Employees Profit Sharing Retirement
Plan and Trust (the Plan) as of December 31, 1995 and 1996 and the related
statements of changes in net assets available for plan benefits for the years
then ended. These financial statements are the responsibility of the Plan's
management. Our responsibility is to express an opinion on these financial
statements 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, the financial statements referred to above present fairly, in
all material respects, the net assets available for benefits of the Plan as of
December 31, 1995 and 1996 and the changes in net assets available for Plan
benefits for the years then ended in conformity with generally accepted
accounting principles.
Our audits were made for the purpose of forming an opinion on the basic
financial statements taken as a whole. The supplemental schedule of reportable
transactions for the years ended December 31, 1995 and 1996 is presented for the
purpose of additional analysis and is not a required part of the basic financial
statements but is supplementary information required by the Department of
Labor's Rules and Regulations for Reporting and Disclosure under the Employee
Retirement Income Security Act of 1974. The Fund Information in the statement of
net assets available for plan benefits and the statement of changes in net
assets available for plan benefits is presented for purposes of additional
analysis rather than to present the net assets available for plan benefits and
changes in net assets available for plan benefits of each fund. The supplemental
schedule and Fund Information have been subjected to the auditing procedures
applied in the audits of the basic financial statements and, in our opinion, is
fairly stated in all material respects in relation to the basic financial
statements taken as a whole.
Coopers & Lybrand L.L.P.
Cleveland, Ohio
March 25, 1997
2
<PAGE> 4
ROYAL APPLIANCE MFG. CO.
EMPLOYEES PROFIT SHARING RETIREMENT PLAN AND TRUST
STATEMENT OF NET ASSETS AVAILABLE FOR PLAN BENEFITS
AT DECEMBER 31, 1995
-----------------
<TABLE>
<CAPTION>
National Institutional Strong Vanguard Kaufmann Dodge & Davis
City Investors' Government Fidelity 500 Agressive Scudder Cox New York Templeton
Cash GIC Securities Puritan Portfolio Growth Global Balanced Venture Foreign
Assets Account Fund Fund Fund Fund Fund Fund Fund Fund Fund
------- ---- ---- ---- ---- ---- ---- ---- ---- ----
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C>
Investments $103,627 $1,868,941 $526,296 $968,232 $627,088 $1,445,854 $538,856 $123,278 $915,688 $ --
Contributions receivable -- 92,394 19,154 30,538 31,865 73,579 -- 14,532 47,596 22,828
Loans to participants (58,877) -- -- -- -- -- -- -- -- --
-------- ---------- -------- -------- -------- ---------- -------- -------- -------- -------
Total assets $ 44,750 $1,961,335 $545,450 $998,770 $658,953 $1,519,433 $538,856 $137,810 $963,284 $22,828
======== ========== ======== ======== ======== ========== ======== ======== ======== =======
NET ASSETS AVAILABLE
FOR PLAN BENEFITS
Net Assets Available $ 44,750 $1,961,335 $545,450 $998,770 $658,953 $1,519,433 $538,856 $137,810 $963,284 $22,828
For Plan Benefits ======== ========== ======== ======== ======== ========== ======== ======== ======== =======
<CAPTION>
Royal
Stock Loan
Assets Fund Account Total
---- ------- -----
<S> <C> <C> <C>
Investments $388,266 $35,787 $7,541,913
Contributions receivable 25,186 -- 357,672
Loans to participants -- 58,877 --
-------- ------- ----------
Total assets $413,452 $94,664 $7,899,585
======== ======= ==========
NET ASSETS AVAILABLE
FOR PLAN BENEFITS
Net Assets Available $413,452 $94,664 $7,899,585
For Plan Benefits ======== ======= ==========
</TABLE>
The accompanying notes are an integral part of these financial statements.
3
<PAGE> 5
ROYAL APPLIANCE MFG. CO.
EMPLOYEES PROFIT SHARING RETIREMENT PLAN AND TRUST
STATEMENT OF NET ASSETS AVAILABLE FOR PLAN BENEFITS
AT DECEMBER 31, 1996
---------------
<TABLE>
<CAPTION>
National Institutional Strong Vanguard Kaufmann
City Investors' Government Fidelity 500 Aggressive Scudder
Cash GIC Securities Puritan Portfolio Growth Global
ASSETS Account Fund Fund Fund Fund Fund Fund
------- ---- ---- ---- ---- ---- ----
<S> <C> <C> <C> <C> <C> <C> <C>
Investments $ 186,992 $ 1,713,117 $ 499,147 $ 1,006,468 $ 106,314 $ -- $ --
Contributions receivable -- 77,893 16,205 27,089 43,602 --
---------------------------------------------------------------------------------------------
Total assets $ 186,992 $ 1,791,010 $ 515,352 $ 1,033,557 $ 1,106,746 $ -- $ --
=========== =========== =========== =========== =========== ===== ========
NET ASSETS AVAILABLE
FOR PLAN BENEFITS
Net Assets Available $ 186,992 $ 1,791,010 $ 515,352 $ 1,033,557 $ 1,106,746 $ -- $ --
For Plan Benefits =========== =========== =========== =========== =========== ====== ========
<CAPTION>
Dodge & Davis
Cox New York Templeton Parkstone Royal
Balanced Venture Foreign Small Stock Loan
ASSETS Fund Fund Fund Capitalization Fund Account Total
---- ---- ---- -------------- ---- ------- -----
<S> <C> <C> <C> <C> <C> <C> <C>
Investments $ 315,105 $ 1,305,178 $ 623,844 $ 1,973,851 $ 1,134,642 $ 551,019 $10,372,507
Contributions receivable 18,299 52,524 23,197 84,560 26,969 -- 370,338
-----------------------------------------------------------------------------------------------------
Total assets $ 333,404 $ 1,357,702 $ 647,041 $ 2,058,411 $ 1,161,611 $ 551,019 $10,742,845
=========== =========== =========== =========== =========== =========== ===========
NET ASSETS AVAILABLE
FOR PLAN BENEFITS
Net Assets Available $ 333,404 $ 1,357,702 $ 647,041 $ 2,058,411 $ 1,161,611 $ 551,019 $10,742,845
For Plan Benefits =========== =========== =========== =========== =========== =========== ===========
</TABLE>
The accompanying notes are an integral part of these financial statements.
4
<PAGE> 6
ROYAL APPLIANCE MFG. CO.
EMPLOYEES PROFIT SHARING RETIREMENT PLAN AND TRUST
STATEMENT OF CHANGES IN NET ASSETS AVAILABLE FOR PLAN BENEFITS
FOR THE YEAR ENDED DECEMBER 31, 1995
<TABLE>
<CAPTION>
National Institutional Strong Vanguard Kaufmann
City Investors' Government Fidelity 500 Gabelli Aggressive
Cash GIC Securities Puritan Portfolio Growth Growth
Account Fund Fund Fund Fund Fund Fund
------- ---- ---- ---- ---- ---- ----
<S> <C> <C> <C> <C> <C> <C> <C>
Additions:
Contributions and Contributions Receivable:
Company contributions $ -- $ 163,144 $ 40,565 $ 78,586 $ 65,306 $ -- $ 165,746
Employee pre-tax contributions (59,345) 173,553 51,006 145,865 108,956 5,770 245,532
Participant's voluntary after-tax contributions (557) 1,999 373 249 460 43 710
Investment Income:
Interest 2,743 699 238 346 379 395 639
Dividend -- -- 30,741 50,138 13,293 -- 26,621
Net appreciation/(depreciation) in fair
market value -- 117,061 56,875 114,910 129,627 22,452 342,306
Loans to participants, net 44,842 (14,872) (3,939) (9,972) (3,097) (220) (5,690)
Transfers between funds, net (14,911) 26,612 (83,385) (39,288) 49,858 (480,408) (4,271)
-------- ---------- --------- -------- -------- --------- ----------
Total additions (27,228) 468,196 92,474 340,834 364,782 (451,968) 771,593
Deductions:
Benefits paid to participants 36,016 333,894 27,439 58,848 40,483 4,667 115,426
Miscellaneous fees -- 62 21 31 35 2 106
-------- ---------- --------- -------- -------- --------- ----------
Net additions (63,244) 134,240 65,014 281,955 324,264 (456,637) 656,061
Net Assets Available for Plan Benefits,
Beginning of Year 107,994 1,827,095 480,436 716,815 334,689 456,637 863,372
-------- ---------- --------- -------- -------- --------- ----------
Net Assets Available for Plan Benefits,
End of Year $ 44,750 $1,961,335 $ 545,450 $998,770 $658,953 $ -- $1,519,433
======== ========== ========= ======== ======== ========= ==========
<CAPTION>
Dodge & Davis
Scudder Cox New York Templeton Royal
Global Balanced Venture Foreign Stock Loan
Fund Fund Fund Fund Fund Account Total
---- ---- ---- ---- ---- ------- -----
<S> <C> <C> <C> <C> <C> <C> <C>
Additions:
Contributions and Contributions Receivable:
Company contributions $ 39,075 $ 29,073 $ 99,434 $17,554 $ 57,425 $ -- $ 755,908
Employee pre-tax contributions 82,067 42,235 131,646 5,274 94,766 -- 1,027,325
Participant's voluntary after-tax contributions 175 -- 1,070 -- 1,577 -- 6,099
Investment Income:
Interest 255 253 777 -- 381 5,642 12,747
Dividend 11,548 5,026 62,466 -- -- -- 199,833
Net appreciation/(depreciation) in fair
market value 69,458 7,255 162,229 -- (152,101) -- 870,072
Loans to participants, net (2,769) (1,173) (2,305) -- (805) 38,122 38,122
Transfers between funds, net (23,213) 51,511 517,730 -- (235) -- --
-------- -------- -------- ------- --------- ------- ----------
Total additions 176,596 134,180 973,047 22,828 1,008 43,764 2,910,106
Deductions:
Benefits paid to participants 34,435 3,199 37,323 -- 26,818 -- 718,548
Miscellaneous fees 23 21 65 -- 35 -- 401
-------- -------- -------- ------- --------- ------- ----------
Net additions 142,138 130,960 935,659 22,828 (25,845) 43,764 2,191,157
Net Assets Available for Plan Benefits,
Beginning of Year 396,718 6,850 27,625 -- 439,297 50,900 5,708,428
-------- -------- -------- ------- --------- ------- ----------
Net Assets Available for Plan Benefits,
End of Year $538,856 $137,810 $963,284 $22,828 $ 413,452 $94,664 $7,899,585
======== ======== ======== ======= ========= ======= ==========
</TABLE>
The accompanying notes are an integral part of these financial statements.
5
<PAGE> 7
ROYAL APPLIANCE MFG. CO.
EMPLOYEES PROFIT SHARING RETIREMENT PLAN AND TRUST
STATEMENT OF CHANGES IN NET ASSETS AVAILABLE FOR PLAN BENEFITS
FOR THE YEAR ENDED DECEMBER 31, 1996
<TABLE>
<CAPTION>
National Institutional Strong Vanguard Kaufmann
City Investors' Government Fidelity 500 Aggressive Scudder
Cash GIC Securities Puritan Portfolio Growth Global
Account Fund Fund Fund Fund Fund Fund
------- ---- ---- ---- ---- ---- ----
<S> <C> <C> <C> <C> <C> <C> <C>
Additions:
Contributions and Contributions Receivable:
Company contributions $(18,958) $ 129,362 $ 35,808 $ 58,895 $ 93,833 $ 137,938 $ --
Employee pre-tax contributions 64,760 105,129 40,137 82,286 130,927 204,978 --
Participant's voluntary after-tax contributions 4,818 105 24 24 -- 68 --
Investment Income:
Interest 1,976 1,570 31,338 112,773 22,096 108 10,035
Dividend -- -- -- -- -- -- --
Net appreciation/(depreciation) in fair
market value -- 105,407 (18,251) 23,837 155,419 338,117 7,293
Loans to participants, net 12,253 (125,898) (33,846) (33,337) (31,349) (53,638) --
Transfers between funds, net 106,618 (193,758) (44,140) (104,150) 120,638 (2,039,285) (556,175)
-------- ---------- -------- ---------- ---------- ----------- ---------
Total additions 171,467 21,917 11,070 140,328 491,564 (1,411,714) (538,847)
Deductions:
Benefits paid to participants 29,225 192,082 41,164 105,535 43,760 107,707 --
Miscellaneous fees -- 160 4 6 11 12 9
-------- ---------- -------- ---------- ---------- ----------- ---------
Net additions 142,242 (170,325) (30,098) 34,787 447,793 (1,519,433) (538,856)
Net Assets Available for Plan Benefits,
Beginning of Year 44,750 1,961,335 545,450 998,770 658,953 1,519,433 538,856
-------- ---------- -------- ---------- ---------- ----------- ---------
Net Assets Available for Plan Benefits,
End of Year $186,992 $1,791,010 $515,352 $1,033,557 $1,106,746 $ -- $ --
======== ========== ======== ========== ========== =========== =========
<CAPTION>
Dodge & Davis
Cox New York Templeton Parkstone Royal
Balanced Venture Foreign Small Stock Loan
Fund Fund Fund Capitalization Fund Account Total
---- ---- ---- -------------- ---- ------- -----
<S> <C> <C> <C> <C> <C> <C> <C>
Additions:
Contributions and Contributions Receivable:
Company contributions $ 41,883 $ 65,767 $ 48,062 $ 115,108 $ 54,659 $ -- $ 762,357
Employee pre-tax contributions 54,304 172,996 75,064 51,551 118,654 -- 1,100,786
Participant's voluntary after-tax contributions -- 2,296 22 -- 2,279 -- 9,636
Investment Income:
Interest 12,700 61,988 26,562 307,471 121 6,400 595,138
Dividend -- -- -- -- -- -- --
Net appreciation/(depreciation) in fair
market value 21,421 202,250 54,222 (361,448) 715,383 -- 1,243,650
Loans to participants, net (11,054) (51,356) (31,046) (33,537) (57,147) 449,955 --
Transfers between funds, net 82,512 64,445 526,013 2,015,421 21,861 -- --
-------- ---------- -------- ---------- ---------- -------- -----------
Total additions 201,766 518,386 698,899 2,094,566 855,810 456,355 3,711,567
Deductions:
Benefits paid to participants 6,166 123,956 74,666 36,123 107,639 -- 868,023
Miscellaneous fees 6 12 20 32 12 -- 284
-------- ---------- -------- ---------- ---------- -------- -----------
Net additions 195,594 394,418 624,213 2,058,411 748,159 456,355 2,843,260
Net Assets Available for Plan Benefits,
Beginning of Year 137,810 963,284 22,828 -- 413,452 94,664 7,899,585
-------- ---------- -------- ---------- ---------- -------- -----------
Net Assets Available for Plan Benefits,
End of Year $333,404 $1,357,702 $647,041 $2,058,411 $1,161,611 $551,019 $10,742,845
======== ========== ======== ========== ========== ======== ===========
</TABLE>
The accompanying notes are an integral part of these financial statements.
6
<PAGE> 8
ROYAL APPLIANCE MFG. CO.
EMPLOYEES PROFIT SHARING RETIREMENT PLAN AND TRUST
NOTES TO FINANCIAL STATEMENTS
-----------------------
1. Plan Description and Benefits:
------------------------------
The following brief description of the Royal Appliance Mfg. Co. Employees
Profit Sharing Retirement Plan and Trust (the "Plan") is provided for
general information purposes only. Participants should refer to the
Summary Plan Description for more complete information.
GENERAL - The Plan is a defined contribution plan covering substantially
all employees of Royal Appliance Mfg. Co. (the "Company"). Employees who
attain age 20-1/2 and complete at least six months of service are
eligible to become participants in the Plan.
On December 27, 1991, the Company filed Form S-8 with the Securities and
Exchange Commission (SEC) allowing participants in the Plan to invest in
Common Shares of the Company. This investment option was available as of
February 1, 1992. As a result, the Plan is now required to comply with
the reporting provisions of the SEC Form 11-K.
CONTRIBUTIONS - Contributions consist of employer matching, employer
profit sharing, salary reduction, voluntary after-tax contributions, and
rollover contributions.
In 1995 and 1996, employer matching contributions were 100% of the salary
reduction contributions that do not exceed 2% of qualified employee
compensation and 50% of the salary reduction contributions greater than
2% but not in excess of 4% of qualified employee compensation. The
employer profit sharing contribution is discretionary based on amounts as
authorized by the Board of Directors. All employer contributions have
been made in the form of cash. Salary reduction contributions may range
from 1% to 15% of qualified compensation subject to annual I.R.S. limits.
Participants may also make voluntary after-tax contributions of up to 10%
of their annual compensation in addition to the contribution through
salary reduction. Rollover contributions are also permitted.
INVESTMENT OF FUNDS - All of the investment transactions are executed by
National City Trust ("National City"), an affiliate of National City
Corporation.
Each participant may elect among the following investment vehicles:
A. INSTITUTIONAL INVESTORS' GIC FUND - Seeks to provide income and
stability of principal by investing in guaranteed investment
contracts (GIC's) or similar instruments issued by insurance
companies and/or banks.
B. STRONG GOVERNMENT SECURITIES FUND - Seeks to provide a high level
of current income by investing in securities issued or guaranteed
by the U.S. government.
C. FIDELITY PURITAN FUND - Seeks to maximize income, with growth of
capital being a secondary objective. Invests in high-yielding
securities, including common stocks, preferred stocks and bonds.
D. VANGUARD 500 PORTFOLIO FUND - Seeks to return investment results
that correspond to the price and yield performance of the S&P 500
index.
E KAUFMANN AGGRESSIVE GROWTH FUND - Seeks growth of capital by
investing in stocks of small to medium size companies typically
outside of the S&P 500 "universe". This investment option was
discontinued in 1996.
F. SCUDDER GLOBAL FUND - Seeks long term growth of capital by
investing in companies incorporated in the U.S. and foreign
countries. This investment option was discontinued in 1996.
- 7 -
<PAGE> 9
ROYAL APPLIANCE MFG. CO.
EMPLOYEES PROFIT SHARING RETIREMENT PLAN AND TRUST
NOTES TO FINANCIAL STATEMENTS
------------------
1. Plan Description and Benefits (cont.):
--------------------------------------
G. DODGE & COX BALANCED FUND - seeks income, conservation of
principal, and long-term growth of principal and income.
H. DAVIS NEW YORK VENTURE FUND - seeks long term capital growth by
investing in securities that have above average appreciation
potential.
I. TEMPLETON FOREIGN FUND - seeks long term growth of capital by
investing in companies generally located in foreign countries.
J. PARKSTONE SMALL CAPITALIZATION FUND - seeks growth of capital by
investing in stocks of small to medium size companies primarily in
the United States.
K. ROYAL STOCK FUND - This fund is comprised exclusively of Common
Shares, without par value of the Company (Common Shares). Each
participant electing to purchase Common Shares through the Stock
Fund is permitted to vote such Common Shares in the same manner as
any other shareholder and is furnished proxy materials to such
effect. If a participant does not vote their proxy, the Trustee
votes the proxy for the participant's Common Shares. Investments in
the Stock Fund may be made as of January 1, April 1, July 1, or
October 1 investment dates, but may not, for administrative
reasons, be effected until up to 12 days (or such later date as is
legally or administratively required) after the relevant quarterly
investment date. Common Shares purchased under the Account are
generally purchased on the open market for cash. The price of
Common Shares purchased on the open market is priced for each
participant's account at an average purchase price of all shares
purchased, plus brokerage fees, taxes, commissions and expenses
incident to the purchase, unless it is determined that the Company
will bear these costs. No more than 50% of a participant's
contributions may be invested in the Stock Fund.
Participants can allocate their contribution between the Funds in various
percentages, which can be changed on a quarterly basis throughout the
year.
The number of participants in each investment program as of December 31,
1996 was as follows:
<TABLE>
<CAPTION>
No. of
Participants
------------
<S> <C>
Institutional Investors' GIC Fund 367
Strong Government Securities Fund 201
Fidelity Puritan Fund 253
Vanguard 500 Portfolio Fund 283
Dodge & Cox Balanced Fund 163
Davis New York Venture Fund 344
Templeton Foreign Fund 212
Parkstone Small Capitalization Fund 423
Royal Stock Fund 266
</TABLE>
VESTING - All contributions are 100% vested and non-forfeitable.
- 8 -
<PAGE> 10
ROYAL APPLIANCE MFG. CO.
EMPLOYEES PROFIT SHARING RETIREMENT PLAN AND TRUST
NOTES TO FINANCIAL STATEMENTS
----------------
1. Plan Description and Benefits (cont.):
--------------------------------------
DISTRIBUTION AND WITHDRAWALS - Loans and hardship withdrawals are
permitted pursuant to the terms of the Plan. In addition, participants
may make hardship withdrawals from the voluntary after-tax contribution
account by filing a written request at least thirty (30) days in advance.
Participants and their beneficiaries are entitled to receive a
distribution of their account balances upon death, disability,
termination of employment prior to retirement, or retirement.
Distribution may be made in a lump sum or periodic payments, as may be
elected by the participants or their beneficiaries, subject to the terms
of the Plan.
APPRECIATION (DEPRECIATION) IN FAIR MARKET VALUE OF ASSETS - The Plan
presents, in the Statements of Changes in Net Assets Available for Plan
Benefits, the net appreciation (depreciation) in the fair market value of
its investments, which consist of realized gains or losses and unrealized
appreciation (depreciation).
EXPENSES - Administrative fees, brokerage fees and other Plan expenses
are the responsibility of the Plan. The Company, at its discretion has
elected to pay these costs directly.
2. Summary of Significant Accounting Policies:
-------------------------------------------
BASIS OF PRESENTATION - The accompanying financial statements have been
prepared on an accrual basis in accordance with generally accepted
accounting principles.
INVESTMENTS - Certain assets of the Plan are maintained in Guaranteed
Investment Contracts (the Institutional Investors' GIC Fund) and
Investment Funds (Strong Government Securities Fund, Fidelity Puritan
Fund, Vanguard 500 Portfolio Fund, Kaufmann Aggressive Growth Fund,
Scudder Global Fund, Dodge & Cox Balanced Fund, Davis New York Venture
Fund, Templeton Foreign Fund, and Parkstone Small Capitalization Fund)
and common shares of the Company. Contributions by the Company and
employees are first made to National City via the cash account facility.
Contributions and income from investments of each fund are reinvested in
the same fund.
Investments in Guaranteed Investment Contracts are recorded at the
guaranteed value (contribution and interest) of the Plan assets.
Other investments are valued at fair market value by National City using
readily available published market values.
USE OF ESTIMATES - The preparation of financial statements in conformity
with generally accepted accounting principles requires management to make
estimates and assumptions that affect the reported amounts of net assets
available for plan benefits and changes, therein. Actual results could
differ from those estimates.
3. Income Tax Status:
------------------
The Internal Revenue Service (IRS) has issued a favorable determination
letter dated June 20, 1995, with respect to the Plan's qualified status,
as amended, under Section 401(a) of the Internal Revenue Code (Code). As
such, the trust established thereunder is exempt from Federal income
taxes under Section 501(a) of the Code. All withdrawals are taxable to
the participants of the Plan.
4. Right to Terminate:
-------------------
Although it has not expressed any interest to do so, the Company has the
right to terminate the Plan at any time.
- 9 -
<PAGE> 11
ROYAL APPLIANCE MFG. CO.
EMPLOYEES PROFIT SHARING RETIREMENT PLAN AND TRUST
ITEM 30(d) - SCHEDULE OF TRANSACTIONS OR SERIES OF TRANSACTIONS
IN EXCESS OF 5% OF THE CURRENT VALUE OF PLAN ASSETS
FOR THE YEARS ENDED DECEMBER 31, 1995 AND 1996
<TABLE>
<CAPTION>
Realized
Number Purchase Selling Cost of Current Gain (Loss)
Identity of Party Involved Description of Asset of Shares Price Price Asset Value of Asset on Sale
- - -------------------------- -------------------- --------- ----- ----- ----- -------------- -------
<S> <C> <C> <C> <C> <C> <C> <C> <C>
1995
National City Royal Appliance Mfg. Co.
Common Stock
Purchases 37,861 $ 128,427 $ -- $ 128,427 $ 94,202 $ --
1996
National City Royal Appliance Mfg. Co.
Common Stock
Purchases 41,734 $ 208,123 $ -- $ 208,123 $ 286,921 $ --
Sales 31,461 $ -- $ 175,447 $ 188,034 $ -- $(12,587)
</TABLE>
- 10 -
<PAGE> 1
EXHIBIT 99.2
CONSENT OF INDEPENDENT ACCOUNTANTS
We consent to the incorporation by reference in the registration statement of
Royal Appliance Mfg. Co. Employee's Profit Sharing Retirement Plan and Trust on
Form S-8 (File No. 33-44802) of our report dated March 25, 1997, on our audits
of the financial statements of Royal Appliance Mfg. Co. Employee's Profit
Sharing Retirement Plan and Trust as of December 31, 1995 and 1996, and for the
years ended December 31, 1995 and 1996, which report is included in this Annual
Report on Form 10-K.
Coopers & Lybrand L.L.P.
Cleveland, Ohio
March 25, 1997
