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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, 1999 and 1998
ROYAL APPLIANCE 401(k) RETIREMENT SAVINGS PLAN
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(Full title of the plan)
ROYAL APPLIANCE MFG. CO.
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(Name of issuer of the securities held pursuant to the plan)
650 ALPHA DRIVE, CLEVELAND, OHIO 44143
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(Address of principal executive office)
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INDEX OF FINANCIAL STATEMENTS
PAGES
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Report of Independent Accountants 2
Financial Statements:
Statements of Net Assets Available for Plan
Benefits at December 31, 1999 and 1998 3
Statements of Changes in Net Assets Available for
Plan Benefits for the years ended December 31, 1999 and 1998 4
Notes to Financial Statements 5-8
Supplemental Schedules:
Schedule of Assets Held for Investment Purposes
as of December 31, 1999 9
Schedule of Reportable Transactions for the year
ended December 31, 1999 10
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REPORT OF INDEPENDENT ACCOUNTANTS
To the Trustees of the
Royal Appliance 401(k) Retirement Savings Plan
In our opinion, the accompanying statements of net assets available for plan
benefits and the related statements of changes in net assets available for plan
benefits present fairly, in all material respects, the net assets available for
benefits of Royal Appliance 401(k) Retirement Savings Plan (the "Plan") at
December 31, 1999 and the 1998, and the changes in net assets available for plan
benefits for the years ended December 31, 1999 and 1998 in conformity with
generally accepted accounting principles. 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 of these statements in accordance with generally accepted auditing
standards which 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, assessing the
accounting principles used and significant estimates made by management, and
evaluating the overall financial statement presentation. We believe that our
audits provide a reasonable basis for the opinion expressed above.
Our audits were conducted for the purpose of forming an opinion on the basic
financial statements taken as a whole. The supplemental schedules of assets held
for investment purposes as of December 31, 1999, and reportable transactions for
the year ended December 31, 1999, are presented for the purpose of additional
analysis and are not a required part of the basic financial statements but are
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. These supplemental schedules are the responsibility of the
Plan's management. The supplemental schedules have been subjected to the
auditing procedures applied in the audits of the basic financial statements and,
in our opinion, are fairly stated in all material respects in relation to the
basic financial statements taken as a whole.
PricewaterhouseCoopers LLP
Cleveland, Ohio
March 11, 2000
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ROYAL APPLIANCE 401(k) RETIREMENT SAVINGS PLAN
STATEMENTS OF NET ASSETS AVAILABLE FOR PLAN BENEFITS
DECEMBER 31,
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1999 1998
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ASSETS
Investments:
Invested Assets $18,155,777 $13,690,666
Amounts Due to Plan From Participants 794,202 769,866
Cash & Cash Equivalents 5,113 31,047
Due from Broker - 182,339
Accrued Income - 22,565
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Subtotal 18,955,092 14,696,483
Loan Payment Receivable - 21,362
Contributions Receivable 267,500 394,878
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Total Assets 19,222,592 15,112,723
LIABILITIES
Other Liabilities - 95,714
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Total Liabilities - 95,714
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Net Assets Available For Plan Benefits $19,222,592 $ 15,017,009
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The accompanying notes are an integral part of these financial statements
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ROYAL APPLIANCE 401(k) RETIREMENT SAVINGS PLAN
STATEMENTS OF CHANGES IN NET ASSETS AVAILABLE FOR PLAN BENEFITS
For Year Ended December 31,
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1999 1998
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Additions:
Contributions and Contributions Receivable:
Company Contributions $ 905,824 $ 796,324
Employee Pre-tax Contributions 1,188,307 1,180,435
Participants' Voluntary After-tax Contributions 3,759 3,367
Transfer From Other Plan 211,939 202,256
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Total Contributions 2,309,829 2,182,382
Miscellaneous Income 4,724 9,941
Investment Income:
Interest and Dividends 205,994 541,030
Net Appreciation in Fair Market Value 3,064,759 635,704
Loans to Participants, Net (6,280) (119,862)
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Total Additions 5,579,026 3,249,195
Deductions:
Benefits Paid to Participants 1,372,249 1,068,767
Miscellaneous Fees 1,194 849
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Net Additions 4,205,583 2,179,579
Net Assets Available for Plan Benefits, Beginning of Year 15,017,009 12,837,430
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Net Assets Available for Plan Benefits, End of Year $19,222,592 $15,017,009
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The accompanying notes are an integral part of these financial statements
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ROYAL APPLIANCE 401(k) RETIREMENT SAVINGS PLAN
NOTES TO FINANCIAL STATEMENTS
1. Plan Description and Benefits:
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The following brief description of the Royal Appliance 401(k) Retirement
Savings Plan (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 18 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.
Effective January 1, 1999, the Company amended the Plan to adopt the safe
harbor match contribution formula. During 1999, employer matching
contributions are 100% of the first 3% of salary reduction contributions
and 50% of the next 2% of salary reduction contributions.
In 1998, employer matching contributions were 100% of the first 2% of
salary reduction contributions and 50% of the next 4% of salary reduction
contributions. 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 - Effective September 1, 1999, Delaware Management
Trust Company ("Delaware"), an affiliate of Lincoln National Corporation,
became the trustee and recordkeeper of the Plan. Prior to September 1,
1999, all investment transactions were 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' STABLE ASSET 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 INDEX FUND - seeks to return investment results
that correspond to the price and yield performance of the S&P 500
index.
E. TEMPLETON INSTITUTIONAL FOREIGN EQUITY MUTUAL FUND - seeks long term
growth of capital by investing in companies generally located in
foreign countries. In 1997, this fund changed investments from the
Templeton Foreign Mutual Fund to the Templeton Institutional Foreign
Equity Mutual Fund.
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ROYAL APPLIANCE 401(k) RETIREMENT SAVINGS PLAN
NOTES TO FINANCIAL STATEMENTS
F. DODGE & COX BALANCED FUND - seeks income, conservation of principal, and
long-term growth of principal and income by investing in equity securities
and bonds. This investment option was discontinued effective
September 1, 1999.
G. DAVIS NEW YORK VENTURE FUND - seeks long term capital growth by
investing in securities that have above average appreciation potential.
This investment option was discontinued effective September 1, 1999.
H. PARKSTONE SMALL CAPITALIZATION FUND - seeks growth of capital by
investing in stocks of small to medium size companies primarily in the
United States. This investment option was discontinued in 1998.
I. BLACKROCK SMALL CAPITALIZATION GROWTH FUND - seeks long-term capital
growth by investing in stocks of small companies with earnings growth
momentum and relative price strength.
J. MAS SMALL CAPITALIZATION VALUE PORTFOLIO - seeks long-term capital
growth by investing in stocks of small companies with stocks selling at
discounted price/earnings valuations.
K. DELAWARE PRESERVATION ACCOUNT - seeks to provide a high degree of
safety, stable principal value and consistent and positive returns.
L. DELAWARE GROWTH AND INCOME FUND - seeks total return by providing
capital appreciation potential plus dividend income. Invests in common
stocks that have a better yield than the average dividend yield of the
S & P 500 Index.
M. DELAWARE DEVON FUND - seeks stocks in "transition" from value to growth
and/or mid-cap to large-cap. Identifies stocks with the potential for above
average dividend growth.
N. DELAWARE SELECT GROWTH FUND - seeks securities with high, consistent and
accelerating earnings. Targets companies with earnings growth rates of 20%
or more with capitalization of at least $300 million.
O. 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. 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 Royal Stock
Fund.
Participants can allocate their contribution between the Funds in various
percentages, which can be changed on a daily basis throughout the year.
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ROYAL APPLIANCE 401(k) RETIREMENT SAVINGS PLAN
NOTES TO FINANCIAL STATEMENTS
VESTING - All contributions are 100% vested and non-forfeitable.
DISTRIBUTIONS 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. Distributions 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.
NET 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. Total realized gains (losses) for 1999 and 1998 were
$1,864,920 and ($125,472), respectively, and the unrealized appreciation
was $1,199,839 and $761,176 for 1999 and 1998, respectively.
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:
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BASIS OF PRESENTATION - The accompanying financial statements have been
prepared on an accrual basis in accordance with generally accepted
accounting principles.
INVESTMENTS - Certain plan assets were maintained in Guaranteed Investment
Contracts and Investment Funds and common shares of the Company. The
investment funds included Strong Government Fund, Fidelity Puritan Fund,
Vanguard 500 Index Fund, Templeton Institutional Foreign Equity Mutual
Fund, Blackrock Small Capitalization Growth Fund, MAS Small Capitalization
Value Portfolio, Dodge & Cox Balanced Fund, Davis New York Venture Fund and
Parkstone Small Capitalization Fund. Effective September 1999, the
Guranteed Investment Contracts were no longer available. In addition, the
Delaware Growth and Income Fund, Delaware Devon Fund, Delaware Select
Growth Fund and the Delaware Preservation were included in the investment
funds and the Dodge & Cox Balanced Fund and Davis New York Venture Fund
were discontinued. All other funds were maintained by the Plan.
Contributions and income from investments of each fund are reinvested in
the same fund.
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ROYAL APPLIANCE 401(k) RETIREMENT SAVINGS PLAN
NOTES TO FINANCIAL STATEMENTS
Investments in Guaranteed Investment Contracts for the prior year were
recorded at the guaranteed value (contribution and interest) of the Plan
assets.
Other investments are valued at fair market value by National City until
August 31, 1999, and Delaware as of December 31, 1999, using readily
available published market values.
The following presents the market value of investments that represent
5 percent or more of the Plan's net assets.
DECEMBER 31,
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1999 1998
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Fidelity Purtian Fund, 127,549 and
78,045 shares, respectively $2,427,266 $1,566,360
Vanguard 500 Index Fund, 25,915
and 24,117 shares, respectively 3,507,075 2,748,110
Templeton Institutional Foreign Equity Mutual Fund, 74,350
and 56,550 shares, respectively 1,600,751 1,004,334
Blackrock Small Capitalization Growth Fund
108,807 and 83,352 shares, respectively 3,564,524 1,832,076
Delaware Devon Fund, 118,765 as of
12/31/99 2,344,424 -
Delaware Preservation Fund, 145,422
as of 12/31/99 2,091,024 -
USE OF ESTIMATES - The preparation of financial statements in conformity
with generally accepted accounting principles generally accepted in the
United States 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.
RISKS AND UNCERTAINTIES - The Plan provides for various investment options
in any combination of Guaranteed Investment Contracts, Investment Funds and
common shares of the Company. Investments are exposed to various risks,
such as interest rate, market and credit. Due to the level of risk
associated with certain investments, it is at least reasonably possible
that changes in risks in the near term could materially affect
participants' account balances and the amounts reported in the statements
of net assets available for plan benefits and the statements of changes in
net assets available for plan benefits.
3. Income Tax Status:
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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, with the exception of after
tax employee contributions, are taxable to the participants of the Plan.
4. Right to Terminate:
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Although it has not expressed any interest to do so, the Company has the
right to terminate the Plan at any time.
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ROYAL APPLIANCE 401(k) RETIREMENT SAVINGS PLAN
ITEM 27 (A) - SCHEDULE OF ASSETS HELD FOR INVESTMENT PURPOSES
AS OF DECEMBER 31, 1999
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Description of investment including
maturity date, rate of interest, collateral,
Identity of issue, borrower, lessor, or similar party par or maturity value Cost Market Value
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Strong Government Securities Fund Mutual Fund $658,963 $650,643
Fidelity Puritan Fund Mutual Fund 2,525,276 2,427,266
Vanguard 500 Index Fund Mutual Fund 3,176,423 3,507,075
Templeton Institutional Foreign Equity Mutual Fund Mutual Fund 1,465,771 1,600,750
Blackrock Small Capitalization Growth Fund Mutual Fund 2,730,714 3,564,524
MAS Small Capitalization Value Portfolio Mutual Fund 369,287 396,070
Royal Stock Fund Common Stock 1,030,640 895,819
Royal Cash Fund Mutual Fund 5,113 5,113
Delaware Devon Fund Mutual Fund 2,392,891 2,344,424
Delaware Preservation Account Mutual Fund 2,077,684 2,091,024
Delaware Select Growth Fund Mutual Fund 462,452 593,654
Delaware Growth & Income Fund Mutual Fund 86,774 84,528
Participant Loans Various maturity dates;
interest prime plus
794,202 794,202
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$17,776,190 $18,955,092
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ROYAL APPLIANCE 401(k) RETIREMENT SAVINGS PLAN
ITEM 27 (d) - SCHEDULE OF TRANSACTIONS OR SERIES OF TRANSACTIONS
IN EXCESS OF 5% OF THE CURRENT VALUE OF PLAN ASSETS
FOR THE YEAR ENDED DECEMBER 31, 1999
Purchase Selling Cost of Current Value Realized Gain
Identity of Party Involved Description of Asset Price Price Asset of Asset (Loss) on Sale
- -------------------------- -------------------- --------- -------- -------- ------------- -------------
Delaware Investment Devon Fund $3,150,772 $ - $ - $ - $ -
Institutional Investment Stable Asset Fund - 1,623,054 1,823,054 1,823,054 -
Single Transaction New York Venture Fund - 3,035,464 2,026,586 3,035,459 1,008,873
Single Transaction Dodge & Cox Balanced Fund - 887,073 835,974 887,085 51,111
Series of Transactions Blackrock Small Capitalization
National City Fund
Purchases 173,052 - 173,052 173,052 -
Sales - 149,260 149,260 157,346 8,086
New York Venture Fund
Purchases 292,981 - 292,981 292,981 -
Sales 0 123,941 123,941 184,831 60,890
Dodge & Cox Balanced Fund
Purchases 103,846 - 103,846 103,846 -
Sales - 113,925 113,925 115,168 1,243
Fidelity Puritan Fund
Purchases 174,477 - 174,477 174,477 -
Sales - 112,349 112,349 129,967 17,618
MAS Small Capitalization Fund
Purchases 58,259 - 58,259 58,259 -
Sales - 11,562 11,562 9,992 (1,570)
Government Securities Fund
Purchases 74,072 - 74,072 74,072 -
Sales 0 61,022 61,022 60,357 (665)
Templeton Foreign Institutional
Fund
Purchases 142,774 - 142,774 142,774 -
Sales 0 95,731 95,731 94,672 (1,059)
Vanguard Index Trust 500
Purchases 377,455 - 377,455 377,455 -
Sales 0 175,910 175,910 282,647 106,737
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