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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, 2000 and 1999
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)
7005 COCHRAN ROAD, GLENWILLOW, OHIO 44139
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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, 2000 and 1999 3
Statements of Changes in Net Assets Available for
Plan Benefits for the years ended December 31, 2000 and 1999 4
Notes to Financial Statements 5-9
Supplemental Schedules:
Schedule of Assets Held for Investment Purposes
as of December 31, 2000 10
Schedule of Reportable Transactions for the year
ended December 31, 2000 11
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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
plan benefits of Royal Appliance 401(k) Retirement Savings Plan (the "Plan") at
December 31, 2000 and 1999, and the changes in net assets available for plan
benefits for the years then ended in conformity with accounting principles
generally accepted in the United States of America. 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 auditing standards
generally accepted in the United States of America, 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 our opinion.
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, 2000 and reportable transactions for
the year ended December 31, 2000, 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 12, 2001
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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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2000 1999
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ASSETS
Investments
Invested Assets $17,038,617 $18,155,777
Amounts due to plan from participants 882,555 794,202
Cash & Cash Equivalents 1,032 5,113
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Subtotal 17,922,204 18,955,092
Contributions Receivable 376,515 267,500
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Net Assets Available For Plan Benefits $18,298,719 $19,222,592
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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 YEARS ENDED DECEMBER 31,
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2000 1999
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Additions:
Contributions and Contributions Receivable:
Company Contributions $1,063,022 $905,824
Employee Pre-tax Contributions 1,413,019 1,188,307
Participants' Voluntary After-tax Contributions 3,315 3,759
Transfer From Other Plan 71,522 211,939
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Total Contributions 2,550,878 2,309,829
Miscellaneous Income 9,465 4,724
Investment Income:
Interest and Dividends 251,278 205,994
Net (Depreciation) Appreciation in Fair Market Value (1,540,347) 3,064,759
Loans to Participants, Net - (6,280)
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Total Additions 1,271,274 5,579,026
Deductions:
Benefits Paid to Participants 2,185,812 1,372,249
Miscellaneous Fees 9,335 1,194
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Net (Deductions) Additions (923,873) 4,205,583
Net Assets Available for Plan Benefits, Beginning of Year 19,222,592 15,017,009
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Net Assets Available for Plan Benefits, End of Year $18,298,719 $19,222,592
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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:
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 2000 and 1999, employer matching
contributions are 100% of the first 3% of salary reduction contributions
and 50% of the next 2% 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. This investment option was discontinued effective
November 1999.
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.
The investment option was replaced with the Delaware S&P 500 Index
Fund effective April 2000.
E. TEMPLETON INSTITUTIONAL FOREIGN EQUITY MUTUAL FUND - seeks long term
growth of capital by investing in companies generally located in
foreign countries.
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ROYAL APPLIANCE 401(K) RETIREMENT SAVINGS PLAN
NOTES TO FINANCIAL STATEMENTS
1. PLAN DESCRIPTION AND BENEFITS (CONTINUED):
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 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
1999. However, during January 2001, this investment option was
reinstated.
H. 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.
I. 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.
J. DELAWARE PRESERVATION ACCOUNT - seeks to provide a high degree of
safety, stable principal value and consistent and positive returns.
K. 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.
L. 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. During January 2001, this
investment option was discontinued and the participant funds were
transferred to the Davis New York Venture Fund.
M. 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.
N. DELAWARE S&P 500 INDEX FUND - seeks to return investment results that
correspond to the price and yield performance of the S&P 500 Index.
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
1. PLAN DESCRIPTION AND BENEFITS (Continued):
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 (DEPRECIATION) APPRECIATION IN FAIR MARKET VALUE OF ASSETS - The Plan
presents, in the Statements of Changes in Net Assets Available for Plan
Benefits, the net (depreciation) appreciation in the fair market value of
its investments, which consist of realized gains or losses and unrealized
(depreciation) appreciation. Total realized gains for 2000 and 1999 were
$1,331,442 and $1,864,920, respectively, and the unrealized (depreciation)
appreciation was ($2,871,789) and $1,199,839 for 2000 and 1999,
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:
BASIS OF PRESENTATION - The accompanying financial statements have been
prepared on an accrual basis in accordance with accounting principles
generally accepted in the United States of America.
INVESTMENTS - Certain plan assets were maintained in Guaranteed Investment
Contracts and Investment Funds and common shares of the Company, as
described in Note 1. Contributions and income from investments of each fund
are reinvested in the same fund.
Other investments are valued at fair market value by National City until
August 31, 1999, and by Delaware as of December 31, 2000 and 1999, using
readily available published market values.
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ROYAL APPLIANCE 401(k) RETIREMENT SAVINGS PLAN
NOTES TO FINANCIAL STATEMENTS
2. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (Continued):
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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2000 1999
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Fidelity Purtian Fund, 121,164 and
127,549 shares, respectively $2,281,522 $2,427,266
Templeton Institutional Foreign Equity Mutual Fund, 82,275
and 74,350 shares, respectively 1,394,568 1,600,751
Blackrock Small Capitalization Growth Fund
153,044 and 108,807 shares, respectively 3,083,847 3,564,524
Delaware Devon Fund, 94,061 and
118,765 shares, respectively 1,607,509 2,344,424
Delaware Preservation Fund, 131,228 and
145,422 shares, respectively 1,996,640 2,091,024
Delaware Select Growth Fund, 33,729 and
15,261 shares as of 12/31/00 1,021,988 593,654
Delaware S&P 500 Index Fund, 422,653
shares as of 12/31/00 3,271,334 -
Vanguard 500 Index Fund, 25,915
shares as of 12/31/99 - 3,507,075
USE OF ESTIMATES - The preparation of financial statements in conformity
with accounting principles generally accepted in the United States of
America 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 values of those investments 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.
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ROYAL APPLIANCE 401(k) RETIREMENT SAVINGS PLAN
NOTES TO FINANCIAL STATEMENTS
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, 2000
Description of investment including
Identity of issue, maturity date, rate of interest, collateral,
borrower, lessor, or similar party par or maturity value Cost Market Value
- ----------------------------------------- ---------------------------------------------- ------------- ----------------
Strong Government Securities Fund Mutual Fund $641,616 $672,787
Fidelity Puritan Fund Mutual Fund 2,298,311 2,281,522
Delaware S&P 500 Index Fund Mutual Fund 3,402,059 3,271,334
Templeton Institutional Foreign
Equity Mutual Fund Mutual Fund 1,693,354 1,394,568
Blackrock Small Capitalization Growth Fund Mutual Fund 4,575,624 3,083,846
MAS Small Capitalization Value Portfolio Mutual Fund 856,478 769,583
Royal Stock Fund Common Stock 960,985 688,427
Royal Cash Fund Mutual Fund 1,032 1,032
Delaware Devon Fund Mutual Fund 1,845,266 1,607,509
Delaware Preservation Account Mutual Fund 1,898,158 1,996,640
Delaware Select Growth Fund Mutual Fund 1,351,676 1,021,988
Delaware Growth & Income Fund Mutual Fund 228,951 250,413
Participant Loans Various maturity dates; interest prime plus 882,555 882,555
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$20,636,065 $17,922,204
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ROYAL APPLIANCE 401(k) RETIREMENT SAVINGS PLAN
ITEM 27 (d) - SCHEDULE OF REPORTABE TRANSACTIONS
FOR THE YEAR ENDED DECEMBER 31, 2000
Purchase Selling
Identity of Party Involved Description of Asset Price Price
- -------------------------------- ------------------------------------------- ----------------- -----------------
Series of Transactions Delaware S&P 500 Index Fund $3,953,925 $-
Blackrock Small Capitalization Growth Fund 1,699,737 -
Delaware Select Growth Fund 1,084,686 -
Delaware Preservation Account - 836,074
Vanguard 500 Index Fund - 3,568,529
Current Value
of asset on
Cost of transaction Realized Gain
Identity of Party Involved Description of Asset Asset date (Loss) on Sale
- ---------------------------- ----------------------------------- --------------- ------------------- ------------------
Series of Transactions Delaware S&P 500 Index Fund $3,953,925 $3,953,925 $ -
Blackrock Small Capitalization 1,699,737 1,699,737 -
Growth Fund
Delaware Select Growth Fund 1,084,686 1,084,686 -
Delaware Preservation Account 819,215 836,074 16,859
Vanguard 500 Index Fund 3,851,131 3,568,529 (282,602)
This schedule includes transactions or series of transactions in excess of 5%
of the current value of the plan assets.
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