1
UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
FORM 10-Q
[X] QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE
ACT OF 1934. For the quarterly period ended SEPTEMBER 30, 1996
OR
[ ] 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)
OHIO 34-1350353
- --------------------------------------------------------------------------------
(State or other jurisdiction of (I.R.S. Employer Identification Number)
incorporation or organization)
650 ALPHA DRIVE, CLEVELAND, OHIO 44143
- --------------------------------------------------------------------------------
(Address of Principal Executive Offices) (Zip Code)
(216) 449-6150
- --------------------------------------------------------------------------------
(Registrant's telephone number, including area code)
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 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 the number of shares outstanding of each of the issuer's classes
of common shares, as of the latest practicable date.
Common Shares, without par value 24,019,400
-------------------------------- --------------------------------
(Class) (Outstanding at November 11, 1996)
The Exhibit index appears on sequential page 15.
1
2
ROYAL APPLIANCE MFG. CO. AND SUBSIDIARIES
INDEX
Page No.
--------
Part I FINANCIAL INFORMATION
ITEM 1 FINANCIAL STATEMENTS
Consolidated Balance Sheets -
September 30, 1996 and December 31, 1995 3
Consolidated Statements of Operations -
three months and nine months ended September 30, 1996 and 1995 4
Consolidated Statements of Cash Flows -
nine months ended September 30, 1996 and 1995 5
Notes to Consolidated Financial Statements 6-7
ITEM 2 MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL
CONDITION AND RESULTS OF OPERATIONS 8-12
Part II OTHER INFORMATION
ITEM 6 EXHIBITS AND REPORTS ON FORM 8-K 13
Signatures 14
Exhibit Index 15
2
3
PART I - FINANCIAL INFORMATION
ITEM 1 - FINANCIAL STATEMENTS
ROYAL APPLIANCE MFG. CO. AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS
(DOLLARS IN THOUSANDS)
September 30, December 31,
1996 1995
------------- ------------
ASSETS (Unaudited)
Current assets:
Cash $ -- $ --
Trade accounts receivable, net 48,048 43,558
Inventories 34,735 28,408
Deferred income taxes 6,743 7,230
Refundable income taxes, net -- 4,392
Prepaid expenses and other 663 1,144
--------- ---------
Total current assets 90,189 84,732
--------- ---------
Property, plant and equipment, at cost:
Land 2,356 3,405
Buildings 13,117 14,463
Molds, tooling, and equipment 45,806 37,596
Furniture and office equipment 5,631 5,352
Assets under capital leases 4,810 9,058
Leasehold improvements and other 2,677 2,565
--------- ---------
74,397 72,439
Less accumulated depreciation and amortization 36,030 30,760
--------- ---------
38,367 41,679
--------- ---------
Tooling deposits 532 4,047
Other 1,029 803
--------- ---------
Total assets $ 130,117 $ 131,261
========= =========
LIABILITIES AND SHAREHOLDERS' EQUITY
Current liabilities:
Trade accounts payable $ 18,570 $ 16,073
Accrued liabilities:
Advertising and promotion 8,242 7,253
Salaries, benefits, payroll taxes 5,295 3,056
Warranty and customer returns 7,500 7,600
Income taxes 2,640 --
Interest and other 3,935 3,963
Current portions of capital lease obligations and notes payable 650 742
--------- ---------
Total current liabilities 46,832 38,687
--------- ---------
Revolving credit agreement 18,734 28,839
Capitalized lease obligations, less current portion 3,377 7,174
Notes payable, less current portion 9,642 9,986
--------- ---------
Total long-term debt 31,753 45,999
--------- ---------
Total liabilities 78,585 84,686
--------- ---------
Commitments and contingencies (Note 3) -- --
Shareholders' equity:
Common shares, at stated value 210 210
Additional paid-in capital 41,434 41,583
Retained earnings 22,986 18,175
Cumulative translation adjustment (118) (413)
--------- ---------
64,512 59,555
Less treasury shares, at cost (1,201,000 shares at
September 30, 1996, and December 31, 1995, respectively) (12,980) (12,980)
--------- ---------
Total shareholders' equity 51,532 46,575
--------- ---------
Total liabilities and shareholders' equity $ 130,117 $ 131,261
========= =========
The accompanying notes are an integral part of these financial statements.
3
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PART I - FINANCIAL INFORMATION
ITEM 1 - FINANCIAL STATEMENTS
-----------------------------
ROYAL APPLIANCE MFG. CO. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF OPERATIONS
(UNAUDITED)
(DOLLARS IN THOUSANDS, EXCEPT PER SHARE AMOUNTS)
Three months ended Nine months ended
September 30, September 30,
------------------------ -------------------------
1996 1995 1996 1995
---------- ---------- --------- ----------
(Note 2)
Net sales $ 73,688 $ 66,990 $ 188,919 $ 174,261
Cost of sales 52,465 50,737 137,429 132,754
--------- --------- --------- ---------
Gross margin 21,223 16,253 51,490 41,507
Advertising and promotion 9,072 10,110 24,422 26,173
Other selling 2,285 2,897 6,645 8,587
General and administrative 3,179 3,390 8,794 9,850
Engineering and product development 911 620 2,535 2,451
Special charges (Note 5) -- 16,076 -- 16,076
--------- --------- --------- ---------
Income (loss) from operations 5,776 (16,840) 9,094 (21,630)
Interest expense, net 584 1,032 2,102 2,847
Other expense (income), net 25 (26) (897) 140
--------- --------- --------- ---------
Income (loss) before income taxes 5,167 (17,846) 7,889 (24,617)
Income tax expense (benefit) 2,016 (5,567) 3,078 (8,072)
--------- --------- --------- ---------
Net income (loss) $ 3,151 $ (12,279) $ 4,811 $ (16,545)
========= ========= ========= =========
Net income (loss) per common share $ .13 $ (.51) $ .20 $ (.69)
Weighted average number of common
shares and equivalents outstanding (in 24,271 23,999 24,185 23,999
thousands)
The accompanying notes are an integral part of these financial statements.
4
5
PART I - FINANCIAL INFORMATION
ITEM 1 - FINANCIAL STATEMENTS
-----------------------------
ROYAL APPLIANCE MFG. CO. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOW
(UNAUDITED)
(DOLLARS IN THOUSANDS)
Nine months
Ended September 30,
-------------------------
1996 1995
---------- ----------
Cash flows from operating activities:
Net income (loss) $ 4,811 $ (16,545)
--------- ---------
Adjustments to reconcile net income (loss) to
net cash from operating activities:
Depreciation and amortization 6,383 8,820
Compensatory effect of stock options (213) 43
(Gain) loss on disposal of tooling, property, plant and equipment (648) 9,170
(Increase) decrease in assets:
Trade accounts receivable, net (4,490) (2,103)
Inventories (6,327) (7,169)
Refundable, deferred, and accrued income taxes 7,519 (8,826)
Prepaid expenses and other 473 1,162
Other (245) 191
Increase (decrease) in liabilities:
Trade accounts payable 2,503 17,389
Accrued advertising and promotion 989 (4,790)
Accrued salaries, benefits, and payroll taxes 2,239 756
Accrued warranty and customer returns (100) 1,080
Accrued interest and other 209 1,346
--------- ---------
Total adjustments 8,292 17,069
--------- ---------
Net cash from operating activities 13,103 524
--------- ---------
Cash flows from investing activities:
Purchases of tooling, property, plant, and equipment, net (8,272) (6,986)
Decrease (increase) in tooling deposits 3,515 (265)
Proceeds from sale of plants and equipment 2,237 --
--------- ---------
Net cash from investing activities (2,520) (7,251)
--------- ---------
Cash flows from financing activities:
Proceeds from bank debt 182,182 70,386
Payments on bank debt (192,287) (67,923)
(Payments) proceeds from note payable (314) 4,450
Payments on capital lease obligations (230) (241)
Stock options proceeds 64 --
--------- ---------
Net cash from financing activities (10,585) 6,672
--------- ---------
Effect of exchange rate changes on cash 2 55
--------- ---------
Net increase in cash -- --
--------- ---------
Cash at beginning of period -- --
--------- ---------
Cash at end of period $ -- $ --
========= =========
Supplemental disclosure of cash flow information:
Cash payments (refunds) for:
Interest $ 1,856 $ 3,095
========= =========
Income taxes, net $ (4,441) $ 754
========= =========
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 $ --
========= =========
The accompanying notes are an integral part of these financial statements.
5
6
ROYAL APPLIANCE MFG. CO. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(UNAUDITED)
(DOLLARS IN THOUSANDS)
NOTE 1: BASIS OF PRESENTATION
The financial information for Royal Appliance Mfg. Co. and Subsidiaries
(the Company) included herein is unaudited; however, such information reflects
all adjustments (consisting solely of normal recurring adjustments) which are,
in the opinion of management, necessary for a fair presentation of the
consolidated statements of financial position as of September 30, 1996 and 1995.
It is suggested that these condensed financial statements be read in conjunction
with the consolidated financial statements and the notes thereto included in the
Company's latest shareholders' annual report (Form 10-K).
The results of operations for the three and nine month periods ended
September 30, 1996, are not necessarily indicative of the results to be expected
for the full year.
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.
The Company's revenue recognition policy is to recognize revenues when
products are shipped.
Net income (loss) per share is computed based on the weighted average
number of common and common equivalent shares outstanding and when applicable is
adjusted for the assumed conversion of shares issuable upon exercise of options,
after the assumed repurchase of common shares with the related proceeds.
NOTE 2: INVENTORIES
Inventories are 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 introduces new products into the
marketplace over time.
The effect of the change in accounting method decreased the loss for the
nine months ended September 30, 1995, by $378 and decreased the net loss per
common share by $.02.
Inventories at September 30, 1996, and December 31, 1995, consisted of
the following:
September 30, December 31,
1996 1995
------------ -----------
Finished goods $19,532 $15,400
Work in process and purchased parts 15,203 13,008
-------- --------
Inventories at FIFO cost $34,735 $28,408
======= =======
6
7
ROYAL APPLIANCE MFG. CO. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONT.)
(UNAUDITED)
(DOLLARS IN THOUSANDS)
NOTE 3: COMMITMENTS AND CONTINGENCIES
At September 30, 1996, the Company estimates having contractual
commitments for future advertising and promotional expense of approximately
$14,100, including commitments for television advertising through March 31,
1997. Other contractual commitments for items in the normal course of business
total approximately $1,500.
NOTE 4: DEBT
The Company's revolving credit facility has a maturity date of April 1,
1999, and is classified as long-term at September 30, 1996. Prior to the
October, 1996 Amendment, the facility provided for revolving credit up to
$60,000, 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 $49,000 as of September 30, 1996 resulting in availability of
approximately $30,000. 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
September 30, 1996, the bank's base lending rate was 8.25%. In addition, the
Company pays a commitment fee at the annual rate of 0.375% on the unused
portion of the facility.
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 September 30, 1996. The revolving credit facility is
collateralized by the Company's inventories, trade accounts receivable,
equipment and general intangibles.
The carrying amount of the Company's revolving credit facility and
mortgage notes payable approximate fair market value.
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 December 31, 1996, is $16,000. At November 1, 1996, the Company sold
approximately $14,000 in trade accounts receivables. The proceeds from the sales
were used to reduce borrowings under the Company's revolving credit facility.
The Company, as agent for the purchaser of the receivables, retains collection
and administrative responsibilities for the purchased receivables.
Correspondingly, in October 1996, the Company amended its revolving credit
facility to reduce the maximum amount of revolving credit from $60,000 to
$50,000.
NOTE 5: SPECIAL CHARGES
In the third quarter of 1995, pursuant to a board approved plan, the
Company recorded special charges of $16,076,000, primarily related to losses
from the disposal of certain inventory, molds and tooling and other intangibles
resulting from the decisions made to refocus the Company's primary operating and
marketing efforts on the North American market. The special charges included a
$12,444,000 write-down to the net realizable value of certain molds, tooling and
inventory being disposed of or held for sale, a $1,589,000 restructuring charge
related to the Company's intent on disposing or selling its European operations,
and a $2,043,000 special charge 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.
7
8
ITEM 2 MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND
---------------------------------------------------------------
RESULTS OF OPERATIONS (DOLLARS IN THOUSANDS)
---------------------
RESULTS OF OPERATIONS
- ---------------------
Net sales increased 10.0% for the third quarter and increased 8.4% for
the nine month period ended September 30, 1996, compared with the same periods
in the prior year. The increase in the third quarter was due to sales of the new
Dirt Devil(R) Broom Vac(TM), which was introduced in the first quarter of 1996,
and the new Dirt Devil(R) Ultra Hand Vac(TM) and the new Dirt Devil(R) Ultra
MVP(TM) upright, which were both introduced at the end of the second quarter of
1996. The increase in net sales for the nine months ended September 30, 1996,
was due to sales of these new products. The increase in net sales for the third
quarter and nine months period ended September 30, 1996, was partially offset by
a decrease in sales of the Company's other product lines and the elimination of
the Company's European operations, which were sold in the fourth quarter of
1995. Overall sales to the top 5 customers (all of which are major retailers)
increased in the first nine months of 1996. Sales to the top 5 customers
accounted for approximately 56.6% of net sales as compared with approximately
53.3% in the first nine months of 1995. The Company believes that its dependence
on sales to its largest customers will continue.
Gross margin, as a percent of net sales, increased from 24.3% for the
third quarter 1995 to 28.8% in the third quarter 1996 and from 23.8% in the
first nine months of 1995 to 27.3% in the first nine months of 1996. The gross
margin percentage was positively affected in 1996 primarily by the introduction
of new products, lower product returns, lower cost of certain component parts
and the elimination of the Company's European operations.
Advertising and promotion expenses decreased 10.3% for the third quarter
1996 and decreased 6.7% for the nine month period ended September 30, 1996
compared with the same periods in 1995. The decrease in advertising and
promotion expenses was due primarily to the elimination of European advertising.
The Company intends to continue emphasizing cooperative advertising and
television as its primary methods of advertising and promotion. The Company's
advertising expenditures are not specifically related to anticipated sales. For
example, the amount of advertising and promotional expenditures may be
concentrated during new product introductions and during critical retail
shopping periods, particularly the fourth quarter.
Other selling expenses decreased 21.1% for the third quarter 1996 and
decreased 22.6% for the nine month period ended September 30, 1996 compared with
the same periods in 1995. The largest component of other selling expenses are
internal sales and marketing personnel compensation and commissions to outside
manufacturers' representatives, however, no such commissions are incurred on
sales made directly to certain large retail customers. The Company has reduced
its dependency on outside manufacturers' representatives resulting in lower
commissions for the third quarter and the nine month period ended September 30,
1996, compared with the same periods in 1995.
General and administrative expenses decreased 6.2% for the third quarter
1996 and decreased 10.7% for the nine month period ended September 30, 1996
compared with the same periods in 1995, due primarily to the company's divesture
of its European operations. General and administrative expenses decreased as a
percentage of net sales from 5.7% to 4.7% for the nine month period ended
September 30, 1996, and from 5.1% to 4.3% for the third quarter. The principal
components are compensation (including benefits), insurance and professional
services.
8
9
RESULTS OF OPERATIONS (DOLLARS IN THOUSANDS) (CONTINUED)
- --------------------------------------------
In the third quarter of 1995, pursuant to a board approved plan, the
Company recorded special charges of $16,076,000, primarily related to losses
from the disposal of certain inventory, molds and tooling and other intangibles
resulting from the decisions made to refocus the Company's primary operating and
marketing efforts on the North American market. The special charges included a
$12,444,000 write-down to the net realizable value of certain molds, tooling and
inventory being disposed of or held for sale, a $1,589,000 restructuring charge
related to the Company's intent on disposing or selling its European operations,
and a $2,043,000 special charge 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.
Interest expense decreased 43.4% for the third quarter 1996 and decreased
26.2% for the nine month period ended September 30, 1996 compared with the same
periods in 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 to the Company's international
assets. 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 June
1996.
Due to the factors discussed above, the Company had income before income
taxes for the third quarter and nine months ended September 30, 1996 of $5,167
and $7,889, respectively, as compared to a loss before income taxes for the
third quarter and nine month period ended September 30, 1995 of $17,846 and
$24,617, respectively.
LIQUIDITY AND CAPITAL RESOURCES
- -------------------------------
The Company has used working capital generated from operations and the
proceeds from the sale of two facilities to fund its operations, capital
expenditures and its reduction in long-term debt. Working capital was $43,357 at
September 30, 1996, a decrease of 5.8% over December 31, 1995 level, which
contributed to the Company's reduction in long-term debt. Current liabilities
increased by $8,145 reflecting in part a $2,497 increase in trade accounts
payable, an increase of $2,239 in accrued salaries, benefits and payroll taxes
and an increase of $2,640 in accrued income taxes. Current assets increased by
$5,457 reflecting in part a $6,327 increase in inventory and a $4,490 increase
in trade accounts receivable, partially offset by a $4,879 reduction of
refundable and deferred income taxes.
In the first nine months of 1996, the Company utilized $4,757 of cash for
capital purchases, including approximately $3,296 of tooling related to the new
Dirt Devil(R) Ultra Hand Vac(TM) and Dirt Devil(R) Ultra MVP(TM) upright.
9
10
LIQUIDITY AND CAPITAL RESOURCES (CONTINUED)
- -------------------------------
The Company's revolving credit facility has a maturity date of April 1,
1999, and is classified as long-term at September 30, 1996. The facility
provided for revolving credit up to $60,000, 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 $49,000 as of September 30, 1996
resulting in availability of approximately $30,000. 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 September 30, 1996, the bank's base lending rate
was 8.25%. In addition, the Company pays a commitment fee at the annual rate of
.375% on the unused portion of the facility.
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 September 30, 1996. The revolving credit facility is
collateralized by the Company's inventories, trade accounts receivable, certain
real estate, 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 December 31, 1996, is $16,000. At November 1, 1996, the Company sold
approximately $14,000 in trade accounts receivables. The proceeds from the sales
were used to reduce borrowings under the Company's revolving credit facility.
The Company, as agent for the purchaser of the receivables, retains collection
and administrative responsibilities for the purchased receivables.
Correspondingly, in October 1996, the Company amended its revolving credit
facility to reduce the maximum amount of revolving credit from $60,000 to
$50,000.
During the second quarter of 1996, the Company sold two facilities which
were previously closed in 1995. The aggregate net proceeds are $2,237 in cash
and the assumption of $3,690 of capital lease liability by the buyer.
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.
10
11
QUARTERLY OPERATING RESULTS
- ---------------------------
The following table presents certain unaudited consolidated quarterly
operating information for the Company and includes all adjustments (consisting
only of normal recurring adjustments and a 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.
Three Months Ended*
--------------------------------------------------------------------------------------------
Sept. 30, June 30, March 31, Dec. 31, Sept. 30, June 30,
1996 1996 1996 1995 1995 1995
---- ---- ---- ---- ---- ----
(Dollars in thousands, except per share amounts)
Net sales $73,688 $62,969 $52,262 $96,303 $66,990 $58,255
Gross margin 21,223 16,504 13,763 27,502 16,253 14,018
Net income (loss) 3,151 1,328 332 2,789 (12,279) (1,888)
Net income (loss) per
common share .13 .05 .01 .12 (.51) (.08)
<FN>
* See Note 2 of Notes to Consolidated Financial Statements
The Company's business is highly seasonal. The Company believes that a
significant percentage of certain of its products, particularly hand vacs and
cordless rechargeable brooms, are given as gifts and therefore may 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.
OTHER
- -----
The Company's past and future success is dependent upon continued
innovation in the design of replacement upright and hand-held models as well as
in new innovative niche products utilizing the Dirt Devil(R) brand name.
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, and believes that its net sales and
market share in the domestic upright market segment have been negatively
affected by competitive pricing and by the increased advertising expenditures
of its competitors. The Company's most significant competitors in the domestic
vacuum cleaner market are Hoover and Eureka, and Black & Decker in the
hand-held market. Most of the competitors are subsidiaries 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
selling prices.
11
12
LITIGATION
- ----------
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.
ACCOUNTING STANDARDS
- --------------------
The Company has selected the disclosure-only option of Statement of
Financial Accounting Standards "SFAS" No. 123, Accounting for Stock-Based
Compensation. The Company expects the implementation of SFAS No. 123 will not
have a material impact on its consolidated financial position and results of
operations.
FORWARD-LOOKING STATEMENTS
- --------------------------
Forward-looking statements in this Form 10-Q are made pursuant to the
safe harbor provisions of the Private Securities Litigation and 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 the dependence upon the
Company's ability to continue to successfully develop and introduce innovative
products; 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 and the cost and effectiveness of planned advertising, marketing and
promotional campaigns.
12
13
PART II - OTHER INFORMATION
ITEM 6 - EXHIBITS AND REPORTS ON FORM 8-K
-------- --------------------------------
Forms 8-K - None
The following documents are furnished as an exhibit and
numbered pursuant to Item 601 of Regulation S-K:
Exhibit 4(a) - 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.
Exhibit 4(b) - 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.
Exhibit 11 - Computation of earnings (loss) per
common share.
Exhibit 27 - Financial data schedule (EDGAR filing
only)
13
14
SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of 1934, the
registrant has duly caused this report to be signed on its behalf by the
undersigned thereunto duly authorized.
Royal Appliance Mfg. Co.
--------------------------------------------
(Registrant)
Michael J. Merriman
-------------------------------------------
Michael J. Merriman
Chief Executive Officer, President and Director
(Principal Executive and Financial Officer)
Date: November 11, 1996 Richard G. Vasek
----------------- -------------------------------------------
Richard G. Vasek
Controller, Secretary and Chief Accounting Officer
(Principal Accounting Officer)
14
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INDEX TO EXHIBITS
Page No.
--------
Exhibit 4(a) - 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. 16 - 26
Exhibit 4(b) - 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. 27 - 35
Exhibit 11 - Computation of earnings (loss) per common share 36
Exhibit 27 - Financial data schedule (EDGAR filing only)
15