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, 1997
------------------
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
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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)
(440) 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 23,137,000
------------------------------------ -----------------------------------
(Class) (Outstanding at November 11, 1997)
The Exhibit index appears on sequential page 14.
1
2
ROYAL APPLIANCE MFG. CO. AND SUBSIDIARIES
INDEX
Page No.
--------
Part I FINANCIAL INFORMATION
Item 1 Financial Statements
------ --------------------
Consolidated Balance Sheets -
September 30, 1997 and December 31, 1996 3
Consolidated Statements of Operations -
three months and nine months ended
September 30, 1997 and 1996 4
Consolidated Statements of Cash Flows -
nine months ended September 30, 1997 and 1996 5
Notes to Consolidated Financial Statements 6-7
Item 2 Management's Discussion and Analysis of Financial
------ -------------------------------------------------
Condition and Results of Operations 8-11
-----------------------------------
Part II OTHER INFORMATION
Item 6 Exhibits and Reports on Form 8-K 12
------ --------------------------------
Signatures 13
Exhibit Index 14
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,
1997 1996
------------ -----------
ASSETS (Unaudited)
Current assets:
Cash $ 1,003 $ 1,001
Trade accounts receivable, net 55,083 39,761
Inventories 39,614 34,052
Refundable and deferred income taxes 6,806 6,552
Prepaid expenses and other 2,842 2,436
--------- ---------
Total current assets 105,348 83,802
--------- ---------
Property, plant and equipment, at cost:
Land 2,356 2,356
Building 13,117 13,117
Molds, tooling, and equipment 55,583 44,716
Furniture and office equipment 5,887 5,221
Assets under capital leases 4,613 4,810
Leasehold improvements and other 2,834 2,717
--------- ---------
84,390 72,937
Less accumulated depreciation and amortization 41,738 35,654
--------- ---------
42,652 37,283
--------- ---------
Tooling deposits 1,497 3,962
Other 1,989 1,094
--------- ---------
Total assets $ 151,486 $ 126,141
========= =========
LIABILITIES AND SHAREHOLDERS' EQUITY
Current liabilities:
Trade accounts payable $ 23,013 $ 20,679
Accrued liabilities:
Advertising and promotion 8,059 11,682
Salaries, benefits, payroll taxes 4,550 5,980
Warranty and customer returns 8,100 7,975
Income taxes -- 3,503
Interest and other 5,440 3,680
Current portions of capital lease obligations and notes payable 674 665
--------- ---------
Total current liabilities 49,836 54,164
--------- ---------
Revolving credit agreement 27,091 2,886
Capitalized lease obligations, less current portion 3,162 3,307
Notes payable, less current portion 9,215 9,550
--------- ---------
Total long-term debt 39,468 15,743
--------- ---------
Deferred income taxes 4,230 --
--------- ---------
Total liabilities 93,534 69,907
--------- ---------
Commitments and contingencies (Note 3) -- --
Shareholders' equity:
Common shares, at stated value 210 210
Additional paid-in capital 41,733 41,500
Retained earnings 33,225 27,611
Cumulative translation adjustment -- (107)
--------- ---------
75,168 69,214
Less treasury shares, at cost (1,780,850 and 1,201,000 shares at
September 30, 1997, and December 31, 1996, respectively) (17,216) (12,980)
--------- ---------
Total shareholders' equity 57,952 56,234
--------- ---------
Total liabilities and shareholders' equity $ 151,486 $ 126,141
========= =========
The accompanying notes are an integral part of these financial statements.
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4
ART 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,
--------------- --------------
1997 1996 1997 1996
--------- --------- --------- ---------
Net sales $ 87,375 $ 73,688 $ 207,063 $ 188,919
Cost of sales 62,091 52,465 147,806 137,429
--------- --------- --------- ---------
Gross margin 25,284 21,223 59,257 51,490
Advertising and promotion 11,593 9,072 30,342 24,422
Other selling 2,039 2,285 5,793 6,645
General and administrative 3,157 3,179 8,942 8,794
Engineering and product development 1,107 911 3,509 2,535
--------- --------- --------- ---------
Income from operations 7,388 5,776 10,671 9,094
Interest expense, net 576 584 1,130 2,102
Other expense (income), net 108 25 337 (897)
--------- --------- --------- ---------
Income before income taxes 6,704 5,167 9,204 7,889
Income tax expense 2,615 2,016 3,590 3,078
--------- --------- --------- ---------
Net income $ 4,089 $ 3,151 $ 5,614 $ 4,811
========= ========= ========= =========
Net income per common share $ .17 $ .13 $ .23 $ .20
Weighted average number of common shares
and equivalents outstanding (in thousands) 24,073 24,271 24,201 24,185
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,
-------------------
1997 1996
-------- --------
Cash flows from operating activities:
Net income $ 5,614 $ 4,811
-------- --------
Adjustments to reconcile net income to
net cash from operating activities:
Depreciation and amortization 6,435 6,383
Compensatory effect of stock options 61 (213)
Gain on disposal of tooling, property, plant and equipment -- (648)
(Increase) decrease in assets:
Trade accounts receivable, net (15,322) (4,490)
Inventories (5,562) (6,327)
Refundable, deferred, and accrued income taxes 473 7,519
Prepaid expenses and other (406) 473
Other (1,139) (245)
Increase (decrease) in liabilities:
Trade accounts payable 2,334 2,503
Accrued advertising and promotion (3,623) 989
Accrued salaries, benefits, and payroll taxes (1,430) 2,239
Accrued warranty and customer returns 125 (100)
Accrued interest and other 1,760 209
-------- --------
Total adjustments (16,294) 8,292
-------- --------
Net cash from operating activities (10,680) 13,103
-------- --------
Cash flows from investing activities:
Purchases of tooling, property, plant, and equipment, net (11,453) (8,272)
Decrease in tooling deposits 2,465 3,515
Proceeds from sale of plants and equipment -- 2,237
-------- --------
Net cash from investing activities (8,988) (2,520)
-------- --------
Cash flows from financing activities:
Proceeds (payments) on bank debt 24,205 (10,105)
Payments on note payable (310) (314)
Payments on capital lease obligations (161) (230)
Proceeds from exercise of stock options 172 64
Repurchase of common stock (4,236) --
-------- --------
Net cash from financing activities 19,670 (10,585)
-------- --------
Effect of exchange rate changes on cash -- 2
-------- --------
Net increase in cash 2 --
-------- --------
Cash at beginning of period 1,001 --
-------- --------
Cash at end of period $ 1,003 $ --
======== ========
Supplemental disclosure of cash flow information: Cash payments (refunds) for:
Interest $ 1,109 $ 2,444
======== ========
Income taxes, net $ 3,117 $ (4,441)
======== ========
Supplemental schedule of noncash investing and financing activities:
Assignment of capital lease obligation to buyer $ -- $ 3,690
======== ========
The accompanying notes are an integral part of these financial statements.
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6
ROYAL APPLIANCE MFG. CO. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(Unaudited)
(In thousands, except per share amounts)
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, 1997 and
December 31, 1996, and the related statements of operations and cash flows as
of, and for the interim periods ended, September 30, 1997 and 1996. 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, 1997, 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 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 on a first-in
first-out (FIFO) basis. Inventories at September 30, 1997, and December 31,
1996, consisted of the following:
September 30, December 31,
1997 1996
------- -------
Finished goods $20,527 $23,177
Work in process and purchased parts 19,087 10,875
------- -------
Inventories at FIFO cost $39,614 $34,052
======= =======
NOTE 3: COMMITMENTS AND CONTINGENCIES
At September 30, 1997, the Company estimates having contractual commitments
for future advertising and promotional expense of approximately $19,600,
including commitments for television advertising through December 31, 1998.
Other contractual commitments for items in the normal course of business total
approximately $1,000.
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7
ROYAL APPLIANCE MFG. CO. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (cont.)
(Unaudited)
(In thousands, except per share amounts)
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, 1997. In September, 1997,
the Company amended its revolving credit facility to reduce the maximum amount
of revolving credit from $50,000 to $40,000, subject to a borrowing base formula
as defined in the agreement. The maximum amount allowable to the Company under
the borrowing base formula was $40,000 as of September 30, 1997, resulting in
availability of approximately $8,900. 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 rate plus a rate spread, as defined in the
agreement. At September 30, 1997, the base lending rate was 8.50%. In addition,
the Company pays a commitment fee at the annual rate of 0.375% 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 September 30, 1997. 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 without recourse, through a
wholly-owned subsidiary, certain trade accounts receivable. The maximum amount
of receivables that can be sold is seasonally adjusted. As of September 29,
1997, the Company entered into a revolving trade accounts receivable
securitization program replacing the previous program. Under the new program,
the maximum amount allowed at any given time through December 31, 1997, is
$40,000. At September 30, 1997, the Company received approximately $8,000 from
the sale of trade accounts receivable. 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 $386 for the nine months
ended September 30, 1997, 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.
The Company has a variable rate mortgage note payable in the amount of
$4,071. 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 September 30, 1997, the 30 day
commercial paper rate was 5.55%. 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
$5,587. 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.
NOTE 5: SHARE REPURCHASE PROGRAM
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. As of September 30, 1997, the Company has repurchased
approximately 580 shares for an aggregate purchase price of $4,236. The program
is scheduled to expire on March 1, 1998.
7
8
ITEM 2 MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS
-----------------------------------------------------------------------
OF OPERATIONS (In thousands, except per share amounts)
-------------
RESULTS OF OPERATIONS
- ---------------------
Net sales increased 18.6% for the third quarter and 9.6% for the nine month
period ended September 30, 1997, compared with the same periods in the prior
year. The increase in the third quarter and nine month period ended September
30, 1997, was due primarily to sales of the new Dirt Devil(R) Mop Vac(TM), which
the Company began shipping to its retail customers in the third quarter of 1997,
increases in the Company's line of upright vacuum cleaners and shipments of the
new Dirt Devil(R) RoomMate(TM). The increase in net sales for the third quarter
and nine month period ended September 30, 1997, was partially offset by
decreases in the sales of the Dirt Devil(R) Broom Vac(R) and certain other
products in the Dirt Devil(R) vacuum line. Overall sales to the top 5 customers
(all of which are major retailers) increased in the first nine months of 1997 to
approximately 61.5% of net sales as compared with approximately 56.1% in the
first nine months of 1996. 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, for the third quarter 1997 was
comparable to the third quarter 1996 and increased from 27.3% in the first nine
months of 1996 to 28.6% in the first nine months of 1997. The gross margin
percentage was positively affected in 1997 primarily by the introduction of new
products and lower costs of certain component parts and was partially offset by
higher product returns and freight costs as a percent of sales.
Advertising and promotion expenses increased 27.8% for the third quarter
1997 and increased 24.2% for the nine month period ended September 30, 1997
compared with the same periods in 1996. The increase in advertising and
promotion expenses was due primarily to the launch of the Fred Astaire
advertising campaign and the direct response television campaign for the Dirt
Devil(R) Mop Vac(R). The Company began utilizing direct response infomercials
for the introduction of certain new products in 1996. The Company intends to
continue emphasizing cooperative advertising and television as its primary
methods of advertising and promotion. 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.
Other selling expenses decreased 10.8% for the third quarter 1997 and
decreased 12.8% for the nine month period ended September 30, 1997 compared with
the same periods in 1996. The largest component of other selling expenses are
internal sales and marketing personnel compensation. The Company has reduced its
dependency on outside manufacturers' representatives resulting in lower
commissions for the nine month period ended September 30, 1997, compared with
the same period in 1996.
General and administrative expenses for the third quarter 1997 and the nine
month period ended September 30, 1997 were comparable as a percentage of net
sales for the third quarter and for the nine month period ended September 30,
1997. The principal components are compensation (including benefits), insurance,
travel and professional services.
8
9
RESULTS OF OPERATIONS (Continued)
- ---------------------
Engineering and product development expenses increased 21.5% for the third
quarter 1997 and increased 38.4% for the nine month period ended September 30,
1997, 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 the first nine
months of 1997 was primarily due to costs associated with the new product
introductions in 1997 and the new product introductions planned for 1998.
Interest expense was comparable for the third quarter 1997 and decreased
46.2% for the nine month period ended September 30, 1997, compared with the same
periods in 1996. The decrease in interest expense resulted primarily from lower
levels of variable rate borrowings to finance working capital, capital
expenditures, and share repurchases, and a lower effective borrowing rate.
Other expense (income) principally reflects the effect of the cost of the
Company's trade accounts receivable securitization program and foreign currency
transaction gains or losses related to the Company's international assets. The
1996 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 September,
1996.
Due to the factors discussed above, the Company had income before income
taxes for the third quarter and nine months ended September 30, 1997 of $6,704
and $9,204, respectively, as compared to income before income taxes for the
third quarter and nine month period ended September 30, 1996 of $5,167 and
$7,889, respectively.
Liquidity and Capital Resources
- -------------------------------
The Company has used working capital generated from operations to fund its
operations and capital expenditures. Working capital was $55,512 at September
30, 1997, an increase of 87.3% over December 31, 1996. Current assets increased
by $21,546 reflecting in part a $15,322 increase of trade accounts receivable
and a $5,562 increase of inventories. Current liabilities decreased by $4,328
reflecting in part a $3,623 reduction of accrued advertising and promotion, a
$1,430 reduction of accrued salaries, benefits and payroll taxes, and a $3,503
reduction of accrued income taxes, which were partially offset by an increase in
trade accounts payables of $2,334 and an increase in accrued interest and other
of $1,760.
In the first nine months of 1997, the Company utilized $8,988 of cash for
capital purchases, including approximately $6,460 of tooling related to the new
Dirt Devil(R) Swivel Glide(TM), the Dirt Devil(R) RoomMate(TM), and 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 September 30, 1997. In September, 1997,
the Company amended its revolving credit facility to reduce the maximum amount
of revolving credit from $50,000 to $40,000, subject to a borrowing base formula
as defined in the agreement. The maximum amount allowable to the Company under
the borrowing base formula was $40,000 as of September 30, 1997, resulting in
availability of approximately $8,900. 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 rate plus a rate spread, as defined in the
agreement. At September 30, 1997, the base lending rate was 8.50%. In addition,
the Company pays a commitment fee at the annual rate of 0.375% 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 September 30, 1997. The revolving credit facility is
collateralized by the Company's inventories, trade accounts receivable,
equipment and general intangibles.
9
10
Liquidity and Capital Resources (Continued)
- -------------------------------
In October 1996, the Company entered into a revolving trade accounts
receivable securitization program to sell without recourse, through a
wholly-owned subsidiary, certain trade accounts receivable. The maximum amount
of receivables that can be sold is seasonally adjusted. As of September 29,
1997, the Company entered into a revolving trade accounts receivable
securitization program replacing the previous program. Under the new program,
the maximum amount allowed at any given time through December 31, 1997, is
$40,000. At September 30, 1997, the Company received approximately $8,000 from
the sale of trade accounts receivable. 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 $386 for the nine months
ended September 30, 1997, 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.
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. As of September 30, 1997, the Company has repurchased
approximately 580 shares for an aggregate purchase price of $4,236. 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, as well as any additional stock repurchases.
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) 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, March 31,
1997 1997 1997 1996 1996 1996 1996
---- ---- ---- ---- ---- ---- ----
(Dollars in thousands, except per share amounts)
Net sales $87,375 $61,070 $58,618 $97,204 $73,688 $62,969 $52,262
Gross margin 25,284 17,739 16,234 30,633 21,223 16,504 13,763
Net income 4,089 919 606 4,625 3,151 1,328 332
Net income per
common share (a) .17 .04 .02 .19 .13 .05 .01
(a) 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.
The Company's business is highly seasonal. The Company believes that a
significant percentage of certain of its products, particularly hand vacs and
broom vacs, 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.
10
11
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's most significant
competitors are Hoover and Eureka, and Black & Decker, in the hand-held market.
These 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
prices.
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 will 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.
Forward-looking Statements
- --------------------------
Forward-looking statements in this Form 10-Q 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 and acceptance by
consumers of the Company's new products, including the Dirt Devil(R) Mop Vac(R),
and the dependence upon the Company's ability to continue to successfully
develop and introduce innovative consumer products.
11
12
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. 3 to Restated Credit and Security
Agreement dated as of September 29, 1997, 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
September 29, 1997, by the Registrant,
Royal Appliance Receivables, Inc., as
Seller, and Llama Retail Funding L.P,
as Purchaser.
Exhibit 11 - Computation of earnings per common share.
Exhibit 27 - Financial data schedule (EDGAR filing only)
12
13
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)
/s/ Michael J. Merriman
-------------------------
Michael J. Merriman
Chief Executive Officer, President and Director
(Principal Executive and Financial Officer)
Date: November 12, 1997 /s/ Richard G. Vasek
------------------- -----------------------
Richard G. Vasek
Controller, Secretary and Chief Accounting Officer
(Principal Accounting Officer)
13
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INDEX TO EXHIBITS
Page No.
Exhibit 4(a) - Amendment No. 3 to Restated Credit and Security
Agreement dated as of September 29, 1997, by and among the
Registrant and various banks including National City
Commercial Finance, Inc.
as Agent. 15 - 26
Exhibit 4(b) - Receivable Purchase and Servicing Agreement dated as of
September 29, 1997, by the Registrant, Royal Appliance Receivables,
Inc., as Seller, and Llama Retail Funding L.P, as Purchaser. 27 - 33
Exhibit 11 - Computation of earnings per common share 34
Exhibit 27 - Financial data schedule (EDGAR filing only)
14