EX-99.1 9 l93095aex99-1.txt 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, 2001 and 2000 ROYAL APPLIANCE 401(k) RETIREMENT SAVINGS PLAN ---------------------------------------------- (Full title of the plan) ROYAL APPLIANCE MFG. CO. ------------------------- (Name of issuer of the securities held pursuant to the plan) 7005 COCHRAN ROAD, GLENWILLOW, OHIO 44139 (Address of principal executive office) INDEX OF FINANCIAL STATEMENTS PAGES ----- Report of Independent Accountants 2 Financial Statements: Statements of Net Assets Available for Plan Benefits as of December 31, 2001 and 2000 3 Statements of Changes in Net Assets Available for Plan Benefits for the years ended December 31, 2001 and 2000 4 Notes to Financial Statements 5-9 Supplemental Schedules: Schedule of Assets Held for Investment Purposes as of December 31, 2001 10 Schedule of Reportable Transactions for the year ended December 31, 2001 11 1 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 the Royal Appliance 401(k) Retirement Savings Plan (the "Plan") at December 31, 2001 and 2000, 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, 2001 and reportable transactions for the year ended December 31, 2001, 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. These 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 February 20, 2002 2 ROYAL APPLIANCE 401(k) RETIREMENT SAVINGS PLAN STATEMENT OF NET ASSETS AVAILABLE FOR PLAN BENEFITS
DECEMBER 31, --------------------------------------------- 2001 2000 --------------------- ------------------- ASSETS Investments, at fair value: Equity mutual funds $ 14,108,506 $ 15,677,403 Fixed income mutual funds 1,212,909 672,787 Royal Appliance Mfg. Co. common stock 866,403 688,427 Participant loans 857,655 882,555 ------------- ------------ Total investments 17,045,473 17,921,172 Cash and cash equivalents 2,766 1,032 Contributions receivable 301,500 376,515 ------------- ------------ Net Assets Available For Plan Benefits $ 17,349,739 $ 18,298,719 ============= ============
The accompanying notes are an integral part of these financial statements 3 ROYAL APPLIANCE 401(K) RETIREMENT SAVINGS PLAN STATEMENTS OF CHANGES IN NET ASSETS AVAILABLE FOR PLAN BENEFITS
FOR YEARS ENDED DECEMBER 31, ----------------------------- 2001 2000 ------------ ------------ Additions: Contributions: Company Contributions $ 949,338 $ 1,063,022 Employee pre-tax contributions 1,159,536 1,413,019 Participants' after-tax contributions 1,485 3,315 Participant rollovers from other plans 45,920 71,522 ------------ ------------ Total contributions 2,156,279 2,550,878 Miscellaneous income - 9,465 Investment Income: Interest and Dividends 236,516 251,278 Net depreciation in fair market value (1,987,499) (1,540,347) ------------ ------------ Net investment loss (1,750,983) (1,289,069) ------------ ------------ Net additions 405,296 1,271,274 Deductions: Benefits paid to participants 1,351,536 2,185,812 Miscellaneous fees 2,740 9,335 ------------ ------------ Net change for the year (948,980) (923,873) Net assets available for plan benefits, beginning of year 18,298,719 19,222,592 ------------ ------------ Net assets available for plan benefits, end of year $ 17,349,739 $ 18,298,719 ============ ============
The accompanying notes are an integral part of these financial statements 4 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. During 2001 and 2000, employer matching contributions were 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. PARTICIPANT ACCOUNTS - Each participant account is credited with the participant's contribution and allocations of the Company's contribution and Plan earnings offset by Plan administrative expenses. Each day, the Trustee calculates earnings and allocates gains and losses to each participant's account. INVESTMENT OF FUNDS - Delaware Management Trust Company ("Delaware" or "Trustee"), an affiliate of Lincoln National Corporation, is the trustee and recordkeeper of the Plan. Each participant may elect among the following investment vehicles: A. 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. B. 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. C. TEMPLETON INSTITUTIONAL FOREIGN EQUITY MUTUAL FUND - seeks long-term growth of capital by investing in companies generally located in foreign countries. 5 ROYAL APPLIANCE 401(k) RETIREMENT SAVINGS PLAN NOTES TO FINANCIAL STATEMENTS 1. PLAN DESCRIPTION AND BENEFITS (CONTINUED): D. 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. E. 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. F. MASSACHUSETTS INVESTORS GROWTH FUND - Seeks long term growth of capital and future income by choosing companies believed to have better-than-average long-term growth potential. 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. 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. I. DELAWARE PRESERVATION FUND - seeks to provide a high degree of safety, stable principal value and consistent and positive returns. J. 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. 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. 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. 6 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. LOANS, 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. Loans are secured by the balance in the participant's vested account and carry an interest rate equal to the prime rate plus one percent on the date of the loan. Interest rates range from 5.75% to 10.50%. Principal and interest are paid ratably through payroll deductions. 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. 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. Certain reclassifications have been made to prior year's financial statements to conform to the current year presentation. USE OF ESTIMATES - The preparation of financial statements in accordance with accounting principles generally accepted in the United Sates of America requires the use of management's estimates. These estimates are subjective in nature and involve judgments that affect the reported amounts of assets and liabilities, the disclosure of contingent assets and liabilities at fiscal year end and the reported amounts of additions and deductions during the fiscal year. Actual results could differ from those estimates. RISKS AND UNCERTAINTIES - Financial instruments which potentially subject the Plan to concentrations of credit risk consist primarily of securities in which the Plan invests. Investment securities are exposed to various risks, such as interest rate, market and credit risks. Due to the level of risk associated with certain investment securities, it is at least reasonably possible that changes in the near-term could materially affect participants' account balances and the amounts reported in the statements of net assets available for plan benefits. CASH AND CASH EQUIVALENTS - The Plan considers all liquid investments with original maturities of three months or less to be classified as cash equivalents. Cash equivalents are stated at cost, which approximates market value. INVESTMENTS - The Plan's investments are maintained in a trust fund administered by the Trustee. Investments are recorded at acquisition cost on a trade-date basis, which includes brokerage commissions, and are revalued each business day based upon quoted market prices. In the statements of changes in net assets available for plan benefits, the Plan presents the realized appreciation or depreciation on investments and the unrealized appreciation or depreciation in the fair value of investments. Net appreciation or depreciation is determined based on the difference between average cost of the investments and the market value as of each valuation date of such investment. Average cost is determined based on the weighted average cost of all investments purchased less any dispositions during the Plan year. DISTRIBUTIONS - Plan distributions are recorded when paid. 7 ROYAL APPLIANCE 401(k) RETIREMENT SAVINGS PLAN NOTES TO FINANCIAL STATEMENTS 3. INVESTMENTS The following presents the market value of investments that represent 5 percent or more of the Plan's net assets at either December 31, 2001 or 2000:
DECEMBER 31, -------------------------------------- 2001 2000 -------------------------------------- Strong Governent Securities Fund, 112,410 and 63,530 shares, respectively $ 1,212,909 $ 672,787 Fidelity Purtian Fund, 111,314 and 121,164 shares, respectively $ 1,966,911 $ 2,281,522 Templeton Institutional Foreign Equity Mutual Fund, 81,165 and 82,275 shares, respectively $ 1,174,454 $ 1,394,568 Blackrock Small Capitalization Growth Fund 137,134 and 153,044 shares, respectively $ 1,814,287 $ 3,083,847 Davis New York Venture Fund, 63,068 shares as of December 31, 2001 $ 1,603,819 $ - Delaware S&P 500 Index Fund, 393,041 and 422,653 shares, respectively $ 2,641,239 $ 3,271,334 Delaware Preservation Fund, 183,132 and 131,228 shares, respectively $ 2,949,154 $ 1,996,640 Delaware Select Growth Fund, 33,434 and 33,729 shares, respectively $ 764,980 $ 1,021,988 Delaware Devon Fund, 94,061 shares as of December 31, 2000 $ - $ 1,607,509
The net (depreciation) appreciation in the fair value of the Plan's investments for fiscal years 2001 and 2000 was as follows: 2001 2000 ----------- ----------- Equity mutual funds $(2,186,947) $(1,435,210) Fixed income mutual funds 25,104 32,777 Common stock 174,344 (137,914) ----------- ----------- Total $(1,987,499) $(1,540,347) =========== =========== 8 ROYAL APPLIANCE 401(k) RETIREMENT SAVINGS PLAN NOTES TO FINANCIAL STATEMENTS 4. INCOME TAX STATUS: The Internal Revenue Service (IRS) has issued a favorable determination letter dated June 20, 1995, with respect to the Plan's qualified status, as amended, under Section 401(a) of the Internal Revenue Code (Code). As such, the trust established thereunder is exempt from Federal income taxes under Section 501(a) of the Code. All withdrawals, with the exception of after-tax employee contributions, are taxable to the participants of the Plan. 5. RIGHT TO TERMINATE: Although it has not expressed any interest to do so, the Company has the right to terminate the Plan at any time. 6. RELATED PARTY TRANSACTIONS: At December 31, 2001 and 2000, the Plan held units of participation in certain mutual funds in which Delaware Investment Company is the advisor to the fund and Trustee to the Plan. As of December 31, 2001 and 2000, the funds had total cost of $7,135,339 and $5,324,051 and a total market value of $6,722,204 and $4,876,550, respectively. 9 ROYAL APPLIANCE 401(K) RETIREMENT SAVINGS PLAN ITEM 27 (a) - SCHEDULE OF ASSETS HELD FOR INVESTMENT PURPOSES AS OF DECEMBER 31, 2001
Description of investment including maturity date, rate of Identity of issue, interest, collateral, borrower, lessor, or similar party par or maturity value Cost Market Value -------------------------------------------------------- ---------------------------------- ---------------- ---------------- Strong Government Securities Fund Mutual Fund $ 1,207,771 $ 1,212,909 Fidelity Puritan Fund Mutual Fund 2,082,024 1,966,911 Templeton Institutional Foreign Equity Mutual Fund Mutual Fund 1,349,462 1,174,454 Blackrock Small Capitalization Growth Fund Mutual Fund 2,661,609 1,814,287 MAS Small Capitalization Value Portfolio Mutual Fund 752,830 713,363 Massachusetts Investors Growth Fund Mutual Fund 137,845 113,468 Davis New York Venture Fund Mutual Fund 1,793,878 1,603,819 Delaware S&P 500 Index Fund Mutual Fund 2,996,179 2,641,239 Delaware Preservation Account Mutual Fund 2,819,374 2,949,154 Delaware Select Growth Fund Mutual Fund 934,450 764,980 Delaware Growth & Income Fund Mutual Fund 385,336 366,831 Royal Stock Fund Common Stock 964,618 866,403 Royal Cash Fund Cash 2,766 2,766 Participant Loans 5.75% to 10.50% 857,655 857,655 -------- -------- $ 18,945,797 $ 17,048,239
10 ROYAL APPLIANCE 401(k) RETIREMENT SAVINGS PLAN ITEM 27 (d) - SCHEDULE OF REPORTABE TRANSACTIONS FOR THE YEAR ENDED DECEMBER 31, 2001
Purchase Selling Cost of Realized Gain Identity of Party Involved Description of Asset Price Price Asset on Sale ----------------------------------- ----------------------- --------------- --------------- --------------- ---------------- Delaware Devon Fund Mutual Fund $ - $ 1,647,344 $ 1,571,180 $ 76,164 Davis New York Venture Fund Mutual Fund $ 1,647,344 $ - $ 1,647,344 $ -
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