-----BEGIN PRIVACY-ENHANCED MESSAGE----- Proc-Type: 2001,MIC-CLEAR Originator-Name: webmaster@www.sec.gov Originator-Key-Asymmetric: MFgwCgYEVQgBAQICAf8DSgAwRwJAW2sNKK9AVtBzYZmr6aGjlWyK3XmZv3dTINen TWSM7vrzLADbmYQaionwg5sDW3P6oaM5D3tdezXMm7z1T+B+twIDAQAB MIC-Info: RSA-MD5,RSA, MAT6AqfuWcF/9mLpeNcfobrQNHL+RvdmTJG0S1TGrrEBtTChWnjV6MzNRJGHEE/Q fWtubcYfK3UCh9CVCwKi3Q== 0000920401-98-000002.txt : 19980907 0000920401-98-000002.hdr.sgml : 19980907 ACCESSION NUMBER: 0000920401-98-000002 CONFORMED SUBMISSION TYPE: 10-K PUBLIC DOCUMENT COUNT: 6 CONFORMED PERIOD OF REPORT: 19980630 FILED AS OF DATE: 19980904 SROS: NASD FILER: COMPANY DATA: COMPANY CONFORMED NAME: RIVAL CO CENTRAL INDEX KEY: 0000860194 STANDARD INDUSTRIAL CLASSIFICATION: ELECTRIC HOUSEWARES & FANS [3634] IRS NUMBER: 133327021 STATE OF INCORPORATION: DE FISCAL YEAR END: 0630 FILING VALUES: FORM TYPE: 10-K SEC ACT: SEC FILE NUMBER: 000-20274 FILM NUMBER: 98704218 BUSINESS ADDRESS: STREET 1: 800 E 101ST TERRACE CITY: KANSAS CITY STATE: MO ZIP: 64131 BUSINESS PHONE: 8169434100 MAIL ADDRESS: STREET 1: 800 E 101ST TERRACE CITY: KANSAS CITY STATE: MO ZIP: 64131 10-K 1 SECURITIES AND EXCHANGE COMMISSION WASHINGTON, D.C. 20549 (Mark One) [X] ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 For the fiscal year ended June 30, 1998. 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: 0-20274 ------- THE RIVAL COMPANY (Exact name of registrant as specified in its charter) Delaware 43-0794462 (State or other jurisdiction of (IRS Employer incorporation or organization) Identification No.) 800 E. 101st Terrace, Kansas City, Missouri 64131 (Address of principal executive offices) (Zip Code) Registrant's telephone number, including area code: (816) 943-4100 Securities registered pursuant to Section 12(b) of the Act: None Securities registered pursuant to Section 12(g) of the Act: Common Stock, par value $ .01 per share 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 such 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. (1) Yes X No (2) Yes X No --- --- --- --- Indicate by check mark if disclosure of delinquent filers pursuant to Item 405 of Regulation S-K is not contained herein, and will not be contained, to the best of registrant's knowledge, in definitive proxy or information statements incorporated by reference in Part III of this Form 10-K or any amendment to this Form 10-K. [ X ] The aggregate market value of voting stock held by non-affiliates of the registrant is $49,280,000 as of August 26,1998. The non-inclusion of shares held by directors, officers and beneficial owners of more than 5% of the outstanding stock shall not be deemed an admission that such persons are affiliates of the Registrant. 9,303,827 -------------------------------- (number of shares of common stock outstanding as of August 26, 1998.) Documents Incorporated by Reference Part I and Part II incorporate information by reference from the registrant's Annual Report to Stockholders for the fiscal year ended June 30, 1998. Part III incorporates information by reference from the Registrant's definitive Proxy Statement, to be filed with the Commission for its 1998 Annual Meeting of Stockholders. 1 PART I Item l. Business. The Rival Company, the registrant, together with its subsidiaries, is referred to herein as "Rival" or as the "Company". The Company's executive offices are located at 800 E. 101st Terrace, Kansas City, Missouri 64131, and its telephone number is (816) 943-4100. The Rival Company was incorporated in Delaware on April 7, 1986 for the purpose of acquiring Rival Manufacturing Company. General The Company is a leading designer, manufacturer and marketer of a variety of products including small kitchen and personal care appliances such as Crock Pot(REGISTERED TRADEMARK) slow cookers, can openers and massagers; products for the home environment including space heaters, air purifiers, showerheads, utility pumps, humidifiers and fans; and building supply and industrial products such as household ventilation, door chimes, ceiling fans and industrial fans. Since 1992, Rival's sales have grown from $163.5 million to $376.9 million largely as the result of seven acquisitions that enabled Rival to expand its product line beyond kitchen appliances, its primary products for over sixty years. As a consequence, Rival has expanded its sales through national hardware/home centers and has entered new markets of distribution such as electrical and industrial wholesale distributors. The Company has also broadened its international presence. Between January 1996 and January 1997, the Company made three acquisitions: * Fasco Consumer Products, Inc. ("Fasco") which manufactures an assortment of products including household ventilation, ceiling fans, door chimes and heaters was acquired in January 1996. Prior to the acquisition, Fasco generated annual sales of approximately $40.0 million in the home center, building supply and electrical wholesale distribution channels. * Bionaire, Inc. ("Bionaire") which assembles and sells air purifiers and humidifiers for household use was acquired in April, 1996. Prior to the acquisition, Bionaire had annual sales of approximately $57.0 million with retail distribution in the U.S., Canada and Europe. * Dazey Corporation ("Dazey). In January 1997, the Company acquired certain assets, primarily consisting of inventory, equipment and tooling, for the manufacture and sale of products including fryers, combination cookers, skillets, indoor grills and waffle makers. Sales of these products, which will be marketed under the Rival brand name, are estimated to be approximately $20 million annually. The company made no acquisitions in fiscal 1998 as management focused on further integration and improvements to operations acquired in prior years. The Company distributes the Rival(REGISTERED TRADEMARK), Rival Select (REGISTERED TRADEMARK), Simer (REGISTERED TRADEMARK), Pollenex (REGISTERED TRADEMARK), Patton (REGISTERED TRADEMARK), Bionaire (REGISTERED TRADEMARK), and White Mountain (REGISTERED TRADEMARK) product lines to substantially all major retail outlets in the U.S. and Canada, including such mass merchants as Kmart, Target and Wal-Mart; hardware/home centers such as Ace Hardware, Home Depot and Home Quarters; department stores, catalog showrooms and warehouse clubs. The Company also sells Patton commercial fans and building supply and home products to industrial and electrical dealers and distributors. The Company has focused its resources to provide its customers with superior service, product innovation and marketing support. To accomplish this, the Company has developed automated ordering, shipping, invoicing and data storage and retrieval systems that are linked to the retailers "point-of-sale" systems. These automated systems are supported by close coordination between the traffic, warehousing, sales support and finance departments of the retailer and the Company. 2 The Company believes that its highly integrated and cost effective manufacturing represents a competitive strength. The Company manufactures approximately 70% of the products it sells. Its manufacturing facilities (all of which are located in the U.S.) produce electric motors, molded plastic components, screw machine parts, stampings and stoneware. The Company believes that the ability to manufacture the majority of its products in North America is one of the Company's fundamental strengths. Manufacturing capability gives the Company flexibility, bargaining power with third party vendors, quality control, and quick response time. The ability to manufacture is also helpful in evaluating a prospective acquisition. The Company believes it has significant opportunities for continued growth through the enhancement of existing product lines, new product development, and product line acquisitions. The Company believes that product line acquisitions will continue to be a significant factor in the future growth of the Company. The continuing consolidation within the retail sector, the increasing automation demands and the trend of major retailers to reduce the number of suppliers are expected to provide opportunities to acquire product lines with established positions and shelf space. The Company also believes that its relationships with major retailers and its existing broad product offerings can enhance the shelf space of product lines which Rival may acquire. The Company believes that it has adequate access to financing and that its recent experience in making successful acquisitions will facilitate future acquisitions. Products and Business Units The Company manages its operations through four business units: * Kitchen Electrics and Personal Care. This group sells products including Crock Pot (REGISTERED TRADEMARK) slow cookers, toasters, ice cream freezers, can openers, food slicers, mixers, indoor grills, irons, potpourri simmerers, fryers, skillets, and massagers to retailers and two step distributors throughout the United States. * Home Environment. This group sells products including fans, air purifiers, humidifiers, electric space heaters, sump, well and utility pumps, showerheads, and household ventilation to retail customers throughout the United States. * Industrial and Building Supply. This group sells products including industrial fans and drum blowers, household ventilation, ceiling fans, door chimes, electric heaters and household convenience items to electrical and industrial wholesale distributors throughout the United States. * International. This group sells the Company's products in Canada and Europe from its sales and distribution facilities in Toronto and the Netherlands. It also ships products from the United States to distributors in Latin America and Asia.
The following table indicates the Company's net sales by business unit together with sales made directly to consumers for the periods presented: Years ended June 30 ------------------------ (in millions) Product Category 1998 1997 1996 ------ ------ ------ Kitchen electrics and personal care $191.8 $188.8 $178.9 Home environment 104.9 116.5 91.8 Industrial/building supply 30.0 30.8 26.9 International 43.7 35.8 12.9 Consumer 6.5 4.6 3.4 ------ ------ ------ Total $376.9 $376.5 $313.9 ====== ====== ======
The majority of the Company's sales are in product lines which have limited growth potential but with continuing demand that provides a stable base of revenues. Future growth is expected to be generated primarily from 1) the introduction of new products and product lines under each of the Company's brand names, 2) expansion and enhancement of the customer base and distribution for products under the Patton and Patton Building Products brands, 3) future acquisitions and 4) geographical expansion. 3 Product Development The Company has an internal product development team dedicated to product line enhancements, and the introduction of new products. As part of this effort, the Company maintains its own engineering and development department to conduct research activities relating to the improvement of existing products and the development of new products. This department presently consists of over 60 people, including engineers, product designers, draftsmen and product managers. The Company also retains the services of outside engineering and design consultants from time to time. The Company's expenditures for product engineering and development were $5.4 million, $4.5 million, and $3.1 million for the years ended June 30, 1998, 1997 and 1996, respectively. Costs associated with changes to existing products and the development of new products are charged to operations as incurred. As a result of acquisitions, the Company has been able to significantly strengthen the engineering and development department without increasing the department's expenditures as a percent of the Company's net sales. Internal product development is critical, not only for growth, but also to maintain existing market share. The Company regularly enhances existing products by adding new features and modernizing their design in order to maintain their visual appeal and competitiveness. Acquisitions For a number of years, the Company's growth strategy has included the selective acquisitions of modest sized product lines. The Company acquires a product line when it believes it can use either its manufacturing or distribution strengths to reduce costs or increase sales. The Company has had sufficient resources to pursue this strategy since its initial public offering in June 1992. In fiscal 1993, the Company acquired the assets of Simer Pump, a $22 million assembler of sump, well and utility pumps and of Pollenex Corporation, a $28 million marketer of massagers, showerheads and air cleaners. In fiscal 1994, the Company acquired operating assets of White Mountain Freezer, Inc., a $3 million manufacturer of premium quality ice cream freezers. In 1995, the Company acquired Patton Electric Company, a $40 million manufacturer of space heaters and fans for household and industrial use. In 1996, the Company acquired Fasco Consumer Products, Inc. which generates approximately $40 million in sales of household ventilation products, ceiling fans, door chimes and other household products to retailers and electrical wholesale distributors and it acquired Bionaire, Inc. with over $50 million in sales of humidifiers and air purifiers to retailers. And in 1997, the Company acquired certain assets of Dazey Corporation for the manufacture and sale of an assortment of small kitchen electric appliances with sales of approximately $20 million. The housewares and hardware industries include hundreds of companies with limited product offerings and annual sales below $50 million. The fragmented nature of the industry together with the continuing retail consolidation and increasing automation requirements are expected to result in additional acquisition opportunities. The Company believes that given its strong financial condition, broad customer base, manufacturing expertise and recent acquisition experience, it is poised to capitalize on such opportunities. As such, product line acquisitions remain a key component of the Company's long term growth strategy. Marketing The vast majority of the Company's sales are to the retail trade. For this reason, the Company directs its marketing efforts at the retailer. The Company's products are sold in all major channels of distribution including mass merchants, hardware/home centers, department stores, household specialty stores, warehouse clubs, drug stores, military exchanges, mail order companies and premium companies. Rival's broad distribution to retailers throughout the U.S. and Canada was a key consideration in each of the seven acquisitions consummated by the Company since 1992. Simer's and Patton's strong distribution in hardware/home centers in conjunction with the Rival and Pollenex product lines has provided the Company with the opportunity 4 to combine the strengths of each of the sales organizations. The consolidated group can thus focus its combined efforts on the retail trade which provides the Company and its customers with efficiencies in distribution, warehousing, computer systems and sales and purchasing personnel. The Patton and Fasco acquisitions also provide the Company with a new class of customers, the industrial and electrical distributors.
The approximate breakdown of the Company's domestic sales by class of customer is as follows: Years ended June 30 ------------------- Class of Customer 1998 1997 1996 ---- ---- ---- Mass Merchant 48% 45% 47% Hardware/Home Center 17 17 17 Department Store 10 11 9 Electrical and Industrial Distributor 9 9 10 Drug Store, Warehouse Clubs and Other 16 18 17 ---- ---- ---- 100% 100% 100% ==== ==== ====
The Company reaches its customers through its sales organization which consists of a combination of in-house sales managers, field sales associates and independent manufacturers' representative firms. The Company's largest customer, Wal-Mart (including Sam's Wholesale Club), accounted for 26% of net sales in each of the three years ended June 30, 1998. The Company's next five largest customers in fiscal 1998 represented 21% of net sales. While the Company does not have long-term contractual relationships with any of its customers, it has been doing business with Wal-Mart and with its next five largest customers continuously for over ten years. The strategy of providing quality products at a promotional price is consistent with the marketing strategy of mass merchants who often use promotions in the small appliance department to create consumer traffic in their stores. The Company works closely with its retail customers in planning their marketing programs and promotions. The Company's advertising strategy is designed to supplement the marketing programs of its customers. Rather than stressing national advertising, the Company devotes more than 80% of its advertising budget to more cost-effective cooperative advertising with retailers, such as circulars and inserts. The cooperative advertising provides identification of the Company's various brand names together with the name of the retailer. Customer Service The Company's major customers have developed programs of "Quick Response" to reduce inventory and related carrying costs and improve in-stock positions. These programs have continued to grow in importance as retailers have reduced their overall number of vendors in order to minimize freight, warehousing and vendor support costs, such as paperwork and personnel costs. In conjunction with the retailers' systems, the Company has developed automated ordering, shipping and invoicing systems and has been able to combine products sold under more than one of the Company's brand names to certain retailers to help minimize the retailers' support costs. Point of sales information is utilized to generate orders through an Electronic Data Interchange ("EDI") computer system. Additionally, the Company's distribution facilities in Clinton and Sedalia, Missouri, New Haven, Indiana, Fayetteville, North Carolina, and Toronto, Canada incorporate state- of-the-art computer systems that provide information on shipping directly back to the customers' systems. The Company believes that its accommodation of its customers' "Quick-Response" programs has further solidified its position as a key supplier to its most important customers. 5 Manufacturing The Company's manufacturing plants, all of which are in the U.S, manufacture and assemble approximately 70% of the products it sells. The Company's remaining products are produced, to its specifications, primarily in China. The Company's plants are highly integrated and produce electric motors, injection molded plastic components, screw machine parts, stampings and stoneware. The ability to manufacture the majority of its products in the U.S. is one of the Company's fundamental strengths. Manufacturing capability gives the Company flexibility, bargaining power with third party vendors, quality control, and quick response time when high demand for product results in customers placing reorders with short delivery dates. The Company operates four manufacturing and assembly facilities in rural Missouri (Clinton, Sedalia, Sweet Springs and Warrensburg), near Kansas City, Missouri which specialize in the production of kitchen electrics. A facility in Flowood, Mississippi produces the stoneware for the Company's Crock-Pot (REGISTERED TRADEMARK) slow cookers, Potpourri Crocks (REGISTERED TRADEMARK) and Crock Grills (REGISTERED TRADEMARK). Additionally, the Company operates a facility in New Haven, Indiana which produces fans and heaters and a facility in Fayetteville, North Carolina which specializes in home environment and building supply products. In July 1998, the company announced its plans to close its New Haven and Fayetteville manufacturing plants and to expand its current operations in Warrensburg and Sedalia, Missouri. The majority of the products currently manufactured in these facilities will be moved to the Company's Missouri plants while some production will be outsourced to overseas suppliers. Concentrating production in fewer facilities will increase efficiency by more closely aligning capacity with the seasonal nature of the Company's products, taking advantage of vertical integration in its Missouri plants and reducing the infrastructure associated with transportation of materials, production planning and other activities. Seasonality A significant percentage of the products sold by the Company are given as gifts and, as such, sell at larger volumes during the holiday season. When holiday shipments are combined with seasonal products such as heaters and humidifiers, sales during the months of August through November are at a higher level than during the other months of the year. Additionally, the Company's working capital requirements, primarily inventories and receivables, peak during the fall. The Company meets these seasonal working capital needs through borrowings under its revolving credit facility. Five of the Company's product lines have sales with specific seasonal trends. These are space heaters and humidifiers which are sold primarily during the fall and winter, and ice cream freezers, pumps and fans which are sold primarily during the spring and summer. Competition The markets for the Company's products are mature and highly competitive. Competition is based upon price, access to retail shelf space, product enhancements, new product introductions, as well as marketing support and distribution systems. Several competitors, most notably, Black & Decker, Sunbeam/Oster, and Hamilton Beach/Proctor Silex, each generate annual sales of small electric household appliances which are higher than sales of the Company. Other significant competitors include Wayne Home Equipment, Masco, Nortek, Teledyne, Honeywell, Holmes, National Presto, Toastmaster, and West Bend. Smaller manufacturers compete with the Company on a limited product-offering basis. A few European manufacturers, such as Braun, Group SEB and Moulinex have established niches in the small electric household appliance market, particularly in the high-end department store trade. Additional competition arises as major retailers purchase directly from overseas suppliers, often using a private label branding strategy. Trademarks and Patents The Company considers its various trademarks to be a valuable tool in the marketing of its products. Of particular importance to the Company are the Rival (REGISTERED TRADEMARK), Rival Select (REGISTERED TRADEMARK), Simer (REGISTERED TRADEMARK), Pollenex (REGISTERED TRADEMARK), Patton (REGISTERED TRADEMARK), Bionaire (REGISTERED TRADEMARK), White Mountain (REGISTERED TRADEMARK) and the Crock-Pot (REGISTERED TRADEMARK) trademarks. In the course of its operations, the Company files patent applications covering various aspects of the items produced. While the Company's mechanical and design patents in the aggregate are considered to be of importance to the Company, the overall business is not dependent upon any single patent or group of patents. 6 Regulation The Company is subject to federal, state and local regulations concerning the environment, occupational safety and health, and consumer product safety. The Company has not experienced significant difficulty in complying with such regulations and compliance has not had a material adverse effect on the Company's business. All of the Company's electric-powered products are listed by Underwriters Laboratories, Inc.("UL"), the Canadian Underwriters Laboratories, Inc.("CUL"), or similar organizations in other markets. UL and CUL are independent, not-for-profit corporations engaged in the testing of products for compliance with certain public safety standards. Foreign Operations Approximately 12 percent of the Company's sales are generated by its international operations. Information regarding foreign operations is incorporated herein by reference from the information provided in Note 13 to Consolidated Financial Statements from the Company's Annual Report to Stockholders for the fiscal year ended June 30, 1998, page 34. Employees The Company has approximately 2,100 full-time associates including 250 salaried personnel, except during August through November when employment will likely increase by approximately 15%. Approximately 320 hourly associates at the Flowood, Mississippi plant are represented by a labor organization under a collective bargaining agreement which expires in December 2001. The Company considers its labor relations to be excellent and has experienced no work stoppage or labor dispute during the past ten years. Item 2. Properties
Owned/ Square Location Leased Feet Present Use - ----------------------- ------ ------- ------------------------------ Kansas City, Missouri leased 32,000 General Offices Sedalia, Missouri owned 157,000 Manufacturing and assembly leased 67,000 Manufacturing and assembly owned 216,000 Warehousing and distribution Clinton, Missouri owned 164,000 Manufacturing and assembly owned 279,000 Warehousing and distribution Sweet Springs, Missouri owned 125,000 Manufacturing and service return processing Warrensburg, Missouri leased 68,000 Manufacturing and assembly Flowood, Mississippi owned 142,000 Manufacturing New Haven, Indiana* owned 302,000 Manufacturing and distribution Peru, Indiana* owned 172,000 Warehousing Fayetteville, North Carolina* owned 282,500 Manufacturing and assembly owned 60,000 Warehousing and distribution Mississauga, Ontario leased 55,000 General office, warehousing and distribution
The Warrensburg plant and 67,000 square feet of the Sedalia plant are occupied under long-term leases which give the Company the option to purchase the relevant property at a nominal cost. The general offices are occupied under a lease through 2005. The Mississauga facility is leased through July 2002. * These facilities are scheduled to be closed during fiscal 1999 and the Company plans to sell the properties. 7 Item 3. Legal Proceedings. The Company is party to various product liability lawsuits relating to its products and incidental to its business. The Company believes that many of the personal injury and damage claims brought against it arise from the misuse or misapplication of the Company's products and rarely involve manufacturing defects. In such cases, the Company vigorously defends against such actions. Historically, product liability awards have rarely exceeded the Company's individual per occurrence self-insured retention. There can be no assurance, however, that the Company's future product liability experience will be consistent with its past experience. The Company believes that the ultimate conclusion of the various pending claims and lawsuits of the Company will not have a material adverse affect on the consolidated financial statements of the Company. Item 4. Submission of Matters to be a Vote of Security Holders. None. PART II Item 5. Market for the registrant's common equity and related stockholder matters. Incorporated herein by reference from the information provided under the caption "Common Stock Price Range" in the Company's Annual Report to Stockholders for the fiscal year ended June 30, 1998, page 36. Item 6. Selected financial data. Incorporated herein by reference from the Company's Annual Report to Stockholders for the fiscal year ended June 30, 1998, page 14. Item 7. Management's discussion and analysis of financial condition and results of operations. Incorporated herein by reference from the Company's Annual Report to Stockholders for the fiscal year ended June 30, 1998, pages 15-21. Item 7A. Quantitative and qualitative disclosure about market risk. Incorporated herein by reference from the Company's Annual Report to Stockholders for the fiscal year ended June 30, 1998, Note 1, pages 26 and 27. Item 8. Financial statements and supplementary data. Incorporated herein by reference from the Company's Annual Report to Stockholders for the fiscal year ended June 30, 1998, pages 22-35. Item 9. Changes in and disagreements with accountants on accounting and financial disclosure. None. 8 PART III Item 10. Directors and executive officers of the registrant. Item 11. Executive compensation. Item 12. Security ownership of certain beneficial owners and management. Item 13. Certain relationships and related transactions. Information incorporated into Items 10, 11, 12 and 13 above by reference from the information included under the captions entitled "Nominees for Election," "Executive Officers," "Executive Compensation," and "Security Ownership of Certain Beneficial Owners and Management" in the Company's definitive proxy statement to be filed with the Commission pursuant to Regulation 14A with respect to its 1998 Annual Meeting of Stockholders. PART IV Item 14. Exhibits, financial statement schedules and reports on Form 8-K. a) The financial statements and schedules listed in the accompanying index to consolidated financial statements and financial statement schedules on page 10 are filed as part of this report. b) The exhibits listed in the accompanying index to exhibits are filed as part of this report. 9 THE RIVAL COMPANY AND SUBSIDIARIES Index to Consolidated Financial Statements and Financial Statement Schedules INDEX Page Reference -------------- Annual Report to Form 10-K Stockholders --------- ------------ Independent Auditors' Report 35 Financial Statements: Consolidated Balance Sheets--June 30,1998 and 1997 22 Consolidated Statements of Earnings-- Years Ended June 30, 1998, 1997, and 1996 23 Consolidated Statements of Stockholders' Equity--Years Ended June 30, 1998, 1997, and 1996 24 Consolidated Statements of Comprehensive Income - Years Ended June 30, 1998, 1997, and 1996 24 Consolidated Statements of Cash Flows-- Years Ended June 30, 1998, 1997 and 1996 25 Notes to Consolidated Financial Statements 26-34 Financial Statement Schedule: Independent Auditors' Report on Financial Statement Schedule and Consent 11 Schedule II - Valuation and Qualifying Accounts 12 10 SCHEDULE II THE RIVAL COMPANY AND SUBSIDIARIES ------------- VALUATION AND QUALIFYING ACCOUNTS (amounts in thousands) Additions Additions Beginning Charged to from Deductions Ending Balance Expense Acquisitions (A) Balance ------- ------- ------------ --- ------- Allowance for collection loss and discounts: Year ended 6-30-98 $2,558 $915 $--- $1,515 $1,958 Year ended 6-30-97 $2,785 $986 $--- $1,213 $2,558 Year ended 6-30-96 $1,909 $463 $547 $ 134 $2,785 (A): Write-off of accounts and changes in discount allowances. 12 SIGNATURES Pursuant to the requirements of Section 13 or 15(d) 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. THE RIVAL COMPANY By /s/Thomas K. Manning -------------------- Chief Executive Officer September 4, 1998 Pursuant to the requirements of the Securities Exchange Act of 1934, this report has been signed below by the following persons on behalf of the registrant and in the capacities and on the dates indicated below. Signature Title Date - --------- ----- ----- /s/Thomas K. Manning Chairman of the Board of September 4, 1998 ----------------- Directors, Chief Executive Thomas K. Manning Officer (Principal Executive Officer) /s/William L. Yager President, Chief Operating September 4, 1998 ---------------- Officer and Director William L. Yager /s/Mark Meierhoffer Senior Vice President, September 4, 1998 ---------------- Chief Financial Officer Mark Meierhoffer (Principal Accounting and Financial Officer) /s/Darrel M. Sanders Senior Vice President September 4, 1998 ----------------- Operations and Director Darrel M. Sanders /s/Jack J. Culberg Director September 4, 1998 --------------- Jack J. Culberg /s/Todd Goodwin Director September 4, 1998 ------------ Todd Goodwin /s/John E. Grimm, III Director September 4, 1998 ------------------ John E. Grimm, III /s/Lanny R. Julian Director September 4, 1998 --------------- Lanny R. Julian /s/Noel Thomas Patton Director September 4, 1998 ------------------ Noel Thomas Patton /s/Beatrice B. Smith Director September 4, 1998 ----------------- Beatrice B. Smith 13 INDEX TO EXHIBITS Sequentially Exhibit Numbered Number Exhibit Page 2 (a) Agreement of Sale, dated September 11, 1992 between the Rival Company and the Marley Company, relative to the acquisition by the Company of specified assets of Simer Pump (incorporated by reference to Exhibit 2 to Registrant's Form 8-K dated as of September 15, 1992). (b) Purchase Agreement by and between The Rival Company and Pollenex Corporation dated April 30, 1993 (incorporated by reference to Exhibit 1 to Registrant's Form 8-K dated as of April 30, 1993). (c) Purchase Agreement by and among Rival Acquisition Company, The Rival Company and Patton Electric Company, Inc., Giant Lion Trading, Ltd. and Noel Thomas Patton and Eve M. Patton dated April 21, 1995 (incorporated by reference to Exhibit 1 to Registrant's Form 8-K dated as of April 21, 1995). (d) Stock Purchase Agreement between H.S. Investments, Inc. as seller, and The Rival Company, as buyer as of December 29, 1995 (incorporated by reference to Exhibit 2 to Form 8-K dated as of January 2, 1996). (e) Offer to purchase all of the Common Shares of Bionaire Inc. (Offering Circular) dated March 5, 1995 (incorporated by reference to Exhibit 1 to Form 8-K dated as of April 2, 1996). 3 (a) Restated Certificate of Incorporation of The Rival Company, a Delaware corporation (the "Company") (incorporated by reference to Exhibit 3(a) to Registrant's Form 10-K for the year ended June 30, 1992). (b) Bylaws of the Company (incorporated by reference to Exhibit 3(b) to Registrant's Form 10-Q for the quarter ended March 31, 1997). 4 (a) Form of Certificate representing shares of Common Stock, par value $.01 per share (incorporated by reference to Exhibit 4(a) to Registrant's Registration Statement on Form S-1, Registration Number 33-46794 dated June 2, 1992 ("Registrant's S-1")). (b) Form of Certificate of Ownership and Merger of The Rival Company into Rival Manufacturing Company (incorporated by reference to Registrant's S-1). 10 (a) Note Purchase Agreement for $50,000,000 Senior Unsecured Notes dated as of July 23, 1993 between the Company and the Purchasers listed therein (incorporated by reference to Registrant's Form 10-K for the year ended June 30, 1993). (b) Note Purchase Agreement for $50,000,000 Senior Unsecured Notes dated as of April 15, 1996 between the Company and The Purchasers listed therein (incorporated by reference to Registrant's Form 10-Q for the quarter ended March 31, 1996). (c) Credit Agreement for a $75,000,000 Revolving Credit Facility dated as of April 15, 1996 between the Company, the banks listed therein and, NationsBank of Texas, N.A. as agent (incorporated by reference to Registrant's Form 10-Q for the quarter ending March 31, 1996). (d) ** The Company's 1986 Stock Option Plan, as amended and restated (incorporated by reference to Exhibit 10(a) to Registrant's S-1). (e) ** The Company's 1994 Stock Option Plan (incorporated by reference to Exhibit A to Registrant's Proxy Statement, dated September 23, 1994 for its 1994 Annual Meeting of Shareholders). (f) ** Rival Secular Trust Agreement (incorporated by reference to Exhibit 10(e) to Registrant's S-1). 14 (g) ** Employment Agreements, dated as of February 1, 1989 between the Company and Thomas K. Manning, Darrel Sanders and William L. Yager (incorporated by reference to Registrant's Form 10-K for the year ended June 30, 1993). (h) * Description of The Rival Company, Management Incentive Compensation Plan. (i) ** Employment Agreement dated as of December 1, 1996 between the Company and W. Mark Meierhoffer (incorporated by reference to Registrant's Form 10-K for the year ended June 30, 1997). 11 * Statement regarding computation of earnings per share of the Company. 13 * Annual Report to Stockholders for fiscal year ended June 30, 1998 (except for those pages which are specifically incorporated herein by reference, the Company's Annual Report is not to be deemed filed as part of this report.) 21 * List of subsidiaries of the Company. 23 * Independent auditors' consent - -------------------------- * Filed herewith ** Management contract or compensation plan arrangement required to be filed as an exhibit pursuant to Item14(c) of Form 10-K. - -------------------------- The above exhibits may be obtained by Shareholders upon written request to the Office of the Secretary, 800 E. 101st Terrace, Kansas City, Missouri 64131. 15 EX-10 2 Exhibit 10(h) The Rival Company Management Incentive Compensation Plan Each year, under the Management Incentive Bonus Plan, the Compensation and Stock Option Committee establishes goals relating to the Company's operating results and establishes the minimum and maximum bonus pools that may be earned. No bonus is paid to the Chief Executive Officer or the President if a minimum level of budgeted operating results are not achieved. The incentive pool is established under a formula that weights several factors including operating income, net sales and working capital management. A majority of the incentive pool generated by reaching the targets is distributed in cash ratably to designated executive officers and managers at year-end based on a weighing of positions and base salaries. The remaining portion of the incentive pool is distributed to outstanding performers within the eligible group based on the recommendation of the CEO to the Committee. The targeted and maximum bonuses payable to executive officers represent a significant portion of an executive's total compensation (25-30% of the total compensation derived from a combination of base salary, bonus and stock options). EX-11 3 Exhibit 11 THE RIVAL COMPANY AND SUBSIDIARIES Earnings Per Share (in thousands except per share data) Years Ended June 30 ------------------- Diluted Earnings Per Share 1998 1997 1996 ------ ------- ------- Net earnings $9,207 $10,685 $14,239 ====== ======= ======= Weighted average common and common equivalent shares outstanding 9,582 9,895 9,950 ====== ======= ======= Earnings per common and common equivalent share $ 0.96 $ 1.08 $ 1.43 ====== ======= ======= Computation of weighted average common and common equivalent shares outstanding: Average common shares outstanding 9,422 9,684 9,725 Average number of options outstanding 796 690 557 Less treasury shares acquired with proceeds from exercise of options (636) (479) (332) ------ ------- ------- Weighted average common and common equivalent shares outstanding 9,582 9,895 9,950 ====== ======= ======= EX-13 4 Consolidated Statements of Earnings Data
(in thousands, except per share amounts) Years ended June 30, 1998 1997 1996 1995 1994 -------- -------- -------- -------- -------- Net sales $376,919 $376,465 $313,864 $231,711 $229,233 Cost of sales 281,043 278,455 230,207 168,406 162,703 -------- -------- -------- -------- -------- Gross profit 95,876 98,010 83,657 63,305 66,530 Selling, general and administrative expenses 63,251 63,809 50,561 34,461 37,483 Restructuring expenses - 3,000 - - - Amortization of goodwill and other intangible assets 2,894 3,069 2,432 1,774 1,635 -------- -------- -------- -------- -------- Operating income 29,731 28,132 30,664 27,070 27,412 Interest expense 10,099 10,081 7,117 4,216 4,113 Other expenses 3,875 21 295 120 205 -------- -------- -------- -------- -------- Earnings before income taxes 15,757 18,030 23,252 22,734 23,094 Income tax expense 6,550 7,345 9,013 8,749 8,777 -------- -------- -------- -------- -------- Net earnings $ 9,207 $ 10,685 $ 14,239 $ 13,985 $ 14,317 ======== ======== ======== ======== ======== Net earnings per share (Basic EPS) $ 0.98 $ 1.10 $ 1.46 $ 1.50 $ 1.55 ======== ======== ======== ======== ======== Net earnings per share (Diluted EPS) $ 0.96 $ 1.08 $ 1.43 $ 1.47 $ 1.51 ======== ======== ======== ======== ======== Weighted average common shares outstanding 9,422 9,684 9,725 9,312 9,248 ======== ======== ======== ======== ======== Weighted average common and common equivalent shares outstanding (1) 9,582 9,895 9,950 9,505 9,475 ======== ======== ======== ======== ======== Earnings excluding non-recurring items (2) $ 12,186 $ 12,755 $ 14,239 $ 13,985 $ 14,317 ======== ======== ======== ======== ======== Diluted EPS excluding non-recurring items $ 1.27 $ 1.29 $ 1.43 $ 1.47 $ 1.51 ======== ======== ======== ======== ======== Dividends per share $ 0.26 $ 0.24 $ 0.20 $ 0.16 $ 0.12 ======== ======== ======== ======== ======== (1) Stock options are included as common stock equivalents. (2) Non-recurring items include Canadian litigation in 1998 and a restructuring loss in 1997 relative to its Montreal manufacturing, distribution and administrative functions.
Consolidated Balance Sheet Data
(in thousands) At June 30, 1998 1997 1996 1995 1994 -------- -------- -------- -------- -------- Working capital $ 89,607 $ 84,819 $ 91,396 $ 60,293 $ 60,063 Total assets 292,114 298,605 288,251 204,368 151,467 Long-term debt (less current portion) 78,000 84,000 88,000 42,000 46,000 Stockholders' equity 116,615 110,390 106,148 93,805 76,104 * The tables above should be read in conjunction with the Company's consolidated financial statements and notes, which appear herein on pages 22-34, inclusive.
Page 14 Management's Discussion and Analysis of financial Condition and Results of Operations Consolidated Statements of Earnings Data
(expressed as a percentage of sales) Years ended June 30, 1998 1997 1996 ------ ------ ------ Net sales 100.0% 100.0% 100.0% Cost of sales 74.5 74.0 73.3 ------ ------ ------ Gross profit 25.5 26.0 26.7 Selling, general and administrative expenses 16.8 16.9 16.1 Restructuring expenses 0.0 0.8 0.0 Amortization of goodwill and other intangible assets 0.8 0.8 0.8 ------ ------ ------ Operating income 7.9 7.5 9.8 Interest expense 2.7 2.7 2.3 Other expenses 1.0 0.0 0.1 ------ ------ ------ Earnings before income taxes 4.2 4.8 7.4 Income tax expense 1.8 2.0 2.9 ------ ------ ------ Net earnings 2.4% 2.8% 4.5% ====== ====== ======
Net Sales by Business Unit ($ in millions) In order to better focus on each of its product lines and its broadened customer base, the Company manages its operations using a business unit approach. The business units identified by the Company are as follows: * Kitchen Electrics and Personal Care. This group sells products including Crock-Pot? slow cookers, toasters, ice cream freezers, can openers, fryers and massagers to retailers and two step distributors throughout the United States. * Home Environment. This group sells products including fans, air purifiers, humidifiers, electric space heaters, sump pumps, utility pumps, showerheads and household ventilation to retail customers throughout the United States. * Industrial and Building Supply. Our industrial group sells products including industrial fans and drum blowers, household ventilation, ceiling fans, door chimes, electric heaters and household convenience items to electrical and industrial wholesale distributors throughout the United States. * International. Our international group sells the Company's products in Canada and Europe from its sales and distribution facilities in Toronto and the Netherlands. It also ships products from the United States to distributors in Latin America. Sales by business unit and direct consumer sales are reflected in the charts below: [THREE PIE CHARTS]: 1996 Kitchen Electrics $178.9 Home Environment $ 91.8 Industrial/Building Supply $ 26.9 International $ 12.9 Consumer $ 3.4 1997 Kitchen Electrics $188.8 Home Environment $116.5 Industrial/Building Supply $ 30.8 International $ 35.8 Consumer $ 4.6 1998 Kitchen Electrics $191.8 Home Environment $104.9 Industrial/Building Supply $ 30.0 International $ 43.7 Consumer $ 6.5 Page 15 [BAR CHART] Net Sales (Millions of Dollars) 94 229.2 95 231.7 96 313.9 97 376.5 98 376.9 [BAR CHART] Operating Income (Millions of Dollars) 94 27.4 95 27.1 96 30.7 97 28.1 98 29.7 General The Company operates in an industry that continues to experience rapid change and consolidation as evidenced by the recent mergers of major housewares suppliers and continued concentration of retail sales among a few major national retailers. Additionally, the recent economic turmoil in Asia has increased the availability of low-cost household electric products. In this environment, the Company believes it must provide a broad product line including innovative new items, must promote consumer brand awareness and must give excellent customer service in order to be competitive and ensure retail product placement. The Company's sales grew from $232 million in fiscal 1995 to $377 million in fiscal 1998. This sales increase has been the result of internal growth, especially in its kitchen electrics business unit combined with acquisitions that have fueled the growth in its home environment, industrial and international business units. In recent years, the Company has increased its investment in product development in an effort to generate a higher rate of internal sales growth in each of its business units. The Company's investment in product development, excluding tooling, has grown from $3.1 million in fiscal 1996 to $4.5 million in fiscal 1997 and $5.4 million in the most recent year. Manufacturing costs, especially labor rates, have increased in recent years; however, it has been very difficult to pass on higher prices to retailers and the ultimate consumer. Innovative new products and more efficient production will be required to improve margins. The Company has announced plans to close two of its seven manufacturing plants in order to address its excess capacity and reduce costs. Some of the products currently manufactured in plants identified for closure will be transferred to overseas sources; however, most of the production will be transferred to the Company's existing plants in Missouri. The transfer of fan production to Sedalia, Missouri will help normalize production in this plant evenly throughout the year. Additional benefits of the plant restructuring will include lower transportation costs and better utilization of vertically integrated manufacturing processes that are available in the Company's Missouri facilities. The Company expects to record nonrecurring charges of approximately $7.5 million pretax, mostly in the first quarter of fiscal 1999 for severance, facility shutdowns and related costs. The vast majority of the Company's sales are in product lines with continuing demand that provide a stable base of revenues. Future growth is expected to be generated primarily from 1) the introduction of new products and product lines under each of the Company's brand names, 2) expansion and enhancement of the customer base and distribution for products under the Patton and Patton Building Products brands, 3) future acquisitions and 4) geographical expansion. Fiscal 1998 Compared to Fiscal 1997 Net Sales. Net sales increased slightly from $376.5 million for the year ended June 30, 1997 ("fiscal 1997") to $376.9 million for the year ended June 30, 1998 ("fiscal 1998"). Sales of kitchen electrics increased 2% as strong sales of the Company's new oval-shaped Crock-Pot (REGISTERED TRADEMARK) slow Page 16 cooker more than offset lower sales of promotionally priced toasters and novelty massagers. The international business unit experienced 22% sales growth to $43.7 million due to improved placement of kitchen electric products with Canadian retailers and increased fan sales into Latin America. Sales in the home environment business unit declined 10% to $104.9 million due to decreases in sales of Bionaire air purifiers and humidifiers and Patton space heaters that more than offset a near doubling of Pollenex showerhead sales. The sales declines were generally the result of products that were nearing the end of their life cycles. The Company has introduced new products in each of these categories for fiscal 1999. A similar investment in new showerhead development resulted in the fiscal 1998 sales growth in this category. Industrial sales declined slightly during fiscal 1998 as the Company solidified its customer base through improved service during the year. Gross Profit. Gross profit was $95.9 million (25.5% of net sales) in fiscal 1998 compared to $98.0 million (26.0% of net sales) in fiscal 1997. The decline in gross margin was the result of a decrease in sales of high margin novelty massagers together with increased manufacturing costs, in particular higher labor rates, which were not accompanied by price increases. The Company is transferring the production of some of its products to overseas sources and is restructuring its manufacturing operations in an effort to reduce costs and improve gross margins. Selling, General and Administrative Expenses. Selling, general and administrative expenses totaled $63.3 million (16.8% of net sales) in fiscal 1998 compared to $63.8 million (16.9% of net sales) in fiscal 1997. The decline was achieved despite an increase of $0.9 million in product development spending. Legal and professional expenses also increased in fiscal 1998 due to higher spending to protect the Company's intellectual property. These increases were more than offset by savings generated from consolidation of administrative functions in Canada, lower advertising expenditures and a decline in fixed selling expenses from reducing the size of the direct sales force. Restructuring Charge. A restructuring charge of $3.0 million was recognized in fiscal 1997 as a result of the decision to close the Montreal, Canada production and shipping facility together with the consolidation of certain Canadian administrative functions. Interest Expense. Interest expense was $10.1 million in both fiscal 1998 and fiscal 1997. Total average borrowings were $150 million in fiscal 1998, down slightly from $154 million in the prior year. The decline in borrowings was offset by a small increase in average interest rates. Other Non-operating Expense. During fiscal 1998, the Company recognized a litigation charge of $3.8 million related to the settlement of a lawsuit in Montreal. The litigation resulted from an action taken by minority shareholders of Biotech Electronics, Inc., which was a predecessor to Bionaire. The lawsuit originated in 1985 (over 10 years prior to the acquisition of Bionaire by Rival). In January 1998, the Canadian Court of Appeal affirmed a lower court decision and substantially increased the damages awarded to the plaintiffs. In the settlement reached by the Company in June, the plaintiffs dropped all actions against the Company and released the Company and its affiliates from any further liability. [BAR CHART] Interest Expense (Millions of Dollars) 94 4.1 95 4.2 96 7.1 97 10.1 98 10.1 [BAR CHART] Stockholders' Equity (Millions of Dollars) 94 76.1 95 93.8 96 106.1 97 110.4 98 116.6 Page 17 [BAR CHART] Net Earnings (Millions of Dollars) 94 14.3 95 14.0 96 14.2 97 10.7 98 9.2 [BAR CHART] Total Assets (Millions of Dollars) 94 151 95 204 96 288 97 299 98 292 Income Taxes. Effective income tax rates were 41.6% in fiscal 1998 compared to 40.7% in fiscal 1997. The statutory rate was 35% in each year. The difference between the statutory rate and the effective rate is primarily due to non- deductible amortization of goodwill recorded as a result of the 1986 acquisition of the Company and the 1996 acquisition of Bionaire. Additional differences arise due to state income taxes and differences between the rate of taxation between the Company's U.S. and international operations. Additionally, in fiscal 1998, a portion of the Canadian litigation loss was non-deductible, which resulted in the higher effective tax rate. Net Earnings. Net earnings were $9.2 million ($0.96 per diluted share) in fiscal 1998 compared to $10.7 million ($1.08 per diluted share) in fiscal 1997 due to the lower gross margins and the litigation charge discussed above. Excluding the fiscal 1998 Canadian litigation charge and the fiscal 1997 Canadian restructuring charge, net earnings were $12.2 million ($1.27 per diluted share) in fiscal 1998 compared to $12.8 million ($1.29 per diluted share) in fiscal 1997. Average shares outstanding declined as a result of 295,000 shares repurchased late in fiscal 1997 and an additional 88,000 shares repurchased in fiscal 1998. Fiscal 1997 Compared to Fiscal 1996 Net Sales. Net sales increased $62.6 million to $376.5 million for fiscal 1997 compared to $313.9 million for the year ended June 30, 1996 ("fiscal 1996"). The acquisitions of Fasco, Bionaire and Dazey between January 1996 and January 1997 contributed $64.1 million in incremental sales. Excluding these acquired businesses, sales in the kitchen electrics business unit increased approximately $3.5 million or two percent due to new product introductions in the iron and massager categories. Industrial sales were adversely affected by a $4.0 million decrease in sales of fans and drum blowers due to unusually mild weather. The growth in the home environment and international business units was generally consistent with incremental sales from the Fasco and Bionaire acquisitions. Gross Profit. Gross profit was $98.0 million (26.0% of net sales) in fiscal 1997 compared to $83.7 million (26.7% of net sales) in fiscal 1996. The decline in gross margins was the result of unfavorable manufacturing variances caused by excess plant capacity together with high service returns from retail customers. The under-utilization in manufacturing was the result of recent acquisitions and resulted in the closing of two plants in Montreal, Canada, and in Peru, Indiana. Additionally, production in the Sweet Springs, Missouri plant, was significantly curtailed as the facility is now being used as a centralized return center to more effectively process and inspect customer returns. Selling, General and Administrative Expenses. Selling, general and administrative expenses totaled $63.8 million (16.9% of net sales) in fiscal 1997 compared to $50.6 million (16.1% of net sales) in fiscal 1996. Selling expenses increased as a percentage of net sales from 12.7% to 13.4%. The higher expenses as a percentage of net sales are due, in part, to the full year impact of the international and industrial sales contributed by the Bionaire and Fasco acquisitions. Selling expenses of these two business units are higher as a percentage of sales than the kitchen electrics and home environment business units. Distribution expenses also increased as a Page 18 percentage of net sales due to inefficiencies caused by congestion in the Clinton, Missouri, distribution center. A new distribution center was opened in July 1997 in Sedalia, Missouri, in order to increase shipping capacity and improve efficiency. General and administrative expenses were $13.5 million (3.6% of net sales) in fiscal 1997 compared to $10.7 million (3.4% of net sales) in fiscal 1996. Costs incurred by the product engineering group were $3.8 million in fiscal 1997 compared to $2.7 million in fiscal 1996 as the Company increased its spending on product development. Other general and administrative costs increased at rates consistent with the sales growth. Restructuring Charge. A restructuring charge of $3.0 million was recognized in fiscal 1997 as a result of the decision to close the Montreal, Canada, production and shipping facility together with the consolidation of certain Canadian administrative functions. The Montreal facility was acquired as part of the Bionaire acquisition in April 1996. The closing reflects efforts by the Company to reduce its excess plant capacity. The restructuring cost reflects the estimated cost of future lease obligations in excess of projected sublease income as well as severance costs. Interest Expense. Interest expense was $10.1 million in fiscal 1997 compared to $7.1 million in fiscal 1996. Total average borrowings increased from $106 million to $154 million due to the three acquisitions made between January 1996 and January 1997 together with higher working capital requirements. Average interest rates declined from 6.7% in fiscal 1996 to 6.4% in fiscal 1997 due to lower rates on the revolving credit facility. Income Taxes. Effective income tax rates were 40.7% in fiscal 1997 compared to 38.8% in fiscal 1996. The statutory rate was 35% in each year. The difference between the statutory rate and the effective rate is primarily due to nondeductible amortization of goodwill recorded as a result of the 1986 acquisition of the Company and the 1996 acquisition of Bionaire. Additional differences arise due to state income taxes and differences between the rate of taxation between the Company's U.S. and international operations. In fiscal 1997, the Company's Canadian operations operated at a loss as a result of the aforementioned restructuring charge. The tax benefit recognized by the Company on the Canadian loss was below the U.S. statutory rate. Net Earnings. Net earnings were $10.7 million ($1.08 per share) in fiscal 1997 compared to $14.2 million ($1.43 per share) in fiscal 1996 due to the higher interest costs and the restructuring charge discussed above. Average shares outstanding declined slightly due to the repurchase of 295,000 shares in April 1997 and May 1997. Liquidity & Capital Resources The Company generated earnings plus depreciation and amortization of $20.0 million in fiscal 1998, $20.9 million in fiscal 1997 and $22.5 million in fiscal 1996. In recent years, the Company has used its operating cash flows to make significant investments in its business, as evidenced by the $58.6 million spent on three acquisitions and the investment of $25.5 million in plant and equipment during the three years ended June 30, 1998. [BAR CHART] Earnings Excluding Non-Recurring Items (Millions of Dollars) 94 14.3 95 14.0 96 14.2 97 12.8 98 12.1 [BAR CHART] Earnings Per Share (Diluted EPS) Excluding Non-Recurring Items 94 1.51 95 1.47 96 1.43 97 1.29 98 1.27 Page 19 [BAR CHART] Working Capital (Millions of Dollars) 94 60.1 95 60.3 96 91.4 97 84.8 98 89.6 Cash provided by operating activities was $20.8 million in fiscal 1998, $19.4 million in fiscal 1997 and $3.7 million in fiscal 1996. The amount of net cash provided by operating activities can fluctuate significantly as a result of changes in accounts receivable and inventory balances. Investing activities have resulted in a net use of cash during each of the past three fiscal years due to expenditures for property, plant and equipment together with acquisitions. Capital expenditures were $7.2 million in fiscal 1998, $12.5 million in fiscal 1997 and $5.9 million in fiscal 1996. The fiscal 1997 expenditures included $3.2 million toward the construction of a 200,000 square foot distribution center, which was completed in July 1997 at a total cost of approximately $4.0 million. In fiscal 1998 cash was used to repay borrowings of $10.9 million, to repurchase common stock for $1.2 million and to pay dividends in the amount of $2.5 million. Cash flows from financing activities in fiscal 1997 consisted of $13.2 million in net borrowings under the Company's revolving credit facilities. In fiscal 1996, the Company borrowed $50 million in a private placement under a ten year, 7.21% unsecured note purchase agreement. The proceeds of the private placement were used to repay borrowings which had accumulated under a revolving credit agreement as a result of acquisitions. The Company's operations require significant amounts of working capital, particularly during the fall of each year. Sales are on terms which generally range from 30 days to 75 days, resulting in substantial accounts receivable balances. Due to the seasonal nature of the business, the Company builds inventory levels during the spring and summer in anticipation of a heavy August through November selling season for the kitchen electrics products and some seasonal home environment items such as humidifiers and heaters. Historically, inventory levels peak in August. The Company relies on revolving credit loans to finance these working capital requirements. As of June 30, 1998, the Company had $84 million in long term debt (including $6 million current portion) and $75 million in revolving loan commitments. Revolving credit loans outstanding were $58.2 million as of such date. The long term debt requires annual principal payments ranging from $6.0 million to $7.0 million over the next five years and has a final maturity in 2008. The revolving credit facility expires in June 1999 and currently bears interest at a floating rate of libor plus .75%. In addition, the Company is required to pay a fee of .25% on the unused portion of the commitment. Subsequent to June 30, 1998, the Company obtained an additional revolving credit facility for a period of one year in the amount of the Canadian Dollar equivalent of U.S. $10.0 million for the purpose of funding Canadian operations. The term notes and the revolving credit loans include financial covenants regarding minimum net worth, minimum fixed charge coverage ratios and maximum leverage ratios. The borrowings under the U.S. revolving credit facility are required to be $45 million or less for a period of 45 consecutive days each year. No assets of the Company are pledged to secure any indebtedness. Management believes that cash generated from operations, together with the revolving loan commitments will be sufficient to meet its cash requirements for the foreseeable future. Page 20 Inflation The Company believes that its business has not been affected by inflation, except to the extent the economy in general has been affected thereby. Computer Systems and the Year 2000 During the past several years, the Company has replaced all of its significant computer software applications as part of normal system upgrades. All of the new systems are, according to the software vendors, Year 2000 compliant (i.e. support proper processing of transactions relating to the year 2000 and beyond). The Company has created a task force to test all of its significant software and to determine whether embedded technology, such as microcontrollers, contained in its machinery and equipment is Year 2000 compliant. In addition, the task force will review the Year 2000 compliance of its key suppliers and service providers in an effort to reduce the potential adverse effect on its operations from non-compliance by such parties. The task force is currently expected to complete its review by June 30, 1999. As systems are tested, the Company intends to develop contingency plans for systems that exhibit possible Year 2000 problems. The cost of the task force's activities is not expected to be significant. Forward Looking Information This annual report contains forward-looking statements within the meaning of the Private Securities Litigation Reform Act of 1995, which may include statements concerning projection of revenues, income or loss, capital expenditures, capital structure, or other financial items, statements regarding the plans and objectives of management for future operations, statements of future economic performance, statements of the assumptions underlying or relating to any of the foregoing statements, and other statements which are other than statements of historical fact. These statements appear in a number of places in this annual report and include statements regarding the intent, belief, or current expectations of the Company's management with respect to (i) the demand and price for the Company's products and services, (ii) the Company's competitive position, (iii) the supply and price of materials used by the Company, (iv) the cost and timing of the completion of new or expanded facilities, (v) the costs to close and the estimated net realizable value to be received for facilities impacted by the restructuring plan, or (vi) other trends affecting the Company's financial condition or results of operations. Statements made throughout this report are based on current estimates of future events, and the Company has no obligation to update or correct these estimates. Some important factors that could cause the actual results to differ materially from those discussed in the forward-looking statements include, but are not limited to: the ability of the Company to successfully develop new products and enhance existing product lines; general international and domestic economic conditions; competitive, regulatory or tax changes that affect the cost of or demand for the Company's products; weather conditions; adverse litigation results; the ability of the Company to achieve cost-saving goals; changes in raw material prices or availability; changes in the number of warranty claims and product returns; and the loss of one or more significant customers. Other factors not identified herein could also have such an effect. Readers are cautioned that any such forward-looking statements are not guarantees of future performance and involve risks and uncertainties, and that actual results may differ materially as a result of these various factors. [BAR CHART] Long-Term Debt (Millions of Dollars) 94 46.0 95 42.0 96 88.0 97 84.0 98 78.0 Page 21 Consolidated Balance Sheets
(in thousands) June 30, 1998 1997 -------- -------- Assets Current assets: Cash $ 309 $ 194 Accounts receivable (net of allowance for collection losses and discounts of $1,958 and $2,558 in 1998 and 1997, respectively) 75,106 74,663 Inventories 101,714 105,287 Deferred income tax charges 2,379 2,584 Prepaid expenses 1,376 1,375 -------- -------- Total current assets 180,884 184,103 Property, plant and equipment, net 46,045 46,695 Goodwill 60,418 62,314 Other assets 4,767 5,493 -------- -------- $292,114 $298,605 ======== ======== Liabilities and Stockholders' Equity Current Liabilities: Notes payable to bank $ 58,200 $ 65,075 Current portion of long-term debt 6,000 4,000 Trade accounts payable 15,056 15,477 Accrued interest 1,920 1,979 Income taxes payable 403 1,231 Other payables and accrued expenses 9,698 11,522 -------- -------- Total current liabilities 91,277 99,284 Long-term debt, less current portion 78,000 84,000 Deferred income taxes and other liabilities 6,222 4,931 Stockholders' equity Common Stock; $0.01 par value. Authorized 15,000,000 shares; issued, 9,804,324 in 1998 and 9,769,244 in 1997; outstanding, 9,396,227 in 1998 and 9,448,847 in 1997 98 98 Paid-in capital 45,971 45,656 Accumulated other comprehensive income (309) (632) Treasury stock, at cost (5,608) (4,438) Retained earnings 76,463 69,706 -------- -------- Total stockholders' equity 116,615 110,390 Commitments and contingencies -------- -------- $292,114 $298,605 ======== ======== See accompanying notes to consolidated financial statements.
Page 22 Consolidated Statements of earnings
(in thousands, except per share amounts) Years ended June 30, 1998 1997 1996 -------- -------- -------- Net sales $376,919 $376,465 $313,864 Cost of sales 281,043 278,455 230,207 Gross profit 95,876 98,010 83,657 Selling expenses 50,055 50,352 39,884 General and administrative expenses 13,196 13,457 10,677 Restructuring expenses - 3,000 - Amortization of goodwill and other intangible assets 2,894 3,069 2,432 -------- -------- -------- Operating income 29,731 28,132 30,664 -------- -------- -------- Other expenses: Interest expense 10,099 10,081 7,117 Miscellaneous, net 3,875 21 295 -------- -------- -------- Total other expenses 13,974 10,102 7,412 -------- -------- -------- Earnings before income taxes 15,757 18,030 23,252 Income tax expense 6,550 7,345 9,013 -------- -------- -------- Net earnings $ 9,207 $ 10,685 $ 14,239 ======== ======== ======== Weighted average common shares outstanding 9,422 9,684 9,725 ======== ======== ======== Net earnings per share (Basic EPS) $ 0.98 $ 1.10 $ 1.46 ======== ======== ======== Weighted average common and common equivalent shares outstanding 9,582 9,895 9,950 ======== ======== ======== Net earnings per share (Diluted EPS) $ 0.96 $ 1.08 $ 1.43 ======== ======== ======== See accompanying notes to consolidated financial statements.
Page 23 Consolidated Statements of Stockholders' Equity
(in thousands, except share amounts) Accumulated Other Total Common Paid-In Comprehensive Treasury Retained Stockholders' Stock Capital Income Stock Earnings Equity --- ------- ----- ------- ------- -------- Balance June 30, 1995 $97 $45,366 $(395) $( 310) $49,047 $ 93,805 Common stock issued-14,734 shares - 30 - - - 30 Foreign currency translation adjustments - - (73) - - (73) Income tax benefit recognized upon exercise of non-qualified stock options - 92 - - - 92 Dividends paid - - - - (1,945) (1,945) Net earnings - - - - 14,239 14,239 --- ------- ----- ------- ------- -------- Balance June 30, 1996 97 45,488 (468) (310) 61,341 106,148 Common stock issued-14,180 shares 1 138 - - - 139 Foreign currency translation adjustments - - (164) - - (164) Income tax benefit recognized upon exercise of non-qualified stock options - 30 - - - 30 Purchase of common stock for treasury-295,000 shares - - - (4,128) - (4,128) Dividends paid - - - - (2,320) (2,320) Net earnings - - - - 10,685 10,685 --- ------- ----- ------- ------- -------- Balance June 30, 1997 98 45,656 (632) (4,438) 69,706 110,390 Common stock issued-35,080 shares 0 252 - - - 252 Foreign currency translation adjustments - - 323 - - 323 Income tax benefit recognized upon exercise of non-qualified stock options - 63 - - - 63 Purchase of common stock for treasury-87,700 shares - - - (1,170) - (1,170) Dividends paid - - - - (2,450) (2,450) Net earnings - - - - 9,207 9,207 --- ------- ----- ------- ------- -------- Balance June 30, 1998 $98 $45,971 $(309) $(5,608) $76,463 $116,615 === ======= ===== ======= ======= ========
Consolidated Statements of Comprehensive Income
(in thousands) Years ended June 30, 1998 1997 1996 ------- ------- ------- Net earnings $ 9,207 $10,685 $14,239 Other comprehensive income: Foreign currency translation adjustments 323 (164) (73) ------- ------- ------- Comprehensive income $ 9,530 $10,521 $14,166 ======= ======= ======= See accompanying notes to consolidated financial statements.
Page 24 Consolidated Statements of Cash Flows
(in thousands) Years ended June 30, 1998 1997 1996 --------- --------- --------- Cash Flows From Operating Activities: Net earnings $ 9,207 $ 10,685 $ 14,239 Adjustments to reconcile net earnings to net cash provided by operating activities: Depreciation and amortization 10,788 10,246 8,293 Provision for losses on accounts receivable 915 986 463 Deferred income taxes 683 (432) (402) Other 173 292 433 Changes in assets and liabilities, net of acquisitions: Accounts receivable (1,358) (1,546) (15,101) Inventories 3,573 2,499 (3,727) Prepaid expenses (1) 767 455 Income taxes (828) 1,034 (380) Accounts payable and accruals (2,304) (5,103) (567) --------- --------- --------- Total adjustments 11,641 8,743 (10,533) --------- --------- --------- Net cash provided by operating activities 20,848 19,428 3,706 --------- --------- --------- Cash Flows From Investing Activities: Capital expenditures (7,199) (12,460) (5,873) Acquisition of businesses - (10,922) (47,670) Other (364) (61) (619) --------- --------- --------- Net cash used in investing activities (7,563) (23,443) (54,162) --------- --------- --------- Cash Flows From Financing Activities: Borrowings under working capital loans 85,200 89,529 122,854 Repayment of working capital loans (92,075) (76,350) (115,100) Borrowings under term loan agreements - - 50,000 Repayment of long-term debt (4,000) (4,000) (4,000) Dividends paid (2,450) (2,320) (1,945) Purchase of common stock for treasury (1,170) (4,128) - Other 1,002 139 30 --------- --------- --------- Net cash provided (used) by financing activities (13,493) 2,870 51,839 --------- --------- --------- Effect of Exchange Rate Changes on Cash 323 (164) (73) --------- --------- --------- Net Increase (Decrease) in Cash 115 (1,309) 1,310 Cash at Beginning of Period 194 1,503 193 --------- --------- --------- Cash at End of Period $ 309 $ 194 $ 1,503 ========= ========= ========= See accompanying notes to consolidated financial statements.
Page 25 Notes to Consolidated Financial Statements 1. Summary of Significant Accounting Policies Operations of The Rival Company and its Subsidiaries The Rival Company and its subsidiaries ("the Company") design, manufacture and market small household appliances, personal care appliances, commercial and industrial fans, ventilation equipment as well as sump, well and utility pumps. The Company sells its products to retail and industrial customers, primarily in the U.S. and Canada. The Company's raw materials are readily available, and the Company is not dependent on any small group of suppliers. Principles of Consolidation The Consolidated Financial Statements include the accounts of The Rival Company and its direct and indirect wholly-owned subsidiaries: Bionaire Corporation, Bionaire International B.V. ("Bionaire - Europe"), Patton Building Products, Inc. ("PBC"), Patton Electric Company, Inc. ("Patton"), Patton Electric (Hong Kong) Limited ("PEHK"), Rival Consumer Sales Corporation, The Rival Company of Canada, Ltd. ("Rival-Canada"), Rival de Mexico S.A. de C.V. and Waverly Products Company, Ltd. All significant intercompany account balances and transactions have been eliminated in consolidation. Inventories Approximately 38% of the Company's inventories are stated at the lower of lifo (last-in, first-out method) cost or market at June 30, 1998 (43% at June 30, 1997). The balance of the inventories is stated at the lower of fifo (first-in, first-out) cost or market. Depreciation Depreciation on property, plant and equipment is computed on a straight-line basis over the estimated useful lives of the assets which range from 3 to 10 years on furniture and fixtures as well as machinery and equipment and 10 to 40 years on buildings and improvements. Goodwill The excess of the purchase price paid in the 1986 acquisition of the Company over the estimated fair value of the net assets acquired (goodwill) is being amortized on a straight-line basis over a period of forty years. The goodwill resulting from subsequent acquisitions is being amortized on a straight-line basis over periods ranging from 15 to 30 years. The Company assesses the recoverability of goodwill and measures impairment, if any, by determining whether the amortization of the goodwill balance over its remaining life can be recovered through future operating cash flows. Goodwill is reflected in the accompanying Consolidated Balance Sheets net of accumulated amortization of $16,687,000 and $14,448,000 at June 30, 1998 and 1997, respectively. Other Assets Other assets include non-compete agreements with an aggregate unamortized balance of $2.8 million. Such agreements are being amortized on a straight-line basis over their contractual terms which range from three to eight years. Income Taxes The Company and its domestic subsidiaries file a consolidated federal income tax return. The Company accounts for income taxes using the asset and liability method. Under the asset and liability method, deferred tax assets and liabilities are recognized for the future tax consequences attributable to differences between the financial statement carrying amounts of existing assets and liabilities and their respective tax bases. Deferred tax assets and liabilities are measured using enacted tax rates expected to be recovered or settled. The effect on deferred tax assets and liabilities of a change in tax rates is recognized in earnings in the period that includes the enactment date. Research and Development Research and development costs are expensed when incurred. Such costs were $5,418,000 in 1998, $4,477,000 in 1997 and $3,136,000 in 1996. Self-insurance The Company maintains a self-insurance program against general and product liability claims, as well as medical claims and workers' compensation claims, with excess coverage above the Company's self-insured retention. Provisions for such claims are accrued based upon the Company's estimate of its aggregate liability. Page 26 Net Sales The Company recognizes revenue at the time products are shipped to its customers. Sales to one of the Company's customers were 26% of consolidated net sales for each of the three years ended June 30, 1998. The Company's customer base consists primarily of retailers and distributors who sell to retailers throughout the United States and Canada. As such, a significant concentration of the Company's business activity is with entities whose ability to meet their obligations with the Company is dependent upon prevailing economic conditions within the retail industry. Comprehensive Income In June 1997, the Financial Accounting Standards Board issued Statement No. 130, "Reporting Comprehensive Income" which establishes rules for the reporting of comprehensive income and its components. Comprehensive income consists of net income and foreign currency translation adjustments and is presented in the Consolidated Statements of Comprehensive Income. The adoption of Statement No. 130 had no impact on total stockholders' equity. Foreign Currency Translation Assets and liabilities in foreign currencies are translated into dollars at the rates prevailing at the balance sheet date. Revenues and expenses are translated at average rates for the year. The net exchange differences resulting from these translations are reported in stockholders' equity, net of tax effects as Other Comprehensive Income. Fair Value of Financial Instruments The carrying amount of cash, accounts receivable, notes payable to bank and trade accounts payable approximates fair value because of the short maturity of these instruments. The fair value of the Company's long-term debt ($86.3 million at June 30, 1998) was estimated using current interest rates for similar debt. The carrying amount of long-term debt at June 30, 1998 was $84.0 million. Net Earnings Per Share In February 1997, the Financial Accounting Standards Board issued Statement No. 128, "Earnings Per Share" which revises the calculation and presentation provisions of Accounting Principles Board Opinion 15 ("APB 15") and related interpretations. Statement No. 128 has been adopted in the accompanying financial statements with retroactive application. Basic earnings per share excludes dilution and is computed by dividing net earnings by the weighted average number of common shares outstanding for the period. Diluted earnings per share reflects the potential dilution that could occur if securities or other contracts to issue common stock were exercised or converted into common stock. Diluted earnings per share is computed based upon the weighted average number of common shares and dilutive common equivalent shares outstanding. Common stock options, which are common stock equivalents, have a dilutive effect on earnings per share in all periods presented and are therefore included in the computation of diluted earnings per share. Diluted earnings per share in the accompanying statements of operations is identical to the primary earnings per share previously presented in accordance with APB 15. Use of Estimates The preparation of the consolidated financial statements in conformity with generally accepted accounting principles requires the Company to make estimates and assumptions that affect the reported amounts of assets and liabilities and disclosure of contingent assets and liabilities at the date of the consolidated financial statements and the reported amounts of revenues and expenses during the reporting period. Actual results could differ from those amounts. 2. Acquisitions On January 7, 1997, the Company acquired certain of the assets of Dazey Corporation for $9.9 million in cash. Assets acquired include the inventory, tooling, machinery and equipment for the production and sale of the kitchen product line of Dazey. Sales of these products, which are marketed under the Rival brand name, were approximately $20 million annually at the date of acquisition. On January 2, 1996, the Company acquired 100% of the Common Stock of Fasco Consumer Products, Inc. ("Fasco"), a Fayetteville, North Carolina manufacturer of heating, ventilating and other convenience products that are distributed through wholesale and retail markets with annual sales of approximately $40 million at the date of acquisition. The Company paid $23.5 million in cash for the stock of Fasco together with a non-compete agreement from the seller and its affiliates. The Company now markets these products under the Patton Building Products trade name. Page 27 2. Acquisitions, continued On April 3, 1996, the Company, through a wholly-owned Canadian subsidiary, completed the acquisition of Bionaire, Inc. ("Bionaire"). Bionaire, which had annual sales of approximately $57 million and was headquartered in Lachine, Quebec, assembles and markets air purifiers, humidifiers and related accessories such as replacement filters. The Company paid $25.0 million in cash for the stock of Bionaire. The consolidated operating results for the Company for the fiscal year ended June 30, 1996 on a proforma basis as though the Fasco and Bionaire acquisitions had occurred on July 1, 1995 would be as follows (in thousands, except per share amounts) (unaudited): net sales - $383,646; net earnings - $14,995; earnings per share - $1.51. The proforma effect of the Dazey acquisition on operating results for prior periods was not significant. The proforma results of operations are not necessarily indicative of the actual operating results that would have occurred had the acquisitions been consummated on July 1, 1995 or of future operating results on a combined basis. The operating results of Fasco, Bionaire and Dazey have been included in the consolidated results of the Company since the date of their respective acquisitions. 3. Inventories
Inventories consist of (in thousands): at June 30, 1998 1997 -------- -------- Raw materials and work in process $ 40,518 $ 52,933 Finished goods 67,061 57,794 -------- -------- 107,579 110,727 Valuation to LIFO (5,865) (5,440) -------- -------- $101,714 $105,287 ======== ========
If LIFO inventories had been stated at the lower of FIFO cost or market, earnings before income taxes would have been $425,000, $897,000 and $761,000 higher for the years ended June 30, 1998, 1997 and 1996, respectively. 4. Property, Plant and Equipment
Property, plant and equipment is summarized as follows (in thousands): at June 30, 1998 1997 ------- ------- Land $ 1,125 $ 1,125 Buildings and improvements 25,499 23,993 Machinery and equipment 50,521 50,832 Furniture and fixtures 7,466 6,392 ------- ------- 84,611 82,342 Less accumulated depreciation (38,566) (35,647) ------- ------- $46,045 $46,695 ======= =======
5. Notes Payable and Long-Term Debt On April 15, 1996, the Company entered into a $75 million unsecured revolving line of credit with a group of banks (the "Revolving Credit Facility"). Borrowings under the Revolving Credit Facility bear interest at floating rates determined at the Company's option to be LIBOR plus .75% or prime. In addition, the Company is required to pay a fee of .25% per annum on the unused portion of the commitment. At June 30, 1998, $58.2 million was outstanding under the Revolving Credit Facility. On April 19, 1996, the Company sold $50 million in unsecured notes in a private placement. The notes bear interest at a rate of 7.21%, and have a final maturity in 2008. In conjunction with the sale of these notes, the Company entered into a twelve year interest rate swap transaction with Bank of America, n.a. ("B of A") in the notional amount of $25 million. The effect of the swap transaction was to convert the interest payment stream on $25 million of the notes to a variable rate which was approximately 0.45% above the prevailing six month libor rate. During fiscal 1998, the Company entered into an agreement with B of A to terminate the interest rate swap agreement in exchange for a payment by B of A to the Company in the amount Page 28 of $750,000. The Company will recognize the $750,000 gain as a reduction of interest expense through the 2008 maturity of the underlying notes resulting in an effective interest rate to maturity of 6.74% on $25 million of the notes. On July 23, 1993, the Company sold $50 million in unsecured notes in a private placement. These notes bear interest at a per annum rate of 6.42% which is paid semiannually and have a final maturity in 2003. The balance outstanding on June 30, 1998 was $34.0 million. Installment payments on the long-term debt for the next five fiscal years are as follows: 1999, $6,000,000; 2000, $7,000,000; 2001, $7,000,000; 2002, $7,000,000; 2003, $7,000,000. The unsecured notes and the Revolving Credit Facility include financial covenants regarding minimum net worth, minimum fixed charge coverage ratio and maximum leverage ratios. At June 30, 1998, the Company had $16.0 million in unrestricted retained earnings available for future dividends. The year-end interest rate (exclusive of commitment fees) on working capital loans under the Revolving Credit Facility was 6.54% and 6.13% at June 30, 1998 and 1997, respectively. Total interest paid on all indebtedness during the years ended June 30, 1998, 1997 and 1996 was $10,155,000, $10,334,000 and $6,373,000, respectively. 6. Income Taxes
Income tax expense (benefit) is comprised of the following (in thousands): Years ended June 30, 1998 1997 1996 ------ ------ ------ Current: Federal $5,216 $6,690 $9,356 State and local 200 640 549 Foreign 451 447 (490) ------ ------ ------ Total current tax expense 5,867 7,777 9,415 Deferred tax expense (benefit) 683 (432) (402) ------ ------ ------ Total income tax expense $6,550 $7,345 $9,013 ====== ====== ======
The tax effects of temporary differences that result in deferred assets and (liabilities) are presented below (in thousands). There were no valuation allowances provided for deferred tax assets. at June 30, 1998 1997 ------- ------- Depreciation $(4,373) $(3,887) Inventory (1,385) (1,297) Pension plan costs (361) (392) ------- ------- Total deferred tax liabilities (6,119) (5,576) ------- ------- Bad debts 157 416 Reserves not currently deductible 1,981 2,157 Carryforward of Canadian income tax benefit 1,269 1,014 Other 285 245 ------- ------- Total deferred tax assets 3,692 3,832 ------- ------- Net deferred tax liabilities $(2,427) $(1,744) ======= =======
A reconciliation of the U.S. statutory rates to the Company's effective tax rates is as follows: Years ended June 30, 1998 1997 1996 ---- ---- ---- Income tax expense at statutory rate 35.0% 35.0% 35.0% State income tax expense net of federal income tax benefit 0.8 2.3 1.5 Amortization of goodwill 3.3 2.9 1.8 Non-deductible litigation loss 3.1 - - Other (.6) .5 .5 ---- ---- ---- Effective tax rate 41.6% 40.7% 38.8% ==== ==== ====
Page 29 6. Income Taxes, continued Total income taxes paid, net of refunds, during the years ended June 30, 1998, 1997 and 1996 was $5,132,000, $6,140,000 and $9,703,000, respectively. The Company has foreign investment tax credits approximating $1,300,000 and domestic and foreign net operating loss carryforwards approximating $900,000 and $4,100,000, respectively, with respect to its acquisition of Bionaire. Utilization of these carryforwards is subject to limitation and such carryforwards expire starting in 2011 for domestic and 2001 for foreign. 7. Pension and Retirement Plans
The Company has noncontributory defined benefit pension and retirement plans covering salaried and certain hourly employees. The components of the net periodic pension cost of the plans are as follows (in thousands): Years ended June 30, 1998 1997 1996 ------- ------- ------- Service cost-benefits earned during the period $ 705 $ 663 $ 566 Interest cost on projected benefit obligation 928 879 826 Actual return on plan assets (3,616) (1,416) (2,528) Net amortization and deferral 2,379 286 1,631 ------- ------- ------- Net periodic pension expense $ 396 $ 412 $ 495 ======= ======= =======
The following table sets forth the plans' funded status and the amounts included in the Company's Consolidated Balance Sheets (in thousands): at June 30, 1998 1997 ------- ------- Actuarial present value of accumulated benefit obligations: Vested $11,433 $10,529 Non-vested 731 776 ------- ------- Accumulated benefit obligation 12,164 11,305 Excess of projected benefit obligation over accumulated benefit obligation 1,565 1,693 ------- ------- Projected benefit obligation 13,729 12,998 ======= ======= Fair value of plan assets 18,388 15,146 ======= ======= Plan assets in excess of projected benefit obligation 4,659 2,148 Unrecognized net (gain) loss (3,232) (980) Unrecognized prior service cost 279 700 Unrecognized net transition asset (amortized over 22 years) (856) (936) ------- ------- Prepaid pension cost $ 850 $ 932 ======= ======= As of June 30, 1998, approximately 2% of pension plan assets were invested in cash equivalents, 40% were invested in an intermediate term bond fund which consisted primarily of U.S. Government obligations and 58% were invested in common stocks. Significant pension plan assumptions are as follows:
Years ended June 30, 1998 1997 1996 ----- ----- ----- Discount rate 7.25% 7.50% 7.50% Expected long-term rate of return on plan assets 8.00% 8.00% 8.00% Salary increase rate 4.50% 4.50% 4.50%
The Company has a Savings Plan (401k) which allows employees to make voluntary contributions of up to 15% of annual compensation, as defined. The Company makes partial matching contributions which were $113,000, $119,000 and $95,000 for the years ended June 30, 1998, 1997 and 1996, respectively. The Company does not provide any postretirement benefits other than pensions. Page 30 8. Leases The Company maintains operating leases on equipment, warehouse and office properties. Rental expense under such leases amounted to $1,394,000, $1,800,000 and $790,000 for the years ended June 30, 1998, 1997 and 1996, respectively. Future rental commitments under noncancellable operating leases with a remaining term in excess of one year at June 30, 1998 are as follows: 1999, $1,243,000; 2000, $1,912,000; 2001, $689,000; 2002, $582,000; 2003, $566,000; thereafter, $1,410,000. 9. Compensation Arrangements The 1994 Stock Option Plan provides for the granting of options to purchase 700,000 shares of common stock. Additionally, the 1986 Stock Option Plan provided for the granting of options to purchase 742,000 shares of common stock. Options granted under the plans may be either incentive stock options or nonqualified stock options and have terms of ten years. The option price for incentive stock options under the plans is to be the greater of par value or fair market value on the date of grant. The option price for nonqualified stock options under the plans is to be determined by the Company's Board of Directors, but may not be less than par value. At the end of each year following the date of grant, 25% of the options become exercisable, with accumulation privileges. The Company accounts for the stock options in accordance with the provisions of Accounting Principles Board (APB) Opinion No. 25, "Accounting for Stock Issued to Employees", and related interpretations. As such, compensation expense is recorded on the date of grant only if the current market price of the underlying stock exceeds the exercise price. On June 30, 1997, the Company adopted Statement of Financial Accounting Standards No. 123, "Accounting for Stock-Based Compensation" (FAS 123), which permits entities to recognize as expense over the vesting period the fair value of all stock-based awards on the date of grant. Alternatively, FAS 123 allows entities to continue to apply the provisions of APB Opinion No. 25 and provide pro forma net earnings and pro forma earnings per share disclosures for employee stock option grants made in 1996 and future years as if the fair-value-based method defined in FAS 123 had been applied. The Company has elected to continue to apply the provisions of APB Opinion No. 25 and provide the pro forma disclosure provisions of FAS 123.
A combined summary of the status of the Company's two fixed stock option plans at the end of 1998, 1997 and 1996, and changes during these years is presented below: 1998 1997 1996 --------------- --------------- --------------- Weighted- Weighted- Weighted- Number average Number average Number average of exercise of exercise of exercise Fixed options shares price shares price shares price --------------- --------------- --------------- Outstanding at beginning of year 828,091 14.74 687,821 15.07 537,555 11.98 Granted 177,200 15.60 202,100 14.73 177,000 23.87 Exercised (35,080) 7.25 (14,180) 9.71 (14,734) 2.05 Forfeited (84,900) 18.41 (47,650) 21.00 (12,000) 19.22 --------------- --------------- --------------- Outstanding at end of year 885,311 14.86 828,091 14.74 687,821 15.07 ======= ======= ======= Options exercisable at year end 492,037 435,579 319,161 ======= ======= =======
The following table summarizes information about fixed stock options outstanding at June 30, 1998. Options Outstanding Options exercisable ------------------- ------------------- Range of Number Weighted-average Number exercise outstanding remaining Weighted-average exercisable Weighted-average prices at 6/30/98 contractual life price at 6/30/98 exercise price - --------------- ------- --- ------ ------- ------ (in years) $0.19 90,161 1.4 $ 0.19 90,161 $ 0.19 $11.125 - 16.00 569,300 7.7 14.11 248,976 13.03 $19.50 - 25.625 225,850 7.0 22.35 152,900 21.97 - --------------- ------- --- ------ ------- ------ Total 885,311 6.9 $14.86 492,037 $13.46 =============== ======= === ====== ======= ======
Page 31 9. Compensation Arrangements, continued The per share weighted-average fair value of stock options granted during 1998, 1997 and 1996 was $5.89, $5.87 and $7.33, respectively, on the date of grant using the Black Scholes option-pricing model with the following assumptions: expected dividend yield of 1.94%, 1.83% and 1.82% for 1998, 1997 and 1996, respectively; weighted average risk-free interest rate of 5.57% for 1998 and 6.50% for 1997 and 1996; expected volatility factor of 31.73%, 30.83% and 17.28% for 1998, 1997 and 1996, respectively; and a weighted-average expected life of eight years. Since the Company applies APB Opinion No. 25 in accounting for its plans, no compensation expense has been recognized for its stock options in the financial statements. Had the Company recorded compensation expense based on the fair value at the grant date for its stock options under FAS 123, the Company's net earnings and earnings per share would have been reduced by approximately $641,000 or $0.07 per diluted share in 1998, approximately $582,000 or $0.06 per diluted share in 1997 and approximately $414,000 or $0.04 per diluted share in 1996. Pro forma net earnings reflect only options granted during 1998, 1997 and 1996. Therefore, the full impact of calculating compensation expense for stock options under FAS 123 is not reflected in the pro forma net earnings amounts presented above, because compensation expense is reflected over the options' vesting period of four years. Compensation expense for options granted prior to July 1, 1995 is not considered. The Company provides an incentive compensation plan for certain members of management. Bonuses under the plan are paid based upon achievement of individual goals as well as the Company's performance as measured by actual earnings from operations compared to budgeted earnings from operations. Bonuses under the plan were $725,000 for 1998, $392,000 for 1997 and $750,000 for 1996. 10. Litigation and Restructuring Charges During 1998, the Company recognized a litigation charge of $3.8 million ($3.0 million after tax) relative to the settlement of a lawsuit in Montreal. In the litigation, several former shareholders of Biotech Electronics Ltd. ("Biotech"), claimed that they were underpaid for their stock by the majority shareholders and filed a lawsuit against Biotech and the majority shareholders. Biotech was the predecessor of Bionaire which, following the April 1996 acquisition, was merged into the Company's wholly-owned subsidiary, Rival Canada. The lawsuit originated in 1985 (over 10 years prior to the acquisition). In 1998 the Canadian Court of Appeal affirmed a failure to disclose information by the stock purchasers and increased the damage award from CDN $0.2 million to CDN $2.9 million together with interest and other costs that increased the total judgment to CDN $7.2 million. Such judgment was a joint and several obligation of Rival-Canada and the co-defendants. During June 1998, the Company obtained a settlement in which the plaintiffs dropped all actions against Biotech Electronics, Bionaire and Rival and released the Company and its affiliates from further liability. The U.S. $3.8 million expense incurred relative to the settlement and related legal costs has been included in the accompanying consolidated statement of earnings as other non-operating expense. A restructuring charge of $3.0 million was recognized in fiscal 1997 as a result of the decision to close the Montreal, Canada production and shipping facility together with the consolidation of certain Canadian administrative functions. The Montreal facility was acquired as part of the Bionaire acquisition in April 1996. The charge consisted of estimated cash expenditures for employee termination costs, including severance pay and related benefits for approximately 100 people and estimated future leasehold costs in excess of projected rentals to be received from subleasing the facility through June 2000.
The following table reflects the activity recorded for the charge in fiscal 1998 and 1997 (in thousands): Employee Lease Severance Termination Total ----- ------- ------- Reserve established $ 500 $ 2,500 $ 3,000 Cash payments - fiscal 1997 (331) (457) (788) Cash payments - fiscal 1998 (169) (1,034) (1,203) ----- ------- ------- Reserve remaining at June 30, 1998 $ - $ 1,009 $ 1,009 ===== ======= =======
Page 32 11. Subsequent Event In July 1998, the Company announced its plans to close two of its seven manufacturing plants, to expand its current operations in Warrensburg and Sedalia, Missouri and to outsource additional production with overseas suppliers. The plans also call for closing three distribution centers. As a result of the restructuring, the Company expects to incur charges for severance, facility shutdowns and related costs of approximately $7.5 million during the year commencing July 1, 1998. 12. Contingencies The Company is party to various product liability lawsuits relating to its products and incidental to its business. The Company believes that many of the personal injury and damage claims brought against it arise from the misuse or misapplication of the Company's products and rarely involve manufacturing defects. In such cases, the Company vigorously defends against such actions. Historically, product liability awards have rarely exceeded the Company's individual per occurrence self-insured retention. There can be no assurance, however, that the Company's future product liability experience will be consistent with its past experience. The Company believes that the ultimate conclusion of the various pending claims and lawsuits of the Company will not have a material adverse effect on the consolidated financial statements of the Company. 13. Business Segments The Rival Company manages its operations through four business units: kitchen electrics and personal care ("kitchen electrics"), home environment, industrial and building supply ("industrial") and international. The kitchen electrics business unit sells products including Crock-Pot (REGISTERED TRADEMARK) slow cookers, toasters, ice cream freezers, can openers, fryers and massagers to retailers throughout the U.S. The home environment business unit sells products including fans, air purifiers, humidifiers, electric space heaters, utility pumps, showerheads and household ventilation to retailers throughout the U.S. The industrial group sells products including industrial fans and drum blowers, household ventilation, ceiling fans, door chimes and electric heaters to electrical and industrial wholesale distributors throughout the U.S. The international business unit sells the Company's products outside the U.S. The Company is reporting business segment information in accordance with the provisions of Financial Accounting Standards No. 131, "Disclosures about Segments of an Enterprise and Related Information" which was issued in June 1997. Prior to a series of acquisitions which occurred between April 1995 and April 1996, the Company had only one business segment. Because of the broadening of the product line and the diversification of the customer base which resulted from these acquisitions, the Company began to manage its operations using the business unit approach in fiscal 1997. Business unit information for fiscal 1996 is not reported, as it would be impracticable to create such information. The Rival Company evaluates performance based upon contribution margin, which it defines as gross margin less selling expenses. Administrative functions such as finance and management information systems are centralized and are not allocated to the business units. The various business units share manufacturing and distribution facilities. Costs of operating the manufacturing plants are allocated to the business units through full-absorption standard costing and distribution costs are allocated based upon volume shipped from each distribution center. Because the Company's property, plant and equipment are not allocable to the business units, only inventory and accounts receivable are included in the segment assets as reported herein. Cost of sales consists of the standard cost of production together with an allocation of any manufacturing and other cost variances. Page 33 13. Business Segments, continued
Summary financial information for each reportable segment, together with non- business unit results consisting of sales directly to consumers, is as follows (in thousands): Kitchen Home Fiscal 1998 Electrics Environment Industrial International Other Total -------- -------- ------- ------- ------ -------- Net sales $191,828 $104,920 $29,961 $43,703 $6,507 $376,919 Gross profit 48,631 24,059 7,771 11,886 3,529 95,876 Selling expenses 21,007 12,831 7,952 6,746 1,519 50,055 Contribution margin 27,624 11,228 (181) 5,140 2,010 45,821 Inventory 43,164 39,898 12,782 5,870 - 101,714 Accounts receivable 35,829 29,185 6,174 3,918 - 75,106 Kitchen Home Fiscal 1997 Electrics Environment Industrial International Other Total -------- -------- ------- ------- ------ -------- Net sales $188,803 $116,485 $30,750 $35,825 $4,602 $376,465 Gross profit 49,985 25,384 8,093 11,632 2,916 98,010 Selling expenses 20,217 14,462 8,506 5,858 1,309 50,352 Contribution margin 29,768 10,922 (413) 5,774 1,607 47,658 Inventory 45,221 41,154 12,535 6,377 - 105,287 Accounts receivable 38,049 27,079 7,529 2,006 - 74,663
Revenues and non-current assets by geographic region are as follows (in thousands): Latin America Fiscal 1998 United States Canada Europe and Other Total -------- ------- ------ ------- -------- Revenues $333,216 $23,592 $8,753 $11,358 $376,919 Non-current assets 108,676 457 2,097 - $111,230 Latin America Fiscal 1997 United States Canada Europe and Other Total -------- ------- ------ ------- -------- Revenues $340,640 $22,419 $9,531 $3,875 $376,465 Non-current assets 109,501 3,152 1,849 - $114,502
14. Unaudited Quarterly Financial Data
Unaudited quarterly financial data is as follows (amounts in thousands except per share amounts): Fiscal 1998 Sept. 1997 Dec. 1997 March 1998 June 1998 ------- -------- ------- ------- Net sales $96,697 $127,852 $70,851 $81,519 Gross profit 25,578 34,172 17,652 18,474 Operating income 8,545 14,786 3,010 3,390 Net earnings $ 3,726 $ 7,437 $ 267 $(2,223) (a) ======= ======== ======= ======= Net earnings per share (diluted) $ 0.39 $ 0.77 $ 0.03 $ (0.24) ======= ======== ======= ======= Fiscal 1997 Sept. 1996 Dec. 1996 March 1997 June 1997 ------- -------- ------- ------- Net sales $99,650 $121,566 $74,828 $80,421 Gross profit 28,583 35,046 14,340 20,041 Operating income 11,228 16,682 (4,153) 4,375 Net earnings $ 5,276 $ 8,594 $(4,338) $ 1,153 ======= ======== ======= ======= Net earnings per share (diluted) $ 0.53 $ 0.86 $ (0.44) $ 0.12 ======= ======== ======= ======= (a) Reflects $3.0 million after tax litigation settlement (Note 10).
Page 34 Independent Auditors' Report The Board of Directors and Stockholders The Rival Company: We have audited the accompanying consolidated balance sheets of The Rival Company and subsidiaries as of June 30, 1998 and 1997 and the related consolidated statements of earnings, stockholders' equity, comprehensive income and cash flows for each of the years in the three-year period ended June 30, 1998. These consolidated financial statements are the responsibility of the Company's management. Our responsibility is to express an opinion on these consolidated financial statements based on our audits. We conducted our audits in accordance with generally accepted auditing standards. Those standards 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. An audit also includes assessing the accounting principles used and significant estimates made by management, as well as evaluating the overall financial statement presentation. We believe that our audits provide a reasonable basis for our opinion. In our opinion, the consolidated financial statements referred to above present fairly, in all material respects, the financial position of The Rival Company and subsidiaries as of June 30, 1998 and 1997, and the results of their operations and their cash flows for each of the years in the three-year period ended June 30, 1998, in conformity with generally accepted accounting principles. /s/ KPMG PEAT MARWICK LLP Kansas City, Missouri August 3, 1998 Page 35 Investor Information Corporate Headquarters 800 East 101st Terrace Kansas City, Missouri 64131 [816] 943-4100 SEC Form 10-K Stockholders may receive a copy of the Company's 1998 Annual Report to the Securities and Exchange Commission on Form 10-K free of charge by writing to the Office of the Secretary. Annual Meeting The 1998 annual meeting of shareholders will be held at 9:00 a.m., Central Standard time, on Wednesday, November 11, 1998, at the Doubletree Hotel, 10100 College Boulevard, Overland Park, Kansas. Formal notice of the meeting, a proxy statement and proxy form will be mailed separately to all shareholders of record at the close of business on September 14, 1998. Management urges all shareholders to vote their proxies and thus participate in the decisions that will be made at this meeting. Registrar & Transfer Agent UMB bank, N.A., P.O. box 410064 Kansas City, MO 64141 For change of name, address, or to replace lost stock certificates, write the UMB bank, N.A. at the above address, or phone: (816) 860-7445. Independent Auditors KPMG Peat Marwick LLP 1600 Commerce Bank Building Kansas City, MO 64106 Security Analyst Contact Security analyst inquiries are welcome. Please direct them to Mr. W. Mark Meierhoffer, Senior Vice President - Finance and Administration at 816-943-4100. Common Stock Price Range The Common Stock of The Rival Company is traded on The Nasdaq stock market under the symbol RIVL. Stock price quotations can be found in major daily newspapers and in The Wall Street Journal.
The following table shows the range of high and low sales prices of the Company's common stock for fiscal 1998 and 1997. Fiscal 1998 High Low ------ ------ First Quarter ended September 30 $20.38 $14.13 Second Quarter ended December 31 16.50 12.75 Third Quarter ended March 31 17.25 13.00 Fourth Quarter ended June 30 18.00 13.00 Fiscal 1997 High Low ------ ------ First Quarter ended September 30 $23.25 $17.75 Second Quarter ended December 31 24.88 21.25 Third Quarter ended March 31 24.31 21.00 Fourth Quarter ended June 30 21.88 13.50
At June 30, 1998, there were 9,396,227 shares outstanding and 180 stockholders of record. A substantial number of shares of common stock are held in "street name." The number of individual stockholders is believed to be approximately 3,000. Dividends The Board of Directors approved a quarterly dividend of $0.07 per share payable in September 1998. Future dividend payments are subject to approval of the Board of Directors. The Company paid dividends of $0.26 per share in fiscal 1998 and $0.24 per share in fiscal 1997. Page 36 Directors and Executive Officers Board of Directors Thomas K. Manning (1) Chairman of the Board and Chief Executive Officer William L. Yager, President and Chief Operating Officer Darrel M. Sanders, Senior Vice President-Operations Jack J. Culberg (1) Investor and former Chairman of the Board of The Rival Company Todd Goodwin (1, 2) Partner, Gibbons Goodwin van Amerongen, Investment bankers John E. Grimm III (2) Chairman and Chief Executive Officer, Midbrook, Inc., Consultants Lanny R. Julian (2, 3) President, Donlan Marketing Group, L.L.C., a marketing consulting company Noel Thomas Patton (3) Investor and former owner of Patton Electric Company, Inc. Beatrice Smith, Ph.D. (1, 3) Dean, College of Human Environmental Sciences, University of Missouri - Columbia 1 Member, Executive Committee 2 Member, Compensation and Stock Option Committee 3 Member, Audit Committee Officers Thomas K. Manning, Chairman of the Board and Chief Executive Officer William L. Yager, President and Chief Operating Officer W. Mark Meierhoffer, Senior Vice President-Finance and Administration Darrel M. Sanders, Senior Vice President-Operations Neal Bastick, Vice President-International Sales Mark S. Bittner Vice President-Kitchen Electric Sales Stanley D. Biggs, Vice President, Treasurer and Corporate Secretary Sidney W. Hose, Vice President-Home Environment Sales James Houchen, Vice President-Materials Management A. Aykut Ozgunay, Vice President-Engineering Jon K. Patterson, Vice President-Management Information Systems Michael A. Pignataro, Vice President-Industrial Sales Mark S. Sesler, Vice President-Marketing Trademarks Trademarks of The Rival Company mentioned in this Annual Report include Rival, Rival Select, Simer, Pollenex, Patton, Bionaire, Crock-Pot, Crock Grill, Potpourri Crock and White Mountain. (COPYRIGHT) The Rival Company 1998 EX-21 5 Exhibit 21 THE RIVAL COMPANY List of Subsidiaries Bionaire Corporation Bionaire France Bionaire International B.V. Patton Building Products, Inc. Patton Electric Company, Inc. Patton Electric (Hong Kong) Limited Rival Consumer Sales Corporation Rival de Mexico, S.A. de C. V. The Rival Company of Canada, Ltd. Waverly Products Company, Ltd. EX-27 6
5 1,000 12-MOS 12-MOS JUN-30-1998 JUN-30-1997 JUL-01-1997 JUL-01-1996 JUN-30-1998 JUN-30-1997 309 194 0 0 77,064 77,221 1,958 2,558 101,714 105,287 180,884 184,103 84,611 82,342 38,566 35,647 292,114 298,605 91,277 99,284 78,000 84,000 0 0 0 0 98 98 116,517 110,292 292,114 298,605 376,919 376,465 376,919 376,465 281,043 278,455 281,043 278,455 66,145 69,878 915 986 10,099 10,081 15,757 18,030 6,550 7,345 9,207 10,685 0 0 0 0 0 0 9,207 10,685 0.98 1.10 0.96 1.08
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