APPLICA INC, 10-Q, 2000-11-14

APPLICA INC
10-Q, 2000-11-14
ELECTRIC HOUSEWARES & FANS

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<PAGE> 1

SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D. C. 20549

FORM 10-Q

[X] QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE
ACT OF 1934

FOR THE QUARTERLY PERIOD ENDED SEPTEMBER 30, 2000

[ ] 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 1-10177

APPLICA INCORPORATED

(EXACT NAME OF REGISTRANT AS SPECIFIED IN ITS CHARTER)

FLORIDA 59-1028301
------------------------------- ----------------------
(STATE OR OTHER JURISDICTION OF (I.R.S. EMPLOYER
INCORPORATION OR ORGANIZATION) IDENTIFICATION NUMBER)

5980 MIAMI LAKES DRIVE, MIAMI LAKES, FLORIDA 33014
-------------------------------------------- -------------
(ADDRESS OF PRINCIPAL EXECUTIVE OFFICES) (ZIP CODE)

(305) 362-2611
----------------------------------------------------
(REGISTRANT'S TELEPHONE NUMBER, INCLUDING AREA CODE)
-----------------------------------------
FORMER NAME, IF CHANGED SINCE LAST REPORT

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 report(s), and (2) has been subject to such filing
requirement for the past 90 days. Yes [X] No [ ]

Indicate the number of shares outstanding of each of the issuer's classes of
common stock, as of the latest practicable date:

NUMBER OF SHARES OUTSTANDING
CLASS ON NOVEMBER 8, 2000
----- ----------------------------
Common Stock, $.10 par value 23,035,355

<PAGE> 2

APPLICA INCORPORATED

INDEX

PART I. FINANCIAL INFORMATION

ITEM 1. Consolidated Statements of Earnings for the
Three Months Ended September 30, 2000 and 1999............ 3

Consolidated Statements of Operations for the Nine Months
Ended September 30, 2000 and 1999......................... 4

Consolidated Balance Sheets as of September 30, 2000 and
December 31, 1999......................................... 5-6

Consolidated Statements of Cash Flows for the Nine Months
Ended September 30, 2000 and 1999......................... 7

Notes to Consolidated Financial Statements................ 8-13

ITEM 2. Management's Discussion and Analysis of Financial Condition
and Results of Operations................................. 14-20

ITEM 3. Quantitative and Qualitative Disclosures About Market
Risk...................................................... 21

PART II. OTHER INFORMATION

ITEM 1. Legal Proceedings.................................... 22

ITEM 6. Exhibits and Reports on Form 8-K..................... 22

SIGNATURES............................................................... 23

<PAGE> 3

PART I - FINANCIAL INFORMATION

ITEM 1. FINANCIAL STATEMENTS

APPLICA INCORPORATED

CONSOLIDATED STATEMENTS OF EARNINGS (UNAUDITED)
(IN THOUSANDS EXCEPT PER SHARE INFORMATION)

<TABLE>
<CAPTION>
THREE MONTHS ENDED SEPTEMBER 30,
------------------------------------------------------------
2000 1999
----------------------------- -----------------------------
<S> <C> <C> <C> <C>
Sales and Other Revenues...... $199,397 100.0% $204,229 100.0%
Cost of Goods Sold............ 132,649 66.5 135,367 66.3
-------- ----- -------- -----
Gross Profit............. 66,748 33.5 68,862 33.7
Selling, General and
Administrative Expenses.. 48,071 24.1 43,623 21.4
-------- ----- -------- -----
Operating Profit......... 18,677 9.4 25,239 12.3
Other (Income) Expense
Interest Expense......... 8,160 4.1 7,212 3.5
Interest and Other Income (708) (.4) (580) (.3)
-------- ----- -------- -----
7,452 3.7 6,632 3.2
-------- ----- -------- -----
Earnings before Equity
in Net Loss of Joint
Ventures and Income Taxes 11,225 5.7 18,607 9.1
Equity in Net Loss
of Joint Ventures........ (128) (.1) - - - -
-------- ----- -------- -----

Earnings Before
Income Taxes............. 11,097 5.6 18,607 9.1
Provision (Benefit) for
Income Taxes............. 2,798 1.4 4,634 2.3
-------- ----- -------- -----
Net Earnings.................. $ 8,299 4.2% $ 13,973 6.8%
======== ===== ======== =====

Earnings Per Share - basic.. $ .36 $ .62
======== ========
Earnings Per Share - diluted $ .35 .59
======== ========
</TABLE>

The accompanying notes are an integral part of these statements.

<PAGE> 4

APPLICA INCORPORATED

CONSOLIDATED STATEMENTS OF OPERATIONS (UNAUDITED)
(IN THOUSANDS EXCEPT PER SHARE INFORMATION)

<TABLE>
<CAPTION>
NINE MONTHS ENDED SEPTEMBER 30,
--------------------------------------------------------
2000 1999
--------------------------- ---------------------------
<S> <C> <C> <C> <C>
Sales and Other Revenues...... $517,499 100.0% $472,250 100.0%
Cost of Goods Sold............ 354,156 68.4 321,004 68.0
-------- ----- -------- -----
Gross Profit............. 163,343 31.6 151,246 32.0
Selling, General and
Administrative Expenses.. 135,936 26.3 125,497 26.6
-------- ----- -------- -----
Operating Profit......... 27,407 5.3 25,749 5.4

Other (Income) Expense
Interest Expense......... 22,225 4.3 19,947 4.2
Interest and Other Income (1,673) (.3) (1,604) (.3)
-------- ----- -------- -----
20,552 4.0 18,343 3.9
Earnings before Equity
in Net Loss of Joint
Ventures and Income Taxes 6,855 1.3 7,406 1.5

Equity in Net Loss
of Joint Ventures........ (128) - (12,894) (2.7)
-------- ---- -------- -----
Earnings (Loss) Before
Income Taxes............. 6,727 1.3 (5,488) (1.2)
Provision (Benefit) for
Income Taxes............. 1,701 .3 (2,366) (.5)
-------- ----- -------- -----
Net Earnings (Loss)........... $ 5,026 1.0% $ (3,122) (.7)%
======== ===== ======== =====
Earnings (Loss) Per Share -
basic......................... $ .22 $ (.14)
======== ========
Earnings (Loss) Per Share -
diluted....................... $ .21 $ (.14)
======== ========
</TABLE>

The accompanying notes are an integral part of these statements.

<PAGE> 5

APPLICA INCORPORATED

CONSOLIDATED BALANCE SHEETS
(IN THOUSANDS)

<TABLE>
<CAPTION>
(Unaudited)

9/30/00 12/31/99
ASSETS --------- ---------

CURRENT ASSETS

<S> <C> <C>
Cash & Cash Equivalents...................... $ 9,784 $ 13,768
Accounts and Other Receivables,
less allowances of $9,326 and
$8,761, respectively......................... 194,424 172,500
Receivables from Affiliates (Note 1)......... 2,837 3,533
Other Receivables............................ - 12,962
Inventories
Raw Materials................................ 8,513 9,045
Work-in-process.............................. 22,237 18,547
Finished Goods............................... 194,063 136,114
--------- ---------
Total Inventories............................ 224,813 163,706
Prepaid Expenses............................. 9,011 12,703
Refundable Income Taxes...................... 6,647 1,122
Future Income Tax Benefits................... 8,490 8,490
--------- ---------
Total Current Assets......................... 456,006 388,784

INVESTMENT IN JOINT VENTURE
(NOTE 2)................................ 2,174 2,608

PROPERTY, PLANT & EQUIPMENT -
AT COST, less accumulated
Depreciation of $81,276 and
$69,597, respectively........................ 81,190 75,983

LONG-TERM FUTURE INCOME TAX BENEFITS......... 2,050 2,049

OTHER ASSETS................................. 231,104 243,249
--------- ---------

TOTAL ASSETS................................. $ 772,524 $ 712,673
========= =========

</TABLE>

(continued)
5

<PAGE> 6

APPLICA INCORPORATED

CONSOLIDATED BALANCE SHEETS (CONTINUED)
(IN THOUSANDS)

<TABLE>
<CAPTION>
(Unaudited)

LIABILITIES
9/30/00 12/31/99
--------- ----------
CURRENT LIABILITIES

<S> <C> <C>
Notes and acceptances payable......................... $ - $ 898
Current Maturities of Long-Term Debt.................. 18,342 13,587
Accounts Payable and Accrued Expenses................. 94,060 95,103
Income taxes payable.................................. 728 4,723
Deferred Income, current portion...................... 292 585
Other current liabilities............................. - 10,573
--------- ---------
Total Current Liabilities............................. 113,422 125,469

LONG-TERM DEBT........................................ 309,036 243,571

DEFERRED INCOME, less current portion................. - 236

SHAREHOLDERS' EQUITY (Note 2)

Special Preferred Stock -
Authorized 40,000 shares of
$.01 par value; none issued........................... - -

Common Stock - authorized:
75,000 and 40,000, respectively,
shares of $.10 par
value; shares outstanding:
23,039 and 22,640, respectively....................... 2,304 2,264
Paid-in Capital....................................... 151,672 149,548
Retained Earnings..................................... 199,708 194,682
Accumulated Other Comprehensive Loss.................. (2,122) (1,601)
Note receivable - officer............................. (1,496) (1,496)
--------- ---------
Total Shareholders' Equity............................ 350,066 343,397
--------- ---------
TOTAL LIABILITIES & SHAREHOLDERS' EQUITY.............. $ 772,524 $ 712,673
========= =========
</TABLE>

The accompanying notes are an integral part of these statements.

<PAGE> 7

APPLICA INCORPORATED

CONSOLIDATED STATEMENTS OF CASH FLOWS (UNAUDITED)
(IN THOUSANDS)

<TABLE>
<CAPTION>
NINE MONTHS ENDED SEPTEMBER 30,
---------------------------------
2000 1999
---------------- ----------
<S> <C> <C>
Cash flows from operating activities:
Net (loss) earnings....................................................... $ 5,026 $ (3,122)
Adjustments to reconcile net loss
to net cash used in operating activities:
Depreciation of property, plant and equipment............................. 14,234 13,108
Amortization of intangible assets......................................... 14,465 12,627
Amortization of deferred income........................................... (529) -
Net loss on disposal of fixed assets...................................... - 2,204
Equity in net earnings of joint ventures.................................. 434 371
Write down of investment in joint venture................................. - 12,574
Net change in allowance for losses on accounts receivable................. 565 603
Changes in assets and liabilities
Increase in accounts and other receivables................................ (22,489) (32,700)
Increase in inventories................................................... (61,107) (10,409)
Decrease in prepaid expenses.............................................. 3,692 6,814
(Increase) Decrease in other assets....................................... (2,320) 5,894
Decrease in other receivables............................................. 12,962 -
Decrease in accounts payable and accrued expenses......................... (1,043) (2,219)
Decrease in current and deferred income taxes............................. (9,521) (9,462)
Decrease in other liabilities............................................. (10,573) -
Decrease in deferred income............................................... - (1,541)
Decrease in other accounts................................................ (521) (289)
-------- --------
Net cash used in
operating activities...................................................... (56,725) (5,547)

Cash flows from investing activities:
Additions to property, plant and equipment - net.......................... (19,441) (17,101)
Purchase of net assets from joint venture................................. - (15,059)
Decrease in receivable accounts
and notes from affiliates................................................. 696 2,344
-------- --------
Net cash used in investing activities..................................... (18,745) (29,816)

Cash flows from financing activities:
Net borrowings under notes and acceptances payable........................ $ (898) $ 28,949
Long-term debt - net...................................................... 70,220 (9,962)
Exercise of stock options and warrants.................................... 2,164 1,490
-------- --------
Net cash provided by financing activities................................. 71,486 20,477
Decrease in cash
and cash equivalents...................................................... (3,984) (14,886)
Cash and cash equivalents at beginning of year............................ 13,768 20,415
-------- --------
Cash and cash equivalents at end of quarter............................... $ 9,784 $ 5,529
======== ========

SUPPLEMENTAL DISCLOSURES OF CASH FLOW INFORMATION
Cash paid for:
Interest.................................................................. $ 23,332 $ 24,470
Income taxes.............................................................. $ 8,758 $ 5,621
</TABLE>

The accompanying notes are an integral part of these statements.

<PAGE> 8

APPLICA INCORPORATED
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

1. SUMMARY OF ACCOUNTING POLICIES

INTERIM REPORTING

In the opinion of the Company, the accompanying unaudited consolidated
financial statements contain all normal recurring adjustments necessary to
present fairly the Company's financial position as of September 30, 2000
and the results of its operations and changes in financial position for the
interim periods. Results for interim periods should not be considered
indicative of results for a full year. Reference should be made to the
financial statements contained in the registrant's Annual Report on Form
10-K for the year ended December 31, 1999.

RECLASSIFICATIONS

Certain prior period amounts have been reclassified for comparability.

RECEIVABLES FROM AFFILIATES

Receivables from Affiliates include the current portion of receivables due
from the Company's joint venture partner and a Company officer. These
receivables are due upon demand and bear interest at prevailing market
interest rates.

DERIVATIVE FINANCIAL INSTRUMENTS

The Company uses forward exchange contracts to reduce fluctuations in
foreign currency cash flows related to third party raw material and other
operating purchases. The terms of the currency instruments used are
generally consistent with the timing of the committed or anticipated
transactions being hedged. Outstanding at September 30, 2000 was
$18,300,000 notional amount in contracts and/or options to purchase
foreign currency, forward. There is no significant unrealized gain or loss
on these contracts. All contracts have terms of six months or less.

The Company uses interest rate derivatives of one to eight years in
duration to reduce the impact of changes in interest rates on its floating
rate debt. The notional amounts of the agreements are used to measure
interest to be paid or received and do not represent the amount of exposure
to credit loss. The differential paid or received on the agreements is
recognized as an adjustment of interest expense. Outstanding at September
30, 2000, were interest rate swaps on $180,000,000 notional principal
amount with a market value of approximately ($1,473,000). The market value
represents the amount the Company would have to pay to exit the contracts
at September 30, 2000. The Company does not intend to exit the contracts at
this time.

2. SHAREHOLDERS' EQUITY

EARNINGS PER SHARE

Basic shares for the three and nine month periods ended September 30, 2000
were 23,035,355 and 22,917,044, respectively. Basic shares for the three
and nine month periods ended September 30, 1999 were 22,478,303 and
22,290,429, respectively. Included in diluted shares are common stock
equivalents relating to options of 539,762 and 1,327,338 for the three
month periods ended September 30, 2000 and 1999, respectively and 971,795
for the nine month period ended September 30, 2000. All common stock
equivalents have been excluded from the per share calculation in the nine
month period ended September 30, 1999 as their inclusion would have been
anti-dilutive.

OTHER

On May 9, 2000, the shareholders of the Company voted to change the name of
the Company to Applica Incorporated. The name change was effective on May
10, 2000. In addition, the shareholders voted to approve the Second Amended
and Restated Articles of Incorporation of the Company, which increases the
authorized number of shares of Common Stock from 40,000,000 to 75,000,000
and eliminates the Company's Special Preferred Stock.

<PAGE> 9

3. COMMITMENTS AND CONTINGENCIES

The Company is a defendant in SHERLEIGH ASSOCIATES LLC AND SHERLEIGH
ASSOCIATES INC. PROFIT SHARING PLAN, ON THEIR OWN BEHALF AND ON BEHALF OF
ALL OTHERS SIMILARLY SITUATED V. WINDMERE-DURABLE HOLDINGS, INC., DAVID M.
FRIEDSON, HARRY D. SCHULMAN AND NATIONSBANC MONTGOMERY SECURITIES LLC,
98-2273-CIV-LENARD which was filed in the United States District Court,
Southern District of Florida on October 8, 1998.

This matter is a class action complaint, which is the consolidation of
eight separate class action complaints with substantially similar
allegations. By Order dated March 9, 1999, in addition to consolidating the
above-referenced cases, the Court provisionally certified the class of
plaintiffs who purchased stock between May 12, 1998 and September 22, 1998,
and provisionally certified Sherleigh Associates LLC and Sherleigh
Associates, Inc. Profit Sharing Plan as lead plaintiff. On June 30, 1999, a
consolidated amended class action complaint was filed. The consolidated
amended class action complaint alleges violations of the federal securities
laws (including Rule 10b-5 promulgated pursuant to the Securities Exchange
Act of 1934, as amended) in connection with the acquisition by the Company
of certain product categories of the Household Products Group of the Black
& Decker Corporation. Among other things, the plaintiffs allege that the
Company and certain of its directors and officers, along with NationsBanc
Montgomery Securities LLC, provided false information in connection with a
public offering of debt and equity securities. The plaintiffs seek, among
other relief, to be awarded compensatory damages, rescission rights,
unspecified damages and attorneys' fees and costs. The defendants moved to
dismiss the consolidated class action complaint, but such motion was
denied. Discovery procedures have been initiated.

The Company is currently paying the legal expenses of the directors and
officers who were named as defendants. Such defendants have agreed to repay
the Company for all or any portion of such amounts to which they are
ultimately found not to be entitled pursuant to applicable law. Based on
the information currently available to the Company, management does not
believe that the indemnification of the officers and directors named as
defendants in the above-listed matters will have a material adverse effect
on the financial condition, results of operations or liquidity of the
Company. However, the actual effects of such indemnification on the Company
cannot be finally determined until the amount of such indemnification, if
any, is fixed.

In connection with the Household Products Group acquisition, the Company
also received two derivative demands alleging the breach of fiduciary
duties by certain of the officers and directors of the Company. An
independent committee of the Board of Directors is currently conducting an
investigation as to whether such derivative actions are in the best
interest of the Company.

The Company is subject to other legal proceedings and claims which arise in
the ordinary course of its business. In the opinion of management, the
amount of ultimate liability, if any, in excess of applicable insurance
coverage, is not likely to have a material effect on the financial position
of the Company. However, as the outcome of litigation or other claims is
difficult to predict, significant changes in the estimated exposures could
occur.

4. BUSINESS SEGMENT INFORMATION

Effective January 1, 2000, the Company reorganized into three new business
units: Consumer Products North America, Consumer Products International and
Manufacturing. The information for 1999 has been restated in order to
conform to the new presentation.

The Consumer Products North America segment distributes kitchen electric,
personal care and home environment products under licensed brand names such
as Black & Decker, as well as the Windmere and private label brand names.
The sales are handled primarily through in house sales representatives to
mass merchandisers, specialty retailers and appliance distributors in the
United States and Canada.

The Consumer Products International segment distributes kitchen electric,
personal care and home environment products under the Black & Decker and
Windmere brand names. Products are marketed throughout all countries in
Latin America except for Brazil.

<PAGE> 10
The Manufacturing segment includes the Company's operations located in Bao
An County, Guangdong Province of the People's Republic of China and in
Queretaro, Mexico. The majority of the Company's products are manufactured
in these two facilities.

Summarized financial information concerning the Company's reportable
segments is shown in the following table. Corporate related items, results
of insignificant operations and, as it relates to segment profit (loss),
income and expense not allocated to reportable segments are included in the
reconciliations to consolidated results.

Segment information for the three month periods ended September 30, are as
follows: (In Thousands)

<TABLE>
<CAPTION>
Consumer Products Consumer
North Products
America International Manufacturing Total
----------------- ------------- ------------- ---------
2000:
<S> <C> <C> <C> <C>
Net Sales....................... $ 146,104 $ 24,852 $111,686 $ 282,642
Intersegment net sales.......... - - 95,870 95,870
Operating earnings ............. 3,100 286 15,304 18,690

1999:
Net Sales....................... 156,206 21,801 90,087 268,094
Intersegment net sales.......... - - 85,528 85,528
Operating earnings ............. 10,230 175 16,103 26,508
</TABLE>

Reconciliation to consolidated amounts:

<TABLE>
<CAPTION>
2000 1999
--------- ---------
REVENUES:
<S> <C> <C>
Total revenues for reportable segments $ 282,642 $ 268,094
Other revenues....................... 12,625 21,663
Eliminations of intersegment revenues (95,870) (85,528)
--------- ---------
Total consolidated revenues..... $ 199,397 $ 204,229
========= =========
Operating earnings:
Total earnings for reportable $ 18,690 $ 26,508
segments.............................
Other earnings (loss)........... 695 (689)
Interest expense................ (8,160) (7,212)
Equity in net loss of joint ventures (128) -
--------- --------
Consolidated earnings before income
taxes................................ $ 11,097 $ 18,607
========= =========
</TABLE>

Segment information for the nine month periods ended September 30, are as
follows: (In Thousands)

<TABLE>
<CAPTION>
Consumer Products Consumer
North Products
America International Manufacturing Total
----------------- ------------- ------------- ---------
2000
<S> <C> <C> <C> <C>
Net Sales............. $ 380,454 $ 70,552 $307,975 $ 758,981
Intersegment net sales 5,894 - 260,984 266,878
Operating earnings
(loss)................ (9,693) (405) 36,881 26,783

1999
Net Sales............. 358,317 55,132 199,388 612,837
Intersegment net sales - - 171,100 171,100
Operating earnings
(loss)................ 3,993 (2,415) 26,353 27,931
</TABLE>

Reconciliation to consolidated amounts:

<TABLE>
<CAPTION>
2000 1999
---------- ---------
REVENUES:
<S> <C> <C>
Total revenues for reportable segments $ 758,981 $ 612,837
Other revenues........................ 25,396 30,513
Eliminations of intersegment revenues. (266,878) (171,100)
---------- ---------
Total consolidated revenues....... $ 517,499 $ 472,250
========== =========

Operating earnings (loss)
Total earnings (loss) for reportable $ 26,783 $ 27,931
segments..........................
Other earnings (loss)................. 2,297 (578)
Interest expense...................... (22,225) (19,947)
Equity in net earnings (loss) of joint
ventures.............................. (128) (12,894)
----------- ---------

Consolidated loss before income taxes. $ (6,727) (5,488)
========== =========
</TABLE>
10

<PAGE> 11

5. SUBSEQUENT EVENT

In November 2000, the Company entered into a relationship with a consumer
packaged goods company to develop, manufacture and distribute new products
in the mass market. The Company has entered into a joint development
agreement for one product and is in the process of reviewing other
opportunities. In conjunction with the development arrangement, the Company
plans to expand its existing manufacturing capacity, exit various
non-strategic product lines, including certain retail personal care items,
and reallocate Company resources resulting in non-recurring non-cash
charges totaling $30 to $40 million in the fourth quarter of 2000. The
Company has amended its Senior Secured Credit Facility to incorporate the
capital requirements of the alliance, which includes an increase in
allowable capital expenditures by $25.0 million over the next two years and
the modification of various covenants.

6. CONDENSED CONSOLIDATING FINANCIAL INFORMATION

The following condensed consolidating financial information presents the
results of operations, financial position and cash flows of the Company (on
a stand alone basis), the guarantor subsidiaries of the Company's Senior
Subordinated Notes ("Notes") (on a combined basis), the non-guarantor
subsidiaries (on a combined basis) and the eliminations necessary to arrive
at the consolidated results of the Company. The results of operations and
cash flows presented below assume the guarantor subsidiaries were in place
for all periods presented. The Company and subsidiary guarantors have
accounted for investments in their respective subsidiaries on an
unconsolidated basis using the equity method of accounting. The Subsidiary
Guarantors are wholly-owned subsidiaries of the Company and have fully and
unconditionally guaranteed the Notes on a joint and several basis. The
guarantors include the following: Applica Consumer Products, Inc., Windmere
Holdings Corporation, Windmere Holdings Corporation II, Fortune Products,
Inc., Bay Books & Tapes, Inc., HP Delaware, Inc., HP Americas, Inc., HPG
LLC, HP Intellectual Corp. and WD Delaware, Inc. The Notes contain certain
covenants which, among other things, will restrict the ability of the
Subsidiary Guarantors to make distributions to the Company. The Company has
not presented separate financial statements and other disclosures
concerning the guarantors and non-guarantor subsidiaries because it has
determined they would not be material to investors.

<PAGE> 12

NINE MONTHS ENDED SEPTEMBER 30, 2000

<TABLE>
<CAPTION>
APPLICA NON
INCORPORATED GUARANTORS GUARANTORS ELIMINATIONS CONSOLIDATED
------------ ---------- ---------- ------------ ------------
STATEMENT OF OPERATIONS
<S> <C> <C> <C> <C> <C>
Net Sales........................... - 388,646 395,693 (266,840) 517,499
Cost of goods sold.................. - 283,296 337,700 (266,840) 354,156
------- -------- ------- -------- -------
Gross Profit........................ - 105,350 57,993 - 163,343
Operating Expenses.................. (557) 111,543 24,680 270 135,936
------- -------- ------- -------- -------
Operating Profit (Loss)............. 557 (6,193) 33,313 (270) 27,407
Other (income) expense, net......... 20,026 615 (89) - 20,552
------- -------- ------- -------- -------
Earnings (loss) before income taxes
and Equity in earnings (loss)
of joint Ventures.............. (19,469) (6,808) 33,402 (270) 6,855
Provision (Benefit) for income
taxes - 159 7,036 (5,494) 1,701
Equity in net loss of joint
ventures....................... 128 - - - 128
------- -------- ------- ---------- -------
Net earnings (loss)................. (19,597) (6,967) 26,366 5,224 5,026
======= ======== ======= ========== =======

BALANCE SHEET
Cash................................ 10 (2,107) 11,881 - 9,784
Accounts and other receivables...... - 134,648 59,776 - 194,424
Receivables from affiliates......... 21,286 (83,046) 64,597 - 2,837
Inventories......................... - 146,803 78,010 - 224,813

Other current assets................ - 893 11,719 11,536 24,148
------- -------- ------- ---------- -------
Total current assets........... 21,296 197,191 225,983 11,536 456,006
Investments in joint venture........ 425,900 113,122 70,503 (607,351) 2,174
Property, plant and equipment, net.. - 17,800 63,390 - 81,190
Other assets........................ - 662,333 11,137 (440,316) 233,154
------- -------- ------- ---------- -------
Total assets................... 447,196 990,446 371,013 (1,036,131) 772,524
======= ======== ======= ========== =======
LIABILITIES:
Accounts payable and accrued expenses 3 31,005 63,052 - 94,060
Current maturities of long term debt 18,342 - - - 18,342
Deferred income, current portion.... - 292 - - 292
Income taxes payable................ - (1,796) 5,511 (2,987) 728
------ -------- ------- ---------- -------
Total current liabilities...... 18,345 29,501 68,563 (2,987) 113,422
Long term debt...................... 299,154 424,025 19,060 (433,203) 309,036

Deferred income, less current portion - - - - -
Deferred income taxes............... - 5,514 2,843 (8,357) -
------- -------- ------- ---------- -------
Total liabilities.............. 317,499 459,040 90,466 (444,547) 422,458
Shareholders' equity................ 129,697 531,406 280,547 (591,584) 350,066
------- -------- ------- ---------- -------
Total liabilities and
shareholders' Equity....................... 447,196 990,446 371,013 (1,036,131) 772,524
======= ======== ======= ========== =======
Cash Flow Information

Net cash provided by (used in)
operating Activities............... (19,595) (1,226,564) 26,514 1,163,007 (56,638)
Net cash provided by (used in)
investing Activities................ (42,710) 1,022,712 (41,016) (957,297) (18,311)
Net cash provided by (used in)
financing Activities................ 62,311 197,806 17,079 (205,710) 71,486
Effect of exchange rate............. - - (521) - (521)
Cash at beginning................... 4 3,939 9,825 - 13,768
Cash at end......................... 10 (2,107) 11,881 - 9,784
</TABLE>

<PAGE> 13

NINE MONTHS ENDED SEPTEMBER 30, 1999

<TABLE>
<CAPTION>
APPLICA NON
INCORPORATED GUARANTORS GUARANTORS ELIMINATIONS CONSOLIDATED
------------ ---------- ---------- ------------ ------------
STATEMENT OF OPERATIONS
<S> <C> <C> <C> <C> <C>
Net Sales........................... - 293,786 271,186 (92,722) 472,250
Cost of goods sold.................. - 185,420 226,347 (90,763) 321,004
------ ------- ------- -------- -------
Gross Profit........................ - 108,366 44,839 (1,959) 151,246
Operating Expenses.................. (521) 108,457 17,290 271 125,497
------ ------- ------- -------- -------
Operating Profit (Loss)............. 521 (91) 27,549 (2,230) 25,749
Other (income) expense, net......... 18,670 (1,691) 271 1,093 18,343
------ ------- ------- -------- -------
Earnings (loss) before income taxes
and Equity in earnings (loss)
of joint Ventures.............. (18,149) 1,600 27,278 (3,323) 7,406
Provision (Benefit) for income taxes - (3,562) 3,766 (2,570) (2,366)
Equity in net earnings (loss)
of joint ventures.............. 593 (13,487) - - (12,894)
------- ------- ------- -------- -------
Net earnings (loss)................. (17,556) (8,325) 23,512 (753) (3,122)
======= ======= ======= ======== =======

BALANCE SHEET
Cash................................ 6 (3,954) 9,477 - 5,529
Accounts and other receivables...... - 158,404 51,141 (5,529) 204,016
Receivables from affiliates......... 21,390 (39,600) 30,301 (8,847) 3,244
Inventories......................... - 105,281 69,278 10,921 185,480
Other current assets................ - 23,281 6,508 11,536 41,325
------- ------- ------- -------- -------
Total current assets........... 21,396 243,412 166,705 8,081 439,594
Investments in joint ventures....... 426,413 9,248 70,585 (503,483) 2,763
Property, plant and equipment, net.. - 12,856 65,010 - 77,866
Other assets........................ 0 534,254 11,885 (294,948) 251,191
------- ------- ------- -------- -------
Total assets................... 447,809 799,770 314,185 (790,350) 771,414
======= ======= ======= ======== =======

LIABILITIES:

Notes payable....................... 0 11,350 0 (11,350) 0
Accounts payable and accrued expenses 1 70,575 65,052 0 135,628
Current maturities of long term debt 10,342 - 0 - 10,342
Deferred income, current portion.... - 689 - - 689
Income taxes payable................ - (1,164) 1,045 1,215 1,096
------- ------- ------- -------- -------
Total current liabilities...... 10,343 81,450 66,097 (10,135) 147,755
Long term debt...................... 284,195 286,404 5,450 (286,404) 289,645

Deferred income, less current portion - 269 - 783 1,052
Deferred income taxes............... - 16,254 2,969 (8,358) 10,865
------- ------- ------- -------- -------
Total liabilities.............. 294,538 384,377 74,516 (304,114) 449,317
Shareholders' equity................ 153,271 415,393 239,669 (486,236) 322,097
------- ------- ------- -------- -------
Total liabilities and
shareholders' 447,809 799,770 314,185 (790,350) 771,414
======= ======= ======= ======== =======
Equity......................

Cash Flow Information

Net cash provided by (used in)
operating Activities................ (17,555) 66,983 10,870 (65,556) (5,258)
Net cash provided by (used in)
investing Activities................ (9,474) 35,241 (35,407) (20,176) (29,816)
Net cash provided by (used in)
financing Activities............... 27,035 (109,261) 16,971 85,732 20,477
Effect of exchange rate............. - - (289) - (289)
Cash at beginning................... - 3,083 17,332 - 20,415
Cash at end......................... 6 (3,954) 9,477 - 5,529
</TABLE>

<PAGE> 14

ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL
CONDITION AND RESULTS OF OPERATIONS

This document contains forward-looking statements within the meaning of Section
27A of the Securities Act and Section 21E of the Exchange Act. Such statements
are indicated by words or phrases such as "anticipate," "projects," "management
believes," "the Company believes," "intends," "expects," and similar words or
phrases. Such forward-looking statements are subject to certain risks,
uncertainties or assumptions and may be affected by certain other factors. These
factors include, but are not limited to:

o economic conditions and the retail environment;
o the Company's dependence on the timely development and introduction of
products;
o the acceptance of products by customers and consumers;
o competitive products and pricing;
o reliance on key customers;
o dependence on foreign suppliers and supply and manufacturing
constraints;
o changes in raw material costs;
o cancellation or reduction of orders for products;
o the effects of the class action litigation filed by certain
shareholders; and
o other risks and uncertainties detailed from time to time.

Should one or more of these risks, uncertainties or other factors materialize,
or should underlying assumptions prove incorrect, actual results, performance,
or achievements of the Company may vary materially from any future results,
performance or achievements expressed or implied by such forward-looking
statements. All subsequent written and oral forward-looking statements
attributable to the Company or persons acting on its behalf are expressly
qualified in their entirety by the cautionary statements in this paragraph. The
Company disclaims any obligation to publicly announce the results of any
revisions to any of the forward-looking statements contained herein to reflect
future events or developments.

The Company, through its subsidiaries, is a leading diversified manufacturer and
distributor of a broad range of branded and private label small household
appliances, including electric housewares (kitchen and garment care), personal
care, and other products. The Company manufactures and markets products under
licensed brand names, such as Black & Decker(R), under the Windmere(R) and other
Company-owned brand names and under private-label brand names. The Company's
customers for such products include mass merchandisers, specialty retailers and
appliance distributors primarily in North America, Latin America and the
Caribbean. In addition, the Company manufactures products on an OEM basis for
other major consumer products companies. The Company also manufactures and
markets the LitterMaid(R) self-cleaning cat litter box.

In June 2000, the Kmart Corporation exercised its option to terminate its
long-term supply contract with the Company for the sale of consumer electronic
products under the White-Westinghouse trademark in the United States. The
termination will be effective on June 30, 2002. Under the terms of the
agreement, Kmart's minimum purchase requirements for the period July 1, 2001
through June 30, 2002 will be reduced to 25% of the original requirements for
that period. Management does not believe that the termination of the agreement
will have a material effect on the financial condition, results of operations or
liquidity of the Company.

RESULTS OF OPERATIONS

The operating results of the Company expressed as a percentage of sales and
other revenues are set forth below:

<TABLE>
<CAPTION>
NINE MONTHS ENDED SEPTEMBER 30,
2000 1999
---- ----

<S> <C> <C>
Net Sales............................. 100.0% 100.0%
Cost of goods sold.................... 68.4 68.0
----- -----
Gross Profit.......................... 31.6 32.0
Selling, general and administrative 26.3 26.6
expenses..............................
Other (income) expense - net.......... 4.0 3.9
Equity in net loss of joint ventures.. -- (2.7)
---- -----
Earnings (loss) before income taxes... 1.3 (1.2)
Provision (benefit) for income taxes.. .3 (.5)
---- ----
Net earnings (loss)................... 1.0% (.7)%
===== ====
</TABLE>

<PAGE> 15

THREE MONTHS ENDED SEPTEMBER 30, 2000 COMPARED TO THREE MONTHS ENDED SEPTEMBER
30, 1999

SALES AND OTHER REVENUES

Sales and other revenues ("Revenues") for the Company decreased by $4.8 million
to $199.4 million, a decrease of 2.4% over Revenues for the third quarter of
1999. The change is primarily the result of a $14.5 million decrease in revenues
related to electronics inventory liquidated in conjunction with the Newtech
asset purchase and a $11.3 million increase in OEM sales.. Also contributing to
the net change was a $1.3 million increase in Black & Decker branded kitchen
product sales and a $3.7 million decrease in other product sales. A de-emphasis
of the Corning brand and elimination of the Fiesta and Campbells brand in
conjunction with the Company's restructuring of its sales organization
contributed to losses in other branded kitchen sales on top of the already soft
retail results. Sales to Walmart accounted for 16.5% and 20.0% of total sales
for the 2000 and 1999 periods, respectively.

GROSS PROFIT MARGIN

Gross profit decreased by $2.1 million. Gross profit margin was 33.5% as a
percentage of revenues in 2000 as compared to 33.7% in the 1999 period. The
minimal change in the gross profit margin is the result of an increase in raw
material costs, primarily oil-based plastic resins partially offset by realized
manufacturing cost synergies, productivity gains and a more favorable product
mix of distribution sales. There can be no assurance that manufacturing
synergies and productivity gains will be able to offset increases in raw
material costs in future periods. The Company has taken steps to bring its
inventory levels back in line by the end of the year, including reducing
production in China and Mexico. The slowdown in production will reduce gross
profit margins in the fourth quarter of 2000 as overhead absorption is
decreased.

SELLING, GENERAL AND ADMINISTRATIVE EXPENSES

Selling, general and administrative expenses for the Company increased by $4.4
million in the third quarter of 2000 and increased as a percentage of sales, to
24.1% from 21.4% in the 1999 period. The dollar increase consists primarily of
increases in distribution and freight costs of $5.0 million.

Additional warehousing and distribution expenses were incurred due to increased
finished goods inventory levels and sales volume. Freight expenses increased
reflecting the additional sales volume, increase in finished goods inventory and
rate increases from the carriers. The impact of the slowdown in production on
selling, general and administrative expenses should begin taking effect in the
first quarter of 2001.

INTEREST EXPENSE

Interest expense increased by $948,000 to $8.2 million in 2000. The increase is
a result of additional borrowings under the Company's Senior Revolving Credit
Facility to meet working capital requirements, primarily associated with the
increase in finished goods inventory, as well as due to rising interest rates.

TAXES

The Company's tax expense is based on the earnings of each of its foreign and
domestic operations and it includes such additional U.S. taxes as are applicable
to any repatriation of foreign earnings. Foreign earnings, other than in Canada,
Mexico and certain other countries in Latin America, are generally taxed at
rates lower than in the United States.

EARNINGS PER SHARE

Basic shares for the three month periods ended September 30, 2000 and 1999 were
23,035,355 and 22,478,303, respectively. Included in diluted shares are common
stock equivalents relating to options and warrants of 539,762 and 1,327,338 for
the three month periods ended September 30, 2000 and 1999, respectively.

<PAGE> 16
CONSUMER PRODUCTS NORTH AMERICA ("NORTH AMERICA")

North America sales decreased by $10.1 million to $146.1 million in the third
quarter of 2000. The change is primarily attributable to a $1.7 million decrease
in Black & Decker branded products and a $7.6 million decrease in other branded
kitchen electrics. A de-emphasis of the Corning brand and elimination of the
Fiesta and Campbells brand in conjunction with the Company's restructuring of
its sales organization contributed to losses in other branded kitchen sales on
top of the already soft retail results.

CONSUMER PRODUCTS INTERNATIONAL ("INTERNATIONAL")

Sales for the International segment increased by $3.1 million to $24.9 million
or 14% from the 1999 period. The increase is attributed to growth in sales of
existing products, as well as the introduction of new products, under the Black
& Decker brand name.

MANUFACTURING

Sales at the Company's manufacturing subsidiaries increased by $21.6 million in
the 2000 period to $111.7 million due to a projected increase in Company-wide
sales growth and increased OEM sales. Included in 2000 third quarter sales are
OEM sales totaling $15.8 million, a $11.3 million increase over the 1999 period.

NINE MONTHS ENDED SEPTEMBER 30, 2000 COMPARED TO NINE MONTHS ENDED SEPTEMBER 30,
1999

SALES AND OTHER REVENUES

Sales and other revenues ("Revenues") for the Company increased by $45.2 million
to $517.5 million, an increase of 9.6% over Revenues for the first nine months
of 1999. The change is primarily the result of a $34.7 million increase in Black
& Decker and Windmere branded kitchen products. Also contributing to the net
increase were increases in OEM sales and professional personal care product
sales of $18.7 million and $5.5 million, respectively. The increases were
partially offset by a $7.5 million decrease in home environment sales and a $4.9
million decrease in revenues related to electronic products. The decrease in
electronic products revenues reflects $17.1 million of electronics inventory
liquidated in conjunction with the Newtech asset purchase in 1999. Sales to
Walmart accounted for 18.7% and 18.0% of total sales for the 2000 and 1999
periods, respectively.

GROSS PROFIT MARGIN

Gross profit increased by $12.1 million. Gross profit margin was 31.6% as a
percentage of revenues compared to 32.0% in the 1999 period. The minimal change
in the gross profit margin is primarily the result of an increase in raw
material costs, primarily oil-based resins, partially offset by realized
manufacturing cost synergies, productivity gains and a more favorable product
mix of distribution sales. There can be no assurance that manufacturing
synergies and productivity gains will be able to offset increases in raw
material costs in future periods.

SELLING, GENERAL AND ADMINISTRATIVE EXPENSES

Selling, general and administrative expenses for the Company increased by $10.4
million in the nine month period ended September 30, 2000 yet decreased as a
percentage of sales, to 26.3% from 26.6% in the 1999 period. The dollar increase
consists primarily of increases in distribution and freight costs of $11.0
million, amortization of $1.8 million of which $1.2 is related to the 1999
Newtech acquisition and $2.2 million in systems related consulting fees,
partially offset by a $1.9 million decrease in sales and marketing related
expenses including commissions, advertising, promotion and sales materials.

Additional warehousing and distribution expenses were incurred due to increased
inventory levels and sales volume. Freight expenses increased reflecting both
the additional sales volume, increase in finished goods inventory and rate
increases from the carriers.

EQUITY IN NET LOSS OF JOINT VENTURES

In June 1999, the Company wrote down its remaining investment in a joint venture
and, therefore, discontinued recording its interest in the joint venture's
operations.

INTEREST EXPENSE

<PAGE> 17

Interest expense increased by $2.3 million to $22.2 million in 2000. The
increase is a result of additional borrowings under the Company's Senior
Revolving Credit Facility to meet working capital requirements, primarily
associated with the increase in finished goods inventory, as well as due to
rising interest rates.

TAXES

EARNINGS PER SHARE

Basic shares for the nine month periods ended September 30, 2000 and 1999 were
22,917,044 and 22,290,429, respectively. Included in diluted shares are common
stock equivalents relating to options of 971,795 for the nine month period ended
September 30, 2000. All common stock equivalents have been excluded from the per
share calculation in the nine month period ended September 30, 1999 as their
inclusion would have been anti-dilutive.

CONSUMER PRODUCTS NORTH AMERICA ("NORTH AMERICA")

North America sales increased by $16.2 million or 4.5% to $374.6 million in the
first nine months of 2000, excluding $5.9 million in sales to other Company
segments. The change is primarily attributable to a $19.3 million increase in
Black & Decker and Windmere branded kitchen electrics and $5.5 million in
professional personal care product sales, offset by a $7.5 million decrease in
home environment product sales.

CONSUMER PRODUCTS INTERNATIONAL ("INTERNATIONAL")

Sales for the International Segment increased by $15.4 million to $70.6 million
or 28.0% from the 1999 period. The increase may be attributed to growth in sales
of existing products as well as the introduction of new products, under both the
Black & Decker and Windmere brand names.

MANUFACTURING

Sales at the Company's Manufacturing subsidiaries increased by $108.6 million to
$308.0 million in the 2000 period as compared to 1999, primarily as a result of
increased Company-wide sales. Included in total sales are OEM sales totaling
$47.0 million, a $18.7 million, or 66.2%, increase over the 1999 period.

LIQUIDITY AND CAPITAL RESOURCES

At September 30, 2000, the Company's working capital was $342.6 million, as
compared to $291.8 million at September 30, 1999. At September 30, 2000 and
1999, the Company's current ratio was 4.0 to 1 and 3.0 to 1, respectively, and
its quick ratio was 2.0 to 1 and 1.6 to 1, respectively. The change in ratios is
primarily the result of the use of the Company's long-term credit facilities to
meet short-term working capital requirements. A slowdown in 2000 third quarter
sales has resulted in higher than expected inventory levels.

Cash balances decreased by $4.0 million for the nine month period ended
September 30, 2000.

The net cash used in operating activities, which totaled $56.7 million, reflects
increased working capital requirements, primarily to finance the increase in
finished goods inventories. Higher inventory levels in the first half of the
year primarily reflected early production by the Company of certain products due
to capacity constraints typically experienced in the back half of the year and
the delay by several key retailers of modular sets. In addition, slower than
anticipated retail sales in the third quarter caused inventory levels to remain
high. The Company is currently taking steps to manage the impact of the increase
in inventory levels, including slowing down production in the fourth quarter, in
order to reduce the levels by year end.

Cash used in investing activities totaled approximately $18.7 million for the
period and consists of capital expenditures at the Company's manufacturing
facilities.

<PAGE> 18

Cash provided by financing activities totaled approximately $71.5 million in the
period reflecting increased borrowings used to meet working capital
requirements, primarily the acquisition and storage of excess finished goods
inventories.

No provision for U.S. taxes has been made on undistributed earnings of the
Company's foreign subsidiaries and joint ventures because management plans to
reinvest such earnings in their respective operations or in other foreign
operations. Repatriating those earnings or using them in some other manner which
would give rise to a U.S. tax liability would reduce after tax earnings and
available working capital.

Certain of the Company's foreign subsidiaries have approximately $48.9 million
in trade finance lines of credit, payable on demand, which are secured by the
subsidiaries' tangible and intangible property, and in some cases, a Company
guarantee. Outstanding borrowings by the Company's Hong Kong subsidiaries are
primarily in U.S. dollars.

The Company's primary sources of liquidity are its cash flow from operations and
borrowings under its Senior Secured Credit Facilities. The Senior Secured Credit
Facilities, as amended, consist of a Senior Secured Revolving Credit Facility, a
Tranche A Term Loan and a Tranche B Term Loan. The Company is currently
borrowing $118.7 million under the term loan portion of its Senior Secured
Credit Facilities. The Senior Secured Revolving Credit Facility as amended,
provides for borrowings by the Company of up to $160.0 million. As of November
1, 2000, the Company is borrowing $68.8 million under the Senior Secured
Revolving Credit Facility and has approximately $89.2 million available for
future cash borrowings, under all its credit facilities. Advances under the
Senior Secured Revolving Credit Facility are based upon percentages of
outstanding eligible accounts receivable and inventories.

In November 2000, the Company entered into a relationship with a consumer
packaged goods company to develop, manufacture and distribute new products in
the mass market. To date, the Company has entered into a joint development
agreement for one product and is in the process of reviewing other
opportunities. In conjunction with the development arrangement, the Company will
expand its existing manufacturing capacity, exit various non-strategic product
lines including certain retail personal care items, and reallocate Company
resources resulting in non-recurring non-cash charges totaling $30 to $40
million in the fourth quarter of 2000. The Company has amended its Senior
Secured Credit Facility to incorporate the capital requirements of the alliance,
which includes an increase in allowable capital expenditures of $25.0 million
over the next two years and the modification of certain covenants.

The Company's aggregate capital expenditures for the nine months ended September
30, 2000 were $19.4 million. The Company anticipates that the total capital
expenditures for 2000 will be approximately $26.0 million, which includes the
cost of new tooling. The Company plans to fund those capital expenditures from
cash flow from operations and, if necessary, borrowings under the Senior Secured
Revolving Credit Facility.

At September 30, 2000, debt as a percent of total capitalization was 48.3
percent.

The Company's ability to make scheduled payments of principal of, or to pay the
interest on, or to refinance, its indebtedness, or to fund planned capital
expenditures, product research and development expenses and marketing expenses
will depend on its future performance, which, to a certain extent, is subject to
general economic, financial, competitive, legislative, regulatory, and
international and United States domestic political factors and other factors
that are beyond the Company's control. Based upon the current level of
operations and anticipated cost savings and revenue growth, management believes
that cash flow from operations and available cash, together with available
borrowings under the Senior Secured Credit and other facilities, will be
adequate to meet the Company's future liquidity needs for at least the next
several years. The Company may, however, need to refinance all or a portion of
the principal of the indebtedness on or prior to maturity. There can be no
assurance that the Company's business will generate sufficient cash flow from
operations, that anticipated revenue growth and operating improvements will be
realized or that future borrowings will be available under the Senior Secured
Credit Facilities in an amount sufficient to enable the Company to service its
indebtedness, including the Senior Subordinated Notes, or to fund its other
liquidity needs. In addition, there can be no assurance that the Company will be
able to effect any such refinancing on commercially reasonable terms or at all.

While the Company transacts business predominantly in U.S. dollars and most of
its revenues are collected in U.S. dollars, a portion of the Company's costs,
such as payroll, rent and indirect operations costs, are denominated in other
currencies, such as Chinese renminbi, Hong Kong dollars, Canadian dollars and
Mexican pesos. Changes in the relation of these and other currencies to the U.S.
dollar will affect the Company's cost of goods sold and operating margins and
could result in exchange losses. The impact of future exchange rate fluctuations
on the Company's results of operations cannot be accurately predicted.

Durable uses the Hong Kong dollar as its functional currency. The Hong Kong
dollar has historically been "pegged" to a fixed exchange rate vis-a-vis the
U.S. dollar. If the Hong Kong dollar were to be significantly devalued against
the U.S. dollar and the exchange rate allowed to fluctuate, the Company could
experience significant changes in its currency translation account which would

<PAGE> 19

impact the Company's future comprehensive income. The Company acquired its
Mexican manufacturing facilities and related assets from The Black & Decker
Corporation. Because the operations of such facilities are primarily
peso-denominated and the revenues derived from products manufactured at such
facilities are primarily dollar-denominated, the Company is now subject to
fluctuations in the value of the peso. The December 1994 devaluation of the peso
had a number of effects on the Mexican economy that adversely affected the
financial condition of businesses in Mexico. The devaluation caused the peso
value of dollar denominated indebtedness associated with businesses in Mexico to
increase significantly, and also greatly increased the rate of inflation,
resulting in a sharp rise in nominal interest rates on peso-denominated
financing. There can be no assurance that the peso to dollar foreign exchange
rate will not be volatile in the future and that financial markets will not have
a material adverse effect on the Company's business, financial condition and
results of operations.

Outstanding at September 30, 2000, were interest rate swaps on $160.0 million
notional principal amount with a market value of approximately ($1,473,000). The
market value represents the amount the Company would have to pay to exit the
contracts at September 30, 2000. The Company does not intend to exit the
contracts at this time.

MANUFACTURING OPERATIONS

The Company's products are manufactured primarily at the Company's facilities in
China and Mexico. The Company has a significant amount of its assets in China
and Mexico, primarily consisting of inventory, equipment and molds. The supply
and cost of products, as well as finished products, can be adversely affected,
among other reasons, by changes in foreign currency exchange rates, increased
import duties, imposition of tariffs, imposition of import quotas, interruptions
in sea or air transportation and political or economic changes.

The Mexican government exercises significant influence over many aspects of the
Mexican economy. Accordingly, the actions of the Mexican government concerning
the economy could have a significant effect on private sector entities in
general and the Company in particular. In addition, during the 1980s and 1990s,
Mexico experienced periods of slow or negative growth, high inflation,
significant devaluations of the peso and limited availability of foreign
exchange. As a result of the Company's reliance upon manufacturing facilities in
Mexico, economic conditions in Mexico could adversely affect the Company's
business, financial condition and results of operations.

From time to time, the Company explores opportunities to diversify its sourcing
and/or production of certain products to other low-cost locations or with other
third parties or joint venture partners in order to reduce its dependence on
production in China and Mexico and/or reduce its dependence on the Company's
existing distribution base. However, at the present time, the Company intends to
continue its production in China and Mexico.

NEW ACCOUNTING PRONOUNCEMENTS

Statement of Financial Accounting Standards (SFAS) 133, Accounting for
Derivative Instruments and Hedging Activities, as amended by SFAS 137,
Accounting for Derivative Instruments and Hedging Activities -- Deferral of the
Effective Date of FASB Statement No. 133, and SFAS 138, Accounting for Certain
Derivative Instruments and Certain Hedging Activities, is effective for the
Company as of January 1, 2001. The new standards require that an entity
recognize all derivatives as either assets or liabilities measured at fair
value. The accounting for changes in the fair value of a derivative depends on
the use of the derivative. Adoption of these new accounting standards may result
in cumulative after-tax reductions in net earnings and other comprehensive
income beginning in the first quarter of 2001. The adoption will also impact
assets and liabilities recorded on the balance sheet. The Company does not
believe that the impact of derivatives currently outstanding will have a
material impact on future operations.

SEASONALITY

The Company's business is highly seasonal, with operating results varying from
quarter to quarter. The Company has historically experienced higher revenues in
the third and fourth quarters of each fiscal year primarily due to increased
demand by customers for products in the late summer for "back-to-school" sales
and in the fall for holiday sales. The fourth quarter has now become the
Company's largest sales volume quarter. The Company's major sales occur during
August through November. Sales are generally

<PAGE> 20

made on 45 to 90 day terms. Heaviest collections on its open accounts receivable
are received from November through March, at which time the Company is in its
most liquid state.

LEGAL PROCEEDINGS

The Company is a defendant in SHERLEIGH ASSOCIATES LLC AND SHERLEIGH ASSOCIATES
INC. PROFIT SHARING PLAN, ON THEIR OWN BEHALF AND ON BEHALF OF ALL OTHERS
SIMILARLY SITUATED V. WINDMERE-DURABLE HOLDINGS, INC., DAVID M. FRIEDSON, HARRY
D. SCHULMAN AND NATIONSBANC MONTGOMERY SECURITIES LLC, 98-2273-CIV-LENARD which
was filed in the United States District Court, Southern District of Florida on
October 8, 1998.

This matter is a class action complaint, which is the consolidation of eight
separate class action complaints with substantially similar allegations. By
Order dated March 9, 1999, in addition to consolidating the above-referenced
cases, the Court provisionally certified the class of plaintiffs who purchased
Windmere stock between May 12, 1998 and September 22, 1998, and provisionally
certified Sherleigh Associates LLC and Sherleigh Associates, Inc. Profit Sharing
Plan as lead plaintiff. On June 30, 1999, a consolidated amended class action
complaint was filed. The consolidated amended class action complaint alleges
violations of the federal securities laws (including Rule 10b-5 promulgated
pursuant to the Securities Exchange Act of 1934, as amended) in connection with
the acquisition by the Company of certain product categories of the Household
Products Group of the Black & Decker Corporation. Among other things, the
plaintiffs allege that the Company and certain of its directors and officers,
along with NationsBanc Montgomery Securities LLC, provided false information in
connection with a public offering of debt and equity securities. The plaintiffs
seek, among other relief, to be awarded compensatory damages, rescission rights,
unspecified damages and attorneys' fees and costs. The defendants moved to
dismiss the consolidated class action complaint, but such motion was denied.
Discovery procedures have been initiated.

The Company is currently advancing the legal expenses of the directors and
officers who were named as defendants. Such defendants have agreed to repay the
Company for all or any portion of such advances to which they are ultimately
found not to be entitled pursuant to applicable law. Based on the information
currently available to the Company, management does not believe that the
indemnification of the officers and directors named as defendants in the
above-listed matters will have a material adverse effect on the financial
condition, results of operations or liquidity of the Company. However, the
actual effects of such indemnification on the Company cannot be finally
determined until the amount of such indemnification, if any, is fixed.

In connection with the Household Products Group acquisition, the Company also
received two derivative demands alleging the breach of the fiduciary duties by
certain of the officers and directors of the Company. An independent committee
of the Board of Directors is currently conducting an investigation as to whether
such derivative actions are in the best interest of the Company.

The Company is subject to other legal proceedings and claims which arise in the
ordinary course of its business. In the opinion of management, the amount of
ultimate liability, if any, in excess of applicable insurance coverage, is not
likely to have a material effect on the financial position of the Company.
However, as the outcome of litigation or other claims is difficult to predict,
significant changes in the estimated exposures could occur.

<PAGE> 21

ITEM 3. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK

The Company's major market risk exposure is to changing interest rates, debt
obligations issued at a fixed rate and fluctuations in the currency exchange
rates. The Company's policy is to manage interest rate risk through the use of a
combination of fixed and floating rate instruments, with respect to both its
liquid assets and its debt instruments. Although the Company feels it has
mitigated some of its exposure to a rise in interest rates, large increases may
have a negative impact on future earnings.

The Senior Secured Credit Facilities accrue interest at variable rates; however,
the company has purchased interest rate protection for such loans in the form of
interest rate swaps and caps. The Company typically maintains a fixed to total
debt ratio of approximately 40% - 50%. Fixed-rate debt obligations issued by the
Company are not callable until July 31, 2003.

The Company is subject to foreign currency exchange rate risk relating to
receipts from customers and payments to suppliers in foreign currencies. As a
general policy, the Company hedges foreign currency commitments of future
payments and receipts by purchasing foreign currency-forward and option
contracts. As of June 30, 2000, the notional value of such derivatives was
approximately $18.3 million, with no significant unrealized gain or loss. The
majority of the Company's receipts and expenditures are contracted in U.S.
dollars and the Company does not consider the market risk exposure relating to
currency exchange to be material at this time. Extreme volatility in certain
currencies could, however, have a negative material impact on future operations.

<PAGE> 22

PART II - OTHER INFORMATION

ITEM 1. LEGAL PROCEEDINGS

See "Legal Proceedings" in Part I, Item 2 of this report.

ITEM 6. EXHIBITS AND REPORTS ON FORM 8-K.

(a) Exhibits:

3.1 Second Amended and Restated Articles of Incorporation of the Company
filed with the Florida Secretary of State on May 10, 2000.

10.1 Amendment No. 1 to Amended and Restated Credit Agreement by and among
the Company, each of its subsidiaries party thereto, each of the
lenders party thereto and Bank of America, N.A. (f/k/a Nationsbank,
National Association), as agent for the lenders, dated April 29, 1999.

10.2 Amendment No. 2 to Amended and Restated Credit Agreement by and among
the Company, each of its subsidiaries party thereto, each of the
lenders party thereto and Bank of America, N.A. (f/k/a Nationsbank,
National Association), as agent for the lenders, dated December 29,
1998.

10.3 Amendment No. 3 to Amended and Restated Credit Agreement by and among
the Company, each of its subsidiaries party thereto, each of the
lenders party thereto and Bank of America, N.A., as agent for the
lenders, dated February 17, 2000.

10.4 Amendment No. 4 to Amended and Restated Credit Agreement by and among
the Company, each of its subsidiaries party thereto, each of the
lenders party thereto and Bank of America, N.A., as agent for the
lenders, dated June 30, 2000.

10.5 Amendment No. 5 to Amended and Restated Credit Agreement by and among
the Company, each of its subsidiaries party thereto, each of the
lenders party thereto and Bank of America, N.A., as agent for the
lenders, dated June 30, 2000.

10.6 Amendment No. 6 to Amended and Restated Credit Agreement by and among
the Company, each of its subsidiaries party thereto, each of the
lenders party thereto and Bank of America, N.A., as agent for the
lenders, dated November 9, 2000.

10.7* Employment Agreement dated July 1, 2000 between Applica Consumer
Products, Inc. and Michael J. Michienzi, President and General
Manager, Sales and Marketing of Applica Consumer Products, Inc.

10.8* Employment Agreement dated July 1, 2000 between Applica Consumer
Products, Inc. and Richard J. Gagliano, Senior Vice President,
Manufacturing and Engineering of Applica Consumer Products, Inc.

10.9* Employment Agreement dated July 1, 2000 between the Company and Terry
L. Polistina, Senior Vice President, Finance and Administration.

27.1 Financial Data Schedule (filed electronically)

(b) Reports on Form 8-K:

None

-----------
* These exhibits are management contracts or compensatory plans or arrangements.

<PAGE> 23

SIGNATURES

Pursuant to the requirements of the Securities Exchange Act of 1934, the
registrant has duly caused this report to be signed on its behalf by the
undersigned thereunto duly authorized.

APPLICA INCORPORATED
(Registrant)

November 14, 2000 By: /s/ HARRY D. SCHULMAN
________________________________________
Harry D. Schulman
CHIEF OPERATING OFFICER, CHIEF
FINANCIAL OFFICER AND SECRETARY
(Duly authorized to sign on behalf of
the Registrant)

November 14, 2000 By: /s/ TERRY L. POLISTINA
________________________________________
Terry L. Polistina
SENIOR VICE PRESIDENT - FINANCE
AND ADMINISTRATION
(Duly authorized to sign on
behalf of the Registrant)