0000950144-01-508491.txt : 20011128 0000950144-01-508491.hdr.sgml : 20011128 ACCESSION NUMBER: 0000950144-01-508491 CONFORMED SUBMISSION TYPE: 10-Q PUBLIC DOCUMENT COUNT: 2 CONFORMED PERIOD OF REPORT: 20010930 FILED AS OF DATE: 20011107 FILER: COMPANY DATA: COMPANY CONFORMED NAME: APPLICA INC CENTRAL INDEX KEY: 0000217084 STANDARD INDUSTRIAL CLASSIFICATION: ELECTRIC HOUSEWARES & FANS [3634] IRS NUMBER: 591028301 STATE OF INCORPORATION: FL FISCAL YEAR END: 1231 FILING VALUES: FORM TYPE: 10-Q SEC ACT: 1934 Act SEC FILE NUMBER: 001-10177 FILM NUMBER: 1776869 BUSINESS ADDRESS: STREET 1: 5980 MIAMI LAKES DR CITY: MIAMI LAKES STATE: FL ZIP: 33014 BUSINESS PHONE: 3053622611 MAIL ADDRESS: STREET 1: 5980 MIAMI LAKES DRIVE CITY: MIAMI LAKES STATE: FL ZIP: 33014 FORMER COMPANY: FORMER CONFORMED NAME: SAVE WAY INDUSTRIES INC DATE OF NAME CHANGE: 19830815 FORMER COMPANY: FORMER CONFORMED NAME: WINDMERE CORP DATE OF NAME CHANGE: 19920703 FORMER COMPANY: FORMER CONFORMED NAME: WINDMERE DURABLE HOLDINGS INC DATE OF NAME CHANGE: 19970224 10-Q 1 g72498e10-q.txt APPLICA INCORPORATED 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, 2001 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 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: Not Applicable 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 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 CLASS OUTSTANDING ON NOVEMBER 1, 2001 ----- ------------------------------- Common Stock, $.10 par value.................. 23,235,974 APPLICA INCORPORATED INDEX
Page ---- PART I. FINANCIAL INFORMATION.....................................................................................3 Item 1. Financial Statements............................................................................3 Consolidated Balance Sheets as of September 30, 2001 and December 31, 2000....................3 Consolidated Statements of Operations for the Three Months Ended September 30, 2001 and 2000.......................................................................................4 Consolidated Statements of Operations for the Nine Months Ended September 30, 2001 and 2000...5 Consolidated Statements of Cash Flows for the Nine Months Ended September 30, 2001 and 2000...6 Notes to Consolidated Financial Statements....................................................7 Item 2. Management's Discussion and Analysis of Financial Condition and Results of Operations..........13 Item 3. Quantitative and Qualitative Disclosures About Market Risk.....................................18 PART II. OTHER INFORMATION.......................................................................................19 Item 1. Legal Proceedings..............................................................................19 Item 6. Exhibits and Reports on Form 8-K...............................................................19
2 PART I. FINANCIAL INFORMATION ITEM 1. FINANCIAL STATEMENTS APPLICA INCORPORATED AND SUBSIDIARIES CONSOLIDATED BALANCE SHEETS
September 30, December 31, 2001 2000 ------------- ------------ (Unaudited) (In Thousands) ASSETS CURRENT ASSETS Cash and cash equivalents ............................................ $ 8,499 $ 16,857 Accounts and other receivables, less allowances of $9,050 in 2001 and $8,049 in 2000 ..................................................... 193,594 186,198 Receivables from affiliates .......................................... 3,600 3,281 Inventories .......................................................... 141,973 160,820 Prepaid expenses and other ........................................... 21,215 17,277 Refundable income taxes .............................................. 4,836 1,207 Future income tax benefits ........................................... 19,284 14,655 --------- --------- Total current assets ........................................... 393,001 400,295 INVESTMENT IN JOINT VENTURE ............................................. 1,395 1,525 PROPERTY, PLANT AND EQUIPMENT - at cost, less accumulated depreciation of $96,526 in 2001 and $82,770 in 2000 .................................. 83,027 78,200 FUTURE INCOME TAX BENEFITS, NON-CURRENT ................................. 5,896 3,705 OTHER ASSETS ............................................................ 210,590 224,210 --------- --------- TOTAL ASSETS ....................................................... $ 693,909 $ 707,935 ========= ========= LIABILITIES AND SHAREHOLDERS' EQUITY CURRENT LIABILITIES Notes and acceptances payable ........................................ $ -- $ 13,494 Current maturities of long-term debt ................................. 21,048 18,842 Accounts payable ..................................................... 54,972 43,361 Accrued expenses ..................................................... 45,777 47,103 Deferred income, current portion ..................................... 461 514 --------- --------- Total current liabilities ....................................... 122,258 123,314 LONG-TERM DEBT .......................................................... 247,617 260,147 FUTURE INCOME TAX LIABILITIES ........................................... 2,483 -- OTHER LONG-TERM LIABILITIES ............................................. 75 -- SHAREHOLDERS' EQUITY: Common stock - authorized: 75,000 shares of $.10 par value; issued and outstanding: 23,236 shares in 2001 and 23,080 shares in 2000 ....... 2,324 2,308 Paid-in capital ...................................................... 153,432 152,591 Retained earnings .................................................... 173,121 173,466 Notes receivable - officers .......................................... (1,496) (1,496) Accumulated other comprehensive earnings (loss) ...................... (5,905) (2,395) --------- --------- Total shareholders' equity ....................................... 321,476 324,474 --------- --------- TOTAL LIABILITIES AND SHAREHOLDERS' EQUITY ......................... $ 693,909 $ 707,935 ========= =========
The accompanying notes are an integral part of these statements. 3 APPLICA INCORPORATED AND SUBSIDIARIES CONSOLIDATED STATEMENTS OF OPERATIONS (Unaudited)
Three Months Ended September 30, --------------------------------------------------------- 2001 2000 ----------------------- ------------------------ (In thousands, except per share data) Sales and other revenues ..................... $203,201 100.0% $199,397 100.0% Cost of goods sold.......................... 141,145 69.5 132,649 66.5 -------- ----- -------- ----- Gross profit....................... 62,056 30.5 66,748 33.5 Selling, general and administrative expenses................................. 45,699 22.4 48,071 24.1 -------- ----- -------- ----- Operating profit................... 16,357 8.1 18,677 9.4 Other expense (income): Interest expense......................... 5,429 2.7 8,160 4.1 Interest and other income................ (608) (0.3) (708) (0.4) -------- ----- -------- ----- 4,821 2.4 7,452 3.7 -------- ----- -------- ----- Earnings before equity in net loss of joint venture and income taxes......... 11,536 5.7 11,225 5.7 Equity in net loss of joint venture...... -- -- (128) (0.1) -------- ----- -------- ----- Earnings before income taxes ...... 11,536 5.7 11,097 5.6 Income tax expense.......................... 2,999 1.5 2,798 1.4 -------- ----- -------- ----- Net earnings....................... $8,537 4.2% $ 8,299 4.2% ======== ===== ======== ===== Per share data: Earnings per common share - basic........ $ 0.37 $ 0.36 ======== ======== Earnings per common share - diluted...... $ 0.35 $ 0.35 ======== ========
The accompanying notes are an integral part of these statements. 4 APPLICA INCORPORATED AND SUBSIDIARIES CONSOLIDATED STATEMENTS OF OPERATIONS (UNAUDITED)
Nine Months Ended September 30, --------------------------------------------------------- 2001 2000 ---------------------- ------------------------ (In thousands, except per share data) Sales and other revenues ..................... $516,685 100.0% $517,499 100.0% Cost of goods sold.......................... 366,539 70.9 354,156 68.4 -------- ----- -------- ----- Gross profit....................... 150,146 29.1 163,343 31.6 Selling, general and administrative expenses................................. 134,384 26.0 135,936 26.3 -------- ----- -------- ----- Operating profit................... 15,762 3.1 27,407 5.3 Other expense (income): Interest expense......................... 17,801 3.5 22,225 4.3 Interest and other income................ (1,579) (0.3) (1,673) (0.3) -------- ----- -------- ----- 16,222 3.2 20,552 4.0 -------- ----- -------- ----- Earnings (loss) before equity in net (460) (0.1) 6,855 1.3 loss of joint venture and income taxes. Equity in net loss of joint venture...... -- -- (128) -- -------- ----- -------- ----- Earnings (loss) before income taxes ........................... (460) (0.1) 6,727 1.3 Income tax expense (benefit) ............... (115) -- 1,701 0.3 -------- ----- -------- ----- Net earnings (loss)................ $ (345) (0.1)% $ 5,026 1.0% ======== ===== ======== ===== Per share data: Earnings (loss) per common share - basic. $ (0.02) $ 0.22 ======== ======== Earnings (loss) per common share - diluted................................ $ (0.02) $ 0.21 ======== ========
The accompanying notes are an integral part of these statements. 5 APPLICA INCORPORATED AND SUBSIDIARIES CONSOLIDATED STATEMENTS OF CASH FLOWS (UNAUDITED)
Nine Months Ended September 30, --------------------------- 2001 2000 -------- -------- (In Thousands) CASH FLOWS FROM OPERATING ACTIVITIES: Net earnings (loss) ........................................ $ (345) $ 5,026 Reconciliation to net cash provided by (used in) operating activities: Depreciation of property, plant and equipment ........... 14,575 14,234 Amortization of intangible assets ....................... 14,142 14,465 Net change in allowance for losses on accounts receivable 1,001 565 Equity in net earnings of joint venture ................. -- 434 Consulting expense on non-employee stock options ........ 25 -- Net change in deferred income ........................... (53) (529) Changes in assets and liabilities: Accounts and other receivables ....................... (8,397) (22,489) Inventories .......................................... 18,847 (61,107) Prepaid expenses and other ........................... (3,938) 3,692 Other assets ......................................... (3,957) (2,320) Accounts payable and accrued expenses ................ 10,285 (1,043) Current and deferred income taxes .................... (7,966) (9,521) Other liabilities .................................... -- (10,573) Other receivables .................................... -- 12,962 Other accounts ....................................... -- (521) -------- -------- Net cash provided by (used in) operating activities $ 34,219 $(56,725) CASH FLOWS FROM INVESTING ACTIVITIES: Additions to property, plant and equipment ................. (19,402) (19,441) Distributions from joint venture ........................... 130 -- Receivables from affiliates ................................ (319) 696 -------- -------- Net cash used in investing activities .............. (19,591) (18,745) CASH FLOWS FROM FINANCING ACTIVITIES: Notes and acceptances ...................................... (13,494) (898) Long-term debt - net ....................................... (10,324) 70,220 Proceeds from employee stock benefit plans ................. 832 2,164 -------- -------- Net cash (used in) provided by financing activities (22,986) 71,486 DECREASE IN CASH AND CASH EQUIVALENTS ......................... (8,358) (3,984) CASH AND CASH EQUIVALENTS AT BEGINNING OF PERIOD .............. 16,857 13,768 -------- -------- CASH AND CASH EQUIVALENTS AT END OF PERIOD .................... $ 8,499 9,784 ======== ======== SUPPLEMENTAL DISCLOSURES OF CASH FLOW INFORMATION: CASH PAID DURING THE NINE-MONTH PERIODS ENDED SEPTEMBER 30: Interest ................................................... $ 19,566 $ 23,332 Income taxes ............................................... $ 7,026 $ 8,758
The accompanying notes are an integral part of these statements. 6 APPLICA INCORPORATED AND SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS 1. SUMMARY OF ACCOUNTING POLICIES INTERIM REPORTING The accompanying unaudited consolidated financial statements include the accounts of Applica Incorporated and its subsidiaries ("Applica"). All significant intercompany transactions and balances have been eliminated. The unaudited consolidated financial statements have been prepared in conformity with Rule 10-01 of Regulation S-X of the Securities and Exchange Commission and therefore do not include information or footnotes necessary for a complete presentation of financial position, results of operations and cash flows in conformity with accounting principles generally accepted in the United States of America. However, all adjustments (consisting of normal recurring accruals), which, in the opinion of management, are necessary for a fair presentation of the financial statements, have been included. Operating results for the period ended September 30, 2001 are not necessarily indicative of the results that may be expected for the year ending December 31, 2001. For further information, refer to the Consolidated Financial Statements and Notes thereto included in Applica's Annual Report on Form 10-K for the year ended December 31, 2000. RECLASSIFICATIONS Certain prior period amounts have been reclassified for comparability. RECEIVABLES FROM AFFILIATES Receivables from affiliates include the current portion of receivables due from Applica's joint venture partner and certain executive officers of Applica. These receivables are due upon demand or upon termination of the applicable employment contract and bear interest at prevailing market interest rates. Receivables due from Applica's executive officers are unsecured. DERIVATIVE FINANCIAL INSTRUMENTS Applica 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 foreign currency instruments used are generally consistent with the timing of the committed or anticipated transactions being hedged. Applica does not use derivative financial instruments for trading or speculative purposes. Outstanding at September 30, 2001 were $67.7 million notional value of contracts to purchase and/or sell foreign currency forward with a fair market value of approximately $400,000. The market value represents the amount Applica would receive upon exiting the contracts at September 30, 2001 and was determined based on quotes obtained from Applica's financial institutions. This amount is included in prepaid expenses and other as of September 30, 2001. All contracts expire on or before September 30, 2002. Applica uses interest rate derivatives to reduce the impact of changes in interest rates on its floating rate debt and to maintain its desired fixed/floating ratio. 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. Applica does not use derivative financial instruments for trading or speculative purposes. Outstanding as of September 30, 2001 were derivatives on $200.0 million notional principal amount with a negative fair market value of approximately $100,000. The market value represents the amount Applica would have to pay to exit the contracts at September 30, 2001 and was determined based on quotes obtained from Applica's financial institutions. This amount is included in other long-term liabilities as of September 30, 2001. Applica does not intend to exit these contracts at this time. All contracts have terms between one and seven years, which reflect the tenor of the underlying obligation. One of Applica's interest rate derivatives qualifies as a fair value hedge. Accordingly, Applica increased the value of its debt by approximately $1.9 million at September 30, 2001, as required by SFAS 133. At September 30, 2001, Applica had no significant commodity future contracts. 7 APPLICA INCORPORATED AND SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (Continued) 2. SHAREHOLDERS' EQUITY EARNINGS PER SHARE Basic shares for the three-month period ended September 30, 2001 and 2000 were 23,218,715 and 23,035,355, respectively. Basic shares for the nine-month period ended September 30, 2001 and 2000 were 23,168,672 and 22,917,044, respectively. Included in diluted shares are common stock equivalents relating to options of 917,048 and 539,762 for the three month periods ended September 30, 2001 and 2000, respectively and 971,795 for the nine month period ended September 30, 2000. All common stock equivalents have been excluded from the diluted per share calculations in the nine-month period ended September 30, 2001 as their inclusion would have been anti-dilutive. Stock options to purchase 1,685,926 shares of Applica's common stock at exercise prices ranging from $9.85 to $31.6875 were excluded from the diluted per share computation for the three month period ended September 30, 2001 as the exercise prices were greater than the average market price of Applica's common stock during such period. 3. COMMITMENTS AND CONTINGENCIES Applica is a defendant in certain litigation. See Part II, "Item 1. Legal Proceedings." 4. BUSINESS SEGMENT INFORMATION The Consumer Products North America segment distributes kitchen electric, professional personal care, pet and home environment products under licensed brand names such as Black & Decker(R), as well as the Windmere(R), Littermaid(R) 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(R) and Windmere(R) brand names. Products are marketed throughout Latin America except for Brazil. The Manufacturing segment includes Applica's manufacturing operations located in China and Mexico. The majority of Applica's products are manufactured in these two facilities. Applica also manufactures products on an "original equipment manufacturing" (OEM) basis for other consumer products companies. The Manufacturing segment also includes these OEM sales. Summarized financial information concerning Applica's reportable segments is shown in the following table. Corporate related items, results of insignificant operations and income and expense not allocated to reportable segments are included in the reconciliations to consolidated results. 8 APPLICA INCORPORATED AND SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (Continued) Segment information for the three-month periods ended September 30, 2001 and 2000 was as follows:
Consumer Consumer Products Products North America International Manufacturing Total ------------- ------------- ------------- -------- (In thousands) 2001: Net sales............................... $144,798 $26,497 $116,529 $287,824 Intersegment net sales.................. -- -- 92,157 92,157 Operating earnings ..................... 1,950 1,436 12,787 16,173 2000: Net sales............................... $149,005 $24,852 $111,511 $285,368 Intersegment net sales.................. 1,620 -- 95,695 97,315 Operating earnings ..................... 5,947 286 12,450 18,683
Reconciliation to consolidated amounts was as follows:
2001 2000 -------- -------- (In thousands) REVENUES: Total revenues for reportable segments................. $287,824 $285,368 Other revenues......................................... 7,534 11,344 Eliminations of intersegment revenues.................. (92,157) (97,315) -------- -------- Total consolidated revenues....................... $203,201 $199,397 ======== ======== OPERATING EARNINGS: Total earnings for reportable segments............ $16,173 $18,683 Other income (loss)............................... 792 574 Interest expense.................................. (5,429) (8,160) -------- -------- Earnings before income taxes............... $ 11,536 $ 11,097 ======== ========
Segment information for the nine-month periods ended September 30, 2001 and 2000 was as follows:
Consumer Consumer Products Products North America International Manufacturing Total ------------- ------------- ------------- -------- (In thousands) 2001: Net sales............................... $379,170 $75,545 $274,131 $728,846 Intersegment net sales.................. -- -- 231,090 231,090 Operating earnings (loss)............... (9,760) 2,249 26,711 19,200 2000: Net sales............................... $378,764 $70,553 $307,975 $757,292 Intersegment net sales.................. 5,855 -- 260,985 266,840 Operating earnings (loss)............... (4,780) (405) 32,335 27,150
9 APPLICA INCORPORATED AND SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (Continued) Reconciliation to consolidated amounts was as follows:
2001 2000 -------- -------- (In thousands) REVENUES: Total revenues for reportable segments................. $728,846 $757,292 Other revenues......................................... 18,929 27,047 Eliminations of intersegment revenues.................. (231,090) (266,840) -------- -------- Total consolidated revenues....................... $516,685 $517,499 ======== ======== OPERATING EARNINGS: Total earnings for reportable segments............ $19,200 $27,150 Other income (loss)............................... (1,859) 1,802 Interest expense.................................. (17,801) (22,225) -------- -------- Earnings (loss) before income taxes...... $ (460) $ 6,727 ======== ========
5. CONDENSED CONSOLIDATING FINANCIAL INFORMATION Applica Incorporated's domestic subsidiaries are guarantors of its 10% Senior Subordinated Notes due 2008. The following condensed consolidating financial information presents the results of operations, financial position and cash flows of Applica Incorporated (on a stand alone basis), the guarantor subsidiaries (on a combined basis), the non-guarantor subsidiaries (on a combined basis) and the eliminations necessary to arrive at the consolidated results of Applica. The results of operations and cash flows presented below assume that the guarantor subsidiaries were in place for all periods presented. Applica Incorporated and the 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 Applica and have fully and unconditionally guaranteed the Notes on a joint and several basis. The Notes contain certain covenants that, among other things, restrict the ability of the Subsidiary Guarantors to make distributions to Applica Incorporated. 10 APPLICA INCORPORATED AND SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (Continued)
Nine Months Ended September 30, 2001 -------------------------------------------------------------------------------- Applica Incorporated Guarantors Non-Guarantors Eliminations Consolidated ------------ ---------- -------------- ------------ ------------ (In thousands) STATEMENT OF OPERATIONS: Sales and other revenues ............... -- 378,754 369,021 (231,090) 516,685 Cost of goods sold ..................... -- 271,549 326,080 (231,090) 366,539 ------- ------- ------- -------- ------- Gross profit ........................ -- 107,205 42,941 -- 150,146 Operating expenses ..................... (1,142) 112,398 22,614 514 134,384 ------- ------- ------- -------- ------- Operating profit (loss) ............. 1,142 (5,193) 20,327 (514) 15,762 Other (income) expense, net ............ 16,222 -- -- -- 16,222 ------- ------- ------- -------- ------- Earnings (loss) before income taxes . (15,080) (5,193) 20,327 (514) (460) Income taxes (benefit) ................. (12,488) -- 12,373 -- (115) ------- ------- ------- -------- ------- Net earnings (loss) ................. (2,592) (5,193) 7,954 (514) (345) ======= ======= ======= ======== ======= BALANCE SHEET: Cash ................................... -- 1,322 7,177 -- 8,499 Accounts and other receivables ......... -- 128,142 65,452 -- 193,594 Receivables from affiliates ............ (51,742) (8,081) 63,423 -- 3,600 Inventories ............................ -- 89,474 52,499 -- 141,973 Other current assets ................... -- 7,958 19,048 18,329 45,335 ------- ------- ------- -------- ------- Total current assets ................ (51,742) 218,815 207,599 18,329 393,001 Investment in joint venture ............ 425,119 113,123 70,492 (607,339) 1,395 Property, plant and equipment, net ..... -- 18,109 64,918 -- 83,027 Other assets ........................... 2,207 240,721 23,065 (49,507) 216,486 ------- ------- ------- -------- ------- Total assets ........................ 375,584 590,768 366,074 (638,517) 693,909 ======= ======= ======= ======== ======= Accounts payable and accrued expenses .. 3 27,218 73,528 -- 100,749 Current maturities of long-term debt ... 21,048 -- -- -- 21,048 Deferred income ........................ -- 461 -- -- 461 Income taxes payable ................... -- 2,445 4,603 (7,048) -- ------- ------- ------- -------- ------- Total current liabilities ........... 21,051 30,124 78,131 (7,048) 122,258 Long-term debt ......................... 244,422 6,477 23,425 (26,707) 247,617 Future income tax liabilities .......... -- 28,230 2,448 (28,195) 2,483 Other long-term liabilities ............ -- 75 -- -- 75 ------- ------- ------- -------- ------- Total liabilities ................... 265,473 64,906 104,004 (61,950) 372,433 Shareholders' equity ................... 110,111 525,862 262,070 (576,567) 321,476 ------- ------- ------- -------- ------- Total liabilities and shareholders' equity .............................. 375,584 590,768 366,074 (638,517) 693,909 ======= ======= ======= ======== ======= CASH FLOW INFORMATION: Net cash provided by (used in) operating activities .......................... (4,797) (10,422) 32,142 17,296 34,219 Net cash provided by (used in) investing activities .......................... 21,267 4,580 (40,412) (5,026) (19,591) Net cash provided by (used in) financing activities .......................... (16,478) 2,818 2,944 (12,270) (22,986) Cash at beginning ...................... 8 4,346 12,503 -- 16,857 Cash at end ............................ -- 1,322 7,177 -- 8,499
11 APPLICA INCORPORATED AND SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (Continued)
Nine Months Ended September 30, 2000 -------------------------------------------------------------------------------- Applica Incorporated Guarantors Non-Guarantors Eliminations Consolidated ------------ ---------- -------------- ------------ ------------ (In thousands) STATEMENT OF OPERATIONS: Sales and other revenues ............... -- 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 . (19,469) (6,808) 33,402 (270) 6,855 Income taxes (benefit) ................. -- 159 7,036 (5,494) 1,701 Equity in net loss of joint venture .... 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 ........................... -- 219,571 11,137 2,446 233,154 ------- ------- ------- -------- ------- Total assets ........................ 447,196 547,684 371,013 (593,369) 772,524 ======= ======= ======= ======== ======= Accounts payable and accrued expenses .. 3 27,957 66,100 -- 94,060 Current maturities of long-term debt ... 18,342 -- -- -- 18,342 Deferred income, current portion ....... -- 292 -- -- 292 Income taxes payable ................... -- 991 2,724 (2,987) 728 ------- ------- ------- -------- ------- Total current liabilities ........... 18,345 29,240 68,824 (2,987) 113,422 Long-term debt ......................... 299,154 (18,476) 18,799 9,559 309,036 Deferred income taxes .................. -- 5,514 2,843 (8,357) -- ------- ------- ------- -------- ------- Total liabilities ................... 317,499 16,278 90,466 (1,785) 422,458 Shareholders' equity ................... 129,697 531,406 280,547 (591,584) 350,066 ------- ------- ------- -------- ------- Total liabilities and shareholders' equity .............................. 447,196 547,684 371,013 (593,369) 772,524 ======= ======= ======= ======== ======= CASH FLOW INFORMATION: Net cash provided by (used in) operating activities .......................... (19,595) 168,297 26,254 (231,681) (56,725) Net cash provided by (used in) investing activities .......................... (42,710) 70,783 (41,016) (5,802) (18,745) Net cash provided by (used in) financing activities .......................... 62,311 (245,126) 16,818 237,483 71,486 Cash at beginning ...................... 4 3,939 9,825 -- 13,768 Cash at end ............................ 10 (2,107) 11,881 -- 9,784
12 ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS As used in this Quarterly Report on Form 10-Q, "we," "our," "us," the "Company" and "Applica" refer to Applica Incorporated and its subsidiaries, unless the context otherwise requires. The following discussion and analysis and the related financial data present a review of the consolidated operating results and financial condition of Applica for the three-month and nine-month periods ended September 30, 2000 and 2001. This discussion and analysis should be read in conjunction with the Consolidated Financial Statements and Notes thereto contained in Applica's Annual Report on Form 10-K for the year ended December 31, 2000. FORWARD LOOKING STATEMENT DISCLOSURE This Form 10-Q 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," "Applica 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 Uncertainties regarding the impact of the recent terrorist activities and the public's confidence in general. o Our inability to renew the Black & Decker(R) Trademark License Agreement beyond December 2006. o The infringement or loss of our proprietary rights. o Any significant decline in purchases by our larger customers or pressure from these customers to reduce prices. o The bankruptcy or loss of any major retail customer or supplier. o Weakness in the U.S. retail market and changes in product mix. o The financial condition of the retail industry. o Fluctuations in cost and availability of raw materials and components. o Product recalls and product liability claims against us or other regulatory actions. o Changing conditions in foreign countries. o Changes in trade relations with China. o Currency fluctuations in our international operations. o Our ability to develop new and innovative products and customer acceptance of such products. o An extended interruption in the operation of our manufacturing facilities. o Production-related risks that could jeopardize our ability to realize anticipated sales and profits. o Seasonality of our operating results. o Competition with other large companies that produce similar products. o Our advertising, marketing and promotional programs may not be as successful as we expect them to be. o Our debt agreements contain covenants that restrict our ability to take certain actions. o The outcome of the class action lawsuit brought against us in connection with our acquisition of the Black & Decker Household Products Group. o Government regulations. 13 Should one or more of these risks, uncertainties or other factors materialize, or should underlying assumptions prove incorrect, actual results, performance, or achievements of Applica may vary materially from any future results, performance or achievements expressed or implied by the forward-looking statements. All subsequent written and oral forward-looking statements attributable to Applica or persons acting on our behalf are expressly qualified in their entirety by the cautionary statements in this paragraph. Readers are cautioned not to place undue reliance on forward-looking statements. Applica undertakes no obligation to publicly revise any forward-looking statements to reflect events or circumstances that arise after the filing of this Form 10-Q. GENERAL Applica is a manufacturer, marketer and distributor of a broad range of branded and private-label small electric consumer goods. In 1998, Applica acquired the Black & Decker Household Products Group and became a leading supplier of brand name small household appliances in the United States. We also manufacture and distribute professional personal care products, home environment products and pet care products, including the LitterMaid(R) self-cleaning cat litter box. We manufacture and market products under licensed brand names, such as Black & Decker(R), our own brand names, such as Windmere(R), and other private-label brand names. Our customers include mass merchandisers, specialty retailers and appliance distributors primarily in North America, Latin America and the Caribbean. Applica operates manufacturing facilities in China and Mexico. In addition, Applica manufactures products on an "original equipment manufacturing" (OEM) basis for other consumer products companies. As part of our acquisition of the Black & Decker Household Products Group in June 1998, we licensed the Black & Decker(R) brand in North America, Central America, South America (excluding Brazil) and the Caribbean for specific household appliances. The license was on a royalty-free basis for core product categories through June 2003. In July 2001, Applica and The Black & Decker Corporation entered into an extension of the trademark license agreement through December 31, 2006. Under the agreement as extended, Applica will pay certain fees and guaranteed minimum royalty payments to The Black & Decker Corporation of $1.2 million in 2001, $2.0 million in 2002, $5.0 million in 2003 and $12.5 million in each year thereafter through 2006. Renewals of the license agreement, if mutually agreed upon, are for five-year periods. If Black & Decker does not agree to renew the license agreement, Applica has 18 months to transition out of the product line. No minimum royalty payments will be due during such transition period. Upon request, Black & Decker may elect to extend the license to use the Black & Decker(R) brand to certain additional products. Such additional products are subject to royalty payments. In 2000, Black & Decker agreed to extend the license to seven new product categories, including heaters, fans, deep fryers and humidifiers. Due to the continuation of the economic slowdown, which was further compounded by the events of September 11th, Applica again lowered production at its Chinese and Mexican manufacturing facilities in the fourth quarter. The slowdown of production will result in unabsorbed overhead costs and an expected decrease in gross profit margins for the fourth quarter of 2001. Additionally, because management expects that the current weak retail environment will adversely effect consumer spending during the holiday season, we are considering other cost cutting measures which could result in charges of up to $15 million after-tax in the fourth quarter of 2001 and annual cost savings of $4 to $5 million. It is anticipated that approximately one-half of the charges would be non-cash. 14 RESULTS OF OPERATIONS The operating results of Applica expressed as a percentage of sales and other revenues are set forth below:
Nine Months Ended September 30, ------------------------------- 2001 2000 ----- ----- Sales and other revenues........................................... 100.0% 100.0% Cost of goods sold................................................. 70.9 68.4 ----- ----- Gross profit.................................................... 29.1 31.6 Selling, general and administrative expenses....................... 26.0 26.3 Other expense - net................................................ 3.2 4.0 ----- ----- (Loss) earnings before income taxes............................. (0.1) 1.3 Income taxes (benefit)............................................. -- 0.3 ----- ----- Net (loss) earnings............................................. (0.1)% 1.0% ===== =====
THREE MONTHS ENDED SEPTEMBER 30, 2001 COMPARED TO THREE MONTHS ENDED SEPTEMBER 30, 2000 SALES AND OTHER REVENUES. Sales and other revenues for Applica increased by $3.8 million to $203.2 million, an increase of 1.9% over the third quarter of 2000. The change was primarily the result of an increase of $8.0 million in OEM sales, a $1.9 million increase in Littermaid sales, a $1.8 million increase in Black & Decker branded product sales and a $1.7 million increase in Windmere branded and other product sales. These increases were partially offset by a decrease of $8.0 million in sales of product categories that were exited in the fourth quarter of 2000 and a decrease of $1.7 million in sales of electronic products. Additionally, during October, shipments to one major retailer were significantly curtailed, which could adversely impact fourth quarter sales. North America sales decreased by $4.2 million, or 2.8%, to $144.8 million in the third quarter of 2001. The change is primarily attributable to a $8.0 million decrease in sales of product categories that were exited in the fourth quarter of 2000 and a $1.1 million decrease in sales of Windmere branded and other branded products. This decrease was partially offset by a $3.0 million increase in sales of Black & Decker branded products and a $1.9 million increase in sales of Littermaid products. Sales for the international segment increased by $1.6 million, or 6.6%, to $26.5 million, from the 2000 period. The change primarily resulted from a $2.8 million increase in Windmere branded and other product sales, offset by a decrease of $1.2 million in sales of Black & Decker products. Sales at Applica's manufacturing subsidiaries increased by $5.0 million, or 4.5%, to $116.5 million from the third quarter of 2000. The increase in manufacturing sales was primarily the result of an increase in OEM sales of $8.0 million, or 50.7%, to $23.8 million. The increase in OEM sales was the result of sales to new customers. GROSS PROFIT MARGIN. Applica's gross profit margin was 30.5% in the third quarter of 2001 as compared to 33.5% for the same period in 2000. The decrease in the gross profit margin was primarily the result of an increase in OEM sales, which are generally at lower margins, and a significantly less favorable product mix. Generally, consumers purchased fewer higher-priced, higher-margin products and more lower-priced, lower-margin products in the third quarter. Due to the continuation of the economic slowdown, which was further compounded by the events of September 11th, Applica again lowered production at its Chinese and Mexican manufacturing facilities in the fourth quarter. The slowdown of production will result in unabsorbed overhead costs and an expected decrease in gross profit margins for the fourth quarter of 2001. SELLING, GENERAL AND ADMINISTRATIVE EXPENSE. Selling, general and administrative expenses for Applica decreased by $2.4 million in the third quarter of 2001, or 4.9%, to $45.7 million. Such expenses decreased as a percentage of sales to 22.4% from 24.1% in the 2000 period. In the third quarter 2001, distribution and freight costs decreased by $3.2 million as the result of lower inventories, better space management and lower North American sales due to exited businesses. See "New Accounting Pronouncement" below for information regarding a change in the accounting for goodwill. 15 INTEREST EXPENSE. Interest expense decreased by $2.7 million, or 33.5%, to $5.4 million for the three months ended September 30, 2001, as compared to $8.2 million for the 2000 period. Such decrease was the result of the reduction of debt by $58.7 million to $268.7 million, as compared to $327.4 million as of September 30, 2000, and lower interest rates. TAXES. Applica's tax expense is based on an estimated annual aggregation of the taxes on earnings of each of its foreign and domestic operations. The earnings of subsidiaries in Canada, Mexico and Latin America (other than Chile) are generally taxed at rates comparable to or higher than 34%, the United States statutory rate. Income tax rates in Hong Kong and Chile range between 8% and 16%. Applica does not make tax provisions for the undistributed earnings of its foreign subsidiaries that it expects will be permanently invested out of the United States. In the third quarter of 2001, Applica used an effective tax rate of 26%, as compared to 25% for the third quarter of 2000. EARNINGS PER SHARE. Basic shares for the three month periods ended September 30, 2001 and 2000 were 23,218,715 and 23,035,355, respectively. Included in diluted shares are common stock equivalents relating to options of 971,048 and 539,762 for the three month periods ended September 30, 2001 and 2000, respectively. NINE MONTHS ENDED SEPTEMBER 30, 2001 COMPARED TO NINE MONTHS ENDED SEPTEMBER 30, 2000 SALES AND OTHER REVENUES. Sales and other revenues for Applica decreased slightly to $516.7 million from $517.5 million in the 2000 period. The change was primarily the result of a decrease of $35.1 million in sales of product categories that were exited in the fourth quarter of 2000, a decrease of $3.4 million in OEM sales and a decrease of $2.8 million in sales of electronic products. The decrease was primarily offset by a $22.6 million increase in sales of Black & Decker branded products, a $12.8 million increase in Windmere branded and other product sales, and a $5.0 million increase in sales of Littermaid pet products. North America sales increased slightly to $379.2 million in the first nine months of 2001 from $378.8 million. The change was primarily the result of a $26.6 million increase in sales of Black & Decker branded products, a $5.0 million increase in sales of Littermaid pet products and a $3.9 million increase in Windmere and other product sales. The increase was primarily offset by a decrease of $35.1 million in sales of product categories that were exited in the fourth quarter of 2000. Sales for the international segment increased by $5.0 million, or 7.1%, to $75.5 million from the 2000 period. The change resulted from a $8.9 million increase in Windmere branded and other products partially offset by a $3.9 million decrease in sales of Black & Decker branded products. Sales at Applica's manufacturing subsidiaries decreased by $33.8 million, or 11.0%, to $274.1 million from the first nine months of 2000. The decrease in manufacturing sales was primarily the result of the production slow down at the Mexico and China factories and decreases in OEM sales of $3.4 million, or 7.2%, in the 2001 period to $43.6 million. The decrease in OEM sales was primarily the result of the loss of one customer. However, management believes that sales to new customers will result in an increase in OEM sales for the year. GROSS PROFIT MARGIN. Applica's gross profit margin was 29.1% in the first nine months of 2001 as compared to 31.6% in 2000. The decrease in the gross profit margin was primarily the result of lower production at Applica's manufacturing facilities, as Applica continued to reduce its inventory levels, along with higher raw material costs in the first quarter of 2001. Additionally, as a result of the slow economic environment, consumers purchased fewer higher-priced, higher-margin products and more lower-priced, lower-margin products during the nine-month period. Due to the economic slowdown, which was further compounded by the events of September 11th, Applica again lowered production at its Chinese and Mexican manufacturing facilities in the fourth quarter. The slowdown of production will result in unabsorbed overhead costs and an expected decrease in gross profit margins for the year ended December 31, 2001. SELLING, GENERAL AND ADMINISTRATIVE EXPENSE. Selling, general and administrative expenses for Applica decreased by $1.6 million, or 1.1%, in the first nine months of 2001 to $134.4 million. Such expenses decreased as a percentage of sales to 26.0% in 2001 from 26.3% in the 2000 period. In the first nine months of 2001, selling and other expenses decreased by $2.5 million as the result of the consolidation of our external and internal sales forces. 16 This was partially offset by an increase in promotional expenses of $0.8 million. Freight and distribution expenses remained relatively flat during the period. See "New Accounting Pronouncement" below for information regarding a change in the accounting for goodwill. INTEREST EXPENSE. Interest expense decreased by $4.4 million, or 19.9%, to $17.8 million for the nine months ended September 30, 2001, as compared to $22.2 million for the 2000 period. Such decrease was the result of the reduction of debt by $58.7 million to $268.7 million, as compared to $327.4 million as of September 30, 2000, and lower interest rates. TAXES. Applica's tax expense is based on an estimated annual aggregation of the taxes on earnings of each of its foreign and domestic operations. The earnings of subsidiaries in Canada, Mexico and Latin America (other than Chile) are generally taxed at rates comparable to or higher than 34%, the United States statutory rate. Income tax rates in Hong Kong and Chile range between 8% and 16%. Applica does not make tax provisions for the undistributed earnings of its foreign subsidiaries that it expects will be permanently invested out of the United States. In the first nine months of 2001, Applica used an effective tax rate of 26%, as compared to 25% for the first nine months of 2000. EARNINGS PER SHARE. Basic shares for the nine month periods ended September 30, 2001 and 2000 were 23,168,672 and 22,917,044, 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 diluted per share calculations in the first nine months of 2001 as Applica incurred a net loss in such period and inclusion would have been anti-dilutive. LIQUIDITY AND CAPITAL RESOURCES At September 30, 2001, Applica's working capital was $270.7 million, as compared to $342.6 million at September 30, 2000. At September 30, 2001 and 2000, Applica's current ratio was 3.2 to 1 and 4.0 to 1, respectively, and its quick ratio was 1.9 to 1 and 2.0 to 1, respectively. The change in the current ratio is primarily the result of the inventory reduction program. Cash balances decreased by $8.4 million to $8.5 million for the nine months ended September 30, 2001. The net cash provided by operating activities, which totaled $34.2 million for the period, reflects a significant reduction in inventories. Cash used in investing activities remained relatively flat at approximately $19.6 million for the nine-month periods in 2001 and 2000 and consisted primarily of capital expenditures at Applica's manufacturing facilities. Cash used in financing activities totaled approximately $23.0 million in the period, as compared to $71.5 million of cash provided by financing activities in the 2000 period, and primarily reflected the change in debt levels in 2001 and 2000 as Applica reduced its debt by approximately $58.7 million year-over-year. Certain of Applica's foreign subsidiaries have approximately $40.8 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 guarantee by the parent company, Applica Incorporated. Outstanding borrowings by Applica's Hong Kong subsidiaries are in both U.S. and Hong Kong dollars. Applica'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 Senior Secured Revolving Credit Facility as amended, provides for borrowings by Applica of up to $160 million. As of November 1, 2001, Applica was borrowing approximately $99.5 million under the term loan portion of its Senior Secured Credit Facilities. As of November 1, 2001, Applica was borrowing approximately $28.3 million under the Senior Secured Revolving Credit Facility and had approximately $122.7 million available for future cash borrowings as determined by the borrowing 17 base under the Senior Secured Credit Facilities. Advances under the Senior Secured Revolving Credit Facility are based upon percentages of outstanding eligible accounts receivable and inventories. At September 30, 2001, the interest rate applicable to the loans made under the revolving credit facility and the Tranche A Term Loan (other than Swing Line Loans) was 4.38% as compared to 8.3675% at September 30, 2000. The interest rate applicable to the Tranche B Term Loan was 5.38% as compared to 9.3675% for the 2000 period. Swing Line Loans bore interest at 6.75% at September 30, 2001 as compared to 10.25% at September 30, 2000. At September 30, 2001, debt as a percent of total capitalization was 45.5%, as compared to 48.3% at September 30, 2000. Applica's aggregate capital expenditures for the nine months ended September 30, 2001 were $19.4 million as compared to $19.4 million for the 2000 period. Such expenditures related to capital expenditures at Applica's manufacturing facilities. Applica anticipates that the total capital expenditures for 2001 will be approximately $25.0 million. Applica plans to fund such capital expenditures from cash flow from operations and, if necessary, borrowings under the Senior Secured Revolving Credit Facility. Applica'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 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 its 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 Facilities and other facilities, will be adequate to meet Applica's future liquidity needs for at least the next several years. There can be no assurance that Applica'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 Applica to service its indebtedness, including the outstanding 10% notes, or to fund its other liquidity needs. In addition, there can be no assurance that Applica will be able to effect any needed refinancing on commercially reasonable terms or at all. Applica is also involved in certain ongoing litigation. See Part II. "Item 1 - Legal Proceedings." NEW ACCOUNTING PRONOUNCEMENT In June 2001, the Financial Accounting Standards Board approved the issuance of SFAS No. 141, "Business Combinations" and SFAS 142, "Goodwill and Other Intangible Assets". The new standards require that all business combinations initiated after September 30, 2001 must be accounted for under the purchase method. In addition, all intangible assets acquired that are obtained through contractual or legal right, or are capable of being separately sold, transferred, licensed, rented or exchanged shall be recognized as an asset apart from goodwill. Goodwill and intangibles with indefinite lives will no longer be subject to amortization, but will be subject to an annual assessment for impairment by applying a fair value based test. Applica will continue to amortize goodwill existing at September 30, 2001 under its current method until January 1, 2002. Thereafter, annual goodwill amortization of $5.0 million will be discontinued, and amortization of a newly recognized intangible, if any, will commence on January 1, 2002. By June 30, 2002, Applica will perform a transitional fair value based impairment test and if the fair value is less than the recorded value at January 1, 2002, Applica will record an impairment loss in the first half of 2002 as a cumulative effect of a change in accounting principle. Applica has not yet made an evaluation to comply with this standard. ITEM 3. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK Applica's major market risk exposure is to changing interest rates on debt obligations and fluctuations in the currency exchange rates. Applica'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. The Senior Credit Facilities currently bear interest at LIBOR plus an applicable margin and thus are affected by changes in interest rates. For additional information, see Footnote 1, "Derivative Financial Instruments," of the Notes to Consolidated Financial Statements included elsewhere in this Form 10-Q Report. 18 PART II. OTHER INFORMATION ITEM 1. LEGAL PROCEEDINGS SHAREHOLDER LITIGATION AND RELATED MATTERS. Applica 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 AND NATIONSBANC MONTGOMERY SECURITIES LLC, 98-2273-CIV-LENARD which was filed in the United States District Court, Southern District of Florida in October 1998. Discovery procedures have been initiated and are ongoing. In connection with the Household Products Group acquisition, Applica also received two derivative demands from certain shareholders alleging breach of fiduciary duties by certain of our officers and directors. 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 Applica. SALTON LITIGATION. Applica is also a defendant in SALTON, INC. V WINDMERE-DURABLE HOLDINGS, INC. AND WINDMERE CORPORATION, which was filed in the United States District Court, Northern District of Illinois in January 2001. Discovery procedures have been initiated and are ongoing. OTHER MATTERS. Applica is subject to other legal proceedings, product liability claims and other claims that arise in the ordinary course of our business. In the opinion of management, the amount of ultimate liability with respect to such matters, if any, in excess of applicable insurance coverage, is not likely to have a material effect on the financial condition, results of operations or liquidity of Applica. However, as the outcome of litigation or other claims is difficult to predict, significant changes in the estimated exposures could occur. ITEM 6. EXHIBITS AND REPORTS ON FORM 8-K. (a) Exhibits: 10.1 Amendment No. 7 to Amended and Restated Credit Agreement by and among Applica Incorporated, each of its subsidiaries party thereto, each of the lenders party thereto and Bank of America, N.A., as agent for the lenders, dated August 24, 2001. (b) Reports on Form 8-K: None. 19 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 6, 2001 By: /s/ Harry D. Schulman ------------------------------------- Harry D. Schulman President, Chief Operating Officer and Secretary November 6, 2001 By: /s/ Terry L. Polistina ------------------------------------- Terry L. Polistina Senior Vice President and Chief Financial Officer 20 EX-10.1 3 g72498ex10-1.txt AMEND.#7 TO AMEND. & RESTATED CREDIT AGREEMENT EXHIBIT 10.1 AMENDMENT NO. 7 TO AMENDED AND RESTATED CREDIT AGREEMENT THIS AMENDMENT NO. 7 TO AMENDED AND RESTATED CREDIT AGREEMENT (this "Amendment Agreement") is made and entered into as of this 24th day of August, 2001, by and between APPLICA INCORPORATED, f/k/a Windmere-Durable Holdings, Inc., a Florida corporation (the "Borrower"), BANK OF AMERICA, N.A., as Agent (the "Agent") and as a lender, and the other lenders party hereto (together with the Agent, the "Lenders"). Unless the context requires otherwise, all capitalized terms used herein without definition shall have the respective meanings assigned thereto in the Credit Agreement (as defined below). W I T N E S S E T H: WHEREAS, the Lenders and the Borrower have entered into that certain Amended and Restated Credit Agreement dated as of August 7, 1998 (as heretofore and hereby amended, and as further amended, supplemented or restated from time to time, the "Credit Agreement"); and WHEREAS, the Borrower has requested that the Lenders agree to amend certain provisions of the Credit Agreement and the Loan Documents; and WHEREAS, the Lenders are willing to agree to the amendments to the Credit Agreement as more fully set forth herein; and NOW, THEREFORE, in consideration of the premises, the terms, covenants and conditions hereinafter appearing, and other good and valuable consideration, the receipt and sufficiency of which are hereby acknowledged, and intending to be legally bound, the parties hereto agree as follows: 1. AMENDMENT TO CREDIT AGREEMENT. (a) The definition of "Hedging Obligation" in Section 1.2 of the Credit Agreement is amended by deleting the following new language at the end thereof: For purposes of any computation hereunder, each Hedging Obligation shall be valued at the Hedge Value thereof. (b) The definition of "Indebtedness" in Section 1.2 of the Credit Agreement is amended by inserting immediately prior to the words "all Hedging Obligations" in the tenth line thereof the words "the Hedge Value of". (c) Section 10.9 of the Credit Agreement is hereby deleted and the following new Section 10.9 is inserted in replacement thereof. 10.9 HEDGING OBLIGATIONS. Incur or permit to exist any Hedging Obligations or enter into any agreements, arrangements, devices or instruments relating to Hedging Obligations, except for Hedging Obligations with an aggregate notional amount of less than $400,000,000 entered into in the ordinary course of business which are not for speculative or investment purposes. 2. REPRESENTATIONS, WARRANTIES AND COVENANTS. (a) By its execution and delivery hereof, the Borrower certifies that: (i) all of the representations and warranties made by the Borrower in the Credit Agreement and in each of the other Loan Documents are true and correct as of the date hereof as if each of said representations and warranties were set out in full herein and made as of the date of execution and delivery hereof, except that all representations and warranties that refer to the financial statements of the Borrower shall be deemed to refer to the financial statements of the Borrower most recently delivered in accordance with SECTION 9.1 of the Credit Agreement; and (ii) no event has occurred and no condition exists which, upon the consummation of the transaction contemplated hereby, will constitute a Default or an Event of Default on the part of the Borrower under the Credit Agreement or any other Loan Document either immediately or with the lapse of time or the giving of notice, or both. (b) The Borrower further covenants and agrees that the representations and warranties contained in the Credit Agreement and the other Loan Documents, as hereby reaffirmed, and the representations and warranties made herein shall survive the execution and delivery of this Amendment Agreement. 3. EXPENSES. The Borrower agrees to reimburse the Agent for all costs and out-of-pocket expenses, including, without limitation, attorneys' fees and disbursements, incurred in connection with the negotiation, preparation, execution and delivery of this Amendment Agreement. 4. ENTIRE AGREEMENT. This Amendment Agreement sets forth the entire understanding and agreement of the parties hereto in relation to the subject matter hereof and supersedes any prior negotiations and agreements among the parties relative to such subject matter. No promise, condition, representation or warranty, express or implied, not herein set forth shall bind any party hereto, and none of them has relied on any such promise, condition, representation or warranty. Each of the parties hereto acknowledges that, except as set forth in this Amendment Agreement or otherwise expressly stated, no representations, warranties or commitments, express or implied, have been made by any party. None of the terms or conditions of this Amendment Agreement may be changed, modified, waived or canceled orally or otherwise, except by writing, signed by all the parties hereto, specifying such change, modification, waiver or cancellation of such terms or conditions, or of any preceding or succeeding breach thereof. 5. FULL FORCE AND EFFECT OF AGREEMENT. Except as hereby specifically amended, modified or supplemented, the Credit Agreement and all of the other Loan Documents are hereby confirmed and ratified in all respects and shall remain in full force and effect according to their respective terms. 6. GOVERNING LAW. This Amendment Agreement shall in all respects be governed by, and construed in accordance with, the laws of the state of New York. 7. ENFORCEABILITY. Should any one or more of the provisions of this Amendment Agreement be determined to be illegal or unenforceable as to one or more of the parties hereto, all other provisions nevertheless shall remain effective and binding on the parties hereto. 8. COUNTERPARTS. This Amendment Agreement may be executed in any number of counterparts, each of which shall be deemed to be an original as against any party whose signature appears thereon, and all of which shall together constitute one and the same instrument. [Signature pages follow.] 2 IN WITNESS WHEREOF, the Borrower, the Agent and the Lenders signatory hereto have caused this Amendment Agreement to be duly executed under seal by their duly authorized officers, all as of the day and year first above written. BORROWER: Applica Incorporated, Formerly Known as Windmere-durable Holdings, Inc., as Borrower By: /s/ Adam Kaplan ------------------------------------- Name: Adam Kaplan Title: Treasurer AGENT: BANK OF AMERICA, N.A., as Agent By: /s/ Kathryn W. Robinson ------------------------------------- Name: Kathryn W. Robinson Title: Managing Director LENDERS: BANK OF AMERICA, N.A. By: /s/ Kathryn W. Robinson ------------------------------------- Name: Kathryn W. Robinson Title: Managing Director NEW ALLIANCE GLOBAL By: ------------------------------------- Name: ------------------------------------ Title: ---------------------------------- 3 ALLIANCE CAPITAL MANAGEMENT L.P., as Manager on behalf of ALLIANCE CAPITAL FUNDING, L.L.C. By: ALLIANCE CAPITAL MANAGEMENT CORPORATION, General Partner of Alliance Capital Management L.P. By: ------------------------------------- Name: ------------------------------------ Title: ---------------------------------- ARES LEVERAGED INVESTMENT FUND, L.P. By: ARES Management, L.P. Its: General Partner By: /s/ Patricia M. Navis ------------------------------------- Name: Patricia M. Navis Title: Vice President ARES LEVERAGED INVESTMENT FUND II, L.P. By: ARES Management II, L.P. Its: General Partner By: /s/ Patricia M. Navis ------------------------------------- Name: Patricia M. Navis Title: Vice President ' ARES III CLO LTD. By: ARES CLO Management, LLC Its: General Partner By: /s/ Patricia M. Navis ------------------------------------- Name: Patricia M. Navis Title: Vice President ARES IV CLO LTD. By: ARES CLO Management IV, LP Its: Investment Manager By: ARES CLO GP IV, LLC Its: Managing Member By: /s/ Patricia M. Navis ------------------------------------- Name: Patricia M. Navis Title: Vice President 4 BALANCED HIGH-YIELD FUND II LTD By: BHF (USA) Capital Corporation, acting through its New York Branch, as attorney-in-fact By: ------------------------------------- Name: ------------------------------------ Title: ---------------------------------- By: ------------------------------------- Name: ------------------------------------ Title: ---------------------------------- BHF (USA) CAPITAL CORPORATION By: ------------------------------------- Name: ------------------------------------ Title: ---------------------------------- By: ------------------------------------- Name: ------------------------------------ Title: ---------------------------------- BANKATLANTIC By: /s/ Jeffrey Bilus ------------------------------------- Name: Jeffrey Bilus Title: Senior Vice President BANK AUSTRIA CREDITANSTALT CORPORATE FINANCE, INC. By: ------------------------------------- Name: ------------------------------------ Title: ---------------------------------- BANK LEUMI LE-ISRAEL B.M. By: /s/ Joseph F. Realini ------------------------------------- Name: Joseph F. Realini Title: Vice President 5 BARCLAYS BANK PLC By: ------------------------------------- Name: ------------------------------------ Title: ---------------------------------- CITIZENS BANK OF MASSACHUSETTS (as successor to US TRUST) By: /s/ Daniel G. Eastman ------------------------------------- Name: Daniel G. Eastman Title: Senior Vice President DRESDNER BANK LATEINAMERIKA AG, Miami Agency By: /s/ Frank Huthnance ------------------------------------- Name: Frank Huthnance Title: Vice President By: /s/ Carlos Lamourtte ------------------------------------- Name: Carlos Lamourtte Title: Assistant Vice President ERSTE BANK NEW YORK By: /s/ Paul Judicke ------------------------------------- Name: Paul Judicke Title: Vice President By: /s/ John Runnion ------------------------------------- Name: John Runnion Title: Managing Director FLEET NATIONAL BANK (successor by merger to Fleet Bank, N.A.) By: /s/ Thomas J. Levy ------------------------------------- Name: Thomas J. Levy Title: Vice President FLEET BUSINESS CREDIT CORPORATION By: ------------------------------------- Name: ------------------------------------ Title: ---------------------------------- 6 HARCH CLO I, LTD. By: /s/ Michael E. Lewitt ------------------------------------- Name: Michael E. Lewitt Title: Authorized Signatory INDOSUEZ CAPITAL FUNDING III, LIMITED By: INDOSUEZ CAPITAL, as Portfolio Advisor By: /s/ Melissa Marano ------------------------------------- Name: Melissa Marano Title: Vice President INTERNATIONAL BANK OF MIAMI By: /s/ Caridad Errazquin ------------------------------------- Name: Caridad Errazquin Title: Vice President THE MITSUBISHI TRUST AND BANKING CORPORATION By: /s/ Tosmihiro Hayashi ------------------------------------- Name: Tosmihiro Hayashi Title: Senior Vice President MONUMENT CAPITAL By: ------------------------------------- Name: ------------------------------------ Title: ---------------------------------- NATIONAL BANK OF CANADA By: /s/ Jean Page ------------------------------------- Name: Jean Page Title: Vice President By: /s/ Stephen J. Jeziorowski ------------------------------------- Name: Stephen J. Jeziorowski Title: Assistant Vice President 7 NATIONAL CITY BANK By: /s/ Peter W. Richer ------------------------------------- Name: Peter W. Richer Title: Vice President SCOTIABANC INC. By: /s/ W. J. Brown ------------------------------------- Name: W. J. Brown Title: Managing Director SUNTRUST BANK By: /s/ David G. Jones ------------------------------------- Name: David G. Jones Title: Managing Director BAVARIA TRR By: ------------------------------------- Name: ------------------------------------ Title: ---------------------------------- 8 THE UNDERSIGNED GUARANTORS HEREBY ACKNOWLEDGE AND CONSENT TO THE CONSENT AND AMENDMENT NO. 7 TO THE AMENDED AND RESTATED CREDIT AGREEMENT AND REAFFIRM THEIR OBLIGATIONS UNDER THE FACILITY GUARANTY THIS 24TH DAY OF AUGUST, 2001. APPLICA CONSUMER PRODUCTS, INC. f/k/a Windmere Corporation By: /s/ Adam Kaplan ------------------------------------- Name: Adam Kaplan Title: Treasurer WINDMERE HOLDINGS CORPORATION By: /s/ Adam Kaplan ------------------------------------- Name: Adam Kaplan Title: Treasurer BAY BOOKS & TAPES, INC. By: /s/ Adam Kaplan ------------------------------------- Name: Adam Kaplan Title: Treasurer HP DELAWARE, INC. By: /s/ Adam Kaplan ------------------------------------- Name: Adam Kaplan Title: Treasurer HP AMERICAS, INC. By: /s/ Adam Kaplan ------------------------------------- Name: Adam Kaplan Title: Treasurer HPG LLC By: /s/ Adam Kaplan ------------------------------------- Name: Adam Kaplan Title: Treasurer 9 HP INTELLECTUAL CORP By: /s/ Adam Kaplan ------------------------------------- Name: Adam Kaplan Title: Treasurer WD DELAWARE, INC. By: /s/ Adam Kaplan ------------------------------------- Name: Adam Kaplan Title: Treasurer 10