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SECURITIES AND EXCHANGE COMMISSION

Washington, D.C. 20549


FORM 10-K

|   |  |                                                                                                                                  |  | 
|-- |  | -------------------------------------------------------------------------------------------------------------------------------- |  | 
|x  |  | ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT
OF 1934 FOR THE FISCAL YEAR ENDED DECEMBER 31, 2002 |  | 
|   |  |                                                                                                                                  |  | 
|OR
|   |  |                                                                                                                                  |  | 
|o  |  | TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE
ACT OF 1934                                         |  | 

Commission File Number 1-10177

APPLICA INCORPORATED

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(Exact name of Registrant as specified in its charter)


|                                                               |  |                                        
|-------------------------------------------------------------- |  | ---------------------------------------
|Florida                                                        |  | 59-1028301                             
|                                                               |  |                                        
|(State or other jurisdiction of incorporation or organization) |  | (I.R.S. Employer Identification Number)
|                                                               |  |                                        
|5980 Miami Lakes Drive, Miami Lakes,
Florida                   |  | 33014                                  
|                                                               |  |                                        
|(Address of principal executive offices)                       |  | (Zip Code)                             

Registrants telephone number, including area code: (305) 362-2611

Securities registered pursuant to Section 12(b) of the Act:

|                              |  |                                          
|----------------------------- |  | -----------------------------------------
|Title of Each Class           |  | Name of Each Exchange On Which Registered
|                              |  |                                          
|Common Stock, $0.10 par value |  | New York Stock Exchange                  
|Common Stock Purchase Rights  |  | New York Stock Exchange                  

Indicate by check mark whether the Registrant (1) has filed all reports
required to be filed by Section 13 or 15(d) of the Securities Exchange Act of
1934 during the preceding 12 months (or for such shorter period that the
Registrant was required to file such reports), and (2) has been subject to such
filing requirements for the past 90 days.   Yes   x   No   o

Indicate by check mark if disclosure of delinquent filers pursuant to Item
405 of Regulation is not contained herein, and will not be contained, to the
best of registrants knowledge, in definitive proxy or information statements
incorporated by reference in Part III of this Form 10-K or any amendment to
this Form 10-K.   x

Indicate by check mark whether the registrant is an accelerated filer (as
defined in Rule 12b-2 of the Exchange Act).   Yes   x   No   o

As of March 5, 2003, the aggregate market value of the voting stock (based
on the closing price as reported by NYSE of $4.89) held by non-affiliates of the
Registrant was approximately $98.1 million (based on reported ownership of all
directors and executive officers of the Registrant). This determination does
not, however, constitute an admission of affiliated status for any of these
individual shareholders.

As of March 5, 2003, there were 23,497,222 shares of Common Stock
outstanding.

DOCUMENTS INCORPORATED BY REFERENCE

The Registrants Definitive Proxy Statement for its 2003 Annual Meeting of
Stockholders will be filed with the Securities and Exchange Commission not
later than 120 days after the end of the fiscal year covered by this Form 10-K
pursuant to General Instruction G(3) of the Form 10-K. Information from such
Definitive Proxy Statement will be incorporated by reference into Part III,
Items 10, 11, 12 and 13 hereof.





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TABLE OF CONTENTS



|                                                   |  |  |  |  |  |  |  | 
|-------------------------------------------------- |  |  |  |  |  |  |  | 
|PART I                                            
|Risk Factors                                      
|PART II                                           
|Results of Operations                             
|Liquidity and Capital Resources                   
|New Accounting Pronouncements                     
|PART III                                          
|Signatures                                        
|CERTIFICATION                                     
|CERTIFICATION                                     
|REPORT OF INDEPENDENT CERTIFIED PUBLIC ACCOUNTANTS
|NOTES TO CONSOLIDATED FINANCIAL STATEMENTS        
|SUPPLEMENTAL FINANCIAL DATA                       
|SCHEDULE II                                       
|Second Amendment to Credit Agreement              
|Subsidiaries                                      
|Consent of Grant Thornton LLP                     
|Certification of CEO - Schulman                   
|Certification of CFO - Polistina                  



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As used in this Annual Report on Form 10-K, we, our, us, the
Company and Applica refer to Applica Incorporated and its subsidiaries,
unless the context otherwise requires.

This Annual Report on Form 10-K 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
anticipates, 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, including the specific factors set forth
in Risk Factors below. 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
such 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. Applica disclaims any intention or obligation to publicly
announce the results of any revisions to any of the forward-looking statements
contained herein to reflect future events or developments.




PART I

Item 1.   Business

Overview

Applica Incorporated is a Florida corporation that was incorporated in
1963. Applica is a manufacturer, marketer and distributor of a broad range of
branded and private-label small electric consumer goods. In 1998, we acquired
the Black & Decker Household Products Group and became a leading supplier of
brand name small household appliances in North and Latin America. We also
manufacture and distribute professional personal care products, home
environment products, pet care products, including the LitterMaid®
self-cleaning cat litter box, and pest control products. We manufacture and
market products under licensed brand names, such as Black & Decker®, our own
brand names, such as Windmere® and Applica®, 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.

We operate manufacturing facilities in China and Mexico. In 2002,
approximately 76% of the products sold by Applica were manufactured in such
facilities. In addition, we manufacture products for other consumer product
companies, which we refer to as contract manufacturing.

Applicas manufacturing operations are conducted by two wholly owned
subsidiaries: Applica Durable Manufacturing Limited in China and Applica
Manufacturing, S. de R.L. de C.V. in Mexico. The distribution, sales, and
marketing operations are primarily handled through our U.S. operating
subsidiary, Applica Consumer Products, Inc. Applica also has separate entities
providing distribution, sales and marketing operations in Canada, Puerto Rico,
Mexico, Chile, Argentina, Venezuela and Colombia.

During the fourth quarter of 2001, we adopted one business segment for
financial reporting purposes. Previously, we had reported three business
segments. See Note L Business Segment and Geographic Area Information to the
Consolidated Financial Statements included in Schedule I to this Annual Report
on Form 10-K for information regarding business segment data.

Business Strategy

We have combined top brand names and a reputation for quality, durability
and innovation with our efficient, low-cost manufacturing capabilities. We
expect to achieve growth and increase profitability by pursuing the following
strategies:

Accelerate new product introductions and brand development.New products
allow us to generate higher margins based on their uniqueness and desirability
in the marketplace. We intend to drive increased revenues through innovation
within our core kitchen appliance categories, using a number of new
technologies and marketing

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platforms. We also intend to create or grow new categories in which there
are smaller and more fragmented competitors. The linkage of the Black & Decker®
brand with innovative and quality products has a proven track record of success
that we intend to continue. Advertising investments in these new products drive
both broader distribution and higher sales at our retail customers. Product
development is being driven by our investment in human capital, the application
of technologies and our investment in strategic development alliances. Brand
development takes its form in integrated packaging and communication materials,
as well as national advertising that is intended to generate direct sales while
also creating increased consumer demand for our products at retail.

Additionally, as part of our focus on new products introductions and brand
development, we are searching for other growth opportunities within and beyond
our existing business. We believe that the industries in which we compete may
provide growth opportunities through strategic acquisitions.

Create long-term cost and quality advantages for our customers. We will
maintain a value chain that meets our cost and quality objectives by leveraging
our world class manufacturing facilities with strategic sourcing. We will
accomplish this by insuring that our manufacturing plants in China and Mexico
remain competitive through continuous improvement and competitive benchmarking.
Additionally, we will leverage our global sourcing and procurement efforts to
partner with suppliers who have also committed to our continuous improvement
philosophy. This symbiotic relationship will allow us to (a) fully capitalize
on our combined strengths, (b) provide a foundation for new product
development, (c) deliver quality consistent with the reputation of our brands,
and (d) deliver at costs that are the most competitive in our industry.

Optimize our supply chain and customer service functions.We recognize
that our retail customers are our most critical link to the consumer. We will
continue to refine our supply chain management and customer service functions,
improving our operations across all key functional areas. Our goal is to
become a preferred supplier to our retail customers. We will also continue to
upgrade our consumer service capabilities and improve our relationship with the
consumer.

Products

Applica primarily manufactures and distributes five categories of
products: small household appliances, professional personal care products, home
environment products, pet products and pest control products. The following
table sets forth the approximate amounts and percentages of Applicas net sales
by product category during the periods shown:

|                              |  |          |          |       |  |          |    |       |  |                        |         |       |  |  |    |   |  |   |         |  |  |  |    |  
|----------------------------- |  | -------- | -------- | ----- |  | -------- | -- | ----- |  | ---------------------- | ------- | ----- |  |  | -- | - |  | - | ------- |  |  |  | -- | -
|                              |  | 2002     |          | 2001  |  | 2000    
|                              |  |          |          |       |  |         
|                              |  |          |          |       |  |          |    |       |  | (Dollars in thousands) |         |       |  |  |    |   |  |  
|                              |  | Net      |          | % of  |  | Net      |    | % of  |  | Net                    |         | % of 
|                              |  | Sales(1) |          | Total |  | Sales(1) |    | Total |  | Sales(1)               |         | Total
|                              |  |          |          |       |  |          |    |       |  |                        |         |      
|Small Household Appliances(2) |  |          | $477,000 |       |  |          | 73 | %     |  | $                      | 508,000 |       |  |  | 76 | % |  | $ | 523,000 |  |  |  | 75 | %
|Professional Personal Care    |  |          | 64,000   |       |  |          | 10 |       |  |                        | 61,000  |       |  |  | 9  |   |  |   | 58,000  |  |  |  | 8  |  
|Home Environment              |  |          | 36,000   |       |  |          | 6  |       |  |                        | 34,000  |       |  |  | 6  |   |  |   | 35,000  |  |  |  | 5  |  
|Pet                           |  |          | 36,000   |       |  |          | 5  |       |  |                        | 32,000  |       |  |  | 5  |   |  |   | 25,000  |  |  |  | 4  |  
|Pest Control                  |  |          | 16,000   |       |  |          | 3  |       |  |                        |        |       |  |  |   |   |  |   |        |  |  |  |   |  
|Other Products(2)             |  |          | 20,000   |       |  |          | 3  |       |  |                        | 31,000  |       |  |  | 4  |   |  |   | 54,000  |  |  |  | 8  |  



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|(1) |  | Net sales numbers do not include contract manufacturing sales. For
information regarding such sales, see Private Label and Contract
Manufacturing below.
|--- |  | ----------------------------------------------------------------------------------------------------------------------------------------------------------
|   
|(2) |  | Includes certain kitchen and retail personal care sales that Applica
transitioned out of in 2000 and 2001.                                                

The small household appliance group includes food preparation, cooking,
beverage and garment care products and constitutes our largest product
category. Applica provides customers in the small household appliances market
with a broad product line at introductory and mid-tier price points. Our
products in this category include toaster ovens, toasters, hand-held irons,
blenders, can openers, coffee grinders, coffee makers, electric knives,
skillets, griddles, waffle makers, deep fryers, food choppers, food processors,
mixers, popcorn poppers, rice cookers

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and steamers, sandwich makers and other similar products. We also
distribute vacuum cleaners under the Black & Decker® brand in Latin America.

The professional personal care group focuses mainly on product lines
marketed under the Belson® brand and other private label brands, and includes
hair dryers, curling irons, curling brushes, hairsetters, combs and brushes,
shears and mirrors. The professional products are sold primarily to beauty
salons and beauty supply stores. Applica also sells a small number of
professional personal care products to drug stores and mass merchandisers. In
addition, we supply electric and non-electric amenities to the lodging industry
under the Jerdon® and First Class brands. These products include wall-mounted
hair dryers, lighted makeup and shaving mirrors, pulsating shower heads, coffee
makers and other similar products.

Applica has historically participated in the home environment category,
which includes seasonal products such as fans and heaters, under the Windmere®
brand name. This participation was targeted primarily at the opening price
point segment of the marketplace. In 2001, Applica entered the mid-price point
segment of the market by launching a full array of ceramic heaters, heater fans
and utility fans under the Black & Decker® brand. In addition, in January
2002, we launched a line of fans under the Black & Decker® brand. We will
continue to focus on the mid-price point market by expanding the Black &
Decker® brand into additional areas of the home environment category, while
de-emphasizing products in the opening price point market. We believe that
this will result in slower sales growth but better margins.

Applica also manufactures and markets the LitterMaid® patented
self-cleaning cat litter box. Because of the success of the LitterMaid® self
cleaning cat box, we have introduced other products under this brand, including
accessories such as the LitterMaid® privacy tent and replacement waste
receptacles.

In spring of 2002, Applica introduced an insect control product called
Sonic Web that uses sub-sonic sound waves (among other attractants) to attract
flying insects, including mosquitoes. The insects are then trapped and easily
discarded. Applica intends to continue to grow this category through
promotional efforts and increased distribution. To supplement this entry into
the pest control category, in May 2002, Applica acquired Weitech, Inc., a
leading designer and distributor of electronic pest control products that emit
high frequency sound waves to repel a variety of pests.

Product Development

Consumer products. As part of our ongoing strategy to deliver new,
innovative and relevant products to the consumer marketplace, we adhere to a
well-defined product development process (PDP) focused on quality design,
appropriate performance characteristics, and speed-to-market. We have a
product development team dedicated to creating innovative products in and
outside of our core categories. This internal process also helps manage the
improvement of quality, performance and cost on existing products.

New products are those that require a new mold, have a new feature or
benefit, or those that have not been in our product line previously. Adding
features or providing a fresh look to existing products, either through
design upgrades or creative packaging, is a necessity for maintaining consumer
preferences, protecting existing retailer shelf space and maintaining
acceptable price points. Applica launched over 200 new products in 2002 and 90
new products in 2001, most of which were refreshes. Some of the new products
launched in 2002 include the Arctic Twister, a product that allows consumers
to mix ice cream with candy, nuts or fruits for a frozen at-home treat, the
Sonic Web insect control product and a new high-end iron line called Prestige.
New products launched in 2001 include the Gizmo can opener, the Chill Buster
heater fan, the Heat Xtreme ceramic heater and the FryMate deep fryer. New
consumer products constituted 18% of our sales in 2002 and 15% of the sales in
2001.

Professional products. For our Belson® and Jerdon® product lines, we work
closely with both retailers and suppliers to identify consumer needs and
preferences and to generate new product ideas. We evaluate new ideas and seek
to develop and acquire new products and improve existing products to satisfy
industry requirements and changing consumer preferences. We design the style,
features and functionality of our products to meet customer requirements for
quality, performance, product mix and pricing.

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Brands

As part of the acquisition of the Black & Decker Household Products Group,
Applica licensed the Black & Decker brand for use in marketing small household
appliances in North America, Latin America (excluding Brazil) and the
Caribbean. In addition, Applica acquired certain Black & Decker sub-brands,
including Toast R Oven, ProFinish and Quick N Easy, and licensed Spacemaker
for under the cabinet kitchen appliances. Applica continues to develop new
sub-brands for product differentiation at the retail level, including Gizmo,
SmartBrew, Prestige, Chill Buster and Silent Force.

The major portion of Applicas revenue is generated through the sale of
small household appliances, with the Black & Decker® brand representing
approximately 62% and 63% of Applicas total revenue in 2002 and 2001,
respectively. The Black & Decker® brand has significant market share in the
toaster oven, coffee maker and hand-held iron categories, as well as in can
openers, hand mixers, food steamers, electric knives, food choppers and citrus
juicers. In 2002 and 2001, we invested in national advertising to increase the
awareness and preference levels among consumers.

Applica also participates in several small appliance categories such as
cooking, food preparation, garment care and home environment under its
Windmere® brand name. We use this brand to capitalize on the high unit volume
potential of the opening price point segments within these categories.

The professional personal care category is targeted specifically at the
salon segment under the Belson® brand and other private label programs. In
addition, Applica continues to focus on both appliances and personal care
products that are targeted to the hotel and hospitality industry through the
distribution of the Jerdon® brand of products.

Applica also manufactures and markets several products under the
LitterMaid® brand. The flagship LitterMaid® branded product is the patented
self-cleaning cat litter box. We have also introduced other products under
this brand, including accessories.

Applica also uses the Weitech brand to market a line of electronic pest
control products, as well as several sub-brands, such as Mouse-X and
Vermin-X®. Additionally, Sonic Web is the brand used to identify our
mosquito control product. In February 2003, the Black & Decker® brand license
was extended to certain electronic pest and insect control products, which we
intend to launch in the fourth quarter of 2003.

Applica also has, and from time to time will enter into, licenses and
other agreements that grant it the right to use other trademarks and trade
names.

Strategic Alliances

Applica continues to pursue strategic alliances to further differentiate
our products and to accelerate our growth. Such alliances can include brand
development and product development alliances. Our current alliance with The
Black & Decker Corporation encompasses brand development. Applica has worked
closely with The Black & Decker Corporation to ensure that the Black & Decker®
brand representation is seamless to the consumer.

In 2000, we entered into a joint product development relationship with a
consumer products company to develop, manufacture and market new products into
the mass market. We currently have an agreement related to a large product
consumer category and are in the process of reviewing other opportunities for
joint product development with this company in other household appliances
categories. This relationship will be initially targeted to the Black &
Decker® brand, but future expansion may assist in the development of new brands
and wider categories for Applica. We anticipate that the first product
developed pursuant to this alliance will be launched in the U.S. in the first
quarter of 2004.

Raw Materials and Suppliers

The raw materials used to manufacture our products are available from
numerous suppliers in quantities sufficient to meet our normal requirements.
Applicas primary raw materials include plastic resin, electrical components,
corrugated cardboard for cartons, aluminum and copper. Factors that are
largely beyond our control,

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such as movements in commodity prices for specific raw materials, may
affect the cost of these materials. As an example, our products require a
substantial amount of plastic. Because the primary resource used in
manufactured plastics is petroleum, the cost and availability of plastic varies
to a great extent with the price of petroleum. Because the majority of our raw
materials are commodity based, they are available from at least two or more
independent suppliers. Applica is not dependent upon any single foreign source
for such materials, although the cost from alternative sources may be higher.
We do not maintain long-term purchase contracts with our suppliers.

Applica purchases approximately 24% of its finished products from outside
suppliers, with no significant concentration with any one supplier. We do not
maintain long-term purchase contracts with these suppliers.

Intellectual Property

Applica manufactures products with features for which we have filed or
obtained licenses for trademarks, patents and design registrations in the
United States and in several foreign countries. Our right to these patents and
trademarks is a significant part of our business and our ability to create
demand for our products is dependent to a large extent on our ability to
capitalize on them. We also rely on unpatented proprietary manufacturing
methodologies in our Mexican and Chinese manufacturing facilities.

As part of our acquisition of the Black & Decker Household Products Group
in June 1998, we licensed the Black & Decker brand in North America, Latin
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 agreed to 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 brand name. 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® brand to certain additional products. Such additional products
are subject to royalty payments. In 2000 and 2001, Black & Decker extended the
license to heaters, fans, humidifiers, dehumidifiers, air purifiers, deep
fryers and bag sealers. In 2002, Black & Decker agreed to extend the license to
ice cream makers and mixers. In February 2003, the license was further
extended to certain electronic pest and insect control products.

Applica owns the
LitterMaid® trademark for self-cleaning litter boxes and
has extended the trademark for accessories such as a litterbox privacy tent and
waste receptacles. Applica owns one patent and has exclusive licenses to three
other patents covering the LitterMaid® litter box. The patents have been
issued in the United States and a number of foreign countries.

Additional important brand names that we own include Applica®, Windmere®,
Jerdon® and Belson®. The Windmere® brand is targeted to electric kitchen
appliances and to home environment products at the opening price point segment.
Belson® and Jerdon®, and its sub-brand First Class®, are targeted to the
professional personal care and hospitality markets. In addition, we acquired
certain Black & Decker® sub-brands, including Toast R Oven, ProFinish and Quick
N Easy and licensed Spacemaker for under the cabinet kitchen appliances.

On December 31, 2002, Applica terminated its license agreement for the
White Westinghouse trademark on small electronic appliances.

Manufacturing

Applica operates manufacturing facilities in the Peoples Republic of
China and Mexico. Applica Durable Manufacturing Limited is Applicas wholly
owned Hong Kong subsidiary. Its manufacturing operations are located in Bao An
County, Guangdong Province of the China, which is approximately 60 miles
northwest of central Hong Kong. The Chinese facilities include six
manufacturing plants located within a six mile radius, constituting
approximately 2.0 million square feet. These facilities operate as a
vertically integrated manufacturing operation, with the capacity and expertise
to handle most phases of product manufacturing, from design to component

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manufacturing through final assembly. The Chinese factories use
computer-aided design and manufacturing software and state-of-the-art mold
making machinery to shorten the time between product conception and final
production. By manufacturing a majority of their own parts and testing at
several points in the manufacturing process, our Chinese facilities are better
able to ensure consistent quality. The Chinese manufacturing operations are
certified under ISO 9001 standards. The factories in China are operated under
contracts with the local government.

Applica Manufacturing, S. de R.L. de C.V., is Applicas wholly owned
Mexican manufacturing subsidiary, located in Queretaro, Mexico, which is
approximately 150 miles northwest of Mexico City. The factory constitutes
approximately 290,000 square feet of floor space and manufactures Black &
Decker® branded products for distribution to both North America and Latin
America. Its capabilities include product design and tool fabrication. The
Mexican facility is certified under ISO 9001 standards. This location
primarily manufactures irons, blenders, coffee makers and toaster ovens.

Private Label Manufacturing and Contract Manufacturing

Applica offers a number of products in the small appliance, personal care
and home environment categories for private label branding by retailers.
Private label brands are those brands that are specific to a certain retailer.
In addition, Applica works with key retailers to supply product development and
manufacturing expertise to the development of lines, such as the Home
Essentials line at Kmart Corporation.

Our Chinese manufacturing facility also serves as a contract manufacturer
for a range of small appliances, including air cleaners, oral care products and
vacuum cleaners, which it sells to small appliance companies primarily in the
United States. Our Mexican manufacturing facility initiated a contract
manufacturing program in 2001 and is currently providing manufacturing support
for an outside development project, as well as a private label program for the
Latin American market.

The approximate amounts of Applicas contract manufacturing sales during
2002, 2001 and 2000 were $79.2 million, $61.4 million and $53.3 million,
respectively.

In late 2002, we de-emphasized production of products for customers which
would be in direct competition with products produced for sale under our brands
and are now focusing efforts on the development of projects that are
complimentary in nature. This shift will result in a significant decrease in
contract manufacturing sales for 2003.

Customers

Applica markets it products primarily through mass merchandisers, but also
distributes to home improvement warehouses, specialty retailers, warehouse
clubs, drug and grocery stores, department stores, television shopping
channels, pet supply retailers, beauty supply stores, catalogers, independent
distributors and military post exchange outlets, as well as through e-commerce
websites. In 2002, Applicas top three customers were Wal-Mart, Target and
Kmart. These customers accounted for approximately 39%, 38% and 36% of net
sales in 2002, 2001 and 2000, respectively. Wal-Mart accounted for 25%, 24%
and 21% of our net sales in 2002, 2001 and 2000, respectively, and was our only
customer that accounted for more than 10% of net sales in such years.

In January 2002, Kmart Corporation and certain of its U.S. subsidiaries
filed voluntary petitions for reorganization under Chapter 11 of the U.S.
Bankruptcy Code. Kmart is one of Applicas top three customers. Kmart has
indicated that it intends to reorganize on a fast-track basis and has targeted
emergence from Chapter 11 in April 2003. In 2002 and 2001, Applica had sales
of $43.5 million and $49.4 million to Kmart Corporation.

Additionally, in January 2002, Service Merchandise Company, Inc. announced
that it would cease continuing business operations and file a plan of
liquidation. Service Merchandise filed bankruptcy in March 1999 but was unable
to complete its planned business reorganization. In 2002, Applica had no sales
to Service Merchandise. In 2001, Applica had sales of $10.8 million to Service
Merchandise.

In July 2002, Aisenstein & Gordon, Inc. (A&G), a distributor, announced
that it would cease continuing business operations and undertake an
out-of-court liquidation. In 2002 and 2001, Applica had sales of $2.7 million
and $7.1 million, respectively, to A&G.

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In January 2003, PHD, Inc., a distributor and significant customer of
Applica, was placed into involuntary bankruptcy, which PHD voluntarily
converted to a liquidation under Chapter 11 of the U.S. Bankruptcy Code. In
2002 and 2001, Applica had sales of $13.4 million and $12.9 million,
respectively, to PHD, Inc. and its subsidiaries.

Sales, Marketing and Distribution

Applicas products are sold principally by an internal sales staff. Each
sales manager has primary coverage responsibility for certain retail accounts.
We also use independent sales representatives, primarily in Central America and
the Caribbean. In addition to directing our marketing efforts toward
retailers, we sell certain of our products directly to consumers through
infomercials and our Internet website. Our marketing department is responsible
for product and category analysis, pricing strategy, promotions, key
cooperative partnerships and overall category development. We use media
advertising, cooperative advertising and collateral materials to promote our
products and develop brand awareness.

We distribute our line of household appliances, home environment products
and pet and pest control products to retailers, including mass merchandisers,
department stores, home improvement stores, warehouse clubs, drug chains,
catalog stores and discount and variety stores. We market our professional
personal care lines, professional salon appliances and hair care accessories to
beauticians, barbers and stylists primarily through distributors in the United
States and through professional beauty and barber retail stores in the U.S. and
to the hospitality industry.

Our policy is to maintain an inventory base to service the rapid delivery
requirements of our customers. Because of manufacturing lead times and our
seasonal sales, it is necessary that we purchase products and thereby increase
inventories based on anticipated sales and forecasts provided by our customers
and our sales personnel.

Backlog

Applicas backlog consists of commitments to order and orders for our
products, which are typically subject to change and cancellation until
shipment. Customer order patterns vary from year to year, largely because of
annual differences in consumer acceptances of product lines, product
availability, marketing strategies, inventory levels of retailers and
differences in overall economic conditions. As a result, comparisons of
backlog as of any date in a given year with backlog at the same date in a prior
year are not necessarily indicative of sales for that entire given year. As of
December 31, 2002, Applica had a backlog of approximately $36.0 million
compared to $40.4 million as of December 31, 2001. We do not believe that the
amount of backlog orders is a significant factor in our business.

Seasonality

Our business is highly seasonal, with operating results varying from
quarter to quarter. We have historically experienced higher revenues in the
third and fourth quarters of the fiscal year, primarily due to increased demand
by customers in late summer for back-to-school sales and in the fall for
holiday sales. The majority of our sales occur from July through November.

Competition

The sale of small electric consumer goods is characterized by intense
competition. Competition is based on price and quality, as well as access to
retail shelf space, product design, brand names, new product introductions and
marketing support and distribution strategies. Applica competes with various
domestic and international manufacturers and distributors, some of which have
substantially greater financial and other resources than those of Applica. We
believe that our future success will depend upon our ability to develop and
distribute reliable products that incorporate developments in technology and
satisfy customer tastes with respect to style and design. It will also depend
on our ability to market a broad offering of products in each category at
competitive prices.

Primary competitive brands in the household appliance market include
Hamilton Beach, Procter Silex, Sunbeam, Mr. Coffee, Oster, General Electric,
Rowenta, DeLonghi, Salton, Kitchen Aid, Cuisinart, Krups, Braun and Rival. In
addition, we compete with retailers who use their own private label brands for
household appliances. Primary competitive brands in the professional personal
care market include Conair, Helen of Troy and Remington

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and in the home environment market include Holmes, Patton, Pelonis,
Honeywell, Duracraft, Bionaire and Lakewood Primary competitive brands in the
pet and pest market include Sunbeam, Coleman, Lentek and Mosquito Magnet.

Regulation

As a manufacturer and distributor of consumer products, we are subject to
the Consumer Products Safety Act, which empowers the Consumer Products Safety
Commission to exclude from the market products that are found to be unsafe or
hazardous. Under certain circumstances, the Consumer Products Safety Commission
could require us to repurchase or recall one or more of our products. In
February 2002, Applica Consumer Products, Inc., in cooperation with the
Consumer Products Safety Commission, voluntarily recalled approximately 2.1
million Black & Decker® two-slice and four-slice toasters. Applicas Canadian
operating subsidiary, Applica Canada Corporation, also recalled approximately
180,000 of these toasters in Canada.

Laws regulating certain consumer products also exist in some cities and
states, as well as in other countries in which we sell our products. We
believe that we are in satisfactory compliance with all of the laws and
regulations applicable to us.

Throughout the world, most federal, state, provincial and local
authorities require safety regulation certification prior to marketing
electrical appliances in those jurisdictions. Within the United States,
Underwriters Laboratory, Inc. (UL) is the most widely recognized
certification body for electrical appliances. UL is an independent,
not-for-profit corporation engaged in the testing of products for compliance
with certain public safety standards. We endeavor to have our products
designed to meet the certification requirements of, and to be certified in,
each of the jurisdictions in which they are sold.

Certain of the products sold by Applica in the United States are also
subject to the Fair Packaging and Labeling Act. We believe that in addition to
complying with the Fair Packaging and Labeling Act, we comply with the
applicable rules and regulations of the Federal Trade Commission and other
federal and state agencies with respect to the content of advertising and other
trade practices.

Employees

As of March 5, 2003, Applica had approximately 15,500 full-time employees,
which included approximately 13,000 employed at Applicas operations in Hong
Kong and China, approximately 500 employed in North America and approximately
2,000 employed in Mexico and South America. From time to time, Applica also
uses the services of seasonal employees.

In connection with the acquisition of the Black & Decker Household
Products Group, Applica Manufacturing, S. de R.L. de C.V., Applicas Mexican
manufacturing subsidiary, assumed the obligations of Black & Decker, S.A. de
C.V. under a collective bargaining agreement with the Single Workers Union of
Black & Decker of the State of Queretaro, C.T.M. covering approximately 1,500
employees at our manufacturing plant in Queretaro, Mexico. The wage provisions
of this collective bargaining agreement were renegotiated in February 2003. To
date, the union has not engaged in strikes or work stoppages against Applica.
We believe that our relationships with both union and non-union employees
continue to be good.

In June 2002, Applica closed its offices in Shelton, Connecticut and
consolidated the engineering, sales and marketing functions at its Miami Lakes
location. Certain back-office and supply chain functions in Canada and Latin
America were also consolidated. These consolidations resulted in the reduction
of approximately 70 employees worldwide.

Termination of Common Stock Purchase Rights Plan

On February 25, 2002, the Board of Directors of Applica Incorporated voted
to terminate Applicas Common Stock Purchase Rights Plan. The plan will be
terminated by redeeming the rights that were issued under the Amended and
Restated 1995 Common Stock Purchase Rights Agreement. The rights will be
redeemed at a price of $.00001 per right, payable in cash. There is currently
one right attached to each outstanding share of common stock. The rights are
represented by the certificates for common stock and do not trade separately.
Shareholders do not

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have to take any action to receive the redemption payment and do not have
to surrender stock certificates. As a result of the redemption, the rights
cannot become exercisable and the Amended and Restated 1995 Common Stock
Purchase Right Agreement will be terminated.

Other Matters

Our Annual Report on Form 10-K, Quarterly Reports on Form 10-Q and Current
Reports on Form 8-K, and amendments to these reports, are available via our
website. The website address is www.applicainc.com. All required reports are
made available on the website as soon as reasonably practicable after they are
electronically filed with the Securities and Exchange Commission.




Risk Factors

You should carefully consider the following risk factors, together with
the other information contained in this annual report on Form 10-K, in
evaluating us and our business before purchasing our securities. In
particular, you should note that this annual report on Form 10-K contains
forward-looking statements within the meaning of Section 27A of the Securities
Act and Section 21E of the Exchange Act. If any of the events or circumstances
described in the following risks actually occurs, our business, financial
condition or results of operations could be materially adversely affected. The
risks listed below are not the only risks that we face. Additional risks that
we do not yet know of or that we currently think are immaterial may also impair
our business operations.

Uncertainties Regarding The Impact Of Terrorist Activities, The Current War On
Terrorism And The Threat Of War With Iraq Could Have A Material Adverse
Effect On Our Business.

The recent terrorist activities and the current war on terrorism, as well
as the potential war with Iraq, have had an adverse effect on consumer
confidence and spending patterns in the United States, which in turn had a
significant impact on our performance. Unforeseen inventory adjustments or
changes in purchasing patterns by consumers and major customers could reduce
our sales. Additionally, war with Iraq could result in increased petroleum
prices. Because the primary resource used in manufactured plastics is
petroleum, our cost of goods will increase with the price of petroleum.

The Failure Of Our Growth Strategy Could Have A Material Adverse Effect On Our Business.

As part of our growth strategy, we plan to:



| |  | accelerate new product introductions and brand development;        
|- |  | -------------------------------------------------------------------
| 
| |  | create long-term cost and quality advantages for our customers; and
| 
| |  | optimize our supply chain and customer service functions.          

We cannot assure you that our strategic objectives will be realized or, if
realized, will result in increased revenue, profitability or market presence.
Executing our strategy may also place a strain on our production, information
systems and other resources. To manage growth effectively, we must maintain a
high level of manufacturing quality and efficiency, continue to enhance our
operational, financial and management systems, including our database
management, inventory control and distribution systems, and expand, train and
manage our employee base. We cannot assure you that we will be able to
effectively manage our growth in any one or more of these areas.

If We Are Unable To Renew The Black & Decker® Trademark License Agreement,
Our Business Could Be
     Adversely Affected.

As part of the acquisition of the Black & Decker Household Products Group,
we licensed the Black & Decker brand for use in marketing small household
appliances in North America, Latin America (excluding Brazil) and the
Caribbean. The majority of our revenue is generated through the sale of Black &
Decker® branded products, which represented approximately 62% and 63% of our
total revenue in 2002 and 2001, respectively. In 2001, Applica and The Black &
Decker Corporation extended the trademark license agreement through December
31,

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2006. Renewals, if mutually agreed upon, are for five-year periods and
will require the payment of minimum royalties, which royalty rates have
previously been negotiated.

We Depend On Purchases From Several Large Customers And Any Significant
Decline In These Purchases
     Or Pressure From These Customers To Reduce Prices Could Have A Negative Effect On Our Business.

Due to the consolidation of the retail industry, our customer base has
become relatively concentrated. Wal-Mart Stores, Inc., our largest single
customer, accounted for approximately 25% of our 2002 net sales, 24% of our
2001 net sales and 21% of our 2000 net sales. Our top three customers
accounted for approximately 39%, 38% and 36% of net sales in 2002, 2001 and
2000, respectively. Although we have long-established relationships with many
of our customers, we do not have any long-term supply contracts and purchases
are generally made using individual purchase orders. As a result, we must
receive a continuous flow of new orders from our large, high-volume retail
customers. However, we cannot assure you that we can continually meet the
needs of our customers. In addition, failure to obtain anticipated orders or
delays or cancellations of orders or significant pressure to reduce prices from
key customers could have a material adverse effect on us.

The Bankruptcy Or Financial Difficulty Of Any Major Customer Or Fluctuations
In The Financial Condition
     Of The Retail Industry Could Adversely Affect Our Business.

We sell our products to distributors and retailers, including mass
merchandisers, department stores and wholesale clubs. The financial
difficulties of our customers or the loss of, or a substantial decrease in, the
volume of purchases by a major customer could have a material adverse effect on
us. Additionally, a significant deterioration in the financial condition of
the retail industry in general could have a material adverse effect on our
sales and profitability.

Recently, several larger retail chains and distributors have declared
bankruptcy or liquidated, two of which were large customers of ours. We
continually monitor and evaluate the credit status of our customers and attempt
to adjust sales terms as appropriate. Despite these efforts, a bankruptcy
filing by a key customer could have a material adverse effect on us.

Our Business Is Very Sensitive To The Strength Of The U.S. Retail Market And
Weakness In This Market
     Could Adversely Affect Our Business.

The strength of the retail economy in the United States has a significant
impact on our performance. Weakness in consumer confidence and poor financial
performance by mass merchandisers, warehouse clubs, department stores or any of
our other customers could have a material adverse effect on us. The current
general slowdown in the retail sector has resulted in, and we expect it to
continue to result in, additional pricing and marketing support pressures on
us. Additionally, the risks of terrorist attacks and potential hostilities
could prolong or worsen the current economic downturn. If such conditions
continue or worsen, it could have a material adverse effect on our business,
financial condition and results of operations.

In addition, as a result of the desire of retailers to more closely manage
inventory levels, there is a growing trend among retailers to make purchases on
a just-in-time basis. This requires us to shorten our lead time for
production in certain cases and more closely anticipate demand, which could in
the future require the carrying of additional inventories.

Our Business Can Be Adversely Affected By Fluctuations In Cost And
Availability Of Raw Materials And
     Components.

Raw materials and components constitute a significant portion of our cost
of goods. Factors that are largely beyond our control, such as movements in
commodity prices for the specific materials we require, may affect the future
cost of raw materials and components. As an example, our products require a
substantial amount of plastic. Because the primary resource used in
manufactured plastics is petroleum, the cost and availability of plastic varies
to a great extent with the price of petroleum. In addition, any inability of
our suppliers to timely deliver raw materials or components or any
unanticipated changes in our suppliers could be disruptive and costly to us.
Our ability to select reliable suppliers who provide timely deliveries of
quality materials and components will impact our success in

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meeting customer demand. Any significant failure by us to obtain raw
materials on a timely basis at an affordable cost or any significant delays or
interruptions of supply would have a material adverse effect on us.

Our Business Involves The Potential For Product Recalls And Product Liability
Claims Against Us.

As a manufacturer and distributor of consumer products, we are subject to
the Consumer Products Safety Act, which empowers the Consumer Products Safety
Commission to exclude from the market products that are found to be unsafe or
hazardous. Under certain circumstances, the Consumer Products Safety Commission
could require us to repurchase or recall one or more of our products.
Additionally, laws regulating certain consumer products exist in some cities
and states, as well as in other countries in which we sell our products, and
more restrictive laws and regulations may be adopted in the future. Any
repurchase or recall of our products could be costly to us and could damage our
reputation. If we were required to remove, or we voluntarily removed, our
products from the market, our reputation could be tarnished and we might have
large quantities of finished products that could not be sold.

We also face exposure to product liability claims in the event that one of
our products is alleged to have resulted in property damage, bodily injury or
other adverse effects. Although we maintain product liability insurance in
amounts that we believe are reasonable, we cannot assure you that we will be
able to maintain such insurance on acceptable terms, if at all, in the future
or that product liability claims will not exceed the amount of insurance
coverage. Additionally, we do not maintain product recall insurance. As a
result, we cannot assure you that product recalls or product liability claims
will not have a material adverse effect on us.

Additionally, we are a defendant in three asbestos lawsuits in which the
plaintiffs have alleged injury as the result of exposure to asbestos in hair
dryers distributed by us over 20 years ago. Although we never manufactured
such products, asbestos was used in certain hair dryers sold by us prior to
1979. In addition to Applica, there are numerous defendants named in these
lawsuits, many of whom actually manufactured asbestos containing products. At
this time, we have not confirmed coverage under our insurance policies for the
asbestos lawsuits, but we are currently undertaking research to ascertain if
coverage can be identified.

Finally, our results of operations are susceptible to adverse publicity
regarding the quality or safety of our products. In particular, product recalls
or product liability claims challenging the safety of our products may result
in a decline in sales for a particular product. This could be true even if the
claims themselves are ultimately settled for immaterial amounts. We cannot
assure you that this type of adverse publicity will not occur or that product
liability claims will not be made in the future.

We Operate A Significant Portion Of Our Business Outside Of The United
States Which Subjects Us To
     Additional Risks.

We manufacture a significant number of the products we sell in China and
Mexico and obtain a significant proportion of the raw materials used in the
manufacturing of our products outside the United States. We also have certain
products manufactured by contract manufacturers outside of the United States.
In addition, our strategy includes increasing sales to customers outside of the
United States, including Latin America. International operations are subject
to risks including, among others:



| |  |  | labor unrest;                                                       
| | - |  | --------------------------------------------------------------------
| |  |  | political instability;                                              
| |  |  | lack of developed infrastructure;                                   
| |  |  | longer payment cycles and greater difficulty in collecting accounts;
| |  |  | restrictions on transfers of funds;                                 
| |  |  | import and export duties and quotas;                                
| |  |  | changes in domestic and international customs and tariffs;          
| |  |  | unexpected changes in regulatory environments;                      
| |  |  | difficulty in complying with a variety of foreign laws;             
| |  |  | difficulty in obtaining distribution and support; and               
| |  |  | potentially adverse tax consequences.                               

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Labor in China and Mexico has historically been readily available at
relatively low cost as compared to labor costs available in other nations.
Both countries have experienced social, political and economic change in recent
years. We cannot assure you that labor will continue to be available to us in
China or Mexico at costs consistent with historical levels. A substantial
increase in labor costs could have a material adverse effect on us. We could
also be adversely affected by the imposition of austerity measures intended to
reduce inflation, the inadequate development or maintenance of infrastructure
or the unavailability of adequate power and water supplies, transportation, raw
materials and parts, or a deterioration of the general political, economic or
social environment in the foreign countries where we do business, particularly
China and Mexico. The foregoing factors may have a material adverse effect on
our ability to increase or maintain our international sales or importing
activities, our financial condition or the results of our operations.

Additionally, our manufacturing facilities in China are operated under
contracts with the local government. If changing conditions in China result in
the termination of one or more of the lease agreements by the local government,
it could have a material adverse effect on our business.

Our Business Could Be Adversely Affected By Changes In Trade Relations With
China.

China gained Permanent Normal Trade Relations (PNTR) with the United
States when it acceded to the World Trade Organization, effective January
2002. The United States imposes the lowest applicable tariffs on exports from
PNTR countries to the United States. In order to maintain its WTO membership,
China has agreed to several requirements, including the elimination of caps on
foreign ownership of Chinese companies, lowering tariffs and publicizing its
laws. No assurance can be given that China will meet these requirements and
remain a member of the WTO, or that its PNTR trading status will be maintained.
If Chinas WTO membership is withdrawn or if PNTR status for goods produced in
China were removed, there could be a substantial increase in tariffs imposed on
goods of Chinese origin entering the United States, including those
manufactured by us, which would adversely impact our sales.

Our Business Could Be Adversely Affected By Currency Fluctuations In Our
International Operations.

While we transact business predominantly in U.S. dollars and most of our
revenues are collected in U.S. dollars, a substantial portion of our costs,
such as payroll, rent and indirect operational costs, are denominated in other
currencies, such as Chinese renminbi, Hong Kong dollars and Mexican pesos. In
addition, while a small portion of our revenues are collected in foreign
currencies, such as Canadian dollars, Argentine pesos, Colombian pesos, Chilean
pesos and Venezuelan bolivars, a significant portion of the related cost of
goods sold are denominated in U.S. dollars. Changes in the relation of these
and other currencies to the U.S. dollar will affect our cost of goods sold and
operating margins and could result in exchange losses. The impact of future
exchange rate fluctuations on our results of operations cannot be accurately
predicted. There can be no assurance that the dollar foreign exchange rates
will be stable in the future or that fluctuations in financial markets will not
have a material adverse effect on us.

Our Business Could Be Adversely Affected By Retailer Inventory Management Or
The Failure of Our
     Logistical Systems.

Changes in retailer inventory management strategies could make inventory
management more difficult for us. Because of our significant reliance on our
factory in China, our production lead times are relatively long. Therefore, we
generally commit to production in advance of customer orders. If retailers
significantly change their inventory management strategies or if they or we
fail to forecast customer or consumer demand accurately, we may encounter
difficulties in filling customer orders or in liquidating excess inventories,
or may find that customers are canceling orders or returning products.
Distribution difficulties may have an adverse effect on our business by
increasing the amount of inventory and the cost of warehousing inventory. Any
of these results could have a material adverse effect us.

Additionally, our business operations are dependent on our logistical
systems, which include our order management system and our computerized
warehouse network. Any interruption in our logistical systems would impact
our ability to procure our products from our factories and suppliers, transport
them to our distribution facilities, store them and deliver them to our
customers on time and in the correct amounts.

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Our Future Success Requires Us To Develop New And Innovative Products On A
Consistent Basis In Order
     To Increase Revenues And We May Not Be Able To
Do So.

We believe that our future success depends in part upon our ability to
continue to make innovations in our existing products and to develop,
manufacture and market new products, which generally carry higher margins. We
cannot assure you that we will be successful in the introduction, marketing and
manufacture of any new products or product innovations or that we will be able
to develop and introduce in a timely manner innovations to our existing
products that satisfy customer needs or achieve market acceptance.

We Rely Heavily On Our Manufacturing Facilities To Manufacture And Assemble
Our Products. An
     Extended Interruption In The Operation Of Any Facility
Could Have An Adverse Impact On Our
     Operating Results.

Approximately 76% of our net sales are derived from products manufactured
or assembled at our manufacturing facilities located in China and Mexico. These
manufacturing facilities are subject to hazards that could result in material
damage to any such facility. Any such damage to either facility, or prolonged
interruption in the operations of either facility for repairs, labor disruption
or other reasons, would have a material adverse effect on us.

We Are Subject To Several Production-Related Risks Which Could Jeopardize
Our Ability To Realize
     Anticipated Sales And Profits.

To realize sales and operating profits at anticipated levels we must
manufacture, source and deliver high quality products in a timely manner.
Among others, the following factors can have a negative effect on our ability
to do these things:



| |  |  | labor difficulties;                                                                                                                                   
| | - |  | ------------------------------------------------------------------------------------------------------------------------------------------------------
| |  |  | scheduling and transportation difficulties;                                                                                                           
| |  |  | substandard product quality, which can result in higher
warranty, product liability and product recall costs;                                         
| |  |  | delays in development of quality new products;                                                                                                        
| |  |  | changes in laws and regulations, including changes in tax
rates, accounting standards, environmental laws and occupational
health and safety laws; and
| |  |  | changes in the availability and costs of labor.                                                                                                       

The Infringement Or Loss Of Our Proprietary Rights Could Have An Adverse
Effect On Our Business.

We believe that our rights in owned and licensed names are a significant
part of our business and that our ability to create demand for our products is
dependent to a large extent on our ability to exploit these trademarks. There
can be no assurance as to the breadth or degree of protection that these
trademarks may afford us, or that we will be able to successfully leverage our
trademarks in the future. The costs associated with protecting our intellectual
property rights, including litigation costs, may be material. We also cannot be
sure that we will be able to successfully assert our intellectual property
rights or that these rights will not be invalidated, circumvented or
challenged. Any inability to do so, particularly with respect to names in
which we have made significant capital investments, or a successful
intellectual property challenge or infringement proceeding against us, could
have a material adverse effect on us. In addition, because our business
strategy is heavily dependent upon the use of brand names, adverse publicity
with respect to products that are not sold by us, but bear the same brand
names, could have a material adverse effect on us.

We also rely on unpatented proprietary manufacturing methodologies and
there can be no assurance that others may not independently develop the same or
similar technology or otherwise obtain access to our technology. If we are
unable to maintain the proprietary nature of our technologies, our business,
financial condition and results of operations could be materially adversely
affected. Additionally, we manufacture our products with features for which we
have filed or obtained licenses for patents and design registrations in the
United States and in several foreign countries. With respect to our
applications for patents, there can be no assurance that any patents will be
obtained. If obtained, there can be no assurance that such patents will afford
us commercially significant protection of our technologies or that we will have
adequate resources to enforce our patents.

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Our Operating Results Can Be Affected By Seasonality.

Our business is highly seasonal with operating results varying from
quarter to quarter. We experience higher revenues in the third and fourth
quarters of each fiscal year primarily due to increased demand by customers for
our products in the late summer for back-to-school sales and in the fall for
holiday sales. This seasonality has also resulted in additional interest
expense to us during the third and fourth quarters of each fiscal year due to
an increased need to borrow funds to maintain sufficient working capital to
finance such increased demand.

We Compete With Other Large Companies That Produce Similar Products.

The markets for our products are highly competitive. We believe that
competition is based upon several factors, including price, quality, access to
retail shelf space, product features and enhancements, brand names, new product
introductions, marketing support and distribution systems. We compete with
established companies, a number of which have substantially greater facilities,
personnel, financial and other resources than we have. We also compete with our
retail customers, who use their own private label brands, and importers and
foreign manufacturers of unbranded products. Some competitors may be willing to
reduce prices and accept lower profit margins to compete with us. As a result
of this competition, we could lose market share and sales. We cannot assure
you that we will be able to compete successfully against current and future
sources of competition or that the competitive pressures we face will not
adversely affect our profitability.

Our Debt Agreements Contain Covenants That Restrict Our Ability To Take
Certain Actions.

Our credit facility and the indenture for our 10% notes impose
restrictions that affect, among other things, our ability to incur debt, pay
dividends, sell assets, create liens, make capital expenditures and
investments, and otherwise enter into certain transactions outside the ordinary
course of business. The credit facility also requires us to maintain a minimum
borrowing base availability and meet certain financial tests. Our ability to
continue to comply with these covenants and restrictions may be affected by
events beyond our control. The breach of any of these covenants or restrictions
would result in a default under the credit facility and the indenture, in which
case our lenders could elect to declare all amounts borrowed thereunder,
together with accrued interest, to be due and payable, foreclose on the assets
securing the debt or cease to provide additional revolving loans or letters of
credit, which could have a material adverse effect on our business.

Our Business Can Be Adversely Affected By Newly Acquired Businesses Or
Product Lines.

Applica may acquire partial or full ownership in businesses or may acquire
rights to market and distribute particular products or lines of products. The
acquisition of a business or of the rights to market specific products or use
specific product names may involve a financial commitment by Applica, either in
the form of cash or stock consideration. In the case of a new license such
commitments are usually in the form of prepaid royalties and future minimum
royalty payments. There is no guarantee that we will acquire businesses and
develop products that will contribute positively to our earnings. Anticipated
synergies may not materialize, cost savings may be less than expected, sales of
products may not meet expectations, and acquired businesses may carry
unexpected liabilities.

Government Regulations Could Adversely Impact Our Operations.

Throughout the world, most federal, state, provincial and local
authorities require Underwriters Laboratory, Inc. or other safety regulation
certification prior to marketing electrical appliances in those jurisdictions.
Most of our products have such certifications. However, there can be no
assurance that our products will continue to meet such specifications. Many
foreign, federal, state and local governments also have enacted laws and
regulations that govern the labeling and packaging of products and limit the
sale of product containing certain materials deemed to be environmentally
sensitive. A determination that we are not in compliance with such rules and
regulations could result in the imposition of fines or an award of damages to
private litigants.

Item 2.   Properties

The following table sets forth the principal operating facilities of
Applica:

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|                      |  |                                                     |  |                
|--------------------- |  | --------------------------------------------------- |  | ---------------
|Location              |  | Description                                         |  | Area (Sq. Feet)
|                      |  |                                                     |  |                
|Miami Lakes, Florida  |  | Headquarters, general administration, sales office, |  | 140,000 Owned  
|                      |  | engineering offices, warehouse and distribution     |  | 40,000 Leased  
|Man Fung, China       |  | Manufacturing and distribution                      |  | 250,000 Leased 
|Sai Po Yuen, China    |  | Manufacturing and distribution                      |  | 208,000 Leased 
|Man Cheung Po, China  |  | Manufacturing and distribution                      |  | 605,000 Leased 
|Pok Kong, China       |  | Manufacturing and distribution                      |  | 437,000 Leased 
|Sun Kiu, China        |  | Manufacturing and distribution                      |  | 358,000 Leased 
|Gong He, China        |  | Manufacturing, distribution and warehouse           |  | 63,000 Leased  
|Queretaro, Mexico     |  | Manufacturing, warehouse and office                 |  | 290,000 Owned  
|Little Rock, Arkansas |  | Warehouse and distribution                          |  | 807,000 Leased 
|Toronto, Canada       |  | Canada headquarters, sales office, warehouse and    |  | 109,000 Leased 
|                      |  | distribution                                        |  |                
|Hong Kong, China      |  | Durable headquarters and general administration     |  | 49,000 Leased  

Our facilities in China are operated under contracts with the local
government.

We lease additional warehouse and office space in the United States,
Canada and Latin America pursuant to short-term contracts. We also contract
with third party distribution providers that furnish full service warehousing
and shipping services. In 2002, Applica had such arrangements in Tennessee,
Mexico, Colombia, Venezuela, Chile, Peru and Argentina. Service contracts are
typically short-term in nature, stable in pricing, and provide for specific
performance requirements related to customer service. We are currently
pursuing additional third party distribution services in California to provide
service to customers with significant shipping activity in the western United
States, and to provide overflow seasonal warehouse space.

We believe our current facilities are adequate to meet our needs in the
foreseeable future. If necessary, we may, from time to time, acquire or lease
additional facilities for warehousing and/or other activities.

Applica closed its Shelton, Connecticut office in the third quarter of
2002 and is currently pursuing sublease arrangements for the 100,000 square
feet of office space located there. Additionally, in the first quarter of
2003, Applica consolidated its sales office and warehouse space in Toronto,
Canada and is currently pursuing sublease arrangements for the 10,000 square
feet of sales office space.

Item 3.   Legal Proceedings

Toaster Recall. In February 2002, Applica Consumer Products, Inc., in
cooperation with the Consumer Products Safety Commission, voluntarily recalled
approximately 2.1 million Black & Decker® T1200 and T1400 toasters. Applicas
Canadian operating subsidiary, Applica Canada Corporation, also recalled
approximately 180,000 of these toasters in Canada. Management charged 2001
operations with an estimated reserve of $13.4 million for these recalls and
does not believe the ultimate liability will be materially different.

Currently, three lawsuits have been filed in connection with property
damage or bodily injury relating to the recalled toasters (one of which has
been settled) and several other claims have been made. We believe that the
amount of ultimate liability of these claims, if any, is not likely to have a
material effect on our business, financial condition or results of operations.
However, as the outcome of litigation is difficult to predict, significant
changes in the estimated exposures could occur.

Other Matters. Applica is subject to other legal proceedings, products
liability claims and other claims that arise in the ordinary course of our
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 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.

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Item 4.   Submission of Matters to a Vote of Security Holders

No matters were submitted to a vote of Applicas security holders during
the fourth quarter of the year ended December 31, 2002.

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PART II

Item 5.   Market for the Registrants Common Stock and Related Stockholder Matters

Applicas common stock, $0.10 par value, is listed for trading on the New
York Stock Exchange under the symbol APN. The following tables set forth,
for the periods indicated, the range of high and low closing prices for the
common stock as reported on the New York Stock Exchange:

|               |  |               |       |     |  |   |      | 
|-------------- |  | ------------- | ----- | --- |  | - | ---- | 
|               |  | Closing Price
|               |  |              
|               |  | High          |       | Low
|               |  |               |       |    
|2001           |  |               |       |     |  |   |      | 
|First quarter  |  | $             | 7.65  |     |  | $ | 4.63 | 
|Second quarter |  | $             | 9.59  |     |  | $ | 6.05 | 
|Third quarter  |  | $             | 11.30 |     |  | $ | 7.48 | 
|Fourth quarter |  | $             | 9.45  |     |  | $ | 6.40 | 
|2002           |  |               |       |     |  |   |      | 
|First quarter  |  | $             | 9.90  |     |  | $ | 5.00 | 
|Second quarter |  | $             | 12.40 |     |  | $ | 8.44 | 
|Third quarter  |  | $             | 12.20 |     |  | $ | 4.30 | 
|Fourth quarter |  | $             | 6.45  |     |  | $ | 4.26 | 

At March 5, 2003, there were approximately 900 holders of record of our
common stock. The number of holders of record of the common stock includes
nominees of various depository trust companies for an undeterminable number of
individual stockholders.

Dividends. We are prohibited from declaring or paying cash dividends on
our capital stock under the terms of our debt agreements. We did not pay any
common stock dividends in 2002 or 2001, and we do not anticipate paying
dividends in the foreseeable future. We intend to retain future earnings to
finance the expansion of our operations and for general corporate purposes.

Termination of Common Stock Purchase Rights Plan. On February 25, 2002,
the Board of Directors of Applica Incorporated voted to terminate Applicas
Common Stock Purchase Rights Plan. The plan will be terminated by redeeming the
rights that were issued under the Amended and Restated 1995 Common Stock
Purchase Rights Agreement. The rights will be redeemed at a price of $.00001
per right, payable in cash. There is currently one right attached to each
outstanding share of common stock. The rights are represented by the
certificates for common stock and do not trade separately. Shareholders do not
have to take any action to receive the redemption payment and do not have to
surrender stock certificates. As a result of the redemption, the rights cannot
become exercisable and the Amended and Restated 1995 Common Stock Purchase
Right Agreement will be terminated.

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Item 6.   Selected Financial Data

The selected financial data presented below is derived from our audited
financial statements and should be read in conjunction with Item 7.
Managements Discussion and Analysis of Financial Condition and Results of
Operations below and the Consolidated Financial Statements and related notes
thereto included in Schedule I to this Annual Report on Form 10-K.

|                                                                                            |  |      |         |      |  |                                               |         |      |  |      |         |      |  |   |         |     |  |   |         |    
|------------------------------------------------------------------------------------------- |  | ---- | ------- | ---- |  | --------------------------------------------- | ------- | ---- |  | ---- | ------- | ---- |  | - | ------- | --- |  | - | ------- | ---
|                                                                                            |  | 2002 |         | 2001 |  | 2000                                          |         | 1999 |  | 1998
|                                                                                            |  |      |         |      |  |                                               |         |      |  |     
|                                                                                            |  |      |         |      |  | (Dollars in thousands, except per share data) |         |      |  |     
|Statement of Operations:                                                                    |  |      |         |      |  |                                               |         |      |  |      |         |      |  |   |         |     |  |   |         |    
|Net sales                                                                                   |  | $    | 727,356 |      |  | $                                             | 727,044 |      |  | $    | 748,751 |      |  | $ | 718,309 |     |  | $ | 474,356 |    
|Equity in net earnings (loss) of
joint ventures                                             |  | $    | (1,498  | )    |  | $                                             | (128    | )    |  | $    | (777    | )    |  | $ | (12,894 | )   |  | $ | 1,621   |    
|Earnings (loss) before income
taxes and cumulative effect
of change in accounting
principle |  | $    | 9,878   |      |  | $                                             | (24,292 | )    |  | $    | (22,758 | )    |  | $ | 21,020  |     |  | $ | 40,368  |    
|Income tax expense (benefit)                                                                |  | $    | 4,826   |      |  | $                                             | 4,146   |      |  | $    | (1,542  | )    |  | $ | 4,177   |     |  | $ | 11,616  |    
|Cumulative effect of change
in accounting principle, net of
tax benefit of $42,447          |  | $    | (78,829 | )    |  |                                               |        |      |  |      |        |      |  |   |        |     |  |   |        |    
|Effective tax rate                                                                          |  |      | 48.9    | %    |  |                                               | (17.1   | )%   |  |      | 6.8     | %    |  |   | 19.9    | %   |  |   | 28.7    | %  
|Net earnings (loss)                                                                         |  | $    | (73,777 | )(1) |  | $                                             | (28,438 | )(2) |  | $    | (21,216 | )(3) |  | $ | 16,843  | (4) |  | $ | 28,752  | (5)
|Balance Sheet:                                                                              |  |      |         |      |  |                                               |         |      |  |      |         |      |  |   |         |     |  |   |         |    
|Working capital                                                                             |  | $    | 192,776 |      |  | $                                             | 228,124 |      |  | $    | 276,981 |      |  | $ | 263,315 |     |  | $ | 267,434 |    
|Current ratio                                                                               |  |      | 2.8     |      |  |                                               | 3.0     |      |  |      | 3.3     |      |  |   | 3.1     |     |  |   | 3.0     |    
|Property, plant and
equipment, net                                                          |  | $    | 76,963  |      |  | $                                             | 82,337  |      |  | $    | 78,200  |      |  | $ | 75,983  |     |  | $ | 76,077  |    
|Total assets                                                                                |  | $    | 521,665 |      |  | $                                             | 633,684 |      |  | $    | 707,935 |      |  | $ | 714,310 |     |  | $ | 742,737 |    
|Long-term debt and other long
terms liabilities                                             |  | $    | 195,371 |      |  | $                                             | 225,726 |      |  | $    | 260,147 |      |  | $ | 243,807 |     |  | $ | 287,306 |    
|Shareholders equity                                                                        |  | $    | 219,128 |      |  | $                                             | 293,939 |      |  | $    | 324,474 |      |  | $ | 343,397 |     |  | $ | 324,018 |    
|Per Share Data:                                                                             |  |      |         |      |  |                                               |         |      |  |      |         |      |  |   |         |     |  |   |         |    
|Earnings (loss) per common
share  basic                                                    |  | $    | (3.15   | )(1) |  | $                                             | (1.23   | )(2) |  | $    | (0.92   | )(3) |  | $ | 0.75    | (4) |  | $ | 1.43    | (5)
|Earnings (loss) per common
share  diluted                                                  |  | $    | (3.10   | )(1) |  | $                                             | (1.23   | )(2) |  | $    | (0.92   | )(3) |  | $ | 0.72    | (4) |  | $ | 1.33    | (5)
|Cash dividends paid                                                                         |  |      |        |      |  |                                               |        |      |  |      |        |      |  |   |        |     |  |   |        |    
|Book value at year end                                                                      |  | $    | 9.33    |      |  | $                                             | 12.61   |      |  | $    | 14.06   |      |  | $ | 15.17   |     |  | $ | 14.67   |    
|Return on average equity                                                                    |  |      | (28.8   | )%   |  |                                               | (9.2    | )%   |  |      | (6.4    | )%   |  |   | 5.1     | %   |  |   | 11.2    | %  



---

|(1) |  | In January 2002, Applica applied the provisions of SFAS 142 Goodwill and
Other Intangible Assets. Based on its impairment tests, Applica
recognized an adjustment of $121.3 million ($78.8 million, or $3.31 per
share, net of tax on a full year and fully diluted basis) in the first
quarter of 2002 to reduce the carrying value of goodwill to its implied
fair value. In addition, repositioning expenses of $10.6 million relating
to the infrastructure consolidation were incurred. These expenses did not
qualify for accrual at December 31, 2001.                                                                
|--- |  | -------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
|   
|(2) |  | In the fourth quarter of 2001, Applica took charges relating to several
events in the aggregate amount of $28.2 million. These charges included
$6.8 million relating to its infrastructure consolidation. In addition,
$5.2 million of such charges related to Applicas execution of a new
four-year senior secured revolving credit facility and the write-off of
fees and expenses associated with the terminated credit facility. Also
included in the charge were $1.5 million relating to the devaluation of
the Argentinean peso and $1.0 million related to the settlement of the
shareholder class action litigation.

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|(3) |  | Includes primarily non-cash charges totaling $37.7 million ($32.6
million, or $1.42 per share, net of tax). Such charges include a
repositioning charge of $34.1 million, of which $30.1 million was included
in cost of goods sold and $4.0 million was included in selling, general
and administrative expenses. Such charges also include a loss on asset
held for sale of $3.6 million. The $32.6 million after-tax effect of the
charges has been adjusted to include a tax valuation allowance of
approximately $4.5 million related to certain U.S. foreign tax credits,
contributions and state net operating loss carryforwards, which expire in
five years or less
|--- |  | ----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
|   
|(4) |  | Includes an adjustment of $1.5 million ($0.9 million after tax) related
to the reversal of a portion of the 1998 repositioning charge. Also
includes a charge of $12.6 million ($8.3 million after tax) for the
write-down of Applicas remaining investment in a joint venture.                                                                                                                                                                                                                                                                                                                                                                                            
|   
|(5) |  | Includes a one-time, primarily non-cash repositioning charge of $17.2
million, of which $7.7 million is included in cost of goods sold. Also
includes an after tax gain on the sale of Applicas equity interest in
Salton, Inc. of $27.5 million.                                                                                                                                                                                                                                                                                                                                                                                                                          

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Item 7.   Managements Discussion and Analysis of Financial Condition and Results of Operations

Overview

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 North and Latin America.
We also manufacture and distribute professional personal care products, home
environment products, pet care products, including the LitterMaid®
self-cleaning cat litter box, and pest control products. We manufacture and
market products under licensed brand names, such as Black & Decker®, our own
brand names, such as Applica® and Windmere®, 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.

We operate manufacturing facilities in China and Mexico. In 2002,
approximately 76% of the products sold by Applica were manufactured in such
facilities. In addition, we manufacture products for other consumer products
companies, which we refer to as contract manufacturing.

In May 2002, Applica acquired Weitech, Inc. for a total of $20 million,
including cash and notes. Weitech designs, manufacturers and distributes
products that emit high frequency sound waves to repel a variety of pests.
Weitech products are sold through mass market retailers, specialty retailers
and mail order catalogs, primarily in the United States. The results of
operations of Weitech, Inc. were included in the accompanying consolidated
statement of operations from the date of the acquisition.

Forward Looking Statements

This Managements Discussion and Analysis of Financial Condition and
Results of Operations 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 anticipates, 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,
including the specific factors set forth in Item 1. Business
 Risk Factors.
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 such 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. Applica
disclaims any intention or obligation to publicly announce the results of any
revisions to any of the forward-looking statements contained herein to reflect
future events or developments.

Use of Estimates and Critical Accounting Policies

The preparation of Applicas financial statements in conformity with
accounting principles generally accepted in the United States requires
management to make estimates and assumptions that affect the reported amounts
of assets and liabilities at the date of the financial statements and revenues
and expenses during the period. Future events and their effects cannot be
determined with absolute certainty; therefore, the determination of estimates
requires the exercise of judgment. Actual results inevitably will differ from
those estimates, and such differences may be material to our financial
statements. Management continually evaluates its estimates and assumptions,
which are based on historical experience and other factors that are believed to
be reasonable under the circumstances. These estimates and Applicas actual
results are subject to the risk factors listed above under
Item 1 Business 
Risk Factors.

Management believes that the following may involve a higher degree of
judgment or complexity:

Collectibility of Accounts Receivable. Applicas allowance for doubtful
accounts is based on managements estimates of the creditworthiness of its
customers, current economic conditions and historical information, and, in the
opinion of management, is believed to be an amount sufficient to respond to
normal business conditions. Management sets specific reserves for customers
in bankruptcy and other reserves for the remaining customers based upon
historical collection experience. Should business conditions deteriorate or
any major customer default on its

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obligations to Applica, this allowance may need to be significantly
increased, which would have a negative impact upon Applicas operations. For
example, during the fourth quarter of 2002, management increased the allowance
by $4.3 million as the result of the further deterioration of one of Applicas
significant customers.

Reserves on Inventories. Applica establishes a reserve based on historical
experience and specific reserves when it is apparent that the expected
realizable value of an inventory item falls below its original cost. A charge
to operations results when the estimated net realizable value of inventory
items declines below cost. Management regularly reviews Applicas investment in
inventories for declines in value.

Income Taxes. Significant management judgment is required in developing
Applicas provision for income taxes, including the determination of foreign
tax liabilities, deferred tax assets and liabilities and any valuation
allowances that might be required against the deferred tax assets. At December
31, 2002 and 2001, Applica had deferred tax assets in excess of deferred tax
liabilities of $83.2 million and $41.9 million, respectively. Applica
determined that it was more likely than not that $73.0 million and $31.7
million of such assets will be realized, resulting in a valuation allowance of
$10.2 million in 2002 and 2001. Applica evaluates quarterly its ability to
realize its deferred tax assets and adjusts the amount of its valuation
allowance, if necessary. Applica operates within multiple taxing jurisdictions
and is subject to audit in those jurisdictions. Because of the complex issues
involved, any claims can require an extended period to resolve. In
managements opinion, adequate provisions for income taxes have been made.

Goodwill. On an annual basis, management assesses the composition of
Applicas assets and liabilities, as well as the events that have occurred and
the circumstances that have changed since the most recent fair value
determination. If events occur or circumstances change that would more likely
than not reduce the fair value of goodwill below its carrying amount, goodwill
will be tested for impairment. Applica will recognize an impairment loss if
the carrying value of the asset exceeds the fair value determination. During
the first quarter of 2002, Applica recorded a write-down of its goodwill of
$121.3 million ($78.8 million, net of tax).

Long-Lived Assets. Applica reviews long-lived assets and certain
identifiable intangibles held and used for possible impairment whenever events
or changes in circumstances indicate that the carrying amount of an asset may
not be recoverable. In evaluating the fair value and future benefits of its
intangible assets, management performs an analysis of the anticipated
undiscounted future net cash flows of the individual assets over the remaining
amortization period. Applica recognizes an impairment loss if the carrying
value of the asset exceeds the expected future cash flows. For example, in the
fourth quarter of 2000, Applica recorded a $3.2 million write-down of certain
intangible assets associated with Kmart Corporations decision to terminate its
long-term supply contract for White-Westinghouse electronic products and
Applicas intention not to re-market such products to another company. In the
fourth quarter of 2001, an additional write-down of $1.2 million was recorded
as a result of a bankruptcy petition filed by Kmart Corporation. In 2002, the
Company abandoned leasehold improvements at its China facility. These
leaseholds related to streamlining its manufacturing and distribution and had a
net book value of $2.5 million. In addition, with the closing of the Shelton,
Connecticut office, the Company disposed of certain leasehold and other fixed
assets with a net book value of $1.1 million.

Reserves for Product Liability Claims and Litigation. Applica is subject
to various legal proceedings, product liability claims and other claims in the
ordinary course of its business. Management estimates the amount of ultimate
liability, if any, with respect to such matters in excess of applicable
insurance coverage based on historical claims experience and current claim
amounts, as well as other available facts and circumstances. As the outcome of
litigation is difficult to predict and significant estimates are made with
regard to future events, significant changes from estimated amounts could
occur. For example, Applica increased its reserve for product liability claims
and litigation by $1.0 million in 2002.

Product Recall Liability. Applica is subject to potential product recalls.
We estimate the amount of ultimate liability based on discussions with the
Consumer Product Safety Commission and historical claims experience. For
example, in February 2002, we voluntarily recalled our Black & Decker® branded
T1200 and T1400 toasters. We charged the 2001 operations with an estimated
reserve of $13.4 million for this recall. Applica has charged $8.7 million
against this reserve through December 31, 2002. While we believe that the
reserve is adequate, there can be no assurance that significant future
adjustments will not be required.

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Other Estimates. Applica makes a number of other estimates in the
ordinary course of business relating to sales returns and allowances, warranty
reserves, and reserves for promotional incentives. Historically, past changes
to these estimates have not had a material impact on our financial condition.
However, circumstances could change which may alter future expectations.




Results of Operations

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

|                                                              |                          |                                         |                                                    |       |                         |       |       |      |      |      |       |      |      |      |   
|------------------------------------------------------------- | ------------------------ | --------------------------------------- | -------------------------------------------------- | ----- | ----------------------- | ----- | ----- | ---- | ---- | ---- | ----- | ---- | ---- | ---- | --
|                                                              |                          |                                         |                                                    |       | Year Ended December 31,
|                                                              |                          |                                         |                                                    |       |                        
|                                                              |                          |                                         |                                                    |       | 2002                    |       | 2001  |      | 2000
|                                                              |                          |                                         |                                                    |       |                         |       |       |      |     
|Net sales                                                     |                          |                                         | 100.0                                              | %     |                         |       | 100.0 | %    |      |      | 100.0 | %   
|Cost of sales:                                                |                          |                                         |                                                    |       |                         |       |       |      |      |      |       |     
|                                                              |                          | Cost of goods sold                      |                                                    |       | 68.1                    |       |       |      | 71.0 |      |       |      | 68.6 |     
|                                                              |                          | Repositioning charges and other charges |                                                    |       |                        |       |       |      | 1.8  |      |       |      | 4.0  |     
|                                                              |                          |                                         |                                                    |       |                         |       |       |      |      |      |       |      |      |      |   
|                                                              |                          |                                         | Gross profit                                       |       |                         | 31.9  |       |      |      | 27.2 |       |      |      | 27.4 |   
|Selling, general and administrative expenses:                 |                          |                                         |                                                    |       |                         |       |       |      |      |      |       |     
|                                                              |                          | Operating expenses                      |                                                    |       | 26.8                    |       |       |      | 25.6 |      |       |      | 25.5 |     
|                                                              |                          | Repositioning charges and other charges |                                                    |       | 1.4                     |       |       |      | 2.1  |      |       |      | 0.5  |     
|                                                              |                          |                                         |                                                    |       |                         |       |       |      |      |      |       |      |      |      |   
|                                                              |                          |                                         | Operating earnings (loss)                          |       |                         | 3.7   |       |      |      | (0.5 | )     |      |      | 1.4  |   
|Other income (expense)                                        |                          |                                         | (2.1                                               | )     |                         |       | (2.8  | )    |      |      | (3.8  | )   
|Loss on asset held for sale                                   |                          |                                         |                                                   |       |                         |       |      |      |      |      | (0.5  | )   
|                                                              |                          |                                         |                                                    |       |                         |       |       |      |      |      |       |      |      |      |   
|Earnings (loss) before equity in net earnings (loss) of joint |                          |                                         |                                                    |       |                         |       |       |      |      |      |       |     
|                                                              | venture and income taxes |                                         |                                                    | 1.6   |                         |       |       | (2.8 | )    |      |       | (4.3 | )   
|                                                              |                          |                                         |                                                    |       |                         |       |       |      |      |      |       |      |      |      |   
|Equity in net earnings (loss) of joint ventures               |                          |                                         | (0.2                                               | )     |                         |       | 0.0   |      |      |      | (0.1  | )   
|                                                              |                          |                                         |                                                    |       |                         |       |       |      |      |      |       |      |      |      |   
|                                                              |                          |                                         | Earnings (loss) before income taxes and cumulative |       |                         |       |       |      |      |      |       |      |      |      |   
|                                                              |                          |                                         | effect of change in accounting principle           |       |                         | 1.4   |       |      |      | (3.3 | )     |      |      | (3.0 | ) 
|Income tax expense (benefit)                                  |                          |                                         | 0.7                                                |       |                         |       | 0.6   |      |      |      | (0.2  | )   
|                                                              |                          |                                         |                                                    |       |                         |       |       |      |      |      |       |      |      |      |   
|Earnings (loss) before cumulative effect of change in         |                          |                                         |                                                    |       |                         |       |       |      |      |      |       |     
|                                                              | accounting principle     |                                         |                                                    | 0.7   |                         |       |       | (3.9 | )    |      |       | (2.8 | )   
|                                                              |                          |                                         |                                                    |       |                         |       |       |      |      |      |       |      |      |      |   
|Cumulative effect of change in accounting principle, net of   |                          |                                         |                                                    |       |                         |       |       |      |      |      |       |     
|                                                              | tax                      |                                         |                                                    | (10.8 | )                       |       |       |     |      |      |       |     |     
|                                                              |                          |                                         | Net earnings (loss)                                |       |                         | (10.1 | )%    |      |      | (3.9 | )%    |      |      | (2.8 | )%
|                                                              |                          |                                         |                                                    |       |                         |       |       |      |      |      |       |      |      |      |   

Year Ended December 31, 2002 Compared to Year Ended December 31, 2001

Net Sales. Sales for Applica remained flat at $727.4 million compared to
$727.0 million in 2001. For the year, increases in contract manufacturing of
$17.8 million, or 29.0%, and sales of pest control products of $15.7 million
were offset by decreases in (a) sales of Windmere® branded and other products
of $16.2 million, or 8.9%, (b) sales of White Westinghouse® products of $8.6
million, or 36.9%, and (c) sales of Black & Decker® branded products of $8.3
million, or 1.8%. No pest control products were sold in 2001. In 2002, sales
of Black & Decker® branded products increased $7.1 million in North American,
but decreased $15.4 million in Latin America. Sales to Wal-Mart, our largest
customer, accounted for 24.5% and 24.3% of total sales for the 2002 and 2001
periods, respectively.

In June 2000, the Kmart Corporation exercised its option to terminate its
long-term supply contract with Applica for the sale of White-Westinghouse®
consumer electronic products in the United States. The termination was
effective on June 30, 2002. On December 31, 2002, Applica terminated the White
Westinghouse license agreement. Sales of White Westinghouse branded products
totaled $14.7 million in 2002 and $23.3 million in 2001.

In January 2002, Kmart Corporation and certain of its U.S. subsidiaries
filed voluntary petitions for reorganization under Chapter 11 of the U.S.
Bankruptcy Code. Kmart is one of Applicas top three customers. Kmart has
indicated that it intends to reorganize on a fast-track basis and has targeted
emergence from Chapter 11 in

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April 2003. In 2002 and 2001, Applica had sales of $43.5 million and
$49.4 million to Kmart Corporation and, at the date of the bankruptcy filing,
Applica had outstanding receivables of approximately $5.0 million.

In July 2002, Aisenstein & Gordon, Inc. (A&G), a distributor, announced
that it would cease continuing business operations and undertake an
out-of-court liquidation. In 2002 and 2001, Applica had sales of $2.7 million
and $7.1 million, respectively, to A&G. Applica had outstanding receivables
from A&G of approximately $1.7 million and, in connection with the liquidation,
received approximately $160,000 on such receivables.

In January 2003, PHD, Inc., a distributor and significant customer of
Applica, was placed into involuntary bankruptcy, which PHD voluntarily
converted to a liquidation under Chapter 11 of the U.S. Bankruptcy Code. In
2002 and 2001, Applica had sales of $13.4 million and $12.9 million,
respectively, to PHD, Inc. and its subsidiaries. At the date of the bankruptcy
filing, Applica had outstanding receivables of approximately $4.3 million,
which were fully reserved at December 31, 2002.

Management anticipates that reduced contract manufacturing orders and
continued weakness in Latin America will negatively affect sales in 2003, which
management believes will be offset by higher sales of Black & Decker® branded
products and pest control products. Additionally, sales will be negatively
affected during the first quarter as the result of higher overall inventory at
two of our significant customers, resulting from the slow holiday season.

Gross Profit Margin. Applicas gross profit margin was 31.9% in 2002 as
compared to 27.2% for 2001. Excluding the $13.4 million in recall charges
recorded as cost of sales in 2001, Applicas gross profit margin for 2001 was
29.0%. The gross profit margins increased as Applica experienced an improved
product mix during 2002 and higher production levels at its manufacturing
facilities.

In 2003, management anticipates that margins will remain similar to 2002
levels as the result of continued price degradation in core product categories
and higher petroleum prices, offset by the continued improvement in product mix
and new product introductions.

Selling, General and Administrative Expenses.

Operating Expenses. Operating expenses for Applica increased $8.6
million, or 4.6%, in 2002 to $195.0 million as compared to $186.4 in 2001.
Such expenses increased as a percentage of sales to 26.8% from 25.6% in the
2001 period. In 2002, advertising and promotion expenses increased $10.3
million, largely as the result of increased television promotion to support new
product introductions. Additionally, (a) our bad debt expenses increased by
$6.6 million, as we experienced the credit deterioration of two of our major
distributors, (b) we experienced a $2.2 million foreign exchange loss primarily
related to the devaluation of certain Latin American currencies, (c) payroll
and severance expenses increased by $1.5 million and (d) selling and other
expenses increased by $400,000. These increases were offset by decreases in
amortization expense of $10.9 million primarily as the result of the adoption
of SFAS 142, Goodwill and Other Intangible Assets and the write down of White
Westinghouse related intangibles. Additionally, distribution and freight
costs decreased by $1.5 million during 2002 as the result of our supply chain
management program.

Estimated expenses under the license agreement with The Black & Decker
Corporation will increase by approximately $4.0 million in 2003 and an
additional $7.5 million in 2004. Additionally, we anticipate that insurance
and freight expenses will increase by approximately $3.0 million as a result of
increases in rates in 2003. These increases should be offset by decreases in
expenses of approximately $3.0 million resulting from the 2002 infrastructure
consolidation and lower bad debt expense.

Repositioning and Other Charges. In the fourth quarter of 2001, Applica
took charges relating to several events in the aggregate amount of $14.8
million. These charges included $6.8 million relating to Applicas decision to
consolidate its Shelton, Connecticut office with the headquarters located in
Miami Lakes, Florida, as well as certain back-office and supply chain functions
in Canada and Latin America. In addition, $5.2 million of such charges related
to Applicas execution of a new four-year senior secured revolving credit
facility and the write-off of fees and expenses associated with the terminated
credit facility. Also included in the charge were $1.5 million relating to the
devaluation of the Argentinean peso and $1.0 million related to the settlement
of the shareholder class

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action litigation. In 2002, Applica incurred repositioning expenses of
$10.6 million relating to the consolidation. These expenses did not qualify
for accrual at December 31, 2001.

For additional information regarding SFAS 142, see Note D of the Notes to
Consolidated Financial Statements included in Schedule I of this Form 10-K.

Interest Expense. Interest expense decreased by $4.9 million, or 21.8%,
to $17.6 million for 2002, as compared to $22.5 million for 2001. Such
decrease was largely the result of the reduction of debt and lower interest
rates.

Gain on Litigation Settlement.In September 2002, Applica and Salton,
Inc. entered into a settlement agreement in the matter 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. In connection with such settlement, Applica reported a one-time gain of
$557,000 in the third quarter of 2002.

Equity in Net Earnings (Loss) of Joint Ventures.The equity in net
earnings (loss) of joint ventures increased from a $128,000 loss in 2001 to a
$1.5 million loss in 2002. This increase was due to Applicas losses of
approximately $1.5 million related to its investment in a Florida limited
liability company. Applica has no additional commitments or exposure related
to this investment. During 2002, Applica did not reflect any equity in net
earnings (loss) related to its investment in Anasazi Partners, L.P. Anasazis
investments include certain privately traded securities whose values have been
estimated by the general partner in the absence of readily ascertainable market
values. Fair value of these securities may differ significantly from the
values that would have been used had a ready market for the securities existed.

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. For
2002, Applica had an effective tax rate of 48.9%. The change in tax rate from
2001 resulted from additional tax expense of $10.1 million in 2001 due to the
repatriation of previously untaxed earnings. In addition, in 2002 Applica
incurred additional permanent differences, such as foreign exchange translation
losses. Applica expects its future effective tax rate to approximate 40%.

The earnings of subsidiaries in Canada, Mexico and Latin America (other
than Chile) are generally taxed at rates comparable to or higher than 35%, the
United States statutory rate. In addition, commencing on January 1, 2002, the
earnings of Applicas Hong Kong subsidiary are also taxed at the United States
statutory rate of 35% due to Applicas intent not to permanently reinvest the
earnings outside of the United States. Applica does not make tax provisions for
the undistributed earnings of its foreign subsidiaries that it expects will be
permanently reinvested in its operations outside of the United States.

For additional information regarding taxes, see Note I of the Notes to
Consolidated Financial Statements included in Schedule I of this Annual Report
on Form 10-K.

Cumulative Effect of Change in Accounting Principle. In January 2002,
Applica applied the provisions of SFAS 142, Goodwill and Other Intangible
Assets and performed a transitional fair valued based impairment test. Based
on its impairment tests, Applica recognized an adjustment of $121.3 million
($78.8 million, or $3.31 per share, net of tax on a fully diluted basis) in the
first quarter of 2002 to reduce the carrying value of goodwill to its implied
fair value. Under SFAS 142, the impairment adjustment was reflected as a
cumulative effect of change in accounting principle.

Earnings Per Share. Basic shares for the periods ended December 31, 2002
and 2001 were 23,415,186 and 23,135,222, respectively. Included in diluted
shares is the dilutive effect of common stock equivalents relating to options
of 403,275 for the period ended December 31, 2002. All common stock
equivalents were excluded from the per share calculations in 2001 as Applica
incurred a net loss before cumulative effect of change in accounting principle
in the period and such inclusion would have been anti-dilutive.

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Year Ended December 31, 2001 Compared to Year Ended December 31, 2000

Sales. Sales for Applica decreased 2.9% to $727.0 million from $748.8
million for the year ended December 31, 2001. The change was primarily the
result of a decrease of $40.1 million in sales of product categories that were
exited in the fourth quarter of 2000, a decrease of $3.5 million in sales of
electronic products and a $2.2 million decrease in Windmere® branded and other
product sales. The decrease was primarily offset by a $8.5 million increase in
sales of Black & Decker® branded products, an increase of $8.2 million in
contract manufacturing sales and a $7.3 million increase in
sales of LitterMaid
pet products. Sales to Wal-Mart, our largest customer, accounted for 24.3% and
21.4% of total sales for the 2001 and 2000 periods, respectively.

In January 2002, Kmart Corporation and certain of its U.S. subsidiaries
filed voluntary petitions for reorganization under Chapter 11 of the U.S.
Bankruptcy Code. Kmart Corporation is one of Applicas top three customers.
In 2001, Applica had sales of $49.4 million to Kmart Corporation and, as of the
date of the bankruptcy filing, Applica had outstanding receivables of
approximately $5.0 million. Additionally, in January 2002, Service Merchandise
Company, Inc. announced that it would cease continuing business operations and
file a plan of liquidation. Service Merchandise filed bankruptcy in March 1999
but was unable to complete its planned business reorganization. In 2001,
Applica had sales of $10.8 million to Service Merchandise. As of the date of
the announcement, the outstanding receivables to Service Merchandise were
immaterial.

Cost of Sales  Repositioning and Other Charges. Applica Consumer
Products, Inc., in cooperation with the Consumer Products Safety Commission,
voluntarily recalled approximately 2.1 million Black & Decker® two-slice and
four-slice toasters. Applicas Canadian operating subsidiary, Applica Canada
Corporation, also recalled approximately 180,000 of these toasters in Canada.
In connection therewith, Applica took a charge of $13.4 million relating to the
estimated expenses of such recalls.

In the fourth quarter of 2000, Applica entered into a relationship with a
consumer packaged goods company to develop, manufacture and distribute new
products. In conjunction with the development relationship, Applica expanded
its existing manufacturing capacity, exited various non-strategic product
lines, including certain retail personal care items, and re-allocated company
resources. These activities resulted in charges totaling $34.1 million in the
fourth quarter of 2000. These charges were primarily non-cash. Charges
associated with the write down of inventory and other equipment totaled $30.1
million and were recorded as cost of sales.

Gross Profit Margin. Applicas gross profit margin was 27.2% in 2001 as
compared to 27.4% in 2000. Excluding the $13.4 million in recall charges
recorded as cost of sales in 2001 and $30.1 million portion of repositioning
charges recorded as cost of sales in 2000, Applicas gross profit margin was
29.0% in 2001 as compared to 31.4% 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 year.

Selling, General and Administrative Expenses.

Operating Expenses. Operating expenses before repositioning and other
charges for Applica decreased by $4.5 million, or 2.4%, in 2001 to $186.4
million. Such expenses as a percentage of sales remained flat in 2001 and
2000. In 2001, freight and distribution expenses decreased by $3.2 million as
the result of our supply chain initiatives, which were implemented in the
fourth quarter of 2000. Additionally, selling and other expenses decreased by
$1.8 million as the result of the consolidation of our external and internal
sales forces.

Repositioning and Other Charges. In the fourth quarter of 2001, Applica
took charges relating to several events in the aggregate amount of $14.8
million. These charges included $6.8 million relating to Applicas decision
to consolidate its Shelton, Connecticut office with the headquarters located in
Miami Lakes, Florida, as well as certain back-office and supply chain functions
in Canada and Latin America. In addition, $5.2 million of such charges related
to Applicas execution of a new four-year senior secured revolving credit
facility and the write-off of fees and expenses associated with the terminated
credit facility. Also included in the charge were

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$1.5 million relating to the devaluation of the Argentinean peso and
$1.0 million related to the settlement of the shareholder class action
litigation.

In addition to the $30.1 million charged to cost of sales in 2000, the
fourth quarter repositioning charges included other primarily non-cash charges
of $4.0 million, of which $3.2 million related to the write down of certain
intangible assets associated with Kmart Corporations decision to terminate its
long-term supply contract for White-Westinghouse® electronic products and
Applicas intention not to re-market these products to another company.

Loss On Asset Held For Sale. In 2000, Applica determined to exit and sell
substantially all of the assets of a non-strategic business and, as a result,
recorded a loss of $3.6 million based on the expected realizable value of the
asset. The business was sold in June 2001 and no additional gain or loss was
recognized.

Interest Expense. Interest expense decreased by $7.8 million, or 25.7%, to
$22.5 million for 2001, as compared to $30.3 million for 2000. The decrease
was the result of the reduction of debt levels throughout 2001 and lower
interest rates.

Taxes. Applicas tax expense is based on an aggregation of the taxes on
earnings of each of its foreign and domestic operations. In 2001 and 2000, it
included additional U.S. taxes on repatriated foreign earnings in excess of the
amounts that were otherwise taxable in the U.S. The earnings of subsidiaries
in Canada, Mexico and Latin America (other than Chile) are generally taxed at
rates comparable to or higher than 35%, the United States statutory rate.
Income tax rates in Hong Kong and Chile range between 8% and 16%.

In 2001, Applica had a tax expense of $4.1 million and an effective tax
rate of 17.1%, compared to a tax benefit of $1.5 million and an effective tax
rate of 6.8% in 2000. The tax expense resulted from taxes paid to foreign
jurisdictions and additional U.S. taxes on repatriated foreign earnings in
excess of the amounts otherwise taxable in the U.S. In 2001 and 2000, Applica
repatriated $31.4 million and $16.3 million, respectively, from its foreign
operations.

In 2001, Applica decided that future earnings of certain of its foreign
operations would not be reinvested but rather would be repatriated to the
United States. No provision has been made for U.S. taxes on the remaining
undistributed earnings of the foreign operations of approximately $169.0
million at December 31, 2001 and $182.9 at December 31, 2000, as it is
anticipated that such earnings would be reinvested in their respective
operations or in other foreign operations.

Per Share Data. All common stock equivalents have been excluded from the
per share calculations in 2001 as Applica incurred a net loss in the period and
such inclusion would have been anti-dilutive.




Liquidity and Capital Resources

At December 31, 2002, Applicas working capital was $192.8 million, as
compared to $228.1 million at December 31, 2001. At December 31, 2002 and 2001,
Applicas current ratio was 2.8 to 1 and 3.0 to 1, respectively, and its quick
ratio was 1.5 to 1 and 1.8 to 1, respectively. The decrease in the current and
quick ratios primarily reflected the use of the cash from the decrease in
accounts receivable to repay long-term debt.

Cash balances decreased by $8.0 million to $7.7 million for the year ended
December 31, 2002. Cash balances decreased by $1.1 million to $15.7 million
for the year ended December 31, 2001.

The net cash provided by operating activities totaled $54.0 million in
2002 and $87.9 million in 2001. The 2002 period reflected decreases in accounts
receivable. The 2001 period reflected reductions in inventory.

Cash used in investing activities totaled approximately $31.5 million for
the period, as compared to $23.2 million for 2001, and reflected the
acquisition of Weitech, Inc. in 2002 for $17.0 million in cash, as well as the
purchase of equipment at Applicas manufacturing facilities and tooling for new
products.

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Cash used in financing activities totaled approximately $30.6 million in
2002 and $65.8 million in 2001 reflecting the continued reduction of debt
levels.

Applicas primary sources of liquidity are its cash flow from operations
and borrowings under its credit facility. In 2001, Applica replaced its
revolving credit and term debt facilities with a new $205 million four-year
asset-based senior secured revolving credit facility. As of March 3, 2003,
Applica was borrowing approximately $30.8 million under the facility and had
approximately $57.8 million available for future cash borrowings. Advances
under the facility are primarily based upon percentages of outstanding eligible
accounts receivable and inventories. The credit facility includes a $10.0
million sublimit for the issuance of letters of credit, with approximately
$538,439 outstanding under the limit as of March 3, 2003. All amounts
outstanding under the credit facility are payable on December 28, 2005.

At Applicas option, interest accrues on the loans made under the credit
facility at either:



| |  |  | LIBOR (adjusted for any reserves), plus a specified margin which is
determined by Applicas leverage ratio and was set at 2.35% at December
31, 2002 and 2.25% at March 1, 2003 (3.79% at December 31, 2002 and
3.59% at March 3, 2003); or                          
| | - |  | ---------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
|
| |  |  | the Base Rate (which is Bank of Americas prime rate), plus a
specified margin, which is determined based upon Applicas leverage
ratio and was set at 0.35% at December 31, 2002 and 0.25% at March 3,
2003 (4.60% at December 31, 2002 and 4.50% at March 3, 2003).

Management expects its borrowing margins to decrease to 2.00% (for LIBOR loans)
and 0.0% (for Base Rate loans) after our first quarter 2003 results are
reported to our senior lenders during May 2003. This decrease will result if
we continue to improve our leverage ratio.

Swing loans up to $15.0 million bear interest at the Base Rate plus a specified
margin, which is determined based on Applicas leverage ratio and was set at
0.35% at December 31, 2002 and 0.25% at March 3, 2003 (4.60% at December 31,
2002 and 4.50% at March 3, 2003).

In July 1998, Applica issued $130.0 million in Senior Subordinated Notes.
The notes bear interest at a rate of 10%, payable semiannually, and mature on
July 31, 2008. The notes are general unsecured obligations of Applica
Incorporated and rank subordinate in right of payment to all senior debt of
Applica and rank pari passu in right of payment to all future subordinated
indebtedness of Applica. The notes may be redeemed at the option of Applica, in
whole or in part, on or after July 31, 2003 at various redemption prices. See
Note G of the Consolidated Financial Statements included in Schedule I to this
Annual Report on Form 10-K for more detailed information regarding Applicas
borrowings.

On September 28, 2002, Applica entered into credit approved receivables
purchasing agreements with CIT Group/Commercial Services, Inc. (CIT). The
agreements allow Applica to transfer to CIT, without recourse, approved
receivables of specified customers under certain circumstances, including the
bankruptcy of covered customers. Applica remains the servicer of the approved
receivables and pays fees based upon a percentage of the gross face amount of
each approved receivable. These arrangements are strictly for the purpose of
insuring selected receivables. On January 17, 2003, the agreement covering
receivables from a significant customer was converted into a full notification
agreement under which CIT has agreed to purchase all approved receivables of
such customer.

In April 2002, Applica Consumer Products, Inc. entered into a five-year
$6.0 million mortgage loan on Applicas executive offices located in Miami
Lakes, Florida. The loan bears interest at an annual rate of 7.25%, with
monthly principal and interest payments based on a 20-year amortization. A
final balloon payment is due at the end of the term. The loan is secured by a
mortgage on the property and the building located thereon.

Certain of Applicas foreign subsidiaries have approximately $18.4 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. As of December 31, 2002, there
were no amounts outstanding under the working capital lines and $1.7 million
outstanding under the letter of credit lines. As of

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March 3, 2003, there was $2.5 million outstanding under the working
capital lines and $1.0 million under the letter of credit lines.

Applicas aggregate capital expenditures for the year ended December 31,
2002 were $19.3 million, as compared to $23.3 million for 2001. Applica
anticipates that the total capital expenditures for 2003 will be approximately
$19.0 million, which includes the cost of equipment at our manufacturing
facilities and tooling for new products. Applica plans to fund such capital
expenditures from cash flow from operations and, if necessary, borrowings under
its credit facility.

At December 31, 2002, debt as a percent of total capitalization was 47.0%,
as compared to 43.4% at December 31, 2001.

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 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 its control. Based upon the current level of operations and
anticipated cost savings and revenue growth, we believe that cash flow from
operations and available cash, together with available borrowings under its
credit facility and other facilities, will be adequate to meet our 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 credit facility 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.

For information regarding related party transactions, see Note N to the
Consolidated Financial Statements included in Schedule I to this Annual Report
on Form 10-K.

Applica is also involved in certain ongoing litigation. See Item 3. Legal
Proceedings above.

Effect of Inflation

Our results of operations for the periods discussed have not been
significantly affected by inflation.

Currency Matters

While we transact business predominantly in U.S. dollars and most of our
revenues are collected in U.S. dollars, a substantial portion of our costs,
such as payroll, rent and indirect operational costs, are denominated in other
currencies, such as Chinese renminbi, Hong Kong dollars and Mexican pesos. In
addition, while a small portion of our revenues are collected in foreign
currencies, such as Canadian dollars, Argentine pesos, Colombian pesos, Chilean
pesos and Venezuelan bolivars, a significant portion of the related cost of
goods sold are denominated in U.S. dollars. Changes in the relation of these
and other currencies to the U.S. dollar will affect our cost of goods sold and
operating margins and could result in exchange losses. The impact of future
exchange rate fluctuations on our results of operations cannot be accurately
predicted. There can be no assurance that the dollar foreign exchange rates
will be stable in the future or that fluctuations in financial markets will not
have a material adverse effect on our business, financial condition and results
of operations.

From time to time, Applica uses forward exchange and option contracts to
reduce fluctuations in foreign currency cash flows related to third party raw
materials and other operating purchases, as well as trade receivables. The
purpose of Applicas foreign currency management activity is to reduce the risk
that anticipated cash flows and earnings from foreign currency denominated
transactions may be adversely affected by changes in exchange rates.

For additional information on exchange rate sensitivity, see Item 7A.
Quantitative and Qualitative Disclosures about Market Risk below.

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New Accounting Pronouncements

In July 2002, the FASB issued Statement No. 146, Accounting for
Restructuring Costs, (SFAS 146). SFAS 146 applies to costs associated with
an exit activity (including restructuring) or with a disposal of long-lived
assets. Those activities can include eliminating or reducing product lines,
terminating employees and contracts and relocating plant facilities or
personnel. SFAS 146 is effective prospectively for exit or disposal activities
initiated after December 31, 2002, with earlier adoption encouraged.
Management does not believe the adoption of this standard will have a material
impact on the financial statements.

In December 2002, the FASB issued Statement No. 148, Accounting for
Stock-Based Compensation-Transition and Disclosure (SFAS 148). SFAS 148
amends FASB Statement No. 123, Accounting for Stock-Based Compensation, to
provide alternative methods of transition for an entity that voluntarily
changes to the fair value based method of accounting for stock-based employee
compensation. Additionally, SFAS 148 requires prominent disclosures about the
effects on reported net income of an entitys accounting policy decisions with
respect to stock-based employee compensation. SFAS 148 also amends APB Opinion
No. 28, Interim Financial Reporting, to require disclosures about such
effects in interim financial information. Applica currently accounts for its
stock-based compensation awards to employees and directors under the accounting
prescribed by Accounting Principles Board Opinion No. 25 and provides the
disclosures required by SFAS No. 123. Applica currently intends to continue to
account for its stock-based compensation awards to employees and directors
under the accounting prescribed by Accounting Principles Board Opinion No. 25
and will adopt the additional disclosure provisions of SFAS 148 during the
first quarter of its year ending December 31, 2003.

In December 2002, the FASB issued Interpretation 45 (FIN 45), Guarantors
Accounting and Disclosure Requirements for Guarantees, Including Indirect
Guarantees of Indebtedness of Others. For a guarantee subject to FASB
Interpretation 45, a guarantor is required to:



| |  |  | measure and recognize the fair value of the guarantee at inception
(for many guarantees, fair value will be determined using a present
value method); and                                                                                                                                                                                                                                           
| | - |  | ----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
|
| |  |  | provide new disclosures regarding the nature of any guarantees, the
maximum potential amount of future guarantee payments, the current
carrying amount of the guarantee liability, and the nature of any
recourse provisions or assets held as collateral that could be
liquidated and allow the guarantor to recover all or a portion of its
payments in the event guarantee payments are required.

The disclosure requirement of this Interpretation is effective for financial
statements for fiscal years ending after December 15, 2002 and did not have a
material effect on Applica financial statements. The initial recognition and
measurement provision are effective prospectively for guarantees issued or
modified on or after January 1, 2003, which should not have a material effect
on Applicas financial statements.

Item 7 A. Quantitative and Qualitative Disclosures About Market Risk.

Applica is exposed to the impact of interest rate changes and foreign
currency fluctuations. In the normal course of business, we employ
established policies and procedures to manage our exposure to changes in
interest rates and foreign currencies using a variety of financial instruments.

Interest Rate Sensitivity. Our primary market risk exposure with respect
to interest rates is changes in short- and long-term interest rates in the
United States. Certain of Applicas debt arrangements represent floating rate
debt and accordingly, we are subject to interest rate risk. Applica uses
interest rate risk management contracts to reduce the impact of changes in
interest rates on our floating rate debt. Our objectives in managing exposure
to interest rate changes are to limit the impact of interest rate changes on
earnings and cash flows and to lower overall borrowing costs. To achieve these
objectives, we primarily use interest rate swaps to manage net exposure to
interest rate changes related to Applicas portfolio of borrowings. Applica
maintains fixed rate debt as a percentage of its net debt between a minimum and
maximum percentage, which is set by policy.

The table below provides information regarding Applicas derivative
financial instruments and other financial instruments that are sensitive to
changes in interest rates, including interest rate swaps and debt
obligations. For debt obligations, the table presents principal cash
flows and related weighted average interest rates by expected

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maturity dates.
For interest rate swaps, the table presents notional amounts and weighted
average interest rates by expected (contractual) maturity dates. Notional
amounts are used to calculate the contractual payments expected to be exchanged
under the contract. Weighted average variable rates are based on implied
forward rates in the yield curve at the reporting date.

|                         |                       |                      |  |                        |     |      |  |      |     |      |  |       |      |            |  |                        |     |               |  |       |     |   |  |         |   |  |  |         |  |  |  |         |   | 
|------------------------ | --------------------- | -------------------- |  | ---------------------- | --- | ---- |  | ---- | --- | ---- |  | ----- | ---- | ---------- |  | ---------------------- | --- | ------------- |  | ----- | --- | - |  | ------- | - |  |  | ------- |  |  |  | ------- | - | 
|                         |                       |                      |  | At December 31, 2002  
|                         |                       |                      |  |                       
|                         |                       |                      |  | Expected Maturity Date |     |      |  |      |     |      |  |      
|                         |                       |                      |  |                        |     |      |  |      |     |      |  |      
|                         |                       |                      |  | 2003                   |     | 2004 |  | 2005 |     | 2006 |  | 2007  |      | Thereafter |  | Total                  |     | Fair Value(5)
|                         |                       |                      |  |                        |     |      |  |      |     |      |  |       |      |            |  |                        |     |              
|                         |                       |                      |  |                        |     |      |  |      |     |      |  |       |      |            |  | (Dollars in thousands) |     |               |  |       |     |   |  |        
|Liabilities:             |                       |                      |  |                        |     |      |  |      |     |      |  |       |      |            |  |                        |     |               |  |       |     |   |  |         |   |  |  |         |  |  |  |        
|Long-Term Debt:          |                       |                      |  |                        |     |      |  |      |     |      |  |       |      |            |  |                        |     |               |  |       |     |   |  |         |   |  |  |         |  |  |  |        
|                         | Fixed Rate            |                      |  | 143                    |     |      |  | 153  |     |      |  | 3,166 |      |            |  | 178                    |     |               |  | 5,282 |     |   |  | 130,000 |   |  |  | 138,912 |  |  |  | 138,262 |  
|                         | Average Interest Rate |                      |  | 7.25                   | %   |      |  | 7.25 | %   |      |  | 6.07  | %(1) |            |  | 7.25                   | %   |               |  | 7.25  | %   |   |  | 10.0    | % |  |  |         |  |  |  |         |  
|                         | Variable Rate         |                      |  |                       |     |      |  |     |     |      |  |      |      |            |  | 55,070                 |     |               |  |      |     |   |  |        |   |  |  | 55,070  |  |  |  | 55,070  |  
|                         | Average Interest Rate |                      |  |                       |     |      |  |     |     |      |  |      |      |            |  | (2                     | )   |               |  |      |     |   |  |        |   |  |  |         |  |  |  |         |  
|Interest Rate Contracts: |                       |                      |  |                        |     |      |  |      |     |      |  |       |      |            |  |                        |     |               |  |       |     |   |  |         |   |  |  |         |  |  |  |        
|Interest Rate Swaps:     |                       |                      |  |                        |     |      |  |      |     |      |  |       |      |            |  |                        |     |               |  |       |     |   |  |         |   |  |  |         |  |  |  |        
|                         | Pay Fixed (3):        |                      |  | 15,000                 |     |      |  |     |     |      |  |      |      |            |  |                       |     |               |  |      |     |   |  |        |   |  |  | 15,000  |  |  |  | (328    | )
|                         |                       | Average Pay Rate     |  |                        | 4.8 | %    |  |      |    |      |  |       |     |            |  |                        |    |               |  |       |    |   |  |         |  |  |  |         |  |  |  |         |   | 
|                         |                       | Average Receive Rate |  |                        | 5.0 | %    |  |      |    |      |  |       |     |            |  |                        |    |               |  |       |    |   |  |         |  |  |  |         |  |  |  |         |   | 
|                         | Pay Floating (4):     |                      |  |                       |     |      |  |     |     |      |  |      |      |            |  |                       |     |               |  | 5,939 |     |   |  |        |   |  |  | 5,939   |  |  |  | 481     |  
|                         |                       | Average Pay Rate     |  |                        | 1.8 | %    |  |      | 1.4 | %    |  |       | 2.5  | %          |  |                        | 3.5 | %             |  |       | 4.1 | % |  |         |   |  |  |         |  |  |  |         |   | 
|                         |                       | Average Receive Rate |  |                        | 4.9 | %    |  |      | 4.9 | %    |  |       | 4.9  | %          |  |                        | 4.9 | %             |  |       | 4.9 | % |  |         |   |  |  |         |  |  |  |         |   | 



---

|(1) |  | Calculated as the weighted average of 6% on the $3.0 million notes
payable and 7.25% on the mortgage loan on the property located in Miami
Lakes, Florida.                                                                                                                                                               
|--- |  | -------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
|   
|(2) |  | The variable rate revolving credit facility is set depending upon the
interest period elected by Applica of 1, 2, 3 or 6 months at a rate
equivalent to the LIBOR rate plus an applicable margin of 235 basis points
or at a rate equivalent to the prime rate of interest plus an applicable
margin of 35 basis points. 
|   
|(3) |  | At December 31, 2002, Applica had an interest rate swap contract to pay a
fixed-rate of interest of 5.045% and received a variable-rate of interest
of one-month LIBOR that matures on July 31, 2003. The LIBOR used to
calculate the Average Receive Rate is based upon the forward yield curve
as of December 31, 2002.
|   
|(4) |  | At December 31, 2002, Applica had an interest rate swap contract to pay a
variable-rate of interest of one-month LIBOR and receive a fixed-rate of
interest of 4.9% that matures on May 1, 2007. The LIBOR used to calculate
the Average Pay Rate is based upon the forward yield curve as of December
31, 2002.         
|   
|(5) |  | Fair values were determined based on broker quotes or quoted market
prices or rates for the same or similar instruments.                                                                                                                                                                                                 

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##### Table of Contents



|                         |                       |                      |   |                        |     |      |   |        |     |      |   |       |     |            |   |                        |     |               |  |   |     |   |   |         |     |   |   |         |  |  |   |         |   | 
|------------------------ | --------------------- | -------------------- | - | ---------------------- | --- | ---- | - | ------ | --- | ---- | - | ----- | --- | ---------- | - | ---------------------- | --- | ------------- |  | - | --- | - | - | ------- | --- | - | - | ------- |  |  | - | ------- | - | 
|                         |                       |                      |   | At December 31, 2001  
|                         |                       |                      |   |                       
|                         |                       |                      |   | Expected Maturity Date |     |      |   |        |     |      |   |      
|                         |                       |                      |   |                        |     |      |   |        |     |      |   |      
|                         |                       |                      |   | 2002                   |     | 2003 |   | 2004   |     | 2005 |   | 2006  |     | Thereafter |   | Total                  |     | Fair Value(5)
|                         |                       |                      |   |                        |     |      |   |        |     |      |   |       |     |            |   |                        |     |              
|                         |                       |                      |   |                        |     |      |   |        |     |      |   |       |     |            |   | (Dollars in thousands) |     |               |  |   |     |   |   |        
|Liabilities:             |                       |                      |   |                        |     |      |   |        |     |      |   |       |     |            |   |                        |     |               |  |   |     |   |   |         |     |   |   |         |  |  |   |        
|Long-Term Debt:          |                       |                      |   |                        |     |      |   |        |     |      |   |       |     |            |   |                        |     |               |  |   |     |   |   |         |     |   |   |         |  |  |   |        
|                         | Fixed Rate            |                      |   |                       |     |      |   |       |     |      |   |      |     |            |   |                       |     |               |  |  |     |   | $ | 130,000 |     |   | $ | 130,000 |  |  | $ | 128,700 |  
|                         | Average Interest Rate |                      |   |                       |     |      |   |       |     |      |   |      |     |            |   |                       |     |               |  |  |     |   |   | 10.0    | %   |   |   |         |  |  |   |         |  
|                         | Variable Rate         |                      | $ | 1,693                  |     |      | $ | 1,662  |     |      | $ | 1,662 |     |            | $ | 90,709                 |     |               |  |  |     |   |   |        |     |   | $ | 95,726  |  |  | $ | 95,726  |  
|                         | Average Interest Rate |                      |   | (1                     | )   |      |   | (1     | )   |      |   | (1    | )   |            |   | (2                     | )   |               |  |  |     |   |   |        |     |   |   |         |  |  |   |         |  
|Interest Rate Contracts: |                       |                      |   |                        |     |      |   |        |     |      |   |       |     |            |   |                        |     |               |  |   |     |   |   |         |     |   |   |         |  |  |   |        
|Interest Rate Swaps:     |                       |                      |   |                        |     |      |   |        |     |      |   |       |     |            |   |                        |     |               |  |   |     |   |   |         |     |   |   |         |  |  |   |        
|                         | Pay Fixed (3):        |                      |   |                       |     |      | $ | 59,000 |     |      |   |      |     |            |   |                       |     |               |  |  |     |   |   |        |     |   | $ | 59,000  |  |  | $ | (1,937  | )
|                         |                       | Average Pay Rate     |   |                        | 5.0 | %    |   |        | 5.0 | %    |   |       |    |            |   |                        |    |               |  |   |    |   |   |         |    |   |   |         |  |  |   |         |   | 
|                         |                       | Average Receive Rate |   |                        | 2.2 | %    |   |        | 4.3 | %    |   |       |    |            |   |                        |    |               |  |   |    |   |   |         |    |   |   |         |  |  |   |         |   | 
|                         | Pay Floating (4):     |                      |   |                       |     |      |   |       |     |      |   |      |     |            |   |                       |     |               |  |  |     |   | $ | 80,000  |     |   | $ | 80,000  |  |  | $ | 31      |  
|                         |                       | Average Pay Rate     |   |                        | 2.3 | %    |   |        | 4.7 | %    |   |       | 5.9 | %          |   |                        | 6.3 | %             |  |   | 6.5 | % |   |         | 6.6 | % |   |         |  |  |   |         |   | 
|                         |                       | Average Receive Rate |   |                        | 5.8 | %    |   |        | 5.8 | %    |   |       | 5.8 | %          |   |                        | 5.8 | %             |  |   | 5.8 | % |   |         | 5.8 | % |   |         |  |  |   |         |   | 
|Interest Rate Cap:       |                       |                      |   |                        |     |      |   |        |     |      |   |       |     |            |   |                        |     |               |  |   |     |   |   |         |     |   |   |         |  |  |   |        
|                         | 7% Cap                |                      | $ | 60,000                 |     |      |   |       |     |      |   |      |     |            |   |                       |     |               |  |  |     |   |   |        |     |   | $ | 60,000  |  |  |   |        |  
|                         | Maximum Pay Rate      |                      |   | 7.0                    | %   |      |   |       |     |      |   |      |     |            |   |                       |     |               |  |  |     |   |   |        |     |   |   |         |  |  |   |         |  



---

|(1) |  | The variable rate foreign indebtedness is set depending upon the interest
period elected by Applica of 1, 2 or 3 months at a rate equivalent to the
LIBOR rate plus an applicable margin of 85 basis points.                                                                                                            
|--- |  | ------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
|   
|(2) |  | The variable rate revolving credit facility is set depending upon the
interest period elected by Applica of 1, 2, 3 or 6 months at a rate
equivalent to the LIBOR rate plus an applicable margin of 235 basis points
or at a rate equivalent to the prime rate of interest plus an applicable
margin of 35 basis points.
|   
|(3) |  | At December 31, 2001, Applica had an interest rate swap contract to pay a
fixed-rate of interest of 5.045% and receive a variable-rate of interest
of one-month LIBOR that matures on July 31, 2003.                                                                                                                    
|   
|(4) |  | At December 31, 2001, Applica had an interest rate swap contract to pay a
variable-rate of interest of six-month LIBOR and receive a fixed-rate of
interest of 5.84% that matures on July 31, 2008.                                                                                                                     
|   
|(5) |  | Fair values were determined based on broker quotes or quoted market
prices or rates for the same or similar instruments.                                                                                                                                                                                                

Exchange Rate Sensitivity. Our primary market risk exposure with respect
to exchange rates is to changes in U.S. dollar/Mexican peso, U.S.
dollar/Chinese renminbi, U.S. dollar/Hong Kong dollar and U.S. dollar/Canadian
dollar exchange rates. In addition, we also have exposure to the Argentinean
peso, Colombian peso, Chilean peso and Venezuelan bolivar. Certain forecasted
transactions could expose Applica to foreign currency risk. We purchase
currency forwards and options as cash flow hedges of foreign currency
forecasted transactions related to the purchase of third party raw materials
and other operating expenses. Our objective in managing exposure to foreign
currency fluctuations is to reduce earnings and cash flow volatility in order
to allow management to focus on core business issues and challenges.
Accordingly, we enter into various contracts that change in value as foreign
exchange rates change to protect the value of our existing foreign currency
assets, liabilities, commitments and forecasted foreign currency revenues and
expenses. Applica uses option strategies and forward contracts that provide for
the sale and/or purchase of foreign currencies to hedge probable, but not
firmly committed, expenditures. The principal currencies hedged are the Mexican
peso, Chinese renminbi, Hong Kong dollar and Canadian dollar. By policy,
Applica maintains hedge coverage between minimum and maximum percentages of its
forecasted foreign exchange exposures for periods not to exceed eighteen
months. The gains and losses on these contracts offset changes in the value of
the related exposures.

As discussed above, we are exposed to market risks arising from changes in
foreign exchange rates. As of December 31, 2002, Applica hedged a portion of
its 2003 estimated foreign currency transactions using forward exchange
contracts and purchased options. We use a sensitivity model to determine a
potential change in the fair value of our foreign exchange financial
instruments. The sensitivity model estimates the change in fair value based
upon a favorable and unfavorable movement of 10% in the respective spot rate.
The sensitivity model is a risk analysis tool and does not purport to represent
actual losses or gains in fair value that will be incurred by Applica. It
should also be noted that the change in value represents the estimated change
in the fair market value of the derivative. Because the derivatives hedge an
underlying exposure, there would be a comparable and opposite change in value
of the underlying exposure. The estimated potential change in fair value,
calculated using the sensitivity model, is as follows:

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|                 |                            |   |                        |        |                  |   |                             |       |  |   |        |        |  
|---------------- | -------------------------- | - | ---------------------- | ------ | ---------------- | - | --------------------------- | ----- |  | - | ------ | ------ | -
|                 |                            |   | At December 31, 2002  
|                 |                            |   |                       
|                 |                            |   |                        |        |                  |   | Change in Fair Value Due To
|                 |                            |   |                        |        |                  |   |                            
|                 |                            |   | Notional Hedge         |        | Favorable 10%    |   | Unfavorable 10%            
|                 |                            |   | Amount in US Dollars   |        | Movement in Spot |   | Movement in Spot           
|                 |                            |   |                        |        |                  |   |                            
|                 |                            |   | (Dollars in thousands) |        |                  |   |                            
|Mexican Peso     |                            | $ | 26,780                 |        |                  | $ | 2,472                       |       |  | $ | (2,235 | )     
|Canadian Dollar  |                            |   | 7,269                  |        |                  |   | 616                         |       |  |   | (569   | )     
|Chinese Renminbi |                            |   | 7,000                  |        |                  |   | 780                         |       |  |   | (638   | )     
|                 |                            |   |                        |        |                  |   |                            
|                 | Total Change in Fair Value |   | $                      | 41,049 |                  |   | $                           | 3,868 |  |   | $      | (3,442 | )
|                 |                            |   |                        |        |                  |   |                            

It is our policy to enter into foreign currency and interest rate
transactions and other financial instruments only to the extent considered
necessary to meet our objectives as stated above. We do not enter into these
transactions for speculative purposes. See Note O of the Consolidated
Financial Statements included in Schedule I of this Annual Report on Form 10-K
for more information regarding Applicas financial instruments.

Item 8. Financial Statements and Supplementary Data



| |                               
| | ------------------------------
| | See Schedules I and II hereto.

Item 9. Changes In and Disagreements With Accountants On Accounting and
Financial Disclosure



| |      
| | -----
| | None.

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PART III

Item 10. Directors and Executive Officers of the Registrant

The executive officers of Applica are as follows:

|                     |  |     |    |        |  |                                                                                        
|-------------------- |  | --- | -- | ------ |  | ---------------------------------------------------------------------------------------
|NAME                 |  | AGE |    | OFFICE
|                     |  |     |    |       
|David M. Friedson    |  |     | 47 |        |  | Chairman of the Board                                                                  
|Harry D. Schulman    |  |     | 51 |        |  | President, Chief Executive Officer and Secretary                                       
|Lai Kin              |  |     | 72 |        |  | Director and Chairman of Applica Durable
Manufacturing Limited                         
|Albio Espinosa       |  |     | 47 |        |  | Vice President  Worldwide Manufacturing,
Applica Consumer Products, Inc.              
|Michael J. Michienzi |  |     | 47 |        |  | Senior Vice President  Global Business
Development, of Applica Consumer Products, Inc.
|Terry L. Polistina   |  |     | 39 |        |  | Senior Vice President and Chief Financial
Officer                                      
|Ben Lai              |  |     | 40 |        |  | Managing Director of Applica Durable
Manufacturing Limited                             

David M. Friedsonhas served as Chairman of the Board of Applica
Incorporated since April 1996. From January 1987 to February 2003, Mr.
Friedson served as Chief Executive of Applica Incorporated and Applica Consumer
Products, Inc. From January 1985 to January 2001, Mr. Friedson served as
President of Applica and from June 1976 to January 1985, Mr. Friedson held
various other senior management positions.

Harry D. Schulmanhas served as President of Applica Incorporated and
Applica Consumer Products, Inc. since January 2001 and Chief Executive Officer
since February 2003. Mr. Schulman has also served as Secretary since January
1999. Mr. Schulman previously served as Chief Operating Officer from November
1998 to February 2002. From March 1990 to January 2001, Mr. Schulman served
as Chief Financial Officer of Applica. From February 1998 until June 1998, he
served as a Senior Vice President and from February 1993 until June 1998, Mr.
Schulman served as Executive Vice President  Finance and Administration. Prior
thereto, he held other senior finance positions with Applica.

Lai Kinhas been Chairman of Applica Durable Manufacturing Limited,
Applicas Chinese manufacturing subsidiary, since 1995. From 1973 to 1995, Mr.
Lai was Managing Director of Durable. In addition, Mr. Lai has been Managing
Director of Ourimbah Investment Limited since 1989. Ourimbah is a holding and
investment company and owns approximately 7.8% of the outstanding common stock
of Applica.

Albio Espinosais currently Vice President  Global Manufacturing of
Applica Consumer Products, Inc. and served as the Managing Director of Applica
Manufacturing, S. de R.L. de C.V., the Mexican manufacturing subsidiary, from
1994 to 2001. He joined Black & Decker in 1989 and served in several other
capacities, including the Manufacturing Director and the Logistics and
Purchasing Director.

Michael J. Michienziis currently Senior Vice President  Global Business
Development and served as President and General Manager, Sales and Marketing,
of Applica Consumer Products, Inc. from May 1999 to February 2002. From
January 1999 until December 1999, Mr. Michienzi also served as President of the
Household Products, Inc. and from June 1998 until January 1999 he served as its
Senior Vice President. From July 1994 to June 1998, Mr. Michienzi served as
Vice President  Sales, Vice President  Sales and Supply Chain, and Vice
President  Sales, Marketing and Supply Chain of the U.S. Household Products
Group of Black & Decker (U.S.) Inc.

Terry L. Polistinahas served as Chief Financial Officer of Applica
Incorporated and Applica Consumer Products, Inc. since January 2001 and has
served as a Senior Vice President since June 1998. Mr. Polistina served

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##### Table of Contents



as Controller of Applica from December 1995 to June 1998 and prior
thereto, he held other senior finance positions with Applica.

Ben Laihas served as Managing Director of Applica Durable Manufacturing
Limited since October 2002. He served as Executive Director of Applica
Durable, responsible for Manufacturing, Supply Chain, Human Resources and MIS,
since April 2002. Mr. Lai served as Director of Applica Durable responsible
for World Class Manufacturing Projects, Training and Kaizen from April 2001 to
March 2002. From March 2000 to March 2001, Mr. Lai received training in World
Class Manufacturing at our Queretaro, Mexico facility. Mr. Lai also served as
a Director of Applica Durable responsible for Supply Chain since 1996.

Information about the members of the Board of Directors of Applica is
incorporated by reference to Applicas Proxy Statement for its 2003 Annual
Meeting of Shareholders under the captions Election of Directors.

Item 11. Executive Compensation

Information about executive compensation is incorporated by reference to
Applicas Proxy Statement for its 2003 Annual Meeting of Shareholders under the
captions Executive Compensation and Certain Relationships and Related
Transactions.

Item 12. Security Ownership of Certain Beneficial Owners and Management

Information about security ownership of certain beneficial owners and
management is incorporated by reference to Applicas Proxy Statement for its
2003 Annual Meeting of Shareholders under the caption Security Ownership.

The following table summarizes our equity compensation plans as of
December 31, 2002. Applica has not granted any warrants or stock appreciation
rights.

|                                                          |       |     |                  |           |                |     |              |  |                |  |               |           | 
|--------------------------------------------------------- | ----- | --- | ---------------- | --------- | -------------- | --- | ------------ |  | -------------- |  | ------------- | --------- | 
|                                                          |       |     |                  |           |                |     |              |  |                |  | Number of    
|                                                          |       |     |                  |           |                |     |              |  |                |  | securities   
|                                                          |       |     |                  |           |                |     |              |  |                |  | remaining    
|                                                          |       |     |                  |           |                |     |              |  |                |  | available for
|                                                          |       |     |                  |           |                |     |              |  |                |  | the future   
|                                                          |       |     | Number of        |           |                |     |              |  | issuance under
|                                                          |       |     | securities to be |           | Weighted-      |     | equity      
|                                                          |       |     | issued upon      |           | average        |     | compensation
|                                                          |       |     | exercise of      |           | exercise price |     | plans       
|                                                          |       |     | outstanding      |           | of outstanding |     | (excluding  
|                                                          |       |     | options,         |           | options,       |     | securities  
|                                                          |       |     | warrants and     |           | warrants and   |     | reflected in
|                                                          |       |     | rights           |           | rights         |     | column (a)) 
|Plan Category                                             |       | (a) |                  | (b)       |                | (c)
|                                                          |       |     |                  |           |                |    
|Equity compensation plans approved by security holders    |       |     | 2,716,678        |           |                | $   | 7.5572       |  |                |  | 875,599       |          
|Employee stock purchase plan approved by security holders |       |     | N/A              |           |                |     | N/A          |  |                |  | 334,190       |          
|Equity compensation not approved by security holders(1)   |       |     | 664,820          |           |                | $   | 7.2688       |  |                |  | 0             |          
|                                                          |       |     |                  |           |                |     |              |  |                |  |               |          
|                                                          | Total |     |                  | 3,381,498 |                |     |              |  |                |  |               | 1,209,789 | 
|                                                          |       |     |                  |           |                |     |              |  |                |  |               |          



---

|(1) |  | Applica has granted non-qualified stock options, which were not issued
under a formal plan and which were not approved by security holders. No such
options have been granted since 1998.
|--- |  | -----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

Item 13. Certain Relationships and Related Transactions

Information about certain relationships and related transactions is
incorporated by Reference to Applicas Proxy Statement for its 2003 Annual
Meeting of Shareholders under the captions Executive Compensation and
Certain Relationships and Related Transactions.

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##### Table of Contents



Item 14. Controls and Procedures

Evaluation of Disclosure Controls and Procedures. Applicas chief
executive officer and chief financial officer, after evaluating the
effectiveness of the Companys disclosure controls and procedures (as defined
in Sections 13a-14(c) of the Securities Exchange Act of 1934) as of a date (the
Evaluation Date) not more than 90 days before the filing date of this annual
report, have concluded that as of the Evaluation Date, the Companys disclosure
controls and procedures were effective and designed to ensure that material
information relating to the Company and its consolidated subsidiaries is
accumulated and would be made known to them by others within those entities as
appropriate to allow timely decisions regarding required disclosures.

Changes in Internal Controls. Applica does not believe that there are
significant deficiencies in the design or operation of its internal controls
that could adversely effect its ability to record, process, summarize and
report financial data. Although there were no significant changes in the
Companys internal controls or in other factors that could significantly affect
those controls subsequent to the Evaluation Date, Applicas senior management,
in conjunction with its Board of Directors, continuously reviews overall
company policies and improves documentation of important financial reporting
and internal control matters. Accordingly, certain changes to Applicas internal
controls were made during the fourth quarter of 2002, none of which
were
significant. Applica is committed to continuously improving the state of its
internal controls, corporate governance and financial reporting.

Limitations on the Effectiveness of Controls.Applicas management,
including the chief executive officer and chief financial officer, does not
expect that our disclosure or internal controls will prevent all
errors or
fraud. A control system, no matter how well conceived and operated, can provide
only reasonable, not absolute, assurance that the objectives of the control
system are met. Further, the design of a control system must reflect the fact
that there are resource constraints, and the benefits of controls must be
considered relative to their costs. Because of the inherent limitations in a
cost-effective control system, misstatements due to error or fraud may occur
and not be detected.

Item 15. Exhibits, Financial Statement Schedules and Reports on Form 8-K



| | (a)(1) |  | Financial Statements
| | ------ |  | --------------------

The following consolidated financial statements of Applica Incorporated
and its subsidiaries are included in Schedule I attached hereto:



| |  |  | Report of Independent Certified Public Accountants                                        
| | - |  | ------------------------------------------------------------------------------------------
|
| |  |  | Consolidated Balance Sheets as of December 31, 2002 and 2001                              
|
| |  |  | Consolidated Statements of Operations for the years ended December 31, 2002, 2001 and 2000
|
| |  |  | Consolidated Statement of Shareholders Equity for the three years ended December 31, 2002
|
| |  |  | Consolidated Statements of Cash Flows for the years ended December 31, 2002, 2001 and 2000
|
| |  |  | Supplement Disclosures of Cash Flow Information                                           
|
| |  |  | Notes to Consolidated Financial Statements                                                



| | (a)(2) |  | Financial Statements Schedules
| | ------ |  | ------------------------------

The Valuation and Qualifying Accounts  Years ended December 31, 2002,
2001 and 2000 is included in Schedule II attached hereto.

Individual financial statements of Applicas subsidiaries have been
omitted because consolidated financial statements have been presented, and all
subsidiaries included in the consolidated financial statements are wholly
owned. All other schedules have been omitted because the required information
is not present or not present in amounts sufficient to require submission of
the schedule or because the information required is included in the
consolidated financial statements or the notes thereto.

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| | (a)(3) |  | Exhibits
| | ------ |  | --------

|                   |  |                                                                                                                                                                                                                                                                                                                                               
|------------------ |  | ----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
|Exhibit
    Number |  | Description                                                                                                                                                                                                                                                                                                                                   
|                   |  |                                                                                                                                                                                                                                                                                                                                               
|3.1                |  | Second Amended and Restated Articles of Incorporation filed with the Florida Secretary
of State on May 10, 2000. Incorporated by reference to Applicas Quarterly Report on
Form 10-Q for the quarter ended September 30, 2000.                                                                                                               
|3.2                |  | Second Amended and Restated Bylaws. Incorporated by reference to Applicas Annual
Report on Form 10-K for the year ended December 31, 2000.                                                                                                                                                                                                   
|4.1                |  | Supplemental Indenture dated as of July 27, 1998, among Applica Incorporated, the
Guarantors named therein and State Street Bank & Trust Company, as Trustee, relating to
the issuance by Applica Incorporated of $130 million in 10% Senior Subordinated Notes
due 2008. Incorporated by reference to Applicas Form 8-K dated July 27, 1998.
|4.2                |  | Amended and Restated 1995 Common Stock Purchase Rights Agreement dated March 10, 1999
between American Stock Transfer and Trust Company and Applica Incorporated.
Incorporated by reference to Applicas Form 8-A/A Registration Statement filed with the
Securities and Exchange Commission on April 8, 1999.                                
|10.1*              |  | Employment agreement dated June 18, 1999 between Applica Incorporated and David M.
Friedson. Incorporated by reference to Applicas Quarterly Report on Form 10-Q for the
quarter ended June 30, 1999.                                                                                                                                        
|10.2*              |  | Employment agreement dated August 2, 1999 between Applica Incorporated and Harry D.
Schulman. Incorporated by reference to Applicas Quarterly Report on Form 10-Q for the
quarter ended September 30, 1999.                                                                                                                                  
|10.3*              |  | Employment Agreement dated July 1, 2000 between Applica Consumer Products, Inc. and
Michael J. Michienzi. Incorporated by reference Applicas Quarterly Report on Form 10-Q
for the quarter ended September 30, 2000.                                                                                                                         
|10.4*              |  | Employment Agreement dated July 1, 2000 between Applica Incorporated and Terry L.
Polistina. Incorporated by reference Applicas Quarterly Report on Form 10-Q for the
quarter ended September 30, 2000.                                                                                                                                      
|10.5*              |  | Consulting Agreement dated January 1, 1989 between Mr. Lai Kin and Applica
Incorporated. Incorporated by reference to Applicas Annual Report on Form 10-K for
the year ended December 31, 1988.                                                                                                                                              
|10.6*              |  | Employment Agreement dated as of January 27, 1983 between Belvin Friedson and Applica
Incorporated. Incorporated by reference to Applicas Annual Report on Form 10-K for
the year ended December 31, 1982.                                                                                                                                   
|10.7*              |  | First Amendment dated February 27, 1987 to Employment Agreement between Belvin Friedson
and Applica Incorporated. Incorporated by reference to Applicas Annual Report on Form
10-K for the year ended December 31, 1986.                                                                                                                     
|10.8*              |  | Second Amendment dated December 16, 1992 to Employment Agreement between Belvin
Friedson and Applica Incorporated. Incorporated by reference to Applicas Annual
Report on Form 10-K for the year ended December 31, 1992.                                                                                                                    
|10.9*              |  | 1988 Director Stock Option Plan. Incorporated by reference to Applicas Annual Report
on Form 10-K for the year ended December 31, 1988.                                                                                                                                                                                                      

-37-



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##### Table of Contents



|                   |  |                                                                                                                                                                                                                                                                                                                                           
|------------------ |  | ------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
|Exhibit
    Number |  | Description                                                                                                                                                                                                                                                                                                                               
|                   |  |                                                                                                                                                                                                                                                                                                                                           
|10.10*             |  | 1992 Employees Incentive Stock Option Plan. Incorporated by reference to the
Registration Statement on Form S-8 as filed with the Securities and Exchange Commission
on May 12, 1998.                                                                                                                                                     
|10.11*             |  | 1996 Stock Option Plan. Incorporated by reference to the Registration Statement on Form
S-8 as filed with the Securities and Exchange Commission on May 12, 1998.                                                                                                                                                                         
|10.12*             |  | 1998 Stock Option Plan. Incorporated by reference to the Registration Statement on
Form S-8 as filed with the Securities and Exchange Commission on September 3, 1999.                                                                                                                                                                    
|10.13*             |  | 2000 Stock Option Plan. Incorporated by reference to the Registration Statement on
Form S-8 as filed with the Securities and Exchange Commission on June 23, 2000.                                                                                                                                                                        
|10.14*             |  | 2000 Employee Stock Purchase Plan. Incorporated by reference to the Registration
Statement on Form S-8 as filed with the Securities and Exchange Commission on June 23,
2000.                                                                                                                                                             
|10.15              |  | 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 December 28, 2001. Incorporated by reference to Applicas Annual Report
on Form 10-K for the year ended December 31, 2001.                       
|10.16              |  | Security Agreement by and among Applica Incorporated, each of its subsidiaries party
thereto and Bank of America, N.A., as agent for the lenders, dated December 28, 2001.
Incorporated by reference to Applicas Annual Report on Form 10-K for the year ended
December 31, 2001.                                                        
|10.17              |  | Amendment No. 1 to 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 April 26, 2002. Incorporated by reference to
Applicas Quarterly Report on Form 10-Q for the quarter
ended September 30, 2002.
|10.18              |  | Second Amendment to 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 January 17, 2003. Filed herewith.                                                                                            
|21                 |  | Subsidiaries of the Registrant. Filed herewith.                                                                                                                                                                                                                                                                                           
|23                 |  | Consents of experts and counsel. Filed herewith.                                                                                                                                                                                                                                                                                          
|99.1               |  | Certification of Principal Executive Officer Pursuant to 18 U.S.C. 1350. Filed herewith.                                                                                                                                                                                                                                                  
|99.2               |  | Certification of Chief Financial Officer Pursuant to 18 U.S.C. 1350. Filed herewith.                                                                                                                                                                                                                                                      



---

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



| | (b) |  | Reports on Form 8-K
| | --- |  | -------------------



| |      
| | -----
| | None.

-38-



---



##### Table of Contents






Signatures

Pursuant to the requirements of Section 13 or 15(d) of the Securities
Exchange Act of 1934, the Registrant has duly caused this report to be signed
on its behalf by the undersigned, thereunto duly authorized.

| |  |                                   |  |                                                                                        
| |  | --------------------------------- |  | ---------------------------------------------------------------------------------------
| |  | APPLICA INCORPORATED
(Registrant)
| |  |                                   |  |                                                                                        
| |  | By:                               |  | /s/ Harry D. Schulman                                                                  
| |  |                                   |  |                                                                                        
| |  |                                   |  | Harry D. Schulman,
President,
Chief
Executive Officer and Secretary
Date: March 3, 2003

Pursuant to the requirements of the Securities Act of 1934, this report
has been signed below by the following persons on behalf of the Registrant and
in the capacities and on the date indicated.

|                                                                      |  |                    
|--------------------------------------------------------------------- |  | -------------------
|By: /s/ Harry D. Schulman                                             |  | DATE: March 3, 2003
|                                                                      |  |                    
|Harry D. Schulman, President, Chief Executive
Officer and Secretary   |  |                    
|                                                                     
|By: /s/ Terry L. Polistina                                            |  | DATE: March 3, 2003
|                                                                      |  |                    
|Terry L. Polistina, Chief Financial Officer and
Senior Vice President |  |                    
|                                                                     
|By: /s/ David M. Friedson                                             |  | DATE: March 3, 2003
|                                                                      |  |                    
|David M. Friedson, Chairman of the Board                              |  |                    
|                                                                     
|By: /s/ Frederick E. Fair                                             |  | DATE: March 3, 2003
|                                                                      |  |                    
|Frederick E. Fair, Director                                           |  |                    
|                                                                     
|By: /s/ Jerald I. Rosen                                               |  | DATE: March 3, 2003
|                                                                      |  |                    
|Jerald I. Rosen, Director                                             |  |                    
|                                                                     
|By: /s/ Paul K. Sugrue                                                |  | DATE: March 3, 2003
|                                                                      |  |                    
|Paul K. Sugrue, Director                                              |  |                    
|                                                                     
|By: /s/ Lai Kin                                                       |  | DATE: March 3, 2003
|                                                                      |  |                    
|Lai Kin, Director                                                     |  |                    
|                                                                     
|By: /s/ Leonard Glazer                                                |  | DATE: March 3, 2003
|                                                                      |  |                    
|Leonard Glazer, Director                                              |  |                    
|                                                                     
|By: /s/ Felix S. Sabates                                              |  | DATE: March 3, 2003
|                                                                      |  |                    
|Felix S. Sabates, Director                                            |  |                    
|                                                                     
|By: /s/ Thomas J. Kane                                                |  | DATE: March 3, 2003
|                                                                      |  |                    
|Thomas J. Kane, Director                                              |  |                    
|                                                                     
|By: /s/ Susan J. Ganz                                                 |  | DATE: March 3, 2003
|                                                                      |  |                    
|Susan J. Ganz, Director                                               |  |                    
|                                                                     
|By: /s/ J. Maurice Hopkins                                            |  | DATE: March 3, 2003
|                                                                      |  |                    
|J. Maurice Hopkins, Director                                          |  |                    

-39-



---



##### Table of Contents






CERTIFICATION

I, Harry D. Schulman, certify that:

1.     I have reviewed this annual report on Form 10-K of Applica Incorporated;

2.     Based on my knowledge, this annual report does not contain any untrue
statement of a material fact or omit to state a material fact necessary to make
the statements made, in light of the circumstances under which such statements
were made, not misleading with respect to the period covered by this annual
report;

3.     Based on my knowledge, the financial statements, and other financial
information included in this annual report, fairly present in all material
respects the financial condition, results of operations and cash flows of the
registrant as of, and for, the periods presented in this annual report;

4.     The registrants other certifying officers and I are responsible for
establishing and maintaining disclosure controls and procedures (as defined in
Exchange Act Rules 13a-14 and 15d-14) for the registrant and we have:



| |                                                                                                                                                                                                                                                                                                    
| | ---------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
| | a)     designed such disclosure controls and procedures to ensure that
material information relating to the registrant, including its
consolidated subsidiaries, is made known to us by others within those
entities, particularly during the period in which this annual report is
being prepared;
|
| | b)     evaluated the effectiveness of the registrants disclosure controls
and procedures as of a date within 90 days prior to the filing date of
this annual report (the Evaluation Date); and                                                                                                  
|
| | c)     presented in this annual report our conclusions about the
effectiveness of the disclosure controls and procedures based on our
evaluation as of the Evaluation Date;                                                                                                                        

5.     The registrants other certifying officers and I have disclosed, based on
our most recent evaluation, to the registrants auditors and the audit
committee of registrants board of directors (or persons performing the
equivalent function):



| |                                                                                                                                                                                                                                                                                                      
| | -----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
| | a)     all significant deficiencies in the design or operation of internal
controls which could adversely affect the registrants ability to record,
process, summarize and report financial data and have identified for the
registrants auditors any material weaknesses in internal controls; and
|
| | b)     any fraud, whether or not material, that involves management or other
employees who have a significant role in the registrants internal
controls; and                                                                                                                                        

6.     The registrants other certifying officers and I have indicated in this
annual report whether or not there were significant changes in internal
controls or in other factors that could significantly affect internal controls
subsequent to the date of our most recent evaluation, including any corrective
actions with regard to significant deficiencies and material weaknesses.

Date: March 3, 2003

|                                                                                           
|-------------------------------------------------------------------------------------------
|/s/ Harry D. Schulman

Name: Harry D. Schulman
Title: President and Chief Executive Officer

-40-



---



##### Table of Contents






CERTIFICATION

I, Terry Polistina, certify that:

1.     I have reviewed this annual report on Form 10-K of Applica Incorporated;

2.     Based on my knowledge, this annual report does not contain any untrue
statement of a material fact or omit to state a material fact necessary to make
the statements made, in light of the circumstances under which such statements
were made, not misleading with respect to the period covered by this annual
report;

3.     Based on my knowledge, the financial statements, and other financial
information included in this annual report, fairly present in all material
respects the financial condition, results of operations and cash flows of the
registrant as of, and for, the periods presented in this annual report;

4.     The registrants other certifying officers and I are responsible for
establishing and maintaining disclosure controls and procedures (as defined in
Exchange Act Rules 13a-14 and 15d-14) for the registrant and we have:



| |                                                                                                                                                                                                                                                                                                    
| | ---------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
| | a)     designed such disclosure controls and procedures to ensure that
material information relating to the registrant, including its
consolidated subsidiaries, is made known to us by others within those
entities, particularly during the period in which this annual report is
being prepared;
|
| | b)     evaluated the effectiveness of the registrants disclosure controls
and procedures as of a date within 90 days prior to the filing date of
this annual report (the Evaluation Date); and                                                                                                  
|
| | c)     presented in this annual report our conclusions about the
effectiveness of the disclosure controls and procedures based on our
evaluation as of the Evaluation Date;                                                                                                                        

5.     The registrants other certifying officers and I have disclosed, based on
our most recent evaluation, to the registrants auditors and the audit
committee of registrants board of directors (or persons performing the
equivalent function):



| |                                                                                                                                                                                                                                                                                                      
| | -----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
| | a)     all significant deficiencies in the design or operation of internal
controls which could adversely affect the registrants ability to record,
process, summarize and report financial data and have identified for the
registrants auditors any material weaknesses in internal controls; and
|
| | b)     any fraud, whether or not material, that involves management or other
employees who have a significant role in the registrants internal
controls; and                                                                                                                                        

6.     The registrants other certifying officers and I have indicated in this
annual report whether or not there were significant changes in internal
controls or in other factors that could significantly affect internal controls
subsequent to the date of our most recent evaluation, including any corrective
actions with regard to significant deficiencies and material weaknesses.

Date: March 3, 2003

|                                                                                                   
|---------------------------------------------------------------------------------------------------
|/s/ Terry Polistina

Name: Terry Polistina
Title: Chief Financial Officer and Senior Vice President

-41-



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##### Table of Contents



SCHEDULE I

Applica Incorporated and Subsidiaries
INDEX TO FINANCIAL STATEMENTS

|                                                                                           |  |  |            | 
|------------------------------------------------------------------------------------------ |  |  | ---------- | 
|Report of Independent Certified Public Accountants                                         |  |  | F-2        | 
|Consolidated Balance Sheets as of December 31, 2002 and 2001                               |  |  | F-3        | 
|Consolidated Statements of Operations for the Years Ended December 31, 2002, 2001 and 2000 |  |  | F-4        | 
|Consolidated Statement of Shareholders Equity for the Three Years Ended December 31, 2002 |  |  | F-5        | 
|Consolidated Statements of Cash Flows for the Years Ended December 31, 2002, 2001 and 2000 |  |  | F-6 - F7   | 
|Supplemental Disclosures of Cash Flow Information                                          |  |  | F-7        | 
|Notes to Consolidated Financial Statements                                                 |  |  | F-8 - F-20 | 

F-1



---



##### Table of Contents






REPORT OF INDEPENDENT CERTIFIED

PUBLIC ACCOUNTANTS


Board of Directors and Shareholders
Applica Incorporated

We have audited the accompanying consolidated balance sheets of Applica
Incorporated and subsidiaries (the Company) as of December 31, 2002 and 2001,
and the related consolidated statements of operations, shareholders equity and
cash flows for each of the three years in the period ended December 31, 2002.
These financial statements are the responsibility of the Companys management.
Our responsibility is to express an opinion on these financial statements and
financial statement schedule based on our audits.

We conducted our audits in accordance with auditing standards generally
accepted in the United States of America. Those standards require that we plan
and perform the audit to obtain reasonable assurance about whether the
financial statements are free of material misstatement. An audit includes
examining, on a test basis, evidence supporting the amounts and disclosures in
the financial statements. An audit also includes assessing the accounting
principles used and significant estimates made by management, as well as
evaluating the overall financial statement presentation. We believe that our
audits provide a reasonable basis for our opinion.

In our opinion, the financial statements referred to above present fairly,
in all material respects, the consolidated financial position of Applica
Incorporated and subsidiaries as of December 31, 2002 and 2001, and the
consolidated results of their operations and their consolidated cash flows for
each of the three years in the period ended December 31, 2002, in conformity
with accounting principles generally accepted in the United States of America.

As discussed in Note D to the consolidated financial statements, the
Company adopted Statement of Financial Accounting Standard 142 Goodwill and
Other Intangible Assets on January 1, 2002.

We have also audited Schedule II of Applica Incorporated and subsidiaries
for each of the three years in the period ended December 31, 2002. In our
opinion, this schedule, when considered in relation to the basic consolidated
financial statements taken as a whole, presents fairly, in all material
respects, the information therein.





/s/ Grant Thornton LLP
Miami, Florida
February 18, 2003

F-2



---



##### Table of Contents



Applica Incorporated and Subsidiaries
CONSOLIDATED BALANCE SHEETS

|                                                                                                               |                                                                                                                        |                                            |                                      |                           |         |                |         |         |         |  |         | 
|-------------------------------------------------------------------------------------------------------------- | ---------------------------------------------------------------------------------------------------------------------- | ------------------------------------------ | ------------------------------------ | ------------------------- | ------- | -------------- | ------- | ------- | ------- |  | ------- | 
|                                                                                                               |                                                                                                                        |                                            |                                      |                           |         | December 31,  
|                                                                                                               |                                                                                                                        |                                            |                                      |                           |         |               
|                                                                                                               |                                                                                                                        |                                            |                                      |                           |         | 2002           |         | 2001   
|                                                                                                               |                                                                                                                        |                                            |                                      |                           |         |                |         |        
|                                                                                                               |                                                                                                                        |                                            |                                      |                           |         | (In thousands)
|                                                                                                               |                                                                                                                        |                                            |                                      | Assets                    |         |                |         |         |         |  |         | 
|Current Assets:                                                                                                |                                                                                                                        |                                            |                                      |                           |         |                |         |        
|                                                                                                               | Cash and cash equivalents                                                                                              |                                            | $                                    | 7,683                     |         |                | $       | 15,743  |        
|                                                                                                               | Accounts and other receivables, less
allowances of $15,830 in 2002 and $10,499
in 2001                                 |                                            |                                      | 146,567                   |         |                |         | 182,950 |        
|                                                                                                               | Receivables from affiliates                                                                                            |                                            |                                      | 2,060                     |         |                |         | 3,531   |        
|                                                                                                               | Inventories                                                                                                            |                                            |                                      | 111,453                   |         |                |         | 103,716 |        
|                                                                                                               | Prepaid expenses and other                                                                                             |                                            |                                      | 11,862                    |         |                |         | 11,865  |        
|                                                                                                               | Refundable income taxes                                                                                                |                                            |                                      | 1,663                     |         |                |         | 689     |        
|                                                                                                               | Future income tax benefits                                                                                             |                                            |                                      | 18,654                    |         |                |         | 23,649  |        
|                                                                                                               |                                                                                                                        |                                            |                                      |                           |         |                |         |         |        
|                                                                                                               |                                                                                                                        |                                            |                                      | Total current assets      |         |                | 299,942 |         |         |  | 342,143 | 
|Investment in Joint Ventures                                                                                   |                                                                                                                        |                                            | 1,249                                |                           |         |                | 1,412   |        
|Property, Plant and Equipment at cost, less
accumulated depreciation of $109,949 in 2002
and $100,961 in 2001 |                                                                                                                        |                                            | 76,963                               |                           |         |                | 82,337  |        
|Future Income Tax Benefits, Non-Current                                                                        |                                                                                                                        |                                            | 54,378                               |                           |         |                | 8,055   |        
|Goodwill                                                                                                       |                                                                                                                        |                                            | 62,812                               |                           |         |                | 170,764 |        
|Other Intangibles                                                                                              |                                                                                                                        |                                            | 20,860                               |                           |         |                | 24,648  |        
|Other Assets                                                                                                   |                                                                                                                        |                                            | 5,461                                |                           |         |                | 4,325   |        
|                                                                                                               |                                                                                                                        |                                            |                                      |                           |         |                |         |         |        
|                                                                                                               |                                                                                                                        | Total Assets                               |                                      | $                         | 521,665 |                |         | $       | 633,684 | 
|                                                                                                               |                                                                                                                        |                                            |                                      |                           |         |                |         |         |        
|                                                                                                               |                                                                                                                        |                                            | Liabilities and Shareholders Equity |                           |         |                |         |         |         |  |        
|Current Liabilities:                                                                                           |                                                                                                                        |                                            |                                      |                           |         |                |         |        
|                                                                                                               | Accounts payable                                                                                                       |                                            | $                                    | 31,446                    |         |                | $       | 38,140  |        
|                                                                                                               | Accrued Expenses                                                                                                       |                                            |                                      | 74,686                    |         |                |         | 68,533  |        
|                                                                                                               | Current maturities of long-term debt                                                                                   |                                            |                                      | 144                       |         |                |         |        |        
|                                                                                                               | Current taxes payable                                                                                                  |                                            |                                      | 518                       |         |                |         | 6,903   |        
|                                                                                                               | Deferred rent                                                                                                          |                                            |                                      | 372                       |         |                |         | 443     |        
|                                                                                                               |                                                                                                                        |                                            |                                      |                           |         |                |         |         |        
|                                                                                                               |                                                                                                                        |                                            |                                      | Total current liabilities |         |                | 107,166 |         |         |  | 114,019 | 
|Other Long-Term Liabilities                                                                                    |                                                                                                                        |                                            | 1,533                                |                           |         |                |        |        
|Long-Term Debt, Less Current Maturities                                                                        |                                                                                                                        |                                            | 193,838                              |                           |         |                | 225,726 |        
|Shareholders Equity:                                                                                          |                                                                                                                        |                                            |                                      |                           |         |                |         |        
|                                                                                                               | Common stock  authorized: 75,000 shares of
$0.10 par value; issued and outstanding: 23,497 in 2002 and 23,319 in 2001 |                                            |                                      | 2,350                     |         |                |         | 2,332   |        
|                                                                                                               | Paid-in capital                                                                                                        |                                            |                                      | 155,395                   |         |                |         | 154,049 |        
|                                                                                                               | Retained earnings                                                                                                      |                                            |                                      | 71,251                    |         |                |         | 145,028 |        
|                                                                                                               | Note receivable  officer                                                                                              |                                            |                                      | (1,496                    | )       |                |         | (1,496  | )      
|                                                                                                               | Accumulated other comprehensive earnings (loss)                                                                        |                                            |                                      | (8,372                    | )       |                |         | (5,974  | )      
|                                                                                                               |                                                                                                                        |                                            |                                      |                           |         |                |         |         |        
|                                                                                                               |                                                                                                                        | Total shareholders equity                 |                                      |                           | 219,128 |                |         |         | 293,939 | 
|                                                                                                               |                                                                                                                        |                                            |                                      |                           |         |                |         |         |        
|                                                                                                               |                                                                                                                        | Total liabilities and shareholders equity |                                      | $                         | 521,665 |                |         | $       | 633,684 | 
|                                                                                                               |                                                                                                                        |                                            |                                      |                           |         |                |         |         |        

The accompanying notes are an integral part of these financial statements.

F-3



---



##### Table of Contents



Applica Incorporated and Subsidiaries
CONSOLIDATED STATEMENTS OF OPERATIONS

|                                                |                                            |                                 |                                                                                             |                     |         |                                       |         |         |         |         |         |         |         |         |         |  
|----------------------------------------------- | ------------------------------------------ | ------------------------------- | ------------------------------------------------------------------------------------------- | ------------------- | ------- | ------------------------------------- | ------- | ------- | ------- | ------- | ------- | ------- | ------- | ------- | ------- | -
|                                                |                                            |                                 |                                                                                             |                     |         | Years Ended December 31,             
|                                                |                                            |                                 |                                                                                             |                     |         |                                      
|                                                |                                            |                                 |                                                                                             |                     |         | 2002                                  |         | 2001    |         | 2000   
|                                                |                                            |                                 |                                                                                             |                     |         |                                       |         |         |         |        
|                                                |                                            |                                 |                                                                                             |                     |         | (In thousands, except per share data)
|Net sales                                       |                                            | $                               | 727,356                                                                                     |                     |         | $                                     | 727,044 |         |         | $       | 748,751 |        
|Cost of sales:                                  |                                            |                                 |                                                                                             |                     |         |                                       |         |         |         |         |         |        
|                                                | Cost of goods sold                         |                                 |                                                                                             | 495,075             |         |                                       |         | 516,033 |         |         |         | 513,407 |        
|                                                | Repositioning and other charges            |                                 |                                                                                             |                    |         |                                       |         | 13,418  |         |         |         | 30,083  |        
|                                                |                                            |                                 |                                                                                             |                     |         |                                       |         |         |         |         |         |        
|                                                |                                            |                                 | 495,075                                                                                     |                     |         |                                       | 529,451 |         |         |         | 543,490 |        
|                                                |                                            |                                 |                                                                                             |                     |         |                                       |         |         |         |         |         |        
|                                                |                                            |                                 | Gross profit                                                                                |                     |         | 232,281                               |         |         |         | 197,593 |         |         |         | 205,261 |        
|Selling, general and administrative expenses:   |                                            |                                 |                                                                                             |                     |         |                                       |         |         |         |         |         |        
|                                                |                                            | Operating expenses              |                                                                                             |                     | 195,029 |                                       |         |         | 186,410 |         |         |         | 190,939 |        
|                                                |                                            | Repositioning and other charges |                                                                                             |                     | 10,643  |                                       |         |         | 14,817  |         |         |         | 3,980   |        
|                                                |                                            |                                 |                                                                                             |                     |         |                                       |         |         |         |         |         |        
|                                                |                                            |                                 | 205,672                                                                                     |                     |         |                                       | 201,227 |         |         |         | 194,919 |        
|                                                |                                            |                                 |                                                                                             |                     |         |                                       |         |         |         |         |         |        
|                                                |                                            |                                 | Operating earnings (loss)                                                                   |                     |         | 26,609                                |         |         |         | (3,634  | )       |         |         | 10,342  |        
|Other (income) expense:                         |                                            |                                 |                                                                                             |                     |         |                                       |         |         |         |         |         |        
|                                                |                                            | Interest expense                |                                                                                             |                     | 17,581  |                                       |         |         | 22,536  |         |         |         | 30,301  |        
|                                                |                                            | Interest and other income       |                                                                                             |                     | (1,791  | )                                     |         |         | (2,006  | )       |         |         | (1,622  | )      
|                                                |                                            | Loss on asset held for sale     |                                                                                             |                     |        |                                       |         |         |        |         |         |         | 3,644   |        
|                                                |                                            | Gain on litigation settlement   |                                                                                             |                     | (557    | )                                     |         |         |        |         |         |         |        |        
|                                                |                                            |                                 |                                                                                             |                     |         |                                       |         |         |         |         |         |        
|                                                |                                            |                                 | 15,233                                                                                      |                     |         |                                       | 20,530  |         |         |         | 32,323  |        
|                                                |                                            |                                 |                                                                                             |                     |         |                                       |         |         |         |         |         |        
|                                                |                                            |                                 | Earnings (loss) before equity in net
earnings (loss) of joint ventures and
income taxes     |                     |         | 11,376                                |         |         |         | (24,164 | )       |         |         | (21,981 | )      
|Equity in net earnings (loss) of joint ventures |                                            |                                 | (1,498                                                                                      | )                   |         |                                       | (128    | )       |         |         | (777    | )      
|                                                |                                            |                                 |                                                                                             |                     |         |                                       |         |         |         |         |         |        
|                                                |                                            |                                 | Earnings (loss) before income taxes and
cumulative effect of change in accounting
principle |                     |         | 9,878                                 |         |         |         | (24,292 | )       |         |         | (22,758 | )      
|Income tax expense (benefit)                    |                                            |                                 | 4,826                                                                                       |                     |         |                                       | 4,146   |         |         |         | (1,542  | )      
|                                                |                                            |                                 |                                                                                             |                     |         |                                       |         |         |         |         |         |        
|                                                |                                            |                                 | Earnings (loss) before cumulative effect of change in accounting principle                  |                     |         | 5,052                                 |         |         |         | (28,438 | )       |         |         | (21,216 | )      
|                                                |                                            |                                 | Cumulative effect of change in accounting
principle, net of tax benefit of $42,447          |                     |         | (78,829                               | )       |         |         |        |         |         |         |        |        
|                                                |                                            |                                 |                                                                                             |                     |         |                                       |         |         |         |         |         |        
|                                                |                                            |                                 |                                                                                             | Net earnings (loss) |         | $                                     | (73,777 | )       |         | $       | (28,438 | )       |         | $       | (21,216 | )
|                                                |                                            |                                 |                                                                                             |                     |         |                                       |         |         |         |         |         |        
|Earnings (loss) per common share  basic:       |                                            |                                 |                                                                                             |                     |         |                                       |         |         |         |         |         |        
|                                                |                                            |                                 | Earnings (loss) before cumulative effect of
change in accounting principle                  |                     | $       | 0.22                                  |         |         | $       | (1.23   | )       |         | $       | (0.92   | )      
|                                                |                                            |                                 | Cumulative effect of change in accounting
principle, net of tax benefit                     |                     |         | (3.37                                 | )       |         |         |        |         |         |         |        |        
|                                                |                                            |                                 |                                                                                             |                     |         |                                       |         |         |         |         |         |        
|                                                | Earnings (loss) per common share  basic   |                                 | $                                                                                           | (3.15               | )       |                                       | $       | (1.23   | )       |         | $       | (0.92   | )      
|                                                |                                            |                                 |                                                                                             |                     |         |                                       |         |         |         |         |         |        
|Earnings (loss) per common share  diluted:     |                                            |                                 |                                                                                             |                     |         |                                       |         |         |         |         |         |        
|                                                |                                            |                                 | Earnings (loss) before cumulative effect of
change in accounting principle                  |                     | $       | 0.21                                  |         |         | $       | (1.23   | )       |         | $       | (0.92   | )      
|                                                |                                            |                                 | Cumulative effect of change in accounting
principle, net of tax benefit                     |                     |         | (3.31                                 | )       |         |         |        |         |         |         |        |        
|                                                |                                            |                                 |                                                                                             |                     |         |                                       |         |         |         |         |         |        
|                                                | Earnings (loss) per common share  diluted |                                 | $                                                                                           | (3.10               | )       |                                       | $       | (1.23   | )       |         | $       | (0.92   | )      
|                                                |                                            |                                 |                                                                                             |                     |         |                                       |         |         |         |         |         |        

The accompanying notes are an integral part of these financial statements.

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##### Table of Contents



Applica Incorporated and Subsidiaries
CONSOLIDATED STATEMENT OF SHAREHOLDERS EQUITY

|                                                                                          |                                                                        |                                     |       |        |  |                 |         |          |  |          |         |                 |   |               |        |      |  |       |        |             |   |   |         |         |         |  
|----------------------------------------------------------------------------------------- | ---------------------------------------------------------------------- | ----------------------------------- | ----- | ------ |  | --------------- | ------- | -------- |  | -------- | ------- | --------------- | - | ------------- | ------ | ---- |  | ----- | ------ | ----------- | - | - | ------- | ------- | ------- | -
|                                                                                          |                                                                        |                                     |       |        |  |                 |         |          |  |          |         |                 |   |               |        |      |  |       |        | Accumulated |   |   |         |        
|                                                                                          |                                                                        |                                     |       |        |  |                 |         |          |  |          |         |                 |   |               |        | Note |  | Other |        |             |   |  
|                                                                                          |                                                                        |                                     |       | Common |  |                 |         |          |  | Retained |         | Receivable-     |   | Comprehensive |        |      |  |      
|                                                                                          |                                                                        |                                     |       | Stock  |  | Paid-in Capital |         | Earnings |  | Officer  |         | Earnings (Loss) |   | Total        
|                                                                                          |                                                                        |                                     |       |        |  |                 |         |          |  |          |         |                 |   |              
|                                                                                          |                                                                        |                                     |       |        |  |                 |         |          |  |          |         | (In thousands)  |   |               |        |      |  |       |        |            
|Balance at December 31, 1999                                                              |                                                                        | $                                   | 2,264 |        |  | $               | 149,548 |          |  | $        | 194,682 |                 |   | $             | (1,496 | )    |  | $     | (1,601 | )           |   | $ | 343,397 |        
|Comprehensive earnings (loss):                                                            |                                                                        |                                     |       |        |  |                 |         |          |  |          |         |                 |   |               |        |      |  |       |        |             |   |   |         |        
|                                                                                          | Net loss                                                               |                                     |       |       |  |                 |         |         |  |          |         | (21,216         | ) |               |        |     |  |       |        |            |   |   |         | (21,216 | )      
|                                                                                          | Foreign currency translation
adjustment                                |                                     |       |       |  |                 |         |         |  |          |         |                |   |               |        |     |  |       |        | (794        | ) |   |         | (794    | )      
|                                                                                          |                                                                        |                                     |       |        |  |                 |         |          |  |          |         |                 |   |               |        |      |  |       |        |             |   |   |         |         |         |  
|                                                                                          |                                                                        | Total comprehensive earnings (loss) |       |        |  |                 |         |          |  |          |         |                 |   |               |        |      |  |       |        |             |   |   |         |         | (22,010 | )
|Exercise of stock options and issuance
of common stock under employee stock
purchase plan |                                                                        |                                     | 44    |        |  |                 | 2,293   |          |  |          |        |                 |   |               |       |      |  |       |       |             |   |   | 2,337   |        
|Tax benefit resulting from exercise of
stock options                                      |                                                                        |                                     |      |        |  |                 | 633     |          |  |          |        |                 |   |               |       |      |  |       |       |             |   |   | 633     |        
|Fair value of options to non-employees                                                    |                                                                        |                                     |      |        |  |                 | 117     |          |  |          |        |                 |   |               |       |      |  |       |       |             |   |   | 117     |        
|                                                                                          |                                                                        |                                     |       |        |  |                 |         |          |  |          |         |                 |   |               |        |      |  |       |        |             |   |   |         |        
|Balance at December 31, 2000                                                              |                                                                        |                                     | 2,308 |        |  |                 | 152,591 |          |  |          | 173,466 |                 |   |               | (1,496 | )    |  |       | (2,395 | )           |   |   | 324,474 |        
|Comprehensive earnings (loss):                                                            |                                                                        |                                     |       |        |  |                 |         |          |  |          |         |                 |   |               |        |      |  |       |        |             |   |   |         |        
|                                                                                          | Net loss                                                               |                                     |       |       |  |                 |         |         |  |          |         | (28,438         | ) |               |        |     |  |       |        |            |   |   |         | (28,438 | )      
|                                                                                          | Foreign currency translation
adjustment                                |                                     |       |       |  |                 |         |         |  |          |         |                |   |               |        |     |  |       |        | (2,723      | ) |   |         | (2,723  | )      
|                                                                                          | Net unrealized loss on derivatives
designated as cash flow hedges      |                                     |       |       |  |                 |         |         |  |          |         |                |   |               |        |     |  |       |        | (856        | ) |   |         | (856    | )      
|                                                                                          |                                                                        |                                     |       |        |  |                 |         |          |  |          |         |                 |   |               |        |      |  |       |        |             |   |   |         |         |         |  
|                                                                                          |                                                                        | Total comprehensive earnings (loss) |       |        |  |                 |         |          |  |          |         |                 |   |               |        |      |  |       |        |             |   |   |         |         | (32,017 | )
|Exercise of stock options and issuance
of common stock under employee stock
purchase plan |                                                                        |                                     | 24    |        |  |                 | 1,232   |          |  |          |        |                 |   |               |       |      |  |       |       |             |   |   | 1,256   |        
|Tax benefit resulting from exercise of
stock options                                      |                                                                        |                                     |      |        |  |                 | 176     |          |  |          |        |                 |   |               |       |      |  |       |       |             |   |   | 176     |        
|Fair value of options to non-employees                                                    |                                                                        |                                     |      |        |  |                 | 50      |          |  |          |        |                 |   |               |       |      |  |       |       |             |   |   | 50      |        
|                                                                                          |                                                                        |                                     |       |        |  |                 |         |          |  |          |         |                 |   |               |        |      |  |       |        |             |   |   |         |        
|Balance at December 31, 2001                                                              |                                                                        |                                     | 2,332 |        |  |                 | 154,049 |          |  |          | 145,028 |                 |   |               | (1,496 | )    |  |       | (5,974 | )           |   |   | 293,939 |        
|Comprehensive earnings (loss):                                                            |                                                                        |                                     |       |        |  |                 |         |          |  |          |         |                 |   |               |        |      |  |       |        |             |   |   |         |        
|                                                                                          | Net loss                                                               |                                     |       |       |  |                 |         |         |  |          |         | (73,777         | ) |               |        |     |  |       |        |            |   |   |         | (73,777 | )      
|                                                                                          | Foreign currency translation
adjustment                                |                                     |       |       |  |                 |         |         |  |          |         |                |   |               |        |     |  |       |        | (1,677      | ) |   |         | (1,677  | )      
|                                                                                          | Change in unrealized gain (loss) on
derivative instruments, net of tax |                                     |       |       |  |                 |         |         |  |          |         |                |   |               |        |     |  |       |        | (721        | ) |   |         | (721    | )      
|                                                                                          |                                                                        |                                     |       |        |  |                 |         |          |  |          |         |                 |   |               |        |      |  |       |        |             |   |   |         |         |         |  
|                                                                                          |                                                                        | Total comprehensive earnings (loss) |       |        |  |                 |         |          |  |          |         |                 |   |               |        |      |  |       |        |             |   |   |         |         | (76,175 | )
|Exercise of stock options and issuance
of common stock under employee stock
purchase plan |                                                                        |                                     | 18    |        |  |                 | 1,201   |          |  |          |        |                 |   |               |       |      |  |       |       |             |   |   | 1,219   |        
|Tax benefit resulting from exercise of
stock options                                      |                                                                        |                                     |      |        |  |                 | 41      |          |  |          |        |                 |   |               |       |      |  |       |       |             |   |   | 41      |        
|Fair value of options to non-employees                                                    |                                                                        |                                     |      |        |  |                 | 104     |          |  |          |        |                 |   |               |       |      |  |       |       |             |   |   | 104     |        
|                                                                                          |                                                                        |                                     |       |        |  |                 |         |          |  |          |         |                 |   |               |        |      |  |       |        |             |   |   |         |        
|Balance at December 31, 2002                                                              |                                                                        | $                                   | 2,350 |        |  | $               | 155,395 |          |  | $        | 71,251  |                 |   | $             | (1,496 | )    |  | $     | (8,372 | )           |   | $ | 219,128 |        
|                                                                                          |                                                                        |                                     |       |        |  |                 |         |          |  |          |         |                 |   |               |        |      |  |       |        |             |   |   |         |        

The accompanying notes are an integral part of these financial statements.

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##### Table of Contents



Applica Incorporated and Subsidiaries
CONSOLIDATED STATEMENTS OF CASH FLOWS

|                                      |                                                                        |                                                                 |                                       |                                                     |        |                                  |         |         |         |                |         |         |         |         |         |  
|------------------------------------- | ---------------------------------------------------------------------- | --------------------------------------------------------------- | ------------------------------------- | --------------------------------------------------- | ------ | -------------------------------- | ------- | ------- | ------- | -------------- | ------- | ------- | ------- | ------- | ------- | -
|                                      |                                                                        |                                                                 |                                       |                                                     |        | For the years ended December 31,
|                                      |                                                                        |                                                                 |                                       |                                                     |        |                                 
|                                      |                                                                        |                                                                 |                                       |                                                     |        | 2002                             |         | 2001    |         | 2000          
|                                      |                                                                        |                                                                 |                                       |                                                     |        |                                  |         |         |         |               
|                                      |                                                                        |                                                                 |                                       |                                                     |        |                                  |         |         |         | (In thousands)
|Cash flows from operating activities: |                                                                        |                                                                 |                                       |                                                     |        |                                  |         |         |         |                |         |        
|                                      | Net earnings (loss)                                                    |                                                                 | $                                     | (73,777                                             | )      |                                  | $       | (28,438 | )       |                | $       | (21,216 | )      
|                                      | Reconciliation to net cash provided by (used in)
operating activities: |                                                                 |                                       |                                                     |        |                                  |         |         |         |                |         |         |        
|                                      |                                                                        | Depreciation of property, plant and equipment                   |                                       |                                                     | 21,339 |                                  |         |         | 19,123  |                |         |         | 18,897  |        
|                                      |                                                                        | Abandonment of property, plant and equipment                    |                                       |                                                     | 3,628  |                                  |         |         |        |                |         |         |        |        
|                                      |                                                                        | Provision for doubtful accounts                                 |                                       |                                                     | 10,618 |                                  |         |         | 4,002   |                |         |         | 2,671   |        
|                                      |                                                                        | Amortization of intangible assets                               |                                       |                                                     | 9,081  |                                  |         |         | 19,941  |                |         |         | 19,355  |        
|                                      |                                                                        | Gain on litigation settlement                                   |                                       |                                                     | (557   | )                                |         |         |        |                |         |         |        |        
|                                      |                                                                        | Cumulative effect of change in accounting principle,
net of tax |                                       |                                                     | 78,829 |                                  |         |         |        |                |         |         |        |        
|                                      |                                                                        | Deferred taxes                                                  |                                       |                                                     | 1,119  |                                  |         |         | (10,969 | )              |         |         | (12,363 | )      
|                                      |                                                                        | Repositioning and other charges                                 |                                       |                                                     | 10,643 |                                  |         |         | 28,235  |                |         |         | 34,063  |        
|                                      |                                                                        | Loss on asset held for sale                                     |                                       |                                                     |       |                                  |         |         |        |                |         |         | 3,644   |        
|                                      |                                                                        | Other non-cash changes in equity items                          |                                       |                                                     | 145    |                                  |         |         | 226     |                |         |         | 750     |        
|                                      |                                                                        | Equity in net earnings (loss) of joint ventures                 |                                       |                                                     | 1,498  |                                  |         |         | 128     |                |         |         | 777     |        
|                                      |                                                                        | Changes in assets and liabilities:                              |                                       |                                                     |        |                                  |         |         |         |                |         |         |         |        
|                                      |                                                                        |                                                                 | Accounts and other receivables        |                                                     |        | 28,148                           |         |         |         | 808            |         |         |         | (3,181  | )      
|                                      |                                                                        |                                                                 | Inventories                           |                                                     |        | (7,126                           | )       |         |         | 55,204         |         |         |         | (29,613 | )      
|                                      |                                                                        |                                                                 | Prepaid expenses and other            |                                                     |        | 38                               |         |         |         | 4,073          |         |         |         | (7,898  | )      
|                                      |                                                                        |                                                                 | Other assets                          |                                                     |        | (6,196                           | )       |         |         | (4,287         | )       |         |         | 562     |        
|                                      |                                                                        |                                                                 | Accounts payable and accrued expenses |                                                     |        | (6,018                           | )       |         |         | (6,448         | )       |         |         | (4,849  | )      
|                                      |                                                                        |                                                                 | Current income taxes                  |                                                     |        | (7,649                           | )       |         |         | 6,385          |         |         |         | (266    | )      
|                                      |                                                                        |                                                                 | Other liabilities                     |                                                     |        | (9,784                           | )       |         |         | (71            | )       |         |         | (10,880 | )      
|                                      |                                                                        |                                                                 |                                       |                                                     |        |                                  |         |         |         |                |         |         |         |         |         |  
|                                      |                                                                        |                                                                 |                                       | Net cash provided by (used in) operating
activities |        |                                  | 53,979  |         |         |                | 87,912  |         |         |         | (9,547  | )
|Cash flows from investing activities: |                                                                        |                                                                 |                                       |                                                     |        |                                  |         |         |         |                |         |        
|                                      | Purchase of Weitech, Inc., net of cash acquired                        |                                                                 |                                       | (17,002                                             | )      |                                  |         |        |         |                |         |        |        
|                                      | Additions to property, plant and equipment                             |                                                                 |                                       | (19,313                                             | )      |                                  |         | (23,260 | )       |                |         | (23,582 | )      
|                                      | Distributions from (investments in) joint ventures  net               |                                                                 |                                       | (163                                                | )      |                                  |         | (15     | )       |                |         | 306     |        
|                                      | Receivables from affiliates                                            |                                                                 |                                       | 2,122                                               |        |                                  |         | 72      |         |                |         | 252     |        
|                                      | Net cash received from litigation settlement                           |                                                                 |                                       | 2,900                                               |        |                                  |         |        |         |                |         |        |        
|                                      |                                                                        |                                                                 |                                       |                                                     |        |                                  |         |         |         |                |         |         |         |         |         |  
|                                      |                                                                        |                                                                 |                                       | Net cash (used in) provided by investing
activities |        |                                  | (31,456 | )       |         |                | (23,203 | )       |         |         | (23,024 | )

(Continued on next page.)

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##### Table of Contents



Applica Incorporated and Subsidiaries
CONSOLIDATED STATEMENTS OF CASH FLOWS (Continued)

|                                                 |                                                                                             |   |                                  |         |      |   |                |          |   |   |        |         |  
|------------------------------------------------ | ------------------------------------------------------------------------------------------- | - | -------------------------------- | ------- | ---- | - | -------------- | -------- | - | - | ------ | ------- | -
|                                                 |                                                                                             |   | For the years ended December 31,
|                                                 |                                                                                             |   |                                 
|                                                 |                                                                                             |   | 2002                             |         | 2001 |   | 2000          
|                                                 |                                                                                             |   |                                  |         |      |   |               
|                                                 |                                                                                             |   |                                  |         |      |   | (In thousands)
|Cash flows from financing activities:            |                                                                                             |   |                                  |         |      |   |                |          |   |   |        |        
|                                                 | Notes payable                                                                               |   |                                  |        |      |   |                | (13,494  | ) |   |        | 12,596  |  
|                                                 | Proceeds from long-term debt                                                                |   |                                  | 6,000   |      |   |                | 106,041  |   |   |        |        |  
|                                                 | Payments of long-term debt                                                                  |   |                                  |        |      |   |                | (108,513 | ) |   |        | (12,842 | )
|                                                 | Net (payments) borrowings under lines of credit                                             |   |                                  | (38,113 | )    |   |                | (48,885  | ) |   |        | 34,673  |  
|                                                 | Reimbursement (payment) of debt costs, net                                                  |   |                                  | 369     |      |   |                | (1,906   | ) |   |        | (878    | )
|                                                 | Exercises of stock options and issuances of
common stock under employee stock purchase
plan |   |                                  | 1,219   |      |   |                | 1,256    |   |   |        | 2,337   |  
|                                                 | Interest receivable from officer                                                            |   |                                  | (58     | )    |   |                | (322     | ) |   |        | (226    | )
|                                                 |                                                                                             |   |                                  |         |      |   |                |          |   |   |        |         |  
|                                                 |                                                                                             |   | (30,583                          | )       |      |   | (65,823        | )        |   |   | 35,660 |        
|                                                 |                                                                                             |   |                                  |         |      |   |                |          |   |   |        |         |  
|Increase (decrease) in cash and cash equivalents |                                                                                             |   | (8,060                           | )       |      |   | (1,114         | )        |   |   | 3,089  |        
|Cash and cash equivalents at beginning of period |                                                                                             |   | 15,743                           |         |      |   | 16,857         |          |   |   | 13,768 |        
|                                                 |                                                                                             |   |                                  |         |      |   |                |          |   |   |        |         |  
|Cash and cash equivalents at end of period       |                                                                                             | $ | 7,683                            |         |      | $ | 15,743         |          |   | $ | 16,857 |        
|                                                 |                                                                                             |   |                                  |         |      |   |                |          |   |   |        |         |  

Supplemental Disclosures of Cash Flow Information:

|                               |              |  |                                  |        |      |  |                |        |  |  |   |        | 
|------------------------------ | ------------ |  | -------------------------------- | ------ | ---- |  | -------------- | ------ |  |  | - | ------ | 
|                               |              |  | For the years ended December 31,
|                               |              |  |                                 
|                               |              |  | 2002                             |        | 2001 |  | 2000          
|                               |              |  |                                  |        |      |  |               
|                               |              |  |                                  |        |      |  | (In thousands) |        |  |  |  
|Cash paid during the year for: |              |  |                                  |        |      |  |                |        |  |  |   |       
|                               | Interest     |  | $                                | 16,731 |      |  | $              | 21,114 |  |  | $ | 27,611 | 
|                               | Income taxes |  | $                                | 10,465 |      |  | $              | 8,489  |  |  | $ | 13,028 | 

Non-cash investing and financing activities:On May 31, 2002, Applica
Consumer Products, Inc., the Companys U.S. operating subsidiary, purchased all
of the outstanding shares of Weitech, Inc. in exchange for $17.0 million in
cash and $3.0 million of notes payable.

The accompanying notes are an integral part of these financial statements.

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##### Table of Contents






Applica Incorporated and Subsidiaries
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

NOTE A  SUMMARY OF ACCOUNTING POLICIES

Overview

Applica Incorporated and its subsidiaries (collectively, the Company or
Applica) are manufacturers, marketers and distributors of a broad range of
branded and private-label small electric consumer goods. In 1998, the Company
acquired the Black & Decker Household Products Group and became a leading
supplier of brand name small household appliances in North and Latin America.
The Company also manufactures and distributes professional personal care
products, home environment products, pet care products, including the
LitterMaid® self-cleaning cat litter box, and pest control products. The
Company manufactures and markets products under licensed brand names, such as
Black & Decker®, their own brand names, such as Windmere® and Applica®, and
other private-label brand names. Its customers include mass merchandisers,
specialty retailers and appliance distributors primarily in North America,
Latin America and the Caribbean.

The Company operates manufacturing facilities in China and Mexico. In
2002, approximately 76% of the products sold by Applica were manufactured in
such facilities. In addition, the Company manufactures products for other
consumer products companies.

Applica applied the provisions of SFAS 142, Goodwill and Other Intangible
Assets, beginning on January 1, 2002. SFAS 142 established new accounting and
reporting requirements for goodwill and other intangible assets. Applica did
not adopt any other accounting policies during 2002.

The preparation of Applicas financial statements in conformity with
accounting principles generally accepted in the United States of America
requires management to make estimates and assumptions that affect the reported
amounts of assets and liabilities at the date of the financial statements and
revenues and expenses during the period. Future events and their effects
cannot be determined with absolute certainty; therefore, the determination of
estimates requires the exercise of judgment. Actual results inevitably will
differ from those estimates, and such differences may be material to our
financial statements. Management continually evaluates its estimates and
assumptions, which are based on historical experience and other factors that
are believed to be reasonable under the circumstances. These estimates and
Applicas actual results are subject to the risk factors listed in Item 1.
Business of the Form 10-K for the year ended December 31, 2002.

Management believes that the following may involve a higher degree of
judgment or complexity:

Collectibility of Accounts Receivable. Applicas allowance for doubtful
accounts is based on managements estimates of the creditworthiness of its
customers, current economic conditions and historical information, and, in the
opinion of management, is believed to be an amount sufficient to respond to
normal business conditions. Management sets specific reserves for customers
in bankruptcy and other reserves for the remaining customers based upon
historical collection experience. Should business conditions deteriorate or
any major customer default on its obligations to Applica, this allowance may
need to be significantly increased, which would have a negative impact upon
Applicas operations. For example, during the fourth quarter of 2002,
management increased the allowance by $4.3 million as the result of the further
deterioration of one of Applicas significant customers.

Reserves on Inventories. Applica establishes a reserve based on historical
experience and specific reserves when it is apparent that the expected
realizable value of an inventory item falls below its original cost. A charge
to operations results when the estimated net realizable value of inventory
items declines below cost. Management regularly reviews Applicas investment in
inventories for declines in value.

Income Taxes. Significant management judgment is required in developing
Applicas provision for income taxes, including the determination of foreign
tax liabilities, deferred tax assets and liabilities and any valuation
allowances that might be required against the deferred tax assets. At December
31, 2002 and 2001, Applica had deferred tax assets in excess of deferred tax
liabilities of $83.2 million and $41.9 million, respectively. Applica
determined that it was more likely than not that $73.0 million and $31.7
million of such assets will be realized, resulting in a valuation allowance of
$10.2 million in 2002 and 2001. Applica evaluates quarterly its ability to
realize its deferred tax assets and adjusts the amount of its valuation
allowance, if necessary. Applica operates

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Applica Incorporated and Subsidiaries
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS  CONTINUED

within multiple taxing jurisdictions
and is subject to audit in those jurisdictions. Because of the complex issues
involved, any claims can require an extended period to resolve. In
managements opinion, adequate provisions for income taxes have been made.

Goodwill. On an annual basis, management assesses the composition of
Applicas assets and liabilities, as well as the events that have occurred and
the circumstances that have changed since the most recent fair value
determination. If events occur or circumstances change that would more likely
than not reduce the fair value of goodwill below its carrying amount, goodwill
will be tested for impairment. Applica will recognize an impairment loss if
the carrying value of the asset exceeds the fair value determination. During
the first quarter of 2002, Applica recorded a write-down of its goodwill of
$121.3 million ($78.8 million, net of tax).

Long-Lived Assets. Applica reviews long-lived assets and certain
identifiable intangibles held and used for possible impairment whenever events
or changes in circumstances indicate that the carrying amount of an asset may
not be recoverable. In evaluating the fair value and future benefits of its
intangible assets, management performs an analysis of the anticipated
undiscounted future net cash flows of the individual assets over the remaining
amortization period. Applica recognizes an impairment loss if the carrying
value of the asset exceeds the expected future cash flows. For example, in the
fourth quarter of 2000, Applica recorded a $3.2 million write-down of certain
intangible assets associated with Kmart Corporations decision to terminate its
long-term supply contract for White-Westinghouse electronic products and
Applicas intention not to re-market such products to another company. In the
fourth quarter of 2001, an additional write-down of $1.2 million was recorded
as a result of a bankruptcy petition filed by Kmart Corporation. In 2002, the
Company abandoned leasehold improvements at its China facility. These
leaseholds related to streamlining its manufacturing and distribution and had a
net book value of $2.5 million. In addition, with the closing of the Shelton
office, the Company disposed of certain leasehold and other fixed assets with a
net book value of $1.1 million.

Reserves for Product Liability Claims and Litigation. Applica is subject
to various legal proceedings, product liability claims and other claims in the
ordinary course of its business. Management estimates the amount of ultimate
liability, if any, with respect to such matters in excess of applicable
insurance coverage based on historical claims experience and current claim
amounts, as well as other available facts and circumstances. As the outcome of
litigation is difficult to predict and significant estimates are made with
regard to future events, significant changes from estimated amounts could
occur. For example, Applica increased its reserve for product liability claims
and litigation by $1.0 million in 2002.

Product Recall Liability. Applica is subject to potential product recalls.
Management estimates the amount of ultimate liability based on discussions
with the Consumer Product Safety Commission and historical claims experience.
For example, in February 2002, we voluntarily recalled our Black & Decker®
branded T1200 and T1400 toasters. Applica charged the 2001 operations with an
estimated reserve of $13.4 million for this recall. Applica has charged $8.7
million against this reserve through December 31, 2002. While the Company
believes that the reserve is adequate, there can be no assurance that
significant future adjustments will not be required.

Other Estimates. Applica makes a number of other estimates in the
ordinary course of business relating to sales returns and allowances, warranty
reserves, and reserves for promotional incentives. Historically, past changes
to these estimates have not had a material impact on our financial condition.
However, circumstances could change which may alter future expectations.

Principles of Consolidation

The consolidated financial statements include the accounts of Applica
Incorporated and its wholly-owned subsidiaries. Generally, the Company uses
the equity method of accounting for its investments. Intercompany balances
and transactions have been eliminated in consolidation.

Foreign Currency Translation

For subsidiaries where the local currency is the functional currency,
assets and liabilities are translated into United States dollars at the
exchange rate in effect at the end of the year. Revenues and expenses of these
subsidiaries are translated at the average exchange rate during the year. The
aggregate effect of translating the
financial statements of these foreign subsidiaries is included in a
separate component of shareholders equity entitled Accumulated Other
Comprehensive Earnings (Loss). For countries where business is transacted
predominantly in

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Applica Incorporated and Subsidiaries
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS  CONTINUED

U.S. dollars or is deemed to be hyper-inflationary, the U.S.
dollar is the functional currency and monetary balance sheet accounts are
translated at the exchange rate in effect at the end of the year and
non-monetary balance sheet accounts are translated at historical exchange
rates. Income and expense accounts are translated at the average exchange
rates in effect during the year. Adjustments resulting from the translation of
these entities are included in operations.

Cash and Cash Equivalents

The Company considers all highly liquid investments with maturities of
three months or less at the time of purchase to be cash equivalents. Cash
balances at December 31, 2002 and 2001 include approximately $3.6 million and
$14.3 million, respectively, held in foreign banks by the Companys Hong Kong,
Canadian and Latin American subsidiaries.

Comprehensive Earnings

Comprehensive earnings (loss) is defined as the change in equity of a
business enterprise during a period from transactions and other events and
circumstances from non-owner sources, including foreign currency translation
adjustments and unrealized gains and losses on derivatives designated as cash
flow hedges. The Company presents accumulated other comprehensive earnings
(loss) net of taxes in its consolidated statement of shareholders equity.

Receivables from Affiliates

Receivables from affiliates include accounts and notes receivable due from
the Companys joint venture partner and certain of the Companys executive
officers. Notes receivable from executive officers are primarily due on June
30, 2003 or upon termination of the applicable employment contract, and bear
interest at prevailing market interest rates. One note receivable from an
executive officer is due upon demand and bears interest at LIBOR plus 1.5%
(3.38% at December 31, 2002). The note receivable from the joint venture
partner is due upon demand and bears interest at prevailing market rates and
was paid in full in September 2002.

Inventories

Inventories are stated at the lower of cost or market; cost is determined
by the first-in, first-out method. Inventories are comprised of the following:

|                |  |                |         |      |  |   |         | 
|--------------- |  | -------------- | ------- | ---- |  | - | ------- | 
|                |  | 2002           |         | 2001
|                |  |                |         |     
|                |  | (In thousands)
|Raw materials   |  | $              | 4,103   |      |  | $ | 4,264   | 
|Work in process |  |                | 1,513   |      |  |   | 4,039   | 
|Finished goods  |  |                | 105,837 |      |  |   | 95,413  | 
|                |  |                |         |      |  |   |         | 
|                |  | $              | 111,453 |      |  | $ | 103,716 | 
|                |  |                |         |      |  |   |         | 

Inventory allowances were $4.3 million and $2.8 million at December 31, 2002
and 2001, respectively.

Reclassifications

Certain prior period amounts have been reclassified to conform with the
current year presentation.

Revenue Recognition

The Company recognizes sales and related cost of sales at the later of (a)
the time of shipment or (b) when title passes to the customers, all significant
contractual obligations have been satisfied and collection of the resulting
receivable is reasonably assured. Net sales is comprised of gross sales less
provisions for estimated customer
returns, discounts, vendor payments and volume rebates. Any shipping,
handling or other costs incurred by the Company associated with the sale are
expensed as cost of sales in the period when the sale occurred.

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Applica Incorporated and Subsidiaries
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS  CONTINUED

Property, Plant and Equipment

Property, plant and equipment are recorded at cost. Depreciation and
amortization are provided for in amounts sufficient to relate the cost of
depreciable assets to their estimated operating service lives using accelerated
and straight-line methods.

Warranty

Estimated future warranty obligations related to certain products are
provided by charges to operations in the period in which the related revenue is
recognized. Accrued product warranties as of December 31, 2002, 2001 and 2000
were as follows:

|                             |                            |   |                |         |  
|---------------------------- | -------------------------- | - | -------------- | ------- | -
|                             |                            |   | (In thousands)
|Balance at December 31, 2000 |                            | $ | 3,392          |        
|                             | Accrued product warranties |   |                | 24,997  |  
|                             | Reductions                 |   |                | (24,700 | )
|                             |                            |   |                |        
|Balance at December 31, 2001 |                            |   | 3,689          |        
|                             | Accrued product warranties |   |                | 24,500  |  
|                             | Reductions                 |   |                | (22,491 | )
|                             |                            |   |                |        
|Balance at December 31, 2002 |                            | $ | 5,698          |        

Stock Based Compensation

At December 31 2002, the Company had four active stock based compensation
plans, which are described more fully in Note K  Shareholders Equity. The
Company accounts for stock-based compensation using the intrinsic value method.
Accordingly, compensation cost for stock options issued is measured as the
excess, if any, of the fair value of the Companys common stock at the date of
grant over the exercise price of the options. The Companys net earnings
(loss) and earnings (loss) per share would have been changed to the pro forma
amounts indicated below had compensation cost for the stock option plans and
non-qualified options issued to employees been determined based on the fair
value of the options at the grant dates consistent with the method of SFAS 123.

|                                   |             |  |                                       |         |      |  |      |         |   |  |   |         |  
|---------------------------------- | ----------- |  | ------------------------------------- | ------- | ---- |  | ---- | ------- | - |  | - | ------- | -
|                                   |             |  | 2002                                  |         | 2001 |  | 2000
|                                   |             |  |                                       |         |      |  |     
|                                   |             |  | (In thousands, except per share data)
|Net earnings (loss):               |             |  |                                       |         |      |  |      |         |   |  |   |        
|                                   | As reported |  | $                                     | (73,777 | )    |  | $    | (28,438 | ) |  | $ | (21,216 | )
|                                   | Pro forma   |  | $                                     | (74,793 | )    |  | $    | (33,113 | ) |  | $ | (27,157 | )
|Basic earnings (loss) per share:   |             |  |                                       |         |      |  |      |         |   |  |   |        
|                                   | As reported |  | $                                     | (3.15   | )    |  | $    | (1.23   | ) |  | $ | (0.92   | )
|                                   | Pro forma   |  | $                                     | (3.19   | )    |  | $    | (1.43   | ) |  | $ | (1.18   | )
|Diluted earnings (loss) per share: |             |  |                                       |         |      |  |      |         |   |  |   |        
|                                   | As reported |  | $                                     | (3.10   | )    |  | $    | (1.23   | ) |  | $ | (0.92   | )
|                                   | Pro forma   |  | $                                     | (3.14   | )    |  | $    | (1.43   | ) |  | $ | (1.18   | )

The above pro forma disclosures may not be representative of the effects
on reported net earnings (loss) for future years as options vest over several
years and the Company may continue to grant options to employees.

In accordance with the requirements of SFAS 123, the fair value of each
option grant was estimated on the date of grant using a binomial option-pricing
model with the following weighted-average assumptions used for
grants in 2002, 2001 and 2000, respectively: no dividend yield for all
years; expected volatility ranging from 93.3% to 96.5% for 2002, 82.9% to 86.0%
for 2001 and 77.0% to 79.5% for 2000; risk-free interest rates of 5.3% in 2002
and 2001, and 6.7% in 2000; and expected holding periods of 4 years in 2002,
2001 and 2000.

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Applica Incorporated and Subsidiaries
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS  CONTINUED

Goodwill and Other Intangible Assets

Prior to January 1, 2002, intangible assets, consisting primarily of
goodwill, were being amortized on a straight line basis over periods ranging
from 2.5 to 40 years. In June 2001, the Financial Accounting Standards Board
issued SFAS 142, Goodwill and Other Intangible Assets, which established new
accounting and reporting requirements for goodwill and other intangible assets.
The new standard requires that all intangible assets acquired that are
obtained through contractual or legal right, or are capable of being separately
sold, transferred, licensed, rented or exchanged must be recognized as an asset
apart from goodwill. Goodwill and intangibles with indefinite lives are no
longer amortized, but are subject to an annual assessment for impairment by
applying a fair value based test.

Applica applied the provisions of SFAS 142 beginning on January 1, 2002
and performed a transitional fair valued based impairment test. Based on the
initial impairment test, Applica recognized a non-cash adjustment of $121.3
million ($78.8 million, net of tax) in the first quarter of 2002 to reduce the
carrying value of goodwill to its implied fair value, which was estimated using
a combination of market-multiples, comparable transactions and discounted cash
flow methodologies. Under SFAS 142, the impairment adjustment was reflected as
a cumulative effect of change in accounting principle in the first quarter of
2002. In accordance with the provisions of SFAS 142, Applica will no longer
record annual amortization of approximately $5.0 million per year. In
connection with adopting SFAS 142, Applica also reassessed the useful lives and
the classifications of its identifiable intangible assets and determined that
they continue to be appropriate.

As of June 30, 2002, the Company performed its annual fair value
assessment and determined that no additional impairment charge was necessary.

Other intangible assets are being amortized on a straight-line basis over
periods ranging from two to 15 years. Other intangible assets were $69.4
million and $64.9 million at December 31, 2002 and 2001, respectively, and the
related accumulated amortization was $48.5 million and $40.2 million,
respectively.

In the fourth quarter of 2000, the Company recorded a $3.2 million
write-down of certain intangible assets associated with Kmart Corporations
decision to terminate its long-term supply contract for White-Westinghouse®
electronic products and the Companys intention not to re-market such products
to another company. In the fourth quarter of 2001, an additional write-down of
$1.2 million was recorded as a result of a bankruptcy petition filed by Kmart
Corporation. On December 31, 2002, Applica terminated the White Westinghouse
license agreement.

Long-Lived Assets

Long-lived assets and certain identifiable intangible assets to be held
and used are reviewed for impairment whenever events or changes in
circumstances indicate that the carrying amount of such assets may not be
recoverable. Determination of recoverability is based on an estimate of
undiscounted future cash flows resulting from the use of such asset and
eventual disposition. Measurement of an impairment loss for long-lived assets
and certain identifiable intangible assets that management expects to hold and
use is based on the fair value of the asset. Long-lived assets and certain
identifiable intangible assets to be disposed of are reported at the lower of
carrying amount or fair value less costs to sell.

Risk Management Contracts

The Company designates its derivatives based upon criteria established by
SFAS 133. For a derivative designated as a fair value hedge, the gain or loss
is recognized in earnings in the period of change together with the offsetting
loss or gain on the hedged item attributed to the risk being hedged. For a
derivative designated as a cash flow hedge, the effective portion of the
derivatives gain or loss is initially reported as a component of accumulated
other comprehensive earnings (loss) and subsequently reclassified into earnings
when the hedged exposure affects
earnings. The ineffective portion of the gain or loss is reported in
earnings immediately. For derivatives that do not meet the criteria for hedge
accounting, the gain or loss is recognized in earnings immediately.

The Company uses derivatives to manage exposures to foreign currency and
interest rate risk. The Companys objectives for holding derivatives are to
decrease the volatility of earnings and cash flows associated with changes in
foreign currency and interest rates.

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Applica Incorporated and Subsidiaries
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS  CONTINUED

During 2002 and 2001, there were no significant gains or losses recognized
in earnings for hedge ineffectiveness. The Company did not discontinue any
hedges during 2002 or 2001 because it was probable that the original forecasted
transaction would not occur.

In the normal course of business, the Company uses a variety of financial
instruments to manage its exposure to fluctuations in interest and foreign
currency exchange rates, including interest rate and currency swap agreements,
forward and option contracts, and interest rate caps. The Company designates
and assigns the financial instruments as hedges of forecasted transactions,
specific assets, or specific liabilities. When hedged assets or liabilities
are sold or extinguished or the forecasted transactions being hedged are no
longer expected to occur, the Company recognizes the gain or loss on the
designated hedging financial instrument.

Option premiums and unrealized losses on forward contracts and the accrued
differential for interest rate and currency swaps to be received under the
agreements are recorded in the balance sheet as other comprehensive earnings
(loss). Unrealized gains on forward and option contracts and the accrued
differential for interest rate swaps to be paid under the agreements are
included in other liabilities. Realized gains and losses from hedges are
classified in the income statement consistent with the accounting treatment of
the item being hedged. The Company accrues the differential for interest rate
swaps to be paid or received under the agreements as interest rates shift as
adjustments to net interest expense over the lives of the swaps. Gains and
losses on the termination of effective swap agreements, prior to their original
maturity, are deferred and amortized to net interest expense over the remaining
term of the underlying hedged transactions.

Income Taxes

Deferred taxes have been provided on temporary differences in reporting
transactions for financial accounting and tax purposes. The Company provides a
valuation allowance against its deferred tax assets when it believes that it is
more likely than not that the asset will not be realized.

The Company repatriated approximately $20.7 million, $31.4 million and
$16.3 million from its foreign operations in 2002, 2001 and 2000, respectively.
Accordingly, these earnings were taxed based on U.S. statutory rates. No
provision has been made for U.S. taxes on the remaining undistributed earnings
of the Companys foreign subsidiaries of approximately $148 million at December
31, 2002 and $154 million at December 31, 2001, as it is anticipated that such
earnings would be reinvested in their respective operations or in other foreign
operations. The Company does not intend in the foreseeable future to
permanently reinvest current and future earnings of certain of its foreign
subsidiaries outside of the United States.

Advertising Costs

Advertising costs are expensed as incurred and are included in selling,
general and administrative expenses. Total advertising costs for the years
ended December 31, 2002, 2001 and 2000 totaled approximately $34.2 million,
$23.9 million and $25.0 million, respectively.

Earnings (Loss) Per Share

Basic net earnings (loss) per share equals net earnings (loss) divided by
the weighted average shares outstanding during the year. The computation of
diluted net earnings (loss) per share includes the dilutive effect of common
stock equivalents in the weighted average shares outstanding. The
reconciliation between the computations is as follows:

|     |  |                                       |         |        |  |       |        |         |  |         |       |   |  |  |        |  |  |   |       |  
|---- |  | ------------------------------------- | ------- | ------ |  | ----- | ------ | ------- |  | ------- | ----- | - |  |  | ------ |  |  | - | ----- | -
|     |  | Net Earnings                          |         | Basic  |  | Basic |        | Diluted |  | Diluted
|     |  | (Loss)                                |         | Shares |  | EPS   |        | Shares  |  | EPS    
|     |  |                                       |         |        |  |       |        |         |  |        
|     |  | (In thousands, except per share data) |         |        |  |      
|2002 |  | $                                     | (73,777 | )      |  |       | 23,415 |         |  | $       | (3.15 | ) |  |  | 23,818 |  |  | $ | (3.10 | )
|2001 |  | $                                     | (28,438 | )      |  |       | 23,135 |         |  | $       | (1.23 | ) |  |  | 23,135 |  |  | $ | (1.23 | )
|2000 |  | $                                     | (21,216 | )      |  |       | 22,947 |         |  | $       | (0.92 | ) |  |  | 22,947 |  |  | $ | (0.92 | )

Included in diluted shares are the dilutive effect of common stock
equivalents relating to options of 403,275 for the year ended December 31,
2002. Common stock equivalents have been excluded from the diluted per share
calculations in 2001 and 2000, respectively, as the Company incurred a net loss
before cumulative effect of change

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Applica Incorporated and Subsidiaries
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS  CONTINUED

in accounting principle in those years and
their inclusion would have been anti-dilutive. Potential common stock
equivalents at December 31, 2001 and 2002 were 4,216,373 and 642,964 with
exercise prices ranging from $3.63 to $31.69 per share and $7.60 to $31.69 per
share, respectively.

Loss on Sale of Asset

In 2000, the Company decided to exit and sell substantially all of the
assets of a non-strategic business and, as a result, recorded a loss of $3.6
million based on the expected realizable value of the assets. The business was
sold in 2001 and no additional gain or loss was recognized.

Repositioning and Other Charges

2002 and 2001. In the fourth quarter of 2001, the Company recorded
charges relating to several events in the aggregate amount of $28.2 million.
These charges included $6.8 million relating to the Companys decision to
consolidate its Shelton, Connecticut office with the headquarters located in
Miami Lakes, Florida, as well as certain back-office and supply chain functions
in Canada and Latin America. This facilities consolidation resulted in a
reduction of approximately 70 employees worldwide. In addition, $5.2 million
of such charges related to the write-off of fees and expenses of the Companys
terminated credit facility as the Company executed a new four-year senior
secured revolving credit facility. Also included in the charge were $1.5
million relating to the devaluation of the Argentinean peso and $1.0 million
related to the settlement of the shareholder class action litigation.
Additionally, in 2001, the Company took a charge to cost of sales of
$13.4 million relating to the toaster recall discussed below. As of
December 31, 2001, no amounts had been charged against the accrual. In 2002,
the Company incurred an additional $10.6 million in charges relating to its
decision to consolidate facilities and functions. These expenses did not
qualify for accrual at December 31, 2001.

Additionally, in the fourth quarter of 2001, the Company received a
dividend from its foreign operations of $31.4 million, which resulted in a
$10.1 million tax expense for previously untaxed earnings.

In February 2002, Applica Consumer Products, Inc., in cooperation with the
Consumer Products Safety Commission, voluntarily recalled approximately 2.1
million Black & Decker® T1200 and T1400 toasters. The Companys Canadian
operating subsidiary, Applica Canada Corporation, also recalled approximately
180,000 of these toasters in Canada. In 2001, the Company took a charge to
cost of sales of $13.4 million relating to the estimated expenses of such
recalls. As of December 31, 2002, $8.7 million had been charged against the
accrual.

Accrued liabilities relating to the 2001 repositioning and other charges
were as follows:

|                          |  |               |        |               |  |                |        |               |  |        |        |  |  |   |        | 
|------------------------- |  | ------------- | ------ | ------------- |  | -------------- | ------ | ------------- |  | ------ | ------ |  |  | - | ------ | 
|                          |  |               |        |               |  | Additional     |        |               |  |        |        |  |  |  
|                          |  | Amount        |        | Repositioning |  |                |        |               |  | Amount
|                          |  | Accrued at    |        | Expenses      |  | 2002           |        | Accrued at   
|                          |  | Dec. 31, 2001 |        | during 2002   |  | Payments       |        | Dec. 31, 2002
|                          |  |               |        |               |  |                |        |              
|                          |  |               |        |               |  | (In thousands) |        |               |  |       
|Recall                    |  | $             | 13,417 |               |  | $              |       |               |  | $      | 8,654  |  |  | $ | 4,763  | 
|Back-office consolidation |  |               | 5,179  |               |  |                | 10,643 |               |  |        | 9,866  |  |  |   | 5,956  | 
|Shareholder litigation    |  |               | 1,000  |               |  |                |       |               |  |        | 550    |  |  |   | 450    | 
|                          |  |               |        |               |  |                |        |               |  |        |        |  |  |   |        | 
|                          |  | $             | 19,596 |               |  | $              | 10,643 |               |  | $      | 19,070 |  |  | $ | 11,169 | 
|                          |  |               |        |               |  |                |        |               |  |        |        |  |  |   |        | 

2000.     In the fourth quarter of 2000, the Company entered into an alliance
with a consumer packaged goods company to develop, manufacture and distribute
new products. In conjunction with the development arrangement, the Company
expanded its existing manufacturing capacity, exited various non-strategic
product lines, including certain retail personal care items, and re-allocated
Company resources. These activities resulted in non-cash charges totaling
$34.1 million in the fourth quarter of 2000. Charges associated with the
writedown of low margin and non-strategic inventory items total approximately
$30.1 million and were recorded as cost of sales. As of December 31, 2000,
there were outstanding inventory reserves of approximately $8.7 million,
related to these repositioning charges, which resulted from the write down of
inventory to net realizable value. As of December 31, 2001, there were no
outstanding inventory reserves related to the 2000 repositioning charge. The
remaining $4.0 million of repositioning charges was included in selling,
general and administrative expenses, of which $3.2 million related to the write
down of certain intangible assets associated with Kmart Corporations decision
to terminate its long-term

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Applica Incorporated and Subsidiaries
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS  CONTINUED

supply contract for White-Westinghouse® electronic
products and the Companys intention not to re-market such products to another
company.

Additionally, in the fourth quarter of 2000, the Company received a
dividend from its foreign operations of $16.3 million, which resulted in a $4.9
million tax expense for previously untaxed earnings.

Gain on Litigation Settlement

In September 2002, Applica and Salton, Inc. entered into a settlement
agreement in the matter 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. In connection with such
settlement, Applica reported a gain of $557,000 in the third quarter of 2002.

Indemnification

The Company
indemnifies its officers and directors against costs and expenses
related to shareholder and other claims made in connection with
actions taken in their capacity as officers and directors, which are
not covered by the Companys directors and officers insurance
policy. This indemnification is ongoing and does not include a limit
on the maximum potential future payments, nor is there any collateral
that may offset the cost or recourse provisions, other than those
provided by Florida law. As of December 31, 2002, the Company
had not recorded a liability for any obligations arising as a result
of these indemnifications.

Recent Accounting Pronouncements

In July 2002, the FASB issued Statement No. 146, Accounting for
Restructuring Costs, (SFAS 146). SFAS 146 applies to costs associated with
an exit activity (including restructuring) or with a disposal of long-lived
assets. Those activities can include eliminating or reducing product lines,
terminating employees and contracts and relocating plant facilities or
personnel. SFAS 146 is effective prospectively for exit or disposal activities
initiated after December 31, 2002, with earlier adoption encouraged. The
Company does not believe the adoption of this standard will have a material
impact on the financial statements.

In December 2002, the FASB issued Statement No. 148, Accounting for
Stock-Based Compensation-Transition and Disclosure an amendment of FASB
Statement No. 123 (SFAS 143). SFAS 148 amends FASB Statement No. 123,
Accounting for Stock-Based Compensation, to provide alternative methods of
transition for an entity that voluntarily changes to the fair value based
method of accounting for stock-based employee compensation and to require
prominent disclosures about the effects on reported net income of an entitys
accounting policy decisions with respect to stock-based employee compensation.
SFAS 148 also amends APB Opinion No. 28, Interim Financial Reporting, to
require disclosures about those effects in interim financial information.
Applica currently accounts for its stock-based compensation awards to employees
and directors under the accounting prescribed by Accounting Principles Board
Opinion No. 25 and provides the disclosures required by SFAS No. 123. Applica
currently intends to continue to account for its stock-based compensation
awards to employees and directors under the accounting prescribed by Accounting
Principles Board Opinion No. 25 and will adopt the additional disclosure
provisions of SFAS 148 during the first quarter of its year ending December 31,
2003.

In December 2002, the FASB issued Interpretation 45 (FIN 45), Guarantors
Accounting and Disclosure Requirements for Guarantees, Including Indirect
Guarantees of Indebtedness of Others. For a guarantee subject to FASB
Interpretation 45, a guarantor is required to:



| |  |  | measure and recognize the fair value of the guarantee at inception
(for many guarantees, fair value will be determined using a present
value method); and                                                                                                                                                                                                                                           
| | - |  | ----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
|
| |  |  | provide new disclosures regarding the nature of any guarantees, the
maximum potential amount of future guarantee payments, the current
carrying amount of the guarantee liability, and the nature of any
recourse provisions or assets held as collateral that could be liquidated and
allow the guarantor to recover all or a portion of its payments in the
event guarantee payments are required.

The disclosure requirement of this Interpretation is effective for financial
statements for fiscal years ending after December 15, 2002 and did not have a
material effect on Applica financial statements. The initial recognition and
measurement provision are effective prospectively for guarantees issued or
modified on or after January 1, 2003, which should not have a material effect
on Applicas financial statements.

NOTE B  INVESTMENT IN JOINT VENTURES

Investment in joint ventures consists of the Companys 50% interest in
Anasazi Partners, L.P. and 50% interest in a Florida limited liability company,
which are accounted for under the equity method.

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Applica Incorporated and Subsidiaries
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS  CONTINUED

At December 31,
2002 and 2001, the Companys investment in Anasazi
Partners totaled approximately $1.2 million and $1.4 million, respectively.
There were no loans to the partnership or its other equity partner at December
31, 2002. Loans to the partnership and its other equity partner totaled $1.8
million at December 31, 2001 and were included in receivables from affiliates.
Anasazis investments include certain privately traded securities whose
values have been estimated by the general partner in the absence of readily
ascertainable market values. Fair value of these securities may differ
significantly from the values that would have been used had a ready market for
the securities existed. Any change from the estimated values could have a
significant impact on the Companys operations.

NOTE C  ACQUISITIONS

On May 31, 2002, Applica Consumer Products, Inc., the Companys U.S.
operating subsidiary, purchased all of the outstanding stock of Weitech, Inc.,
an electronic pest control company, for approximately $17.0 million in cash and
the issuance of $3.0 million of notes payable. The acquisition was accounted
for as a purchase in accordance with SFAS 141 and accordingly, the purchase
price was allocated based on the estimated fair market values of the
identifiable assets and liabilities obtained, resulting in original goodwill of
approximately $9.6 million. Goodwill will not be amortized in the future but
will be evaluated for impairment in accordance with the provisions of SFAS 142.
During the fourth quarter of 2002, the Company changed its preliminary
allocation of certain acquired identified intangible assets and, accordingly,
reclassified $3.7 million from other intangible assets to goodwill resulting in
goodwill of $13.3 million as of December 31, 2002. This goodwill is
attributable to the general reputation of the business and the collective
experience of the management and other employees, and was calculated as
follows:

|                                                  |                                                                 |   |                |        | 
|------------------------------------------------- | --------------------------------------------------------------- | - | -------------- | ------ | 
|                                                  |                                                                 |   | (In thousands)
|Cash consideration paid                           |                                                                 | $ | 17,002         |       
|Notes payable issued                              |                                                                 |   | 3,000          |       
|                                                  |                                                                 |   |                |       
|                                                  | Total consideration                                             |   |                | 20,002 | 
|Less: Fair value of identifiable assets acquired: |                                                                 |   |                |       
|                                                  | Cash                                                            |   |                | 210    | 
|                                                  | Accounts receivable, net                                        |   |                | 2,683  | 
|                                                  | Inventory                                                       |   |                | 1,124  | 
|                                                  | Other assets                                                    |   |                | 433    | 
|                                                  | Property and equipment                                          |   |                | 280    | 
|                                                  |                                                                 |   |                |       
|                                                  |                                                                 |   | 4,730          |       
|Plus: Fair value of liabilities assumed:          |                                                                 |   |                |       
|                                                  | Accounts payable and accrued expenses                           |   |                | 1,550  | 
|                                                  | Deferred tax liability                                          |   |                | 43     | 
|                                                  |                                                                 |   |                |       
|                                                  |                                                                 |   | 1,593          |       
|Less:                                             |                                                                 |   |                |       
|Fair value of non-compete agreements (1)          |                                                                 |   | 3,271          |       
|Fair value of tradename                           |                                                                 |   | 270            |       
|                                                  |                                                                 |   |                |       
|                                                  | Excess of cost over fair value of net assets acquired; goodwill |   | $              | 13,324 | 
|                                                  |                                                                 |   |                |       



---

|(1) |  | Identifiable intangible assets subject to amortization.
|--- |  | -------------------------------------------------------

The results of operations of Weitech, Inc. were included in the
accompanying consolidated statement of operations since the date of the
acquisition. Applica has omitted the unaudited pro forma results of operations
showing the business combination as if it had occurred at the beginning of each
period presented because the results are not significant to the December 31,
2002 consolidated financial statements.

NOTE D  GOODWILL AND OTHER INTANGIBLE ASSETS

In June 2001, the Financial Accounting Standards Board approved the
issuance of SFAS 142, Goodwill and Other Intangible Assets, which establishes
new accounting and reporting requirements for goodwill and other intangible
assets. The new standards required that all intangible assets acquired that are
obtained through contractual

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Applica Incorporated and Subsidiaries
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS  CONTINUED

or legal right, or are capable of being separately
sold, transferred, licensed, rented or exchanged, must be recognized as an
asset apart from goodwill. Goodwill and intangibles with indefinite lives are
no longer amortized, but are subject to an annual assessment for impairment by
applying a fair value based test.

Applica applied the provisions of SFAS 142 beginning on January 1, 2002
and performed a transitional fair valued based impairment test. Based on the
initial impairment test, Applica recognized a non-cash adjustment of $121.3
million ($78.8 million, or $3.31 per diluted share, net of tax) in the first
quarter of 2002 to reduce the carrying value of goodwill to its implied fair
value, which was estimated using a combination of market-multiples, comparable
transactions and discounted cash flow methodologies. Under SFAS 142, the
impairment adjustment was reflected as a cumulative effect of change in
accounting principle in the first quarter of 2002. Pursuant to the provisions
of SFAS 142, Applica will no longer record annual amortization of approximately
$5.0 million per year. In connection with adopting SFAS 142, Applica also
reassessed the useful lives and the classifications of its identifiable
intangible assets and determined that they continue to be appropriate.

The carrying amount of goodwill is as follows:

|                                                                |                                             |   |                |          |  
|--------------------------------------------------------------- | ------------------------------------------- | - | -------------- | -------- | -
|                                                                |                                             |   | (In thousands)
|Goodwill, net of accumulated amortization, at December 31, 2001 |                                             | $ | 170,764        |         
|                                                                | Impairment Adjustment                       |   |                | (121,276 | )
|                                                                | Addition resulting from Weitech acquisition |   |                | 13,324   |  
|                                                                |                                             |   |                |         
|Balance at December 31, 2002                                    |                                             | $ | 62,812         |         
|                                                                |                                             |   |                |         

The components of Applicas intangible assets subject to amortization are
as follows:

|               |  |              |     |        |  |                   |        |                   |  |              |         |             |  |   |        |  |  |   |         |  
|-------------- |  | ------------ | --- | ------ |  | ----------------- | ------ | ----------------- |  | ------------ | ------- | ----------- |  | - | ------ |  |  | - | ------- | -
|               |  |              |     |        |  | December 31, 2002 |        | December 31, 2001
|               |  |              |     |        |  |                   |        |                  
|               |  |              |     |        |  | Gross             |        |                   |  |              |         | Gross       |  |   |        | 
|               |  |              |     |        |  | Carrying          |        | Accumulated       |  | Carrying     |         | Accumulated
|               |  | Average Life |     | Amount |  | Amortization      |        | Amount            |  | Amortization
|               |  |              |     |        |  |                   |        |                   |  |             
|               |  | (Years)      |     |        |  |                   |        | (In thousands)    |  |              |         |            
|Licenses       |  |              | 6.5 |        |  | $                 | 49,200 |                   |  | $            | (32,786 | )           |  | $ | 48,200 |  |  | $ | (25,525 | )
|Contract-based |  |              | 3.3 |        |  |                   | 20,193 |                   |  |              | (15,747 | )           |  |   | 16,651 |  |  |   | (14,678 | )
|               |  |              |     |        |  |                   |        |                   |  |              |         |             |  |   |        |  |  |   |         |  
|               |  |              |     |        |  | $                 | 69,393 |                   |  | $            | (48,533 | )           |  | $ | 64,851 |  |  | $ | (40,203 | )
|               |  |              |     |        |  |                   |        |                   |  |              |         |             |  |   |        |  |  |   |         |  

Amortization expense related to intangible assets during 2002 was $8.3
million. The following table provides information regarding estimated
amortization expense for each of the following years ended December 31:

|     |  |                |       | 
|---- |  | -------------- | ----- | 
|     |  | (In thousands)
|2003 |  | $              | 8,912 | 
|2004 |  |                | 8,744 | 
|2005 |  |                | 1,442 | 
|2006 |  |                | 776   | 
|2007 |  |                | 469   | 

The following table adjusts earnings (loss) and earnings (loss) per share
for the adoption of SFAS 142 for the years ended December 31, 2002, 2001 and
2000:

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Applica Incorporated and Subsidiaries
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS  CONTINUED

|                                                                     |                                        |                                                                                         |                              |         |                                          |         |      |         |         |         |   |         |         |         |  
|-------------------------------------------------------------------- | -------------------------------------- | --------------------------------------------------------------------------------------- | ---------------------------- | ------- | ---------------------------------------- | ------- | ---- | ------- | ------- | ------- | - | ------- | ------- | ------- | -
|                                                                     |                                        |                                                                                         |                              |         | At December 31,                         
|                                                                     |                                        |                                                                                         |                              |         |                                         
|                                                                     |                                        |                                                                                         |                              |         | 2002                                     |         | 2001 |         | 2000   
|                                                                     |                                        |                                                                                         |                              |         |                                          |         |      |         |        
|                                                                     |                                        |                                                                                         |                              |         | (In thousands, except per share amounts)
|Net earnings (loss):                                                 |                                        |                                                                                         |                              |         |                                          |         |      |         |         |         |   |        
|                                                                     | Reported net earnings (loss)           |                                                                                         | $                            | (73,777 | )                                        |         | $    | (28,438 | )       |         | $ | (21,216 | )      
|                                                                     | Add: Goodwill amortization, net of tax |                                                                                         |                              |        |                                          |         |      | 3,410   |         |         |   | 3,410   |        
|                                                                     |                                        |                                                                                         |                              |         |                                          |         |      |         |         |         |   |         |        
|                                                                     |                                        |                                                                                         | Adjusted net earnings (loss) |         |                                          | (73,777 | )    |         |         | (25,028 | ) |         |         | (17,806 | )
|Add: Cumulative effect of change in accounting principle, net of tax |                                        |                                                                                         | 78,829                       |         |                                          |         |     |         |         |         |  |        
|                                                                     |                                        |                                                                                         |                              |         |                                          |         |      |         |         |         |   |         |        
|                                                                     |                                        | Adjusted net earnings (loss) before cumulative effect of change
in accounting principle |                              | $       | 5,052                                    |         |      | $       | (25,028 | )       |   | $       | (17,806 | )      
|                                                                     |                                        |                                                                                         |                              |         |                                          |         |      |         |         |         |   |         |        
|Basic earnings (loss) per share:                                     |                                        |                                                                                         |                              |         |                                          |         |      |         |         |         |   |        
|                                                                     | Basic reported net earnings (loss)     |                                                                                         | $                            | (3.15   | )                                        |         | $    | (1.23   | )       |         | $ | (0.92   | )      
|                                                                     | Add: Goodwill amortization, net of tax |                                                                                         |                              |        |                                          |         |      | 0.15    |         |         |   | 0.15    |        
|                                                                     |                                        |                                                                                         |                              |         |                                          |         |      |         |         |         |   |         |        
|                                                                     |                                        |                                                                                         | Adjusted net earnings (loss) |         |                                          | (3.15   | )    |         |         | (1.08   | ) |         |         | (0.77   | )
|Add: Cumulative effect of change in accounting principle             |                                        |                                                                                         | 3.37                         |         |                                          |         |     |         |         |         |  |        
|                                                                     |                                        |                                                                                         |                              |         |                                          |         |      |         |         |         |   |         |        
|                                                                     |                                        | Adjusted net earnings (loss) before cumulative effect of change
in accounting principle |                              | $       | 0.22                                     |         |      | $       | (1.08   | )       |   | $       | (0.77   | )      
|                                                                     |                                        |                                                                                         |                              |         |                                          |         |      |         |         |         |   |         |        
|Diluted earnings (loss) per share:                                   |                                        |                                                                                         |                              |         |                                          |         |      |         |         |         |   |        
|                                                                     | Basic reported net earnings (loss)     |                                                                                         | $                            | (3.10   | )                                        |         | $    | (1.23   | )       |         | $ | (0.92   | )      
|                                                                     | Add: Goodwill amortization, net of tax |                                                                                         |                              |        |                                          |         |      | 0.15    |         |         |   | 0.15    |        
|                                                                     |                                        |                                                                                         |                              |         |                                          |         |      |         |         |         |   |         |        
|                                                                     |                                        |                                                                                         | Adjusted net earnings (loss) |         |                                          | (3.10   | )    |         |         | (1.08   | ) |         |         | (0.77   | )
|Add: Cumulative effect of change in accounting principle             |                                        |                                                                                         | 3.31                         |         |                                          |         |     |         |         |         |  |        
|                                                                     |                                        |                                                                                         |                              |         |                                          |         |      |         |         |         |   |         |        
|                                                                     |                                        | Adjusted net earnings (loss) before cumulative effect of change
in accounting principle |                              | $       | 0.21                                     |         |      | $       | (1.08   | )       |   | $       | (0.77   | )      
|                                                                     |                                        |                                                                                         |                              |         |                                          |         |      |         |         |         |   |         |        

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 was 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 was reduced to 25% of the original requirements for that period. In
the fourth quarter of 2001, the Company recorded a write down of intangible
assets (based upon estimated cash flows) of $1.2 million relating to the
bankruptcy of Kmart. In the fourth quarter of 2000, the Company recorded a
write down of intangible assets (based upon estimated cash flows) of $3.2
million relating to the Companys intention to not re-market the
White-Westinghouse products to another company. The write-downs were included
in repositioning and other charges.

NOTE E  PROPERTY, PLANT AND EQUIPMENT

The following is a summary of property, plant and equipment:

|                              |       |               |                        |   |         |   |                 |         |         |   |         |         | 
|----------------------------- | ----- | ------------- | ---------------------- | - | ------- | - | --------------- | ------- | ------- | - | ------- | ------- | 
|                              |       |               |                        |   |         |   | At December 31,
|                              |       |               |                        |   |         |   |                
|                              |       |               | Useful Lives           |   | 2002    |   | 2001           
|                              |       |               |                        |   |         |   |                
|                              |       |               | (Dollars in thousands) |   |         |   |                
|Building                      |       | 15-50 years   |                        | $ | 15,257  |   |                 | $       | 14,668  |  
|Building improvements         |       | 8-31 years    |                        |   | 4,708   |   |                 |         | 2,574   |  
|Computer equipment            |       | 3-5 years     |                        |   | 20,022  |   |                 |         | 17,111  |  
|Furniture and equipment       |       | 3-8 years     |                        |   | 129,725 |   |                 |         | 124,787 |  
|Leasehold improvements        |       | 8 years*      |                        |   | 13,471  |   |                 |         | 20,426  |  
|Land and land improvements    |       | 15-31 years** |                        |   | 3,729   |   |                 |         | 3,732   |  
|                              |       |               |                        |   |         |   |                 |         |         |   |         |        
|                              | Total |               |                        |   |         |   |                 | 186,912 |         |   |         | 183,298 | 
|Less accumulated depreciation |       |               |                        |   |         |   | 109,949         |         |         |   | 100,961 |        
|                              |       |               |                        |   |         |   |                 |         |         |   |         |        
|                              |       |               |                        |   |         | $ | 76,963          |         |         | $ | 82,337  |        
|                              |       |               |                        |   |         |   |                 |         |         |   |         |        



---

|*  |  | Shorter of remaining term of
lease or useful life
|-- |  | -------------------------------------------------
|** |  | Only improvements are depreciated                

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Applica Incorporated and Subsidiaries
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS  CONTINUED

NOTE F  ACCRUED EXPENSES

Accrued expenses are summarized as follows:

|                                      |  |                                 |        |      |  |   |        | 
|------------------------------------- |  | ------------------------------- | ------ | ---- |  | - | ------ | 
|                                      |  | For the Year ended December 31,
|                                      |  |                                
|                                      |  | 2002                            |        | 2001
|                                      |  |                                 |        |     
|                                      |  | (In thousands)                 
|Product recall                        |  | $                               | 4,763  |      |  | $ | 13,417 | 
|Salaries and bonuses                  |  |                                 | 12,686 |      |  |   | 13,086 | 
|Promotions and advertising allowances |  |                                 | 11,785 |      |  |   | 7,351  | 
|Warranty                              |  |                                 | 5,698  |      |  |   | 3,689  | 
|Co-op advertising and volume rebates  |  |                                 | 5,016  |      |  |   | 3,297  | 
|Other                                 |  |                                 | 34,738 |      |  |   | 27,693 | 
|                                      |  |                                 |        |      |  |   |        | 
|                                      |  | $                               | 74,686 |      |  | $ | 68,533 | 
|                                      |  |                                 |        |      |  |   |        | 

NOTE G  LONG TERM DEBT

The Companys long-term debt, including interest rate swaps designated as
hedges, are summarized below:

|                              |       |       |         |         |         |                   |      |           |  |           |        |                         |       |            |        |        |        |  |      |   |  |  |           |  |  | 
|----------------------------- | ----- | ----- | ------- | ------- | ------- | ----------------- | ---- | --------- |  | --------- | ------ | ----------------------- | ----- | ---------- | ------ | ------ | ------ |  | ---- | - |  |  | --------- |  |  | 
|                              |       |       |         |         |         |                   |      |           |  |           |        | Interest Rate Swaps (2) |       |            |        |        |        |  |      |  
|                              |       |       |         |         |         |                   |      | Stated    |  |           |        | Effective               |       | Swap      
|                              |       |       |         | Balance |         | Interest Rate (1) |      | Pay Float |  | Pay Fixed |        | Interest Rate (3)       |       | Maturities
|                              |       |       |         |         |         |                   |      |           |  |           |        |                         |       |           
|                              |       |       |         |         |         |                   |      |           |  |           |        | (Dollars in thousands)  |       |            |        |        |        |  |      |  
|At December 31, 2002:         |       |       |         |         |         |                   |      |           |  |           |        |                         |       |            |        |        |        |  |      |  
|Revolving Credit Facility     |       | $     | 55,070  |         |         |                   | 3.7  | %         |  | $         |       |                         |       | $          | 15,000 |        |        |  | 4.7  | % |  |  | July 2003 | 
|Mortgage                      |       |       | 5,912   |         |         |                   | 7.3  | %         |  |           | 5,939  |                         |       |            |       |        |        |  | 3.1  | % |  |  | May 2007  | 
|Notes Payable                 |       |       | 3,000   |         |         |                   | 6.0  | %         |  |           |       |                         |       |            |       |        |        |  | 6.0  | % |  |  |           | 
|10% Senior Subordinated
Notes |       |       | 130,000 |         |         |                   | 10.0 | %         |  |           |       |                         |       |            |       |        |        |  | 10.0 | %
|                              |       |       |         |         |         |                   |      |           |  |           |        |                         |       |            |        |        |        |  |      |  
|                              |       | Total |         |         | 193,982 |                   |      |           |  |           |        |                         | 5,939 |            |        | $      | 15,000 |  |      |   |  |  |           |  |  | 
|Less current maturities       |       |       | 144     |         |         |                   |      |           |  |           |       |                         |       |            |       |        |        |  |      |   |  |  |           | 
|                              |       |       |         |         |         |                   |      |           |  |           |        |                         |       |            |        |        |        |  |      |  
|Total long-term debt          |       | $     | 193,838 |         |         |                   |      |           |  |           | 5,939  |                         |       | $          | 15,000 |        |        |  |      |   |  |  |           | 
|                              |       |       |         |         |         |                   |      |           |  |           |        |                         |       |            |        |        |        |  |      |  
|At December 31, 2001:         |       |       |         |         |         |                   |      |           |  |           |        |                         |       |            |        |        |        |  |      |  
|Revolving Credit Facility     |       | $     | 90,709  |         |         |                   | 5.1  | %         |  | $         |       |                         |       | $          | 59,000 |        |        |  | 6.6  | % |  |  | July 2003 | 
|10% Senior Subordinated Notes |       |       | 130,000 |         |         |                   | 10.0 | %         |  |           | 80,000 |                         |       |            |        |        |        |  | 7.6  | % |  |  | July 2008 | 
|Foreign Indebtedness          |       |       | 4,986   |         |         |                   | 2.6  | %         |  |           |       |                         |       |            |       |        |        |  | 2.6  | % |  |  |           | 
|Other                         |       |       | 31      |         |         |                   |      |           |  |           |       |                         |       |            |       |        |        |  |      |   |  |  |           | 
|                              |       |       |         |         |         |                   |      |           |  |           |        |                         |       |            |        |        |        |  |      |  
|                              | Total |       |         | 225,726 |         |                   |      |           |  |           |        | 80,000                  |       |            |        | 59,000 |        |  |      |   |  |  |           |  | 
|Less current maturities       |       |       |        |         |         |                   |      |           |  |           |       |                         |       |            |       |        |        |  |      |   |  |  |           | 
|                              |       |       |         |         |         |                   |      |           |  |           |        |                         |       |            |        |        |        |  |      |  
|Total long-term debt          |       | $     | 225,726 |         |         |                   |      |           |  | $         | 80,000 |                         |       | $          | 59,000 |        |        |  |      |   |  |  |           | 
|                              |       |       |         |         |         |                   |      |           |  |           |        |                         |       |            |        |        |        |  |      |  



---

|(1) |  | The stated interest rate represents the coupon rate for the Subordinated
Notes and mortgage loan for the executive offices located in Miami Lakes,
Florida. For floating rate borrowings, interest rates are based upon the
rates at December 31, 2002 and 2001; these rates are not necessarily an
indication of future interest rates.
|--- |  | ----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
|   
|(2) |  | Amounts represent notional values of interest rate swaps.                                                                                                                                                                                                                                                                               
|   
|(3) |  | The effective interest rate is the weighted average interest rate after
taking into consideration the effect of interest rate swaps entered into
with respect to certain of those borrowings as indicated in the Pay
Float and Pay Fixed columns.                                                                                   

Revolving Credit Facility

In December 2001, the Company replaced its revolving credit and term debt
facilities with a new $205 million four-year asset-based senior secured
revolving credit facility (the Credit Facility). Advances under the Credit
Facility are primarily based upon percentages of outstanding eligible accounts
receivable and inventories.

F-19



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##### Table of Contents



Applica Incorporated and Subsidiaries
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS  CONTINUED

The credit facility includes a $10.0 million
sublimit for the issuance of letters of credit. All amounts outstanding under
the credit facility are payable on December 28, 2005.

At Applicas option, interest accrues on the loans made under the credit
facility at either:



| |  |  | LIBOR (adjusted for any reserves), plus a specified margin which is
determined by Applicas leverage ratio and was set at 2.35% at December
31, 2002 (3.79% at December 31, 2002); or                          
| | - |  | ---------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
|
| |  |  | the Base Rate (which is Bank of Americas prime rate), plus a
specified margin, which is determined based upon Applicas leverage
ratio and was set at 0.35% at December 31, 2002 (4.60% at December 31,
2002).

Swing loans up to $15.0 million bear interest at the Base Rate plus a specified
margin, which is determined based on Applicas leverage ratio and was set at
0.35% at December 31, 2002 (4.60% at December 31, 2002). The Company may at
its option reduce the amount available under the Credit Facility to the extent
such amounts are unused or prepaid in certain minimum amounts.

The Credit Facility is collateralized by substantially all of the real and
personal property, tangible and intangible, of the Company and its domestic
subsidiaries, as well as (a) a pledge of all of the stock of such domestic
subsidiaries, (b) a pledge of not less than 65% of the voting stock of each
direct foreign subsidiary of the Company and each direct foreign subsidiary of
each domestic subsidiary of the Company, and (c) a pledge of all of the capital
stock of any subsidiary of a subsidiary of the Company that is a borrower under
the Credit Facility. The Credit Facility is guaranteed by all of the current,
and will be guaranteed by all of the future, domestic subsidiaries of the
Company.

The Credit Facility contains a number of significant covenants that, among
other things, restrict the ability of the Company to dispose of assets, incur
additional indebtedness, prepay other indebtedness, pay dividends, repurchase
or redeem capital stock, enter into certain investments or create new
subsidiaries, enter into sale and lease-back transactions, make certain
acquisitions, engage in mergers or consolidations, create liens, or engage in
certain transactions with affiliates, and that otherwise restrict corporate and
business activities. In addition, under the Credit Facility, the Company is
required to comply with a minimum borrowing base availability and a maximum
annual capital expenditure requirement.

10% Senior Subordinated Notes Due 2008

The Company issued $130.0 million in Senior Subordinated Notes in July
1998, which bear interest at an annual rate of 10%, are payable semiannually
and mature on July 31, 2008. The Notes are general unsecured obligations of
the Company and rank subordinate in right of payment to all senior debt of the
Company and pari passu in right of payment to all future subordinated
indebtedness of the Company. The Notes may be redeemed at the option of the
Company, in whole or in part, on or after July 31, 2003 at various redemption
prices.

The indenture pursuant to which the Notes were issued contains certain
covenants that, among other things, limit the ability of the Company to incur
additional indebtedness and issue preferred stock, pay dividends or make other
certain restricted payments, apply net proceeds from certain asset sales, or
sell stock of subsidiaries.

Mortgage Loan

In April 2002, Applica Consumer Products, Inc., Applicas U.S. operating
subsidiary, entered into a five-year $6.0 million mortgage loan on the
Companys executive offices located in Miami Lakes, Florida. The loan bears
interest at an annual rate of 7.25%, with monthly principal and interest
payments based on a 20-year amortization. A final balloon payment is due at
the end of the term. The loan is collateralized by a first mortgage on the
property and the building located thereon.

Notes Payable

In conjunction with the acquisition of Weitech, Inc. on May 31, 2002,
Applica Consumer Products, Inc., the Companys U.S. operating subsidiary,
issued $3.0 million of notes payable primarily to the former shareholders of
Weitech. These notes bear interest at an annual rate of 6.0% and mature on May
31, 2005, with interest only payable quarterly.

F-20



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##### Table of Contents



Applica Incorporated and Subsidiaries
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS  CONTINUED

Foreign Indebtedness

Certain of the Companys foreign subsidiaries have available approximately
$18.4 million of trade finance lines of credit, payable on demand, which are
collateralized by the subsidiaries assets and in some cases, a guarantee of
Applica Incorporated. At December 31, 2002 and 2001, the foreign subsidiaries
were using approximately $1.7 million and $7.3 million, respectively, under
these credit lines, of which $1.7 million and $2.3 million, respectively, was
for trade financing, which is reflected in accounts payable.

NOTE H  EMPLOYEE BENEFIT PLANS

The Company has a 401(k) plan for its employees to which the Company makes
discretionary contributions at rates dependent on the level of each employees
contributions. Contributions made by the Company are limited to the maximum
allowable for federal income tax purposes. The amounts charged to earnings for
this plan during the years ended December 31, 2002, 2001 and 2000 totaled
approximately $803,000, $766,000 and $761,000, respectively. The Company does
not provide any health or other benefits to retirees, except for executive life
insurance provided to Mr. Belvin Freidson, the founder of the Company.

NOTE I  INCOME TAXES

Income tax expense (benefit) consists of the following:

|         |         |   |                 |       |      |   |        |        |  |   |        |       | 
|-------- | ------- | - | --------------- | ----- | ---- | - | ------ | ------ |  | - | ------ | ----- | 
|         |         |   | At December 31,
|         |         |   |                
|         |         |   | 2002            |       | 2001 |   | 2000  
|         |         |   |                 |       |      |   |       
|         |         |   | (In thousands)  |       |      |   |       
|Current: |         |   |                 |       |      |   |        |        |  |   |        |      
|         | Federal |   | $               |      |      |   | $      |       |  |   | $      |      | 
|         | Foreign |   |                 | 3,449 |      |   |        | 12,754 |  |   |        | 6,764 | 
|         | State   |   |                 |      |      |   |        |       |  |   |        |      | 
|         |         |   |                 |       |      |   |        |        |  |   |        |      
|         |         |   | 3,449           |       |      |   | 12,754 |        |  |   | 6,764  |      
|Deferred |         |   | 1,377           |       |      |   | (8,608 | )      |  |   | (8,306 | )    
|         |         |   |                 |       |      |   |        |        |  |   |        |      
|         |         | $ | 4,826           |       |      | $ | 4,146  |        |  | $ | (1,542 | )    
|         |         |   |                 |       |      |   |        |        |  |   |        |      

The United States and foreign components of earnings (loss) before income
taxes are as follows:

|              |  |                                 |        |      |  |      |         |   |  |   |         |  
|------------- |  | ------------------------------- | ------ | ---- |  | ---- | ------- | - |  | - | ------- | -
|              |  | For the Year ended December 31,
|              |  |                                
|              |  | 2002                            |        | 2001 |  | 2000
|              |  |                                 |        |      |  |     
|              |  | (In thousands)                  |        |      |  |     
|United States |  | $                               | (4,757 | )    |  | $    | (46,484 | ) |  | $ | (52,210 | )
|Foreign       |  |                                 | 14,635 |      |  |      | 22,192  |   |  |   | 29,452  |  
|              |  |                                 |        |      |  |      |         |   |  |   |         |  
|              |  | $                               | 9,878  |      |  | $    | (24,292 | ) |  | $ | (22,758 | )
|              |  |                                 |        |      |  |      |         |   |  |   |         |  

The differences between the statutory rates and the tax rates computed on
pre-tax profits are as follows:

|                                                                                          |  |                                 |      |      |  |      |       |    |  |  |       |  
|----------------------------------------------------------------------------------------- |  | ------------------------------- | ---- | ---- |  | ---- | ----- | -- |  |  | ----- | -
|                                                                                          |  | For the Year ended December 31,
|                                                                                          |  |                                
|                                                                                          |  | 2002                            |      | 2001 |  | 2000
|                                                                                          |  |                                 |      |      |  |     
|Statutory rate                                                                            |  |                                 | 35.0 | %    |  |      | 35.0  | %  |  |  | 34.0  | %
|Permanent differences                                                                     |  |                                 | 14.1 | *    |  |      | (2.3  | )  |  |  | (2.3  | )
|State income tax                                                                          |  |                                 | (1.4 | )    |  |      | 4.1   |    |  |  | 3.6   |  
|Change in valuation allowance                                                             |  |                                 |     |      |  |      |      |    |  |  | (19.9 | )
|Net tax rate differential on undistributed earnings
and change in estimated tax provision |  |                                 | 1.7  |      |  |      | (11.4 | )  |  |  | 9.1   |  
|Foreign
earnings distributed to, or taxable in, the U.S                                   |  |                                 | 2.7  |      |  |      | (41.6 | )  |  |  | (22.6 | )
|Other                                                                                     |  |                                 | (3.2 | )    |  |      | (0.9  | )  |  |  | 4.9   |  
|                                                                                          |  |                                 |      |      |  |      |       |    |  |  |       |  
|                                                                                          |  |                                 | 48.9 | %    |  |      | (17.1 | )% |  |  | 6.8   | %
|                                                                                          |  |                                 |      |      |  |      |       |    |  |  |       |  



---

|* |  | Permanent differences represent primarily foreign exchange translation losses.
|- |  | ------------------------------------------------------------------------------

F-21



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##### Table of Contents



Applica Incorporated and Subsidiaries
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS  CONTINUED

The Internal Revenue Service has completed its examination of the
Companys U.S. tax returns for the years 1994 through 1998. One adjustment has
been proposed, which, if sustained, would defer a deduction taken by the
Company in 1995 until 1998 and would result in an interest charge net of the
tax benefit of approximately $500,000. The Company believes its position is
correct and is protesting the disallowance but had accrued for the related
liability as of December 31, 2002 and 2001. Management believes that adequate
provision for taxes has been made for the years under examination and those not
yet examined.

The primary components of future income tax benefits (liabilities) were as
follows:

| |                                            |                         |   |                 |        |      |   |         |        | 
| | ------------------------------------------ | ----------------------- | - | --------------- | ------ | ---- | - | ------- | ------ | 
| |                                            |                         |   | At December 31,
| |                                            |                         |   |                
| |                                            |                         |   | 2002            |        | 2001
| |                                            |                         |   |                 |        |     
| |                                            |                         |   | (In thousands) 
| | Inventory differences                      |                         | $ | 685             |        |      | $ | (1,636  | )     
| | Accrued expenses                           |                         |   | 17,969          |        |      |   | 25,285  |       
| |                                            |                         |   |                 |        |      |   |        
| |                                            | Total current assets    |   |                 | 18,654 |      |   |         | 23,649 | 
| |                                            |                         |   |                 |        |      |   |        
| | Net operating loss and other carryforwards |                         |   | 39,111          |        |      |   | 32,484  |       
| | Fixed assets                               |                         |   | 1,682           |        |      |   | 13      |       
| | Goodwill and intangible asset amortization |                         |   | 21,734          |        |      |   | (16,438 | )     
| | Deferred income                            |                         |   |                |        |      |   | 2,171   |       
| | Capital loss carryforward                  |                         |   | 2,006           |        |      |   |        |       
| | Valuation allowance                        |                         |   | (10,155         | )      |      |   | (10,175 | )     
| |                                            |                         |   |                 |        |      |   |        
| |                                            | Net non-current assets  |   |                 | 54,378 |      |   |         | 8,055  | 
| |                                            |                         |   |                 |        |      |   |        
| |                                            | Net deferred tax assets |   | $               | 73,032 |      |   | $       | 31,704 | 
| |                                            |                         |   |                 |        |      |   |        

The tax benefits resulting from disqualifying dispositions of shares of
common stock acquired pursuant to incentive stock options and the exercise of
non-qualified stock options have been recorded as additions to paid-in capital
in the amounts of $41,000, $176,000 and $633,000 in 2002, 2001and 2000,
respectively.

At December 31, 2002, the Company had net operating loss carryforwards
(NOLs) of approximately $33.3 million for domestic federal income tax
purposes, $13.3 million for foreign income tax purposes and $5.9 million for
capital loss carryforwards. The domestic operating losses, foreign losses and
capital losses expire as follows:

|                   |  |                |        |         |  |         |        |  |  |   |       | 
|------------------ |  | -------------- | ------ | ------- |  | ------- | ------ |  |  | - | ----- | 
|                   |  | Operating      |        | Foreign |  | Capital
|Year of Expiration |  | Losses         |        | Losses  |  | Losses 
|                   |  |                |        |         |  |        
|                   |  | (In thousands) |        |         |  |        
|2005               |  | $              |       |         |  | $       | 1,403  |  |  | $ |      | 
|2007               |  |                |       |         |  |         | 3,477  |  |  |   | 5,900 | 
|2009               |  |                |       |         |  |         | 4,674  |  |  |   |      | 
|2010               |  |                |       |         |  |         |       |  |  |   |      | 
|2019               |  |                | 14,798 |         |  |         |       |  |  |   |      | 
|2020               |  |                | 18,134 |         |  |         |       |  |  |   |      | 
|2021               |  |                | 400    |         |  |         |       |  |  |   |      | 
|Indefinite         |  |                |       |         |  |         | 3,711  |  |  |   |      | 
|                   |  |                |        |         |  |         |        |  |  |   |       | 
|                   |  | $              | 33,332 |         |  | $       | 13,265 |  |  | $ | 5,900 | 
|                   |  |                |        |         |  |         |        |  |  |   |       | 

The Company also has NOLs in numerous states that have a tax benefit of
$9.7 million and $9.3 million in 2002 and 2001, respectively. The Company has
applied valuation allowances, tax effected, against these NOLs of $7.1 million
in 2002 and 2001. In addition, the Company has U.S. foreign tax credits of
$8.7 million and $6.7 million in 2002 and 2001, respectively, of which $2.4 million has been
reserved as of 2002 and 2001. The Company has established valuation allowances
against the state NOLs and U.S. foreign tax credits when it is more likely than
not that the benefits will not be realized prior to expiration.

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##### Table of Contents



Applica Incorporated and Subsidiaries
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS  CONTINUED

NOTE J  COMMITMENTS AND CONTINGENCIES

Litigation

Toaster Recall. In February 2002, Applica Consumer Products, Inc., in
cooperation with the Consumer Products Safety Commission, voluntarily recalled
approximately 2.1 million Black & Decker® T1200 and
T1400 toasters.
The Companys Canadian operating subsidiary, Applica Canada Corporation,
also recalled approximately 180,000 of these toasters in Canada. In 2001,
management charged operations with an estimated reserve of $13.4 million
for these recalls and through December 31, 2002, charged approximately $8.7
million against the accrual. The Company believes the remaining liability is
adequate.

Currently, three lawsuits have been filed in connection with property
damage or bodily injury relating to the recalled toasters (one of which has
been settled) and several other claims have been made. Management believes
that the amount of ultimate liability of these claims, if any, is not likely to
have a material effect on Applicas business, financial condition or results of
operations. However, as the outcome of litigation is difficult to predict,
significant changes in the estimated exposures could occur.

Other Matters. The Company is also subject to other legal proceedings,
product liability claims and other claims that 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 condition, results of operations or liquidity
of the Company. However, as the outcome of litigation or other legal claims is
difficult to predict, significant changes in the estimated exposures could
occur, which could have a material impact on Applicas operations.

Employment Agreements

The Company has entered into employment agreements with several of its
executive officers for periods ranging from two to five years. The agreements
provide the employees with an option to terminate their agreements and receive
lump sum payments of up to five years compensation if there is a change in
control of the Company.

Leases

Future minimum payments under the Companys non-cancelable long-term
operating leases are as follows:

|           |  |                |        | 
|---------- |  | -------------- | ------ | 
|           |  | (In thousands)
|2003       |  | $              | 3,752  | 
|2004       |  |                | 3,752  | 
|2005       |  |                | 3,760  | 
|2006       |  |                | 3,489  | 
|2007       |  |                | 2,260  | 
|Thereafter |  |                | 1,528  | 
|           |  |                |        | 
|           |  | $              | 18,541 | 
|           |  |                |        | 

Rent expense for the years ended December 31, 2002, 2001 and 2000 totaled
approximately $5.1 million, $4.9 million and $4.8 million, respectively.

The Company leases a 562,000 square foot warehouse in Little Rock,
Arkansas for warehousing and distribution with a remaining term of five years.
Durables facilities in China are operated under contracts with the local
government, with terms between two and ten years. During 2002, the Company
closed its office in Shelton, Connecticut.

License Agreement

As part of its acquisition of the Black & Decker Household Products Group
in June 1998, the Company licensed the Black & Decker brand in North America,
Latin 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, the Company and The Black & Decker
Corporation entered into an extension of the trademark license agreement
through December 31, 2006. Under the agreement as extended, the Company agreed
to pay

F-23



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##### Table of Contents



Applica Incorporated and Subsidiaries
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS  CONTINUED

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
The Black & Decker Corporation does not agree to renew the license agreement,
the Company has 18 months to transition out of the product line. No minimum
royalty payments will be due during such transition period.

Upon request, The Black & Decker Corporation may elect to extend the
license to use the Black & Decker® brand to certain additional products. Such
additional products are subject to royalty payments. In 2000 and 2001, Black &
Decker extended the license to heaters, fans, humidifiers, dehumidifiers, air
purifiers, deep fryers and bag sealers. In 2002, Black & Decker agreed to
extend the license to ice cream makers and mixers.

Other

In April 1994, the Company purchased from Ourimbah Investment, Limited
(Ourimbah) the remaining 20% of the issued and outstanding capital stock of
Applica Durable Manufacturing Limited (the Purchased Shares) which had not,
prior to such purchase, been owned, directly or indirectly, by the Company. In
connection with such purchase, the Company agreed to make an additional payment
(based upon amounts received in connection with any such change in control) to
Ourimbah for the Purchased Shares upon the occurrence of a change of control
(as defined) of the Company on or before July 1, 2009. No change of control
will be deemed to have occurred in connection with any transaction approved by
a majority of the members of the Companys Board of Directors.

NOTE K  SHAREHOLDERS EQUITY

Stock Options

Under various plans, the Company may grant incentive or non-qualified
stock options to employees, consultants and directors. The terms of stock
options granted under the plans are determined by the Compensation Committee of
the Board of Directors at the time of grant, including the exercise price, term
and any restrictions on the exercisability of such option. The exercise price
of all options granted under the plans equals the market price at the date of
grant and no option is exercisable after the expiration of ten years from the
date of grant. The stock options outstanding under the plans were generally
granted for terms of five, six or ten years and vest on a straight line basis
over periods of one year, three years or five years. No compensation expense
was recognized upon either the grant or exercise of these stock options.

As of December 31, 2002, there are no shares available for grant under the
1988 Directors Stock Option Plan or the 1992 Employees Incentive Stock Option
Plan, 37,200 shares available for grant under the 1996 Stock Option Plan,
653,900 shares available for grant under the 1998 Stock Option Plan and 181,999
shares available for grant under the 2000 Stock Option Plan.

The Company has also granted non-qualified stock options, which are not
under any plan.

Information with respect to stock option activity is as follows:

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##### Table of Contents



Applica Incorporated and Subsidiaries
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS  CONTINUED

|                                                               |  |             |        |                |  |                  |       |                |  |             |       |                  |  |   |       |  |  |                  |       |   |  |   |       | 
|-------------------------------------------------------------- |  | ----------- | ------ | -------------- |  | ---------------- | ----- | -------------- |  | ----------- | ----- | ---------------- |  | - | ----- |  |  | ---------------- | ----- | - |  | - | ----- | 
|                                                               |  | 2002        |        | 2001           |  | 2000            
|                                                               |  |             |        |                |  |                 
|                                                               |  |             |        |                |  | Weighted-Average |       |                |  |             |       | Weighted-Average |  |   |       |  |  | Weighted-Average
|                                                               |  | Shares(000) |        | Exercise Price |  | Shares(000)      |       | Exercise Price |  | Shares(000) |       | Exercise Price  
|                                                               |  |             |        |                |  |                  |       |                |  |             |       |                 
|Outstanding at beginning of year                               |  |             | 4,216  |                |  | $                | 12.67 |                |  |             | 4,343 |                  |  | $ | 12.46 |  |  |                  | 4,088 |   |  | $ | 11.70 | 
|Granted                                                        |  |             | 603    |                |  | $                | 5.16  |                |  |             | 177   |                  |  | $ | 7.76  |  |  |                  | 842   |   |  | $ | 4.87  | 
|Exercised                                                      |  |             | (123   | )              |  | $                | 7.16  |                |  |             | (128  | )                |  | $ | 6.27  |  |  |                  | (442  | ) |  | $ | 15.13 | 
|Forfeited                                                      |  |             | (1,314 | )              |  | $                | 23.00 |                |  |             | (176  | )                |  | $ | 7.50  |  |  |                  | (145  | ) |  | $ | 9.64  | 
|                                                               |  |             |        |                |  |                  |       |                |  |             |       |                  |  |   |       |  |  |                  |       |   |  |   |       | 
|Outstanding at end of year                                     |  |             | 3,382  |                |  | $                | 7.50  |                |  |             | 4,216 |                  |  | $ | 12.67 |  |  |                  | 4,343 |   |  | $ | 12.46 | 
|                                                               |  |             |        |                |  |                  |       |                |  |             |       |                  |  |   |       |  |  |                  |       |   |  |   |       | 
|Options exercisable at end of year                             |  |             | 2,483  |                |  |                  |       |                |  |             | 3,546 |                  |  |   |       |  |  |                  | 2,776 |   |  |   |       | 
|Weighted-average fair value of
options granted during the year |  | $           | 3.62   |                |  |                  |       |                |  | $           | 5.44  |                  |  |   |       |  |  | $                | 3.03  |   |  |   |       | 

The following information applies to options outstanding at December 31,
2002:

|                |  |                     |       |                     |  |                  |     |                  |  |                |       |  |  |                  |       |  |  |   |       | 
|--------------- |  | ------------------- | ----- | ------------------- |  | ---------------- | --- | ---------------- |  | -------------- | ----- |  |  | ---------------- | ----- |  |  | - | ----- | 
|                |  | Options Outstanding |       | Options Exercisable
|                |  |                     |       |                    
|                |  |                     |       |                     |  | Weighted-Average |     |                  |  |                |       |  |  |                  |       |  |  |  
|                |  |                     |       |                     |  | Remaining        |     | Weighted-Average |  |                |       |  |  | Weighted-Average
|                |  | Shares(000)         |       | Contractual Life    |  | Exercise Price   |     | Shares(000)      |  | Exercise Price
|                |  |                     |       |                     |  |                  |     |                  |  |               
|$3.17 - $6.33   |  |                     | 1,345 |                     |  |                  | 4.2 |                  |  | $              | 4.25  |  |  |                  | 733   |  |  | $ | 3.71  | 
|$6.34 - $9.50   |  |                     | 1,510 |                     |  |                  | 3.0 |                  |  | $              | 7.32  |  |  |                  | 1,391 |  |  | $ | 7.32  | 
|$9.51 - $12.67  |  |                     | 229   |                     |  |                  | 2.7 |                  |  | $              | 11.26 |  |  |                  | 178   |  |  | $ | 11.53 | 
|$12.68 - $15.84 |  |                     | 126   |                     |  |                  | 4.2 |                  |  | $              | 13.88 |  |  |                  | 112   |  |  | $ | 13.85 | 
|$16.25          |  |                     | 5     |                     |  |                  | 3.3 |                  |  | $              | 16.25 |  |  |                  | 2     |  |  | $ | 16.25 | 
|$24.50          |  |                     | 150   |                     |  |                  | 0.3 |                  |  | $              | 24.50 |  |  |                  | 50    |  |  | $ | 24.50 | 
|$31.69          |  |                     | 17    |                     |  |                  | 5.4 |                  |  | $              | 31.69 |  |  |                  | 17    |  |  | $ | 31.69 | 
|                |  |                     |       |                     |  |                  |     |                  |  |                |       |  |  |                  |       |  |  |   |       | 
|                |  |                     | 3,382 |                     |  |                  |     |                  |  |                |       |  |  |                  | 2,483 |  |  |   |       | 
|                |  |                     |       |                     |  |                  |     |                  |  |                |       |  |  |                  |       |  |  |   |       | 

Employee Stock Purchase Plan

In May 2000, the Companys shareholders authorized up to 500,000 shares of
common stock for the 2000 Employee Stock Purchase Plan. Under the plan,
eligible employees may elect to participate on January 1 or July 1 of each
year. Subject to certain limitations determined in accordance with
calculations set forth in the plan, an eligible employee is granted a right to
purchase shares of common stock (up to a maximum of 1,000 shares) on the last
business day on or before each June 30th and December 31st of any year during
which he or she is a participant. The option exercise price per share will be
an amount equal to 85% of the lower of the market price on the first day of the
six-month offering period or the market price on the exercise date, unless the
participants entry date is not the first day of the offering period, in which
case the exercise price will be an amount equal to 85% of the lower of the
market price of the common stock on the entry date or the market price on the
exercise date. As of December 31, 2002 and 2001, an aggregate of 165,810 and
109,465 shares, respectively, of common stock had been issued under the plan.

Common Stock Purchase Rights Plan

In March 1995, the Company implemented a Common Stock Purchase Rights Plan
and distributed one Right for each share of the Companys common stock
outstanding. In March 1999, the Companys Board of Directors approved and
adopted an amended and restated version of such plan. The Rights are not
exercisable or transferable, apart from the Companys common stock, until after
a person or group acquires, or has the right to acquire, beneficial ownership
of 15% or more of the Companys common stock (which threshold may, under
certain circumstances, be reduced to 10%) or announces a tender or exchange
offer to acquire such percentage of the Companys common stock. As amended in
March 1999, each Right entitles the holder to purchase one share
of

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Applica Incorporated and Subsidiaries
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS  CONTINUED

common stock at an exercise price of $50.00 per share and contains
provisions that entitle the holder in the event of specific transactions, to
purchase common stock of the Company or any acquiring or surviving entity at
one-half of market price as determined under the terms of the Rights Agreement.
The Rights will expire in March 2005, unless previously exercised or redeemed
at the option of the Company for $.00001 per Right.

On February 25, 2002, the Board of Directors of Applica Incorporated voted
to terminate Applicas Common Stock Purchase Rights Plan. The plan will be
terminated by redeeming the Rights that were issued under the Rights Agreement.
The Rights will be redeemed at a price of $.00001 per right, payable in cash.
There is currently one Right attached to each outstanding share of common
stock. The Rights are represented by the certificates for common stock and do
not trade separately. Shareholders do not have to take any action to receive
the redemption payment and do not have to surrender stock certificates. As a
result of the redemption, the rights cannot become exercisable and the Amended
and Restated 1995 Common Stock Purchase Right Agreement will be
terminated.

NOTE L  BUSINESS SEGMENT AND GEOGRAPHIC AREA INFORMATION

During the fourth quarter of 2001, the Company began reporting its
operations as one business segment. Previously, the Company had reported three
business segments. The change to one business segment was made to conform to
organizational changes the Company made in the management of its business to
more effectively utilize and deploy its assets on a world-wide basis.

Geographic Information

The Companys international operations are conducted primarily in Canada,
Mexico, South and Central America, the Caribbean, Hong Kong and China. Other
than the United States, the Company does not have sales to customers located in
any country which exceed 10% of consolidated sales. The following table sets
forth the composition of the Companys sales between those in the United States
and those in other locations for each year:

|                   |              |                           |                                 |          |          |         |         |          |          |                |         |          |         |         |         | 
|------------------ | ------------ | ------------------------- | ------------------------------- | -------- | -------- | ------- | ------- | -------- | -------- | -------------- | ------- | -------- | ------- | ------- | ------- | 
|                   |              |                           |                                 |          |          | 2002    |         | 2001     |          | 2000          
|                   |              |                           |                                 |          |          |         |         |          |          |               
|                   |              |                           |                                 |          |          |         |         |          |          | (In thousands) |         |          |         |        
|Revenues:          |              |                           |                                 |          |          |         |         |          |          |                |         |         
|                   |              | United States operations  |                                 | $        | 501,797  |         |         | $        | 485,843  |                |         | $        | 502,564 |        
|                   |              | International operations: |                                 |          |          |         |         |          |          |                |         |          |         |        
|                   |              |                           | Sales to unaffiliated customers |          |          | 225,559 |         |          |          | 241,201        |         |          |         | 246,187 |        
|                   |              |                           | Sales  intercompany:           |          |          |         |         |          |          |                |         |          |         |         |        
|                   |              |                           |                                 | Mexico   |          |         | 134,934 |          |          |                | 153,713 |          |         |         | 174,250 | 
|                   |              |                           |                                 | China    |          |         | 168,584 |          |          |                | 159,214 |          |         |         | 181,820 | 
|                   |              |                           |                                 |          |          |         |         |          |          |                |         |         
|                   |              |                           | 303,518                         |          |          |         | 312,927 |          |          |                | 356,070 |         
|                   |              |                           |                                 |          |          |         |         |          |          |                |         |         
|                   | Eliminations |                           |                                 | (303,518 | )        |         |         | (312,927 | )        |                |         | (356,070 | )      
|                   |              |                           |                                 |          |          |         |         |          |          |                |         |         
|                   |              |                           | Consolidated revenues           |          | $        | 727,356 |         |          | $        | 727,044        |         |          | $       | 748,751 |        
|                   |              |                           |                                 |          |          |         |         |          |          |                |         |         
|                   |              |                           |                                 |          |          |         |         |          |          |                |         |         
|Long-lived assets: |              |                           |                                 |          |          |         |         |          |          |                |         |         
|                   |              | United States operations  |                                 | $        | 698,887  |         |         | $        | 789,693  |                |         |          |         |        
|                   |              | International operations  |                                 |          | 157,482  |         |         |          | 170,868  |                |         |          |         |        
|                   |              | Eliminations              |                                 |          | (634,646 | )       |         |          | (669,020 | )              |         |          |         |        
|                   |              |                           |                                 |          |          |         |         |          |          |                |         |         
|                   |              |                           | Consolidated long-lived assets  |          | $        | 221,723 |         |          | $        | 291,541        |         |          |         |         |        
|                   |              |                           |                                 |          |          |         |         |          |          |                |         |         

Intercompany sales are billed at negotiated prices established by the
Company. All United States revenues are derived from sales to unaffiliated
customers. Geographic area of sales is based primarily on the location from
where the product is shipped. Included in international operations  Sales to
unaffiliated customers are certain sales derived from direct product shipments
from Hong Kong directly to customers located in the United States.

NOTE M  CONCENTRATION OF CREDIT AND OTHER RISKS

The Company sells on credit terms to a majority of its customers, most of
which are U.S., Canadian and Latin American retailers and distributors located
throughout those countries.

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Applica Incorporated and Subsidiaries
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS  CONTINUED

Wal-Mart Corporation accounted for 24.5%, 24.3% and 21.4% of 2002, 2001
and 2000 consolidated net sales, respectively.

A majority of the Companys revenue is generated from the sale of Black &
Decker® branded products, which represented approximately 62%, 63% and 60% of
consolidated net sales in 2002, 2001 and 2000, respectively.

The Companys allowance for doubtful accounts is based on managements
estimates of the creditworthiness of its customers, current economic conditions
and historical information, and, in the opinion of management is believed to be
set in an amount sufficient to respond to normal business conditions.
Management sets specific reserves for customers in bankruptcy and other
reserves for the remaining customers. Should business conditions deteriorate
or any major credit customer default on its obligations to the Company, this
allowance may need to be increased which may have an adverse impact upon the
Companys earnings. In 2002, 2001 and 2000, the allowance for bad debt was
$15.8 million, $10.5 million and $8.0 million, respectively.

On September 28, 2002, Applica Consumer Products, Inc. entered into credit
approved receivables purchasing agreements with CIT Group/Commercial Services,
Inc. (CIT). The agreements allow Applica to transfer to CIT, without
recourse, approved receivables under certain circumstances, including the
bankruptcy of covered customers. Applica remains the servicer of the approved
receivables and pays fees based upon a percentage of the gross face amount of
each approved receivable. These agreements are strictly to insure selected
receivables. On January 17, 2003, the agreement covering receivables from a
significant customer was converted into a full notification agreement under
which CIT has agreed to purchase all approved receivables of such customer.

The Companys manufacturing operations are conducted and located abroad.
The Company also sells its products to customers located in foreign
jurisdictions, including Latin America, Canada and China. Prior to the
acquisition of the Black & Decker Household Products Group, the majority of the
Companys products were manufactured by its Hong Kong based manufacturing
subsidiary, Applica Durable Manufacturing Limited. In connection with the
acquisition, the Company acquired additional manufacturing facilities in
Queretaro, Mexico, a country in which the Company had not previously
manufactured products. The geographical distances between China, the United
States and Mexico create a number of logistical and communications challenges.
Because the Company manufactures its products and conducts business in several
foreign countries, the Company is affected by economic and political conditions
in those countries, including fluctuations in the value of currency, increased
duties, possible employee turnover, labor unrest, lack of developed
infrastructure, longer payment cycles, greater difficulty in collecting
accounts receivable, and the burdens and costs of compliance with a variety of
foreign laws. Changes in policies by the United States or foreign governments
resulting in, among other things, increased duties, higher taxation, currency
conversion limitations, restrictions on the transfer of funds, limitations on
imports or exports, or the expropriation of private enterprises could have a
material adverse effect on the Company, its results of operations, prospects or
debt service ability. The Company could also be adversely affected if the
current policies encouraging foreign investment or foreign trade by its host
countries were to be reversed.

If the Company determines that it is necessary to relocate the Companys
manufacturing facilities from China or Mexico and is unable to do so, due to
confiscation, expropriation, nationalization, embargoes, governmental
restrictions or otherwise, the Company would incur substantial operating and
capital losses, including losses resulting from business disruption and delays
in production. In addition, as a result of a relocation of its manufacturing
equipment and certain other assets, the Company would likely incur relatively
higher manufacturing costs. A relocation could also adversely affect the
Companys revenues if the demand for the Companys products currently
manufactured in China and Mexico decreases due to a disruption in the
production and delivery of such products or due to higher prices which might
result from increased manufacturing costs. Furthermore, earnings could be
adversely affected due to reduced sales and/or the Companys inability to
maintain its current margins on the products currently manufactured in China
and Mexico.

China gained Permanent Normal Trade Relations (PNTR) with the United
States when it acceded to the World Trade Organization (WTO), effective
January 1, 2002. The United States imposes the lowest applicable tariffs on
exports from PNTR countries to the United States. In order to maintain its
WTO membership, China has agreed to several requirements, including the
elimination of caps on foreign ownership of Chinese companies, lowering tariffs
and publicizing its laws. No assurance can be given that China will meet these
requirements and remain a member of the WTO, or that its PNTR trading status
will be maintained. If Chinas WTO membership is withdrawn or if PNTR status
for goods produced in China were removed, there could be a substantial increase
in

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Applica Incorporated and Subsidiaries
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS  CONTINUED

tariffs imposed on goods of Chinese origin entering the United States,
including those manufactured by us, which would have a material adverse impact
on our business, financial condition and results of operations.

Applica Durable Manufacturing Limited is incorporated in Hong Kong and its
executive sales offices and its senior executives are located or reside there.
The Company also conducts significant trading activities through subsidiaries
incorporated in Hong Kong, which may be influenced by the changing political
situation in Hong Kong and by the general state of the Hong Kong economy. In
July 1997, sovereignty over Hong Kong was transferred from the United Kingdom
to China, and Hong Kong became a Special Administrative Region. There can be
no assurance that the transfer of sovereignty over Hong Kong will not have a
material adverse affect on the Companys business, financial condition and
results of operations.

Applica Manufacturing, S. de R.L. de C.V., the Companys Mexican
manufacturing facility, is incorporated in Mexico. 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.

NOTE N  RELATED PARTY TRANSACTIONS

The Company uses the services of TJK Sales, Inc. (TJK), an independent
sales representative. Thomas J. Kane, a member of the Companys Board of
Directors, was the sole shareholder and Chief Executive Officer of TJK.
Commissions and consulting payments to TJK totaled $125,000, 179,000 and
$183,000 in 2002, 2001 and 2000, respectively. The Company also reimburses TJK
for out-of-pocket expenses. In January 2003, the Company entered into an
agreement with Mr. Kane, pursuant to which the Company will pay him $3,000 per
month plus certain expenses in return for his services as a sales
representative to J.C. Penney. The agreement may be terminated by either party
on 30 days notice.

Included in receivables from affiliates at December 31, 2002 and 2001 are
$986,000 and $1.3 million, respectively, due from David M. Friedson, the
Companys Chairman of the Board. Such amount is due upon demand and bears
interest at LIBOR plus 1.5% (2.94% at December 31, 2002).

Also included in receivables from affiliates at December 31, 2002 and 2001
are $586,035 and $442,043 respectively, due from certain of the Companys
executive officers. Such amounts are due on June 30, 2003 or upon termination
of the applicable employment contract, and bear interest at the prevailing
market rate.

In April 1999, the Company sold 210,000 shares of authorized Common Stock
at the fair market value of $7.125 per share to David Friedson in exchange for
a collateralized promissory note. The note is on a full recourse basis, with a
maturity date of April 2005 and bears interest at LIBOR plus 2.75% (4.19% at
December 31, 2002). The amount due to the Company, including accrued interest,
at December 31, 2002 and 2001 was $1.9 and $1.8 million, respectively.

Pursuant to his employment agreement, Belvin Friedson, the founder of the
Company, agreed to provide advisory services to the Company subsequent to his
resignation as Chief Executive Officer. Such agreement is terminable on three
years notice. In 2002, 2001 and 2000, Mr. Friedson received annual
compensation from the Company of $375,000 under such agreement, which was
executed in 1983. He also participated in the Companys executive life
insurance plan and had use of a company car. Mr. Friedson is the father of
David Friedson.

In 2000, the Company was a tour sponsor for Ballet Folklorico de Mexico de
Amalia Hernandez and paid approximately $188,000 in connection therewith. The
Company received radio, print and television promotions in theater displays and
in theater promotions as part of its sponsorship package. Adam Friedson,
through his company, Friedson Enterprises, is a producer of such show. Adam
Friedson is the brother of David Friedson. A payment of $22,500 was made to
the Ballet Folklorico in 2001. No payments were made to the Ballet Folklorico
in 2002.

In December 2002, the Company sold its remaining 20% equity interest in
Lion Brothers Co. Ltd. (Lion Brothers) for $50,000 to a company directly or
indirectly owned (through family members) by Susan Ganz. Susan

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Applica Incorporated and Subsidiaries
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS  CONTINUED

Ganz, a director of Applica, is President of Lion Brothers and is the
owner, directly or indirectly through family members, of such company. There
was no gain or loss on this transaction.

NOTE O  FINANCIAL INSTRUMENTS

Interest Rate Risk Management

The Company is exposed to the impact of interest rate changes. The
Companys objective is to manage the impact of interest rate changes on
earnings and cash flows and on the market value of its borrowings. The Company
maintains fixed rate debt as a percentage of its net debt between a minimum and
maximum percentage, which is set by policy.

It is the Companys policy to enter into interest rate risk management
transactions only to the extent considered necessary to meet its objectives as
set forth above. The Company does not enter into interest rate risk management
transactions for speculative purposes.

Significant interest rate risk management instruments held by the Company
during 2002 and 2001 included pay-floating swaps, pay-fixed swaps and interest
rate caps. The pay-floating swap effectively converts medium term fixed-rate
obligations to LIBOR-rate indexed variable-rate instruments. Pay-fixed swaps
effectively convert floating-rate obligations to fixed-rate instruments.
Interest rate caps provide protection against rising interest rates. All swaps
that qualify for fair value hedging, have maturity dates that mirror the
maturity date of the underlying hedged transaction. At December 31, 2002 and
2001, the Company did not discontinue any hedges due to the probability that
the original underlying forecasted transaction would not occur.

The impact of interest rate risk management activities on pre-tax income
was a net loss of $0.3 million in 2002, a net gain of $1.7 million in 2001 and
a net loss of $0.5 million in 2000.

Foreign Exchange Risk Management

The Company transacts business globally and is subject to risks associated
with changing foreign exchange rates. The Companys objective is to reduce
earnings and cash flow volatility associated with foreign exchange rate changes
to allow management to focus attention on core business issues and challenges.
By policy, the Company maintains hedge coverage between minimum and maximum
percentages of its forecasted foreign exchange exposures for periods not to
exceed eighteen months. The gains and losses on these contracts offset changes
in the value of the related exposures.

It is the Companys policy to enter into foreign currency transactions
only to the extent considered necessary to meet its objectives as set forth
above. The Company does not enter into foreign currency transactions for
speculative purposes.

The Company enters into various contracts that change in value as foreign
exchange rates change to protect the value of its existing foreign currency
assets and liabilities, commitments and forecasted foreign currency revenues.
The Company uses option strategies and forward contracts that provide for the
purchase and sale of foreign currencies to hedge forecasted revenues and
expenses. The Company also uses forward contracts to hedge foreign currency
assets and liabilities. While these hedging instruments are subject to
fluctuations in value, such fluctuations are offset by changes in the value of
the underlying exposures being hedged. The principal currencies hedged are the
Mexican peso, Chinese renminbi, Hong Kong dollar and Canadian dollar.

The impact of foreign exchange risk management activities on operating
income was a net gain of $0.1 million in 2002, a net gain of $0.7 million in
2001 and $0.3 million in 2000.

Fair Value of Financial Instruments

At December 31, 2002 and 2001, the Companys financial instruments
included cash, cash equivalents, receivables, accounts payable, borrowings and
interest rate, forward and foreign exchange risk management contracts. At
December 31, 2002 and 2001, the fair values of cash and cash equivalents,
receivables and accounts payable approximated carrying values because of the
short-term nature of these instruments. The estimated fair values of other
financial instruments subject to fair value disclosures, determined based on
broker quotes or quoted market prices or rates for the same or similar
instruments, and the related carrying amounts are as follows:

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NOTES TO CONSOLIDATED FINANCIAL STATEMENTS  CONTINUED

|                              |                           |   |                 |        |            |   |                |        |                 |   |         |         |  |   |         |        |  
|----------------------------- | ------------------------- | - | --------------- | ------ | ---------- | - | -------------- | ------ | --------------- | - | ------- | ------- |  | - | ------- | ------ | -
|                              |                           |   | 2002            |        | 2001      
|                              |                           |   |                 |        |           
|                              |                           |   | Carrying        |        |            |   |                |        | Carrying        |   |         |         | 
|                              |                           |   | Amount/Notional |        |            |   |                |        | Amount/Notional |   |         |         | 
|                              |                           |   | Amount          |        | Fair Value |   | Amount         |        | Fair Value     
|                              |                           |   |                 |        |            |   |                |        |                
|                              |                           |   |                 |        |            |   | (In thousands) |        |                 |   |        
|Borrowings(1)                 |                           | $ | 193,982         |        |            | $ | 193,332        |        |                 | $ | 225,726 |         |  | $ | 224,426 |       
|Risk management contracts(2): |                           |   |                 |        |            |   |                |        |                 |   |         |         |  |   |         |       
|                              | Foreign exchange forwards |   | $               | 7,000  |            |   | $              | 48     |                 |   | $       | 15,583  |  |   | $       | (49    | )
|                              | Foreign exchange options  |   | $               | 34,049 |            |   | $              | (1,734 | )               |   | $       | 39,818  |  |   | $       | (1,429 | )
|                              | Interest rate swaps       |   | $               | 20,939 |            |   | $              | 153    |                 |   | $       | 139,000 |  |   | $       | (1,906 | )
|                              | Interest rate caps        |   |                 |       |            |   |                |       |                 |   | $       | 60,000  |  |   |         |       |  



---

|(1) |  | The fair value of borrowings was approximated at carrying value, except
for the 10% Senior Subordinated Notes, which were valued at 99.5% and
99.0% at December 31, 2002 and 2001, respectively, based upon quoted
market prices.                                                                                                                                                                                                                                                                                                        
|--- |  | -----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
|   
|(2) |  | The fair value of risk management contracts was based upon quotes from
outside parties. Fair value amounts change with market conditions and
will be substantially offset by changes in the value of the related hedged
transaction. A positive fair value represents the amount the Company
would receive upon exiting the contracts and a negative fair value
represents the amount the Company would pay upon exiting the contracts.
The Company intends to hold all contracts to maturity, at which time the
fair value will be zero.

Credit Concentrations

The Company continually monitors its positions with, and the credit
quality of, the financial institutions that are counterparties to its financial
instruments, and does not anticipate nonperformance by the counterparties. The
Company would not have realized a material loss as of December 31, 2002 in the
event of nonperformance by any one counterparty. The Company enters into
transactions only with financial institution counterparties that have a credit
rating of A or better. In addition, the Company limits the amount of
investment credit exposure with any one institution.

NOTE P  CONDENSED CONSOLIDATING FINANCIAL INFORMATION

The Companys domestic subsidiaries are guarantors of the Companys 10%
Senior Subordinated Notes. 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 (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 that the
guarantor subsidiaries were in place for all periods presented. The Company
and guarantor subsidiaries have accounted for investments in their respective
subsidiaries on an unconsolidated basis using the equity method of accounting.
The guarantor subsidiaries are wholly owned subsidiaries of the Company and
have fully and unconditionally guaranteed the notes on a joint and several
basis. The notes contain certain covenants which, among other things, restrict
the ability of the guarantor subsidiaries to make distributions to Applica
Incorporated. The Company has not presented separate financial statements and
other disclosures concerning the guarantor subsidiaries and non-guarantor
subsidiaries because it has determined they would not be material to investors.

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Applica Incorporated and Subsidiaries
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS  CONTINUED

|                                                                           |                   |                                                                                     |          |                              |         |            |          |            |                |              |         |              |         |   |          |         |          |   |         |         |         |  
|-------------------------------------------------------------------------- | ----------------- | ----------------------------------------------------------------------------------- | -------- | ---------------------------- | ------- | ---------- | -------- | ---------- | -------------- | ------------ | ------- | ------------ | ------- | - | -------- | ------- | -------- | - | ------- | ------- | ------- | -
|                                                                           |                   |                                                                                     |          | Year Ended December 31, 2002
|                                                                           |                   |                                                                                     |          |                             
|                                                                           |                   |                                                                                     |          | Applica                      |         |            |          |            |                | Non-         |         |              |         |   |          |         |          |  
|                                                                           |                   |                                                                                     |          | Incorporated                 |         | Guarantors |          | Guarantors |                | Eliminations |         | Consolidated
|                                                                           |                   |                                                                                     |          |                              |         |            |          |            |                |              |         |             
|                                                                           |                   |                                                                                     |          |                              |         |            |          |            | (In thousands) |              |         |              |        
|Statement of Operations:                                                   |                   |                                                                                     |          |                              |         |            |          |            |                |              |         |              |         |   |          |         |          |   |         |        
|Sales                                                                      |                   | $                                                                                   |         |                              |         | $          | 544,493  |            |                | $            | 486,381 |              |         | $ | (303,518 | )       |          | $ | 727,356 |        
|Cost of goods sold                                                         |                   |                                                                                     |         |                              |         |            | 363,916  |            |                |              | 434,677 |              |         |   | (303,518 | )       |          |   | 495,075 |        
|                                                                           |                   |                                                                                     |          |                              |         |            |          |            |                |              |         |              |         |   |          |         |          |   |         |        
|                                                                           |                   | Gross profit                                                                        |          |                              |        |            |          |            | 180,577        |              |         |              | 51,704  |   |          |         |         |   |         |         | 232,281 |  
|Operating (income) expenses                                                |                   |                                                                                     | (1,063   | )                            |         |            | 157,952  |            |                |              | 38,140  |              |         |   |         |         |          |   | 195,029 |        
|Repositioning charge                                                       |                   |                                                                                     |         |                              |         |            | 10,643   |            |                |              |        |              |         |   |         |         |          |   | 10,643  |        
|                                                                           |                   |                                                                                     |          |                              |         |            |          |            |                |              |         |              |         |   |          |         |          |   |         |        
|Operating profit (loss)                                                    |                   |                                                                                     | 1,063    |                              |         |            | 11,982   |            |                |              | 13,564  |              |         |   |         |         |          |   | 26,609  |        
|Other (income) expense, net                                                |                   |                                                                                     | (103     | )                            |         |            | (4,524   | )          |                |              | 20,706  |              |         |   | (289     | )       |          |   | 15,790  |        
|Gain on litigation settlement                                              |                   |                                                                                     |         |                              |         |            | (1,070   | )          |                |              | 513     |              |         |   |         |         |          |   | (557    | )      
|                                                                           |                   |                                                                                     |          |                              |         |            |          |            |                |              |         |              |         |   |          |         |          |   |         |        
|                                                                           |                   | Earnings (loss) before income taxes and
equity in earnings (loss) of joint
ventures |          |                              | 1,166   |            |          |            | 17,576         |              |         |              | (7,655  | ) |          |         | 289      |   |         |         | 11,376  |  
|Income taxes (benefit)                                                     |                   |                                                                                     |         |                              |         |            | 2,807    |            |                |              | 2,019   |              |         |   |         |         |          |   | 4,826   |        
|Equity in earnings (loss) of joint ventures                                |                   |                                                                                     |         |                              |         |            | (1,498   | )          |                |              |        |              |         |   |         |         |          |   | (1,498  | )      
|                                                                           |                   |                                                                                     |          |                              |         |            |          |            |                |              |         |              |         |   |          |         |          |   |         |        
|Earnings (loss) before cumulative effect
of change in accounting principle |                   |                                                                                     | 1,166    |                              |         |            | 13,271   |            |                |              | (9,674  | )            |         |   | 289      |         |          |   | 5,052   |        
|Cumulative effect of change in accounting                                  |                   |                                                                                     |         |                              |         |            | (121,276 | )          |                |              |        |              |         |   | 42,447   |         |          |   | (78,829 | )      
|                                                                           |                   |                                                                                     |          |                              |         |            |          |            |                |              |         |              |         |   |          |         |          |   |         |        
|                                                                           |                   | Net earnings (loss)                                                                 |          | $                            | 1,166   |            |          | $          | (108,005       | )            |         | $            | (9,674  | ) |          | $       | 42,736   |   |         | $       | (73,777 | )
|                                                                           |                   |                                                                                     |          |                              |         |            |          |            |                |              |         |              |         |   |          |         |          |   |         |        
|                                                                           |                   |                                                                                     |          |                              |         |            |          |            |                |              |         |              |         |   |          |         |          |   |         |        
|Balance Sheet:                                                             |                   |                                                                                     |          |                              |         |            |          |            |                |              |         |              |         |   |          |         |          |   |         |        
|Cash                                                                       |                   | $                                                                                   |         |                              |         | $          | 3,609    |            |                | $            | 4,074   |              |         | $ |         |         |          | $ | 7,683   |        
|Accounts and other receivables                                             |                   |                                                                                     |         |                              |         |            | 104,739  |            |                |              | 41,828  |              |         |   |         |         |          |   | 146,567 |        
|Receivables from affiliates                                                |                   |                                                                                     | (133,680 | )                            |         |            | 97,538   |            |                |              | 38,202  |              |         |   |         |         |          |   | 2,060   |        
|Inventories                                                                |                   |                                                                                     |         |                              |         |            | 80,584   |            |                |              | 30,869  |              |         |   |         |         |          |   | 111,453 |        
|Future income tax benefit                                                  |                   |                                                                                     |         |                              |         |            |         |            |                |              |        |              |         |   | 18,654   |         |          |   | 18,654  |        
|Other current assets                                                       |                   |                                                                                     |         |                              |         |            | 781      |            |                |              | 10,932  |              |         |   | 1,812    |         |          |   | 13,525  |        
|                                                                           |                   |                                                                                     |          |                              |         |            |          |            |                |              |         |              |         |   |          |         |          |   |         |        
|Total current assets                                                       |                   |                                                                                     | (133,680 | )                            |         |            | 287,251  |            |                |              | 125,905 |              |         |   | 20,466   |         |          |   | 299,942 |        
|Investments                                                                |                   |                                                                                     | 425,019  |                              |         |            | 113,482  |            |                |              | 70,430  |              |         |   | (607,682 | )       |          |   | 1,249   |        
|Property, plant and equipment, net                                         |                   |                                                                                     |         |                              |         |            | 18,363   |            |                |              | 58,600  |              |         |   |         |         |          |   | 76,963  |        
|Long-term future income tax benefit                                        |                   |                                                                                     |         |                              |         |            | 22,270   |            |                |              | 1,974   |              |         |   | 30,134   |         |          |   | 54,378  |        
|Intangible assets                                                          |                   |                                                                                     | 2,473    |                              |         |            | 117,280  |            |                |              | 26,478  |              |         |   | (57,098  | )       |          |   | 89,133  |        
|                                                                           |                   |                                                                                     |          |                              |         |            |          |            |                |              |         |              |         |   |          |         |          |   |         |        
|                                                                           |                   | Total assets                                                                        |          | $                            | 293,812 |            |          | $          | 558,646        |              |         | $            | 283,387 |   |          | $       | (614,180 | ) |         | $       | 521,665 |  
|                                                                           |                   |                                                                                     |          |                              |         |            |          |            |                |              |         |              |         |   |          |         |          |   |         |        
|Notes and acceptances payable                                              |                   | $                                                                                   |         |                              |         | $          |         |            |                | $            |        |              |         | $ |         |         |          | $ |        |        
|Accounts payable and accrued expenses                                      |                   |                                                                                     | 2        |                              |         |            | 62,854   |            |                |              | 43,276  |              |         |   |         |         |          |   | 106,132 |        
|Current maturities of long-term debt                                       |                   |                                                                                     |         |                              |         |            | 144      |            |                |              |        |              |         |   |         |         |          |   | 144     |        
|Deferred income, current portion                                           |                   |                                                                                     |         |                              |         |            | 372      |            |                |              |        |              |         |   |         |         |          |   | 372     |        
|Income taxes payable                                                       |                   |                                                                                     |         |                              |         |            | (71      | )          |                |              | (516    | )            |         |   | 1,105    |         |          |   | 518     |        
|Other current liabilities                                                  |                   |                                                                                     |         |                              |         |            |         |            |                |              |        |              |         |   |         |         |          |   |        |        
|                                                                           |                   |                                                                                     |          |                              |         |            |          |            |                |              |         |              |         |   |          |         |          |   |         |        
|                                                                           |                   | Total current liabilities                                                           |          |                              | 2       |            |          |            | 63,299         |              |         |              | 42,760  |   |          |         | 1,105    |   |         |         | 107,166 |  
|Long-term debt                                                             |                   |                                                                                     | 185,070  |                              |         |            | 40,463   |            |                |              | 20,706  |              |         |   | (52,401  | )       |          |   | 193,838 |        
|Deferred income, less current portion                                      |                   |                                                                                     |         |                              |         |            |         |            |                |              |        |              |         |   |         |         |          |   |        |        
|Deferred income taxes                                                      |                   |                                                                                     |         |                              |         |            | 22,382   |            |                |              | 1,146   |              |         |   | (23,528  | )       |          |   |        |        
|Other long term liabilities                                                |                   |                                                                                     |         |                              |         |            | (153     | )          |                |              |        |              |         |   | 1,686    |         |          |   | 1,533   |        
|                                                                           | Total liabilities |                                                                                     |          | 185,072                      |         |            |          | 125,991    |                |              |         | 64,612       |         |   |          | (73,138 | )        |   |         | 302,537 |        
|Shareholders equity                                                       |                   |                                                                                     | 108,740  |                              |         |            | 432,655  |            |                |              | 218,775 |              |         |   | (541,042 | )       |          |   | 219,128 |        
|                                                                           |                   |                                                                                     |          |                              |         |            |          |            |                |              |         |              |         |   |          |         |          |   |         |        
|                                                                           |                   | Total liabilities and shareholders equity                                          |          | $                            | 293,812 |            |          | $          | 558,646        |              |         | $            | 283,387 |   |          | $       | (614,180 | ) |         | $       | 521,665 |  
|                                                                           |                   |                                                                                     |          |                              |         |            |          |            |                |              |         |              |         |   |          |         |          |   |         |        
|                                                                           |                   |                                                                                     |          |                              |         |            |          |            |                |              |         |              |         |   |          |         |          |   |         |        
|Cash Flow Information:                                                     |                   |                                                                                     |          |                              |         |            |          |            |                |              |         |              |         |   |          |         |          |   |         |        
|Net cash provided by (used in) operating
activities                        |                   | $                                                                                   | 954      |                              |         | $          | 25,558   |            |                | $            | 18,659  |              |         | $ | 8,808    |         |          | $ | 53,979  |        
|Net cash provided by (used in) investing
activities                        |                   |                                                                                     | 33,362   |                              |         |            | (50,116  | )          |                |              | (17,642 | )            |         |   | 2,940    |         |          |   | (31,456 | )      
|Net cash provided by (used in) financing
activities                        |                   |                                                                                     | (34,316  | )                            |         |            | 27,411   |            |                |              | (11,930 | )            |         |   | (11,748  | )       |          |   | (30,583 | )      
|Cash at beginning                                                          |                   |                                                                                     |         |                              |         |            | 756      |            |                |              | 14,987  |              |         |   |         |         |          |   | 15,743  |        
|Cash at end                                                                |                   | $                                                                                   |         |                              |         | $          | 3,609    |            |                | $            | 4,074   |              |         | $ |         |         |          | $ | 7,683   |        

F-31



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##### Table of Contents



Applica Incorporated and Subsidiaries
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS  CONTINUED

|                                                    |                                                                                     |   |                              |          |            |   |            |         |              |   |                |         |   |   |          |          |   |   |         |         |  
|--------------------------------------------------- | ----------------------------------------------------------------------------------- | - | ---------------------------- | -------- | ---------- | - | ---------- | ------- | ------------ | - | -------------- | ------- | - | - | -------- | -------- | - | - | ------- | ------- | -
|                                                    |                                                                                     |   | Year Ended December 31, 2001
|                                                    |                                                                                     |   |                             
|                                                    |                                                                                     |   | Applica                      |          |            |   |            |         | Non-         |   |                |         |   |   |          |          |  
|                                                    |                                                                                     |   | Incorporated                 |          | Guarantors |   | Guarantors |         | Eliminations |   | Consolidated  
|                                                    |                                                                                     |   |                              |          |            |   |            |         |              |   |               
|                                                    |                                                                                     |   |                              |          |            |   |            |         |              |   | (In thousands) |         |   |   |         
|Statement of Operations:                            |                                                                                     |   |                              |          |            |   |            |         |              |   |                |         |   |   |          |          |   |   |         |        
|Sales                                               |                                                                                     | $ |                             |          |            | $ | 528,932    |         |              | $ | 511,039        |         |   | $ | (312,927 | )        |   | $ | 727,044 |        
|Cost of goods sold                                  |                                                                                     |   |                             |          |            |   | 387,187    |         |              |   | 441,773        |         |   |   | (312,927 | )        |   |   | 516,033 |        
|Cost of goods sold  reposition                     |                                                                                     |   |                             |          |            |   |           |         |              |   | 13,418         |         |   |   |         |          |   |   | 13,418  |        
|                                                    |                                                                                     |   |                              |          |            |   |            |         |              |   |                |         |   |   |          |          |   |   |         |        
|                                                    | Gross profit                                                                        |   |                              |         |            |   |            | 141,745 |              |   |                | 55,848  |   |   |          |         |   |   |         | 197,593 |  
|Operating (income) expenses                         |                                                                                     |   | (1,563                       | )        |            |   | 154,387    |         |              |   | 32,982         |         |   |   | 604      |          |   |   | 186,410 |        
|Repositioning charge                                |                                                                                     |   |                             |          |            |   | 14,288     |         |              |   | 529            |         |   |   |         |          |   |   | 14,817  |        
|                                                    |                                                                                     |   |                              |          |            |   |            |         |              |   |                |         |   |   |          |          |   |   |         |        
|Operating profit (loss)                             |                                                                                     |   | 1,563                        |          |            |   | (26,930    | )       |              |   | 22,337         |         |   |   | (604     | )        |   |   | (3,634  | )      
|Other (income) expense, net                         |                                                                                     |   | 20,927                       |          |            |   | (31,642    | )       |              |   | 19,857         |         |   |   | 11,388   |          |   |   | 20,530  |        
|                                                    |                                                                                     |   |                              |          |            |   |            |         |              |   |                |         |   |   |          |          |   |   |         |        
|                                                    | Earnings (loss) before income taxes and equity in earnings
(loss) of joint ventures |   |                              | (19,364  | )          |   |            | 4,712   |              |   |                | 2,480   |   |   |          | (11,992  | ) |   |         | (24,164 | )
|Equity in earnings (loss) of joint ventures         |                                                                                     |   |                             |          |            |   | (128       | )       |              |   |               |         |   |   |         |          |   |   | (128    | )      
|Income taxes (benefit)                              |                                                                                     |   |                             |          |            |   | (2,010     | )       |              |   | 14,793         |         |   |   | (8,637   | )        |   |   | 4,146   |        
|                                                    |                                                                                     |   |                              |          |            |   |            |         |              |   |                |         |   |   |          |          |   |   |         |        
|                                                    | Net earnings (loss)                                                                 |   | $                            | (19,364  | )          |   | $          | 6,594   |              |   | $              | (12,313 | ) |   | $        | (3,355   | ) |   | $       | (28,438 | )
|                                                    |                                                                                     |   |                              |          |            |   |            |         |              |   |                |         |   |   |          |          |   |   |         |        
|                                                    |                                                                                     |   |                              |          |            |   |            |         |              |   |                |         |   |   |          |          |   |   |         |        
|Balance Sheet:                                      |                                                                                     |   |                              |          |            |   |            |         |              |   |                |         |   |   |          |          |   |   |         |        
|Cash                                                |                                                                                     | $ |                             |          |            | $ | 756        |         |              | $ | 14,987         |         |   | $ |         |          |   | $ | 15,743  |        
|Accounts and other receivables                      |                                                                                     |   |                             |          |            |   | 120,917    |         |              |   | 62,033         |         |   |   |         |          |   |   | 182,950 |        
|Receivables from affiliates                         |                                                                                     |   | (100,418                     | )        |            |   | 72,734     |         |              |   | 31,215         |         |   |   |         |          |   |   | 3,531   |        
|Inventories                                         |                                                                                     |   |                             |          |            |   | 62,997     |         |              |   | 40,719         |         |   |   |         |          |   |   | 103,716 |        
|Future income tax benefit                           |                                                                                     |   |                             |          |            |   |           |         |              |   |               |         |   |   | 23,649   |          |   |   | 23,649  |        
|Other current assets                                |                                                                                     |   |                             |          |            |   | 970        |         |              |   | 11,458         |         |   |   | 126      |          |   |   | 12,554  |        
|                                                    |                                                                                     |   |                              |          |            |   |            |         |              |   |                |         |   |   |          |          |   |   |         |        
|                                                    | Total current assets                                                                |   |                              | (100,418 | )          |   |            | 258,374 |              |   |                | 160,412 |   |   |          | 23,775   |   |   |         | 342,143 |  
|Investments                                         |                                                                                     |   | 425,119                      |          |            |   | 113,568    |         |              |   | 70,493         |         |   |   | (607,768 | )        |   |   | 1,412   |        
|Property, plant and equipment, net                  |                                                                                     |   |                             |          |            |   | 17,937     |         |              |   | 64,400         |         |   |   |         |          |   |   | 82,337  |        
|Long-term future income tax benefit                 |                                                                                     |   |                             |          |            |   | 22,795     |         |              |   | 650            |         |   |   | (15,390  | )        |   |   | 8,055   |        
|Intangible assets                                   |                                                                                     |   | 2,260                        |          |            |   | 208,014    |         |              |   | 35,325         |         |   |   | (45,862  | )        |   |   | 199,737 |        
|                                                    |                                                                                     |   |                              |          |            |   |            |         |              |   |                |         |   |   |          |          |   |   |         |        
|                                                    | Total assets                                                                        |   | $                            | 326,961  |            |   | $          | 620,688 |              |   | $              | 331,280 |   |   | $        | (645,245 | ) |   | $       | 633,684 |  
|                                                    |                                                                                     |   |                              |          |            |   |            |         |              |   |                |         |   |   |          |          |   |   |         |        
|Notes and acceptances payable                       |                                                                                     | $ |                             |          |            | $ |           |         |              | $ |               |         |   | $ |         |          |   | $ |        |        
|Accounts payable and accrued expenses               |                                                                                     |   | 1                            |          |            |   | 45,516     |         |              |   | 61,156         |         |   |   |         |          |   |   | 106,673 |        
|Current maturities of long-term debt                |                                                                                     |   |                             |          |            |   |           |         |              |   |               |         |   |   |         |          |   |   |        |        
|Deferred income, current portion                    |                                                                                     |   |                             |          |            |   | 443        |         |              |   |               |         |   |   |         |          |   |   | 443     |        
|Income taxes payable                                |                                                                                     |   |                             |          |            |   | (1,515     | )       |              |   | 7,312          |         |   |   | 1,106    |          |   |   | 6,903   |        
|Other current liabilities                           |                                                                                     |   |                             |          |            |   |           |         |              |   |               |         |   |   |         |          |   |   |        |        
|                                                    |                                                                                     |   |                              |          |            |   |            |         |              |   |                |         |   |   |          |          |   |   |         |        
|                                                    | Total current liabilities                                                           |   |                              | 1        |            |   |            | 44,444  |              |   |                | 68,468  |   |   |          | 1,106    |   |   |         | 114,019 |  
|Long-term debt                                      |                                                                                     |   | 220,709                      |          |            |   | 15,963     |         |              |   | 32,779         |         |   |   | (43,725  | )        |   |   | 225,726 |        
|Deferred income, less current portion               |                                                                                     |   |                             |          |            |   |           |         |              |   |               |         |   |   |         |          |   |   |        |        
|Deferred income taxes                               |                                                                                     |   |                             |          |            |   | 22,388     |         |              |   | 1,727          |         |   |   | (24,115  | )        |   |   |        |        
|Other long-term liabilities                         |                                                                                     |   |                             |          |            |   |           |         |              |   |               |         |   |   |         |          |   |   |        |        
|                                                    |                                                                                     |   |                              |          |            |   |            |         |              |   |                |         |   |   |          |          |   |   |         |        
|                                                    | Total liabilities                                                                   |   |                              | 220,710  |            |   |            | 82,795  |              |   |                | 102,974 |   |   |          | (66,734  | ) |   |         | 339,745 |  
|Shareholders equity                                |                                                                                     |   | 106,251                      |          |            |   | 537,893    |         |              |   | 228,306        |         |   |   | (578,511 | )        |   |   | 293,939 |        
|                                                    |                                                                                     |   |                              |          |            |   |            |         |              |   |                |         |   |   |          |          |   |   |         |        
|Total liabilities and shareholders equity          |                                                                                     | $ | 326,961                      |          |            | $ | 620,688    |         |              | $ | 331,280        |         |   | $ | (645,245 | )        |   | $ | 633,684 |        
|                                                    |                                                                                     |   |                              |          |            |   |            |         |              |   |                |         |   |   |          |          |   |   |         |        
|                                                    |                                                                                     |   |                              |          |            |   |            |         |              |   |                |         |   |   |          |          |   |   |         |        
|Cash Flow Information:                              |                                                                                     |   |                              |          |            |   |            |         |              |   |                |         |   |   |          |          |   |   |         |        
|Net cash provided by (used in) operating activities |                                                                                     | $ | (21,624                      | )        |            | $ | 57,307     |         |              | $ | 19,895         |         |   | $ | 32,334   |          |   | $ | 87,912  |        
|Net cash provided by (used in) investing activities |                                                                                     |   | 69,943                       |          |            |   | (73,445    | )       |              |   | (16,212        | )       |   |   | (3,489   | )        |   |   | (23,203 | )      
|Net cash provided by (used in) financing activities |                                                                                     |   | (48,327                      | )        |            |   | 12,548     |         |              |   | (1,199         | )       |   |   | (28,845  | )        |   |   | (65,823 | )      
|Cash at beginning                                   |                                                                                     |   | 8                            |          |            |   | 4,346      |         |              |   | 12,503         |         |   |   |         |          |   |   | 16,857  |        
|Cash at end                                         |                                                                                     | $ |                             |          |            | $ | 756        |         |              | $ | 14,987         |         |   | $ |         |          |   | $ | 15,743  |        

F-32



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##### Table of Contents






SUPPLEMENTAL FINANCIAL DATA

Quarterly Financial Data (Unaudited)

The following financial information reflects all normal recurring
adjustments that are, in the opinion of management, necessary for a fair
statement of the results of the interim periods. The quarterly results for the
years 2002 and 2001 are set forth in the following table:

|     |                |       |   |         |         |              |   |        |                                       |       |   |              |         |            |   |            |       |          |   |       |       |  
|---- | -------------- | ----- | - | ------- | ------- | ------------ | - | ------ | ------------------------------------- | ----- | - | ------------ | ------- | ---------- | - | ---------- | ----- | -------- | - | ----- | ----- | -
|     |                |       |   |         |         |              |   |        |                                       |       |   |              |         |            |   | Diluted    |       | Basic   
|     |                |       |   |         |         |              |   |        |                                       |       |   |              |         |            |   | Earnings   |       | Earnings
|     |                |       |   |         |         |              |   |        |                                       |       |   | Net Earnings |         | (Loss) Per |   | (Loss) Per
|     |                |       |   | Sales   |         | Gross Profit |   | (Loss) |                                       | Share |   | Share       
|     |                |       |   |         |         |              |   |        |                                       |       |   |             
|     |                |       |   |         |         |              |   |        | (In thousands, except per share data) |       |   |              |        
|2002 |                |       |   |         |         |              |   |        |                                       |       |   |              |         |            |   |            |       |          |   |      
|     | First quarter  |       | $ | 143,058 |         |              | $ | 41,390 |                                       |       | $ | (82,010      | )       |            | $ | (3.51      | )(3)  |          | $ | (3.51 | )(3) 
|     | Second quarter |       |   | 168,039 |         |              |   | 53,388 |                                       |       |   | (2,057       | )       |            |   | (0.09      | )     |          |   | (0.09 | )    
|     | Third quarter  |       |   | 194,851 |         |              |   | 64,608 |                                       |       |   | 5,214        |         |            |   | 0.22       |       |          |   | 0.22  |      
|     | Fourth quarter |       |   | 221,408 |         |              |   | 72,895 |                                       |       |   | 5,076        |         |            |   | 0.21       |       |          |   | 0.22  |      
|     |                |       |   |         |         |              |   |        |                                       |       |   |              |         |            |   |            |       |          |   |      
|     |                | Total |   | $       | 727,356 |              |   | $      | 232,281                               |       |   | $            | (73,777 | )          |   | $          | (3.10 | )(2)     |   | $     | (3.15 | )
|     |                |       |   |         |         |              |   |        |                                       |       |   |              |         |            |   |            |       |          |   |      
|     |                |       |   |         |         |              |   |        |                                       |       |   |              |         |            |   |            |       |          |   |      
|2001 |                |       |   |         |         |              |   |        |                                       |       |   |              |         |            |   |            |       |          |   |      
|     | First quarter  |       | $ | 151,821 |         |              | $ | 40,424 |                                       |       | $ | (6,283       | )       |            | $ | (0.27      | )     |          | $ | (0.27 | )    
|     | Second quarter |       |   | 161,664 |         |              |   | 47,667 |                                       |       |   | (2,599       | )       |            |   | (0.11      | )     |          |   | (0.11 | )    
|     | Third quarter  |       |   | 203,201 |         |              |   | 62,056 |                                       |       |   | 8,537        |         |            |   | 0.35       |       |          |   | 0.37  |      
|     | Fourth quarter |       |   | 210,358 |         |              |   | 47,446 |                                       |       |   | (28,093      | )       |            |   | (1.21      | )(1)  |          |   | (1.21 | )(1) 
|     |                |       |   |         |         |              |   |        |                                       |       |   |              |         |            |   |            |       |          |   |      
|     |                | Total |   | $       | 727,044 |              |   | $      | 197,593                               |       |   | $            | (28,438 | )          |   | $          | (1.23 | )(2)     |   | $     | (1.23 | )
|     |                |       |   |         |         |              |   |        |                                       |       |   |              |         |            |   |            |       |          |   |      



---

|(1) |  | In the fourth quarter of 2001, Applica took charges relating to several
events in the aggregate amount of $28.2 million and recorded an additional
tax expense of $10.1 million.                                                                                                                                                                                                                                                                     
|--- |  | -----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
|   
|(2) |  | The sum of the quarters differ from the total due to exclusion of
anti-dilutive effect of stock options in earnings per share calculation in
periods with losses.                                                                                                                                                                                                                                                                                    
|   
|(3) |  | In January 2002, Applica applied the provisions of SFAS 142 Goodwill and
Other Intangible Assets. Based on its impairment test, Applica
recognized an adjustment of $121.3 million ($78.8 million or $3.31 per
share, net of tax on a full year and fully diluted basis) in the first
quarter of 2002 to reduce the carrying value of goodwill to its implied
fair value. There was no cumulative effect of change in accounting
principle in 2001.

F-33



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##### Table of Contents






SCHEDULE II

Applica Incorporated and Subsidiaries

VALUATION AND QUALIFYING ACCOUNTS
(In Thousands)

|                                                   |                                  |        |              |          |          |          |            |          |            |            |   |        |  |  |            |     |     |  |   |        |      |  |   |        | 
|-------------------------------------------------- | -------------------------------- | ------ | ------------ | -------- | -------- | -------- | ---------- | -------- | ---------- | ---------- | - | ------ |  |  | ---------- | --- | --- |  | - | ------ | ---- |  | - | ------ | 
|                                                   |                                  |        | Balance at   |          | Purchase |          | Charged to |          | Charged to |            |   |        |  |  | Balance at
|                                                   |                                  |        | Beginning of |          | Price    |          | Costs and  |          | Other      |            |   |        |  |  | End of    
|Description                                        |                                  | Period |              | Reserves |          | Expenses |            | Accounts |            | Deductions |   | Period
|                                                   |                                  |        |              |          |          |          |            |          |            |            |   |       
|Year ended December 31,
2002                       |                                  |        |              |          |          |          |            |          |            |            |   |        |  |  |            |     |     |  |   |        |      |  |   |       
|Reserves deducted
from assets to
which they apply: |                                  |        |              |          |          |          |            |          |            |            |   |        |  |  |            |     |     |  |   |        |      |  |   |       
|                                                   | Allowance for
doubtful accounts  |        | $            | 10,499   |          |          | $          | (62      | )          |            | $ | 10,618 |  |  |            |    |     |  | $ | (5,225 | )(2) |  | $ | 15,830 | 
|                                                   | Inventory
reserves               |        | $            | 2,831    |          |          |            |         |            |            | $ | 2,929  |  |  |            |    |     |  | $ | (1,451 | )(2) |  | $ | 4,309  | 
|                                                   | Deferred
tax valuation allowance |        | $            | 10,175   |          |          |            |         |            |            |   |       |  |  |            |    |     |  | $ | (20    | )(2) |  | $ | 10,155 | 
|                                                   |                                  |        |              |          |          |          |            |          |            |            |   |        |  |  |            |     |     |  |   |        |      |  |  
|                                                   |                                  |        |              |          |          |          |            |          |            |            |   |        |  |  |            |     |     |  |   |        |      |  |   |       
|Year ended December 31,
2001                       |                                  |        |              |          |          |          |            |          |            |            |   |        |  |  |            |     |     |  |   |        |      |  |   |       
|Reserves deducted
from assets to
which they apply: |                                  |        |              |          |          |          |            |          |            |            |   |        |  |  |            |     |     |  |   |        |      |  |   |       
|                                                   | Allowance for
doubtful accounts  |        | $            | 8,049    |          |          |            |         |            |            | $ | 4,002  |  |  |            |    |     |  | $ | (1,552 | )(2) |  | $ | 10,499 | 
|                                                   | Inventory
reserves               |        | $            | 2,510    |          |          |            |         |            |            | $ | 1,719  |  |  |            |    |     |  | $ | (1,398 | )(2) |  | $ | 2,831  | 
|                                                   | Deferred
tax valuation allowance |        | $            | 4,537    |          |          |            |         |            |            | $ | 5,638  |  |  |            |    |     |  |   |       |      |  | $ | 10,175 | 
|                                                   |                                  |        |              |          |          |          |            |          |            |            |   |        |  |  |            |     |     |  |   |        |      |  |  
|                                                   |                                  |        |              |          |          |          |            |          |            |            |   |        |  |  |            |     |     |  |   |        |      |  |   |       
|Year ended December 31,
2000                       |                                  |        |              |          |          |          |            |          |            |            |   |        |  |  |            |     |     |  |   |        |      |  |   |       
|Reserves deducted
from assets to
which they apply: |                                  |        |              |          |          |          |            |          |            |            |   |        |  |  |            |     |     |  |   |        |      |  |   |       
|                                                   | Allowance for
doubtful accounts  |        | $            | 8,761    |          |          | $          | (2,293   | )          |            | $ | 2,671  |  |  | $          | 253 | (1) |  | $ | (1,343 | )(2) |  | $ | 8,049  | 
|                                                   | Inentory
reserves                |        | $            | 3,868    |          |          |            |         |            |            | $ | 2,360  |  |  |            |    |     |  | $ | (3,718 | )(2) |  | $ | 2,510  | 
|                                                   | Deferred
tax valuation           |        |              |         |          |          |            |         |            |            | $ | 4,537  |  |  |            |    |     |  |   |        |      |  | $ | 4,537  | 
|                                                   |                                  |        |              |          |          |          |            |          |            |            |   |        |  |  |            |     |     |  |   |        |      |  |  



---

|(1) |  | Recoveries of amounts previously written off against the reserve.
|--- |  | -----------------------------------------------------------------
|   
|(2) |  | Write-off against the reserve.                                   

F-34