##### 



UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
 Washington, D.C. 20549
 
 FORM 10-K
 ANNUAL REPORT
PURSUANT TO SECTIONS 13 OR 15(d)
OF THE SECURITIES EXCHANGE ACT OF 1934
 þ
    
    ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 FOR THE
FISCAL YEAR ENDED DECEMBER 31, 2005
  o
    
    TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934
  APPLICA INCORPORATED
 
  Florida
    
    59-1028301(State or other jurisdiction of incorporation or organization)
    
    (I.R.S. Employer Identification Number)3633 Flamingo Road, Miramar, Florida
    
    33027(Address of principal executive offices)
    
    (Zip Code)
   Title of Each Class
    
    Name of Each Exchange On Which RegisteredCommon Stock, $0.10 par value
    
    New York Stock Exchange
  ̈ x
  ̈ x
 x  ̈
 x
  Large Accelerated  ̈
    
    Filer Accelerated
x
    
    Filer Non-Accelerated Filer  ̈
  ̈ x
   DOCUMENTS INCORPORATED BY REFERENCE




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##### 



PART I
 Item 1. Business
 Overview
 ® ® ® ® ®
    
    
    the downsizing and ultimate sale of our Hong Kong-based manufacturing operations;
    
    the downsizing and closure of our manufacturing operations in Mexico;
    
    the establishment of key sourcing partners;
    
    the product and customer profitability initiative; and
    
    a reduction in our workforce in the U.S. and Canada.
  -1-




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##### 



Business Strategy
 ® ® ®
 Pursue strategic alternatives.
 Maximize utility of our brand assets.
 Leverage innovation and strategic marketing to drive profitability.
  -2-




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##### 



Create long-term cost and quality advantages for our customers
 Optimize our supply chain .
 Alvarez & Marsal
  Products
  2005
    
    
    2004
    
    
    2003(Dollars in thousands)Net Sales
    
    
    %
    
    
    Net Sales
    
    
    %
    
    
    Net Sales
    
    
    %Kitchen Products
    
    $
    327,057
    
    
    
    59
    %
    
    $
    435,686
    
    
    
    61
    %
    
    $
    340,689
    
    
    
    55
    %Home Products
    
    
    118,507
    
    
    
    21
    %
    
    
    136,089
    
    
    
    19
    %
    
    
    133,404
    
    
    
    21
    %Personal Care Products
    
    
    54,874
    
    
    
    10
    %
    
    
    63,743
    (1)
    
    
    9
    %
    
    
    67,746
    (1)
    
    
    11
    %Pet Products
    
    
    38,324
    
    
    
    7
    %
    
    
    36,350
    
    
    
    5
    %
    
    
    33,197
    
    
    
    5
    %Pest Control Products
    
    
    8,421
    
    
    
    1
    %
    
    
    14,549
    
    
    
    2
    %
    
    
    16,639
    
    
    
    3
    %Contract Manufacturing(2)
    
    
    8,936
    
    
    
    2
    %
    
    
    17,653
    (3)
    
    
    3
    %
    
    
    28,246
    (3)
    
    
    4
    %Other Products
    
    
    
    
    
    
    0
    %
    
    
    5,702
    
    
    
    1
    %
    
    
    3,515
    
    
    
    1
    %Consolidated
    
    $
    556,119
    
    
    
    100
    %
    
    $
    709,772
    
    
    
    100
    %
    
    $
    623,436
    
    
    
    100
    %
 
 (1)
    
    Includes sales of products by the Jerdon hotel and hospitality division, which was sold
in October 2004. Such sales totaled $8.4 million in 2004 and $13.3 million in 2003.(2)
    
    Includes contract manufacturing sales from our Mexican manufacturing operations, which
ceased operations in October 2005. Such sales totaled $8.9 million in 2005, $3.5 million
in 2004 and $0.9 million in 2003.(3)
    
    Includes contract manufacturing sales from our Hong Kong-based manufacturing
operations, which were sold in July 2004. Such sales totaled $14.2 million in 2004 and
$27.5 million in 2003. ® ®
 -3-




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##### 



® ®
 ®
 ® ® ® ®
 ®
  Product Development
    
    
    the second generation Black & Decker® single cup coffee maker that is a part of
the Home Café brewing system;
    
    the 3-in-1 Open It All Lids Off®, which opens jars, cans and bottles and
constitutes the second generation of jar openers; and
    
    the Gizmo Tilt N Mix® salad dressing mixer, a new Gizmo product that
capitalizes on the current healthy eating trend.
 -4-




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##### 



Brands
 ®
 ®
 ® ®
  Strategic Alliances
 ® ® ®
  Suppliers
    -5-




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##### 



Intellectual Property
   ®
 ® ®
 ® ® ® ® ® ®
 Customers
  Sales, Marketing and Distribution
  -6-




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##### 




    
    strategic marketing, which provides strategic leadership and is responsible for
brand management at a high level;
    
    product portfolio, which leads the development of sourcing strategies, category
specific strategies and new products and drives consumer understanding of core
products at category level;
    
    corporate/channel marketing, which directs customer development through
corporate strategy, product segmentation and direct logistics integration and
coordination through channel and customer planning and development; and
    
    creative services, which develops product packaging and promotional and
informational materials for our products.
    Backlog
  Seasonality
  -7-




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##### 



Competition
   Regulation
 ®
     Employees
  -8-




---



##### 



Other Matters
 www.sec.gov
 www.applicainc.com
 
    
    the charters of the Audit, Compensation and Corporate Governance and Nominating
Committees of our Board of Directors;
    
    the Corporate Governance Guidelines of our Board of Directors; and
    
    our Conflict of Interest and Business Ethics and Code of Conduct policies.
  -9-




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##### 



Item 1A. Risk Factors
  We Purchase A Large Number of Products From One Supplier. Production-Related Risks With This
Supplier Could Jeopardize Our Ability To Realize Anticipated Sales And Profits.
   
    
    substandard product quality; and
    
    production schedule realization.
  We Are Dependent On Key Personnel And The Loss Or These Key Personnel Could Have A Material
Adverse Effect On Our Success .
  The New York Stock Exchange Has Notified Us That We Are Not In Compliance With Its Continued
Listing Criteria. If We Are Delisted By The NYSE, The Price And Liquidity Of Our Common Stock
Will Be Negatively Affected.
   -10-




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##### 



We Depend On Third Party Suppliers For The Manufacturing Of All Of Our Products Which Subjects
Us To Additional Risks.
   
    
    currency fluctuations;
    
    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.
  There Can Be No Assurance That Any Strategic Transaction Will Occur Or, If One Is Undertaken, Of
Its Potential Terms or Timing.
  The Failure Of Our Business Strategy Could Have A Material Adverse Effect On Our Business.
  
    
    maximize utility of our brand assets
    
    leverage innovation and strategic marketing to drive profitability
    
    create long-term cost and quality advantages for our customers; and
    
    optimize our supply chain.
  -11-




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##### 



Our Business Could Be Adversely Affected By Fluctuation of the Chinese Currency
  We Depend On Purchases From Several Large Customers And Any Significant Decline In These
Purchases Or Pressure From These Customers To Reduce Prices Would Have A Negative Effect On
Our Business.
     Increases In Costs Of Products Will Reduce Our Profitability.
  Our Business Is Very Sensitive To The Strength Of The U.S. Retail Market And Weakness In This
Market Could Adversely Affect Our Business.
  Our Business Could Be Adversely Affected By Currency Fluctuations In Our International
Operations.
  -12-




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##### 



Our Business Can Be Adversely Affected By Newly Acquired Businesses Or Product Lines.
  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.
  Our Business Involves The Potential For Product Recalls And Product Liability Claims Against 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.
   -13-




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##### 



Our Business Could Be Adversely Affected By Retailer Inventory Management.
  Our Business Could Be Adversely Affected By Changes In Trade Relations With China.
  If We Are Unable To Renew The Black & Decker® Trademark License Agreement, Our Business Could Be
Adversely Affected.
 ®
 The Infringement Or Loss Of Our Proprietary Rights Could Have An Adverse Effect On Our Business.
   Our Operating Results Are Affected By Seasonality.
  -14-




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##### 



We Compete With Other Large Companies That Produce Similar Products.
  Our Debt Agreements Contain Covenants That Restrict Our Ability To Take Certain Actions.
  Government Regulations Could Adversely Impact Our Operations.
   Item 1B. Unresolved Staff Comments.
  -15-




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##### 



Item 2. Properties
  Location
    
    Description
    
    Area (Sq. Feet)Miramar, Florida
    
    Headquarters, general administration,
sales, marketing and     engineering offices
    
    110,000 LeasedQueretaro, Mexico
    
    Manufacturing, warehouse and office
    
    290,000 Owned (1)Little Rock, Arkansas
    
    Warehouse and distribution
    
    562,000 LeasedMemphis, Tennessee
    
    Warehouse and distribution
    
    140,000(2)Hornlake, Mississippi
    
    Warehouse and distribution
    
    420,000(2)Little Rock, Arkansas
    
    Warehouse and distribution
    
    245,000 Leased (3)Concord, Canada
    
    Sales office, warehouse and distribution
    
    109,000 Leased
 
 (1)
    
    In October 2005, Applica ceased manufacturing operations at the Mexican facility.(2)
    
    These facilities are managed by a third party distribution provider.(3)
    
    The leases for these facilities was terminated in January 2006, except for 35,000
square feet which is used primarily for warehousing.    Item 3. Legal Proceedings
 Shareholder Litigation Scott Schultz, individually and on
behalf of all others similarly situated, v. Applica Incorporated, Harry D. Schulman and Terry L.
Polistina Joseph Rothman, individually and on
behalf of all others similarly situated, v. Applica Incorporated, Harry D. Schulman and Terry L.
Polistina
  -16-




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##### 



Other Matters
  Item 4. Submission of Matters to a Vote of Security Holders
  -17-




---



##### 



PART II
 Item 5. Market for the Registrants Common Stock and Related Stockholder Matters
    Closing PriceHigh
    
    
    Low2004First quarter
    
    $
    11.24
    
    
    $
    7.29Second quarter
    
    $
    14.26
    
    
    $
    8.50Third quarter
    
    $
    8.91
    
    
    $
    3.65Fourth quarter
    
    $
    6.05
    
    
    $
    3.952005First quarter
    
    $
    6.04
    
    
    $
    4.90Second quarter
    
    $
    5.24
    
    
    $
    2.33Third quarter
    
    $
    3.25
    
    
    $
    1.67Fourth quarter
    
    $
    1.89
    
    
    $
    1.27
  Dividends
 Securities Authorized for Issuance Under Equity Compensation Plans
 -18-




---



##### 



Number ofsecuritiesremainingNumber of
    
    
    
    
    
    
    available forthe
futureissuance undersecurities to be
    
    
    Weighted-
    
    
    equityissued upon
    
    
    average
    
    
    compensationexercise of
    
    
    exercise price
    
    
    plansoutstanding
    
    
    of outstanding
    
    
    (excludingoptions,
    
    
    options,
    
    
    securitieswarrants and
    
    
    warrants and
    
    
    reflected inrights
    
    
    rights
    
    
    column (a))Plan Category
    
    (a)
    
    
    (b)
    
    
    (c)Equity compensation plans approved by security holders
    
    
    2,306,224
    
    
    $
    4.23
    
    
    
    612,299Employee stock purchase plan approved by security holders(1)
    
    
    
    
    
    
    
    
    
    
    Equity compensation not approved by security holders(2)
    
    
    177,000
    
    
    $
    7.25
    
    
    
    Total
    
    
    2,483,224
    
    
    
    
    
    
    
    612,299
 
 (1)
    
    The 2000 Employee Stock Purchase Plan was terminated on December 31, 2005.(2)
    
    Applica has granted non-qualified stock options, which were not issued under a formal plan
and which were not approved by security holders. These options were for a term of ten years
and expired in January 2006. No such options have been granted since 1998. -19-




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##### 



Item 6. Selected Financial Data
  2005
    
    
    2004
    
    
    2003
    
    
    2002
    
    
    2001(Dollars in thousands, except per share data)Statement of Operations:Net sales (1)
    
    $
    556,119
    
    
    $
    709,772
    
    
    $
    623,436
    
    
    $
    705,854
    
    
    $
    709,451Equity in net earnings
(loss) of joint ventures
    
    $
    
    
    
    $
    
    
    
    $
    55,570
    (4)
    
    $
    (1,498
    )
    
    $
    (128
    )Earnings (loss) before
income taxes and cumulative
effect of change in
accounting principle
    
    $
    (46,380
    )
    
    $
    (73,503
    )
    
    $
    25,370
    
    
    $
    9,878
    
    
    $
    (24,292
    )Income tax expense (benefit)
    
    $
    2,889
    
    
    $
    59,451
    
    
    $
    10,147
    
    
    $
    4,826
    
    
    $
    4,146Cumulative effect of change
in accounting principle, net
of tax benefit of $42,447
    
    
    
    
    
    
    
    
    
    
    
    
    
    $
    (78,829
    )
    
    
    Effective tax rate
    
    
    (6.2
    )%
    
    
    (80.9
    )%
    
    
    40.0
    %
    
    
    48.9
    %
    
    
    (17.1
    )%Net earnings (loss)
    
    $
    (49,269
    )(2)
    
    $
    (132,954
    )(3)
    
    $
    15,223
    (4)
    
    $
    (73,777
    )(5)
    
    $
    (28,438
    )(6)Balance Sheet:Working capital
    
    $
    104,722
    
    
    $
    116,390
    
    
    $
    115,767
    
    
    $
    137,706
    
    
    $
    137,415Current ratio
    
    
    1.7
    
    
    
    1.6
    
    
    
    1.7
    
    
    
    1.8
    
    
    
    1.7Property, plant and
equipment, net
    
    $
    19,715
    
    
    $
    38,327
    
    
    $
    70,389
    
    
    $
    76,963
    
    
    $
    82,337Total assets
    
    $
    297,282
    
    
    $
    375,937
    
    
    $
    478,836
    
    
    $
    521,665
    
    
    $
    633,684Long-term debt and other
long term liabilities
    
    $
    76,225
    
    
    $
    62,012
    
    
    $
    75,261
    
    
    $
    140,301
    
    
    $
    135,017Shareholders equity
    
    $
    63,151
    
    
    $
    110,970
    
    
    $
    237,613
    
    
    $
    219,128
    
    
    $
    293,939Per Share Data:Earnings (loss) per common
share  basic
    
    $
    (2.04
    )(2)
    
    $
    (5.55
    )(3)
    
    $
    0.65
    (4)
    
    
    ($3.15
    )(5)
    
    $
    (1.23
    )(6)Earnings (loss) per common
share  diluted
    
    $
    (2.04
    )(2)
    
    $
    (5.55
    )(3)
    
    $
    0.63
    (4)
    
    
    ($3.10
    )(5)
    
    $
    (1.23
    )(6)Cash dividends paid
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    Book value at year end
    
    $
    2.61
    
    
    $
    4.60
    
    
    $
    10.03
    
    
    $
    9.33
    
    
    $
    12.61Return on average equity
    
    
    (56.6
    )%
    
    
    (76.3
    )%
    
    
    6.70
    %
    
    
    (28.8
    )%
    
    
    (9.2
    )%
 
 (1)
    
    Effective January 1, 2005, Applica modified its accounting treatment for cooperative
advertising and slotting fees. This modification resulted in a reclassification that
reduced each of net sales, gross profit and selling, general and administrative expenses by
$13.8 million in 2005, $17.0 million in 2004, $17.2 million in 2003, $21.5 million in 2002
and $17.6 million in 2001. The net sales figures presented above reflect such
reclassification. Because the modification resulted solely in a reclassification within
the consolidated statement of operations, there was no impact on Applicas financial
condition, operating income or net earnings for any periods presented.  -20-




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##### 








    
    inventory write-downs of $12.8 million related to adjustment to net realizable
value of the Home Cafe single cup coffee maker and the Tide Buzz ultrasonic
stain remover;
    
    raw materials inventory write off of $3.3 million, write down of property, plant
and equipment of $1.1 million, accelerated depreciation of $3.2 million and
severance charges of $4.9 million related to the downsizing and closure of our
Mexican manufacturing operations;
    
    inefficiencies and unabsorbed overhead of $6.2 million associated with the
downsizing and ultimate closure in October 2005 of our Mexican manufacturing
operations;
    
    $0.7 million in bad debt expense related to a contract manufacturing project at
our Mexican manufacturing operations;
    
    higher product warranty returns and related expenses of $5.2 million, primarily
in the first half of 2005; and
    
    additional tax expense of $1.9 million related to the closure of the Mexican
manufacturing operations.





    
    an impairment charge of $62.8 million as the result of its annual fair value
assessment as of June 30, 2004 of goodwill in accordance with FASB Statement SFAS
142;
    
    income tax expense of $57.8 million related to an increase in valuation
allowances against net deferred tax assets;
    
    restructuring charges of $9.2 million, primarily in connection with the
downsizing of our Mexican manufacturing facility;
    
    termination benefits of $9.2 million related to resignation of Applicas former
Chairman of the Board and the termination of certain other employment and
consulting agreements and relationships; and
    
    a net gain on the sales of a subsidiary, a division and certain property of $3.9
million.





    
    equity in net earnings of its joint venture in which Applica owns a 50% interest
of $55.6 million;
    
    an impairment charge of $7.2 million in connection with an intangible asset
related to the Black & Decker® trademark;
    
    expenses of $7.0 million related to the restructuring of the Mexican and Chinese
manufacturing facilities;
    
    restructuring and other charges of $4.7 million related to accrued rental
expenses at the Shelton, Connecticut facility, which was closed in the third
quarter of 2002;
    
    a reversal of $4.1 million in product recall related expenses recorded in cost
of sales; and
    
    expenses in an aggregate amount of $3.9 million related to the early
extinguishment of $65.0 million of our 10% notes.





    
    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) to reduce the carrying value of goodwill to
its implied fair value, which was recorded pursuant to the provisions of SFAS 142;
and
    
    restructuring expenses of $10.6 million relating to the infrastructure
consolidation.




-21-



---



##### 



(6)
    
    In 2001, Applica took charges relating to several events in the aggregate amount of
$28.2 million. These charges included:
 
    
    $13.4 million related to a product recall;
    
    $6.8 million related to infrastructure consolidation;
    
    $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; and
    
    $1.5 million related to the devaluation of the Argentinean peso and $1.0 million
related to the settlement of shareholder class action litigation.
 -22-




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##### 



Item 7. Managements Discussion and Analysis of Financial Condition and Results of Operations
 Overview
  ® ® ® ® ®
   Mexican Manufacturing Operations
   
    
    $4.9 million in severance charges;
    
    $3.3 million of write-offs of raw materials inventory no longer used in production;
    
    $3.2 million related to the acceleration of the depreciation of the machinery
and equipment used in the manufacturing process; and
    
    $1.1 million write-down of property, plant and equipment.
   -23-




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##### 



Use of Estimates and Critical Accounting Policies
   Income Taxes
  Collectibility of Accounts Receivable
 
    
    Applicas historical bad debt experiences;
    
    publicly available information regarding its customers and the inherent credit
risk related to them;
    
    information from subscription-based credit reporting companies;
    
    trade association data and reports;
    
    current economic trends; and
    
    changes in customer payment terms or payment patterns.
  -24-




---



##### 



Inventory
 Product Liability Claims and Litigation
  Long-Lived Assets
 Other Estimates
 -25-




---



##### 



Results of Operations
  Year Ended December 31,2005
    
    
    2004
    
    
    2003Net sales (1)
    
    
    100.0
    %
    
    
    100.0
    %
    
    
    100.0
    %Cost of sales:Cost of goods sold
    
    
    75.4
    
    
    
    71.4
    
    
    
    72.6Restructuring charges
    
    
    2.2
    
    
    
    1.3
    
    
    
    1.1Product recall
    
    
    
    
    
    
    
    
    
    
    (0.7
    )Gross profit (1)
    
    
    22.3
    
    
    
    27.3
    
    
    
    27.0Selling, general and administrative expenses:Operating expenses (1)
    
    
    28.9
    
    
    
    26.9
    
    
    
    27.2Termination benefits
    
    
    
    
    
    
    1.3
    
    
    
    Gain on the sale of subsidiary, division and property, net
    
    
    
    
    
    
    (0.6
    )
    
    
    Restructuring and other (credits) charges
    
    
    
    
    
    
    (0.1
    )
    
    
    0.8Impairment of goodwill
    
    
    
    
    
    
    8.8
    
    
    
    Impairment of intangible asset
    
    
    
    
    
    
    
    
    
    
    1.1Operating loss
    
    
    (6.6
    )
    
    
    (9.1
    )
    
    
    (2.1
    )Other expense
    
    
    1.7
    
    
    
    1.2
    
    
    
    2.7Loss before equity in net earnings of joint venture and
income taxes
    
    
    (8.3
    )
    
    
    (10.4
    )
    
    
    (4.8
    )Equity in net earnings of joint ventures
    
    
    
    
    
    
    
    
    
    
    8.9(Loss) earnings before income taxes
    
    
    (8.3
    )
    
    
    (10.4
    )
    
    
    4.1Income tax provision
    
    
    0.5
    
    
    
    8.4
    
    
    
    1.6Net (loss) earnings
    
    
    (8.9
    )%
    
    
    (18.7
    )%
    
    
    2.4
    %
 
 (1)
    
    Effective January 1, 2005, Applica modified its accounting treatment for cooperative
advertising and slotting fees. This modification resulted in a reclassification that
reduced each of net sales, gross profit and selling, general and administrative expenses by
2.4% in 2005, 2.3% in 2004 and 2.7% in 2003. The reclassification has been reflected in
the percentages presented above. Because the modification resulted solely in a
reclassification within the consolidated statement of operations, there was no impact on
Applicas financial condition, operating income or net earnings for any periods presented. Year Ended December 31, 2005 Compared to Year Ended December 31, 2004
 Net Sales
  
    
    sales of Black &
Decker®
branded products decreased by $126.7 million to $432.0 million;
    
    sales of Littermaid® branded products increased by $1.8 million to $37.9 million; and
    
    sales of other branded products decreased by $10.3 million to $22.5 million.
 ®
  -26-




---



##### 



Restructuring Charges.
  Product Recall Expenses. ®
 Gross Profit
 
    
    inventory write-downs of $12.8 million related to adjustment to net realizable
value of the Home Cafe single cup coffee maker and the Tide Buzz ultrasonic
stain remover;
    
    higher product warranty returns and related expenses of $5.2 million primarily
in the first half of 2005; and
    
    restructuring charges of $12.5 million in 2005 related to the downsizing and
ultimate closure of our Mexican manufacturing operations, as compared to
restructuring charges of $9.2 million in 2004, primarily related to the downsizing
of our Mexican manufacturing operations.
     -27-




---



##### 



Selling, General and Administrative Expenses.
 Operating Expenses
 
    
    a decrease of $10.1 million in advertising and promotional expenses primarily
due to advertising in 2004 for the Home Café single cup coffee maker and the Tide
Buzz ultrasonic stain remover, both of which were launched in the second quarter
of 2004;
    
    a decrease of $6.9 million in freight and distribution expenses primarily due to
lower volume;
    
    a decrease of $4.6 million in sales related expenses due to lower volume,
primarily royalty expenses related to the Black & Decker® brand;
    
    a decrease in legal and consulting fees of $4.4 million; and
    
    net bad debt recoveries of $2.6 million in 2005 compared to bad debt expense of
$1.1 million in 2004.
  Termination Benefits.
 Gain on the Sale of Subsidiary, Division and Property.
 -28-




---



##### 



Restructuring and Other (Credits) Charges
 Impairment of Goodwill .
 Interest Expense
 Interest and Other Income .
    (Gain) Loss On Early Extinguishment of Debt
  Vendor Consideration.
 -29-




---



##### 



Taxes.
    Loss Per Share
 Year Ended December 31, 2004 Compared to Year Ended December 31, 2003
 Net Sales
  
    
    sales of Black & Decker branded products increased by $111.5 million to $559.9 million; and
    
    sales of Littermaid® branded products increased by $3.2 million to $36.1 million.
 ® ®
   -30-




---



##### 



Restructuring Charges.
  Product Recall Expenses. ®
 Gross Profit
 
    
    the movement of production of core products from our manufacturing facility in
Mexico to third parties in China;
    
    a better overall product mix; and
    
    lower unabsorbed costs at our manufacturing facilities, primarily in the first
half of 2004, due to higher production levels compared to the same period in 2003.
  
    
    restructuring charges of $9.2 million incurred in 2004, primarily relating to
our downsizing of our Mexican manufacturing operations consisting of (1) write
down of machinery and equipment of $3.5 million and severance of $1.2 million
related to our decision to move production of irons and toaster ovens from Mexico
to third parties in China; (2) write down of raw materials inventory of $2.3
million and write down of machinery and equipment of $1.4 million related to the
decision to move production of the Home Café single cup coffee maker from Mexico
to third parties in China; and (3) severance of $0.8 million related to
restructuring at our Hong Kong-based manufacturing operations; and
    
    higher prices for raw materials.
 Selling, General and Administrative Expenses.
 Operating Expenses
 
    
    increases of $14.2 million in freight and distribution expenses;
    
    increases of $10.8 million in royalty expenses, primarily related to Black &
Decker® royalties; and
    
    increases of $4.7 million in advertising and promotional expenses.
 -31-




---



##### 




    
    lower amortization of intangible assets of $7.1 million, primarily related to
the write-off of the unamortized book value of an intangible asset related to the
Black & Decker® tradename in the fourth quarter of 2003; and
    
    a decrease in legal expenses of $3.2 million, primarily as the result of the
significant legal expenses related to the Tilia litigation, which was settled in
2004.
  Termination Benefits.
 Gain on the Sale of Subsidiary, Division and Property.
 Restructuring and Other (Credits) Charges
 Impairment of Goodwill .
     -32-




---



##### 



Impairment of Intangible Asset . ® ®
 ® ® ® ®
 Interest Expense
 Loss On Early Extinguishment of Debt
 Equity in Net Earnings of Joint Venture .
   -33-




---



##### 



Vendor Consideration.
 Taxes
    Earnings Per Share
 -34-




---



##### 



Financial Condition
 Cash Requirements
 ®
  Payment due in:2007 to
    
    
    2009 to
    
    
    More thanContractual Obligations
    
    Total
    
    
    2006
    
    
    2008
    
    
    2010
    
    
    5 years(In thousands)Debt Obligations
    
    $
    145,274
    
    
    
    
    
    
    $
    55,750
    
    
    $
    89,524
    
    
    
    Operating Lease Obligations
    
    
    18,692
    
    
    $
    4,145
    
    
    
    6,203
    
    
    
    3,308
    
    
    $
    5,036Royalties
    
    
    62,500
    
    
    
    12,500
    
    
    
    25,000
    
    
    
    25,000
    
    
    
    Consulting Arrangements
    
    
    8,305
    
    
    
    3,350
    
    
    
    4,101
    
    
    
    854
    
    
    
    Other Long-Term Liabilities
Reflected on the Balance Sheet
    
    
    475
    
    
    
    475
    
    
    
    
    
    
    
    
    
    
    
    $
    235,246
    
    
    
    20,470
    
    
    $
    91,054
    
    
    $
    118,686
    
    
    $
    5,036
      ®
  -35-




---



##### 



Sources and Uses of Cash
 Operating Activities.
 Investing Activities
  Financing Activities
 Debt Instruments, Guarantees and Related Covenants
     
    
    LIBOR (adjusted for any reserves), plus a specified margin (determined by Applicas
fixed charge coverage ratio and set at 1.75% on December 31, 2005 and 1.75% at March 1,
2006), which was 6.14% at December 31, 2005 and 6.49% at March 10, 2006; or
    
    the Base Rate (Bank of Americas Prime Rate), plus a specified margin (based upon
Applicas fixed charge coverage ratio, and was zero at December 31, 2005 and zero at March
7, 2006), which was 7.25% at December 31, 2005 and 7.50% at March 10, 2006.
 -36-




---



##### 



-37-




---



##### 



Off-Balance Sheet Arrangements
  Effect of Inflation
  Currency Matters
     -38-




---



##### 



Recent Accounting Pronouncements
  
    
    FASB Statement No. 154 Accounting Changes and
Error Corrections  a replacement of APB
Opinion No. 20 and SFAS No. 3 (SFAS 154); and
    
    SFAS No. 123R Accounting for Stock-Based Compensation.


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




Interest Rate Sensitivity




At December 31, 2005Expected Maturity DateThere-
    
    
    
    
    
    
    Fair2006
    
    
    2007
    
    
    2008
    
    
    2009
    
    
    2010
    
    
    after
    
    
    Total
    
    
    Value(1)(Dollars in thousands)Liabilities:Debt:Fixed Rate:
    
    
    
    
    
    
    
    
    
    $
    55,750
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    $
    55,750
    
    
    $
    54,217Average Interest Rate
    
    
    
    
    
    
    
    
    
    
    10.00
    %
    
    
    
    
    
    
    
    
    
    
    Variable Rate:
    
    
    
    
    
    
    
    
    
    
    
    
    
    $
    89,524
    
    
    
    
    
    
    
    
    
    
    $
    89,524
    
    
    $
    89,524Average Interest Rate
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    (2
    )
    
    
    
    
    
    
    Interest Rate Contracts:Interest Rate Swaps:Pay Floating:
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    Average Pay Rate
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    Average Receive Rate
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    





|    |  |                                                                                                                         
|--- |  | ------------------------------------------------------------------------------------------------------------------------
|   
|(1) |  | Fair values were determined based on broker quotes or quoted market prices or rates for the
same or similar instruments.



-39-



---



##### 



(2)
    
    Includes $20.0 million term loan and the outstanding balance of $69.5 on the senior credit
facility. The variable rate on the $20 million term loan is set on a monthly basis using the
three month LIBOR rate plus an applicable margin of 6.25%. The variable rate senior credit
facility is set depending upon the interest period elected by Applica (one, two, three or six
months) at a rate equivalent to the LIBOR rate plus an applicable margin based upon Applicas
average availability (1.75% as of December 31, 2005), or at a rate equivalent to the Prime
Rate plus an applicable margin based upon Applicas leverage ratio (zero as of December 31,
2005).
 At December 31, 2004Expected Maturity DateThere-
    
    
    
    
    
    
    Fair2005
    
    

2006
    
    

2007
    
    

2008
    
    

2009
    
    
    after
    
    
    Total
    
    
    Value(1)(Dollars in thousands)Liabilities:Debt:Fixed Rate:
    
    $
    3,000
    
    
    
    
    
    
    
    
    
    
    $
    61,008
    (1)
    
    
    
    
    
    
    
    
    
    $
    64,008
    
    
    $
    64,008Average Interest Rate
    
    
    6.00
    %
    
    
    
    
    
    
    
    
    
    
    10.00
    %
    
    
    
    
    
    
    Variable Rate:
    
    $
    914
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    88,541
    
    
    
    
    
    
    $
    89,445
    
    
    $
    89,445Average Interest Rate
    
    
    (3
    )
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    (4
    )
    
    
    Interest Rate Contracts:Interest Rate Swaps:Pay Floating (5) :
    
    
    
    
    
    
    
    
    
    
    
    
    
    $
    30,000
    
    
    
    
    
    
    
    
    
    
    $
    30,000
    
    
    $
    258Average Pay Rate
    
    
    8.83
    %
    
    
    9.03
    %
    
    
    9.18
    %
    
    
    10.62
    %
    
    
    
    
    
    
    Average Receive Rate
    
    
    10.00
    %
    
    
    10.00
    %
    
    
    10.00
    %
    
    
    10.00
    %
    
    
    
    
    
    
    
 
 (1)
    
    Includes $258,000 that represents the positive fair value of an underlying hedge as of
December 31, 2004 related to SFAS 133.(2)
    
    Fair values were determined based on broker quotes or quoted market prices or rates for the
same or similar instruments.(3)
    
    The variable rate revolving foreign trade facility is set at a rate equivalent to the LIBOR
rate plus 1.125%.(4)
    
    The variable rate revolving credit facility is set depending upon the interest period elected
by Applica (one, two, three or six months) at a rate equivalent to the LIBOR rate plus an
applicable margin based upon Applicas leverage ratio (2.00% as of December 31, 2004) or at a
rate equivalent to the Prime Rate plus an applicable margin based upon Applicas leverage
ratio (zero as of December 31, 2004).(5)
    
    At December 31, 2004, Applica had an interest rate swap contract to pay a variable rate of
interest of six month LIBOR in arrears plus 5.45% and receive a fixed rate of interest at 10%
that matures on July 31, 2008. The LIBOR used to calculate the average pay rate is based upon
the forward yield curve as of December 31, 2004. Exchange Rate Sensitivity
  -40-




---



##### 



Item 8. Financial Statements and Supplementary Data.
  Item 9. Changes In and Disagreements With Accountants On Accounting and Financial Disclosure.
  Item 9A. Controls and Procedures.
 Evaluation of Disclosure Controls and Procedures
  Changes in Internal Controls
 Limitations on the Effectiveness of Controls .
 Item 9B. Other Information.
  -41-




---



##### 



PART III
 Item 10. Directors and Executive Officers of the Registrant.
  NAME
    
    AGE
    
    OFFICEHarry D. Schulman
    
    
    54
    
    
    Chairman, President and Chief Executive OfficerTerry L. Polistina
    
    
    42
    
    
    Senior Vice President and Chief Financial
OfficerDavid Coles
    
    
    41
    
    
    Interim Chief Operating OfficerBrian Guptill
    
    
    54
    
    
    Senior Vice President  Engineering, Applica
Consumer Products, Inc.
 Harry D. Schulman
 Terry L. Polistina
 David Coles
 Brian Guptill
  Item 11. Executive Compensation.
  Item 12. Security Ownership of Certain Beneficial Owners and Management.
  -42-




---



##### 



Item 13. Certain Relationships and Related Transactions.
  Item 14. Principal Accountant Fees and Services.
  Item 15. Exhibits, Financial Statement Schedules.
 Financial Statements
  
    
    Managements Annual Report on Internal Control Over Financial Reporting
    
    Reports of Independent Registered Public Accounting Firm
    
    Consolidated Balance Sheets as of December 31, 2005 and 2004
    
    Consolidated Statements of Operations for the years ended December 31, 2005, 2004 and 2003
    
    Consolidated Statement of Shareholders Equity for the three years ended December 31, 2005
    
    Consolidated Statements of Cash Flows for the years ended December 31, 2005, 2004 and 2003
    
    Supplement Disclosures of Cash Flow Information
    
    Notes to Consolidated Financial Statements
 Financial Statements Schedules
    Exhibit
Number
    
    Description3.1
    
    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
    
    Third Amended and Restated Bylaws. Filed herewith.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.
 -43-




---



##### 



Exhibit
Number
    
    Description10.1*
    
    Employment agreement dated May 1,
2004 between Applica Incorporated and Harry D. Schulman. Incorporated
by reference to Applicas Current Report on Form 8-K dated
October 12, 2004.10.2*
    
    Employment Agreement effective May
1, 2005 between Applica Consumer Products, Inc. and Terry L.
Polistina. Incorporated by reference to Applicas Current Report
on Form 8-K dated June 15, 2005.10.3*
    
    Employment Agreement effective May
1, 2005 between Applica Consumer Products, Inc. and Brian S. Guptill.
Incorporated by reference to Applicas Current Report on Form
8-K dated July 18, 2005.10.4*
    
    Separation Agreement dated August 26, 2004 between Applica Incorporated and David M. Friedson.
Incorporated by reference to Applicas Amendment No. 1 to Quarterly Report on Form 10-Q/A for the
quarter ended September 30, 2004.10.5*
    
    Termination and Release Agreement dated November 1, 2004 between Applica Incorporated and Belvin
Freidson. Incorporated by reference to Applicas Quarterly Report on Form 10-Q for the quarter
ended September 30, 2004.10.6*
    
    Termination and Release Agreement dated November 1, 2004 between Applica Incorporated, Durable
Manufacturing Limited and Lai Kin. Incorporated by reference to Applicas Quarterly Report on
Form 10-Q for the quarter ended September 30, 2004.10.7*
    
    1988 Director Stock Option Plan. Incorporated by reference to Applicas Annual Report on Form
10-K for the year ended December 31, 1988.10.8*
    
    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, 1998.10.9*
    
    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, 1998.10.10*
    
    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, 1999.10.11*
    
    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, 2000.10.12*
    
    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, 2000.10.13
    
    Stock Purchase Agreement by and among Applica Incorporated, Remdale Investments Limited, PPC
Industries Ltd. and Central Gold Worldwide Limited dated July 28, 2004. Incorporated by
reference to Applicas Quarterly Report on Form 10-Q for the quarter ended June 30, 2004.
 -44-




---



##### 



Exhibit
Number
    
    Description10.14
    
    Second Amended and Restated Credit Agreement among Applica Incorporated, each of its subsidiaries
party thereto, each of the lenders party thereto, Bank of America, N.A., as agent, General
Electric Capital Corporation, as documentation agent, and Wachovia Bank National Association, as
syndication agent, dated December 23, 2005. Incorporated by reference to Applicas Current Report
on Form 8-K dated December 23, 2005.10.15
    
    Amended and Restated Security Agreement among Applica Incorporated, each of its subsidiaries
party thereto, and Bank of America, N.A., as agent, dated December 23, 2005. Incorporated by
reference to Applicas Current Report on Form 8-K dated December 23, 2005.10.16
    
    Amended and Restated Stock Pledge Agreement among Applica Incorporated, each of its subsidiaries
party thereto, and Bank of America, N.A., as agent, dated December 23, 2005. Incorporated by
reference to Applicas Current Report on Form 8-K dated December 23, 2005.10.17
    
    Amended and Restated Continuing Guaranty Agreement among Applica Incorporated, each of its
subsidiaries party thereto, and Bank of America, N.A., as agent, dated December 23, 2005.
Incorporated by reference to Applicas Current Report on Form 8-K dated December 23, 2005.10.18
    
    First Amendment to the Second Amended and Restated Credit Agreement among Applica Incorporated,
each of its subsidiaries party thereto, each of the lenders party thereto, and Bank of America,
N.A., as agent, dated January 31, 2006. Incorporated by reference to Applicas Current Report on
Form 8-K dated January 31, 2006.10.19
    
    Term Loan Agreement among Applica Incorporated, each of its subsidiaries party thereto, and Mast
Credit Opportunities I, (Master) Ltd., dated October 21, 2005. Incorporated by reference to
Applicas Current Report on Form 8-K dated October 21, 2005.10.20
    
    Security Agreement among Applica Incorporated, each of its subsidiaries party thereto, and Mast
Credit Opportunities I, (Master) Ltd. dated October 21, 2005. Incorporated by reference to
Applicas Current Report on Form 8-K dated October 21, 2005.21
    
    Subsidiaries of the Registrant. Filed herewith.23
    
    Consent of Independent Registered Public Accountant. Filed herewith.31.1
    
    Certification of Principal Executive Officer Pursuant to Rule 13a-14(a)/15d-14(a). Filed herewith.31.2
    
    Certification of Principal Financial Officer Pursuant to Rule 13a-14(a)/15d-14(a). Filed herewith.32.1
    
    Certification of Principal Executive Officer Pursuant to 18 U.S.C. 1350. Filed herewith.32.2
    
    Certification of Principal Financial Officer Pursuant to 18 U.S.C. 1350. Filed herewith.
 
 *
    
    These exhibits are management contracts or compensatory plans or arrangements. (b) Exhibits
  (c) Financial Statement Schedules
  -45-




---



##### 



Signatures
  APPLICA INCORPORATED
(Registrant)Date: March 14, 2006
    By:
    /s/ Harry D. SchulmanHarry D. Schulman, President and ChiefExecutive Officer  By:              /s/ Harry D. Schulman

Harry D. Schulman, President and Chief Executive
Officer (Principal Executive Officer)
    
    DATE:             March 14, 2006By:              /s/ Terry L. Polistina

Terry L. Polistina, Chief Financial Officer and
Senior Vice President (Principal Accounting Officer)
    
    DATE:             March 14, 2006By:              /s/ Jerald I. Rosen

Jerald I. Rosen, Director
    
    DATE:             March 14, 2006By:              /s/ Ware H. Grove

Ware H. Grove, Director
    
    DATE:             March 14, 2006By:              /s/ Paul K. Sugrue

Paul K. Sugrue, Director
    
    DATE:             March 14, 2006By:              /s/ Leonard Glazer

Leonard Glazer, Director
    
    DATE:             March 14, 2006By:              /s/ Thomas J. Kane

Thomas J. Kane, Director
    
    DATE:             March 14, 2006By:              /s/ Susan J. Ganz

Susan J. Ganz, Director
    
    DATE:             March 14, 2006By:              /s/ J. Maurice Hopkins

J. Maurice Hopkins, Director
    
    DATE:             March 14, 2006By:              /s/ Christopher B. Madison

Christopher B. Madison, Director
    
    DATE:             March 14, 2006
 -46-




---



##### 



SCHEDULE I
 Applica Incorporated and Subsidiaries
INDEX TO FINANCIAL STATEMENTS
 Managements Annual Report on Internal Control Over Financial Reporting.
    
    F-2Reports of Independent Registered Public Accounting Firm.
    
    F-3  F4Consolidated Balance Sheets as of December 31, 2005 and 2004.
    
    F-5Consolidated Statements of Operations for the Years Ended December 31, 2005, 2004 and 2003.
    
    F-6Consolidated Statement of Shareholders Equity for the Three Years Ended December 31, 2005.
    
    F-7Consolidated Statements of Cash Flows for the Years Ended December 31, 2005, 2004 and 2003.
    
    F-8  F9Notes to Consolidated Financial Statements.
    
    F-10  F-45
 F-1




---



##### 



Managements Annual Report on Internal Control Over Financial Reporting
      Internal ControlIntegrated Framework
   F-2




---



##### 



REPORT OF INDEPENDENT REGISTERED
PUBLIC ACCOUNTING FIRM
 Board of Directors and Shareholders
Applica Incorporated
        
 F-3




---



##### 



REPORT OF INDEPENDENT REGISTERED
PUBLIC ACCOUNTING FIRM
 Board of Directors and Shareholders
Applica Incorporated
       
 F-4




---



##### 



Applica Incorporated and Subsidiaries
CONSOLIDATED BALANCE SHEETS
(In thousands, except par value data)
 As of December 31,2005
    
    
    2004AssetsCurrent Assets:Cash and cash equivalents
    
    $
    4,464
    
    
    $
    10,463Accounts and other receivables, less allowance
of $8,773 in 2005 and $11,711 in 2004
    
    
    140,479
    
    
    
    160,436Notes receivable  former officer
    
    
    
    
    
    
    2,569Inventories
    
    
    101,638
    
    
    
    131,503Prepaid expenses and other
    
    
    11,137
    
    
    
    12,309Refundable income taxes
    
    
    3,661
    
    
    
    2,032Future income tax benefits
    
    
    1,249
    
    
    
    33Total current assets
    
    
    262,628
    
    
    
    319,345Property, Plant and Equipment at cost, lessaccumulated depreciation of $46,755 in 2005 and
$73,171 in 2004
    
    
    19,715
    
    
    
    38,327Future Income Tax Benefits, Non-Current
    
    
    9,185
    
    
    
    11,212Other Intangibles, net
    
    
    1,765
    
    
    
    4,493Other Assets
    
    
    3,989
    
    
    
    2,560Total Assets
    
    $
    297,282
    
    
    $
    375,937Liabilities and Shareholders EquityCurrent Liabilities:Accounts payable
    
    $
    33,682
    
    
    $
    41,827Accrued expenses
    
    
    50,034
    
    
    
    62,046Short-term debt
    
    
    69,524
    
    
    
    89,455Current portion of long-term debt
    
    
    
    
    
    
    3,000Current taxes payable
    
    
    3,747
    
    
    
    5,947Deferred rent
    
    
    919
    
    
    
    680Total current liabilities
    
    
    157,906
    
    
    
    202,955Other Long-Term Liabilities
    
    
    475
    
    
    
    1,004Long-Term Debt
    
    
    75,750
    
    
    
    61,008Shareholders Equity:Common stock  authorized: 75,000 shares of
$0.10 par value; issued and outstanding:24,179 in 2005 and 24,137 in 2004
    
    
    2,418
    
    
    
    2,414Paid-in capital
    
    
    159,226
    
    
    
    159,131Accumulated deficit
    
    
    (95,749
    )
    
    
    (46,480
    )Note receivable  former officer
    
    
    
    
    
    
    (502
    )Accumulated other comprehensive loss
    
    
    (2,744
    )
    
    
    (3,593
    )Total shareholders equity
    
    
    63,151
    
    
    
    110,970Total liabilities and shareholders equity
    
    $
    297,282
    
    
    $
    375,937
 The accompanying notes are an integral part of these financial statements.
 F-5




---



##### 



Applica Incorporated and Subsidiaries
CONSOLIDATED STATEMENTS OF OPERATIONS
(In thousands, except per share data)
 Years Ended December 31,2005
    
    
    2004
    
    
    2003Net sales
    
    $
    556,119
    
    
    $
    709,772
    
    
    $
    623,436Cost of sales:Cost of goods sold
    
    
    419,430
    
    
    
    506,652
    
    
    
    452,450Restructuring charges
    
    
    12,491
    
    
    
    9,236
    
    
    
    6,993Product recall
    
    
    
    
    
    
    
    
    
    
    (4,125
    )431,921
    
    
    
    515,888
    
    
    
    455,318Gross profit
    
    
    124,198
    
    
    
    193,884
    
    
    
    168,118Selling, general and administrative expenses:Operating expenses
    
    
    160,900
    
    
    
    191,170
    
    
    
    169,398Termination benefits
    
    
    
    
    
    
    9,153
    
    
    
    Gain on the sale of subsidiary, division
and property  net
    
    
    
    
    
    
    (3,921
    )
    
    
    Restructuring and other (credits) charges
    
    
    
    
    
    
    (563
    )
    
    
    4,681Impairment of goodwill
    
    
    
    
    
    
    62,812
    
    
    
    Impairment of intangible asset
    
    
    
    
    
    
    
    
    
    
    7,152160,900
    
    
    
    258,651
    
    
    
    181,231Operating loss
    
    
    (36,702
    )
    
    
    (64,767
    )
    
    
    (13,113
    )Other (income) expense:Interest expense
    
    
    11,420
    
    
    
    9,796
    
    
    
    13,964Interest and other income
    
    
    (1,686
    )
    
    
    (1,247
    )
    
    
    (817
    )(Gain) loss on early extinguishment of debt
    
    
    (56
    )
    
    
    187
    
    
    
    3,9409,678
    
    
    
    8,736
    
    
    
    17,087Loss before equity in net earnings of
joint venture and income taxes
    
    
    (46,380
    )
    
    
    (73,503
    )
    
    
    (30,200
    )Equity in net earnings of joint venture
    
    
    
    
    
    
    
    
    
    
    55,570(Loss) earnings before income taxes
    
    
    (46,380
    )
    
    
    (73,503
    )
    
    
    25,370Income tax provision
    
    
    2,889
    
    
    
    59,451
    
    
    
    10,147Net (loss) earnings
    
    $
    (49,269
    )
    
    $
    (132,954
    )
    
    $
    15,223(Loss) earnings per common share  basic:(Loss) earnings per common share
    
    $
    (2.04
    )
    
    $
    (5.55
    )
    
    $
    0.65(Loss) earnings per common share  diluted:(Loss) earnings per common share
    
    $
    (2.04
    )
    
    $
    (5.55
    )
    
    $
    0.63
 The accompanying notes are an integral part of these financial statements.
 F-6




---



##### 



Applica Incorporated and Subsidiaries
CONSOLIDATED STATEMENTS OF SHAREHOLDERS EQUITY
(In thousands)
 (Accumulated
    
    
    Note
    
    
    AccumulatedDeficit)
    
    
    Receivable
    
    
    OtherRetained
    
    
    Former
    
    
    ComprehensiveCommon Stock
    
    
    Paid-in Capital
    
    
    Earnings
    
    
    Officer
    
    
    Loss
    
    
    TotalBalance at December 31, 2002
    
    $
    2,350
    
    
    $
    155,395
    
    
    $
    71,251
    
    
    $
    (1,496
    )
    
    $
    (8,372
    )
    
    $
    219,128Comprehensive earnings:Net earnings
    
    
    
    
    
    
    
    
    
    
    15,223
    
    
    
    
    
    
    
    
    
    
    
    15,223Foreign currency translation adjustment
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    1,270
    
    
    
    1,270Change in unrealized gain on
derivative instruments, net of tax
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    764
    
    
    
    764Total comprehensive earnings
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    17,257Exercise of stock options and issuance of
common stock under employee stock purchase
plan
    
    
    19
    
    
    
    1,152
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    1,171Tax benefit resulting from exercise of
stock options
    
    
    
    
    
    
    47
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    47Fair value of options to non-employees
    
    
    
    
    
    
    10
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    10Balance at December 31, 2003
    
    
    2,369
    
    
    
    156,604
    
    
    
    86,474
    
    
    
    (1,496
    )
    
    
    (6,338
    )
    
    
    237,613Comprehensive loss:Net loss
    
    
    
    
    
    
    
    
    
    
    (132,954
    )
    
    
    

    
    
    
    
    
    
    
    (132,954
    )Foreign currency translation adjustment
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    2,076
    
    
    
    2,076Realized foreign currency translation
 sale of subsidiary
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    753
    
    
    
    753Change in unrealized loss on
derivative instruments
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    (84
    )
    
    
    (84
    )Total comprehensive loss
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    (130,209
    )Exercise of stock options and issuance of
common stock under employee stock purchase
plan
    
    
    45
    
    
    
    2,414
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    2,459Net change to reclass notes receivable
former-officer to current assets
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    994
    
    
    
    
    
    
    
    994Compensation expense  former officer
    
    
    
    
    
    
    113
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    113Balance at December 31, 2004
    
    
    2,414
    
    
    
    159,131
    
    
    
    (46,480
    )
    
    
    (502
    )
    
    
    (3,593
    )
    
    
    110,970Comprehensive loss:Net loss
    
    
    
    
    
    
    
    
    
    
    (49,269
    )
    
    
    
    
    
    
    
    
    
    
    (49,269
    )Foreign currency translation adjustment
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    (76
    )
    
    
    (76
    )Change in unrealized loss on
derivative instruments
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    925
    
    
    
    925Total comprehensive loss
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    (48,420
    )Exercise of stock options and issuance of
common stock under employee stock purchase
plan
    
    
    4
    
    
    
    95
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    99Collections of notes receivable
former-officer
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    502
    
    
    
    
    
    
    
    502Balance at December 31, 2005
    
    $
    2,418
    
    
    $
    159,226
    
    
    $
    (95,749
    )
    
    $
    
    
    
    $
    (2,744
    )
    
    $
    63,151
 The accompanying notes are an integral part of these financial statements.
 F-7




---



##### 



Applica Incorporated and Subsidiaries
CONSOLIDATED STATEMENTS OF CASH FLOWS
(In thousands)
 For the years ended December 31,2005
    
    
    2004
    
    
    2003Cash flows from operating activities:Net (loss) earnings
    
    $
    (49,269
    )
    
    $
    (132,954
    )
    
    $
    15,223Reconciliation to net cash (used in) provided by operating
activities:Depreciation of property, plant and equipment
    
    
    11,822
    
    
    
    15,278
    
    
    
    21,439Loss on disposal of property, plant and equipment
    
    
    1,122
    
    
    
    791
    
    
    
    3,661(Recovery) provision for doubtful accounts
    
    
    (2,497
    )
    
    
    889
    
    
    
    2,228Write-downs of inventory
    
    
    16,844
    
    
    
    5,777
    
    
    
    5,355(Gain) loss on early extinguishment of debt
    
    
    (56
    )
    
    
    187
    
    
    
    3,940Compensation expense  former officer
    
    
    
    
    
    
    113
    
    
    
    Amortization of intangible and other assets
    
    
    3,864
    
    
    
    2,212
    
    
    
    9,272Impairment of intangible asset
    
    
    
    
    
    
    
    
    
    
    7,152Impairment of goodwill
    
    
    
    
    
    
    62,812
    
    
    
    Impairment of property, plant and equipment
    
    
    1,062
    
    
    
    4,851
    
    
    
    Gain on sale of subsidiary, division and property
    
    
    
    
    
    
    (3,921
    )
    
    
    Deferred taxes
    
    
    810
    
    
    
    53,412
    
    
    
    11,721Restructuring, recall and other (credits) charges
    
    
    
    
    
    
    (563
    )
    
    
    556Other non-cash changes in equity items
    
    
    
    
    
    
    
    
    
    
    57Equity in net earnings of joint venture
    
    
    
    
    
    
    
    
    
    
    (55,570
    )Changes in assets and liabilities, net of acquisition:Accounts and other receivables
    
    
    18,406
    
    
    
    (36,274
    )
    
    
    13,318Inventories
    
    
    13,223
    
    
    
    (51,094
    )
    
    
    (2,507
    )Prepaid expenses and other
    
    
    6,573
    
    
    
    (3,239
    )
    
    
    (1,731
    )Other assets
    
    
    (1,715
    )
    
    
    2,262
    
    
    
    1,944Accounts payable and accrued expenses
    
    
    (20,035
    )
    
    
    9,283
    
    
    
    (6,800
    )Current income taxes
    
    
    (3,829
    )
    
    
    6,566
    
    
    
    (1,506
    )Other liabilities
    
    
    (291
    )
    
    
    56
    
    
    
    (277
    )Net cash (used in) provided by operating activities
    
    
    (3,966
    )
    
    
    (63,556
    )
    
    
    27,475Cash flows from investing activities:Net proceeds from sale of subsidiary, division, and property
    
    
    2,073
    
    
    
    47,409
    
    
    
    Additions to property, plant and equipment
    
    
    (3,400
    )
    
    
    (14,564
    )
    
    
    (18,526
    )Distribution from joint venture  net
    
    
    
    
    
    
    1,194
    
    
    
    51,430Distribution from escrowed funds in connection with a dissolved
partnership
    
    
    4,982
    
    
    
    
    
    
    
    Collections from officers and former officer
    
    
    3,078
    
    
    
    62
    
    
    
    486Net cash provided by investing activities
    
    
    6,733
    
    
    
    34,101
    
    
    
    33,390
 (Continued on next page.)
 F-8




---



##### 



Applica Incorporated and Subsidiaries
CONSOLIDATED STATEMENTS OF CASH FLOWS (Continued)
(In thousands)
 For the years ended December 31,2005
    
    
    2004
    
    
    2003Cash flows from financing activities:(Payments) borrowings under lines of credit, net
    
    
    (20,107
    )
    
    
    34,195
    
    
    
    7,949Payments on mortgage loan
    
    
    
    
    
    
    (5,779
    )
    
    
    (143
    )Payments of long-term debt
    
    
    (3,000
    )
    
    
    
    
    
    
    Proceeds from issuance of long-term debt
    
    
    20,000
    
    
    
    
    
    
    
    Redemption of long-term debt
    
    
    (4,906
    )
    
    
    (4,390
    )
    
    
    (67,775
    )Exercises of stock options and issuances of common stock under
employee stock purchase plan
    
    
    99
    
    
    
    2,459
    
    
    
    1,171Interest receivable from former officer
    
    
    (7
    )
    
    
    (22
    )
    
    
    (41
    )Net cash (used in) provided by financing activities
    
    
    (7,921
    )
    
    
    26,463
    
    
    
    (58,839
    )Effect of exchange rate changes on cash
    
    
    (845
    )
    
    
    720
    
    
    
    3,026(Decrease) increase in cash and cash equivalents
    
    
    (5,999
    )
    
    
    (2,272
    )
    
    
    5,052Cash and cash equivalents at beginning of period
    
    
    10,463
    
    
    
    12,735
    
    
    
    7,683Cash and cash equivalents at end of period
    
    $
    4,464
    
    
    $
    10,463
    
    
    $
    12,735
 Supplemental Disclosures of Cash Flow Information
 For the years ended December 31,2005
    
    
    2004
    
    
    2003(In thousands)Cash paid during the year for:Interest
    
    $
    10,928
    
    
    $
    10,117
    
    
    $
    15,520Income taxes
    
    $
    5,073
    
    
    $
    
    
    
    $
    312
 Non-cash financing activities:
 
    
    Applica reclassified approximately $5.7 million from property, plant and equipment
and $0.4 million from inventories to assets held for sale, which are included within
prepaid expenses and other assets in 2005.
    
    Applica reclassified approximately $1.0 million of notes receivable from a former
officer to current assets in 2004.
 The accompanying notes are an integral part of these financial statements.
 F-9




---



##### 



Applica Incorporated and Subsidiaries
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
 NOTE A  SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
 Overview
 ® ® ® ® ®
  Principles of Consolidation
  Use of Estimates
   Income Taxes
  Collectibility of Accounts Receivable
 
    
    Applicas historical bad debt experiences;
    
    publicly available information regarding its customers and the inherent credit
risk related to them;
    
    information from subscription-based credit reporting companies;
 F-10




---



##### 



Applica Incorporated and Subsidiaries
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS  CONTINUED
 
    
    trade association data and reports;
    
    current economic trends; and
    
    changes in customer payment terms or payment patterns.
  Inventory
 Product Liability Claims and Litigation
  Long-Lived Assets
 Other Estimates
 F-11




---



##### 



Applica Incorporated and Subsidiaries
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS  CONTINUED
 Foreign Currency Translation
  Cash and Cash Equivalents
  Comprehensive Earnings (Loss)
   At December 31,2005
    
    
    2004(In thousands)Accumulated foreign currency translation adjustment
    
    $
    (2,744
    )
    
    $
    (2,668
    )Accumulated net unrealized gain on derivatives
    
    
    
    
    
    
    (925
    )$
    (2,744
    )
    
    $
    (3,593
    )
   F-12




---



##### 



Applica Incorporated and Subsidiaries
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS  CONTINUED
 Inventories
  At December 31,2005*
    
    
    2004(In thousands)Raw materials
    
    $
    
    
    
    $
    4,528Work in process
    
    
    
    
    
    
    280Finished goods
    
    
    101,638
    
    
    
    126,695$
    101,638
    
    
    $
    131,503
 
 *
    
    In October 2005, Applica ceased its manufacturing operations in Mexico. Revenue Recognition
  Cooperative Advertising and Slotting Fees
  Advertising Costs
  Property, Plant and Equipment
  F-13




---



##### 



Applica Incorporated and Subsidiaries
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS  CONTINUED
 Freight Costs
  Warranty
  (In thousands)Balance at December 31, 2003
    
    $
    6,084Additions to accrued product warranties
    
    
    44,306Reductions of accruals  payments and credits issued
    
    
    (43,207
    )Balance at December 31, 2004
    
    $
    7,183Additions to accrued product warranties
    
    
    33,972Reductions of accruals  payments and credits issued
    
    
    (33,408
    )Balance at December 31, 2005
    
    $
    7,747
 Stock Based Compensation
  For the Years Ended December 31,2005
    
    
    2004
    
    
    2003(In thousands, except per share amounts)Net (loss) earnings, as reported
    
    $
    (49,269
    )
    
    $
    (132,954
    )
    
    $
    15,223Add: Stock-based employee
compensation expense included in net
(loss) earnings, net of tax (1)
    
    
    
    
    
    
    113
    
    
    
    Deduct: Total stock-based employee
compensation expense determined under
fair value based method, net of tax
(1)
    
    
    (2,373
    )
    
    
    (831
    )
    
    
    (371
    )Pro forma net (loss) earnings
    
    $
    (51,642
    )
    
    $
    (133,672
    )
    
    $
    14,852(Loss) earnings per share:Basic  as reported
    
    $
    (2.04
    )
    
    $
    (5.55
    )
    
    $
    0.65Basic  pro forma
    
    $
    (2.14
    )
    
    $
    (5.58
    )
    
    $
    0.63Diluted  as reported
    
    $
    (2.04
    )
    
    $
    (5.55
    )
    
    $
    0.63Diluted  pro forma
    
    $
    (2.14
    )
    
    $
    (5.58
    )
    
    $
    0.62
 
 (1)
    
    Amounts are only net of tax for 2003 because in 2005 and 2004 there was a valuation
allowance against substantially all deferred tax assets. F-14




---



##### 



Applica Incorporated and Subsidiaries
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS  CONTINUED
     Share-Based Payment
   For the Years ended December 31,2005
    
    2004
    
    2003Expected dividend yield
    
    00.0%
    
    00.0%
    
    
    00.0%Expected price volatility range
    
    61.8% - 77.0%
    
    60.8% - 65.6%
    
    
    64.1% - 82.7%Risk-free interest rate
    
    3.80%
    
    3.15%
    
    
    3.0%Expected life of options in years.
    
    1-4
    
    4
    
    
    4
 Long-Lived Assets
  F-15




---



##### 



Applica Incorporated and Subsidiaries
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS  CONTINUED
  Risk Management Contracts
      Income Taxes
  F-16




---



##### 



Applica Incorporated and Subsidiaries
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS  CONTINUED
 Legal Costs
  Earnings (Loss) Per Share
  For the Years Ended December 31,2005
    
    
    2004
    
    
    2003(In thousands, except per share amounts)Net (loss) earnings
    
    $
    (49,269
    )
    
    $
    (132,954
    )
    
    $
    15,223Weighted average shares outstanding
    
    
    24,151
    
    
    
    23,975
    
    
    
    23,573Dilutive effect of stock options
    
    
    
    
    
    
    
    
    
    
    425Dilutive weighted average common shares outstanding
    
    
    24,151
    
    
    
    23,975
    
    
    
    23,998Basic (loss) earnings per share
    
    $
    (2.04
    )
    
    $
    (5.55
    )
    
    $
    0.65Diluted (loss) earnings per share
    
    $
    (2.04
    )
    
    $
    (5.55
    )
    
    $
    0.63
  For the Years Ended December 31,2005
    
    
    2004
    
    
    2003Number of shares
    
    
    2,483,224
    
    
    
    2,755,207
    
    
    
    1,494,685Range of exercise price
    
    $
    1.62-31.69
    
    
    $
    3.63-31.69
    
    
    $
    6.75-31.69
 Recent Accounting Pronouncements
 Accounting
Changes and Error Correctionsa replacement of APB Opinion No. 20 and FASB Statement No. 3 Accounting Changes Reporting Accounting Changes in Interim Financial Statements
 Accounting for Stock-Based Compensation Accounting for Stock Issued to Employees
 F-17




---



##### 



Applica Incorporated and Subsidiaries
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS  CONTINUED
    
    
    the number of employee stock options outstanding and unvested;
    
    the number of employee options that may be granted in the future;
    
    the future market value and volatility of Applicas stock price;
    
    movements in the risk-free rate of interest;
    
    stock option exercise and forfeiture patterns; and
    
    the stock option valuation model used to estimate the fair value of each option.
  Reclassifications
  NOTE B  COST OF SALES
 Cost of Goods Sold
  Restructuring Charges
  
    
    $4.9 million in severance charges;
    
    $3.3 million write-down of raw materials inventory that will no longer be used in production;
    
    $3.2 million related to the acceleration of the depreciation of the machinery
and equipment used in the manufacturing process; and
    
    $1.1 million write-down of property, plant and equipment.
 F-18




---



##### 



Applica Incorporated and Subsidiaries
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS  CONTINUED
       Product Recall
  ®
 NOTE C  RESTRUCTURING AND OTHER (CREDITS) CHARGES
  F-19




---



##### 



Applica Incorporated and Subsidiaries
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS  CONTINUED
    NOTE D  EQUITY IN NET EARNINGS OF JOINT VENTURE AND OTHER INCOME
      NOTE E  SALE OF SUBSIDIARY, DIVISION AND PROPERTY
 Sale of Subsidiary
  F-20




---



##### 



Applica Incorporated and Subsidiaries
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS  CONTINUED
  (In thousands)Accounts receivable
    
    $
    8,175Intercompany receivable
    
    
    30,604Inventory, net
    
    
    15,455Prepaid expenses and other current assets
    
    
    4,516Property and equipment, net
    
    
    17,732$
    76,482Accounts payable and other current liabilities
    
    $
    36,782Long-term debt
    
    
    7,491Deferred taxes
    
    
    3,346$
    47,619
   Sale of Division
   Sale of Property
  NOTE F  TERMINATION BENEFITS
    F-21




---



##### 



Applica Incorporated and Subsidiaries
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS  CONTINUED
 Amount Accrued at
    
    
    
    
    
    
    
    
    
    
    Amount Accrued atDec. 31, 2004
    
    
    2005 Provisions
    
    
    2005 Payments
    
    
    Dec. 31, 2005(In thousands)Termination benefits
    
    $
    6,871
    
    
    $
    
    
    
    $
    6,627
    
    
    $
    244
 Amount Accrued at
    
    
    
    
    
    
    
    
    
    
    Amount Accrued atDec. 31, 2003
    
    
    2004 Provisions
    
    
    2004 Payments
    
    
    Dec. 31, 2004(In thousands)Termination benefits
    
    $
    
    
    
    $
    9,040
    
    
    $
    2,169
    
    
    $
    6,871
 
 *
    
    Provision does not include $113,000 of compensation expense related to stock option extension
for the former Chairman of the Board. NOTE G  IMPAIRMENT OF GOODWILL AND OTHER INTANGIBLE ASSETS
  Goodwill
     F-22




---



##### 



Applica Incorporated and Subsidiaries
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS  CONTINUED
  ®
    Other Intangible Assets
 ® ®
 ® ® ® ®
 F-23




---



##### 



Applica Incorporated and Subsidiaries
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS  CONTINUED
   December 31, 2005
    
    
   December 31, 2004Weighted Average
    
    
    Gross Carrying
    
    
    Accumulated
    
    
    Gross Carrying
    
    
    AccumulatedAmortization Period
    
    
    Amount
    
    
    Amortization
    
    
    Amount
    
    
    Amortization(Years)
    
    
    (In thousands)Licenses
    
    
    5.3
    
    
    $
    3,000
    
    
    $
    (3,000
    )
    
    $
    3,000
    
    
    $
    (1,055
    )Contract-based
    
    
    9.1
    
    
    
    5,988
    
    
    
    (4,223
    )
    
    
    5,988
    
    
    
    (3,440
    )$
    8,988
    
    
    $
    (7,223
    )
    
    $
    8,988
    
    
    $
    (4,495
    )
  (In thousands)2006
    
    $
    7802007
    
    
    4692008
    
    
    1612009
    
    
    1612010
    
    
    161Thereafter
    
    
    33
 NOTE H  ASSETS HELD FOR SALE
     F-24




---



##### 



Applica Incorporated and Subsidiaries
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS  CONTINUED
 NOTE I PROPERTY, PLANT AND EQUIPMENT
  At December 31,Useful Lives
    
    2005
    
    
    2004(In thousands)Building
    
    20 years
    
    $
    
    
    
    $
    7,430Computer equipment
    
    3 - 5 years
    
    
    30,449
    
    
    
    31,635Equipment and other
    
    3 - 8 years
    
    
    32,452
    
    
    
    66,985Leasehold improvements*
    
    8 - 10 years
    
    
    3,569
    
    
    
    4,379Land and land improvements**
    
    20 years
    
    
    
    
    
    
    1,069Total
    
    
    
    $
    66,470
    
    
    $
    111,498Less accumulated depreciation
    
    
    
    
    46,755
    
    
    
    73,171$
    19,715
    
    
    $
    38,327
 
 *
    
    Shorter of remaining term of lease or useful life**
    
    Only improvements are depreciated   NOTE J  ACCRUED EXPENSES
  At December 31,2005
    
    
    2004(In thousands)Promotions, co-op and other advertising allowances
    
    $
    8,858
    
    
    $
    12,565Chargebacks
    
    
    4,077
    
    
    
    1,905Salaries and bonuses
    
    
    3,729
    
    
    
    11,629Warranty
    
    
    7,747
    
    
    
    7,183Product liability
    
    
    4,558
    
    
    
    4,139Back-office consolidation
    
    
    
    
    
    
    2,536Freight
    
    
    2,196
    
    
    
    2,259Interest
    
    
    2,793
    
    
    
    2,530Royalty
    
    
    6,281
    
    
    
    7,020Other
    
    
    9,795
    
    
    
    10,280$
    50,034
    
    
    $
    62,046
 F-25




---



##### 



Applica Incorporated and Subsidiaries
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS  CONTINUED
 NOTE K  SHORT-TERM DEBT
     
    
    LIBOR (adjusted for any reserves), plus a specified margin (determined by Applicas
average quarterly availability and set at 1.75% at December 31, 2005), which was 6.14% at
December 31, 2005; or
    
    the Base Rate (which is Bank of Americas prime rate), plus a specified margin
(determined based upon Applicas average quarterly availability and was zero at December
31, 2005), which was 7.25% at December 31, 2005.
   
    
    a pledge of all of the stock of Applicas domestic subsidiaries;
    
    a pledge of not more than 65% of the voting stock of each direct foreign subsidiary of
Applica Incorporated and each direct foreign subsidiary of each domestic subsidiary of
Applica Incorporated; and
    
    a pledge of all of the capital stock of any subsidiary of a subsidiary of Applica
Incorporated that is a borrower under the credit facility.
    F-26




---



##### 



Applica Incorporated and Subsidiaries
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS  CONTINUED
  Notes and Acceptance Payable
   Stated InterestBalance
    
    
    Rate (1)(In Thousands)At December 31, 2005:Credit facility
    
    $
    69,524
    
    
    
    6.21
    %At December 31, 2004:Credit facility
    
    $
    88,541
    
    
    
    4.40
    %Notes and acceptance payable
    
    
    914
    
    
    
    2.83
    %Total
    
    $
    89,455
 
 (1)
    
    The stated interest rates were based upon the weighted average rates at December 31, 2005 and
2004; these rates are not necessarily an indication of future interest rates. NOTE L  LONG-TERM DEBT
 10% Senior Subordinated Notes
    Term Loan
  F-27




---



##### 



Applica Incorporated and Subsidiaries
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS  CONTINUED
    Notes Payable
   Interest Rate
    
    
    EffectiveStated Interest
    
    
    Swaps Pay
    
    
    Interest
    
    
    SwapBalance
    
    
    Rate
    
    
    Fixed (1)
    
    
    Rate (2)
    
    
    Maturities(In thousands)At December 31, 2005:10% Notes
    
    $
    55,750
    
    
    
    10.0
    %
    
    $
    
    
    
    
    10.0
    %Term Loan
    
    
    20,000
    
    
    
    10.9
    %
    
    
    
    
    
    
    10.9
    %Total
    
    
    75,750Less current portion
    
    
    
    
    
    
    
    
    
    
    Total long-term debt.
    
    $
    75,750
    
    
    
    
    
    
    $
    At December 31, 2004:Notes Payable
    
    $
    3,000
    
    
    
    6.0
    %
    
    $
    
    
    
    
    6.0
    %10% Notes (3)
    
    
    61,008
    
    
    
    10.0
    %
    
    
    30,000
    
    
    
    8.2
    %
    
    July 2008Total
    
    
    64,008
    
    
    
    
    
    
    
    30,000Less current portion
    
    
    3,000
    
    
    
    
    
    
    
    Total long-term debt
    
    $
    61,008
    
    
    
    
    
    
    $
    30,000
 
 (1)
    
    Amounts represent notional values of interest rate swaps.(2)
    
    The effective interest rate is the weighted average interest rate after taking into
consideration the effect of interest rate swaps outstanding as of year-end entered into with
respect to certain of those borrowings as indicated in the Pay Fixed column.(3)
    
    Includes $258,000 that represented the positive fair value of underlying hedge as of
December 31, 2004 as required pursuant to SFAS 133. NOTE M  EMPLOYEE BENEFIT PLANS
  F-28




---



##### 



Applica Incorporated and Subsidiaries
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS  CONTINUED
  NOTE N  INCOME TAXES
       For the Year ended December 31,2005
    
    
    2004
    
    
    2003(In thousands)Current:Federal
    
    $
    (574
    )
    
    $
    1,844
    
    
    $
    (174
    )Foreign
    
    
    1,985
    
    
    
    4,298
    
    
    
    (279
    )State
    
    
    
    
    
    
    
    
    
    
    1,411
    
    
    
    6,142
    
    
    
    (453
    )Deferred
    
    
    1,478
    
    
    
    53,309
    
    
    
    10,600$
    2,889
    
    
    $
    59,451
    
    
    $
    10,147
 F-29




---



##### 



Applica Incorporated and Subsidiaries
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS  CONTINUED
  For the Year ended December 31,2005
    
    
    2004
    
    
    2003(In thousands)United States
    
    $
    (30,652
    )
    
    $
    (76,288
    )
    
    $
    11,441Foreign
    
    
    (15,728
    )
    
    
    2,785
    
    
    
    13,929$
    (46,380
    )
    
    $
    (73,503
    )
    
    $
    25,370
  For the Year ended December 31,2005
    
    
    2004
    
    
    2003Statutory rate
    
    
    35.0
    %
    
    
    35.0
    %
    
    
    35.0
    %Permanent differences
    
    
    (0.3
    )
    
    
    (3.3
    )
    
    
    7.1
    *State income tax
    
    
    3.2
    
    
    
    2.4
    
    
    
    (1.0
    )Net tax rate differential on undistributed earnings
    
    
    (1.8
    )
    
    
    0.4
    
    
    
    (3.1
    )Foreign earnings distributed to, or taxable in, the U.S.
    
    
    (0.3
    )
    
    
    (13.6
    )
    
    
    2.5Valuation allowance
    
    
    (42.7
    )
    
    
    (101.8
    )
    
    
    Other
    
    
    0.7
    
    
    
    
    
    
    
    (0.5
    )(6.2
    )%
    
    
    (80.9
    )%
    
    
    40.0
    %
 
 *
    
    Permanent differences are primarily the result of foreign exchange translation losses.   At December 31,2005
    
    
    2004(In thousands)Inventory differences
    
    $
    524
    
    
    $
    (374
    )Accrued expenses
    
    
    12,195
    
    
    
    12,606Valuation allowance
    
    
    (11,470
    )
    
    
    (12,199
    )Total current assets
    
    
    1,249
    
    
    
    33Net operating loss and other carryforwards
    
    
    66,591
    
    
    
    42,802Fixed assets
    
    
    (1,053
    )
    
    
    3,306Goodwill and intangible asset amortization
    
    
    32,846
    
    
    
    36,054Unrealized derivative tax
    
    
    
    
    
    
    (579
    )Valuation allowance
    
    
    (89,199
    )
    
    
    (70,371
    )Net non-current assets
    
    
    9,185
    
    
    
    11,212Net deferred tax assets
    
    $
    10,434
    
    
    $
    11,245
 F-30




---



##### 



Applica Incorporated and Subsidiaries
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS  CONTINUED
  Domestic OperatingYear of Expiration
    
    Losses
    
    
    Foreign Losses2007
    
    $
    
    
    
    $
    8342012
    
    
    
    
    
    
    1,2622014
    
    
    
    
    
    
    1,5052015
    
    
    
    
    
    
    27,1632019
    
    
    10,832
    
    
    
    2020
    
    
    18,134
    
    
    
    2021
    
    
    3
    
    
    
    2022
    
    
    25
    
    
    
    2023
    
    
    3,582
    
    
    
    2024
    
    
    978
    
    
    
    2025
    
    
    42,793
    
    
    
    Indefinite
    
    
    
    
    
    
    3,081$
    76,347
    
    
    $
    33,845
  NOTE O  COMMITMENTS AND CONTINGENCIES
 Litigation and Other Matters
 Shareholder Litigation Scott Schultz, individually and on
behalf of all others similarly situated, v. Applica Incorporated, Harry D. Schulman and Terry L.
Polistina Joseph Rothman, individually and on
behalf of all others similarly situated, v. Applica Incorporated, Harry D. Schulman and Terry L.
Polistina
   F-31




---



##### 



Applica Incorporated and Subsidiaries
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS  CONTINUED
   Other Matters
  Employment and Other Agreements
      F-32




---



##### 



Applica Incorporated and Subsidiaries
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS  CONTINUED
  Leases
  (In thousands)2006
    
    $
    4,1452007
    
    
    3,7832008
    
    
    2,4202009
    
    
    2,0132010
    
    
    1,295Thereafter
    
    
    5,036$
    18,692
    License Agreements
  ®
 ®
 F-33




---



##### 



Applica Incorporated and Subsidiaries
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS  CONTINUED
 ® ®
 ®
 Supply Agreement
    Agreement with Banc of America Securities
  NOTE P  SHAREHOLDERS EQUITY
 Stock Options
    F-34




---



##### 



Applica Incorporated and Subsidiaries
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS  CONTINUED
  2005
    
    
    2004
    
    
    2003Weighted-
    
    
    
    
    
    
    Weighted-
    
    
    
    
    
    
    Weighted-Average
    
    
    
    
    
    
    Average
    
    
    
    
    
    
    AverageExercise
    
    
    
    
    
    
    Exercise
    
    
    
    
    
    
    ExerciseShares(000)
    
    
    Price
    
    
    Shares(000)
    
    
    Price
    
    
    Shares(000)
    
    
    PriceOutstanding at beginning of year
    
    
    2,755
    
    
    $
    5.30
    
    
    
    2,843
    
    
    $
    6.64
    
    
    
    3,382
    
    
    $
    7.50Granted
    
    
    843
    
    
    $
    2.09
    
    
    
    1,113
    
    
    $
    4.74
    
    
    
    172
    
    
    $
    7.21Exercised
    
    
    (3
    )
    
    $
    3.63
    
    
    
    (562
    )
    
    $
    6.93
    
    
    
    (130
    )
    
    $
    7.00Forfeited
    
    
    (1,112
    )
    
    $
    4.75
    
    
    
    (639
    )
    
    $
    8.55
    
    
    
    (581
    )
    
    $
    11.99Outstanding at end of year
    
    
    2,483
    
    
    $
    4.45
    
    
    
    2,755
    
    
    $
    5.30
    
    
    
    2,843
    
    
    $
    6.65Options exercisable at end of year
    
    
    2,018
    
    
    
    
    
    
    
    1,470
    
    
    
    
    
    
    
    2,270Weighted-average fair value of
options granted during the year
    
    $
    1.66
    
    
    
    
    
    
    $
    5.91
    
    
    
    
    
    
    $
    6.84
  Options Outstanding
    
    
    Options ExercisableWeighted-Average
    
    
    Weighted-
    
    
    
    
    
    
    Weighted-Remaining
    
    
    Average
    
    
    
    
    
    
    AverageContractual
    
    
    Exercise
    
    
    
    
    
    
    ExerciseShares(000)
    
    
    Life
    
    
    Price
    
    
    Shares(000)
    
    
    Price$1.62 - $3.17
    
    
    756
    
    
    
    4.90
    
    
    $
    1.96
    
    
    
    714
    
    
    $
    1.96$3.17 - $6.34
    
    
    1,312
    
    
    
    3.00
    
    
    $
    4.46
    
    
    
    890
    
    
    $
    4.59$6.34 - $9.51
    
    
    324
    
    
    
    1.00
    
    
    $
    7.42
    
    
    
    325
    
    
    $
    7.42$9.51 - $12.68
    
    
    36
    
    
    
    5.00
    
    
    $
    10.24
    
    
    
    34
    
    
    $
    10.22$12.68 - $15.84
    
    
    41
    
    
    
    3.20
    
    
    $
    13.99
    
    
    
    41
    
    
    $
    13.99$15.84 - $19.01
    
    
    5
    
    
    
    0.30
    
    
    $
    16.25
    
    
    
    5
    
    
    $
    16.25$28.52 - $31.69
    
    
    9
    
    
    
    2.40
    
    
    $
    31.69
    
    
    
    9
    
    
    $
    31.692,483
    
    
    
    
    
    
    $
    4.45
    
    
    
    2,018
    
    
    $
    4.55
 Employee Stock Purchase Plan
 th st
 NOTE Q  VENDOR CONSIDERATION
  F-35




---



##### 



Applica Incorporated and Subsidiaries
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS  CONTINUED
  NOTE R  BUSINESS SEGMENT AND GEOGRAPHIC AREA INFORMATION
   
    
    The Household Products segment is a leading distributor and marketer of small
electric household appliances, primarily cooking, garment care, food preparation,
beverage products, pet products and pest products, marketed under the licensed brand
names, such as Black & Decker® and Home Café, as well as owned brand names, such as
Applica®, Gizmo®, Littermaid® and Windmere®. The Household Products segment sales are
handled primarily through in house sales representatives and are made to mass
merchandisers, specialty retailers and appliance distributors in North America, Latin
America and the Caribbean.
    
    The Professional Personal Care segment is a distributor and marketer of a broad
range of personal care products under the Belson® and Jerdon® brands. The Professional
Personal Care segment sales are handled primarily through independent sales
representatives to specialty retailers and some mass merchandisers in North America.
The Jerdon® brand was sold in October 2004.
    
    The Manufacturing segment consisted of Applicas Mexican and Hong Kong-based
manufacturing operations. The Mexican manufacturing operations ceased production in
October 2005. In July 2004, Applica sold all of its interest in its Hong Kong
manufacturing operations.
  F-36




---



##### 



Applica Incorporated and Subsidiaries
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS  CONTINUED
  ProfessionalHousehold
    
    
    Personal CareProducts
    
    
    Products
    
    
    Manufacturing
    
    
    Total(In thousands)Year Ended 2005:Net sales
    
    $
    494,689
    
    
    $
    54,793
    
    
    $
    53,487
    
    
    $
    602,969Intersegment sales
    
    
    2,282
    
    
    
    
    
    
    
    44,568
    
    
    
    46,850Operating earnings (loss)
    
    
    (19,071
    )
    
    
    2,323
    
    
    
    (16,747
    )
    
    
    (33,495
    )Depreciation and amortization
    
    
    4,295
    
    
    
    1
    
    
    
    5,425
    
    
    
    9,721Total assets
    
    
    239,569
    
    
    
    21,423
    
    
    
    14,592
    
    
    
    275,584Year Ended 2004:Net sales
    
    $
    628,330
    
    
    $
    64,918
    
    
    $
    191,445
    
    
    $
    884,693Intersegment sales
    
    
    1,129
    
    
    
    
    
    
    
    173,792
    
    
    
    174,921Operating earnings (loss)
    
    
    21,359
    
    
    
    6,452
    
    
    
    (7,357
    )
    
    
    20,454Depreciation and amortization
    
    
    1,549
    
    
    
    7
    
    
    
    8,495
    
    
    
    10,051Total assets
    
    
    257,285
    
    
    
    37,965
    
    
    
    55,745
    
    
    
    350,995Year Ended 2003:Net sales
    
    $
    526,053
    
    
    $
    68,993
    
    
    $
    291,509
    
    
    $
    886,555Intersegment sales
    
    
    
    
    
    
    
    
    
    
    263,119
    
    
    
    263,119Operating earnings
    
    
    11,366
    
    
    
    7,448
    
    
    
    5,304
    
    
    
    24,118Depreciation and amortization
    
    
    1,447
    
    
    
    15
    
    
    
    16,212
    
    
    
    17,674Total assets
    
    
    182,391
    
    
    
    32,310
    
    
    
    176,943
    
    
    
    391,644
  2005
    
    
    2004Net Sales:Total revenues for reportable segments
    
    $
    602,969
    
    
    $
    884,693Eliminations of intersegment sales
    
    
    (46,850
    )
    
    
    (174,921
    )Consolidated net sales
    
    $
    556,119
    
    
    $
    709,772Operating (loss) earnings:Total operating (loss) earnings from reportable segments
    
    $
    (33,495
    )
    
    $
    20,454Unallocated amounts:Termination benefits
    
    
    
    
    
    
    (9,153
    )Gain on sale of subsidiary, division and property  net
    
    
    
    
    
    
    3,921Restructuring and other credit (charges)
    
    
    
    
    
    
    563Impairment of goodwill
    
    
    
    
    
    
    (62,812
    )Impairment of intangible asset
    
    
    
    
    
    
    Shared services and all other
    
    
    (3,207
    )
    
    
    (17,740
    )Consolidated operating loss
    
    $
    (36,702
    )
    
    $
    (64,767
    )Depreciation and amortization:Total depreciation and amortization from reportable segments
    
    $
    9,721
    
    
    $
    10,051Shared services and all other
    
    
    5,965
    
    
    
    7,439Consolidated depreciation and amortization
    
    $
    15,686
    
    
    $
    17,490Total assets:Total assets from reportable segments
    
    $
    275,584
    
    
    $
    350,995All other
    
    
    21,698
    
    
    
    24,942Consolidated total assets
    
    $
    297,282
    
    
    $
    375,937
 F-37




---



##### 



Applica Incorporated and Subsidiaries
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS  CONTINUED
  2005
    
    
    2004
    
    
    2003(In thousands)Net Sales
    
    
    %
    
    
    Net Sales
    
    
    %
    
    
    Net Sales
    
    
    %Kitchen Products
    
    $
    327,057
    
    
    
    59
    %
    
    $
    435,686
    
    
    
    61
    %
    
    $
    340,689
    
    
    
    55
    %Home Products
    
    
    118,507
    
    
    
    21
    %
    
    
    136,089
    
    
    
    19
    %
    
    
    133,404
    
    
    
    21
    %Personal Care Products
    
    
    54,874
    
    
    
    10
    %
    
    
    63,743
    (1)
    
    
    9
    %
    
    
    67,746
    (1)
    
    
    11
    %Pet Products
    
    
    38,324
    
    
    
    7
    %
    
    
    36,350
    
    
    
    5
    %
    
    
    33,197
    
    
    
    5
    %Pest Control Products
    
    
    8,421
    
    
    
    1
    %
    
    
    14,549
    
    
    
    2
    %
    
    
    16,639
    
    
    
    3
    %Contract Manufacturing (2)
    
    
    8,936
    
    
    
    2
    %
    
    
    17,653
    (3)
    
    
    3
    %
    
    
    28,246
    (3)
    
    
    4
    %Other Products
    
    
    
    
    
    
    0
    %
    
    
    5,702
    
    
    
    1
    %
    
    
    3,515
    
    
    
    1
    %Consolidated
    
    $
    556,119
    
    
    
    100
    %
    
    $
    709,772
    
    
    
    100
    %
    
    $
    623,436
    
    
    
    100
    %
 
 (1)
    
    Includes sales of products by the Jerdon hotel and hospitality division, which was sold
in October 2004. Such sales totaled $8.4 million in 2004 and $13.3 million in 2003.(2)
    
    Includes contract manufacturing sales from our Mexican manufacturing operations, which
ceased operations in October 2005. Such sales totaled $8.9 million in 2005, $3.5 million
in 2004 and $0.9 million in 2003.(3)
    
    Includes contract manufacturing sales from our Hong Kong manufacturing operations,
which were sold in July 2004. Such sales totaled $14.2 million in 2004 and $27.5 million in
2003.  2005
    
    
    2004Net sales:United States operations
    
    $
    399,960
    
    
    $
    542,387International operations:Sales to unaffiliated customers
    
    
    156,159
    
    
    
    167,385Sales  intercompany:Mexico
    
    
    44,568
    
    
    
    103,496Canada
    
    
    2,282
    
    
    
    1,129China
    
    
    
    
    
    
    70,29646,850
    
    
    
    174,921Eliminations
    
    
    (46,850
    )
    
    
    (174,921
    )Consolidated net sales
    
    $
    556,119
    
    
    $
    709,772Long-lived assets(1):United States operations
    
    $
    19,363
    
    
    $
    24,522International operations
    
    
    2,117
    
    
    
    18,298Consolidated long-lived assets
    
    $
    21,480
    
    
    $
    42,820
 
 (1)
    
    Includes property plant and equipment and other intangible assets.  F-38




---



##### 



Applica Incorporated and Subsidiaries
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS  CONTINUED
 NOTE S  CONCENTRATION OF CREDIT AND OTHER RISKS
   ®
     F-39




---



##### 



Applica Incorporated and Subsidiaries
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS  CONTINUED
   NOTE T  RELATED PARTY TRANSACTIONS
 Mast Capital Management
 Sales Representative Relationships.
 Matters Relating to Ourimbah Investment Ltd
   
    
    Applica entered into severance agreements with Mr. Lai and agreed to pay him a
severance payment of $842,833 payable over 18 months;
    
    Applica entered into severance agreements with Mr. Lam and agreed to pay him a
severance payment of $387,903 payable over 12 months; and
 F-40




---



##### 



Applica Incorporated and Subsidiaries
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS  CONTINUED
 
    
    Applica entered into a severance agreement with Eliza Lai and paid her a
severance payment of $166,367.
  Matters related to David Friedson
   NOTE U  FINANCIAL INSTRUMENTS
 Interest Rate Risk Management
     F-41




---



##### 



Applica Incorporated and Subsidiaries
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS  CONTINUED
 Foreign Exchange Risk Management
     Fair Value of Financial Instruments
  December 31, 2005
    
    
    December 31, 2004Carrying
    
    
    
    
    
    
    CarryingAmount/Notional
    
    
    
    
    
    
    Amount/NotionalAmount
    
    
    Fair Value
    
    
    Amount
    
    
    Fair Value(In thousands)Borrowings(1)
    
    $
    145,274
    
    
    $
    143,741
    
    
    $
    153,463
    
    
    $
    153,463Risk management contracts(2):Foreign exchange forwards(3)
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    Foreign exchange options(3).
    
    
    
    
    
    
    
    
    
    $
    9,200
    
    
    $
    (648
    )Interest rate swaps(4)
    
    
    
    
    
    
    
    
    
    $
    30,000
    
    
    $
    258
 
 (1)
    
    The fair value of borrowings were approximated at carrying value, including the
10% notes, which were valued at 97.25% and 100.00% at December 31, 2005 and 2004,
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 Applica would receive upon exiting the contracts and a negative fair value represents
the amount Applica would pay upon exiting the contracts. Applica intends to hold all
contracts to maturity, at which time the fair value will be zero.(3)
    
    Fair values were included in other long term liabilities in the
consolidated balance sheet.(4)
    
    Fair values were included in prepaid expenses and other in the
consolidated balance sheet. F-42




---



##### 



Applica Incorporated and Subsidiaries
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS  CONTINUED
 Credit Concentrations
  NOTE V  CONDENSED CONSOLIDATING FINANCIAL INFORMATION
  F-43




---



##### 



Applica Incorporated and Subsidiaries
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS  CONTINUED
 Year Ended December 31, 2005Parent
    
    
    Guarantors
    
    
    Non-Guarantors
    
    
    Eliminations
    
    
    Consolidated(In thousands)Balance Sheet:Cash and cash equivalents
    
    $
    
    
    
    $
    628
    
    
    $
    3,836
    
    
    $
    
    
    
    $
    4,464Accounts and other receivables, net
    
    
    
    
    
    
    101,841
    
    
    
    38,638
    
    
    
    
    
    
    
    140,479Note receivable  former officer
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    Receivables from affiliates
    
    
    (43,473
    )
    
    
    79,638
    
    
    
    (10,418
    )
    
    
    (25,747
    )
    
    
    Inventories
    
    
    
    
    
    
    78,508
    
    
    
    23,130
    
    
    
    
    
    
    
    101,638Future income tax benefits
    
    
    
    
    
    
    1,357
    
    
    
    (108
    )
    
    
    
    
    
    
    1,249Other current assets
    
    
    
    
    
    
    3,321
    
    
    
    11,477
    
    
    
    
    
    
    
    14,798Total current assets
    
    
    (43,473
    )
    
    
    265,293
    
    
    
    66,555
    
    
    
    (25,747
    )
    
    
    262,628Investment in subsidiaries
    
    
    251,898
    
    
    
    783
    
    
    
    29,232
    
    
    
    (281,913
    )
    
    
    Property, plant and equipment, net
    
    
    
    
    
    
    17,420
    
    
    
    2,295
    
    
    
    
    
    
    
    19,715Long-term future income tax benefits
    
    
    
    
    
    
    6,472
    
    
    
    2,713
    
    
    
    
    
    
    
    9,185Intangibles and other assets, net
    
    
    
    
    
    
    19,738
    
    
    
    11,635
    
    
    
    (25,619
    )
    
    
    5,754Total assets
    
    $
    208,425
    
    
    $
    309,706
    
    
    $
    112,430
    
    
    $
    (333,279
    )
    
    $
    297,282Accounts payable and accrued expenses
    
    $
    
    
    
    $
    65,023
    
    
    $
    18,693
    
    
    $
    
    
    
    $
    83,716Short-term debt
    
    
    69,524
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    69,524Deferred rent
    
    
    
    
    
    
    734
    
    
    
    185
    
    
    
    
    
    
    
    919Current taxes payable
    
    
    
    
    
    
    515
    
    
    
    3,232
    
    
    
    
    
    
    
    3,747Total current liabilities
    
    
    69,524
    
    
    
    66,272
    
    
    
    22,110
    
    
    
    
    
    
    
    157,906Long-term debt
    
    
    75,750
    
    
    
    69,100
    
    
    
    12,280
    
    
    
    (81,380
    )
    
    
    75,750Future income tax liabilities
    
    
    
    
    
    
    1,882
    
    
    
    (1,882
    )
    
    
    
    
    
    
    Other long-term liabilities
    
    
    
    
    
    
    475
    
    
    
    
    
    
    
    
    
    
    
    475Total liabilities
    
    
    145,274
    
    
    
    137,729
    
    
    
    32,508
    
    
    
    (81,380
    )
    
    
    234,131Shareholders equity
    
    
    63,151
    
    
    
    171,977
    
    
    
    79,921
    
    
    
    (251,898
    )
    
    
    63,151Total liabilities and shareholders equity
    
    $
    208,425
    
    
    $
    309,706
    
    
    $
    112,429
    
    
    $
    (333,278
    )
    
    $
    297,282Statement of Operations:Net sales
    
    $
    
    
    
    $
    416,733
    
    
    $
    186,236
    
    
    $
    (46,850
    )
    
    $
    556,119Cost of sales
    
    
    
    
    
    
    306,747
    
    
    
    159,533
    
    
    
    (46,850
    )
    
    
    419,430Restructuring charges
    
    
    
    
    
    
    
    
    
    
    12,491
    
    
    
    
    
    
    
    12,491Gross profit
    
    
    
    
    
    
    109,986
    
    
    
    14,212
    
    
    
    
    
    
    
    124,198Operating expenses
    
    
    3
    
    
    
    125,183
    
    
    
    35,714
    
    
    
    
    
    
    
    160,900Operating (loss) earnings
    
    
    (3
    )
    
    
    (15,197
    )
    
    
    (21,502
    )
    
    
    
    
    
    
    (36,702
    )Other (income) expense, net
    
    
    (716
    )
    
    
    10,842
    
    
    
    (392
    )
    
    
    
    
    
    
    9,734Gain on early extinguishment of debt
    
    
    
    
    
    
    (56
    )
    
    
    
    
    
    
    
    
    
    
    (56
    )Earnings (loss) before equity in net earnings
(loss) of subsidiaries, and income taxes
    
    
    713
    
    
    
    (25,983
    )
    
    
    (21,110
    )
    
    
    
    
    
    
    (46,380
    )Equity in net earnings (loss) of subsidiaries
    
    
    (49,982
    )
    
    
    
    
    
    
    
    
    
    
    49,982
    
    
    
    Income tax provision
    
    
    
    
    
    
    699
    
    
    
    2,190
    
    
    
    
    
    
    
    2,889Net (loss) earnings
    
    $
    (49,269
    )
    
    $
    (26,682
    )
    
    $
    (23,300
    )
    
    $
    49,982
    
    
    $
    (49,269
    )Cash Flow Information:Net cash (used in) provided by operating activities
    
    $
    (42,685
    )
    
    $
    (2,668
    )
    
    $
    (12,385
    )
    
    $
    53,772
    
    
    $
    (3,966
    )Net cash provided by (used in) investing activities
    
    
    49,235
    
    
    
    (39,946
    )
    
    
    11,631
    
    
    
    (14,187
    )
    
    
    6,733Net cash provided by (used in) financing activities
    
    
    (5,705
    )
    
    
    41,079
    
    
    
    (3,710
    )
    
    
    (39,585
    )
    
    
    (7,921
    )Effect of exchange rate changes on cash
    
    
    (845
    )
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    (845
    )Cash at beginning of period
    
    
    
    
    
    
    2,163
    
    
    
    8,300
    
    
    
    
    
    
    
    10,463Cash at end of period
    
    $
    
    
    
    $
    628
    
    
    $
    3,836
    
    
    $
    
    
    
    $
    4,464
 F-44




---



##### 



Applica Incorporated and Subsidiaries
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS  CONTINUED
 Year Ended December 31, 2004Parent
    
    
    Guarantors
    
    
    Non-Guarantors
    
    
    Eliminations
    
    
    Consolidated(In thousands)Balance Sheet:Cash and cash equivalents
    
    $
    
    
    
    $
    2,163
    
    
    $
    8,300
    
    
    $
    
    
    
    $
    10,463Accounts and
other receivables, net
    
    
    4,195
    
    
    
    112,380
    
    
    
    43,861
    
    
    
    
    
    
    
    160,436Note receivable  former officer
    
    
    2,569
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    2,569Receivables from affiliates
    
    
    (153,140
    )
    
    
    (61,081
    )
    
    
    (9,008
    )
    
    
    223,229
    
    
    
    Inventories
    
    
    
    
    
    
    96,565
    
    
    
    34,938
    
    
    
    
    
    
    
    131,503Future income tax benefits
    
    
    
    
    
    
    1,190
    
    
    
    (1,157
    )
    
    
    
    
    
    
    33Other current assets
    
    
    
    
    
    
    5,303
    
    
    
    9,038
    
    
    
    
    
    
    
    14,341Total current assets
    
    
    (146,376
    )
    
    
    156,520
    
    
    
    85,972
    
    
    
    223,229
    
    
    
    319,345Investment in subsidiaries
    
    
    408,231
    
    
    
    104,988
    
    
    
    29,232
    
    
    
    (542,451
    )
    
    
    Property, plant and equipment, net
    
    
    
    
    
    
    20,029
    
    
    
    18,298
    
    
    
    
    
    
    
    38,327Long-term future income tax benefits
    
    
    
    
    
    
    6,793
    
    
    
    4,419
    
    
    
    
    
    
    
    11,212Intangibles and other assets, net
    
    
    2,010
    
    
    
    21,413
    
    
    
    9,385
    
    
    
    (25,755
    )
    
    
    7,053Total assets
    
    $
    263,865
    
    
    $
    309,743
    
    
    $
    147,306
    
    
    $
    (344,977
    )
    
    $
    375,937Accounts payable and accrued expenses
    
    $
    
    
    
    $
    75,025
    
    
    $
    28,848
    
    
    $
    
    
    
    $
    103,873Short-term debt
    
    
    88,541
    
    
    
    
    
    
    
    914
    
    
    
    
    
    
    
    89,455Current
portion of long-term debt
    
    
    3,000
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    3,000Deferred rent
    
    
    
    
    
    
    680
    
    
    
    
    
    
    
    
    
    
    
    680Current taxes payable
    
    
    
    
    
    
    2,817
    
    
    
    3,130
    
    
    
    
    
    
    
    5,947Total current liabilities
    
    
    91,541
    
    
    
    78,522
    
    
    
    32,892
    
    
    
    
    
    
    
    202,955Long-term debt
    
    
    61,008
    
    
    
    (75,734
    )
    
    
    12,480
    
    
    
    63,254
    
    
    
    61,008Future income tax liabilities
    
    
    
    
    
    
    3,884
    
    
    
    (3,884
    )
    
    
    
    
    
    
    Other long term liabilities
    
    
    346
    
    
    
    658
    
    
    
    
    
    
    
    
    
    
    
    1,004Total liabilities
    
    
    152,895
    
    
    
    7,330
    
    
    
    41,488
    
    
    
    63,254
    
    
    
    264,967Shareholders equity
    
    
    110,970
    
    
    
    302,413
    
    
    
    105,818
    
    
    
    (408,231
    )
    
    
    110,970Total liabilities and shareholders equity
    
    $
    263,865
    
    
    $
    309,743
    
    
    $
    147,306
    
    
    $
    (344,977
    )
    
    $
    375,937Statement of Operations:Net sales
    
    $
    
    
    
    $
    565,364
    
    
    $
    319,329
    
    
    $
    (174,921
    )
    
    $
    709,772Cost of sales
    
    
    
    
    
    
    402,092
    
    
    
    279,481
    
    
    
    (174,921
    )
    
    
    506,652Restructuring charges
    
    
    
    
    
    
    
    
    
    
    9,236
    
    
    
    
    
    
    
    9,236Gross profit
    
    
    
    
    
    
    163,272
    
    
    
    30,612
    
    
    
    
    
    
    
    193,884Operating expenses
    
    
    
    
    
    
    166,830
    
    
    
    24,340
    
    
    
    
    
    
    
    191,170Termination benefits
    
    
    
    
    
    
    7,756
    
    
    
    1,397
    
    
    
    
    
    
    
    9,153(Gain) loss on sale of subsidiary, division,
and property
    
    
    
    
    
    
    (4,705
    )
    
    
    784
    
    
    
    
    
    
    
    (3,921
    )Restructuring and other charges
    
    
    
    
    
    
    (563
    )
    
    
    
    
    
    
    
    
    
    
    (563
    )Impairment of goodwill
    
    
    4,414
    
    
    
    58,398
    
    
    
    
    
    
    
    
    
    
    
    62,812Operating (loss) earnings
    
    
    (4,414
    )
    
    
    (64,444
    )
    
    
    4,091
    
    
    
    
    
    
    
    (64,767
    )Other (income) expense, net
    
    
    (79,334
    )
    
    
    9,477
    
    
    
    78,406
    
    
    
    
    
    
    
    8,549Loss on early extinguishment of debt
    
    
    
    
    
    
    187
    
    
    
    
    
    
    
    
    
    
    
    187Earnings (loss) before equity in net
earnings (loss) of subsidiaries, and income
taxes
    
    
    74,920
    
    
    
    (74,108
    )
    
    
    (74,315
    )
    
    
    
    
    
    
    (73,503
    )Equity in net earnings (loss) of subsidiaries
    
    
    (149,735
    )
    
    
    
    
    
    
    
    
    
    
    149,735
    
    
    
    Income tax provision
    
    
    58,139
    
    
    
    
    
    
    
    1,312
    
    
    
    
    
    
    
    59,451Net (loss) earnings
    
    $
    (132,954
    )
    
    $
    (74,108
    )
    
    $
    (75,627
    )
    
    $
    149,735
    
    
    $
    (132,954
    )Cash Flow Information:Net cash provided by (used in) operating activities
    
    $
    (170,329
    )
    
    $
    48,506
    
    
    $
    (91,266
    )
    
    $
    149,533
    
    
    $
    (63,556
    )Net cash provided by (used in) investing activities
    
    
    75,542
    
    
    
    135,608
    
    
    
    140,351
    
    
    
    (317,400
    )
    
    
    34,101Net cash provided by (used in) financing activities
    
    
    94,067
    
    
    
    (183,075
    )
    
    
    (52,396
    )
    
    
    167,867
    
    
    
    26,463Effect of exchange rate changes on cash
    
    
    720
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    720Cash at beginning of period
    
    
    
    
    
    
    1,124
    
    
    
    11,611
    
    
    
    
    
    
    
    12,735Cash at end of period
    
    $
    
    
    
    $
    2,163
    
    
    $
    8,300
    
    
    $
    
    
    
    $
    10,463
 F-45




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##### 



SUPPLEMENTAL FINANCIAL DATA
 Quarterly Financial Data (Unaudited)
  DilutedNet
    
    
    Basic (Loss)
    
    
    (Loss) Earnings PerNet Sales
    
    
    Gross Profit
    
    
    (Loss) Earnings
    
    
    Earnings Per Share
    
    
    Share(In thousands, except per share data)2005First quarter
    
    $
    112,450
    
    
    $
    18,728
    (1)
    
    $
    (22,955
    )(1)
    
    $
    (0.95
    )
    
    $
    (0.95
    )Second quarter
    
    
    116,458
    
    
    
    22,959
    (2)
    
    
    (18,501
    )(2)
    
    
    (0.77
    )
    
    
    (0.77
    )Third quarter.
    
    
    139,637
    
    
    
    33,646
    (3)
    
    
    (8,179
    )(3)
    
    
    (0.34
    )
    
    
    (0.34
    )Fourth quarter
    
    
    187,574
    
    
    
    48,865
    (4)
    
    
    366
    (4)
    
    
    0.02
    
    
    
    0.02Total
    
    $
    556,119
    
    
    $
    124,198
    
    
    $
    (49,269
    )
    
    $
    (2.04
    )
    
    $
    (2.04
    )2004First quarter
    
    $
    128,527
    
    
    $
    33,505
    (5)
    
    $
    (4,479
    )(5)
    
    $
    (0.19
    )
    
    $
    (0.19
    )Second quarter
    
    
    154,677
    
    
    
    44,172
    
    
    
    (123,818
    )(6)
    
    
    (5.16
    )
    
    
    (5.16
    )Third quarter.
    
    
    182,938
    
    
    
    51,088
    
    
    
    (9,943
    )(7)
    
    
    (0.41
    )
    
    
    (0.41
    )Fourth quarter
    
    
    243,630
    
    
    
    65,119
    (8)
    
    
    5,286
    (8)
    
    
    0.22
    
    
    
    0.22Total
    
    $
    709,772
    
    
    $
    193,884
    
    
    $
    (132,954
    )
    
    $
    (5.55
    ) (9)
    
    $
    (5.55
    )(9)
 
 (1)
    
    In the first quarter of 2005, Applica recorded: 
    
    inventory write-downs of $9.4 million related to lower-than-anticipated consumer demand
for two of our products; and
    
    restructuring charges of $0.9 million related to our decision to move the production of
Home Café single cup coffee maker from Mexico to third party manufacturers in China.
 (2)
    
    In the second quarter of 2005, Applica recorded:
 
    
    inventory write-downs of $3.4 million related to lower-than-anticipated consumer
demand for two of our products; and
    
    $4.2 million of restructuring charges associated primarily with the downsizing and
decision in July 2005 to close the manufacturing facility in Mexico.
 (3)
    
    In the third quarter of 2005, Applica recorded $4.7 million of restructuring charges
associated with the downsizing and closure of the manufacturing facility in Mexico.(4)
    
    In the fourth quarter of 2005, Applica recorded $2.6 million of restructuring charges
associated with the downsizing and closure of the manufacturing facility in Mexico.(5)
    
    In the first quarter of 2004, Applica recorded restructuring charges of $0.9 million
primarily related to the downsizing of its manufacturing operations in Mexico.(6)
    
    In the second quarter of 2004, Applica recorded:
 
    
    an impairment charge to the carrying value of goodwill of $62.8 million; and
    
    an additional valuation allowance of $51.4 million related to deferred tax assets.
 (7)
    
    In the third quarter of 2004, Applica recorded termination benefits of $9.2 million in
connection with the termination of certain executive and senior management employment and
consulting agreements.
 (8)
    
    In the fourth quarter of 2004, Applica recorded restructuring charges of $8.3 million related
to the downsizing of its manufacturing operations in Mexico.
 (9)
    
    The sum of the quarters differs from the total due to exclusion of anti-dilutive effect of
stock options in earnings per share calculation in periods with losses.




---



##### 



SCHEDULE II
  VALUATION AND QUALIFYING ACCOUNTS
 Charged (Credited)Balance at
    
    
    Purchase Price
    
    
    to Costs and
    
    
    Charged to Other
    
    
    
    
    
    
    Balance at End ofDescription
    
    Beginning of Period
    
    
    Reserves
    
    
    Expenses
    
    
    Accounts
    
    
    Deductions
    
    
    PeriodYear
ended December 31, 2005Reserves deducted
from assets to
which they apply:Allowance for
doubtful
accounts
    
    $
    11,711
    
    
    
    
    
    
    $
    (2,497
    )
    
    
    
    
    
    $
    (441
    )(1)
    
    $
    8,773Deferred
tax valuation
allowance
    
    $
    82,570
    
    
    
    
    
    
    
    
    
    
    $
    18,099
    
    
    
    
    
    
    $
    100,669Year ended
December 31, 2004Reserves deducted
from assets to
which they apply:Allowance for
doubtful
accounts
    
    $
    12,543
    
    
    
    
    
    
    $
    889
    
    
    
    
    
    
    $
    (1,721
    )(1)
    
    $
    11,711Deferred
tax valuation
allowance
    
    $
    7,367
    
    
    
    
    
    
    
    
    
    
    $
    75,203
    
    
    
    
    
    
    $
    82,570Year ended
December 31, 2003Reserves deducted
from assets to
which they apply:Allowance for
doubtful
accounts
    
    $
    15,830
    
    
    
    
    
    
    $
    2,228
    
    
    
    
    
    
    $
    (5,515
    )(1)
    
    $
    12,543Deferred
tax valuation
allowance
    
    $
    10,155
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    $
    (2,788
    )(1)
    
    $
    7,367
 
 (1)
    
    Write-off against the reserve