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SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549

FORM 10-K

|  |  |                                                                                                                                 
|- |  | --------------------------------------------------------------------------------------------------------------------------------
|x |  | ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE
ACT OF 1934 FOR THE FISCAL YEAR ENDED DECEMBER 31, 2001
| 
|  |  | OR                                                                                                                              
| 
|o |  | TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES
EXCHANGE ACT OF 1934                                        
| 

Commission File Number 1-10177

APPLICA INCORPORATED

(Exact name of Registrant as specified in its charter)




|                                                                                       |  |                                        
|-------------------------------------------------------------------------------------- |  | ---------------------------------------
|Florida                                                                                |  | 59-1028301                             
|                                                                                       |  |                                        
|(State or other
jurisdiction of
incorporation or organization)                         |  | (I.R.S. Employer
Identification Number)
|                                                                                      
|5980 Miami Lakes Drive, Miami Lakes, Florida

(Address of principal executive offices) |  | 33014
(Zip Code)                       

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

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

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

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

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

As of March 1, 2002, the aggregate market value of the voting stock (based
on the closing price as reported by NYSE of $6.50) held by non-affiliates of
the Registrant was approximately $127.1 million.*

As of March 1, 2002, there were 23,342,903 shares of Common Stock
outstanding.

DOCUMENTS INCORPORATED BY REFERENCE

The Registrants Definitive Proxy Statement for its 2002 Annual Meeting of
Stockholders will be filed with the Securities and Exchange Commission not
later than 120 days after the end of the fiscal year covered by this Form 10-K
pursuant to General Instruction G(3) of the Form 10-K. Information from such
Definitive Proxy Statement will be incorporated by reference into Part III,
Items 10, 11, 12 and 13 hereof.



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|* |  | Based on reported ownership of all directors and executive officers of the
Registrant; this determination does not, however, constitute an admission of
affiliated status for any of these individual shareholders.
|- |  | -------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------



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TABLE OF CONTENTS



|                                   |                                                                                               |  |  |  |  |  |  | 
|---------------------------------- | --------------------------------------------------------------------------------------------- |  |  |  |  |  |  | 
|PART I                            
|                                   | Item 1. Business                                                                             
|Overview                          
|Risk Factors                      
|                                   | Item 2. Properties                                                                           
|                                   | Item 3. Legal Proceedings                                                                    
|                                   | Item 4. Submission of Matters to a Vote of Security Holders                                  
|PART II                           
|                                   | Item 5. Market for the Registrants Common Stock and Related Stockholder Matters             
|                                   | Item 6. Selected Financial Data                                                              
|                                   | Item 7. Managements Discussion and Analysis of Financial Condition and Results of Operations
|                                   | Item 7A. Quantitative and Qualitative Disclosures About Market Risk.                         
|                                   | Item 8. Financial Statements and Supplementary Data                                          
|                                   | Item 9. Changes In and Disagreements With Accountants On Accounting and Financial Disclosure 
|PART III                          
|                                   | Item 10. Directors and Executive Officers of the Registrant                                  
|                                   | Item 11. Executive Compensation                                                              
|                                   | Item 12. Security Ownership of Certain Beneficial Owners and Management                      
|                                   | Item 13. Certain Relationships and Related Transactions                                      
|PART IV                           
|                                   | Item 14. Exhibits, Financial Statement Schedules and Reports on Form 8-K                     
|Signatures                        
|EMPLOYMENT AGREEMENT W/ RAYMOND SO
|CREDIT AGREEMENT                  
|SECURITY AGREEMENT                
|SUBSIDIARIES                      
|CONSENT OF EXPERTS AND COUNSEL    



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

This Annual Report on Form 10-K contains forward-looking statements within
the meaning of Section 27A of the Securities Act and Section 21E of the
Exchange Act. Such statements are indicated by words or phrases such as
anticipates, projects, management believes, Applica believes,
intends, expects, and similar words or phrases. Such forward-looking
statements are subject to certain risks, uncertainties or assumptions and may
be affected by certain other factors, including the specific factors set forth
in Risk Factors. Should one or more of these risks, uncertainties or other
factors materialize, or should underlying assumptions prove incorrect, actual
results, performance, or achievements of Applica may vary materially from any
future results, performance or achievements expressed or implied by such
forward-looking statements. All subsequent written and oral forward-looking
statements attributable to Applica or persons acting on our behalf are
expressly qualified in their entirety by the cautionary statements in this
paragraph. Applica disclaims any obligation to publicly announce the results of
any revisions to any of the forward-looking statements contained herein to
reflect future events or developments.




PART I




|        |  |         
|------- |  | --------
|Item 1. |  | Business




Overview

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

Applica operates manufacturing facilities in China and Mexico. In 2001,
approximately 80% of the products sold by Applica were manufactured in such
facilities. In addition, we manufacture products for other consumer products
companies, which we refer to as contract manufacturing.

During the fourth quarter of 2001, Applica adopted one business segment
for financial reporting purposes. Previously, Applica had reported three
business segments. See Note K Business Segment and Geographic Area
Information to the Consolidated Financial Statements hereto for information
regarding business segment data.

Business Strategy

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

Increase market share through new product introductions and brand
development. The Black & Decker® brand name is one of the most recognized
consumer brands in the world. We intend to continue to increase our market
share by offering new product categories and new product segments under the
Black & Decker® brand name, as well as other brand names. Brand development
efforts include integrated and consistent communication that covers packaging,
point of purchase materials, product design and advertising.

We are also expanding our international presence in the Latin American and
Canadian marketplaces through continued expansion of new products into the dual
brand strategy of Windmere® and Black & Decker®. The Windmere® line is
intended to capture the opening price point market and the Black & Decker® line
is intended to focus on the mid-price point market. Additionally, we are
exploring alternatives to expand our brands and products outside the western
hemisphere.

Leverage manufacturing capabilities. Our primary goal is to reduce
operating costs and increase productivity in our manufacturing facilities,
while producing high quality products. We intend to continue to:

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| |  |  | use our manufacturing capabilities in China to make
components for our Mexican manufacturing facility and for third
party manufacturers;         
| | - |  | -------------------------------------------------------------------------------------------------------------------------------------------------
|
| |  |  | expand capabilities at our China facility by replicating the
world class manufacturing techniques and processes used in our
Mexican facility; and
|
| |  |  | offer increased contract manufacturing, particularly for
companies outside of our core product categories.                                       

Expand alliance potentials. We plan to continue to pursue strategic
alliances that complement and expand our existing product lines and businesses
and that further differentiate our products, and to accelerate our growth. The
alliances can include brand development, product development or distribution
alliances. We also intend to further develop the strategic alliance we entered
into last year to fully capitalize on its potential.

Integrate facilities and functions.We will continue to integrate our
facilities and functions allowing us to target overhead reductions in order to
create a more competitive cost structure.

Improve supply chain and customer service functions.We will continue to
improve working capital management by reducing inventory days-on-hand.
Additionally, Applica is committed to providing the highest levels of order
fulfillment and customer support. We understand that good customer service is
critical to our business strategy and plan to continue to improve customer
service capabilities in 2002.

Seek other growth opportunities. We are searching for growth opportunities
within and beyond our existing business.

Products and Product Development

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

|                              |  |                        |         |       |  |          |    |       |  |          |         |       |  |  |    |   |  |   |         |  |  |  |    |  
|----------------------------- |  | ---------------------- | ------- | ----- |  | -------- | -- | ----- |  | -------- | ------- | ----- |  |  | -- | - |  | - | ------- |  |  |  | -- | -
|                              |  | 2001                   |         | 2000  |  | 1999    
|                              |  |                        |         |       |  |         
|                              |  | (Dollars in thousands)
|                              |  | Net                    |         | % of  |  | Net      |    | % of  |  | Net      |         | % of 
|                              |  | Sales(1)               |         | Total |  | Sales(1) |    | Total |  | Sales(1) |         | Total
|                              |  |                        |         |       |  |          |    |       |  |          |         |      
|Small Household Appliances(2) |  | $                      | 508,000 |       |  |          | 76 | %     |  | $        | 523,000 |       |  |  | 75 | % |  | $ | 493,000 |  |  |  | 74 | %
|Professional Personal Care    |  |                        | 61,000  |       |  |          | 9  |       |  |          | 58,000  |       |  |  | 8  |   |  |   | 51,000  |  |  |  | 8  |  
|Home Environment              |  |                        | 34,000  |       |  |          | 6  |       |  |          | 35,000  |       |  |  | 5  |   |  |   | 39,000  |  |  |  | 5  |  
|Pet                           |  |                        | 32,000  |       |  |          | 5  |       |  |          | 25,000  |       |  |  | 4  |   |  |   | 24,000  |  |  |  | 4  |  
|Other Products (2)            |  |                        | 31,000  |       |  |          | 4  |       |  |          | 54,000  |       |  |  | 8  |   |  |   | 60,000  |  |  |  | 9  |  



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

The small household appliance group includes food preparation, cooking,
beverage and garment care products and constitutes our largest product
category. Applica provides customers in the small household appliances market
with a broad product line at introductory and mid-tier price points. Our
products in this category include toaster ovens, toasters, hand-held irons,
blenders, can openers, coffee grinders, coffee makers, electric knives,
skillets, griddles, waffle makers, deep fryers, bag sealers, food choppers,
food processors, mixers, popcorn poppers, rice cookers and steamers, sandwich
makers and other similar products. We also distribute vacuum cleaners under
the Black & Decker® brand in Latin America.

The professional personal care group focuses mainly on product lines
marketed under the Belson® brand and other private label brands, and includes
hair dryers, curling irons, curling brushes, hairsetters, combs and brushes,
shears and mirrors. The professional products are sold primarily to beauty
salons and beauty supply stores. Applica also currently sells a small number
of professional personal care products to drug stores and mass

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merchandisers. In addition, we supply electric and non-electric amenities to the lodging
industry under the Jerdon® brand. The products include wall-mounted hair
dryers, lighted makeup and shaving mirrors, pulsating shower heads and other
similar products.

Applica also manufactures and markets the LitterMaid® self-cleaning cat
litter box. Because of the success of the LitterMaid® self cleaning cat box, we
have introduced other products under this brand, including accessories such as
the LitterMaid® privacy tent and replacement waste receptacles. These products
are sold to mass merchandisers in our primary distribution channels and
directly to consumers via direct response vehicles.

Applica has historically participated in the home environment category,
which includes seasonal products such as fans and heaters, under the Windmere®
brand name. This participation was targeted primarily at the opening price
point segment of the marketplace. In June 2001, Applica entered the mid-price
point segment of the market by launching a full array of ceramic heaters and
heater fans under the Black & Decker® brand. In addition, in January 2002, we
launched a line of fans under the Black & Decker® brand. We intend to expand
the Black & Decker® brand into additional areas of the home environment
category.

We also source and distribute other products, including microwaves,
telephones, telephone answering machines, video products, radios, tape decks
and CD players under the White-Westinghouse® brand in the U.S. and Canada.

Applica has instituted a well-defined product development and improvement
process focused on the perceived needs and demands of consumers. The product
development process continues to be refined to provide speed-to-market with
solid design, quality and function characteristics. Applica launched over 90
new products in 2001 and 100 new products in 2000. New products are those that
require a new mold, have a new feature or those that have not been in our
product line previously. Adding new features or providing a fresh look to
existing products either through design upgrades or creative packaging is a
necessity for maintaining consumer preferences and protecting existing retail
shelf space. Some of the new products launched in 2001 include the Gizmo can
opener, the Chill Buster heater fan, the Heat Xtreme ceramic heater and the
FryMate deep fryer. New products launched in 2000 include the Smart-Brew
coffeemaker line, the ProBlend blender line, the PowerPro mixer line and the
Quick n Easy food processor line.

Brands

As part of the acquisition of the Black & Decker Household Products Group,
Applica licensed the Black & Decker® brand for use in marketing small household
appliances in North America, Central America, South America (excluding Brazil)
and the Caribbean. In addition, Applica acquired certain Black & Decker
sub-brands, including Toast R Oven, ProFinish and Quick n Easy, and licensed
Spacemaker for under the cabinet kitchen appliances.

The major portion of Applicas revenue is generated through the sale of
kitchen appliances, with the Black & Decker® brand representing approximately
63% of Applicas total revenue in 2001, as compared to 60% in 2000. The Black
& Decker® brand is firmly established as a market leader and has the number one
United States dollar market share in the toaster oven and hand-held iron
categories. In addition, the Black & Decker® brand had the leading dollar
market shares with mass merchandisers in can openers, hand mixers, food
steamers, electric knives, food choppers and citrus juicers. New products
constituted 22.3% of our Black & Decker® sales in 2001 and 24.4% of the sales
in 2000.

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

Applica also manufactures and markets several products under the
LitterMaid® brand. The flagship LitterMaid® branded product is the
self-cleaning cat litter box. We have also introduced other products under
this brand, including accessories. This product is sold through our primary
distribution channels and directly to consumers via direct response vehicles
such as infomercials.

The professional personal care category is targeted specifically at the
salon segment under the Belson® brand and other private label programs. In
addition, Applica continues to focus on both appliances and personal care

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products that will be targeted to the hotel and hospitality industry through
the continued distribution of the Jerdon® brand of products.

In 1999, Applica acquired the right to market certain small electronic
appliances under the White-Westinghouse® brand name. These products include
telephones, telephone answering machines, microwaves, video cassette recorders,
radios, tape decks and CD players. In June 2000, the Kmart Corporation
exercised its option to terminate its long term supply contract with Applica
for the sale of White-Westinghouse® consumer electronic products in the United
States. The termination will be effective on June 30, 2002.

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

Strategic Alliances

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

In the fourth quarter of 2000, we entered into a joint product development
relationship with a consumer products company to develop, manufacture, market
and distribute new products into the mass market. We have entered into
agreements related to two products and are in the process of reviewing other
opportunities for joint product development with this company in household
appliances categories. This relationship will be initially targeted to the
Black & Decker® brand, but future expansion may assist in the development of
new brands and wider categories for Applica. We anticipate that the first
products developed pursuant to this alliance will be launched in the U.S. in
the second half of 2003 and the second product will follow in 2004.

Raw Materials and Suppliers

The raw materials used in the manufacture of our products are available
from numerous suppliers in quantities sufficient to meet normal requirements.
Applicas primary raw materials include plastic resin, electrical components,
corrugated cardboard for cartons, aluminum and copper. Factors that are
largely beyond our control, such as movements in commodity prices for specific
raw materials, may affect their cost. As an example, our products require a
substantial amount of plastic. Because the primary resource used in
manufactured plastics is petroleum, the cost and availability of plastic varies
to a great extent with the price of petroleum, which rose significantly in
2000, but remained relatively stable in 2001. Because the majority of our raw
materials are commodity based, they are available from at least two or more
independent suppliers. Applica is not dependent upon any single foreign source
for such materials, although the cost from alternative sources may be higher.
We do not maintain long-term purchase contracts with our suppliers.

Applica purchases approximately 20% of its finished products from outside
suppliers, with no significant concentration with any one supplier. We do not
maintain long-term purchase contracts with these suppliers.

Intellectual Property

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

As part of our acquisition of the Black & Decker Household Products Group
in June 1998, we licensed the Black & Decker brand® in North America, Central
America, South America (excluding Brazil) and the Caribbean for specific
household appliances. The license was on a royalty-free basis for core product
categories through June 2003. In July 2001, Applica and The Black & Decker
Corporation entered into an extension of the trademark license agreement
through December 31, 2006. Under the agreement as extended, Applica agreed to
pay certain fees and guaranteed minimum royalty payments to The Black & Decker
Corporation of $1.2 million in 2001, $2.0 million

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in 2002, $5.0 million in 2003
and $12.5 million in each year thereafter through 2006. Renewals of the
license agreement, if mutually agreed upon, are for five-year periods. If
Black & Decker does not agree to renew the license agreement, Applica has 18
months to transition out of the brand name. No minimum royalty payments will
be due during such transition period. Additionally, Black & Decker will be
prohibited from competing in core product lines for a period of five years from
the date of the termination of the license agreement.

Upon request, Black & Decker may elect to extend the license to use the
Black & Decker® brand to certain additional products. Such additional products
are subject to royalty payments. In 2000, Black & Decker agreed to extend the
license to several new product categories, including heaters, fans and deep
fryers.

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

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

Applica has also licensed the White-Westinghouse® trademark for small
electronic appliances, including telephones, telephone answering machines,
video cassette recorders, radios, tape decks and CD players. Such license is
exclusive in the United States and Canada and requires the payment of minimum
royalties. The license agreement also contains minimum sales requirements,
which if not met, may result in the termination of the license. Applica has
the right to renew the license agreement on an annual basis through 2012 and
has currently renewed it through December 2002. In the fourth quarter of 2000,
we recorded a write down of an intangible asset of $3.2 million associated with
Kmart Corporations decision to terminate its long-term supply contract for
White-Westinghouse® electronic products. This write down was included in
charges in 2000 because it is our intention not to re-market these products to
another company. In the fourth quarter of 2001, we recorded an additional $1.2
million write down of the intangible asset relating to the voluntary bankruptcy
of Kmart.

Private Label Manufacturing

Applica offers a number of products in the small appliance, personal care
and home environment categories for private label branding by retailers.
Private label brands are those brands that are specific to a certain retailer.
In addition, Applica is working with key retailers to supply product
development and manufacturing expertise to the development of lines such as the
Michael Graves line at Target, for which we have developed 11 products since
1998.

Manufacturing

Applica operates manufacturing facilities in the Peoples Republic of
China and Mexico. Applica Durable Manufacturing Limited is Applicas wholly
owned Hong Kong subsidiary, with manufacturing operations located in Bao An
County, Guangdong Province of the Peoples Republic of China, which is
approximately 60 miles northwest of central Hong Kong. The Chinese facilities
include six manufacturing plants located within a six square mile radius,
constituting approximately two million square feet of production capability.
These facilities operate as a vertically integrated manufacturing operation, with the
capacity and expertise to handle most phases of product manufacturing, from
design to component manufacturing through final assembly. The Chinese
factories use computer-aided design and manufacturing software and
state-of-the-art mold making machinery to shorten the time between product
conception and final production. By manufacturing a majority of their own
parts and testing at several points in the manufacturing process, our Chinese
facilities are better able to ensure consistent quality. This commitment to
quality by our Chinese manufacturing operations has earned it ISO 9001
certification. The factories in China are operated under contracts with the
local government.

Applica Manufacturing, S. de R.L. de C.V., is Applicas wholly owned
Mexican manufacturing subsidiary, located in Queretaro, Mexico, which is
approximately 150 miles northwest of Mexico City. The factory constitutes
approximately 290,000 square feet of floor space and manufactures Black &
Decker® branded products for

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distribution to both North America and Latin
America. Its capabilities include product design and tool fabrication. The
Mexican facility is also certified under ISO 9000 standards. This location
primarily manufactures irons, blenders, coffee makers and toaster ovens.

Contract Manufacturing

Durable also serves as a contract manufacturer for a range of small
appliances, including toasters, steam irons, toaster ovens, can openers,
blenders, hand mixers, waffle irons, vacuum cleaners and electric toothbrushes,
which it sells primarily to small appliance companies and distributors in the
United States, Canada and Europe. Our Mexican manufacturing facility initiated
a contract manufacturing program in 2001.

The approximate amounts of Applicas net contract manufacturing sales
during 2001, 2000 and 1999 were $61.4 million, $53.3 million and $51.4 million,
respectively.

Customers

Applica markets it products primarily through mass merchandisers, but also
distributes to home improvement retailers, warehouse clubs, drug and grocery
stores, department stores, television shopping channels, pet supply retailers,
beauty supply stores, catalogers, independent distributors and military post
exchange outlets, as well as through e-commerce websites. In 2001, Applicas
top three customers were Wal-Mart, Target and Kmart. These customers
accounted for approximately 38%, 36% and 34% of net sales in 2001, 2000 and
1999, respectively. Wal-Mart was our only customer that accounted for more
than 10% of net sales in 2001.

In January 2002, Kmart Corporation and certain of its U.S. subsidiaries
filed voluntary petitions for reorganization under Chapter 11 of the U.S.
Bankruptcy Code. Kmart has indicated that it intends to reorganize on a
fast-track basis and has targeted emergence from Chapter 11 in 2003. In 2001,
Applica had sales of $49.4 million to Kmart Corporation and, as of the date of
the bankruptcy filing, Applica had outstanding receivables of approximately
$5.0 million.

Additionally, in January 2002, Service Merchandise Company, Inc. announced
that it would cease continuing business operations and file a plan of
liquidation by September 2002. Service Merchandise filed bankruptcy in March
1999 but was unable to complete its planned business reorganization. In 2001,
Applica had sales of $10.8 million to Service Merchandise. As of the date of
the announcement, the outstanding receivables to Service Merchandise were
immaterial.

Sales, Marketing and Distribution

Applicas products are sold principally by an internal sales staff. Each
sales manager has primary coverage responsibility for certain retail accounts.
We also use independent sales representatives in Central America and the
Caribbean. Our marketing department is responsible for product and category
analysis, pricing strategy, promotions, key cooperative partnerships and
overall category development. We use media advertising, cooperative
advertising and collateral materials to promote our products and develop brand
awareness.

In the United States, Canada, Mexico and South America, we distribute our
line of consumer products nationwide to retailers, including mass
merchandisers, department stores, drug chains, catalog stores and discount and
variety stores.

We market our professional salon appliances and hair care accessories to
beauticians, barbers and stylists primarily through distributors in the United
States. In addition, our professional personal care lines are sold primarily
through professional beauty and barber retail stores in the U.S.

Backlog

Applicas backlog consists of commitments to order and orders for our
products, which are typically subject to change and cancellation until
shipment. Customer order patterns vary from year to year, largely because of
annual differences in consumer acceptances of product lines, product
availability, marketing strategies, inventory levels of retailers and
differences in overall economic conditions. As a result, comparisons of
backlog as of any date in a given year with backlog at the same date in a prior
year are not necessarily indicative of sales for that entire given

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year. As of December 31, 2001, Applica had a backlog of approximately $40.4 million
compared to $52.8 million as of December 31, 2000. We do not believe that the
amount of backlog orders is a significant factor in our business.

Seasonality

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

Competition

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

Primary competitive brands in the household appliance market include
Hamilton Beach/Procter Silex, Sunbeam, West Bend, Salton, Kitchen Aid,
Cuisinart, Regal, Krups, Braun and Rival. Primary competitive brands in the
professional personal care market include Conair, Helen of Troy and Remington
and in the home environment market include Holmes, Patton, Pelonis, Honeywell,
Duracraft, Bionaire and Lakewood.

Regulation

As a manufacturer and distributor of consumer products, we are subject to
the Consumer Products Safety Act, which empowers the Consumer Products Safety
Commission to exclude from the market products that are found to be unsafe or
hazardous. Under certain circumstances, the Consumer Products Safety Commission
could require us to repurchase or recall one or more of our products. Laws
regulating certain consumer products exist in some cities and states, as well
as in other countries in which we sell our products. We believe that we are in
material compliance with all of the laws and regulations applicable to us.

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

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

Employees

As of March 1, 2002, Applica had approximately 16,000 full-time employees,
which included approximately 13,000 employed at Durables operations in Hong
Kong and China, approximately 600 employed in North America and approximately
2,000 employed in Mexico and South America. From time to time, Applica also
uses the services of seasonal employees.

In connection with the acquisition of the Black & Decker Household
Products Group, Applica Manufacturing, S. de R.L. de C.V., Applicas Mexican
manufacturing subsidiary, assumed the obligations of Black & Decker, S.A. de
C.V. under a collective bargaining agreement with the Sindicato Unico de
Trabajadores Black & Decker del Estado de Queretaro, C.T.M. (Single Workers
Union of Black & Decker of the State of Queretaro,

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C.T.M.) covering approximately 1,500 employees at our manufacturing plant in
Queretaro, Mexico. The wage provisions of this collective bargaining agreement
were renegotiated in February 2002. To date, the union has not engaged in strikes
or work stoppages against Applica. We believe that our relationships with both
union and non-union employees continue to be good.

Applica intends to close its offices in Shelton, Connecticut and to
consolidate critical functions at the Miami Lakes location by July 2002.
Certain back-office and supply chain functions in Canada and Latin America will
also be consolidated. This consolidation will result in the reduction of
approximately 80 employees worldwide.

Legal Structure

Applicas manufacturing operations are provided by two wholly owned
subsidiaries: Applica Durable Manufacturing Limited (formerly Durable
Electrical Metal Factory Limited) in Hong Kong and Applica Manufacturing, S. de
R.L. de C.V. (formerly known as Household Products Limited de Mexico, S. de
R.L. de C.V.) in Mexico. The distribution, sales, and marketing operations are
primarily handled though our U.S. operating subsidiary, Applica Consumer
Products, Inc. Applica also has separate entities providing distribution,
sales and marketing operations in Canada, Puerto Rico, Mexico, Chile,
Argentina, Venezuela and Colombia.




Risk Factors

The risks below are not the only risks that we face. Additional risks
that we do not yet know of or that we currently think are immaterial may also
impair our business operations. If any of the events or circumstances
described in the following risks actually occurs, our business, financial
condition or results of operations could be materially adversely affected.

Uncertainties regarding the impact of the recent terrorist activities and the
publics confidence in general.

The recent terrorist activities and the current war on terrorism have had
an adverse effect on consumer confidence and spending patterns in the United
States, which in turn had a significant impact on our performance. Unforeseen
inventory adjustments or changes in purchasing patterns by consumers and major
customers and the resultant impact on manufacturing volumes resulting from
further terrorist attacks would have a material negative effect.

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

As part of our growth strategy, we plan to:



| |  |  | increase our market share through new product introductions and brand development;
| | - |  | ----------------------------------------------------------------------------------
|
| |  |  | leverage our manufacturing capabilities;                                          
|
| |  |  | expand our alliances;                                                             
|
| |  |  | integrate our facilities and functions;                                           
|
| |  |  | improve our supply chain and customer service functions; and                      
|
| |  |  | seek other growth opportunities.                                                  

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

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If We Are Unable to Renew the Black & Decker® Trademark License Agreement,
Our Business Could Be Adversely Affected

As part of the acquisition of the Black & Decker Household Products Group,
we licensed the Black & Decker® brand for use in marketing small household
appliances in North America, Central America, South America (excluding Brazil)
and the Caribbean. In July 2001, Applica and The Black & Decker Corporation
entered into an extension of the trademark license agreement through December
31, 2006. Renewals, if mutually agreed upon, are for five-year periods and will
require the payment of minimum royalties, which royalty rates have previously
been negotiated. The major portion of our revenue is generated through the sale
of Black & Decker® branded products, which represented approximately 63% of our
total revenue in 2001 and 60% in 2000.

The Infringement or Loss of Our Proprietary Rights Could Have An Adverse
Effect On Our Business

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

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

We Depend On Purchases From Several Large Customers and Any Significant
Decline In These Purchases or Pressure From These Customers to Reduce
Prices Could Have A Negative Effect On Our Business

Due to the consolidation of the retail industry, our customer base has
become relatively concentrated. Wal-Mart Stores, Inc., our largest single
customer, accounted for approximately 24.3% of our 2001 net sales and
approximately 21.4% of our 2000 net sales. Our top three customers accounted
for approximately 38%, 36% and 34% of net sales in 2001, 2000 and 1999,
respectively. Although we have long-established relationships with many of our
customers, we do not have any long-term supply contracts and purchases are
generally made using individual purchase orders. As a result, we must receive
a continuous flow of new orders from our large, high-volume retail customers.
However, we cannot assure you that we can continually meet the needs of our
customers. In addition, failure to obtain anticipated orders or delays or
cancellations of orders or significant pressure to reduce prices from key
customers could have a material adverse effect on us.

Our Business is Very Sensitive to the Strength of the U.S. Retail Market and
Weakness in This Market Could Adversely Effect Our Business

The strength of the retail economy in the United States has a significant
impact on our performance. Weakness in consumer confidence and poor financial
performance by mass merchandisers, warehouse clubs, department stores or any of
our other customers could have a material adverse effect on us.

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

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The Bankruptcy or Financial Difficulty of Any Major Retailer or Fluctuations
in the Financial Condition of the Retail Industry Could Adversely Effect
Our Business

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

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

Our Business Can Be Adversely Effected by Fluctuations in Cost and
Availability of Raw Materials and Components

Raw materials and components constitute a significant portion of our cost
of goods. Factors that are largely beyond our control, such as movements in
commodity prices for the specific materials we require, may affect the future
cost of raw materials and components. As an example, our products require a
substantial amount of plastic. Because the primary resource used in
manufactured plastics is petroleum, the cost and availability of plastic varies
to a great extent with the price of petroleum, which rose significantly in
2000. In addition, any inability of our suppliers to timely deliver raw
materials or components or any unanticipated changes in our suppliers could be
disruptive and costly to us. Our ability to select reliable suppliers who
provide timely deliveries of quality materials and components will impact our
success in meeting customer demand. Any significant failure by us to obtain
raw materials on a timely basis at an affordable cost or any significant delays
or interruptions of supply, would have a material adverse effect on us.

Our Business Involves the Potential For Product Recalls and Product Liability
Claims Against Us

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

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

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

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

We manufacture a significant number of the products we sell in China and
Mexico and obtain a significant proportion of the raw materials used in the
manufacturing of our products outside the United States. We also have certain
products manufactured by contract manufacturers outside of the United States.
In addition, our strategy

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includes increasing sales to customers outside of the
United States, including Latin America. International operations are subject
to risks including, among others:



| |  |  | labor unrest;                                                       
| | - |  | --------------------------------------------------------------------
| |  |  | political instability;                                              
| |  |  | lack of developed infrastructure;                                   
| |  |  | longer payment cycles and greater difficulty in collecting accounts;
| |  |  | restrictions on transfers of funds;                                 
| |  |  | import and export duties and quotas;                                
| |  |  | domestic and international customs and tariffs;                     
| |  |  | U.S. taxes on repatriated earnings;                                 
| |  |  | 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.                               

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

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

Our Business Could Be Adversely Effected By Changes in Trade Relations With
China

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

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

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

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

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

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

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

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

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

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

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

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



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

Our Operating Results Can Be Affected By Seasonality

Our business is highly seasonal with operating results varying from
quarter to quarter. We experience higher revenues in the third and fourth
quarters of each fiscal year primarily due to increased demand by customers for
our products in the late summer for back-to-school sales and in the fall for
holiday sales. This seasonality has also

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resulted in additional interest
expense to us during the third and fourth quarters of each fiscal year due to
an increased need to borrow funds to maintain sufficient working capital to
finance such increased demand.

We Compete With Other Large Companies That Produce Similar Products

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

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

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

Our Business Can Be Adversely Affected by Newly Acquired Businesses or
Product Lines

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

Government Regulations Could Adversely Impact Our Operations

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

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|        |  |           
|------- |  | ----------
|Item 2. |  | Properties

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

|                      |  |                                                                                                     |  |                            
|--------------------- |  | --------------------------------------------------------------------------------------------------- |  | ---------------------------
|Location              |  | Description                                                                                         |  | Area (Sq. Feet)            
|                      |  |                                                                                                     |  |                            
|Miami Lakes, Florida  |  | Headquarters, general administration, sales
office, engineering offices, warehouse and
distribution |  | 140,000 Owned
40,000 Leased
|                     
|Shelton, Connecticut  |  | Sales office and product development laboratories                                                   |  | 100,000 Leased             
|                     
|Man Fung, China       |  | Manufacturing and distribution                                                                      |  | 238,000 Leased             
|                     
|Sai Po Yuen, China    |  | Manufacturing and distribution                                                                      |  | 202,000 Leased             
|                     
|Man Cheung Po, China  |  | Manufacturing and distribution                                                                      |  | 935,000 Leased             
|                     
|Pok Kong, China       |  | Manufacturing and distribution                                                                      |  | 430,000 Leased             
|                     
|Sun Kiu, China        |  | Manufacturing and distribution                                                                      |  | 305,000 Leased             
|                     
|Gong He, China        |  | Manufacturing, distribution and warehouse                                                           |  | 58,000 Leased              
|                     
|Queretaro, Mexico     |  | Manufacturing, distribution, warehouse and office                                                   |  | 290,000 Owned              
|                     
|Little Rock, Arkansas |  | Warehouse and distribution                                                                          |  | 780,000 Leased             
|                     
|Toronto, Canada       |  | Canada headquarters, sales office and distribution                                                  |  | 110,000 Leased             
|                     
|Hong Kong, China      |  | Durable headquarters and general administration                                                     |  | 40,000 Leased              

Durables facilities in China are operated under contracts with the local
government.

Applica also leases additional warehouse and office space and uses the
services of public warehouses in the United States, Canada and Latin America
pursuant to short-term contracts.

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

Applica will be closing its Shelton, Connecticut office in the third
quarter of 2002.




|        |  |                  
|------- |  | -----------------
|Item 3. |  | Legal Proceedings

Shareholder Litigation. Applica is a defendant in Sherleigh Associates LLC
and Sherleigh Associates Inc. Profit Sharing Plan, on their own behalf and on
behalf of all others similarly situated v. Windmere-Durable Holdings, Inc.,
David M. Friedson and Nationsbanc Montgomery Securities LLC, 98-2273-CIV-LENARD
which was filed in the United States District Court, Southern District of
Florida on October 8, 1998.

This matter is a class action complaint, which is the consolidation of
eight separate class action complaints with substantially similar allegations
filed in 1998. The complaint alleges violations of the federal securities laws
(including Rule 10b-5 promulgated pursuant to the Securities Exchange Act of
1934, as amended) in connection with the acquisition by Applica of the
Household Products Group of The Black & Decker Corporation. Among other
things, the plaintiffs allege that Applica and certain of its directors and
officers, along with its underwriters, NationsBanc Montgomery Securities LLC,
provided false information in connection with a public offering of debt and
equity securities. The plaintiffs seek, among other relief, to be declared a
class, to be awarded compensatory damages, rescission rights, unspecified
damages and attorneys fees and costs. The court has provisionally certified
the class of plaintiffs who purchased Applica stock between May 12, 1998 and
September 22, 1998.

In connection with the Household Products Group acquisition, Applica also
received two derivative demands from certain shareholders alleging breach of
fiduciary duties by certain of our officers and directors. On November 29,
2001, a derivative action was filed in the Circuit Court of the Eleventh
Judicial Circuit in and for Miami-Dade County, Florida. The Board of
Directors appointed an independent committee of directors to review the
derivative claims, which concluded that the allegations in the demand letters
were without merit and that,
therefore, the Board should not direct management to initiate litigation
on Applicas behalf or initiate such action itself.

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In January 2002, Applica reached an agreement in principle to settle the
securities class action litigation and the related derivative claims for
approximately $11.0 million in cash. Applica took a charge of approximately
$1.0 million in the fourth quarter of 2001 for expenses related to the
litigation. All other amounts related to the settlement of the litigation are
expected to be covered under Applicas insurance policies. Under the terms of
the settlement, all claims against Applica and all other defendants will be
dismissed without any admission of liability or wrongdoing. Settlement is
subject to final documentation and court approval. Failure of the court to
approve the settlement could result in significant changes in estimated
exposures. Details regarding the shareholder litigation settlement will be
communicated to potential class members prior to final court approval.

Salton Litigation. Applica is also a defendant in Salton, Inc. v
Windmere-Durable Holdings, Inc. and Windmere Corporation, which was filed in
the United States District Court, Northern District of Illinois.

In January 2001, Salton, Inc. filed suit against Applica alleging breach
of a non-competition agreement. In connection with the sale to Salton of
Applicas 50% interest in Salton, Salton issued a $15 million promissory note
to Applica as part of the purchase price. Applica also entered into an
agreement with Salton whereby Salton agreed to pay Applica 50% of its profits
on the sales to Kmart Corporation of White-Westinghouse® electric kitchen
appliances. Salton is alleging that Applica has breached the non-compete
provision of such agreement. Salton is further alleging that, as the result
of Applicas actions, Kmart has ceased buying White-Westinghouse® products from
Salton to Saltons detriment. Discovery proceeding have been initiated and are
ongoing.

Salton is requesting compensatory and punitive damages, attorneys fees
and costs, and cancellation of the $15 million note. Salton has also
purportedly terminated its agreement with Applica for the payment of 50% of the
profits from its sale of White-Westinghouse® products to Kmart. Applica
recorded approximately $5.7 million and $2.6 million of income under this
agreement in 2000 and 1999, respectively. No amounts were recorded in 2001.
We believe that the amount of ultimate liability in this matter, if any, is not
likely to have a material effect on our business, financial condition or
results of operations. However, as the outcome of litigation is difficult to
predict, significant changes in the estimated exposures could occur.

Toaster Recall. In February 2002, Applica Consumer Products, Inc., in
cooperation with the U.S. Consumer Products Safety Commission, voluntarily
recalled approximately 2.1 million Black & Decker® two-slice and four-slice
toasters. The heating elements in these toasters can continue to operate after
use, posing a potential fire hazard. Applicas Canadian operating subsidiary,
Applica Canada Corporation, is also recalling approximately 180,000 of these
toasters in Canada. Management has charged operations with an estimated
reserve of $13.4 million for these recalls and does not believe the ultimate
liability will be materially different.

Currently, no litigation has been filed in connection with property damage
or bodily injury relating to the recalled toasters, however, several claims
have been made. We believe that the amount of ultimate liability of these
claims, if any, is not likely to have a material effect on our business,
financial condition or results of operations. However, as the outcome of
litigation is difficult to predict, significant changes in the estimated
exposures could occur.

Other Matters. Applica is subject to other legal proceedings, products
liability claims and other claims that arise in the ordinary course of our
business. In the opinion of management, the amount of ultimate liability, if
any, in excess of applicable insurance coverage, is not likely to have a
material effect on the financial condition, results of operations or liquidity
of Applica. However, as the outcome of litigation or other claims is difficult
to predict, significant changes in the estimated exposures could occur.




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

No matters were submitted to a vote of Applicas security holders during
the fourth quarter of the year ended December 31, 2001.

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PART II




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

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

|               |  |               |       |     |  |   |       | 
|-------------- |  | ------------- | ----- | --- |  | - | ----- | 
|               |  | Closing Price
|               |  |              
|               |  | High          |       | Low
|               |  |               |       |    
|2000           |  |               |       |     |  |   |       | 
|First quarter  |  | $             | 19.38 |     |  | $ | 14.19 | 
|Second quarter |  | $             | 16.38 |     |  | $ | 11.31 | 
|Third quarter  |  | $             | 11.63 |     |  | $ | 6.13  | 
|Fourth quarter |  | $             | 5.69  |     |  | $ | 3.13  | 
|2001           |  |               |       |     |  |   |       | 
|First quarter  |  | $             | 7.65  |     |  | $ | 4.63  | 
|Second quarter |  | $             | 9.59  |     |  | $ | 6.05  | 
|Third quarter  |  | $             | 11.30 |     |  | $ | 7.48  | 
|Fourth quarter |  | $             | 9.45  |     |  | $ | 6.40  | 

At March 1, 2002, there were approximately 950 holders of record of our
common stock. The number of holders of record of the common stock includes
nominees of various depository trust companies for an undeterminable number of
individual stockholders.

We are prohibited from declaring or paying cash dividends on our capital
stock under the terms of our debt agreements. We did not pay any common stock
dividends in 2001 or 2000, and we do not anticipate paying dividends in the
foreseeable future. We intend to retain future earnings, if any, to finance
the expansion of our operations and for general corporate purposes.

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|        |  |                        
|------- |  | -----------------------
|Item 6. |  | Selected Financial Data

The selected financial data presented below is derived from our audited
financial statements and should be read in conjunction with Managements
Discussion and Analysis of Financial Condition and Results of Operations and
the audited financial statements and related notes thereto.

|                                                                                            |  |                                               |         |      |  |      |         |      |  |      |         |     |  |   |         |     |  |   |         |  
|------------------------------------------------------------------------------------------- |  | --------------------------------------------- | ------- | ---- |  | ---- | ------- | ---- |  | ---- | ------- | --- |  | - | ------- | --- |  | - | ------- | -
|                                                                                            |  | 2001                                          |         | 2000 |  | 1999 |         | 1998 |  | 1997
|                                                                                            |  |                                               |         |      |  |      |         |      |  |     
|                                                                                            |  | (Dollars in thousands, except per share data)
|Statement of Operations:                                                                    |  |                                               |         |      |  |      |         |      |  |      |         |     |  |   |         |     |  |   |         |  
|Net sales and other revenues                                                                |  | $                                             | 727,044 |      |  | $    | 748,751 |      |  | $    | 718,309 |     |  | $ | 474,356 |     |  | $ | 261,885 |  
|Equity in net earnings (loss) of
joint ventures                                             |  | $                                             | (128    | )    |  | $    | (777    | )    |  | $    | (12,894 | )   |  | $ | 1,621   |     |  | $ | 7,353   |  
|Earnings (loss) before income
taxes                                                         |  | $                                             | (24,292 | )    |  | $    | (22,758 | )    |  | $    | 21,020  |     |  | $ | 40,368  |     |  | $ | 20,758  |  
|Income tax expense (benefit)                                                                |  | $                                             | 4,146   |      |  | $    | (1,542  | )    |  | $    | 4,177   |     |  | $ | 11,616  |     |  | $ | 923     |  
|Effective tax rate                                                                          |  |                                               | (17.1   | )%   |  |      | 6.8     | %    |  |      | 19.9    | %   |  |   | 28.7    | %   |  |   | 4.5     | %
|Net earnings (loss)                                                                         |  | $                                             | (28,438 | )(1) |  | $    | (21,216 | )(1) |  | $    | 16,843  | (1) |  | $ | 28,752  | (2) |  | $ | 19,835  |  
|Balance Sheet:                                                                              |  |                                               |         |      |  |      |         |      |  |      |         |     |  |   |         |     |  |   |         |  
|Working capital                                                                             |  | $                                             | 228,124 |      |  | $    | 276,981 |      |  | $    | 263,315 |     |  | $ | 267,434 |     |  | $ | 106,078 |  
|Current ratio                                                                               |  |                                               | 3.0     |      |  |      | 3.3     |      |  |      | 3.1     |     |  |   | 3.0     |     |  |   | 2.4     |  
|Property, plant and equipment, net                                                          |  | $                                             | 82,337  |      |  | $    | 78,200  |      |  | $    | 75,983  |     |  | $ | 76,077  |     |  | $ | 37,199  |  
|Total assets                                                                                |  | $                                             | 633,461 |      |  | $    | 707,935 |      |  | $    | 714,310 |     |  | $ | 742,737 |     |  | $ | 281,847 |  
|Long-term debt, deferred
liabilities and minority interest
and other long terms liabilities |  | $                                             | 225,726 |      |  | $    | 260,147 |      |  | $    | 243,807 |     |  | $ | 287,306 |     |  | $ | 17,144  |  
|Shareholders equity                                                                        |  | $                                             | 293,939 |      |  | $    | 324,474 |      |  | $    | 343,397 |     |  | $ | 324,018 |     |  | $ | 190,821 |  
|Per Share Data:                                                                             |  |                                               |         |      |  |      |         |      |  |      |         |     |  |   |         |     |  |   |         |  
|Earnings (loss) per common share                                                            |  |                                               |         |      |  |      |         |      |  |      |         |     |  |   |         |     |  |   |         |  
|- basic                                                                                     |  |                                               | ($1.23  | )(1) |  |      | ($0.92  | )(1) |  | $    | 0.75    | (1) |  | $ | 1.43    | (2) |  | $ | 1.12    |  
|Earnings (loss) per common share                                                            |  |                                               |         |      |  |      |         |      |  |      |         |     |  |   |         |     |  |   |         |  
|- diluted                                                                                   |  |                                               | ($1.23  | )(1) |  |      | ($0.92  | )(1) |  | $    | 0.72    | (1) |  | $ | 1.33    | (2) |  | $ | 1.00    |  
|Cash dividends paid                                                                         |  |                                               |        |      |  |      |        |      |  |      |        |     |  |   |        |     |  | $ | 0.10    |  
|Book value at year end                                                                      |  | $                                             | 12.65   |      |  | $    | 14.06   |      |  | $    | 15.17   |     |  | $ | 14.67   |     |  | $ | 10.53   |  
|Return on average equity                                                                    |  |                                               | (9.2    | )%   |  |      | (6.4    | )%   |  |      | 5.1     | %   |  |   | 11.2    | %   |  |   | 11.1    | %



---

|(1) |  | For information regarding charges incurred for the years 2001, 2000 and
1999, see Item 7. Managements Discussion and Analysis of Financial
Condition and Results of Operations.                                                                  
|--- |  | --------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
|   
|(2) |  | Includes a one-time, primarily non-cash repositioning charge of $17.2
million, of which $7.7 million is included in cost of goods sold. Also
includes an after tax gain on the sale of Applicas equity interest in
Salton, Inc. of $27.5 million.

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

Overview

Applica is a manufacturer, marketer and distributor of a broad range of
branded and private-label small electric consumer goods. In 1998, Applica
acquired the Black & Decker Household Products Group and became a leading
supplier of brand name small household appliances in the United States. We
also manufacture and distribute professional personal care products, home
environment products and pet care products, including the LitterMaid®
self-cleaning cat litter box. We manufacture and market products under
licensed brand names, such as Black & Decker®, our own brand names, such as
Windmere®, and other private-label brand names. Our customers include mass
merchandisers, specialty retailers and appliance distributors primarily in
North America, Latin America and the Caribbean.

We operate manufacturing facilities in China and Mexico. In 2001,
approximately 80% of the products sold by Applica were manufactured in such
facilities. In addition, we manufacture products for other consumer products
companies, which we refer to as contract manufacturing.

During the fourth quarter of 2001, Applica began reporting its operations
as one business segment. Previously, we had reported three business segments.
The change to one business segment was made to conform to organizational
changes we made in the management of our business to more effectively utilize
and deploy our assets on a world-wide basis. Previously reported segment
information for 2000 and 1999 has been restated to conform to
year-end 2001
presentation.

Critical Accounting Policies

Applicas accounting policies are more fully described in Note A of Notes
to Consolidated Financial Statements. As disclosed therein, the preparation of
financial statements in conformity with accounting principles generally
accepted in the United States of America requires management to make estimates
and assumptions about future events that affect the amounts reported in the
financial statements and accompanying notes. Future events and their effects
cannot be determined with absolute certainty. Therefore, the determination of
estimates requires the exercise of judgment. Actual results inevitably will
differ from those estimates, and such differences may be material to the
financial statements.

The most significant accounting estimates inherent in the preparation of
Applicas financial statements include estimates associated with managements
evaluation of the recoverability of goodwill as well as those used in the
determination of liabilities related to warranty activity, litigation, product
liability, product recall, taxation and repositioning. In addition,
significant estimates form the bases for Applicas reserves with respect to
sales and pricing allowances, collectibility of accounts receivable, inventory
valuations and certain benefits provided to current employees. Various
assumptions and other factors underlie the determination of these significant
estimates. The process of determining significant estimates is fact specific
and takes into account factors such as historical experience, current and
expected economic conditions, product mix, and in some cases, actuarial
techniques. Applica constantly re-evaluates these significant factors and
makes adjustments where facts and circumstances dictate.

See New Accounting Pronouncements below for information regarding the
effects of the adoption of SFAS 142, Goodwill and Other Intangible Assets,
which could be material.

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Results of Operations

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

|                                                |                                         |                              |       |                         |      |      |       |      |      |    |       |      |      |  
|----------------------------------------------- | --------------------------------------- | ---------------------------- | ----- | ----------------------- | ---- | ---- | ----- | ---- | ---- | -- | ----- | ---- | ---- | -
|                                                |                                         |                              |       | Year Ended December 31,
|                                                |                                         |                              |       |                        
|                                                |                                         |                              |       | 2001                    |      | 2000 |       | 1999
|                                                |                                         |                              |       |                         |      |      |       |     
|Net sales and other revenues                    |                                         |                              | 100.0 | %                       |      |      | 100.0 | %    |      |    | 100.0 | %   
|Cost of sales:                                  |                                         |                              |       |                         |      |      |       |      |      |    |       |     
|                                                | Cost of goods sold                      |                              |       | 71.0                    |      |      |       | 68.6 |      |    |       | 67.4 |     
|                                                | Repositioning charges and other charges |                              |       | 1.8                     |      |      |       | 4.0  |      |    |       |     |     
|                                                |                                         |                              |       |                         |      |      |       |      |      |    |       |     
|                                                |                                         | Gross profit                 |       |                         | 27.2 |      |       |      | 27.4 |    |       |      | 32.6 |  
|Selling, general and administrative expenses:   |                                         |                              |       |                         |      |      |       |      |      |    |       |     
|                                                | Operating expenses                      |                              |       | 25.6                    |      |      |       | 25.5 |      |    |       | 24.6 |     
|                                                | Repositioning charges and other charges |                              |       | 2.1                     |      |      |       | 0.5  |      |    |       | (0.2 | )   
|                                                |                                         |                              |       |                         |      |      |       |      |      |    |       |     
|                                                |                                         | Operating profit             |       |                         | (0.5 | )    |       |      | 1.4  |    |       |      | 8.2  |  
|Other                                           |                                         |                              | (2.8  | )                       |      |      | (3.8  | )    |      |    | (3.5  | )   
|Loss on asset held for sale                     |                                         |                              |      |                         |      |      | (0.5  | )    |      |    |      |     
|                                                |                                         |                              |       |                         |      |      |       |      |      |    |       |     
|                                                |                                         |                              | (2.8  | )                       |      |      | (4.3  | )    |      |    | (3.5  | )   
|                                                |                                         |                              |       |                         |      |      |       |      |      |    |       |     
|Equity in net earnings (loss) of joint ventures |                                         |                              | 0.0   |                         |      |      | (0.1  | )    |      |    | (1.8  | )   
|                                                |                                         |                              |       |                         |      |      |       |      |      |    |       |     
|                                                |                                         | Earnings (loss) before taxes |       |                         | (3.3 | )    |       |      | (3.0 | )  |       |      | 2.9  |  
|Income tax expense (benefit)                    |                                         |                              | 0.6   |                         |      |      | (0.2  | )    |      |    | 0.6   |     
|                                                |                                         |                              |       |                         |      |      |       |      |      |    |       |     
|                                                |                                         | Net earnings (loss)          |       |                         | (3.9 | )%   |       |      | (2.8 | )% |       |      | 2.3  | %
|                                                |                                         |                              |       |                         |      |      |       |      |      |    |       |     

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

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

In January 2002, Kmart Corporation and certain of its U.S. subsidiaries
filed voluntary petitions for reorganization under Chapter 11 of the U.S.
Bankruptcy Code. Kmart Corporation is one of Applicas top three customers.
Kmart has indicated that it intends to reorganize on a fast-track basis and has
targeted emergence from Chapter 11 in 2003. In 2001, Applica had sales of
$49.4 million to Kmart Corporation and, as of the date of the bankruptcy
filing, Applica had outstanding receivables of approximately $5.0 million.
Additionally, in January 2002, Service Merchandise Company, Inc. announced that
it would cease continuing business operations and file a plan of liquidation by
September 2002. Service Merchandise filed bankruptcy in March 1999 but was
unable to complete its planned business reorganization. In 2001, Applica had
sales of $10.8 million to Service Merchandise. As of the date of the
announcement, the outstanding receivables to Service Merchandise were
immaterial.

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

In the fourth quarter of 2000, Applica entered into a relationship with a
consumer packaged goods company to develop, manufacture and distribute new
products. In conjunction with the development relationship, Applica expanded
its existing manufacturing capacity, exited various non-strategic product
lines, including certain retail personal care items, and re-allocated company
resources. These activities resulted in charges totaling $34.1 million

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in the fourth quarter of 2000. These charges were primarily non-cash. Charges
associated with the write down of inventory and other equipment totaled $30.1 million
and have been recorded as cost of sales.

Gross Profit Margin. Applicas gross profit margin was 27.2% in 2001 as
compared to 27.4% in 2000. Excluding the $13.4 million in recall charges
recorded as cost of sales in 2001 and $30.1 million portion of repositioning
charges recorded as cost of sales in 2000, Applicas gross profit margin was
29.0% in 2001 as compared to 31.4% in 2000. The decrease in the gross profit
margin was primarily the result of lower production at Applicas manufacturing
facilities, as Applica continued to reduce its inventory levels, along with
higher raw material costs in the first quarter of 2001. Additionally, as a
result of the slow economic environment, consumers purchased fewer
higher-priced, higher-margin products and more lower-priced, lower-margin
products during the year.

Selling, General and Administrative Expenses.

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

Repositioning and Other Charges. In the fourth quarter of 2001, Applica
took charges relating to several events in the aggregate amount of $14.8
million. These charges included $6.8 million relating to Applicas decision
to consolidate its Shelton, Connecticut office with the headquarters located in
Miami Lakes, Florida, as well as certain back-office and supply chain functions
in Canada and Latin America. In addition, $5.2 million of such charges related
to Applicas execution of a new four-year senior secured revolving credit
facility and the write-off of fees and expenses associated with the terminated
credit facility. Also included in the charge were $1.5 million relating to the
devaluation of the Argentinean peso and $1.0 million related to the settlement
of the shareholder class action litigation. In 2002, Applica expects to incur
an additional $10.0 million in charges relating to its consolidation of
facilities and functions.

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

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

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

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

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

In 2001, Applica decided that future earnings of certain of its foreign
operations would not be reinvested but rather would be repatriated to the
United States. In the foreseeable future, these earnings will be taxed based
on

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U.S. statutory rates. No provision has been made for U.S. taxes on the
remaining undistributed earnings of the foreign operations of approximately
$169.0 million at December 31, 2001 and $182.9 at
December 31, 2000, as it is
anticipated that such earnings would be reinvested in their respective
operations or in other foreign operations.

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

Year Ended December 31, 2000 Compared to Year Ended December 31, 1999

Sales and Other Revenues. Sales and other revenues increased by $30.4
million to $748.8 million in 2000, an increase of 4.2% over sales and other
revenues for 1999. The change was primarily the result of a $32.9 million
increase in sales of Black & Decker® branded products. Sales of other kitchen
branded products (including private label products) increased by $7.8 million
despite the elimination of the Fiesta®, Corning® and Campbells® brands.
White-Westinghouse® related revenues increased by approximately $14.9 million
in 2000, excluding $19.2 million of sales related to electronics inventory
liquidated in conjunction with the purchase of the assets of Newtech
Electronics Industries, Inc. in 1999. This increase was the result of sales of
such products for a full year, as compared to six months in 1999 as a result of
the June 1999 acquisition. Decreases in home environment and personal care
product sales of $7.1 million and $2.2 million, respectively, also contributed
to the net change. Sales to Wal-mart, our largest customer, accounted for
21.4% and 21.3% of total sales for the 2000 and 1999 periods, respectively.

In June 2000, the Kmart Corporation exercised its option to terminate its
long-term supply contract with Applica for the sale of consumer electronic
products under the White-Westinghouse® brand in the United States. The
termination will be effective on June 30, 2002. Sales and other revenues
recorded from Kmart in connection with such contract for the years ended
December 31, 2000 and 1999 were $13.1 million and $8.2 million, respectively.
Under the terms of the agreement, Kmarts minimum purchase requirements for the
period July 1, 2001 through June 30, 2002 will be reduced to 25% of the
original requirements for that period.

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

Gross Profit Margin. Applicas gross profit margin was 27.4% in 2000 as
compared to 32.6% in 1999. Excluding the $30.1 million portion of
repositioning charges recorded as cost of goods sold in 2000, Applicas gross
profit margin was 31.4% in 2000. The decrease in the gross profit margin was
the result of an increase in raw material costs, primarily oil-based plastic
resins, and was partially offset by realized manufacturing cost synergies and
productivity gains. Applica took steps to bring its inventory levels back in
line by the end of the year 2000, including reducing production at its
manufacturing facilities in China and Mexico in the fourth quarter. The
reduction in overhead absorption resulting from the slowdown further
contributed to the years decrease in gross profit margins.

Selling, General and Administrative Expenses.

Operating Expenses. Operating expenses increased by $13.9 million in 2000
and increased as a percentage of sales, to 25.5% from 24.6% in 1999. The
dollar increase consisted primarily of increases in distribution, freight and
distribution-related payroll costs. Additional warehousing and distribution
expenses were incurred due to increased finished goods inventory levels and
sales volume. Freight expenses increased reflecting the additional sales
volume, increases in finished goods inventory and rate increases from the
carriers, including fuel surcharges. Payroll expenses increased as a result of
the increase in distribution personnel.

Repositioning and Other Charges. In addition to amounts charged as cost of
sales, the $34.1 million fourth quarter 2000 repositioning charges included
other primarily non-cash charges of $4.0 million, of which $3.2 million related
to the write down of certain intangible assets associated with Kmart
Corporations decision to

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terminate its long-term supply contract for White-Westinghouse® electronic products
and Applicas intention not to re-market such products to another company.

Applica did not exit one line of business in 1999 that had been included
in the accrued repositioning costs at December 31, 1998. This resulted in a
reversal of the prior year charge of $1.5 million in 1999.

Loss On Asset Held For Sale. In 2000, Applica determined to exit and sell
substantially all of the assets of a non-strategic business and, as a result,
recorded a loss of $3.6 million based on the expected realizable value of the
asset.

Interest Expense. Interest expense increased by $3.2 million to $30.3
million in 2000. The increase was a result of additional borrowings under
Applicas senior credit facility to meet working capital requirements,
primarily associated with the increase in finished goods inventory, as well as
rising interest rates.

Taxes. Applicas tax expense is based on an aggregation of the taxes on
earnings of each of its foreign and domestic operations. In 2000, it included
additional U.S. taxes on repatriated foreign earnings in excess of the amounts
that were otherwise taxable in the U.S. The earnings of subsidiaries in
Canada, Mexico and Latin America (other than Chile) are generally taxed at
rates comparable to or higher than 34%, the United States statutory rate.
Income tax rates in Hong Kong and Chile range between 8% and 16%.

In 2000, Applica had a tax benefit of $1.5 million and a rate of 6.8%, as
compared to a tax expense of $4.2 million and a tax rate of 19.9% in 1999. The
difference was primarily the result of (a) $16.3 million of foreign earnings
repatriated to the United States in 2000, where the income is taxed at higher
statutory rates (and the applicable tax credit rates are below those rates),
and (b) the establishment of $4.5 million of tax valuation allowances related
to certain U.S. foreign tax credits, contributions and state net operating loss
carryforwards, which expire in five years or less. The valuation allowances
were established in 2000, as management believed that it was more likely than
not that these benefits would not be realized before they expired.

Per Share Data. All common stock equivalents have been excluded from the
per share calculations in 2000 as Applica incurred a net loss in the period and
such inclusion would have been anti-dilutive.

Liquidity and Capital Resources

At December 31, 2001, Applicas working capital was $228.1 million, as
compared to $277.0 million at December 31, 2000. At December 31, 2001 and 2000,
Applicas current ratio was 3.0 to 1 and 3.3 to 1, respectively, and its quick
ratio was 1.8 to 1 and 1.7 to 1. The decrease in the current ratio primarily
reflected decreases in inventory.

Cash balances decreased by $1.1 million to $15.7 million for the year
ended December 31, 2001. Cash balances increased by $3.1 million to $16.9
million for the year ended December 31, 2000.

The net cash provided by operating activities, which totaled $87.9 million
in 2001, as compared to net cash used in operating activities, which totaled
$9.5 million in 2000, primarily reflected decreases in finished goods
inventories.

Cash used in investing activities totaled approximately $23.2 million for
the period, as compared to $23.0 million for 2000, and consisted primarily of
equipment at Applicas manufacturing facilities and tooling for new products.

Cash used in financing activities totaled approximately $65.8 million in
the period, as compared to $35.7 million provided by financing activities in
2001, reflecting a decrease in borrowings used to meet working capital
requirements, primarily the reduction of finished goods inventories.

Certain of Applicas foreign subsidiaries have approximately $39.5 million
in trade finance lines of credit, payable on demand, which are secured by the
subsidiaries tangible and intangible property, and in some cases, a guarantee
by the parent company, Applica Incorporated. Outstanding borrowings by
Applicas Hong Kong subsidiaries are primarily in Hong Kong dollars.

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Applicas primary sources of liquidity are its cash flow from operations
and borrowings under its credit facility. On December 28, 2001, Applica
replaced its revolving credit and term debt facilities with a new $205 million
four-year asset-based senior secured revolving credit facility. As of March 1,
2002, Applica was borrowing approximately $70.0 million under the facility and
had approximately $47.8 million available for future cash borrowings. Advances
under the facility are primarily based upon percentages of outstanding eligible
accounts receivable and inventories. The credit facility includes a
$10,000,000 sublimit for the issuance of letters of credit. All amounts
outstanding under the credit facility are payable on December 28, 2005.

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



| |  |  | LIBOR (adjusted for any reserves), plus a specified margin which is
determined by Applicas leverage ratio and is currently set at 2.35%
(4.22% at December 31, 2001); or
| | - |  | -------------------------------------------------------------------------------------------------------------------------------------------------------------------------
|
| |  |  | the Base Rate (which is Bank of Americas prime rate), plus a
specified margin, currently 0.35% (5.10% at December 31, 2001).                                            

Swing loans up to $15.0 million bear interest at the Base Rate plus a specified
margin, currently 0.35% (5.10% at December 31, 2001).

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

Applicas aggregate capital expenditures for the year ended December 31,
2001 were $23.3 million, as compared to $23.6 million for 2000. Applica
anticipates that the total capital expenditures for 2002 will be approximately
$25.0 million, which includes the cost of equipment at our manufacturing
facilities and tooling for new products. Applica plans to fund such capital
expenditures from cash flow from operations and, if necessary, borrowings under
its credit facility.

At December 31, 2001, debt as a percent of total capitalization was 43.4%,
as compared to 47.4% at December 31, 2000.

Applicas ability to make scheduled payments of principal of, or to pay
the interest on, or to refinance, its indebtedness, or to fund planned capital
expenditures, product research and development expenses and marketing expenses
will depend on its future performance, which, to a certain extent, is subject
to general economic, financial, competitive, legislative, regulatory, and
international and United States domestic political factors and other factors
that are beyond its control. Based upon the current level of operations and
anticipated cost savings and revenue growth, management believes that cash flow
from operations and available cash, together with available borrowings under
its credit facility and other facilities, will be adequate to meet Applicas
future liquidity needs for at least the next several years. There can be no
assurance that Applicas business will generate sufficient cash flow from
operations, that anticipated revenue growth and operating improvements will be
realized or that future borrowings will be available under the credit facility
in an amount sufficient to enable Applica to service its indebtedness,
including the outstanding 10% notes, or to fund its other liquidity needs. In
addition, there can be no assurance that Applica will be able to effect any
needed refinancing on commercially reasonable terms or at all.

For information regarding related party transactions, see Note M to the
Consolidated Financial Statements. Management believes that its related party
transactions are not material.

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

Currency Matters

While we transact business predominantly in U.S. dollars and most of our
revenues are collected in U.S. dollars, a substantial portion of our costs,
such as payroll, rent and indirect operational costs, are denominated in other
currencies, such as Chinese renminbi, Hong Kong dollars and Mexican pesos. In
addition, while a small

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portion of our revenues are collected in foreign
currencies, such as Canadian dollars, a significant portion of the related cost
of goods sold are denominated in U.S. dollars. Changes in the relation of
these and other currencies to the U.S. dollar will affect our cost of goods
sold and operating margins and could result in exchange losses. The impact of
future exchange rate fluctuations on our results of operations cannot be
accurately predicted. There can be no assurance that the dollar foreign
exchange rates will be stable in the future or that fluctuations in financial
markets will not have a material adverse effect on our business, financial
condition and results of operations.

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

Applica Durable Manufacturing Limited, Applicas Hong Kong subsidiary with
manufacturing operations in China, uses the Hong Kong dollar as its functional
currency. The Hong Kong dollar has historically been pegged to a fixed
exchange rate vis-a-vis the U.S. dollar. If the Hong Kong dollar were to be
significantly devalued against the U.S. dollar and the exchange rate allowed to
fluctuate, Applica could experience significant changes in its currency
translation account which would impact its future comprehensive income.

Applica Manufacturing, S. de R.L. de C.V., Applicas Mexican manufacturing
subsidiary, uses the U.S. dollar as its functional currency. The operating
expenses are primarily peso-denominated and the revenues derived from products
manufactured at such facilities are primarily dollar-denominated. As a result,
Applica is subject to fluctuations in the value of the peso. If the peso were
to be significantly devalued against the U.S. dollar, Applica could experience
significant charges or credits to earnings.

New Accounting Pronouncements

In June 2001, the Financial Accounting Standards Board approved the
issuance of SFAS No. 141, Business Combinations and SFAS 142, Goodwill and
Other Intangible Assets. The new standards require that all business
combinations initiated after June 30, 2001 must be accounted for under the
purchase method. In addition, all intangible assets acquired that are obtained
through contractual or legal right, or are capable of being separately sold,
transferred, licensed, rented or exchanged must be recognized as an asset apart
from goodwill. Goodwill and intangibles with indefinite lives will no longer
be amortized, but will be subject to an annual assessment for impairment by
applying a fair value based test. Applica will apply the provisions of SFAS
No. 142 beginning on January 1, 2002. Application of the non-amortization
provisions of SFAS No. 142 will result in an increase in net earnings of $5.0
million per year. During 2002, Applica will perform a transitional fair value
based impairment test and if the fair value is less than the recorded value at
January 1, 2002, Applica will record an impairment loss, if any, in the first
quarter of 2002 as a cumulative effect of a change in accounting principle.
Such impairment loss could be material.

In November 2001, the Emerging Issues Task Force reached a consensus on EITF
Issue 01-9 Accounting for Consideration Given by a Vendor to a
Customer including a Reseller of the Vendor's Products. Also, in August 2001, the Financial Accounting
Standards Board (FASB) issued Statement of Financial Accounting Standards
(SFAS) No. 144, Accounting for the Impairment or Disposal of Long-Lived
Assets. SFAS No. 144 supersedes SFAS No. 121, Accounting for the Impairment
of Long-Lived Assets and for Long-Lived Assets to be Disposed Of. SFAS No.
144 retained substantially all of the requirements of SFAS No. 121 while
resolving certain implementation issues. SFAS No. 144 is effective for fiscal
years beginning after December 15, 2001. Management believes
that the impact of these pronouncements on Applicas operations will
not be material.




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

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

Interest Rate Sensitivity. Our primary market risk exposure with respect
to interest rates is changes in short and long-term interest rates in the
United States. Certain of Applicas debt arrangements represents floating rate
debt and accordingly, we are subject to interest rate risk. Applica uses
interest rate risk management contracts to reduce the impact of

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changes in interest rates on
our floating rate debt. Our objectives in managing exposure to interest rate
changes are to limit the impact of interest rate changes on earnings and cash
flows and to lower overall borrowing costs. To achieve these objectives, we
primarily use interest rate swaps to manage net exposure to interest rate
changes related to Applicas portfolio of borrowings. Applica maintains fixed
rate debt as a percentage of its net debt between a minimum and maximum
percentage, which is set by policy.

The table below
provides information regarding Applicas derivative
financial instruments and other financial instruments that are sensitive to
changes in interest rates, including interest rate swaps and debt obligations.
For debt obligations, the table presents principal cash flows and related
weighted average interest rates by expected maturity dates. For interest rate
swaps, the table presents notional amounts and weighted average interest rates
by expected (contractual) maturity dates. Notional amounts are used to
calculate the contractual payments expected to be exchanged under the contract.
Weighted average variable rates are based on implied forward rates in the
yield curve at the reporting date.

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



---

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

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|                         |                       |                      |   |                        |     |      |   |        |     |      |   |        |   |       |   |        |   |          |  |   |   |  |   |         |   |  |   |         |  |      |   |         |   | 
|------------------------ | --------------------- | -------------------- | - | ---------------------- | --- | ---- | - | ------ | --- | ---- | - | ------ | - | ----- | - | ------ | - | -------- |  | - | - |  | - | ------- | - |  | - | ------- |  | ---- | - | ------- | - | 
|                         |                       |                      |   | At December 31, 2000  
|                         |                       |                      |   |                       
|                         |                       |                      |   | Expected Maturity Date |     |      |   |        |     |      |   |       
|                         |                       |                      |   |                        |     |      |   |        |     |      |   |       
|                         |                       |                      |   |                        |     |      |   |        |     |      |   |        |   |       |   |        |   |          |  |   |   |  |   | There-  |   |  |   |         |  | Fair
|                         |                       |                      |   | 2002                   |     | 2003 |   | 2004   |     | 2005 |   | 2006   |   | after |   | Total  |   | Value(5)
|                         |                       |                      |   |                        |     |      |   |        |     |      |   |        |   |       |   |        |   |         
|                         |                       |                      |   | (Dollars in thousands)
|Liabilities:             |                       |                      |   |                        |     |      |   |        |     |      |   |        |   |       |   |        |   |          |  |   |   |  |   |         |   |  |   |         |  |      |   |        
|Long-Term Debt:          |                       |                      |   |                        |     |      |   |        |     |      |   |        |   |       |   |        |   |          |  |   |   |  |   |         |   |  |   |         |  |      |   |        
|                         | Fixed Rate            |                      |   |                       |     |      |   |       |     |      |   |       |   |       |   |       |   |          |  |  |   |  | $ | 130,000 |   |  | $ | 130,000 |  |      | $ | 110,500 |  
|                         | Average Interest Rate |                      |   |                       |     |      |   |       |     |      |   |       |   |       |   |       |   |          |  |  |   |  |   | 10.0    | % |  |   |         |  |      |   |         |  
|                         | Variable Rate         |                      | $ | 18,842                 |     |      | $ | 22,842 |     |      | $ | 47,757 |   |       | $ | 59,548 |   |          |  |  |   |  |   |        |   |  | $ | 148,989 |  |      | $ | 148,989 |  
|                         | Average Interest Rate |                      |   | (1                     | )   |      |   | (1     | )   |      |   | (1     | ) |       |   | (1     | ) |          |  |  |   |  |   |        |   |  |   |         |  |      |   |         |  
|Interest
Rate Contracts: |                       |                      |   |                        |     |      |   |        |     |      |   |        |   |       |   |        |   |          |  |   |   |  |   |         |   |  |   |         |  |      |   |        
|Interest Rate Swaps:     |                       |                      |   |                        |     |      |   |        |     |      |   |        |   |       |   |        |   |          |  |   |   |  |   |         |   |  |   |         |  |      |   |        
|                         | Pay Fixed (2):        |                      |   |                       |     |      | $ | 20,000 |     |      |   |       |   |       |   |       |   |          |  |  |   |  |   |        |   |  | $ | 20,000  |  |      | $ | (371    | )
|                         |                       | Average Pay Rate     |   |                        | 7.1 | %    |   |        | 7.1 | %    |   |        |  |       |   |        |  |          |  |   |  |  |   |         |  |  |   |         |  |      |   |         |   | 
|                         |                       | Average Receive Rate |   |                        | 5.8 | %    |   |        | 5.6 | %    |   |        |  |       |   |        |  |          |  |   |  |  |   |         |  |  |   |         |  |      |   |         |   | 
|                         | Pay Floating:         |                      |   |                       |     |      |   |       |     |      |   |       |   |       |   |       |   |          |  |  |   |  |   |        |   |  |   |        |  |      |   |        |  
|                         |                       | Average Pay Rate     |   |                        |    |      |   |        |    |      |   |        |  |       |   |        |  |          |  |   |  |  |   |         |  |  |   |         |  |      |   |         |   | 
|                         |                       | Average Receive Rate |   |                        |    |      |   |        |    |      |   |        |  |       |   |        |  |          |  |   |  |  |   |         |  |  |   |         |  |      |   |         |   | 
|Interest Rate Cap:       |                       |                      |   |                        |     |      |   |        |     |      |   |        |   |       |   |        |   |          |  |   |   |  |   |         |   |  |   |         |  |      |   |        
|                         | 7% Cap (2)            |                      |   |                       |     |      | $ | 60,000 |     |      |   |       |   |       |   |       |   |          |  |  |   |  |   |        |   |  | $ | 60,000  |  |      |   |        |  
|                         | Maximum Pay Rate      |                      |   | 7.0                    | %   |      |   | 7.0    | %   |      |   |       |   |       |   |       |   |          |  |  |   |  |   |        |   |  |   |         |  |      |   |         |  



---

|(1) |  | The variable rate revolving credit facility, Senior Secured Tranche A and
Senior Secured Tranche B was set depending upon the interest period
selected by Applica of 1, 2, 3 or 6 months at a rate equivalent to the
LIBOR rate plus an applicable margin of 175 basis points (Revolver,
Tranche A) or 275 basis points (Tranche B) or at a rate equivalent to the
prime rate of interest plus an applicable margin of 75 basis points
(Revolver, Tranche A) or 175 basis points (Tranche B).
|--- |  | ---------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
|   
|(2) |  | At December 31, 2000, Applica had an interest rate swap contract to pay a
fixed-rate of interest of 7.075 and receive a variable-rate of interest of
three-month LIBOR that matures on July 1, 2002.                                                                                                                                                                                                                                                                                         
|   
|(3) |  | Fair values were determined based on broker quotes or quoted market
prices or rates for the same or similar instruments.                                                                                                                                                                                                                                                                                                                                                                     

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

As discussed above, we are exposed to market risks arising from changes in
foreign exchange rates. As of December 31, 2001, Applica has hedged a portion
of its 2002 estimated foreign currency transactions using forward exchange
contracts and purchased options. We use a sensitivity model to determine a
potential change in the fair value of its foreign exchange financial
instruments. The sensitivity model estimates the change in fair value based
upon a favorable and unfavorable movement of 10% in the respective spot rate as
of December 31, 2001. The sensitivity model is a risk analysis tool and does
not purport to represent actual losses or gains in fair value that will be
incurred by Applica. It should also be noted that the change in value
represents the estimated change in the fair market value of the derivative.
Because the derivatives hedge an underlying exposure, there would be a
comparable and opposite change in value of the underlying exposure. The
estimated potential change in fair value, calculated using the sensitivity
model, is as follows:

-27-



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##### Table of Contents



|                 |                            |   |                        |  |                  |   |                             |       |  |   |        |        |  
|---------------- | -------------------------- | - | ---------------------- |  | ---------------- | - | --------------------------- | ----- |  | - | ------ | ------ | -
|                 |                            |   | At December 31, 2001  
|                 |                            |   |                       
|                 |                            |   |                        |  |                  |   | Change in Fair Value Due To
|                 |                            |   |                        |  |                  |   |                            
|                 |                            |   | Notional Hedge         |  | Favorable 10%    |   | Unfavorable 10%            
|                 |                            |   | Amount in US Dollars   |  | Movement in Spot |   | Movement in Spot           
|                 |                            |   |                        |  |                  |   |                            
|                 |                            |   | (Dollars in thousands)
|Mexican Peso     |                            | $ | 20,300                 |  |                  | $ | 2,700                       |       |  | $ | (1,700 | )     
|Canadian Dollar  |                            |   | 41,600                 |  |                  |   | 3,500                       |       |  |   | (3,900 | )     
|Chinese Renminbi |                            |   | 14,200                 |  |                  |   | 1,100                       |       |  |   | (1,400 | )     
|                 |                            |   |                        |  |                  |   |                             |       |  |   |        |       
|                 | Total Change in Fair Value |   |                        |  |                  |   | $                           | 7,300 |  |   | $      | (7,000 | )

It is our policy to enter into foreign currency and interest rate
transactions and other financial instruments only to the extent considered
necessary to meet our objectives as stated above. We do not enter into these
transactions for speculative purposes. See Note N of the Consolidated
Financial Statements for more information regarding Applicas financial
instruments.




|        |  |                                            
|------- |  | -------------------------------------------
|Item 8. |  | Financial Statements and Supplementary Data

See Schedules I and II hereto.




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

None.

-28-



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##### Table of Contents






PART III




|         |  |                                                   
|-------- |  | --------------------------------------------------
|Item 10. |  | Directors and Executive Officers of the Registrant

The executive officers of Applica are as follows:

|                     |  |     |    |        |  |                                                                                                                        
|-------------------- |  | --- | -- | ------ |  | -----------------------------------------------------------------------------------------------------------------------
|NAME                 |  | AGE |    | OFFICE
|                     |  |     |    |       
|David M. Friedson    |  |     | 46 |        |  | Chairman of the Board and Chief Executive
Officer                                                                      
|                    
|Harry D. Schulman    |  |     | 50 |        |  | President, Chief Operating Officer and Secretary                                                                       
|                    
|Lai Kin              |  |     | 71 |        |  | Director and Chairman of Applica Durable
Manufacturing Limited                                                         
|                    
|Albio Espinosa       |  |     | 46 |        |  | Vice President  Worldwide Manufacturing,
Applica Consumer Products, Inc.                                              
|                    
|Richard J. Gagliano  |  |     | 44 |        |  | Senior Vice President  New Technology Business
Development and Continuous Improvement, Applica
Consumer Products, Inc.
|                    
|Michael J. Michienzi |  |     | 46 |        |  | Senior Vice President  Global Business
Development, of Applica Consumer Products, Inc.                                
|                    
|Terry L. Polistina   |  |     | 38 |        |  | Senior Vice President and Chief Financial
Officer                                                                      
|                    
|Raymond So           |  |     | 52 |        |  | Managing Director of Applica Durable
Manufacturing Limited                                                             

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

Harry D. Schulmanhas served as President of Applica Incorporated since
January 2001 and Chief Operating Officer since November 1, 1998. Mr. Schulman
has also served as Secretary since January 1999. From March 1990 to January
2001, Mr. Schulman served as Chief Financial Officer of Applica. From February
1998 until June 1998, he served as a Senior Vice President and from February
1993 until June 1998, Mr. Schulman served as Executive Vice President  Finance
and Administration. Prior thereto, he held other senior finance positions with
Applica.

Lai Kinhas been Chairman of Applica Durable Manufacturing Limited,
Applicas Chinese manufacturing subsidiary, since 1995. From 1973 to 1995, Mr.
Lai was Managing Director of Durable. In addition, Mr. Lai has been Managing
Director of Ourimbah Investment Ltd. since 1989. Ourimbah is a holding and
investment company and owns approximately 8% of the outstanding common stock of
Applica.

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

Richard J. Gaglianois currently Senior Vice President  New Technology
Business Development and Continuous Improvement of Applica Consumer Products,
Inc. and served as Senior Vice President, Manufacturing and Engineering from
November 1998 to February. Prior to that time, he served as the Vice
President, Operations, of the Household Products Group under The Black & Decker
Corporation. He joined Black & Decker in 1994 and served in several senior
management capacities for the Price Pfister division of The Black & Decker
Corporation.

Michael J. Michienziis currently Senior Vice President  Global Business
Development and served as President and General Manager, Sales and Marketing,
of Applica Consumer Products, Inc. from May 1999 to February 2002. From
January 1999 until December 1999, Mr. Michienzi also served as President of the
Household

-29-



---



##### Table of Contents



Products Group and from June 1998 until January 1999 he served as its
Senior Vice President. From July 1994 to June 1998, Mr. Michienzi served as
Vice President  Sales, Vice President  Sales and Supply Chain, and Vice
President  Sales, Marketing and Supply Chain of the U.S. Household Products
Group of Black & Decker (U.S.) Inc.

Terry L. Polistinahas served as Chief Financial Officer of Applica
Incorporated since January 2001 and has served as a Senior Vice President since
June 1998. Mr. Polistina served as Controller of Applica from December 1995 to
June 1998 and prior thereto, he held other senior finance positions with
Applica.

Raymond Sohas served as Managing Director of Applica Durable
Manufacturing Limited since February 1996. From February 1996 to June 1998, he
served as a Senior Vice President of Applica. Prior thereto and beginning in
1986, Mr. So held various senior executive management positions with Durable.

Information about the members of the Board of Directors of Applica is
incorporated by reference to Applicas Proxy Statement for its 2002 Annual
Meeting of Shareholders under the captions Election of Directors.




|         |  |                       
|-------- |  | ----------------------
|Item 11. |  | Executive Compensation

Information about executive compensation is incorporated by reference to
Applicas Proxy Statement for its 2002 Annual Meeting of Shareholders under the
captions Executive Compensation and Certain Transactions.




|         |  |                                                               
|-------- |  | --------------------------------------------------------------
|Item 12. |  | Security Ownership of Certain Beneficial Owners and Management

Information about security ownership of certain beneficial owners and
management is incorporated by reference to Applicas Proxy Statement for its
2002 Annual Meeting of Shareholders under the caption Security Ownership.




|         |  |                                               
|-------- |  | ----------------------------------------------
|Item 13. |  | Certain Relationships and Related Transactions

Information about certain relationships and related transactions is
incorporated by Reference to Applicas Proxy Statement for its 2002 Annual
Meeting of Shareholders under the captions Executive Compensation and
Certain Transactions.

-30-



---



##### Table of Contents






PART IV




|         |  |                                                                
|-------- |  | ---------------------------------------------------------------
|Item 14. |  | Exhibits, Financial Statement Schedules and Reports on Form 8-K



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

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

Report of Independent Certified Public Accountants

Consolidated Balance Sheets as of December 31, 2001 and 2000

Consolidated Statements of Operations for the years ended December 31, 2001, 2000 and 1999

Consolidated Statement of Shareholders Equity for the three years ended December 31, 2001

Consolidated Statements of Cash Flows for the years ended December 31, 2001, 2000 and 1999

Supplement Disclosures of Cash Flow Information

Notes to Consolidated Financial Statements



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

Schedule II  Valuation and Qualifying Accounts  Years ended December 31,
2001, 2000 and 1999

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



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

|        |  |                                                                                                                                                                                                                                                                                                                                               
|------- |  | ----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
|Exhibit |  |                                                                                                                                                                                                                                                                                                                                               
|Number  |  | Description                                                                                                                                                                                                                                                                                                                                   
|        |  |                                                                                                                                                                                                                                                                                                                                               
|3.1     |  | Second Amended and Restated Articles of Incorporation filed
with the Florida Secretary of State on May 10, 2000.
Incorporated by reference to Applicas Quarterly Report on
Form 10-Q for the quarter ended September 30, 2000.                                                                                                               
|       
|3.2     |  | Second Amended and Restated Bylaws. Incorporated by
reference to Applicas Annual Report on Form 10-K for the
year ended December 31, 2000.                                                                                                                                                                                                   
|       
|4.1     |  | Supplemental Indenture dated as of July 27, 1998, among
Applica Incorporated, the Guarantors named therein and
State Street Bank & Trust Company, as Trustee, relating to
the issuance by Applica Incorporated of $130 million in 10%
Senior Subordinated Notes due 2008. Incorporated by
reference to Applicas Form 8-K dated July 27, 1998.
|       
|4.2     |  | Amended and Restated 1995 Common Stock Purchase Rights
Agreement dated March 10, 1999 between American Stock
Transfer and Trust Company and Applica Incorporated.
Incorporated by reference to Applicas Form 8-A/A
Registration Statement filed with the Securities and
Exchange Commission on April 8, 1999.                                
|       
|10.1*   |  | Employment agreement dated June 18, 1999 between Applica
Incorporated and David M. Friedson. Incorporated by
reference to Applicas Quarterly Report on Form 10-Q for
the quarter ended June 30, 1999.                                                                                                                                        

-31-



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|        |  |                                                                                                                                                                                                                           
|------- |  | --------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
|Exhibit |  |                                                                                                                                                                                                                           
|Number  |  | Description                                                                                                                                                                                                               
|        |  |                                                                                                                                                                                                                           
|10.2*   |  | Employment agreement dated August 2, 1999 between Applica
Incorporated and Harry D. Schulman. Incorporated by
reference to Applicas Quarterly Report on Form 10-Q for
the quarter ended September 30, 1999.              
|       
|10.3*   |  | Employment Agreement dated July 1, 2000 between Applica
Consumer Products, Inc. and Michael J. Michienzi .
Incorporated by reference Applicas Quarterly Report on
Form 10-Q for the quarter ended September 30, 2000.    
|       
|10.4*   |  | Employment Agreement dated July 1, 2000 between Applica
Consumer Products, Inc. and Richard J. Gagliano.
Incorporated by reference Applicas Quarterly Report on
Form 10-Q for the quarter ended September 30, 2000.      
|       
|10.5*   |  | Employment Agreement dated July 1, 2000 between Applica
Incorporated and Terry L. Polistina. Incorporated by
reference Applicas Quarterly Report on Form 10-Q for the
quarter ended September 30, 2000.                  
|       
|10.6*   |  | Consulting Agreement dated January 1, 1989 between Mr. Lai
Kin and Applica Incorporated. Incorporated by reference to
Applicas Annual Report on Form 10-K for the year ended
December 31, 1988.                          
|       
|10.7*   |  | Employment Agreement dated as of January 27, 1983 between
Belvin Friedson and Applica Incorporated. Incorporated by
reference to Applicas Annual Report on Form 10-K for the
year ended December 31, 1982.               
|       
|10.8*   |  | First Amendment dated February 27, 1987 to Employment
Agreement between Belvin Friedson and Applica Incorporated.
Incorporated by reference to Applicas Annual Report on
Form 10-K for the year ended December 31, 1986. 
|       
|10.9*   |  | Second Amendment dated December 16, 1992 to Employment
Agreement between Belvin Friedson and Applica Incorporated.
Incorporated by reference to Applicas Annual Report on
Form 10-K for the year ended December 31, 1992.
|       
|10.10*  |  | Employment Agreement dated as of November 20, 2001 between
Raymond So and Applica Durable Manufacturing Limited. Filed herewith.                                                                                          
|       
|10.11*  |  | 1988 Director Stock Option Plan. Incorporated by reference
to Applicas Annual Report on Form 10-K for the year ended
December 31, 1988.                                                                                  
|       
|10.12*  |  | 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.                                     
|       
|10.13*  |  | 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.                                                         
|       
|10.14*  |  | 1997 Cash Bonus Performance Plan for Executive Officers, as
amended. Incorporated by reference to Applicas Proxy
Statements dated April 18, 1997 and April 10, 2000.                                                     
|       
|10.15*  |  | 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.                                                    
|       
|10.16*  |  | 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.                                                        

-32-



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|        |  |                                                                                                                                                                                                                            
|------- |  | ---------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
|Exhibit |  |                                                                                                                                                                                                                            
|Number  |  | Description                                                                                                                                                                                                                
|        |  |                                                                                                                                                                                                                            
|10.17*  |  | 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.                                              
|       
|10.18   |  | Credit Agreement by and among Applica Incorporated, each of
its subsidiaries party thereto, each of the lenders party
thereto and Bank of America, N.A., as agent for the
lenders, dated December 28, 2001. Filed herewith.
|       
|10.19   |  | Security Agreement by and among Applica Incorporated, each
of its subsidiaries party thereto and Bank of America,
N.A., as agent for the lenders, dated December 28, 2001. Filed
herewith.                                 
|       
|21      |  | Subsidiaries of the Registrant. Filed herewith.                                                                                                                                                                            
|       
|23      |  | Consents of experts and counsel. Filed herewith.                                                                                                                                                                           



---

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



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

None.

-33-



---



##### Table of Contents






Signatures

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

| |                                   |                                                                              
| | --------------------------------- | -----------------------------------------------------------------------------
| | APPLICA INCORPORATED
(Registrant)
|
| | By:                               | /s/ David M. Friedson
David M. Friedson, Chairman and
Chief Executive Officer
|
| |                                   | Date:  March 1, 2002                                                         

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

|                                                                                                             |  |                                
|------------------------------------------------------------------------------------------------------------ |  | -------------------------------
|By:              /s/ David M. FriedsonDavid M. Friedson, Chairman and
Chief Executive Officer                |  | DATE:             March 1, 2002
|                                                                                                            
|By:              /s/ Harry D. SchulmanHarry D. Schulman, President, Chief Operating
Officer and Secretary    |  | DATE:             March 1, 2002
|                                                                                                            
|By:              /s/ Terry L. PolistinaTerry L. Polistina, Chief Financial Officer and
Senior Vice President |  | DATE:             March 1, 2002
|                                                                                                            
|By:              /s/ Frederick E. FairFrederick E. Fair, Director                                            |  | DATE:             March 1, 2002
|                                                                                                            
|By:              /s/ Jerald I. RosenJerald I. Rosen, Director                                                |  | DATE:             March 1, 2002
|                                                                                                            
|By:              /s/ Paul K. SugruePaul K. Sugrue, Director                                                  |  | DATE:             March 1, 2002
|                                                                                                            
|By:              /s/ Lai KinLai Kin, Director                                                                |  | DATE:             March 1, 2002
|                                                                                                            
|By:              /s/ Raymond SoRaymond So, Director                                                          |  | DATE:             March 1, 2002
|                                                                                                            
|By:              /s/ Leonard GlazerLeonard Glazer, Director                                                  |  | DATE:             March 1, 2002
|                                                                                                            
|By:              /s/ Barbara R. GarrettBarbara Friedson Garrett, Director                                    |  | DATE:             March 1, 2002
|                                                                                                            
|By:              /s/ Felix S. SabatesFelix S. Sabates, Director                                              |  | DATE:             March 1, 2002

-34-



---



##### Table of Contents



|                                                            |  |                                
|----------------------------------------------------------- |  | -------------------------------
|                                                           
|By:              /s/ Arnold ThalerArnold Thaler, Director   |  | DATE:             March 1, 2002
|                                                           
|By:              /s/ Thomas J. KaneThomas J. Kane, Director |  | DATE:             March 1, 2002
|                                                           
|By:              /s/ Susan J. GanzSusan J. Ganz, Director   |  | DATE:             March 1, 2002
|                                                           
|By:              /s/ Desmond LaiDesmond Lai, Director       |  | DATE:             March 1, 2002
|                                                           
|By:              /s/ J. Maurice Hopkins                     |  | DATE:             March 1, 2002
|J. Maurice Hopkins, Director                                |  |                                

-35-



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##### Table of Contents



SCHEDULE I

Applica Incorporated and Subsidiaries
Index to Financial Statements

|                                                                                           |  |  |            | 
|------------------------------------------------------------------------------------------ |  |  | ---------- | 
|Report of Independent Certified Public Accountants                                         |  |  | F-2        | 
|                                                                                           |  |  |            | 
|Consolidated Balance Sheets as of December 31, 2001 and 2000                               |  |  | F-3        | 
|                                                                                           |  |  |            | 
|Consolidated Statements of Operations for the Years Ended December 31, 2001, 2000 and 1999 |  |  | F-4        | 
|                                                                                           |  |  |            | 
|Consolidated Statement of Shareholders Equity for the Three Years Ended December 31, 2001 |  |  | F-5        | 
|                                                                                           |  |  |            | 
|Consolidated Statements of Cash Flows for the Years Ended December 31, 2001, 2000 and 1999 |  |  | F-6 - F7   | 
|                                                                                           |  |  |            | 
|Supplemental Disclosures of Cash Flow Information                                          |  |  | F-7        | 
|                                                                                           |  |  |            | 
|Notes to Consolidated Financial Statements                                                 |  |  | F-8 - F-29 | 

F-1



---



##### Table of Contents



REPORT OF INDEPENDENT CERTIFIED
PUBLIC ACCOUNTANTS

Board of Directors and Shareholders
Applica Incorporated

We have audited the accompanying consolidated balance sheets of Applica
Incorporated and subsidiaries (the Company) as of December 31, 2001 and 2000,
and the related consolidated statements of operations, shareholders equity and
cash flows for each of the three years in the period ended December 31, 2001.
These financial statements are the responsibility of the Companys management.
Our responsibility is to express an opinion on these financial statements based
on our audits.

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

In our opinion, the financial statements referred to above present fairly,
in all material respects, the consolidated financial position of Applica
Incorporated and subsidiaries at December 31, 2001 and 2000, and the
consolidated results of their operations and their consolidated cash flows for
each of the three years in the period ended December 31, 2001, in conformity
with accounting principles generally accepted in the United States of America.

We have also audited Schedule II of Applica Incorporated and subsidiaries
for each of the three years in the period ended December 31, 2001. In our
opinion, this schedule presents fairly, in all material respects, the
information required to be set forth therein.

/s/ Grant Thornton LLP
Miami, Florida
February 6, 2002

F-2



---



##### Table of Contents



Applica Incorporated and Subsidiaries

CONSOLIDATED BALANCE SHEETS

Assets

|                                                                                                             |                                                                                                                        |                                            |                           |                      |         |                |         |         |         |         |         | 
|------------------------------------------------------------------------------------------------------------ | ---------------------------------------------------------------------------------------------------------------------- | ------------------------------------------ | ------------------------- | -------------------- | ------- | -------------- | ------- | ------- | ------- | ------- | ------- | 
|                                                                                                             |                                                                                                                        |                                            |                           |                      |         | December 31,  
|                                                                                                             |                                                                                                                        |                                            |                           |                      |         |               
|                                                                                                             |                                                                                                                        |                                            |                           |                      |         | 2001           |         | 2000   
|                                                                                                             |                                                                                                                        |                                            |                           |                      |         |                |         |        
|                                                                                                             |                                                                                                                        |                                            |                           |                      |         | (In thousands)
|Current Assets:                                                                                              |                                                                                                                        |                                            |                           |                      |         |                |         |        
|                                                                                                             | Cash and cash equivalents                                                                                              |                                            | $                         | 15,743               |         |                | $       | 16,857  |        
|                                                                                                             | Accounts and other receivables, less
allowances of $12,061 in 2001 and $8,049 in
2000                                  |                                            |                           | 181,388              |         |                |         | 186,198 |        
|                                                                                                             | Receivables from affiliates                                                                                            |                                            |                           | 3,531                |         |                |         | 3,281   |        
|                                                                                                             | Inventories                                                                                                            |                                            |                           | 103,716              |         |                |         | 160,820 |        
|                                                                                                             | Prepaid expenses and other                                                                                             |                                            |                           | 13,204               |         |                |         | 17,277  |        
|                                                                                                             | Refundable income taxes                                                                                                |                                            |                           | 689                  |         |                |         | 1,207   |        
|                                                                                                             | Future income tax benefits                                                                                             |                                            |                           | 23,649               |         |                |         | 14,655  |        
|                                                                                                             |                                                                                                                        |                                            |                           |                      |         |                |         |         |        
|                                                                                                             |                                                                                                                        |                                            |                           | Total current assets |         |                | 341,920 |         |         |         | 400,295 | 
|Investment in Joint Ventures                                                                                 |                                                                                                                        |                                            | 1,412                     |                      |         |                | 1,525   |        
|Property, Plant and Equipment at cost, less
accumulated depreciation of $100,961in 2001 and
$82,770 in 2000 |                                                                                                                        |                                            | 82,337                    |                      |         |                | 78,200  |        
|Future Income Tax Benefits, Non-Current                                                                      |                                                                                                                        |                                            | 8,055                     |                      |         |                | 3,705   |        
|Intangible and Other Non-Current Assets                                                                      |                                                                                                                        |                                            | 199,737                   |                      |         |                | 224,210 |        
|                                                                                                             |                                                                                                                        |                                            |                           |                      |         |                |         |         |        
|                                                                                                             |                                                                                                                        | Total Assets                               |                           | $                    | 633,461 |                |         | $       | 707,935 |        
|                                                                                                             |                                                                                                                        |                                            |                           |                      |         |                |         |         |        
|Liabilities and Shareholders Equity                                                                         |                                                                                                                       
|Current Liabilities:                                                                                         |                                                                                                                        |                                            |                           |                      |         |                |         |        
|                                                                                                             | Notes and acceptances payable                                                                                          |                                            | $                         |                     |         |                | $       | 13,494  |        
|                                                                                                             | Current maturities of long-term debt                                                                                   |                                            |                           |                     |         |                |         | 18,842  |        
|                                                                                                             | Accounts payable                                                                                                       |                                            |                           | 38,140               |         |                |         | 43,361  |        
|                                                                                                             | Accrued expenses                                                                                                       |                                            |                           | 66,971               |         |                |         | 47,103  |        
|                                                                                                             | Current taxes payable                                                                                                  |                                            |                           | 8,242                |         |                |         |        |        
|                                                                                                             | Deferred income                                                                                                        |                                            |                           | 443                  |         |                |         | 514     |        
|                                                                                                             |                                                                                                                        |                                            |                           |                      |         |                |         |         |        
|                                                                                                             |                                                                                                                        |                                            | Total current liabilities |                      |         | 113,796        |         |         |         | 123,314 |        
|Long-Term Debt                                                                                               |                                                                                                                        |                                            | 225,726                   |                      |         |                | 260,147 |        
|Shareholders Equity:                                                                                        |                                                                                                                        |                                            |                           |                      |         |                |         |        
|                                                                                                             | Common stock  authorized: 75,000 shares of
$0.10 par value; issued and outstanding:
23,319 in 2001 and 23,080 in 2000 |                                            |                           | 2,332                |         |                |         | 2,308   |        
|                                                                                                             | Paid-in capital                                                                                                        |                                            |                           | 154,049              |         |                |         | 152,591 |        
|                                                                                                             | Retained earnings                                                                                                      |                                            |                           | 145,028              |         |                |         | 173,466 |        
|                                                                                                             | Notes receivable  officers                                                                                            |                                            |                           | (1,496               | )       |                |         | (1,496  | )      
|                                                                                                             | Accumulated other comprehensive earnings (loss)                                                                        |                                            |                           | (5,974               | )       |                |         | (2,395  | )      
|                                                                                                             |                                                                                                                        |                                            |                           |                      |         |                |         |         |        
|                                                                                                             |                                                                                                                        | Total shareholders equity                 |                           |                      | 293,939 |                |         |         | 324,474 |        
|                                                                                                             |                                                                                                                        |                                            |                           |                      |         |                |         |         |        
|                                                                                                             |                                                                                                                        | Total liabilities and shareholders equity |                           | $                    | 633,461 |                |         | $       | 707,935 |        
|                                                                                                             |                                                                                                                        |                                            |                           |                      |         |                |         |         |        

The accompanying notes are an integral part of these statements.

F-3



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##### Table of Contents



Applica Incorporated and Subsidiaries

CONSOLIDATED STATEMENTS OF OPERATIONS

|                                                |                                            |                                 |                                                                                         |       |                                       |         |         |       |         |         |         |      |         |         | 
|----------------------------------------------- | ------------------------------------------ | ------------------------------- | --------------------------------------------------------------------------------------- | ----- | ------------------------------------- | ------- | ------- | ----- | ------- | ------- | ------- | ---- | ------- | ------- | 
|                                                |                                            |                                 |                                                                                         |       | Years Ended December 31,             
|                                                |                                            |                                 |                                                                                         |       |                                      
|                                                |                                            |                                 |                                                                                         |       | 2001                                  |         | 2000    |       | 1999   
|                                                |                                            |                                 |                                                                                         |       |                                       |         |         |       |        
|                                                |                                            |                                 |                                                                                         |       | (In
thousands, except per share data)
|Net sales and other revenues                    |                                            | $                               | 727,044                                                                                 |       |                                       | $       | 748,751 |       |         | $       | 718,309 |     
|Cost of sales:                                  |                                            |                                 |                                                                                         |       |                                       |         |         |       |         |         |         |     
|                                                |                                            | Cost of goods sold              |                                                                                         |       | 516,033                               |         |         |       | 513,407 |         |         |      | 484,040 |        
|                                                |                                            | Repositioning and other charges |                                                                                         |       | 13,418                                |         |         |       | 30,083  |         |         |      |        |        
|                                                |                                            |                                 |                                                                                         |       |                                       |         |         |       |         |         |         |     
|                                                |                                            |                                 | 529,451                                                                                 |       |                                       |         | 543,490 |       |         |         | 484,040 |     
|                                                |                                            |                                 |                                                                                         |       |                                       |         |         |       |         |         |         |     
|                                                |                                            |                                 | Gross profit                                                                            |       |                                       | 197,593 |         |       |         | 205,261 |         |      |         | 234,269 | 
|Selling, general and administrative expenses:   |                                            |                                 |                                                                                         |       |                                       |         |         |       |         |         |         |     
|                                                |                                            | Operating expenses              |                                                                                         |       | 186,410                               |         |         |       | 190,939 |         |         |      | 177,016 |        
|                                                |                                            | Repositioning and other charges |                                                                                         |       | 14,817                                |         |         |       | 3,980   |         |         |      | (1,506  | )      
|                                                |                                            |                                 |                                                                                         |       |                                       |         |         |       |         |         |         |     
|                                                |                                            |                                 | 201,227                                                                                 |       |                                       |         | 194,919 |       |         |         | 175,510 |     
|                                                |                                            |                                 |                                                                                         |       |                                       |         |         |       |         |         |         |     
|                                                |                                            |                                 | Operating profit (loss)                                                                 |       |                                       | (3,634  | )       |       |         | 10,342  |         |      |         | 58,759  | 
|Other (income) expense:                         |                                            |                                 |                                                                                         |       |                                       |         |         |       |         |         |         |     
|                                                |                                            | Interest expense                |                                                                                         |       | 22,536                                |         |         |       | 30,301  |         |         |      | 27,109  |        
|                                                |                                            | Interest and other income       |                                                                                         |       | (2,006                                | )       |         |       | (1,622  | )       |         |      | (2,264  | )      
|                                                |                                            | Loss on asset held for sale     |                                                                                         |       |                                      |         |         |       | 3,644   |         |         |      |        |        
|                                                |                                            |                                 |                                                                                         |       |                                       |         |         |       |         |         |         |     
|                                                |                                            |                                 | 20,530                                                                                  |       |                                       |         | 32,323  |       |         |         | 24,845  |     
|                                                |                                            |                                 |                                                                                         |       |                                       |         |         |       |         |         |         |     
|                                                |                                            |                                 | Earnings (loss) before equity in
net earnings (loss) of joint
ventures and income taxes |       |                                       | (24,164 | )       |       |         | (21,981 | )       |      |         | 33,914  | 
|Equity in net earnings (loss) of joint ventures |                                            |                                 | (128                                                                                    | )     |                                       |         | (777    | )     |         |         | (12,894 | )   
|                                                |                                            |                                 |                                                                                         |       |                                       |         |         |       |         |         |         |     
|                                                |                                            |                                 | Earnings (loss) before income taxes                                                     |       |                                       | (24,292 | )       |       |         | (22,758 | )       |      |         | 21,020  | 
|Income tax expense (benefit)                    |                                            |                                 | 4,146                                                                                   |       |                                       |         | (1,542  | )     |         |         | 4,177   |     
|                                                |                                            |                                 |                                                                                         |       |                                       |         |         |       |         |         |         |     
|                                                |                                            |                                 | Net earnings (loss)                                                                     |       | $                                     | (28,438 | )       |       | $       | (21,216 | )       |      | $       | 16,843  | 
|                                                |                                            |                                 |                                                                                         |       |                                       |         |         |       |         |         |         |     
|Per share data:                                 |                                            |                                 |                                                                                         |       |                                       |         |         |       |         |         |         |     
|                                                | Earnings (loss) per common share  basic   |                                 | $                                                                                       | (1.23 | )                                     |         | $       | (0.92 | )       |         | $       | 0.75 |        
|                                                |                                            |                                 |                                                                                         |       |                                       |         |         |       |         |         |         |     
|                                                | Earnings (loss) per common share  diluted |                                 | $                                                                                       | (1.23 | )                                     |         | $       | (0.92 | )       |         | $       | 0.72 |        
|                                                |                                            |                                 |                                                                                         |       |                                       |         |         |       |         |         |         |     

The accompanying notes are an integral part of these statements.

F-4



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##### Table of Contents



Applica Incorporated and Subsidiaries

CONSOLIDATED STATEMENT OF SHAREHOLDERS EQUITY

|                                                                                          |                                                                   |                                    |       |                |  |         |         |          |  |             |         |                 |   |       |        |      |  |       |        |             |   |   |         |         |         |  
|----------------------------------------------------------------------------------------- | ----------------------------------------------------------------- | ---------------------------------- | ----- | -------------- |  | ------- | ------- | -------- |  | ----------- | ------- | --------------- | - | ----- | ------ | ---- |  | ----- | ------ | ----------- | - | - | ------- | ------- | ------- | -
|                                                                                          |                                                                   |                                    |       |                |  |         |         |          |  |             |         |                 |   |       |        |      |  |       |        | Accumulated |   |   |         |        
|                                                                                          |                                                                   |                                    |       |                |  |         |         |          |  |             |         |                 |   |       |        | Note |  | Other |        |             |   |  
|                                                                                          |                                                                   |                                    |       | Common         |  | Paid-in |         | Retained |  | Receivable- |         | Comprehensive   |   |       |        |     
|                                                                                          |                                                                   |                                    |       | Stock          |  | Capital |         | Earnings |  | Officer     |         | Earnings (Loss) |   | Total
|                                                                                          |                                                                   |                                    |       |                |  |         |         |          |  |             |         |                 |   |      
|                                                                                          |                                                                   |                                    |       | (In thousands)
|Balance at January 1, 1999                                                                |                                                                   | $                                  | 2,209 |                |  | $       | 145,161 |          |  | $           | 177,839 |                 |   | $     |       |      |  | $     | (1,191 | )           |   | $ | 324,018 |        
|Comprehensive earnings (loss):                                                            |                                                                   |                                    |       |                |  |         |         |          |  |             |         |                 |   |       |        |      |  |       |        |             |   |   |         |        
|                                                                                          | Net earnings                                                      |                                    |       |               |  |         |         |         |  |             |         | 16,843          |   |       |        |     |  |       |        |            |   |   |         | 16,843  |        
|                                                                                          | Foreign currency translation
adjustment                           |                                    |       |               |  |         |         |         |  |             |         |                |   |       |        |     |  |       |        | (410        | ) |   |         | (410    | )      
|                                                                                          |                                                                   |                                    |       |                |  |         |         |          |  |             |         |                 |   |       |        |      |  |       |        |             |   |   |         |        
|                                                                                          |                                                                   | Total comprehensive earnings(loss) |       |                |  |         |         |          |  |             |         |                 |   |       |        |      |  |       |        |             |   |   |         |         | 16,433  |  
|Exercise of stock options                                                                 |                                                                   |                                    | 34    |                |  |         | 2,217   |          |  |             |        |                 |   |       |       |      |  |       |       |             |   |   | 2,251   |        
|Tax benefit resulting from exercise of
stock options                                      |                                                                   |                                    |      |                |  |         | 599     |          |  |             |        |                 |   |       |       |      |  |       |       |             |   |   | 599     |        
|Issuance of common stock                                                                  |                                                                   |                                    | 21    |                |  |         | 1,475   |          |  |             |        |                 |   |       |       |      |  |       |       |             |   |   | 1,496   |        
|Note receivable  officer                                                                 |                                                                   |                                    |      |                |  |         |        |          |  |             |        |                 |   |       | (1,496 | )    |  |       |       |             |   |   | (1,496  | )      
|Fair value of options to non-employees                                                    |                                                                   |                                    |      |                |  |         | 96      |          |  |             |        |                 |   |       |       |      |  |       |       |             |   |   | 96      |        
|                                                                                          |                                                                   |                                    |       |                |  |         |         |          |  |             |         |                 |   |       |        |      |  |       |        |             |   |   |         |        
|Balance at December 31, 1999                                                              |                                                                   |                                    | 2,264 |                |  |         | 149,548 |          |  |             | 194,682 |                 |   |       | (1,496 | )    |  |       | (1,601 | )           |   |   | 343,397 |        
|Comprehensive earnings (loss):                                                            |                                                                   |                                    |       |                |  |         |         |          |  |             |         |                 |   |       |        |      |  |       |        |             |   |   |         |        
|                                                                                          | Net loss                                                          |                                    |       |               |  |         |         |         |  |             |         | (21,216         | ) |       |        |     |  |       |        |            |   |   |         | (21,216 | )      
|                                                                                          | Foreign currency translation
adjustment                           |                                    |       |               |  |         |         |         |  |             |         |                |   |       |        |     |  |       |        | (794        | ) |   |         | (794    | )      
|                                                                                          |                                                                   |                                    |       |                |  |         |         |          |  |             |         |                 |   |       |        |      |  |       |        |             |   |   |         |        
|                                                                                          |                                                                   | Total comprehensive earnings(loss) |       |                |  |         |         |          |  |             |         |                 |   |       |        |      |  |       |        |             |   |   |         |         | (22,010 | )
|Exercise of stock options and issuance
of common stock under employee stock
purchase plan |                                                                   |                                    | 44    |                |  |         | 2,293   |          |  |             |        |                 |   |       |       |      |  |       |       |             |   |   | 2,337   |        
|Tax benefit resulting from exercise of
stock options                                      |                                                                   |                                    |      |                |  |         | 633     |          |  |             |        |                 |   |       |       |      |  |       |       |             |   |   | 633     |        
|Fair value of options to non-employees                                                    |                                                                   |                                    |      |                |  |         | 117     |          |  |             |        |                 |   |       |       |      |  |       |       |             |   |   | 117     |        
|                                                                                          |                                                                   |                                    |       |                |  |         |         |          |  |             |         |                 |   |       |        |      |  |       |        |             |   |   |         |        
|Balance at December 31, 2000                                                              |                                                                   |                                    | 2,308 |                |  |         | 152,591 |          |  |             | 173,466 |                 |   |       | (1,496 | )    |  |       | (2,395 | )           |   |   | 324,474 |        
|Comprehensive earnings (loss):                                                            |                                                                   |                                    |       |                |  |         |         |          |  |             |         |                 |   |       |        |      |  |       |        |             |   |   |         |        
|                                                                                          | Net loss                                                          |                                    |       |               |  |         |         |         |  |             |         | (28,438         | ) |       |        |     |  |       |        |            |   |   |         | (28,438 | )      
|                                                                                          | Foreign currency translation
adjustment                           |                                    |       |               |  |         |         |         |  |             |         |                |   |       |        |     |  |       |        | (2,723      | ) |   |         | (2,723  | )      
|                                                                                          | Net unrealized loss on derivatives
designated as cash flow hedges |                                    |       |               |  |         |         |         |  |             |         |                |   |       |        |     |  |       |        | (856        | ) |   |         | (856    | )      
|                                                                                          |                                                                   |                                    |       |                |  |         |         |          |  |             |         |                 |   |       |        |      |  |       |        |             |   |   |         |        
|                                                                                          |                                                                   | Total comprehensive earnings(loss) |       |                |  |         |         |          |  |             |         |                 |   |       |        |      |  |       |        |             |   |   |         |         | (32,017 | )
|Exercise of stock options and issuance
of common stock under employee stock
purchase plan |                                                                   |                                    | 24    |                |  |         | 1,232   |          |  |             |        |                 |   |       |       |      |  |       |       |             |   |   | 1,256   |        
|Tax benefit resulting from exercise of
stock options                                      |                                                                   |                                    |      |                |  |         | 176     |          |  |             |        |                 |   |       |       |      |  |       |       |             |   |   | 176     |        
|Fair value of options to non-employees                                                    |                                                                   |                                    |      |                |  |         | 50      |          |  |             |        |                 |   |       |       |      |  |       |       |             |   |   | 50      |        
|                                                                                          |                                                                   |                                    |       |                |  |         |         |          |  |             |         |                 |   |       |        |      |  |       |        |             |   |   |         |        
|Balance at December 31, 2001                                                              |                                                                   | $                                  | 2,332 |                |  | $       | 154,049 |          |  | $           | 145,028 |                 |   | $     | (1,496 | )    |  | $     | (5,974 | )           |   | $ | 293,939 |        
|                                                                                          |                                                                   |                                    |       |                |  |         |         |          |  |             |         |                 |   |       |        |      |  |       |        |             |   |   |         |        

The accompanying notes are an integral part of this statement.

F-5



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##### Table of Contents



Applica Incorporated and Subsidiaries

CONSOLIDATED STATEMENTS OF CASH FLOWS

|                                      |                                                                                                      |                                                                  |                                       |                                                     |        |                                  |         |         |        |         |         |         |        |         |         |  
|------------------------------------- | ---------------------------------------------------------------------------------------------------- | ---------------------------------------------------------------- | ------------------------------------- | --------------------------------------------------- | ------ | -------------------------------- | ------- | ------- | ------ | ------- | ------- | ------- | ------ | ------- | ------- | -
|                                      |                                                                                                      |                                                                  |                                       |                                                     |        | For the years ended December 31,
|                                      |                                                                                                      |                                                                  |                                       |                                                     |        |                                 
|                                      |                                                                                                      |                                                                  |                                       |                                                     |        | 2001                             |         | 2000    |        | 1999   
|                                      |                                                                                                      |                                                                  |                                       |                                                     |        |                                  |         |         |        |        
|                                      |                                                                                                      |                                                                  |                                       |                                                     |        | (In thousands)                  
|Cash flows from operating activities: |                                                                                                      |                                                                  |                                       |                                                     |        |                                  |         |         |        |         |         |        
|                                      | Net earnings (loss)                                                                                  |                                                                  | $                                     | (28,438                                             | )      |                                  | $       | (21,216 | )      |         | $       | 16,843  |       
|                                      | Adjustments to reconcile net earnings (loss) to
net cash provided by (used in) operating
activities: |                                                                  |                                       |                                                     |        |                                  |         |         |        |         |         |         |       
|                                      |                                                                                                      | Depreciation of property, plant and equipment                    |                                       |                                                     | 19,123 |                                  |         |         | 18,897 |         |         |         | 17,987 |        
|                                      |                                                                                                      | Amortization of intangible assets                                |                                       |                                                     | 19,941 |                                  |         |         | 19,355 |         |         |         | 16,969 |        
|                                      |                                                                                                      | Repositioning and other charges                                  |                                       |                                                     | 28,235 |                                  |         |         | 34,063 |         |         |         | (1,506 | )      
|                                      |                                                                                                      | Loss on asset held for sale                                      |                                       |                                                     |       |                                  |         |         | 3,644  |         |         |         |       |        
|                                      |                                                                                                      | Gain on sale of subsidiary                                       |                                       |                                                     |       |                                  |         |         |       |         |         |         | (775   | )      
|                                      |                                                                                                      | Stock option tax benefits                                        |                                       |                                                     | 176    |                                  |         |         | 633    |         |         |         | 599    |        
|                                      |                                                                                                      | Net change in allowance for losses on
accounts receivable        |                                       |                                                     | 4,012  |                                  |         |         | (711   | )       |         |         | 1,394  |        
|                                      |                                                                                                      | Consulting expense on fair value of
non-employee stock options   |                                       |                                                     | 50     |                                  |         |         | 117    |         |         |         | 96     |        
|                                      |                                                                                                      | Write down of investment in Newtech
Electronics Industries, Inc. |                                       |                                                     |       |                                  |         |         |       |         |         |         | 12,641 |        
|                                      |                                                                                                      | Amortization of deferred income                                  |                                       |                                                     | (71    | )                                |         |         | (307   | )       |         |         | (2,462 | )      
|                                      |                                                                                                      | Equity in (earnings) loss of joint ventures                      |                                       |                                                     | 128    |                                  |         |         | 777    |         |         |         | 287    |        
|                                      |                                                                                                      | Changes in assets and liabilities:                               |                                       |                                                     |        |                                  |         |         |        |         |         |         |        |        
|                                      |                                                                                                      |                                                                  | Accounts and other receivables        |                                                     |        | 798                              |         |         |        | 201     |         |         |        | (12,512 | )      
|                                      |                                                                                                      |                                                                  | Inventories                           |                                                     |        | 55,204                           |         |         |        | (29,613 | )       |         |        | 12,338  |        
|                                      |                                                                                                      |                                                                  | Prepaid expenses                      |                                                     |        | 4,073                            |         |         |        | (7,898  | )       |         |        | 1,247   |        
|                                      |                                                                                                      |                                                                  | Accounts payable and accrued expenses |                                                     |        | (6,448                           | )       |         |        | (4,849  | )       |         |        | (32,126 | )      
|                                      |                                                                                                      |                                                                  | Current and deferred income taxes     |                                                     |        | (4,584                           | )       |         |        | (12,629 | )       |         |        | 342     |        
|                                      |                                                                                                      |                                                                  | Other liabilities                     |                                                     |        |                                 |         |         |        | (10,573 | )       |         |        | 10,573  |        
|                                      |                                                                                                      |                                                                  | Other assets                          |                                                     |        | (4,287                           | )       |         |        | 562     |         |         |        | 6,111   |        
|                                      |                                                                                                      |                                                                  |                                       |                                                     |        |                                  |         |         |        |         |         |         |       
|                                      |                                                                                                      |                                                                  |                                       | Net cash provided by (used in)
operating activities |        |                                  | 87,912  |         |        |         | (9,547  | )       |        |         | 48,046  |  
|Cash flows from investing activities: |                                                                                                      |                                                                  |                                       |                                                     |        |                                  |         |         |        |         |         |        
|                                      | Proceeds from sale of subsidiary                                                                     |                                                                  |                                       |                                                    |        |                                  |         |        |        |         |         | 350     |       
|                                      | Additions to property, plant and equipment                                                           |                                                                  |                                       | (23,260                                             | )      |                                  |         | (23,582 | )      |         |         | (21,519 | )     
|                                      | Purchase of net assets                                                                               |                                                                  |                                       |                                                    |        |                                  |         |        |        |         |         | (15,059 | )     
|                                      | Distributions (investments) in joint ventures  net                                                  |                                                                  |                                       | (15                                                 | )      |                                  |         | 306     |        |         |         | 172     |       
|                                      | Change in receivables from affiliates                                                                |                                                                  |                                       | 72                                                  |        |                                  |         | 252     |        |         |         | 2,143   |       
|                                      |                                                                                                      |                                                                  |                                       |                                                     |        |                                  |         |         |        |         |         |         |       
|                                      |                                                                                                      |                                                                  |                                       | Net cash used in investing activities               |        |                                  | (23,203 | )       |        |         | (23,024 | )       |        |         | (33,913 | )

(Continued on next page.)

F-6



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##### Table of Contents



Applica Incorporated and Subsidiaries

CONSOLIDATED STATEMENTS OF CASH FLOWS (Continued)

|                                                 |                                                                                            |                                                     |        |                                  |         |      |        |         |        |   |        |         |         |  
|------------------------------------------------ | ------------------------------------------------------------------------------------------ | --------------------------------------------------- | ------ | -------------------------------- | ------- | ---- | ------ | ------- | ------ | - | ------ | ------- | ------- | -
|                                                 |                                                                                            |                                                     |        | For the years ended December 31,
|                                                 |                                                                                            |                                                     |        |                                 
|                                                 |                                                                                            |                                                     |        | 2001                             |         | 2000 |        | 1999   
|                                                 |                                                                                            |                                                     |        |                                  |         |      |        |        
|                                                 |                                                                                            |                                                     |        | (In thousands)                  
|Cash flows from financing activities:            |                                                                                            |                                                     |        |                                  |         |      |        |         |        |   |        |        
|                                                 | Notes and acceptances                                                                      |                                                     | $      | (13,494                          | )       |      | $      | 12,596  |        |   | $      | 898     |        
|                                                 | Proceeds from long-term debt                                                               |                                                     |        | 106,041                          |         |      |        |        |        |   |        |        |        
|                                                 | Payments of long-term debt                                                                 |                                                     |        | (108,513                         | )       |      |        | (12,842 | )      |   |        | (12,740 | )      
|                                                 | Payment of debt costs                                                                      |                                                     |        | (1,906                           | )       |      |        | (878    | )      |   |        |        |        
|                                                 | Net (payments) borrowings under lines of credit                                            |                                                     |        | (48,885                          | )       |      |        | 34,673  |        |   |        | (11,102 | )      
|                                                 | Exercises of stock options and issuance of common stock under
employee stock purchase plan |                                                     |        | 1,256                            |         |      |        | 2,337   |        |   |        | 2,251   |        
|                                                 | Interest receivable from officer                                                           |                                                     |        | (322                             | )       |      |        | (226    | )      |   |        | (87     | )      
|                                                 |                                                                                            |                                                     |        |                                  |         |      |        |         |        |   |        |         |        
|                                                 |                                                                                            | Net cash provided by (used in) financing activities |        |                                  | (65,823 | )    |        |         | 35,660 |   |        |         | (20,780 | )
|                                                 |                                                                                            |                                                     |        |                                  |         |      |        |         |        |   |        |         |        
|Increase (decrease) in cash and cash equivalents |                                                                                            |                                                     | (1,114 | )                                |         |      | 3,089  |         |        |   | (6,647 | )      
|Cash and cash equivalents at beginning of year   |                                                                                            |                                                     | 16,857 |                                  |         |      | 13,768 |         |        |   | 20,415 |        
|                                                 |                                                                                            |                                                     |        |                                  |         |      |        |         |        |   |        |         |        
|Cash and cash equivalents at end of year         |                                                                                            | $                                                   | 15,743 |                                  |         | $    | 16,857 |         |        | $ | 13,768 |        
|                                                 |                                                                                            |                                                     |        |                                  |         |      |        |         |        |   |        |         |        

Supplemental Disclosures of Cash Flow Information:

|                               |              |  |                                  |        |      |  |      |        |  |  |   |        | 
|------------------------------ | ------------ |  | -------------------------------- | ------ | ---- |  | ---- | ------ |  |  | - | ------ | 
|                               |              |  | For the years ended December 31,
|                               |              |  |                                 
|                               |              |  | 2001                             |        | 2000 |  | 1999
|                               |              |  |                                  |        |      |  |     
|                               |              |  | (In thousands)                  
|Cash paid during the year for: |              |  |                                  |        |      |  |      |        |  |  |   |       
|                               | Interest     |  | $                                | 21,114 |      |  | $    | 27,611 |  |  | $ | 17,697 | 
|                               | Income taxes |  | $                                | 8,489  |      |  | $    | 13,028 |  |  | $ | 8,339  | 

In April 1999, the Company issued 210,000 shares of its common stock to
its Chairman and Chief Executive Officer in exchange for a promissory note in
the principal amount of $1,496,350.

In June 1999, the Company acquired certain assets from its 50% joint
venture, Newtech Electronics Industries, Inc., for approximately $33 million,
of which $15 million was paid in cash plus $18 million of assumed liabilities.
In conjunction with this acquisition, the Company obtained the following assets
(in thousands):

|                    |  |   |        | 
|------------------- |  | - | ------ | 
|Intangible assets   |  | $ | 15,007 | 
|Accounts receivable |  |   | 8,081  | 
|Inventory           |  |   | 9,606  | 
|                    |  |   |        | 
|                    |  | $ | 32,694 | 
|                    |  |   |        | 

The accompanying notes are an integral part of these statements.

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NOTE A  SUMMARY OF ACCOUNTING POLICIES

Applica Incorporated and its subsidiaries (collectively, the Company)
are principally engaged in the manufacture, distribution and sale of a broad
range of branded and private-label small electric consumer goods.

In preparing financial statements in conformity with accounting principles
generally accepted in the United States of America, management is required to
make estimates and assumptions about future events that affect the amounts
reported in the financial statements and accompanying notes. Future events and
their effects cannot be determined with absolute certainty. Therefore, the
determination of estimates requires the exercise of judgment. Actual results
inevitably will differ from those estimates, and such differences may be
material to the financial statements.

The most significant accounting estimates inherent in the preparation of
the Companys financial statements include estimates associated with
managements evaluation of the recoverability of goodwill as well as those used
in the determination of liabilities related to warranty activity, litigation,
product liability, product recall, taxation and repositioning. In addition,
significant estimates form the bases for the Companys reserves with respect to
sales and pricing allowances, collectibility of accounts receivable, inventory
valuations and certain benefits provided to current employees. Various
assumptions and other factors underlie the determination of these significant
estimates. The process of determining significant estimates is fact specific
and takes into account factors such as historical experience, current and
expected economic conditions, product mix, and in some cases, actuarial
techniques. The Company constantly re-evaluates these significant factors and
makes adjustments where facts and circumstances dictate.

A summary of the Companys significant accounting policies consistently
applied in the preparation of the accompanying consolidated financial
statements follows.

Principles of Consolidation

The consolidated financial statements include the accounts of Applica
Incorporated and its wholly-owned subsidiaries. Intercompany balances and
transactions have been eliminated in consolidation.

Foreign Currency Translation

For subsidiaries where the local currency is the functional currency,
assets and liabilities are translated into United States dollars at the
exchange rate in effect at the end of the year. Revenues and expenses of these
subsidiaries are translated at the average exchange rate during the year. The
aggregate effect of translating the financial statements of these foreign
subsidiaries is included in a separate component of shareholders equity
entitled Accumulated Other Comprehensive Earnings (Loss). For countries
where business is transacted predominantly in U.S. dollars or is deemed to be
hyper-inflationary, the U.S. dollar is the functional currency and a
combination of current and historical rates are used in translating assets,
liabilities, revenues and expenses, and the related exchange adjustments are
included in operations.

Cash and Cash Equivalents

The Company considers all highly liquid investments with maturities of
three months or less at the time of purchase to be cash equivalents. Cash
balances at December 31, 2001 and 2000 include approximately $14.3 million and
$12.5 million, respectively, held in foreign banks by the Companys Hong Kong,
Canadian and Latin American subsidiaries.

Receivables from Affiliates

Receivables from affiliates include accounts and notes receivable due from
the Companys joint venture partners and certain of the Companys executive
officers. Notes receivable are due upon demand or upon termination of the
applicable employment contract, and bear interest at prevailing market interest
rates.

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Inventories

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

|                |  |                |         |      |  |   |         | 
|--------------- |  | -------------- | ------- | ---- |  | - | ------- | 
|                |  | 2001           |         | 2000
|                |  |                |         |     
|                |  | (In thousands)
|Raw materials   |  | $              | 4,264   |      |  | $ | 7,257   | 
|Work in process |  |                | 4,039   |      |  |   | 13,129  | 
|Finished goods  |  |                | 95,413  |      |  |   | 140,434 | 
|                |  |                |         |      |  |   |         | 
|                |  | $              | 103,716 |      |  | $ | 160,820 | 
|                |  |                |         |      |  |   |         | 

Revenue Recognition

The Company recognizes sales and related cost of sales at the later of (a)
the time of shipment or (b) when title passes to the customers, all significant
contractual obligations have been satisfied and collection of the resulting
receivable is reasonably assured. Net sales is comprised of gross sales less
provisions for estimated customer returns, discounts, vendor payments and
volume rebates.

Property, Plant and Equipment

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

Intangible Assets

Intangible assets, consisting primarily of goodwill, are being amortized
on a straight-line basis over periods ranging from 2.5 to 40 years. Intangible
assets were approximately $264.2 million and $273.8 million at December 31,
2001 and 2000, respectively, and the related accumulated amortization was $62.6
million and $49.6 million, respectively.

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

Long-Lived Assets

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

Risk Management Contracts

The Company designates its derivatives based upon criteria established by
SFAS 133. For a derivative designated as a fair value hedge, the gain or loss
is recognized in earnings in the period of change together with the offsetting
loss or gain on the hedged item attributed to the risk being hedged. For a
derivative designated as a cash flow hedge, the effective portion of the
derivatives gain or loss is initially reported as a component of accumulated
other comprehensive earnings (loss) and subsequently reclassified into earnings
when the hedged exposure affects earnings. The ineffective portion of the gain
or loss is reported in earnings immediately.

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

The fair values of derivative instruments as of December 31, 2001 and
changes in fair values during 2001 were not material. The adoption of SFAS 133
did not have a material impact on the Companys operating results. During 2001,
there were no significant gains or losses recognized in earnings for hedge
ineffectiveness. The Company did not discontinue any hedges during 2001
because it was probable that the original forecasted transaction would not
occur.

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

Option premiums and unrealized losses on forward contracts and the accrued
differential for interest rate and currency swaps to be received under the
agreements are recorded in the balance sheet as other assets. Unrealized gains
on forward contracts and the accrued differential for interest rate swaps to be
paid under the agreements are included in other liabilities. Realized gains
and losses from hedges are classified in the income statement consistent with
the accounting treatment of the item being hedged. The Company accrues the
differential for interest rate swaps to be paid or received under the
agreements as interest rates shift as adjustments to net interest expense over
the lives of the swaps. Gains and losses on the termination of effective swap
agreements, prior to their original maturity, are deferred and amortized to net
interest expense over the remaining term of the underlying hedged transactions.
The unamortized deferred balances are not material as of December 31, 2001.

Cash flows from hedges are classified in the Consolidated Statements of
Cash Flows under the same category as the cash flows from the related assets,
liabilities or forecasted transactions (see Notes F and N hereto).

Income Taxes

During 2001 and 2000, the Company projected that a portion of the prior
undistributed earnings of its foreign operations would be in excess of the
funds needed to support its operations in the foreseeable future. As a result,
the Company repatriated approximately $31.4 million and $16.3 million from its
foreign operations in 2001 and 2000, respectively, resulting in an increase in
the Companys effective tax rate reflecting the cost of such repatriations as
the income tax rate in the U.S. is higher than the tax rate in certain foreign
jurisdictions. In 2001, the Company decided that future earnings of certain of
its foreign operations would not be reinvested but rather would be repatriated
to the United States. In the foreseeable future, these earnings will be taxed
based on U.S. statutory rates. No provision has been made for U.S. taxes on
the remaining undistributed earnings of the Companys foreign subsidiaries of
approximately $169.0 million at December 31, 2001 and $182.9 at December 31,
2000, as it is anticipated that such earnings would be reinvested in their
respective operations or in other foreign operations.

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

Advertising Costs

Advertising costs are expensed as incurred and are included in selling,
general and administrative expenses. Total advertising costs for the years
ended December 31, 2001, 2000 and 1999 totaled approximately $27.3 million,
$27.0 million and $27.4 million, respectively.

Earnings (Loss) Per Share

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

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|     |  |                                       |         |        |  |       |        |         |  |         |       |   |  |  |        |  |  |   |       |  
|---- |  | ------------------------------------- | ------- | ------ |  | ----- | ------ | ------- |  | ------- | ----- | - |  |  | ------ |  |  | - | ----- | -
|     |  | Net Earnings                          |         | Basic  |  | Basic |        | Diluted |  | Diluted
|     |  | (Loss)                                |         | Shares |  | EPS   |        | Shares  |  | EPS    
|     |  |                                       |         |        |  |       |        |         |  |        
|     |  | (In thousands, except per share data)
|2001 |  | $                                     | (28,438 | )      |  |       | 23,135 |         |  | $       | (1.23 | ) |  |  | 23,135 |  |  | $ | (1.23 | )
|2000 |  | $                                     | (21,216 | )      |  |       | 22,947 |         |  | $       | (0.92 | ) |  |  | 22,947 |  |  | $ | (0.92 | )
|1999 |  | $                                     | 16,843  |        |  |       | 22,367 |         |  | $       | 0.75  |   |  |  | 23,325 |  |  | $ | 0.72  |  

Included in diluted shares are common stock equivalents relating to
options of 958,730 for 1999. Common stock equivalents have been excluded from
the diluted per share calculations in 2001 and 2000, respectively, as the
Company incurred a net loss in those years and their inclusion would have been
anti-dilutive. Potential common stock equivalents at December 31, 2001 were
4,216,373 with exercise prices ranging from $3.63 to $31.69 per share.

Loss on Sale of Asset

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

Repositioning and Other Charges

2001.     In the fourth quarter of 2001, the Company recorded charges relating
to several events in the aggregate amount of $14.8 million. These charges
included $6.8 million relating to the Companys decision to consolidate its
Shelton, Connecticut office with the headquarters located in Miami Lakes,
Florida, as well as certain back-office and supply chain functions in Canada
and Latin America. This facilities consolidation should result in a reduction
of approximately 80 employees worldwide. In addition, $5.2 million of such
charges related to the write-off of fees and expenses of the Companys
terminated credit facility as the Company executed a new four-year senior
secured revolving credit facility. Also included in the charge were $1.5
million relating to the devaluation of the Argentinean peso and $1.0 million
related to the settlement of the shareholder class action litigation. As of
December 31, 2001, no amounts had been charged against the accrual. In 2002,
the Company expects to incur an additional $10.0 million in charges relating to
its decision to consolidate facilities and functions.

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

In February 2002, Applica Consumer Products, Inc., in cooperation with the
U.S. Consumer Products Safety Commission, voluntarily recalled approximately
2.1 million Black & Decker® two-slice and four-slice toasters. The Companys
Canadian operating subsidiary, Applica Canada Corporation, is also recalling
approximately 180,000 of these toasters in Canada. The Company took a charge
to cost of sales of $13.4 million relating to the estimated expenses of such
recalls. As of December 31, 2001, no amounts had been charged against the
accrual.

2000.     In the fourth quarter of 2000, the Company entered into an alliance
with a consumer packaged goods company to develop, manufacture and distribute
new products. In conjunction with the development arrangement, the Company
expanded its existing manufacturing capacity, exited various non-strategic
product lines, including certain retail personal care items, and re-allocated
Company resources. These activities resulted in non-cash charges totaling
$34.1 million in the fourth quarter of 2000. Charges associated with the
writedown of low margin and non-strategic inventory items total approximately
$30.1 million and were recorded as cost of sales. As of December 31, 2000,
there were outstanding inventory reserves of approximately $8.7 million,
related to these repositioning charges, which resulted from the write down of
inventory to net realizable value. As of December 31, 2001, there were no
outstanding inventory reserves. The remaining $4.0 million of repositioning
charges was included in selling, general and administrative expenses, of which
$3.2 million related to the write down of certain intangible assets associated
with Kmart Corporations decision to terminate its long-term supply contract
for White-Westinghouse® electronic products and the Companys intention not to
re-market such products to another company.

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

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1999.     The Company, in connection with its 1998 acquisition of the Black &
Decker Household Products Group, incurred a repositioning charge totaling $17.2
million, of which $7.7 million was included in 1998 cost of goods sold. The
charge was primarily non-cash and consisted of write-offs of inventory,
goodwill and tooling associated with the Companys decision to exit certain
personal care and other non-core, low-margin products. Also included were
costs associated with the integration of the acquisition. The Company did not
exit one line of business that had been included in the accrued repositioning
costs at December 31, 1998, resulting in a reversal of the prior year charge of
$1.5 million in 1999.

Recent Accounting Pronouncements

In July 2001, the FASB issued Statement of Financial Accounting Standards
No. 141, Business Combinations (SFAS 141) and Statement of Financial
Accounting Standards No. 142, Goodwill and Other Intangible Assets (SFAS
142). SFAS 141 requires all business combinations to be accounted for using
the purchase method of accounting and is effective for all business
combinations initiated after June 30, 2001. SFAS 142 requires goodwill to be
tested for impairment under certain circumstances, and written off when
impaired, rather than being amortized as previous standards required. SFAS 142
is effective for fiscal years beginning after December 15, 2001. SFAS 141 did
not have an effect on the Companys operating results or financial condition
for the year ended December 31, 2001.

The Company will apply the provisions of SFAS No. 142 beginning on January
1, 2002. Application of the non-amortization provisions of SFAS No. 142 will
result in an increase in net earnings of $5.0 million per year. During 2002,
the Company will perform a transitional fair value based impairment test and if
the fair value is less than the recorded value at January 1, 2002, the Company
will record an impairment loss, if any, in the first quarter of 2002 as a
cumulative effect of a change in accounting principle. Such impairment loss
could be material.

In November 2001, the Emerging Issues Task Force reached a consensus on
EITF Issue 01-9 Accounting for Consideration Given by a Vendor to a Customer
including a Reseller of the Vendors Products. Also, in August 2001, the
Financial Accounting Standards Board (FASB) issued Statement of Financial
Accounting Standards (SFAS) No. 144, Accounting for the Impairment or Disposal
of Long-Lived Assets. SFAS No. 144 supersedes SFAS No. 121, Accounting for
the Impairment of Long-Lived Assets and for Long-Lived Assets to be Disposed
Of. SFAS No. 144 retained substantially all of the requirements of SFAS No.
121 while resolving certain implementation issues. SFAS No. 144 is effective
for fiscal years beginning after December 15, 2001. Management believes the
impact of these pronouncements on its operations, if any, will not be material.

NOTE B  INVESTMENT IN JOINT VENTURES

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

At December 31, 2001 and 2000, the Companys investment in Anazazi
Partners totaled approximately $1.4 million and $1.5 million, respectively.
Loans to the partnership and its other equity partner totaled $1.8 million at
December 31, 2001 and 2000 and are included in receivables from affiliates.
The loans bear interest at rates from 8.5% to 9.0%, are collateralized by the
other equity partners interest in the partnership and are payable upon demand.
Anasazis investments include certain privately traded securities whose values
have been estimated by the general partner in the absence of readily
ascertainable market values. Fair value of these securities may differ
significantly from the values that would have been used had a ready market for
the securities existed.

The Companys investment in the limited liability company was not
significant at December 31, 2001. However, the Company has agreed, if certain
conditions are met, to fund up to $1.5 million to such joint venture, of which
$143,000 had been funded at December 31, 2001. The limited liability company
was incorporated in June 2001 to develop, market and distribute a small
electric household appliance.

NOTE C  ACQUISITIONS

In June 1999, the Company purchased substantially all of the assets of
Newtech Electronics Industries, Inc., including inventory, accounts receivable,
certain trademark licenses and other intangibles, as well as assumed certain
specific liabilities relating to the business. Tangible net assets acquired
totaled approximately $15.0 million. At such time, the Company owned a 50%
interest in Newtech. In connection with the acquisition, the Company

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wrote down its remaining investment in Newtech resulting in a one-time
non-cash charge of $12.6 million. The charge was recorded as equity in net
loss of joint ventures in the Companys statement of operations. Under the
terms of the acquisition agreement, the Company acquired the exclusive right
and license to use the White-Westinghouse® trademark in North America for the
design, manufacture, and sale of certain consumer electronic products and was
assigned Newtechs rights under the long-term supply contracts with the Kmart
Corporation in the United States and Zellers in Canada.

In June 2000, the Kmart Corporation exercised its option to terminate its
long-term supply contract with the Company for the sale of consumer electronic
products under the White-Westinghouse trademark in the United States. The
termination will be effective on June 30, 2002. Under the terms of the
agreement, Kmarts minimum purchase requirements for the period July 1, 2001
through June 30, 2002 will be reduced to 25% of the original requirements for
that period. In the fourth quarter of 2001, the Company recorded a write down
of intangible assets (based upon estimated cash flows) of $1.2 million relating
to the bankruptcy of Kmart. In the fourth quarter of 2000, the Company
recorded a write down of intangible assets (based upon estimated cash flows) of
$3.2 million relating to the Companys intention to not re-market the
White-Westinghouse products to another company. The write-downs were included
in repositioning and other charges. See Note L  Concentration of Credit and
Other Risks for information regarding the recent bankruptcy of Kmart
Corporation.

NOTE D  PROPERTY, PLANT AND EQUIPMENT

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

|                              |       |              |                        |   |         |   |                 |         |         |   |        |         | 
|----------------------------- | ----- | ------------ | ---------------------- | - | ------- | - | --------------- | ------- | ------- | - | ------ | ------- | 
|                              |       |              |                        |   |         |   | At December 31,
|                              |       |              |                        |   |         |   |                
|                              |       |              | Useful Lives           |   | 2001    |   | 2000           
|                              |       |              |                        |   |         |   |                
|                              |       |              | (Dollars in thousands)
|Building                      |       | 15-50 years  |                        | $ | 14,668  |   |                 | $       | 14,668  |  
|Building improvements         |       | 8-31 years   |                        |   | 2,574   |   |                 |         | 2,529   |  
|Computer equipment            |       | 3-5 years    |                        |   | 17,111  |   |                 |         | 13,970  |  
|Furniture and equipment       |       | 3-8 years    |                        |   | 124,787 |   |                 |         | 110,280 |  
|Leasehold improvements        |       | 8 years      |                        |   | 20,426  |   |                 |         | 15,795  |  
|Land and land improvements    |       | 15-31 years* |                        |   | 3,732   |   |                 |         | 3,728   |  
|                              |       |              |                        |   |         |   |                 |         |         |   |        |        
|                              | Total |              |                        |   |         |   |                 | 183,298 |         |   |        | 160,970 | 
|Less accumulated depreciation |       |              |                        |   |         |   | 100,961         |         |         |   | 82,770 |        
|                              |       |              |                        |   |         |   |                 |         |         |   |        |        
|                              |       |              |                        |   |         | $ | 82,337          |         |         | $ | 78,200 |        
|                              |       |              |                        |   |         |   |                 |         |         |   |        |        



---

|* |  | Improvements only
|- |  | -----------------

NOTE E  ACCRUED EXPENSES

Accrued expenses are summarized as follows:

|                                      |  |                                 |        |      |  |   |        | 
|------------------------------------- |  | ------------------------------- | ------ | ---- |  | - | ------ | 
|                                      |  | For the Year ended December 31,
|                                      |  |                                
|                                      |  | 2001                            |        | 2000
|                                      |  |                                 |        |     
|                                      |  | (In thousands)                 
|Product recall                        |  | $                               | 13,414 |      |  | $ |       | 
|Salaries and bonuses                  |  |                                 | 13,086 |      |  |   | 8,978  | 
|Promotions and advertising allowances |  |                                 | 7,351  |      |  |   | 8,892  | 
|Warranty                              |  |                                 | 3,689  |      |  |   | 3,392  | 
|Co-op advertising and volume rebates  |  |                                 | 3,297  |      |  |   | 3,407  | 
|Other                                 |  |                                 | 26,134 |      |  |   | 22,434 | 
|                                      |  |                                 |        |      |  |   |        | 
|                                      |  | $                               | 66,971 |      |  | $ | 47,103 | 
|                                      |  |                                 |        |      |  |   |        | 

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NOTE F  BORROWINGS

The Companys borrowings, including interest rate swaps designated as
hedges, are summarized below:

|                              |       |       |         |                        |         |                   |      |           |  |           |        |                         |   |            |        |   |        |  |      |   |  |           |  |  |  | 
|----------------------------- | ----- | ----- | ------- | ---------------------- | ------- | ----------------- | ---- | --------- |  | --------- | ------ | ----------------------- | - | ---------- | ------ | - | ------ |  | ---- | - |  | --------- |  |  |  | 
|                              |       |       |         |                        |         |                   |      |           |  |           |        | Interest Rate Swaps (2) |   |            |        |   |        |  |      |  
|                              |       |       |         |                        |         |                   |      | Stated    |  |           |        | Effective               |   | Swap      
|                              |       |       |         | Balance                |         | Interest Rate (1) |      | Pay Float |  | Pay Fixed |        | Interest Rate (3)       |   | Maturities
|                              |       |       |         |                        |         |                   |      |           |  |           |        |                         |   |           
|                              |       |       |         | (Dollars in thousands)
|At December 31, 2001:         |       |       |         |                        |         |                   |      |           |  |           |        |                         |   |            |        |   |        |  |      |   |  |           |  | 
|Revolving Credit Facility     |       | $     | 90,709  |                        |         |                   | 5.1  | %         |  | $         |       |                         |   | $          | 59,000 |   |        |  | 6.6  | % |  | July 2003
|10% Senior Subordinated
Notes |       |       | 130,000 |                        |         |                   | 10.0 | %         |  |           | 80,000 |                         |   |            |        |   |        |  | 7.6  | % |  | July 2008
|Foreign Indebtedness          |       |       | 4,986   |                        |         |                   | 2.6  | %         |  |           |       |                         |   |            |       |   |        |  | 2.6  | % |  |           |  | 
|Other                         |       |       | 31      |                        |         |                   |      |           |  |           |       |                         |   |            |       |   |        |  |      |   |  |           |  | 
|                              |       |       |         |                        |         |                   |      |           |  |           |        |                         |   |            |        |   |        |  |      |   |  |           |  | 
|                              | Total |       |         | 225,726                |         |                   |      |           |  |           |        |                         |   |            |        |   |        |  |      |   |  |           |  |  | 
|Less current maturities       |       |       |        |                        |         |                   |      |           |  |           |        |                         |   |            |        |   |        |  |      |   |  |           |  | 
|                              |       |       |         |                        |         |                   |      |           |  |           |        |                         |   |            |        |   |        |  |      |   |  |           |  | 
|Total long-term debt          |       | $     | 225,726 |                        |         |                   |      |           |  | $         | 80,000 |                         |   | $          | 59,000 |   |        |  |      |   |  |           |  | 
|                              |       |       |         |                        |         |                   |      |           |  |           |        |                         |   |            |        |   |        |  |      |   |  |           |  | 
|At December 31, 2000:         |       |       |         |                        |         |                   |      |           |  |           |        |                         |   |            |        |   |        |  |      |   |  |           |  | 
|Revolving Credit Facility     |       |       | 34,673  |                        |         |                   | 8.2  | %         |  |           |       |                         |   | $          | 20,000 |   |        |  | 8.5  | % |  | July 2002
|Senior Secured Tranche A      |       |       | 53,785  |                        |         |                   | 8.2  | %         |  |           |       |                         |   |            |       |   |        |  | 8.2  | % |  |           |  | 
|Senior Secured Tranche B      |       |       | 60,531  |                        |         |                   | 9.2  | %         |  |           |       |                         |   |            |       |   |        |  | 9.2  | % |  |           |  | 
|10% Senior Subordinated
Notes |       |       | 130,000 |                        |         |                   | 10.0 | %         |  |           |       |                         |   |            |       |   |        |  | 10.0 | % |  |           |  | 
|                              |       |       |         |                        |         |                   |      |           |  |           |        |                         |   |            |        |   |        |  |      |   |  |           |  | 
|                              |       | Total |         |                        | 278,989 |                   |      |           |  |           |        |                         |  |            |        | $ | 20,000 |  |      |   |  |           |  |  |  | 
|Less current maturities       |       |       | 18,842  |                        |         |                   |      |           |  |           |        |                         |   |            |        |   |        |  |      |   |  |           |  | 
|                              |       |       |         |                        |         |                   |      |           |  |           |        |                         |   |            |        |   |        |  |      |   |  |           |  | 
|Total long-term debt          |       | $     | 260,147 |                        |         |                   |      |           |  |           |       |                         |   | $          | 20,000 |   |        |  |      |   |  |           |  | 
|                              |       |       |         |                        |         |                   |      |           |  |           |        |                         |   |            |        |   |        |  |      |   |  |           |  | 



---

|(1) |  | The stated interest rate represents the coupon rate for the Subordinated
Notes. For floating rate borrowings, interest rates are based upon the
rates at December 31, 2001 and 2000; these rates are not necessarily an
indication of future interest rates.
|--- |  | ------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
|   
|(2) |  | Amounts represent notional values of interest rate swaps.                                                                                                                                                                                                   
|   
|(3) |  | The effective interest rate is the weighted average interest rate after
taking into consideration the effect of interest rate swaps entered into
with respect to certain of those borrowings as indicated in the Pay
Float and Pay Fixed columns.       

Revolving Credit Facility

On December 28, 2001, the Company replaced its current revolving credit
and term debt facilities with a new $205 million four-year asset-based senior
secured revolving credit facility (the Credit Facility). The Credit Facility
includes a $10.0 million sublimit for the issuance of letters of credit. All
amounts outstanding under the Credit Facility are payable on December 28, 2005.

At the Companys option, interest accrues on the loans made under the
Credit Facility at either:



| |  |  | LIBOR (adjusted for any reserves), plus a specified margin which is
determined by the Companys leverage ratio and is currently set at
2.35% (4.22% at December 31, 2001), or
| | - |  | -----------------------------------------------------------------------------------------------------------------------------------------------------------------------------
|
| |  |  | the Base Rate (which is Bank of Americas prime rate), plus a
specified margin, currently 0.35% (5.10% at December 31, 2001).                                                

Swing loans bear interest at the Base Rate, plus a specified margin, currently
0.35% (5.10% at December 31, 2001). The Company may at its option reduce the
amount available under the Credit Facility to the extent such amounts are
unused or prepaid in certain minimum amounts.

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

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

10% Senior Subordinated Notes Due 2008

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

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

Foreign Indebtedness

Certain of the Companys foreign subsidiaries have approximately $39.5
million trade finance lines of credit, payable on demand, which are
collateralized by the subsidiaries assets and in some cases, a guarantee of
Applica Incorporated. At December 31, 2001 and 2000, the foreign subsidiaries
were using approximately $7.3 million and $37.9 million, respectively, under
these credit lines, of which $2.3 million and $17.8 million, respectively, was
for trade financing. At December 31, 2000, $13.4 million of foreign
indebtedness was classified as notes and acceptances. No foreign indebtedness
was classified as notes and acceptances at December 31, 2001.

NOTE G  EMPLOYEE BENEFIT PLANS

The Company has a 401(k) plan for its employees to which the Company makes
discretionary contributions at rates dependent on the level of each employees
contributions. Contributions made by the Company are limited to the maximum
allowable for federal income tax purposes. The amounts charged to earnings for
this plan during the years ended December 31, 2001, 2000 and 1999 totaled
approximately $766,000, $761,000 and $675,000, respectively.

The Company does not provide any health or other benefits to retirees,
except for executive life insurance provided to Mr. Belvin Freidson, the
founder of the Company.

NOTE H  INCOME TAXES

Income tax expense (benefit) consists of the following:

|         |         |   |                 |        |      |   |        |       |  |   |        |        |  
|-------- | ------- | - | --------------- | ------ | ---- | - | ------ | ----- |  | - | ------ | ------ | -
|         |         |   | At December 31,
|         |         |   |                
|         |         |   | 2001            |        | 2000 |   | 1999  
|         |         |   |                 |        |      |   |       
|         |         |   | (In thousands) 
|Current: |         |   |                 |        |      |   |        |       |  |   |        |       
|         | Federal |   | $               |       |      |   | $      |      |  |   | $      | (567   | )
|         | Foreign |   |                 | 12,754 |      |   |        | 6,764 |  |   |        | 10,658 |  
|         | State   |   |                 |       |      |   |        |      |  |   |        | 48     |  
|         |         |   |                 |        |      |   |        |       |  |   |        |        |  
|         |         |   | 12,754          |        |      |   | 6,764  |       |  |   | 10,139 |       
|Deferred |         |   | (8,608          | )      |      |   | (8,306 | )     |  |   | (5,962 | )     
|         |         |   |                 |        |      |   |        |       |  |   |        |        |  
|         |         | $ | 4,146           |        |      | $ | (1,542 | )     |  | $ | 4,177  |       
|         |         |   |                 |        |      |   |        |       |  |   |        |        |  

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

|              |  |                                 |         |      |  |      |         |   |  |   |         |  
|------------- |  | ------------------------------- | ------- | ---- |  | ---- | ------- | - |  | - | ------- | -
|              |  | For the Year ended December 31,
|              |  |                                
|              |  | 2001                            |         | 2000 |  | 1999
|              |  |                                 |         |      |  |     
|              |  | (In thousands)                 
|United States |  | $                               | (46,484 | )    |  | $    | (52,210 | ) |  | $ | (13,554 | )
|Foreign       |  |                                 | 22,192  |      |  |      | 29,452  |   |  |   | 34,574  |  
|              |  |                                 |         |      |  |      |         |   |  |   |         |  
|              |  | $                               | (24,292 | )    |  | $    | (22,758 | ) |  | $ | 21,020  |  
|              |  |                                 |         |      |  |      |         |   |  |   |         |  

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

|                                                                                                  |  |                                 |       |      |  |      |       |   |  |  |       |  
|------------------------------------------------------------------------------------------------- |  | ------------------------------- | ----- | ---- |  | ---- | ----- | - |  |  | ----- | -
|                                                                                                  |  | For the Year ended December 31,
|                                                                                                  |  |                                
|                                                                                                  |  | 2001                            |       | 2000 |  | 1999
|                                                                                                  |  |                                 |       |      |  |     
|Statutory rate                                                                                    |  |                                 | 35.0  | %    |  |      | 34.0  | % |  |  | 34.0  | %
|Foreign (income) loss not subject to tax                                                          |  |                                 | 7.4   |      |  |      | 2.4   |   |  |  | (1.5  | )
|Net tax rate differential on undistributed foreign
earnings and change in estimated tax provision |  |                                 | (16.5 | )    |  |      | 6.7   |   |  |  | (22.6 | )
|Foreign earnings distributed to or taxable in the U.S                                             |  |                                 | (69.0 | )    |  |      | (27.6 | ) |  |  | 3.7   |  
|Effect of foreign tax credits                                                                     |  |                                 | 27.4  |      |  |      | 5.0   |   |  |  |      |  
|Equity in joint ventures (earnings) loss not subject
to U.S. tax or already taxed                 |  |                                 |      |      |  |      | (0.6  | ) |  |  | 5.6   |  
|State income tax benefits                                                                         |  |                                 | 1.8   |      |  |      | 3.6   |   |  |  | 3.2   |  
|Change in valuation allowance                                                                     |  |                                 |      |      |  |      | (19.9 | ) |  |  |      |  
|Other                                                                                             |  |                                 | (3.2  | )    |  |      | 3.2   |   |  |  | (2.5  | )
|                                                                                                  |  |                                 |       |      |  |      |       |   |  |  |       |  
|                                                                                                  |  |                                 | (17.1 | )%   |  |      | 6.8   | % |  |  | 19.9  | %
|                                                                                                  |  |                                 |       |      |  |      |       |   |  |  |       |  

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

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

|                                            |                         |   |                 |        |      |   |         |        | 
|------------------------------------------- | ----------------------- | - | --------------- | ------ | ---- | - | ------- | ------ | 
|                                            |                         |   | At December 31,
|                                            |                         |   |                
|                                            |                         |   | 2001            |        | 2000
|                                            |                         |   |                 |        |     
|                                            |                         |   | (In thousands) 
|Inventory differences                       |                         | $ | (1,636          | )      |      | $ | 217     |       
|Accrued expenses                            |                         |   | 25,285          |        |      |   | 14,438  |       
|                                            |                         |   |                 |        |      |   |         |       
|                                            | Total current assets    |   |                 | 23,649 |      |   |         | 14,655 | 
|Net operating loss and other carryforwards  |                         |   | 22,309          |        |      |   | 19,145  |       
|Fixed assets, depreciation and amortization |                         |   | (16,425         | )      |      |   | (17,611 | )     
|Deferred income (see Note M  Salton, Inc.) |                         |   | 2,171           |        |      |   | 2,171   |       
|                                            |                         |   |                 |        |      |   |         |       
|                                            | Net non-current assets  |   |                 | 8,055  |      |   |         | 3,705  | 
|                                            |                         |   |                 |        |      |   |         |       
|                                            | Net deferred tax assets |   | $               | 31,704 |      |   | $       | 18,360 | 
|                                            |                         |   |                 |        |      |   |         |       

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

At December 31, 2001, the Company had net operating loss carryforwards
(NOLs) of approximately $29.3 million for domestic federal income tax
purposes and $4.5 million for foreign income tax purposes. The majority of the
domestic NOLs have expiration dates commencing in 2019. The foreign NOLs are
of various durations, some of which do not expire. The Company also has NOLs
in numerous states that have a tax benefit of $2.2 million, after valuation
allowances of $2.4 million in both 2001 and 2000, respectively. In addition,
the

F-16



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##### Table of Contents



Company has U.S. foreign tax credits of $8.5 million, of which $1.9
million has been reserved as of December 31, 2001 and 2000. The Company has
established valuation allowances against the state NOLs and U.S. tax credits as
these benefits expire in five years or less, and it is more likely than not
that the benefits will not be realized prior to expiration.

NOTE I  COMMITMENTS AND CONTINGENCIES

Litigation

Shareholder Litigation. Applica Incorporated is a defendant in Sherleigh
Associates LLC and Sherleigh Associates Inc. Profit Sharing Plan, on their own
behalf and on behalf of all others similarly situated v. Windmere-Durable
Holdings, Inc., David M. Friedson and Nationsbanc Montgomery Securities LLC,
98-2273-CIV-LENARD which was filed in the United States District Court,
Southern District of Florida on October 8, 1998.

This matter is a class action complaint, which is the consolidation of
eight separate class action complaints with substantially similar allegations
filed in 1998. The complaint alleges violations of the federal securities laws
(including Rule 10b-5 promulgated pursuant to the Securities Exchange Act of
1934, as amended) in connection with the acquisition by the Company of the
Household Products Group of The Black & Decker Corporation. Among other
things, the plaintiffs allege that the Company and certain of its directors and
officers, along with its underwriters, NationsBanc Montgomery Securities LLC,
provided false information in connection with a public offering of debt and
equity securities. The plaintiffs seek, among other relief, to be declared a
class, to be awarded compensatory damages, rescission rights, unspecified
damages and attorneys fees and costs. The court has provisionally certified
the class of plaintiffs who purchased Company stock between May 12, 1998 and
September 22, 1998.

In connection with the Household Products Group acquisition, the Company
also received two derivative demands from certain shareholders alleging breach
of fiduciary duties by certain of our officers and directors. On November 29,
2001, a derivative action was filed in the Circuit Court of the Eleventh
Judicial Circuit in and for Miami-Dade County, Florida. The Board of
Directors appointed an independent committee of directors to review the
derivative claims, which concluded that the allegations in the demand letters
were without merit and that, therefore, the Board should not direct management
to initiate litigation on the Companys behalf or initiate such action itself.

In January 2002, the Company reached an agreement in principle to settle
the securities class action litigation filed in 1998 against it and certain of
its officers in the United States District Court for the Southern District of
Florida and the related derivative claims for approximately $11.0 million in
cash. The Company took a charge of approximately $1.0 million in the fourth
quarter of 2001 for expenses related to the litigation, which is reflected as
part of repositioning and other charges under selling, general and
administrative expenses in the consolidated statement of operations. All other
amounts related to the settlement of the litigation are expected to be covered
under the Companys insurance policies. Under the terms of the settlement, all
claims against the Company and all other defendants will be dismissed without
any admission of liability or wrongdoing. Settlement is subject to final
documentation and court approval. Failure of the court to approve the
settlement could result in significant changes in estimated exposures. Details
regarding the shareholder litigation settlement will be communicated to
potential class members prior to final court approval.

Salton Litigation. The Company is also a defendant in Salton, Inc. v
Windmere-Durable Holdings, Inc. and Windmere Corporation, which was filed in
the United States District Court, Northern District of Illinois.

In January 2001, Salton, Inc. filed suit against the Company alleging
breach of a non-competition agreement. In connection with the sale to Salton
of the Companys 50% interest in Salton, Salton issued a $15 million promissory
note to the Company as part of the purchase price. The Company also entered
into an agreement with Salton whereby Salton agreed to pay the Company 50% of
its profits on the sales to Kmart Corporation of White-Westinghouse® electric
kitchen appliances. Salton is alleging that the Company has breached the
non-compete provision of such agreement. Salton is further alleging that, as
the result of the Companys actions, Kmart has ceased buying
White-Westinghouse® products from Salton to Saltons detriment. Discovery
procedures have been initiated and are ongoing.

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Salton is requesting compensatory and punitive damages, attorneys fees
and costs, and cancellation of the $15 million note. Salton has also
purportedly terminated its agreement with the Company for the payment of 50% of
the profits from its sale of White-Westinghouse® products to Kmart. The
Company recorded approximately $5.7
million and $2.6 million of income under this agreement in 2000 and 1999,
respectively. No income was recognized in 2001. Management believes that the
amount of ultimate liability, if any, is not likely to have a material effect
on the Companys business, financial condition or results of operations.
However, as the outcome of litigation is difficult to predict, significant
changes in the estimated exposures could occur.

Toaster Recall. In February 2002, Applica Consumer Products, Inc., in
cooperation with the U.S. Consumer Products Safety Commission, voluntarily
recalled approximately 2.1 million Black & Decker® two-slice and four-slice
toasters. The heating elements in these toasters can continue to operate after
use, posing a potential fire hazard. The Companys Canadian operating
subsidiary, Applica Canada Corporation, is also recalling approximately 180,000
of these toasters in Canada. Management has charged operations with an
estimated reserve of $13.4 million for these recalls and does not believe the
ultimate liability will be materially different.

Currently, no litigation has been filed in connection with property damage
or bodily injury relating to the recalled toasters, however, several claims
have been made. We believe that the amount of ultimate liability of these
claims, if any, is not likely to have a material effect on our business,
financial condition or results of operations. However, as the outcome of
litigation is difficult to predict, significant changes in the estimated
exposures could occur.

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

Employment Agreements

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

Leases

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

|           |  |                |        | 
|---------- |  | -------------- | ------ | 
|           |  | (In thousands)
|2002       |  | $              | 3,752  | 
|2003       |  |                | 3,752  | 
|2004       |  |                | 3,760  | 
|2005       |  |                | 3,489  | 
|2006       |  |                | 2,260  | 
|Thereafter |  |                | 3,788  | 
|           |  |                |        | 
|           |  | $              | 20,801 | 
|           |  |                |        | 

Rent expense for the years ended December 31, 2001, 2000 and 1999 totaled
approximately $4.9 million, $4.8 million and $4.1 million, respectively.

Durables facilities in China are operated under contracts with the local
government, with terms between two and ten years.

License Agreement

The Company licenses the Black & Decker® brand for use in marketing
products in North America, Central America, South America (excluding Brazil),
and the Caribbean. In July 2001, the Company and The Black & Decker
Corporation entered into an extension of the trademark license agreement
through December 31, 2006. Under the agreement as extended, the Company agreed
to pay certain fees and guaranteed minimum royalty payments to The Black &
Decker Corporation of $1.2 million in 2001, $2.0 million in 2002, $5.0 million
in 2003 and $12.5 million in each year thereafter through 2006. Renewals of
the license agreement, if mutually agreed upon, are for five-year periods. If
The Black & Decker Corporation does not agree to renew the license agreement,
the Company has 18 months to transition out of the product line. No
minimum royalty payments will be due during such transition period.

F-18



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##### Table of Contents



Other

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

NOTE J  SHAREHOLDERS EQUITY

Stock Options

The Companys 1992 Stock Option Plan provides for granting of incentive
options to acquire not more than 500,000 shares of common stock. This plan
expired in December 2001.

The Companys 1996 Stock Option Plan provides for the granting of
incentive stock options for employees and non-qualified stock options for
employees, consultants and directors. The Companys 1998 Stock Option Plan also
provides for the granting of non-qualified stock options to employees,
consultants and directors. A total of 850,000 shares and 2,100,000 shares of
common stock have been reserved for issuance under the 1996 and 1998 stock
option plans, respectively.

In May 2000, the Companys shareholders approved and ratified the 2000
Stock Option Plan. The 2000 plan provides for the granting of incentive stock
options for employees and non-qualified stock options for employees,
consultants and directors. A total of 1,000,000 shares have been reserved
under the plan.

The terms of stock options granted under the plans are determined by the
Compensation Committee of the Board of Directors at the time of grant,
including the exercise price, term and any restrictions on the exercisability
of such option. The exercise price of all options granted under the plans
equals the market price at the date of grant and no option is exercisable after
the expiration of ten years from the date of grant. No compensation expense
was recognized upon either the grant or exercise of these stock options.

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

The Companys net earnings (loss) and earnings (loss) per share would have
been changed to the pro forma amounts indicated below had compensation cost for
the stock option plans and non-qualified options issued to employees been
determined based on the fair value of the options at the grant dates consistent
with the method of SFAS 123:

|                                   |             |  |                                       |         |      |  |      |         |   |  |   |        | 
|---------------------------------- | ----------- |  | ------------------------------------- | ------- | ---- |  | ---- | ------- | - |  | - | ------ | 
|                                   |             |  | 2001                                  |         | 2000 |  | 1999
|                                   |             |  |                                       |         |      |  |     
|                                   |             |  | (In thousands, except per share data)
|Net earnings (loss):               |             |  |                                       |         |      |  |      |         |   |  |   |       
|                                   | As reported |  | $                                     | (28,438 | )    |  | $    | (21,216 | ) |  | $ | 16,843 | 
|                                   | Pro forma   |  | $                                     | (33,113 | )    |  | $    | (27,157 | ) |  | $ | 10,305 | 
|Basic earnings (loss) per share:   |             |  |                                       |         |      |  |      |         |   |  |   |       
|                                   | As reported |  | $                                     | (1.23   | )    |  | $    | (0.92   | ) |  | $ | 0.75   | 
|                                   | Pro forma   |  | $                                     | (1.43   | )    |  | $    | (1.18   | ) |  | $ | 0.46   | 
|Diluted earnings (loss) per share: |             |  |                                       |         |      |  |      |         |   |  |   |       
|                                   | As reported |  | $                                     | (1.23   | )    |  | $    | (0.92   | ) |  | $ | 0.72   | 
|                                   | Pro forma   |  | $                                     | (1.43   | )    |  | $    | (1.18   | ) |  | $ | 0.44   | 

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

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Per the requirements of SFAS 123, the fair value of each option grant was
estimated on the date of grant using the binomial option-pricing model with the
following weighted-average assumptions used for grants in 2001, 2000 and 1999,
respectively: dividend yield of 0% for all years; expected volatility ranging
from 82.9% to 86.0% for 2001, 77.04% to 79.46% for 2000, and 74.99% to 78.86%
for 1999; risk-free interest rates of 5.25% in 2001, 6.75% in 2000 and 6.5% in
1999; and expected holding periods of 4 years in 2001, 2000 and 1999.

Information with respect to stock option activity is as follows:

|                                                               |  |             |       |       |  |             |       |       |  |             |       |           |  |   |       |  |  |           |       |   |  |   |       | 
|-------------------------------------------------------------- |  | ----------- | ----- | ----- |  | ----------- | ----- | ----- |  | ----------- | ----- | --------- |  | - | ----- |  |  | --------- | ----- | - |  | - | ----- | 
|                                                               |  | 2001        |       | 2000  |  | 1999       
|                                                               |  |             |       |       |  |            
|                                                               |  |             |       |       |  | Weighted-   |       |       |  |             |       | Weighted- |  |   |       |  |  | Weighted-
|                                                               |  |             |       |       |  | Average     |       |       |  |             |       | Average   |  |   |       |  |  | Average  
|                                                               |  |             |       |       |  | Exercise    |       |       |  |             |       | Exercise  |  |   |       |  |  | Exercise 
|                                                               |  | Shares(000) |       | Price |  | Shares(000) |       | Price |  | Shares(000) |       | Price    
|                                                               |  |             |       |       |  |             |       |       |  |             |       |          
|Outstanding at beginning of year                               |  |             | 4,343 |       |  | $           | 12.46 |       |  |             | 4,088 |           |  | $ | 11.70 |  |  |           | 4,165 |   |  | $ | 11.78 | 
|Granted                                                        |  |             | 177   |       |  | $           | 7.76  |       |  |             | 842   |           |  | $ | 4.87  |  |  |           | 472   |   |  | $ | 8.92  | 
|Exercised                                                      |  |             | (128  | )     |  | $           | 6.27  |       |  |             | (442  | )         |  | $ | 15.13 |  |  |           | (339  | ) |  | $ | 6.65  | 
|Forfeited                                                      |  |             | (176  | )     |  | $           | 7.50  |       |  |             | (145  | )         |  | $ | 9.64  |  |  |           | (210  | ) |  | $ | 15.55 | 
|                                                               |  |             |       |       |  |             |       |       |  |             |       |           |  |   |       |  |  |           |       |   |  |   |       | 
|Outstanding at end of year                                     |  |             | 4,216 |       |  | $           | 12.67 |       |  |             | 4,343 |           |  | $ | 12.46 |  |  |           | 4,088 |   |  | $ | 11.70 | 
|                                                               |  |             |       |       |  |             |       |       |  |             |       |           |  |   |       |  |  |           |       |   |  |   |       | 
|Options exercisable at end of year                             |  |             | 3,546 |       |  |             |       |       |  |             | 2,776 |           |  |   |       |  |  |           | 1,723 |   |  |   |       | 
|Weighted-average fair value of
options granted during the year |  | $           | 5.44  |       |  |             |       |       |  | $           | 3.03  |           |  |   |       |  |  | $         | 5.51  |   |  |   |       | 

The following information applies to options outstanding at December 31,
2001:

|                |  |                     |       |                     |  |             |     |             |  |       |        |  |  |           |       |  |  |   |        | 
|--------------- |  | ------------------- | ----- | ------------------- |  | ----------- | --- | ----------- |  | ----- | ------ |  |  | --------- | ----- |  |  | - | ------ | 
|                |  | Options Outstanding |       | Options Exercisable
|                |  |                     |       |                    
|                |  |                     |       |                     |  | Weighted-   |     |             |  |       |        |  |  |           |       |  |  |  
|                |  |                     |       |                     |  | Average     |     | Weighted-   |  |       |        |  |  | Weighted-
|                |  |                     |       |                     |  | Remaining   |     | Average     |  |       |        |  |  | Average  
|                |  |                     |       |                     |  | Contractual |     | Exercise    |  |       |        |  |  | Exercise 
|                |  | Shares(000)         |       | Life                |  | Price       |     | Shares(000) |  | Price
|                |  |                     |       |                     |  |             |     |             |  |      
|$3.63 - $6.25   |  |                     | 782   |                     |  |             | 4.5 |             |  | $     | 3.741  |  |  |           | 710   |  |  | $ | 3.703  | 
|$6.38 - $8.56   |  |                     | 1,709 |                     |  |             | 3.9 |             |  | $     | 7.324  |  |  |           | 1,227 |  |  | $ | 7.294  | 
|$9.85 - $12.45  |  |                     | 223   |                     |  |             | 3.0 |             |  | $     | 11.371 |  |  |           | 133   |  |  | $ | 11.483 | 
|$12.81 - $14.88 |  |                     | 135   |                     |  |             | 4.9 |             |  | $     | 13.840 |  |  |           | 113   |  |  | $ | 13.787 | 
|$16.25          |  |                     | 5     |                     |  |             | 4.0 |             |  | $     | 16.306 |  |  |           | 1     |  |  | $ | 16.464 | 
|$24.50          |  |                     | 1,345 |                     |  |             | 1.3 |             |  | $     | 24.500 |  |  |           | 1,345 |  |  | $ | 24.500 | 
|$31.69          |  |                     | 17    |                     |  |             | 6.4 |             |  | $     | 31.688 |  |  |           | 17    |  |  | $ | 31.688 | 
|                |  |                     |       |                     |  |             |     |             |  |       |        |  |  |           |       |  |  |   |        | 
|                |  |                     | 4,216 |                     |  |             |     |             |  |       |        |  |  |           | 3,546 |  |  |   |        | 
|                |  |                     |       |                     |  |             |     |             |  |       |        |  |  |           |       |  |  |   |        | 

Employee Stock Purchase Plan

In May 2000, the Companys shareholders authorized up to 500,000 shares of
common stock for the 2000 Employee Stock Purchase Plan. Under the plan,
eligible employees may elect to participate on January 1 or July 1 of each year
(except in 2000, when the election date was August 1, 2000). Subject to
certain limitations determined in accordance with calculations set forth in the
plan, an eligible employee is granted a right to purchase shares of common
stock (up to a maximum of 1,000 shares) on the last business day on or before
each June 30 and December 31 of any year during which he or she is a
participant. The option exercise price per share will be an amount equal to
85% of the lower of the market price on the first day of the offering period or
the market price on the exercise date, unless the participants entry date is
not the first day of the offering period, in which case the exercise price will
be an amount equal to 85% of the lower of the market price of the common stock
on the entry date or the market price on the exercise date. As of December 31,
2001 and 2000, 109,465 and 41,815 shares, respectively, of common stock had been
issued under the plan.

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Common Stock Purchase Rights Plan

In March 1995, the Company implemented a Common Stock Purchase Rights Plan
and distributed one Right for each share of the Companys common stock
outstanding. In March 1999, the Companys Board of
Directors approved and adopted an amended and restated version of such
plan. The Rights are not exercisable or transferable, apart from the Companys
common stock, until after a person or group acquires, or has the right to
acquire, beneficial ownership of 15% or more of the Companys common stock
(which threshold may, under certain circumstances, be reduced to 10%) or
announces a tender or exchange offer to acquire such percentage of the
Companys common stock. As amended in March 1999, each Right entitles the
holder to purchase one share of common stock at an exercise price of $50.00 per
share and contains provisions that entitle the holder in the event of specific
transactions, to purchase common stock of the Company or any acquiring or
surviving entity at one-half of market price as determined under the terms of
the Rights Agreement. The Rights will expire in March 2005, unless previously
exercised or redeemed at the option of the Company for $.00001 per Right.

NOTE K  BUSINESS SEGMENT AND GEOGRAPHIC AREA INFORMATION

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

Previously reported segment information for 2000 and 1999 has been
restated to conform to year-end 2001 presentation.

Geographic Information

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

|                   |                           |                                 |         |                |         |      |         |          |         |   |         |          |         | 
|------------------ | ------------------------- | ------------------------------- | ------- | -------------- | ------- | ---- | ------- | -------- | ------- | - | ------- | -------- | ------- | 
|                   |                           |                                 |         | 2001           |         | 2000 |         | 1999    
|                   |                           |                                 |         |                |         |      |         |         
|                   |                           |                                 |         | (In thousands)
|Revenues:          |                           |                                 |         |                |         |      |         |          |         |   |         |         
|                   | United States operations  |                                 | $       | 485,843        |         |      | $       | 502,564  |         |   | $       | 512,250  |        
|                   | International operations: |                                 |         |                |         |      |         |          |         |   |         |          |        
|                   |                           | Sales to unaffiliated customers |         |                | 241,201 |      |         |          | 246,187 |   |         |          | 206,059 | 
|                   |                           | Sales  intercompany            |         |                | 312,591 |      |         |          | 342,361 |   |         |          | 226,437 | 
|                   | Eliminations              |                                 |         | (312,591       | )       |      |         | (342,361 | )       |   |         | (226,437 | )      
|                   |                           |                                 |         |                |         |      |         |          |         |   |         |          |        
|                   |                           | $                               | 727,044 |                |         | $    | 748,751 |          |         | $ | 718,309 |         
|                   |                           |                                 |         |                |         |      |         |          |         |   |         |          |        
|Long-lived assets: |                           |                                 |         |                |         |      |         |          |         |   |         |         
|                   | United States operations  |                                 | $       | 789,693        |         |      | $       | 792,074  |         |   |         |          |        
|                   | International operations  |                                 |         | 170,868        |         |      |         | 142,662  |         |   |         |          |        
|                   | Eliminations              |                                 |         | (669,020       | )       |      |         | (627,096 | )       |   |         |          |        
|                   |                           |                                 |         |                |         |      |         |          |         |   |         |         
|                   |                           | Consolidated assets             |         | $              | 291,541 |      |         | $        | 307,640 |   |         |          |         | 
|                   |                           |                                 |         |                |         |      |         |          |         |   |         |         

Intercompany sales are billed at negotiated prices established by the
Company. All United States revenues are derived from sales to unaffiliated
customers. Included in United States operations are certain sales derived from
direct product shipments from Hong Kong to customers located in the United
States.

NOTE L  CONCENTRATION OF CREDIT AND OTHER RISKS

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

Wal-Mart Corporation accounted for 24.3%, 21.4% and 21.3% of 2001, 2000
and 1999 sales, respectively.

A majority of the Companys revenue is generated from the sale of Black &
Decker® branded products, which represented approximately 63%, 60% and 56% of
consolidated sales in 2001, 2000 and 1999, respectively.

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The Companys allowance for doubtful accounts is based on managements
estimates of the creditworthiness of its customers, and, in the opinion of
management is believed to be set in an amount sufficient to respond to normal
business conditions. Should such conditions deteriorate or any major credit
customer default on its obligations to the Company, this allowance may need to
be increased which may have an adverse impact upon the Companys earnings.

On January 22, 2002, Kmart Corporation, a significant customer of the
Company, filed a petition for voluntary bankruptcy under Chapter 11 of the U.S.
Bankruptcy Code. Accounts receivable from Kmart Corporation at December 31,
2001, which were uninsured and remained uncollected at January 22, 2002
amounted to approximately $5.0 million. Management has estimated the allowance
for doubtful accounts required for the possible uncollectibility of this
amount.

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

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

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

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

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

NOTE M  RELATED PARTY TRANSACTIONS

The Company has used the services of Top Sales Company, Inc. (Top
Sales), an independent sales representative, since 1978. A member of the
Companys Board of Directors was the sole shareholder and Chief Executive
Officer of Top Sales until January 2001. The Company made commission and
consulting payments to Top Sales of $2,521, $351,700 and $350,000 in 2001,
2000 and 1999, respectively. The Company also uses the services of TJK Sales,
Inc. (TJK), an independent sales representative, the president of which is
also a member of the Companys Board of Directors. Commissions and consulting
payments to TJK totaled $179,000, $199,000 and $342,000 in 2001, 2000 and 1999,
respectively. The Company also reimburses Top Sales and TJK for out-of-pocket
expenses.

Included in receivables from affiliates at December 31, 2001 and 2000 are
$1.8 million and $1.3 million, respectively, due from certain of the Companys
executive officers. Such amounts are due upon demand or upon termination of
the applicable employment contract, and bear interest at the prevailing market
rate.

On April 14, 1999, the Company sold 210,000 shares of authorized Common
Stock at the fair market value of $7.125 per share to its Chairman and Chief
Executive Officer in exchange for a collateralized promissory note. The note
is on a full recourse basis, with a maturity of three years from the date of
purchase and bears interest at LIBOR plus 2.75% (4.62% at December 31, 2001).
The amount due to the Company, including accrued interest, at December 31, 2001
and 2000 was $1.8 million and $1.7 million, respectively. In February 2002,
the maturity date of such loan was extended until April 2005.

Pursuant to his employment agreement, Belvin Friedson, the founder of the
Company, agreed to provide advisory services to the Company subsequent to his
resignation as Chief Executive Officer. In 2001, 2000 and 1999, Mr. Friedson
received annual compensation from the Company of $375,000 under such agreement,
which was executed in 1983. He also participated in the Companys executive
life insurance plan and had use of a Company car. Mr. Friedson is the father
of David Friedson, the Companys Chairman of the Board and Chief Executive
Officer.

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

Salton, Inc.

In July 1998, the Company consummated the sale of its 6,535,072 shares of
common stock of Salton, Inc. representing a 50% interest. The shares were sold
for $12 per share in cash plus a $15.0 million subordinated promissory note.
The note has a term of six and one-half years and bears interest at 4% per
annum. The note is subject to offset of 5% of the total purchase price paid by
Salton for product purchases made during the term of the note from the Company,
and accordingly, the Company has deferred the gain related to this note. The
note is also subject to cancellation in the event that Saltons supply
agreement with Kmart Corporation is terminated for any reason. See Note I 
Commitments and Contingencies for information regarding the outstanding
litigation with Salton, Inc.

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NOTE N  FINANCIAL INSTRUMENTS

Interest Rate Risk Management

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

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

Significant interest rate risk management instruments held by the Company
during 2001 and 2000 included pay-floating swaps, pay-fixed swaps and interest
rate caps. The pay-floating swap effectively converts medium term obligations
to LIBOR-rate indexed variable-rate instruments. Pay-fixed swaps effectively
convert floating-rate obligations to fixed-rate instruments. Interest rate caps
provide protection against rising interest rates. All swaps have maturity
dates that mirror the maturity date of the underlying hedged transaction. At
December 31, 2001 and 2000, the Company did not discontinue any hedges due to
the probability that the original underlying forecasted transaction would not
occur.

The impact of interest rate risk management activities on income in 2001,
2000 and 1999 was not material.

Foreign Exchange Risk Management

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

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

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

The impact of foreign exchange risk management activities on operating
income in 2001, 2000 and 1999 was not material.

Fair Value of Financial Instruments

At December 31, 2001 and 2000, the Companys financial instruments
included cash, cash equivalents, receivables, accounts payable, borrowings and
interest rate, forward and foreign exchange risk management contracts. At
December 31, 2001 and 2000, the fair values of cash and cash equivalents,
receivables and accounts payable approximated carrying values because of the
short-term nature of these instruments. The estimated fair values of other
financial instruments subject to fair value disclosures, determined based on
broker quotes or quoted market prices or rates for the same or similar
instruments, and the related carrying amounts are as follows:

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|                              |                           |   |                 |         |            |   |         |        |                 |   |         |        |  |   |         |      |  
|----------------------------- | ------------------------- | - | --------------- | ------- | ---------- | - | ------- | ------ | --------------- | - | ------- | ------ |  | - | ------- | ---- | -
|                              |                           |   | 2001            |         | 2000      
|                              |                           |   |                 |         |           
|                              |                           |   | Carrying        |         |            |   |         |        | Carrying        |   |         |        | 
|                              |                           |   | Amount/Notional |         |            |   |         |        | Amount/Notional |   |         |        | 
|                              |                           |   | Amount          |         | Fair Value |   | Amount  |        | Fair Value     
|                              |                           |   |                 |         |            |   |         |        |                
|                              |                           |   | (In thousands) 
|Borrowings(1)                 |                           | $ | 225,726         |         |            | $ | 224,426 |        |                 | $ | 278,989 |        |  | $ | 259,489 |     
|Risk management contracts(2): |                           |   |                 |         |            |   |         |        |                 |   |         |        |  |   |         |     
|                              | Foreign exchange forwards |   | $               | 15,583  |            |   | $       | (49    | )               |   |         |       |  |   |         |     |  
|                              | Foreign exchange options  |   | $               | 39,818  |            |   | $       | 1,429  |                 |   |         |       |  |   |         |     |  
|                              | Interest rate swaps       |   | $               | 139,000 |            |   | $       | (1,906 | )               |   | $       | 20,000 |  |   | $       | (371 | )
|                              | Interest rate caps        |   | $               | 60,000  |            |   |         |       |                 |   | $       | 60,000 |  |   |         |     |  



---

|(1) |  | The fair value of borrowings were approximated at carrying value, except
for the Senior Subordinated Notes, which were valued at 99% and 85% at
December 31, 2001 and 2000, respectively, based upon quoted market prices.                                                                                                                                                                                                                                                                                                                
|--- |  | ------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
|   
|(2) |  | The fair value of risk management contracts were based upon quotes from
outside parties. Fair value amounts change with market conditions and
will be substantially offset by changes in the value of the related hedged
transaction. A positive fair value represents the amount the Company
would receive upon exiting the contracts and a negative fair value
represents the amount the Company would pay upon exiting the contracts.
The Company intends to hold all contracts to maturity, at which time the
fair value will be zero.

Credit Concentrations

The Company continually monitors its positions with, and the credit
quality of, the financial institutions that are counterparties to its financial
instruments, and does not anticipate nonperformance by the counterparties. The
Company would not have realized a material loss as of December 31, 2001 in the
event of nonperformance by any one counterparty. The Company enters into
transactions only with financial institution counterparties that have a credit
rating of A or better. In addition, the Company limits the amount of
investment credit exposure with any one institution. See Note L hereto for
information regarding trade receivable credit concentration.

NOTE O  CONDENSED CONSOLIDATING FINANCIAL INFORMATION

The Companys domestic subsidiaries are guarantors of the Companys Senior
Subordinated Notes. The following condensed consolidating financial
information presents the results of operations, financial position and cash
flows of the Company (on a stand alone basis), the guarantor subsidiaries (on a
combined basis), the non-guarantor subsidiaries (on a combined basis) and the
eliminations necessary to arrive at the consolidated results of the Company.
The results of operations and cash flows presented below assume that the
guarantor subsidiaries were in place for all periods presented. The Company
and Subsidiary Guarantors have accounted for investments in their respective
subsidiaries on an unconsolidated basis using the equity method of accounting.
The Subsidiary Guarantors are wholly-owned subsidiaries of the Company and have
fully and unconditionally guaranteed the Notes on a joint and several basis.
The Notes contain certain covenants which, among other things, restrict the
ability of the Subsidiary Guarantors to make distributions to Applica
Incorporated. The Company has not presented separate financial statements and
other disclosures concerning the Subsidiary Guarantors and non-guarantor
subsidiaries because it has determined they would not be material to investors.

Effective December 31, 1999, the Company reorganized its corporate
structure whereby certain guarantor subsidiaries were either merged with
Applica Consumer Products, Inc. or other guarantor subsidiaries or were
dissolved and whose assets were transferred to Applica Consumer Products, Inc.

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##### Table of Contents



|                                                    |                                                                                     |   |                              |          |            |   |            |         |              |   |              |         |   |   |          |          |   |   |         |         |  
|--------------------------------------------------- | ----------------------------------------------------------------------------------- | - | ---------------------------- | -------- | ---------- | - | ---------- | ------- | ------------ | - | ------------ | ------- | - | - | -------- | -------- | - | - | ------- | ------- | -
|                                                    |                                                                                     |   | Year Ended December 31, 2001
|                                                    |                                                                                     |   |                             
|                                                    |                                                                                     |   | Applica                      |          |            |   |            |         | Non-         |   |              |         |   |   |          |          |  
|                                                    |                                                                                     |   | Incorporated                 |          | Guarantors |   | Guarantors |         | Eliminations |   | Consolidated
|                                                    |                                                                                     |   |                              |          |            |   |            |         |              |   |             
|                                                    |                                                                                     |   | (In thousands)              
|Statement of Operations:                            |                                                                                     |   |                              |          |            |   |            |         |              |   |              |         |   |   |          |          |   |   |         |        
|Sales and other revenues                            |                                                                                     | $ |                             |          |            | $ | 528,932    |         |              | $ | 511,039      |         |   | $ | (312,927 | )        |   | $ | 727,044 |        
|Cost of goods sold                                  |                                                                                     |   |                             |          |            |   | 387,187    |         |              |   | 441,773      |         |   |   | (312,927 | )        |   |   | 516,033 |        
|Cost of goods sold  reposition                     |                                                                                     |   |                             |          |            |   |           |         |              |   | 13,418       |         |   |   |         |          |   |   | 13,418  |        
|                                                    |                                                                                     |   |                              |          |            |   |            |         |              |   |              |         |   |   |          |          |   |   |         |        
|                                                    | Gross profit                                                                        |   |                              |         |            |   |            | 141,745 |              |   |              | 55,848  |   |   |          |         |   |   |         | 197,593 |  
|Operating (income) expenses                         |                                                                                     |   | (1,563                       | )        |            |   | 154,387    |         |              |   | 32,982       |         |   |   | 604      |          |   |   | 186,410 |        
|Repositioning charge                                |                                                                                     |   |                             |          |            |   | 14,288     |         |              |   | 529          |         |   |   |         |          |   |   | 14,817  |        
|                                                    |                                                                                     |   |                              |          |            |   |            |         |              |   |              |         |   |   |          |          |   |   |         |        
|                                                    | Operating profit (loss)                                                             |   |                              | 1,563    |            |   |            | (26,930 | )            |   |              | 22,337  |   |   |          | (604     | ) |   |         | (3,634  | )
|Other (income) expense, net                         |                                                                                     |   | 20,927                       |          |            |   | (31,642    | )       |              |   | 19,857       |         |   |   | 11,388   |          |   |   | 20,530  |        
|                                                    |                                                                                     |   |                              |          |            |   |            |         |              |   |              |         |   |   |          |          |   |   |         |        
|                                                    | Earnings (loss) before income taxes
and equity in earnings (loss) of
joint ventures |   |                              | (19,364  | )          |   |            | 4,712   |              |   |              | 2,480   |   |   |          | (11,992  | ) |   |         | (24,164 | )
|Equity
in earnings (loss) of joint
ventures         |                                                                                     |   |                             |          |            |   | (128       | )       |              |   |             |         |   |   |         |          |   |   | (128    | )      
|Income taxes (benefit)                              |                                                                                     |   |                             |          |            |   | (2,010     | )       |              |   | 14,793       |         |   |   | (8,637   | )        |   |   | 4,146   |        
|                                                    |                                                                                     |   |                              |          |            |   |            |         |              |   |              |         |   |   |          |          |   |   |         |        
|                                                    | Net earnings (loss)                                                                 |   | $                            | (19,364  | )          |   | $          | 6,594   |              |   | $            | (12,313 | ) |   | $        | (3,355   | ) |   | $       | (28,438 | )
|                                                    |                                                                                     |   |                              |          |            |   |            |         |              |   |              |         |   |   |          |          |   |   |         |        
|Balance Sheet:                                      |                                                                                     |   |                              |          |            |   |            |         |              |   |              |         |   |   |          |          |   |   |         |        
|Cash                                                |                                                                                     | $ |                             |          |            | $ | 756        |         |              | $ | 14,987       |         |   | $ |         |          |   | $ | 15,743  |        
|Accounts and other receivables                      |                                                                                     |   |                             |          |            |   | 119,355    |         |              |   | 62,033       |         |   |   |         |          |   |   | 181,388 |        
|Receivables from affiliates                         |                                                                                     |   | (100,418                     | )        |            |   | 72,734     |         |              |   | 31,215       |         |   |   |         |          |   |   | 3,531   |        
|Inventories                                         |                                                                                     |   |                             |          |            |   | 62,997     |         |              |   | 40,719       |         |   |   |         |          |   |   | 103,716 |        
|Other current assets                                |                                                                                     |   |                             |          |            |   | 2,309      |         |              |   | 11,458       |         |   |   | 23,775   |          |   |   | 37,542  |        
|                                                    |                                                                                     |   |                              |          |            |   |            |         |              |   |              |         |   |   |          |          |   |   |         |        
|                                                    | Total current assets                                                                |   |                              | (100,418 | )          |   |            | 258,151 |              |   |              | 160,412 |   |   |          | 23,775   |   |   |         | 341,920 |  
|Investments                                         |                                                                                     |   | 425,119                      |          |            |   | 113,568    |         |              |   | 70,493       |         |   |   | (607,768 | )        |   |   | 1,412   |        
|Property, plant and equipment, net                  |                                                                                     |   |                             |          |            |   | 17,937     |         |              |   | 64,400       |         |   |   |         |          |   |   | 82,337  |        
|Intangible assets                                   |                                                                                     |   | 2,260                        |          |            |   | 230,809    |         |              |   | 35,975       |         |   |   | (61,252  | )        |   |   | 207,792 |        
|                                                    |                                                                                     |   |                              |          |            |   |            |         |              |   |              |         |   |   |          |          |   |   |         |        
|                                                    | Total assets                                                                        |   | $                            | 326,961  |            |   | $          | 620,465 |              |   | $            | 331,280 |   |   | $        | (645,245 | ) |   | $       | 633,461 |  
|                                                    |                                                                                     |   |                              |          |            |   |            |         |              |   |              |         |   |   |          |          |   |   |         |        
|Notes and acceptances payable                       |                                                                                     | $ |                             |          |            | $ |           |         |              | $ |             |         |   | $ |         |          |   | $ |        |        
|Accounts payable and accrued expenses               |                                                                                     |   | 1                            |          |            |   | 43,954     |         |              |   | 61,156       |         |   |   |         |          |   |   | 105,111 |        
|Current maturities of long-term debt                |                                                                                     |   |                             |          |            |   |           |         |              |   |             |         |   |   |         |          |   |   |        |        
|Deferred income, current portion                    |                                                                                     |   |                             |          |            |   | 443        |         |              |   |             |         |   |   |         |          |   |   | 443     |        
|Income taxes payable                                |                                                                                     |   |                             |          |            |   | (176       | )       |              |   | 7,312        |         |   |   | 1,106    |          |   |   | 8,242   |        
|Other current liabilities                           |                                                                                     |   |                             |          |            |   |           |         |              |   |             |         |   |   |         |          |   |   |        |        
|                                                    |                                                                                     |   |                              |          |            |   |            |         |              |   |              |         |   |   |          |          |   |   |         |        
|                                                    | Total current liabilities                                                           |   |                              | 1        |            |   |            | 44,221  |              |   |              | 68,468  |   |   |          | 1,106    |   |   |         | 113,796 |  
|Long-term debt                                      |                                                                                     |   | 220,709                      |          |            |   | 15,963     |         |              |   | 32,779       |         |   |   | (43,725  | )        |   |   | 225,726 |        
|Deferred income, less current portion               |                                                                                     |   |                             |          |            |   |           |         |              |   |             |         |   |   |         |          |   |   |        |        
|Deferred income taxes                               |                                                                                     |   |                             |          |            |   | 22,388     |         |              |   | 1,727        |         |   |   | (24,115  | )        |   |   |        |        
|                                                    |                                                                                     |   |                              |          |            |   |            |         |              |   |              |         |   |   |          |          |   |   |         |        
|Other long-term liabilities                         |                                                                                     |   |                             |          |            |   |           |         |              |   |             |         |   |   |         |          |   |   |        |        
|                                                    |                                                                                     |   |                              |          |            |   |            |         |              |   |              |         |   |   |          |          |   |   |         |        
|                                                    | Total liabilities                                                                   |   |                              | 220,710  |            |   |            | 82,572  |              |   |              | 102,974 |   |   |          | (66,734  | ) |   |         | 339,522 |  
|Shareholders equity                                |                                                                                     |   | 106,251                      |          |            |   | 537,893    |         |              |   | 228,306      |         |   |   | (578,511 | )        |   |   | 293,939 |        
|                                                    |                                                                                     |   |                              |          |            |   |            |         |              |   |              |         |   |   |          |          |   |   |         |        
|Total liabilities and shareholders
equity          |                                                                                     | $ | 326,961                      |          |            | $ | 620,465    |         |              | $ | 331,280      |         |   | $ | (645,245 | )        |   | $ | 633,461 |        
|                                                    |                                                                                     |   |                              |          |            |   |            |         |              |   |              |         |   |   |          |          |   |   |         |        
|Cash Flow Information:                              |                                                                                     |   |                              |          |            |   |            |         |              |   |              |         |   |   |          |          |   |   |         |        
|Net cash provided by (used in) operating
activities |                                                                                     | $ | (21,624                      | )        |            | $ | 57,307     |         |              | $ | 19,902       |         |   | $ | 32,327   |          |   | $ | 87,912  |        
|Net cash provided by (used in) investing
activities |                                                                                     |   | 69,943                       |          |            |   | (73,445    | )       |              |   | (16,219      | )       |   |   | (3,482   | )        |   |   | (23,203 | )      
|Net cash provided by (used in) financing
activities |                                                                                     |   | (48,327                      | )        |            |   | 12,548     |         |              |   | (1,199       | )       |   |   | (28,845  | )        |   |   | (65,823 | )      
|Cash at beginning                                   |                                                                                     |   | 8                            |          |            |   | 4,346      |         |              |   | 12,503       |         |   |   |         |          |   |   | 16,857  |        
|Cash at end                                         |                                                                                     |   |                             |          |            |   | 756        |         |              |   | 14,987       |         |   |   |         |          |   |   | 15,743  |        

F-26



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##### Table of Contents



|                                                     |                                                                                     |   |                              |         |            |   |            |         |              |   |              |         |  |   |          |          |   |   |         |         |  
|---------------------------------------------------- | ----------------------------------------------------------------------------------- | - | ---------------------------- | ------- | ---------- | - | ---------- | ------- | ------------ | - | ------------ | ------- |  | - | -------- | -------- | - | - | ------- | ------- | -
|                                                     |                                                                                     |   | Year Ended December 31, 2000
|                                                     |                                                                                     |   |                             
|                                                     |                                                                                     |   | Applica                      |         |            |   |            |         | Non-         |   |              |         |  |   |          |          |  
|                                                     |                                                                                     |   | Incorporated                 |         | Guarantors |   | Guarantors |         | Eliminations |   | Consolidated
|                                                     |                                                                                     |   |                              |         |            |   |            |         |              |   |             
|                                                     |                                                                                     |   | (In thousands)              
|Statement of Operations:                             |                                                                                     |   |                              |         |            |   |            |         |              |   |              |         |  |   |          |          |   |   |         |        
|Sales and other revenue                              |                                                                                     | $ |                             |         |            | $ | 559,225    |         |              | $ | 545,596      |         |  | $ | (356,070 | )        |   | $ | 748,751 |        
|Cost of goods sold                                   |                                                                                     |   |                             |         |            |   | 403,350    |         |              |   | 466,127      |         |  |   | (356,070 | )        |   |   | 513,407 |        
|Cost of goods sold  repositioning                   |                                                                                     |   |                             |         |            |   | 16,894     |         |              |   | 13,189       |         |  |   |         |          |   |   | 30,083  |        
|                                                     |                                                                                     |   |                              |         |            |   |            |         |              |   |              |         |  |   |          |          |   |   |         |        
|                                                     | Gross profit                                                                        |   |                              |        |            |   |            | 138,981 |              |   |              | 66,280  |  |   |          |         |   |   |         | 205,261 |  
|Operating (income) expenses                          |                                                                                     |   | (703                         | )       |            |   | 156,190    |         |              |   | 37,852       |         |  |   | (2,400   | )        |   |   | 190,939 |        
|Repositioning charge                                 |                                                                                     |   |                             |         |            |   | 3,980      |         |              |   |             |         |  |   |         |          |   |   | 3,980   |        
|                                                     |                                                                                     |   |                              |         |            |   |            |         |              |   |              |         |  |   |          |          |   |   |         |        
|                                                     | Operating profit (loss)                                                             |   |                              | 703     |            |   |            | (21,189 | )            |   |              | 28,428  |  |   |          | 2,400    |   |   |         | 10,342  |  
|Other (income) expense, net                          |                                                                                     |   | 27,367                       |         |            |   | (15,722    | )       |              |   | 17,000       |         |  |   | 34       |          |   |   | 28,679  |        
|Loss on assets held for sale                         |                                                                                     |   |                             |         |            |   | 3,644      |         |              |   |             |         |  |   |         |          |   |   | 3,644   |        
|                                                     |                                                                                     |   |                              |         |            |   |            |         |              |   |              |         |  |   |          |          |   |   |         |        
|                                                     | Earnings (loss) before income taxes
and equity in earnings (loss) of
joint ventures |   |                              | (26,664 | )          |   |            | (9,111  | )            |   |              | 11,428  |  |   |          | 2,366    |   |   |         | (21,981 | )
|Equity
in earnings (loss) of joint
ventures          |                                                                                     |   | (777                         | )       |            |   |           |         |              |   |             |         |  |   |         |          |   |   | (777    | )      
|Income taxes (benefit)                               |                                                                                     |   |                             |         |            |   | (1,706     | )       |              |   | 7,967        |         |  |   | (7,803   | )        |   |   | (1,542  | )      
|                                                     |                                                                                     |   |                              |         |            |   |            |         |              |   |              |         |  |   |          |          |   |   |         |        
|                                                     | Net earnings (loss)                                                                 |   | $                            | (27,441 | )          |   | $          | (7,405  | )            |   | $            | 3,461   |  |   | $        | 10,169   |   |   | $       | (21,216 | )
|                                                     |                                                                                     |   |                              |         |            |   |            |         |              |   |              |         |  |   |          |          |   |   |         |        
|Balance Sheet:                                       |                                                                                     |   |                              |         |            |   |            |         |              |   |              |         |  |   |          |          |   |   |         |        
|Cash                                                 |                                                                                     | $ | 8                            |         |            | $ | 4,346      |         |              | $ | 12,503       |         |  |   |         |          |   | $ | 16,857  |        
|Accounts and other receivables                       |                                                                                     |   |                             |         |            |   | 129,870    |         |              |   | 56,328       |         |  |   |         |          |   |   | 186,198 |        
|Receivables from affiliates                          |                                                                                     |   | (30,607                      | )       |            |   | 94         |         |              |   | 33,794       |         |  |   |         |          |   |   | 3,281   |        
|Inventories                                          |                                                                                     |   |                             |         |            |   | 101,458    |         |              |   | 59,362       |         |  |   |         |          |   |   | 160,820 |        
|Other current assets                                 |                                                                                     |   |                             |         |            |   | 9,311      |         |              |   | 14,513       |         |  |   | 9,315    |          |   |   | 33,139  |        
|                                                     |                                                                                     |   |                              |         |            |   |            |         |              |   |              |         |  |   |          |          |   |   |         |        
|                                                     | Total current assets                                                                |   |                              | (30,599 | )          |   |            | 245,079 |              |   |              | 176,500 |  |   |          | 9,315    |   |   |         | 400,295 |  
|Investments                                          |                                                                                     |   | 425,251                      |         |            |   | 113,123    |         |              |   | 70,493       |         |  |   | (607,342 | )        |   |   | 1,525   |        
|Property, plant and equipment, net                   |                                                                                     |   |                             |         |            |   | 17,577     |         |              |   | 60,623       |         |  |   |         |          |   |   | 78,200  |        
|Intangible assets                                    |                                                                                     |   |                             |         |            |   | 236,123    |         |              |   | 11,546       |         |  |   | (19,754  | )        |   |   | 227,915 |        
|                                                     |                                                                                     |   |                              |         |            |   |            |         |              |   |              |         |  |   |          |          |   |   |         |        
|                                                     | Total assets                                                                        |   | $                            | 394,652 |            |   | $          | 611,902 |              |   | $            | 319,162 |  |   | $        | (617,781 | ) |   | $       | 707,935 |  
|                                                     |                                                                                     |   |                              |         |            |   |            |         |              |   |              |         |  |   |          |          |   |   |         |        
|Notes and acceptances payable                        |                                                                                     | $ |                             |         |            | $ | 9,765      |         |              | $ | 3,729        |         |  | $ |         |          |   | $ | 13,494  |        
|Accounts payable and accrued expenses                |                                                                                     |   | 1                            |         |            |   | 53,773     |         |              |   | 36,690       |         |  |   |         |          |   |   | 90,464  |        
|Current maturities of long-term debt                 |                                                                                     |   | 18,842                       |         |            |   |           |         |              |   |             |         |  |   |         |          |   |   | 18,842  |        
|Deferred income, current portion                     |                                                                                     |   |                             |         |            |   | 514        |         |              |   |             |         |  |   |         |          |   |   | 514     |        
|Income taxes payable                                 |                                                                                     |   |                             |         |            |   | 5,066      |         |              |   | 1,346        |         |  |   | (6,412   | )        |   |   |        |        
|Other current liabilities                            |                                                                                     |   |                             |         |            |   |           |         |              |   |             |         |  |   |         |          |   |   |        |        
|                                                     |                                                                                     |   |                              |         |            |   |            |         |              |   |              |         |  |   |          |          |   |   |         |        
|                                                     | Total current liabilities                                                           |   |                              | 18,843  |            |   |            | 69,118  |              |   |              | 41,765  |  |   |          | (6,412   | ) |   |         | 123,314 |  
|Long-term debt                                       |                                                                                     |   | 253,475                      |         |            |   | 3,114      |         |              |   | 16,022       |         |  |   | (12,464  | )        |   |   | 260,147 |        
|Deferred income, less current portion                |                                                                                     |   |                             |         |            |   |           |         |              |   |             |         |  |   |         |          |   |   |        |        
|Deferred income taxes                                |                                                                                     |   |                             |         |            |   | 8,070      |         |              |   | 2,800        |         |  |   | (10,870  | )        |   |   |        |        
|                                                     |                                                                                     |   |                              |         |            |   |            |         |              |   |              |         |  |   |          |          |   |   |         |        
|                                                     | Total liabilities                                                                   |   |                              | 272,318 |            |   |            | 80,302  |              |   |              | 60,587  |  |   |          | (29,746  | ) |   |         | 383,461 |  
|Shareholders equity                                 |                                                                                     |   | 122,334                      |         |            |   | 531,600    |         |              |   | 258,575      |         |  |   | (588,035 | )        |   |   | 324,474 |        
|                                                     |                                                                                     |   |                              |         |            |   |            |         |              |   |              |         |  |   |          |          |   |   |         |        
|Total liabilities and shareholders equity           |                                                                                     | $ | 394,652                      |         |            | $ | 611,902    |         |              | $ | 319,162      |         |  | $ | (617,781 | )        |   | $ | 707,935 |        
|                                                     |                                                                                     |   |                              |         |            |   |            |         |              |   |              |         |  |   |          |          |   |   |         |        
|Cash Flow Information:                               |                                                                                     |   |                              |         |            |   |            |         |              |   |              |         |  |   |          |          |   |   |         |        
|Net cash provided by (used in) operating
activities  |                                                                                     | $ | (27,441                      | )       |            | $ | (715,930   | )       |              | $ | (2,109       | )       |  | $ | 735,933  |          |   | $ | (9,547  | )      
|Net cash provided by (used in) investing
activities  |                                                                                     |   | 9,832                        |         |            |   | 938,810    |         |              |   | (9,309       | )       |  |   | (962,357 | )        |   |   | (23,024 | )      
|Net cash provided by (used in ) financing
activities |                                                                                     |   | 17,613                       |         |            |   | (222,473   | )       |              |   | 14,096       |         |  |   | 226,424  |          |   |   | 35,660  |        
|Cash at beginning                                    |                                                                                     |   | 4                            |         |            |   | 3,939      |         |              |   | 9,825        |         |  |   |         |          |   |   | 13,768  |        
|Cash at end                                          |                                                                                     |   | 8                            |         |            |   | 4,346      |         |              |   | 12,503       |         |  |   |         |          |   |   | 16,857  |        

F-27



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##### Table of Contents



|                                                    |                                                                                     |   |                              |         |            |   |            |         |              |   |              |         |  |   |          |          |   |   |         |         | 
|--------------------------------------------------- | ----------------------------------------------------------------------------------- | - | ---------------------------- | ------- | ---------- | - | ---------- | ------- | ------------ | - | ------------ | ------- |  | - | -------- | -------- | - | - | ------- | ------- | 
|                                                    |                                                                                     |   | Year Ended December 31, 1999
|                                                    |                                                                                     |   |                             
|                                                    |                                                                                     |   | Applica                      |         |            |   |            |         | Non-         |   |              |         |  |   |          |          |  
|                                                    |                                                                                     |   | Incorporated                 |         | Guarantors |   | Guarantors |         | Eliminations |   | Consolidated
|                                                    |                                                                                     |   |                              |         |            |   |            |         |              |   |             
|                                                    |                                                                                     |   | (In thousands)              
|Statement of Operations:                            |                                                                                     |   |                              |         |            |   |            |         |              |   |              |         |  |   |          |          |   |   |         |        
|Sales and other revenue                             |                                                                                     | $ |                             |         |            | $ | 560,037    |         |              | $ | 392,350      |         |  | $ | (234,078 | )        |   | $ | 718,309 |        
|Cost of goods sold                                  |                                                                                     |   |                             |         |            |   | 388,634    |         |              |   | 329,190      |         |  |   | (233,784 | )        |   |   | 484,040 |        
|                                                    |                                                                                     |   |                              |         |            |   |            |         |              |   |              |         |  |   |          |          |   |   |         |        
|                                                    | Gross profit                                                                        |   |                              |        |            |   |            | 171,403 |              |   |              | 63,160  |  |   |          | (294     | ) |   |         | 234,269 | 
|Operating (income) expenses                         |                                                                                     |   | (379                         | )       |            |   | 150,092    |         |              |   | 26,861       |         |  |   | 442      |          |   |   | 177,016 |        
|Repositioning charge                                |                                                                                     |   |                             |         |            |   | (1,506     | )       |              |   |             |         |  |   |         |          |   |   | (1,506  | )      
|                                                    |                                                                                     |   |                              |         |            |   |            |         |              |   |              |         |  |   |          |          |   |   |         |        
|Operating profit (loss)                             |                                                                                     |   | 379                          |         |            |   | 22,817     |         |              |   | 36,299       |         |  |   | (736     | )        |   |   | 58,759  |        
|Other (income) expense, net                         |                                                                                     |   | 25,327                       |         |            |   | (3,993     | )       |              |   | 3,203        |         |  |   | 308      |          |   |   | 24,845  |        
|                                                    |                                                                                     |   |                              |         |            |   |            |         |              |   |              |         |  |   |          |          |   |   |         |        
|                                                    | Earnings (loss) before income taxes
and equity in earnings (loss) of
joint ventures |   |                              | (24,948 | )          |   |            | 26,810  |              |   |              | 33,096  |  |   |          | (1,044   | ) |   |         | 33,914  | 
|Equity
in earnings (loss) of joint
ventures         |                                                                                     |   | (12,894                      | )       |            |   | (13,486    | )       |              |   |             |         |  |   | 13,486   |          |   |   | (12,894 | )      
|Income taxes (benefit)                              |                                                                                     |   |                             |         |            |   | (2,535     | )       |              |   | 7,989        |         |  |   | (1,277   | )        |   |   | 4,177   |        
|                                                    |                                                                                     |   |                              |         |            |   |            |         |              |   |              |         |  |   |          |          |   |   |         |        
|                                                    | Net earnings (loss)                                                                 |   | $                            | (37,842 | )          |   | $          | 15,859  |              |   | $            | 25,107  |  |   | $        | 13,719   |   |   | $       | 16,843  | 
|                                                    |                                                                                     |   |                              |         |            |   |            |         |              |   |              |         |  |   |          |          |   |   |         |        
|Balance Sheet:                                      |                                                                                     |   |                              |         |            |   |            |         |              |   |              |         |  |   |          |          |   |   |         |        
|Cash                                                |                                                                                     | $ | 4                            |         |            | $ | 3,939      |         |              | $ | 9,825        |         |  | $ |         |          |   | $ | 13,768  |        
|Accounts and other receivables                      |                                                                                     |   |                             |         |            |   | 130,350    |         |              |   | 55,112       |         |  |   |         |          |   |   | 185,462 |        
|Receivables from affiliates                         |                                                                                     |   | (21,858                      | )       |            |   | (6,317     | )       |              |   | 31,858       |         |  |   | (150     | )        |   |   | 3,533   |        
|Inventories                                         |                                                                                     |   |                             |         |            |   | 107,199    |         |              |   | 58,184       |         |  |   | (1,677   | )        |   |   | 163,706 |        
|Other current assets                                |                                                                                     |   |                             |         |            |   | 21,316     |         |              |   | 8,047        |         |  |   | (5,411   | )        |   |   | 23,952  |        
|                                                    |                                                                                     |   |                              |         |            |   |            |         |              |   |              |         |  |   |          |          |   |   |         |        
|Total current assets                                |                                                                                     |   | (21,854                      | )       |            |   | 256,487    |         |              |   | 163,026      |         |  |   | (7,238   | )        |   |   | 390,421 |        
|Investments                                         |                                                                                     |   | 426,334                      |         |            |   | 113,051    |         |              |   | 70,557       |         |  |   | (607,334 | )        |   |   | 2,608   |        
|Property, plant and equipment, net                  |                                                                                     |   |                             |         |            |   | 14,443     |         |              |   | 61,540       |         |  |   |         |          |   |   | 75,983  |        
|Intangible assets                                   |                                                                                     |   |                             |         |            |   | 466,429    |         |              |   | 10,781       |         |  |   | (231,912 | )        |   |   | 245,298 |        
|                                                    |                                                                                     |   |                              |         |            |   |            |         |              |   |              |         |  |   |          |          |   |   |         |        
|                                                    | Total assets                                                                        |   | $                            | 404,480 |            |   | $          | 850,410 |              |   | $            | 305,904 |  |   | $        | (846,484 | ) |   | $       | 714,310 | 
|                                                    |                                                                                     |   |                              |         |            |   |            |         |              |   |              |         |  |   |          |          |   |   |         |        
|Notes and acceptances payable                       |                                                                                     | $ |                             |         |            | $ |           |         |              | $ | 898          |         |  | $ |         |          |   | $ | 898     |        
|Accounts payable and accrued expenses               |                                                                                     |   | 1                            |         |            |   | 60,351     |         |              |   | 39,007       |         |  |   | 631      |          |   |   | 99,990  |        
|Current maturities of long-term debt                |                                                                                     |   | 12,842                       |         |            |   |           |         |              |   | 745          |         |  |   |         |          |   |   | 13,587  |        
|Deferred income, current portion                    |                                                                                     |   |                             |         |            |   | 585        |         |              |   |             |         |  |   |         |          |   |   | 585     |        
|Income taxes payable                                |                                                                                     |   |                             |         |            |   | (2,180     | )       |              |   | 6,871        |         |  |   | (3,218   | )        |   |   | 1,473   |        
|Other current liabilities                           |                                                                                     |   |                             |         |            |   | 10,573     |         |              |   |             |         |  |   |         |          |   |   | 10,573  |        
|                                                    |                                                                                     |   |                              |         |            |   |            |         |              |   |              |         |  |   |          |          |   |   |         |        
|                                                    | Total current liabilities                                                           |   |                              | 12,843  |            |   |            | 69,329  |              |   |              | 47,521  |  |   |          | (2,587   | ) |   |         | 127,106 | 
|Long-term debt                                      |                                                                                     |   | 244,316                      |         |            |   | 226,288    |         |              |   | 8,605        |         |  |   | (235,638 | )        |   |   | 243,571 |        
|Deferred income, less current portion               |                                                                                     |   |                             |         |            |   | 236        |         |              |   |             |         |  |   |         |          |   |   | 236     |        
|Deferred income taxes                               |                                                                                     |   |                             |         |            |   | 16,253     |         |              |   | 2,966        |         |  |   | (19,219  | )        |   |   |        |        
|                                                    |                                                                                     |   |                              |         |            |   |            |         |              |   |              |         |  |   |          |          |   |   |         |        
|                                                    | Total liabilities                                                                   |   |                              | 257,159 |            |   |            | 312,106 |              |   |              | 59,092  |  |   |          | (257,444 | ) |   |         | 370,913 | 
|                                                    |                                                                                     |   |                              |         |            |   |            |         |              |   |              |         |  |   |          |          |   |   |         |        
|Shareholders equity                                |                                                                                     |   | 147,321                      |         |            |   | 538,304    |         |              |   | 246,812      |         |  |   | (589,040 | )        |   |   | 343,397 |        
|                                                    |                                                                                     |   |                              |         |            |   |            |         |              |   |              |         |  |   |          |          |   |   |         |        
|                                                    | Total liabilities and shareholders
equity                                          |   | $                            | 404,480 |            |   | $          | 850,410 |              |   | $            | 305,904 |  |   | $        | (846,484 | ) |   | $       | 714,310 | 
|                                                    |                                                                                     |   |                              |         |            |   |            |         |              |   |              |         |  |   |          |          |   |   |         |        
|Cash Flow Information:                              |                                                                                     |   |                              |         |            |   |            |         |              |   |              |         |  |   |          |          |   |   |         |        
|Net cash provided by (used in) operating
activities |                                                                                     | $ | (24,355                      | )       |            | $ | 174,724    | )       |              | $ | 5,419        |         |  | $ | (107,742 | )        |   | $ | 48,046  |        
|Net cash provided by (used in) investing
activities |                                                                                     |   | 33,940                       |         |            |   | (103,246   | )       |              |   | (39,954      | )       |  |   | 75,347   |          |   |   | (33,913 | )      
|Net cash provided by (used in) financing
activities |                                                                                     |   | (9,581                       | )       |            |   | (70,622    |         |              |   | 27,028       |         |  |   | 32,395   |          |   |   | (20,780 | )      
|Cash at beginning                                   |                                                                                     |   |                             |         |            |   | 3,083      |         |              |   | 17,332       |         |  |   |         |          |   |   | 20,415  |        
|Cash at end                                         |                                                                                     |   | 4                            |         |            |   | 3,939      |         |              |   | 9,825        |         |  |   |         |          |   |   | 13,768  |        

F-28



---



##### Table of Contents



SUPPLEMENTAL FINANCIAL DATA

Quarterly Financial Data (Unaudited)

The quarterly results for the years 2001 and 2000 are set forth in the
following table:

|     |                |       |   |                                       |         |              |   |        |         |       |   |          |         |            |   |            |       |       |   |       |       |  
|---- | -------------- | ----- | - | ------------------------------------- | ------- | ------------ | - | ------ | ------- | ----- | - | -------- | ------- | ---------- | - | ---------- | ----- | ----- | - | ----- | ----- | -
|     |                |       |   |                                       |         |              |   |        |         |       |   |          |         |            |   | Diluted    |       | Basic
|     |                |       |   |                                       |         |              |   |        |         |       |   | Net      |         | Earnings   |   | Earnings  
|     |                |       |   |                                       |         |              |   |        |         |       |   | Earnings |         | (Loss) Per |   | (Loss) Per
|     |                |       |   | Sales                                 |         | Gross Profit |   | (Loss) |         | Share |   | Share   
|     |                |       |   |                                       |         |              |   |        |         |       |   |         
|     |                |       |   | (In thousands, except per share data)
|2001 |                |       |   |                                       |         |              |   |        |         |       |   |          |         |            |   |            |       |       |   |      
|     | First quarter  |       | $ | 151,821                               |         |              | $ | 40,424 |         |       | $ | (6,283   | )       |            | $ | (0.27      | )     |       | $ | (0.27 | )    
|     | Second quarter |       |   | 161,664                               |         |              |   | 47,667 |         |       |   | (2,599   | )       |            |   | (0.11      | )     |       |   | (0.11 | )    
|     | Third quarter  |       |   | 203,201                               |         |              |   | 62,056 |         |       |   | 8,537    |         |            |   | 0.35       |       |       |   | 0.37  |      
|     | Fourth quarter |       |   | 210,358                               |         |              |   | 47,446 |         |       |   | (28,093  | )       |            |   | (1.21      | )(1)  |       |   | (1.21 | )    
|     |                |       |   |                                       |         |              |   |        |         |       |   |          |         |            |   |            |       |       |   |       |      
|     |                | Total |   | $                                     | 727,044 |              |   | $      | 197,593 |       |   | $        | (28,438 | )          |   | $          | (1.23 | )(2)  |   | $     | (1.23 | )
|     |                |       |   |                                       |         |              |   |        |         |       |   |          |         |            |   |            |       |       |   |       |      
|2000 |                |       |   |                                       |         |              |   |        |         |       |   |          |         |            |   |            |       |       |   |      
|     | First quarter  |       | $ | 146,691                               |         |              | $ | 44,414 |         |       | $ | (3,029   | )       |            | $ | (0.13      | )     |       | $ | (0.13 | )    
|     | Second quarter |       |   | 171,411                               |         |              |   | 52,180 |         |       |   | (245     | )       |            |   | (0.01      | )     |       |   | (0.01 | )    
|     | Third quarter  |       |   | 199,397                               |         |              |   | 66,748 |         |       |   | 8,299    |         |            |   | 0.35       |       |       |   | 0.36  |      
|     | Fourth quarter |       |   | 231,252                               |         |              |   | 41,919 |         |       |   | (26,241  | )       |            |   | (1.14      | )(1)  |       |   | (1.14 | )    
|     |                |       |   |                                       |         |              |   |        |         |       |   |          |         |            |   |            |       |       |   |       |      
|     |                | Total |   | $                                     | 748,751 |              |   | $      | 205,261 |       |   | $        | (21,216 | )          |   | $          | (0.92 | )(2)  |   | $     | (0.92 | )
|     |                |       |   |                                       |         |              |   |        |         |       |   |          |         |            |   |            |       |       |   |       |      



---

|(1) |  | For information regarding charges incurred for the years 2001 and 2000,
see Note A  Summary of Accounting Policies to the Consolidated Financial
Statements hereto.                                     
|--- |  | ---------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
|   
|(2) |  | The sum of the quarters differ from the total for 2001 by $0.01 and for
2000 by $0.01 due to exclusion of anti-dilutive effect of stock options in
earnings per share calculation in periods with losses.

F-29



---



##### Table of Contents



SCHEDULE II

Applica Incorporated and Subsidiaries

VALUATION AND QUALIFYING ACCOUNTS
(In Thousands)

|                                                   |                                                      |        |              |          |          |          |            |          |            |            |   |        |  |  |            |     |     |  |   |        |      |  |   |        | 
|-------------------------------------------------- | ---------------------------------------------------- | ------ | ------------ | -------- | -------- | -------- | ---------- | -------- | ---------- | ---------- | - | ------ |  |  | ---------- | --- | --- |  | - | ------ | ---- |  | - | ------ | 
|                                                   |                                                      |        | Balance at   |          | Purchase |          | Charged to |          | Charged to |            |   |        |  |  | Balance at
|                                                   |                                                      |        | Beginning of |          | Price    |          | Costs and  |          | Other      |            |   |        |  |  | End of    
|Description                                        |                                                      | Period |              | Reserves |          | Expenses |            | Accounts |            | Deductions |   | Period
|                                                   |                                                      |        |              |          |          |          |            |          |            |            |   |       
|Year ended December 31, 2001                       |                                                      |        |              |          |          |          |            |          |            |            |   |        |  |  |            |     |     |  |   |        |      |  |   |       
|Reserves deducted
from assets to
which they apply: |                                                      |        |              |          |          |          |            |          |            |            |   |        |  |  |            |     |     |  |   |        |      |  |   |       
|                                                   | Allowance for
possible
losses on
accounts
receivable |        | $            | 8,049    |          |          |            |         |            |            | $ | 5,564  |  |  |            |    |     |  |   | (1,552 | )(2) |  |   | 12,061 | 
|                                                   |                                                      |        |              |          |          |          |            |          |            |            |   |        |  |  |            |     |     |  |   |        |      |  |   |        | 
|Year ended December 31, 2000                       |                                                      |        |              |          |          |          |            |          |            |            |   |        |  |  |            |     |     |  |   |        |      |  |   |       
|Reserves deducted
from assets to
which they apply: |                                                      |        |              |          |          |          |            |          |            |            |   |        |  |  |            |     |     |  |   |        |      |  |   |       
|                                                   | Allowance for
possible
losses on
accounts
receivable |        | $            | 8,761    |          |          | $          | (2,293   | )          |            | $ | 2,671  |  |  | $          | 253 | (1) |  | $ | (1,343 | )(2) |  | $ | 8,049  | 
|                                                   |                                                      |        |              |          |          |          |            |          |            |            |   |        |  |  |            |     |     |  |   |        |      |  |   |        | 
|Year ended December 31, 1999                       |                                                      |        |              |          |          |          |            |          |            |            |   |        |  |  |            |     |     |  |   |        |      |  |   |       
|Reserves deducted
from assets to
which they apply: |                                                      |        |              |          |          |          |            |          |            |            |   |        |  |  |            |     |     |  |   |        |      |  |   |       
|                                                   | Allowance for
possible
losses on
accounts
receivable |        |              | 7,367    |          |          |            | (1,324   | )          |            |   | 4,228  |  |  |            | 25  | (1) |  |   | (1,535 | )(2) |  |   | 8,761  | 
|                                                   |                                                      |        |              |          |          |          |            |          |            |            |   |        |  |  |            |     |     |  |   |        |      |  |   |        | 



---

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

F-30