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SECURITIES AND EXCHANGE COMMISSION

WASHINGTON, D.C. 20549

FORM 10-Q

COMMISSION FILE NUMBER 1-10177

APPLICA INCORPORATED

(305) 362-2611

Former Name, If Changed Since Last Report:
Not Applicable

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

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

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APPLICA INCORPORATED

INDEX

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PART I.   FINANCIAL INFORMATION

Item 1.   Financial Statements

Applica Incorporated and Subsidiaries

CONSOLIDATED BALANCE SHEETS

Assets

The accompanying notes are an integral part of these statements.

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Applica Incorporated and Subsidiaries

CONSOLIDATED STATEMENTS OF OPERATIONS (Unaudited)

The accompanying notes are an integral part of these statements.

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Applica Incorporated and Subsidiaries

CONSOLIDATED STATEMENTS OF OPERATIONS (Unaudited)

The accompanying notes are an integral part of these statements.

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Applica Incorporated and Subsidiaries

CONSOLIDATED STATEMENTS OF CASH FLOWS (Unaudited)

     On May 31, 2002, Applica Consumer Products, Inc., the U.S. operating subsidiary, purchased all of the outstanding shares of Weitech, Inc. in exchange for $17,002,094 in cash and $3,000,000 of notes payable.

The accompanying notes are an integral part of these statements.

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Applica Incorporated and Subsidiaries

1.   SUMMARY OF ACCOUNTING POLICIES

Interim Reporting

     The accompanying unaudited consolidated financial statements include the accounts of Applica Incorporated and its subsidiaries (“Applica”). All significant intercompany transactions and balances have been eliminated. The unaudited consolidated financial statements have been prepared in conformity with Rule 10-01 of Regulation S-X of the Securities and Exchange Commission and therefore do not include information or footnotes necessary for a complete presentation of financial position, results of operations and cash flows in conformity with accounting principles generally accepted in the United States of America. However, all adjustments (consisting of normal recurring accruals), which, in the opinion of management, are necessary for a fair presentation of the financial statements, have been included. Operating results for the period ended June 30, 2002 are not necessarily indicative of the results that may be expected for the remaining quarters or the year ending December 31, 2002 due to seasonal fluctuations in Applica’s business, changes in economic conditions and other factors. For further information, please refer to the Consolidated Financial Statements and Notes thereto contained in Applica’s Annual Report on Form 10-K for the year ended December 31, 2001.

Reclassifications

     Certain prior period amounts have been reclassified for comparability.

Receivables from Affiliates

     Receivables from affiliates include the current portion of receivables due from Applica’s joint ventures partners and certain executive officers of Applica. These receivables are due upon demand or upon termination of the applicable employment contract and bear interest at prevailing market interest rates. Receivables due from Applica’s executive officers are unsecured.

Foreign Currency Reporting — Argentina

     Effective January 1, 2002, the functional currency of the Argentinean operation was changed from the Argentinean peso to the US dollar. Accordingly, Applica recognized a $0.3 million translation loss during the second quarter of 2002 and a $2.0 million translation loss during the six months ended June 30, 2002.

Inventories

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

2.   SHAREHOLDERS’ EQUITY

Earnings Per Share

     Basic shares for the three-month periods ended June 30, 2002 and 2001 were 23,386,144 and 23,093,291, respectively. Basic shares for the six-month periods ended June 30, 2002 and 2001 were 23,362,988 and 23,085,231,

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Applica Incorporated and Subsidiaries
Notes to Consolidated Financial Statements — Continued

respectively. All common stock equivalents have been excluded from the diluted per share calculations in the three-month and six-month periods ended June 30, 2002 and 2001 as their inclusion would have been anti-dilutive.

3.   COMMITMENTS AND CONTINGENCIES

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

     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, $550,000 of which was paid in the first quarter of 2002. Applica expects to pay the remaining $450,000 in the third quarter of 2002. All other amounts related to the settlement of the litigation were 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. The settlements in the derivative action and the securities class action are expected to be approved by the applicable court in the third or fourth quarter of 2002.

     Salton Litigation. Applica is also a defendant in Salton, Inc. v Windmere-Durable Holdings, Inc. and Windmere Corporation, which was filed in the United States District Court, Northern District of Illinois in January 2001. Discovery procedures have been initiated and are ongoing. The parties are currently engaging in settlement discussions.

     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. Applica’s Canadian operating subsidiary, Applica Canada Corporation, also recalled approximately 180,000 of these toasters in Canada. In connection therewith, Applica took a charge of $13.4 million in the fourth quarter of 2001 relating to the estimated expenses of such recalls. Management does not believe the ultimate liability will be materially different.

     Currently, one product liability lawsuit has been filed relating to the recalled toasters; however, several claims of property damage or bodily injury have been made. We believe that the amount of ultimate liability of these matters, 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, product liability claims and other claims that arise in the ordinary course of our business. In the opinion of management, the amount of ultimate liability with respect to such matters, if any, in excess of applicable insurance coverage, is not likely to have a material effect on the financial condition, results of operations or liquidity of Applica. However, as the outcome of litigation or other claims is difficult to predict, significant changes in the estimated exposures could occur.

4.   REPOSITIONING AND OTHER CHARGES

     In the fourth quarter of 2001, Applica recorded 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 charges related to Applica’s execution of a new four-year senior secured revolving credit facility and write-off of fees and expenses associated with the prior credit facility. Also included in the charge was $1.5 million relating to the devaluation of the Argentinean peso and $1.0 million related to the settlement of the shareholder class action litigation.

     Additionally, Applica Consumer Products, Inc., Applica’s U.S. operating subsidiary, 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, also

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Applica Incorporated and Subsidiaries
Notes to Consolidated Financial Statements — Continued

recalled approximately 180,000 of these toasters in Canada. In connection therewith, Applica took a charge of $13.4 million in the fourth quarter of 2001 relating to the estimated expenses of such recalls.

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

     In addition, during third and forth quarters of 2002, Applica expects to incur an additional $4.8 million in expenses relating to the consolidation of facilities and functions that did not qualify for accrual at December 31, 2001. These expenses will primarily consist of recruitment, severance and moving costs. During the first half of 2002, Applica incurred an expense of $5.2 million related to the consolidation.

     5.   ACQUISITION OF WEITECH, INC.

     On May 31, 2002, Applica Consumer Products, Inc., the Company’s U.S. operating subsidiary, purchased all of the outstanding stock of Weitech, Inc., an electronic pest control company, for approximately $17.0 million in cash and the issuance of $3.0 million of notes payable.

     The acquisition was accounted for as a purchase in accordance with SFAS 141 and accordingly, the purchase price was allocated based on the estimated fair market values of the identifiable assets and liabilities obtained, resulting in goodwill of approximately $9.6 million. Goodwill will not be amortized in the future but will be tested for impairment in accordance with the provisions of SFAS 142.

     The results of operations of Weitech, Inc. were included in the accompanying consolidated statement of operations since the date of the acquisition. Applica has omitted the unaudited pro forma results of operations showing the business combination as if it had occurred at the beginning of each period presented because the results are not significant to the June 30, 2002 consolidated financial statements.

6.   GOODWILL AND INTANGIBLE ASSETS

     In June 2001, the Financial Accounting Standards Board approved the issuance of SFAS 142, “Goodwill and Other Intangible Assets”, which establishes new accounting and reporting requirements for goodwill and other intangible assets. The new standards require that all intangible assets acquired that are obtained through contractual or legal right, or are capable of being separately sold, transferred, licensed, rented or exchanged must be recognized as an asset apart from goodwill. Goodwill and intangibles with indefinite lives are no longer amortized, but are subject to an annual assessment for impairment by applying a fair value based test.

     Applica applied the provisions of SFAS 142 beginning on January 1, 2002 and performed a transitional fair valued based impairment test. Based on the initial impairment test, Applica recognized a non-cash adjustment of $121.3 million ($78.8 million, or $3.37 per share, net of tax) in the first quarter of 2002 to reduce the carrying value of goodwill to its implied fair value, which was estimated using a combination of market-multiples, comparable transactions and discounted cash flow methodologies. Under SFAS 142, the impairment adjustment was reflected as a cumulative effect of change in accounting principle in the first quarter of 2002. Per the provisions of SFAS 142, Applica will no longer record annual amortization of $5.0 million per year. In connection with adopting SFAS 142, Applica also reassessed the useful lives and the classifications of its identifiable intangible assets and determined that they continue to be appropriate.

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Applica Incorporated and Subsidiaries
Notes to Consolidated Financial Statements — Continued

     The carrying amount of goodwill attributable to Applica is as follows:

     Components of other intangible assets not subject to amortization consists of $4.1 million allocated to trademarks acquired in the Weitech acquisition. The components of Applica’s intangible assets subject to amortization are as follows:

     Amortization expense for intangible assets during the first half of 2002 was $4.2 million. The following table provides information regarding estimated amortization expense for each of the following years ended December 31:

     The following table adjusts earnings and earnings per share for the adoption of SFAS 142 for the three months ended June 30, 2002 and 2001:

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Applica Incorporated and Subsidiaries
Notes to Consolidated Financial Statements — Continued

     The following table adjusts earnings and earnings per share for the adoption of SFAS 142 for the six months ended June 30, 2002 and 2001:

7.   CONDENSED CONSOLIDATING FINANCIAL INFORMATION

     Applica Incorporated’s domestic subsidiaries are guarantors of its 10% Senior Subordinated Notes due 2008. The following condensed consolidating financial information presents the results of operations, financial position and cash flows of Applica Incorporated (on a stand alone basis), the guarantor subsidiaries (on a combined basis), the non-guarantor subsidiaries (on a combined basis) and the eliminations necessary to arrive at the consolidated results of Applica. The results of operations and cash flows presented below assume that the guarantor subsidiaries were in place for all periods presented. Applica Incorporated and the Subsidiary Guarantors have accounted for investments in their respective subsidiaries on an unconsolidated basis using the equity method of accounting. The Subsidiary Guarantors are wholly-owned subsidiaries of Applica and have fully and unconditionally guaranteed the Notes on a joint and several basis. The Notes contain certain covenants that, among other things, restrict the ability of the Subsidiary Guarantors to make distributions to Applica Incorporated.

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Notes to Consolidated Financial Statements — Continued