1
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D. C. 20549
FORM 10-Q
[X] QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE
ACT OF 1934 FOR THE QUARTERLY PERIOD ENDED MARCH 31, 2001
OR
[ ] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES
EXCHANGE ACT OF 1934 FOR THE TRANSITION PERIOD FROM __________________
TO __________________
COMMISSION FILE NUMBER 1-10177
APPLICA INCORPORATED
----------------------------------------------------
(Exact Name of Registrant as Specified in its Charter)
Florida 59-1028301
-------------------------------------------------------------- ---------------------------------------
(State or Other Jurisdiction of Incorporation or Organization) (I.R.S. Employer Identification Number)
5980 Miami Lakes Drive, Miami Lakes, Florida 33014
-------------------------------------------------------------- --------------------------------------
(Address Of Principal Executive Offices) (Zip Code)
(305) 362-2611
----------------------------------------------------
(Registrant's Telephone Number, Including Area Code)
FORMER NAME, IF CHANGED SINCE LAST REPORT:
Not Applicable
Indicate by check mark whether the registrant (1) has filed all reports required
to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during
the preceding 12 months (or for such shorter period that the registrant was
required to file such reports), and (2) has been subject to such filing
requirement for the past 90 days. Yes [X] No [ ]
Indicate the number of shares outstanding of each of the issuer's classes of
common stock, as of the latest practicable date:
Number of Shares
Class Outstanding On May 1, 2001
------------------------------------------------------------------- --------------------------
Common Stock, $.10 par value...................................... 23,099,382
2
APPLICA INCORPORATED
INDEX
Page
----
PART I. FINANCIAL INFORMATION.....................................................................................3
Item 1. Financial Statements............................................................................3
Consolidated Balance Sheets as of March 31, 2001(Unaudited) and December 31, 2000.............3
Consolidated Statements of Operations for the Three Months Ended March 31, 2001 and
2000 (Unaudited)...........................................................................4
Consolidated Statements of Cash Flows for the Three Months Ended March 31, 2001 and
2000 (Unaudited)...........................................................................5
Notes to Consolidated Financial Statements....................................................6
Item 2. Management's Discussion and Analysis of Financial Condition and Results of Operations..........11
Item 3. Quantitative and Qualitative Disclosures About Market Risk.....................................14
PART II. OTHER INFORMATION.......................................................................................15
Item 1. Legal Proceedings..............................................................................15
Item 6. Exhibits and Reports on Form 8-K...............................................................15
2
3
PART I. FINANCIAL INFORMATION
ITEM 1. FINANCIAL STATEMENTS
APPLICA INCORPORATED AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS
March 31, December 31,
2001 2000
(Unaudited)
----------- ------------
(In Thousands)
ASSETS
CURRENT ASSETS
Cash and cash equivalents ................................................ $ 10,938 $ 16,857
Accounts and other receivables, less allowances of $8,199 in 2001 and
$8,049 in 2000.......................................................... 147,381 186,198
Receivables from affiliates............................................... 3,317 3,281
Inventories............................................................... 141,034 160,820
Prepaid expenses and other................................................ 18,242 17,277
Refundable income taxes................................................... 2,935 1,207
Future income tax benefits................................................ 14,655 14,655
-------- ---------
Total current assets...................................................... 338,502 400,295
INVESTMENT IN JOINT VENTURE.................................................. 1,396 1,525
PROPERTY, PLANT AND EQUIPMENT - at cost, less accumulated depreciation of
$87,484 and $82,770, respectively ........................................ 79,352 78,200
FUTURE INCOME TAX BENEFITS, NON-CURRENT...................................... 5,912 3,705
INTANGIBLE ASSETS ........................................................... 219,547 224,210
-------- --------
TOTAL ASSETS............................................................ $ 644,709 $ 707,935
========= =========
LIABILITIES AND SHAREHOLDERS' EQUITY
CURRENT LIABILITIES
Notes and acceptances payable ............................................ $ 14,980 $ 13,494
Current maturities of long-term debt...................................... 19,342 18,842
Accounts payable.......................................................... 33,135 43,361
Accrued expenses ......................................................... 30,754 47,103
Deferred income........................................................... 496 514
--------- ---------
Total current liabilities............................................ 98,707 123,314
LONG-TERM DEBT.............................................................. 226,936 260,147
OTHER LONG-TERM LIABILITIES................................................. 707 --
SHAREHOLDERS' EQUITY:
Common stock - authorized: 75,000 shares in 2001 and 2000, of $.10 par
value; issued and outstanding: 23,099 in 2001 and 23,080 in 2000........ 2,310 2,308
Paid-in capital........................................................... 152,604 152,591
Retained earnings......................................................... 167,183 173,466
Notes receivable - officers............................................... (1,496) (1,496)
Accumulated other comprehensive earnings (loss)........................... (2,242) (2,395)
--------- ---------
Total shareholders' equity............................................ 318,359 324,474
--------- ---------
TOTAL LIABILITIES AND SHAREHOLDERS' EQUITY.............................. $ 644,709 $ 707,935
========= =========
The accompanying notes are an integral part of these statements.
3
4
APPLICA INCORPORATED AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF OPERATIONS (UNAUDITED)
THREE MONTHS ENDED MARCH 31,
-------------------------------------------------------------
2001 2000
---------------------------- -------------------------------
(IN THOUSANDS, EXCEPT PER SHARE DATA)
Sales and other revenues ..................... $ 151,821 100.0% $ 146,691 100.0%
Cost of goods sold.......................... 111,397 73.4 102,277 69.7
---------- ---------- --------- --------
Gross profit....................... 40,424 26.6 44,414 30.3
Selling, general and administrative
expenses................................. 42,693 28.1 42,597 29.1
---------- ---------- --------- --------
Operating (loss) profit............ (2,269) (1.5) 1,817 1.2
Other (income) expense:
Interest expense......................... 6,683 4.4 6,280 4.3
Interest and other income................ (462) (0.3) (430) (0.3)
---------- ---------- --------- --------
6,221 4.1 5,850 4.0
---------- ---------- --------- --------
Loss before income taxes .......... (8,490) (5.6) (4,033) (2.8)
Income tax benefit ......................... (2,207) (1.5) (1,005) (0.7)
---------- ---------- --------- --------
Net loss........................... $ (6,283) (4.1)% $ (3,028) (2.1)%
========== ========== ========= ========
Per share data:
Loss per common share - basic............ $ (0.27) $ (0.13)
========== =========
Loss per common share - diluted.......... $ (0.27) $ (0.13)
========== =========
The accompanying notes are an integral part of these statements.
4
5
APPLICA INCORPORATED AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS (UNAUDITED)
THREE MONTHS ENDED
MARCH 31,
------------------------
2001 2000
--------- --------
(In Thousands)
CASH FLOWS FROM OPERATING ACTIVITIES:
Net loss............................................................ $ (6,283) $ (3,028)
Adjustments to reconcile net loss to net cash provided by (used
in) operating activities:
Depreciation of property, plant and equipment.................... 4,883 4,508
Amortization of intangible assets................................ 4,240 4,952
Net change in allowance for losses on accounts receivable........ 150 10
Consulting expense on non-employee stock options................. 13
Amortization of deferred income.................................. (18) (9)
Changes in assets and liabilities:
Accounts and other receivables................................ 38,667 10,559
Inventories................................................... 19,786 (16,949)
Prepaid expenses.............................................. (258) (3,432)
Accounts payable and accrued expenses......................... (26,575) (16,435)
Current and deferred income taxes............................. (3,935) (3,708)
Other liabilities............................................. -- (10,573)
Other receivables............................................. -- 12,962
Other accounts................................................ 576 (487)
-------- --------
Net cash provided by (used in) operating activities......... 31,246 $(21,630)
CASH FLOWS FROM INVESTING ACTIVITIES:
Additions to property, plant and equipment.......................... (6,035) (9,709)
Distributions from joint ventures................................... 129 266
Decrease in receivables from affiliates............................. -- 93
-------- --------
Net cash used in investing activities....................... (5,906) (9,350)
CASH FLOWS FROM FINANCING ACTIVITIES:
Notes and acceptances............................................... 1,486 --
Long-term debt - net ............................................... (32,709) 24,522
Net borrowings under lines of credit................................ -- 818
Exercises of stock options and warrants............................. -- 1,476
Interest receivable from officer.................................... (36)
-------- --------
Net cash (used in) provided by financing activities......... (31,259) 26,816
DECREASE IN CASH AND CASH EQUIVALENTS.................................. (5,919) (4,164)
CASH AND CASH EQUIVALENTS AT BEGINNING OF QUARTER...................... 16,857 13,768
-------- --------
CASH AND CASH EQUIVALENTS AT END OF QUARTER............................ $10,938 9,604
======== ========
SUPPLEMENTAL DISCLOSURES OF CASH FLOW INFORMATION:
CASH PAID DURING THE YEAR FOR:
Interest............................................................ $9,400 $ 9,698
Income taxes........................................................ -- $ 1,204
The accompanying notes are an integral part of these statements.
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APPLICA INCORPORATED AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
1. SUMMARY OF ACCOUNTING POLICIES
INTERIM REPORTING
The accompanying unaudited consolidated financial statements include
the accounts of Applica Incorporated and its subsidiaries ("Applica"). All
significant intercompany transactions and balances have been eliminated. The
unaudited consolidated financial statements have been prepared in conformity
with Rule 10-01 of Regulation S-X of the Securities and Exchange Commission and
therefore do not include information or footnotes necessary for a complete
presentation of financial position, results of operations and cash flows in
conformity with accounting principles generally accepted in the United States of
America. However, all adjustments (consisting of normal recurring accruals),
which, in the opinion of management, are necessary for a fair presentation of
the financial statements, have been included. Operating results for the
three-month period ended March 31, 2001 are not necessarily indicative of the
results that may be expected for the year ending December 31, 2001. For further
information, refer to the Consolidated Financial Statements and Notes thereto
included in Applica's Annual Report on Form 10-K for the year ended December 31,
2000.
RECLASSIFICATIONS
Certain prior period amounts have been reclassified for comparability.
RECEIVABLES FROM AFFILIATES
Receivables from affiliates include the current portion of receivables
due from Applica's joint venture partner and certain executive officers of
Applica. These receivables are due upon demand or upon termination of the
applicable employment contract and bear interest at prevailing market interest
rates.
DERIVATIVE FINANCIAL INSTRUMENTS
Applica uses forward exchange contracts to reduce fluctuations in
foreign currency cash flows related to third party raw material and other
operating purchases. The terms of the foreign currency instruments used are
generally consistent with the timing of the committed or anticipated
transactions being hedged. Applica does not use derivative financial instruments
for trading or speculative purposes. Outstanding at March 31, 2001 were $71.1
million notional value of contracts to purchase and/or sell foreign currency
forward with a fair market value of approximately $1.0 million. The market value
represents the amount Applica would receive upon exiting the contracts at March
31, 2001 and was determined based on quotes obtained from Applica's financial
institutions. This amount was included in Prepaid Expenses and Other as of March
31, 2001. All contracts have terms of nine months or less.
Applica uses interest rate derivatives of one to eight years in
duration to reduce the impact of changes in interest rates on its floating rate
debt. The notional amounts of the agreements are used to measure interest to be
paid or received and do not represent the amount of exposure to credit loss. The
differential paid or received on the agreements is recognized as an adjustment
of interest expense. Outstanding as of March 31, 2001 were derivatives on $80
million notional principal amount with a negative fair market value of
approximately $0.7 million. The market value represents the amount Applica would
have to pay to exit the contracts at March 31, 2001 and was determined based on
quotes obtained from Applica's financial institutions. This amount was included
in Other Long-Term Liabilities as of March 31, 2001. Applica does not intend to
exit these contracts at this time. Applica entered into these interest rate
derivatives for hedging purposes.
At March 31, 2001, Applica had no significant commodity future
contracts.
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APPLICA INCORPORATED AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- CONTINUED
2. SHAREHOLDERS' EQUITY
EARNINGS PER SHARE
Basic shares for the three-month period ended March 31, 2001 and 2000
were 23,090,382 and 22,719,389, respectively. All common stock equivalents have
been excluded from the per share calculation in the three-month periods ended
March 31, 2001 and 2000 as their inclusion would have been anti-dilutive.
3. COMMITMENTS AND CONTINGENCIES
Applica is a defendant in certain litigation. See Part II, "Item 1.
Legal Proceedings."
4. BUSINESS SEGMENT INFORMATION
The Consumer Products North America segment distributes kitchen
electric, professional personal care and home environment products under
licensed brand names such as Black & Decker(R), as well as the Windmere(R) and
private label brand names. The sales are handled primarily through in house
sales representatives to mass merchandisers, specialty retailers and appliance
distributors in the United States and Canada.
The Consumer Products International segment distributes kitchen
electric, personal care and home environment products under the Black &
Decker(R) and Windmere(R) brand names. Products are marketed throughout all
countries in Latin America except for Brazil.
The Manufacturing segment includes Applica's manufacturing operations
located in China and Mexico. The majority of Applica's products are manufactured
in these two facilities. Applica also manufactures products on an "original
equipment manufacturing" (OEM) basis for other consumer products companies. The
Manufacturing segment also includes these OEM sales.
Summarized financial information concerning Applica's reportable
segments is shown in the following table. Corporate related items, results of
insignificant operations and income and expense not allocated to reportable
segments are included in the reconciliations to consolidated results.
Segment information for the three-month periods ended March 31, 2001
and 2000 was as follows:
Consumer Consumer
Products Products
North America International Manufacturing Total
------------- ------------- ------------- -----------
(In thousands)
2001:
Net sales............................... $117,877 $19,923 $68,214 $206,014
Intersegment net sales.................. 367 -- 58,696 59,062
Operating earnings (loss)............... (6,022) (935) 6,713 (244)
2000:
Net sales............................... 108,534 20,414 93,613 222,561
Intersegment net sales.................. 1,650 -- 80,374 82,024
Operating earnings (loss)............... (9,232) 510 11,093 2,371
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APPLICA INCORPORATED AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- CONTINUED
Reconciliation to consolidated amounts was as follows:
2001 2000
-------- --------
(In thousands)
REVENUES:
Total revenues for reportable segments................. $206,014 $222,561
Other revenues......................................... 4,869 6,154
Eliminations of intersegment revenues.................. (59,062) (82,024)
-------- --------
Total consolidated revenues....................... $151,821 $146,691
======== ========
Operating earnings:
Total earnings (loss) for reportable segments..... $(244) $2,371
Other loss........................................ (1,563) (124)
Interest expense.................................. (6,683) (6,280)
Equity in net loss of joint ventures.............. -- --
------- -------
Consolidated loss before income tax benefit....... $(8,490) $(4,033)
======= =======
5. CONDENSED CONSOLIDATING FINANCIAL INFORMATION
Applica Incorporated's domestic subsidiaries are guarantors of its 10%
Senior Subordinated Notes due 2008. The following condensed consolidating
financial information presents the results of operations, financial position and
cash flows of Applica Incorporated (on a stand alone basis), the guarantor
subsidiaries (on a combined basis), the non-guarantor subsidiaries (on a
combined basis) and the eliminations necessary to arrive at the consolidated
results of Applica. The results of operations and cash flows presented below
assume that the guarantor subsidiaries were in place for all periods presented.
Applica Incorporated and the Subsidiary Guarantors have accounted for
investments in their respective subsidiaries on an unconsolidated basis using
the equity method of accounting. The Subsidiary Guarantors are wholly-owned
subsidiaries of Applica and have fully and unconditionally guaranteed the Notes
on a joint and several basis. The Notes contain certain covenants that, among
other things, restrict the ability of the Subsidiary Guarantors to make
distributions to Applica Incorporated. Applica 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.
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APPLICA INCORPORATED AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- CONTINUED
Three Months Ended March 31, 2001
-------------------------------------------------------------------------
Applica
Incorporated Guarantors Non-Guarantors Eliminations Consolidated
------------ ---------- -------------- ------------ ------------
(In thousands)
STATEMENT OF OPERATIONS:
Sales and other revenues................. -- 117,655 93,228 (59,062) 151,821
Cost of goods sold....................... -- 90,335 80,124 (59,062) 111,397
---------- ---------- ---------- --------- ---------
Gross profit.......................... -- 27,320 13,104 -- 40,424
Operating expenses....................... (318) 34,932 7,720 359 42,693
---------- ---------- ---------- --------- ---------
Operating profit (loss)............... 318 (7,612) 5,384 (359) (2,269)
Other (income) expense, net.............. 6,016 (5) 210 -- 6,221
---------- ---------- ---------- --------- ---------
Earnings (loss) before income taxes... (5,698) (7,607) 5,174 (359) (8,490)
Income taxes (benefit)................... -- 4 2,841 (5,052) (2,207)
---------- ---------- ---------- --------- ---------
Net earnings (loss)................... (5,698) (7,611) 2,333 4,693 (6,283)
========== ========= ========== ========= =========
BALANCE SHEET:
Cash..................................... 13 1,342 9,583 -- 10,938
Accounts and other receivables........... -- 96,280 51,101 -- 147,381
Receivables from affiliates.............. (68,527) 13,113 58,731 -- 3,317
Inventories.............................. -- 83,740 57,294 -- 141,034
Other current assets..................... -- 7,713 15,257 12,862 35,832
---------- ---------- ---------- --------- ---------
Total current assets.................. (68,514) 202,188 191,966 12,862 338,502
Investment in joint venture.............. 425,121 113,124 70,493 (607,342) 1,396
Property, plant and equipment, net....... -- 18,089 61,263 -- 79,352
Other assets............................. -- 234,117 10,232 (18,890) 225,459
---------- ---------- ---------- --------- ---------
Total assets.......................... 356,607 567,518 333,954 (613,370) 644,709
========== ========= ========== ========= =========
Notes and acceptances payable............ -- -- 14,980 -- 14,980
Accounts payable and accrued expenses.... 17 21,003 42,869 -- 63,889
Current maturities of long-term debt..... 19,342 -- -- -- 19,342
Deferred income.......................... -- 496 -- -- 496
Income taxes payable..................... -- 5,747 1,217 (6,964) --
---------- ---------- ---------- --------- ---------
Total current liabilities............. 19,359 27,246 59,066 (6,964) 98,707
Long-term debt........................... 220,596 6,787 15,690 (16,137) 226,936
Deferred income, less current portion.... -- -- -- -- --
Deferred income taxes.................... -- 8,461 2,409 (10,870) --
Other long-term liabilities.............. -- 707 -- -- 707
---------- ---------- ---------- --------- ---------
Total liabilities..................... 239,955 43,201 77,165 (33,971) 326,350
Shareholders' equity..................... 116,652 524,317 256,789 (579,399) 318,359
---------- ---------- ---------- --------- ---------
Total liabilities and shareholders'
equity................................ 356,607 567,518 333,954 (613,370) 644,709
========== ========= ========== ========= =========
CASH FLOW INFORMATION:
Net cash provided by (used in) operating
activities............................ (5,682) 10,428 35,462 (8,962) 31,246
Net cash provided by (used in) investing
activities............................ 38,050 (17,105) (33,931) 7,080 (5,906)
Net cash provided by (used in) financing
activities............................ (32,363) 3,673 (4,451) 1,882 (31,259)
Cash at beginning........................ 8 4,346 12,503 -- 16,857
Cash at end.............................. 13 1,342 9,583 -- 10,938
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APPLICA INCORPORATED
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- CONTINUED
THREE MONTHS ENDED MARCH 31, 2000
-----------------------------------------------------------------------------
APPLICA
INCORPORATED GUARANTORS NON-GUARANTORS ELIMINATIONS CONSOLIDATED
------------ ---------- -------------- ------------ ------------
(IN THOUSANDS)
STATEMENT OF OPERATIONS:
Sales and other revenues -- 112,683 116,007 (81,999) 146,691
Cost of goods sold -- 86,701 97,575 (81,999) 102,277
--------- --------- ---------- ---------- ----------
Gross profit -- 25,982 18,432 -- 44,414
Operating expenses (1,272) 36,509 7,270 90 42,597
--------- --------- ---------- ---------- ----------
Operating profit (loss) 1,272 (10,527) 11,162 (90) 1,817
Other (income) expense, net 6,348 (470) (28) -- 5,850
--------- --------- ---------- ---------- ----------
Earnings (loss) before income taxes (5,076) (10,057) 11,190 (90) (4,033)
Income taxes (benefit) -- 43 2,107 (3,155) (1,005)
--------- --------- ---------- ---------- ----------
Net earnings (loss) (5,076) (10,100) 9,083 3,065 (3,028)
========= ========= ========== ========== ==========
BALANCE SHEET:
Cash 7 (3,460) 13,057 -- 9,604
Accounts and other receivables -- 110,790 51,141 -- 161,931
Receivables from affiliates (673) (39,941) 44,052 2 3,440
Inventories -- 118,227 64,278 (1,850) 180,655
Other current assets -- 17,936 13,313 (5,502) 25,747
--------- --------- ---------- ---------- ----------
Total current assets (666) 203,552 185,841 (7,350) 381,377
Investment in joint venture 426,067 113,052 70,543 (607,320) 2,342
Property, plant and equipment, net -- 16,311 64,873 -- 81,184
Other assets -- 399,148 11,177 (169,652) 240,673
--------- --------- ---------- ---------- ----------
Total assets 425,401 732,063 332,434 (784,322) 705,576
========= ========= ========== ========== ==========
Notes and acceptances payable -- -- 1,716 -- 1,716
Accounts payable and accrued expenses -- 22,173 56,495 -- 78,668
Current maturities of long-term debt 15,342 -- -- -- 15,342
Deferred income, current portion -- 585 -- -- 585
Income taxes payable -- 1,034 6,293 (6,312) 1,015
--------- --------- ---------- ---------- ----------
Total current liabilities 15,342 23,792 64,504 (6,312) 97,326
Long-term debt 266,338 163,572 9,350 (172,922) 266,338
Deferred income, less current portion -- 227 -- -- 227
Deferred income taxes -- 16,253 2,847 (19,100) --
--------- --------- ---------- ---------- ----------
Total liabilities 281,680 203,844 76,701 (198,334) 363,891
Shareholders' equity 143,721 528,219 255,733 (585,988) 341,685
--------- --------- ---------- ---------- ----------
Total liabilities and shareholders'
equity 425,401 732,063 332,434 (784,322) 705,576
========= ========= ========== ========== ==========
CASH FLOW INFORMATION:
Net cash provided by (used in) operating
activities (5,077) 24,282 20,625 (61,460) (21,630)
Net cash provided by (used in) investing
activities (20,918) 31,020 (17,231) (2,221) (9,350)
Net cash provided by (used in) financing
activities 25,998 (62,701) (162) 63,681 26,816
Cash at beginning 4 3,939 9,825 -- 13,768
Cash at end 7 (3,460) 13,057 -- 9,604
10
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ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND
RESULTS OF OPERATIONS
As used in this Quarterly Report on Form 10-Q, "we," "our," "us," the
"Company" and "Applica" refer to Applica Incorporated and its subsidiaries,
unless the context otherwise requires.
The following discussion and analysis and the related financial data
present a review of the consolidated operating results and financial condition
of Applica for the three-month periods ended March 31, 2000 and 2001. This
discussion and analysis should be read in conjunction with the Consolidated
Financial Statements and Notes thereto contained in Applica's Annual Report on
Form 10-K for the year ended December 31, 2000.
FORWARD LOOKING STATEMENT DISCLOSURE
This document contains forward-looking statements within the meaning of
Section 27A of the Securities Act and Section 21E of the Exchange Act. Such
statements are indicated by words or phrases such as "anticipate," "projects,"
"management believes," "Applica believes," "intends," "expects," and similar
words or phrases. Such forward-looking statements are subject to certain risks,
uncertainties or assumptions and may be affected by certain other factors. These
factors include, but are not limited to:
o If we are unable to renew the Black & Decker(R) Trademark License
Agreement, our business could be adversely affected.
o The infringement or loss of our proprietary rights could have an
adverse effect on our business.
o 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.
o Our business is very sensitive to the strength of the U.S. retail
market and weakness in this market could adversely effect our business.
o Our performance can fluctuate with the financial condition of the
retail industry.
o Our business can be adversely effected by fluctuations in cost and
availability of raw materials and components.
o Our business involves the potential for product recalls and product
liability claims against us.
o We could be adversely affected by changing conditions in foreign
countries.
o Our business could be adversely affected by changes in trade relations
with China.
o Our business could be adversely affected by currency fluctuations in
our international operations.
o 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.
o 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.
o We are subject to several production-related risks that could
jeopardize our ability to realize anticipated sales and profits.
o Our operating results can be affected by seasonality.
o We compete with other large companies that produce similar products.
o Our debt agreements contain covenants that restrict our ability to take
certain actions.
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o A class action lawsuit has been brought against us in connection with
our acquisition of the Black & Decker Household Products Group; we
cannot predict the outcome of this lawsuit.
o Government regulations could adversely impact our operations.
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 its 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.
GENERAL
Applica is a manufacturer, marketer and distributor of a broad range of
branded and private-label small electric consumer goods. In 1998, Applica
acquired the Black & Decker Household Products Group and became a leading
supplier of brand name small household appliances in the United States. We also
manufacture and distribute professional personal care products, home environment
products and pet care products, including the LitterMaid(R) self-cleaning cat
litter box. We manufacture and market products under licensed brand names, such
as Black & Decker(R), our own brand names, such as Windmere(R), and other
private-label brand names. Our customers include mass merchandisers, specialty
retailers and appliance distributors primarily in North America, Latin America
and the Caribbean. Applica operates manufacturing facilities in China and
Mexico. In addition, Applica manufactures products on an "original equipment
manufacturing" (OEM) basis for other consumer products companies.
RESULTS OF OPERATIONS
The operating results of Applica expressed as a percentage of sales and
other revenues are set forth below:
Three Months Ended March 31,
----------------------------
2001 2000
------------- -----------
Sales and other revenues.................................. 100.0% 100.0%
Cost of goods sold........................................ 73.4 69.7
------- --------
Gross profit........................................... 26.6 30.3
Selling, general and administrative expenses.............. 28.1 29.1
Other (income) expense - net.............................. 4.1 4.0
------- --------
Loss before income taxes............................... (5.6) (2.8)
Income taxes benefit...................................... (1.5) (0.7)
------- --------
Net loss............................................... (4.1)% (2.1)%
======= ========
THREE MONTHS ENDED MARCH 31, 2001 COMPARED TO THREE MONTHS ENDED MARCH 31, 2000
SALES AND OTHER REVENUES. Sales and other revenues for Applica
increased by $5.1 million to $151.8 million, an increase of 3.5% over the first
quarter of 2000. The change was primarily the result of a $16.0 million net
increase in Black & Decker branded product sales, a $4.9 million increase in
Windmere and other branded product sales in Latin America and an increase of
$3.0 million in sales of professional personal care and home environment
products. The increase was offset by a decrease of $15.1 million in sales of
product categories that were exited in the 2000 repositioning and a decrease of
$3.7 million in OEM sales.
North America sales increased by $9.3 million, or 8.6%, to $117.9
million in the first quarter of 2001. The change is primarily attributable to a
$21.4 million increase in sales of Black & Decker branded products, a $3.0
increase in sales of professional personal care and home environment products
and a $15.1 million decrease in sales of products in exited categories.
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Sales for the international segment decreased by $0.5 million to $19.9
million, or 2.4%, from the 2000 period. The change resulted from a $5.4 million
decrease in Black & Decker branded products offset by $4.9 million increase in
Windmere and other branded products.
Sales at Applica's manufacturing subsidiaries decreased by $25.4
million, or 27.0%, to $68.2 million from the first quarter 2000. OEM sales
decreased by $3.7 million, or 28.0%, in the 2001 period to $9.5 million. The
decrease in manufacturing sales was primarily the result of the production slow
down at the Mexico and China factories.
GROSS PROFIT MARGIN. Applica's gross profit margin was 26.6% in the
first quarter as compared to 30.3% 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 as compared to the first quarter of 2000. The slowdown
of production in the China and Mexico factories during the first quarter
resulted in unabsorbed overhead. Applica will continue to take steps to reduce
year-over-year inventory levels, which may reduce gross margins in future
periods.
SELLING, GENERAL AND ADMINISTRATIVE EXPENSE. Selling, general and
administrative expenses for Applica remained flat at $42.7 million in the first
quarter of 2001, but decreased as a percentage of sales to 28.1% from 29.1% in
the 2000 period. In the first quarter 2001, distribution and freight costs
increased by $2.1 million. Such costs primarily related to the liquidation of
products exited in the 2000 repositioning and also reflected higher
year-over-year rates and fuel surcharges from freight carriers. This was offset
by a decrease of approximately $1.3 million in selling expenses that related to
Applica's consolidation of its external and internal sales force.
TAXES. Applica's tax expense is based on an estimated annual
aggregation of the taxes on earnings of each of its foreign and domestic
operations. The earnings of subsidiaries in Canada, Mexico and Latin America
(other than Chile) are generally taxed at rates comparable to or higher than
34%, the United States statutory rate. Income tax rates in Hong Kong and Chile
range between 8% and 16%. Applica does not make tax provisions for the
undistributed earnings of its foreign subsidiaries that it expects will be
permanently invested out of the United States.
In the first quarter of 2001, Applica had an effective tax rate of 26%,
as compared to 25% for the first quarter of 2000.
EARNINGS PER SHARE. All common stock equivalents have been excluded
from the per share calculations in the first quarter of 2001 and 2000 as Applica
incurred a net loss in both periods and such inclusion would have been
anti-dilutive.
LIQUIDITY AND CAPITAL RESOURCES
At March 31, 2001, Applica's working capital was $239.8 million, as
compared to $284.1 million at March 31, 2000. At March 31, 2001 and 2000,
Applica's current ratio was 3.4 to 1 and 3.9 to 1, respectively, and its quick
ratio was 2.0 to 1 and 2.0 to 1, respectively.
Cash balances decreased by $5.9 million to $10.9 million for the three
months ended March 31, 2001.
The net cash provided by operating activities, which totaled $31.2
million for the period, reflected primarily reductions in inventories, accounts
receivable, accounts payable and accrued expenses.
Cash used in investing activities totaled approximately $5.9 million
for the period, as compared to $9.4 million for the three-month period ended
March 31, 2000, and consisted primarily of capital expenditures at Applica's
manufacturing facilities.
Cash used in financing activities totaled approximately $31.3 million
in the period, as compared to cash provided by financing activities of $26.8
million in the 2000 period, and reflected the change in debt levels in 2001 and
2000.
Certain of Applica's foreign subsidiaries have approximately $57.8
million in trade finance lines of credit, payable on demand, which are secured
by the subsidiaries' tangible and intangible property, and in some cases, a
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guarantee by the parent company, Applica Incorporated. Outstanding borrowings by
Applica's Hong Kong subsidiaries are primarily in U.S. dollars.
Applica's primary sources of liquidity are its cash flow from
operations and borrowings under its Senior Secured Credit Facilities. The Senior
Secured Credit Facilities, as amended, consist of a Senior Secured Revolving
Credit Facility, a Tranche A Term Loan and a Tranche B Term Loan. As of May 1,
2001, Applica was borrowing approximately $110 million under the term loan
portion of its Senior Secured Credit Facilities. The Senior Secured Revolving
Credit Facility as amended, provides for borrowings by Applica of up to $160
million. As of May 1, 2001, Applica had no borrowings under the Senior Secured
Revolving Credit Facility and had approximately $100.6 million available for
future cash borrowings as determined by the borrowing base under the Senior
Secured Credit Facilities. Advances under the Senior Secured Revolving Credit
Facility are based upon percentages of outstanding eligible accounts receivable
and inventories.
At March 31, 2001, the interest rate applicable to the loans made under
the revolving credit facility and the Tranche A Term Loan (other than Swing Line
Loans) was 6.84% as compared to 7.75% at March 31, 2000. The interest rate
applicable to the Tranche B Term Loan was 7.84% as compared to 8.75% for the
2000 period. Swing Line Loans bore interest at 9.25 % at March 31, 2001 as
compared to 10.25% at March 31, 2000.
At March 31, 2001, debt as a percent of total capitalization was 45.1%,
as compared to 47.4% at December 31, 2000.
Applica's aggregate capital expenditures for the three month ended
March 31, 2001 were $6.0 million as compared to $9.7 million for the 2000
period. Such expenditures related to capital expenditures at Applica's
manufacturing facilities. Applica anticipates that the total capital
expenditures for 2001 will be approximately $25.0 million to $35.0 million.
Applica plans to fund such capital expenditures from cash flow from operations
and, if necessary, borrowings under the Senior Secured Revolving Credit
Facility.
Applica's ability to make scheduled payments of principal of, or to pay
the interest on, or to refinance, its indebtedness, or to fund planned capital
expenditures, product development expenses and marketing expenses will depend on
its future performance, which, to a certain extent, is subject to general
economic, financial, competitive, legislative, regulatory, and international and
United States domestic political factors and other factors that are beyond its
control. Based upon the current level of operations and anticipated cost savings
and revenue growth, management believes that cash flow from operations and
available cash, together with available borrowings under the Senior Secured
Credit Facilities and other facilities, will be adequate to meet Applica's
future liquidity needs for at least the next several years. There can be no
assurance that Applica's business will generate sufficient cash flow from
operations, that anticipated revenue growth and operating improvements will be
realized or that future borrowings will be available under the Senior Secured
Credit Facilities in an amount sufficient to enable Applica to service its
indebtedness, including the outstanding 10% notes, or to fund its other
liquidity needs. In addition, there can be no assurance that Applica will be
able to effect any needed refinancing on commercially reasonable terms or at
all.
Applica is also involved in certain ongoing litigation. See Part II.
"Item 1 - Legal Proceedings."
ITEM 3. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK
Applica's major market risk exposure is to changing interest rates,
debt obligations issued at a fixed rate and fluctuations in the currency
exchange rates. Applica's policy is to manage interest rate risk through the use
of a combination of fixed and floating rate instruments, with respect to both
its liquid assets and its debt instruments. The Senior Credit Facilities
currently bear interest at LIBOR plus an applicable margin and thus are affected
by changes in interest rates.
For additional information, see Footnote 1, "Derivative Financial
Instruments," of the Notes to Consolidated Financial Statements included
elsewhere in this Form 10-Q Report.
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PART II. OTHER INFORMATION
ITEM 1. LEGAL PROCEEDINGS
SHAREHOLDER LITIGATION AND RELATED MATTERS. Applica is a defendant in
SHERLEIGH ASSOCIATES LLC AND SHERLEIGH ASSOCIATES INC. PROFIT SHARING PLAN, ON
THEIR OWN BEHALF AND ON BEHALF OF ALL OTHERS SIMILARLY SITUATED V.
WINDMERE-DURABLE HOLDINGS, INC., DAVID M. FRIEDSON AND NATIONSBANC MONTGOMERY
SECURITIES LLC, 98-2273-CIV-LENARD which was filed in the United States District
Court, Southern District of Florida in October 1998. Discovery procedures have
been initiated and are ongoing.
In connection with the Household Products Group acquisition, Applica
also received two derivative demands from certain shareholders alleging breach
of fiduciary duties by certain of our officers and directors. An independent
committee of the Board of Directors is currently conducting an investigation as
to whether such derivative actions are in the best interest of Applica.
SALTON LITIGATION. Applica is also a defendant in SALTON, INC. V
WINDMERE-DURABLE HOLDINGS, INC. AND WINDMERE CORPORATION, which was filed in the
United States District Court, Northern District of Illinois in January 2001.
Applica filed its answer and affirmative defenses in March 2001.
OTHER MATTERS. Applica is subject to other legal proceedings, product
liability claims and other claims that arise in the ordinary course of our
business. In the opinion of management, the amount of ultimate liability with
respect to such matters, if any, in excess of applicable insurance coverage, is
not likely to have a material effect on the financial condition, results of
operations or liquidity of Applica. However, as the outcome of litigation or
other claims is difficult to predict, significant changes in the estimated
exposures could occur.
ITEM 6. EXHIBITS AND REPORTS ON FORM 8-K.
(a) Exhibits:
None.
(b) Reports on Form 8-K:
None.
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SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of 1934,
the registrant has duly caused this report to be signed on its behalf by the
undersigned thereunto duly authorized.
APPLICA INCORPORATED
(Registrant)
May 4, 2001 By: /s/ Harry D. Schulman
----------------------------------
Harry D. Schulman
President, Chief Operating Officer
and Secretary
May 4, 2001 By: /s/ Terry L. Polistina
---------------------------------
Terry L. Polistina
Senior Vice President and Chief
Financial Officer
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