APN Apeiron Capital Investment Corp

Applica Incorporated Reports 2004 Second-Quarter and First Half Financial Results MIAMI LAKES, Fla., Aug. 5 /PRNewswire-FirstCall/ -- Applica Incorporated (NYSE:APN) today announced that second-quarter sales for 2004 were $159.0 million, an increase of 16.2% from the same period in 2003. The increase in sales in the second quarter resulted primarily from several new product launches and increased sales of Black & Decker(R) branded products. For the first six months of 2004, sales were $291.5 million, an increase of 12.9% over the first half of 2003. The increase was largely the result of growth in sales of Black & Decker(R) branded products benefiting from better point-of-sale of such products, as well as retailers beginning the year at lower inventory levels. As previously announced, as a result of the decision to exit its Chinese manufacturing operations, Applica has changed its position with regard to permanently investing $85.5 million of previously undistributed foreign earnings outside of the United States. As a result, there was an additional tax charge in the second quarter of approximately $24.0 million ($1.00 per share), which reflects the U.S. taxes on those earnings. Management believes that the cash impact of these taxes in 2004 will be less than $2.0 million as the result of the use of net operating losses carry forward and foreign tax credits. Also as previously announced, in the second quarter of 2004, the Company recognized a non-cash adjustment to goodwill of $62.8 million (or $46.4 million after tax) as the result of its annual test of its existing goodwill for impairment in accordance with Statement of Financial Accounting Standards (SFAS) No. 142, "Goodwill and Other Intangible Assets." The adjustment was reported as an impairment of goodwill and reduced reported earnings by $1.93 per share for the quarter. The impairment did not impact the Company's cash position. Additionally, in accordance with SFAS No. 109, "Accounting for Income Taxes," Applica evaluated the realization of its deferred tax assets. Based on the events discussed above and recent historical losses, Applica increased its allowance related to such assets to $51.4 million in the second quarter, resulting in a non-cash tax expense of $2.14 per share. Applica reported a net loss for the 2004 second quarter of $123.8 million, or $5.16 per share, compared with a loss of $2.8 million, or $0.12 per share, for the 2003 second quarter. The second-quarter 2003 earnings included $1.5 million of equity in the net earnings of a joint venture in which Applica owned a 50% interest. For the first half of 2004, Applica reported a net loss of $128.3 million, or $5.38 per share, as compared to net income of $16.8 million, or $0.71 per diluted share for the same period last year. The 2003 first-half earnings included $39.0 million of equity in the net earnings of a joint venture. Applica's gross profit margin increased to 30.5% in the three-month period ended June 30, 2004 as compared to 27.8% for the same period in 2003. The increase was primarily attributed to lower product costs resulting from moving core products from Mexico to China, the launch of new products carrying higher margins and better overhead absorption at our manufacturing facilities during 2004. The increases were offset by increases in raw materials costs, higher inbound freight expenses and start-up expenses related to the launch of the Home Caf�(TM) single cup brewing system. For the first half of the year, the gross profit margin increased to 29.5% as compared to 29.1% for the same period in 2003. Harry D. Schulman, President and Chief Executive Officer stated, "The combination of inflation in raw materials prices, along with the deflationary pressures from the retail environment, has caused the most severe margin pressure in recent memory. We have been making changes since 2003 to address this matter. We are focusing on more innovative products with higher margins, we have been rationalizing our manufacturing and sourcing strategy and we are attempting to improve our pricing to our customers. The sale of our Chinese manufacturing facilities will allow us to reduce our fixed overhead and risk profile, and will allow us to become more flexible in our ability to react to a rapidly changing global marketplace." At June 30, 2004, total debt as a percentage of total capitalization was 56.3%, with total debt of $143.4 million and shareholders' equity of $111.3 million. Capital expenditures for the first six months ended June 30, 2004 and 2003 were $8.3 million and $7.6 million, respectively. Applica will hold a conference call today at 11:00 a.m., Eastern Daylight Time, to discuss its second-quarter and year-to-date results and to give guidance on future results and trends in operations. Live audio of the conference call will be simultaneously broadcast over the Internet and will be available to members of the news media, investors and the general public. The conference call is expected to last approximately one hour. Broadcast of the event can be accessed on the Company's website, http://www.applicainc.com/ by clicking on the Investor Relations page. You may also access the call via CCBN, at http://www.streetevents.com/ . The event will be archived and available for replay through Thursday, August 12, 2004, at midnight. Applica Incorporated and its subsidiaries are marketers and distributors of a broad range of branded small electric consumer goods. Applica markets and distributes kitchen products, home products, pest control products, pet care products and personal care products. Applica markets products under licensed brand names, such as Black & Decker(R), its own brand names, such as Windmere(R), LitterMaid(R) and Applica(R), and other private-label brand names. Applica's customers include mass merchandisers, specialty retailers and appliance distributors primarily in North America, Latin America and the Caribbean. The Company operates manufacturing facilities in Mexico. Additional information regarding the Company is available at http://www.applicainc.com/ . Certain matters discussed in this news release are forward-looking statements that are subject to certain risks and uncertainties that could cause actual results to differ materially from those set forth in the forward- looking statements. These factors include uncertainties regarding our transition from manufacturers to a company that purchases all of its products from third party sources; the relocation of our Miami Lakes, Florida offices; success or failure of our growth strategy; increases in cost and availability of raw materials and components; complications resulting from our implementation of the new ERP system; our dependence on purchases from large customers; our ability to renew the Black & Decker(R) trademark license agreement; the strength of the U.S. retail market; currency fluctuations in our international operations; the potential for product recalls and product liability claims against us; the bankruptcy or loss of a major retail customer, distributor or supplier; the risks of our international operations; changes in trade relations with China; our dependence on the timely development, introduction and customer acceptance of products; competitive products and pricing; dependence on foreign suppliers and supply and manufacturing constraints; cancellation or reduction of orders; and other risks and uncertainties detailed from time to time in the Company's Securities and Exchange Commission filings, including the Annual Report on Form 10-K for the year ended December 31, 2003. Readers are cautioned not to place undue reliance on forward-looking statements. Applica undertakes no obligation to publicly revise any forward-looking statements to reflect events or circumstances that arise after the date hereof. Applica Incorporated and Subsidiaries CONSOLIDATED BALANCE SHEETS Assets June 30, 2004 December 31, (Unaudited) 2003 (In thousands) Current Assets: Cash and cash equivalents $4,993 $12,735 Accounts and other receivables, less allowances of $11,587 in 2004 and $12,543 in 2003 115,144 131,021 Notes receivable - officers 1,533 1,615 Inventories 154,350 106,326 Prepaid expenses and other 12,266 13,593 Refundable income taxes 3,335 4,823 Future income tax benefits 1,820 11,616 Total current assets 293,441 281,729 Investment in Joint Venture 4,200 5,389 Property, Plant and Equipment - at cost, less accumulated depreciation of $109,275 in 2004 and $103,894 in 2003 71,349 70,389 Future Income Tax Benefits, Non-Current 5,312 49,695 Goodwill -- 62,812 Other Intangibles, Net 5,388 6,146 Other Assets 2,185 2,676 Total Assets $381,875 $478,836 Liabilities and Shareholders' Equity Current Liabilities: Accounts payable $69,604 $39,273 Accrued expenses 53,753 61,362 Notes and acceptances payable 9,025 -- Current maturities of long-term debt 158 151 Current taxes payable 2,578 2,172 Deferred rent 468 301 Total current liabilities 135,586 103,259 Other Long-Term Liabilities 827 1,327 Long-Term Debt, Less Current Maturities 134,182 136,637 Shareholders' Equity: Common stock - authorized:75,000 shares of $.10 par value; issued and outstanding: 24,068 shares in 2004 and 23,687 shares in 2003 2,407 2,369 Paid-in capital 158,750 156,604 (Accumulated deficit) retained earnings (41,823) 86,474 Note receivable - officer (1,496) (1,496) Accumulated other comprehensive earnings (loss) (6,558) (6,338) Total shareholders' equity 111,280 237,613 Total Liabilities and Shareholders' Equity $381,875 $478,836 Applica Incorporated and Subsidiaries CONSOLIDATED STATEMENTS OF OPERATIONS (Unaudited) Three Months Ended June 30, 2004 2003 (In thousands, except per share data) Net sales $158,993 100.0% $136,847 100.0% Cost of goods sold 110,505 69.5 98,742 72.2 Gross profit 48,488 30.5 38,105 27.8 Selling, general and administrative expenses: Operating expenses 50,339 31.7 40,544 29.6 Impairment of goodwill 62,812 39.5 -- -- Operating loss (64,663) (40.7) (2,439) (1.8) Other expense (income): Interest expense 2,243 1.4 3,947 2.9 Interest and other income (642) (0.4) (244) (0.2) 1,601 1.0 3,703 2.7 Loss before equity in net earnings of joint venture and income taxes (66,264) (41.7) (6,142) (4.5) Equity in net earnings of joint venture -- -- 1,500 1.1 Loss before income taxes (66,264) (41.7) (4,642) (3.4) Income tax provision (benefit) 57,554 36.2 (1,857) (1.4) Net loss $(123,818) (77.9)% $(2,785) (2.0)% Earnings (loss) per common share: Loss per common share - basic and diluted $(5.16) $(0.12) Applica Incorporated and Subsidiaries CONSOLIDATED STATEMENTS OF OPERATIONS (Unaudited) Six Months Ended June 30, 2004 2003 (In thousands, except per share data) Net sales $291,486 100.0% $258,086 100.0% Cost of goods sold 205,527 70.5 182,959 70.9 Gross profit 85,959 29.5 75,127 29.1 Selling, general and administrative expenses: Operating expenses 93,883 32.2 78,881 30.6 Repositioning charge (563) (0.2) -- -- Impairment of goodwill 62,812 21.5 -- -- Operating loss (70,173) (24.1) (3,754) (1.5) Other expense (income): Interest expense 4,358 1.5 7,834 3.0 Interest and other income (989) (0.3) (648) (0.3) Loss on early extinguishment of debt 187 0.1 -- -- 3,556 1.2 7,186 2.8 Loss before equity in net earnings of joint venture and income taxes (73,729) (25.3) (10,940) (4.2) Equity in net earnings of joint venture -- -- 39,000 15.1 (Loss) earnings before income taxes (73,729) (25.3) 28,060 10.9 Income tax provision 54,568 18.7 11,224 4.3 Net (loss) earnings $(128,297) (44.0)% $16,836 6.5% Earnings (loss) per common share : (Loss) earnings per common share - basic $(5.38) $0.72 (Loss) earnings per common share - diluted $(5.38) $0.71 DATASOURCE: Applica Incorporated CONTACT: Investor Relations Department of Applica Incorporated, +1-305-362-2611, or Web site: http://www.applicainc.com/

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