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Applica Reports Declined Q2 Results, Approved Merger
Aug 3, 2006
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Applica Incorporated announced that second-quarter sales for 2006 were U.S. $104.5 million compared to sales of $116.5 million in the same period in 2005. Sales for the first 6 months of 2006 were $208.5 million compared to sales of $228.9 million in the same period in 2005. The decline in consolidated sales during the first half of 2006 was the result of the product and customer profitability review, inventory management by key retailers and certain supply shortages, which primarily impacted the first quarter.

Applica's gross profit in the second quarter of 2006 was $31.0 million, an increase of 35.0 percent compared to $23.0 million for the second quarter of 2005. Gross profit margin was 29.7 percent in the 3-month period ended June 30, 2006 as compared to 19.7 percent for the same period in 2005. Gross profit for the second quarter of 2006 included the sale of products produced in Mexico that included $0.9 million of capitalized losses related to the closure of Applica's Mexican manufacturing facility.

Applica's gross profit in the first half of 2006 was $55.6 million, an increase of 33.4 percent compared to $41.7 million for the first half of 2005. Gross profit margin was 26.7 percent in the 6-month period, compared to 18.2 percent for the same period in 2005. Gross profit for the first half of 2006 included the following: $3.7 million related to a product recall; and the sale of products produced in Mexico that included $2.7 million of capitalized losses related to the closure of Applica's Mexican manufacturing facility.

Gross profits in the second quarter and the first half of 2005 were negatively impacted by: inventory write-downs related to an adjustment to the net realizable value of two products ($3.4 million for the second quarter and $12.8 million for the first half of 2005); higher product warranty returns and related expenses primarily related to manufacturing transition issues in Mexico and China ($1.2 million for the second quarter and $4.5 million for the first half of 2005); and losses in the Mexico manufacturing operations related to our transition from manufacturing to sourcing ($5.0 million for the second quarter and $7.9 million in the first half of 2005).

Applica reported a net loss for the second quarter of $6.0 million, or $0.25 per diluted share, compared to a net loss of $18.5 million, or $0.77 per diluted share, for the 2005 second quarter. Applica reported a net loss for the first half of 2006 of $18.9 million, or $0.78 per diluted share, compared to a net loss of $41.5 million, or $1.72 per diluted share, for the first 6 months of 2005.

On July 23, 2006, Applica, Nacco Industries, Inc. and HB-PS Holding Company, Inc., a wholly owned subsidiary of Nacco ("Hamilton Beach/Proctor-Silex"), entered into definitive agreements whereby Nacco will spin off its Hamilton Beach/Proctor-Silex business to NACCO's stockholders and, immediately after the spin-off, Applica will merge with and into Hamilton Beach/Proctor-Silex. The combined public company will be named Hamilton Beach, Inc.

The transaction, which was approved by the board of directors of Applica, will be tax-free to shareholders of Applica. The transaction is subject to approval by Applica's stockholders and to regulatory approvals and other customary closing conditions.

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