Back to GetFilings.com

Table of Contents

UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, DC 20549

FORM 10-Q

QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d)
OF THE
SECURITIES EXCHANGE ACT OF 1934

FOR THE QUARTERLY PERIOD ENDED JUNE 30, 2002
COMMISSION FILE NUMBERS: 333-44473
333-77905

THE HOLMES GROUP, INC.
(EXACT NAME OF REGISTRANT AS SPECIFIED IN ITS CHARTER)

(508) 634-8050
(REGISTRANT’S TELEPHONE NUMBER)

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   NO 

Table of Contents

THE HOLMES GROUP, INC.

FORM 10-Q

QUARTER ENDED JUNE 30, 2002

TABLE OF CONTENTS

2

Table of Contents

PART I. FINANCIAL INFORMATION

ITEM 1. FINANCIAL STATEMENTS

THE HOLMES GROUP, INC.
CONSOLIDATED BALANCE SHEET
(IN THOUSANDS EXCEPT SHARE AND PER SHARE AMOUNTS)

The accompanying notes are an integral part of these consolidated financial statements

3

Table of Contents

THE HOLMES GROUP, INC.
CONSOLIDATED STATEMENT OF OPERATIONS (UNAUDITED)
(IN THOUSANDS)

The accompanying notes are an integral part of these consolidated financial statements.

4

Table of Contents

THE HOLMES GROUP, INC.
CONSOLIDATED STATEMENT OF CASH FLOWS (UNAUDITED)
(IN THOUSANDS)

The accompanying notes are an integral part of these consolidated financial statements.

5

Table of Contents

THE HOLMES GROUP, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
JUNE 30, 2002

1. NATURE OF BUSINESS

The Holmes Group, Inc. (“THG”), along with its wholly-owned subsidiary, The Rival Company (“Rival”) and its subsidiaries, designs, develops, manufactures, imports and sells consumer durable goods, including fans, heaters, humidifiers, air purifiers, small kitchen electric appliances and lighting products, to retailers throughout the United States and Canada, and to a lesser extent, Europe, Latin America and Asia.

Holmes Products (Far East) Limited (“HPFEL”) and its subsidiaries manufacture, source and sell consumer durable goods, including fans, heaters and humidifiers and kitchen electrics, mainly to THG. HPFEL operates facilities in Hong Kong, Taiwan and The People’s Republic of China.

HPFEL is a wholly-owned subsidiary of THG. Prior to a 1997 recapitalization transaction in which THG’s current majority shareholders, investment funds managed by Berkshire Partners LLC (“Berkshire Partners”), invested in THG, THG and HPFEL were both directly or indirectly 80%-owned subsidiaries of Asco Investments Ltd., a subsidiary of Pentland Group plc (“Pentland”).

2. SUMMARY OF SIGNIFICANT ACCOUNTING PRINCIPLES

Basis of Consolidation

The accompanying unaudited financial statements include the accounts of THG and its wholly-owned subsidiaries, Rival, HPFEL, Holmes Manufacturing Corp., Holmes Air (Taiwan) Corp. and Holmes Motor Corp. The accompanying unaudited financial statements also include the accounts of Rival’s direct and indirect wholly-owned subsidiaries, Bionaire International B.V., Patton Electric (Hong Kong) Limited, Rival Consumer Sales Corporation, The Holmes Group Canada, Ltd., Rival de Mexico S.A. de C.V. and HPFEL’s wholly-owned subsidiaries, Esteem Industries Ltd., Raider Motor Corp., Dongguan Huixin Electrical Products Company, Ltd., Holmes Products (Europe) Ltd., Dongguan Holmes Products Ltd. and Dongguan Raider Motor Corp. Ltd. All significant inter-company balances and transactions have been eliminated.

THG and its consolidated subsidiaries, including Rival, HPFEL and their respective subsidiaries, are referred to herein as the “Company.”

Recent Accounting Principles

In June 2001, the Financial Accounting Standards Board (the FASB) issued Statement of Financial Accounting Standards No. 141, “Business Combinations” (FAS 141) and No. 142, “Goodwill and Other Intangible Assets” (FAS 142). FAS 141 supersedes Accounting Principles Board Opinion (APB) No. 16, “Business Combinations.” The provisions of FAS 141 (i) require that the purchase method of accounting be used for all business combinations initiated after June 30, 2001, (ii) provide specific criteria for the initial recognition and measurement of intangible assets apart from goodwill, and (iii) require that unamortized negative goodwill be written off immediately as an extraordinary gain instead of being deferred and amortized. FAS 141 also requires that upon adoption of FAS 142 the Company reclassify the carrying amounts of certain intangible assets into or out of goodwill, based on certain criteria.

FAS 142 supersedes APB 17, “Intangible Assets,” and is effective for fiscal years beginning after December 15, 2001. FAS 142 primarily addresses the accounting for goodwill and intangible assets subsequent to their initial recognition. The provisions of FAS 142 (i) prohibit the amortization of goodwill and indefinite-lived intangible assets, (ii) require that goodwill and indefinite-lived intangibles assets be tested annually for impairment (and in interim periods if certain events occur indicating that the carrying value of goodwill and/or indefinite-lived intangible assets may be impaired), (iii) require that reporting units be identified for the purpose of assessing potential future impairments of goodwill, and (iv) remove the forty-year limitation on the amortization period of intangible assets that have finite lives.

The Company’s application of the non-amortization provisions of FAS 142 will result in an increase in net earnings of approximately $2.5 million per year. For the three and six months ended June 30, 2001, the Company’s net loss, adjusted for $0.7 million and $1.3 million of amortization expense recorded in the consolidated statement of operations, which is no longer being amortized in accordance with the provisions of FAS 142, was approximately $11.8 million and $15.7 million, respectively. FAS 142 requires that goodwill be tested annually for impairment using a two-step process. The first step is to identify a potential impairment and, in transition, this step must be measured as of the beginning of the fiscal year. Under the implementation provisions of FAS 142, the Company had until June 30, 2002 to complete step one. The second step of the goodwill impairment test measures the amount of the impairment loss, if any, and must be completed as soon as possible but no later than the end of fiscal 2002. The Company has completed step one of the goodwill impairment test during the second quarter of 2002 and has determined that goodwill associated with the kitchen and home environment reporting units is significantly impaired under FAS 142. This impairment loss will be reflected as the cumulative effect of a change in accounting principle as of January 1, 2002. Impairment losses recognized subsequent to the initial adoption of FAS 142 will be recorded as a charge to current period earnings.

6

Table of Contents

THE HOLMES GROUP, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS — (CONTINUED)

As of June 30, 2002, the Company had goodwill of approximately $80 million which is subject to the transitional goodwill impairment test. These reporting units are recorded within the consumer durables segment as reported in Note 8. Because of the level of effort needed to comply with adopting FAS 142, it is not practicable to reasonably estimate the impairment charge that the Company will record upon finalization of the FAS 142 implementation provisions.

In July 2001, the FASB issued Statement of Financial Accounting Standards No. 143, “Accounting for Asset Retirement Obligations” (FAS 143). FAS 143 requires entities to record the fair value of a liability for an asset retirement obligation in the period in which it is incurred. When the liability is initially recorded, the entity is required to capitalize the cost by increasing the carrying amount of the related long-lived asset. Over time, the liability is accreted to its present value each period, and the capitalized cost is depreciated over the useful life of the related asset. FAS 143 is effective for fiscal years beginning after June 15, 2002 and will be adopted by the Company effective fiscal 2003. The Company is currently evaluating the effect of implementing FAS No. 143.

In August 2001, the FASB issued Statement of Financial Accounting Standards No. 144, “Accounting for the Impairment or Disposal of Long-lived Assets” (FAS 144), which supersedes Statement of Financial Accounting Standards No. 121, “Accounting for the Impairment of Long-lived Assets and for Long-lived Assets to Be Disposed Of” (FAS 121), and the accounting and reporting provisions of APB Opinion No. 30, “Reporting the Results of Operations — Reporting the Effects of Disposal of a Segment of a Business, and Extraordinary, Unusual and Infrequently Occurring Events and Transactions” (APB 30), for the disposal of a segment of a business. Because FAS 121 did not address the accounting for a segment of a business accounted for as a discontinued operation under APB 30, two accounting models existed for long-lived assets to be disposed. FAS 144 establishes a single accounting model, based on the framework established in FAS 121, for long-lived assets to be disposed. It also addresses certain significant implementation issues under FAS 121. The provisions of FAS 144 were adopted by the Company as of the beginning of fiscal year 2002 with no material effect on the consolidated financial statements.

In November 2001, FASB Emerging Issues Task Force (“EITF”) reached a consensus on Issue No. 01-9 (formerly EITF Issue 00-25), “Accounting for Consideration Given to a Customer or a Reseller of the Vendor’s Products.” This issue addresses the recognition, measurement and income statement classification of consideration from a vendor to a customer in connection with the customer’s purchase or promotion of the vendor’s products. This consensus only impacts revenue and expense classifications and does not change reported net income. In accordance with the consensus reached, the Company adopted the required accounting as of January 1, 2002, and reclassified as deductions from net sales approximately $2.3 million and $4.3 million of cooperative advertising expenses which were previously classified as selling expenses in the consolidated statement of operations for the three and six months ended June 30, 2001, respectively.

The FASB issued Statement No. 145, “Rescission of FASB Statements No. 4, 44 and 64, Amendment of FASB Statement No. 13, and Technical Corrections” (“FAS No. 145”) in April 2002. This statement updates, clarifies and simplifies existing accounting pronouncements. Specifically, the statement rescinds FASB Statement No. 4, “Reporting Gains and Losses from Extinguishment of Debt” (“FAS No. 4”), FASB Statement No. 64, “Extinguishment of Debt Made to Satisfy Sinking Fund Requirements” (“FAS No. 64”) and FASB Statement No. 44, “Accounting for Intangible Assets of Motor Carriers.” This statement also amends FASB Statement No. 13, “Accounting for Leases” (“FAS No. 13”) and certain other existing authoritative pronouncements to make technical corrections or clarifications. FAS No. 145 will be effective for THG related to the rescission of FAS No. 4 and FAS No. 64 on January 1, 2003. FAS No. 145 will be effective related to the amendment of FAS No. 13 for all transactions occurring after May 15, 2002. All other provisions of FAS No. 145 will be effective for financial statements issued after May 15, 2002. The Company is currently evaluating the effect of implementing FAS No. 145.

In July 2002, the FASB issued Statement of Financial Accounting Standards No. 146, “Accounting for Costs Associated with Exit or Disposal Activities” (FAS 146), which nullifies Emerging Issues Task Force (EITF) Issue No. 94-3, “Liability Recognition for Certain Employee Termination Benefits and Other Costs to Exit an Activity (including Certain Costs Incurred in a Restructuring).” FAS 146 requires a liability for a cost associated with an exit or disposal activity be recognized and measured initially at its fair value in the period in which the liability is incurred. If fair value cannot be reasonably estimated, the liability shall be recognized initially in the period in which fair value can be reasonably estimated. The provisions of FAS 146 will be effective for the Company prospectively for exit or disposal activities initiated after December 31, 2002. The Company is in the process of assessing the impact of FAS 146 on its consolidated financial statements.

3.     DIVESTITURES

Subsequent to the acquisition of Rival on February 5, 1999, the Company initiated certain restructuring actions to effectively integrate and consolidate the Rival operations into THG. Among these actions, the Company announced the closure of Rival’s Warrensburg, Missouri facility in 2000. This facility was subsequently sold for $1,965,000 during the first quarter of 2001 at a net gain of $559,000. This gain was classified as other income in the consolidated statement of operations.

7

Table of Contents

THE HOLMES GROUP, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS — (CONTINUED)

On June 28, 2001, the Company announced that the Sedalia, Missouri manufacturing plant would be closed. The activities of this plant were moved to the other existing plants in Clinton, Missouri and Jackson, Mississippi. As a result, approximately 300 additional manufacturing, engineering and office positions were eliminated. In connection with the foregoing, the Company recorded a $727,000 restructuring charge for the severance and other employee related costs in accordance with EITF 94-3 “ Liability Recognition for Certain Employee Termination Benefits and Other Costs to Exit an Activity (including Certain Costs Incurred in a Restructuring)”. Severance payments to these employees is expected to be paid during 2002. Additionally, the Company recorded a $467,000 charge for restructuring associated with the Sedalia plant closure. Included in this charge are asset write-downs of redundant property, plant and equipment of $417,000 and facility exit costs of $50,000. The remaining net book value of the Sedalia plant is shown as assets held for sale in the consolidated balance sheet at June 30, 2002 and December 31, 2001.

In January 2002, the Company announced that the Sedalia, Missouri distribution center would be closed. The activities of this facility will be moved to the other existing distribution centers in Clinton, Missouri and City of Industry, California. In connection with the foregoing, the Company recorded a $1,787,000 restructuring charge, which includes a $1,687,000 charge for asset write-downs of redundant property, plant and equipment to the estimated net realizable value and facility exit costs of $100,000. The remaining net book value of the facility has been shown as assets held for sale in the consolidated balance sheet as of June 30, 2002.

The reserve activity for fiscal 2002 is as follows (in thousands):

The cash payments recorded in fiscal 2002 relate to severance payments to former employees in the first six months of 2002.

8

Table of Contents

THE HOLMES GROUP, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS — (CONTINUED)

On January 14, 2002, the Company sold substantially all of the assets of its Pollenex® division, which marketed personal care products, which was acquired as part of the Rival acquisition, for approximately $15.1 million. The proceeds received for the assets sold, which consisted primarily of inventory and property, plant and equipment, exceeded the net asset values recorded by approximately $9.1 million and has been recorded as other income in the consolidated statement of operations.

4.     UNAUDITED INTERIM FINANCIAL STATEMENTS

In the opinion of management, the accompanying unaudited condensed consolidated financial statements contain all adjustments, consisting of normal recurring accruals, considered necessary for a fair presentation of the Company’s financial position as of June 30, 2002 and the Company’s results of operations and cash flows for the three and six months ended June 30, 2001 and 2002. This interim financial information and notes thereto should be read in conjunction with the Company’s Annual Report on Form 10-K for the year ended December 31, 2001. Due to the seasonality of the Company’s business, the Company’s consolidated results of operations for the three and six month periods ended June 30, 2002 are not necessarily indicative of the results to be expected for any other interim period or the entire fiscal year.

5.     INVENTORIES

All inventories are stated at the lower of cost or market. Cost is determined using the first-in, first-out (FIFO) method on approximately 80% of the inventories and the last-in, first-out method (LIFO) for the remaining 20% of the inventory. Inventories are as follows:

9

Table of Contents

THE HOLMES GROUP, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS — (CONTINUED)

6. LONG-TERM DEBT

Senior Subordinated Notes

In connection with the Company’s 1997 recapitalization transactions, as disclosed in prior filings, and the Rival acquisition referred to in Note 3, THG issued $105.0 million and $31.3 million, respectively, in senior subordinated notes, maturing on November 15, 2007 (the “Notes”). The Notes bear interest at 9 7/8%, payable semi-annually on May 15 and November 15. No principal is due until the maturity date.

The Notes are subordinated to the Company’s other debt, including the Credit Facility (as described below). The Notes are guaranteed by THG’s current and future domestic subsidiaries (see Note 11) on a full, unconditional and joint and several basis, but are otherwise unsecured.

THG can, at its option, redeem the Notes at any time after November 15, 2002, subject to a fixed schedule of redemption prices which declines from 104.9% to 100% of the face value. Additionally, upon certain sales of stock or assets or a change of control of THG, THG must offer to repurchase all or a portion of the Notes at a redemption price of 101% of face value.

In conjunction with the Fifth Amendment of the Company’s Credit Facility, as described below, Holmes repurchased from two Berkshire Partners’ investment funds an aggregate principal amount of approximately $36.2 million of the Notes. The purchase price of the Notes, representing Berkshire Partners’ cost, was $11.5 million plus accrued interest, which was funded with proceeds of the revolving credit loan B described below. The Notes repurchased were retired and cancelled. This resulted in an extraordinary gain on the early retirement of debt of $22.4 million that was recorded in the consolidated statement of operations for the six months ended June 30, 2002. This gain is net of the write-off of approximately $1.9 million of debt issuance costs and $0.3 million of debt issuance discount associated with the senior subordinated notes and $0.1 million of transaction fees. A provision for income taxes has not been recorded in connection with this transaction as the Company expects to offset the gain with available net operating loss carryforwards. The Company may consider repurchases of additional Notes in the future, and may utilize the proceeds of the Credit Facility for this purpose.

The Notes contain certain restrictions and covenants, including limitations (based on certain financial ratios) on THG’s ability to pay dividends, repurchase stock or incur additional debt (other than borrowings under the Credit Facility and other enumerated exceptions). The Notes are cross-defaulted to payment defaults under the Credit Facility.

Credit Facility

The Company entered into an amended and restated Credit Facility agreement in February, 1999 in connection with the Rival acquisition. This Credit Facility consisted of a tranche A term loan of $40.0 million that matures February 5, 2005, a tranche B term loan of $85.0 million that matures February 5, 2007 and a revolving credit facility that matures February 5, 2005. Availability under the Credit Facility is reduced by outstanding letters of credit. On May 7, 2001, the Credit Facility was amended (the Fourth Amendment) to revise certain of the financial ratio covenants and change the maximum availability. As partial consideration for the amendments, the Company issued warrants to the lenders to acquire up to 5% of THG’s common stock on a fully-diluted basis. The warrants are exercisable at a price of $5.04 per share, and expire May 7, 2006. The fair value of the warrants was $1.0 million and was recorded as a charge to interest expense during 2001. Additionally, investment funds associated with Berkshire Partners’ agreed to provide an aggregate $43.5 million guarantee in support of the increased revolving credit commitment.

On March 22, 2002, Holmes and the lending group under the Credit Facility agreed to a Fifth Amendment to the Credit Facility. The Fifth Amendment revised certain of the financial ratio covenants for the periods ending December 31, 2001 through June 30, 2004, in order to reflect the Company’s current business plan and to accommodate the $14.1 million bad debt charge in the fourth quarter of 2001 relating to outstanding receivables from Kmart. Under the Fifth Amendment, the lenders have committed to a revolving credit loan A of $131 million and a revolving credit loan B of $40 million. Revolving credit loan B continues to be supported by the Berkshire Partners’ guarantee entered into in connection with the Fourth Amendment. Actual availability under these revolving credit facilities is subject to a borrowing base formula based on inventory and accounts receivable. Under the Fifth Amendment, the maturity date of the revolving credit loan B was extended from July 1, 2002 through July 1, 2004. The maturity date of the revolving credit loan A and the tranche A term loan remain at February 5, 2005, although the availability under the revolving credit loan A commitment will terminate on July 1, 2004 unless otherwise approved by a majority in interest of the lenders. The maturity date of the tranche B term loan remains at February 5, 2007. As part of the Fifth Amendment, the applicable interest rate margins on the revolving credit loan B were reduced, while the margins on the revolving credit loan A and the tranche B term loans were increased.

10

Table of Contents

THE HOLMES GROUP, INC. NOTES
TO CONSOLIDATED FINANCIAL STATEMENTS — (CONTINUED)

Effective May 7, 2001, Holmes agreed to pay Berkshire Partners a guarantee fee of $1.1 million as consideration for Berkshire’s guarantee of up to $43.5 million of the obligations under the Credit Facility. As amended effective March 22, 2002, the guarantee fee arrangement provides for payment of a fee of 2.25% per annum, compounded annually, on the $40.0 million revolving credit loan B commitment, less the portion of this facility designated as subordinated debt funding loans (which portion is subordinated to the other obligations under the Credit Facility). The guarantee fee related to the subordinated debt funding loan is calculated at 20% per annum, compounded annually. Payment of these fees is subordinated to the Company’s obligations under the Credit Facility.

As of December 31, 2001 and June 30, 2002, the Company’s availability was $63.7 million and $49.8 million, respectively, net of outstanding letters of credit totalling $4.8 million and $9.7 million, respectively. The Credit Facility bears interest at variable rates based on either the prime rate or eurodollar rate at the Company’s option, plus a margin which, in the case of the tranche A term loan and a portion of the revolving credit facility, varies depending upon certain financial ratios. The Credit Facility, and the guarantees thereof by the Company’s domestic subsidiaries, are secured by substantially all of the Company’s domestic and certain foreign assets. The Credit Facility is cross-defaulted to the Notes Indentures.

The Credit Facility as amended, and the Notes Indentures include certain financial and operating covenants, which, among other things, restrict the ability of the Company to incur additional indebtedness, grant liens, make investments and take certain other actions. The ability of the Company to meet its debt service obligations will be dependent upon the future performance of the Company, which will be impacted by general economic conditions and other factors.

Long term debt consists of the following:

Effective May 7, 1999 the Company entered into an interest rate collar transaction agreement with its lead lending bank. The interest rate collar consisted of a cap rate of 6.5% and a floor rate of 4.62%. The one-time premium payment for the collar was $225,000 and the agreement terminated March 31, 2002. The LIBOR interest rate at December 31, 2001 was 1.91%. In accordance with the provisions of the collar agreement, the Company paid approximately $563,000 in the first quarter of 2002 to the lending bank. The agreement was not renewed upon termination and all obligations associated with this agreement were settled as of March 31, 2002.

11

Table of Contents

THE HOLMES GROUP, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS — (CONTINUED)

7.     COMPREHENSIVE INCOME

The Company adopted Statement of Financial Accounting Standards No. 130, “Reporting Comprehensive Income.” This Statement establishes standards for reporting comprehensive income and its components in financial statements. Comprehensive income consists of net earnings and foreign currency translation adjustments as presented in the following table.

8. BUSINESS SEGMENTS

The Company adopted SFAS No. 131, “Disclosure about Segments of an Enterprise and Related Information” (“SFAS 131”), during 1998. SFAS 131 established standards for reporting information about business segments in annual financial statements. It also established standards for related disclosures about products and services, major customers and geographic areas. Business segments are defined as components of a business about which separate financial information is available that is evaluated regularly by the chief operating decision maker, or decision making group, in deciding how to allocate resources and in assessing performance. The business segments are managed separately because each segment represents a strategic business unit whose main business is entirely different.

The Company currently manages its operations through three business segments: consumer durables, international and Far East. The consumer durables segment sells products including fans, heaters, humidifiers, air purifiers, Crock-Pot ® slow cookers, toasters, ice cream freezers, can openers and lighting products to retailers throughout the U.S. The consumer durables segment is made up of home environment products and kitchen electric products, which are considered one business segment due to the similar customer base and distribution channels. The international segment sells the Company’s products outside the U.S. The Far East segment is the manufacturing and sourcing operation located primarily at HPFEL.

12

Table of Contents

THE HOLMES GROUP, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS — (CONTINUED)

Summary financial information for each reportable segment for the three and six month periods ended June 30, 2002 and 2001 is as follows (in thousands):

The following information is summarized by geographic area (in thousands):

Net sales are grouped based on the geographic origin of the transaction. Net sales in the United States include direct export sales to Europe.

The Company’s manufacturing entities in the Far East sell completed products to THG in the United States at intercompany transfer prices which reflect management’s estimate of amounts which would be charged by an unrelated third party. These sales are eliminated in consolidation. The remaining Far East sales are to unrelated third parties.

13

Table of Contents

THE HOLMES GROUP, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS — (CONTINUED)

9.     CONTINGENCIES

The Company is involved in litigation and is the subject of claims arising in the normal course of its business. In the opinion of management, based upon discussions with legal counsel, no existing litigation or claims will have a materially adverse effect on the Company’s financial position or results of operations or cash flows.

10.     RECLASSIFICATIONS

Certain amounts in the prior period financial statements have been reclassified to conform to the current period presentation.

11.     CONDENSED CONSOLIDATING INFORMATION

The senior subordinated notes described in Note 6 were issued by THG and are guaranteed by Rival and its domestic subsidiary and Holmes Manufacturing Corp. (“Manufacturing”), Holmes Motor Corp. (“Motor”) and Holmes Air (Taiwan) Corp. (“Taiwan”), but are not guaranteed by THG’s other subsidiary, HPFEL, or Rival’s five foreign subsidiaries. The guarantor subsidiaries are directly or indirectly wholly-owned by THG, and the guarantees are full, unconditional and joint and several. The following condensed consolidating financial information presents the financial position, results of operations and cash flows of (i) THG, as parent, as if it accounted for its subsidiaries on the equity method, (ii) Rival (on a consolidated basis following its acquisition by THG, Manufacturing, Motor and Taiwan, the guarantor subsidiaries, and (iii) HPFEL, Bionaire International B.V., The Holmes Group Canada, Ltd., Waverly Products Company, Ltd., and Rival de Mexico S.A. de C.V., the non-guarantor subsidiaries. There were no transactions between Rival, Manufacturing, Motor and Taiwan during any of the periods presented. Taiwan and Manufacturing had no revenues or operations during the periods presented. As further described in Note 15 of the Company’s audited financial statements for the year ended December 31, 2001, included in the Company’s Form 10-K as filed with the Securities and Exchange Commission, certain of HPFEL’s subsidiaries in China have restrictions on distributions to their parent companies.

14

Table of Contents

CONSOLIDATING BALANCE SHEET AT DECEMBER 31, 2001 (IN THOUSANDS)