##### 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 MARCH 31, 2002COMMISSION FILE NUMBERS: 333-44473
                                                         333-77905

THE HOLMES GROUP, INC.

(EXACT NAME OF REGISTRANT AS SPECIFIED IN ITS CHARTER)

|                                  |  |                    
|--------------------------------- |  | -------------------
|MASSACHUSETTS                     |  | 04-2768914         
|                                 
|                                 
|                                 
|                                 
|(STATE OR OTHER JURISDICTION      |  | (I.R.S. EMPLOYER   
|                                 
|                                 
|                                 
|                                 
|OF INCORPORATION OR ORGANIZATION) |  | IDENTIFICATION NO.)

|                                         |  |            |  | 
|---------------------------------------- |  | ---------- |  | 
|ONE HOLMES WAY, MILFORD MASSACHUSETTS    |  | 01757      |  | 
|                                        
|                                        
|                                        
|                                        
|(ADDRESS OF PRINCIPAL EXECUTIVE OFFICES) |  | (ZIP CODE) |  | 

(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 [X]   NO [ ]





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TABLE OF CONTENTS



|                              |                                                                                               |                                                  |  |  |  |  |  | 
|----------------------------- | --------------------------------------------------------------------------------------------- | ------------------------------------------------ |  |  |  |  |  | 
|PART I. FINANCIAL INFORMATION
|                              | ITEM 1. FINANCIAL STATEMENTS                                                                 
|                              |                                                                                               | CONSOLIDATED BALANCE SHEET                      
|                              |                                                                                               | CONSOLIDATED STATEMENT OF OPERATIONS (UNAUDITED)
|                              |                                                                                               | CONSOLIDATED STATEMENT OF CASH FLOWS (UNAUDITED)
|                              |                                                                                               | NOTES TO CONSOLIDATED FINANCIAL STATEMENTS      
|                              | ITEM 2. MANAGEMENTS DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS
|                              | ITEM 3. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK                           
|PART II. OTHER INFORMATION   
|SIGNATURES                   



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##### Table of Contents



THE HOLMES GROUP, INC.

FORM 10-Q

QUARTER ENDED MARCH 31, 2002

TABLE OF CONTENTS

|         |  |                                                                                       |  |      |    | 
|-------- |  | ------------------------------------------------------------------------------------- |  | ---- | -- | 
|         |  |                                                                                       |  | PAGE
|PART I.  |  | FINANCIAL INFORMATION                                                                 |  |      | 3  | 
|        
|        
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|         |  |                                                                                       |  |      |    | 
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|ITEM 1.  |  | FINANCIAL STATEMENTS                                                                  |  |      | 3  | 
|        
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|         |  |                                                                                       |  |      |    | 
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|         |  | CONSOLIDATED BALANCE SHEET AT                                                         |  |      |    | 
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|         |  | DECEMBER 31, 2001 AND MARCH 31, 2002 (UNAUDITED)                                      |  |      | 3  | 
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|         |  |                                                                                       |  |      |    | 
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|         |  | CONSOLIDATED STATEMENT OF OPERATIONS (UNAUDITED) FOR                                  |  |      |    | 
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|         |  | THE THREE MONTHS ENDED MARCH 31, 2001 AND                                             |  |      |    | 
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|         |  | MARCH 31, 2002                                                                        |  |      | 4  | 
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|         |  |                                                                                       |  |      |    | 
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|         |  | CONSOLIDATED STATEMENT OF CASH FLOWS (UNAUDITED) FOR THE                              |  |      |    | 
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|         |  | THREE MONTHS ENDED MARCH 31, 2001 AND                                                 |  |      |    | 
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|         |  | MARCH 31, 2002                                                                        |  |      | 5  | 
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|         |  |                                                                                       |  |      |    | 
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|         |  | NOTES TO CONSOLIDATED FINANCIAL STATEMENTS                                            |  |      | 6  | 
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|         |  |                                                                                       |  |      |    | 
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|ITEM 2.  |  | MANAGEMENTS DISCUSSION AND ANALYSIS OF FINANCIAL
CONDITION AND RESULTS OF OPERATIONS |  |      | 20 | 
|        
|        
|        
|        
|         |  |                                                                                       |  |      |    | 
|        
|        
|        
|        
|ITEM 3.  |  | QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK                            |  |      | 24 | 
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|         |  |                                                                                       |  |      |    | 
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|PART II. |  | OTHER INFORMATION                                                                     |  |      | 25 | 
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|         |  |                                                                                       |  |      |    | 
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|         |  | SIGNATURES                                                                            |  |      | 26 | 

2



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##### Table of Contents






PART I. FINANCIAL INFORMATION




ITEM 1. FINANCIAL STATEMENTS




THE HOLMES GROUP, INC.
CONSOLIDATED BALANCE SHEET
(IN THOUSANDS)

|                                                                                                                                              |                                             |                                                                           |                                      |         |              |         |                  |         |         |         | 
|--------------------------------------------------------------------------------------------------------------------------------------------- | ------------------------------------------- | ------------------------------------------------------------------------- | ------------------------------------ | ------- | ------------ | ------- | ---------------- | ------- | ------- | ------- | 
|                                                                                                                                              |                                             |                                                                           |                                      |         | DECEMBER 31, |         | MARCH 31,       
|                                                                                                                                              |                                             |                                                                           |                                      |         | 2001         |         | 2002 (UNAUDITED)
|                                                                                                                                              |                                             |                                                                           |                                      |         |              |         |                 
|ASSETS                                                                                                                                        |                                             |                                                                           |                                      |         |              |         |                  |        
|                                                                                                                                             
|                                                                                                                                             
|                                                                                                                                             
|                                                                                                                                             
|Current assets:                                                                                                                               |                                             |                                                                           |                                      |         |              |         |                  |        
|                                                                                                                                             
|                                                                                                                                             
|                                                                                                                                             
|                                                                                                                                             
|                                                                                                                                              |                                             | Cash and cash equivalents                                                 |                                      | $       | 10,115       |         |                  | $       | 5,351   |        
|                                                                                                                                             
|                                                                                                                                             
|                                                                                                                                             
|                                                                                                                                             
|                                                                                                                                              |                                             | Accounts receivable, net of allowance of $18,202 and $17,232 respectively |                                      |         | 144,249      |         |                  |         | 95,606  |        
|                                                                                                                                             
|                                                                                                                                             
|                                                                                                                                             
|                                                                                                                                             
|                                                                                                                                              |                                             | Inventories                                                               |                                      |         | 103,195      |         |                  |         | 108,209 |        
|                                                                                                                                             
|                                                                                                                                             
|                                                                                                                                             
|                                                                                                                                             
|                                                                                                                                              |                                             | Prepaid expenses and other current assets                                 |                                      |         | 5,317        |         |                  |         | 6,656   |        
|                                                                                                                                             
|                                                                                                                                             
|                                                                                                                                             
|                                                                                                                                             
|                                                                                                                                              |                                             | Deferred income taxes                                                     |                                      |         | 13,643       |         |                  |         | 13,643  |        
|                                                                                                                                              |                                             |                                                                           |                                      |         |              |         |                  |         |         |        
|                                                                                                                                              |                                             |                                                                           | Total current assets                 |         |              | 276,519 |                  |         |         | 229,465 | 
|                                                                                                                                             
|                                                                                                                                             
|                                                                                                                                             
|                                                                                                                                             
|                                                                                                                                              |                                             | Assets held for sale                                                      |                                      |         | 86           |         |                  |         | 6,288   |        
|                                                                                                                                             
|                                                                                                                                             
|                                                                                                                                             
|                                                                                                                                             
|                                                                                                                                              |                                             | Property and equipment, net                                               |                                      |         | 69,096       |         |                  |         | 59,641  |        
|                                                                                                                                             
|                                                                                                                                             
|                                                                                                                                             
|                                                                                                                                             
|                                                                                                                                              |                                             | Goodwill, net                                                             |                                      |         | 79,838       |         |                  |         | 79,838  |        
|                                                                                                                                             
|                                                                                                                                             
|                                                                                                                                             
|                                                                                                                                             
|                                                                                                                                              |                                             | Deposits and other assets                                                 |                                      |         | 4,985        |         |                  |         | 5,146   |        
|                                                                                                                                             
|                                                                                                                                             
|                                                                                                                                             
|                                                                                                                                             
|                                                                                                                                              |                                             | Debt issuance costs, net                                                  |                                      |         | 13,071       |         |                  |         | 15,701  |        
|                                                                                                                                              |                                             |                                                                           |                                      |         |              |         |                  |         |         |        
|                                                                                                                                              |                                             | $                                                                         | 443,595                              |         |              | $       | 396,079          |        
|                                                                                                                                              |                                             |                                                                           |                                      |         |              |         |                  |         |         |        
|LIABILITIES AND STOCKHOLDERS EQUITY (DEFICIT)                                                                                                |                                             |                                                                           |                                      |         |              |         |                  |        
|                                                                                                                                             
|                                                                                                                                             
|                                                                                                                                             
|                                                                                                                                             
|Current liabilities:                                                                                                                          |                                             |                                                                           |                                      |         |              |         |                  |        
|                                                                                                                                             
|                                                                                                                                             
|                                                                                                                                             
|                                                                                                                                             
|                                                                                                                                              |                                             | Accounts payable                                                          |                                      | $       | 36,743       |         |                  | $       | 42,578  |        
|                                                                                                                                             
|                                                                                                                                             
|                                                                                                                                             
|                                                                                                                                             
|                                                                                                                                              |                                             | Current portion of credit facility                                        |                                      |         | 8,476        |         |                  |         | 8,628   |        
|                                                                                                                                             
|                                                                                                                                             
|                                                                                                                                             
|                                                                                                                                             
|                                                                                                                                              |                                             | Accrued expenses                                                          |                                      |         | 42,328       |         |                  |         | 45,824  |        
|                                                                                                                                             
|                                                                                                                                             
|                                                                                                                                             
|                                                                                                                                             
|                                                                                                                                              |                                             | Accrued income taxes                                                      |                                      |         | 6,457        |         |                  |         | 6,829   |        
|                                                                                                                                             
|                                                                                                                                             
|                                                                                                                                             
|                                                                                                                                             
|                                                                                                                                              |                                             | Other current liabilities                                                 |                                      |         | 831          |         |                  |         | 807     |        
|                                                                                                                                              |                                             |                                                                           |                                      |         |              |         |                  |         |         |        
|                                                                                                                                              |                                             |                                                                           | Total current liabilities            |         |              | 94,835  |                  |         |         | 104,666 | 
|                                                                                                                                             
|                                                                                                                                             
|                                                                                                                                             
|                                                                                                                                             
|Credit facility                                                                                                                               |                                             |                                                                           | 209,406                              |         |              |         | 159,864          |        
|                                                                                                                                             
|                                                                                                                                             
|                                                                                                                                             
|                                                                                                                                             
|Long-term debt                                                                                                                                |                                             |                                                                           | 135,298                              |         |              |         | 99,482           |        
|                                                                                                                                             
|                                                                                                                                             
|                                                                                                                                             
|                                                                                                                                             
|Other long-term liabilities                                                                                                                   |                                             |                                                                           | 7,485                                |         |              |         | 7,266            |        
|                                                                                                                                             
|                                                                                                                                             
|                                                                                                                                             
|                                                                                                                                             
|Deferred income taxes                                                                                                                         |                                             |                                                                           | 5,954                                |         |              |         | 5,964            |        
|                                                                                                                                             
|                                                                                                                                             
|                                                                                                                                             
|                                                                                                                                             
|Commitments
and contingencies                                                                                                                
|Stockholders equity (deficit):                                                                                                               |                                            
|                                                                                                                                             
|                                                                                                                                             
|                                                                                                                                             
|                                                                                                                                             
|Common stock, $.001 par value. Authorized 25,000,000 shares;
issued and outstanding
20,302,995 shares at December 31, 2001 and
March 31, 2002 |                                             |                                                                           | 20                                   |         |              |         | 20               |        
|                                                                                                                                             
|                                                                                                                                             
|                                                                                                                                             
|                                                                                                                                             
|                                                                                                                                              | Additional paid in capital                  |                                                                           |                                      | 68,874  |              |         |                  | 68,874  |        
|                                                                                                                                             
|                                                                                                                                             
|                                                                                                                                             
|                                                                                                                                             
|                                                                                                                                              | Accumulated other comprehensive income      |                                                                           |                                      | (2      | )            |         |                  | 140     |        
|                                                                                                                                             
|                                                                                                                                             
|                                                                                                                                             
|                                                                                                                                             
|                                                                                                                                              | Treasury stock, at cost (18,627,450 shares) |                                                                           |                                      | (62,076 | )            |         |                  | (62,076 | )      
|                                                                                                                                             
|                                                                                                                                             
|                                                                                                                                             
|                                                                                                                                             
|                                                                                                                                              | Retained earnings (deficit)                 |                                                                           |                                      | (16,199 | )            |         |                  | 11,879  |        
|                                                                                                                                              |                                             |                                                                           |                                      |         |              |         |                  |         |         |        
|                                                                                                                                              |                                             |                                                                           | Total stockholders equity (deficit) |         |              | (9,383  | )                |         |         | 18,837  | 
|                                                                                                                                              |                                             |                                                                           |                                      |         |              |         |                  |         |         |        
|                                                                                                                                              |                                             | $                                                                         | 443,595                              |         |              | $       | 396,079          |        
|                                                                                                                                              |                                             |                                                                           |                                      |         |              |         |                  |         |         |        

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

3



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##### Table of Contents






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

|                                                                                                |                             |                          |         |                    |        |           |         |         |        | 
|----------------------------------------------------------------------------------------------- | --------------------------- | ------------------------ | ------- | ------------------ | ------ | --------- | ------- | ------- | ------ | 
|                                                                                                |                             |                          |         | THREE MONTHS ENDED
|                                                                                                |                             |                          |         | MARCH 31,          |        | MARCH 31,
|                                                                                                |                             |                          |         | 2001               |        | 2002     
|                                                                                                |                             |                          |         |                    |        |          
|Net sales                                                                                       |                             | $                        | 125,217 |                    |        | $         | 117,342 |        
|                                                                                               
|                                                                                               
|                                                                                               
|                                                                                               
|Cost of goods sold                                                                              |                             |                          | 93,858  |                    |        |           | 88,892  |        
|                                                                                                |                             |                          |         |                    |        |           |         |        
|                                                                                                | Gross profit                |                          |         | 31,359             |        |           |         | 28,450  |       
|                                                                                                |                             |                          |         |                    |        |           |         |        
|Operating expenses:                                                                             |                             |                          |         |                    |        |           |         |        
|                                                                                               
|                                                                                               
|                                                                                               
|                                                                                               
|                                                                                                | Selling                     |                          |         | 14,196             |        |           |         | 12,043  |       
|                                                                                               
|                                                                                               
|                                                                                               
|                                                                                               
|                                                                                                | General and administrative  |                          |         | 8,345              |        |           |         | 10,727  |       
|                                                                                               
|                                                                                               
|                                                                                               
|                                                                                               
|                                                                                                | Product development         |                          |         | 2,566              |        |           |         | 2,363   |       
|                                                                                               
|                                                                                               
|                                                                                               
|                                                                                               
|                                                                                                | Restructuring costs         |                          |         |                   |        |           |         | 1,787   |       
|                                                                                               
|                                                                                               
|                                                                                               
|                                                                                               
|                                                                                                | Amortization of goodwill    |                          |         | 650                |        |           |         |        |       
|                                                                                                |                             |                          |         |                    |        |           |         |        
|                                                                                                |                             | Total operating expenses |         |                    | 25,757 |           |         |         | 26,920 | 
|                                                                                                |                             |                          |         |                    |        |           |         |        
|                                                                                                |                             | Operating profit         |         |                    | 5,602  |           |         |         | 1,530  | 
|                                                                                                |                             |                          |         |                    |        |           |         |        
|                                                                                               
|                                                                                               
|                                                                                               
|                                                                                               
|Other (income) and expense:                                                                     |                             |                          |         |                    |        |           |         |        
|                                                                                               
|                                                                                               
|                                                                                               
|                                                                                               
|                                                                                                | Interest expense            |                          |         | 9,336              |        |           |         | 7,956   |       
|                                                                                               
|                                                                                               
|                                                                                               
|                                                                                               
|                                                                                                | Other (income) expense, net |                          |         | 44                 |        |           |         | (10,091 | )     
|                                                                                                |                             |                          |         |                    |        |           |         |        
|                                                                                                |                             |                          | 9,380   |                    |        |           | (2,135  | )      
|                                                                                                |                             |                          |         |                    |        |           |         |        
|Income (loss) before income taxes, equity in earnings
from joint venture and extraordinary item |                             |                          | (3,778  | )                  |        |           | 3,665   |        
|                                                                                               
|                                                                                               
|                                                                                               
|                                                                                               
|Income tax expense (benefit)                                                                    |                             |                          | 1,264   |                    |        |           | (1,425  | )      
|                                                                                               
|                                                                                               
|                                                                                               
|                                                                                               
|Equity in earnings from joint venture                                                           |                             |                          | 616     |                    |        |           | 600     |        
|                                                                                                |                             |                          |         |                    |        |           |         |        
|Income (loss) before extraordinary item                                                         |                             |                          | (4,426  | )                  |        |           | 5,690   |        
|                                                                                               
|                                                                                               
|                                                                                               
|                                                                                               
|Extraordinary gain                                                                              |                             |                          | -      |                    |        |           | 22,388  |        
|                                                                                                |                             |                          |         |                    |        |           |         |        
|                                                                                                |                             | Net income (loss)        |         | $                  | (4,426 | )         |         | $       | 28,078 | 
|                                                                                                |                             |                          |         |                    |        |           |         |        

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

4



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##### Table of Contents






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

|                                                  |                                                                                                     |                            |                                                                                    |                                           |       |                    |        |                |       |         |        |  
|------------------------------------------------- | --------------------------------------------------------------------------------------------------- | -------------------------- | ---------------------------------------------------------------------------------- | ----------------------------------------- | ----- | ------------------ | ------ | -------------- | ----- | ------- | ------ | -
|                                                  |                                                                                                     |                            |                                                                                    |                                           |       | THREE MONTHS ENDED
|                                                  |                                                                                                     |                            |                                                                                    |                                           |       | MARCH 31, 2001     |        | MARCH 31, 2002
|                                                  |                                                                                                     |                            |                                                                                    |                                           |       |                    |        |               
|Cash flows from operating activities:             |                                                                                                     |                            |                                                                                    |                                           |       |                    |        |               
|                                                 
|                                                 
|                                                 
|                                                 
|                                                  | Net income (loss)                                                                                   |                            | $                                                                                  | (4,426                                    | )     |                    | $      | 28,078         |      
|                                                 
|                                                 
|                                                 
|                                                 
|                                                  | Adjustments to reconcile net income (loss) to net cash provided by (used
for) operating activities: |                            |                                                                                    |                                           |       |                    |        |                |      
|                                                 
|                                                 
|                                                 
|                                                 
|                                                  |                                                                                                     |                            | Depreciation and amortization                                                      |                                           |       | 4,011              |        |                |       | 3,302   |       
|                                                 
|                                                 
|                                                 
|                                                 
|                                                  |                                                                                                     |                            | Amortization of debt issuance costs, discounts and other non-cash
interest expense |                                           |       | 753                |        |                |       | 1,432   |       
|                                                 
|                                                 
|                                                 
|                                                 
|                                                  |                                                                                                     |                            | Provision for doubtful accounts                                                    |                                           |       | 171                |        |                |       | 285     |       
|                                                 
|                                                 
|                                                 
|                                                 
|                                                  |                                                                                                     |                            | Gain on disposal of assets                                                         |                                           |       | (559               | )      |                |       |        |       
|                                                 
|                                                 
|                                                 
|                                                 
|                                                  |                                                                                                     |                            | Gain on sale of business                                                           |                                           |       | -                 |        |                |       | (9,088  | )     
|                                                 
|                                                 
|                                                 
|                                                 
|                                                  |                                                                                                     |                            | Extraordinary gain                                                                 |                                           |       | -                 |        |                |       | (22,388 | )     
|                                                 
|                                                 
|                                                 
|                                                 
|                                                  |                                                                                                     |                            | Deferred income taxes                                                              |                                           |       | (24                | )      |                |       | (2,594  | )     
|                                                 
|                                                 
|                                                 
|                                                 
|                                                  |                                                                                                     |                            | Restructuring and asset impairment charges                                         |                                           |       |                   |        |                |       | 1,687   |       
|                                                 
|                                                 
|                                                 
|                                                 
|                                                  |                                                                                                     |                            | Changes in operating assets and liabilities:                                       |                                           |       |                    |        |                |       |         |       
|                                                 
|                                                 
|                                                 
|                                                 
|                                                  |                                                                                                     |                            |                                                                                    | Accounts receivable                       |       |                    | 14,383 |                |       |         | 47,880 |  
|                                                 
|                                                 
|                                                 
|                                                 
|                                                  |                                                                                                     |                            |                                                                                    | Inventories                               |       |                    | (4,030 | )              |       |         | (9,512 | )
|                                                 
|                                                 
|                                                 
|                                                 
|                                                  |                                                                                                     |                            |                                                                                    | Prepaid expenses and other current assets |       |                    | (606   | )              |       |         | 1,265 
|                                                 
|                                                 
|                                                 
|                                                 
|                                                  |                                                                                                     |                            |                                                                                    | Deposits and other assets                 |       |                    | 2,847  |                |       |         | (3,011 | )
|                                                 
|                                                 
|                                                 
|                                                 
|                                                  |                                                                                                     |                            |                                                                                    | Accounts payable                          |       |                    | 5,013  |                |       |         | 5,592  |  
|                                                 
|                                                 
|                                                 
|                                                 
|                                                  |                                                                                                     |                            |                                                                                    | Accrued expenses                          |       |                    | (108   | )              |       |         | 698    |  
|                                                 
|                                                 
|                                                 
|                                                 
|                                                  |                                                                                                     |                            |                                                                                    | Accrued income taxes                      |       |                    | 1,299  |                |       |         | 372    |  
|                                                  |                                                                                                     |                            |                                                                                    |                                           |       |                    |        |               
|                                                  |                                                                                                     |                            | Net cash provided by operating activities                                          |                                           |       | 18,724             |        |                |       | 43,998  |       
|                                                  |                                                                                                     |                            |                                                                                    |                                           |       |                    |        |               
|Cash flows from investing activities:             |                                                                                                     |                            |                                                                                    |                                           |       |                    |        |               
|                                                 
|                                                 
|                                                 
|                                                 
|                                                  | Proceeds from sale of business                                                                      |                            |                                                                                    |                                          |       |                    |        | 15,100         |      
|                                                 
|                                                 
|                                                 
|                                                 
|                                                  | Distribution of earnings from joint venture                                                         |                            |                                                                                    |                                          |       |                    |        | 478            |      
|                                                 
|                                                 
|                                                 
|                                                 
|                                                  | Purchases of property and equipment                                                                 |                            |                                                                                    | (5,256                                    | )     |                    |        | (1,736         | )    
|                                                 
|                                                 
|                                                 
|                                                 
|                                                  | Cash received from joint venture partner, net                                                       |                            |                                                                                    | 420                                       |       |                    |        |               |      
|                                                  |                                                                                                     |                            |                                                                                    |                                           |       |                    |        |               
|                                                  |                                                                                                     |                            | Net cash provided by (used for) investing activities                               |                                           |       | (4,836             | )      |                |       | 13,842  |       
|                                                  |                                                                                                     |                            |                                                                                    |                                           |       |                    |        |               
|Cash flows from financing activities:             |                                                                                                     |                            |                                                                                    |                                           |       |                    |        |               
|                                                 
|                                                 
|                                                 
|                                                 
|                                                  | Repayments of credit facility, net of issuance costs                                                |                            |                                                                                    | (14,113                                   | )     |                    |        | (49,390        | )    
|                                                 
|                                                 
|                                                 
|                                                 
|                                                  | Redemption of long-term debt                                                                        |                            |                                                                                    | -                                        |       |                    |        | (11,549        | )    
|                                                 
|                                                 
|                                                 
|                                                 
|                                                  | Debt issuance costs                                                                                 |                            |                                                                                    |                                          |       |                    |        | (1,579         | )    
|                                                  |                                                                                                     |                            |                                                                                    |                                           |       |                    |        |               
|                                                  |                                                                                                     |                            | Net cash used for financing activities                                             |                                           |       | (14,113            | )      |                |       | (62,518 | )     
|                                                  |                                                                                                     |                            |                                                                                    |                                           |       |                    |        |               
|Effect of exchange rate changes on cash           |                                                                                                     |                            | (136                                                                               | )                                         |       |                    | (86    | )             
|                                                  |                                                                                                     |                            |                                                                                    |                                           |       |                    |        |               
|Net decrease in cash and cash equivalents         |                                                                                                     |                            | (361                                                                               | )                                         |       |                    | (4,764 | )             
|                                                 
|                                                 
|                                                 
|                                                 
|Cash and cash equivalents, beginning of period    |                                                                                                     |                            | 3,017                                                                              |                                           |       |                    | 10,115 |               
|                                                  |                                                                                                     |                            |                                                                                    |                                           |       |                    |        |               
|Cash and cash equivalents, end of period          |                                                                                                     | $                          | 2,656                                                                              |                                           |       | $                  | 5,351  |               
|                                                  |                                                                                                     |                            |                                                                                    |                                           |       |                    |        |               
|Supplemental disclosure of cash flow information: |                                                                                                     |                            |                                                                                    |                                           |       |                    |        |               
|                                                 
|                                                 
|                                                 
|                                                 
|                                                  |                                                                                                     | Cash paid for interest     |                                                                                    | $                                         | 5,673 |                    |        | $              | 2,098 |        
|                                                 
|                                                 
|                                                 
|                                                 
|                                                  |                                                                                                     | Cash paid for income taxes |                                                                                    | $                                         | 54    |                    |        | $              | 182   |        

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

5



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##### Table of Contents






THE HOLMES GROUP, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
MARCH 31, 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
the 1997 recapitalization
transaction in which THGs current majority shareholders
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.

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 months ended March 31, 2001, the Companys net loss,
adjusted for $.6 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, is
approximately $3.8 million. In connection
with the adoption of FAS 142, the Company does not expect to record any
reclassifications to its goodwill balance. 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 has 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 expects to complete both steps of the goodwill
impairment test during the second quarter of 2002. Any impairment loss
resulting from the transitional impairment tests 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.



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##### Table of Contents



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

As of March 31, 2002, the Company had goodwill of approximately $80 million
which is subject to the transitional goodwill impairment test. The Company has
identified its reporting units, and is in the process of allocating goodwill,
other assets and liabilities to those reporting units. The
Companys reporting units which include a recorded goodwill
balance, are home
environment and kitchen. 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 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 $2.0
million of selling expenses which were previously classified as selling
expenses in the consolidated statement of operations for the three months ended
March 31, 2001.

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 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. THG is currently evaluating the effect of implementing
FAS No. 145.

3. DIVESTITURES

Subsequent to the 1999 acquisition of Rival, 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.



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##### 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 March 31,
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 March 31, 2002.

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

|                             |  |                  |      |             |  |               |     |  |  |   |      |  
|---------------------------- |  | ---------------- | ---- | ----------- |  | ------------- | --- |  |  | - | ---- | -
|                             |  | Employee         |      | Facility    |  | Total        
|                             |  | Severance and    |      | Exit and    |  | Accrued      
|                             |  | Relocation Costs |      | Other Costs |  | Restructuring
|                             |  |                  |      |             |  |              
|Balance at December 31, 2001 |  | $                | 396  |             |  | $             | 50  |  |  | $ | 446  |  
|                            
|                            
|                            
|                            
|Restructuring charges        |  |                  |     |             |  |               | 100 |  |  |   | 100  |  
|                            
|                            
|                            
|                            
|Cash payments                |  |                  | (178 | )           |  |               |    |  |  |   | (178 | )
|                             |  |                  |      |             |  |               |     |  |  |   |      |  
|Balance at March 31, 2002    |  | $                | 218  |             |  | $             | 150 |  |  | $ | 368  |  

The cash payments recorded in fiscal 2002 primarily include the
cash payments made for severance in the first three months of 2002.

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##### 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 March 31, 2002 and the Companys results of operations
and cash flows for the three months ended March 31, 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 month period ended March 31, 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:

|                                  |  |                   |         |                |  |   |         |  
|--------------------------------- |  | ----------------- | ------- | -------------- |  | - | ------- | -
|(in thousands)                    |  | December 31, 2001 |         | March 31, 2002
|                                  |  |                   |         |               
|Finished goods                    |  | $                 | 80,212  |                |  | $ | 87,707  |  
|                                 
|                                 
|                                 
|                                 
|Raw materials and Work-in-process |  |                   | 23,183  |                |  |   | 20,702  |  
|                                  |  |                   |         |                |  |   |         |  
|                                  |  |                   | 103,395 |                |  |   | 108,409 |  
|                                 
|                                 
|                                 
|                                 
|LIFO allowance                    |  |                   | (200    | )              |  |   | (200    | )
|                                  |  |                   |         |                |  |   |         |  
|                                  |  | $                 | 103,195 |                |  | $ | 108,209 |  
|                                  |  |                   |         |                |  |   |         |  

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##### 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 described 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 three months ended March 31, 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 aggregate, a $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



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##### Table of Contents



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

Effective May 7, 2001, Holmes agreed to pay the Companys majority stockholder
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 March 31, 2002, the Companys availability was
$63.7 million and $92.5 million, respectively, net of outstanding letters of
credit totalling $4.8 million and $8.3 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:

|                                                                                                                                                    |  |                   |         |               |  |   |         | 
|--------------------------------------------------------------------------------------------------------------------------------------------------- |  | ----------------- | ------- | ------------- |  | - | ------- | 
|(in thousands)                                                                                                                                      |  | December 31, 2001 |         | March 31,2002
|                                                                                                                                                    |  |                   |         |              
|Credit Facility, with a weighted average interest rate of
6.2% and 5.8% at December 31, 2001 and March 31, 2002,
respectively                       |  | $                 | 217,882 |               |  | $ | 168,492 | 
|                                                                                                                                                   
|                                                                                                                                                   
|                                                                                                                                                   
|                                                                                                                                                   
|9 7/8% Senior Subordinated Notes, net of unamortized
discount of $1.0 million at December 31, 2001 and $0.6
million at March 31, 2002, respectively |  |                   | 135,298 |               |  |   | 99,482  | 
|                                                                                                                                                    |  |                   |         |               |  |   |         | 
|Total debt                                                                                                                                          |  |                   | 353,180 |               |  |   | 267,974 | 
|                                                                                                                                                   
|                                                                                                                                                   
|                                                                                                                                                   
|                                                                                                                                                   
|Less current maturities                                                                                                                             |  |                   | 8,476   |               |  |   | 8,628   | 
|                                                                                                                                                    |  |                   |         |               |  |   |         | 
|Long-term debt                                                                                                                                      |  | $                 | 344,704 |               |  | $ | 259,346 | 

Effective May 7, 1999 the Company entered into an interest rate collar
transaction agreement with its lending bank. The interest rate collar consists
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.
Quarterly on the last business day of March, June, September and December
beginning September 30, 1999 if the LIBOR interest rate at the lending bank is
greater than the cap rate, the lending bank agrees to pay the Company a
notional amount as described in the agreement multiplied by the number of days
in that quarter over 365 days times the difference between the LIBOR rate and
the cap rate. If on the other hand the LIBOR rate is less than the floor rate,
the Company would have to pay the lending bank based on the same calculation.
If the LIBOR rate is between the cap and floor rate, no payments would be
necessary by either party. The LIBOR interest rate at December 31, 2001 was
1.91%, therefore the Company paid approximately $563,000 in the first quarter
to the lending bank. The agreement was not renewed upon termination and all
obligations associated with this agreement have been settled as of March 31,
2002.



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##### 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.

|                                         |                             |                |                    |                |   |   |        |        | 
|---------------------------------------- | --------------------------- | -------------- | ------------------ | -------------- | - | - | ------ | ------ | 
|                                         |                             |                | Three months ended
|(in thousands)                           |                             | March 31, 2001 |                    | March 31, 2002
|                                         |                             |                |                    |               
|Net Earnings (loss)                      |                             | $              | (4,426             | )              |   | $ | 28,078 |       
|                                        
|                                        
|                                        
|                                        
|Foreign currency translation adjustments |                             |                | (326               | )              |   |   | 142    |       
|                                         |                             |                |                    |                |   |   |        |       
|                                         | Comprehensive income (loss) |                | $                  | (4,752         | ) |   | $      | 28,220 | 

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.



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##### Table of Contents



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

Summary financial information for each reportable segment for the three month
periods ended March 31, 2002 and 2001 is as follows (in thousands):

|                         |  |          |         |          |  |               |        |              |  |       |        |   |  |   |         |              |  |   |         | 
|------------------------ |  | -------- | ------- | -------- |  | ------------- | ------ | ------------ |  | ----- | ------ | - |  | - | ------- | ------------ |  | - | ------- | 
|                         |  | Consumer |         |          |  |               |        |              |  |       |        |   |  |   |         | Consolidated
|THREE MONTHS ENDED       |  | Durables |         | Far East |  | International |        | Eliminations |  | Total
|                         |  |          |         |          |  |               |        |              |  |      
|March 31,
2002
Net sales |  | $        | 103,110 |          |  | $             | 71,383 |              |  | $     | 9,791  |   |  | $ | (66,942 | )            |  | $ | 117,342 | 
|                        
|                        
|                        
|                        
|Operating income(loss)   |  |          | (3,940  | )        |  |               | 6,508  |              |  |       | (643   | ) |  |   | (395    | )            |  |   | 1,530   | 
|                        
|                        
|                        
|                        
|March 31, 2001           |  |          |         |          |  |               |        |              |  |       |        |   |  |   |         |              |  |   |         | 
|                        
|                        
|                        
|                        
|Net sales                |  | $        | 109,126 |          |  | $             | 64,719 |              |  | $     | 10,294 |   |  | $ | (58,922 | )            |  | $ | 125,217 | 
|                        
|                        
|                        
|                        
|Operating income(loss)   |  |          | (1,779  | )        |  |               | 6,748  |              |  |       | 308    |   |  |   | 325     |              |  |   | 5,602   | 

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

|                   |                                   |  |               |         |          |  |               |        |       |  |   |        |  |  |              |         | 
|------------------ | --------------------------------- |  | ------------- | ------- | -------- |  | ------------- | ------ | ----- |  | - | ------ |  |  | ------------ | ------- | 
|                   |                                   |  |               |         |          |  |               |        |       |  |   |        |  |  | Consolidated
|                   |                                   |  | United States |         | Far East |  | International |        | Total
|                   |                                   |  |               |         |          |  |               |        |      
|Net sales:         |                                   |  |               |         |          |  |               |        |       |  |   |        |  |  |              |        
|                  
|                  
|                  
|                  
|                   | Three months ended March 31, 2002 |  | $             | 103,110 |          |  | $             | 4,441  |       |  | $ | 9,791  |  |  | $            | 117,342 | 
|                  
|                  
|                  
|                  
|                   | Three months ended March 31, 2001 |  |               | 109,126 |          |  |               | 5,797  |       |  |   | 10,294 |  |  |              | 125,217 | 
|                  
|                  
|                  
|                  
|Long-lived assets: |                                   |  |               |         |          |  |               |        |       |  |   |        |  |  |              |        
|                  
|                  
|                  
|                  
|                   | March 31, 2002                    |  |               | 37,272  |          |  |               | 32,561 |       |  |   | 1,242  |  |  |              | 71,075  | 
|                  
|                  
|                  
|                  
|                   | December 31, 2001                 |  |               | 41,159  |          |  |               | 32,443 |       |  |   | 565    |  |  |              | 74,167  | 

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



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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 and 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



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##### Table of Contents



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

|                                               |                                           |                                      |         |                |         |              |         |              |         |               |         |              |         |   |          |          |          |   |         |         |         |  
|---------------------------------------------- | ----------------------------------------- | ------------------------------------ | ------- | -------------- | ------- | ------------ | ------- | ------------ | ------- | ------------- | ------- | ------------ | ------- | - | -------- | -------- | -------- | - | ------- | ------- | ------- | -
|                                               |                                           |                                      |         |                |         |              |         | Guarantor    |         | Non-Guarantor |         |              |         |   |          |          |          |  
|                                               |                                           |                                      |         | Parent         |         | Subsidiaries |         | Subsidiaries |         | Eliminations  |         | Consolidated
|                                               |                                           |                                      |         |                |         |              |         |              |         |               |         |             
|                                               |                                           |                                      |         | (In thousands)
|ASSETS                                         |                                           |                                      |         |                |         |              |         |              |         |               |         |              |         |   |          |          |          |   |         |        
|                                              
|                                              
|                                              
|                                              
|Current assets:                                |                                           |                                      |         |                |         |              |         |              |         |               |         |              |         |   |          |          |          |   |         |        
|                                              
|                                              
|                                              
|                                              
|                                               | Cash and cash equivalents                 |                                      | $       | 4,083          |         |              | $       | 1,312        |         |               | $       | 4,720        |         |   |          |         |          |   | $       | 10,115  |        
|                                              
|                                              
|                                              
|                                              
|                                               | Accounts receivable, net                  |                                      |         | 39,173         |         |              |         | 82,725       |         |               |         | 22,351       |         |   |          |         |          |   |         | 144,249 |        
|                                              
|                                              
|                                              
|                                              
|                                               | Inventories                               |                                      |         | 34,042         |         |              |         | 49,055       |         |               |         | 24,922       |         |   | $        | (4,824   | )        |   |         | 103,195 |        
|                                              
|                                              
|                                              
|                                              
|                                               | Prepaid expenses and other current assets |                                      |         | 2,136          |         |              |         | 42           |         |               |         | 3,139        |         |   |          |         |          |   |         | 5,317   |        
|                                              
|                                              
|                                              
|                                              
|                                               | Deferred income taxes                     |                                      |         | 8,578          |         |              |         | 5,065        |         |               |         |             |         |   |          |         |          |   |         | 13,643  |        
|                                              
|                                              
|                                              
|                                              
|                                               | Due from affiliates                       |                                      |         | 191,656        |         |              |         | 89           |         |               |         | 71,859       |         |   |          | (263,604 | )        |   |         |        |        
|                                               |                                           |                                      |         |                |         |              |         |              |         |               |         |              |         |   |          |          |          |   |         |        
|                                               |                                           | Total current assets                 |         |                | 279,668 |              |         |              | 138,288 |               |         |              | 126,991 |   |          |          | (268,428 | ) |         |         | 276,519 |  
|                                               |                                           |                                      |         |                |         |              |         |              |         |               |         |              |         |   |          |          |          |   |         |        
|Assets held for sale                           |                                           |                                      |        |                |         |              | 86      |              |         |               |        |              |         |   |         |          |          |   | 86      |        
|                                              
|                                              
|                                              
|                                              
|Property and equipment, net                    |                                           |                                      | 7,585   |                |         |              | 28,503  |              |         |               | 33,008  |              |         |   |         |          |          |   | 69,096  |        
|                                              
|                                              
|                                              
|                                              
|Goodwill, net                                  |                                           |                                      |        |                |         |              | 79,838  |              |         |               |        |              |         |   |         |          |          |   | 79,838  |        
|                                              
|                                              
|                                              
|                                              
|Deferred income taxes                          |                                           |                                      |        |                |         |              |        |              |         |               |        |              |         |   |         |          |          |   |        |        
|                                              
|                                              
|                                              
|                                              
|Deposits and other assets                      |                                           |                                      | 20,139  |                |         |              | 2,229   |              |         |               | 579     |              |         |   | (4,891   | )        |          |   | 18,056  |        
|                                              
|                                              
|                                              
|                                              
|Investments in consolidated subsidiaries       |                                           |                                      | 59,423  |                |         |              |        |              |         |               | 3,700   |              |         |   | (63,123  | )        |          |   |        |        
|                                               |                                           |                                      |         |                |         |              |         |              |         |               |         |              |         |   |          |          |          |   |         |        
|                                               |                                           | $                                    | 366,815 |                |         | $            | 248,944 |              |         | $             | 164,278 |              |         | $ | (336,442 | )        |          | $ | 443,595 |        
|                                              
|                                              
|                                              
|                                              
|LIABILITIES AND STOCKHOLDERS EQUITY (DEFICIT) |                                           |                                      |         |                |         |              |         |              |         |               |         |              |         |   |          |          |          |   |         |        
|                                              
|                                              
|                                              
|                                              
|Current liabilities:                           |                                           |                                      |         |                |         |              |         |              |         |               |         |              |         |   |          |          |          |   |         |        
|                                              
|                                              
|                                              
|                                              
|                                               | Accounts payable                          |                                      | $       | 3,906          |         |              | $       | 6,945        |         |               | $       | 30,783       |         |   | $        | (4,891   | )        |   | $       | 36,743  |        
|                                              
|                                              
|                                              
|                                              
|                                               | Current portion of credit facility        |                                      |         | 8,476          |         |              |         |             |         |               |         |             |         |   |          |         |          |   |         | 8,476   |        
|                                              
|                                              
|                                              
|                                              
|                                               | Accrued expenses                          |                                      |         | 19,112         |         |              |         | 16,672       |         |               |         | 6,544        |         |   |          |         |          |   |         | 42,328  |        
|                                              
|                                              
|                                              
|                                              
|                                               | Accrued income taxes                      |                                      |         |               |         |              |         | 2,600        |         |               |         | 3,857        |         |   |          |         |          |   |         | 6,457   |        
|                                              
|                                              
|                                              
|                                              
|                                               | Other current liabilities                 |                                      |         |               |         |              |         |             |         |               |         | 831          |         |   |          |         |          |   |         | 831     |        
|                                              
|                                              
|                                              
|                                              
|                                               | Due to affiliates                         |                                      |         |               |         |              |         | 230,535      |         |               |         | 36,669       |         |   |          | (267,204 | )        |   |         |        |        
|                                               |                                           |                                      |         |                |         |              |         |              |         |               |         |              |         |   |          |          |          |   |         |        
|                                               |                                           | Total current liabilities            |         |                | 31,494  |              |         |              | 256,752 |               |         |              | 78,684  |   |          |          | (272,095 | ) |         |         | 94,835  |  
|                                               |                                           |                                      |         |                |         |              |         |              |         |               |         |              |         |   |          |          |          |   |         |        
|Credit facility                                |                                           |                                      | 209,406 |                |         |              |        |              |         |               |        |              |         |   |         |          |          |   | 209,406 |        
|                                               |                                           |                                      |         |                |         |              |         |              |         |               |         |              |         |   |          |          |          |   |         |        
|Long-term debt                                 |                                           |                                      | 135,298 |                |         |              |        |              |         |               |        |              |         |   |         |          |          |   | 135,298 |        
|                                               |                                           |                                      |         |                |         |              |         |              |         |               |         |              |         |   |          |          |          |   |         |        
|Other long-term liabilities                    |                                           |                                      |        |                |         |              |        |              |         |               | 7,485   |              |         |   |         |          |          |   | 7,485   |        
|                                               |                                           |                                      |         |                |         |              |         |              |         |               |         |              |         |   |          |          |          |   |         |        
|Deferred income taxes                          |                                           |                                      |        |                |         |              | 3,861   |              |         |               | 2,093   |              |         |   |         |          |          |   | 5,954   |        
|                                               |                                           |                                      |         |                |         |              |         |              |         |               |         |              |         |   |          |          |          |   |         |        
|STOCKHOLDERS EQUITY (DEFICIT):                |                                           |                                      |         |                |         |              |         |              |         |               |         |              |         |   |          |          |          |   |         |        
|                                              
|                                              
|                                              
|                                              
|Common stock, $.001 par value                  |                                           |                                      | 20      |                |         |              | 2       |              |         |               |        |              |         |   | (2       | )        |          |   | 20      |        
|                                              
|                                              
|                                              
|                                              
|Common stock, $1 par value                     |                                           |                                      |        |                |         |              |        |              |         |               | 3,800   |              |         |   | (3,800   | )        |          |   |        |        
|                                              
|                                              
|                                              
|                                              
|Additional paid in capital                     |                                           |                                      | 68,874  |                |         |              |        |              |         |               |        |              |         |   |         |          |          |   | 68,874  |        
|                                              
|                                              
|                                              
|                                              
|Accumulated other comprehensive income         |                                           |                                      | (2      | )              |         |              |        |              |         |               | (160    | )            |         |   | 160      |          |          |   | (2      | )      
|                                              
|                                              
|                                              
|                                              
|Treasury stock                                 |                                           |                                      | (62,076 | )              |         |              |        |              |         |               |        |              |         |   |         |          |          |   | (62,076 | )      
|                                              
|                                              
|                                              
|                                              
|Retained earnings (deficit)                    |                                           |                                      | (16,199 | )              |         |              | (11,671 | )            |         |               | 72,376  |              |         |   | (60,705  | )        |          |   | (16,199 | )      
|                                               |                                           |                                      |         |                |         |              |         |              |         |               |         |              |         |   |          |          |          |   |         |        
|                                               |                                           | Total stockholders
equity (deficit) |         |                | (9,383  | )            |         |              | (11,669 | )             |         |              | 76,016  |   |          |          | (64,347  | ) |         |         | (9,383  | )
|                                               |                                           |                                      |         |                |         |              |         |              |         |               |         |              |         |   |          |          |          |   |         |        
|                                               |                                           | $                                    | 366,815 |                |         | $            | 248,944 |              |         | $             | 164,278 |              |         | $ | (336,442 | )        |          | $ | 443,595 |        



15



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##### Table of Contents



CONSOLIDATING BALANCE SHEET AT MARCH 31, 2002 (IN THOUSANDS)
(UNAUDITED)

|                                               |                                           |                           |                                      |         |         |        |              |         |                |       |               |        |              |        |          |          |          |         |         |         |         |        | 
|---------------------------------------------- | ----------------------------------------- | ------------------------- | ------------------------------------ | ------- | ------- | ------ | ------------ | ------- | -------------- | ----- | ------------- | ------ | ------------ | ------ | -------- | -------- | -------- | ------- | ------- | ------- | ------- | ------ | 
|                                               |                                           |                           |                                      |         |         |        |              |         | Guarantor      |       | Non-Guarantor |        |              |        |          |          |          |         |        
|                                               |                                           |                           |                                      |         | Parent  |        | Subsidiaries |         | Subsidiaries   |       | Eliminations  |        | Consolidated
|                                               |                                           |                           |                                      |         |         |        |              |         |                |       |               |        |             
|                                               |                                           |                           |                                      |         |         |        |              |         | (In thousands) |       |               |        |              |        |          |          |         
|ASSETS                                         |                                           |                           |                                      |         |         |        |              |         |                |       |               |        |              |        |          |          |          |         |         |        
|                                              
|                                              
|                                              
|                                              
|Current assets:                                |                                           |                           |                                      |         |         |        |              |         |                |       |               |        |              |        |          |          |          |         |         |        
|                                              
|                                              
|                                              
|                                              
|                                               | Cash and cash equivalents                 |                           | $                                    | (416    | )       |        | $            | 1,333   |                |       | $             | 4,434  |              |        |          |         |          |         | $       | 5,351   |        
|                                              
|                                              
|                                              
|                                              
|                                               | Accounts receivable, net                  |                           |                                      | 21,658  |         |        |              | 56,413  |                |       |               | 17,535 |              |        |          |         |          |         |         | 95,606  |        
|                                              
|                                              
|                                              
|                                              
|                                               | Inventories                               |                           |                                      | 32,228  |         |        |              | 54,468  |                |       |               | 26,732 |              |        | $        | (5,219   | )        |         |         | 108,209 |        
|                                              
|                                              
|                                              
|                                              
|                                               | Prepaid expenses and other current assets |                           |                                      | 1,718   |         |        |              | 2,750   |                |       |               | 2,188  |              |        |          |         |          |         |         | 6,656   |        
|                                              
|                                              
|                                              
|                                              
|                                               | Deferred income taxes                     |                           |                                      | 8,994   |         |        |              | 4,649   |                |       |               |       |              |        |          |         |          |         |         | 13,643  |        
|                                              
|                                              
|                                              
|                                              
|                                               | Due from affiliates                       |                           |                                      | 149,120 |         |        |              | 89      |                |       |               | 79,064 |              |        |          | (228,273 | )        |         |         |        |        
|                                               |                                           |                           |                                      |         |         |        |              |         |                |       |               |        |              |        |          |          |          |         |         |        
|                                               |                                           | Total current assets      |                                      |         | 213,302 |        |              |         | 119,702        |       |               |        | 129,953      |        |          |          | (233,492 | )       |         |         | 229,465 |       
|                                               |                                           |                           |                                      |         |         |        |              |         |                |       |               |        |              |        |          |          |          |         |         |        
|Assets held for sale                           |                                           |                           |                                     |         |         |        | 6,288        |         |                |       |              |        |              |        |         |          |          |         | 6,288   |        
|                                              
|                                              
|                                              
|                                              
|Property and equipment, net                    |                                           |                           | 7,342                                |         |         |        | 20,167       |         |                |       | 32,132        |        |              |        |         |          |          |         | 59,641  |        
|                                              
|                                              
|                                              
|                                              
|Goodwill, net                                  |                                           |                           |                                     |         |         |        | 79,838       |         |                |       |              |        |              |        |         |          |          |         | 79,838  |        
|                                              
|                                              
|                                              
|                                              
|Deferred income taxes                          |                                           |                           |                                     |         |         |        |             |         |                |       |              |        |              |        |         |          |          |         |        |        
|                                              
|                                              
|                                              
|                                              
|Deposits and other assets                      |                                           |                           | 17,854                               |         |         |        | 6,934        |         |                |       | 950           |        |              |        | (4,891   | )        |          |         | 20,847  |        
|                                              
|                                              
|                                              
|                                              
|Investments in consolidated subsidiaries       |                                           |                           | 77,730                               |         |         |        |             |         |                |       | 3,700         |        |              |        | (81,430  | )        |          |         |        |        
|                                               |                                           |                           |                                      |         |         |        |              |         |                |       |               |        |              |        |          |          |          |         |         |        
|                                               |                                           | $                         | 316,228                              |         |         | $      | 232,929      |         |                | $     | 166,735       |        |              | $      | (319,813 | )        |          | $       | 396,079 |        
|                                              
|                                              
|                                              
|                                              
|LIABILITIES AND STOCKHOLDERS EQUITY (DEFICIT) |                                           |                           |                                      |         |         |        |              |         |                |       |               |        |              |        |          |          |          |         |         |        
|                                              
|                                              
|                                              
|                                              
|Current liabilities:                           |                                           |                           |                                      |         |         |        |              |         |                |       |               |        |              |        |          |          |          |         |         |        
|                                              
|                                              
|                                              
|                                              
|                                               | Accounts payable                          |                           | $                                    | 4,671   |         |        | $            | 4,376   |                |       | $             | 38,422 |              |        | $        | (4,891   | )        |         | $       | 42,578  |        
|                                              
|                                              
|                                              
|                                              
|                                               | Current portion of credit facility        |                           |                                      | 8,628   |         |        |              |        |                |       |               |       |              |        |          |         |          |         |         | 8,628   |        
|                                              
|                                              
|                                              
|                                              
|                                               | Accrued expenses                          |                           |                                      | 22,634  |         |        |              | 16,510  |                |       |               | 6,680  |              |        |          |         |          |         |         | 45,824  |        
|                                              
|                                              
|                                              
|                                              
|                                               | Accrued income taxes                      |                           |                                      |        |         |        |              | 2,068   |                |       |               | 4,761  |              |        |          |         |          |         |         | 6,829   |        
|                                              
|                                              
|                                              
|                                              
|                                               | Other current liabilities                 |                           |                                      |        |         |        |              |        |                |       |               | 807    |              |        |          |         |          |         |         | 807     |        
|                                              
|                                              
|                                              
|                                              
|                                               | Due to affiliates                         |                           |                                      | 2,112   |         |        |              | 201,367 |                |       |               | 24,794 |              |        |          | (228,273 | )        |         |         |        |        
|                                               |                                           |                           |                                      |         |         |        |              |         |                |       |               |        |              |        |          |          |          |         |         |        
|                                               |                                           | Total current liabilities |                                      |         | 38,045  |        |              |         | 224,321        |       |               |        | 75,464       |        |          |          | (233,164 | )       |         |         | 104,666 |       
|                                               |                                           |                           |                                      |         |         |        |              |         |                |       |               |        |              |        |          |          |          |         |         |        
|Credit facility                                |                                           |                           | 159,864                              |         |         |        |             |         |                |       |              |        |              |        |         |          |          |         | 159,864 |        
|                                               |                                           |                           |                                      |         |         |        |              |         |                |       |               |        |              |        |          |          |          |         |         |        
|Long-term debt                                 |                                           |                           | 99,482                               |         |         |        |             |         |                |       |              |        |              |        |         |          |          |         | 99,482  |        
|                                               |                                           |                           |                                      |         |         |        |              |         |                |       |               |        |              |        |          |          |          |         |         |        
|Other long-term liabilities                    |                                           |                           |                                     |         |         |        |             |         |                |       | 7,266         |        |              |        |         |          |          |         | 7,266   |        
|                                               |                                           |                           |                                      |         |         |        |              |         |                |       |               |        |              |        |          |          |          |         |         |        
|Deferred income taxes                          |                                           |                           |                                     |         |         |        | 3,857        |         |                |       | 2,107         |        |              |        |         |          |          |         | 5,964   |        
|                                               |                                           |                           |                                      |         |         |        |              |         |                |       |               |        |              |        |          |          |          |         |         |        
|STOCKHOLDERS EQUITY (DEFICIT):                |                                           |                           |                                      |         |         |        |              |         |                |       |               |        |              |        |          |          |          |         |         |        
|                                              
|                                              
|                                              
|                                              
|Common stock, $.001 par value                  |                                           |                           | 20                                   |         |         |        | 2            |         |                |       |              |        |              |        | (2       | )        |          |         | 20      |        
|                                              
|                                              
|                                              
|                                              
|Common stock, $1 par value                     |                                           |                           |                                     |         |         |        |             |         |                |       | 3,800         |        |              |        | (3,800   | )        |          |         |        |        
|                                              
|                                              
|                                              
|                                              
|Additional paid in capital                     |                                           |                           | 68,874                               |         |         |        |             |         |                |       |              |        |              |        |         |          |          |         | 68,874  |        
|                                              
|                                              
|                                              
|                                              
|Accumulated other comprehensive income         |                                           |                           | 140                                  |         |         |        |             |         |                |       | (22           | )      |              |        | 22       |          |          |         | 140     |        
|                                              
|                                              
|                                              
|                                              
|Treasury stock                                 |                                           |                           | (62,076                              | )       |         |        |             |         |                |       |              |        |              |        |         |          |          |         | (62,076 | )      
|                                              
|                                              
|                                              
|                                              
|Retained earnings (deficit)                    |                                           |                           | 11,879                               |         |         |        | 4,749        |         |                |       | 78,120        |        |              |        | (82,869  | )        |          |         | 11,879  |        
|                                               |                                           |                           |                                      |         |         |        |              |         |                |       |               |        |              |        |          |          |          |         |         |        
|                                               |                                           |                           | Total stockholders
equity (deficit) |         |         | 18,837 |              |         |                | 4,751 |               |        |              | 81,898 |          |          |          | (86,649 | )       |         |         | 18,837 | 
|                                               |                                           |                           |                                      |         |         |        |              |         |                |       |               |        |              |        |          |          |          |         |         |        
|                                               |                                           | $                         | 316,228                              |         |         | $      | 232,929      |         |                | $     | 166,735       |        |              | $      | (319,813 | )        |          | $       | 396,079 |        



16



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##### Table of Contents



CONSOLIDATING INCOME STATEMENT
THREE MONTHS ENDED MARCH 31, 2001 (IN THOUSANDS)
(UNAUDITED)

|                                                                                                    |                              |   |                |        |              |   |              |        |               |   |              |        |   |   |         |     |  |   |         |        | 
|--------------------------------------------------------------------------------------------------- | ---------------------------- | - | -------------- | ------ | ------------ | - | ------------ | ------ | ------------- | - | ------------ | ------ | - | - | ------- | --- |  | - | ------- | ------ | 
|                                                                                                    |                              |   |                |        |              |   | Guarantor    |        | Non-Guarantor |   |              |        |   |   |         |     | 
|                                                                                                    |                              |   | Parent         |        | Subsidiaries |   | Subsidiaries |        | Eliminations  |   | Consolidated
|                                                                                                    |                              |   |                |        |              |   |              |        |               |   |             
|                                                                                                    |                              |   | (In thousands)
|Net sales                                                                                           |                              | $ | 62,592         |        |              | $ | 46,534       |        |               | $ | 75,013       |        |   | $ | (58,922 | )   |  | $ | 125,217 |       
|                                                                                                   
|                                                                                                   
|                                                                                                   
|                                                                                                   
|Cost of goods sold                                                                                  |                              |   | 53,803         |        |              |   | 36,216       |        |               |   | 63,086       |        |   |   | (59,247 | )   |  |   | 93,858  |       
|                                                                                                    |                              |   |                |        |              |   |              |        |               |   |              |        |   |   |         |     |  |   |         |       
|                                                                                                    | Gross profit (loss)          |   |                | 8,789  |              |   |              | 10,318 |               |   |              | 11,927 |   |   |         | 325 |  |   |         | 31,359 | 
|                                                                                                   
|                                                                                                   
|                                                                                                   
|                                                                                                   
|Operating
expenses:                                                                                 |                              |   |                |        |              |   |              |        |               |   |              |        |   |   |         |     |  |   |         |       
|                                                                                                   
|                                                                                                   
|                                                                                                   
|                                                                                                   
|                                                                                                    | Selling                      |   |                | 6,912  |              |   |              | 5,098  |               |   |              | 2,186  |   |   |         |    |  |   |         | 14,196 | 
|                                                                                                   
|                                                                                                   
|                                                                                                   
|                                                                                                   
|                                                                                                    | General and administrative   |   |                | 4,262  |              |   |              | 1,398  |               |   |              | 2,685  |   |   |         |    |  |   |         | 8,345  | 
|                                                                                                   
|                                                                                                   
|                                                                                                   
|                                                                                                   
|                                                                                                    | Product development          |   |                | 2,088  |              |   |              | 478    |               |   |              |       |   |   |         |    |  |   |         | 2,566  | 
|                                                                                                   
|                                                                                                   
|                                                                                                   
|                                                                                                   
|                                                                                                    | Plant closing costs          |   |                |       |              |   |              |       |               |   |              |       |   |   |         |    |  |   |         |       | 
|                                                                                                   
|                                                                                                   
|                                                                                                   
|                                                                                                   
|                                                                                                    | Restructuring costs          |   |                |       |              |   |              |       |               |   |              |       |   |   |         |    |  |   |         |       | 
|                                                                                                   
|                                                                                                   
|                                                                                                   
|                                                                                                   
|                                                                                                    | Amortization of goodwill     |   |                |       |              |   |              | 650    |               |   |              |       |   |   |         |    |  |   |         | 650    | 
|                                                                                                    |                              |   |                |        |              |   |              |        |               |   |              |        |   |   |         |     |  |   |         |       
|                                                                                                    | Total operating expenses     |   |                | 13,262 |              |   |              | 7,624  |               |   |              | 4,871  |   |   |         |    |  |   |         | 25,757 | 
|                                                                                                    |                              |   |                |        |              |   |              |        |               |   |              |        |   |   |         |     |  |   |         |       
|                                                                                                    | Operating profit (loss)      |   |                | (4,473 | )            |   |              | 2,694  |               |   |              | 7,056  |   |   |         | 325 |  |   |         | 5,602  | 
|                                                                                                    |                              |   |                |        |              |   |              |        |               |   |              |        |   |   |         |     |  |   |         |       
|Other (income) and expense:                                                                         |                              |   |                |        |              |   |              |        |               |   |              |        |   |   |         |     |  |   |         |       
|                                                                                                   
|                                                                                                   
|                                                                                                   
|                                                                                                   
|                                                                                                    | Interest expense             |   |                | 6,553  |              |   |              | 2,786  |               |   |              | (3     | ) |   |         |    |  |   |         | 9,336  | 
|                                                                                                   
|                                                                                                   
|                                                                                                   
|                                                                                                   
|                                                                                                    | Other (income) expense, net  |   |                | 585    |              |   |              | (531   | )             |   |              | (10    | ) |   |         |    |  |   |         | 44     | 
|                                                                                                    |                              |   |                |        |              |   |              |        |               |   |              |        |   |   |         |     |  |   |         |       
|                                                                                                    | Total other (income) expense |   |                | 7,138  |              |   |              | 2,255  |               |   |              | (13    | ) |   |         |    |  |   |         | 9,380  | 
|                                                                                                    |                              |   |                |        |              |   |              |        |               |   |              |        |   |   |         |     |  |   |         |       
|Income (loss) before income taxes and equity in income of and
equity in earnings from joint venture |                              |   | (11,611        | )      |              |   | 439          |        |               |   | 7,069        |        |   |   | 325     |     |  |   | (3,778  | )     
|                                                                                                   
|                                                                                                   
|                                                                                                   
|                                                                                                   
|Income tax expense (benefit)                                                                        |                              |   | 380            |        |              |   |             |        |               |   | 884          |        |   |   |        |     |  |   | 1,264   |       
|                                                                                                   
|                                                                                                   
|                                                                                                   
|                                                                                                   
|Equity in earnings from joint venture                                                               |                              |   | 616            |        |              |   |             |        |               |   |             |        |   |   |        |     |  |   | 616     |       
|                                                                                                    |                              |   |                |        |              |   |              |        |               |   |              |        |   |   |         |     |  |   |         |       
|Income (loss) before equity in income of consolidated subsidiaries                                  |                              |   | (11,375        | )      |              |   | 439          |        |               |   | 6,185        |        |   |   | 325     |     |  |   | (4,426  | )     
|                                                                                                   
|                                                                                                   
|                                                                                                   
|                                                                                                   
|Equity in income of consolidated subsidiaries                                                       |                              |   | 6,949          |        |              |   |             |        |               |   |             |        |   |   | (6,949  | )   |  |   |        |       
|                                                                                                    |                              |   |                |        |              |   |              |        |               |   |              |        |   |   |         |     |  |   |         |       
|Net income (loss)                                                                                   |                              | $ | (4,426         | )      |              | $ | 439          |        |               | $ | 6,185        |        |   | $ | (6,624  | )   |  | $ | (4,426  | )     



17



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##### Table of Contents



CONSOLIDATING INCOME STATEMENT
THREE MONTHS ENDED MARCH 31, 2002 (IN THOUSANDS)
(UNAUDITED)

|                                                                                                |                              |   |                |        |              |   |              |        |               |   |              |        |   |   |         |      |   |   |         |         |  
|----------------------------------------------------------------------------------------------- | ---------------------------- | - | -------------- | ------ | ------------ | - | ------------ | ------ | ------------- | - | ------------ | ------ | - | - | ------- | ---- | - | - | ------- | ------- | -
|                                                                                                |                              |   |                |        |              |   | Guarantor    |        | Non-Guarantor |   |              |        |   |   |         |      |  
|                                                                                                |                              |   | Parent         |        | Subsidiaries |   | Subsidiaries |        | Eliminations  |   | Consolidated
|                                                                                                |                              |   |                |        |              |   |              |        |               |   |             
|                                                                                                |                              |   | (In thousands)
|Net sales                                                                                       |                              | $ | 41,137         |        |              | $ | 61,973       |        |               | $ | 81,174       |        |   | $ | (66,942 | )    |   | $ | 117,342 |        
|                                                                                               
|                                                                                               
|                                                                                               
|                                                                                               
|Cost of goods sold                                                                              |                              |   | 36,575         |        |              |   | 48,270       |        |               |   | 70,594       |        |   |   | (66,547 | )    |   |   | 88,892  |        
|                                                                                                |                              |   |                |        |              |   |              |        |               |   |              |        |   |   |         |      |   |   |         |        
|                                                                                                | Gross profit (loss)          |   |                | 4,562  |              |   |              | 13,703 |               |   |              | 10,580 |   |   |         | (395 | ) |   |         | 28,450  |  
|                                                                                               
|                                                                                               
|                                                                                               
|                                                                                               
|Operating expenses:                                                                             |                              |   |                |        |              |   |              |        |               |   |              |        |   |   |         |      |   |   |         |        
|                                                                                               
|                                                                                               
|                                                                                               
|                                                                                               
|                                                                                                | Selling                      |   |                | 5,915  |              |   |              | 3,851  |               |   |              | 2,277  |   |   |         |     |   |   |         | 12,043  |  
|                                                                                               
|                                                                                               
|                                                                                               
|                                                                                               
|                                                                                                | General and administrative   |   |                | 5,602  |              |   |              | 2,686  |               |   |              | 2,439  |   |   |         |     |   |   |         | 10,727  |  
|                                                                                               
|                                                                                               
|                                                                                               
|                                                                                               
|                                                                                                | Product development          |   |                | 1,997  |              |   |              | 366    |               |   |              |       |   |   |         |     |   |   |         | 2,363   |  
|                                                                                               
|                                                                                               
|                                                                                               
|                                                                                               
|                                                                                                | Restructuring costs          |   |                |       |              |   |              | 1,787  |               |   |              |       |   |   |         |     |   |   |         | 1,787   |  
|                                                                                                |                              |   |                |        |              |   |              |        |               |   |              |        |   |   |         |      |   |   |         |        
|                                                                                                | Total operating expenses     |   |                | 13,514 |              |   |              | 8,690  |               |   |              | 4,716  |   |   |         |     |   |   |         | 26,920  |  
|                                                                                                |                              |   |                |        |              |   |              |        |               |   |              |        |   |   |         |      |   |   |         |        
|                                                                                                | Operating profit (loss)      |   |                | (8,952 | )            |   |              | 5,013  |               |   |              | 5,864  |   |   |         | (395 | ) |   |         | 1,530   |  
|                                                                                               
|                                                                                               
|                                                                                               
|                                                                                               
|Other (income) and expense:                                                                     |                              |   |                |        |              |   |              |        |               |   |              |        |   |   |         |      |   |   |         |        
|                                                                                               
|                                                                                               
|                                                                                               
|                                                                                               
|                                                                                                | Interest
expense (income)    |   |                | 7,925  |              |   |              | 35     |               |   |              | (4     | ) |   |         |     |   |   |         | 7,956   |  
|                                                                                               
|                                                                                               
|                                                                                               
|                                                                                               
|                                                                                                | Other (income) expense, net  |   |                | (198   | )            |   |              | (9,059 | )             |   |              | (834   | ) |   |         |     |   |   |         | (10,091 | )
|                                                                                                |                              |   |                |        |              |   |              |        |               |   |              |        |   |   |         |      |   |   |         |        
|                                                                                                | Total other (income) expense |   |                | 7,727  |              |   |              | (9,024 | )             |   |              | (838   | ) |   |         |     |   |   |         | (2,135  | )
|                                                                                                |                              |   |                |        |              |   |              |        |               |   |              |        |   |   |         |      |   |   |         |        
|Income
(loss) before income taxes, equity in earnings from joint
venture and extraordinary item |                              |   | (16,679        | )      |              |   | 14,037       |        |               |   | 6,702        |        |   |   | (395    | )    |   |   | 3,665   |        
|                                                                                               
|                                                                                               
|                                                                                               
|                                                                                               
|Income tax expense (benefit)                                                                    |                              |   |               |        |              |   | (2,383       | )      |               |   | 958          |        |   |   |        |      |   |   | (1,425  | )      
|                                                                                               
|                                                                                               
|                                                                                               
|                                                                                               
|Equity in earnings from joint venture                                                           |                              |   | 600            |        |              |   |             |        |               |   |             |        |   |   |        |      |   |   | 600     |        
|                                                                                                |                              |   |                |        |              |   |              |        |               |   |              |        |   |   |         |      |   |   |         |        
|Income
(loss) before equity in income of consolidated subsidiaries and
extraordinary item       |                              |   | (16,079        | )      |              |   | 16,420       |        |               |   | 5,744        |        |   |   | (395    | )    |   |   | 5,690   |        
|                                                                                               
|                                                                                               
|                                                                                               
|                                                                                               
|Equity in income of consolidated subsidiaries                                                   |                              |   | 21,769         |        |              |   |             |        |               |   |             |        |   |   | (21,769 | )    |   |   |        |        
|                                                                                                |                              |   |                |        |              |   |              |        |               |   |              |        |   |   |         |      |   |   |         |        
|Income before extraordinary item                                                                |                              |   | 5,690          |        |              |   | 16,420       |        |               |   | 5,744        |        |   |   | (22,164 | )    |   |   | 5,690   |        
|                                                                                               
|                                                                                               
|                                                                                               
|                                                                                               
|Extraordinary gain                                                                              |                              |   | 22,388         |        |              |   |             |        |               |   |             |        |   |   |        |      |   |   | 22,388  |        
|                                                                                                |                              |   |                |        |              |   |              |        |               |   |              |        |   |   |         |      |   |   |         |        
|Net income (loss)                                                                               |                              | $ | 28,078         |        |              | $ | 16,420       |        |               | $ | 5,744        |        |   | $ | (22,164 | )    |   | $ | 28,078  |        



18



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##### Table of Contents



CONDENSED CONSOLIDATING STATEMENT OF CASH FLOWS
THREE MONTHS ENDED MARCH 31, 2001 AND 2002 (IN THOUSANDS)
(UNAUDITED)

|                                                     |                                                                   |                                                      |        |         |         |              |        |              |         |               |        |         |         |   |        |         |         |  
|---------------------------------------------------- | ----------------------------------------------------------------- | ---------------------------------------------------- | ------ | ------- | ------- | ------------ | ------ | ------------ | ------- | ------------- | ------ | ------- | ------- | - | ------ | ------- | ------- | -
|                                                     |                                                                   |                                                      |        |         |         |              |        | GUARANTOR    |         | NON-GUARANTOR |        |         |         |  
|                                                     |                                                                   |                                                      |        | PARENT  |         | SUBSIDIARIES |        | SUBSIDIARIES |         | CONSOLIDATED 
|                                                     |                                                                   |                                                      |        |         |         |              |        |              |         |              
|THREE MONTHS ENDED MARCH 31, 2001                    |                                                                   |                                                      |        |         |         |              |        |              |         |               |        |         |         |   |        |        
|                                                    
|                                                    
|                                                    
|                                                    
|Net cash provided by (used in) operating activities  |                                                                   | $                                                    | 11,596 |         |         | $            | (7,120 | )            |         | $             | 14,248 |         |         | $ | 18,724 |        
|                                                     |                                                                   |                                                      |        |         |         |              |        |              |         |               |        |         |         |   |        |        
|Cash flows from investing activities:                |                                                                   |                                                      |        |         |         |              |        |              |         |               |        |         |         |   |        |        
|                                                    
|                                                    
|                                                    
|                                                    
|                                                     | Cash received from joint venture partner                          |                                                      |        |        |         |              |        |             |         |               |        | 420     |         |   |        | 420     |        
|                                                    
|                                                    
|                                                    
|                                                    
|                                                     | Purchases of property and equipment                               |                                                      |        | (1,244  | )       |              |        | (422         | )       |               |        | (3,590  | )       |   |        | (5,256  | )      
|                                                     |                                                                   |                                                      |        |         |         |              |        |              |         |               |        |         |         |   |        |        
|Net cash used for investing activities               |                                                                   |                                                      | (1,244 | )       |         |              | (422   | )            |         |               | (3,170 | )       |         |   | (4,836 | )      
|                                                     |                                                                   |                                                      |        |         |         |              |        |              |         |               |        |         |         |   |        |        
|Cash flows from financing activities:                |                                                                   |                                                      |        |         |         |              |        |              |         |               |        |         |         |   |        |        
|                                                    
|                                                    
|                                                    
|                                                    
|                                                     | Borrowings (repayments) on credit facility,
net of issuance costs |                                                      |        | (14,113 | )       |              |        |             |         |               |        |        |         |   |        | (14,113 | )      
|                                                    
|                                                    
|                                                    
|                                                    
|                                                     | Other net activity with Parent                                    |                                                      |        | 3,775   |         |              |        | 6,914        |         |               |        | (10,689 | )       |   |        |        |        
|                                                     |                                                                   |                                                      |        |         |         |              |        |              |         |               |        |         |         |   |        |        
|                                                     |                                                                   | Net cash provided by (used for) financing activities |        |         | (10,338 | )            |        |              | 6,914   |               |        |         | (10,689 | ) |        |         | (14,113 | )
|                                                     |                                                                   |                                                      |        |         |         |              |        |              |         |               |        |         |         |   |        |        
|Effect of exchange rate changes on cash              |                                                                   |                                                      |       |         |         |              |       |              |         |               | (136   | )       |         |   | (136   | )      
|                                                     |                                                                   |                                                      |        |         |         |              |        |              |         |               |        |         |         |   |        |        
|Net (decrease) in cash and cash equivalents          |                                                                   |                                                      | 14     |         |         |              | (628   | )            |         |               | 253    |         |         |   | (361   | )      
|                                                    
|                                                    
|                                                    
|                                                    
|Cash and cash equivalents, beginning of period       |                                                                   |                                                      | 175    |         |         |              | 959    |              |         |               | 1,883  |         |         |   | 3,017  |        
|                                                     |                                                                   |                                                      |        |         |         |              |        |              |         |               |        |         |         |   |        |        
|Cash and cash equivalents, end of period             |                                                                   | $                                                    | 189    |         |         | $            | 331    |              |         | $             | 2,136  |         |         | $ | 2,656  |        
|                                                     |                                                                   |                                                      |        |         |         |              |        |              |         |               |        |         |         |   |        |        
|THREE MONTHS ENDED MARCH 31, 2002                    |                                                                   |                                                      |        |         |         |              |        |              |         |               |        |         |         |   |        |        
|                                                    
|                                                    
|                                                    
|                                                    
|Net cash provided by operating activities            |                                                                   | $                                                    | 2,983  |         |         | $            | 28,300 |              |         | $             | 12,715 |         |         | $ | 43,998 |        
|                                                     |                                                                   |                                                      |        |         |         |              |        |              |         |               |        |         |         |   |        |        
|Cash flows from investing activities:                |                                                                   |                                                      |        |         |         |              |        |              |         |               |        |         |         |   |        |        
|                                                    
|                                                    
|                                                    
|                                                    
|                                                     | Distribution of earnings from joint venture                       |                                                      |        | 478     |         |              |        |             |         |               |        |        |         |   |        | 478     |        
|                                                    
|                                                    
|                                                    
|                                                    
|                                                     | Proceeds from sale of business                                    |                                                      |        |        |         |              |        | 15,100       |         |               |        |        |         |   |        | 15,100  |        
|                                                    
|                                                    
|                                                    
|                                                    
|                                                     | Purchases of property and equipment                               |                                                      |        | (327    | )       |              |        | (457         | )       |               |        | (952    | )       |   |        | (1,736  | )      
|                                                     |                                                                   |                                                      |        |         |         |              |        |              |         |               |        |         |         |   |        |        
|Net cash provided by (used for) investing activities |                                                                   |                                                      | 151    |         |         |              | 14,643 |              |         |               | (952   | )       |         |   | 13,842 |        
|                                                     |                                                                   |                                                      |        |         |         |              |        |              |         |               |        |         |         |   |        |        
|Cash flows from financing activities:                |                                                                   |                                                      |        |         |         |              |        |              |         |               |        |         |         |   |        |        
|                                                    
|                                                    
|                                                    
|                                                    
|                                                     | Borrowings (repayments) on credit facility,
net of issuance costs |                                                      |        | (49,390 | )       |              |        |             |         |               |        |        |         |   |        | (49,390 | )      
|                                                    
|                                                    
|                                                    
|                                                    
|                                                     | Repurchase of long-term debt                                      |                                                      |        | (11,549 | )       |              |        |             |         |               |        |        |         |   |        | (11,549 | )      
|                                                    
|                                                    
|                                                    
|                                                    
|                                                     | Debt issuance costs                                               |                                                      |        | (1,579  | )       |              |        |             |         |               |        |        |         |   |        | (1,579  | )      
|                                                    
|                                                    
|                                                    
|                                                    
|                                                     | Other net activity with Parent                                    |                                                      |        | 54,885  |         |              |        | (42,922      | )       |               |        | (11,963 | )       |   |        |        |        
|                                                     |                                                                   |                                                      |        |         |         |              |        |              |         |               |        |         |         |   |        |        
|                                                     |                                                                   | Net cash provided by (used for) financing activities |        |         | (7,633  | )            |        |              | (42,922 | )             |        |         | (11,963 | ) |        |         | (62,518 | )
|                                                     |                                                                   |                                                      |        |         |         |              |        |              |         |               |        |         |         |   |        |        
|Effect of exchange rate changes on cash              |                                                                   |                                                      |       |         |         |              |       |              |         |               | (86    | )       |         |   | (86    | )      
|                                                     |                                                                   |                                                      |        |         |         |              |        |              |         |               |        |         |         |   |        |        
|Net increase (decrease) in cash and cash equivalents |                                                                   |                                                      | (4,499 | )       |         |              | 21     |              |         |               | (286   | )       |         |   | (4,764 | )      
|                                                    
|                                                    
|                                                    
|                                                    
|Cash and cash equivalents, beginning of period       |                                                                   |                                                      | 4,083  |         |         |              | 1,312  |              |         |               | 4,720  |         |         |   | 10,115 |        
|                                                     |                                                                   |                                                      |        |         |         |              |        |              |         |               |        |         |         |   |        |        
|Cash and cash equivalents, end of period             |                                                                   | $                                                    | (416   | )       |         | $            | 1,333  |              |         | $             | 4,434  |         |         | $ | 5,351  |        
|                                                     |                                                                   |                                                      |        |         |         |              |        |              |         |               |        |         |         |   |        |        



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ITEM 2. MANAGEMENTS DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS

OVERVIEW

The Holmes Group, Inc., is a leading developer, manufacturer and marketer of
quality, branded home appliances, including home environment and small kitchen
appliances. Our home environment products include fans, heaters, humidifiers
and air purifiers. We believe that we have a leading U.S. market share in each
of these product categories. Our kitchen appliances include Crock-Pot® slow
cookers, roaster ovens, skillets, deep fryers where we believe we hold the number one or two market
share and other similar small kitchen
electric appliances. We believe that our strong market position and success are attributable
to our continuous product innovation, engineering and manufacturing expertise,
close customer partnerships, breadth of product offerings, reputation for
quality, and presence and experience in the Far East.

Our products are sold under the Holmes®, Rival®, Crock-Pot®, White
Mountain®, Bionaire®, Patton®, Family Care® and Titan® brand names.
These products are sold to consumers through major retail chains, including
mass merchants, do-it-yourself home centers, warehouse clubs, hardware,
department and specialty stores and national drug store chains. We believe that
the strength, scope and visibility of our retail account base provide a
competitive advantage with respect to brand recognition, access to shelf space
and penetration of the consumer market.

Sales of most of our products follow seasonal patterns that affect our results
of operations. In general, sales of fans occur predominantly from January
through June, and sales of heaters and humidifiers occur predominantly from
July through December. Although kitchen electrics, air purifiers, lighting
products and accessories generally are used year-round, these products tend to
draw increased sales during the winter months when people are indoors and, as a
result, sales of these products tend to be greatest in advance of the winter
months from July through December. Additionally, many of our kitchen products
are given as gifts and, as such, sell at larger volumes during the holiday
season. When holiday shipments are combined with seasonal products, our sales
during the months of August through November are generally at a higher level
than during the other months of the year. In addition to the seasonal
fluctuations in sales, we experience seasonality in gross profit, as margins
realized on fan products tend to be lower than those realized on kitchen
electrics and other home environment products.

On February 5, 1999, we completed the acquisition of The Rival Company, a
leading developer, manufacturer and marketer of a variety of products including
small kitchen, home environment and personal care appliances. In connection
with this acquisition, we issued $31.3 million of senior subordinated notes due
in November 2007, bearing interest at 9 7/8% (the Notes), amended and restated
our existing $100.0 million credit facility (the Credit Facility) to provide
for a total availability of $325.0 million, and sold $50.0 million of common
stock in a private placement. As a result, we had a significantly higher level
of borrowing and a corresponding higher level of interest expense than in the
past.

Holmes had completed a recapitalization transaction in November 1997, in which
it issued $105 million of senior subordinated notes due in November 2007,
bearing interest at 9 7/8%, and entered into a $100 million line of credit
facility, of which approximately $27.5 million was initially drawn. The
proceeds of these borrowings were used to repay all existing indebtedness
(primarily a line of credit and other current debt facilities) and redeem a
significant portion of the previous majority shareholders common stock.
Accordingly, commencing in November 1997, we had a significantly higher level
of borrowing and a corresponding higher level of interest expense than in the
past. The Rival acquisition and the related financing transactions consummated
on February 5, 1999 further increased our indebtedness and interest expense
substantially.

COMPARISON OF THREE MONTH PERIODS ENDED MARCH 31, 2002 AND MARCH 31, 2001

Net Sales. Net sales for the first quarter of fiscal 2002, which ended March
31, 2002, were $117.3 million compared to $125.2 million for the first quarter
of fiscal 2001, which ended March 31, 2001, a decrease of $7.9 million or 6.3%.
Excluding shipments from the Pollenex division, which was sold in January
2002, net sales decreased $4.7 million or 3.9%. This decrease was primarily
due to a decline in shipments of home environment products over the
corresponding period of 2001 due to retailers having a
higher carryover fan inventory from the 2001 season and a warm
2001-2002 winter season which affected heater and humidifier
shipments. This decrease was in part offset by an increase
in kitchen electric products from 2001 . Also, contributing to the decrease
were higher discounts and allowances versus the prior year.

Gross Profit. Gross profit for the first quarter of 2002 was $28.5 million
compared to $31.4 million for the first quarter of 2001, a decrease of $2.9
million or 9.2%. As a percentage of net sales, gross profit decreased to 24.3%
for the first quarter of 2002 from 25.1% for the first quarter of 2001. Gross
profit was negatively impacted primarily by the decrease in home environment
volume as compared with the first quarter of 2001. Higher kitchen electrics
volume as compared with
gross margins offset part of the home environment volume declines. Also, contributing to the
decrease were higher discounts and allowances in the first quarter of 2002
versus 2001.



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Selling Expenses. Selling expenses for the first quarter of 2002 were $12.0
million compared to $14.2 million for the first quarter of 2001, a decrease of
$2.2 million or 15.5%. As a percentage of net sales, selling expenses decreased
to 10.2% for the first quarter of 2002 from 11.3% for the first quarter of
2001. The decrease was due to a number of sales and marketing expense line
items that were below the prior year amounts including sales packaging,
telephone and sales samples. Selling commissions were also lower due to the
Home Environment volume decreases noted above.

General and Administrative Expenses. General and administrative expenses for
the first quarter of 2002 were $10.7 million compared to $8.3 million for the
first quarter of 2001, an increase of $2.4 million or 28.9%. As a percentage of
net sales, general and administrative expenses increased to 9.1% for the first
quarter of 2002 from 6.6% for the first quarter of 2001. The increase in
general and administrative expense was attributable to a number of factors
including bank and consulting fees associated with the March 22, 2002 amended
credit facility, as well as increased insurance, information
technology, warranty and product liability
costs. Excluding the impact of the bank and consulting expenses related to the bank
amendment, general and administrative expenses were approximately 8.4% of net
sales during the three months ended March 31, 2002.

Product Development Expenses. Product development expenses for the first
quarter of 2002 were $2.4 million compared to $2.6 million for the first
quarter of 2001, a decrease of $0.2 million or 7.7%. The expenditures in 2002
relate to the development of a number of new products across all the product
lines.

Restructuring Costs. Restructuring costs for the first quarter of 2002 were
$1.8 million. These costs related to the closing of the Sedalia, Missouri
distribution center announced in January 2002. The costs were made up of the
write-down of redundant property, plant and equipment and facility exit costs.
The activities of the distribution center will be relocated to other
facilities in Missouri and California during the second quarter of
2002.

Other (Income) Expense. Other (income) expense for the first quarter of 2002
was $(2.1) million compared to $9.4 million for the first quarter of 2001.
Interest expense was $8.0 million for the first quarter of 2002 versus $9.3
million for the first quarter of 2001, a decrease of $1.3 million or 14.0%.
The decrease was due to lower overall debt levels and lower interest rates
during the quarter versus prior year. Interest expense for the first quarter of
2002 included a non-cash charge of $1.4 million for deferred financing fees
associated with the amended credit facility. The non-cash charge for the first
quarter of 2001 was $0.8 million. Other income was $10.1 million for the
first quarter of 2002 versus an expense of $0.4 million for the first quarter
of 2001. The 2002 amount represents the gain on the sale of the Pollenex
division in January 2002 of $9.1 million with the remainder
primarily related to foreign
exchange gains.

Income Tax Expense (Benefit). The income tax expense (benefit) for the first
quarter of 2002 was a benefit of $(1.4) million compared to an expense of $1.3
million in 2001. The Company recorded a benefit in the first quarter of 2002
due to tax law changes with respect to net operating loss carrybacks, that
will allow the Company to recoup previously paid taxes.

Equity in Earnings from Joint Venture. We recorded $0.6 million in equity in
earnings from our joint venture with General Electric in the first quarter of 2002 and 2001.

Extraordinary gain. In March 2002, the Company repurchased $36.2 million of
senior subordinated notes. The purchase price was $11.5 million plus accrued
interest, which was funded with proceeds of the revolving credit loan B. 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 three months ended
March 31, 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.

Net Income. As a result of the foregoing factors, our net income for the first
quarter of 2002 was $28.1 million, compared to a net loss of $4.4 million in
the first quarter of 2001.

LIQUIDITY AND CAPITAL RESOURCES

Analysis of Cash Flows

Following the recapitalization transaction in November 1997 and the Rival
acquisition in February 1999, we have funded our liquidity requirements with
cash flows from operations and borrowings under the Credit Facility. Our
primary liquidity requirements are for working capital and to service our
indebtedness. While there can be no assurance, we believe that existing cash
resources, cash flows from operations and borrowings under the recently amended
Credit Facility will be sufficient to meet our liquidity needs for the next
twelve months, during which time we will continue to carefully evaluate our
financing requirements.

Holmes cash and cash equivalents decreased to $5.4 million at March 31, 2002,
from $10.1 million at December 31, 2001. The



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decrease resulted primarily from $62.5 million used for financing activities
partially offset by the cash provided by investing and operating activities of
$57.8 million.

Cash provided by operations for the three months ended March 31,
2002 and 2001 was $44.0 million and $18.7 million, respectively. Cash provided
by operations for 2002 consisted primarily of $0.7 million from net income
adjusted for non-cash items and increased by $43.3 million provided by working
capital activities. Net cash provided by working capital activities resulted
from a decline in accounts receivable primarily due to collections on the heavy
sales from the fourth quarter of 2001 and increases in accounts payable and
accrued expenses from working capital management, offset in part by an increase
in inventory due to the timing of some seasonal shipments.

Cash provided by (used for) investing activities for the three months ended
March 31, 2002 was $13.9 million compared to $(4.8) million in 2001. Included
in 2002 was $15.1 million in proceeds received in connection with the sale of
the Pollenex division. The proceeds were offset by $1.7 million invested in
capital expenditures for property and equipment. We received $0.5 million in
earnings distributions from the joint venture. The Company expects to spend
approximately $15 million on capital expenditures in 2002, primarily related to
the expansion of its China manufacturing facilities and on-going tooling costs
to support product development needs.

Cash used for financing activities for the three months ended
March 31, 2002 and 2001 was $(62.5) million and $(14.1) million, respectively.
Cash used for financing in 2002 reflected repayments on the revolving line of
credit using cash flow from operations and also the repurchase of a
portion of the outstanding senior subordinated notes and debt issuance costs
associated with the March 2002 Credit Facility amendment.

Financing Arrangements.

We issued $105.0 million of 9 7/8% Senior Subordinated Notes due November 2007
(the Notes) in November 1997, and an additional $31.3 million of Notes in
February, 1999. While we may repurchase Notes from time to time in open market
or privately negotiated transactions, the Notes are not redeemable at our
option prior to November 15, 2002. Thereafter, the Notes are subject to
redemption at any time at our option, in whole or in part, at stated redemption
prices. Annual interest payments on the Notes are approximately $9.8 million.
The payment of principal and interest on the Notes is subordinated to the prior
payment in full of all of our senior debt, including borrowings under the
Credit Facility. The notes are cross-defaulted to payment defaults under the
Credit Facility.

We entered into the 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. The Credit Facility
bears interest at variable rates based on either the prime rate or eurodollar
rate at our 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 our
domestic subsidiaries, are secured by substantially all of our domestic and
certain foreign assets. The Credit Facility is cross-defaulted to the Notes
Indentures.

On May 7, 2001, the Credit Facility was further amended (the Fourth Amendment)
to revise certain of the financial ratio covenants and change the maximum
availability. As partial consideration for the amendments, we issued warrants
to the lenders to acquire up to 5% of Holmes common stock on a fully-diluted
basis. The warrants are exercisable at a price of $5.04 per share, and expire
May 7, 2006. Additionally, investment funds affiliated with Berkshire Partners,
our majority stockholder, 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 our 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
A and tranche B term loans were increased.



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In conjunction with the Fifth Amendment, 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. 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 three months ended March 31, 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 we may utilize the proceeds of the Credit Facility for this
purpose. As of March 31, 2002, $99.5 million of Senior
Subordinated Notes are outstanding, due November 2007.

Availability under the revolving credit facility is reduced by outstanding letters of
credit. As of March 31, 2002, our availability was $92.5 million, net of
outstanding letters of credit totaling $8.3 million. The Credit Facility bears
interest at variable rates based on either the prime rate or eurodollar rate,
at our option, plus a margin which, in the case of the tranche A term loan and
the revolving credit facility, varies depending upon certain financial ratios.
The Credit Facility, and the guarantees thereof by our domestic subsidiaries,
are secured by substantially all of our 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 our
ability to incur additional indebtedness, make investments and take certain
other actions. Our ability to meet our debt service obligations will be
dependent upon the future performance, which will be impacted by general
economic conditions and other factors. See Forward-Looking Statements.

FORWARD-LOOKING STATEMENTS

All statements, other than statements of historical fact, included in this
quarterly report, are or may be forward-looking statements within the meaning
of Section 27A of the Securities Act of 1933, as amended, and Section 21E of
the Securities Exchange Act of 1934, as amended. Without limiting the
foregoing, the words believes, anticipates, plans, intends, expects,
and similar expressions are intended to identify forward-looking statements.
Various economic and competitive factors could cause actual results or events
to differ materially from those discussed in such forward-looking statements,
including without limitation, our degree of leverage (including the need to
comply with covenants in our various financing agreements), our dependence on
major customers and key personnel, the integration of the Rival acquisition (as
described herein), competition, risks associated with foreign manufacturing,
risks of the retail industry, potential product liability claims, the cost of
labor and raw materials and the other factors which are discussed in our most
recent Registration Statement on Form S-4 (File No. 333-77905), and from time
to time in our reports filed with the Securities and Exchange Commission.
Accordingly, such forward-looking statements do not purport to be predictions
of future events or circumstances and may not be realized.

RECENTLY ISSUED ACCOUNTING STANDARDS

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.



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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 months ended March 31, 2001, the Companys net loss,
adjusted for $.6 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, is
approximately $3.8 million. In connection
with the adoption of FAS 142, the Company does not expect to record any
reclassifications to its goodwill balance. 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 has 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 expects to complete both steps of the goodwill
impairment test during the second quarter of 2002. Impairment losses
resulting from the transitional impairment tests 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.

As of March 31, 2002, the Company had goodwill of approximately $80 million
which is subject to the transitional goodwill impairment test. The Company has
identified its reporting units and is in the process of allocating goodwill,
other assets and liabilities to those reporting units. The
Companys reporting units, which include a recorded goodwill
balance, are home environment and kitchen. These reporting units are
recorded within the consumer durables segment as reported in
Note 8 of the consolidated financial statements. 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 FAB 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 believes adoption of this standard will not
have a material effect on its consolidated financial statements.

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, the Financial Accounting Standards Board (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 $2.0 million of selling expenses which were
previously classified as selling expenses in the consolidated
statement of operations for the three months ended March 31,
2001.

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 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. THG is currently evaluating the effect of implementing FAS
No. 145.




ITEM 3. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK

At March 31, 2002, the carrying value of our debt totaled $268.0 million. The
fair value approximated $228.2 million. This debt includes amounts at both
fixed and variable interest rates. For fixed rate debt, interest rate changes
affect the fair market value but do not impact earnings or cash flows.
Conversely, for variable rate debt, interest rate changes generally do not
affect the fair market value but do impact earnings and cash flows, assuming
other factors are held constant.

At March 31, 2002, the Company had fixed rate debt of $99.5 million and
variable rate debt of $168.5 million. Assuming a constant debt level, a one
percentage point decrease in interest rates would increase the unrealized fair
market value of fixed rate debt by approximately $5.1 million. Based on the
amounts of variable rate debt outstanding at March 31, 2002, the earnings and
cash flows impact for the next year resulting from a one percentage point
increase in interest rates would be approximately $1.7 million, holding other
variables constant.



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PART II. OTHER INFORMATION

ITEM 1. LEGAL PROCEEDINGS

We are involved in various legal proceedings incident to our normal business
operations, including product liability and patent and trademark litigation.
Management believes that the outcome of such litigation will not have a
material adverse effect on our business, financial condition or results of
operations. We have product liability and general liability insurance policies
in amounts management believes to be reasonable. There can be no assurance,
however, that such insurance will be adequate to cover all potential product or
other liability claims against us. We also face exposure to voluntary or
mandatory product recalls in the event that our products are alleged to have
manufacturing or safety defects. We do not maintain product recall insurance.

ITEM 2. CHANGES IN SECURITIES AND USE OF PROCEEDS

Not applicable

ITEM 3. DEFAULTS UPON SENIOR SECURITIES

Not applicable

ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS

Not applicable

ITEM 5. OTHER INFORMATION

Investor Conference Call

We will hold a telephone conference call on May 22, 2002 at 10 a.m., Eastern
time in order for investors and other interested stakeholders to hear
managements views on our results of operations during the first quarter of
2002. If you are interested in accessing the call in listen-only mode, please
fax the following information to Kay Ford, Executive Assistant, at
508-422-1676:



| |  | Name of Participant(s)
|- |  | ----------------------
| 
| |  | Company Affiliation   
| 
| |  | Nature of Business    
| 
| |  | Address               
| 
| |  | Phone, Fax and E-mail 

ITEM 6. EXHIBITS AND REPORTS ON FORM 8-K

a.     Exhibits:

Not applicable

b.     Reports on Form 8-K:

We filed a Current Report on Form 8-K reporting the sale of the Pollenex
division as of January 14, 2002.



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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.

THE HOLMES GROUP, INC.
Registrant

|             |  |                                                                                                                                           |  | 
|------------ |  | ----------------------------------------------------------------------------------------------------------------------------------------- |  | 
|May 15, 2002 |  | By: /s/ Peter J. MartinPeter J. Martin, President and
Chief Executive Officer
(Principal Executive Officer)                               |  | 
|            
|            
|            
|            
|May 15, 2002 |  | By: /s/ John M. Kelliher
John M. Kelliher,
Senior Vice President and Chief
Financial Officer
(Principal Financial and
Accounting Officer) |  | 

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