##### Table of Contents



UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, DC 20549

FORM 10-Q

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

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

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

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|---------------------------------------- |  | -------------------
|MASSACHUSETTS                            |  | 04-2768914         
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|(STATE OR OTHER JURISDICTION             |  | (I.R.S. EMPLOYER   
|                                        
|                                        
|                                        
|                                        
|OF INCORPORATION OR ORGANIZATION)        |  | IDENTIFICATION NO.)
|                                        
|                                        
|                                        
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|                                         |  |                    
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|ONE HOLMES WAY, MILFORD MASSACHUSETTS    |  | 01757              
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|(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 ( )

TABLE OF CONTENTS



|                                                                                              |                                                                        |  |  |  |  |  |  | 
|--------------------------------------------------------------------------------------------- | ---------------------------------------------------------------------- |  |  |  |  |  |  | 
|PART I. FINANCIAL INFORMATION                                                                
|                                                                                              | ITEM 1. FINANCIAL STATEMENTS                                          
|                                                                                              | NOTES TO CONSOLIDATED FINANCIAL STATEMENTS                            
|                                                                                              | CONSOLIDATING BALANCE SHEET AT DECEMBER 31, 2001                      
|                                                                                              | CONSOLIDATING BALANCE SHEET AT JUNE 30, 2002                          
|                                                                                              | CONSOLIDATING STATEMENT OF OPERATIONS THREE MONTHS ENDED JUNE 30, 2001
|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                                                                   



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##### Table of Contents



THE HOLMES GROUP, INC.

FORM 10-Q

QUARTER ENDED JUNE 30, 2002

TABLE OF CONTENTS

|         |  |                                                            |  |                                                                                                                     |    |      |    | 
|-------- |  | ---------------------------------------------------------- |  | ------------------------------------------------------------------------------------------------------------------- | -- | ---- | -- | 
|         |  |                                                            |  |                                                                                                                     |    | PAGE
|         |  |                                                            |  |                                                                                                                     |    |     
|PART I.  |  | FINANCIAL INFORMATION                                      |  |                                                                                                                     | 3  |     
|        
|        
|        
|        
|ITEM 1.  |  | FINANCIAL STATEMENTS                                       |  |                                                                                                                     | 3  |     
|        
|        
|        
|        
|         |  |                                                            |  | CONSOLIDATED BALANCE SHEET AT
DECEMBER 31, 2001 AND JUNE 30, 2002 (UNAUDITED)                                       |    |      | 3  | 
|        
|        
|        
|        
|         |  |                                                            |  | CONSOLIDATED STATEMENT OF OPERATIONS (UNAUDITED) FOR
THE THREE AND SIX MONTHS ENDED JUNE 30, 2001 AND
JUNE 30, 2002 |    |      | 4  | 
|        
|        
|        
|        
|         |  |                                                            |  | CONSOLIDATED STATEMENT OF CASH FLOWS (UNAUDITED) FOR THE
SIX MONTHS ENDED JUNE 30, 2001 AND
JUNE 30, 2002           |    |      | 5  | 
|        
|        
|        
|        
|         |  |                                                            |  | NOTES TO CONSOLIDATED FINANCIAL STATEMENTS                                                                          |    |      | 6  | 
|        
|        
|        
|        
|ITEM 2.  |  | MANAGEMENTS DISCUSSION AND ANALYSIS OF FINANCIAL          |  |                                                                                                                     | 22 |     
|        
|        
|        
|        
|         |  |                                                            |  | CONDITION AND RESULTS OF OPERATIONS                                                                                 |    |      |    | 
|        
|        
|        
|        
|ITEM 3.  |  | QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK |  |                                                                                                                     | 27 |     
|        
|        
|        
|        
|PART II. |  | OTHER INFORMATION                                          |  |                                                                                                                     | 28 |     
|        
|        
|        
|        
|         |  |                                                            |  | SIGNATURES                                                                                                          |    |      | 29 | 

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 EXCEPT SHARE AND PER SHARE AMOUNTS)

|                                               |                                                                                                                                              |                                                                           |                                      |         |              |         |          |         |             |         | 
|---------------------------------------------- | -------------------------------------------------------------------------------------------------------------------------------------------- | ------------------------------------------------------------------------- | ------------------------------------ | ------- | ------------ | ------- | -------- | ------- | ----------- | ------- | 
|                                               |                                                                                                                                              |                                                                           |                                      |         | DECEMBER 31, |         | JUNE 30,
|                                               |                                                                                                                                              |                                                                           |                                      |         | 2001         |         | 2002    
|                                               |                                                                                                                                              |                                                                           |                                      |         |              |         |         
|                                               |                                                                                                                                              |                                                                           |                                      |         |              |         |          |         | (UNAUDITED)
|ASSETS                                         |                                                                                                                                              |                                                                           |                                      |         |              |         |          |        
|                                              
|                                              
|                                              
|                                              
|Current assets:                                |                                                                                                                                              |                                                                           |                                      |         |              |         |          |        
|                                              
|                                              
|                                              
|                                              
|                                               |                                                                                                                                              | Cash and cash equivalents                                                 |                                      | $       | 10,115       |         |          | $       | 5,770       |        
|                                              
|                                              
|                                              
|                                              
|                                               |                                                                                                                                              | Accounts receivable, net of allowance of $18,202 and $15,893 respectively |                                      |         | 144,249      |         |          |         | 87,006      |        
|                                              
|                                              
|                                              
|                                              
|                                               |                                                                                                                                              | Inventories                                                               |                                      |         | 103,195      |         |          |         | 120,594     |        
|                                              
|                                              
|                                              
|                                              
|                                               |                                                                                                                                              | Prepaid expenses and other current assets                                 |                                      |         | 5,317        |         |          |         | 9,747       |        
|                                              
|                                              
|                                              
|                                              
|                                               |                                                                                                                                              | Deferred income taxes                                                     |                                      |         | 13,643       |         |          |         | 13,643      |        
|                                               |                                                                                                                                              |                                                                           |                                      |         |              |         |          |        
|                                               |                                                                                                                                              |                                                                           | Total current assets                 |         |              | 276,519 |          |         |             | 236,760 | 
|                                              
|                                              
|                                              
|                                              
|                                               |                                                                                                                                              | Assets held for sale                                                      |                                      |         | 86           |         |          |         | 6,288       |        
|                                              
|                                              
|                                              
|                                              
|                                               |                                                                                                                                              | Property, plant and equipment, net                                        |                                      |         | 69,096       |         |          |         | 62,424      |        
|                                              
|                                              
|                                              
|                                              
|                                               |                                                                                                                                              | Goodwill, net                                                             |                                      |         | 79,838       |         |          |         | 79,838      |        
|                                              
|                                              
|                                              
|                                              
|                                               |                                                                                                                                              | Deposits and other assets                                                 |                                      |         | 4,985        |         |          |         | 4,847       |        
|                                              
|                                              
|                                              
|                                              
|                                               |                                                                                                                                              | Debt issuance costs, net                                                  |                                      |         | 13,071       |         |          |         | 13,863      |        
|                                               |                                                                                                                                              |                                                                           |                                      |         |              |         |          |        
|                                               |                                                                                                                                              | $                                                                         | 443,595                              |         |              | $       | 404,020  |        
|                                               |                                                                                                                                              |                                                                           |                                      |         |              |         |          |        
|LIABILITIES AND STOCKHOLDERS EQUITY (DEFICIT) |                                                                                                                                              |                                                                           |                                      |         |              |         |          |        
|                                              
|                                              
|                                              
|                                              
|Current liabilities:                           |                                                                                                                                              |                                                                           |                                      |         |              |         |          |        
|                                              
|                                              
|                                              
|                                              
|                                               |                                                                                                                                              | Accounts payable                                                          |                                      | $       | 36,743       |         |          | $       | 45,620      |        
|                                              
|                                              
|                                              
|                                              
|                                               |                                                                                                                                              | Current portion of credit facility                                        |                                      |         | 8,476        |         |          |         | 8,778       |        
|                                              
|                                              
|                                              
|                                              
|                                               |                                                                                                                                              | Accrued expenses                                                          |                                      |         | 42,328       |         |          |         | 40,427      |        
|                                              
|                                              
|                                              
|                                              
|                                               |                                                                                                                                              | Accrued income taxes                                                      |                                      |         | 6,457        |         |          |         | 6,495       |        
|                                              
|                                              
|                                              
|                                              
|                                               |                                                                                                                                              | Other current liabilities                                                 |                                      |         | 831          |         |          |         | 783         |        
|                                               |                                                                                                                                              |                                                                           |                                      |         |              |         |          |        
|                                               |                                                                                                                                              |                                                                           | Total current liabilities            |         |              | 94,835  |          |         |             | 102,103 | 
|                                              
|                                              
|                                              
|                                              
|Credit facility                                |                                                                                                                                              |                                                                           | 209,406                              |         |              |         | 169,895  |        
|                                              
|                                              
|                                              
|                                              
|Long-term debt                                 |                                                                                                                                              |                                                                           | 135,298                              |         |              |         | 99,503   |        
|                                              
|                                              
|                                              
|                                              
|Other long-term liabilities                    |                                                                                                                                              |                                                                           | 7,485                                |         |              |         | 7,050    |        
|                                              
|                                              
|                                              
|                                              
|Deferred income taxes                          |                                                                                                                                              |                                                                           | 5,954                                |         |              |         | 5,939    |        
|                                              
|                                              
|                                              
|                                              
|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 June 30, 2002 |                                                                           |                                      | 20      |              |         |          | 20      |            
|                                              
|                                              
|                                              
|                                              
|                                               | Additional paid in capital                                                                                                                   |                                                                           |                                      | 68,874  |              |         |          | 68,874  |            
|                                              
|                                              
|                                              
|                                              
|                                               | Accumulated other comprehensive income                                                                                                       |                                                                           |                                      | (2      | )            |         |          | 543     |            
|                                              
|                                              
|                                              
|                                              
|                                               | Treasury stock, at cost (18,627,450 shares)                                                                                                  |                                                                           |                                      | (62,076 | )            |         |          | (62,076 | )          
|                                              
|                                              
|                                              
|                                              
|                                               | Retained earnings (deficit)                                                                                                                  |                                                                           |                                      | (16,199 | )            |         |          | 12,169  |            
|                                               |                                                                                                                                              |                                                                           |                                      |         |              |         |          |        
|                                               |                                                                                                                                              |                                                                           | Total stockholders equity (deficit) |         |              | (9,383  | )        |         |             | 19,530  | 
|                                               |                                                                                                                                              |                                                                           |                                      |         |              |         |          |        
|                                               |                                                                                                                                              | $                                                                         | 443,595                              |         |              | $       | 404,020  |        
|                                               |                                                                                                                                              |                                                                           |                                      |         |              |         |          |        

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 |         | SIX MONTHS ENDED
|                                                                                                |                             |   |                    |         |                 
|                                                                                                |                             |   | JUNE 30, 2001      |         | JUNE 30, 2002    |   | JUNE 30, 2001 |        | JUNE 30, 2002
|                                                                                                |                             |   |                    |         |                  |   |               |        |              
|Net sales                                                                                       |                             | $ | 128,649            |         |                  | $ | 131,912       |        |               | $ | 253,866 |         |   | $ | 249,254 |       
|                                                                                               
|                                                                                               
|                                                                                               
|                                                                                               
|Cost of goods sold                                                                              |                             |   | 101,720            |         |                  |   | 99,599        |        |               |   | 195,578 |         |   |   | 188,491 |       
|                                                                                                |                             |   |                    |         |                  |   |               |        |               |   |         |         |   |   |         |       
|                                                                                                | Gross profit                |   |                    | 26,929  |                  |   |               | 32,313 |               |   |         | 58,288  |   |   |         | 60,763 |  
|                                                                                                |                             |   |                    |         |                  |   |               |        |               |   |         |         |   |   |         |       
|Operating expenses:                                                                             |                             |   |                    |         |                  |   |               |        |               |   |         |         |   |   |         |       
|                                                                                               
|                                                                                               
|                                                                                               
|                                                                                               
|                                                                                                | Selling                     |   |                    | 12,967  |                  |   |               | 14,493 |               |   |         | 27,163  |   |   |         | 26,536 |  
|                                                                                               
|                                                                                               
|                                                                                               
|                                                                                               
|                                                                                                | General and administrative  |   |                    | 10,628  |                  |   |               | 9,957  |               |   |         | 18,973  |   |   |         | 20,684 |  
|                                                                                               
|                                                                                               
|                                                                                               
|                                                                                               
|                                                                                                | Product development         |   |                    | 2,306   |                  |   |               | 2,458  |               |   |         | 4,872   |   |   |         | 4,821  |  
|                                                                                               
|                                                                                               
|                                                                                               
|                                                                                               
|                                                                                                | Restructuring costs         |   |                    | 1,445   |                  |   |               |       |               |   |         | 1,445   |   |   |         | 1,787  |  
|                                                                                               
|                                                                                               
|                                                                                               
|                                                                                               
|                                                                                                | Amortization of goodwill    |   |                    | 650     |                  |   |               |       |               |   |         | 1,300   |   |   |         |       |  
|                                                                                                |                             |   |                    |         |                  |   |               |        |               |   |         |         |   |   |         |       
|                                                                                                | Total operating expenses    |   |                    | 27,996  |                  |   |               | 26,908 |               |   |         | 53,753  |   |   |         | 53,828 |  
|                                                                                                |                             |   |                    |         |                  |   |               |        |               |   |         |         |   |   |         |       
|                                                                                                | Operating
profit (loss)     |   |                    | (1,067  | )                |   |               | 5,405  |               |   |         | 4,535   |   |   |         | 6,935  |  
|                                                                                                |                             |   |                    |         |                  |   |               |        |               |   |         |         |   |   |         |       
|Other income and expense:                                                                       |                             |   |                    |         |                  |   |               |        |               |   |         |         |   |   |         |       
|                                                                                               
|                                                                                               
|                                                                                               
|                                                                                               
|                                                                                                | Interest expense            |   |                    | 11,380  |                  |   |               | 7,142  |               |   |         | 20,716  |   |   |         | 15,098 |  
|                                                                                               
|                                                                                               
|                                                                                               
|                                                                                               
|                                                                                                | Other (income) expense, net |   |                    | (322    | )                |   |               | 723    |               |   |         | (278    | ) |   |         | (9,368 | )
|                                                                                                |                             |   |                    |         |                  |   |               |        |               |   |         |         |   |   |         |       
|                                                                                                |                             |   | 11,058             |         |                  |   | 7,865         |        |               |   | 20,438  |         |   |   | 5,730   |       
|                                                                                                |                             |   |                    |         |                  |   |               |        |               |   |         |         |   |   |         |       
|Income (loss) before income taxes, equity in earnings
from joint venture and extraordinary item |                             |   | (12,125            | )       |                  |   | (2,460        | )      |               |   | (15,903 | )       |   |   | 1,205   |       
|                                                                                               
|                                                                                               
|                                                                                               
|                                                                                               
|Income tax expense (benefit)                                                                    |                             |   | 1,167              |         |                  |   | (2,009        | )      |               |   | 2,431   |         |   |   | (3,434  | )     
|                                                                                               
|                                                                                               
|                                                                                               
|                                                                                               
|Equity in earnings from joint venture                                                           |                             |   | 744                |         |                  |   | 741           |        |               |   | 1,360   |         |   |   | 1,341   |       
|                                                                                                |                             |   |                    |         |                  |   |               |        |               |   |         |         |   |   |         |       
|Income (loss) before extraordinary item                                                         |                             |   | (12,548            | )       |                  |   | 290           |        |               |   | (16,974 | )       |   |   | 5,980   |       
|                                                                                               
|                                                                                               
|                                                                                               
|                                                                                               
|Extraordinary gain                                                                              |                             |   |                   |         |                  |   |              |        |               |   |        |         |   |   | 22,388  |       
|                                                                                                |                             |   |                    |         |                  |   |               |        |               |   |         |         |   |   |         |       
|                                                                                                | Net income (loss)           |   | $                  | (12,548 | )                |   | $             | 290    |               |   | $       | (16,974 | ) |   | $       | 28,368 |  
|                                                                                                |                             |   |                    |         |                  |   |               |        |               |   |         |         |   |   |         |       

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)

|                                                  |                                                                                                     |                                                           |                                           |         |                  |        |               |         |         |         |  
|------------------------------------------------- | --------------------------------------------------------------------------------------------------- | --------------------------------------------------------- | ----------------------------------------- | ------- | ---------------- | ------ | ------------- | ------- | ------- | ------- | -
|                                                  |                                                                                                     |                                                           |                                           |         | SIX MONTHS ENDED
|                                                  |                                                                                                     |                                                           |                                           |         |                 
|                                                  |                                                                                                     |                                                           |                                           |         | JUNE 30, 2001    |        | JUNE 30, 2002
|                                                  |                                                                                                     |                                                           |                                           |         |                  |        |              
|Cash flows from operating activities:             |                                                                                                     |                                                           |                                           |         |                  |        |               |        
|                                                 
|                                                 
|                                                 
|                                                 
|                                                  | Net income (loss)                                                                                   |                                                           | $                                         | (16,974 | )                |        | $             | 28,368  |        
|                                                 
|                                                 
|                                                 
|                                                 
|                                                  | Adjustments to reconcile net income (loss) to net cash
provided by (used for) operating activities: |                                                           |                                           |         |                  |        |               |         |        
|                                                 
|                                                 
|                                                 
|                                                 
|                                                  |                                                                                                     | Depreciation and amortization                             |                                           |         | 7,880            |        |               |         | 6,462   |        
|                                                 
|                                                 
|                                                 
|                                                 
|                                                  |                                                                                                     | Amortization of debt issuance costs, discounts and other  |                                           |         | 3,987            |        |               |         | 3,291   |        
|                                                 
|                                                 
|                                                 
|                                                 
|                                                  |                                                                                                     | non-cash interest expense
Provision for doubtful accounts |                                           |         | 668              |        |               |         | 557     |        
|                                                 
|                                                 
|                                                 
|                                                 
|                                                  |                                                                                                     | (Gain) loss on disposal of assets                         |                                           |         | (559             | )      |               |         | 132     |        
|                                                 
|                                                 
|                                                 
|                                                 
|                                                  |                                                                                                     | Gain on sale of business                                  |                                           |         | -               |        |               |         | (9,088  | )      
|                                                 
|                                                 
|                                                 
|                                                 
|                                                  |                                                                                                     | Extraordinary gain                                        |                                           |         | -               |        |               |         | (22,388 | )      
|                                                 
|                                                 
|                                                 
|                                                 
|                                                  |                                                                                                     | Deferred income taxes                                     |                                           |         | (5               | )      |               |         | (2,602  | )      
|                                                 
|                                                 
|                                                 
|                                                 
|                                                  |                                                                                                     | Restructuring and asset impairment charges                |                                           |         | 912              |        |               |         | 1,687   |        
|                                                 
|                                                 
|                                                 
|                                                 
|                                                  |                                                                                                     | Changes in operating assets and liabilities:              |                                           |         |                  |        |               |         |         |        
|                                                 
|                                                 
|                                                 
|                                                 
|                                                  |                                                                                                     |                                                           | Accounts receivable                       |         |                  | 10,059 |               |         |         | 55,164  |  
|                                                 
|                                                 
|                                                 
|                                                 
|                                                  |                                                                                                     |                                                           | Inventories                               |         |                  | 5,577  |               |         |         | (21,897 | )
|                                                 
|                                                 
|                                                 
|                                                 
|                                                  |                                                                                                     |                                                           | Prepaid expenses and other current assets |         |                  | 1,821  |               |         |         | (1,843  | )
|                                                 
|                                                 
|                                                 
|                                                 
|                                                  |                                                                                                     |                                                           | Deposits and other assets                 |         |                  | (3,641 | )             |         |         | (2,466  | )
|                                                 
|                                                 
|                                                 
|                                                 
|                                                  |                                                                                                     |                                                           | Accounts payable                          |         |                  | 5,475  |               |         |         | 8,394   |  
|                                                 
|                                                 
|                                                 
|                                                 
|                                                  |                                                                                                     |                                                           | Accrued expenses                          |         |                  | (4,943 | )             |         |         | (4,699  | )
|                                                 
|                                                 
|                                                 
|                                                 
|                                                  |                                                                                                     |                                                           | Accrued income taxes                      |         |                  | 2,425  |               |         |         | 38      |  
|                                                  |                                                                                                     |                                                           |                                           |         |                  |        |               |        
|                                                  |                                                                                                     | Net cash provided by operating activities                 |                                           |         | 12,682           |        |               |         | 39,110  |        
|                                                  |                                                                                                     |                                                           |                                           |         |                  |        |               |        
|Cash flows from investing activities:             |                                                                                                     |                                                           |                                           |         |                  |        |               |        
|                                                 
|                                                 
|                                                 
|                                                 
|                                                  | Proceeds from sale of business and assets held for sale                                             |                                                           |                                           | 2,053   |                  |        |               | 15,100  |        
|                                                 
|                                                 
|                                                 
|                                                 
|                                                  | Distribution of earnings from joint venture                                                         |                                                           |                                           | 616     |                  |        |               | 1,522   |        
|                                                 
|                                                 
|                                                 
|                                                 
|                                                  | Purchases of property, plant and equipment                                                          |                                                           |                                           | (8,554  | )                |        |               | (7,547  | )      
|                                                 
|                                                 
|                                                 
|                                                 
|                                                  | Cash received from joint venture partner                                                            |                                                           |                                           | 700     |                  |        |               |        |        
|                                                  |                                                                                                     |                                                           |                                           |         |                  |        |               |        
|                                                  |                                                                                                     | Net cash provided by (used for) investing activities      |                                           |         | (5,185           | )      |               |         | 9,075   |        
|                                                  |                                                                                                     |                                                           |                                           |         |                  |        |               |        
|Cash flows from financing activities:             |                                                                                                     |                                                           |                                           |         |                  |        |               |        
|                                                 
|                                                 
|                                                 
|                                                 
|                                                  | Repayments of credit facility, net of issuance costs                                                |                                                           |                                           | (7,504  | )                |        |               | (39,209 | )      
|                                                 
|                                                 
|                                                 
|                                                 
|                                                  | Redemption of long-term debt                                                                        |                                                           |                                           | -      |                  |        |               | (11,549 | )      
|                                                 
|                                                 
|                                                 
|                                                 
|                                                  | Debt issuance costs                                                                                 |                                                           |                                           |        |                  |        |               | (1,579  | )      
|                                                  |                                                                                                     |                                                           |                                           |         |                  |        |               |        
|                                                  |                                                                                                     | Net cash used for financing activities                    |                                           |         | (7,504           | )      |               |         | (52,337 | )      
|                                                 
|                                                 
|                                                 
|                                                 
|Effect of exchange rate changes on cash           |                                                                                                     |                                                           | (29                                       | )       |                  |        | (193          | )      
|                                                  |                                                                                                     |                                                           |                                           |         |                  |        |               |        
|Net decrease in cash and cash equivalents         |                                                                                                     |                                                           | (36                                       | )       |                  |        | (4,345        | )      
|                                                 
|                                                 
|                                                 
|                                                 
|Cash and cash equivalents, beginning of period    |                                                                                                     |                                                           | 3,017                                     |         |                  |        | 10,115        |        
|                                                 
|                                                 
|                                                 
|                                                 
|Cash and cash equivalents, end of period          |                                                                                                     | $                                                         | 2,981                                     |         |                  | $      | 5,770         |        
|                                                  |                                                                                                     |                                                           |                                           |         |                  |        |               |        
|Supplemental disclosure of cash flow information: |                                                                                                     |                                                           |                                           |         |                  |        |               |        
|                                                 
|                                                 
|                                                 
|                                                 
|                                                  |                                                                                                     | Cash paid for interest                                    |                                           | $       | 17,332           |        |               | $       | 12,154  |        
|                                                 
|                                                 
|                                                 
|                                                 
|                                                  |                                                                                                     | Cash paid for income taxes                                |                                           | $       | 133              |        |               | $       | 425     |        

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
JUNE 30, 2002

1. NATURE OF BUSINESS

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

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

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

2. SUMMARY OF SIGNIFICANT ACCOUNTING PRINCIPLES

Basis of Consolidation

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

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

Recent Accounting Principles

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

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

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

6



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##### Table of Contents



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

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

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

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

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

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

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

3.     DIVESTITURES

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

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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 June 30, 2002 and December 31, 2001.

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

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

|                             |  |                  |      |             |  |               |     |  |  |   |      |  
|---------------------------- |  | ---------------- | ---- | ----------- |  | ------------- | --- |  |  | - | ---- | -
|                             |  | 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                |  |                  | (340 | )           |  |               |    |  |  |   | (340 | )
|                             |  |                  |      |             |  |               |     |  |  |   |      |  
|Balance at June 30, 2002     |  | $                | 56   |             |  | $             | 150 |  |  | $ | 206  |  
|                             |  |                  |      |             |  |               |     |  |  |   |      |  

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

8



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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 June 30, 2002 and the Companys results of operations
and cash flows for the three and six months ended June 30, 2001 and 2002. This
interim financial information and notes thereto should be read in conjunction
with the Companys Annual Report on Form 10-K for the year ended December 31,
2001. Due to the seasonality of the Companys business, the Companys
consolidated results of operations for the three and six month periods ended
June 30, 2002 are not necessarily indicative of the results to be expected for
any other interim period or the entire fiscal year.

5.     INVENTORIES

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

|                                  |  |                   |         |               |  |   |         |  
|--------------------------------- |  | ----------------- | ------- | ------------- |  | - | ------- | -
|(in thousands)                    |  | December 31, 2001 |         | June 30, 2002
|                                  |  |                   |         |              
|Finished goods                    |  | $                 | 80,212  |               |  | $ | 98,553  |  
|                                 
|                                 
|                                 
|                                 
|Raw materials and Work-in-process |  |                   | 23,183  |               |  |   | 22,466  |  
|                                  |  |                   |         |               |  |   |         |  
|                                  |  |                   | 103,395 |               |  |   | 121,019 |  
|                                 
|                                 
|                                 
|                                 
|LIFO allowance                    |  |                   | (200    | )             |  |   | (425    | )
|                                  |  |                   |         |               |  |   |         |  
|                                  |  | $                 | 103,195 |               |  | $ | 120,594 |  
|                                  |  |                   |         |               |  |   |         |  

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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 referred to in Note 3,
THG issued $105.0 million and $31.3 million, respectively, in senior
subordinated notes, maturing on November 15, 2007 (the Notes). The Notes bear
interest at 9 7/8%, payable semi-annually on May 15 and November 15. No
principal is due until the maturity date.

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

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

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

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

Credit Facility

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

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

10



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

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

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

Long term debt consists of the following:

|                                                                                                                                                   |  |                   |         |              |  |   |         | 
|-------------------------------------------------------------------------------------------------------------------------------------------------- |  | ----------------- | ------- | ------------ |  | - | ------- | 
|(in thousands)                                                                                                                                     |  | December 31, 2001 |         | June 30,2002
|Credit Facility, with a weighted
average interest rate of 6.2% and 5.8%
at December 31, 2001 and June 30,
2002, respectively                       |  | $                 | 217,882 |              |  | $ | 178,673 | 
|                                                                                                                                                  
|                                                                                                                                                  
|                                                                                                                                                  
|                                                                                                                                                  
|9 7/8% Senior Subordinated Notes, net
of unamortized discount of $1.0
million at December 31, 2001 and $0.6
million at June 30, 2002, respectively |  |                   | 135,298 |              |  |   | 99,503  | 
|                                                                                                                                                   |  |                   |         |              |  |   |         | 
|Total debt                                                                                                                                         |  |                   | 353,180 |              |  |   | 278,176 | 
|                                                                                                                                                  
|                                                                                                                                                  
|                                                                                                                                                  
|                                                                                                                                                  
|Less current maturities                                                                                                                            |  |                   | 8,476   |              |  |   | 8,778   | 
|                                                                                                                                                   |  |                   |         |              |  |   |         | 
|Long-term debt                                                                                                                                     |  | $                 | 344,704 |              |  | $ | 269,398 | 
|                                                                                                                                                   |  |                   |         |              |  |   |         | 

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

11



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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)                           |                             | June 30, 2001 |                    | June 30, 2002
|Net Earnings (loss)                      |                             | $             | (12,548            | )             |   | $ | 290 |    
|                                        
|                                        
|                                        
|                                        
|Foreign currency translation adjustments |                             |               | 17                 |               |   |   | 403 |    
|                                         |                             |               |                    |               |   |   |     |    
|                                         | Comprehensive income (loss) |               | $                  | (12,531       | ) |   | $   | 693 | 
|                                         |                             |               |                    |               |   |   |     |    

|                                         |                             |               |                  |               |   |   |        |        | 
|---------------------------------------- | --------------------------- | ------------- | ---------------- | ------------- | - | - | ------ | ------ | 
|                                         |                             |               | Six months ended
|                                         |                             |               |                 
|(in thousands)                           |                             | June 30, 2001 |                  | June 30, 2002
|Net Earnings (loss)                      |                             | $             | (16,974          | )             |   | $ | 28,368 |       
|                                        
|                                        
|                                        
|                                        
|Foreign currency translation adjustments |                             |               | (309             | )             |   |   | 545    |       
|                                         |                             |               |                  |               |   |   |        |       
|                                         | Comprehensive income (loss) |               | $                | (17,283       | ) |   | $      | 28,913 | 
|                                         |                             |               |                  |               |   |   |        |       

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

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

|                       |  |          |         |          |  |               |        |              |  |       |        |  |  |   |         |              |  |   |         |  
|---------------------- |  | -------- | ------- | -------- |  | ------------- | ------ | ------------ |  | ----- | ------ |  |  | - | ------- | ------------ |  | - | ------- | -
|                       |  | Consumer |         |          |  |               |        |              |  |       |        |  |  |   |         | Consolidated
|THREE MONTHS ENDED     |  | Durables |         | Far East |  | International |        | Eliminations |  | Total
|June 30, 2002          |  |          |         |          |  |               |        |              |  |       |        |  |  |   |         |              |  |   |         |  
|                      
|                      
|                      
|                      
|Net sales              |  | $        | 114,114 |          |  | $             | 80,558 |              |  | $     | 13,558 |  |  | $ | (76,318 | )            |  | $ | 131,912 |  
|                      
|                      
|                      
|                      
|Operating income(loss) |  |          | 203     |          |  |               | 4,942  |              |  |       | 1,055  |  |  |   | (795    | )            |  |   | 5,405   |  
|                      
|                      
|                      
|                      
|June 30, 2001          |  |          |         |          |  |               |        |              |  |       |        |  |  |   |         |              |  |   |         |  
|                      
|                      
|                      
|                      
|Net sales              |  | $        | 110,925 |          |  | $             | 63,281 |              |  | $     | 11,883 |  |  | $ | (57,440 | )            |  | $ | 128,649 |  
|                      
|                      
|                      
|                      
|Operating income(loss) |  |          | (7,046  | )        |  |               | 5,032  |              |  |       | 537    |  |  |   | 410     |              |  |   | (1,067  | )

|                       |  |          |         |          |  |               |         |              |  |       |        |  |  |   |          |              |  |   |         | 
|---------------------- |  | -------- | ------- | -------- |  | ------------- | ------- | ------------ |  | ----- | ------ |  |  | - | -------- | ------------ |  | - | ------- | 
|                       |  | Consumer |         |          |  |               |         |              |  |       |        |  |  |   |          | Consolidated
|SIX MONTHS ENDED       |  | Durables |         | Far East |  | International |         | Eliminations |  | Total
|June 30, 2002          |  |          |         |          |  |               |         |              |  |       |        |  |  |   |          |              |  |   |         | 
|                      
|                      
|                      
|                      
|Net sales              |  | $        | 217,224 |          |  | $             | 151,941 |              |  | $     | 23,349 |  |  | $ | (143,260 | )            |  | $ | 249,254 | 
|                      
|                      
|                      
|                      
|Operating income(loss) |  |          | (3,737  | )        |  |               | 11,450  |              |  |       | 412    |  |  |   | (1,190   | )            |  |   | 6,935   | 
|                      
|                      
|                      
|                      
|June 30, 2001          |  |          |         |          |  |               |         |              |  |       |        |  |  |   |          |              |  |   |         | 
|                      
|                      
|                      
|                      
|Net sales              |  | $        | 219,898 |          |  | $             | 128,000 |              |  | $     | 22,330 |  |  | $ | (116,362 | )            |  | $ | 253,866 | 
|                      
|                      
|                      
|                      
|Operating income(loss) |  |          | (8,825  | )        |  |               | 11,780  |              |  |       | 845    |  |  |   | 735      |              |  |   | 4,535   | 

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

|                   |                                  |  |               |         |          |  |               |        |       |  |   |        |  |  |              |         | 
|------------------ | -------------------------------- |  | ------------- | ------- | -------- |  | ------------- | ------ | ----- |  | - | ------ |  |  | ------------ | ------- | 
|                   |                                  |  |               |         |          |  |               |        |       |  |   |        |  |  | Consolidated
|                   |                                  |  | United States |         | Far East |  | International |        | Total
|Net sales:         |                                  |  |               |         |          |  |               |        |       |  |   |        |  |  |              |        
|                  
|                  
|                  
|                  
|                   | Three months ended June 30, 2002 |  | $             | 114,114 |          |  | $             | 4,240  |       |  | $ | 13,558 |  |  | $            | 131,912 | 
|                  
|                  
|                  
|                  
|                   | Three months ended June 30, 2001 |  |               | 110,925 |          |  |               | 5,841  |       |  |   | 11,883 |  |  |              | 128,649 | 
|                  
|                  
|                  
|                  
|                   | Six months ended June 30, 2002   |  |               | 217,224 |          |  |               | 8,681  |       |  |   | 23,349 |  |  |              | 249,254 | 
|                  
|                  
|                  
|                  
|                   | Six months ended June 30, 2001   |  |               | 219,898 |          |  |               | 11,638 |       |  |   | 22,330 |  |  |              | 253,866 | 
|                  
|                  
|                  
|                  
|Long-lived assets: |                                  |  |               |         |          |  |               |        |       |  |   |        |  |  |              |        
|                  
|                  
|                  
|                  
|                   | June 30, 2002                    |  |               | 40,224  |          |  |               | 32,782 |       |  |   | 553    |  |  |              | 73,559  | 
|                  
|                  
|                  
|                  
|                   | 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 or cash flows.

10.     RECLASSIFICATIONS

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

11.     CONDENSED CONSOLIDATING INFORMATION

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

14



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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, plant 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 JUNE 30, 2002 (IN THOUSANDS)
(UNAUDITED)

| |                                                |                                           |                           |                                      |         |         |         |              |         |                |         |               |        |              |          |          |          |          |          |         |         |         |        | 
| | ---------------------------------------------- | ----------------------------------------- | ------------------------- | ------------------------------------ | ------- | ------- | ------- | ------------ | ------- | -------------- | ------- | ------------- | ------ | ------------ | -------- | -------- | -------- | -------- | -------- | ------- | ------- | ------- | ------ | 
| |                                                |                                           |                           |                                      |         |         |         |              |         | Guarantor      |         | Non-Guarantor |        |              |          |          |          |          |          |        
| |                                                |                                           |                           |                                      |         | Parent  |         | Subsidiaries |         | Subsidiaries   |         | Eliminations  |        | Consolidated
| |                                                |                                           |                           |                                      |         |         |         |              |         |                |         |               |        |             
| |                                                |                                           |                           |                                      |         |         |         |              |         | (In thousands) |         |               |        |              |          |          |          |         
| | ASSETS                                         |                                           |                           |                                      |         |         |         |              |         |                |         |               |        |              |          |          |          |          |          |         |        
|
|
|
|
| | Current assets:                                |                                           |                           |                                      |         |         |         |              |         |                |         |               |        |              |          |          |          |          |          |         |        
|
|
|
|
| |                                                | Cash and cash equivalents                 |                           | $                                    | 1,974   |         |         | $            | (489    | )              |         | $             | 4,285  |              |          |          |         |          |          | $       | 5,770   |        
|
|
|
|
| |                                                | Accounts receivable, net                  |                           |                                      | 17,592  |         |         |              | 49,742  |                |         |               | 19,672 |              |          |          |         |          |          |         | 87,006  |        
|
|
|
|
| |                                                | Inventories                               |                           |                                      | 34,477  |         |         |              | 64,690  |                |         |               | 27,501 |              |          | $        | (6,074   | )        |          |         | 120,594 |        
|
|
|
|
| |                                                | Prepaid expenses and other current assets |                           |                                      | 1,633   |         |         |              | 5,433   |                |         |               | 2,681  |              |          |          |         |          |          |         | 9,747   |        
|
|
|
|
| |                                                | Deferred income taxes                     |                           |                                      | 8,994   |         |         |              | 4,649   |                |         |               |       |              |          |          |         |          |          |         | 13,643  |        
|
|
|
|
| |                                                | Due from affiliates                       |                           |                                      | 133,099 |         |         |              | 89      |                |         |               | 81,464 |              |          |          | (214,652 | )        |          |         |        |        
| |                                                |                                           |                           |                                      |         |         |         |              |         |                |         |               |        |              |          |          |          |          |          |        
| |                                                |                                           | Total current assets      |                                      |         | 197,769 |         |              |         | 124,114        |         |               |        | 135,603      |          |          |          | (220,726 | )        |         |         | 236,760 |       
| |                                                |                                           |                           |                                      |         |         |         |              |         |                |         |               |        |              |          |          |          |          |          |        
| | Assets held for sale                           |                                           |                           |                                     |         |         |         | 6,288        |         |                |         |              |        |              |          |         |          |          |          | 6,288   |        
|
|
|
|
| | Property, plant and equipment, net             |                                           |                           | 9,978                                |         |         |         | 20,064       |         |                |         | 32,382        |        |              |          |         |          |          |          | 62,424  |        
|
|
|
|
| | Goodwill, net                                  |                                           |                           |                                     |         |         |         | 79,838       |         |                |         |              |        |              |          |         |          |          |          | 79,838  |        
|
|
|
|
| | Deferred income taxes                          |                                           |                           |                                     |         |         |         |             |         |                |         |              |        |              |          |         |          |          |          |        |        
|
|
|
|
| | Deposits and other assets                      |                                           |                           | 20,105                               |         |         |         | 2,543        |         |                |         | 953           |        |              |          | (4,891   | )        |          |          | 18,710  |        
|
|
|
|
| | Investments in consolidated subsidiaries       |                                           |                           | 102,489                              |         |         |         |             |         |                |         | 3,700         |        |              |          | (106,189 | )        |          |          |        |        
| |                                                |                                           |                           |                                      |         |         |         |              |         |                |         |               |        |              |          |          |          |          |          |        
| |                                                | $                                         | 330,341                   |                                      |         | $       | 232,847 |              |         | $              | 172,638 |               |        | $            | (331,806 | )        |          | $        | 404,020  |        
| |                                                |                                           |                           |                                      |         |         |         |              |         |                |         |               |        |              |          |          |          |          |          |        
| | LIABILITIES AND
STOCKHOLDERS EQUITY
(DEFICIT) |                                           |                           |                                      |         |         |         |              |         |                |         |               |        |              |          |          |          |          |          |         |        
|
|
|
|
| | Current liabilities:                           |                                           |                           |                                      |         |         |         |              |         |                |         |               |        |              |          |          |          |          |          |         |        
|
|
|
|
| |                                                | Accounts payable                          |                           | $                                    | 7,833   |         |         | $            | 3,752   |                |         | $             | 38,926 |              |          | $        | (4,891   | )        |          | $       | 45,620  |        
|
|
|
|
| |                                                | Current
portion of credit facility        |                           |                                      | 8,778   |         |         |              |        |                |         |               |       |              |          |          |         |          |          |         | 8,778   |        
|
|
|
|
| |                                                | Accrued expenses                          |                           |                                      | 18,341  |         |         |              | 16,127  |                |         |               | 5,959  |              |          |          |         |          |          |         | 40,427  |        
|
|
|
|
| |                                                | Accrued income taxes                      |                           |                                      | (859    | )       |         |              | 3,216   |                |         |               | 4,138  |              |          |          |         |          |          |         | 6,495   |        
|
|
|
|
| |                                                | Other current liabilities                 |                           |                                      |        |         |         |              |        |                |         |               | 783    |              |          |          |         |          |          |         | 783     |        
|
|
|
|
| |                                                | Due to affiliates                         |                           |                                      | 7,320   |         |         |              | 184,577 |                |         |               | 26,455 |              |          |          | (218,352 | )        |          |         |        |        
| |                                                |                                           |                           |                                      |         |         |         |              |         |                |         |               |        |              |          |          |          |          |          |        
| |                                                |                                           | Total
current liabilities |                                      |         | 41,413  |         |              |         | 207,672        |         |               |        | 76,261       |          |          |          | (223,243 | )        |         |         | 102,103 |       
| |                                                |                                           |                           |                                      |         |         |         |              |         |                |         |               |        |              |          |          |          |          |          |        
| |                                                |                                           | Credit facility           |                                      |         | 169,895 |         |              |         |               |         |               |        |             |          |          |          |         |          |         |         | 169,895 |       
| |                                                |                                           |                           |                                      |         |         |         |              |         |                |         |               |        |              |          |          |          |          |          |        
| | Long-term debt                                 |                                           |                           | 99,503                               |         |         |         |             |         |                |         |              |        |              |          |         |          |          |          | 99,503  |        
| |                                                |                                           |                           |                                      |         |         |         |              |         |                |         |               |        |              |          |          |          |          |          |        
| | Other long-term liabilities                    |                                           |                           |                                     |         |         |         |             |         |                |         | 7,050         |        |              |          |         |          |          |          | 7,050   |        
| |                                                |                                           |                           |                                      |         |         |         |              |         |                |         |               |        |              |          |          |          |          |          |        
| | Deferred income taxes                          |                                           |                           |                                     |         |         |         | 3,859        |         |                |         | 2,080         |        |              |          |         |          |          |          | 5,939   |        
| |                                                |                                           |                           |                                      |         |         |         |              |         |                |         |               |        |              |          |          |          |          |          |        
| | 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         |                                           |                           | 543                                  |         |         |         |             |         |                |         | 383           |        |              |          | (383     | )        |          |          | 543     |        
|
|
|
|
| | Treasury stock                                 |                                           |                           | (62,076                              | )       |         |         |             |         |                |         |              |        |              |          |         |          |          |          | (62,076 | )      
|
|
|
|
| | Retained earnings (deficit)                    |                                           |                           | 12,169                               |         |         |         | 21,314       |         |                |         | 83,064        |        |              |          | (104,378 | )        |          |          | 12,169  |        
| |                                                |                                           |                           |                                      |         |         |         |              |         |                |         |               |        |              |          |          |          |          |          |        
| |                                                |                                           |                           | Total stockholders
equity (deficit) |         |         | 19,530  |              |         |                | 21,316  |               |        |              | 87,247   |          |          |          | (108,563 | )       |         |         | 19,530 | 
| |                                                |                                           |                           |                                      |         |         |         |              |         |                |         |               |        |              |          |          |          |          |          |        
| |                                                | $                                         | 330,341                   |                                      |         | $       | 232,847 |              |         | $              | 172,638 |               |        | $            | (331,806 | )        |          | $        | 404,020  |        
| |                                                |                                           |                           |                                      |         |         |         |              |         |                |         |               |        |              |          |          |          |          |          |        

16



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##### Table of Contents






CONSOLIDATING STATEMENT OF OPERATIONS
THREE MONTHS ENDED JUNE 30, 2001 (IN THOUSANDS)
(UNAUDITED)

|                                                                            |                              |   |         |         |              |   |              |        |               |   |                |        |   |   |         |     |  |   |         |        |  
|--------------------------------------------------------------------------- | ---------------------------- | - | ------- | ------- | ------------ | - | ------------ | ------ | ------------- | - | -------------- | ------ | - | - | ------- | --- |  | - | ------- | ------ | -
|                                                                            |                              |   |         |         |              |   | Guarantor    |        | Non-Guarantor |   |                |        |   |   |         |     | 
|                                                                            |                              |   | Parent  |         | Subsidiaries |   | Subsidiaries |        | Eliminations  |   | Consolidated  
|                                                                            |                              |   |         |         |              |   |              |        |               |   |               
|                                                                            |                              |   |         |         |              |   |              |        |               |   | (In thousands) |        |   |   |         |     |  |   |        
|Net sales                                                                   |                              | $ | 42,388  |         |              | $ | 68,384       |        |               | $ | 75,317         |        |   | $ | (57,440 | )   |  | $ | 128,649 |       
|                                                                           
|                                                                           
|                                                                           
|                                                                           
|Cost of goods sold                                                          |                              |   | 41,020  |         |              |   | 53,630       |        |               |   | 64,920         |        |   |   | (57,850 | )   |  |   | 101,720 |       
|                                                                            |                              |   |         |         |              |   |              |        |               |   |                |        |   |   |         |     |  |   |         |       
|                                                                            | Gross profit (loss)          |   |         | 1,368   |              |   |              | 14,754 |               |   |                | 10,397 |   |   |         | 410 |  |   |         | 26,929 |  
|                                                                            |                              |   |         |         |              |   |              |        |               |   |                |        |   |   |         |     |  |   |         |       
|Operating expenses:                                                         |                              |   |         |         |              |   |              |        |               |   |                |        |   |   |         |     |  |   |         |       
|                                                                           
|                                                                           
|                                                                           
|                                                                           
|                                                                            | Selling                      |   |         | 7,132   |              |   |              | 2,908  |               |   |                | 2,927  |   |   |         |    |  |   |         | 12,967 |  
|                                                                           
|                                                                           
|                                                                           
|                                                                           
|                                                                            | General and administrative   |   |         | 6,574   |              |   |              | 2,153  |               |   |                | 1,901  |   |   |         |    |  |   |         | 10,628 |  
|                                                                           
|                                                                           
|                                                                           
|                                                                           
|                                                                            | Product development          |   |         | 2,359   |              |   |              | (53    | )             |   |                |       |   |   |         |    |  |   |         | 2,306  |  
|                                                                           
|                                                                           
|                                                                           
|                                                                           
|                                                                            | Restructuring costs          |   |         |        |              |   |              | 1,445  |               |   |                |       |   |   |         |    |  |   |         | 1,445  |  
|                                                                           
|                                                                           
|                                                                           
|                                                                           
|                                                                            | Amortization of goodwill     |   |         |        |              |   |              | 650    |               |   |                |       |   |   |         |    |  |   |         | 650    |  
|                                                                            |                              |   |         |         |              |   |              |        |               |   |                |        |   |   |         |     |  |   |         |       
|                                                                            | Total operating expenses     |   |         | 16,065  |              |   |              | 7,103  |               |   |                | 4,828  |   |   |         |    |  |   |         | 27,996 |  
|                                                                            |                              |   |         |         |              |   |              |        |               |   |                |        |   |   |         |     |  |   |         |       
|                                                                            | Operating profit (loss)      |   |         | (14,697 | )            |   |              | 7,651  |               |   |                | 5,569  |   |   |         | 410 |  |   |         | (1,067 | )
|                                                                            |                              |   |         |         |              |   |              |        |               |   |                |        |   |   |         |     |  |   |         |       
|Other (income) and expense:                                                 |                              |   |         |         |              |   |              |        |               |   |                |        |   |   |         |     |  |   |         |       
|                                                                           
|                                                                           
|                                                                           
|                                                                           
|                                                                            | Interest expense             |   |         | 9,024   |              |   |              | 2,382  |               |   |                | (26    | ) |   |         |    |  |   |         | 11,380 |  
|                                                                           
|                                                                           
|                                                                           
|                                                                           
|                                                                            | Other (income) expense, net  |   |         | (246    | )            |   |              | 328    |               |   |                | (404   | ) |   |         |    |  |   |         | (322   | )
|                                                                            |                              |   |         |         |              |   |              |        |               |   |                |        |   |   |         |     |  |   |         |       
|                                                                            | Total other (income) expense |   |         | 8,778   |              |   |              | 2,710  |               |   |                | (430   | ) |   |         |    |  |   |         | 11,058 |  
|                                                                            |                              |   |         |         |              |   |              |        |               |   |                |        |   |   |         |     |  |   |         |       
|Income (loss) before income
taxes and equity in earnings from joint venture |                              |   | (23,475 | )       |              |   | 4,941        |        |               |   | 5,999          |        |   |   | 410     |     |  |   | (12,125 | )     
|                                                                           
|                                                                           
|                                                                           
|                                                                           
|Income tax expense (benefit)                                                |                              |   | 561     |         |              |   |             |        |               |   | 606            |        |   |   |        |     |  |   | 1,167   |       
|                                                                           
|                                                                           
|                                                                           
|                                                                           
|Equity in earnings from joint venture                                       |                              |   | 744     |         |              |   |             |        |               |   |               |        |   |   |        |     |  |   | 744     |       
|                                                                            |                              |   |         |         |              |   |              |        |               |   |                |        |   |   |         |     |  |   |         |       
|Income (loss) before equity in
income of consolidated subsidiaries          |                              |   | (23,292 | )       |              |   | 4,941        |        |               |   | 5,393          |        |   |   | 410     |     |  |   | (12,548 | )     
|                                                                           
|                                                                           
|                                                                           
|                                                                           
|Equity in income of consolidated subsidiaries                               |                              |   | 10,744  |         |              |   |             |        |               |   |               |        |   |   | (10,744 | )   |  |   |        |       
|                                                                            |                              |   |         |         |              |   |              |        |               |   |                |        |   |   |         |     |  |   |         |       
|Net income (loss)                                                           |                              | $ | (12,548 | )       |              | $ | 4,941        |        |               | $ | 5,393          |        |   | $ | (10,334 | )   |  | $ | (12,548 | )     
|                                                                            |                              |   |         |         |              |   |              |        |               |   |                |        |   |   |         |     |  |   |         |       

17



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##### Table of Contents



CONSOLIDATING STATEMENT OF OPERATIONS
THREE MONTHS ENDED JUNE 30, 2002 (IN THOUSANDS)
(UNAUDITED)

|                                                                            |                              |   |                |         |              |   |              |        |               |   |              |        |  |   |         |      |   |   |         |        | 
|--------------------------------------------------------------------------- | ---------------------------- | - | -------------- | ------- | ------------ | - | ------------ | ------ | ------------- | - | ------------ | ------ |  | - | ------- | ---- | - | - | ------- | ------ | 
|                                                                            |                              |   |                |         |              |   | Guarantor    |        | Non-Guarantor |   |              |        |  |   |         |      |  
|                                                                            |                              |   | Parent         |         | Subsidiaries |   | Subsidiaries |        | Eliminations  |   | Consolidated
|                                                                            |                              |   |                |         |              |   |              |        |               |   |             
|                                                                            |                              |   | (In thousands)
|Net sales                                                                   |                              | $ | 34,609         |         |              | $ | 79,505       |        |               | $ | 94,116       |        |  | $ | (76,318 | )    |   | $ | 131,912 |       
|                                                                           
|                                                                           
|                                                                           
|                                                                           
|Cost of goods sold                                                          |                              |   | 33,585         |         |              |   | 58,314       |        |               |   | 83,223       |        |  |   | (75,523 | )    |   |   | 99,599  |       
|                                                                            |                              |   |                |         |              |   |              |        |               |   |              |        |  |   |         |      |   |   |         |       
|                                                                            | Gross profit (loss)          |   |                | 1,024   |              |   |              | 21,191 |               |   |              | 10,893 |  |   |         | (795 | ) |   |         | 32,313 | 
|                                                                            |                              |   |                |         |              |   |              |        |               |   |              |        |  |   |         |      |   |   |         |       
|Operating expenses:                                                         |                              |   |                |         |              |   |              |        |               |   |              |        |  |   |         |      |   |   |         |       
|                                                                           
|                                                                           
|                                                                           
|                                                                           
|                                                                            | Selling                      |   |                | 12,977  |              |   |              | (1,427 | )             |   |              | 2,943  |  |   |         |     |   |   |         | 14,493 | 
|                                                                           
|                                                                           
|                                                                           
|                                                                           
|                                                                            | General and administrative   |   |                | 2,195   |              |   |              | 5,810  |               |   |              | 1,952  |  |   |         |     |   |   |         | 9,957  | 
|                                                                           
|                                                                           
|                                                                           
|                                                                           
|                                                                            | Product development          |   |                | 1,690   |              |   |              | 768    |               |   |              |       |  |   |         |     |   |   |         | 2,458  | 
|                                                                           
|                                                                           
|                                                                           
|                                                                           
|                                                                            | Restructuring costs          |   |                |        |              |   |              |       |               |   |              |       |  |   |         |     |   |   |         |       | 
|                                                                            |                              |   |                |         |              |   |              |        |               |   |              |        |  |   |         |      |   |   |         |       
|                                                                            | Total operating expenses     |   |                | 16,862  |              |   |              | 5,151  |               |   |              | 4,895  |  |   |         |     |   |   |         | 26,908 | 
|                                                                            |                              |   |                |         |              |   |              |        |               |   |              |        |  |   |         |      |   |   |         |       
|                                                                            | Operating profit (loss)      |   |                | (15,838 | )            |   |              | 16,040 |               |   |              | 5,998  |  |   |         | (795 | ) |   |         | 5,405  | 
|                                                                            |                              |   |                |         |              |   |              |        |               |   |              |        |  |   |         |      |   |   |         |       
|Other (income) and expense:                                                 |                              |   |                |         |              |   |              |        |               |   |              |        |  |   |         |      |   |   |         |       
|                                                                           
|                                                                           
|                                                                           
|                                                                           
|                                                                            | Interest expense (income)    |   |                | 7,146   |              |   |              | (8     | )             |   |              | 4      |  |   |         |     |   |   |         | 7,142  | 
|                                                                           
|                                                                           
|                                                                           
|                                                                           
|                                                                            | Other (income) expense, net  |   |                | 764     |              |   |              | (642   | )             |   |              | 601    |  |   |         |     |   |   |         | 723    | 
|                                                                            |                              |   |                |         |              |   |              |        |               |   |              |        |  |   |         |      |   |   |         |       
|                                                                            | Total other (income) expense |   |                | 7,910   |              |   |              | (650   | )             |   |              | 605    |  |   |         |     |   |   |         | 7,865  | 
|                                                                            |                              |   |                |         |              |   |              |        |               |   |              |        |  |   |         |      |   |   |         |       
|Income (loss) before income taxes and equity in
earnings from joint venture |                              |   | (23,748        | )       |              |   | 16,690       |        |               |   | 5,393        |        |  |   | (795    | )    |   |   | (2,460  | )     
|                                                                           
|                                                                           
|                                                                           
|                                                                           
|Income tax expense (benefit)                                                |                              |   | (2,583         | )       |              |   | 125          |        |               |   | 449          |        |  |   |        |      |   |   | (2,009  | )     
|                                                                           
|                                                                           
|                                                                           
|                                                                           
|Equity in earnings from joint venture                                       |                              |   | 741            |         |              |   |             |        |               |   |             |        |  |   |        |      |   |   | 741     |       
|                                                                            |                              |   |                |         |              |   |              |        |               |   |              |        |  |   |         |      |   |   |         |       
|Income (loss) before equity in income of
consolidated subsidiaries          |                              |   | (20,424        | )       |              |   | 16,565       |        |               |   | 4,944        |        |  |   | (795    | )    |   |   | 290     |       
|                                                                           
|                                                                           
|                                                                           
|                                                                           
|Equity in income of consolidated subsidiaries                               |                              |   | 20,714         |         |              |   |             |        |               |   |             |        |  |   | (20,714 | )    |   |   |        |       
|                                                                            |                              |   |                |         |              |   |              |        |               |   |              |        |  |   |         |      |   |   |         |       
|Net income (loss)                                                           |                              | $ | 290            |         |              | $ | 16,565       |        |               | $ | 4,944        |        |  | $ | (21,509 | )    |   | $ | 290     |       
|                                                                            |                              |   |                |         |              |   |              |        |               |   |              |        |  |   |         |      |   |   |         |       

18



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##### Table of Contents



CONSOLIDATING STATEMENT OF OPERATIONS
SIX MONTHS ENDED JUNE 30, 2001 (IN THOUSANDS)
(UNAUDITED)

|                                                                            |                              |   |                |         |              |   |              |        |               |   |              |        |   |   |          |     |  |   |         |        |  
|--------------------------------------------------------------------------- | ---------------------------- | - | -------------- | ------- | ------------ | - | ------------ | ------ | ------------- | - | ------------ | ------ | - | - | -------- | --- |  | - | ------- | ------ | -
|                                                                            |                              |   |                |         |              |   | Guarantor    |        | Non-Guarantor |   |              |        |   |   |          |     | 
|                                                                            |                              |   | Parent         |         | Subsidiaries |   | Subsidiaries |        | Eliminations  |   | Consolidated
|                                                                            |                              |   |                |         |              |   |              |        |               |   |             
|                                                                            |                              |   | (In thousands)
|Net sales                                                                   |                              | $ | 104,980        |         |              | $ | 114,918      |        |               | $ | 150,330      |        |   | $ | (116,362 | )   |  | $ | 253,866 |       
|                                                                           
|                                                                           
|                                                                           
|                                                                           
|Cost of goods sold                                                          |                              |   | 94,823         |         |              |   | 89,846       |        |               |   | 128,006      |        |   |   | (117,097 | )   |  |   | 195,578 |       
|                                                                            |                              |   |                |         |              |   |              |        |               |   |              |        |   |   |          |     |  |   |         |       
|                                                                            | Gross profit (loss)          |   |                | 10,157  |              |   |              | 25,072 |               |   |              | 22,324 |   |   |          | 735 |  |   |         | 58,288 |  
|                                                                            |                              |   |                |         |              |   |              |        |               |   |              |        |   |   |          |     |  |   |         |       
|Operating expenses:                                                         |                              |   |                |         |              |   |              |        |               |   |              |        |   |   |          |     |  |   |         |       
|                                                                           
|                                                                           
|                                                                           
|                                                                           
|                                                                            | Selling                      |   |                | 14,044  |              |   |              | 8,006  |               |   |              | 5,113  |   |   |          |    |  |   |         | 27,163 |  
|                                                                           
|                                                                           
|                                                                           
|                                                                           
|                                                                            | General and administrative   |   |                | 10,836  |              |   |              | 3,551  |               |   |              | 4,586  |   |   |          |    |  |   |         | 18,973 |  
|                                                                           
|                                                                           
|                                                                           
|                                                                           
|                                                                            | Product development          |   |                | 4,447   |              |   |              | 425    |               |   |              |       |   |   |          |    |  |   |         | 4,872  |  
|                                                                           
|                                                                           
|                                                                           
|                                                                           
|                                                                            | Restructuring costs          |   |                |        |              |   |              | 1,445  |               |   |              |       |   |   |          |    |  |   |         | 1,445  |  
|                                                                           
|                                                                           
|                                                                           
|                                                                           
|                                                                            | Amortization of goodwill     |   |                |        |              |   |              | 1,300  |               |   |              |       |   |   |          |    |  |   |         | 1,300  |  
|                                                                            |                              |   |                |         |              |   |              |        |               |   |              |        |   |   |          |     |  |   |         |       
|                                                                            | Total operating expenses     |   |                | 29,327  |              |   |              | 14,727 |               |   |              | 9,699  |   |   |          |    |  |   |         | 53,753 |  
|                                                                            |                              |   |                |         |              |   |              |        |               |   |              |        |   |   |          |     |  |   |         |       
|                                                                            | Operating profit (loss)      |   |                | (19,170 | )            |   |              | 10,345 |               |   |              | 12,625 |   |   |          | 735 |  |   |         | 4,535  |  
|                                                                            |                              |   |                |         |              |   |              |        |               |   |              |        |   |   |          |     |  |   |         |       
|Other (income) and expense:                                                 |                              |   |                |         |              |   |              |        |               |   |              |        |   |   |          |     |  |   |         |       
|                                                                           
|                                                                           
|                                                                           
|                                                                           
|                                                                            | Interest expense (income)    |   |                | 15,577  |              |   |              | 5,168  |               |   |              | (29    | ) |   |          |    |  |   |         | 20,716 |  
|                                                                           
|                                                                           
|                                                                           
|                                                                           
|                                                                            | Other (income) expense, net  |   |                | 339     |              |   |              | (203   | )             |   |              | (414   | ) |   |          |    |  |   |         | (278   | )
|                                                                            |                              |   |                |         |              |   |              |        |               |   |              |        |   |   |          |     |  |   |         |       
|                                                                            | Total other (income) expense |   |                | 15,916  |              |   |              | 4,965  |               |   |              | (443   | ) |   |          |    |  |   |         | 20,438 |  
|                                                                            |                              |   |                |         |              |   |              |        |               |   |              |        |   |   |          |     |  |   |         |       
|Income (loss) before income taxes and equity in
earnings from joint venture |                              |   | (35,086        | )       |              |   | 5,380        |        |               |   | 13,068       |        |   |   | 735      |     |  |   | (15,903 | )     
|                                                                           
|                                                                           
|                                                                           
|                                                                           
|Income tax expense (benefit)                                                |                              |   | 941            |         |              |   |             |        |               |   | 1,490        |        |   |   |         |     |  |   | 2,431   |       
|                                                                           
|                                                                           
|                                                                           
|                                                                           
|Equity in earnings from joint venture                                       |                              |   | 1,360          |         |              |   |             |        |               |   |             |        |   |   |         |     |  |   | 1,360   |       
|                                                                            |                              |   |                |         |              |   |              |        |               |   |              |        |   |   |          |     |  |   |         |       
|Income (loss) before equity in income of
consolidated subsidiaries          |                              |   | (34,667        | )       |              |   | 5,380        |        |               |   | 11,578       |        |   |   | 735      |     |  |   | (16,974 | )     
|                                                                           
|                                                                           
|                                                                           
|                                                                           
|Equity in income of consolidated subsidiaries                               |                              |   | 17,693         |         |              |   |             |        |               |   |             |        |   |   | (17,693  | )   |  |   |        |       
|                                                                            |                              |   |                |         |              |   |              |        |               |   |              |        |   |   |          |     |  |   |         |       
|Net income (loss)                                                           |                              | $ | (16,974        | )       |              | $ | 5,380        |        |               | $ | 11,578       |        |   | $ | (16,958  | )   |  | $ | (16,974 | )     
|                                                                            |                              |   |                |         |              |   |              |        |               |   |              |        |   |   |          |     |  |   |         |       

19



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##### Table of Contents



CONSOLIDATING STATEMENT OF OPERATIONS
SIX MONTHS ENDED JUNE 30, 2002 (IN THOUSANDS)
(UNAUDITED)

|                                                                                                |                              |   |                |         |              |   |              |        |               |   |              |        |   |   |          |        |   |   |         |        |  
|----------------------------------------------------------------------------------------------- | ---------------------------- | - | -------------- | ------- | ------------ | - | ------------ | ------ | ------------- | - | ------------ | ------ | - | - | -------- | ------ | - | - | ------- | ------ | -
|                                                                                                |                              |   |                |         |              |   | Guarantor    |        | Non-Guarantor |   |              |        |   |   |          |        |  
|                                                                                                |                              |   | Parent         |         | Subsidiaries |   | Subsidiaries |        | Eliminations  |   | Consolidated
|                                                                                                |                              |   |                |         |              |   |              |        |               |   |             
|                                                                                                |                              |   | (In thousands)
|Net sales                                                                                       |                              | $ | 75,746         |         |              | $ | 141,478      |        |               | $ | 175,290      |        |   | $ | (143,260 | )      |   | $ | 249,254 |       
|                                                                                               
|                                                                                               
|                                                                                               
|                                                                                               
|Cost of goods sold                                                                              |                              |   | 70,160         |         |              |   | 106,584      |        |               |   | 153,817      |        |   |   | (142,070 | )      |   |   | 188,491 |       
|                                                                                                |                              |   |                |         |              |   |              |        |               |   |              |        |   |   |          |        |   |   |         |       
|                                                                                                | Gross profit (loss)          |   |                | 5,586   |              |   |              | 34,894 |               |   |              | 21,473 |   |   |          | (1,190 | ) |   |         | 60,763 |  
|                                                                                                |                              |   |                |         |              |   |              |        |               |   |              |        |   |   |          |        |   |   |         |       
|Operating expenses:                                                                             |                              |   |                |         |              |   |              |        |               |   |              |        |   |   |          |        |   |   |         |       
|                                                                                               
|                                                                                               
|                                                                                               
|                                                                                               
|                                                                                                | Selling                      |   |                | 18,892  |              |   |              | 2,424  |               |   |              | 5,220  |   |   |          |       |   |   |         | 26,536 |  
|                                                                                               
|                                                                                               
|                                                                                               
|                                                                                               
|                                                                                                | General and administrative   |   |                | 7,797   |              |   |              | 8,496  |               |   |              | 4,391  |   |   |          |       |   |   |         | 20,684 |  
|                                                                                               
|                                                                                               
|                                                                                               
|                                                                                               
|                                                                                                | Product development          |   |                | 3,687   |              |   |              | 1,134  |               |   |              |       |   |   |          |       |   |   |         | 4,821  |  
|                                                                                               
|                                                                                               
|                                                                                               
|                                                                                               
|                                                                                                | Restructuring costs          |   |                |        |              |   |              | 1,787  |               |   |              |       |   |   |          |       |   |   |         | 1,787  |  
|                                                                                                |                              |   |                |         |              |   |              |        |               |   |              |        |   |   |          |        |   |   |         |       
|                                                                                                | Total operating expenses     |   |                | 30,376  |              |   |              | 13,841 |               |   |              | 9,611  |   |   |          |       |   |   |         | 53,828 |  
|                                                                                                |                              |   |                |         |              |   |              |        |               |   |              |        |   |   |          |        |   |   |         |       
|                                                                                                | Operating profit (loss)      |   |                | (24,790 | )            |   |              | 21,053 |               |   |              | 11,862 |   |   |          | (1,190 | ) |   |         | 6,935  |  
|                                                                                                |                              |   |                |         |              |   |              |        |               |   |              |        |   |   |          |        |   |   |         |       
|Other (income) and expense:                                                                     |                              |   |                |         |              |   |              |        |               |   |              |        |   |   |          |        |   |   |         |       
|                                                                                               
|                                                                                               
|                                                                                               
|                                                                                               
|                                                                                                | Interest expense (income)    |   |                | 15,071  |              |   |              | 27     |               |   |              |       |   |   |          |       |   |   |         | 15,098 |  
|                                                                                               
|                                                                                               
|                                                                                               
|                                                                                               
|                                                                                                | Other (income) expense, net  |   |                | 566     |              |   |              | (9,701 | )             |   |              | (233   | ) |   |          |       |   |   |         | (9,368 | )
|                                                                                                |                              |   |                |         |              |   |              |        |               |   |              |        |   |   |          |        |   |   |         |       
|                                                                                                | Total other (income) expense |   |                | 15,637  |              |   |              | (9,674 | )             |   |              | (233   | ) |   |          |       |   |   |         | 5,730  |  
|                                                                                                |                              |   |                |         |              |   |              |        |               |   |              |        |   |   |          |        |   |   |         |       
|Income (loss) before income taxes, equity in
earnings from joint venture and extraordinary item |                              |   | (40,427        | )       |              |   | 30,727       |        |               |   | 12,095       |        |   |   | (1,190   | )      |   |   | 1,205   |       
|                                                                                               
|                                                                                               
|                                                                                               
|                                                                                               
|Income tax expense (benefit)                                                                    |                              |   | (2,583         | )       |              |   | (2,258       | )      |               |   | 1,407        |        |   |   |         |        |   |   | (3,434  | )     
|                                                                                               
|                                                                                               
|                                                                                               
|                                                                                               
|Equity in earnings from joint venture                                                           |                              |   | 1,341          |         |              |   |             |        |               |   |             |        |   |   |         |        |   |   | 1,341   |       
|                                                                                                |                              |   |                |         |              |   |              |        |               |   |              |        |   |   |          |        |   |   |         |       
|Income (loss) before equity in income of
consolidated subsidiaries and extraordinary item       |                              |   | (36,503        | )       |              |   | 32,985       |        |               |   | 10,688       |        |   |   | (1,190   | )      |   |   | 5,980   |       
|                                                                                               
|                                                                                               
|                                                                                               
|                                                                                               
|Equity in income of consolidated subsidiaries                                                   |                              |   | 42,483         |         |              |   |             |        |               |   |             |        |   |   | (42,483  | )      |   |   |        |       
|                                                                                                |                              |   |                |         |              |   |              |        |               |   |              |        |   |   |          |        |   |   |         |       
|Income before extraordinary item                                                                |                              |   | 5,980          |         |              |   | 32,985       |        |               |   | 10,688       |        |   |   | (43,673  | )      |   |   | 5,980   |       
|                                                                                               
|                                                                                               
|                                                                                               
|                                                                                               
|Extraordinary gain                                                                              |                              |   | 22,388         |         |              |   |             |        |               |   |             |        |   |   |         |        |   |   | 22,388  |       
|                                                                                                |                              |   |                |         |              |   |              |        |               |   |              |        |   |   |          |        |   |   |         |       
|Net income (loss)                                                                               |                              | $ | 28,368         |         |              | $ | 32,985       |        |               | $ | 10,688       |        |   | $ | (43,673  | )      |   | $ | 28,368  |       
|                                                                                                |                              |   |                |         |              |   |              |        |               |   |              |        |   |   |          |        |   |   |         |       

20



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##### Table of Contents



CONDENSED CONSOLIDATING STATEMENT OF CASH FLOWS
SIX MONTHS ENDED JUNE 30, 2001 AND 2002 (IN THOUSANDS)
(UNAUDITED)

|                                                     |                                                      |                                                      |        |         |         |              |        |              |         |               |        |         |         |   |        |         |         |  
|---------------------------------------------------- | ---------------------------------------------------- | ---------------------------------------------------- | ------ | ------- | ------- | ------------ | ------ | ------------ | ------- | ------------- | ------ | ------- | ------- | - | ------ | ------- | ------- | -
|                                                     |                                                      |                                                      |        |         |         |              |        | GUARANTOR    |         | NON-GUARANTOR |        |         |         |  
|                                                     |                                                      |                                                      |        | PARENT  |         | SUBSIDIARIES |        | SUBSIDIARIES |         | CONSOLIDATED 
|                                                     |                                                      |                                                      |        |         |         |              |        |              |         |              
|SIX MONTHS ENDED JUNE 30, 2001                       |                                                      |                                                      |        |         |         |              |        |              |         |               |        |         |         |   |        |        
|                                                    
|                                                    
|                                                    
|                                                    
|Net cash provided by (used in) operating activities  |                                                      | $                                                    | 22,297 |         |         | $            | (8,573 | )            |         | $             | (1,042 | )       |         | $ | 12,682 |        
|                                                     |                                                      |                                                      |        |         |         |              |        |              |         |               |        |         |         |   |        |        
|Cash flows from investing activities:                |                                                      |                                                      |        |         |         |              |        |              |         |               |        |         |         |   |        |        
|                                                    
|                                                    
|                                                    
|                                                    
|                                                     | Cash received from joint venture partner             |                                                      |        |        |         |              |        |             |         |               |        | 700     |         |   |        | 700     |        
|                                                    
|                                                    
|                                                    
|                                                    
|                                                     | Proceeds from assets held for sale                   |                                                      |        | 2,053   |         |              |        |             |         |               |        |        |         |   |        | 2,053   |        
|                                                    
|                                                    
|                                                    
|                                                    
|                                                     | Distribution of earnings from joint venture          |                                                      |        | 616     |         |              |        |             |         |               |        |        |         |   |        | 616     |        
|                                                    
|                                                    
|                                                    
|                                                    
|                                                     | Purchases
of property, plant and equipment           |                                                      |        | (1,737  | )       |              |        | (1,545       | )       |               |        | (5,272  | )       |   |        | (8,554  | )      
|                                                     |                                                      |                                                      |        |         |         |              |        |              |         |               |        |         |         |   |        |        
|Net cash used for investing activities               |                                                      |                                                      | 932    |         |         |              | (1,545 | )            |         |               | (4,572 | )       |         |   | (5,185 | )      
|                                                     |                                                      |                                                      |        |         |         |              |        |              |         |               |        |         |         |   |        |        
|Cash flows from financing activities:                |                                                      |                                                      |        |         |         |              |        |              |         |               |        |         |         |   |        |        
|                                                    
|                                                    
|                                                    
|                                                    
|                                                     | Repayments of credit facility, net of issuance costs |                                                      |        | (7,504  | )       |              |        |             |         |               |        |        |         |   |        | (7,504  | )      
|                                                    
|                                                    
|                                                    
|                                                    
|                                                     | Other net activity with Parent                       |                                                      |        | (15,154 | )       |              |        | 10,219       |         |               |        | 4,935   |         |   |        |        |        
|                                                     |                                                      |                                                      |        |         |         |              |        |              |         |               |        |         |         |   |        |        
|                                                     |                                                      | Net cash provided by
(used for) financing
activities |        |         | (22,658 | )            |        |              | 10,219  |               |        |         | 4,935   |   |        |         | (7,504  | )
|                                                     |                                                      |                                                      |        |         |         |              |        |              |         |               |        |         |         |   |        |        
|Effect of exchange rate changes on cash              |                                                      |                                                      |       |         |         |              |       |              |         |               | (29    | )       |         |   | (29    | )      
|                                                     |                                                      |                                                      |        |         |         |              |        |              |         |               |        |         |         |   |        |        
|Net (decrease) in cash and cash equivalents          |                                                      |                                                      | 571    |         |         |              | 101    |              |         |               | (708   | )       |         |   | (36    | )      
|                                                    
|                                                    
|                                                    
|                                                    
|Cash and cash equivalents, beginning of period       |                                                      |                                                      | 175    |         |         |              | 959    |              |         |               | 1,883  |         |         |   | 3,017  |        
|                                                     |                                                      |                                                      |        |         |         |              |        |              |         |               |        |         |         |   |        |        
|Cash and cash equivalents, end of period             |                                                      | $                                                    | 746    |         |         | $            | 1,060  |              |         | $             | 1,175  |         |         | $ | 2,981  |        
|                                                     |                                                      |                                                      |        |         |         |              |        |              |         |               |        |         |         |   |        |        
|SIX MONTHS ENDED JUNE 30, 2001                       |                                                      |                                                      |        |         |         |              |        |              |         |               |        |         |         |   |        |        
|                                                    
|                                                    
|                                                    
|                                                    
|                                                    
|                                                    
|                                                    
|                                                    
|Net cash provided by operating activities            |                                                      | $                                                    | 17,974 |         |         | $            | 2,874  |              |         | $             | 18,262 |         |         | $ | 39,110 |        
|                                                     |                                                      |                                                      |        |         |         |              |        |              |         |               |        |         |         |   |        |        
|Cash flows from investing activities:                |                                                      |                                                      |        |         |         |              |        |              |         |               |        |         |         |   |        |        
|                                                    
|                                                    
|                                                    
|                                                    
|                                                     | Distribution of earnings from joint venture          |                                                      |        | 1,522   |         |              |        |             |         |               |        |        |         |   |        | 1,522   |        
|                                                    
|                                                    
|                                                    
|                                                    
|                                                     | Proceeds from sale of business                       |                                                      |        |        |         |              |        | 15,100       |         |               |        |        |         |   |        | 15,100  |        
|                                                    
|                                                    
|                                                    
|                                                    
|                                                     | Purchases
of property, plant and equipment           |                                                      |        | (3,354  | )       |              |        | (718         | )       |               |        | (3,475  | )       |   |        | (7,547  | )      
|                                                     |                                                      |                                                      |        |         |         |              |        |              |         |               |        |         |         |   |        |        
|Net cash provided by (used for) investing activities |                                                      |                                                      | (1,832 | )       |         |              | 14,382 |              |         |               | (3,475 | )       |         |   | 9,075  |        
|                                                     |                                                      |                                                      |        |         |         |              |        |              |         |               |        |         |         |   |        |        
|Cash flows from financing activities:                |                                                      |                                                      |        |         |         |              |        |              |         |               |        |         |         |   |        |        
|                                                    
|                                                    
|                                                    
|                                                    
|                                                     | Repayments of credit facility, net of issuance costs |                                                      |        | (39,209 | )       |              |        |             |         |               |        |        |         |   |        | (39,209 | )      
|                                                    
|                                                    
|                                                    
|                                                    
|                                                     | Redemption of long-term debt                         |                                                      |        | (11,549 | )       |              |        |             |         |               |        |        |         |   |        | (11,549 | )      
|                                                    
|                                                    
|                                                    
|                                                    
|                                                     | Debt issuance costs                                  |                                                      |        | (1,579  | )       |              |        |             |         |               |        |        |         |   |        | (1,579  | )      
|                                                    
|                                                    
|                                                    
|                                                    
|                                                     | Other net activity with Parent                       |                                                      |        | 34,086  |         |              |        | (19,057      | )       |               |        | (15,029 | )       |   |        |        |        
|                                                     |                                                      |                                                      |        |         |         |              |        |              |         |               |        |         |         |   |        |        
|                                                     |                                                      | Net cash provided by                                 |        |         | (18,251 | )            |        |              | (19,057 | )             |        |         | (15,029 | ) |        |         | (52,337 | )
|                                                    
|                                                    
|                                                    
|                                                    
|                                                     |                                                      | (used for) financing                                 |        |         |        |              |        |              |        |               |        |         |        |   |        |         |        |  
|                                                    
|                                                    
|                                                    
|                                                    
|                                                     |                                                      | activities
Effect of exchange rate changes on cash   |        |         |        |              |        |              |        |               |        |         | (193    | ) |        |         | (193    | )
|                                                     |                                                      |                                                      |        |         |         |              |        |              |         |               |        |         |         |   |        |        
|Net increase (decrease) in cash and cash equivalents |                                                      |                                                      | (2,109 | )       |         |              | (1,801 | )            |         |               | (435   | )       |         |   | (4,345 | )      
|                                                    
|                                                    
|                                                    
|                                                    
|Cash and cash equivalents, beginning of period       |                                                      |                                                      | 4,083  |         |         |              | 1,312  |              |         |               | 4,720  |         |         |   | 10,115 |        
|                                                     |                                                      |                                                      |        |         |         |              |        |              |         |               |        |         |         |   |        |        
|Cash and cash equivalents, end of period             |                                                      | $                                                    | 1,974  |         |         | $            | (489   | )            |         | $             | 4,285  |         |         | $ | 5,770  |        
|                                                     |                                                      |                                                      |        |         |         |              |        |              |         |               |        |         |         |   |        |        

21



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##### Table of Contents






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, and 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 is 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.

COMPARISON OF THREE MONTH PERIODS ENDED JUNE 30, 2002 AND JUNE 30, 2001

Net Sales. Net sales for the second quarter of fiscal 2002 were $131.9 million
compared to $128.6 million for the second quarter of fiscal 2001, an increase of $3.3 million or 2.6%. Excluding shipments from
the Pollenex division, which was sold in January 2002, net sales increased $6.9
million or 5.5%. This was primarily due to increased shipments of kitchen
electric products over the corresponding period of 2001. A decline in home
environment shipments, mainly in the fan, heater, humidifier and lighting
categories, partially offset the increase in kitchen electric shipments. Lower
product returns versus the second quarter of 2001 also contributed to the
increase in net sales.

Gross Profit. Gross profit for the second quarter of 2002 was $32.3 million
compared to $26.9 million for the second quarter of 2001, an increase of $5.4
million or 20.0%. As a percentage of net sales, gross profit increased to 24.5%
for the second quarter of 2002 from 20.9% for the second quarter of 2001. The
primary reason for improvement in gross profit was the increase in kitchen
electrics volume as noted above in net sales as well as improved product gross
margins as compared to the second quarter of 2001. This was offset in part by
higher discounts and allowances during the second quarter of 2002 versus 2001.

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Selling Expenses. Selling expenses for the second quarter of 2002 were $14.5
million compared to $13.0 million for the second quarter of
2001, an increase of
$1.5 million or 11.5%. As a percentage of net sales, selling expenses increased
to 11.0% for the second quarter of 2002 from 10.1% for the second quarter of
2001. The increase was due to increases in a number of selling expenses
including salaries and temporary help and other payroll related expenses, group
health insurance and selling commissions.

General and Administrative Expenses. General and administrative expenses for
the second quarter of 2002 were $9.7 million compared to $10.6 million for the
second quarter of 2001, a decrease of $0.6 million or 5.7%. As a percentage of
net sales, general and administrative expenses decreased to 7.6% for the second
quarter of 2002 from 8.2% for the second quarter of 2001. The decrease in
general and administrative expense was attributable to a number of factors
including a reduction in bank and consulting fees associated with the March 22,
2002 amended credit facility versus those associated with the amendment
negotiated during the second quarter of 2001.

Product Development Expenses. Product development expenses for the second
quarter of 2002 were $2.5 million compared to $2.3 million for the second
quarter of 2001, an increase of $0.2 million or 8.7%. The expenditures in 2002
relate to the development of a number of new products across all the product
lines.

Restructuring Costs. There were no restructuring costs during the second
quarter of 2002. Restructuring costs for 2001 were related to the closure of
the Sedalia, Missouri manufacturing plant announced in June 2001. The costs
were made up of certain employee termination benefits and property, plant and
equipment write-downs.

Other (Income) Expense. Other (income) expense for the second quarter of 2002
was $7.9 million compared to $11.1 million for the second quarter of 2001.
Interest expense was $7.1 million for the second quarter of 2002 versus $11.4
million for the second quarter of 2001, a decrease of $4.3 million or 37.7%.
The decrease was due to lower overall debt levels and lower interest rates
during the quarter versus the prior year. Other income (expense) was $(0.7)
million for the second quarter of 2002 versus income of $0.3 million for the
second quarter of 2001. The 2002 expense represents foreign exchange losses
during the quarter.

Income Tax Expense (Benefit). The income tax expense (benefit) for the second
quarter of 2002 was a benefit of $(2.0) million compared to an expense of $1.2
million in 2001. The Company recorded a benefit in the second quarter of 2002
due to the Companys final assessment of 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 $0.7 million in equity in
earnings from our joint venture with General Electric in the second quarter of
2002 and 2001.

Net Income. As a result of the foregoing factors, our net income for the second
quarter of 2002 was $0.3 million, compared to a net loss of $12.5 million in
the second quarter of 2001.

COMPARISON OF SIX MONTH PERIODS ENDED JUNE 30, 2002 AND JUNE 30, 2001

Net Sales. Net sales for the first half of fiscal 2002 were $249.3 million
compared to $253.9 million for the first half of fiscal 2001, a decrease of $4.6 million or 1.8%. Excluding shipments from the
Pollenex division, which was sold in January 2002, net sales increased $2.4
million or 1.0%. This was primarily due to shipments of kitchen electric
products continuing to show a significant increase over the corresponding
period of 2001. The kitchen increase was offset in part by lower home
environment shipments mainly in the fan, heater and humidifier categories. Fan
shipments were impacted by the higher carryover inventory that retailers had
from the 2001 season and heaters and humidifiers were affected by the warmer
winter weather during the first half of 2002.

Gross Profit. Gross profit for the first half of 2002 was $60.8 million
compared to $58.3 million for the first half of 2001, an increase of $2.5
million or 4.3%. As a percentage of net sales, gross profit increased to 24.4%
for the first half of 2002 from 23.0% for the first half of 2001. Gross profit
improved primarily because of the increase in kitchen electrics volume as noted
above as well as improved product gross margins as compared with the first half of
2001. Lower returns during the first half of 2002 versus 2001 also positively
impacted gross profit. However, partially offsetting the kitchen increases
were higher discounts and allowances in the first half of 2002 versus 2001.

Selling Expenses. Selling expenses for the first half of 2002 were $26.5
million compared to $27.2 million for the first half of 2001, a decrease of
$0.7 million or 2.6%. As a percentage of net sales, selling expenses decreased
to 10.6% for the first half of 2002 from 10.7% for the first half of 2001. The
decrease was due to reductions in a number of sales and marketing expenses
including sales packaging, telephone and sales samples.

General and Administrative Expenses. General and administrative expenses for
the first half of 2002 were $20.4 million compared to $19.0 million for the
first half of 2001, an increase of $1.7 million or 8.9%. As a percentage of net
sales, general and administrative expenses increased to 8.3% for the first half
of 2002 from 7.5% for the first half of 2001. The increase in general and
administrative expense was attributable to a number of factors including
insurance expense, information technology costs related to a major system
implementation, warranty and product liability costs and pension expense. The
total system implementation costs expensed year to date are approximately $2.3
million.

Product Development Expenses. Product development expenses for the first half
of 2002 were $4.8 million compared to $4.9 million for the
first half of 2001, a decrease of $0.1 million or 2.0%. The expenditures in
2002 relate to the development of a number of new products across all the
product lines.

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Restructuring Costs. Restructuring costs for the first half 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 were relocated to other facilities in
Missouri and California during the second quarter of 2002.

Other (Income) Expense. Other (income) expense for the first half of 2002 was
$5.7 million compared to $20.4 million for the first half of 2001. Interest
expense was $15.1 million for the first half of 2002 versus $20.7 million for
the first half of 2001, a decrease of $5.6 million or 27.1%. The decrease was
due to lower overall debt levels and lower interest rates during the first half
of 2002 versus the prior year. Interest expense for the first half 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
half of 2001 was $0.8 million. Other income was $9.4 million for the first half
of 2002 versus $0.3 million for the first half 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
half of 2002 was a benefit of $(3.4) million compared to an expense of $2.4
million in 2001. The Company recorded a benefit in the first half of 2002 due
to the Companys final assessment of 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 $1.3 million in equity in
earnings from our joint venture with General Electric in the first half of 2002
versus $1.4 million in 2001.

Extraordinary Gain. In March 2002, the Company repurchased $36.2 million face
amount of its 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 six months ended
June 30, 2002. This gain is net of the write-off of approximately $1.9 million
of debt issuance costs and $0.3 million of debt issuance discount associated
with the senior subordinated notes and $0.1 million of transaction fees. A
provision for income taxes has not been recorded in connection with this
transaction as the Company expects to offset the gain with available net
operating loss carryforwards.

Net Income. As a result of the foregoing factors, our net income for the first
half of 2002 was $28.4 million, compared to a net loss of $17.0 million in the
first half 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 $5.8 million at June 30, 2002,
from $10.1 million at December 31, 2001. The
decrease resulted primarily from $52.3 million used for financing activities
partially offset by the cash provided by investing and operating activities of
$48.0 million.

Cash provided by operations for the six months ended June 30, 2002 and 2001 was
$39.1 million and $12.7 million, respectively. Cash provided by operations for
2002 consisted primarily of $6.4 million from net income adjusted for non-cash
items and increased by $32.7 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 six months ended June
30, 2002 was $9.1 million compared to $(5.2) 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 $7.5 million invested in capital
expenditures for property, plant and equipment. These expenditures included
approximately $2.9 million to in-process capital expenditures related to the
system implementation during the first six months of 2002. We received $1.5
million in earnings distributions from the joint venture. We expect to spend
approximately $15 million on capital expenditures in 2002, primarily related to
the expansion of our China manufacturing facilities, system implementation and
on-going tooling costs to support product development needs.

Cash used for financing activities for the six months ended June 30, 2002 and
2001 was $(52.3) million and $(7.5) 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.

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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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Availability under the revolving credit facility is reduced by outstanding
letters of credit. As of June 30, 2002, our availability was
$49.8 million, net
of outstanding letters of credit totaling $9.7 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.

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 six months ended June 30, 2002. This gain is net of the
write-off of approximately $1.9 million of debt issuance costs and $0.3 million
of debt issuance discount associated with the senior subordinated notes and
$0.1 million of transaction fees. A provision for income taxes has not been
recorded in connection with this transaction as the Company expects to offset
the gain with available net operating loss carryforwards. The Company may
consider repurchases of additional Notes in the future, and we may utilize the
proceeds of the Credit Facility for this purpose. As of June 30, 2002, $99.5
million of Senior Subordinated Notes were outstanding, due November 2007.

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.

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

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As of June 30, 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.

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

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

In November 2001, 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
$2.3 million and $4.3 million of cooperative advertising expenses which were previously classified as selling expenses in the
consolidated statement of operations for the three and six months ended
June 30, 2001, respectively.

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

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




ITEM 3. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK

At June 30, 2002, the carrying value of our debt totaled $278.2 million. The
fair value approximated $253.3 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 June 30, 2002, the Company had fixed rate debt of $99.5 million and variable
rate debt of $178.7 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 $5.3 million. Based on the amounts of
variable rate debt outstanding at June 30, 2002, the earnings and cash flows
impact for the next year resulting from a one percentage point increase in
interest rates would be approximately $1.8 million, holding other variables
constant.

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##### Table of Contents






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

At the Annual Meeting of Stockholders held on May 20, 2002, the stockholders of
the Company (there being no abstentions or broker non-votes) elected each of
Messrs. Jordan A. Kahn, Woon Fai (Tommy) Liu, Richard K. Lubin, Peter J.
Martin, Fred J. Musone, Randy Peeler, and Gregory F. White to serve as
directors for a term expiring at the Companys next annual meeting by the
following votes:

|                 |  |           |            |                |  |  |   | 
|---------------- |  | --------- | ---------- | -------------- |  |  | - | 
|Nominee          |  | Votes For |            | Votes Withheld
|                 |  |           |            |               
|Jordan A. Kahn   |  |           | 19,183,465 |                |  |  | 0 | 
|                
|                
|                
|                
|Woon Fai Liu     |  |           | 19,183,465 |                |  |  | 0 | 
|                
|                
|                
|                
|Richard K. Lubin |  |           | 19,183,465 |                |  |  | 0 | 
|                
|                
|                
|                
|Peter J. Martin  |  |           | 19,183,465 |                |  |  | 0 | 
|                
|                
|                
|                
|Fred J. Musone   |  |           | 19,183,465 |                |  |  | 0 | 
|                
|                
|                
|                
|Randy Peeler     |  |           | 19,183,465 |                |  |  | 0 | 
|                
|                
|                
|                
|Gregory F. White |  |           | 19,183,465 |                |  |  | 0 | 

ITEM 5. OTHER INFORMATION

Investor Conference Call

We will hold a telephone conference call on August 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 half 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:
|-- |  | --------------------

Not applicable

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##### Table of Contents



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

| |                 |  |                                                  
| | --------------- |  | -------------------------------------------------
| | August 14, 2002 |  | By: /s/ Peter J. Martin                          
|
|
|
|
| |                 |  | Peter J. Martin, President and                   
|
|
|
|
| |                 |  | Chief Executive Officer                          
|
|
|
|
| |                 |  | (Principal Executive Officer)                    
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| | August 14, 2002 |  | By: /s/ John M. Kelliher                         
|
|
|
|
| |                 |  | John M. Kelliher, Senior Vice President and Chief
|
|
|
|
| |                 |  | Financial Officer                                
|
|
|
|
| |                 |  | (Principal Financial and                         
|
|
|
|
| |                 |  | Accounting Officer)                              

29