##### Table of Contents









UNITED STATES SECURITIES AND EXCHANGE
COMMISSION

Washington, D.C. 20549


Form 10-K



|  |                                              
|- | ---------------------------------------------
|þ | ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d)

OF THE SECURITIES EXCHANGE ACT OF 1934


For the fiscal year ended December 31,
2001

Commission file numbers:

333-44473


333-77905


The Holmes Group, Inc.

(Exact name of registrant as specified in its
charter)


|                                          |  |                    
|----------------------------------------- |  | -------------------
|Massachusetts                             |  | 04-2768914         
|(State or other jurisdiction of           |  | (I.R.S. Employer   
|incorporation or organization)            |  | Identification No.)
|                                         
|One Holmes Way, Milford,
	Massachusetts   |  | 01757              
|(Address of principal executive
	offices) |  | (Zip Code)         

(508) 634-8050

(Registrants telephone number)


Securities registered pursuant to Section
12(b) of the Act: None

Securities registered pursuant to Section
12(g) of the Act: None

Title of Class: Not Applicable

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  þ  No  o

Indicate by check mark if disclosure of
delinquent filers pursuant to Item 405 of
Regulation S-K is not contained herein, and will not be
contained, to the best of Registrants knowledge, in
definitive proxy or information statements incorporated by
reference in Part III of this Form 10-K or any amendment to
this
Form 10-K.  þ

Documents incorporated by reference: Not
Applicable









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TABLE OF CONTENTS



|                                                   |                                                                                               |  |  |  |  |  |  | 
|-------------------------------------------------- | --------------------------------------------------------------------------------------------- |  |  |  |  |  |  | 
|PART I                                            
|                                                   | Item 1. Business                                                                             
|                                                   | Item 2. Properties                                                                           
|                                                   | Item 3. Legal Proceedings                                                                    
|                                                   | Item 4. Submission of Matters to a Vote of Security Holders                                  
|PART II                                           
|                                                   | Item 5. Market for the Registrants Common Equity and Related Stockholder Matters            
|                                                   | Item 6. Selected Financial Data                                                              
|                                                   | Item 7. Managements Discussion and Analysis of Financial Condition and Results of Operations
|                                                   | Item 7A. Quantitative and Qualitative Disclosures About Market Risk                          
|                                                   | Item 8. Financial Statements and Supplementary Data                                          
|                                                   | Item 9. Changes in and Disagreements with Accountants on Accounting and Financial Disclosure 
|PART III                                          
|                                                   | Item 10. Directors and Executive Officers of the Registrant                                  
|                                                   | Item 11. Executive Compensation                                                              
|                                                   | Item 12. Security Ownership of Certain Beneficial Owners and Management                      
|                                                   | Item 13. Certain Relationships and Related Transactions                                      
|PART IV                                           
|                                                   | Item 14. Exhibits, Financial Statement Schedules, and Reports on Form 8-K                    
|EX-10.27 Exec Employment and Non-Competition Agmt.
|EX-10.28 5th Amended and Restated Credit Agreement
|EX-10.29 Letter Agreement                         
|EX-23.1 Consent of PricewaterhouseCoopers LLP     



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##### Table of Contents



THE HOLMES GROUP, INC.

FORM 10-K

Fiscal Year Ended December 31, 2001


TABLE OF CONTENTS

|         |  |                                                                                        |  |      |    | 
|-------- |  | -------------------------------------------------------------------------------------- |  | ---- | -- | 
|         |  |                                                                                        |  | Page
|         |  |                                                                                        |  |     
|PART I   |  |                                                                                        |  |      |    | 
|Item 1   |  | Business                                                                               |  |      | 2  | 
|Item 2   |  | Properties                                                                             |  |      | 9  | 
|Item 3   |  | Legal Proceedings                                                                      |  |      | 9  | 
|Item 4   |  | Submission of Matters to a Vote of Security
	Holders                                   |  |      | 10 | 
|PART II  |  |                                                                                        |  |      |    | 
|Item 5   |  | Market for Registrants Common Equity and
	Related Stockholder Matters                 |  |      | 10 | 
|Item 6   |  | Selected Financial Data                                                                |  |      | 10 | 
|Item 7   |  | Managements Discussion and Analysis of
	Financial Condition and Results of Operations |  |      | 12 | 
|Item 7A  |  | Quantitative and Qualitative Disclosures About
	Market Risk                            |  |      | 20 | 
|Item 8   |  | Financial Statements and Supplementary Data                                            |  |      | 21 | 
|Item 9   |  | Changes in and Disagreements with Accountants on
	Accounting and Financial Disclosure  |  |      | 57 | 
|PART III |  |                                                                                        |  |      |    | 
|Item 10  |  | Directors and Executive Officers of the Registrant                                     |  |      | 58 | 
|Item 11  |  | Executive Compensation                                                                 |  |      | 59 | 
|Item 12  |  | Security Ownership of Certain Beneficial Owners
	and Management                        |  |      | 61 | 
|Item 13  |  | Certain Relationships and Related Transactions                                         |  |      | 61 | 
|PART IV  |  |                                                                                        |  |      |    | 
|Item 14  |  | Exhibits, Financial Statement Schedules, and
	Reports on Form 8-K                      |  |      | 63 | 

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DISCLOSURE REGARDING FORWARD-LOOKING
STATEMENTS

All statements, other than statements of
historical fact, included in this 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, expects, intends 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, 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 described in this report, in our
most recent Registration Statement on Form S-4 (File
No. 333-77905), and from time to time in our other periodic
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.




PART I




Item
1.     Business

General

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 the leading
U.S. market share in each of these product categories. Home
environment products, in the aggregate, accounted for
approximately 54% of our net sales for the fiscal year ended
December 31, 2001. Our kitchen appliances include slow
cookers, roaster ovens, skillets, deep fryers and other small
kitchen electric appliances where we believe we hold the number
one or two market share. Kitchen appliances accounted for
approximately 42% of our net sales for fiscal 2001. We believe
that our strong market position and success are attributable to
our continuous product innovation, engineering and manufacturing
expertise, close customer partnerships, breadth of product
offerings, reputation for quality and manufacturing 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 drugstore chains. Major customers in these
channels include Wal-Mart, Kmart, Target, Lowes, Home Depot,
Costco, BJs Wholesale Club, TruServ and Walgreens. 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.

Holmes was founded in 1982 by our Chairman of the
Board of Directors, Jordan A. Kahn, an innovator in the
home environment market with over 30 years of industry
experience. Holmes opened its first manufacturing facility in
China in 1989, and currently operates three facilities in China
where we manufacture many of our products and electric motors
for use in our products. We also currently operate three
manufacturing facilities in the United States. Our vertically
integrated manufacturing facilities provide control over the
production process and product quality. These facilities also
enhance operational flexibility and allow us to quickly respond
to changes in consumer demand and to specialized production
needs. We maintain distribution facilities in the United States,
Canada, China and Europe, as well as offices in Hong Kong and
Taiwan that are responsible for sourcing raw materials,
processing orders and shipping the Companys products from
the Chinese factories. We coordinate product development,
marketing, sales and distribution from our Milford,
Massachusetts headquarters.

Our principal executive offices are located at
One Holmes Way, Milford, Massachusetts 01757. Our telephone
number is (508) 634-8050 and our corporate web site is
located at www.theholmesgroup.com.

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Recent Events, Acquisitions and
Divestitures

In January 2002, Kmart Corporation and certain of
its U.S. subsidiaries filed voluntary petitions for
reorganization under Chapter 11 of the U.S. Bankruptcy
Code. Kmart Corporation is one of Holmes top three
customers. Kmart has indicated that it intends to reorganize on
a fast-track basis and has targeted emergence from
Chapter 11 in 2003. Holmes sales to Kmart were
approximately 10% of total net sales in 2001. In the fourth
quarter of 2001, the Company recorded a bad debt provision of
approximately $14.1 million related to the Kmart bankruptcy.

Also in January 2002, we sold substantially all
the assets of our Pollenex® division, including the brand
name. The Pollenex® division, which was acquired by Holmes
in 1999 as part of the Rival acquisition described below,
included showerheads, massagers and air purification products.
Holmes will retain the right to market air purifier related
products under the Pollenex® brand name for six months
after which the air purifier products will be marketed under one
of the remaining Holmes brands. The proceeds of the sale
exceeded the net book value of the assets sold, resulting in a
gain of approximately $7.5 million, which will be recorded
in the first quarter of 2002.

On February 5, 1999, we completed our
acquisition of The Rival Company (Rival), 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), and amended and restated
our existing $100.0 million credit facility to provide for
a total availability of $325.0 million. We also sold
$50.0 million of common stock in a private placement to
investment funds affiliated with Berkshire Partners LLC
(Holmes majority shareholder), and to members of
management and certain other co-investors. The initial
borrowings under the credit facility, together with the net
proceeds of the equity investment and the offering of the Notes,
were used to consummate the Rival acquisition, refinance
Rivals then existing indebtedness, and pay the fees and
expenses of the transaction.

Prior to the Rival acquisition, in November 1997,
Holmes and Berkshire Partners completed a recapitalization
transaction in which we issued $105.0 million of Notes and
entered into the $100.0 million line of credit facility.
The proceeds of these borrowings were used to repay our then
existing indebtedness and redeem a significant portion of the
previous majority shareholders common stock.

Accordingly, commencing in November 1997, we had
a significantly higher level of borrowing and a corresponding
higher level of interest expense than in the past. The Rival
acquisition and the related financing transactions consummated
in February 1999 further increased our indebtedness and interest
expense substantially.

Our results of operations and balance sheet
included herein reflect the 1999 acquisition of Rival, in
accordance with purchase accounting, from the consummation of
the acquisition. Accordingly, Rivals larger size relative
to Holmes significantly influences comparisons between periods
before and after the Rival acquisition.

Following the Rival acquisition, we divested two
of Rivals other non-core business units in late 1999. On
October 8, 1999, the Company sold the assets of
Rivals sump and utility pump division for
$11.4 million. On December 21, 1999, the Company sold
the assets of Rivals industrial and building supply
products businesses for total proceeds of $11.9 million. As
these transactions were contemplated as of the Rival acquisition
date, the net loss on these transactions of $2.5 million
was recorded as an increase to goodwill.

Since the Rival acquisition, we have closed and
disposed of a number of underutilized or redundant facilities.
During 2000, we sold the Fayetteville, North Carolina facility.
During 2001, we sold the Warrensburg, Missouri manufacturing
plant, and we announced the closure of our Sedalia, Missouri
manufacturing plant. In February of 2002, we announced the
closing of our Sedalia distribution facility. We expect this
facility to be sold during 2002 after the distribution function
is transferred to other facilities.

Our ability in continuing to capitalize on the
Rival acquisition will depend on factors such as competition,
labor and materials costs, and the general retail environment.
To further our strategic objectives, we may from

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time to time engage in discussions regarding
mergers, acquisitions, divestitures of other assets, or other
business combination transactions within the consumer products
industry.


Business Strategy

Our strategy is to capitalize on our core
strengths to achieve growth in net sales, profitability and cash
flow by: (1) growing Rivals core kitchen franchise,
(2) further growth of our multibrand home environment
product lines (Holmes®, Bionaire®, Patton®,
Titan® and Family Care®) (3) penetrating new and
existing distribution channels, (4) improving our overall
cost structure and (5) expanding geographically.

We intend to continue our pursuit of the
following initiatives as part of our strategy:



| |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                        
| | -------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
| | Strengthen the Kitchen
	Franchise.Rivals long-standing
	reputation as a leader in the small kitchen appliance market has
	added a strong, complementary business to our home environment
	product line. We are the leading manufacturer and marketer of
	slow cookers through Rivals Crock-Pot® brand, and
	believe we hold the number one or two market share in other key
	categories including roaster ovens, skillets and deep fryers. We
	intend to leverage our expertise in product innovation,
	manufacturing, sourcing, marketing and distribution to further
	strengthen our kitchen franchise.                                                                                                                                                                                                                                                                                            
|
| | Leverage and Grow
	Brands.The addition of Rivals
	home environment brands has allowed us to increasingly
	differentiate our home comfort offerings among customers and
	consumers. Through these additional brands, such as
	Bionaire®, we can offer a step-up brand strategy for
	increased presence in high end distribution channels.                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                              
|
| | Further Penetrate Existing Distribution
	Channels.We believe that we can
	further penetrate our existing distribution channels as a result
	of favorable industry dynamics and our strong relationships and
	execution with mass merchant retailers. Management believes that
	mass merchants will continue to consolidate their vendor base
	and focus on a smaller number of sophisticated suppliers that
	can (1) provide a broad array of differentiated, quality
	products, (2) efficiently and consistently fulfill
	logistical requirements and volume demands and (3) provide
	full product support from design to category management,
	point-of-sale and after-market service with the consumer. We
	work closely with key customers such as Wal-Mart, where we have
	been selected to design and produce home environment and
	selected kitchen products for the GE branded product program.
|
| | Develop New Distribution
	Channels.We continue to develop new
	channels of distribution by providing customized product
	offerings that appeal to the specific needs of each channel. We
	are continuing to expand our internet sales through well known
	on-line retail sites such as Amazon.com.                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                     
|
| | Develop Our Brand
	Portfolio.We believe our wide
	portfolio of brands allows us to increase market share by
	penetrating new segments of distribution as well as expand shelf
	share in existing channels. Our brand development focuses on
	both consumer brand awareness vehicles as well as the
	development of new technologies and feature enhancements unique
	to these brands.                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                  
|
| | Improve the Overall Cost
	Structure.Through our manufacturing
	facilities in China and related Far East sourcing capabilities,
	we have the ability to be a low-cost, high quality, flexible
	producer of appliance products. By applying these capabilities
	to even more of Rivals products, we believe we can further
	reduce our overall manufacturing costs.                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                     
|
| | Expand into New Geographic
	Regions.We believe that the European,
	Latin American and Asian home comfort markets are underdeveloped
	and represent significant growth opportunities. We intend to
	leverage the greater international recognition of Rivals
	brands in Europe and Latin America with our low cost flexible
	supply in Asia to increase sales in these regions.                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                        

Due to a number of factors, not all of which are
under our control, as described in more detail below under
Managements Discussion and Analysis of Financial Condition
and Results of Operations-Results of Operations, there can be no
assurances that we will be able to successfully implement all of
our strategic initiatives.

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Products

Holmes is a leading developer, manufacturer and
marketer of quality, branded home appliances, including home
environment and small kitchen appliances.

Home Environment

Home environment products allow consumers to
better control the air quality, temperature and lighting of
their home and office environments. These products accounted for
approximately 54% of our net sales in 2001.

Fans.We currently
manufacture and market approximately 100 different fan models
under the Holmes® and Patton® brand names and selected
private label brands, including table, stand, window,
window-to-floor, box, high velocity and oscillating fans,
typically for purchase and use by household consumers. Retail
prices for our fans range from $5 to $200.

Heaters.Portable
electric space heaters are used to heat areas of the house not
adequately reached by central heat and to heat an individual
room while that room is in use. We currently manufacture and
market approximately 75 different heater models under the
Holmes®, Patton®, Bionaire® and Titan® brand
names, including plastic, ceramic, metal, radiant and baseboard
styles. Retail prices for our heaters range from $20 to $100.

Humidifiers.Consumers use humidifiers to provide greater comfort by
increasing moisture in the home environment. We currently
manufacture and market approximately 50 different
humidifiers under the Holmes®, Bionaire®, and Family
Care® brand names, including cool mist, warm mist,
ultrasonic and console models that range in moisture output from
one to 12 gallons per day. Retail prices for our
humidifiers range between $15 and $150. We also sell a variety
of humidifier accessories, replacement parts and chemical
treatments.

Air Purifiers.Air
purifiers circulate a rooms air through filters that
remove contaminants from the air. In recent years, high
efficiency particulate arresting (HEPA) filters have come
to dominate the industry. We currently manufacture and market
approximately 30 different air purifier models under the
Holmes®, Bionaire® and Family Care® brand names.
Retail prices for our air purifiers range between $10 and $280.

Accessories.Many of
our products require accessories, including replacement filters,
chemical treatments and replacement parts. For example, air
purifiers periodically need new replacement filter cartridges
and humidifiers need new replacement wick filters. As the
installed base of these products continues to expand, we expect
that the market for these accessories will grow as well. In
addition, we believe that sales of filters and accessories
increase brand awareness and customer loyalty. Accessories
represent one of the fastest growing categories in the home
environment product line.

Lighting Products.We market over 150 different decorative and home office lighting
products, including table, floor and wall-mounted models. These
products complement our traditional home environment appliance
line, provide an additional non-seasonal category, and are
distributed through the same distribution channels as our other
products. Holmes lighting products are manufactured by
subcontractors in China. Retail prices for these products range
between $4 and $90.

Kitchen Electrics

Small kitchen electric appliances, which
constituted Rivals primary product line for over sixty
years, accounted for approximately 42% of our net sales in 2001.
The kitchen electrics business unit sells products including
slow cookers under the Crock-Pot® brand, ice cream freezers
under the Rival® and White Mountain® brand and can
openers, toasters, food slicers, mixers, indoor grills, deep
fryers, roaster ovens and skillets under the Rival® brand
to retailers and distributors throughout the United States. We
are the dominant manufacturer and marketer of slow cookers, of
which we market over 25 different models which retail for
between $10 and $70. We also believe we maintain a leading
market share in the skillet, roaster oven and deep fryer
categories. In addition, Rival invented the electric can opener
category and we believe the Company continues to maintain a
leading market share. We believe that the combination of
innovative

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product development and global manufacturing and
sourcing strengths helps position our kitchen business for
growth and market share gain in the future.


International

Our products are sold in Canada and Europe from
our sales and distribution facilities in Toronto and the United
Kingdom. We also ship products from the United States and our
manufacturing facilities in China to customers in Latin America
and Asia.

Electric Motors

One of our Far East subsidiaries, Raider Motor
Corporation, has proven strengths in the design and manufacture
of a variety of electric motors for use in home and commercial
appliances. In October, 1998, we entered into a joint venture
with General Electric for motor manufacturing, sales and
distribution to third parties. The joint venture entity is owned
49% by Holmes and 51% by GE. Capital expenditures necessary to
support the growth of the GE joint venture are shared 50/50 with
GE.

Product Development

We have internal product development teams
dedicated to new product development and product enhancements.
We maintain our own engineering and product development
department to research new product concepts as well as
activities relating to improving existing products. The product
design and research development team consists of employees
located in Milford, Massachusetts and in the Far East. We also
retain the services of outside consultants to assist our
internal team.

We utilize state-of-the-art design technology
including advanced CAD design software and a laser-based
stereolithography technique to design and engineer new products.
Management believes this technology allows us to design and
develop new products quickly, enabling us to accurately assess
the feasibility, cost and tooling requirements of new products
before manufacturing the products. Management believes this
technology gives us a competitive advantage in the design and
development of new products and product line extensions.

Our expenditures, including amounts expensed as
incurred and capitalized as property, plant and equipment, for
new product development and tooling, totaled approximately
$17.6 million, $18.0 million and $14.5 million
for the years ended December 31, 1999, 2000 and 2001,
respectively.

Manufacturing

We manufacture over 70% of our products,
utilizing a combination of our foreign and domestic
manufacturing facilities. The management, coordination and
control of all manufacturing operations is centralized at our
principal offices in Milford, Massachusetts.

We manufacture most of our home environment
products at our manufacturing facilities in China. These
facilities are highly integrated and produce most of the
electric motors, injection molded plastic components and other
components used in the manufacturing and assembly process. The
balance of our home environment products are produced through
subcontracted manufacturers in China and the United States,
generally under the supervision of Holmes employees.

Our domestic manufacturing plants specialize in
the production of selected small kitchen appliances,
particularly our slow cookers. These plants are highly
integrated and produce electric elements, injection molded
plastic components, stampings and stoneware. Two of these
manufacturing and assembly facilities are located in rural
Missouri (Clinton and Sweet Springs), near Kansas City. The
third facility, in Flowood, Mississippi, produces the stoneware
for our slow cookers and other products.

We believe that we have a cost advantage as a
result of our degree of vertical integration, purchasing power
and low labor costs at our Chinese manufacturing facilities. In
addition, by operating our own manufacturing facilities, we have
control over the quality and production timing of our products
from design through final distribution.

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Marketing and Distribution

Our products are sold in the United States,
Canada, Latin America and Europe to the retail trade by an
internal sales staff of sales managers, with assistance from an
internal sales support staff, field sales associates and
regional independent manufacturers representative organizations.
We market our products through all major channels of
distribution including mass merchants, do-it-yourself home
centers, warehouse clubs, hardware stores, department stores,
home and kitchen specialty stores, national drugstore chains and
mail order and premium companies. The sales managers are
actively involved in servicing all aspects of each retail
account.

In order to respond most efficiently to the
demands of its retail customers and ensure timely delivery, we
balance direct shipments from our manufacturing facilities with
shipments from our domestic and international warehouses. We
employ an electronic data interchange system with selected
retail customers to expedite order and invoice processing.

Our marketing department is responsible for
market analysis, new product development, pricing strategy,
promotions, key cooperative partnerships and overall category
development. We believe that our packaging is one of our most
powerful marketing tools because most consumers typically
purchase small appliances without the benefit of knowledgeable
retail sales staff. Holmes innovative packaging and
point-of-purchase support provide written information and
illustrations regarding product features, usage instructions,
safety features and product operation. We have an in-house art
department that develops much of our packaging and marketing
materials on state-of-the-art desktop graphics systems.

Major Customers

Our three largest retail customers, Wal-Mart
(including Sams Wholesale Club), Target and Kmart
accounted for approximately 54% of our net sales during 2001.
Individually, they each accounted for over 10% of our net sales
during 2001. We do not have long-term agreements with our major
customers, and purchases are generally made through the use of
individual purchase orders. A significant reduction in purchases
by any of these customers could have a material adverse effect
on our business.

In January 2002, Kmart Corporation and certain of
its U.S.  subsidiaries filed voluntary petitions for
reorganization under Chapter 11 of the U.S. Bankruptcy
Code. Kmart has indicated that it intends to reorganize on a
fast-track basis and has targeted emergence from Chapter 11
in 2003. Kmart has announced that it will close over 200 stores
as part of the reorganization. We are currently evaluating what
effect, if any, this may have on our 2002 revenues. Holmes
sales to Kmart were approximately 10% of total net sales in 2001.

Seasonality

Sales of our products are highly seasonal, and
counter-seasonal weather can adversely affect our results of
operations. Within the home environment product line, sales of
fans occur predominantly from January through June, and sales of
heaters and humidifiers occur predominantly from July through
December. Although kitchen appliances and certain home
environment products such as air purifiers and lighting products
are used year-round, the nature of 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, because many of our kitchen products are given as
gifts, we sell more of these products in anticipation of the
holiday season. When holiday shipments are combined with
seasonal products such as heaters and humidifiers, 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, due 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 heater,
humidifier, and air purifier products.

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Competition

The markets for most of our products are
developed and highly competitive. Management believes that
competition is based on several factors, including price, access
to retail shelf space, product features, product enhancements,
brand names, new product introductions, and marketing support
and distribution systems.

We compete with many well-established companies,
some of which have substantially greater facilities, personnel,
financial and other resources than us. Our major competitors
include AdobeAir, Applica, Catalina Lighting, Cheyenne,
Honeywell Consumer Products (maker of Duracraft and Enviracare
brands), Hamilton Beach/ Proctor Silex, Lasko, Tensor, Salton/
Maxim (Toastmaster)and Sunbeam. We also compete with importers
and foreign manufacturers of unbranded products.

We believe that our most important competitive
strengths are the quality, design and competitive pricing of our
products, our attention to retailer and consumer needs, our
stable of recognized brands, our access to major channels of
distribution, the development of new products and innovation in
existing products, our ability to provide timely shipment
through our manufacturing and distribution facilities and the
capabilities of our management team.

Patents and Trademarks

We hold a number of patents and trademarks
registered in the United States, Canada, and other countries for
various products and technologies. Of particular importance are
the Holmes®, Rival®, Patton®, Bionaire®,
White Mountain®, Family Care®, Titan® and
Crock-Pot® trademarks. We have additional patent
applications pending in the United States, Canada and Mexico. We
also register trademarks on product names and unique features in
the United States and other countries. We believe that, other
than with respect to the Crock-Pot® trademark, none of our
product lines is dependent upon any single trademark, patent,
group of patents or other intellectual property rights.

Regulation

We are subject to federal, state and local
regulations concerning the environment, occupational safety and
health, trade-related issues and consumer products safety. Most
of our products are listed by Underwriters Laboratories,
Inc. (UL), the Canadian Underwriters Laboratories,
Inc. (CUL), or similar organizations in other markets. UL
and CUL are independent, not-for-profit corporations engaged in
the testing of products for compliance with certain public
safety standards. We are also regulated by, and hold ongoing
discussions regarding specific products with, the United States
Consumer Products Safety Commission, the Food and Drug
Administration and the Canadian Standards Association. We
believe that we are in material compliance with all of the
regulations applicable to us. There can be no assurance,
however, that such regulations will not negatively affect us in
the future. Our operations could also be adversely affected by
other regulations relating to our foreign operations, including
changes in trade laws, increased import duties, import/export
regulations and changes in foreign laws.

Employees

We had approximately 7,500 employees as of
December 31, 2001, of which approximately 1,000 were
located in the United States, Europe and Canada, approximately
6,370 were located at our manufacturing facilities in Dongguan,
China, and approximately 130 were located in Hong Kong and
Taiwan.

8



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##### Table of Contents






Item
2.     Properties

The following table sets forth our principal
facilities, the primary activity at each of the facilities
listed and the expiration date of the applicable lease, in the
case of leased facilities.

|                      |  |                                                          |                       |                                                                                      |  |                                              |            |  |            | 
|--------------------- |  | -------------------------------------------------------- | --------------------- | ------------------------------------------------------------------------------------ |  | -------------------------------------------- | ---------- |  | ---------- | 
|                      |  |                                                          |                       |                                                                                      |  | Lease                                       
|Location              |  | Size                                                     |                       | Primary Use                                                                          |  | Expiration                                  
|                      |  |                                                          |                       |                                                                                      |  |                                             
|Milford, MA           |  |                                                          | 415,000 square feet   |                                                                                      |  | Headquarters and Distribution                |            |  | 2015       | 
|City of Industry, CA  |  |                                                          | Varies                |                                                                                      |  | Distribution                                 |            |  | At will    | 
|Worcester, MA         |  |                                                          | 156,000 square feet   |                                                                                      |  | Distribution/ Return processing              |            |  | 2003       | 
|Clinton, MO           |  | 164,000 square feet279,000 square feet                   |                       | Manufacturing and Assembly
	Warehousing and Distribution                             |  |                                              | OwnedOwned | 
|Kansas City, MO       |  |                                                          | 32,000 square feet    |                                                                                      |  | General Offices                              |            |  | 2005       | 
|Sedalia, MO(1)        |  | 157,000 square feet67,000 square feet466,000 square feet |                       | Manufacturing and Assembly
	Manufacturing and Assembly
	Warehousing and Distribution |  | OwnedOwnedOwned                             
|Sweet Springs, MO     |  |                                                          | 125,000 square feet   |                                                                                      |  | Manufacturing/ Return Processing             |            |  | Owned      | 
|Flowood, MS           |  |                                                          | 154,000 square feet   |                                                                                      |  | Manufacturing                                |            |  | Owned      | 
|El Paso, TX           |  |                                                          | 161,000 square feet   |                                                                                      |  | Distribution                                 |            |  | 2005       | 
|Dongguan, China(2)    |  |                                                          | 466,000 square feet   |                                                                                      |  | Manufacturing and Assembly                   |            |  | 2003       | 
|Dongguan, China(2)    |  |                                                          | 269,000 square feet   |                                                                                      |  | Motor Manufacturing                          |            |  | 2003       | 
|Dongguan, China(3)    |  |                                                          | 1,865,000 square feet |                                                                                      |  | Motor Manufacturing Distribution/ Assembly   |            |  | Owned/2005 | 
|Hong Kong             |  |                                                          | 21,000 square feet    |                                                                                      |  | Office                                       |            |  | 2003       | 
|London, England       |  |                                                          | 2,700 square feet     |                                                                                      |  | Office                                       |            |  | 2008       | 
|Mississaugua, Ontario |  |                                                          | Varies                |                                                                                      |  | Distribution                                 |            |  | At will    | 
|Mississaugua, Ontario |  |                                                          | 55,000 square feet    |                                                                                      |  | General Office, Warehousing and Distribution |            |  | 2002       | 
|Taipei, Taiwan        |  |                                                          | 1,700 square feet     |                                                                                      |  | Office                                       |            |  | 2002       | 



---



|    |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                               
|--- | ------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
|(1) | The 67,000 square-foot portion of the Sedalia
	plant is occupied under a long-term lease which gives the
	Company the option to purchase the property at a nominal cost.
	In June 2001, we announced the closure of the Sedalia
	manufacturing plants. In January 2002, we announced the closure
	of the Sedalia warehousing and distribution center.                                                                                                                                                                                                                         
|   
|(2) | These facilities are located in Guangdong
	Province, China, approximately 70 miles from Hong Kong. These
	facilities include 20 buildings on two separate campuses that
	include manufacturing, assembly, warehousing, and employee
	dormitory operations. These facilities will be closed during
	2002 and 2003 and replaced with the new facility as described in
	(3) below.                                                                                                                                                                                               
|   
|(3) | During 2000, we began construction of a new
	manufacturing facility on land that was purchased in Guangdong
	Province. In 2001, we began to move manufacturing to this
	facility and it should be fully operational during 2003. As of
	December 31, 2001, there were seven buildings completed out
	of a total of fifteen in the master plan. Five of the seven are
	owned and two are leased under a two year lease with a one year
	option that expires on December 31, 2005. The eight
	remaining buildings, which we expect to complete in 2002 and
	2003, will be owned.




Item 3.     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.

9



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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
4.     Submission of Matters to a
Vote of Security Holders

Not applicable.




PART II




Item 5.     Market
for the Registrants Common Equity and Related Stockholder
Matters

Holmes is privately-owned and there is no public
trading market for our equity securities.




Item
6.     Selected Financial
Data

The following selected financial data as of and
for the years ended December 31, 1997 through
December 31, 2001, set forth below, have been derived from
our audited Consolidated Financial Statements. The following
information should be read in conjunction with Managements
Discussion and Analysis of Financial Condition and Results of
Operations and our Consolidated Financial Statements, including
the notes thereto, included elsewhere herein.

|                                                                                                 |                                                                                                 |                         |         |        |  |      |         |        |  |      |         |         |  |   |         |         |   |   |         |         |  
|------------------------------------------------------------------------------------------------ | ----------------------------------------------------------------------------------------------- | ----------------------- | ------- | ------ |  | ---- | ------- | ------ |  | ---- | ------- | ------- |  | - | ------- | ------- | - | - | ------- | ------- | -
|                                                                                                 |                                                                                                 |                        
|                                                                                                 |                                                                                                 | Year Ended December 31,
|                                                                                                 |                                                                                                 |                        
|                                                                                                 |                                                                                                 | 1997                    |         | 1998   |  | 1999 |         | 2000   |  | 2001
|                                                                                                 |                                                                                                 |                         |         |        |  |      |         |        |  |     
|                                                                                                 |                                                                                                 |                        
|                                                                                                 |                                                                                                 | (Dollars in thousands) 
|Statement of Operations Data:                                                                    |                                                                                                 |                         |         |        |  |      |         |        |  |      |         |         |  |   |         |         |   |   |         |        
|Net sales                                                                                        |                                                                                                 | $                       | 191,555 |        |  | $    | 212,248 |        |  | $    | 507,487 |         |  | $ | 513,249 |         |   | $ | 627,999 |        
|Cost of goods sold                                                                               |                                                                                                 |                         | 136,142 |        |  |      | 144,278 |        |  |      | 364,308 |         |  |   | 382,205 |         |   |   | 462,271 |        
|                                                                                                 |                                                                                                 |                         |         |        |  |      |         |        |  |      |         |         |  |   |         |         |   |   |         |        
|                                                                                                 | Gross profit                                                                                    |                         |         | 55,413 |  |      |         | 67,970 |  |      |         | 143,179 |  |   |         | 131,044 |   |   |         | 165,728 |  
|Selling, general and administrative and
	amortization of goodwill and other intangible assets(1) |                                                                                                 |                         | 36,530  |        |  |      | 37,095  |        |  |      | 98,486  |         |  |   | 112,102 |         |   |   | 129,052 |        
|Product development costs                                                                        |                                                                                                 |                         | 5,463   |        |  |      | 6,295   |        |  |      | 10,448  |         |  |   | 11,000  |         |   |   | 11,022  |        
|Restructuring costs                                                                              |                                                                                                 |                         |        |        |  |      |        |        |  |      |        |         |  |   |        |         |   |   | 1,194   |        
|Plant closing costs                                                                              |                                                                                                 |                         |        |        |  |      |        |        |  |      | 2,439   |         |  |   | 340     |         |   |   | 550     |        
|                                                                                                 |                                                                                                 |                         |         |        |  |      |         |        |  |      |         |         |  |   |         |         |   |   |         |        
|                                                                                                 | Operating profit                                                                                |                         |         | 13,420 |  |      |         | 24,580 |  |      |         | 31,806  |  |   |         | 7,602   |   |   |         | 23,910  |  
|Interest expense                                                                                 |                                                                                                 |                         | 7,096   |        |  |      | 13,833  |        |  |      | 33,472  |         |  |   | 38,550  |         |   |   | 37,900  |        
|Other (income) expense, net                                                                      |                                                                                                 |                         | 56      |        |  |      | (436    | )      |  |      | (2,489  | )       |  |   | (758    | )       |   |   | (608    | )      
|                                                                                                 |                                                                                                 |                         |         |        |  |      |         |        |  |      |         |         |  |   |         |         |   |   |         |        
|                                                                                                 | Income (loss) before income taxes, equity in
	earnings from joint venture and minority interest |                         |         | 6,268  |  |      |         | 11,183 |  |      |         | 823     |  |   |         | (30,190 | ) |   |         | (13,382 | )
|Income tax expense (benefit)                                                                     |                                                                                                 |                         | 2,196   |        |  |      | 2,222   |        |  |      | (87     | )       |  |   | 2,591   |         |   |   | 4,527   |        
|Equity in earnings from joint venture                                                            |                                                                                                 |                         |        |        |  |      |        |        |  |      | (902    | )       |  |   | (611    | )       |   |   | (2,354  | )      
|                                                                                                 |                                                                                                 |                         |         |        |  |      |         |        |  |      |         |         |  |   |         |         |   |   |         |        
|                                                                                                 | Income (loss) before minority interest                                                          |                         |         | 4,072  |  |      |         | 8,961  |  |      |         | 1,812   |  |   |         | (32,170 | ) |   |         | (15,555 | )
|Minority interest in net income of majority-owned
	subsidiaries(2)                               |                                                                                                 |                         | 225     |        |  |      |        |        |  |      |        |         |  |   |        |         |   |   |        |        
|                                                                                                 |                                                                                                 |                         |         |        |  |      |         |        |  |      |         |         |  |   |         |         |   |   |         |        
|                                                                                                 | Net income (loss)                                                                               |                         | $       | 3,847  |  |      | $       | 8,961  |  |      | $       | 1,812   |  |   | $       | (32,170 | ) |   | $       | (15,555 | )
|                                                                                                 |                                                                                                 |                         |         |        |  |      |         |        |  |      |         |         |  |   |         |         |   |   |         |        

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|                                              |  |                         |         |      |  |      |         |      |  |      |         |          |  |   |         |     |  |   |         |    
|--------------------------------------------- |  | ----------------------- | ------- | ---- |  | ---- | ------- | ---- |  | ---- | ------- | -------- |  | - | ------- | --- |  | - | ------- | ---
|                                              |  |                        
|                                              |  | Year Ended December 31,
|                                              |  |                        
|                                              |  | 1997                    |         | 1998 |  | 1999 |         | 2000 |  | 2001
|                                              |  |                         |         |      |  |      |         |      |  |     
|                                              |  |                        
|                                              |  | (Dollars in thousands) 
|Other Data:                                   |  |                         |         |      |  |      |         |      |  |      |         |          |  |   |         |     |  |   |         |    
|EBITDA(3)                                     |  | $                       | 20,837  |      |  | $    | 32,264  |      |  | $    | 50,330  | (4)      |  | $ | 24,331  | (4) |  | $ | 43,052  | (5)
|Ratio of earnings to fixed charges(6)         |  |                         | 1.8     | x    |  |      | 1.7     | x    |  |      | 1.0     | x        |  |   | 0.3     | x   |  |   | 0.7     | x  
|Depreciation and amortization                 |  |                         | 7,473   |      |  |      | 7,248   |      |  |      | 15,133  |          |  |   | 15,737  |     |  |   | 16,180  |    
|Capital expenditures                          |  |                         | 5,815   |      |  |      | 4,749   |      |  |      | 17,614  |          |  |   | 28,341  |     |  |   | 17,020  |    
|                                             
|Balance Sheet Data (At End of
	Period):       |  |                         |         |      |  |      |         |      |  |      |         |          |  |   |         |     |  |   |         |    
|Cash and cash equivalents                     |  | $                       | 5,141   |      |  | $    | 5,379   |      |  | $    | 6,647   |          |  | $ | 3,017   |     |  | $ | 10,115  |    
|Working capital                               |  |                         | 78,318  |      |  |      | 71,089  |      |  |      | 211,646 |          |  |   | 203,473 |     |  |   | 181,684 |    
|Total assets                                  |  |                         | 135,165 |      |  |      | 131,357 |      |  |      | 456,496 |          |  |   | 453,869 |     |  |   | 443,595 |    
|Total long-term debt including capital leases |  |                         | 134,294 |      |  |      | 115,139 |      |  |      | 338,710 |          |  |   | 360,361 |     |  |   | 344,704 |    
|Total stockholders equity (deficit)          |  |                         | (24,991 | )(7) |  |      | (15,389 | )(7  |  |      |         | ) 37,800 |  |   | 5,474   |     |  |   | (9,383  | )  



---



|    |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                      
|--- | -------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
|(1) | Expenses in 1997 included approximately
	$6.9 million of incremental compensation expense, which was
	paid to certain executives in conjunction with Holmes
	November, 1997 recapitalization.                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                       
|   
|(2) | In May and June, 1997, Holmes repurchased the
	shares held by 30% minority stockholders in one of Holmes
	subsidiaries for a total of $900,000.                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                     
|   
|(3) | EBITDA represents income before interest expense,
	income tax expense (benefit), depreciation and amortization and
	the minority interest in net income of majority-owned
	subsidiaries. EBITDA is presented because it is a widely
	accepted measure to provide information regarding a
	companys ability to service and/or incur debt. EBITDA
	should not be considered in isolation or as a substitute for net
	income, cash flows from operations or other income or cash flow
	data prepared in accordance with generally accepted accounting
	principles, or as a measure of a companys profitability or
	liquidity. Additionally, Holmes calculation of EBITDA may
	differ from that performed by other companies, and thus the
	amounts disclosed may not be directly comparable to those
	disclosed by other companies.                                                                                                                                                                                                                                                  
|   
|(4) | EBITDA as presented for 1999 and 2000 does not
	reflect the addback of integration expenses, amortization of
	acquired profit in inventory, plant closing costs and reduction
	for a legal settlement. Adjusting for these items and excluding
	both the costs related to the purchase of a faulty heater
	component and the operating results of our divested businesses
	would result in EBITDA of $61.4 million for 1999. For 2000,
	adjusting for the addback of integration expenses, plant closing
	costs and the costs related to the purchase of the faulty heater
	component, as disclosed in our Form 10-Q for the quarterly
	period ended June 30, 2000 previously filed with the
	Securities and Exchange Commission, would result in EBITDA of
	$31.5 million which includes a fourth quarter charge for
	inventory and accounts receivable of approximately
	$25.6 million (total discounts and allowances, inventory
	write-downs, co-operative advertising expense and bad debt
	expense were approximately $58.4 million and $34.9 in 2000
	and 1999, respectively).
|   
|(5) | EBITDA as presented for 2001 does not reflect the
	addback of plant closing costs, restructuring costs, the costs
	related to the execution of an amendment to our Credit Facility
	in May 2001, and a fourth quarter charge of $14.1 million
	taken in connection with the Kmart bankruptcy. Adjusting for
	these items, as permitted under the Credit Facility, would
	result in EBITDA of $59.8 million.                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                          
|   
|(6) | For purposes of determining the ratio of earnings
	to fixed charges, earnings represent income before income taxes
	and minority interest, plus fixed charges as presented, without
	adjustment for one-time items as discussed in (4) and
	(5) above. Fixed charges consist of interest expense on all
	indebtedness plus a portion of rental payments on operating
	leases that is considered representative of the interest factor.                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                               
|   
|(7) | Total stockholders equity (deficit) as
	of December 31, 1997 and 1998 reflects a reduction
	attributable to Holmes 1997 recapitalization. See
	Note 9 of Notes to Consolidated Financial Statements.                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                               

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|        |                                                                                       
|------- | --------------------------------------------------------------------------------------
|Item 7. | Managements Discussion and Analysis
	of Financial Condition and Results of Operations

Background

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 have a significantly
higher level of borrowing and a corresponding higher level of
interest expense than in the past.

Critical Accounting Policies

Holmes discussion and analysis of its
financial condition and results of operations are based upon
Holmes financial statements, which have been prepared in
accordance with accounting principles generally accepted in the
United States. The preparation of these financial statements
requires Holmes to make estimates and assumptions about future
events that affect the reported amounts in the financial
statements and accompanying notes. Future events cannot be
determined with absolute certainty. Therefore, the determination
of estimates requires the exercise of judgement. Actual results
may differ from those estimates under different assumptions and
conditions.

Holmes believes the most significant accounting
estimates inherent in the preparation of the financial
statements include estimates associated with managements
evaluation of the allowance for doubtful accounts, inventory
valuation, product returns, the evaluation of the recoverability
of goodwill, as well as those used in the determination of
liabilities related to litigation, product liability and
taxation. In addition, significant estimates are used for
reserves associated with warranty obligations, restructuring
actions, employee benefits and contingencies. Holmes bases its
estimates on historical experience and on various other
assumptions that we believe to be reasonable under the
circumstances including current and expected economic
conditions, product mix and in some cases actuarial valuations.
The results of these estimates form the basis for making
judgements about the carrying values of assets and liabilities
that are not readily apparent from other sources.

Results of Operations

Comparison of
Years Ended December 31, 2001 and December 31,
2000

Net Sales.Net sales
for fiscal 2001 were $628.0 million compared to
$513.2 million for fiscal 2000, an increase of
$114.8 million or 22.4%. Excluding the $4.6 million of
sales in 2000 related to the residual sourcing agreements for
the pump and industrial businesses, which were divested in the
fourth quarter of 1999, net sales increased approximately 23.5%
during 2001. The increase was primarily due to increased
shipments of kitchen electric products, increased international
shipments, primarily driven by shipments in Mexico and Europe,
and increased shipments in the Far East due to sales growth by
our motor joint venture with General Electric.

In January 2002, Kmart Corporation and certain of
its U.S. subsidiaries filed voluntary petitions for
reorganization under Chapter 11 of the U.S. Bankruptcy
Code. Kmart Corporation is one of Holmes top three

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##### Table of Contents



customers. Kmart has indicated that it intends to
reorganize on a fast-track basis and has targeted emergence from
Chapter 11 in 2003. Kmart has announced that it will close
over 200 stores as part of the reorganization. We are
currently evaluating what effect, if any, this may have on our
2002 revenues. Holmes sales to Kmart were approximately
10% of total net sales in 2001.


Net sales of our Pollenex division, which we
divested in January 2002, were approximately $19.3 million
during 2001 and approximately $13.9 million in 2000.

Gross Profit.Gross
profit for fiscal 2001 was $165.7 million compared to
$131.0 million for fiscal 2000, an increase of
$34.7 million or 26.5%. As a percentage of net sales, gross
profit was 26.4% in 2001 and 25.5% in 2000. The positive impact
to our gross profit was primarily due to the above mentioned
increases in sales volumes. The volume increases were partially
offset by an increase in discounts and allowances from 2000.
Additionally, there was carryover fan inventory from the cooler
2000 summer season that shipped in 2001 with higher 2000 season
costs. Distribution and warehousing costs also increased due to
the higher carryover fan inventory. We also had higher levels of
low margin closeout sales in 2001 as compared to 2000.

Selling Expenses.Selling expenses for 2001 were $69.5 million compared to
$73.5 million in 2000, a decrease of $4.0 million or
5.4%. As a percentage of net sales, selling expenses decreased
to 11.1% for 2001 compared to 14.3% in 2000. The decrease was
primarily due to a reduction in several sales and marketing
expenses such as selling commissions, print and trade
advertising and sales travel expenses as we continued our effort
to lower spending throughout the Company.

General and Administrative
Expenses.General and administrative
expenses for 2001 were $57.1 million compared to
$36.0 million in 2000, an increase of $21.1 million or
58.6%. As a percentage of net sales, general and administrative
expenses increased to 9.1% for 2001 from 7.0% for 2000. Several
of our larger customers filed for bankruptcy in 2001 due to the
weak retail environment which caused bad debt costs in excess of
our historical levels. Included in the 2001 expense was a
$14.1 million bad debt charge recorded in the fourth
quarter, related to outstanding receivables from Kmart. Total
bad debt expenses were approximately $4.5 million and
$15.2 million in 2000 and 2001, respectively. In addition,
the higher costs in 2001 were also due to bank and consulting
fees associated with the May 7, 2001 amended Credit
Facility, insurance expense and MIS infrastructure costs.
Excluding the impact of the additional consulting costs related
to the amended Credit Facility, general and administrative
expenses were approximately 8.7% of net sales in 2001.

Product Development
Expenses.Product development expenses
for 2001 and 2000 were $11.0 million for both 2000 and
2001. As a percentage of net sales, product development expenses
decreased to 1.8% of net sales for 2001 from 2.1% in 2000.

Restructuring Costs.Restructuring costs for 2001 were $1.2 million. These costs
related to the closing 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. The activities of this plant were moved to the
other existing plants in Clinton, Missouri and Jackson,
Mississippi. As a result, approximately 300 manufacturing,
engineering and office positions were eliminated. As of
December 31, 2001, substantially all these employees have
left the Company.

Plant Closing Costs.We also recorded $0.6 million in plant closing costs, which
are expensed as incurred, associated with the closing of the
Sedalia, Missouri manufacturing facility.

Interest and Other Expense,
Net.Interest and other expense, net
for 2001 was $37.3 million compared to $37.8 million
for 2000, a decrease of $0.5 million or 1.3%. Interest
expense for 2001 included a non-cash charge of $1.0 million
for the issuance of warrants and increased deferred financing
fees of $0.5 million related to the amended Credit Facility.
Interest expense includes $4.7 million and
$4.1 million of non-cash amortization of debt issuance
costs in 2001 and 2000, respectively.

Income Tax Expense
(Benefit).The income tax expense for
2001 was $4.5 million compared to $2.6 million for
2000. The resulting effective tax rate for these periods is not
meaningful primarily due to domestic losses for which a tax
benefit was not recorded, as there was no assurance such benefit
would be realized. (See Note 10 of Notes to Consolidated
Financial Statements under Item 8 of this Report).

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Equity in Earnings from Joint
Venture.We recorded $2.4 million
in equity in earnings from our joint venture with General
Electric in 2001 versus $0.6 million in 2000 primarily due
to the growth of the joint venture. Total sales directly to the
joint venture were approximately $17.1 million in 2001
versus $11.9 million in 2000.

Net Income (Loss).As a result of the foregoing factors, net loss for 2001 was
$15.6 million, compared to net loss of $32.2 million
for 2000.



| |                                                                   
| | ------------------------------------------------------------------
| | Comparison of Years Ended December 31,
	2000 and December 31, 1999

The financial statement amounts for fiscal 2000
set forth below include a full twelve months of Rivals
operations, while (as required by purchase accounting) the
financial statement amounts for fiscal 1999 include
approximately eleven months of Rivals operations, from the
acquisition on February 5, 1999 onward. We have also
provided a number of proforma, twelve-month comparisons for 1999
that include Rivals comparable results from
January 1, 1999 onward, and exclude the impact of the
divested Rival pump and industrial businesses, as applicable,
which management believes to be a more meaningful comparison.

The financial results for fiscal 2000 were below
what we had anticipated. We incurred a net loss of
$32.2 million in 2000 compared to net income of
$1.8 million in 1999, primarily as a result of over
$20.0 million in charges for write-downs against accounts
receivable and inventory during the fourth quarter of 2000 which
were substantially greater than our historical levels. These
charges were attributable to a number of factors, including a
slowing economy in the fourth quarter of 2000, customer
bankruptcies, information technology integration issues and
inventory rationalization by the Company. The economic downturn
and weaker retail environment during the fourth quarter led to
an unusually high level of customer deductions against accounts
receivable. In addition, several large customers filed for
bankruptcy protection late in 2000, including Bradlees,
Homeplace and Montgomery Wards. We also experienced difficulties
in integrating the Rival information technology systems that
prevented us from properly monitoring certain customer
deductions for discounts and allowances, limiting our ability to
request repayment from customers for these deductions on a
timely basis. During the fourth quarter of 2000, a portion of
these deductions was deemed uncollectible. We also performed a
SKU rationalization of each product line during the fourth
quarter resulting in revaluations of selected inventory.
Management believes that a significant portion of these
increased charges were a result of business and operational
issues of the acquired Rival Company and its integration with
Holmes. Management is actively addressing these issues.

Net Sales.Net sales
for fiscal 2000 were $513.2 million compared to
$507.5 million for fiscal 1999, an increase of
$5.7 million or 1.1%. Comparing 2000 to the proforma
twelve-month 1999 results, and excluding the impact of the
divested pump and industrial businesses, net sales increased
approximately $20.8 million or 4.3%. The increase was
primarily due to increased shipments of home environment
products, increased international shipments, primarily driven by
shipments in Mexico, and increased shipments in the Far East due
to sales growth by our motor joint venture with General
Electric. Partially offsetting these increases was a decline in
shipments of kitchen electric products. Also offsetting the
increases was a charge in the fourth quarter for discounts and
allowances of approximately $9.9 million. Total discounts
and allowances were approximately $21.9 million and
$11.5 million in 2000 and 1999, respectively. Shipments for
the divested businesses in 2000 were $4.6 million pursuant
to a supply agreement with the buyers, which represented a
decrease of approximately $42.4 million from the prior year
proforma.

Gross Profit.Gross
profit for fiscal 2000 was $131.0 million compared to
$143.2 million for fiscal 1999, a decrease of
$12.2 million or 8.5%. As a percentage of net sales, gross
profit was 25.5% in 2000 and 28.2% in 1999. Compared to the
proforma full year ended December 31, 1999 gross profit
decreased approximately $17.2 million to 25.5% of net sales
in 2000 from 28.0% of net sales in 1999. The 2000 gross profit
amount includes costs and related impact of approximately
$3.1 million related to the purchase of a faulty heater
component. Adjusting for the divested businesses, the impact of
the faulty component and the amortization of acquired profit in
inventory in 1999 would result in gross profit of approximately
$134.4 million or 26.4% of net sales and
$148.2 million or 30.3% of net sales for 2000 and 1999
respectively. The decrease in our gross profit was primarily due
to a charge in the fourth quarter for write-downs of inventory
of approximately $9.9 million

14



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##### Table of Contents



and the above mentioned charge for discounts and
allowances. Total charges for inventory write-downs were
approximately $17.3 million and $9.4 million in 2000
and 1999, respectively. We did show an increase in home
environment sales volume, lower unfavorable domestic
manufacturing variances and improved Far East performance that
helped our gross profit versus 1999. These were partially offset
by the lower kitchen electric sales volumes and gross margins,
higher raw material costs and higher warehousing costs.


Selling Expenses.Selling expenses for 2000 were $73.5 million compared to
$67.5 million in 1999, an increase of $6.0 million or
8.9%. As a percentage of net sales, selling expenses increased
to 14.3% for 2000 compared to 13.3% in 1999. Comparing the full
year 2000 selling expenses to the selling expenses of
$71.1 million for the proforma full year 1999 would result
in an increase of approximately $2.4 million, or 3.4%. The
increase was primarily due to a $2.1 million charge in the
fourth quarter for accounts receivable write-offs in connection
with co-operative advertising deductions. Total co-operative
advertising expenses were approximately $14.7 million and
$12.7 million in 2000 and 1999, respectively. As noted
above, we had integration issues related to adopting the Rival
information technology system. In addition, loss of personnel at
Rival contributed to prior deductions becoming uncollectible.
The selling expense increase was also partially due to increased
packaging and other related sales tools expenses associated with
developing and marketing our new and existing products.

General and Administrative
Expenses.General and administrative
expenses for 2000 were $36.0 million compared to
$28.3 million in 1999, an increase of $7.7 million or
27.2%. As a percentage of net sales, general and administrative
expenses increased to 7.0% for 2000 from 5.6% for 1999. For the
proforma full year 1999 general and administrative expenses were
approximately $29.2 million, or 5.5% of proforma net sales.
Several of our larger customers filed for bankruptcy in 2000 due
to the worsening retail environment which caused write-offs in
excess of our historical levels. The general and administrative
expense increase was primarily due to a $3.6 million charge
in the fourth quarter for customer bad debt related charges.
Total bad debt expenses were approximately $4.5 million and
$1.3 million in 2000 and 1999, respectively. Approximately
$1.8 million of the general and administrative expense
increase was directly attributable to the Far East operations to
support the increased sales, production and support of the
combined businesses, and support of the GE joint venture. Total
integration related expenses in 2000 were approximately
$3.7 million versus approximately $3.4 million in 1999.

Product Development
Expenses.Product development expenses
for 2000 were $11.0 million compared to $10.4 million
for 1999, an increase of $0.6 million or 5.8%. As a
percentage of net sales, product development expenses increased
to 2.1% of net sales for 2000 from 2.0% in 1999. The increase in
dollars relates to the expenditures on new products both in the
home environment and kitchen product lines.

Plant Closing Costs.We recorded $0.3 million in plant closing costs, which are
expensed as incurred, associated with the closing of the
Warrensburg, Missouri manufacturing plant.

Interest and Other Expense,
Net.Interest and other expense, net
for 2000 was $37.8 million compared to $31.0 million
for 1999, an increase of $6.8 million or 21.9%.
Approximately $4.9 million of the increase in interest
expense was primarily due to an additional month of borrowing in
2000 related to the Rival acquisition as well as higher interest
rates and a higher debt level during 2000 versus 1999 on the
outstanding debt. Finally, we recorded income from a legal
settlement from a previous Rival acquisition in 1999 in the
amount of $1.6 million.

Income Tax Expense
(Benefit).The income tax expense for
2000 was $2.6 million compared to a benefit of
$0.9 million for 1999. The income tax expense in 2000 is
largely due to the establishment of a valuation reserve of
$16.9 million primarily against losses experienced in the
U.S. and a tax expense of $2.4 million on income taxed in
foreign jurisdictions.

Equity in Earnings from Joint
Venture.We recorded $0.6 million
in equity in earnings from our joint venture with General
Electric for the shipment of motors from our factory in the Far
East in 2000 versus $0.9 million in 1999.

Net Income (Loss).As a result of the foregoing factors, net loss for 2000 was
$32.2 million, compared to net income of $1.8 million
for 1999.

15



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##### Table of Contents



Liquidity and Capital Resources



| |                                                                   
| | ------------------------------------------------------------------
| | Comparison of Years Ended December 31,
	2001 and December 31, 2000

Holmes cash and cash equivalents increased
to $10.1 million at December 31, 2001, from
$3.0 million at December 31, 2000. The increase
resulted primarily from $36.3 million provided by
operations offset by the cash used for investing and financing
activities of $29.2 million.

Cash provided by (used for) operations for the
years ended December 31, 2001 and 2000 was
$36.3 million and $(5.5) million, respectively. Cash
provided by operations for 2001 consisted primarily of
$24.9 million from a net loss adjusted for non-cash items
and increased by $11.4 million provided by working capital
activities. Net cash provided by working capital activities
resulted from a decline in inventory primarily due to management
initiatives to reduce inventory levels and decreases in prepaid
expenses and other current assets along with an increase in
accounts payable and accrued expenses, offset in part by an
increase in accounts receivable due to increased sales volume.

Cash used for investing activities for the year
ended December 31, 2001 was $12.2 million compared to
$20.3 million in 2000. Included in 2001 was
$17.0 million invested in capital expenditures for property
and equipment offset by the $2.2 million net proceeds from the
sale of the Warrensburg, Missouri facility and manufacturing
machinery. We also received additional cash contributions of
approximately $0.7 million from our joint venture partner
as part of their contribution towards joint venture capital
equipment which partially offset our cash used for capital
expenditures of $17.0 million above. Finally, we received
$1.9 million in earnings distributions from the joint
venture. The Company expects to spend approximately $15 million
on capital expenditures in 2002, primarily related to the
expansion of its China manufacturing facilities and on-going
tooling costs to support product development needs.

Cash provided by (used for) financing activities
for the years ended December 31, 2001 and 2000 was $(16.9)
million and $22.2 million, respectively. Cash used for
financing in 2001 reflected repayments on the revolving line of
credit using cash flow from operations and also debt issuance
costs associated with the May 2001 Credit Facility amendment.
The cash provided by financing activities for the year 2000
reflected the borrowings under the Credit Facility to fund
operations.



| |                                                                   
| | ------------------------------------------------------------------
| | Comparison of Years Ended December 31,
	2000 and December 31, 1999

Cash provided by (used for) operations for the
years ended December 31, 2000 and 1999 was $(5.5) million
and $7.1 million, respectively. Cash used for operations in
2000 reflected an $18.4 million increase in inventory
levels. Higher inventory levels at the end of the year reflected
cooler summer weather and slower than anticipated retail sales
in the fourth quarter of 2000. Partially offsetting the
inventory increase was a reduction in accounts receivable of
approximately $13.2 million mainly due to the fourth
quarter charges as previously described.

Cash used for investing for the year ended
December 31, 2000 included $28.3 million invested in
capital expenditures for property and equipment offset by
additional proceeds from the sale of the sump and utility pump
division and additional contingent consideration from the sale
of the commercial and industrial division. We also received
additional cash contributions of approximately $1.9 million
from our joint venture partner as part of their contribution
towards joint venture capital equipment, which partially offsets
our cash used for capital expenditures of $28.3 million
above. Finally, we also received $1.6 million from the sale
of the Fayetteville, North Carolina facility.

Cash provided by financing activities for the
years ended December 31, 2000 and 1999 was
$22.2 million and $265.2 million, respectively. Cash
provided by financing for the year 2000 reflected borrowings on
the revolving line of credit used to fund cash flows for
operations. The cash provided by financing activities for the
year 1999 reflected the borrowings under the Credit Facility,
and proceeds from the issuance of the Notes and common stock
associated with the Rival acquisition.

16



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##### Table of Contents



Financing
Arrangements

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 have been for working capital, to service
our indebtedness and to fund capital expenditures. While there
can be no assurance, we believe that existing cash resources,
cash flows from operations and borrowings under the Credit
Facility as most recently amended 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.

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
$13.5 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.

Our financial performance in the fourth quarter
of 2000 resulted in a default, as of December 31, 2000, of
certain financial ratio covenants in the Credit Facility as
previously amended. On May 7, 2001, the Credit Facility was
amended (the Fourth Amendment) to waive the defaults, 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.

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 plus accrued interest on the
Notes, was approximately

17



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##### Table of Contents



$12.8 million, which was funded with
proceeds of the revolving credit loan B. The Notes
repurchased were retired and cancelled. This will result in a
gain in the first quarter of 2002. We may consider repurchases
of additional Notes in the future, and we may utilize the
proceeds of the Credit Facility for this purpose.


The following summarizes Holmes contractual
obligations at December 31, 2001, and the effect such
obligations are expected to have on its liquidity and cash flow
in future periods.

|                         |                                            |                |   |           |  |             |   |         |  |  |   |        |  |  |   |         |    
|------------------------ | ------------------------------------------ | -------------- | - | --------- |  | ----------- | - | ------- |  |  | - | ------ |  |  | - | ------- | ---
|                         |                                            |                |   | Less Than |  |             |   | After  
|                         |                                            | Total          |   | 1 Year    |  | 1  3 Years |   | 3 Years
|                         |                                            |                |   |           |  |             |   |        
|                         |                                            |               
|                         |                                            | (in thousands)
|Contractual Obligations: |                                            |                |   |           |  |             |   |         |  |  |   |        |  |  |   |        
|                         | Long-term debt  variable rate             |                | $ | 217,882   |  |             | $ | 8,476   |  |  | $ | 57,831 |  |  | $ | 151,575 |    
|                         | Long-term debt  fixed rate                |                | $ | 136,250   |  |             |   |        |  |  |   |       |  |  | $ | 136,250 | (1)
|                         | Non-cancelable operating lease obligations |                | $ | 53,805    |  |             | $ | 6,702   |  |  | $ | 16,067 |  |  | $ | 31,036  |    
|                         | Purchase commitments(2)                    |                | $ | 13,459    |  |             | $ | 10,055  |  |  | $ | 3,404  |  |  |   |        |    
|                         | Minimum royalty obligations                |                | $ | 615       |  |             | $ | 357     |  |  | $ | 258    |  |  |   |        |    



---



|    |                                                                                                                                
|--- | -------------------------------------------------------------------------------------------------------------------------------
|(1) | Included in this amount was $36.2 million,
	which was retired as part of the Fifth Amendment on
	March 22, 2002 as noted above.
|   
|(2) | These include capital expenditures and other
	product related purchase commitments.                                            

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, grant liens, make investments and take
certain other actions. Our ability to meet our debt service
obligations will be dependent upon our future performance, which
will be impacted by general economic conditions and other
factors. See  Results of Operations and Disclosure
Regarding Forward-Looking Statements above.

Recent Accounting Pronouncements

In June 1998, the Financial Accounting Standards
Board (FASB) issued SFAS No. 133, Accounting for
Derivative Instruments and Hedging Activities (SFAS 133).
SFAS 133 establishes new standards of accounting and
reporting for derivative instruments and hedging activities.
SFAS 133 requires that all derivatives be recognized at
fair value in the balance sheet, and the corresponding gains and
losses be reported either in the statement of operations or as a
component of comprehensive income (loss), depending on the type
of hedging relationship that exists. We adopted SFAS 133
during 2001 and the impact was immaterial given our limited use
of derivatives.

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 Combination. The provisions of FAS 141
(i) require that the purchase method of accounting be used
for all business combinations initiated after June 30,
2001, (ii) provide specific criteria for the initial
recognition and measurement of intangible assets apart from
goodwill, and (iii) require that unamortized negative
goodwill be written off immediately as an extraordinary gain
instead of being deferred and amortized. FAS 141 also
requires that upon adoption of FAS 142 the Company
reclassify the carrying amounts of certain intangible assets
into or out of goodwill, based on certain criteria.

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

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##### Table of Contents



Application of the non-amortization provisions of
FAS 142 will result in an increase in net earnings of
approximately $2.5 million per year. In connection with the
adoption of FAS 142, the Company does not expect to record
any reclassifications to its goodwill balance. FAS 142
requires that goodwill be tested annually for impairment using a
two-step process. The first step is to identify a potential
impairment and, in transition, this step must be measured as of
the beginning of the fiscal year. Under the implementation
provisions of FAS 142, the Company has until June 30,
2002 to complete step one. The second step of the goodwill
impairment test measures the amount of the impairment loss, if
any, and must be completed as soon as possible but no later than
the end of fiscal 2002. The Company expects to complete both
steps of the goodwill impairment test during the second quarter
of 2002. Any impairment loss resulting from the transitional
impairment tests will be reflected as the cumulative effect of a
change in accounting principle as of January 1, 2002. Any
impairment loss recognized subsequent to the initial adoption of
FAS 142 will be recorded as a charge to current period
earnings.

As of December 31, 2001, 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. 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
adoption, if any.

In July 2001, the FASB issued Statement of
Financial Accounting Standards No. 143, Accounting
for Asset Retirement Obligations (FAS 143).
FAS 143 requires entities to record the fair value of a
liability for an asset retirement obligation in the period in
which it is incurred. When the liability is initially recorded,
the entity is required to capitalize the cost by increasing the
carrying amount of the related long-lived asset. Over time, the
liability is accreted to its present value each period, and the
capitalized cost is depreciated over the useful life of the
related asset. FAS 143 is effective for fiscal years
beginning after June 15, 2002 and will be adopted by the
Company effective fiscal 2003. The Company believes adoption of
this standard will not have a material effect on its
consolidated financial statements.

In August 2001, the FASB issued Statement of
Financial Accounting Standards No. 144, Accounting
for the Impairment or Disposal of Long-lived Assets
(FAS 144), which supersedes Statement of Financial
Accounting Standards No. 121, Accounting for the
Impairment of Long-lived Assets and for Long-lived Assets to Be
Disposed Of (FAS 121), and the accounting and
reporting provisions of APB Opinion No. 30, Reporting
the Results of Operations  Reporting the Effects of
Disposal of a Segment of a Business, and Extraordinary, Unusual
and Infrequently Occurring Events and Transactions (APB
30), for the disposal of a segment of a business. Because
FAS 121 did not address the accounting for a segment of a
business accounted for as a discontinued operation under APB 30,
two accounting models existed for long-lived assets to be
disposed. FAS 144 establishes a single accounting model,
based on the framework established in FAS 121, for
long-lived assets to be disposed. It also addresses certain
significant implementation issues under FAS 121. The
provisions of FAS 144 will be effective for the Company as
of the beginning of fiscal year 2002. The Company believes
adoption of this standard will not have a material effect on its
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 will adopt
the required accounting as of January 1, 2002. The Company
is currently evaluating the impact that this standard will have
on its co-operative advertising expense classification in the
Companys Consolidated Statements of Operations.

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##### Table of Contents



Investor Conference Call

Holmes management will hold a telephone
conference call on April 9, 2002 at 2 p.m., Eastern
time, in order for investors and other interested stakeholders
to hear managements views on our results of operations
during the fourth quarter and year ended December 31, 2001.
If you are interested in accessing the call, 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 7A. | Quantitative and Qualitative Disclosures
	About Market Risk

At December 31, 2001, the carrying value of
our debt totaled $353.2 million. The fair value
approximated $272.4 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 December 31, 2001, the Company had fixed
rate debt of $135.3 million and variable rate debt of
$217.9 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
$6.2 million. Based on the amounts of variable rate debt
outstanding at December 31, 2001, the earnings and cash
flows impact for the next year resulting from a one percentage
point increase in interest rates would be approximately
$2.2 million, holding other variables constant.

20



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##### Table of Contents






Item
8.     Financial Statements and
Supplementary Data

INDEX TO CONSOLIDATED FINANCIAL
STATEMENTS

|                                                                                                                |                                                                     |      |    |    | 
|--------------------------------------------------------------------------------------------------------------- | ------------------------------------------------------------------- | ---- | -- | -- | 
|                                                                                                                |                                                                     | Page
|                                                                                                                |                                                                     |     
|Report of PricewaterhouseCoopers LLP, Independent
	Accountants                                                  |                                                                     |      | 22 |   
|Consolidated Balance Sheet at December 31,
	2000 and 2001                                                       |                                                                     |      | 23 |   
|Consolidated Statement of Operations for the
	years ended December 31, 1999, 2000 and 2001                      |                                                                     |      | 24 |   
|Consolidated Statement of Stockholders
	Equity (Deficit) for the years ended December 31, 1999,
	2000 and 2001 |                                                                     |      | 25 |   
|Consolidated Statement of Comprehensive Income
	(Loss) for the years ended December 31, 1999, 2000 and 2001     |                                                                     |      | 26 |   
|Consolidated Statement of Cash Flows for the
	years ended December 31, 1999, 2000 and 2001                      |                                                                     |      | 27 |   
|Notes to Consolidated Financial Statements                                                                      |                                                                     |      | 28 |   
|Financial Statement Schedule:                                                                                   |                                                                     |      |    |   
|                                                                                                                | For each of the three years in the period ended
	December 31, 2001: |      |    |    | 
|                                                                                                                | II  Valuation and Qualifying Accounts                              |      |    | 57 | 

All other schedules are omitted because they are
not applicable or the required information is shown in the
consolidated financial statements or the notes thereto.

21



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REPORT OF INDEPENDENT ACCOUNTANTS

To the Board of Directors and

Stockholders of The Holmes Group, Inc.:


In our opinion, the consolidated financial
statements listed in the index appearing under Item 8 of
this Form 10-K present fairly, in all material respects,
the financial position of The Holmes Group, Inc. and its
subsidiaries at December 31, 2000 and 2001, and the results
of their operations and their cash flows for each of the three
years in the period ended December 31, 2001 in conformity with
accounting principles generally accepted in the United States of
America. In addition, in our opinion, the financial statement
schedule listed in the index appearing under Item 8 of this
Form 10-K presents fairly, in all material respects, the
information set forth therein when read in conjunction with the
related consolidated financial statements. These financial
statements and the financial statement schedule are the
responsibility of the Companys management; our
responsibility is to express an opinion on these financial
statements and financial statement schedule based on our audits.
We conducted our audits of these statements in accordance with
auditing standards generally accepted in the United States of
America, which require that we plan and perform the audit to
obtain reasonable assurance about whether the financial
statements are free of material misstatement. An audit includes
examining, on a test basis, evidence supporting the amounts and
disclosures in the financial statements, assessing the
accounting principles used and significant estimates made by
management, and evaluating the overall financial statement
presentation. We believe that our audits provide a reasonable
basis for our opinion.



| |                               
| | ------------------------------
| | /s/ PRICEWATERHOUSECOOPERS LLP
| |                               

Boston, Massachusetts

March 22, 2002


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THE HOLMES GROUP, INC.

CONSOLIDATED BALANCE SHEET

|                                                |                                                                                                                                        |                             |                                      |              |         |       |         |         |         |        |  
|----------------------------------------------- | -------------------------------------------------------------------------------------------------------------------------------------- | --------------------------- | ------------------------------------ | ------------ | ------- | ----- | ------- | ------- | ------- | ------ | -
|                                                |                                                                                                                                        | December 31,                |                                      | December 31,
|                                                |                                                                                                                                        | 2000                        |                                      | 2001        
|                                                |                                                                                                                                        |                             |                                      |             
|                                                |                                                                                                                                        |                            
|                                                |                                                                                                                                        | (In thousands, except share
|                                                |                                                                                                                                        | and per share amounts)     
|ASSETS                                         
|Current assets:                                 |                                                                                                                                        |                             |                                      |              |         |       |         |        
|                                                | Cash and cash equivalents                                                                                                              |                             | $                                    | 3,017        |         |       | $       | 10,115  |        
|                                                | Accounts receivable, net of allowances of $9,622
	in 2000 and $18,202 in 2001                                                          |                             |                                      | 124,499      |         |       |         | 144,249 |        
|                                                | Inventories                                                                                                                            |                             |                                      | 131,050      |         |       |         | 103,195 |        
|                                                | Prepaid expenses and other current assets                                                                                              |                             |                                      | 6,457        |         |       |         | 5,317   |        
|                                                | Deferred income taxes                                                                                                                  |                             |                                      | 14,725       |         |       |         | 13,643  |        
|                                                |                                                                                                                                        |                             |                                      |              |         |       |         |        
|                                                |                                                                                                                                        | Total current assets        |                                      |              | 279,748 |       |         |         | 276,519 |       
|                                                | Assets held for sale                                                                                                                   |                             |                                      | 1,624        |         |       |         | 86      |        
|                                                | Property and equipment, net                                                                                                            |                             |                                      | 67,582       |         |       |         | 69,096  |        
|                                                | Goodwill, net                                                                                                                          |                             |                                      | 83,779       |         |       |         | 79,838  |        
|                                                | Deposits and other assets                                                                                                              |                             |                                      | 5,850        |         |       |         | 4,985   |        
|                                                | Debt issuance costs, net                                                                                                               |                             |                                      | 15,286       |         |       |         | 13,071  |        
|                                                |                                                                                                                                        |                             |                                      |              |         |       |         |        
|                                                |                                                                                                                                        | $                           | 453,869                              |              |         | $     | 443,595 |        
|                                                |                                                                                                                                        |                             |                                      |              |         |       |         |        
|LIABILITIES AND STOCKHOLDERS EQUITY
	(DEFICIT)
|Current liabilities:                            |                                                                                                                                        |                             |                                      |              |         |       |         |        
|                                                | Accounts payable                                                                                                                       |                             | $                                    | 30,179       |         |       | $       | 36,743  |        
|                                                | Current portion of credit facility                                                                                                     |                             |                                      | 7,250        |         |       |         | 8,476   |        
|                                                | Accrued expenses                                                                                                                       |                             |                                      | 33,345       |         |       |         | 42,328  |        
|                                                | Accrued income taxes                                                                                                                   |                             |                                      | 4,717        |         |       |         | 6,457   |        
|                                                | Other current liabilities                                                                                                              |                             |                                      | 784          |         |       |         | 831     |        
|                                                |                                                                                                                                        |                             |                                      |              |         |       |         |        
|                                                |                                                                                                                                        | Total current liabilities   |                                      |              | 76,275  |       |         |         | 94,835  |       
|Credit facility                                 |                                                                                                                                        |                             | 225,175                              |              |         |       | 209,406 |        
|Long-term debt                                  |                                                                                                                                        |                             | 135,186                              |              |         |       | 135,298 |        
|Other long-term liabilities                     |                                                                                                                                        |                             | 7,055                                |              |         |       | 7,485   |        
|Deferred income taxes                           |                                                                                                                                        |                             | 4,704                                |              |         |       | 5,954   |        
|Commitments and contingencies                   |                                                                                                                                        |                             |                                      |              |         |       |         |        
|Stockholders Equity:                           |                                                                                                                                        |                             |                                      |              |         |       |         |        
|                                                | Common stock, $.001 par value. Authorized
	25,000,000 shares; issued and outstanding 20,307,995 shares in
	2000 and 20,302,995 in 2001 |                             |                                      | 20           |         |       |         | 20      |        
|                                                | Additional paid in capital                                                                                                             |                             |                                      | 67,915       |         |       |         | 68,874  |        
|                                                | Accumulated other comprehensive income                                                                                                 |                             |                                      | 241          |         |       |         | (2      | )      
|                                                | Treasury stock, at cost (18,625,450 and
	18,627,450 shares) in 2000 and 2001                                                           |                             |                                      | (62,058      | )       |       |         | (62,076 | )      
|                                                | Retained earnings (deficit)                                                                                                            |                             |                                      | (644         | )       |       |         | (16,199 | )      
|                                                |                                                                                                                                        |                             |                                      |              |         |       |         |        
|                                                |                                                                                                                                        |                             | Total stockholders equity (deficit) |              |         | 5,474 |         |         |         | (9,383 | )
|                                                |                                                                                                                                        |                             |                                      |              |         |       |         |        
|                                                |                                                                                                                                        | $                           | 453,869                              |              |         | $     | 443,595 |        
|                                                |                                                                                                                                        |                             |                                      |              |         |       |         |        

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

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THE HOLMES GROUP, INC.

CONSOLIDATED STATEMENT OF OPERATIONS

|                                                                             |                                                       |                                  |         |        |         |      |         |        |         |   |         |        |         | 
|---------------------------------------------------------------------------- | ----------------------------------------------------- | -------------------------------- | ------- | ------ | ------- | ---- | ------- | ------ | ------- | - | ------- | ------ | ------- | 
|                                                                             |                                                       |                                 
|                                                                             |                                                       | For the Years Ended December 31,
|                                                                             |                                                       |                                 
|                                                                             |                                                       | 1999                             |         | 2000   |         | 2001
|                                                                             |                                                       |                                  |         |        |         |     
|                                                                             |                                                       |                                 
|                                                                             |                                                       | (In thousands)                  
|Net sales                                                                    |                                                       | $                                | 507,487 |        |         | $    | 513,249 |        |         | $ | 627,999 |       
|Cost of goods sold                                                           |                                                       |                                  | 364,308 |        |         |      | 382,205 |        |         |   | 462,271 |       
|                                                                             |                                                       |                                  |         |        |         |      |         |        |         |   |         |       
|Gross profit                                                                 |                                                       |                                  | 143,179 |        |         |      | 131,044 |        |         |   | 165,728 |       
|                                                                             |                                                       |                                  |         |        |         |      |         |        |         |   |         |       
|Operating expenses:                                                          |                                                       |                                  |         |        |         |      |         |        |         |   |         |       
|                                                                             | Selling                                               |                                  |         | 67,452 |         |      |         | 73,521 |         |   |         | 69,476 |        
|                                                                             | General and administrative                            |                                  |         | 28,334 |         |      |         | 35,984 |         |   |         | 57,082 |        
|                                                                             | Product development                                   |                                  |         | 10,448 |         |      |         | 11,000 |         |   |         | 11,022 |        
|                                                                             | Restructuring costs                                   |                                  |         |       |         |      |         |       |         |   |         | 1,194  |        
|                                                                             | Plant closing costs                                   |                                  |         | 2,439  |         |      |         | 340    |         |   |         | 550    |        
|                                                                             | Amortization of goodwill and other intangible
	assets |                                  |         | 2,700  |         |      |         | 2,597  |         |   |         | 2,494  |        
|                                                                             |                                                       |                                  |         |        |         |      |         |        |         |   |         |       
|                                                                             |                                                       | Total operating expenses         |         |        | 111,373 |      |         |        | 123,442 |   |         |        | 141,818 | 
|                                                                             |                                                       |                                  |         |        |         |      |         |        |         |   |         |       
|Operating profit                                                             |                                                       |                                  | 31,806  |        |         |      | 7,602   |        |         |   | 23,910  |       
|                                                                             |                                                       |                                  |         |        |         |      |         |        |         |   |         |       
|Other income and expense:                                                    |                                                       |                                  |         |        |         |      |         |        |         |   |         |       
|                                                                             | Interest expense                                      |                                  |         | 33,472 |         |      |         | 38,550 |         |   |         | 37,900 |        
|                                                                             | Other income, net                                     |                                  |         | (2,489 | )       |      |         | (758   | )       |   |         | (608   | )      
|                                                                             |                                                       |                                  |         |        |         |      |         |        |         |   |         |       
|                                                                             |                                                       |                                  | 30,983  |        |         |      | 37,792  |        |         |   | 37,292  |       
|                                                                             |                                                       |                                  |         |        |         |      |         |        |         |   |         |       
|Income (loss) before income taxes and equity in
	earnings from joint venture |                                                       |                                  | 823     |        |         |      | (30,190 | )      |         |   | (13,382 | )     
|Income tax expense (benefit)                                                 |                                                       |                                  | (87     | )      |         |      | 2,591   |        |         |   | 4,527   |       
|Equity in earnings from joint venture                                        |                                                       |                                  | (902    | )      |         |      | (611    | )      |         |   | (2,354  | )     
|                                                                             |                                                       |                                  |         |        |         |      |         |        |         |   |         |       
|Net income (loss)                                                            |                                                       | $                                | 1,812   |        |         | $    | (32,170 | )      |         | $ | (15,555 | )     
|                                                                             |                                                       |                                  |         |        |         |      |         |        |         |   |         |       

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

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##### Table of Contents



THE HOLMES GROUP, INC.

CONSOLIDATED STATEMENT OF STOCKHOLDERS
EQUITY (DEFICIT)

|                                                             |  |                                  |        |            |  |               |    |          |  |          |        |               |  |           |      |   |  |   |         |   |  |   |         |   |  |   |         |  
|------------------------------------------------------------ |  | -------------------------------- | ------ | ---------- |  | ------------- | -- | -------- |  | -------- | ------ | ------------- |  | --------- | ---- | - |  | - | ------- | - |  | - | ------- | - |  | - | ------- | -
|                                                             |  |                                  |        |            |  |               |    |          |  |          |        |              
|                                                             |  | Common Stock,                    |        |            |  | Accumulated   |    |          |  |          |        | Total        
|                                                             |  | $.001 Par Value                  |        | Additional |  | Other         |    |          |  | Retained |        | Stockholders
|                                                             |  |                                  |        | Paid In    |  | Comprehensive |    | Treasury |  | Earnings |        | Equity       
|                                                             |  | Shares                           |        | Par        |  | Capital       |    | Income   |  | Stock    |        | (Deficit)     |  | (Deficit)
|                                                             |  |                                  |        |            |  |               |    |          |  |          |        |               |  |          
|                                                             |  |                                 
|                                                             |  | (In thousands, except par value)
|Balance at December 31, 1998                                 |  |                                  | 10,201 |            |  |               | 10 |          |  |          | 16,985 |               |  |           | (40  | ) |  |   | (62,058 | ) |  |   | 29,714  |   |  |   | (15,389 | )
|Issuance of common stock                                     |  |                                  | 10,107 |            |  |               | 10 |          |  |          | 50,930 |               |  |           |     |   |  |   |        |   |  |   |        |   |  |   | 50,940  |  
|Foreign currency translation adjustments                     |  |                                  |       |            |  |               |   |          |  |          |       |               |  |           | 437  |   |  |   |        |   |  |   |        |   |  |   | 437     |  
|Net income                                                   |  |                                  |       |            |  |               |   |          |  |          |       |               |  |           |     |   |  |   |        |   |  |   | 1,812   |   |  |   | 1,812   |  
|                                                             |  |                                  |        |            |  |               |    |          |  |          |        |               |  |           |      |   |  |   |         |   |  |   |         |   |  |   |         |  
|Balance at December 31, 1999                                 |  |                                  | 20,308 |            |  |               | 20 |          |  |          | 67,915 |               |  |           | 397  |   |  |   | (62,058 | ) |  |   | 31,526  |   |  |   | 37,800  |  
|Foreign currency translation adjustments                     |  |                                  |       |            |  |               |   |          |  |          |       |               |  |           | (156 | ) |  |   |        |   |  |   |        |   |  |   | (156    | )
|Net loss                                                     |  |                                  |       |            |  |               |   |          |  |          |       |               |  |           |     |   |  |   |        |   |  |   | (32,170 | ) |  |   | (32,170 | )
|                                                             |  |                                  |        |            |  |               |    |          |  |          |        |               |  |           |      |   |  |   |         |   |  |   |         |   |  |   |         |  
|Balance at December 31, 2000                                 |  |                                  | 20,308 |            |  | $             | 20 |          |  | $        | 67,915 |               |  | $         | 241  |   |  | $ | (62,058 | ) |  | $ | (644    | ) |  | $ | 5,474   |  
|                                                             |  |                                  |        |            |  |               |    |          |  |          |        |               |  |           |      |   |  |   |         |   |  |   |         |   |  |   |         |  
|Issuance of stock warrants and repurchase of
	treasury stock |  |                                  | (5     | )          |  |               |   |          |  |          | 959    |               |  |           |     |   |  |   | (18     | ) |  |   |        |   |  |   | 941     |  
|Foreign currency translation adjustments                     |  |                                  |       |            |  |               |   |          |  |          |       |               |  |           | (243 | ) |  |   |        |   |  |   |        |   |  |   | (243    | )
|Net loss                                                     |  |                                  |       |            |  |               |   |          |  |          |       |               |  |           |     |   |  |   |        |   |  |   | (15,555 | ) |  |   | (15,555 | )
|                                                             |  |                                  |        |            |  |               |    |          |  |          |        |               |  |           |      |   |  |   |         |   |  |   |         |   |  |   |         |  
|Balance at December 31, 2001                                 |  |                                  | 20,303 |            |  | $             | 20 |          |  | $        | 68,874 |               |  | $         | (2   | ) |  | $ | (62,076 | ) |  | $ | (16,199 | ) |  | $ | (9,383  | )
|                                                             |  |                                  |        |            |  |               |    |          |  |          |        |               |  |           |      |   |  |   |         |   |  |   |         |   |  |   |         |  

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

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##### Table of Contents



THE HOLMES GROUP, INC.

CONSOLIDATED STATEMENT OF COMPREHENSIVE INCOME
(LOSS)

|                            |                                          |                                  |       |      |  |      |         |      |   |   |         |      |  
|--------------------------- | ---------------------------------------- | -------------------------------- | ----- | ---- |  | ---- | ------- | ---- | - | - | ------- | ---- | -
|                            |                                          |                                 
|                            |                                          | For the Years Ended December 31,
|                            |                                          |                                 
|                            |                                          | 1999                             |       | 2000 |  | 2001
|                            |                                          |                                  |       |      |  |     
|                            |                                          |                                 
|                            |                                          | (In thousands)                  
|Net income (loss)           |                                          | $                                | 1,812 |      |  | $    | (32,170 | )    |   | $ | (15,555 | )   
|Other comprehensive income: |                                          |                                  |       |      |  |      |         |      |   |   |         |     
|                            | Foreign currency translation adjustments |                                  |       | 437  |  |      |         | (156 | ) |   |         | (243 | )
|                            |                                          |                                  |       |      |  |      |         |      |   |   |         |     
|Comprehensive income (loss) |                                          | $                                | 2,249 |      |  | $    | (32,326 | )    |   | $ | (15,798 | )   
|                            |                                          |                                  |       |      |  |      |         |      |   |   |         |     

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

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##### Table of Contents



THE HOLMES GROUP, INC.

CONSOLIDATED STATEMENT OF CASH FLOWS

|                                                      |                                                                                               |                                                                                     |                                                       |          |        |          |        |         |        |         |        |         |        |         |  
|----------------------------------------------------- | --------------------------------------------------------------------------------------------- | ----------------------------------------------------------------------------------- | ----------------------------------------------------- | -------- | ------ | -------- | ------ | ------- | ------ | ------- | ------ | ------- | ------ | ------- | -
|                                                      |                                                                                               |                                                                                    
|                                                      |                                                                                               | For the Years Ended December 31,                                                   
|                                                      |                                                                                               |                                                                                    
|                                                      |                                                                                               | 1999                                                                                |                                                       | 2000     |        | 2001    
|                                                      |                                                                                               |                                                                                     |                                                       |          |        |         
|                                                      |                                                                                               |                                                                                    
|                                                      |                                                                                               | (In thousands)                                                                     
|Cash flows from operating
	activities:                |                                                                                               |                                                                                     |                                                       |          |        |          |        |         |        |         |        |        
|                                                      | Net income (loss)                                                                             |                                                                                     | $                                                     | 1,812    |        |          | $      | (32,170 | )      |         | $      | (15,555 | )     
|                                                      | Adjustments to reconcile net income to net cash
	provided by (used for) operating activities: |                                                                                     |                                                       |          |        |          |        |         |        |         |        |         |       
|                                                      |                                                                                               | Depreciation and amortization                                                       |                                                       |          | 15,133 |          |        |         | 15,737 |         |        |         | 16,180 |        
|                                                      |                                                                                               | Amortization of debt issuance costs, discounts
	and other non-cash interest expense |                                                       |          | 3,983  |          |        |         | 4,129  |         |        |         | 5,678  |        
|                                                      |                                                                                               | Provision for doubtful accounts                                                     |                                                       |          | 1,297  |          |        |         | 4,543  |         |        |         | 15,219 |        
|                                                      |                                                                                               | Loss (gain) on disposition of property, plant and
	equipment                        |                                                       |          | (31    | )        |        |         |       |         |        |         | 564    |        
|                                                      |                                                                                               | Deferred income taxes                                                               |                                                       |          | (1,477 | )        |        |         | (425   | )       |        |         | 2,332  |        
|                                                      |                                                                                               | Restructuring and asset impairment charges                                          |                                                       |          |       |          |        |         |       |         |        |         | 467    |        
|                                                      | Changes in operating assets and liabilities:                                                  |                                                                                     |                                                       |          |        |          |        |         |        |         |        |         |       
|                                                      |                                                                                               |                                                                                     | Accounts receivable                                   |          |        | (36,518  | )      |         |        | 13,222  |        |         |        | (34,969 | )
|                                                      |                                                                                               |                                                                                     | Inventories                                           |          |        | 26,219   |        |         |        | (18,390 | )      |         |        | 27,855  |  
|                                                      |                                                                                               |                                                                                     | Prepaid expenses and other current assets             |          |        | (2,214   | )      |         |        | 7,284   |        |         |        | 1,140   |  
|                                                      |                                                                                               |                                                                                     | Deposits and other assets                             |          |        | 5,366    |        |         |        | (1,080  | )      |         |        | 305     |  
|                                                      |                                                                                               |                                                                                     | Accounts payable                                      |          |        | (7,607   | )      |         |        | 3,746   |        |         |        | 6,311   |  
|                                                      |                                                                                               |                                                                                     | Accrued expenses                                      |          |        | 2,211    |        |         |        | (2,911  | )      |         |        | 8,983   |  
|                                                      |                                                                                               |                                                                                     | Accrued income taxes                                  |          |        | (1,044   | )      |         |        | 794     |        |         |        | 1,740   |  
|                                                      |                                                                                               |                                                                                     |                                                       |          |        |          |        |         |        |         |        |        
|                                                      |                                                                                               |                                                                                     | Net cash provided by (used for) operating
	activities |          |        | 7,130    |        |         |        | (5,521  | )      |         |        | 36,250  |  
|                                                      |                                                                                               |                                                                                     |                                                       |          |        |          |        |         |        |         |        |        
|Cash flows from investing
	activities:                |                                                                                               |                                                                                     |                                                       |          |        |          |        |         |        |         |        |        
|                                                      | Acquisition of business, net of cash acquired                                                 |                                                                                     |                                                       | (279,571 | )      |          |        |        |        |         |        |        |       
|                                                      | Contribution in joint venture                                                                 |                                                                                     |                                                       | (25      | )      |          |        |        |        |         |        |        |       
|                                                      | Proceeds from sale of assets held for sale and
	business divestitures                         |                                                                                     |                                                       | 23,787   |        |          |        | 4,753   |        |         |        | 2,228   |       
|                                                      | Distribution of earnings from joint venture                                                   |                                                                                     |                                                       | 138      |        |          |        | 1,375   |        |         |        | 1,876   |       
|                                                      | Purchase of property and equipment                                                            |                                                                                     |                                                       | (17,614  | )      |          |        | (28,341 | )      |         |        | (17,020 | )     
|                                                      | Cash received from joint venture partner                                                      |                                                                                     |                                                       | 2,252    |        |          |        | 1,893   |        |         |        | 700     |       
|                                                      |                                                                                               |                                                                                     |                                                       |          |        |          |        |         |        |         |        |        
|                                                      |                                                                                               |                                                                                     | Net cash used for investing activities                |          |        | (271,033 | )      |         |        | (20,320 | )      |         |        | (12,216 | )
|                                                      |                                                                                               |                                                                                     |                                                       |          |        |          |        |         |        |         |        |        
|Cash flows from financing
	activities:                |                                                                                               |                                                                                     |                                                       |          |        |          |        |         |        |         |        |        
|                                                      | Net (repayment) of line of credit                                                             |                                                                                     |                                                       | (10,000  | )      |          |        |        |        |         |        |        |       
|                                                      | Issuance of common stock                                                                      |                                                                                     |                                                       | 50,400   |        |          |        |        |        |         |        |        |       
|                                                      | Borrowings of long-term debt, net of issuance
	costs                                          |                                                                                     |                                                       | 27,329   |        |          |        |        |        |         |        |        |       
|                                                      | Borrowings (repayments) on credit facility, net
	of issuance costs                            |                                                                                     |                                                       | 198,704  |        |          |        | 22,350  |        |         |        | (14,543 | )     
|                                                      | Debt issuance costs                                                                           |                                                                                     |                                                       | (658     | )      |          |        |        |        |         |        | (2,393  | )     
|                                                      | Principal payments on capital lease obligations                                               |                                                                                     |                                                       | (604     | )      |          |        | (139    | )      |         |        |        |       
|                                                      |                                                                                               |                                                                                     |                                                       |          |        |          |        |         |        |         |        |        
|                                                      |                                                                                               |                                                                                     | Net cash provided by (used for) financing
	activities |          |        | 265,171  |        |         |        | 22,211  |        |         |        | (16,936 | )
|                                                      |                                                                                               |                                                                                     |                                                       |          |        |          |        |         |        |         |        |        
|Net increase (decrease) in cash and cash
	equivalents |                                                                                               |                                                                                     | 1,268                                                 |          |        |          | (3,630 | )       |        |         | 7,098  |        
|Cash and cash equivalents, beginning of period        |                                                                                               |                                                                                     | 5,379                                                 |          |        |          | 6,647  |         |        |         | 3,017  |        
|                                                      |                                                                                               |                                                                                     |                                                       |          |        |          |        |         |        |         |        |        
|Cash and cash equivalents, end of
	period             |                                                                                               | $                                                                                   | 6,647                                                 |          |        | $        | 3,017  |         |        | $       | 10,115 |        
|                                                      |                                                                                               |                                                                                     |                                                       |          |        |          |        |         |        |         |        |        
|Supplemental disclosure of cash flow information:     |                                                                                               |                                                                                     |                                                       |          |        |          |        |         |        |         |        |        
|                                                      | Cash paid for interest                                                                        |                                                                                     | $                                                     | 28,812   |        |          | $      | 32,181  |        |         | $      | 33,305  |       
|                                                      | Cash paid for (refund of) income taxes                                                        |                                                                                     | $                                                     | 190      |        |          | $      | (4,753  | )      |         | $      | 1,041   |       

The Company had a non-cash transaction in 1999
whereby the Company settled vendor invoices totaling $500,000
with 99,222 shares of common stock.

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

27



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##### Table of Contents



THE HOLMES GROUP, INC.

NOTES TO CONSOLIDATED FINANCIAL
STATEMENTS

1.     Nature of
Business

The Holmes Group, Inc. (THG), along with its
wholly-owned subsidiary, The Rival Company (Rival) and its
subsidiaries, acquired on February 5, 1999, 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, humidifiers and
kitchen electrics, mainly to THG. HPFEL operates facilities in
Hong Kong, Taiwan and The Peoples Republic of China.

HPFEL is a wholly-owned subsidiary of THG. Prior
to the recapitalization transaction described in Note 9,
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 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 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.

Translation of Foreign Currencies

The functional currency for the Companys
foreign operations is either the U.S. dollar or the
subsidiarys local currency. Assets and liabilities are
translated into U.S. dollars at exchange rates in effect at the
balance sheet date. Income, expense and cash flow items are
translated at average exchange rates for the period. Adjustments
resulting from the translation of foreign functional currency
financial statements into U.S. dollars are recorded in the
accumulated other comprehensive income component of stockholders
equity (deficit). Gains and losses resulting from remeasurement
of balances denominated in other than the local currency
totaling $792,000 in 2001 are included in other
(income) expense, net. Gains and losses in 2000 and 1999
were immaterial.

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.

Property and Equipment

Property and equipment are recorded at cost.
Depreciation is computed over the estimated useful lives of the
assets using the straight-line method. Repairs and maintenance
costs are expensed as incurred.

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##### Table of Contents



THE HOLMES GROUP, INC.


NOTES TO CONSOLIDATED FINANCIAL
STATEMENTS  (Continued)

Impairment of Long-Lived Assets

The Company reviews long-lived assets, including
goodwill, for impairment whenever events or changes in business
circumstances indicate that the carrying amount of the assets
may not be fully recoverable or that the useful lives of these
assets are no longer appropriate. Each impairment test is based
on a comparison of the undiscounted cash flows to the recorded
value of the asset. If an impairment is indicated, the asset is
written down to its estimated fair value on a discounted cash
flow basis.

Revenue Recognition

Sales are recorded net of returns from retail
customers. The Company adopted Staff Accounting Bulletin
No. 101 Revenue Recognition in Financial
Statements in 2000 with no material impact on the results
of operations or financial position of the Company. Revenue is
recognized upon transfer of title and risk of loss. Estimates
for returned goods and warranty costs are accrued at the time of
shipment. Revenues for shipping and handling are recorded as net
sales, while the associated costs are recorded in selling,
general and administrative expenses in the consolidated
statements of operations. The shipping costs included in
selling, general and administrative expenses were approximately
$11.4 million, $9.6 million and $10.3 million in
1999, 2000 and 2001, respectively.

Product Development

Research, engineering and product development
costs are expensed as incurred.

Cash and Cash Equivalents

All highly liquid debt instruments with original
maturities of three months or less are considered to be cash
equivalents. Such investments consist of a money market account.
Cash overdrafts are classified as accounts payable in the
consolidated balance sheets.

Advertising

Advertising costs are expensed as incurred. In
conjunction with transfers of inventory in 1998, the Company
received advertising credits totaling $2,352,000 to be used for
the purchase of advertising media, merchandise or services,
subject to certain limitations and cash co-payments. The credits
expire in February 2003. The remaining balance of these credits
approximated $2,346,000 and $2,322,000 at December 31, 2000
and December 31, 2001, respectively, which are reported as
prepaid expenses and other current assets and deposits and other
assets in the consolidated balance sheets. The Company is
currently evaluating several alternatives to use the remaining
barter credits before they expire. Additionally, the Company
offers co-operative advertising credits to certain customers.
These credits are expensed as earned. Total advertising expenses
in 1999, 2000, and 2001 were approximately $12,716,000,
$14,731,000 and $15,757,000, respectively, which are included in
selling expenses in the accompanying statements of operations.

Income Taxes

The Company utilizes the asset and liability
method of accounting for income taxes, as set forth in Statement
of Financial Accounting Standards (SFAS) No. 109,
Accounting for Income Taxes. SFAS 109 requires
recognition of deferred tax assets and liabilities for the
expected future tax consequences of temporary differences
between the financial statement carrying amounts of existing
assets and liabilities and their respective tax bases. Deferred
tax assets and liabilities are measured using enacted tax rates
in effect for the year in which those temporary differences are
expected to be recovered or settled.

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##### Table of Contents



THE HOLMES GROUP, INC.


NOTES TO CONSOLIDATED FINANCIAL
STATEMENTS  (Continued)

Joint Venture

In October 1998, the Company signed an agreement
with General Electric creating a limited liability company for
motor manufacturing, sales and distribution. The limited
liability company, GE Holmes Industries, is owned 49% by a
subsidiary of THG. The Companys portion of the joint
venture earnings were as follows (in thousands):

|     |  |              |       |                    |  |       |       |  |  |   |       | 
|---- |  | ------------ | ----- | ------------------ |  | ----- | ----- |  |  | - | ----- | 
|     |  |              |       | Recorded as        |  |      
|     |  | Recorded as  |       | Equity in Earnings |  |      
|     |  | Gross Profit |       | From Joint Venture |  | Total
|     |  |              |       |                    |  |      
|2001 |  | $            | 2,058 |                    |  | $     | 2,354 |  |  | $ | 4,412 | 
|2000 |  |              | 995   |                    |  |       | 611   |  |  |   | 1,606 | 
|1999 |  |              | 573   |                    |  |       | 902   |  |  |   | 1,475 | 

The Companys sales directly to the Joint
Venture were approximately $5.5 million, $11.9 million
and $17.1 million during the years ended December 31,
1999, 2000 and 2001, respectively. The Companys investment
in the joint venture is accounted for in the consolidated
financial statements using the equity method of accounting.
Under this method, the Companys share of the joint
ventures income or loss is included in the consolidated
statement of operations.

Comprehensive Income (Loss)

The Company accounts for comprehensive income in
accordance with Statement of Financial Accounting Standard
No. 130, Reporting Comprehensive Income
(FAS 130). As it relates to the Company, comprehensive
income is defined as net income plus the change in currency
translation adjustments and is presented in the consolidated
statement of comprehensive income (loss).

Use of Estimates

The preparation of financial statements in
conformity with generally accepted accounting principles
requires management to make estimates and assumptions that
affect the reported amounts of assets and liabilities and
disclosures of contingencies at December 31, 2000 and 2001,
and the reported amounts of revenues and expenses during the
periods presented. Actual results could differ from those
estimates.

Recent Accounting Pronouncements

In June 1998, the Financial Accounting Standards
Board (FASB) issued SFAS No. 133, Accounting for
Derivative Instruments and Hedging Activities (SFAS 133).
SFAS 133 establishes new standards of accounting and
reporting for derivative instruments and hedging activities.
SFAS 133 requires that all derivatives be recognized at
fair value in the balance sheet, and the corresponding gains and
losses be reported either in the statement of operations or as a
component of comprehensive income (loss), depending on the type
of hedging relationship that exists. We adopted SFAS 133
during 2001 and the impact was immaterial given our limited use
of derivatives.

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 Combination. 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.

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##### Table of Contents



THE HOLMES GROUP, INC.


NOTES TO CONSOLIDATED FINANCIAL
STATEMENTS  (Continued)

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

Application of the non-amortization provisions of
FAS 142 will result in an increase in net earnings of
approximately $2.5 million per year. In connection with the
adoption of FAS 142, the Company does not expect to record
reclassifications to its goodwill balance. FAS 142 requires
that goodwill be tested annually for impairment using a two-step
process. The first step is to identify a potential impairment
and, in transition, this step must be measured as of the
beginning of the fiscal year. Under the implementation
provisions of FAS 142, the Company has until June 30,
2002 to complete step one. The second step of the goodwill
impairment test measure the amount of the impairment loss, if
any, and must be completed as soon as possible but no later than
the end of fiscal 2002. The Company expects to complete both
steps of the goodwill impairment test during the second quarter
of 2002. Any impairment loss resulting from the transitional
impairment tests will be reflected as the cumulative effect of a
change in accounting principle as of January 1, 2002. Any
impairment loss recognized subsequent to the initial adoption of
FAS 142 will be recorded as a charge to current period
earnings.

As of December 31, 2001, 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. 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
adoption, if any.

In July 2001, the FASB issued Statement of
Financial Accounting Standards No. 143, Accounting
for Asset Retirement Obligations (FAS 143).
FAS 143 requires entities to record the fair value of a
liability for an asset retirement obligation in the period in
which it is incurred. When the liability is initially recorded,
the entity is required to capitalize the cost by increasing the
carrying amount of the related long-lived asset. Over time, the
liability is accreted to its present value each period, and the
capitalized cost is depreciated over the useful life of the
related asset. FAS 143 is effective for fiscal years
beginning after June 15, 2002 and will be adopted by the
Company effective fiscal 2003. The Company believes adoption of
this standard will not have a material effect on its
consolidated financial statements.

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

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THE HOLMES GROUP, INC.


NOTES TO CONSOLIDATED FINANCIAL
STATEMENTS  (Continued)

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 will adopt
the required accounting as of January 1, 2002. The Company
is currently evaluating the impact that this standard will have
on its co-operative advertising expense classification in the
Companys Consolidated Statements of Operations.

Reclassifications

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

3.     Acquisition

On February 5, 1999, THG completed its
acquisition of Rival for an aggregate of $279.6 million,
including $129.4 million cash paid in connection with a
tender offer for all of the outstanding shares of Common Stock
of The Rival Company (including payments to optionees),
$142.9 million to refinance Rivals outstanding debt
and $7.3 million in acquisition costs. The acquisition was
made utilizing cash on hand, borrowings under an amended and
restated Credit Facility entered into in connection with the
acquisition, the issuance of $31.3 million of senior
subordinated notes and proceeds of $50.0 million from the
sale of THGs common stock to investment funds affiliated
with THGs majority shareholder, certain members of
THGs management and to certain other co-investors. This
acquisition has been accounted for as a purchase, and the
results of operations of Rival have been included in the
consolidated financial statements since the date of acquisition.
The excess of purchase price over the fair value of net assets
acquired was approximately $87.2 million and
$88.7 million, before $7.4 million and
$4.9 million of accumulated amortization at
December 31, 2001 and 2000, respectively and is being
amortized on a straight-line basis over 35 years.

In connection with the acquisition, THG recorded
a restructuring reserve of $6.4 million as an assumed
liability in accordance with EITF 95-3, Recognition of
Liabilities in Connection with a Purchase Business
Combination(EITF 95-3). Management determined that
certain restructuring actions would be required to effectively
integrate the Rival operations into THG. These restructuring
actions were comprised primarily of the elimination of certain
overlapping positions within the management and support staff
layers of the combined company, relocation of key home
environment personnel from Kansas City, Missouri to Milford,
Massachusetts, consolidation of the Rival Hong Kong and
Canadian offices into other existing local offices, and closure
of the Warrensburg, Missouri manufacturing facility. These
actions resulted in the elimination of 216 Rival employees.
Severance for some of these employees was paid during fiscal
2001 and the remainder will be paid in 2002.

Exit costs related to these restructuring plans
are comprised primarily of lease exit costs for Canada and
Hong Kong and facility closure and exit costs related to
the Warrensburg facility. At December 31, 1999, the
Hong Kong consolidation was completed resulting in exit
costs of $0.1 million. The Montreal, Canada and Warrensburg
closures were completed during fiscal 2000. The Warrensburg
facility was sold during the first quarter of 2001 which
resulted in a gain of $559,000, classified as other income in
the consolidated statement of operations due to the current
period appreciation in the assets sold. Proceeds from the sale
were $1,965,000. The assets sold were classified as assets held
for sale in the consolidated balance sheet at December 31,
2000.

On June 28, 2001, the Company announced that
the Sedalia, Missouri manufacturing plant would be closed. The
activities of this plant will be moved to the other existing
plants in Clinton, Missouri and Jackson, Mississippi. As a
result, approximately 300 additional manufacturing, engineering
and office positions were

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THE HOLMES GROUP, INC.


NOTES TO CONSOLIDATED FINANCIAL
STATEMENTS  (Continued)

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 costs for these employees was paid during 2001 and
will continue into 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 has been shown as assets held for sale in the
consolidated balance sheet at December 31, 2001.
Additionally, wind down costs, which are expensed as incurred,
of approximately $550,000 have been classified as plant closing
costs in the consolidated statement of operations for the year
ended December 31, 2001.

The reserve activity for fiscal 2000 and 2001 is
as follows (in thousands):

|                                  |  |                  |        |             |  |               |      |   |  |   |        |  
|--------------------------------- |  | ---------------- | ------ | ----------- |  | ------------- | ---- | - |  | - | ------ | -
|                                  |  | Employee         |        | Facility    |  | Total        
|                                  |  | Severance and    |        | Exit and    |  | Accrued      
|                                  |  | Relocation Costs |        | Other Costs |  | Restructuring
|                                  |  |                  |        |             |  |              
|Balance at December 31, 1999      |  | $                | 4,217  |             |  | $             | 427  |   |  | $ | 4,644  |  
|Cash payments made fiscal 2000    |  |                  | (2,451 | )           |  |               |     |   |  |   | (2,451 | )
|Adjustments made fiscal 2000      |  |                  | (1,054 | )           |  |               | (194 | ) |  |   | (1,248 | )
|                                  |  |                  |        |             |  |               |      |   |  |   |        |  
|Balance at December 31, 2000      |  | $                | 712    |             |  | $             | 233  |   |  | $ | 945    |  
|Restructuring charges fiscal 2001 |  |                  | 727    |             |  |               | 467  |   |  |   | 1,194  |  
|Cash payments made fiscal 2001    |  |                  | (1,043 | )           |  |               | (417 | ) |  |   | (1,460 | )
|Adjustments made fiscal 2001      |  |                  |       |             |  |               | (233 | ) |  |   | (233   | )
|                                  |  |                  |        |             |  |               |      |   |  |   |        |  
|Balance at December 31, 2001      |  | $                | 396    |             |  | $             | 50   |   |  | $ | 446    |  

The adjustments made in fiscal 2000 and 2001
include a reduction of the original severance and relocation
amount and a reduction of the facility exit costs amount as part
of the closure of the Warrensburg, Missouri facility initially
recorded in accordance with EITF 95-3. Accordingly, these
adjustments were recorded as reductions of goodwill.

Prior to the acquisition by THG, Rival recorded
an $8.4 million restructuring charge relating to the
closing of three facilities. Each of these facilities was closed
during fiscal 1999. One of the properties was sold during June
1999 resulting in no gain or loss. Proceeds from the sale were
$1,519,000 net of selling expenses. A second property was sold
during September 1999 which also resulted in no gain or loss.
The proceeds from this sale were $1,165,000. The final property
was sold in April, 2000. Proceeds from this sale were $1,595,000
net of selling expenses and also resulted in no gain or loss.

Following the Rival acquisition, the Company
divested two of Rivals non-core business units. On
October 8, 1999, the Company sold the assets of
Rivals sump and utility pumps division for
$11.4 million. On December 21, 1999, the Company sold
the net assets of Rivals industrial and building supply
products businesses for proceeds of $11.9 million. As these
transactions were contemplated as of the original Rival
acquisition date, the net loss on these transactions of
$2.5 million was recorded as an increase in goodwill.

During 2001, the Company finalized the Rival
industrial and building supply products businesses divestiture.
Additional consideration of $1.2 million was also recorded
as a reduction of goodwill. Subsequent to December 31,
2001, the Company sold substantially all of the assets of its
Pollenex® division, a marketer of personal care products,
which was acquired as part of the Rival acquisition, for
approximately $15.1 million. The transaction will be
recorded during the first quarter of 2002 with the net proceeds
from the sale exceeding the net book value of the assets sold by
approximately $7.5 million. Additionally, in January 2002,
the Company announced the closing of the Sedalia, Missouri
distribution center. During the first quarter of 2002,

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THE HOLMES GROUP, INC.


NOTES TO CONSOLIDATED FINANCIAL
STATEMENTS  (Continued)

the Company will record nonrecurring charges of
approximately $1.5 million related to the closure of this
facility.

The following unaudited pro forma data summarizes
the Companys results of operations for the period
indicated as if the acquisition had been completed as of the
beginning of the period presented. These unaudited pro forma
results have been prepared for comparative purposes only and
include certain adjustments, such as increased interest expense
on acquisition debt and additional amortization expense as a
result of the goodwill. They do not purport to be indicative of
the results of operations that actually would have resulted had
the acquisitions been in effect on January 1, 1999, or of
future results of operations.

|                  |  |                   |         |  
|----------------- |  | ----------------- | ------- | -
|                  |  | Year Ended       
|                  |  | December 31, 1999
|                  |  |                  
|                  |  |                  
|                  |  | (Unaudited)      
|                  |  | (In thousands)   
|Net sales         |  | $                 | 529,890 |  
|Net income (loss) |  |                   | (6,465  | )



|   |                           
|-- | --------------------------
|4. | Related Party Transactions

The Company has retained Jordan Kahn Co., Inc.
(JKC), a corporation owned principally by a director
and stockholder of the Company, to serve as a sales
representative for the Company in the northeastern United
States. Pursuant to a representation agreement between the
Company and JKC, the Company has agreed to pay to JKC a
commission on net sales to JKCs customers in its
territory, which fee is the same fee paid by the Company to
other unaffiliated sales representative organizations
representing the Company in other territories throughout the
United States. Pursuant to this arrangement, the Company paid a
total of $287,000, $337,000, $215,000 to JKC for the years ended
December 31, 1999, 2000 and 2001, respectively.

In addition, the Company entered into a
consulting agreement with its new majority stockholder, to
provide management, financial, advisory and strategic support
and analysis. The agreement expires in November 2002, or earlier
if the stockholders ownership percentage declines to less
than 40% or less than the percentage owned by management of the
Company, taken as a group. Fees under this agreement were
$400,000 per year and increased to $500,000 per year as of
February 5, 1999, upon the Rival acquisition.

Effective May 7, 2001, Holmes agreed to pay
the Companys majority stockholder a guarantee fee of
$1.1 million as consideration for Berkshires
guarantee of up to $43.5 million of the obligations under
the Credit Facility. Payment of these fees is subordinated to
the Companys 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), on which portion such fee is 20% per annum,
compounded annually.

During the fourth quarter 2001, the
Companys majority stockholder purchased $36.2 million
aggregate principal amount of the Companys Senior
Subordinated Notes Due 2007 on the open market. The Company
repurchased these notes from the majority stockholder at the
majority stockholders cost plus accrued interest as part
of the Amended Credit Facility as fully described in Note 8.

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THE HOLMES GROUP, INC.


NOTES TO CONSOLIDATED FINANCIAL
STATEMENTS  (Continued)



|   |            
|-- | -----------
|5. | Inventories

Inventories are as follows:

|                |  |                |         |      |  |   |         |  
|--------------- |  | -------------- | ------- | ---- |  | - | ------- | -
|                |  |               
|                |  | December 31,  
|                |  |               
|                |  | 2000           |         | 2001
|                |  |                |         |     
|                |  |               
|                |  | (In thousands)
|Finished goods  |  | $              | 97,375  |      |  | $ | 80,212  |  
|Raw materials   |  |                | 25,322  |      |  |   | 17,142  |  
|Work-in-process |  |                | 7,977   |      |  |   | 6,041   |  
|                |  |                |         |      |  |   |         |  
|                |  |                | 130,674 |      |  |   | 103,395 |  
|LIFO allowance  |  |                | 376     |      |  |   | (200    | )
|                |  |                |         |      |  |   |         |  
|                |  | $              | 131,050 |      |  | $ | 103,195 |  
|                |  |                |         |      |  |   |         |  



|   |                       
|-- | ----------------------
|6. | Property and Equipment

Property and equipment are as follows:

|                                                  |  |                   |                          |                |  |      |         |  |  |   |         | 
|------------------------------------------------- |  | ----------------- | ------------------------ | -------------- |  | ---- | ------- |  |  | - | ------- | 
|                                                  |  |                   |                          |               
|                                                  |  |                   |                          | December 31,  
|                                                  |  |                   |                          |               
|                                                  |  | Depreciable Lives |                          | 2000           |  | 2001
|                                                  |  |                   |                          |                |  |     
|                                                  |  |                   |                          |               
|                                                  |  |                   |                          | (In thousands)
|Mold costs and tooling                            |  |                   | 1 1/2  5 years          |                |  | $    | 33,527  |  |  | $ | 37,011  | 
|Plant and machinery                               |  |                   | 7  10 years             |                |  |      | 38,155  |  |  |   | 39,662  | 
|Buildings and leasehold improvements              |  |                   | life of lease  40 years |                |  |      | 27,059  |  |  |   | 31,671  | 
|Equipment and computer equipment                  |  |                   | 5  7 years              |                |  |      | 6,862   |  |  |   | 6,049   | 
|Furniture and fixtures                            |  |                   | 5  10 years             |                |  |      | 6,223   |  |  |   | 5,880   | 
|Land                                              |  |                   | N/A                      |                |  |      | 712     |  |  |   | 712     | 
|Motor vehicles                                    |  |                   | 4  5 years              |                |  |      | 508     |  |  |   | 492     | 
|                                                  |  |                   |                          |                |  |      |         |  |  |   |         | 
|                                                  |  |                   |                          |                |  |      | 113,046 |  |  |   | 121,477 | 
|Less  accumulated depreciation and
	amortization |  |                   |                          |                |  |      | 45,464  |  |  |   | 52,381  | 
|                                                  |  |                   |                          |                |  |      |         |  |  |   |         | 
|                                                  |  |                   |                          |                |  | $    | 67,582  |  |  | $ | 69,096  | 
|                                                  |  |                   |                          |                |  |      |         |  |  |   |         | 



|   |                 
|-- | ----------------
|7. | Accrued Expenses

Accrued expenses are as follows:

|                             |  |                |        |      |  |   |        | 
|---------------------------- |  | -------------- | ------ | ---- |  | - | ------ | 
|                             |  |               
|                             |  | December 31,  
|                             |  |               
|                             |  | 2000           |        | 2001
|                             |  |                |        |     
|                             |  |               
|                             |  | (In thousands)
|Sales returns and allowances |  | $              | 8,279  |      |  | $ | 8,939  | 
|Payroll and bonuses          |  |                | 5,796  |      |  |   | 6,180  | 
|Interest payable             |  |                | 4,416  |      |  |   | 3,286  | 
|Advertising                  |  |                | 8,640  |      |  |   | 10,141 | 
|Other                        |  |                | 6,214  |      |  |   | 13,782 | 
|                             |  |                |        |      |  |   |        | 
|                             |  | $              | 33,345 |      |  | $ | 42,328 | 
|                             |  |                |        |      |  |   |        | 

35



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##### Table of Contents



THE HOLMES GROUP, INC.


NOTES TO CONSOLIDATED FINANCIAL
STATEMENTS  (Continued)



|   |               
|-- | --------------
|8. | Long-Term Debt

Senior Subordinated Notes

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

The Notes are subordinated to the Companys
other debt, including the Credit Facility (as described below).
The Notes are guaranteed by THGs current and future
domestic subsidiaries (see Note 17) 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. However, THG may redeem up to $43.3 million of
the Notes prior to such date at a price of 109.875% of face
value upon issuance of equity securities. 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.

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.

The Companys financial performance in the
fourth quarter of 2000 resulted in a default, as of
December 31, 2000, of certain financial ratio covenants in
the Credit Facility as previously amended. On May 7, 2001,
the Credit Facility was amended to waive the defaults, 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 the majority stockholder agreed to provide, 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 ration 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

36



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##### Table of Contents



THE HOLMES GROUP, INC.


NOTES TO CONSOLIDATED FINANCIAL
STATEMENTS  (Continued)

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.

As of December 31, 2000 and 2001, the
Companys availability was $18.7 million and
$63.7 million, respectively, net of outstanding letters of
credit totalling $4.3 million and $4.8 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.

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 plus accrued
interest on the Notes, was approximately $12.8 million,
which was funded with proceeds of the revolving credit
loan B. The Notes repurchased were retired and cancelled.
This will result in a gain in the first quarter of 2002. The
Company may consider repurchases of additional Notes in the
future, and we may utilize the proceeds of the Credit Facility
for this purpose.

The Credit Facility as amended, and the Notes
Indentures include certain financial and operating covenants,
which, among other things, restricted 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:

|                                                                                                                                           |  |                |         |              |  |   |         | 
|------------------------------------------------------------------------------------------------------------------------------------------ |  | -------------- | ------- | ------------ |  | - | ------- | 
|                                                                                                                                           |  | December 31,   |         | December 31,
|                                                                                                                                           |  | 2000           |         | 2001        
|                                                                                                                                           |  |                |         |             
|                                                                                                                                           |  |               
|                                                                                                                                           |  | (In thousands)
|Credit Facility, with a weighted average interest
	rate of 6.2% at December 31, 2001 and 10.1% at
	December 31, 2000, respectively         |  | $              | 232,425 |              |  | $ | 217,882 | 
|9 7/8% Senior Subordinated Notes, net of
	unamortized discount of $1.1 million at December 31,
	2000 and $1.0 million at December 31, 2001 |  |                | 135,186 |              |  |   | 135,298 | 
|                                                                                                                                           |  |                |         |              |  |   |         | 
|Total debt                                                                                                                                 |  |                | 367,611 |              |  |   | 353,180 | 
|Less current maturities                                                                                                                    |  |                | 7,250   |              |  |   | 8,476   | 
|                                                                                                                                           |  |                |         |              |  |   |         | 
|Long-term debt                                                                                                                             |  | $              | 360,361 |              |  | $ | 344,704 | 

Aggregate maturities of long-term debt are as
follows:

|                    |  |                |         | 
|------------------- |  | -------------- | ------- | 
|                    |  | December 31,  
|                    |  | 2001          
|                    |  |               
|                    |  | (In thousands)
|2002                |  | $              | 8,476   | 
|2003                |  |                | 9,078   | 
|2004                |  |                | 8,003   | 
|2005                |  |                | 40,750  | 
|2006                |  |                | 34,714  | 
|2007 and Thereafter |  |                | 252,159 | 

37



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##### Table of Contents



THE HOLMES GROUP, INC.


NOTES TO CONSOLIDATED FINANCIAL
STATEMENTS  (Continued)

Effective May 7, 1999 the Company entered
into an interest rate collar transaction agreement with its
primary lending bank. The interest rate collar consists of a cap
rate of 6.5% and a floor rate of 4.62%. The one-time premium
payment for the collar was $225,000 and the agreement terminates
March 31, 2002. Quarterly on the last business day of
March, June, September and December beginning September 30,
1999 if the LIBOR interest rate at the lending bank is greater
than the cap rate, the lending bank agrees to pay the Company a
notional amount as described in the agreement multiplied by the
number of days in that quarter over 365 days times the
difference between the LIBOR rate and the cap rate. If on the
other hand the LIBOR rate is less than the floor rate, the
Company would have to pay the lending bank based on the same
calculation. If the LIBOR rate is between the cap and floor
rate, no payments would be necessary by either party. The LIBOR
interest rate at December 31, 2000 and 2001 was 6.66% and
1.91%, respectively, therefore the Company owed approximately
$40,000 and $563,000 in the first quarter of 2001 and 2002,
respectively, to the lending bank.



|   |                     
|-- | --------------------
|9. | Stockholders Equity

Recapitalization

On November 26, 1997, the Company and its
stockholders consummated an agreement to perform the following:
(i) the stockholders of HPFEL contributed their shares of
common stock, $1 par value, to THG in exchange for
2,750,741 shares of THGs common stock, no par value,
(ii) THG issued 4,718,579 shares of its common stock to
outside investors and certain executive officers of the Company
for approximately $15.5 million, net of related issuance
costs, (iii) the Company repaid all amounts outstanding to
Pentland affiliates and repaid all amounts outstanding on the
Companys trade acceptances, including accrued interest,
and (iv) THG redeemed 18,620,450 shares of THG common stock
held by Pentland for approximately $62.1 million. In
connection with these transactions, THG issued
$105.0 million of 9 7/8% Senior Subordinated Notes due
in November 2007 and borrowed $27.5 million under a new
Line of Credit facility, both described in Note 8.

The transactions described above have been
accounted for as a leveraged recapitalization of the Company.
The Company has retained its historical cost basis of
accounting, due to the significant minority shareholders which
remained. The shares redeemed from Pentland have been recorded
as treasury stock, at cost.

Stock Option Plan

In connection with the recapitalization
transaction described above, THGs Board of Directors
adopted and the stockholders approved the 1997 Stock Option Plan
(the Plan). The Plan provides for the grant of incentive stock
options and non-qualified stock options to employees, officers,
directors, and consultants of the Companys, except that
incentive stock options may not be issued to consultants or
non-employee directors. A total of 1,563,020 shares of
THGs common stock were reserved for issuance under the
Plan. In order to provide for the Companys larger size and
the addition of Rivals employees following the
acquisition, the Option Plan was amended to increase the number
of shares available for grant to 4,260,978. In October of 2000,
the Plan was further amended to increase the number of shares
available for grant to 4,460,978. In October of 2001, the Plan
was again amended to increase the number of shares available for
grant to 5,960,978. The exercise price and period over which
options become exercisable will be determined by the Board of
Directors. However, the exercise price of incentive stock
options will be equal to at least 100% of the fair market value
of THGs common stock on the date of grant (110% for
individuals holding more than 10% of THGs common stock).
Options will expire no later than 10 years after date of grant
(5 years for individuals holding more than 10% of
THGs common stock). The Plan will expire in November 2006.

38



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##### Table of Contents



THE HOLMES GROUP, INC.


NOTES TO CONSOLIDATED FINANCIAL
STATEMENTS  (Continued)

The following summarizes stock option activity
under the plan:

|                                     |                        |        |           |                |   |          |              |              |  |   |      |      | 
|------------------------------------ | ---------------------- | ------ | --------- | -------------- | - | -------- | ------------ | ------------ |  | - | ---- | ---- | 
|                                     |                        |        |           |                |   | Weighted
|                                     |                        |        |           |                |   | Average 
|                                     |                        |        |           | Exercise Price |   | Exercise
|                                     |                        | Shares |           | Range          |   | Price   
|                                     |                        |        |           |                |   |         
|Outstanding as of December 31, 1998. |                        |        | 1,448,352 |                |   |          | $3.50        |              |  | $ | 3.50 |     
|                                     | Granted during 1999.   |        |           | 2,380,404      |   |          |              | $5.04        |  |   | $    | 5.04 | 
|                                     | Forfeited during 1999. |        |           | (161,670       | ) |          | $            | 3.50  $5.04 |  |   | $    | 4.48 | 
|                                     |                        |        |           |                |   |          |              |              |  |   |      |     
|Outstanding as of December 31, 1999. |                        |        | 3,667,086 |                |   | $        | 3.50  $5.04 |              |  | $ | 4.46 |     
|                                     | Granted during 2000.   |        |           | 843,550        |   |          |              | $5.04        |  |   | $    | 5.04 | 
|                                     | Forfeited during 2000. |        |           | (243,730       | ) |          | $            | 3.50  $5.04 |  |   | $    | 4.78 | 
|                                     |                        |        |           |                |   |          |              |              |  |   |      |     
|Outstanding as of December 31, 2000. |                        |        | 4,266,906 |                |   | $        | 3.50  $5.04 |              |  | $ | 4.55 |     
|                                     | Granted during 2001.   |        |           | 1,544,840      |   |          |              | $3.50        |  |   | $    | 3.50 | 
|                                     | Forfeited during 2001. |        |           | (169,750       | ) |          | $            | 3.50  $5.04 |  |   | $    | 4.70 | 
|                                     |                        |        |           |                |   |          |              |              |  |   |      |     
|Outstanding as of December 31, 2001. |                        |        | 5,641,996 |                |   | $        | 3.50  $5.04 |              |  | $ | 4.26 |     
|                                     |                        |        |           |                |   |          |              |              |  |   |      |     

As of December 31, 2001, options on
2,122,347 shares were exercisable at a weighted average price of
$4.36 and 318,983 options were available for future grants. No
options were exercised during the three year period ended
December 31, 2001.

The following table summarizes information about
the 1997 Plan stock options outstanding at December 31,
2001:

|          |      |                     |  |                     |           |          |  |                |     |          |  |   |      |  |  |  |           |  |  |   |      | 
|--------- | ---- | ------------------- |  | ------------------- | --------- | -------- |  | -------------- | --- | -------- |  | - | ---- |  |  |  | --------- |  |  | - | ---- | 
|          |      |                     |  |                     |           |         
|          |      | Options Outstanding |  |                    
|          |      |                     |  | Options Exercisable
|          |      |                     |  | Weighted            |           |          |  |               
|          |      | Number              |  | Average             |           | Weighted |  | Number         |     | Weighted
|Range of  |      | Outstanding at      |  | Remaining           |           | Average  |  | Exercisable at |     | Average 
|Exercises |      | December 31,        |  | Contractual         |           | Exercise |  | December 31,   |     | Exercise
|Prices    |      | 2001                |  | Life (Years)        |           | Price    |  | 2001           |     | Price   
|          |      |                     |  |                     |           |          |  |                |     |         
|$         | 3.50 |                     |  |                     | 2,855,392 |          |  |                | 8.2 |          |  | $ | 3.50 |  |  |  | 934,284   |  |  | $ | 3.50 | 
|$         | 5.04 |                     |  |                     | 2,786,604 |          |  |                | 7.5 |          |  | $ | 5.04 |  |  |  | 1,188,063 |  |  | $ | 5.04 | 
|          |      |                     |  |                     |           |          |  |                |     |          |  |   |      |  |  |  |           |  |  |   |      | 
|          |      |                     |  |                     | 5,641,996 |          |  |                |     |          |  | $ | 4.26 |  |  |  | 2,122,347 |  |  | $ | 4.36 | 
|          |      |                     |  |                     |           |          |  |                |     |          |  |   |      |  |  |  |           |  |  |   |      | 

Stock-Based Compensation

The Company accounts for stock-based compensation
using the method prescribed in Accounting Principles Board
Opinion No. 25 Accounting for Stock Issued to
Employees. All awards were granted with an exercise price
equal to the fair value of the Companys stock,
accordingly, no compensation cost has been recognized for the
Companys stock option plan. The Company has adopted the
disclosure-only provisions of Statement of Financial Accounting
Standards No. 123 Accounting for Stock-Based Compensation
(FAS 123). Had compensation cost been determined based on
fair value at the grant dates for awards in 1998, 1999 and 2000,
consistent with the provisions of FAS 123, the Companys
net income would have been reduced to the pro forma amounts
indicated below. The pro forma net income reflected below does
not include a tax benefit for 2000 or 2001 as a full valuation
allowance would have been provided against any such benefit.

|                                |  |                |       |      |  |      |         |   |  |   |         |  
|------------------------------- |  | -------------- | ----- | ---- |  | ---- | ------- | - |  | - | ------- | -
|                                |  | 1999           |       | 2000 |  | 2001
|                                |  |                |       |      |  |     
|                                |  |               
|                                |  | (In thousands)
|Net income (loss)  as reported |  | $              | 1,812 |      |  | $    | (32,170 | ) |  | $ | (15,555 | )
|Net income(loss)  pro forma    |  |                | 1,286 |      |  |      | (33,149 | ) |  |   | (16,641 | )

39



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##### Table of Contents



THE HOLMES GROUP, INC.


NOTES TO CONSOLIDATED FINANCIAL
STATEMENTS  (Continued)

The fair value of options granted at date of
grant was estimated using the Black-Sholes model with the
following assumptions:

|                                       |  |      |      |      |  |      |      |   |  |  |      |  
|-------------------------------------- |  | ---- | ---- | ---- |  | ---- | ---- | - |  |  | ---- | -
|                                       |  | 1999 |      | 2000 |  | 2001
|                                       |  |      |      |      |  |     
|Weighted average expected life (years) |  |      | 6.0  |      |  |      | 6.0  |   |  |  | 6.0  |  
|Weighted average interest rate         |  |      | 5.12 | %    |  |      | 6.17 | % |  |  | 4.39 | %

The weighted average grant date fair value of
options granted during 1999, 2000 and 2001 was $1.30, $1.54 and
$.80 per share, respectively.

Stockholders Agreement

All of the holders of THGs outstanding
stock are subject to stockholders agreements. These
agreements provide the Company with a right of first refusal on
any proposed sales of stock to outside parties.

Additionally, THG has certain rights to
repurchase shares of Common Stock and options from employees
upon their termination of employment.

10.     Income
Taxes

Deferred income taxes reflect the tax impact of
temporary differences between the amount of assets and
liabilities for financial reporting purposes and such amounts as
measured by tax laws and regulations. Under SFAS 109, the
benefit associated with future deductible temporary differences
and operating loss or credit carryforwards is recognized if it
is more likely than not that a benefit will be realized.
Deferred tax expense (benefit) represents the change in the
net deferred tax asset or liability balance.

Income tax expense (benefit) consists of the
following:

|          |         |                         |       |        |        |      |       |     |       |   |       |       |       | 
|--------- | ------- | ----------------------- | ----- | ------ | ------ | ---- | ----- | --- | ----- | - | ----- | ----- | ----- | 
|          |         |                        
|          |         | Year Ended December 31,
|          |         |                        
|          |         | 1999                    |       | 2000   |        | 2001
|          |         |                         |       |        |        |     
|          |         |                        
|          |         | (In thousands)         
|Current:  |         |                         |       |        |        |      |       |     |       |   |       |      
|          | Federal |                         | $     | (7,309 | )      |      | $     |    |       |   | $     |      |      
|          | State   |                         |       | 115    |        |      |       | 226 |       |   |       | 357   |      
|Foreign   |         |                         | 2,046 |        |        |      | 1,433 |     |       |   | 2,642 |      
|          |         |                         |       |        |        |      |       |     |       |   |       |      
|          |         | Total current           |       |        | (5,148 | )    |       |     | 1,659 |   |       |       | 2,999 | 
|          |         |                         |       |        |        |      |       |     |       |   |       |      
|Deferred: |         |                         |       |        |        |      |       |     |       |   |       |      
|          | Federal |                         | $     | 2,770  |        |      | $     |    |       |   | $     |      |      
|          | State   |                         |       | 92     |        |      |       |    |       |   |       |      |      
|          | Foreign |                         |       | 2,199  |        |      |       | 932 |       |   |       | 1,528 |      
|          |         |                         |       |        |        |      |       |     |       |   |       |      
|          |         | Total deferred          |       |        | 5,061  |      |       |     | 932   |   |       |       | 1,528 | 
|          |         |                         |       |        |        |      |       |     |       |   |       |      
|          |         | $                       | (87   | )      |        | $    | 2,591 |     |       | $ | 4,527 |      
|          |         |                         |       |        |        |      |       |     |       |   |       |      

40



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##### Table of Contents



THE HOLMES GROUP, INC.


NOTES TO CONSOLIDATED FINANCIAL
STATEMENTS  (Continued)

Pre-tax income (loss) is summarized as
follows:

|         |  |                         |         |      |  |      |         |   |  |   |         |  
|-------- |  | ----------------------- | ------- | ---- |  | ---- | ------- | - |  | - | ------- | -
|         |  |                        
|         |  | Year Ended December 31,
|         |  |                        
|         |  | 1999                    |         | 2000 |  | 2001
|         |  |                         |         |      |  |     
|         |  |                        
|         |  | (In thousands)         
|Domestic |  | $                       | (17,366 | )    |  | $    | (45,100 | ) |  | $ | (38,035 | )
|Foreign  |  |                         | 18,189  |      |  |      | 14,910  |   |  |   | 24,653  |  
|         |  |                         |         |      |  |      |         |   |  |   |         |  
|         |  | $                       | 823     |      |  | $    | (30,190 | ) |  | $ | (13,382 | )
|         |  |                         |         |      |  |      |         |   |  |   |         |  

The Companys effective tax rate varies from
the statutory U.S. federal tax rate as a result of the following:

|                                           |  |                         |        |      |  |      |       |    |  |  |       |   
|------------------------------------------ |  | ----------------------- | ------ | ---- |  | ---- | ----- | -- |  |  | ----- | --
|                                           |  |                        
|                                           |  | Year Ended December 31,
|                                           |  |                        
|                                           |  | 1999                    |        | 2000 |  | 2001
|                                           |  |                         |        |      |  |     
|Statutory U.S. federal tax rate            |  |                         | 35.0   | %    |  |      | (35.0 | )% |  |  | (35.0 | )%
|State taxes, net of federal tax benefit    |  |                         | (30.1  | )    |  |      | (6.6  | )  |  |  | (15.4 | ) 
|Foreign earnings taxed at different rates  |  |                         | (102.7 | )    |  |      | (10.0 | )  |  |  | (39.2 | ) 
|Valuation allowance on deferred tax assets |  |                         | 16.4   |      |  |      | 57.4  |    |  |  | 122.2 |   
|Goodwill amortization                      |  |                         | 41.2   |      |  |      | 2.7   |    |  |  | 6.6   |   
|Non-deductible expenses                    |  |                         | 3.8    |      |  |      |      |    |  |  | .6    |   
|Other                                      |  |                         | 31.4   |      |  |      | .3    |    |  |  |      |   
|                                           |  |                         |        |      |  |      |       |    |  |  |       |   
|Effective tax rate                         |  |                         | (5.0   | )%   |  |      | 8.8   | %  |  |  | 39.8  | % 
|                                           |  |                         |        |      |  |      |       |    |  |  |       |   

Deferred tax assets and deferred tax liabilities
are comprised of the following at December 31, 2000 and
2001:

|                          |                                  |                                                    |   |         |        |  |   |         |        | 
|------------------------- | -------------------------------- | -------------------------------------------------- | - | ------- | ------ |  | - | ------- | ------ | 
|                          |                                  |                                                   
|                          |                                  | December 31,                                      
|                          |                                  |                                                   
|                          |                                  | 2000                                               |   | 2001   
|                          |                                  |                                                    |   |        
|                          |                                  |                                                   
|                          |                                  | (In thousands)                                    
|Deferred tax assets:      |                                  |                                                    |   |         |        |  |   |        
|                          | Net operating losses             |                                                    | $ | 21,122  |        |  | $ | 29,001  |       
|                          | Contribution carryover           |                                                    |   | 38      |        |  |   | 54      |       
|                          | Accrued expenses                 |                                                    |   | 3,097   |        |  |   | 6,116   |       
|                          | Inventory                        |                                                    |   | 2,303   |        |  |   |        |       
|                          | Interest limitation carryforward |                                                    |   | 964     |        |  |   | 964     |       
|                          | Accounts receivable              |                                                    |   | 9,325   |        |  |   | 12,985  |       
|                          |                                  |                                                    |   |         |        |  |   |        
|                          |                                  | Gross deferred tax assets                          |   |         | 36,849 |  |   |         | 49,120 | 
|Deferred tax liabilities: |                                  |                                                    |   |         |        |  |   |        
|                          | Inventory                        |                                                    |   |        |        |  |   | (2,082  | )     
|                          | Intangibles                      |                                                    |   | (127    | )      |  |   | (140    | )     
|                          | Property and equipment           |                                                    |   | (6,991  | )      |  |   | (5,940  | )     
|                          | Employee pension plan            |                                                    |   | (1,169  | )      |  |   | (838    | )     
|                          |                                  |                                                    |   |         |        |  |   |        
|                          |                                  | Net deferred tax assets before valuation allowance |   |         | 28,562 |  |   |         | 40,120 | 
|                          | Valuation allowance              |                                                    |   | (18,541 | )      |  |   | (32,431 | )     
|                          |                                  |                                                    |   |         |        |  |   |        
|                          | Net deferred tax assets          |                                                    | $ | 10,021  |        |  | $ | 7,689   |       
|                          |                                  |                                                    |   |         |        |  |   |        

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##### Table of Contents



THE HOLMES GROUP, INC.


NOTES TO CONSOLIDATED FINANCIAL
STATEMENTS  (Continued)

As of December 31, 2001, the Company had
gross net operating loss carryforwards for federal and state
income tax purposes of approximately $65.9 million expiring
between 2004 and 2021. The Company has increased its valuation
allowance from $18,541,000 to $32,431,000 primarily related to
the realizability of federal and state net operating loss
carryforwards generated in the current year. The Company has
recorded the balance of the deferred tax asset in the belief
that it is more likely than not that it will be realized. The
utilization of the net operating loss carryforwards may also be
further limited in the event of a change of ownership as defined
under Internal Revenue Code Section 382.

In general, no provision has been recorded for
U.S. or additional foreign taxes on undistributed earnings of
foreign subsidiaries, as it is managements intention that
these earnings will continue to be reinvested. Total
undistributed earnings of foreign subsidiaries as of
December 31, 2001 are approximately $76.2 million.

11.     Leases

The Company has various noncancellable operating
leases for facilities, vehicles and office equipment that expire
at various dates through 2015. Certain of these leases contain
options for renewal or purchase of the underlying asset. Rent
expense was approximately $7,052,000, $7,575,000 and $9,300,000
in 1999, 2000 and 2001, respectively.

The Company signed a 15 year lease agreement
for its new corporate headquarters facility and distribution
center on January 7, 2000. Construction was completed and
the Company moved in February 2001. The lease payments commenced
September 1, 2000 for a portion of the facility and
December 1, 2000 for the full facility. Yearly lease
payments of $2,398,915 increase every three years by a factor of
up to 6.75%.

At December 31, 2001, future minimum rental
payments under noncancellable lease arrangements are as
follow(in thousands):

|                    |  |           |        | 
|------------------- |  | --------- | ------ | 
|                    |  | Operating
|                    |  | Leases   
|                    |  |          
|2002                |  | $         | 6,702  | 
|2003                |  |           | 5,750  | 
|2004                |  |           | 5,479  | 
|2005                |  |           | 4,838  | 
|2006 and thereafter |  |           | 31,036 | 
|                    |  |           |        | 
|                    |  | $         | 53,805 | 
|                    |  |           |        | 

12.     Employee
Benefit Plans

THG provides its employees with two defined
contribution retirement plans under section 401(k) of the
Internal Revenue Code. The first plan is The Holmes Group 401K
Plan  Plant Employees. This plan is for all
U.S. plant employees (except Jackson, Mississippi). Plant
employees are eligible to contribute up to 15% of their
compensation, which is then invested in one or more investment
funds. Holmes matches 50% of the contribution per year for
employees who work 1000 hours in the year and are employed
as of year end.

The second plan is The Holmes Group Savings and
Investment Plan. This plan is for all salaried, hourly and
clerical workers not working in the plants. Employees are
eligible to contribute up to 25% of their compensation, which is
then invested in one or more investment funds. The Company does
not match in this plan.

HPFEL provides its Hong Kong based employees with
a defined contribution retirement plan. All Hong Kong based
employees of HPFEL and Esteem Industries Ltd. may contribute 5%
of their compensation, with the Company contributing an
additional 5% to 7 1/2% of an employees compensation.

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THE HOLMES GROUP, INC.


NOTES TO CONSOLIDATED FINANCIAL
STATEMENTS  (Continued)

The Companys contributions to these plans
approximated $542,000, $298,000 and $261,000 in 1999, 2000 and
2001, respectively.

As part of the acquisition as described in Note
3, THG acquired three Rival Company defined benefit pension
plans: The Rival Company Jackson Plant Employees
Retirement Plan, The Rival Manufacturing Company Clinton Plant
Employees Retirement Plan, and The Rival Company Plan for
Sales, Administrative and Clerical Employees (SAC plan).
Benefits for plant employees are primarily based on years of
service. Sales, administrative and clerical employees receive a
retirement benefit based on final pay at retirement and years of
service.

During the first quarter of fiscal 2000, the SAC
plan was amended and restated to allow the vesting of benefits
for certain plan participants under a cash balance plan formula.
All employees who were aged 50 with 5 years of credited
service on February 28, 2000 were grandfathered under the
old plan formula. The new plan was renamed The Holmes Group
Retirement Benefit Accumulation Plan. Effective
December 30, 2000, The Rival Company Jackson Plant
Employees Retirement Plan and The Rival Manufacturing
Company Clinton Plant Employees Retirement Plan were
merged into the Holmes Group Retirement Benefit Accumulation
Plan, but retained their respective benefit formulas. All
benefits under the Plan are noncontributory. The Companys
funding policy, is consistent with the funding requirements
under ERISA and the Internal Revenue Code.

During 2001, the Company recognized $487,000 of
expense in accordance with the provisions of Financial
Accounting Standard Board Standard No. 88,
Employers Accounting for Settlements and
Curtailments of Defined Benefit Pension Plans and for
Termination Benefits (FAS 88). Included in the 2001
FAS 88 expense is a charge for contractual termination
benefits of $235,000 offset by a curtailment gain of $220,000
primarily due to Companys restructuring actions (see
Note 3). In addition, a FAS 88 charge for a partial
plan settlement of $472,000 has been recognized due to the level
of lump sum benefits paid to employees during 2001.

Information concerning the Companys pension
and other postretirement benefit plans is as follows (in
thousands):

|                                        |  |                   |        |              |  |   |        |  
|--------------------------------------- |  | ----------------- | ------ | ------------ |  | - | ------ | -
|                                        |  |                  
|                                        |  | Fiscal Year Ended
|                                        |  |                  
|                                        |  | December 31,      |        | December 31,
|                                        |  | 2000              |        | 2001        
|                                        |  |                   |        |             
|                                        |  |                  
|                                        |  | (In thousands)   
|Change in Benefit Obligation            |  |                   |        |              |  |   |        |  
|Benefit obligation at beginning of year |  | $                 | 15,421 |              |  | $ | 13,567 |  
|Service cost                            |  |                   | 563    |              |  |   | 991    |  
|Interest cost                           |  |                   | 932    |              |  |   | 1,062  |  
|Amendments                              |  |                   | (1,190 | )            |  |   | 74     |  
|Actuarial (gain)loss                    |  |                   | (821   | )            |  |   | 2,042  |  
|Curtailment                             |  |                   | (195   | )            |  |   |       |  
|Special Termination Benefit             |  |                   |       |              |  |   | 235    |  
|Settlements                             |  |                   |       |              |  |   | (2,113 | )
|Benefits paid                           |  |                   | (1,143 | )            |  |   | (675   | )
|                                        |  |                   |        |              |  |   |        |  
|Benefit obligation at end of year       |  | $                 | 13,567 |              |  | $ | 15,183 |  
|                                        |  |                   |        |              |  |   |        |  

43



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THE HOLMES GROUP, INC.


NOTES TO CONSOLIDATED FINANCIAL
STATEMENTS  (Continued)

|                                                  |  |                   |        |              |  |   |        |  
|------------------------------------------------- |  | ----------------- | ------ | ------------ |  | - | ------ | -
|                                                  |  |                  
|                                                  |  | Fiscal Year Ended
|                                                  |  |                  
|                                                  |  | December 31,      |        | December 31,
|                                                  |  | 2000              |        | 2001        
|                                                  |  |                   |        |             
|                                                  |  |                  
|                                                  |  | (In thousands)   
|Change in Plan Assets                             |  |                   |        |              |  |   |        |  
|Fair value of plan assets at beginning of year    |  | $                 | 16,939 |              |  | $ | 17,349 |  
|Actual return on plan assets                      |  |                   | 1,132  |              |  |   | 295    |  
|Employer contribution                             |  |                   | 421    |              |  |   | 142    |  
|Settlements                                       |  |                   |       |              |  |   | (2,113 | )
|Benefits paid                                     |  |                   | (1,143 | )            |  |   | (675   | )
|                                                  |  |                   |        |              |  |   |        |  
|Fair value of plan assets at end of year          |  | $                 | 17,349 |              |  | $ | 14,998 |  
|                                                  |  |                   |        |              |  |   |        |  
|Funded status                                     |  |                   | 3,782  |              |  |   | (185   | )
|Unrecognized prior service cost                   |  |                   | (1,006 | )            |  |   | (654   | )
|Unrecognized net actuarial loss                   |  |                   | 333    |              |  |   | 3,067  |  
|                                                  |  |                   |        |              |  |   |        |  
|Prepaid benefit cost                              |  | $                 | 3,109  |              |  | $ | 2,228  |  
|                                                  |  |                   |        |              |  |   |        |  
|Weighted-Average Assumptions                      |  |                   |        |              |  |   |        |  
|Discount rate                                     |  |                   | 7.50   | %            |  |   | 7.00   | %
|Expected return on plan assets                    |  |                   | 9.00   | %            |  |   | 9.00   | %
|Rate of compensation increase                     |  |                   | 4.50   | %            |  |   | 4.50   | %
|Components of Net Periodic Pension Cost
	(Income) |  |                   |        |              |  |   |        |  
|Service cost                                      |  | $                 | 563    |              |  | $ | 991    |  
|Interest cost                                     |  |                   | 932    |              |  |   | 1,062  |  
|Expected return on plan assets                    |  |                   | (1,514 | )            |  |   | (1,496 | )
|Amortization of prior service cost                |  |                   | (69    | )            |  |   | (58    | )
|Amortization of net actuarial (gain)/loss         |  |                   | (24    | )            |  |   | 35     |  
|                                                  |  |                   |        |              |  |   |        |  
|Net periodic pension cost (income)                |  | $                 | (112   | )            |  | $ | 534    |  
|                                                  |  |                   |        |              |  |   |        |  
|FAS 88 expense (income)                           |  | $                 | (308   | )            |  | $ | 487    |  

13.     Business and
Credit Concentrations and Business Segments

Business and Credit Concentrations

THG sells its products to retailers throughout
the United States, Canada, Mexico and Europe. Two customers
accounted for approximately 27% and 11%, respectively, of total
sales in 1999 and approximately 26% and 10%, of total sales in
2000, respectively. Three customers accounted for approximately
32%, 12% and 10%, respectively, of total sales in 2001. Accounts
receivable due from the three largest customers amounted to 33%
and 53% of total accounts receivable at December 31, 2000
and 2001, respectively.

Certain of THGs retail customers have filed
for bankruptcy protection during 2000 and 2001. Management
monitors and evaluates the credit status of its customers, and
adjusts sales terms as appropriate. The Company maintains
reserves for potential credit losses based on managements
estimates of the creditworthiness of its customers. Should
conditions warrant, the Company may need to increase these
reserves, which may have an adverse impact on the Companys
earnings. THG has also entered into an agreement with an
insurance company to insure THGs receivables from certain
pre-determined customers, up to specified limits, if the
customer defaults on payment. In exchange, THG pays a
semi-annual fee.

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THE HOLMES GROUP, INC.


NOTES TO CONSOLIDATED FINANCIAL
STATEMENTS  (Continued)

Management does not believe that the Company is
subject to any other unusual risks beyond the normal credit risk
attendant to operating their business.

On January 22, 2002, Kmart Corporation, a
significant customer of the Company, filed a petition for
voluntary bankruptcy under Chapter 11 of the U.S.
Bankruptcy Code. Management has estimated and recorded an
allowance for doubtful accounts of approximately
$14.1 million related to the accounts receivable balances
due from Kmart Corporation at December 31, 2001, which were
uninsured and remained uncollected at January 22, 2002.

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 and is 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.

The other category represents the divested
industrial and building supply businesses that were considered a
separate segment prior to 2000. The 2000 amounts represent the
final shipments under supply agreements

45



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THE HOLMES GROUP, INC.


NOTES TO CONSOLIDATED FINANCIAL
STATEMENTS  (Continued)

with the purchasers of these businesses. Segment
information (in thousands) is as follows for the three years
ended December 31, 2001:

|                              |  |  |      |          |  |          |         |               |  |       |         |              |  |              |        |   |  |   |        |   |  |   |          |   |  |   |         |  
|----------------------------- |  |  | ---- | -------- |  | -------- | ------- | ------------- |  | ----- | ------- | ------------ |  | ------------ | ------ | - |  | - | ------ | - |  | - | -------- | - |  | - | ------- | -
|                              |  |  |      | Consumer |  |          |         |               |  |       |         |              |  | Consolidated
|                              |  |  |      | Durables |  | Far East |         | International |  | Other |         | Eliminations |  | Totals      
|                              |  |  |      |          |  |          |         |               |  |       |         |              |  |             
|Net sales to customers        |  |  | 2001 |          |  | $        | 552,297 |               |  | $     | 21,862  |              |  | $            | 53,840 |   |  |   |       |   |  |   |         |   |  | $ | 627,999 |  
|                              |  |  | 2000 |          |  |          | 449,378 |               |  |       | 14,427  |              |  |              | 45,717 |   |  | $ | 3,727  |   |  |   |         |   |  |   | 513,249 |  
|                              |  |  | 1999 |          |  |          | 437,297 |               |  |       | 6,566   |              |  |              | 38,953 |   |  |   | 24,671 |   |  |   |         |   |  |   | 507,487 |  
|Intersegment net sales        |  |  | 2001 |          |  |          |        |               |  |       | 290,162 |              |  |              |       |   |  |   |       |   |  | $ | (290,162 | ) |  |   |        |  
|                              |  |  | 2000 |          |  |          |        |               |  |       | 219,558 |              |  |              |       |   |  |   |       |   |  |   | (219,558 | ) |  |   |        |  
|                              |  |  | 1999 |          |  |          |        |               |  |       | 154,501 |              |  |              |       |   |  |   |       |   |  |   | (154,501 | ) |  |   |        |  
|Depreciation and amortization |  |  | 2001 |          |  |          | 8,728   |               |  |       | 7,292   |              |  |              | 160    |   |  |   |       |   |  |   |         |   |  |   | 16,180  |  
|                              |  |  | 2000 |          |  |          | 8,660   |               |  |       | 6,818   |              |  |              | 259    |   |  |   |       |   |  |   |         |   |  |   | 15,737  |  
|                              |  |  | 1999 |          |  |          | 8,432   |               |  |       | 4,764   |              |  |              | 170    |   |  |   | 1,767  |   |  |   |         |   |  |   | 15,133  |  
|Net interest expense (income) |  |  | 2001 |          |  |          | 37,940  |               |  |       | (40     | )            |  |              |       |   |  |   |       |   |  |   |         |   |  |   | 37,900  |  
|                              |  |  | 2000 |          |  |          | 38,650  |               |  |       | (100    | )            |  |              |       |   |  |   |       |   |  |   |         |   |  |   | 38,550  |  
|                              |  |  | 1999 |          |  |          | 33,489  |               |  |       | (25     | )            |  |              |       |   |  |   | 8      |   |  |   |         |   |  |   | 33,472  |  
|Other operating costs         |  |  | 2001 |          |  |          | 540,872 |               |  |       | 286,211 |              |  |              | 52,893 |   |  |   |       |   |  |   | (290,502 | ) |  |   | 589,474 |  
|                              |  |  | 2000 |          |  |          | 443,964 |               |  |       | 211,918 |              |  |              | 47,288 |   |  |   | 6,541  |   |  |   | (218,579 | ) |  |   | 491,132 |  
|                              |  |  | 1999 |          |  |          | 402,541 |               |  |       | 144,678 |              |  |              | 36,240 |   |  |   | 27,802 |   |  |   | (154,191 | ) |  |   | 457,070 |  
|Segment income (loss)         |  |  | 2001 |          |  |          | (35,243 | )             |  |       | 18,561  |              |  |              | 787    |   |  |   |       |   |  |   | 340      |   |  |   | (15,555 | )
|                              |  |  | 2000 |          |  |          | (41,896 | )             |  |       | 15,349  |              |  |              | (1,830 | ) |  |   | (2,814 | ) |  |   | (979     | ) |  |   | (32,170 | )
|                              |  |  | 1999 |          |  |          | (7,165  | )             |  |       | 11,650  |              |  |              | 2,543  |   |  |   | (4,906 | ) |  |   | (310     | ) |  |   | 1,812   |  
|Segment assets                |  |  | 2001 |          |  |          | 615,759 |               |  |       | 126,130 |              |  |              | 38,148 |   |  |   |       |   |  |   | (336,442 | ) |  |   | 443,595 |  
|                              |  |  | 2000 |          |  |          | 635,566 |               |  |       | 87,861  |              |  |              | 33,786 |   |  |   |       |   |  |   | (303,344 | ) |  |   | 453,869 |  
|                              |  |  | 1999 |          |  |          | 656,448 |               |  |       | 63,828  |              |  |              | 29,620 |   |  |   | 5,624  |   |  |   | (299,024 | ) |  |   | 456,496 |  
|Segment capital expenditures  |  |  | 2001 |          |  |          | 6,769   |               |  |       | 10,203  |              |  |              | 48     |   |  |   |       |   |  |   |         |   |  |   | 17,020  |  
|                              |  |  | 2000 |          |  |          | 10,571  |               |  |       | 17,263  |              |  |              | 507    |   |  |   |       |   |  |   |         |   |  |   | 28,341  |  
|                              |  |  | 1999 |          |  |          | 4,212   |               |  |       | 12,534  |              |  |              | 240    |   |  |   | 628    |   |  |   |         |   |  |   | 17,614  |  

The accounting policies of the reportable
segments are the same as those described in Note 2 of the
Notes to Consolidated Financial Statements. The results are
disaggregated using a management approach, which is consistent
with the manner in which the Companys management
internally disaggregates financial information for the purposes
of assisting in making internal operational decisions.

Other operating costs include: cost of sales,
operating expenses, other (income) expense, net, equity in
earnings from joint venture and income taxes.

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

|                   |                               |               |   |          |  |            |   |              |  |  |   |        |  |  |   |         | 
|------------------ | ----------------------------- | ------------- | - | -------- |  | ---------- | - | ------------ |  |  | - | ------ |  |  | - | ------- | 
|                   |                               |               |   |          |  | Canada     |   | Consolidated
|                   |                               | United States |   | Far East |  | and Europe |   | Total       
|                   |                               |               |   |          |  |            |   |             
|Net sales:         |                               |               |   |          |  |            |   |              |  |  |   |        |  |  |   |        
|                   | Year ended December 31, 1999. |               | $ | 461,968  |  |            | $ | 6,566        |  |  | $ | 38,953 |  |  | $ | 507,487 | 
|                   | Year ended December 31, 2000. |               |   | 453,105  |  |            |   | 14,427       |  |  |   | 45,717 |  |  |   | 513,249 | 
|                   | Year ended December 31, 2001. |               |   | 552,297  |  |            |   | 21,862       |  |  |   | 53,840 |  |  |   | 627,999 | 
|Long-lived assets: |                               |               |   |          |  |            |   |              |  |  |   |        |  |  |   |        
|                   | December 31, 2000.            |               |   | 43,627   |  |            |   | 30,654       |  |  |   | 775    |  |  |   | 75,056  | 
|                   | 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.

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THE HOLMES GROUP, INC.


NOTES TO CONSOLIDATED FINANCIAL
STATEMENTS  (Continued)

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 excluded from the above table and are
eliminated in consolidation. The remaining Far East sales are to
unrelated third parties.

14.     Commitments
and Contingencies

THG is a party to several agreements to license
certain technologies and products. These license agreements
generally provide for royalties based on sales of the related
products by THG. Such royalties have not been material to date.

In July 2001, THG entered into an exclusive
license and supply agreement for certain chemical additives
expiring December 31, 2002. The agreement stipulates that
THG has an annual minimum purchase obligation under this
agreement of $156,000 for the time period July 1, 2001 to
June 30, 2002 and $50,000 for the six months ended
December 31, 2002.

In June 2000, THG entered into a trademark
agreement that provides for annual minimum royalties for use of
a licensed mark expiring June 30, 2003. The annual minimum
royalties are on selected products sold by THG. The minimum
royalties for the agreement years ended June 30, 2001, 2002
and 2003 are $179,000, $282,000 and $401,000, respectively, and
are payable on a quarterly basis.

At December 31, 2001, the Company had
commitments outstanding for capital expenditures under purchase
orders and contracts of approximately $13.5 million.

The Company is involved in litigation and is the
subject of claims arising in the normal course of its business.
HPFEL has a contingent liability related to potential
withholding taxes (and the surcharges thereon) on rent paid to
the spouse of one of the directors. Although the individual has
accepted responsibility for the payment of these taxes, the
Company would be accountable for these tax payments in the event
that the individual did not fulfill this obligation. In the
opinion of management, based upon discussions with legal
counsel, no existing litigation or claims will have a materially
adverse effect on the Companys financial position or
results of operations and cash flows.

The Company entered into employment and
non-competition agreements with its senior executives in
November 1997, the original terms of which expired on
December 31, 2001, but which are automatically renewable
for additional annual periods. These agreements provide that if
employment is terminated without cause, the employees will
receive severance payments of their respective salaries for
12 months.

Effective August 1, 2001, the Company
entered into an employment and non-competition agreement with
Peter J. Martin, for an initial term expiring on
December 31, 2002, subject to additional annual renewal
periods. This agreement provides that if Mr. Martins
employment is terminated by Holmes without cause or by
Mr. Martin for good reason (as defined therein),
Mr. Martin will receive severance payments of up to
18 months salary, as well as a pro-rated bonus
payment and certain other benefits.

On July 24, 2001, the Company agreed to
modify Mr. Rosenzweigs employment arrangements as
then in effect, to provide for additional protection in the
event of termination of employment without cause, waiver of the
Companys right to repurchase his shares of common stock
and stock options, and continued service as a director, among
other things. On September 19, 2001, the Company further
agreed to accelerate the vesting of all of
Mr. Rosenzweigs stock options upon a termination of
employment, and to extend the post-termination exercise period
for the full duration of the option term.

Effective February 1, 2002, the Company
entered into an amended employment and non-competition agreement
with Jordan A. Kahn for a term expiring on January 31,
2003. Under this agreement Mr. Kahns stock and stock
options will be treated substantially the same as those of
Mr. Rosenzweig as described above. The agreement provides
that upon termination without cause, non-renewal of the
agreement, death or

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THE HOLMES GROUP, INC.


NOTES TO CONSOLIDATED FINANCIAL
STATEMENTS  (Continued)

disability, Mr. Kahn will receive a lump-sum
severance of $375,000 plus 25% of his base salary, as well as a
pro-rated bonus payment and certain other benefits. The lump-sum
severance payment, but not the other benefits, would be payable
in the event of termination for cause.

15.     Distribution
of Profit

Amounts that can be distributed by HPFELs
subsidiaries in China are based on the financial regulations of
China, which differ from accounting principles generally
accepted in the United States.

HPFELs two Chinese operating subsidiaries,
Dongguan Huixin Electrical Products Company, Ltd. and Dongguan
Raider Motor Corp. Ltd., are deemed to be wholly owned foreign
enterprises and, as such, Chinese laws and regulations require
these companies to transfer a certain portion of after-tax
profit each year to a reserve fund and an employee bonus and
welfare fund.

The amount transferred to the reserve fund must
be at least 10% of the after-tax profit each year, determined in
accordance with the financial regulations of China, up to a
cumulative maximum of 50% of the entitys registered
capital stock. As the Company has contributed the statutory
maximum to the reserve fund, no contributions were paid in 1999,
2000 or 2001. Transfers to the staff welfare fund is voluntary
and are determined by the Companys management. No
transfers were made to the employee staff welfare fund in 2001,
2000 or 1999.

The retained earnings of these companies,
including earnings attributable to the former minority
stockholders, on the basis of accounting principles generally
accepted in the United States, are as follows (in thousands):

|                                                   |  |      |        |      |  |   |        | 
|-------------------------------------------------- |  | ---- | ------ | ---- |  | - | ------ | 
|                                                   |  | 2000 |        | 2001
|                                                   |  |      |        |     
|Dongguan Raider Motor Corp. Ltd.                   |  | $    | 10,449 |      |  | $ | 11,261 | 
|Dongguan Huixin Electrical Products Company,
	Ltd. |  |      | 8,872  |      |  |   | 13,386 | 

The currency of China, the renminbi, is not
freely convertible and the ability of these subsidiaries to
remit retained earnings to the parent company is dependent on
their ability to generate foreign currency denominated earnings
or to obtain government approval for the purchase of foreign
currency.

16.     Financial
Instruments

The Company enters into various types of
financial instruments in the normal course of business. Fair
values are estimated based on assumptions concerning the amount
and timing of estimated future cash flows and assumed discount
rates reflecting varying degrees of perceived risk. Accordingly,
the fair values may not represent actual values of the financial
instruments that could have been realized as of year end or that
will be realized in the future.

Fair values for cash and cash equivalents,
accounts receivable, other receivables, income taxes receivable,
accounts payable, accrued expenses, accrued income taxes and
capital lease obligations approximate their carrying values at
December 31, 2000 and 2001, due to their relatively short
maturity. The fair values of the Companys Credit Facility
approximate its carrying values at December 31, 2001
because the interest rates on these borrowings approximate
current market rates. The fair value of the Companys Notes
are approximately 40% of their carrying value, based on the
repurchases of the Notes by the Companys majority
stockholder as described in Note 4.

17.     Condensed
Consolidating Information

The senior subordinated notes described in Note 8
were issued by THG and are guaranteed by Rival and its three
domestic subsidiaries and Holmes Manufacturing Corp.
(Manufacturing), Holmes Motor Corp.

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THE HOLMES GROUP, INC.


NOTES TO CONSOLIDATED FINANCIAL
STATEMENTS  (Continued)

(Motor) and Holmes Air (Taiwan) Corp. (Taiwan),
but are not guaranteed by THGs other subsidiaries, HPFEL
and Holmes Air (Canada) Corp. (Canada), 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, Canada, Bionaire
International B.V., The Rival Company of 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, or between HPFEL and
Canada, during any of the periods presented. Taiwan had no
revenues or operations during the periods presented, and
Manufacturing ceased operations in March 1997. As further
described in Note 15, certain of HPFELs subsidiaries
in China have restrictions on distributions to their parent
companies.

49



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##### Table of Contents



THE HOLMES GROUP, INC.


NOTES TO CONSOLIDATED FINANCIAL
STATEMENTS  (Continued)

CONSOLIDATING BALANCE SHEET

|                                                |                                           |                           |                                      |              |         |               |         |              |         |              |         |        |        |        |          |          |          |         |         |         |         |       | 
|----------------------------------------------- | ----------------------------------------- | ------------------------- | ------------------------------------ | ------------ | ------- | ------------- | ------- | ------------ | ------- | ------------ | ------- | ------ | ------ | ------ | -------- | -------- | -------- | ------- | ------- | ------- | ------- | ----- | 
|                                                |                                           |                          
|                                                |                                           | December 31, 2000        
|                                                |                                           |                          
|                                                |                                           |                           |                                      | Guarantor    |         | Non-Guarantor |         |             
|                                                |                                           | Parent                    |                                      | Subsidiaries |         | Subsidiaries  |         | Eliminations |         | Consolidated
|                                                |                                           |                           |                                      |              |         |               |         |              |         |             
|                                                |                                           |                          
|                                                |                                           | (In thousands)           
|ASSETS                                          |                                           |                           |                                      |              |         |               |         |              |         |              |         |        |        |        |          |          |          |         |         |        
|Current assets:                                 |                                           |                           |                                      |              |         |               |         |              |         |              |         |        |        |        |          |          |          |         |         |        
|                                                | Cash and cash equivalents                 |                           | $                                    | 175          |         |               | $       | 959          |         |              | $       | 1,883  |        |        |          |         |          |         | $       | 3,017   |        
|                                                | Accounts receivable, net                  |                           |                                      | 51,725       |         |               |         | 49,459       |         |              |         | 23,315 |        |        |          |         |          |         |         | 124,499 |        
|                                                | Inventories                               |                           |                                      | 51,181       |         |               |         | 52,637       |         |              |         | 32,396 |        |        | $        | (5,164   | )        |         |         | 131,050 |        
|                                                | Prepaid expenses and other current assets |                           |                                      | 2,922        |         |               |         | 74           |         |              |         | 3,461  |        |        |          |         |          |         |         | 6,457   |        
|                                                | Deferred income taxes                     |                           |                                      | 5,300        |         |               |         | 9,911        |         |              |         | (486   | )      |        |          |         |          |         |         | 14,725  |        
|                                                | Income taxes receivable                   |                           |                                      |             |         |               |         |             |         |              |         |       |        |        |          |         |          |         |         |        |        
|                                                | Due from affiliates                       |                           |                                      | 223,445      |         |               |         | 89           |         |              |         | 29,138 |        |        |          | (252,672 | )        |         |         |        |        
|                                                |                                           |                           |                                      |              |         |               |         |              |         |              |         |        |        |        |          |          |          |         |         |        
|                                                |                                           | Total current assets      |                                      |              | 334,748 |               |         |              | 113,129 |              |         |        | 89,707 |        |          |          | (257,836 | )       |         |         | 279,748 |      
|                                                |                                           |                           |                                      |              |         |               |         |              |         |              |         |        |        |        |          |          |          |         |         |        
|Assets held for sale                            |                                           |                           |                                     |              |         |               | 1,624   |              |         |              |        |        |        |        |         |          |          |         | 1,624   |        
|Property and equipment, net                     |                                           |                           | 5,482                                |              |         |               | 30,671  |              |         |              | 31,429  |        |        |        |         |          |          |         | 67,582  |        
|Goodwill, net                                   |                                           |                           |                                     |              |         |               | 83,779  |              |         |              |        |        |        |        |         |          |          |         | 83,779  |        
|Deferred income taxes                           |                                           |                           |                                     |              |         |               |        |              |         |              |        |        |        |        |         |          |          |         |        |        
|Deposits and other assets                       |                                           |                           | 21,806                               |              |         |               | 3,110   |              |         |              | 511     |        |        |        | (4,291   | )        |          |         | 21,136  |        
|Investments in consolidated subsidiaries        |                                           |                           | 41,217                               |              |         |               |        |              |         |              |        |        |        |        | (41,217  | )        |          |         |        |        
|                                                |                                           |                           |                                      |              |         |               |         |              |         |              |         |        |        |        |          |          |          |         |         |        
|                                                |                                           | $                         | 403,253                              |              |         | $             | 232,313 |              |         | $            | 121,647 |        |        | $      | (303,344 | )        |          | $       | 453,869 |        
|                                                |                                           |                           |                                      |              |         |               |         |              |         |              |         |        |        |        |          |          |          |         |         |        
|LIABILITIES AND STOCKHOLDERS EQUITY
	(DEFICIT) |                                           |                           |                                      |              |         |               |         |              |         |              |         |       
|Current liabilities:                            |                                           |                           |                                      |              |         |               |         |              |         |              |         |        |        |        |          |          |          |         |         |        
|                                                | Accounts payable                          |                           |                                      | 7,367        |         |               |         | (2,261       | )       |              |         | 29,264 |        |        |          | (4,191   | )        |         |         | 30,179  |        
|                                                | Current portion of credit facility        |                           |                                      | 7,250        |         |               |         |             |         |              |         |       |        |        |          |         |          |         |         | 7,250   |        
|                                                | Accrued expenses                          |                           |                                      | 15,835       |         |               |         | 12,298       |         |              |         | 5,212  |        |        |          |         |          |         |         | 33,345  |        
|                                                | Accrued income taxes                      |                           |                                      | (10          | )       |               |         | 2,521        |         |              |         | 2,206  |        |        |          |         |          |         |         | 4,717   |        
|                                                | Other current liabilities                 |                           |                                      |             |         |               |         |             |         |              |         | 784    |        |        |          |         |          |         |         | 784     |        
|                                                | Due to affiliates                         |                           |                                      | 6,976        |         |               |         | 221,939      |         |              |         | 23,757 |        |        | $        | (252,672 | )        |         |         |        |        
|                                                |                                           |                           |                                      |              |         |               |         |              |         |              |         |        |        |        |          |          |          |         |         |        
|                                                |                                           | Total current liabilities |                                      |              | 37,418  |               |         |              | 234,497 |              |         |        | 61,223 |        |          |          | (256,863 | )       |         |         | 76,275  |      
|                                                |                                           |                           |                                      |              |         |               |         |              |         |              |         |        |        |        |          |          |          |         |         |        
|Credit facility                                 |                                           |                           | 225,175                              |              |         |               |        |              |         |              |        |        |        |        |         |          |          |         | 225,175 |        
|                                                |                                           |                           |                                      |              |         |               |         |              |         |              |         |        |        |        |          |          |          |         |         |        
|Long-term debt                                  |                                           |                           | 135,186                              |              |         |               |        |              |         |              |        |        |        |        |         |          |          |         | 135,186 |        
|                                                |                                           |                           |                                      |              |         |               |         |              |         |              |         |        |        |        |          |          |          |         |         |        
|Other long-term liabilities                     |                                           |                           |                                     |              |         |               |        |              |         |              | 7,055   |        |        |        |         |          |          |         | 7,055   |        
|                                                |                                           |                           |                                      |              |         |               |         |              |         |              |         |        |        |        |          |          |          |         |         |        
|Deferred income taxes                           |                                           |                           |                                     |              |         |               | 4,704   |              |         |              |        |        |        |        |         |          |          |         | 4,704   |        
|                                                |                                           |                           |                                      |              |         |               |         |              |         |              |         |        |        |        |          |          |          |         |         |        
|STOCKHOLDERS EQUITY (DEFICIT):                 |                                           |                           |                                      |              |         |               |         |              |         |              |         |        |        |        |          |          |          |         |         |        
|Common stock, $.001 par value                   |                                           |                           | 20                                   |              |         |               | 2       |              |         |              |        |        |        |        | (2       | )        |          |         | 20      |        
|Common stock, $1 par value                      |                                           |                           |                                     |              |         |               |        |              |         |              | 100     |        |        |        | (100     | )        |          |         |        |        
|Additional paid in capital                      |                                           |                           | 67,915                               |              |         |               |        |              |         |              |        |        |        |        |         |          |          |         | 67,915  |        
|Accumulated other comprehensive income          |                                           |                           | 241                                  |              |         |               |        |              |         |              | 241     |        |        |        | (241     | )        |          |         | 241     |        
|Treasury stock                                  |                                           |                           | (62,058                              | )            |         |               |        |              |         |              |        |        |        |        |         |          |          |         | (62,058 | )      
|Retained earnings (deficit)                     |                                           |                           | (644                                 | )            |         |               | (6,890  | )            |         |              | 53,028  |        |        |        | (46,138  | )        |          |         | (644    | )      
|                                                |                                           |                           |                                      |              |         |               |         |              |         |              |         |        |        |        |          |          |          |         |         |        
|                                                |                                           |                           | Total stockholders equity (deficit) |              |         | 5,474         |         |              |         | (6,888       | )       |        |        | 53,369 |          |          |          | (46,481 | )       |         |         | 5,474 | 
|                                                |                                           |                           |                                      |              |         |               |         |              |         |              |         |        |        |        |          |          |          |         |         |        
|                                                |                                           | $                         | 403,253                              |              |         | $             | 232,313 |              |         | $            | 121,647 |        |        | $      | (303,344 | )        |          | $       | 453,869 |        
|                                                |                                           |                           |                                      |              |         |               |         |              |         |              |         |        |        |        |          |          |          |         |         |        

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THE HOLMES GROUP, INC.


NOTES TO CONSOLIDATED FINANCIAL
STATEMENTS  (Continued)

|                                                |                                           |                           |                                      |              |         |               |         |              |         |              |         |        |         |        |          |          |          |         |         |         |         |        |  
|----------------------------------------------- | ----------------------------------------- | ------------------------- | ------------------------------------ | ------------ | ------- | ------------- | ------- | ------------ | ------- | ------------ | ------- | ------ | ------- | ------ | -------- | -------- | -------- | ------- | ------- | ------- | ------- | ------ | -
|                                                |                                           |                          
|                                                |                                           | December 31, 2001        
|                                                |                                           |                          
|                                                |                                           |                           |                                      | Guarantor    |         | Non-Guarantor |         |             
|                                                |                                           | Parent                    |                                      | Subsidiaries |         | Subsidiaries  |         | Eliminations |         | Consolidated
|                                                |                                           |                           |                                      |              |         |               |         |              |         |             
|                                                |                                           |                          
|                                                |                                           | (In thousands)           
|ASSETS                                          |                                           |                           |                                      |              |         |               |         |              |         |              |         |        |         |        |          |          |          |         |         |        
|Current assets:                                 |                                           |                           |                                      |              |         |               |         |              |         |              |         |        |         |        |          |          |          |         |         |        
|                                                | Cash and cash equivalents                 |                           | $                                    | 4,083        |         |               | $       | 1,312        |         |              | $       | 4,720  |         |        |          |         |          |         | $       | 10,115  |        
|                                                | Accounts receivable, net                  |                           |                                      | 39,173       |         |               |         | 82,725       |         |              |         | 22,351 |         |        |          |         |          |         |         | 144,249 |        
|                                                | Inventories                               |                           |                                      | 34,042       |         |               |         | 49,055       |         |              |         | 24,922 |         |        | $        | (4,824   | )        |         |         | 103,195 |        
|                                                | Prepaid expenses and other current assets |                           |                                      | 2,136        |         |               |         | 42           |         |              |         | 3,139  |         |        |          |         |          |         |         | 5,317   |        
|                                                | Deferred income taxes                     |                           |                                      | 8,578        |         |               |         | 5,065        |         |              |         |       |         |        |          |         |          |         |         | 13,643  |        
|                                                | Due from affiliates                       |                           |                                      | 191,656      |         |               |         | 89           |         |              |         | 71,859 |         |        |          | (263,604 | )        |         |         |        |        
|                                                |                                           |                           |                                      |              |         |               |         |              |         |              |         |        |         |        |          |          |          |         |         |        
|                                                |                                           | Total current assets      |                                      |              | 279,668 |               |         |              | 138,288 |              |         |        | 126,991 |        |          |          | (268,428 | )       |         |         | 276,519 |       
|                                                |                                           |                           |                                      |              |         |               |         |              |         |              |         |        |         |        |          |          |          |         |         |        
|Assets held for sale                            |                                           |                           |                                     |              |         |               | 86      |              |         |              |        |        |         |        |         |          |          |         | 86      |        
|Property and equipment, net                     |                                           |                           | 7,585                                |              |         |               | 28,503  |              |         |              | 33,008  |        |         |        |         |          |          |         | 69,096  |        
|Goodwill, net                                   |                                           |                           |                                     |              |         |               | 79,838  |              |         |              |        |        |         |        |         |          |          |         | 79,838  |        
|Deferred income taxes                           |                                           |                           |                                     |              |         |               |        |              |         |              |        |        |         |        |         |          |          |         |        |        
|Deposits and other assets                       |                                           |                           | 20,139                               |              |         |               | 2,229   |              |         |              | 579     |        |         |        | (4,891   | )        |          |         | 18,056  |        
|Investments in consolidated subsidiaries        |                                           |                           | 59,423                               |              |         |               |        |              |         |              | 3,700   |        |         |        | (63,123  | )        |          |         |        |        
|                                                |                                           |                           |                                      |              |         |               |         |              |         |              |         |        |         |        |          |          |          |         |         |        
|                                                |                                           | $                         | 366,815                              |              |         | $             | 248,944 |              |         | $            | 164,278 |        |         | $      | (336,442 | )        |          | $       | 443,595 |        
|                                                |                                           |                           |                                      |              |         |               |         |              |         |              |         |        |         |        |          |          |          |         |         |        
|LIABILITIES AND STOCKHOLDERS EQUITY
	(DEFICIT) |                                           |                           |                                      |              |         |               |         |              |         |              |         |       
|Current liabilities:                            |                                           |                           |                                      |              |         |               |         |              |         |              |         |        |         |        |          |          |          |         |         |        
|                                                | Accounts payable                          |                           | $                                    | 3,906        |         |               | $       | 6,945        |         |              | $       | 30,783 |         |        | $        | (4,891   | )        |         | $       | 36,743  |        
|                                                | Current portion of credit facility        |                           |                                      | 8,476        |         |               |         |             |         |              |         |       |         |        |          |         |          |         |         | 8,476   |        
|                                                | Accrued expenses                          |                           |                                      | 19,112       |         |               |         | 16,672       |         |              |         | 6,544  |         |        |          |         |          |         |         | 42,328  |        
|                                                | Accrued income taxes                      |                           |                                      |             |         |               |         | 2,600        |         |              |         | 3,857  |         |        |          |         |          |         |         | 6,457   |        
|                                                | Other current liabilities                 |                           |                                      |             |         |               |         |             |         |              |         | 831    |         |        |          |         |          |         |         | 831     |        
|                                                | Due to affiliates                         |                           |                                      |             |         |               |         | 230,535      |         |              |         | 36,669 |         |        |          | (267,204 | )        |         |         |        |        
|                                                |                                           |                           |                                      |              |         |               |         |              |         |              |         |        |         |        |          |          |          |         |         |        
|                                                |                                           | Total current liabilities |                                      |              | 31,494  |               |         |              | 256,752 |              |         |        | 78,684  |        |          |          | (272,095 | )       |         |         | 94,835  |       
|                                                |                                           |                           |                                      |              |         |               |         |              |         |              |         |        |         |        |          |          |          |         |         |        
|Credit facility                                 |                                           |                           | 209,406                              |              |         |               |        |              |         |              |        |        |         |        |         |          |          |         | 209,406 |        
|                                                |                                           |                           |                                      |              |         |               |         |              |         |              |         |        |         |        |          |          |          |         |         |        
|Long-term debt                                  |                                           |                           | 135,298                              |              |         |               |        |              |         |              |        |        |         |        |         |          |          |         | 135,298 |        
|                                                |                                           |                           |                                      |              |         |               |         |              |         |              |         |        |         |        |          |          |          |         |         |        
|Other long-term liabilities                     |                                           |                           |                                     |              |         |               |        |              |         |              | 7,485   |        |         |        |         |          |          |         | 7,485   |        
|                                                |                                           |                           |                                      |              |         |               |         |              |         |              |         |        |         |        |          |          |          |         |         |        
|Deferred income taxes                           |                                           |                           |                                     |              |         |               | 3,861   |              |         |              | 2,093   |        |         |        |         |          |          |         | 5,954   |        
|                                                |                                           |                           |                                      |              |         |               |         |              |         |              |         |        |         |        |          |          |          |         |         |        
|STOCKHOLDERS EQUITY (DEFICIT):                 |                                           |                           |                                      |              |         |               |         |              |         |              |         |        |         |        |          |          |          |         |         |        
|Common stock, $.001 par value                   |                                           |                           | 20                                   |              |         |               | 2       |              |         |              |        |        |         |        | (2       | )        |          |         | 20      |        
|Common stock, $1 par value                      |                                           |                           |                                     |              |         |               |        |              |         |              | 3,800   |        |         |        | (3,800   | )        |          |         |        |        
|Additional paid in capital                      |                                           |                           | 68,874                               |              |         |               |        |              |         |              |        |        |         |        |         |          |          |         | 68,874  |        
|Accumulated other comprehensive income          |                                           |                           | (2                                   | )            |         |               |        |              |         |              | (160    | )      |         |        | 160      |          |          |         | (2      | )      
|Treasury stock                                  |                                           |                           | (62,076                              | )            |         |               |        |              |         |              |        |        |         |        |         |          |          |         | (62,076 | )      
|Retained earnings (deficit)                     |                                           |                           | (16,199                              | )            |         |               | (11,671 | )            |         |              | 72,376  |        |         |        | (60,705  | )        |          |         | (16,199 | )      
|                                                |                                           |                           |                                      |              |         |               |         |              |         |              |         |        |         |        |          |          |          |         |         |        
|                                                |                                           |                           | Total stockholders equity (deficit) |              |         | (9,383        | )       |              |         | (11,669      | )       |        |         | 76,016 |          |          |          | (64,347 | )       |         |         | (9,383 | )
|                                                |                                           |                           |                                      |              |         |               |         |              |         |              |         |        |         |        |          |          |          |         |         |        
|                                                |                                           | $                         | 366,815                              |              |         | $             | 248,944 |              |         | $            | 164,278 |        |         | $      | (336,442 | )        |          | $       | 443,595 |        
|                                                |                                           |                           |                                      |              |         |               |         |              |         |              |         |        |         |        |          |          |          |         |         |        

51



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##### Table of Contents



THE HOLMES GROUP, INC.


NOTES TO CONSOLIDATED FINANCIAL
STATEMENTS  (Continued)

CONSOLIDATING STATEMENT OF
OPERATIONS

|                                                                                                     |                                                       |                              |         |              |        |               |         |              |        |              |         |        |        |   |          |      |      |   |         |         |         | 
|---------------------------------------------------------------------------------------------------- | ----------------------------------------------------- | ---------------------------- | ------- | ------------ | ------ | ------------- | ------- | ------------ | ------ | ------------ | ------- | ------ | ------ | - | -------- | ---- | ---- | - | ------- | ------- | ------- | 
|                                                                                                     |                                                       |                             
|                                                                                                     |                                                       | Year Ended December 31, 1999
|                                                                                                     |                                                       |                             
|                                                                                                     |                                                       |                              |         | Guarantor    |        | Non-Guarantor |         |             
|                                                                                                     |                                                       | Parent                       |         | Subsidiaries |        | Subsidiaries  |         | Eliminations |        | Consolidated
|                                                                                                     |                                                       |                              |         |              |        |               |         |              |        |             
|                                                                                                     |                                                       |                             
|                                                                                                     |                                                       | (In thousands)              
|Net sales                                                                                            |                                                       | $                            | 216,457 |              |        | $             | 245,512 |              |        | $            | 200,019 |        |        | $ | (154,501 | )    |      | $ | 507,487 |        
|Cost of goods sold                                                                                   |                                                       |                              | 160,272 |              |        |               | 191,448 |              |        |              | 166,778 |        |        |   | (154,190 | )    |      |   | 364,308 |        
|                                                                                                     |                                                       |                              |         |              |        |               |         |              |        |              |         |        |        |   |          |      |      |   |         |        
|                                                                                                     | Gross profit (loss)                                   |                              |         | 56,185       |        |               |         | 54,064       |        |              |         | 33,241 |        |   |          | (311 | )    |   |         | 143,179 |        
|                                                                                                     |                                                       |                              |         |              |        |               |         |              |        |              |         |        |        |   |          |      |      |   |         |        
|Operating expenses:                                                                                  |                                                       |                              |         |              |        |               |         |              |        |              |         |        |        |   |          |      |      |   |         |        
|                                                                                                     | Selling                                               |                              |         | 27,621       |        |               |         | 33,226       |        |              |         | 6,605  |        |   |          |     |      |   |         | 67,452  |        
|                                                                                                     | General and administrative                            |                              |         | 9,146        |        |               |         | 9,645        |        |              |         | 9,543  |        |   |          |     |      |   |         | 28,334  |        
|                                                                                                     | Product development                                   |                              |         | 7,448        |        |               |         | 3,000        |        |              |         |       |        |   |          |     |      |   |         | 10,448  |        
|                                                                                                     | Plant closing costs                                   |                              |         |             |        |               |         | 2,439        |        |              |         |       |        |   |          |     |      |   |         | 2,439   |        
|                                                                                                     | Amortization of goodwill and other intangible
	assets |                              |         |             |        |               |         | 2,634        |        |              |         | 66     |        |   |          |     |      |   |         | 2,700   |        
|                                                                                                     |                                                       |                              |         |              |        |               |         |              |        |              |         |        |        |   |          |      |      |   |         |        
|                                                                                                     |                                                       | Total operating expenses     |         |              | 44,215 |               |         |              | 50,944 |              |         |        | 16,214 |   |          |      |     |   |         |         | 111,373 | 
|                                                                                                     |                                                       |                              |         |              |        |               |         |              |        |              |         |        |        |   |          |      |      |   |         |        
|                                                                                                     |                                                       | Operating profit (loss)      |         |              | 11,970 |               |         |              | 3,120  |              |         |        | 17,027 |   |          |      | (311 | ) |         |         | 31,806  | 
|                                                                                                     |                                                       |                              |         |              |        |               |         |              |        |              |         |        |        |   |          |      |      |   |         |        
|Other income and expense:                                                                            |                                                       |                              |         |              |        |               |         |              |        |              |         |        |        |   |          |      |      |   |         |        
|                                                                                                     | Interest and other expense, net                       |                              |         | 33,423       |        |               |         | 74           |        |              |         | (25    | )      |   |          |     |      |   |         | 33,472  |        
|                                                                                                     | Other (income) expense, net                           |                              |         |             |        |               |         | (1,041       | )      |              |         | (1,448 | )      |   |          |     |      |   |         | (2,489  | )      
|                                                                                                     |                                                       |                              |         |              |        |               |         |              |        |              |         |        |        |   |          |      |      |   |         |        
|                                                                                                     |                                                       | Total other (income) expense |         |              | 33,423 |               |         |              | (967   | )            |         |        | (1,473 | ) |          |      |     |   |         |         | 30,983  | 
|                                                                                                     |                                                       |                              |         |              |        |               |         |              |        |              |         |        |        |   |          |      |      |   |         |        
|Income (loss) before income taxes and equity in
	income of and equity in earnings from joint venture |                                                       |                              | (21,453 | )            |        |               | 4,087   |              |        |              | 18,500  |        |        |   | (311     | )    |      |   | 823     |        
|Income tax expense (benefit)                                                                         |                                                       |                              | (3,357  | )            |        |               | (1,037  | )            |        |              | 4,307   |        |        |   |         |      |      |   | (87     | )      
|                                                                                                     |                                                       |                              |         |              |        |               |         |              |        |              |         |        |        |   |          |      |      |   |         |        
|Equity in earnings from joint venture                                                                |                                                       |                              | (902    | )            |        |               |        |              |        |              |        |        |        |   |         |      |      |   | (902    | )      
|Income (loss) before equity in income of
	consolidated subsidiaries                                  |                                                       |                              | (17,194 | )            |        |               | 5,124   |              |        |              | 14,193  |        |        |   | (311     | )    |      |   | 1,812   |        
|Equity in income of consolidated subsidiaries                                                        |                                                       |                              | 19,006  |              |        |               |        |              |        |              |        |        |        |   | (19,006  | )    |      |   |        |        
|                                                                                                     |                                                       |                              |         |              |        |               |         |              |        |              |         |        |        |   |          |      |      |   |         |        
|Net income (loss)                                                                                    |                                                       | $                            | 1,812   |              |        | $             | 5,124   |              |        | $            | 14,193  |        |        | $ | (19,317  | )    |      | $ | 1,812   |        
|                                                                                                     |                                                       |                              |         |              |        |               |         |              |        |              |         |        |        |   |          |      |      |   |         |        

52



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##### Table of Contents



THE HOLMES GROUP, INC.


NOTES TO CONSOLIDATED FINANCIAL
STATEMENTS  (Continued)

|                                                                                                     |                                                       |                              |         |              |        |               |         |              |        |              |         |        |        |   |          |      |      |   |         |         |         | 
|---------------------------------------------------------------------------------------------------- | ----------------------------------------------------- | ---------------------------- | ------- | ------------ | ------ | ------------- | ------- | ------------ | ------ | ------------ | ------- | ------ | ------ | - | -------- | ---- | ---- | - | ------- | ------- | ------- | 
|                                                                                                     |                                                       |                             
|                                                                                                     |                                                       | Year Ended December 31, 2000
|                                                                                                     |                                                       |                             
|                                                                                                     |                                                       |                              |         | Guarantor    |        | Non-Guarantor |         |             
|                                                                                                     |                                                       | Parent                       |         | Subsidiaries |        | Subsidiaries  |         | Eliminations |        | Consolidated
|                                                                                                     |                                                       |                              |         |              |        |               |         |              |        |             
|                                                                                                     |                                                       |                             
|                                                                                                     |                                                       | (In thousands)              
|Net sales                                                                                            |                                                       | $                            | 231,340 |              |        | $             | 221,765 |              |        | $            | 279,702 |        |        | $ | (219,558 | )    |      | $ | 513,249 |        
|Cost of goods sold                                                                                   |                                                       |                              | 181,075 |              |        |               | 176,398 |              |        |              | 243,996 |        |        |   | (219,264 | )    |      |   | 382,205 |        
|                                                                                                     |                                                       |                              |         |              |        |               |         |              |        |              |         |        |        |   |          |      |      |   |         |        
|                                                                                                     | Gross profit (loss)                                   |                              |         | 50,265       |        |               |         | 45,367       |        |              |         | 35,706 |        |   |          | (294 | )    |   |         | 131,044 |        
|                                                                                                     |                                                       |                              |         |              |        |               |         |              |        |              |         |        |        |   |          |      |      |   |         |        
|Operating expenses:                                                                                  |                                                       |                              |         |              |        |               |         |              |        |              |         |        |        |   |          |      |      |   |         |        
|                                                                                                     | Selling                                               |                              |         | 32,322       |        |               |         | 30,362       |        |              |         | 10,837 |        |   |          |     |      |   |         | 73,521  |        
|                                                                                                     | General and administrative                            |                              |         | 14,426       |        |               |         | 10,451       |        |              |         | 11,107 |        |   |          |     |      |   |         | 35,984  |        
|                                                                                                     | Product development                                   |                              |         | 8,829        |        |               |         | 2,171        |        |              |         |       |        |   |          |     |      |   |         | 11,000  |        
|                                                                                                     | Plant closing costs                                   |                              |         |             |        |               |         | 340          |        |              |         |       |        |   |          |     |      |   |         | 340     |        
|                                                                                                     | Amortization of goodwill and other intangible
	assets |                              |         |             |        |               |         | 2,597        |        |              |         |       |        |   |          |     |      |   |         | 2,597   |        
|                                                                                                     |                                                       |                              |         |              |        |               |         |              |        |              |         |        |        |   |          |      |      |   |         |        
|                                                                                                     |                                                       | Total operating expenses     |         |              | 55,577 |               |         |              | 45,921 |              |         |        | 21,944 |   |          |      |     |   |         |         | 123,442 | 
|                                                                                                     |                                                       |                              |         |              |        |               |         |              |        |              |         |        |        |   |          |      |      |   |         |        
|                                                                                                     |                                                       | Operating profit (loss)      |         |              | (5,312 | )             |         |              | (554   | )            |         |        | 13,762 |   |          |      | (294 | ) |         |         | 7,602   | 
|                                                                                                     |                                                       |                              |         |              |        |               |         |              |        |              |         |        |        |   |          |      |      |   |         |        
|Other income and expense:                                                                            |                                                       |                              |         |              |        |               |         |              |        |              |         |        |        |   |          |      |      |   |         |        
|                                                                                                     | Interest and other expense, net                       |                              |         | 27,905       |        |               |         | 10,745       |        |              |         | (100   | )      |   |          |     |      |   |         | 38,550  |        
|                                                                                                     | Other (income) expense, net                           |                              |         | 23           |        |               |         | 891          |        |              |         | (1,672 | )      |   |          |     |      |   |         | (758    | )      
|                                                                                                     |                                                       |                              |         |              |        |               |         |              |        |              |         |        |        |   |          |      |      |   |         |        
|                                                                                                     |                                                       | Total other (income) expense |         |              | 27,928 |               |         |              | 11,636 |              |         |        | (1,772 | ) |          |      |     |   |         |         | 37,792  | 
|                                                                                                     |                                                       |                              |         |              |        |               |         |              |        |              |         |        |        |   |          |      |      |   |         |        
|Income (loss) before income taxes and equity
	in income of and equity in earnings from joint venture |                                                       |                              | (33,240 | )            |        |               | (12,190 | )            |        |              | 15,534  |        |        |   | (294     | )    |      |   | (30,190 | )      
|                                                                                                     |                                                       |                              |         |              |        |               |         |              |        |              |         |        |        |   |          |      |      |   |         |        
|Income tax expense (benefit)                                                                         |                                                       |                              | 226     |              |        |               | 350     |              |        |              | 2,015   |        |        |   |         |      |      |   | 2,591   |        
|Equity in earnings from joint venture                                                                |                                                       |                              | (611    | )            |        |               |        |              |        |              |        |        |        |   |         |      |      |   | (611    | )      
|                                                                                                     |                                                       |                              |         |              |        |               |         |              |        |              |         |        |        |   |          |      |      |   |         |        
|Income (loss) before equity in income of
	consolidated subsidiaries                                  |                                                       |                              | (32,855 | )            |        |               | (12,540 | )            |        |              | 13,519  |        |        |   | (294     | )    |      |   | (32,170 | )      
|Equity in income of consolidated subsidiaries                                                        |                                                       |                              | 685     |              |        |               |        |              |        |              |        |        |        |   | (685     | )    |      |   |        |        
|                                                                                                     |                                                       |                              |         |              |        |               |         |              |        |              |         |        |        |   |          |      |      |   |         |        
|Net income (loss)                                                                                    |                                                       | $                            | (32,170 | )            |        | $             | (12,540 | )            |        | $            | 13,519  |        |        | $ | (979     | )    |      | $ | (32,170 | )      
|                                                                                                     |                                                       |                              |         |              |        |               |         |              |        |              |         |        |        |   |          |      |      |   |         |        

53



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##### Table of Contents



THE HOLMES GROUP, INC.


NOTES TO CONSOLIDATED FINANCIAL
STATEMENTS  (Continued)

|                                                                                                     |                                                       |                              |         |              |        |               |         |              |        |              |         |        |        |   |          |     |     |   |         |         |         | 
|---------------------------------------------------------------------------------------------------- | ----------------------------------------------------- | ---------------------------- | ------- | ------------ | ------ | ------------- | ------- | ------------ | ------ | ------------ | ------- | ------ | ------ | - | -------- | --- | --- | - | ------- | ------- | ------- | 
|                                                                                                     |                                                       |                             
|                                                                                                     |                                                       | Year Ended December 31, 2001
|                                                                                                     |                                                       |                             
|                                                                                                     |                                                       |                              |         | Guarantor    |        | Non-Guarantor |         |             
|                                                                                                     |                                                       | Parent                       |         | Subsidiaries |        | Subsidiaries  |         | Eliminations |        | Consolidated
|                                                                                                     |                                                       |                              |         |              |        |               |         |              |        |             
|                                                                                                     |                                                       |                             
|                                                                                                     |                                                       | (In thousands)              
|Net sales                                                                                            |                                                       | $                            | 228,573 |              |        | $             | 323,724 |              |        | $            | 365,864 |        |        | $ | (290,162 | )   |     | $ | 627,999 |        
|Cost of goods sold                                                                                   |                                                       |                              | 184,433 |              |        |               | 244,918 |              |        |              | 323,421 |        |        |   | (290,502 | )   |     |   | 462,270 |        
|                                                                                                     |                                                       |                              |         |              |        |               |         |              |        |              |         |        |        |   |          |     |     |   |         |        
|                                                                                                     | Gross profit (loss)                                   |                              |         | 44,140       |        |               |         | 78,806       |        |              |         | 42,443 |        |   |          | 340 |     |   |         | 165,729 |        
|                                                                                                     |                                                       |                              |         |              |        |               |         |              |        |              |         |        |        |   |          |     |     |   |         |        
|Operating expenses:                                                                                  |                                                       |                              |         |              |        |               |         |              |        |              |         |        |        |   |          |     |     |   |         |        
|                                                                                                     | Selling                                               |                              |         | 28,473       |        |               |         | 30,011       |        |              |         | 10,992 |        |   |          |    |     |   |         | 69,476  |        
|                                                                                                     | General and administrative                            |                              |         | 14,587       |        |               |         | 32,228       |        |              |         | 10,267 |        |   |          |    |     |   |         | 57,082  |        
|                                                                                                     | Product development                                   |                              |         | 5,179        |        |               |         | 5,843        |        |              |         |       |        |   |          |    |     |   |         | 11,022  |        
|                                                                                                     | Plant closing costs                                   |                              |         |             |        |               |         | 550          |        |              |         |       |        |   |          |    |     |   |         | 550     |        
|                                                                                                     | Restructuring costs                                   |                              |         |             |        |               |         | 1,194        |        |              |         |       |        |   |          |    |     |   |         | 1,194   |        
|                                                                                                     | Amortization of goodwill and other intangible
	assets |                              |         |             |        |               |         | 2,494        |        |              |         |       |        |   |          |    |     |   |         | 2,494   |        
|                                                                                                     |                                                       |                              |         |              |        |               |         |              |        |              |         |        |        |   |          |     |     |   |         |        
|                                                                                                     |                                                       | Total operating expenses     |         |              | 48,239 |               |         |              | 72,320 |              |         |        | 21,259 |   |          |     |    |   |         |         | 141,818 | 
|                                                                                                     |                                                       |                              |         |              |        |               |         |              |        |              |         |        |        |   |          |     |     |   |         |        
|                                                                                                     |                                                       | Operating profit (loss)      |         |              | (4,099 | )             |         |              | 6,486  |              |         |        | 21,184 |   |          |     | 340 |   |         |         | 23,911  | 
|                                                                                                     |                                                       |                              |         |              |        |               |         |              |        |              |         |        |        |   |          |     |     |   |         |        
|Other income and expense:                                                                            |                                                       |                              |         |              |        |               |         |              |        |              |         |        |        |   |          |     |     |   |         |        
|                                                                                                     | Interest and other expense, net                       |                              |         | 27,698       |        |               |         | 10,242       |        |              |         | (40    | )      |   |          |    |     |   |         | 37,900  |        
|                                                                                                     | Other (income) expense, net                           |                              |         | 945          |        |               |         | 259          |        |              |         | (1,812 | )      |   |          |    |     |   |         | (608    | )      
|                                                                                                     |                                                       |                              |         |              |        |               |         |              |        |              |         |        |        |   |          |     |     |   |         |        
|                                                                                                     |                                                       | Total other (income) expense |         |              | 28,643 |               |         |              | 10,501 |              |         |        | (1,852 | ) |          |     |    |   |         |         | 37,292  | 
|                                                                                                     |                                                       |                              |         |              |        |               |         |              |        |              |         |        |        |   |          |     |     |   |         |        
|Income (loss) before income taxes and equity in
	income of and equity in earnings from joint venture |                                                       |                              | (32,742 | )            |        |               | (4,015  | )            |        |              | 23,036  |        |        |   | 340      |     |     |   | (13,381 | )      
|                                                                                                     |                                                       |                              |         |              |        |               |         |              |        |              |         |        |        |   |          |     |     |   |         |        
|Income tax expense (benefit)                                                                         |                                                       |                              | 74      |              |        |               | 766     |              |        |              | 3,688   |        |        |   |         |     |     |   | 4,528   |        
|Equity in earnings from joint venture                                                                |                                                       |                              | (2,354  | )            |        |               |        |              |        |              |        |        |        |   |         |     |     |   | (2,354  | )      
|                                                                                                     |                                                       |                              |         |              |        |               |         |              |        |              |         |        |        |   |          |     |     |   |         |        
|Income (loss) before equity in income of
	consolidated subsidiaries                                  |                                                       |                              | (30,462 | )            |        |               | (4,781  | )            |        |              | 19,348  |        |        |   | 340      |     |     |   | (15,555 | )      
|Equity in income of consolidated subsidiaries                                                        |                                                       |                              | 14,907  |              |        |               |        |              |        |              |        |        |        |   | (14,907  | )   |     |   |        |        
|                                                                                                     |                                                       |                              |         |              |        |               |         |              |        |              |         |        |        |   |          |     |     |   |         |        
|Net income (loss)                                                                                    |                                                       | $                            | (15,555 | )            |        | $             | (4,781  | )            |        | $            | 19,348  |        |        | $ | (14,567  | )   |     | $ | (15,555 | )      
|                                                                                                     |                                                       |                              |         |              |        |               |         |              |        |              |         |        |        |   |          |     |     |   |         |        

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THE HOLMES GROUP, INC.


NOTES TO CONSOLIDATED FINANCIAL
STATEMENTS  (Continued)

CONDENSED CONSOLIDATING STATEMENT OF CASH
FLOWS

|                                               |                                                                       |                                        |         |              |          |               |         |              |         |   |        |         |         |   |        |          |          |  
|---------------------------------------------- | --------------------------------------------------------------------- | -------------------------------------- | ------- | ------------ | -------- | ------------- | ------- | ------------ | ------- | - | ------ | ------- | ------- | - | ------ | -------- | -------- | -
|                                               |                                                                       |                                        |         | Guarantor    |          | Non-Guarantor |         |             
|                                               |                                                                       | Parent                                 |         | Subsidiaries |          | Subsidiaries  |         | Consolidated
|                                               |                                                                       |                                        |         |              |          |               |         |             
|                                               |                                                                       |                                       
|                                               |                                                                       | (Dollars in thousands)                
|Year Ended December 31, 1999                   |                                                                       |                                        |         |              |          |               |         |              |         |   |        |         |         |   |        |         
|Net cash provided by operating activities      |                                                                       | $                                      | (39,278 | )            |          | $             | 33,563  |              |         | $ | 12,845 |         |         | $ | 7,130  |         
|                                               |                                                                       |                                        |         |              |          |               |         |              |         |   |        |         |         |   |        |         
|Cash flows from investing
	activities:         |                                                                       |                                        |         |              |          |               |         |              |         |   |        |         |         |   |        |         
|                                               | Acquisition of business, net of cash acquired                         |                                        |         | (279,571     | )        |               |         |             |         |   |        |        |         |   |        | (279,571 | )       
|                                               | Contribution in joint venture                                         |                                        |         | (25          | )        |               |         |             |         |   |        |        |         |   |        | (25      | )       
|                                               | Proceeds from sale of assets held for sale and
	business divestitures |                                        |         |             |          |               |         | 23,787       |         |   |        |        |         |   |        | 23,787   |         
|                                               | Distribution in earnings from joint venture                           |                                        |         | 138          |          |               |         |             |         |   |        |        |         |   |        | 138      |         
|                                               | Purchases of property and equipment                                   |                                        |         | (1,700       | )        |               |         | (3,140       | )       |   |        | (12,774 | )       |   |        | (17,614  | )       
|                                               | Cash received from joint venture partners                             |                                        |         |             |          |               |         |             |         |   |        | 2,252   |         |   |        | 2,252    |         
|                                               |                                                                       |                                        |         |              |          |               |         |              |         |   |        |         |         |   |        |         
|                                               |                                                                       | Net cash used for investing activities |         |              | (281,158 | )             |         |              | 20,647  |   |        |         | (10,522 | ) |        |          | (271,033 | )
|                                               |                                                                       |                                        |         |              |          |               |         |              |         |   |        |         |         |   |        |         
|Cash flows from financing
	activities:         |                                                                       |                                        |         |              |          |               |         |              |         |   |        |         |         |   |        |         
|                                               | Net repayment of line of credit                                       |                                        |         | (10,000      | )        |               |         |             |         |   |        |        |         |   |        | (10,000  | )       
|                                               | Issuance of common stock                                              |                                        |         | 50,400       |          |               |         |             |         |   |        |        |         |   |        | 50,400   |         
|                                               | Borrowings of long-term debt, net of issuance
	costs                  |                                        |         | 27,329       |          |               |         |             |         |   |        |        |         |   |        | 27,329   |         
|                                               | Borrowings on credit facility, net of issuance
	costs                 |                                        |         | 198,704      |          |               |         |             |         |   |        |        |         |   |        | 198,704  |         
|                                               | Principle payments on capital lease obligations                       |                                        |         |             |          |               |         |             |         |   |        | (604    | )       |   |        | (604     | )       
|                                               | Debt issuance costs                                                   |                                        |         | (658         | )        |               |         |             |         |   |        |        |         |   |        | (658     | )       
|                                               | Other net activity with Parent                                        |                                        |         | 53,308       |          |               |         | (52,942      | )       |   |        | (366    | )       |   |        |         |         
|                                               |                                                                       |                                        |         |              |          |               |         |              |         |   |        |         |         |   |        |         
|                                               |                                                                       | Net cash used for financing activities |         |              | 319,083  |               |         |              | (52,942 | ) |        |         | (970    | ) |        |          | 265,171  |  
|Net increase in cash and cash equivalents      |                                                                       |                                        | (1,353  | )            |          |               | 1,268   |              |         |   | 1,353  |         |         |   | 1,268  |         
|Cash and cash equivalents, beginning of period |                                                                       |                                        | 1,545   |              |          |               | (473    | )            |         |   | 4,307  |         |         |   | 5,379  |         
|                                               |                                                                       |                                        |         |              |          |               |         |              |         |   |        |         |         |   |        |         
|Cash and cash equivalents, end of period       |                                                                       | $                                      | 192     |              |          | $             | 795     |              |         | $ | 5,660  |         |         | $ | 6,647  |         
|                                               |                                                                       |                                        |         |              |          |               |         |              |         |   |        |         |         |   |        |         
|Year Ended December 31, 2000                   |                                                                       |                                        |         |              |          |               |         |              |         |   |        |         |         |   |        |         
|Net cash provided by operating activities      |                                                                       | $                                      | (4,170  | )            |          | $             | (10,286 | )            |         | $ | 8,935  |         |         | $ | (5,521 | )       
|                                               |                                                                       |                                        |         |              |          |               |         |              |         |   |        |         |         |   |        |         
|Cash flows from investing
	activities:         |                                                                       |                                        |         |              |          |               |         |              |         |   |        |         |         |   |        |         
|                                               | Proceeds from sale of assets held for sale and
	business divestitures |                                        |         | 701          |          |               |         | 4,052        |         |   |        |        |         |   |        | 4,753    |         
|                                               | Distribution in earnings from joint venture                           |                                        |         | 1,375        |          |               |         |             |         |   |        |        |         |   |        | 1,375    |         
|                                               | Purchases of property and equipment                                   |                                        |         | (3,376       | )        |               |         | (7,195       | )       |   |        | (17,770 | )       |   |        | (28,341  | )       
|                                               | Cash received from joint venture partners                             |                                        |         |             |          |               |         |             |         |   |        | 1,893   |         |   |        | 1,893    |         
|                                               |                                                                       |                                        |         |              |          |               |         |              |         |   |        |         |         |   |        |         
|                                               |                                                                       | Net cash used for investing activities |         |              | (1,300   | )             |         |              | (3,143  | ) |        |         | (15,877 | ) |        |          | (20,320  | )
|                                               |                                                                       |                                        |         |              |          |               |         |              |         |   |        |         |         |   |        |         

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THE HOLMES GROUP, INC.


NOTES TO CONSOLIDATED FINANCIAL
STATEMENTS  (Continued)

|                                               |                                                                       |                                        |       |              |        |               |        |              |         |   |         |         |        |   |        |         |         |  
|---------------------------------------------- | --------------------------------------------------------------------- | -------------------------------------- | ----- | ------------ | ------ | ------------- | ------ | ------------ | ------- | - | ------- | ------- | ------ | - | ------ | ------- | ------- | -
|                                               |                                                                       |                                        |       | Guarantor    |        | Non-Guarantor |        |             
|                                               |                                                                       | Parent                                 |       | Subsidiaries |        | Subsidiaries  |        | Consolidated
|                                               |                                                                       |                                        |       |              |        |               |        |             
|                                               |                                                                       |                                       
|                                               |                                                                       | (Dollars in thousands)                
|Cash flows from financing
	activities:         |                                                                       |                                        |       |              |        |               |        |              |         |   |         |         |        |   |        |        
|                                               | Borrowings on credit facility, net of issuance
	costs                 |                                        |       | 22,350       |        |               |        |             |         |   |         |        |        |   |        | 22,350  |        
|                                               | Principle payments on capital lease obligations                       |                                        |       |             |        |               |        |             |         |   |         | (139    | )      |   |        | (139    | )      
|                                               | Other net activity with Parent                                        |                                        |       | (16,897      | )      |               |        | 13,593       |         |   |         | 3,304   |        |   |        |        |        
|                                               |                                                                       |                                        |       |              |        |               |        |              |         |   |         |         |        |   |        |        
|                                               |                                                                       | Net cash used for financing activities |       |              | 5,453  |               |        |              | 13,593  |   |         |         | 3,165  |   |        |         | 22,211  |  
|                                               |                                                                       |                                        |       |              |        |               |        |              |         |   |         |         |        |   |        |        
|Net increase in cash and cash equivalents      |                                                                       |                                        | (17   | )            |        |               | 164    |              |         |   | (3,777  | )       |        |   | (3,630 | )      
|Cash and cash equivalents, beginning of period |                                                                       |                                        | 192   |              |        |               | 795    |              |         |   | 5,660   |         |        |   | 6,647  |        
|                                               |                                                                       |                                        |       |              |        |               |        |              |         |   |         |         |        |   |        |        
|Cash and cash equivalents, end of period       |                                                                       | $                                      | 175   |              |        | $             | 959    |              |         | $ | 1,883   |         |        | $ | 3,017  |        
|                                               |                                                                       |                                        |       |              |        |               |        |              |         |   |         |         |        |   |        |        
|Year Ended December 31, 2001                   |                                                                       |                                        |       |              |        |               |        |              |         |   |         |         |        |   |        |        
|Net cash provided by operating activities      |                                                                       | $                                      | 8,352 |              |        | $             | 37,900 |              |         | $ | (10,002 | )       |        | $ | 36,250 |        
|                                               |                                                                       |                                        |       |              |        |               |        |              |         |   |         |         |        |   |        |        
|Cash flows from investing
	activities:         |                                                                       |                                        |       |              |        |               |        |              |         |   |         |         |        |   |        |        
|                                               | Proceeds from sale of assets held for sale and
	business divestitures |                                        |       |             |        |               |        | 2,228        |         |   |         |        |        |   |        | 2,228   |        
|                                               | Distribution in earnings from joint venture                           |                                        |       | 1,876        |        |               |        |             |         |   |         |        |        |   |        | 1,876   |        
|                                               | Purchases of property and equipment                                   |                                        |       | (3,890       | )      |               |        | (2,879       | )       |   |         | (10,251 | )      |   |        | (17,020 | )      
|                                               | Cash received from joint venture partners                             |                                        |       |             |        |               |        |             |         |   |         | 700     |        |   |        | 700     |        
|                                               |                                                                       |                                        |       |              |        |               |        |              |         |   |         |         |        |   |        |        
|                                               |                                                                       | Net cash used for investing activities |       |              | (2,014 | )             |        |              | (651    | ) |         |         | (9,551 | ) |        |         | (12,216 | )
|Cash flows from financing
	activities:         |                                                                       |                                        |       |              |        |               |        |              |         |   |         |         |        |   |        |        
|                                               | Borrowings (repayments) on credit facility, net
	of issuance costs    |                                        |       | (14,543      | )      |               |        |             |         |   |         |        |        |   |        | (14,543 | )      
|                                               | Principle payments on capital lease obligations                       |                                        |       |             |        |               |        |             |         |   |         |        |        |   |        |        |        
|                                               | Debt issuance costs                                                   |                                        |       | (2,393       | )      |               |        |             |         |   |         |        |        |   |        | (2,393  | )      
|                                               | Other net activity with Parent                                        |                                        |       | 14,506       |        |               |        | (36,896      | )       |   |         | 22,390  |        |   |        |        |        
|                                               |                                                                       |                                        |       |              |        |               |        |              |         |   |         |         |        |   |        |        
|                                               |                                                                       | Net cash used for financing activities |       |              | (2,430 | )             |        |              | (36,896 | ) |         |         | 22,390 |   |        |         | (16,936 | )
|                                               |                                                                       |                                        |       |              |        |               |        |              |         |   |         |         |        |   |        |        
|Net increase in cash and cash equivalents      |                                                                       |                                        | 3,908 |              |        |               | 353    |              |         |   | 2,837   |         |        |   | 7,098  |        
|Cash and cash equivalents, beginning of period |                                                                       |                                        | 175   |              |        |               | 959    |              |         |   | 1,883   |         |        |   | 3,017  |        
|                                               |                                                                       |                                        |       |              |        |               |        |              |         |   |         |         |        |   |        |        
|Cash and cash equivalents, end of period       |                                                                       | $                                      | 4,083 |              |        | $             | 1,312  |              |         | $ | 4,720   |         |        | $ | 10,115 |        
|                                               |                                                                       |                                        |       |              |        |               |        |              |         |   |         |         |        |   |        |        

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SCHEDULE II

THE HOLMES GROUP, INC.

VALUATION AND QUALIFYING ACCOUNTS

(In thousands)


|                                 |                              |            |   |            |  |          |   |             |  |               |  |           |  |  |   |       |  |  |   |       |  |  |   |        | 
|-------------------------------- | ---------------------------- | ---------- | - | ---------- |  | -------- | - | ----------- |  | ------------- |  | --------- |  |  | - | ----- |  |  | - | ----- |  |  | - | ------ | 
|                                 |                              |            |   |            |  |          |   |             |  |              
|                                 |                              |            |   | Additions  |  |          |   | Deductions  |  |              
|                                 |                              |            |   |            |  |          |   |             |  |              
|                                 |                              | Balance at |   | Charged to |  | Charged  |   |             |  | Write-off of  |  | Balance  
|                                 |                              | Beginning  |   | Costs and  |  | to Other |   |             |  | Uncollectible |  | at End   
|                                 |                              | of Period  |   | Expenses   |  | Accounts |   | Acquisition |  | Accounts      |  | of Period
|                                 |                              |            |   |            |  |          |   |             |  |               |  |          
|Allowance for doubtful accounts: |                              |            |   |            |  |          |   |             |  |               |  |           |  |  |   |       |  |  |   |       |  |  |   |       
|                                 | Year ended December 31, 1999 |            | $ | 719        |  |          | $ | 1,297       |  |               |  |          |  |  | $ | 7,740 |  |  | $ | 710   |  |  | $ | 9,046  | 
|                                 | Year ended December 31, 2000 |            |   | 9,046      |  |          |   | 4,543       |  |               |  |          |  |  |   |      |  |  |   | 3,967 |  |  |   | 9,622  | 
|                                 | Year ended December 31, 2001 |            |   | 9,622      |  |          |   | 15,219      |  |               |  |          |  |  |   |      |  |  |   | 6,639 |  |  |   | 18,202 | 

|                                  |                              |            |   |            |  |           |   |            |  |          |  |           |  |  |  |   |  |  |  |   |  |  |   |        | 
|--------------------------------- | ---------------------------- | ---------- | - | ---------- |  | --------- | - | ---------- |  | -------- |  | --------- |  |  |  | - |  |  |  | - |  |  | - | ------ | 
|                                  |                              |            |   |            |  |           |   |            |  |         
|                                  |                              |            |   | Additions  |  |           |   |            |  |         
|                                  |                              |            |   |            |  |           |   |           
|                                  |                              |            |   |            |  | Net       |   | Deductions |  |         
|                                  |                              |            |   |            |  | Operating |   |            |  |         
|                                  |                              |            |   | Charged to |  | Losses    |   | Net        |  |          |  |          
|                                  |                              | Balance at |   | Income     |  | Without   |   | Operating  |  | Charged  |  | Balance  
|                                  |                              | Beginning  |   | Tax        |  | Tax       |   | Losses     |  | to Other |  | at End   
|                                  |                              | of Period  |   | Expense    |  | Benefit   |   | Utilized   |  | Accounts |  | of Period
|                                  |                              |            |   |            |  |           |   |            |  |          |  |          
|Deferred tax valuation allowance: |                              |            |   |            |  |           |   |            |  |          |  |           |  |  |  |   |  |  |  |   |  |  |   |       
|                                  | Year ended December 31, 1999 |            | $ | 1,367      |  |           | $ | 283        |  |          |  |          |  |  |  |  |  |  |  |  |  |  | $ | 1,650  | 
|                                  | Year ended December 31, 2000 |            |   | 1,650      |  |           |   | 16,891     |  |          |  |          |  |  |  |  |  |  |  |  |  |  |   | 18,541 | 
|                                  | Year ended December 31, 2001 |            |   | 18,541     |  |           |   | 13,890     |  |          |  |          |  |  |  |  |  |  |  |  |  |  |   | 32,431 | 

|                                |                              |            |   |            |  |             |   |              |  |           |   |        |  |  |   |        |  |  |   |        | 
|------------------------------- | ---------------------------- | ---------- | - | ---------- |  | ----------- | - | ------------ |  | --------- | - | ------ |  |  | - | ------ |  |  | - | ------ | 
|                                |                              |            |   |            |  |             |   |             
|                                |                              | Additions  |   |            |  |            
|                                |                              |            |   | Deductions |  |            
|                                |                              | Balance at |   | Charged to |  |             |   | Balance     
|                                |                              | Beginning  |   | Costs and  |  |             |   | Write-off    |  | at End   
|                                |                              | of Period  |   | Expenses   |  | Acquisition |   | of Inventory |  | of Period
|                                |                              |            |   |            |  |             |   |              |  |          
|Inventory obsolescence reserve: |                              |            |   |            |  |             |   |              |  |           |   |        |  |  |   |        |  |  |   |       
|                                | Year ended December 31, 1999 |            | $ | 3,917      |  |             | $ | 9,356        |  |           | $ | 10,082 |  |  | $ | 12,423 |  |  | $ | 10,932 | 
|                                | Year ended December 31, 2000 |            |   | 10,932     |  |             |   | 17,347       |  |           |   |       |  |  |   | 9,854  |  |  |   | 18,425 | 
|                                | Year ended December 31, 2001 |            |   | 18,425     |  |             |   | 1,667        |  |           |   |       |  |  |   | 9,780  |  |  |   | 10,312 | 






|        |                                                                                      
|------- | -------------------------------------------------------------------------------------
|Item 9. | Changes in and Disagreements with
	Accountants on Accounting and Financial Disclosure

Not applicable.

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##### Table of Contents






PART III




Item 10.     Directors
and Executive Officers of the Registrant

The following table sets forth certain
information with respect to our directors and executive
officers. The directors are elected annually by the
stockholders. Pursuant to the terms of a Stockholders
Agreement entered into in connection with the 1997
recapitalization transactions, the stockholders have agreed to
vote in favor of the election of the persons named as directors
below.

|                     |  |     |    |          |  |                                                                      
|-------------------- |  | --- | -- | -------- |  | ---------------------------------------------------------------------
|Name                 |  | Age |    | Position
|                     |  |     |    |         
|Jordan A. Kahn       |  |     | 60 |          |  | Chairman of the Board of Directors                                   
|Peter J. Martin      |  |     | 46 |          |  | President, Chief Executive Officer and Director                      
|Gregory F. White     |  |     | 38 |          |  | Executive Vice President, Sales and Marketing and
	Director          
|John M. Kelliher     |  |     | 50 |          |  | Senior Vice President and Chief Financial Officer                    
|(Tommy) Woon Fai Liu |  |     | 49 |          |  | Managing Director of Holmes Far East
	Operations and Director       
|Louis F. Cimini      |  |     | 47 |          |  | Senior Vice President  Human Resources
	and Organization Performance
|Richard K. Lubin     |  |     | 55 |          |  | Director                                                             
|Randy Peeler         |  |     | 37 |          |  | Director                                                             
|Stanley Rosenzweig   |  |     | 37 |          |  | Director                                                             
|Fred J. Musone       |  |     | 57 |          |  | Director (Nominee)                                                   

Jordan A. Kahn,
Holmes founder and Chairman of the Board of Directors, had
served as President and Chief Executive Officer and a director
since Holmes organization in 1982. Since 1968,
Mr. Kahn has also been President of Jordan Kahn Co., Inc. a
manufacturers representative representing small electric
personal appliance manufacturers, including the Company, to
retailers across the Northeast.

Peter J. Martinjoined the Company in August 2001 as President and Chief
Executive Officer. Prior thereto, he was Group President Home
Décor business for Newell Rubbermaid, a NYSE-listed
housewares company, since November 2000. From December 1997
through October 2000 he was President of Newell Window Fashions
Europe. From May 1994 to November 1997 he was Vice
President  Group Controller.

Gregory F. Whitehas
served as Executive Vice President, Sales and Marketing since
1995, and from 1993 to 1995 as Vice President Marketing. He
became a director of Holmes in 1997. Mr. White served as
Account Supervisor at Ammirati & Puris, an advertising
agency, from 1992 to 1993 and as Account Manager at the
advertising agency DArcy, Masius, Benton & Bowles from
1991 to 1992.

John M. Kelliher,
Senior Vice President and Chief Financial Officer, joined Holmes
in February 2002 from The Stride Rite Corporation, a NYSE-listed
footwear marketer, where he spent twenty years in a number of
financial management positions, including Chief Financial
Officer and Treasurer from February 1998 to April 2001 and Vice
President  Finance and Treasurer from February 1993
to January 1998.

(Tommy) Woon Fai Liubecame Managing Director of Holmes Far East operations
upon the closing of the 1997 recapitalization transactions. From
1993 to 1997, Mr. Liu served as Chief Financial Officer and
Executive Director of Asco General Supplies Far East Limited, a
subsidiary of Pentland Group plc, our former majority
stockholder, as well as Executive Director of Holmes Far East
since 1994. From 1989 to 1993, Mr. Liu was Finance Director
for Johnson & Johnson Hong Kong. He became a director of
Holmes during 1999.

Louis F. Ciminijoined Holmes in December 1999 from CGU, an insurance company,
where he was Vice President of Human Resources for two years.
Prior to joining CGU, Mr. Cimini spent nine years with PHH
(now Cendant Mobility), a Fortune 500 corporate services
organization, as Senior Vice President of Human

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Resources and Quality, where he lead the human
resources elements of restructuring and re-engineering during
several acquisitions.


Richard K. Lubinis
a Managing Director of Berkshire Partners, which he co-founded
in 1986. He became a director of Holmes in 1997, and has been a
director of many of Berkshires manufacturing, retailing
and transportation investments, including, among others, U.S.
Can Corporation and English Welsh & Scottish Railway, Ltd.

Randy Peeleris a
Managing Director of Berkshire Partners, where he has been
employed since 1996. From 1994 to 1996, he was responsible for
new business ventures at Health Advances, a healthcare industry
consulting firm. From 1993 to 1994, he served as Chief of Staff
to the Assistant Secretary for Economic Policy at the U.S.
Department of the Treasury. Prior to that, he was a consultant
with Cannon Associates. Mr. Peeler became a director of
Holmes in 1997, and also serves as a director of Casella Waste
Systems, Inc. and Weigh-Tronix, LLC.

Stanley Rosenzweigserved with Holmes from 1991 until December 2001, initially as
Vice President  Operations, and from 1993 until
December 2001, as Chief Operating Officer and a director.
Mr. Rosenzweig resigned from the Company in December 2001,
but will continue to serve as a director of the Company.

Fred J. Musonehas
been nominated to join the Holmes Board of Directors upon the
annual stockholders meeting to be held in April 2002.
Mr. Musone is currently a consultant with several companies
in the automotive industry. From 1995 to 1998 he was President
of Morton Auto Safety Products, the worlds largest
manufacturer of air bag modules and inflators. Prior to that,
Mr. Musone spent over 25 years at Federal Mogul, a
worldwide automotive parts supplier, in various executive and
senior management positions.




Item 11.     Executive
Compensation

Summary

The following Summary Compensation Table sets
forth information concerning the compensation paid or accrued by
Holmes to the Chief Executive Officer and certain other persons
who served as executive officers during the fiscal year ended
December 31, 2001.

|                     |                                       |  |      |                     |  |                        |         |                 |  |           |         |                 |  |   |        |        |  |  |           |         |  |   |       |       | 
|-------------------- | ------------------------------------- |  | ---- | ------------------- |  | ---------------------- | ------- | --------------- |  | --------- | ------- | --------------- |  | - | ------ | ------ |  |  | --------- | ------- |  | - | ----- | ----- | 
|                     |                                       |  |      |                     |  |                       
|                     |                                       |  |      | Annual Compensation |  | Long-Term Compensation
|                     |                                       |  |      |                     |  |                       
|Name and             |                                       |  |      |                     |  | Other Annual           |         | Stock Option    |  | All Other
|Principal Position   |                                       |  |      | Salary              |  | Bonus                  |         | Compensation(1) |  | Shares    |         | Compensation(2)
|                     |                                       |  |      |                     |  |                        |         |                 |  |           |         |                
|Jordan A. Kahn       |                                       |  | 2001 |                     |  | $                      | 501,430 |                 |  | $         | 115,000 |                 |  | $ | 15,600 |        |  |  |          |         |  | $ |      |      
|                     | Chairman of the                       |  |      | 2000                |  |                        |         | 501,986         |  |           |         |                |  |   |        | 15,600 |  |  |           |        |  |   |       |      | 
|                     | Board of Directors                    |  |      | 1999                |  |                        |         | 488,804         |  |           |         | 112,500         |  |   |        | 15,600 |  |  |           | 490,538 |  |   |       |      | 
|Peter J. Martin      |                                       |  | 2001 |                     |  |                        | 178,200 |                 |  |           | 89,100  |                 |  |   | 60,765 | (3)    |  |  | 1,000,000 |         |  |   |      |      
|                     | President and Chief Executive Officer |  |      |                     |  |                        |         |                 |  |           |         |                 |  |   |        |        |  |  |           |         |  |   |       |       | 
|Stanley Rosenzweig   |                                       |  | 2001 |                     |  |                        | 376,678 |                 |  |           | 86,250  |                 |  |   | 15,600 |        |  |  |          |         |  |   |      |      
|                     | Chief Operating Officer               |  |      | 2000                |  |                        |         | 377,250         |  |           |         |                |  |   |        | 15,600 |  |  |           |        |  |   |       |      | 
|                     |                                       |  | 1999 |                     |  |                        | 353,441 |                 |  |           | 112,500 |                 |  |   | 15,600 |        |  |  | 367,903   |         |  |   | 4,800 |      
|Gregory F. White     |                                       |  | 2001 |                     |  |                        | 317,217 |                 |  |           | 71,760  |                 |  |   | 11,400 |        |  |  |          |         |  |   |      |      
|                     | Executive Vice President              |  |      | 2000                |  |                        |         | 321,006         |  |           |         |                |  |   |        | 10,200 |  |  |           |        |  |   |       |      | 
|                     | Sales and Marketing                   |  |      | 1999                |  |                        |         | 277,638         |  |           |         | 112,500         |  |   |        | 10,200 |  |  |           | 367,903 |  |   |       | 4,800 | 
|(Tommy) Woon Fai Liu |                                       |  | 2001 |                     |  |                        | 260,000 |                 |  |           | 59,800  |                 |  |   | 44,701 |        |  |  |          |         |  |   |      |      
|                     | Managing Director of                  |  |      | 2000                |  |                        |         | 260,000         |  |           |         |                |  |   |        | 44,701 |  |  |           |        |  |   |       |      | 
|                     | Holmes Far East                       |  |      | 1999                |  |                        |         | 250,000         |  |           |         | 112,500         |  |   |        | 43,701 |  |  |           | 50,000  |  |   |       |      | 



---



|    |                                                                                                                                        
|--- | ---------------------------------------------------------------------------------------------------------------------------------------
|(1) | Primarily represents automobile allowance, annual
	living expense allowance or annual lease payments on automobile
	provided by Holmes.
|   
|(2) | Represents Holmes matching contribution
	under its 401(k) plan.                                                                       

59



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|    |                                                                                                                                   
|--- | ----------------------------------------------------------------------------------------------------------------------------------
|(3) | Represents the payment of a signing bonus and
	related relocation expenses in connection with joining the
	Company in August 2001.

Option Grants in Last Fiscal Year

The following table describes stock options
granted during 2001 to the executive officers set forth in the
Summary Compensation Table above.

|                |  |                |           |               |  |              |      |            |  |                          |      |     |  |  |          |  |  |  |           |  |  |  |           | 
|--------------- |  | -------------- | --------- | ------------- |  | ------------ | ---- | ---------- |  | ------------------------ | ---- | --- |  |  | -------- |  |  |  | --------- |  |  |  | --------- | 
|                |  |                |           |               |  |              |      |            |  |                         
|                |  |                |           |               |  |              |      |            |  | Potential Realizable    
|                |  |                |           |               |  |              |      |            |  | Value at Assumed        
|                |  | Number of      |           | Percent of    |  |              |      |            |  | Annual Rate of          
|                |  | Securities     |           | Total Options |  |              |      |            |  | Stock Price Appreciation
|                |  | Underlying     |           | Granted to    |  |              |      |            |  | for Option Term ($)(2)  
|                |  | Options        |           | Employees     |  | Exercise     |      | Expiration |  |                         
|Name            |  | Granted (#)(1) |           | in 2001       |  | Price ($/Sh) |      | Date       |  | 5%                       |      | 10%
|                |  |                |           |               |  |              |      |            |  |                          |      |    
|Peter J. Martin |  |                | 1,000,000 |               |  |              | 64.7 | %          |  | $                        | 3.50 |     |  |  | 11-30-11 |  |  |  | 2,200,000 |  |  |  | 5,580,000 | 



---



|    |                                                                                                                                                                                                                                                                                                                                                                                                                                                         
|--- | --------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
|(1) | These options to purchase Holmes common
	stock were granted under Holmes 1997 Stock Option Plan.
	Approximately one-half of each option grant consists of
	incentive stock options, vesting over a five-year
	period. The remaining options are non-qualified options whose
	vesting is tied to a specific target price for Holmes
	common stock.                                                                                                  
|   
|(2) | Net gains from potential stock option exercises
	are estimated based on assumed rates of stock price appreciation
	over the option term as set forth in rules promulgated by the
	Securities and Exchange Commission, and are not intended to
	forecast future appreciation of Holmes common stock. The
	actual net gains, if any, are dependent on the actual future
	performance of the common stock, for which there is currently no
	public market.

Aggregated Option Exercises and Fiscal Year
End Values

The following table sets forth certain
information concerning the number and value of unexercised
options to purchase Holmes common stock at
December 31, 2001.

|                     |  |              |   |              |  |                             |   |                      |  |             |         |               |  |  |           |  |  |  |   |  |  |  |   | 
|-------------------- |  | ------------ | - | ------------ |  | --------------------------- | - | -------------------- |  | ----------- | ------- | ------------- |  |  | --------- |  |  |  | - |  |  |  | - | 
|                     |  |              |   |              |  |                             |   |                     
|                     |  |              |   |              |  | Number of Shares Underlying |   | Value of Unexercised
|                     |  |              |   |              |  | Unexercised Options at      |   | In-the-Money        
|                     |  | Shares       |   |              |  | Year-End (#)                |   | Options ($)(2)      
|                     |  | Acquired on  |   | Value        |  |                             |   |                     
|Name                 |  | Exercise (#) |   | Realized ($) |  | Exercisable(1)              |   | Unexercisable        |  | Exercisable |         | Unexercisable
|                     |  |              |   |              |  |                             |   |                      |  |             |         |              
|Jordan A. Kahn       |  |              |  |              |  |                             |  |                      |  |             | 403,545 |               |  |  | 384,710   |  |  |  |  |  |  |  |  | 
|Peter J. Martin      |  |              |  |              |  |                             |  |                      |  |             |        |               |  |  | 1,000,000 |  |  |  |  |  |  |  |  | 
|Stanley Rosenzweig   |  |              |  |              |  |                             |  |                      |  |             | 665,620 |               |  |  |          |  |  |  |  |  |  |  |  | 
|Gregory F. White     |  |              |  |              |  |                             |  |                      |  |             | 325,991 |               |  |  | 339,629   |  |  |  |  |  |  |  |  | 
|(Tommy) Woon Fai Liu |  |              |  |              |  |                             |  |                      |  |             | 56,000  |               |  |  | 54,000    |  |  |  |  |  |  |  |  | 



---



|    |                                                                                                                                                                                                                                                                                                                                                                                                     
|--- | ----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
|(1) | Includes non-qualified options whose vesting is
	tied to specific Holmes performance measures.                                                                                                                                                                                                                                                                                                      
|   
|(2) | Represents the assumed value of shares of
	Holmes common stock covered by outstanding options, less
	the aggregate option exercise price. There is currently no
	public market for Holmes common stock. An independent
	valuation was made of the common stock during 2001 that valued
	the common stock at $3.50 per share. This value was used in
	setting all of the option grants during 2001.

60



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Item 12.     Security
Ownership of Certain Beneficial Owners and Management

The following table sets forth certain
information regarding the beneficial ownership of Holmes
common stock. Except as indicated in the footnotes to this
table, the Company believes that the persons named in this table
have sole voting and investment power with respect to all shares
of common stock indicated.

|                                                                        |                                                                 |           |            |             |  |  |      |   | 
|----------------------------------------------------------------------- | --------------------------------------------------------------- | --------- | ---------- | ----------- |  |  | ---- | - | 
|                                                                        |                                                                 |           |            | Percent of 
|                                                                        |                                                                 | Number    |            | Outstanding
|Name and Address of Beneficial Owner(1)                                 |                                                                 | of Shares |            | Shares(2)  
|                                                                        |                                                                 |           |            |            
|Berkshire Fund IV, Limited Partnership(3)                               |                                                                 |           | 15,052,594 |             |  |  | 74.0 | %
|Berkshire Fund V, Limited Partnership                                   |                                                                 |           |            |             |  |  |      |  
|                                                                        | c/o Berkshire Partners LLC
	One Boston Place
	Boston, MA 02108  |           |            |             |  |  |      |   | 
|Jordan A. Kahn(4)                                                       |                                                                 |           | 2,954,158  |             |  |  | 14.1 |  
|Bain Securities, Inc.(5)                                                |                                                                 |           | 1,028,214  |             |  |  | 5.1  |  
|                                                                        | c/o Bain Capital, Inc.
	111 Huntington Avenue
	Boston, MA 02199 |           |            |             |  |  |      |   | 
|Peter J. Martin                                                         |                                                                 |           |           |             |  |  | *    |  
|Stanley Rosenzweig(4)                                                   |                                                                 |           | 951,516    |             |  |  | 4.5  |  
|Gregory F. White(4)                                                     |                                                                 |           | 630,654    |             |  |  | 3.0  |  
|(Tommy) Woon Fai Liu(4)                                                 |                                                                 |           | 212,203    |             |  |  | 1.0  |  
|Richard Lubin(6)                                                        |                                                                 |           | 15,052,594 |             |  |  | 74.0 |  
|Randy Peeler(6)                                                         |                                                                 |           | 15,052,594 |             |  |  | 74.0 |  
|All current directors and executive officers as a
	group (9 persons)(7) |                                                                 |           | 19,811,125 |             |  |  | 89.6 |  



---



|    |                                                                                                                                                                                                                                                                                                                                                                                                                                                            
|--- | -----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
|*   | Less than 1.0%                                                                                                                                                                                                                                                                                                                                                                                                                                             
|   
|(1) | Unless otherwise specified, the address of each
	person is c/o The Holmes Group, Inc., One Holmes Way, Milford,
	MA 01757.                                                                                                                                                                                                                                                                                                                                 
|   
|(2) | Beneficial ownership is determined in accordance
	with the rules of the Commission and reflects general voting
	power and/or investment power with respect to securities. In
	addition to the 20,331,567 shares of common stock outstanding as
	of the date hereof, shares of common stock subject to options or
	warrants exercisable within 60 days are deemed outstanding.                                                                              
|   
|(3) | Includes shares held by various investment
	entities affiliated with Berkshire Partners LLC.                                                                                                                                                                                                                                                                                                                                                               
|   
|(4) | Includes shares which may be held by family
	members or affiliates. Includes the following shares subject to
	vested stock options: Mr. Kahn - 561,197 shares;
	Mr. Rosenzweig - 665,620 shares; Mr. White -
	459,116 shares; and Mr. Liu - 78,000 shares. With
	respect to Mr. Kahn, includes 189,472 shares held in trust
	for employees of the Company as to which Mr. Kahn is voting
	trustee. Mr. Kahn disclaims beneficial ownership of such
	shares.
|   
|(5) | Includes shares held by affiliated investment
	entities.                                                                                                                                                                                                                                                                                                                                                                                                   
|   
|(6) | This person is affiliated with Berkshire Partners
	LLC and may be deemed to have a beneficial interest in certain
	of the shares held by its affiliates. This person disclaims
	beneficial ownership of shares in which he has no pecuniary
	interest.                                                                                                                                                                                                     
|   
|(7) | Includes stock options and voting trust shares
	referred to in Note 4 and the shares referred to in Note 6,
	as well as an additional 10,000 option shares.                                                                                                                                                                                                                                                                                                




Item
13.     Certain Relationships and
Related Transactions

Pursuant to a letter agreement dated
December 10, 1998 with two investment funds affiliated with
Berkshire Partners (the Letter Agreement), Berkshire Partners
received a fee of $2.0 million from Holmes as of the
closing of the Rival acquisition. Pursuant to a Management
Agreement (the Management Agreement),

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##### Table of Contents



entered into in November 1997 in connection with
the 1997 Transactions, Berkshire Partners received a
$1.5 million fee from Holmes and an annual fee of $400,000
per year for the provision of management and advisory services.
The Letter Agreement increased the annual management fee to
$500,000 following the closing of the Rival acquisition. The
Management Agreement will be in effect until November, 2002,
provided that the Management Agreement will terminate on the
later of the first date that (i) Berkshire Partners owns
less than 40.0% of Holmes common stock on a fully diluted
basis, and (ii) Berkshire Partners owns fewer common shares
than the members of Holmes management, taken as a group,
or fewer shares than any other single stockholder. Berkshire
Partners is also entitled to designate two of Holmes
directors and has the right, at its election, to increase the
size of the Board of Directors and the number of directors
designated by it by an additional two directors. From time to
time, Holmes may pay additional consulting or other fees to
Berkshire Partners.


Effective May 7, 2001, Holmes agreed to pay
the two investment funds affiliated with Berkshire Partners a
guarantee fee as consideration for Berkshires guarantee of
up to $43.5 million of the obligations under the Credit
Facility. Payment of these fees is subordinated to our
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), on which portion such fee is 20% per
annum, compounded annually.

During 2001, investment funds affiliated with
Berkshire Partners purchased the Companys Senior
Subordinated Notes Due 2007 on the open market. They purchased
approximately $36.2 million principal amount of bonds,
which the Company purchased from the Berkshire Partners funds at
cost plus accrued interest (approximately $12.8 million) as part
of the Fifth Amendment to the Credit Facility as fully described
in Note 8 of Notes to Consolidated Financial Statements
under Item 8 of this Report.

Since its inception in 1982, Holmes has retained
Jordan Kahn Co., Inc. (JKC), a corporation owned by Jordan A.
Kahn, to serve as a sales representative for Holmes in the
northeastern United States. Pursuant to a representation
agreement between Holmes and JKC, Holmes has agreed to pay to
JKC a commission on net sales to JKCs customers in its
territory, which fee is the same fee paid by Holmes to other
unaffiliated sales representative organizations representing
Holmes in other territories throughout the United States.
Pursuant to this arrangement, Holmes paid a total of $287,000,
$337,000 and $215,000 to JKC for the years ended
December 31, 1999, 2000 and 2001, respectively.

In connection with the November 1997
recapitalization transactions, Holmes purchased a portion of the
shares of common stock of Holmes beneficially owned by an
affiliate of Pentland, its former majority stockholder. At this
time, Holmes entered into new employment agreements with
Messrs. Kahn, Rosenzweig, White and Liu, and made certain
payments to Messrs. Kahn, Rosenzweig and White in
connection with the 1997 transactions. The agreements with
Messrs. Kahn and Rosenzweig were modified during fiscal
2001, and Holmes entered into an employment agreement with Peter
Martin in connection with his joining Holmes in August 2001. The
material terms of these employment agreements are described
above in Note 14 of Notes to Consolidated Financial
Statements under Item 8 of this Report.

In connection with the Rival acquisition, Holmes
retained an affiliate of Bain Securities, Inc., a stockholder of
Holmes, to perform acquisition consulting services, for which
Holmes paid approximately $300,000 during 1998 and approximately
$1,925,000 during 1999. Approximately $500,000 of the 1999 fees
were paid in the form of 99,222 shares of Holmes common
stock. The Company also paid $350,000 for professional fees
related to the divestiture of Rivals commercial and
industrial and pump division business assets during 1999. The
remaining fees were paid in connection with the acquisition and
for other general consulting services.

62



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##### Table of Contents






PART IV




Item
14.     Exhibits, Financial
Statement Schedules, and Reports on Form 8-K

(a) The following documents are filed as a
part of this Report.



| |                                                                                                                                                                  
| | -----------------------------------------------------------------------------------------------------------------------------------------------------------------
| | 1.     Financial
	Statements are listed in the Index to Consolidated Financial
	Statements contained in Item 8 of this Report.                                   
|
| | 2.     Financial
	Statement Schedules, to the extent required, are listed in the
	Index to Consolidated Financial Statements contained in
	Item 8 of this Report.
|
| | 3.     Exhibits are
	listed in subsection (c) below.                                                                                                             

(b) Reports on Form 8-K:

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

(c) Exhibits:

|        |      |             |  |                                                                                                                                                                                                                                                                                                                                         
|------- | ---- | ----------- |  | ----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
|Exhibit |      |            
|Number  |      | Description
|        |      |            
|        | 3.1  |             |  | Articles of Organization (as amended) of The
	Holmes Group, Inc. f/k/a Holmes Products Corp.(1)                                                                                                                                                                                                                                         
|        | 3.2  |             |  | Articles of Organization of Holmes Manufacturing
	Corp.(1)                                                                                                                                                                                                                                                                              
|        | 3.3  |             |  | Articles of Organization of Holmes Air (Taiwan)
	Corp.(1)                                                                                                                                                                                                                                                                               
|        | 3.4  |             |  | Certificate of Incorporation of Holmes Motor
	Corp.(4)                                                                                                                                                                                                                                                                                  
|        | 3.5  |             |  | Restated Certificate of Incorporation (as
	amended) of The Rival Company(4)                                                                                                                                                                                                                                                             
|        | 3.6  |             |  | Certificate of Incorporation (as amended) of
	Rival Consumer Sales Corporation(4)                                                                                                                                                                                                                                                       
|        | 3.7  |             |  | Bylaws (as amended) of The Holmes Group, Inc.
	f/k/a Holmes Products Corp.(1)                                                                                                                                                                                                                                                           
|        | 3.8  |             |  | By-laws of Holmes Manufacturing Corp.(1)                                                                                                                                                                                                                                                                                                
|        | 3.9  |             |  | By-laws of Holmes Air (Taiwan) Corp.(1)                                                                                                                                                                                                                                                                                                 
|        | 3.10 |             |  | By-laws of Holmes Motor Corp.(4)                                                                                                                                                                                                                                                                                                        
|        | 3.11 |             |  | By-laws of The Rival Company(4)                                                                                                                                                                                                                                                                                                         
|        | 3.12 |             |  | By-laws of Rival Consumer Sales Corporation(4)                                                                                                                                                                                                                                                                                          
|        | 4.1  |             |  | Stockholders Agreement dated
	November 26, 1997 among The Holmes Group, Inc. f/k/a Holmes
	Products Corp. and certain stockholders thereof(1)                                                                                                                                                                                          
|        | 4.2  |             |  | Registration Rights Agreement dated
	November 26, 1997 among The Holmes Group, Inc. f/k/a Holmes
	Products Corp. and certain stockholders thereof(1)                                                                                                                                                                                    
|        | 4.3  |             |  | Indenture dated November 26, 1997 among The
	Holmes Group, Inc. f/k/a Holmes Products Corp., Holmes
	Manufacturing Corp., Holmes Air (Taiwan) Corp. and State Street
	Bank and Trust Company(1)                                                                                                                                         
|        | 4.4  |             |  | Form of Senior Subordinated Notes due
	2007  (Included in Exhibit 4.3)(1)                                                                                                                                                                                                                                                              
|        | 4.5  |             |  | Form of Note Guaranty  (Included in
	Exhibit 4.3)(1)                                                                                                                                                                                                                                                                                   
|        | 4.6  |             |  | First Supplemental Indenture and Guarantee dated
	October 14, 1998 among The Holmes Group, Inc. f/k/a Holmes
	Products Corp., Holmes Manufacturing Corp., Holmes Air (Taiwan)
	Corp., Holmes Motor Corp. and State Street Bank and Trust
	Company(4)                                                                                    
|        | 4.7  |             |  | Indenture dated February 5, 1999 among The
	Holmes Group, Inc. f/k/a Holmes Products Corp., Holmes
	Manufacturing Corp., Holmes Air (Taiwan) Corp., Holmes Motor
	Corp., The Rival Company, Patton Electric Company, Inc., Patton
	Building Products, Inc., Rival Consumer Sales Corporation and
	State Street Bank and Trust Company(3)

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|        |       |             |  |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                       
|------- | ----- | ----------- |  | --------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
|Exhibit |       |            
|Number  |       | Description
|        |       |            
|        | 4.8   |             |  | First Amendment to Registration Rights Agreement
	dated February 5, 1999 among The Holmes Group, Inc. f/k/a
	Holmes Products Corp. and certain stockholders thereof(4)                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                
|        | 4.9   |             |  | First Amendment to Stockholders Agreement
	dated February 5, 1999 among The Holmes Group, Inc. f/k/a
	Holmes Products Corp. and certain stockholders thereof(4)                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                      
|        | 4.10  |             |  | Second Supplemental Indenture and Guarantee dated
	February 5, 1999 among The Holmes Group, Inc. f/k/a Holmes
	Products Corp., Holmes Manufacturing Corp., Holmes Air (Taiwan)
	Corp., Holmes Motor Corp., Moriarty Acquisition Corp., The Rival
	Company, Patton Electric Company, Inc., Patton Building
	Products, Inc., Rival Consumer Sales Corporation and State
	Street Bank and Trust Company(4)                                                                                                                                                                                                                                                                                                                               
|        | 10.1  |             |  | Stock Purchase and Redemption Agreement dated as
	of October 27, 1997, as amended as of November 25,
	1997, among Asco Investments Ltd., Jordan A. Kahn, The
	Holmes Group, Inc. f/k/a Holmes Products Corp., Holmes Products
	(Far East) Limited and Holmes Acquisition LLC(1)                                                                                                                                                                                                                                                                                                                                                                                                                                                       
|        | 10.2  |             |  | Stock Purchase Agreement dated as of
	October 27, 1997 among Jordan A. Kahn and Holmes
	Acquisition LLC(1)                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                            
|        | 10.3  |             |  | Executive Employment and Non-Competition
	Agreement dated November 26, 1997 among The Holmes Group,
	Inc. f/k/a Holmes Products Corp. and Jordan A. Kahn
	(superceded by Exhibit 10.27)(1)                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                            
|        | 10.4  |             |  | Executive Employment and Non-Competition
	Agreement dated November 26, 1997 among The Holmes Group,
	Inc. f/k/a Holmes Products Corp. and Stanley Rosenzweig(1)                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                       
|        | 10.5  |             |  | Executive Employment and Non-Competition
	Agreement dated November 26, 1997 among The Holmes Group,
	Inc. f/k/a Holmes Products Corp. and Gregory F. White(1)                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                         
|        | 10.6  |             |  | Employment Agreement dated November 16, 1997
	among Holmes Products (Far East) Limited and (Tommy) Woon Fai
	Liu(1)                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                   
|        | 10.7  |             |  | The Holmes Group, Inc. f/k/a Holmes Products
	Corp. Amended and Restated 1997 Stock Option Plan(4)                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                    
|        | 10.8  |             |  | The Holmes Group, Inc. f/k/a Holmes Products
	Corp. Employee Stock Purchase Plan(4)                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                   
|        | 10.9  |             |  | Agreement and Plan of Merger dated
	December 17, 1998, by and among The Holmes Group, Inc.
	f/k/a Holmes Products Corp., Moriarty Acquisition Corp. and The
	Rival Company(2)                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                         
|        | 10.10 |             |  | Confidentiality Agreement dated October 1,
	1998, by and between The Holmes Group, Inc. f/k/a Holmes
	Products Corp. and BancAmerica Securities, Inc., on behalf of
	The Rival Company(2)                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                             
|        | 10.11 |             |  | Purchase Agreement dated as of January 29,
	1999 among The Holmes Group, Inc. f/k/a Holmes Products Corp.,
	BancBoston Robertson Stephens Inc. and Lehman Brothers Inc.(2)                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                            
|        | 10.12 |             |  | Investors Subscription Agreement dated
	February 5, 1999 by and among The Holmes Group, Inc. f/k/a
	Holmes Products Corp. and certain investors(3)                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                    
|        | 10.13 |             |  | Amended and Restated Revolving Credit and Term
	Loan Agreement dated as of February 5, 1999 among The
	Holmes Group, Inc. f/k/a Holmes Products Corp., Moriarty
	Acquisition Corp., The Rival Company, Holmes Products (Far East)
	Limited, Esteem Industries Limited, Raider Motor Corporation,
	Holmes Products (Europe) Limited, Bionaire International B.V.,
	Patton Electric Hong Kong, Limited, and The Rival Company of
	Canada, Ltd., BankBoston, and the other lending institutions
	party thereto, BankBoston, N.A. as Administrative Agent and
	Lehman Commercial Paper Inc. as Documentation Agent, with
	BancBoston Robertson Stephens Inc. as Syndication Agent and
	Arranger and Lehman Brothers Inc. as Co-Arranger(3)
|        | 10.14 |             |  | Asset Purchase Agreement dated October 1,
	1999 by and among The Holmes Group, Inc. f/k/a Holmes Products
	Corp., The Rival Company and Sta-Rite Industries(5)                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                        

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|        |       |             |  |                                                                                                                                                                                                                                                
|------- | ----- | ----------- |  | -----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
|Exhibit |       |            
|Number  |       | Description
|        |       |            
|        | 10.15 |             |  | Agreement of Purchase and Sale of Assets dated
	December 21, 1999 by and among The Holmes Group, Inc., The
	Rival Company, Patton Building Products, Inc., Patton Electric
	Company, Inc. and The Marley Company(6)                            
|        | 10.16 |             |  | Employee Stockholders Agreement dated
	April 23, 1998(7)                                                                                                                                                                                      
|        | 10.17 |             |  | Voting Trust Agreement dated April 23,
	1998(7)                                                                                                                                                                                                
|        | 10.18 |             |  | Lease Agreement between The Holmes Group, Inc.
	and ACRE HPC, LLC dated as of January 7, 2000(8)                                                                                                                                               
|        | 10.19 |             |  | Form of Second Amendment to Amended and Restated
	Revolving Credit and Term Loan Agreement dated as of
	June 30, 2000 by and among The Holmes Group, Inc., its
	subsidiaries party thereto, and the lenders party thereto(9)                   
|        | 10.20 |             |  | Amendment to Lease Agreement between The Holmes
	Group, Inc. and ACRE HPC, LLC dated as of December 21,
	2000(10)                                                                                                                              
|        | 10.21 |             |  | Form of Forbearance Agreement and Third Amendment
	dated as of April 13, 2001 by and among The Holmes Group,
	Inc., its subsidiaries party thereto, and the lenders party
	thereto(10)                                                         
|        | 10.22 |             |  | Form of Fourth Amendment to Amended and Restated
	Revolving Credit and Term Loan Agreement and Limited Waiver
	dated as of May 7, 2001 by and among The Holmes Group,
	Inc., its subsidiaries party thereto, and the lenders party
	thereto(10)
|        | 10.23 |             |  | Form of Warrant Purchase Agreement and Common
	Stock Purchase Warrant dated as of May 7, 2001 by and among
	The Holmes Group, Inc. and the lenders party thereto, as
	investors(10)                                                            
|        | 10.24 |             |  | Form of Co-Sale Agreement dated as of May 7,
	2001 by and among The Holmes Group, Inc., certain affiliates of
	Berkshire Partners LLC, and the lenders party thereto, as
	investors(10)                                                        
|        | 10.25 |             |  | Executive Employment and Non-Competition
	Agreement dated August 1, 2001 between The Holmes Group,
	Inc. and Peter J. Martin(11)                                                                                                               
|        | 10.26 |             |  | Agreement of Purchase and Sale of Assets relating
	to the Pollenex division dated January 11, 2002, among The
	Holmes Group, Inc., The Rival Company, and Conair Corporation(12)                                                               
|        | 10.27 |             |  | Executive Employment and Non-Competition
	Agreement dated February 1, 2002 between The Holmes Group,
	Inc. and Jordan A. Kahn(13)                                                                                                              
|        | 10.28 |             |  | Form of Fifth Amendment to Amended and Restated
	Revolving Credit and Term Loan Agreement dated as of
	March 22, 2002 by and among The Holmes Group, Inc., its
	subsidiaries party thereto, and the lenders party thereto(13)                  
|        | 10.29 |             |  | Letter agreement regarding guaranty fees dated
	March 22, 2002 by and among The Holmes Group, Inc., its
	subsidiaries party thereto, and certain affiliates of Berkshire
	Partners LLC(13)                                                     
|        | 21.1  |             |  | Subsidiaries of Registrant(10)                                                                                                                                                                                                                 
|        | 23.1  |             |  | Consent of PricewaterhouseCoopers LLP(13)                                                                                                                                                                                                      



---



| |     |                                                                                                                              
| | --- | -----------------------------------------------------------------------------------------------------------------------------
| | (1) | Incorporated by reference to the
	Registrants Registration Statement on Form S-4, as
	amended (Registration No. 333-44473). 
|
| | (2) | Incorporated by reference to the
	Registrants Tender Offer Statement on Schedule 14D-1
	dated December 23, 1998, as amended.
|
| | (3) | Incorporated by reference to the
	Registrants Current Report on Form 8-K dated
	February 5, 1999.                           
|
| | (4) | Incorporated by reference to the
	Registrants Annual Report on Form 10-K for the fiscal
	year ended December 31, 1998.      
|
| | (5) | Incorporated by reference to the
	Registrants Current Report on Form 8-K dated
	October 8, 1999.                            
|
| | (6) | Incorporated by reference to the
	Registrants Current Report on Form 8-K dated
	December 21, 1999.                          

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##### Table of Contents





| |     |                                                                                                                             
| | --- | ----------------------------------------------------------------------------------------------------------------------------
| | (7) | Incorporated by reference to the
	Registrants Registration Statement on Form S-4, as
	amended (Registration No. 333-77905).
|
| | (8) | Incorporated by reference to the
	Registrants Annual Report on Form 10-K for the fiscal
	year ended December 31, 1999.     
|
| | (9) | Incorporated by reference to the
	Registrants Quarterly Report on Form 10-Q for the
	quarter ended June 30, 2000.          



|     |                                                                                                                        
|---- | -----------------------------------------------------------------------------------------------------------------------
|(10) | Incorporated by reference to the
	Registrants Annual Report on Form 10-K for the fiscal
	year ended December 31, 2000.
|    
|(11) | Incorporated by reference to the
	Registrants Quarterly Report on Form 10-Q for the
	quarter ended September 30, 2001.
|    
|(12) | Incorporated by reference to the
	Registrants Current Report on Form 8-K dated
	January 14, 2002.                     
|    
|(13) | Filed herewith.                                                                                                        

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##### Table of Contents



SIGNATURES

Pursuant to the requirements of Section 13
or 15(d) 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.



| |     |                    
| | --- | -------------------
| | By: | /s/ PETER J. MARTIN

| |                            
| | ---------------------------
| |                            
| | Peter J. Martin, President,
| | Chief Executive Officer    

Dated: March 29, 2002

Pursuant to the requirements of the Securities
Exchange Act of 1934, this Report has been signed by the
following persons on behalf of the registrant and in the
capacities and on the dates indicated.

|                                             |  |                                                                                                 |  |                |  | 
|-------------------------------------------- |  | ----------------------------------------------------------------------------------------------- |  | -------------- |  | 
|                                             |  |                                                                                                 |  |               
|Signature                                    |  | Title                                                                                           |  | Date          
|                                             |  |                                                                                                 |  |               
|                                            
|/s/ PETER J. MARTINPeter J. Martin           |  | President, Chief Executive Officer and Director
	(Principal Executive Officer)                  |  | March 29, 2002
|                                            
|/s/ JOHN M. KELLIHERJohn M. Kelliher         |  | Senior Vice President and Chief Financial Officer
	(Principal Financial and Accounting Officer) |  | March 29, 2002
|                                            
|/s/ JORDAN A. KAHNJordan A. Kahn             |  | Chairman of the Board of Directors                                                              |  | March 29, 2002
|                                            
|/s/ GREGORY F. WHITEGregory F. White         |  | Executive Vice President Sales and Marketing and
	Director                                      |  | March 29, 2002
|                                            
|/s/ RICHARD LUBINRichard Lubin               |  | Director                                                                                        |  | March 29, 2002
|                                            
|/s/ RANDY PEELERRandy Peeler                 |  | Director                                                                                        |  | March 29, 2002
|                                            
|/s/ (TOMMY) WOON FAI LIU(Tommy) Woon Fai Liu |  | Director                                                                                        |  | March 29, 2002
|                                            
|/s/ STANLEY ROSENZWEIGStanley Rosenzweig     |  | Director                                                                                        |  | March 29, 2002

67