UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, DC 20549
FORM 10-Q
QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d)
OF THE
SECURITIES EXCHANGE ACT OF 1934
FOR THE QUARTERLY PERIOD ENDED SEPTEMBER 30, 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 (I.R.S. EMPLOYER
OF INCORPORATION OR ORGANIZATION) IDENTIFICATION NO.)
ONE HOLMES WAY, MILFORD MASSACHUSETTS 01757
(ADDRESS OF PRINCIPAL EXECUTIVE OFFICES) (ZIP CODE)
(508) 634-8050
(REGISTRANT'S TELEPHONE NUMBER)
INDICATE BY CHECK MARK WHETHER THE REGISTRANT (1) HAS FILED ALL REPORTS REQUIRED
TO BE FILED BY SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 DURING
THE PRECEDING 12 MONTHS (OR FOR SUCH SHORTER PERIOD THAT THE REGISTRANT WAS
REQUIRED TO FILE SUCH REPORTS), AND (2) HAS BEEN SUBJECT TO SUCH FILING
REQUIREMENTS FOR THE PAST 90 DAYS.
YES [X] NO [ ]
THE HOLMES GROUP, INC.
FORM 10-Q
QUARTER ENDED SEPTEMBER 30, 2001
TABLE OF CONTENTS
PAGE
PART I. FINANCIAL INFORMATION 3
ITEM 1. FINANCIAL STATEMENTS 3
CONSOLIDATED BALANCE SHEET AT
DECEMBER 31, 2000 AND SEPTEMBER 30, 2001 (UNAUDITED) 3
CONSOLIDATED STATEMENT OF INCOME FOR
THE THREE MONTHS AND NINE MONTHS ENDED SEPTEMBER 30, 2000 AND
SEPTEMBER 30, 2001 (UNAUDITED) 4
CONSOLIDATED STATEMENT OF CASH FLOWS FOR THE
NINE MONTHS ENDED SEPTEMBER 30, 2000 AND
SEPTEMBER 30, 2001 (UNAUDITED) 5
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS 6
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL
CONDITION AND RESULTS OF OPERATIONS 21
ITEM 3. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK 27
PART II. OTHER INFORMATION 27
SIGNATURES 29
2
PART I. FINANCIAL INFORMATION
ITEM 1. FINANCIAL STATEMENTS
THE HOLMES GROUP, INC.
CONSOLIDATED BALANCE SHEET
(IN THOUSANDS)
DECEMBER 31, SEPTEMBER 30,
2000 2001 (UNAUDITED)
----------- ----------------
ASSETS
Current assets:
Cash and cash equivalents ............................................... $ 3,017 $ 5,461
Accounts receivable, net of allowance of $9,622 and $3,345 respectively. 124,499 123,910
Inventories ............................................................. 131,050 133,585
Prepaid expenses and other current assets ............................... 6,457 3,788
Deferred income taxes ................................................... 14,725 14,749
--------- ---------
Total current assets .................................................. 279,748 281,493
Assets held for sale .................................................... 1,624 261
Property and equipment, net ............................................. 67,582 67,782
Goodwill, net ........................................................... 83,779 81,597
Deposits and other assets ............................................... 5,850 6,213
Debt issuance costs, net ................................................ 15,286 14,090
--------- ---------
$ 453,869 $ 451,436
========= =========
LIABILITIES AND STOCKHOLDERS' EQUITY (DEFICIT)
Current liabilities:
Current portion of other liabilities .................................... $ 784 $ 855
Current portion of credit facility ...................................... 7,250 8,076
Accounts payable ........................................................ 30,179 61,863
Accrued expenses ........................................................ 33,345 36,302
Accrued income taxes .................................................... 4,717 8,440
--------- ---------
Total current liabilities ............................................. 76,275 115,536
Credit facility ............................................................. 225,175 195,225
Long-term debt .............................................................. 135,186 135,269
Other long-term liabilities ................................................. 7,055 7,698
Deferred income taxes ....................................................... 4,704 4,704
Commitments and contingencies Stockholders' equity(deficit):
Common stock, $.001 par value. Authorized 25,000,000 shares as of
December 31, 2000 and 28,500,000 shares as of September 30, 2001;
issued and outstanding 20,307,995 shares at December 31, 2000 and
20,302,995 shares at September 30, 2001 ............................... 20 20
Additional paid in capital ................................................ 67,915 68,874
Accumulated other comprehensive income .................................... 241 (281)
Treasury stock, at cost (18,620,450 shares) ............................... (62,058) (62,076)
Retained earnings (deficit) ............................................... (644) (13,533)
--------- ---------
Total stockholders' equity (deficit) .................................. 5,474 (6,996)
--------- ---------
$ 453,869 $ 451,436
========= =========
The accompanying notes are an integral part of these consolidated financial
statements
3
THE HOLMES GROUP, INC.
CONSOLIDATED STATEMENT OF INCOME (UNAUDITED)
(IN THOUSANDS)
THREE MONTHS ENDED NINE MONTHS ENDED
SEPTEMBER 30, SEPTEMBER 30, SEPTEMBER 30, SEPTEMBER 30,
2000 2001 2000 2001
------------- ------------- ------------- -------------
Net sales .............................................. $ 118,435 $ 163,099 $ 358,528 $ 421,304
Cost of goods sold ..................................... 77,859 118,726 252,134 314,304
--------- --------- --------- ---------
Gross profit ......................................... 40,576 44,373 106,394 107,000
--------- --------- --------- ---------
Operating expenses:
Selling .............................................. 15,920 17,185 50,769 48,687
General and administrative ........................... 7,556 9,600 23,745 28,573
Product development .................................. 2,760 3,341 8,271 8,213
Restructuring costs................................... -- -- -- 1,445
Plant closing costs .................................. -- 550 340 550
Amortization of goodwill and other intangible assets . 665 649 1,991 1,949
--------- --------- --------- ---------
Total operating expenses ........................... 26,901 31,325 85,116 89,417
--------- --------- --------- ---------
Operating profit ................................... 13,675 13,048 21,278 17,583
--------- --------- --------- ---------
Other income and expense:
Interest and other expense, net ...................... 9,164 8,155 27,710 28,593
--------- --------- --------- ---------
Income (loss) before income taxes and equity in earnings
from joint venture ................................... 4,511 4,893 (6,432) (11,010)
Income tax expense ..................................... 3,169 1,324 2,637 3,755
Equity in earnings from joint venture .................. 275 516 611 1,876
--------- --------- --------- ---------
Net income (loss) .................................. $ 1,617 $ 4,085 $ (8,458) $ (12,889)
========= ========= ========= =========
The accompanying notes are an integral part of these consolidated financial
statements.
4
THE HOLMES GROUP, INC.
CONSOLIDATED STATEMENT OF CASH FLOWS (UNAUDITED)
(IN THOUSANDS)
NINE MONTHS ENDED
SEPTEMBER 30, 2000 SEPTEMBER 30, 2001
------------------ ------------------
Cash flows from operating activities:
Net income (loss) .......................................................... $ (8,458) $(12,889)
Adjustments to reconcile net income (loss) to net cash provided by (used
for) operating activities:
Depreciation and amortization ............................................ 12,675 11,934
Amortization of debt issuance costs, discounts and other non-cash
interest expense ....................................................... 2,613 4,630
Restructuring and asset impairment charges ............................... -- 718
Change in allowance for doubtful accounts ................................ (2,170) (6,277)
(Gain) loss on disposal of assets ........................................ -- (559)
Deferred income taxes .................................................... (3,285) (24)
Changes in operating assets and liabilities:
Accounts receivable .................................................... 31,036 6,866
Inventories ............................................................ (48,548) (2,535)
Prepaid expenses and other current assets .............................. 8,870 2,863
Deposits and other assets .............................................. (3,243) (4,163)
Accounts payable ....................................................... 7,253 31,456
Accrued expenses ....................................................... (6,614) 2,957
Accrued income taxes ................................................... 1,455 3,723
-------- --------
Net cash provided by (used for) operating activities ..................... (8,416) 38,700
-------- --------
Cash flows from investing activities:
Proceeds from sale of assets held for sale and business divestitures ....... 4,753 2,053
Distribution of earnings from joint venture ................................ 1,100 1,360
Purchases of property and equipment ........................................ (19,621) (11,095)
Cash received from joint venture partner, net .............................. 1,141 700
-------- --------
Net cash used for investing activities ................................... (12,627) (6,982)
-------- --------
Cash flows from financing activities:
Borrowings (repayment) of credit facility, net of issuance costs ........... 15,063 (29,124)
Principal payments on capital lease obligations ............................ (139) --
-------- --------
Net cash provided by (used for) financing activities ..................... 14,924 (29,124)
-------- --------
Effect of exchange rate changes on cash ...................................... 113 (150)
-------- --------
Net increase (decrease) in cash and cash equivalents ......................... (6,006) 2,444
Cash and cash equivalents, beginning of period ............................... 6,647 3,017
-------- --------
Cash and cash equivalents, end of period ..................................... $ 641 $ 5,461
======== ========
Supplemental disclosure of cash flow information:
Cash paid for interest .................................................... $ 21,274 $ 21,967
Cash paid for (refund of) income taxes .................................... $ (4,864) $ 143
The accompanying notes are an integral part of these consolidated financial
statements.
5
THE HOLMES GROUP, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
SEPTEMBER 30, 2001
1. NATURE OF BUSINESS
The Holmes Group, Inc. ("THG"), formerly known as Holmes Products Corp.,
along with its wholly-owned subsidiary, The Rival Company ("Rival") and its
subsidiaries, acquired on February 5, 1999, designs, develops, imports and
sells consumer durable goods, including fans, heaters, humidifiers, air
purifiers, small kitchen electric appliances, personal care appliances,
filters and accessories and lighting products, to retailers throughout the
United States and Canada, and to a lesser extent, Europe, Latin America and
Asia.
Holmes Products (Far East) Limited ("HPFEL") and its subsidiaries
manufacture, source and sell consumer durable goods, including fans,
heaters and humidifiers and kitchen electrics, mainly to THG. HPFEL
operates facilities in Hong Kong, Taiwan and The People's Republic of
China.
HPFEL is a wholly-owned subsidiary of THG. Prior to the recapitalization
transaction described in Note 4, THG and HPFEL were both directly or
indirectly 80%-owned subsidiaries of Asco Investments Ltd., a subsidiary of
Pentland Group plc ("Pentland").
2. BASIS OF CONSOLIDATION
The accompanying unaudited financial statements include the accounts of THG
and its wholly-owned subsidiaries, Rival, HPFEL, Holmes Manufacturing
Corp., Holmes Air (Taiwan) Corp. and Holmes Motor Corp. The accompanying
unaudited financial statements also include the accounts of Rival's direct
and indirect wholly-owned subsidiaries, Bionaire International B.V., Patton
Building Products, Inc. (which has subsequently been merged into Rival),
Patton Electric Company, Inc. (which has subsequently been merged into
Rival), Patton Electric (Hong Kong) Limited, Rival Consumer Sales
Corporation, The Holmes Group Canada, Ltd., Rival de Mexico S.A. de C.V.
and Waverly Products Company, Ltd. 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."
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 Rival (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
Holmes' 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 the purchase price over the fair value of the
net assets acquired was approximately $88.5 million and $88.7 million,
before $6.9 million and $4.9 million of accumulated amortization at
September 30, 2001 and December 31, 2000, respectively, and is being
amortized on a straight-line basis over 35 years.
6
THE HOLMES GROUP, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - (CONTINUED)
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."
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, MO
to Milford, MA, consolidation of the Rival Hong Kong and Canadian offices
into other existing local offices, and closure of the Warrensburg, MO
manufacturing facility.
These actions resulted in the elimination of 216 Rival employees from a
combination of the Rival Warrensburg facility and the Kansas City, Canada
and Hong Kong offices. The remaining severance for these employees will be
paid during the remainder of fiscal 2001 and fiscal 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 the Warrensburg, Missouri facility closures were
completed during fiscal 2000. The Warrensburg facility was sold during the
first quarter of 2001 which resulted in a gain of approximately $559,000.
Proceeds from the sale were approximately $1,965,000.
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 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 will be paid during
the remainder of 2001 and into 2002. Additionally, the Company recorded a
$718,000 charge for restructuring associated with the Sedalia plant
closure. These charges represent asset write-downs of redundant property,
plant and equipment and facility exit costs. The remaining net book value
of the Sedalia plant has been shown as assets held for sale in the
consolidated September 30, 2001 balance sheet. Additionally, wind down
costs of approximately $550,000, which are expensed as incurred, have been
included as plant closing costs in the consolidated statement of income for
the three and nine months ended September 30, 2001.
The reserve activity for fiscal 2001 is as follows (in thousands):
Employee Facility Total
Severance and Exit and Accrued
Relocation Costs Other Costs Restructuring
---------------- ----------- -------------
Balance at December 31, 2000 $ 712 $ 233 $ 945
Restructuring charges ....... 727 718 1,445
Cash payments/adjustments
recorded in fiscal 2001 .... (600) (901) (1,501)
------- ------- -------
Balance at September 30, 2001 $ 839 $ 50 $ 889
The cash payments/adjustments recorded in fiscal 2001 primarily include the
cash payments made for severance in the first nine months of 2001 and the
write down recorded in connection with the Sedalia plant closure.
7
THE HOLMES GROUP, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - (CONTINUED)
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 pump division for $11.4 million. The proceeds
received for the assets exceeded the net asset values recorded by $0.7
million. On December 21, 1999, the Company sold the net assets of Rival's
industrial and building supply products businesses for proceeds of $9.7
million, net of contingent consideration of $2.7 million. The contingent
consideration was based on certain performance metrics and actual final
inventory counts. Excluding the contingent consideration, the book value of
the assets sold exceeded the proceeds by $5.5 million. Due to the proximity
of the transactions to the original Rival acquisition date, the net loss on
these transactions of $4.7 million was recorded as an increase to goodwill.
4. 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 to THG in exchange for 2,750,741
shares of THG's common stock (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 its 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.
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.
5. UNAUDITED INTERIM FINANCIAL STATEMENTS
In the opinion of management, the accompanying unaudited condensed
consolidated financial statements contain all adjustments, consisting of
normal recurring accruals, considered necessary for a fair presentation of
the Company's financial position as of September 30, 2001 and the Company's
results of operations and cash flows for the nine months ended September
30, 2000 and 2001. This interim financial information and notes thereto
should be read in conjunction with the Company's Annual Report on Form 10-K
for the year ended December 31, 2000. Due to the seasonality of the
Company's business, the Company's consolidated results of operations for
the three and nine month periods ended September 30, 2001 are not
necessarily indicative of the results to be expected for any other interim
period or the entire fiscal year.
6. INVENTORIES
All inventories are stated at the lower of cost or market. Cost is
determined using the first-in, first-out (FIFO) method on approximately 80%
of the inventories and the last-in, first-out method (LIFO) for the
remaining 20% of the inventory. Inventories are as follows:
8
THE HOLMES GROUP, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - (CONTINUED)
(in thousands) December 31, 2000 September 30, 2001
----------------- ------------------
Finished goods $ 97,375 $103,589
Raw materials and Work-in-process 33,299 30,296
-------- --------
130,674 133,885
LIFO allowance 376 (300)
-------- --------
$131,050 $133,585
======== ========
7. LONG-TERM DEBT
Senior Subordinated Notes
In connection with the recapitalization transactions described in Note 4
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) and capital leases. The Notes are
guaranteed by THG's current and future domestic subsidiaries (see Note 12)
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. The 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 $180.0 million revolving credit facility that
matures February 5, 2005. Availability under the Credit Facility is reduced
by outstanding letters of credit. As of September 30, 2001, the Company's
availability was $67.4 million, net of outstanding letters of credit
totaling $8.1 million and our outstanding balance of $95.2 million. The
Credit Facility bears interest at variable rates based on either the prime
rate or eurodollar, at the Company's option, plus a margin which, in the
case of the tranche A term loan and the revolving credit facility, varies
depending upon certain financial ratios. The Credit Facility, and the
guarantees thereof by 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.
9
THE HOLMES GROUP, INC. NOTES
TO CONSOLIDATED FINANCIAL STATEMENTS - (CONTINUED)
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. The lending group agreed to a
Forbearance Agreement with respect to such defaults on April 13, 2001. On
May 7, 2001, the Credit Facility was further amended to waive the defaults
and to revise certain of the financial ratio covenants through June 30,
2002. In addition, the maximum revolving credit availability under the
Credit Facility has been increased from $140.0 million to an aggregate of
$180.0 million through January 31, 2002, decreasing to an aggregate of
$155.0 million through July 1, 2002 and $115.0 million thereafter, subject
at all times to a borrowing base formula.
As partial consideration for the amendments and the limited waiver, 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. Additionally, the majority
stockholder agreed to provide a $43.5 million guarantee in support of the
increased revolving credit commitment. The fair value of the warrants was
approximately $1.0 million and was recorded as a charge to interest expense
during 2001.
The Credit Facility as amended, and the Notes Indentures include certain
financial and operating covenants, which, among other things, restrict the
ability of the Company to incur additional indebtedness, grant liens, make
investments and take certain other actions. The ability of the Company to
meet its debt service obligations will be dependent upon the future
performance of the Company, which will be impacted by general economic
conditions and other factors. See "Management's Discussion and Analysis of
Financial Condition and Results of Operations - Forward-Looking
Statements."
Long term debt consists of the following:
(in thousands) December 31, 2000 September 30,2001
----------------- -----------------
Credit Facility, with a weighted average interest rate of
10.1% and 8.5% at December 31, 2000 and September 30, 2001,
respectively ................................................ $232,425 $203,301
9 7/8% Senior Subordinated Notes, net of unamortized
discount of $1.1 million at December 31, 2000 and $1.0
million at September 30, 2001, respectively ................. 135,186 135,269
-------- --------
Total debt .................................................... 367,611 338,570
Less current maturities ....................................... 7,250 8,076
-------- --------
Long-term debt ................................................ $360,361 $330,494
Effective May 7, 1999 the Company entered into an interest rate collar
transaction agreement with its lending bank. The interest rate collar
consists of a cap rate of 6.5% and a floor rate of 4.62%. The one-time
premium payment for the collar was $225,000 and the agreement 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 September 30, 2001 was 2.59%, therefore
the Company will owe approximately $456,000 in the fourth quarter to the
lending bank.
10
THE HOLMES GROUP, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - (CONTINUED)
8. COMPREHENSIVE INCOME
The Company adopted Statement of Financial Accounting Standards No. 130,
"Reporting Comprehensive Income." This Statement establishes standards for
reporting comprehensive income and its components in financial statements.
Comprehensive income consists of net earnings and foreign currency
translation adjustments as presented in the following table.
Three months ended
(in thousands) September 30, 2000 September 30, 2001
------------------ ------------------
Net Earnings (loss) .................... $1,617 $ 4,085
Foreign currency translation adjustments 613 (213)
------- -------
Comprehensive income (loss) .......... $2,230 $ 3,872
Nine months ended
(in thousands) September 30, 2000 September 30, 2001
------------------ ------------------
Net Earnings (loss) .................... $(8,458) $(12,889)
Foreign currency translation adjustments 111 (522)
-------- --------
Comprehensive income (loss) .......... $(8,347) $(13,411)
9. 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
adoption of SFAS 131 did not affect the Company's results of operations or
financial position.
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 (R) slow cookers, toasters, ice cream freezers, can
openers, showerheads, massagers and lighting products to retailers
throughout the U.S. The consumer durables segment is made up of home
environment products and kitchen electric products, which are considered
one business segment due to the similar customer base and distribution
channels. The international segment sells the Company's products outside
the U.S. The Far East segment is the manufacturing and sourcing operation
located primarily at HPFEL.
11
THE HOLMES GROUP, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - (CONTINUED)
The "International and Other category" in 2001 represents the international
segment. For 2000, the "other category" represented the international
segment and the divested industrial and building supply segment combined,
as neither accounted for over 10% of net sales individually. Summary
financial information for each reportable segment for the three and nine
month periods ended September 30, 2001 and 2000 is as follows (in
thousands):
Consumer International Consolidated
THREE MONTHS ENDED Durables Far East and Other Eliminations Total
--------- -------- ------------- ------------ ------------
September 30, 2001
Net sales ............ $ 145,332 $104,323 $ 13,159 $ (99,715) $ 163,099
Operating income(loss) 5,590 6,576 962 (80) 13,048
September 30, 2000
Net sales ............ $ 105,526 $ 70,380 $ 10,441 $ (67,912) $ 118,435
Operating income(loss) 9,142 5,284 (532) (219) 13,675
NINE MONTHS ENDED
September 30, 2001
Net sales ............ $ 369,569 $232,323 $ 35,489 $(216,077) $ 421,304
Operating income(loss) (3,235) 18,356 1,807 655 17,583
September 30, 2000
Net sales ............ $ 316,028 $186,638 $ 32,646 $(176,784) $ 358,528
Operating income(loss) 9,639 14,749 (2,951) (159) 21,278
The following information is summarized by geographic area (in thousands):
Other Consolidated
United States Far East International Total
------------- -------- ------------- ------------
Net sales:
Three months ended September 30, 2001 $145,332 $ 4,608 $ 13,159 $163,099
Three months ended September 30, 2000 105,703 2,468 10,264 118,435
Nine months ended September 30, 2001 $369,569 $ 16,246 $ 35,489 $421,304
Nine months ended September 30, 2000 318,213 9,854 30,461 358,528
Identifiable assets:
September 30, 2001 .................. 35,202 32,241 600 68,043
December 31, 2000 ................... 37,777 30,654 775 69,206
Net sales are grouped based on the geographic origin of the transaction.
The "Other International" category is comprised of sales of products that
originated in Europe, Mexico, Latin America and Canada.
The Company's manufacturing entities in the Far East sell completed
products to THG in the United States at intercompany transfer prices which
reflect management's estimate of amounts which would be charged by an
unrelated third party. These sales are eliminated in consolidation. The
remaining Far East sales are to unrelated third parties.
12
THE HOLMES GROUP, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - (CONTINUED)
10. CONTINGENCIES
The Company is involved in litigation and is the subject of claims arising
in the normal course of its business. In the opinion of management, based
upon discussions with legal counsel, no existing litigation or claims will
have a materially adverse effect on the Company's financial position or
results of operations and cash flows.
11. RECLASSIFICATIONS
Certain amounts in the prior period financial statements have been
reclassified to conform to the current period presentation.
12. CONDENSED CONSOLIDATING INFORMATION
The senior subordinated notes described in Note 7 were issued by THG and
are guaranteed by Rival and its domestic subsidiary and Holmes
Manufacturing Corp. ("Manufacturing"), Holmes Motor Corp. ("Motor") and
Holmes Air (Taiwan) Corp. ("Taiwan"), but are not guaranteed by THG's other
subsidiary, HPFEL, or Rival's five foreign subsidiaries. The guarantor
subsidiaries are directly or indirectly wholly-owned by THG, and the
guarantees are full, unconditional and joint and several. The following
condensed consolidating financial information presents the financial
position, results of operations and cash flows of (i) THG, as parent, as if
it accounted for its subsidiaries on the equity method, (ii) Rival (on a
consolidated basis following its acquisition by THG, Manufacturing, Motor
and Taiwan, the guarantor subsidiaries, and (iii) HPFEL, Bionaire
International B.V., The Holmes Group Canada, Ltd., Waverly Products
Company, Ltd., and Rival de Mexico S.A. de C.V., the non-guarantor
subsidiaries. There were no transactions between Rival, Manufacturing,
Motor and Taiwan during any of the periods presented. Taiwan and
Manufacturing had no revenues or operations during the periods presented.
As further described in Note 15 of the Company's audited financial
statements for the year ended December 31, 2000, included in the Company's
Form 10-K, as amended, as filed with the Securities and Exchange
Commission, certain of HPFEL's subsidiaries in China have restrictions on
distributions to their parent companies.
13
CONSOLIDATING BALANCE SHEET AT DECEMBER 31, 2000 (IN THOUSANDS)
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
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
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:
Current portion of
other liabilities .......... $ -- $ -- $ 784 -- $ 784
Current portion of
credit facility ............ 7,250 -- -- -- 7,250
Accounts payable ............... 7,367 (2,261) 29,264 $ (4,191) 30,179
Accrued expenses ............... 15,835 12,298 5,212 -- 33,345
Accrued income taxes ........... (10) 2,521 2,206 -- 4,717
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
========= ========= ========= ========= =========
14
CONSOLIDATING BALANCE SHEET AT SEPTEMBER 30, 2001 (IN THOUSANDS)
(UNAUDITED)
GUARANTOR NON-GUARANTOR
PARENT SUBSIDIARIES SUBSIDIARIES ELIMINATIONS CONSOLIDATED
--------- ------------ ------------- ------------ ------------
(IN THOUSANDS)
ASSETS
Current assets:
Cash and cash equivalents ..... $ 1,416 $ 236 $ 3,809 -- $ 5,461
Accounts receivable, net ...... 45,230 59,880 18,800 -- 123,910
Inventories ................... 37,311 75,195 25,678 $ (4,599) 133,585
Prepaid expenses and other
current assets ............. 2,011 37 1,740 -- 3,788
Deferred income taxes ......... 5,300 9,911 (462) -- 14,749
Due from affiliates ........... 187,132 89 91,602 (278,823) --
--------- --------- --------- --------- ---------
Total current assets ....... 278,400 145,348 141,167 (283,422) 281,493
--------- --------- --------- --------- ---------
Assets held for sale ............ -- 261 -- -- 261
Property and equipment, net ..... 6,005 28,936 32,841 -- 67,782
Goodwill, net ................... -- 81,597 -- -- 81,597
Deposits and other assets ....... 21,186 2,836 1,172 (4,891) 20,303
Investments in consolidated
subsidiaries .................. 73,113 -- -- (73,113) --
--------- --------- --------- --------- ---------
$ 378,704 $ 258,978 $ 175,180 $(361,426) $ 451,436
========= ========= ========= ========= =========
LIABILITIES AND STOCKHOLDERS'
EQUITY (DEFICIT)
Current liabilities:
Current portion of
other liabilities .......... $ -- $ -- $ 855 -- $ 855
Current portion of
credit facility ............ 8,076 -- -- -- 8,076
Accounts payable ............... 3,583 7,937 55,234 $ (4,891) 61,863
Accrued expenses ............... 18,796 11,702 5,804 -- 36,302
Accrued income taxes ........... 1,266 2,747 4,427 -- 8,440
Due to affiliates .............. 23,485 227,397 27,841 (278,723) --
--------- --------- --------- --------- ---------
Total current liabilities .. 55,206 249,783 94,161 (283,614) 115,536
--------- --------- --------- --------- ---------
Credit facility ................. 195,225 -- -- -- 195,225
--------- --------- --------- --------- ---------
Long-term debt .................. 135,269 -- -- -- 135,269
--------- --------- --------- --------- ---------
Other long-term liabilities ..... -- -- 7,698 -- 7,698
--------- --------- --------- --------- ---------
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 .... 68,874 -- -- -- 68,874
Accumulated other comprehensive
income ..................... (281) -- (281) 281 (281)
Treasury stock ................ (62,076) -- -- -- (62,076)
Retained earnings(deficit) .... (13,533) 4,489 73,502 (77,991) (13,533)
--------- --------- --------- --------- ---------
Total stockholders' equity
(deficit) ................ (6,996) 4,491 73,321 (77,812) (6,996)
--------- --------- --------- --------- ---------
$ 378,704 $ 258,978 $ 175,180 $(361,426) $ 451,436
========= ========= ========= ========= =========
15
CONSOLIDATING INCOME STATEMENT
THREE MONTHS ENDED SEPTEMBER 30, 2000 (IN THOUSANDS)
(UNAUDITED)
GUARANTOR NON-GUARANTOR
PARENT SUBSIDIARIES SUBSIDIARIES ELIMINATIONS CONSOLIDATED
--------- ------------ ------------- ------------ ------------
(IN THOUSANDS)
Net sales .................... $ 57,462 $ 48,131 $ 80,754 $(67,912) $118,435
Cost of goods sold ........... 39,192 36,219 70,141 (67,693) 77,859
-------- -------- -------- -------- --------
Gross profit (loss) ........ 18,270 11,912 10,613 (219) 40,576
-------- -------- -------- -------- --------
Operating expenses:
Selling .................... 7,364 6,022 2,534 -- 15,920
General and administrative . 3,508 1,415 2,633 -- 7,556
Product development ........ 2,208 552 -- -- 2,760
Amortization of goodwill and
other intangible assets . -- 650 15 -- 665
-------- -------- -------- -------- --------
Total operating expenses ... 13,080 8,639 5,182 -- 26,901
-------- -------- -------- -------- --------
Operating profit (loss) .... 5,190 3,273 5,431 (219) 13,675
-------- -------- -------- -------- --------
Other income and expense:
Other (income) expense, net -- -- -- -- --
Interest and other expense,
net ..................... 9,706 118 (660) -- 9,164
-------- -------- -------- -------- --------
Total other (income)
expense ............... 9,706 118 (660) -- 9,164
-------- -------- -------- -------- --------
Income (loss) before income
taxes and equity in income
of and equity in earnings
from joint venture ......... (4,516) 3,155 6,091 (219) 4,511
Equity in earnings from joint
venture .................... 275 -- -- -- 275
Income tax expense (benefit) . 2,640 -- 529 -- 3,169
-------- -------- -------- -------- --------
Income (loss) before equity in
income of consolidated
subsidiaries ............... (6,881) 3,155 5,562 (219) 1,617
Equity in income of
consolidated subsidiaries .. 8,498 -- -- (8,498) --
-------- -------- -------- -------- --------
Net income (loss) ............ $ 1,617 $ 3,155 $ 5,562 $ (8,717) $ 1,617
======== ======== ======== ======== ========
16
CONSOLIDATING INCOME STATEMENT
THREE MONTHS ENDED SEPTEMBER 30, 2001 (IN THOUSANDS)
(UNAUDITED)
GUARANTOR NON-GUARANTOR
PARENT SUBSIDIARIES SUBSIDIARIES ELIMINATIONS CONSOLIDATED
--------- ------------ ------------- ------------ ------------
(IN THOUSANDS)
Net sales .................... $ 68,176 $ 77,156 $ 117,482 $ (99,715) $ 163,099
Cost of goods sold ........... 51,950 61,343 105,068 (99,635) 118,726
--------- --------- --------- --------- ---------
Gross profit (loss) ........ 16,226 15,813 12,414 (80) 44,373
--------- --------- --------- --------- ---------
Operating expenses:
Selling .................... 9,683 5,174 2,328 -- 17,185
General and administrative . 6,080 972 2,548 -- 9,600
Product development ........ 2,535 806 -- -- 3,341
Plant closing costs ...... -- 550 -- -- 550
Amortization of goodwill and
other intangible assets . -- 649 -- -- 649
--------- --------- --------- --------- ---------
Total operating expenses ... 18,298 8,151 4,876 -- 31,325
--------- --------- --------- --------- ---------
Operating profit (loss) .... (2,072) 7,662 7,538 (80) 13,048
--------- --------- --------- --------- ---------
Other income and expense:
Other (income) expense, net 250 51 (695) -- (394)
Interest and other expense,
net ..................... 5,690 2,861 (2) -- 8,549
--------- --------- --------- --------- ---------
Total other (income)
expense ............... 5,940 2,912 (697) -- 8,155
--------- --------- --------- --------- ---------
Income (loss) before income
taxes and equity in income
of and equity in earnings
from joint venture ......... (8,012) 4,750 8,235 (80) 4,893
Equity in earnings from joint
venture .................... 516 -- -- -- 516
Income tax expense (benefit) . 594 -- 730 -- 1,324
--------- --------- --------- --------- ---------
Income (loss) before equity in
income of consolidated
subsidiaries ............... (8,090) 4,750 7,505 (80) 4,085
Equity in income of
consolidated subsidiaries .. 12,175 -- -- (12,175) --
--------- --------- --------- --------- ---------
Net income (loss) ............ $ 4,085 $ 4,750 $ 7,505 $ (12,255) $ 4,085
========= ========= ========= ========= =========
17
CONSOLIDATING INCOME STATEMENT
NINE MONTHS ENDED SEPTEMBER 30, 2000 (IN THOUSANDS)
(UNAUDITED)
GUARANTOR NON-GUARANTOR
PARENT SUBSIDIARIES SUBSIDIARIES ELIMINATIONS CONSOLIDATED
--------- ------------ ------------- ------------ ------------
(IN THOUSANDS)
Net sales .................... $ 178,340 $ 141,520 $ 215,452 $(176,784) $ 358,528
Cost of goods sold ........... 135,401 108,357 185,001 (176,625) 252,134
--------- --------- --------- --------- ---------
Gross profit (loss) ........ 42,939 33,163 30,451 (159) 106,394
--------- --------- --------- --------- ---------
Operating expenses:
Selling .................... 22,090 21,739 6,940 -- 50,769
General and administrative . 9,161 5,965 8,619 -- 23,745
Product development ........ 6,518 1,753 -- -- 8,271
Plant closing costs ........ -- 340 -- -- 340
Amortization of goodwill and
other intangible assets . -- 1,946 45 -- 1,991
--------- --------- --------- --------- ---------
Total operating expenses ... 37,769 31,743 15,604 -- 85,116
--------- --------- --------- --------- ---------
Operating profit (loss) .... 5,170 1,420 14,847 (159) 21,278
--------- --------- --------- --------- ---------
Other income and expense:
Other (income) expense, net -- -- -- --
Interest and other expense,
net ..................... 28,551 154 (995) -- 27,710
--------- --------- --------- --------- ---------
Total other (income)
expense ............... 28,551 154 (995) -- 27,710
--------- --------- --------- --------- ---------
Income (loss) before income
taxes and equity in income
of and equity in earnings
from joint venture ......... (23,381) 1,266 15,842 (159) (6,432)
Equity in earnings from joint
venture .................... 611 -- -- -- 611
Income tax expense (benefit) . 1,462 (85) 1,260 -- 2,637
--------- --------- --------- --------- ---------
Income (loss) before equity in
income of consolidated
subsidiaries ............... (24,232) 1,351 14,582 (159) (8,458)
Equity in income of
consolidated subsidiaries .. 15,774 -- -- (15,774) --
--------- --------- --------- --------- ---------
Net income (loss) ............ $ (8,458) $ 1,351 $ 14,582 $ (15,933) $ (8,458)
========= ========= ========= ========= =========
18
CONSOLIDATING INCOME STATEMENT
NINE MONTHS ENDED SEPTEMBER 30, 2001 (IN THOUSANDS)
(UNAUDITED)
GUARANTOR NON-GUARANTOR
PARENT SUBSIDIARIES SUBSIDIARIES ELIMINATIONS CONSOLIDATED
--------- ------------ ------------- ------------ ------------
(IN THOUSANDS)
Net sales .................... $ 175,662 $ 193,907 $ 267,812 $(216,077) $ 421,304
Cost of goods sold ........... 146,773 151,189 233,074 (216,732) 314,304
--------- --------- --------- --------- ---------
Gross profit (loss) ........ 28,889 42,718 34,738 655 107,000
--------- --------- --------- --------- ---------
Operating expenses:
Selling .................... 26,233 15,013 7,441 -- 48,687
General and administrative . 16,916 4,523 7,134 -- 28,573
Product development ........ 6,982 1,231 -- -- 8,213
Restructuring charges ...... -- 1,445 -- -- 1,445
Plant closing costs ...... -- 550 -- -- 550
Amortization of goodwill and
other intangible assets . -- 1,949 -- -- 1,949
--------- --------- --------- --------- ---------
Total operating expenses ... 50,131 24,711 14,575 -- 89,417
--------- --------- --------- --------- ---------
Operating profit (loss) .... (21,242) 18,007 20,163 655 17,583
--------- --------- --------- --------- ---------
Other income and expense:
Other (income) expense, net 590 (152) (1,109) -- (671)
Interest and other expense,
net ..................... 21,266 8,029 (31) -- 29,264
--------- --------- --------- --------- ---------
Total other (income)
expense ............... 21,856 7,877 (1,140) -- 28,593
--------- --------- --------- --------- ---------
Income (loss) before income
taxes and equity in income
of and equity in earnings
from joint venture ......... (43,098) 10,130 21,303 655 (11,010)
Equity in earnings from joint
venture .................... 1,876 -- -- -- 1,876
Income tax expense (benefit) . 1.535 -- 2,220 -- 3,755
--------- --------- --------- --------- ---------
Income (loss) before equity in
income of consolidated
subsidiaries ............... (42,757) 10,130 19,083 655 (12,889)
Equity in income of
consolidated subsidiaries .. 29,868 -- -- (29,868) --
--------- --------- --------- --------- ---------
Net income (loss) ............ $ (12,889) $ 10,130 $ 19,083 $ (29,213) $ (12,889)
========= ========= ========= ========= =========
19
CONDENSED CONSOLIDATING STATEMENT OF CASH FLOWS
NINE MONTHS ENDED SEPTEMBER 30, 2000 AND 2001 (IN THOUSANDS)
(UNAUDITED)
GUARANTOR NON-GUARANTOR
PARENT SUBSIDIARIES SUBSIDIARIES CONSOLIDATED
-------- ------------ ------------ ------------
NINE MONTHS ENDED SEPTEMBER 30, 2000
Net cash provided by (used in) operating activities $(32,073) $ 2,416 $ 21,241 $ (8,416)
-------- -------- -------- --------
Cash flows from investing activities:
Distribution of earnings from joint venture ...... 1,100 -- -- 1,100
Cash received from joint venture partner ......... -- -- 1,141 1,141
Proceeds from assets held for sale
And business divestitures ...................... 701 4,052 -- 4,753
Purchases of property and equipment .............. (2,170) (4,715) (12,736) (19,621)
-------- -------- -------- --------
(369) (663) (11,595) (12,627)
-------- -------- -------- --------
Cash flows from financing activities:
Borrowings (repayments) on credit facility,
net of issuance costs .......................... 15,063 -- -- 15,063
Principal payments on capital lease obligations .. -- -- (139) (139)
Other net activity with Parent ................... 16,378 (2,520) (13,858) --
-------- -------- -------- --------
Net cash provided by (used for) financing
activities ................................... 31,441 (2,520) (13,997) 14,924
-------- -------- -------- --------
Effect of exchange rate changes on cash ............ -- -- 113 113
-------- -------- -------- --------
Net (decrease) in cash and cash equivalents......... (1,001) (767) (4,238) (6,006)
Cash and cash equivalents, beginning of period ..... 192 795 5,660 6,647
-------- -------- -------- --------
Cash and cash equivalents, end of period ........... $ (809) $ 28 $ 1,422 $ 641
======== ======== ======== ========
NINE MONTHS ENDED SEPTEMBER 30, 2001
Net cash provided by operating activities .......... $ 1,314 $ 35,188 $ 2,198 $ 38,700
-------- -------- -------- --------
Cash flows from investing activities:
Distribution of earnings from joint venture ...... 1,360 -- -- 1,360
Cash received from joint venture partner ......... -- -- 700 700
Proceeds from assets held for sale
And business divestitures ...................... 2,053 -- -- 2,053
Purchases of property and equipment .............. (1,952) (2,048) (7,095) (11,095)
-------- -------- -------- --------
1,461 (2,048) (6,395) (6,982)
-------- -------- -------- --------
Cash flows from financing activities:
Borrowings (repayments) on credit facility,
net of issuance costs .......................... (29,124) -- -- (29,124)
Other net activity with Parent ................... 27,590 (33,863) 6,273 --
-------- -------- -------- --------
Net cash provided by (used for) financing
activities ................................... (1,534) (33,863) 6,273 (29,124)
-------- -------- -------- --------
Effect of exchange rate changes on cash ............ -- -- (150) (150)
-------- -------- -------- --------
Net increase (decrease) in cash and cash equivalents 1,241 (723) 1,926 2,444
Cash and cash equivalents, beginning of period ..... 175 959 1,883 3,017
-------- -------- -------- --------
Cash and cash equivalents, end of period ........... $ 1,416 $ 236 $ 3,809 $ 5,461
======== ======== ======== ========
20
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS
OF OPERATIONS
OVERVIEW
The Holmes Group, Inc., formerly known as Holmes Products Corp., is a leading
developer, manufacturer and marketer of quality, branded home appliances,
including home environment, small kitchen and personal care appliances. Our home
environment products include fans, heaters, humidifiers and air purifiers. We
believe that we have a leading U.S. market share in each of these product
categories. Our kitchen appliances include Crock-Pot(R) slow cookers, can
openers, ice cream freezers and other similar small kitchen electric appliances.
In some of these categories we hold a leading market share. Our personal care
products include massagers and showerheads. We believe that our strong market
position and success are attributable to our continuous product innovation,
engineering and manufacturing expertise, close customer partnerships, breadth of
product offerings, reputation for quality, and presence and experience in the
Far East.
Our products are sold under the Holmes(R), Rival(R), Crock-Pot(R), White
Mountain(R), Pollenex(R), Bionaire(R), Patton(R), Family Care(R) and Titan(R)
brand names. These products are sold to consumers through major retail chains,
including mass merchants, do-it-yourself home centers, warehouse clubs,
hardware, department and specialty stores and national drug store chains. We
believe that the strength, scope and visibility of our retail account base
provide a competitive advantage with respect to brand recognition, access to
shelf space and penetration of the consumer market.
Sales of 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, personal care products 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 the kitchen and personal care products we sell 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 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.
On February 5, 1999 Holmes completed its acquisition of Rival. In connection
with the acquisition, as described in Note 3 of the Company's Notes to
Consolidated Financial Statements included herein, we issued an additional $31.3
million of senior subordinated notes due in November 2007, bearing interest at 9
7/8%, and amended and restated our existing $100 million credit facility to have
a total availability of $325 million. We also sold $50 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.
Holmes had completed a recapitalization transaction in November 1997, in which
it issued $105 million of senior subordinated notes due in November 2007,
bearing interest at 9 7/8%, and entered into a $100 million line of credit
facility, of which approximately $27.5 million was initially drawn. The proceeds
of these borrowings were used to repay all existing indebtedness (primarily a
21
line of credit and other current debt facilities) and redeem a significant
portion of the previous majority shareholder's common stock. Accordingly,
commencing in November 1997, we had a significantly higher level of borrowing
and a corresponding higher level of interest expense than in the past. The Rival
acquisition and the related financing transactions consummated on February 5,
1999 further increased our indebtedness and interest expense substantially.
COMPARISON OF THREE MONTH PERIODS ENDED SEPTEMBER 30, 2001 AND SEPTEMBER 30,
2000
Net Sales. Net sales for the third quarter of fiscal 2001, which ended September
30, 2001, were $163.1 million compared to $118.4 million for the third quarter
of fiscal 2000, which ended September 30, 2000, an increase of $44.7 million or
37.8%. This increase was primarily due to increased shipments of kitchen
electric products over the corresponding period of 2000. Home environment
shipments also increased over 2000 levels in nearly every category.
International shipments also increased in the third quarter of 2001 versus the
third quarter of 2000, driven by shipments in Mexico and Latin America, Europe
and in the Far East. The Far East increase were due to increased sales to our
motor joint venture with General Electric.
Gross Profit. Gross profit for the third quarter of 2001 was $44.4 million
compared to $40.6 million for the third quarter of 2000, an increase of $3.8
million or 9.4%. As a percentage of net sales, gross profit decreased to 27.2%
for the third quarter of 2001 from 34.3% for the third quarter of 2000. Gross
profit was positively impacted primarily by the increase in kitchen electrics
and home environment volume over the third quarter of 2000. Offsetting the
volume increases were higher discounts and allowances in the third quarter of
2001 versus 2000. Also offsetting the volume increases was a shift in sales mix
and higher sales of low margin closeouts.
Selling Expenses. Selling expenses for the third quarter of 2001 were $17.2
million compared to $15.9 million for the third quarter of 2000, an increase of
$1.3 million or 8.2%. As a percentage of net sales, selling expenses decreased
to 10.5% for the third quarter of 2001 from 13.4% for the third quarter of 2000.
The selling expense increase was due primarily to freight costs and co-operative
advertising on the sales increase noted above.
General and Administrative Expenses. General and administrative expenses for the
third quarter of 2001 were $9.6 million compared to $7.6 million for the third
quarter of 2000, an increase of $2.0 million or 26.3%. As a percentage of net
sales, general and administrative expenses decreased to 5.9% for the third
quarter of 2001 from 6.4% for the third quarter of 2000. The increase in general
and administrative expense was attributable to a number of factors including
bank and consulting fees associated with the May 7, 2001 amended credit
facility, as well as insurance costs and increased investment in our management
information systems ("MIS") infrastructure. Excluding the impact of the
consulting expenses related to the bank amendment, general and administrative
expenses were approximately 5.0% of net sales during the three months ended
September 30, 2001.
Product Development Expenses. Product development expenses for the third quarter
of 2001 were $3.3 million compared to $2.8 million for the third quarter of
2000, a increase of $0.5 million or 17.9%. The expenditures in 2001 relate to
the development of a number of new products in the home environment and kitchen
product lines.
Restructuring Costs. There were no restructuring costs for the third quarter of
2001 or 2000.
Plant Closing Costs. Plant closing costs in the third quarter of 2001 were $0.6
million. These were associated with the closing of the Sedalia, Missouri
manufacturing plant.
Interest and Other Expense, Net. Interest and other expense, net for the third
quarter of 2001 was $8.2 million compared to $9.2 million for the third quarter
of 2000, an decrease of $1.0 million or 10.9%. The decrease in interest expense
was primarily due to lower interest rates during the third quarter of 2001
versus 2000.
22
Income Tax Expense. The income tax expense for the third quarter of 2001 was
$1.3 million compared to $3.2 million in 2000. The income tax expense in 2001
was largely due to the establishment of a valuation reserve primarily against
losses experienced in the U.S. and a tax expense on income taxed in foreign
jurisdictions.
Equity in Earnings from Joint Venture. We recorded $0.5 million in equity in
earnings from our joint venture with General Electric for the shipment of motors
from the Joint Venture in 2001 versus $0.3 million in the third quarter of 2000.
Net Income. As a result of the foregoing factors, our net income for the third
quarter of 2001 was $4.1 million, compared to net income of $1.6 million in the
third quarter of 2000.
COMPARISON OF NINE MONTH PERIODS ENDED SEPTEMBER 30, 2001 AND SEPTEMBER 30, 2000
Net Sales. Net sales for the first nine months of fiscal 2001, which ended
September 30, 2001, were $421.3 million compared to $358.5 million for the first
nine months of fiscal 2000, which ended September 30, 2000, an increase of $62.8
million or 17.5%. Excluding the sales 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 18.8% versus the first
nine months of 2000. This increase was primarily due to increased shipments of
kitchen electric products over the corresponding period of 2000. International
shipments also increased in the first nine months of 2001 versus the first nine
months of 2000, driven by shipments in Mexico and Latin America, Europe and in
the Far East. The Far East increase was due to increased sales by our motor
joint venture with General Electric. Lastly, home environment shipments
increased over the prior year. Sales for the divested businesses in the first
nine months of 2000 were $4.6 million pursuant to supply agreements with the
buyers.
Gross Profit. Gross profit for the first nine months of 2001 was $107.0 million
compared to $106.4 million for the first nine months of 2000, an increase of
$0.6 million or 0.6%. As a percentage of net sales, gross profit decreased to
25.4% for the first nine months of 2001 from 29.7% for the first nine months of
2000. Gross profit was positively impacted primarily by volume increases in
both kitchen electrics and several home environment product categories over the
2000 levels. Offsetting the volume increases was an increase in discounts and
allowances during the first nine months of 2001 versus 2000. Additionally,
there was carryover fan inventory from the cooler 2000 summer season that
shipped with higher 2000 season costs. Distribution and warehousing costs also
increased due to the higher fan carryover inventory from the 2000 summer
season. We also had higher levels of low margin closeouts.
Selling Expenses. Selling expenses for the first nine months of 2001 were $48.7
million compared to $50.8 million for the first nine months of 2000, a decrease
of $2.1 million or 4.1%. As a percentage of net sales, selling expenses
decreased to 11.6% for the first nine months of 2001 from 14.2% for the first
nine months of 2000. The selling expense decrease was due to a reduction in
several sales and marketing expenses such as selling commissions, sales samples,
print and trade advertising and sales travel expenses. These reductions resulted
from our effort to lower spending throughout the Company.
General and Administrative Expenses. General and administrative expenses for the
first nine months of 2001 were $28.6 million compared to $23.7 million for the
first nine months of 2000, an increase of $4.9 million or 20.7%. As a percentage
of net sales, general and administrative expenses increased to 6.8% for the
first nine months of 2001 from 6.6% for the nine months of 2000. The increase in
general and administrative expense was attributable to a number of factors
including increased bank and consulting fees associated with the May 7, 2001
amended Credit Facility, insurance expense and MIS infrastructure. Excluding the
impact of the additional consulting costs related to the May 7, 2001 amendment,
General and Administrative Expenses were approximately 6.4% of net sales.
23
Product Development Expenses. Product development expenses for the first nine
months of 2001 were $8.2 million compared to $8.3 million for the first nine
months of 2000, a decrease of $0.1 million or 1.2%. The decreased expenditures
in 2001 reflects the integration of the Holmes and Rival product development
activities into one central department.
Restructuring Costs. Restructuring costs for the first nine months of 2001 were
$1.4 million. These costs related to the closure of the Sedalia, Missouri
manufacturing plant announced in June 2001. The costs were made up of certain
employee termination benefits and property, plant and equipment write-downs.
Plant Closing Costs. Plant closing costs in the first nine months of 2001 were
$0.6 million. The closing costs were associated with the closing of the Sedalia,
Missouri manufacturing plant.
Interest and Other Expense, Net. Interest and other expense, net for the first
nine months of 2001 was $28.6 million compared to $27.7 million for the first
nine months of 2000, an increase of $0.9 million or 3.2%. The increase was due
to increased debt levels during the first nine months of 2001 versus 2000,
offset by lower interest rates. Additionally, we recorded as interest expense
approximately $1.0 million with respect to the warrants issued as part of the
amended Credit Facility and limited waiver dated May 7, 2001.
Income Tax Expense. The income tax expense for the first nine months of 2001 was
$3.8 million compared to $2.6 million in 2000. The income tax expense in 2001
was largely due to the establishment of a valuation reserve primarily against
losses experienced in the U.S. and a tax expense on income taxed in foreign
jurisdictions.
Equity in Earnings from Joint Venture. We recorded $1.9 million in equity in
earnings from our joint venture with General Electric for the shipment of motors
from the joint venture in 2001 versus $0.6 million in the first nine months of
2000.
Net Loss. As a result of the foregoing factors, our net loss for the first nine
months of 2001 was $12.9 million, compared to a net loss of $8.5 million in the
first nine months of 2000.
LIQUIDITY AND CAPITAL RESOURCES
Analysis of Cash Flows.
Following the recapitalization transaction in November 1997 and the Rival
acquisition in February 1999, we have funded our liquidity requirements with
cash flows from operations and borrowings under the Credit Facility. Our primary
liquidity requirements are for working capital and to service our indebtedness.
While there can be no assurance, we believe that existing cash resources, cash
flows from operations and borrowings under the recently amended Credit Facility
will be sufficient to meet our liquidity needs for the next twelve months,
during which time we will continue to carefully evaluate our financing
requirements.
Cash (used for) provided by operations for the nine months ended September 30,
2000 and 2001 was $(8.4)million and $38.7 million, respectively. Cash provided
by operations in the first nine months of 2001 primarily reflected a $31.5
million increase in accounts payable due to the increased use of OEM purchases
to support the higher sales levels.
Cash used for investing for the nine months ended September 30, 2000 and 2001
was $12.6 million and $7.0 million, respectively. Cash used for investing in the
first nine months of 2001 reflected capital expenditures of approximately $11.1
million offset by additional cash received from our joint venture partner as
part of their contribution towards joint venture capital equipment. We also
received $1.4 million in earnings distributions from the joint venture.
Additionally, we received $2.1 million in proceeds from the sale of the
Warrensburg, Missouri facility and manufacturing machinery.
24
Cash provided by (used for) financing activities for the nine months ended
September 30, 2000 and 2001 was $14.9 million and $(29.1) million, respectively.
Cash used for financing in the first nine months of 2001 reflected repayments
under the Credit Facility using cash flows from operations.
Financing Arrangements.
We issued $105.0 million of 9 7/8% Senior Subordinated Notes due November 2007
(the "Notes") in November 1997, and an additional $31.3 million of Notes in
February, 1999. While we may repurchase Notes from time to time in open market
or privately negotiated transactions, the Notes are not redeemable at our option
prior to November 15, 2002. Thereafter, the Notes are subject to redemption at
any time at our option, in whole or in part, at stated redemption prices. Annual
interest payments on the Notes are approximately $13.5 million. The payment of
principal and interest on the Notes is subordinated to the prior payment in full
of all our senior debt, including borrowings under the Credit Facility. The
Notes are guaranteed by our domestic subsidiaries but are otherwise unsecured.
We entered into an amended and restated Credit Facility with a syndicate of
banks in February, 1999 in connection with the Rival acquisition. The 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 $180.0 million revolving credit facility that matures February 5,
2005.
Availability under the Credit Facility is reduced by outstanding letters of
credit. As of September 30, 2001, our availability was $67.4 million, net of
outstanding letters of credit totaling $8.1 million and our outstanding balance
of $95.2 million. The Credit Facility bears interest at variable rates based on
either the prime rate or eurodollar rate, at our option, plus a margin which, in
the case of the tranche A term loan and the revolving credit facility, varies
depending upon certain financial ratios. The Credit Facility, and the guarantees
thereof by our domestic subsidiaries, are secured by substantially all of our
domestic and certain foreign assets. The Credit Facility is cross-defaulted to
the Notes Indentures.
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. The lending group agreed to a Forbearance
Agreement with respect to such defaults on April 13, 2001. On May 7, 2001, the
Credit Facility was further amended to waive the defaults and to revise certain
of the financial ratio covenants through June 30, 2002. In addition, the maximum
revolving credit availability under the Credit Facility has been increased from
$140.0 million to an aggregate of $180.0 million through January 31, 2002,
decreasing to an aggregate of $155.0 million through July 1, 2002 and $115.0
million thereafter, subject at all times to a borrowing base formula. As partial
consideration for the amendments and limited waiver, 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, Berkshire Partners LLC, our equity partners, agreed to
provide a $43.5 million guarantee in support of the increased revolving credit
commitment. The fair value of the warrants was approximately $1.0 million and
was recorded as a charge to interest expense during 2001.
The Credit Facility, as amended, and the Notes Indentures include certain
financial and operating covenants which, among other things, restrict our
ability to incur additional indebtedness, make investments and take certain
other actions. Our ability to meet our debt service obligations will be
dependent upon the future performance, which will be impacted by general
economic conditions and other factors. See "Forward-Looking Statements."
25
EVENTS OF SEPTEMBER 11,2001
None of our employees were lost or injured, and none of our properties or
records were damaged as a result of the terrorist attacks that occurred in the
United States on September 11, 2001. Although our operations during that week
were hampered by the temporary disruption, management does not believe the
impact will be material. However, at this time, we are unable to predict the
long-term impact of these events, or of the domestic and foreign response, on
either our industry as a whole or on our operations and financial condition in
particular.
FORWARD-LOOKING STATEMENTS
All statements, other than statements of historical fact, included in this
quarterly report, are or may be forward-looking statements within the meaning of
Section 27A of the Securities Act of 1933, as amended, and Section 21E of the
Securities Exchange Act of 1934, as amended. Without limiting the foregoing, the
words "believes," "anticipates," "plans," "intends," "expects," and similar
expressions are intended to identify forward-looking statements. Various
economic and competitive factors could cause actual results or events to differ
materially from those discussed in such forward-looking statements, including
without limitation, our degree of leverage (including the need to comply with
covenants in our various financing agreements), our dependence on major
customers and key personnel, the integration of the Rival acquisition (as
described herein), competition, risks associated with foreign manufacturing,
risks of the retail industry, potential product liability claims, the cost of
labor and raw materials and the other factors which are discussed in our most
recent Registration Statement on Form S-4 (File No. 333-77905), and from time to
time in our reports filed with the Securities and Exchange Commission.
Accordingly, such forward-looking statements do not purport to be predictions of
future events or circumstances and may not be realized.
RECENTLY ISSUED ACCOUNTING STANDARDS
In July 2001, the Financial Accounting Standards Board issued Statements of
Financial Accounting Standards No. 141 (FAS 141), "Business Combinations" and
No. 142 (FAS 142), "Goodwill and Other Intangible Assets." FAS 141 supercedes
Accounting Principles Board Opinion No. 16, "Business Combinations." FAS 141
requires that the purchase method of accounting be used for all business
combinations initiated after June 30, 2001, establishes specific criteria for
the recognition of intangible assets separately from goodwill, and requires that
unallocated negative goodwill be written off immediately as an extraordinary
gain instead of being deferred and amortized. Provisions of FAS 141 will be
effective for the Company's business acquisitions that are consummated after
July 1, 2001. FAS 142 supercedes Accounting Principles Board Opinion No. 17,
"Intangibles Assets," and addresses the accounting for goodwill and intangible
assets subsequent to their acquisition. Under FAS 142, goodwill and indefinite
lived intangible assets will no longer be amortized but will be tested for
impairment at least annually at the reporting unit level. In addition, the
amortization period of intangible assets with finite lives will no longer be
limited to forty years. The general provisions of FAS 142 will be effective for
the Company as of the beginning of fiscal 2002. However, certain provisions will
be effective for all business acquisitions consummated after June 30, 2001.
Management is currently in the process of quantifying the impact of adopting of
FAS 142 on the consolidated financial statements.
In July 2001, the Financial Accounting Standards Board issued Statements of
Financial Accounting Standards No. 143 (FAS 143), "Accounting for Asset
Retirement Obligations". FAS 143 requires entities to record the fair value of a
liability for an asset retirement obligation in the period in which it is
incurred. When the liability is initially recorded, the entity is required to
capitalize the cost by increasing the carrying amount of the related long-lived
asset. Over time, the liability is accreted to its present value each period,
and the capitalized cost is depreciated over the useful life of the related
asset. FAS 143 is effective for fiscal years beginning after June 15, 2002 and
will be adopted by the Company effective fiscal 2003. The Company is in the
process of assessing the impact of the adoption of FAS 143.
In August 2001, the FASB issued Statement of Financial Accounting Standards No.
144, "Accounting for the Impairment or Disposal of Long-Lived Assets" (FAS 144),
which supersedes Statement of Financial Accounting Standards No. 121,
"Accounting for the Impairment of Long-lived Assets and for Long-Lived Assets to
Be Disposed Of" (FAS 121), and the accounting and reporting provisions of APB
Opinion No. 30, "Reporting the Results of Operations--Reporting the Effects of
Disposal of a Segment of a Business, and Extraordinary, Unusual and Infrequently
Occurring Events and Transactions" (APB 30), for the disposal of a segment of a
business. Because FAS 121 did not address the accounting for a segment of a
business accounted for as a discontinued operation under APB 30, two accounting
models existed for long-lived assets to be disposed of. FAS 144 establishes a
single accounting model, based on the framework established in FAS 121, for
long-lived assets to be disposed of. 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 is in the
process of assessing the impact of the adoption of FAS 144.
In June 1998, the Financial Accounting Standards Board issued SFAS No. 133,
"Accounting for Derivative Instruments an 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 income or as a component of
comprehensive income, 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.
26
ITEM 3. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK
At September 30, 2001, the carrying value of our debt totaled $338.6 million
(including capital leases), which approximated its fair value. 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 September 30, 2001, the Company had fixed rate debt of $135.3 million
(including capital leases) and variable rate debt of $203.3 million. Holding
other variables constant (such as foreign exchange rates and debt levels), a one
percentage point decrease in interest rates would increase the unrealized fair
market value of fixed rate debt by approximately $6.3 million. Based on the
amounts of variable rate debt outstanding at September 30, 2001, the earnings
and cash flows impact for the next year resulting from a one percentage point
increase in interest rates would be approximately $2.0 million, holding other
variables constant.
In order to help minimize our interest rate exposure, effective May 7, 1999, we
entered into an interest rate collar transaction agreement with our agent bank.
This arrangement is described in Note 7 of Notes to Consolidated Financial
Statements.
PART II. OTHER INFORMATION
ITEM 1. LEGAL PROCEEDINGS
We are involved in various legal proceedings incident to our normal business
operations, including product liability and patent and trademark litigation.
Management believes that the outcome of such litigation will not have a material
adverse effect on our business, financial condition or results of operations. We
have product liability and general liability insurance policies in amounts
management believes to be reasonable. There can be no assurance, however, that
such insurance will be adequate to cover all potential product or other
liability claims against us. We also face exposure to voluntary or mandatory
product recalls in the event that our products are alleged to have manufacturing
or safety defects. We do not maintain product recall insurance.
ITEM 2. CHANGES IN SECURITIES AND USE OF PROCEEDS
Not applicable
ITEM 3. DEFAULTS UPON SENIOR SECURITIES
Not applicable
ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS
We held a Special Meeting in lieu of an Annual Meeting of Stockholders on
October 2, 2001. At the meeting, the following matters were approved by a vote
of 18,104,617 and 18,004,617 shares of Common Stock, respectively, out of
20,336,567 shares outstanding and eligible to vote:
(a) Election of Peter Martin as a Director of the Corporation; and
(b) Increasing the number of shares of Common Stock reserved for issuance
under our 1997 Stock Option Plan, as amended to date, from 4,460,978
shares to 5,960,978 shares.
27
ITEM 5. OTHER INFORMATION
Investor Conference Call
We will hold a telephone conference call on November 20, 2001 at 10 a.m.,
Eastern time in order for investors and other interested stakeholders to hear
management's views on our results of operations during the third quarter of
2001. If you are interested in accessing the call in listen-only mode, please
fax the following information to Kay Ford, Executive Assistant, at 508-422-1676:
- Name of Participant(s)
- Company Affiliation
- Nature of Business
- Address
- Phone, Fax and E-mail
ITEM 6. EXHIBITS AND REPORTS ON FORM 8-K
a. Exhibits:
Not applicable
b. Reports on Form 8-K:
Not applicable
28
SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of 1934, the
registrant has duly caused this report to be signed on its behalf by the
undersigned, thereunto duly authorized.
THE HOLMES GROUP, INC.
-------------------------------------
Registrant
November 14, 2001 By: /s/ Peter Martin
--------------------------------
Peter Martin, President,
Chief Executive Officer
(Principal Executive Officer)
November 14, 2001 By: /s/ Ira B. Morgenstern
--------------------------------
Ira B. Morgenstern,
Chief Financial Officer
(Principal Financial and
Accounting Officer)
29