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, 1998
COMMISSION FILE NUMBER: 333-44473
HOLMES PRODUCTS CORP.
(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.)
233 FORTUNE BOULEVARD, MILFORD MASSACHUSETTTS 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 PRECEEDING 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 ___
<PAGE>
HOLMES PRODUCTS CORP.
FORM 10-Q
QUARTER ENDED SEPTEMBER 30, 1998
TABLE OF CONTENTS
PAGE
PART I. FINANCIAL INFORMATION 3
ITEM 1. FINANCIAL STATEMENTS:
CONSOLIDATED BALANCE SHEET
AT DECEMBER 31, 1997 AND
SEPTEMBER 30, 1998 (UNAUDITED) 3
CONDENSED CONSOLIDATED STATEMENT OF
INCOME FOR THE THREE MONTHS AND NINE MONTHS
ENDED SEPTEMBER 30, 1997 AND
SEPTEMBER 30, 1998 (UNAUDITED) 4
CONSOLIDATED STATEMENT OF
CASH FLOWS FOR THE NINE MONTHS ENDED
SEPTEMBER 30, 1997 AND
SEPTEMBER 30, 1998 (UNAUDITED) 5
NOTES TO CONSOLIDATED
FINANCIAL STATEMENTS 6
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATIONS 16
ITEM 3. QUANTITATIVE AND QUALITATIVE DISCLOSURES
ABOUT MARKET RISK 20
PART II. OTHER INFORMATION 21
SIGNATURES 22
2
<PAGE>
PART I. FINANCIAL INFORMATION
ITEM 1. FINANCIAL STATEMENTS
HOLMES PRODUCTS CORP.
CONSOLIDATED BALANCE SHEET
(IN THOUSANDS, EXCEPT SHARE AND PER SHARE AMOUNTS)
<TABLE>
<CAPTION>
December 31, September 30,
1997 1998 (unaudited)
<S> <C> <C>
Assets
Current assets:
Cash and cash equivalents .................................................. $ 5,141 $ 5,738
Accounts receivable, net ................................................... 38,102 39,632
Inventories ................................................................ 55,550 57,114
Prepaid expenses and other current assets .................................. 1,116 1,637
Deferred income taxes ...................................................... 4,167 4,651
Income taxes receivable .................................................... 104 --
-------- --------
Total current assets ..................................................... 104,180 108,772
Property and equipment, net ................................................ 19,607 17,950
Deferred income taxes ...................................................... 638 638
Deposits and other assets .................................................. 681 2,397
Debt issuance costs, net ................................................... 10,059 9,437
-------- --------
$135,165 $139,194
======== ========
Liabilities and Stockholders' Deficit
Current liabilities:
Current portion of capital lease obligations and other debt ................ $ 1,103 $ 584
Accounts payable ........................................................... 13,710 16,593
Accrued expenses ........................................................... 9,825 14,580
Accrued income taxes ....................................................... 1,224 2,074
-------- --------
Total current liabilities ................................................ 25,862 33,831
Capital lease obligations ...................................................... 792 320
Line of credit ................................................................. 28,502 19,500
Long-term debt ................................................................. 105,000 105,000
Commitments and contingencies
Stockholders' deficit:
Common stock, $.001 par value. Authorized 12,500,000 shares; issued and
outstanding 10,006,343 shares and 10,200,815 shares at December 31, 1997
and September 30, 1998, respectively ....................................... 10 10
Additional paid in capital ................................................... 16,304 16,985
Treasury stock, at cost (18,616,452 shares) .................................. (62,058) (62,058)
Retained earnings ............................................................ 20,753 25,606
-------- --------
Total stockholders' deficit ............................................. (24,991) (19,457)
-------- --------
$135,165 $139,194
======== ========
The accompanying notes are an integral part of these consolidated financial statements
</TABLE>
3
<PAGE>
HOLMES PRODUCTS CORP.
CONDENSED CONSOLIDATED STATEMENT OF INCOME (UNAUDITED)
(IN THOUSANDS)
<TABLE>
<CAPTION>
THREE MONTHS ENDED NINE MONTHS ENDED
September September September September
30, 1997 30, 1998 30, 1997 30, 1998
<S> <C> <C> <C> <C>
Net sales ............................................ $55,473 $66,364 $136,767 $157,602
Cost of goods sold ................................... 37,313 43,077 102,442 110,523
------- ------- -------- --------
Gross profit ....................................... 18,160 23,287 34,325 47,079
------- ------- -------- --------
Operating expenses:
Selling ............................................ 4,261 6,212 11,243 14,724
General and administrative ......................... 4,181 3,548 10,189 11,790
Product development ................................ 1,268 1,614 3,637 4,738
------- ------- -------- --------
Total operating expenses ......................... 9,710 11,374 25,069 31,252
------- ------- -------- --------
Operating profit ................................. 8,450 11,913 9,256 15,827
------- ------- -------- --------
Other income and expense:
Other (income) expense, net ......................... 28 (255) 42 (268)
Interest and other expense, net .................... 1,724 3,516 4,724 10,369
------- ------- -------- --------
1,752 3,261 4,766 10,101
------- ------- -------- --------
Income (loss) before income taxes and minority
interest ........................................... 6,698 8,652 4,490 5,726
Income tax expense (benefit) ......................... 623 1,297 292 873
------- ------- -------- --------
Income (loss) before minority interest ............... 6,075 7,355 4,198 4,853
Minority interest in net income of
majority-owned subsidiaries ........................ -- -- 220 --
------- ------- -------- --------
Net income (loss) ................................ $ 6,075 $ 7,355 $ 3,978 $ 4,853
======= ======= ======== ========
The accompanying notes are an integral part of these
consolidated financial statements.
</TABLE>
4
<PAGE>
HOLMES PRODUCTS CORP.
CONSOLIDATED STATEMENT OF CASH FLOWS (UNAUDITED)
(IN THOUSANDS)
<TABLE>
<CAPTION>
NINE MONTHS ENDED
September 30, 1997 September 30, 1998
<S> <C> <C>
Cash flows from operating activities:
Net income (loss ................................................... $ 3,978 $ 4,853
Adjustments to reconcile net income (loss) to net cash provided
by (used for) operating activities:
Loss on disposition of property, plant and equipment ............. 66 --
Depreciation and amortization .................................... 4,973 5,184
Amortization of debt issuance costs .............................. -- 884
Change in allowance for doubtful accounts ........................ 43 377
Deferred income taxes ............................................ (441) (484)
Minority interest in net income of majority-owned subsidiaries ... 220 --
Changes in operating assets and liabilities:
Accounts receivable ............................................ (5,722) (1,907)
Inventories .................................................... 5,040 (1,564)
Prepaid expenses and other current assets ...................... (79) (521)
Income taxes receivable ........................................ (889) 104
Due from affiliates ............................................ (2,259) --
Deposits and other assets ...................................... (135) (1,715)
Bank overdraft ................................................. (42) --
Trade acceptances payable ...................................... (4,376) --
Accounts payable ............................................... 107 2,883
Due to affiliates .............................................. 2,041 --
Accrued expenses ............................................... (967) 4,755
Accrued income taxes ........................................... (2,249) 850
-------- --------
Net cash provided by (used for) operating activities ............. (691) 13,699
-------- --------
Cash flows from investing activities:
Purchases of property and equipment ................................ (3,601) (3,527)
Purchase of Minority Interest ...................................... (450) --
-------- --------
Net cash used for investing activities ........................... (4,051) (3,527)
-------- --------
Cash flows from financing activities:
Net borrowing (repayment) of line of credit ........................ -- (9,002)
Issuance of common stock ........................................... -- 681
Net borrowings from affiliate ...................................... 9,000 --
Debt issuance costs ................................................ -- (263)
Principal payments on capital lease obligations .................... (571) (991)
-------- --------
Net cash provided by financing activities ........................ 8,429 (9,575)
-------- --------
Net increase in cash and cash equivalents ............................ 3,687 597
Cash and cash equivalents, beginning of period ....................... 4,462 5,141
-------- --------
Cash and cash equivalents, end of period ............................. $ 8,149 $ 5,738
======== ========
Supplemental disclosure of cash flow information:
Cash paid for interest ............................................ $ 4,834 $ 7,423
Cash paid for income taxes ........................................ $ 3,871 $ 437
</TABLE>
The accompanying notes are an integral part of these consolidated financial
statements.
5
<PAGE>
HOLMES PRODUCTS CORP.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
SEPTEMBER 30, 1998
1. Nature of Business
Holmes Products Corp. ("HPC") designs, develops, imports and sells consumer
durable goods, including fans, heaters, humidifiers, air purifiers,
dehumidifiers and lighting products, to retailers throughout the United
States and Canada, and to a lesser extent, Europe.
Holmes Products (Far East) Limited ("HPFEL") and its subsidiaries
manufacture and sell consumer durable goods, including fans, heaters and
humidifiers, mainly to HPC. HPFEL operates facilities in Hong Kong, Taiwan
and The People's Republic of China.
HPFEL is a wholly-owned subsidiary of HPC. Prior to the recapitalization
transaction described in Note 4, HPC and HPFEL (together as "the Company")
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 HPC
and its wholly-owned subsidiaries, HPFEL, Holmes Manufacturing Corp.,
Holmes Air (Taiwan) Corp. and Holmes Air (Canada) Corp. The accompanying
unaudited financial statements also include the accounts of HPFEL's
wholly-owned subsidiaries, Esteem Industries Ltd., Raider Motor Corp.,
Dongguan Huixin Electrical Products Company, Ltd. and Dongguan Raider Motor
Corp. Ltd. Prior to the recapitalization transaction described in Note 4,
the unaudited financial statements combined the accounts of HPC and HPFEL
on the basis of common ownership. All significant inter-company balances
and transactions have been eliminated.
3. Minority Interest
Prior to May 1997, HPFEL owned 70% of Raider Motor Corp., which owns 100%
of Dongguan Raider Motor Corp. Ltd. The minority stockholders' interests in
the net income and net assets of Raider Motor Corp. and Dongguan Raider
Motor Corp. Ltd. were presented separately in the accompanying unaudited
financial statements.
In May and June 1997, the Company reached agreements to acquire the capital
stock held by the minority stockholders. The book value of the minority
interest exceeded the repurchase price by approximately $650,000. The
excess of the fair market value of the assets and liabilities of Raider
Motor Corp. on the date of acquisition over the purchase price has been
recorded as a reduction of property and equipment during the year ended
December 31, 1997. Amounts payable for this acquisition at September 30,
1997 are included in the current portion of capital lease obligations and
other debt.
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, $1 par value, to
6
<PAGE>
HOLMES PRODUCTS CORP.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - (CONTINUED)
HPC in exchange for 2,750,741 shares of HPC's common stock, no par value,
(ii) HPC 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) HPC redeemed 18,616,452 shares of HPC common stock held by
Pentland for approximately $62.1 million. In connection with these
transactions, HPC issued $105,000,000 of 9 7/8% Senior Subordinated Notes
due in November 2007 and borrowed $27,500,000 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, 1998, the Company's
results of operations for the three months and nine months ended September
30, 1997 and 1998 and cash flows for the nine months ended September 30,
1997 and 1998. This interim financial information and notes thereto should
be read in conjunction with the Company's Registration Statement on Form
S-4, which includes audited financial statements for the year ended
December 31, 1997. Due to the seasonality of the Company's business, the
Company's consolidated results of operations for the three month and nine
month periods ended September 30, 1998 are not necessarily indicative of
the results to be expected for any other interim period or the entire
fiscal year.
6. Inventories
Inventories are stated at the lower of cost or market. Cost is determined
using the first-in, first-out (FIFO) method. Inventories are as follows:
<TABLE>
<CAPTION>
December 31, 1997 September 30, 1998
<S> <C> <C>
Finished goods $34,305,000 $39,184,000
Raw materials 8,844,000 6,229,000
Work-in-process 12,401,000 11,701,000
----------- -----------
$55,550,000 $57,114,000
----------- ----------
</TABLE>
7. Stock Split
In April 1998, the Company's Board of Directors approved an increase in the
number of authorized shares of common stock from 15,000 with no par value
to 12.5 million with a $.001 par value. The change in par value did not
affect any of the existing rights of shareholders and has been recorded as
an adjustment to additional paid-in capital and common stock. In addition,
the Company's Board of Directors approved a 21,159 for 1 stock split.
Shares outstanding have been adjusted for all periods presented to reflect
post-split amounts.
7
<PAGE>
HOLMES PRODUCTS CORP.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - (CONTINUED)
8. 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.
9. Subsequent Events
On October 15, 1998 the Company signed an agreement with General Electric
creating a limited liability company for a motor manufacturing, sales and
distribution company. The limited liability company, GE Holmes Industries,
will be owned 49% by a subsidiary of Holmes Products Corp.
10. Condensed Consolidating Information
The senior subordinated notes described in Note 4 were issued by HPC and
are guaranteed by Holmes Manufacturing Corp. ("Manufacturing") and Holmes
Air (Taiwan) Corp. ("Taiwan"), but are not guaranteed by HPC's other direct
subsidiaries, HPFEL and Holmes Air (Canada) Corp. ("Canada"). The guarantor
subsidiaries are wholly-owned by HPC, 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) HPC, as parent, as if it accounted for its
subsidiaries on the equity method, (ii) Manufacturing and Taiwan, the
guarantor subsidiaries, and (iii) HPFEL and Canada, the non-guarantor
subsidiaries. There were no transactions between Manufacturing and Taiwan,
or between HPFEL and Canada, during any of the periods presented. Separate
financial statements of Manufacturing and Taiwan are not presented herein
as management does not believe that such statements would be material to
investors. Taiwan had no revenues or operations during the periods
presented, and Manufacturing ceased operations in March 1997. As further
described in Note 14 of the Company's audited financial statements for the
year ended December 31, 1997, included in the Company's Registration
Statement on Form S-4, certain of HPFEL's subsidiaries in China have
restrictions on distributions to the parent company.
8
<PAGE>
CONSOLIDATING BALANCE SHEET DECEMBER 31, 1997 (IN THOUSANDS)
<TABLE>
<CAPTION>
Guarantor Non-Guarantor
Parent Subsidiaries Subsidiaries Eliminations Consolidated
---------- ------------ ------------- ------------ ------------
<S> <C> <C> <C> <C> <C>
Assets
Current assets:
Cash and cash equivalents .............. $ 3,741 $-- $ 1,400 -- $ 5,141
Accounts receivable, net ............... 36,775 -- 1,327 -- 38,102
Inventories ............................ 47,592 -- 11,433 $ (3,475) 55,550
Prepaid expenses and other
current assets ....................... 813 -- 303 -- 1,116
Deferred income taxes .................. 4,167 -- -- -- 4,167
Income taxes receivable ................ 104 -- -- -- 104
Due from affiliates .................... 5,426 89 10,605 (16,120) --
-------- --- ------- -------- --------
Total current assets ................. 98,618 89 25,068 (19,595) 104,180
Property and equipment, net .............. 8,607 -- 11,093 (93) 19,607
Deferred income taxes .................... 638 -- -- -- 638
Deposits and other assets ................ 10,313 1 426 -- 10,740
Investments in consolidated
subsidiaries ........................... 10,178 -- -- (10,178) --
-------- --- ------- -------- --------
$128,354 $90 $36,587 $(29,866) $135,165
======== === ======= ======== ========
Liabilities and Stockholders'
Equity (Deficit)
Current liabilities:
Current portion of capital
lease obligations and other debt ..... $ -- $-- $ 1,103 -- $ 1,103
Accounts payable ....................... 3,253 -- 10,457 -- 13,710
Accrued expenses ....................... 6,898 -- 2,927 -- 9,825
Accrued income taxes ................... -- -- 1,298 $ (74) 1,224
Due to affiliates ...................... 10,694 -- 5,426 (16,120) --
-------- --- ------- -------- --------
Total current liabilities ............ 20,845 -- 21,211 (16,194) 25,862
-------- --- ------- -------- --------
Capital lease obligations ................ -- -- 792 -- 792
Line of credit ........................... 27,500 -- 1,002 -- 28,502
-------- --- ------- -------- --------
Long-term debt ........................... 105,000 -- -- -- 105,000
-------- --- ------- -------- --------
Stockholders' equity (deficit):
Common stock, $.001 par value .......... 10 1 -- (1) 10
Common stock, $1 par value ............. -- -- 100 (100) -
Additional paid in capital ............. 16,304 -- -- -- 16,304
Treasury stock ......................... (62,058) -- -- -- (62,058)
Retained earnings ...................... 20,753 89 13,482 (13,571) 20,753
-------- --- ------- -------- --------
Total stockholders' equity (deficit) .. (24,991) 90 13,582 (13,672) (24,991)
-------- --- ------- -------- --------
$128,354 $90 $36,587 $(29,866) $135,165
======== === ======= ======== ========
</TABLE>
9
<PAGE>
CONSOLIDATING BALANCE SHEET SEPTEMBER 30, 1998 (IN THOUSANDS)
(UNAUDITED)
<TABLE>
<CAPTION>
Guarantor Non-Guarantor
Parent Subsidiaries Subsidiaries Eliminations Consolidated
---------- ------------ ------------- ------------ ------------
<S> <C> <C> <C> <C> <C>
Assets
Current assets:
Cash and cash equivalents .............. $ 3,833 $-- $ 1,905 -- $ 5,738
Accounts receivable, net ............... 37,564 -- 2,068 -- 39,632
Inventories ............................ 51,245 -- 11,197 $ (5,328) 57,114
Prepaid expenses and other
current assets ....................... 1,356 -- 281 -- 1,637
Deferred income taxes .................. 4,651 -- -- -- 4,651
Income taxes receivable ................ -- -- -- -- --
Due from affiliates .................... (89) 89 19,851 (19,851) --
--------- --- ------- -------- --------
Total current assets ................. 98,560 89 35,302 (25,179) 108,772
Property and equipment, net .............. 7,410 -- 10,560 (20) 17,950
Deferred income taxes .................... 638 -- -- -- 638
Deposits and other assets ................ 11,429 1 504 (100) 11,834
Investments in consolidated
subsidiaries ........................... 19,508 -- -- (19,508) --
--------- --- ------- -------- --------
$ 137,545 $90 $46,366 $(44,807) $139,194
========= === ======= ======== ========
Liabilities and Stockholders'
Equity (Deficit)
Current liabilities:
Current portion of capital lease
obligations and other debt ........... $ -- $-- $ 584 -- $ 584
Accounts payable ....................... 4,020 -- 12,573 -- 16,593
Accrued expenses ....................... 11,756 -- 2,824 -- 14,580
Accrued income taxes ................... 904 -- 1,835 $ (665) 2,074
Due to affiliates ...................... 16,487 -- 3,364 (19,851) --
--------- --- ------- -------- --------
Total current liabilities ............ 33,167 -- 21,180 (20,516) 33,831
--------- --- ------- -------- --------
Capital lease obligations ................ -- -- 320 -- 320
--------- --- ------- -------- --------
Line of credit ........................... 19,500 -- -- -- 19,500
--------- --- ------- -------- --------
Long-term debt ........................... 105,000 -- -- -- 105,000
--------- --- ------- -------- --------
Stockholders' equity (deficit):
Common stock, $.001 par value .......... 10 1 -- (1) 10
Common stock, $1 par value ............. -- -- 100 (100) --
Additional paid in capital ............. 16,985 -- -- -- 16,985
Treasury stock ......................... (62,058) -- -- -- (62,058)
Retained earnings ...................... 24,941 89 24,766 (24,190) 25,606
--------- --- ------- -------- --------
Total stockholders' equity (deficit) . (20,122) 90 24,866 (24,291) (19,457)
--------- --- ------- -------- --------
$ 137,545 $90 $46,366 $(44,807) $139,194
========= === ======= ======== ========
</TABLE>
10
<PAGE>
CONSOLIDATING INCOME STATEMENT
THREE MONTHS ENDED SEPTEMBER 30, 1997 (IN THOUSANDS)
(UNAUDITED)
<TABLE>
<CAPTION>
Guarantor Non-Guarantor
Parent Subsidiaries Subsidiaries Eliminations Consolidated
---------- ------------ ------------- ------------ ------------
<S> <C> <C> <C> <C> <C>
Net sales ................................ $ 54,462 $-- $28,193 $(27,182) $ 55,473
Cost of goods sold. ...................... 41,612 -- 22,914 (27,213) 37,313
-------- --- ------- -------- --------
Gross profit ........................... 12,850 -- 5,279 31 18,160
-------- --- ------- -------- --------
Operating expenses:
Selling ................................ 4,143 -- 118 -- 4,261
General and administrative ............. 2,108 -- 2,073 -- 4,181
Product development .................... 1,245 -- 23 -- 1,268
-------- --- ------- -------- --------
Total operating expenses ............. 7,496 -- 2,214 -- 9,710
-------- --- ------- -------- --------
Operating profit ..................... 5,354 -- 3,065 31 8,450
-------- --- ------- -------- --------
Other income and expense:
Interest and other expense, net ........ 1,407 -- 285 60 1,752
-------- --- ------- -------- --------
Total other expense .................. 1,407 -- 285 60 1,752
-------- --- ------- -------- --------
Income (loss) before income
taxes, equity in income of
consolidated subsidiaries and
minority interest ...................... 3,947 -- 2,780 (29) 6,698
Income tax expense (benefit) ............. 1,809 -- -- (1,186) 623
-------- --- ------- -------- --------
Income before equity in income of
consolidated subsidiaries and
minority interest ...................... 2,138 -- 2,780 1,157 6,075
Equity in income of consolidated
subsidiaries ........................... 3,937 -- -- (3,937) --
-------- --- ------- -------- --------
Income (loss) before minority interest ... 6,075 -- 2,780 (2,780) 6,075
Minority interest in net income
of majority owned subsidiaries ......... -- -- -- -- --
-------- --- ------- -------- --------
Net income (loss) ........................ $ 6,075 $-- $ 2,780 $ (2,780) $ 6,075
======== === ======= ======== ========
</TABLE>
11
<PAGE>
CONSOLIDATING INCOME STATEMENT
THREE MONTHS ENDED SEPTEMBER 30, 1998 (IN THOUSANDS)
(UNAUDITED)
<TABLE>
<CAPTION>
Guarantor Non-Guarantor
Parent Subsidiaries Subsidiaries Eliminations Consolidated
---------- ------------ ------------- ------------ ------------
<S> <C> <C> <C> <C> <C>
Net sales ................................ $ 65,334 $-- $33,432 $(32,402) $ 66,364
Cost of goods sold ....................... 48,067 -- 27,657 (32,647) 43,077
-------- --- ------- -------- --------
Gross profit ........................... 17,267 -- 5,775 245 23,287
-------- --- ------- -------- --------
Operating expenses:
Selling ................................ 6,022 -- 190 -- 6,212
General and administrative ............. 1,738 -- 1,810 -- 3,548
Product development .................... 1,613 -- 1 -- 1,614
-------- --- ------- -------- --------
Total operating expenses ............. 9,373 -- 2,001 -- 11,374
-------- --- ------- -------- --------
Operating profit (loss) .............. 7,894 -- 3,774 245 11,913
-------- --- ------- -------- --------
Other income (expense):
Interest and other income
(expense), net ........................ (3,601) -- 340 -- (3,261)
Total other income (expense) ......... (3,601) -- 340 -- (3,261)
-------- --- ------- -------- --------
Income (loss) before income
taxes and equity in income of
consolidated subsidiaries ............... 4,293 -- 4,114 245 8,652
Income tax expense (benefit) ............. 1,554 -- (92) (165) 1,297
-------- --- ------- -------- --------
Income (loss) before equity in
income of consolidated subsidiaries ..... 2,739 -- 4,206 410 7,355
Equity in income of consolidated
subsidiaries ............................ 4,616 -- -- (4,616) --
-------- --- ------- -------- --------
Net income (loss) ........................ $ 7,355 $-- $ 4,206 $ (4,206) $ 7,355
======== === ======= ======== ========
</TABLE>
12
<PAGE>
CONSOLIDATING INCOME STATEMENT
NINE MONTHS ENDED SEPTEMBER 30, 1997 (IN THOUSANDS)
(UNAUDITED)
<TABLE>
<CAPTION>
Guarantor Non-Guarantor
Parent Subsidiaries Subsidiaries Eliminations Consolidated
---------- ------------ ------------- ------------ ------------
<S> <C> <C> <C> <C> <C>
Net sales ................................ $132,603 $1,240 $61,560 $(58,636) $136,767
Cost of goods sold ....................... 108,833 1,244 50,452 (58,087) 102,442
-------- ------ ------- -------- --------
Gross profit (loss) .................... 23,770 (4) 11,108 (549) 34,325
-------- ------ ------- -------- --------
Operating expenses:
Selling ................................ 10,891 -- 352 -- 11,243
General and administrative ............. 4,524 15 5,650 -- 10,189
Product development .................... 3,582 -- 55 -- 3,637
-------- ------ ------- -------- --------
Total operating expenses ............. 18,997 15 6,057 -- 25,069
-------- ------ ------- -------- --------
Operating profit (loss) .............. 4,773 (19) 5,051 (549) 9,256
-------- ------ ------- -------- --------
Other income and expense:
Interest and other expense, net ........ 4,226 -- 445 95 4,766
-------- ------ ------- -------- --------
Total other expense .................. 4,226 -- 445 95 4,766
-------- ------ ------- -------- --------
Income (loss) before income
taxes and equity in income of
consolidated subsidiaries
and minority interest ................... 547 (19) 4,606 (644) 4,490
Income tax expense ....................... 148 -- 144 -- 292
-------- ------ ------- -------- --------
Income (loss) before equity in
income of consolidated subsidiaries
and minority interest ................... 399 (19) 4,462 (644) 4,198
Equity in income of consolidated
subsidiaries ............................ 3,579 -- -- (3,579) --
-------- ------ ------- -------- --------
Income (loss) before minority interest ... 3,978 (19) 4,462 (4,223) 4,198
Minority interest in net income
of majority owned subsidiaries .......... -- -- 220 -- 220
-------- ------ ------- -------- --------
Net income (loss) ........................ $ 3,978 $ (19) $ 4,242 $ (4,223) $ 3,978
======== ===== ======= ======== ========
</TABLE>
13
<PAGE>
CONSOLIDATING INCOME STATEMENT
NINE MONTHS ENDED SEPTEMBER 30, 1998 (IN THOUSANDS)
(UNAUDITED)
<TABLE>
<CAPTION>
Guarantor Non-Guarantor
Parent Subsidiaries Subsidiaries Eliminations Consolidated
---------- ------------ ------------- ------------ ------------
<S> <C> <C> <C> <C> <C>
Net sales ................................ $151,084 $ -- $91,716 $(85,198) $157,602
Cost of goods sold ....................... 120,230 -- 73,620 (83,327) 110,523
-------- ----- ------- -------- --------
Gross profit ........................... 30,854 -- 18,096 (1,871) 47,079
-------- ----- ------- -------- --------
Operating expenses:
Selling ................................ 14,213 -- 511 -- 14,724
General and administrative ............. 5,660 -- 6,130 -- 11,790
Product development .................... 4,702 -- 36 -- 4,738
-------- ----- ------- -------- --------
Total operating expenses ............. 24,575 -- 6,677 -- 31,252
-------- ----- ------- -------- --------
Operating profit (loss) .............. 6,279 -- 11,419 (1,871) 15,827
-------- ----- ------- -------- --------
Other income (expense):
Interest and other income
(expense), net ......................... (10,803) -- 685 17 (10,101)
-------- ----- ------- -------- --------
Total other income (expense) ......... (10,803) -- 685 17 (10,101)
-------- ----- ------- -------- --------
Income (loss) before income
taxes and equity in income of
consolidated subsidiaries ............... (4,524) -- 12,104 (1,854) 5,726
Income tax expense (benefit) ............. 873 -- 665 (665) 873
-------- ----- ------- -------- --------
Income (loss) before equity in
income of
consolidated subsidiaries ............... (5,397) -- 11,439 (1,189) 4,853
Equity in income of consolidated
subsidiaries ........................... 10,250 -- -- (10,250) --
-------- ----- ------- -------- --------
Net income (loss) ........................ $ 4,853 $ -- $11,439 $(11,439) $ 4,853
======== ===== ======= ======== ========
</TABLE>
14
<PAGE>
CONDENSED CONSOLIDATING STATEMENT OF CASH FLOWS
NINE MONTHS ENDED SEPTEMBER 30, 1997 AND 1998 (IN THOUSANDS)
(UNAUDITED)
<TABLE>
<CAPTION>
Guarantor Non-Guarantor
Parent Subsidiaries Subsidiaries Consolidated
---------- ------------ -------------- ------------
<S> <C> <C> <C> <C>
Nine Months Ended September 30, 1997
Net cash provided by (used for) operating
activities ........................................ $(2,698) $ 459 $1,548 $ (691)
------- ----- ------ -------
Cash flows from investing activities:
Purchases of property and equipment ............... (3,318) -- (283) (3,601)
Purchase of minority interest ..................... -- -- (450) (450)
------- ----- ------ -------
Net cash used for investing activities .......... (3,318) -- (733) (4,051)
------- ----- ------ -------
Cash flows from financing activities:
Net borrowings from affiliate ..................... 9,000 -- -- 9,000
Principal payments on capital lease obligations ... -- -- (571) (571)
Other net activity with Parent .................... (501) (459) 960 --
------- ----- ------ -------
Net cash provided by (used for)
financing activities .......................... 8,499 (459) 389 8,429
------- ----- ------ -------
Net increase in cash and cash equivalents ........... 2,483 -- 1,204 3,687
Cash and cash equivalents, beginning of period ...... 1,284 -- 3,178 4,462
------- ----- ------ -------
Cash and cash equivalents, end of period ............ $ 3,767 $ -- $4,382 $ 8,149
======= ===== ====== =======
Nine Months Ended September 30, 1998
Net cash provided by operating activities ........... $10,477 $ -- $3,222 $13,699
------- ----- ------ -------
Cash flows from investing activities:
Purchases of property and equipment ............... (2,795) -- (732) (3,527)
------- ----- ------ -------
Cash flows from financing activities:
Debt issuance costs ............................... (263) -- -- (263)
Net borrowing of line of credit ................... (8,000) -- (1,002) (9,002)
Principal payments on capital lease
obligations ..................................... -- -- (991) (991)
Issuance of common stock .......................... 681 -- 681
Other net activity with Parent .................... (8) -- 8 --
------- ----- ------ -------
Net cash used for financing activities .......... (7,590) -- (1,985) (9,575)
------- ----- ------ -------
Net increase in cash and cash equivalents ........... 92 -- 505 597
Cash and cash equivalents, begining of
period ............................................ 3,741 -- 1,400 5,141
------- ----- ------ -------
Cash and cash equivalents, end of period ............ $ 3,833 $ - $1,905 $ 5,738
======= ===== ====== =======
</TABLE>
15
<PAGE>
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS
OF OPERATIONS
OVERVIEW
Sales of most of the Company's products follow seasonal patterns that affect the
Company's results of operations. In general, the Company's sales of fans and
dehumidifiers occur predominantly from January through June, and the Company's
sales of heaters and humidifiers occur predominantly from July through December.
Although 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, the Company's sales of these products
tend to be greatest in advance of the winter months from July through December.
In addition to the seasonal fluctuations in sales, the Company experiences
seasonality in gross profit, as margins realized on fan products tend to be
lower than those realized on heater, humidifier and air purifier products.
The Company completed a recapitalization transaction in November 1997, in which
the Company issued $105 million of senior subordinated notes due in November
2007, bearing interest at 9 7/8%, and entered into a $100 million Line of Credit
facility, of which approximately $27.5 million was initially drawn. The proceeds
of these borrowings were used to repay all existing indebtedness (primarily a
line of credit and other current debt facilities) and redeem a significant
portion of the previous majority shareholder's common stock. Accordingly,
commencing in November 1997, the Company has a significantly higher level of
borrowing and a corresponding higher level of interest expense than in the past.
COMPARISON OF THREE MONTH PERIODS ENDED SEPTEMBER 30, 1998 AND
SEPTEMBER 30, 1997
Net Sales. Net sales for the third quarter of fiscal 1998, which ended September
30, 1998, were $66.4 million compared to $55.5 million for the third quarter of
fiscal 1997, which ended September 30, 1997, an increase of $10.9 million or
19.6%. This increase was primarily attributable to strong early humidifier and
heater sales (up $4.4 million and $2.4 million respectively from the third
quarter of 1997) and a continued increase in filter and accessory sales over the
prior period.
Gross Profit. Gross profit for the third quarter of 1998 was $23.3 million
compared to $18.2 million for the third quarter of 1997, an increase of $5.1
million or 28%. As a percentage of net sales, gross profit increased to 35.1%
for the third quarter of 1998 from 32.8% for the third quarter of 1997. The
increase was primarily due to the above mentioned increases in net sales in
humidifiers, heaters and filters and accessories which are relatively higher
margin contributors, as well as continued reductions in raw material prices at
the Company's manufacturing operations in the Far East.
Selling Expenses. Selling expenses for the third quarter of 1998 were $6.2
million compared to $4.3 million for the third quarter of 1997, an increase of
$1.9 million or 44.2%. As a percentage of net sales, selling expenses increased
to 9.3% for the third quarter of 1998 from 7.7% for the third quarter of 1997.
The increase in selling expenses is primarily due to an increase in co-operative
advertising of higher margin products and new sales promotions with several
major retailers. To a lesser extent, shipping costs increased as a result of the
higher sales level. Also, there were continued expenses associated with the
redesign of some of the Company's product packaging.
General and Administrative Expenses. General and administrative expenses for the
third quarter of 1998 were $3.5 million compared to $4.2 million for the third
quarter of 1997, a decrease of $.7 million or 16.7%. As a percentage of net
sales, general and administrative expenses decreased to 5.3% for the third
quarter of 1998 from 7.6% for the third quarter of 1997. The higher amount in
the 1997 period resulted from three quarters of bonus accruals in the third
quarter of 1997 versus one quarter of accrual in the third
16
<PAGE>
quarter of 1998. In the third quarter of 1997, the Company adjusted the accrual
for incentive compensation based on the net income amount. In the first two
quarters of 1997, the Company did not anticipate accruing for incentive
compensation, as there were net losses through June 1997. Through the first
three quarters of 1998, the Company accrued incentive compensation monthly based
on budgeted figures for the fiscal year.
Product Development Expenses. Product development expenses for the third quarter
of 1998 were $1.6 million compared to $1.3 million for the third quarter of
1997, an increase of $.3 million or 23.1%. As a percentage of net sales, product
development expenses increased to 2.4% for the third quarter of 1998 from 2.3%
for the third quarter of 1997. The increase was primarily due to increased
expenditures for royalties and outside consultants as part of the Company's
continuing effort in developing new technologies for both existing and new
product lines.
Interest and Other Expense, Net. Interest and other expense, net for the third
quarter of 1998 was $3.3 million compared to $1.8 million for the third quarter
of 1997, an increase of $1.5 million or 83.3%. The increase in interest expense
was primarily due to the additional borrowings resulting from the
recapitalization of the Company in November 1997.
Income Tax Expense. Income tax expense increased to $1.3 million in the third
quarter of 1998 from $.6 million in the third quarter of 1997, as a result of
the Company reporting a $2 million increase in pre-tax income in the third
quarter of 1998 as compared to the third quarter of 1997. The Company provides
for taxes using a projected worldwide effective tax rate for the entire year.
The effective tax rate was consistent at approximately 15% in the third quarter
of 1998 and 1997.
Net Income. As a result of the foregoing factors, net income for the third
quarter of 1998 was $7.4 million, compared to net income of $6.1 million in the
third quarter of 1997.
COMPARISON OF NINE MONTH PERIODS ENDED SEPTEMBER 30, 1998 AND
SEPTEMBER 30, 1997
Net Sales. Net sales for the first nine months of fiscal 1998, which ended
September 30, 1998, were $157.6 million compared to $136.8 million for the first
nine months of fiscal 1997, which ended September 30, 1997, an increase of $20.8
million or 15.2%. This increase is primarily attributable to an increase in all
four of the Company's main product categories; fans, heaters, humidifiers and
air purifiers over the prior year which resulted from stronger retail seasons,
improved consumer response and a significant increase in external sales from the
Far East operations to non-U.S. markets.
Gross Profit. Gross profit for the first nine months of 1998 was $47.1 million
compared to $34.3 million for the first nine months of 1997, an increase of
$12.8 million or 37.3%. As a percentage of net sales, gross profit increased to
29.9% for the first nine months of 1998 from 25.1% for the first nine months of
1997. The increase was primarily due to the above mentioned increases in net
sales as well as reductions in raw material prices at the Company's
manufacturing operations. Additionally, sales of air purifiers, humidifiers and
related filters, including sales through the customer service department,
continued above prior year levels. These two categories generate higher gross
profit margins than the other categories, and the increase in sales of these
products in the first nine months of 1998 improved the overall gross profit
percentage.
Selling Expenses. Selling expenses for the first nine months of 1998 were $14.7
million compared to $11.2 million for the first nine months of 1997, an increase
of $3.5 million or 31.3%. As a percentage of net sales, selling expenses
increased to 9.3% for the first nine months of 1998 from 8.2% for the first nine
months of 1997. The increase in selling expenses was primarily due to a
continued increase in co-operative advertising and new sales promotions of
higher margin products with several major retailers. Also contributing to the
increase was an increase in packaging costs from redesigning the outside
packaging for existing product lines. To a lesser extent, shipping costs and
selling commissions increased as a result of the higher sales level.
17
<PAGE>
General and Administrative Expenses. General and administrative expenses for the
first nine months of 1998 were $11.8 million compared to $10.2 million for the
first nine months of 1997, an increase of $1.6 million or 15.7%. As a percentage
of net sales, general and administrative expenses remained at 7.5% for the first
nine months of 1998 and 1997, respectively. The Company increased its
expenditures on management and information systems support, and increases in
personnel costs to improve operating efficiencies at all of the Company's
locations. In addition, general and administrative expenses increased due to the
administrative costs on-going as part of the recapitalization of the Company in
November 1997.
Product Development Expenses. Product development expenses for the first nine
months of 1998 were $4.7 million compared to $3.6 million for the first nine
months of 1997, an increase of $1.1 million or 30.6%. As a percentage of net
sales, product development expenses increased to 3% for the first nine months of
1998 from 2.6% for the first nine months of 1997. The increase was primarily due
to increased expenditures for royalties and outside consulting firms as part of
the Company's effort in developing new technologies for both existing and new
product lines.
Interest and Other Expense, Net. Interest and other expense, net for the first
nine months of 1998 was $10.1 million compared to $4.8 million for the first
nine months of 1997, an increase of $5.3 million or 110.4%. The increase in
interest expense was primarily due to the additional borrowings resulting from
the recapitalization of the Company in November 1997.
Income Tax Expense. Income tax expense increased to $.9 million in the first
nine months of 1998 from $.3 million in the first nine months of 1997, as a
result of the Company reporting a larger pre-tax income in the first nine months
of 1998 as compared to the first nine months of 1997. The Company provides for
taxes using a projected worldwide effective tax rate for the entire year. The
effective tax rate increased to 15% in the first nine months of 1998 from 6.5%
in the comparable prior period based on the forecasted profitability by
geographic area.
Net Income. As a result of the foregoing factors, net income for the first nine
months of 1998 was $4.6 million, compared to net income of $4.0 million in the
first nine months of 1997.
LIQUIDITY AND CAPITAL RESOURCES
Following the recapitalization transaction in November 1997 the Company is
funding its liquidity requirements with cash flows from operations and
borrowings under its Line of Credit facility. The primary liquidity requirements
are for working capital and to service the Company's indebtedness. The Company
believes that existing cash resources, cash flows from operations and borrowings
under the credit facility will be sufficient to meet the Company's liquidity
needs for the foreseeable future.
Cash provided by (used for) operations for the nine months ended September 30,
1998 and 1997 was $13.7 million and $(.7) million, respectively. Cash provided
by operations in the first nine months of 1998 primarily reflected the net
income of $4.9 million and increases in accrued liabilities and accounts
payable, partially offset by increases in accounts receivable and inventory. The
increase in accrued liabilities related mainly to the accrued interest on the
long-term debt. The $2.9 million increase in accounts payable was primarily due
to purchases of materials for increased manufacturing activity in the Company's
Far East operations to support the Company's higher sales level. The increase in
inventory was mainly due to increased warehouse levels of winter season products
(heaters and humidifiers) in anticipation of in-season orders, as early season
shipments are generally made directly to customers from the Company's Far East
manufacturing facilities. The increase in accounts receivable was sales volume
related.
Cash provided by (used for) financing activities for the nine months ended
September 30, 1998 and 1997 was $(9.6) million and $8.4 million, respectively.
Cash used for financing in the first nine months of 1998 reflected the payback
of borrowings under the Line of Credit. The cash provided by financing
activities in
18
<PAGE>
the first nine months of 1997 reflected borrowings for working capital purposes
under the previous line of credit from Pentland.
The Company's capital expenditures, including assets acquired under capital
leases, for the nine months ended September 30, 1998 and 1997 were $3.5 million
and $4.1 million, respectively, primarily for molds and tooling.
The Senior Subordinated Notes issued in the recapitalization are not redeemable
at the Company's option prior to November 15, 2002. Thereafter, the notes are
subject to redemption at any time at the option of the Company, in whole or in
part, at stated redemption prices. Annual interest payments on the notes are
approximately $10.4 million. The payment of principal and interest on the notes
is subordinated to the prior payment in full of all senior debt of the Company,
including borrowings under the Line of Credit facility.
The Company's $100 million Line of Credit facility bears interest at a variable
rate based on either the prime rate or LIBOR, at the Company's option, plus a
margin which varies depending upon certain financial ratios of the Company. The
Line of 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 Line of Credit facility expires in January 2003. The
Line of Credit facility and the Senior Subordinated Notes Indenture 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 "Forward-Looking Statements."
YEAR 2000
The Year 2000 problem relates to computer systems that have time and
date-sensitive programs that were designed to read years beginning with "19",
but may not properly read the Year 2000. If a system used by the Company or by a
third party fails because of the inability to properly read the Year 2000 date,
the results could have a material adverse effect on the Company.
The Company has developed a plan to address the possible exposures related to
its computer systems from the Year 2000. The Company has identified the risk to
be in two general categories: Information Technology Systems, including
Electronic Data Interchange Systems (EDI), and General Business Systems.
Information Technology Systems including EDI. The Company is currently in the
process of implementing a new company wide computer software system. The new
system will be fully Year 2000 compliant, according to the vendor, and the
Company anticipates that it will be operational by the end of the second quarter
of 1999. In addition, all computer hardware has or is in the process of being
tested for Year 2000 compliance. Those systems that fail will be upgraded or
replaced during the second quarter of 1999. The Company is also in the process
of implementing a new EDI system that will be fully Year 2000 compliant to
prevent any interruption of data interchange from the many customers using this
platform. The Company anticipates that this system will be completed during the
second quarter of 1999. The Company intends to use both internal and external
resources to test, reprogram or replace the software and hardware for Year 2000
modifications. The total specific project costs are difficult to determine as
many of the upgrades and new implementations would have been made by the Company
regardless of the Year 2000 issue. The majority of project costs, related to the
purchase of hardware and software to meet both Year 2000 and company specific
requirements, will be capitalized. All other remaining project costs will be
expensed over the next twelve to eighteen months.
General Business Systems. Business systems encompass the following:
telecommunications systems, departmental specific application systems, machinery
and equipment, building and utility systems and, finally, third party vendors
and service providers. The Company has created a Year 2000 committee
19
<PAGE>
consisting of one member from each department of the Company. The committee is
reviewing all aspects of the Company's business systems to determine if they are
Year 2000 compliant. This process will continue throughout the fourth quarter of
1998 as well as into the first and second quarter of 1999. The Company will send
out a comprehensive questionnaire to all significant customers and suppliers
regarding their Year 2000 compliance. While the Company intends to carefully
monitor its supplier risks, the Company cannot fully control each supplier, and
there can be no guarantee that a Year 2000 problem that may originate with a
supplier will not materially adversely affect the Company. The Company has not
designed a specific contingency plan in the event of a Year 2000 failure caused
by a supplier or third party, but the Company is working to identify issues as
soon as possible. Finally, the Company has determined that products that the
Company manufactures and sells have no exposure related to the Year 2000 issue.
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," "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, the Company's degree of leverage, its 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 discussed from time to time in the
Company's filings 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.
ITEM 3. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK
Not applicable.
20
<PAGE>
PART II. OTHER INFORMATION
ITEM 1. LEGAL PROCEEDINGS
The Company is involved in a number of pending legal proceedings
arising in the ordinary course of the Company's business. Management
believes that the resolution of these matters will not materially
affect the Company's financial position or results of operations.
ITEM 2. CHANGES IN SECURITIES AND USE OF PROCEEDS
See note 7 of Notes to Consolidated Financial Statements concerning a
stock split of the common stock.
ITEM 3. DEFAULTS UPON SENIOR SECURITIES
Not applicable.
ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS
Not applicable.
ITEM 5. OTHER INFORMATION
Not applicable.
ITEM 6. EXHIBITS AND REPORTS ON FORM 8-K
a. Exhibits: 27.1 Financial Data Schedule
b. Reports on Form 8-K:
None.
21
<PAGE>
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.
HOLMES PRODUCTS CORP.
---------------------
Registrant
November 13, 1998 By: /s/ Jordan A. Kahn
------------------
Jordan A. Kahn, President,
Chief Executive Officer
(Principal Executive Officer)
November 13, 1998 By: /s/ Ira B. Morgenstern
----------------------
Ira B. Morgenstern,
Senior Vice President of Finance
(Principal Financial Officer)
22
<TABLE> <S> <C>
<ARTICLE> 5
<LEGEND>
THIS SCHEDULE CONTAINS SUMMARY INFORMATION EXTRACTED FROM THE CONSOLIDATED
FINANCIAL STATEMENTS OF HOLMES PRODUCTS CORP. AND IS QUALIFIED IN ITS ENTIRETY
BY REFERENCE TO SUCH FINANCIAL STATEMENTS.
</LEGEND>
<MULTIPLIER> 1,000
<CURRENCY> U.S. DOLLARS
<S> <C>
<PERIOD-TYPE> 9-MOS
<FISCAL-YEAR-END> DEC-31-1998
<PERIOD-START> JAN-01-1998
<PERIOD-END> SEP-30-1998
<EXCHANGE-RATE> 1
<CASH> 5,738
<SECURITIES> 0
<RECEIVABLES> 40,468
<ALLOWANCES> 836
<INVENTORY> 57,114
<CURRENT-ASSETS> 108,772
<PP&E> 38,528
<DEPRECIATION> 20,578
<TOTAL-ASSETS> 139,194
<CURRENT-LIABILITIES> 33,831
<BONDS> 124,820
0
0
<COMMON> 10
<OTHER-SE> (19,467)
<TOTAL-LIABILITY-AND-EQUITY> 139,194
<SALES> 157,602
<TOTAL-REVENUES> 157,602
<CGS> 110,523
<TOTAL-COSTS> 110,523
<OTHER-EXPENSES> 4,738<F1>
<LOSS-PROVISION> 377
<INTEREST-EXPENSE> 10,101
<INCOME-PRETAX> 5,726
<INCOME-TAX> 873
<INCOME-CONTINUING> 4,853
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 4,853
<EPS-PRIMARY> 0<F2>
<EPS-DILUTED> 0<F2>
<FN>
<F1>Product development expenses.
<F2>The Company's shares are not publicly traded.
</FN>
</TABLE>
