UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, DC 20549
FORM 10-Q
QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d)
OF THE
SECURITIES EXCHANGE ACT OF 1934
FOR THE QUARTERLY PERIOD ENDED JUNE 30, 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 JUNE 30, 1998
TABLE OF CONTENTS
<TABLE>
<CAPTION>
PAGE
<S> <C> <C>
PART I. FINANCIAL INFORMATION
ITEM 1. FINANCIAL STATEMENTS:
CONSOLIDATED BALANCE SHEET AT
DECEMBER 31, 1997 AND JUNE 30, 1998 (UNAUDITED) 3
CONDENSED CONSOLIDATED STATEMENT OF
INCOME FOR THE THREE MONTHS AND SIX MONTHS
ENDED JUNE 30, 1997 AND JUNE 30, 1998 (UNAUDITED) 4
CONSOLIDATED STATEMENT OF
CASH FLOWS FOR THE SIX MONTHS ENDED
JUNE 30, 1997 AND JUNE 30, 1998 (UNAUDITED) 5
NOTES TO CONSOLIDATED
FINANCIAL STATEMENTS 6
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATIONS 17
ITEM 3. QUANTITATIVE AND QUALITATIVE DISCLOSURES
ABOUT MARKET RISK 21
PART II. OTHER INFORMATION 21
SIGNATURES 22
</TABLE>
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, June 30,
1997 1998 (unaudited)
<S> <C> <C>
Assets
Current assets:
Cash and cash equivalents .................................................. $ 5,141 $ 3,600
Accounts receivable, net ................................................... 38,102 31,408
Inventories ................................................................ 55,550 61,856
Prepaid expenses and other current assets .................................. 1,116 1,024
Deferred income taxes ...................................................... 4,167 4,651
Income taxes receivable .................................................... 104 1,047
--------- ---------
Total current assets ..................................................... 104,180 103,586
Property and equipment, net ................................................ 19,607 19,263
Deferred income taxes ...................................................... 638 638
Deposits and other assets .................................................. 681 3,091
Debt issuance costs, net ................................................... 10,059 9,667
--------- ---------
$ 135,165 $ 136,245
========= =========
Liabilities and Stockholders' Deficit
Current liabilities:
Current portion of capital lease obligations and other debt ................ $ 1,103 $ 849
Accounts payable ........................................................... 13,710 15,023
Accrued expenses ........................................................... 9,825 8,250
Accrued income taxes ....................................................... 1,224 2,213
--------- ---------
Total current liabilities ................................................ 25,862 26,335
Capital lease obligations ...................................................... 792 724
Line of credit ................................................................. 28,502 30,998
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 June 30, 1998, respectively ....................... 10,006 10,201
Additional paid in capital ................................................... 6,308 6,794
Treasury stock, at cost (18,616,452 shares) .................................. (62,058) (62,058)
Retained earnings ............................................................ 20,753 18,251
--------- ---------
Total stockholders' deficit ............................................. (24,991) (26,812)
--------- ---------
$ 135,165 $ 136,245
========= =========
</TABLE>
The accompanying notes are an integral part of these consolidated
financial statements
3
<PAGE>
HOLMES PRODUCTS CORP.
CONDENSED CONSOLIDATED STATEMENT OF INCOME (UNAUDITED)
(IN THOUSANDS)
<TABLE>
<CAPTION>
THREE MONTHS ENDED SIX MONTHS ENDED
June 30, June 30, June 30, June 30,
1997 1998 1997 1998
<S> <C> <C> <C> <C>
Net sales ...................................................... $ 43,408 $ 46,343 $ 81,294 $ 91,238
Cost of goods sold ............................................. 35,611 36,616 65,129 67,446
-------- -------- -------- --------
Gross profit ................................................. 7,797 9,727 16,165 23,792
-------- -------- -------- --------
Operating expenses:
Selling ..................................................... 3,639 4,142 6,982 8,512
General and administrative .................................. 2,916 4,053 6,008 8,242
Product development ......................................... 1,126 1,433 2,369 3,124
-------- -------- -------- --------
Total operating expenses ................................... 7,681 9,628 15,359 19,878
-------- -------- -------- --------
Operating profit ........................................... 116 99 806 3,914
-------- -------- -------- --------
Other income and expense:
Interest and other expense, net .............................. 1,631 3,407 3,014 6,840
-------- -------- -------- --------
Income (loss) before income taxes and minority interest ........ (1,515) (3,308) (2,208) (2,926)
Income tax expense (benefit) ................................... (227) (520) (331) (424)
-------- -------- -------- --------
Income (loss) before minority interest ......................... (1,288) (2,788) (1,877) (2,502)
Minority interest in net income of majority-owned
subsidiaries ................................................. 43 -- 220 --
-------- -------- -------- --------
Net income (loss) .......................................... $ (1,331) $ (2,788) $ (2,097) $ (2,502)
======== ======== ======== ========
</TABLE>
The accompanying notes are an integral part of these
consolidated financial statements.
4
<PAGE>
HOLMES PRODUCTS CORP.
CONSOLIDATED STATEMENT OF CASH FLOWS (UNAUDITED)
(IN THOUSANDS)
<TABLE>
<CAPTION>
SIX MONTHS ENDED
June 30, 1997 June 30, 1998
<S> <C> <C>
Cash flows from operating activities:
Net income (loss) ...................................................................... $ (2,097) $ (2,502)
Adjustments to reconcile net income (loss) to net cash provided
by (used for) operating activities:
Loss on disposition of property, plant and equipment ................................. 58 --
Depreciation and amortization ........................................................ 3,208 3,217
Amortization of debt issuance costs .................................................. -- 586
Change in allowance for doubtful accounts ............................................ 73 271
Deferred income taxes ................................................................ 97 (484)
Minority interest in net income of majority-owned subsidiaries ....................... 220 --
Changes in operating assets and liabilities:
Accounts receivable ................................................................ 4,533 6,423
Inventories ........................................................................ 2,474 (6,306)
Prepaid expenses and other current assets .......................................... 28 92
Income taxes receivable ............................................................ (2,705) (943)
Due from affiliates ................................................................ 13 --
Deposits and other assets .......................................................... (299) (2,410)
Trade acceptances payable .......................................................... (5,497) --
Accounts payable ................................................................... (2,942) 1,313
Due to affiliates .................................................................. 2,706 --
Accrued expenses ................................................................... (3,168) (1,575)
Accrued income taxes ............................................................... (1,475) 989
-------- --------
Net cash provided by (used for) operating activities ................................. (4,773) (1,329)
-------- --------
Cash flows from investing activities:
Purchases of property and equipment .................................................... (1,986) (2,873)
-------- --------
Net cash used for investing activities ............................................... (1,986) (2,873)
-------- --------
Cash flows from financing activities:
Net borrowing (repayment) of line of credit ............................................ -- 2,496
Issuance of common stock ............................................................... -- 681
Net borrowings from affiliate .......................................................... 11,025 --
Debt issuance costs .................................................................... -- (194)
Principal payments on capital lease obligations ........................................ (260) (322)
-------- --------
Net cash provided by financing activities ............................................ 10,765 2,661
-------- --------
Net increase in cash and cash equivalents ................................................ 4,006 (1,541)
Cash and cash equivalents, beginning of period ........................................... 4,462 5,141
-------- --------
Cash and cash equivalents, end of period ................................................. $ 8,468 $ 3,600
======== ========
Supplemental disclosure of cash flow information:
Cash paid for interest ................................................................ $ 3,307 $ 6,465
Cash paid for income taxes ............................................................ $ 3,246 $ 437
Property and equipment acquired under capital lease ................................... $ 836 --
</TABLE>
The accompanying notes are an integral part of these consolidated financial
statements.
5
<PAGE>
HOLMES PRODUCTS CORP.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
JUNE 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 June 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 130 shares of HPC's common stock, no par value, (ii) HPC
issued 223 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 880
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 June 30, 1998, the Company's results
of operations for the three months and six months ended June 30, 1997 and
1998 and cash flows for the six months ended June 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 six month periods ended June
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 June 30, 1998
<S> <C> <C>
Finished goods $ 34,305,000 $ 41,493,000
Raw materials 8,844,000 8,254,000
Work-in-process 12,401,000 12,109,000
----------- -----------
$ 55,550,000 $ 61,856,000
----------- -----------
</TABLE>
7. Common Stock and Stock Options
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)
Stock Option Plan
In November 1997, the Company adopted a stock option plan authorizing the
issuance of options for 1,563,020 shares of common stock to selected
employees. Under the terms of the plan, options may be either incentive or
nonqualified. The exercise price per share, determined by the Board of
Directors or by a committee of the Board of Directors, may not be less than
the fair market value on the grant date.
In the second quarter of 1998 the Company issued 596,147 incentive stock
options and 145,500 non-qualified time-based stock options at a purchase
price of $3.50. The options become exercisable, subject to continued
employment, at the rate of 20% per year beginning one year after the grant
date. The options have a term of ten years.
In the second quarter of 1998 the Company also issued 688,405 non-qualified
performance stock options at a price of $3.50. The options vest, subject to
continued employment, at a rate of 20% per year beginning one year after the
effective date. Vested options are only exercisable upon the earlier of an
initial public offering, a sale transaction (as defined therein), or the
ninth anniversary of the effective date of the option. The options have a
term of ten years.
The Company applies APB Opinion 25 "Accounting for Stock Issued to
Employees" and related interpretations in accounting for its stock option
plan. Accordingly, no compensation cost has been recognized in the Company's
financial statements.
Stock Purchase Plan
The Company has an Employee Stock Purchase Plan for selected employees,
which authorizes 250,000 shares for employee purchase. Subsequent to quarter
end the Board of Directors approved an increase in the number of shares
authorized to 350,000. Under the plan, eligible employees may purchase
shares of the Company's common stock, subject to certain limitations, at
fair market value on the purchase date. At June 30, 1998, a total of 55,528
shares remain available under the plan. During the quarter ended June 30,
1998, 194,472 shares were purchased by selected employees at $3.50 per
share.
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. 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)
8
<PAGE>
HOLMES PRODUCTS CORP.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - (CONTINUED)
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.
9
<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 .............. 10,006 1 -- (1) 10,006
Common stock, $1 par value ................. -- -- 100 (100) --
Additional paid in capital ................. 6,308 -- -- -- 6,308
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>
10
<PAGE>
CONSOLIDATING BALANCE SHEET JUNE 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 ................... $ 449 $ -- $ 3,151 -- $ 3,600
Accounts receivable, net..................... 30,677 -- 731 -- 31,408
Inventories ................................. 53,007 -- 14,255 $ (5,406) 61,856
Prepaid expenses and other current assets ... 772 -- 252 -- 1,024
Deferred income taxes ....................... 4,651 -- -- -- 4,651
Income taxes receivable ..................... 524 -- -- 523 1,047
Due from affiliates ......................... 963 89 15,147 (16,199) --
--------- --------- --------- --------- ---------
Total current assets ...................... 91,043 89 33,536 (21,082) 103,586
Property and equipment, net ................... 8,187 -- 11,121 (45) 19,263
Deferred income taxes ......................... 638 -- -- -- 638
Deposits and other assets ..................... 11,917 1 940 (100) 12,758
Investments in consolidated subsidiaries ...... 15,036 -- -- (15,036) --
--------- --------- --------- --------- ---------
$ 126,821 $ 90 $ 45,597 $ (36,263) $ 136,245
========= ========= ========= ========= =========
Liabilities and Stockholders' Equity (Deficit)
Current liabilities:
Current portion of capital lease
obligations and other debt ............... $ -- $ -- $ 849 -- $ 849
Accounts payable ............................ 3,439 -- 11,584 -- 15,023
Accrued expenses ............................ 5,566 -- 2,684 -- 8,250
Accrued income taxes ........................ (127) -- 2,340 -- 2,213
Due to affiliates ........................... 12,278 -- 3,921 $ (16,199) --
--------- --------- --------- --------- ---------
Total current liabilities ................. 21,156 -- 21,378 (16,199) 26,335
--------- --------- --------- --------- ---------
Capital lease obligations ..................... -- -- 724 -- 724
--------- --------- --------- --------- ---------
Line of credit ................................ 28,000 -- 2,998 -- 30,998
--------- --------- --------- --------- ---------
Long-term debt ................................ 105,000 -- -- -- 105,000
--------- --------- --------- --------- ---------
Stockholders' equity (deficit):
Common stock, $.001 par value ............... 10,201 1 -- (1) 10,201
Common stock, $1 par value .................. -- -- 100 (100) --
Additional paid in capital .................. 6,794 -- -- -- 6,794
Treasury stock .............................. (62,058) -- -- -- (62,058)
Retained earnings ........................... 17,728 89 20,397 (19,963) 18,251
--------- --------- --------- --------- ---------
Total stockholders' equity (deficit) ...... (27,335) 90 20,497 (20,064) (26,812)
--------- --------- --------- --------- ---------
$ 126,821 $ 90 $ 45,597 $ (36,263) $ 136,245
========= ========= ========= ========= =========
</TABLE>
11
<PAGE>
CONSOLIDATING INCOME STATEMENT
THREE MONTHS ENDED JUNE 30, 1997 (IN THOUSANDS)
(UNAUDITED)
<TABLE>
<CAPTION>
Guarantor Non-Guarantor
Parent Subsidiaries Subsidiaries Eliminations Consolidated
------ ------------ ------------ ------------ ------------
<S> <C> <C> <C> <C> <C>
Net sales ...................................... $ 42,803 $ 96 $ 13,191 $(12,682) $ 43,408
Cost of goods sold ............................. 36,947 243 10,755 (12,334) 35,611
--------- --------- --------- --------- ---------
Gross profit (loss) .......................... 5,856 (147) 2,436 (348) 7,797
--------- --------- --------- --------- ---------
Operating expenses:
Selling ...................................... 3,525 -- 114 -- 3,639
General and administrative ................... 1,136 10 1,770 -- 2,916
Product development .......................... 1,111 -- 15 -- 1,126
--------- --------- --------- --------- ---------
Total operating expenses ................... 5,772 10 1,899 -- 7,681
--------- --------- --------- --------- ---------
Operating profit (loss) .................... 84 (157) 537 (348) 116
--------- --------- --------- --------- ---------
Other income and expense:
Interest and other expense, net .............. 1,533 -- 61 37 1,631
--------- --------- --------- --------- ---------
Total other expense ........................ 1,533 -- 61 37 1,631
--------- --------- --------- --------- ---------
Income (loss) before income taxes, equity in
income of consolidated subsidiaries and
minority interest ............................ (1,449) (157) 476 (385) (1,515)
Income tax expense (benefit) ................... (884) -- 4 653 (227)
--------- --------- --------- --------- ---------
Income (loss) before equity in
income of consolidated subsidiaries and
minority interest ............................ (565) (157) 472 (1,038) (1,288)
Equity in income of consolidated subsidiaries .. (766) -- -- 766 --
--------- --------- --------- --------- ---------
Income (loss) before minority interest ......... (1,331) (157) 472 (272) (1,288)
Minority interest in net income of majority
owned subsidiaries ........................... -- -- 43 -- 43
--------- --------- --------- --------- ---------
Net income (loss) .............................. $ (1,331) $ (157) $ 429 $ (272) $ (1,331)
========= ========= ========= ========= =========
</TABLE>
12
<PAGE>
CONSOLIDATING INCOME STATEMENT
THREE MONTHS ENDED JUNE 30, 1998 (IN THOUSANDS)
(UNAUDITED)
<TABLE>
<CAPTION>
Guarantor Non-Guarantor
Parent Subsidiaries Subsidiaries Eliminations Consolidated
------ ------------ ------------ ------------ ------------
<S> <C> <C> <C> <C> <C>
Net sales .................................. $ 43,367 $ -- $ 27,189 $ (24,213) $ 46,343
Cost of goods sold ......................... 37,416 -- 21,742 (22,542) 36,616
--------- --------- --------- --------- ---------
Gross profit ............................. 5,951 -- 5,447 (1,671) 9,727
--------- --------- --------- --------- ---------
Operating expenses:
Selling .................................. 4,010 -- 132 -- 4,142
General and administrative ............... 1,905 -- 2,148 -- 4,053
Product development ...................... 1,404 -- 29 -- 1,433
--------- --------- --------- --------- ---------
Total operating expenses ............... 7,319 -- 2,309 -- 9,628
--------- --------- --------- --------- ---------
Operating profit (loss) ................ (1,368) -- 3,138 (1,671) 99
--------- --------- --------- --------- ---------
Other income (expense):
Interest and other income expense, net ... (3,700) -- 276 17 (3,407)
--------- --------- --------- --------- ---------
Total other income (expense) ........... (3,700) -- 276 17 (3,407)
--------- --------- --------- --------- ---------
Income (loss) before income taxes and
equity in income of consolidated
subsidiaries ............................. (5,068) -- 3,414 (1,654) (3,308)
Income tax expense (benefit) ............... (295) -- 298 (523) (520)
--------- --------- --------- --------- ---------
Income (loss) before equity in
income of consolidated subsidiaries ...... (4,773) -- 3,116 (1,131) (2,788)
Equity in income of consolidated
subsidiaries ............................. 1,985 -- -- (1,985) --
--------- --------- --------- --------- ---------
Net income (loss) .......................... $ (2,788) $ -- $ 3,116 $ (3,116) $ (2,788)
========= ========= ========= ========= =========
</TABLE>
13
<PAGE>
CONSOLIDATING INCOME STATEMENT
SIX MONTHS ENDED JUNE 30, 1997 (IN THOUSANDS)
(UNAUDITED)
<TABLE>
<CAPTION>
Guarantor Non-Guarantor
Parent Subsidiaries Subsidiaries Eliminations Consolidated
------ ------------ ------------ ------------ ------------
<S> <C> <C> <C> <C> <C>
Net sales ..................................... $ 78,141 $ 1,240 $ 33,367 $ (31,454) $ 81,294
Cost of goods sold ............................ 67,221 1,244 27,538 (30,874) 65,129
--------- --------- --------- --------- ---------
Gross profit ................................ 10,920 (4) 5,829 (580) 16,165
--------- --------- --------- --------- ---------
Operating expenses:
Selling ..................................... 6,748 -- 234 -- 6,982
General and administrative .................. 2,416 15 3,577 -- 6,008
Product development ......................... 2,337 -- 32 -- 2,369
--------- --------- --------- --------- ---------
Total operating expenses .................. 11,501 15 3,843 -- 15,359
--------- --------- --------- --------- ---------
Operating profit (loss) ................... (581) (19) 1,986 (580) 806
--------- --------- --------- --------- ---------
Other income (expense):
Interest and other income (expense), net .... (2,819) -- (160) (35) (3,014)
--------- --------- --------- --------- ---------
Total other income (expense) .............. (2,819) -- (160) (35) (3,014)
--------- --------- --------- --------- ---------
Income (loss) before income taxes and equity
in income of consolidated subsidiaries
and minority interest ....................... (3,400) (19) 1,826 (615) (2,208)
--------- ---------
Income tax expense (benefit) .................. (1,661) -- 144 1,186 (331)
--------- --------- --------- --------- ---------
Income (loss) before equity in
income of consolidated subsidiaries and
minority interest .......................... (1,739) (19) 1,682 (1,801) (1,877)
Equity in income of consolidated
subsidiaries ................................ 358 -- -- (358) --
--------- --------- --------- --------- ---------
Income (loss) before minority interest ........ (2,097) (19) 1,682 (1,443) (1,877)
Minority interest in net income of majority
owned subsidiaries .......................... -- -- 220 -- 220
--------- --------- --------- --------- ---------
Net income (loss) ............................. $ (2,097) $ (19) $ 1,462 $ (1,443) $ (2,097)
========= ========= ========= ========= =========
</TABLE>
14
<PAGE>
CONSOLIDATING INCOME STATEMENT
SIX MONTHS ENDED JUNE 30, 1998 (IN THOUSANDS)
(UNAUDITED)
<TABLE>
<CAPTION>
Guarantor Non-Guarantor
Parent Subsidiaries Subsidiaries Eliminations Consolidated
------ ------------ ------------ ------------ ------------
<S> <C> <C> <C> <C> <C>
Net sales .................................. $ 85,750 $ -- $ 58,284 $ (52,796) $ 91,238
Cost of goods sold ......................... 72,163 -- 45,963 (50,680) 67,446
--------- --------- --------- --------- ---------
Gross profit ............................. 13,587 -- 12,321 (2,116) 23,792
--------- --------- --------- --------- ---------
Operating expenses:
Selling .................................. 8,191 -- 321 -- 8,512
General and administrative ............... 3,922 -- 4,320 -- 8,242
Product development ...................... 3,089 -- 35 -- 3,124
--------- --------- --------- --------- ---------
Total operating expenses ............... 15,202 -- 4,676 -- 19,878
--------- --------- --------- --------- ---------
Operating profit (loss) ................ (1,615) -- 7,645 (2,116) 3,914
--------- --------- --------- --------- ---------
Other income (expense):
Interest and other income (expense), net.. (7,202) -- 345 17 (6,840)
--------- --------- --------- --------- ---------
Total other income (expense) ........... (7,202) -- 345 17 (6,840)
--------- --------- --------- --------- ---------
Income (loss) before income taxes and equity
in income of consolidated subsidiaries ... (8,817) -- 7,990 (2,099) (2,926)
Income tax expense (benefit) ............... (681) -- 757 (500) (424)
--------- --------- --------- --------- ---------
Income (loss) before equity in income of
consolidated subsidiaries ................ (8,136) -- 7,233 (1,599) (2,502)
Equity in income of consolidated
subsidiaries ............................. 5,634 -- -- (5,634) --
--------- --------- --------- --------- ---------
Net income (loss) .......................... $ (2,502) $ -- $ 7,233 $ (7,233) $ (2,502)
========= ========= ========= ========= =========
</TABLE>
15
<PAGE>
CONDENSED CONSOLIDATING STATEMENT OF CASH FLOWS
SIX MONTHS ENDED JUNE 30, 1997 AND 1998 (IN THOUSANDS)
(UNAUDITED)
<TABLE>
<CAPTION>
Guarantor Non-Guarantor
Parent Subsidiaries Subsidiaries Consolidated
------ ------------ ------------ ------------
<S> <C> <C> <C> <C>
Six Months Ended June 30, 1997
Net cash provided by (used for) operating activities ... $ (9,142) $ 459 $ 3,910 $ (4,773)
--------- -------- --------- ---------
Cash flows from investing activities:
Purchases of property and equipment .................. (2,027) -- 41 (1,986)
--------- -------- --------- ---------
Cash flows from financing activities:
Net borrowings from affiliate ........................ 11,025 -- -- 11,025
Principal payments on capital lease obligations ...... -- -- (260) (260)
Other net activity with Parent ....................... 504 (459) (45) --
--------- -------- --------- ---------
Net cash provided by (used for)
financing activities ............................. 11,529 (459) (305) 10,765
--------- -------- --------- ---------
Net increase in cash and cash equivalents .............. 360 -- 3,646 4,006
Cash and cash equivalents, beginning of period ......... 1,284 -- 3,178 4,462
--------- -------- --------- ---------
Cash and cash equivalents, end of period ............... $ 1,644 $ -- $ 6,824 $ 8,468
========= ======== ========= =========
Six Months Ended June 30, 1998
Net cash provided by operating activities .............. $ (2,142) $ -- $ 813 $ (1,329)
--------- -------- --------- ---------
Cash flows from investing activities:
Purchases of property and equipment .................. (2,289) -- (584) (2,873)
--------- -------- --------- ---------
Cash flows from financing activities:
Debt issuance costs .................................. (194) -- -- (194)
Net borrowing of line of credit ...................... 500 -- 1,996 2,496
Principal payments on capital lease obligations ...... -- -- (322) (322)
Issuance of common stock ............................. 681 -- -- 681
Other net activity with Parent ....................... 152 -- (152) --
--------- -------- --------- ---------
Net cash used for financing activities ............. 1,139 -- 1,522 2,661
--------- -------- --------- ---------
Net increase in cash and cash equivalents .............. (3,292) -- 1,751 (1,541)
Cash and cash equivalents, beginning of period ......... 3,741 -- 1,400 5,141
--------- -------- --------- ---------
Cash and cash equivalents, end of period ............... $ 449 $ -- $ 3,151 $ 3,600
========= ======== ========= =========
</TABLE>
16
<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 JUNE 30, 1998 AND JUNE 30, 1997
Net Sales. Net sales for the second quarter of fiscal 1998, which ended June 30,
1998, were $46.3 million compared to $43.4 million for the second quarter of
fiscal 1997, which ended June 30, 1997, an increase of $2.9 million or 6.7%.
This increase is primarily attributable to late season heater and humidifier
sales due to the cooler spring weather experienced in 1998 versus 1997, as well
as increases in air purifier and related filter sales over the prior period as
this product line continues to mature.
Gross Profit. Gross profit for the second quarter of 1998 was $9.7 million
compared to $7.8 million for the second quarter of 1997, an increase of $1.9
million or 24.4%. As a percentage of net sales, gross profit increased to 20.9%
for the second quarter of 1998 from 17.9% for the second quarter 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, air purifiers and related filters generate higher gross profit
margins than fans and dehumidifiers, and the increase in sales of these product
categories in the second quarter of 1998 improved the overall gross profit
percentage.
Selling Expenses. Selling expenses for the second quarter of 1998 were $4.1
million compared to $3.6 million for the second quarter of 1997, an increase of
$.5 million or 13.9%. As a percentage of net sales, selling expenses increased
to 8.9% for the second quarter of 1998 from 8.4% for the second quarter of 1997.
The increase in selling expenses is primarily due to an increase in co-operative
advertising of higher margin products with several major retailers. To a lesser
extent, selling commissions and shipping costs increased as a result of the
higher sales level. Also, there were increased expenses associated with the
redesign of all of the Company's product packaging.
General and Administrative Expenses. General and administrative expenses for the
second quarter of 1998 were $4.1 million compared to $2.9 million for the second
quarter of 1997, an increase of $1.2 million or 41.4%. As a percentage of net
sales, general and administrative expenses increased to 8.7% for the second
quarter of 1998 from 6.7% for the second quarter of 1997. The increase was in
part due to an overall increase in salary and fringe benefit costs from planned
staff increases. The increase was also due to the management fee paid to
Berkshire Partners as part of the recapitalization of the Company in November
1997. Additionally, the Company increased its expenditures on management and
information systems support to improve operating efficiencies at all locations.
17
<PAGE>
Product Development Expenses. Product development expenses for the second
quarter of 1998 were $1.4 million compared to $1.1 million for the second
quarter of 1997, an increase of $.3 million or 27.3%. As a percentage of net
sales, product development expenses increased to 3.1% for the second quarter of
1998 from 2.6% for the second quarter of 1997. The increase was primarily due to
increased expenditures for royalties, outside consultants and manufacturers 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 second
quarter of 1998 was $3.4 million compared to $1.6 million for the second quarter
of 1997, an increase of $1.8 million or 112.5%. The increase in interest expense
is primarily due to the additional borrowings resulting from the
recapitalization of the Company in November 1997.
Income Tax Expense (Benefit). Income tax expense (benefit) changed to a benefit
of $520,000 in the second quarter of 1998 from a benefit of $227,000 in the
second quarter of 1997, as a result of the Company reporting a larger loss in
the second quarter of 1998 as compared to the second 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 second quarter of 1998 and 1997.
Net Income (Loss). As a result of the foregoing factors, net loss for the second
quarter of 1998 was $2,788,000, compared to a net loss of $1,331,000 in the
second quarter of 1997.
COMPARISON OF SIX MONTH PERIODS ENDED JUNE 30, 1998 AND JUNE 30, 1997
Net Sales. Net sales for the first half of fiscal 1998, which ended June 30,
1998, were $91.2 million compared to $81.3 million for the first half of fiscal
1997, which ended June 30, 1997, an increase of $9.9 million or 12.2%. This
increase is primarily attributable to an increase in fan sales over the prior
year which resulted from a stronger than anticipated fan retail season, a
significant increase in external sales from the Far East operations to non-U.S.
markets, as well as increases in air purifier and related filter sales over the
prior period as this product line continues to mature.
Gross Profit. Gross profit for the first half of 1998 was $23.8 million compared
to $16.2 million for the first half of 1997, an increase of $7.6 million or
46.9%. As a percentage of net sales, gross profit increased to 26.1% for the
first half of 1998 from 19.9% for the first half 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, the sales of air purifiers and related filters have continued
above prior year levels. These two categories generate higher gross profit
margins than fans and dehumidifiers, and the increase in sales of these product
categories in the first half of 1998 improved the overall gross profit
percentage. Finally, sales of air purifier and humidifier filters and related
accessories, which also have a higher gross profit margin, through the customer
service department have also continued well above the prior year level.
Selling Expenses. Selling expenses for the first half of 1998 were $8.5 million
compared to $7.0 million for the first half of 1997, an increase of $1.5 million
or 21.4%. As a percentage of net sales, selling expenses increased to 9.3% for
the first half of 1998 from 8.6% for the first half of 1997. The increase in
selling expenses was primarily due to a continued increase in co-operative
advertising 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 each product line. To a lesser extent, shipping costs
and selling commissions increased as a result of the higher sales level.
General and Administrative Expenses. General and administrative expenses for the
first half of 1998 were $8.2 million compared to $6.0 million for the first half
of 1997, an increase of $2.2 million or 36.7%. As a percentage of net sales,
general and administrative expenses increased to 9.0% for the first half of 1998
from 7.4% for the first half of 1997. The Company increased its expenditures on
management and information systems support to improve operating efficiencies at
18
<PAGE>
all of the Company's locations. In addition, general and administrative expenses
increased due to the management fee paid to Berkshire Partners as part of the
recapitalization of the Company in November 1997. The first half of 1998 also
reflects higher incentive compensation expense as a result of the increase in
operating profits.
Product Development Expenses. Product development expenses for the first half of
1998 were $3.1 million compared to $2.4 million for the first half of 1997, an
increase of $.7 million or 29.2%. As a percentage of net sales, product
development expenses increased to 3.4% for the first half of 1998 from 3.0% for
the first half of 1997. The increase was primarily due to increased expenditures
for royalties, outside consulting firms and manufacturers 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
half of 1998 was $6.8 million compared to $3.0 million for the first half of
1997, an increase of $3.8 million or 126.7%. The increase in interest expense is
primarily due to the additional borrowings resulting from the recapitalization
of the Company in November 1997.
Income Tax Expense (Benefit). Income tax expense (benefit) changed to a benefit
of $424,000 in the first half of 1998 from a benefit of $331,000 in the first
half of 1997, as a result of the Company reporting a larger loss in the first
half of 1998 as compared to the first half of 1997. The Company provides for
taxes using a projected worldwide effective tax rate for the entire year. The
effective tax rate decreased to 14.5% in the first half of 1998 from 15% in the
comparable prior period based on the forecasted profitability by geographic
area.
Net Income (Loss). As a result of the foregoing factors, net loss for the first
half of 1998 was $2,502,000, compared to a net loss of $2,097,000 in the first
half 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 six months ended June 30, 1998
and 1997 was $(1.3) million and $(4.8) million, respectively. Cash provided by
operations in the first half of 1998 primarily reflected a $6.4 million decrease
in accounts receivable and increases in finished goods inventory and accounts
payable. The decrease in accounts receivable is largely due to an increase in
shipments to customers from the Company's manufacturing facilities in the Far
East, which are paid on faster terms than shipments from the Company's US
warehouses. Additionally, the Company has continued to increase its focus and
administrative support in the credit and collections area, which has positively
impacted accounts receivable balances. The increase in inventory levels was
primarily due to retailers not taking some of their back up stock fan orders due
to a cooler than expected June 1998. The increase in accounts payable is
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.
Cash provided by (used for) financing activities for the six months ended June
30, 1998 and 1997 was $2.7 million and $10.8 million, respectively. Cash
provided by financing in the first half of 1998 reflected additional working
capital borrowing under the Line of Credit. Additionally, a number of employees
bought shares of the Company's common stock as part of a stock purchase plan.
The cash provided by financing activities in the first half of 1997 reflected
borrowings for working capital purposes under the previous line of credit from
Pentland.
19
<PAGE>
The Company's capital expenditures, including assets acquired under capital
leases, for the six months ended June 30, 1998 and 1997 were $2.9 million and
$2.8 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 Line of Credit
facility expires in January 2003.
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 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, 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."
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.
20
<PAGE>
<TABLE>
<S> <C>
ITEM 3. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK
Not applicable.
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 and recent sales of unregistered
securities. Additionally, see Item 5 below.
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
Effective April 24, 1998, the Company exchanged $105 million aggregate
principal amount of its Series B Senior Subordinated Notes due 2007 for
an equal amount of Series A Senior Subordinated Notes due 2007. The
Series B Notes were issued on the same terms as the Series A Notes,
except that the Series B Notes were registered under the Securities Act
of 1933 as amended. There were no proceeds to the Company resulting
from the exchange.
ITEM 6. EXHIBITS AND REPORTS ON FORM 8-K
a. Exhibits: 27.1 Financial Data Schedule
b. Reports on Form 8-K:
None.
</TABLE>
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
<TABLE>
<S> <C>
August 14, 1998 By: /s/ Jordan A. Kahn
------------------
Jordan A. Kahn, President,
Chief Executive Officer
(Principal Executive Officer)
August 14, 1998 By: /s/ David Dusseault
-------------------
David Dusseault,
Chief Financial Officer
(Principal Financial and Accounting Officer)
</TABLE>
22
<PAGE>
<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> 6-MOS
<FISCAL-YEAR-END> DEC-31-1998
<PERIOD-START> JAN-01-1998
<PERIOD-END> JUN-30-1998
<EXCHANGE-RATE> 1
<CASH> 3,600
<SECURITIES> 0
<RECEIVABLES> 32,138
<ALLOWANCES> 730
<INVENTORY> 61,856
<CURRENT-ASSETS> 103,586
<PP&E> 38,217
<DEPRECIATION> 18,954
<TOTAL-ASSETS> 136,245
<CURRENT-LIABILITIES> 26,335
<BONDS> 136,722
0
0
<COMMON> 10,201
<OTHER-SE> (37,013)
<TOTAL-LIABILITY-AND-EQUITY> 136,245
<SALES> 91,238
<TOTAL-REVENUES> 91,238
<CGS> 67,446
<TOTAL-COSTS> 67,446
<OTHER-EXPENSES> 3,124<F1>
<LOSS-PROVISION> 271
<INTEREST-EXPENSE> 6,840
<INCOME-PRETAX> (2,926)
<INCOME-TAX> (424)
<INCOME-CONTINUING> (2,502)
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> (2,502)
<EPS-PRIMARY> 0<F2>
<EPS-DILUTED> 0<F2>
<FN>
<F1>Product development expenses.
<F2>The Company's shares are not publicly traded.
</FN>
</TABLE>
