<PAGE> 1
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, 1999
COMMISSION FILE NUMBERS: 333-44473
333-77905
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 MASSACHUSETTS 01757
(ADDRESS OF PRINCIPAL EXECUTIVE OFFICES) (ZIP CODE)
(508) 634-8050
(REGISTRANT'S TELEPHONE NUMBER)
INDICATE BY CHECK MARK WHETHER THE REGISTRANT (1) HAS FILED ALL REPORTS REQUIRED
TO BE FILED BY SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 DURING
THE PRECEDING 12 MONTHS (OR FOR SUCH SHORTER PERIOD THAT THE REGISTRANT WAS
REQUIRED TO FILE SUCH REPORTS), AND (2) HAS BEEN SUBJECT TO SUCH FILING
REQUIREMENTS FOR THE PAST 90 DAYS.
YES [X] NO [ ]
<PAGE> 2
HOLMES PRODUCTS CORP.
FORM 10-Q
QUARTERLY PERIOD ENDED JUNE 30, 1999
TABLE OF CONTENTS
<TABLE>
<CAPTION>
PAGE
<S> <C> <C>
PART I. FINANCIAL INFORMATION
ITEM 1. FINANCIAL STATEMENTS:
CONSOLIDATED BALANCE SHEET AT DECEMBER 31, 1998 AND JUNE 30, 1999
(UNAUDITED) 3
CONSOLIDATED STATEMENT OF INCOME FOR THE THREE MONTHS AND
SIX MONTHS ENDED JUNE 30, 1998 AND JUNE 30, 1999 (UNAUDITED) 4
CONSOLIDATED STATEMENT OF CASH FLOWS FOR THE SIX MONTHS ENDED
JUNE 30, 1998 AND JUNE 30, 1999 (UNAUDITED) 5
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS 6
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND
RESULTS OF OPERATIONS 19
ITEM 3. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK 24
PART II. OTHER INFORMATION 25
SIGNATURES 26
</TABLE>
2
<PAGE> 3
PART I. FINANCIAL INFORMATION
ITEM 1. FINANCIAL STATEMENTS
HOLMES PRODUCTS CORP.
CONSOLIDATED BALANCE SHEET
(IN THOUSANDS)
<TABLE>
<CAPTION>
DECEMBER 31, JUNE 30,
1998 1999 (UNAUDITED)
<S> <C> <C>
ASSETS
Current assets:
Cash and cash equivalents ................................................. $ 5,379 $ 1,528
Accounts receivable, net .................................................. 36,967 99,179
Inventories ............................................................... 53,340 146,875
Prepaid expenses and other current assets ................................. 2,027 2,748
Deferred income taxes ..................................................... 4,983 11,080
Income taxes receivable ................................................... -- 3,544
-------- --------
Total current assets .................................................... 102,696 264,954
Assets held for sale ...................................................... -- 3,062
Property and equipment, net ............................................... 15,752 50,660
Goodwill .................................................................. -- 84,969
Deferred income taxes ..................................................... 563 563
Deposits and other assets ................................................. 3,174 9,940
Debt issuance costs, net .................................................. 9,172 21,544
-------- --------
$131,357 $435,692
======== ========
LIABILITIES AND STOCKHOLDERS' EQUITY (DEFICIT)
Current liabilities:
Current portion of capital lease obligations and other debt ............... $ 604 $ 410
Current portion of credit facility ........................................ -- 4,838
Accounts payable .......................................................... 15,004 26,582
Accrued expenses .......................................................... 12,292 31,739
Accrued income taxes ...................................................... 3,707 3,457
-------- --------
Total current liabilities ............................................... 31,607 67,026
Capital lease obligations ..................................................... 139 --
Credit facility ............................................................... 10,000 199,462
Long-term debt ................................................................ 105,000 135,038
Deferred income taxes ......................................................... -- 4,051
Commitments and contingencies
Stockholders' equity (deficit):
Common stock, $.001 par value. Authorized 12,500,000 shares as of December
31, 1998 and 25,000,000 as of June 30, 1999; issued and outstanding
10,200,815 shares at December 31, 1998 and 20,336,877 shares at
June 30, 1999............................................................. 10 20
Additional paid in capital .................................................. 16,985 67,915
Accumulated other comprehensive income ...................................... (40) 5
Treasury stock, at cost (18,620,450 shares) ................................. (62,058) (62,058)
Retained earnings ........................................................... 29,714 24,233
-------- --------
Total stockholders' equity (deficit) .................................... (15,389) 30,115
-------- --------
$131,357 $435,692
======== ========
</TABLE>
The accompanying notes are an integral part of these consolidated financial
statements
3
<PAGE> 4
HOLMES PRODUCTS CORP.
CONSOLIDATED STATEMENT OF INCOME (UNAUDITED)
(IN THOUSANDS)
<TABLE>
<CAPTION>
THREE MONTHS ENDED SIX MONTHS ENDED
JUNE 30, 1998 JUNE 30, 1999 JUNE 30, 1998 JUNE 30, 1999
<S> <C> <C> <C> <C>
Net sales..................................................... $46,343 $115,856 $91,238 $207,525
Cost of goods sold............................................ 36,616 86,500 67,446 151,248
------- -------- ------- --------
Gross profit................................................ 9,727 29,356 23,792 56,277
Operating expenses:
Selling..................................................... 4,142 15,092 8,512 28,264
General and administrative ................................. 4,053 8,312 8,242 13,997
Product development......................................... 1,433 2,439 3,124 4,658
Plant closing costs......................................... -- 1,020 -- 2,169
Amortization of goodwill and other intangible assets........ -- 752 -- 1,198
------- -------- ------- --------
Total operating expenses.................................. 9,628 27,615 19,878 50,286
------- -------- ------- --------
Operating profit.......................................... 99 1,741 3,914 5,991
------- -------- ------- --------
Other income and expense:
Interest and other expense, net............................. 3,407 6,845 6,840 12,894
------- -------- ------- --------
Income (loss) before income taxes and equity in
earnings from joint venture .................................. (3,308) (5,104) (2,926) (6,903)
Income tax expense (benefit).................................. (520) (1,021) (424) (1,359)
Equity in earnings from joint venture......................... -- -- -- 108
------- -------- ------- --------
Net income (loss)......................................... $(2,788) $ (4,083) $(2,502) $ (5,436)
======== ========= ======= ========
</TABLE>
The accompanying notes are an integral part of these consolidated financial
statements.
4
<PAGE> 5
HOLMES PRODUCTS CORP.
CONSOLIDATED STATEMENT OF CASH FLOWS (UNAUDITED)
(IN THOUSANDS)
<TABLE>
<CAPTION>
SIX MONTHS ENDED
JUNE 30, 1998 JUNE 30, 1999
<S> <C> <C>
Cash flows from operating activities:
Net income (loss) ..................................................................... $(2,502) $(5,436)
Adjustments to reconcile net income (loss) to net cash provided by (used for) operating
activities:
Depreciation and amortization ....................................................... 3,217 7,622
Amortization of debt issuance costs ................................................. 586 1,446
Change in allowance for doubtful accounts ........................................... 271 475
(Gain) loss on disposal of assets ................................................... -- (31)
Deferred income taxes ............................................................... (484) 527
Changes in operating assets and liabilities:
Accounts receivable ............................................................... 6,423 14,580
Inventories ....................................................................... (6,306) 11,012
Prepaid expenses and other current assets ......................................... 92 1,091
Income taxes receivable ........................................................... (943) --
Deposits and other assets ......................................................... (2,410) (727)
Accounts payable .................................................................. 1,313 (6,945)
Accrued expenses .................................................................. (1,575) (2,133)
Accrued income taxes .............................................................. 989 (1,510)
------- -------
Net cash provided by (used for) operating activities ................................ (1,329) 19,971
------- -------
Cash flows from investing activities:
Acquisition of business, net of cash acquired ......................................... -- (279,546)
Contribution in joint venture ......................................................... -- (25)
Proceeds from sale of assets held for sale ............................................ -- 1,519
Distribution of earnings from joint venture ........................................... -- 108
Purchases of property and equipment ................................................... (2,873) (6,115)
------- --------
Net cash used for investing activities .............................................. (2,873) (284,059)
------- --------
Cash flows from financing activities:
Net borrowing (repayment) of line of credit ........................................... 2,496 (10,000)
Issuance of common stock .............................................................. 681 50,400
Borrowings of long- term debt, net of issuance costs .................................. -- 27,464
Borrowings on credit facility, net of issuance costs .................................. -- 193,055
Debt issuance costs ................................................................... (194) (350)
Principal payments on capital lease obligations ....................................... (322) (333)
------- --------
Net cash provided by financing activities ........................................... 2,661 260,236
------- --------
Effect of exchange rate changes on cash ................................................. -- 1
------- --------
Net (decrease) in cash and cash equivalents ............................................. (1,541) (3,851)
Cash and cash equivalents, beginning of period .......................................... 5,141 5,379
------- --------
Cash and cash equivalents, end of period ................................................ $ 3,600 $ 1,528
======= ========
Supplemental disclosure of cash flow information:
Cash paid for interest ............................................................... $ 6,465 $ 12,334
Cash paid for (refunds of) income taxes .............................................. $ 437 $ (118)
Non cash transactions:
During 1999 the Company issued 99,207 shares of common stock for the fair value of
services received from a vendor totaling $500,000.
</TABLE>
The accompanying notes are an integral part of these consolidated financial
statements.
5
<PAGE> 6
HOLMES PRODUCTS CORP.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
JUNE 30, 1999
1. NATURE OF BUSINESS
Holmes Products Corp. ("Holmes" or "HPC") designs, develops, imports and
sells consumer durable goods, including fans, heaters, humidifiers, air
purifiers, filters, accessories and lighting products, to retailers
throughout the United States and Canada, and to a lesser extent, Europe.
The Rival Company ("Rival") and its subsidiaries design, manufacture and
market small kitchen, home environment and personal care appliances,
commercial and industrial fans, and ventilation equipment as well as sump,
well and utility pumps. Rival sells its products to retail and industrial
customers, primarily in the U.S. and Canada and, to a larger degree than
HPC, internationally. Rival is a wholly-owned subsidiary of HPC, having
been acquired by HPC on February 5, 1999.
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 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 were both directly or
indirectly an 80% owned subsidiary 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, Rival, HPFEL, Holmes Manufacturing
Corp., Holmes Air (Taiwan) Corp., Holmes Motor Corp. and Holmes Air
(Canada) Corp. The accompanying unaudited financial statements also include
the accounts of Rival's direct and indirect wholly-owned subsidiaries,
Bionaire International B.V., Patton Building Products, Inc., Patton
Electric Company, Inc., Patton Electric (Hong Kong) Limited, Rival Consumer
Sales Corporation, The Rival Company of Canada, Ltd., Rival de Mexico S.A.
de C.V. and Waverly Products Company, Ltd. and HPFEL's wholly-owned
subsidiaries, Esteem Industries Ltd., Raider Motor Corp., Dongguan Huixin
Electrical Products Company, Ltd., Holmes Products (Europe) Ltd. and
Dongguan Raider Motor Corp. Ltd. All significant inter-company balances and
transactions have been eliminated.
HPC and its consolidated subsidiaries, including Rival, HPFEL and their
respective subsidiaries, are referred to herein as the "Company."
3. ACQUISITION
On February 5, 1999, the Company completed its acquisition of Rival for an
aggregate of $279.5 million, including $129.4 million cash paid in
connection with a tender offer for all of the outstanding shares of Common
Stock of The Rival Company (including payments to optionees), $142.9
million to refinance Rival's outstanding debt and $7.2 million in
acquisition costs. The acquisition was made utilizing cash on hand,
borrowings under an amended and restated Credit Facility entered into in
connection with the acquisition, the issuance of $31.3 million of senior
subordinated notes and proceeds of $50.0 million from the sale of Holmes'
common stock to investment funds affiliated with Holmes' majority
shareholder, certain members of Holmes' management and to certain other
co-investors. This acquisition has been accounted for as a purchase, and
the results of operations of Rival have been included in the consolidated
financial statements since the date of acquisition. The excess of purchase
price over the fair value of net assets acquired was approximately $86.0
million and is being amortized on a straight-line basis over 35 years. The
allocation of the purchase price to the net assets of Rival is preliminary.
Management intends to complete its assessment of the fair value of assets
acquired by December 31, 1999.
Prior to the acquisition by Holmes, Rival recorded an $8.4 million
restructuring charge relating to the closing of three facilities. Each of
these facilities has been closed or is scheduled to be closed during fiscal
1999 and the Company plans to sell these properties. One of the properties
was sold during June 1999 resulting in no gain or loss. Proceeds from the
sale were $1,519,000 net of selling expenses. The estimated fair value of
the remaining two properties has been reflected in the June 30, 1999
balance sheet as assets held for sale. Additionally, wind down costs and
fixed asset writedowns relating to these facilities have been included as
plant closing costs in the consolidated statement of income for the three
and six months ended June 30, 1999.
6
<PAGE> 7
In connection with the acquisition, the Company recorded a restructuring
charge of $6.0 million in accordance with EITF 95-3, "Recognition of
Liabilities in Connection with a Purchase Business Combination." This
reserve related to management severance costs and other employee related
costs and international and domestic facility exit costs. The reserve at
June 30, 1999 is as follows (in thousands):
<TABLE>
<CAPTION>
Administrative
Employee Facility
Severance and Exit and Total Accrued
Relocation Costs Other Costs Restructuring
---------------- -------------- -------------
<S> <C> <C> <C>
Restructuring accrual at February 5, 1999 $4,774 $ 1,226 $6,000
Cash payments made (761) -- (761)
------ ------- ------
Balance at June 30, 1999 $4,013 $ 1,226 $5,239
</TABLE>
The following unaudited pro forma data summarizes the Company's results of
operations for the periods indicated as if the acquisition had been
completed as of the beginning of the periods presented. These unaudited pro
forma results have been prepared for comparative purposes only and include
certain adjustments, such as increased interest expense on acquisition debt
and additional amortization expense as a result of the goodwill. They do
not purport to be indicative of the results of operations that actually
would have resulted had the acquisitions been in effect on January 1, 1998,
or of future results of operations.
<TABLE>
<CAPTION>
SIX MONTHS ENDED SIX MONTHS ENDED
(IN THOUSANDS) JUNE 30, 1998 JUNE 30, 1999
- -------------- ---------------- ----------------
(UNAUDITED)
<S> <C> <C>
Net sales................................................................................ $243,608 $229,870
Net earnings (loss)...................................................................... (8,040) (13,758)
</TABLE>
4. RECAPITALIZATION
On November 26, 1997, the Company and its stockholders consummated an
agreement to perform the following: (i) the stockholders of HPFEL
contributed their shares of common stock to HPC in exchange for 2,750,741
shares of HPC's common stock (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 18,620,450 shares of HPC common
stock held by Pentland for approximately $62.1 million. In connection with
these transactions, HPC issued $105.0 million of 9 7/8% Senior Subordinated
Notes due in November 2007 and borrowed $27.5 million under a new line of
credit facility.
The transactions described above have been accounted for as a leveraged
recapitalization of the Company. The Company has retained its historical
cost basis of accounting, due to the significant minority shareholders
which remained. The shares redeemed from Pentland have been recorded as
treasury stock, at cost.
5. UNAUDITED INTERIM FINANCIAL STATEMENTS
In the opinion of management, the accompanying unaudited condensed
consolidated financial statements contain all adjustments, consisting of
normal recurring accruals, considered necessary for a fair presentation of
the Company's financial position as of June 30, 1999, the Company's results
of operations for the three months and six months ended June 30, 1998 and
1999 and cash flows for the six months ended June 30, 1998 and 1999. This
interim financial information and notes thereto should be read in
conjunction with the Company's Annual Report on Form 10-K and its
Registration Statement on Form S-4 (file number 333-77905), which include
or incorporate by reference HPC's audited financial statements for the year
ended December 31, 1998, as well as certain financial statements of Rival.
Due to the seasonality of the Company's business, the Company's
consolidated results of operations for the three and six month periods
ended June 30, 1999 are not necessarily indicative of the results to be
expected for any other interim period or the entire fiscal year.
7
<PAGE> 8
6. INVENTORIES
All inventories are stated at the lower of cost or market. Cost is
determined using the first-in, first-out (FIFO) method on approximately 75%
of the inventories and the last-in, first-out method (LIFO) for the
remaining 25% of the inventory. Inventories are as follows:
<TABLE>
<CAPTION>
DECEMBER 31, 1998 JUNE 30, 1999
----------------- -------------
<S> <C> <C>
Finished goods $34,620,000 $ 95,383,000
Raw materials 7,930,000 41,622,000
Work-in-process 10,790,000 10,120,000
----------- ------------
53,340,000 147,125,000
Less LIFO allowance -- (250,000)
----------- ------------
$53,340,000 $146,875,000
=========== ============
</TABLE>
7. LONG-TERM DEBT
Senior Subordinated Notes
In connection with the recapitalization transactions described in Note 4
and the Rival acquisition described in Note 3, HPC issued $105.0 million
and $31.3 million, respectively, in senior subordinated notes, maturing on
November 15, 2007 (the "Notes"). The Notes bear interest at 9 7/8%, payable
semi-annually on May 15 and November 15. No principal is due until the
maturity date.
The Notes are subordinated to the Company's other debt, including the
Credit Facility (as described below) and capital leases. The Notes are
guaranteed by HPC's current and future domestic subsidiaries (see Note 12)
on a full, unconditional and joint and several basis, but are otherwise
unsecured.
HPC can, at its option, redeem the Notes at any time after November 15,
2002, subject to a fixed schedule of redemption prices which declines from
104.9% to 100% of the face value. However, HPC may redeem up to $43.3
million of the Notes prior to such date at a price of 109.875% of face
value upon issuance of equity securities. Additionally, upon certain sales
of stock or assets or a change of control of HPC, HPC must offer to
repurchase all or a portion of the Notes at a redemption price of 101% of
face value.
The Notes contain certain restrictions and covenants, including limitations
(based on certain financial ratios) on HPC's ability to pay dividends,
repurchase stock or incur additional debt (other than borrowings under the
Credit Facility). The Notes and Credit Facility contain cross-default
provisions.
Credit Facility
The Company entered into an amended and restated Credit Facility agreement
in February, 1999 in connection with the Rival acquisition. The Credit
Facility consists of a six-year tranche A term loan of $40.0 million, an
eight-year tranche B term loan of $85.0 million and a $200.0 million,
six-year revolving credit facility. The Credit Facility bears interest at
variable rates based on either the prime rate or LIBOR, at the Company's
option, plus a margin which, in the case of the tranche A term loan and the
revolving credit facility, varies depending upon certain financial ratios
of the Company. The Credit Facility, and the guarantees thereof by the
Company's domestic subsidiaries, are secured by substantially all of the
Company's domestic and certain foreign assets. The Credit Facility and the
Notes Indentures include certain financial and operating covenants, which,
among other things, restrict the ability of the Company to incur additional
indebtedness, grant liens, make investments and take certain other actions.
The ability of the Company to meet its debt service obligations will be
dependent upon the future performance of the Company, which will be
impacted by general economic conditions and other factors.
8
<PAGE> 9
Long term debt consists of the following:
<TABLE>
<CAPTION>
(IN THOUSANDS) DECEMBER 31, 1998 JUNE 30,1999
----------------- ------------
<S> <C> <C>
Credit Facility............................................................................ $ 10,000 $204,300
9 7/8% Senior Subordinated Notes, net of unamortized discount of $1.2 million at
June 30, 1999 ($0 in 1998)............................................................... 105,000 135,038
-------- --------
Total debt................................................................................. 115,000 339,338
Less current maturities................................................................... -- 4,838
-------- --------
Long-term debt............................................................................ $115,000 $334,500
</TABLE>
Effective May 7, 1999 the Company entered into an interest rate collar
transaction agreement with its lending bank. The interest rate collar
consists of a cap rate of 6.5% and a floor rate of 4.62%. The one-time
premium payment for the collar was $225,000 and the agreement terminates
March 31, 2002. Quarterly on the last business day of March, June,
September and December beginning September 30, 1999 if the LIBOR interest
rate at the lending bank is greater than the cap rate, the lending bank
agrees to pay the Company a notional amount as described in the agreement
multiplied by the number of days in that quarter over 365 days times the
difference between the LIBOR rate and the cap rate. If on the other hand
the LIBOR rate is less than the floor rate, the Company would have to pay
the lending bank based on the same calculation. If the LIBOR rate is
between the cap and floor rate, no payments would be necessary by either
party.
8. COMPREHENSIVE INCOME
The Company has adopted Statement of Financial Accounting Standards No.
130, "Reporting Comprehensive Income." This Statement establishes standards
for reporting comprehensive income and its components in financial
statements. Comprehensive income consists of net earnings and foreign
currency translation adjustments as presented in the following table.
<TABLE>
<CAPTION>
THREE MONTHS ENDED
(IN THOUSANDS) JUNE 30, 1998 JUNE 30,1999
------------- ------------
<S> <C> <C>
Net Earnings (loss)...................................................................... $(2,788) $(4,083)
Foreign currency translation adjustments................................................. (8) 58
------- -------
Comprehensive income................................................................... $(2,796) $(4,025)
</TABLE>
<TABLE>
<CAPTION>
SIX MONTHS ENDED
JUNE 30, 1998 JUNE 30,1999
------------- ------------
<S> <C> <C>
Net Earnings (loss)...................................................................... $(2,502) $(5,436)
Foreign currency translation adjustments................................................. (28) 45
------- -------
Comprehensive income................................................................... $(2,530) $(5,391)
</TABLE>
9. BUSINESS SEGMENTS
The Company manages its operations through four business segments: consumer
durables, industrial and building supply (industrial), international and
Far East. The consumer durables segment sells products including fans,
heaters, humidifiers, air purifiers, Crock-Pot (R) slow cookers, toasters,
ice cream freezers, can openers, showerheads, massagers and lighting
products to retailers throughout the U.S. The consumer durables segment is
made up of home environment products and kitchen electric products and are
considered one business segment due to the similar customer base and
distribution channels. The industrial segment sells products including
industrial fans and drum blowers, household ventilation, ceiling fans, door
chimes and electric heaters to electrical and industrial wholesale
distributors throughout the U.S. The international segment sells the
Company's products outside the U.S. The Far East segment is the
manufacturing and sourcing operation located primarily at HPFEL. For
disclosure purposes, the industrial segment and international segment are
shown as "Other" as neither segment comprises greater than 10% of net sales
separately or in the aggregate.
9
<PAGE> 10
The Company evaluates performance in part based upon operating income,
which it defines as gross profit less selling, general and administrative,
product development expenses and amortization of goodwill and other
intangible assets.
Prior to the Rival acquisition as described in Note 3 above, Holmes had two
business segments: manufacturing and distribution. The information for the
three and six months ended June 30, 1998 has been reclassified to conform
to the new presentation.
Summary financial information for each reportable segment for the three and
six month periods ended June 30, 1999 and 1998 is as follows (in
thousands):
<TABLE>
<CAPTION>
CONSUMER CONSOLIDATED
DURABLES FAR EAST OTHER ELIMINATIONS TOTAL
-------- -------- ----- ------------ ------------
<S> <C> <C> <C> <C> <C>
THREE MONTHS ENDED JUNE 1999
Net sales....................................................... $ 96,299 $35,894 $18,407 $(34,744) $115,856
Operating income(loss).......................................... 1,508 3,120 (2,017) (870) 1,741
SIX MONTHS ENDED JUNE 1999
Net sales....................................................... $176,632 $68,424 $27,565 $(65,096) $207,525
Operating income(loss).......................................... 1,778 7,793 (2,510) (1,070) 5,991
THREE MONTHS ENDED JUNE 1998
Net sales....................................................... $ 43,367 $25,120 $ 2,069 $(24,213) $ 46,343
Operating income(loss).......................................... (1,368) 3,237 (99) (1,671) 99
SIX MONTHS ENDED JUNE 1998
Net sales....................................................... $ 85,750 $55,929 $ 2,355 $(52,796) $ 91,238
Operating income(loss).......................................... (1,615) 7,863 (218) (2,116) 3,914
</TABLE>
The following information is summarized by geographic area (in thousands):
<TABLE>
<CAPTION>
OTHER CONSOLIDATED
UNITED STATES FAR EAST INTERNATIONAL TOTAL
------------- -------- ------------- ------------
<S> <C> <C> <C> <C>
Net sales:
Three months ended June 30, 1999.................................... $104,655 $1,150 $10,051 $115,856
Three months ended June 30, 1998.................................... 43,367 907 2,069 46,343
Six months ended June 30, 1999...................................... 188,422 3,328 15,775 207,525
Six months ended June 30, 1998...................................... 85,750 3,133 2,355 91,238
Identifiable assets:
June 30, 1999....................................................... 342,998 53,429 17,721 414,148
Corporate assets at June 30, 1999................................. 21,544
--------
Total assets at June 30, 1999................................... 435,692
December 31, 1998................................................... 83,384 33,980 4,821 122,185
Corporate assets at December 31, 1998............................. 9,172
--------
Total assets at December 31, 1998............................... $131,357
</TABLE>
Net sales are grouped based on the geographic origin of the transaction. The
"Other International" area is comprised of sales of products that originated
in Europe, Mexico, Latin America and Canada.
10
<PAGE> 11
The Company's manufacturing entities in the Far East sell completed
products to HPC in the United States at intercompany transfer prices which
reflect management's estimate of amounts which would be charged by an
unrelated third party. These sales are eliminated in consolidation. The
remaining Far East sales are to unrelated third parties.
Corporate assets at June 30, 1999 and December 31, 1998 represent debt
issuance costs associated with the Company's senior subordinated notes and
credit facility. As these borrowings support operations on a worldwide
basis, these deferred costs have been excluded from the individual
geographic areas. All of the Company's other assets are used in the
operations of individual entities in the different geographic areas.
10. CONTINGENCIES
The Company is involved in litigation and is the subject of claims arising
in the normal course of its business. In the opinion of management, based
upon discussions with legal counsel, no existing litigation or claims will
have a materially adverse effect on the Company's financial position or
results of operations and cash flows.
11. RECLASSIFICATIONS
Certain amounts in the prior period financial statements have been
reclassified to conform to the current period presentation.
12. CONDENSED CONSOLIDATING INFORMATION
The senior subordinated notes described in Note 7 were issued by HPC and
are guaranteed by Rival and its three domestic subsidiaries and Holmes
Manufacturing Corp. ("Manufacturing"), Holmes Motor Corp. ("Motor") and
Holmes Air (Taiwan) Corp. ("Taiwan"), but are not guaranteed by HPC's other
subsidiaries, HPFEL and Holmes Air (Canada) Corp. ("Canada"), or Rival's
five foreign subsidiaries. The guarantor subsidiaries are directly or
indirectly wholly-owned by 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) Rival (on a consolidated basis following its
acquisition by HPC), Manufacturing, Motor and Taiwan, the guarantor
subsidiaries, and (iii) HPFEL, Canada, Bionaire International B.V., The
Rival Company of Canada, Ltd., Waverly Products Company, Ltd., and Rival de
Mexico S.A. de C.V. the non-guarantor subsidiaries. There were no
transactions between Rival, Manufacturing, Motor and Taiwan, or between
HPFEL and Canada, during any of the periods presented. Taiwan had no
revenues or operations during the periods presented, and Manufacturing
ceased operations in March 1997. As further described in Note 14 of the
Company's audited financial statements for the year ended December 31,
1998, included in the Company's Form 10-K as filed with the Securities and
Exchange Commission, certain of HPFEL's subsidiaries in China have
restrictions on distributions to their parent companies.
11
<PAGE> 12
CONSOLIDATING BALANCE SHEET DECEMBER 31, 1998 (IN THOUSANDS)
<TABLE>
<CAPTION>
GUARANTOR NON-GUARANTOR
PARENT SUBSIDIARIES SUBSIDIARIES ELIMINATIONS CONSOLIDATED
------ ------------ ------------- ------------ ------------
ASSETS
Current assets:
<S> <C> <C> <C> <C> <C>
Cash and cash equivalents .................. $ 1,545 $-- $ 3,834 $ -- $ 5,379
Accounts receivable, net ................... 35,558 -- 1,409 -- 36,967
Inventories ................................ 44,748 -- 13,142 (4,550) 53,340
Prepaid expenses and other current assets .. 869 -- 1,158 -- 2,027
Deferred income taxes ...................... 4,983 -- -- -- 4,983
Income taxes receivable .................... -- -- -- -- --
Due from affiliates ........................ (89) $89 14,066 (14,066) --
-------- --- ------- ------- --------
Total current assets ..................... 87,614 89 33,609 (18,616) 102,696
-------- --- ------- ------- --------
Property and equipment,net ................... 3,132 -- 12,520 100 15,752
Deferred income taxes ........................ 563 -- -- -- 563
Deposits and other assets .................... 12,020 1 425 (100) 12,346
Investments in consolidated subsidiaries ..... 19,677 -- -- (19,677) --
-------- -- ------- ------- --------
$123,006 $90 $46,554 $(38,293) $131,357
======== === ======= ======== ========
LIABILITIES AND STOCKHOLDERS' EQUITY (DEFICIT)
Current liabilities:
Current portion of capital lease obligations
and other debt ............................ $ -- $-- $ 604 $ -- $ 604
Accounts payable ........................... 2,400 -- 12,604 -- 15,004
Accrued expenses ........................... 8,960 -- 3,332 -- 12,292
Accrued income taxes ....................... 1,922 -- 1,785 -- 3,707
Due to affiliates .......................... 10,113 -- 3,953 (14,066) --
--------- --- ------ -------- --------
Total current liabilities ................ 23,395 -- 22,278 (14,066) 31,607
--------- --- ------ -------- --------
Capital lease obligations .................... -- -- 139 -- 139
--------- --- ------ -------- --------
Line of credit ............................... 10,000 -- -- -- 10,000
--------- --- ------ -------- --------
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
Accumulated other comprehensive income ..... (40) -- -- -- (40)
Treasury stock ............................. (62,058) -- -- -- (62,058)
Retained earnings .......................... 29,714 89 24,037 (24,126) 29,714
--------- --- ------- -------- --------
Total stockholders' equity (deficit) ..... (15,389) 90 24,137 (24,227) (15,389)
--------- --- ------- -------- --------
$ 123,006 $90 $46,554 $(38,293) $131,357
========= === ======= ======== ========
</TABLE>
12
<PAGE> 13
CONSOLIDATING BALANCE SHEET JUNE 30, 1999 (IN THOUSANDS)
(UNAUDITED)
<TABLE>
<CAPTION>
GUARANTOR NON-GUARANTOR
PARENT SUBSIDIARIES SUBSIDIARIES ELIMINATIONS CONSOLIDATED
------ ------------ ------------- ------------ ------------
ASSETS
Current assets:
<S> <C> <C> <C> <C> <C>
Cash and cash equivalents ............................. $ 48 $ (230) $ 1,710 $ -- $ 1,528
Accounts receivable, net .............................. 31,425 52,595 15,159 -- 99,179
Inventories ........................................... 48,402 81,606 22,317 (5,450) 146,875
Prepaid expenses and other current assets ............. 1,522 669 557 -- 2,748
Deferred income taxes ................................. 4,983 4,864 1,233 -- 11,080
Income taxes receivable ............................... -- 3,544 -- -- 3,544
Due from affiliates ................................... 251,427 9,579 11,974 272,980 --
-------- -------- ------- --------- --------
Total current assets ................................ 337,807 152,627 52,950 (278,430) 264,954
-------- -------- ------- --------- --------
Assets held for sale .................................... -- 3,062 -- -- 3,062
Property and equipment,net .............................. 2,723 34,542 13,495 (100) 50,660
Goodwill ................................................ -- 82,981 1,988 -- 84,969
Deferred income taxes ................................... 563 -- -- -- 563
Deposits and other assets ............................... 25,238 4,429 2,717 (900) 31,484
Investments in consolidated subsidiaries ................ 29,480 -- -- (29,480) --
-------- -------- ------- --------- --------
$395,811 $277,641 $71,150 $(308,910) $435,692
======== ======== ======= ========= ========
LIABILITIES AND STOCKHOLDERS' EQUITY
Current liabilities:
Current portion of capital lease
obligations ......................................... $ -- $ -- $ 410 $ -- $ 410
and other debt
Current portion of credit facility .................... 4,838 -- -- -- 4,838
Accounts payable ...................................... 2,646 9,891 14,945 (900) 26,582
Accrued expenses ...................................... 10,173 16,195 5,371 -- 31,739
Accrued income taxes .................................. (2,472) 3,292 2,637 -- 3,457
Due to affiliates ..................................... 16,011 243,353 13,616 (272,980) --
-------- -------- ------- --------- --------
Total current liabilities ........................... 31,196 272,731 36,979 (273,880) 67,026
-------- -------- ------- --------- --------
Credit facility ......................................... 199,462 -- -- -- 199,462
-------- -------- ------- --------- --------
Long-term debt .......................................... 135,038 -- -- -- 135,038
-------- -------- ------- --------- --------
Deferred income taxes ................................... -- 4,051 -- -- 4,051
-------- -------- ------- --------- --------
Stockholders' equity:
Common stock, $.001 par value ......................... 20 2 -- (2) 20
Common stock, $1 par value ............................ -- -- 100 (100) --
Additional paid in capital ............................ 67,915 -- -- -- 67,915
Accumulated other comprehensive income ................ 5 -- 63 (63) 5
Treasury stock ........................................ (62,058) -- -- -- (62,058)
Retained earnings ..................................... 24,233 857 34,008 (34,865) 24,233
-------- -------- ------- --------- --------
Total stockholders' equity .......................... 30,115 859 34,171 (35,030) 30,115
-------- -------- ------- --------- --------
$395,811 $277,641 $71,150 $(308,910) $435,692
======== ======== ======= ========= ========
</TABLE>
13
<PAGE> 14
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
------- ---- ------- -------- -------
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) --
------- ---- ------- -------- -------
subsidiaries
Net income (loss) ........................ $(2,788) $ -- $ 3,116 $ (3,116) $(2,788)
======= ==== ======= ======== =======
</TABLE>
14
<PAGE> 15
CONSOLIDATING INCOME STATEMENT
THREE MONTHS ENDED JUNE 30, 1999 (IN THOUSANDS)
(UNAUDITED)
<TABLE>
<CAPTION>
GUARANTOR NON-GUARANTOR
PARENT SUBSIDIARIES SUBSIDIARIES ELIMINATIONS CONSOLIDATED
------ ------------ ------------- ------------ ------------
<S> <C> <C> <C> <C> <C>
Net sales ................................ $41,730 $58,396 $50,474 $(34,744) $115,856
Cost of goods sold ....................... 32,459 45,457 42,458 (33,874) 86,500
------- ------- ------- -------- --------
Gross profit ........................... 9,271 12,939 8,016 (870) 29,356
------- ------- ------- -------- --------
Operating expenses:
Selling ................................ 4,834 8,054 2,204 -- 15,092
General and administrative ............. 2,673 2,329 3,310 -- 8,312
Product development .................... 1,690 767 (18) -- 2,439
Plant closing costs .................... -- 1,020 -- -- 1,020
Amortization of goodwill and other
intangible assets .................... -- 722 30 -- 752
------- ------- ------- -------- --------
Total operating expenses ............. 9,197 12,892 5,526 -- 27,615
------- ------- ------- -------- --------
Operating profit (loss) .............. 74 47 2,490 (870) 1,741
------- ------- ------- -------- --------
Other (income) and expense:
Interest and other (income) expense, net 9,112 (1,340) (927) -- 6,845
------- ------- ------- -------- --------
Income (loss) before income taxes, equity
in income of consolidated subsidiaries and
equity in earnings from joint venture .. (9,038) 1,387 3,417 (870) (5,104)
Equity in earnings from joint venture ... -- -- -- -- --
Income tax expense (benefit) ............. (1,753) 694 38 -- (1,021)
------- ------- ------- -------- --------
Income (loss) before equity in income of
consolidated subsidiaries .............. (7,285) 693 3,379 (870) (4,083)
Equity in income of consolidated
subsidiaries............................. 3,202 -- -- (3,202) --
------- ------- ------- -------- --------
Net income (loss) ........................ $(4,083) $ 693 $ 3,379 $ (4,072) $ (4,083)
======= ======= ======= ======== ========
</TABLE>
15
<PAGE> 16
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
Plant closing costs .................... -- -- -- -- --
Amortization of goodwill and other
intangible assets .................... -- -- -- -- --
------- ------- ------- -------- -------
Total operating expenses ............. 15,202 -- 4,676 -- 19,878
------- ------- ------- -------- -------
Operating profit (loss) .............. (1,615) -- 7,645 (2,116) 3,914
------- ------- ------- -------- -------
Other (income) and expense:
Interest and other (income) expense, net 7,202 -- (345) (17) 6,840
------- ------- ------- -------- -------
Income (loss) before income taxes, equity
in income of consolidated subsidiaries and
equity in earnings from joint venture .... (8,817) -- 7,990 (2,099) (2,926)
Equity in earnings from joint venture ... -- -- -- -- --
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>
16
<PAGE> 17
CONSOLIDATING INCOME STATEMENT
SIX MONTHS ENDED JUNE 30, 1999 (IN THOUSANDS)
(UNAUDITED)
<TABLE>
<CAPTION>
GUARANTOR NON-GUARANTOR
PARENT SUBSIDIARIES SUBSIDIARIES ELIMINATIONS CONSOLIDATED
------ ------------ ------------- ------------ ------------
<S> <C> <C> <C> <C> <C>
Net sales ................................ $89,793 $98,629 $84,199 $(65,096) $207,525
Cost of goods sold ....................... 70,733 75,338 69,203 (64,026) 151,248
------- ------- ------- -------- --------
Gross profit ........................... 19,060 23,291 14,996 (1,070) 56,277
------- ------- ------- -------- --------
Operating expenses:
Selling ................................ 11,332 14,306 2,626 -- 28,264
General and administrative ............. 4,609 4,066 5,322 -- 13,997
Product development .................... 3,329 1,329 -- -- 4,658
Plant closing costs .................... -- 2,169 -- -- 2,169
Amortization of goodwill and other
intangible assets .................... -- 1,168 30 -- 1,198
------- ------- ------- -------- --------
Total operating expenses ............. 19,270 23,038 7,978 -- 50,286
------- ------- ------- -------- --------
Operating profit (loss) .............. (210) 253 7,018 (1,070) 5,991
------- ------- ------- -------- --------
Other (income) and expense:
Interest and other (income) expense, net 15,708 (1,426) (1,388) -- 12,894
------- ------- ------- -------- --------
Income (loss) before income taxes, equity
in income of consolidated subsidiaries and
equity in earnings from joint venture .... (15,918) 1,679 8,406 (1,070) (6,903)
Equity in earnings from joint venture ... 108 -- -- -- 108
Income tax expense (benefit) ............. (2,500) 910 231 -- (1,359)
------- ------- ------- -------- --------
Income (loss) before equity in income of
consolidated subsidiaries .............. (13,310) 769 8,175 (1,070) (5,436)
Equity in income of consolidated
subsidiaries.............................. 7,874 -- -- (7,874) --
------- ------- ------- -------- --------
Net income (loss) ........................ $(5,436) $ 769 $ 8,175 $ (8,944) $ (5,436)
======= ======= ======= ======== ========
</TABLE>
17
<PAGE> 18
CONDENSED CONSOLIDATING STATEMENT OF CASH FLOWS
SIX MONTHS ENDED JUNE 30, 1998 AND 1999 (IN THOUSANDS)
(UNAUDITED)
<TABLE>
<CAPTION>
GUARANTOR NON-GUARANTOR
PARENT SUBSIDIARIES SUBSIDIARIES CONSOLIDATED
------ ------------ ------------- ------------
SIX MONTHS ENDED JUNE 30, 1998
<S> <C> <C> <C> <C>
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 (decrease) 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
========= ======= ====== ========
SIX MONTHS ENDED JUNE 30, 1999
Net cash provided by operating activities ..... $ (15,898) $29,616 $6,253 $ 19,971
--------- ------- ------ --------
Cash flows from investing activities:
Acquisition of business, net of cash
acquired .................................... (279,546) -- -- (279,546)
Contribution in joint venture ............... (25) -- -- (25)
Proceeds from sales of assets held for
sale ........................................ -- 1,519 -- 1,519
Distribution of earnings from joint
venture ..................................... 108 -- -- 108
Purchases of property and equipment ......... (564) (2,837) (2,714) (6,115)
--------- ------- ------ --------
(280,027) (1,318) (2,714) (284,059)
--------- ------- ------ --------
Cash flows from financing activities:
Net repayment of line of credit ............. (10,000) -- -- (10,000)
Issuance of common stock .................... 50,400 -- -- 50,400
Borrowings of long-term debt, net of issuance
costs ....................................... 27,464 -- -- 27,464
Borrowings on credit facility, net of
issuance costs .............................. 193,055 -- -- 193,055
Principal payments on capital lease
obligations ................................. -- -- (333) (333)
Debt issuance costs ......................... (350) -- -- (350)
Other net activity with Parent .............. 33,834 (28,055) (5,779) --
--------- ------- ------ --------
Net cash used for financing activities .... 294,403 (28,055) (6,112) 260,236
--------- ------- ------ --------
Effect of exchange rate changes on cash ....... 25 -- (24) 1
--------- ------- ------ --------
Net increase in cash and cash equivalents ..... (1,497) 243 (2,597) (3,851)
Cash and cash equivalents, beginning of period 1,545 (473) 4,307 5,379
--------- ------- ------ --------
Cash and cash equivalents, end of period ...... $ 48 $ (230) $1,710 $ 1,528
========= ======= ====== ========
</TABLE>
18
<PAGE> 19
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND
RESULTS OF OPERATIONS
OVERVIEW
Holmes is a leading developer, manufacturer and marketer of quality, branded
home comfort products, including fans, heaters, humidifiers and air purifiers.
Holmes believes it has the leading U.S. market share in each of these product
categories.
On February 5, 1999 Holmes completed its acquisition of Rival, a leading
developer, manufacturer and marketer of a variety of products including small
kitchen, home environment and personal care appliances. In connection with the
acquisition, as described in Note 3 of the Company's Notes to Consolidated
Financial Statements included herein, the Company issued $31.3 million of senior
subordinated notes due in November 2007, bearing interest at 9 7/8%, and amended
and restated its existing $100.0 million credit facility to provide for a total
availability of $325.0 million. The Company also sold $50.0 million of common
stock in a private placement to investment funds affiliated with Berkshire
Partners LLC (Holmes' majority shareholder), and to members of Holmes'
management and certain other co-investors. The initial borrowings of the credit
facility, together with the net proceeds of the equity investment and the
offering of the Notes, were used to consummate the Rival acquisition, refinance
Rival's then existing indebtedness, and pay the fees and expenses of the
transaction.
The Company had completed a recapitalization transaction in November 1997, in
which the Company issued $105.0 million of senior subordinated notes due in
November 2007, bearing interest at 9 7/8%, and entered into a $100.0 million
line of credit facility, of which approximately $27.5 million was initially
drawn. The proceeds of these borrowings were used to repay the Company's then
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 had a significantly higher
level of borrowing and a corresponding higher level of interest expense than in
the past. The Rival acquisition and the related financing transactions
consummated on February 5, 1999 further increased the Company's indebtedness and
will further increase interest expense substantially.
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 occur
predominantly from January through June, and the Company's sales of heaters and
humidifiers occur predominantly from July through December. Although kitchen
electrics, air purifiers, lighting products and accessories generally are used
year-round, these products tend to draw increased sales during the winter months
when people are indoors and, as a result, the Company's sales of these products
tend to be greatest in advance of the winter months from July through December.
A significant percentage of the products sold by Rival are given as gifts and,
as such, sales volumes are higher in anticipation of the holiday season. 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 kitchen electrics, heater, humidifier and air
purifier products.
The Company's results of operations and balance sheet reflect the acquisition of
Rival, in accordance with purchase accounting, from the consummation of the
acquisition on February 5, 1999. Rival's size relative to Holmes significantly
influences comparisons between periods before and after the Rival acquisition.
The Company's ability to achieve revenue enhancements and recognize cost
savings from the Rival acquisition will depend to a significant extent on its
ability to sucessfully integrate the operations of Rival and other factors
including economic conditions and the retail environment. In furtherance of its
strategic objectives, the Company will consider the possible disposition of
certain non-core business assets that do not support its current growth
strategy, and may from time to time engage in discussions regarding mergers,
acquisitions or other types of business combination transactions with other
parties in the consumer products industry.
COMPARISON OF THREE MONTH PERIODS ENDED JUNE 30, 1999 AND JUNE 30, 1998
Net Sales. Net sales for the second quarter of fiscal 1999, which ended June 30,
1999, were $115.9 million compared to $46.3 million for the second quarter of
fiscal 1998, which ended June 30, 1998, an increase of $69.6 million or 150.3%.
Approximately $71.4 million, or 102.6%, of the increase in net sales can be
attributed to the Rival acquisition. Holmes' core product sales (fans, heater,
humidifiers, air purifiers and related humidifier and air purifier filters) were
approximately $2.0 million higher in the second quarter of 1999 versus 1998. Fan
sales were up approximately $5.3 million versus 1998 due to the warmer than
normal temperatures throughout the United States in the second quarter. This
increase was offset by lower heater and humidifier sales in the second quarter
of 1999 versus 1998 due to the timing of shipments on early season orders.
Holmes had also made a strategic management decision to reduce dehumidifier
volume due to its relatively low profit margins. Sales of dehumidifiers in the
second quarter were approximately $3.1 million lower than in 1998.
19
<PAGE> 20
Gross Profit. Gross profit for the second quarter of 1999 was $29.4 million
compared to $9.7 million for the second quarter of 1998, an increase of $19.7
million or 203.1%. As a percentage of net sales, gross profit increased to 25.4%
for the second quarter of 1999 from 21.0% for the second quarter of 1998. On a
stand-alone basis, Holmes' gross profit increased to 32.4% from 21.0% in the
second quarter of 1999 versus 1998. Margins on the fan and box fan categories
were approximately 2.0% and 4.5% higher during the second quarter of 1999 than
1998. Also contributing to the gross profit increase was a reduction in sales
returns and allowances by nearly $1.1 million of higher margin products during
the second quarter of 1999 versus 1998, and an increase in filter and accessory
sales of approximately 32% over the second quarter of 1998.
Selling Expenses. Selling expenses for the second quarter of 1999 were $15.1
million compared to $4.1 million for the second quarter of 1998, an increase of
$11.0 million or 268.3%, primarily as a result of the Rival acquisition, which
accounted for approximately $10.2 million of the increase. As a percentage of
net sales, selling expenses increased to 13.0% for the second quarter of 1999
from 8.9% for the second quarter of 1998. In addition to the Rival impact, the
increase in selling expenses was due to an increase in the customer service
department related to the increase in accessory sales. To a lesser extent,
salaries and related benefits and travel costs were higher as the Company
continues to build an infrastructure to support the integration of Rival.
General and Administrative Expenses. General and administrative expenses for the
second quarter of 1999 were $8.3 million compared to $4.1 million for the second
quarter of 1998, an increase of $4.2 million or 102.4%. As a percentage of net
sales, general and administrative expenses decreased to 7.2% for the second
quarter of 1999 from 8.9% for the second quarter of 1998. The increase in
dollars and the decrease as a percentage of net sales is primarily attributable
to the Rival acquisition. Additionally, the increase in dollars was due to
Holmes incurring general and administrative expenses for integration consulting
services in connection with the Rival acquisition.
Product Development Expenses. Product development expenses for the second
quarter of 1999 were $2.4 million compared to $1.4 million for the second
quarter of 1998, an increase of $1.0 million or 71.4%. As a percentage of net
sales, product development expenses decreased to 2.1% for the second quarter of
1999 from 3.0% for the second quarter of 1998. The increased expenditures and
the related decrease as a percentage of net sales was primarily due to the Rival
acquisition.
Plant Closing Costs. The Company recorded $1.0 million in plant closing costs
associated with Rival's previously announced closing of its New Haven, Indiana
and Fayetteville, North Carolina plants during the second quarter. This $1.0
million related to the expenses incurred during the quarter associated with the
wind down of these facilities.
Interest and Other Expense, Net. Interest and other expense, net for the second
quarter of 1999 was $6.8 million compared to $3.4 million for the second quarter
of 1998, an increase of $3.4 million or 100%. The increase in interest expense
was primarily due to the additional borrowings resulting from the new debt
associated with the Rival acquisition. Partially offsetting the increase in
interest was $1.6 million received in settlement of Rival's claims arising from
a previous acquisition.
Income Tax Expense (Benefit). Income tax expense (benefit) increased to a
benefit of $1.0 million in the second quarter of 1999 from a benefit of $0.5
million in the second quarter of 1998, as a result of the Company reporting a
larger loss in the second quarter of 1999 as compared to the second quarter of
1998. The Company provides for taxes using a projected worldwide effective tax
rate of 20% for the entire year.
Net Income. As a result of the foregoing factors, net loss for the second
quarter of 1999 was $4.1 million, compared to a net loss of $2.8 million in the
second quarter of 1998.
COMPARISON OF SIX MONTH PERIODS ENDED JUNE 30, 1999 AND JUNE 30, 1998
Net Sales. Net sales for the first half of fiscal 1999, which ended June 30,
1999, were $207.5 million compared to $91.2 million for the first half of fiscal
1998, which ended June 30, 1998, an increase of $116.3 million or 127.5%.
Approximately $111.6 million, or 96.0%, of the increase in net sales can be
attributed to the Rival acquisition.
Sales of Rival's products were approximately $18.4 million lower for the six
months ended June 30, 1999 as compared to the six months ended June 30, 1998.
Rival's home environment sales were down approximately $13.0 million due to
anticipated retail placement losses as well as weather related shortfalls in the
pumps division. Also, Latin American sales were down approximately $2.0 million
due to the economic downturn in that region.
Sales of Holmes' core products increased approximately $4.7 million for the
first half of 1999 versus 1998. The net increase included an $8.7 million
increase in fan sales due to a strong retailer season for fans caused by warmer
than normal temperatures throughout the United States in the first half of 1999
versus the same period in 1998 and an increase in number of units placed at
several of the larger retailers for the Holmes fan lines. This increase was
offset by a decline in the dehumidifier category of approximately $4.0 million
as described above.
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<PAGE> 21
Gross Profit. Gross profit for the first half of 1999 was $56.3 million compared
to $23.8 million for the first half of 1998, an increase of $32.5 million or
136.6%. As a percentage of net sales, gross profit increased to 27.1% for the
first half of 1999 from 26.1% for the first half of 1998. The overall increase
in gross profit as a percentage of net sales is due to the above mentioned
increase in fan sales and gross profit margins versus 1998 as well as an
increase in higher gross profit filter and accessories category. Additionally,
the reduction in dehumidifier volume contributed to the increased gross profit
as they were low margin products. Finally, the reduction in sales returns and
allowances had a favorable impact on gross profit.
Selling Expenses. Selling expenses for the first half of 1999 were $28.3 million
compared to $8.5 million for the first half of 1998, an increase of $19.8
million or 232.9%, primarily as a result of the Rival acquisition, which
accounted for approximately $16.5 million of the increase. As a percentage of
net sales, selling expenses increased to 13.6% for the first half of 1999 from
9.3% for the first half of 1998. In addition to the Rival impact, the increase
in selling expenses is due to an increase in the warranty reserve for potential
heater returns and potential product recalls, as well as increased expenditures
in the customer service department related to the increase in accessory sales.
To a lesser extent, shipping costs increased as a result of the higher sales
level. In addition, salaries and related benefits and travel costs were higher
as the Company continues to build an infrastructure to support the integration
of Rival. Total integration related costs were approximately $0.4 million for
the first half of 1999.
General and Administrative Expenses. General and administrative expenses for the
first half of 1999 were $14.0 million compared to $8.2 million for the first
half of 1998, an increase of $5.8 million or 70.7%. As a percentage of net
sales, general and administrative expenses decreased to 6.8% for the first half
of 1999 from 9.0% for the first half of 1998. The increase in dollars and the
decrease as a percentage of net sales is primarily attributable to the Rival
acquisition. Additionally, the increase in dollars was due to Holmes incurring
general and administrative expenses for integration consulting services in
connection with the Rival acquisition. The total integration costs recorded in
the first half of 1999 were approximately $1.0 million.
Product Development Expenses. Product development expenses for the first half of
1999 were $4.7 million compared to $3.1 million for the first half of 1998, an
increase of $1.6 million or 51.6%. As a percentage of net sales, product
development expenses decreased to 2.3% for the first half of 1999 from 3.4% for
the first half of 1998. The increased expenditures and the related decrease as a
percentage of net sales was primarily due to the Rival acquisition. Total
integration related costs were approximately $0.4 million for the first half of
1999.
Plant Closing Costs. The Company recorded $2.2 million in plant closing costs
associated with Rival's previously announced closing of its New Haven, Indiana
and Fayetteville, North Carolina plants. Approximately $1.7 million related to
the expenses associated with the wind down of these two facilities and $0.5
million related to the write down of fixed assets at these facilities.
Interest and Other Expense, Net. Interest and other expense, net for the first
half of 1999 was $12.9 million compared to $6.8 million for the first half of
1998, an increase of $6.1 million or 89.7%. The increase in interest expense is
primarily due to the additional borrowings resulting from the new debt
associated with the Rival acquisition.
Income Tax Expense (Benefit). Income tax expense (benefit) increased to a
benefit of $1.4 million in the first half of 1998 from a benefit of $0.4 million
in the first half of 1999, as a result of the Company reporting a larger net
loss in the first half of 1999 as compared to the first half of 1998. The
Company provides for taxes using a projected worldwide effective tax rate of 20%
for the entire year.
Net Income. As a result of the foregoing factors, net loss for the first half of
1999 was $5.4 million, compared to a net loss of $2.5 million in the first half
of 1998.
LIQUIDITY AND CAPITAL RESOURCES
Following the recapitalization transaction in November 1997 and the Rival
acquisition in February 1999, the Company is funding its liquidity requirements
with cash flows from operations and borrowings under its 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.
21
<PAGE> 22
Cash provided by (used for) operations for the six months ended June 30, 1998
and 1999 was $(1.3) million and $20.0 million, respectively. Cash provided by
operations in the first half of 1999 primarily reflected a $14.6 million
decrease in accounts receivable. Accounts receivable levels decreased at Rival
in the first half of 1999 as sales levels were down from normal seasonal highs
during the first half of 1999. 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. Inventory
levels decreased approximately $11.0 million as many of the second quarter sales
are shipped from the Company's warehouses versus direct shipments from the Far
East. Additionally, the Company has increased its focus on management of both
raw material and finished goods inventory levels resulting in decreases in both
categories.
Cash provided by financing activities for the six months ended June 30, 1998 and
1999 was $2.7 million and $260.2 million, respectively. Cash provided by
financing in the first half of 1998 reflected borrowings of the prior line of
credit used to fund cash flows for operations. The cash provided by financing
activities in the first half of 1999 reflected the borrowings on the amended and
restated credit facility and the issuance of common stock associated with the
Rival acquisition.
Cash used for investing for the six months ended June 30, 1999 included $279.5
million paid in connection with the Rival acquisition. Also, the Company
received net proceeds of $1.5 million in connection with the sale of one of
Rival's closed manufacturing facilities.
The Company's capital expenditures, including assets acquired under capital
leases, for the six months ended June 30, 1998 and 1999 were $2.9 million and
$6.1 million, respectively, primarily for molds and tooling.
The Company issued $105.0 million of 9 7/8% Senior Subordinated Notes due
November 2007 (the "Notes") in November 1997, and an additional $31.3 million of
Notes in February 1999. The Notes 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 $13.5 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 Credit Facility.
The Company entered into the Credit Facility in February 1999. The Credit
Facility amended and restated the Company's prior $100.0 million credit
facility. The Credit Facility consists of a six-year tranche A term loan of
$40.0 million, an eight-year tranche B term loan of $85.0 million and $200.0
million, six-year revolving credit facility. The Credit Facility bears interest
at variable rates based on either the prime rate or LIBOR, at the Company's
option, plus a margin which, in the case of the tranche A term loan and the
revolving credit facility, varies depending upon certain financial ratios of the
Company. The Company entered into an interest rate collar transaction on May 7,
1999 on its Variable rate debt with a cap rate of 6.5% and a floor rate of
4.62%. The agreement expires on March 31, 2002. See Note 7 of Notes to
Consolidated Financial Statements. The Credit Facility, and the guarantees
thereof by the Company's domestic subsidiaries, are secured by substantially all
of the Company's domestic and certain foreign assets. The Credit Facility and
the Notes Indentures include certain financial and operating covenants, which,
among other things, restrict the ability of the Company to incur additional
indebtedness, grant liens, make investments and take certain other actions. The
ability of the Company to meet its debt service obligations will be dependent
upon the future performance of the Company, which will be impacted by general
economic conditions and other factors. See "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. As described
below, the Company has developed plans to address the possible exposures related
to Year 2000 failures. However, there can be no assurance that such measures
will be sufficient.
The Company has identified its Year 2000 risk to be in two general categories:
Information Technology Systems, including Electronic Data Interchange Systems
(known as "EDI" systems), and General Business Systems.
Information Technology Systems Including EDI. Holmes is currently in the process
of transitioning to Rival's computer software system. The Company's transition
to Rival's system will be completed by the third quarter of 1999. In addition,
all of Holmes' other computer hardware has been or is in the process of being
tested for Year 2000 compliance. Those systems that fail will be upgraded or
replaced during the third quarter of 1999. As part of its transition to the
Rival system, Holmes is 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 third 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
22
<PAGE> 23
difficult to determine as many of the upgrades and new implementations would
have been made 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 during 1999 and 2000.
Rival implemented its current corporate computer system in 1995. The system is
Year 2000 compliant, according to the vendor, as confirmed by full systems
testing performed in August 1998. The testing included rolling the date forward
to January 15, 2000 and testing all function programs. The EDI system
installation was completed by September 1998. Rival has used both internal and
external resources for testing. EDI transactions sets have been verified and
registered with the National Retailers Foundation. Rival believes that any
additional issues with computers are limited to stand alone personal computers.
The upgrade of these computers is expected to be completed by September 30,
1999.
General Business Systems. The Company's general 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.
Holmes has created a Year 2000 committee consisting of one member from each
department. The committee is in the final stages of reviewing all aspects of
Holmes' business systems to determine if they are Year 2000 compliant and
testing systems as necessary. This process will continue throughout 1999.
Holmes has sent out a comprehensive questionnaire to its 250 largest customers
and approximately 550 vendors and service providers regarding their Year 2000
compliance. Approximately 26% of the customers and 32% of the vendors and
service providers either completed the questionnaires or provided the requested
information to an industry-wide database. These responses have tended to provide
only vague assurances regarding Year 2000 matters, however. While Holmes intends
to carefully monitor its supplier risks, Holmes cannot control its suppliers,
and there can be no guarantee that a Year 2000 problem that may originate with a
supplier will not materially adversely affect Holmes. Holmes has not designed a
specific contingency plan in the event of a Year 2000 failure caused by a
supplier or other third party, but is working to identify issues as soon as
possible. Holmes has determined that products that the Company manufactures and
sells have no exposure related to the Year 2000 issue.
Rival created a cross-departmental Year 2000 committee in 1997. The committee
reviewed all aspects of Rival's business systems to determine if they are Year
2000 compliant. Approximately 316 vendors supplying goods and services to Rival,
along with 8 distributors, were requested to submit a letter stating their Year
2000 status. Rival has received responses from approximately 50% of the vendors
and 75% of the distributors. Like those received by Holmes, these responses have
generally provided only vague assurances of future compliance. Rival has
determined that products that it manufactures and sells have no exposure to the
Year 2000 issue.
The Holmes and Rival Year 2000 committees have made the following determinations
with respect to general business systems:
- The Company is in the process of updating Rival's telecommunications
systems and installing the same at Holmes. The vendor has represented
that this system is Year 2000 compliant, as have Holmes' and Rival's
carriers.
- Departmental specific application systems, such as Holmes' modeling
technology, have either been tested and found Year 2000 compliant or
are expected to be compliant based on assurances from vendors.
- The Company's machinery and equipment, to the extent it includes
embedded microprocessors, is believed to be Year 2000 compliant based
on testing performed by Holmes and Rival.
- The Company's building and utility systems have been tested by service
providers and utility companies, who have represented that these
systems will be compliant.
Foreign Operations. The Company has extended its Year 2000 compliance efforts to
its overseas operations, and in particular to Holmes' administrative operations
in Hong Kong and its manufacturing facilities in China. Management believes
that, based on representations from its vendors and its testing to date, the
primary computer system which controls Holmes' Far East order processing,
inventory management, manufacturing and shipping operations is Year 2000
compliant. The financial accounting module of this software is not yet
compliant, but is expected to be upgraded during the third quarter. The Far East
telecommunications carriers have generally represented to Holmes that their
systems will continue to function. However, the state of readiness of third
parties is generally less well-known with respect to the Company's overseas
operations as compared to domestic operations. This is
23
<PAGE> 24
especially true for Rival, which has utilized a limited number of vendors in
Europe and Latin America which have not been surveyed for Year 2000 compliance.
Contingency Plans. With respect to EDI systems, most of the Company's customers
accept invoices only by means of electronic interchange. Accordingly, the
Company has put most of its efforts towards Year 2000 EDI compliance into the
transition to the Rival system rather than into redundant contingency plans.
While it is possible that the Company may be able to invoice customers manually
and receive timely payments in the event that Rival's EDI system proves not to
be Year 2000 compliant or Holmes' transition to the Rival system is not
successfully completed, there can be no assurances that this will be the case.
Other worst-case Year 2000 risks for which the company is only partially able to
prepare include:
- The possible failure of a significant supplier of raw materials or
components, as discussed above, or
- Interruption in the distribution channels that may delay shipments of
finished products from the Far East. The Company is unable to
determine the Year 2000 readiness of all of its shippers and port
facilities, and reliance on airfreight as an alternative might be
either impossible or prohibitively expensive.
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 integration of the Rival acquisition, recent declines in the
sales of many of Rival's products, the Company's degree of leverage, its
dependence on major customers and key personnel, competition, risks associated
with foreign and domestic sourcing and manufacturing, risks of the retail
industry, potential product liability claims or recalls, the cost of labor and
raw materials and the other factors discussed in the Company's filings with the
Commission, such as its Registration Statement on Form S-4 (file number
333-77905). 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
At June 30, 1999, the carrying value of the Company's debt totaled
$339.7 million, which approximated its fair value. This debt includes
amounts at both fixed and variable interest rates. For fixed rate
debt, interest rate changes affect the fair market value but do not
impact earnings or cash flows. Conversely, for variable rate debt,
interest rate changes generally do not affect the fair market value
but do impact earnings and cash flows, assuming other factors are held
constant.
At June 30, 1999, the Company had fixed rate debt of $135.4 million
(including capital leases) and variable rate debt of $204.3 million.
Holding other variables constant (such as foreign exchange rates and
debt levels), a one percentage point decrease in interest rates would
increase the unrealized fair market value of fixed rate debt by
approximately $7.6 million. Based on the amount of variable rate debt
outstanding at June 30, 1999, the earnings and cash flow impact for
the next twelve months resulting from a one percentage point increase
in interest rates would be approximately $2.0 million, net of tax,
holding other variables constant.
The Company has entered into an interest rate collar transaction on
its variable rate debt, as described in Note 7 of Notes to
Consolidated Financial Statements.
24
<PAGE> 25
PART II. OTHER INFORMATION
ITEM 1. LEGAL PROCEEDINGS
The Company is involved in various legal and similar proceedings
arising in the ordinary course of the Company's business, including
product liability and patent and trademark litigation and product
recalls. 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 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
On July 14, 1999, the Company commenced an offer to exchange $31.3
million aggregate principal amount of its Series D Senior Subordinated
Notes due 2007 for an equal amount of Series C Senior Subordinated
Notes due 2007 issued in connection with the Rival acquisition. The
Series D Notes will be issued on the same terms as the Series C Notes,
except that the Series D Notes are registered under the Securities Act
of 1933, as amended. There will be no proceeds to the Company
resulting from the exchange, which is scheduled to be consummated on
or after August 16, 1999.
ITEM 6. EXHIBITS AND REPORTS ON FORM 8-K
a. Exhibits: 27.1 Financial Data Schedule
b. Reports on Form 8-K:
None
25
<PAGE> 26
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
August 12, 1999 By: /s/ Jordan A Kahn
------------------------------
Jordan A. Kahn, President,
Chief Executive Officer
(Principal Executive Officer)
August 12, 1999 By: /s Ira B. Morgenstern
------------------------------
Ira B. Morgenstern,
Senior Vice President - Finance
(Principal Financial and
Accounting Officer)
26
<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-31-1999
<PERIOD-START> JAN-01-1999
<PERIOD-END> JUN-30-1999
<EXCHANGE-RATE> 1
<CASH> 1,528
<SECURITIES> 0
<RECEIVABLES> 104,369
<ALLOWANCES> 5,190
<INVENTORY> 146,875
<CURRENT-ASSETS> 264,954
<PP&E> 132,426
<DEPRECIATION> 81,766
<TOTAL-ASSETS> 435,692
<CURRENT-LIABILITIES> 67,026
<BONDS> 334,500
0
0
<COMMON> 67,935
<OTHER-SE> (37,820)
<TOTAL-LIABILITY-AND-EQUITY> 435,692
<SALES> 207,525
<TOTAL-REVENUES> 207,525
<CGS> 151,248
<TOTAL-COSTS> 151,248
<OTHER-EXPENSES> 4,658<F1>
<LOSS-PROVISION> 475
<INTEREST-EXPENSE> 12,894
<INCOME-PRETAX> (6,903)
<INCOME-TAX> (1,359)
<INCOME-CONTINUING> (5,436)
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> (5,436)
<EPS-BASIC> 0<F2>
<EPS-DILUTED> 0<F2>
<FN>
<F1>PRODUCT DEVELOPMENT EXPENSES.
<F2>THE COMPANY'S SHARES ARE NOT PUBLICLY TRADED.
</FN>
</TABLE>
