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, 2002
COMMISSION FILE NUMBERS: 333-44473
333-77905

THE HOLMES GROUP, INC.
(EXACT NAME OF REGISTRANT AS SPECIFIED IN ITS CHARTER)


MASSACHUSETTS		04-2768914




(STATE OR OTHER JURISDICTION		(I.R.S. EMPLOYER




OF INCORPORATION OR ORGANIZATION)		IDENTIFICATION NO.)









ONE HOLMES WAY, MILFORD MASSACHUSETTS		01757




(ADDRESS OF PRINCIPAL EXECUTIVE OFFICES)		(ZIP CODE)

(508) 634-8050
(REGISTRANT’S TELEPHONE NUMBER)

INDICATE BY CHECK MARK WHETHER THE REGISTRANT (1) HAS FILED ALL REPORTS REQUIRED TO BE FILED BY SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 DURING THE PRECEDING 12 MONTHS (OR FOR SUCH SHORTER PERIOD THAT THE REGISTRANT WAS REQUIRED TO FILE SUCH REPORTS), AND (2) HAS BEEN SUBJECT TO SUCH FILING REQUIREMENTS FOR THE PAST 90 DAYS.

YES (X) NO ( )

TABLE OF CONTENTS


PART I. FINANCIAL INFORMATION
	ITEM 1. FINANCIAL STATEMENTS
	NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
	CONSOLIDATING BALANCE SHEET AT DECEMBER 31, 2001
	CONSOLIDATING BALANCE SHEET AT JUNE 30, 2002
	CONSOLIDATING STATEMENT OF OPERATIONS THREE MONTHS ENDED JUNE 30, 2001
ITEM 2. MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS
ITEM 3. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK
PART II. OTHER INFORMATION

THE HOLMES GROUP, INC.

FORM 10-Q

QUARTER ENDED JUNE 30, 2002

TABLE OF CONTENTS


		PAGE

PART I.	FINANCIAL INFORMATION		3




ITEM 1.	FINANCIAL STATEMENTS		3




	CONSOLIDATED BALANCE SHEET AT DECEMBER 31, 2001 AND JUNE 30, 2002 (UNAUDITED)		3




	CONSOLIDATED STATEMENT OF OPERATIONS (UNAUDITED) FOR THE THREE AND SIX MONTHS ENDED JUNE 30, 2001 AND JUNE 30, 2002		4




	CONSOLIDATED STATEMENT OF CASH FLOWS (UNAUDITED) FOR THE SIX MONTHS ENDED JUNE 30, 2001 AND JUNE 30, 2002		5




	NOTES TO CONSOLIDATED FINANCIAL STATEMENTS		6




ITEM 2.	MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL		22




	CONDITION AND RESULTS OF OPERATIONS




ITEM 3.	QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK		27




PART II.	OTHER INFORMATION		28




	SIGNATURES		29

PART I. FINANCIAL INFORMATION

ITEM 1. FINANCIAL STATEMENTS

THE HOLMES GROUP, INC.
CONSOLIDATED BALANCE SHEET
(IN THOUSANDS EXCEPT SHARE AND PER SHARE AMOUNTS)


				DECEMBER 31,			JUNE 30,
				2001			2002

							(UNAUDITED)
ASSETS




Current assets:




		Cash and cash equivalents		$	10,115		$	5,770




		Accounts receivable, net of allowance of $18,202 and $15,893 respectively			144,249			87,006




		Inventories			103,195			120,594




		Prepaid expenses and other current assets			5,317			9,747




		Deferred income taxes			13,643			13,643

			Total current assets		276,519			236,760




		Assets held for sale			86			6,288




		Property, plant and equipment, net			69,096			62,424




		Goodwill, net			79,838			79,838




		Deposits and other assets			4,985			4,847




		Debt issuance costs, net			13,071			13,863

				$	443,595		$	404,020

LIABILITIES AND STOCKHOLDERS’ EQUITY (DEFICIT)




Current liabilities:




		Accounts payable		$	36,743		$	45,620




		Current portion of credit facility			8,476			8,778




		Accrued expenses			42,328			40,427




		Accrued income taxes			6,457			6,495




		Other current liabilities			831			783

			Total current liabilities		94,835			102,103




Credit facility					209,406			169,895




Long-term debt					135,298			99,503




Other long-term liabilities					7,485			7,050




Deferred income taxes					5,954			5,939




Commitments and contingencies




Stockholders’ equity (deficit):




	Common stock, $.001 par value. Authorized 25,000,000 shares; issued and outstanding 20,302,995 shares at December 31, 2001 and June 30, 2002				20			20




	Additional paid in capital				68,874			68,874




	Accumulated other comprehensive income				(2	)		543




	Treasury stock, at cost (18,627,450 shares)				(62,076	)		(62,076	)




	Retained earnings (deficit)				(16,199	)		12,169

			Total stockholders’ equity (deficit)		(9,383	)		19,530

				$	443,595		$	404,020

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

THE HOLMES GROUP, INC.
CONSOLIDATED STATEMENT OF OPERATIONS (UNAUDITED)
(IN THOUSANDS)


		THREE MONTHS ENDED						SIX MONTHS ENDED

		JUNE 30, 2001			JUNE 30, 2002			JUNE 30, 2001			JUNE 30, 2002

Net sales		$	128,649		$	131,912		$	253,866		$	249,254




Cost of goods sold			101,720			99,599			195,578			188,491

	Gross profit		26,929			32,313			58,288			60,763

Operating expenses:




	Selling		12,967			14,493			27,163			26,536




	General and administrative		10,628			9,957			18,973			20,684




	Product development		2,306			2,458			4,872			4,821




	Restructuring costs		1,445			—			1,445			1,787




	Amortization of goodwill		650			—			1,300			—

	Total operating expenses		27,996			26,908			53,753			53,828

	Operating profit (loss)		(1,067	)		5,405			4,535			6,935

Other income and expense:




	Interest expense		11,380			7,142			20,716			15,098




	Other (income) expense, net		(322	)		723			(278	)		(9,368	)

			11,058			7,865			20,438			5,730

Income (loss) before income taxes, equity in earnings from joint venture and extraordinary item			(12,125	)		(2,460	)		(15,903	)		1,205




Income tax expense (benefit)			1,167			(2,009	)		2,431			(3,434	)




Equity in earnings from joint venture			744			741			1,360			1,341

Income (loss) before extraordinary item			(12,548	)		290			(16,974	)		5,980




Extraordinary gain			—			—			—			22,388

	Net income (loss)	$	(12,548	)	$	290		$	(16,974	)	$	28,368

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

THE HOLMES GROUP, INC.
CONSOLIDATED STATEMENT OF CASH FLOWS (UNAUDITED)
(IN THOUSANDS)


				SIX MONTHS ENDED

				JUNE 30, 2001			JUNE 30, 2002

Cash flows from operating activities:




	Net income (loss)			$	(16,974	)	$	28,368




	Adjustments to reconcile net income (loss) to net cash provided by (used for) operating activities:




		Depreciation and amortization			7,880			6,462




		Amortization of debt issuance costs, discounts and other			3,987			3,291




		non-cash interest expense Provision for doubtful accounts			668			557




		(Gain) loss on disposal of assets			(559	)		132




		Gain on sale of business			–-			(9,088	)




		Extraordinary gain			–-			(22,388	)




		Deferred income taxes			(5	)		(2,602	)




		Restructuring and asset impairment charges			912			1,687




		Changes in operating assets and liabilities:




			Accounts receivable		10,059			55,164




			Inventories		5,577			(21,897	)




			Prepaid expenses and other current assets		1,821			(1,843	)




			Deposits and other assets		(3,641	)		(2,466	)




			Accounts payable		5,475			8,394




			Accrued expenses		(4,943	)		(4,699	)




			Accrued income taxes		2,425			38

		Net cash provided by operating activities			12,682			39,110

Cash flows from investing activities:




	Proceeds from sale of business and assets held for sale				2,053			15,100




	Distribution of earnings from joint venture				616			1,522




	Purchases of property, plant and equipment				(8,554	)		(7,547	)




	Cash received from joint venture partner				700			—

		Net cash provided by (used for) investing activities			(5,185	)		9,075

Cash flows from financing activities:




	Repayments of credit facility, net of issuance costs				(7,504	)		(39,209	)




	Redemption of long-term debt				–-			(11,549	)




	Debt issuance costs				—			(1,579	)

		Net cash used for financing activities			(7,504	)		(52,337	)




Effect of exchange rate changes on cash					(29	)		(193	)

Net decrease in cash and cash equivalents					(36	)		(4,345	)




Cash and cash equivalents, beginning of period					3,017			10,115




Cash and cash equivalents, end of period				$	2,981		$	5,770

Supplemental disclosure of cash flow information:




		Cash paid for interest		$	17,332		$	12,154




		Cash paid for income taxes		$	133		$	425

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

THE HOLMES GROUP, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
JUNE 30, 2002

1. NATURE OF BUSINESS

The Holmes Group, Inc. (“THG”), along with its wholly-owned subsidiary, The Rival Company (“Rival”) and its subsidiaries, designs, develops, manufactures, imports and sells consumer durable goods, including fans, heaters, humidifiers, air purifiers, small kitchen electric appliances and lighting products, to retailers throughout the United States and Canada, and to a lesser extent, Europe, Latin America and Asia.

Holmes Products (Far East) Limited (“HPFEL”) and its subsidiaries manufacture, source and sell consumer durable goods, including fans, heaters and humidifiers and kitchen electrics, mainly to THG. HPFEL operates facilities in Hong Kong, Taiwan and The People’s Republic of China.

HPFEL is a wholly-owned subsidiary of THG. Prior to a 1997 recapitalization transaction in which THG’s current majority shareholders, investment funds managed by Berkshire Partners LLC (“Berkshire Partners”), invested in THG, THG and HPFEL were both directly or indirectly 80%-owned subsidiaries of Asco Investments Ltd., a subsidiary of Pentland Group plc (“Pentland”).

2. SUMMARY OF SIGNIFICANT ACCOUNTING PRINCIPLES

Basis of Consolidation

The accompanying unaudited financial statements include the accounts of THG and its wholly-owned subsidiaries, Rival, HPFEL, Holmes Manufacturing Corp., Holmes Air (Taiwan) Corp. and Holmes Motor Corp. The accompanying unaudited financial statements also include the accounts of Rival’s direct and indirect wholly-owned subsidiaries, Bionaire International B.V., Patton Electric (Hong Kong) Limited, Rival Consumer Sales Corporation, The Holmes Group Canada, Ltd., Rival de Mexico S.A. de C.V. and HPFEL’s wholly-owned subsidiaries, Esteem Industries Ltd., Raider Motor Corp., Dongguan Huixin Electrical Products Company, Ltd., Holmes Products (Europe) Ltd., Dongguan Holmes Products Ltd. and Dongguan Raider Motor Corp. Ltd. All significant inter-company balances and transactions have been eliminated.

THG and its consolidated subsidiaries, including Rival, HPFEL and their respective subsidiaries, are referred to herein as the “Company.”

Recent Accounting Principles

In June 2001, the Financial Accounting Standards Board (the FASB) issued Statement of Financial Accounting Standards No. 141, “Business Combinations” (FAS 141) and No. 142, “Goodwill and Other Intangible Assets” (FAS 142). FAS 141 supersedes Accounting Principles Board Opinion (APB) No. 16, “Business Combinations.” The provisions of FAS 141 (i) require that the purchase method of accounting be used for all business combinations initiated after June 30, 2001, (ii) provide specific criteria for the initial recognition and measurement of intangible assets apart from goodwill, and (iii) require that unamortized negative goodwill be written off immediately as an extraordinary gain instead of being deferred and amortized. FAS 141 also requires that upon adoption of FAS 142 the Company reclassify the carrying amounts of certain intangible assets into or out of goodwill, based on certain criteria.

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

The Company’s application of the non-amortization provisions of FAS 142 will result in an increase in net earnings of approximately $2.5 million per year. For the three and six months ended June 30, 2001, the Company’s net loss, adjusted for $0.7 million and $1.3 million of amortization expense recorded in the consolidated statement of operations, which is no longer being amortized in accordance with the provisions of FAS 142, was approximately $11.8 million and $15.7 million, respectively. FAS 142 requires that goodwill be tested annually for impairment using a two-step process. The first step is to identify a potential impairment and, in transition, this step must be measured as of the beginning of the fiscal year. Under the implementation provisions of FAS 142, the Company had until June 30, 2002 to complete step one. The second step of the goodwill impairment test measures the amount of the impairment loss, if any, and must be completed as soon as possible but no later than the end of fiscal 2002. The Company has completed step one of the goodwill impairment test during the second quarter of 2002 and has determined that goodwill associated with the kitchen and home environment reporting units is significantly impaired under FAS 142. This impairment loss will be reflected as the cumulative effect of a change in accounting principle as of January 1, 2002. Impairment losses recognized subsequent to the initial adoption of FAS 142 will be recorded as a charge to current period earnings.

THE HOLMES GROUP, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS — (CONTINUED)

As of June 30, 2002, the Company had goodwill of approximately $80 million which is subject to the transitional goodwill impairment test. These reporting units are recorded within the consumer durables segment as reported in Note 8. Because of the level of effort needed to comply with adopting FAS 142, it is not practicable to reasonably estimate the impairment charge that the Company will record upon finalization of the FAS 142 implementation provisions.

In July 2001, the FASB issued Statement of Financial Accounting Standards No. 143, “Accounting for Asset Retirement Obligations” (FAS 143). FAS 143 requires entities to record the fair value of a liability for an asset retirement obligation in the period in which it is incurred. When the liability is initially recorded, the entity is required to capitalize the cost by increasing the carrying amount of the related long-lived asset. Over time, the liability is accreted to its present value each period, and the capitalized cost is depreciated over the useful life of the related asset. FAS 143 is effective for fiscal years beginning after June 15, 2002 and will be adopted by the Company effective fiscal 2003. The Company is currently evaluating the effect of implementing FAS No. 143.

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

In November 2001, FASB Emerging Issues Task Force (“EITF”) reached a consensus on Issue No. 01-9 (formerly EITF Issue 00-25), “Accounting for Consideration Given to a Customer or a Reseller of the Vendor’s Products.” This issue addresses the recognition, measurement and income statement classification of consideration from a vendor to a customer in connection with the customer’s purchase or promotion of the vendor’s products. This consensus only impacts revenue and expense classifications and does not change reported net income. In accordance with the consensus reached, the Company adopted the required accounting as of January 1, 2002, and reclassified as deductions from net sales approximately $2.3 million and $4.3 million of cooperative advertising expenses which were previously classified as selling expenses in the consolidated statement of operations for the three and six months ended June 30, 2001, respectively.

The FASB issued Statement No. 145, “Rescission of FASB Statements No. 4, 44 and 64, Amendment of FASB Statement No. 13, and Technical Corrections” (“FAS No. 145”) in April 2002. This statement updates, clarifies and simplifies existing accounting pronouncements. Specifically, the statement rescinds FASB Statement No. 4, “Reporting Gains and Losses from Extinguishment of Debt” (“FAS No. 4”), FASB Statement No. 64, “Extinguishment of Debt Made to Satisfy Sinking Fund Requirements” (“FAS No. 64”) and FASB Statement No. 44, “Accounting for Intangible Assets of Motor Carriers.” This statement also amends FASB Statement No. 13, “Accounting for Leases” (“FAS No. 13”) and certain other existing authoritative pronouncements to make technical corrections or clarifications. FAS No. 145 will be effective for THG related to the rescission of FAS No. 4 and FAS No. 64 on January 1, 2003. FAS No. 145 will be effective related to the amendment of FAS No. 13 for all transactions occurring after May 15, 2002. All other provisions of FAS No. 145 will be effective for financial statements issued after May 15, 2002. The Company is currently evaluating the effect of implementing FAS No. 145.

In July 2002, the FASB issued Statement of Financial Accounting Standards No. 146, “Accounting for Costs Associated with Exit or Disposal Activities” (FAS 146), which nullifies Emerging Issues Task Force (EITF) Issue No. 94-3, “Liability Recognition for Certain Employee Termination Benefits and Other Costs to Exit an Activity (including Certain Costs Incurred in a Restructuring).” FAS 146 requires a liability for a cost associated with an exit or disposal activity be recognized and measured initially at its fair value in the period in which the liability is incurred. If fair value cannot be reasonably estimated, the liability shall be recognized initially in the period in which fair value can be reasonably estimated. The provisions of FAS 146 will be effective for the Company prospectively for exit or disposal activities initiated after December 31, 2002. The Company is in the process of assessing the impact of FAS 146 on its consolidated financial statements.

3. DIVESTITURES

Subsequent to the acquisition of Rival on February 5, 1999, the Company initiated certain restructuring actions to effectively integrate and consolidate the Rival operations into THG. Among these actions, the Company announced the closure of Rival’s Warrensburg, Missouri facility in 2000. This facility was subsequently sold for $1,965,000 during the first quarter of 2001 at a net gain of $559,000. This gain was classified as other income in the consolidated statement of operations.

THE HOLMES GROUP, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS — (CONTINUED)

On June 28, 2001, the Company announced that the Sedalia, Missouri manufacturing plant would be closed. The activities of this plant were moved to the other existing plants in Clinton, Missouri and Jackson, Mississippi. As a result, approximately 300 additional manufacturing, engineering and office positions were eliminated. In connection with the foregoing, the Company recorded a $727,000 restructuring charge for the severance and other employee related costs in accordance with EITF 94-3 “ Liability Recognition for Certain Employee Termination Benefits and Other Costs to Exit an Activity (including Certain Costs Incurred in a Restructuring)”. Severance payments to these employees is expected to be paid during 2002. Additionally, the Company recorded a $467,000 charge for restructuring associated with the Sedalia plant closure. Included in this charge are asset write-downs of redundant property, plant and equipment of $417,000 and facility exit costs of $50,000. The remaining net book value of the Sedalia plant is shown as assets held for sale in the consolidated balance sheet at June 30, 2002 and December 31, 2001.

In January 2002, the Company announced that the Sedalia, Missouri distribution center would be closed. The activities of this facility will be moved to the other existing distribution centers in Clinton, Missouri and City of Industry, California. In connection with the foregoing, the Company recorded a $1,787,000 restructuring charge, which includes a $1,687,000 charge for asset write-downs of redundant property, plant and equipment to the estimated net realizable value and facility exit costs of $100,000. The remaining net book value of the facility has been shown as assets held for sale in the consolidated balance sheet as of June 30, 2002.

The reserve activity for fiscal 2002 is as follows (in thousands):


	Employee			Facility		Total
	Severance and			Exit and		Accrued
	Relocation Costs			Other Costs		Restructuring
Balance at December 31, 2001	$	396		$	50	$	446




Restructuring charges		—			100		100




Cash payments		(340	)		—		(340	)

Balance at June 30, 2002	$	56		$	150	$	206

The cash payments recorded in fiscal 2002 relate to severance payments to former employees in the first six months of 2002.

THE HOLMES GROUP, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS — (CONTINUED)

On January 14, 2002, the Company sold substantially all of the assets of its Pollenex® division, which marketed personal care products, which was acquired as part of the Rival acquisition, for approximately $15.1 million. The proceeds received for the assets sold, which consisted primarily of inventory and property, plant and equipment, exceeded the net asset values recorded by approximately $9.1 million and has been recorded as other income in the consolidated statement of operations.

4. 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, 2002 and the Company’s results of operations and cash flows for the three and six months ended June 30, 2001 and 2002. This interim financial information and notes thereto should be read in conjunction with the Company’s Annual Report on Form 10-K for the year ended December 31, 2001. 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, 2002 are not necessarily indicative of the results to be expected for any other interim period or the entire fiscal year.

5. INVENTORIES

All inventories are stated at the lower of cost or market. Cost is determined using the first-in, first-out (FIFO) method on approximately 80% of the inventories and the last-in, first-out method (LIFO) for the remaining 20% of the inventory. Inventories are as follows:


(in thousands)	December 31, 2001			June 30, 2002

Finished goods	$	80,212		$	98,553




Raw materials and Work-in-process		23,183			22,466

		103,395			121,019




LIFO allowance		(200	)		(425	)

	$	103,195		$	120,594

THE HOLMES GROUP, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS — (CONTINUED)

6. LONG-TERM DEBT

Senior Subordinated Notes

In connection with the Company’s 1997 recapitalization transactions, as disclosed in prior filings, and the Rival acquisition referred to in Note 3, THG issued $105.0 million and $31.3 million, respectively, in senior subordinated notes, maturing on November 15, 2007 (the “Notes”). The Notes bear interest at 9 7/8%, payable semi-annually on May 15 and November 15. No principal is due until the maturity date.

The Notes are subordinated to the Company’s other debt, including the Credit Facility (as described below). The Notes are guaranteed by THG’s current and future domestic subsidiaries (see Note 11) on a full, unconditional and joint and several basis, but are otherwise unsecured.

THG can, at its option, redeem the Notes at any time after November 15, 2002, subject to a fixed schedule of redemption prices which declines from 104.9% to 100% of the face value. Additionally, upon certain sales of stock or assets or a change of control of THG, THG must offer to repurchase all or a portion of the Notes at a redemption price of 101% of face value.

In conjunction with the Fifth Amendment of the Company’s Credit Facility, as described below, Holmes repurchased from two Berkshire Partners’ investment funds an aggregate principal amount of approximately $36.2 million of the Notes. The purchase price of the Notes, representing Berkshire Partners’ cost, was $11.5 million plus accrued interest, which was funded with proceeds of the revolving credit loan B described below. The Notes repurchased were retired and cancelled. This resulted in an extraordinary gain on the early retirement of debt of $22.4 million that was recorded in the consolidated statement of operations for the six months ended June 30, 2002. This gain is net of the write-off of approximately $1.9 million of debt issuance costs and $0.3 million of debt issuance discount associated with the senior subordinated notes and $0.1 million of transaction fees. A provision for income taxes has not been recorded in connection with this transaction as the Company expects to offset the gain with available net operating loss carryforwards. The Company may consider repurchases of additional Notes in the future, and may utilize the proceeds of the Credit Facility for this purpose.

The Notes contain certain restrictions and covenants, including limitations (based on certain financial ratios) on THG’s ability to pay dividends, repurchase stock or incur additional debt (other than borrowings under the Credit Facility and other enumerated exceptions). The Notes are cross-defaulted to payment defaults under the Credit Facility.

Credit Facility

The Company entered into an amended and restated Credit Facility agreement in February, 1999 in connection with the Rival acquisition. This Credit Facility consisted of a tranche A term loan of $40.0 million that matures February 5, 2005, a tranche B term loan of $85.0 million that matures February 5, 2007 and a revolving credit facility that matures February 5, 2005. Availability under the Credit Facility is reduced by outstanding letters of credit. On May 7, 2001, the Credit Facility was amended (the Fourth Amendment) to revise certain of the financial ratio covenants and change the maximum availability. As partial consideration for the amendments, the Company issued warrants to the lenders to acquire up to 5% of THG’s common stock on a fully-diluted basis. The warrants are exercisable at a price of $5.04 per share, and expire May 7, 2006. The fair value of the warrants was $1.0 million and was recorded as a charge to interest expense during 2001. Additionally, investment funds associated with Berkshire Partners’ agreed to provide an aggregate $43.5 million guarantee in support of the increased revolving credit commitment.

On March 22, 2002, Holmes and the lending group under the Credit Facility agreed to a Fifth Amendment to the Credit Facility. The Fifth Amendment revised certain of the financial ratio covenants for the periods ending December 31, 2001 through June 30, 2004, in order to reflect the Company’s current business plan and to accommodate the $14.1 million bad debt charge in the fourth quarter of 2001 relating to outstanding receivables from Kmart. Under the Fifth Amendment, the lenders have committed to a revolving credit loan A of $131 million and a revolving credit loan B of $40 million. Revolving credit loan B continues to be supported by the Berkshire Partners’ guarantee entered into in connection with the Fourth Amendment. Actual availability under these revolving credit facilities is subject to a borrowing base formula based on inventory and accounts receivable. Under the Fifth Amendment, the maturity date of the revolving credit loan B was extended from July 1, 2002 through July 1, 2004. The maturity date of the revolving credit loan A and the tranche A term loan remain at February 5, 2005, although the availability under the revolving credit loan A commitment will terminate on July 1, 2004 unless otherwise approved by a majority in interest of the lenders. The maturity date of the tranche B term loan remains at February 5, 2007. As part of the Fifth Amendment, the applicable interest rate margins on the revolving credit loan B were reduced, while the margins on the revolving credit loan A and the tranche B term loans were increased.

THE HOLMES GROUP, INC. NOTES
TO CONSOLIDATED FINANCIAL STATEMENTS — (CONTINUED)

Effective May 7, 2001, Holmes agreed to pay Berkshire Partners a guarantee fee of $1.1 million as consideration for Berkshire’s guarantee of up to $43.5 million of the obligations under the Credit Facility. As amended effective March 22, 2002, the guarantee fee arrangement provides for payment of a fee of 2.25% per annum, compounded annually, on the $40.0 million revolving credit loan B commitment, less the portion of this facility designated as subordinated debt funding loans (which portion is subordinated to the other obligations under the Credit Facility). The guarantee fee related to the subordinated debt funding loan is calculated at 20% per annum, compounded annually. Payment of these fees is subordinated to the Company’s obligations under the Credit Facility.

As of December 31, 2001 and June 30, 2002, the Company’s availability was $63.7 million and $49.8 million, respectively, net of outstanding letters of credit totalling $4.8 million and $9.7 million, respectively. The Credit Facility bears interest at variable rates based on either the prime rate or eurodollar rate at the Company’s option, plus a margin which, in the case of the tranche A term loan and a portion of the revolving credit facility, varies depending upon certain financial ratios. The Credit Facility, and the guarantees thereof by the Company’s domestic subsidiaries, are secured by substantially all of the Company’s domestic and certain foreign assets. The Credit Facility is cross-defaulted to the Notes Indentures.

The Credit Facility as amended, and the Notes Indentures include certain financial and operating covenants, which, among other things, restrict the ability of the Company to incur additional indebtedness, grant liens, make investments and take certain other actions. The ability of the Company to meet its debt service obligations will be dependent upon the future performance of the Company, which will be impacted by general economic conditions and other factors.

Long term debt consists of the following:


(in thousands)	December 31, 2001		June 30,2002
Credit Facility, with a weighted average interest rate of 6.2% and 5.8% at December 31, 2001 and June 30, 2002, respectively	$	217,882	$	178,673




9 7/8% Senior Subordinated Notes, net of unamortized discount of $1.0 million at December 31, 2001 and $0.6 million at June 30, 2002, respectively		135,298		99,503

Total debt		353,180		278,176




Less current maturities		8,476		8,778

Long-term debt	$	344,704	$	269,398

Effective May 7, 1999 the Company entered into an interest rate collar transaction agreement with its lead lending bank. The interest rate collar consisted 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 terminated March 31, 2002. The LIBOR interest rate at December 31, 2001 was 1.91%. In accordance with the provisions of the collar agreement, the Company paid approximately $563,000 in the first quarter of 2002 to the lending bank. The agreement was not renewed upon termination and all obligations associated with this agreement were settled as of March 31, 2002.

THE HOLMES GROUP, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS — (CONTINUED)

7. COMPREHENSIVE INCOME

The Company adopted Statement of Financial Accounting Standards No. 130, “Reporting Comprehensive Income.” This Statement establishes standards for reporting comprehensive income and its components in financial statements. Comprehensive income consists of net earnings and foreign currency translation adjustments as presented in the following table.


		Three months ended

(in thousands)		June 30, 2001			June 30, 2002
Net Earnings (loss)		$	(12,548	)	$	290




Foreign currency translation adjustments			17			403

	Comprehensive income (loss)	$	(12,531	)	$	693


		Six months ended

(in thousands)		June 30, 2001			June 30, 2002
Net Earnings (loss)		$	(16,974	)	$	28,368




Foreign currency translation adjustments			(309	)		545

	Comprehensive income (loss)	$	(17,283	)	$	28,913

8. BUSINESS SEGMENTS

The Company adopted SFAS No. 131, “Disclosure about Segments of an Enterprise and Related Information” (“SFAS 131”), during 1998. SFAS 131 established standards for reporting information about business segments in annual financial statements. It also established standards for related disclosures about products and services, major customers and geographic areas. Business segments are defined as components of a business about which separate financial information is available that is evaluated regularly by the chief operating decision maker, or decision making group, in deciding how to allocate resources and in assessing performance. The business segments are managed separately because each segment represents a strategic business unit whose main business is entirely different.

The Company currently manages its operations through three business segments: consumer durables, international and Far East. The consumer durables segment sells products including fans, heaters, humidifiers, air purifiers, Crock-Pot ® slow cookers, toasters, ice cream freezers, can openers and lighting products to retailers throughout the U.S. The consumer durables segment is made up of home environment products and kitchen electric products, which are considered one business segment due to the similar customer base and distribution channels. The international segment sells the Company’s products outside the U.S. The Far East segment is the manufacturing and sourcing operation located primarily at HPFEL.

THE HOLMES GROUP, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS — (CONTINUED)

Summary financial information for each reportable segment for the three and six month periods ended June 30, 2002 and 2001 is as follows (in thousands):


	Consumer										Consolidated
THREE MONTHS ENDED	Durables			Far East		International		Eliminations			Total
June 30, 2002




Net sales	$	114,114		$	80,558	$	13,558	$	(76,318	)	$	131,912




Operating income(loss)		203			4,942		1,055		(795	)		5,405




June 30, 2001




Net sales	$	110,925		$	63,281	$	11,883	$	(57,440	)	$	128,649




Operating income(loss)		(7,046	)		5,032		537		410			(1,067	)


	Consumer										Consolidated
SIX MONTHS ENDED	Durables			Far East		International		Eliminations			Total
June 30, 2002




Net sales	$	217,224		$	151,941	$	23,349	$	(143,260	)	$	249,254




Operating income(loss)		(3,737	)		11,450		412		(1,190	)		6,935




June 30, 2001




Net sales	$	219,898		$	128,000	$	22,330	$	(116,362	)	$	253,866




Operating income(loss)		(8,825	)		11,780		845		735			4,535

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


								Consolidated
		United States		Far East		International		Total
Net sales:




	Three months ended June 30, 2002	$	114,114	$	4,240	$	13,558	$	131,912




	Three months ended June 30, 2001		110,925		5,841		11,883		128,649




	Six months ended June 30, 2002		217,224		8,681		23,349		249,254




	Six months ended June 30, 2001		219,898		11,638		22,330		253,866




Long-lived assets:




	June 30, 2002		40,224		32,782		553		73,559




	December 31, 2001		41,159		32,443		565		74,167

Net sales are grouped based on the geographic origin of the transaction. Net sales in the United States include direct export sales to Europe.

The Company’s manufacturing entities in the Far East sell completed products to THG in the United States at intercompany transfer prices which reflect management’s estimate of amounts which would be charged by an unrelated third party. These sales are eliminated in consolidation. The remaining Far East sales are to unrelated third parties.

THE HOLMES GROUP, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS — (CONTINUED)

9. 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 or cash flows.

10. RECLASSIFICATIONS

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

11. CONDENSED CONSOLIDATING INFORMATION

The senior subordinated notes described in Note 6 were issued by THG and are guaranteed by Rival and its domestic subsidiary and Holmes Manufacturing Corp. (“Manufacturing”), Holmes Motor Corp. (“Motor”) and Holmes Air (Taiwan) Corp. (“Taiwan”), but are not guaranteed by THG’s other subsidiary, HPFEL, or Rival’s five foreign subsidiaries. The guarantor subsidiaries are directly or indirectly wholly-owned by THG, and the guarantees are full, unconditional and joint and several. The following condensed consolidating financial information presents the financial position, results of operations and cash flows of (i) THG, as parent, as if it accounted for its subsidiaries on the equity method, (ii) Rival (on a consolidated basis following its acquisition by THG, Manufacturing, Motor and Taiwan, the guarantor subsidiaries, and (iii) HPFEL, Bionaire International B.V., The Holmes Group Canada, Ltd., Waverly Products Company, Ltd., and Rival de Mexico S.A. de C.V., the non-guarantor subsidiaries. There were no transactions between Rival, Manufacturing, Motor and Taiwan during any of the periods presented. Taiwan and Manufacturing had no revenues or operations during the periods presented. As further described in Note 15 of the Company’s audited financial statements for the year ended December 31, 2001, 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.

CONSOLIDATING BALANCE SHEET AT DECEMBER 31, 2001 (IN THOUSANDS)


						Guarantor			Non-Guarantor
			Parent			Subsidiaries			Subsidiaries			Eliminations			Consolidated

									(In thousands)
ASSETS




Current assets:




	Cash and cash equivalents		$	4,083		$	1,312		$	4,720			—		$	10,115




	Accounts receivable, net			39,173			82,725			22,351			—			144,249




	Inventories			34,042			49,055			24,922		$	(4,824	)		103,195




	Prepaid expenses and other current assets			2,136			42			3,139			—			5,317




	Deferred income taxes			8,578			5,065			—			—			13,643




	Due from affiliates			191,656			89			71,859			(263,604	)		—

		Total current assets		279,668			138,288			126,991			(268,428	)		276,519

Assets held for sale				—			86			—			—			86




Property, plant and equipment, net				7,585			28,503			33,008			—			69,096




Goodwill, net				—			79,838			—			—			79,838




Deferred income taxes				—			—			—			—			—




Deposits and other assets				20,139			2,229			579			(4,891	)		18,056




Investments in consolidated subsidiaries				59,423			—			3,700			(63,123	)		—

			$	366,815		$	248,944		$	164,278		$	(336,442	)	$	443,595

LIABILITIES AND STOCKHOLDERS’ EQUITY (DEFICIT)




Current liabilities:




	Accounts payable		$	3,906		$	6,945		$	30,783		$	(4,891	)	$	36,743




	Current portion of credit facility			8,476			—			—			—			8,476




	Accrued expenses			19,112			16,672			6,544			—			42,328




	Accrued income taxes			—			2,600			3,857			—			6,457




	Other current liabilities			—			—			831			—			831




	Due to affiliates			—			230,535			36,669			(267,204	)		—

		Total current liabilities		31,494			256,752			78,684			(272,095	)		94,835

Credit facility				209,406			—			—			—			209,406

Long-term debt				135,298			—			—			—			135,298

Other long-term liabilities				—			—			7,485			—			7,485

Deferred income taxes				—			3,861			2,093			—			5,954

STOCKHOLDERS’ EQUITY (DEFICIT):




Common stock, $.001 par value				20			2			—			(2	)		20




Common stock, $1 par value				—			—			3,800			(3,800	)		—




Additional paid in capital				68,874			—			—			—			68,874




Accumulated other comprehensive income				(2	)		—			(160	)		160			(2	)




Treasury stock				(62,076	)		—			—			—			(62,076	)




Retained earnings (deficit)				(16,199	)		(11,671	)		72,376			(60,705	)		(16,199	)

		Total stockholders’equity (deficit)		(9,383	)		(11,669	)		76,016			(64,347	)		(9,383	)

			$	366,815		$	248,944		$	164,278		$	(336,442	)	$	443,595

CONSOLIDATING BALANCE SHEET AT JUNE 30, 2002 (IN THOUSANDS)
(UNAUDITED)


							Guarantor			Non-Guarantor
				Parent			Subsidiaries			Subsidiaries		Eliminations			Consolidated

							(In thousands)
ASSETS




Current assets:




	Cash and cash equivalents			$	1,974		$	(489	)	$	4,285		—		$	5,770




	Accounts receivable, net				17,592			49,742			19,672		—			87,006




	Inventories				34,477			64,690			27,501	$	(6,074	)		120,594




	Prepaid expenses and other current assets				1,633			5,433			2,681		—			9,747




	Deferred income taxes				8,994			4,649			—		—			13,643




	Due from affiliates				133,099			89			81,464		(214,652	)		—

		Total current assets			197,769			124,114			135,603		(220,726	)		236,760

Assets held for sale					—			6,288			—		—			6,288




Property, plant and equipment, net					9,978			20,064			32,382		—			62,424




Goodwill, net					—			79,838			—		—			79,838




Deferred income taxes					—			—			—		—			—




Deposits and other assets					20,105			2,543			953		(4,891	)		18,710




Investments in consolidated subsidiaries					102,489			—			3,700		(106,189	)		—

				$	330,341		$	232,847		$	172,638	$	(331,806	)	$	404,020

LIABILITIES AND STOCKHOLDERS’ EQUITY (DEFICIT)




Current liabilities:




	Accounts payable			$	7,833		$	3,752		$	38,926	$	(4,891	)	$	45,620




	Current portion of credit facility				8,778			—			—		—			8,778




	Accrued expenses				18,341			16,127			5,959		—			40,427




	Accrued income taxes				(859	)		3,216			4,138		—			6,495




	Other current liabilities				—			—			783		—			783




	Due to affiliates				7,320			184,577			26,455		(218,352	)		—

		Total current liabilities			41,413			207,672			76,261		(223,243	)		102,103

		Credit facility			169,895			—			—		—			169,895

Long-term debt					99,503			—			—		—			99,503

Other long-term liabilities					—			—			7,050		—			7,050

Deferred income taxes					—			3,859			2,080		—			5,939

STOCKHOLDERS’ EQUITY (DEFICIT):




Common stock, $.001 par value					20			2			—		(2	)		20




Common stock, $1 par value					—			—			3,800		(3,800	)		—




Additional paid in capital					68,874			—			—		—			68,874




Accumulated other comprehensive income					543			—			383		(383	)		543




Treasury stock					(62,076	)		—			—		—			(62,076	)




Retained earnings (deficit)					12,169			21,314			83,064		(104,378	)		12,169

			Total stockholders’ equity (deficit)		19,530			21,316			87,247		(108,563	)		19,530

				$	330,341		$	232,847		$	172,638	$	(331,806	)	$	404,020

CONSOLIDATING STATEMENT OF OPERATIONS
THREE MONTHS ENDED JUNE 30, 2001 (IN THOUSANDS)
(UNAUDITED)


					Guarantor			Non-Guarantor
		Parent			Subsidiaries			Subsidiaries			Eliminations			Consolidated

								(In thousands)
Net sales		$	42,388		$	68,384		$	75,317		$	(57,440	)	$	128,649




Cost of goods sold			41,020			53,630			64,920			(57,850	)		101,720

	Gross profit (loss)		1,368			14,754			10,397			410			26,929

Operating expenses:




	Selling		7,132			2,908			2,927			—			12,967




	General and administrative		6,574			2,153			1,901			—			10,628




	Product development		2,359			(53	)		—			—			2,306




	Restructuring costs		—			1,445			—			—			1,445




	Amortization of goodwill		—			650			—			—			650

	Total operating expenses		16,065			7,103			4,828			—			27,996

	Operating profit (loss)		(14,697	)		7,651			5,569			410			(1,067	)

Other (income) and expense:




	Interest expense		9,024			2,382			(26	)		—			11,380




	Other (income) expense, net		(246	)		328			(404	)		—			(322	)

	Total other (income) expense		8,778			2,710			(430	)		—			11,058

Income (loss) before income taxes and equity in earnings from joint venture			(23,475	)		4,941			5,999			410			(12,125	)




Income tax expense (benefit)			561			—			606			—			1,167




Equity in earnings from joint venture			744			—			—			—			744

Income (loss) before equity in income of consolidated subsidiaries			(23,292	)		4,941			5,393			410			(12,548	)




Equity in income of consolidated subsidiaries			10,744			—			—			(10,744	)		—

Net income (loss)		$	(12,548	)	$	4,941		$	5,393		$	(10,334	)	$	(12,548	)

CONSOLIDATING STATEMENT OF OPERATIONS
THREE MONTHS ENDED JUNE 30, 2002 (IN THOUSANDS)
(UNAUDITED)


					Guarantor			Non-Guarantor
		Parent			Subsidiaries			Subsidiaries		Eliminations			Consolidated

		(In thousands)
Net sales		$	34,609		$	79,505		$	94,116	$	(76,318	)	$	131,912




Cost of goods sold			33,585			58,314			83,223		(75,523	)		99,599

	Gross profit (loss)		1,024			21,191			10,893		(795	)		32,313

Operating expenses:




	Selling		12,977			(1,427	)		2,943		—			14,493




	General and administrative		2,195			5,810			1,952		—			9,957




	Product development		1,690			768			—		—			2,458




	Restructuring costs		—			—			—		—			—

	Total operating expenses		16,862			5,151			4,895		—			26,908

	Operating profit (loss)		(15,838	)		16,040			5,998		(795	)		5,405

Other (income) and expense:




	Interest expense (income)		7,146			(8	)		4		—			7,142




	Other (income) expense, net		764			(642	)		601		—			723

	Total other (income) expense		7,910			(650	)		605		—			7,865

Income (loss) before income taxes and equity in earnings from joint venture			(23,748	)		16,690			5,393		(795	)		(2,460	)




Income tax expense (benefit)			(2,583	)		125			449		—			(2,009	)




Equity in earnings from joint venture			741			—			—		—			741

Income (loss) before equity in income of consolidated subsidiaries			(20,424	)		16,565			4,944		(795	)		290




Equity in income of consolidated subsidiaries			20,714			—			—		(20,714	)		—

Net income (loss)		$	290		$	16,565		$	4,944	$	(21,509	)	$	290

CONSOLIDATING STATEMENT OF OPERATIONS
SIX MONTHS ENDED JUNE 30, 2001 (IN THOUSANDS)
(UNAUDITED)


					Guarantor			Non-Guarantor
		Parent			Subsidiaries			Subsidiaries			Eliminations			Consolidated

		(In thousands)
Net sales		$	104,980		$	114,918		$	150,330		$	(116,362	)	$	253,866




Cost of goods sold			94,823			89,846			128,006			(117,097	)		195,578

	Gross profit (loss)		10,157			25,072			22,324			735			58,288

Operating expenses:




	Selling		14,044			8,006			5,113			—			27,163




	General and administrative		10,836			3,551			4,586			—			18,973




	Product development		4,447			425			—			—			4,872




	Restructuring costs		—			1,445			—			—			1,445




	Amortization of goodwill		—			1,300			—			—			1,300

	Total operating expenses		29,327			14,727			9,699			—			53,753

	Operating profit (loss)		(19,170	)		10,345			12,625			735			4,535

Other (income) and expense:




	Interest expense (income)		15,577			5,168			(29	)		—			20,716




	Other (income) expense, net		339			(203	)		(414	)		—			(278	)

	Total other (income) expense		15,916			4,965			(443	)		—			20,438

Income (loss) before income taxes and equity in earnings from joint venture			(35,086	)		5,380			13,068			735			(15,903	)




Income tax expense (benefit)			941			—			1,490			—			2,431




Equity in earnings from joint venture			1,360			—			—			—			1,360

Income (loss) before equity in income of consolidated subsidiaries			(34,667	)		5,380			11,578			735			(16,974	)




Equity in income of consolidated subsidiaries			17,693			—			—			(17,693	)		—

Net income (loss)		$	(16,974	)	$	5,380		$	11,578		$	(16,958	)	$	(16,974	)

CONSOLIDATING STATEMENT OF OPERATIONS
SIX MONTHS ENDED JUNE 30, 2002 (IN THOUSANDS)
(UNAUDITED)


					Guarantor			Non-Guarantor
		Parent			Subsidiaries			Subsidiaries			Eliminations			Consolidated

		(In thousands)
Net sales		$	75,746		$	141,478		$	175,290		$	(143,260	)	$	249,254




Cost of goods sold			70,160			106,584			153,817			(142,070	)		188,491

	Gross profit (loss)		5,586			34,894			21,473			(1,190	)		60,763

Operating expenses:




	Selling		18,892			2,424			5,220			—			26,536




	General and administrative		7,797			8,496			4,391			—			20,684




	Product development		3,687			1,134			—			—			4,821




	Restructuring costs		—			1,787			—			—			1,787

	Total operating expenses		30,376			13,841			9,611			—			53,828

	Operating profit (loss)		(24,790	)		21,053			11,862			(1,190	)		6,935

Other (income) and expense:




	Interest expense (income)		15,071			27			—			—			15,098




	Other (income) expense, net		566			(9,701	)		(233	)		—			(9,368	)

	Total other (income) expense		15,637			(9,674	)		(233	)		—			5,730

Income (loss) before income taxes, equity in earnings from joint venture and extraordinary item			(40,427	)		30,727			12,095			(1,190	)		1,205




Income tax expense (benefit)			(2,583	)		(2,258	)		1,407			—			(3,434	)




Equity in earnings from joint venture			1,341			—			—			—			1,341

Income (loss) before equity in income of consolidated subsidiaries and extraordinary item			(36,503	)		32,985			10,688			(1,190	)		5,980




Equity in income of consolidated subsidiaries			42,483			—			—			(42,483	)		—

Income before extraordinary item			5,980			32,985			10,688			(43,673	)		5,980




Extraordinary gain			22,388			—			—			—			22,388

Net income (loss)		$	28,368		$	32,985		$	10,688		$	(43,673	)	$	28,368

CONDENSED CONSOLIDATING STATEMENT OF CASH FLOWS
SIX MONTHS ENDED JUNE 30, 2001 AND 2002 (IN THOUSANDS)
(UNAUDITED)


						GUARANTOR			NON-GUARANTOR
			PARENT			SUBSIDIARIES			SUBSIDIARIES			CONSOLIDATED

SIX MONTHS ENDED JUNE 30, 2001




Net cash provided by (used in) operating activities			$	22,297		$	(8,573	)	$	(1,042	)	$	12,682

Cash flows from investing activities:




	Cash received from joint venture partner			—			—			700			700




	Proceeds from assets held for sale			2,053			—			—			2,053




	Distribution of earnings from joint venture			616			—			—			616




	Purchases of property, plant and equipment			(1,737	)		(1,545	)		(5,272	)		(8,554	)

Net cash used for investing activities				932			(1,545	)		(4,572	)		(5,185	)

Cash flows from financing activities:




	Repayments of credit facility, net of issuance costs			(7,504	)		—			—			(7,504	)




	Other net activity with Parent			(15,154	)		10,219			4,935			—

		Net cash provided by (used for) financing activities		(22,658	)		10,219			4,935			(7,504	)

Effect of exchange rate changes on cash				—			—			(29	)		(29	)

Net (decrease) in cash and cash equivalents				571			101			(708	)		(36	)




Cash and cash equivalents, beginning of period				175			959			1,883			3,017

Cash and cash equivalents, end of period			$	746		$	1,060		$	1,175		$	2,981

SIX MONTHS ENDED JUNE 30, 2001








Net cash provided by operating activities			$	17,974		$	2,874		$	18,262		$	39,110

Cash flows from investing activities:




	Distribution of earnings from joint venture			1,522			—			—			1,522




	Proceeds from sale of business			—			15,100			—			15,100




	Purchases of property, plant and equipment			(3,354	)		(718	)		(3,475	)		(7,547	)

Net cash provided by (used for) investing activities				(1,832	)		14,382			(3,475	)		9,075

Cash flows from financing activities:




	Repayments of credit facility, net of issuance costs			(39,209	)		—			—			(39,209	)




	Redemption of long-term debt			(11,549	)		—			—			(11,549	)




	Debt issuance costs			(1,579	)		—			—			(1,579	)




	Other net activity with Parent			34,086			(19,057	)		(15,029	)		—

		Net cash provided by		(18,251	)		(19,057	)		(15,029	)		(52,337	)




		(used for) financing		—			—			—			—




		activities Effect of exchange rate changes on cash		—			—			(193	)		(193	)

Net increase (decrease) in cash and cash equivalents				(2,109	)		(1,801	)		(435	)		(4,345	)




Cash and cash equivalents, beginning of period				4,083			1,312			4,720			10,115

Cash and cash equivalents, end of period			$	1,974		$	(489	)	$	4,285		$	5,770

ITEM 2. MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS

OVERVIEW

The Holmes Group, Inc., is a leading developer, manufacturer and marketer of quality, branded home appliances, including home environment and small kitchen appliances. Our home environment products include fans, heaters, humidifiers and air purifiers. We believe that we have a leading U.S. market share in each of these product categories. Our kitchen appliances include Crock-Pot® slow cookers, roaster ovens, skillets, and deep fryers where we believe we hold the number one or two market share and other similar small kitchen electric appliances. We believe that our strong market position is attributable to our continuous product innovation, engineering and manufacturing expertise, close customer partnerships, breadth of product offerings, reputation for quality, and presence and experience in the Far East.

Our products are sold under the Holmes®, Rival®, Crock-Pot®, White Mountain®, Bionaire®, Patton®, Family Care® and Titan® brand names. These products are sold to consumers through major retail chains, including mass merchants, do-it-yourself home centers, warehouse clubs, hardware, department and specialty stores and national drug store chains. We believe that the strength, scope and visibility of our retail account base provide a competitive advantage with respect to brand recognition, access to shelf space and penetration of the consumer market.

Sales of most of our products follow seasonal patterns that affect our results of operations. In general, sales of fans occur predominantly from January through June, and sales of heaters and humidifiers occur predominantly from July through December. Although kitchen electrics, air purifiers, lighting products and accessories generally are used year-round, these products tend to draw increased sales during the winter months when people are indoors and, as a result, sales of these products tend to be greatest in advance of the winter months from July through December. Additionally, many of our kitchen products are given as gifts and, as such, sell at larger volumes during the holiday season. When holiday shipments are combined with seasonal products, our sales during the months of August through November are generally at a higher level than during the other months of the year. In addition to the seasonal fluctuations in sales, we experience seasonality in gross profit, as margins realized on fan products tend to be lower than those realized on kitchen electrics and other home environment products.

On February 5, 1999, we completed the acquisition of The Rival Company, a leading developer, manufacturer and marketer of a variety of products including small kitchen, home environment and personal care appliances. In connection with this acquisition, we issued $31.3 million of senior subordinated notes due in November 2007, bearing interest at 9 7/8% (the Notes), amended and restated our existing $100.0 million credit facility (the Credit Facility) to provide for a total availability of $325.0 million, and sold $50.0 million of common stock in a private placement. As a result, we had a significantly higher level of borrowing and a corresponding higher level of interest expense than in the past.

Holmes had completed a recapitalization transaction in November 1997, in which it issued $105 million of senior subordinated notes due in November 2007, bearing interest at 9 7/8%, and entered into a $100 million line of credit facility, of which approximately $27.5 million was initially drawn. The proceeds of these borrowings were used to repay all existing indebtedness (primarily a line of credit and other current debt facilities) and redeem a significant portion of the previous majority shareholder’s common stock.

COMPARISON OF THREE MONTH PERIODS ENDED JUNE 30, 2002 AND JUNE 30, 2001

Net Sales. Net sales for the second quarter of fiscal 2002 were $131.9 million compared to $128.6 million for the second quarter of fiscal 2001, an increase of $3.3 million or 2.6%. Excluding shipments from the Pollenex division, which was sold in January 2002, net sales increased $6.9 million or 5.5%. This was primarily due to increased shipments of kitchen electric products over the corresponding period of 2001. A decline in home environment shipments, mainly in the fan, heater, humidifier and lighting categories, partially offset the increase in kitchen electric shipments. Lower product returns versus the second quarter of 2001 also contributed to the increase in net sales.

Gross Profit. Gross profit for the second quarter of 2002 was $32.3 million compared to $26.9 million for the second quarter of 2001, an increase of $5.4 million or 20.0%. As a percentage of net sales, gross profit increased to 24.5% for the second quarter of 2002 from 20.9% for the second quarter of 2001. The primary reason for improvement in gross profit was the increase in kitchen electrics volume as noted above in net sales as well as improved product gross margins as compared to the second quarter of 2001. This was offset in part by higher discounts and allowances during the second quarter of 2002 versus 2001.

Selling Expenses. Selling expenses for the second quarter of 2002 were $14.5 million compared to $13.0 million for the second quarter of 2001, an increase of $1.5 million or 11.5%. As a percentage of net sales, selling expenses increased to 11.0% for the second quarter of 2002 from 10.1% for the second quarter of 2001. The increase was due to increases in a number of selling expenses including salaries and temporary help and other payroll related expenses, group health insurance and selling commissions.

General and Administrative Expenses. General and administrative expenses for the second quarter of 2002 were $9.7 million compared to $10.6 million for the second quarter of 2001, a decrease of $0.6 million or 5.7%. As a percentage of net sales, general and administrative expenses decreased to 7.6% for the second quarter of 2002 from 8.2% for the second quarter of 2001. The decrease in general and administrative expense was attributable to a number of factors including a reduction in bank and consulting fees associated with the March 22, 2002 amended credit facility versus those associated with the amendment negotiated during the second quarter of 2001.

Product Development Expenses. Product development expenses for the second quarter of 2002 were $2.5 million compared to $2.3 million for the second quarter of 2001, an increase of $0.2 million or 8.7%. The expenditures in 2002 relate to the development of a number of new products across all the product lines.

Restructuring Costs. There were no restructuring costs during the second quarter of 2002. Restructuring costs for 2001 were related to the closure of the Sedalia, Missouri manufacturing plant announced in June 2001. The costs were made up of certain employee termination benefits and property, plant and equipment write-downs.

Other (Income) Expense. Other (income) expense for the second quarter of 2002 was $7.9 million compared to $11.1 million for the second quarter of 2001. Interest expense was $7.1 million for the second quarter of 2002 versus $11.4 million for the second quarter of 2001, a decrease of $4.3 million or 37.7%. The decrease was due to lower overall debt levels and lower interest rates during the quarter versus the prior year. Other income (expense) was $(0.7) million for the second quarter of 2002 versus income of $0.3 million for the second quarter of 2001. The 2002 expense represents foreign exchange losses during the quarter.

Income Tax Expense (Benefit). The income tax expense (benefit) for the second quarter of 2002 was a benefit of $(2.0) million compared to an expense of $1.2 million in 2001. The Company recorded a benefit in the second quarter of 2002 due to the Company’s final assessment of tax law changes with respect to net operating loss carrybacks, that will allow the Company to recoup previously paid taxes.

Equity in Earnings from Joint Venture. We recorded $0.7 million in equity in earnings from our joint venture with General Electric in the second quarter of 2002 and 2001.

Net Income. As a result of the foregoing factors, our net income for the second quarter of 2002 was $0.3 million, compared to a net loss of $12.5 million in the second quarter of 2001.

COMPARISON OF SIX MONTH PERIODS ENDED JUNE 30, 2002 AND JUNE 30, 2001

Net Sales. Net sales for the first half of fiscal 2002 were $249.3 million compared to $253.9 million for the first half of fiscal 2001, a decrease of $4.6 million or 1.8%. Excluding shipments from the Pollenex division, which was sold in January 2002, net sales increased $2.4 million or 1.0%. This was primarily due to shipments of kitchen electric products continuing to show a significant increase over the corresponding period of 2001. The kitchen increase was offset in part by lower home environment shipments mainly in the fan, heater and humidifier categories. Fan shipments were impacted by the higher carryover inventory that retailers had from the 2001 season and heaters and humidifiers were affected by the warmer winter weather during the first half of 2002.

Gross Profit. Gross profit for the first half of 2002 was $60.8 million compared to $58.3 million for the first half of 2001, an increase of $2.5 million or 4.3%. As a percentage of net sales, gross profit increased to 24.4% for the first half of 2002 from 23.0% for the first half of 2001. Gross profit improved primarily because of the increase in kitchen electrics volume as noted above as well as improved product gross margins as compared with the first half of 2001. Lower returns during the first half of 2002 versus 2001 also positively impacted gross profit. However, partially offsetting the kitchen increases were higher discounts and allowances in the first half of 2002 versus 2001.

Selling Expenses. Selling expenses for the first half of 2002 were $26.5 million compared to $27.2 million for the first half of 2001, a decrease of $0.7 million or 2.6%. As a percentage of net sales, selling expenses decreased to 10.6% for the first half of 2002 from 10.7% for the first half of 2001. The decrease was due to reductions in a number of sales and marketing expenses including sales packaging, telephone and sales samples.

General and Administrative Expenses. General and administrative expenses for the first half of 2002 were $20.4 million compared to $19.0 million for the first half of 2001, an increase of $1.7 million or 8.9%. As a percentage of net sales, general and administrative expenses increased to 8.3% for the first half of 2002 from 7.5% for the first half of 2001. The increase in general and administrative expense was attributable to a number of factors including insurance expense, information technology costs related to a major system implementation, warranty and product liability costs and pension expense. The total system implementation costs expensed year to date are approximately $2.3 million.

Product Development Expenses. Product development expenses for the first half of 2002 were $4.8 million compared to $4.9 million for the first half of 2001, a decrease of $0.1 million or 2.0%. The expenditures in 2002 relate to the development of a number of new products across all the product lines.

Restructuring Costs. Restructuring costs for the first half of 2002 were $1.8 million. These costs related to the closing of the Sedalia, Missouri distribution center announced in January 2002. The costs were made up of the write-down of redundant property, plant and equipment and facility exit costs. The activities of the distribution center were relocated to other facilities in Missouri and California during the second quarter of 2002.

Other (Income) Expense. Other (income) expense for the first half of 2002 was $5.7 million compared to $20.4 million for the first half of 2001. Interest expense was $15.1 million for the first half of 2002 versus $20.7 million for the first half of 2001, a decrease of $5.6 million or 27.1%. The decrease was due to lower overall debt levels and lower interest rates during the first half of 2002 versus the prior year. Interest expense for the first half of 2002 included a non-cash charge of $1.4 million for deferred financing fees associated with the amended credit facility. The non-cash charge for the first half of 2001 was $0.8 million. Other income was $9.4 million for the first half of 2002 versus $0.3 million for the first half of 2001. The 2002 amount represents the gain on the sale of the Pollenex division in January 2002 of $9.1 million with the remainder primarily related to foreign exchange gains.

Income Tax Expense (Benefit). The income tax expense (benefit) for the first half of 2002 was a benefit of $(3.4) million compared to an expense of $2.4 million in 2001. The Company recorded a benefit in the first half of 2002 due to the Company’s final assessment of tax law changes with respect to net operating loss carrybacks, that will allow the Company to recoup previously paid taxes.

Equity in Earnings from Joint Venture. We recorded $1.3 million in equity in earnings from our joint venture with General Electric in the first half of 2002 versus $1.4 million in 2001.

Extraordinary Gain. In March 2002, the Company repurchased $36.2 million face amount of its senior subordinated notes. The purchase price was $11.5 million plus accrued interest, which was funded with proceeds of the revolving credit loan B. The Notes repurchased were retired and cancelled. This resulted in an extraordinary gain on the early retirement of debt of $22.4 million that was recorded in the consolidated statement of operations for the six months ended June 30, 2002. This gain is net of the write-off of approximately $1.9 million of debt issuance costs and $0.3 million of debt issuance discount associated with the senior subordinated notes and $0.1 million of transaction fees. A provision for income taxes has not been recorded in connection with this transaction as the Company expects to offset the gain with available net operating loss carryforwards.

Net Income. As a result of the foregoing factors, our net income for the first half of 2002 was $28.4 million, compared to a net loss of $17.0 million in the first half of 2001.

LIQUIDITY AND CAPITAL RESOURCES

Analysis of Cash Flows

Following the recapitalization transaction in November 1997 and the Rival acquisition in February 1999, we have funded our liquidity requirements with cash flows from operations and borrowings under the Credit Facility. Our primary liquidity requirements are for working capital and to service our indebtedness. While there can be no assurance, we believe that existing cash resources, cash flows from operations and borrowings under the recently amended Credit Facility will be sufficient to meet our liquidity needs for the next twelve months, during which time we will continue to carefully evaluate our financing requirements.

Holmes’ cash and cash equivalents decreased to $5.8 million at June 30, 2002, from $10.1 million at December 31, 2001. The decrease resulted primarily from $52.3 million used for financing activities partially offset by the cash provided by investing and operating activities of $48.0 million.

Cash provided by operations for the six months ended June 30, 2002 and 2001 was $39.1 million and $12.7 million, respectively. Cash provided by operations for 2002 consisted primarily of $6.4 million from net income adjusted for non-cash items and increased by $32.7 million provided by working capital activities. Net cash provided by working capital activities resulted from a decline in accounts receivable primarily due to collections on the heavy sales from the fourth quarter of 2001 and increases in accounts payable and accrued expenses from working capital management, offset in part by an increase in inventory due to the timing of some seasonal shipments.

Cash provided by (used for) investing activities for the six months ended June 30, 2002 was $9.1 million compared to $(5.2) million in 2001. Included in 2002 was $15.1 million in proceeds received in connection with the sale of the Pollenex division. The proceeds were offset by $7.5 million invested in capital expenditures for property, plant and equipment. These expenditures included approximately $2.9 million to in-process capital expenditures related to the system implementation during the first six months of 2002. We received $1.5 million in earnings distributions from the joint venture. We expect to spend approximately $15 million on capital expenditures in 2002, primarily related to the expansion of our China manufacturing facilities, system implementation and on-going tooling costs to support product development needs.

Cash used for financing activities for the six months ended June 30, 2002 and 2001 was $(52.3) million and $(7.5) million, respectively. Cash used for financing in 2002 reflected repayments on the revolving line of credit using cash flow from operations and also the repurchase of a portion of the outstanding senior subordinated notes and debt issuance costs associated with the March 2002 Credit Facility amendment.

Financing Arrangements.

We issued $105.0 million of 9 7/8% Senior Subordinated Notes due November 2007 (the Notes) in November 1997, and an additional $31.3 million of Notes in February, 1999. While we may repurchase Notes from time to time in open market or privately negotiated transactions, the Notes are not redeemable at our option prior to November 15, 2002. Thereafter, the Notes are subject to redemption at any time at our option, in whole or in part, at stated redemption prices. Annual interest payments on the Notes are approximately $9.8 million. The payment of principal and interest on the Notes is subordinated to the prior payment in full of all of our senior debt, including borrowings under the Credit Facility. The notes are cross-defaulted to payment defaults under the Credit Facility.

We entered into the amended and restated Credit Facility agreement in February 1999 in connection with the Rival acquisition. This Credit Facility consisted of a tranche A term loan of $40.0 million that matures February 5, 2005, a tranche B term loan of $85.0 million that matures February 5, 2007 and a revolving credit facility that matures February 5, 2005. The Credit Facility bears interest at variable rates based on either the prime rate or eurodollar rate at our option, plus a margin which, in the case of the tranche A term loan and a portion of the revolving credit facility, varies depending upon certain financial ratios. The Credit Facility, and the guarantees thereof by our domestic subsidiaries, are secured by substantially all of our domestic and certain foreign assets. The Credit Facility is cross-defaulted to the Notes Indentures.

On May 7, 2001, the Credit Facility was further amended (the Fourth Amendment) to revise certain of the financial ratio covenants and change the maximum availability. As partial consideration for the amendments, we issued warrants to the lenders to acquire up to 5% of Holmes’ common stock on a fully-diluted basis. The warrants are exercisable at a price of $5.04 per share, and expire May 7, 2006. Additionally, investment funds affiliated with Berkshire Partners, our majority stockholder, agreed to provide an aggregate $43.5 million guarantee in support of the increased revolving credit commitment.

On March 22, 2002, Holmes and the lending group under the Credit Facility agreed to a Fifth Amendment to the Credit Facility. The Fifth Amendment revised certain of the financial ratio covenants for the periods ending December 31, 2001 through June 30, 2004, in order to reflect our current business plan and to accommodate the $14.1 million bad debt charge in the fourth quarter of 2001 relating to outstanding receivables from Kmart. Under the Fifth Amendment, the lenders have committed to a revolving credit loan A of $131 million and a revolving credit loan B of $40 million. Revolving credit loan B continues to be supported by the Berkshire Partners’ guarantee entered into in connection with the Fourth Amendment. Actual availability under these revolving credit facilities is subject to a borrowing base formula based on inventory and accounts receivable. Under the Fifth Amendment, the maturity date of the revolving credit loan B was extended from July 1, 2002 through July 1, 2004. The maturity date of the revolving credit loan A and the tranche A term loan remain at February 5, 2005, although the availability under the revolving credit loan A commitment will terminate on July 1, 2004 unless otherwise approved by a majority in interest of the lenders. The maturity date of the tranche B term loan remains at February 5, 2007. As part of the Fifth Amendment, the applicable interest rate margins on the revolving credit loan B were reduced, while the margins on the revolving credit loan A and the tranche A and tranche B term loans were increased.

Availability under the revolving credit facility is reduced by outstanding letters of credit. As of June 30, 2002, our availability was $49.8 million, net of outstanding letters of credit totaling $9.7 million. The Credit Facility bears interest at variable rates based on either the prime rate or eurodollar rate, at our option, plus a margin which, in the case of the tranche A term loan and the revolving credit facility, varies depending upon certain financial ratios. The Credit Facility, and the guarantees thereof by our domestic subsidiaries, are secured by substantially all of our domestic and certain foreign assets. The Credit Facility is cross-defaulted to the Notes Indentures.

In conjunction with the Fifth Amendment, Holmes repurchased from two Berkshire Partners’ investment funds an aggregate principal amount of approximately $36.2 million of the Notes. The purchase price of the Notes, representing Berkshire Partners’ cost, was $11.5 million plus accrued interest, which was funded with proceeds of the revolving credit loan B. The Notes repurchased were retired and cancelled. This resulted in an extraordinary gain on the early retirement of debt of $22.4 million that was recorded in the consolidated statement of operations for the six months ended June 30, 2002. This gain is net of the write-off of approximately $1.9 million of debt issuance costs and $0.3 million of debt issuance discount associated with the senior subordinated notes and $0.1 million of transaction fees. A provision for income taxes has not been recorded in connection with this transaction as the Company expects to offset the gain with available net operating loss carryforwards. The Company may consider repurchases of additional Notes in the future, and we may utilize the proceeds of the Credit Facility for this purpose. As of June 30, 2002, $99.5 million of Senior Subordinated Notes were outstanding, due November 2007.

The Credit Facility, as amended, and the Notes Indentures include certain financial and operating covenants which, among other things, restrict our ability to incur additional indebtedness, make investments and take certain other actions. Our ability to meet our debt service obligations will be dependent upon the future performance, which will be impacted by general economic conditions and other factors. See “Forward-Looking Statements.”

FORWARD-LOOKING STATEMENTS

All statements, other than statements of historical fact, included in this quarterly report, are or may be forward-looking statements within the meaning of Section 27A of the Securities Act of 1933, as amended, and Section 21E of the Securities Exchange Act of 1934, as amended. Without limiting the foregoing, the words “believes,” “anticipates,” “plans,” “intends,” “expects,” and similar expressions are intended to identify forward-looking statements. Various economic and competitive factors could cause actual results or events to differ materially from those discussed in such forward-looking statements, including without limitation, our degree of leverage (including the need to comply with covenants in our various financing agreements), our dependence on major customers and key personnel, the integration of the Rival acquisition (as described herein), competition, risks associated with foreign manufacturing, risks of the retail industry, potential product liability claims, the cost of labor and raw materials and the other factors which are discussed in our most recent Registration Statement on Form S-4 (File No. 333-77905), and from time to time in our reports filed with the Securities and Exchange Commission. Accordingly, such forward-looking statements do not purport to be predictions of future events or circumstances and may not be realized.

RECENTLY ISSUED ACCOUNTING STANDARDS

The Company’s application of the non-amortization provisions of FAS 142 will result in an increase in net earnings of approximately $2.5 million per year. For the three and six months ended June 30, 2001, the Company’s net loss, adjusted for $0.7 million and $1.3 million of amortization expense recorded in the consolidated statement of operations, which is no longer being amortized in accordance with the provisions of FAS 142, is approximately $11.8 million and $15.7 million, respectively. In connection with the adoption of FAS 142, the Company does not expect to record any reclassifications to its goodwill balance. FAS 142 requires that goodwill be tested annually for impairment using a two-step process. The first step is to identify a potential impairment and, in transition, this step must be measured as of the beginning of the fiscal year. Under the implementation provisions of FAS 142, the Company had until June 30, 2002 to complete step one. The second step of the goodwill impairment test measures the amount of the impairment loss, if any, and must be completed as soon as possible but no later than the end of fiscal 2002. The Company has completed step one of the goodwill impairment test during the second quarter of 2002 and has determined that goodwill associated with the kitchen and home environment reporting units is significantly impaired under FAS 142. This impairment loss will be reflected as the cumulative effect of a change in accounting principle as of January 1, 2002. Impairment losses recognized subsequent to the initial adoption of FAS 142 will be recorded as a charge to current period earnings.

As of June 30, 2002, the Company had goodwill of approximately $80 million which is subject to the transitional goodwill impairment test. The Company has identified its reporting units and is in the process of allocating goodwill, other assets and liabilities to those reporting units. The Company’s reporting units, which include a recorded goodwill balance, are home environment and kitchen. These reporting units are recorded within the consumer durables segment as reported in Note 8 of the consolidated financial statements.

In November 2001, the Financial Accounting Standards Board (“FASB”) Emerging Issues Task Force (“EITF”) reached a consensus on Issue No. 01-9 (formerly EITF Issue 00-25), “Accounting for Consideration Given to a Customer or a Reseller of the Vendor’s Products.” This issue addresses the recognition, measurement and income statement classification of consideration from a vendor to a customer in connection with the customer’s purchase or promotion of the vendor’s products. This consensus only impacts revenue and expense classifications and does not change reported net income. In accordance with the consensus reached, the Company adopted the required accounting as of January 1, 2002, and reclassified as deductions from net sales approximately $2.3 million and $4.3 million of cooperative advertising expenses which were previously classified as selling expenses in the consolidated statement of operations for the three and six months ended June 30, 2001, respectively.

The FASB issued Statement No. 145, “Rescission of FASB Statements No. 4, 44 and 64, Amendment of FASB Statement No. 13, and Technical Corrections” (“FAS No. 145”) in April 2002. This statement updates, clarifies and simplifies existing accounting pronouncements. Specifically, the statement rescinds FASB Statement No. 4, “Reporting Gains and Losses from Extinguishment of Debt” (“FAS No. 4”), FASB Statement No. 64, “Extinguishment of Debt Made to Satisfy, Sinking Fund Requirements” (“FAS No. 64”) and FASB Statement No. 44 “Accounting for Intangible Assets of Motor Carriers.” This statement amends FASB Statement No. 13, “Accounting for Leases” (“FAS No. 13”) and certain other existing authoritative pronouncements to make technical corrections or clarifications. FAS No. 145 will be effective for the Company related to the rescission of FAS No. 4 and FAS No. 64 on January 1, 2003. FAS No. 145 will be effective related to the amendment of FAS No. 13 for all transactions occurring after May 15, 2002. All other provisions of FAS No. 145 will be effective for financial statements issued after May 15, 2002. The Company is currently evaluating the effect of implementing FAS No. 145.

ITEM 3. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK

At June 30, 2002, the carrying value of our debt totaled $278.2 million. The fair value approximated $253.3 million. This debt includes amounts at both fixed and variable interest rates. For fixed rate debt, interest rate changes affect the fair market value but do not impact earnings or cash flows. Conversely, for variable rate debt, interest rate changes generally do not affect the fair market value but do impact earnings and cash flows, assuming other factors are held constant.

At June 30, 2002, the Company had fixed rate debt of $99.5 million and variable rate debt of $178.7 million. Assuming a constant debt level, a one percentage point decrease in interest rates would increase the unrealized fair market value of fixed rate debt by approximately $5.3 million. Based on the amounts of variable rate debt outstanding at June 30, 2002, the earnings and cash flows impact for the next year resulting from a one percentage point increase in interest rates would be approximately $1.8 million, holding other variables constant.

PART II. OTHER INFORMATION

ITEM 1. LEGAL PROCEEDINGS

We are involved in various legal proceedings incident to our normal business operations, including product liability and patent and trademark litigation. Management believes that the outcome of such litigation will not have a material adverse effect on our business, financial condition or results of operations. We have product liability and general liability insurance policies in amounts management believes to be reasonable. There can be no assurance, however, that such insurance will be adequate to cover all potential product or other liability claims against us. We also face exposure to voluntary or mandatory product recalls in the event that our products are alleged to have manufacturing or safety defects. We do not maintain product recall insurance.

ITEM 2. CHANGES IN SECURITIES AND USE OF PROCEEDS

Not applicable

ITEM 3. DEFAULTS UPON SENIOR SECURITIES

Not applicable

ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS

At the Annual Meeting of Stockholders held on May 20, 2002, the stockholders of the Company (there being no abstentions or broker non-votes) elected each of Messrs. Jordan A. Kahn, Woon Fai (Tommy) Liu, Richard K. Lubin, Peter J. Martin, Fred J. Musone, Randy Peeler, and Gregory F. White to serve as directors for a term expiring at the Company’s next annual meeting by the following votes:


Nominee	Votes For		Votes Withheld

Jordan A. Kahn		19,183,465		0




Woon Fai Liu		19,183,465		0




Richard K. Lubin		19,183,465		0




Peter J. Martin		19,183,465		0




Fred J. Musone		19,183,465		0




Randy Peeler		19,183,465		0




Gregory F. White		19,183,465		0

ITEM 5. OTHER INFORMATION

Investor Conference Call

We will hold a telephone conference call on August 22, 2002 at 10 a.m., Eastern time in order for investors and other interested stakeholders to hear management’s views on our results of operations during the first half of 2002. If you are interested in accessing the call in listen-only mode, please fax the following information to Kay Ford, Executive Assistant, at 508-422-1676:

•		Name of Participant(s)

•		Company Affiliation

•		Nature of Business

•		Address

•		Phone, Fax and E-mail

ITEM 6. EXHIBITS AND REPORTS ON FORM 8-K

Exhibits:

Not applicable

Reports on Form 8-K:

Not applicable

SIGNATURES

Pursuant to the requirements of the Securities Exchange Act of 1934, the registrant has duly caused this report to be signed on its behalf by the undersigned, thereunto duly authorized.

THE HOLMES GROUP, INC.
Registrant


	August 14, 2002		By: /s/ Peter J. Martin




			Peter J. Martin, President and




			Chief Executive Officer




			(Principal Executive Officer)
















	August 14, 2002		By: /s/ John M. Kelliher




			John M. Kelliher, Senior Vice President and Chief




			Financial Officer




			(Principal Financial and




			Accounting Officer)

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Table of Contents

Table of Contents

Table of Contents

Table of Contents

Table of Contents

Table of Contents

Table of Contents

Table of Contents

Table of Contents

Table of Contents

HOLMES GROUP INC 10-Q