##### Table of Contents



UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
 Washington, D.C. 20549
 FORM 10-Q
 þ
    
    QUARTERLY REPORT PURSUANT TO SECTION 13 or 15(d)
OF THE SECURITIES EXCHANGE ACT OF 1934
 For the Quarterly Period Ended July 2, 2005
 or
 o
    
    TRANSITION REPORT PURSUANT TO SECTION 13 or 15(d)
OF THE SECURITIES EXCHANGE ACT OF 1934
 Commission
file number 0-17237
 HOME PRODUCTS INTERNATIONAL, INC.
  Delaware
    
    36-4147027(State or other jurisdiction of
    
    (I.R.S. Employerincorporation or organization)
    
    Identification No.)4501 West 47th StreetChicago, Illinois
    
    60632(Address of principal
    
    (Zip Code)executive offices)
  þ o
 o þ
 o þ




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PageNumberPart I.
    
    Financial InformationItem 1. Financial StatementsCondensed Consolidated Balance Sheets
    
    3Condensed Consolidated Statements of Operations
    
    4Condensed Consolidated Statements of Cash Flows
    
    5Notes to Condensed Consolidated Financial Statements
    
    6Item 2.
Managements Discussion and Analysis of Financial Condition and Results of Operations
    
    13Item 3. Quantitative and Qualitative Disclosures About Market Risk
    
    26Item 4. Controls and Procedures
    
    26Part II.
    
    Other InformationItem 1. Legal Proceedings
    
    27Item 2. Unregistered Sales of Equity Securities and Use of Proceeds
    
    28Item 3. Defaults Upon Senior Securities
    
    28Item 4. Submission of Matters to a Vote of Security Holders
    
    28Item 5. Other Information
    
    28Item 6. Exhibits
    
    28Signatures
    
    
    
    29Amended and Restated By-Laws of the CompanyCertification of CEOCertification of CFO
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##### Table of Contents



PART I. FINANCIAL INFORMATION
 
 Item 1. Financial Statements
 HOME PRODUCTS INTERNATIONAL, INC.
 
 Condensed Consolidated Balance Sheets
 July 2,
    
    January 1,2005
    
    2005As
RestatedAssetsCurrent assets:Cash and cash equivalents
    
    $
    414
    
    
    $
    1,146Accounts receivable, net
    
    
    38,512
    
    
    
    51,473Inventories
    
    
    33,051
    
    
    
    30,292Prepaid expenses and other current assets
    
    
    1,432
    
    
    
    2,787Total current assets
    
    
    73,409
    
    
    
    85,698Property, plant and equipment  at cost
    
    
    94,831
    
    
    
    95,419Less accumulated depreciation
    
    
    (66,183
    )
    
    
    (63,951
    )Property, plant and equipment, net
    
    
    28,648
    
    
    
    31,468Other intangibles, net
    
    
    51
    
    
    
    100Goodwill, net
    
    
    72,780
    
    
    
    73,182Other non-current assets
    
    
    2,107
    
    
    
    1,865Total assets
    
    $
    176,995
    
    
    $
    192,313Liabilities and Stockholders DeficitCurrent liabilities:Revolving line of credit and other current debt
    
    $
    20,336
    
    
    $
    25,091Accounts payable
    
    
    22,580
    
    
    
    25,723Accrued liabilities
    
    
    15,819
    
    
    
    14,450Total current liabilities
    
    
    58,735
    
    
    
    65,264Long-term obligations  net of current debt
    
    
    120,624
    
    
    
    120,655Deferred tax liability
    
    
    4,282
    
    
    
    2,852Other liabilities
    
    
    4,557
    
    
    
    4,449Total liabilities
    
    
    188,198
    
    
    
    193,220Stockholders
deficit:Preferred Stock  authorized, 500,000 shares, $.01 par value;  None issued
    
    
    
    
    
    
    Common Stock  authorized 15,000,000 shares, $.01 par value; 8,964,761 shares
issued at July 2, 2005 and January 1, 2005
    
    
    90
    
    
    
    90Additional paid-in capital
    
    
    50,677
    
    
    
    50,677Accumulated deficit
    
    
    (55,469
    )
    
    
    (45,173
    )Common stock held in treasury  at cost; 810,174 shares at July 2, 2005 and
January 1, 2005
    
    
    (6,501
    )
    
    
    (6,501
    )Total stockholders deficit
    
    
    (11,203
    )
    
    
    (907
    )Total
liabilities and stockholders deficit
    
    $
    176,995
    
    
    $
    192,313
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HOME PRODUCTS INTERNATIONAL, INC.
 
 Condensed Consolidated Statements of Operations
 Thirteen weeks
    
    Twenty-six weeksended
    
    endedJune 26,
    
    
    
    June 26,July 2,

    2004

    July 2,

    20042005
    

As
restated
    
    2005
    

As
restatedNet sales
    
    $
    56,555
    
    
    $
    64,206
    
    
    $
    107,946
    
    
    $
    117,396Cost of goods sold
    
    
    49,320
    
    
    
    53,537
    
    
    
    94,427
    
    
    
    96,870Gross profit
    
    
    7,235
    
    
    
    10,669
    
    
    
    13,519
    
    
    
    20,526Operating expenses:Selling and marketing
    
    
    4,061
    
    
    
    3,811
    
    
    
    7,857
    
    
    
    7,487General and administrative
    
    
    3,292
    
    
    
    3,561
    
    
    
    7,177
    
    
    
    6,281Shareholder transaction costs
    
    
    190
    
    
    
    488
    
    
    
    308
    
    
    
    761Amortization of intangible assets
    
    
    24
    
    
    
    124
    
    
    
    49
    
    
    
    248Operating profit (loss)
    
    
    (332
    )
    
    
    2,685
    
    
    
    (1,872
    )
    
    
    5,749Non-operating income (expense):Interest income
    
    
    
    
    
    
    1
    
    
    
    
    
    
    
    4Interest expense
    
    
    (3,475
    )
    
    
    (3,274
    )
    
    
    (6,961
    )
    
    
    (6,529
    )Other income (expense), net
    
    
    (6
    )
    
    
    29
    
    
    
    (19
    )
    
    
    21Net non-operating expense
    
    
    (3,481
    )
    
    
    (3,244
    )
    
    
    (6,980
    )
    
    
    (6,504
    )Loss before income taxes
    
    
    (3,813
    )
    
    
    (559
    )
    
    
    (8,852
    )
    
    
    (755
    )Income tax expense
    
    
    (718
    )
    
    
    (723
    )
    
    
    (1,444
    )
    
    
    (1,443
    )Net loss
    
    $
    (4,531
    )
    
    $
    (1,282
    )
    
    $
    (10,296
    )
    
    $
    (2,198
    )Net loss per common share:Basic
    
    $
    (0.56
    )
    
    $
    (0.16
    )
    
    $
    (1.26
    )
    
    $
    (0.28
    )Diluted
    
    $
    (0.56
    )
    
    $
    (0.16
    )
    
    $
    (1.26
    )
    
    $
    (0.28
    )Weighted average common shares outstanding-basic
    
    
    8,154,587
    
    
    
    7,986,614
    
    
    
    8,154,587
    
    
    
    7,986,585Weighted average common shares outstanding-diluted
    
    
    8,154,587
    
    
    
    7,986,614
    
    
    
    8,154,587
    
    
    
    7,986,585
  4




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##### Table of Contents



HOME PRODUCTS INTERNATIONAL, INC.
 
 Condensed Consolidated Statements of Cash Flows
 Twenty-six weeks endedJune 26,July 2,
    

20042005
    

As
restatedOperating activities:Net loss
    
    $
    (10,296
    )

    
    $
    (2,198
    )Adjustments to reconcile net loss to net
cash provided by operating activities:Depreciation and amortization
    
    
    3,904
    
    
    
    4,369Noncash gain on insurance settlement
    
    
    
    
    
    
    (150
    )Deferred income taxes
    
    
    1,430
    
    
    
    1,426Loss on the disposal of assets
    
    
    13
    
    
    
    6Changes in working capital:Decrease in accounts receivable
    
    
    12,961
    
    
    
    5,302Increase in inventories
    
    
    (2,759
    )
    
    
    (14,976
    )(Increase) decrease in other current assets
    
    
    1,355
    
    
    
    (363
    )(Decrease) increase in accounts payable
    
    
    (3,143
    )
    
    
    6,688Increase (decrease) in accrued liabilities
    
    
    1,369
    
    
    
    (1,581
    )Other non current assets
    
    
    (242
    )
    
    
    2,036Other long term liabilities
    
    
    108
    
    
    
    474Other, net
    
    
    
    
    
    
    551Net cash provided by operating activities
    
    
    4,700
    
    
    
    1,584Investing activities:Settlement of environmental escrow
    
    
    402
    
    
    
    Capital expenditures
    
    
    (1,048
    )
    
    
    (3,627
    )Net cash used in investing activities
    
    
    (646
    )
    
    
    (3,627
    )Financing activities:Net borrowings (repayments) under loan and security agreement
    
    
    (4,740
    )
    
    
    1,710Payments of capital lease obligation
    
    
    (46
    )
    
    
    (61
    )Exercise of stock options, issuance of common stock under
stock purchase plan and other
    
    
    
    
    
    
    8Net cash (used in) provided by financing activities
    
    
    (4,786
    )
    
    
    1,657Net decrease in cash and cash equivalents
    
    
    (732
    )
    
    
    (386
    )Cash and cash equivalents at beginning of period
    
    
    1,146
    
    
    
    797Cash and cash equivalents at end of period
    
    $
    414
    
    
    $
    411Supplemental disclosuresCash paid in the period:Interest
    
    $
    6,656
    
    
    $
    6,207Income taxes
    
    $
    5
    
    
    $
    23
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##### Table of Contents



HOME PRODUCTS INTERNATIONAL, INC.
 
 Notes to Condensed Consolidated Financial Statements
 Note 1. Summary of Significant Accounting Policies
 The Company
  Financial Statement Presentation
    Use of Estimates
  Reclassifications
  Recent Accounting Pronouncements
   6




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##### Table of Contents



Note
2. Restatement
   See item (a) in the following summary tables for adjustments by year and
quarter).
  See item (b)
in the following summary tables for adjustments by year and quarter).
 See item (c) in the following summary tables for
adjustments by year and quarter).
   Condensed Consolidated
Statements of Operations(In thousands, except per share data)As PreviouslyThirteen
weeks ended April 2, 2005 (Restated):
    
    Reported
    
    
    Adjustments
    
    
    As RestatedIncome tax expense
    
    $
    (11
    )
    
    $
    (715
    )(a)
    
    $
    (726
    )Net loss
    
    $
    (5,050
    )
    
    $
    (715
    )(a)
    
    $
    (5,765
    )Net loss per common share:Basic and Diluted
    
    $
    (0.62
    )
    
    $
    (0.09
    )(a)
    
    $
    (0.71
    )
 As PreviouslyFiscal
year ended January 1, 2005 (Restated):
    
    Reported
    
    
    Adjustments
    
    
    As RestatedCost of goods sold
    
    $
    214,854
    
    
    $
    250
    (b)
    
    $
    215,337$
    233
    (c)$
    483Gross profit
    
    $
    45,423
    
    
    $
    (250
    )(b)
    
    $
    44,940$
    (233
    )(c)$
    (483
    )Operating profit
    
    $
    9,013
    
    
    $
    (250
    )(b)
    
    $
    8,530$
    (233
    )(c)$
    (483
    )Other income, net
    
    $
    
    
    
    $
    10
    (c)
    
    $
    10Loss before income taxes
    
    $
    (4,520
    )
    
    $
    (250
    )(b)
    
    $
    (4,993
    )$
    (233
    )(c)$
    10
    (c)$
    (473
    )Income tax expense
    
    $
    (33
    )
    
    $
    (2,852
    )(a)
    
    $
    (2,885
    )Net loss
    
    $
    (4,553
    )
    
    $
    (2,852
    )(a)
    
    $
    (7,878
    )$
    (250
    )(b)$
    (233
    )(c)$
    10
    (c)Net loss per common share:
    
    
    
    
    
    $
    (3,325
    )Basic and Diluted
    
    $
    (0.57
    )
    
    $
    (0.36
    )(a)
    
    $
    (0.99
    )$
    (0.03
    )(b)$
    (0.03
    )(c)$
    (0.42
    )(a)
 As PreviouslyFourteen
weeks ended January 1, 2005 (Restated):
    
    Reported
    
    
    Adjustments
    
    
    As RestatedGross profit
    
    $
    14,425
    
    
    $
    (250
    )(b)
    
    $
    13,942$
    (233
    )(c)$
    (483
    )Net loss
    
    $
    (3,888
    )
    
    $
    (713
    )(a)
    
    $
    (5,074
    )$
    (250
    )(b)$
    (233
    )(c)$
    10
    (c)Net loss per common share:
    
    
    
    
    
    $
    (1,186
    )Basic and Diluted
    
    $
    (0.49
    )
    
    $
    (0.09
    )(a)
    
    $
    (0.64
    )$
    (0.03
    )(b)$
    (0.03
    )(c)$
    (0.15
    )(a)
 As PreviouslyThirteen
and Thirty-nine weeks ended September 25, 2004 (Restated):
    
    Reported
    
    
    Adjustments
    
    
    As RestatedThirteen weeks ended:Income tax expense
    
    $
    (6
    )
    
    $
    (713
    )(a)
    
    $
    (719
    )Net income (loss)
    
    $
    107
    
    
    $
    (713
    )(a)
    
    $
    (606
    )Net income (loss) per common share:Basic and Diluted
    
    $
    0.01
    
    
    $
    (0.09
    )(a)
    
    $
    (0.08
    )Thirty-nine weeks ended:Income tax expense
    
    $
    (23
    )
    
    $
    (2,139
    )(a)
    
    $
    (2,162
    )Net loss
    
    $
    (665
    )
    
    $
    (2,139
    )(a)
    
    $
    (2,804
    )Net loss per common share:Basic and Diluted
    
    $
    (0.08
    )
    
    $
    (0.27
    )(a)
    
    $
    (0.35
    )
 As PreviouslyThirteen
and Twenty-six weeks ended June 26, 2004 (Restated):
    
    Reported
    
    
    Adjustments
    
    
    As RestatedThirteen weeks ended:Income tax expense
    
    $
    (10
    )
    
    $
    (713
    )(a)
    
    $
    (723
    )Net loss
    
    $
    (569
    )
    
    $
    (713
    )(a)
    
    $
    (1,282
    )Net loss per common share:Basic and Diluted
    
    $
    (0.07
    )
    
    $
    (0.09
    )(a)
    
    $
    (0.16
    )Twenty-six weeks ended:Income tax expense
    
    $
    (17
    )
    
    $
    (1,426
    )(a)
    
    $
    (1,443
    )Net loss
    
    $
    (772
    )
    
    $
    (1,426
    )(a)
    
    $
    (2,198
    )Net loss per common share:Basic and Diluted
    
    $
    (0.10
    )
    
    $
    (0.18
    )(a)
    
    $
    (0.28
    )
 As PreviouslyThirteen weeks ended March 27, 2004 (Restated):
    
    Reported
    
    
    Adjustments
    
    
    As RestatedThirteen weeks ended:Income tax expense
    
    $
    (7
    )
    
    $
    (713
    )(a)
    
    $
    (720
    )Net loss
    
    $
    (203
    )
    
    $
    (713
    )(a)
    
    $
    (916
    )Net loss per common share:Basic and Diluted
    
    $
    (0.03
    )
    
    $
    (0.09
    )(a)
    
    $
    (0.12
    )
 Condensed Consolidated
Balance Sheets(In thousands)As PreviouslyAs of April 2, 2005 (Restated):
    
    Reported
    
    
    Adjustments
    
    
    As RestatedProperty, plant and equipment  at cost
    
    $
    95,367
    
    
    $
    58
    (c)
    
    $
    95,425Accumulated depreciation
    
    $
    (65,383
    )
    
    $
    (233
    )(c)
    
    $
    (65,616
    )Property,
plant and equipment, net
    
    $
    29,984
    
    
    $
    58
    (c)
    
    $
    29,809$
    (233
    )(c)$
    (175
    )Total assets
    
    $
    172,323
    
    
    $
    58
    (c)
    
    $
    172,148$
    (233
    )(c)$
    (175
    )Other liabilities
    
    $
    4,397
    
    
    $
    250
    (b)
    
    $
    4,647Deferred tax
liability
    
    $
    
    
    
    $
    3,567
    (a)
    
    $
    3,567Total liabilities
    
    $
    175,003
    
    
    $
    250
    (b)
    
    $
    178,820$
    3,567
    (a)$
    3,817Accumulated deficit
    
    $
    (46,898
    )
    
    $
    (3,567
    )(a)
    
    $
    (50,938
    )$
    (250
    )(b)$
    (233
    )(c)$
    10
    (c)$
    (4,040
    )Accumulated
other comprehensive loss
    
    $
    (48
    )
    
    $
    48
    (c)
    
    $
    Total
stockholders deficit
    
    $
    (2,680
    )
    
    $
    (3,567
    )(a)
    
    $
    (6,672
    )$
    (250
    )(b)$
    (233
    )(c)$
    58
    (c)$
    (3,992
    )Total
liabilities and stockholders deficit
    
    $
    172,323
    
    
    $
    (175
    )(c)
    
    $
    172,148
 As PreviouslyAs
of January 1, 2005 (Restated):
    
    Reported
    
    
    Adjustments
    
    
    As RestatedProperty, plant and equipment  at cost
    
    $
    95,361
    
    
    $
    58
    (c)
    
    $
    95,419Accumulated depreciation
    
    $
    (63,718
    )
    
    $
    (233
    )(c)
    
    $
    (63,951
    )Property,
plant and equipment, net
    
    $
    31,643
    
    
    $
    58
    (c)
    
    $
    31,468$
    (233
    )(c)$
    (175
    )Total assets
    
    $
    192,488
    
    
    $
    58
    (c)
    
    $
    192,313$
    (233
    )(c)$
    (175
    )Other liabilities
    
    $
    4,199
    
    
    $
    250
    (b)
    
    $
    4,449Deferred tax
liability
    
    $
    
    
    
    $
    2,852
    (a)
    
    $
    2,852Total liabilities
    
    $
    190,118
    
    
    $
    250
    (b)
    
    $
    193,220$
    2,852
    (a)$
    3,102Accumulated deficit
    
    $
    (41,848
    )
    
    $
    (2,852
    )(a)
    
    $
    (45,173
    )$
    (250
    )(b)$
    (233
    )(c)$
    10
    (c)$
    (3,325
    )Accumulated
other comprehensive loss
    
    $
    (48
    )
    
    $
    48
    (c)
    
    $
    Total
stockholders equity (deficit)
    
    $
    2,370
    
    
    $
    (2,852
    )(a)
    
    $
    (907
    )$
    (250
    )(b)$
    (233
    )(c)$
    58
    (c)$
    (3,277
    )Total
liabilities and stockholders equity (deficit)
    
    $
    192,488
    
    
    $
    (175
    )(c)
    
    $
    192,313
 As PreviouslyAs of September 25, 2004 (Restated):
    
    Reported
    
    
    Adjustments
    
    
    As RestatedDeferred tax
liability
    
    $
    
    
    
    $
    2,139
    (a)
    
    $
    2,139Total liabilities
    
    $
    181,649
    
    
    $
    2,139
    (a)
    
    $
    183,788Accumulated deficit
    
    $
    (37,960
    )
    
    $
    (2,139
    )(a)
    
    $
    (40,099
    )Total
stockholders equity
    
    $
    5,667
    
    
    $
    (2,139
    )(a)
    
    $
    3,528Total
liabilities and stockholders equity
    
    $
    187,316
    
    
    $
    
    
    
    $
    187,316
 As PreviouslyAs of June 26, 2004 (Restated):
    
    Reported
    
    
    Adjustments
    
    
    As RestatedDeferred tax
liability
    
    $
    
    
    
    $
    1,426
    (a)
    
    $
    1,426Total liabilities
    
    $
    181,164
    
    
    $
    1,426
    (a)
    
    $
    182,590Accumulated deficit
    
    $
    (38,067
    )
    
    $
    (1,426
    )(a)
    
    $
    (39,493
    )Total
stockholders equity
    
    $
    5,554
    
    
    $
    (1,426
    )(a)
    
    $
    4,128Total
liabilities and stockholders equity
    
    $
    186,718
    
    
    $
    
    
    
    $
    186,718
 As PreviouslyAs of March 27, 2004 (Restated):
    
    Reported
    
    
    Adjustments
    
    
    As RestatedDeferred tax
liability
    
    $
    
    
    
    $
    713
    (a)
    
    $
    713Total liabilities
    
    $
    166,649
    
    
    $
    713
    (a)
    
    $
    167,362Accumulated deficit
    
    $
    (37,498
    )
    
    $
    (713
    )(a)
    
    $
    (38,211
    )Total
stockholders equity
    
    $
    6,132
    
    
    $
    (713
    )(a)
    
    $
    5,419Total
liabilities and stockholders equity
    
    $
    172,781
    
    
    $
    
    
    
    $
    172,781
 Condensed Consolidated Statements of Cash Flows(In thousands)As PreviouslyThirteen
weeks ended April 2, 2005 (Restated):
    
    Reported
    
    
    Adjustments
    
    
    As RestatedNet loss
    
    $
    (5,050
    )
    
    $
    (715
    )(a)
    
    $
    (5,765
    )Deferred income taxes
    
    $
    
    
    
    $
    715
    (a)
    
    $
    715Net cash provided by operating activities
    
    $
    13,388
    
    
    $
    
    
    
    $
    13,388
 Fiscal year ended January 1, 2005 (Fiscal
    
    As Previously2004
RestatedUnaudited):
    
    Reported
    
    
    Adjustments
    
    
    As RestatedNet loss
    
    $
    (4,553
    )
    
    $
    (2,852
    )(a)
    
    $
    (7,878
    )$
    (250
    )(b)$
    (233
    )(c)$
    10
    (c)$
    (3,325
    )Depreciation and amortization
    
    $
    8,698
    
    
    $
    233
    (c)
    
    $
    8,931Deferred income taxes
    
    $
    
    
    
    $
    2,852
    (a)
    
    $
    2,852Other long
term liabilities
    
    $
    213
    
    
    $
    250
    (b)
    
    $
    463Other, net
    
    $
    661
    
    
    $
    (10
    )(c)
    
    $
    651Net cash used for operating activities
    
    $
    (8,030
    )
    
    $
    
    
    
    $
    (8,030
    )
 Thirty-nine weeks ended September 25, 2004
    
    As Previously(Restated):
    
    Reported
    
    
    Adjustments
    
    
    As RestatedNet loss
    
    $
    (665
    )
    
    $
    (2,139
    )(a)
    
    $
    (2,804
    )Deferred income taxes
    
    $
    
    
    
    $
    2,139
    (a)
    
    $
    2,139Net cash provided by operating activities
    
    $
    4,398
    
    
    $
    
    
    
    $
    4,398
 As PreviouslyTwenty-six weeks ended June 26, 2004 (Restated):
    
    Reported
    
    
    Adjustments
    
    
    As RestatedNet loss
    
    $
    (772
    )
    
    $
    (1,426
    )(a)
    
    $
    (2,198
    )Deferred income taxes
    
    $
    
    
    
    $
    1,426
    (a)
    
    $
    1,426Net cash provided by operating activities
    
    $
    1,584
    
    
    $
    
    
    
    $
    1,584
 As PreviouslyThirteen weeks ended March 27, 2004 (Restated):
    
    Reported
    
    
    Adjustments
    
    
    As RestatedNet loss
    
    $
    (203
    )
    
    $
    (713
    )(a)
    
    $
    (916
    )Deferred income taxes
    
    $
    
    
    
    $
    713
    (a)
    
    $
    713Net cash provided by operating activities
    
    $
    13,472
    
    
    $
    
    
    
    $
    13,472
 
 Note 3. Stock-Based Compensation Plans
  Thirteen weeks
    
    Twenty-six weeksended
    
    endedJune 26,
    
    
    
    June 26,July 2,
    
    2004
    
    July 2,
    
    20042005
    
    As Restated
    
    2005
    
    As RestatedNet loss as reported
    
    $
    (4,531
    )
    
    $
    (1,282
    )
    
    $
    (10,296
    )
    
    $
    (2,198
    )Less: total stock-based compensation
expense determined under fair value based
method for all awards
    
    
    (19
    )
    
    
    (31
    )
    
    
    (31
    )
    
    
    (62
    )Pro forma net loss
    
    $
    (4,550
    )
    
    $
    (1,313
    )
    
    $
    (10,327
    )
    
    $
    (2,260
    )Basic net loss per common share  as reported
    
    $
    (0.56
    )
    
    $
    (0.16
    )
    
    $
    (1.26
    )
    
    $
    (0.28
    )Basic net loss per common share  pro forma
    
    $
    (0.56
    )
    
    $
    (0.17
    )
    
    $
    (1.27
    )
    
    $
    (0.28
    )Diluted net loss per common share  as reported
    
    $
    (0.56
    )
    
    $
    (0.16
    )
    
    $
    (1.26
    )
    
    $
    (0.28
    )Diluted net loss per common share  pro forma
    
    $
    (0.56
    )
    
    $
    (0.17
    )
    
    $
    (1.27
    )
    
    $
    (0.28
    )
 7




---



##### Table of Contents



Note 4. Shareholder Transaction
     Thirteen weeks
    
    Twenty-six weeksended
    
    endedJuly 2,
    
    June 26,
    
    July 2,
    
    June 26,2005
    
    2004
    
    2005
    
    2004Legal fees
    
    $
    116
    
    
    $
    228
    
    
    $
    233
    
    
    $
    451Investment banking fees
    
    
    
    
    
    
    232
    
    
    

    
    
    
    
    232Other related costs
    
    
    74
    
    
    
    28
    
    
    
    75
    
    
    
    78Total
    
    $
    190
    
    
    $
    488
    
    
    $
    308
    
    
    $
    761
  Note 5. Eagan Shutdown
    8




---



##### Table of Contents



Note 6. Inventories
  July 2,
    
    January 1,2005
    
    2005Finished goods
    
    $
    23,244
    
    
    $
    19,540Work-in-process
    
    
    1,471
    
    
    
    1,167Raw materials
    
    
    8,336
    
    
    
    9,585$
    33,051
    
    
    $
    30,292
 Note 7. Goodwill and Patents
 Goodwill:
   TotalBalance at January 1, 2005
    
    $
    73,182Settlement of environmental escrow account
    
    
    (402
    )Balance at July 2, 2005
    
    $
    72,780
  Patents:
   As ofJuly 2, 2005Average
    
    Gross
    
    
    
    
    
    NetLife
    
    Carrying
    
    Accumulated
    
    Carrying(Yrs.)
    
    Amount
    
    Amortization
    
    AmountAmortized intangible assets:Patents
    
    
    7 to 14
    
    
    $
    1,008
    
    
    $
    (957
    )
    
    $
    51Total
    
    
    
    
    
    $
    1,008
    
    
    $
    (957
    )
    
    $
    51
 9




---



##### Table of Contents



As ofJanuary 1, 2005Average
    
    Gross
    
    
    
    
    
    NetLife
    
    Carrying
    
    Accumulated
    
    Carrying(Yrs.)
    
    Amount
    
    Amortization
    
    AmountAmortized intangible assets:Patents
    
    
    7 to 14
    
    
    $
    1,008
    
    
    $
    (908
    )
    
    $
    100Total
    
    
    
    
    
    $
    1,008
    
    
    $
    (908
    )
    
    $
    100
  Note 8. Commitments and Contingencies
   , Slattery v. Home Products Intl, Inc.
  10




---



##### Table of Contents



Note 9. Income Taxes
      Note 10. Net Loss Per Share
  Thirteen weeks
    
    Twenty-six weeksended
    
    endedJune 26,
    
    
    
    June 26,July 2,
    
    2004
    
    July 2,
    
    20042005
    
    As restated
    
    2005
    
    As restatedNet loss
    
    $
    (4,531
    )
    
    $
    (1,282
    )
    
    $
    (10,296
    )
    
    $
    (2,198
    )Weighted average shares outstanding  basic
    
    
    8,154,587
    
    
    
    7,986,614
    
    
    
    8,154,587
    
    
    
    7,986,585Impact of stock options and warrants
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    Weighted average shares outstanding  diluted
    
    
    8,154,587
    
    
    
    7,986,614
    
    
    
    8,154,587
    
    
    
    7,986,585Net loss per
common share  basic
    
    $
    (0.56
    )
    
    $
    (0.16
    )
    
    $
    (1.26
    )
    
    $
    (0.28
    )Net loss per
common share  diluted
    
    $
    (0.56
    )
    
    $
    (0.16
    )
    
    $
    (1.26
    )
    
    $
    (0.28
    )
  11




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##### Table of Contents



12




---



##### Table of Contents



Note 11. Segment of an Enterprise
  Product Category Information  Net Sales
 Thirteen weeks
    
    Twenty-six weeksended
    
    endedJuly 2,
    
    June 26,
    
    July 2,
    
    June 26,2005
    
    2004
    
    2005
    
    2004General storage
    
    $
    20,470
    
    
    $
    28,578
    
    
    $
    38,228
    
    
    $
    50,181Laundry management
    
    
    20,800
    
    
    
    20,500
    
    
    
    38,501
    
    
    
    38,528Closet storage
    
    
    10,199
    
    
    
    9,328
    
    
    
    20,886
    
    
    
    17,762Bathware
    
    
    3,004
    
    
    
    3,085
    
    
    
    6,142
    
    
    
    5,932Kitchen storage
    
    
    2,082
    
    
    
    2,715
    
    
    
    4,189
    
    
    
    4,993Total net sales
    
    $
    56,555
    
    
    $
    64,206
    
    
    $
    107,946
    
    
    $
    117,396
 Major Customers
  Thirteen weeks ended
    
    Twenty-six weeks endedJuly 2,
    
    June 26,
    
    July 2,
    
    June 26,2005
    
    2004
    
    2005
    
    2004Net Sales %
    
    Net Sales %
    
    Net Sales %
    
    Net Sales %Wal-Mart
    
    
    36.2
    %
    
    
    29.6
    %
    
    
    39.1
    %
    
    
    31.5
    %Kmart
    
    
    20.2
    %
    
    
    28.2
    %
    
    
    20.7
    %
    
    
    26.5
    %Target
    
    
    6.2
    %
    
    
    15.3
    %
    
    
    5.3
    %
    
    
    15.5
    %Total
    
    
    62.6
    %
    
    
    73.1
    %
    
    
    65.1
    %
    
    
    73.5
    %
 
 ITEM 2. Managements Discussion and Analysis of Financial Condition and Results of Operations
 Forward Looking Statements
  13




---



##### Table of Contents




    
    general economic conditions and conditions in the retail environment;
    
    the Companys dependence on a few large customers;
    
    price fluctuations in the raw materials used by the Company;
    
    competitive conditions in the Companys markets;
    
    the impact of the level of the Companys indebtedness;
    
    restrictive covenants contained in the Companys various debt documents;
    
    the seasonal nature of the Companys business;
    
    the extent to which the Company is able to retain and attract key personnel;
    
    relationships with retailers;
    
    the impact of federal, state and local environmental requirements (including the
impact of future environmental claims against the Company);
    
    the Companys ability to develop and introduce new products and product modifications
necessary to remain competitive; and
    
    other factors discussed in Business Risks and Management Outlook below.
   Restatement
        Overview
  
    
    Customer base
  14




---



##### Table of Contents




    
    Cost of raw materials
  
    
    Product mix
  
    
    Molding machine utilization
  15




---



##### Table of Contents




    
    Financial liquidity
  Shareholder Transaction
     Critical Accounting Estimates
   
    
    Allowances for retailer deductions and trade programs
  16




---



##### Table of Contents




    
    Allowance for doubtful accounts
  
    
    Inventory valuation
  
    
    Valuation of deferred income tax assets
   17




---



##### Table of Contents




    
    Valuation of Long-Lived Assets, Indefinite Long-Lived
Intangible Assets and Intangible Assets
  Recent Accounting Pronouncements
   18




---



##### Table of Contents



Thirteen weeks ended July 2, 2005 compared to the thirteen weeks ended June 26, 2004
 In the discussion and analysis that follows, all references to 2005 are for the thirteen week

period ended July 2, 2005 and all references to 2004 are for the thirteen week period ended June
26, 2004.
   Thirteen weeks endedJune 26,
2004July 2,
2005
    
    As restatedNet sales
    
    $
    56,555
    
    
    
    100.0
    %
    
    $
    64,206
    
    
    
    100.0
    %Cost of goods sold
    
    
    49,320
    
    
    
    87.2
    %
    
    
    53,537
    
    
    
    83.4
    %Gross profit
    
    
    7,235
    
    
    
    12.8
    %
    
    
    10,669
    
    
    
    16.6
    %Selling, general and administrative expenses
    
    
    7,353
    
    
    
    13.0
    %
    
    
    7,372
    
    
    
    11.5
    %Shareholder transaction costs
    
    
    190
    
    
    
    0.3
    %
    
    
    488
    
    
    
    0.7
    %Amortization of intangible assets
    
    
    24
    
    
    
    0.0
    %

    
    
    124
    
    
    
    0.2
    %Operating profit (loss)
    
    
    (332
    )
    
    
    (0.5
    %)
    
    
    2,685
    
    
    
    4.2
    %Interest expense
    
    
    (3,475
    )
    
    
    (6.1
    %)
    
    
    (3,274
    )
    
    
    (5.1
    %)Other income
(expense,) net
    
    
    (6
    )
    
    
    (0.0
    %)
    
    
    30
    
    
    
    0.0
    %Loss before income taxes
    
    
    (3,813
    )
    
    
    (6.6
    %)
    
    
    (559
    )
    
    
    (0.9
    %)Income tax expense
    
    
    (718
    )
    
    
    (1.3
    %)
    
    
    (723
    )
    
    
    (1.1
    %)Net loss
    
    $
    (4,531
    )
    
    
    (7.9
    %)
    
    $
    (1,282
    )
    
    
    (2.0
    %)Net loss per
common share  basic
    
    $
    (0.56
    )
    
    
    
    
    
    $
    (0.16
    )Net loss per
common share  diluted
    
    $
    (0.56
    )
    
    
    
    
    
    $
    (0.16
    )Weighted average common shares outstanding:Basic
    
    
    8,155
    
    
    
    
    
    
    
    7,987Diluted
    
    
    8,155
    
    
    
    
    
    
    
    7,987
 19




---



##### Table of Contents



Net sales .
 Gross
profit.
 Selling, general and administrative expenses (SG&A)
 Shareholder transaction costs.
 Interest expense
 Income
tax expense
 Net
loss.
  20




---



##### Table of Contents



Twenty-six weeks ended July 2, 2005 compared to the twenty-six weeks ended June 26, 2004
 In the discussion and analysis that follows, all references to 2005 are for the twenty-six
week period ended July 2, 2005 and all references to 2004 are for the twenty-six week period ended
June 26, 2004.
   Twenty-six weeks endedJuly 2, 2005
    

June
26, 2004
As restatedNet sales
    
    $
    107,946
    
    
    
    100.0
    %
    
    $
    117,396
    
    
    
    100.0
    %Cost of goods sold
    
    
    94,427
    
    
    
    87.5
    %
    
    
    96,870
    
    
    
    82.5
    %Gross profit
    
    
    13,519
    
    
    
    12.5
    %
    
    
    20,526
    
    
    
    17.5
    %Selling, general and administrative expenses
    
    
    15,034
    
    
    
    13.9
    %
    
    
    13,768
    
    
    
    11.8
    %Shareholder transaction costs
    
    
    308
    
    
    
    0.3
    %
    
    
    761
    
    
    
    0.6
    %Amortization of intangible assets
    
    
    49
    
    
    
    0.0
    %
    
    
    248
    
    
    
    0.2
    %Operating profit (loss)
    
    
    (1,872
    )
    
    
    (1.7
    %)
    
    
    5,749
    
    
    
    4.9
    %Interest expense
    
    
    (6,961
    )
    
    
    (6.4
    %)
    
    
    (6,529
    )
    
    
    (5.6
    %)Other expense, net
    
    
    (19
    )
    
    
    (0.1
    %)
    
    
    25
    
    
    
    (0.0
    %)Loss before income taxes
    
    
    (8,852

    )
    
    
    (8.2
    %)
    
    
    (755
    )
    
    
    (0.7
    %)Income tax expense
    
    
    (1,444
    )
    
    
    (1.3
    %)
    
    
    (1,443
    )
    
    
    (1.2
    %)Net loss
    
    $
    (10,296
    )
    
    
    (9.5
    %)
    
    $
    (2,198
    )
    
    
    (1.9
    %)Net loss per
common share  basic
    
    $
    (1.26
    )
    
    
    
    
    
    $
    (0.28
    )Net loss per
common share  diluted
    
    $
    (1.26
    )
    
    
    
    
    
    $
    (0.28
    )Weighted average common shares outstanding:Basic
    
    
    8,155
    
    
    
    
    
    
    
    7,987Diluted
    
    
    8,155
    
    
    
    
    
    
    
    7,987
 Net sales .
 Gross
profit.
 21




---



##### Table of Contents



Selling, general and administrative expenses (SG&A)
 Shareholder transaction costs.
 Interest expense
 Income
tax expense
 Net
loss.
  22




---



##### Table of Contents



Liquidity and Capital Resources
 Cash
  Twenty-six weeksendedJuly 2,
    
    June 26,2005
    
    2004Net cash provided by operating activities
    
    $
    4.7
    
    
    $
    1.6Net cash used in investing activities
    
    
    (0.6
    )
    
    
    (3.6
    )Net cash (used in) provided by financing activities
    
    
    (4.8
    )
    
    
    1.6Net decrease in cash and cash equivalents
    
    $
    (0.7
    )
    
    $
    (0.4
    )
 Net cash provided by operating activities:
  Net cash used in investing activities:
  Net cash (used in) provided by financing activities:
  Capital Resources
   23




---



##### Table of Contents



Payments Due by Period(Dollars in thousands)Less than
    
    
    
    
    
    
    
    
    
    AfterContractual Obligations
    
    Total
    
    1 year
    
    1-3 years
    
    3-5 years
    
    5 yearsLong-term debt
    
    $
    116,050
    
    
    $
    
    
    
    $
    116,050
    
    
    $
    
    
    
    $
    Capital lease obligations
    
    
    4,647
    
    
    
    73
    
    
    
    206
    
    
    
    265
    
    
    
    4,103Minimum rental commitments under operating leases
    

    
    16,701
    
    
    
    4,626
    
    
    
    7,639
    
    
    
    4,436Purchase obligations (estimated) (1)
    
    
    72,680
    
    
    
    27,810
    
    
    
    44,870
    
    
    
    
    
    
    
    Total contractual cash obligations
    
    $
    210,078
    
    
    $
    32,509
    
    
    $
    168,765
    
    
    $
    4,701
    
    
    $
    4,103
 
 (1)
    
    The Company has entered into commitments to purchase certain core commodities
at formula-based prices. The agreements expire in 2005 and 2006. Future related
minimum commitments to purchase commodities, assuming April 2005 price levels, are
$27.8 million in 2005 and $44.9 million in 2006. The purchase commitment pricing is
not tied to fixed rates; therefore, the Companys results of operations or financial
position could be affected by significant changes in the market cost of the
commodities. See Item 7A, Quantitative and Qualitative Disclosures About Market Risk
 Commodity Risk in the Companys Form 10-K for fiscal 2004, which is incorporated
herein by reference, for further details. Financing commitments expiring by period(in thousands)Less than
    
    
    
    
    
    
    
    
    
    AfterTotal
    
    1 year
    
    1-3 years
    
    3-5 years
    
    5 yearsStandby letters of credit
    
    $
    2,700
    
    
    $
    2,700
    
    
    $
    
    
    
    $
    
    
    
    $
    
 24




---



##### Table of Contents



Business Risks and Management Outlook
 
    
    One of the Companys largest customers is Kmart. The Companys
net sales to Kmart were $73 million in 2004 and $77 million in
2003. As set forth in Kmarts public filings after emerging from
bankruptcy in May 2003, Kmart has improved its financial
performance and has operated within its financial covenants.
However, Kmart continues to report that it has experienced
declines in same store sales and further reduced its store count
during 2004. Kmart has paid all of its current obligations to the
Company on time and the Company does not believe that Kmarts
current situation will negatively impact the Company in the near
term. Given the size of the Companys sales to Kmart, future
results may be either favorably or unfavorably impacted by any
number of factors related to the retailer. In 2004, Kmart
announced two transactions involving the sale of up to 74 stores,
or approximately 5% of Kmarts store base. In addition, Kmart has
recently completed its merger with Sears. It is not yet possible
to determine the potential impact of these transactions on Kmarts
purchases with the Company.
 
    
    Historically, plastic resin has represented approximately 20% to
25% of the Companys cost of goods sold. In 2004, the percentage
increased to 35% due to higher plastic resin costs and usage.
Plastic resin costs are impacted by several factors outside the
control of the Company including supply and demand
characteristics, oil and natural gas prices and the overall health
of the economy. Any of these factors could potentially have a
positive or negative impact on plastic resin prices and the
Companys profitability. The Company expects the 2005 average
cost of both plastic resin and steel to be higher than 2004.
While the Company will make every effort to recover the higher
cost of plastic resin, there is no assurance that future resin
cost increases can be passed on to customers.
 
    
    The Company currently manufactures a significant portion of its
laundry products in the U.S. Management believes that the
Companys current manufacturing structure provides increased
flexibility to meet customer needs. All of the Companys major
laundry competitors rely heavily on foreign sourced products.
Such products are produced in several countries, including a
significant portion from China. Over the past few years, these
foreign sourced competitive products were introduced at selling
prices below ours. This has caused the Companys profit margins
and market share to decline. The Company has initiated many cost
cutting and other steps to protect our market share and profit
margins. The Company is also aggressively pursuing the increased
importation of certain laundry products. The Company continues to
analyze the competitiveness of its North American based laundry
manufacturing operations. In addition, the Company filed an
action with the U.S. International Trade Commission (ITC) and
the U.S. Department of Commerce (Department of Commerce) on June
30, 2003 seeking relief from a surge in the importation of
unfairly priced Chinese ironing boards. On July 15, 2004, the ITC
unanimously determined that the U.S. ironing board industry was
facing material injury as a result of the importation of unfairly
priced ironing boards from China. The ITCs action resulted in
the issuance of an antidumping duty order by the Secretary of
Commerce in August 2004. As a result, the Department of Commerce
assigned revised dumping margins ranging from 9.47 percent to
157.68 percent. As necessary, the Company will vigorously defend
or otherwise support the antidumping order, which may require it
to devote financial and other resources, including management time
and legal expenses.
 
    
    The Companys three largest customers all have unique aspects that
require additional packaging, handling and technical support.
Distribution systems are constantly evolving as retailers search
for additional costs to remove from the distribution system. A
coming technology is radio frequency identification (RFID) which
attaches a computer chip to each product. This chip gives off a
radio signal that can be tracked by the retailer for inventory and
sale purposes. RFID has the potential to replace current bar code
technology. Wal-Mart has indicated that vendors should prepare
for a conversion to RFID technology over the next one to two
years. The cost to transition to RFID is unknown but is expected
to be significant.
 
    
    The Companys Amended Loan Agreement takes into account seasonal fluctuations and changes
to the Companys collateral base. Because the financing is asset based, availability of
funds to borrow is dependent on the quality of the Companys asset base, primarily its
receivables and inventory.
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Should the lender determine that such assets do not meet the
banks credit tests, availability can be restricted. Given the Companys retail customer
base, it is possible that certain customers could be excluded from the asset base, thus
reducing credit availability.
 
    
    In an environment where customers largely control selling prices and vendors largely
control raw material costs, sustained profitability and cash flow is a challenging goal. The
Company will continue to focus on controlling costs of production and holding operating
expenses to below industry levels. The Company also intends to continue to develop new
products and categories, as management believes that such items have a better opportunity for
reasonable profit margins. Given the declining profitability of certain products and the
increasing cost of raw materials, the Company has announced selective price increases. The
success of these price increases is predicated on the competitive market place. If such
price increases are not successfully implemented, certain products will be discontinued.
 
    
    Given the Companys line of credit availability, the Company may from time-to-time look at
opportunities to buy its high-yield bonds. A buyback might be done if such transactions are
accretive to shareholders through either a reduction of interest expense or a buyback of
bonds at a discount.
 
 ITEM 3. Quantitative and Qualitative Disclosures About Market Risk
  Interest Rate Risk.
 Commodity Risk.
  
 Item 4. Controls and Procedures
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
    
    Educating and training Company individuals involved in
accounting and reporting for income taxes. Appropriate finance staff
personnel have researched and reviewed accounting pronouncements on
accounting and reporting for income taxes, specifically as they
related to deferred income taxes. Finance personnel will also attend
various conferences and seminars to maintain current knowledge with
respect to deferred taxes and accounting for income taxes; and
 
    
    Enhancing the documentation regarding conclusions reached in
the implementation of generally accepted accounting principles. The
Company has commenced this documentation and will continue to develop
and incorporate this documentation into its ongoing Sarbanes Oxley
internal controls and procedures preparation.
  
 PART II. OTHER INFORMATION
 
 Item 1. Legal Proceedings
  , Slattery v. Home Products Intl, Inc.
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Item 2. Unregistered Sales of Equity Securities and Use of Proceeds
 
 Item 3. Defaults Upon Senior Securities
 
 Item 4. Submission of Matters to a Vote of Security Holders
    Nominee
    
    Votes in Favor
    
    Votes WithheldJoseph Gantz (Class I)
    
    
    7,658,247
    
    
    
    4,000James M. Gould (Class I)
    
    
    7,658,247
    
    
    
    4,000Donald J. Liebentritt (Class I)
    
    
    7,658,247
    
    
    
    4,000William C. Pate (Class II)
    
    
    7,658,247
    
    
    
    4,000Douglas Ramsdale (Class II)
    
    
    7,658,247
    
    
    
    4,000Terry Savage (Class II)
    
    
    7,658,247
    
    
    
    4,000Ellen Havdala (Class III)
    
    
    7,624,047
    
    
    
    38,200Robert Lawrence (Class III)
    
    
    7,658,247
    
    
    
    4,000Mark Weber (Class III)
    
    
    7,658,247
    
    
    
    4,000
   
 Items 5. Other Information
 
 Item 6. Exhibits
 3.1
    
    Amended and Restated By-laws of the Company approved by the Companys
Stockholders and adopted by the Board of Directors on August 2, 2005.31.1
    
    Certification by Douglas R. Ramsdale, Chief Executive Officer, required by
Rule 13a-14(a) or Rule 15d-14(a) of the Securities Exchange Act of 1934.31.2
    
    Certification of Donald J. Hotz, Chief Financial Officer, required by Rule
13a-14(a) or Rule 15d-14(a) of the Securities Exchange Act of 1934.
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SIGNATURES
  Home Products International, Inc.By :
    
    /s/ Donald J. HotzDonald J. HotzChief Financial Officer(Principal Financial Officer)By:
    
    /s/ Mark J. SuchinskiMark J. SuchinskiVice President andChief Accounting Officer(Principal Accounting Officer)
  29