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UNITED STATES
SECURITIES AND EXCHANGE COMMISSION Washington, D.C. 20549
 FORM 10-Q/A  þ
    
    QUARTERLY REPORT PURSUANT TO
SECTION 13 or 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934
 For the Quarterly Period Ended April 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)
 Registrants telephone number including area code (773) 890-1010. 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 þ No o Indicate by check mark whether the registrant is an accelerated filer (as defined in Exchange Act
Rule 12b-2 of the Exchange Act). Yes o No þ Common shares, par value $0.01, outstanding as of May 7, 2005  8,154,587




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HOME PRODUCTS INTERNATIONAL, INC. INDEX PageNumberExplanatory Statement
    
    
    2Part 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
    
    
    22Item 4. Controls and Procedures
    
    
    23Part II. Other InformationItem 1. Legal Proceedings
    
    
    24Item 2. Unregistered Sales of Equity Securities and Use of Proceeds
    
    
    24Item 3. Defaults Upon Senior Securities
    
    
    24Item 4. Submission of Matters to a Vote of Security Holders
    
    
    24Item 5. Other Information
    
    
    24Item 6. Exhibits
    
    
    25Signatures
    
    
    26Certification by Douglas R. Ramsdale, CEOCertification by Donald J. Hotz, CFO




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-5/8%
   2




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PART I. FINANCIAL INFORMATION 
 Item 1. Financial Statements HOME PRODUCTS INTERNATIONAL, INC. 
 Condensed Consolidated Balance Sheets
 April 2,
    
    
    January 1,2005
    
    
    2005As restated
    
    
    As restatedAssetsCurrent assets:Cash and cash equivalents
    
    $
    1,421
    
    
    $
    1,146Accounts receivable, net
    
    
    30,512
    
    
    
    51,473Inventories
    
    
    33,974
    
    
    
    30,292Prepaid expenses and other current assets
    
    
    1,843
    
    
    
    2,787Total current assets
    
    
    67,750
    
    
    
    85,698Property, plant and equipment - at cost
    
    
    95,425
    
    
    
    95,419Less accumulated depreciation
    
    
    (65,616
    )
    
    
    (63,951
    )Property, plant and equipment, net
    
    
    29,809
    
    
    
    31,468Other intangibles, net
    
    
    75
    
    
    
    100Goodwill, net
    
    
    72,780
    
    
    
    73,182Other non-current assets
    
    
    1,734
    
    
    
    1,865Total assets
    
    $
    172,148
    
    
    $
    192,313Liabilities and Stockholders DeficitCurrent liabilities:Revolving line of credit and other current debt
    
    $
    11,852
    
    
    $
    25,091Accounts payable
    
    
    20,653
    
    
    
    25,723Accrued liabilities
    
    
    17,455
    
    
    
    14,450Total current liabilities
    
    
    49,960
    
    
    
    65,264Long-term obligations - net of current debt
    
    
    120,646
    
    
    
    120,655Deferred income taxes
    
    
    3,567
    
    
    
    2,852Other liabilities
    
    
    4,647
    
    
    
    4,449Total liabilities
    
    
    178,820
    
    
    
    193,220Stockholders deficit:Preferred Stock - authorized, 500,000 shares,
$.01 par value; - None issued
    
    
    
    
    
    
    Common Stock - authorized 15,000,000 shares, $.01 par value;
8,964,781 shares issued at April 2, 2005 and January 1, 2005
    
    
    90
    
    
    
    90Additional paid-in capital
    
    
    50,677
    
    
    
    50,677Accumulated deficit
    
    
    (50,938
    )
    
    
    (45,173
    )Common stock held in treasury - at cost; 810,194 shares at
April 2, 2005 and January 1, 2005
    
    
    (6,501
    )
    
    
    (6,501
    )Total stockholders deficit
    
    
    (6,672
    )
    
    
    (907
    )Total liabilities and stockholders deficit
    
    $
    172,148
    
    
    $
    192,313
 The accompanying notes are an integral part of the condensed consolidated financial statements. 3




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HOME PRODUCTS INTERNATIONAL, INC. 
 Condensed Consolidated Statements of Operations 
 Thirteen weeksendedApril 2,
    
    
    March 27,2005
    
    
    2004As restated
    
    
    As restatedNet sales
    
    $
    51,391
    
    
    $
    53,190Cost of goods sold
    
    
    45,107
    
    
    
    43,289Gross profit
    
    
    6,284
    
    
    
    9,901Operating expenses:Selling and marketing
    
    
    3,796
    
    
    
    3,720General and administrative
    
    
    3,885
    
    
    
    2,720Shareholder transaction costs
    
    
    118
    
    
    
    273Amortization of intangible assets
    
    
    25
    
    
    
    124Operating profit (loss)
    
    
    (1,540
    )
    
    
    3,064Non-operating income (expense):Interest income
    
    
    
    
    
    
    3Interest expense
    
    
    (3,486
    )
    
    
    (3,255
    )Other expense, net
    
    
    (13
    )
    
    
    (8
    )Net non-operating expense
    
    
    (3,499
    )
    
    
    (3,260
    )Loss before income taxes
    
    
    (5,039
    )
    
    
    (196
    )Income tax expense
    
    
    (726
    )
    
    
    (720
    )Net loss
    
    $
    (5,765
    )
    
    $
    (916
    )Net loss per common share:Basic
    
    $
    (0.71
    )
    
    $
    (0.12
    )Diluted
    
    $
    (0.71
    )
    
    $
    (0.12
    )Weighted average common shares outstanding-basic
    
    
    8,154,587
    
    
    
    7,986,556Weighted average common shares outstanding-diluted
    
    
    8,154,587
    
    
    
    7,986,556
 The accompanying notes are an integral part of the condensed consolidated financial statements. 4




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HOME PRODUCTS INTERNATIONAL, INC. 
 Condensed Consolidated Statements of Cash Flows
(Amounts in thousands)
(Unaudited) Thirteen weeks endedApril 2,
    
    
    March 27,2005
    
    
    2004As restated
    
    
    As restatedOperating activities:Net loss
    
    $
    (5,765
    )
    
    $
    (916
    )Adjustments to reconcile net loss to net
cash provided by operating activities:Depreciation and amortization
    
    
    1,938
    
    
    
    2,130Deferred income taxes
    
    
    715
    
    
    
    713Loss on the disposal of assets
    
    
    13
    
    
    
    Changes in working capital:Decrease in accounts receivable
    
    
    20,961
    
    
    
    13,769Increase in inventories
    
    
    (3,682
    )
    
    
    (5,185
    )(Increase) decrease in other current assets
    
    
    944
    
    
    
    (381
    )(Decrease) increase in accounts payable
    
    
    (5,070
    )
    
    
    1,713Increase in accrued liabilities
    
    
    3,005
    
    
    
    590Other non current assets
    
    
    131
    
    
    
    798Other long term liabilities
    
    
    198
    
    
    
    255Other, net
    
    
    
    
    
    
    (14
    )Net cash provided by operating activities
    
    
    13,388
    
    
    
    13,472Investing activities:Settlement of environmental escrow
    
    
    402
    
    
    
    Capital expenditures
    
    
    (267
    )
    
    
    (924
    )Net cash used in investing activities
    
    
    135
    
    
    
    (924
    )Financing activities:Net repayments under loan and security agreement
    
    
    (13,222
    )
    
    
    (9,811
    )Payments of capital lease obligation
    
    
    (26
    )
    
    
    (32
    )Exercise of stock options, issuance of common
stock under stock purchase plan and other
    
    
    
    
    
    
    8Net cash used in financing activities
    
    
    (13,248
    )
    
    
    (9,835
    )Net increase in cash and cash equivalents
    
    
    275
    
    
    
    2,713Cash and cash equivalents at beginning of period
    
    
    1,146
    
    
    
    797Cash and cash equivalents at end of period
    
    $
    1,421
    
    
    $
    3,510Supplemental disclosuresCash paid in the period:Interest
    
    $
    558
    
    
    $
    334Income taxes
    
    $
    4
    
    
    $
    14
 The accompanying notes are an integral part of the condensed consolidated financial statements. 5




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HOME PRODUCTS INTERNATIONAL, INC. 
 Notes to Condensed Consolidated Financial Statements
(Dollar amounts in thousands, except per share amounts)
(Unaudited) Note 1. Summary of Significant Accounting Policies The Company Home Products International, Inc. (the Company), based in Chicago, is a leading designer,
manufacturer and marketer of a broad range of value-priced, quality consumer houseware products.
The Companys products are marketed principally through mass-market trade channels in the United
States and internationally. Financial Statement Presentation The
Company reports on a 52/53 week fiscal year basis concluding on the
Saturday nearest to December 31. References to 2004 are for the
fifty-three weeks ended January 1, 2005. The condensed consolidated financial statements for the thirteen weeks ended April 2, 2005 and
March 27, 2004, include, in the opinion of management, all adjustments (consisting of normal
recurring adjustments) necessary to present fairly the financial position, results of operations
and cash flows as of April 2, 2005 and for all periods
presented. The Company has restated its condensed consolidated financial statements as of and
for the periods ended April 2, 2005 and January 1, 2005 and
for the thirteen weeks ended April 2, 2005 and March 27,
2004. See Note 2 for further information. Certain information and note disclosures normally included in financial statements prepared in
accordance with U. S. generally accepted accounting principles have been
condensed or omitted. These condensed consolidated financial statements should be read in
conjunction with the consolidated financial statements and notes thereto in the Companys Form 10-K,
as amended, for the 53 week period ended January 1, 2005. The results of operations for the
thirteen weeks ended April 2, 2005 are not necessarily indicative of the operating results to be
expected for the full year. Use of Estimates The preparation of financial statements in conformity with U.S. generally accepted accounting principles requires management to make certain estimates and
assumptions. Such estimates and assumptions affect the reported amounts of assets, liabilities,
revenues and expenses as well as the disclosure of contingent assets and liabilities at the date of
the financial statements. Actual results could differ from those estimates. Reclassifications Certain prior year amounts have been reclassified to conform to the current years
presentation. Recent Accounting Pronouncements In March 2005, Staff Accounting Bulletin No. 107 (SAB 107) was issued which expressed views
of the Securities and Exchange Commission (SEC) regarding the interaction between Statement of
Financial Accounting Standards (SFAS) No. 123R, Share-based Payment and certain SEC
rules and regulations and provides the staffs views regarding the valuation of share-based payment
arrangements for public companies. The accounting provisions of SFAS 123R are effective as of the
beginning of the first annual period beginning after June 15,
2005. Although the Company has not
yet determined whether adoption of SFAS 123R will result in amounts that are similar to the current
pro forma disclosures under SFAS 123, the Company is evaluating the requirement under SFAS 123R,
acceptable methods of determining fair market value, and the magnitude of the impact on its fiscal
2006 consolidated net income and earnings per share. 6




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Note 2. Restatement
   See
item (a) for adjustments to each period included within this
Form 10-Q/A.
  See item (b)
for adjustments to each period included within this
Form 10-Q/A.
 See item (c) for adjustments to each period included within this
Form 10-Q/A.
  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 PreviouslyThirteen weeks ended March 27, 2004 (Restated):
    
    Reported
    
    
    Adjustments
    
    
    As RestatedIncome 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
    )Deferred
income tax liability
    
    $
    
    
    
    $
    3,567
    (a)
    
    $
    3,567Other liabilities
    
    $
    4,397
    
    
    $
    250
    (b)
    
    $
    4,647Total 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
    )
    
    $
    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
    )Deferred
income tax liability
    
    $
    
    
    
    $
    2,852
    (a)
    
    $
    2,852Other liabilities
    
    $
    4,199
    
    
    $
    250
    (b)
    
    $
    4,449Total 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
    )
    
    $
    192,313
 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
 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 SFAS No. 123, Accounting for Stock-Based Compensation encourages companies to adopt a fair
value approach to valuing stock-based compensation that would require compensation cost to be
recognized based upon the fair value of the stock-based instrument issued. The Company has
elected, as permitted by SFAS No. 123, to apply the provisions of Accounting Principles Board
(APB) Opinion No. 25 Accounting for Stock Based Compensation and the related interpretations in
accounting for stock option awards under the stock option plans. Under APB Opinion No. 25,
compensation expense is recognized if the market price on the date of grant exceeds the exercise
price. All options granted by the Company have been granted at the market price of stock on the
date of grant. The following table shows the effect on net loss and loss per
share if the Company had applied the fair value recognition provisions of SFAS No. 123. The fair value of these stock options was estimated at the date of grant using a
Black-Scholes option pricing model. Thirteen weeksendedApril 2,
    
    
    March 27 ,2005
    
    

2004As restated
    
    

As restatedNet loss as reported
    
    $
    (5,765
    )
    
    $
    (916
    )Less: total stock-based compensation
expense determined under fair value based
method for all awards
    
    
    (12
    )
    
    
    (31
    )Pro forma net loss
    
    $
    (5,777
    )
    
    $
    (947
    )Basic net loss per common share  as reported
    
    $
    (0.71
    )
    
    $
    (0.12
    )Basic net loss per common share  pro forma
    
    $
    (0.71
    )
    
    $
    (0.12
    )Diluted net loss per common share  as reported
    
    $
    (0.71
    )
    
    $
    (0.12
    )Diluted net loss per common share  pro forma
    
    $
    (0.71
    )
    
    $
    (0.12
    )
 No stock options were granted during the thirteen weeks ended April 2, 2005 and March 27,
2004. Note 4. Shareholder Transaction On December 13, 2004, Storage Acquisition Company, L.L.C., a Delaware limited liability
company (Acquirer) completed its tender offer for the outstanding shares of common stock
(including the associated preferred stock purchase rights) of the Company for $2.25 per share, net
to the seller, in cash, without interest. As a result of the tender offer, the Acquirer obtained
93% of the Companys outstanding common shares. Collectively, the process that led to the offer
and the completion of the tender offer is referred to herein as the Shareholder Transaction. On December 15, 2004 the Companys common stock was deregistered and is no longer trading on
The NASDAQ SmallCap Market. There is no assurance that the Companys shares will
be traded on the over-the-counter bulletin board, or that price quotations will be reported through
any other sources. In addition, the Company has suspended its reporting obligations under the
Securities Exchange Act of 1934, effective as of March 15, 2005. Notwithstanding the suspension of its obligation to file periodic financial reports, by the
terms of the Companys indenture governing its 9-5/8% Senior Subordinated Notes due May 14, 2008,
the Company is required to voluntarily file annual, periodic and current reports with the SEC as a
voluntary filer so long as the indenture covenants remain in effect. In connection with the Shareholder Transaction, the Company incurred costs during the first
quarter of 2005 and 2004. These costs included legal fees and other related costs. The costs incurred during the first quarter of 2004 were associated with terminated Agreement and Plan of Merger, by and between the Company and JRT Acquisition, Inc. For further information please see the Companys Form 10-K for fiscal 2004, which is incorporated by reference. The following table
provides a breakdown of the costs incurred in the first quarter of 2005 and 2004. 7




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Thirteen weeks endedApril 2,
    
    
    March 27,2005
    
    
    2004Legal fees
    
    $
    117
    
    
    $
    223Other related costs
    
    
    1
    
    
    
    50Total
    
    $
    118
    
    
    $
    273
 Note 5. Eagan Shutdown On July 29, 2003, the Company announced its intention to close its Eagan, Minnesota
manufacturing and warehouse facility in January 2004 (Eagan Shutdown). The facility was exited
on January 31, 2004. The Eagan, Minnesota facility was closed as part of an effort to reduce
operating costs and utilize capacity in the Companys other injection molding plants. The Company
terminated approximately 130 hourly and salaried employees as part of the Eagan Shutdown. During the first quarter of 2005 and 2004, the Company incurred $32 and $606, respectively, of
Eagan Shutdown charges. These charges related to costs associated with the Eagan, Minnesota plant
closure, employee severance, costs associated with the relocation of equipment and inventory and
employee related fringe benefits. Eagan Shutdown charges incurred were included in cost of goods
sold in the Companys condensed consolidated statements of operations. The following tables reflect the changes in the accrual during the thirteen weeks ended April
2, 2005 and March 27, 2004 associated with the Eagan Shutdown. This accrual was included in
accrued liabilities on the Companys condensed consolidated balance sheets. Accrual
    
    
    Charged
    
    
    
    
    
    
    
    
    
    
    Accrualbalance at
    
    
    to
    
    
    
    
    
    
    
    
    
    
    balance atJanuary 1,
    
    
    Earnings
    
    
    Cash
    
    
    Non-Cash
    
    
    April 2,Description of Accrual
    
    2005
    
    
    2005
    
    
    Utilization
    
    
    Utilization
    
    
    2005Employee separations
    
    $
    
    
    
    $
    
    
    
    $
    
    
    
    $
    
    
    
    $
    Other
    
    
    
    
    
    
    32
    
    
    
    (32
    )
    
    
    
    
    
    
    Total Eagan Shutdown costs
    
    $
    
    
    
    $
    32
    
    
    $
    (32
    )
    
    $
    
    
    
    $
    
 Accrual
    
    
    Charged
    
    
    
    
    
    
    
    
    
    
    Accrualbalance at
    
    
    to
    
    
    
    
    
    
    
    
    
    
    balance atDecember 27,
    
    
    Earnings
    
    
    Cash
    
    
    Non-Cash
    
    
    March 27,Description of Accrual
    
    2003
    
    
    2004
    
    
    Utilization
    
    
    Utilization
    
    
    2004Employee separations
    
    $
    428
    
    
    $
    
    
    
    $
    (245
    )
    
    $
    
    
    
    $
    183Other
    
    
    
    
    
    
    606
    
    
    
    (606
    )
    
    
    
    
    
    
    Total Eagan Shutdown costs
    
    $
    428
    
    
    $
    606
    
    
    $
    (851
    )
    
    $
    
    
    
    $
    183
 8




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##### Table of Contents



Note 6. Inventories The components of the Companys inventory consists of direct labor, direct materials and the
applicable portion of overhead required to manufacture the goods. April 2,
    
    
    January 1,2005
    
    
    2005Finished goods
    
    $
    20,860
    
    
    $
    19,540Work-in-process
    
    
    1,601
    
    
    
    1,167Raw materials
    
    
    11,513
    
    
    
    9,585$
    33,974
    
    
    $
    30,292
 Note 7. Goodwill and Patents and Non-Compete Agreements Goodwill relates to the excess of purchase price over the fair value of tangible assets
acquired. Goodwill is tested at least annually for impairment or more often if an event or
circumstance indicates that an impairment loss has been incurred. The change in the carrying amount of goodwill for the thirteen weeks ended April 2, 2005 was
as follows: TotalBalance at January 1, 2005
    
    $
    73,182Settlement of environmental escrow account
    
    
    (402
    )Balance at April 2, 2005
    
    $
    72,780
 During the first quarter of 2005, the carrying amount of goodwill was decreased by $402 as a
result of the settlement of an environmental escrow account related to an acquisition made in 1997. Patents and non-compete agreements are amortized over their useful lives, and are evaluated
annually to determine whether events and circumstances warrant a revision to the remaining period
of amortization. For patents that remain subject to amortization provisions, amortization expense
is expected to be $75 for the remainder of 2005. Patents and non-compete agreements consist of the following: April 2, 2005Average
    
    Gross
    
    
    
    
    
    
    NetLife
    
    Carrying
    
    
    Accumulated
    
    
    Carrying(Yrs.)
    
    Amount
    
    
    Amortization
    
    
    AmountAmortized intangible assets:Patents
    
    7 to 14
    
    $
    1,008
    
    
    $
    (933
    )
    
    $
    75Non-compete agreements
    
    10
    
    
    2,928
    
    
    
    (2,928
    )
    
    
    Total
    
    
    
    $
    3,936
    
    
    $
    (3,861
    )
    
    $
    75
 9




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##### Table of Contents



January 1, 2005Average
    
    Gross
    
    
    
    
    
    
    NetLife
    
    Carrying
    
    
    Accumulated
    
    
    Carrying(Yrs.)
    
    Amount
    
    
    Amortization
    
    
    AmountAmortized intangible assets:Patents
    
    7 to 14
    
    $
    1,008
    
    
    $
    (908
    )
    
    $
    100Non-compete agreements
    
    10
    
    
    2,928
    
    
    
    (2,928
    )
    
    
    Total
    
    
    
    $
    3,936
    
    
    $
    (3,836
    )
    
    $
    100
 Aggregate amortization expense for the thirteen weeks ended April 2, 2005 and March 27, 2004
was $25 and $124, respectively. Note 8. Commitments and Contingencies 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 $73,000 in 2005. The Company was a party to a legal action described below. In addition, the Company is party
to various claims, legal actions and complaints including product liability litigation, arising in
the ordinary course of business. In the opinion of management, all such matters are adequately
covered by insurance or will not have a material adverse effect on the Companys consolidated
financial position, results of operations or liquidity. On June 4, 2004, a complaint was filed in the Chancery Division of the Circuit Court of Cook
County, Illinois against the Company and the Companys directors. The complaint purported to be
filed by a stockholder and alleged that in entering into the Agreement and Plan of Merger, by and
between the Company and JRT Acquisition, Inc. (JRT), as amended by the First Amendment to the
Agreement and Plan of Merger, dated October 11, 2004 (the JRT Agreement), the Companys board of
directors breached their fiduciary duties of loyalty, due care, independence, good faith and fair
dealing. The complaint included a request for a declaration that the action be maintained as a
class action. On May 5, 2005, the Chancery Division of the Circuit Court of Cook County, Illinois
dismissed the action without prejudice. Note 9. Income Taxes The Company uses the asset and liability method of SFAS No. 109 in accounting for income
taxes. Under this method deferred tax assets and liabilities are recognized for the future tax
consequences attributable to temporary differences between the financial statement carrying amounts
of existing assets and liabilities and their respective tax bases, tax credits and operating loss
carryforwards. Deferred tax assets and liabilities are measured using the enacted tax rates
expected to apply to taxable income in the years in which those temporary differences are expected
to be recovered or settled. SFAS No. 109 requires that a valuation allowance be established when it is more likely than
not that all or a portion of deferred tax assets will not be realized. A review of all available
positive and negative evidence needs to be considered, including historical earnings and projected
operating results, applicable net operating loss carryforward expiration dates, and identified
actions under the control of the Company in realizing the associated carryforward benefits. SFAS
No. 109 further states that forming a conclusion that a valuation allowance is not needed is
difficult when there is negative evidence such as cumulative losses in recent years and current
operating losses. During
the first quarter of 2005 and 2004, the Company recorded a non-cash income tax provision of $715 and $713, respectively.
This charge was required because the Company currently has significant deferred tax liabilities related to goodwill with lower tax than book basis as a result of continued amortization of goodwill for tax purposes.
Following the adoption of SFAS No. 142, Goodwill and Other
Intangible Assets, the deferred tax liability related to the
Companys goodwill must now be considered as a liability related
to an asset with an indefinite life which can no longer
support the realization of deferred tax assets.  Historically, the
Company did not need a valuation allowance as the book basis of
goodwill was lower than the tax basis. This was the result of a goodwill impairment charge which was recorded in
fiscal year 2000. In 2004, the continued amortization of goodwill
for tax purposes has resulted in a lower tax basis than book basis.
Therefore, the Company has recorded an additional income tax
provision to increase its deferred tax asset valuation allowance.
In the future the Company will increase the valuation allowance with
a corresponding deferred tax provision as the deferred tax liability
related to the goodwill amortization increases. 10




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##### Table of Contents



The Company expects to provide a full valuation allowance on future tax benefits until an
appropriate level of profitability is sustained. Until an appropriate level of profitability is
reached, the Company does not expect to recognize any significant tax benefits in future results of
operations. Note 10. Net Loss Per Share The
following information presents net loss per common share, basic and diluted: Thirteen weeksendedApril 2,
    
    
    March 27,2005
    
    
    2004As restated
    
    
    As restatedNet loss
    
    $
    (5,765
    )
    
    $
    (916
    )Weighted average common shares outstanding - basic
    
    
    8,154,587
    
    
    
    7,986,556Impact of stock options and warrants
    
    
    
    
    
    
    Weighted average common shares outstanding - diluted
    
    
    8,154,587
    
    
    
    7,986,556Net loss per common share - basic
    
    $
    (0.71
    )
    
    $
    (0.12
    )Net loss per common share - diluted
    
    $
    (0.71
    )
    
    $
    (0.12
    )
 Net loss per common share - basic is computed based on the weighted average number of outstanding
common shares. Net loss per common share - diluted normally includes the weighted average effect of
dilutive stock options and warrants on the weighted average shares outstanding. At April 2, 2005,
stock options and warrants to purchase the Companys common stock totaling 171,900 were not
included in the net loss per share  diluted since impact would have been anti-dilutive. At March 27, 2004, stock options and warrants to
purchase the Companys common stock totaling 983,420 were not included in the net loss per share 
diluted since their impact would have been anti-dilutive. 11




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##### Table of Contents



Note 11. Segment of an Enterprise The Company consists of a single operating segment that designs, manufactures and markets
quality consumer housewares products. This segmentation is based on the financial information
presented to the chief operating decision maker. The following table sets forth the net sales by
product category within the Companys single operating segment. Product Category Information  Net Sales Thirteen weeks endedApril 2, 2005
    
    
    March 27, 2004General storage
    

    $
    17,758
    
    
    $
    21,603Laundry management
    
    
    17,701
    
    
    
    18,028Closet storage
    
    
    10,687
    
    
    
    8,434Bathware
    
    
    3,138
    
    
    
    2,847Kitchen storage
    
    
    2,107
    
    
    
    2,278Total net sales
    
    $
    51,391
    
    
    $
    53,190
 Major Customers The Company is dependent upon a few customers for a large portion of its consolidated net
sales. During the first quarter of 2005, Wal-mart, Kmart and Target accounted for 42.2%, 21.2% and
4.4%, respectively, of the Companys consolidated net sales. During the first quarter of 2004,
Wal-mart, Kmart and Target accounted for 33.8%, 24.4% and 15.7%, respectively, of the Companys
consolidated net sales. The loss of one of these customers could have a material adverse effect on
the Company. No other customer accounted for more than 10% of consolidated net sales during the
thirteen weeks ended April 2, 2005 and March 27, 2004. 12




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##### Table of Contents



ITEM 2. Managements Discussion and Analysis of Financial Condition and Results of Operations This commentary should be read in conjunction with the Companys consolidated financial
statements and related notes and managements discussion and analysis of financial condition and
results of operations contained in the Companys Annual Report,
as amended, on Form 10-K/A for the year ended
January 1, 2005. Overview The Company designs, manufactures and markets a broad range of quality houseware products.
The following are key factors in understanding the Companys performance. 13




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##### Table of Contents




    Customer base The Companys business is highly concentrated among mass merchandisers, including discount
stores, home centers and other category specific retailers. Sales to our top three customers,
Wal-Mart, Kmart and Target, were 68% of net sales in the thirteen weeks ended April 2, 2005, 72%
of net sales in fiscal year 2004 and 73% of net sales in fiscal year 2003. The Companys
products generally have few unique or patented features and are sold at entry level price
points. As such, the Companys financial success is highly dependent on profitably meeting
certain price points as demanded by customers. The competitive atmosphere continually pressures
our selling prices. After several years of steadily falling selling prices, the Company was
able to secure limited selling price increases in 2004 and into 2005. The size of the mass merchandisers gives them strong bargaining power with suppliers. They
encourage high levels of competition among suppliers, demand that manufacturers supply
innovative new products, require suppliers to match or beat quoted prices received from other
potential suppliers, demand reduced lead times and demand that product be warehoused until the
customer desires delivery. These customers also actively engage in the direct importation of
competitive generic products from multiple sources. The high concentration of sales to mass merchandisers also makes the Companys results
dependent upon the operating results and financial viability of its key customers. The
Companys operating results in recent years have been impacted by developments at Kmart, one of
the Companys largest customers. As set forth in Kmarts
public filings, since emerging from bankruptcy in May 2003, Kmart has improved
its financial performance. However, Kmart continues to report that it
has experienced declines in same store sales
and has announced further reductions in store count in connection with its merger with Sears.
Kmart has paid all of its current obligations to the Company on time.  
    Cost of raw materials The Companys primary raw materials are plastic resin and steel. Changing prices for such
raw materials can cause the Companys results of operations to fluctuate significantly. The
cost of raw materials is impacted by several factors outside the control of the Company
including supply and demand characteristics, oil and natural gas prices and the overall state of
the economy. As the cost of raw materials rises it results in immediate declines in
profitability since the Company has historically been unable to recover all of the cost increase
by passing it through to customers. Conversely, when raw material costs decline, the Companys
margins generally are favorably impacted in the short-term, though competitive factors may force
a decrease in selling prices that erodes some of the improved profitability. During the first
thirteen weeks of fiscal 2005, the average cost of plastic resin increased approximately 48% and
average steel prices increased approximately 59% as compared to the average costs in the first

thirteen weeks of 2004. The increase in steel and plastic resin costs added approximately $5.9
million to cost of goods sold. Management expects the average cost of both plastic resin and
steel to increase during 2005 as compared to 2004.  
    Product mix The Company sells a variety of household items. For various reasons, some items provide a
better return than others. As the mix of items sold changes, profitability and cash flow are
affected. Although we have had some success at getting an increase in selling prices during
2005, there can be no assurance that we will be able to secure additional selling price
increases to offset any future rise in raw material costs. To the extent that selling price
increases can not be achieved, certain unprofitable products may be discontinued. The costs
related to discontinuing a product are relatively minor and relate primarily to the non-cash
write-off of related tooling. 14




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##### Table of Contents




    Molding machine utilization The Company has four injection molding facilities with a variety of injection molding
machine sizes. Customer ordering patterns and mix of product manufactured impacts utilization
of these machines. When demand exceeds capacity, the Company must place production at third
party facilities that are more costly than internal manufacturing. In addition, the mix of
product sold impacts profitability since low margin items take the same amount of production
time as higher margin items. The Companys future profitability is dependent on selling to its
optimum capacity and product mix so that constrained capacity is devoted to products with higher
margins. We have no plans for expansion or reduction of our molding capacity until it can
profitably operate the facilities it currently owns  
    Financial liquidity Seasonal
working capital needs are provided by the Companys $60 million asset-based line
of credit. Ability to borrow is a function of the Companys eligible asset base and outstanding
borrowings. During the first thirteen weeks of 2005, cash flow was positive and on April 2,
2005 there were $11.8 million of borrowings outstanding under the line of credit. At April 2,
2005, unused available line of credit was $31.4 million. A significant decline in eligible
asset base or cash flow could result in constrained funds for operations. In recent years, the
Company has experienced positive cash flow in the first quarter and negative cash flow for the
balance of the year. This is due to seasonal cash needs as well as the semi annual payments in
May and November of interest on subordinated debt. However, management believes it has
sufficient borrowing capability for at least the next 12 months. See Capital Resources and
Liquidity below for additional discussion of the Companys cash flows and financing situation. Restatement This
Amendment No. 1 to the Companys Quarterly Report on
Form 10-Q restates the condensed consolidated financial
statements for the thirteen weeks ended April 2, 2005 and March 27, 2004. Discussed
below are the effects of the restatement to correct the accounting
for deferred income taxes. Historically,
the Company has accounted for its deferred income taxes related
 to goodwill as a
reversing taxable temporary difference. During fiscal year 2004, the
Companys temporary difference related to goodwill became a liability
as the tax basis of goodwill became lower than the book basis due to
the continued amortization of goodwill for tax purposes. Pursuant to
SFAS No. 142, Goodwill and Other Intangible Assets, the deferred tax liability related
to the Companys goodwill must be considered as a liability related to an asset with an indefinite
life. Therefore, the deferred tax liability was not available to support the realization of deferred tax assets created by other deductible
temporary differences. Given the Companys determination that, based
on cumulative historical operating losses, it was more likely than
not that its deferred tax assets would not be realized, this
unavailability to offset has resulted in the creation of a deferred
tax liability and an additional tax expense in respect of the resulting
increase in the deferred tax asset valuation allowance.  The restatement adjustments were
non-cash and had no effect on
operating cash flows nor on the Companys compliance with its debt covenants. As
a result of the deferred tax liability restatement, income tax expense in
the thirteen weeks ended April 2, 2005 and March 27, 2004 increased by $0.7 million. Loss per share on a
diluted basis increased by $0.09 in the thirteen weeks ended April 2,
2005 and March 27, 2004. Shareholder Transaction On December 13, 2004, Storage Acquisition Company, L.L.C., a Delaware limited liability
company (Acquirer) completed its tender offer for the outstanding shares of common stock
(including the associated preferred stock purchase rights) of the Company for $2.25 per share, net
to the seller, in cash, without interest. As a result of the tender offer, the Acquirer obtained
93% of the Companys outstanding common shares. Collectively, the process that led to the offer
and the completion of the tender offer is referred to herein as the Shareholder Transaction. On December 15, 2004 the Companys common stock was deregistered and is no longer trading on
The NASDAQ SmallCap Market. There is no assurance that the Companys shares will
be traded on the over-the-counter bulletin board, or that price quotations will be reported through
any other sources. In addition, the Company has suspended its reporting obligations under the
Securities Exchange Act of 1934, effective as of March 15, 2005. Notwithstanding the suspension of its obligation to file periodic financial reports, by the
terms of the Companys indenture governing its 9-5/8% Senior Subordinated Notes due May 14, 2008,
the Company is required to voluntarily file annual, periodic and current reports with the SEC as a
voluntary filer so long as the indenture covenants remain in effect. In connection with the Shareholder Transaction, the Company incurred costs during the first
quarters of 2005 and 2004 of $0.1 million and $0.3 million, respectively. These costs included
legal fees and other related costs. Critical Accounting Estimates The estimates and assumptions involved in the application of generally accepted accounting
principles (GAAP) have an impact on the Companys reported financial condition and operating
performance. The Company has identified the critical accounting estimates as those that involve
high 15




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##### Table of Contents



levels of subjectivity and judgment to account for uncertain or difficult to predict matters
that could have a material impact on financial condition or operating performance. A summary of the critical accounting estimates is as follows:  
    Allowances for retailer deductions and trade programs Allowances for retailer deductions and customer programs are recognized when sales are
recorded. Allowances are based on various market data, historical trends and information from
customers. Although the best information reasonably available to the Company is used to
establish the allowances, such information is often based on estimates of retailer recovery
rates and future sales to retailers. Retailer programs are often based on annual sales levels
in total and by product category. Different recovery rates apply depending on the annual sales
levels achieved. As such, judgments are required on an interim basis of the expected full year
sales level by customer and product category. Because of the judgment involved, interim
estimates can vary significantly from the full year actual determination of program costs. At
year-end a more accurate assessment of the current years costs can be made. Retailers recover
the program costs through deductions against future amounts owed to the Company. It is not
unusual for retailers to have a different judgment of the amounts earned than does the Company.
Accordingly, the Company maintains allowances for any differences that may arise. Resolution of
such differences can sometimes take up to several years depending on the particular program.
Allowances are reviewed quarterly and are adjusted based on current estimates of retailer
recovery and future sales. Due to changes in estimates, changes in retailer activity and the
length of time required for many programs to run their course, it is possible for allowance
activity to materially impact operating performance and financial condition in any given period.
In the first thirteen weeks of 2005, the allowances for retailer deductions and trade programs
as a percentage of gross sales were 5.8%, unchanged from the first quarter of 2004. Due to
changes in estimates during the year, interim results can vary from the full year result.  
    Allowance for doubtful accounts The Company evaluates the collectibility of its accounts receivable based upon an analysis
of historical trends, aging of accounts receivable, write-off experience and credit evaluations
of selected high risk customers. In the event of a specific customer bankruptcy or
reorganization, specific allowances are established to write down accounts receivable to the
level of anticipated recovery. The Company may consult with third-party purchasers of
bankruptcy receivables when establishing specific allowances. The determination of specific
allowances involves management judgments about the expected financial viability of its
customers. Changes in specific allowances for doubtful accounts would only be material to
financial condition and operating performance to the extent any change involved one of the
Companys 10 largest customers. The 10 largest customers accounted for approximately 82% of net
sales in the first thirteen weeks of 2005 and 75% of accounts receivable at April 2, 2005. No
material changes in allowances for doubtful accounts involving any of our 10 largest customers
was recorded in the first thirteen weeks of 2005.  
    Inventory valuation The Company values inventory at cost (not in excess of market) determined by the first-in,
first-out (FIFO) method. Inventory costs are based on standard costs, adjusted for actual
manufacturing and raw material purchase price variances. The Company includes material, labor
and manufacturing overhead in the cost of inventories. Management regularly reviews inventory
for salability and has established allowances to record inventory at the lower of cost or
market. The allowances are based on managements judgments regarding future selling prices and
costs of disposal. Such judgments are impacted by economic conditions, condition of the
inventory and age of the inventory. Such judgments involve high degrees of uncertainty and
subjectivity. Accordingly, changes in estimates can have a material impact on reported results
or financial condition. 16




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##### Table of Contents




    Valuation of deferred income taxes The Company regularly evaluates its ability to recover the reported amount of its net
deferred tax assets. The evaluation considers several factors,
including the Companys estimate of the
likelihood that it will generate sufficient taxable income in future years in which temporary
differences reverse. This evaluation is based primarily on the
Companys historical earnings, projected
operating results, applicable net operating loss carryforward expiration dates and identified
actions under the control of the Company in realizing the associated carryforward benefits. The
Company had $35 million of deferred tax assets as of January 1, 2005, resulting
from net operating loss carryforwards, and other deductible temporary differences, which may
reduce taxable income in future periods to the extent the Company generates profits. Because
the value of the deferred tax assets are fully reserved, changes in estimates of future
operating performance could result in a reduction of the valuation allowances and a
corresponding decrease in income tax expense. The changes in the valuation allowances in any
future interim period or fiscal year could be material. The completion of the Shareholder Transaction on December 13, 2004 constituted an ownership
change under Section 382 of the Internal Revenue Code of 1986, as amended, and the use of any of
the Companys net operating loss carryforwards generated prior to the ownership change is
subject to certain limitations. The utilization of such remaining net operating losses is
subject to an annual limitation of approximately $0.7 million.
The Company is in the process of evaluating the impact of the net
built-in gain on this limitation. As a result, a certain portion of
the net operating losses will expire before they can be utilized. During
both the thirteen weeks ended April 2, 2005 and March 27,
2004, the Company recorded non-cash deferred income tax expense of
$0.7 million. This charge was required because the Company
currently has a significant deferred tax liability related to
goodwill with lower tax than book basis as a result of continued amortization of goodwill for tax purposes. Following the
adoption of SFAS No. 142, Goodwill and Other Intangible
Assets, the deferred tax liability related to the
Companys goodwill must now be considered as a liability related
to an asset with an indefinite life which can no longer support the
realization of deferred tax assets. Historically, the Company did not
need a valuation allowance as the book basis of goodwill was lower than
the tax basis. This was the result of a goodwill impairment charge
which was recorded in fiscal year 2000. In 2004, the continued
amortization of goodwill for tax purposes has resulted in a lower tax
basis than book basis. Therefore, the Company has recorded an
additional income tax provision to increase its deferred tax asset
valuation allowance. In the future, the Company will increase the
valuation allowance with a corresponding deferred tax provision as the
deferred tax liability related to the goodwill amortization
increases.  
    Valuation of Long-Lived and Intangible Assets The Company assesses the recoverability of long-lived assets whenever it determines that
events or changes in circumstances indicate that their carrying amount may not be recoverable.
In accordance with GAAP, indefinite lived intangible assets are subject to annual impairment
tests. The Companys assessments and impairment testing are primarily based upon management
estimates of future cash flows associated with these assets. Should the Companys operating
results, or estimated future results, deteriorate, the Company may determine that some portion
of our long-lived tangible or intangible assets are impaired. Such determination could result
in non-cash charges that could materially affect the Companys consolidated financial position
or results of operations for that period. At April 2, 2005, intangible assets were $72.9
million and long-lived assets (property, plant and equipment) were $30.0 million. No impairment
charges were incurred in the first thirteen weeks of 2005. Thirteen weeks ended
April 2, 2005 (as restated) compared to the thirteen weeks ended
March 27, 2004 (as restated) In the discussion and analysis that follows, all references to 2005 are for the thirteen week
period ended April 2, 2005 and all references to 2004 are for the thirteen week period ended March
27, 2004. The
following discussion and analysis compares the restated results for the first quarter of
2005 to the restated results for the first quarter of 2004 with reference to the following (in thousands, except net loss per share; unaudited): Thirteen weeks endedApril 2, 2005
    
    

March
27, 2004As restated
    
    
    As restatedNet sales
    
    $
    51,391
    
    
    
    100.0
    %
    
    $
    53,190
    
    
    
    100.0
    %Cost of goods sold
    
    
    45,107
    
    
    
    87.8
    %
    
    
    43,289
    
    
    
    81.4
    %Gross profit
    
    
    6,284
    
    
    
    12.2
    %
    
    
    9,901
    
    
    
    18.6
    %Selling, general and administrative expenses
    
    
    7,681
    
    
    
    15.0
    %
    
    
    6,440
    
    
    
    12.1
    %Shareholder transaction costs
    
    
    118
    
    
    
    0.2
    %
    
    
    273
    
    
    
    0.5
    %
 17




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##### Table of Contents



Thirteen weeks endedApril 2, 2005
    
    

March
27, 2004As restated
    
    
    As restatedAmortization of intangible assets
    
    
    25
    
    
    
    0.0
    %
    
    
    124
    
    
    
    0.2
    %Operating profit (loss)
    
    
    (1,540
    )
    
    
    (3.0
    %)
    
    
    3,064
    
    
    
    5.8
    %Interest expense
    
    
    (3,486
    )
    
    
    (6.8
    %)
    
    
    (3,255
    )
    
    
    (6.1
    %)Other expense, net
    
    
    (13
    )
    
    
    (0.0
    %)
    
    
    (5
    )
    
    
    (0.0
    %)Loss before income taxes
    
    
    (5,039
    )
    
    
    (9.8
    %)
    
    
    (196
    )
    
    
    (0.3
    %)Income tax expense
    
    
    (726
    )
    
    
    (1.4
    %)
    
    
    (720
    )
    
    
    (1.4
    %)Net loss
    
    $
    (5,765
    )
    
    
    (11.2
    %)
    
    $
    (916
    )
    
    
    (1.7
    %)Net loss per share  basic
    
    $
    (0.71
    )
    
    
    
    
    
    $
    (0.12
    )Net loss per share  diluted
    
    $
    (0.71
    )
    
    
    
    
    
    $
    (0.12
    )Weighted average common shares
outstanding:Basic
    
    
    8,155
    
    
    
    
    
    
    
    7,987Diluted
    
    
    8,155
    
    
    
    
    
    
    
    7,987
 Net sales.2005 first quarter net sales of $51.4 million were down 3.4% as compared to net
sales in the first quarter of 2004 of $53.2 million. Sales were down due to decreased unit sales
across all product lines to our largest customers. Sales to the top three customers were 68% of
net sales as compared to 74% in the prior period. Selling prices were up $4.1 million as compared
to the prior year period. Gross profit.The Companys gross profit in the first quarter of 2004 was $6.3 million as
compared to $9.9 million in the first quarter of 2004 and gross profit margins decreased to 12.2%
of net sales from 18.6% a year ago. Margins were influenced by a number of factors, including:  
    The cost of raw materials increased resulting in a $5.9 million cost increase as
compared to the first quarter of 2004;
    Selling price increases of $4.1 million partially recovered the additional raw
material costs;
    Gross sales decrease (net of selling price increases) of $6.0 million resulted in
lost gross profit of $1.1 million;
    Factories produced less units resulting in a reduction of overhead absorption. The
lower running rates resulted in additional costs of $1.7 million; and
    Costs related to the January 2004 closing of the Eagan Minnesota facility were $0.6
million in the first quarter of 2004. Selling, general and administrative expenses. SG&A expenses of $7.7 million in the first
quarter of 2005 were up $1.2 million compared to a year ago. SG&A expenses in 2005 included $1.2
million of severance related to management changes since the Shareholder Transaction. Expenses in
2004 were favorably impacted by a $0.5 million bad debt recovery. Shareholder transaction costs.In the first quarter of 2005, the
Company incurred $0.1 million of legal costs. In the first quarter of 2004, the Company incurred legal costs related to
the process that culminated with the Shareholder Transaction. Interest expense. Interest expense of $3.5 million in 2005 was up $0.2 million from the prior
year period. Borrowings in late 2004 to pay expenses related to the Shareholder Transaction
resulted in higher debt levels as compared to a year ago. 18




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##### Table of Contents



Income tax expense. During the first quarter of 2005 and 2004, the Company
recorded a non-cash deferred income tax provision of
$0.7 million relating the Companys goodwill. Following the
adoption of SFAS No. 142, the deferred tax liability related to
the Companys goodwill must now be considered as a liability
related to an asset with an indefinite life which can no longer support the realization of deferred tax assets.
See Note 9 Income Taxes in the notes to condensed consolidated financial statements for additional
information. The Company continued to record a valuation allowance on
its deferred tax assets through April 2, 2005, due to the uncertainty regarding future profitability. Net loss.
The net loss in the first quarter of 2005 was $5.8 million, up significantly from
the 2004 first quarter loss of $0.9 million. Lower sales, increased raw material costs, reduced
factory running rates and the severance and retention costs related to changes in management were
the primary reasons for the increased loss. The loss per diluted share was $(0.71) as compared to
$(0.12) in the first quarter of 2004. The diluted weighted average number of shares outstanding increased to 8,154,587 in 2005 from
7,986,556 a year ago. Options and warrants were not included in the computation of
diluted weighted average shares outstanding because the assumed exercise of such equivalents would
have reduced the loss per share. Capital Resources and Liquidity The Companys primary sources of liquidity and capital resources include cash provided from
operations and borrowings under the Companys asset-based $60 million Amended and Restated Loan and
Security Agreement (the Amended Loan Agreement). On December 14, 2004, the Company and Fleet
Capital Corporation entered into the Amended Loan Agreement to accommodate operations subsequent to
the Shareholder Transaction. The changes within the Amended Loan Agreement included an increase in
the line of credit from $50 million to $60 million, an extension of the term of the agreement by 9
months to December 13, 2008, a reduction of applicable interest rates by 25 basis points and a
reduction of the minimum excess availability requirement from $9.2 million to $5.0 million. The
covenants restricting changes of ownership and changes of control of the Company have been revised
to reflect the new ownership structure of the Company following the Shareholder Transaction. The Company generates cash by the profitable sale of its products. Disbursements of cash for
materials and services generally occur during the manufacturing and purchasing process, which is
usually 30-90 days prior to sale. Collection of receivables generally occurs approximately 45-60
days after shipment. For certain large promotional items that typically ship in the fourth
quarter, the Company begins building inventory in the second and third quarters. The inventory for
these promotional items typically is not turned to cash until the first quarter of the following
year. The timing of cash flows is further impacted by the semi-annual interest payments on the
high-yield bonds. Interest payments of about $5.6 million occur in May and November. As a result
of the operational seasonality and the timing of the interest payments, the Company normally has
positive cash flow in the first quarter and negative cash flow for the balance of the year. During
the first quarter of 2005, the Company had positive cash flow (which the Company defines as the net
change in cash and debt) of $13.5 million as compared to positive cash flow in the first quarter of
2004 of $12.6 million. During 2004, the Companys cash and cash equivalents increased to $1.4 million at April 2,
2005 from $1.1 million at January 1, 2005. Borrowings under the Amended Loan Agreement decreased
$13.2 million during the first quarter due primarily to reductions in working capital. Working capital (excluding cash and short term debt) at April 2, 2005 was $28.2 million, down
$16.2 million from January 1, 2005. Receivables decreased $21 million due to seasonally lower
sales in the first quarter of 2005 as compared to the fourth quarter of 2004. Inventories
increased $3.7 million due to higher raw material costs and seasonal builds for later shipment.
Accounts payable and accrued liabilities decreased $2.1 million due primarily to the timing of
certain payments to vendors. Capital spending in the first quarter of 2005 was $0.3 million as compared to $0.9 million in
2004. Capital spending was primarily related to new product tooling and normal replacement of
equipment. In addition, the settlement of an environmental escrow account related to a 1997
acquisition generated $0.4 million of cash in the first quarter of 2005. 19




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##### Table of Contents



The Amended Loan Agreement covenants require the Company to maintain excess availability at
all times of at least $5.0 million. At April 2, 2005, the eligible asset base was $50.1 million.
Thus, the Company could borrow up to $45.1 million under the Amended Loan Agreement. At April 2,
2005, there were $11.8 million of borrowings under the Amended Loan Agreement and outstanding
letters of credit totaled $1.9 million. Accordingly, the Company still had availability under the
Amended Loan Agreement of $31.4 million. Despite the first quarter operating loss the Company
expects there to be sufficient financing capability to fund operations for at least the next twelve
months. The Companys Amended Loan Agreement contains one financial covenant pertaining to a minimum
cash interest coverage ratio. The cash interest coverage ratio was required to be no lower than 1.0 at the
end of 2004 at which point the ratio begins a quarterly increase until it reaches 1.25 in June
2005. At April 2, 2005, the Companys cash interest coverage ratio was 1.74. The earnings
component of the covenant is the trailing twelve-month earnings before interest, taxes,
depreciation and amortization. Certain costs related to factory realignments and the Shareholder
Transaction are excluded. For the twelve months ended April 2, 2005, the earnings component of the
covenant was $22.9 million. For a definition of cash interest coverage ratio as it is used in the
Amended Loan Agreement, refer to the Amended Loan Agreement that was filed as an exhibit to the
Companys 2004 Annual Report, as amended, on Form 10-K. The Company was in compliance with all Amended Loan Agreement covenants as of April 2, 2005. The following is a table providing the aggregate annual contractual obligations of the Company
including debt, capital lease obligations, future minimum rental commitments under operating leases
and purchase obligations at April 2, 2005 and the effect such obligations are expected to have on
the Companys liquidity and cash flows in future periods. Payments Due by Period(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
    
    
    4,667
    
    
    
    71
    
    
    
    182
    
    
    
    254
    
    
    
    4,160Minimum rental commitments under operating leases
    
    
    17,948
    
    
    
    4,915
    
    
    
    7,646
    
    
    
    5,387Purchase obligations (estimated) (1)
    
    
    131,500
    
    
    
    73,000
    
    
    
    58,500
    
    
    
    
    
    
    
    Total contractual cash obligations
    
    $
    270,165
    
    
    $
    77,986
    
    
    $
    66,328
    
    
    $
    121,691
    
    
    $
    4,160
   (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 $73
million in 2005 and $59 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, as amended, for fiscal 2004, which is incorporated herein by reference, for
further details. 20




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##### Table of Contents



Financing commitments expiring by period(in thousands)AfterTotal
    
    
    1 year
    
    
    2-3 years
    
    
    4-5 years
    
    
    5 yearsStandby letters of credit
    
    $
    1,850
    
    
    $
    1,850
    
    
    $
    
    
    
    $
    
    
    
    $
    
 Off-Balance Sheet Arrangements The Company has no off-balance sheet arrangements. Material Weakness in
Internal Controls and Procedures As
set forth in Item 4  Controls and procedures,
the Company has reported that management had identified a material
weakness in its internal controls and procedures over financial
reporting. Specifically, during the close process for its second
quarter of 2005 financial statements, KPMG LLP, the Companys independent
registered public accounting firm and management, identified errors
in the Companys treatment regarding a deferred tax liability
relating to goodwill and certain other adjustments that were
inaccurately reflected in its financial statements. As discussed
under Item 4  Controls and Procedures, beginning
in 2004, the Company accounted for its deferred tax liability related
to goodwill as a reversing taxable temporary difference. The Company
recorded various non-cash adjustments that had no impact on the
Companys compliance with covenants related to either its
$60 million revolving credit facility of which
$25.0 million was outstanding as of January 1, 2005 and
$11.8 million as of April 2, 2005, its
95/8% Senior
Subordinated Notes due 2008 of which $116 million was
outstanding at January 1, 2005 and on April 2, 2005, or its
payment of incentives to management. While
the errors in financial reporting that related to the material
weakness were corrected in its restated financial statements, the
Companys management intends to correct the material weakness as
soon as possible. Because a material weakness is defined as a control
deficiency, or combination of control deficiencies, that results in a
more than remote likelihood that a material misstatement of annual or
interim financial statements will not be prevented or detected, the
Companys management believes that prompt remediation of the
material weakness will mitigate the uncertainty presented by the
possibility of material misstatements in the Companys reported
financial information and in the accuracy and completeness of its
financial reports. If the Company is again unable to assert that its
internal control over financial reporting is effective in any future
period, the existence of the reported material weakness could
represent a trend or uncertainty affecting the accuracy of the
Companys consolidated financial statements. As of the date of
this Amendment, the Company has identified and undertaken several
actions to remediate the reported material weakness in internal
controls over financial reporting. Due to the nature of the control
deficiency related to this material weakness, and pending completion
of its subsequent review processes for its financial statements, the
Company believes it is premature, as of the date of this Amendment,
to determine whether it has effectively corrected the reported
material weakness. 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. After emerging from bankruptcy in May 2003,
Kmart has improved its financial performance and has operated within its financial covenants.
However, Kmart continues to experience declines in same store sales and has further reduced
its store count during 2004. Kmart has paid all of its current obligations to the Company on
time and we do 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. Resin costs have continued to increase
in 2005 and the Company expects that costs in the remainder of
2005 will exceed costs incurred during 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 our 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. We the Company continue to analyze the
competitiveness of our 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. 21




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##### Table of Contents




    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. 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 our 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 The Companys primary market risk is impacted by changes in interest rates and price
volatility of certain commodity based raw materials. Interest Rate Risk. The Companys revolving credit agreement is LIBOR-based and is subject to
interest rate movements. During the thirteen weeks ended April 2, 2005, the Company did not
experience any material changes in interest rate risk that would affect the disclosures presented
in the Companys Annual Report on Form 10-K/A for the fifty-three week period ended January 1, 2005. Commodity Risk. The Company is subject to price fluctuations in commodity based raw materials
such as plastic resin, steel and griege fabric. Changes in the cost of these materials may have a
significant impact on the Companys operating results. The cost of these items is affected by many
factors outside of the Companys control and changes to the current trends are possible. See
Business Risks and Management Outlook above. 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
$73 million in 2005 and $59 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. 22




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##### Table of Contents



ITEM 4. Controls and Procedures
 15d-15(e)
 5 8
    
    
    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.
  Forward Looking Statements This, amended, quarterly report on Form 10-Q, including the Managements Discussion and Analysis of
Financial Condition and Results of Operations, Business Risks and Management Outlook and
Quantitative and Qualitative Disclosures about Market Risk sections, contain forward-looking
statements within the meaning of the safe-harbor provisions of the Private Securities Litigation
Reform Act of 1995. Forward-looking statements generally may be identified by the use of
terminology such as may, will, could, should, potential, continue, expect, intend,
plan, estimate, anticipate, believe, or similar phrases or the negatives of such terms.
Such statements are based on managements current expectations and are subject to risks,
uncertainties and assumptions, including those identified below and in the foregoing Business
Risks and Management Outlook, as well as other matters not yet known to the Company or not
currently considered material by the Company, which could cause actual results to differ materially
from those described in the forward-looking statements. Such factors and uncertainties include, but
are not limited to:  
    general economic conditions and conditions in the retail environment;
    the Companys dependence on a few large customers; 23




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##### Table of Contents




    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 above. Given these risks and uncertainties, investors are cautioned not to place undue reliance on
such forward-looking statements. Forward-looking statements do not guarantee future performance.
The Companys operating results may fluctuate, especially when measured on a quarterly basis.
Except as required by law, the Company undertakes no obligation to republish revised
forward-looking statements to reflect events or circumstances after the date hereof or to reflect
the occurrence of unanticipated events. Readers are also urged to carefully review and consider
the various disclosures made by the Company in this report and in the Companys reports on Forms
10-K, 10-Q and 8-K (and any amendments there to) and other filings with the Securities and Exchange Commission. Such reports
attempt to advise interested parties of the factors that affect the Companys business. 
 PART II. OTHER INFORMATION 
 Item 1. Legal Proceedings The Company is party to various claims, legal actions and complaints including product
liability litigation, arising in the ordinary course of business. In the opinion of management,
all such matters are adequately covered by insurance or will not have a material adverse effect on
the Companys consolidated financial position, results of operations or liquidity. On June 4, 2004, a complaint was filed in the Chancery Division of the Circuit Court of Cook
County, Illinois against the Company and our directors. The complaint purported to be filed by a
stockholder and alleged that in entering into the Agreement and Plan of Merger, by and between the
Company and JRT Acquisition, Inc. (JRT), as amended by the certain First Amendment to the
Agreement and Plan of Merger, dated October 11, 2004 (the JRT Agreement), the Companys board of
directors breached their fiduciary duties of loyalty, due care, independence, good faith and fair
dealing. The complaint included a request for a declaration that the action be maintained as a
class action. On May 5, 2005 the Chancery Division of the Circuit Court of Cook County, Illinois
dismissed the action without prejudice. 
 Item 2. Unregistered Sales of Equity Securities and Use of Proceeds None. 
 Item 3. Defaults Upon Senior Securities None. 
 Item 4. Submission of Matters to a Vote of Security Holders None. 
 Items 5. Other Information Not applicable. 24




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##### Table of Contents



Item 6. Exhibits 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.
 25




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##### Table of Contents



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. Home Products International, Inc.By:
    
    /s/ Donald J. HotzDonald
J. Hotz
          Chief Financial Officer
          (Principal Financial Officer)By:
    
    /s/ Mark J. SuchinskiMark J. Suchinski
          Vice President and
          Chief Accounting Officer
          (Principal Accounting Officer)
 Dated:
September 16, 2005 26