##### 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 October 1, 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
incorporation or organization)
    
    (I.R.S. Employer
Identification No.)4501 West 47th Street
Chicago, Illinois
    
    60632(Address of principal
executive offices)
    
    (Zip Code)
  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
    
    
    16Item 3. Quantitative and Qualitative Disclosures
About Market Risk
    
    
    29Item 4. Controls and Procedures
    
    
    29Part II. Other InformationItem 1. Legal Proceedings
    
    
    31Item 2. Unregistered Sales of Equity Securities and Use of Proceeds
    
    
    31Item 3. Defaults Upon Senior Securities
    
    
    31Item 4. Submission of Matters to a Vote of Security Holders
    
    
    31Item 5. Other Information
    
    
    31Item 6. Exhibits
    
    
    31Signatures
    
    
    33Certification of Chief Executive OfficerCertification of Chief Financial Officer
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##### Table of Contents



PART I. FINANCIAL INFORMATION
 
 Item 1. Financial Statements
 HOME PRODUCTS INTERNATIONAL, INC.
 
 Condensed Consolidated Balance Sheets
   January 1,October 1,
    
    
    20052005
    
    
    As RestatedAssetsCurrent assets:Cash and cash equivalents
    
    $
    205
    
    
    $
    1,146Accounts receivable, net
    
    
    31,754
    
    
    
    51,473Inventories
    
    
    32,344
    
    
    
    30,292Prepaid expenses and other current assets
    
    
    1,843
    
    
    
    2,787Total current assets
    
    
    66,146
    
    
    
    85,698Property, plant and equipment  at cost
    
    
    95,460
    
    
    
    95,419Less accumulated depreciation
    
    
    (68,086
    )
    
    
    (63,951
    )Property, plant and equipment, net
    
    
    27,374
    
    
    
    31,468Other intangibles, net
    
    
    27
    
    
    
    100Goodwill, net
    
    
    72,780
    
    
    
    73,182Other non-current assets
    
    
    1,980
    
    
    
    1,865Total assets
    
    $
    168,307
    
    
    $
    192,313Liabilities and Stockholders DeficitCurrent liabilities:Revolving line of credit and other current debt
    
    $
    11,819
    
    
    $
    25,091Accounts payable
    
    
    19,001
    
    
    
    25,723Accrued liabilities
    
    
    19,012
    
    
    
    14,450Total current liabilities
    
    
    49,832
    
    
    
    65,264Long-term obligations  net of current debt
    
    
    120,600
    
    
    
    120,655Deferred income taxes
    
    
    4,996
    
    
    
    2,852Other liabilities
    
    
    4,511
    
    
    
    4,449Total liabilities
    
    
    179,939
    
    
    
    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 October 1, 2005 and January 1, 2005
    
    
    90
    
    
    
    90Additional paid-in capital
    
    
    50,677
    
    
    
    50,677Accumulated deficit
    
    
    (55,898
    )
    
    
    (45,173
    )Common stock held in treasury  at cost; 810,174 shares at
October 1, 2005 and January 1, 2005
    
    
    (6,501
    )
    
    
    (6,501
    )Total stockholders deficit
    
    
    (11,632
    )
    
    
    (907
    )Total liabilities and stockholders deficit
    
    $
    168,307
    
    
    $
    192,313
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HOME PRODUCTS INTERNATIONAL, INC.
 
 Condensed Consolidated Statements of Operations
 
 Thirteen weeks
    
    
    Thirty-nine weeksended
    
    
    endedSept. 25,
    
    
    
    
    
    
    Sept. 25,October 1,
    
    
    2004
    
    
    October 1,
    
    
    20042005
    
    
    As Restated
    
    
    2005
    
    
    As RestatedNet sales
    
    $
    55,556
    
    
    $
    66,219
    
    
    $
    163,502
    
    
    $
    183,615Cost of goods sold
    
    
    45,173
    
    
    
    55,747
    
    
    
    139,600
    
    
    
    152,617Gross profit
    
    
    10,383
    
    
    
    10,472
    
    
    
    23,902
    
    
    
    30,998Operating expenses:Selling and marketing
    
    
    4,301
    
    
    
    3,833
    
    
    
    12,158
    
    
    
    11,320General and administrative
    
    
    2,483
    
    
    
    2,587
    
    
    
    9,660
    
    
    
    8,868Shareholder transaction costs
    
    
    (147
    )
    
    
    476
    
    
    
    161
    
    
    
    1,237Amortization of intangible assets
    
    
    24
    
    
    
    124
    
    
    
    73
    
    
    
    372Operating profit
    
    
    3,722
    
    
    
    3,452
    
    
    
    1,850
    
    
    
    9,201Non-operating income (expense):Interest income
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    4Interest expense
    
    
    (3,417
    )
    
    
    (3,343
    )
    
    
    (10,378
    )
    
    
    (9,872
    )Other income (expense), net
    
    
    (13
    )
    
    
    4
    
    
    
    (32
    )
    
    
    25Net non-operating expense
    
    
    (3,430
    )
    
    
    (3,339
    )
    
    
    (10,410
    )
    
    
    (9,843
    )Income (loss) before income taxes
    
    
    292
    
    
    
    113
    
    
    
    (8,560
    )
    
    
    (642
    )Income tax expense
    
    
    (721
    )
    
    
    (719
    )
    
    
    (2,165
    )
    
    
    (2,162
    )Net loss
    
    $
    (429
    )
    
    $
    (606
    )
    
    $
    (10,725
    )
    
    $
    (2,804
    )Net loss per common share:Basic
    
    $
    (0.05
    )
    
    $
    (0.08
    )
    
    $
    (1.32
    )
    
    $
    (0.35
    )Diluted
    
    $
    (0.05
    )
    
    $
    (0.08
    )
    
    $
    (1.32
    )
    
    $
    (0.35
    )Weighted average common shares outstanding-basic
    
    
    8,154,587
    
    
    
    7,991,792
    
    
    
    8,154,587
    
    
    
    7,988,321Weighted average common shares outstanding-diluted
    
    
    8,154,587
    
    
    
    7,991,792
    
    
    
    8,154,587
    
    
    
    7,988,321
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HOME PRODUCTS INTERNATIONAL, INC.
 
 Condensed Consolidated Statements of Cash Flows
   Thirty-nine weeks endedSept. 25,Oct. 1,
    
    
    20042005
    
    
    As RestatedOperating activities:Net loss
    
    $
    (10,725
    )
    
    $
    (2,804
    )Adjustments to reconcile net loss to net
cash provided by operating activities:Depreciation and amortization
    
    
    5,921
    
    
    
    6,539Noncash gain on insurance settlement
    
    
    
    
    
    
    (150
    )Deferred income taxes
    
    
    2,144
    
    
    
    2,139Loss on the disposal of assets
    
    
    16
    
    
    
    6Changes in working capital:Decrease in accounts receivable
    
    
    19,719
    
    
    
    6,244Increase in inventories
    
    
    (2,052
    )
    
    
    (16,793
    )Decrease in other current assets
    
    
    944
    
    
    
    456(Decrease) increase in accounts payable
    
    
    (6,722
    )
    
    
    4,141Increase in accrued liabilities
    
    
    4,562
    
    
    
    1,855Other non current assets
    
    
    (115
    )
    
    
    2,214Other long term liabilities
    
    
    62
    
    
    
    (1
    )Other, net
    
    
    
    
    
    
    552Net cash provided by operating activities
    
    
    13,754
    
    
    
    4,398Investing activities:Settlement of environmental escrow
    
    
    402
    
    
    
    Capital expenditures, net
    
    
    (1,770
    )
    
    
    (5,351
    )Net cash used in investing activities
    
    
    (1,368
    )
    
    
    (5,351
    )Financing activities:Net borrowings (repayments) under loan and security agreement
    
    
    (13,261
    )
    
    
    1,810Payments of capital lease obligation
    
    
    (66
    )
    
    
    (90
    )Exercise of stock options, issuance of common
stock under stock purchase plan and other
    
    
    
    
    
    
    13Net cash (used in) provided by financing activities
    
    
    (13,327
    )
    
    
    1,733Net (decrease) increase in cash and cash equivalents
    
    
    (941
    )
    
    
    780Cash and cash equivalents at beginning of period
    
    
    1,146
    
    
    
    797Cash and cash equivalents at end of period
    
    $
    205
    
    
    $
    1,577Supplemental disclosuresCash paid in the period:Interest
    
    $
    7,212
    
    
    $
    6,677Income taxes
    
    $
    5
    
    
    $
    24
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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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Note 2. Restatement
   See item (a) below for
adjustments to each period included within this Form 10-Q .
 7




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See item (b) below for adjustments to each period included
within this Form 10-Q .
 See item
(c) below for adjustments to each period included within this Form 10-Q .
  Condensed Consolidated Statement of Operations(In thousands, except per share data)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
    )
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Condensed Balance Sheet(In thousands)As PreviouslyAs of January 1, 2005 (Restated):
    
    Reported
    
    
    Adjustments
    
    
    As RestatedProperty,
plant and equipment  at cost
    
    $
    95,361
    
    
    $
    58
    (c)
    
    $
    95,419Accumulated depreciation
    
    $
    (65,718
    )
    
    $
    (233
    )(c)
    
    $
    (63,951
    )Property, plant and equipment
    
    $
    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 deficit
    
    $
    (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
 Condensed Consolidated Statements of Cash Flows(In thousands)As PreviouslyThirty-nine weeks ended September 25, 2004 (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
 9




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Note 3. Stock-Based Compensation Plans
  Thirteen weeks
    
    
    Thirty-nine weeksended
    
    
    endedSept. 25,
    
    
    
    
    
    
    Sept. 25,Oct. 1,
    
    
    2004
    
    
    Oct. 1,
    
    
    20042005
    
    
    As Restated
    
    
    2005
    
    
    As RestatedNet loss as reported
    
    $
    (429
    )
    
    $
    (606
    )
    
    $
    (10,725
    )
    
    $
    (2,804
    )Less: total stock-based compensation
expense determined under fair value based
method for all awards
    
    
    (28
    )
    
    
    (25
    )
    
    
    (69
    )
    
    
    (87
    )Pro forma net loss
    
    $
    (457
    )
    
    $
    (631
    )
    
    $
    (10,794
    )
    
    $
    (2,891
    )Basic loss per common share  as reported
    
    $
    (0.05
    )
    
    $
    (0.08
    )
    
    $
    (1.32
    )
    
    $
    (0.35
    )Basic loss per common share  pro forma
    
    $
    (0.06
    )
    
    $
    (0.08
    )
    
    $
    (1.32
    )
    
    $
    (0.36
    )Diluted loss per common share  as reported
    
    $
    (0.05
    )
    
    $
    (0.08
    )
    
    $
    (1.32
    )
    
    $
    (0.35
    )Diluted loss per common share  pro forma
    
    $
    (0.06
    )
    
    $
    (0.08
    )
    
    $
    (1.32
    )
    
    $
    (0.36
    )
 Note 4. Shareholder Transaction
    10




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Thirteen weeks
    
    
    Thirty-nine weeksended
    
    
    endedOct. 1,
    
    
    Sept. 25,
    
    
    Oct. 1,
    
    
    Sept. 25,2005
    
    
    2004
    
    
    2005
    
    
    2004Legal fees
    
    $
    (147
    )
    
    $
    474
    
    
    $
    86
    
    
    $
    925Investment banking fees
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    232Other related costs
    
    
    
    
    
    
    2
    
    
    
    75
    
    
    
    80Total
    
    $
    (147
    )
    
    $
    476
    
    
    $
    161
    
    
    $
    1,237
   Note 5. Eagan Shutdown
     11




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Note 6. Inventories
  October 1,
    
    
    January 1,2005
    
    
    2005Finished goods
    
    $
    23,209
    
    
    $
    19,540Work-in-process
    
    
    1,158
    
    
    
    1,167Raw materials
    
    
    7,977
    
    
    
    9,585$
    32,344
    
    
    $
    30,292
 Note 7. Goodwill and Patents
 Goodwill:
   TotalBalance at January 1, 2005
    
    $
    73,182Settlement of environmental escrow account
    
    
    (402
    )Balance at October 1, 2005
    
    $
    72,780
  Patents:
   As ofOctober 1, 2005Average
    
    
    Gross
    
    
    
    
    
    
    NetLife
    
    
    Carrying
    
    
    Accumulated
    
    
    Carrying(Yrs.)
    
    
    Amount
    
    
    Amortization
    
    
    AmountAmortized intangible assets:Patents
    
    
    7 to 14
    
    
    $
    1,008
    
    
    $
    (981
    )
    
    $
    27Total
    
    
    
    
    
    $
    1,008
    
    
    $
    (981
    )
    
    $
    27
 12




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##### 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.
  13




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Note 9. Income Taxes
     Note 10. Net Loss Per Share
  Thirteen weeks
    
    
    Thirty-nine weeksended
    
    
    endedSept. 25,
    
    
    
    
    
    
    Sept. 25,Oct. 1,
    
    
    2004
    
    
    Oct. 1,
    
    
    20042005
    
    
    As Restated
    
    
    2005
    
    
    As RestatedNet loss
    
    $
    (429
    )
    
    $
    (606
    )
    
    $
    (10,725
    )
    
    $
    (2,804
    )Weighted average shares outstanding  basic
    
    
    8,154,587
    
    
    
    7,991,792
    
    
    
    8,154,587
    
    
    
    7,988,321Impact of stock options and warrants
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    Weighted average shares outstanding  diluted
    
    
    8,154,587
    
    
    
    7,991,792
    
    
    
    8,154,587
    
    
    
    7,988.321Net loss per share  basic
    
    $
    (0.05
    )
    
    $
    (0.08
    )
    
    $
    (1.32
    )
    
    $
    (0.35
    )Net loss per share  diluted
    
    $
    (0.05
    )
    
    $
    (0.08
    )
    
    $
    (1.32
    )
    
    $
    (0.35
    )
 14




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Note 11. Segment of an Enterprise
  Product Category Information  Net Sales
 Thirteen weeks
    
    
    Thirty-nine weeksended
    
    
    endedOct. 1,
    
    
    Sept. 25,
    
    
    Oct. 1,
    
    
    Sept. 25,2005
    
    
    2004
    
    
    2005
    
    
    2004General storage
    
    $
    21,070
    
    
    $
    29,013
    
    
    $
    59,298
    
    
    $
    79,194Laundry management
    
    
    20,017
    
    
    
    21,224
    
    
    
    58,518
    
    
    
    59,752Closet storage
    
    
    9,764
    
    
    
    9,073
    
    
    
    30,650
    
    
    
    26,835Bathware
    
    
    2,862
    
    
    
    4,390
    
    
    
    9,004
    
    
    
    10,322Kitchen storage
    
    
    1,843
    
    
    
    2,519
    
    
    
    6,032
    
    
    
    7,512Total net sales
    
    $
    55,556
    
    
    $
    66,219
    
    
    $
    163,502
    
    
    $
    183,615
 Major Customers
  Thirteen weeks ended
    
    Thirty-nine weeks endedOct. 1,
    
    Sept. 25,
    
    Oct. 1,
    
    Sept. 25,2005
    
    2004
    
    2005
    
    2004Net Sales %
    
    Net Sales %
    
    Net Sales %
    
    Net Sales %Wal-Mart
    
    
    36.6
    %
    
    
    30.4
    %
    
    
    38.2
    %
    
    
    31.1
    %Kmart
    
    
    27.6
    %
    
    
    27.1
    %
    
    
    22.9
    %
    
    
    26.7
    %Target
    
    
    5.8
    %
    
    
    11.6
    %
    
    
    5.5
    %
    
    
    14.1
    %Total
    
    
    70.0
    %
    
    
    69.1
    %
    
    
    66.6
    %
    
    
    71.9
    %
 15




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ITEM 2. Managements Discussion and Analysis of Financial Condition and Results of Operations
 Forward Looking Statements
  
    
    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.
   16




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##### Table of Contents



Overview
  
    
    Customer base
    
    
    Cost of raw materials
  
    
    Product mix
  17




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
    
    Molding machine utilization
  
    
    Financial liquidity
  Restatement
    18




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##### Table of Contents



Shareholder Transaction
      Critical Accounting Estimates
   
    
    Allowances for retailer deductions and trade programs
  19




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##### Table of Contents




    
    Allowance for doubtful accounts
  
    
    Inventory valuation
  
    
    Valuation of deferred income tax assets
    20




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##### Table of Contents




    
    Valuation of Long-Lived Assets, Indefinite Long-Lived Assets and Intangible Assets
  Recent Accounting Pronouncements
   21




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##### Table of Contents



Thirteen weeks ended October 1, 2005 compared to the thirteen weeks ended September 25, 2004
(as restated)
 In the discussion and analysis that follows, all references to 2005 are for the thirteen week
period ended October 1, 2005 and all references to 2004 are for the thirteen week period ended
September 25, 2004.
  Thirteen weeks endedSeptember 25, 2004October 1, 2005
    
    
    As RestatedNet sales
    
    $
    55,556
    
    
    
    100.0
    %
    
    $
    66,219
    
    
    
    100.0
    %Cost of goods sold
    
    
    45,173
    
    
    
    81.3
    %
    
    
    55,747
    
    
    
    84.2
    %Gross profit
    
    
    10,383
    
    
    
    18.7
    %
    
    
    10,472
    
    
    
    15.8
    %Selling, general and administrative expenses
    
    
    6,784
    
    
    
    12.2
    %
    
    
    6,420
    
    
    
    9.7
    %Shareholder transaction costs (benefits)
    
    
    (147
    )
    
    
    (0.2
    %)
    
    
    476
    
    
    
    0.7
    %Amortization of intangible assets
    
    
    24
    
    
    
    0.0
    %
    
    
    124
    
    
    
    0.2
    %Operating profit
    
    
    3,722
    
    
    
    6.7
    %
    
    
    3,452
    
    
    
    5.2
    %Interest expense
    
    
    (3,417
    )
    
    
    (6.2
    %)
    
    
    (3,343
    )
    
    
    (5.0
    %)Other expense, net
    
    
    (13
    )
    
    
    (0.0
    %)
    
    
    4
    
    
    
    0.0
    %Income before income taxes
    
    
    292
    
    
    
    0.5
    %
    
    
    113
    
    
    
    0.2
    %Income tax expense
    
    
    (721
    )
    
    
    (1.3
    %)
    
    
    (719
    )
    
    
    (1.1
    %)Net loss
    
    $
    (429
    )
    
    
    (0.8
    %)
    
    $
    (606
    )
    
    
    (0.9
    %)Net loss per common share  basic
    
    $
    (0.05
    )
    
    
    
    
    
    $
    (0.08
    )Net loss per common share  diluted
    
    $
    (0.05
    )
    
    
    
    
    
    $
    (0.08
    )Weighted average common shares outstanding:Basic
    
    
    8,155
    
    
    
    
    
    
    
    7,992Diluted
    
    
    8,155
    
    
    
    
    
    
    
    7,992
 22




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##### Table of Contents



Net sales .
 Gross profit.
 Selling, general and administrative expenses (SG&A)
 Shareholder transaction costs.
 Interest expense
 Income tax expense
 Net loss.
  Thirty-nine weeks ended October 1, 2005 compared to the thirty-nine weeks ended
September 25, 2004 (as restated)
 In the discussion and analysis that follows, all references to 2005 are for the thirty-nine
week period ended October 1, 2005 and all references to 2004 are for the thirty-nine week period
ended September 25, 2004.
 23




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##### Table of Contents



Thirty-nine weeks endedSeptember 25, 2004October 1, 2005
    
    
    As RestatedNet sales
    
    $
    163,502
    
    
    
    100.0
    %
    
    $
    183,615
    
    
    
    100.0
    %Cost of goods sold
    
    
    139,600
    
    
    
    85.4
    %
    
    
    152,617
    
    
    
    83.1
    %Gross profit
    
    
    23,902
    
    
    
    14.6
    %
    
    
    30,998
    
    
    
    16.9
    %Selling, general and administrative expenses
    
    
    21,818
    
    
    
    13.4
    %
    
    
    20,188
    
    
    
    11.0
    %Shareholder transaction costs
    
    
    161
    
    
    
    0.1
    %
    
    
    1,237
    
    
    
    0.7
    %Amortization of intangible assets
    
    
    73
    
    
    
    0.0
    %
    
    
    372
    
    
    
    0.2
    %Operating profit (loss)
    
    
    1,850
    
    
    
    1.1
    %
    
    
    9,201
    
    
    
    5.0
    %Interest expense
    
    
    (10,378
    )
    
    
    (6.3
    %)
    
    
    (9,872
    )
    
    
    (5.4
    %)Other expense, net
    
    
    (32
    )
    
    
    (0.0
    %)
    
    
    29
    
    
    
    0.0
    %Loss before income taxes
    
    
    (8,560
    )
    
    
    (5.2
    %)
    
    
    (642
    )
    
    
    (0.4
    %)Income tax expense
    
    
    (2,165
    )
    
    
    (1.3
    %)
    
    
    (2,162
    )
    
    
    (1.2
    %)Net loss
    
    $
    (10,725
    )
    
    
    (6.5
    %)
    
    $
    (2,804
    )
    
    
    (1.6
    %)Net loss per share  basic
    
    $
    (1.32
    )
    
    
    
    
    
    $
    (0.35
    )Net loss per share  diluted
    
    $
    (1.32
    )
    
    
    
    
    
    $
    (0.35
    )Weighted average common shares outstanding:Basic
    
    
    8,155
    
    
    
    
    
    
    
    7,988Diluted
    
    
    8,155
    
    
    
    
    
    
    
    7,988
 Net sales .
 Gross profit.
 Selling, general and administrative expenses (SG&A)
 24




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##### Table of Contents



Shareholder transaction costs.
 Interest expense
 Income tax expense
 Net loss.
  Liquidity and Capital Resources
 Liquidity
  Thirty-nine weeksendedOct. 1,
    
    Sept. 25,2005
    
    2004Net cash provided by operating activities
    
    $
    13.8
    
    
    $
    4.4Net cash used in investing activities
    
    
    (1.4
    )
    
    
    (5.3
    )Net cash (used in) provided by financing activities
    
    
    (13.3
    )
    
    
    1.7Net (decrease) increase in cash and cash equivalents
    
    $
    (0.9
    )
    
    $
    0.8
 25




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##### Table of Contents



Net cash provided by operating activities:
  Net cash used in investing activities:
  Net cash (used in) provided by financing activities:
  Capital Resources
    26




---



##### 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
    
    
    4,627
    
    
    
    77
    
    
    
    210
    
    
    
    277
    
    
    
    4,063Minimum rental commitments under operating leases
    
    
    21,835
    
    
    
    4,893
    
    
    
    8,952
    
    
    
    4,803
    
    
    
    3,187Purchase obligations (estimated) (1)
    
    
    70,041
    
    
    
    16,688
    
    
    
    53,353
    
    
    
    
    
    
    
    Total contractual cash obligations
    
    $
    212,553
    
    
    $
    21,658
    
    
    $
    178,565
    
    
    $
    5,080
    
    
    $
    7,250
 
 (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 September 2005 price levels, are
$16.7 million in 2005 and $53.4 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/A for fiscal 2004, which is incorporated
herein by reference, for further details. Financing commitments expiring by period(Dollars in thousands)Less than
    
    
    
    
    
    
    
    
    
    
    AfterTotal
    
    
    1 year
    
    
    1-3 years
    
    
    3-5 years
    
    
    5 yearsStandby letters of credit
    
    $
    2,700
    
    
    $
    2,700
    
    
    $
    
    
    
    $
    
    
    
    $
    
 27




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##### Table of Contents



Business Risks and Management Outlook
 
    
    Historically, plastic resin has represented approximately 20% to
25% of the Companys cost of goods sold. In both 2004 and 2005,
the percentage increased to approximately 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. In addition, the Company
has incurred a significant increase in the cost of resin as the
recent hurricanes in the Gulf of Mexico have resulted in resin
supply shortages. The Company expects costs will remain at these
higher levels into next year, but expect some relief as capacity
continues to come back on-line. While the Company will make every
effort to recover the higher cost of plastic resin, there is no
assurance that current and future resin cost increases can be
passed on to customers. The Company expects the 2005 average cost
of plastic resin to be higher than 2004.
 
    
    One of the Companys largest customers is Kmart. The Companys
net sales to Kmart were 28.3% of consolidated net sales in 2004
and 33.2% of consolidated net sales 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. Kmart has recently completed its merger with Sears and
it is not yet possible to determine the potential impact of the
transaction on Kmarts purchases with the Company.
 
    
    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 greater profit margins. Given the increasing costs of raw
materials and declining profitability of certain products, 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.
 
    
    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 the Companys, causing the Companys profit margins
and market share to decline. The Company has initiated many cost
cutting and other steps to protect the Companys 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 defend or otherwise support the antidumping order, which
 28




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##### Table of Contents



may
require it to devote financial and other resources, including
management time and legal expenses.
 
    
    The Companys three largest customers require unique 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. One of our
customers, 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.
 
    
    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
  29




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##### Table of Contents




    
    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.
  30




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##### Table of Contents



PART II. OTHER INFORMATION
 
 Item 1. Legal Proceedings
  , Slattery v. Home Products Intl, Inc.
  
 Item 2.
Unregistered Sales of Equity Securities and Use of Proceeds
 31




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##### Table of Contents



Item 3. Defaults Upon Senior Securities
 
 Item 4. Submission of Matters to a Vote of Security Holders
 
 Items 5. Other Information
 
 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.
 32




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##### Table of Contents



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)
  33