UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 10-Q
(Mark One)
[ X ] QUARTERLY REPORT PURSUANT TO SECTION 13 or 15(d)
OF THE SECURITIES EXCHANGE ACT OF 1934
For the Period Ended June 26, 1999
or
[ ] 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.
(Exact name of registrant as specified in its Charter)
Delaware 36-4147027
(State or other jurisdiction of (I.R.S Employer
incorporation or organization) Identification No.)
4501 West 47th Street
Chicago, 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 X No
Common shares, par value $0.01, outstanding as of
July 30, 1999 - 7,314,702
<PAGE>
HOME PRODUCTS INTERNATIONAL, INC
INDEX
Page
Number
------
Part I. Financial Information
Item 1. Financial Statements
Condensed Consolidated Balance Sheets 3
Condensed Consolidated Statements of 4
Operations and Retained Earnings
Condensed Consolidated Statements of Cash Flows 5
Notes to Condensed Consolidated Financial
Statements 6
Item 2. Management's Discussion and Analysis
of Financial Condition and Results of Operations 8
Item 3. Quantitative and Qualitative
Disclosures About Market Risk 17
Part II. Other Information
Items 1 through 3 and Item 5 are not applicable
Item 4. Submission of matters to a vote of
Security Holders. 18
Item 6. Exhibits and Reports on Form 8-K. 19
Signature 20
<PAGE>
<TABLE>
PART I Financial Information
ITEM 1. Financial Statements
HOME PRODUCTS INTERNATIONAL, INC.
Condensed Consolidated Balance Sheets
(in thousands, except share amounts)
June 26, December 26
1999 1998
(unaudited)
Assets ------- -------
<S> <C> <C>
Current assets:
Cash and cash equivalents .................. $ 3,027 $ 4,986
Accounts receivable, net ................... 53,067 50,238
Inventories, net ........................... 33,175 25,296
Prepaid expenses and other current assets .. 1,995 6,880
------- -------
Total current assets ..................... 91,264 87,400
Property, plant and equipment - at cost....... 89,763 87,854
Less accumulated depreciation and amortization (27,835) (27,654)
------- -------
Property, plant and equipment, net............ 61,928 60,200
Intangible and other assets................... 190,176 192,443
------- -------
Total assets.................................. $343,368 $340,043
======= =======
Liabilities and Stockholders' Equity
Current liabilities:
Current maturities of long-term obligations $ 3,549 $ 3,549
Accounts payable ........................... 21,923 20,510
Accrued liabilities ........................ 31,959 35,664
------- -------
Total current liabilities ................ 57,431 59,723
Long-term obligations - net of current
maturities................................... 223,110 219,536
Other liabilities............................. 2,845 2,783
Stockholders' equity:
Preferred Stock _ authorized, 500,000
shares, $.01 par value; None issued ....... - -
Common Stock - authorized 15,000,000 shares,
$.01 par value; 8,046,096 shares issued at
June 26, 1999 and 8,024,123 shares issued
at December 26, 1998 ...................... 80 80
Additional paid-in capital ................. 48,652 48,455
Retained earnings .......................... 16,977 12,259
Common Stock held in treasury - at cost;
703,894 shares June 26, 1999 and
376,462 shares issued at December 26, 1998 (5,576) (2,642)
Currency translation adjustments ........... (151) (151)
------- -------
Total stockholders' equity ............... 59,982 58,001
------- -------
Total liabilities and stockholders' equity.... $343,368 $340,043
======= =======
The accompanying notes are an integral part of the financial statements.
</TABLE>
<PAGE>
<TABLE>
HOME PRODUCTS INTERNATIONAL, INC.
Condensed Consolidated Statements of Operations and Retained Earnings
(unaudited)
(in thousands, except per share amounts)
<CAPTION>
Thirteen Weeks Twenty-six Weeks
Ended Ended
June 26, June 27, June 26, June 27,
1999 1998 1999 1998
------ ------ ------- -------
<S> <C> <C> <C> <C>
Net sales ....................... $72,567 $54,985 $140,366 $107,393
Cost of goods sold .............. 46,050 36,106 91,227 72,561
------ ------ ------- -------
Gross profit ................. 26,517 18,879 49,139 34,832
Operating expenses
Selling ...................... 9,692 6,108 19,602 12,537
Administrative ............... 4,311 3,392 8,966 6,896
Amortization of intangible
assets ...................... 1,376 937 2,741 1,865
------ ------ ------- -------
15,379 10,437 31,309 21,298
------ ------ ------- -------
Operating profit ............. 11,138 8,442 17,830 13,534
------ ------ ------- -------
Other income (expense)
Interest income .............. 34 10 104 55
Interest (expense) ........... (4,974) (3,382) (9,928) (6,388)
Other income, net ............ 93 39 111 52
------ ------ ------- -------
(4,847) (3,333) (9,713) (6,281)
------ ------ ------- -------
Earnings before income taxes and
extraordinary charge ........... 6,291 5,109 8,117 7,253
Income tax (expense) ............ (2,632) (2,080) (3,399) (2,978)
------ ------ ------- -------
Earnings before extraordinary
charge ......................... 3,659 3,029 4,718 4,275
Extraordinary charge for early
retirement of debt, net of tax
benefit of $2,440 and
$3,698 respectively ............ - (3,370) - (5,107)
------ ------ ------- -------
Net earnings (loss) ............. 3,659 (341) 4,718 (832)
Retained earnings at beginning of
period ......................... 13,318 8,125 12,259 8,616
------ ------ ------- -------
Retaining earnings at end of
period ......................... $16,977 $ 7,784 $ 16,977 $ 7,784
====== ====== ======= =======
<PAGE>
Earnings before extraordinary
charge, per common share - basic $0.49 $0.38 $0.63 $0.54
Extraordinary charge for early
retirement of debt, net of tax . - (0.42) - (0.64)
------ ------ ------- -------
Net earnings (loss) per common
share - basic .................. 0.49 (0.04) 0.63 (0.10)
====== ====== ======= =======
Earnings before extraordinary
charge, per common share -
diluted ........................ 0.48 0.37 0.61 0.52
Extraordinary charge for early
retirement of debt, net of tax . - (0.41) - (0.62)
------ ------ ------- -------
Net earnings (loss) per common
share-diluted .................. $ 0.48 $ (0.04) $ 0.61 $ (0.10)
====== ====== ======= =======
The accompanying notes are an integral part of the financial statements.
</TABLE>
<PAGE>
<TABLE>
HOME PRODUCTS INTERNATIONAL, INC.
Condensed Consolidated Statements of Cash Flows
(unaudited)
(dollars in thousands)
<CAPTION>
Twenty-Six weeks Ended
June 26, June 27,
1999 1998
------ ------
<S> <C> <C>
Operating activities:
Net earnings (loss) ................... $ 4,718 $ (832)
Adjustments to reconcile net earnings to
net cash provided by operating activities:
Depreciation and amortization ........ 8,405 5,805
Changes in assets and liabilities:
(Increase) in accounts receivable .. (3,883) (3,176)
(Increase) in inventories .......... (8,726) (3,159)
Decrease in prepaid expenses and
other current assets .............. 4,856 1,375
Increase in accounts payable ....... 1,818 974
(Decrease) in accrued liabilities .. (3,178) (3,450)
Other operating activities, net ...... (1,352) 3,609
------ ------
Net cash provided by operating activities 2,658 1,146
------ ------
Investing activities:
Seymour acquisition, net of cash acquired - (14,882)
Proceeds on sale of business, net ..... 4,692 -
Proceeds from sale of building, net ... 977 -
Capital expenditures, net ............. (11,123) (4,973)
------ ------
Net cash used for investing activities.. (5,454) (19,855)
------ ------
Financing activities:
Payments on term loan borrowings ...... (1,500) (219,218)
Net proceeds from term loan borrowings - 237,498
Net proceeds from borrowings under
revolving line of credit ............. 5,250 3,700
Payment of capital lease obligation ... (176) (103)
Purchase of treasury stock ............ (2,934) -
Exercise of stock options, issuance of
common stock under stock purchase plan
and other ............................ 197 81
------ ------
Net cash provided by financing activities 837 21,958
Net (decrease) increase in cash and cash
equivalents ........................... (1,959) 3,249
Cash and cash equivalents at beginning of
period ................................ 4,986 583
------ ------
Cash and cash equivalents at end of
period ................................ $ 3,027 $ 3,832
====== ======
<PAGE>
Supplemental disclosures: Cash paid in the
period for:
Interest .............................. $ 9,589 $ 2,024
------ ------
Income taxes, net ..................... $ 3,473 $ 183
------ ------
The accompanying notes are an integral part of the financial statements.
</TABLE>
<PAGE>
Home Products International, Inc.
Notes to Condensed Consolidated Financial Statements
(unaudited)
(in thousands except per share amounts)
Note 1. 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 throughout the United States and internationally.
The condensed consolidated financial statements include the
accounts of the Company and its subsidiary companies. All significant
intercompany transactions and balances have been eliminated.
The unaudited condensed financial statements included herein as
of June 26, 1999 and for the thirteen weeks and twenty-six weeks ended
June 26, 1999 and June 27, 1998 reflect, in the opinion of the
Company, all adjustments (which include only normal recurring
adjustments) necessary for the fair presentation of the financial
position, the results of operations and cash flows. These unaudited
financial statements should be read in conjunction with the audited
financial statements and related notes thereto included in the
Company's 1998 Annual Report on Form 10-K. The results for the
interim periods presented are not necessarily indicative of results to
be expected for the full year.
Note 2. Inventories are summarized as follows:
June 26, December 26,
1999 1998
------ ------
Finished goods ..................... $22,868 $15,771
Work-in-process .................... 3,349 3,487
Raw materials ...................... 6,958 6,038
------ ------
$33,175 $25,296
====== ======
<PAGE>
Note 3. The following information reconciles earnings per share -
basic and earnings per share - diluted:
<TABLE>
Thirteen Weeks Twenty-six Weeks
Ended Ended
-------------- ----------------
June June June June
26, 27, 26, 27,
1999 1998 1999 1998
----- ----- ----- -----
<S> <C> <C> <C> <C>
Net earnings (loss) $3,659 $ (341) $4,718 $ (832)
Weighted average common shares
outstanding basic .............. 7,400 7,947 7,536 7,938
Stock options and warrants 163 336 192 362
----- ----- ----- -----
Weighted average common shares
outstanding diluted ............ 7,563 8,283 7,728 8,300
Net earnings (loss) per share -
Basic $ 0.49 $(0.04) $ 0.63 $(0.10)
Net earnings (loss) per share -
Diluted $ 0.48 $(0.04) $ 0.61 $(0.10)
</TABLE>
Note 4. The provision for income taxes is determined by applying an
estimated annual effective tax rate (federal, state and foreign
combined) to income before taxes. The estimated annual effective
income tax rate is based upon the most recent annualized forecast of
pretax income and permanent book/tax differences.
Note 5. Effective December 27, 1998 (fiscal 1999) the Company sold
Shutters, Inc. ("Shutters") its home improvement products division.
Proceeds from the sale were used to pay down debt. On a consolidated
basis, the gain on the sale was not material.
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 footnotes and
management's discussion and analysis of financial condition and
results of operations contained in the Company's Form 10-K for the
year ended December 26, 1998.
<PAGE>
Third Quarter 1998 Acquisitions.
The Company made two acquisitions within its third quarter of
1998 (the "Third Quarter 1998 Acquisitions") and the actual results
have been combined with the Company's since the date of the respective
acquisition. The Third Quarter 1998 Acquisitions are as follows:
Entity Date Acquired
------ -------------
Tenex Corporation's consumer product
storage line.................... August 14, 1998
Prestige Plastics, Inc.*.......... September 8, 1998
* Prestige Plastics, Inc. is
comprised of two operating
divisions; Anchor Hocking Plastics
("AHP") and Plastics, Inc. ("PI").
<PAGE>
Thirteen weeks ended June 26, 1999 compared to the thirteen weeks
ended June 27, 1998
In the discussion and analysis that follows, all references to
the second quarter of 1999 are to the thirteen week period ended June
26, 1999 and all references to the second quarter of 1998 are to the
thirteen week period ended June 27, 1998. The following discussion
and analysis compares the actual results for the second quarter of
1999 to the actual results for the second quarter of 1998 with
reference to the following (in thousands, except per share amounts;
unaudited):
<TABLE>
Thirteen weeks ended
June 26, 1999 June 27, 1998
------ ----- ------ -----
<S> <C> <C> <C> <C>
Net sales..................... $72,567 100.0% $54,985 100.0%
Cost of goods sold............ 46,050 63.5 36,106 65.7
Gross profit................ 26,517 36.5 18,879 34.3
Operating expenses............ 15,379 21.2 10,437 18.9
Operating profit............ 11,138 15.3 8,442 15.4
Interest expense.............. (4,974) (6.9) (3,382) (6.2)
Other income.................. 127 0.2 49 0.1
Earnings before income taxes 6,291 8.6 5,109 9.3
Income tax (expense).......... (2,632) (3.6) (2,080) (3.8)
Earnings before extraordinary
charge....................... 3,659 5.0 3,029 5.5
Extraordinary charge, net of - - (3,370) (6.1)
tax...........................
Net earnings (loss)........... $3,659 5.0% $ (341) (0.6)%
Earnings before extraordinary
charge per share - basic...... $0.49 $0.38
Earnings before extraordinary
charge per share - diluted.... $0.48 $0.37
Net earnings (loss) per share -
basic........................ $0.49 ($0.04)
Net earnings (loss) per share -
diluted...................... $0.48 ($0.04)
Weighted average common shares
outstanding - basic......... 7,400 7,947
Weighted average common shares
outstanding - diluted....... 7,563 8,283
</TABLE>
<PAGE>
Net sales. Net sales of $72.6 million in the second quarter of
1999 increased $17.6 million, or 32.0%, from net sales of $55.0
million in the second quarter of 1998. The Third Quarter 1998
Acquisitions contributed $21.9 million to the increase and internal
growth, excluding the Third Quarter 1998 Acquisitions, contributed
$1.5 million, or 3.0%. The loss of sales to Caldor, a regional
retailer in the northeast, due to their Chapter 7 bankruptcy filing
and the divestiture of Shutters, Inc. combined to generate a decrease
in net sales of $5.8 million.
Net sales of storage products, including general storage, food storage
and closet storage increased $13.2 million from second quarter 1998
net sales of $19.5 million to $32.7 million for the second quarter of
1999. The primary contributor to the increase was the Third Quarter
1998 acquisitions. The Third Quarter 1998 Acquisitions significantly
increased the Company's presence in the general storage products
category, more specifically rolling carts, stacking drawer systems and
the food storage category. The food storage product line was added to
the Company's portfolio of products in September 1998 as a part of the
Third Quarter 1998 Acquisitions.
Net sales of laundry and bathware products decreased $1.7 million from
$33.1 million in the second quarter of 1998 to $31.4 million in the
second quarter of 1999. The decrease is primarily attributable to the
loss of sales to Caldor, as well as the impact of 1998 sku
rationalization efforts which eliminated under performing and low
margin sku's.
Net sales of servingware products were $8.5 million for the
second quarter of 1999. This product line was added to the Company's
portfolio of products in September 1998 as a part of the Third Quarter
1998 Acquisitions.
The divestiture of Shutters, Inc. in early 1999 generated a
decrease to second quarter 1999 net sales of $2.4 million as compared
to the second quarter of 1998.
Gross profit. Gross profit increased from $18.9 million in the
second quarter of 1998 to $26.5 million in the second quarter of 1999
while gross profit margins increased from 34.3% in the second quarter
of 1998 to 36.5% in the second quarter of 1999. The major contributor
to the margin improvement as compared to the prior year second quarter
was a change in mix of laundry/bathware products sold. A reduction in
the sales of lower margin dryers and safety gates and an increase in
the sale of higher margin Suction Lock bathware products generated the
majority of the improvement. The second quarter of 1999 also
benefited from the high margin on the servingware products. Further
contributing to the favorable margins was the prior year elimination
of under performing sku's within all of the Company's product lines.
Operating expenses. Operating expenses of $15.4 million in the
second quarter of 1999 were up $4.9 million as compared to the second
quarter of 1998. The Third Quarter 1998 Acquisitions generated the
majority of the increase in operating expenses as compared to the
prior period.
<PAGE>
Interest expense. Interest expense of $5.0 million in the second
quarter of 1999 increased $1.6 million from $3.4 million in the second
quarter of 1998. The issuance of $95.0 million of debt in connection
with the Third Quarter 1998 Acquisitions generated the increased
interest expense between periods.
Income tax expense. Income tax expense increased by $0.5 million
to $2.6 million for the second quarter of 1999 from $2.1 million in
the second quarter of 1998. Income taxes have been accrued based upon
an estimated tax rate for 1999.
Earnings before extraordinary charge. Earnings before
extraordinary charge increased to $3.7 million in the second quarter
of 1999 from second quarter 1998 earnings before extraordinary charge
of $3.0 million. Diluted earnings per share before extraordinary
charge in the second quarter of 1999 were $0.48 per common share based
on 7,563 weighted average common shares outstanding as compared to
diluted earnings per share before extraordinary charge in the second
quarter of 1998 of $0.37 per common share based on 8,283 weighted
average common shares outstanding. The decrease in weighted average
common shares outstanding was primarily the result of treasury stock
purchased.
Extraordinary charge. In the second quarter of 1998 an
extraordinary charge, net of tax, for the early retirement of debt in
the amount of $3.4 million, or $0.41 per common share - diluted was
recorded to write off deferred financing charges associated with a
prior credit facility. In May, 1998 the Company refinanced its debt
requiring the write-off of previously capitalized costs.
Net earnings. The second quarter 1999 generated net income of
$3.7 million, or $0.48 per common share - diluted as compared to a net
loss of $0.3 million, or $0.04 per common share - diluted in the
second quarter of 1998.
<PAGE>
Twenty-six weeks ended June 26, 1999 compared to the twenty-six weeks
ended June 27, 1998
The following discussion and analysis compares the actual results
for the twenty-six weeks ended June 26, 1999 to the actual results for
the twenty-six weeks ended June 27, 1998 with reference to the
following (in thousands, except per share amounts; unaudited):
<TABLE>
Twenty-six weeks ended
June 26, 1999 June 27, 1998
------- ----- ------- -----
<S> <C> <C> <C> <C>
Net sales..................... $140,366 100.0% $107,393 100.0%
Cost of goods sold............ 91,227 65.0 72 561 67.6
Gross profit................ 49,139 35.0 34,832 32.4
Operating expenses............ 31,309 22.3 21,298 19.8
Operating profit............ 17,830 12.7 13,534 12.6
Interest expense.............. (9,928) (7.1) (6,388) (5.9)
Other income.................. 215 0.2 107 0.1
Earnings before income 8,117 5.8 7,253 6.8
taxes.........................
Income tax (expense).......... (3,399) (2.4) (2,978) (2.8)
Earnings before extraordinary
charge........................ 4,718 3.4 4,275 4.0
Extraordinary charge, net of
tax........................... - - (5,107) (4.8)
Net earnings (loss)........... $ 4,718 3.4% $ (832) (0.8)%
Earnings before extraordinary
charge per share - basic..... $ 0.63 $ 0.54
Earnings before extraordinary
charge per share - diluted ... $ 0.61 $ 0.52
Net earnings (loss) per share
- basic...................... $ 0.63 $ (0.10)
Net earnings (loss) per share
- diluted.................... $ 0.61 $ (0.10)
Weighted average common
shares outstanding - basic... 7,536 7,938
Weighted average common
shares outstanding - diluted 7,728 8,300
</TABLE>
<PAGE>
Net sales. Net sales of $140.4 million in 1999 increased $33.0
million, or 30.7%, from net sales of $107.4 million in 1998. The
Third Quarter 1998 Acquisitions contributed $40.5 million to the
increase and internal growth, excluding the Third Quarter 1998
Acquisitions, contributed $3.2 million, or 3.0%. The loss of sales to
Caldor, a regional retailer in the northeast, due to their Chapter 7
bankruptcy filing and the divestiture of Shutters, Inc. combined to
generate a decrease in net sales of $10.7 million.
Net sales of storage products, including general storage, food storage
and closet storage increased $23.4 million from 1998 net sales of
$40.3 million to $63.7 million for 1999. The primary contributor to
the increase was the Third Quarter 1998 acquisitions.
Net sales of laundry and bathware products decreased $0.9 million from
$62.8 million in 1998 to $61.9 million in 1999. The decrease is
primarily attributable to the impact of 1998 sku rationalization
efforts which eliminated under performing and low margin sku's.
Net sales of servingware products were $14.8 million for 1999.
This product line was added to the Company's portfolio of products in
September 1998 as a part of the Third Quarter 1998 Acquisitions.
The divestiture of Shutters, Inc. in early 1999 generated a
decrease to 1999 net sales of $4.3 million as compared to 1998.
Gross profit. Gross profit increased from $34.8 million in 1998
to $49.1 million in 1999 while gross profit margins increased from
32.4% in 1998 to 35.0% in 1999. The major contributor to the margin
improvement as compared to the prior year was a change in mix of
laundry/bathware products sold. A reduction in the sales of lower
margin dryers and safety gates and an increase in the sale of higher
margin Suction Lock bathware products generated the majority of the
improvement. 1999 also benefited from the high margin on the
servingware products. Further contributing to the favorable margins
was the prior year elimination of under performing sku's within all
of the Company's product lines.
Operating expenses. Operating expenses of $31.3 million in 1999
were up $10.0 million as compared to 1998. The Third Quarter 1998
Acquisitions generated the majority of the increase in operating
expenses as compared to the prior period.
Interest expense. Interest expense of $9.9 million in 1999
increased $3.5 million from $6.4 million in 1998. The issuance of
$95.0 million of debt in connection with the Third Quarter 1998
Acquisitions generated the increased interest expense between periods.
Income tax expense. Income tax expense increased by $0.4 million
to $3.4 million for 1999 from $3.0 million in 1998. Income taxes have
been accrued based upon the estimated tax rate for 1999.
<PAGE>
Earnings before extraordinary charge. Earnings before
extraordinary charge increased to $4.7 million in 1999 from 1998
earnings of $4.3 million. Diluted earnings per share before
extraordinary charge for the twenty-six weeks ended June 26, 1999 were
$0.61 per common share based on 7,728 weighted average common shares
outstanding as compared to diluted earnings per share before
extraordinary charge for the twenty-six weeks ended June 27, 1998 of
$0.52 per common share based on 8,300 weighted average common shares
outstanding. The decrease in weighted average common shares
outstanding was primarily the result of treasury stock purchased.
Extraordinary charge. In the twenty-six weeks ended June 27,
1998 an extraordinary charge, net of tax, for the early retirement of
debt of $5.1 million, or $0.62 per common share - diluted was recorded
to write off deferred financing charges associated with prior credit
facilities.
Net earnings. Net income in the amount of $4.7 million, or $0.61
per common share - diluted, based upon 7,728 weighted average common
shares outstanding was recorded in the twenty-six weeks ended June 26,
1999. This compares to a net loss of $0.8 million, or $0.10 per
common share - diluted in 1998 based on 8,300 weighted average common
shares outstanding.
Capital Resources and Liquidity
Cash and cash equivalents at June 26, 1999 were $3.0 million and
cash generated from operations in the twenty-six weeks ended June 26,
1999 were $2.7 million. Availability under the revolving credit
facility at June 26, 1999 was $46.7 million. HPI was in compliance
with all covenants as of June 26, 1999.
HPI has spent a total of $2.9 million to purchase 327,432 shares of
common stock in the twenty-six weeks ended June 26, 1999. Since the
beginning of the stock repurchase plan, (October 1998) through June
26, 1999 HPI purchased a total of 645,132 shares at a total cost of
$5.3 million. The average cost per share repurchased was $8.23/share.
The Company believes its financing facilities together with its cash
flow from operations will provide sufficient capital to fund
operations, make the required debt repayments and meet anticipated
capital spending needs.
Year 2000 Compliance
Many currently installed computer systems and software products are
coded to only accept two-digit entries in the date code field and can
not distinguish 21st century dates from 20th century dates and, as a
result, many companies' software and computer systems may need to be
upgraded or replaced in order to comply with such "Year 2000"
requirements.
<PAGE>
State of readiness. The Company has finalized its evaluation of the
Year 2000 readiness (the "Project") of its information technology
systems ("IT") and its non IT Systems, ("Non IT") such as building
security, heating and cooling, telephones, voicemail, and other
similar items. The Project will cover the following phases: (i)
identification of all IT and non IT systems (completed), (ii)
assessment of the repair or replacement requirements (completed),
(iii) repair or replacement (in process), (iv) testing (in process),
(v) implementation (in process) and (vi) creation of contingency plans
in the event of year 2000 failures (in process). The Company is
scheduled to have reached Year 2000 compliance for all IT and non IT
Systems prior to December 31, 1999.
The Company is also working with its major suppliers and customers to
determine whether the year 2000 problem will have an adverse effect on
the Company's relationships with them. The Company does not control
its suppliers or customers, and relies on a variety of utilities,
telecommunication companies, banks and other suppliers in order to
continue its business. There is no assurance that such parties will
not suffer a year 2000 business interruption, which, could have a
material adverse effect on the Company's financial condition and its
results of operations.
Costs. To date, the Company has not incurred significant
expenditures in connection with Year 2000 compliance issues.
Management estimates that the Year 2000 compliance costs will be
approximately $.25 million to $.75 million. Funds for the Year 2000
compliance will be obtained from current operations or the Company's
revolving credit facility.
Contingency plan. The Company has not yet finalized its Year
2000 contingency plan. The Company intends to finalize its
contingency plan prior to December 1999. In addition, if further year
2000 compliance issues are discovered, the Company will evaluate the
need for one or more contingency plans relating to such issues.
Management Outlook and Commentary
Some of the opportunities and strategic initiatives planned for the
remainder of 1999 and beyond are as follows:
* On July 27, 1999 the Company announced a restructuring program,
whereby it will consolidate its Tamor and Selfix-Seymour operating
divisions into a single unified entity. It is anticipated that
this restructuring will result in annual pre-tax savings of $3.0 to
$4.0 million. In connection with the restructuring, the Company
has projected that it will record a $13.0 to $15.0 million pre-tax
charge in the third quarter of 1999.
* In conjunction with the restructuring program, the Company also
announced the creation of a new brand name, HOMZ. All products
from the Company will be marketed under this new brand name, except
servingware products.
* The Third Quarter 1998 Acquisitions have added significantly to the
second quarter 1999 net sales. Net sales in the remainder of 1999
should continue to benefit from these acquisitions.
<PAGE>
* Sales of laundry, bath and storage products have historically been
more heavily concentrated in the second and third quarters. This
corresponds to the spring/summer wedding season, new home
buying/building, consumer spring cleaning efforts and the back-to-
school season. This trend should continue in 1999.
* Construction of a new distribution center and warehouse space at
the Company's Chicago manufacturing facility was completed at the
close of the second quarter of 1999. This addition of 100,000
square feet provided additional square footage at favorable rates
as compared to renting.
* The cost of plastic resin, a significant raw material for the
company, remains at depressed levels as compared to prior years;
however, the Company has been forced to pass along a majority of
the cost savings to its customers due to competitive pressures.
This trend is beginning to reverse as resin prices have begun to
increase as compared to the first half of 1999. If resin prices
continue to increase, there can be no assurance that such increase
could be successfully passed along to the Company's customers.
* The Company has begun construction of a 400,000 square foot
manufacturing and warehouse facility in El Paso, TX which should be
completed in mid 2000. This facility will be leased by the
Company. This facility will enable the Company to tap into markets
located in the Southwest which were previously cost prohibitive to
enter.
* Throughout the remainder of 1999 the Company will allocate
resources to focus upon new product development (the Company's goal
is 10% annual growth from new products and product line
improvements), expansion of manufacturing capacity and organic
sales growth.
* The Company will continue to explore acquisitions that will be
accretive to earnings. Management anticipates that the fragmented
nature of the housewares industry will continue to provide
significant opportunities for growth through strategic acquisitions
of complementary businesses. Management intends to acquire
businesses at attractive multiples of cash flow and achieve
operational and distribution efficiencies through integration of
complementary businesses.
ITEM 3. Quantitative and Qualitative Disclosures About Market Risk
For the 26 week period ended June 26, 1999, the Company did not
experience any material changes in market risk exposure that affect
the quantitative and qualitative disclosures presented in the
Company's Annual Report on Form 10-K for the 52 week period ended
December 26, 1998.
<PAGE>
Forward Looking Statements
This quarterly report on Form 10-Q, including "Management's
Discussion and Analysis of Financial Condition and Results of
Operations", "Year 2000 Compliance", "Management Outlook and
Commentary" 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. Such statements are based on management's current
expectations and are subject to a number of factors and uncertainties
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: (i) the anticipated
effects of the Third Quarter 1998 Acquisitions on the Company's sales
and earnings; (ii) the impact of the level of the Company's
indebtedness; (iii) restrictive covenants contained in the Company's
various debt documents; (iv) general economic conditions and
conditions in the retail environment; (v) the Company's dependence on
a few large customers; (vi) price fluctuations in the raw materials
used by the Company (vii) competitive conditions in the Company's
markets; (viii) the seasonal nature of the Company's business; (ix)
the Company's ability to execute its acquisition strategy; (x)
fluctuations in the stock market; (xi) the extent to which the Company
is able to retain and attract key personnel; (xii) relationships with
retailers; and (xiii) the impact of federal, state and local
environmental requirements (including the impact of current or future
environmental claims against the Company). As a result, the Company's
operating results may fluctuate, especially when measured on a
quarterly basis. 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 which attempt to advise
interested parties of the factors which affect the Company's business,
in this report, as well as the Company's periodic reports on Forms 10-
K, 10-Q and 8-K filed with the Securities and Exchange Commission.
PART II Other Information
ITEM 4. Submission of matters to a vote of Security Holders.
______________________________________________________________________
(a) and (c). The Company held its annual meting of stockholders on
May 19, 1999 and the following matters were voted on at that meeting:
1. The election of the following directors, who will serve until
their successors are elected and qualified, or their earlier
death or resignation:
Broker
Director For Withheld Non-Votes
-------- --- -------- ---------
Charles R. Campbell 7,347,740 35,163 0
Joseph Gantz 7,340,900 42,003 0
Stephen Murray 7,341,900 41,003 0
Marshall Ragir 7,346,690 36,213 0
Jeffrey C. Rubenstein 7,347,580 35,323 0
Daniel B. Shure 7,348,990 33,913 0
Joel D. Spungin 7,346,740 36,163 0
James R. Tennant 7,347,685 35,218 0
<PAGE>
1. The adoption of the 1999 Performance Incentive Plan was
approved by the stockholders. The voting was as follows: FOR,
3,736,837; AGAINST 2,361,422; ABSTAIN 60,935 and BROKER NON-
VOTE 1,223,709.
2. The adoption of the 1999 Directors Restricted Stock Plan was
approved by the stockholders. The voting was as follows: FOR
5,281,721; AGAINST 644,778; ABSTAIN 232,695; and BROKER NO-VOTE
1,223,709.
ITEM 6. Exhibits and Reports on Form 8-K
(a) Exhibits
Exhibit Description
Number
------ -----------------------------------
27 Financial Data Schedule (only filed
electronically with S.E.C.)
(b) Reports on Form 8-K - not applicable
<PAGE>
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 hereunto duly authorized.
Home Products International, Inc.
By: /s/ James E. Winslow
James E. Winslow
Executive Vice President and
Chief Financial Officer
Dated: August 10, 1999
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<FISCAL-YEAR-END> JAN-01-2000
<PERIOD-START> DEC-27-1998
<PERIOD-END> JUN-26-1999
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0
0
<COMMON> 80
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