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 24, 2000
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, 2000 - 7,272,471
<PAGE>
HOME PRODUCTS INTERNATIONAL, INC.
INDEX
Page
Number
------
I. Part Financial Information
Item 1. Financial Statements
Condensed Consolidated Balance Sheets 3
Condensed Consolidated Statements of
Operations and Retained Earnings 4
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 13
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. 15
Item 6. Exhibits and Reports on Form 8-K. 16
Signature 17
<PAGE>
PART I Financial Information
ITEM 1. Financial Statements
<TABLE>
HOME PRODUCTS INTERNATIONAL, INC.
Condensed Consolidated Balance Sheets
(in thousands, except share amounts)
June 24, December 25,
2000 1999
(unaudited)
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<S> <C> <C>
Assets
Current assets:
Cash and cash equivalents $ 3,797 $ 4,861
Accounts receivable, net 52,926 59,571
Inventories, net 36,977 24,064
Prepaid expenses and other current assets 5,224 7,558
------- -------
Total current assets 98,924 96,054
Property, plant and equipment - at cost 106,619 98,678
Less accumulated depreciation and amortization (38,036) (31,420)
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Property, plant and equipment, net 68,583 67,258
Intangible and other assets 177,321 180,594
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Total assets $344,828 $343,906
======= =======
Liabilities and Stockholders' Equity
Current liabilities:
Current maturities of long-term obligations $ 6,058 $ 5,571
Accounts payable 27,702 23,820
Accrued liabilities 27,542 33,651
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Total current liabilities 61,302 63,042
Long-term obligations - net of current maturities 226,005 221,334
Other liabilities 2,973 2,908
Stockholders' equity:
Preferred Stock - authorized, 500,000 shares,
$.01 par value; - None issued - -
Common Stock - authorized 15,000,000 shares,
$.01 par value; 8,094,865 shares issued
at June 24, 2000 and 8,068,863 shares
issued at December 25, 1999 81 81
Additional paid-in capital 49,047 48,800
Retained earnings 11,948 14,269
Common stock held in treasury - at cost 822,394
shares at June 24, 2000 and December 25, 1999 (6,528) (6,528)
------- -------
Total stockholders' equity 54,548 56,622
------- -------
Total liabilities and stockholders' equity. $344,828 $343,906
======= =======
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)
Thirteen Weeks Twenty-six Weeks
Ended Ended
------------------ --------------------
June 24, June 26, June 24, June 26,
2000 1999 2000 1999
------ ------ ------- -------
<S> <C> <C>
Net sales $70,910 $72,567 $138,999 $140,366
Cost of goods sold 52,316 46,050 101,113 91,227
------ ------ ------- -------
Gross profit 18,594 26,517 37,886 49,139
Operating expenses
Selling 9,839 9,692 20,318 19,602
Administrative 3,769 4,311 7,641 8,966
Amortization of intangible assets 1,315 1,376 2,635 2,741
------ ------ ------- -------
14,923 15,379 30,594 31,309
------ ------ ------- -------
Operating profit 3,671 11,138 7,292 17,830
------ ------ ------- -------
Other income (expense)
Interest income 33 34 48 104
Interest (expense) (5,634) (4,974) (10,771) (9,928)
Other income, net 33 93 (564) 111
------ ------ ------- -------
(5,568) (4,847) (11,287) (9,713)
------ ------ ------- -------
Earnings (loss) before income taxes (1,897) 6,291 (3,995) 8,117
Income tax benefit (expense) 793 (2,632) 1,674 (3,399)
------ ------ ------- -------
Net earnings (loss) (1,104) 3,659 (2,321) 4,718
Retained earnings at beginning
of period 13,052 13,318 14,269 12,259
------ ------ ------- -------
Retaining earnings at end
of period $11,948 $16,977 $ 11,948 $ 16,977
====== ====== ======= =======
Net earnings (loss) per common
share - basic ($0.15) $0.49 ($0.32) $0.63
====== ====== ======= =======
Net earning (loss) per common
share - diluted ($0.15) $0.48 ($0.32) $0.61
====== ====== ======= =======
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)
Twenty-Six weeks Ended
----------------------
June 24, June 26,
2000 1999
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<S> <C> <C>
Operating activities:
Net earnings (loss) $ (2,321) $ 4,718
Adjustments to reconcile net earnings to net
cash provided by operating activities:
Depreciation and amortization 9,208 8,405
Changes in assets and liabilities:
(Increase) in accounts receivable 6,645 (3,883)
(Increase) in inventories (12,913) (8,726)
Decrease in prepaid expenses and other
current assets 2,335 4,856
Increase in accounts payable 3,882 1,818
(Decrease) in accrued liabilities (6,109) (3,178)
Other operating activities, net 688 (1,352)
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Net cash provided by operating activities 1,415 2,658
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Investing activities:
Proceeds on sale of business, net - 4,692
Proceeds from sale of building, net - 977
Capital expenditures, net (7,884) (11,123)
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Net cash used for investing activities (7,884) (5,454)
Financing activities:
Payments on term loan borrowings (2,500) (1,500)
Net proceeds from borrowings under revolving line
of credit 7,750 5,250
Payment of capital lease obligation (92) (176)
Purchase of treasury stock - (2,934)
Exercise of stock options, issuance of common
stock under stock purchase plan and other 247 197
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Net cash provided by financing activities 5,405 837
Net (decrease) increase in cash and cash
equivalents (1,064) (1,959)
Cash and cash equivalents at beginning of period 4,861 4,986
------- -------
Cash and cash equivalents at end of period $ 3,797 $ 3,027
======= =======
Supplemental disclosures: Cash paid in the
period for:
Interest $ 10,130 $ 9,589
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Income taxes, net $ 0 $ 3,473
------- -------
The accompanying notes are an integral part of the financial statements.
</TABLE>
<PAGE>
HOME PRODUCTS INTERNATIONAL, INC.
Notes to Condensed Consolidated Financial Statements
(Unaudited)
(dollars 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 in 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 and
for the thirteen weeks and twenty-six weeks ended June 24, 2000 and June 26,
1999 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 1999 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. In the first quarter of 2000 the Company incurred $598 of other non
recurring costs associated with the exploration of strategic alternatives
aimed at enhancing shareholder value. Such costs included fees related to
investment bankers, accountants, lawyers and travel expenses. These costs
are included in the "Other income (expense)" section of the Condensed
Consolidated Statements of Operation and Retained Earnings.
Note 3. Inventories are summarized as follows:
June 24, December 25,
2000 1999
------ ------
Finished goods $21,612 $15,890
Work-in-process 4,141 2,168
Raw materials 11,224 6,006
------ ------
$36,977 $24,064
====== ======
<PAGE>
<TABLE>
Note 4. The following information reconciles earnings per share - basic and
earnings per share - diluted:
Thirteen Weeks Twenty-six Weeks
Ended Ended
------------- ----------------
June June June June
24, 26, 24, 26,
2000 1999 2000 1999
------ ----- ------ -----
<S> <C> <C> <C> <C>
Net earnings (loss) $(1,104) $3,659 $(2,321) $4,718
Weighted average common shares
outstanding - basic 7,272 7,400 7,272 7,536
Stock options and warrants - 163 - 192
Weighted average common shares
outstanding - diluted 7,272 7,563 7,272 7,728
===== ===== ===== =====
Net earnings (loss) per share -
Basic $(0.15) $0.49 $(0.32) $0.63
Net earnings (loss) per share -
Diluted $(0.15) $0.48 $(0.32) $0.61
</TABLE>
Stock options and warrants are not considered dilutive for the thirteen
week or twenty-six week periods ended June 24, 2000 because of the loss in
the periods. Had there not been a loss in the period, the weighted average
common shares outstanding - diluted would have increased by 59 to 7,331 for
the thirteen week period and by 223 to 7,495 for the twenty-six week period.
Note 5.
In the third quarter of 1999, the Company recorded a $15,000 pretax
charge, comprised of an $8,589 Special Charge and a $6,411 Restructuring and
Other Nonrecurring Charge, (the two together are referred to herein as the
"Charges"). The Charges were incurred in accordance with a plan adopted in
July 1999 to consolidate two of the Company's wholly-owned subsidiaries and
to implement a national branding strategy.
<TABLE>
The second quarter 2000 utilization of the reserve established in
connection with the Charges was as follows:
Reserve
Reserve balance Activity in balance at
at 03/25/00 Q2 2000 06/24/00
------- ------- -------
<S> <C> <C> <C>
Inventory $ 4,410 $ 982 $ 3,428
Molds 496 - 496
Elimination of duplicate assets 152 3 149
Employee costs 520 119 401
Other 392 33 359
------- ------- -------
$ 5,970 $ 1,137 $ 4,833
======= ======= =======
</TABLE>
<PAGE>
The total activity charged against the accrual in the 13 weeks ended
June 24, 2000 was $1,137, and the non cash costs were $788.
Note 6. 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.
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 25, 1999.
Thirteen weeks ended June 24, 2000 compared to the thirteen weeks ended June
26, 1999
In the discussion and analysis that follows, all references to the
second quarter of 2000 are to the thirteen week period ended June 24, 2000
and all references to the second quarter of 1999 are to the thirteen week
period ended June 26, 1999. The following discussion and analysis compares
the actual results for the second quarter of 2000 to the actual results for
the second quarter of 1999 with reference to the following (in thousands,
except per share amounts; unaudited):
<TABLE>
Thirteen weeks ended
---------------------------------
June 24, 2000 June 26, 1999
------- ----- ------- -----
<S> <C> <C> <C> <C>
Net sales $ 70,910 100.0% $ 72,567 100.0%
Cost of goods sold 52,316 73.8 46,050 63.5
------- ----- ------- -----
Gross profit 18,594 26.2 26,517 36.5
Operating expenses 14,923 21.0 15,379 21.2
------- ----- ------- -----
Operating profit 3,671 5.2 11,138 15.3
Interest expense (5,634) (8.0) (4,974) (6.9)
Other income 66 0.1 127 0.2
------- ----- ------- -----
Earnings before income taxes (1,897) (2.7) 6,291 8.6
Income tax benefit (expense) 793 1.1 (2,632) (3.6)
------- ----- ------- -----
Net earnings (loss) $ (1,104) (1.6)% $ 3,659 5.0%
======= ===== ======= =====
Net earnings (loss) per share - Basic $(0.15) $0.49
Net earnings (loss) per share - Diluted $(0.15) $0.48
Weighted average common shares
Outstanding - basic 7,272 7,400
Weighted average common shares
Outstanding - diluted 7,272 7,563
</TABLE>
<PAGE>
Net sales. Net sales of $70.9 million in the second quarter of 2000
decreased $1.7 million, from net sales of $72.6 million in the second
quarter of 1999. Servingware products have increased 27.8% ($2.4 million)
over the prior period. This increase is a combination of a general price
increase and an overall increase in volume. All other categories are down
to the prior period due to product lines discontinued in the second half of
1999.
Gross profit. Gross profit in the second quarter of 2000 declined to
$18.6 million from $26.5 million a year ago and gross profit margins
declined to 26.2% from 36.5% a year ago. The erosion of profit margins is
due in large part to the increased cost of plastic resin, the Company's
primary raw material component. Plastic resin costs have increased over 30%
from the year ago period. The cost increases in plastic resin are
attributable to increased demand for plastic resin beyond manufacturers'
ability to supply. The imbalance in supply and demand will likely continue
for several months until the manufacturers bring more productive capacity
on-line. The impact of the increased plastic resin cost on gross profit was
approximately $3.5 million. Also significantly impacting margins was
deterioration in selling prices (as compared to a year ago) and a shift in
product mix. Selling prices are lower due to pressure from competitors and
customers during the second half of 1999. Sell prices were lowered to
maintain market share in spite of the increasing cost of raw materials. In
addition, the mix of products sold in 2000 was toward lower margin items as
compared to 1999. Gross profit was also negatively impacted by the
Company's new El Paso facility. Costs related to the El Paso facility in the
second quarter of 2000 were $.6 million.
Operating expenses. Operating expenses of $14.9 million in the second
quarter of 2000 were down $0.5 million as compared to the second quarter of
1999. As a percentage of net sales, operating expenses decreased from 21.2%
in 1999 to 21.0% in 2000. Savings of approximately $1.0 million due to the
third quarter 1999 consolidation of operating functions were partially
offset by increased distribution, freight and computer costs related to the
Company's servingware business.
Interest expense. Interest expense of $5.6 million in the second
quarter of 2000 increased $0.6 million from $5.0 million in the second
quarter of 1999. The increase in interest expense is the result of a $10
million increase in the Company's average outstanding debt during the
quarter together with higher interest rates. The debt has increased due to
the Company's 1999 stock repurchase plan ($1.0 million), the funding of the
cash costs related to the third quarter 1999 restructuring charges and
negative cash flow from operations (net of capital spending).
Income tax expense. As a result of the Company's pre-tax loss for the
second quarter of 2000, a tax benefit in the amount of $0.8 million was
recorded.
<PAGE>
Net earnings (loss) The Company had a net loss of $1.1 million in the
second quarter of 2000, a loss of $0.15 per diluted common share based on
7.27 million weighted average common shares outstanding. This compares to
net earnings in the second quarter of 1999 of $3.7 million, or $0.48 per
diluted common share based on 7.56 million weighted average common shares
outstanding. The primary contributor to the decrease in weighted average
common shares outstanding was the Company's common share buyback activity
during 1999. Stock options and warrants are not considered dilutive in the
quarter due to the net loss; however, as the Company's stock price has
fallen below the lowest option value, none of the stock options or warrants
are currently dilutive.
Twenty-six weeks ended June 24, 2000 compared to the twenty-six weeks ended
June 26, 1999
All references to 2000 are to the twenty-six week period ended June 24,
2000 and all references to 1999 are to the twenty-six week period ended June
26, 1999. The following discussion and analysis compares the actual results
of 2000 to the actual results of 1999 with reference to the following (in
thousands, except per share amounts; unaudited):
<TABLE>
Twenty-six weeks ended
------------------------------------
June 24, 2000 June 26, 1999
------- ----- ------- -----
<S> <C> <C> <C> <C>
Net sales $138,999 100.0% $140,366 100.0%
Cost of goods sold 101,113 72.7 91,227 65.0
------- ----- ------- -----
Gross profit 37,886 27.3 49,139 35.0
Operating expenses 30,594 22.0 31,309 22.3
------- ----- ------- -----
Operating profit 7,292 5.3 17,830 12.7
Interest expense (10,771) (7.8) (9,928) (7.1)
Other income (516) (0.4) 215 0.2
------- ----- ------- -----
Earnings before income taxes (3,995) (2.9) 8,117 5.8
Income tax benefit (expense) 1,674 1.2 (3,399) (2.4)
------- ----- ------- -----
Net earnings (loss) $ (2,321) (1.7)% $ 4,718 3.4%
======= ===== ======= =====
Net earnings (loss) per share -
basic $ (0.32) $ 0.63
Net earnings (loss) per share -
diluted $ (0.32) $ 0.61
Weighted average common shares
Outstanding - basic 7,272 7,536
Weighted average common shares
Outstanding - diluted 7,272 7,728
</TABLE>
<PAGE>
Net sales. Net sales of $139.0 million in 2000 decreased $1.4 million
from net sales of $140.4 million in 1999. Increased sales of servingware
and kitchen storage items were offset by decreases in closet storage,
bathware and juvenile products. The majority of the decreased product line
sales were the result of the discontinuance of several low margin items in
connection with the Company's 1999 restructuring.
Gross profit. Gross profit 2000 declined to $37.9 million from $49.1
million a year ago and gross profit margins declined to 27.3% from 35.0%
a year ago. The erosion of profit margins is due in large part to
the increased cost of plastic resin, the Company's primary raw material
component. Plastic resin costs have increased over 43% from the year ago
period. The cost increases in plastic resin are attributable to increased
demand for plastic resin beyond manufacturers' ability to supply. The impact
of the increased plastic resin cost on gross profit was approximately $6.5
million. Also significantly impacting margins was deterioration in selling
prices (as compared to a year ago) and a shift in product mix. Selling
prices are lower due to pressure from competitors and customers during the
second half of 1999. Sell prices were lowered to maintain market share in
spite of the increasing cost of raw materials. In addition, the mix of
products sold in 2000 was toward lower margin items as compared to 1999.
Gross profit was also negatively impacted by the Company's new El Paso
facility. Costs related to the El Paso facility in the period were $1.3
million.
Operating expenses. Operating expenses of $30.6 million in 2000 were
down $0.7 million as compared to 1999. As a percentage of net sales,
operating expenses decreased from 22.3% in 1999 to 22.0% in 2000. Savings
generated from the third quarter 1999 consolidation of operating functions
were partially offset by increased distribution, freight and computer costs
related to the Company's servingware business. The servingware distribution
strategy has been reviewed and changes are underway to reduce costs in the
future.
Interest expense. Interest expense of $10.8 million in 2000 increased
$0.8 million from $9.9 million in 1999. The increase in interest expense is
the result of higher average debt levels (primarily during the second
quarter) and higher interest rates. The debt has increased due to the
Company's stock repurchase plan, the funding of the cash costs related to
the third quarter 1999 restructuring charges and lower cash flow from
operations (net of capital spending).
Income tax expense. As a result of the Company's pre-tax loss for 2000,
a tax benefit in the amount of $1.7 million was recorded.
Net earnings (loss) The Company had a net loss of $2.3 million in
2000, a loss of $0.32 per diluted common share based on 7.27 million
weighted average common shares outstanding. This compares to net earnings in
1999 of $4.7 million, or $0.61 per diluted common share based on 7.73
million weighted average common shares outstanding. The primary contributor
to the decrease in weighted average common shares outstanding was the
Company's common share buyback activity during 1999. Stock options and
warrants are not considered dilutive in the period due to the net loss;
however, as the Company's stock price has fallen below the lowest option
value, none of the stock options or warrants are currently dilutive.
<PAGE>
Capital Resources and Liquidity
Net cash flow was slightly negative in 2000. Cash on hand decreased
$1.1 million while debt increased by $5.2 million. Capital spending for the
twenty-six weeks was $7.9 million, primarily related to the build-out of the
new El Paso facility and final funding of the new computer systems installed
in the fourth quarter of 1999.
As compared to the beginning of the year, working capital increased
from $33.7 million to $39.9 million as of June 24, 2000. Working capital
increased due to an increase in inventory. Inventory levels have increased
as compared to year end as the Company prepares for its largest selling
season, the third quarter.
The Company believes its financing facilities together with its cash
flow from operations will provide sufficient capital to fund operations,
make required debt and interest payments and meet anticipated capital
spending needs.
The Company was in compliance with all loan covenants as of June 24,
2000.
Management Outlook and Commentary
* The HOMZ brand introduced during 1999 continues to receive good initial
acceptance. The Company will continue to look for sales opportunities
that leverage the brand's effective point of purchase appearance.
* Gross profit margins are expected to remain under pressure for the
remainder of the year. Resin prices are not likely to decline and
selling prices will not fully reflect the increases already incurred for
raw materials. These plus other factors discussed below will continue to
provide a very challenging business environment. As a result of these
factors, we expect margins and profitability for the second half of 2000
to be significantly below prior year results.
* The El Paso facility began shipment of laundry and storage products
during the second quarter. With the successful opening of the facility,
the Company now has an additional tool by which to gain sales
distribution. New distribution has already been achieved however, the
expected penetration of west coast customers has gone slower than
anticipated. The opening of the El Paso facility will not only enhance
the Company's sales growth, this facility will have new, highly efficient
manufacturing equipment which will result in lower production costs as
compared to the Company's other manufacturing locations. In addition,
El Paso is a very favorable labor market that can provide needed manpower
at a reasonable rate.
* A major retailer has previously announced its intention to consolidate
its general storage vendor base from 35 vendors to less than 10.
Although the Company has been selected to participate in the smaller
vendor base, the retailer's progress to date on the consolidation effort
has gone slower than expected. The Company has not yet realized
additional sales as a result of the vendor consolidation and cannot
predict when such incremental sales, if any, may arise.
* A major national retailer has publicly announced its intentions to close
certain stores and to cut back inventories. The impact of these customer
plans cannot be estimated at this time but it will likely have some
negative impact as early as the third quarter of 2000.
<PAGE>
* The Company's primary raw materials are plastic resin, steel, fabric and
corrugated packaging. Fluctuations in the cost of these materials can
have a significant impact on reported results. Other than plastic resin
(see discussion below), management does not expect to see a significant
change in the cost of these materials as compared to 1999. However the
cost of these items is affected by many variables outside the control of
the company and changes to the current perceived trends are possible.
* Plastic resin represents about 20-25% of the Company's cost of goods
sold. During 1999 and so far in 2000, the cost of plastic resin
increased significantly. This occurred after a several year period of
declining plastic resin costs during which selling prices also declined
in response to competitive pressures. Now that plastic resin costs have
increased, the Company's ability to pass along this increase to its
customers is hampered by both the nature of the retail customer
environment and other competitive factors. However, the Company will
closely monitor the marketplace and will initiate a price increase
consistent with any other competitor's actions. The future cost of
plastic resin is difficult to predict. Plastic resin costs are impacted
by several factors outside the control of the Company including supply
and demand characteristics, crude oil prices and the overall health of
the economy. Any of these factors could have a positive or negative
impact on plastic resin costs.
* Sales of laundry, bath and general 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/formation and the back-to-school season. This trend is expected
to continue in 2000.
* The Company will continue to explore acquisition opportunities 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 common functions.
ITEM 3. Quantitative and Qualitative Disclosures About Market Risk
Interest Rate Risk. For the 26 week period ended June 24, 2000, 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 for the 52 week period ended December 25, 1999.
Commodity Risk. The Company is subject to fluctuations in commodity
based raw materials such as plastic resin, steel and griege fabric. There
have been no significant changes in the costs of steel and griege fabric in
the 26 week period ended June 24, 2000. As previously mentioned, the cost
of plastic resin continued to increase in the 26 week period ended June 24,
2000. This trend is expected to continue for a few months until supply
levels increase to meet the demand.
As compared to a year ago, the Company's resin costs, on average,
increased approximately 43%. This increase negatively impacted gross margin
by $6.5 million in the first half of 2000. The Company anticipates that it
will consume in excess of 150 million pounds of resin in fiscal 2000. Costs
in the second half of 2000 are expected to exceed the costs incurred in the
second half of 1999.
<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 impact of the level
of the Company's indebtedness; (ii) restrictive covenants contained in
the Company's various debt documents; (iii) general economic conditions and
conditions in the retail environment; (iv) the Company's dependence on
a few large customers; (v) price fluctuations in the raw materials used
by the Company; (vi) competitive conditions in the Company's markets;
(vii) the seasonal nature of the Company's business; (viii) the Company's
ability to execute its acquisition strategy; (ix) fluctuations in the stock
market; (x) the extent to which the Company is able to retain and attract
key personnel; (xi) relationships with retailers; and (xii) 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.
<PAGE>
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 31,
2000 and the following matters were voted on at that meeting:
<TABLE>
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
---------------------- --------- -------- ---------
<S> <C> <C> <C>
Charles R. Campbell 7,210,726 66,542 0
Joseph Gantz 7,200,000 77,268 0
Stephen Murray 7,199,000 78,268 0
Marshall Ragir 7,161,514 115,754 0
Jeffrey C. Rubenstein 7,162,809 114,459 0
Daniel B. Shure 7,212,159 65,109 0
Joel D. Spungin 7,210,359 66,909 0
James R. Tennant 6,961,310 315,958 0
</TABLE>
<PAGE>
ITEM 6. Exhibits and Reports on Form 8-K
(a) Exhibits
Exhibit
Number Description
------- -----------
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 8, 2000
