-----BEGIN PRIVACY-ENHANCED MESSAGE----- Proc-Type: 2001,MIC-CLEAR Originator-Name: webmaster@www.sec.gov Originator-Key-Asymmetric: MFgwCgYEVQgBAQICAf8DSgAwRwJAW2sNKK9AVtBzYZmr6aGjlWyK3XmZv3dTINen TWSM7vrzLADbmYQaionwg5sDW3P6oaM5D3tdezXMm7z1T+B+twIDAQAB MIC-Info: RSA-MD5,RSA, NTMXBWg5UuQEKUlKe5o5agRYFp7fYbtFBozh8eH/ZPuhV1xViTDWV7V+eQTO7yiD kLcRQapEmba0EhggFxtYJw== 0000926236-99-000081.txt : 19990811 0000926236-99-000081.hdr.sgml : 19990811 ACCESSION NUMBER: 0000926236-99-000081 CONFORMED SUBMISSION TYPE: 10-Q PUBLIC DOCUMENT COUNT: 2 CONFORMED PERIOD OF REPORT: 19990626 FILED AS OF DATE: 19990810 FILER: COMPANY DATA: COMPANY CONFORMED NAME: HOME PRODUCTS INTERNATIONAL INC CENTRAL INDEX KEY: 0000814457 STANDARD INDUSTRIAL CLASSIFICATION: PLASTICS PRODUCTS, NEC [3089] IRS NUMBER: 364147027 STATE OF INCORPORATION: DE FISCAL YEAR END: 1227 FILING VALUES: FORM TYPE: 10-Q SEC ACT: SEC FILE NUMBER: 000-17237 FILM NUMBER: 99682706 BUSINESS ADDRESS: STREET 1: 4501 WEST 47TH ST CITY: CHICAGO STATE: IL ZIP: 60632 BUSINESS PHONE: 3128901010 MAIL ADDRESS: STREET 1: 4501 WEST 47TH STREET CITY: CHICAGO STATE: IL ZIP: 60632 FORMER COMPANY: FORMER CONFORMED NAME: SELFIX INC DATE OF NAME CHANGE: 19920703 10-Q 1 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 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 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 ------- ------- 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.
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 26, June 27, June 26, June 27, 1999 1998 1999 1998 ------ ------ ------- ------- 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 ====== ====== ======= ======= 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.
HOME PRODUCTS INTERNATIONAL, INC. Condensed Consolidated Statements of Cash Flows (unaudited) (dollars in thousands)
Twenty-Six weeks Ended June 26, June 27, 1999 1998 ------ ------ 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 ====== ====== 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.
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 ====== ====== Note 3. The following information reconciles earnings per share - basic and earnings per share - diluted: Thirteen Weeks Twenty-six Weeks Ended Ended -------------- ---------------- June June June June 26, 27, 26, 27, 1999 1998 1999 1998 ----- ----- ----- ----- 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)
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. 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"). 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): Thirteen weeks ended June 26, 1999 June 27, 1998 ------ ----- ------ ----- 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
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. 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. 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): Twenty-six weeks ended June 26, 1999 June 27, 1998 ------- ----- ------- ----- 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
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. 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. 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. * 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. 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 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 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 EX-27 2
5 1,000 6-MOS JAN-01-2000 DEC-27-1998 JUN-26-1999 3,027 0 59,168 6,101 33,175 91,264 89,763 27,835 343,368 57,431 223,110 0 0 80 59,902 343,368 140,366 140,366 91,227 91,227 0 0 9,928 8,117 3,399 4,718 0 0 0 4,718 .63 .61
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