<PAGE> 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 QUARTERLY PERIOD ENDED SEPTEMBER 30, 1996
------------------
OR
[ ] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES
EXCHANGE ACT OF 1934 FROM TO
Commission File Number 0-5888
WAXMAN USA INC.
---------------
(Exact Name of Registrant as Specified in its Charter)
DELAWARE 34-1761514
-------------------------- -----------------------
(State of Incorporation) (I.R.S. Employer
Identification Number)
24460 AURORA ROAD
BEDFORD HEIGHTS, OHIO 44146
--------------------- -----
(Address of Principal Executive Offices) (Zip Code)
(216) 439-1830
--------------
(Registrant's Telephone Number Including Area Code)
NOT APPLICABLE
--------------
(Former name, former address and former fiscal year, if changed since last
report)
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 ninety (90) days.
Yes X No
------ ------
100 shares of Common Stock, $.01 par value, were outstanding as of November 8,
1996.
<PAGE> 2
WAXMAN USA INC. AND SUBSIDIARIES
--------------------------------
INDEX TO FORM 10-Q
------------------
<TABLE>
<CAPTION>
PAGE
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<S> <C> <C>
PART 1. FINANCIAL INFORMATION
- ------------------------------
Item 1. Financial Statements (Unaudited)
Condensed Consolidated Statements of Operations -
Three Months Ended September 30, 1996
and 1995............................................... 3
Condensed Consolidated Balance Sheets -
September 30, 1996 and June 30, 1996.................... 4-5
Condensed Consolidated Statements of Cash Flows -
Three Months Ended September 30, 1996 and
1995................................................... 6
Notes to Condensed Consolidated Financial
Statements............................................. 7-9
Item 2. Management's Discussion and Analysis of Financial
Condition and Results of Operations 9-12
PART II. OTHER INFORMATION
- --------------------------
Item 5. Other Information...................................... 13
Item 6. Exhibits and Reports on Form 8-K....................... 13
SIGNATURES
- ----------
EXHIBIT INDEX
- -------------
</TABLE>
2
<PAGE> 3
PART 1. FINANCIAL INFORMATION
---------------------
ITEM 1. FINANCIAL STATEMENTS
WAXMAN USA INC. AND SUBSIDIARIES
--------------------------------
CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS
-----------------------------------------------
(UNAUDITED)
FOR THE THREE MONTHS ENDED SEPTEMBER 30, 1996 AND 1995
(IN THOUSANDS)
<TABLE>
<CAPTION>
1996 1995
---- ----
<S> <C> <C>
Net sales $ 65,879 $ 57,589
Cost of sales 42,985 38,012
-------- --------
Gross profit 22,894 19,577
Selling, general and administrative
expenses 15,522 13,905
Corporate charge 826 855
-------- --------
Operating income 6,546 4,817
Interest expense, net 1,592 4,572
-------- --------
Income before income taxes, minority
interest and cumulative effect of
change in accounting 4,954 245
Provision for income taxes 1,942 180
-------- --------
Income before minority interest and
cumulative effect of change in accounting 3,012 65
Minority interest in consolidated
affiliate 1,352 --
-------- --------
Income before cumulative effect of
change in accounting 1,660 65
Cumulative effect of change in accounting,
net of tax benefit -- (4,928)
-------- --------
Net income (loss) $ 1,660 $ (4,863)
======== ========
</TABLE>
The accompanying Notes to Condensed Consolidated Financial Statements are an
integral part of these statements.
3
<PAGE> 4
WAXMAN USA INC. AND SUBSIDIARIES
--------------------------------
CONDENSED CONSOLIDATED BALANCE SHEETS
-------------------------------------
SEPTEMBER 30, 1996 AND JUNE 30, 1996
(IN THOUSANDS)
ASSETS
<TABLE>
<CAPTION>
September 30, June 30,
1996 1996
(Unaudited) (Audited)
------------- ---------
<S> <C> <C>
CURRENT ASSETS:
Cash $ 1,211 $ 2,453
Accounts receivable, net 38,176 36,537
Inventories 64,533 59,883
Prepaid expenses 3,041 3,866
--------- ---------
Total current assets 106,961 102,739
--------- ---------
PROPERTY AND EQUIPMENT:
Land 505 428
Buildings 9,433 9,193
Equipment 23,434 20,665
--------- ---------
33,372 30,286
Less accumulated depreciation
and amortization (16,358) (15,349)
--------- ---------
Property and equipment, net 17,014 14,937
COST OF BUSINESSES IN EXCESS
OF NET ASSETS ACQUIRED, NET 13,215 13,318
UNAMORTIZED DEBT ISSUANCE COSTS, NET 1,140 1,100
OTHER ASSETS 1,423 969
--------- ---------
$ 139,753 $ 133,063
========= =========
</TABLE>
The accompanying Notes to Condensed Consolidated Financial Statements are an
integral part of these statements.
4
<PAGE> 5
WAXMAN USA INC. AND SUBSIDIARIES
--------------------------------
CONDENSED CONSOLIDATED BALANCE SHEETS
-------------------------------------
SEPTEMBER 30, 1996 AND JUNE 30, 1996
(IN THOUSANDS, EXCEPT PER SHARE AMOUNTS)
LIABILITIES AND STOCKHOLDER'S EQUITY
<TABLE>
<CAPTION>
September 30, June 30,
1996 1996
(Unaudited) (Audited)
------------- ---------
<S> <C> <C>
CURRENT LIABILITIES:
Current portion of long-term debt $ 14,797 $ 10,775
Accounts payable 28,719 27,547
Accrued liabilities 8,134 9,304
Accrued income taxes payable 2,533 2,037
Accrued interest 502 1,364
--------- ---------
Total current liabilities 54,685 51,027
--------- ---------
LONG-TERM DEBT, NET OF CURRENT PORTION 983 863
SENIOR NOTES 43,026 43,026
MINORITY INTEREST IN CONSOLIDATED AFFILIATE 21,958 20,606
STOCKHOLDER'S EQUITY:
Preferred stock, $.01 par value per share:
Authorized and unissued 1,000 shares -- --
Common Stock, $.01 par value per share:
Authorized 9,000 shares; 100 shares issued and
outstanding -- --
Advances to Waxman Industries, Inc. (16,987) (16,913)
Paid-in capital 21,462 21,462
Retained earnings 14,940 13,280
--------- ---------
19,415 17,829
Cumulative currency translation adjustment (314) (288)
--------- ---------
Total stockholder's equity 19,101 17,541
--------- ---------
$ 139,753 $ 133,063
========= =========
</TABLE>
The accompanying Notes to Condensed Consolidated Financial Statements are an
integral part of these statements.
5
<PAGE> 6
WAXMAN USA INC. AND SUBSIDIARIES
--------------------------------
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS
-----------------------------------------------
(UNAUDITED)
FOR THE THREE MONTHS ENDED SEPTEMBER 30, 1996 AND 1995
(IN THOUSANDS)
<TABLE>
<CAPTION>
1996 1995
-------- --------
<S> <C> <C>
CASH FLOWS FROM OPERATING ACTIVITIES:
Net income (loss) $ 1,660 $ (4,863)
Adjustments to reconcile net income (loss) to
net cash provided by (used in) operating
activities:
Cumulative effect of change in accounting -- 8,213
Minority interest in consolidated affiliate 1,352 --
Depreciation and amortization 1,072 1,173
Changes in assets and liabilities:
Accounts receivable, net (1,639) (898)
Inventories (4,650) 3,738
Prepaid expenses and other assets 371 448
Accounts payable 1,172 1,007
Accrued liabilities (1,170) (229)
Accrued income taxes 496 --
Accrued interest (862) 784
Other, net (26) (62)
-------- --------
Net Cash Provided by (Used in) Operating
Activities (2,224) 9,311
-------- --------
CASH FLOWS FROM INVESTING ACTIVITIES:
Capital expenditures, net (3,086) (1,466)
-------- --------
Net Cash (Used in) Investing Activities (3,086) (1,466)
-------- --------
CASH FLOWS FROM FINANCING ACTIVITIES:
Borrowings under credit agreement 32,178 56,816
Payments under credit agreement (28,156) (59,477)
Borrowings (Repayments) of long-term debt 120 (19)
Capital contribution from parent -- 918
Advances from (to) parent (74) (6,715)
-------- --------
Net Cash Provided by
(Used in) Financing Activities 4,068 (8,477)
-------- --------
NET DECREASE IN CASH (1,242) (632)
BALANCE, BEGINNING OF PERIOD 2,453 2,062
-------- --------
BALANCE, END OF PERIOD $ 1,211 $ 1,430
======== ========
</TABLE>
The accompanying Notes to Condensed Consolidated Financial Statements are an
integral part of these statements.
6
<PAGE> 7
WAXMAN USA INC. AND SUBSIDIARIES
--------------------------------
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
----------------------------------------------------
(UNAUDITED)
SEPTEMBER 30, 1996
NOTE 1 - BASIS OF PRESENTATION
---------------------
Waxman USA Inc. ("Waxman USA"), a wholly owned subsidiary of Waxman Industries,
Inc. ("Waxman Industries"), was formed on February 2, 1994. The accompanying
condensed consolidated financial statements include the accounts of Waxman USA,
its wholly owned subsidiaries and its affiliate, Barnett Inc. (collectively, the
"Company"). Waxman USA owns approximately 49.9% of the voting capital stock of
Barnett Inc. ("Barnett") and, together with non-voting preferred stock of
Barnett owned by Waxman USA, owns approximately 54% of the capital stock of
Barnett. The portion of Barnett not owned by Waxman USA is reflected as minority
interest in the accompanying condensed consolidated balance sheets. All
significant intercompany transactions and balances are eliminated in
consolidation.
During fiscal 1994, Waxman Industries restructured its domestic operations such
that Waxman Industries is now a holding company whose only material assets are
the capital stock of its subsidiaries (the "Corporate Restructuring"). As part
of the Corporate Restructuring, Waxman Industries formed (a) Waxman USA as a
holding company for the subsidiaries that comprise and support Waxman
Industries' domestic operations, (b) Waxman Consumer Products Group Inc.
("Consumer Products"), to own and operate Consumer Products Group division, and
(c) WOC Inc. ("WOC"), to own and operate Waxman USA's domestic subsidiaries,
other than Barnett Inc. and Consumer Products. On May 20, 1994, Waxman
Industries completed the Corporate Restructuring by (i) contributing the capital
stock of Barnett to Waxman USA, (ii) contributing the assets and liabilities of
the Consumer Products Group division to Consumer Products, (iii) contributing
the assets and liabilities of Madison Equipment division to WOC., (iv)
contributing the assets and liabilities of Medal Distributing division to WOC,
(v) merging U.S. Lock Corporation and LeRan Copper & Brass Inc. into WOC, (vi)
contributing the capital stock of TWI International, Inc. ("TWI") to Waxman USA
and (vii) contributing the capital stock of Western American Manufacturing Inc.
("WAMI") to TWI. This restructuring was accounted for based upon each entity's
historical carrying amounts.
The condensed consolidated statements of operations for the three months ended
September 30, 1996 and 1995, the condensed balance sheet as of September 30,
1996 and the condensed statements of cash flows for the three months ended
September 30, 1996 and 1995 have been prepared by the Company without audit,
while the condensed balance sheet as of June 30, 1996 was derived from audited
financial statements. In the opinion of management, these financial statements
include all adjustments, all of which are normal and recurring in nature,
necessary to present fairly the financial position, results of operations and
cash flows of the Company as of September 30, 1996 and for all periods
presented. Certain information and footnote disclosures normally included in
financial statements prepared in accordance with generally accepted accounting
principles have been condensed or omitted. The Company believes that the
disclosures included herein are adequate and provide a fair presentation of
interim period results. Interim financial statements are not necessarily
indicative of financial position or operating results for an entire year. It is
suggested that these condensed interim financial statements be read in
conjunction with the audited financial statements and the notes thereto for the
fiscal year ended June 30, 1996, included in the Company's Registration
Statement on Form S-4, dated October 29, 1996, filed with the Securities and
Exchange Commission.
7
<PAGE> 8
NOTE 2 - BUSINESS
--------
The Company believes that it is a leading supplier to the home repair and
remodeling market in the United States. Primarily through its wholly owned
subsidiaries, Consumer Products, WOC, and TWI and its affiliate Barnett, the
Company markets and distributes a broad range of plumbing, electrical and
hardware products to over 55,000 customers in the United States, including
do-it-yourself warehouse home centers, home improvement centers, mass
merchandisers, hardware stores, lumberyards and to plumbing and electrical
repair and remodeling contractors, independent hardware stores and maintenance
managers.
NOTE 3 - INCOME TAXES
------------
The Company accounts for income taxes in accordance with the provisions of
Statement of Financial Accounting Standards No. 109, "Accounting for Income
Taxes" (SFAS No. 109).
Waxman USA participates in the consolidated tax group of which Waxman Industries
is the common parent. Commencing July 1, 1994, Waxman USA began participating in
a new tax sharing agreement with Waxman Industries. Under this agreement, Waxman
USA's federal tax liability is equal to the lesser of (i) its federal tax
liability calculated on a stand-alone basis or (ii) Waxman Industries' federal
tax liability. The Company files separate income tax returns in certain states
based on the results of operations within the applicable states. At June 30,
1996, Waxman Industries had approximately $54.3 million of available domestic
net operating loss carryforwards which will expire between 2008 and 2011. The
benefit of these net operating loss carryforwards has been reduced 100% by a
valuation allowance. Waxman Industries will continue to evaluate the valuation
allowance and to the extent that Waxman Industries is able to recognize tax
benefits in the future, such recognition will favorably affect future results of
operations. Waxman Industries also has alternative minimum tax carryforwards of
approximately $663,000 at June 30, 1996 which are available to reduce future
regular income taxes over an indefinite period.
As a result of the Barnett Public Offering (as defined below), Barnett is no
longer included in the consolidated tax group. Therefore, Waxman Industries'
remaining net operating loss carryforwards are not available to offset Barnett's
taxable income. The tax provision for the three months ended September 30, 1996
represents a tax provision based on Waxman USA as a stand alone taxpayer,
Barnett's tax provision and a provision for state and foreign taxes. Deferred
taxes and amounts payable to Waxman USA's parent corporation, are included in
the accompanying condensed consolidated balance sheets. Deferred tax assets of
$500,000 related to Barnett are included in other assets as of September 30 and
June 30, 1996.
NOTE 4 - BARNETT
-------
In April 1996, Barnett completed an initial public offering (the "Barnett Public
Offering") of its common stock (the "Barnett Common Stock"). In the offering,
7,207,200 shares, representing approximately 55.1% of the Barnett Common Stock,
were sold in the aggregate by Barnett and Waxman USA at an initial public
offering price per share of $14.00. Since the consummation of the Barnett Public
Offering, the cash flow generated by Barnett is no longer available to Waxman
USA other than the pro rata amounts, if any, distributed by Barnett in the form
of a common stock dividend. Waxman USA consolidates Barnett's financial results
and records a charge on its statement of operations for the net income related
to the outside stockholders' interest.
8
<PAGE> 9
NOTE 5 - SUPPLEMENTAL CASH FLOW INFORMATION
----------------------------------
Cash payments during the three months ended September 30, 1996 and 1995 included
income taxes of $1.4 million and $0.2 million and interest of $2.3 million and
$3.8 million, respectively. Waxman USA's cash flow, within certain restrictions,
are upstreamed to Waxman Industries to service interest payments and
administrative costs.
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL
-------------------------------------------------
CONDITION AND RESULTS OF OPERATIONS
-----------------------------------
A. RESULTS OF OPERATIONS FOR THE THREE MONTHS ENDED SEPTEMBER 30, 1996
AND 1995
This Quarterly Report contains certain forward-looking statements within the
meaning of the Private Securities Litigation Reform Act of 1995 including,
without limitation, statements regarding the sufficiency of the Company's
liquidity and sources of capital. These forward-looking statements are subject
to certain risks, uncertainties and other factors which could cause actual
results to differ materially. Additional information regarding factors that
could potentially affect the Company or its financial results may be included in
the Company's filings with the Securities and Exchange Commission.
Net Sales
- ---------
Net sales for the fiscal 1997 first quarter ended September 30, 1996 totaled
$65.9 million, an increase of 14.4%, as compared to the $57.6 million in the
comparable quarter in fiscal 1996. Most of the net sales increase is
attributable to Barnett's introduction of 1,031 new products and the expansion
of its telesales operations by 19 telesalespersons over the prior year. Sales
from products introduced over the past twelve months accounted for $3.2 million
of the increase. In addition, an expanded promotional flyer campaign resulted in
an increase in the number of Barnett's active customers from 39,000 to 43,000,
contributing $1.3 million to the increase in net sales for the fiscal 1997 first
quarter as compared to the same period in fiscal 1996.
The Company's wholly owned operations recorded a net sales increase of 2.3%,
accounting for the remaining improvement in the Company's net sales. The
increase is attributable to additional market opportunities that became
available as a result of the Company's strengthened financial position, an
increase in direct selling activities from the Company's foreign operations and
an improved economic environment for most of the Company's products. The
increase was partially offset by decreased demand from some of the Company's
larger customers, as a result of the highly competitive retail industry and
Consumer Products discontinuance of certain lower margin product lines.
Gross Profit
- ------------
Gross profit increased by 16.9% to $22.9 million in the three months ended
September 30, 1996, as compared to $19.6 million in the corresponding prior year
period. The gross profit margin improved to 34.8% in the quarter ended September
30, 1996 from 34.0% for the comparable period last year. Barnett's gross profit
for the quarter ended September 30, 1996 increased by 28.8% to $12.4 million as
gross profit margins improved over the comparable quarter last year. The
improvements were the result of favorable vendor program changes, including
additional volume incentive programs in the current three month period.
Gross profit for the Company's wholly owned operations for the first quarter of
fiscal 1997 amounted to $10.5 million, an improvement of 5.6% over the $10.0
million in the corresponding period last year. The gross profit margin improved
by 3.2%, and was 35.8% in the current year quarter as compared to
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34.7% for the quarter ended September 30, 1995, primarily due to the
discontinuance of lower margin product lines.
Selling, General and Administrative Expenses
- --------------------------------------------
Selling, general and administrative expenses ("SG&A expenses") increased from
$13.9 million for the quarter ended September 30, 1995 to $15.5 million for the
current quarter. As a percentage of net sales, SG&A expenses decreased from
24.1% for the first quarter of fiscal 1996 to 23.6% for the first quarter of
fiscal 1997. Barnett's SG&A expenses for the first quarter of fiscal 1997
increased to $8.0 million from the $6.3 million in the comparable period last
year. The increase was the result of the addition of 19 telesalespersons, an
expansion of its marketing staff, increased freight and delivery costs as a
result of Barnett's decision to reduce its customer's prepaid freight minimums,
as well as independent public company costs incurred by Barnett since the
Barnett Public Offering. As a percentage of net sales, Barnett's SG&A expenses
were relatively unchanged for the comparable quarters.
SG&A expenses for the Company's wholly owned operations decreased slightly, and
as a percentage of net sales, improved to 25.6% in the first quarter of fiscal
1997 as compared to 26.3% in the same quarter of fiscal 1996. The improvement is
primarily due to higher sales, and the write down of goodwill and other assets
in connection with the Company's strategic review of its operations and the
adoption of SFAS No. 121, "Accounting for the Impairment of Long-Lived Assets
and for Long-Lived Assets to Be Disposed Of" in the fourth quarter of fiscal
1996.
Corporate Charge
- ----------------
Corporate charge decreased to $.8 million, or 1.3% of net sales, for the fiscal
1997 first quarter compared to $.9 million, or 1.5% of net sales, for the
comparable quarter last year. Corporate charges are allocations to the Company
of expenses that Waxman Industries incurs to support its corporate activities.
Since the Barnett Public Offering, Waxman Industries no longer allocates a
corporate charge to Barnett. The slight improvement between years is a result of
a decrease in general and administrative expenses at Waxman Industries.
Interest Expense
- ----------------
For the quarter ended September 30, 1996, interest expense totaled $1.6 million,
a decrease of $3.0 million from the $4.6 million in the comparable quarter last
year. The decrease is primarily due to the repayment of debt with the net
proceeds from the Barnett Public Offering. Average borrowings for the current
year's quarter amounted to $57.8 million, with a weighted average interest rate
of 10.4%, as compared to $145.4 million in the same quarter last year with a
weighted average interest rate of 11.9%.
Provision for Income Taxes
- --------------------------
The provision for income taxes amounted to $1.9 million and $0.2 million for the
first quarter of fiscal 1997 and 1996, respectively. The provision for the
current quarter primarily represents Waxman USA's tax provision on a stand-alone
basis, including Barnett's tax provision and state and foreign taxes of the
Company's wholly owned operations. The difference between the effective and
statutory tax rates is primarily due to goodwill amortization and state and
foreign taxes.
With the completion of the Barnett Public Offering, Barnett is no longer
included in the consolidated tax group of which Waxman Industries is the
ultimate agent, and is unable to benefit from the Waxman Industries' net
operating loss carryforwards.
10
<PAGE> 11
Minority Interest in Consolidated Affiliate
- -------------------------------------------
The Company recorded a charge of $1.4 million for the quarter ended September
30, 1996 for the 50.1% of Barnett's net income associated with the outside
stockholders' common stock interest.
Cumulative Effect of Change in Accounting
- -----------------------------------------
Effective July 1, 1995, the Company changed its method of accounting for
procurement costs. Procurement costs represent the amount paid in connection
with a customer's commitment to purchase products from the Company for a
specified period. The amount capitalized is the consideration paid by the
Company to the new or existing customer (i) for the right to supply such
customer for a specified period and (ii) to purchase competitor's merchandise
that the customer has on hand when it changes suppliers, less the salvage value
received by the Company. The Company adopted a policy to amortize these costs in
the fiscal year incurred due to the uncertainty of today's competitive retail
environment. Previously, these costs were amortized over the period deemed to be
benefited. The cumulative effect of this change on prior years of $4.9 million,
net of a tax benefit of $3.3 million, is reported as a separate charge in the
first quarter of fiscal 1996.
Net Income (Loss)
- -----------------
The Company's net income for the quarter ended September 30, 1996 amounted to
$1.7 million, an increase over income of $0.1 million before the cumulative
effect of the change in accounting in the first quarter of fiscal 1996. In the
first quarter of fiscal 1996, the Company also recorded a charge for the
cumulative effect of the change in accounting of $4.9 million, net of a tax
benefit of $3.3 million, resulting in a net loss of $4.9 million.
B. Liquidity and Capital Resources
-------------------------------
At September 30, 1996, the Company had $14.2 million available under the credit
agreement with BankAmerica Business Credit, Inc. (the "New Credit Agreement").
The New Credit Agreement contains certain covenants and restrictions, including
a material adverse effect clause and the requirement to maintain cash collateral
accounts. Accordingly, borrowings under the New Credit Agreement have been
classified as a current liability. The Company was in compliance with all loan
covenants at September 30, 1996.
At September 30, 1996, the Company had working capital of $52.3 million and a
current ratio of 2.0 to 1.
The Company relies primarily on Consumer Products for cash flow since Barnett's
cash flow is no longer available to the Company as a result of the completion of
the Barnett Public Offering. Consumer Products' customers include do-it-yourself
warehouse centers, home improvement centers, mass merchandisers, hardware stores
and lumberyards. Consumer Products may be adversely affected by prolonged
economic downturns or significant declines in consumer spending. There can be no
assurances that any such prolonged economic downturns or significant declines in
consumer spending will not have a material adverse impact on the Consumer
Products' business and its ability to generate cash flow. Furthermore, Consumer
Products' largest customer, Kmart and its subsidiary, Builders Square, in recent
years have accounted for approximately 42% to 44% of Consumer Products' total
net sales. The Company has been advised by Kmart that it is in the process of
conducting a review of its supply arrangements with its suppliers of plumbing
and hardware products, including Consumer Products, and will make a decision
regarding which vendors it will utilize by the end of December 1996. Based on
discussions to date with Kmart's management, the Company believes it will retain
the Kmart business. However, all large merchandisers review supply arrangements
from time to time and there can be no assurance that this relationship will
11
<PAGE> 12
continue or as to the terms of any relationship that does continue. In the event
Consumer Products were to either lose Kmart as a customer or Kmart were to
significantly curtail its purchases from Consumer Products, there would be
material short-term adverse effects until the Company could modify Consumer
Products' cost structure to be more in line with its reduced revenue base.
The Company does not have any commitments to make substantial capital
expenditures.
The Company believes that the funds generated from operations, together with the
funds available under the New Credit Agreement will be sufficient to satisfy the
Company's liquidity requirements until June 1, 1999 (the date that the $5.7
million principal payment is due on Waxman Industries' 13 3/4% Senior
Subordinated Notes due 1999) or, if Waxman Industries is able to refinance such
Senior Subordinated Notes, December 1, 1999 (the date that cash interest becomes
payable by Waxman Industries under its 12 3/4% Deferred Coupon Notes due 2004).
There can be no assurance that the Company will be able to pay cash interest on
the Deferred Coupon Notes commencing in December 1999 or that Waxman Industries
will be able to refinance the Senior Subordinated Notes or the Deferred Coupon
Notes.
Discussion of Cash Flows
- ------------------------
Net cash used by the Company's operations was $2.2 million for the quarter ended
September 30, 1996, due mainly to an increase in inventories, accounts
receivable and a decrease in accruals (principally accrued liabilities and
accrued interest payments) which were partially offset by an increase in
accounts payable. Cash flow used for investments totaled $3.1 million, primarily
relating to Barnett's operations, including capital expenditures for improved
management information systems, including the buy-out of an operating lease
incurred in prior years and expansion and/or relocation of several of Barnett's
distribution centers to accommodate new product offerings. Cash flow from
financing totaled $4.1 million. Net debt borrowings during the quarter ended
September 30, 1996 under the New Credit Agreement totaled $4.0 million.
12
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PART II. OTHER INFORMATION
-----------------
ITEM 5. OTHER INFORMATION
-----------------
ITEM 6. EXHIBITS AND REPORTS ON FORM 8-K
--------------------------------
a) See Exhibit 27.
b) Form 8-K
None
All other items in Part II are either inapplicable to the Company during the
quarter ended September 30, 1996 or the answer is negative or a response has
been previously reported and an additional report of the information need not be
made, pursuant to the instructions to Part II.
SIGNATURES
----------
Pursuant to the requirements of the Securities Exchange Act of 1934, as amended,
the registrant has duly caused this report to be signed on its behalf by the
undersigned thereunto duly authorized.
WAXMAN USA INC.
---------------
REGISTRANT
DATE: DECEMBER 3, 1996 BY: /S/ MICHAEL J. VANTUSKO
MICHAEL J. VANTUSKO
CHIEF FINANCIAL OFFICER
(PRINCIPAL FINANCIAL AND
ACCOUNTING OFFICER)
13
<PAGE> 14
EXHIBIT INDEX
-------------
EXHIBIT PAPER (P) OR
NUMBER DESCRIPTION ELECTRONIC (E)
- ------ ----------- --------------
(27) Financial Data Schedule
(submitted to the Securities
and Exchange Commission in
Electronic Format) E
<TABLE> <S> <C>
<ARTICLE> 5
<MULTIPLIER> 1,000
<CURRENCY> U.S. DOLLARS
<S> <C>
<PERIOD-TYPE> 3-MOS
<FISCAL-YEAR-END> JUN-30-1997
<PERIOD-START> JUL-01-1996
<PERIOD-END> SEP-30-1996
<EXCHANGE-RATE> 1
<CASH> 1,211
<SECURITIES> 0
<RECEIVABLES> 40,451
<ALLOWANCES> (2,275)
<INVENTORY> 64,533
<CURRENT-ASSETS> 106,961
<PP&E> 33,372
<DEPRECIATION> (16,358)
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<COMMON> 0
0
0
<OTHER-SE> 19,101
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<SALES> 65,879
<TOTAL-REVENUES> 65,879
<CGS> 42,985
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<INCOME-TAX> 1,942
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</TABLE>
