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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, 1994
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 INDUSTRIES, INC.
(Exact Name of Registrant as Specified in its Charter)
Delaware 34-0899894
(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
--- ---
9,491,457 shares of Common Stock, $.01 par value, and 2,220,705 shares of Class
B Common Stock, $.01 par value, were issued and outstanding as of October 27,
1994.
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<TABLE>
INDEX
WAXMAN INDUSTRIES, INC. AND SUBSIDIARIES
<CAPTION>
PAGE
----
<S> <C>
PART I. FINANCIAL INFORMATION
- - - - -----------------------------
Item 1. Financial Statements (Unaudited)
Consolidated Statements of Income - Three Months
Ended September 30, 1994 and 1993...................................................................... 3
Consolidated Balance Sheets - September 30, 1994
and June 30, 1994...................................................................................... 4-5
Consolidated Statements of Cash Flows - Three Months
Ended September 30, 1994 and 1993...................................................................... 6
Notes to Consolidated Financial Statements -
September 30, 1994 and 1993............................................................................ 7-8
Item 2. Management's Discussion and Analysis of Financial
Condition and Results of Operations.............................................................. 8-11
PART II. OTHER INFORMATION
- - - - --------------------------
Item 6. Exhibits and Reports on Form 8-K................................................................. 12
SIGNATURES................................................................................................ 12
- - - - ----------
</TABLE>
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<TABLE>
PART I. FINANCIAL INFORMATION
- - - - ------------------------------
Item 1. Financial Statements
--------------------
WAXMAN INDUSTRIES, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF INCOME
(Unaudited)
For the Three Months Ended September 30, 1994 and 1993
(In Thousands, Except Per Share Data)
<CAPTION>
1994 1993
---------- ---------
<S> <C> <C>
Net sales $ 59,444 $ 54,701
Cost of sales 38,557 35,951
-------- -------
Gross profit 20,887 18,750
Operating expenses 15,248 13,991
-------- -------
Operating income 5,639 4,759
Interest expense, net 6,141 5,171
-------- -------
Loss from continuing operations
before income taxes (502) (412)
Provision (benefit) for income taxes 50 (55)
-------- -------
Loss from continuing operations (552) (357)
Income from discontinued
operations, net of taxes - 886
-------- -------
Net income (loss) $ (552) $ 529
======== ========
Primary and fully diluted earnings
(loss) per share:
From continuing operations $ (.05) $ (.03)
From discontinued operations - .08
-------- -------
Net income (loss) $ (.05) $ .05
======== ========
<FN>
The accompanying notes to Consolidated Financial Statements
are an integral part of these statements.
</TABLE>
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<TABLE>
WAXMAN INDUSTRIES, INC. AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS
(Unaudited)
September 30, 1994 and June 30, 1994
(In Thousands)
ASSETS
<CAPTION>
September 30, June 30,
1994 1994
--------------- --------
<S> <C> <C>
CURRENT ASSETS:
Cash $ 2,561 $ 2,026
Accounts receivable, net 40,266 37,216
Inventories 82,594 80,969
Prepaid expenses 4,870 4,987
Net liabilities of discontinued operations (251) (421)
------- -------
Total current assets 130,040 124,777
------- -------
PROPERTY AND EQUIPMENT:
Land 1,523 1,461
Buildings 12,806 12,421
Equipment 21,233 20,655
------- -------
35,562 34,537
Less accumulated depreciation and amortization (17,908) (17,163)
------- -------
Property and equipment, net 17,654 17,374
------- -------
COST OF BUSINESSES IN EXCESS OF
NET ASSETS ACQUIRED, NET AND
OTHER ASSETS 42,376 40,892
------- -------
$190,070 $183,043
======== ========
<FN>
The accompanying Notes to Consolidated Financial Statments
are an integral part of these balance sheets.
</TABLE>
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<TABLE>
WAXMAN INDUSTRIES, INC. AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS
(Unaudited)
September 30, 1994 and June 30, 1994
(In Thousands, Except Per Share Amounts)
LIABILITIES AND STOCKHOLDERS' EQUITY
<CAPTION>
September 30, June 30,
1994 1994
--------------- -------
<S> <C> <C>
CURRENT LIABILITIES:
Current portion of long-term debt $ 5,921 $ 4,144
Accounts payable 21,353 20,427
Accrued liabilities 6,450 6,507
-------- --------
Total current liabilities 33,724 31,078
-------- --------
LONG-TERM DEBT, NET OF CURRENT PORTION 57,305 54,063
SENIOR SECURED NOTES 38,702 38,675
SENIOR SECURED DEFERRED COUPON NOTES 49,625 48,031
SUBORDINATED DEBT 48,905 48,905
COMMITMENTS AND CONTINGENCIES
STOCKHOLDERS' EQUITY:
Preferred stock, $.01 par value per share:
Authorized and unissued 2,000 shares - -
Common Stock, $.01 par value per share:
Authorized 22,000 shares; Issued 9,491
at September 30, 1994 and 9,490 at June 30, 1994 95 95
Class B common stock $.01 par value per share:
Authorized 6,000 shares; Issued 2,221
at September 30, 1994 and 2,222 at June 30, 1994 23 23
Paid-in capital 21,098 21,098
Retained deficit (59,407) (58,925)
-------- --------
Total stockholders' equity (deficit) (38,191) (37,709)
-------- --------
$190,070 $183,043
======== ========
<FN>
The accompanying Notes to Consolidated Financial Statements
are an integral part of these balance sheets.
</TABLE>
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<TABLE>
WAXMAN INDUSTRIES, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS
(Unaudited)
For the Three Months Ended September 30, 1994 and 1993
(In Thousands)
<CAPTION>
1994 1993
-------- --------
<S> <C> <C>
CASH FROM (USED FOR):
OPERATIONS
Loss from continuing operations $ (552) $ (357)
Adjustments to reconcile loss
from continuing operations:
Non-cash interest - Deferred Coupon Notes 1,594 -
Depreciation and amortization 2,119 1,907
Changes in assets and liabilities:
Accounts receivable (3,050) (2,545)
Inventories (2,244) (1,067)
Prepaid expenses 117 138
Accounts payable 926 1,742
Accrued liabilities (57) 1,718
------- -------
Net cash from (used for) continuing operations (1,147) 1,536
------- -------
Earnings from discontinued operations - 886
Other, net 71 (1,327)
Change in net liabilities of discontinued operations (170) (146)
------- -------
Net cash provided by (used for) operations (1,246) 949
------- -------
INVESTMENTS:
Capital expenditures (1,012) (653)
Change in other assets (61) (532)
------- -------
Net cash used for investments (1,073) (1,185)
------- -------
FINANCING:
Net borrowings under credit agreements 2,964 52
Repayments of long-term debt (110) (106)
------- -------
Net cash from (used for) financing activities 2,854 (54)
------- -------
NET INCREASE (DECREASE) IN CASH 535 (290)
BALANCE, BEGINNING OF PERIOD 2,026 406
------- -------
BALANCE, END OF PERIOD $ 2,561 $ 116
======= =======
<FN>
The accompanying Notes to Consolidated Financial Statements
are an integral part of these statements.
</TABLE>
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WAXMAN INDUSTRIES, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
September 30, 1994 and 1993
(in thousands, except per share amounts)
Management believes that the information furnished in the accompanying
consolidated financial statements reflects all adjustments (consisting only of
normal recurring adjustments) which are necessary for a fair presentation of
the Company's financial position and results of operations for the periods
presented. The results of operations for the three months ended September 30,
1994 are not necessarily indicative of the results that may be expected for the
fiscal year ending June 30, 1995 or any other period. The information reported
in the consolidated financial statements and the notes below should be read in
conjunction with the Company's Annual Report on Form 10-K for the fiscal year
ended June 30, 1994.
1. Business
--------
The Company believes that it is one of the leading suppliers of
plumbing products to the home repair and remodeling market in the
United States. The Company distributes plumbing, electrical and
hardware products, in both packaged and bulk form, to do-it-yourself
(D-I-Y) retailers, mass merchandisers, smaller independent retailers
and plumbing and electrical repair and remodeling contractors.
2. Consolidation and Prior-Year Reclassification
---------------------------------------------
The accompanying consolidated financial statements include the
accounts of Waxman Industries, Inc. and its wholly-owned subsidiaries
(the Company). All significant intercompany transactions and balances
are eliminated in consolidation. Certain fiscal 1994 amounts have
been reclassified to conform with the fiscal 1995 presentation
including a restatement to reflect the Company's Canadian subsidiary,
Ideal Plumbing Group, Inc. (Ideal) as a discontinued operation.
Ideal's operations were discontinued effective March 31, 1994.
3. Earnings Per Share
------------------
Primary earnings per share have been computed based on the weighted
average number of shares and share equivalents outstanding, which
totaled 11,712 and 11,662 for the three months ended September 30,
1994 and 1993, respectively. Share equivalents include the Company's
common stock purchase warrants. The conversion of the Company's
Convertible Subordinated Debentures due March 15, 2007 into shares of
common stock was not assumed in computing fully diluted earnings per
share in either 1994 or 1993, as the effect would be antidilutive.
4. Income Taxes
------------
In accordance with the provisions of Statement of Financial Accounting
Standards No. 109, "Accounting for Income Taxes" (SFAS 109), the
Company is currently unable to recognize any income tax benefit
relating to the loss from continuing operations. The
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tax provision for the quarter ended September 30, 1994 represents a
provision for state and foreign taxes.
The Company currently has $59.6 million of available domestic net
operating loss carryforwards which expire through 2009. The benefit
of these net operating loss carryforwards has been reduced 100% by a
valuation allowance. The Company will continue to evaluate the
valuation allowance and to the extent that the Company is able to
recognize tax benefits in the future, such recognition will favorably
affect future results of operations.
5. Supplemental Cash Flow Information
----------------------------------
Cash payments during the three months ended September 30, 1994 and
1993 included income taxes of $183 and $167, and interest of $3,488
and $2,645 respectively.
Item 2. Management's Discussion and Analysis of Financial
-------------------------------------------------
Condition and Results of Operations
-----------------------------------
A. Results of Operations
---------------------
Net Sales
---------
Net sales for the 1995 first quarter totaled $59.4 million, compared with
$54.7 million in the 1994 first quarter, an increase of 8.7%. The Company's
1995 first quarter net sales were adversely affected by the sale of H.
Belanger Plumbing Accessories (Belanger) in October 1993. Belanger's net
sales for the prior year quarter totaled $1.5 million. Net sales increased
11.8% for the three months ended September 30, 1994, after excluding the
impact of Belanger. The net sales increases are primarily the result of the
continued growth of the Company's Consumer Products and Barnett
subsidiaries. Consumer Products' net sales increased 18.7% from $18.0
million in 1994 first quarter to $21.4 million in the 1995 first quarter.
The increase was primarily the result of the expansion of its business with
several of its large customers. The opening orders for this additional
business, which totaled approximately $2.5 million, were shipped during the
first quarter. Barnett's net sales increased 11.7% from $22.8 million in
the 1994 first quarter to $25.4 million in the 1995 first quarter. New
product introductions accounted for $1.7 million of the increase for the
1995 first quarter. The remainder of Barnett's increases were the result of
the growth of Barnett's existing customer base.
Gross Profit
------------
The Company's gross margins increased to 35.1% for the 1995 first quarter
from 34.3% for the 1994 first quarter. The increase in gross margin is
attributable to the favorable impact of the additional Consumer Products
business, as well as an overall increase in the percentage of products
purchased overseas. The imported products typically generate higher margins
than products purchased domestically.
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Operating Expenses
------------------
Operating expenses increased 9.0% from $14.0 million in the 1994 first
quarter to $15.2 million in the 1995 first quarter. Excluding the impact of
the sale of Belanger, operating expenses for the quarter were up 13.1%.
These increases were due primarily to increases in operating expenses for
Consumer Products and Barnett. Operating expenses increased approximately
$0.7 million and $0.5 million in the 1995 first quarter for Consumer
Products and Barnett, respectively. These increases are in line with the
increases in sales from these operations.
Operating Income
----------------
The Company's operating income totaled $5.6 million or 9.5% of net sales and
$4.8 million or 8.7% of net sales for the 1995 first quarter and 1994 first
quarter, respectively. The Company's operating income increased 18.5% for
the 1995 first quarter, as compared with the prior year period. The
improved operating income was the result of higher gross margins offset, in
part, by increased operating expenses. The impact of the sale of Belanger
on operating income was not significant.
Interest Expense
----------------
The Company's interest expense totaled $6.1 million for the 1995 first
quarter, compared with $5.2 million for the 1994 first quarter. Average
borrowings outstanding increased from $166.4 million in the 1994 first
quarter to $196.7 million for the same period in the current year. The
increase in average borrowings outstanding is due to increased working
capital needs relating to the growth of the Company's operations as well as
the impact of the additional debt incurred in connection with the Company's
May 1994 debt restructuring. The debt restructuring significantly reduced
the Company's cash interest requirements. Cash interest expense for the
1995 first quarter totaled $4.0 million. The weighted average interest rate
remained constant at 12.2% in both the 1995 first quarter and the 1994 first
quarter.
Income Taxes
------------
In accordance with the provisions of SFAS 109, the Company is unable to
benefit losses in the current year. The Company has $59.6 million of
available domestic net operating loss carryforwards which expire through
2009, the benefit of which has been reduced 100% by a valuation allowance.
The Company will continue to evaluate the valuation allowance and to the
extent that the Company is able to recognize tax benefits in the future,
such recognition will favorably affect future results of operations.
Loss From Continuing Operations
-------------------------------
The Company's loss from continuing operations for the 1995 first quarter
totaled $0.6 million compared with a loss of $0.4 million in the 1994 first
quarter.
Discontinued Operations
-----------------------
The Company's income from discontinued operations for the 1994 first quarter
totaled $0.9 million.
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Net Loss
--------
The Company's net loss for the 1995 first quarter totaled $0.6 million,
compared with a net income of $0.5 million in the 1994 first quarter.
B. Liquidity and Capital Resources
-------------------------------
On May 20, 1994, the Company completed a financial restructuring which was
undertaken to modify the Company's capital structure to facilitate the
growth of its domestic businesses by reducing cash interest expense and
increasing the Company's liquidity.
As part of the restructuring, the Company exchanged $50 million of its
13-3/4% Senior Subordinated Notes due 1999 (the Subordinated Notes) for $50
million initial accreted value of 12-3/4% Senior Secured Deferred Coupon
Notes due 2004 (the Deferred Coupon Notes). Approximately $48.8 million of
the Subordinated Notes remain outstanding. The Deferred Coupon Notes have
no cash interest requirements until June 1, 1999. As a result of the
exchange, the Company's cash interest requirements have been significantly
reduced for five years. In addition, the $50 million of Subordinated Notes
exchanged can be used to satisfy the Company's mandatory redemption
requirements with respect to such issue and, as such, the $20 million
mandatory redemption payments due on June 1, 1996 and 1997 have been
satisfied and the mandatory redemption payment due on June 1, 1998 has been
reduced to $8.8 million. The Company is, however, required to make
mandatory redemption payments of $17.0 million on each of September 1, 1996
and 1997 with respect to its Senior Secured Notes due 1998.
As part of the restructuring, the Company's indirect subsidiaries Barnett
Inc., Waxman Consumer Products Group Inc. and WOC Inc. (the Operating
Companies) entered into a $55 million, four-year, secured credit facility
with an affiliate of Citibank, N.A., as agent for certain financial
institutions. The secured credit facility, which has an initial term of
three years, will be extended for an additional year if the Company's Senior
Secured Notes have been repaid on or before March 1997. The secured credit
facility is subject to borrowing base formulas. The secured credit facility
prohibits dividends and distributions by the Operating Companies except in
certain limited instances. At September 30, 1994, availability under the
secured credit facility totaled approximately $10 million.
As part of the restructuring, the Operating Companies also entered into a
$15.0 million three-year term loan with Citibank, N.A., as agent. A
one-time fee of 1.0% of the principal amount outstanding under the term
loan will be payable if such loan is not repaid by November 20, 1994. The
Company does not expect that the term loan will be repaid by such date.
Principal payments of the term loan will be required to be prepaid if a
refinancing is completed which is sufficient to retire the Subordinated
Notes, the Senior Secured Notes and the term loan.
A one-time fee of 1.0% of the outstanding principal amount of the Senior
Secured Notes will be payable on December 31, 1994, if such notes have not
been retired by such date.
The Company does not have any commitments to make substantial capital
expenditures. However, the Company does expect to open up to 4 Barnett
warehouses over the next twelve months. The average cash cost to open a
Barnett warehouse is approximately $0.5 million, including $250,000 for
inventory and approximately $250,000 for fixed assets, leasehold
improvements and startup costs.
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The Company currently has no significant principal repayment requirements
for fiscal 1995. Commencing March 1995, the Company will be required to
make quarterly principal payments of $1.0 million under its Domestic Term
Loan. In addition, the Company is required to make mandatory sinking fund
payments of $17.0 million relating to its Senior Secured Notes on each of
September 1, 1996 and 1997. The Company is also required to make a
mandatory sinking fund payament of $8.8 million relating to its Senior
Subordinated Notes on June 1, 1998.
As a result of the issuance of the Deferred Coupon Notes, which
significantly reduces cash interest requirements until June 1, 1999, the
Company believes that funds generated from operations along with funds
available under the Company's revolving credit facility will be sufficient
to satisfy the Company's liquidity requirements (including the term loan
principal payments) until September 1, 1996, the date the first sinking fund
payment is due. In order to eliminate and/or satisfy such sinking fund
obligations, and to decrease the Company's high degree of leverage, the
Company will have to obtain a significant infusion of funds either through
additional debt refinancing transactions or the sale of equity and/or
assets. Although the Company is actively exploring its various
alternatives, it has not yet committed to any specific course of action of
transaction.
Discussion of Cash Flows
------------------------
For the 1995 first quarter, the Company's continuing operations used $1.1
million of cash flow for operations which included a use of $4.3 million of
cash for increased working capital. Working capital has increased as a
result of the Company's higher sales levels and increased business activity.
Cash flow used for investments totaled $1.1 million, the majority of which
related to capital expenditures. Financing activities generated
approximately $2.9 million of cash flow as the Company increased amounts
outstanding under its revolving credit facilities.
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PART II. OTHER INFORMATION
- - - - ---------------------------
Item 6. Exhibits and Reports on Form 8-K
a. Exhibit 27 - Financial Data Schedule
b. There were no reports on Form 8-K filed during the quarter.
SIGNATURES
----------
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 thereunto duly authorized.
WAXMAN INDUSTRIES, INC.
-----------------------
Registrant
Date: November 4, 1994
By:___________________________
Neal R. Restivo
Vice President, Finance and
Chief Financial Officer (principal
financial and accounting officer)
12
<TABLE> <S> <C>
<ARTICLE> 5
<S> <C>
<PERIOD-TYPE> QTR-1
<FISCAL-YEAR-END> JUN-30-1994
<PERIOD-START> JUL-1-1994
<PERIOD-END> SEP-30-1994
<CASH> 2,561
<SECURITIES> 0
<RECEIVABLES> 40,266
<ALLOWANCES> (1,429)
<INVENTORY> 82,594
<CURRENT-ASSETS> 130,040
<PP&E> 35,562
<DEPRECIATION> 17,908
<TOTAL-ASSETS> 190,070
<CURRENT-LIABILITIES> 33,724
<BONDS> 194,537
<COMMON> 118
0
0
<OTHER-SE> (38,309)
<TOTAL-LIABILITY-AND-EQUITY> (38,191)
<SALES> 59,444
<TOTAL-REVENUES> 59,444
<CGS> 38,557
<TOTAL-COSTS> 15,248
<OTHER-EXPENSES> 0
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 6,141
<INCOME-PRETAX> (502)
<INCOME-TAX> 50
<INCOME-CONTINUING> (552)
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> (552)
<EPS-PRIMARY> (.05)
<EPS-DILUTED> (.05)
</TABLE>
