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712
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
FORM 10-K
X ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(D)
- - ----- OF THE SECURITIES EXCHANGE ACT OF 1934
FOR THE FISCAL YEAR ENDED JUNE 30, 1994
OR
TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(D)
- - ----- OF THE SECURITIES EXCHANGE ACT OF 1934
FOR THE TRANSITION PERIOD 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)
SECURITIES REGISTERED PURSUANT TO SECTION 12(B) OF THE ACT:
(NAME OF EACH
(TITLE OF EACH CLASS) EXCHANGE ON WHICH REGISTERED)
--------------------- -----------------------------
Common Stock, $.01 par value New York Stock Exchange
Chicago Stock Exchange
SECURITIES REGISTERED PURSUANT TO SECTION 12(G) OF THE ACT:
NONE
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
- -
Indicate by check mark if disclosure of delinquent filers pursuant to
Item 405 of Regulation S-K is not contained herein, and will not be contained,
to the best of registrant's knowledge, in definitive proxy or information
statements incorporated by reference in Part III of this Form 10-K or any
amendment to this Form 10-K.
_____
Aggregate market value of voting stock held by nonaffiliates of the
registrant based on the closing price at which such stock was sold on the New
York Stock Exchange on September 12, 1994: $15,033,964
Number of shares of Common Stock outstanding as of September 12, 1994:
Common Stock 9,491,457
Class B Common Stock 2,220,705
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DOCUMENTS INCORPORATED BY REFERENCE
Registrant intends to file with the Securities and Exchange Commission
a definitive Proxy Statement pursuant to Regulation 14A of the Securities
Exchange Act of 1934 within 120 days of the close of its fiscal year ended June
30, 1994, portions of which document shall be deemed to be incorporated by
reference in Part I and Part III of this Annual Report on Form 10-K from the
date such document is filed.
The Company consists of Waxman Industries, Inc. and its wholly-owned
subsidiaries.
PART I
ITEM 1. BUSINESS
GENERAL
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 conducts its business primarily through its wholly-owned
subsidiaries Barnett Inc. ("Barnett"), and Waxman Consumer Products Group Inc.
("Consumer Products"). The Company distributes plumbing, electrical and
hardware products, in both packaged and bulk form, to over 47,000 customers in
the United States, including do-it-yourself ("D-I-Y") retailers, mass
merchandisers, smaller independent retailers and plumbing and electrical repair
and remodeling contractors. The Company's consolidated net sales from
continuing operations were $215.1 million in fiscal 1994.
The Company's domestic business is conducted primarily through Barnett
and Consumer Products. Through their nationwide network of warehouses and
distribution centers, Barnett and Consumer Products provide their customers
with a single source for an extensive line of competitively priced quality
products. The Company's strategy of being a low-cost supplier is facilitated
by its purchase of a significant portion of its products from low-cost foreign
sources. Barnett's marketing strategy is directed predominantly to repair and
remodeling contractors and independent retailers, as compared to Consumer
Products' strategy of focusing on mass merchandisers and larger Do-It-Yourself
("D-I-Y") retailers.
Based on management's experience and knowledge of the industry, the
Company believes that Barnett is the only national mail order and telemarketing
operation distributing plumbing, electrical and hardware products in the United
States. Barnett's marketing strategy is comprised of frequent catalog and
promotional mailings, supported by 24-hour telemarketing operations. Barnett
has averaged 15% net sales growth per annum during the period from fiscal 1992
through fiscal 1994 as a result of (i) the expansion of its warehouse network
to increase its market penetration, (ii) the introduction of new product
offerings and (iii) the introduction of an additional catalog targeted at a new
customer base. Barnett's net sales were $95.2 million in fiscal 1994.
Consumer Products markets and distributes its products to a wide
variety of retailers, primarily national and regional warehouse home centers,
home improvement centers and mass merchandisers. An integral element of
Consumer Products' marketing strategy of serving as a single source supplier is
offering mass merchandisers and D-I-Y retailers innovative comprehensive
marketing and merchandising programs designed to improve their profitability,
efficiently manage shelf space, reduce inventory levels and maximize floor
stock turnover. Consumer Products' customers currently include national
retailers such as Kmart, Builders Square, Sears, Home Depot and Wal-Mart, as
well as large regional D-I-Y retailers. According to the most recent rankings
of the largest D-I-Y retailers published by National Home Center News, an
industry trade publication, Consumer Products' customers include 16 of the 25
largest D-I-Y retailers in the United States. Management believes that
Consumer Products is the only supplier
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to the D-I-Y market that carries a complete line of plumbing, electrical and
floor protective hardware products, in both package and bulk form. Consumer
Products' net sales were $70.7 million in fiscal 1994 and have remained
generally consistent since fiscal 1992.
The Company, through its smaller operations, also distributes a full
line of security hardware products and copper tubing, brass fittings and other
related products. Net sales from these other operations were $47.7 million in
fiscal 1994.
BUSINESS STRATEGY
The Company's business strategy is designed to capitalize on the
growth prospects for Barnett and Consumer Products. The Company's current
strategy includes the following elements:
o Expansion of Barnett. Since its acquisition in 1984,
Barnett's net sales and operating income have grown at
compound annual growth rates of 11.7% and 13.2%, respectively,
as a result of (i) the expansion of its warehouse network,
(ii) the introduction of new product offerings and (iii) the
introduction in January 1992 of an additional catalog targeted
at a new customer base. The Company intends to continue to
expand Barnett's national warehouse network and expects to
open as many as four new warehouses during each of the next
several fiscal years. Barnett expects to fund this expansion
using cash flow from operations and/or available borrowing
under its secured revolving credit facility. Barnett also
intends to continue expanding its product offerings, allowing
its customers to utilize its catalogs as a means of one-stop
shopping for many of their needs. In an effort to further
increase profitability, Barnett is also increasing the number
of higher margin product offerings bearing its proprietary
trade names and trademarks.
o Enhance Competitive Position of Consumer Products. During the
past 24 months, Consumer Products has restructured its sales
and marketing functions in order to better serve the needs of
its existing and potential customers. Consumer Products
restructured its sales department by defining formal regions
of the country for which regional sales managers would have
responsibility. Prior to the restructuring, sales managers
had responsibility for specific customers without regard to
location. In addition, as part of the restructuring, in
fiscal 1993 a marketing department was established separate
and apart from the sales department. The marketing department
is staffed with product managers who are responsible for
identifying new product programs. The restructuring of the
sales and marketing departments is complete at this time.
Consumer Products' strategy is to achieve consistent growth by
expanding its business with existing customers and by
developing new products and new customers. In order to
increase business with existing customers, Consumer Products
is focusing on developing strategic alliances with its
customers. Consumer Products seeks to (i) introduce new
products within existing categories, as well as new product
categories, (ii) improve customer service, (iii) introduce
full service marketing programs and (iv) achieve higher
profitability for both the retailer and Consumer Products.
Management believes that Consumer Products is well positioned
to benefit from the trend among many large retailers to
consolidate their purchases among fewer vendors.
CORPORATE RESTRUCTURING AND REORGANIZATION
On May 20, 1994, the Company issued Series A 12.75% Senior Secured
Deferred Coupon Notes Due 2004 having an initial accreted value of $50 million
(the "Deferred Coupon Notes") together with warrants (the "Warrants") to
purchase 2.95 million shares of common stock, par value $.01 per share, of the
Company ("Common Stock") in exchange for $50 million aggregate principal amount
of the Company's outstanding 13.75% Senior
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Subordinated Notes due June 1, 1999 (the "Senior Subordinated Notes") pursuant
to a private exchange offer (the "Private Exchange Offer") which was a part of
a series of interrelated transactions (the "Reorganization"). In addition to
the Private Exchange Offer, the components of the Reorganization included (i)
the solicitation of the consents of the holders of the Senior Subordinated
Notes to certain waivers of and the adoption of certain amendments to the
indenture governing the Senior Subordinated Notes (the "Senior Subordinated
Consent Solicitation"), (ii) the establishment of a $55 million revolving
credit facility (the "Domestic Credit Facility") and a $15 million term loan
(the "Domestic Term Loan"); and together with the Domestic Credit Facility,
(the "Debt Financing"), (iii) the solicitation of the consents of the holders
of the Company's 12.25% Fixed Rate and Floating Rate Senior Secured Notes due
September 1, 1998 (Senior Secured Notes") to certain waivers of and the
adoption of certain amendments to the indenture governing the Senior Secured
Notes (the 12.25% Consent Solicitation") and (iv) the repayment of the
borrowings under the Company's then existing domestic revolving credit
facilities (including $27.6 million under the Company's then existing working
capital credit facility and $1.2 million under the $5.0 million revolving
credit facility of Barnett (the "Barnett Financing").
During fiscal 1994, the Company restructured (the "Corporate
Restructuring") its domestic operations such that the Company is now a holding
company whose only material assets are the capital stock of its subsidiaries.
As part of the Corporate Restructuring, the Company formed (a) Waxman USA Inc.
("Waxman USA") as a holding company for the subsidiaries that comprise and
support the Company's domestic operations, (b) Waxman Consumer Products Group
Inc. ("Consumer Products"), a wholly owned subsidiary of Waxman USA, to own and
operate Consumer Products Group Division, and (c) WOC Inc. ("WOC"), a wholly
owned subsidiary of Waxman USA, to own and operate Waxman USA's domestic
subsidiaries, other than Barnett Inc. ("Barnett") and Consumer Products. On
May 20, 1994, the Company 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 its Madison
Equipment Division to WOC, (iv) contributing the assets and liabilities of its
Medal Distributing Division to WOC, (v) merging U.S. Lock Corporation ("U. S.
Lock") and LeRan Copper & Brass, Inc. ("LeRan"), each a wholly owned subsidiary
of the Company, 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. The Operating
Companies consist of Barnett, Consumer Products and WOC. This restructuring
was accounted for based upon each entities historical carrying amounts with no
impact on the accompanying consolidated financial statements.
DISCONTINUED OPERATIONS - IDEAL
Effective March 31, 1994, the Company adopted a plan to dispose of its
Canadian subsidiary, Ideal Plumbing Group, Inc. ("Ideal"). Unlike the
Company's U.S. operations which supply products to customers in the home repair
and remodeling market through mass retailers, Ideal primarily served customers
in the Canadian new construction market through independent contractors.
Accordingly, Ideal is reported as a discontinued operation and the consolidated
financial statements have been reclassified to report separately Ideal's net
assets and results of operations. Prior period consolidated financial
statements have been reclassified to the current period presentation.
At the time the plan of disposition was adopted, the Company expected
that the disposition would be accomplished through a sale of the business to a
group which included members of Ideal's management. Such transaction would
have required the consent of Ideal's Canadian banks as borrowings under its
bank credit agreements were collateralized by all of the assets and capital
stock of Ideal. The bank considered the management group's acquisition
proposal, however the proposal was subsequently rejected. On May 5, 1994,
without advance notice, the bank filed an involuntary bankruptcy petition
against Ideal citing defaults under the bank credit agreements (borrowings
under these agreements are non-recourse to Waxman Industries, Inc.). The
Company has not contested the bank's efforts to effect the orderly disposition
of
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Ideal. On May 30, 1994, Ideal was declared bankrupt by the Canadian courts
and, as a result, the Company's ownership and control of Ideal effectively
ceased on such date. Upon petition of Ideal's Canadian lenders, a trustee was
appointed to liquidate the assets of Ideal. The Company has been advised that
Ideal is no longer operating and the liquidation process is continuing at the
present time. The Company has no liability to the creditors of Ideal as a
result of Ideal's bankruptcy. The estimated loss on disposal totaled $38.3
million, without tax benefits, and represents a complete write-off of the
Company's investment in Ideal. See Note 2 to Notes to Consolidated Financial
Statements.
BARNETT
Barnett markets over 10,000 products to more than 33,000 active
customers through comprehensive quarterly catalogs, supplemented by monthly
promotional flyers and supported by telemarketing operations. Barnett services
its customers, who are primarily plumbing and electrical contractors serving
the repair and remodeling markets, and independent retailers, through its
growing, nationwide network of 28 mail order warehouses. Barnett also
distributes a specialized quarterly catalog of maintenance products (also
supplemented by monthly promotional flyers) that is directed only to customers
responsible for the maintenance of hotels, motels, office buildings, health
care facilities and apartment complexes. The Company believes that this
marketing strategy effectively positions Barnett to continue to expand its
customer base and increase sales to existing customers. In fiscal 1994,
Barnett's largest customer accounted for less than 2% of the Company's
continuing operations' net sales and its top-ten customers accounted for less
than 6% of the Company's continuing operations' net sales. Barnett's average
sale is $240. Barnett's net sales were $95.2 million in fiscal 1994.
Barnett was acquired by the Company in 1984. Since the acquisition,
Barnett has increased its number of warehouses from three to 28 and the number
of items in its catalog from 2,000 to 10,000. During this period, the number
of active accounts serviced by Barnett increased from 6,000 to over 33,000.
Barnett has added nine warehouses during the last three full fiscal years
including two warehouses in fiscal 1994. Barnett plans to open up to four
warehouses annually for the next several years. Barnett has been able to
maintain its overall operating margins throughout its expansion.
Based on management's experience and knowledge of the industry, the
Company believes, in the absence of any applicable statistics, that Barnett is
the only national mail order and telemarketing operation distributing plumbing,
electrical and hardware products in the United States. The Company believes
that Barnett has significant advantages over its regional and national
competitors. Due to its size and volume of purchases, Barnett is able to
obtain purchase terms which are more favorable than those available to its
competition, enabling it to offer prices which are generally lower than those
available from its competitors. In addition to Barnett's competitive pricing
strategy, by offering over 10,000 products, Barnett is able to provide its
customers with a single source of supply for many of their needs.
Marketing and Distribution
Barnett markets its products nationwide principally through regular
catalog and promotional mailings to existing and potential customers, supported
by telemarketing operations providing 24-hour, toll-free ordering and an
expanding network of 28 warehouses allowing for delivery to customers generally
within one day of the receipt of an order. The telemarketing operations are
utilized to make telephonic sales presentations to certain potential customers
only after these customers have received written promotional materials.
Barnett's telemarketing operations are centralized in Jacksonville, Florida.
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Catalogs
Barnett's in-house art department produces the design and layout for
its catalogs and promotional mailings, including the quarterly catalog, the
monthly promotional flyers and Barnett's catalog of maintenance products.
Barnett's catalogs are indexed and illustrated, provide simplified pricing and
highlight new product offerings.
Barnett mails its principal catalog, containing plumbing, electrical
and hardware products, to over 33,000 active customers, including hardware and
building supply stores, lumberyards and plumbing, electrical repair and
remodeling contractors. The quarterly catalog is supplemented by monthly
promotional flyers mailed to approximately 180,000 active and potential
customers. In January 1992, Barnett introduced a new catalog of maintenance
products designed to appeal to customers responsible for the maintenance of
hotels, motels, healthcare facilities, office buildings and apartment
complexes. Since the maintenance catalog was introduced in 1992, Barnett has
added approximately 6,000 new maintenance accounts.
Barnett makes its initial contact with potential customers primarily
through promotional flyers. Barnett obtains the names of prospective customers
through the rental of mailing lists from outside marketing information services
and other sources. Barnett uses sophisticated proprietary information systems
to analyze the results of individual catalog and promotional flyer mailings and
uses the information derived from these mailings to target future mailings.
Barnett updates its mailing lists frequently to delete inactive customers.
Telemarketing
Barnett's telemarketing operations have been designed to make ordering
its products as convenient and efficient as possible. Barnett offers its
customers a nationwide toll-free telephone number which accepts orders on a
24-hour basis. Calls are handled by members of Barnett's well-trained staff of
47 telemarketers who utilize Barnett's proprietary, on-line order processing
system. This system provides the telemarketing staff with access to
information about products, pricing and promotions which enables them to better
serve the customer. Barnett's telemarketing staff handles approximately 1,600
incoming calls per day.
After an order is received, a computer credit check is performed and
if credit is approved, the order is transmitted to the warehouse located
nearest the customer and is shipped within 24 hours.
In addition to receiving incoming calls, Barnett's telemarketing
operations are also utilized to make telephonic sales presentations to
potential customers who have received promotional flyers from Barnett. Also,
for several months prior to the opening of new mail order warehouses, Barnett
utilizes its telemarketing operations to generate awareness of Barnett, its
product offerings and the upcoming opening of new mail order warehouses located
near the target customers.
Barnett's telemarketing operations and information systems provide its
management with current market information such as customer purchasing patterns
and purchases, competitive pricing data, and potential new products. This
information allows Barnett to quickly react to and capitalize on business
opportunities.
Warehouses
Barnett currently has four warehouses in Texas, three in Florida and
two in each of Pennsylvania, New York and California. The remaining 15
warehouses are dispersed among an equal number of states. Barnett's warehouses
are located in areas meeting certain criteria for overall population and
potential customers. Typical warehouses have approximately 15,000 to 18,000
square feet of space of which up to 600 square feet are devoted to
over-the-counter sales. Barnett has initiated a program to enlarge product
displays in the counter area of the warehouses in order to display the breadth
of its expanding product line.
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Barnett's experience indicates that customers prefer to order from
local suppliers and that many local tradespeople prefer to pick up their orders
in person rather than to have them delivered. Therefore, Barnett intends to
continue the expansion of its warehouse network in order to reduce the distance
between it and the customer. For the year ended June 30, 1994, approximately
24% of Barnett's net sales were picked up by Barnett's customers.
The factors considered in site selection include the number of
prospective customers in the local target area, the existing sales volume in
such area and the availability and cost of warehouse space, as well as other
demographic information. From its experience in opening 25 new warehouses
since its acquisition by the Company, Barnett has gained substantial expertise
in warehouse site selection, negotiating leases, reconfiguring space to suit
its needs, and stocking and opening new warehouses. The average investment
required to open a warehouse is approximately $500,000, including approximately
$250,000 for inventory.
Products
Barnett markets an extensive line of over 10,000 plumbing, electrical
and hardware products, many of which are sold under its proprietary trade names
and trademarks. This extensive line of products allows Barnett to serve as a
single source supplier for many of its customers. Over the past two years,
Barnett has added approximately 1,400 new products, including a new line of
builders' hardware and light bulbs. Many of these products are higher margin
products bearing Barnett's proprietary trade names and trademarks. Barnett
tracks sales of new products the first year they are offered and new products
that fail to meet specified sales criteria are discontinued. Barnett believes
that its customers respond favorably to the introduction of new product lines
in areas that allow the customers to realize additional cost savings and to
utilize Barnett's catalogs as a means of one-stop shopping for many of their
needs.
In an effort to further increase profitability and to further enhance
Barnett's reputation as a leading supplier of plumbing, electrical and hardware
products, Barnett is presently increasing the number of its higher margin
product offerings bearing its proprietary trade names and trademarks.
Proprietary products offer customers high quality, lower cost alternatives to
the brand name products Barnett also sells. Barnett's catalogs and monthly
promotional flyers emphasize the comparative value of such items. Barnett's
products are generally covered by a one year warranty, and returns (which
require prior authorization from Barnett) have historically been immaterial in
amount.
The following is a discussion of Barnett's principal product groups:
Plumbing Products. Barnett's plumbing products include faucets and
faucet parts, sinks, disposals, vanities and cabinets, tub and shower
accessories, and toilets and toilet tank repair items. Barnett's plumbing
products are sold under its proprietary trademarks Premier(TM) and Regent(TM).
Barnett also sells branded products of leading plumbing manufacturers.
Electrical Products. Barnett's electrical products include such items
as light bulbs, light fixtures, circuit panels and breakers, switches and
receptacles, wiring devices, chimes and bells, telephone and audio/video
accessories and various appliance repair items. Certain of Barnett's
electrical products are sold under its own proprietary trademarks, such as
Premier(TM) light bulbs, and the proprietary trademarks of leading manufacturers
of electrical supplies.
Hardware Products. Barnett sells a broad range of hardware products,
including hand tools and power tools, patio and closet door repair accessories,
window hardware, paint supplies, fasteners, safety equipment, cleaning supplies
and garden hoses and sprinklers.
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CONSUMER PRODUCTS
Consumer Products markets and distributes approximately 9,000 products
to a wide variety of retailers, primarily D-I-Y warehouse home centers, home
improvement centers, mass merchandisers, hardware stores and lumberyards.
Representative of Consumer Products' large national retailers are Kmart,
Builders Square, Sears, Home Depot and Wal-Mart. Representative of Consumer
Products' large regional D-I-Y retailers are Channel Home Centers and Fred
Meyer Inc. According to rankings of the largest D-I-Y retailers published in
National Home Center News, an industry trade publication, Consumer Products'
customers include 16 of the 25 largest D-I-Y retailers in the United States.
Consumer Products works closely with its customers to develop comprehensive
marketing and merchandising programs designed to improve their profitability,
efficiently manage shelf space, reduce inventory levels and maximize floor
stock turnover. Management believes that Consumer Products is the only
supplier to the D-I-Y market that carries a complete line of plumbing,
electrical and floor protective hardware products, in both packaged and bulk
form. Consumer Products also offers certain of its customers the option of
private label programs. The Company believes that Consumer Products will
benefit from the continued growth of the D-I-Y market which, according to
Do-It-Yourself Retailing, an industry trade publication, is expected to expand
at a compound annual rate of 8% over the next three years as well as from the
expected growth of existing customers, several of which have announced
expansion plans.
In fiscal 1994, K-Mart and its subsidiary Builder's Square, accounted
for approximately 13% of the Company's continuing operations' net sales. No
other customer was responsible for more than 2% of the Company's continuing
operations' net sales in fiscal 1994. Consumer Products' top ten customers
accounted for approximately 25% of the Company's continuing operations' net
sales in fiscal 1994.
During the 1980's, Consumer Products significantly expanded its
business through a combination of internal growth and strategic acquisitions.
The Company's acquisition strategy focused on businesses which marketed similar
or complementary product lines to customers or markets not previously served or
through channels not previously utilized by the Company. In recent years,
Consumer Products has integrated the acquired businesses to enhance the
Company's purchasing power, improving operating efficiencies and enabling
Consumer Products to cross-sell a broader range of products to a larger
customer base. These improvements have enabled Consumer Products to withstand
financial downturns suffered by several important regional retailers to whom
Consumer Products sells its products and to significantly increase its sales to
several national retailers. Consumer Products' net sales were $70.7 million in
fiscal 1994.
In recent years, the rapid growth of large mass merchandisers and
D-I-Y retailers has contributed to a significant consolidation of the United
States retail industry and the formation of large, dominant, product specific
and multi-category retailers. These retailers demand suppliers who can offer a
broad range of quality products and can provide strong marketing and
merchandising support. Due to the consolidation in the D-I-Y retail industry,
a substantial portion of Consumer Products' net sales are generated by a small
number of customers. During the past 24 months, Consumer Products has
restructured its sales and marketing functions in order to better position
itself to meet the demands of the retailers. Management believes that its
strategy of developing new products and forming strategic alliances with its
customers will enable Consumer Products to effectively compete and achieve
consistent growth. Consumer Products supplies products to its customers
pursuant to individual purchase orders and has no long-term written contracts
with its customers.
Marketing and Distribution
Consumer Products' marketing strategy includes offering mass
merchandisers and D-I-Y retailers a comprehensive merchandising program which
includes design, layout and setup of selling areas. Sales and service
personnel assist the retailer in determining the proper product mix in addition
to designing department layouts to effectively display products and optimally
utilize available floor and shelf space. Consumer
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Products supplies point-of-purchase displays for both bulk and packaged
products, including color-coded product category signs and color-coordinated
bin labels to help identify products, and backup tags to signify products that
require reordering. Consumer Products also offers certain of its customers the
option of private label programs for their plumbing and floor care products.
In-house design, assembly and packaging capabilities enable Consumer Products
to react quickly and effectively to service its customers' changing needs. In
addition, Consumer Products' products are packaged and designed for ease of
use, with "how to" instructions included to simplify installation, even for the
uninitiated D-I-Y consumer.
Consumer Products' sales and service representatives visit stores
regularly to take reorders and recommend program improvements. These
representatives also file reports with Consumer Products, enabling it to stay
abreast of changing consumer demand and identify developing trends. In order
to support its customers' "just-in-time" requirements, Consumer Products has
significantly improved its EDI capabilities, so as to reduce their inventory
levels and increase returns on investment.
Consumer Products operates and distributes its products through four
strategically located distribution facilities in Cleveland, Ohio, Lancaster,
Pennsylvania, Dallas, Texas and Reno, Nevada.
Products
The following is a discussion of the principal product groups:
Plumbing Products. Consumer Products' plumbing products include
valves and fittings, rubber products, repair kits and tubular products such as
traps and elbows. Many of Consumer Products' plumbing products are sold under
the proprietary trade names Plumbcraft(R), PlumbKing(R), Plumbline(TM) and
KF(R). In addition, Consumer Products offers certain of its customers the
option of private label programs. Consumer Products also offers proprietary
lines of faucets under the trade name Premier(R), as well as a line of shower
and bath accessories under the proprietary trade name Spray Sensations(TM).
Electrical Products. Consumer Products' electrical products include
items such as plugs, adapters, outlets, wire, circuit breakers and various
tools and test equipment. Consumer Products sells many of its electrical
products under the proprietary trade name Electracraft(R). Consumer Products
also sells a line of outdoor weatherproof electrical products, a full line of
ceiling fan accessories, a line of telephone accessories and connecting
devices, a line of audio and video accessories and lamp and light fixture
replacement parts and replacement glassware.
Floor Protective Hardware Products. Consumer Products' floor
protective hardware products include casters, doorstops and other floor,
furniture and wall protective items. Consumer Products markets a complete line
of floor protective hardware products under the proprietary trade name KF(R) and
also under private labels.
OTHER OPERATIONS
The Company has several other operations, which are conducted through
WOC Inc. and TWI International Inc. These operations, which in the aggregate
generated net sales in fiscal 1994 of $47.7 million, accounted for
approximately 22.1% of the net sales from the Company's continuing operations
during the period. The most significant of these operations are U.S. Lock, a
supplier of security hardware products, and LeRan Copper & Brass ("LeRan"), a
supplier of copper tubing and specialty plumbing products. U. S. Lock and
LeRan, as well as Madison Equipment and Medal Distributing, are operated as
separate divisions of WOC. TWI includes the foreign sourcing and packaging
operations which support the Company's continuing operations.
U.S. Lock
U.S. Lock, which was acquired by the Company in 1988, carries a full
line of security hardware products, including locksets, door closers and
locksmith tools. Many of these products are sold under the U.S. Lock(R) and
Legend(TM) trademarks. U.S. Lock markets and distributes its products
primarily to locksmiths through a telemarketing
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sales team. U.S. Lock's telemarketing effort is supplemented with a
catalog that is mailed annually to 6,000 existing customers and
promotional flyers. Since its acquisition by the Company, U.S. Lock has
increased its number of warehouses from one to four, three of which are shared
with Barnett. Shared facilities allow the Company to realize additional
efficiencies by consolidating space requirements and reducing personnel costs.
LeRan
LeRan, which was acquired by the Company in 1985, is a supplier of
copper tubing and fittings, brass valves and fittings, malleable fittings and
related products. Its customers include liquid petroleum gas dealers,
lumberyards, plumbing and mechanical contractors and D-I-Y retailers. LeRan
markets its products primarily through salesmen and outside service
representative organizations. These efforts are supported by a catalog, which
is mailed semiannually to 7,000 existing customers, monthly promotional flyers
and a telemarketing program. LeRan currently services its customers from four
regional warehouses, two of which are shared with Barnett.
Other
WOC's other operations also include its Madison Equipment division, a
supplier of electrical products, and its Medal Distributing division, a
supplier of hardware products.
PURCHASING, PACKAGING AND ASSEMBLY
Products bearing the Company's proprietary trade names and trademarks
are assembled and packaged in its Taiwan, Mainland China and Mexico facilities.
The products packaged in Taiwan and China are purchased locally in bulk and,
after assembly and packaging, are shipped to the Company's various distribution
centers in the United States. The Company also outsources the packaging of
certain products. For the year ended June 30, 1994, products purchased
overseas, primarily from Taiwan, accounted for approximately 27.2% of the total
product purchases made by the Company's continuing operations.
TWI, through its subsidiaries, operates the Taiwan and Mainland China
facilities, which assemble and package plumbing and electrical products. In
addition, the facility in Mainland China manufactures and packages plastic
floor protective hardware. The Company believes that these facilities give it
competitive advantages, in terms of cost and flexibility in sourcing. Both
labor and physical plant costs are significantly below those in the United
States.
During fiscal 1991, the Company purchased Western American
Manufacturing Inc. ("WAMI"), a small manufacturer of plumbing pipe nipples in
Tijuana, Mexico. Pipe nipples are short lengths of pipe from 1/2 of an inch
to 6 feet long, threaded at each end. As a result of this acquisition, the
Company is vertically integrated in the manufacture and distribution of pipe
nipples. Since the acquisition, in order to take advantage of lower labor
costs, the Company has relocated certain of its United States packaging
operations to TWI's WAMI subsidiary in Mexico.
Substantially all of the other products purchased by the Company are
manufactured for it by third parties. The Company estimates that it purchases
products and materials from over approximately 1,300 suppliers and is not
dependent on any single unaffiliated supplier for any of its requirements.
The following table sets forth the approximate percentage of net sales
attributable to the Company's principal products groups:
<TABLE>
<CAPTION>
1994 1993 1992
----- ----- -----
<S> <C> <C> <C>
Plumbing 72% 74% 73%
Electrical 11% 10% 9%
Hardware 17% 16% 18%
----- ----- -----
Total Net Sales 100% 100% 100%
===== ===== =====
</TABLE>
10
<PAGE> 11
IMPORT RESTRICTIONS
Under current United States government regulations, all products
manufactured offshore are subject to import restrictions. The Company
currently imports goods from Mexico under the preferential import regulations
commonly known as '807' and as direct imports from China and Taiwan. The '807'
arrangement permits an importer who purchases raw materials in the United
States and then ships the raw materials to an offshore factory for assembly, to
reimport the goods, without quota restriction and to pay a duty only on the
value added in the offshore factory.
Where the Company chooses to directly import goods purchased outside
of the United States, the Company may be subject to import quota restrictions,
depending on the country in which assembly takes place. These restrictions may
limit the amount of goods of a particular category that a country may export to
the United States. If the Company cannot obtain the necessary quota, the
Company will not be able to import the goods into the United States. Export
visas for the goods purchased offshore by the Company are readily available.
The above arrangements, both 807 and quota restrictions, may be
superseded by more favorable regulations with respect to Mexico under the North
American Free Trade Agreement ("NAFTA"), or may be limited by revision or
cancelled at any time by the United States government. The Company does not
believe that its relative competitive position will be adversely affected by
NAFTA. As a result of the passage of NAFTA, it is expected that importation
from Mexico will become more competitive in the near future relative to
importation from other exporting countries.
COMPETITION
The Company faces significant competition from different competitors
within each of its product lines, although it has no competitor offering the
range of products in all of the product lines that the Company offers. The
Company believes that its buying power, extensive inventory, emphasis on
customer service and merchandising programs have contributed to its ability to
compete successfully in its various markets. In the areas of electrical and
hardware supplies, the Company faces significant competition from smaller
companies which specialize in particular types of products and larger companies
which manufacture their own products and have greater financial resources than
the Company. Barnett competes principally with local distributors of plumbing,
electrical and hardware products. The Company believes that competition in
sales to both mail order customers and retailers is primarily based on price,
product quality and selection, as well as customer service, which includes
speed of responses for mail order customers and packaging and merchandising for
retailers.
EMPLOYEES
As of June 30, 1994, the Company employed 1,211 persons, 273 of whom
were clerical and administrative personnel, 190 of whom were sales service
representatives and 748 of whom were either production or warehouse personnel.
Approximately 8% of the Company's employees are represented by collective
bargaining units. The Company considers its relations with its employees,
including those represented by collective bargaining units, to be satisfactory.
TRADEMARKS
Several of the trademarks and trade names used by the Company are
considered to have significant value in its business. See "Business - Barnett
- - - Products," "Consumer Products - Products" and "Other Operations".
ENVIRONMENTAL REGULATIONS
The Company is subject to certain federal, state and local
environmental laws and regulations. The Company believes that it is in
material compliance with such laws and regulations applicable to it. To the
extent any subsidiaries of Waxman Industries are
11
<PAGE> 12
not in compliance with such laws and regulations, Waxman Industries, as well
as such subsidiaries, may be liable for such non-compliance. However, in any
event, the Company is not aware of any such liabilities which could have a
material adverse effect on it or any of its subsidiaries.
SEASONALITY
The Company's sales are generally consistent throughout its fiscal
year.
ITEM 2. PROPERTIES
The following table sets forth, as of June 30, 1994, certain
information with respect to the Company's principal physical properties:
<TABLE>
<CAPTION>
LEASE
APPROXIMATE EXPIRATION
LOCATION SQUARE FEET PURPOSE DATE
-------- ----------- ------- ----
<S> <C> <C> <C>
24460 Aurora Road 21,000 Corporate Office Owned
Bedford Hts., OH
24455 Aurora Road 125,000 Consumer Products Corporate 6/30/02
Bedford Hts., OH (1) Office and Warehouse
330 Vine Street 80,000 Medal Distributing 2/28/96
Sharon, PA Office and Warehouse
902 Avenue T. 77,000 Consumer Products 5/31/00
Grand Prairie, TX (2) Office and Warehouse
945 Spice Island Drive 71,000 Consumer Products 7/31/98
Sparks, NV (3) Office and Warehouse
1842 Colonial Village Lane 72,000 Consumer Products 5/31/00
Lancaster, PA Office and warehouse
3333 Lenox Avenue 60,000 Barnett Corporate 10/31/03
Jacksonville, FL Office and Warehouse
300 Jay Street 56,000 LeRan Owned
Coldwater, MI Office and Warehouse
No. 10, 7th Road 56,000 Office, Packaging, Owned
Industrial Park and Warehouse
Taichung, Taiwan
Republic of China
<FN>
(1) Aurora Investment Co., a partnership owned by Melvin and Armond
Waxman, together with certain other members of their families, is the
owner and lessor of this property. The Company has the option to
renew the lease for a five-year term at the market rate at the time of
renewal.
(2) The Company has the option to renew the lease for three additional
five-year terms.
(3) The Company has the option to renew the lease for a five-year term.
</TABLE>
In addition to the properties shown in the table, the Company owns 2
warehouses and leases 36 warehouses ranging in size from 6,000 to 50,000 square
feet (of these properties, Barnett leases 26 warehouses and Consumer Products
leases two warehouses).
12
<PAGE> 13
The Company believes that its facilities are suitable for its
operations and provide the Company with adequate productive capacity.
ITEM 3. LEGAL PROCEEDINGS
The Company is subject to various legal proceedings and claims that
arise in the ordinary course of business. In the opinion of management, the
amount of any ultimate liability with respect to these actions will not
materially affect the financial statements of the Company.
ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS
There were no matters submitted to a vote of security holders during
the fourth quarter of the fiscal year covered by this report.
ITEM 4A. EXECUTIVE OFFICERS OF THE REGISTRANT
The following is a list of the executive officers of the Company and a
brief description of their business experience during the past five years.
Each executive officer will hold office until his successor is chosen and
qualified.
Melvin Waxman, age 60, was elected Co-Chief Executive Officer in May
1988. Mr. Waxman has been the Chief Executive Officer of the Company since
July 1970, and has been a director of the Company since 1962. Mr. Waxman has
been Chairman of the Board since August 1976. Melvin Waxman and Armond Waxman
are brothers.
Armond Waxman, age 55, was elected Co-Chief Executive Officer in May
1988. Mr. Waxman has been the President and Treasurer of the Company since
August 1976. Mr. Waxman has been a director of the Company since 1962 and was
Chief Operating Officer of the Company from August 1976 to May 1988. Armond
Waxman and Melvin Waxman are brothers.
John S. Peters, age 46, was elected to the position of Senior Vice
President--Operations in April 1988, after serving as Vice
President--Operations of the Company since February 1985. Prior to that, Mr.
Peters had been Vice President--Personnel/Administration of the Company since
February 1979.
William R. Pray, age 47, was elected Senior Vice President in February
1991, and is also President of Barnett, a position he has held since 1987. He
joined Barnett in 1979 as Vice President of Sales and Marketing.
Laurence S. Waxman, age 37, was elected Senior Vice President in
November 1993 and is also President of Waxman Consumer Products Group, Inc., a
position he has held since 1988. Mr. Waxman joined the Company in 1981. He is
the son of Melvin Waxman.
Neal R. Restivo, age 34, was elected Vice President, Finance and Chief
Financial Officer of the Company in November 1993, after serving as Vice
President, Corporate Controller since November 1990, and as Corporate
Controller of the Company since November 1989. From August 1982 until November
1989, he was employed by the public accounting firm of Arthur Andersen LLP,
where he was an Audit Manager since 1988.
13
<PAGE> 14
PART II
ITEM 5. MARKET FOR REGISTRANT'S COMMON EQUITY AND
RELATED STOCKHOLDER MATTERS
PRICE RANGE OF COMMON STOCK
The Company's Common Stock is listed on the New York Stock Exchange
("NYSE") under the symbol "WAX". The Company's Class B Common Stock does not
trade in the public market due to restricted transferability. However, the
Class B Common Stock may be converted into Common Stock on a share-for-share
basis at any time.
The following table sets forth the high and low closing quotations as
reported by the NYSE for fiscal years 1994 and 1993.
<TABLE>
<CAPTION>
FISCAL YEARS ENDED JUNE 30,
1994 1993
------ ------
HIGH LOW HIGH LOW
------- ------- ------- -------
<S> <C> <C> <C> <C>
First Quarter $3.88 $2.25 $4.63 $3.38
Second Quarter 2.50 1.50 4.13 3.38
Third quarter 3.25 2.25 5.25 3.75
Fourth Quarter 2.38 1.88 5.38 3.38
</TABLE>
HOLDERS OF RECORD
On September 12, 1994, there were 1,092 holders of record of the
Company's Common Stock and 144 holders of record of the Company's Class B
Common Stock.
DIVIDENDS
The Company declared no dividends in fiscal 1994. Restrictions
contained in the Company's debt instruments currently prohibit the declaration
and payment of any cash dividends.
14
<PAGE> 15
<TABLE>
ITEM 6. SELECTED FINANCIAL DATA
<CAPTION>
FISCAL YEARS ENDED JUNE 30,
---------------------------
1994 1993 1992 1991 1990
---- ---- ---- ---- ----
(AMOUNTS IN THOUSANDS, EXCEPT PER SHARE AMOUNTS)
<S> <C> <C> <C> <C> <C>
INCOME STATEMENT DATA(1):
Net sales $215,112 $204,778 $197,738 $186,327 $186,315
Cost of sales 140,011 137,244 127,115 121,397 120,976
------- -------- -------- -------- --------
Gross profit 75,101 67,534 70,623 64,930 65,338
Operating expenses 56,888 56,081 51,824 50,263 49,452
Restructuring and other nonrecurring
charges - 6,762 3,900 - -
------- ------- ------- ------- -------
Operating income 18,213 4,691 14,899 14,667 15,886
Interest expense, net 21,334 20,365 20,025 17,462 15,814
------- -------- ------- -------- -------
Income (loss) before income taxes,
extraordinary charges and cumulative
effect of accounting change (3,121) (15,674) (5,126) (2,795) 72
Provision (benefit) for income taxes 351 216 (768) (680) 27
------- -------- ------ -------- -------
Income (loss) from continuing
operations before extraordinary
charges and cumulative effect of
accounting change (3,472) (15,890) (4,358) (2,115) 45
Discontinued operations - Ideal
Income (loss) from discontinued
operations, net of taxes (3,249) (11,240) 1,146 4,343 6,743
Loss on disposal, without
tax benefit (38,343) - - - -
------- ------- ------- ------- -------
Income (loss) before extraordinary
charge and cumulative effect of
accounting change (45,064) (27,130) (3,212) 2,228 6,788
Extraordinary charges, early
repayment of debt(2) (6,824) - (1,186) - (320)
Cumulative effect of
accounting change(3) - (2,110) - - -
-------- -------- -------- -------- --------
Net income (loss) $(51,888) $(29,240) $ (4,398) $ 2,228 $ 6,468
======== ======== ======== ======== ========
Average number of shares outstanding 11,674 11,662 9,794 9,570 9,659
Primary earnings per share:
Income (loss) from continuing
operations before extraordinary
charges and cumulative effect
of accounting change $ (.30) $ (1.36) $ (.44) $ (.06) $ .01
Income (loss) from discontinued
operations (.28) (.97) .11 .29 .69
Loss on disposal (3.28) - - - -
Extraordinary charges (.58) - (.12) - (.03)
Cumulative effect of accounting - (.18) - - -
change ------- -------- -------- -------- --------
Net income (loss) $ (4.44) $ (2.51) $ (.45) $ .23 $ .67
======= ======== ======== ======== ========
Fully diluted earnings per share:
Income (loss) from continuing
operations before extraordinary
charges and cumulative effect
of accounting change $ (.30) $ (1.36) $ (.44) $ (.06) $ .01
Income (loss) from discontinued
operations (.28) (.97) .11 .29 .65
Loss on disposal (3.28) - - - -
Extraordinary charges (.58) - (.12) - (.03)
Cumulative effect of accounting
change - (.18) - - -
-------- -------- -------- -------- --------
Net income (loss) $ (4.44) $ (2.51) $ (.45) $ .23 $ .63
======== ======== ======== ======== ========
Cash dividends per share:
Common stock $ - $ .08 $ .12 $ .12 $ .12
Class B common stock $ - .08 .12 .12 .11
BALANCE SHEET DATA(1):
Working capital $ 93,699 $117,730 $135,886 $133,654 $136,989
Total assets 183,043 198,525 237,481 236,437 249,892
Total long-term debt 189,674 161,910 148,894 156,431 176,523
Stockholders' equity (37,709) 7,496 40,827 38,066 39,242
<FN>
Refer to notes on following page.
</TABLE>
15
<PAGE> 16
<TABLE>
<CAPTION>
FISCAL YEARS ENDED JUNE 30,
---------------------------
1989 1988 1987 1986 1985
---- ---- ---- ---- ----
(AMOUNTS IN THOUSANDS, EXCEPT PER SHARE AMOUNTS)
<S> <C> <C> <C> <C>
$194,585 $152,400 $117,149 $ 97,840 $ 82,691
128,038 102,414 78,908 67,945 57,139
------- ------- ------- ------- -------
66,547 49,986 38,241 29,895 25,552
48,479 36,492 27,051 21,338 17,902
- - - - -
------- ------- ------- ------- -------
18,068 13,494 11,190 8,557 7,650
8,136 3,841 3,727 3,339 3,069
------- ------- ------- ------- -------
9,932 9,653 7,463 5,218 4,581
3,794 3,044 3,673 2,393 2,193
------- ------- ------- ------- -------
6,138 6,609 3,790 2,825 2,388
1,183 - - - -
- - - - -
------- ------- ------- ------- -------
7,321 6,609 3,790 2,825 2,388
- (666) (1,590) - (238)
- - - - -
------- ------- ------- ------- -------
$ 7,321 $ 5,943 $ 2,200 $ 2,825 $ 2,150
======= ======= ======= ======= =======
9,204 9,316 9,470 9,422 8,075
$ .67 $ .71 $ .40 $ .30 $ .30
.13 - - - -
- - - - -
- (.07) (.17) - (.03)
- - - - -
------- ------- ------- ------- -------
$ .80 $ .64 $ .23 $ .30 $ .27
======= ======= ======= ======= =======
$ .59 $ .64 $ .40 $ .30 $ .30
.11 - - - -
- - - - -
- (.06) (.17) - (.03)
- - - - -
------- ------- ------- ------- -------
$ .70 $ .58 $ .23 $ .30 $ .27
======= ======= ======= ======= =======
$ .10 $ .07 $ .05 $ .03 $ .03
$ .08 $ .05 $ .02 $ - $ -
117,777 54,983 47,890 23,393 23,323
235,485 113,313 95,509 57,355 49,623
178,976 58,513 48,530 21,762 22,097
26,934 20,921 17,046 14,953 12,326
<FN>
Refer to notes on following page.
</TABLE>
16
<PAGE> 17
(1) The information above and on the preceding page reflects the
acquisitions of Western American Manufacturing in November 1990, and U.S. Lock
Corporation in July 1988, the plumbing and floor care businesses of The Stanley
Works in May 1988, Madison Equipment Company in March 1988, H. Belanger
Plumbing Accesories, Ltd. in July 1987, Keystone Franklin, Inc. in December
1986, Select-Line Industries, Inc. in April 1986, Leran Copper & Brass, Inc. in
November 1985 and Barnett Brass & Copper, Inc. in July 1984. Discontinued
operations data relates to Ideal which was acquired in May 1989 and accounted
for as a purchase. All per share amounts have been adjusted to reflect a
three-for-two stock split effective July 1, 1988.
(2) See Note 4 to the Notes to Consolidated Financial Statements for a
further discussion of the extraordinary charge for fiscal 1992 and fiscal 1994.
The fiscal 1990 extraordinary charge related to the repurchase of the Company's
Convertible Debentures.
(3) See Note 3 to the Notes to Consolidated Financial Statements.
ITEM 7. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND
RESULTS OF OPERATIONS
GENERAL
The Company operates in a single business segment-the distribution of
plumbing, electrical and hardware products. The Company's business is
conducted primarily through Barnett and Consumer Products.
Effective March 31, 1994, the Company adopted a plan to dispose of its
Canadian subsidiary, Ideal. Unlike the Company's U.S. operations which supply
products to customers in the home repair and remodeling market through mass
retailers, Ideal primarily served customers in the Canadian new construction
market through independent contractors. The decision to dispose of Ideal was
prompted by a number of factors which had adversely affected Ideal's results of
operations and resulted in severe liquidity problems which jeopardized Ideal's
ability to continue conducting its operations. At the time the plan of
disposition was adopted, the Company expected that the disposition would be
accomplished through a sale of the business to a group of investors which
included members of Ideal's management. Such transaction would have required
the consent of Ideal's Canadian banks as borrowings under its bank credit
agreements were collateralized by all of the assets and capital stock of Ideal.
The bank considered the management group's acquisition proposal; however, the
proposal was subsequently rejected. On May 5, 1994, without advance notice,
Ideal's Canadian bank filed an involuntary bankruptcy petition against Ideal
citing defaults under the bank credit agreements (borrowings under these
agreements are non-recourse to Waxman Industries). The Company has not
contested the bank's efforts to effect the orderly disposition of Ideal. On
May 30, 1994, Ideal was declared bankrupt by the Canadian court and, as a
result, the Company's ownership and control of Ideal effectively ceased on such
date. The estimated loss on disposal totaled $38.3 million, without tax
benefits, and represents a complete write-off of the Company's investment in
Ideal. See Note 2 to Notes to Consolidated Financial Statements.
For financial reporting purposes, Ideal is reported as a discontinued
operation and the Company's consolidated financial statements have been
reclassified to report separately Ideal's net assets and results of operations.
Prior period consolidated financial statements have been reclassified to
conform to the current period presentation.
17
<PAGE> 18
RESULTS OF OPERATIONS
The following tables set forth certain items reflected in the
Company's Consolidated Statements of Income expressed as a percentage of net
sales:
<TABLE>
<CAPTION>
Years ended June 30,
--------------------
1994 1993 1992
------ ------ ------
<S> <C> <C> <C>
Net sales 100.0% 100.0% 100.0%
Gross profit 34.9 33.0 35.7
Operating expenses 26.4 27.4 26.2
Restructuring and other
nonrecurring charges - 3.3 2.0
Operating income 8.5 2.3 7.5
Interest expense, net 9.9 9.9 10.1
Loss from continuing operations
before income taxes, extraordinary charge
and cumulative effect of accounting
change (1.5) (7.7) (2.6)
Income (loss) from discontinued
operations, net of taxes (1.5) (5.5) 0.6
Loss on disposal, without tax benefit (17.8) - -
Loss before extraordinary charge
and cumulative effect of accounting
change (20.9) (13.2) (1.6)
Net loss (24.1) (14.3) (2.2)
</TABLE>
FISCAL 1994 VERSUS FISCAL 1993
Net sales
The Company's net sales from continuing operations for fiscal 1994
totaled $215.1 million compared with $204.8 million in fiscal 1993, an increase
of 5.0%. The Company's net sales were adversely affected by the sale of H.
Belanger Plumbing Accessories ("Belanger") in October 1993. Belanger's net
sales for fiscal 1994 totaled $1.5 million compared with $6.3 million in fiscal
1993. Net sales increased 7.6% after excluding the impact of Belanger. The
net sales increase is primarily the result of the continued growth of Barnett.
Barnett's net sales increased $12.3 million or 14.9%, from $82.9 million in
fiscal 1993 to $95.2 million in fiscal 1994. Sales of new products accounted
for $7.2 million of the increase. The remainder of Barnett's increase was the
result of opening additional mail order warehouses, as well as the growth of
Barnett's existing customer base. Barnett opened two additional warehouses
during fiscal 1994, increasing the total number of warehouses to 28. Also
contributing to the overall increase in net sales from continuing operations
was increased net sales from Consumer Products. Consumer Products net sales
increased $3.2 million or 4.8%, from $67.5 million in fiscal 1993 to $70.7
million in fiscal 1994. The increase in Consumer Products' net sales is
primarily the result of the sale of additional existing product lines to
several of its existing customers. Management believes that the change in the
continuing operation's net sales is primarily the result of changes in volume.
Gross Profit
The Company's gross profit increased from 33.0% in fiscal 1993 to
34.9% in fiscal 1994. The increase in the Company's gross margin is primarily
a result of improved margins at Barnett. Barnett's gross margin has been
favorably impacted by increased sales of higher margin proprietary branded
products. Also contributing to the increase in gross margins were improved
gross margins at Consumer Products. Consumer Products' margin increased as a
result of proportionately higher sales of higher margin packaged products
during the latter part of fiscal 1994. Overall, the Company's gross margins
were favorably impacted by an increase in the percentage of products purchased
from foreign sources. Such products typically generate higher gross margins
than products purchased domestically. The sale of Belanger had no significant
effect on gross margin. Excluding the impact of Belanger, gross margin would
have been 32.9% in fiscal 1993 as compared to 34.9% in fiscal 1994.
18
<PAGE> 19
Operating Expenses
The Company's operating expenses increased 1.4% for fiscal 1994 from
$56.1 million in fiscal 1993 to $56.9 in fiscal 1994. As discussed below,
prior year operating expenses included approximately $1.2 million of additional
amortization expense relating to an accounting change. Excluding the impact of
this additional amortization as well as the sale of Belanger, operating
expenses increased 6.9% from $52.7 million in fiscal 1993 to $56.4 million in
fiscal 1994. This increase was due primarily to higher operating expenses at
Barnett. Barnett's operating expenses increased approximately $2.8 million.
The majority of the increase in Barnett's operating expenses related to
increased warehouse and selling and advertising costs. The increases in
warehouse and selling and advertising costs were $0.7 million and $1.1 million,
respectively. These increases primarily related to the opening of new mail
order warehouses and increased promotional activity during fiscal 1994.
Consumer Products' operating expenses increased approximately $0.5 million or
2.9% between years.
Restructuring and Other Non-Recurring Charges
As discussed below, the Company recorded a $6.8 million restructuring
charge during fiscal 1993.
Operating Income
The Company's operating income totaled $18.2 million or 8.5% of net
sales in fiscal 1994 compared to $4.7 million or 2.3% of net sales in fiscal
1993. Fiscal 1993 operating income included a $6.8 million restructuring
charge, as well as $1.2 million of additional amortization expense relating to
an accounting change. The impact of the sale of Belanger on operating income
was not significant.
Interest Expense
The Company's interest expense totaled $21.3 million in fiscal 1994
compared to $20.4 in fiscal 1993. Average borrowings increased from $159.1
million in fiscal 1993 to $172.2 million in fiscal 1994. 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 to fund repurchase premiums, fees and expenses
relating to the Company's recent debt restructuring. The weighted average
interest rate decreased from 12.9% in fiscal 1993 to 12.4% in fiscal 1994. The
decrease in the weighted average interest rate results from proportionally
higher borrowings under the Company's revolving credit facilities during fiscal
1994. Revolving credit facility borrowings bear lower interest rates than the
Company's other indebtedness. As a result of the debt restructuring, cash
interest expense will be reduced by approximately $6.9 million annually for
five years. The reduction in cash interest requirements will be offset in part
by the $11.0 million of additional indebtedness incurred as part of the
Reorganization. The Company's weighted average interest rate is expected to
increase by approximately 0.5% as a result of the completion of the
Reorganization. See "Liquidity and Capital Resources".
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. This
includes amounts relating to the disposition of Ideal. 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.
The provision for income taxes for both fiscal years 1993 and 1994
represent state and foreign taxes.
Loss from Continuing Operations
The Company's loss from continuing operations totaled $3.5 million in
fiscal 1994 compared to $15.9 million in fiscal 1993.
19
<PAGE> 20
Discontinued Operations
The Company's net loss from discontinued operations totaled $3.2 in
fiscal 1994, compared to $11.2 million in fiscal 1993. The Company also
recognized a loss on the disposal of Ideal of approximately $38.3 million in
the fiscal 1994 third quarter.
Extraordinary Charge
The Company recognized a $6.8 million extraordinary charge, without
tax benefit in fiscal 1994. Approximately, $6.6 million of the extraordinary
charge relates to the refinancing of the $50 million of Senior Subordinated
Notes as well as borrowings under the domestic bank credit facilities. The
extraordinary charge included the fees paid upon the exchange of the Senior
Subordinated Notes along with the accelerated amortization of unamortized debt
discount and issuance costs. The remainder of the extraordinary charge results
from the Company's repurchase of $1.9 million of its 9.5% Convertible
Subordinated Debentures due 2007 ("Convertible Debentures") pursuant to a
mandatory repurchase obligation. As a result of the repurchase, the Company
recorded an extraordinary charge of $.2 million which primarily represents the
accelerated amortization of unamortized debt discount and issuance costs.
As noted in "Liquidity and Capital Resources," commencing in September
1996, the Company is required to make certain substantial sinking fund payments
with respect to its Senior Secured Notes. 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 currently exploring its various
alternatives, it has not yet committed to any specific course of action or
transaction. The Company expects that additional extraordinary charges will be
incurred if additional debt refinancing transactions occur. There can,
however, be no assurances with respect to the timing and magnitude of any such
extraordinary charges.
Net Loss
The Company's net loss (including those relating to Ideal) for fiscal
1994 totaled $51.9 million compared with a net loss of $29.2 million in fiscal
1993. The fiscal 1993 net loss includes a $2.1 million charge for the
cumulative effect of a change in accounting for warehouse and catalog costs,
which was made during the fourth quarter of fiscal 1993 and was applied
retroactively to July 1, 1992.
FISCAL 1993 VERSUS FISCAL 1992
Net sales
The Company's net sales from continuing operations for fiscal 1993
totaled $204.8 million compared with $197.7 million in fiscal 1992, an increase
of 3.6%. Barnett's net sales increased 14.9% from $72.1 million in fiscal 1992
to $82.9 million in fiscal 1993. New product introductions accounted for $5.6
million of this increase. In addition, the new catalog of maintenance products
introduced in January 1992 generated approximately $2.2 million in incremental
sales. The remainder of Barnett's increase was the result of the opening of
additional mail order warehouses, as well as the growth of Barnett's existing
customer base. Barnett opened three additional mail order warehouses during
fiscal 1993, increasing the total number of warehouses to 26. The increase
from Barnett was offset, in part, by lower net sales from Consumer Products.
Consumer Products' net sales totaled $67.5 million in fiscal 1993 compared with
$70.0 million in fiscal 1992, a decrease of 3.6%. Management believes that the
change in the domestic operations' net sales is primarily the result of changes
in volume.
Gross Profit
The Company's gross margin was 33.0% in fiscal 1993 compared with
35.7% in fiscal 1992. Barnett's gross margin declined approximately one-half
of one percentage point and Consumer Products' gross margin declined
approximately four percentage points. The majority of Consumer Products'
decline in margin is attributable to proportionately lower sales of higher
margin packaged products as well as competitive pressures within its markets
relating to the pricing of new business. Consumer Products' margins continued
to decline during the first part of fiscal 1994, however it improved during the
latter part of that year.
20
<PAGE> 21
Operating Expenses
The Company's operating expenses totaled $56.1 million or 27.4% of net
sales, in fiscal 1993 compared with $51.8 million, or 26.2% of net sales, in
fiscal 1992, an increase of $4.3 million, or 8.2%. Approximately $1.2 million
of this increase relates to accelerated amortization of certain warehouse
start-up and catalog costs during fiscal 1993 to conform with prevailing
industry practice. This change was made during the fourth quarter and was
applied retroactively to July 1, 1992. The effect of this change on fiscal
1993 results was to increase amortization expense by $1.2 million. This
increase is primarily the result of the introduction of a new catalog, and in
management's opinion, was not indicative of the expected impact of accelerated
amortization on future operating results. The cumulative effect of this change
on prior years totaled $2.1 million and is reported separately in the income
statement, without tax benefit, as a change in accounting. Excluding the
impact of this item, operating expenses were up 6.7% primarily due to increases
at Barnett. Barnett's operating expenses (excluding the accelerated
amortization) increased approximately $2.1 million or 13.4% which is less than
Barnett's 14.9% increase in net sales between the years. Approximately $1.3
million of Barnett's increase in operating expenses is related to the opening
of new mail order warehouses. Consumer Products' operating expenses increased
approximately $0.4 million between years.
Restructuring and Other Non-Recurring Charges
In fiscal 1993, the Company recorded $6.8 million of restructuring and
other nonrecurring charges. In fiscal 1992, the Company recorded $3.9 million
of restructuring and other nonrecurring charges.
The fiscal 1993 restructuring charge consisted of $4.6 million related
to the expected losses in connection with the disposal of three small operating
units. The decision to dispose of the three entities was based in part on the
Company's strategy to refocus and build on its core businesses in the U.S.
(i.e., Consumer Products and Barnett). The Company completed the sale of one
of these operating units in October 1993. The Company was unable to come to
terms with the prospective buyer of the other two entities and the consummation
of a sale of these businesses is not expected to occur in the foreseeable
future, if at all. The remainder of the restructuring charge included $1.6
million of costs incurred to consolidate administrative functions and transfer
two of Consumer Products' domestic packaging facilities to Mexico. These costs
principally consist of lease and severance termination costs of $0.5 million,
relocation costs, including payroll and freight costs of $0.5 million and a
write-off of fixed assets of $0.1 million. The relocation to Mexico was done
in order to take advantage of that country's lower labor costs which are
expected to benefit the Company annually through increased margins. No
additional cash disbursements relating to the $1.6 million restructuring charge
are expected. The remaining $0.6 million related to the Company's decision not
to proceed with the securities offering of Barnett in fiscal 1993.
The fiscal 1992 restructuring charge consisted of a $3.9 million
capital loss realized upon the sale of the Company's portfolio of debt
securities.
Operating Income
The Company's operating income totaled $4.7 million in fiscal 1993
compared with $14.9 million in fiscal 1992, a decrease of 68.5%. Fiscal year
1993 results were negatively impacted by the $6.8 million restructuring charge
described above, and the $1.2 million of accelerated amortization described
above. The remainder of the decrease was primarily attributable to a $2.5
million decline of Consumer Products' gross margin.
Interest Expense
The Company's net interest expense totaled $20.4 million for fiscal
year 1993 compared with $20.0 million for fiscal year 1992, an increase of
1.7%. Average borrowings outstanding totaled $159.1 million in fiscal 1993, as
compared with $159.7 million in fiscal 1992. Weighted average borrowings in
fiscal 1992 included amounts which the Company borrowed under a domestic term
loan which were invested in highly liquid short-term securities and used for
working capital purposes until the Company obtained its revolving credit
facility in September 1991. Excluding the impact of these borrowings, average
borrowings for fiscal 1992 were $156.4 million. The weighted average interest
rate for fiscal year 1993 was 12.9% compared with 13.2% in the prior year.
21
<PAGE> 22
Loss from Continuing Operations
The Company's fiscal 1993 loss from continuing operations totaled
$15.9 million compared with a loss of $4.4 million in fiscal 1992.
Discontinued Operations
The Company's fiscal 1993 net loss from discontinued operations
totaled $11.2 million compared with net income of $1.1 million in fiscal 1992.
Net Income (Loss)
The Company's fiscal 1993 net loss totaled $29.2 million and included
a $2.1 million charge for the cumulative effect of the change in accounting
discussed above. The net loss for fiscal 1992 was $4.4 million and included a
$1.2 million extraordinary charge for the early repayment of debt. The Company
was not able to benefit any of its fiscal 1993 losses for tax purposes.
LIQUIDITY AND CAPITAL RESOURCES
On May 20, 1994, the Company completed a debt 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
Senior Subordinated Notes for $50 million initial accreted value of Deferred
Coupon Notes. Approximately $48.8 million of the Senior 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 reduced by approximately $6.9 million
annually for five years. The reduction in cash interest requirements will be
offset, in part, by the $11.0 million of additional indebtedness incurred as
part of the debt restructuring. In addition, the $50 million of Senior
Subordinated Notes exchanged satisfy the Company's mandatory redemption
requirements with respect to such issue and, as a result, the $20 million
mandatory redemption payments due on June 1, 1996 and l997 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 two mandatory
redemption payments of $17.0 million on each of September 1, 1996 and September
1, 1997 with respect to the Senior Secured Notes.
As part of the restructuring, 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 Domestic Credit
Facility, which has an initial term of three years, will be extended for an
additional year if the Senior Secured Notes have been repaid on or before March
1997. The Domestic Credit Facility is subject to borrowing base formulas. The
Domestic Credit Facility prohibits dividends and distributions by the Operating
Companies except in certain limited instances. The Domestic Credit Facility
contains customary negative, affirmative and financial covenants and
conditions. At June 30, 1994, availability under the Domestic 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 Domestic
Term Loan will be payable if such loan is not repaid by November 20, 1994.
Principal payments of the Domestic Term Loan of $1.0 million each will be
required quarterly commencing in March 1995. The Domestic Term Loan will be
required to be prepaid if Waxman USA completes a financing sufficient to retire
the Subordinated Notes, the Senior Secured Notes and the Domestic Term Loan.
The Domestic Term Loan contains negative, affirmative and financial covenants,
conditions and events of default substantially the same as those under the
Domestic Credit Facility.
See Note 6 to Consolidated Financial Statements for a more complete
discussion of the new Domestic Credit Facility and Domestic Term Loan.
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 approximately
$250,000 for inventory and approximately $250,000 for fixed assets, leasehold
improvements and startup costs.
The Company expects to incur approximately $0.5 million of costs
relating to the disposition of Ideal, of which approximately $0.1 million has
been incurred as of June 30, 1994.
22
<PAGE> 23
The Company currently has no significant principal repayment
requirements. Commencing March 1995, the Company will be required to make
quarterly principal payments of $1.0 million under its Domestic Term Loan.
However, 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
payment 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
reduces cash interest requirements by approximately $6.9 million annually 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
Domestic Term Loan principal payments) until September 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 currently exploring its various alternatives, it has
not yet committed to any specific course of action or transaction.
DISCUSSION OF CASH FLOWS
The Company's continuing operations used $6.2 million of cash flow for
operations primarily as a result of the $10.1 million increase in inventories.
Inventory levels were up in response to the higher sales levels achieved during
fiscal 1994. In addition, the Company began building inventories during the
fourth quarter of fiscal 1994 relating to new business commitments which
Consumer Products obtained from several of its largest customers. The opening
orders of such additional business will be shipped primarily during the first
quarter of fiscal 1995. Cash flow used for investments totaled $1.6 million in
fiscal 1994. During October 1993, the Company generated approximately $3.0
million of cash from the sale of Belanger. The proceeds from the sale were
offset by $3.4 million of capital expenditures and a $1.3 million increase in
other assets. Cash flow provided by financing activities totaled $17.4
million. Additional borrowings under the Company's revolving credit facilities
along with the proceeds from the Domestic Term Loan were offset, in part, by
$1.9 million used to satisfy a mandatory repurchase requirement relating to the
Convertible Debentures and $13.9 million of repurchase premiums, fees and
expenses relating to the Reorganization.
IMPACT OF NEW ACCOUNTING STANDARDS
In February 1992, the Financial Accounting Standards Board (the FASB)
issued SFAS No. 109, "Accounting for Income Taxes." The Company adopted SFAS
No. 109 during the first quarter of its fiscal year ending June 30, 1994. SFAS
No. 109 requires the Company to recognize income tax benefits for loss
carryforwards which have not previously been recorded. The tax benefits
recognized must be reduced by a valuation allowance in certain circumstances.
The Company did not recognize a benefit and such adoption did not have a
material impact on its results of operations or financial position. However,
to the extent that the Company is able to recognize tax benefits in the future,
such recognition will favorably effect future results of operations. The FASB
has also issued SFAS No. 106, "Employers' Accounting for Postretirement
Benefits other than Pensions" and SFAS No. 112, "Employers' Accounting for
Postemployment Benefits." The Company does not currently maintain any
postretirement or postemployment benefit plans or programs which would be
subject to such accounting standards.
ITEM 8. CONSOLIDATED FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA
(Begins on Following Page)
23
<PAGE> 24
REPORT OF INDEPENDENT PUBLIC ACCOUNTANTS
To the Stockholders and Board of Directors of Waxman Industries, Inc.:
We have audited the accompanying consolidated balance sheets of Waxman
Industries, Inc. (a Delaware corporation) and Subsidiaries (the Company) as of
June 30, 1994 and 1993, and the related consolidated statements of income,
stockholders' equity and cash flows for each of the three years in the period
ended June 30, 1994. These financial statements are the responsibility of the
Company's management. Our responsibility is to express an opinion on these
financial statements based on our audits.
We conducted our audits in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to
obtain reasonable assurance about whether the financial statements are free of
material misstatement. An audit includes examining, on a test basis, evidence
supporting the amounts and disclosures in the financial statements. An audit
also includes assessing the accounting principles used and significant
estimates made by management, as well as evaluating the overall financial
statement presentation. We believe that our audits provide a reasonable basis
for our opinion.
In our opinion, the financial statements referred to above present fairly, in
all material respects, the financial position of Waxman Industries, Inc. and
Subsidiaries as of June 30, 1994 and 1993, and the results of their operations
and their cash flows for each of the three years in the period ended June 30,
1994, in conformity with generally accepted accounting principles.
As explained in Note 3 to the consolidated financial statements, effective July
1, 1992, the Company changed its method of accounting for certain warehousing
and catalog costs.
Arthur Andersen LLP
Cleveland, Ohio,
August 23, 1994.
24
<PAGE> 25
<TABLE>
WAXMAN INDUSTRIES, INC. AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS
JUNE 30, 1994 AND 1993
(In Thousands)
ASSETS
<CAPTION>
1994 1993
-------- --------
<S> <C> <C>
CURRENT ASSETS:
Cash $ 2,026 $ 406
Accounts receivable, net 37,216 36,272
Inventories 80,969 72,942
Prepaid expenses 4,987 4,987
Net assets (liabilities) of discontinued operations (421) 29,156
Net assets held for sale - 3,086
-------- --------
Total current assets 124,777 146,849
-------- --------
PROPERTY AND EQUIPMENT:
Land 1,461 1,420
Buildings 12,421 11,213
Equipment 20,655 18,824
------- -------
34,537 31,457
Less accumulated depreciation and amortization (17,163) (14,784)
------- -------
Property and equipment, net 17,374 16,673
------- -------
COST OF BUSINESSES IN EXCESS OF
NET ASSETS ACQUIRED, NET 24,774 25,498
OTHER ASSETS 16,118 9,505
------- -------
$183,043 $198,525
======== ========
<FN>
The accompanying Notes to Consolidated Financial Statements
are an integral part of these balance sheets.
</TABLE>
25
<PAGE> 26
<TABLE>
WAXMAN INDUSTRIES, INC. AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS
JUNE 30, 1994 AND 1993
(In Thousands Except Per Share Data)
LIABILITIES AND STOCKHOLDERS' EQUITY
<CAPTION>
1994 1993
---------- ----------
<S> <C> <C>
CURRENT LIABILITIES:
Current portion of long-term debt $ 4,144 $ 2,493
Accounts payable 20,427 19,934
Accrued liabilities 6,507 6,692
------- -------
Total current liabilities 31,078 29,119
------- -------
LONG-TERM DEBT, NET OF CURRENT PORTION 54,063 22,567
SENIOR SECURED NOTES 38,675 38,563
SENIOR SECURED DEFERRED COUPON NOTES 48,031 -
SUBORDINATED DEBT 48,905 100,780
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 9,490 in 1994 and 9,424 in 1993 95 94
Class B common stock, $.01 par value per share:
Authorized 6,000 shares;
Issued 2,222 in 1994 and 2,238 in 1993 23 23
Paid-in capital 21,098 18,467
Retained deficit (58,325) (6,437)
------- -------
(37,109) 12,147
Cumulative currency translation adjustments (600) (4,651)
------- -------
Total stockholders' equity (37,709) 7,496
------- -------
$183,043 $198,525
======== ========
<FN>
The accompanying Notes to Consolidated Financial Statements
are an integral part of these balance sheets.
</TABLE>
26
<PAGE> 27
<TABLE>
WAXMAN INDUSTRIES, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF INCOME
FOR THE YEARS ENDED JUNE 30, 1994, 1993 AND 1992
(IN THOUSANDS, EXCEPT PER SHARE DATA)
<CAPTION>
1994 1993 1992
------- -------- --------
<S> <C> <C> <C>
Net sales $215,112 $204,778 $197,738
Cost of sales 140,011 137,244 127,115
------- ------- -------
Gross Profit 75,101 67,534 70,623
Selling, general and administrative expenses 56,888 56,081 51,824
Restructuring and other non-recurring charges - 6,762 3,900
------- ------- -------
Operating income 18,213 4,691 14,899
Interest expense (net of interest income
of $14, $5 and $978) 21,334 20,365 20,025
------- ------- -------
Loss from continuing operations before
income taxes, extraordinary charge and
cumulative effect of accounting change (3,121) (15,674) (5,126)
Provision (benefit) for income taxes 351 216 (768)
------- ------- -------
Loss from continuing operations before
extraordinary charge and cumulative
effect of accounting change (3,472) (15,890) (4,358)
Discontinued operations - Ideal
Income (loss) from discontinued
operations, net of taxes (3,249) (11,240) 1,146
Loss on disposal, without tax benefit (38,343) - -
------- ------- -------
Loss before extraordinary charge and
cumulative effect of accounting change (45,064) (27,130) (3,212)
Extraordinary charge, early retirement
of debt (net of tax benefit in 1992) (6,824) - (1,186)
Cumulative effect of change in accounting
for warehouse and catalog costs,
without tax benefit - (2,110) -
------- ------- -------
Net loss $(51,888) $(29,240) $ (4,398)
======= ======= =======
Primary and fully diluted earnings
(loss) per share:
From continuing operations $ (.30) $ (1.36) $ (.44)
Discontinued operations:
Income (loss) from discontinued operations (.28) (.97) .11
Loss on disposal (3.28) - -
Extraordinary charge (.58) - (.12)
Cumulative effect of accounting change - (.18) -
------- -------- -------
Net loss per share $ (4.44) $ (2.51) $ (.45)
======= ======== ========
<FN>
The accompanying Notes to Consolidated Financial Statements
are an integral part of these statements.
</TABLE>
27
<PAGE> 28
<TABLE>
WAXMAN INDUSTRIES, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF STOCKHOLDERS' EQUITY
FOR THE YEARS ENDED JUNE 30, 1994, 1993 AND 1992
(IN THOUSANDS, EXCEPT PER SHARE DATA)
<CAPTION>
CUMULATIVE
CLASS B RETAINED CURRENCY
COMMON COMMON PAID-IN EARNINGS TRANSLATION
STOCK STOCK CAPITAL (DEFICIT) ADJUSTMENTS
----- ----- ------- --------- -----------
<S> <C> <C> <C> <C> <C>
BALANCE, JUNE 30, 1991 $ 72 $ 23 $ 7,684 $ 29,334 $ 953
Net loss (4,398)
Cash dividends:
-- $.12 per common share
and Class B share (1,201)
Issuance of common stock 22 9,763
Stock options exercised 20
Stock warrants issued 1,000
Currency translation
adjustments (2,445)
----- ----- ------ ------- ------
BALANCE, JUNE 30, 1992 $ 94 $ 23 $18,467 $23,735 $(1,492)
Net loss (29,240)
Cash dividends:
-- $.08 per common share
and Class B share (932)
Currency translation
adjustments (3,159)
----- ----- ------- ------- -------
BALANCE, JUNE 30, 1993 $ 94 $ 23 $18,467 $(6,437) $(4,651)
Net loss (51,888)
Currency translation
adjustments (2,368)
Elimination of currency translation
adjustment relating to discontinued
operation (Ideal) 6,419
Contribution to Profit
Sharing Plan 1 131
Stock warrants issued 2,500
----- ----- ------- ------- -------
BALANCE, JUNE 30, 1994 $ 95 $ 23 $21,098 $(58,325) $ (600)
===== ===== ======= ======== =======
<FN>
The accompanying Notes to Consolidated Financial Statements
are an integral part of these statements.
</TABLE>
28
<PAGE> 29
<TABLE>
WAXMAN INDUSTRIES, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS
FOR THE YEARS ENDED JUNE 30, 1994, 1993 AND 1992
(In Thousands)
<CAPTION>
1994 1993 1992
---------- ---------- ----------
<S> <C> <C> <C>
CASH FROM (USED FOR):
OPERATIONS:
Loss from continuing operations $ (3,472) $ (15,890) $ (4,358)
Adjustments to reconcile loss
from continuing operations to
net cash used for continuing
operations:
Non-cash interest 531 - -
Restructuring costs - 6,762 -
Loss on sale of investments - - 3,900
Depreciation and amortization 7,478 8,932 6,525
Changes in assets and liabilities:
Accounts receivable (944) (1,666) (1,841)
Inventories (10,109) 82 (15,664)
Prepaid expenses - 2,276 (2,285)
Accounts payable 493 (8,337) 11,050
Accrued liabilities (185) (1,691) (878)
------- ------- ------
Net cash used for continuing
operations (6,208) (9,532) (3,551)
Earnings (loss) from
discontinued operations (41,592) (11,240) 1,146
Other, net 4,054 (3,159) (2,444)
Change in net assets of
discontinued operations 29,577 13,027 6,646
------- ------- -------
Net cash provided by (used for)
operations (14,169) (10,904) 1,797
------- ------- -------
INVESTMENTS:
Proceeds from sale of business 3,006 - -
Capital expenditures, net (3,437) (1,336) (3,193)
Change in other assets (1,298) (1,826) (5,922)
Proceeds from sale of investments - - 4,386
Contribution of stock to
profit sharing plan 132 - -
------- ------- -------
Net cash used for investments (1,597) (3,162) (4,729)
------- ------- -------
FINANCING:
Net borrowings under
credit agreements 18,589 15,770 6,393
Repayments of long-term debt (442) (560) (508)
Borrowings (repayment) of domestic
term loan 15,000 - (60,000)
Proceeds from issuance of debt, net - - 48,500
Repurchase of debt (1,875) - (12,878)
Debt restructuring (13,886) - -
Proceeds from issuance of stock - - 9,805
Dividends paid - (932) (1,201)
------- ------- -------
Net cash provided by
(used for) financing 17,386 14,278 (9,889)
------- ------- -------
NET INCREASE (DECREASE) IN CASH 1,620 212 (12,821)
BALANCE, BEGINNING OF PERIOD 406 194 13,015
------- ------- -------
BALANCE, END OF PERIOD $ 2,026 $ 406 $ 194
======= ======= =======
<FN>
The accompanying Notes to Consolidated Financial Statements
are an integral part of these statements.
29
</TABLE>
<PAGE> 30
WAXMAN INDUSTRIES, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
FOR THE YEARS ENDED JUNE 30, 1994, 1993 AND 1992
(IN THOUSANDS)
1. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES:
A. Consolidation and Basis of Presentation
The 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 1993 and 1992 amounts have been reclassified to conform with the
fiscal 1994 presentation, including a restatement to reflect the discontinued
operations discussed in Note 2.
The Company operates in a single business segment - the distribution
of plumbing, electrical and hardware products. Substantially all of the
Company's business is conducted in the United States.
During fiscal 1994, the Company restructured (the "Corporate
Restructuring") its domestic operations such that the Company is now a holding
company whose only material assets are the capital stock of its subsidiaries.
As part of the Corporate Restructuring, the Company formed (a) Waxman USA Inc.
("Waxman USA") as a holding company for the subsidiaries that comprise and
support the Company's domestic operations, (b) Waxman Consumer Products Group
Inc. ("Consumer Products"), a wholly owned subsidiary of Waxman USA, to own and
operate Consumer Products Group Division, and (c) WOC Inc. ("WOC"), a wholly
owned subsidiary of Waxman USA, to own and operate Waxman USA's domestic
subsidiaries, other than Barnett Inc. ("Barnett") and Consumer Products. On
May 20, 1994, the Company 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 its Madison
Equipment Division to WOC, (iv) contributing the assets and liabilities of its
Medal Distributing Division to WOC, (v) merging U.S. Lock Corporation ("U. S.
Lock") and LeRan Copper & Brass, Inc. ("LeRan"), each a wholly owned subsidiary
of the Company, 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. The "Operating
Companies" consist of Barnett, Consumer Products and WOC. This restructuring
was accounted for based upon each entities' historical carrying amounts with no
impact on the accompanying consolidated financial statements.
B. Restricted Cash Balances
In accordance with the terms of its Domestic Credit Facility (See
Note 6), all of the Operating Companies' available cash is pledged to the
lenders and is required to be used to pay down borrowings under the facility.
C. Accounts Receivable
Accounts receivable are presented net of allowances for doubtful accounts of
$1,353 and $1,352 at June 30, 1994 and 1993, respectively. Bad debt expense
totaled $617 in fiscal 1994, $695 in fiscal 1993 and $562 in fiscal 1992.
The Company sells plumbing, electrical and hardware products
throughout the United States to do-it-yourself retailers, mass merchandisers,
smaller independent retailers and plumbing, electrical repair and remodeling
contractors. The Company performs ongoing credit evaluations of its customers'
financial condition. In fiscal years 1994, 1993 and 1992, the Company's
largest customer accounted for approximately 13%, 12% and 11% of its net sales,
respectively. The Company's ten largest customers accounted for approximately
25% of net sales in fiscal 1994, 23% in fiscal 1993 and 22% in fiscal 1992 and
approximately 28% and 26% of accounts receivable at June 30, 1994 and 1993,
respectively.
D. Inventories
At June 30, 1994 and 1993, inventories, consisting primarily of
finished goods, are carried at the lower of first-in, first-out (FIFO) cost or
market. The Company regularly evaluates its inventory carrying value, with
appropriate consideration given to any excess, slow-moving and/or nonsalable
inventories.
E. Property and Equipment
Property and equipment is stated at cost. For financial reporting
purposes, buildings and equipment are depreciated on a straight-line basis over
their estimated useful lives at annual depreciation rates ranging from 2 1/2%
to 30%. For income tax
30
<PAGE> 31
purposes, accelerated methods generally are used. Depreciation expense totaled
$2,738 in fiscal 1994, $2,690 in fiscal 1993 and $2,665 in fiscal 1992.
F. Cost of Businesses in Excess of Net Assets Acquired
Cost of businesses in excess of the fair market value of net assets
acquired is being amortized primarily over 40 years, using the straight-line
method. Management has evaluated its accounting for goodwill, considering such
factors as historical profitability and current operating cash flows and
believes that the asset is realizable and the amortization period is
appropriate. Goodwill amortization expense totaled $724 in fiscal 1994, $725
in fiscal 1993 and $756 in fiscal 1992. The accumulated amortization of
goodwill at June 30, 1994 and 1993 was $4,469 and $3,745, respectively.
G. Per Share Data
Primary earnings per share have been computed based on the weighted
average number of shares and share equivalents outstanding which totaled 11,674
in fiscal 1994, 11,662 in fiscal 1993 and 9,794 in fiscal 1992. Share
equivalents include the Company's common stock purchase warrants (see Notes 7
and 8). The conversion of the Convertible Debentures was not assumed in
computing fully diluted earnings per share for fiscal 1994, fiscal 1993 and
fiscal 1992 as the effect would be anti-dilutive.
H. Foreign Currency Translation
All balance sheet accounts of foreign subsidiaries are translated at
the exchange rate as of the end of the fiscal year. Income statement items are
translated at the average currency exchange rates during the fiscal year. The
resulting translation adjustment is recorded as a component of stockholders'
equity. Foreign currency transaction gains or losses are included in the
income statement as incurred and such net gains totaled $17 in fiscal 1994, $80
in fiscal 1993 and $73 in fiscal 1992.
I. Impact of New Accounting Standards
The Company adopted SFAS No. 109 during 1994 (see Note 5). The FASB
has also issued SFAS No. 106, "Employers' Accounting for Postretirement
Benefits other than Pensions" and SFAS No. 112, "Employers' Accounting for
Postemployment Benefits." The Company does not currently maintain any
postretirement or postemployment benefit plans or programs which would be
subject to such accounting standards.
J. Debt
The Company made interest payments of $20,523 in fiscal 1994, $19,540
in fiscal 1993 and $18,858 in fiscal 1992. Accrued liabilities in the
accompanying consolidated balance sheets include accrued interest of $2,101 and
$2,609 at June 30, 1994 and 1993, respectively. Other assets in the
accompanying consolidated balance sheets include deferred financing costs of
$10,284 and $3,935 at June 30, 1994 and 1993, respectively.
No quoted market prices are available for any of the Company's debt as
the debt is not actively traded. Management, however, believes the carrying
values of its bank loans approximate their fair values as they bear interest
based upon the banks' prime lending rates. It was not practical to determine
the fair value of the Company's Senior Secured Notes, Deferred Coupon Notes,
Convertible Debentures and Senior Subordinated Notes because of the inability
to determine fair value without incurring excessive costs.
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<PAGE> 32
2. DISCONTINUED OPERATIONS - IDEAL
Effective March 31, 1994, the Company adopted a plan to dispose of its
Canadian subsidiary, Ideal Plumbing Group, Inc. (Ideal). Unlike the Company's
U.S. operations, which supply products to customers in the home repair and
remodeling market through mass retailers, Ideal primarily serves customers in
the Canadian new construction market through independent contractors.
Accordingly, Ideal is reported as a discontinued operation and the consolidated
financial statements have been reclassified to report separately Ideal's net
assets and results of operations.
At the time the plan of disposition was adopted, the Company expected
that the disposition would be accomplished through a sale of the business to a
group which included members of Ideal's management. Such transaction would
have required the consent of Ideal's Canadian bank as borrowings under its bank
credit agreements were collateralized by all of the assets and capital stock of
Ideal. The bank considered the management group's acquisition proposal,
however, the proposal was subsequently rejected. On May 5, 1994, without
advance notice, the bank filed an involuntary bankruptcy petition against Ideal
citing defaults under the bank credit agreements (Borrowings under these
agreements are non-recourse to Waxman Industries, Inc.). On May 30, 1994,
Ideal was declared bankrupt by the Canadian courts and, as a result, the
Company's ownership and control of Ideal effectively ceased on such date. The
Canadian court appointed a trustee to liquidate the assets of Ideal. The
Company has been advised that Ideal is no longer operating and the liquidation
process is continuing at the present time. The Company has no liability to the
creditors of Ideal as a result of Ideal's bankruptcy.
The estimated loss on disposal, which was recorded by the Company in
its consolidated financial statements as of March 31, 1994, totaled $38.3
million, without tax benefit, and represents a complete write-off of the
Company's investment in Ideal. The loss included the estimated loss on
disposal, a provision for anticipated operating losses until disposal and
provisions for other estimated costs to be incurred in connection with the
disposal, as well as a $6.4 million foreign currency exchange loss which
results from the elimination of the currency translation adjustments relating
to Ideal. In accordance with SFAS No. 109. "Accounting for Income Taxes", any
tax benefits relating to the loss on disposal have been reduced 100% by a
valuation allowance. The Company will continue to evaluate the valuation
allowance and to the extent it is determined that such allowance is no longer
required, the tax benefit of such loss on disposal will be recognized in the
future.
Net assets of the discontinued operation at June 30, 1993 consisted of
working capital of $29,879, net plant, property and equipment of $15,171, other
assets of $40,561 and bank debt of $56,455 without any allowance for the
estimated loss on disposal.
Summary operating results of the discontinued operation for the periods
presented are as follows:
<TABLE>
<CAPTION>
1994 1993 1992
---------- ---------- ----------
<S> <C> <C> <C>
Net sales $87,265 $153,875 $181,305
Costs and expenses 90,262 164,684 178,540
------- ------- -------
Income (loss) before
income taxes (2,997) (10,809) 2,765
Income taxes 252 431 1,619
------- ------- -------
Net income (loss) $ (3,249) $(11,240) $ 1,146
======== ======== ========
</TABLE>
3. CHANGE IN ACCOUNTING:
During fiscal 1993, the Company accelerated its amortization of
certain warehouse start-up costs and catalog costs. This change was applied
retroactively to July 1, 1992. The Company had historically amortized such
costs over a period not to exceed five years which, in management's opinion,
represented the period over which economic benefits were received. The
acceleration of amortization was made to conform with prevailing industry
practice. By accelerating amortization, certain costs associated with the
opening of new warehouse operations are amortized over a period of twelve
months commencing the month in which the warehouse opens. Costs associated
with the development and introduction of new catalogs are amortized over the
life of the catalog, not to exceed a period of one year.
The cumulative effect of this change on prior years totaled $2,110 or
$.18 per share, and is reported separately in the fiscal 1993 consolidated
income statement, without tax benefit. The additional effect of the change in
fiscal 1993 was to
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<PAGE> 33
increase both the loss from continuing operations before extraordinary charge
and cumulative effect of accounting change and the net loss by $1,191.
The following pro forma information reflects the Company's results for
fiscal 1992 as if the change had been retroactively applied:
<TABLE>
<CAPTION>
1992
----
<S> <C>
Loss from continuing operations
before extraordinary charge $(4,461)
Net loss (4,532)
Earnings (loss) per share:
Loss from continuing operations
before extraordinary charge $ (.45)
Net loss (.46)
</TABLE>
4. RESTRUCTURING, NONRECURRING AND EXTRAORDINARY CHARGES:
A. Extraordinary Charges
During fiscal 1994, the Company recognized a $6.6 million
extraordinary charge, without tax benefit, as a result of the refinancing of
$50 million of Senior Subordinated Notes as well as borrowings under the
domestic bank credit facilities. The extraordinary charge included the fees
paid upon the refinancing of the Senior Subordinated Notes along with the
accelerated amortization of unamortized debt discount and issuance costs.
Also during fiscal 1994, the Company purchased $1.9 million of its
Convertible Debentures pursuant to a mandatory repurchase obligation. As a
result of the repurchase, the Company recorded an extraordinary charge of $.2
million, without tax benefit, which primarily represents the accelerated
amortization of unamortized debt discount and issuance costs.
During fiscal 1992, the Company repurchased certain debt securities in
open market purchases. As a result, the Company incurred an extraordinary
charge which totaled $1,186 (net of applicable income tax benefit of $611) and
included the market premium paid along with the accelerated amortization of
unamortized debt discount and issuance costs.
B. Restructuring and Non-Recurring Charges
During fiscal 1993, as a result of certain actions taken as part of
its strategy to refocus and build its existing core businesses in the U.S., the
Company recorded a $6,762 restructuring charge. The provision for
restructuring charge included an estimate of the loss to be incurred upon the
sale of three businesses, including anticipated operating results through the
projected disposal dates, and the write-off of intangible assets. Below is a
summary of the components comprising the restructuring charges as of June 30,
1993:
Estimated loss on disposal of businesses $4,600
Relocation and consolidation costs 1,544
Other 618
-----
$6,762
=====
The disposal of businesses included three operating entities in which
the Company had entered into letters of intent with prospective buyers.
During October 1993, the Company completed the sale of one of its
Canadian operations, H. Belanger Plumbing Accessories, Ltd. (Belanger). The
Company sold all of the capital stock of Belanger for approximately
U.S. $3 million in cash and a U.S. $0.3 million promissory note. The
promissory note, which matures on October 14, 1996, provides for three equal
consecutive annual payments. Interest is payable annually at a rate of 7%.
The loss on the sale of Belanger was approximately $3 million. Net assets held
for sale at June 30, 1993, included in the accompanying consolidated balance
sheets is comprised primarily of working capital items and fixed assets of
Belanger, net of the reserve for the estimated loss on disposal.
The Company was unable to come to terms with the prospective buyer of
the other two entities. At the present time, the Company is not engaged in any
other negotiations with respect to the sale of these entities. As such, the
consummation of a sale of these businesses is not expected to occur in the
foreseeable future, if at
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<PAGE> 34
all. As a result, the individual assets and liabilities of these businesses
have been reclassified on the accompanying consolidated balance sheets. The
Company evaluated the net realizable value of the carrying value of the assets
previously held for sale in accordance with its normal ongoing policy regarding
impairment and concluded that no further writedown of the net carrying value of
the assets was required in excess of the reserve previously established.
Therefore, the reversal of the accrued loss on disposal includes $1.4 million
for the writedown of assets to net realizable value and $.2 million for fees
and expenses associated with the transaction.
During fiscal 1992, the Company recorded a $3.9 million nonrecurring
charge which represents a capital loss realized upon the sale of the Company's
portfolio of debt securities.
5. INCOME TAXES:
The Company adopted SFAS NO. 109 during the first quarter of fiscal
1994. SFAS 109 requires the Company to recognize income tax benefits for loss
carryforwards which have not previously been recorded. The tax benefits
recognized must be reduced by a valuation allowance in certain circumstances.
Upon the adoption of SFAS 109, the benefit of the Company's net operating loss
carryforwards was reduced 100% by a valuation allowance. The benefit of the
fiscal 1994 net operating loss has also been reduced 100% by a valuation
allowance. The adoption of SFAS 109 in fiscal 1994 had no material impact on
the accompanying consolidated financial statements. However, to the extent
that the Company is able to recognize tax benefits in the future, such
recognition will favorably effect future results of operations.
The components of income (loss) from continuing operations before
income taxes, extraordinary charges and cumulative effect of change in
accounting are as follows:
<TABLE>
<CAPTION>
1994 1993 1992
---- ---- ----
<S> <C> <C> <C> <C>
Domestic $ (4,127) $(13,442) $(6,179)
Foreign 1,006 (2,232) 1,053
------- ------- -------
Total $ (3,121) $(15,674) $(5,126)
======== ======== =======
The components of the provision (benefit) for income taxes are:
1994 1993 1992
---- ---- ----
Currently payable:
Federal $ - $ - $(2,404)
Foreign and other 351 216 572
------ ---- ------
Total current 351 216 (1,832)
Deferred: Federal - - 1,064
------ ---- --------
Total provision (benefit) $ 351 $216 $ (768)
======= ==== ========
Deferred income taxes relate to the following:
1994 1993 1992
---- ---- ----
Depreciation $ - $ - $ 68
Inventory valuation - - (84)
Bad debt expense - - 425
Deferred costs - - 800
Other, net - - (145)
------ --- ------
Total $ - $ - $1,064
======= === ======
</TABLE>
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<PAGE> 35
The following table reconciles the U.S. statutory rate to the
Company's effective tax rate:
<TABLE>
<CAPTION>
1994 1993 1992
---- ---- ----
<S> <C> <C> <C>
U.S. statutory rate 34.0% 34.0% 34.0%
Domestic losses not benefited (41.8) (24.4) -
Capital losses not benefited - (10.0) (18.1)
State taxes, net (4.2) (0.8) (2.3)
Goodwill amortization (7.1) (1.6) (4.5)
Effect of prior year purchase accounting adjustments - - 2.7
Foreign tax items 6.2 - -
Other, net 1.7 1.4 3.2
------- ---- -----
Effective tax rate (11.2)% (1.4)% 15.0%
======= ==== =====
</TABLE>
At June 30, 1994, the Company had $59,598 available domestic net
operating loss carryforwards for income tax purposes which expire
through 2009. For financial reporting purposes, the benefit of these net
operating loss carryforwards has been reduced 100% by a valuation allowance in
accordance with the provisions of SFAS No. 109.
At June 30, 1994, the Company had recorded deferred tax liabilities of
$3,218 and deferred tax assets (excluding the net operating loss carryforwards
discussed above) of $2,663. For financial reporting purposes, previously
recorded deferred income tax liabilities were reduced in fiscal 1993 by the tax
benefit of the fiscal 1992 net operating loss which could not be carried back
to prior years. In fiscal 1992 and fiscal 1993, the Company was able to
carryback domestic net operating losses to prior years which resulted in
refunds of previously paid taxes. Refunds received totaled $2,462 in fiscal
1993 and $435 in fiscal 1994.
The Company made income tax payments of $556 in fiscal 1994, $926 in
fiscal 1993 and $1,358 in fiscal 1992.
6. LONG TERM DEBT:
Long term debt at June 30, 1994 and 1993 consisted of the following:
<TABLE>
<CAPTION>
1994 1993
-------- --------
<S> <C> <C>
$55 million secured credit facility $ 39,378 $ -
Term loan 15,000 -
$30 million secured revolving credit
facility - 20,400
Other notes payable, maturing at
various dates through 2007, and
bearing interest at rates varying
from 7.35% to 10.00% 3,829 4,660
-------- --------
58,207 25,060
Less: current portion 4,144 2,493
-------- --------
Long-term debt net of current
portion $ 54,063 $ 22,567
======== ========
</TABLE>
On May 20, 1994, the Operating Companies entered into a new $55
million secured credit facility with an affiliate of Citibank, N.A., as agent,
which includes a $20 million letter of credit subfacility. The secured credit
facility, which has an initial term of three years, will be extended for an
additional year if the Senior Secured Notes have been repaid on or before March
1997. The secured credit facility is subject to borrowing base formulas.
Interest is based, at the Company's option, on either (i) the prime rate of
Citibank, N.A. plus 1.5%, or (ii) LIBOR plus 3.0%. These rates will be
increased by 0.5% until such time as the term loan, discussed below, has been
repaid in full. The weighted average interest rate on borrowings outstanding
under the credit facility was 8.5% during fiscal 1994. The Company is required
to pay a commitment fee of 0.5% per annum on the unused commitment. The
secured credit facility is secured by the accounts receivable, inventory,
certain general intangibles
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<PAGE> 36
and unencumbered fixed assets of the Operating Companies and 65% of the capital
stock of one subsidiary of TWI. The agreement requires that Waxman USA
maintain certain leverage, fixed charge coverage, net worth, capital
expenditures and EBITDA to total cash interest ratios. All financial covenants
are based solely on the results of operations of Waxman USA. The Company was
in compliance with all covenants at June 30, 1994.
The Operating Companies also entered into a $15.0 million three-year
term loan with Citibank, N.A., as agent. The term loan bears interest at a
rate per annum equal to 1.5% over the interest rate under the secured credit
facility and is secured by a junior lien on the collateral under the secured
credit facility. A one-time fee of 1.0% of the principal amount outstanding
under the term loan will be payable if the loan is not repaid by November 20,
1994. Principal payments on the domestic term loan of $1.0 million each will
be required quarterly commencing in March 1995. The term loan's financial
covenants are identical to the covenants contained in the secured credit
facility and are based solely on the results of operations of Waxman USA.
The initial borrowings under the secured credit facility along with
proceeds from the term loan were used to repay all borrowings under the
Company's existing domestic bank credit facilities as well as fees and expenses
associated with the issuance of the Company's Deferred Coupon Notes (See Note
8). The $55 million secured credit facility, the $15 million term loan and the
issuance of the Deferred Coupon Notes were part of a financial restructuring
(the Restructuring).
In May 1994, the $30 million secured domestic revolving credit
facility was terminated by the Company, and borrowings thereunder were
refinanced using proceeds as discussed above. The weighted average interest
rate on borrowings outstanding under the $30 million secured domestic revolving
credit facility was 6.2% during fiscal 1994.
7. SENIOR SECURED NOTES
In September 1991, the Company completed a private placement of $50
million of 7-year Senior Secured Notes (the Senior Secured Notes), including
detachable warrants to purchase 1 million shares of the Company's common stock
(the Warrants). At the time of issuance, the Senior Secured Notes included
$42.5 million of 12.25% fixed rate notes and $7.5 million of floating rate
notes with interest at 300 basis points over the 90 day LIBOR rate. The Senior
Secured Notes are redeemable in whole or in part, at the option of the Company,
after September 1, 1993 at a price of 107.35% for the fixed rate notes and 103%
for the floating rate notes. The redemption prices decrease annually to 100%
of the principal amounts at September 1, 1996. Annual mandatory redemption
payments of $14.45 million for the fixed rate notes, and $2.55 million for the
floating rate notes are due on September 1, 1996 and September 1, 1997 and are
calculated to retire 68% of the principal amount of the Senior Secured Notes
prior to maturity. The Senior Secured Notes, which are secured by a pledge of
all of the outstanding stock of the Company's wholly-owned subsidiaries,
Barnett, Consumer Products and WOC, are senior in right of payment to all
subordinated indebtedness and pari passu with all other senior indebtedness of
the Company.
The Warrants are exercisable through September 1, 1996, at a price of
$4.60 per share. A portion of the proceeds of the private placement was
allocated to the Warrants and, as a result, paid-in capital increased by $1
million in fiscal year 1992. The related $1 million reduction in the recorded
principal amount of the Senior Secured Notes is being amortized as interest
expense over the life of the Senior Secured Notes.
During June 1992, the Company repurchased $10,850 principal amount of
the fixed rate notes in open market purchases.
The Senior Secured Note indenture contains various covenants,
including dividend restrictions and minimum operating cash flow requirements.
The operating cash flow covenant requires a minimum ratio of operating cash
flow to interest expense of 1.1 to 1.0 (the Company's actual ratio for fiscal
1994 was approximately 1.2 to 1.0). For purposes of calculating this ratio,
operating cash flow is calculated based on the results of continuing operations
only and interest expense excludes any non-cash interest relating to the
Company's Deferred Coupon Notes.
During November 1993 and May 1994, the Company completed solicitations
of consents from the holders of the Senior Secured Notes which, among other
things, amended the net worth and certain other financial covenants and
permitted the completion of the Company's Restructuring and eliminated any
prospective defaults resulting from the adverse results and events relating to
the Company's discontinued Canadian operations.
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<PAGE> 37
8. SENIOR SECURED DEFERRED COUPON NOTES
On May 20, 1994, the Company exchanged $50 million of its Senior
Subordinated Notes for $50 million initial accreted value of 12.75% Senior
Secured Deferred Coupon Notes due 2004 (the Deferred Coupon Notes) along with
detachable warrants to purchase 2.95 million shares of the Company's common
stock. The Deferred Coupon Notes have no cash interest requirements until
1999. Thereafter interest on the Deferred Coupon Notes will accrue at a rate
of 12.75% and will be payable in cash semi-annually on June 1 and December 1.
The Deferred Coupon Notes are redeemable, in whole or in part, at the option of
the Company, after June 1, 1999 at 106.375% of accreted value, which decreases
annually to 100% at the maturity date. The Deferred Coupon Notes are secured
by a pledge of the capital stock of Waxman USA. Substantially all of the
assets of Waxman USA are pledged under the Restructuring. The Deferred Coupon
Notes rank senior in right of payment to all existing and future subordinated
indebtedness of the Company and rank pari passu in right of payment with all
other existing or future unsubordinated indebtedness of the Company. The
Deferred Coupon Notes contain certain covenants which, among other things,
limit additional indebtedness, the payment of dividends and any
restricted payments.
The warrants are exercisable through June 1, 2004, at a price of $2.45
per share. A portion of the initial accreted value of the Deferred Coupon
Notes was allocated to the warrants and as a result paid in capital increased
by $2.5 million and the related $2.5 million reduction in the recorded initial
accreted value of the Deferred Coupon Notes is being amortized as interest
expense over the life of the Deferred Coupon Notes.
9. SENIOR SUBORDINATED NOTES
In June 1989, the Company issued $100 million principal amount of
13.75% Senior Subordinated Notes (Senior Subordinated Notes) due June 1, 1999.
The Senior Subordinated Notes are redeemable in whole or in part, at the option
of the Company, after June 1, 1994 at a price of 105.156% which decreases
annually to 100% of the principal amount at the maturity date. Annual
mandatory redemption payments of $20 million commencing June 1, 1996 are
calculated to retire 60% of the issue prior to maturity. In case of a change
in control, the noteholders have the right to require the Company to repurchase
the Senior Subordinated Notes at established redemption prices. The Senior
Subordinated Notes, which are unsecured, are subordinate in right of payment to
all senior debt and are senior in right of payment to the Company's Convertible
Debentures. Under the terms of the Senior Subordinated Note indenture, the
Company may not incur additional indebtedness which is subordinate to senior
debt and senior to the Senior Subordinated Notes. Additionally, the indenture
agreement contains various other covenants, including dividend restrictions and
minimum net worth requirements.
As discussed in Note 8, during 1994, the Company exchanged $50 million
principal amount of the Senior Subordinated Notes for a like amount of Deferred
Coupon Notes. The $50 million of Senior Subordinated Notes exchanged satisfy
the Company's mandatory redemption requirements with respect to such issue and,
as a result 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.
During fiscal 1992, the Company repurchased $1,250 principal amount of
the Senior Subordinated Notes in an open market purchase.
During November 1993 and May 1994, the Company completed a
solicitation of consents from the holders of the Senior Subordinated Notes
which, among other things, amended the net worth and certain other financial
covenants and permitted the completion of the Company's Restructuring and
eliminated any prospective defaults resulting from the adverse results and
events relating to the Company's discontinued Canadian operations.
10. CONVERTIBLE SUBORDINATED DEBENTURES
In March 1987, the Company issued $25 million principal amount of
Convertible Subordinated Debentures (the Convertible Debentures) due March 15,
2007. The Convertible Debentures, which are unsecured, may be converted at any
time prior to maturity, unless previously redeemed, into shares of the
Company's common stock at a conversion price of $3.25 per share.
During fiscal 1990, the Company called $12.5 million principal amount
of the Convertible Debentures for redemption and subsequently $6.5 million
principal amount
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<PAGE> 38
was converted into 683 shares of common stock and the remaining $6.0 million
principal amount was redeemed at the call price of 105%.
During fiscal years 1990 and 1992, the Company also purchased $9.7 million
and $.8 million, respectively, of the principal amount of the Convertible
Debentures in open market purchases at prices which approximated the par value
of the Convertible Debentures.
In June 1994, the Company purchased $1.9 million of the Convertible
Debentures pursuant to a mandatory repurchase obligation.
11. STOCKHOLDERS' EQUITY:
In March 1994, the Company contributed 50 shares of its common stock
to the profit sharing retirement plan in lieu of a cash contribution. The
total fair market value of the common stock at the date of contribution was
approximately $132.
In May 1992, the Company completed a public offering of 2,199 shares
of common stock at a price of $5.00 per share. The net proceeds from the
offering, after deducting all associated costs, were $9,785.
Each share of common stock entitles the holder to one vote, while each
share of Class B common stock entitles the holder to ten votes. Cash dividends
on the Class B common stock may not exceed those on the common stock. Due to
restricted transferability there is no trading market for the Class B common
stock. However, the Class B common stock may be converted, at the
stockholder's option, into common stock on a share-for-share basis at any time
without cost to the stockholder.
Stockholders' equity includes cumulative currency translation
adjustments of ($600) and ($4,651) at June 30, 1994 and 1993, respectively. A
foreign currency exchange loss of $6.4 million, which resulted from the
elimination of the currency translation adjustments relating to Ideal, was
realized as part of the loss on disposal of Ideal. See Note 2.
12. STOCK OPTIONS:
Stock Option Plan
Effective July 1, 1992, the Company's stockholders approved the 1992
Non-Qualified and Incentive Stock Option Plan (the 1992 Stock Option Plan)
which replaced the then existing stock option plan (the 1982 Plan) which
terminated by its terms on April 30, 1992. The 1992 Stock Option Plan
authorized the issuance of an aggregate of 1.1 million shares of common stock
as incentive stock options to officers and key employees of the Company or its
subsidiaries. During fiscal 1994, the Board of Directors of the Company
approved an amendment to the 1992 Stock Option Plan which would increase the
number of shares subject to the 1992 Stock Option Plan to 1.5 million shares.
Such amendment is subject to stockholder approval, which the Company intends to
seek at its next annual meeting of stockholders. Under the terms of the 1992
Stock Option Plan, all options granted are at an option price not less than the
market value at the date of grant and may be exercised for a period not
exceeding 10 years from the date of grant.
During fiscal 1994, options exercisable to purchase an aggregate of
1,250 shares were issued under the 1992 Stock Option Plan at exercise prices of
$2.25 to $3.88 per share, and options exercisable to purchase 1,046 shares with
exercise prices of $2.38 to $5.00 per share were cancelled. At June 30, 1994,
options for 1,194 shares were outstanding, of which none were exercisable. Of
the options granted in fiscal 1994, options to purchase an aggregate of 200
shares are subject to stockholder approval to the amendment to the 1992 Stock
Option Plan. At June 30, 1993, there were options for 990 shares outstanding
under the 1992 Stock Option Plan.
Also during fiscal 1994, options for 271 shares under the 1982 Plan
with exercise prices of $4.75 to $6.00 per share were cancelled. At June 30,
1994, there were no options outstanding under the 1982 Plan. At June 30, 1993,
there were options for 271 shares outstanding under the 1982 Plan.
Other Stock Options
In fiscal 1994, the Board of Directors of the Company adopted the
1994 Non-Employee Directors Stock Option Plan pursuant to which each current
non-employee director of the Company was granted an option to purchase an
aggregate of 20 shares of the Company's Common Stock at an exercise price of
$2.25 per share and each future non-employee director of
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<PAGE> 39
the Company would be granted, on the date such person becomes a non-employee
director of the Company, an option to purchase an aggregate of 20 shares of
Common Stock at anexercise price equal to the fair market value of the Common
Stock at the date of grant. The grant of such options is subject to
stockholder approval, which the Company intends to seek at its next annual
meeting of stockholders. In addition, during fiscal 1994, the Company granted
a consultant to the Company an option to purchase an aggregate of 10 shares of
Common Stock at an exercis price of $2.25 per share. At June 30, 1994, options
to purchase a total of 70 shares were outstanding under the non-qualified
options, of which none were exercisable. During fiscal year 1994, options to
purchase 170 shares with exercise prices of $4.25 to $6.00 per share were
cancelled.
13. LEASE COMMITMENTS:
The Company leases certain of its warehouse and office facilities and
equipment under operating lease agreements which expire at various dates
through 2003.
Future minimum rental payments are as follows: $3,856 in 1995, $3,254
in 1996, $3,016 in 1997, $2,361 in 1998, $1,850 in 1999 and $2,595 after 1999,
with a cumulative total of $16,932.
Total rent expense charged to operations was $3,951 in 1994, $3,758 in
1993 and $3,398 in 1992.
14. PROFIT SHARING PLAN:
The Company has a trusteed profit sharing retirement plan for
employees of certain of its divisions and subsidiaries. In fiscal 1989, the
plan was amended to qualify under Section 401(K) of the Internal Revenue Code.
Company contributions are determined by the Board of Directors. The charges to
operations for Company contributions totaled $132 in fiscal 1993 and $123 in
fiscal 1992.
15. CONTINGENCIES:
The Company is subject to various legal proceedings and claims that
arise in the ordinary course of business. In the opinion of management, the
amount of any ultimate liability with respect to these actions will not
materially affect the Company's financial statements.
39
<PAGE> 40
SUPPLEMENTARY FINANCIAL INFORMATION
Quarterly Results of Operations:
The following is a summary of the unaudited quarterly results of
operations for the fiscal years ended June 30, 1994 and 1993 (in thousands,
except per share amounts):
<TABLE>
<CAPTION>
AUDITED
FISCAL 1994 1ST QTR. 2ND QTR. 3RD QTR. 4TH QTR. TOTAL
- - ----------- -------- -------- -------- -------- -----
<S> <C> <C> <C> <C>
Net sales $54,701 $53,233 $52,311 $54,867 $215,112
Gross profit 18,750 18,764 18,551 19,036 75,101
Operating income 4,759 5,124 4,413 3,917 18,213
Loss from continuing operations
before extraordinary charge (357) (42) (941) (2,132) (3,472)
Income (loss) from discontinued
operations 886 115 (4,250) - (3,249)
Loss on disposal (38,343) (38,343)
Extraordinary charge - - (6,625) (199) (6,824)
Net income (loss) 529 73 (50,159) (2,331) (51,888)
Primary and fully diluted
earnings per share:
Loss from continuing
operations before cumulative
effect of accounting change (.03) (.01) (.08) (.18) (.30)
Income (loss) from discontinued
operations .07 .02 (.36) - (.28)
Loss on disposal - - (3.28) - (3.28)
Extraordinary charge - - (.57) (.02) (.58)
Net income (loss) (.04) .01 (4.29) (.20) (4.44)
AUDITED
FISCAL 1993 1ST QTR. 2ND QTR. 3RD QTR. 4TH QTR. TOTAL
- - ----------- -------- -------- -------- -------- -----
Net sales $54,405 $50,969 $48,583 $50,821 $204,778
Gross profit 18,197 16,952 16,773 15,612 67,534
Operating income (loss) 4,303 3,985 3,905 (7,502) 4,691
Loss from continuing operations
before cumulative effect of
accounting change (363) (547) (710) (14,270) (15,890)
Income (loss) from discontinued
operations 785 733 (218) (12,540) (11,240)
Cumulative effect of accounting
change (2,110) - - - (2,110)
Net income (loss) (1,688) 186 (928) (26,810) (29,240)
Primary and fully diluted
earnings per share:
Loss from continuing
operations before cumulative
effect of accounting change (.03) (.05) (.06) (1.22) (1.36)
Income (loss) from discontinued
operations .07 .07 (.02) (1.08) (.97)
Cumulative effect of accounting
change (.18) - - - (.18)
Net income (loss) (.14) .02 (.08) (2.30) (2.51)
</TABLE>
40
<PAGE> 41
PART III
Part III, except for certain information relating to Executive Officers
included in Part I, Item 4A, is omitted inasmuch as the Company intends to file
with the Securities and Exchange Commission within 120 days of the close of its
fiscal year ended June 30, 1994 a definitive proxy statement pursuant to
Regulation 14A of the Securities Exchange Act of 1934.
PART IV
ITEM 14. EXHIBITS, FINANCIAL STATEMENTS, SCHEDULES AND REPORTS ON FORM 8-K
(a) (1) The following consolidated financial statements are
included in Part II, Item 8:
Report of Independent Public Accountants
Balance Sheets--June 30, 1994 and 1993
Statements of Income--For the Years Ended June 30,
1994, 1993, and 1992
Statements of Stockholders' Equity--For the Years
Ended June 30, 1994, 1993 and 1992.
Statements of Cash Flows--For the Years Ended June
30, 1994, 1993 and 1992.
Notes to Financial Statements For the Years Ended
June 30, 1994, 1993 and 1992.
Supplementary Financial Information
(a) (2) All schedules have been omitted since the required
information is not present or not present in amounts
sufficient to require submission of the schedule, or
because the information required is included in the
consolidated financial statements including notes
thereto.
(a) (3) Exhibits
3.1* Certificate of Incorporation of the Company dated
October 27, 1989 (Exhibit 3(a) to the Company's Form
S-8 filed December 4, 1989, File No. 0-5888,
incorporated herein by reference).
3.2* By-laws of the Company. (Exhibit 3.2 to Annual
Report on Form 10-K for the year ended June 30, 1990,
File No. 0-5888, incorporated herein by reference.)
4.1* Indenture dated as of June 1, 1989 (the "Ameritrust
Indenture") between the Company and Ameritrust
Company National Association (Exhibit 4.1 to Annual
Report on Form 10-K for the year ended June 30, 1989,
File No. 0-5888, incorporated herein by reference).
4.2* Form of the Company's 13 3/4% Senior Subordinated
Note due June 1, 1999 (Exhibit 4.2 to Annual Report
on Form 10-K for the year ended June 30, 1989, File
No. 0-5888, incorporated herein by reference).
4.3* First Supplemental Indenture to the Ameritrust
Indenture dated November 29, 1989. (Exhibit 4.2 to
Annual Report on Form 10-K for the year ended June
30, 1990, File No. 0-5888, incorporated herein by
reference.)
4.4* Second Supplemental Indenture to the Ameritrust
Indenture dated November 23, 1993 (Exhibit 4.3
to Waxman Industries, Inc.'s Form S-2 filed
July 8, 1994, incorporated herein by reference).
4.5* Third Supplemental Indenture to the Ameritrust
Indenture dated May 20, 1994 (Exhibit 4.4 to
Waxman Industries, Inc.'s Form S-2 filed
July 8, 1994, incorporated herein by reference).
4.6* Indenture , dated as of May 20, 1994, by and between
Waxman Industries, Inc. and The Huntington National
Bank, as Trustee, with respect to the Deferred Coupon
Notes, including the form of Deferred Coupon Notes
(Exhibit 4.1 to Waxman Industries, Inc.'s Form S-4
filed June 20, 1994, incorporated herein by
reference).
4.7* Warrant Agreement, dated as of May 20, 1994, by and
between Waxman Industries, Inc. and The Huntington
National Bank, as Warrant Agent (Exhibit 4.2 to
Waxman Industries, Inc.'s Form S-4 filed June 20,
1994, incorporated herein by reference).
41
<PAGE> 42
4.8* Warrant Certificate (Exhibit 4.3 to Waxman
Industries, Inc.'s Form S-4 filed June 20, 1994,
incorporated herein by reference).
4.9* Securities Purchase Agreement for Notes and Warrants
dated as of September 17, 1991, among the Company and
each of the Purchasers referred to therein. (Exhibit
4.4 to Annual Report on Form 10-K for the year ended
June 30, 1991, File No. 0-5888, incorporated herein
by reference).
4.10* Indenture dated as of September 1, 1991 (the "US
Trust Indenture"), between the Company and United
States Trust Company of New York. (Exhibit 4.5 to
Annual Report on Form 10-K for the year ended
June 30, 1991, File No. 0-5888, incorporated herein
by reference).
4.11* Form of the Company's Floating Rate Senior Secured
Notes due September 1, 1998. (Exhibit 4.6 to Annual
Report on Form 10-K for the year ended June 30, 1991,
File No. 0-5888, incorporated herein by reference).
4.12* Form of the Company's 12.25% Fixed Rate Senior
Secured Notes due September 1, 1998. (Exhibit 4.7 to
Annual Report on Form 10-K for the year ended June
30, 1991, File No. 0-5888, incorporated herein by
reference).
4.13* First Supplemental Indenture to the US Trust
Indenture dated November 15, 1993 (Exhibit 4.8 to
Waxman Industries, Inc.'s Form S-2 filed July 8,
1994, incorporated herein by reference).
4.14* Second Supplemental Indenture to the US Trust
Indenture dated March 25, 1994 (Exhibit 4.9
to Waxman Industries, Inc.'s Form S-2 filed July 8,
1994, incorporated herein by reference).
4.15* Third Supplemental Indenture to the US Trust
Indenture dated May 20, 1994 (Exhibit 4.10 to
Waxman Industries, Inc.'s Form S-2 filed
July 8, 1994, incorporated herein by reference).
4.16* Warrant Agreement dated as of September 17, 1991,
between the Company and United States Trust Company
of New York. (Exhibit 4.8 to Annual Report on Form
10-K for the year ended June 30, 1991, File No.
0-5888, incorporated herein by reference).
4.17* Form of the Company's Common Stock Purchase Warrant
Certificate. (Exhibit 4.9 to Annual Report on Form
10-K for the year ended June 30, 1991, File No.
0-5888, incorporated herein by reference).
4.18* Registration Rights Agreement for Senior Notes,
Warrants and Warrant Shares dated as of September 17,
1991, among the Company and each of the Purchasers
signatory thereto. (Exhibit 4.10 to Annual Report on
Form 10-K for the year ended June 30, 1991, File No.
0-5888, incorporated herein by reference).
4.19* Pledge Agreement dated as of September 17, 1991,
among the Company, United States Trust Company of New
York and each of the Purchasers signatory thereto.
(Exhibit 4.11 to Annual Report on Form 10-K for the
year ended June 30, 1991, File No. 0-5888,
incorporated herein by reference).
4.20* Operating Credit Agreement dated as of April 20, 1989
between Bank of Montreal and Waxman Acquisition, Inc.
(Exhibit 10.9 to Annual Report on Form 10-K for the
year ended June 30, 1989, File No. 0-5888,
incorporated herein by reference).
4.21* Amending Agreement of Operating Credit Agreement
dated as of July 1, 1990 between Bank of Montreal and
Ideal Plumbing Group Inc. (Exhibit 4.10 to Annual
Report on Form 10-K for the year ended June 30, 1990,
File No. 0-5888, incorporated herein by reference).
4.22* Amended and Restated Operating Credit Agreement dated
as of July 22, 1991 between Bank of Montreal and
Ideal Plumbing Group Inc. (Exhibit 4.15 to Annual
Report on Form 10-K for the year ended June 30, 1991,
File No. 0-5888, incorporated herein by reference).
4.23* Amended and Restated Credit Agreement dated as of
April 1, 1993 between Waxman Industries, Inc. and the
Banks Named Therein and National City Bank as Agent
(Exhibit 4.15 to Annual Report on Form 10-K for the
year ended June 30, 1993, File No. 0-5888,
incorporated herein by reference).
42
<PAGE> 43
4.24* Amendment dated as of October 1, 1993 to Amended and
Restated Credit Agreement dated as of April 1, 1993
between Waxman Industries, Inc. and the Banks Named
Therein and National City Bank as Agent (Exhibit 4.16
to Annual Report on Form 10-K for the year ended June
30, 1993, File No. 0-5888, incorporated herein by
reference).
4.25* Credit Agreement dated as of May 20, 1994 among Waxman
USA, Inc., Barnett Inc., Waxman Consumer Products
Group Inc. and WOC Inc., the Lenders and Issuers
party thereto and Citicorp USA, Inc., as Agent and
certain exhibits thereto (Exhibit 10.8 to Waxman
Industries, Inc.'s Form S-4 filed June 20, 1994,
incorporated herein by reference).
4.26* Term Loan Credit Agreement dated as of May 20, 1994
among Waxman USA, Inc., Barnett Inc., Waxman Consumer
Products Group, Inc. and WOC Inc., the Lenders and
Issuers party thereto and Citibank, N.A., as Agent
(Exhibit 10.9 to Waxman Industries, Inc.'s Form S-4
filed June 20, 1994, incorporated herein by
reference.).
10.1* Lease between the Company as Lessee and Aurora
Investment Co. as Lessor dated June 30, 1992 (Exhibit
10.1 to Annual Report on Form 10-K for the year ended
June 30, 1992, File No. 0-5888, incorporated herein
by reference).
10.2* Policy Statement (revised as of June 1, 1980)
regarding the Company's Profit Incentive Plan
(Exhibit 10(c)-1 to Annual Report on Form 10-K for
the year ended June 30, 1984, File No. 0-5888,
incorporated herein by reference).
10.3* Employment Contract dated June 18, 1990 between the
Company and William R. Pray. (Exhibit 10.4 to Annual
Report on Form 10-K for the year ended June 30, 1991,
File No. 0-5888, incorporated herein by reference).
10.4* Form of Stock Option Agreement between the Company
and its Directors. (Exhibit 10.5 to Annual Report on
Form 10-K for the year ended June 30, 1991, File No.
0-5888, incorporated herein by reference).
10.5* Employment Contract dated January 1, 1992 between the
Company and John S. Peters (Exhibit 10.6 to Annual
Report on Form 10-K for the year ended June 30, 1992,
File No. 0-5888, incorporated herein by reference).
10.6* Tax Sharing Agreement dated May 20, 1994 among Waxman
Industries, Waxman USA, Barnett Inc., Waxman Consumer
Products Group Inc., WOC Inc. and Western American
Manufacturing, Inc. (Exhibit 10.6 to Waxman
Industries, Inc.'s Form S-4 filed June 20, 1994,
incorporated herein by reference).
10.7* 1992 Non-Qualified and Incentive Stock Option Plan of
Waxman Industries, Inc., adopted as of July 1, 1992
(Exhibit 10.7 to Annual Report of Form 10-K for the
year ended June 30, 1993, File No. 0-5888,
incorporated herein by reference).
10.8* Intercorporate Agreement dated May 20, 1994 among
Waxman Industries, Waxman USA, Barnett Inc., Waxman
Consumer Products Group Inc., WOC Inc. and Western
American Manufacturing, Inc. (Exhibit 10.7 to Waxman
Industries, Inc.'s Form S-4).
10.9* Employee Stock Purchase Plan of Waxman Industries,
Inc., adopted on September 1, 1992 (Exhibit 10.8 to
Annual Report on Form 10-K for the year ended June
30, 1993, File No. 0-5888, incorporated herein by
reference).
18.1* Letter Regarding Change in Accounting Principles
(Exhibit 18.1 to Annual Report on Form 10-K for the
year ended June 30, 1993, File No. 0-5888,
incorporated herein by reference).
43
<PAGE> 44
21.1* Subsidiaries (Exhibit 21.1 to Waxman Industries,
Inc.'s Form S-4 filed June 20, 1994, incorporated
herein by reference)
23 Consent of Arthur Andersen LLP
27 Financial Data Schedule
* Incorporated herein by reference as indicated.
(b) REPORTS ON FORM 8-K
There are no reports on Form 8-K for the three months ended
June 30, 1994.
44
<PAGE> 45
SIGNATURES
Pursuant to the requirements of Section 13 of 15(d) 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.
September 26, 1994 By: /s/ Armond Waxman
-------------------------------
Armond Waxman
President and
Co-Chief Executive Officer
Pursuant to the requirements of the Securities Exchange Act of 1934,
this report has been signed below by the following persons on behalf of the
registrant and in the capacities and on the dates indicated.
September 26, 1994 By: /s/ Melvin Waxman
-------------------------------
Melvin Waxman
Chairman of the Board,
Co-Chief Executive Officer
and Director
September 26, 1994 By: /s/ Armond Waxman
-------------------------------
Armond Waxman
President,
Co-Chief Executive Officer
and Director
September 26, 1994 By: /s/ Neal R. Restivo
-------------------------------
Neal R. Restivo
Vice President, Finance
and Chief Financial Officer and
Chief Accounting Officer
September 26, 1994 By: /s/ Samuel J. Krasney
-------------------------------
Samuel J. Krasney, Director
September 26, 1994 By: /s/ Judy Robins
-------------------------------
Judy Robins, Director
September 26, 1994 By: /s/ Irving Z. Friedman
-------------------------------
Irving Z. Friedman, Director
45
<PAGE> 1
ARTHUR
ANDERSEN
ARTHUR ANDERSEN & CO. SC
________________________
Arthur Andersen LLP
________________________
1717 East Ninth Street
Cleveland OH 44114
216 781 2140
EXHIBIT 23.1
CONSENT OF INDEPENDENT PUBLIC ACCOUNTANTS
As independent public accountants, we hereby consent to the incorporation of
our report on the Consolidated Financial Statements of Waxman Industries, Inc.
and Subsidiaries for the year ended June 30, 1994, included in this Form 10-K,
into the Company's previously filed Form S-8 Registration Statement No.
33-29745.
/s/ Arthur Andersen LLP
Cleveland, Ohio,
September 23, 1994.
<TABLE> <S> <C>
<ARTICLE> 5
<CIK> 0000105096
<NAME> WAXMAN INDUSTRIES, INC.
<MULTIPLIER> 1,000
<S> <C>
<PERIOD-TYPE> YEAR
<FISCAL-YEAR-END> JUN-30-1994
<PERIOD-START> JUL-01-1993
<PERIOD-END> JUN-30-1994
<CASH> 2,026
<SECURITIES> 0
<RECEIVABLES> 38,569
<ALLOWANCES> 1,353
<INVENTORY> 80,969
<CURRENT-ASSETS> 124,777
<PP&E> 34,537
<DEPRECIATION> 17,163
<TOTAL-ASSETS> 183,043
<CURRENT-LIABILITIES> 31,078
<BONDS> 189,674
<COMMON> 118
0
0
<OTHER-SE> (37,287)
<TOTAL-LIABILITY-AND-EQUITY> 183,043
<SALES> 215,112
<TOTAL-REVENUES> 215,112
<CGS> 140,011
<TOTAL-COSTS> 196,899
<OTHER-EXPENSES> 0
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 21,334
<INCOME-PRETAX> (3,121)
<INCOME-TAX> 351
<INCOME-CONTINUING> (3,472)
<DISCONTINUED> (41,592)
<EXTRAORDINARY> (6,824)
<CHANGES> 0
<NET-INCOME> (51,888)
<EPS-PRIMARY> (4.44)
<EPS-DILUTED> (4.44)
</TABLE>
