<PAGE> 1
As filed with the Securities and Exchange Commission on June 20, 1994
Registration No. 33-_____
================================================================================
SECURITIES AND EXCHANGE COMMISSION
------------
FORM S-2
REGISTRATION STATEMENT
UNDER
THE SECURITIES ACT OF 1933
------------
WAXMAN INDUSTRIES, INC.
(Exact name of registrant as specified in its charter)
Delaware
(State or other jurisdiction of
incorporation or organization)
5074
(Primary Standard Industrial Classification Code Number)
34-0899894
(I.R.S. Employer Identification Number)
24460 Aurora Road
Bedford Heights, Ohio 44146
(216) 439-1830
(Address, including zip code, and telephone number,
including area code, of registrant's principal offices)
------------
ARMOND WAXMAN
24460 Aurora Road
Bedford Heights, Ohio 44146
(216) 439-1830
(Name, address, including zip code, and telephone number,
including area code, of agents for service)
------------
COPIES TO:
SCOTT M. ZIMMERMAN, ESQ.
Shereff, Friedman, Hoffman & Goodman
919 Third Avenue
New York, New York 10022
(212) 758-9500
------------
APPROXIMATE DATE OF COMMENCEMENT OF THE PROPOSED SALE TO THE PUBLIC:
As soon as practicable after this registration statement becomes effective.
If any of the securities being registered on this Form are to be
offered on a delayed or continuous basis pursuant to Rule 415 under the
Securities Act of 1933, check the following box: [x]
If the registrant elects to deliver its latest annual report to
security holders, or a complete and legible facsimile thereof, pursuant to Item
(11)(a)(1) of this Form, check the following box: [ ]
<PAGE> 2
<TABLE>
CALCULATION OF REGISTRATION FEE
<CAPTION>
PROPOSED
TITLE OF CLASS OF MAXIMUM OFFERING PROPOSED MAXIMUM AMOUNT OF
SECURITIES TO BE AMOUNT PRICE AGGREGATE OFFERING REGISTRATION
REGISTERED TO BE REGISTERED(1) PER SHARE (2) PRICE(2) FEE
---------- ---------------- ------------------ ------------------ -------------
<S> <C> <C> <C> <C>
Common Stock 2,950,000 warrants $0.8475 $2,500,125 $862.11
Purchase Warrants
Common Stock, par 2,950,000 shares $2.45 $7,227,500 $2,492.24
value $.01 per Share ---------
Total Fee: $3,354.35
=========
<FN>
(1) Pursuant to Rule 416 under the Securities Act of 1933, this
Registration Statement also covers such additional securities as may become
issuable upon the exercise of the Warrants being registered through the
antidilution provisions thereof.
(2) Estimated solely for the purpose of calculating the registration
fee pursuant to Rule 457(i) under the Securities Act of 1933, on the basis of
the proposed offering price of the convertible securities and the maximum
consideration that is to be received in connection with the exercise of the
conversion privilege.
</TABLE>
The Registrant hereby amends this Registration Statement on such date
or dates as may be necessary to delay its effective date until the Registrant
shall file a further amendment which specifically states that this Registration
Statement shall thereafter become effective in accordance with section 8(a) of
the Securities Act of 1933 or until the Registration Statement shall become
effective on such date as the Commission acting pursuant to said section 8(a),
may determine.
<PAGE> 3
<TABLE>
WAXMAN INDUSTRIES, INC.
CROSS REFERENCE SHEET
PURSUANT TO ITEM 501(B) OF REGULATION S-K
<CAPTION>
ITEM OF FORM S-2 PROSPECTUS CAPTION OR LOCATION
---------------- ------------------------------
<S> <C> <C>
1. Forepart of the Registration Statement and Outside Front Cover Page of Prospectus
Outside Front Cover Page of Prospectus
2. Inside Front and Outside Back Cover Available Information; Inside Front Cover and Outside
Page of Prospectus Back Cover Pages of Prospectus
3. Summary Information, Risk Factors and Prospectus Summary; The Company; Selected Financial
Ratio of Earnings to Fixed Charges Data; Risk Factors; Consolidated Financial Statements
4. Use of Proceeds Prospectus Summary; Use of Proceeds
5. Determination of Offering Price Not Applicable
6. Dilution Not Applicable
7. Selling Security Holders Selling Security Holders; Plan of Distribution
8. Plan of Distribution and Underwriting Outside Front Cover Page of Prospectus; Plan of
Distribution
9. Description of Securities to be Registered Prospectus Summary; Outside Front Cover Page of
Prospectus; Description of Warrants; Description of
Capital Stock
10. Interests of Named Experts and Counsel Legal Matters
11. Information with Respect to the Registrant Outside Front Cover Page of Prospectus; Available
Information; Prospectus Summary; Risk Factors;
Capitalization; Price Range of Common Stock;
Dividends; Selected Financial Data; Management's
Discussion and Analysis of Financial Condition and
Results of Operations; Business; Management; Principal
Stockholders; Recent Securities Offering and Related
Matters; Consolidated Financial Statements
12. Incorporation of Certain Information by Not applicable
13. Disclosure on Commission Position on Not Applicable
</TABLE>
i
<PAGE> 4
***************************************************************************
* INFORMATION CONTAINED HEREIN IS SUBJECT TO COMPLETION OR AMENDMENT. A *
* REGISTRATION STATEMENT RELATING TO THESE SECURITIES HAS BEEN FILED *
* WITH THE SECURITIES AND EXCHANGE COMMISSION. THESE SECURITIES MAY NOT *
* BE SOLD NOR MAY OFFERS TO BUY BE ACCEPTED PRIOR TO THE TIME THE *
* REGISTRATION STATEMENT BECOMES EFFECTIVE. THIS PROSPECTUS SHALL NOT *
* CONSTITUTE AN OFFER TO SELL OR THE SOLICITATION OF AN OFFER TO BUY *
* NOR SHALL THERE BE ANY SALE OF THESE SECURITIES IN ANY STATE IN WHICH *
* SUCH OFFER, SOLICITATION OR SALE WOULD BE UNLAWFUL PRIOR TO *
* REGISTRATION OR QUALIFICATION UNDER THE SECURITIES LAWS OF ANY SUCH *
* STATE. *
***************************************************************************
SUBJECT TO COMPLETION: PRELIMINARY PROSPECTUS DATED JUNE 20, 1994
PROSPECTUS
WAXMAN INDUSTRIES, INC.
2,950,000 WARRANTS TO PURCHASE SHARES OF COMMON STOCK
2,950,000 SHARES OF COMMON STOCK, PAR VALUE $.01 PER SHARE
This Prospectus relates to the offer and sale of 2,950,000 warrants
("Warrants") to purchase shares of common stock, par value $.01 per share (the
"Common Stock"), of Waxman Industries, Inc. (the "Company") and the 2,950,000
shares of Common Stock, subject to adjustment, issuable upon exercise of the
Warrants. The Warrants and shares of Common Stock referenced above offered
hereby are sometimes collectively referred to herein as the "Securities." The
Securities will be sold by the holders thereof (the "Selling Security
Holders"). See "Selling Security Holders."
The Warrants were originally issued by the Company in a private
placement to certain institutional investors. There is presently no active
trading market for the Warrants and there can be no assurance that one will
develop.
Each Warrant entitles the holder thereof to purchase one share of
Common Stock, subject to adjustment in certain circumstances, at a cash
exercise price of $2.45 per share, subject to adjustment in certain
circumstances. The Warrants are currently exercisable and expire on June 1,
2004. The Common Stock is traded on the New York Stock Exchange, Inc. (the
"NYSE") under the symbol "WAX". On June 14, 1994, the last reported sales
price per share of Common Stock, as reported by the NYSE, was $2.00.
The Securities are being offered for the accounts of the Selling
Security Holders. See "Selling Security Holders." The offer and sale of the
Securities is being registered under the Registration Statement of which this
Prospectus forms a part in order to satisfy certain obligations of the Company
contained in the Registration Rights Agreement (the "Equity Registration Rights
Agreement"), dated as of May 20, 1994, among the Company and The Huntington
National Bank, as Warrant Agent (the "Warrant Agent") under the Warrant
Agreement dated as of May 20, 1994 between such Warrant Agent and the Company,
on behalf of the original purchasers of the Warrants. The Company has agreed
to pay all expenses of this offering but will not receive any of the proceeds
from the sale of Securities being offered hereby. The aggregate proceeds to
the Selling Security Holders from the sale of the Securities will be the
purchase price of the Securities sold, less the aggregate underwriting fees,
discounts and commissions, if any. See "Plan of Distribution."
The Selling Security Holders directly, through agents designated from
time to time or through dealers or underwriters also to be designated, may sell
the Securities from time to time on terms to be determined at the time of sale.
To the extent required, the specific Securities to be sold, the names of the
Selling Security Holders, the purchase price, the public offering price, the
names of any such agents, dealers or underwriters and any applicable
commissions or discount with respect to a particular offer will be set forth in
an accompanying Prospectus supplement (or, if required, a post-effective
amendment to the Registration Statement of which this Prospectus forms a part).
The distribution of the Securities of the Selling Security Holders may be
effected in one or more transactions that may take place on the NYSE or the
over-the-counter market, including ordinary broker's transactions, privately
negotiated transactions or through sales to one or more dealers for resale of
such securities as principals, at market prices prevailing at the time of sale,
at prices related to such prevailing market prices or at negotiated prices.
Usual and customary or specifically negotiated brokerage fees, commissions or
discounts may be paid by the Selling Security Holders in connection with such
sales.
The Selling Security Holders and any broker-dealers, agents or
underwriters that participate with the Selling Security Holders in the
distribution of the Securities may be deemed to be "Underwriters" within the
meaning of the Securities Act of 1933, as amended (the "Act"), and any
commissions received by them and any profit on the resale of the Securities
purchased by them may be deemed to be underwriting commissions or discounts
under the Act. See "Plan of Distribution" for indemnification arrangements."
PROSPECTIVE PURCHASERS OF THE SECURITIES OFFERED HEREBY SHOULD CAREFULLY
CONSIDER THE MATTERS SET FORTH UNDER "RISK FACTORS."
_________________________________________
THE SECURITIES HAVE NOT BEEN APPROVED OR DISAPPROVED BY THE SECURITIES
AND EXCHANGE COMMISSION OR ANY STATE SECURITIES COMMISSION NOR HAS THE
SECURITIES AND EXCHANGE COMMISSION OR ANY STATE SECURITIES COMMISSION PASSED
UPON THE ACCURACY OR ADEQUACY OF THIS PROSPECTUS. ANY REPRESENTATION TO THE
CONTRARY IS A CRIMINAL OFFENSE.
THE SECURITIES HAVE NOT BEEN AND WILL NOT BE QUALIFIED FOR SALE UNDER
THE SECURITIES LAWS OF CANADA OR ANY PROVINCE OR TERRITORY OF CANADA. THE
SECURITIES ARE NOT BEING OFFERED FOR SALE AND MAY NOT BE OFFERED OR SOLD,
DIRECTLY OR INDIRECTLY, IN CANADA, OR TO ANY RESIDENT THEREOF, IN VIOLATION OF
THE SECURITIES LAWS OF CANADA OR ANY PROVINCE OR TERRITORY OF CANADA.
THIS DOCUMENT MAY NOT BE PASSED ON IN THE UNITED KINGDOM TO ANY PERSON
UNLESS THAT PERSON IS OF A KIND DESCRIBED IN ARTICLE 9(3) OF THE FINANCIAL
SERVICES ACT 1986 (INVESTMENT ADVERTISEMENTS) (EXEMPTIONS) ORDER 1988 OR IS A
PERSON TO WHOM THIS DOCUMENT MAY OTHERWISE LAWFULLY BE ISSUED OR PASSED ON.
NOTICE TO NEW HAMPSHIRE RESIDENTS
NEITHER THE FACT THAT A REGISTRATION STATEMENT OR AN APPLICATION FOR A
LICENSE HAS BEEN FILED UNDER CHAPTER 421-B WITH THE STATE OF NEW HAMPSHIRE NOR
THE FACT THAT A SECURITY IS EFFECTIVELY REGISTERED OR A PERSON IS LICENSED IN
THE STATE OF NEW HAMPSHIRE CONSTITUTES A FINDING BY THE SECRETARY OF STATE THAT
ANY DOCUMENT FILED UNDER CHAPTER 421-B IS TRUE, COMPLETE AND NOT MISLEADING.
NEITHER ANY SUCH FACT NOR THE FACT THAT AN EXEMPTION OR EXCEPTION IS AVAILABLE
FOR A SECURITY OR A TRANSACTION MEANS THAT THE SECRETARY OF STATE HAS PASSED IN
ANY WAY UPON THE MERITS OR QUALIFICATIONS OF, OR RECOMMENDED OR GIVEN APPROVAL
TO, ANY PERSON, SECURITY OR TRANSACTION. IT IS UNLAWFUL TO MAKE, OR CAUSE TO
BE MADE, TO ANY PROSPECTIVE PURCHASER, CUSTOMER OR CLIENT ANY REPRESENTATION
INCONSISTENT WITH THE PROVISIONS OF THIS PARAGRAPH.
_________________________________________
THE DATE OF THIS PROSPECTUS IS _____ __, 1994.
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<PAGE> 5
AVAILABLE INFORMATION
The Company has filed a Registration Statement on Form S-2 (together with
all amendments thereto referred to herein as the "Registration Statement")
under the Act, with the Commission covering the securities being offered by
this Prospectus. This Prospectus does not contain all the information set
forth or incorporated by reference in the Registration Statement and the
exhibits and schedules relating thereto, certain portions of which have been
omitted as permitted by the rules and regulations of the Commission. For
further information with respect to the Company and the securities offered by
this Prospectus, reference is made to the Registration Statement and the
exhibits and schedules thereto which are on file at the offices of the
Commission and may be obtained upon payment of the fee prescribed by the
Commission, or may be examined without charge at the offices of the Commission.
Statements contained in this Prospectus as to the contents of any contract or
other documents referred to are not necessarily complete, and are qualified in
all respects by such reference.
The Company is subject to the informational requirements of the Securities
Exchange Act of 1934, as amended (the "Exchange Act"), and in accordance
therewith files periodic reports, proxy statements and other information with
the Commission. The Registration Statement, as well as such periodic reports,
proxy statements and other information, can be inspected and copied at the
public reference facilities maintained by the Commission at Room 1024, 450
Fifth Street, N.W., Washington, D.C. 20549; Suite 1400, Northwest Atrium
Center, 500 West Madison Street, Chicago, Illinois 60661; and 7 World Trade
Center, New York, New York 10048. Copies of such material can also be obtained
from the Public Reference Section of the Commission at 450 Fifth Street, N.W.,
Washington, D.C. 20549, at prescribed rates. The Company's common stock is
listed on the NYSE. Reports, proxy statements and other information may also
be inspected at the offices of the NYSE, 20 Broad Street, New York, New York
1005.
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<PAGE> 6
PROSPECTUS SUMMARY
The following summary is qualified in its entirety by reference to, and
should be read in conjunction with, the more detailed information and financial
statements appearing elsewhere in this Prospectus. References in this
Prospectus to a particular fiscal year refer to the 12-month period ended on
June 30 in that year. Unless the context otherwise indicates, all references
to the "Company" are to the continuing operations of Waxman Industries, Inc.
and its subsidiaries and divisions and to the business conducted through such
subsidiaries and divisions.
THE COMPANY
The Company believes 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 in the United States 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 45,000 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 (excluding
sales from discontinued operations) were $204.8 million in fiscal 1993.
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 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 1991
to fiscal 1993 through (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 $82.9 million in fiscal 1993.
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, 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 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 $67.5 million in fiscal 1993 and have
remained generally consistent since fiscal 1991.
The Company, through its smaller domestic 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 $48.1
million in fiscal 1993.
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<PAGE> 7
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:
- EXPANSION OF BARNETT. Since its acquisition in 1984, Barnett's
revenues and operating income have grown at compound annual rates of
11.3% and 11.1% respectively. The Company intends to continue to
expand Barnett's national warehouse network and expects to open as many
as two additional warehouses during the remainder of calendar 1994 and
up to four new warehouses during each of the next several fiscal years.
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.
- 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' 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.
The Reorganization described below was an important element of this
strategy because it lowered the Company's cash interest expense, permitting the
Company to reinvest a greater portion of its cash flow in its domestic
businesses; stabilized the Company's capital structure by, among other things,
eliminating the impact of the adverse operating results of the Company's
discontinued Canadian operations on the Company's domestic operations; and
generally provided the Company with greater operating and financial
flexibility.
DISCONTINUED OPERATIONS
Effective March 31, 1994, the Company adopted a plan to dispose of its
Canadian subsidiary, Ideal Plumbing Group, Inc. ("Ideal"). Unlike the
Company's United States 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 at
March 31, 1994 and the consolidated financial statements and financial
information contained herein as of such date have been reclassified to report
separately Ideal's net assets and results of operations. Prior period
consolidated financial statements and financial information have been
reclassified to conform 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
of investors which included members of Ideal's management. Such transaction
would have required the consent of the lenders under Ideal's Canadian bank
credit agreements as borrowings under such 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 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.
The Company's principal executive offices are located at 24460 Aurora Road,
Bedford Heights, Ohio 44146, Telephone (216) 439-1830.
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<PAGE> 8
BACKGROUND OF EXCHANGE OFFER;
RECENT SECURITIES OFFERING AND RELATED MATTERS
On May 20, 1994, the Company issued Series A 12 3/4% Senior Secured
Deferred Coupon Notes Due 2004 having an initial accreted value of $50,000,000
(the "Notes") together with the Warrants to purchase 2,950,000 shares of Common
Stock in exchange for $50,000,000 aggregate principal amount of the Company's
outstanding 13 3/4% Senior Subordinated Notes due June 1, 1994 (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 Company's 12.25% Fixed Rate Senior Secured Notes due September
1, 1998 and Floating Rate Senior Secured Notes due September 1, 1998 (together,
the "Senior Secured 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 Senior Secured Notes due
September 1, 1998 and Floating Rate Senior Secured Notes due September 1, 1998
(together, the "Senior Secured Notes") to certain waivers of and the adoption
of certain amendments to the indenture governing the Senior Secured Notes (the
"12 1/4% Consent Solicitation") and (iv) the repayment of the borrowings under
the Company's then existing domestic revolving credit facilities (including
$27.6 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")).
In connection with the Reorganization, the Company restructured (the
"Corporate Restructuring") its domestic operations such that after giving
effect thereto the Company became 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., a wholly owned
subsidiary of Waxman USA, to own and operate Waxman Industries' Consumer
Products Group Division (the "Consumer Products Division"; all references
herein to "Consumer Products" shall include the Consumer Products Division and
Waxman Consumer Products Group Inc., unless the context otherwise requires),
and (c) WOC Inc. ("WOC"), a wholly owned subsidiary of Waxman USA, to own and
operate Waxman USA's domestic subsidiaries, other than Barnett and Consumer
Products. On May 20, 1994, the Company effected the Corporate Restructuring by
(i) contributing the capital stock of Barnett to Waxman USA, (ii) contributing
the assets and liabilities of the Consumer Products 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 Warrants were issued pursuant to exemptions from, or transactions not
subject to, the registration requirements of the Act and applicable state
securities laws. The Company structured the offering of the Warrants and Notes
as a private placement in order to consummate such offering on a more
expeditious basis than would have been possible had the offering and sale been
registered under the Act. The original purchasers of the Warrants, as a
condition to their purchase of the Warrants and Notes, required the Company to
enter into a registration rights agreement pursuant to which the Company
agreed, among other things, to file promptly a registration statement under the
Act to permit such original purchasers to offer and sell under the Act the
Warrants and shares of Common Stock issuable upon exercise of the Warrants.
The Company has prepared and filed the Registration Statement of which this
Prospectus forms a part with the Commission pursuant to such registration
rights agreement. The original purchasers of the Notes, as a condition to
their purchase of the Notes and Warrants, also required the Company to enter
into a registration rights agreement pursuant to which the Company agreed,
among other things, to promptly commence the Exchange Offer (as defined herein)
following the offering of the Notes. The Company
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<PAGE> 9
has prepared and filed a Registration Statement with the Commission pursuant to
such registration rights agreement. See "Recent Securities Offering and
Related Matters -- Registration Rights Agreements."
See "Selling Security Holders" and "Recent Securities Offering and Related
Matters" for a discussion of the offering of the Warrants, the agreements
referred to above and additional related agreements. See "Description of the
Warrants" for a discussion of the terms of the Warrants.
THE OFFERING
<TABLE>
<S> <C>
Securities Offered . . . . . . . 2,950,000 Warrants to purchase
shares of Common Stock. In
addition, this Prospectus relates
to the 2,950,000 shares, subject
to adjustment in certain
circumstances, of Common Stock
issuable upon exercise of the
Warrants.
Warrants
Underlying Common Stock Each Warrant is exercisable to
purchase one share of Common
Stock subject to adjustment under
certain circumstances. See
"Description of Warrants."
Exercise Price . . . . . $2.45 per share, subject to
adjustment in certain
circumstances. See "Description
of Warrants."
Exercise Period . . . . The Warrants are currently
exercisable. See "Description of
Warrants."
Expiration Date . . . . The Warrants expire at 5:00 p.m.
New York City time on June 1,
2004.
Warrant Agent . . . . . The Huntington National Bank is
serving as Warrant Agent under
the Warrant Agreement.
Common Stock
Number of Shares . . . . 2,950,000 shares, subject to
adjustment in certain
circumstances, of Common Stock
issuable upon the exercise of the
Warrants.
Common Stock Outstanding 9,489,657 shares as of June 14,
1994.
NYSE symbol for
the Common Stock . . . . WAX
Proceeds of the Offering . . . . All of the proceeds from the sale
of Securities offered hereby will
be received by the Selling
Security Holders. The Company
will not receive any of the
proceeds from this offering.
</TABLE>
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<PAGE> 10
For more complete information regarding the Warrants, see "Description of
Warrants."
RISK FACTORS
Prospective purchasers of Securities offered hereby should carefully
consider the matters set forth under "Risk Factors," as well as the other
information and data included in this Prospectus.
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<PAGE> 11
RISK FACTORS
Prospective purchasers of Securities offered hereby should carefully read
the entire Prospectus and, in particular, should consider, among other things,
the following risks.
LEVERAGE
The Company has a high degree of leverage. At March 31, 1994, the
outstanding consolidated indebtedness (excluding trade payables and accrued
liabilities) of the Company's continuing operations was $175.2 million. On a
pro forma basis, at March 31, 1994, after giving effect to the Reorganization,
the outstanding amount of such indebtedness (excluding trade payables and
accrued liabilities) would have been approximately $186.4 million. This high
degree of leverage may have important consequences, including the following:
(i) the ability of the Company to obtain additional financing in the future for
working capital, capital expenditures, debt service requirements or other
purposes may be impaired; (ii) a substantial portion of the Company's cash flow
from operations will be required to satisfy debt service obligations; (iii) the
Company may be more highly leveraged than companies with which it competes,
which may place it at a competitive disadvantage; and (iv) the Company's high
degree of leverage may make it more vulnerable in the event of a downturn in
its business and may limit its ability to capitalize on business opportunities.
Although the Company believes that its operating cash flow as well as amounts
available under the Domestic Credit Facility will be sufficient to fund working
capital, capital expenditures and debt service requirements for the next 24
months, the Company's ability to satisfy its obligations will be dependent upon
its future performance, which is subject to prevailing economic conditions and
financial, business and other factors, including factors beyond the Company's
control.
RESTRICTIONS IMPOSED BY TERMS OF INDEBTEDNESS
The terms and conditions of the instruments evidencing the Debt Financing,
as well as other indebtedness of the Company impose restrictions that affect,
among other things, the ability of the Company and/or its subsidiaries to incur
debt, pay dividends, make acquisitions, create liens, sell assets and make
certain investments. The breach of any of the foregoing covenants would result
in a default under the applicable debt instrument permitting the holders of
indebtedness outstanding thereunder, subject to applicable grace periods, to
accelerate such indebtedness. There can be no assurance that the Company would
have sufficient funds to repay or assets to satisfy such obligations.
CONTROL BY PRINCIPAL STOCKHOLDERS; CERTAIN ANTI-TAKEOVER EFFECTS
Approximately 16.7% of the outstanding shares of the Company's common
stock, par value $.01 per share, and 80.1% of the outstanding shares of the
Company's Class B common stock are held by Melvin and Armond Waxman, brothers
and respectively, the Chairman of the Board and Co-Chief Executive Officer and
the President and Co-Chief Executive Officer of the Company (the "Principal
Stockholders"). These holdings represent 61.1% of the outstanding voting power
of the Company. Consequently, the Principal Stockholders have sufficient
voting power to elect the entire Board of Directors of the Company and, in
general, to determine the outcome of any corporate transaction or other matter
submitted to the stockholders for approval, including any merger,
consolidation, sale of all or substantially all of the Company's assets or
"going private" transactions, and to prevent or cause a change in control of
the Company. In addition, certain provisions in the Company's Certificate of
Incorporation, By-laws and debt instruments may be deemed to have the effect of
discouraging a third party from pursuing a non-negotiated takeover of the
Company and preventing certain changes in control.
- 9 -
<PAGE> 12
DEFICIENCY OF EARNINGS TO FIXED CHARGES
In fiscal 1993, 1992 and 1991 and the nine months ended March 31, 1994 and
1993, the Company's earnings (as defined in footnote 2 to Selected Financial
Data) were insufficient to cover its fixed charges by $15.7 million, $5.1
million, $2.8 million, $1.3 million and $3.0 million, respectively. There can
be no assurance that the deficiencies experienced in the past will not reoccur.
FOREIGN SOURCING
In fiscal 1993, products manufactured outside of the United States
accounted for approximately 21% of the total product purchases made by the
Company's continuing operations. Foreign sourcing involves a number of risks,
including the availability of letters of credit, maintenance of quality
standards, work stoppages, transportation delays and interruptions, political
and economic disruptions, foreign currency fluctuations, expropriation,
nationalization, the imposition of tariffs and import and export controls and
changes in governmental policies (including United States' policy toward the
foreign country where the products are produced), which could have an adverse
effect on the Company's business. The occurrence of certain of these factors
would delay or prevent the delivery of goods ordered by the Company's
customers, and such delay or inability to meet delivery requirements would have
an adverse effect on the Company's results of operations and could have an
adverse effect on the Company's relationships with its customers. In addition,
the loss of a foreign manufacturer could have a short-term adverse effect on
the Company's business until alternative supply arrangements were secured.
RELIANCE ON KEY CUSTOMERS
During fiscal 1993, Kmart and its subsidiaries, Consumer Products' largest
customer, accounted for approximately 12% of the Company's continuing
operations' net sales. During the same period, Consumer Products' ten largest
customers accounted for approximately 23% of the Company's continuing
operations' net sales. The loss of or a substantial decrease in the business
of Consumer Products' largest customers could have a material adverse effect on
the Company's continuing operations.
PROCEEDS OF THE OFFERING
The Company will not receive any of the proceeds of this offering. All of
the proceeds of this offering will be received by the Selling Security Holders.
ABSENCE OF PUBLIC MARKET
At present, the Warrants are owned by a small number of investors and there
is no active trading market for the Warrants. If an active trading market does
not develop, purchasers of the Warrants may have difficulty liquidating their
investment and the Warrants may not be readily accepted as collateral for
loans. Accordingly, no assurances can be given as to the price at which
holders of the Warrants will be able to sell the Warrants, if at all.
The liquidity of and the market prices for the Warrants and Common Stock
can be expected to vary with changes in market and economic conditions, the
financial condition and prospects of the Company and other factors that
generally influence the market prices of securities, including fluctuations in
the market for warrants and common stock generally.
- 10 -
<PAGE> 13
POSSIBLE FUTURE SALES OF SHARES BY THE SELLING SECURITY HOLDERS
Subject to the restrictions described under "Risk Factors -- Shares
Eligible for Future Sale" and applicable law, upon the effectiveness of the
Registration Statement of which this Prospectus forms a part, the Selling
Security Holders could cause the sale of any or all of the Warrants or
underlying shares of Common Stock they own. The Selling Security Holders may
determine to sell Warrants or the underlying shares of Common Stock from time
to time for any reason. Although the Company can make no prediction as to the
effect, if any, that sales of Warrants or shares of Common Stock owned by the
Selling Security Holders would have on the market price of Common Stock
prevailing from time to time, sales of substantial amounts of Warrants or
Common Stock, or the availability of such Warrants or shares of Common Stock
for sale in the public market, could adversely affect prevailing market prices
of the Common Stock.
SHARES ELIGIBLE FOR FUTURE SALE
As of June 14, 1994, there were 9,489,657 shares of Common Stock
outstanding and 2,222,505 shares of Class B Common Stock outstanding
(convertible into 2,222,505 shares of Common Stock). To the extent such shares
are not held by "affiliates" or otherwise subject to restrictions on resale,
including those imposed by Section 16(b) of the Exchange Act, the Warrants, and
upon exercise of the Warrants, the shares of Common Stock which are issuable
upon exercise of the Warrants and offered hereby are eligible for sale in the
public market. Although the Company can make no prediction as to the effect,
if any, that sales of the Warrants and shares of Common Stock referred to above
would have on the market price of the Common Stock prevailing from time to
time, sales of a substantial amount of Warrants or Common Stock, or the
availability of such Warrants or shares of Common Stock for sale in the public
market could adversely affect prevailing market prices of the Common Stock.
USE OF PROCEEDS
The Company will not receive any of the proceeds from the sale of the
Securities offered hereby, all of which will be received by the Selling
Security Holders.
- 11 -
<PAGE> 14
<TABLE>
CAPITALIZATION
(IN THOUSANDS, EXCEPT PER SHARE AMOUNTS)
The following table sets forth the consolidated capitalization of the
Company at March 31, 1994 and as adjusted to reflect the Reorganization.
<CAPTION>
Actual As Adjusted
<S> <C> <C>
Current portion of long-term debt $3,178 $3,178
===== =====
Bank debt:
Domestic credit facilities 30,794 ---
Domestic Credit Facility (2) --- 29,468
Domestic Term Loan (2) --- 15,000
Senior Secured Notes due September 1, 1998, net of discount 38,646 38,646
Senior Subordinated Notes due June 1, 1999 98,750 48,750
Senior Secured Deferred Coupon Notes due June 1, 2004,
net of discount (5) --- 47,500
Convertible Debentures 2,030 2,030
Other notes payable, net of current portion 1,808 1,808
----- -----
Total long-term debt (1) 172,028 183,202
------- -------
Stockholders' equity:
Preferred stock, $.01 par value, 2,000 shares authorized; none issue $ --- $ ---
Common stock, $.01 par value, 22,000 shares authorized; 9,484 issued
and outstanding (3) 95 95
Class B common stock, $.01 par value, 6,000 shares authorized; 2,230
issued and outstanding (4) 23 23
Paid-in capital (5) 18,598 21,098
Retained deficit (55,993) (55,993)
------- -------
Stockholders' equity before cumulative currency translation adjustments (37,277) (34,777)
Cumulative currency translation adjustments (672) (672)
------- -------
Total stockholders' equity (37,949) (35,449)
------- -------
Total capitalization $134,079 $147,753
======= =======
<FN>
(1) For a description of the Company's debt, see Notes 5 and 9 to the Notes to
Consolidated Financial Statements as of March 31, 1994.
(2) Proceeds from the Domestic Credit Facility and Domestic Term Loan were used to
repay borrowings under the Company's then existing credit facilities, accrued
interest and fees and expenses associated with the Reorganization.
(3) Does not include 2,950 shares of Common Stock reserved for issuance upon
exercise of the Warrants, 1,000 shares of Common Stock reserved for issuance
upon exercise of the warrants issued together with the Senior Secured Notes or
212 shares of Common Stock reserved for issuance upon conversion of the
Convertible Debentures. Also does not include 1,226 shares of Common Stock
reserved for issuance under the exercise of stock options outstanding as of
March 31, 1994.
(4) The Class B Common Stock is generally not transferable but is convertible into
Common Stock on a share-for-share basis at any time. See "Description of
Capital Stock."
</TABLE>
- 12 -
<PAGE> 15
(5) A portion of the proceeds of the Units will be allocated to the Warrants.
As a result, an adjustment has been made to increase paid-in capital by
$2,500. The related $2,500 reduction in the recorded principal amount of
the Notes will be amortized as interest expense over the life of the
Notes.
- 13 -
<PAGE> 16
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 prices of the
Common Stock as reported by the NYSE for fiscal years 1994 (through June 14,
1994), 1993 and 1992.
<TABLE>
<CAPTION>
FISCAL YEARS ENDED JUNE 30,
---------------------------
1994 1993 1992
---- ---- ----
HIGH LOW HIGH LOW HIGH LOW
---- --- ---- --- ---- ---
<S> <C> <C> <C> <C> <C> <C>
First Quarter $3.88 $2.25 $4.63 $3.38 $5.25 $3.75
Second Quarter 2.50 1.38 4.13 3.38 5.38 4.25
Third Quarter 3.25 2.00 5.25 3.75 8.38 4.88
Fourth Quarter 2.38 2.00 5.38 3.38 7.00 4.00
</TABLE>
On June 14, 1994, the closing price of the Common Stock, as reported on
the NYSE, was $2.00. As of June 14, 1994, there were 1,104 holders of record of
Common Stock and 145 holders of record of Class B Common Stock.
DIVIDENDS
The Company paid dividends of $.08 and $.12 per share on each class of
common stock in fiscal 1993 and 1992, respectively. On October 4, 1993, the
Company announced that it has suspended the payment of cash dividends on each
class of its common stock. Restrictions contained in the Company's debt
instruments currently prohibit the declaration and payment of any cash
dividends.
- 14 -
<PAGE> 17
SELECTED FINANCIAL DATA
(DOLLAR AMOUNTS IN THOUSANDS, EXCEPT PER SHARE DATA AND RATIOS)
The selected historical financial data for the fiscal years 1989 through
1993 are derived from the Company's audited consolidated financial statements.
The historical information as of and for the nine month periods ended March 31,
1993 and 1994 is unaudited, but in the Company's opinion reflects all
adjustments (consisting only of normal recurring adjustments) which are
necessary to present fairly the Company's financial position and results of
operations as of such dates and for such periods. Results for the nine months
ended March 31, 1994 are not necessarily indicative of the results to be
expected for the fiscal year ending June 30, 1994. Effective March 31, 1994,
the Company adopted a plan to dispose of its Canadian subsidiary, Ideal.
Accordingly, Ideal is reported as a discontinued operation at March 31, 1994,
and the prior period consolidated financial statements have been reclassified
to conform to the current period presentation.
- 15 -
<PAGE> 18
<TABLE>
<CAPTION>
YEAR ENDED JUNE 30, NINE MONTHS ENDED MARCH 31,
------------------- ---------------------------
1989 1990 1991 1992 1993 1993 1994
---- ---- ---- ---- ---- ---- ----
<S> <C> <C> <C> <C> <C> <C> <C>
INCOME STATEMENT DATA(1):
Net sales $194,585 $186,315 $186,327 $197,738 $204,778 $153,957 $160,245
Cost of sales 128,038 120,976 121,397 127,115 137,244 102,035 104,180
-------- -------- -------- -------- -------- -------- --------
Gross profit 66,547 65,338 64,930 70,623 67,534 51,922 56,065
Operating expenses 48,479 49,452 50,263 51,824 56,081 39,729 41,769
Restructuring and other
nonrecurring charges -- -- -- 3,900 6,762 -- --
-------- -------- -------- -------- -------- -------- --------
Operating income (loss) 18,068 15,886 14,667 14,899 4,691 12,193 14,296
Interest expense, net 8,136 12,796 17,462 20,025 20,365 15,242 15,635
-------- -------- -------- -------- -------- -------- --------
Income (loss) before income taxes,
extraordinary charges and
cumulative effect of accounting
change 9,932 3,090 (2,795) (5,126) (15,674) (3,049) (1,339)
Provision (benefit) for income taxes 3,794 958 (680) (768) 216 (1,429) --
-------- -------- -------- -------- -------- -------- --------
Income (loss) from continuing operations
before extraordinary charges
and cumulative effect of
accounting change 6,138 2,132 (2,115) (4,358) (15,890) (1,620) (1,339)
Discontinued Operations - Ideal
Income (loss) from discontinued
operations, net of taxes 1,183 4,656 4,343 1,146 (11,240) 1,300 (3,249)
Loss on disposal, without
tax benefit -- -- -- -- -- -- (38,343)
-------- -------- -------- -------- -------- -------- --------
Income (loss) before extraordinary
charges and cumulative effect of
accounting change 7,321 6,788 2,228 (3,212) (27,130) (320) (42,931)
Extraordinary charges, early
repayment of debt -- (320) -- (1,186) -- -- (6,625)
Cumulative effect of accounting change -- -- -- -- (2,110) (2,110) --
-------- -------- -------- -------- -------- -------- --------
Net income (loss) $ 7,321 $ 6,468 $ 2,228 $(4,398) $(29,240) $(2,430) $(49,556)
======== ======== ======== ======== ======== ======== ========
</TABLE>
- 16 -
<PAGE> 19
<TABLE>
<S> <C> <C> <C> <C> <C> <C> <C>
Primary earnings per share:
Income (loss) from continuing
operations before extraordinary
charges and cumulative effect
of accounting change $ .67 $ .22 $ (.22) $ (.44) $(1.36) $ (.14) $ (.11)
Discontinued Operations:
Income (loss) from discontinued
operations .13 .48 .45 .11 (.97) .11 (.28)
Loss on disposal -- -- -- -- -- -- (3.29)
Extraordinary charge -- (.03) -- (.12) -- -- (.57)
Cumulative effect of accounting change -- -- -- -- (.18) (.18) --
------ ------ ------ ------ ------ ------ --------
Net income (loss) $ .80 $ .67 $ .23 $ (.45) $(2.51) $ (.21) $ (4.25)
====== ====== ====== ====== ====== ====== ========
Cash dividends per share:
Common stock $ .10 $ .12 $ .12 $ .12 $ .08 $ .06 $ --
Class B common stock .08 .11 .12 .12 .08 .06 --
Ratio of earnings to fixed charges(2) 2.0x 1.2x -- -- -- -- --
OTHER DATA(1):
EBITDA(3) $ 21,581 $ 20,299 $ 19,407 $ 24,523 $ 19,551 $ 17,242 $ 19,237
Depreciation and amortization 3,513 4,413 4,740 5,724 8,099 5,049 4,940
Capital expenditures 3,453 2,806 1,110 3,193 1,336 791 2,280
Cash interest expense 8,938 14,303 18,377 20,203 19,536 14,627 15,011
Ratio of EBITDA to cash interest
expense(4) 2.41x 1.42x 1.06x 1.21x 1.00x 1.18x 1.28x
BALANCE SHEET DATA (AT END OF PERIOD)(1):
Working capital $117,777 $136,989 $133,654 $135,886 $119,187 $133,862 $ 79,457
Total assets(5) 235,485 249,892 236,437 237,481 197,051 222,733 174,677
Total debt 178,976 177,118 167,274 151,000 164,403 158,994 175,206
Stockholders' equity (deficit) 26,934 39,242 38,066 40,827 7,496 37,258 (37,949)
</TABLE>
- 17 -
<PAGE> 20
WAXMAN INDUSTRIES
NOTES TO SELECTED FINANCIAL DATA
(1) Data relating to continuing operations reflects the acquisition of Western
American Manufacturing, Inc. in November 1990, which was accounted for as
a purchase. Discontinued operations data relates to Ideal which was
acquired in May 1989 and accounted for as a purchase.
(2) For purposes of calculating this ratio, "earnings" consist of income
(loss) from continuing operations before income taxes, extraordinary
charges and cumulative effect of accounting change and fixed charges, and
"fixed charges" consist of interest expense, including the interest
portion of rental obligations on capitalized and operating leases (which
is deemed by the Company to be one-third of all of its rental obligations
with respect to operating leases). Fiscal 1991 earnings were insufficient
to cover fixed charges by $2.8 million. Fiscal 1992 earnings were
insufficient to cover fixed charges by $5.1 million. Fiscal 1993 earnings
were insufficient to cover fixed charges by $15.7 million. Earnings for
the nine months ended March 31, 1993 and 1994 were insufficient to cover
fixed charges by $3.0 million and $1.3 million, respectively.
(3) EBITDA represents income (loss) from continuing operations before income
taxes, extraordinary charges and cumulative effect of accounting change
plus interest expense, nonrecurring charges (which were primarily
non-cash), depreciation and amortization. The Company has included EBITDA
data (which is not a measure of financial performance under generally
accepted accounting principles) because such data is used by certain
investors to measure the ability to service debt. EBITDA is not presented
herein as an alternative to net income, as an indicator of the Company's
operating performance, or to cash flows, as a measure of liquidity, but
rather to provide additional information relating to the Company's ability
to service its debt.
(4) For purposes of calculating this ratio, cash interest expense does not
include amortization of deferred financing costs.
(5) Certain March 31, 1993 Balance Sheet Data has been restated for the
cumulative effect of an accounting change.
- 18 -
<PAGE> 21
MANAGEMENT'S DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATIONS
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 in the United States primarily through Barnett and Consumer Products.
The Company's recent operating results have been adversely affected by
restructuring as well as several other nonrecurring charges. In fiscal 1993,
the Company recorded $6.8 million of restructuring and other nonrecurring
charges as well as $1.2 million of charges included in operating expenses which
the Company believes are nonrecurring. In fiscal 1992, the Company recorded
$3.9 million of restructuring and other nonrecurring charges.
The fiscal 1993 restructuring charge consists 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 includes $1.6
million of costs incurred to consolidate administrative functions and transfer
two of Consumer Products' domestic packaging facilities to Mexico in order to
take advantage of that country's lower labor costs and $0.6 million related to
the Company's decision not to proceed with the securities offering of Barnett
in fiscal 1993. In addition, fiscal 1993 operating expenses include $1.2
million of accelerated amortization relating to certain warehouse start-up and
catalog costs to conform with prevailing industry practice. The change to
accelerated amortization was made during the fourth quarter of fiscal 1993 and
applied retroactively to July 1, 1992. The $1.2 million of accelerated
amortization, which is included in selling, general and administrative expense,
is primarily the result of the introduction of a new catalog, and in
management's opinion, is not indicative of the expected impact of accelerated
amortization on future operating results.
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.
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 serves customers in the Canadian new construction
market through independent contractors. This action was prompted by a number of
factors which had adversely affected Ideal's results of operations over the
past several years and more recently had resulted in severe liquidity problems
and 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
- 19 -
<PAGE> 22
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 totals
$38.3 million, without tax benefits, and represents a complete write-off of the
Company's investment in Ideal. See Notes 3 and 12 to Notes to Consolidated
Financial Statements.
At March 31, 1994, 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.
The following table sets forth certain items reflected in the Company's
Consolidated Statements of Income expressed as a percentage of net sales.
<TABLE>
<CAPTION>
PERCENTAGE OF NET SALES
-----------------------
NINE MONTHS ENDED
YEARS ENDED JUNE 30, MARCH 31,
-------------------- ---------
1993 1992 1991 1994 1993
---- ---- ---- ---- ----
<S> <C> <C> <C> <C> <C>
Gross profit 33.0% 35.7% 34.8% 35.0% 33.7%
Operating expenses 27.4 26.2 27.0 26.1 25.8
Restructuring and other
nonrecurring charges 3.3 2.0 -- -- --
Operating income (loss) 2.3 7.5 7.9 8.9 7.9
Interest expense, net 9.9 10.1 9.4 9.7 9.9
Income (loss) from continuing
operations before income
taxes, extraordinary charge
and cumulative effect of
accounting change (7.6) (2.6) (1.5) (0.8) (2.0)
Income (loss) before
extraordinary charge and
cumulative effect of
accounting change (13.2) (1.6) 1.2 (26.8) (0.2)
Net income (loss) (14.3) (2.2) 1.2 (30.9) (1.6)
</TABLE>
NINE MONTHS ENDED MARCH 31, 1994 VERSUS MARCH 31, 1993
NET SALES.
Net sales from the Company's continuing operations for the 1994 third
quarter totaled $52.3 million, compared with $48.6 million in the 1993 third
quarter, an increase of 7.7%. Net sales for the 1994 nine month period
increased 4.1%, from $154.0 million to $160.2 million. The Company's net
sales were adversely affected by the sale of H. Belanger Plumbing Accessories
(Belanger) in October 1993. Net sales increased 6.5% and 11.6% for the nine
months and three months ended March 31, 1994, respectively, after excluding the
impact of Belanger. The net sales increases are primarily the result of the
continued growth of Barnett. Barnett's net sales increased 16.5% from $20.6
million in the 1993 third quarter to $24.0 million in the 1994 third quarter
and
- 20 -
<PAGE> 23
14.2% from $61.2 million in the 1993 nine month period to $69.9 million in the
1994 nine month period. New product introductions accounted for $2.2 million
and $5.0 million of the increases for the 1994 third quarter and nine month
period, respectively. The remainder of Barnett's increases were 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 the
1994 nine month period, increasing the total number of warehouses to 28. Also
contributing to the increases in net sales were higher net sales from Consumer
Products. Consumer Product's net sales increased 9.8% from $15.7 million in
the 1993 third quarter to $17.2 million in the 1994 third quarter and 4.5% from
$50.9 million in the 1993 nine month period to $53.2 million in the 1994 nine
month period. The increase in Consumer Product's net sales is primarily the
result of the sale of additional product lines to several of its existing
customers.
GROSS PROFIT.
The Company's gross margins increased from 34.5% for the 1993 third
quarter to 35.5% for the 1994 third quarter and increased from 33.7% in the
1993 nine month period to 35.0% in the 1994 nine month period. The increase in
the Company's gross margins is primarily a result of improved margins at
Barnett. Barnett's gross margins have been favorably impacted by increased
sales of higher margin proprietary branded products. The favorable impact of
Barnett's margins was offset, in part, by lower gross margins at Consumer
Products. Consumer Products' margins declined as a result of proportionately
lower sales of higher margin packaged products, as well as competitive
pressures within its market.
OPERATING EXPENSES.
The Company's operating expenses increased 9.9% for the 1994 third quarter
from $12.9 million in the 1993 third quarter to $14.1 million in the 1994 third
quarter and 5.1% for the 1994 nine month period from $39.7 million in the 1993
nine month period to $41.8 million in the 1994 nine month period. These
increases were due primarily to increases in operating expenses for Barnett.
Barnett's operating expenses increased approximately $0.9 million in the 1994
third quarter and $2.5 million in the 1994 nine month period. These increases
primarily related to higher catalog costs as well as the opening of new mail
order warehouses during the 1994 nine month period.
OPERATING INCOME.
The Company's operating income totaled $4.4 million or 8.4% of net sales
and $3.9 million or 8.0% of net sales for the 1994 and 1993 third quarters,
respectively. For the 1994 and 1993 nine month periods, operating income
totaled $14.3 million or 8.9% of net sales and $12.2 million or 7.9% of net
sales, respectively.
The Company's operating income increased 13.1% and 17.3% for the 1994
third quarter and nine month period, respectively, as compared with the
comparable prior year periods. Excluding the impact of Belanger, which was
sold in October 1993, operating income increased 14.9% and 18.8%, respectively.
The improved operating income was the result of higher gross margins offset, in
part, by increased operating expenses.
INTEREST EXPENSE.
The Company's interest expense totaled $5.3 million for the 1994 third
quarter, compared with $5.1 million for the 1993 third quarter. Interest
expense totaled $15.6 million for the 1994 nine month period, compared with
$15.2 million for the 1993 nine month period. Average borrowings outstanding
increased from $158.7 million and $158.1 million in the 1993 third quarter and
nine month periods, respectively, to $172.4
- 21 -
<PAGE> 24
million and $168.5 million for the same periods in the current year. The
increase in average borrowings outstanding is due to increased working capital
needs relating to the growth of the Company's operations. The weighted average
interest rate decreased from 12.6% in both the 1993 third quarter and nine
month period, respectively, to 12.0% and 12.1% in each of the same periods in
the current fiscal year.
INCOME TAXES.
In accordance with the provisions of SFAS 109, the Company is unable to
benefit losses in the current year. The Company has $11.5 million of available
domestic net operating loss carryforwards which expire in 2008, the benefit of
which has been reduced 100% by a valuation allowance. The Company will
continue to evaluate the valuation allowance and to the extent that the Company
is able to recognize tax benefits in the future, such recognition will
favorably affect future results of operations. See Note 5 for a discussion of
anticipated additional net operating losses which would result from the
disposition of Ideal.
LOSS FROM CONTINUING OPERATIONS.
The Company's loss from continuing operations for the 1994 third quarter
totaled $0.9 million compared with a loss of $0.7 million in the 1993 third
quarter. For the 1994 nine month period, the loss from continuing operations
totaled $1.3 million compared with a loss of $1.6 million in the 1993 nine
month period. The increase in the loss from continuing operations in the
current year periods is due to the Company's inability to tax benefit losses in
the current year.
DISCONTINUED OPERATIONS.
The Company's net loss from discontinued operations for the 1994 third
quarter totaled $4.2 million, compared with a net loss of $0.2 million in the
1993 third quarter. For the 1994 nine month period, the net loss from
discontinued operations totaled $3.2 million, compared with net income of $1.3
million in the 1993 nine month period. The Company recognized a loss on the
disposal of Ideal of approximately $38.3 million in the 1994 third quarter.
EXTRAORDINARY CHARGE.
The Company recognized a $6.6 million extraordinary charge, without tax
benefit, in the 1994 third quarter as a result of the refinancing of the $50
million of Subordinated Notes as well as borrowings under the domestic bank
credit facilities. The extraordinary charge included the fees paid upon the
exchange of the Subordinated Notes along with the accelerated amortization of
unamortized debt discount and issuance costs.
NET LOSS.
The Company's net loss (including those relating to Ideal) for the 1994
third quarter totaled $50.2 million, compared with a loss of $0.9 million in
the 1993 third quarter. For the 1994 nine month period, the net loss totaled
$49.6 million compared with a net loss of $2.4 million in the 1993 nine month
period. The 1993 nine month period 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.
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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.
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, is 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.
As discussed above, the Company recorded several nonrecurring charges
during fiscal 1993 including an $6.8 million restructuring charge. Fiscal 1992
results include a $3.9 million restructuring charge which represented a capital
loss realized upon the sale of the Company's portfolio of debt securities.
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<PAGE> 26
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%. Current year
results were negatively impacted by the $4.2 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.
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 includes 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
has not been able to benefit from any of its current year losses for tax
purposes. As a result, it has available $11.5 million of domestic net
operating loss carryforwards to offset future tax provisions. See "Impact of
New Accounting Standards" for a discussion of the new accounting standard for
income taxes and the impact it will have on the Company.
FISCAL 1992 VERSUS FISCAL 1991
NET SALES.
The Company's net sales from continuing operations for fiscal 1992 totaled
$197.7 million compared with $186.3 million in fiscal 1991, an increase of
6.1%. Barnett's net sales increased 15.4% from $62.5 million in fiscal 1991 to
$72.1 million in fiscal 1992. New product introductions accounted for $5.9
million of this increase. In addition, the new catalog of maintenance products
introduced in January 1992 generated approximately $1.1 million of net sales in
fiscal 1992. 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. During
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<PAGE> 27
fiscal 1992, Barnett opened four additional mail order warehouses bringing its
total number of warehouses to 23. Consumer Products' net sales in fiscal 1992
totaled $70.0 million, an increase of 1.9% over fiscal 1991 sales of $68.7
million.
GROSS PROFIT.
The Company's gross margin was 35.7% in fiscal 1992 compared with 34.8% in
fiscal 1991. Barnett's gross margin increased approximately one-third of one
percentage point as a result of a more profitable product mix and the use of
more economical sources of purchased materials. Consumer Products' gross
margin remained constant between years.
OPERATING EXPENSES.
The Company's operating expenses totaled $51.8 million, or 26.2% of net
sales, in fiscal 1992 compared with $50.3 million, or 27.0% of net sales, in
fiscal 1991, an increase of $1.5 million, or 3.1%. Barnett's operating
expenses increased approximately $2.2 million of which approximately $0.7
million is related to the opening of new mail order warehouses.
RESTRUCTURING AND OTHER NONRECURRING CHARGES.
During the fourth quarter of fiscal 1992, the Company's results were
affected by nonrecurring charges totaling $3.9 million, which represents a
capital loss realized upon the sale of the Company's portfolio of debt
securities.
OPERATING INCOME.
The Company's operating income was $14.9 million in fiscal 1992 compared
with $14.7 million in fiscal 1991, an increase of 1.6%. Such increase was
primarily the result of the higher net sales and gross profit levels.
INTEREST EXPENSE.
Net interest expense totaled $20.0 million for fiscal 1992 compared with
$17.5 million for fiscal 1991. Average borrowings outstanding totaled $159.7
million in fiscal 1992 compared with $153.3 million in the prior year. The
increase in average borrowings relates primarily to borrowings for short-term
working capital needs. In addition, borrowings for fiscal 1992 include amounts
borrowed under the Company's domestic term loan which were invested in highly
liquid short-term securities during the first quarter of the fiscal year. The
amounts invested were subsequently used in connection with the repayment of the
domestic term loan. Excluding the impact of these borrowings, average
borrowings for fiscal 1992 were $156.4 million. The weighted average interest
rate for fiscal 1992 increased to 13.2% from 12.3% in the prior year primarily
due to the issuance of the Senior Secured Notes in September 1991, the
proceeds of which were used to retire borrowings under the Company's then
existing credit facilities.
LOSS FROM CONTINUING OPERATIONS.
The Company's fiscal 1992 loss from continuing operations totaled $4.4
million compared with income of $0.6 million in fiscal 1991.
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<PAGE> 28
DISCONTINUED OPERATIONS.
The Company's fiscal 1992 net income from discontinued operations totaled
$1.1 million compared with net income of $2.8 million in fiscal 1991.
EXTRAORDINARY CHARGE.
During the fourth quarter of fiscal 1992, the Company repurchased certain
debt securities and incurred an extraordinary charge which totaled $1.2 million
(net of the applicable income tax benefit). The extraordinary charge included
the market premium paid and the accelerated amortization of unamortized debt
discount and issuance costs.
NET INCOME (LOSS).
The Company's fiscal 1992 net loss totaled $4.4 million and included a
$1.2 million extraordinary charge for the early repayment of debt. Net income
for fiscal 1991 was $2.2 million.
LIQUIDITY AND CAPITAL RESOURCES
On May 20, 1994, the Company completed a financial restructuring which was
undertaken to modify the Company's capital structure to facilitate the growth
of its domestic businesses by reducing cash interest expense and increasing the
Company's liquidity. See Note 12 to Notes to Consolidated Financial Statements.
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. In addition, the $50 million of Senior Subordinated
Notes exchanged can be used to satisfy the Company's mandatory redemption
requirements with respect to such issue and, as such, the $20 million mandatory
redemption payments due on June 1, 1996 and 1997 have been satisfied and the
mandatory redemption payment due on June 1, 1998 has been reduced to $8.8
million. The Company does, however, continue to have annual mandatory
redemption payments of $17.0 million commencing on September 1, 1996 with
respect to the Senior Secured Notes.
As part of the Reorganization, 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 redeemed within 33 months
after the initial borrowing under the Domestic Credit Facility. The Domestic
Credit Facility is subject to borrowing base formulas. Borrowings under the
Domestic Credit Facility bears interest at (1) the per annum rate of 1.5% plus
the highest of (a) the prime rate of Citibank N.A., (b) the federal funds rate
plus 0.5% and (c) a formula with respect to three month certificates of deposit
of major United States money market banks or (ii) LIBOR plus 3.0%. These rates
will be increased by 0.5% until such time as the Domestic Term Loan, discussed
below, has been repaid in full. These rates will be reduced by up to 0.5% if
Waxman USA achieves certain performance criteria based on the ratio of EBITDA
to fixed charges. The facility includes a letter of credit subfacility of $20
million. The Domestic Credit Facility is secured by the accounts receivable,
inventory, certain general intangibles and unencumbered fixed assets of the
Operating Companies and 65% of the capital stock of one subsidiary of TWI and
100% of the capital stock of another such subsidiary. In addition, the facility
requires the Operating Companies to maintain cash collateral accounts into
which all available funds will be deposited and applied to service the facility
on a daily basis. 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. On the date hereof, availability under the
Domestic Credit Facility is approximately $__ million.
The Domestic Credit Agreement contains customary events of default,
including the following: (1) any Operating Company shall fail to make any
payment of principal or interest or any other amount due under the agreements
related to the Domestic Credit Facility or fail to perform any covenant (after
the expiration of any applicable grace period) thereunder, or any
representation or warranty made in connection therewith shall prove to have
been incorrect in any material respect when made or deemed made; (ii) the
Company or any of its subsidiaries (other than Ideal Holding Group and its
subsidiaries) shall fail to pay any indebtedness having a principal amount of
$5,000,000 or more; or any other event shall occur or condition shall exist
under any agreement or instrument relating to any such indebtedness, if the
effect of such event or condition is to accelerate, or to permit the
acceleration of (after the expiration of any applicable period of grace), the
maturity of such indebtedness; or any such indebtedness shall become or be
delcared to be due and payable, or required to be repaid (other than by a
regularly scheduled required prepayment), or the Company or any of its
subsidiaries (other than Ideal Holding Group and its subsidiaries) shall be
required to repurchase or offer to repurchase such indebtedness, prior to the
stated maturity thereof; (iii) certain events of bankruptcy with respect to the
Company or any of its subsidiaries (other than Ideal Holding Group and its
subsidiaries); (iv) there shall occur any Change of Control (as defined in the
Domestic Credit Facility); (v) there shall occur a Material Adverse Change (as
defined in the Domestic Credit Facility) or an event which would have a
Material Adverse Effect (as defined in the Domestic Credit Agreement).
As part of the Reorganization, the Operating Companies entered into a
$15.0 million three-year term loan with Citibank, N.A., as agent. The Domestic
Term Loan bears interest at a rate per annum equal to 2.0% over the interest
rate under the Domestic Credit Facility and is secured by a junior lien on the
collateral under the Domestic Credit Facility. 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 within 6 months after May 20, 1994. Principal payments
on the Domestic Term Loan of $1.0 million each will be required quarterly
commencing at the end of the third quarter following May 20, 1994. 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 12 to Notes to Consolidated Financial Statements for a more
complete discussion of the new domestic credit facility and domestic term loan.
On June 17, 1994, the Company purchased $1.875 million of its $2.03
million outstanding 9.5% Convertible Subordinated Debentures due 2007 pursuant
to its offer to purchase made on April 28, 1994.
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<PAGE> 29
The Company does not have any commitments to make substantial capital
expenditures. However, the Company does expect to open 3 to 4 Barnett
warehouses over the next twelve months. The average cost to open a Barnett
warehouse is approximately $0.5 million.
The Company expects to incur approximately $0.5 million of costs relating
to the disposition of Ideal.
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 for the next
twenty-four months.
DISCUSSION OF CASH FLOWS
For the 1994 nine month period, the Company's continuing operations
generated $1.2 million of cash flow from operations which included a use of
$3.1 million of cash for increased working capital. The Company's working
capital levels have increased in response to its higher net sales levels. Cash
flow used for investments totaled $2.6 million. During October 1993, the
Company generated approximately $3.0 million of cash from the sale of Belanger.
Capital expenditures totaled approximately $2.3 million in the 1994 nine month
period. Changes in other assets increased approximately $3.3 million as a
result of costs associated with the refinancing. Financing activities
generated approximately $9.5 million of cash flow as the Company increased
amounts outstanding under its revolving credit facilities.
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 will adopt
SFAS No. 109 during the first quarter of its fiscal year ending June 30, 1994.
SFAS No. 109 will require 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 does not anticipate that a benefit will be recognized upon the
initial adoption of SFAS No. 109 or that its adoption will have a material
effect upon 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.
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<PAGE> 30
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 distributes plumbing, electrical and hardware products, in both
packaged and bulk form, to D-I-Y retailers, mass merchandisers, smaller
independent retailers and plumbing, electrical repair and remodeling
contractors.
The Company's business is conducted through its indirect wholly owned
subsidiaries, Barnett, Consumer Products, WOC and TWI. 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 contractors and independent retailers, as compared to
Consumer Products' strategy of focusing on mass merchandisers and larger D-I-Y
retailers. The Company's continuing operations' consolidated net sales were
$204.8 million in fiscal 1993.
BUSINESS STRATEGY
During the 1980's, the Company achieved significant revenue increases
through a combination of internal growth and strategic acquisitions of
businesses that marketed similar or complementary product lines. During the
1990's, the Company has initiated steps and is continuing to focus on
integrating the acquired businesses and improving operating efficiencies. The
Company's current strategy includes the following elements:
- EXPANSION OF BARNETT. Since its acquisition in 1984, Barnett's
revenues and operating income have grown at compound annual rates of
11.3% and 11.1%, 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 two additional warehouses during the remainder of calendar
1994 and up to four new warehouses during each of the next several
fiscal years. 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.
- 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' 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.
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<PAGE> 31
BARNETT
Barnett markets over 8,000 products to more than 32,000 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, healthcare 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 1993, Barnett's largest
customer accounted for less than 2% of Waxman USA's net sales and its top-ten
customers accounted for less than 6% of Waxman USA's net sales. Barnett's
average sale is $350. Barnett's net sales were approximately $83 million in
fiscal 1993.
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 8,000. During this period, the number of
active accounts serviced by Barnett increased from 6,000 to over 32,000.
Barnett has added ten warehouses during the last three full fiscal years, two
warehouses to date in calendar 1994 and, subject to the availability of funds,
intends to open as many as two additional warehouses during the remainder of
calendar 1994. Thereafter, 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 8,000 products, Barnett is able to provide its
customers with a single source of supply for all 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-a-day, 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 (as well as all other administrative
functions) are centralized at Barnett's Jacksonville, Florida headquarters.
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 32,000 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 1992, Barnett introduced a new semi-annual 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.
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<PAGE> 32
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-a-day
basis. Calls are handled by members of Barnett's well-trained staff of 42
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.
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, 1993, approximately
23% 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.
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PRODUCTS
Barnett markets an extensive line of over 8,000 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. Since the beginning of the
current fiscal year, Barnett has added approximately 1,100 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 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 PremierTM and RegentTM. 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
PremierTM 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.
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 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 also 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
approximately 6% over the next four years as well as from the expected growth
of existing customers, several of which have announced expansion plans. In
fiscal 1993, Kmart and its subsidiaries accounted for approximately 12% of the
Company's continuing operations' net sales. No other customer was responsible
for more than
- 31 -
<PAGE> 34
2% of the Company's continuing operations' net sales in fiscal 1993. Consumer
Products' top ten customers accounted for approximately 24% of the Company's
continuing operations' net sales in fiscal 1993.
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 approximately
$67.5 million in fiscal 1993.
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 18 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 contract
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 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
addition, Consumer Products has identified a growing trend among retailers to
purchase on a "just-in-time" basis in order to reduce their inventory levels
and increase returns on investment. In order to support its customers'
"just-in-time" requirements, Consumer Products has significantly improved its
EDI capabilities.
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
- 32 -
<PAGE> 35
proprietary trade names PlumbcraftR, PlumbKingR, PlumblineTM and KFR. 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 PremierR, as well as a line of shower and bath
accessories under the proprietary trade name Spray SensationsTM.
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 ElectracraftR. 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 KFR and also
under private labels.
OTHER OPERATIONS
The Company has several other operations which are conducted through WOC
and TWI. These operations in the aggregate generated net sales of $48.0
million in fiscal 1993, which accounted for approximately 23.5% 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, 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 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 LegendTM
trademarks. U.S. Lock markets and distributes its products primarily to
locksmiths through a telemarketing 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 OPERATIONS
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.
- 33 -
<PAGE> 36
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, 1993, products purchased
overseas, primarily from Taiwan, accounted for approximately 22.9% 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 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 now 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 Waxman USA are
manufactured for it by third parties. Waxman USA 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 product groups:
<TABLE>
<CAPTION>
1993 1992 1991
---- ---- ----
<S> <C> <C> <C>
Plumbing 74% 73% 71%
Electrical 10 9 10
Hardware 16 18 19
---- ---- ----
Total Net Sales 100% 100% 100%
=== === ===
</TABLE>
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.
- 34 -
<PAGE> 37
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, importation from Mexico will become more
competitive in the near future relative to importation from other exporting
countries.
COMPETITION
Waxman USA 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 Waxman USA offers. Waxman USA
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, Waxman USA 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 Waxman
USA. Barnett's mail order business competes principally with local
distributors of plumbing, electrical and hardware products. Waxman USA
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 March 31, 1994, the Company's continuing operations employed 1,245
persons, 300 of whom were clerical and administrative personnel, 145 of whom
were sales service representatives and 800 of whom were either production or
warehouse personnel. Approximately 8% of the employees of the Company's
continuing operations 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."
PROPERTIES
The following table sets forth, as of March 31, 1994, certain information
with respect to the Company's principal physical properties:
<TABLE>
<CAPTION>
APPROXIMATE LEASE
SQUARE EXPIRATION
LOCATION 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 Office and Warehouse 6/30/02
Bedford Hts., OH(1)
330 Vine Street 80,000 Consumer Products Office and Warehouse 2/28/96
Sharon, PA
</TABLE>
- 35 -
<PAGE> 38
<TABLE>
<S> <C> <C> <C>
2029 McKenzie Drive 60,000 Consumer Products Office and Warehouse 5/31/94
Dallas, TX(2)
945 Spice Island Drive 71,000 Consumer Products Office and Warehouse 7/31/98
Sparks, NV(3)
1842 Colonial Village Lane 72,000 Consumer Products Office and Warehouse 5/31/00
Lancaster, PA
3333 Lenox Avenue 60,000 Barnett Corporate Office and Warehouse 10/31/03
Jacksonville, FL
300 Jay Street 56,000 LeRan Corporate Office and Warehouse Owned
Coldwater, MI
No. 10, 7th Road 56,000 Office, Packaging, and Warehouse Owned
Industrial Park
Taichung, Taiwan
Republic of China
</TABLE>
(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 leases
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 a two-year term.
In addition to the properties shown in the table, the Company owns 15
warehouses and leases 55 warehouses ranging in size from 6,000 to 50,000 square
feet (of these properties, Barnett leases 27 warehouses and Consumer Products
leases six warehouses).
The Company believes that its facilities are suitable for its operations
and provide the Company with adequate capacity.
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 affect
materially the financial position of the Company.
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 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 natural adverse effect on it or any of its
subsidiaries.
- 36 -
<PAGE> 39
RECENT DEVELOPMENTS
BELANGER SALE. In October 1993, the Company completed the sale of all of
the capital stock of one of its Canadian operations, H. Belanger Plumbing
Accessories, Ltd. ("Belanger") to a group led by the management of Belanger in
exchange for cash and a promissory note. Belanger, based in Montreal, is
engaged in the distribution of plumbing specialty products, including bulk and
packaged products to plumbing and hardware wholesalers and retailers. During
fiscal 1993, Belanger had net sales of U.S. $6.3 million.
DISCONTINUED OPERATIONS. Effective March 31, 1994, the Company adopted a
plan to dispose of its Canadian subsidiary, Ideal. Unlike the Company's United
States 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 at March 31, 1994
and the consolidated financial statements and financial information contained
herein as of such date have been reclassified to report separately Ideal's net
assets and results of operations. Prior period consolidated financial
statements and financial information have been reclassified to conform 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
of investors which included members of Ideal's management. Such transaction
would have required the consent of the lenders under Ideal's Canadian bank
credit agreements as borrowings under such 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 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.
- 37 -
<PAGE> 40
MANAGEMENT
DIRECTORS AND EXECUTIVE OFFICERS
The members of the Board of Directors, executive officers and key
employees of the Company and their respective ages and positions are as
follows:
<TABLE>
<CAPTION>
Name Age Position
---- --- --------
<S> <C> <C>
Melvin Waxman 59 Chairman of the Board and Co-Chief Executive
Officer
Armond Waxman 55 President, Co-Chief Executive Officer, Treasurer
and Director
John S. Peters 45 Senior Vice President, Operations
William R. Pray 46 Senior Vice President
Laurence S. Waxman 37 Senior Vice President
Neal R. Restivo 34 Vice President, Finance and Chief Financial
Officer
Irving Z. Friedman 61 Director
Samuel J. Krasney 68 Director
Judy Robins 45 Director
</TABLE>
Set forth below is a biographical description of each director, executive
officer and key employee of the Company mentioned above.
Mr. Melvin Waxman was elected Co-Chief Executive Officer of the Company in
May 1988. Mr. Waxman has been a Chief Executive Officer of the Company for
over 20 years and has been a director of the Company since 1962. Mr. Waxman
has been Chairman of the Board of the Company since August 1976. Melvin Waxman
and Armond Waxman are brothers.
Mr. Armond Waxman was elected Co-Chief Executive Officer of the Company 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.
Mr. Peters was elected to the position of Senior Vice President,
Operations of the Company 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.
Mr. Pray was elected Senior Vice President of the Company in February 1991
and is also President of Barnett, a position he has held since 1987. Mr. Pray
joined Barnett in 1979 as Vice President of Sales and Marketing.
Mr. Laurence Waxman was elected Senior Vice President of the Company in
November 1993 and is also President of the Consumer Group Division, a position
he has held since 1988. Mr. Waxman joined the Company in 1981. Mr. Laurence
Waxman is the son of Melvin Waxman.
Mr. Restivo 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, Mr. Restivo
was employed by the public accounting firm of Arthur Andersen & Co., where he
was an audit manager since 1988.
- 38 -
<PAGE> 41
Mr. Friedman has been a director of the Company since 1989. Mr. Friedman
has been a certified public accountant with the firm of Krasney Polk Friedman &
Fishman for more than five years.
Mr. Krasney has been a director of the Company since 1977. In September
1993, Mr. Krasney retired from his position of Chairman of the Board, President
and Chief Executive Officer of Banner Aerospace, Inc., a distributor of parts
in the aviation aftermarket, a position he had held since June 1990. In
September 1993, Mr. Krasney also retired from The Fairchild Corporation
(formerly Banner Industries, Inc.) where he had been Vice Chairman of the Board
since 1985. Fairchild is a manufacturer and distributor of fasteners to the
aerospace industry and industrial products for the plastic injection molding
industry and other industrial markets and is a furnisher of telecommunication
services to office buildings. Mr. Krasney is also a director of FabriCenters
of America, Inc.
Mrs. Robins has been a director of the Company since 1980. Mrs. Robins has
owned and operated an interior design business for more than five years. Mrs.
Robins is the sister of Melvin and Armond Waxman. Mrs. Robins' husband is the
Secretary of the Company.
BOARD OF DIRECTORS
The number of directors on the Board of the Company is presently fixed at
five. Directors are elected at the annual meeting of stockholders and hold
office for one year and until their successors are elected. the Company has an
Executive Committee, Audit Committee, Compensation Committee and Stock Option
Committee. Messrs. Melvin and Armond Waxman and Krasney serve on the Executive
Committee, Messrs. Friedman and Krasney serve on the Audit Committee and the
Stock Option Committee and Mrs. Robins and Messrs. Krasney and Friedman serve
on the Compensation Committee.
DIRECTOR REMUNERATION
Each director who is not an employee of the Company received a fee of
$3,000 per fiscal quarter for services as a director during fiscal 1993 plus a
fee of $1,000 plus traveling expenses for each Board meeting he or she
attended. In addition to the foregoing compensation, each director who is not
an employee of the Company received options during fiscal 1993 to purchase
10,000 shares of the Company's Common Stock at a price of $4.25 per share.
EXECUTIVE COMPENSATION
The following table sets forth the cash compensation paid for services
rendered during fiscal 1993 to the Co-Chief Executive Officers and the three
other most highly compensated executive officers of the Company in the fiscal
years indicated:
- 39 -
<PAGE> 42
<TABLE>
SUMMARY COMPENSATION TABLE
<CAPTION>
Long-Term Compensation
----------------------
All Other
Awards Payouts Compensation
------ -------
Annual Compensation(1) Restricted LTIP
Name and Principal Position Year Salary($) Bonus($)(2) Stock($) Options($) Payout($) ($)(3)(4)
- --------------------------- ---- --------- ----------- -------- ---------- --------- ---------
<S> <C> <C> <C> <C> <C> <C> <C>
Melvin Waxman 1993 365,000 100,000 __ 250,000 __ 65,293
Chairman of the Board and 1992 400,000 125,000 __ __ __ __
Co-Chief Executive Officer 1991 400,000 125,000 __ __ __ __
Armond Waxman 1993 378,942 100,000 __ 250,000 __ 50,464
President and Co-Chief 1992 400,000 125,000 __ __ __ __
Executive Officer 1991 400,000 125,000 __ __ __ __
Jerome C. Jacques(5) 1993 192,067 45,000 __ 50,000 __ 16,175
Senior Vice President -- 1992 200,000 50,000 __ 12,500 __ __
Finance and Chief Financial 1991 200,000 50,000 __ __ __ __
Officer
William R. Pray 1993 200,000 45,000 __ 25,000 __ 14,789
Senior Vice President 1992 173,000 50,000 __ 7,500 __ __
1991 171,000 38,000 __ 10,000 __ __
John S. Peters 1993 132,644 25,000 __ 45,000 __ 14,137
Senior Vice President -- 1992 125,000 25,000 __ 7,500 __ __
Operations 1991 125,000 25,000 __ __ __ __
<FN>
(1) Certain executive officers received compensation in fiscal 1991, 1992 and 1993 in the form of perquisites, the amount of
which does not exceed reporting thresholds.
(2) Messrs. Pray and Peters received their bonuses under the Company's Profit Incentive Plan.
(3) In accordance with the transitional provisions applicable to the rules of the Securities and Exchange Commission, disclosure
of All Other Compensation is not required for 1991 and 1992.
(4) Includes Company contributions to the Company's Profit-Sharing Retirement Plan and premiums on split-dollar life insurance
policies. Profit Sharing Plan contributions were as follows: $2,289 each for Messrs. Melvin and Armond Waxman, and
Pray, $1,637 for Mr. Peters and $2,289 for Mr. Jacques. Premiums on split-dollar life insurance policies were as follows:
$63,004 for Melvin Waxman, $48,175 for Armond Waxman, $12,500 each for Messrs. Pray and Peters and $13,886 for
Mr. Jacques.
(5) Mr. Jacques' employment with the Company was terminated in November 1993.
</TABLE>
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06/3396-4/EQREG.607/ATB:val:WAXMAN DISK 1009
06/17/94 (Fri) 12:31am
<PAGE> 43
EMPLOYMENT AGREEMENTS
Mr. Peters entered into an employment agreement with the Company which
became effective as of January 1, 1992 and terminates on December 31, 1995.
Pursuant to such employment agreement, Mr. Peters is to serve as Senior Vice
President, Operations of the Company, and is also to serve in such substitute
or further offices or positions with the Company or any subsidiary or affiliate
of the Company as shall, from time to time, be assigned by the Board of
Directors of the Company. Mr. Peters' employment agreement provides for a
minimum annual salary of $125,000, which salary will be reviewed annually by
the Company. Increases in salary and the granting of bonuses to Mr. Peters
will be determined by the Company, in its sole discretion, based on such
individual's performance and contributions to the success of the Company, his
responsibilities and duties and the salaries of other senior executives of the
Company. The employment agreement also contains provisions which restrict Mr.
Peters from competing with the Company during the term of the agreement and for
two years following the termination thereof.
Mr. Pray has an employment agreement with Barnett and the Company which
became effective as of July 1, 1990 and which terminates on June 30, 2000.
Pursuant to this employment agreement, Mr. Pray is to serve as President of
Barnett and provide services to Barnett in such managerial areas as Mr. Pray
served in the past and such additional duties as shall be assigned to Mr. Pray
by the Co-Chief Executive Officers of the Company. Mr. Pray's employment
agreement provides for a minimum annual salary of $165,000 for the first year
of the employment agreement and provides that for each year thereafter the
minimum annual salary will be increased by eight percent of the prior year's
salary or any salary amount separately agreed to in writing by Mr. Pray,
Barnett and the Company. Mr. Pray is also eligible to receive additional
discretionary bonuses as may from time to time be determined in the sole
discretion of the Board of Directors of the Company. The employment agreement
also contains provisions which restrict Mr. Pray from competing with the
Company during the term of the agreement and for two years following the
termination thereof.
STOCK OPTION AND SAR GRANTS
The following table sets forth the information noted for all grants of
stock options made by the Company during fiscal 1993 to each of the executive
officers named in the Summary Compensation Table:
<TABLE>
<CAPTION>
OPTIONS/SAR(1) GRANTS IN LAST FISCAL YEAR POTENTIAL REALIZABLE
INDIVIDUAL GRANTS
----------------- VALUE AT ASSUMED
% OF TOTAL ANNUAL RATES OF STOCK
OPTIONS PRICE APPRECIATION FOR
OPTIONS GRANTED TO EXERCISE OPTION TERM(2)
GRANTED EMPLOYEES IN PRICE EXPIRATION ------------------------
NAME (#) FISCAL YEAR ($/SH) DATE 5%($) 10%($)
---- --- ----------- ------ ---- ----- ------
<S> <C> <C> <C> <C> <C> <C>
Melvin Waxman 100,000 9.6 5.00 Sept 1997 138,000 305,500
150,000 14.4 4.25 Feb 2003 400,988 1,016,175
Armond Waxman 100,000 9.6 5.00 Sept 1997 138,000 305,500
150,000 14.4 4.25 Feb 2003 400,988 1,016,175
Jerome C. Jacques (25,000) 2.4 5.00 Sept 1997 34,500 76,375
25,000 2.4 4.25 Feb 2003 66,831 169,362
William R. Pray 25,000 2.4 5.00 Sept 1997 34,500 76,375
John S. Peters 20,000 1.9 5.00 Sept 1997 27,600 61,100
25,000 2.4 4.25 Feb 2003 66,831 169,362
<FN>
(1) There were no SARs granted to any of the executive officers named in this table in fiscal 1993.
</TABLE>
- 41 -
<PAGE> 44
(2) The potential realizable values represent future opportunity and have not
been reduced to present value in 1993 dollars. The dollar amounts
included in these columns are the result of calculations at assumed rates
set by the Securities and Exchange Commission for illustration purposes,
and these rates are not intended to be a forecast of the Common Stock
price and are not necessarily indicative of the values that may be
realized by the named executive officer.
(3) All of the options granted to Mr. Jacques have terminated as a result of
the termination of his employment with the Company.
STOCK OPTION AND SAR EXERCISES
The following table sets forth the information noted for all exercises of
stock options and SARs during fiscal 1993 by each of the executive officers
named in the Summary Compensation Table:
<TABLE>
<CAPTION>
AGGREGATED OPTION/SAR EXERCISES IN LAST FISCAL YEAR AND
FISCAL YEAR-END OPTION/SAR VALUES
NUMBER OF UNEXERCISE VALUE OF
SHARES OPTIONS AT FISCAL UNEXERCISED
ACQUIRED YEAR-END(#) IN-THE-MONEY
ON VALUE EXERCISABLE/ OPTIONS AT
NAME EXERCISE(#) REALIZED($) UNEXERCISABLE YEAR-END($)
---- ----------- ----------- ------------- -----------
<S> <C> <C> <C> <C>
Melvin Waxman -- -- 30,000/270,000 --
Armond Waxman -- -- 30,000/270,000 --
Jerome C. Jacques(1) -- -- 29,500/63,000 --
William R. Pray -- -- 13,000/37,000 --
John S. Peters -- -- 9,000/51,000 --
<FN>
(1) All of the options granted to Mr. Jacques have terminated as a result of the
termination of his employment with the Company.
</TABLE>
- 42 -
<PAGE> 45
PRINCIPAL STOCKHOLDERS
CAPITAL STOCK
The following table sets forth, as of June 1, 1994 (except as noted in
footnote 7 below), the number of shares beneficially owned by each director, by
the directors and executive officers of the Company as a group and by each
holder of at least five percent of Common Stock, and the respective percentage
ownership of the outstanding Common Stock and Class B Common Stock and voting
power held by each such holder and group. The mailing address for Messrs.
Melvin and Armond Waxman is the executive office of the Company.
<TABLE>
<CAPTION>
NUMBER OF SHARES PERCENTAGE
BENEFICIALLY OWNED OWNERSHIP PERCENTAGE
------------------ --------- OF
CLASS B CLASS B AGGREGATE
NAME OF COMMON COMMON COMMON COMMON VOTING
BENEFICIAL OWNER STOCK STOCK STOCK STOCK POWER
- ---------------- ----- ------- ------ ----- -----
<S> <C> <C> <C> <C> <C>
Melvin Waxman(1) 970,782 1,011,932 10.2% 45.4% 34.9%
Armond Waxman(2) 862,607 826,082 9.1 37.1 28.7
Samuel J. Krasney(3) 17,250 6,750 * * *
Judy Robins(4) 77,250 78,750 * 3.5 2.7
Irving Z. Friedman(5) 10,500 -- * -- *
Directors and officers
as a group (10
individuals)(6) 2,052,914 1,978,766 21.2 88.8 68.3
Weiss, Peck & Greer(7) 1,182,500 -- 12.5 -- 3.7
One New York Plaza
New York, NY 10004
* less than 1%
(1) Includes (i) 100 shares of Common Stock owned by a member of Mr. Melvin
Waxman's immediate family, as to which shares Mr. Waxman disclaims beneficial
interest and (ii) 97,500 shares of Common Stock which Mr. Waxman has the right
to acquire within 60 days upon the exercise of stock options.
(2) Includes (i) 55,825 shares of Common Stock and 55,800 shares of the Class B
Common Stock owned by members of Mr. Armond Waxman's immediate family, as to
which shares Mr. Waxman disclaims beneficial interest and (ii) 97,500 shares of
Common Stock which Mr. Waxman has the right to acquire within 60 days upon the
exercise of stock options.
(3) Includes (i) 4,500 shares of Common Stock and 4,500 shares of the Class B
Common Stock owned by Mr. Krasney's wife, as to which shares Mr. Krasney
disclaims beneficial interest and (ii) 10,500 shares of Common Stock which
Mr. Krasney has the right to acquire within 60 days upon the exercise of stock
options.
(4) Includes 10,500 shares of Common Stock which Mrs. Robins has the right to
acquire within 60 days upon the exercise of stock options.
(5) Consists of 10,500 shares of Common Stock which Mr. Friedman has the right to
acquire within 60 days upon the exercise of stock options.
</TABLE>
- 43 -
<PAGE> 46
(6) Includes 278,500 shares of Common Stock which the directors and officers
of the Company have the right to acquire within 60 days upon the exercise
of stock options.
(7) The information set forth in the table with respect to Weiss, Peck & Greer
was obtained from Amendment No. 2 to a Statement on Schedule 13G, dated
February 11, 1994, filed with the Commission. Such statement reflects
Weiss, Peck & Greer's beneficial ownership as of December 31, 1993.
RECENT SECURITIES OFFERING AND RELATED MATTERS
THE REORGANIZATION
On May 20, 1994, as part of the Reorganization, the Company issued the
Warrants together with the Notes in exchange for $50,000,000 aggregate
principal amount of the Company's outstanding Senior Subordinated Notes
pursuant to the Private Exchange Offer. In addition to the Private Exchange
Offer, the components of the Reorganization included (i) the Senior
Subordinated Consent Solicitation, (ii) the Debt Financing, (iii) the 12 1/4%
Consent Solicitation and (iv) the repayment of the borrowings under the
Company's then existing domestic revolving credit facilities (including $27.7
under the Company's then existing working capital credit facility and $2.5
million under the $5.0 million revolving credit facility of Barnett (the
"Barnett Financing")).
As a result of the Private Exchange Offer (and excluding any shares of
Common Stock acquired by the Selling Stockholders other than pursuant to the
offering of securities described in the two preceding paragraphs), the Selling
Stockholders beneficially own Warrants exercisable into 2,950,000 shares of
Common Stock or approximately 20% of the outstanding Common Stock assuming
the exercise of all of the Warrants.
In connection with the Reorganization, the Company completed the Corporate
Restructuring. As part of the Corporate Restructuring, the Company formed (a)
Waxman USA, as a holding company for the subsidiaries that comprise and support
the Company's domestic operations, (b) Consumer Products, a wholly owned
subsidiary of Waxman USA, to own and operate the Consumer Products Division,
and (c) WOC, a wholly owned subsidiary of Waxman USA, to own and operate Waxman
USA's domestic subsidiaries, other than Barnett and Consumer Products. On May
20, 1994, the Company restructured its operations by (i) contributing the
capital stock of Barnett to Waxman USA, (ii) contributing the assets and
liabilities of the Consumer Products 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 and LeRan, each a wholly owned
subsidiary of the Company, into WOC, (vi) contributing the capital stock of TWI
to Waxman USA and (vii) contributing the capital stock of WAMI to TWI.
REGISTRATION RIGHTS AGREEMENTS
Pursuant to the Equity Registration Rights Agreement, the Company has
agreed to use its best efforts to register the offer and sale of the Warrants
and shares of Common Stock underlying the Warrants under the Act, and pursuant
to a Registration Rights Agreement dated May 20, 1994, among the Company and
the trustee under the indenture governing the Notes, on behalf of the original
purchasers of the Notes (the "Debt Registration Rights Agreement"), the Company
has agreed to use its best efforts to register the offer and sale of the Notes
under the Act.
Pursuant to the Equity Registration Rights Agreement, the Company has
agreed to use its best efforts (i) to file, within 30 days of the issuance of
the Warrants, a registration statement under the Act to permit the original
purchasers of the Warrants to offer and sell under the Act the Warrants and
shares of Common Stock underlying the Warrants ("Warrant Shares"), (ii) to
cause such Equity Registration Statement to become effective within 120 days of
the date of issuance of the Warrants and (iii) to maintain such effectiveness
for a period of three years or such shorter period ending when all of the
Warrants and Warrant Shares have been sold pursuant to the Equity
- 44 -
<PAGE> 47
Registration Statement or the date three years after all Warrants have been
exercised. The period beginning on the date the Equity Registration Statement
is first declared effective by the Commission and ending on the date which is
three years after the expiration of the Warrants or, if earlier, the date on
which all Warrants and Warrant Shares have been sold pursuant to the Equity
Registration Statement or the date three years after all Warrants have been
exercised, is referred to herein as the "Effectiveness Period." In the event
that the Equity Registration Statement is not filed or effective by, or
continuously effective through, the dates referred to above or prior to the end
of the Effectiveness Period, the Commission shall have issued a stop order
suspending the effectiveness of the Equity Registration Statement or the
prospectus contained in the Equity Registration Statement, as amended or
supplemented, shall (x) not contain current information required by the
Securities Act and the rules and regulations promulgated thereunder or (y)
contain any untrue statement of a material fact or omit to state any material
fact required to be stated therein or necessary to make the statements therein,
in light of the circumstances under which they are made, not misleading, the
Company has agreed to pay, or cause to be paid, as liquidated damages and not
as a penalty, to each holder of a Warrant or Warrant Share, an amount equal to
$0.0025 per week per Warrant or Warrant Share, as the case my be, for each week
beginning on such date and ending 90 days thereafter. Such liquidated damages
shall be increased by $0.0025 per week per Warrant or Warrant Share, as the
case may be, at the beginning of each subsequent 90-day period up to a maximum
aggregate amount of $0.01 per week per Warrant or Warrant Share, as the case
may be. The Company has agreed to pay all expenses incident to the Company's
performance of or compliance with the Equity Registration Rights Agreement,
including the reasonable fees and expenses of counsel to the original
purchasers of the Warrants but excluding any underwriting fees, discounts or
commissions attributable to the sale of the Warrants or Warrant Shares. Each
of the Company and the Warrant Agent, on behalf of the original purchasers of
the Warrants, pursuant to the Equity Registration Rights Agreement, have agreed
to indemnify the other party, its officers, directors and controlling persons
in respect of certain liabilities and expenses arising, under certain
circumstances, out of any registration of the Securities pursuant to the Equity
Registration Rights Agreement. The Company has prepared and filed the
Registration Statement of which this Prospectus forms a part with the
Commission pursuant to the Equity Registration Rights Agreement.
Pursuant to the Debt Registration Rights Agreement, the Company has agreed
to use its best efforts (i) to file, within 30 days of the issuance of the
Notes, a registration statement (the "Debt Registration Statement") under the
Act with respect to an exchange offer (the "Exchange Offer") whereby securities
substantially identical to the Notes would be offered for exchange with the
Notes in order to permit the original purchasers of the Notes to offer and sell
such new notes under the Act and (ii) to cause such registration statement to
become effective within 120 days of the date of issuance of the Notes. Upon
the registration statement being declared effective, the Company will offer
such new notes in exchange for surrender of the Notes. The Company has agreed
to keep the Exchange Offer pursuant to the registration statement open for not
less than 30 days (or longer if required by applicable law) after the date
notice of such offer is mailed to the holders of the Notes. In the event that
the Company or the holders of 25% in aggregate principal amount of the Notes
reasonably determine in good faith that because of any change in law or
applicable interpretations of the Staff of the Commission the Company is not
permitted to effect the Exchange Offer, or if for any other reason the Exchange
Offer is not consummated within 180 days of the date of the Debt Registration
Rights Agreement or if a holder of the Notes is not permitted, because of a
change in law or interpretations of the Staff of the Commission, to participate
in the Exchange Offer, the Company will, at its cost, (a) as promptly as
practicable, file a shelf registration statement covering resales of the Notes,
(b) use its best efforts to cause such shelf registration statement to be
declared effective under the Securities Act and (c) use its best efforts to
keep continuously effective such shelf registration statement until three years
after the issuance of the Notes or such shorter period ending when all of the
Notes eligible for sale thereunder have been sold thereunder. In the event
that the registration statement is not filed or effective by, or continuously
effective through, the dates referred to above or the Commission shall have
issued a stop order suspending the effectiveness of the registration statement
or any shelf registration statement with respect to the Notes at a time when
such registration statement or shelf registration statement, as the case may
be, is required to be kept effective by the Company or the prospectus contained
in any such registration statement or shelf registration statement, as amended
or supplemented, shall (x) not contain current information required by the
Securities Act and the rules and regulations promulgated thereunder or (y)
contain any untrue statement of a material fact or omit to state any material
fact required to be stated therein
- 45 -
<PAGE> 48
or necessary to make the statements therein, in light of the circumstances
under which they were made, not misleading, the Company has agreed to pay, or
cause to be paid, as liquidated damages and not as a penalty to each holder of
Notes, an amount equal to $0.05 per week per $1,000 of Accreted Value of Notes
held by such holder, for each week during the 90-day period beginning on the
date referred to above or the date of the order suspending effectiveness or the
date on which the prospectus shall not contain such current information or
shall contain any such untrue statement or omit to state any such material
fact. Such liquidated damages shall be increased by $0.05 per week per $1,000
of Accreted Value of Notes at the beginning of each subsequent 90-day period up
to a maximum aggregate amount of $0.20 per week per $1,000 of Accreted Value of
Notes. The Company has agreed to pay all expenses incident to the Company's
performance of or compliance with the Debt Registration Rights Agreement,
including the reasonable fees and expenses of counsel to the original
purchasers of the Notes but excluding any underwriting fees, discounts or
commissions attributable to the sale of the Notes. Each of the Company and the
Trustee, on behalf of the original purchasers of the Notes, pursuant to the
Debt Registration Rights Agreement, have agreed to indemnify the other party,
its officers, directors and controlling persons in respect of certain
liabilities and expenses arising, under certain circumstances, out of any
registration of the Notes pursuant to the Debt Registration Rights Agreement.
[The Company has prepared and filed the Debt Registration Statement with the
Commission pursuant to the Debt Registration Rights Agreement].
- 46 -
<PAGE> 49
SELLING SECURITY HOLDERS
The following table sets forth certain information with respect to the
Securities beneficially owned and offered hereby by each Selling Security
Holder.
<TABLE>
<S> <C> <C>
Name Warrants Owned Warrants Offered
---- -------------- ----------------
[
</TABLE>
]
_______________
The Company is registering, on behalf of each Selling Security Holder, the
offer and sale of the number of Warrants set forth opposite such Selling
Security Holder's name under the column captioned "Warrants Offered" and the
same number of shares of Common Stock, subject to adjustment in certain
circumstances, issuable upon exercise of the Warrants. As of the date hereof,
no Warrants have been exercised to purchase shares of Common Stock.
Because the Selling Security Holders may offer all or some part of the
Securities pursuant to this Prospectus and because this offering is not being
underwritten on a firm commitment basis, no estimate can be given as to the
amount of Securities to be offered for sale by the Selling Security Holders nor
the amount of Securities that will be held by the Selling Security Holders upon
termination of this offering. See "Plan of Distribution." To the extent
required, the specific amount of Securities to be sold by the Selling Security
Holders in connection with a particular offer will be set forth in an
accompanying Prospectus Supplement.
DESCRIPTION OF THE WARRANTS
The Warrants were issued pursuant to the terms of a Warrant Agreement,
dated as of May 20, 1994 (the "Warrant Agreement"), by and between the Company
and The Huntington National Bank, as warrant agent (the "Warrant Agent"), on
behalf of the original purchasers of the Warrants. The following summary of
the material provisions of the Warrant Agreement and the Warrant Certificate
attached thereto (the "Warrant Certificate") does not purport to be complete,
and where reference is made to particular provisions of the Warrant Agreement
or the Warrant Certificate, such provisions, including the definitions of
certain terms, are qualified in their entirety by
- 47 -
<PAGE> 50
reference to all of the provisions of the Warrant Agreement and Warrant
Certificate, which have been filed or incorporated by reference as exhibits to
the Registration Statement of which this Prospectus forms a part.
The Warrants are currently exercisable. The Warrants will expire June 1,
2004. Upon exercise, each Warrant initially entitles the holder to receive one
Warrant Share at an initial cash exercise price of $2.45, subject to adjustment
in certain circumstances.
Holders of the Warrants do not have any of the rights or privileges of the
stockholders of the Company, including voting rights to receive dividends,
prior to exercise of the Warrants. The Company has reserved out of its
authorized but unissued shares a sufficient number of shares of Common Stock
for issuance upon exercise of the Warrants. The Common Stock issuable on
exercise of the Warrants will be, when issued, fully paid and nonassessable.
ANTI-DILUTION
The Warrants contain customary anti-dilution provisions, including
protections in the event of a transaction in which the Company is not the
surviving entity.
METHOD OF EXERCISE
The Warrants may be exercised by surrendering to the Warrant Agent the
Warrant Certificates evidencing such Warrants, with the accompanying form of
election to purchase properly completed and executed. Upon surrender of the
Warrant Certificates and payment in cash of the exercise price, the Warrant
Agent will deliver, or cause to be delivered, to or upon the written order of
such holder, certificates representing the Warrant Shares to which such holder
is entitled.
Warrant Certificates will be issued in registered form only and no service
charge shall be made for registration of transfer or exchange upon surrender of
any Warrant Certificate at the office of the Warrant Agent maintained for that
purpose. The Company may require payment of a sum sufficient to cover any tax
or other governmental charge that may be imposed in connection with any
registration of transfer or exchange of Warrant Certificates.
AMENDMENT
From time to time, the Company and the Warrant Agent, without the consent
of the holders of the Warrants, may amend or supplement the Warrant Agreement
for certain purposes, including curing defects or inconsistencies or making any
change that does not adversely affect the rights of any holder. Any amendment
or supplement to the Warrant Agreement that has an adverse effect on the
interests of holders or that affects the anti-dilution provisions contained
therein shall require the written consent of registered holders of a majority
of the then outstanding Warrants. The consent of each holder of an Warrant
affected shall be required for any amendment pursuant to which the number of
Warrant Shares which could be acquired upon exercise of Warrants would be
decreased or the exercise period for the Warrants would be modified in any
manner.
DESCRIPTION OF CAPITAL STOCK
The authorized capital stock of the Company consists of 2,000,000 shares
of Preferred Stock, $.01 par value, 22,000,000 shares of Common Stock, $.01 par
value, and 6,000,000 shares of Class B Common Stock, $.01 par value. As of
June 14, 1994, no shares of Preferred Stock, 9,489,657 shares of Common Stock
and 2,222,505 shares of Class B Common Stock were issued and outstanding.
- 48 -
<PAGE> 51
COMMON STOCK AND CLASS B COMMON STOCK
Each share of Common Stock entitles the holder to one vote on all matters
submitted to the stockholders, including the election of directors, and each
share of Class B Common Stock entitles the holder to ten votes on all such
matters. Except as set forth below, all actions submitted to a vote of
stockholders are voted on by holders of Common Stock and Class B Common Stock
voting together as a single class. The holders of Common Stock and Class B
Common Stock vote separately as classes with respect to any amendments to the
Company's Certificate of Incorporation that alter or change the powers,
preferences or special rights of their respective classes of stock so as to
affect them adversely, and with respect to such other matters as may require
class votes under the Delaware General Corporation Law.
Dividends on the Class B Common Stock may not exceed those on the Common
Stock. Each share of Common Stock and Class B Common Stock is equal in respect
of rights to dividends and other distributions in stock or property of the
Company (including distributions upon liquidation of the Company), except that
in the case of dividends or other distributions payable on the Common Stock and
the Class B Common Stock in shares of such stock, including distributions
pursuant to split-ups or divisions of the Common Stock or the Class B Common
Stock, only Common Stock will be distributed with respect to Common Stock and
only Class B Common Stock will be distributed with respect to Class B Common
Stock. In no event will either the Common Stock or the Class B Common Stock be
split, divided or combined unless the other is split, divided or combined
equally.
The Class B Common Stock is not transferable by a holder except to or
among such holder's spouse, certain of such holder's relatives and certain
trusts established for their benefit. The Class B Common Stock is convertible
into Common Stock on a share-for-share basis at any time.
If the number of outstanding shares of Class B Common Stock at any time
falls below 250,000 (as adjusted for any stock splits, combinations, stock
dividends or further issuances of Class B Common Stock), the outstanding shares
of Class B Common Stock will automatically be converted into shares of Common
Stock.
The Class B Common Stock may tend to have an anti-takeover effect. Since
voting control of the Company is vested primarily in the holders of the Class B
Common Stock, the issuance of the Class B Common Stock could render more
difficult, or discourage, a hostile merger proposal, a tender offer or a proxy
contest, even if such actions were favored by a majority of the holders of
Common Stock. As of June 1, 1994, Melvin Waxman and Armond Waxman beneficially
owned an aggregate of approximately 80.1% of the outstanding Class B Common
Stock and 61.1% of the aggregate outstanding voting power of the Company.
The transfer agent and registrar for the Common Stock and Class B Common
Stock is National City Bank, Cleveland, Ohio.
PREFERRED STOCK
The Preferred Stock may be issued from time to time in one or more series,
and the Board of Directors is authorized to fix the dividend rights and terms,
any conversion rights, any voting rights, any redemption rights and terms
(including sinking fund provisions), the rights in the event of liquidation and
any other rights, preferences, privileges and restrictions of any series of
Preferred Stock, as well as the number of shares constituting such series and
the designation thereof. The Preferred Stock, if issued, will rank senior to
the Company Common Stock as to dividends and as to liquidation preference.
Holders of Preferred Stock will have no preemptive rights. The issuance of
shares of Preferred Stock could have an anti-takeover effect under certain
circumstances. The issuance of shares of Preferred Stock could enable the
Board of Directors to render more difficult or discourage an attempt to obtain
control of the Company by means of a merger, tender offer or other business
combination transaction directed at the Company by, among other things, placing
shares of Preferred Stock with investors who might align themselves with the
Board of Directors, issuing new shares to dilute stock ownership of a person or
entity seeking
- 49 -
<PAGE> 52
control of the Company or creating a class or series of Preferred Stock with
voting rights. The issuance of shares of the Preferred Stock as an
anti-takeover device might preclude stockholders from taking advantage of a
situation which they believed could be favorable to their interests. No shares
of Preferred Stock are outstanding, and the Company has no present plans to
issue any shares of Preferred Stock.
PLAN OF DISTRIBUTION
Any or all of the Securities may be sold from time to time to purchasers
directly by the Selling Security Holders. Alternatively, the Selling Security
Holders may from time to time offer the Securities through underwriters,
dealers or agents who may receive compensation in the form of underwriting
discounts, concessions or commissions from the Selling Security Holders and/or
the purchasers of Securities for whom they may act as agents. The Selling
Security Holders and any such underwriters, dealers or agents that participate
in the distribution of Securities may be deemed to be underwriters under the
Act, and any profit on the sale of the Securities by them and any discounts,
commissions or concessions received by them may be deemed to be underwriting
discounts and commissions under the Act. The Securities may be sold from time
to time in one or more transactions at a fixed offering price, which may be
changed, or at varying prices determined at the time of sale or at negotiated
prices. The distribution of Securities by the Selling Security Holders may be
effected in one or more transactions that may take place on the NYSE or the
over-the-counter market, including ordinary broker's transactions,
privately-negotiated transactions or through sales to one or more
broker-dealers for resale of such shares as principals, at market prices
prevailing at the time of sale, at prices related to such prevailing market
prices or at negotiated prices. Usual and customary or specifically negotiated
brokerage fees, discounts and commissions may be paid by the Selling Security
Holders in connection with such sales of securities.
At the time a particular offer of Securities is made, to the extent
required, a supplement to this Prospectus will be distributed (or, if required,
a post-effective amendment to the Registration Statement of which this
Prospectus is a part will be filed) which will identify the specific Securities
being offered and set forth the aggregate amount of Securities being offered,
the purchase price and the terms of the offering, including the name or names
of the Selling Security Holders and of any underwriters, dealers or agents, the
purchase price paid by any underwriter for Securities purchased from the
Selling Security Holders, any discounts, commissions and other items
constituting compensation from the Selling Security Holders and/or the Company
and any discounts, commissions or concessions allowed or reallowed or paid to
dealers, including the proposed selling price to the public. In addition, an
underwritten offering will require clearance by the National Association of
Securities Dealers, Inc. of the underwriter's compensation arrangements. The
Company will not receive any of the proceeds from the sale by the Selling
Security Holders of the Securities offered hereby. All of the filing fees and
other expenses of this Registration Statement will be borne in full by the
Company, other than any underwriting fees, discounts and commissions relating
to this offering.
Pursuant to the Equity Registration Rights Agreement, the Company will use
its best efforts to keep the Registration Statement of which this Prospectus
forms a part effective under the Act for period of three years following the
initial effective date of such Registration Statement (or such shorter period
as permitted under the Equity Registration Rights Agreement) and the Company
will pay substantially all of the expenses incident to the offering and sale of
the Securities to the public, other than underwriting fees, discounts and
commissions. The Equity Registration Rights Agreement provides for
cross-indemnification of the Selling Security Holders and the Company, to the
extent permitted by law, for losses, claims, damages, liabilities and expenses
arising, under certain circumstances, out of any registration of the
Securities. The Equity Registration Rights Agreement also provides that in
connection with an underwriting offering, the Company will indemnify the
underwriters thereof, their officers and directors and each person who controls
such underwriters (within the meaning of the Act) to the same extent as
provided with respect to the indemnification of the Selling Security Holders
signatory to such agreement, except with respect to information provided by
such underwriters specifically for inclusion within the appropriate
- 50 -
<PAGE> 53
registration statement. See "Selling Security Holders" and "Recent Securities
Offering and Related Matters -- REGISTRATION RIGHTS AGREEMENTS."
Under applicable rules and regulations under the Exchange Act, any person
engaged in a distribution of the Securities may not simultaneously engage in
market making activities with respect to the Securities for a period of two
business days prior to the commencement of such distribution. In addition and
without limiting the foregoing, the Selling Security Holders will be subject to
applicable provisions of the Exchange Act and the rules and regulations
thereunder, including without limitation Rules 10b-6 and 10b-7, which
provisions may limit the timing of purchases and sales of the Securities by the
Selling Security Holders.
In order to comply with certain states' securities laws, if applicable,
the Securities will be sold in such jurisdictions only through registered or
licensed brokers or dealers. In certain states the Securities may not be sold
unless the Securities have been registered or qualified for sale in such state,
or unless an exemption from registration or qualification is available and is
obtained.
The Warrants originally issued by the Company in the Private Exchange
Offer contained legends as to their restricted transferability. In addition,
the certificates for Common Stock issuable upon exercise of the Warrants would
contain, legends as to their restricted transferability. Upon the
effectiveness of the Registration Statement of which this Prospectus forms a
part and the transfer of the Securities pursuant thereto, these legends will no
longer be necessary, and accordingly, new certificates representing such
Securities will be issued to the transferee without any such legends unless
otherwise required by law.
In addition to sales pursuant to the Registration Statement of which this
Prospectus forms a part, the Warrants and the shares of Common Stock issuable
upon exercise of the Warrants may be sold in accordance with Rule 144 under the
Act.
LEGAL MATTERS
The legality of the Securities covered by this Prospectus has been passed
upon by Shereff, Friedman, Hoffman & Goodman, New York, New York, counsel to
the Company.
EXPERTS
The audited consolidated financial statements of the Company as of June
30, 1992 and 1993 and for each of the three years in the period ended June 30,
1993 appearing in this Prospectus and elsewhere in this Registration Statement
have been audited by Arthur Andersen & Co., independent certified public
accountants, as indicated in their report with respect thereto, and are
included herein in reliance upon the authority of said firm as experts in
giving said reports.
Reference is made to said report which includes an explanatory paragraph
with respect to the change in method of accounting for certain warehousing and
catalog costs as discussed in Note 3 to the consolidated financial statements.
- 51 -
<PAGE> 54
<TABLE>
INDEX TO FINANCIAL STATEMENTS
<CAPTION>
Page
----
<S> <C>
WAXMAN INDUSTRIES, INC. AND SUBSIDIARIES
Unaudited Financial Statements:
Consolidated Balance Sheets as of March 31, 1994 and June 30, 1993 . . . . . . . . . . . F-2
Consolidated Statements of Income for the Nine and Three Months
Ended March 31, 1994 and 1993 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . F-4
Consolidated Statements of Cash Flows for the Nine Months Ended
March 31, 1994 and 1993 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . F-6
Notes to Unaudited Consolidated Financial Statements . . . . . . . . . . . . . . . . . . F-7
Audited Financial Statements:
Report of Independent Public Accountants . . . . . . . . . . . . . . . . . . . . . . . . F-14
Consolidated Balance Sheets as of June 30, 1993 and 1992 . . . . . . . . . . . . . . . . F-15
Consolidated Statements of Income for the Years Ended
June 30, 1993, 1992 and 1991 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . F-17
Consolidated Statements of Stockholders' Equity for the
Years Ended June 30, 1993, 1992 and 1991 . . . . . . . . . . . . . . . . . . . . . . . F-18
Consolidated Statements of Cash Flows for the Years Ended
June 30, 1993, 1992 and 1991 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . F-19
Notes to Consolidated Financial Statements . . . . . . . . . . . . . . . . . . . . . . . F-20
Unaudited Supplementary Financial Information . . . . . . . . . . . . . . . . . . . . . . F-32
</TABLE>
F-1
<PAGE> 55
<TABLE>
WAXMAN INDUSTRIES, INC. AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS
(Unaudited)
March 31, 1994 and June 30, 1993
ASSETS
<CAPTION>
March 31, June 30,
1994 1993
-------- --------
(in thousands)
<S> <C> <C>
CURRENT ASSETS:
Cash $ 529 $ 406
Accounts receivable, net 37,297 32,432
Inventories 77,929 69,728
Prepaid expenses 4,800 4,844
Net assets held for sale - 10,266
Net assets (liabilities) of discontinued operations (500) 29,156
-------- ------
Total current assets 120,055 146,832
-------- --------
PROPERTY AND EQUIPMENT:
Land 1,852 1,420
Buildings 11,816 11,172
Equipment 19,953 18,229
-------- --------
33,621 30,821
Less accumulated depreciation
and amortization (16,675) (14,361)
-------- --------
Property and equipment, net 16,946 16,460
-------- --------
COST OF BUSINESSES IN EXCESS OF
NET ASSETS ACQUIRED, NET 24,955 24,448
OTHER ASSETS 12,721 9,311
-------- --------
$174,677 $197,051
======== ========
<FN>
The accompanying Notes to Consolidated Financial Statments
are an integral part of these balance sheets.
</TABLE>
F-2
<PAGE> 56
<TABLE>
WAXMAN INDUSTRIES, INC. AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS
(Unaudited)
March 31, 1994 and June 30, 1993
LIABILITIES AND STOCKHOLDERS' EQUITY
<CAPTION>
March 31, June 30,
1994 1993
-------- -------
(in thousands, except per share amounts)
<S> <C> <C>
CURRENT LIABILITIES:
Current portion of long-term debt $ 3,178 $ 2,493
Accounts payable 23,197 18,604
Accrued liabilities 14,223 6,548
-------- --------
Total current liabilities 40,598 27,645
-------- --------
LONG-TERM DEBT, NET OF CURRENT PORTION 32,602 22,567
SENIOR SECURED NOTES 38,646 38,563
SUBORDINATED DEBT 100,780 100,780
COMMITMENTS AND CONTINGENCIES
STOCKHOLDERS' EQUITY:
Preferrrred stock, $.01 par value per share:
Authorized and unissued 2,000 shares - -
Common Stock, $.01 par value per share:
Authorized 22,000 shares; Issued 9,484
at March 31, 1994 and 9,424 at
June 30, 1993 95 94
Class B common stock $.01 par value
per share:
Authorized 6,000 shares; Issued
2,229 at March 31, 1994 and
2,238 at June 30, 1993 23 23
Paid-in capital 18,598 18,467
Retained deficit (55,993) (6,437)
-------- --------
(37,277) 12,147
Cumulative currency translation
adjustments (672) (4,651)
-------- --------
Total stockholders' equity (deficit) (37,949) 7,496
-------- --------
$174,677 $197,051
======== ========
<FN>
The accompanying Notes to Consolidated Financial Statements
are an integral part of these balance sheets.
</TABLE>
F-3
<PAGE> 57
<TABLE>
PART I. FINANCIAL INFORMATION
Item 1. Financial Statements
WAXMAN INDUSTRIES, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF INCOME
(Unaudited)
(In Thousands, Except Per Share Data)
For the Nine Months and Three Months Ended March 31, 1994 and 1993
<CAPTION>
Nine Months Ended Three Months Ended
March 31, March 31,
1994 1993 1994 1993
------ ------- ------ ------
<S> <C> <C> <C> <C>
Net sales $ 160,245 $ 153,957 $ 52,311 $ 48,583
Cost of sales 104,180 102,035 33,761 31,810
------- ------- ------- ------
Gross profit 56,065 51,922 18,550 16,773
Operating expenses 41,769 39,729 14,137 12,868
------- ------- ------- ------
Operating income 14,296 12,193 4,413 3,905
Interest expense, net 15,635 15,242 5,293 5,089
------- ------- ------- ------
Loss from continuing operations before
income taxes, extraordinary charge and
cumulative effect of accounting change (1,339) (3,049) (880) (1,184)
Provision (benefit) for income taxes - (1,429) 61 (474)
------- ------- ------- ------
Loss from continuing operations before
extraordinary charge and cumulative
effect of accounting change (1,339) (1,620) (941) (710)
Discontinued Operations - Ideal
Income (loss) from discontinued
operations, net of taxes (3,249) 1,300 (4,250) (218)
Loss on disposal, without tax benefit (38,343) (38,343)
------- ------- ------- ------
Loss before extraordinary charge and
cumulative effect of accounting change (42,931) (320) (43,534) (928)
Extraordinary charge, early retirement
of debt, without tax benefit (6,625) - (6,625) -
Cumulative effect of change in accounting
for warehouse and catalog costs,
without tax benefit - (2,110) - -
------- ------- ------- ------
Net loss $ (49,556) $ (2,430) $ (50,159) $ (928)
======= ======= ======= ======
</TABLE>
..continued..
F-4
<PAGE> 58
<TABLE>
WAXMAN INDUSTRIES, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF INCOME
(Unaudited)
(In Thousands, Except Per Share Data)
For the Nine Months and Three Months Ended March 31, 1994 and 1993
<CAPTION>
Nine Months Ended Three Months Ended
March 31, March 31,
1994 1993 1994 1993
------ ------- ------ ------
<S> <C> <C> <C> <C>
Primary and fully diluted earnings
(loss) per share:
From continuing operations $ (.11) $ (.14) $ (.08) $ (.06)
Discontinued operations:
Income (loss) from discontinued operations (.28) .11 (.36) (.02)
Loss on disposal (3.29) - (3.28) -
Extraordinary charge (.57) - (.57) -
Cumulative effect of accounting change - (.18) - -
------ ------ ------ ------
Net loss $ (4.25) $ (.21) $ (4.29) $ (.08)
====== ====== ====== ======
<FN>
The accompanying Notes to Consolidated Financial Statements
are an integral part of these statements.
</TABLE>
F-5
<PAGE> 59
<TABLE>
WAXMAN INDUSTRIES, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS
(Unaudited)
For the Nine Months Ended March 31, 1994 and 1993
<CAPTION>
1994 1993
-------- --------
(in thousands)
<S> <C> <C>
CASH FROM (USED FOR):
OPERATIONS
Loss from continuing operations $(1,339) $(1,620)
Adjustments to reconcile loss
from continuing operations:
Changes in assets and liabilities:
Depreciation and Amortization 5,573 5,696
Accounts receivable (1,026) (332)
Inventories ( 6,537) 1,336
Prepaid expenses 187 1,954
Accounts payable 3,261 (10,174)
Accrued liabilities 1,038 (549)
------- -------
Net cash from provided by (used for)
continuing operations 1,157 (3,689)
Earnings (loss) from discontinued operations (3,249) 1,300
Loss on disposal of discontinued operations (38,343) -
Other, net 3,979 (2,550)
Change in net assets of discontinued operations 29,656 300
------- -------
Net cash used for operating activities (6,800) (4,639)
------- -------
INVESTMENTS:
Proceeds from sale of business 3,006 -
Capital expenditures (2,280) (791)
Change in other assets (3,321) (1,811)
------ -------
Net cash used for investments (2,595) (2,602)
------- -------
FINANCING:
Net borrowings under credit agreements 9,848 8,348
Repayments of long-term debt (330) (453)
Dividends paid - (700)
-------- -------
Net cash from financing 9,518 7,195
------- -------
NET INCREASE (DECREASE) IN CASH 123 (46)
BALANCE, BEGINNING OF PERIOD 406 194
------- -------
BALANCE, END OF PERIOD $ 529 $ 148
======= =======
<FN>
The accompanying Notes to Consolidated Financial Statements
are an integral part of these statements.
</TABLE>
F-6
<PAGE> 60
WAXMAN INDUSTRIES, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
March 31, 1994 and 1993
(in thousands, except per share amounts)
Management believes that the information furnished in the accompanying
consolidated financial statements reflects all adjustments (consisting only of
normal recurring adjustments) which are necessary for a fair presentation of
the Company's financial position and results of operations for the periods
presented. The results of operations for the nine months and three months
ended March 31, 1994 are not necessarily indicative of the results that may be
expected for the fiscal year ending June 30, 1994 or any other period. The
information reported in the consolidated financial statements and the notes
below should be read in conjunction with the Company's Annual Report on Form
10-K/A for the fiscal year ended June 30, 1993.
1. Business
--------
The Company believes that it is one of the leading suppliers of
plumbing products to the home repair and remodeling market in the
United States. The Company distributes plumbing, electrical and
hardware products, in both packaged and bulk form, to do-it-yourself
(D-I-Y) retailers, mass merchandisers, smaller independent retailers
and plumbing, electrical repair and remodeling contractors. The
Company performs ongoing credit evaluations of its customers'
financial condition. The Company's largest customer accounted for
approximately 12.3% and 11.5% of the Company's net sales from
continuing operations for the nine months ended March 31, 1994 and
1993, respectively.
2. Consolidation and Prior-Year Reclassification
---------------------------------------------
The accompanying consolidated financial statements include the
accounts of Waxman Industries, Inc. and its wholly-owned subsidiaries
(the Company). All significant intercompany transactions and balances
are eliminated in consolidation.
The accompanying June 30, 1993 balance sheet has been restated to
reflect the discontinued operations discussed in Note 3 and the
reclassification of certain debt amounts from current to long-term as
a result of the Company's successful solicitation of consents to
obtain waivers of certain covenant violations that existed at June 30,
1993 and the subsequent modification of certain of the Company's debt
agreements. See Note 6.
3. 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 at March 31, 1994 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 conform to
the current period presentation.
F-7
<PAGE> 61
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 reviewed 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.) As a result of this action, the
Company's control and ownership of Ideal is likely to be lost prior to
June 30, 1994.
The estimated loss on disposal totals $38.2 million, without tax benefit,
and represents a complete write-off of the Company's investment in Ideal.
The loss includes 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 may be
recognized in the future.
Net assets of the discontinued operation at March 31, 1994 consist of
current assets and plant, property and equipment, current liabilities and
bank borrowings after deducting an allowance for the estimated loss on
disposal.
Summary operating results of the discontinued operation for the periods
presented are as follows:
<TABLE>
<CAPTION>
Nine Months Ended Three Months Ended
March 31 March 31
------------------------ -----------------------
1994 1993 1994 1993
-------- -------- ------- -------
<S> <C> <C> <C> <C>
Net sales $87,265 $118,455 $18,449 $31,371
Costs and expenses 90,261 115,960 22,597 31,793
------ ------- ------ ------
Income (loss) before
income taxes (2,996) 2,495 (4,148) (422)
Income taxes 253 1,195 102 (204)
------ ------- ------ ------
Net income (loss) $(3,249) $ 1,300 $(4,250) $ (218)
====== ======= ====== ======
</TABLE>
4. Earnings Per Share
------------------
Primary earnings per share have been computed based on the weighted
average number of shares and share equivalents outstanding, which
totaled 11,674 and 11,666 for the three and nine months ended March
31, 1994, respectively. The weighted average number of shares and
share equivalents outstanding totaled 11,662 for both the three and
nine months ended March 31, 1993. Share equivalents include the
Company's common stock purchase warrants. The conversion of the
Company's Convertible Subordinated
F-8
<PAGE> 62
Debentures due March 15, 2007 into shares of common stock was not
assumed in computing fully diluted earnings per share in either 1994 or
1993, as the effect would be antidilutive.
5. Income Taxes
------------
Effective July 1, 1993, the Company adopted Statement of Financial
Accounting Standards No. 109, "Accounting for Income Taxes" (SFAS 109).
The adoption of SFAS 109 had no effect on the Company's financial
position or results of operations. In accordance with the provisions
of SFAS 109, the Company is unable to tax benefit losses in the current
period.
The Company currently has $11.5 million of available domestic net
operating loss carryforwards which expire in 2008. In addition, as a
result of the anticipated disposition of Ideal, the Company currently
estimates that it will have available additional net operating loss
carry forwards of approximately $30 million.
SFAS 109 requires the recognition of 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 adoption of SFAS 109, the benefit of the Company's
net operating loss carryforwards was reduced 100% by a valuation
allowance. The Company will continue to evaluate the valuation
allowance and to the extent that the Company is able to recognize tax
benefits in the future, such recognition will favorably affect future
results of operations.
6. Debt:
----
A. Long-Term Debt
--------------
Long-term debt at March 31, 1994 consisted of the following:
<TABLE>
<S> <C>
Domestic revolving credit agreements $30,794
Other notes payable 4,986
-------
Subtotal - long-term debt 35,780
Less: current portion (3,178)
-------
Long-term debt, net $32,602
-------
</TABLE>
The Company has a secured revolving credit facility with two banks
which provides for availability of up to $30 million and expires on
December 31, 1995. At June 30, 1993, a "cross-default" provision
contained in the credit agreement would have been triggered, and
borrowings thereunder would have been subject to acceleration if, due
to a covenant violation related to the Senior Secured Notes (defined
below), such notes were accelerated. As discussed in B. below, the
Company has received consents from the requisite number of holders of
the Senior Secured Notes to waive such covenant violation.
In December 1993, Barnett Inc. (Barnett), a wholly-owned subsidiary of
the Company, entered into a secured revolving credit facility with a
domestic bank. The credit facility provides for availability of up to
$5 million and expires on May 31, 1994. Borrowings under this
facility are secured by substantially all of Barnett's assets.
Interest on the unpaid principal is based on the bank's prime rate
plus 1.5% or LIBOR plus 3%.
F-9
<PAGE> 63
In May 1994, both the domestic revolving credit facility and the
Barnett revolving credit facility were terminated by the Company, and
borrowings thereunder were refinanced as part of the Company's debt
restructuring. See Note 9. Borrowings under the Barnett revolving
credit facility at March 31, 1994 are classified as long-term debt as
they were subsequently refinanced using proceeds from long-term debt
obligations.
B. Senior Secured Notes
--------------------
In September 1991, the Company completed a private placement of Senior
Secured Notes due September 1, 1998 (the Senior Secured Notes). As of
June 30, 1993, the Company was not in compliance with the operating
cash flow covenant contained in the Senior Secured Note indenture. As
a result of the covenant violation, the trustee or the holders of 25%
of the Senior Secured Notes had the right, at their discretion, to
declare the Company to be in default under the indenture and cause the
amounts due under the Senior Secured Notes to be subject to
acceleration. In addition, as a result of the Company's 1993
operating results as well as the unfavorable impact of the decline in
the Canadian dollar on cumulative currency translation adjustments,
the Company's consolidated stockholders' equity at June 30, 1993 and
September 30, 1993 was below the minimum net worth requirement under
the Senior Secured Note indenture. Under the terms of the indenture,
the Company would have been required to offer to purchase $5 million
of the Senior Secured Notes every six months.
During November 1993, the Company completed a solicitation of consents
from the holders of the Senior Secured Notes to waive noncompliance
with the operating cash flow covenant and amend certain provisions of
the Senior Secured Note indenture. Effectiveness of the waiver and
amendments required the consent of holders of at least 66-2/3% of the
outstanding principal amount of the securities. The effect of the
consent was to cure the noncompliance with the operating cash flow
covenant as well as amend the net worth and certain other financial
covenants to relieve the Company of its obligation to offer to
purchase $5 million of Senior Secured Notes on May 30, 1994 and
provide that future compliance will not be negatively impacted by the
Company's fiscal 1993 operating results or fluctuations in foreign
currency on cumulative translation adjustments.
During May 1994, the Company received requisite consents from the
holders of the Senior Secured Notes to, among other things, permit the
completion of the Company's debt restructuring (see Note 9) and
eliminate any prospective defaults resulting from the adverse results
and events relating to the Company's discontinued Canadian operations.
See Note 9.
C. Senior Subordinated Notes
--------------------------
In June 1989, the Company issued $100 million principal amount of
13-3/4% Senior Subordinated Notes (the Subordinated Notes) due June 1,
1999. As a result of the Company's 1993 operating results as well as
the unfavorable impact of the decline in the Canadian dollar on
cumulative currency translation adjustments, the Company's
consolidated stockholders' equity at June 30, 1993 and September 30,
1993 was below the $15 million minimum net worth requirement under the
Subordinated Note indenture. Under the terms of the Subordinated Note
indenture, the Company would have been required to offer to purchase
$10 million of the Subordinated Notes every six months.
F-10
<PAGE> 64
During November 1993, the Company completed a solicitation of
consents from the holders of the Subordinated Notes to waive the
Company's obligation to offer to purchase on December 31, 1993 $10
million principal amount of the Subordinated Notes as well as amend
certain provisions of the Subordinated Note indenture. Effectiveness
of the waiver and amendments required the consent of holders of at
least 66-2/3% of the outstanding principal amount of the Subordinated
Notes. The effect of the consent was to relieve the Company of its
obligation to offer to purchase $10 million Subordinated Notes on
December 31, 1993 as well as amend the minimum net worth covenant to
provide that future compliance will not be negatively impacted by the
Company's cumulative currency translation adjustments.
During May 1994, the Company refinanced $50 million of the
Subordinated Notes. In addition, it received requisite consents from
the holders of the Subordinated Notes to, among other things, permit
the completion of the Company's debt restructuring and eliminate any
prospective defaults which result from the adverse results and events
relating to the Company's discontinued Canadian operations See Note
9.
D. Convertible Subordinated Debentures
-----------------------------------
In March 1987, the Company issued 6-1/4% Convertible Subordinated
Debentures (the Debentures) due March 15, 2007 of which approximately
$2 million remained outstanding as of December 31, 1993. As a result
of the Company's 1993 operating results, as well as the unfavorable
impact of the decline in the Canadian dollar on cumulative currency
translation adjustments, the Company's consolidated stockholders'
equity was below the minimum net worth requirement under the Debenture
indenture at both June 30, 1993 and September 30, 1993. As a result,
the Company would have been required to make a purchase offer at
December 31, 1993 for substantially all of the Debentures currently
outstanding. However, in December 1993, the Company commenced and
successfully completed a solicitation of consents from the holders of
the Debentures to defer until April 30, 1994 the Company's obligation
to offer to purchase $1.9 million of the Debentures. In connection
with the solicitation, the interest rate on the Debentures was
adjusted to 9.5% and the conversion price was reduced from $9.58 to
$3.25 per share.
On April 28, 1994, the Company made an offer to purchase $1.9 million
of the Debentures. If the offer is accepted, such purchase is
expected to be consummated on June 15, 1994.
7. Supplemental Cash Flow Information
----------------------------------
Cash payments during the nine months ended March 31, 1994 and 1993
included income taxes of $ 401 and $ 635, and interest of $12,769 and
$ 12,281 respectively.
8. Sale of Businesses
------------------
At June 30, 1993, net assets held for sale in the accompanying
consolidated balance sheets related to the proposed disposal of three
operating entities in which the Company had entered into letters of
intent with prospective buyers.
F-11
<PAGE> 65
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 in
exchange 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.
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 all.
Accordingly, these businesses are no longer reflected as net assets
held for sale in the consolidated balance sheet at March 31, 1994.
9. Subsequent Events - Debt Restructuring and Extraordinary Charge
---------------------------------------------------------------
A. Debt Restructuring
------------------
On May 20, 1994, the Company completed a restructuring of its debt
which included a refinancing of $50 million of its Subordinated Notes
as well as all borrowings under its existing domestic bank credit
facilities. As part of the restructuring, the Company exchanged $50
million of its 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. In addition, the
Operating Companies (as defined below) entered into a new $55 million,
four year, secured credit facility with an affiliate of Citibank,
N.A., as agent, which includes a $20 million letter of credit
subfacility. 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 redeemed within 33 months after the initial
borrowing under the domestic credit facility. The domestic credit
facility will be subject to borrowing base formulas. Borrowings
under the domestic credit facility will bear interest at (i) the per
annum rate of 1.5% plus the highest of (a) the prime rate of Citibank,
N.A., (b) the federal funds rate plus 0.5% and (c) a formula with
respect to three month certificates of deposit of major United States
money market banks or (ii) LIBOR plus 3.0%. These rates will be
increased by 0.5% until such time as the domestic term loan, discussed
below, has been repaid in full. These rates will be decreased by 0.5%
if Waxman USA achieves certain performance criteria based on the ratio
of EBITDA to fixed charged. The facility will include a letter of
credit subfacility of $20 million. The domestic credit facility will
be secured by the accounts receivable, inventory, certain general
intangibles and unencumbered fixed assets of the Operating Companies
and 65% of the capital stock of one subsidiary of TWI. The Operating
Companies also entered into a $15.0 million three-year term loan with
Citibank, N.A., as agent. The domestic term loan will bear interest
at a rate per annum equal to 2.0% over the interest rate under the
domestic credit facility and will be secured by a junior lien on the
collateral under the domestic credit facility. 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 within 6 months after May 20,
1994. Principal payments on the domestic term loan of $1.0 million
each will be required quarterly commencing at the end of the third
quarter following May 20, 1994. 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
F-12
<PAGE> 66
and the domestic term loan. The domestic term loan will contain
negative, affirmative and financial covenants, conditions and events
of default substantially the same as those under the domestic credit
facility. The initial borrowings under the revolving credit facility
(which totaled approximately $27.2 million) along with proceeds from
the domestic 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 restructuring.
B. Corporate Restructuring
-----------------------
The Company has restructured (the "Corporate Restructuring") its
domestic operations such that the Company will be a holding company
whose only material assets will be the capital stock of its
subsidiaries. As part of the Corporate Restructuring, the Company has
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., a wholly owned
subsidiary of Waxman USA, to own and operate Waxman Industries'
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 and Consumer Products. On
May 20, 1994, the Company restructured its operation by (i)
contributing the capital stock of Barnett to Waxman USA, (ii)
contributing the assets and liabilities of the Consumer Products
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.
C. Extraordinary Charge
--------------------
As a result of the refinancing of the $50 million of Subordinated
Notes as well as borrowings under the domestic bank credit facilities,
the Company incurred an extraordinary charge which totaled $6.6
million, without tax benefit, and included the fees paid upon the
exchange of the Subordinated Notes along with the accelerated
amortization of unamortized debt discount and issuance costs. The
Company has accrued for the extraordinary charge at March 31, 1994.
The $6.6 million extraordinary charge is included in accrued
liabilities in the accompanying balance sheet at March 31, 1994.
F-13
<PAGE> 67
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, 1993 and 1992, and the related consolidated statements of income,
stockholders' equity and cash flows for each of the three years in the period
ended June 30, 1993. 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, 1993 and 1992, and the results of their operations
and their cash flows for each of the three years in the period ended June 30,
1993, 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 & Co.
Cleveland, Ohio,
May 20, 1994.
F-14
<PAGE> 68
<TABLE>
WAXMAN INDUSTRIES, INC. AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS
JUNE 30, 1993 AND 1992
ASSETS
<CAPTION>
1993 1992
---- ----
<S> <C> <C>
CURRENT ASSETS:
Cash $ 406,000 $ 194,000
Accounts receivable, net 32,432,000 36,235,000
Inventories 69,728,000 80,326,000
Prepaid expenses 4,844,000 7,810,000
Net assets of discontinued operations 29,156,000 50,632,000
Net assets held for sale 10,266,000 --
------------ ------------
Total current assets 146,832,000 175,197,000
------------ ------------
PROPERTY AND EQUIPMENT:
Land 1,420,000 1,441,000
Buildings 11,172,000 10,808,000
Equipment 18,229,000 19,848,000
------------ ------------
30,821,000 32,097,000
Less accumulated depreciation and amortization (14,361,000) (13,321,000)
------------ ------------
Property and equipment, net 16,460,000 18,776,000
------------ ------------
COST OF BUSINESSES IN EXCESS OF
NET ASSETS ACQUIRED, NET 24,448,000 28,199,000
OTHER ASSETS 9,311,000 15,309,000
----------- ------------
$197,051,000 $237,481,000
============ ============
<FN>
The accompanying Notes to Consolidated Financial Statements
are an integral part of these balance sheets.
</TABLE>
F-15
<PAGE> 69
<TABLE>
WAXMAN INDUSTRIES, INC. AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS
JUNE 30, 1993 AND 1992
LIABILITIES AND STOCKHOLDERS' EQUITY
<CAPTION>
1993 1992
---- ----
<S> <C> <C>
CURRENT LIABILITIES:
Current portion of long-term debt $ 2,493,000 $ 2,107,000
Accounts payable 18,604,000 28,912,000
Accrued liabilities 6,548,000 8,292,000
------------- ------------
Total current liabilities 27,645,000 39,311,000
------------- ------------
LONG-TERM DEBT, NET OF CURRENT PORTION 22,567,000 9,663,000
SENIOR SECURED NOTES 38,563,000 38,451,000
SUBORDINATED DEBT 100,780,000 100,780,000
NET LONG-TERM LIABILITIES OF
DISCONTINUED OPERATIONS -- 8,449,000
COMMITMENTS AND CONTINGENCIES
STOCKHOLDERS' EQUITY:
Preferred stock, $.01 par value per share:
Authorized and unissued 2,000,000 shares -- --
Common stock, $.01 par value per share:
Authorized 22,000,000 shares;
Issued 9,424,000 in 1993 and 9,411,000 in 1992 94,000 94,000
Class B common stock, $.01 par value per share:
Authorized 6,000,000 shares;
Issued 2,238,000 in 1993 and 2,251,000 in 1992 23,000 23,000
Paid-in capital 18,467,000 18,467,000
Retained earnings (deficit) (6,437,000) 23,735,000
------------ ------------
12,147,000 42,319,000
Cumulative currency translation adjustments (4,651,000) (1,492,000)
------------ ------------
Total stockholders' equity 7,496,000 40,827,000
------------ ------------
$197,051,000 $237,481,000
============ ============
<FN>
The accompanying Notes to Consolidated Financial Statements
are an integral part of these balance sheets.
</TABLE>
F-16
<PAGE> 70
<TABLE>
WAXMAN INDUSTRIES, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF INCOME
FOR THE YEARS ENDED JUNE 30, 1993, 1992 AND 1991
<CAPTION>
1993 1992 1991
---- ---- ----
<S> <C> <C> <C>
Net sales $ 204,778,000 $197,738,000 $186,327,000
Cost of sales 137,244,000 127,115,000 121,397,000
------------ ------------ ------------
Gross profit 67,534,000 70,623,000 64,930,000
Selling, general and administrative expenses 56,081,000 51,824,000 50,263,000
Restructuring and other nonrecurring charges 6,762,000 3,900,000 --
------------ ------------ ------------
Operating income 4,691,000 14,899,000 14,667,000
Interest expense (net of interest income
of $5,000, $978,000 and $1,335,000) 20,365,000 20,025,000 17,462,000
------------ ------------ ------------
Loss from continuing operations before
income taxes, extraordinary charge and
cumulative effect of accounting change (15,674,000) (5,126,000) (2,795,000)
Provision (benefit) for income taxes 216,000 (768,000) (680,000)
----------- ------------ -----------
Loss from continuing operations before
extraordinary charge and cumulative
effect of accounting change (15,890,000) (4,358,000) (2,115,000)
Income (loss) from discontinued
operations of Ideal, net of taxes (11,240,000) 1,146,000 4,343,000
----------- --------- ----------
Income (loss) before extraordinary charge and
cumulative effect of accounting change (27,130,000) (3,212,000) 2,228,000
Extraordinary charge, early retirement
of debt, net of tax benefit -- (1,186,000) --
Cumulative effect of change in accounting
for warehouse and catalog costs,
without tax benefit (2,110,000) -- --
----------- --------- ---------
Net income (loss) $(29,240,000) $(4,398,000) $2,228,000
=========== ========= =========
Primary and fully diluted earnings
(loss) per share:
From continuing operations (1.36) (.44) (.22)
Income (loss) from discontinued operations (.97) .11 .45
Extraordinary charge -- (.12) --
Cumulative effect of accounting change (.18) -- --
---------- --------- -------
Net income (loss) $ (2.51) $ (.45) $ .23
========== ========= =======
<FN>
The accompanying Notes to Consolidated Financial Statements
are an integral part of these statements
</TABLE>
F-17
<PAGE> 71
<TABLE>
WAXMAN INDUSTRIES, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF STOCKHOLDERS' EQUITY
FOR THE YEARS ENDED JUNE 30, 1993, 1992 AND 1991
<CAPTION>
CUMULATIVE
CLASS B CURRENCY
COMMON COMMON PAID-IN RETAINED TRANSLATION
STOCK STOCK CAPITAL EARNINGS ADJUSTMENTS
----- ----- ------- -------- -----------
<S> <C> <C> <C> <C> <C>
BALANCE, JUNE 30, 1990 $ 76,000 $ 23,000 $ 9,590,000 $28,255,000 $ 1,298,000
Net income 2,228,000
Cash dividends:
-- $.12 per common share
and Class B share (1,149,000)
Common stock repurchase (4,000) (1,906,000)
Currency translation
adjustments (345,000)
--------- -------- ----------- ----------- -----------
BALANCE, JUNE 30, 1991 $ 72,000 $ 23,000 $ 7,684,000 $29,334,000 $ 953,000
Net loss (4,398,000)
Cash dividends:
-- $.12 per common share
and Class B share (1,201,000)
Issuance of common stock 22,000 9,763,000
Stock options exercised 20,000
Stock warrants issued 1,000,000
Currency translation
adjustments (2,445,000)
--------- -------- ----------- ----------- -----------
BALANCE, JUNE 30, 1992 $ 94,000 $ 23,000 $18,467,000 $23,735,000 $(1,492,000)
Net loss (29,240,000)
Cash dividends:
-- $.08 per common share
and Class B share (932,000)
Currency translation
adjustments (3,159,000)
--------- -------- ----------- ----------- -----------
BALANCE, JUNE 30, 1993 $ 94,000 $ 23,000 $18,467,000 $(6,437,000) $(4,651,000)
========= ======== =========== =========== ===========
<FN>
The accompanying Notes to Consolidated Financial Statements
are an integral part of these statements.
</TABLE>
F-18
<PAGE> 72
<TABLE>
WAXMAN INDUSTRIES, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS
FOR THE YEARS ENDED JUNE 30, 1993, 1992 AND 1991
<CAPTION>
1993 1992 1991
---- ---- ----
<S> <C> <C> <C>
CASH FROM (USED FOR):
OPERATIONS:
Loss from continuing operations $(15,890,000) $ (4,358,000) $ (2,115,000)
Adjustments to reconcile loss
from continuing operations to
net cash used for continuing operations:
Restructuring costs 6,762,000 -- --
Loss on sale of investments -- 3,900,000 --
Depreciation and amortization 8,932,000 6,525,000 5,160,000
Changes in assets and liabilities:
Accounts receivable (1,666,000) (1,841,000) (1,651,000)
Inventories 82,000 (15,664,000) 5,305,000
Prepaid expenses 2,276,000 (2,285,000) (1,754,000)
Accounts payable (8,337,000) 11,050,000 (6,503,000)
Accrued liabilities (1,691,000) (878,000) (1,250,000)
---------- ---------- ----------
Net cash used for continuing
operations (9,532,000) (3,551,000) (2,808,000)
Earnings (loss) from
discontinued operations (11,240,000) 1,146,000 4,343,000
Other, net (3,159,000) (2,444,000) (346,000)
Change in net assets of
discontinued operations 13,027,000 6,646,000 21,885,000
---------- --------- ----------
Net cash provided by (used for)
operating activities (10,904,000) 1,797,000 23,074,000
----------- --------- ----------
INVESTMENTS:
Capital expenditures (1,336,000) (3,193,000) (1,110,000)
Change in other assets (1,826,000) (5,922,000) (1,886,000)
Proceeds from sale of investments -- 4,386,000 4,500,000
Business acquisitions -- -- (1,773,000)
----------- ----------- ----------
Net cash used for investments (3,162,000) (4,729,000) (269,000)
----------- ----------- ----------
FINANCING:
Net borrowings (repayments) under
credit agreements 15,770,000 6,393,000 (9,311,000)
Repayments of long-term debt (560,000) (508,000) (537,000)
Repayment of domestic term loan -- (60,000,000) --
Proceeds from issuance of debt, net -- 48,500,000 --
Repurchase of debt -- (12,878,000) --
Proceeds from issuance of stock -- 9,805,000 --
Dividends paid (932,000) (1,201,000) (1,149,000)
Common stock repurchase -- -- (1,910,000)
------------ ------------ ------------
Net cash provided by
(used for) financing 14,278,000 (9,889,000) (12,907,000)
------------ ------------ ------------
NET INCREASE (DECREASE) IN CASH 212,000 (12,821,000) 9,898,000
BALANCE, BEGINNING OF PERIOD 194,000 13,015,000 3,117,000
------------ ------------ ------------
BALANCE, END OF PERIOD $ 406,000 $ 194,000 $ 13,015,000
============ ============ ============
<FN>
The accompanying Notes to Consolidated Financial Statements
are an integral part of these statements.
</TABLE>
F-19
<PAGE> 73
WAXMAN INDUSTRIES, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
FOR THE YEARS ENDED JUNE 30, 1993, 1992 AND 1991
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 1992 and 1991 amounts have been reclassified to conform with the 1993
presentation.
The financial statements have been restated to reflect the
discontinued operations discussed in Note 12.
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.
B. ACCOUNTS RECEIVABLE
Accounts receivable are presented net of allowances for doubtful
accounts of $1,124,000 and $1,112,000 at June 30, 1993 and 1992, respectively.
Bad debt expense totaled $695,000 in 1993, $562,000 in 1992 and $441,000 in
1991.
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 1993, 1992 and 1991, the Company's
largest customer accounted for approximately 12%, 11% and 8% of its net sales,
respectively. The Company's ten largest customers accounted for approximately
23% of net sales in 1993, 22% in 1992 and 21% in 1991 and approximately 26% and
22% of accounts receivable at June 30, 1993 and 1992, respectively.
C. INVENTORIES
At June 30, 1993 and 1992, 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.
D. 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 purposes, accelerated methods generally are used.
Depreciation expense totaled $2,690,000 in 1993, $2,665,000 in 1992 and
$2,524,000 in 1991.
E. 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 $725,000 in 1993, $756,000
in 1992 and $680,000 in 1991. The accumulated amortization of excess cost at
June 30, 1993 and 1992 was $3,572,000 and $3,255,000, respectively.
F. PER SHARE DATA
Primary earnings per share have been computed based on the weighted
average number of shares and share equivalents outstanding which totaled
11,662,000 in 1993,
F-20
<PAGE> 74
9,794,000 in 1992 and 9,570,000 in 1991. Share equivalents include the
Company's common stock purchase warrants (see Note 6). Fully diluted earnings
per share have been computed assuming the conversion of the 6 1/4% Convertible
Subordinated Debentures (the Debentures) into approximately 293,000 shares of
common stock in 1991 (after elimination of related interest expense, net of
income tax effect, which totaled $108,000 in 1991). The conversion of the
Debentures was not assumed in computing fully diluted earnings per share for
1993 and 1992 as the effect would be anti-dilutive.
G. FOREIGN CURRENCY TRANSLATION
All balance sheet accounts of foreign subsidiaries are translated at
the current exchange rate as of the end of the fiscal year. Income statement
items are translated at the average currency exchange rates during the 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 totaled $80,000 in 1993,
$73,000 in 1992 and $305,000 in 1991.
H. 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 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.
2. RESULTS OF OPERATIONS:
As a result of the 1993 operating results, the Company was not in
compliance as of June 30, 1993, with certain financial covenants contained in
its domestic bank credit agreements and in the indentures governing its Senior
Subordinated Notes and Senior Secured Notes. In addition, the Company's
consolidated net worth decreased to a level that is expected to obligate the
Company to offer to repurchase a portion of its Senior Subordinated Notes
commencing December 31, 1993 and its Senior Secured Notes commencing May 30,
1994. On October 1, 1993, the Company entered into an amendment to its
domestic bank credit agreement which waived all covenant violations as of June
30, 1993, and amended certain of the financial covenants to provide that future
compliance will not be negatively impacted by the Company's fiscal 1993
operating results. During November, 1993, the Company obtained consents from
the holders of its Senior Subordinated Notes and Senior Secured Notes which
cured the financial covenant violations and relieved the Company of its
repurchase obligations with respect to such indebtedness. Each of these
situations is discussed in more detail in Notes 6 and 12.
Reference should be made to Note 12 which discusses the subsequent
disposition of the Canadian subsidiary, debt restructuring, corporate
restructuring and the sale of a business.
3. CHANGE IN ACCOUNTING:
During 1993, the Company accelerated its amortization of certain
warehouse start-up costs and catalog costs. This change was made during the
fourth quarter and 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.
F-21
<PAGE> 75
The cumulative effect of this change on prior years totaled
$2,110,000, or $.18 per share, and is reported separately in the 1993
consolidated income statement, without tax benefit. The effect of the change
in 1993 was to increase both the loss from continuing operations before
extraordinary charge and cumulative effect of accounting change and the net
loss by $1,191,000. This is primarily the result of the introduction of a new
catalog and, in management's opinion, is not necessarily indicative of the
expected impact of accelerated amortization on future years.
The following pro forma information reflects the Company's results for
fiscal years 1992 and 1991 as if the change had been retroactively applied:
<TABLE>
<CAPTION>
1992 1991
---- ----
<S> <C> <C>
Income (loss) from continuing operations
before extraordinary charge $(4,461,000) $ (2,249,000)
Net income (loss) (4,532,000) 2,125,000
Earnings (loss) per share:
Loss from continuing operations
before extraordinary charge $ (.45) $ (.24)
Net income (loss) (.46) .22
</TABLE>
4. RESTRUCTURING, NONRECURRING AND EXTRAORDINARY CHARGES:
During the fourth quarter of 1993, as a result of certain actions
taken as part of its strategy to refocus and build on its existing core
businesses in the U.S. the Company recorded an $6,762,000 restructuring charge.
The provision for restructuring charge consists of an estimate of the loss to
be incurred upon the sale of certain businesses, including anticipated
operating results through the projected disposal dates, and the write-off of
intangible assets. Below is a summary of components comprising the
restructuring charges as of June 30, 1993:
<TABLE>
<S> <C>
Estimated loss on disposal of businesses $4,600,000
Relocation and consolidation costs 1,544,000
Other 618,000
---------
$6,762,000
=========
</TABLE>
The disposal of businesses includes three operating entities in which
the Company has entered into letters of intent with prospective buyers. The
components of net assets held for sale included in the accompanying
consolidated balance sheets is comprised primarily of working capital items and
fixed assets, net of the reserve for the estimated loss on the disposals. All
amounts are included at net realizable value. (See Note 12).
During the fourth quarter of 1992, the Company recorded a $3,900,000
nonrecurring charge which represents a capital loss realized upon the sale of
the Company's portfolio of debt securities.
During 1992, the Company repurchased certain debt securities in open
market purchases (see Note 6). As a result, the Company incurred an
extraordinary charge which totaled $1,186,000 (net of applicable income tax
benefit of $611,000) and included the market premium paid along with the
accelerated amortization of unamortized debt discount and issuance costs.
F-22
<PAGE> 76
5. INCOME TAXES:
The components of income (loss) from continuing operations before
income taxes, extraordinary charges and cumulative effect of change in
accounting are as follows (in thousands):
<TABLE>
<CAPTION>
1993 1992 1991
---- ---- ----
<S> <C> <C> <C>
Domestic $(13,442) $(6,179) $(3,581)
Foreign (2,232) 1,053 786
------- ------- ------
Total $(15,674) $(5,126) $ (2,795)
======== ======= ========
</TABLE>
The components of the provision (benefit) for income taxes are (in
thousands):
<TABLE>
<CAPTION>
1993 1992 1991
---- ---- ----
<S> <C> <C> <C>
Currently payable:
Federal $ -- $(2,404) $ (1,138)
Foreign and other 216 572 404
---- ------ -----
Total current 216 (1,832) (734)
---- ------ ------
Deferred: Federal -- 1,064 54
---- ------ ------
Total provision $216 $ (768) $ (680)
==== ====== ======
</TABLE>
Deferred income taxes relate to the following (in thousands):
<TABLE>
<CAPTION>
1993 1992 1991
---- ---- ----
<S> <C> <C> <C>
Depreciation $-- $ 68 $ 45
Inventory valuation -- (84) (279)
Bad debt expense -- 425 (86)
Deferred costs -- 800 240
Other, net -- (145) 134
--- ----- ------
Total $-- $1,064 $ 54
=== ====== ======
</TABLE>
The following table reconciles the U.S. statutory rate to the
Company's effective tax rate:
<TABLE>
<CAPTION>
1993 1992 1991
---- ---- ----
<S> <C> <C> <C>
U.S. statutory rate 34.0% 34.0% 34.0%
Domestic losses not benefited (24.4) -- --
Capital losses not benefited (10.0) (18.1) --
State taxes, net (0.8) (2.3) (3.0)
Goodwill amortization (1.6) (4.5) (4.3)
Effect of prior year purchase
accounting adjustments -- 2.7 --
Other, net 1.4 3.2 (2.4)
---- ----- -----
Effective tax rate (1.4)% 15.0% 24.3%
==== ===== =====
</TABLE>
In 1992, the Company was able to carryback domestic net operating
losses to prior years which resulted in refunds of previously paid taxes. Such
refunds totaled $2,462,000 and were received in 1993. Tax benefits for 1992
domestic net operating losses which could not be carried back to prior years
were recognized by reducing previously recorded deferred income taxes. At June
30, 1993, the Company had $11,547,000 of available domestic net operating loss
carryforwards for financial reporting and income tax purposes which expire in
2008.
The Company made income tax payments of $926,000 in 1993, $1,358,000
in 1992 and $1,599,000 in 1991.
F-23
<PAGE> 77
6. DEBT:
Total debt at June 30, 1993 and 1992 consisted of the following (in
thousands):
<TABLE>
<CAPTION>
JUNE 30, 1993
-------------
<S> <C>
Domestic revolving credit agreement $ 20,400
Other notes payable, maturing at various dates through 2000 and
bearing interest at rates varying from 5.25% to 11.75% 4,660
--------
Subtotal -- Long-term debt 25,060
Less: current portion (2,493)
--------
Long-term debt, net 22,567
Senior Secured Notes 38,563
Senior Subordinated Notes 98,750
Convertible Subordinated Debentures 2,030
--------
Total long-term debt, net of current portion $161,910
========
</TABLE>
<TABLE>
<CAPTION>
JUNE 30, 1992
-------------
<S> <C>
Domestic revolving credit agreement $ 5,000
Other notes payable, maturing at various dates through 2000 and
bearing interest at rates varying from 5.25% to 11.75% 6,770
--------
Subtotal -- Long-term debt 11,770
Less: current-portion (2,107)
-------
Long-term debt, net 9,663
Senior Secured Notes 38,451
Senior Subordinated Notes 98,750
Convertible Subordinated Debentures 2,030
--------
Total long-term debt, net of current portion $148,894
========
</TABLE>
A. BANK DEBT
In September 1991, the Company entered into a secured revolving credit
facility with a domestic bank. The credit facility, which was amended and
restated effective April 1, 1993, provides for availability up to $30 million
and expires on December 31, 1995. Borrowings under this agreement are secured
by the inventories and accounts receivable of Waxman Industries, Inc. and
certain of its domestic subsidiaries. Interest is based, at the Company's
option, on either the bank's reference rate plus 1.5% or LIBOR plus 2.5%. The
weighted average interest rate on borrowings outstanding under the credit
facility was 6.34% during 1993. The Company is required to pay a commitment
fee of 1/2% per annum on the unused commitment. The agreement also requires
the Company to, among other things, maintain certain net worth and working
capital levels and debt service ratios.
As a result of the 1993 operating results, the Company was not in
compliance with several financial covenants contained in this agreement as of
June 30, 1993. On October 1, 1993, the Company entered into an amendment to
this agreement which waived all covenant violations as of June 30, 1993 and
amended certain of the financial covenants to provide that future compliance
will not be negatively impacted by the Company's fiscal 1993 operating results.
Under the agreement, as amended, interest is based, at the Company's option, on
either the bank's reference rate plus 1.5% or LIBOR plus 3.0%.
In May 1994, the domestic revolving credit facility was terminated by
the Company, and borrowings thereunder were refinanced as part of the Company's
debt restructuring. See Note 12.
B. SENIOR SECURED NOTES
In September 1991, the Company completed a private placement of $50
million of 7-year Senior Secured Notes (the Senior Notes), including detachable
warrants to purchase 1 million shares of the Company's common stock (the
Warrants). At the time of issuance, the Senior Notes included $42.5 million of
12.25% fixed rate notes and
F-24
<PAGE> 78
$7.5 million of floating rate notes with interest at 300 basis points over the
90 day LIBOR rate. The Senior 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 commence on September 1,
1996 and are calculated to retire 68% of the principal amount of the Senior
Notes prior to maturity. The Senior Notes, which are secured by a pledge of
all of the outstanding stock of the Company's wholly-owned subsidiary, Barnett
Inc., 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 Notes is being amortized as interest expense
over the life of the Senior Notes.
During June 1992, the Company repurchased $10,850,000 principal amount
of the fixed rate notes in open market purchases.
The Senior Note indenture contains various covenants, including
dividend restrictions and minimum operating cash flow requirements. As a
result of its 1993 operating results, the Company was not in compliance with
the operating cash flow covenant contained in the Senior Note Indenture as of
June 30, 1993. 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 1993 was approximately 0.4 to 1.0). Under the terms of the
indenture, the trustee or the holders of 25% of the Senior Notes may, at their
discretion, declare the Company to be in default under the indenture as a
result of the noncompliance and, after applicable grace periods, cause the
amounts due under the Senior Notes to be subject to acceleration.
As a result of the Company's 1993 operating results as well as the
unfavorable impact of the decline in the Canadian dollar on cumulative currency
translation adjustment, the Company's consolidated stockholders' equity at June
30, 1993 was below the minimum net worth requirement under the Senior Note
indenture. Minimum net worth of $35 million, adjusted for cumulative earnings
as defined in the indenture, is required to be maintained (the Company's actual
consolidated net worth at June 30, 1993 was $7.5 million). Under the terms of
the Senior Note indenture, the Company would be required to offer to purchase
$5 million of the Senior Notes at a price of 102% every six months if the
Company's net worth falls below the minimum net worth requirement for two
consecutive quarters. Such offers to purchase must continue until the
Company's net worth exceeds the minimum net worth requirement. The Company's
net worth continued to be below the minimum requirement at September 30, 1993,
which obligated the Company to offer to purchase $5.0 million of the Senior
Notes at May 30, 1994.
During November 1993, the Company completed a solicitation of consents
from the holders of the Senior Secured Notes to waive noncompliance with the
operating cash flow covenant and amend certain provisions of the Senior Secured
Note indenture. Effectiveness of the waiver and amendments required the
consent of holders of at least 66-2/3% of the outstanding principal amount of
the securities. The effect of the consent was to cure the noncompliance with
the operating cash flow covenant as well as amend the net worth and certain
other financial covenants to relieve the Company of its obligation to offer to
purchase $5 million of Senior Secured Notes on May 30, 1994 and provide that
future compliance will not be negatively impacted by the Company's fiscal 1993
operating results or fluctuations in foreign currency on cumulative translation
adjustments.
During May 1994, the Company received requisite consents from the
holders of the Senior Secured Notes to, among other things, permit the
completion of the Company's debt restructuring and eliminate any prospective
defaults resulting from the adverse results and events relating to the
Company's discontinued Canadian operations. See Note 12.
F-25
<PAGE> 79
C. SENIOR SUBORDINATED NOTES
In June 1989, the Company issued $100 million principal amount of 13
3/4% Senior Subordinated Notes (Subordinated Notes) due June 1, 1999. The
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 Notes at established
redemption prices. The 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 6 1/4% Convertible Subordinated Debentures. Under the
terms of the indenture, the Company may not incur additional indebtedness which
is subordinate to senior debt and senior to the Subordinated Notes.
Additionally, the indenture agreement contains various other covenants,
including dividend restrictions and minimum net worth requirements.
During 1992, the Company repurchased $1,250,000 principal amount of
the Notes in an open market purchase.
As a result of the Company's 1993 operating results as well as the
unfavorable impact of the decline in the Canadian dollar on cumulative currency
translation adjustment, the Company's consolidated stockholders' equity at June
30, 1993 was below the $15 million minimum net worth requirement under the Note
indenture. Under the terms of the Note indenture, the Company is required to
offer to purchase $10 million of the Notes at a price of 100% every six months
if the Company's net worth falls below the minimum net worth requirement for
two consecutive quarters. Such offers to purchase must continue until the
Company's net worth exceeds the minimum net worth requirement. The Company may
credit against its purchase obligation the principal amount of any notes
previously acquired by the Company. The Company's net worth continued to be
below the minimum requirement at September 30, 1993, which obligated the
Company to offer to purchase $8.8 million of Notes at December 31, 1993 and
$10.0 million of Notes at June 30, 1994.
During November 1993, the Company completed a solicitation of consents
from the holders of the Subordinated Notes to waive the Company's obligation to
offer to purchase on December 31, 1993 $10 million principal amount of the
Subordinated Notes as well as amend certain provisions of the Subordinated
Notes indenture. Effectiveness of the waiver and amendments required the
consent of holders of at least 66-2/3% of the outstanding principal amount of
the Subordinated Notes. The effect of the consent was to relieve the Company
of its Obligation to offer to purchase $10 million Subordinated Notes on
December 31, 1993 as well as amend the minimum net worth covenant to provide
that future compliance will not be negatively impacted by the Company's
cumulative currency translation adjustments.
During May 1994, the Company refinanced $50 million of the
Subordinated Notes. In addition, it received requisite consents from the
holders of the Subordinated Notes to, among other things, permit the completion
of the Company's debt restructuring and eliminate any prospective defaults
which result from the adverse results and events relating to the Company's
discontinued Canadian operations. See Note 12.
D. CONVERTIBLE SUBORDINATED DEBENTURES
In March 1987, the Company issued $25 million principal amount of 6
1/4% Convertible Subordinated Debentures (the Debentures) due March 15, 2007.
The 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 $9.58 per share. The indenture agreement contains
various covenants, including dividend restrictions and minimum net worth
requirements.
During fiscal 1990, the Company called $12.5 million principal amount
of the Debentures for redemption and subsequently $6.5 million principal amount
was converted into 683,000 shares of common stock and the remaining $6.0
million principal amount was redeemed at the call price of 105%.
F-26
<PAGE> 80
During fiscal years 1990 and 1992, the Company also purchased $9.7
million and $.8 million, respectively, of the principal amount of the
Debentures in open market purchases at prices which approximated the par value
of the Debentures.
As a result of the Company's 1993 operating results, as well as the
unfavorable impact of the decline in the Canadian dollar on cumulative currency
translation adjustment, the Company's consolidated stockholders' equity at June
30, 1993 was $7.5 million, below the $8.0 million minimum net worth requirement
under the Debenture indenture. Under the terms of the Debenture indenture, if
the Company's net worth falls below the minimum net worth requirement for two
consecutive quarters, the Company is required to make a purchase offer for the
Debentures. The Company's consolidated stockholders' equity continued to be
below the minimum net worth requirement as of September 30, 1993, which
obligated the Company to make a purchase offer at December 31, 1993 for
substantially all of the $2.0 million principal amount of Debentures currently
outstanding. However, in December 1993, the Company commenced and successfully
completed a solicitation of consents from the holders of the Debentures to
defer until April 30, 1994 the Company's obligation to offer to purchase $1.9
million of the Debentures. In connection with the solicitation, the interest
rate on the Debentures was adjusted to 9.5% and the conversion price was
reduced from $9.58 to $3.25 per share.
E. MISCELLANEOUS
The Company made interest payments of $19,540,000 in 1993, $18,858,000
in 1992 and $18,622,000 in 1991. Accrued liabilities in the accompanying
consolidated balance sheets include accrued interest of $2,609,000 and
$2,600,000 at June 30, 1993 and 1992, 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 estimate
the fair value of the Company's Senior Secured Notes and subordinated debt
because of the inability to estimate fair value without incurring excessive
costs.
7. STOCKHOLDERS' EQUITY:
In May 1992, the Company completed a public offering of 2,199,000
shares of common stock at a price of $5.00 per share. The net proceeds from
the offering, after deducting all associated costs, were $9,785,000.
During fiscal 1991, the Company purchased approximately 452,000 shares
of its common stock at an aggregate cost of approximately $1,910,000 through
open market purchases. There were no common stock repurchases in 1993 or 1992.
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 ($4,651,000) and ($1,492,000) at June 30, 1993 and 1992,
respectively.
F-27
<PAGE> 81
8. 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 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.
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 year 1993, options were issued under the 1992 Stock
Option Plan for 1,045,000 shares at option prices ranging from $4.25 to $5.00
per share, and options for 55,000 shares with an exercise price of $5.00 per
share were cancelled. At June 30, 1993, options for 990,000 shares were
outstanding, of which none were exercisable.
At June 30, 1992, there were options for 773,500 shares outstanding
under the 1982 Plan. During fiscal year 1993, options for 462,750 shares with
exercise prices of $4.75 to $7.29 per share were cancelled. At June 30, 1993,
options for 270,750 shares remained outstanding at option prices of $4.75 to
$6.00 per share, of which 153,710 options were exercisable.
OTHER STOCK OPTIONS
The Company has granted non-qualified stock options not under the Plan
to its Co-Chief Executive Officers, outside directors and to a consultant. At
June 30, 1993, a total of 170,000 shares, with exercise prices ranging from
$4.25 to $6.00, were outstanding under the non-qualified options, 88,000 of
which were exercisable. At June 30, 1992, options for 140,000 shares were
outstanding. During fiscal year 1993, options for 30,000 shares with an
exercise price of $4.25 per share were issued and no options were cancelled.
9. 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: $3,458,000 in 1994,
$3,055,000 in 1995, $2,665,000 in 1996, $2,342,000 in 1997, $1,880,000 in 1998
and $3,789,000 after 1998, with a cumulative total of $17,189,000.
Total rent expense charged to operations was $3,758,000 in 1993,
$3,398,000 in 1992 and $2,909,000 in 1991.
10. 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 $132,000 in 1993, $123,000 in 1992
and $108,000 in 1991.
11. 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.
F-28
<PAGE> 82
12. SUBSEQUENT EVENTS - DISCONTINUED OPERATIONS, DEBT RESTRUCTURING AND
SALE OF A BUSINESS
A. 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 reviewed 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.) As a result of this action, the
Company's control and ownership of Ideal is likely to cease prior to June 30,
1994.
The estimated loss on disposal, which was recorded by the Company in
its consolidated financial statements as of March 31, 1994, totals $38.2
million, without tax benefit, and represents a complete write-off of the
Company's investment in Ideal. The loss includes 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 may be recognized in the
future.
Net assets of the discontinued operation at June 30, 1993 consisted of
working capital of $29,878,000, net plant, property and equipment of
$15,171,000, other assets of $40,561,000 and bank debt of $56,455,000 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>
1993 1992 1991
------- ------- --------
<S> <C> <C> <C>
Net sales $153,875 $181,305 $197,968
Costs and expenses 164,684 178,540 191,551
------- ------- -------
Income (loss) before
income taxes (10,809) 2,765 6,417
Income taxes 431 1,619 2,074
------- ------- -------
Net income (loss) $(11,240) $ 1,146 $ 4,343
------- ======= =======
</TABLE>
F-29
<PAGE> 83
B. DEBT RESTRUCTURING
On May 20, 1994, the Company completed a restructuring of its debt
which included a refinancing of $50 million of its Subordinated Notes as well
as all borrowings under its existing domestic bank credit facilities. As part
of the restructuring, the Company exchanged $50 million of its 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. In
addition, the Operating Companies (as defined below) 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 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 redeemed within 33 months
after the initial borrowing under the domestic credit facility. The domestic
credit facility will be subject to borrowing base formulas. Borrowings under
the domestic credit facility will bear interest at (i) the per annum rate of
1.5% plus the highest of (a) the prime rate of Citibank, N.A., (b) the federal
funds rate plus 0.5% and (c) a formula with respect to three month certificates
of deposit of major United States money market banks or (ii) LIBOR plus 3.0%.
These rates will be increased by 0.5% until such time as the domestic term
loan, discussed below, has been repaid in full. These rates will be reduced by
0.5% if Waxman USA (as defined below) achieves certain performance criteria
based on the ratio of EBITDA to fixed charges. The domestic credit facility
will be secured by the accounts receivable, inventory, certain general
intangibles and unencumbered fixed assets of the Operating Companies and 65% of
the capital stock of one subsidiary of TWI. The Operating Companies also
entered into a $15.0 million three-year term loan with Citibank, N.A., as
agent. The domestic term loan will bear interest at a rate per annum equal to
1.5% over the interest rate under the domestic credit facility and will be
secured by a junior lien on the collateral under the domestic credit facility.
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 within 6 months after May
20, 1994. Principal payments on the domestic term loan of $1.0 million each
will be required quarterly commencing at the end of the third quarter following
May 20, 1994. 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 initial borrowings under
the revolving credit facility (which totaled approximately $27.2 million) along
with proceeds from the domestic 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 restructuring.
C. CORPORATE RESTRUCTURING
The Company has restructured (the "Corporate Restructuring") its
domestic operations such that the Company will be a holding company whose only
material assets will be the capital stock of its subsidiaries. As part of the
Corporate Restructuring, the Company has 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 Waxman
Industries' 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 and Consumer Products. On May 20, 1994, the
Company restructured its operation 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.
F-30
<PAGE> 84
D. SALE OF A BUSINESS
At June 30, 1993, net assets held for sale in the accompanying
consolidated balance sheets related to the proposed disposal of 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 in exchange 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.
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 all. At June 30, 1993, assets and liabilities
included in net assets held for sale of these entities are as follows:
<TABLE>
<S> <C>
Accounts receivable, net $3,840,000
Inventory 3,214,000
Prepaids 143,000
Property and equipment, net 214,000
Cost of business in excess of
net assets acquired, net 1,050,000
Other assets 195,000
Accounts payable (1,331,000)
Accrued liabilities (144,000)
----------
$7,181,000
==========
</TABLE>
F-31
<PAGE> 85
<TABLE>
SUPPLEMENTARY FINANCIAL INFORMATION
QUARTERLY RESULTS OF OPERATIONS:
The following is a summary of the unaudited quarterly results of
operations for the years ended June 30, 1993 and 1992 (in thousands, except per
share amounts):
<CAPTION>
FISCAL 1993 1ST QTR. 2ND QTR. 3RD QTR. 4TH QTR. TOTAL
- ----------- -------- -------- -------- -------- -----
<S> <C> <C> <C> <C> <C>
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)
Net income (loss) (.14) .02 (.08) (2.30) (2.51)
As Previously Reported (1):
Net Income 422
Earnings per share .04
</TABLE>
<TABLE>
<CAPTION>
FISCAL 1992 1ST QTR. 2ND QTR. 3RD QTR. 4TH QTR. TOTAL
- ----------- -------- -------- -------- -------- -----
<S> <C> <C> <C> <C> <C>
Net sales $48,669 $47,269 $47,628 $54,172 $197,738
Gross profit 16,980 16,585 17,179 19,879 70,623
Operating income 3,789 4,289 5,374 1,447 14,899
Income (loss) from continuing
operations before
extraordinary charge (356) (335) 165 (3,832) (4,358)
Income (loss) from discontinued
operations 980 805 96 (735) 1,146
Net income (loss) 625 470 261 (5,754) (4,398)
Primary and fully diluted
earnings per share:
Income (loss) from continuing
operations before extraordinary
charge (.04) (.03) .02 (.36) (.44)
Income (loss) from discontinued
operations .11 .08 .01 (.07) .11
Net income (loss) .07 .05 .03 (.54) (.45)
<FN>
(1) First quarter results of fiscal 1993 have been restated for the
cumulative effect of the accounting change for warehouse and catalog
costs. The effect of the change on 1993 operating income has been
included in results for the fourth quarter.
</TABLE>
F-32
<PAGE> 86
<TABLE>
<S> <C>
NO PERSON HAS BEEN AUTHORIZED TO GIVE ANY WAXMAN INDUSTRIES, INC.
INFORMATION OR TO MAKE ANY REPRESENTATIONS,
OTHER THAN THOSE HEREIN, IN CONNECTION WITH
THIS OFFER AND, IF GIVEN OR MADE, SUCH
INFORMATION OR REPRESENTATIONS MUST NOT BE
RELIED UPON. THIS PROSPECTUS DOES NOT
CONSTITUTE AN OFFER TO SELL, OR A SOLICITATION OF 2,950,000
AN OFFER TO BUY, ANY OF THESE SECURITIES IN WARRANTS TO
ANY JURISDICTION TO ANY PERSON TO WHOM IT IS PURCHASE COMMON STOCK
UNLAWFUL TO MAKE SHARES OF SUCH OFFER OR SOLICITATION
IN SUCH JURISDICTION. THE DELIVERY OF THIS
PROSPECTUS AT ANYTIME DOES NOT IMPLY THAT ---------
THE INFORMATION HEREIN IS CORRECT AS OF ANY
TIME SUBSEQUENT TO ITS DATE. 2,950,000
SHARES OF
------------------------ COMMON STOCK
PAR VALUE $.01 PER SHARE
TABLE OF CONTENTS --------------------------
Page
---- PROSPECTUS
Available Information . . . . . 3
Prospectus Summary . . . . . . 4 --------------------------
Risk Factors . . . . . . . . . 9
Use of Proceeds . . . . . . . . 11
Capitalization . . . . . . . . 12 June , 1994
Price Range of Common Stock . 14
Dividends . . . . . . . . . . . 14
Selected Financial Data . . . . 15
Management's Discussion and
Analysis of Financial Condition
and Results of Operations . . 19
Business . . . . . . . . . . . 28
Management . . . . . . . . . . 38
Principal Stockholders . . . . 43
Recent Securities Offering and
Related Matters . . . . . . . 44
Selling Security Holders . . . 47
Description of Warrants . . . . 47
Description of Capital Stock . 48 --------------------------
Plan of Distribution . . . . . 50
Legal Matters . . . . . . . . . 51
Experts . . . . . . . . . . . . 51
Index to Financial Statements . F-1
Financial Statements . . . . . F-2
</TABLE>
<PAGE> 87
PART II
INFORMATION NOT REQUIRED IN PROSPECTUS
ITEM 14. OTHER EXPENSES OF ISSUANCE AND DISTRIBUTION
The following expenses incurred in connection with this Registration
Statement will be paid by the Company. The Selling Security Holders will not
bear any of such expenses.
<TABLE>
<S> <C>
Filing Fees - Securities and Exchange Commission $ 3,354
Accounting Fees and Expenses 25,000
Legal Fees and Expenses 40,000
Printing Fees and Expenses 10,000
Miscellanous Expenses 24,646
--------
Total $103,000
</TABLE>
ITEM 15. INDEMNIFICATION OF DIRECTORS AND OFFICERS
The Certificate of Incorporation of Waxman Industries, Inc. provides
that each person who is a party to or involved in any action, suit or
proceeding, whether civil, criminal, administrative or investigative, by reason
of the fact that he or she was a director or officer of Waxman Industries,
shall be indemnified and held harmless by Waxman Industries to the fullest
extent authorized by the Delaware General Corporation Law against all expense,
liability and loss reasonably incurred by such person in connection therewith.
The Certificate of Incorporation provides that the right to indemnification
contained therein is a contract right and includes the right to be paid by
Waxman Industries the expenses incurred in defending any such proceeding in
advance of its final disposition; PROVIDED, HOWEVER, that if the Delaware
General Corporation Law requires, the payment of such expenses incurred in
advance of the final disposition of a proceeding shall be made only upon
delivery to Waxman Industries of an undertaking to repay all amounts so
advanced if it shall ultimately be determined that such director or officer is
not entitled to be indemnified. Waxman Industries maintains directors' and
officers' liability insurance covering certain liabilities incurred by the
directors and officers of Waxman Industries in connection with the performance
of their duties.
ITEM 16. EXHIBITS AND FINANCIAL STATEMENT SCHEDULES
(A) EXHIBITS
<TABLE>
<S> <C>
3.1** Certificate of Incorporation of Waxman Industries, Inc. (Exhibit 3(a)
to Waxman Industries, Inc.'s Form S-8 filed December 4, 1989, File
No. 0-5888, incorporated herein by reference).
3.2** By-laws of Waxman Industries, Inc. (Exhibit 3.2 to Waxman Industries,
Inc.'s 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 May 20, 1994, by and between Waxman Industries,
Inc. and The Huntington National Bank, as Trustee, with respect to the
Senior Secured Deferred Coupon Notes, including the form of Senior
Secured Deferred Coupon Notes (Exhibit 4.1 to Waxman Industries,
Inc.'s Form S-4 filed June 20, 1994, incorporated herein by
reference).
4.2** 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).
</TABLE>
II-1
<PAGE> 88
<TABLE>
<S> <C>
4.3** Warrant Certificate (Exhibit 4.3 to Waxman Industries, Inc.'s Form S-4
filed June 20, 1994, incorporated herein by reference).
5.1* Opinion of Shereff, Friedman, Hoffman & Goodman regarding legality.
10.1** Lease between Waxman Industries, Inc. as Lessee and Aurora Investment
Co. as Lessor dated June 30, 1992 (Exhibit 10.1 to Waxman Industries,
Inc.'s 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 Waxman
Industries, Inc.'s Profit Incentive Plan (Exhibit 10(c)-1 to Waxman
Industries, Inc.'s 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 Barnett Inc. and
William R. Pray (Exhibit 10.4 to Waxman Industries, Inc.'s
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 Waxman Industries, Inc. and its
Directors (Exhibit 10.5 to Waxman Industries, Inc.'s 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 Waxman Industries,
Inc. and John S. Peters (Exhibit 10.6 to Waxman Industries, Inc.'s
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,
Inc., 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** Intercorporate Agreement dated May 20, 1994 among Waxman Industries,
Inc., 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 filed June 20, 1994, incorporated
herein by reference).
10.8** 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).
10.9** 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).
12.1 Statement re: computation of ratios.
21.1 List of Subsidiaries of the Company.
23.1 Consent of Arthur Andersen & Co.
23.2* Consent of Shereff, Friedman, Hoffman & Goodman (contained in its
opinion filed as Exhibit 5.1 to this Registration Statement).
</TABLE>
II-2
<PAGE> 89
<TABLE>
<S> <C>
24.1 Power of Attorney (included in Part II of Registration Statement).
</TABLE>
__________________
* To be filed by amendment.
** Incorporated herein by reference as indicated.
(B) FINANCIAL STATEMENT SCHEDULES
None.
ITEM 17. UNDERTAKINGS
A. The undersigned registrant hereby undertakes:
(1) To file, during any period in which offers or sales are
being made, a post-effective amendment to this registration statement;
(i) To include any prospectus required by Section
10(a)(3) of the Securities Act of 1933;
(ii) To reflect in the prospectus any facts or events
arising after the effective date of the registration statement
(or the most recent post-effective amendment thereof) which,
individually or in the aggregate, represent a fundamental
change in the information set forth in the registration
statement;
(iii) To include any material information with
respect to the plan of distribution not previously disclosed
in the registration statement or any material change to such
information in the registration statement.
(2) That, for the purpose of determining any liability under
the Securities Act of 1933, each such post-effective amendment shall
be deemed to be a new registration statement relating to the
securities offered therein, and the offering of such securities at
that time shall be deemed to be the initial bona fide offering
thereof.
(3) To remove from registration by means of a post-effective
amendment any of the securities being registered which remain unsold
at the termination of the offering.
B. Insofar as indemnification for liabilities arising under the
Securities Act of 1933 may be permitted to directors, officers and controlling
persons of the Registrant pursuant to the foregoing provisions, or otherwise,
the Registrant has been advised that in the opinion of the Securities and
Exchange Commission such indemnification is against public policy as expressed
in the Act and is, therefore, unenforceable. In the event that a claim for
indemnification against such liabilities (other than the payment by the
Registrant of expenses incurred or paid by a director, officer or controlling
person of the Registrant in the successful defense of any action, suit or
proceeding) is asserted by such director, officer or controlling person in
connection with the securities being registered, the Registrant will, unless in
the opinion of its counsel the matter has been settled by controlling
precedent, submit to a court of appropriate jurisdiction the question whether
such indemnification by it is against public policy as expressed in the Act and
will be governed by the final adjudication of such issue.
II-3
<PAGE> 90
SIGNATURES
Pursuant to the requirements of the Securities Act of 1933, Waxman
Industries, Inc. certifies that it has reasonable grounds to believe that it
meets all of the requirements for filing on Form S-2 and has duly caused this
Registration Statement to be signed on its behalf by the undersigned, thereunto
duly authorized, in the City of Cleveland, State of Ohio on the 20th day of
June, 1994.
WAXMAN INDUSTRIES, INC.
By:/s/Neal R. Restivo
-----------------------
Neal R. Restivo,
Vice President and Chief Financial Officer
POWER OF ATTORNEY
KNOW ALL PERSONS BY THESE PRESENTS, that each person whose signature
appears below constitutes and appoints each of Armond Waxman and Neal R.
Restivo, his true and lawful attorneys-in-fact and agents with full power of
substitution and resubstitution and to act without the other, form him and in
his name, place and stead, in any and all capacities, to sign any and all
amendments (including post-effective amendments) to this Registration
Statement, and to file the same, with all exhibits thereto, and other documents
in connection therewith, with the Securities and Exchange Commission, granting
unto said attorneys-in-fact and agents full power and authority to do and
perform each and every act and thing requisite or necessary to be done in and
about the premises, as fully to all intents and purposes as he might or could
do in person, hereby ratifying and confirming all that said attorneys and
agents, or any of their, his or her substitute or substitutes may lawfully do
or cause to be done by virtue hereof and the Company hereby confers like
authority on its behalf.
Pursuant to the requirements of the Securities Act of 1933, this
Registration Statement has been signed by the following persons in the
capacities and on the dates indicated.
<TABLE>
<CAPTION>
NAME TITLE DATE
---- ----- ----
<S> <C> <C>
/s/ Melvin Waxman Chairman of the Board, June 20, 1994
- ---------------------- Co-Chief Executive Officer
Melvin Waxman and Director
/s/ Armond Waxman President, Co-Chief Executive June 20, 1994
- ---------------------- Officer, Treasurer and Director
Armond Waxman
/s/ Neal R. Restivo Vice President and Chief Financial June 20, 1994
- ------------------------- Officer (principal financial and
Neal R. Restivo accounting officer)
/s/ Samuel J. Krasney Director June 20, 1994
- --------------------------
Samuel J. Krasney
/s/ Irving Z. Friedman Director June 20, 1994
- ---------------------------
Irving Z. Friedman
/s/ Judy Robins Director June 20, 1994
- --------------------
Judy Robins
</TABLE>
II-4
<PAGE> 91
<TABLE>
EXHIBIT INDEX
<CAPTION>
Exhibit Number Exhibit Description Sequential Page Number
------------- ------------------- ----------------------
<S> <C> <C>
3.1** Certificate of Incorporation of Waxman
Industries, Inc. (Exhibit 3(a) to Waxman
Industries, Inc.'s Form S-8 filed
December 4, 1989, File No. 0-5888,
incorporated herein by reference).
3.2** By-laws of Waxman Industries, Inc.
(Exhibit 3.2 to Waxman Industries, Inc.'s
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 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).
4.2** 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).
4.3** Warrant Certificate (Exhibit 4.3 to Waxman
Industries, Inc.'s Form S-4 filed June 20,
1994, incorporated herein by reference).
5.1* Opinion of Shereff, Friedman, Hoffman &
Goodman regarding legality.
10.1** Lease between Waxman Industries, Inc. as
Lessee and Aurora Investment Co. as
Lessor dated June 30, 1992 (Exhibit 10.1
to Waxman Industries, Inc.'s 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,
</TABLE>
II-5
<PAGE> 92
<TABLE>
<CAPTION>
Exhibit Number Exhibit Index Sequential Page Number
- -------------- ----------------------------------------- ----------------------
<S> <C>
1980) regarding Waxman Industries, Inc.'s
Profit Incentive Plan (Exhibit 10(c)-1 to
Waxman Industries, Inc.'s 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 Barnett Inc. and William R. Pray
(Exhibit 10.4 to Waxman Industries, Inc.'s
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
Waxman Industries, Inc. and its Directors
(Exhibit 10.5 to Waxman Industries, Inc.'s
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 Waxman Industries, Inc. and John
S. Peters (Exhibit 10.6 to Waxman
Industries, Inc.'s 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** 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 filed
June 20, 1994, incorporated herein by
reference).
10.8** 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
</TABLE>
II-6
<PAGE> 93
<TABLE>
<CAPTION>
Exhibit Number Exhibit Index Sequential Page Number
- -------------- ----------------------------------------- ----------------------
<S> <C>
filed June 20, 1994, incorporated herein
by reference).
10.9** 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).
12.1 Statement re: computation of ratios.
21.1 List of Subsidiaries of the Company.
23.1 Consent of Arthur Andersen & Co.
23.2* Consent of Shereff, Friedman, Hoffman &
Goodman (contained in its opinion filed as
Exhibit 5.1 to this Registration
Statement).
24.1 Power of Attorney (included in Part II of
Registration Statement).
</TABLE>
__________________
* To be filed by amendment.
** Incorporated herein by reference as indicated.
II-7
<PAGE> 1
WAXMAN INDUSTRIES, INC.
EXHIBIT 12.1
RATIO OF EARNINGS TO FIXED CHARGES
(DOLLARS IN THOUSANDS)
<TABLE>
<CAPTION>
NINE MONTHS ENDED
YEARS ENDED JUNE 30, MARCH 31,
- --------------------------------------------------------------------------------------------------------------------------
1993 1992 1991 1990 1989 1994 1993
- --------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C> <C>
Fixed charges:
Interest expense $ 20,370 $21,003 $18,797 $14,759 $ 9,028 $15,643 $15,274
Interest element
of rents 1,252 1,133 970 1,058 826 1,143 911
-----------------------------------------------------------------------------------------------------
$ 21,622 $22,136 $19,767 $15,817 $ 9,854 $16,786 $16,185
=====================================================================================================
Earnings:
Income (loss)
before taxes ($15,674) ($5,126) ($2,795) $ 3,090 $ 9,932 ($ 1,339) ($3,049)
Fixed charges 21,622 22,136 19,767 15,817 9,854 16,786 16,185
-----------------------------------------------------------------------------------------------------
$ 5,948 $17,010 $16,972 $18,907 $19,786 $15,447 $13,136
=====================================================================================================
Ratio of
earnings
to fixed
charges(1) -- -- -- 1.2 2.0 -- --
=====================================================================================================
<FN>
(1) As a result of restructuring and nonrecurring charges recorded for the
nine months ended March 31, 1994 and 1993 and in fiscal years 1993,
1992 and 1991, as well as other non-cash charges and expenses incurred
during the fourth quarter of fiscal year 1993, earnings were
insufficient to cover fixed charges by $1,339, $3,049, $15,674, $5,126
and $2,795 for the nine months ended March 31, 1994 and 1993 and in
fiscal years 1993, 1992 and 1991, respectively. See Note 4 to the
Notes to Consolidated Financial Statements as of June 30, 1993.
</TABLE>
<PAGE> 1
EXHIBIT 21.1
LIST OF SUBSIDIARIES
SUBSIDIARIES OF WAXMAN INDUSTRIES, INC.
Waxman USA Inc., a Delaware corporation
<PAGE> 1
Exhibit 23.1
Consent of Independent Public Accountants
As independent public accountants, we hereby consent to the use of our reports
(and to all references to our Firm) included in or made a part of this
registration statement.
Cleveland, Ohio
June 17, 1994
