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Filed Pursuant to Rule 424(b)(3)
Registration File No.: 33-54211
PROSPECTUS SUPPLEMENT
(To Prospectus Dated May 24, 1996)
WAXMAN INDUSTRIES, INC.
2,884,000 WARRANTS TO PURCHASE SHARES OF COMMON STOCK
2,950,000 SHARES OF COMMON STOCK, PAR VALUE $.01 PER SHARE
This Prospectus Supplement supplements the Prospectus, dated May 24,
1996, relating to the offer and sale by the Selling Securityholders of
2,884,000 warrants (the "Restricted Warrants") to purchase shares of 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 Restricted
Warrants and the Public Warrants (as defined below). (The Restricted Warrants
and Public Warrants are referred to collectively herein as the "Warrants"). An
aggregate of 66,000 Warrants have been publicly traded since the registration
of the offer and sale of the Warrants in May 1996. Therefore, the Prospectus
does not cover the offer and sale of such 66,000 Warrants (the "Public
Warrants"). The Restricted Warrants and the shares of Common Stock referenced
above offered hereby are sometimes collectively referred to in the Prospectus
and herein as the "Securities." Capitalized terms used but not defined herein
shall have the meanings ascribed to them in the Prospectus.
RECENT DEVELOPMENTS
On October 10, 1996, the Company reported its results for its fiscal
year and fourth quarter ended June 30, 1996, including a non-recurring $65.9
million gain from the Barnett Public Offering, which was substantially offset
by several non-recurring changes which aggregated $48.8 million.
The Company currently owns 49.9% of the Barnett Common Stock, and,
through the ownership of certain non-voting preferred stock, approximately a
54% economic interest in the capital stock of Barnett.
As disclosed in the Prospectus,in connection with the likely completion
of the Barnett Public Offering and consequent retention of the Consumer
Products business, the Company embarked upon a strategic review of Consumer
Products and its other wholly-owned operations, taking into account the
difficulties encountered during the sale process of Consumer Products, as well
as the recent weaknesses in the industry in which the Company competes. As a
result of management's review and refocus of Consumer Products as a continuing
operation and consistent with its strategic direction, an $11.9 million
charge, primarily for a reduction in the carrying value of day to day
operating assets and liabilities, has been recorded by Consumer Products in
its operating results, which represented an increase of $6.9 million to cost
of goods sold and $5.0 million to selling, general and administrative
expenses. Such charges, comprised of $7.7 million and $4.2 million recorded in
the fiscal 1996 third and fourth quarters, respectively, included $5.1 million
for the impairment and write-down of inventory, $2.7 million for certain
accounts receivable balances, $2.0 million representing a portion of the costs
of developing a management information system, $0.5 million of abandoned
product development costs and $1.6 million for various liabilities.
The traditional customers of certain of WOC's operations, smaller retail
establishments, have been adversely affected by the movement by large national
retailers to expand in more rural locations and to compete with such smaller
retail establishments. In addition, the market has been increasingly impacted
by the availability of lower cost foreign sourcing to both domestic and
foreign competitors. In connection with management's strategic review of its
other wholly-owned operations and as a result of business factors affecting
these other operations, including increased competition from multi-category
retailers and competitive pricing from overseas competitors, the effect of
which was
The date of this Prospectus Supplement is October 29, 1996.
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exacerbated by excess manufacturing capacity at the Company's foreign
facilities, the Company recorded an additional charge of $2.9 million in the
fiscal 1996 fourth quarter operating results primarily for a reduction in the
carrying value of day to day operating assets and liabilities. Such charge
included $1.7 million to reduce the carrying value of inventory and other
assets at WOC and TWI, $0.4 million of accelerated depreciation as a result of
a change in estimated useful lives of certain property and equipment and $0.8
million for various liabilities.
In addition, during the fourth quarter of fiscal 1996, the Company
recorded a $19.5 million pre-tax restructuring and asset impairment charge.
Below is a summary of the components comprising such charge:
(in millions)
Exiting product lines $ 4.1
Warehouse closure costs 1.3
Reduction of excess capacity 1.1
Other 0.9
Asset impairment 12.1
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Total $19.5
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Exiting product lines: In furtherance of its efforts to strengthen the
Consumer Products business, the Company has decided to eliminate Consumer
Products' electrical product line and reduce the number of individual
products offered in its plumbing and floor care product lines. These
actions will enable Consumer Products to reduce fixed costs as well as
optimize and focus its product offerings to its major retail customers.
Consumer Products is currently winding down the servicing of the
electrical product line as well as reducing the number of products
offered in its plumbing and floor care product lines and does not expect
to incur cash outlays for these reductions. The $4.1 million charge is
primarily for the write-down of related inventory of which $1.8 million
has been disposed of as of June 30, 1996.
Warehouse closure costs: During the fourth quarter of 1996, the Company
downsized Consumer Products' distribution network from three locations to
two and, as a result, incurred warehouse closure costs of $1.3 million.
The remaining accrual at June 30, 1996 is $0.8 million. The warehouse
closure costs include costs associated with the remaining noncancellable
term of an operating lease of $0.3 million, incremental employee salaries
and benefits associated with closing the warehouse of $0.5 million, loss
on fixed assets of $0.2 million and other miscellaneous expenses
associated with the closing of $0.3 million.
Reduction of excess capacity: With the discontinuance and downsizing of
Consumer Products' product lines, the foreign operations which support
Consumer Products identified excess capacity in both buildings and
equipment. As such, a $1.1 million charge was recorded to reduce the net
book value of buildings by $0.8 million and equipment by $0.3 million.
Other: In connection with the strategic review, a division of WOC
discontinued certain product offerings which resulted primarily in a
write-down of inventory and excess equipment.
Asset Impairment: The asset impairment charge of $12.1 million relates to
the Company's U.S. Lock division. Due to the continued decline in the
locksmith industry brought about by the competitive nature of the D-I-Y
retail market, as required by SFAS No. 121 "Accounting for the Impairment
of Long-Lived Assets and Long-Lived Assets to Be Disposed Of," the
Company expensed $9.8 million of goodwill and $2.3 million of property
and equipment, as the carrying value for the division exceeded its fair
value. Fair value was determined based on a multiple of cash flows.
Effective July 1, 1995, the Company changed its method of accounting for
procurement costs. Procurement costs represent the amount paid in connection
with a customer's commitment to purchase products from the Company for a
specified period. The amount capitalized is the consideration paid by the
Company to the new or existing customer
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(x) for the right to supply such customer for a specified period and (y) to
purchase competitor's merchandise that the customer has on hand when it
changes suppliers, less the salvage value received by the Company. The Company
believes that amortization in the fiscal year incurred for such costs is
consistent with the Company's strategic review of Consumer Products and is
preferable due to the uncertainty of today's competitive retail environment.
Previously, the Company amortized these costs over the period deemed to be
benefited. The cumulative effect of this change on prior years of $8.2
million, without tax benefit, is reported separately in the fiscal 1996
consolidated statement of operations. The additional effect of the change in
fiscal 1996 was to decrease the operating loss by $2.1 million.
The Company recorded an extraordinary charge of approximately $6.3
million in fiscal 1996 related to a premium paid on the retirement of the
Senior Secured Notes and the accelerated amortization of the related
unamortized debt discount and debt issuance costs attributed to indebtedness
repaid from the net proceeds of the Barnett Public Offering and the Exchange
Notes and a new credit facility entered into on June 28, 1996 by Consumer
Products and WOC with BankAmerica Business Credit, Inc. (the " New Credit
Agreement"). The New Credit Agreement replaced the Restated Credit Agreement
and Restated Term Loans.
The New Credit Agreement provides for a revolving credit advances of (a)
up to 85.0% of the amount of eligible accounts receivable and (b) up to the
lesser of (i) $16.0 million or (ii) 60% of the amount of eligible raw and
finished goods inventory. Revolving credit advances bear interest at a rate
equal to (a) Bank of America's reference rate plus 1.0% or (b) LIBOR plus
2.75%. The New Credit Agreement includes a letter of credit subfacility of
$2.0 million. New Term Loans bear interest at a rate per annum equal to .25%
over the interest rate applicable to revolving credit advances under the New
Credit Agreement. Borrowings under the New Credit Agreement are secured by the
accounts receivable, inventory, certain general intangibles and unencumbered
fixed assets of Consumer Products and WOC (the "Borrowers"). In addition, New
Term Loans are also secured by a pledge of 500,000 shares of Barnett Common
Stock owned by the Company (constituting approximately 3.5% of all outstanding
Barnett Common Stock). The New Credit Agreement requires the Borrowers to
maintain cash collateral accounts into which all available funds are deposited
and applied to service the facility on a daily basis. The New Credit Agreement
prevents dividends and distributions by the Borrowers except in certain
limited instances including, so long as there is no default or event of
default, and the Borrowers are in compliance with certain financial covenants,
the payment of interest on the Senior Subordinated Notes and Deferred Coupon
Notes, and contains customary negative, affirmative and financial covenants
and conditions. The Company was in compliance with all loan covenants at June
30, 1996.
As of June 30, 1996, availability under the New Credit Agreement totaled
approximately $ 16.2 million.
Since the consummation of the Barnett Public Offering, the cash flow
generated by such operations is no longer available to the Company. The
Company relies primarily on Consumer Products for cash flow. Consumer Products
may be adversely affected by prolonged economic downturns or significant
declines in consumer spending. There can be no assurance that any such
prolonged economic downturn or significant decline in consumer spending will
not have a material adverse impact on the Consumer Products' business and its
ability to generate cash flow. Furthermore, Consumer Products' largest
customers, Kmart and its subsidiary, Builders Square, accounted for
approximately 42.3% and 43.6% of Consumer Products' total net sales in fiscal
1996 and fiscal 1995, respectively. The Company has been advised by Kmart that
it is in the process of conducting a review of its supply arrangements with
its suppliers of plumbing and hardware products, including Consumer Products,
and will make a decision regarding which vendors it will utilize by the end of
December 1996. Although the Company has had a long relationship with Kmart,
there can be no assurance that this relationship will continue or as to the
terms of any relationship that does continue. In the event Consumer Products
were to either lose Kmart as a customer or Kmart were to significantly curtail
its purchases from Consumer Products, there would be material short-term
adverse effects until the Company could modify Consumer Products' cost
structure to be more in line with its reduced revenue base.
FISCAL 1996 EARNINGS SUMMARY
Net sales for the fiscal year increased 1.2% to 235.1 million from $232.3
million last year. The increase is primarily attributable to Barnett, which
reported net sales of $127.4 million, an increase of 16.8% from last year. The
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increase at Barnett is primarily the result of the growing telesales
operations and the introduction of over 400 new products. The Company's
wholly-owned operations recorded net sales of $107.7 million, a decrease of
12.6% from last year. The decrease is due to several factors including a
weakening retail environment, the discontinuance of certain lower margin
accounts and prior year sales being positively impacted by the expansion of
Consumer Products business with several large customers.
Net sales for the quarter ended June 30, 1996 increased to $59.6 million
from $55.1 million in the prior year period, an increase of 8.1%. Barnett's
net sales increased 21.4% to $34.0 million in the quarter while the Company's
wholly-owned operations decreased 5.7% to $25.6 million.
The Company reported fully diluted net income per share of $1.41 for the
fiscal year versus a loss of $1.97 per share last year, due in large part to
the aforementioned reversal of the $11.0 loss on disposal of Consumer
Products, the one time gain on the sale of the Barnett Common Stock of $65.9
million and the non-recurring charges aggregating $48.5 million.
The Company's total debt at June 30, 1996 totaled $123.3 million versus
$203.6 million reported at June 30, 1995.
EBITDA (earnings before interest, taxes, depreciation and amortization)
for the year totaled $25.5 million versus $24.4 million last year. EBITDA for
the Company's wholly-owned operations totaled $7.9 million for the year versus
$9.3 million last year. EBITDA for the fourth quarter totaled $5.3 million
versus $3.3 million last year, including EBITDA for the Company's wholly-owned
operations of $0.6 million for the fourth quarter versus a loss of $0.5
million last year. EBITDA does not include the effects of the gain on the sale
of Barnett Common Stock, the reversal of loss and loss on disposal of Consumer
Products, the writedown of assets, the restructuring and asset impairment
charges, the extraordinary loss or the cumulative effect of change in
accounting. Cash interest expense for the year totaled $14.9 million and for
the fourth quarter totaled $2.0 million.
RESTATEMENT OF PRIOR YEAR FINANCIAL DATA
Due to the identification and correction of an intercompany inventory
reconciling item between Consumer Products and WAMI, a $2.3 million charge,
originally recorded in the third quarter of 1996 has been reversed and charged
to 1994 for $1.0 million, 1993 for $0.9 million, 1992 for $0.2 million and
1991 for $0.2 million. The Company has restated prior year financial
statements to reflect the correction of this item.
The effect of this restatement was as follows:
As Previously Reported As Restated
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Total Stockholders Equity:
at June 30, 1991 $38,066 $37,866
at June 30, 1992 40,827 40,427
at June 30, 1993 7,496 6,196
at June 30, 1994 (37,709) (40,009)
at June 30, 1995 (60,397) (62,697)
Operating Income:
Fiscal 1991 $14,667 $14,467
Fiscal 1992 14,899 14,699
Fiscal 1993 4,691 3,791
Fiscal 1994 18,213 17,213
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Income (loss) from continuing
operations before minority
interest, discontinued
operations, extraordinary loss
and cumulative effect of change
in accounting:
Fiscal 1991 $(2,115) $(2,315)
Fiscal 1992 (4,358) (4,558)
Fiscal 1993 (15,890) (16,790)
Fiscal 1994 (3,472) (4,472)
Net income (loss):
Fiscal 1991 $2,228 $2,028
Fiscal 1992 (4,398) (4,598)
Fiscal 1993 (29,240) (30,140)
Fiscal 1994 (51,888) (52,888)
Earnings per Share (Primary and
Fully Diluted):
Income (loss) from continuing
operations before minority
interest, discontinued
operations, extraordinary loss
and cumulative effect of change
in accounting:
Fiscal 1991 $(0.22) $(0.24)
Fiscal 1992 (0.44) (0.46)
Fiscal 1993 (1.37) (1.44)
Fiscal 1994 (0.30) (0.39)
Net income (loss):
Fiscal 1991 $0.23 $0.21
Fiscal 1992 (0.45) (0.47)
Fiscal 1993 (2.51) (2.58)
Fiscal 1994 (4.44) (4.53)
Corresponding changes have been made to the consolidated balance sheets
to reduce inventories.
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.
Name Warrants Owned Warrants Offered
- ---- -------------- ----------------
Bank of New York 277,000 277,000
Bear Stern Securities Corp. 596,500 596,500
Donaldson, Lufkin & Jenrette 67,100 67,100
First Options of Chicago, Inc. 30,000 30,000
Goldman, Sachs & Co. 116,100 116,100
UMB Bank, N.A./IFTC 1,162,300 1,162,300
Lehman Brothers, Inc. 80,000 80,000
Merrill Lynch, Pierce, Fenner & Smith, Inc. 150,000 150,000
Morgan Stanley & Co., Incorporated 44,000 44,000
Neuberger & Berman 36,500 36,500
SSB Custodian 324,500 324,500
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Total 2,884,000 2,884,000
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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. In
addition, the Company is registering, on behalf of Lehman Brothers, Inc., the
offer and sale of 66,000 shares of Common Stock issuable upon the exercise of
the Public Warrants.
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