<PAGE> 1
UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
FORM 10-Q
(Mark One)
(X) QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES
EXCHANGE ACT OF 1934 FOR THE QUARTERLY PERIOD ENDED DECEMBER 31, 1995
OR
( ) TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES
EXCHANGE ACT OF 1934 FROM TO
Commission File Number 0-5888
WAXMAN INDUSTRIES, INC.
(Exact Name of Registrant as Specified in its Charter)
Delaware 34-0899894
(State of Incorporation) (I.R.S. Employer
Identification Number)
24460 Aurora Road
Bedford Heights, Ohio 44146
(Address of Principal Executive Offices) (Zip Code)
(216) 439-1830
(Registrant's Telephone Number Including Area Code)
Not Applicable
(Former name, former address and former fiscal year, if changed since last
report)
Indicate by check mark whether the registrant (1) has filed all reports
required to be filed by Section 13 or 15(d) of the Securities Exchange Act of
1934 during the preceding 12 months (or for such shorter period that the
registrant was required to file such reports), and (2) has been subject to such
filing requirements for the past ninety (90) days.
Yes X No
--- ---
9,522,083 shares of Common Stock, $.01 par value, and 2,215,079 shares of Class
B Common Stock, $.01 par value, were issued and outstanding as of February 7,
1996.
<PAGE> 2
WAXMAN INDUSTRIES, INC. AND SUBSIDIARIES
INDEX TO FORM 10-Q
PAGE
----
PART I. FINANCIAL INFORMATION
- -----------------------------
Item I. Financial Statements (Unaudited)
Condensed Consolidated Statements of Income
for the Six Months and Three Months Ended
December 31, 1995 and 1994 3
Condensed Consolidated Balance Sheets as of
December 31, 1995 and June 30, 1995 4-5
Condensed Consolidated Statements of Cash
Flows for the Six Months Ended December 31, 1995
and 1994 6
Notes to Condensed Consolidated Financial
Statements 7-8
Item 2. Management's Discussion and Analysis of Financial
Condition and Results of Operations 9-13
PART II. OTHER INFORMATION
- --------------------------
Item 4. Submission of Matters to a Vote of Security Holders 14
Item 5. Other Information 14
Item 6. Exhibits and Reports on Form 8-K 15
SIGNATURES
- ----------
EXHIBIT INDEX
- -------------
2
<PAGE> 3
PART I. FINANCIAL INFORMATION
Item 1. Financial Statements
WAXMAN INDUSTRIES, INC. AND SUBSIDIARIES
CONDENSED CONSOLIDATED STATEMENTS OF INCOME
(Unaudited)
For the Six Months and Three Months Ended December 31, 1995 and 1994
(In Thousands, Except Per Share Data)
<TABLE>
<CAPTION>
Six Months Ended Three Months Ended
December 31, December 31,
-------------------- --------------------
1995 1994 1995 1994
-------- -------- -------- -------
<S> <C> <C> <C> <C>
Net sales $83,385 $76,519 $43,093 $39,426
Cost of sales 56,031 51,577 28,842 26,418
------ ------ ------ -------
Gross profit 27,354 24,942 14,251 13,008
Operating expenses 20,258 18,491 10,159 9,355
------ ------ ------ -------
Operating income 7,096 6,451 4,092 3,653
Other income, net 379 569 34 297
Interest expense, net 10,261 9,669 5,137 4,940
------ ------ ------ -------
Loss from continuing operations
before income taxes (2,786) (2,649) (1,011) (990)
Provision for income taxes 188 100 46 50
------ ------ ------ -------
Loss from continuing operations (2,974) (2,749) (1,057) (1,040)
Income from discontinued
operations, net of tax - 1,214 - 57
------ ------ ------ -------
Net loss $(2,974) $(1,535) $(1,057) $ (983)
======= ======= ======= =======
Primary and fully diluted earnings
(loss) per share:
From continuing operations $ (.25) $ (.24) $ (.09) $ (.09)
From discontinued operations - .11 - .01
------- ------- ------- -------
Net loss $ (.25) $ (.13) $ (.09) $ (.08)
======= ======= ======= =======
</TABLE>
The accompanying Notes to Condensed Consolidated Financial Statements
are an integral part of these statements.
3
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WAXMAN INDUSTRIES, INC. AND SUBSIDIARIES
CONDENSED CONSOLIDATED BALANCE SHEETS
December 31, 1995 and June 30, 1995
(In Thousands)
ASSETS
<TABLE>
<CAPTION>
December 31, June 30,
1995 1995
(Unaudited) (Audited)
---------- ---------
CURRENT ASSETS:
<S> <C> <C>
Cash $ 1,585 $ 1,496
Accounts receivable, net 23,110 22,346
Inventories 38,541 38,436
Prepaid expenses 1,825 1,956
Net assets of discontinued operations 51,426 53,865
------- -------
Total current assets 116,487 118,099
------- -------
PROPERTY AND EQUIPMENT:
Land 1,179 1,097
Buildings 9,766 9,645
Equipment 15,907 14,781
------- -------
26,852 25,523
Less accumulated depreciation
and amortization (13,845) (12,641)
------- -------
Property and equipment, net 13,007 12,882
------- -------
COST OF BUSINESSES IN EXCESS OF
NET ASSETS ACQUIRED, NET 15,891 16,131
OTHER ASSETS 13,267 13,548
------- -------
$158,652 $160,660
======= =======
</TABLE>
The accompanying Notes to Condensed Consolidated Financial Statements
are an integral part of these statements.
4
<PAGE> 5
WAXMAN INDUSTRIES, INC. AND SUBSIDIARIES
CONDENSED CONSOLIDATED BALANCE SHEETS
December 31, 1995 and June 30, 1995
(In Thousands, Except Per Share Amounts)
LIABILITIES AND STOCKHOLDERS' EQUITY
<TABLE>
<CAPTION>
December 31, June 30,
1995 1995
(Unaudited) (Audited)
----------- ---------
CURRENT LIABILITIES:
<S> <C>
Current portion of long-term debt $ 4,405 $ 4,424
Senior Secured Notes 38,842 38,786
Accounts payable 16,725 16,258
Accrued liabilities 3,005 3,875
------- -------
Total current liabilities 62,977 63,343
------- -------
LONG-TERM DEBT, NET OF CURRENT PORTION 51,726 54,089
SENIOR SECURED DEFERRED COUPON NOTES 58,645 54,875
SENIOR SUBORDINATED NOTES 48,750 48,750
STOCKHOLDERS' EQUITY:
Preferred stock, $.01 par value per share:
Authorized and unissued 2,000 shares - -
Common stock, $.01 par value per share:
Authorized 22,000 shares; Issued 9,522
at December 31, 1995 and 9,495 at
June 30, 1995 95 95
Class B common stock, $.01 par value per share:
Authorized 6,000 shares; Issued 2,215
at December 31, 1995 and 2,217 at
June 30, 1995 23 23
Paid-in capital 21,123 21,098
Retained deficit (84,372) (81,398)
------- --------
(63,131) (60,182)
Cumulative currency translation adjustments (315) (215)
------- --------
Total stockholders' equity (deficit) (63,446) (60,397)
------- --------
$158,652 $160,660
======= =======
</TABLE>
The accompanying Notes to Condensed Consolidated Financial Statements
are an integral part of these statements.
5
<PAGE> 6
WAXMAN INDUSTRIES, INC. AND SUBSIDIARIES
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS
(Unaudited)
For the Six Months Ended December 31, 1995 and 1994
(In Thousands)
<TABLE>
<CAPTION>
1995 1994
--------- ---------
CASH FLOWS FROM OPERATING ACTIVITIES:
- -------------------------------------
<S> <C> <C>
Loss from continuing operations $ (2,974) $ (2,749)
Adjustments to reconcile loss
from continuing operations to
net cash provided by continuing
operations:
Non-cash interest 3,645 3,285
Depreciation and amortization 2,570 2,396
Changes in assets and liabilities:
Increase in accounts receivable, net (764) (1,361)
Increase in inventories (105) (1,915)
Decrease in prepaid expenses 131 22
Increase in accounts payable 467 2,069
Decrease in accrued liabilities (870) (1,078)
------- -------
Net Cash Provided by Continuing
Operations 2,100 669
Income from discontinued operations - 1,214
Change in net assets of
discontinued operations 2,439 51
Other, net (100) 13
-------- -------
Net Cash Provided by Operating
Activities 4,439 1,947
-------- -------
CASH FLOWS FROM INVESTING ACTIVITIES:
- -------------------------------------
Capital expenditures, net (1,375) (1,586)
Change in other assets (609) (78)
------- -------
Net Cash Used in Investing Activities (1,984) (1,664)
------- -------
CASH FLOWS FROM FINANCING ACTIVITIES:
- -------------------------------------
Issuance of common stock 25 -
Net repayments under credit agreements (1,079) (71)
Repayments of long-term debt (312) (185)
Repayment of term loan (1,000) -
------ -------
Net Cash Used in Financing Activities (2,366) (256)
------- -------
NET INCREASE IN CASH 89 27
BALANCE, BEGINNING OF PERIOD 1,496 981
------- -------
BALANCE, END OF PERIOD $ 1,585 $ 1,008
======= =======
</TABLE>
The accompanying Notes to Condensed Consolidated Financial Statements
are an integral part of these statements.
6
<PAGE> 7
WAXMAN INDUSTRIES, INC. AND SUBSIDIARIES
----------------------------------------
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
----------------------------------------------------
(Unaudited)
December 31, 1995
Note 1 - Basis of Presentation
---------------------
The condensed consolidated financial statements include the accounts of Waxman
Industries, Inc. and its wholly-owned subsidiaries (the "Company"). The
condensed consolidated statements of income for the six months and three months
ended December 31, 1995 and 1994, the condensed consolidated balance sheet as
of December 31, 1995 and the condensed consolidated statements of cash flows
for the six months ended December 31, 1995 and 1994 have been prepared by the
Company without audit. In the opinion of management, these financial
statements include all adjustments necessary to present fairly the financial
position, results of operations and cash flows as of December 31, 1995 and for
all periods presented. All adjustments made have been of a normal recurring
nature. Certain information and footnote disclosures normally included in
financial statements prepared in accordance with generally accepted accounting
principles have been condensed or omitted. The Company believes that the
disclosures included are adequate and provide a fair presentation of interim
period results. Interim financial statements are not necessarily indicative of
financial position or operating results for an entire year. It is suggested
that these interim financial statements be read in conjunction with the audited
financial statements and the notes thereto included in the Company's Annual
Report on Form 10-K for the fiscal year ended June 30, 1995 as amended on Form
10-K/A and 10-K/A-1 filed with the Securities and Exchange Commission on
October 11 and November 2, respectively.
Certain previously reported amounts have been reclassified to conform with the
current presentation, including a restatement to reflect the discontinued
operations of Waxman Consumer Products Group Inc. ("Consumer Products").
Note 2 - Business
--------
The Company believes that it is one of the leading suppliers of plumbing
products to the repair and remodeling market in the United States. The Company
distributes plumbing, electrical and hardware products to over 50,000 customers
in the United States, including plumbing and electrical repair and remodeling
contractors and independent retailers.
Note 3 - Discontinued Operations
-----------------------
As previously announced in August 1995, the Company decided to sell its
Consumer Products business and in the same month entered into a letter of
intent, which subsequently expired, to sell the business for $50 million in
cash. On February 6, 1996, the Company announced that although it is still
pursuing the sale of Consumer Products, due to the weakening retail
environment, management is less optimistic that the sale will be consummated in
the near future at a satisfactory price level. See "Liquidity and Capital
Resources" for a further discussion of Consumer Products. Consumer Products is
reported as a discontinued operation and the condensed consolidated financial
statements have been reclassified to report separately Consumer Products' net
assets and results of operations.
7
<PAGE> 8
Note 4 - Earnings Per Share
------------------
Primary and fully diluted earnings per share have been computed based on the
weighted average number of shares outstanding which totaled 11,737 and 11,712
for the six months and three months ended December 31, 1995 and 1994,
respectively. Fully diluted earnings per share is considered to be the same as
primary earnings per share as the effect of the common stock equivalents would
be antidilutive.
Note 5 - Income Taxes
------------
In accordance with the provisions of Statement of Financial Accounting
Standards No. 109, "Accounting for Income Taxes" (SFAS 109), the Company is
currently unable to recognize any income tax benefit relating to the loss from
continuing operations. The tax provision for the six months and three months
ended December 31, 1995 represents a provision for state and foreign taxes.
The Company currently has approximately $75.0 million of available domestic net
operating loss carryforwards which expire through 2010. The benefit of these
net operating loss carryforwards has been reduced 100% by a valuation
allowance. The Company will continue to evaluate the valuation allowance and
to the extent that the Company is able to recognize tax benefits in the future,
such recognition will favorably affect future results of operations.
Note 6 - Impact of New Accounting Standards
----------------------------------
The Financial Accounting Standards Board has issued SFAS No. 121, "Accounting
for the Impairment of Long-Lived Assets and for Long-Lived Assets to be
Disposed of," and SFAS No. 123, "Accounting for Stock-Based Compensation."
Management is currently evaluating the impact, if any, the adoption of SFAS No.
121 and SFAS No. 123 will have on the financial statements. Management expects
to adopt SFAS No. 121 and SFAS No. 123 when practical, but no later than the
first quarter of fiscal 1997.
Note 7 - Supplemental Cash Flow Information
----------------------------------
Cash payments during the six months ended December 31, 1995 and 1994 included
income taxes of $486 and $366 and interest of $8,825 and $8,620, respectively.
Note 8 - Subsequent Event
----------------
On February 2, 1996, the Company and its indirect wholly-owned subsidiary
Barnett Inc. ("Barnett") jointly announced that Barnett filed a registration
statement with the Securities and Exchange Commission with respect to an
initial public offering (Offering) of 6,552,000 common shares (7,207,200 if the
underwriters' over-allotment option is exercised in full) of Barnett to be sold
by Barnett and Waxman USA Inc., a wholly-owned subsidiary of the Company. It
is currently estimated that the Offering price will be between $12 and $14 per
share with anticipated net proceeds estimated to be approximately $73 million
to $85 million ($80 million to $93 million if the underwriters' over-allotment
option is exercised in full). The Offering will be lead managed by William
Blair & Company and Alex. Brown & Sons Incorporated.
A registration statement relating to the Offering of Barnett's common stock has
been filed with the Securities and Exchange Commission but has not yet become
effective. These securities may not be sold nor may offers to buy be accepted
prior to the time the registration statement becomes effective.
The anticipated net proceeds of the Offering will be used primarily to reduce
indebtedness of both Barnett and Waxman including retirement of near-term debt
maturities. See "Liquidity and Capital Resources" for a further discussion of
the use of proceeds from the Offering.
8
<PAGE> 9
Item 2. Management's Discussion and Analysis of Financial
-------------------------------------------------
Condition and Results of Operations
-----------------------------------
Six Months Ended December 31, 1995 Compared with
- ------------------------------------------------
Six Months Ended December 31, 1994
- ----------------------------------
A. Results of Operations
---------------------
Net Sales
- ---------
Consolidated net sales for the first six months of fiscal 1996 were $83.4
million, compared to $76.5 million for the first six months of fiscal 1995, an
increase of 9.0 percent. The net sales increase is primarily the result of the
continued growth of Barnett. Barnett's net sales increased 15.8 percent to
$60.5 million in the first half of fiscal 1996 from $52.2 million in the first
half of fiscal 1995. Included in Barnett's current period results are $0.9
million of direct shipments accounted for in previous periods as contributed
margin products. On a comparable period to period basis, Barnett's sales
increase is approximately 14.1 percent. Most of Barnett's growth can be
attributed to increased sales by existing telesalespersons and the addition of
new telesalespersons compared to the prior year. Also contributing to
Barnett's sales increase, to a lesser extent, is an increase in the total
number of products offered by Barnett compared to the prior year. These
increases were partially offset by decreases in net sales of $1.4 million, or
5.8 percent, from the Company's other operations.
Gross Profit
- ------------
Consolidated gross profit margin increased slightly to 32.8 percent of net
sales from 32.6 percent in the prior year. The increase is due mainly to
improved performance at a Mexican subsidiary. Barnett's gross profit decreased
from 34.0 percent in the first six months of fiscal 1995 to 33.5 percent in the
current period as a result of the increased revenues from the above mentioned
direct ship programs. Excluding the effect of the direct shipments,
consolidated gross profit increased to 33.2 percent of net sales and Barnett's
gross profit remained constant between periods.
Operating Expenses
- ------------------
Consolidated operating expenses for the first half of fiscal 1996 were $20.3
million, an increase from $18.5 million in fiscal 1995. This increase of $1.8
million is primarily driven by Barnett, which represents $1.5 million of the
increase. Consolidated operating expenses as a percentage of sales increased
only slightly to 24.3 percent in fiscal 1996 versus 24.2 percent in the prior
year. Barnett's operating expenses, however, decreased as a percentage of
sales to 21.1 percent in the first six months of fiscal 1996 versus 21.6
percent in the same period last year. This is primarily due to the inclusion
of direct ship sales in net sales this period and the leveraging of fixed costs
over a larger sales base. Barnett's decrease in operating expenses as a
percentage of sales was slightly offset by Waxman's other operations.
Interest Expense
- ----------------
The Company's total interest expense of $13.3 million for the first six months
of fiscal 1996, which includes $10.3 million of interest expense from
continuing operations, increased from the $12.6 million of total interest
expense from the prior year, which includes $9.7 million from continuing
operations. Average borrowings outstanding (including discontinued operations)
increased from $197.6 million in the first half of fiscal 1995 to $206.1 in the
first half of fiscal 1996. The increase in average borrowings outstanding is
primarily due to debt service requirements which includes interest payments and
the accretion of the Company's Senior Secured Deferred Coupon Notes. Interest
expense of $3.0 million for the fiscal 1996 first half was allocated to
discontinued operations based on debt which was specifically attributed to the
discontinued operations. This expense has been charged against the reserve for
9
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loss on disposal which was recorded in the fiscal 1995 fourth quarter.
Interest expense of $2.9 million is included in the income from discontinued
operations for the first six months of fiscal 1995.
Income Taxes
- ------------
In accordance with the provisions of SFAS 109, the Company is unable to benefit
from losses in the current year. The Company has approximately $75 million of
available domestic net operating loss carryforwards which expire through 2010,
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.
Discontinued Operations
- -----------------------
The loss from discontinued operations for the fiscal 1996 first half of $1.0
million has been charged against the reserve for loss on disposal which was
recorded in the fourth quarter of fiscal 1995. The income from discontinued
operations totaled $1.2 million, or $.11 per share, in the fiscal 1995 first
half. The 1995 six months results were positively impacted by the expansion of
the Consumer Products business with several of its large customers while the
current period has been impacted primarily by a weak retail environment.
Three Months Ended December 31, 1995 Compared with
- --------------------------------------------------
Three Months Ended December 31, 1994
- ------------------------------------
A. Results of Operations
---------------------
Net Sales
- ---------
Consolidated net sales for the second quarter of fiscal 1996 were $43.1
million, compared to $39.4 million in the second quarter of fiscal 1995, an
increase of 9.3 percent. The net sales increase is primarily the result of the
continued growth of Barnett. Barnett's net sales increased 18.2 percent to
$31.6 million in the second quarter of fiscal 1996 from $26.8 million in the
second quarter of fiscal 1995. Included in Barnett's current period results
are $0.9 million of direct shipments accounted for in previous periods as
contributed margin products. On a comparable period to period basis, Barnett's
sales increase for the quarter is approximately 14.8 percent. Most of
Barnett's growth can be attributed to increased sales by existing
telesalespersons, the addition of new telesalespersons compared to the prior
year and an increase in the total number of products offered by Barnett. This
increase was partially offset by decreases in net sales for the quarter of $1.2
million, or 9.5 percent from the Company's other operations.
Gross Profit
- ------------
Consolidated gross profit margin increased slightly to 33.1 percent of net
sales from 33.0 percent in the prior year. The increase is due mainly to
improved performance at a Mexican subsidiary. Barnett's gross profit decreased
from 34.2 percent for the second quarter of fiscal 1995 to 33.7 percent in the
current quarter as a result of the increased revenues from the above mentioned
direct ship programs. Excluding the effect of the direct shipments,
consolidated gross profit increased to 33.8 percent of net sales and Barnett's
gross profit increased to 34.6 percent of net sales.
Operating Expenses
- ------------------
Consolidated operating expenses for the second quarter of fiscal 1996 were
$10.2 million, an increase from $9.4 million in fiscal 1995. Operating
expenses as a percentage of sales, however, decreased slightly to 23.6 percent
in fiscal 1996 versus 23.7 percent in the prior year. Barnett's operating
expenses decreased as a percentage of sales from 21.4 percent in fiscal 1995 to
20.2 percent this quarter due mainly to
10
<PAGE> 11
the inclusion of direct sales in net sales and the leveraging of fixed costs
over a larger sales base.
Interest Expense
- ----------------
The Company's total interest expense of $6.7 million for the second quarter of
fiscal 1996, which includes $5.1 million of interest expense from continuing
operations, increased from $6.4 million of total interest expense in the prior
year, which includes $4.9 million from continuing operations. The increase in
interest expense is primarily due to debt service requirements which includes
the accretion of the Company's Senior Secured Deferred Coupon Notes. Interest
expense of $1.6 million for the fiscal 1996 second quarter was allocated to
discontinued operations based on debt which was specifically attributed to the
discontinued operations. This expense has been charged against the reserve for
loss on disposal which was recorded in the fiscal 1995 fourth quarter.
Interest expense of $1.5 million is included in the income from discontinued
operations for the second quarter of fiscal 1995.
Discontinued Operations
- -----------------------
The loss from discontinued operations for the fiscal 1996 second quarter of
$0.7 million has been charged against the reserve for loss on disposal which
was recorded in the fourth quarter of fiscal 1995. The income from
discontinued operations totaled $0.1 million, or $.01 per share, in the fiscal
1995 second quarter. The fiscal 1995 second quarter results were positively
impacted by the expansion of the Consumer Products business with several of its
large customers while the current results have been impacted primarily by a
weak retail environment.
B. Liquidity and Capital Resources
-------------------------------
One of the primary goals of management is to improve the capital structure of
the Company thereby creating a structure that will better support the long-term
growth of the Company and generally provide the Company with greater operating
and financial flexibility.
On August 28, 1995, the Company entered into a letter of intent, which
subsequently expired, for the sale of the Consumer Products business, together
with certain supporting operations and certain home center accounts currently
serviced by Barnett, to a group consisting of HIG Capital Management ("HIG") of
Miami, Florida along with certain members of Consumer Products' existing
management team for an aggregate cash purchase price of $50 million plus other
consideration which would give the Company approximately a 25 percent economic
interest in Consumer Products on a going-forward basis. While the sale of the
Consumer Products business is still being pursued, a weakening retail
environment has caused management to be less optimistic regarding the
completion of the sale in the near future at a satisfactory price level.
Although the sale of Consumer Products will be a challenge to complete in this
difficult retail environment, management continues to monitor the situation.
There can be no assurance that the Company will be able to consummate the sale
of Consumer Products or as to the terms and conditions of any such sale so
consummated. The Company intends to continue pursuing the sale of Consumer
Products in the event that the transaction with HIG is not consummated.
Management is also pursuing other distinct strategic alternatives. As
announced on February 2, 1996, Barnett, an indirect wholly-owned subsidiary of
the Company, filed a registration statement with the Securities and Exchange
Commission with respect to an initial public offering of 6,552,000 common
shares (7,207,200 if the underwriters' over-allotment option is exercised in
full) of Barnett Inc. ("Barnett IPO"). It is currently estimated that the
Barnett IPO price will be between $12 and $14 per share with anticipated net
proceeds estimated to be approximately $73 million to $85 million ($80 million
to $93 million if the underwriters' over-allotment option is exercised in
full). The anticipated net proceeds of the Barnett IPO will be used primarily
to reduce indebtedness of both Barnett and Waxman.
11
<PAGE> 12
The terms of the Company's 12-1/4 percent and Floating Rate Senior Secured
Notes due 1998 (the "Senior Secured Notes") require mandatory sinking fund
payments of $17 million on each of September 1, 1996 and September 1, 1997.
Management's current projections indicate that there will not be sufficient
cash flows from operations to make the September 1, 1996 sinking fund payment.
The terms of the Senior Secured Notes require the Company to offer to purchase
the Senior Secured Notes at a redemption price of 102 percent of the principal
amount thereof plus accrued interest with the net cash proceeds from certain
asset sales. The Company intends to use the net proceeds from the sale of
Consumer Products or the Barnett IPO to offer to purchase the Senior Secured
Notes at 102 percent of the principal amount thereof plus accrued interest and,
to the extent the Senior Secured Notes are not tendered pursuant to such offer
to purchase or if such offer to purchase is not made, defease such Senior
Secured Notes pursuant to the terms of the Senior Secured Notes Indenture. The
terms of the Company's existing credit agreement require the net cash proceeds
from the Consumer Products sale or the Barnett IPO be used to prepay amounts
owing thereunder. Accordingly, in connection with the sale of Consumer
Products or the Barnett IPO, the Company intends to use the cash proceeds from
any such transaction not used to retire the Senior Secured Notes to repay
amounts due under the credit agreement and/or refinance the remaining balance
due under the credit agreement using proceeds from a new secured credit
facility (the "New Credit Agreement"). If the Company is not able, prior to
September 1, 1996, to enter into the New Credit Agreement and sell Consumer
Products or complete the Barnett IPO for sufficient net cash proceeds to retire
the Senior Secured Notes and, together with borrowings under the New Credit
Agreement, to pay all amounts owing under the credit agreement, the Company
will have to obtain a significant infusion of funds either through an
additional debt financing transaction or the sale of equity and/or assets prior
to September 1, 1996. There can be no assurance any such transaction or sale
will be able to be consummated prior to September 1, 1996 or as to the terms
and conditions of any such transaction or sale which may be so consummated. If
the Company is not otherwise able to make the September 1, 1996 sinking fund
payment, there would be an event of default under the indenture which the
Senior Secured Notes were issued, which event of default could result in the
holders of the Senior Secured Notes foreclosing upon the collateral securing
the Senior Secured Notes. Such an event of default would also cause an event
of default under all of the Company's other outstanding indebtedness as well as
under the credit agreement.
The Company, through its wholly-owned subsidiary, Waxman USA Inc. currently
intends to offer to exchange for $48.75 million principal amount of the
Company's outstanding 13-3/4 percent Senior Subordinated Notes due 1999 (the
"Senior Subordinated Notes"), a like principal amount of Waxman USA Senior
Subordinated Notes due 2001 (the "Exchange Securities") and in connection
therewith to solicit consent to certain amendments to the indenture pursuant to
which the Senior Subordinated Notes were issued (the "Exchange Offer").
Although the terms of the Exchange Offer have not been finalized, the Company
expects that the Exchange Offer, if consummated, will decrease the Company's
cash interest burden and will extend the maturity of the Senior Subordinated
Notes exchanged in the Exchange Offer by several years. It is currently
contemplated that the Exchange Securities will not be registered under the
Securities Act of 1933, as amended, and may not be offered or sold in the
United States absent registration of an applicable exemption from such
registration requirements. There can be no assurance that the Company will be
successful in obtaining the consents of the requisite holders of the Senior
Subordinated Notes necessary to effectuate the Exchange Offer. In addition, it
is contemplated that consummation of the Exchange Offer will be subject to the
satisfaction of certain conditions, including the sale of Consumer Products or
the completion of the Barnett IPO, as well as the Company entering into a New
Credit Agreement.
As part of the May 1994 financial restructuring, the Company's indirect
subsidiaries Barnett, Consumer Products, and WOC Inc. (the "Operating
Companies") entered into a $55 million four-year, secured credit facility with
an affiliate of Citibank, N.A., as agent for certain financial institutions.
The secured credit facility, which has an initial term of three years, will be
extended for an additional year if the Company's Senior Secured Notes have been
repaid on or before March 1997. The secured credit
12
<PAGE> 13
facility is subject to borrowing base formulas and prohibits dividends and
distributions by the Operating Companies except in certain limited instances.
At December 31, 1995, availability under the secured credit facility totaled
approximately $3.7 million.
Also, as part of the May 1994 financial restructuring, the Operating Companies
entered into a $15.0 million three-year term loan with Citibank, N.A., as agent
for certain financial institutions. The term loan will be required to be
prepaid if a refinancing is completed which is sufficient to retire the Senior
Subordinated Notes, the Senior Secured Notes and the term loan. Principal
payments on the term loan of $1.0 million each are required quarterly. At
December 31, 1995, $12.0 million remained outstanding under the term loan.
In September 1995, the Company entered into an amendment to the credit
agreement and term loan which amended certain definitions contained therein to
eliminate the impact of the expected loss on disposal of Consumer Products, as
well as a warehouse closure charge from the financial covenant calculations. In
addition, the amendment modified certain financial covenants to provide that
future compliance will not be negatively impacted by the results of Consumer
Products. However, if the sale of Consumer Products is consummated, the
Company intends to repay the portion of the credit agreement which relates to
Consumer Products and refinance the remaining balance using proceeds from a New
Credit Agreement. If the Barnett IPO is consummated, the Company intends to
repay the portion of the credit agreement which relates to Barnett, as well as
the term loan and refinance the remaining balance using proceeds from a New
Credit Agreement. The terms of such New Credit Agreement are currently being
negotiated. The Company expects to incur an extraordinary charge upon the
refinancing of the credit facility and term loan which primarily will represent
the accelerated amortization of unamortized debt issuance costs which were
$2.3 million at December 31, 1995.
The Company does not have any commitments to make substantial capital
expenditures. Subject to the availability of working capital, the Company
currently contemplates opening two to four Barnett distribution centers over
the next twelve months. The average cash cost to open a Barnett warehouse is
approximately $0.6 million, including $300,000 for inventory and $300,000 for
fixed assets, leasehold improvements and start-up costs.
Assuming the sale of the Consumer Products business or the completion of the
Barnett IPO is consummated and the Company is able to extend and/or refinance
the credit agreement and complete the Exchange Offer, the Company believes that
funds generated from operations along with the funds available under a new
credit facility will be sufficient to satisfy the Company's liquidity
requirements until December 1, 1999 (the date that cash interest becomes
payable by the Company under the Deferred Coupon Notes). There can be no
assurance that the Company will be able to pay cash interest on the Deferred
Coupon Notes commencing in December 1999 or that the Company will be able to
refinance the Deferred Coupon Notes.
Discussion of Cash Flows
For the fiscal 1996 six month period, the Company's continuing operations
provided $2.1 million of cash flows from operations. Cash flows used for
investments totaled $2.0 million, the majority of which related to capital
expenditures. Financing activities used approximately $2.4 million of cash
flows as the Company decreased amounts outstanding under its revolving credit
facilities by $1.1 million and paid a $1.0 million principal payment under
its term loan.
13
<PAGE> 14
PART II. OTHER INFORMATION
- ---------------------------
Item 4. Submission of Matters to a Vote of Security Holders
---------------------------------------------------
Three proposals were voted upon by the Company's stockholders at the Annual
Meeting of Stockholders of the Company held on November 27, 1995. A brief
description of each proposal voted upon at the Annual Meeting and the number of
votes cast for, against and withheld, as well as the number of abstentions and
broker non-votes as to each such proposal, are set forth below.
A vote by ballot was taken at the Annual Meeting for the election of six
directors of the Company to hold office until the next Annual Meeting of
Stockholders of the Company and until their respective successors are elected
and qualified. The aggregate numbers of shares of Common Stock (a) voted in
person or by proxy for each nominee or (b) with respect to which proxies were
withheld for each nominee, were as follows:
<TABLE>
<CAPTION>
Nominees For Withheld
-------- ----------- ----------
<S> <C> <C>
Melvin Waxman 28,239,958 389,873
Armond Waxman 28,233,668 396,163
William R. Pray 28,229,936 399,895
Samuel J. Krasney 28,255,113 374,718
Judy Robins 28,238,368 391,463
Irving Z. Friedman 28,260,913 368,918
</TABLE>
A vote by ballot was taken at the Annual Meeting to consider the shareholder
proposal concerning limitations on executive compensation. The aggregate
numbers of shares of Common Stock in person or by proxy (a) voted for, (b)
voted against or (c) abstaining from the vote on such proposal, were as
follows:
<TABLE>
<CAPTION>
For Against Abstain Broker Non-Votes
--------- ---------- ---------- --------------------
<S> <C> <C> <C>
2,888,346 22,784,690 46,067 2,910,728
</TABLE>
A vote by ballot was taken at the Annual Meeting on the proposal to ratify the
appointment of Arthur Andersen LLP as auditors for the Company for the fiscal
year ending June 30, 1996. The aggregate numbers of shares of Common Stock in
person or by proxy (a) voted for, (b) voted against or (c) abstaining from the
vote on such proposal, were as follows:
<TABLE>
<CAPTION>
For Against Abstain Broker Non-Votes
---------- ----------- ---------- --------------------
<S> <C> <C> <C>
28,339,762 166,477 33,182 90,410
</TABLE>
The foregoing proposals are described more fully in the Company's definitive
proxy statement dated October 30, 1995, filed with the Securities and Exchange
Commission pursuant to Section 14(a) of the Securities Exchange Act of 1934, as
amended, and the rules and regulations promulgated thereunder.
Item 5. Other Information
-----------------
Note 8 in Part I is incorporated by reference herein.
14
<PAGE> 15
Item 6. Exhibits and Reports on Form 8-K
--------------------------------
a. See Exhibit 27.
b. There were no reports on Form 8-K filed during the quarter.
All other items in Part II are either inapplicable to the Company during the
quarter ended December 31, 1995, the answer is negative or a response has been
previously reported and an additional report of the information need not be
made, pursuant to the instructions to Part II.
SIGNATURES
----------
Pursuant to the requirements of the Securities Exchange Act of 1934, as
amended, the registrant has duly caused this report to be signed on its behalf
by the undersigned thereunto duly authorized.
WAXMAN INDUSTRIES, INC.
-----------------------
Registrant
February 12, 1996 /s/ Andrea Luiga
By:_____________________
Andrea Luiga
Chief Financial Officer
(principal financial and
accounting officer)
15
<PAGE> 16
EXHIBIT INDEX
-------------
EXHIBIT DESCRIPTION PAPER (P) OR
- ------- ----------- ------------
NUMBER ELECTRONIC (E)
- ------ --------------
(27) Financial Data Schedule (submitted
to the Securities and Exchange
Commission in Electronic Format) E
<TABLE> <S> <C>
<ARTICLE> 5
<MULTIPLIER> 1,000
<S> <C>
<PERIOD-TYPE> 6-MOS
<FISCAL-YEAR-END> JUN-30-1996
<PERIOD-START> JUL-01-1995
<PERIOD-END> DEC-31-1995
<CASH> 1,585
<SECURITIES> 0
<RECEIVABLES> 23,927
<ALLOWANCES> 817
<INVENTORY> 38,541
<CURRENT-ASSETS> 116,487
<PP&E> 26,852
<DEPRECIATION> 13,845
<TOTAL-ASSETS> 158,652
<CURRENT-LIABILITIES> 62,977
<BONDS> 159,121
<COMMON> 118
0
0
<OTHER-SE> (63,564)
<TOTAL-LIABILITY-AND-EQUITY> 158,652
<SALES> 83,385
<TOTAL-REVENUES> 83,385
<CGS> 56,031
<TOTAL-COSTS> 20,258
<OTHER-EXPENSES> (379)
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 10,261
<INCOME-PRETAX> (2,786)
<INCOME-TAX> 188
<INCOME-CONTINUING> (2,974)
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> (2,974)
<EPS-PRIMARY> (.25)
<EPS-DILUTED> (.25)
</TABLE>
