<PAGE> 1
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
------------------------
FORM 10-K/A1
[X] ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT
OF 1934
FOR THE FISCAL YEAR ENDED JUNE 30, 1996
OR
TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT
OF 1934
FOR THE TRANSITION PERIOD FROM TO
COMMISSION FILE NUMBER 0-5888
------------------------
WAXMAN INDUSTRIES, INC.
(EXACT NAME OF REGISTRANT AS SPECIFIED IN ITS CHARTER)
<TABLE>
<S> <C>
DELAWARE 34-0899894
(STATE OF INCORPORATION) (I.R.S. EMPLOYER IDENTIFICATION NUMBER)
24460 AURORA ROAD, 44146
BEDFORD HEIGHTS, OHIO (ZIP CODE)
(ADDRESS OF PRINCIPAL EXECUTIVE OFFICES)
</TABLE>
(216) 439-1830
(REGISTRANT'S TELEPHONE NUMBER INCLUDING AREA CODE)
------------------------
SECURITIES REGISTERED PURSUANT TO SECTION 12(b) OF THE ACT:
<TABLE>
<CAPTION>
(NAME OF EACH EXCHANGE
(TITLE OF EACH CLASS) ON WHICH REGISTERED)
- ------------------------------ -------------------------
<S> <C>
Common Stock, $.01 par value New York Stock Exchange
Chicago Stock Exchange
</TABLE>
------------------------
SECURITIES REGISTERED PURSUANT TO SECTION 12(b) OF THE ACT:
NONE
Indicate by check mark whether the registrant (1) has filed all reports
required to be filed by Section 13 or 15(d) of the Securities Exchange Act of
1934 during the preceding 12 months (or for such shorter period that the
registrant was required to file such reports), and (2) has been subject to such
filing requirements for the past ninety (90) days.
Yes X No
--- ---
Indicate by check mark if disclosure of delinquent filers pursuant to Item
405 of Regulation S-K is not contained herein, and will not be contained, to the
best of registrant's knowledge, in definitive proxy or information statements
incorporated by reference in Part III of this Form 10-K or any amendment to this
Form 10-K. X
---
Aggregate market value of voting stock held by non-affiliates of the
registrant based on the closing price at which such stock was sold on the New
York Stock Exchange on October 11, 1996: $26,907,849
NUMBER OF SHARES OF COMMON STOCK OUTSTANDING AS OF OCTOBER 11, 1996:
COMMON STOCK 9,700,453
CLASS B COMMON STOCK 2,153,196
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
<PAGE> 2
The Annual Report on Form 10-K for the fiscal year ended June 30, 1996
(File Number 001-10273) of Waxman Industries, Inc. (the "Company") is hereby
amended by deleting therefrom the Selected Financial Data and the Consolidated
Financial Statements included therein in their entirety and substituting
therefor, respectively, the following Selected Financial Data and Consolidated
Financial Statements to reflect the addition of certain information to each of
Footnote 1 to the Selected Financial Data and Note 13 to the Consolidated
Financial Statements.
1
<PAGE> 3
ITEM 6. SELECTED FINANCIAL DATA
The selected historical consolidated financial data for the fiscal years
ended June 30, 1996, 1995, 1994, 1993 and 1992 and as of June 30, 1996, 1995,
1994, 1993 and 1992 are derived from the audited Consolidated Financial
Statements included elsewhere herein. The selected consolidated financial data
presented below should be read in conjunction with "Management's Discussion and
Analysis of Financial Condition and Results of Operations" and the audited
Consolidated Financial Statements and the notes thereto included elsewhere in
this Annual Report. During fiscal 1996, the Company identified an intercompany
inventory reconciling item between Consumer Products and WAMI and has restated
prior year financial statements to reflect the correction of this item. The
restated financial data included in this Annual Report shall be deemed to amend
and restate the financial data included in prior years' periodic reports of the
Company.
<TABLE>
<CAPTION>
FISCAL YEARS ENDED JUNE 30,
--------------------------------------------------------------------
1996 1995 1994 1993 1992
-------- ------------ ------------ ------------ ------------
RESTATED(1) RESTATED(1) RESTATED(1) RESTATED(1)
(AMOUNTS IN THOUSANDS, EXCEPT PER SHARE AMOUNTS)
<S> <C> <C> <C> <C> <C>
INCOME STATEMENT DATA (2):
Net sales................................... $235,067 $232,304 $215,112 $204,778 $197,738
Cost of sales............................... 160,556 152,368 141,011 138,144 127,315
-------- ---------- ---------- ---------- ----------
Gross profit................................ 74,511 79,936 74,101 66,634 70,423
Selling, general and administrative
expenses.................................. 70,628 62,481 56,888 56,081 51,824
Restructuring and other non-recurring
charges................................... 19,507 2,779 -- 6,762 3,900
-------- ---------- ---------- ---------- ----------
Operating (loss) income(3).................. (15,624) 14,676 17,213 3,791 14,699
Gain on sale of Barnett stock(4)............ 65,917 -- -- -- --
Interest expense, net....................... 24,264 26,411 21,334 20,365 20,025
-------- ---------- ---------- ---------- ----------
Income (loss) from continuing operations
before income taxes, minority interest,
discontinued operations, extraordinary
loss and cumulative effect of change in
accounting................................ 26,029 (11,735) (4,121) (16,574) (5,326)
Provision (benefit) for income taxes........ 2,395 338 351 216 (768)
-------- ---------- ---------- ---------- ----------
Income (loss) from continuing operations
before minority interest, discontinued
operations, extraordinary loss and
cumulative effect of change in
accounting................................ 23,634 (12,073) (4,472) (16,790) (4,558)
Minority interest in consolidated
affiliate................................. 975 -- -- -- --
Discontinued operations:
(Loss) income from discontinued
operations.............................. -- -- (3,249) (11,240) 1,146
Reversal of loss and (loss) on disposal... 11,000 (11,000) (38,343) -- --
-------- ---------- ---------- ---------- ----------
Income (loss) before extraordinary loss and
cumulative effect of change in
accounting................................ 33,659 (23,073) (46,064) (28,030) (3,412)
Extraordinary loss(5)....................... 6,251 -- 6,824 -- 1,186
Cumulative effect of change in
accounting(6)............................. 8,213 -- -- 2,110 --
-------- ---------- ---------- ---------- ----------
Net income (loss)........................... $ 19,195 $(23,073) $(52,888) $(30,140) $ (4,598)
========= ========== ========== ========== ==========
Average number of shares outstanding........ 11,756 11,712 11,674 11,662 9,794
========= ========== ========== ========== ==========
</TABLE>
2
<PAGE> 4
<TABLE>
<CAPTION>
FISCAL YEARS ENDED JUNE 30,
--------------------------------------------------------------------
1996 1995 1994 1993 1992
-------- ------------ ------------ ------------ ------------
RESTATED(1) RESTATED(1) RESTATED(1) RESTATED(1)
(AMOUNTS IN THOUSANDS, EXCEPT PER SHARE AMOUNTS)
<S> <C> <C> <C> <C> <C>
Primary earnings (loss) per share:
From continuing operations before minority
interest, discontinued operations,
extraordinary loss and cumulative effect
of change in accounting................. $ 2.00 $ (1.03) $ (.39) $ (1.44) $ (.46)
Minority interest in consolidated
affiliate............................... (.08) -- -- -- --
Discontinued operations:
(Loss) income from discontinued
operations............................ -- -- (.28) (.96) .11
Reversal of loss and (loss) on
disposal.............................. .93 (.94) (3.28) -- --
Extraordinary loss........................ (.53) -- (.58) -- (.12)
Cumulative effect of change in
accounting.............................. (.69) -- -- (.18) --
-------- ---------- ---------- ---------- ----------
Net income (loss) per share............... $ 1.63 $ (1.97) $ (4.53) $ (2.58) $ (.47)
======== ========== ========== ========== ==========
Fully diluted earnings (loss) per share:
From continuing operations before minority
interest, discontinued operations,
extraordinary loss and cumulative effect
of change in accounting................. $ 1.73 $ (1.03) $ (.39) $ (1.44) $ (.46)
Minority interest in consolidated
affiliate............................... (.07) -- -- -- --
Discontinued operations:
(Loss) income from discontinued
operations............................ -- -- (.28) (.96) .11
Reversal of loss and (loss) on
disposal.............................. .81 (.94) (3.28) -- --
Extraordinary loss........................ (.46) -- (.58) -- (.12)
Cumulative effect of change in
accounting.............................. (.60) -- -- (.18) --
-------- ---------- ---------- ---------- ----------
Net income (loss) per share............... $ 1.41 $ (1.97) $ (4.53) $ (2.58) $ (.47)
======== ========== ========== ========== ==========
Cash dividends per share:
Common stock.............................. $ -- $ -- $ -- $ .08 $ .12
Class B common stock...................... $ -- $ -- $ -- $ .08 $ .12
BALANCE SHEET DATA(2):
Working capital............................. $ 50,716 $ 24,534 $ 39,020 $116,430 $127,036
Total assets................................ 142,637 169,744 180,743 197,225 228,631
Total long-term debt........................ 112,336 143,770 137,295 161,910 148,893
Stockholders' equity........................ (43,254) (62,697) (40,009) 6,196 40,427
</TABLE>
3
<PAGE> 5
ITEM 6. SELECTED FINANCIAL DATA
<TABLE>
<CAPTION>
FISCAL YEARS ENDED JUNE 30,
--------------------------------------------------------
1991 1990 1989 1988 1987
-------- ------------ -------- -------- --------
RESTATED(1)
(AMOUNTS IN THOUSANDS, EXCEPT PER SHARE AMOUNTS)
<S> <C> <C> <C> <C> <C>
INCOME STATEMENT DATA (2):
Net sales............................................. $186,327 $186,315 $194,585 $152,400 $117,149
Cost of sales......................................... 121,597 120,977 128,038 102,414 78,908
-------- ---------- -------- -------- --------
Gross profit.......................................... 64,730 65,338 66,547 49,986 38,241
Selling, general and administrative expenses.......... 50,263 49,452 48,479 36,492 27,051
Restructuring and other non-recurring charges......... -- -- -- -- --
-------- ---------- -------- -------- --------
Operating (loss) income(3)............................ 14,467 15,886 18,068 13,494 11,190
Gain on sale of Barnett stock(4)...................... -- -- -- -- --
Interest expense, net................................. 17,462 15,814 8,136 3,841 3,727
-------- ---------- -------- -------- --------
Income (loss) from continuing operations before income
taxes, minority interest, discontinued operations,
extraordinary loss and cumulative effect of change
in accounting....................................... (2,995) 72 9,932 9,653 7,463
Provision (benefit) for income taxes.................. (680) 27 3,794 3,044 3,673
-------- ---------- -------- -------- --------
Income (loss) from continuing operations before
minority interest, discontinued operations,
extraordinary loss and cumulative effect of change
in accounting....................................... (2,315) 45 6,138 6,609 3,790
Minority interest in consolidated affiliate........... -- -- -- -- --
Discontinued operations:
(Loss) income from discontinued operations.......... 4,343 6,743 1,183 -- --
Reversal of loss and (loss) on disposal............. -- -- -- -- --
-------- ---------- -------- -------- --------
Income (loss) before extraordinary loss and cumulative
effect of change in accounting...................... 2,028 6,788 7,321 6,609 3,790
Extraordinary loss(5)................................. -- 320 -- 666 1,590
Cumulative effect of change in accounting(6).......... -- -- -- -- --
-------- ---------- -------- -------- --------
Net income (loss)..................................... $ 2,028 $ 6,468 $ 7,321 $ 5,943 $ 2,200
========= ========== ======== ======== ========
Average number of shares outstanding.................. 9,570 9,659 9,204 9,316 9,470
========= ========== ======== ======== ========
Primary earnings (loss) per share:
From continuing operations before minority interest,
discontinued operations, extraordinary loss and
cumulative effect of change in accounting......... $ (.24) $ .01 $ .67 $ .71 $ .40
Minority interest in consolidated affiliate......... -- -- -- -- --
Discontinued operations:
(Loss) income from discontinued operations........ .45 .69 .13 -- --
Reversal of loss and (loss) on disposal........... -- -- -- -- --
Extraordinary loss.................................. -- (.03) -- (.07) (.17)
Cumulative effect of change in accounting......... -- -- -- -- --
-------- ---------- -------- -------- --------
Net income (loss) per share....................... $ .21 $ .67 $ 80 $ .64 $ .23
======== ========== ======== ======== ========
Fully diluted earnings (loss) per share:
From continuing operations before minority interest,
discontinued operations, extraordinary loss and
cumulative effect of change in accounting......... $ (.24) $ .01 $ .59 $ .64 $ .40
Minority interest in consolidated affiliate......... -- -- -- -- --
Discontinued operations:
(Loss) income from discontinued operations........ .45 .65 .11 -- --
Reversal of loss and (loss) on disposal........... -- -- -- -- --
Extraordinary loss.................................. -- (.03) -- (.06) (.17)
Cumulative effect of change in accounting........... -- -- -- -- --
-------- ------------ -------- -------- --------
Net income (loss) per share......................... $ .21 $ .63 $ .70 $ .58 $ .23
======== ========== ======== ======== ========
Cash dividends per share:
Common stock........................................ $ .12 $ .12 $ .10 $ .07 $ .05
Class B common stock................................ $ .12 $ .11 $ .08 $ .05 $ .02
BALANCE SHEET DATA(2):
Working capital....................................... $133,454 $136,989 $117,777 $ 54,983 $ 47,890
Total assets.......................................... 236,237 249,892 235,485 113,313 95,509
Total long-term debt.................................. 156,431 176,523 178,976 58,513 48,530
Stockholders' equity.................................. 37,866 39,242 26,934 20,921 17,046
</TABLE>
4
<PAGE> 6
- ---------------
(1) During fiscal 1996, the Company identified an intercompany inventory
reconciling item between Consumer Products and WAMI and has restated prior
year financial statements to reflect the correction of this item. The effect
of this restatement was as follows:
<TABLE>
<CAPTION>
AS PREVIOUSLY AS
Stockholders' Equity: REPORTED RESTATED
------------- ---------
<S> <C> <C>
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
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)
</TABLE>
Corresponding changes have been made to the consolidated balance sheets to
reduce inventories.
(2) This information reflects the acquisitions of WAMI in November 1990, U.S.
Lock in July 1988, the plumbing and floor care businesses of The Stanley
Works in May 1988, Madison Equipment Company in March 1988, H. Belanger
Plumbing Accessories, Ltd. ("Belanger") in July 1987 and Keystone Franklin,
Inc. in December 1986. Belanger was sold in October 1993. Discontinued
operations data relates to Ideal, which was acquired in May 1989 and
accounted for as a purchase. All per share amounts have been adjusted to
reflect a three-for-two stock split effective July 1, 1988, as well as the
distribution of one share of a new Class B Common Stock for each share of
common stock held, effectively a two-for-one stock split, effective December
29, 1986.
(3) During fiscal 1996, the Company recorded a $19.5 million restructuring and
asset impairment loss, which included a $7.4 million restructuring charge
primarily attributable to strategic initiatives at Consumer Products and a
$12.1 asset impairment charge attributable to the Company's U.S. Lock
division in accordance with SFAS 121 and a $14.8 million charge related to
the reduction of carrying value of certain assets and liabilities. During
fiscal 1995, the Company incurred $2.8 million in warehouse closure costs as
Consumer Products' distribution network was downsized from four locations to
three. During fiscal 1993, the Company recorded a $6.8 million restructuring
charge which included $4.6 million representing the estimated loss to be
incurred upon the proposed disposal of three businesses, $1.6 million
representing costs incurred to consolidate administrative functions and
transfer two of Consumer
5
<PAGE> 7
Products' domestic packaging facilities to Mexico and $0.6 million related
to the Company's decision to not proceed with the securities offering of
Barnett in fiscal 1993. The fiscal 1992 restructuring charge consisted of a
$3.9 million capital loss realized upon the sale of the Company's portfolio
of debt securities. See Note 3 to the Consolidated Financial Statements for
further discussion.
(4) Reflects the gain on the Barnett Public Offering as further described in
Note 2 to the Consolidated Financial Statements.
(5) Represents deferred financing costs written off due to the repayment and
refinancing of debt in fiscal 1996 and 1994 as further described in Notes 2
and 5 to the Consolidated Financial Statements. The fiscal 1992, as
described in Note 5 to the Consolidated Financial Statements, and 1990
extraordinary charges relate to the repurchase of certain debt securities.
The fiscal 1988 and 1987 extraordinary charges relate to accelerated
amortization and market premium costs related to certain notes.
(6) See Note 4 to the Consolidated Financial Statements for a discussion
regarding the cumulative effect of change in accounting for procurement
costs of $8.2 million in fiscal 1996 and for certain distribution center
start-up and catalog development costs of $2.1 million in fiscal 1993.
ITEM 8. CONSOLIDATED FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA
(BEGINS ON FOLLOWING PAGE)
6
<PAGE> 8
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, 1996, 1995, 1994, 1993 and 1992, and the related consolidated
statements of operations, stockholders' equity and cash flows for each of the
five years in the period ended June 30, 1996. As explained in Note 13, certain
financial statements as of and for the years ended prior to June 30, 1996 have
been restated. These consolidated financial statements are the responsibility of
the Company's management. Our responsibility is to express an opinion on these
consolidated 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, 1996, 1995, 1994, 1993 and 1992, and the results of
their operations and their cash flows for each of the five years in the period
ended June 30, 1996, in conformity with generally accepted accounting
principles.
As explained in Notes 3 and 4 to the financial statements, in fiscal 1996,
the Company changed its method of accounting for long-lived assets and
procurement costs and, in fiscal 1993, the Company changed its method of
accounting for distribution center start-up and catalog development costs.
Arthur Andersen LLP
Cleveland, Ohio,
October 7, 1996.
7
<PAGE> 9
WAXMAN INDUSTRIES, INC. AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS
JUNE 30, 1996, 1995, 1994, 1993 AND 1992
(IN THOUSANDS)
ASSETS
<TABLE>
<CAPTION>
1996 1995 1994 1993 1992
-------- -------- -------- -------- --------
RESTATED RESTATED RESTATED RESTATED
-------- -------- -------- --------
<S> <C> <C> <C> <C> <C>
CURRENT ASSETS:
Cash.................................... $ 2,460 $ 2,106 $ 2,026 $ 406 $ 194
Accounts receivable, net................ 37,226 34,989 37,216 36,272 36,235
Inventories............................. 59,883 71,162 78,669 71,642 79,925
Net assets (liabilities) of discontinued
operations........................... -- -- (421) 29,156 42,183
Net assets held for sale................ -- -- -- 3,086 --
Prepaid expenses........................ 4,096 4,948 4,987 4,987 7,810
-------- -------- -------- -------- --------
Total current assets................. 103,665 113,205 122,477 145,549 166,347
-------- -------- -------- -------- --------
PROPERTY AND EQUIPMENT:
Land.................................... 1,393 1,520 1,461 1,420 1,441
Buildings............................... 11,842 13,573 12,421 11,213 10,808
Equipment............................... 23,090 20,652 20,655 18,824 19,848
-------- -------- -------- -------- --------
36,325 35,745 34,537 31,457 32,097
Less accumulated depreciation
and amortization........................ (18,597) (16,364) (17,163) (14,784) (13,321)
-------- -------- -------- -------- --------
Property and equipment, net............... 17,728 19,381 17,374 16,673 18,776
-------- -------- -------- -------- --------
COST OF BUSINESSES IN EXCESS OF NET ASSETS
ACQUIRED, NET........................... 13,318 24,010 24,774 25,498 28,199
UNAMORTIZED DEBT ISSUANCE COSTS, NET...... 5,008 9,875 10,284 3,935 --
OTHER ASSETS.............................. 2,918 3,273 5,834 5,570 15,309
-------- -------- -------- -------- --------
$142,637 $169,744 $180,743 $197,225 $228,631
======== ======== ======== ======== ========
</TABLE>
The accompanying Notes to Consolidated Financial Statements are an integral part
of these statements.
8
<PAGE> 10
WAXMAN INDUSTRIES, INC. AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS
JUNE 30, 1996, 1995, 1994, 1993 AND 1992
(IN THOUSANDS EXCEPT PER SHARE DATA)
LIABILITIES AND STOCKHOLDERS' EQUITY
<TABLE>
<CAPTION>
1996 1995 1994 1993 1992
-------- -------- -------- -------- --------
RESTATED RESTATED RESTATED RESTATED
-------- -------- -------- --------
<S> <C> <C> <C> <C> <C>
CURRENT LIABILITIES:
Current portion of long-term debt....... $ 10,972 $ 59,844 $ 56,523 $ 2,493 $ 2,107
Accounts payable........................ 28,607 21,892 20,427 19,934 28,912
Accrued liabilities..................... 9,892 4,780 4,406 4,083 5,692
Accrued income taxes payable............ 2,037 -- -- -- --
Accrued interest........................ 1,441 2,155 2,101 2,609 2,600
-------- -------- -------- -------- --------
Total current liabilities............ 52,949 88,671 83,457 29,119 39,311
-------- -------- -------- -------- --------
LONG-TERM DEBT, NET OF CURRENT PORTION.... 863 1,204 1,684 22,567 9,662
SENIOR SECURED DEFERRED COUPON NOTES...... 62,723 54,875 48,031 -- --
SENIOR NOTES.............................. 43,026 -- -- -- --
SENIOR SUBORDINATED NOTES................. 5,724 48,750 48,750 98,750 98,750
SENIOR SECURED NOTES...................... -- 38,786 38,675 38,563 38,451
CONVERTIBLE SUBORDINATED NOTES............ -- 155 155 2,030 2,030
COMMITMENTS AND CONTINGENCIES
MINORITY INTEREST IN CONSOLIDATED
AFFILIATE............................... 20,606 -- -- -- --
STOCKHOLDERS' EQUITY:
Preferred stock, $0.01 par value per
share:
authorized and unissued 2,000 shares...... -- -- -- -- --
Common stock, $0.01 par value per share:
22,000 shares authorized: 9,693, 9,495,
9,490, 9,424 and 9,411 shares issued,
respectively............................ 96 95 95 94 94
Class B common stock, $.01 par value per
share: 2,153, 2,217, 2,222, 2,238 and
2,251 shares issued, respectively....... 22 23 23 23 23
Paid-in capital........................... 21,419 21,098 21,098 18,467 18,467
Retained earnings (deficit)............... (64,503) (83,698) (60,625) (7,737) 23,335
-------- -------- -------- -------- --------
(42,966) (62,482) (39,409) 10,847 41,919
Cumulative currency translation
adjustment........................... (288) (215) (600) (4,651) (1,492)
-------- -------- -------- -------- --------
Total stockholders' equity........... (43,254) (62,697) (40,009) 6,196 40,427
-------- -------- -------- -------- --------
$142,637 $169,744 $180,743 $197,225 $228,631
======== ======== ======== ======== ========
</TABLE>
The accompanying Notes to Consolidated Financial Statements are an integral part
of these statements.
9
<PAGE> 11
WAXMAN INDUSTRIES, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF OPERATIONS
(IN THOUSANDS EXCEPT PER SHARE DATA)
<TABLE>
<CAPTION>
FISCAL YEAR ENDED JUNE 30,
--------------------------------------------------------
1996 1995 1994 1993 1992
-------- -------- -------- -------- --------
RESTATED RESTATED RESTATED
-------- -------- --------
<S> <C> <C> <C> <C> <C>
Net sales................................. $235,067 $232,304 $215,112 $204,778 $197,738
Cost of sales............................. 160,556 152,368 141,011 138,144 127,315
-------- -------- -------- -------- --------
Gross profit.............................. 74,511 79,936 74,101 66,634 70,423
Selling, general and administrative
expenses................................ 70,628 62,481 56,888 56,081 51,824
Restructuring and other non-recurring
charges................................. 19,507 2,779 -- 6,762 3,900
-------- -------- -------- -------- --------
Operating (loss) income................... (15,624) 14,676 17,213 3,791 14,699
Gain on sale of Barnett stock............. 65,917 -- -- -- --
Interest expense, net of interest income
of $157, $0, $14, $5 and $978,
respectively............................ 24,264 26,411 21,334 20,365 20,025
-------- -------- -------- -------- --------
Income (loss) from continuing operations
before income taxes, minority interest,
discontinued operations, extraordinary
loss and cumulative effect of change in
accounting.............................. 26,029 (11,735) (4,121) (16,574) (5,326)
Provision (benefit) for income taxes...... 2,395 338 351 216 (768)
-------- -------- -------- -------- --------
Income (loss) from continuing operations
before minority interest, discontinued
operations, extraordinary loss and
cumulative effect of change in
accounting.............................. 23,634 (12,073) (4,472) (16,790) (4,558)
Minority interest in consolidated
affiliate............................... 975 -- -- -- --
Discontinued operations:
Income (loss) from discontinued
operations........................... -- -- (3,249) (11,240) 1,146
Reversal of loss and (loss) on disposal
of business.......................... 11,000 (11,000) (38,343) -- --
-------- -------- -------- -------- --------
Income (loss) before extraordinary loss
and cumulative effect of change in
accounting.............................. 33,659 (23,073) (46,064) (28,030) (3,412)
Extraordinary loss........................ 6,251 -- 6,824 -- 1,186
Cumulative effect of change in
accounting.............................. 8,213 -- -- 2,110 --
-------- -------- -------- -------- --------
Net income (loss)......................... $ 19,195 $(23,073) $(52,888) $(30,140) $ (4,598)
======== ======== ======== ======== ========
</TABLE>
10
<PAGE> 12
WAXMAN INDUSTRIES, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF OPERATIONS
(IN THOUSANDS EXCEPT PER SHARE DATA)
<TABLE>
<CAPTION>
FISCAL YEAR ENDED JUNE 30,
--------------------------------------------------------
1996 1995 1994 1993 1992
-------- -------- -------- -------- --------
RESTATED RESTATED RESTATED
-------- -------- --------
<S> <C> <C> <C> <C> <C>
Primary earnings (loss) per share:
From continuing operations before minority
interest, discontinued operations,
extraordinary loss and cumulative effect
of change in accounting................. $ 2.00 $ (1.03) $ (.39) $ (1.44) $ (.46)
Minority interest in consolidated
affiliate............................ (.08) -- -- --
Discontinued operations:
Income(loss) from discontinued
operations......................... -- -- (.28) (.96) .11
Reversal of loss and (loss) on
disposal of business............... .93 (.94) (3.28) -- --
Extraordinary loss...................... (.53) -- (.58) -- (.12)
Cumulative effect of change in
accounting........................... (.69) -- -- (.18) --
-------- -------- -------- -------- --------
$ 1.63 $ (1.97) $ (4.53) $ (2.58) $ (.47)
======== ======== ======== ======== ========
Fully diluted earnings (loss) per share:
From continuing operations before minority
interest, discontinued operations,
extraordinary loss and cumulative of
change in accounting.................... $ 1.73 $ (1.03) $ (.39) $ (1.44) $ (.46)
Minority interest in consolidated
affiliate............................ (.07) -- -- -- --
Discontinued operations:
Income (loss) from discontinued
operations......................... -- -- (.28) (.96) .11
Reversal of loss and (loss) on
disposal of business............... .81 (.94) (3.28) -- --
Extraordinary loss...................... (.46) -- (.58) -- (.12)
Cumulative effect of change in
accounting........................... (.60) -- -- (.18) --
-------- -------- -------- -------- --------
$ 1.41 $ (1.97) $ (4.53) $ (2.58) $ (.47)
======== ======== ======== ======== ========
Pro forma effect assuming the changes in
accounting principle are applied
retroactively:
Income (loss) before extraordinary
loss............................... $ 33,659 $(25,331) $(42,243) $(30,339) $ (5,139)
Net income (loss).................... 27,408 (25,331) (52,067) (30,339) (6,325)
Primary earnings (loss) per share:
Income (loss) before extraordinary
loss............................... $ 2.85 $ (2.16) $ (3.88) $ (2.60) $ (0.52)
Net income (loss).................... 2.32 (2.16) (4.46) (2.60) (0.65)
Fully diluted earnings (loss) per share:
Income (loss) before extraordinary
loss............................... $ 2.47 $ (2.16) $ (3.88) $ (2.60) $ (0.52)
Net income (loss).................... 2.01 (2.16) (4.46) (2.60) (0.65)
Average Number of Common Shares
Outstanding............................. 11,756 11,712 11,674 11,662 9,794
======== ======== ======== ======== ========
</TABLE>
The accompanying Notes to Consolidated Financial Statements are an integral part
of these statements.
11
<PAGE> 13
WAXMAN INDUSTRIES, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF STOCKHOLDERS' EQUITY
(IN THOUSANDS)
<TABLE>
<CAPTION>
CUMULATIVE
CLASS B CURRENCY TOTAL
COMMON COMMON PAID-IN RETAINED TRANSLATION STOCKHOLDERS'
STOCK STOCK CAPITAL DEFICIT ADJUSTMENT EQUITY
------ ------- ------- -------- ----------- -------------
<S> <C> <C> <C> <C> <C> <C>
Balance June 30, 1991, as
restated...................... $ 72 $ 23 $ 7,684 $29,134 $ 953 $ 37,866
Net loss...................... (4,598) (4,598)
Cash dividends:
$.12 per common share and
Class B share............... (1,201) (1,201)
Issuance of common stock...... 22 9,763 9,785
Stock options exercised....... 20 20
Stock warrants issued......... 1,000 1,000
Currency translation
adjustment.................. (2,445) (2,445)
------ ------- ------- ------- ---------- -----------
Balance June 30, 1992, as
restated...................... $ 94 $ 23 $18,467 $23,335 $ (1,492) $ 40,427
Net loss...................... (30,140) (30,140)
Cash dividends:
$.08 per common share and
Class B share............... (932) (932)
Currency translation
adjustment.................. (3,159) (3,159)
------ ------- ------- ------- ---------- -----------
Balance June 30, 1993, as
restated...................... $ 94 $ 23 $18,467 $(7,737) $ (4,651) $ 6,196
Net loss...................... (52,888) (52,888)
Elimination of currency
translation adjustment
relating to discontinued
operation (Ideal)........... 6,419 6,419
Contribution to Profit Sharing
Plan........................ 1 131 132
Stock warrants issued......... 2,500 2,500
Currency translation
adjustment.................. (2,368) (2,368)
------ ------- ------- ------- ---------- -----------
Balance June 30, 1994, as
restated...................... 95 23 21,098 (60,625) (600) (40,009)
Net loss...................... (23,073) (23,073)
Currency translation
adjustment.................. 385 385
------ ------- ------- ------- ---------- -----------
Balance June 30, 1995, as
restated...................... 95 23 21,098 (83,698) (215) (62,697)
Net income.................... 19,195 19,195
Conversions of Class B common
stock....................... 1 (1) --
Exercise of stock options,
warrants and convertible
notes....................... 321 321
Currency translation
adjustment.................. (73) (73)
------ ------- ------- ------- ---------- -----------
Balance June 30, 1996........... $ 96 $ 22 $21,419 $(64,503) $ (288) $ (43,254)
====== ======= ======= ======= ========== ===========
</TABLE>
The accompanying Notes to Consolidated Financial Statements are an integral part
of these statements.
12
<PAGE> 14
WAXMAN INDUSTRIES, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS
(IN THOUSANDS)
<TABLE>
<CAPTION>
FISCAL YEAR ENDED JUNE 30,
--------------------------------------------------------
1996 1995 1994 1993 1992
-------- -------- -------- -------- --------
RESTATED RESTATED RESTATED RESTATED
-------- -------- -------- --------
<S> <C> <C> <C> <C> <C>
Cash From (Used For):
Operations:
Net income (loss)................................ $ 19,195 $(23,073) $(52,888) $(30,140) $ (4,598)
Adjustments to reconcile net income (loss) to net
cash provided by (used for) operations:
Cumulative effect of change in accounting........ 8,213 -- -- 2,110 --
Extraordinary loss............................... 6,251 -- 6,824 -- 1,186
Restructuring and asset impairment loss.......... 19,507 2,779 -- 6,762 3,900
Gain on sale of Barnett stock.................... (65,917) -- -- -- --
Non-cash interest................................ 7,523 6,648 531 -- --
Other non-cash charges........................... 7,096 -- -- -- --
(Reversal of loss) and loss on disposal of
Consumer Products.............................. (11,000) 11,000 -- -- --
Minority interest in consolidated affiliate...... 975 -- -- -- --
Depreciation and amortization.................... 8,606 9,078 7,478 8,932 6,525
Deferred income taxes............................ (500) -- -- --
Bad debt provision............................... 4,325 692 617 695 562
Changes in assets and liabilities:
Accounts receivable, net....................... (5,271) (100) (1,561) (2,361) (2,403)
Inventories.................................... (187) 597 (9,109) 982 (15,464)
Prepaid expenses............................... 852 (161) -- 2,276 (2,285)
Accounts payable............................... 2,960 (1,674) 493 (8,337) 11,050
Accrued liabilities............................ 2,597 (1,187) (185) (1,691) (878)
Other, net..................................... (74) 385 4,054 (3,159) (2,444)
Change in net assets of discontinued
operations................................... -- (421) 29,577 13,027 6,646
-------- -------- -------- -------- --------
Net cash provided by (used for) operations..... 5,151 4,563 (14,169) (10,904) 1,797
======== ======== ======== ======== ========
Investments:
Capital expenditures, net........................ (5,224) (5,092) (3,437) (1,336) (3,193)
Change in other assets........................... (1,523) (787) (1,166) (1,826) (5,922)
Net proceeds from sale of business............... 92,636 -- 3,006 -- 4,386
-------- -------- -------- -------- --------
Net cash provided by (used for) investments...... 85,889 (5,879) (1,597) (3,162) (4,729)
======== ======== ======== ======== ========
Financing:
Borrowings under credit agreements............... 209,182 241,953 78,822 100,370 37,493
Payments under credit agreements................. (249,551) (238,113) (60,675) (85,160) (31,608)
Borrowings under term loan....................... 5,000 -- 15,000 -- (60,000)
Repayments under term loan....................... (14,000) (1,000) -- -- 48,500
Repurchase of debt............................... -- -- (1,875) -- (12,878)
Debt issuance costs.............................. (1,488) (1,444) (13,886) -- --
Retirement of Senior Secured Notes............... (39,150) -- -- -- --
Premium on early retirement of Senior Secured
Notes.......................................... (1,000) -- -- -- --
Dividends paid................................... -- -- -- (932) (1,201)
Issuance of common stock......................... 321 -- -- -- 9,805
-------- -------- -------- -------- --------
Net cash (used for) provided by financing........ (90,686) 1,396 17,386 14,278 (9,889)
-------- -------- -------- -------- --------
Net increase (decrease) in cash.................... 354 80 1,620 212 (12,821)
Balance, beginning of period....................... 2,106 2,026 406 194 13,015
-------- -------- -------- -------- --------
Balance, end of period............................. $ 2,460 $ 2,106 $ 2,026 $ 406 $ 194
======== ======== ======== ======== ========
</TABLE>
The accompanying Notes to Consolidated Financial Statements are an integral part
of these statements.
13
<PAGE> 15
WAXMAN INDUSTRIES, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
FOR THE YEARS ENDED JUNE 30, 1996, 1995, 1994, 1993 AND 1992
(IN THOUSANDS EXCEPT PER SHARE DATA)
1. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
A. BASIS OF CONSOLIDATION AND REORGANIZATION
The accompanying consolidated financial statements include the accounts of
Waxman Industries, Inc., its wholly-owned subsidiaries and its affiliate Barnett
Inc. (collectively, the "Company"). The Company owns approximately 49.9% of the
voting capital stock of Barnett Inc. ("Barnett") and, together with non-voting
preferred stock of Barnett owned by the Company, approximately 54% of the
capital stock of Barnett (See Note 2 for a description of certain limitations on
the Company's ability to convert such preferred stock.). The portion of Barnett
not owned by the Company is reflected as minority interest in the accompanying
consolidated balance sheets. All significant intercompany transactions and
balances are eliminated in consolidation.
During 1994, the Company restructured its domestic operations such that the
Company is now a holding company whose only material assets are the capital
stock of its subsidiaries (the "Corporate Restructuring"). As part of the
Corporate Restructuring, the Company formed (a) Waxman USA Inc. ("Waxman USA")
as a holding company for the subsidiaries that comprise and support the
Company's domestic operations, (b) Waxman Consumer Products Group Inc.
("Consumer Products"), a wholly-owned subsidiary of Waxman USA, to own and
operate the Company's 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 completed the Corporate Restructuring by (i) contributing
the capital stock of Barnett to Waxman USA, (ii) contributing the assets and
liabilities of the Consumer Products Group division to Consumer Products, (iii)
contributing the assets and liabilities of the Madison Equipment division to
WOC, (iv) contributing the assets and liabilities of the Medal Distributing
division to WOC, (v) merging U.S. Lock Corporation and LeRan Copper & Brass,
Inc., 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. This restructuring was accounted for based upon each entity's historical
carrying amounts with no impact on the accompanying consolidated financial
statements.
The Company operates in a single business segment -- the distribution of
plumbing, electrical and hardware products. Substantially all of the Company's
sales are derived in the United States.
B. RESTRICTED CASH BALANCES
In accordance with the terms of the New Credit Agreement (as defined in
Note 5), all restricted cash balances have been excluded from cash and have been
applied against outstanding borrowings under the New Credit Agreement. Cash
balances represent certain unrestricted operating accounts and accounts of
foreign operations.
C. ACCOUNTS RECEIVABLE
Accounts receivable are presented net of allowances for doubtful accounts
of $2,219, $1,422, $1,353, $1,352 and $1,112 at June 30, 1996, 1995, 1994, 1993
and 1992, respectively. Bad debt expense totaled $4,325 in 1996, including $2.7
million of expense that was included in the $14.8 million charge from the
Company's strategic review and reorientation of its operations, $692 in 1995,
$617 in 1994, $695 in 1993 and $562 in 1992.
The Company sells plumbing, electrical and hardware products throughout the
United States to 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. Consumer Products' largest customers, Kmart and its subsidiary,
Builders Square, accounted for 11% of the Company's net sales in 1996, 14% in
1995, 13% in 1994, 12% in 1993 and 11% in 1992 and, as a percentage of
14
<PAGE> 16
Consumer Product's net sales, 42.3%, 43.6%, 35.9%, 35.6% and 30.6% for 1996,
1995, 1994, 1993 and 1992, respectively. During the same periods, the Company's
ten largest customers accounted for approximately 23% of net sales in 1996, 24%
in 1995, 25% in 1994, 23% in 1993 and 22% in 1992, and approximately 26%, 25%,
28%, 26% and 25% of accounts receivable at June 30, 1996, 1995, 1994, 1993 and
1992, 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.
D. INVENTORIES
At June 30, 1996, 1995, 1994, 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. The Company recorded a $4.9 million charge in 1996 in
connection with the evaluation of its inventory carrying value during the review
of the strategic direction of its operating units (see Note 3).
E. PROPERTY AND EQUIPMENT
Property and equipment are stated at cost. For financial reporting
purposes, buildings and equipment are depreciated on a straight-line basis over
the estimated useful lives of the related assets. Depreciable lives are 15 to 40
years for buildings and 3 to 15 years for equipment. Leasehold improvements are
amortized on a straight-line basis over the term of the lease or the useful life
of the asset, whichever is shorter. For income tax purposes, accelerated methods
are used. Depreciation expense totaled $3,438 in 1996, $2,814 in 1995, $2,738 in
1994, $2,690 in 1993 and $2,665 in 1992.
F. COST OF BUSINESSES IN EXCESS OF NET ASSETS ACQUIRED
Cost of businesses in excess of net assets acquired is being amortized
primarily over 40 years using the straight-line method. Management has evaluated
its accounting for goodwill in accordance with SFAS No. 121 "Accounting for the
Impairment of Long-Lived Assets and for Long-Lived Assets to Be Disposed Of," on
an originating entity basis considering future undiscounted operating cash flows
and believes that the net asset is realizable and the amortization period is
appropriate. During 1996, the Company determined that $9.8 million of goodwill
was impaired at its U.S. Lock division (See Note 3B). Management continues to
reevaluate the realizability of these assets. Goodwill amortization expense
totaled $718 in 1996, $764 in 1995, $724 in 1994, $725 in 1993 and $756 in 1992.
Accumulated amortization totaled $15,772, $5,233, $4,469, $3,745 and $2,989 at
June 30, 1996, 1995, 1994, 1993 and 1992, respectively.
G. UNAMORTIZED DEBT ISSUANCE COSTS
Unamortized debt issuance costs relate to the Company's long-term and
short-term debt (see Note 5) and are amortized over the life of the related
debt. Amortization expense totaled $1.8 million in 1996, $2.2 million in 1995,
$0.8 million in 1994, $0.8 million in 1993 and $0.8 million in 1992, and is
included in interest expense. The Company incurred extraordinary charges in
1996, 1994 and 1992 related to the accelerated amortization of unamortized debt
issuance costs. (See Notes 2 and 5).
H. FOREIGN CURRENCY TRANSLATION
All balance sheet accounts of foreign subsidiaries are translated at the
exchange rate as of the end of the fiscal year. Income statement items are
translated at the average currency exchange rates during the fiscal year. The
resulting translation adjustment is recorded as a component of stockholders'
equity. Foreign currency transaction gains or losses are included in the
consolidated statements of operations as incurred.
I. FINANCIAL STATEMENT ESTIMATES
The preparation of financial statements in conformity with generally
accepted accounting principles requires management to make estimates and
assumptions that affect the reported amounts of assets and
15
<PAGE> 17
liabilities at the date of the financial statements and the reported amounts of
revenues and expenses during the reporting periods. Actual results could differ
from those estimates.
J. 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,". The Company adopted SFAS No. 121 and recorded a charge in 1996
for the impairment of long-lived assets at its U.S. Lock division (See Note 3B).
In the event that facts and circumstances in the future indicate that other
long-lived assets may be impaired, an evaluation of recoverability would be
performed. If an evaluation is required, the estimated future undiscounted cash
flows associated with the asset would be compared to the asset's carrying amount
to determine if a write-down to fair value is required.
In November 1995, the FASB also issued SFAS No. 123, "Accounting for
Stock-Based Compensation," which establishes new accounting standards for the
measurement and recognition of stock-based awards. SFAS No. 123 permits entities
to continue to use the traditional accounting for stock-based awards prescribed
by APB Opinion No 25, "Accounting for Stock Issued to Employees," however, under
this option, the Company will be required to disclose the pro forma effect of
stock-based awards on net income and earnings per share as if SFAS No. 123 had
been adopted. SFAS No. 123 is effective in 1997. The Company intends to continue
using the provisions of APB Opinion No. 25 in accounting for stock-based awards.
K. EARNINGS PER SHARE
Primary earnings per share are calculated by dividing net income by the
weighted average number of common stock and common stock equivalents arising
from stock options. Fully diluted earnings per share are calculated by dividing
net income by the weighted average number of common stock and common stock
equivalents arising from stock options and warrants as if they had been
converted at the beginning of the year.
The number of common shares used to calculate primary and fully diluted
earnings per share are as follows:
<TABLE>
<CAPTION>
1996 1995 1994 1993 1992
------ ------ ------ ------ -----
<S> <C> <C> <C> <C> <C>
Primary................................ 11,793 11,712 11,674 11,662 9,794
Fully diluted.......................... 13,653 11,712 11,674 11,662 9,794
</TABLE>
L. BASIS OF PRESENTATION
Certain prior year financial statement items have been reclassified to
conform to the current year's presentation.
2. BARNETT PUBLIC OFFERING AND EXTRAORDINARY CHARGES
On February 1, 1996, Barnett filed a registration statement with the
Securities and Exchange Commission with respect to an initial public offering
(the "Barnett Public Offering") of its common stock (the "Barnett Common
Stock"). On March 28, 1996, the registration statement with respect to the
Barnett Public Offering was declared effective and on April 3, 1996, the Barnett
Public Offering was consummated. In such offering, 7,207.2 shares, representing
approximately 55.1% of the Barnett Common Stock, were sold in the aggregate by
Barnett and Waxman USA at an initial public offering price per share of $14.00.
As a result of the Company's conversion of a portion of the convertible
non-voting preferred stock of Barnett, which is owned solely by the Company, to
Barnett Common Stock during the fourth quarter, as of June 30, 1996, the Company
owns approximately 49.9% of the Barnett Common Stock and owns approximately a
54% economic interest in the capital stock of Barnett. In connection with the
Barnett Public Offering, the Company entered into a standstill agreement with
Barnett, pursuant to which the Company agreed not to acquire any securities of
Barnett which would result in the ownership by the Company or its subsidiaries
of a majority of the Barnett Common Stock. The standstill agreement between the
Company and Barnett may only be amended, modified or terminated with the
approval of a majority of the independent directors of each of the Company and
Barnett. In addition, pursuant to the Certificate of Designations establishing
the non-voting convertible preferred stock, the non-voting convertible preferred
stock may only be converted to the extent that the
16
<PAGE> 18
aggregate number of shares of Barnett Common Stock issuable upon conversion of
the non-voting convertible preferred stock, when added to the number of shares
of Barnett Common Stock then held by such holder, would not cause the Company's
direct or indirect ownership of Barnett Common Stock to equal or exceed a
majority of the outstanding shares of Barnett Common Stock. Since the
consummation of the Barnett Public Offering, the cash flow generated by such
operation is no longer available to the Company other than the amounts paid to
the Company pursuant to the New Intercorporate Agreement (discussed in Note 9)
or the pro rata amounts, if any, distributed by Barnett in the form of a common
stock dividend.
The Company recorded a $65.9 million pre-tax gain from the sale of Barnett
Common Stock.
Of the $47.7 million of net proceeds received by Barnett in the Barnett
Public Offering, Barnett used (i) $23.0 million to repay all of the outstanding
indebtedness borrowed by it under the secured credit facility (the "Operating
Companies Revolving Credit Facility") among Citicorp USA, Inc. as agent, and
Barnett, Consumer Products and WOC, (ii) $22.0 million to pay a dividend
evidenced by a note payable to Waxman USA and (iii) $2.7 million for working
capital. The $44.9 million of net proceeds received by Waxman USA from the
Barnett Public Offering, together with payment from Barnett of the $22.0 million
note payable described above, were applied primarily to repay debt including (i)
all of the $39.2 million principal amount the Company's 12 1/4% Senior Secured
Notes due 1998 and Floating Rate Senior Secured Notes due 1998 (collectively,
the "Senior Secured Notes") plus accrued interest and redemption premium of
approximately $1.7 million, thereby eliminating the mandatory sinking fund
requirements relating to the Senior Secured Notes which were scheduled to
commence in September 1996, and (ii) $5.0 million of the $10.0 million
outstanding indebtedness and accrued interest under the secured term loan (the
"Term Loan") among Citibank, N.A., as agent, and Barnett, Consumer Products and
WOC. The remaining net proceeds received by Waxman USA (approximately $21.0
million) are intended to be used to (i) reduce additional outstanding
indebtedness borrowed by Consumer Products or WOC under the New Credit
Agreement, described in Note 5, and/or (ii) retire the Company's 12 3/4% Senior
Secured Deferred Coupon Notes due 2004 (the "Deferred Coupon Notes") and/or the
Company's 11 1/8% Senior Notes due 2001 (the "Senior Notes") and/or (iii)
reinvest in Consumer Products' and/or WOC's businesses.
The Company recorded an extraordinary charge of approximately $6.3 million
in 1996, net of a tax benefit of $0.4 million recorded at Barnett, 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 Senior Notes and New Credit Agreement, as discussed in Note 5.
3. MANAGEMENT'S REVIEW OF WHOLLY-OWNED OPERATIONS
A. DISCONTINUED OPERATIONS -- CONSUMER PRODUCTS
In August 1995, the Company announced its decision to sell the Consumer
Products business and entered into a letter of intent, which subsequently
expired, to sell the business for $50 million in cash plus a remaining economic
interest in the business sold. Consumer Products was reported as a discontinued
operation as of June 30, 1995 and an estimated loss on disposal of $11.0 million
was recorded, representing the difference between the net book value of the
assets to be sold at June 30, 1995 and the expected net proceeds from the sale.
Net assets related to Consumer Products at June 30, 1995 consisted of
working capital of $49,644, net property and equipment of $5,278, other assets
of $10,332 and bank debt of $2,689, before allowance for the estimated loss on
disposal. Consumer Products' net sales were $71,971 and operating income was
$3,045 in 1995. The 1995 operating income was negatively impacted by the
restructuring charge of $2,779 discussed below.
Upon consummation of the Barnett Public Offering, described in Note 2, the
Company has ceased its efforts to sell Consumer Products and instead retains and
continues to operate Consumer Products. Prior periods have been restated to
conform to the current period presentation of Consumer Products as a continuing
operation and the $11.0 million loss on disposal recorded at June 30, 1995 has
been reversed in fiscal 1996.
17
<PAGE> 19
B. STRATEGIC REVIEW OF OPERATIONS -- FISCAL 1996
In connection with the likely completion of the Barnett Public Offering and
the 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 on
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 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 charge 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 WOC's operations, smaller retail
establishments, have been adversely affected by the movement of large national
retailers to expand in more rural locations and to compete with smaller retail
establishments. In addition, the market has been increasingly impacted by 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 certain business factors affecting these other operations including
competition from multi-category retailers and competitive pricing from overseas
competitors, the effects of which were exacerbated by excess manufacturing
capacity at the Company's foreign facilities. The Company recorded an additional
charge of $2.9 million in the 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 the estimated useful lives of certain
property and equipment and $0.8 million for various liabilities.
In addition, during the fourth quarter of 1996, the Company recorded a
$19.5 million pre-tax restructuring and asset impairment charge. Below is a
summary of the components of the charge:
<TABLE>
<CAPTION>
(IN MILLIONS)
-------------
<S> <C>
Exiting product lines........................................... $ 4.1
Warehouse closure costs......................................... 1.3
Reduction of excess capacity.................................... 1.1
Other........................................................... 0.9
Asset impairment................................................ 12.1
-----
Total......................................................... $19.5
=====
</TABLE>
Exiting product lines: In furtherance of its efforts to strengthen the
Consumer Products business, the Company has decided to eliminate its
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. The Company
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.
18
<PAGE> 20
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
do-it-yourself retail market, as required by SFAS No. 121 "Accounting
for the Impairment of Long Lived Assets and Assets to Be Disposed Of,"
the Company expensed $9.8 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.
C. RESTRUCTURING AND NON-RECURRING CHARGES -- FISCAL 1995
During the fourth quarter of 1995, the Company downsized Consumer Products'
distribution network from four locations to three and as a result incurred
warehouse closure costs of $2.8 million. The remaining accrual for such closure
at June 30, 1996 is $0.4 million. The warehouse closure costs included costs
associated with the remaining noncancellable term of an operating lease of $0.8
million, salaries and benefits incurred after operations ceased associated with
closing the warehouse of $0.5 million, loss on fixed assets of $0.3 million and
disposal of inventory associated with exiting a product line of $1.2 million.
D. DISCONTINUED OPERATIONS -- IDEAL -- FISCAL 1994
Effective March 31, 1994, the Company adopted a plan to dispose of its
Canadian subsidiary, Ideal Plumbing Group, Inc. ("Ideal"). Ideal is reported as
a discontinued operation.
On May 5, 1994, Ideal's Canadian bank filed an involuntary bankruptcy
petition against Ideal citing defaults under the bank credit agreements
(borrowings under these agreements were non-recourse to the Company). The
Canadian court appointed a trustee to liquidate the assets of Ideal. The Company
has no liability to the creditors of Ideal as result of Ideal's bankruptcy.
The loss on disposal, which was recorded by the Company in its consolidated
financial statements as of March 31, 1994, totaled $38.3 million, without tax
benefit, and represented a complete write-off of the Company's investment in
Ideal. The loss included the 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 resulted 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.
Net assets of the discontinued operation at June 30, 1993 consisted of
working capital of $29,879, net plant, property and equipment of $15,171, other
assets of $40,561 and bank debt of $56,455 without any allowance for the
estimated loss on disposal.
Summary operating results of the discontinued operation for the periods
presented are as follows:
<TABLE>
<CAPTION>
1994 1993 1992
------- -------- --------
<S> <C> <C> <C>
Net sales........................................... $87,265 $153,875 $181,305
Costs and expenses.................................. 90,262 164,684 178,540
------- -------- --------
Income (loss) before income taxes................... (2,997) (10,809) 2,765
Income taxes........................................ 252 431 1,619
------- -------- --------
Net income (loss)................................. $(3,249) $(11,240) $ 1,146
======= ======== ========
</TABLE>
E. STRATEGIC REVIEW OF OPERATIONS--FISCAL 1993 AND FISCAL 1994
During 1993, as a result of certain actions taken as part of its strategy
to refocus and build its existing core businesses in the U.S., the Company
recorded a $6,762 restructuring charge. The restructuring charge
19
<PAGE> 21
included an estimate of the loss to be incurred upon the sale of three
businesses, including anticipated operating results through the projected
disposal dates, and the write-off of intangible assets. Below is a summary of
the components comprising the restructuring charges as of June 30, 1993:
<TABLE>
<S> <C>
Estimated loss on disposal of businesses............................ $4,600
Relocation and consolidation costs.................................. 1,544
Other............................................................... 618
------
$6,762
======
</TABLE>
The disposal of businesses included three operating entities for which the
Company had entered into letters of intent with prospective buyers.
During October 1993, the Company completed the sale of one of its Canadian
operations, H. Belanger Plumbing Accessories, Ltd. (Belanger). The Company sold
all of the capital stock of Belanger for approximately U.S. $3 million in cash
and a U.S. $0.3 million promissory note. The promissory note was repaid in full
in 1995. The loss on the sale of Belanger was approximately $2.6 million.
The Company was unable to come to terms with the prospective buyer of the
other two entities. The Company evaluated the net realizable value of the assets
previously held for sale in accordance with its normal ongoing policy regarding
impairment and concluded that no further writedown of the net carrying value of
the assets was required in excess of the reserve previously established.
Therefore, the reversal of the accrued loss on disposal in the second quarter of
1994 was offset by the writedown of assets to net realizable value and the
accrual for relocation of the administrative offices. There was no accrual
remaining at June 30, 1996.
F. FISCAL 1992 NON-RECURRING CHARGE
During 1992, the Company recorded a $3.9 million non-recurring charge which
represented a capital loss realized upon the sale of the Company's portfolio of
debt securities.
4. CHANGES IN ACCOUNTING
A. PROCUREMENT COSTS
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 (i) for the right to supply such
customer for a specified period and (ii) 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, or $(0.69) and $(0.60) primary
and fully diluted earnings per share, respectively, is reported separately in
the 1996 consolidated statement of operation. The additional effect of the
change in 1996 was to decrease the operating loss by $2.1 million. Amortization
expense for procurement costs totaled $2.2 million in 1996, $2.8 million in
1995, $2.3 million in 1994, $2.1 million in 1993 and $1.1 million in 1992. Under
the old accounting method, at each balance sheet date, the Company reviewed the
remaining capitalized balance of procurement costs by customer to ensure
realizability of the asset based upon expected future sales and net profit
margin.
B. DISTRIBUTION CENTER START-UP AND CATALOG DEVELOPMENT COSTS
Effective July 1, 1992, the Company accelerated its amortization of certain
distribution center start-up and catalog development costs. 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 distribution center operations are amortized
over a period of twelve months commencing the month in which the distribution
center opens.
20
<PAGE> 22
Costs associated with the development and introduction of new catalogs are
amortized over the life of the catalog, not to exceed a period of one year.
The cumulative effect of this change on prior years totaled $2,110 or $.18
per share, and is reported separately in the 1993 consolidated statement of
operation, without tax benefit. The additional 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.
5. DEBT
A. LONG-TERM DEBT
Total long-term debt consisted of the following:
<TABLE>
<CAPTION>
JUNE 30,
---------------------------------------------------
1996 1995 1994 1993 1992
------- ------- ------- ------- -------
<S> <C> <C> <C> <C> <C>
Barnett Credit Agreement............... $ -- $ -- $ -- $ -- $ --
New Credit Agreement................... 4,915 -- -- -- --
New Term Loans......................... 5,000 -- -- -- --
Operating Companies Revolving Credit
Facility, repaid in fiscal 1996...... -- 43,710 39,379 -- --
Term Loan, repaid in fiscal 1996....... -- 14,000 15,000 -- --
Domestic Bank Credit Facility, repaid
in fiscal 1994....................... -- -- -- 20,400 5,000
Other notes, maturing through 2007,
bearing interest from 7.4% to 10%,
secured by real property............. 1,920 3,338 3,828 4,660 6,769
------- ------- ------- ------- -------
11,835 61,048 58,207 25,060 11,769
Less: current portion.................. 10,972 59,844 56,523 2,493 2,107
------- ------- ------- ------- -------
Long-term debt, net of current
portion........................... $ 863 $ 1,204 $ 1,684 $22,567 $ 9,662
======= ======= ======= ======= =======
</TABLE>
In connection with the Barnett Public Offering, Barnett entered into a
revolving credit agreement with a bank for an unsecured three-year credit
facility providing for borrowings of up to $15.0 million, including a letter of
credit subfacility of $4.0 million (the "Barnett Credit Agreement"). Borrowings
under the Barnett Credit Agreement bear interest, at Barnett's option, at the
prime rate minus 75 basis points or LIBOR plus 100 basis points. Barnett is
required to pay a commitment fee of 0.1% per annum on the unused commitment. The
Barnett Credit Agreement provides funds for working capital and general
corporate purposes. At June 30, 1996, Barnett had $3.5 million of outstanding
letters of credit. The Barnett Credit Agreement contains customary affirmative
and negative covenants, including certain covenants requiring Barnett to
maintain debt to net worth, interest coverage and current ratios, as well as a
minimum net worth test. Barnett was in compliance with all covenants at June 30,
1996.
On June 28, 1996, Consumer Products and WOC (the "Borrowers") entered into
a new credit facility (the "New Credit Agreement") provided by BankAmerica
Business Credit, Inc. The New Credit Agreement provides for, among other things,
revolving credit advances of up to $30.0 million and term loans of up to $5.0
million ("New Term Loans"). The New Credit Agreement and New Term Loans expire
May 31, 1999.
The New Credit Agreement provides for revolving credit advances of (a) up
to 85% 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 weighted
average interest rate on borrowings outstanding under the New Credit Agreement
and Operating Companies Revolving Credit Facility was 9.58% in fiscal 1996. The
Company is required to pay a commitment fee of 0.5% per annum on the unused
commitment. The New Credit Agreement includes a letter of credit subfacility of
$2.0 million, of which $1.3 million was outstanding at June 30, 1996. 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.
21
<PAGE> 23
Borrowings under the New Credit Agreement are secured by the accounts
receivable, inventory, certain general intangibles and unencumbered fixed assets
of 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 of the Company, and contains customary negative,
affirmative and financial covenants and conditions such as minimum EBITDA and
minimum tangible net worth. The Company was in compliance with all loan
covenants at June 30, 1996.
The New Credit Agreement contains events of default including the
following: (i) any Borrower shall fail to make any payment of principal or
interest or any other amount due under the agreements related to the New Credit
Agreement 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) any Borrower shall fail to pay any indebtedness
having a principal amount of $250,000 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 grace
period), the maturity of such indebtedness; or any such indebtedness shall
become or be declared to be due and payable, or required to be repaid (other
than by a regularly scheduled required prepayment), or the Borrowers 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
Borrowers; (iv) there shall occur any Change of Control (as defined in the New
Credit Agreement); and (v) there shall occur an event which would have a
Material Adverse Effect (as defined in the New Credit Agreement). As a result of
the Material Adverse Effect clause and the requirement to maintain cash
collateral accounts, the borrowings under the New Credit Agreement and New Term
Loans have been classified as a current liability.
As of June 30, 1996, availability under the New Credit Agreement totaled
approximately $16.2 million.
During September 1991, the Company repaid its $60 million domestic term
loan using the proceeds of the sale of its Senior Secured Notes along with $10
million of cash on hand. Concurrently, the Company entered into a three-year
secured revolving credit agreement with a U.S. bank to provide for working
capital needs (the "Domestic Bank Credit Facility"). On May 20, 1994, the
Operating Companies entered into the Operating Companies Revolving Credit
Facility and Term Loan. The initial borrowings under the Operating Companies
Revolving Credit Facility and Term Loan were used to repay the Domestic Bank
Credit Facility as well as fees and expenses associated with the issuance of the
Company's Deferred Coupon Notes. As a result of the material adverse effect
clause and the requirement to maintain cash collateral accounts, the borrowings
under the Operating Companies Revolving Credit Facility and Term Loan have been
classified as a current liability. In connection with the Barnett Public
Offering, the Company entered into an amendment and restatement of the Operating
Companies Revolving Credit Facility and Term Loan ("Restated Credit Agreement").
The initial borrowings under the New Credit Agreement along with proceeds from
the New Term Loans were used to repay the borrowings under the Restated Credit
Agreement.
B. SENIOR SECURED DEFERRED COUPON NOTES
On May 20, 1994, the Company exchanged $50 million of its 13 3/4% Senior
Subordinated Notes due June 1, 1999 (the "Senior Subordinated Notes") for $50
million initial accreted value of 12 3/4% 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 December 1999. Thereafter,
interest on the Deferred Coupon Notes will accrue at a rate of 12 3/4% and will
be payable in cash semi-annually on June 1 and December 1. The Deferred Coupon
Notes are redeemable, in whole or in part, at the option of the Company, after
June 1, 1999 at 106.375% of accreted value, which decreases annually to 100% at
the maturity date. The Deferred Coupon Notes are secured by a pledge of the
capital stock of Waxman USA. Substantially all of the assets of Waxman USA are
22
<PAGE> 24
pledged under the New Credit Agreement. The Deferred Coupon Notes rank senior in
right of payment to all existing and future subordinated indebtedness of the
Company and rank pari passu in right of payment with all other existing or
future unsubordinated indebtedness of the Company. The Deferred Coupon Notes
contain certain covenants which, among other things, limit the ability of the
Company and its subsidiaries to incur additional indebtedness, transfer or sell
assets, pay dividends, make certain other restricted payments or investments,
create liens or enter into sale lease-back transactions, transactions with
affiliates and mergers. The Company was in compliance with all covenants at June
30, 1996.
In the event of a Change of Control, as defined in the Deferred Coupon Note
Indenture, the Company is obligated to make an offer to purchase all outstanding
Deferred Coupon Notes at 101% of the principal amount thereof plus accrued and
unpaid interest, if any. The Company is obligated in certain circumstances to
make an offer to purchase Deferred Coupon Notes at a redemption price plus
unpaid interest, if any, with the net cash proceeds of certain sales or other
dispositions of assets.
The Company recorded an extraordinary charge of approximately $6.8 million
in 1994 which related primarily to the refinancing of the $50 million Senior
Subordinated Notes as well as borrowings under the domestic bank credit
facilities. The charge included fees along with the accelerated amortization of
debt discount and issuance costs.
The warrants are exercisable through June 1, 2004, at a price of $2.45 per
share. A portion of the initial accreted value of the Deferred Coupon Notes was
allocated to the warrants and as a result paid-in capital increased by $2.5
million. The related $2.5 million reduction in the recorded initial accreted
value of the Deferred Coupon Notes is being amortized as interest expense over
the life of the Deferred Coupon Notes.
C. SENIOR NOTES
On April 3, 1996, the Company, through its wholly-owned subsidiary Waxman
USA, consummated an offer to exchange $48.75 million principal amount of its
11 1/8% Senior Notes due September 1, 2001 (the "Senior Notes") for a like
amount of the Company's outstanding Senior Subordinated Notes, and in connection
therewith solicited consents to certain amendments to the indenture pursuant to
which the Senior Subordinated Notes were issued. Approximately $43.0 million
principal amount of Senior Subordinated Notes were exchanged.
The Senior Notes are general unsecured obligations of the Company ranking
pari passu in right of payment to any future indebtedness of Waxman USA that is
not subordinated in right of payment to the Senior Notes and senior in right of
payment to any future indebtedness of Waxman USA that is subordinated in right
of payment to the Senior Notes. The Senior Notes are structurally subordinated
to the New Credit Agreement and any refinancing thereof. The indenture under
which the Senior Notes were issued (the "Senior Note Indenture") contains
certain covenants that, among other things, limit the ability of the Company and
its subsidiaries to incur additional indebtedness, transfer or sell assets, pay
dividends, make certain other restricted payments or investments, create liens
or enter into sale lease-back transactions, transactions with affiliates and
mergers. The Company was in compliance with all covenants at June 30, 1996.
In the event of a Change of Control, as defined in the Senior Note
Indenture, the Company is obligated to make an offer to purchase all outstanding
Senior Notes at 101% of the principal amount thereof plus accrued and unpaid
interest, if any. The Company is obligated in certain circumstances to make an
offer to purchase Senior Notes at a redemption price plus unpaid interest, if
any, with the net cash proceeds of certain sales or other dispositions of
assets.
The Senior Notes have not been registered under the Securities Act of 1933,
as amended, and may not be offered or sold in the United States absent
registration or an applicable exemption from such registration.
D. SENIOR SUBORDINATED NOTES
In June 1989, the Company issued $100 million principal amount of Senior
Subordinated Notes. During 1994, the Company exchanged $50 million principal
amount of the Senior Subordinated Notes for a like amount of Deferred Coupon
Notes. As discussed above, the Company issued approximately $43.0 million
principal amount Senior Notes in exchange for a like amount of Senior
Subordinated Notes in fiscal 1996. The remaining $5.7 million of Senior
Subordinated Notes are due on June 1, 1999. The Senior Subordinated
23
<PAGE> 25
Notes are redeemable, in whole or in part, at the option of the Company, at a
price of 101.719% of the principal amount thereof until June 1, 1997 when the
redemption price is equal to the principal amount of the notes. As a result of
the exchange offer discussed above, the remaining holders of the Senior
Subordinated Notes are no longer entitled to the benefits of restrictive
covenants and virtually all events of default have been eliminated.
E. SENIOR SECURED NOTES
In September 1991, the Company completed a private placement of $50 million
of 7-year Senior Secured Notes, including detachable warrants to purchase 1.0
million shares of the Company's common stock. At the time of issuance, the
Senior Secured Notes included $42.5 million of 12 1/4% fixed rate notes and $7.5
million of floating rate notes with interest at 300 basis points over the 90 day
LIBOR rate. The Senior Secured Notes were redeemable in whole or in part, at the
option of the Company, after September 1, 1995 at a price of 102.45% for the
fixed rate notes and 103% for the floating rate notes. Annual mandatory
redemption payments of $14.45 million for the fixed rate notes, and $2.55
million for the floating rate notes were to be due on each of September 1, 1996
and September 1, 1997. As discussed in Note 2, the Company retired the Senior
Secured Notes with a portion of the net proceeds from the Barnett Public
Offering. The Company incurred an extraordinary charge upon the early retirement
of these notes which primarily represented the acceleration of unamortized debt
issuance costs and the premium paid. The warrants expired by their terms in
September 1996. The Senior Secured Notes, which were guaranteed by Waxman USA
and secured by a pledge of all of the outstanding stock of Barnett, Consumer
Products and WOC, were senior in right of payment to all subordinated
indebtedness and pari passu with all other senior indebtedness of the Company.
During June 1992, the Company repurchased $10.9 million principal amount of the
fixed rate notes in open market purchases.
F. CONVERTIBLE SUBORDINATED DEBENTURES
In March 1987, the Company issued $25 million principal amount of
Convertible Subordinated Debentures due March 15, 2007 (the "Convertible
Debentures"). During 1990, the Company called for redemption $12.5 million
principal amount of Convertible Debentures. Subsequently, $6.5 million principal
amount was converted into 683 shares of common stock and the remaining $6.0
million principal amount was redeemed at the redemption price of 105% of the
principal amount of the bonds redeemed.
During 1990 and 1992, the Company also purchased $9.7 million and $0.8
million principal amount respectively, of the Convertible Debentures in open
market purchases at prices which approximated the par value of the Convertible
Debentures.
In June 1994, the Company purchased $1.8 million of the Convertible
Debentures pursuant to a mandatory repurchase obligation. In May 1996, the
bondholders converted the remaining $0.2 million principal amount of Convertible
Debentures into 45 shares of common stock prior to the Company effecting a
mandatory repurchase of the bonds.
G. MISCELLANEOUS
During 1992, the Company repurchased certain debt securities in open market
purchases. As a result, the Company incurred an extraordinary charge which
totaled $1,186 (net of applicable tax benefit of $611) and included the market
premium paid, along with the accelerated amortization of unamortized debt
discount and issuance costs.
The Company made interest payments of $15,618 in 1996, $17,627 in 1995,
$20,523 in 1994, $19,540 in 1993 and $18,858 in 1992.
Management believes the carrying values of its bank loans approximate their
fair values as they bear interest based upon the banks' prime lending rates. No
quoted market prices are available for the Senior Notes as the debt is not
publicly traded. However, since such notes were issued in April 1996, the
Company believes the fair value is not materially different from the carrying
value. The fair values, determined using quoted market prices, for the Deferred
Coupon Notes and Senior Subordinated Notes approximated their carrying amounts.
24
<PAGE> 26
6. INCOME TAXES
The Company accounts for income taxes in accordance with the provision of
SFAS No. 109, "Accounting for Income Taxes." SFAS No. 109, adopted by the
Company in the first quarter of 1994, requires the Company to recognize income
tax benefits for loss carryforwards which have not previously been recorded. The
tax benefits recognized must be reduced by a valuation allowance in certain
circumstances. Upon the adoption of SFAS No. 109, the benefit of the Company's
net operating loss carryforwards was reduced 100% by a valuation allowance.
The components of income (loss) from continuing operations before income
taxes, minority interest, discontinued operations extraordinary loss and
cumulative effect of change in accounting are as follows:
<TABLE>
<CAPTION>
FISCAL YEAR ENDED JUNE 30,
---------------------------------------------------------
1996 1995 1994 1993 1992
------- -------- ------- -------- -------
<S> <C> <C> <C> <C> <C>
Domestic....................... $27,279 $(11,353) $(5,127) $(14,342) $(6,379)
Foreign........................ (1,250) (382) 1,006 (2,232) 1,053
------- -------- ------- -------- -------
Total..................... $26,029 $(11,735) $(4,121) $(16,574) $(5,326)
======= ======== ======= ======== =======
</TABLE>
The components of the provision (benefit) for income taxes are:
<TABLE>
<CAPTION>
FISCAL YEAR ENDED JUNE 30,
---------------------------------------------
1996 1995 1994 1993 1992
------ ---- ---- ---- -------
<S> <C> <C> <C> <C> <C>
Currently payable:
U.S. Federal........................... $1,673 $ -- $ -- $ -- $(2,404)
Foreign and other...................... 1,222 338 351 216 572
------ ---- ---- ---- -------
Total current....................... 2,895 338 351 216 (1,832)
Deferred: Federal........................ (500) -- -- -- 1,064
------ ---- ---- ---- -------
Total provision (benefit) $2,395 $338 $351 $216 $ (768)
====== ==== ==== ==== =======
</TABLE>
For periods subsequent to the Barnett Public Offering in April 1996,
Barnett will no longer be included in the Company's consolidated tax return.
The following table reconciles the U.S. statutory rate to the Company's
effective tax rate:
<TABLE>
<CAPTION>
FISCAL YEAR ENDED JUNE 30,
-------------------------------------------------
1996 1995 1994 1993 1992
----- ----- ----- ----- -----
<S> <C> <C> <C> <C> <C>
U.S. statutory rate.................... 35.0% 35.0% 34.0% 34.0% 34.0%
Domestic losses not benefited.......... -- (32.2) (39.3) (24.3) --
Capital losses not benefited........... -- -- -- (10.0) (18.7)
Utilization of loss carryforwards...... (50.7) -- -- -- --
State taxes, net....................... 3.3 (1.7) (3.9) (0.8) (2.4)
Goodwill amortization.................. 19.0 (4.2) (6.7) (1.6) (4.6)
Foreign tax items...................... 1.3 -- 5.8 -- --
Alternative minimum tax................ 3.3 -- -- -- --
Change in valuation allowance.......... (2.5) -- -- -- --
Effect of prior year purchase
accounting adjustments............... -- -- -- -- 2.8
Other, net............................. 0.5 0.2 1.6 1.4 3.3
----- ----- ----- ----- -----
Effective tax rate................... 9.2% (2.9)% (8.5)% (1.3)% 14.4%
===== ===== ===== ===== =====
</TABLE>
25
<PAGE> 27
Deferred income taxes reflect the impact of temporary differences between
the amounts of assets and liabilities for financial reporting purposes and such
amounts as measured by tax laws. The deferred tax assets and liabilities are as
follows:
<TABLE>
<CAPTION>
FISCAL YEAR ENDED JUNE 30,
------------------------------------
1996 1995 1994
-------- --------- ---------
<S> <C> <C> <C>
Net operating loss carryforwards............... $ 19,020 $ 26,266 $ 20,263
Original issue discount........................ 5,295 2,597 --
Accrued expenses............................... 2,345 146 2,272
Inventories.................................... 2,326 1,479 1,143
Accounts receivable............................ 648 474 426
Alternative minimum tax credit................. 232 -- --
Other.......................................... 869 322 665
-------- -------- --------
Deferred tax assets.......................... 30,735 31,284 24,769
-------- -------- --------
Investment in subsidiaries..................... (6,911) -- --
Property....................................... (813) (1,273) (1,055)
Other assets................................... (129) (2,995) (1,585)
-------- -------- --------
Deferred tax liabilities....................... (7,853) (4,268) (2,640)
-------- -------- --------
22,882 27,016 22,129
Valuation allowance.......................... (22,382) (27,016) (22,129)
-------- -------- --------
$ 500 $ -- $ --
======== ======== ========
</TABLE>
At June 30, 1996, the Company had $54,344 of available domestic net
operating loss carryforwards for income tax purposes which expire 2008 through
2011. The Company also has alternative minimum tax carryforwards of
approximately $663 at June 30, 1996 which are available to reduce future regular
income taxes over an indefinite period. These carryforwards are not available to
offset the taxable income of Barnett.
At June 30, 1996, the net deferred tax asset of $500 relates to Barnett.
Based on Barnett's history of operating earnings and its expectations for the
future, management has determined that Barnett's operating income will more
likely than not be sufficient to recognize fully the net deferred asset. The
remainder of the net deferred tax asset is fully offset by a valuation
allowance. The net deferred tax asset at June 30, 1995 and 1994 is fully offset
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 the remaining net deferred tax assets will be
recognized in the future.
For financial reporting purposes, previously recorded deferred income tax
liabilities were reduced in 1993 by the tax benefit of the 1992 net operating
loss which could not be carried back to prior years. In 1992 and 1993, the
Company was able to carryback domestic net operating losses to prior years which
resulted in refunds of previously paid taxes. The Company made income tax
payments of $750 in 1996, $604 in 1995, $556 in 1994, $926 in 1993 and $1,358 in
1992. Refunds received totaled $15 in 1996, $68 in 1995, $435 in 1994 and $2,462
in 1993.
7. LEASE COMMITMENTS
The Company leases certain warehouse and office facilities and equipment
under operating lease agreements, which expire at various dates through 2003.
26
<PAGE> 28
Future minimum rental payments are as follows:
<TABLE>
<CAPTION>
FISCAL YEAR ENDED
JUNE 30,
- ------------------
<S> <C> <C>
1997.................................................... $ 4,001
1998.................................................... 3,410
1999.................................................... 2,764
2000.................................................... 1,956
2001.................................................... 1,044
Thereafter.............................................. 1,376
-------
$14,551
=======
</TABLE>
Total rent expense charged to operations was $4,204 in 1996, $4,958 in
1995, $3,951 in 1994, $3,758 in 1993 and $3,398 in 1992.
Consumer Products leases certain warehouse space from related parties.
Related parties rent expense totaled $546 in 1996, $588 in 1995 and $471 in
1994.
8. PROFIT SHARING PLAN AND 401(K) PLAN
The eligible employees of certain subsidiaries of the Company participate
in a trusteed, profit sharing and 401(k) retirement plan. Contributions are
discretionary and are determined by the Company's Board of Directors. There was
no profit sharing contribution in 1996, 1995 or 1994. The charges to operations
for Company contributions totaled $132 in 1993 and $123 in 1992. The Company
currently offers no other post-retirement or post-employment benefits.
9. RELATED-PARTY TRANSACTIONS WITH BARNETT
The Company's wholly-owned subsidiaries engage in business transactions
with Barnett. Products sold for resale totaled $12,183 in 1996, $11,318 in 1995
and $8,303 in 1994. Purchases from Barnett totaled $172 in 1996, $195 in 1995
and $229 in 1994. All intercompany transactions are eliminated in consolidation.
The Company and Barnett provide to and receive from each other certain
selling, general and administrative services and reimburse each other for
out-of-pocket disbursements related to those services. In connection with the
Barnett Public Offering, the Company and Barnett, among others, entered into a
New Intercorporate Agreement. Pursuant to the New Intercorporate Agreement, the
Company provides certain managerial, administrative and financial services to
Barnett and is paid by Barnett for the allocable cost of the salaries and
expenses of the Company employees while they are rendering such services.
Barnett also reimburses the Company for actual out-of-pocket disbursements to
third parties by the Company required for the provision of such services by the
Company. In addition to the services provided by the Company to Barnett pursuant
to the New Intercorporate Agreement, Barnett also continues to provide certain
services to the operating divisions of WOC, including LeRan Copper and Brass,
U.S. Lock and Madison Equipment Company. These services include the utilization
of Barnett's management information systems, financial accounting, order
processing and billing and collection services. The Company pays Barnett the
allocable cost of the salaries and expenses of Barnett's employees while they
are performing such services. The Company also reimburses Barnett for all actual
out-of-pocket disbursements to third parties by the Company required for the
provision of such services. The net effect of these charges is not material. The
arrangements provided in the New Intercorporate Agreement may be modified and
additional arrangements may be entered into pursuant to a written agreement
between the Company and Barnett.
All amounts incurred by the Company on behalf of Barnett have been
reimbursed by Barnett. All amounts incurred by Barnett on behalf of the Company
have been reimbursed by the Company and are reflected in selling, general and
administrative expense in the accompanying statements of operations.
10. CAPITAL STOCK
Each share of the Company's common stock entitles its holder to one vote,
while each share of Class B common stock entitles its holder to ten votes. Cash
dividends on the Class B common stock may not exceed
27
<PAGE> 29
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.
The Company is authorized to issue 2 million shares of preferred stock in
series, with terms fixed by resolution of the Board of Directors. No preferred
shares have been issued as of June 30, 1996.
During 1996, debt holders converted $145 of convertible notes into 45
shares of the Company's common stock. Also, holders of the Senior Secured
Warrants, as described in Note 5.E, exercised 3 warrants into the Company's
common stock. These conversions resulted in an increase of $159 to paid-in
capital.
In March 1994, the Company contributed 50 shares of its common stock to the
profit sharing retirement plan in lieu of a cash contribution. The total fair
market value of the common stock at the date of contribution was approximately
$132.
In May 1992, the Company completed a public offering of 2,199 shares of
common stock at a price of $5.00 per share. The net proceeds from the offering,
after deducting all associated costs, were $9,785.
11. EMPLOYEE STOCK OPTION AND RESTRICTED SHARE PLANS
The Company has three plans under which stock options may be granted. The
1992 Non-Qualified and Incentive Stock Option Plan (the "1992 Stock Option
Plan") approved by the Company's stockholders effective July 1, 1992, replaced
the then existing stock option plan (the "1982 Plan") which terminated by its
terms on April 30, 1992. The 1992 Stock Option Plan, as amended, authorizes the
issuance of an aggregate of 1.5 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. As of June
30, 1996, 90 persons held such options.
Changes in stock options outstanding for the 1992 Stock Option Plan were as
follows:
<TABLE>
<CAPTION>
SHARES OPTION PRICE
STOCK OPTIONS OUTSTANDING PER SHARE
--------------------------------------------------------- ----------- -------------
<S> <C> <C>
Balance as of June 30, 1992.............................. -- --
Granted.................................................. 1,045 $ 4.25 -$5.00
Exercised................................................ -- --
Expired or terminated.................................... (55) $5.00
---------
Balance as of June 30, 1993.............................. 990 $ 4.75 -$5.00
Granted.................................................. 1,250 $ 2.25 -$3.88
Exercised................................................ -- --
Expired or terminated.................................... (1,046) $ 2.38 -$5.00
---------
Balance as of June 30, 1994.............................. 1,194 $2.25
Granted.................................................. 33 $1.375
Exercised................................................ -- --
Expired or terminated.................................... (46) $2.25
---------
Balance as of June 30, 1995.............................. 1,181 $1.375-$2.25
Granted.................................................. 385 $1.00 -$1.125
Exercised................................................ (61) $2.25
Expired or terminated.................................... (151) $ 1.00 -$2.25
---------
Balance as of June 30, 1996.............................. 1,354 $ 1.00 -$2.25
=========
</TABLE>
As of June 30, 1996, options for 458 shares were exercisable.
In 1994, the Board of Directors of the Company adopted the 1994
Non-Employee Directors Stock Option Plan pursuant to which each current
non-employee director of the Company was granted an option to purchase an
aggregate of 20 shares of the Company's common stock at an exercise price of
$2.25 per share and each future non-employee director of the Company would be
granted, on the date such person becomes a non-
28
<PAGE> 30
employee director of the Company, an option to purchase an aggregate of 20
shares of common stock at an exercise price equal to the fair market value of
the Company's common stock at the date of grant. In addition, during 1994, the
Company granted a consultant to the Company an option to purchase an aggregate
of 10 shares of common stock at an exercise price of $2.25 per share. At June
30, 1996, options to purchase a total of 70 shares were outstanding under the
1994 Non-Employee Directors Stock Option Plan of which 35 were exercisable. At
June 30, 1995, there were options for 70 shares outstanding of which 18 were
exercisable.
In 1996, the Board of Directors adopted the 1996 Non-Employee Directors
Restricted Share Plan (the "1996 Plan"), which is subject to any requisite
stockholder approval. The 1996 Plan is designed to increase the proprietary and
vested interest of the non-employee directors of the Company in the growth,
development and financial success of the Company. The 1996 Plan provides for 5
restricted shares of the Company's common stock to be granted to each
non-employee director for each 5 years of service as a director. The restricted
shares vest on the last day of the second consecutive year during which the
individual serves as a director after the date of the award. Prior to being
vested, the shares bear a restricted legend and are held by the Company's
corporate secretary. In 1996, the Company awarded 35 restricted shares, subject
to requisite stockholder approval.
In 1996, the Stock Option Committee of the Board of Directors granted,
subject to any requisite stockholder approval, to each of Messrs. Armond and
Melvin Waxman a stock appreciation right ("SAR") with respect to 200,000 shares
of the Company's common stock at a base price of $3.375 per share, the fair
market value of the common stock on the date of such grant. Each SAR expires ten
years from the date of grant and vests in whole three years after the date of
grant. Upon the exercise of the SAR, the grantee is entitled to be paid an
amount equal to the excess of the fair market value per share of Common Stock on
the date of exercise over the base price of such SAR for each share with respect
to which such SAR is exercised. The grantee may elect to receive cash, shares of
common stock, or a combination thereof upon exercise of the SAR.
The 1982 Plan, which terminated by its terms on April 30, 1992, had options
to purchase 447 shares of common stock outstanding at June 30, 1991. During
1992, options to purchase a total of 557 shares of common stock were issued,
options to purchase a total of 267 shares of common stock with exercise prices
of $4.50 to $8.19 were cancelled and options to purchase a total of 4 shares of
common stock were exercised at a price of $5.33 per share. At June 30, 1992,
options to purchase a total of 733 shares of common stock were outstanding at
option prices ranging from $4.75 to $7.29 per share. During 1993, options to
purchase a total of 462 shares of common stock with exercise prices of $4.75 to
$7.29 per share were cancelled, with the remaining shares being cancelled in
fiscal 1993.
12. 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 consolidated financial statements.
13. RESTATEMENT OF PRIOR YEAR FINANCIAL STATEMENTS
During 1996, the Company identified an intercompany inventory reconciling
item between Consumer Products and WAMI and has restated prior year financial
statements to reflect the correction of this item.
29
<PAGE> 31
The effect of this restatement was as follows:
<TABLE>
<CAPTION>
AS PREVIOUSLY
REPORTED AS RESTATED
------------- -----------
<S> <C> <C>
Total Stockholders' Equity:
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 1992................................................. $ 14,899 $ 14,699
Fiscal 1993................................................. 4,691 3,791
Fiscal 1994................................................. 18,213 17,213
Income (loss) from continuing operations before minority
interest, discontinued operations, extraordinary loss and
cumulative effect of change in accounting:
Fiscal 1992................................................. $ (4,358) $ (4,558)
Fiscal 1993................................................. (15,890) (16,790)
Fiscal 1994................................................. (3,472) (4,472)
Net income (loss):
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 1992................................................. $ (0.44) $ (0.46)
Fiscal 1993................................................. (1.37) (1.44)
Fiscal 1994................................................. (0.30) (0.39)
Net Income (loss):
Fiscal 1992................................................. $ (0.45) $ (0.47)
Fiscal 1993................................................. (2.51) (2.58)
Fiscal 1994................................................. (4.44) (4.53)
</TABLE>
Corresponding changes have been made to the consolidated balance sheets to
reduce inventories.
30
<PAGE> 32
SUPPLEMENTARY FINANCIAL INFORMATION
QUARTERLY RESULTS OF OPERATIONS:
The following is a summary of the unaudited quarterly results of operations
for the fiscal years ended June 30, 1996, 1995, 1994, 1993 and 1992 (in
thousands, except per share amounts):
<TABLE>
<CAPTION>
FISCAL 1996 (RESTATED)(1) 1ST QTR. 2ND QTR. 3RD QTR. 4TH QTR.
- ----------------------------------------------------- -------- -------- -------- --------
<S> <C> <C> <C> <C>
Net sales............................................ $ 57,589 $59,345 $58,543 $ 59,590
Gross profit(2)(3)................................... 19,577 20,230 15,731 18,973
Operating income (loss)(4)(5)........................ 4,817 5,211 (2,468) (23,184)
Income (loss) from continuing operations before
extraordinary charge and change in accounting(6)... (1,978) (1,507) (9,184) 36,303
Reversal of loss on disposal......................... -- -- 11,000 --
Income (loss) before extraordinary charge and change
in accounting...................................... (1,978) (1,507) 1,816 36,328
Extraordinary charge................................. -- -- -- 6,251
Cumulative effect of change in accounting............ 8,213 -- -- --
Net income (loss).................................... $(10,191) $(1,507) $ 1,816 $ 29,077
Primary earnings per share:
Loss from continuing operations before extraordinary
charge and change in accounting.................... $ (0.17) $ (0.13) $ 0.15 $ 2.58
Extraordinary charge................................. -- -- -- (0.46)
Cumulative effect of change in accounting............ (0.70) -- -- --
Net income (loss).................................... $ (0.87) $ (0.13) $ 0.15 $ 2.12
Fully diluted earnings per share:
Loss from continuing operations before extraordinary
charge and change in accounting.................... $ (0.17) $ (0.13) $ 0.14 $ 2.58
Extraordinary charge................................. -- -- -- (0.46)
Cumulative effect of change in accounting............ (0.70) -- -- --
Net income (loss).................................... $ (0.87) (0.13) $ 0.14 $ 2.12
</TABLE>
(1) In the first, second and third quarters, losses of $(1,917), $(1,057) and
$(1,735) or $(0.16), $(0.09) and $(0.15) per share, respectively, had been
previously reported for net loss per share. The first and second quarter of
1996 have been restated from the previously reported results to reflect the
treatment of Consumer Products as a continuing operation. Refer to 2 and 3
below for the discussion of items effecting previously reported third
quarter results.
(2) 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.
(3) Upon completion of the strategic review, a $1.0 million charge attributed to
inventory obsolescence originally recorded in the 1996 third quarter has
been reversed and charged to the 1996 fourth quarter. The strategic review
resulted in charges to cost of sales of $4.2 million and $2.7 million in
the third and fourth quarters of 1996, respectively, as further discussed
in Note 3 to the Consolidated Financial Statements.
(4) The Company's operating results for each of the first three quarters of 1996
have been revised by $250,000 to reflect amortization expense for
procurement costs calculated in accordance with the new accounting policy,
as discussed in Note 4 to the Consolidated Financial Statements.
(5) Includes restructuring and other non-recurring charges of $19.5 million in
the 1996 fourth quarter. The strategic review resulted in total charges to
operating income of $7.7 million and $7.1 million in the 1996 third and
fourth quarters, respectively, as further discussed in Note 3 to the
Consolidated Financial Statements.
31
<PAGE> 33
(6) Includes the pre-tax gain on the sale of Barnett Common Stock of $65.9
million in the 1996 fourth quarter.
<TABLE>
<CAPTION>
FISCAL 1995 1ST QTR. 2ND QTR. 3RD QTR. 4TH QTR.
- ------------------------------------------------------ -------- -------- -------- --------
<S> <C> <C> <C> <C>
Net sales............................................. $59,444 $58,951 $58,767 $ 55,142
Gross profit.......................................... 20,887 20,582 20,281 18,186
Operating income (loss)............................... 5,639 5,484 4,719 (1,166)
Loss from continuing operations before loss on
disposal of discontinued operations................. (552) (983) (1,869) (8,669)
Loss on disposal of discontinued operations........... -- -- -- (11,000)
Net income (loss)..................................... $ (552) $ (983) $(1,869) $(19,669)
Primary and fully diluted earnings per share:
Loss from continuing operations....................... $ (.05) $ (.08) $ (.16) $ (.74)
Loss on disposal of discontinued operations......... -- -- -- (.94)
Net income (loss)................................... $ (.05) $ (.08) $ (.16) $ (1.68)
</TABLE>
<TABLE>
<CAPTION>
FISCAL 1994 (RESTATED)(7) 1ST QTR. 2ND QTR. 3RD QTR. 4TH QTR.
- ------------------------------------------------------ -------- -------- -------- --------
<S> <C> <C> <C> <C>
Net sales............................................. $54,701 $53,233 $ 52,311 $54,867
Gross profit.......................................... 18,500 18,514 18,301 18,786
Operating income...................................... 4,509 4,874 4,163 3,667
Loss from continuing operations before extraordinary
charge.............................................. (607) (292) (1,191) (2,382)
Income (loss) from discontinued operation............. 886 115 (4,250) --
Loss on disposal...................................... -- -- (38,343) --
Extraordinary charge.................................. -- -- (6,625) (199)
Net income (loss)..................................... $ 279 $ (177) $(50,409) $(2,581)
Primary and fully diluted earnings per share:
Income (loss) from continuing operations before
extraordinary charge................................ $ (0.05) $ (0.03) $ (0.10) $ (0.21)
Income (loss) from discontinued operations............ 0.07 0.01 (0.36) --
Loss on disposal...................................... -- -- (3.28) --
Extraordinary charge.................................. -- -- (0.56) (0.02)
Net income (loss)..................................... $ 0.02 $ (0.02) $ (4.30) $ (0.23)
</TABLE>
(7) As a result of the restatement for the correction of an intercompany
inventory reconciling item, cost of sales in 1994 increased by $250 in each
quarter, without tax benefit, which is reflected in the table above. The
Company previously reported net income (loss) of $529, $73, $(50,159) and
$(2,331), or net income (loss) per share of $.05, $.01, $(4.29) and $(.20)
for the first, second, third and fourth quarters of 1994, respectively.
<TABLE>
<CAPTION>
FISCAL 1993 (RESTATED)(8) 1ST QTR. 2ND QTR. 3RD QTR. 4TH QTR.
- ------------------------------------------------------ -------- -------- -------- --------
<S> <C> <C> <C> <C>
Net sales............................................. $54,405 $50,969 $48,583 $ 50,821
Gross profit.......................................... 18,147 16,902 16,373 15,212
Operating income (loss)............................... 4,253 3,935 3,505 (7,902)
Loss from continuing operations before change in
accounting.......................................... (413) (597) (1,110) (14,670)
Income (loss) from discontinued operation............. 785 733 (218) (12,540)
Cumulative effect of change in accounting............. (2,110) -- -- --
Net income (loss)..................................... $(1,738) $ 136 $(1,328) $(27,210)
Primary and fully diluted earnings per share:
Loss from continuing operations before change in
accounting.......................................... $ (0.04) $ (0.05) $ (0.09) $ (1.26)
Income (loss) from discontinued operations............ 0.07 0.06 (0.02) (1.07)
Cumulative effect of change in accounting............. (0.18) -- -- --
Net income (loss)..................................... $ (0.15) $ 0.01 $ (0.11) $ (2.33)
</TABLE>
32
<PAGE> 34
(8) As a result of the restatement for the correction of an intercompany
inventory reconciling item, cost of sales in 1993 increased by $50 in each
of the first and second quarters and $400 in each of the third and fourth
quarters, without tax benefit, which is reflected in the table above. The
Company previously reported net income (loss) of $(1,688), $186, $(928) and
$(26,810), or net income (loss) per share of $(.14), $.02, $(.08) and
$(2.30) for the first, second, third and fourth quarters of 1993,
respectively.
<TABLE>
<CAPTION>
FISCAL 1992 (RESTATED)(9) 1ST QTR. 2ND QTR. 3RD QTR. 4TH QTR.
- ------------------------------------------------------- -------- -------- -------- --------
<S> <C> <C> <C> <C>
Net sales.............................................. $48,670 $47,268 $47,628 $54,172
Gross profit........................................... 16,930 16,534 17,129 19,830
Operating income....................................... 3,739 4,238 5,324 1,398
Income (loss) from continuing operations before
extraordinary charge................................. (185) (232) 134 (4,275)
Income (loss) from discontinued operation.............. 760 652 77 (343)
Extraordinary charge................................... -- -- -- (1,186)
Net income (loss)...................................... $ 575 $ 420 $ 211 $(5,804)
Primary earnings per share:
Income (loss) from continuing operations before
extraordinary charge................................. $ (0.02) $ (0.02) $ 0.01 $ (0.40)
Income (loss) from discontinued operations............. 0.08 0.07 0.01 (0.03)
Extraordinary charge................................... -- -- -- (0.11)
Net income (loss)...................................... $ 0.06 $ 0.05 $ 0.02 $ (0.55)
Fully Diluted earnings per share:
Income (loss) from continuing operations before
extraordinary charge................................. $ (0.02) $ (0.02) $ (0.01) $ (0.41)
Income (loss) from discontinued operations............. 0.08 0.07 0.01 (0.03)
Extraordinary charge................................... -- -- -- (0.11)
Net income (loss)...................................... $ 0.06 $ 0.05 $ 0.00 $ (0.55)
</TABLE>
(9) As a result of the restatement for the correction of an intercompany
inventory reconciling item, cost of sales in 1992 increased by $50 in each
quarter, without tax benefit, which is reflected in the table above. The
Company previously reported net income (loss) of $625, $470, $261 and
$(5,754), or net income (loss) per primary share of $.07, $.05, $.03 and
$(.54) for the first, second, third and fourth quarters of 1992,
respectively.
33
<PAGE> 35
EXHIBITS
<TABLE>
<S> <C>
3.1* Certificate of Incorporation of the Company dated October 27, 1989 (Exhibit 3(a) to
the Company's Form S-8 filed December 4, 1989, File No. 0-5888, incorporated herein
by reference).
3.2* By-laws of the Company. (Exhibit 3.2 to Annual Report on Form 10-K for the year
ended June 30, 1990, File No. 0-5888, incorporated herein by reference.)
4.1* Indenture dated as of June 1, 1989 (the "Ameritrust Indenture") between the Company
and Ameritrust Company National Association (Exhibit 4.1 to Annual Report on Form
10-K for the year ended June 30, 1989, File No. 0-5888, incorporated herein by
reference).
4.2* Form of the Company's 13 3/4% Senior Subordinated Note due June 1, 1999 (Exhibit 4.2
to Annual Report on Form 10-K for the year ended June 30, 1989, File No. 0-5888,
incorporated herein by reference).
4.3* First Supplemental Indenture to the Ameritrust Indenture dated November 29, 1989.
(Exhibit 4.2 to Annual Report on Form 10-K for the year ended June 30, 1990, File
No. 0-5888, incorporated herein by reference.)
4.4* Second Supplemental Indenture to the Ameritrust Indenture dated November 23, 1993
(Exhibit 4.3 to Waxman Industries, Inc.'s Form S-2 filed July 8, 1994, incorporated
herein by reference).
4.5* Third Supplemental Indenture to the Ameritrust Indenture dated May 20, 1994 (Exhibit
4.4 to Waxman Industries, Inc.'s Form S-2 filed July 8, 1994 incorporated herein by
reference).
4.6* Indenture, dated as of May 20, 1994, by and between Waxman Industries, Inc. and The
Huntington National Bank, as Trustee, with respect to the Deferred Coupon Notes,
including the form of Deferred Coupon Notes (Exhibit 4.1 to Waxman Industries,
Inc.'s Form S-4 filed June 20, 1994, incorporated herein by reference).
4.7* Warrant Agreement, dated as of May 20, 1994, by and between Waxman Industries, Inc.
and The Huntington National Bank, as Warrant Agent (Exhibit 4.2 to Waxman
Industries, Inc.'s Form S-4 filed June 20, 1994, incorporated herein by reference).
4.8* Warrant Certificate (Exhibit 4.3 to Waxman Industries, Inc.'s Form S-4 filed June
20, 1994, incorporated herein by reference).
4.9* Securities Purchase Agreement for Notes and Warrants dated as of September 17, 1991,
among the Company and each of the Purchasers referred to therein. (Exhibit 4.4 to
Annual Report on Form 10-K for the year ended June 30, 1991, File No. 0-5888,
incorporated herein by reference).
4.10* Indenture dated as of September 1, 1991, (the "U.S. Trust Indenture") between the
Company and United States Trust Company of New York. (Exhibit 4.5 to Annual Report
on Form 10-K for the year ended June 30, 1991, File No. 0-5888, incorporated herein
by reference).
4.11* Form of the Company's Floating Rate Senior Secured Notes due September 1, 1998.
(Exhibit 4.6 to Annual Report on Form 10-K for the year ended June 30, 1991, File
No. 0-5888, incorporated herein by reference).
4.12* Form of the Company's 12.25% Fixed Rate Senior Secured Notes due September 1, 1998.
(Exhibit 4.7 to Annual Report on Form 10-K for the year ended June 30, 1991, File
No. 0-5888, incorporated herein by reference).
4.13* First Supplemental Indenture to the U.S. Trust Indenture dated November 15, 1993
(Exhibit 4.8 to Waxman Industries, Inc.'s Form S-2 filed July 8, 1994, incorporated
herein by reference).
4.14* Second Supplemental Indenture to the U.S. Trust Indenture dated March 25, 1994
(Exhibit 4.9 to Waxman Industries, Inc.'s Form S-2 filed July 8, 1994, incorporated
herein by reference).
4.15* Third Supplemental Indenture to the U.S. Trust Indenture dated May 20, 1994 (Exhibit
4.10 to Waxman Industries, Inc's Form S-2 filed July 8, 1994, incorporated herein by
reference).
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4.16* Warrant Agreement dated as of September 17, 1991, between the Company and United
States Trust Company of New York. (Exhibit 4.8 to Annual Report on Form 10-K for the
year ended June 30, 1991, File No. 0-5888, incorporated herein by reference).
4.17* Form of the Company's Common Stock Purchase Warrant Certificate. (Exhibit 4.9 to
Annual Report on Form 10-K for the year ended June 30, 1991, File No. 0-5888,
incorporated herein by reference).
4.18* Registration Rights Agreement for Senior Notes, Warrants and Warrant Shares dated as
of September 17, 1991, among the Company and each of the Purchasers signatory
thereto. (Exhibit 4.10 to Annual Report on Form 10-K for the year ended June 30,
1991, File No. 0-5888, incorporated herein by reference).
4.19* Pledge Agreement dated as of September 17, 1991, among the Company, United States
Trust Company of New York and each of the Purchasers signatory thereto. (Exhibit
4.11 to Annual Report on Form 10-K for the year ended June 30, 1991, File No.
0-5888, incorporated herein by reference).
4.20* Operating Credit Agreement dated as of April 20, 1989 between Bank of Montreal and
Waxman Acquisition, Inc. (Exhibit 10.9 to Annual Report on Form 10-K for the year
ended June 30, 1989, File No. 0-5888, incorporated herein by reference).
4.21* Amending Agreement of Operating Credit Agreement dated as of July 1, 1990 between
Bank of Montreal and Ideal Plumbing Group Inc. (Exhibit 4.10 to Annual Report on
Form 10-K for the year ended June 30, 1990, File No. 0-5888, incorporated herein by
reference).
4.22* Amended and Restated Operating Credit Agreement dated as of July 22, 1991 between
Bank of Montreal and Ideal Plumbing Group Inc. (Exhibit 4.15 to Annual Report on
Form 10-K for the year ended June 30, 1991, File No. 0-5888, incorporated herein by
reference).
4.23* Amended and Restated Credit Agreement dated as of April 1, 1993 between Waxman
Industries, Inc. and the Banks Named Therein and National City Bank as Agent
(Exhibit 4.15 to Annual Report on Form 10-K for the year ended June 30, 1993, File
No. 0-5888, incorporated herein by reference).
4.24* Amendment dated as of October 1, 1993 to Amended and Restated Credit Agreement dated
as of April 1, 1993 between Waxman Industries, Inc. and the Banks Named Therein and
National City Bank as Agent (Exhibit 4.16 to Annual Report on Form 10-K for the year
ended June 30, 1993, File No. 0-5888, incorporated herein by reference).
4.25* Credit Agreement dated as of May 20, 1994 among Waxman USA, Inc., Barnett Inc.,
Waxman Consumer Products Group Inc. and WOC Inc., the Lenders and Issuers party
thereto and Citicorp USA, Inc., as Agent and certain exhibits thereto (Exhibit 10.8
to Waxman Industries, Inc.'s Form S-4 filed June 20, 1994, incorporated herein by
reference).
4.26* Term Loan Credit Agreement dated as of May 20, 1994 among Waxman USA, Inc., Barnett
Inc., Waxman Consumer Products Group, Inc. and WOC Inc., the Lenders and Issuers
party thereto and Citibank, N.A., as Agent (Exhibit 10.9 to Waxman Industries,
Inc.'s Form S-4 filed June 20, 1994, incorporated herein by reference.).
4.27* First Supplemental Indenture dated as of January 19, 1996 by and between Waxman
Industries, Inc. and The Huntington National Bank, as Trustee (Exhibit 4.2 to Waxman
Industries, Inc.'s Amendment No. 8 to Registration Statement on Form S-2 filed April
15, 1996 Registration No. 33-54211, incorporated herein by reference).
4.28* Indenture dated as of April 3, 1996 by and between Waxman USA Inc. and the United
States Trust Company of New York, as Trustee, with respect to the 11 1/8% Senior
Notes due 2001 of Waxman USA Inc., including the form of Senior Notes (Exhibit 10.14
to Waxman Industries, Inc.'s Amendment No. 8 to Registration Statement on Form S-2
filed April 15, 1996, Registration No. 33- 54211, incorporated herein by reference).
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4.29* Registration Rights Agreement dated as of April 3, 1996 by and between Waxman USA
Inc. and the United States Trust Company of New York (Exhibit 10.15 to Waxman
Industries, Inc.'s Amendment No. 8 to Registration Statement on Form S-2 filed April
15, 1996, Registration No. 33-54211, incorporated herein by reference).
4.30* Amended and Restate Credit Agreement dated as of April 3, 1996 among Waxman USA
Inc., Waxman Consumer Products Group Inc. and WOC Inc., the Lenders and Issuers
party thereto and Citibank, N.A., as Agent (Exhibit 10.12 to Waxman Industries,
Inc.'s Amendment No. 8 to Registration Statement on Form S-2 filed April 15, 1996,
Registration No. 33-54211, incorporated herein by reference).
4.31* Amendment No. 2 to the Term Loan Agreement and Amendment No. 1 to the Revolving
Credit Agreement 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 10.11 to Waxman Industries, Inc.'s Amendment No. 4 to Registration
Statement on Form S-2 filed October 10, 1995, Registration No. 33-54211,
incorporated herein by reference).
4.32* Standstill Agreement dated March 28, 1996 between Waxman Industries, Inc. and
Barnett Inc. (Exhibit No. 10.13 to Waxman Industries, Inc.'s Amendment No. 8 to
Registration Statement on Form S-2 filed April 15, 1996, Registration No. 33-54211,
incorporated by reference).
4.33* Loan and Security Agreement dated as of June 28, 1996 among the Financial
Institutions named therein and BankAmerica Business Credit, Inc., as the Agent,
Waxman Consumer Products Group Inc. and WOC Inc., including certain exhibits thereto
(Exhibit No. 4.33 to Annual Report on Form 10-K for the year ended June 30, 1996,
File No. 001-10273, incorporated herein by reference).
10.1* Lease between the Company as Lessee and Aurora Investment Co. as Lessor dated June
30, 1992 (Exhibit 10.1 to Annual Report on Form 10-K for the year ended June 30,
1992, File No. 0-5888, incorporated herein by reference).
10.2* Policy Statement (revised as of June 1, 1980) regarding the Company's Profit
Incentive Plan (Exhibit 10(c)-1 to Annual Report on Form 10-K for the year ended
June 30, 1984, File No. 0-5888, incorporated herein by reference).
10.3* Employment Contract dated June 18, 1990 between the Company and William R. Pray.
(Exhibit 10.4 to Annual Report on Form 10-K for the year ended June 30, 1991, File
No. 0-5888, incorporated herein by reference).
10.4* Form of Stock Option Agreement between the Company and its Directors. (Exhibit 10.5
to Annual Report on Form 10-K for the year ended June 30, 1991, File No. 0-5888,
incorporated herein by reference).
10.5* Employment Contract dated January 1, 1992 between the Company and John S. Peters
(Exhibit 10.6 to Annual Report on Form 10-K for the year ended June 30, 1992, File
No. 0-5888, incorporated herein by reference).
10.6* Tax Sharing Agreement dated May 20, 1994 among Waxman Industries, Waxman USA,
Barnett Inc., Waxman Consumer Products Group, Inc., WOC Inc. and Western American
Manufacturing, Inc. (Exhibit 10.6 to Waxman Industries, Inc.'s Form S-4 filed June
20, 1994, incorporated herein by reference).
10.7* 1992 Non-Qualified and Incentive Stock Option Plan of Waxman Industries, Inc.,
adopted as of July 1, 1992 (Exhibit 10.7 to Annual Report of Form 10-K for the year
ended June 30, 1993, File No. 0- 5888, incorporated herein by reference).
10.8* Intercorporate Agreement dated May 20, 1994 among Waxman Industries, Waxman USA,
Barnett Inc., Waxman Consumer Products Group Inc., WOC Inc. and Western American
Manufacturing, Inc. (Exhibit 10.7 to Waxman Industries, Inc.'s Form S-4).
10.9* Employee Stock Purchase Plan of Waxman Industries, Inc., adopted on September 1,
1992 (Exhibit 10.8 to Annual Report on Form 10-K for the year ended June 30, 1993,
File No. 0-5888, incorporated herein by reference).
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10.10* Employment Agreement dated November 1, 1994 between Waxman Consumer Products Group
Inc. and Laurence Waxman (Exhibit 10.5 to Waxman Industries, Inc.'s Amendment No. 4
to Registration Statement on Form S-2 filed October 10, 1995, Registration No.
33-54211, incorporated herein by reference).
10.11* Intercorporate Agreement dated March 28, 1996 among Waxman Industries, Inc., Waxman
USA Inc., Barnett Inc., Waxman Consumer Products Group Inc., WOC Inc. and TWI,
International, Inc. (Exhibit 10.8 to Waxman Industries, Inc.'s Amendment No. 8 to
Registration Statement on Form S-2 filed April 15, 1996, Registration No. 33-54211,
incorporated herein by reference).
18.1* Letter Regarding Change in Accounting Principles (Exhibit 18.1 to Annual Report on
Form 10-K for the year ended June 30, 1993, File No. 0-5888, incorporated herein by
reference).
18.2* Letter Regarding Change in Accounting Principles (Exhibit 18.2 to Annual Report on
Form 10-K for the year ended June 30, 1996, File No. 001-10273, incorporated herein
by reference).
21.1* Subsidiaries. (Exhibit 21.1 to Waxman Industries, Inc.'s Form S-4 filed June 20,
1994, incorporated herein by reference).
23.1* Consent of Arthur Andersen LLP (Exhibit 23.1 to Annual Report on Form 10-K for the
year ended June 30, 1996. File No. 001-10273, incorporated herein by reference).
23.2* Consent of Arthur Andersen LLP (Exhibit 23.2 to Annual Report on Form 10K/A for the
year ended June 30, 1996. File No. 001-10273, incorporated herein by reference).
23.3 Consent of Arthur Andersen LLP.
27.1* Financial Data Schedule (Exhibit 27.1 to Annual Report on Form 10-K for the year
ended June 30, 1996, File No. 001-10273, incorporated herein by reference).
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* Incorporated herein by reference as indicated.
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SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of 1934, the
registrant has duly caused this amendment to be signed on its behalf by the
undersigned, thereunto duly authorized.
October 28, 1996
Waxman Industries, Inc.
By: /s/ Michael J. Vantusko
------------------------------
Chief Financial Officer
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<PAGE> 1
Exhibit 23.3
CONSENT OF INDEPENDENT PUBLIC ACCOUNTANTS
As independent public accountants, we hereby consent to the incorporation of
our report on the Consolidated Financial Statements of Waxman Industries, Inc.
and Subsidiaries for the year ended June 30, 1996, included in this
Form 10-K, into the Company's previously filed Form S-8 Registration Statement
No. 33-57477.
/s/ ARTHUR ANDERSEN LLP
Cleveland, Ohio,
October 28, 1996.
