<PAGE> 1
UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
FORM 10-Q
(Mark One)
[X] QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES
EXCHANGE ACT OF 1934 FOR THE QUARTERLY PERIOD ENDED
DECEMBER 31, 1996
------------------
OR
[ ] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES
EXCHANGE ACT OF 1934 FROM TO
Commission File Number 0-5888
WAXMAN INDUSTRIES, INC.
-----------------------
(Exact Name of Registrant as Specified in its Charter)
DELAWARE 34-0899894
-------- ----------
(State of Incorporation) (I.R.S. Employer
Identification Number)
24460 AURORA ROAD
BEDFORD HEIGHTS, OHIO 44146
--------------------- -----
(Address of Principal Executive Offices) (Zip Code)
(216) 439-1830
--------------
(Registrant's Telephone Number Including Area Code)
NOT APPLICABLE
--------------
(Former name, former address and former fiscal year, if changed
since last report)
Indicate by check mark whether the registrant (1) has filed all reports required
to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during
the preceding 12 months (or for such shorter period that the registrant was
required to file such reports), and (2) has been subject to such filing
requirements for the past ninety (90) days.
Yes X No
--- ---
9,706,378 shares of Common Stock, $.01 par value, and 2,152,896 shares of Class
B Common Stock, $.01 par value, were outstanding as of February 3, 1997.
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WAXMAN INDUSTRIES, INC. AND SUBSIDIARIES
----------------------------------------
INDEX TO FORM 10-Q
------------------
PAGE
----
PART 1. FINANCIAL INFORMATION
- ------------------------------
Item 1. Financial Statements (Unaudited)
Condensed Consolidated Statements of Income for the
Six Months and Three Months Ended December 31, 1996
and 1995............................................... 3
Condensed Consolidated Balance Sheets as of
December 31, 1996 and June 30, 1996.................... 4-5
Condensed Consolidated Statements of Cash Flows
for the Six Months Ended December 31, 1996 and
1995................................................... 6
Notes to Condensed Consolidated Financial
Statements............................................. 7-8
Item 2. Management's Discussion and Analysis of Financial
Condition and Results of Operations 9-12
PART II. OTHER INFORMATION
- --------------------------
Item 5. Other Information...................................... 13
Item 6. Exhibits and Reports on Form 8-K....................... 13
SIGNATURES
- ----------
EXHIBIT INDEX
- -------------
2
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PART 1. FINANCIAL INFORMATION
- -----------------------------
ITEM 1. FINANCIAL STATEMENTS
WAXMAN INDUSTRIES, INC. AND SUBSIDIARIES
----------------------------------------
CONDENSED CONSOLIDATED STATEMENTS OF INCOME
-------------------------------------------
(UNAUDITED)
FOR THE SIX MONTHS AND THREE MONTHS ENDED DECEMBER 31, 1996 AND 1995
(IN THOUSANDS, EXCEPT PER SHARE DATA)
<TABLE>
<CAPTION>
Six Months Ended Three Months Ended
December 31, December 31,
------------ ------------
1996 1995 1996 1995
---- ---- ---- ----
<S> <C> <C> <C> <C> <C>
Net sales $133,988 $116,934 $ 68,109 $ 59,345
Cost of sales 87,217 77,127 44,232 39,115
------- ------- ------- -------
Gross profit 46,771 39,807 23,877 20,230
Operating expenses 33,352 29,779 17,004 15,019
------- ------- ------- -------
Operating income 13,419 10,028 6,873 5,211
Interest expense, net 8,246 13,325 4,197 6,672
------- ------- ------- -------
Income (loss) before income taxes,
minority interest and cumulative
effect of change in accounting 5,173 (3,297) 2,676 (1,461)
Provision for income taxes 4,039 188 2,097 46
------- ------- ------- -------
Income (loss) before minority interest and
cumulative effect of change in accounting 1,134 (3,485) 579 (1,507)
Minority interest in consolidated
affiliate 2,857 - 1,505 -
Cumulative effect of change in accounting - 8,213 - -
------- ------- ------- -------
Net loss $ (1,723) $(11,698) $( 926) $ (1,507)
======= ======= ====== =======
Per common share:
Income (loss) before minority interest and
cumulative effect of change in accounting $ .09 $ (.30) $ .05 $ ( .13)
Minority interest in consolidated affiliate (.24) - (.13) -
Cumulative effect of change in
accounting - (.70) - -
-------- -------- -------- -------
Net loss $ (.15) $ (1.00) $ (.08) $ (.13)
======= ======= ======= =======
Average shares outstanding 11,851 11,737 11,857 11,737
======= ======= ======= =======
</TABLE>
The accompanying Notes to Condensed Consolidated Financial Statements are an
integral part of these statements.
3
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WAXMAN INDUSTRIES, INC. AND SUBSIDIARIES
----------------------------------------
CONDENSED CONSOLIDATED BALANCE SHEETS
-------------------------------------
DECEMBER 31, 1996 AND JUNE 30, 1996
(IN THOUSANDS)
ASSETS
<TABLE>
<CAPTION>
December 31, June 30,
1996 1996
(Unaudited) (Audited)
----------- ---------
<S> <C> <C>
CURRENT ASSETS:
Cash $ 2,154 $ 2,460
Accounts receivable, net 39,987 37,226
Inventories 64,916 59,883
Prepaid expenses 3,106 4,096
------- -------
Total current assets 110,163 103,665
-------- -------
PROPERTY AND EQUIPMENT:
Land 1,483 1,393
Buildings 12,449 11,842
Equipment 27,532 23,090
------- -------
41,464 36,325
Less accumulated depreciation
and amortization (20,545) (18,597)
------- -------
Property and equipment, net 20,919 17,728
COST OF BUSINESSES IN EXCESS
OF NET ASSETS ACQUIRED, NET 13,112 13,318
UNAMORTIZED DEBT ISSUANCE COSTS, NET 4,753 5,008
OTHER ASSETS 3,279 2,918
------- -------
$152,226 $142,637
======= =======
</TABLE>
The accompanying Notes to Condensed Consolidated Financial Statements are an
integral part of these statements.
4
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WAXMAN INDUSTRIES, INC. AND SUBSIDIARIES
----------------------------------------
CONDENSED CONSOLIDATED BALANCE SHEETS
-------------------------------------
DECEMBER 31, 1996 AND JUNE 30, 1996
(IN THOUSANDS, EXCEPT PER SHARE AMOUNTS)
LIABILITIES AND STOCKHOLDERS' EQUITY
<TABLE>
<CAPTION>
December 31, June 30,
1996 1996
(Unaudited) (Audited)
----------- ---------
CURRENT LIABILITIES:
<S> <C> <C>
Current portion of long-term debt $ 18,342 $ 10,972
Accounts payable 28,691 28,607
Accrued liabilities 8,351 11,929
Accrued interest 1,860 1,441
-------- --------
Total current liabilities 57,244 52,949
-------- --------
LONG-TERM DEBT, NET OF CURRENT PORTION 781 863
SENIOR SECURED DEFERRED COUPON NOTES 66,973 62,723
SENIOR NOTES 43,026 43,026
SENIOR SUBORDINATED NOTES 5,724 5,724
MINORITY INTEREST IN CONSOLIDATED AFFILIATE 23,463 20,606
STOCKHOLDERS' EQUITY:
Preferred stock, $.01 par value per share:
Authorized and unissued 2,000 shares - -
Common Stock, $.01 par value per share:
Authorized 22,000 shares; Issued 9,704
at December 31, 1996 and 9,693 at June 30, 1996 97 96
Class B common stock, $.01 par value per share:
Authorized 6,000 shares; Issued 2,153
at December 31, 1996 and at June 30, 1996 22 22
Paid-in capital 21,442 21,419
Retained deficit (66,226) (64,503)
------- -------
(44,665) (42,966)
Cumulative currency translation adjustments (320) (288)
------- -------
Total stockholders' equity (deficit) (44,985) (43,254)
------- -------
$152,226 $142,637
======= =======
</TABLE>
The accompanying Notes to Condensed Consolidated Financial Statements are an
integral part of these statements.
5
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WAXMAN INDUSTRIES, INC. AND SUBSIDIARIES
----------------------------------------
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS
-----------------------------------------------
(UNAUDITED)
FOR THE SIX MONTHS ENDED DECEMBER 31, 1996 AND 1995
(IN THOUSANDS)
<TABLE>
<CAPTION>
1996 1995
---- ----
CASH FLOWS FROM OPERATING ACTIVITIES:
- -------------------------------------
<S> <C> <C>
Net loss $ (1,723) $(11,698)
Adjustments to reconcile net loss to
net cash (used in) provided by operating
activities:
Cumulative effect of change in accounting - 8,213
Minority interest in consolidated affiliate 2,857 -
Non-cash interest 4,125 3,770
Depreciation and amortization 2,534 2,707
Changes in assets and liabilities:
Accounts receivable, net (2,760) (173)
Inventories (5,034) 5,117
Prepaid expenses 629 (942)
Accounts payable 84 (34)
Accrued liabilities (3,159) (1,859)
Other items, net (32) (100)
------- --------
Net Cash (Used in) Provided
by Operating Activities (2,479) 5,001
-------- -------
CASH FLOWS FROM INVESTING ACTIVITIES:
- -------------------------------------
Capital expenditures, net (5,139) (2,120)
------- -------
Net Cash Used in Investing Activities (5,139) (2,120)
------- -------
CASH FLOWS FROM FINANCING ACTIVITIES:
- -------------------------------------
Borrowings under credit agreements 62,214 56,816
Repayments under credit agreements (54,844) (59,588)
Repayments of long-term debt (82) (218)
Issuance of common stock 24 25
--------- --------
Net Cash Provided by (Used in)
Financing Activities 7,312 (2,965)
-------- --------
NET DECREASE IN CASH (306) (84)
BALANCE, BEGINNING OF PERIOD 2,460 2,106
------- -------
BALANCE, END OF PERIOD $ 2,154 $ 2,022
======= =======
</TABLE>
The accompanying Notes to Condensed Consolidated Financial Statements are an
integral part of these statements.
6
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WAXMAN INDUSTRIES, INC. AND SUBSIDIARIES
----------------------------------------
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
----------------------------------------------------
(UNAUDITED)
DECEMBER 31, 1996
NOTE 1 - BASIS OF PRESENTATION
---------------------
The condensed consolidated financial statements include the accounts of Waxman
Industries, Inc. ("Waxman"), its wholly owned subsidiaries and its affiliate,
Barnett Inc. (collectively, the "Company"). Waxman USA Inc., a wholly owned
subsidiary of Waxman ("Waxman USA") owns approximately 49.9% of the voting
capital stock of Barnett Inc. ("Barnett") and, together with non-voting
preferred stock of Barnett Inc. owned by Waxman USA, approximately 54% of the
capital stock of Barnett. The condensed consolidated statements of operations
for the six and three months ended December 31, 1996 and 1995, the condensed
balance sheet as of December 31, 1996 and the condensed statements of cash flows
for the six months ended December 31, 1996 and 1995 have been prepared by the
Company without audit, while the condensed balance sheet as of June 30, 1996 was
derived from audited financial statements. In the opinion of management, these
financial statements include all adjustments, all of which are normal and
recurring in nature, necessary to present fairly the financial position, results
of operations and cash flows of the Company as of December 31, 1996 and for all
periods presented. Certain information and footnote disclosures normally
included in financial statements prepared in accordance with generally accepted
accounting principles have been condensed or omitted. The Company believes that
the disclosures included herein are adequate and provide a fair presentation of
interim period results. Interim financial statements are not necessarily
indicative of financial position or operating results for an entire year. These
condensed interim financial statements should be read in conjunction with the
audited financial statements and the notes thereto included in the Company's
Annual Report on Form 10-K, as amended by an amendment thereto on Form 10K/A1,
for the fiscal year ended June 30, 1996 filed with the Securities and Exchange
Commission.
NOTE 2 - BUSINESS
--------
The Company believes that it is a leading supplier to the home repair and
remodeling market in the United States. Primarily through its indirect wholly
owned subsidiaries, Waxman Consumer Products Group Inc. ("Consumer Products"),
WOC Inc. ("WOC"), and TWI International, Inc. ("TWI") and its affiliate Barnett,
the Company markets and distributes a broad range of plumbing, electrical and
hardware products to over 56,000 customers in the United States, including
do-it-yourself warehouse home centers, home improvement centers, mass
merchandisers, hardware stores, lumberyards and to plumbing and electrical
repair and remodeling contractors, independent hardware stores and maintenance
managers.
NOTE 3 - INCOME TAXES
------------
The Company accounts for income taxes in accordance with the provisions of
Statement of Financial Accounting Standards No. 109, "Accounting for Income
Taxes" (SFAS 109). The Company is currently unable to recognize any income tax
benefit relating to its net loss. The tax provision for the six and three month
periods ended December 31, 1996 represents Barnett's tax provision and a
provision for state and foreign taxes.
At June 30, 1996, the Company had approximately $54.3 million of available
domestic net operating loss carryforwards which will expire between 2008 and
2011. The benefit of these net operating loss carryforwards has been reduced
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100% by a valuation allowance. The Company will continue to evaluate the
valuation allowance and to the extent that the Company is able to recognize tax
benefits in the future, such recognition will favorably affect future results of
operations. The Company also has alternative minimum tax carryforwards of
approximately $663,000 at June 30, 1996 which are available to reduce future
regular income taxes over an indefinite period.
As a result of the Barnett Public Offering (as defined below), Barnett is no
longer included in the Company's consolidated tax return. Therefore, the
Company's remaining net operating loss carryforwards are not available to offset
Barnett's taxable income.
NOTE 4 - IMPACT OF NEW ACCOUNTING STANDARDS
----------------------------------
In October 1995, the Financial Accounting Standards Board 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 fiscal 1997. The Company intends to continue using the provisions
of APB Opinion No. 25 to account for stock-based awards.
NOTE 5 - BARNETT
-------
In April 1996, Barnett completed an initial public offering (the "Barnett Public
Offering") of its common stock (the "Barnett Common Stock"). In the offering,
7,207,200 shares, representing approximately 55.1% of the Barnett Common Stock,
were sold in the aggregate by Barnett and Waxman USA Inc., a direct wholly owned
subsidiary of Waxman, at an initial public offering price per share of $14.00.
Since the consummation of the Barnett Public Offering, the cash flow generated
by Barnett is no longer available to the Company other than the amounts paid to
the Company for services, or the pro rata amounts, if any, distributed by
Barnett in the form of a common stock dividend. The Company consolidates
Barnett's financial results and records a charge on its statement of operations
for the net income related to the outside stockholders' common stock interest.
NOTE 6 - SUPPLEMENTAL CASH FLOW INFORMATION
----------------------------------
Cash payments during the six months ended December 31, 1996 and 1995 included
income taxes of $4.8 million and $.5 million and interest of $3.1 million and
$8.8 million, respectively. For the three months ended December 31, 1996 and
1995, cash payments for income taxes amounted to $3.4 million and $.3 million
and interest of $.8 million and $5.0 million, respectively.
NOTE 7 - EARNINGS PER SHARE
------------------
Earnings per share are calculated by dividing net income by the weighted average
number of shares of common stock and common stock outstanding.
The number of shares of common stock used to calculate primary and fully diluted
earnings per share are as follows:
Year-to-Date Quarter
------------ -------
December 31, 1996 - 11,851,000 11,857,000
December 31, 1995 - 11,737,000 11,737,000
8
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ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL
-------------------------------------------------
CONDITION AND RESULTS OF OPERATIONS
-----------------------------------
A. RESULTS OF OPERATIONS FOR THE SIX MONTHS AND THREE MONTHS ENDED
DECEMBER 31, 1996 AND 1995.
RESULTS OF OPERATIONS
- ---------------------
This Quarterly Report contains certain forward-looking statements within the
meaning of the Private Securities Litigation Reform Act of 1995 including,
without limitation, statements regarding the Company's customer base and the
sufficiency of the Company's liquidity and sources of capital. These
forward-looking statements are subject to certain risk, uncertainties and other
factors which could cause actual results to differ materially. Additional
information regarding these and other factors that could potentially affect the
Company or its financial results may be included in the Company's filings with
the Securities and Exchange Commission.
Waxman USA owns 49.9% of the common stock of and, together with its preferred
shares, a 54% economic interest in Barnett. Barnett's results are consolidated
with the Company's and the Company records a charge in its statement of
operations for the net income related to the outside stockholder's common stock
interest.
NET SALES
- ---------
Consolidated net sales for the six months and second fiscal quarter ended
December 31, 1996 amounted to $134.0 million and $68.1 million, as compared to
$116.9 million and $59.3 million for the comparable periods last year,
respectively. The increases of 14.6% for the six months and 14.8% for the
quarter are primarily attributable to the increase in Barnett's net sales and a
smaller increase at the Company's wholly owned operations.
Barnett's net sales of $76.4 million and $39.9 million for the six months and
quarter ended December 31, 1996 represent increases of 26.2% and 28.2% over the
comparable periods last year. The increases are primarily attributable to
continued expansion and development of its telesales operations and 1,053 new
product introductions during the preceding twelve month period.
Net sales for the Company's wholly owned operations amounted to $57.6 million
and $28.2 million for the six months and quarter ended December 31, 1996,
respectively, an increase of $1.2 million or 2.1% for the six months and $0.5
million or 2.0% for the three months ended December 31, 1996. The Company's
operations have benefited from their strengthened financial condition which has
created additional market opportunities as well as increased direct selling
activities from the Company's foreign operations and an improved economic
environment for certain of the Company's products. The Company's Consumer
Products' operation experienced net sales decreases of 4.4% for the six months
and 4.7% for the quarter ended December 31, 1996. The reduction was primarily
the result of the discontinuance of the electrical products' line and certain
lower margin products in the fourth quarter of fiscal 1996 and the loss of a
customer due to its bankruptcy early in the first quarter of fiscal 1997.
GROSS PROFIT
- ------------
For the six months ended December 31, 1996, gross profit increased $7.0 million
or 17.5% to $46.8 million from $39.8 million for the comparable period last
year. Gross margins increased for the six months ended December 31, 1996
improving, to 34.9% from 34.0% last year. The Company's wholly owned operations'
gross margin improved to 36.1% for the current six month period as compared to
34.7% last year. There was a general improvement at nearly all of
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the Company's operations. The largest improvement was at the Consumer Products'
operation, where gross profit margins improved from 34.6% to 36%, primarily due
to the discontinuance of lower margin products.
Gross profit for the quarter ended December 31, 1996 amounted to $23.9 million,
an increase of $3.6 million or 18% over the $20.2 million in the comparable
period last year. The gross margin for the current year's second quarter was
35.1% as compared to 34.1% last year. The Company's wholly owned operations
reported gross margin of 36.3% for the three months ended December 31, 1996 as
compared to 34.6% last year.
SELLING, GENERAL AND ADMINISTRATIVE EXPENSES
- --------------------------------------------
Selling, general and administrative ("SG&A") expenses for the six months ended
December 31, 1996 and 1995 amounted to $33.4 million or 24.9% of consolidated
net sales and $29.8 million or 25.5% of consolidated net sales, respectively.
For the Company's wholly owned operations, there was a general decrease of $.4
million in SG&A expenses and, as a percent of net sales, SG&A expenses amounted
to 30.2% and 28.9% for the six months ended December 31, 1995 and 1996,
respectively. Barnett's SG&A expenses increased by $3.9 million to $16.7 million
for the six months ended December 31, 1996, a slight increase when expressed
as a percentage of net sales. Barnett's increase was attributable to the
expansion of its telesales operations which resulted in increased training
expenses and also to Barnett's establishment of a same day shipping policy to
benefit its customers.
For the quarters ended December 31, 1996 and 1995, SG&A expenses amounted to
$17.0 million and $15.0 million, or 25% and 25.3% of consolidated net sales,
respectively. SG&A expenses for the Company's wholly owned operations amounted
to $8.3 million, or a 1.7% decrease for the quarter ended December 31, 1996 as
compared to $8.6 million for the same quarter last year. The increase in net
sales, coupled with the slight decrease in expenses at the Company's wholly
owned operations resulted in an overall improvement in the ratio of expenses to
consolidated net sales.
INTEREST EXPENSE
- ----------------
Interest expense for the six months ended December 31, 1996 and 1995 amounted to
$8.2 million and $13.3 million, respectively. Interest expense amounted to $4.2
million for the second quarter of fiscal 1997 as compared to $6.7 million in the
comparable period last year. The reduction of interest is due mainly to the
repayment of indebtedness with the net proceeds from the April 1996 initial
public offering of Barnett (a former wholly owned subsidiary). Average
borrowings for the current year's six month period amounted to $129.7 million,
with an average interest rate of 11.8%, as compared to $206.1 million of debt
with an average interest rate of 12.2% last year.
PROVISION FOR INCOME TAXES
- --------------------------
The provision for income taxes for the six months ended December 31, 1996 and
1995 amounted to $4.0 million and $.2 million, respectively. For the second
quarter of fiscal 1997, the provision for income taxes amounted to $2.1 million
as compared to $46,000 in the comparable period last year. For the fiscal 1997
six months and quarter, the provision for taxes primarily represents Barnett's
tax provision and state and foreign taxes of the Company's wholly owned
operations. The difference between the effective and statutory tax rates is
primarily due to the domestic losses not benefited and goodwill amortization.
With the completion of the Barnett Public Offering, Barnett is no longer
included in the consolidated tax return of the Company and is unable to benefit
from the Company's net operating loss carryforwards. In accordance
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with the provisions of SFAS No. 109, the Company is unable to benefit its losses
in the current year.
MINORITY INTEREST IN CONSOLIDATED AFFILIATE
- -------------------------------------------
The Company recorded a charge of $2.9 million and $1.5 million, respectively,
for the six months and quarter ended December 31, 1996 for the 50.1% of
Barnett's net income associated with the outside stockholders' common stock
interest.
CUMULATIVE EFFECT OF CHANGE IN ACCOUNTING
- -----------------------------------------
Effective July 1, 1995, the Company changed its method of accounting for the
cost of obtaining long term business. These costs represent the amount paid in
connection with a customer's commitment to purchase products from the Company
for a specified period. Prior to this change, the Company capitalized the
consideration paid 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. These costs were then amortized over the
period deemed to be benefited. The Company's new policy is to amortize these
costs in the fiscal year incurred due to the uncertainty of today's competitive
retail environment. The cumulative effect of this change on prior years of $8.2
million, without tax benefit, is reported as a separate charge in the first
quarter of fiscal 1996.
NET LOSS
- --------
The Company's net loss for the six months and quarter ended December 31, 1996
amounted to $1.7 million and $.9 million or $.15 and $.08 per share,
respectively which is an improvement over the loss of $3.5 million and $1.5
million or $.30 per share and $.13 per share in the corresponding prior year
periods, before the cumulative effect of the change in accounting in the six
months of fiscal 1996 discussed above. In the first quarter of fiscal 1996, the
Company also recorded a charge for the cumulative effect of the change in
accounting of $8.2 million, or $.70 per share.
B. LIQUIDITY AND CAPITAL RESOURCES
-------------------------------
At December 31, 1996, the Company had $13.2 million available under its credit
agreement with BankAmerica Business Credit, Inc. (the "Credit Agreement"). The
Credit Agreement, which expires in May 1999, contains certain covenants and
restrictions, including a material adverse effect clause and the requirement to
maintain cash collateral accounts. Accordingly, borrowings under the Credit
Agreement have been classified as a current liability. The Company was in
compliance with all loan covenants at December 31, 1996.
At December 31, 1996, the Company had working capital of $52.9 million and a
current ratio of 1.9 to 1.
The Company relies primarily on Consumer Products for cash flow because
Barnett's cash flow is no longer available to the Company with the completion of
the Barnett Public Offering. Consumer Products' customers include do-it-yourself
warehouse centers, home improvement centers, mass merchandisers, hardware stores
and lumberyards. Consumer Products may be adversely affected by prolonged
economic downturns or significant declines in consumer spending. There can be no
assurances that any such prolonged economic downturns or significant declines in
consumer spending would not have a material adverse impact on the Consumer
Products' business and its ability to generate cash flow. Furthermore, Consumer
Products' largest customer, Kmart and its subsidiary, Builders Square,
historically have accounted for approximately 42% to 44% of Consumer Products'
total net sales. The Company has been advised by Kmart that it recently
conducted a review of its supply arrangements with its
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suppliers of plumbing and hardware products, including Consumer Products, and
has determined it will utilize Consumer Product as a vendor. As a result,
Consumer Products believes it will retain all of its Kmart business. However,
all large merchandisers review supply arrangements from time to time and there
can be no assurance that this relationship will continue or as to the terms of
any relationship that does continue. Furthermore, Kmart has stated that it
intends to sell its Builders Square business, which accounted for 24.8%, 24.7%,
and 23.2% of Consumer Products' net sales in fiscal 1996, fiscal 1995 and the
six months ended December 31, 1996. Kmart issued a press release on February 3,
1997, stating that it was negotiating to sell the Builders Square business to
Home Base, a leading regional warehouse home center, which is not and has not
been a customer of Consumer Products. Although, Kmart recently completed a
review of its and Builders Square's vendor relationships, it is likely that any
purchaser of Builders Square would conduct a similar review. In the event
Consumer Products were to either lose Kmart or Builders Square as a customer or
Kmart or Builders Square were to significantly curtail its purchases from
Consumer Products, there would be material short-term adverse effects until the
Company could modify Consumer Products' cost structure to be more in line with
its reduced revenue base.
The Company does not have any commitments to make substantial capital
expenditures.
In furtherance of the Company's ongoing efforts to increase its liquidity and
improve its capital structure, Waxman USA recently completed a private exchange
offer pursuant to which it exchanged an aggregate of $4.8 of Waxman 13 3/4%
Senior Subordinated Notes due June 1999 for a like amount of Waxman USA's 11
1/8% Senior Notes due 2001. As a result, there now remains outstanding $.9 of
Senior Subordinated Notes. The Company is continuing to review other business
strategies for reducing its leverage.
The Company believes that the funds generated from operations, along with the
funds available under the Credit Agreement (and any refinancing thereof), will
be sufficient to satisfy the Company's liquidity requirements until December 1,
1999 (the date that the cash interest becomes payable by the Company under the
Deferred Coupon Notes). The Company does not anticipate that available cash
flow from operations will be sufficient to pay cash interest on the Deferred
Coupon Notes commencing in December 1999. Therefore, the Company expects to
repay or refinance such debt in or prior to December 1999.
DISCUSSION OF CASH FLOWS
- ------------------------
Net cash used by the Company's operations was $2.5 million for the six months
ended December 31, 1996, due mainly to increases in inventories and accounts
receivable and a decrease in accruals (principally accrued income tax and
accrued interest payments) which were partially offset by an increase in
accounts payable. Cash flow used for investments totaled $5.1 million, primarily
relating to Barnett's operations, including capital expenditures for improved
management information systems, the buy-out of an operating lease incurred in
prior years and expansion and/or relocation of several of Barnett's distribution
centers to accommodate new product offerings. Cash flow from financing totaled
$7.3 million. Net debt borrowings during the six months ended December 31, 1996
under the Credit Agreement totaled $7.4 million.
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<PAGE> 13
PART II. OTHER INFORMATION
-----------------
ITEM 5. OTHER INFORMATION
-----------------
ITEM 6. EXHIBITS AND REPORTS ON FORM 8-K
--------------------------------
a) See Exhibit 27.
b) Reports on Form 8-K
The Registrant did not file any reports on Form 8-K during the
quarter ended December 31, 1996.
All other items in Part II are either inapplicable to the Company during the
quarter ended December 31, 1996, the answer is negative or a response has been
previously reported and an additional report of the information need not be
made, pursuant to the instructions to Part II.
SIGNATURES
----------
Pursuant to the requirements of the Securities Exchange Act of 1934, as amended,
the registrant has duly caused this report to be signed on its behalf by the
undersigned thereunto duly authorized.
WAXMAN INDUSTRIES, INC.
-----------------------
REGISTRANT
DATE: FEBRUARY 10, 1997 BY: /s/ MARK W. WESTER
MARK W. WESTER
VICE PRESIDENT-FINANCE
(PRINCIPAL FINANCIAL AND
ACCOUNTING OFFICER)
13
<PAGE> 14
EXHIBIT INDEX
-------------
EXHIBIT PAPER (P) OR
- ------- ------------
NUMBER DESCRIPTION ELECTRONIC (E)
- ------ ----------- --------------
(27) Financial Data Schedule
(submitted to the Securities
and Exchange Commission in
Electronic Format) E
14
<TABLE> <S> <C>
<ARTICLE> 5
<MULTIPLIER> 1,000
<S> <C>
<PERIOD-TYPE> 6-MOS
<FISCAL-YEAR-END> JUN-30-1997
<PERIOD-START> JUL-01-1996
<PERIOD-END> DEC-31-1996
<CASH> 2,154
<SECURITIES> 0
<RECEIVABLES> 42,332
<ALLOWANCES> (2,345)
<INVENTORY> 64,916
<CURRENT-ASSETS> 110,163
<PP&E> 41,464
<DEPRECIATION> 20,545
<TOTAL-ASSETS> 152,226
<CURRENT-LIABILITIES> 57,244
<BONDS> 116,504
<COMMON> 119
0
0
<OTHER-SE> (45,125)
<TOTAL-LIABILITY-AND-EQUITY> 152,226
<SALES> 133,988
<TOTAL-REVENUES> 133,988
<CGS> 87,217
<TOTAL-COSTS> 33,352
<OTHER-EXPENSES> 0
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 8,246
<INCOME-PRETAX> 5,173
<INCOME-TAX> 4,039
<INCOME-CONTINUING> 1,134
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> (1,723)
<EPS-PRIMARY> (.15)
<EPS-DILUTED> (.15)
</TABLE>
