-----BEGIN PRIVACY-ENHANCED MESSAGE----- Proc-Type: 2001,MIC-CLEAR Originator-Name: webmaster@www.sec.gov Originator-Key-Asymmetric: MFgwCgYEVQgBAQICAf8DSgAwRwJAW2sNKK9AVtBzYZmr6aGjlWyK3XmZv3dTINen TWSM7vrzLADbmYQaionwg5sDW3P6oaM5D3tdezXMm7z1T+B+twIDAQAB MIC-Info: RSA-MD5,RSA, CkZ04RCTbixcsAZcUN3rKZRUKHfFyDfdPSRhHCRN+FhET37H6PfuNAnHq8yV02/Q oMwXf8Lcxv22Cjiv8jFArg== 0000950152-96-005464.txt : 19961030 0000950152-96-005464.hdr.sgml : 19961030 ACCESSION NUMBER: 0000950152-96-005464 CONFORMED SUBMISSION TYPE: 10-K/A PUBLIC DOCUMENT COUNT: 2 CONFORMED PERIOD OF REPORT: 19960630 FILED AS OF DATE: 19961029 SROS: NYSE FILER: COMPANY DATA: COMPANY CONFORMED NAME: WAXMAN INDUSTRIES INC CENTRAL INDEX KEY: 0000105096 STANDARD INDUSTRIAL CLASSIFICATION: WHOLESALE-HARDWARE & PLUMBING & HEATING EQUIPMENT & SUPPLIES [5070] IRS NUMBER: 340899894 STATE OF INCORPORATION: DE FISCAL YEAR END: 0630 FILING VALUES: FORM TYPE: 10-K/A SEC ACT: 1934 Act SEC FILE NUMBER: 001-10273 FILM NUMBER: 96649086 BUSINESS ADDRESS: STREET 1: 24460 AURORA RD CITY: BEDFORD HEIGHTS STATE: OH ZIP: 44146 BUSINESS PHONE: 2164391830 MAIL ADDRESS: STREET 1: 24460 AURORA ROAD CITY: BEDFORD HEIGHTS STATE: OH ZIP: 44146 10-K/A 1 WAXMAN INDUSTRIES, INC. 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) 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)
(216) 439-1830 (REGISTRANT'S TELEPHONE NUMBER INCLUDING AREA CODE) ------------------------ SECURITIES REGISTERED PURSUANT TO SECTION 12(b) OF THE ACT:
(NAME OF EACH EXCHANGE (TITLE OF EACH CLASS) ON WHICH REGISTERED) - ------------------------------ ------------------------- Common Stock, $.01 par value New York Stock Exchange Chicago Stock Exchange
------------------------ 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 - -------------------------------------------------------------------------------- - -------------------------------------------------------------------------------- 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 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.
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) 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 ========= ========== ========== ========== ==========
2 4
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) 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
3 5 ITEM 6. SELECTED FINANCIAL DATA
FISCAL YEARS ENDED JUNE 30, -------------------------------------------------------- 1991 1990 1989 1988 1987 -------- ------------ -------- -------- -------- RESTATED(1) (AMOUNTS IN THOUSANDS, EXCEPT PER SHARE AMOUNTS) 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
4 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:
AS PREVIOUSLY AS Stockholders' Equity: REPORTED RESTATED ------------- --------- 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)
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 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 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 9 WAXMAN INDUSTRIES, INC. AND SUBSIDIARIES CONSOLIDATED BALANCE SHEETS JUNE 30, 1996, 1995, 1994, 1993 AND 1992 (IN THOUSANDS) ASSETS
1996 1995 1994 1993 1992 -------- -------- -------- -------- -------- RESTATED RESTATED RESTATED RESTATED -------- -------- -------- -------- 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 ======== ======== ======== ======== ========
The accompanying Notes to Consolidated Financial Statements are an integral part of these statements. 8 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
1996 1995 1994 1993 1992 -------- -------- -------- -------- -------- RESTATED RESTATED RESTATED RESTATED -------- -------- -------- -------- 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 ======== ======== ======== ======== ========
The accompanying Notes to Consolidated Financial Statements are an integral part of these statements. 9 11 WAXMAN INDUSTRIES, INC. AND SUBSIDIARIES CONSOLIDATED STATEMENTS OF OPERATIONS (IN THOUSANDS EXCEPT PER SHARE DATA)
FISCAL YEAR ENDED JUNE 30, -------------------------------------------------------- 1996 1995 1994 1993 1992 -------- -------- -------- -------- -------- RESTATED RESTATED RESTATED -------- -------- -------- 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) ======== ======== ======== ======== ========
10 12 WAXMAN INDUSTRIES, INC. AND SUBSIDIARIES CONSOLIDATED STATEMENTS OF OPERATIONS (IN THOUSANDS EXCEPT PER SHARE DATA)
FISCAL YEAR ENDED JUNE 30, -------------------------------------------------------- 1996 1995 1994 1993 1992 -------- -------- -------- -------- -------- RESTATED RESTATED RESTATED -------- -------- -------- 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 ======== ======== ======== ======== ========
The accompanying Notes to Consolidated Financial Statements are an integral part of these statements. 11 13 WAXMAN INDUSTRIES, INC. AND SUBSIDIARIES CONSOLIDATED STATEMENTS OF STOCKHOLDERS' EQUITY (IN THOUSANDS)
CUMULATIVE CLASS B CURRENCY TOTAL COMMON COMMON PAID-IN RETAINED TRANSLATION STOCKHOLDERS' STOCK STOCK CAPITAL DEFICIT ADJUSTMENT EQUITY ------ ------- ------- -------- ----------- ------------- 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) ====== ======= ======= ======= ========== ===========
The accompanying Notes to Consolidated Financial Statements are an integral part of these statements. 12 14 WAXMAN INDUSTRIES, INC. AND SUBSIDIARIES CONSOLIDATED STATEMENTS OF CASH FLOWS (IN THOUSANDS)
FISCAL YEAR ENDED JUNE 30, -------------------------------------------------------- 1996 1995 1994 1993 1992 -------- -------- -------- -------- -------- RESTATED RESTATED RESTATED RESTATED -------- -------- -------- -------- 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 ======== ======== ======== ======== ========
The accompanying Notes to Consolidated Financial Statements are an integral part of these statements. 13 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 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 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:
1996 1995 1994 1993 1992 ------ ------ ------ ------ ----- Primary................................ 11,793 11,712 11,674 11,662 9,794 Fully diluted.......................... 13,653 11,712 11,674 11,662 9,794
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 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 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:
(IN MILLIONS) ------------- Exiting product lines........................................... $ 4.1 Warehouse closure costs......................................... 1.3 Reduction of excess capacity.................................... 1.1 Other........................................................... 0.9 Asset impairment................................................ 12.1 ----- Total......................................................... $19.5 =====
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 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:
1994 1993 1992 ------- -------- -------- 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 ======= ======== ========
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 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: Estimated loss on disposal of businesses............................ $4,600 Relocation and consolidation costs.................................. 1,544 Other............................................................... 618 ------ $6,762 ======
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 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:
JUNE 30, --------------------------------------------------- 1996 1995 1994 1993 1992 ------- ------- ------- ------- ------- 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 ======= ======= ======= ======= =======
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 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 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 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 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:
FISCAL YEAR ENDED JUNE 30, --------------------------------------------------------- 1996 1995 1994 1993 1992 ------- -------- ------- -------- ------- 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) ======= ======== ======= ======== =======
The components of the provision (benefit) for income taxes are:
FISCAL YEAR ENDED JUNE 30, --------------------------------------------- 1996 1995 1994 1993 1992 ------ ---- ---- ---- ------- 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) ====== ==== ==== ==== =======
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:
FISCAL YEAR ENDED JUNE 30, ------------------------------------------------- 1996 1995 1994 1993 1992 ----- ----- ----- ----- ----- 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% ===== ===== ===== ===== =====
25 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:
FISCAL YEAR ENDED JUNE 30, ------------------------------------ 1996 1995 1994 -------- --------- --------- 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 $ -- $ -- ======== ======== ========
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 28 Future minimum rental payments are as follows:
FISCAL YEAR ENDED JUNE 30, - ------------------ 1997.................................................... $ 4,001 1998.................................................... 3,410 1999.................................................... 2,764 2000.................................................... 1,956 2001.................................................... 1,044 Thereafter.............................................. 1,376 ------- $14,551 =======
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 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:
SHARES OPTION PRICE STOCK OPTIONS OUTSTANDING PER SHARE --------------------------------------------------------- ----------- ------------- 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 =========
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 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 31 The effect of this restatement was as follows:
AS PREVIOUSLY REPORTED AS RESTATED ------------- ----------- 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)
Corresponding changes have been made to the consolidated balance sheets to reduce inventories. 30 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):
FISCAL 1996 (RESTATED)(1) 1ST QTR. 2ND QTR. 3RD QTR. 4TH QTR. - ----------------------------------------------------- -------- -------- -------- -------- 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
(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 33 (6) Includes the pre-tax gain on the sale of Barnett Common Stock of $65.9 million in the 1996 fourth quarter.
FISCAL 1995 1ST QTR. 2ND QTR. 3RD QTR. 4TH QTR. - ------------------------------------------------------ -------- -------- -------- -------- 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)
FISCAL 1994 (RESTATED)(7) 1ST QTR. 2ND QTR. 3RD QTR. 4TH QTR. - ------------------------------------------------------ -------- -------- -------- -------- 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)
(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.
FISCAL 1993 (RESTATED)(8) 1ST QTR. 2ND QTR. 3RD QTR. 4TH QTR. - ------------------------------------------------------ -------- -------- -------- -------- 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)
32 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.
FISCAL 1992 (RESTATED)(9) 1ST QTR. 2ND QTR. 3RD QTR. 4TH QTR. - ------------------------------------------------------- -------- -------- -------- -------- 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)
(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 35 EXHIBITS 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).
34 36 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).
35 37 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).
36 38 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).
- --------------- * Incorporated herein by reference as indicated. 37 39 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 38 EX-23.3 2 EXHIBIT 23.3 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. -----END PRIVACY-ENHANCED MESSAGE-----