-----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, HVxjNlaAIdAawB8tqVZ1LDf0wMqZSLTFqRakx40Yr2vN029Kjqm/8lYUYYaBxTIF BA+T9rh4GQMKQz6plQ9cvA== 0000950152-97-001001.txt : 19970222 0000950152-97-001001.hdr.sgml : 19970222 ACCESSION NUMBER: 0000950152-97-001001 CONFORMED SUBMISSION TYPE: 10-Q PUBLIC DOCUMENT COUNT: 2 CONFORMED PERIOD OF REPORT: 19961231 FILED AS OF DATE: 19970214 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-Q SEC ACT: 1934 Act SEC FILE NUMBER: 001-10273 FILM NUMBER: 97533508 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-Q 1 WAXMAN INDUSTRIES 1 UNITED STATES SECURITIES AND EXCHANGE COMMISSION WASHINGTON, D.C. 20549 FORM 10-Q (Mark One) [X] QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 FOR THE QUARTERLY PERIOD ENDED DECEMBER 31, 1996 ------------------ OR [ ] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 FROM TO Commission File Number 0-5888 WAXMAN INDUSTRIES, INC. ----------------------- (Exact Name of Registrant as Specified in its Charter) DELAWARE 34-0899894 -------- ---------- (State of Incorporation) (I.R.S. Employer Identification Number) 24460 AURORA ROAD BEDFORD HEIGHTS, OHIO 44146 --------------------- ----- (Address of Principal Executive Offices) (Zip Code) (216) 439-1830 -------------- (Registrant's Telephone Number Including Area Code) NOT APPLICABLE -------------- (Former name, former address and former fiscal year, if changed since last report) Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past ninety (90) days. Yes X No --- --- 9,706,378 shares of Common Stock, $.01 par value, and 2,152,896 shares of Class B Common Stock, $.01 par value, were outstanding as of February 3, 1997. 2 WAXMAN INDUSTRIES, INC. AND SUBSIDIARIES ---------------------------------------- INDEX TO FORM 10-Q ------------------ PAGE ---- PART 1. FINANCIAL INFORMATION - ------------------------------ Item 1. Financial Statements (Unaudited) Condensed Consolidated Statements of Income for the Six Months and Three Months Ended December 31, 1996 and 1995............................................... 3 Condensed Consolidated Balance Sheets as of December 31, 1996 and June 30, 1996.................... 4-5 Condensed Consolidated Statements of Cash Flows for the Six Months Ended December 31, 1996 and 1995................................................... 6 Notes to Condensed Consolidated Financial Statements............................................. 7-8 Item 2. Management's Discussion and Analysis of Financial Condition and Results of Operations 9-12 PART II. OTHER INFORMATION - -------------------------- Item 5. Other Information...................................... 13 Item 6. Exhibits and Reports on Form 8-K....................... 13 SIGNATURES - ---------- EXHIBIT INDEX - ------------- 2 3 PART 1. FINANCIAL INFORMATION - ----------------------------- ITEM 1. FINANCIAL STATEMENTS WAXMAN INDUSTRIES, INC. AND SUBSIDIARIES ---------------------------------------- CONDENSED CONSOLIDATED STATEMENTS OF INCOME ------------------------------------------- (UNAUDITED) FOR THE SIX MONTHS AND THREE MONTHS ENDED DECEMBER 31, 1996 AND 1995 (IN THOUSANDS, EXCEPT PER SHARE DATA)
Six Months Ended Three Months Ended December 31, December 31, ------------ ------------ 1996 1995 1996 1995 ---- ---- ---- ---- Net sales $133,988 $116,934 $ 68,109 $ 59,345 Cost of sales 87,217 77,127 44,232 39,115 ------- ------- ------- ------- Gross profit 46,771 39,807 23,877 20,230 Operating expenses 33,352 29,779 17,004 15,019 ------- ------- ------- ------- Operating income 13,419 10,028 6,873 5,211 Interest expense, net 8,246 13,325 4,197 6,672 ------- ------- ------- ------- Income (loss) before income taxes, minority interest and cumulative effect of change in accounting 5,173 (3,297) 2,676 (1,461) Provision for income taxes 4,039 188 2,097 46 ------- ------- ------- ------- Income (loss) before minority interest and cumulative effect of change in accounting 1,134 (3,485) 579 (1,507) Minority interest in consolidated affiliate 2,857 - 1,505 - Cumulative effect of change in accounting - 8,213 - - ------- ------- ------- ------- Net loss $ (1,723) $(11,698) $( 926) $ (1,507) ======= ======= ====== ======= Per common share: Income (loss) before minority interest and cumulative effect of change in accounting $ .09 $ (.30) $ .05 $ ( .13) Minority interest in consolidated affiliate (.24) - (.13) - Cumulative effect of change in accounting - (.70) - - -------- -------- -------- ------- Net loss $ (.15) $ (1.00) $ (.08) $ (.13) ======= ======= ======= ======= Average shares outstanding 11,851 11,737 11,857 11,737 ======= ======= ======= =======
The accompanying Notes to Condensed Consolidated Financial Statements are an integral part of these statements. 3 4 WAXMAN INDUSTRIES, INC. AND SUBSIDIARIES ---------------------------------------- CONDENSED CONSOLIDATED BALANCE SHEETS ------------------------------------- DECEMBER 31, 1996 AND JUNE 30, 1996 (IN THOUSANDS) ASSETS
December 31, June 30, 1996 1996 (Unaudited) (Audited) ----------- --------- CURRENT ASSETS: Cash $ 2,154 $ 2,460 Accounts receivable, net 39,987 37,226 Inventories 64,916 59,883 Prepaid expenses 3,106 4,096 ------- ------- Total current assets 110,163 103,665 -------- ------- PROPERTY AND EQUIPMENT: Land 1,483 1,393 Buildings 12,449 11,842 Equipment 27,532 23,090 ------- ------- 41,464 36,325 Less accumulated depreciation and amortization (20,545) (18,597) ------- ------- Property and equipment, net 20,919 17,728 COST OF BUSINESSES IN EXCESS OF NET ASSETS ACQUIRED, NET 13,112 13,318 UNAMORTIZED DEBT ISSUANCE COSTS, NET 4,753 5,008 OTHER ASSETS 3,279 2,918 ------- ------- $152,226 $142,637 ======= =======
The accompanying Notes to Condensed Consolidated Financial Statements are an integral part of these statements. 4 5 WAXMAN INDUSTRIES, INC. AND SUBSIDIARIES ---------------------------------------- CONDENSED CONSOLIDATED BALANCE SHEETS ------------------------------------- DECEMBER 31, 1996 AND JUNE 30, 1996 (IN THOUSANDS, EXCEPT PER SHARE AMOUNTS) LIABILITIES AND STOCKHOLDERS' EQUITY
December 31, June 30, 1996 1996 (Unaudited) (Audited) ----------- --------- CURRENT LIABILITIES: Current portion of long-term debt $ 18,342 $ 10,972 Accounts payable 28,691 28,607 Accrued liabilities 8,351 11,929 Accrued interest 1,860 1,441 -------- -------- Total current liabilities 57,244 52,949 -------- -------- LONG-TERM DEBT, NET OF CURRENT PORTION 781 863 SENIOR SECURED DEFERRED COUPON NOTES 66,973 62,723 SENIOR NOTES 43,026 43,026 SENIOR SUBORDINATED NOTES 5,724 5,724 MINORITY INTEREST IN CONSOLIDATED AFFILIATE 23,463 20,606 STOCKHOLDERS' EQUITY: Preferred stock, $.01 par value per share: Authorized and unissued 2,000 shares - - Common Stock, $.01 par value per share: Authorized 22,000 shares; Issued 9,704 at December 31, 1996 and 9,693 at June 30, 1996 97 96 Class B common stock, $.01 par value per share: Authorized 6,000 shares; Issued 2,153 at December 31, 1996 and at June 30, 1996 22 22 Paid-in capital 21,442 21,419 Retained deficit (66,226) (64,503) ------- ------- (44,665) (42,966) Cumulative currency translation adjustments (320) (288) ------- ------- Total stockholders' equity (deficit) (44,985) (43,254) ------- ------- $152,226 $142,637 ======= =======
The accompanying Notes to Condensed Consolidated Financial Statements are an integral part of these statements. 5 6 WAXMAN INDUSTRIES, INC. AND SUBSIDIARIES ---------------------------------------- CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS ----------------------------------------------- (UNAUDITED) FOR THE SIX MONTHS ENDED DECEMBER 31, 1996 AND 1995 (IN THOUSANDS)
1996 1995 ---- ---- CASH FLOWS FROM OPERATING ACTIVITIES: - ------------------------------------- Net loss $ (1,723) $(11,698) Adjustments to reconcile net loss to net cash (used in) provided by operating activities: Cumulative effect of change in accounting - 8,213 Minority interest in consolidated affiliate 2,857 - Non-cash interest 4,125 3,770 Depreciation and amortization 2,534 2,707 Changes in assets and liabilities: Accounts receivable, net (2,760) (173) Inventories (5,034) 5,117 Prepaid expenses 629 (942) Accounts payable 84 (34) Accrued liabilities (3,159) (1,859) Other items, net (32) (100) ------- -------- Net Cash (Used in) Provided by Operating Activities (2,479) 5,001 -------- ------- CASH FLOWS FROM INVESTING ACTIVITIES: - ------------------------------------- Capital expenditures, net (5,139) (2,120) ------- ------- Net Cash Used in Investing Activities (5,139) (2,120) ------- ------- CASH FLOWS FROM FINANCING ACTIVITIES: - ------------------------------------- Borrowings under credit agreements 62,214 56,816 Repayments under credit agreements (54,844) (59,588) Repayments of long-term debt (82) (218) Issuance of common stock 24 25 --------- -------- Net Cash Provided by (Used in) Financing Activities 7,312 (2,965) -------- -------- NET DECREASE IN CASH (306) (84) BALANCE, BEGINNING OF PERIOD 2,460 2,106 ------- ------- BALANCE, END OF PERIOD $ 2,154 $ 2,022 ======= =======
The accompanying Notes to Condensed Consolidated Financial Statements are an integral part of these statements. 6 7 WAXMAN INDUSTRIES, INC. AND SUBSIDIARIES ---------------------------------------- NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS ---------------------------------------------------- (UNAUDITED) DECEMBER 31, 1996 NOTE 1 - BASIS OF PRESENTATION --------------------- The condensed consolidated financial statements include the accounts of Waxman Industries, Inc. ("Waxman"), its wholly owned subsidiaries and its affiliate, Barnett Inc. (collectively, the "Company"). Waxman USA Inc., a wholly owned subsidiary of Waxman ("Waxman USA") owns approximately 49.9% of the voting capital stock of Barnett Inc. ("Barnett") and, together with non-voting preferred stock of Barnett Inc. owned by Waxman USA, approximately 54% of the capital stock of Barnett. The condensed consolidated statements of operations for the six and three months ended December 31, 1996 and 1995, the condensed balance sheet as of December 31, 1996 and the condensed statements of cash flows for the six months ended December 31, 1996 and 1995 have been prepared by the Company without audit, while the condensed balance sheet as of June 30, 1996 was derived from audited financial statements. In the opinion of management, these financial statements include all adjustments, all of which are normal and recurring in nature, necessary to present fairly the financial position, results of operations and cash flows of the Company as of December 31, 1996 and for all periods presented. Certain information and footnote disclosures normally included in financial statements prepared in accordance with generally accepted accounting principles have been condensed or omitted. The Company believes that the disclosures included herein are adequate and provide a fair presentation of interim period results. Interim financial statements are not necessarily indicative of financial position or operating results for an entire year. These condensed interim financial statements should be read in conjunction with the audited financial statements and the notes thereto included in the Company's Annual Report on Form 10-K, as amended by an amendment thereto on Form 10K/A1, for the fiscal year ended June 30, 1996 filed with the Securities and Exchange Commission. NOTE 2 - BUSINESS -------- The Company believes that it is a leading supplier to the home repair and remodeling market in the United States. Primarily through its indirect wholly owned subsidiaries, Waxman Consumer Products Group Inc. ("Consumer Products"), WOC Inc. ("WOC"), and TWI International, Inc. ("TWI") and its affiliate Barnett, the Company markets and distributes a broad range of plumbing, electrical and hardware products to over 56,000 customers in the United States, including do-it-yourself warehouse home centers, home improvement centers, mass merchandisers, hardware stores, lumberyards and to plumbing and electrical repair and remodeling contractors, independent hardware stores and maintenance managers. NOTE 3 - INCOME TAXES ------------ The Company accounts for income taxes in accordance with the provisions of Statement of Financial Accounting Standards No. 109, "Accounting for Income Taxes" (SFAS 109). The Company is currently unable to recognize any income tax benefit relating to its net loss. The tax provision for the six and three month periods ended December 31, 1996 represents Barnett's tax provision and a provision for state and foreign taxes. At June 30, 1996, the Company had approximately $54.3 million of available domestic net operating loss carryforwards which will expire between 2008 and 2011. The benefit of these net operating loss carryforwards has been reduced 7 8 100% by a valuation allowance. The Company will continue to evaluate the valuation allowance and to the extent that the Company is able to recognize tax benefits in the future, such recognition will favorably affect future results of operations. The Company also has alternative minimum tax carryforwards of approximately $663,000 at June 30, 1996 which are available to reduce future regular income taxes over an indefinite period. As a result of the Barnett Public Offering (as defined below), Barnett is no longer included in the Company's consolidated tax return. Therefore, the Company's remaining net operating loss carryforwards are not available to offset Barnett's taxable income. NOTE 4 - IMPACT OF NEW ACCOUNTING STANDARDS ---------------------------------- In October 1995, the Financial Accounting Standards Board issued SFAS No. 123, "Accounting for Stock-Based Compensation," which establishes new accounting standards for the measurement and recognition of stock-based awards. SFAS No. 123 permits entities to continue to use the traditional accounting for stock-based awards prescribed by APB Opinion No. 25, "Accounting for Stock Issued to Employees," however, under this option, the Company will be required to disclose the pro forma effect of stock-based awards on net income and earnings per share as if SFAS No. 123 had been adopted. SFAS No. 123 is effective in fiscal 1997. The Company intends to continue using the provisions of APB Opinion No. 25 to account for stock-based awards. NOTE 5 - BARNETT ------- In April 1996, Barnett completed an initial public offering (the "Barnett Public Offering") of its common stock (the "Barnett Common Stock"). In the offering, 7,207,200 shares, representing approximately 55.1% of the Barnett Common Stock, were sold in the aggregate by Barnett and Waxman USA Inc., a direct wholly owned subsidiary of Waxman, at an initial public offering price per share of $14.00. Since the consummation of the Barnett Public Offering, the cash flow generated by Barnett is no longer available to the Company other than the amounts paid to the Company for services, or the pro rata amounts, if any, distributed by Barnett in the form of a common stock dividend. The Company consolidates Barnett's financial results and records a charge on its statement of operations for the net income related to the outside stockholders' common stock interest. NOTE 6 - SUPPLEMENTAL CASH FLOW INFORMATION ---------------------------------- Cash payments during the six months ended December 31, 1996 and 1995 included income taxes of $4.8 million and $.5 million and interest of $3.1 million and $8.8 million, respectively. For the three months ended December 31, 1996 and 1995, cash payments for income taxes amounted to $3.4 million and $.3 million and interest of $.8 million and $5.0 million, respectively. NOTE 7 - EARNINGS PER SHARE ------------------ Earnings per share are calculated by dividing net income by the weighted average number of shares of common stock and common stock outstanding. The number of shares of common stock used to calculate primary and fully diluted earnings per share are as follows: Year-to-Date Quarter ------------ ------- December 31, 1996 - 11,851,000 11,857,000 December 31, 1995 - 11,737,000 11,737,000 8 9 ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL ------------------------------------------------- CONDITION AND RESULTS OF OPERATIONS ----------------------------------- A. RESULTS OF OPERATIONS FOR THE SIX MONTHS AND THREE MONTHS ENDED DECEMBER 31, 1996 AND 1995. RESULTS OF OPERATIONS - --------------------- This Quarterly Report contains certain forward-looking statements within the meaning of the Private Securities Litigation Reform Act of 1995 including, without limitation, statements regarding the Company's customer base and the sufficiency of the Company's liquidity and sources of capital. These forward-looking statements are subject to certain risk, uncertainties and other factors which could cause actual results to differ materially. Additional information regarding these and other factors that could potentially affect the Company or its financial results may be included in the Company's filings with the Securities and Exchange Commission. Waxman USA owns 49.9% of the common stock of and, together with its preferred shares, a 54% economic interest in Barnett. Barnett's results are consolidated with the Company's and the Company records a charge in its statement of operations for the net income related to the outside stockholder's common stock interest. NET SALES - --------- Consolidated net sales for the six months and second fiscal quarter ended December 31, 1996 amounted to $134.0 million and $68.1 million, as compared to $116.9 million and $59.3 million for the comparable periods last year, respectively. The increases of 14.6% for the six months and 14.8% for the quarter are primarily attributable to the increase in Barnett's net sales and a smaller increase at the Company's wholly owned operations. Barnett's net sales of $76.4 million and $39.9 million for the six months and quarter ended December 31, 1996 represent increases of 26.2% and 28.2% over the comparable periods last year. The increases are primarily attributable to continued expansion and development of its telesales operations and 1,053 new product introductions during the preceding twelve month period. Net sales for the Company's wholly owned operations amounted to $57.6 million and $28.2 million for the six months and quarter ended December 31, 1996, respectively, an increase of $1.2 million or 2.1% for the six months and $0.5 million or 2.0% for the three months ended December 31, 1996. The Company's operations have benefited from their strengthened financial condition which has created additional market opportunities as well as increased direct selling activities from the Company's foreign operations and an improved economic environment for certain of the Company's products. The Company's Consumer Products' operation experienced net sales decreases of 4.4% for the six months and 4.7% for the quarter ended December 31, 1996. The reduction was primarily the result of the discontinuance of the electrical products' line and certain lower margin products in the fourth quarter of fiscal 1996 and the loss of a customer due to its bankruptcy early in the first quarter of fiscal 1997. GROSS PROFIT - ------------ For the six months ended December 31, 1996, gross profit increased $7.0 million or 17.5% to $46.8 million from $39.8 million for the comparable period last year. Gross margins increased for the six months ended December 31, 1996 improving, to 34.9% from 34.0% last year. The Company's wholly owned operations' gross margin improved to 36.1% for the current six month period as compared to 34.7% last year. There was a general improvement at nearly all of 9 10 the Company's operations. The largest improvement was at the Consumer Products' operation, where gross profit margins improved from 34.6% to 36%, primarily due to the discontinuance of lower margin products. Gross profit for the quarter ended December 31, 1996 amounted to $23.9 million, an increase of $3.6 million or 18% over the $20.2 million in the comparable period last year. The gross margin for the current year's second quarter was 35.1% as compared to 34.1% last year. The Company's wholly owned operations reported gross margin of 36.3% for the three months ended December 31, 1996 as compared to 34.6% last year. SELLING, GENERAL AND ADMINISTRATIVE EXPENSES - -------------------------------------------- Selling, general and administrative ("SG&A") expenses for the six months ended December 31, 1996 and 1995 amounted to $33.4 million or 24.9% of consolidated net sales and $29.8 million or 25.5% of consolidated net sales, respectively. For the Company's wholly owned operations, there was a general decrease of $.4 million in SG&A expenses and, as a percent of net sales, SG&A expenses amounted to 30.2% and 28.9% for the six months ended December 31, 1995 and 1996, respectively. Barnett's SG&A expenses increased by $3.9 million to $16.7 million for the six months ended December 31, 1996, a slight increase when expressed as a percentage of net sales. Barnett's increase was attributable to the expansion of its telesales operations which resulted in increased training expenses and also to Barnett's establishment of a same day shipping policy to benefit its customers. For the quarters ended December 31, 1996 and 1995, SG&A expenses amounted to $17.0 million and $15.0 million, or 25% and 25.3% of consolidated net sales, respectively. SG&A expenses for the Company's wholly owned operations amounted to $8.3 million, or a 1.7% decrease for the quarter ended December 31, 1996 as compared to $8.6 million for the same quarter last year. The increase in net sales, coupled with the slight decrease in expenses at the Company's wholly owned operations resulted in an overall improvement in the ratio of expenses to consolidated net sales. INTEREST EXPENSE - ---------------- Interest expense for the six months ended December 31, 1996 and 1995 amounted to $8.2 million and $13.3 million, respectively. Interest expense amounted to $4.2 million for the second quarter of fiscal 1997 as compared to $6.7 million in the comparable period last year. The reduction of interest is due mainly to the repayment of indebtedness with the net proceeds from the April 1996 initial public offering of Barnett (a former wholly owned subsidiary). Average borrowings for the current year's six month period amounted to $129.7 million, with an average interest rate of 11.8%, as compared to $206.1 million of debt with an average interest rate of 12.2% last year. PROVISION FOR INCOME TAXES - -------------------------- The provision for income taxes for the six months ended December 31, 1996 and 1995 amounted to $4.0 million and $.2 million, respectively. For the second quarter of fiscal 1997, the provision for income taxes amounted to $2.1 million as compared to $46,000 in the comparable period last year. For the fiscal 1997 six months and quarter, the provision for taxes primarily represents Barnett's tax provision and state and foreign taxes of the Company's wholly owned operations. The difference between the effective and statutory tax rates is primarily due to the domestic losses not benefited and goodwill amortization. With the completion of the Barnett Public Offering, Barnett is no longer included in the consolidated tax return of the Company and is unable to benefit from the Company's net operating loss carryforwards. In accordance 10 11 with the provisions of SFAS No. 109, the Company is unable to benefit its losses in the current year. MINORITY INTEREST IN CONSOLIDATED AFFILIATE - ------------------------------------------- The Company recorded a charge of $2.9 million and $1.5 million, respectively, for the six months and quarter ended December 31, 1996 for the 50.1% of Barnett's net income associated with the outside stockholders' common stock interest. CUMULATIVE EFFECT OF CHANGE IN ACCOUNTING - ----------------------------------------- Effective July 1, 1995, the Company changed its method of accounting for the cost of obtaining long term business. These costs represent the amount paid in connection with a customer's commitment to purchase products from the Company for a specified period. Prior to this change, the Company capitalized the consideration paid to the new or existing customer (i) for the right to supply such customer for a specified period and (ii) to purchase competitor's merchandise that the customer has on hand when it changes suppliers, less the salvage value received by the Company. These costs were then amortized over the period deemed to be benefited. The Company's new policy is to amortize these costs in the fiscal year incurred due to the uncertainty of today's competitive retail environment. The cumulative effect of this change on prior years of $8.2 million, without tax benefit, is reported as a separate charge in the first quarter of fiscal 1996. NET LOSS - -------- The Company's net loss for the six months and quarter ended December 31, 1996 amounted to $1.7 million and $.9 million or $.15 and $.08 per share, respectively which is an improvement over the loss of $3.5 million and $1.5 million or $.30 per share and $.13 per share in the corresponding prior year periods, before the cumulative effect of the change in accounting in the six months of fiscal 1996 discussed above. In the first quarter of fiscal 1996, the Company also recorded a charge for the cumulative effect of the change in accounting of $8.2 million, or $.70 per share. B. LIQUIDITY AND CAPITAL RESOURCES ------------------------------- At December 31, 1996, the Company had $13.2 million available under its credit agreement with BankAmerica Business Credit, Inc. (the "Credit Agreement"). The Credit Agreement, which expires in May 1999, contains certain covenants and restrictions, including a material adverse effect clause and the requirement to maintain cash collateral accounts. Accordingly, borrowings under the Credit Agreement have been classified as a current liability. The Company was in compliance with all loan covenants at December 31, 1996. At December 31, 1996, the Company had working capital of $52.9 million and a current ratio of 1.9 to 1. The Company relies primarily on Consumer Products for cash flow because Barnett's cash flow is no longer available to the Company with the completion of the Barnett Public Offering. Consumer Products' customers include do-it-yourself warehouse centers, home improvement centers, mass merchandisers, hardware stores and lumberyards. Consumer Products may be adversely affected by prolonged economic downturns or significant declines in consumer spending. There can be no assurances that any such prolonged economic downturns or significant declines in consumer spending would not have a material adverse impact on the Consumer Products' business and its ability to generate cash flow. Furthermore, Consumer Products' largest customer, Kmart and its subsidiary, Builders Square, historically have accounted for approximately 42% to 44% of Consumer Products' total net sales. The Company has been advised by Kmart that it recently conducted a review of its supply arrangements with its 11 12 suppliers of plumbing and hardware products, including Consumer Products, and has determined it will utilize Consumer Product as a vendor. As a result, Consumer Products believes it will retain all of its Kmart business. However, all large merchandisers review supply arrangements from time to time and there can be no assurance that this relationship will continue or as to the terms of any relationship that does continue. Furthermore, Kmart has stated that it intends to sell its Builders Square business, which accounted for 24.8%, 24.7%, and 23.2% of Consumer Products' net sales in fiscal 1996, fiscal 1995 and the six months ended December 31, 1996. Kmart issued a press release on February 3, 1997, stating that it was negotiating to sell the Builders Square business to Home Base, a leading regional warehouse home center, which is not and has not been a customer of Consumer Products. Although, Kmart recently completed a review of its and Builders Square's vendor relationships, it is likely that any purchaser of Builders Square would conduct a similar review. In the event Consumer Products were to either lose Kmart or Builders Square as a customer or Kmart or Builders Square were to significantly curtail its purchases from Consumer Products, there would be material short-term adverse effects until the Company could modify Consumer Products' cost structure to be more in line with its reduced revenue base. The Company does not have any commitments to make substantial capital expenditures. In furtherance of the Company's ongoing efforts to increase its liquidity and improve its capital structure, Waxman USA recently completed a private exchange offer pursuant to which it exchanged an aggregate of $4.8 of Waxman 13 3/4% Senior Subordinated Notes due June 1999 for a like amount of Waxman USA's 11 1/8% Senior Notes due 2001. As a result, there now remains outstanding $.9 of Senior Subordinated Notes. The Company is continuing to review other business strategies for reducing its leverage. The Company believes that the funds generated from operations, along with the funds available under the Credit Agreement (and any refinancing thereof), will be sufficient to satisfy the Company's liquidity requirements until December 1, 1999 (the date that the cash interest becomes payable by the Company under the Deferred Coupon Notes). The Company does not anticipate that available cash flow from operations will be sufficient to pay cash interest on the Deferred Coupon Notes commencing in December 1999. Therefore, the Company expects to repay or refinance such debt in or prior to December 1999. DISCUSSION OF CASH FLOWS - ------------------------ Net cash used by the Company's operations was $2.5 million for the six months ended December 31, 1996, due mainly to increases in inventories and accounts receivable and a decrease in accruals (principally accrued income tax and accrued interest payments) which were partially offset by an increase in accounts payable. Cash flow used for investments totaled $5.1 million, primarily relating to Barnett's operations, including capital expenditures for improved management information systems, the buy-out of an operating lease incurred in prior years and expansion and/or relocation of several of Barnett's distribution centers to accommodate new product offerings. Cash flow from financing totaled $7.3 million. Net debt borrowings during the six months ended December 31, 1996 under the Credit Agreement totaled $7.4 million. 12 13 PART II. OTHER INFORMATION ----------------- ITEM 5. OTHER INFORMATION ----------------- ITEM 6. EXHIBITS AND REPORTS ON FORM 8-K -------------------------------- a) See Exhibit 27. b) Reports on Form 8-K The Registrant did not file any reports on Form 8-K during the quarter ended December 31, 1996. All other items in Part II are either inapplicable to the Company during the quarter ended December 31, 1996, the answer is negative or a response has been previously reported and an additional report of the information need not be made, pursuant to the instructions to Part II. SIGNATURES ---------- Pursuant to the requirements of the Securities Exchange Act of 1934, as amended, the registrant has duly caused this report to be signed on its behalf by the undersigned thereunto duly authorized. WAXMAN INDUSTRIES, INC. ----------------------- REGISTRANT DATE: FEBRUARY 10, 1997 BY: /s/ MARK W. WESTER MARK W. WESTER VICE PRESIDENT-FINANCE (PRINCIPAL FINANCIAL AND ACCOUNTING OFFICER) 13 14 EXHIBIT INDEX ------------- EXHIBIT PAPER (P) OR - ------- ------------ NUMBER DESCRIPTION ELECTRONIC (E) - ------ ----------- -------------- (27) Financial Data Schedule (submitted to the Securities and Exchange Commission in Electronic Format) E 14 EX-27 2 EXHIBIT 27
5 1,000 6-MOS JUN-30-1997 JUL-01-1996 DEC-31-1996 2,154 0 42,332 (2,345) 64,916 110,163 41,464 20,545 152,226 57,244 116,504 119 0 0 (45,125) 152,226 133,988 133,988 87,217 33,352 0 0 8,246 5,173 4,039 1,134 0 0 0 (1,723) (.15) (.15)
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