WAXMAN INDUSTRIES INC - 10-K Annual Report

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712
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549

FORM 10-K

X ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(D)
- - ----- OF THE SECURITIES EXCHANGE ACT OF 1934

FOR THE FISCAL YEAR ENDED JUNE 30, 1995
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,
BEDFORD HEIGHTS, OHIO 44146
(ADDRESS OF PRINCIPAL EXECUTIVE OFFICES) (ZIP CODE)

(216) 439-1830
(REGISTRANT'S TELEPHONE NUMBER INCLUDING AREA CODE)

SECURITIES REGISTERED PURSUANT TO SECTION 12(B) OF THE ACT:

(NAME OF EACH
(TITLE OF EACH CLASS) EXCHANGE ON WHICH REGISTERED)
--------------------- -----------------------------
Common Stock, $.01 par value New York Stock Exchange
Chicago Stock Exchange

SECURITIES REGISTERED PURSUANT TO SECTION 12(G) 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 nonaffiliates of the
registrant based on the closing price at which such stock was sold on the New
York Stock Exchange on September 22, 1995: $9,041,669

Number of shares of Common Stock outstanding as of September 22, 1995:

Common Stock 9,497,083
Class B Common Stock 2,215,079
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DOCUMENTS INCORPORATED BY REFERENCE

Registrant intends to file with the Securities and Exchange Commission
a definitive Proxy Statement pursuant to Regulation 14A of the Securities
Exchange Act of 1934 within 120 days of the close of its fiscal year ended June
30, 1995, portions of which document shall be deemed to be incorporated by
reference in Part I and Part III of this Annual Report on Form 10-K from the
date such document is filed.

The Company consists of Waxman Industries, Inc. and its wholly-owned
subsidiaries.

PART I

ITEM 1. BUSINESS

GENERAL

The Company believes that it is one of the leading suppliers of
plumbing products to the repair and remodeling market in the United States.
The Company distributes plumbing, electrical and hardware products, to over
49,000 customers in the United States, including, plumbing and electrical
repair and remodeling contractors and independent retailers. The Company's
consolidated net sales from continuing operations were $156.0 million in fiscal
1995.

The Company conducts its business primarily through its wholly-owned
subsidiary, Barnett Inc. ("Barnett"). Barnett is a national mail order
telemarketing business which markets an extensive line of over 9,200 plumbing,
electrical and hardware products to over 35,000 active customers. Through its
nationwide network of warehouses, Barnett provides its customers with a single
source for an extensive line of competitively priced quality products. The
Company's strategy of being a low-cost supplier is facilitated by its purchase
of a significant portion of its products from foreign sources. Based on
management's experience and knowledge of the industry, the Company believes
that Barnett is the only national competitor in this business. Due to its
size, purchasing power and foreign sourcing capabilities, Barnett has a number
of distinct competitive advantages including (i) the ability to offer prices
generally lower than those of its regional competition, (ii) the ability to
offer higher margin private label products which offer customers a low cost
alternative to name-brand products, and (iii), in virtually all cases, 24-hour
order turnaround. Barnett's marketing strategy is comprised of frequent
catalog and promotional mailings, supported by a 24-hour telemarketing
operation. Barnett has averaged 15% net sales growth per annum during the
period from fiscal 1991 to fiscal 1995 through (i) the enhancement and
expansion of its telemarketing operation, (ii) increased market penetration
with the expansion of its warehouse network, (iii) the introduction of new
product offerings and (iv) the introduction of two additional catalogs, each
targeted at a distinct customer base. Barnett's net sales for fiscal 1995 were
$109.1 million.

The Company also has several other smaller operations which are
conducted through its other subsidiaries, WOC Inc. ("WOC") and TWI,
International, Inc. ("TWI"). WOC includes four operations, the largest of
which are U.S. Lock ("U.S. Lock") - a distributor of a full line of security
hardware products, and LeRan Copper & Brass ("LeRan") - a supplier of copper
tubing, brass fittings and other related products. TWI includes the foreign
sourcing operations which support Barnett and WOC as well as the Company's
discontinued Consumer Products Group Inc. ("Consumer Products") subsidiary.
Net sales from these other operations were $46.9 million in fiscal 1995.

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CORPORATE RESTRUCTURING AND REORGANIZATION

During fiscal 1994, the Company restructured (the "Corporate
Restructuring") its domestic operations such that the Company is now a holding
company whose only material assets are the capital stock of its subsidiaries.
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) Consumer Products, a wholly
owned subsidiary of Waxman USA, to own and operate Consumer Products Group
Division, and (c) 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 its
Madison Equipment Division to WOC, (iv) contributing the assets and liabilities
of its Medal Distributing Division to WOC, (v) merging U.S. Lock Corporation
("U. S. Lock") and LeRan, each a wholly owned subsidiary of the Company, into
WOC, (vi) contributing the capital stock of TWI to Waxman USA and (vii)
contributing the capital stock of Western American Manufacturing, Inc. ("WAMI")
to TWI. The "Operating Companies" consist of Barnett, Consumer Products and
WOC. This restructuring was accounted for based upon each entities historical
carrying amounts with no impact on the accompanying consolidated financial
statements.

DISCONTINUED OPERATIONS - WAXMAN CONSUMER PRODUCTS GROUP INC.

On August 29, 1995, the Company announced its decision to sell its
Consumer Products business in order to enhance the Company's capital structure
and allow the Company to focus on its fast growing Barnett mail order and
telemarketing business. Consumer Products markets and distributes its products
to mass merchandisers and large D-I-Y retailers while Barnett's focus is
directed primarily to repair and remodeling contractors and independent
retailers. Accordingly, Consumer Products is reported as a discontinued
operation and the consolidated financial statements have been reclassified to
report separately Consumer Products net assets and results of operations.
Prior period consolidated financial statements have been reclassified to
conform with the current period presentation. During the fourth quarter of
fiscal 1995, the Company recorded an $11.0 million charge, without tax benefit,
which represents the expected loss to be incurred upon completion of the sale.
See Note 3 to Notes to Consolidated Financial Statements.

In furtherance of its decision to sell Consumer Products, the Company
has entered into a letter of intent which contemplates the sale of the Consumer
Products business, together with certain supporting operations, to a group
consisting of HIG Capital Management ("HIG") along with certain members of
Consumer Products existing management team for an aggregate cash purchase price
of $50 million plus other consideration which will give the Company a 25%
economic interest in Consumer Products on a going forward basis. The Company
expects that it will account for any remaining interest under the cost method
as the interest it will retain will not allow it to exercise significant
influence over Consumer Products in the future. Such letter of intent,
however, contains certain contingencies including a financing contingency. The
Company intends to continue pursuing the sale of Consumer Products in the event
that the transaction with HIG is not consummated.

Consumer Products markets and distributes approximately 9,400 products
to a wide variety of retailers, primarily D-I-Y warehouse home centers, home
improvement centers, mass merchandisers, hardware stores and lumberyards.
Consumer Products' customers include large national retailers such as Kmart,
Builders Square and Wal-Mart as well as large regional D-I-Y retailers such as
Fred Meyer Inc. According to rankings of the largest D-I-Y retailers published
in National Home Center News, an industry trade publication, Consumer Products'
customers include 15 of the 25 largest D-I-Y retailers in the United States.
Consumer Products works closely with its customers to develop comprehensive
marketing and merchandising programs designed to improve their profitability,
efficiently manage shelf space, reduce inventory levels and maximize floor
stock turnover. Management believes that Consumer Products is the only
supplier to the D-I-Y market that carries a complete line of plumbing,
electrical and floor protective hardware products, in both packaged and

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bulk form. Consumer Products also offers certain of its customers the option
of private label programs. Consumer Products' net sales for fiscal 1995
totaled $72.0 million.

Consumer Products' marketing strategy includes offering mass
merchandisers and D-I-Y retailers a comprehensive merchandising program which
includes design, layout and setup of selling areas. Sales and service
personnel assist the retailer in determining the proper product mix in addition
to designing department layouts to effectively display products and optimally
utilize available floor and shelf space. Consumer Products supplies
point-of-purchase displays for both bulk and packaged products, including
color-coded product category signs and color-coordinated bin labels to help
identify products, and backup tags to signify products that require reordering.
Consumer Products also offers certain of its customers the option of private
label programs for their plumbing and floor care products. In-house design,
assembly and packaging capabilities enable Consumer Products to react quickly
and effectively to service its customers' changing needs. In addition,
Consumer Products' products are packaged and designed for ease of use, with
"how to" instructions included to simplify installation, even for the
uninitiated D-I-Y consumer. Consumer Products' net sales for fiscal 1995 were
$72.0 million.

DISCONTINUED OPERATIONS - IDEAL

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, without advance notice, Ideal's Canadian banks filed
an involuntary bankruptcy petition against Ideal citing defaults under the bank
credit agreements (borrowings under these agreements were non-recourse to
Waxman Industries, Inc.). On May 30, 1994, Ideal was declared bankrupt by the
Canadian courts and, as a result, the Company's ownership and control of Ideal
effectively ceased on such date. Upon petition of Ideal's Canadian lenders, a
trustee was appointed to liquidate the assets of Ideal. The Company has no
liability to the creditors of Ideal as a result of Ideal's bankruptcy.

BARNETT

Barnett markets over 9,200 products to more than 35,000 active
customers through comprehensive quarterly catalogs, supplemented by monthly
promotional flyers and supported by telemarketing operations. Barnett services
its customers, who are primarily plumbing and electrical contractors serving
the repair and remodeling markets, and independent retailers, through its
nationwide network of 28 mail order warehouses. Barnett also distributes a
specialized quarterly catalog of maintenance products (also supplemented by
monthly promotional flyers) that is directed only to customers responsible for
the maintenance of hotels, motels, office buildings, health care facilities and
apartment complexes. The Company believes that this marketing strategy
effectively positions Barnett to continue to expand its customer base and
increase sales to existing customers. Since the maintenance catalog was
introduced in 1992, Barnett has added approximately 9,100 new maintenance
accounts. In January 1995, Barnett introduced a new semi-annual catalog
directed to hardware stores. Barnett's top-ten customers accounted for less
than 6% of the Company's continuing operations' net sales. Barnett's average
sale is $250.

Barnett was acquired by the Company in 1984. Since the acquisition,
Barnett has increased its number of warehouses from three to 28 and the number
of items in its catalog from 2,000 to 9,200. During this period, the number of
active accounts serviced by Barnett increased from 6,000 to over 35,000.
Barnett has added nine warehouses during the last three full fiscal years
including two warehouses in fiscal 1994. Subject to the availability of
working capital, Barnett plans to open two to three warehouses annually for the
next several years. Barnett has been able to maintain its overall operating
margins throughout its expansion.

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Based on management's experience and knowledge of the industry, the
Company believes, in the absence of any applicable statistics, that Barnett is
the only national mail order and telemarketing operation distributing plumbing,
electrical and hardware products in the United States. The Company believes
that Barnett has significant advantages over its regional and national
competitors. Due to its size and volume of purchases, Barnett is able to
obtain purchase terms which are more favorable than those available to its
competition, enabling it to offer prices which are generally lower than those
available from its competitors. In addition to Barnett's competitive pricing
strategy, by offering over 9,200 products, Barnett is able to provide its
customers with a single source of supply for many of their needs.

Marketing and Distribution

Barnett markets its products nationwide principally through regular
catalog and promotional mailings to existing and potential customers, supported
by a telemarketing operation providing 24-hour-a-day, toll-free ordering and a
network of 28 warehouses allowing for delivery to customers generally within
one day of the receipt of an order. The telemarketing operation is utilized to
make telephonic sales presentations to potential customers that have received
written promotional materials and to existing customers, as well as to handle
incoming calls. Barnett's telemarketing operations are centralized in
Jacksonville, Florida.

Catalogs

Barnett's in-house art department produces the design and layout for
its catalogs and promotional mailings, including the quarterly catalog, the
monthly promotional flyers and Barnett's semi-annual catalogs of maintenance
and hardware products. Barnett's catalogs are indexed and illustrated, provide
simplified pricing and highlight new product offerings.

Barnett mails its principal catalog, containing plumbing, electrical
and hardware products, to over 35,000 active customers, including hardware and
building supply stores, lumberyards and plumbing, electrical repair and
remodeling contractors. The quarterly catalog is supplemented by monthly
promotional flyers mailed to approximately 180,000 active and potential
customers. In January 1992, Barnett introduced a new semi-annual catalog of
maintenance products designed to appeal to customers responsible for the
maintenance of hotels, motels, healthcare facilities, office buildings and
apartment complexes. Since the maintenance catalog was introduced in 1992,
Barnett has added approximately 9,100 new maintenance accounts. In January
1995, Barnett introduced a new semi-annual catalog directed to hardware stores.

Barnett makes its initial contact with potential customers primarily
through promotional flyers. Barnett obtains the names of prospective customers
through the rental of mailing lists from outside marketing information services
and other sources. Barnett uses sophisticated proprietary information systems
to analyze the results of individual catalog and promotional flyer mailings and
uses the information derived from these mailings to target future mailings.
Barnett updates its mailing lists frequently to delete inactive customers.

Telemarketing

Barnett's telemarketing operation has been designed to make ordering
its products as convenient and efficient as possible. Barnett offers its
customers a nationwide toll-free telephone number which accepts orders on a
24-hour-a-day basis. Calls are handled by members of Barnett's well-trained
staff of 60 telemarketers who utilize Barnett's proprietary, on-line order
processing system. This system provides the telemarketing staff with access to
information about products, pricing and promotions which enables them to better
serve the customer. Barnett's telemarketing staff handles approximately 2,000
incoming calls per day.

After an order is received, a computer credit check is performed and
if credit is approved, the order is transmitted to the warehouse located
nearest the customer and is shipped within 24 hours, in almost all cases.

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In addition to receiving incoming calls, Barnett's telemarketing
operations are also utilized to make telephonic sales presentations to both
potential and existing customers. Also, for several months prior to the
opening of new mail order warehouses, Barnett utilizes its telemarketing
operations to generate awareness of Barnett, its product offerings and the
upcoming opening of new mail order warehouses located near the target
customers.

Barnett's current focus has been on expanding its telemarketing staff.
Barnett has over 600,000 prospective customers and the Company believes that by
increasing the number of telemarketers it is able to access these potential
customers in a cost effective manner.

Barnett's telemarketing operations and information systems provide its
management with current market information such as customer purchasing patterns
and purchases, competitive pricing data, and potential new products. This
information allows Barnett to quickly react to and capitalize on business
opportunities.

Warehouses

Barnett currently has four warehouses in Texas, three in Florida and
two in each of Pennsylvania, New York and California. The remaining 15
warehouses are dispersed among an equal number of states. Barnett's warehouses
are located in areas meeting certain criteria for overall population and
potential customers. Typical warehouses have approximately 15,000 to 18,000
square feet of space of which up to 600 square feet are devoted to
over-the-counter sales. Barnett has initiated a program to enlarge product
displays in the counter area of the warehouses in order to display the breadth
of its expanding product line.

Barnett's experience indicates that customers prefer to order from
local suppliers and that many local tradespeople prefer to pick up their orders
in person rather than to have them delivered. Therefore, Barnett intends to
continue the expansion of its warehouse network in order to reduce the distance
between it and the customer. For the year ended June 30, 1995, approximately
22% of Barnett's net sales were picked up by Barnett's customers.

The factors considered in site selection include the number of
prospective customers in the local target area, the existing sales volume in
such area and the availability and cost of warehouse space, as well as other
demographic information. From its experience in opening 25 new warehouses since
its acquisition by the Company, Barnett has gained substantial expertise in
warehouse site selection, negotiating leases, reconfiguring space to suit its
needs, and stocking and opening new warehouses. The average investment
required to open a warehouse is approximately $500,000, including approximately
$250,000 for inventory.

Products

Barnett markets an extensive line of over 9,200 plumbing, electrical
and hardware products, many of which are sold under its proprietary trade names
and trademarks. This extensive line of products allows Barnett to serve as a
single source supplier for many of its customers. Since the beginning of the
current fiscal year, Barnett has added approximately 700 new products,
including a new line of builders' hardware and light bulbs. Many of these
products are higher margin products bearing Barnett's proprietary trade names
and trademarks. Barnett tracks sales of new products the first year they are
offered and new products that fail to meet specified sales criteria are
discontinued. Barnett believes that its customers respond favorably to the
introduction of new product lines in areas that allow the customers to realize
additional cost savings and to utilize Barnett's catalogs as a means of
one-stop shopping for many of their needs.

In an effort to further increase profitability and to further enhance
Barnett's reputation as a leading supplier of plumbing, electrical and hardware
products, Barnett is increasing the number of its higher margin product
offerings bearing its proprietary trade names and trademarks. Proprietary
products offer customers high quality, lower cost alternatives to the brand
name products Barnett

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sells. Barnett's catalogs and monthly promotional flyers emphasize the
comparative value of such items. Barnett's products are generally covered by a
one year warranty, and returns (which require prior authorization from Barnett)
have historically been immaterial in amount.

The following is a discussion of Barnett's principal product groups:

Plumbing Products. Barnett's plumbing products include faucets and
faucet parts, sinks, disposals, vanities and cabinets, tub and shower
accessories, and toilets and toilet tank repair items. Barnett's plumbing
products are sold under its proprietary Premier(TM) and Regent(TM) trademarks.
Barnett also sells branded products of leading plumbing manufacturers.

Electrical Products. Barnett's electrical products include such items
as light bulbs, light fixtures, circuit panels and breakers, switches and
receptacles, wiring devices, chimes and bells, telephone and audio/video
accessories and various appliance repair items. Certain of Barnett's
electrical products are sold under its own proprietary trademarks, such as
Premier(TM) light bulbs, and the proprietary trademarks of leading manufacturers
of electrical supplies.

Hardware Products. Barnett sells a broad range of hardware products,
including hand tools and power tools, patio and closet door repair accessories,
security hardware, window hardware, paint supplies, fasteners, safety
equipment, cleaning supplies, garden hoses and sprinklers. Certain of
Barnett's hardware products are sold under its own proprietary Legend(TM)
trademark.

OTHER OPERATIONS

The Company has several other operations, which are conducted through
WOC and TWI. These operations, which in the aggregate generated net sales in
fiscal 1995 of $46.9 million, accounted for approximately 30% of the net sales
from the Company's continuing operations during the period. The most
significant of these operations are U.S. Lock, a supplier of security hardware
products, and LeRan, a supplier of copper tubing and specialty plumbing
products. U. S. Lock and LeRan, as well as Madison Equipment and Medal
Distributing, are operated as separate divisions of WOC. TWI includes the
foreign sourcing operations which support the Company's continuing operations
as well as Consumer Products.

U.S. Lock

U.S. Lock, which was acquired by the Company in 1988, carries a full
line of security hardware products, including locksets, door closers and
locksmith tools. Many of these products are sold under the U.S. Lock(R) and
Legend(TM) trademarks. U.S. Lock markets and distributes its products
primarily to locksmiths through a telemarketing sales team. U.S. Lock's
telemarketing effort is supplemented with a catalog that is mailed annually to
5,600 existing customers and promotional flyers. Since its acquisition by the
Company, U.S. Lock has increased its number of warehouses from one to four,
three of which are shared with Barnett. Shared facilities allow the Company to
realize additional efficiencies by consolidating space requirements and
reducing personnel costs.

LeRan

LeRan, which was acquired by the Company in 1985, is a supplier of
copper tubing and fittings, brass valves and fittings, malleable fittings and
related products. Its customers include liquid petroleum gas dealers,
lumberyards, plumbing and mechanical contractors and D-I-Y retailers. LeRan
markets its products primarily through salesmen and outside service
representative organizations. These efforts are supported by a catalog, which
is mailed semiannually to 6,400 existing customers, monthly promotional flyers
and a telemarketing program. LeRan currently services its customers from four
regional warehouses, one of which is shared with Barnett.

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Other

WOC's other operations also include its Madison Equipment division, a
supplier of electrical products, and its Medal Distributing division, a
supplier of hardware products.

PURCHASING

For the year ended June 30, 1995, products purchased overseas, primarily from
Taiwan, accounted for approximately 19.8% of the total product purchases made
by the Company's continuing operations.

TWI, through its subsidiaries, operates the Taiwan and Mainland China
facilities, which serve as sourcing and consolidation points for the Company's
continuing operations. In addition, these facilities assemble and package
plumbing and electrical products for Consumer Products which is currently being
treated as a discontinued operation. In addition, the facility in Mainland
China manufactures and packages plastic floor protective hardware. The Company
believes that these facilities give it competitive advantages, in terms of cost
and flexibility in sourcing. Both labor and physical plant costs are
significantly below those in the United States. The letter of intent relating
to the sale of Consumer Products provides for the sale of 50% of the Orient
operations to HIG.

During fiscal 1991, the Company purchased Western American
Manufacturing Inc. ("WAMI"), a small manufacturer of plumbing pipe nipples in
Tijuana, Mexico. Pipe nipples are short lengths of pipe from 1/2 of an inch
to 6 feet long, threaded at each end. As a result of this acquisition, the
Company is vertically integrated in the manufacture and distribution of pipe
nipples. Since the acquisition, in order to take advantage of lower labor
costs, the Company has relocated certain of its United States packaging
operations to TWI's WAMI subsidiary in Mexico. The letter of intent relating
to the sale of Consumer Products provides that such packaging operations will
be sold along with Consumer Products.

Substantially all of the other products purchased by the Company are
manufactured for it by third parties. The Company estimates that it purchases
products and materials from over approximately 1,200 suppliers and is not
dependent on any single unaffiliated supplier for any of its requirements.

The following table sets forth the approximate percentage of net sales
from continuing operations attributable to the Company's principal products
groups:

1995 1994 1993
----- ----- -----

Plumbing 66% 69% 72%
Electrical 15% 14% 12%
Hardware 19% 17% 16%
----- ----- -----
Total Net Sales 100% 100% 100%
===== ===== =====

IMPORT RESTRICTIONS

Under current United States government regulations, all products
manufactured offshore are subject to import restrictions. The Company
currently imports goods from Mexico under the preferential import regulations
commonly known as "807" and as direct imports from China and Taiwan. The "807"
arrangement permits an importer who purchases raw materials in the United
States and then ships the raw materials to an offshore factory for assembly, to
reimport the goods without quota restriction and to pay a duty only on the
value added in the offshore factory.

Where the Company chooses to directly import goods purchased outside
of the United States, the Company may be subject to import quota restrictions,
depending on the country in which assembly takes place. These restrictions may
limit the amount of goods of a particular category that a country may export to
the United States. If the Company cannot obtain the necessary quota, the
Company will not be able to import the goods into the United States. Export
visas for the goods purchased offshore by the Company are readily available.

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The above arrangements, both "807" and quota restrictions, may be
superseded by more favorable regulations with respect to Mexico under the North
American Free Trade Agreement ("NAFTA"), or may be limited by revision or
canceled at any time by the United States government. The Company does not
believe that its relative competitive position will be adversely affected by
NAFTA. As a result of the passage of NAFTA, importation from Mexico will
become more competitive in the near future relative to importation from other
exporting countries.

COMPETITION

Barnett competes principally with local distributors of plumbing,
electrical and hardware products. The Company believes that competition in
sales to both repair and remodeling customers and independent retailers is
primarily based on price, product quality and selection, as well as customer
service, which includes speed of responses for mail order customers.

EMPLOYEES

As of June 30, 1995, the Company employed 1,118 persons (284 of whom
related to discontinued operations), 403 of whom were clerical and
administrative personnel, 125 of whom were sales service representatives and
590 of whom were either production or warehouse personnel. The Company
considers its relations with its employees to be satisfactory.

TRADEMARKS

Several of the trademarks and trade names used by the Company are
considered to have significant value in its business. See "Business - Barnett
- Products," and "Other Operations."

ENVIRONMENTAL REGULATIONS

The Company is subject to certain federal, state and local
environmental laws and regulations. The Company believes that it is in
material compliance with such laws and regulations applicable to it. To the
extent any subsidiaries of Waxman Industries are not in compliance with such
laws and regulations, Waxman Industries, as well as such subsidiaries, may be
liable for such non-compliance. However, in any event, the Company is not
aware of any such liabilities which could have a material adverse effect on it
or any of its subsidiaries.

SEASONALITY

The Company's sales are generally consistent throughout its fiscal
year.

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ITEM 2. PROPERTIES

The following table sets forth, as of June 30, 1995, certain
information with respect to the Company's principal physical properties:

LEASE
APPROXIMATE EXPIRATION
LOCATION SQUARE FEET PURPOSE DATE
-------- ----------- ------- ----

24460 Aurora Road 21,000 Corporate Office Owned
Bedford Hts., OH

24455 Aurora Road 125,000 Consumer Products Corporate 6/30/02
Bedford Hts., OH (1), (3) Office and Warehouse

330 Vine Street 80,000 Medal Distributing 2/28/96
Sharon, PA Office and Warehouse

902 Avenue T. 77,000 Consumer Products 5/31/00
Grand Prairie, TX (2), (3) Office and Warehouse

945 Spice Island Drive 71,000 Consumer Products 7/31/98
Sparks, NV (3) Office and Warehouse

3333 Lenox Avenue 60,000 Barnett Corporate 10/31/03
Jacksonville, FL Office and Warehouse

300 Jay Street 56,000 LeRan Owned
Coldwater, MI Office and Warehouse

No. 10, 7th Road 56,000 Office, Packaging, Owned
Industrial Park and Warehouse
Taichung, Taiwan
Republic of China

(1) Aurora Investment Co., a partnership owned by Melvin and Armond
Waxman, together with certain other members of their families, is the
owner and lessor of this property. The Company has the option to
renew the lease for a five-year term at the market rate at the time of
renewal.

(2) The Company has the option to renew the lease for three additional
five-year terms.

(3) These represent locations of Consumer Products, which is presented
as a discontinued operation.

In addition to the properties shown in the table, the Company owns 2
warehouses and leases 36 warehouses ranging in size from 6,000 to 50,000 square
feet (of these properties, Barnett leases 26 warehouses and Consumer Products
leases two warehouses).

Handl-it Inc., a corporation owned by John S. Peters together with
certain other members of his family, provides Consumer Products with certain
outside warehousing services under a lease arrangement which expires on
February 28, 1996.

The Company believes that its facilities are suitable for its
operations and provide the Company with adequate productive capacity.

ITEM 3. LEGAL PROCEEDINGS

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 financial statements of the Company.

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ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS

There were no matters submitted to a vote of security holders during
the fourth quarter of the fiscal year covered by this report.

ITEM 4A. EXECUTIVE OFFICERS OF THE REGISTRANT

The following is a list of the executive officers of the Company and a
brief description of their business experience during the past five years.
Each executive officer will hold office until his successor is chosen and
qualified.

Melvin Waxman, age 61, was elected Co-Chairman of the Board in June
1995. Mr. Waxman was elected Co-Chief Executive Officer of the Company in May
1988. Mr. Waxman has been a Chief Executive Officer of the Company for over 20
years and has been a director of the Company since 1962. Mr. Waxman has been
Chairman of the Board since August 1976. Melvin Waxman and Armond Waxman are
brothers.

Armond Waxman, age 56, was elected Co-Chairman of the Board in June
1995. Mr. Waxman was elected Co-Chief Executive Officer in May 1988. Mr.
Waxman was the President and Treasurer of the Company since August 1976. Mr.
Waxman has been a director of the Company since 1962 and was Chief Operating
Officer of the Company from August 1976 to May 1988. Armond Waxman and Melvin
Waxman are brothers.

William Pray, age 48, was elected the President and Chief Operating
Officer of the Company in June 1995. Mr. Pray was also named a director of the
Company in June 1995. Mr. Pray had served as Senior Vice President of the
Company since February 1991 and is also President of Barnett, a position he has
held since 1987. Mr. Pray joined Barnett in 1979 as Vice President of Sales
and Marketing.

John S. Peters, age 46, was elected to the position of Senior Vice
President--Operations of the Company in April 1988, after serving as Vice
President--Operations of the Company since February 1985. Prior to that, Mr.
Peters had been Vice President--Personnel/Administration of the Company since
February 1979.

Laurence S. Waxman, age 38, was elected Senior Vice President of the
Company in November 1993 and is also President of Consumer Products, a
position he has held since 1988. Mr. Waxman joined the Company in 1981. Mr.
Laurence Waxman is the son of Melvin Waxman.

Neal R. Restivo, age 35, was elected Senior Vice President--Finance
and Chief Financial Officer of the Company in November 1994 and, after serving
as Vice-President - Finance since November 1993, as Vice President--Corporate
Controller since November 1990, and as Corporate Controller of the Company
since November 1989. From August 1982 until November 1989, Mr. Restivo was
employed by the public accounting firm of Arthur Andersen LLP, where he was an
Audit Manager since 1988. Mr. Restivo has submitted his resignation effective
September 30, 1995 to pursue an opportunity with another public company.

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12
PART II

ITEM 5. MARKET FOR REGISTRANT'S COMMON EQUITY AND RELATED STOCKHOLDER MATTERS

PRICE RANGE OF COMMON STOCK

The Company's Common Stock is listed on the New York Stock Exchange
("NYSE") under the symbol "WAX". The Company's Class B Common Stock does not
trade in the public market due to restricted transferability. However, the
Class B Common Stock may be converted into Common Stock on a share-for-share
basis at any time.

The following table sets forth the high and low closing quotations as
reported by the NYSE for fiscal years 1995 and 1994.

FISCAL YEARS ENDED JUNE 30,

1995 1994
------ ------

HIGH LOW HIGH LOW
------- ------- ------ ------

First Quarter $2.13 $1.75 $3.88 $2.25
Second Quarter 1.88 1.13 2.50 1.50
Third quarter 1.38 .75 3.25 2.25
Fourth Quarter 1.63 1.13 2.38 1.88

HOLDERS OF RECORD

On September 22, 1995, there were 1,048 holders of record of the
Company's Common Stock and 140 holders of record of the Company's Class B
Common Stock.

DIVIDENDS

The Company declared no dividends in fiscal 1995 or 1994.
Restrictions contained in the Company's debt instruments currently prohibit the
declaration and payment of any cash dividends.

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ITEM 6. SELECTED FINANCIAL DATA
FISCAL YEARS ENDED JUNE 30,
1995 1994 1993 1992 1991
(AMOUNTS IN THOUSANDS, EXCEPT PER SHARE AMOUNTS)

INCOME STATEMENT DATA (1):
Net sales $155,990 $139,897 $133,885 $126,385 $116,881
Cost of sales 105,239 93,663 91,402 85,285 79,165
------- ------- ------- ------- -------
Gross profit 50,751 46,234 42,483 41,100 37,716
Operating expenses 39,676 35,812 36,023 32,001 30,013

Restructuring and other non-recurring
charges - - 6,067 3,900 -
------- ------- ------- ------- -------
Operating income 11,075 10,422 393 5,199 7,703
Other income, net 558 2,043 744 1,579 553
Interest expense, net (20,086) (16,427) (15,681) (15,194) (13,169)
------- ------- ------- ------- -------
Income (loss) before income taxes,
extraordinary charges and cumulative
effect of accounting change (8,453) (3,962) (14,544) (8,416) (4,913)

Provision (benefit) for income taxes 288 301 166 (2,084) (1,527)
------- ------- ------- ------- -------
Income (loss) from continuing
operations before extraordinary
charges and cumulative effect of
accounting change (8,741) (4,263) (14,710) (6,332) (3,386)
Discontinued operations
Income (loss) from discontinued
operations, net of taxes (3,332) (2,458) (12,420) 3,120 5,614
Loss on disposal, without
tax benefit (11,000) (38,343) - - -
------- ------- ------- ------- -------
Income (loss) before extraordinary
charge and cumulative effect of
accounting change (23,073) (45,064) (27,130) (3,212) 2,228

Extraordinary charges, early
repayment of debt(2) - (6,824) - (1,186) -
Cumulative effect of
accounting change(3) - - (2,110) - -
------- ------- ------- ------- -------
Net income (loss) $(23,073) $(51,888) $(29,240) $ (4,398) $ 2,228
======= ======= ======= ======= =======
Average number of shares outstanding 11,712 11,674 11,662 9,794 9,570
Primary earnings per share:
Income (loss) from continuing
operations before extraordinary
charges and cumulative effect
of accounting change $ (.75) $ (.37) $ (1.26) $ (.65) $ (.35)

Income (loss) from discontinued
operations (.28) (.21) (1.07) .32 .58
Loss on disposal (.94) (3.28) - - -
Extraordinary charges - (.58) - (.12) -
Cumulative effect of accounting
change - - (.18) - -
------- ------- ------- ------- -------
Net income (loss) $ (1.97) $ (4.44) $ (2.51) $ (.45) $ .23
======= ======= ======= ======= =======

Fully diluted earnings per share:
Income (loss) from continuing
operations before extraordinary
charges and cumulative effect
of accounting change $ (.75) $ (.37) $ (1.26) $ (.65) $ (.34)
Income (loss) from discontinued
operations (.28) (.21) (1.07) .32 .57
Loss on disposal (.94) (3.28) - - -
Extraordinary charges - (.58) - (.12) -
Cumulative effect of accounting
change - - (.18) - -
------- ------- ------- ------- -------

Net income (loss) $ (1.97) $ (4.44) $ (2.51) $ (.45) $ .23
======= ======= ======= ======= =======
Cash dividends per share:
Common stock $ - $ - $ .08 $ .12 $ .12
Class B common stock $ - $ - $ .08 $ .12 $ .12

BALANCE SHEET DATA(1):
Working capital $ 54,756 $ 93,699 $117,730 $135,886 $133,654
Total assets 160,660 170,245 187,033 211,835 223,692
Total long-term debt 157,714 188,680 160,853 147,712 155,316
Stockholders' equity (60,397) (37,709) 7,496 40,827 38,066

Refer to notes on following page.
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14

FISCAL YEARS ENDED JUNE 30,
1990 1989 1988 1987 1986
(AMOUNTS IN THOUSANDS, EXCEPT PER SHARE AMOUNTS)

$113,925 $114,642 $ 89,490 $ 68,401 $ 63,268
78,149 77,290 61,891 48,243 46,090
------- ------- ------- ------- -------
35,776 37,352 27,599 20,158 17,178
28,990 28,281 20,960 15,769 13,574

- - - - -
------- ------- ------- ------- -------
6,786 9,071 6,639 4,389 3,604
1,831 188 461 725 339
(11,374) (6,265) (2,958) (2,870) (2,571)
------- ------- ------- ------- -------

(2,757) 2,994 4,142 2,244 1,372

(1,105) 1,019 840 1,585 855
------- ------- ------- ------- -------

(1,652) 1,975 3,302 659 517

8,440 5,346 3,307 3,131 2,308

- - - - -
------- ------- ------- ------- -------

6,788 7,321 6,609 3,790 2,825

(320) - (666) (1,590) -

- - - - -
------- ------- ------- ------- -------
$ 6,468 $ 7,321 $ 5,943 $ 2,200 $ 2,825
======= ======= ======= ======= =======
9,659 $ 9,204 $ 9,316 $ 9,470 $ 9,422

$ (.17) $ .22 $ .35 $ .07 $ .05

.87 .58 .36 .33 .25
- - - - -
(.03) - (.07) (.17) -

- - - - -
------- ------- ------- ------- -------
$ .67 $ .80 $ .64 $ .23 $ .30
======= ======= ======= ======= =======

$ (.10) $ .25 $ .36 $ .07 $ .05

.76 .45 .28 .33 .25
- - - - -
(.03) - (.06) (.17) -

- - - - -
------- ------- ------- ------- -------

$ .63 $ .70 $ .58 $ .23 $ .30
======= ======= ======= ======= =======

$ .12 $ .10 $ .07 $ .05 $ .03
.11 $ .08 $ .05 $ .02 $ -

$136,989 $117,777 $ 54,983 $ 47,890 $ 23,393
241,578 223,993 101,531 85,733 52,432
175,420 167,243 57,475 48,530 21,762
39,242 26,934 20,921 17,046 14,953

Refer to notes on following page.

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15
(1) The information above and on the preceding pages reflects the
acquisitions of Western American Manufacturing in November 1990, and
U.S. Lock Corporation 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. in July 1987,
Keystone Franklin, Inc. in December 1986, Select-Line Industries, Inc.
in April 1986, LeRan Copper & Brass, Inc. in November 1985 and Barnett
Brass & Copper, Inc. in July 1984. Discontinued operations data
relates to Consumer Products and also 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.

(2) See Note 5 to the Notes to Consolidated Financial Statements for a
further discussion of the extraordinary charge for fiscal 1994. The
fiscal 1992 and 1990 extraordinary charges related to the repurchase of
certain debt securities.

(3) See Note 4 to the Notes to Consolidated Financial Statements.

ITEM 7. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND
RESULTS OF OPERATIONS

GENERAL

The Company operates in a single business segment-the distribution of
plumbing, electrical and hardware products. The Company's business is
conducted primarily through Barnett and WOC.

On August 29, 1995, the Company announced its decision to sell its
Consumer Products business in order to enhance the Company's capital structure
and allow the Company to focus on its fast growing Barnett mail order and
telemarketing business. The Company anticipates that the proceeds from any
such sale will be used, in part, to retire its $39.2 million of Senior Secured
Notes due September 1998 thereby eliminating the mandatory sinking fund
requirements relating to these Notes which are scheduled to commence in
September 1996 (See "Liquidity and Capital Resources"). Consumer Products
markets and distributes its products to mass merchandisers and large D-I-Y
retailers while Barnett's focus is directed primarily to repair and remodeling
contractors and independent retailers. For financial reporting purposes,
Consumer Products is reported as a discontinued operation and the consolidated
financial statements have been reclassified to report separately Consumer
Products' net assets and results of operations. Prior period consolidated
financial statements have been reclassified to conform with the current period
presentation.

In furtherance of such decision, the Company has entered into a letter
of intent which contemplates the sale of the Consumer Products business,
together with certain supporting operations, to a group consisting of HIG along
with certain members of Consumer Products' existing management team for an
aggregate cash purchase price of $50 million plus other consideration which
will give the Company a 25% economic interest in Consumer Products on a going
forward basis. The Company expects that it will account for any remaining
interest under the cost method as the interest it will retain will not allow it
to exercise significant influence over Consumer Products in the future. Such
letter of intent, however, contains certain contingencies including a financing
contingency. The Company intends to pursue the sale of Consumer Products in
the event that the transaction with HIG is not completed. The estimated loss
on disposal is $11.0 million, without tax benefit. See Notes 2 and 3 to Notes
to Consolidated Financial Statements.

Effective March 31, 1994, the Company adopted a plan to dispose of its
Canadian subsidiary, Ideal. On May 5, 1994, without advance notice, 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 Waxman Industries). On May 30, 1994, Ideal was declared
bankrupt by the Canadian court and, as a result, the Company's ownership and
control of Ideal effectively ceased on such date. For financial reporting
purposes, Ideal is reported as a discontinued operation.

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16
RESULTS OF OPERATIONS

The following tables set forth certain items reflected in the
Company's Consolidated Statements of Income expressed as a percentage of net
sales:

Fiscal Years ended June 30,
---------------------------
1995 1994 1993
---- ---- ----

Net sales 100.0% 100.0% 100.0%

Gross profit 32.5 33.0 31.7
Selling, general and administrative expenses 25.4 25.6 26.9
Restructuring and other
non-recurring charges - - 4.5
Operating income 7.1 7.4 0.3
Other income, net 0.4 1.5 0.6

Interest expense, net 12.9 11.7 11.7
Loss from continuing operations
before income taxes, extraordinary charge
and cumulative effect of accounting
change (5.4) (2.8) (10.9)
Loss from discontinued operations (2.1) (1.8) (9.3)
Loss on disposal, without tax benefit (7.1) (27.4) -
Loss before extraordinary charge
and cumulative effect of accounting
change (14.8) (32.2) (20.3)

Net loss (14.8) (37.1) (21.8)

FISCAL 1995 VERSUS FISCAL 1994

Net Sales

The Company's net sales from continuing operations for fiscal 1995 totaled
$156.0 million compared with $139.9 million in fiscal 1994, an increase of
11.5%. Excluding the results of H. Belanger Plumbing Accessories ("Belanger"),
which was sold by the Company in October 1993, sales from continuing operations
for the year increased 12.7%. The net sales increase is primarily the result
of the continued growth of Barnett. Barnett's net sales increased $13.9
million or 14.6%, from $95.2 million in fiscal 1994 to $109.1 million in
fiscal 1995. Sales of new products accounted for $6.9 million of the increase.
The remainder of Barnett's increase was the result of the growth of Barnett's
existing customer base. WOC's net sales increased $3.8 million or 8.7%, from
$43.1 million in fiscal 1994 to $46.9 million in fiscal 1995. Management
believes that the change in the continuing operation's net sales is primarily
the result of changes in volume.

Gross Profit

The Company's gross profit decreased from 33.0% in fiscal 1994 to 32.5% in
fiscal 1995 due to a number of factors, each of which is not individually
significant.

Operating Expenses

The Company's operating expenses increased 10.8% for fiscal 1995 from $35.8
million in fiscal 1994 to $39.7 million in fiscal 1995. Excluding the impact
of the sale of Belanger, operating expenses increased 12.4%. This increase was
due primarily to higher operating expenses at Barnett. Barnett's operating
expenses increased approximately $3.0 million. The increase in operating
expenses is in line with the increase in sales at Barnett.

Operating Income

The Company's operating income totaled $11.1 million or 7.1% of net sales
in fiscal 1995 compared to $10.4 million or 7.4% of net sales in fiscal 1994.

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Other Income, Net

The Company's other income, net decreased $1.5 million from $2.0 million in
fiscal 1994 to $0.5 million in fiscal 1995. The decrease between years is
primarily the result of a non-recurring gain on the sale of property in fiscal
1994.

Interest Expense

The Company's interest expense in fiscal 1995, totaled $20.1 million, net
of $6.3 million which was allocated to the Company's discontinued operation
compared to $16.4 million in fiscal 1994, net of $4.9 million which was
allocated to the Company's discontinued operation. Average borrowings
increased from $172.2 million in fiscal 1994 to $198.7 million in fiscal 1995.
The increase in average borrowings outstanding is due to increased working
capital needs relating to the growth of the Company's operations as well as the
impact of the additional debt incurred to fund repurchase premiums, fees and
expenses relating to the Company's May 1994 debt restructuring. The weighted
average interest rate increased from 12.4% in fiscal 1994, to 13.3% in fiscal
1995. As a result of the debt restructuring, cash interest expense was reduced
by $6.6 million and $.5 million in fiscal 1995 and 1994, respectively.

Income Taxes

In accordance with the provisions of SFAS 109, the Company is unable to
benefit losses in both fiscal 1995 and 1994. The Company has $75.0 million of
available domestic net operating loss carryforwards which expire through 2010
and which have been reduced 100% by a valuation allowance. This includes
amounts relating to the disposition of Ideal. 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 provision for income taxes for both fiscal years 1994 and 1995
represents state and foreign taxes.

Loss from Continuing Operations

The Company's loss from continuing operations totaled $8.7 million in
fiscal 1995 compared to $4.3 million in fiscal 1994.

Discontinued Operations

The Company's net loss from discontinued operations totaled $3.3 million in
fiscal 1995, compared to $2.5 million in fiscal 1994. The fiscal 1995 net loss
from discontinued operations included a $2.8 million warehouse closure charge
in connection with the downsizing of Consumer Products' distribution network
from four locations to three. The Company also recognized a loss on disposal
of Consumer Products of $11.0 million in the fiscal 1995 fourth quarter and a
loss on disposal of Ideal of $38.3 million in the fiscal 1994 third quarter.

Net Loss

The Company's net loss for fiscal 1995 totaled $23.1 million compared with
a net loss of $51.9 million in fiscal 1994.

FISCAL 1994 VERSUS FISCAL 1993

Net sales

The Company's net sales from continuing operations for fiscal 1994
totaled $139.9 million compared with $133.9 million in fiscal 1993, an increase
of 4.5%. The Company's net sales were adversely affected by the sale of
Belanger in October 1993. Belanger's net sales for fiscal 1994 totaled $1.5
million compared with $6.3 million in fiscal 1993. Net sales increased 8.5%
after excluding the impact of Belanger. The net sales increase is primarily
the result of the continued growth of Barnett. Barnett's net sales increased
$12.3 million or 14.9%, from $82.9 million in fiscal 1993 to $95.2 million in
fiscal 1994. Sales

17
18
of new products accounted for $7.2 million of the increase. The remainder of
Barnett's increase was the result of opening additional mail order warehouses,
as well as the growth of Barnett's existing customer base. Barnett opened two
additional warehouses during fiscal 1994, increasing the total number of
warehouses to 28. WOC's net sales decreased $1.5 million or 3.5%, from $44.7
million in fiscal 1993 to $43.1 million in fiscal 1994. Management believes
that the change in the continuing operation's net sales is primarily the result
of changes in volume.

Gross Profit

The Company's gross profit increased from 31.7% in fiscal 1993 to
33.0% in fiscal 1994. The increase in the Company's gross margin is primarily
a result of improved margins at Barnett. Barnett's gross margin has been
favorably impacted by increased sales of higher margin proprietary branded
products. Overall, the Company's gross margins were favorably impacted by an
increase in the percentage of products purchased from foreign sources. Such
products typically generate higher gross margins than products purchased
domestically. The sale of Belanger had no significant effect on gross margin.
Excluding the impact of Belanger, gross margin would have been 32.9% in fiscal
1993 as compared to 34.9% in fiscal 1994.

Operating Expenses

The Company's operating expenses remained flat for fiscal 1994 from
$36.0 million in fiscal 1993 to $35.8 million in fiscal 1994. Prior year
operating expenses included approximately $1.2 million of additional
amortization expense relating to an accounting change. Excluding the impact of
this additional amortization as well as the sale of Belanger, operating
expenses increased 8.0% from $32.7 million in fiscal 1993 to $35.3 million in
fiscal 1994. This increase was due primarily to higher operating expenses at
Barnett. Barnett's operating expenses increased approximately $1.7 million.
The majority of the increase in Barnett's operating expenses related to
increased warehouse and selling and advertising costs. The increases in
warehouse and selling and advertising costs were $0.7 million and $1.1 million,
respectively. These increases primarily related to the opening of new mail
order warehouses and increased promotional activity during fiscal 1994. WOC's
operating expenses remained relatively flat for fiscal 1994 from $10.3 million
in fiscal 1993 to $9.9 million in fiscal 1994.

Restructuring and Other Non-Recurring Charges

The Company recorded a $6.1 million restructuring charge during fiscal
1993. The fiscal 1993 restructuring charge consisted of $4.6 million related
to the expected losses in connection with the disposal of three small operating
units. The decision to dispose of the three entities was based in part on the
Company's strategy to refocus and build on its core businesses in the U.S.
(i.e., Consumer Products and Barnett). The Company completed the sale of one
of these operating units in October 1993. The Company was unable to come to
terms with the prospective buyer of the other two entities and the consummation
of a sale of these businesses did not occur. In addition, $0.6 million related
to the Company's decision not to proceed with the securities offering of
Barnett in fiscal 1993.

Operating Income

The Company's operating income totaled $10.4 million or 7.4% of net
sales in fiscal 1994 compared to $0.4 million in fiscal 1993. Fiscal 1993
operating income included a $6.1 million restructuring charge, as well as $1.2
million of additional amortization expense relating to an accounting change.
The impact of the sale of Belanger on operating income was not significant.

Other Income, Net

The Company's other income, net increased $1.3 million from $0.7
million in fiscal 1993 to $2.0 million in fiscal 1994. The increase between
years is primarily the result of a non-recurring gain on the sale of property
in fiscal 1994.

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19
Interest Expense

The Company's interest expense in fiscal 1994, totaled $16.4 million,
net of $4.9 million which was allocated to the Company's discontinued operation,
compared to $15.7 million in fiscal 1993, net of $4.7 million which was
allocated to the Company's discontinued operation. Average borrowings
increased from $159.1 million in fiscal 1993 to $172.2 million in fiscal 1994.
The increase in average borrowings outstanding is due to increased working
capital needs relating to the growth of the Company's operations as well as the
impact of the additional debt incurred to fund repurchase premiums, fees and
expenses relating to the Company's May 1994 debt restructuring. The weighted
average interest rate decreased from 12.9% in fiscal 1993 to 12.4% in fiscal
1994. The decrease in the weighted average interest rate results from
proportionally higher borrowings under the Company's revolving credit
facilities during fiscal 1994. Revolving credit facility borrowings bear lower
interest rates than the Company's other indebtedness. See "Liquidity and
Capital Resources".

Income Taxes

In accordance with the provisions of SFAS 109, the Company was unable
to benefit losses generated in fiscal 1994 and fiscal 1993. The provision for
income taxes for both fiscal years 1994 and 1993 represents state and foreign
taxes.

Loss from Continuing Operations

The Company's loss from continuing operations totaled $4.3 million in
fiscal 1994 compared to $14.7 million in fiscal 1993.

Discontinued Operations

The Company's net loss from discontinued operations totaled $2.5
million in fiscal 1994, compared to a net loss of $12.4 million in fiscal 1993.
The Company also recognized a loss on disposal of Ideal of approximately $38.3
million in the fiscal 1994 third quarter.

Extraordinary Charge

The Company recognized a $6.8 million extraordinary charge, without
tax benefit in fiscal 1994 relating to the early retirement of debt. See Note
5 to Notes to Consolidated Financial Statements.

Net Loss

The Company's net loss for fiscal 1994 totaled $51.9 million compared
with a net loss of $29.2 million in fiscal 1993. The fiscal 1993 net loss
included a $2.1 million charge for the cumulative effect of a change in
accounting for warehouse and catalog costs, which was made during the fourth
quarter of fiscal 1993 and was applied retroactively to July 1, 1992.

LIQUIDITY AND CAPITAL RESOURCES

On May 20, 1994, the Company completed a financial restructuring which
was undertaken to modify the Company's capital structure to facilitate the
growth of its domestic businesses by reducing cash interest expense until June
1, 1999 and increasing the Company's liquidity. As part of the restructuring,
the Company exchanged $50 million of its 13-3/4% Senior Subordinated Notes due
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"). Approximately $48.8 million of the Senior Subordinated Notes remain
outstanding. The Deferred Coupon Notes have no cash interest requirements until
June 1, 1999. As a result of the exchange, the Company's cash interest
requirements have been significantly reduced until June 1999. In addition, the
$50 million of Senior Subordinated Notes exchanged can be used to satisfy the
Company's mandatory sinking fund requirements with respect to such issue and,
as such, the $20 million mandatory sinking fund payments due on June 1, 1996
and 1997 have been satisfied and the mandatory sinking fund payment due on June
1, 1998 has been

19
20
reduced to $8.8 million. The Company is, however, required to make mandatory
sinking fund payments of $17.0 million on each of September 1, 1996 and 1997
with respect to its Senior Secured Notes due 1998.

As discussed above, the Company has decided to sell its Consumer
Products subsidiary and in furtherance of such decision has entered into a
letter of intent which contemplates the sale of the Consumer Products business
together with certain supporting operations for an aggregate cash purchase
price of $50 million plus other consideration which will give the Company a 25%
economic interest in Consumer Products on a going forward basis. The Company
expects that it will account for any remaining interest under the cost method
as the interest it will retain will not allow it to exercise significant
influence over Consumer Products in the future. The Company anticipates that
the proceeds from the sale of Consumer Products will be used, in part, to
retire the Senior Secured Notes thereby eliminating the mandatory sinking fund
requirements relating to the notes. The Company expects to incur an
extraordinary charge upon the early retirement of these notes which primarily
will represent the accelerated amortization of unamortized debt issuance costs
which were $2.0 million at June 30, 1995.

The letter of intent discussed above contains certain contingencies
including a financing contingency. In addition, the Company has not yet
reached agreement with the prospective buyer on all terms. The Company
currently believes that the sale will be consummated. However, there can be no
assurances that the sale will be consummated or that if consummated that the
terms will be the same as currently contemplated. The Company intends to
continue pursuing the sale of Consumer Products in the event that this specific
transaction is not completed.

As part of the May 1994 financial restructuring the Operating
Companies entered into a $55 million, four-year, secured credit facility with
an affiliate of Citibank, N.A., as agent for certain financial institutions.
The secured credit facility, which has an initial term of three years, will be
extended for an additional year if the Company's Senior Secured Notes due 1998
have been repaid on or before March 1997. The secured credit facility is
subject to borrowing base formulas and prohibits dividends and distributions by
the Operating Companies except in certain limited instances. At June 30, 1995,
availability under the secured credit facility totaled approximately $6.1
million.

Also, as part of the May 1994 financial restructuring, the Operating
Companies entered into a $15.0 million three-year term loan with Citibank,
N.A., as agent for certain financial institutions. A one-time fee of 1.0% of
the principal amount outstanding under the term loan was paid on November 20,
1994 as such loan was not repaid by such date. The term loan will be required
to be prepaid if a refinancing is completed which is sufficient to retire the
Senior Subordinated Notes, the Senior Secured Notes and the term loan.
Principal payments on the term loan of $1.0 million each are required
quarterly. In May 1995, the Company entered into an amendment to the term loan
agreement which amended the quarterly principal payment dates to the first day
of July, October, January and April beginning July 1, 1995. At June 30, 1995,
$14.0 million remained outstanding under the term loan.

In September 1995, the Company entered into an amendment to the
secured credit facility and term loan which amended certain definitions
contained therein to eliminate the impact of Consumer Products' expected loss on
disposal as well as its warehouse closure charge from the financial covenant
calculations. In addition, the amendment modified certain of the financial
covenants to provide that future compliance will not be negatively impacted by
the results of Consumer Products. However, in connection with the sale of
Consumer Products, the Company intends to repay the portion of the secured
credit facility and term

20
21
loan which relates to Consumer Products and refinance the remaining balances
using proceeds from a new secured credit facility. The terms of such new
secured credit facility are currently being negotiated. The Company expects to
incur an extraordinary charge upon the refinancing of the secured credit
facility and term loan which primarily will represent the accelerated
amortization of unamortized debt issuance costs which were $2.6 million at June
30, 1995.

A one-time fee of 1.0% of the outstanding principal amount of the
Senior Secured Notes was paid in January 1995 as such notes were not retired
before December 31, 1994.

The Company does not have any commitments to make substantial capital
expenditures. Subject to the availability of working capital, the Company
currently contemplates opening two to three Barnett warehouses over the next
twelve months. The average cash cost to open a Barnett warehouse is
approximately $0.5 million, including $250,000 for inventory and approximately
$250,000 for fixed assets, leasehold improvements and startup costs.

As a result of the issuance of the Deferred Coupon Notes which
significantly reduce cash interest requirements until June 1, 1999, the Company
believes that funds generated from operations along with funds available under
the Company's revolving credit facility will be sufficient to satisfy the
Company's liquidity requirements (including the term loan principal payments)
until September 1, 1996, the date the first mandatory sinking fund payment is
due. As discussed above, the Company intends to retire the Senior Secured
Notes using proceeds from the sale of Consumer Products thereby eliminating the
mandatory sinking fund payments. In the event that a sale of Consumer Products
is not consummated, the Company will have to obtain a significant infusion of
funds either through additional debt refinancing transactions or the sale of
equity and/or assets.

DISCUSSION OF CASH FLOWS

The Company's continuing operations generated $4.8 million of cash
flow from operations primarily as a result of a decrease in inventories and an
increase in accounts payable. The decreased inventory levels are due to the
Company's inventory reduction efforts. Cash flow used for investments totaled
$2.3 million in fiscal 1995. Capital expenditures totaled $2.6 million. Cash
flow provided by financing activities total $1.0 million. Borrowing under the
Company's credit facility totaled $4.3 million. The Company made payments on
long-term debt and the term loan of $1.9 million. Approximately $1.4 million
was used to pay fees and expenses relating to the May 1994 financial
restructuring.

ITEM 8. CONSOLIDATED FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA

(Begins on Following Page)

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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, 1995 and 1994, and the related consolidated statements of income,
stockholders' equity and cash flows for each of the three years in the period
ended June 30, 1995. These financial statements are the responsibility of the
Company's management. Our responsibility is to express an opinion on these
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.

As discussed in Notes 2 and 8, the terms of the Senior Secured Notes provide
for a mandatory sinking fund payment of $17 million on September 1, 1996.
Management's current projections indicate that there will not be sufficient
cash flow from operations to fund that obligation. Management currently
expects that proceeds from the proposed sale of its Consumer Products business
will be used to retire the Senior Secured Notes, thereby eliminating the
sinking fund payment.

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, 1995 and 1994, and the results of their operations
and their cash flows for each of the three years in the period ended June 30,
1995, in conformity with generally accepted accounting principles.

As explained in Note 4 to the consolidated financial statements, effective July
1, 1992, the Company changed its method of accounting for certain warehousing
and catalog costs.

Arthur Andersen LLP

Cleveland, Ohio,
September 26, 1995.

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23

WAXMAN INDUSTRIES, INC. AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS
JUNE 30, 1995 AND 1994

(In Thousands)

ASSETS

1995 1994
--------- ---------

CURRENT ASSETS:
Cash $ 1,496 $ 981

Accounts receivable, net 22,346 19,366
Inventories 38,436 39,448
Prepaid expenses 1,956 1,648
Net current assets of discontinued operations 53,865 51,530
------- -------

Total current assets 118,099 112,973
------- -------

PROPERTY AND EQUIPMENT:

Land 1,097 1,097
Buildings 9,645 9,182
Equipment 14,781 14,445
------- -------
25,523 24,724
Less accumulated depreciation and amortization (12,641) (12,199)
------- -------

Property and equipment, net 12,882 12,525
------- -------

NET LONG TERM ASSETS OF DISCONTINUED OPERATIONS - 13,373

COST OF BUSINESSES IN EXCESS OF
NET ASSETS ACQUIRED, NET 16,131 16,651

OTHER ASSETS 13,548 14,723
------- -------

$160,660 $170,245
======= =======

The accompanying Notes to Consolidated Financial Statements
are an integral part of these balance sheets.

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24

WAXMAN INDUSTRIES, INC. AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS
JUNE 30, 1995 AND 1994
(In Thousands Except Per Share Data)

LIABILITIES AND STOCKHOLDERS' EQUITY

1995 1994
--------- ---------

CURRENT LIABILITIES:
Current portion of long-term debt $ 4,424 $ 2,894
Senior Secured Notes, to be retired with proceeds
from the sale of Consumer Products 38,786 -
Accounts payable 16,258 13,177
Accrued liabilities 3,875 3,203
------- -------

Total current liabilities 63,343 19,274
------- -------

LONG-TERM DEBT, NET OF CURRENT PORTION 54,089 53,224

SENIOR SECURED NOTES, NET OF CURRENT PORTION - 38,675

SENIOR SECURED DEFERRED COUPON NOTES 54,875 48,031

SENIOR SUBORDINATED NOTES 48,750 48,750

COMMITMENTS AND CONTINGENCIES

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 and outstanding 9,495 in 1995 and
9,490 in 1994. 95 95
Class B common stock, $.01 par value per share:
Authorized 6,000 shares;
Issued and outstanding 2,217 in 1995
and 2,222 in 1994. 23 23
Paid-in capital 21,098 21,098
Retained deficit (81,398) (58,325)
------- -------

(60,182) (37,109)
Cumulative currency translation adjustments (215) (600)
------- -------
Total stockholders' equity (60,397) (37,709)
------- -------
$160,660 $170,245
======= =======

The accompanying Notes to Consolidated Financial Statements
are an integral part of these balance sheets.

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25

WAXMAN INDUSTRIES, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF INCOME
FOR THE YEARS ENDED JUNE 30, 1995, 1994 AND 1993
(IN THOUSANDS, EXCEPT PER SHARE DATA)

1995 1994 1993
------- ------- -------

Net sales $155,990 $139,897 $133,885
Cost of sales 105,239 93,663 91,402
------- ------- -------
Gross Profit 50,751 46,234 42,483
Selling, general and administrative expenses 39,676 35,812 36,023
Restructuring and other non-recurring charges - - 6,067
------- ------- -------
Operating income 11,075 10,422 393
Other income, net 558 2,043 744
Interest expense (includes non-cash interest
and amortization of deferred financing costs
of $8,348, $1,165 and $701) (20,086) (16,427) (15,681)
------- ------- -------
Loss from continuing operations before
income taxes, extraordinary charge and
cumulative effect of change in accounting (8,453) (3,962) (14,544)
Provision for income taxes 288 301 166
------- ------- -------
Loss from continuing operations before
extraordinary charge and cumulative
effect of change in accounting (8,741) (4,263) (14,710)
Discontinued operations:
Loss from discontinued operations (3,332) (2,458) (12,420)
Loss on disposal, without tax benefit (11,000) (38,343) -
------- ------- -------
Loss before extraordinary charge and
cumulative effect of change in accounting (23,073) (45,064) (27,130)
Extraordinary charge, early retirement
of debt, without tax benefit - (6,824) -
Cumulative effect of change in accounting
for warehouse and catalog costs,
without tax benefit - - (2,110)
------- ------- -------
Net loss $(23,073) $(51,888) $(29,240)
======= ======= =======
Primary and fully diluted
loss per share:
From continuing operations $ (.75) $ (.37) $ (1.26)
Discontinued operations:
Loss from discontinued operations (.28) (.21) (1.07)
Loss on disposal (.94) (3.28) -
Extraordinary charge - (.58) -
Cumulative effect of accounting change - - (.18)
------- ------- -------
Net loss per share $ (1.97) $ (4.44) $ (2.51)
======= ======= =======

The accompanying Notes to Consolidated Financial Statements
are an integral part of these statements.

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26

WAXMAN INDUSTRIES, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF STOCKHOLDERS' EQUITY
FOR THE YEARS ENDED JUNE 30, 1995, 1994 AND 1993
(IN THOUSANDS, EXCEPT PER SHARE DATA)

Cumulative
Class B Retained Currency
Common Common Paid-In Earnings Translation
Stock Stock Capital (Deficit) Adjustments
------- -------- ------- --------- -----------

BALANCE, JUNE 30, 1992 $ 94 $ 23 $18,467 $ 23,735 $ (1,492)
Net loss (29,240)
Cash dividends:
$.08 per common share
and Class B share (932)
Currency translation
adjustments (3,159)
------- ------- -------- --------- --------
BALANCE, JUNE 30, 1993 $ 94 $ 23 $18,467 $ (6,437) $ (4,651)
Net loss (51,888)
Currency translation
adjustments (2,368)
Elimination of currency translation
adjustment relating to discontinued
operation (Ideal) 6,419
Contribution to Profit
Sharing Plan 1 131
Stock warrants issued 2,500
------- ------- ------- --------- ---------
BALANCE, JUNE 30, 1994 $ 95 $ 23 $21,098 $(58,325) $ (600)
Net loss (23,073)
Currency translation
adjustments 385
------- ------- -------- --------- ---------
BALANCE, JUNE 30, 1995 $ 95 $ 23 $21,098 $(81,398) $ (215)
====== ====== ======== ======== = ========

The accompanying Notes to Consolidated Financial Statements
are an integral part of these statements.

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27

WAXMAN INDUSTRIES, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS
FOR THE YEARS ENDED JUNE 30, 1995, 1994 AND 1993
(In Thousands)

1995 1994 1993
--------- --------- ---------

CASH FROM (USED FOR):
OPERATIONS:
Loss from continuing operations
before extraordinary charge and
cumulative effect of change in
accounting $ (8,741) $ (4,263) $(14,710)
Adjustments to reconcile loss
from continuing operations to
net cash provided by (used for)
continuing operations:
Non-cash interest 6,648 531 -
Restructuring and other
non-recurring charges - - 6,067
Depreciation and amortization 5,402 3,982 5,263
Contribution of stock to
profit sharing plan - 132 -
Changes in assets and liabilities:
Accounts receivable, net (2,980) 1,676 (1,269)
Inventories 1,012 (3,024) (3,246)
Prepaid expenses (308) 1 1,693
Accounts payable 3,081 (703) (3,487)
Accrued liabilities 672 (690) (966)
------- ------- -------
Net cash provided by (used for)
continuing operations 4,786 (2,358) (10,655)
Loss from discontinued operations (14,332) (40,801) (12,420)
Change in net assets of
discontinued operations 11,038 21,948 16,368
Other, net 385 4,054 (3,159)
------- ------- -------
Net cash provided by (used for)
operations 1,877 (17,157) (9,866)
------- ------- -------
INVESTMENTS:

Proceeds from sale of business - 3,006 -
Capital expenditures, net (2,581) (2,571) (1,358)
Change in other assets 268 (155) (3,202)
------- ------- -------
Net cash provided by (used for)
investments ( 2,313) 280 (4,560)
-------- ------- -------
FINANCING:
Net borrowings under
credit agreements 4,330 19,017 15,897
Repayments of long-term debt (935) (398) (560)
Borrowings under (repayment of)
term loan (1,000) 15,000 -
Repurchase of debt - (1,875) -
Debt restructuring costs (1,444) (13,886) -
Dividends paid - - (932)
------- ------- -------
Net cash provided by financing 951 17,858 14,405
------- ------- -------
NET INCREASE (DECREASE) IN CASH 515 981 (21)
BALANCE, BEGINNING OF PERIOD 981 - 21
BALANCE, END OF PERIOD $ 1,496 $ 981 $ -
======= ======= =======

The accompanying Notes to Consolidated Financial Statements
are an integral part of these statements.

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WAXMAN INDUSTRIES, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
FOR THE YEARS ENDED JUNE 30, 1995, 1994 AND 1993
(IN THOUSANDS)

1. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES:

A. Consolidation and Basis of Presentation

The financial statements include the accounts of Waxman Industries, Inc. and
its wholly owned subsidiaries (the "Company"). All significant intercompany
transactions and balances are eliminated in consolidation. Certain fiscal 1994
and 1993 amounts have been reclassified to conform with the fiscal 1995
presentation, including a restatement to reflect the discontinued operations of
Consumer Products in fiscal 1995 and Ideal in fiscal 1994, both of which are
discussed in Note 3.

The Company operates in a single business segment - the distribution of
plumbing, electrical and hardware products. Substantially all of the Company's
business is conducted in the United States.

During fiscal 1994, the Company restructured (the "Corporate Restructuring")
its domestic operations such that the Company is now a holding company whose
only material assets are the capital stock of its subsidiaries. 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 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 Inc. ("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 its Madison
Equipment Division to WOC, (iv) contributing the assets and liabilities of its
Medal Distributing Division to WOC, (v) merging U.S. Lock Corporation ("U. S.
Lock") and LeRan Copper & Brass, Inc. ("LeRan"), 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. The "Operating
Companies" consist of Barnett, Consumer Products and WOC. This restructuring
was accounted for based upon the entities' historical carrying amounts with no
impact on the accompanying consolidated financial statements.

B. Restricted Cash Balances

In accordance with the terms of its secured credit facility (See Note 7), all
of the Operating Companies' available cash is pledged to the lenders and is
required to be used to pay down borrowings under the facility.

C. Accounts Receivable

Accounts receivable are presented net of allowances for doubtful accounts of
$748 and $837 at June 30, 1995 and 1994, respectively. Bad debt expense totaled
$495 in fiscal 1995, $437 in fiscal 1994 and $539 in fiscal 1993.

The Company sells plumbing, electrical and hardware products throughout the
United States to smaller independent retailers and plumbing, electrical repair
and remodeling contractors. The Company performs ongoing credit evaluations of
its customers' financial condition. The Company's ten largest customers
accounted for

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approximately 10.4% of net sales in fiscal 1995, 10.8% in fiscal 1994 and 12.3%
in fiscal 1993 and approximately 13.4% and 18.8% of accounts receivable at June
30, 1995 and 1994, respectively.

D. Inventories

At June 30, 1995 and 1994, 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.

E. Property and Equipment

Property and equipment is stated at cost. For financial reporting purposes,
buildings and equipment are depreciated on a straight-line basis over their
estimated useful lives at annual depreciation rates ranging from 2 1/2% to 30%.
For income tax purposes, accelerated methods generally are used. Depreciation
expense totaled $2,224 in fiscal 1995, $1,984 in fiscal 1994 and $1,880 in
fiscal 1993.

F. Cost of Businesses in Excess of Net Assets Acquired

Cost of businesses in excess of the fair market value of net assets acquired is
being amortized primarily over 40 years, using the straight-line method.
Management has evaluated its accounting for goodwill, considering such factors
as historical profitability and current operating cash flows and believes that
the asset is realizable and the amortization period is appropriate. Goodwill
amortization expense totaled $521 in fiscal 1995 and $481 in fiscal years 1994
and 1993. The accumulated amortization of goodwill at June 30, 1995 and 1994
was $3,735 and $3,214, respectively.

G. Per Share Data

Primary and fully diluted loss per share have been computed based on the
weighted average number of shares outstanding which totaled 11,712 in fiscal
1995, 11,674 in fiscal 1994 and 11,662 in fiscal 1993.

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 adjustments are recorded as a component of stockholders'
equity. Foreign currency transaction gains or losses are included in the
consolidated statements of income as incurred and such net gains (losses)
totaled $(26) in fiscal 1995, $17 in fiscal 1994 and $80 in fiscal 1993.

I. Debt

The Company made interest payments of $17,627 in fiscal 1995, $20,523 in fiscal
1994 and $19,540 in fiscal 1993. Accrued liabilities in the accompanying
consolidated balance sheets include accrued interest of $2,155 and $2,101 at
June 30, 1995 and 1994, respectively. Other assets in the accompanying
consolidated balance sheets include deferred financing costs of $9,875 and
$10,284 at June 30, 1995 and 1994, respectively.

No quoted market prices are available for any of the Company's debt as the debt
is not actively traded. Management, however, believes the carrying values of
its bank loans approximate their fair values as they bear interest based upon
the banks' prime lending rates. It was not practical to determine the fair
value of the Company's Senior Secured Notes, Deferred Coupon Notes and Senior
Subordinated Notes because of the inability to determine fair value without
incurring excessive costs.

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30
J. 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 liabilities at the date of the
financial statements and the reported amounts of revenues and expenses during
the reporting period. Actual results could differ from those estimates. Based
on current available information, management has estimated the loss on disposal
of the Consumer Products business to be $11.0 million. To the extent that the
information underlying management's estimate changes, the estimated loss on
disposal will be adjusted accordingly in the period of sale.

2. MANAGEMENT PLANS:

In August 1995, the Company announced its decision to sell its
Consumer Products business in order to enhance the Company's capital structure
and allow the Company to focus on its fast growing Barnett mail order and
telemarketing business. Consumer Products markets and distributes its products
to mass merchandisers and large D-I-Y retailers while Barnett's focus is
directed primarily to repair and remodeling contractors and independent
retailers. The Company anticipates that the proceeds from any such sale will
be used, in part, to retire its $39.2 million of Senior Secured Notes due
September 1998 thereby eliminating the mandatory sinking fund requirements of
$17.0 million on each of September 1, 1996 and September 1, 1997.

In furtherance of such decision, the Company has entered into a letter
of intent which contemplates the sale of the Consumer Products business,
together with certain supporting operations, to a group consisting of HIG
Capital Management of Miami, Florida along with certain members of Consumer
Products' existing management team for an aggregate cash purchase price of $50
million plus other consideration which will give the Company a 25% economic
interest in Consumer Products on a going forward basis. The Company expects
that it will account for any remaining interest under the cost method as the
interest it will retain will not allow it to exercise significant influence
over Consumer Products in the future. Such letter of intent, however, contains
certain contingencies including a financing contingency. In connection with
such sale, the Company intends to repay the portion of its secured credit
facility and term loan which relates to Consumer Products and refinance the
remaining balance using proceeds from a new secured credit facility the terms
of which are currently being negotiated.

Although the Company has not reached an agreement with the prospective
buyer on all terms, the Company currently believes that it will be able to
consummate this transaction. It is, however, the Company's intention to
continue pursuing the sale of Consumer Products in the event that this
transaction is not completed. In the event that a sale of Consumer Products is
not consummated, the Company will have to obtain a significant infusion of
funds either through additional debt refinancing transactions or the sale of
equity and/or assets.

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3. DISCONTINUED OPERATIONS:

The following table sets forth the income (loss) from discontinued
operations and loss on disposal, attributable to Consumer Products and the
Company's former Canadian subsidiary, Ideal Plumbing Group, Inc. ("Ideal"):

1995 1994 1993
---- ---- ----

Income (loss) from discontinued
operations:
Consumer Products $ (3,332) $ 791 $ (1,180)

Ideal - (3,249) (11,240)
------- ------- -------
$ (3,332) $ (2,458) $(12,420)
======= ======= =======

Loss on disposal, without
tax benefit:
Consumer Products $(11,000) $ - $ -

Ideal - (38,343) -
------- ------- --------
$(11,000) $(38,343) $ -
======= ======= =======

A. Consumer Products

The estimated loss on disposal of Consumer Products, which was
recorded by the Company in the accompanying consolidated financial statements
as of June 30, 1995, is $11.0 million, without tax benefit. The loss includes
the estimated loss on disposal and provisions for other estimated costs to be
incurred in connection with the disposal. 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 related to the discontinued operations at June 30,
1995 consisted of working capital of $51,944, net property and equipment of
$5,278, other assets of $10,332 and bank debt of $2,689 without any allowance
for the estimated loss on disposal.

Summary operating results of Consumer Products for the periods
presented are as follows:

1995 1994 1993
---- ---- ----

Net sales $ 71,971 $ 70,707 $ 67,480
Costs and expenses 66,147 64,959 63,231
Interest expense 6,327 4,907 4,684
Warehouse closure costs and other 2,779 - 695
------- ------- -------
Income (loss) before income taxes (3,282) 841 (1,130)

Provision for income taxes 50 50 50
------- ------- -------
Net income (loss) $ (3,332) $ 791 $ (1,180)
======= ======= =======

Interest expense allocated to Consumer Products was based on
debt which was specifically attributed to the business.

During the fiscal 1995 fourth quarter, the Company downsized
Consumer Products distribution network from four locations to three and as a
result incurred warehouse closure costs of $2,779, which includes $635 of
future costs to be incurred relating to such closure.

B. Ideal

Effective March 31, 1994, the Company adopted a plan to dispose
of its Canadian subsidiary, Ideal. Ideal is reported as a discontinued
operation.

On May 5, 1994, without advance notice, 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 Waxman Industries, Inc.). The Canadian court

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32
appointed a trustee to liquidate the assets of Ideal. The Company has no
liability to the creditors of Ideal as a 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.

Summary operating results of Ideal for the periods presented are as follows:

1995 1994 1993
------- -------- --------

Net sales $ - $ 87,265 $153,875
Costs and expenses - 90,262 164,684
------- ------- -------
Loss before income taxes - (2,997) (10,809)
Provision for income taxes - 252 431
------- ------- -------
Net loss $ - $ (3,249) $(11,240)
======= ======= =======

4. CHANGE IN ACCOUNTING:

During fiscal 1993, the Company accelerated its amortization of
certain warehouse start-up costs and catalog costs. This change was applied
retroactively to July 1, 1992. 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 warehouse operations are amortized over a period of twelve
months commencing the month in which the warehouse opens. 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 fiscal 1993 consolidated statement of income, without tax
benefit. The additional effect of the change in fiscal 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. RESTRUCTURING, NONRECURRING AND EXTRAORDINARY CHARGES:

A. Extraordinary Charges

During fiscal 1994, the Company recognized a $6.8 million extraordinary charge,
without tax benefit, as a result of the refinancing of $50 million of Senior
Subordinated Notes, as well as borrowings under the bank credit facilities and
the repurchase of certain subordinated indebtedness. The extraordinary charge
included the fees paid upon the refinancing or repurchase of the debt along with
the accelerated amortization of the related unamortized debt discount and
issuance costs.

B. Restructuring and Non-Recurring Charges

During fiscal 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 $6,067 restructuring charge. The restructuring charge 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:

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Estimated loss on disposal of businesses $4,600
Relocation and consolidation costs 849
Other 618
-----
$6,067
=====

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 fiscal 1995. The loss on the sale of Belanger was
approximately $3.0 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
carrying 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 included $1.4 million for the writedown of assets to net realizable
value and $.2 million for fees and expenses associated with the transaction.

6. INCOME TAXES:

The Company adopted SFAS No. 109 during the first quarter of fiscal
1994. SFAS No. 109 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 benefits of
the fiscal 1995 and 1994 net operating losses have been reduced 100% by a
valuation allowance. The adoption of SFAS No. 109 in fiscal 1994 had no
material impact on the accompanying consolidated financial statements.

The components of income (loss) from continuing operations before
income taxes, extraordinary charges and cumulative effect of change in
accounting are as follows:

1995 1994 1993
--------- --------- ---------

Domestic $(8,815) $ (4,968) $(12,312)
Foreign 362 1,006 (2,232)
------ ------- -------

Total $(8,453) $ (3,962) $(14,544)
====== ======= =======

The components of the provision for income taxes are:

1995 1994 1993
--------- --------- ---------

Currently payable:
U.S. Federal $ - $ - $ -
Foreign and other 288 301 166
-------- ------- -------

Total current 288 301 166
Deferred: Federal - - -
-------- ------- -------
Total provision $ 288 $ 301 $ 166
======== ======= =======

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The following table reconciles the U.S. statutory rate to the
Company's effective tax rate:

1995 1994 1993
---- ---- ----

U.S. statutory rate 35.0% 34.0% 34.0%
Domestic losses not benefited (35.5) (41.8) (18.9)
Capital losses not benefited - - (10.7)
State taxes, net (1.2) (2.5) (0.6)
Goodwill amortization (2.0) (3.5) (1.1)
Foreign tax items (0.1) 4.8 (5.3)
Other, net 0.4 1.4 1.5
----- ---- ----
Effective tax rate (3.4)% (7.6)% (1.1)%
==== ==== ====

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 as of June 30, 1995 and 1994 are as follows:

1995 1994
--------- ---------

Net operating loss carryforwards $ 26,266 $ 20,263
Accrued expenses 4,408 2,272

Inventories 1,367 1,143
Accounts receivable 502 426
Other 690 665
------- -------
Deferred tax assets 33,233 24,769
------- -------

Property (1,106) (1,055)
Original issue discounts (2,172) -
Other assets (1,593) (1,478)
Other (303) (107)
------- -------
Deferred tax liabilities (5,174) (2,640)
------- -------

28,059 22,129
Valuation allowance (28,059) (22,129)
------- -------
$ - $ -
======= =======

At June 30, 1995, the Company had $75,047 of available domestic net
operating loss carryforwards for income tax purposes which expire through 2010.
For financial reporting purposes, the benefit of these net operating loss
carryforwards has been reduced 100% by a valuation allowance in accordance with
the provisions of SFAS No. 109. 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 loss carryforwards will be
recognized in the future.

The Company made income tax payments of $457 in fiscal 1995, $556 in
fiscal 1994 and $926 in fiscal 1993. Refunds received totaled $68 in fiscal
1995, $435 in fiscal 1994 and $2,462 in fiscal 1993.

7. LONG TERM DEBT:

Long term debt at June 30, 1995 and 1994 consisted of the following:

1995 1994
---- ----

$55 million secured credit facility $43,715 $39,378
Term loan 14,000 15,000

Other notes payable, maturing at
various dates through 2007, and
bearing interest at rates varying
from 6.6% to 10.00% 798 1,740
------ ------

58,513 56,118
Less: current portion 4,424 2,894
------ ------
Long-term debt, net of current
portion $54,089 $53,224

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On May 20, 1994, the Operating Companies entered into a new $55
million secured credit facility with an affiliate of Citibank, N.A., as agent,
which includes a $20 million letter of credit subfacility. The secured credit
facility, which has an initial term of three years, will be extended for an
additional year if the Senior Secured Notes have been repaid on or before March
1997. The secured credit facility is subject to borrowing base formulas.
Interest is based, at the Company's option, on either (i) the prime rate of
Citibank, N.A. plus 1.5%, or (ii) LIBOR plus 3.0%. These rates will be
increased by 0.5% until such time as the term loan, discussed below, has been
repaid in full. The weighted average interest rate on borrowings outstanding
under the credit facility was 9.3% during fiscal 1995. The Company is required
to pay a commitment fee of 0.5% per annum on the unused commitment. The
secured credit facility is secured by the accounts receivable, inventory,
certain general intangibles and unencumbered fixed assets of the Operating
Companies and 65% of the capital stock of one subsidiary of TWI. The agreement
requires that Waxman USA maintain certain leverage, fixed charge coverage, net
worth, capital expenditures and EBITDA to total cash interest ratios. All
financial covenants are based solely on the results of operations of Waxman
USA. The Company was in compliance with all covenants at June 30, 1995.

In September 1995, the Company entered into an amendment to the
secured credit facility and term loan which amended certain definitions
contained therein to eliminate the impact of Consumer Products' expected loss
on disposal as well as its warehouse closure charge from the financial covenant
calculations. In addition, the amendment modified certain of the financial
covenants to provide that future compliance will not be negatively impacted by
the results of Consumer Products.

The Operating Companies also entered into a $15.0 million three-year
term loan with Citibank, N.A., as agent. The term loan bears interest at a
rate per annum equal to 1.5% over the interest rate under the secured credit
facility and is secured by a junior lien on the collateral under the secured
credit facility. Principal payments on the term loan of $1.0 million each are
required quarterly. The term loan's financial covenants are identical to the
covenants contained in the secured credit facility and are based solely on the
results of operations of Waxman USA.

8. SENIOR SECURED NOTES:

In September 1991, the Company completed a private placement of $50
million of 7-year Senior Secured Notes (the "Senior Secured Notes"), including
detachable warrants to purchase 1 million shares of the Company's common stock
(the "Warrants"). At the time of issuance, the Senior Secured Notes included
$42.5 million of 12.25% 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 are redeemable in whole or in part, at the option of the Company,
after September 1, 1993 at a price of 107.35% for the fixed rate notes and 103%
for the floating rate notes. The redemption prices decrease annually to 100%
of the principal amounts at September 1, 1996. Annual mandatory redemption
payments of $14.45 million for the fixed rate notes, and $2.55 million for the
floating rate notes are due on September 1, 1996 and September 1, 1997 and are
calculated to retire 68% of the principal amount of the Senior Secured Notes
prior to maturity. As discussed in Note 2, the Company anticipates that the
proceeds from any sale of Consumer Products will be used, in part, to retire
the Senior Secured Notes thereby eliminating the mandatory sinking fund
requirements. As such, the Senior Secured Notes are classified as current in
the accompanying balance sheet as of June 30, 1995. The Company expects to
incur an extraordinary charge upon the early retirement of these notes which
primarily will represent the accelerated amortization of unamortized debt
issuance costs which were $2.0 million at June 30, 1995. The Senior Secured
Notes, which are secured by a pledge of all of the outstanding stock of
Barnett, Consumer Products and WOC, are senior in right of payment to all
subordinated indebtedness and pari passu with all other senior indebtedness of
the Company.

The Warrants are exercisable through September 1, 1996, at a price of
$4.60 per share. A portion of the proceeds of the private placement was
allocated to the Warrants and, as a result, paid-in capital increased by $1
million in fiscal year 1992. The related $1 million reduction in the recorded
principal amount of the Senior Secured Notes is being amortized as interest
expense over the life of the Senior Secured Notes.

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36
The Senior Secured Note indenture contains various covenants,
including dividend restrictions and minimum operating cash flow requirements.
The operating cash flow covenant requires a minimum ratio of operating cash
flow to interest expense of 1.1 to 1.0 (the Company's actual ratio for fiscal
1995 was approximately 1.2 to 1.0). For purposes of calculating this ratio,
operating cash flow is calculated based on the results of continuing operations
only and interest expense excludes any non-cash interest relating to the
Company's Deferred Coupon Notes.

During November 1993 and May 1994, the Company completed solicitations
of consents from the holders of the Senior Secured Notes which, among other
things, amended the net worth and certain other financial covenants and
permitted the completion of the Corporate Restructuring and eliminated any
prospective defaults resulting from the adverse results and events relating to
the Company's discontinued Canadian operations.

9. SENIOR SECURED DEFERRED COUPON NOTES:

On May 20, 1994, the Company exchanged $50 million of its Senior
Subordinated Notes for $50 million initial accreted value of 12.75% 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
1999. Thereafter interest on the Deferred Coupon Notes will accrue at a rate
of 12.75% 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 pledged under the secured credit facility and term
loan discussed in Note 7. 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 additional indebtedness, the
payment of dividends and any restricted payments.

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 and 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.

10. SENIOR SUBORDINATED NOTES:

In June 1989, the Company issued $100 million principal amount of
13.75% Senior Subordinated Notes due June 1, 1999. The Senior Subordinated
Notes are redeemable in whole or in part, at the option of the Company, after
June 1, 1994 at a price of 105.156% which decreases annually to 100% of the
principal amount at the maturity date. Annual mandatory redemption payments of
$20 million commencing June 1, 1996 are calculated to retire 60% of the issue
prior to maturity. In case of a change in control, the noteholders have the
right to require the Company to repurchase the Senior Subordinated Notes at
established redemption prices. The Senior Subordinated Notes, which are
unsecured, are subordinate in right of payment to all senior debt and are
senior in right of payment to the Company's Convertible Debentures. Under the
terms of the Senior Subordinated Note indenture, the Company may not incur
additional indebtedness which is subordinate to senior debt and senior to the
Senior Subordinated Notes. Additionally, the indenture agreement contains
various other covenants, including dividend restrictions and minimum net worth
requirements.

As discussed in Note 9, during 1994, the Company exchanged $50 million
principal amount of the Senior Subordinated Notes for a like amount of Deferred
Coupon Notes. The $50 million of Senior Subordinated Notes exchanged satisfy
the Company's mandatory redemption requirements with respect to such issue and,
as a result, the $20 million mandatory redemption payments due on June 1, 1996
and 1997 have been satisfied and the mandatory redemption payment due on June
1, 1998 has been reduced to $8.8 million.

36
37
During November 1993 and May 1994, the Company completed a
solicitation of consents from the holders of the Senior Subordinated Notes
which, among other things, amended the net worth and certain other financial
covenants and permitted the completion of the Corporate Restructuring and
eliminated any prospective defaults resulting from the adverse results and
events relating to the Company's discontinued Canadian operations.

11. STOCKHOLDERS' EQUITY:

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.

Each share of common stock entitles the holder to one vote, while each
share of Class B common stock entitles the holder to ten votes. Cash dividends
on the Class B common stock may not exceed 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.

Stockholders' equity includes cumulative currency translation
adjustments of ($215) and ($600) at June 30, 1995 and 1994, respectively. A
foreign currency exchange loss of $6.4 million, which resulted from the
elimination of the currency translation adjustments relating to Ideal, was
realized as part of the loss on disposal of Ideal in fiscal 1994. See Note 3.

12. STOCK OPTIONS:

Stock Option Plan

Effective July 1, 1992, the Company's stockholders approved the 1992
Non-Qualified and Incentive Stock Option Plan (the "1992 Stock Option Plan")
which 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.

During fiscal 1995, options exercisable to purchase an aggregate of 33
shares were issued under the 1992 Stock Option Plan at exercise prices of $1.38
per share, and options exercisable to purchase 46 shares with exercise prices
of $2.25 per share were canceled. At June 30, 1995, options for 1,181 shares
were outstanding, of which 295 were exercisable. At June 30, 1994, there were
options for 1,194 shares outstanding under the 1992 Stock Option Plan.

Other Stock Options

In fiscal 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- 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 Common Stock at the date
of grant. In addition, during fiscal 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, 1995, options to purchase a
total of 70 shares were outstanding under the non-qualified options, of which
18 were exercisable. At June 30, 1994, there were options for 70 shares
outstanding.

13. LEASE COMMITMENTS:

The Company leases certain of its warehouse and office facilities and
equipment under operating lease agreements which expire at various dates
through 2003.

37
38
Future minimum rental payments of continuing operations are as
follows: $3,070 in 1996, $2,819 in 1997, $2,252 in 1998, $1,817 in 1999, $1,031
in 2000 and $1,042 after 2000, with a cumulative total of $12,031.

Total rent expense charged to continuing operations was $2,809 in
1995, $2,676 in 1994 and $2,437 in 1993. Consumer Products leases certain
warehouse space from related parties. Related party rent expense charged to
discontinued operations totaled $588 in fiscal 1995, $471 in fiscal 1994 and
$422 in fiscal 1993.

14. PROFIT SHARING PLAN:

The Company has a trusteed profit sharing retirement plan for
employees of certain of its divisions and subsidiaries. In fiscal 1989, the
plan was amended to qualify under Section 401(K) of the Internal Revenue Code.
Company contributions are determined by the Board of Directors. There were no
charges to operations for profit sharing contributions in fiscal 1995 and 1994.
The charges to operations for Company contributions totaled $79 in fiscal
1993. The Company offers no other post-retirement or post-employment benefits
to its employees.

15. 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.

38
39
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, 1995 and 1994 (in thousands,
except per share amounts):

AUDITED
FISCAL 1995 1ST QTR. 2ND QTR. 3RD QTR. 4TH QTR. TOTAL
----------- -------- -------- -------- -------- -----

Net sales $37,093 $39,426 $40,370 $ 39,101 $155,990

Gross profit 11,934 13,008 13,403 12,406 50,751
Operating income 2,798 3,653 3,400 1,224 11,075
Loss from continuing operations (1,246) (1,017) (1,676) (4,802) (8,741)
Income (loss) from discontinued
operations 694 34 (193) (3,867) (3,332)
Loss on disposal - - - (11,000) (11,000)

Net loss (552) (983) (1,869) (19,669) (23,073)
Primary and fully diluted
earnings per share:
Loss from continuing operations (.11) (.09) (.14) (.41) (.75)
Income (loss) from discontinued
operations .06 .01 (.02) (.33) (.28)
Loss on disposal - - - (.94) (.94)
Net loss (.05) (.08) (.16) (1.68) (1.97)

AUDITED
FISCAL 1994 1ST QTR. 2ND QTR. 3RD QTR. 4TH QTR. TOTAL
----------- -------- -------- -------- -------- -----

Net sales $35,213 $34,257 $34,286 $ 36,141 $139,897

Gross profit 11,346 11,548 11,632 11,708 46,234
Operating income 2,531 2,884 2,939 2,068 10,422
Loss from continuing operations
before extraordinary charge (455) (655) (834) (2,319) (4,263)
Income (loss) from discontinued
operations 984 728 (4,357) 187 (2,458)
Loss on disposal (38,343) - (38,343)

Extraordinary charge - - (6,625) (199) (6,824)
Net income (loss) 529 73 (50,159) (2,331) (51,888)
Primary and fully diluted
earnings per share:
Loss from continuing operations
before extraordinary charge (.04) (.05) (.07) (.20) (.37)
Income (loss) from discontinued
operations .09 .06 (.37) .02 (.21)
Loss on disposal - - (3.28) - (3.28)

Extraordinary charge - - (.57) (.02) (.58)
Net income (loss) .05 .01 (4.29) (.20) (4.44)

39
40
PART III

Part III, except for certain information relating to Executive
Officers included in Part I, Item 4A, is omitted inasmuch as the Company
intends to file with the Securities and Exchange Commission within 120 days of
the close of its fiscal year ended June 30, 1994 a definitive proxy statement
pursuant to Regulation 14A of the Securities Exchange Act of 1934.

PART IV

ITEM 14. EXHIBITS, FINANCIAL STATEMENTS, SCHEDULES AND REPORTS ON FORM 8-K

(a) (1) The following consolidated financial statements are
included in Part II, Item 8:

Report of Independent Public Accountants

Balance Sheets--June 30, 1995 and 1994

Statements of Income--For the Years Ended June 30, 1995,
1994, and 1993

Statements of Stockholders' Equity--For the Years Ended
June 30, 1995, 1994 and 1993.

Statements of Cash Flows--For the Years Ended June 30,
1995, 1994 and 1993.

Notes to Financial Statements For the Years Ended June 30,
1995, 1994 and 1993.

Supplementary Financial Information

(a) (2) All schedules have been omitted since the required
information is not present or not present in amounts
sufficient to require submission of the schedule, or
because the information required is included in the
consolidated financial statements including notes thereto.

(a) (3) 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).

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41
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).

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).

41
42
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.).

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).

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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).

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).

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

27.1 Financial Data Schedule

* Incorporated herein by reference as indicated.

(b) REPORTS ON FORM 8-K

There are no reports on Form 8-K for the three months ended June
30, 1995.

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SIGNATURES

Pursuant to the requirements of Section 13 of 15(d) of the Securities
Exchange Act of 1934, the registrant has duly caused this report to be signed
on its behalf by the undersigned, thereunto duly authorized.

WAXMAN INDUSTRIES, INC.

September 27, 1995 By: /s/ Armond Waxman
-----------------------
Armond Waxman
Co-Chairman of the Board and
Co-Chief Executive Officer

Pursuant to the requirements of the Securities Exchange Act of 1934,
this report has been signed below by the following persons on behalf of the
registrant and in the capacities and on the dates indicated.

September 27, 1995 /s/ Melvin Waxman
--------------------------
Melvin Waxman
Co-Chairman of the Board,
Co-Chief Executive Officer
and Director

September 27, 1995 /s/ Armond Waxman
--------------------------
Armond Waxman
Co-Chairman of the Board,
Co-Chief Executive Officer
and Director

September 27, 1995 /s/ William R. Pray
--------------------------
William R. Pray
President,
Chief Operating Officer
and Director

September 27, 1995 /s/ Neal R. Restivo
--------------------------
Neal R. Restivo
Senior Vice President, Finance
and Chief Financial Officer
(principal accounting officer)

September 27, 1995 /s/ Samuel J. Krasney
--------------------------
Samuel J. Krasney, Director

September 27, 1995 /s/ Judy Robins
--------------------------
Judy Robins, Director

September 27, 1995 /s/ Irving Z. Friedman
--------------------------
Irving Z. Friedman, Director

44