EX-99.1 2 e19455ex99_1.txt PRESS RELEASE Exhibit 99.1 Walter Industries Announces Third Quarter 2004 Results -- EPS of $0.50 Exceeds Previously Announced Guidance -- -- Coal Mining Business Reports Record Quarterly Operating Income -- -- Company Overcomes $4.9 Million of Hurricane-Related Insurance Losses -- -- Board of Directors Increases Quarterly Dividend by 33% -- TAMPA, Fla., Oct. 26 /PRNewswire-FirstCall/ -- Walter Industries, Inc. (NYSE: WLT), today reported earnings of $0.50 per diluted share for the third quarter ended September 30, 2004, compared to a net loss of $0.22 per diluted share for the year-ago period. Net income for the third quarter was $19.1 million, compared to a net loss of $9.3 million in the year-ago period. The prior-year period included an after-tax loss of $9.2 million from discontinued operations. Earnings for the third quarter exceeded the Company's most recently issued guidance of $0.40 to $0.45 per diluted share. Income from continuing operations before income tax expense in the third quarter was $25.2 million, an increase of $27.4 million versus the prior-year period as record operating performance in the Natural Resources segment led to a significant year-over-year turnaround in overall profitability. Natural Resources' dramatic improvement in results was due to a 54% increase in average coal prices, a strong increase in coal production, higher natural gas prices and significantly lower production costs. "We are pleased to report strong financial results for the third quarter, especially in light of the impact that four major hurricanes had on our Financing segment," said Chairman and Chief Executive Officer Don DeFosset. "Our positive results were driven by record operating income within our Natural Resources segment, as well as solid performance in the Financing segment and at U.S. Pipe." Net sales and revenue for the third quarter was $388.3 million, an increase of 13% versus the year-ago period. This significant increase was primarily the result of favorable metallurgical coal and natural gas prices at Natural Resources, plus increased volumes and higher ductile iron pipe prices at U.S. Pipe, partially offset by lower volumes in the Homebuilding segment. Operating results for the third quarter also reflected increased margins at U.S. Pipe, as higher prices and volumes more than overcame significantly increased scrap metal costs. The positives in Natural Resources and U.S. Pipe were partially offset by losses within the Homebuilding segment, and by approximately $4.9 million in pre-tax insurance losses in the Financing segment from the multiple hurricanes that impacted the Southeastern United States during the quarter. Earnings per diluted share in the third quarter do not reflect the impact of implementing Emerging Issues Task Force Issue No. 04-08, "The Effect of Contingently Convertible Debt on Diluted Earnings per Share" (EITF 04-08). When EITF 04-08 becomes effective, the Company will be required to recalculate and restate diluted earnings per share by including the dilutive impact of an additional 9.8 million shares of common stock associated with the Company's $175 million contingent convertible senior subordinated notes. Third Quarter Results By Operating Segment Natural Resources Segment The Natural Resources segment reported third quarter revenue of $95.5 million, up 56% versus the year-ago period, due to significantly higher metallurgical coal and natural gas prices, plus higher coal shipments. Jim Walter Resources generated operating income of $23.7 million, a record level of profitability since its inception in 1977. Operating income was $33.4 million higher than the prior-year period, principally from new contract pricing improvements, which started in the third quarter, as well as favorable spot sales. The Company also achieved an 18% increase in coal production and a 9% reduction in extraction costs. Jim Walter Resources sold 1.6 million tons of coal at an average price of $53.27 per ton in the third quarter, compared to 1.5 million tons in the prior-year quarter at an average price of $34.59. The natural gas operation sold 1.9 billion cubic feet of gas in the third quarter at an average price of $5.80 per thousand cubic feet, compared to sales of 2.1 billion cubic feet at $4.30 per thousand cubic feet in the prior-year quarter. The outlook for Jim Walter Resources remains strong, as demand for high- quality metallurgical coal continues to rise. Financing Segment The Financing segment's revenue for the third quarter was $59.3 million, compared to $61.1 million in the prior-year period. Lower revenue was due to reduced yields on the instalment note portfolio, partially offset by slightly higher prepayment income. Prepayment speeds were 10.6% in the third quarter, compared to 10.2% in the year-ago period. Third quarter operating income was $8.6 million, down $3.2 million versus the year-ago period, primarily due to a $4.9 million pre-tax provision for estimated hurricane losses. Excluding hurricane losses, the Financing segment's operating income increased $1.7 million, reflecting continued favorable delinquency rates, reduced interest expense, and a lower provision for losses on repossessed homes. Delinquencies (the percentage of amounts outstanding over 30 days past due) were 5.6% at the end of the quarter, compared to 6.3% at the end of the prior-year period. Industrial Products Segment The Industrial Products segment reported revenue of $157.2 million, up 19% versus the prior-year period, as significant increases in ductile iron pipe sales prices were realized. U.S. Pipe has successfully implemented five price increases, and recently announced a sixth, over the last 16 months to offset rapidly rising costs for scrap metal, transportation, and other raw materials. Operating income for the current quarter was $8.3 million, up 39% versus the year-ago period. The improvement was primarily due to higher selling prices, as well as a 14% increase in ductile iron pipe volume. Effective pricing actions and strong market demand helped U.S. Pipe significantly improve profitability on a year-over-year basis. Homebuilding Segment The Homebuilding segment reported third quarter revenue of $54.2 million, compared to $67.0 million in the year-ago period, as lower unit completions continue to negatively impact financial results. Homebuilding completed 733 homes during the third quarter at an average selling price of $73,000, compared to 1,004 homes at an average selling price of $66,000 for the same period last year. The Homebuilding segment is working aggressively to increase sales and rebuild its backlog with new promotions, enhanced sales training, and the introduction of larger, more contemporary home models. Expanded financing incentives, such as delayed payment programs and lower coupon rates, have also been offered to attract first-time homebuyers. The segment's operating loss for the third quarter was $9.6 million, compared to a loss of $1.6 million in the prior-year period. Results for the quarter reflect lower unit completions plus reduced margins due to rising lumber and other costs, job cost overruns, and expenses associated with closing under-performing sales centers. The Homebuilding segment is making progress on several cost-containment initiatives and continues to rationalize its sales center distribution base. In addition, new sales and marketing campaigns have recently resulted in improved levels of new home order volumes. However, the string of recent hurricanes and the resulting excessive rain caused construction delays during the quarter, which reduced new starts and completions through much of the Southeast. Given low sales volumes earlier in the year, delays in new starts, and our normal cycle times, the Company expects the Homebuilding segment's return to profitability to be achieved in the second half of 2005. Other Sloss Industries reported revenue of $26.2 million, a 24% increase over the prior-year period. Operating income was $2.1 million, versus a loss of $0.5 million in the year-ago period. Revenue and income improvements reflect higher furnace and foundry coke contract pricing as well as favorable spot shipments during the quarter. Also, during the quarter the Company's Financing business completed a $294 million mortgage-backed security transaction, which generated $38 million in net cash proceeds. The proceeds were used to eliminate outstanding borrowings under the Company's bank revolver and add $30 million in cash to the balance sheet. In light of the Company's strong results, the Walter Industries' Board of Directors recently announced a 33% increase in the quarterly dividend to $0.04 cents per common share. Conference Call Webcast Walter Industries Chairman and CEO Don DeFosset and members of the Company's leadership team will discuss quarterly results and other general business matters on a conference call and live Webcast to be held on Wednesday, October 27, 2004, at 9:00 a.m. Eastern time. To listen to the event live or in archive, visit the Company Web site at http://www.walterind.com. Walter Industries, Inc. is a diversified company with annual revenue of $1.3 billion. The Company is a leader in affordable homebuilding, related financing, and water transmission products, and is a significant producer of high-quality coal for worldwide markets. Based in Tampa, Florida, the Company employs approximately 5,200 people. For more information about Walter Industries, please call Joe Troy, Senior Vice President-Financial Services at (813) 871-4404, or visit the Company Web site at http://www.walterind.com. Safe Harbor Statement Except for historical information contained herein, the statements in this release are forward-looking and made pursuant to the safe harbor provisions of the Private Securities Litigation Reform Act of 1995. Forward-looking statements involve known and unknown risks and uncertainties that may cause the Company's actual results in future periods to differ materially from forecasted results. Those risks include, among others, changes in customers' demand for the Company's products, changes in raw material and equipment costs and availability, geologic conditions and changes in extraction costs and pricing in the Company's mining operations, changes in customer orders, pricing actions by the Company's competitors, the collection of approximately $16 million of receivables associated with working capital adjustments arising from the sales of subsidiaries in 2003, potential changes in the mortgage- backed capital market, and general changes in economic conditions. Risks associated with forward-looking statements are more fully described in the Company's filings with the Securities and Exchange Commission. The Company assumes no duty to update its forward-looking statements as of any future date. WALTER INDUSTRIES, INC. AND SUBSIDIARIES CONSOLIDATED EARNINGS PER SHARE Unaudited For the three months ended September 30, 2004 2003 Basic Income (Loss) per share: Income from continuing operations $0.51 $-- Discontinued Operations -- (0.22) Net Income (Loss) $0.51 $(0.22) Weighted average number of basic shares outstanding 37,424,525 42,210,244 Diluted Income (Loss) per share: Income from continuing operations $0.50 $-- Discontinued Operations -- (0.22) Net Income (Loss) $0.50 $(0.22) Weighted average number of diluted shares outstanding 38,281,924 42,608,676 WALTER INDUSTRIES, INC. AND SUBSIDIARIES CONSOLIDATED STATEMENTS OF OPERATIONS ($ in Thousands) Unaudited For the three months ended September 30, 2004 2003 Net sales and revenues: Net sales $326,895 $280,647 Interest income on instalment notes 54,961 56,552 Miscellaneous 6,468 6,796 388,324 343,995 Cost and expenses: Cost of sales (exclusive of depreciation) 252,480 240,286 Depreciation 14,687 13,325 Selling, general and administrative 47,500 42,279 Provision for losses on instalment notes 3,265 4,907 Postretirement benefits 2,053 2,095 Interest expense - mortgage- backed/asset-backed notes 32,824 33,492 Interest expense - corporate debt 3,803 6,604 Amortization of other intangibles 1,079 1,586 Provision for estimated hurricane losses 4,918 -- Restructuring and impairment charges 534 1,650 363,143 346,224 Income (loss) from continuing operations before income tax expense 25,181 (2,229) Income tax (expense) benefit (6,108) 2,201 Income (loss) from continuing operations 19,073 (28) Discontinued Operations, net of income taxes -- (9,230) Net Income (Loss) $19,073 $(9,258) WALTER INDUSTRIES, INC. AND SUBSIDIARIES RESULTS BY OPERATING SEGMENT ($ in Thousands) Unaudited For the three months ended September 30, 2004 2003 NET SALES AND REVENUES: Homebuilding $54,172 $66,968 Financing 59,262 61,108 Industrial Products 157,229 131,737 Natural Resources 95,549 61,444 Other 28,816 27,293 Consolidating Eliminations (6,704) (4,555) $388,324 $343,995 OPERATING INCOME (LOSS): Homebuilding $(9,550) $(1,591) Financing 8,569 11,780 Industrial Products 8,286 5,965 Natural Resources 23,674 (9,678) Other (1,288) (1,423) Consolidating Eliminations (707) (678) Operating income 28,984 4,375 Corporate debt interest expense (3,803) (6,604) Income (loss) from continuing operations before income tax expense $25,181 $(2,229) WALTER INDUSTRIES, INC. AND SUBSIDIARIES CONSOLIDATED EARNINGS PER SHARE Unaudited For the nine months ended September 30, 2004 2003 Basic Income (Loss) per share: Income from continuing operations $0.58 $0.52 Discontinued Operations -- (1.10) Cumulative effect of change in accounting principle -- 0.01 Net Income (Loss) $0.58 $(0.57) Weighted average number of basic shares outstanding 39,154,490 43,375,050 Diluted Income (Loss) per share: Income from continuing operations $0.57 $0.52 Discontinued Operations -- (1.10) Cumulative effect of change in accounting principle -- 0.01 Net Income (Loss) $0.57 $(0.57) Weighted average number of diluted shares outstanding 39,841,802 43,677,284 WALTER INDUSTRIES, INC. AND SUBSIDIARIES CONSOLIDATED STATEMENTS OF OPERATIONS ($ in Thousands) Unaudited For the nine months ended September 30, 2004 2003 Net sales and revenues: Net sales $914,941 $825,202 Interest income on instalment notes 166,634 166,645 Miscellaneous 12,653 13,858 1,094,228 1,005,705 Cost and expenses: Cost of sales (exclusive of depreciation) 736,870 690,757 Depreciation 45,188 40,461 Selling, general and administrative 147,374 126,201 Provision for losses on instalment notes 8,297 11,243 Postretirement benefits 5,158 6,427 Interest expense - mortgage- backed/asset-backed notes 94,826 96,478 Interest expense - corporate debt 13,954 14,371 Amortization of other intangibles 3,916 4,684 Provision for estimated hurricane losses 4,918 -- Litigation expense -- 6,500 Restructuring and impairment charges 1,048 7,537 1,061,549 1,004,659 Income from continuing operations before income tax expense 32,679 1,046 Income tax (expense) benefit (9,945) 21,570 Income from continuing operations 22,734 22,616 Discontinued Operations, net of income taxes -- (47,701) Cumulative effect of change in accounting principle (net of income tax expense of $123) -- 376 Net Income (Loss) $22,734 $(24,709) WALTER INDUSTRIES, INC. AND SUBSIDIARIES RESULTS BY OPERATING SEGMENT ($ in Thousands) Unaudited For the nine months ended September 30, 2004 2003 NET SALES AND REVENUES: Homebuilding $179,832 $206,467 Financing 183,040 180,243 Industrial Products 416,313 355,685 Natural Resources 249,372 197,383 Other 82,898 81,133 Consolidating Eliminations (17,227) (15,206) $1,094,228 $1,005,705 OPERATING INCOME (LOSS): Homebuilding $(25,071) $2,809 Financing 39,065 40,833 Industrial Products 8,137 (10,357) Natural Resources 36,080 (8,047) Other (9,518) (7,786) Consolidating Eliminations (2,060) (2,035) Operating income 46,633 15,417 Corporate debt interest expense (13,954) (14,371) Income from continuing operations before income tax expense $32,679 $1,046 WALTER INDUSTRIES, INC. AND SUBSIDIARIES SUPPLEMENTAL INFORMATION ($ in Thousands) Unaudited For the For the For the For the three three nine nine months months months months ended ended ended ended Sept. 30 Sept. 30 Sept. 30 Sept. 30 2004 2003 2004 2003 Depreciation: Homebuilding $1,213 $1,257 $3,671 $3,465 Financing 401 219 1,093 623 Industrial Products 6,415 6,459 20,158 19,793 Natural Resources 5,464 4,084 16,628 12,559 Other 1,194 1,306 3,638 4,021 $14,687 $13,325 $45,188 $40,461 Amortization of other intangibles: Financing $1,079 $1,586 $3,916 $4,684 Restructuring and impairment charges: Mine No. 5 shutdown costs $534 $-- $927 $-- U.S. Pipe Anniston plant shutdown costs -- -- 121 5,887 Former headquarters impairment charge -- 1,650 -- 1,650 $534 $1,650 $1,048 $7,537 WALTER INDUSTRIES, INC. AND SUBSIDIARIES CONDENSED CONSOLIDATED BALANCE SHEETS ($ in Thousands) Unaudited September 30, December 31, September 30, 2004 2003 2003 ASSETS Cash and cash equivalents $47,572 $59,982 $19,247 Short-term investments, restricted 105,692 100,315 107,224 Marketable securities 665 652 652 Instalment notes receivable, net of allowance of $12,587, $12,675 and $11,747, respectively 1,744,059 1,757,832 1,743,428 Receivables, net 189,788 155,497 173,206 Income tax receivable 15,369 17,271 42,292 Inventories 211,929 215,855 197,436 Prepaid expenses 13,089 6,528 8,027 Property, plant and equipment, net 333,502 352,529 352,338 Assets held for sale -- -- 10,521 Assets of discontinued operations held for sale -- -- 300,878 Investments 6,153 6,326 6,747 Deferred income taxes 37,185 47,498 50,956 Unamortized debt expense 38,166 35,810 38,075 Other long-term assets, net 47,638 35,472 39,883 Goodwill and other intangibles, net 146,046 149,962 153,866 $2,936,853 $2,941,529 $3,244,776 LIABILITIES AND STOCKHOLDERS' EQUITY Accounts payable $100,947 $99,889 $95,942 Accrued expenses 122,918 109,136 104,625 Debt: Mortgage-backed/asset-backed notes 1,796,071 1,829,898 1,849,492 Senior debt -- 113,754 321,753 Convertible senior subordinated notes 175,000 -- -- Accrued interest 17,992 17,119 17,531 Liabilities of discontinued operations held for sale -- -- 92,606 Accumulated postretirement benefits obligation 283,906 292,300 289,619 Other long-term liabilities 198,479 202,823 189,185 Total liabilities 2,695,313 2,664,919 2,960,753 Stockholders' equity 241,540 276,610 284,023 $2,936,853 $2,941,529 $3,244,776 WALTER INDUSTRIES, INC. AND SUBSIDIARIES CONSOLIDATED STATEMENTS OF CASH FLOWS ($ in Thousands) Unaudited For the nine months ended September 30, 2004 2003 OPERATING ACTIVITIES Income from continuing operations $22,734 $22,616 Adjustments to reconcile income to net cash provided by continuing operations: Provision for losses on instalment notes receivable 8,297 11,243 Depreciation 45,188 40,461 Provision for deferred income taxes 10,208 3,987 Accumulated postretirement benefits obligation (8,394) (6,783) Decrease in other long-term liabilities (2,337) (5,213) Amortization of other intangibles 3,916 4,684 Amortization of debt expense 6,986 4,451 Loss on sale of assets 1,294 -- Restructuring and impairment charges 772 6,350 Stock-based compensation expense 472 -- Decrease (increase) in assets: Marketable securities (13) 958 Receivables, net (36,157) (13,193) Income taxes receivable 2,007 (17,983) Inventories 866 (8,128) Prepaid expenses (6,561) (382) Increase (decrease) in liabilities: Accounts payable 2,277 1,212 Accrued expenses 16,787 951 Accrued interest 873 (1,121) Cash flows provided by continuing operations 69,215 44,110 Cash flows (used in) provided by discontinued operations (3,611) 18,698 Cash flows provided by operating activities 65,604 62,808 INVESTING ACTIVITIES Notes originated from sales and resales of homes and purchases of loan portfolios (345,571) (374,538) Cash collections on accounts and payouts in advance of maturity 351,047 337,590 Increase in short-term investments, restricted (5,377) (9,338) Additions to property, plant and equipment, net of retirements (29,316) (31,471) Increase in investments and other assets, net (13,590) (3,025) Additions to property, plant and equipment of discontinued operations -- (19,219) Proceeds from sale of subsidiary 6,000 -- Cash flows used in investing activities (36,807) (100,001) FINANCING ACTIVITIES Issuance of debt 670,218 1,041,201 Retirement of debt (644,239) (954,876) Additions to unamortized debt expense (7,902) (7,273) Dividends paid (3,489) (3,884) Purchases of treasury stock (63,020) (27,566) Exercise of employee stock options 7,225 604 Cash flows (used in) provided by financing activities (41,207) 48,206 Net (decrease) increase in cash and cash equivalents (12,410) 11,013 Cash and cash equivalents at beginning of period 59,982 8,234 Cash and cash equivalents at end of period $47,572 $19,247 SOURCE Walter Industries, Inc. -0- 10/26/2004 /CONTACT: Joe Troy, Senior Vice President-Financial Services, Walter Industries, +1-813-871-4404/ /Photo: http://www.newscom.com/cgi-bin/prnh/20020429/FLM010LOGO-c AP Archive: http://photoarchive.ap.org PRN Photo Desk, photodesk@prnewswire.com/ /Web site: http://www.walterind.com/ (WLT) CO: Walter Industries, Inc.; Jim Walter Resources; U.S. Pipe; Sloss Industries ST: Florida IN: CST OIL RLT FIN SU: ERN ERP DIV CCA MAV