-----BEGIN PRIVACY-ENHANCED MESSAGE----- Proc-Type: 2001,MIC-CLEAR Originator-Name: webmaster@www.sec.gov Originator-Key-Asymmetric: MFgwCgYEVQgBAQICAf8DSgAwRwJAW2sNKK9AVtBzYZmr6aGjlWyK3XmZv3dTINen TWSM7vrzLADbmYQaionwg5sDW3P6oaM5D3tdezXMm7z1T+B+twIDAQAB MIC-Info: RSA-MD5,RSA, IDSAkFElWy8pLJnBvnFWVENIsAVnRQqYQZ+rVY/oJ646u0d+I/w/M4pFkvX6YpPP h4cFbwv8gsREBmCj4M6WYg== 0000912057-97-000836.txt : 19970115 0000912057-97-000836.hdr.sgml : 19970115 ACCESSION NUMBER: 0000912057-97-000836 CONFORMED SUBMISSION TYPE: 424B3 PUBLIC DOCUMENT COUNT: 1 FILED AS OF DATE: 19970114 SROS: NASD FILER: COMPANY DATA: COMPANY CONFORMED NAME: WALTER INDUSTRIES INC /NEW/ CENTRAL INDEX KEY: 0000837173 STANDARD INDUSTRIAL CLASSIFICATION: GEN BUILDING CONTRACTORS - RESIDENTIAL BUILDINGS [1520] IRS NUMBER: 133429953 STATE OF INCORPORATION: DE FISCAL YEAR END: 0531 FILING VALUES: FORM TYPE: 424B3 SEC ACT: 1933 Act SEC FILE NUMBER: 033-59013 FILM NUMBER: 97505197 BUSINESS ADDRESS: STREET 1: 1500 N DALE MABRY HGWY CITY: TAMPA STATE: FL ZIP: 33607 BUSINESS PHONE: 8138714811 MAIL ADDRESS: STREET 1: 1500 NORTH MABRY HGWY STREET 2: 1500 NORTH MABRY HGWY CITY: TAMPA STATE: FL ZIP: 33607 FORMER COMPANY: FORMER CONFORMED NAME: HILLSBOROUGH HOLDINGS CORP DATE OF NAME CHANGE: 19910814 424B3 1 424B3 (PROSPECTUS SUPPLEMENT) Filed pursuant to Rule 424(b) and (c) with respect to Reg. No. 33-59013 SECOND PROSPECTUS SUPPLEMENT dated January 14, 1997 to PROSPECTUS dated September 17, 1996 of WALTER INDUSTRIES, INC. Relating to 31,885,363 Shares of Common Stock UNITED STATES SECURITIES AND EXCHANGE COMMISSION WASHINGTON, D. C. 20549 FORM 10-Q /X/ QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 For the quarterly period ended November 30, 1996 or / / TRANSITION REPORT PURSUANT TO SECTION 13 OR 15 (d) OF THE SECURITIES EXCHANGE ACT OF 1934 Commission File Number 000-20537 WALTER INDUSTRIES, INC. Incorporated in Delaware IRS Employer Identification No. 13-3429953 1500 North Dale Mabry, Tampa, Florida 33607 Telephone Number 813-871-4811 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, and (2) has been subject to such filing requirements for the past 90 days. Yes X . No . --- --- Indicate by check mark whether the registrant has filed all documents and reports required to be filed by Sections 12, 13 or 15(d) of the Securities Exchange Act of 1934 subsequent to the distribution of securities under a plan confirmed by a court. Yes X . No . --- --- There were 54,868,335 shares of common stock of the registrant outstanding at December 31, 1996. PART I - FINANCIAL INFORMATION WALTER INDUSTRIES, INC. AND SUBSIDIARIES CONSOLIDATED CONDENSED BALANCE SHEET (UNAUDITED) November 30, May 31, 1996 1996 ------------ ------------ (in thousands) ASSETS Cash (includes short-term investments of $42,077,000 and $64,338,000) (Note 3) $ 56,763 $ 81,881 Short-term investments, restricted (Note 3) 184,809 175,432 Installment notes receivable (Note 4) 4,234,551 4,206,252 Less - Provision for possible losses ( 26,284) ( 26,138) Unearned time charges (2,875,566) (2,851,961) Trade and other receivables, less $8,060,000 and $8,180,000 provision for possible losses 185,173 191,722 Inventories, at lower of cost (first in, first out or average) or market: Finished goods 105,945 124,456 Goods in process 36,001 32,798 Raw materials and supplies 50,490 51,674 Houses held for resale 3,468 2,517 Prepaid expenses 10,437 11,937 Property, plant and equipment, at cost 930,351 888,991 Less - Accumulated depreciation, depletion and amortization ( 378,601) ( 347,455) Investments and other assets 51,799 51,617 Deferred income taxes 114,910 155,171 Unamortized debt expense 26,128 29,548 Excess of purchase price over net assets acquired (Note 2) 293,103 310,935 ------------ ------------ $ 3,003,477 $ 3,091,377 ------------ ------------ ------------ ------------ LIABILITIES AND STOCKHOLDERS' EQUITY Bank overdrafts (Note 3) $ 21,582 $ 28,194 Accounts payable and accrued expenses 181,273 $ 194,807 Income taxes payable 54,475 56,238 Long-term senior debt: Mortgage-backed /asset backed notes (Note 4) 1,762,343 1,791,946 Other senior debt 357,750 419,350 Accrued interest 25,804 28,819 Accumulated postretirement health benefits obligation 258,634 247,827 Other long-term liabilities 47,182 47,502 Stockholders' equity (Note 6): Common stock 549 549 Capital in excess of par value 1,159,327 1,159,332 Retained earnings (deficit) ( 860,116) ( 877,861) Excess of additional pension liability over unrecognized prior years service cost ( 5,326) ( 5,326) ------------ ------------ Total stockholders' equity 294,434 276,694 ------------ ------------ $ 3,003,477 $ 3,091,377 ------------ ------------ ------------ ------------ 2 WALTER INDUSTRIES, INC. AND SUBSIDIARIES CONSOLIDATED STATEMENT OF OPERATIONS (UNAUDITED) For the three months ended November 30, ----------------------------- 1996 1995 --------- --------- (in thousands except per share amounts) Sales and revenues: Net sales $ 332,375 $ 310,527 Time charges 57,353 55,566 Miscellaneous 8,168 12,043 --------- --------- 397,896 378,136 --------- --------- Costs and expenses: Cost of sales 264,412 249,794 Depreciation, depletion and amortization 19,195 18,925 Selling, general and administrative 35,847 33,492 Postretirement health benefits 6,425 6,843 Provision for possible losses 819 722 Interest and amortization of debt expense 45,733 54,912 Amortization of excess of purchase price over net assets acquired (Note 2) 8,830 9,744 --------- --------- 381,261 374,432 16,635 3,704 Income tax expense: Current ( 493) ( 739) Deferred ( 8,617) ( 4,059) --------- --------- Net income (loss) $ 7,525 $( 1,094) --------- --------- --------- --------- Net income (loss) per share: Primary $ .13 $( .02) --------- --------- --------- --------- Fully diluted $ .13 $( .02) --------- --------- --------- --------- 3 WALTER INDUSTRIES, INC. AND SUBSIDIARIES CONSOLIDATED STATEMENT OF OPERATIONS (UNAUDITED) For the six months ended November 30, ----------------------------- 1996 1995 --------- --------- (in thousands except per share amounts) Sales and revenues: Net sales $ 638,604 $ 626,634 Time charges 114,943 111,921 Miscellaneous 14,012 19,729 --------- --------- 767,559 758,284 --------- --------- Costs and expenses: Cost of sales 499,372 499,627 Depreciation, depletion and amortization 36,777 37,442 Selling, general and administrative 69,110 66,596 Postretirement health benefits 12,872 13,522 Provision for possible losses 1,558 1,660 Interest and amortization of debt expense 92,267 109,493 Amortization of excess of purchase price over net assets acquired (Note 2) 17,832 19,969 --------- --------- 729,788 748,309 --------- --------- 37,771 9,975 Income tax expense: Current ( 1,176) ( 1,500) Deferred ( 18,850) ( 9,328) --------- --------- Net income (loss) $ 17,745 $( 853) --------- --------- --------- --------- Net income (loss) per share: Primary $ .32 $( .02) --------- --------- --------- --------- Fully diluted $ .32 $( .02) --------- --------- --------- --------- 4 WALTER INDUSTRIES, INC. AND SUBSIDIARIES CONSOLIDATED CONDENSED STATEMENT OF CASH FLOWS (UNAUDITED) For the six months ended November 30, ----------------------------- 1996 1995 --------- --------- (in thousands except per share amounts) OPERATIONS Net income (loss) $ 17,745 $( 853) Charges to income not affecting cash: Depreciation, depletion and amortization 36,777 37,442 Provision for deferred income taxes 18,850 9,328 Accumulated postretirement health benefits obligation 10,807 10,207 Provision for other long-term liabilities ( 320) ( 560) Amortization of excess purchase price over net assets acquired 17,832 19,969 Amortization of debt expense 3,579 3,841 --------- --------- 105,270 79,374 Decrease (increase) in: Short-term investments, restricted ( 9,377) ( 22,124) Installment notes receivable, net (Note 4) ( 2,548) 13,821 Trade and other receivables, net 6,549 16,145 Inventories 15,541 ( 545) Prepaid expenses 1,500 170 Deferred income taxes 21,411 - Increase (decrease) in: Bank overdrafts (Note 3) ( 6,612) ( 17,356) Accounts payable and accrued expenses ( 12,439) ( 16,125) Income taxes payable ( 1,763) 451 Accrued interest ( 3,015) ( 876) --------- --------- Cash flows from operations 114,517 52,935 --------- --------- FINANCING ACTIVITIES Issuance of long-term debt 62,000 65,000 Retirement of long-term senior debt (153,203) ( 80,218) Additions to unamortized debt expense ( 159) ( 183) Payment of liabilities subject to Chapter 11 proceedings (Note 2) ( 1,095) ( 56,429) Fractional share payments ( 5) ( 2) --------- --------- Cash flows used in financing activities ( 92,462) ( 71,832) --------- --------- INVESTING ACTIVITIES Additions to property, plant and equipment, net of normal retirements ( 46,991) ( 30,445) Decrease (increase) in investments and other assets ( 182) 176 --------- --------- Cash flows used in investing activities ( 47,173) ( 30,269) --------- --------- Net decrease in cash and cash equivalents ( 25,118) ( 49,166) Cash and cash equivalents at beginning of period 81,881 128,007 --------- --------- Cash and cash equivalents at end of period (Note 3) $ 56,763 $ 78,841 --------- --------- --------- --------- 5 WALTER INDUSTRIES, INC. AND SUBSIDIARIES NOTES TO CONSOLIDATED CONDENSED FINANCIAL STATEMENTS NOVEMBER 30, 1996 (Unaudited) Note 1 - Principles of Consolidation Walter Industries, Inc.(the "Company") through its direct and indirect subsidiaries currently offers a diversified line of products and services for homebuilding, water and waste water transmission, coal mining and related degasification, residential and non-residential construction, and industrial markets. The consolidated financial statements include the accounts of the Company and all of its subsidiaries. Preparation of financial statements in accordance with generally accepted accounting principles requires management to make estimates and assumptions that affect the amounts reported in the consolidated financial statements. Actual amounts could differ from those estimates. All significant intercompany balances have been eliminated. All of the amounts are unaudited but in the opinion of management, all adjustments, consisting only of normal recurring adjustments necessary for a fair presentation have been made. The results for the three and six months ended November 30, 1996 and 1995 are not necessarily indicative of results for a full fiscal year. These financial statements should be read in conjunction with the Company's consolidated financial statements and notes thereto in the Company's Annual Report on Form 10-K for the year ended May 31, 1996. Unless otherwise specified, capitalized terms used herein are as defined in the aforementioned Form 10-K. Note 2 - Recent History The Company was organized in 1987 for the purpose of acquiring Jim Walter Corporation ("Original Jim Walter"). The Company's financial statements reflect the allocation of the purchase price of Original Jim Walter based upon the fair value of the assets acquired and the liabilities assumed. On December 27, 1989, the Company and most of its subsidiaries each filed a voluntary petition for reorganization under Chapter 11 of Title 11 of the United States Code in the United States Bankruptcy Court for the Middle District of Florida, Tampa Division (the "Bankruptcy Court"). The Company emerged from bankruptcy on March 17, 1995 (the "Effective Date") pursuant to the Amended Joint Plan of Reorganization Dated as of December 9, 1994, as modified on March 1, 1995 (as so modified the "Consensual Plan"). Despite the confirmation and effectiveness of the Consensual Plan, the Bankruptcy Court continues to have jurisdiction over, among other things, the resolution of disputed prepetition claims against the Company and other matters that may arise in connection with or relate to the Consensual Plan. Note 3 - Cash and Restricted Short-Term Investments Cash includes short-term investments with original maturities of less than one year. These investments are readily convertible into cash and are stated at cost which approximates market. The Company's cash management system provides for the reimbursement of all major bank disbursement accounts on a daily basis. Checks issued but not yet presented to the banks for payment are classified as bank overdrafts. Restricted short-term investments (i) include temporary investment of reserve funds and collections on installment notes receivable owned by Mid-State Trusts II, III, IV and V ($99,955,000) which are available only to pay expenses of the 6 WALTER INDUSTRIES, INC. AND SUBSIDIARIES NOTES TO CONSOLIDATED CONDENSED FINANCIAL STATEMENTS (continued) Trusts and principal and interest on indebtedness of the Trusts (ii) certain funds held by Trust II that are in excess of the amount required to be paid for expenses, principal and interest on the Trust II Mortgage-Backed Notes but which are subject to retention ($64,525,000) and (iii) miscellaneous other segregated accounts restricted to specific uses ($20,329,000). Note 4 - Installment Notes Receivable The net increase in installment notes receivable for the six month period ended November 30, 1996 and the net decrease for the six month period ended November 30, 1995 consists of sales and resales, net of repossessions and provision for possible losses, of $86,860,000 and $75,616,000 and cash collections on account, payouts in advance of maturity (and reductions in account balances in the six months ended November 30, 1995 resulting from settlement agreements entered into with South Carolina and Texas homeowners) of $84,312,000 and $89,437,000, respectively. Mid-State Trusts II, III, and IV are business trusts organized by Mid-State Homes, Inc. ("Mid-State"), which owns all of the beneficial interest in Trust III and Trust IV. Trust IV owns all of the beneficial interest in Trust II. The Trusts were organized for the purpose of purchasing installment notes receivable from Mid-State with the net proceeds from the issuance of the Trust II Mortgage-Backed Notes, the Trust III Asset Backed Notes and the Trust IV Asset Backed Notes with outstanding balances at November 30, 1996 of $453,500,000, $131,443,000, and $870,400,000, respectively. The assets of Trust II, Trust III and Trust IV, including the installment notes receivable, are not available to satisfy claims of general creditors of the Company and its subsidiaries. The liabilities of Mid-State Trusts II, III and IV for their publicly issued debt are to be satisfied solely from the proceeds of the underlying installment notes and are non-recourse to the Company and its subsidiaries. Of the gross amount of installment notes receivable at November 30, 1996 of $4,234,551,000 with an economic balance of $2,018,660,000, receivables owned by Trust II had a gross book value of $1,062,115,000 and an economic balance of $664,397,000, receivables owned by Trust III had a gross book value of $390,344,000 and an economic balance of $206,333,000, and receivables owned by Trust IV had a gross book value of $1,700,634,000 and an economic balance of $732,533,000. Mid-State Trust V, a business trust in which Mid-State holds all the beneficial interest, was organized to hold installment notes receivable as collateral for borrowings to provide temporary financing to Mid-State for its current purchases of installment notes and mortgages from Jim Walter Homes, Inc. At November 30, 1996, receivables owned by Mid-State Trust V had a gross book value of $1,078,477,000 and an economic balance of $414,192,000, with outstanding borrowings of $307,000,000. Note 5 - Litigation and Other Matters VEIL PIERCING LITIGATION The Modified Plan of Reorganization (the "Modified Plan") filed October 8, 1996 by Celotex and others in its Chapter 11 proceeding was approved by a vote of the Celotex creditors, and on December 6, 1996 the Celotex Bankruptcy Court entered an Order (the "Celotex Confirmation Order") confirming the Modified Plan. The Modified Plan contains a provision for an injunction, pursuant to Section 524(g) of the Bankruptcy Code, as to all asbestos-related claimants and affording to various non-debtor third parties, including the Company, protection from current and future asbestos-related claims. Pursuant to procedures previously approved by the District Court, the Celotex Confirmation Order will be subject to review 7 WALTER INDUSTRIES, INC. AND SUBSIDIARIES NOTES TO CONSOLIDATED CONDENSED FINANCIAL STATEMENTS (continued) by the District Court. Additionally, one party to the Celotex bankruptcy has appealed to the District Court certain aspects of the Celotex Confirmation Order. The Modified Plan sets forth various requirements for the plan to become effective, including that the Celotex Confirmation Order shall have been affirmed by the District Court and shall have become a final Order (unless waived in accordance with certain provisions of the Modified Plan). Although the Company believes that the Modified Plan will be affirmed on appeal and will be made effective, the Company cannot predict when such events will occur. SUIT BY THE COMPANY AND JIM WALTER RESOURCES, INC. FOR BUSINESS INTERRUPTION LOSSES In December 1996, one of the defendant-insurers tendered to the Company $687,500, the face amount of one primary insurance policy at issue in the litigation. Settling insurance carriers have paid approximately $12.4 million to date, reducing the contract claim in the lawsuit to approximately $12 million. The Company and Jim Walter Resources, Inc. continue to pursue the litigation against the remaining carriers and a trial is tentatively scheduled for mid-1997. LITIGATION RELATED TO CHAPTER 11 DISTRIBUTIONS TO CERTAIN HOLDERS OF SUBORDINATED NOTES AND/OR DEBENTURES On November 14, 1996, the District Court entered an order granting the Company's motion to dismiss and dismissing as moot all appeals in this matter. No appeal of the District Court's Order was taken and that Order is now final. FEDERAL INCOME TAX A substantial controversy exists with regard to federal income taxes allegedly owed by the Company. Proofs of claim have been filed in the Bankruptcy Court by the Internal Revenue Service for taxes, interest and penalties in the amounts of $110,560,883 with respect to fiscal years ended August 31, 1980 and August 31, 1983 through August 31, 1987, $31,468,189 with respect to fiscal years ended May 31, 1988 (nine months) and May 31, 1989 and $44,837,693 with respect to fiscal years ended May 31, 1990 and May 31, 1991. These proofs of claim represent total adjustments to taxable income of approximately $360 million for all tax periods at issue. Objections to the proofs of claim have been filed by the Company and the various issues are being litigated in the Bankruptcy Court. Included in the proofs of claim is an adjustment to taxable income disallowing a deduction of approximately $51 million for hedging losses incurred during fiscal year 1988. This issue was conceded by the Internal Revenue Service pursuant to a joint stipulation of parties approved by the Bankruptcy Court by an Order dated January 3, 1997. The Company believes that the balance of such proofs of claim are substantially without merit and intends to defend vigorously such claims, but there can be no assurance as to the ultimate outcome. Note 6 - Stockholders' Equity The Company is authorized to issue 200,000,000 shares of common stock, $.01 par value. As of November 30, 1996, there were 54,868,335 shares of common stock outstanding. Pursuant to the Consensual Plan, 3,880,140 shares of common stock were issued to an escrow account on September 13, 1995. To the extent that certain federal income tax matters of the Company are resolved satisfactorily, up to a maximum 3,880,140 of the escrowed shares will be distributed to all former stockholders of the Company as of the Effective Date. To the extent such matters are not resolved satisfactorily, the escrowed shares will be returned to the Company and canceled. 8 WALTER INDUSTRIES, INC. AND SUBSIDIARIES NOTES TO CONSOLIDATED CONDENSED FINANCIAL STATEMENTS (continued) Note 7 - Stock Options Under the Walter Industries, Inc. Long-Term Incentive Stock Plan approved by stockholders in October 1995, options totaling 1,219,000 shares were granted to certain officers and employees to purchase shares of the Company's common stock at an option price of $12.3125 per share in July 1996. Note 8 - Segment Information Information relating to the Company's business segments is set forth on the following two pages. 9 WALTER INDUSTRIES, INC. AND SUBSIDIARIES NOTES TO CONSOLIDATED CONDENSED FINANCIAL STATEMENTS (continued) Three months ended November 30, ----------------------------- 1996 1995 --------- --------- (in thousands) Sales and Revenues: Homebuilding and related financing $110,284 $102,702 Water and waste water transmission products 122,336 110,108 Natural resources 91,661 97,998 Industrial and other products 73,275 66,827 Corporate 340 501 -------- --------- Consolidated sales and revenues $397,896 $378,136 -------- --------- -------- --------- Contributions to Operating Income (a): Homebuilding and related financing $ 19,008 $ 13,644 Water and waste water transmission products 8,269 7,367 Natural resources 4,547 5,953 Industrial and other products 5,396 3,062 -------- --------- 37,220 30,026 Less-Unallocated corporate interest and other expense (b) (20,585) (26,322) Income tax expense ( 9,110) ( 4,798) -------- --------- Net income (loss) $ 7,525 $( 1,094) -------- --------- -------- --------- (a) - Operating income amounts are after deducting amortization of excess of purchase price over net assets acquired (goodwill) of $8,830,000 in 1996 and $9,744,000 in 1995. A breakdown by segment is as follows: Three months ended November 30, ----------------------------- 1996 1995 --------- --------- (in thousands) Homebuilding and related financing $ 7,249 $ 7,670 Water and waste water transmission products 3,045 3,046 Natural resources ( 332) ( 331) Industrial and other products 161 654 Corporate (1,293) (1,295) -------- --------- $ 8,830 $ 9,744 -------- --------- -------- --------- (b) - Excludes interest expense incurred by the Homebuilding and Related Financing Group of $29,767,000 in 1996 and $32,596,000 in 1995. The balance of unallocated expenses consisting of unallocated interest and corporate expenses are attributable to all groups and cannot be reasonably allocated to specific groups. 10 WALTER INDUSTRIES, INC. AND SUBSIDIARIES NOTES TO CONSOLIDATED CONDENSED FINANCIAL STATEMENTS (continued) Six months ended November 30, ----------------------------- 1996 1995 --------- --------- (in thousands) Sales and Revenues: Homebuilding and related financing $ 221,213 $ 203,466 Water and waste water transmission products 234,031 229,556 Natural resources 166,054 187,513 Industrial and other products 145,640 136,386 Corporate 621 1,363 --------- --------- Consolidated sales and revenues $ 767,559 $ 758,284 --------- --------- --------- --------- Contributions to Operating Income (a): Homebuilding and related financing $ 38,161 $ 27,528 Water and waste water transmission products 15,227 16,184 Natural resources 14,336 13,077 Industrial and other products 9,872 4,929 --------- --------- 77,596 61,718 Less-Unallocated corporate interest and other expense (b) ( 39,825) ( 51,743) Income tax expense ( 20,026) ( 10,828) --------- --------- Net income (loss) $ 17,745 $( 853) --------- --------- --------- --------- (a)- Operating income amounts are after deducting amortization of excess of purchase price over net assets acquired (goodwill) of $17,832,000 in 1996 and $19,969,000 in 1995. A breakdown by segment is as follows: Six months ended November 30, ----------------------------- 1996 1995 --------- --------- (in thousands) Homebuilding and related financing $14,658 $15,795 Water and waste water transmission products 6,124 6,125 Natural resources ( 666) ( 666) Industrial and other products 319 1,318 Corporate (2,603) (2,603) -------- --------- $17,832 $19,969 -------- --------- -------- --------- (b)- Excludes interest expense incurred by the Homebuilding and Related Financing Group of $60,372,000 in 1996 and $64,249,000 in 1995. The balance of unallocated expenses consisting of unallocated interest and corporate expenses are attributable to all groups and cannot be reasonably allocated to specific groups. 11 MANAGEMENT'S DISCUSSION AND ANALYSIS OF RESULTS OF OPERATIONS AND FINANCIAL CONDITION Results of Operations THREE MONTHS ENDED NOVEMBER 30, 1996 AND 1995 Net sales and revenues for the three months ended November 30, 1996 were $19.8 million, or 5.2%, above the prior year. The higher performance resulted from a 4.5% increase in pricing and/or mix and a .7% increase in volume. The increase in sales and revenues was due to higher sales and revenues in the Homebuilding and Related Financing, Water and Waste Water Transmission Products and Industrial and Other Products Groups, partially offset by lower sales and revenues from the Natural Resources Group. Homebuilding and Related Financing sales and revenues were $7.6 million, or 7.4%, greater than the prior year period. The performance reflects a 14.1% increase in the average net selling price per home sold, from $40,900 in the 1995 period to $46,700 in 1996, partially offset by a 1.2% decrease in the number of homes sold, from 1,016 units in 1995 to 1,004 units in 1996. The higher average net selling price principally reflects a greater percentage of "90% complete" homes sold in the current year period and a price increase instituted effective August 17, 1996 to compensate for increased lumber costs. The decrease in unit sales was attributable to the greater percentage of "90% complete" homes sold which requires longer construction time than homes finished to lesser stages of completion, coupled with competition for sub-contractors as the nation's homebuilders accelerated their production schedules prior to the winter season. Jim Walter Homes' backlog at November 30, 1996 was 2,052 units compared to 1,589 units at November 30, 1995, a 29.1% increase. Time charge income (revenues received from Mid-State Homes' installment note portfolio) increased from $55.6 million in the 1995 period to $57.4 million in 1996. The increase is attributable to increased payoffs received in advance of maturity and to an increase in the average balance per account in the portfolio, partially offset by a reduction in the total number of accounts. Operating income of $19.0 million (net of interest expense) was $5.4 million greater than the prior year period. The performance was due to the increase in the average net selling price, the higher time charge income and lower interest expense in the 1996 period ($29.8 million) as compared to that incurred in 1995 ($32.6 million), partially offset by the lower number of homes sold, slightly lower homebuilding gross profit margins (due primarily to higher lumber and labor costs) and higher selling, general and administrative expenses resulting from changes to the base salary and commission structure at Jim Walter Homes to reward and retain higher caliber sales people. Water and Waste Water Transmission Products Group sales and revenues were $12.2 million, or 11.1%, above the prior year period. The increase was the result of higher sales prices and volume for ductile iron pressure pipe and higher sales prices for fittings, valves and hydrants. The order backlog at November 30, 1996 was 113,210 tons, which represents approximately three months shipments compared with 115,360 tons at November 30, 1995. Operating income of $8.3 million was $.9 million above the prior year period. This performance resulted from the previously mentioned increases in sales prices and volumes, partially offset by slightly lower gross profit margins and an increase in general and administrative expenses due to the utilization of outside consultants who are working with management to improve manufacturing processes and further reduce costs through plant modifications and better management of raw materials. 12 Industrial and Other Products Group sales and revenues were $6.4 million, or 9.6%, greater than the prior year period. Increased sales volumes for aluminum foil products, furnace coke, slag wool and window components combined with higher sales prices for furnace and foundry coke and window components were partially offset by lower sales prices for aluminum foil and sheet products. Operating income of $5.4 million exceeded the prior year period by $2.3 million. The improved performance resulted from profitability of the window components business which absorbed losses last year stemming from a major consolidation of its manufacturing operations and improved gross profit margins realized on furnace and foundry coke, slag wool and aluminum foil and sheet products. Natural Resources Group sales and revenues were $6.3 million, or 6.5%, below the prior year period. The decrease resulted from reduced production levels at two of the Group's coal mines, especially at Blue Creek Mine No. 5 ("Mine No. 5"), where development of a new mining area is in progress, and a $3.7 million gain from the sale of gas royalty interests in certain mineral properties in the 1995 period, partially offset by higher average selling prices for coal and methane gas and greater methane gas sales volume. A total of 1.78 million tons of coal was sold in the 1996 period versus 2.02 million tons in the 1995 period, an 11.9% decline. The decrease in tonnage sold reflected lower shipments to certain export customers. The average price per ton of coal sold increased $2.64, from $42.42 in the 1995 period to $45.06 in 1996, due to higher prices realized in the worldwide metallurgical market and a greater percentage of the tonnage sold going to Alabama Power Company ("Alabama Power") at above-market, contract prices. Longwall production on the east side of Mine No. 5 is expected to commence in the fourth quarter of fiscal 1997. While in development, the mine's costs are being capitalized. Total development costs at Mine No. 5 for the three months ended November 30, 1996 were $8.8 million. Jim Walter Resources' three other operating mines remain in full production. The Group's operating income of $4.5 million was $1.4 million lower than the prior year period. The decrease in operating income was a result of the gain from the sale of gas royalty interests in the prior year period, reduced coal sales volumes and slightly higher costs per ton of coal produced ($39.89 in the 1996 period versus $39.52 in the 1995 period), partially offset by higher selling prices for coal and methane gas and greater methane gas sales volume. Cost of sales, exclusive of depreciation, of $264.4 million was 79.6% of net sales in the 1996 period versus $249.8 million and 80.4% in 1995. The cost of sales percentage decrease was primarily the result of improved gross profit margins for window components, furnace and foundry coke, slag wool and aluminum foil and sheet products, partially offset by reduced profit margins on home sales, pipe and coal. Selling, general and administrative expenses of $35.8 million were 9.0% of net sales and revenues in the 1996 period versus $33.5 million and 8.9% in 1995. The increases principally reflect higher expenses at Jim Walter Homes and U.S. Pipe previously discussed. Interest and amortization of debt expense was $45.7 million in the 1996 period versus $54.9 million in 1995 reflecting lower outstanding debt balances and reduced interest rates resulting from the refinancing completed January 22, 1996. The average rate of interest in the 1996 period was 8.14% as compared to 9.53% in 1995. The prime rate of interest was 8.25% in the 1996 period compared to 8.75% in 1995. 13 The Company's effective tax rate in the 1996 and 1995 periods differed from the statutory tax rate due primarily to amortization of excess of purchase price over net assets acquired (goodwill) which is not deductible for tax purposes. The net income in the 1996 period was $7.5 million compared to a net loss of $1.1 million in the 1995 period reflecting all of the previously mentioned factors as well as the impact of lower goodwill amortization and postretirement health benefits in 1996. SIX MONTHS ENDED NOVEMBER 30, 1996 AND 1995 Net sales and revenues for the six months ended November 30, 1996 were $9.3 million, or 1.2%, above the prior year. The higher performance resulted from a 4.0% increase in pricing and/or mix, partially offset by a 2.8% decrease in volume. The increase in sales and revenues was due to higher sales and revenues from the Homebuilding and Related Financing, Water and Waste Water Transmission Products and Industrial and Other Products Groups, partially offset by lower sales and revenues from the Natural Resources Group. Homebuilding and Related Financing sales and revenues were $17.7 million, or 8.7%, greater than the prior year period. The performance reflects a 12.7% increase in the average net selling price per home sold, from $41,400 in the 1995 period to $46,600 in 1996, combined with a 4.2% increase in the number of homes sold, from 1,941 units in 1995 to 2,023 units in 1996. The higher average net selling price reflects a greater percentage of "90% complete" homes sold in the current year period and a price increase instituted August 17, 1996 to compensate for higher lumber costs. The increase in unit sales reflects the decision by Jim Walter Homes in December 1995 to reduce its financing rate to 8.5% from 10% for its "90% complete" homes on a trial basis to generate additional unit sales. In March 1996 the lower rate was formally advertised. Time charge income (revenues received from Mid-State Homes' installment note portfolio) increased from $111.9 million in the 1995 period to $114.9 million in 1996. The increase is attributable to increased payoffs received in advance of maturity and to an increase in the average balance per account in the portfolio, partially offset by a reduction in the total number of accounts. Operating income of $38.2 million (net of interest expense) was $10.6 million greater than the prior year period. The performance was due to the increase in the average net selling price and number of homes sold, the higher time charge income and lower interest expense in the 1996 period ($60.4 million) as compared to that incurred in 1995 ($64.2 million), partially offset by slightly lower homebuilding gross profit margins (due to higher lumber and labor costs) and higher selling, general and administrative expenses resulting from changes to the base salary and commission structure at Jim Walter Homes to reward and retain higher caliber sales people. Water and Waste Water Transmission Products Group sales and revenues were $4.5 million, or 1.9%, above the prior year period. The increase was principally the result of higher sales prices, but lower sales volumes, for ductile iron pressure pipe and fittings. Operating income of $15.2 million was $1.0 million below the prior year period. This performance was the result of the lower sales volumes, lower gross profit margins, and an increase in general and administrative expenses principally due to the utilization of outside consultants previously discussed, partially offset by the higher sales prices. 14 Industrial and Other Products Group sales and revenues were $9.3 million, or 6.8%, greater than the prior year period. Increased sales volumes for aluminum foil and sheet products, furnace coke, slag wool, metal building and foundry products and window components coupled with improved sales prices for furnace and foundry coke and window components were partially offset by lower chemical sales volumes and lower sales prices for aluminum foil and sheet products. Operating income of $9.9 million exceeded the prior year period by $4.9 million. The improved performance resulted from a return to profitability of the window components business which absorbed losses last year stemming from a major consolidation of its manufacturing operations. In addition, improved gross profit margins were realized on furnace and foundry coke, slag wool, and metal building and foundry products. Natural Resources Group sales and revenues were $21.5 million, or 11.4%, below the prior year period. The decrease resulted from reduced production levels, especially at Mine No. 5, where development of a new mining area is in progress, reduced coal royalty income and a $3.7 million gain from the sale of gas royalty interests in certain mineral properties in the 1995 period, partially offset by higher average selling prices for coal and methane gas and greater methane gas sales volume. A total of 3.27 million tons of coal was sold in the 1996 period versus 3.94 million tons in the 1995 period, a 17.0% decline. The decrease in tonnage sold reflected lower shipments to export customers. The average price per ton of coal sold increased $2.32, from $42.46 in the 1995 period to $44.78 in 1996, due to higher prices realized in the worldwide metallurgical market and a greater percentage of the tonnage sold going to Alabama Power at above-market, contract prices. Longwall production on the east side of Mine No. 5 is expected to commence in the fourth quarter of fiscal 1997. While in development, the mine's costs are being capitalized. Total development costs at Mine No. 5 for the six months ended November 30, 1996 were $12.0 million. Jim Walter Resources' three other operating mines remain in full production. The Group's operating income of $14.3 million exceeded the prior year period by $1.3 million. This performance was due to a $4.7 million settlement of a legal claim relating to a theft of coal inventory from the Port of Mobile, Alabama (settlement was reached with one party under a confidentiality agreement, but there is still an action pending against other parties in Alabama State Court) combined with the higher selling prices for coal and methane gas and greater methane gas sales volume, partially offset by the reduced coal sales volume and lower mining productivity which resulted in higher costs per ton of coal produced ($39.42 in the 1996 period versus $37.00 in 1995) and the $3.7 million gain (in 1995) from the sale of certain gas royalty interests. Cost of sales, exclusive of depreciation, of $499.4 million was 78.2% of net sales in the 1996 period versus $499.6 million and 79.7% in 1995. The cost of sales decrease was primarily the result of improved gross profit margins for window components, furnace and foundry coke, slag wool, and metal building and foundry products, combined with the $4.7 million coal inventory theft settlement, partially offset by lower gross profit margins on home sales, pipe products and coal. Depreciation, depletion and amortization expense of $36.8 million was $.7 million below the 1995 period. Selling, general and administrative expenses of $69.1 million were 9.0% of net sales and revenues in the 1996 period versus $66.6 million and 8.8% in 1995. The increase principally reflects higher expenses at Jim Walter Homes and U.S. Pipe previously discussed. 15 Interest and amortization of debt expense was $92.3 million in the 1996 period versus $109.5 million in 1995 reflecting lower outstanding debt balances and reduced interest rates resulting from the refinancing completed January 22, 1996. The average rate of interest in the 1996 period was 8.14% as compared to 9.50% in 1995. The prime rate of interest was 8.25% in the 1996 period compared to a range of 8.75% to 9.0% in 1995. The Company's effective tax rate in the 1996 and 1995 periods differed from the statutory tax rate due to amortization of excess of purchase price over net assets acquired (goodwill) which is not deductible for tax purposes. The net income in the 1996 period was $17.7 million compared to net loss of $853,000 in the 1995 period reflecting all of the previously mentioned factors as well as the impact of lower goodwill amortization and post retirement health benefits in 1996. Financial Condition On March 17, 1995, the Company and its subsidiaries emerged from bankruptcy pursuant to the Consensual Plan. Despite the confirmation and effectiveness of the Consensual Plan, the Bankruptcy Court continues to have jurisdiction over among other things, the resolution of disputed prepetition claims against the Company and other matters that may arise in connection with or relate to the Consensual Plan. A substantial controversy exists with regard to federal income taxes allegedly owed by the Company. Proofs of claim have been filed in the Bankruptcy Court by the Internal Revenue Service for taxes, interest and penalties in the amounts of $110,560,883 with respect to fiscal years ended August 31, 1980 and August 31, 1983 through August 31, 1987, $31,468,189 with respect to fiscal years ended May 31, 1988 (nine months) and May 31, 1989 and $44,837,693 with respect to fiscal years ended May 31, 1990 and May 31, 1991. These proofs of claim represent total adjustments to taxable income of approximately $360 million for all tax periods at issue. Objections to the proofs of claim have been filed by the Company and the various issues are being litigated in the Bankruptcy Court. Included in the proofs of claim is an adjustment to taxable income disallowing a deduction of approximately $51 million for hedging losses incurred during fiscal year 1988. This issue was conceded by the Internal Revenue Service pursuant to a joint stipulation of parties approved by the Bankruptcy Court by an Order dated January 3, 1997. The Company believes that the balance of such proofs of claim are substantially without merit and intends to defend vigorously such claims but there can be no assurance as to the ultimate outcome. Since May 31, 1996, total debt has decreased $91.2 million resulting from early repayment on the Revolving Credit Facility ($53.0 million), quarterly principal payments on Term Loan A and Term Loan B ($8.0 million), Mid-State Trust II Mortgage-Backed Notes ($43.5 million), Mid-State Trust III Asset Backed Notes ($16.2 million) Mid-State Trust IV Asset Backed Notes ($31.9 million)and scheduled retirements of other long-term debt ($.6 million), partially offset by the issuance of long-term debt under the Mid-State Trust V Variable Funding Loan Agreement ($62.0 million). The Credit Facilities contain a $365 million revolving credit facility which includes a sub-facility for trade and other standby letters of credit in an amount up to $40 million at any time outstanding and a sub-facility for swingline advances in an amount not in excess of $15 million at any time outstanding. At 16 November 30, 1996, $32.5 million of letters of credit were outstanding under this facility. The Credit Facilities and the Mid-State Trust V Variable Funding Loan Agreement contain a number of significant covenants that, among other things, restrict the ability of the Company and its subsidiaries to dispose of assets, incur additional indebtedness, pay dividends, create liens on assets, enter into leases, make investments or acquisitions, engage in mergers or consolidations or engage in certain transactions with subsidiaries and affiliates and otherwise restrict corporate activities (including change of control and asset sale transactions). In addition, under the Credit Facilities, the Company is required to maintain specified financial ratios and comply with certain financial tests, including interest coverage, fixed charge coverage ratios and maximum leverage ratios, some of which become more restrictive over time. The Company was in full compliance with these covenants at November 30, 1996 and believes it will meet these financial tests over the remaining terms of these debt agreements. Liquidity and Capital Resources At November 30, 1996, cash and short-term investments, net of bank overdrafts were approximately $35.2 million. Operating cash flows for the six months ended November 30, 1996 together with issuance of long-term debt under the Mid-State Trust V Variable Funding Loan Agreement and the use of available cash balances were primarily used for retirement of long-term senior debt, interest payments and capital expenditures. Working capital is required to fund adequate levels of inventories and accounts receivable. Commitments for capital expenditures at November 30, 1996 were not material; however, it is estimated that gross capital expenditures of the Company and its subsidiaries for the balance of the year ending May 31, 1997 will approximate $50.0 million. Because the Company's operating cash flow is significantly influenced by the general economy and, in particular, the level of construction, current results should not necessarily be used to predict the Company's liquidity, capital expenditures, investment in installment notes receivable or results of operations. The Company believes that the Mid-State Trust V Variable Funding Loan Agreement will provide Mid-State Homes with the funds needed to purchase the installment notes and mortgages generated by Jim Walter Homes. It is contemplated that one or more permanent financings similar to the Mid-State Trusts II, III and IV financings will be required over the next several years to repay borrowings under the Mid-State Trust V Variable Funding Loan Agreement. The Company believes that under present operating conditions sufficient operating cash flow will be generated to make all required interest and principal payments and planned capital expenditures and meet substantially all operating needs and that amounts available under the Credit Facilities will be sufficient to meet peak operating needs. 17 PART II - OTHER INFORMATION Item 1. LEGAL PROCEEDINGS See Note 5 of Notes to Consolidated Condensed Financial Statements contained in Part I - Financial Information Item 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS At the Company's Annual Meeting of Stockholders held September 17, 1996, the following proposal was approved: Affirmative Negative Votes VOTES VOTES WITHHELD ------------ -------- -------- Ratify the appointment of Price Waterhouse LLP as independent certified public accountants for the fiscal year ending May 31, 1997. 51,732,560 19,421 1,328 Item 6. EXHIBITS AND REPORTS ON FORM 8-K (a) Exhibit 11(a) - Earnings per share calculation for the three months ended November 30, 1996 and 1995 Exhibit 11(b) - Earnings per share calculation for the six months ended November 30, 1996 and 1995 Exhibit 27 - Financial Data Schedule (b) The Company did not file any reports on Form 8-K during the six months ended November 30, 1996. SIGNATURES Pursuant to the requirements 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. WALTER INDUSTRIES, INC. /s/ D. M. FJELSTUL /s/ F. A. HULT - ------------------------- ------------------------------ D. M. Fjelstul F. A. Hult Senior Vice President and Vice President and Controller Principal Financial Officer and Principal Accounting Officer Date: JANUARY 13, 1997 ----------------------- 18 EXHIBIT 11(a) NET INCOME PER SHARE CALCULATION (in thousands, except per share amounts) Three months ended Three months ended NOVEMBER 30, 1996 NOVEMBER 30, 1995 ----------------- ----------------- DOLLARS SHARES DOLLARS SHARES ------- ------ ------- ------ Net income (loss) $7,525 $(1,094) ------ ------ Primary weighted average shares of common stock outstanding: Common stock (a) 54,868 50,989 Employee stock options (b)(d) 94 - ------ ------ 54,962 50,989 ------ ------ ------ ------ Fully diluted weighted average shares of common stock outstanding: Common stock (a) 54,868 50,989 Employee stock options (c)(d) 94 - ------ ------ 54,962 50,989 ------ ------ ------ ------ Per share (primary) $ .13 $(.02) ------ ------ Per share (fully diluted) $ .13 $(.02) ------ ------ ------ ------ (a) For the three months ended November 30, 1995, does not include 3,880,140 additional shares issued to an escrow account on September 13, 1995 pursuant to the Consensual Plan because such issuance is contingent on future events and would be anti-dilutive in such period. (b) For the three months ended November 30, 1996, represents the number of shares of common stock issuable on the exercise of dilutive employee stock options granted in July 1996 less the number of shares of common stock which could have been purchased with the proceeds from the exercise of such options. These purchases were assumed to have been made at the average market price of the common stock during the period. (c) Same as (b) except that purchases of common stock were assumed to have been made at the higher of either the market price of the common stock at the end of the period or the average market price for the period. (d) For the three months ended November 30, 1996 and 1995, does not include 1,485,000 shares and 1,500,000 shares, respectively, subject to options granted in July 1995 at an average price of $14.120 per share because such options would have an anti-dilutive effect in such period. 19 EXHIBIT 11(b) NET INCOME PER SHARE CALCULATION (in thousands, except per share amounts) Six months ended Six months ended NOVEMBER 30, 1996 NOVEMBER 30, 1995 DOLLARS SHARES DOLLARS SHARES Net income (loss) $17,745 $( 853) ------- ------- ------- ------- Primary weighted average shares of common stock outstanding: Common stock (a) 54,868 50,989 Employee stock options (b)(d) 68 - ------ ------ 54,936 50,989 ------ ------ ------ ------ Fully diluted weighted average shares of common stock outstanding: Common stock (a) 54,868 50,989 Employee stock options (c)(d) 68 - ------ ------ 54,936 50,989 ------ ------ ------ ------ Per share (primary) $ .32 $( .02) ------- ------- ------- ------- Per share (fully diluted) $ .32 $( .02) ------- ------- ------- ------- (a) For the six months ended November 30, 1995, does not include 3,880,140 additional shares issued to an escrow account on September 13, 1995 pursuant to the Consensual Plan because such issuance is contingent on future events and would be anti-dilutive in such period. (b) For the six months ended November 30, 1996, represents the number of shares of common stock issuable on the exercise of dilutive employee stock options granted in July 1996 less the number of shares of common stock which could have been purchased with the proceeds from the exercise of such options. These purchases were assumed to have been made at the average market price of the common stock during the period. (c) Same as (b) except that purchases of common stock were assumed to have been made at the higher of either the market price of the common stock at the end of the period or the average market price for the period. (d) For the six months ended November 30, 1996 and 1995, does not include 1,485,000 shares and 1,500,000 shares, respectively, subject to options granted in July 1995 at an average price of $14.120 per share because such options would have an anti-dilutive effect in such period. 20 -----END PRIVACY-ENHANCED MESSAGE-----