-----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, M5PEPkHiPIFMhEzOOsSudwjkrdMHVE2eiW7uBtZVpml7cNToAvRKueJapRuZ46j4 85z355iMb0wotN0P7VFOPw== 0000912057-00-016539.txt : 20000407 0000912057-00-016539.hdr.sgml : 20000407 ACCESSION NUMBER: 0000912057-00-016539 CONFORMED SUBMISSION TYPE: 10-Q PUBLIC DOCUMENT COUNT: 3 CONFORMED PERIOD OF REPORT: 20000229 FILED AS OF DATE: 20000406 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: 10-Q SEC ACT: SEC FILE NUMBER: 001-13711 FILM NUMBER: 595095 BUSINESS ADDRESS: STREET 1: 1500 N DALE MABRY HWY CITY: TAMPA STATE: FL ZIP: 33607 BUSINESS PHONE: 8138714811 MAIL ADDRESS: STREET 1: 1500 N DALE MABRY HWY CITY: TAMPA STATE: FL ZIP: 33607 FORMER COMPANY: FORMER CONFORMED NAME: HILLSBOROUGH HOLDINGS CORP DATE OF NAME CHANGE: 19910814 10-Q 1 10-Q 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 February 29, 2000 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 47,221,992 shares of common stock of the registrant outstanding at March 31, 2000. PART I - FINANCIAL INFORMATION ------------------------------ WALTER INDUSTRIES, INC. AND SUBSIDIARIES CONSOLIDATED BALANCE SHEETS
February 29, May 31, 2000 1999 (unaudited) (audited) ----------- --------- (in thousands) ASSETS Cash and cash equivalents .................................. $ 44,461 $ 40,841 Short-term investments, restricted ......................... 149,512 149,149 Marketable securities ...................................... 810 4,803 Instalment notes receivable ................................ 4,264,913 4,191,138 Less -Allowance for possible losses ..................... (26,143) (25,813) Unearned time charges ............................. (2,936,107) (2,874,556) Trade receivables, less allowance for possible losses of $6,722 and $6,537, respectively ............... 202,947 219,490 Other receivables .......................................... 20,114 17,379 Inventories Finished goods .......................................... 203,181 207,866 Goods in process ........................................ 48,375 44,178 Raw materials and supplies .............................. 55,389 50,986 Houses held for resale .................................. 4,939 3,377 Prepaid expenses ........................................... 16,842 19,326 Property, plant and equipment, net ......................... 634,526 634,246 Deferred income taxes ...................................... 55,229 69,950 Investments and other long-term assets ..................... 55,611 54,924 Unamortized debt expense ................................... 45,479 50,623 Goodwill, net .............................................. 474,968 504,119 ---------- ---------- $3,315,046 $3,362,026 ========== ========== LIABILITIES AND STOCKHOLDERS' EQUITY Book overdrafts ............................................ $ 23,265 $ 33,579 Accounts payable ........................................... 132,214 125,846 Accrued expenses ........................................... 110,090 135,959 Income taxes payable ....................................... 49,649 53,032 Short-term notes payable ................................... 1,688 2,200 Long-term senior debt: Mortgage-backed/asset-backed notes ...................... 1,738,415 1,758,151 Other senior debt ....................................... 556,800 553,000 Accrued interest ........................................... 24,627 25,670 Accumulated postretirement benefits obligation ............. 280,907 270,409 Other long-term liabilities ................................ 61,764 61,261 Stockholders' equity Common stock - 200,000,000 authorized, $.01 par value Issued - 55,315,184 and 55,304,184 shares, respectively 553 553 Capital in excess of par value .......................... 1,169,492 1,169,377 Accumulated deficit ..................................... (726,253) (748,905) Treasury stock - 7,783,192 and 4,992,292 shares, at cost (101,514) (72,078) Cumulative foreign currency translation adjustment ...... (798) (341) Excess of additional pension liability over unrecognized prior years service cost ................. (5,621) (5,621) Net unrealized depreciation in marketable securities .... (232) (66) ---------- ---------- Total stockholders' equity ................................. 335,627 342,919 ---------- ---------- $3,315,046 $3,362,026 ========== ==========
See accompanying Notes to Consolidated Financial Statements 2 WALTER INDUSTRIES, INC. AND SUBSIDIARIES CONSOLIDATED STATEMENTS OF OPERATIONS (UNAUDITED)
For the three months ended February 29, February 28, 2000 1999 --------- --------- (in thousands, except per share amounts) Sales and revenues: Net sales $ 389,834 $ 350,450 Time charges 55,755 59,958 Miscellaneous 7,127 6,022 --------- --------- 452,716 416,430 --------- --------- Cost and expenses: Cost of sales 310,278 284,347 Depreciation 19,021 20,964 Selling, general and administrative 50,729 39,189 Postretirement benefits 5,469 5,560 Provision for possible losses 978 565 Interest and amortization of debt expense 46,780 45,805 Amortization of goodwill 9,160 9,813 Mine shutdown costs -- 27,485 --------- --------- 442,415 433,728 --------- --------- 10,301 (17,298) Income tax benefit (expense): Current (1,444) 3,906 Deferred (3,796) 2,466 --------- --------- Net income (loss) $ 5,061 $ (10,926) ========= ========= Net income (loss) per share: Basic $ .11 $ (.21) ========= ========= Diluted $ .11 $ (.21) ========= =========
See accompanying Notes to Consolidated Financial Statements 3 WALTER INDUSTRIES, INC. AND SUBSIDIARIES CONSOLIDATED STATEMENTS OF OPERATIONS (UNAUDITED)
For the nine months ended February 29, February 28, 2000 1999 ----------- ----------- (in thousands, except per share amounts) Sales and revenues: Net sales $ 1,215,387 $ 1,218,540 Time charges 168,337 185,130 Miscellaneous 16,060 20,848 ----------- ----------- 1,399,784 1,424,518 ----------- ----------- Cost and expenses: Cost of sales 963,664 994,370 Depreciation 56,364 62,540 Selling, general and administrative 146,401 125,948 Postretirement benefits 16,376 17,277 Provision for possible losses 2,710 660 Interest and amortization of debt expense 139,156 139,310 Amortization of goodwill 28,534 31,036 Mine shutdown costs (3,500) 27,485 Loss on sale of subsidiary - 3,849 ----------- ----------- 1,349,705 1,402,475 ----------- ----------- 50,079 22,043 Income tax benefit (expense): Current (9,764) 2,602 Deferred (14,719) (6,799) ----------- ----------- Net income $ 25,596 $ 17,846 =========== =========== Net income per share: Basic $ .52 $ .34 =========== =========== Diluted $ .52 $ .34 =========== ===========
See accompanying Notes to Consolidated Financial Statements 4 WALTER INDUSTRIES, INC. AND SUBSIDIARIES CONSOLIDATED STATEMENT OF CHANGES IN STOCKHOLDERS' EQUITY (UNAUDITED)
Retained Accumulated Earnings Other Comprehensive (Accumulated Comprehensive Common Capital in Treasury Total Income Deficit) Income Stock Excess Stock ---------- ---------- ---------- ---------- ---------- ---------- ---------- Balance at May 31, 1999 $ 342,919 $ (748,905) $ (6,028) $ 553 $1,169,377 $ (72,078) Comprehensive income Net income 25,596 $ 25,596 25,596 Other comprehensive income, net of tax: Net unrealized depreciation in marketable securities (166) (166) (166) Foreign currency translation adjustment (457) (457) (457) ---------- Other comprehensive income (623) ---------- Comprehensive income $ 24,973 ========== Stock issued from options exercises 115 115 Purchases of treasury stock (29,436) (29,436) Dividends paid (2,944) (2,944) ---------- ---------- ---------- ---------- ---------- ---------- Balance at February 29, 2000 $ 335,627 $ (726,253) $ (6,651) $ 553 $1,169,492 $ (101,514) ========== ========== ========== ========== ========== ==========
See accompanying Notes to Consolidated Financial Statements 5 WALTER INDUSTRIES, INC. AND SUBSIDIARIES CONSOLIDATED STATEMENTS OF CASH FLOWS (UNAUDITED)
For the nine months ended February 29, February 28, 2000 1999 --------- --------- OPERATING ACTIVITIES (in thousands) Net income $ 25,596 $ 17,846 Charges to income not affecting cash: Depreciation 56,364 62,540 Provision for deferred income taxes 14,719 6,799 Accumulated postretirement benefits obligation 10,498 10,411 Provision for other long-term liabilities 503 521 Amortization of goodwill 28,534 31,036 Amortization of debt expense 5,912 5,207 Mine shutdown costs (3,500) 27,485 Loss on sale of subsidiary - 3,849 --------- --------- 138,626 165,694 Decrease (increase) in assets, net of effects of acquisitions: Short-term investments, restricted (363) 103,491 Marketable securities 3,827 16,507 Instalment notes receivable, net (a) (11,894) 24,788 Trade and other receivables, net 13,808 25,233 Inventories (5,477) (3,259) Prepaid expenses 2,484 (6,038) Increase (decrease) in liabilities, net of effects of acquisitions: Book overdrafts (10,314) 4,469 Accounts payable 6,368 (30,618) Accrued expenses (22,369) (16,112) Income taxes payable (3,383) (1,775) Accrued interest (1,043) 1,088 --------- --------- Cash flows from operating activities 110,270 283,468 --------- --------- INVESTING ACTIVITIES Additions to property, plant and equipment, net of retirements (56,644) (53,713) Increase in investments and other assets (68) 542 Proceeds from sale of subsidiary - 14,878 Acquisitions, net of cash - (18,953) --------- --------- Cash flows used in investing activities (56,712) (57,246) --------- --------- FINANCING ACTIVITIES Issuance of short-term notes payable and long-term senior debt 522,252 516,659 Retirement of short-term notes payable and long-term senior debt (538,700) (671,254) Additions to unamortized debt expense (768) (25,698) Purchases of treasury stock (29,436) (42,859) Dividends paid (2,944) - Exercise of employee stock options 115 325 --------- --------- Cash flows used in financing activities (49,481) (222,827) --------- --------- EFFECT OF EXCHANGE RATE ON CASH (457) 6 --------- --------- Net increase in cash and cash equivalents 3,620 3,401 Cash and cash equivalents at beginning of period 40,841 54,709 --------- --------- Cash and cash equivalents at end of period $ 44,461 $ 58,110 ========= =========
(a) Consists of sales and resales, net of repossessions and provision for possible losses, of $138,192 and $123,945 and cash collections on account and payouts in advance of maturity of $126,298 and $148,733, respectively. See accompanying Notes to Consolidated Financial Statements 6 WALTER INDUSTRIES, INC. AND SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS February 29, 2000 Note 1 - Principles of Consolidation Walter Industries, Inc. (the "Company") is a diversified holding company with four reportable operating segments: Homebuilding and Financing, Water Transmission Products, Energy Services and Natural Resources. Through these reportable operating segments and other operations, the Company offers a diversified line of products and services including home construction and financing, ductile iron pressure pipe, alloys, metals, petroleum coke distribution and refinery outsourcing services, coal, methane gas, aluminum foil and sheet products, furnace and foundry coke, chemicals and slag fiber. 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 results could differ from those estimates. All significant intercompany balances have been eliminated. All of the February 29, 2000 and February 28, 1999 amounts are unaudited but, in the opinion of management, all adjustments necessary for a fair presentation have been made. The results for the three and nine months ended February 29, 2000 and February 28, 1999 are not necessarily indicative of results for a full fiscal year. These financial statements should be read in conjunction with the Company's audited consolidated financial statements and notes thereto in the Company's Annual Report on Form 10-K for the year ended May 31, 1999. Unless otherwise specified, accounting principles and capitalized terms used herein are as defined in the aforementioned Form 10-K. Note 2 - Reclassification of Jim Walter Resources to Continuing Operations In February 1999, a decision was made to dispose of JWR. This program resulted in a subsequent decision by the Company's Board of Directors to retain JWR for the immediate future; however the Company is committed to ultimately separating the operations of JWR at such time that it believes shareholder value can be realized more fully than is possible under current market and industry conditions. As a result of the Board of Directors' decision, the results of operations of JWR have been reclassified from discontinued operations to continuing operations for all periods presented. Operating results, for segment reporting purposes, are reported as Natural Resources. The 1999 mine shutdown charge of $27,485 to close JWR's Mine No. 3 was comprised of the following components (in thousands):
Impairment of long lived assets $ 30,097 Severance and other payroll related charges 9,626 Other charges 13,299 Curtailment of postretirement benefits (25,537) ---------- Mine shutdown charge $ 27,485 =========
Results for the nine months ended February 29, 2000 include the reversal of $3.5 million in Mine No. 3 shutdown costs recorded in the second quarter. WALTER INDUSTRIES, INC. AND SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (continued) Note 3 - Restricted Short-Term Investments Restricted short-term investments at February 29, 2000 and May 31, 1999 include (i) temporary investment of reserve funds and collections on instalment notes receivable owned by the Trusts ($99.4 million and $115.9 million, respectively), which are available only to pay expenses of the Trusts and principal and interest on indebtedness of the Trusts, (ii) certain funds held by Trust II that are in excess of the interest on the Trust II Mortgage-Backed Notes, but which were subject to retention at February 29, 2000 and May 31, 1999 ($34.1 million and $17.1 million, respectively) and (iii) miscellaneous other segregated accounts restricted to specific uses ($16.0 million and $16.1 million, respectively). Note 4 - Instalment Notes Receivable and Mortgage-Backed/Asset-Backed Notes The gross amount of instalment notes receivable, the economic balance and long-term debt outstanding for each of the Trusts organized by Mid-State are as follows (in thousands):
February 29, 2000 ------------------------------------------------------- Gross Balance Economic Balance Debt Outstanding ------------- ---------------- ---------------- Loan & Security Agreement - - $ 88,944 Trust II $ 520,315 $ 338,650 209,950 Trust III 227,304 130,821 25,319 Trust IV 1,102,726 518,049 561,098 Trust V 770,183 292,885 233,000 Trust VI 852,965 356,138 329,068 Trust VII 772,870 310,773 291,036 Unpledged 18,550 7,195 - ---------- ---------- ---------- Total $4,264,913 $1,954,511 $1,738,415 ========== ========== ==========
Note 5 - Stockholders' Equity In September 1998, the Company's Board of Directors authorized an increase, from two to four million, in the number of shares of the Company's common stock which may be repurchased under the share repurchase program authorized in July 1998. In October 1999, the Company's Board of Directors authorized up to $25.0 million in additional repurchases of the Company's common stock. In February 2000, the Board of Directors authorized additional repurchases of the Company's common stock up to $25.0 million. Information relating to the Company's share repurchases under this program is set forth below (in thousands):
February 29, 2000 ----------------- Shares Amount ------ ------ Share repurchases for the nine months ended February 29, 2000 2,791 $ 29,436 ======== ======== Cumulative amount repurchased under current authorizations . 6,385 $ 79,673 ======== ======== Total held in treasury ......... 7,783 $101,514 ======== ========
8 WALTER INDUSTRIES, INC. AND SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (continued) Note 6 - Earnings Per Share A reconciliation of the basic and diluted per share computations for the three and nine months ended February 29, 2000 and February 28, 1999 are as follows (in thousands, except per share amounts):
Three months ended ------------------------------------------------------ February 29, 2000 February 28, 1999 ----------------------- ------------------------ Basic Diluted Basic Diluted -------- -------- -------- -------- Net income (loss) $ 5,061 $ 5,061 $(10,926) $(10,926) ======== ======== ======== ======== Average number of common shares outstanding (a) 47,998 47,998 51,024 51,024 Effect of diluted securities: Stock options (b) - - - 132 -------- -------- -------- -------- 47,998 47,998 51,024 51,156 ======== ======== ======== ======== Net income (loss) per share $ .11 $ .11 $ (.21) $ (.21) ======== ======== ======== ======== Nine months ended ------------------------------------------------------ February 29, 2000 February 28, 1999 ----------------------- ------------------------ Basic Diluted Basic Diluted -------- -------- -------- -------- Net income $ 25,596 $ 25,596 $ 17,846 $ 17,846 ======== ======== ======== ======== Average number of common shares outstanding (a) 49,220 49,220 51,980 51,980 Effect of diluted securities: Stock options (b) - 11 - 200 -------- -------- -------- -------- 49,220 49,231 51,980 52,180 ======== ======== ======== ======== Net income per share $ .52 $ .52 $ .34 $ .34 ======== ======== ======== ========
(a) The three and nine months ended February 29, 2000 and February 28, 1999 include 3,880,140 additional shares issued to an escrow account on September 13, 1995 pursuant to the Consensual Plan, but do not include shares held in treasury. (b) Represents the number of shares of common stock issuable upon the exercise of dilutive employee stock options less the number of shares of common stock which could have been purchased with the proceeds from the exercise of such options. These 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. 9 WALTER INDUSTRIES, INC. AND SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (continued) Note 7 - Segment Information Information relating to the Company's operating segments is set forth below (in thousands):
Three months ended February 29, February 28, Sales and revenues: 2000 1999 --------- --------- Homebuilding and Financing $ 117,661 $ 110,507 Water Transmission Products 101,965 92,246 Energy Services 93,150 83,360 Natural Resources 58,267 63,853 Other 78,958 65,855 Corporate 2,715 609 --------- --------- Consolidated sales and revenues $ 452,716 $ 416,430 ========= ========= Operating income (a): Homebuilding and Financing (b) $ 20,149 $ 26,024 Water Transmission Products 7,424 7,266 Energy Services 9,401 2,974 Natural Resources (7,684) (32,378) Other 7,748 5,678 --------- --------- Operating income 37,038 9,564 Less: General corporate expense (b) (5,406) (5,902) Senior debt interest expense (b) (11,292) (9,672) Intercompany interest expense (b) (10,039) (11,288) --------- --------- Income (loss) before tax expense 10,301 (17,298) Income tax benefit (expense) (5,240) 6,372 --------- --------- Net income (loss) $ 5,061 $ (10,926) ========= ========= Depreciation: Homebuilding and Financing $ 1,094 $ 983 Water Transmission Products 5,022 4,828 Energy Services 1,698 1,583 Natural Resources 7,420 9,686 Other 3,413 3,501 Corporate 374 383 --------- --------- Total $ 19,021 $ 20,964 ========= =========
10 WALTER INDUSTRIES, INC. AND SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (continued) (a) Operating income amounts are after deducting amortization of goodwill. A breakdown of goodwill amortization by segment is as follows:
Three months ended February 29, February 28, 2000 1999 ------- ------- Homebuilding and Financing $ 4,707 $ 5,384 Water Transmission Products 2,465 2,432 Energy Services 2,140 2,127 Natural Resources (436) (430) Other 262 262 Corporate 22 38 ------- ------- $ 9,160 $ 9,813 ======= =======
(b) Interest and amortization of debt expense incurred by the Homebuilding and Financing segment and Corporate is as follows:
Three months ended February 29, February 28, 2000 1999 -------- -------- Homebuilding and Financing: Gross interest $ 35,488 $ 36,133 Less: Intercompany interest income (10,039) (11,288) -------- -------- Net interest 25,449 24,845 Corporate: Senior debt interest 11,292 9,672 Intercompany interest 10,039 11,288 -------- -------- $ 46,780 $ 45,805 ======== ========
General corporate expense, senior debt interest expense and intercompany interest expense are attributable to all operating segments, but cannot be reasonably allocated to specific segments.
Nine months ended February 29, February 28, 2000 1999 ---------- ---------- Sales and revenues: Homebuilding and Financing $ 363,459 $ 334,696 Water Transmission Products 365,132 354,127 Energy Services 239,166 270,191 Natural Resources 192,569 237,056 Other 236,183 227,683 Corporate 3,275 765 ---------- ---------- Consolidated sales and revenues $1,399,784 $1,424,518 ========== ==========
11 WALTER INDUSTRIES, INC. AND SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (continued)
Nine months ended February 29, February 28, 2000 1999 --------- --------- Operating income (a) : Homebuilding and Financing (b) $ 68,092 $ 84,416 Water Transmission Products 35,013 24,777 Energy Services 22,026 13,670 Natural Resources (12,049) (37,631) Other 23,703 16,422 --------- --------- Operating income 136,785 101,654 Less: General corporate expense (b) (16,591) (14,512) Senior debt interest expense (b) (32,937) (30,834) Intercompany interest expense (b) (37,178) (34,265) --------- --------- Income before tax expense 50,079 22,043 Income tax expense (24,483) (4,197) --------- --------- Net income $ 25,596 $ 17,846 ========= ========= Depreciation: Homebuilding and Financing $ 3,725 $ 2,918 Water Transmission Products 14,563 13,816 Energy Services 4,957 4,690 Natural Resources 21,865 28,794 Other 10,139 11,094 Corporate 1,115 1,228 --------- --------- Total $ 56,364 $ 62,540 ========= =========
(a) Operating income amounts are after deducting amortization of goodwill. A breakdown of goodwill amortization by segment is as follows:
Nine months ended February 29, February 28, 2000 1999 -------- -------- Homebuilding and Financing $ 15,128 $ 17,431 Water Transmission Products 7,407 7,374 Energy Services 6,416 6,629 Natural Resources (1,310) (1,305) Other 792 790 Corporate 101 117 -------- -------- $ 28,534 $ 31,036 ======== ========
12 WALTER INDUSTRIES, INC. AND SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (continued) (b) Interest and amortization of debt expense incurred by the Homebuilding and Financing segment and Corporate is as follows:
Nine months ended February 29, February 28, 2000 1999 --------- --------- Homebuilding and Financing: Gross interest $ 106,219 $ 108,476 Less: Intercompany interest income (37,178) (34,265) --------- --------- Net interest 69,041 74,211 Corporate: Senior debt interest 32,937 30,834 Intercompany interest 37,178 34,265 --------- --------- $ 139,156 $ 139,310 ========= =========
General corporate expense, senior debt interest expense and intercompany interest expense are attributable to all operating segments, but cannot be reasonably allocated to specific segments. 13 MANAGEMENT'S DISCUSSION AND ANALYSIS OF RESULTS OF OPERATIONS AND FINANCIAL CONDITION AND QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK This discussion should be read in conjunction with the consolidated financial statements and notes thereto of Walter Industries, Inc. and subsidiaries, particularly Note 2 of "Notes to Consolidated Financial Statements" which discusses the reclassification of Jim Walter Resources, Inc. ("JWR") from discontinued operations to continuing operations and Note 7 of "Notes to Consolidated Financial Statements" which presents sales and revenues and operating income by operating segment. RESULTS OF OPERATIONS Three Months ended February 29, 2000 and February 28, 1999 - ---------------------------------------------------------- Net sales and revenues for the three months ended February 29, 2000 were $36.3 million, or 8.7%, above the prior year period. The increase resulted from higher revenues from all operating segments except Natural Resources. The current period includes a $2.4 million non-taxable gain from an executive life insurance policy which is reflected in the Corporate segment results. Cost of sales, exclusive of depreciation, of $310.3 million was 79.6% of net sales in the current year period versus $284.3 million and 81.1% in 1999. The improvement principally resulted from higher gross profit margins for pipe products, petroleum coke products, furnace and foundry coke, specialty chemicals and aluminum foil and sheet products. Selling, general and administrative expenses of $50.7 million were 11.2% of net sales and revenues in the 2000 period compared to $39.2 million and 9.4% in 1999. The increase includes the acquisition of Crestline Homes, Inc. ("Crestline") in February 1999, expenditures associated with upgrading information technology capabilities and utilization of outside consultants who are assisting the Company in identifying cost reduction opportunities. Interest and amortization of debt expense was $46.8 million in the 2000 period versus $45.8 million in 1999. The increase was the result of higher interest rates, partially offset by lower average outstanding debt balances. The average rate of interest in the 2000 period was 7.60% compared to 7.44% in 1999. The average prime rate of interest was 8.58% and 7.75% in the 2000 and 1999 periods, respectively. The Company's effective tax rate in the 2000 and 1999 periods differed from the statutory tax rate primarily due to amortization of goodwill which is not deductible for tax purposes, excluding amounts related to the AIMCOR acquisition. Current period results also include the $2.4 million non-taxable insurance gain previously discussed. Net income in the 2000 period was $5.1 million compared to a net loss of $10.9 million in 1999. Prior year results included a $27.5 million charge ($16.9 million after-tax benefit) relating to the shutdown of Mine No. 3. (See Note 2 of "Notes to Consolidated Financial Statements"). The Company's diluted earnings per share in the 2000 period were $.11 compared to a loss of $.21 in 1999. Current and prior year results reflect all of the factors discussed in the following segment analysis. Segment Analysis: Homebuilding and Financing sales and revenues were $7.2 million, or 6.5%, above the prior year period. The improved results reflect an increase in the number of units sold, from 864 units in the 1999 period to 1,012 units in 2000, as well as an increase in the average net selling price per home sold, from $52,800 in 1999 to $56,700 in 2000. The increase in units sold principally reflects the acquisition of Crestline. The higher average selling price reflects consumer preference for new and more upscale models and amenities being offered by Jim Walter Homes coupled with price increases instituted to compensate for higher building materials and labor costs. The order backlog at February 29, 2000 was 1,987 units compared to 2,401 units at February 28, 1999. The decrease in time charges (revenues received from Mid-State's instalment note portfolio) resulted from a $5.0 million 14 reduction in payoffs received in advance of maturity and a reduction in the total number of accounts, partially offset by an increase in the average balance per account in the mortgage portfolio. Operating income of $20.1 million (net of interest expense) was $5.9 million lower than the prior year period. The decrease reflects the reduction in time charges, a decline in homebuilding gross profit margins due to increases in building materials and labor costs in excess of price increases realized, higher selling, general and administrative expenses and higher interest expense ($25.4 million in 2000 versus $24.8 million in 1999) partially offset by the increases in units sold and average net selling prices, and lower goodwill amortization in the 2000 period ($4.7 million) compared to 1999 ($5.4 million). Water Transmission Products sales and revenues were $9.7 million, or 10.5%, above the prior year period. The increase was the result of greater shipments, partially offset by lower selling prices. Total shipments in the 2000 period were 128,200 tons compared to 110,900 tons in 1999. The order backlog at February 29, 2000 was 133,500 tons, which represents approximately three months shipments compared to 124,300 tons at February 28, 1999. Operating income of $7.4 million was $0.2 million above the prior year period. This performance was the result of increased revenues and improved gross profit margins, partially offset by higher general and administrative expenses. Energy Services sales and revenues increased $9.8 million, or 11.7%, over the prior year period. Operating income of $9.4 million was $6.4 million greater than the prior year period. The improvement in sales and revenues and operating income resulted from greater demand for petroleum coke from European and U.S. steel producers whose production was impacted by market volatility last year, and improved results from its terminals and services operations which were affected by equipment problems in the 1999 period caused by adverse weather in the fiscal second quarter. Natural Resources sales and revenues were $5.6 million, or 8.7%, below the 1999 period. The decrease was the result of lower coal selling prices and lower methane gas sales volumes. A total of 1.55 million tons of coal was sold at an average selling price per ton of $32.66 in the current year period compared to 1.39 million tons at $41.72 in 1999. Methane gas sales volumes were 2.2 billion cubic feet in the 2000 period versus 2.4 billion cubic feet in 1999. The average selling price per thousand cubic feet was $3.34 in the 2000 period versus $2.72 in 1999. Both periods included a monthly reservation fee of $.7 million. The segment's operating loss in the 2000 period was $7.7 million compared to a loss of $32.4 million in 1999, which included the $27.5 million charge associated with the shutdown of Mine No. 3. Production costs in the 2000 period were $34.77 per ton as compared to $42.73 per ton in the prior year period. The Other segment's sales and revenues were $13.1 million, or 19.9%, greater than the prior year period. Increased shipments of aluminum foil and sheet products, furnace coke and slag fiber were partially offset by lower revenues from the Company's land management businesses. Operating income of $7.7 million exceeded the prior year period by $2.1 million. The increase in sales and revenues coupled with improved operating margins for aluminum foil and sheet products, furnace coke and specialty chemicals were partially offset by the lower land management income. Nine Months ended February 29, 2000 and February 28, 1999 - --------------------------------------------------------- Net sales and revenues for the nine months ended February 29, 2000 were $24.7 million, or 1.7% below the prior year period. The decrease was primarily attributable to a decrease in time charges, lower market prices for products sold by the Energy Services segment and lower shipments and selling prices for coal. In addition, prior year results included revenues of $18.8 million from JWWC which was sold in the fiscal 1999 second quarter. Fiscal 2000 results include a $2.4 million non-taxable gain from an executive life insurance policy. Cost of sales, exclusive of depreciation, of $963.7 million was 79.3% of net sales in the 2000 period versus $994.4 million and 81.6% in 1999. The improvement principally resulted from higher gross profit margins realized on pipe products, petroleum coke products, chemicals and aluminum foil and sheet products. 15 Selling, general and administrative expenses of $146.4 million were 10.5% of sales and revenues in the 2000 period compared to $125.9 million and 8.8% in 1999. The increase was primarily attributable to the acquisitions of Dream Homes, Inc. ("Dream") in October 1998 and Crestline in February 1999, expenditures associated with upgrading information technology capabilities and addressing Year 2000 issues, and outside consultants who are assisting the Company in identifying cost reduction opportunities. Interest and amortization of debt expense was $139.2 million in the 2000 period versus $139.3 million in 1999. The decrease was the result of lower average outstanding debt balances, partially offset by higher interest rates. The average rate of interest in the 2000 period was 7.60% as compared to 7.48% in 1999. The average prime rate of interest was 8.27% and 8.14% in the 2000 and 1999 periods, respectively. The Company's effective tax rate in the 2000 and 1999 periods differed from the statutory tax rate primarily due to amortization of goodwill which is not deductible for tax purposes, excluding amounts related to the AIMCOR acquisition. Additionally, in the 2000 period, the Company's recognized a $2.4 million non-taxable gain from an executive life insurance policy. In the 1999 period, the Company recognized a $10.5 million non-recurring tax benefit on the sale of JWWC. Net income in the 2000 period was $25.6 million compared to reversal $17.8 million in 1999. Current year results included a $3.5 million pre-tax reversal ($2.2 million after-tax) of Mine No. 3 shutdown costs previously recorded in the fiscal 1999 third quarter and recognition of the fiscal 2000 first quarter loss incurred by JWR of $3.0 million pre-tax ($1.6 million after-tax) which had been deferred pending its disposition. Prior year results included the $27.5 million pre-tax ($16.9 million after-tax) charge to shutdown Mine No. 3 and an after-tax gain of $6.7 million from the sale of JWWC. The Company's diluted earnings per share in the 2000 period was $.52 compared to $.34 in the 1999 period. The current and prior year results reflect all of the factors discussed in the following segment analysis. Segment Analysis: Homebuilding and Financing sales and revenues were $28.8 million, or 8.6%, above the prior year period. The increase reflects an increase in the number of homes sold, from 2,596 units in the 1999 period to 3,288 units in 2000, combined with a higher average net selling price per home sold, from $51,500 in the 1999 period to $55,200 in 2000, partially offset by lower time charges (revenues received from Mid-State's instalment note portfolio) from $185.1 million in 1999 to $168.3 million in 2000. The increase in unit sales principally resulted from a full nine month contribution from Dream and Crestline. The higher average net selling price resulted from new product options, amenity upgrades and consumer preference for more upscale models being offered by Jim Walter Homes as well as from price increases instituted to compensate for higher building materials and labor costs. The decrease in time charges resulted from a $14.0 million reduction in payoffs received in advance of maturity and a reduction in the total number of accounts, partially offset by an increase in the average balance per account in the portfolio. Operating income of $68.1 million (net of interest expense) was $16.3 million below the prior year period, reflecting the lower time charges and a decline in homebuilding gross profit margins due to increases in building materials and labor costs in excess of price increases realized and higher general and administrative expenses, partially offset by the increase in units sold and the average net selling price, lower interest expense in the 2000 period ($69.0 million) as compared to the prior year period ($74.2 million), and lower goodwill amortization in the 2000 period ($15.1 million) compared to 1999 ($17.4 million). Water Transmission Products sales and revenues were $11.0 million or 3.1%, above the prior year period. The increase was the result of higher shipments, partially offset by a decline in ductile iron pressure pipe selling prices. Total shipments in the 2000 period were 473,800 tons compared to 454,400 tons in 1999. Operating income of $35.0 million exceeded the prior year period by $10.2 million. This performance was the result of improved gross profit margins reflecting lower raw material costs (primarily scrap iron) and improved operating efficiencies, combined with the previously mentioned increase in sales and revenues, partially offset by an increase in general and administrative expenses. 16 Energy Services sales and revenues decreased $31.0 million, or 11.5%, reflecting a year to year decline in world-wide market prices for petroleum coke and ferroalloys. Operating income of $22.0 million, however, was $8.4 million greater than the prior year period reflecting higher earnings within its carbon products units, principally driven by a more normalized margin and cost environment for petroleum coke products and related outsourcing services. Prior year results were also impacted by equipment problems at the Texas Gulf Coast terminals and services operations caused by adverse weather conditions in that region in the fiscal second quarter. Natural Resources sales and revenues decreased $44.5 million, or 18.8%, from the prior year period. The decrease was the result of reduced coal and methane gas shipments coupled with lower average selling prices for coal. A total of 4.6 million tons of coal was sold at an average selling price per ton of $36.71 compared with 5.2 million tons at $42.23 in 1999. The decrease in shipments principally reflects lower production levels due to the shutdown of Mine No. 3. Methane gas sales volumes were 6.6 billion cubic feet in the 2000 period versus 7.0 billion cubic feet in 1999. The average selling price per thousand cubic feet was $3.30 in the 2000 period versus $2.92 in 1999. Both periods included a monthly reservation fee of $.7 million. The segment's operating loss was $12.0 million in the 2000 period which included the reversal of $3.5 million in Mine No. 3 shutdown costs previously recorded in the fiscal 1999 third quarter. The segment incurred an operating loss of $37.6 million in the 1999 period which included the $27.5 million charge for Mine No. 3 shutdown costs. Coal production costs in the 2000 period were $36.02 per ton compared to $41.57 in 1999. The Other segment's sales and revenues were $8.5 million, or 3.7%, above the prior year period. Increased sales of aluminum foil and sheet products, slag fiber and specialty chemicals were partially offset by lower revenues from the Company's land management businesses. Prior year results also included revenues from JWWC as previously mentioned. Operating income of $23.7 million exceeded the prior year period by $7.3 million. Fiscal 1999 results included a pre-tax loss on the sale of JWWC of $3.8 million. Improved operating margins for aluminum foil and sheet products and specialty chemicals were partially offset by lower land management income. FINANCIAL CONDITION Since May 31, 1999, total debt decreased $16.4 million. During the nine months ended February 29, 2000, net borrowings under the Mid-State Trust V Variable Funding Loan Agreement totaled $128.0 million. Scheduled payments on the mortgage-backed/asset-backed notes amounted to $147.7 million. Other senior debt increased by $3.3 million. Borrowings outstanding under the Credit Facilities totaled $555.0 million at February 29, 2000. The Revolving Credit Facility includes a sub-facility for trade and other standby letters of credit in an amount up to $75.0 million at any time outstanding. There were $31.1 million face amount of letters of credit outstanding thereunder as of February 29, 2000. The Credit Facilities 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 capital 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. Effective August 31, 1999, the Credit Facilities were amended to include, among other things: (a) the Applicable Margin (as defined in the Credit Facilities) for LIBOR rate loans is amended in its entirety and includes a range from .625% to 2.25% (based upon a leverage ratio pricing grid); (b) the Applicable Unused Fee (as defined in the Credit Facilities) is amended in its entirety and includes a range from .20% to .40% (based upon a leverage ratio pricing grid); (c) the borrowers' fixed charge coverage ratio was replaced by an interest coverage ratio (the ratio of Consolidated EBITDA (as defined in Amendment Agreement No. 5 to the Credit Facilities) to Consolidated Interest Expense (as defined in the Credit Facilities)). The interest coverage ratio is required to be at least 2.50-to-1 at the end of 17 each Four Quarter Period (as defined in the Credit Facilities) for the duration of the Credit Facilities; and (d) the borrowers are required to maintain a leverage ratio (the ratio of indebtedness to Consolidated EBITDA) of not more than 3.75-to-1 for the duration of the Credit Facilities, provided, however, in the event of a Mining Sale (as defined in the Credit Facilities) the ratio must not exceed 4.0-to-1 for the periods ending February 29, 2000, and May 31, 2000, and 3.75-to-1 for the period ending August 31, 2000 and thereafter. The Company was in compliance with these covenants at February 29, 2000. The Trust V Variable Funding Loan Agreement covenants, among other things, restrict the ability of Trust V to dispose of assets, create liens and engage in mergers or consolidations. The Company was in compliance with these covenants at February 29, 2000. Effective September 29, 1999, the Trust V Variable Funding Loan Agreement was amended to include, among other things, the following: (a) the facility is increased to $500.0 million; (b) interest is based upon the cost of A-1 and P-1 rated commercial paper plus .25%; and (c) the facility fee on the maximum net investment is .25%. The agreement expires September 27, 2000. The Loan and Security Agreement contains a number of covenants that, among other things, restrict the ability of Mid-State Homes to dispose of assets, create liens on assets, engage in mergers, incur any unsecured or recourse debt, or make changes to their credit and collection policy. In addition, Mid-State Homes is required to maintain specified net income and net worth levels. The Company was in compliance with these covenants at February 29, 2000. LIQUIDITY AND CAPITAL RESOURCES Cash and cash equivalents, net of book overdrafts, were approximately $21.2 million at February 29, 2000. Operating cash flows for the nine months ended February 29, 2000, together with issuance of long-term debt under the Trust V Variable Funding Loan Agreement, borrowings under the Credit Facilities and the use of available cash balances, were primarily used for retirement of long-term senior debt, interest payments, capital expenditures, the purchase of approximately 2.8 million shares of common stock and payment of dividends. In October 1999, the Company's Board of Directors authorized up to $25.0 million in additional repurchases of the Company's common stock. In February 2000, the Board of Directors authorized additional repurchases of the Company's common stock up to $25.0 million. Working capital is required to fund adequate levels of inventories and accounts receivable. Commitments for capital expenditures at February 29, 2000 were not significant; however, it is estimated that gross capital expenditures of the Company and its subsidiaries for the fiscal year ending May 31, 2000 will approximate $90.0 million. Because the Company's operating cash flow is significantly influenced by the general economy and, in particular, levels of domestic construction activity, current results should not necessarily be used to predict the Company's liquidity, capital expenditures, investment in instalment 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 instalment notes and mortgages generated by Jim Walter Homes. It is anticipated that financings similar to the previous Mid-State Homes asset-backed 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, cash flow from operations, together with borrowing capacity under the Revolving Credit Facility, will be sufficient to make all required interest and principal payments on its indebtedness, to make all planned capital expenditures and dividend payments, and meet substantially all operating needs as well as repurchase up to an additional $25.9 million of the Company's common stock, the amount remaining at February 29, 2000 under current authorizations. 18 MARKET RISK The Company is exposed to certain market risks inherent in the Company's financial instruments. These instruments arise from transactions entered into in the normal course of business. The Company is subject to interest rate risk on its existing Credit Facilities, Loan and Security Agreement, Trust V Variable Funding Loan, and any future financing requirements. The Company's primary market risk exposure relates to (i) the interest rate risk on long-term and short-term borrowings, (ii) the impact of interest rate movements on its ability to meet interest rate expense requirements and comply with financial covenants and (iii) the impact of interest rate movements on the Company's ability to obtain adequate financing to fund future acquisitions. The Company has historically managed interest rate risk through the periodic use of interest rate hedging instruments. There were no such instruments outstanding at February 29, 2000. While the Company can not predict its ability to refinance existing debt or the impact interest rate movements will have on its existing debt, management continues to evaluate its financial position on an ongoing basis. The Company is also subject to a limited amount of foreign currency risk, but does not currently engage in any significant foreign currency hedging transactions to manage exposure for transactions denominated in currencies other than the U.S. dollar. YEAR 2000 DISCLOSURE This Year 2000 ("Y2K") disclosure is provided in accordance with the Federal Year 2000 Information and Readiness Disclosure Act, P.L. 105-271. The Company successfully completed all work to resolve the potential impact of the Y2K on the processing of date-sensitive information by the Company's computerized information systems and equipment with embedded chips. The Company did not experience any material disruption from the Year 2000 issue relating to the century rollover. The Company will continue to monitor all critical systems for the appearance of delayed Year 2000 related issues, problems relative to the leap year and problems encountered through suppliers, customers and other third parties with whom the Company deals. Description of Areas of Impact and Risk The Company identified three areas where the Y2K problem created risk. These areas were: a) internal Information Technology ("IT") systems; b) non-IT systems with embedded chip technology; and c) system capabilities of third party businesses with relationships with the Company, including product suppliers, customers, service providers (such as telephone, power, logistics, financial services) and other businesses whose failure to be Y2K compliant could have a material adverse effect on the Company's business, financial condition or results of operations. Plan to Address Year 2000 Compliance The Company established a Corporate Steering Committee (the "Committee") to coordinate solutions to Y2K issues. The Committee included a representative from each subsidiary as well as a member of the Company's Law Department, the Director of Information Technology and the Chief Financial Officer. The Committee identified systems and applications that require modification and evaluated alternative solutions. The Committee developed a Y2K Standard that was issued to all subsidiaries to follow for Y2K compliance. Status conference calls were held monthly and on-site progress reviews were held quarterly. 19 State of Readiness The Company completed an inventory assessment, remediation or replacement, and testing for all of its internal information systems and non-IT systems with embedded chip technology. A readiness assessment was completed on all material third parties with whom the Company does business. Cost of Project The overall cost of the Company's Y2K compliance effort was approximately $16.5 million. EURO CONVERSION On January 1, 1999, eleven of the fifteen member countries of the European Union commenced conversion from their existing sovereign currencies to a new, single currency called the euro. Fixed conversion rates between the existing currencies, the legacy currencies, and the euro will be established and the euro will become the common legal currency of the participating countries on this date. The euro will then trade on currency exchanges and will be available for non-cash transactions. The participants will issue sovereign debt exclusively in euro and will, redenominate outstanding sovereign debt at this time. Following this introduction period, the participating members legacy currencies will remain legal tender as denominations of euro until January 1, 2002. At that time, countries will issue new euro-denominated bills for use in cash transactions. All legacy currency will be withdrawn prior to July 1, 2002, completing the euro conversion on this date. As of January 1, 1999, the participating countries no longer will control their own monetary policies by directing independent interest rates for the legacy currencies; instead, the authority to direct monetary policy, including money supply and official interest rates for the euro, will be exercised by the new European Central Bank. The Company has established a plan to address the issues raised by the euro conversion. These issues include, but are not limited to: the competitive impact created by cross-border price transparency; the need for the Company and its business partners to adapt IT and non-IT systems to accommodate euro-denominated transactions; and the need to analyze the legal and contractual implications of the Company's contracts. The Company currently anticipates that the required modifications to its systems, equipment and processes will be made on a timely basis and does not expect that the costs of such modifications will have a material effect on the Company's financial position or results of operations. PRIVATE SECURITIES LITIGATION REFORM ACT SAFE HARBOR STATEMENT This Form 10-Q contains certain forward-looking statements (as such term is defined in the Private Securities Litigation Reform Act of 1995) and information relating to the Company that is based on the beliefs of the management of the Company, as well as assumptions made by and information currently available to the management of the Company. When used in this Form 10-Q, the words "estimate," "project," "believe," "anticipate," "intend," "expect," and similar expressions are intended to identify forward-looking statements. Such statements reflect the current views of the Company with respect to future events and are subject to risks and uncertainties that could cause actual results to differ materially from those contemplated in such forward-looking statements. Among those factors which could cause actual results to differ materially are market demand, competition, interest rate fluctuations, weather and other risk factors listed from time to time in the Company's filings with the Securities and Exchange Commission. Readers are cautioned not to place undue reliance on these forward-looking statements, which speak only as of the date hereof. The Company does not undertake any obligation to publicly release any revisions to these forward looking statements to reflect events or circumstances after the date hereof or to reflect the occurrence of unanticipated events. 20 PART II - OTHER INFORMATION Item 1. Legal Proceedings A substantial controversy exists with regard to federal income taxes allegedly owed by the Company. See "Note 7 - Income Taxes" of Notes to Consolidated Financial Statements contained in the Company's Annual Report on Form 10-K for the year ended May 31, 1999. The Company and its subsidiaries are parties to a number of other lawsuits arising in the ordinary course of their businesses. Most of these cases are in a preliminary stage and the Company is unable to predict a range of possible loss, if any. The Company provides for costs relating to these matters when a loss is probable and the amount is reasonably estimable. The effect of the outcome of these matters on the Company's future results of operations cannot be predicted because any such effect depends on future results of operations and the amount and timing of the resolution of such matters. While the results of litigation cannot be predicted with certainty, the Company believes that the final outcome of such other litigation will not have a materially adverse effect on the Company's consolidated financial condition. Item 5. Other Information On March 27, 2000, the Company announced that Kenneth E. Hyatt resigned from his position as Chairman, President and Chief Executive Officer in order to pursue other interests. The Board of Directors has appointed G. Robert Durham to replace Mr. Hyatt on an interim basis while a search for a long-term successor is underway. Item 6. Exhibits and Reports on Form 8-K (a) Exhibit 3 (ii) - By-laws Amendments Exhibit 27 - Financial Data Schedule (b) None 21 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/ A. W. Huge /s/ F. A. Hult - --------------------------------- --------------------------------- A. W. Huge F. A. Hult Executive Vice President and Vice President, Controller and Principal Financial Officer Principal Accounting Officer Date: April 6, 2000 EX-3.(II) 2 EXHIBIT 3(II) Exhibit 3(ii) WALTER INDUSTRIES, INC. AMENDED AND RESTATED BY-LAWS ARTICLE I MEETING OF STOCKHOLDERS Section 1. PLACE OF MEETING AND NOTICE. Meetings of the stockholders of the Corporation shall be held at such place either within or without the State of Delaware as the Board of Directors may determine. Section 2. (A) MEETINGS. Annual meetings of stockholders shall be held, at a date, time and place fixed by the Board of Directors and stated in the notice of meeting, to elect a Board of Directors and to transact such other business as may properly come before the meeting. Special meetings of the stockholders may be called by the President for any purpose and shall be called by the President or Secretary if directed by a majority of the whole Board of Directors. (B) ANNUAL MEETINGS. (1) Nominations of persons for election to the board of directors of the Corporation and the proposal of business to be considered by the stockholders may be made at an annual meeting of stockholders (a) pursuant to the Corporation's notice of meeting delivered pursuant to Article I, Section 3 of these by-laws, (b) by or at the direction of the board of directors or (c) by any stockholder of the Corporation who is entitled to vote at the meeting, who complies with the notice procedures set forth in subparagraphs (2) and (3) of this paragraph (B) of this by-law and who is a stockholder of record at the time such notice is delivered to the Secretary of the Corporation. (2) For nominations or other business to be properly brought before an annual meeting by a stockholder pursuant to clause (c) of subparagraph (B)(1) of this by-law, the stockholder must have given timely notice thereof in writing to the Secretary of the Corporation, and, in the case of business other than nominations, such other business must be a proper matter for stockholder action. To be timely a stockholder's notice shall be delivered to the Secretary at the principal executive offices of the Corporation not less than ninety days nor more than one hundred and ten days prior to the first anniversary of the preceding year's annual meeting; provided, however, that if the date of the annual meeting is advanced by more than twenty days, or delayed by more than ninety days, from such anniversary date, notice by the stockholder to be timely must be so delivered not earlier than the one hundred and tenth day prior to such annual meeting and not later than the close of business on the later of the ninetieth day prior to such annual meeting or the tenth day following the day on which public announcement of the date of such meeting is first made. Such stockholder's notice shall set forth (a) as to each person who the stockholder proposes to nominate for election or re-election as a director all information relating to such person that is required to be disclosed in solicitations of proxies for election of directors, or is otherwise required, in each case pursuant to Regulation 14A under the Securities Exchange Act of 1934, as amended (the "Exchange Act"), including such person's written consent to being named in the proxy statement as a nominee and to serving as a director if elected; (b) as to any other business that the stockholder proposes to bring before the meeting, a brief description of the business desired to be brought before the meeting, the reasons for conducting such business at the meeting and any material interest in such business of such stockholder and the beneficial owner, if any, on whose behalf the proposal is made; and (c) as to the stockholder giving the notice and the beneficial owner, if any, on whose behalf the nomination or proposal is made (i) the name and address of such stockholder, as they appear on the Corporation's books, and of such beneficial owner, and (ii) the class and number of shares of the Corporation which are owned beneficially and of record by such stockholder and such beneficial owner. (3) Notwithstanding anything in the first sentence of Article II, Section 1 of these by-laws to the contrary, if the number of directors to be elected to the board of directors of the Corporation is increased and there is no public announcement naming all of the nominees for director or specifying the size of the increased board of directors made by the Corporation at least eight days prior to the first anniversary of the preceding year's annual meeting, a stockholder's notice required by this by-law shall also be considered timely, but only with respect to nominees for any new positions created by such increase, if it shall be delivered to the Secretary at the principal executive offices of the Corporation not later than the close of business on the tenth day following the day on which such public announcement is first made by the Corporation. (C) SPECIAL MEETINGS. Only such business shall be conducted at a special meeting of stockholders as shall have been brought before the meeting pursuant to the Corporation's notice of meeting pursuant to Article I, Section 3 of these by-laws. Nominations of persons for election to the board of directors may be made at a special meeting of stockholders at which directors are to be elected pursuant to the Corporation's notice of meeting (a) by or at the direction of the board of directors or (b) by any stockholder of the Corporation who is entitled to vote at the meeting, who complies with the notice procedures set forth in this by-law and who is a stockholder of record at the time such notice if delivered to the Secretary of the Corporation. Nominations by stockholders of persons for election to the board of directors may be made at such a special meeting of stockholders if the stockholder's notice as required by subparagraph (B)(2) of this by-law shall be delivered to the Secretary at the principal executive offices of the Corporation not earlier than the one hundred and tenth day prior to such special meeting and not later than the close of business on the later of the ninetieth day prior to such special meeting or the tenth day following the day on which public announcement is first made of the date of the special meeting and of the nominees proposed by the board of directors to be elected at such meeting. (D) GENERAL. (1) Only persons who are nominated in accordance with the procedures set forth in this by-law shall be eligible to serve as directors and only such business shall be conducted at a meeting of stockholders as shall have been brought before the meeting in accordance with the procedures set forth in this by-law. Except as otherwise provided by law, the Amended and Restated Certificate of Incorporation of Walter Industries, Inc. or these by- 2 laws, the chairman of the meeting shall have the power and duty to determine whether a nomination or any business proposed to be brought before the meeting was made in accordance with the procedures set forth in this by-law and, if any proposed nomination or business is not in compliance with this by-law, to declare that such defective nomination shall be disregarded or that such proposed business shall not be transacted. (2) For purposes of this by-law, "public announcement" shall mean disclosure in a press release reported by the Dow Jones News Service, Associated Press or comparable national news service or in a document publicly filed by the Corporation with the Securities and Exchange Commission pursuant to Section 13, 14 or 15(d) of the Exchange Act. (3) For purposes of this by-law, no adjournment or notice of adjournment of any meeting shall be deemed to constitute a new notice of such meeting for purposes of this Section 2, and in order for any notification required to be delivered by a stockholder pursuant to this Section 2, to be timely, such notification must be delivered within the periods set forth above with respect to the originally scheduled meeting. (4) Notwithstanding the foregoing provisions of this by-law, a stockholder shall also comply with all applicable requirements of the Exchange Act and the rules and regulations thereunder with respect to the matters set forth in this by-law. Nothing in this by-law shall be deemed to affect any rights of stockholders to request inclusion of proposals in the Corporation's proxy statement pursuant to Rule 14a-8 under the Exchange Act nor shall anything in this by-law relieve any stockholder of the obligation to comply with any notice or other requirement in Rule 14a-8 that is not provided for in, or is more stringent than any comparable provision of, this by-law. Section 3. NOTICE. Except as otherwise provided by law, at least 10 and not more than 60 days before each meeting of stockholders, written notice of the time, date and place of the meeting, and, in the case of a special meeting, the purpose or purposes for which the meeting is called, shall be given to each stockholder. Section 4. QUORUM. At any meeting of stockholders, the holders of record, present in person or by proxy, of a majority of the Corporation's issued and outstanding shares of capital stock shall constitute a quorum for the transaction of business, except as otherwise provided by law. In the absence of a quorum, any officer entitled to preside at or to act as secretary of the meeting shall have power to adjourn the meeting from time to time until a quorum is present. Section 5. VOTING. Except as otherwise provided by law, all matters submitted to a meeting of stockholders shall be decided by vote of the holders of record of a majority of the Corporation's issued and outstanding shares of capital stock present at such meeting, in person or by proxy. 3 ARTICLE II DIRECTORS Section 1. NUMBER, ELECTION AND REMOVAL OF DIRECTORS. The number of Directors that shall constitute the Board of Directors shall be not less than 5 nor more than 13. The number of Directors, within the limits specified above, shall be determined by resolution of the Board of Directors. The Directors shall be elected by the stockholders at the annual meeting of the stockholders. Vacancies and newly created directorships resulting from any increase in the number of Directors may be filled by a majority of the Directors then in office, although less than a quorum, or by the sole remaining Director or by the stockholders. A Director may be removed in accordance with applicable law. Section 2. MEETINGS. Regular meetings of the Board of Directors shall be held at such times and places as may from time to time be fixed by a majority of the whole Board of Directors or as may be specified in a notice of meeting. Special meetings of the Board of Directors may be held at any time upon the call of the President and shall be called by the President or Secretary if directed by a majority of the whole Board of Directors. Telegraphic or written notice of each special meeting of the Board of Directors shall be sent to each Director not less than twenty-four hours before such meeting. A meeting of the Board of Directors may be held without notice immediately after the annual meeting of the stockholders. Notice need not be given of regular meetings of the Board of Directors. Section 3. QUORUM. A majority of the whole Board of Directors shall constitute a quorum for the transaction of business. If a quorum is not present at any meeting of the Board of Directors, the Directors present may adjourn the meeting from time to time, without notice other than announcement at the meeting, until such a quorum is present. Except as otherwise provided by law, the Certificate of Incorporation of the Corporation, or these by-laws, the act of a majority of the Directors present at any meeting at which there is a quorum shall be the act of the Board of Directors. Section 4. COMMITTEES OF DIRECTORS. The Board of Directors may, by resolution adopted by the affirmative vote of a majority of the whole Board of Directors designate one or more committees, including without limitation an Executive Committee, to have and exercise such power and authority as the Board of Directors shall specify. In the absence or disqualification of a member of a committee, the member or members thereof present at any meeting and not disqualified from voting, whether or not such member or members constitute a quorum, may unanimously appoint another Director to act at the meeting in place of any such absent or disqualified member. The Tax Oversight Committee, established pursuant to the Amended Joint Plan of Reorganization dated as of December 9, 1994, shall consist of such members as provided in Section 1.229 of said Plan. Section 5. COMPENSATION. Each Director who is not an employee of the Corporation or any of its subsidiaries, in consideration of his or her service as such, shall be entitled to receive from the Corporation such amount per annum or such fees for attendance at Directors meetings, or both, as the Board may from time to time determine, together with reimbursement for the 4 reasonable out-of-pocket expenses, if any, incurred by such Director in connection with the performance of his or her duties. Each Director who is not an employee of the Corporation or any of its subsidiaries who shall serve as a member of any committee of Directors in consideration of serving as such shall be entitled to such additional amount per annum or such fees for attendance at committee meetings, or both, as the Board may, from time to time determine, together with reimbursement for the reasonable out-of-pocket expenses, if any, incurred by such Director in the performance of his or her duties. Nothing contained in this Section 5 shall preclude any Director from serving the Corporation or its subsidiaries in any other capacity and receiving proper compensation therefor. ARTICLE III OFFICERS The officers of the Corporation shall consist of a President, a Secretary, a Treasurer and such other additional officers with such titles as the Board of Directors shall determine, all of whom shall be chosen by and shall serve at the pleasure of the Board of Directors. Such officers shall have the usual powers and shall perform all the usual duties incident to their respective offices. All officers shall be subject to the supervision and direction of the Board of Directors. The authority, duties or responsibilities of any officer of the Corporation may be suspended by the President with or without cause. Any officer elected or appointed by the Board of Directors may be removed by the Board of Directors with or without cause. ARTICLE IV INDEMNIFICATION To the fullest extent permitted by applicable law, the Corporation shall indemnify any current or former Director, officer, employee or agent of the Corporation and such director's, officer's, employee's or agent's heirs, executors and administrators against all expenses, judgments, fines and amounts paid in settlement actually and reasonably incurred by such indemnified party in connection with any threatened, pending or completed action, suit or proceeding brought by or in the right of the Corporation, or otherwise, to which such indemnified party was or is a party or is threatened to be made a party by reason of such indemnified party's current or former position with the Corporation or by reason of the fact that such indemnified party is or was serving, at the request of the Corporation, as a director, officer, partner, trustee, employee or agent of another Corporation, partnership, joint venture, trust or other enterprise. The Corporation shall, from time to time, reimburse or advance to any current or former director or officer or other person entitled to indemnification hereunder the funds necessary for payment of defense expenses as incurred. Any repeal or modification of this Article IV by the stockholders of the Corporation shall not adversely affect any right or protection of a director of the Corporation in respect of any act or omission occurring prior to the time of such repeal or modification. 5 ARTICLE V GENERAL PROVISIONS Section 1. NOTICES. Whenever any statute, the Certificate of Incorporation or these by-laws require notice to be given to any Director, such notice shall be deemed to have been given when it is sent by telegram, telex or telecopy or hand delivered or deposited in the United States mail, as the case may be. A waiver of such notice in writing signed by the person or persons entitled thereto, whether before or after the time stated in such notice, shall be equivalent to the giving of such notice. Attendance of a Director at a meeting shall constitute a waiver of notice of such meeting except where a Director attends a meeting for the express purpose of objecting to the transaction of any business because the meeting is not lawfully called or convened. Section 2. FISCAL YEAR. The fiscal year of the Corporation shall be fixed by the Board of Directors. 6 EX-27 3 FDS
5 THIS SCHEDULE CONTAINS SUMMARY FINANCIAL INFORMATION EXTRACTED FROM THE CONSOLIDATED FINANCIAL STATEMENTS AND RELATED NOTES THERETO AND IS QUALIFIED IN ITS ENTIRETY BY REFERENCE TO SUCH FINANCIAL STATEMENTS AND RELATED NOTES. 1,000 9-MOS MAY-31-2000 JUN-01-1999 FEB-29-2000 44,461 150,322 1,558,589 (32,865) 311,884 0 634,526 0 3,315,046 0 2,296,903 0 0 553 335,074 3,315,046 1,215,387 1,399,784 963,664 199,265 44,910 2,710 139,156 50,079 24,483 25,596 0 0 0 25,596 .52 .52 This line item is not presented on the Consolidated Financial Statements.
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