-----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, IIZDo/zzQgJQkaiKod68hmRAXIayQ/hF/wb7YT48TnimC05giyL9mA+j7Gr4pwn8 vrQCloN8S/lpaSEDDrbkDg== 0000912057-02-002965.txt : 20020414 0000912057-02-002965.hdr.sgml : 20020414 ACCESSION NUMBER: 0000912057-02-002965 CONFORMED SUBMISSION TYPE: 10-Q/A PUBLIC DOCUMENT COUNT: 1 CONFORMED PERIOD OF REPORT: 20010331 FILED AS OF DATE: 20020128 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/A SEC ACT: 1934 Act SEC FILE NUMBER: 001-13711 FILM NUMBER: 02519474 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 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 10-Q/A 1 a2068928z10-qa.txt 10-Q/A - -------------------------------------------------------------------------------- - -------------------------------------------------------------------------------- UNITED STATES SECURITIES AND EXCHANGE COMMISSION WASHINGTON, D.C. 20549 ------------------------ FORM 10-Q/A /X/ QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934
FOR THE QUARTERLY PERIOD ENDED MARCH 31, 2001 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 4211 W. BOY SCOUT BOULEVARD, 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 / /. There were 45,270,392 shares of common stock of the registrant outstanding at April 30, 2001. - -------------------------------------------------------------------------------- - -------------------------------------------------------------------------------- PART I--FINANCIAL INFORMATION WALTER INDUSTRIES, INC. AND SUBSIDIARIES CONSOLIDATED BALANCE SHEETS RESTATED
MARCH 31, DECEMBER 31, 2001 2000 (UNAUDITED) (NOTE 1) ----------- ------------- (IN THOUSANDS, EXCEPT SHARE AMOUNTS) ASSETS Cash and cash equivalents................................... $ 13,612 $ 11,513 Short-term investments, restricted.......................... 105,351 100,901 Marketable securities....................................... 2,180 1,980 Instalment notes receivable, net............................ 1,689,119 1,686,277 Receivables, net............................................ 239,126 239,620 Inventories................................................. 281,298 261,441 Prepaid expenses............................................ 12,955 13,079 Property, plant and equipment, net.......................... 479,167 480,361 Investments................................................. 13,307 13,226 Unamortized debt expense.................................... 41,325 42,432 Other long-term assets, net................................. 38,658 37,129 Goodwill, net............................................... 443,093 452,234 ---------- ---------- $3,359,191 $3,340,193 ========== ========== LIABILITIES AND STOCKHOLDERS' EQUITY Accounts payable............................................ $ 169,650 $ 171,949 Accrued expenses............................................ 113,849 118,644 Income taxes payable........................................ 67,213 61,027 Debt Mortgage-backed/asset-backed notes........................ 1,747,021 1,769,833 Other senior debt......................................... 450,250 411,500 Accrued interest............................................ 30,320 28,231 Deferred income taxes....................................... 10,801 11,976 Accumulated postretirement benefits obligation.............. 290,704 286,903 Other long-term liabilities................................. 54,605 54,679 Stockholders' equity Common stock, $.01 par value per share: Authorized--200,000,000 shares Issued--55,355,184 shares............................... 554 554 Capital in excess of par value............................ 1,160,937 1,162,767 Accumulated deficit....................................... (615,261) (620,688) Treasury stock--9,823,492 and 9,296,592 shares, at cost... (120,566) (116,113) Accumulated other comprehensive loss...................... (886) (1,069) ---------- ---------- Total stockholders' equity.............................. 424,778 425,451 ---------- ---------- $3,359,191 $3,340,193 ========== ==========
See accompanying "Notes to Consolidated Financial Statements" 2 WALTER INDUSTRIES, INC. AND SUBSIDIARIES CONSOLIDATED STATEMENTS OF OPERATIONS (UNAUDITED) RESTATED
FOR THE THREE MONTHS ENDED MARCH 31, --------------------- 2001 2000 --------- --------- (IN THOUSANDS, EXCEPT PER SHARE AMOUNTS) Sales and revenues: Net sales................................................. $404,867 $401,451 Time charges.............................................. 54,698 54,980 Miscellaneous............................................. 4,873 7,222 -------- -------- 464,438 463,653 -------- -------- Cost and expenses: Cost of sales............................................. 324,912 313,630 Depreciation.............................................. 16,118 19,471 Selling, general and administrative....................... 48,271 55,207 Provision for losses on instalment notes.................. 2,444 2,736 Postretirement benefits................................... 5,472 5,465 Interest and amortization of debt expense................. 46,767 46,819 Amortization of goodwill and other intangibles............ 9,262 9,212 -------- -------- 453,246 452,540 -------- -------- Income before income tax expense............................ 11,192 11,113 Income tax expense.......................................... 5,765 5,599 -------- -------- Net income.................................................. $ 5,427 $ 5,514 ======== ======== Basic net income per share.................................. $ .12 $ .12 ======== ======== Diluted net income per share................................ $ .12 $ .12 ======== ========
See accompanying "Notes to Consolidated Financial Statements" 3 WALTER INDUSTRIES, INC. AND SUBSIDIARIES CONSOLIDATED STATEMENT OF CHANGES IN STOCKHOLDERS' EQUITY (UNAUDITED) RESTATED (IN THOUSANDS)
ACCUMULATED COMPREHENSIVE OTHER INCOME ACCUMULATED COMPREHENSIVE COMMON CAPITAL IN TREASURY TOTAL (LOSS) DEFICIT INCOME (LOSS) STOCK EXCESS STOCK -------- -------------- ------------ -------------- -------- ---------- --------- Balance at December 31, 2000...... $425,451 $(620,688) $(1,069) $554 $1,162,767 $(116,113) Comprehensive income Net income...................... 5,427 $5,427 5,427 Other comprehensive income, net of tax Net unrealized gain on hedge....................... 368 368 368 Foreign currency translation adjustment.................. (185) (185) (185) ------ Comprehensive income.............. $5,610 ------ Dividends paid.................... (1,830) (1,830) Purchases of treasury stock....... (4,453) (4,453) -------- --------- ------- ---- ---------- --------- Balance at March 31, 2001......... $424,778 $(615,261) $ (886) $554 $1,160,937 $(120,566) ======== ========= ======= ==== ========== =========
See accompanying "Notes to Consolidated Financial Statements" 4 WALTER INDUSTRIES, INC. AND SUBSIDIARIES CONSOLIDATED STATEMENTS OF CASH FLOWS (UNAUDITED) RESTATED
FOR THE THREE MONTHS ENDED MARCH 31, --------------------- 2001 2000 --------- --------- (IN THOUSANDS) OPERATING ACTIVITIES Net income................................................ $ 5,427 $ 5,514 Charges to income not affecting cash: Depreciation............................................ 16,118 19,471 Provision for deferred income taxes..................... (1,175) 4,771 Accumulated postretirement benefits obligation.......... 3,801 2,461 Provision for other long-term liabilities............... (74) 156 Amortization of goodwill and other intangibles.......... 9,262 9,212 Amortization of debt expense............................ 1,440 1,997 --------- --------- 34,799 43,582 Decrease (increase) in assets: Short-term investments, restricted...................... (4,450) (19,195) Marketable securities................................... (200) 42,471 Instalment notes receivable, net(a)..................... (2,842) (6,724) Trade and other receivables, net........................ 494 (6,407) Inventories............................................. (19,857) (34,303) Prepaid expenses........................................ 124 (1,051) Increase (decrease) in liabilities: Accounts payable........................................ (2,299) (14,081) Accrued expenses........................................ (4,795) 656 Income taxes payable.................................... 6,186 (3,755) Accrued interest........................................ 2,089 (1,534) --------- --------- Cash flows from operating activities.................. 9,249 (341) --------- --------- INVESTING ACTIVITIES Additions to property, plant and equipment, net of retirements............................................. (14,924) (17,543) Increase in investments and other assets.................. (1,731) 2,354 --------- --------- Cash flows used in investing activities............... (16,655) (15,189) --------- --------- FINANCING ACTIVITIES Issuance of debt.......................................... 302,803 184,689 Retirement of debt........................................ (286,865) (180,597) Additions to unamortized debt expense..................... (333) -- Purchases of treasury stock............................... (4,453) (11,094) Dividends paid............................................ (1,830) (1,450) Net unrealized gain on hedge.............................. 368 -- Exercise of employee stock options........................ -- 82 --------- --------- Cash flows from (used in) financing activities........ 9,690 (8,370) --------- --------- EFFECT OF EXCHANGE RATE ON CASH............................. (185) (725) --------- --------- Net increase (decrease) in cash and cash equivalents........ 2,099 (24,625) Cash and cash equivalents at beginning of period............ 11,513 57,508 --------- --------- Cash and cash equivalents at end of period.................. $ 13,612 $ 32,883 ========= =========
- ------------------------------ (a) Consists of sales and resales, net of repossessions and provision for losses of $33.9 million and $32.1 million and cash collections on account and payouts in advance of maturity of $36.7 million and $38.8 million, respectively. See accompanying "Notes to Consolidated Financial Statements" 5 WALTER INDUSTRIES, INC. AND SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS MARCH 31, 2001 (UNAUDITED) RESTATED NOTE 1--BASIS OF PRESENTATION The accompanying unaudited consolidated financial statements have been prepared in accordance with generally accepted accounting principles for interim financial information and with the instructions to Form 10-Q and Article 10 of Regulation S-X. Accordingly, they do not include all of the information and footnotes required by generally accepted accounting principles for complete financial statements. In the opinion of management, all adjustments (consisting of normal recurring accruals) considered necessary for a fair presentation have been included. Operating results for the three month period ended March 31, 2001 are not necessarily indicative of the results that may be expected for the year ended December 31, 2001. The balance sheet at December 31, 2000 has been derived from the audited financial statements at that date but does not include all of the information and footnotes required by generally accepted accounting principles for complete financial statements. For further information, refer to the consolidated financial statements and footnotes thereto included in the Walter Industries, Inc. and Subsidiaries Transition Report on Form 10-K/A for the transition period ended December 31, 2000. NOTE 2--RESTATEMENT The following amounts have been restated for certain accounting policy changes, collectively referred to as the "revised accounting policies" including use of the interest method of revenue recognition on the instalment note portfolio, related provision for losses on instalment notes, deferral and amortization of note origination costs and the deferral of gains recognized upon the sale of repossessed properties. Previously, time charges were included in equal parts in each monthly payment (i.e. straight-line method) and taken into income as collected. Generally, the effect of the revised accounting policies was to reduce revenues, including principally time-charge income which is reflected in net sales and revenues, and to increase provision for losses on instalment notes. The restatements reflect deferral and amortization of nominal gains on the sale of repossessed properties and nominal deferral and amortization of note origination costs. In addition, stockholders' equity increased by $229.9 million as of December 31, 2000, the earliest date presented as a result of the impact of the restatements discussed above, net of tax. Previously reported selling, general and administrative expense amounts have been reduced in each period presented to reflect the amount of provision for losses on instalment notes that has been reclassified to a separate line item in the restated format. All financial data in the Form 10-Q/A reflects the impact of the 6 WALTER INDUSTRIES, INC. AND SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED) MARCH 31, 2001 (UNAUDITED) RESTATED NOTE 2--RESTATEMENT (CONTINUED) restatement. The following table summarizes the impact of applying the interest method on the statement of operations and balance sheet:
FOR THE THREE MONTHS ENDED MARCH 31, 2001 ------------------------ AS PREVIOUSLY AS REPORTED RESTATED ------------- -------- Statement of operations data: Net sales and revenues................................ $463,455 $464,438 Cost of sales......................................... 325,462 324,912 Selling, general and administrative................... 48,853 48,271 Provision for losses on instalment notes.............. 312 2,444 Income before income taxes............................ 11,791 11,192 Income tax expense.................................... (5,975) (5,765) Net income............................................ 5,816 5,427 Basic and diluted net income per share................ $ .13 $ .12
MARCH 31, 2001 -------------------------- AS PREVIOUSLY AS REPORTED RESTATED ------------- ---------- Balance sheet data: Instalment notes receivable......................... $1,362,374 $1,698,719 Allowance for losses on instalment notes............ (26,935) (9,600) Inventories......................................... 281,880 281,298 Deferred income taxes--asset (liability)............ 112,783 (10,801) Total assets........................................ 3,118,876 3,359,191 Accumulated deficit................................. (844,775) (615,261) Stockholders' equity................................ 195,264 424,778
FOR THE THREE MONTHS ENDED MARCH 31, 2000 ------------------------ AS PREVIOUSLY AS REPORTED RESTATED ------------- -------- Statement of operations data: Net sales and revenues................................ $464,702 $463,653 Cost of sales......................................... 314,233 313,630 Selling, general and administrative................... 55,740 55,207 Provision for losses on instalment notes.............. -- 2,736 Income before income taxes............................ 13,762 11,113 Income tax expense.................................... (6,526) (5,599) Net income............................................ 7,236 5,514 Basic and diluted net income per share................ $ .15 $ .12
7 WALTER INDUSTRIES, INC. AND SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED) MARCH 31, 2001 (UNAUDITED) RESTATED NOTE 2--RESTATEMENT (CONTINUED)
DECEMBER 31, 2000 -------------------------- AS PREVIOUSLY AS REPORTED RESTATED ------------- ---------- Balance sheet data: Instalment notes receivable......................... $1,358,858 $1,696,577 Allowance for losses on instalment notes............ (26,839) (10,300) Inventories......................................... 262,002 261,441 Deferred income taxes--asset (liability)............ 111,818 (11,976) Total assets........................................ 3,098,314 3,340,193 Accumulated deficit................................. (850,591) (620,688) Stockholders' equity................................ 195,548 425,451
NOTE 3--RESTRICTED SHORT-TERM INVESTMENTS Restricted short-term investments at March 31, 2001 and December 31, 2000 include (i) temporary investment of reserve funds and collections on instalment notes receivable owned by Mid-State Trusts II, IV, VI, VII, VIII, and IX at March 31, 2001 and Mid-State Trusts II, IV, V, VI, VII, and VIII at December 31, 2000 (the "Trusts") ($100.1 million and $94.1 million, respectively), which are available only to pay expenses of the Trusts and principal and interest on indebtedness of the Trusts and (ii) miscellaneous other segregated accounts restricted to specific uses ($5.3 million and $6.8 million), respectively. NOTE 4--INSTALMENT NOTES RECEIVABLE--RESTATED (SEE NOTE 2) The instalment notes receivable is summarized as follows (in thousands):
MARCH 31, DECEMBER 31, 2001 2000 ---------- ------------- Instalment Notes Receivable......................... $1,698,719 $1,696,577 Less: Allowance for losses on instalment notes...... 9,600 10,300 ---------- ---------- Net................................................. $1,689,119 $1,686,277 ========== ==========
Activity in the allowance for losses on instalment notes is summarized as follows (in millions):
MARCH 31, DECEMBER 31, 2001 2000 ---------- ------------- Balance at beginning of period........................ $10,300 $10,700 Provisions charged to income.......................... 2,444 5,310 Charge-offs, net of recoveries........................ (3,144) (5,710) ------- ------- Balance at end of period.............................. $ 9,600 $10,300 ======= =======
8 WALTER INDUSTRIES, INC. AND SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED) MARCH 31, 2001 (UNAUDITED) RESTATED NOTE 5--INVENTORIES--RESTATED (SEE NOTE 2) Inventories are summarized as follows (in thousands):
MARCH 31, DECEMBER 31, 2001 2000 ---------- ------------- Finished goods........................................ $177,266 $159,069 Goods in process...................................... 46,400 46,289 Raw materials and supplies............................ 51,493 49,387 Houses held for resale................................ 6,139 6,696 -------- -------- Total inventories..................................... $281,298 $261,441 ======== ========
NOTE 6--DEBT Debt, in accordance with its contractual terms, consisted of the following (in thousands):
MARCH 31, DECEMBER 31, 2001 2000 ---------- ------------- Mortgage-Backed/Asset-Backed Notes: Trust II Mortgage-Backed Notes.................... $ 145,350 $ 161,500 Trust IV Asset Backed Notes....................... 496,068 502,174 Trust V Variable Funding Loan..................... -- 161,000 Trust VI Asset Backed Notes....................... 304,256 309,803 Trust VII Asset Backed Notes...................... 268,338 272,192 Trust VIII Asset Backed Notes..................... 356,506 363,164 Trust IX Asset Backed Notes....................... 176,503 -- ---------- ---------- 1,747,021 1,769,833 ---------- ---------- Other senior debt: Walter Industries, Inc. Revolving Credit Facility....................... 149,700 110,000 Term Loan....................................... 300,000 300,000 Other........................................... 550 1,500 ---------- ---------- 450,250 411,500 ---------- ---------- Total............................................... $2,197,271 $2,181,333 ========== ==========
9 WALTER INDUSTRIES, INC. AND SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED) MARCH 31, 2001 (UNAUDITED) RESTATED NOTE 7--STOCKHOLDERS' EQUITY Information relating to the Company's share repurchases is set forth in the following table (in thousands):
SHARES AMOUNT -------- -------- Treasury stock at December 31, 2000........................ 9,297 $116,113 Share repurchases for the three months ended March 31, 2001..................................................... 526 4,453 ----- -------- Total held in treasury at March 31, 2001................... 9,823 $120,566 ===== ========
On April 2, 2001 the Board of Directors increased the authorization to repurchase the Company's common stock to $25 million. NOTE 8--EARNINGS PER SHARE--RESTATED (SEE NOTE 2) A reconciliation of the basic and diluted earnings per share computations for the three months ended March 31, 2001 and 2000 are as follows (in thousands, except per share data):
FOR THE THREE MONTHS ENDED MARCH 31, ----------------------------------------- 2001 2000 ------------------- ------------------- BASIC DILUTED BASIC DILUTED -------- -------- -------- -------- Net income.............................. $ 5,427 $ 5,427 $ 5,514 $ 5,514 ======= ======= ======= ======= Shares of common stock outstanding: Average number of common shares(a).... 45,733 45,733 47,584 47,584 Effect of diluted securities: Stock options(b)........................ -- 129 -- -- ------- ------- ------- ------- 45,733 45,862 47,584 47,584 ======= ======= ======= ======= Net income per share.................... $ .12 $ .12 $ .12 $ .12 ======= ======= ======= =======
- ------------------------ (a) The three months ended March 31, 2001 and 2000 shares 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 on 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 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. On February 1, 2001, the Company declared a $.04 per share dividend for the four months ended December 31, 2000 payable to shareholders of record on February 15, 2001. On April 26, 2001, the Company declared a $.03 per share dividend for the three months ended March 31, 2001 payable to shareholders of record on May 16, 2001. 10 WALTER INDUSTRIES, INC. AND SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED) MARCH 31, 2001 (UNAUDITED) RESTATED NOTE 9--DERIVATIVES Financial Accounting Standards Board Statement No. 133, ACCOUNTING FOR DERIVATIVE INSTRUMENTS AND HEDGING ACTIVITIES (Statement 133), requires companies to recognize all of its derivative instruments as either assets or liabilities in the statement of financial position at fair value. The accounting for changes in the fair value (i.e., gains or losses) of a derivative instrument depends on whether it has been designated and qualifies as part of a hedging relationship and further, on the type of hedging relationship. For those derivative instruments that are designated and qualify as hedging instruments, a company must designate the hedging instrument based on the exposure being hedged, as either a fair value hedge, cash flow hedge or a hedge of a net investment in a foreign operation. For derivative instruments that are designated and qualify as a cash flow hedge (i.e., hedging the exposure to variability in expected future cash flows that is attributable to a particular risk), the effective portion of the gain or loss on the derivative instrument is reported as a component of other comprehensive income and reclassified into earnings in the same period or periods during which the hedged transaction affects earnings. The remaining gain or loss on the derivative instrument in excess of the cumulative change in the present value of future cash flows of the hedged item, if any, is recognized in current earnings during the period of change. The Company uses derivative instruments principally to manage exposures to natural gas price fluctuations. The Company's objective for holding derivatives is to minimize risk using the most effective methods to eliminate or reduce the impacts of exposures. The Company documents all relationships between hedging instruments and hedged items, and links all derivatives designated as fair value, cash flow or foreign currency hedges to specific assets and liabilities on the balance sheet or to specific firm commitments or forecasted transactions. The Company also assesses and documents, both at the hedge's inception and on an ongoing basis, whether the derivatives that are used in hedging transactions are highly effective in offsetting changes in fair values or cash flows associated with the hedged items. To protect against the reduction in value of forecasted cash flows resulting from sales of natural gas over the remainder of 2001, the Company has instituted a natural gas hedging program. The Company hedges portions of its forecasted revenues from sales of natural gas with swap contracts. The Company has entered into natural gas swap agreements that effectively convert a portion of its forecasted sales at floating-rate natural gas prices to a fixed-rate basis for the remainder of 2001, thus reducing the impact of natural gas price changes on future sales revenues. When natural gas prices fall, the decline in value of future natural gas sales is offset by gains in the value of swap contracts designated as hedges. Conversely, when natural gas prices rise, the increase in the value of future cash flows from natural gas sales is offset by losses in the value of the swap contracts. At March 31, 2001, approximately 50% of the Company's forecasted natural gas sales for the remainder of the year were designated as the hedged items to natural gas swap agreements. During the quarter ended March 31, 2001, the Company recognized a net loss of $14,000 related to the ineffective portion of its hedging instruments. All amounts have been included in net sales in the statement of operations. At March 31, 2001, the Company expects to reclassify, during the next nine months, $368,000 of net gains on derivative instruments from accumulated other comprehensive income to earnings as actual natural gas sales occur. 11 WALTER INDUSTRIES, INC. AND SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED) MARCH 31, 2001 (UNAUDITED) RESTATED NOTE 10--SEGMENT INFORMATION--RESTATED (SEE NOTE 2) Summarized financial information concerning the Company's reportable segments is shown in the following tables (in thousands):
THREE MONTHS ENDED MARCH 31, ------------------- 2001 2000 -------- -------- Sales and revenues: Homebuilding and Financing............................ $113,716 $121,195 Industrial Products................................... 197,665 196,475 Energy Services....................................... 85,620 92,251 Natural Resources..................................... 66,307 50,607 Other................................................. 1,130 3,125 -------- -------- Sales and revenues.................................. $464,438 $463,653 ======== ======== Operating income(a): Homebuilding and Financing............................ $ 9,504 $ 9,749 Industrial Products................................... 14,837 18,194 Energy Services....................................... 5,164 8,770 Natural Resources..................................... 607 (8,251) -------- -------- Operating income.................................... 30,112 28,462 Less: General corporate expense....................... 7,604 6,066 Senior debt interest expense........................ 11,316 11,283 -------- -------- Income before tax expense............................. 11,192 11,113 Income tax expense.................................... 5,765 5,599 -------- -------- Net income.......................................... $ 5,427 $ 5,514 ======== ======== Depreciation: Homebuilding and Financing............................ $ 1,088 $ 1,088 Industrial Products................................... 9,493 8,411 Energy Services....................................... 1,670 1,708 Natural Resources..................................... 2,908 7,624 Other................................................. 959 640 -------- -------- Total............................................... $ 16,118 $ 19,471 ======== ========
- ------------------------ (a) Operating income amounts are after deducting amortization of goodwill and other intangibles. A breakdown of amortization by segment is as follows (in thousands):
THREE MONTHS ENDED MARCH 31, ------------------- 2001 2000 -------- -------- Homebuilding and Financing............................ $ 4,270 $ 4,749 Industrial Products................................... 2,591 2,616 Energy Services....................................... 2,139 2,139 Natural Resources..................................... -- (436) Other................................................. 262 144 -------- -------- $ 9,262 $ 9,212 ======== ========
12 MANAGEMENT'S DISCUSSION AND ANALYSIS OF RESULTS OF OPERATIONS AND FINANCIAL CONDITION AND QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK As more fully described in Note 2 of "Notes to Consolidated Financial Statements," on January 28, 2002, the Company restated its previously issued financial statements for certain accounting policy changes, collectively referred to as the "revised accounting policies." Accordingly, all prior period information presented herein has been restated to reflect these changes. Total assets, net instalment notes receivable, allowance for losses, equity, certain income statement amounts and net income were restated on this Form 10-Q/A from amounts previously reported in the Company's Form 10-Q, as filed May 15, 2001. The principal differences result from a change in the method of recognizing time charge income from the straight-line method to the interest method, which also has a related impact on the allowance for losses. These changes are reflected in the Homebuilding and Financing segment. The following discussion of operating results includes the impact of these restatements. This discussion should be read in conjunction with the consolidated financial statements and notes thereto of Walter Industries, Inc. and subsidiaries, particularly Note 10 of "Notes to Consolidated Financial Statements," which presents sales and revenues and operating income by operating segment. RESULTS OF OPERATIONS THREE MONTHS ENDED MARCH 31, 2001 AND 2000 Net sales and revenues for the three months ended March 31, 2001 were $464.4 million, an increase of $.8 million from the comparable three month period in 2000. Revenue growth within the Industrial Products and Natural Resources segments was offset by declines in unit sales of homes and a $.3 million decrease in time charges in the Homebuilding and Financing segment. Also, volumes for the Energy Services segment declined due to delayed timing of petroleum coke shipments. Miscellaneous income decreased because the prior year quarter included a $2.4 million gain from an executive life insurance policy. Cost of sales, exclusive of depreciation, of $324.9 million was 80.3% of net sales in the 2001 period versus $313.6 million and 78.1% of net sales in the comparable period of 2000. The increase in cost of sales was principally the result of higher petroleum coke costs and higher energy costs. The increase in cost of sales as a percent of net sales reflects lower gross profit margins realized on petcoke sales, lost fixed absorption in some of the Industrial Products businesses and higher energy costs. This increase was partially offset by cost reductions and productivity improvements in other business segments, principally lower materials cost for homebuilding and lower scrap iron cost for U.S. Pipe. Depreciation for the three months ended March 31, 2001 was $16.1 million, a decrease of $3.4 million from the same period in 2000. This decrease was primarily attributable to lower depreciation expense resulting from the $166.7 million pretax asset impairment charge to the Company's coal mining assets taken in May 2000. Selling, general and administrative expenses of $48.3 million were 10.4% of net sales and revenues in the 2001 period, compared to $55.2 million and 11.9% in 2000. The decrease in expenses was due to lower expenses from cost reduction and productivity improvement programs implemented in the last twelve months, including the reorganization of the European operations in the Energy Services segment. Provision for losses on instalment notes of $2.4 million were 4.5% of time charges in the 2001 period, compared to $2.7 million and 5.0% in 2000. Interest and amortization of debt expense was $46.8 million for each of the three month periods ended March 31, 2001 and 2000. The average rate of interest for the three months ended March 31, 13 2001 was 7.97% as compared to 7.74% for the three months ended March 31, 2000. The prime rate of interest was a range from 9.05% to 8.32% in the current year period compared to a range of 8.50% to 8.83% in 2000. The Company's effective tax rate for the three months ended March 31, 2001 differed from the federal statutory tax rate primarily due to amortization of goodwill (excluding amounts related to the AIMCOR acquisition) which is not deductible for tax purposes, the utilization of certain federal tax credits, and the effect of state and local income taxes. The effective tax rate for the three months ended March 31, 2000 differed from the federal statutory tax rate primarily due to amortization of goodwill and the effect of the gain from the executive life insurance policy which is not subject to income taxes. Net income for the three months ended March 31, 2001 was $5.4 million compared to $5.5 million in the comparable 2000 period. The Company's diluted earnings per share in the 2001 period was $.12 compared to $.12 in the 2000 period. The current and prior period results also reflect the factors discussed in the following segment analysis. Segment Analysis: HOMEBUILDING AND FINANCING Net sales and revenues were $113.7 million for the three months ended March 31, 2001, a decrease of $7.5 million from the quarter ended March 31, 2000. During the three months ended March 31, 2001, the Company completed fewer homes, which was partially offset by an increase in the average net selling price. The average net selling price increased as a result of new product options, amenity upgrades and consumer preference for more upscale models.
THREE MONTHS ENDED THREE MONTHS ENDED MARCH 31, 2001 MARCH 31, 2000 ------------------ ------------------ Homes Completed.......................... 924 1,065 Average Net Selling Price................ $58,500 $57,700
In addition to the decrease in the homes completed and the increase in the average net selling price, time charge income decreased $.3 million principally as the result of the prepayment speed decreasing to 4.7% for the quarter ended March 31, 2001 compared to 5.3% for the quarter ended March 31, 2000. The estimated backlog of homes to be constructed at March 31, 2001 was $101.7 million compared to $99.0 million at December 31, 2000 and $112.4 million at March 31, 2000. Operating income was $9.5 million for the three months ended March 31, 2001 compared to $9.7 million in the prior year period. The $.2 million decrease was principally caused by the $.3 million decline in time charges. Improved operating margins on home sales, attributable to lower materials cost and other expense reductions, were offset by lower revenues from fewer unit completions. INDUSTRIAL PRODUCTS Net sales and revenues were $197.7 million for the three months ended March 31, 2001, an increase of $1.2 million from the $196.5 million for the three months ended March 31, 2000. The increase is due primarily to an increase in shipments at U.S. Pipe as well as from an increase in the average selling price per ton for pipe products. Compared to the quarter ended March 31, 2000, U.S. Pipe revenues were up 14% as shipment tonnage increased by 11,500 tons, or 8.3%, and the average selling price per ton for pipe products increased 4.9% with a slightly more favorable product mix. Recent weakness in the domestic steel industry, caused by competition from foreign suppliers and a slower economy, has significantly impacted sales at Sloss. Sloss' revenues decreased by $6.7 million from the comparable period a year earlier, principally due to reduced sales of furnace coke. 14 JW Aluminum also experienced lower shipments during the current quarter, principally due to weather-related delays in seasonal demand for its fin stock products used in air conditioning applications. The order backlog for U.S. Pipe at March 31, 2001 was $57.1 million compared to $82.2 million at March 31, 2000 and $82.0 million at December 31, 2000. Operating income of $14.8 million for the first quarter of 2001 was down $3.4 million from the $18.2 million for the three months ended March 31, 2000. Operating income at U.S. Pipe improved 16% during the current quarter reflecting strong demand for it's ductile iron pipe products and continuing productivity improvements. Higher energy costs at U.S. Pipe of approximately $3.6 million were substantially offset by a $3.5 million reduction in scrap iron costs. However, strong results at U.S. Pipe were more than offset by other decreases in operating income, primarily at Sloss Industries Corporation. Sloss' operating income declined $3.8 million from last year, on lower furnace coke sales, and JW Aluminum's operating income declined due to it's lower shipments, and energy costs that were $1.1 million higher than last year's first quarter. ENERGY SERVICES Net sales and revenues were $85.6 million for the three months ended March 31, 2001, a decrease of $6.6 million from the three months ended March 31, 2000. The decrease is primarily due to delays of petroleum coke shipments that are now expected in the second quarter. Operating income of $5.2 million, was $3.6 million below the prior year period due to the shipment delays and due to lower margins per ton on current contracts as compared to the prior year. NATURAL RESOURCES Net sales and revenues were $66.3 million for the three months ended March 31, 2001, an increase of $15.7 million from the $50.6 million in the prior year period. This improvement is primarily attributable to an increase in methane gas revenues, which rose $10.5 million, resulting from an increase in methane gas produced, a higher number of methane gas wells, and an increase in average sales price. Additionally, coal revenues rose $5.2 million due to an increase in tons of coal sold, which was partially offset by a slight decrease in average coal sales prices.
THREE MONTHS ENDED THREE MONTHS ENDED MARCH 31, 2001 MARCH 31, 2000 ------------------ ------------------ Average Methane Selling Price (per MCF)................................... $ 6.84 $ 2.49 Number of Methane Wells.................. 325 320 Average Coal Selling Price (per ton)..... $ 28.11 $ 29.80 Average Cost Per Ton Produced............ $ 30.12 $ 32.07 Tons of Coal Sold........................ 1.7 million 1.4 million
For the three months ended March 31, 2001, Natural Resources had operating income of $0.6 million, compared to operating loss of $8.3 million for the quarter ended March 31, 2000. The improvement in operating income was principally driven by significant increases in natural gas prices and a 5% decline in average production costs from successful cost reduction efforts in the mining operations. GENERAL CORPORATE EXPENSES General corporate expenses were $7.6 million during the three months ended March 31, 2001 compared to $6.1 million for the three months ended March 31, 2000. This reflects a $0.9 million reduction offset by a $2.4 million non-taxable gain from an executive life insurance policy included in the prior year amount but not reflected in the current year. 15 FINANCIAL CONDITION, LIQUIDITY AND CAPITAL RESOURCES Since December 31, 2000, total debt has increased by $15.9 million. During the three month period ended March 31, 2001, net borrowings under the Mid-State Trust IX Variable Funding Loan Agreement totaled $176.5 million. Payments on the mortgage-backed/asset-backed notes amounted to $199.3 million. Other senior debt increased by $38.8 million. At March 31, 2001 borrowings under the Revolving Credit Facility totaled $149.7 million. 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. At March 31, 2001 letters of credit with a face amount of $45.6 million were outstanding. 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 and its Restricted Subsidiaries is required to maintain specified financial ratios and comply with certain financial tests. The most restrictive of these limitations are requirements to maintain (a) a minimum interest coverage ratio (the ratio of EBITDA to interest expense for the Company and its Restricted Subsidiaries as defined in the Credit Facilities) of at least 2.50-to-1 and (b) a maximum leverage ratio (the ratio of indebtedness to EBITDA for the Company and its Restricted Subsidiaries as defined in the Credit Facilities) of not more than 3.75-to-1. The Company was in compliance with these covenants at March 31, 2001. The Trust IX Variable Funding Loan Agreement's covenants, among other things, restrict the ability of Trust IX to dispose of assets, create liens and engage in mergers or consolidations. The Company was in compliance with these covenants at March 31, 2001. Cash and cash equivalents were approximately $13.6 million at March 31, 2001. Operating cash flows for the three months ended March 31, 2001 together with issuance of long-term debt under the Mid-State Trust IX Variable Funding Loan Agreement and borrowings under the Revolving Credit Facility were primarily used for retirement of long-term senior debt, capital expenditures, dividends and to purchase 526,900 shares of common stock under the stock repurchase program. Cash flow from operating activities for the three months ended March 31, 2001, were $9.2 million, principally reflecting net income for the period and non-cash charges for depreciation and amortization, offset by an increase in working capital. The increase in working capital reflected higher inventory levels at U.S. Pipe and JW Aluminum due to seasonality. 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. Capital expenditures totaled $15.4 in the three months ended March 31, 2001. These capital expenditures reflect the Company's ongoing commitment to maintain safe, efficient plants and continually increase productivity. Commitments for capital expenditures at March 31, 2001 were not significant; however, it is estimated that gross capital expenditures for the year ending December 31, 2001 will approximate $90 million. Actual expenditures in 2001 may be more or less than this amount, depending upon the level of earnings and cash flow, or expansion opportunities in certain markets. In the three months ended March 31, 2001, the Company repurchased $4.5 million of its Common Stock. On April 2, 2001 the Board of Directors increased the authorization to repurchase the Company's common stock to $25 million. 16 The Board of Directors approved a $0.04 per share dividend payable March 15, 2001 to shareholders of record on February 15, 2001. The $0.04 per share dividend reflects a one-time, non-recurring adjustment to the Company's regular dividend rate of $0.03 per share because of a one-time dividend reporting period of four months due to the change in fiscal year end. On April 26, 2001, the Board of Directors declared a $0.03 per share dividend payable to shareholders of record on May 16, 2001. The Company believes that the Mid-State Trust IX 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 and its affiliates. It is anticipated that one or more permanent 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 IX Variable Funding Loan Agreement. The Company believes that under present operating conditions, sufficient cash flow will be generated to make all required interest and principal payments on its indebtedness, to make all its planned capital expenditures to pay dividends, and meet substantially all operating needs. It is further expected that amounts under the Revolving Credit Facility will be sufficient to meet peak operating needs of the Company. 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 IX 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 and (ii) the impact of interest rate movements on its ability to meet interest rate expense requirements and comply with financial covenants. The Company has historically managed interest rate risk through the periodic use of interest rate hedging instruments. There were no such instruments outstanding at March 31, 2001. 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 at risk on its portfolio of instalment notes receivable. The Company's instalment notes receivable are fixed rate and have terms ranging from 12 to 30 years. The Company manages its risk by securitizing its instalment notes into asset-backed trust agreements funded by fixed rate debt. Therefore, the Company's asset/liability management requires a high degree of analysis and estimation. In the ordinary course of business, the Company is also exposed to commodity price risks. These exposures primarily relate to the acquisition of raw materials and the purchase and the sale of natural gas. The Company may occasionally utilize derivative financial instruments to manage certain of these exposures where it considers it practical to do so. In the first quarter of 2001, the Company entered into a commodity swap to hedge anticipated sales of natural gas. At March 31, 2001, the Company had outstanding commodity swaps with a notionable amount of approximately 3.8 million cubic feet. These commodity swaps, which cover the period from April through December of 2001, provide for the Company to receive a weighted average fixed price of approximately $5.30 per MMBTU and to pay a variable price that is substantially the same as the price to be received by the Company from its sales contract with Southern Natural Gas. For further information about the Company's use of derivative instruments, see Note 9 of "Notes to Consolidated Financial Statements." 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. 17 PRIVATE SECURITIES LITIGATION REFORM ACT SAFE HARBOR STATEMENT This Form 10-Q/A 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/A, 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. 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. 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 11 of Notes to Consolidated Financial Statements contained in the Company's Annual Report on Form 10-K/A for the year ended December 31, 2000. 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 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS At the Company's Annual Meeting of Stockholders held on April 26, 2001, the following proposals were submitted to the Stockholders: 1. The election of the following directors:
DIRECTOR FOR WITHHELD BROKER NON-VOTES - -------- ---------- --------- ---------------- Robert F. Amter................ 40,726,507 2,126,562 0 Donald N. Boyce................ 40,674,836 2,178,233 0 Howard L. Clark, Jr............ 40,709,971 2,143,098 0 Don DeFosset................... 40,727,707 2,125,362 0 Perry Golkin................... 40,704,624 2,148,445 0 James L. Johnson............... 40,709,871 2,143,198 0 Scott C. Nuttall............... 40,725,057 2,128,012 0 Wayne W. Robinson.............. 40,727,607 2,125,462 0 Neil A. Springer............... 40,727,207 2,125,862 0 Michael T. Tokarz.............. 40,704,324 2,148,745 0
18 2. A proposal to ratify the appointment of PricewaterhouseCoopers LLP as independent certified public accountants for the year ending December 31, 2001: For, 42,566,766; Against, 282,878; Abstain, 3,425; and Broker Non-Votes, 0. 3. A stockholder proposal to liquidate the Company: For, 6,740,704; Against, 32,372,230; Abstain, 205,462; and Broker Non-Votes, 3,534,673. ITEM. 6 EXHIBITS AND REPORTS ON FORM 8-K (a) None (b) None 19 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/ W.F. OHRT /s/ C.E. CAUTHEN ------------------------------------------- -------------------------------------- W.F. Ohrt C.E. Cauthen EXECUTIVE VICE PRESIDENT AND SENIOR VICE PRESIDENT, CONTROLLER AND PRINCIPAL FINANCIAL OFFICER PRINCIPAL ACCOUNTING OFFICER Date: January 28, 2002
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