-----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, UkijdJZNpBkiguFMhy5yMWNB9X9gjbDJJi6wkYwlczG8fBBkrN4mPtytcpHPGRTY gwEbQqhcGaGHfE7AYyueEg== 0000950112-95-002928.txt : 19951118 0000950112-95-002928.hdr.sgml : 19951118 ACCESSION NUMBER: 0000950112-95-002928 CONFORMED SUBMISSION TYPE: 424B3 PUBLIC DOCUMENT COUNT: 1 FILED AS OF DATE: 19951109 SROS: NASD FILER: COMPANY DATA: COMPANY CONFORMED NAME: WALTER INDUSTRIES INC /NEW/ CENTRAL INDEX KEY: 0000837173 STANDARD INDUSTRIAL CLASSIFICATION: GEN BUILDING CONTRACTORS - RESIDENTIAL BUILDINGS [1520] IRS NUMBER: 133429953 STATE OF INCORPORATION: DE FISCAL YEAR END: 0531 FILING VALUES: FORM TYPE: 424B3 SEC ACT: 1933 Act SEC FILE NUMBER: 033-59013 FILM NUMBER: 95589071 BUSINESS ADDRESS: STREET 1: 1500 N DALE MABRY HGWY CITY: TAMPA STATE: FL ZIP: 33607 BUSINESS PHONE: 8138714811 MAIL ADDRESS: STREET 1: 1500 NORTH MABRY HGWY STREET 2: 1500 NORTH MABRY HGWY CITY: TAMPA STATE: FL ZIP: 33607 FORMER COMPANY: FORMER CONFORMED NAME: HILLSBOROUGH HOLDINGS CORP DATE OF NAME CHANGE: 19910814 424B3 1 WALTER INDUSTRIES, INC. Filed pursuant to Rule 424(b)(3) and (c) with respect to Reg. No. 33-59013 PROSPECTUS SUPPLEMENT dated November 9, 1995 to PROSPECTUS dated October 11, 1995 of WALTER INDUSTRIES, INC. Relating to 31,911,136 Shares of Common Stock SECURITIES AND EXCHANGE COMMISSION WASHINGTON, D. C. 20549 FORM 10-Q QUARTERLY REPORT UNDER SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 FOR THE QUARTER ENDED AUGUST 31, 1995 Commission File Number ---------- 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 . No X . Walter --- --- Industries, Inc. has not been subject to such filing requirements for the past 90 days. There were 50,494,313 shares of common stock of the registrant outstanding at August 31, 1995. PART I - FINANCIAL INFORMATION ------------------------------ WALTER INDUSTRIES, INC. AND SUBSIDIARIES ---------------------------------------- CONSOLIDATED CONDENSED BALANCE SHEET ------------------------------------ (UNAUDITED) August 31, May 31, 1995 1995 ---------- ---------- (in thousands) ASSETS - ------ Cash (includes short-term investments of $52,167,000 and $84,872,000) (Note 3) $ 83,048 $ 128,007 Short-term investments, restricted (Note 3) 140,829 128,002 Instalment notes receivable (Note 4) 4,227,775 4,256,866 Less - Provision for possible losses ( 26,389) ( 26,556) Unearned time charges (2,851,641) (2,869,282) Trade and other receivables, less $8,133,000 and $7,998,000 provision for possible losses 178,628 182,822 Federal income tax receivable 99,875 99,875 Inventories, at lower of cost (first in first out or average) or market: Finished goods 100,657 111,792 Goods in process 30,899 29,593 Raw materials and supplies 51,340 53,453 Houses held for resale 1,709 1,599 Prepaid expense 9,641 12,694 Property, plant and equipment, at cost 1,198,162 1,186,407 Less - Accumulated depreciation, depletion and amortization ( 541,312) ( 523,615) Investments and other assets 49,788 49,889 Deferred income taxes 11,275 16,544 Unamortized debt expense 32,397 34,167 Excess of purchase price over net assets acquired (Note 1) 362,671 372,896 ----------- ----------- $ 3,159,352 $ 3,245,153 =========== =========== LIABILITIES AND STOCKHOLDERS' EQUITY - ------------------------------------ Bank overdrafts (Note 3) $ 24,700 $ 33,746 Accounts payable and accrued expenses 201,642 259,044 Income taxes payable 53,638 53,261 Long-term senior debt 2,181,627 2,220,370 Accrued interest 51,446 37,854 Accumulated postretirement health benefits obligation 233,679 228,411 Other long-term liabilities 51,605 51,693 Stockholders' equity (Note 6): Common stock 505 505 Capital in excess of par value 1,159,384 1,159,384 Retained earnings (deficit) ( 792,924) ( 793,165) Excess of additional pension liability over unrecognized prior years service cost ( 5,950) ( 5,950) ---------- ----------- Total stockholders' equity 361,015 360,774 ----------- ------------ $ 3,159,352 $ 3,245,153 =========== =========== WALTER INDUSTRIES, INC. AND SUBSIDIARIES ---------------------------------------- CONSOLIDATED STATEMENT OF OPERATIONS ------------------------------------- (UNAUDITED) For the three months ended August 31, ----------------------------- 1995 1994 ---------- ---------- (in thousands except per share amount) Sales and revenues: Net sales $ 316,107 $ 277,152 Time charges 56,355 56,749 Miscellaneous 7,686 5,321 Interest income from Chapter 11 proceedings (Note 1) - 1,418 --------- --------- 380,148 340,640 --------- --------- Costs and expenses: Cost of sales 249,833 224,119 Depreciation, depletion and amortization 18,517 16,757 Selling, general and administrative 33,104 32,350 Postretirement health benefits 6,679 6,647 Provision for possible losses 938 1,297 Chapter 11 costs (Note 1) - 4,149 Interest and amortization of debt discount and expense 54,581 36,463 Amortization of excess of purchase price over net assets acquired (Note 1) 10,225 10,568 --------- --------- 373,877 332,350 --------- --------- 6,271 8,290 Income tax benefit (expense): Current ( 761) ( 12,895) Deferred ( 5,269) 6,038 ---------- --------- Net income $ 241 $ 1,433 =========== ========= Net income per share - Primary $ - =========== The results of operations for the three month periods ended August 31, 1995 and 1994 are not necessarily indicative of results of operations for a full fiscal year. All of the amounts are unaudited, but, in the opinion of the Company, all adjustments, consisting only of normal recurring adjustments, necessary for a fair statement of the results of each period have been made. Per share information for the three months ended August 31, 1994 is not relevant given the significant change in capital structure which occurred as a result of the Company's reorganization pursuant to the Consensual Plan (see Note 1). WALTER INDUSTRIES, INC. AND SUBSIDIARIES ---------------------------------------- CONSOLIDATED CONDENSED STATEMENT OF CASH FLOWS ---------------------------------------------- (UNAUDITED) For the three months ended August 31, -------------------------- 1995 1994 ---------- --------- (in thousands) OPERATIONS - ---------- Net income $ 241 $ 1,433 Charges to income not affecting cash: Depreciation, depletion and amortization 18,517 16,757 Provision for deferred income taxes 5,269 ( 6,038) Accumulated postretirement health benefits obligation 5,268 6,199 Provision for other long-term liabilities ( 88) ( 324) Amortization of excess purchase price over net assets acquired (Note 1) 10,225 10,568 Amortization of debt discount and expense 1,942 3,318 --------- --------- 41,374 31,913 Decrease (increase) in: Short-term investments, restricted ( 12,827) 8,887 Instalment notes receivable, net (Note 4) 11,283 2,532 Trade and other receivables, net 4,194 ( 6,110) Inventories 11,832 12,800 Prepaid expenses 3,053 2,226 Increase(decrease) in: Bank overdrafts (Note 3) ( 9,046) ( 11,933) Accounts payable and accrued expenses ( 25,420) ( 11,508) Income taxes payable 377 6,824 Accrued interest 13,594 12,625 Liabilities subject to Chapter 11 proceedings (Note 1): Accounts payable - 10 --------- --------- Cash flows from operations 38,414 48,266 --------- --------- FINANCING ACTIVITIES - -------------------- Retirement of long-term senior debt ( 38,743) ( 30,716) Additions to unamortized debt expense ( 172) - Payment of liabilities subject to Chapter 11 proceedings (Note 1) ( 31,984) - --------- --------- Cash flows from financing activities ( 70,899) ( 30,716) --------- --------- INVESTING ACTIVITIES - -------------------- Additions to property, plant and equipment, net of normal retirements ( 12,575) ( 11,280) Increase (decrease) in investments and other assets 101 ( 16) --------- --------- Cash flows from investing activities ( 12,474) ( 11,296) --------- --------- Net increase (decrease) in cash and cash equivalents ( 44,959) 6,254 Cash and cash equivalents at beginning of period 128,007 203,303 --------- --------- Cash and cash equivalents at end of period (Note 3) $ 83,048 $ 209,557 ========= ========= WALTER INDUSTRIES, INC. AND SUBSIDIARIES ---------------------------------------- NOTES TO CONSOLIDATED CONDENSED FINANCIAL STATEMENTS ---------------------------------------------------- AUGUST 31, 1995 --------------- (UNAUDITED) Note 1 - Recent History Walter Industries, Inc. (formerly Hillsborough Holdings Corporation) (the "Company") was organized in 1987 for the purpose of acquiring Jim Walter Corporation ("Original Jim Walter"). The Company's financial statements reflect the allocation of the purchase price of Original Jim Walter based upon the fair value of the assets acquired and the liabilities assumed. On December 27, 1989, the Company and most of its subsidiaries each filed a voluntary petition for reorganization under Chapter 11 of Title 11 of the United States Code in the United States Bankruptcy Court for the Middle District of Florida, Tampa Division (the "Bankruptcy Court"). The Company emerged from bankruptcy on March 17, 1995 (the "Effective Date") pursuant to the Amended Joint Plan of Reorganization Dated as of December 9, 1994, as modified on March 1, 1995 (as so modified the "Consensual Plan"). Despite the confirmation and effectiveness of the Consensual Plan, the Bankruptcy Court continues to have jurisdiction over, among other things, the resolution of disputed prepetition claims against the Company and other matters that may arise in connection with or relate to the Consensual Plan. Note 2 - Principles of Consolidation The Company through its direct and indirect subsidiaries currently offers a diversified line of products and services for homebuilding, water and waste water transmission, residential and non-residential construction, and industrial markets. The consolidated financial statements include the accounts of the Company and all of its subsidiaries. All significant intercompany balances have been eliminated. Note 3 - Cash and Restricted Short-Term Investments Cash includes short-term investments with original maturities of less than one year. The Company's cash management system provides for the reimbursement of all major bank disbursement accounts on a daily basis. Checks issued but not yet presented to the banks for payment are classified as bank overdrafts. Restricted short-term investments include temporary investment of reserve funds and collections on instalment notes receivable owned by Mid-State Trusts II, III, IV and V ($116,501,000). These funds are available only to pay expenses of the Trusts and principal and interest on indebtedness of the Trusts. Miscellaneous other segregated accounts restricted to specific uses ($24,328,000), are also included in restricted short-term investments. WALTER INDUSTRIES, INC. AND SUBSIDIARIES NOTES TO CONSOLIDATED CONDENSED FINANCIAL STATEMENTS (Continued) Note 4 - Instalment Notes Receivable The net decrease in instalment notes receivable for the three month periods ended August 31, 1995 and 1994 consists of sales and resales, net of repossessions and provision for possible losses, of $36,250,000 and $38,792,000 and cash collections on account, payouts in advance of maturity and reductions in account balances (only in the three months ended August 31, 1995 resulting from settlement agreements entered into with South Carolina and Texas homeowners. See Note 5) of $47,533,000 and $41,324,000, respectively. The cost of the settlement agreements was accrued in the fiscal year ended May 31, 1995. Mid-State Trusts II, III, and IV are business trusts organized by Mid-State Homes, Inc. ("Mid-State"), which owns all of the beneficial interest in Trust III and Trust IV. Trust IV owns all of the beneficial interest in Trust II. The Trusts were organized for the purpose of purchasing instalment notes receivable from Mid-State from the net proceeds from the issuance of the Trust II Mortgage-Backed Notes, the Trust III Asset Backed Notes and the Trust IV Asset Backed Notes with outstanding balances at August 31, 1995 of $562,250,000; $167,495,000, and $943,032,000, respectively. The assets of Trust II, Trust III and Trust IV, including the instalment notes receivable, are not available to satisfy claims of general creditors of the Company and its subsidiaries. The liabilities of Mid-State Trusts II, III and IV for their publicly issued debt are to be satisfied solely from the proceeds of the underlying instalment notes and are non-recourse to the Company and its subsidiaries. Of the gross amount of instalment notes receivable at August 31, 1995 of $4,227,775,000 with an economic balance of $2,041,204,000, receivables owned by Trust II had a gross book value of $1,335,400,000 and an economic balance of $814,879,000, receivables owned by Trust III had a gross book value of $458,963,000 and an economic balance of $233,948,000, and receivables owned by Trust IV had a gross book value of $1,928,198,000 and an economic balance of $802,161,000. Mid-State Trust V, a business trust in which Mid-State Homes holds all the beneficial interest, was organized to hold instalment notes receivable as collateral for borrowings to provide temporary financing to Mid-State for its current purchases of instalment notes and mortgages from Jim Walter Homes, Inc. ("Jim Walter Homes"). At August 31, 1995, receivables owned by Mid-State Trust V had a gross book value of $376,051,000 and an economic balance of $136,742,000, with outstanding borrowings of $15,000,000. Note 5 - Litigation and Other Matters South Carolina Class Actions - ---------------------------- As previously reported in Note 11 of Notes to Financial Statements for the year ended May 31, 1995, Jim Walter Homes and Mid-State have filed an adversary action for declaratory judgment against all South Carolina homeowners who purchased their homes between July 1, 1982 and December 27, 1989. On September 15, 1995, Jim Walter Homes and Mid-State entered into a Stipulation and Settlement Agreement with the South Carolina homeowners substantially along the lines previously reported. On September 25, 1995, the Bankruptcy Court WALTER INDUSTRIES, INC. AND SUBSIDIARIES NOTES TO CONSOLIDATED CONDENSED FINANCIAL STATEMENTS (Continued) entered an order that provisionally certified the settlement class, provisionally approved the settlement reached, provisionally designated the class representatives and provisionally designated class counsel. The order also provides that any homeowner that does not want to be a member of the proposed class must file with the Bankruptcy Court on or before November 6, 1995 a notice of their intention to "opt out" or not participate in the agreement. The Bankruptcy Court has set a hearing for November 14, 1995 to determine the fairness of the settlement. Texas Litigation - ---------------- As previously reported in Note 11 of Notes to Financial Statements for the year ended May 31, 1995, Jim Walter Homes and Mid-State reached a settlement on litigation brought by certain homeowners in Texas. Certain of the Texas homeowners (52 in number) have not signed the settlement documents and Jim Walter Homes and Mid-State continue to work with their counsel. The Bankruptcy Court has set a hearing for April 12, 1996 to discuss the status of the non-settling homeowners. The settling homeowners who have a remaining account balance began making monthly payments on September 15, 1995. Note 6 - Stockholders' Equity As of August 31, 1995, there were 50,494,313 shares of common stock outstanding. Pursuant to the Consensual Plan, 494,313 additional shares were issued on September 13, 1995 to all former stockholders of the Company as of the Effective Date of the Consensual Plan. Also on September 13, 1995, pursuant to the Consensual Plan, 3,880,140 additional shares of common stock were issued to an escrow account. To the extent that certain federal income tax matters of the Company are resolved satisfactorily, up to a maximum 3,880,140 of the escrowed shares will be distributed to all former stockholders of the Company as of the Effective Date. To the extent such matters are not resolved satisfactorily, the escrowed shares will be returned to the Company and cancelled. Note 7 - Segment Information Information relating to the Company's business segments is set forth below. Due to divestitures of several building materials subsidiaries in recent years, the Company has restructured certain of its segment information. Prior year information has been restated. WALTER INDUSTRIES, INC. AND SUBSIDIARIES NOTES TO CONSOLIDATED CONDENSED FINANCIAL STATEMENTS (Continued) Three months ended August 31, ----------------------------- 1995 1994 --------- --------- (in thousands) Sales and Revenues: Homebuilding and related financing $ 100,764 $ 103,082 Water and waste water transmission products 119,448 105,334 Natural resources 89,515 68,612 Industrial and other products 69,559 61,951 Corporate 862 1,661 --------- --------- Consolidated sales and revenues $ 380,148 $ 340,640 ========= ========= Contributions to Operating Income (a): Homebuilding and related financing $ 13,884 $ 11,419 Water and waste water transmission products 8,817 7,361 Natural resources 7,124 ( 2,124) Industrial and other products 1,867 1,737 --------- --------- 31,692 18,393 Less-Unallocated corporate interest and other expense (b) ( 25,421) ( 10,103) Income taxes ( 6,030) ( 6,857) --------- --------- Net income $ 241 $ 1,433 ========= ========= (a) - Operating income amounts are after deducting amortization of excess of purchase price over net assets acquired (goodwill) of $10,225,000 in 1995 and $10,568,000 in 1994. A breakdown by segment is as follows: Three months ended August 31, ----------------------------- 1995 1994 -------- -------- (in thousands) Homebuilding and related financing $ 8,125 $ 8,470 Water and waste water transmission products 3,079 3,078 Natural resources ( 335) ( 335) Industrial and other products 664 663 Corporate ( 1,308) ( 1,308) -------- ------- $ 10,225 $ 10,568 ======== ======== (b) - Excludes interest expense incurred by the Homebuilding and Related Financing Group of $31,653,000 in 1995 and $31,120,000 in 1994. The balance of unallocated expenses consisting of unallocated interest, corporate expenses and Chapter 11 costs (net of Chapter 11 interest income) in 1994 are attributable to all groups and cannot be reasonably allocated to specific groups. WALTER INDUSTRIES, INC. AND SUBSIDIARIES NOTES TO CONSOLIDATED CONDENSED FINANCIAL STATEMENTS (Continued) Note 8 - Prior Period Adjustments The Company has restated its previously issued Segment Information - Contributions to Operating Income, for the three years in the period ended May 31, 1995 to reflect amortization of excess of purchase price over net assets acquired (goodwill) by operating segment, which amortization was previously included in unallocated corporate interest and other expense. Contributions to Operating Income (as previously reported): For the years ended May 31, --------------------------------- 1995 1994 1993 --------- --------- ---------- (in thousands) Homebuilding and related financing $ 76,525 $ 101,954 $ 88,902 Industrial and other products 11,902 13,851 11,301 Water and waste water transmission products 28,454 25,641 16,040 Natural resources 20,072 ( 1,175) 50,807 --------- --------- --------- 136,953 140,271 167,050 Less - Unallocated corporate interest and other expense (a) (666,048) (104,179) ( 96,128) Income taxes 170,450 ( 28,917) ( 24,328) --------- --------- ---------- Income (loss) from operations $(358,645) $ 7,175 $ 46,594 ========= ========= ========== Contributions to Operating Income (as restated): For the years ended May 31, ----------------------------------- 1995 1994 1993 --------- --------- --------- (in thousands) Homebuilding and related financing $ 44,822 $ 61,763 $ 57,828 Industrial and other products 9,275 11,227 8,676 Water and waste water transmission products 16,240 13,426 3,763 Natural resources 21,400 152 52,135 --------- --------- --------- 91,737 86,568 122,402 Less - Unallocated corporate interest and other expense (a) (620,832) ( 50,476) ( 51,480) Income taxes 170,450 ( 28,917) ( 24,328) --------- --------- --------- Income (loss) from operations $(358,645) $ 7,175 $ 46,594 ========= ========= ========= (a) - Excludes interest expense incurred by the Homebuilding and Related Financing Group of $131,560,000, $128,828,000 and $137,945,000 in 1995, 1994 and 1993, respectively. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS The Company emerged from bankruptcy on March 17, 1995. Accordingly, the Company's Consolidated Statement of Operations for the three months ended August 31, 1995 is not comparable to the Consolidated Statement of Operations for the period ended August 31, 1994. The following unaudited pro forma consolidated statement of operations for the three months ended August 31, 1994 has been prepared to illustrate the estimated effects of the Consensual Plan and related financings as if they had occurred as of June 1, 1994. This discussion should be read in conjunction with such pro forma consolidated statement of operations and the consolidated financial statements and notes thereto of Walter Industries, Inc. and subsidiaries for the three months ended August 31, 1995, particularly Note 7 - "Segment Information" which presents sales and operating income by operating group. Pro Forma Consolidated Statement of Operations (Unaudited) For the three months ended August 31, 1994 ------------------------------------------- As Reported Adjustments Pro Forma ----------- ----------- ----------- (in thousands except per share amount) Sales and Revenues Net sales $ 277,152 $ 277,152 Time charges 56,749 56,749 Miscellaneous 5,321 5,321 Interest income from Chapter 11 proceedings 1,418 $( 1,418)(1) - ---------- --------- 340,640 ( 1,418) 339,222 ---------- --------- ---------- Cost and expenses: Cost of sales 224,119 224,119 Depreciation, depletion and amortization 16,757 16,757 Selling, general and administrative 32,350 32,350 Postretirement health benefits 6,647 6,647 Provision for possible losses 1,297 1,297 Chapter 11 costs 4,149 ( 4,149)(2) - Interest and amortization of debt discount and expense 36,463 19,543(3) 56,006 Amortization of excess of purchase price over net assets acquired 10,568 10,568 ---------- --------- ---------- 332,350 15,394 347,744 ---------- --------- ---------- 8,290 ( 16,812) ( 8,522) Income tax benefit (expense) ( 6,857) 6,376(4) ( 481) ---------- --------- ---------- Net income (loss) $ 1,433 $( 10,436) $( 9,003) ========== ========= ========== Net loss per share $( .18)(5) ========== Weighted average shares outstanding 50,494,313 - -------------- Changes from the historical financial statement in the pro forma consolidated statement of operations consist of the following adjustments (all amounts in thousands): (1) Interest income from Chapter 11 proceedings of $1,418, which would not have been realized assuming the Consensual Plan became effective June 1, 1994, has been eliminated. (2) Chapter 11 costs of $4,149, which would not have been incurred assuming the Consensual Plan became effective June 1, 1994, have been eliminated. (3) Interest and amortization of debt discount and expense has been increased $19,543 to give retroactive effect as if all indebtedness to be repaid pursuant to the Consensual Plan was so done as of June 1, 1994 and the $490 million of Series B Senior Notes had been outstanding for the full three months ended August 31, 1994. Borrowings under the Trust IV Asset Backed Notes were assumed to increase during the period June 1, 1994 through August 31, 1994 proportionately with the comparable period increase in the outstanding economic balance of the instalment notes sold by Mid- State to Trust IV on March 16, 1995. No borrowings were assumed under the Mid-State Trust V Variable Funding Loan Agreement as this time period was prior to the Mid-State Trust IV cut off date for purchases of instalment notes from Mid-State. No working capital borrowings were assumed under the Bank Revolving Credit Facility. Pro forma interest expense, however, includes letter of credit fees and unused working capital commitment fees. (4) The provision for income taxes has been adjusted at the applicable statutory rates to give effect to the pro forma adjustments described above. (5) Net loss per share has been computed based on the weighted average number of common shares outstanding. Results of Operations Three months ended August 31, 1995 and 1994 - ------------------------------------------- Net sales and revenues for the three months ended August 31, 1995 increased $40.9 million, or 12.1%, over the prior year period (on a pro forma basis), with an 9.4% increase in volume and a 2.7% increase in pricing and/or mix. The increase in net sales and revenues was the result of improved sales and revenues in the Water and Waste Water Transmission Products, Natural Resources and Industrial and Other Products Groups, partially offset by lower sales and revenues in the Homebuilding and Related Financing Group. Water and Waste Water Transmission Products Group sales and revenues were $14.1 million, or 13.4%, ahead of the prior year period. The increase was the result of higher sales prices and volumes for ductile iron pressure pipe, fittings and valves and hydrants and improved castings sales prices. The order backlog at August 31, 1995 was 124,456 tons, which represents approximately three months shipments, compared to 127,885 tons at August 31, 1994 and 121,548 tons at May 31, 1995. Operating income of $8.8 million exceeded the prior year period by $1.5 million. The improved performance resulted from the increased sales prices and volumes, partially offset by higher raw material costs, especially scrap, a major raw material component. Natural Resources Group sales and revenues exceeded the prior year period by $20.9 million, or 30.5%. The increase resulted from greater sales volumes for coal and methane gas and higher outside coal, gas and timber royalty income, partially offset by lower average selling prices for coal and methane gas. A total of 1.92 million tons of coal was sold in the 1995 period versus 1.40 million tons in the 1994 period, a 37% increase. The increase in tonnage sold was the result of greater shipments to Alabama Power Company ("Alabama Power"), Japanese steel mills and certain export customers. Increased shipments to Alabama Power were the result of a new agreement signed May 10, 1994 (the "New Alabama Power Contract") for the sale and purchase of coal, replacing the 1979 contract and the 1988 amendment thereto. Under the New Alabama Power Contract, Alabama Power will purchase 4.0 million tons of coal per year from Jim Walter Resources during the period July 1, 1994 through August 31, 1999. In addition, Jim Walter Resources will have the option to extend the New Alabama Power Contract through August 31, 2004, subject to mutual agreement on the market pricing mechanism and certain other terms and conditions of such extension. The New Alabama Power Contract has a fixed price subject to an escalation based on the Consumer Price Index or another appropriate published index and adjustments for government impositions and quality. The New Alabama Power Contract includes favorable modifications of specifications, shipping deviations and changes in transportation arrangements. The average price per ton of coal sold decreased $1.62 from $44.11 in the 1994 period to $42.49 in the 1995 period due to lower prices realized on shipments to Alabama Power, partially offset by improved prices to the Japanese steel mills and certain export customers. Blue Creek Mine No. 5 ("Mine No. 5") was shutdown from November 17, 1993 through December 16, 1993 and from early April 1994 until May 16, 1994 as a result of a fire due to spontaneous combustion heating. Representatives of Jim Walter Resources, the Mine Safety and Health Administration, Alabama State Mine Inspectors and the United Mine Workers of America agreed that the longwall coal panel being mined in Mine No. 5 at the time the fire recurred in April 1994 would be abandoned and sealed off. Development mining for the two remaining longwall coal panels in this section of the mine resumed on May 16, 1994 and mining on the first longwall panel resumed on January 17, 1995. Production was adversely impacted until such date; however, a portion of the increased costs is expected to be recovered from business interruption insurance and the Company has commenced litigation seeking to enforce such insurance. Operating income of $7.1 million exceeded the prior year's loss of $2.1 million by $9.2 million. The improved performance principally resulted from the increased sales volumes of coal and methane gas, improved mining productivity which resulted in lower costs per ton of coal produced ($34.50 in the 1995 period versus $43.17 in the 1994 period) and greater outside coal, gas and timber royalty income, partially offset by the decreases in selling prices for coal and methane gas. Industrial and Other Products Group sales and revenues were $7.6 million, or 12.3%, greater than the prior year period. Increased selling prices of furnace and foundry coke, slag wool, aluminum foil and sheet products, window components and metal building and foundry products, combined with greater sales volumes of furnace and foundry coke, slag wool, chemicals, resin coated sand and patterns and tooling were partially offset by reduced sales volumes of window components, aluminum sheet products and metal building and foundry products. The Group's operating income of $1.9 million exceeded the prior year period by $130,000. The improved performance resulted from increased income for aluminum foil and sheet, furnace and foundry coke, slag wool, resin coated sand and patterns and tooling due to the sales volume and price increases. These increases were partially offset by lower income in the window components business resulting from the decrease in sales volume, increased raw material costs, especially aluminum, a major raw material component, and reduced efficiencies due to prolonged start up problems associated with the consolidation and relocation of JW Window Components, Inc.'s Hialeah, Florida and Columbus, Ohio operations to Elizabethton, Tennessee. Homebuilding and Related Financing Group sales and revenues were $2.3 million, or 2.2%, below the prior year period. This performance reflects a 12.9% decrease in the number of homes sold, from 1,062 units in the 1994 period to 925 units in the 1995 period, partially offset by an increase in the average selling price per home sold from $39,400 in 1994 to $41,900 in 1995. The decrease in unit sales reflects continuing strong competition in virtually every Jim Walter Homes sales region. The higher average selling price in the 1995 period reflects a price increase instituted February 1, 1995 to compensate for higher building materials costs, especially lumber. Jim Walter Homes' backlog at August 31, 1995 was 1,770 units compared to 2,019 units at August 31, 1994. Time charge income (revenues received from Mid-State Homes' instalment note portfolio) decreased slightly from $56.7 million in the 1994 period to $56.4 million in the 1995 period. The decrease in time charge income is attributable to 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 $13.9 million (net of interest expense) was $2.5 million greater than the prior year period. This increase resulted from improved homebuilding gross profit margins reflecting the higher average selling price per home sold and lower lumber costs combined with lower selling, general and administrative expenses, partially offset by the decrease in time charge income and slightly higher interest expense in the 1995 period ($31.7 million) as compared to that incurred in the 1994 period ($31.1 million). Cost of sales, exclusive of depreciation, of $249.8 million was 79.0% of net sales in the 1995 period versus $224.1 million and 80.9% in the 1994 period. The cost of sales percentage decrease was primarily the result of improved gross profit margins on home sales, coal, furnace coke and aluminum foil and sheet products, partially offset by reduced margins for pipe products and window components. Selling, general and administrative expenses of $33.1 million were 8.7% of net sales and revenues in the 1995 period versus $32.3 million and 9.5% in the 1994 period. Interest and amortization of debt discount and expense were $54.6 million in the 1995 period versus $56.0 million on a pro forma basis in the 1994 period reflecting lower average outstanding debt balances. The prime interest rate ranged from 8.75% to 9.0% in the 1995 period compared to a range of 7.25% to 7.75% in the 1994 period. The Company's effective tax rate in the 1995 period and on a pro forma basis in the 1994 period differed substantially from the statutory tax rate due primarily to amortization of excess of purchase price over net assets acquired (goodwill) which is not deductible for tax purposes. The net income for the three months ended August 31, 1995 was $241,000 as compared to a loss of $9.0 million on a pro forma basis in the 1994 period reflecting all of the previously mentioned factors. Financial Condition On December 27, 1989, the Company and 31 of its subsidiaries each filed a voluntary petition for reorganization under Chapter 11 with the Bankruptcy Court. On December 3, 1990, one additional small subsidiary also filed a voluntary petition for reorganization under Chapter 11 with the Bankruptcy Court. Two other small subsidiaries did not file petitions for reorganization under Chapter 11. The filing of the voluntary petitions resulted from a sequence of events stemming primarily from an inability of the Company's interest reset advisors to reset interest rates on approximately $624 million of outstanding indebtedness, which indebtedness by its terms required that the interest rates thereon be reset to the rate per annum such indebtedness should bear in order to have a bid value of 101% of the principal amount thereof as of December 2, 1989. The reset advisors' inability to reset the interest rates was primarily attributable to two factors: (i) uncertainties arising from the then pending asbestos- related veil piercing litigation, including the possibility either that such litigation would lead to the prohibition of further asset sales and debt repayment or that substantial new asbestos-related claims might become assertible against the Company, which uncertainties materially hindered the ability of the Company and its subsidiaries to pursue a refinancing or sell assets to reduce debt, and (ii) general turmoil in the high yield bond markets at such time, both of which depressed the bid value of such notes. On March 17, 1995, the Company and its subsidiaries emerged from bankruptcy. Pursuant to the Consensual Plan, the Company has repaid substantially all of its unsecured claims and senior and subordinated indebtedness subject to the Chapter 11 reorganization proceedings. A substantial controversy exists with regard to federal income taxes allegedly owed by the Company. Proofs of claim have been filed by the Internal Revenue Service in the amounts of $110,560,883 with respect to fiscal years ended August 31, 1980 and August 31, 1983 through August 31, 1987, $31,468,189 with respect to fiscal years ended May 31, 1988 (nine months) and May 31, 1989 and $44,837,693 with respect to fiscal years ended May 31, 1990 and May 31, 1991. Objections to the proofs of claim have been filed by the Company and the various issues are being litigated in the Bankruptcy Court. The Company believes that such proofs of claim are substantially without merit and intends to defend such claims against the Company vigorously. Since May 31, 1995, total debt has decreased $38.7 million resulting almost entirely from quarterly principal payments on the Mid-State Trust II Mortgage-Backed Notes ($21.8 million), Mid-State Trust III Asset Backed Notes ($6.0 million) and Mid-State Trust IV Asset Backed Notes ($10.8 million). The Company and certain of its subsidiaries have entered into a Bank Revolving Credit Facility, providing up to $150 million at any time outstanding for working capital needs with a sub-limit for trade and standby letters of credit in an amount not in excess of $40 million at any time outstanding and a sub-facility for swingline advances in an amount not in excess of $15 million at any time outstanding. At August 31, 1995, $22.0 million of letters of credit were outstanding under this agreement. The Series B Senior Notes Due 2000, the Bank Revolving Credit Facility and the Trust V Variable Funding Loan Agreement contain a number of significant covenants that, among other things, restrict the ability of the Company and its subsidiaries to dispose of assets, incur additional indebtedness, make capital expenditures, pay dividends, create liens on assets, enter into leases, make investments or acquisitions, engage in mergers or consolidations or engage in certain transactions with subsidiaries and affiliates and otherwise restrict corporate activities (including change of control and asset sale transactions). In addition, under the Bank Revolving Credit Facility, the Company is required to maintain specified financial ratios and comply with certain financial tests, including interest coverage, fixed charge coverage ratios, maximum leverage ratios and minimum earnings before interest, taxes, depreciation and amortization expense, some of which become more restrictive over time. The Company believes it will meet these financial tests over the terms of these debt agreements. Liquidity and Capital Resources At August 31, 1995, cash and short-term investments were approximately $83.0 million. Operating cash flows for the three months ended August 31, 1995 together with the use of available cash balances were primarily used for working capital requirements, retirement of long-term senior debt, interest payments and capital expenditures. Working capital is required to fund adequate levels of inventories and accounts receivable. Commitments for capital expenditures at August 31, 1995 are not material; however, it is estimated that gross capital expenditures of the Company and its subsidiaries for the balance of the year ending May 31, 1996 will approximate $66 million. Because the Company's operating cash flow is significantly influenced by the general economy and, in particular, the level of construction, current results should not necessarily be used to predict the Company's liquidity, capital expenditures, investment in 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 contemplated that one or more permanent financings similar to the Mid-State Trusts II, II and IV financings will be required over the next four years in order to repay borrowings under the Variable Funding Loan Agreement. The Company also believes that under present operating conditions sufficient operating cash flow will be generated through fiscal year 1999 to make all required interest and principal payments and planned capital expenditures and meet substantially all operating needs and that amounts available under the Bank Revolving Credit Facility will be sufficient to meet peak operating needs. However, it is currently anticipated that sufficient operating cash flow will not be generated to repay at maturity the principal amount of the Senior Notes without refinancing a portion of such debt or selling assets. No assurance can be given that any such sales of assets can be consummated. The Company currently is pursuing the possibility of financing its optional redemption of the Series B Senior Notes Due 2000 at a redemption price of 101% of the outstanding principal amount thereof plus accrued and unpaid interest thereon to the redemption date. The Company currently contemplates that such financing would be obtained by selling new debt securities of the Company or incurring bank debt pursuant to a new credit facility, or both. The Company currently believes that it may be able to consummate such transactions within the next several months. However, there can be no assurance as to whether or when any such transactions can be consummated. PART II - OTHER INFORMATION Item 1. Legal Proceedings ----------------- See Note 5 of Notes to Consolidated Condensed Financial Statements contained in Part I - Financial Information Item 4. Submission of Matters to a Vote of Security Holders --------------------------------------------------- The annual meeting of stockholders was held on October 17, 1995 for the purpose of considering and acting upon the following proposals: (a) Approval of the appointment of Price Waterhouse LLP as independent certified public accountants for the Company for the year ending May 31, 1996. Votes cast for 40,924,143 Votes cast against 24,695 Abstentions 6,201 (b) Approval of the 1995 Long-Term Incentive Stock Plan of Walter Industries, Inc. Votes cast for 35,070,425 Votes cast against 777,067 Abstentions 5,107,547 Item 6. Exhibits and Reports on Form 8-K -------------------------------- (a) Exhibit I - Earnings per share calculation for the three months ended August 31, 1995 (b) Reports on Form 8-K - None Filed 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/ K. J. Matlock /s/ W. H. Weldon - --------------------------------- --------------------------------- K. J. Matlock W. H. Weldon Executive Vice President and Senior Vice President and Principal Financial Officer Principal Accounting Officer Date:November 9, 1995 ---------------- Form 10-Q Exhibit I WALTER INDUSTRIES, INC. NET INCOME PER SHARE CALCULATION (in thousands, except per share amount) Three months ended August 31, 1995 ------------------ Net income $ 241 Divided by: Weighted average shares of common stock outstanding 50,494 ------- Net income per share - Primary $ - ======= In management's opinion, per share information for the three months ended August 31, 1994 is not relevant given the significant change in the Company's capital structure which occurred as a result of the Company's reorganization pursuant to the Consensual Plan (see Note 1 of Notes to Consolidated Condensed Financial Statements included in Part I - Financial Information). -----END PRIVACY-ENHANCED MESSAGE-----