-----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, GFWpl1zwcJf6NFvu30J2ViyN+9oEXSikeNSXvf/oZkJWtByqi55+HxOrigh1Boe2 zFzlAWBGeDMPfz5lLAuP3A== 0001047469-98-001053.txt : 19980115 0001047469-98-001053.hdr.sgml : 19980115 ACCESSION NUMBER: 0001047469-98-001053 CONFORMED SUBMISSION TYPE: 10-Q PUBLIC DOCUMENT COUNT: 4 CONFORMED PERIOD OF REPORT: 19971130 FILED AS OF DATE: 19980114 SROS: NYSE FILER: COMPANY DATA: COMPANY CONFORMED NAME: WALTER INDUSTRIES INC /NEW/ CENTRAL INDEX KEY: 0000837173 STANDARD INDUSTRIAL CLASSIFICATION: GEN BUILDING CONTRACTORS - RESIDENTIAL BUILDINGS [1520] IRS NUMBER: 133429953 STATE OF INCORPORATION: DE FISCAL YEAR END: 0531 FILING VALUES: FORM TYPE: 10-Q SEC ACT: SEC FILE NUMBER: 001-13711 FILM NUMBER: 98506464 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 10-Q 1 FORM 10-Q UNITED STATES SECURITIES AND EXCHANGE COMMISSION WASHINGTON, D. C. 20549 FORM 10-Q |X| QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 For the quarterly period ended November 30, 1997 or |_| TRANSITION REPORT PURSUANT TO SECTION 13 OR 15 (d) OF THE SECURITIES EXCHANGE ACT OF 1934 Commission File Number 000-20537 WALTER INDUSTRIES, INC. Incorporated in Delaware IRS Employer Identification No. 13-3429953 1500 North Dale Mabry, Tampa, Florida 33607 Telephone Number 813-871-4811 Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months, and (2) has been subject to such filing requirements for the past 90 days. Yes X No . --- --- Indicate by check mark whether the registrant has filed all documents and reports required to be filed by Sections 12, 13, or 15(d) of the Securities Exchange Act of 1934 subsequent to the distribution of securities under a plan confirmed by a court. Yes X No . --- --- There were 53,695,790 shares of common stock of the registrant outstanding at December 31, 1997. PART I - FINANCIAL INFORMATION WALTER INDUSTRIES, INC. AND SUBSIDIARIES CONSOLIDATED BALANCE SHEET (UNAUDITED)
November 30, May 31, 1997 1997 ------------ -------- (in thousands) ASSETS Cash and cash equivalents $ 39,575 $ 35,782 Short-term investments, restricted 222,968 195,371 Marketable securities 39,763 41,222 Instalment notes receivable 4,273,926 4,256,845 Less -Provision for possible losses ( 26,475) ( 26,394) Unearned time charges ( 2,913,439) ( 2,896,517) Trade and other receivables, less provision for possible losses of $7,353 and $8,225, respectively 217,866 182,891 Inventories, at lower of cost (first in, first out or average) or market: Finished goods 180,420 117,949 Goods in process 39,357 32,291 Raw materials and supplies 52,637 52,066 Houses held for resale 3,766 3,068 Prepaid expenses 16,753 11,862 Property, plant and equipment, at cost 1,151,059 978,006 Less - Accumulated depreciation, depletion and amortization ( 500,884) ( 409,830) Investments and other assets 51,064 46,783 Deferred income taxes 89,933 109,023 Unamortized debt expense 33,857 22,793 Excess of purchase price over net assets acquired 557,785 274,174 ------------- --------------- $ 3,529,931 $ 3,027,385 ============= =============== LIABILITIES AND STOCKHOLDERS' EQUITY Short-term notes payable $ 12,100 $ - Bank overdrafts 27,455 25,523 Accounts payable 115,562 86,418 Accrued expenses 138,879 131,768 Income taxes payable 55,508 58,884 Long-term senior debt: Mortgage-backed/asset backed notes 1,817,123 1,752,125 Other senior debt 685,420 313,450 Accrued interest 26,578 23,220 Accumulated postretirement health benefits obligation 276,315 268,959 Other long-term liabilities 51,126 47,626 Minority interest 1,496 - Stockholders' equity Common stock 551 551 Capital in excess of par value 1,164,974 1,164,261 Retained earnings (deficit) ( 816,701) ( 840,744) Excess of additional pension liability over unrecognized prior years service cost ( 4,656) ( 4,656) Treasury stock ( 21,799) - ------------- --------------- Total stockholders' equity 322,369 319,412 ------------- --------------- $ 3,529,931 $ 3,027,385 ============= ===============
See accompanying Notes to Consolidated Financial Statements 2 WALTER INDUSTRIES, INC. AND SUBSIDIARIES CONSOLIDATED STATEMENT OF OPERATIONS (UNAUDITED)
FOR THE THREE MONTHS ENDED NOVEMBER 30, ------------------------------------------------ 1997 1996 ------------- ------------- (in thousands except per share amounts) Sales and revenues: Net sales $ 381,309 $ 332,375 Time charges 60,264 57,353 Miscellaneous 6,496 8,168 ------------- ------------ 448,069 397,896 ------------- ------------ Cost and expenses: Cost of sales 304,404 264,412 Depreciation, depletion and amortization 20,142 19,195 Selling, general and administrative 40,459 35,847 Postretirement health benefits 5,564 6,425 Provision for possible losses ( 931) 819 Interest and amortization of debt expense 48,048 45,733 Amortization of excess of purchase price over net assets acquired 9,770 8,830 ------------- ------------- 427,456 381,261 ------------- ------------- 20,613 16,635 Income tax expense: Current ( 779) ( 493) Deferred ( 7,193) ( 8,617) ------------- ------------- Income before extraordinary item 12,641 7,525 Extraordinary item - Loss on early extinguishment of debt (net of income tax benefit of $1,434) ( 2,663) - ------------- -------------- Net income $ 9,978 $ 7,525 ============= ============== Income per share: Income before extraordinary item $ .23 $ .13 Extraordinary item ( .05) - ------------- -------------- Net income $ .18 $ .13 ============= ==============
See accompanying Notes to Consolidated Financial Statements 3 WALTER INDUSTRIES, INC. AND SUBSIDIARIES CONSOLIDATED STATEMENT OF OPERATIONS (UNAUDITED)
FOR THE SIX MONTHS ENDED NOVEMBER 30, ------------------------------------------------- 1997 1996 ------------- -------------- (in thousands except per share amounts) Sales and revenues: Net sales $ 716,187 $ 638,604 Time charges 118,088 114,943 Miscellaneous 13,127 14,012 ------------- ------------- 847,402 767,559 ------------- ------------- Cost and expenses: Cost of sales 564,887 499,372 Depreciation, depletion and amortization 37,710 36,777 Selling, general and administrative 75,569 69,110 Postretirement health benefits 11,130 12,872 Provision for possible losses ( 612) 1,558 Interest and amortization of debt expense 92,911 92,267 Amortization of excess of purchase price over net assets acquired 18,186 17,832 ------------- ------------- 799,781 729,788 ------------- ------------ 47,621 37,771 Income tax expense: Current ( 1,825) ( 1,176) Deferred ( 19,090) ( 18,850) ------------- ------------- Income before extraordinary item 26,706 17,745 Extraordinary item - Loss on early extinguishment of debt, (net of income tax benefit of $1,434) ( 2,663) - ------------- ------------- Net income $ 24,043 $ 17,745 ============= ============= Income per share: Income before extraordinary item $ .49 $ .32 Extraordinary item ( .05) - ------------- -------------- Net income $ .44 $ .32 ============= ==============
See accompanying Notes to Consolidated Financial Statements 4 WALTER INDUSTRIES, INC. AND SUBSIDIARIES CONSOLIDATED STATEMENT OF CASH FLOWS (UNAUDITED)
FOR THE SIX MONTHS ENDED NOVEMBER 30, --------------------------------------------- 1997 1996 ------------- ------------ OPERATIONS (in thousands) - ---------- Net income $ 24,043 $ 17,745 Charges to income not affecting cash: Depreciation, depletion and amortization 37,710 36,777 Provision for deferred income taxes 19,090 18,850 Accumulated postretirement health benefits obligation 7,356 10,807 Provision for other long-term liabilities ( 7) ( 320) Amortization of excess of purchase price over net assets acquired 18,186 17,832 Amortization of debt expense 3,413 3,579 Minority interest ( 77) - Extraordinary item - Loss on early extinguishment of debt (net of income tax benefit) 2,663 - ------------- -------------- 112,377 105,270 Decrease (increase) in assets, net of effects from acquisitions: Short-term investments, restricted ( 27,597) ( 9,377) Marketable securities 1,459 7,261 Instalment notes receivable, net ( 78) ( 2,548) Trade and other receivables, net 22,769 6,549 Inventories 3,594 15,541 Prepaid expenses ( 3,288) 1,500 Deferred income taxes - 21,411 Increase (decrease) in liabilities, net of effects from acquisitions: Bank overdrafts 1,932 ( 6,612) Accounts payable ( 15,857) ( 3,875) Accrued expenses ( 15,333) ( 9,659) Income taxes payable ( 1,898) ( 1,763) Accrued interest 3,358 ( 3,015) ------------- ------------- Cash flows from operations 81,438 120,683 ------------- ------------- FINANCING ACTIVITIES Issuance of short-term notes payable and long-term senior debt 1,318,221 62,000 Retirement of long-term senior debt ( 919,672) ( 153,203) Additions to unamortized debt expense ( 18,574) ( 159) Additions to treasury stock ( 21,799) - Exercise of employee stock options 713 - Fractional share payments - ( 5) -------------- ------------- Cash flows from (used in) financing activities 358,889 ( 91,367) -------------- ------------- INVESTING ACTIVITIES Acquisitions, net of cash acquired ( 395,383) - Additions to property, plant and equipment, net of normal retirements ( 44,278) ( 46,991) (Increase) decrease in investments and other assets 3,127 ( 182) -------------- ------------- Cash flows used in investing activities ( 436,534) ( 47,173) -------------- ------------- Net increase (decrease) in cash and cash equivalents 3,793 ( 17,857) Cash and cash equivalents at beginning of period 35,782 32,543 -------------- ------------- Cash and cash equivalents at end of period $ 39,575 $ 14,686 ============== =============
See accompanying Notes to Consolidated Financial Statements 5 WALTER INDUSTRIES, INC. AND SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS NOVEMBER 30, 1997 Note 1 - Principles of Consolidation Walter Industries, Inc. (the "Company"), is a diversified holding company with five operating groups: Homebuilding and Financing, Water Transmission Products, Natural Resources, Industrial Products and Energy Services. The consolidated financial statements include the accounts of the Company and all of its subsidiaries. Preparation of financial statements in accordance with generally accepted accounting principles requires management to make estimates and assumptions that affect the amounts reported in the consolidated financial statements. Actual results could differ from those estimates. All significant intercompany balances have been eliminated. All of the amounts are unaudited but, in the opinion of management, all adjustments, consisting only of normal recurring adjustments necessary for a fair presentation, have been made. In addition, certain reclassifications have been made in the accompanying consolidated financial statements in order to conform with the November 30, 1997 presentation. The results for the three and six months ended November 30, 1997 and 1996 are not necessarily indicative of results for a full fiscal year. These financial statements should be read in conjunction with the Company's consolidated financial statements and notes thereto in the Company's Annual Report on Form 10-K and Amendment 1 thereto on Form 10-K/A for the year ended May 31, 1997. Unless otherwise specified, capitalized terms used herein are as defined in the aforementioned Form 10-K and Form 10-K/A. Note 2 - Acquisition of Applied Industrial Materials Corporation On October 15, 1997, the Company completed the acquisition of Applied Industrial Materials Corporation ("AIMCOR") which, through its Carbon Products Division, is a leading international provider of products and outsourcing services to both the petroleum industry and to the steel, foundry and aluminum industries. AIMCOR, through its Metals Division, is also a leading supplier of ferrosilicon in the southeastern United States. The purchase price was approximately $410 million, subject to adjustments and certain indemnity obligations of the parties as required by the Stock Purchase Agreement. Also, on October 15, 1997, the Company completed a financing with NationsBank, N.A. ("NationsBank") whereby NationsBank provided credit facilities consisting of a $350 million revolving credit facility and a $450 million term loan facility (collectively, the "$800 Million Credit Agreement"). The $800 Million Credit Agreement was used to (a) finance the acquisition of AIMCOR, (b) replace the existing Credit Facilities, (c) pay transaction costs and (d) provide ongoing working capital. The $350 million revolving credit facility includes a sub-facility for trade and other standby letters of credit in an amount up to $75 million at any time outstanding and a sub-facility for swingline advances in an amount not in excess of $25 million at any time outstanding. The Company recorded an extraordinary loss of $4,097,000 ($2,663,000 net of income tax benefit) in the three months ended November 30, 1997 consisting of a write-off of unamortized debt expense related to the early repayment of the Credit Facilities. The unaudited pro forma information is presented for informational purposes only and is not necessarily indicative of the operating results that would have occurred had the acquisition been consummated as of the beginning of the period, nor are they necessarily indicative of future operating results. The unaudited pro forma combined results of operations of the Company and AIMCOR for the six months ended November 30, 1997 after giving effect to certain pro forma adjustments are as follows: 6
HISTORICAL ------------------------------ WALTER INDUSTRIES AIMCOR SIX MONTHS FOUR MONTHS PRO FORMA ENDED 11/30/97 ENDED 9/30/97 ADJUSTMENTS PRO FORMA -------------- ------------- ----------- --------- (in thousands except per share amounts) Net sales and revenues $ 847,402 $ 157,511 $1,004,913 Cost and expenses: Cost of sales 564,887 126,790 691,677 Selling, general and administrative 123,797 11,397 1,067 (b) 136,261 Interest and amortization of debt expense 92,911 1,389 15,252 (c) 101,878 (7,712) (d) 343 (e) (305) (f) Amortization of excess of purchase price over net assets acquired 18,186 - 2,871 (a) 21,057 ----------- ------------- ----------- ----------- 799,781 139,576 11,516 950,873 ------------ ------------- ----------- ----------- 47,621 17,935 (11,516) 54,040 Income tax expense (20,915) (472) 4,031 (g) (23,161) (5,805) (h) ----------- ------------- ----------- ----------- Income before extraordinary item 26,706 17,463 (13,290) 30,879 Extraordinary item - loss on early extinguishment of debt, net of income tax benefit (2,663) - (31) (f) (2,694) ----------- ------------- ----------- ----------- Net income $ 24,043 $17,463 $ (13,321) $ 28,185 =========== ============= =========== =========== Income per share: Income before extraordinary item $ .49 $ .57 Extraordinary item (.05) (.05) ----------- ----------- Net income $ .44 $ .52 =========== ===========
(a) This adjustment reflects increase in amortization expense related to the goodwill recorded under the purchase method of accounting of $2,871 for the four months ended September 30, 1997. (b) To adjust for changes in depreciation expense for the related period associated with the write-up of property, plant and equipment as a result of applying the purchase method of accounting. (c) To record the interest expense related to the Company's new bank credit facilities which were used to fund the AIMCOR acquisition and retire existing bank debt. A .125% change in the Company's interest rate would have a $285 effect on interest expense for the four months ended September 30, 1997. (d) Interest expenses incurred under the Company's former credit facilities ($6,735 for four months ended September 30, 1997) and AIMCOR debt ($977 for four months) which would not have been incurred if the new bank credit facilities that were in place had been eliminated. (e) To record the amortization of debt issuance costs incurred in connection with the Company's new credit facilities. (f) Amortization of debt issuance costs and the write-off of debt issuance costs, net of income tax benefit, related to the Company's former credit facilities have been eliminated. (g) The provision for income taxes has been adjusted at the applicable statutory rate to give effect to the pro forma adjustments described above. (h) The provision for income taxes has been increased to reflect an effective tax rate of 35% on AIMCOR's historical results of operations which would have been incurred as part of the consolidated group. 7 Note 3 - Cash and Cash Equivalents, Restricted Short-Term Investments and Marketable Securities Cash and cash equivalents include short-term deposits and highly liquid investments which have original maturities of three months or less and are stated at cost which approximates market. The Company's cash management system provides for the reimbursement of all major bank disbursement accounts on a daily basis. Checks issued but not yet presented to the banks for payment are classified as bank overdrafts. Restricted short-term investments include (i) temporary investment of reserve funds and collections on instalment notes receivable owned by Mid-State Trusts II, III, IV, V and VI ($112,050,000) which are available only to pay expenses of the Trusts and principal and interest on indebtedness of the Trusts, (ii) certain funds held by Trust II that are in excess of the amount required to be paid for expenses, principal and interest on the Trust II Mortgage-Backed Notes but which are subject to retention ($94,187,000) and (iii) miscellaneous other segregated accounts restricted to specific uses ($16,731,000). Investments with original maturities greater than three months are classified as marketable securities. In accordance with Statement of Financial Accounting Standards No. 115 - "Accounting for Certain Investments in Debt and Equity Securities," the Company's marketable securities are classified as available for sale and are carried at estimated fair values. Note 4 - Instalment Notes Receivable and Mortgage-Backed/Asset Backed Notes The net increase in instalment notes receivable for the six month period ended November 30, 1997 and 1996 consists of sales and resales, net of repossessions and provision for possible losses, of $87,215,000 and $86,860,000 and cash collections on account and payouts in advance of maturity of $87,137,000 and $84,312,000, respectively. Mid-State Trusts II, III, IV and VI are business trusts organized by Mid-State Homes, Inc. ("Mid-State"), which owns all of the beneficial interest in Trusts III, IV and VI. 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 with the net proceeds from the issuance of mortgage or asset backed notes. The assets of Trusts II, III, IV and VI, 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, IV and VI 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. Mid-State Trust V ("Trust V"), a business trust in which Mid-State 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. The gross amount of instalment notes receivable, the economic balance and long-term debt outstanding by trust are as follows (in thousands):
NOVEMBER 30, 1997 ---------------------------------------------------------------------- GROSS BALANCE ECONOMIC BALANCE DEBT OUTSTANDING ---------------- ---------------- ----------------- Trust II $ 874,292 $ 555,244 $ 366,500 Trust III 339,521 184,352 102,039 Trust IV 1,522,090 673,340 809,078 Trust V 418,604 162,628 115,000 Trust VI 1,116,446 439,789 424,506 Unpledged 2,973 1,291 - ---------------- --------------- --------------- Total $ 4,273,926 $ 2,016,644 $ 1,817,123 ================ =============== ===============
On June 11, 1997, Mid-State Homes purchased from Mid-State Trust V mortgage instalment notes having a gross amount of 8 WALTER INDUSTRIES, INC. AND SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (continued) $1.196 billion and subsequently sold such mortgage instalment notes to Mid-State Trust VI. These sales were in exchange for the net proceeds from the issuance by Mid-State Trust VI of $439.2 million of asset backed notes. The notes were issued in four classes, bear interest at rates ranging from 7.34% to 7.79% and have a final maturity of July 1, 2035. Payments will be made quarterly on January 1, April 1, July 1 and October 1, based on collections on the underlying collateral, less amounts paid for interest on the notes and Trust VI expenses. Net proceeds from the public offering were used to pay down the Trust V indebtedness of $384,000,000 and for general corporate purposes. On July 31, 1997, the Trust V Variable Funding Loan Agreement was amended to reduce the aggregate availability under the facility from $500 million to $400 million. The Credit Facilities were also amended effective July 31, 1997, reducing the aggregate amount required to be maintained in the mortgage warehousing program from $500 million to $400 million. Note 5 - Stockholders' Equity The Company is authorized to issue 200,000,000 shares of common stock, $.01 par value. Changes in stockholders' equity for the six months ended November 30, 1997 are summarized as follows:
(IN THOUSANDS) ----------------------------------------------------------------------------------------------- EXCESS OF RETAINED ADDITIONAL COMMON STOCK CAPITAL IN EARNINGS PENSION TREASURY STOCK SHARES PAR VALUE EXCESS (DEFICIT) LIABILITY SHARES AMOUNT ------ --------- ---------- --------- ----------- ------ ------ Balance at May 31, 1997 55,063 $551 $ 1,164,261 $ (840,744) $ (4,656) Stock issued from option exercises 39 713 Canceled shares (10) Purchase of treasury stock 1,396 $(21,799) Net income 24,043 ------- ----- ------------ ------------ --------- ------- -------- Balance at November 30, 1997 55,092 $ 551 $ 1,164,974 $( 816,701) $( 4,656) 1,396 $(21,799) ======= ===== ============ ============ ========= ======= ========
Note 6 - Segment Information Information relating to the Company's business segments is set forth below:
THREE MONTHS ENDED NOVEMBER 30, ------------------------------------------ 1997 1996 ---------------- ---------------- (in thousands) Sales and Revenues: Homebuilding and financing $ 113,725 $ 110,284 Water transmission products 115,668 122,336 Natural resources 89,144 91,661 Industrial products 73,188 73,275 Energy services 56,395 - Corporate ( 51) 340 ---------------- ---------------- Consolidated sales and revenues $ 448,069 $ 397,896 ================ ================
9
THREE MONTHS ENDED NOVEMBER 30, ------------------------------------------ 1997 1996 --------------- ---------------- (in thousands) Contributions to Operating Income (a) : Homebuilding and financing (b) $ 23,224 $ 19,037 Water transmission products 5,591 7,585 Natural resources 7,632 4,069 Industrial products 4,925 5,120 Energy services 1,941 - ---------------- ---------------- 43,313 35,811 Unallocated corporate interest and other expense (b) ( 22,700) ( 19,176) Income tax expense ( 7,972) ( 9,110) ---------------- ---------------- Income before extraordinary item $ 12,641 $ 7,525 ================ ================
(a) - Operating income amounts are after deducting amortization of excess of purchase price over net assets acquired (goodwill) of $9,770,000 in 1997 and $8,830,000 in 1996. A breakdown by segment is as follows:
THREE MONTHS ENDED NOVEMBER 30, ------------------------------------------ 1997 1996 ---------------- ---------------- (in thousands) Homebuilding and financing $ 6,762 $ 7,249 Water transmission products 3,046 3,045 Natural resources ( 332) ( 332) Industrial products 159 161 Energy services 1,429 - Corporate ( 1,294) ( 1,293) ---------------- ---------------- $ 9,770 $ 8,830 ================ ===============
(b) - Interest expense incurred by the Homebuilding and Financing Group and Corporate is as follows:
THREE MONTHS ENDED NOVEMBER 30, ------------------------------------------ 1997 1996 ---------------- --------------- (in thousands) Homebuilding and financing: Gross interest $ 39,258 $ 38,196 Less: Intercompany interest income ( 9,935) ( 8,429) ---------------- ---------------- Net interest 29,323 29,767 Corporate 18,725 15,966 ---------------- ---------------- $ 48,048 $ 45,733 ================ ================
The Corporate interest and other expenses are attributable to all groups, but cannot be reasonably allocated to specific groups. 10 WALTER INDUSTRIES, INC. AND SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (continued)
SIX MONTHS ENDED NOVEMBER 30, ------------------------------------------ 1997 1996 ---------------- ---------------- (in thousands) Sales and Revenues: Homebuilding and financing $ 224,563 $ 221,213 Water transmission products 224,527 234,031 Natural resources 190,773 166,054 Industrial products 150,851 145,640 Energy services 56,395 - Corporate 293 621 ---------------- ---------------- Consolidated sales and revenues $ 847,402 $ 767,559 ================ ================ Contributions to Operating Income (a) : Homebuilding and financing (b) $ 42,911 $ 38,218 Water transmission products 10,939 13,851 Natural resources 21,175 13,469 Industrial products 9,680 9,317 Energy services 1,941 - ---------------- ---------------- 86,646 74,855 Unallocated corporate interest and other expense (b) ( 39,025) ( 37,084) Income tax expense ( 20,915) ( 20,026) ---------------- ---------------- Income before extraordinary item $ 26,706 $ 17,745 ================ ================
(a) - Operating income amounts are after deducting amortization of excess of purchase price over net assets acquired (goodwill) of $18,186,000 in 1997 and $17,832,000 in 1996. A breakdown by segment is as follows:
SIX MONTHS ENDED NOVEMBER 30, -------------------------------------------- 1997 1996 ---------------- ----------------- (in thousands) Homebuilding and financing $ 13,578 $ 14,658 Water transmission products 6,127 6,124 Natural resources ( 667) ( 666) Industrial products 320 319 Energy services 1,429 - Corporate ( 2,601) ( 2,603) ---------------- ---------------- $ 18,186 $ 17,832 ================ ================
11 WALTER INDUSTRIES, INC. AND SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (continued) (b) - Interest expense incurred by the Homebuilding and Financing Group and Corporate is as follows:
SIX MONTHS ENDED NOVEMBER 30, ------------------------------------------ 1997 1996 --------------- ---------------- (in thousands) Homebuilding and financing: Gross interest $ 78,185 $ 77,019 Less: Intercompany interest income ( 18,607) ( 16,647) ---------------- ---------------- Net interest 59,578 60,372 Corporate 33,333 31,895 ---------------- ---------------- $ 92,911 $ 92,267 ================ ================
The Corporate interest and other expenses are attributable to all groups, but cannot be reasonably allocated to specific groups. Note 7 - Litigation and Other Matters SUIT BY THE COMPANY AND JIM WALTER RESOURCES, INC. FOR BUSINESS INTERRUPTION LOSSES In October 1997, the Company and its subsidiary, Jim Walter Resources, Inc. ("JWR"), agreed to settle the lawsuit filed in the Circuit Court for Tuscaloosa County, Alabama, against certain insurance carriers seeking payment of insurance pertaining to losses associated with a fire in November 1993 at JWR's Mine No. 5. The Company has entered into settlements with all of such insurers who, in the aggregate, have paid $24 million in full and final settlement of the Company's and JWR's claim. FEDERAL INCOME TAX A substantial controversy exists with regard to federal income taxes allegedly owed by the Company. Proofs of claim have been filed in the Bankruptcy Court by the Internal Revenue Service ("IRS") for taxes, interest and penalties in the amounts of $110,560,883 with respect to fiscal years ended August 31, 1980 and August 31, 1983 through August 31, 1987, $31,468,189 with respect for fiscal years ended May 31, 1988 (nine months) and May 31, 1989 and $44,837,693 with respect to fiscal years ended May 31, 1990 and May 31, 1991. These proofs of claim represent total adjustments to taxable income of approximately $360 million for all tax periods at issue. Objections to the proofs of claim have been filed by the Company and the various issues are being litigated in the Bankruptcy Court. By joint stipulation between the IRS and the Company, confirmed by Order of the Bankruptcy Court dated January 3, 1997, the IRS conceded an issue involving an adjustment to taxable income of approximately $51 million for hedging losses incurred during fiscal year 1988. In December 1997, the IRS advised the Company that the IRS has agreed to concede an issue involving adjustments to taxable income of approximately $127 million for amortization deductions for tax years 1988 through 1991 related to certain debt issuance costs. The concession is subject to Bankruptcy Court approval which the Company expects to obtain prior to the end of fiscal year 1998. The Company believes that the balance of such proofs of claim are substantially without merit and intends to defend vigorously such claims, but there can be no assurance as to the ultimate outcome. 12 MANAGEMENT'S DISCUSSION AND ANALYSIS OF RESULTS OF OPERATIONS AND FINANCIAL CONDITION RESULTS OF OPERATIONS THREE MONTHS ENDED NOVEMBER 30, 1997 AND 1996 On October 15, 1997, the Company completed the acquisition of Applied Industrial Materials Corporation ("AIMCOR"), which is a leading international provider of products and outsourcing services to both the petroleum industry and to the steel, foundry and aluminum industries. AIMCOR is also a leading supplier of ferrosilicon in the southeastern United States. Sales and revenues and operating income for AIMCOR are reflected in the Company's new business segment, the Energy Services Group (see Notes 2 and 6 of Notes to Consolidated Financial Statements). Net sales and revenues for the three months ended November 30, 1997 were $50.2 million, or 12.6%, above the prior year period. This performance, in addition to the contribution from AIMCOR, principally reflected increased time charge income (revenues received for the Mid-State Homes instalment note portfolio), improved pricing and/or mix from home sales and aluminum foil and sheet products and higher coal and methane gas sales volumes, partially offset by a reduction in home unit sales and lower selling prices and volumes of ductile iron pressure pipe, fittings and window components and lower selling prices for coal. Homebuilding and Financing Group sales and revenues were $3.4 million, or 3.1% above the prior year period. This performance reflects a 3.0% increase in the average net selling price, from $46,700 in the 1996 period to $48,100 in 1997, partially offset by a 2.6% decrease in the number of units sold, from 1,004 units in the 1996 period to 978 units in 1997. The higher average selling price is primarily attributable to price increases instituted to compensate for higher building material and labor costs. The decrease in unit sales resulted from intense competition from local and regional homebuilders. Jim Walter Homes' backlog at November 30, 1997 was 2,041 units compared to 2,052 units at November 30, 1996. Time charge income increased from $57.4 million in the 1996 period to $60.3 million in 1997. The increase is attributable to an increase in the average balance per account in the portfolio, partially offset by a reduction in the total number of accounts. Operating income of $23.2 million (net of interest expense) was $4.2 million greater than the prior year period reflecting the higher time charge income, the increase in the average net selling price per home sold, lower interest expense in the 1997 period ($29.3 million) as compared to the prior year ($29.8 million) and lower goodwill amortization in the 1997 period ($6.7 million) versus 1996 ($7.2 million), partially offset by the decrease in the number of homes sold. Water Transmission Products Group sales and revenues were $ 6.7 million, or 5.5%, below the prior year period. The decrease was the result of lower sales prices and volumes for ductile iron pressure pipe and fittings. Ductile iron pressure pipe shipments, at 151,000 tons, declined 3% and selling prices were 4% lower than the prior year period, reflecting intense competitive conditions related to the continuing slow pace of funding for infrastructure repair and replacement projects. The order backlog at November 30, 1997 was 117,510 tons, which represents approximately three months shipments compared with 113,210 tons at November 30, 1996. Operating income of $5.6 million was $2.0 million below the prior year period. This performance was the result of the previously mentioned lower sales prices and volumes and gross profit margins for ductile iron pressure pipe and fittings. Natural Resources Group sales and revenues were $2.5 million, or 2.7%, below the prior year period. The decrease resulted from reduced selling prices for coal, partially offset by slightly higher coal shipments due to higher production levels and greater methane gas selling prices and sales volumes. A total of 1.81 million tons of coal was sold at an average selling price per ton of $43.50 in the current year period compared with 1.78 million tons at $45.06 in 1996. The decrease in the average selling price was the result of lower price realizations on shipments to Alabama Power and the worldwide metallurgical market. Methane gas sales volumes were 2.2 billion cubic feet in the 1997 period versus 1.8 billion cubic feet in 1996. The average selling price per thousand cubic feet, which included a monthly reservation fee of $675,000 in both periods, was $4.27 in the 1997 period versus $4.17 in 1996. The Group's operating income of $7.6 million exceeded the prior year period by $3.6 million. This performance was the result of the slightly higher level of coal shipments and improved methane gas sales volumes and selling prices combined with increased coal productivity which contributed to lower production costs ($37.13 per ton in the 1997 period versus $39.89 in 1996), partially offset by the reduced selling prices for coal. During the three months ended November 30, 1996, Mine No. 5 was in development and 13 while in development the mine's costs were capitalized ($8.8 million). Industrial Products Group sales and revenues approximated the prior year period. Reduced shipments of aluminum foil products, foundry and furnace coke and lower sales prices and volumes of window components were offset by increased shipments of aluminum sheet products and slag wool and increased selling prices for aluminum foil and sheet products and foundry and furnace coke. Operating income of $4.9 million was $.2 million below the prior year period. This performance was the result of an earlier than expected seasonal decline in shipments of higher margin specialty foil products, as well as the short-term impact of higher aluminum raw material costs and unfavorable results in the window components and metal building and foundry businesses, partially offset by improved profit margins realized on slag wool. Cost of sales, exclusive of depreciation, of $304.4 million was 79.8% of net sales in the 1997 period versus $264.4 million and 79.6% in 1996. Selling, general and administrative expenses of $40.5 million were 9.0% of net sales and revenues in the 1997 period versus $35.8 million and 9.0% in 1996. Interest and amortization of debt expense was $48.0 million in the 1997 period versus $45.7 million in 1996 reflecting higher outstanding debt balances and interest rates. The average rate of interest in the 1997 period was 8.20% as compared to 8.14% in 1996. The prime rate of interest was 8.5% in the 1997 period compared to 8.25% in 1996. The Company's effective tax rate in the 1997 and 1996 periods differed from the statutory tax rate primarily due to amortization of excess of purchase price over net assets acquired (excluding such amount related to the AIMCOR acquisition) which is not deductible for tax purposes, and percentage depletion recognized in the 1997 period. On October 15, 1997, the Company completed a financing with NationsBank N.A. ("NationsBank") whereby NationsBank provided credit facilities totaling $800 million (the "$800 Million Credit Agreement"). The $800 Credit Agreement was used to (a) finance the acquisition of AIMCOR, (b) replace the existing Credit Facilities, (c) pay transaction costs and (d) provide ongoing working capital. The Company recorded an extraordinary loss of $4.1 million ($2.7 million net of income tax benefit) consisting of write-off of unamortized debt expense related to the early repayment of the existing Credit Facilities. See "Financial Condition". The net income in the 1997 period was $10.0 million compared to net income of $7.5 million in the 1996 period reflecting all of the previously mentioned factors as well as lower postretirement health benefits in the current year period. SIX MONTHS ENDED NOVEMBER 30, 1997 AND 1996 Net sales and revenues for the six months ended November 30, 1997 were $79.8 million, or 10.4%, above the prior year period. This performance, in addition to the contribution from AIMCOR, which is reflected in the Company's new Energy Services business segment, principally resulted from higher time charge income (revenues received from the Mid-State Homes instalment note portfolio), improved pricing and/or mix from home sales, aluminum sheet products and furnace and foundry coke, and higher sales volumes of coal, methane gas, ductile iron pressure pipe, aluminum sheet products and slag wool, partially offset by a reduction in homes unit sales, lower aluminum foil products and fittings volumes and reduced selling prices for pipe products. Homebuilding and Financing sales and revenues were $3.4 million, or 1.5% above the prior year period. This performance reflects a 2.8% increase in the average net selling price, from $46,600 in the 1996 period to $47,900 in 1997, offset by a 3.3% decrease in the number of units sold, from 2,023 units in the 1996 period to 1,957 units in 1997. The higher average selling price is primarily attributable to price increases instituted to compensate for higher building material and labor costs. The decrease in unit sales resulted from intense competition in virtually every Jim Walter Homes sales region. Time charge income increased from $114.9 million in the 1996 period to $118.1 million in 1997. The increase is attributable to an increase in the average balance per account in the portfolio, partially offset by a reduction in the total number of accounts. Operating income of $42.9 million (net of interest expense) was $4.7 million greater than the prior year period reflecting the higher time charge income, the increase in the average net selling price per home sold, an improved gross profit margin, 14 lower interest expense in the 1997 period ($59.6 million) as compared to the prior year ($60.4 million) and lower goodwill amortization in the 1997 period ($13.6 million) versus 1996 ($14.7 million), partially offset by the decrease in the number of homes sold. Water Transmission Products Group sales and revenues were $9.5 million, or 4.1%, below the prior year period. The decrease was the result of lower selling prices for ductile iron pressure pipe, fittings, valves and hydrants and reduced fittings sales volumes, partially offset by an increase in shipments for ductile iron pressure pipe. Ductile iron pressure pipe shipments, at 297,000 tons, were 1% higher than the prior year period while average selling prices were 4% lower reflecting intense competitive conditions related to the continuing slow pace of funding for infrastructure repair and replacement projects. Operating income of $10.9 million was $2.9 million below the prior year period. This performance was the result of the lower selling prices and gross profit margins for ductile iron pressure pipe and fittings, partially offset by the previously mentioned increase in pressure pipe sales volumes. Natural Resources Group sales and revenues were $24.7 million, or 14.9%, above the prior year period. The increase resulted from increased coal shipments due to higher production levels coupled with greater methane gas sales volumes, partially offset by reduced selling prices for coal. A total of 4.04 million tons of coal was sold at an average selling price per ton of $42.81 in the current year period compared with 3.27 million tons at $44.78 in 1996. The decrease in the average selling price was primarily the result of a greater percentage of tonnage sold to the worldwide metallurgical market. Methane gas sales volumes were 4.1 billion cubic feet in the 1997 period versus 3.7 billion cubic feet in 1996. The average selling price per thousand cubic feet, which included a monthly reservation fee of $675,000 in both periods, was $3.89 in the 1997 period versus $3.88 in 1996. The Group's operating income of $21.2 million exceeded the prior year period by $7.7 million. This performance was the result of higher coal shipments and methane gas sales volumes combined with increased coal productivity which contributed to lower production costs ($36.31 per ton in the 1997 period versus $39.42 in 1996), partially offset by the reduced coal selling prices. The current period results also included a $4.0 million credit from settlement of an insurance claim relating to a production hoist accident at Blue Creek Mine No. 3 in fiscal 1993. Prior year results included a $4.7 million credit from settlement of a legal claim relating to a theft of coal inventory at the Port of Mobile, Alabama. In addition, during the six months ended November 30, 1996, Mine No. 5 was in development and while in development the mine's costs were capitalized ($12.0 million). Industrial Products Group sales and revenues were $5.2 million, or 3.6%, greater than the prior year period. The improved performance was the result of increased shipments of aluminum sheet products and slag wool, partially offset by decreased shipments of aluminum foil products, furnace coke and window components, combined with lower selling prices for aluminum foil products and window components. Operating income of $9.7 million exceeded the prior year period by $.4 million. The improved performance primarily resulted from the sales increases and higher gross profit margins realized on aluminum products, foundry and furnace coke and slag wool. Cost of sales, exclusive of depreciation, of $564.9 million was 78.9% of net sales in the 1997 period versus $499.4 million and 78.2% in 1996. Selling, general and administrative expenses of $75.6 million were 8.9% of net sales and revenues in the 1997 period versus $69.1 million and 9.0% in 1996. Interest and amortization of debt expense was $92.9 million in the 1997 period versus $92.3 million in 1996 reflecting higher outstanding debt balances and interest rates. The average rate of interest in the 1997 period was 8.17% as compared to 8.14% in 1996. The prime rate of interest was 8.5% in the 1997 period compared to 8.25% in 1996. The Company's effective tax rate in the 1997 and 1996 periods differed from the statutory tax rate primarily due to amortization of excess of purchase price over net assets acquired (excluding such amount related to the AIMCOR acquisition) which is not deductible for tax purposes and percentage depletion recognized in the 1997 period. As previously mentioned, on October 15, 1997, the Company completed the $800 Million Credit Agreement financing with NationsBank. The Company recorded an extraordinary loss of $4.1 million ($2.7 million net of income tax benefit) consisting of write-off of unamortized debt expense related to the early repayment of the existing Credit Facilities. See "Financial Condition". The net income in the 1997 period was $24.0 million compared to net income of $17.7 million in the 1996 period reflecting all of the previously mentioned factors as well as lower postretirement health benefits in the current year period. 15 Financial Condition Since May 31, 1997, total debt increased $449.1 million. On June 11, 1997, Mid-State purchased from Mid-State Trust V mortgage instalment notes having a gross amount of $1.196 billion and an economic balance of $462.3 million and subsequently sold such mortgage instalment notes to Mid-State Trust VI ("Trust VI"), a business trust organized by Mid-State which owns all of the beneficial interest in Trust VI. These sales were in exchange for the net proceeds from the public issuance by Trust VI of $439.2 million of Trust VI Asset Backed Notes. The notes were issued in four classes, bear interest at rates ranging from 7.34% to 7.79% and have a final maturity of July 1, 2035. Payments will be made quarterly on January 1, April 1, July 1 and October 1 based on collections on the underlying collateral less amounts paid for interest on the notes and Trust VI expenses. Net proceeds from the public offering were used to pay down the Mid-State Trust V Variable Loan Agreement indebtedness of $384.0 million and for general corporate purposes. In conjunction with the closing of the AIMCOR acquisition, on October 15, 1997 the Company completed the $800 Million Credit Agreement with NationsBank. The financing consisted of a $350 million revolving credit facility ("Revolving Credit Facility") and a $450 million six-year term loan (the "Term Loan"). Proceeds from the financing were used to (a) finance the acquisition of AIMCOR, (b) pay transaction costs, (c) provide ongoing working capital and (d) replace the Credit Facilities. The Revolving Credit Facility includes a sub-facility for trade and other standby letters of credit in an amount up to $75 million at any time outstanding and a sub-facility for swingline advances in an amount not in excess of $25 million at any time outstanding. The $800 Million Credit Agreement is secured by guarantees and pledges of the capital stock of all domestic subsidiaries of the Company other than Mid-State Holdings. Net cash proceeds from (a) asset sales where the aggregate consideration received exceeds $20,000,000 and the cumulative amount of such proceeds from such sales since the most recent preceding prepayment equals or exceeds $5,000,000, (b) each Permitted Receivables Securitization (as defined in the $800 Million Credit Agreement) or (c) the issuance of Consolidated Indebtedness (as defined in the $800 Million Credit Agreement) permitted thereunder must be applied to permanently reduce the $800 Million Credit Agreement. There have been no such proceeds to date. The Revolving Credit Facility has a term of six years and the Term Loan amortizes over a six-year period. Scheduled principal payments to be made on the Term Loan in each of the six years commencing October 15, 1998 are $25,000,000, $50,000,000, $75,000,000, $75,000,000, $100,000,000, and $125,000,000, respectively. Borrowings under the Company's $800 Million Credit Agreement bear interest at rates that fluctuate. As of November 30, 1997, borrowing under the $800 Million Credit Agreement totaled $692.1 million. In addition, there were $32.1 million face amount letters of credit outstanding thereunder. During the six month period ended November 30, 1997, borrowings under Mid-State Trust V Variable Funding Loan Agreement totaled $115.0 million and debt assumed from acquisitions totaled $3.6 million. Scheduled payments on the Mid-State Trust II Mortgage-Backed Notes, the Mid-State Trust II Asset Backed Notes, the Mid-State Trust II Asset Backed Notes, the Mid-State Trust IV Asset Backed Notes and the Mid-State Trust VI Asset Backed Notes amounted to $43.5 million, $14.9 million, $32.1 million and $14.7 million, respectively. In addition, scheduled retirements of other long-term debt amounted to $.6 million. The $800 Million Credit Agreement contains a number of covenants, including restrictions on liens, indebtedness, leases, mergers, sales or dispositions of assets, investments, dividends, repurchases of shares of capital stock, prepayment of indebtedness and capital expenditures, as well as financial covenants with respect to leverage ratios, and fixed charge coverage ratios. The borrowers are required to maintain a leverage ratio (the ratio of indebtedness to consolidated EBITDA) of not more than 3.90 to 1 for the measurement period ending May 30, 1998, 3.75 to 1 for the measurement period commencing May 31, 1998 and ending May 30, 1999 and 3.25 to 1 thereafter. The borrowers' fixed charge coverage ratio (the ratio of (a) EBITDA minus capital expenditures to (b) the sum of all required principal payments on outstanding indebtedness, interest expense and dividends paid) is required to be at least 1.25 to 1 at the end of each Four Quarter Period (as defined in the $800 Million Credit Agreement) for the duration of the $800 Million Credit Agreement. Compliance by the borrowers with the above-referenced measures is required under the $800 Million Credit Agreement beginning with the period ending February 28, 1998. The Trust V Variable Funding Loan Agreement's covenants, among other things, restrict the ability of Trust V to dispose of assets, create liens and engage in mergers or consolidations. The Company was in compliance with these covenants at November 30, 1997. 16 Liquidity and Capital Resources At November 30, 1997, cash and cash equivalents, net of bank overdrafts, were approximately $12.1 million. Operating cash flows for the six months ended November 30, 1997 together with issuance of the Mid-State Trust VI Asset Backed Notes, the proceeds from the $800 Million Credit Agreement, borrowings under the Mid-State Trust V Variable Funding Loan Agreement and the use of available cash balances were primarily used for retirement of long-term senior debt, the purchase of AIMCOR, interest payments, capital expenditures and the purchase of approximately 1.4 million shares of common stock in June 1997. Working capital is required to fund adequate levels of inventories and accounts receivable. Commitments for capital expenditures at November 30, 1997 were not significant; however, it is estimated that gross capital expenditures of the Company and its subsidiaries for the balance of the year ending May 31, 1998 will approximate $61 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 anticipated that one or more permanent financings similar to the previous Mid-State asset backed financings will be required over the next several years to repay borrowings under the Mid-State Trust V Variable Funding Loan Agreement. The Company believes that under present operating conditions, sufficient cash flow will be generated to make all required interest and principal payments on its indebtedness, to make all of its planned capital expenditures 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. Private Securities Litigation Reform Act Safe Harbor Statement This Form 10-Q contains certain forward-looking statements (as such term is defined in the Private Securities Litigation Reform Act of 1995) and information relating to the Company that is based on the beliefs of the management of the Company, as well as assumptions made by and information currently available to the management of the Company. When used in this Form 10-Q, the words "estimate," "project," "believe," "anticipate," "intend," "expect," and similar expressions are intended to identify forward-looking statements. Such statements reflect the current views of the Company with respect to future events and are subject to risks and uncertainties that could cause actual results to differ materially from those contemplated in such forward-looking statements. Among those factors which could cause actual results to differ materially are market demand, competition, interest rate fluctuations, weather and other risk factors listed from time to time in the Company's filings with the Securities and Exchange Commission. Readers are cautioned not to place undue reliance on these forward-looking statements, which speak only as of the date hereof. The Company does not undertake any obligation to publicly release any revisions to these forward looking statements to reflect events or circumstances after the date hereof or to reflect the occurrence of unanticipated events. 17 PART II - OTHER INFORMATION Item 1. LEGAL PROCEEDINGS See Note 7 of Notes to Consolidated Financial Statements contained in Part I - Financial Information. Item 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS At the Company's Annual Meeting of Stockholders held September 16, 1997, the following proposals were approved:
AFFIRMATIVE NEGATIVE VOTES VOTES VOTES WITHHELD (1) Proposal to approve an Annual Incentive Plan for Key Employees which is intended to satisfy the provision of Section 162(m) of the Internal Revenue Code 41,986,447 181,263 9,406,996 (2) Proposal to approve the Amended 1995 Long-Term Incentive Stock Plan of Walter Industries, Inc. 39,465,620 3,199,158 8,912,136 (3) Proposal to ratify the appointment of Price Waterhouse LLP as independent certified public accountants for the fiscal year ending May 31, 1998. 51,554,345 5,146 15,214
Item 6. EXHIBITS AND REPORTS ON FORM 8-K (a) Exhibit 11(a) - Net income per share calculation for the three months ended November 30, 1997 and 1996 Exhibit 11(b) - Net income per share calculation for the six months ended November 30, 1997 and 1996 Exhibit 27 -Financial Data Schedule (b) On October 30, 1997, the Company filed a Current Report on Form 8-K with respect to the acquisition of the stock of Applied Industrial Materials Corporation. The Company stated in such Current Report of Form 8-K that it was impracticable to provide the financial statements and pro forma financial information required to be filed therewith relative to the acquired stock, but that it intended to file the required financial statements and pro forma financial information as soon as practicable, but no later than 60 days from the date of that filing. On December 29, 1997, the Company filed an amendment to such Current Report on Form 8-K/A to include the required financial statements and pro forma financial information. 18 SIGNATURES Pursuant to the requirements of the Securities Exchange Act of 1934, the Registrant has duly caused this report to be signed on its behalf by the undersigned thereunto duly authorized. WALTER INDUSTRIES, INC. /s/ D. M. FJELSTUL /s/ F. A. HULT - ---------------------------- --------------------------------- D. M. Fjelstul F. A. Hult Senior Vice President and Vice President, Controller and Principal Financial Officer Principal Accounting Officer Date: JANUARY 14, 1998 EX-11.(A) 2 NET INCOME PER SHARE CALCULATION Exhibit 11(a) NET INCOME PER SHARE CALCULATION (in thousands except per share amounts)
THREE MONTHS ENDED THREE MONTHS ENDED NOVEMBER 30, 1997 NOVEMBER 30, 1996 DOLLARS SHARES DOLLARS SHARES Income before extraordinary item $ 12,641 $ 7,525 Extraordinary item - Loss on early extinguishment of debt, net of income tax benefit ( 2,663) - ----------- ---------- Net income $ 9,978 $ 7,525 =========== ========== Primary weighted average shares of common stock outstanding: Common stock (a) 53,685 54,868 Employee stock options (b) (d) 838 94 --------- --------- 54,523 54,962 ========= ========= Per share: Income before extraordinary item $ .23 $ .13 Extraordinary item ( .05) - ----------- --------- Net income $ .18 $ .13 =========== ========= Fully diluted weighted average shares of common stock outstanding: Common stock (a) 53,685 54,868 Employee stock options (c) (d) 872 94 --------- --------- 54,557 54,962 ========= ========= Per Share: Income before extraordinary item $ .23 $ .13 Extraordinary item ( .05) - ----------- --------- Net income $ .18 $ .13 =========== =========
(a) Includes 3,880,140 additional shares issued to an escrow account on September 13, 1995 pursuant to the Consensual Plan. Does not include 1,395,992 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 average market price of the common stock during the period. (c) Same as (b) except that purchases of common stock were assumed to have been made at the higher of either the market price of the common stock at the end of the period or the average market price for the period. (d) For the three months ended November 30, 1996, does not include 1,485,000 shares subject to options because such options would have an anti-dilutive effect in such period. EX-11.(B) 3 NET INCOME PER SHARE CALCULATION #2 Exhibit 11(b) NET INCOME PER SHARE CALCULATION (in thousands except per share amounts)
SIX MONTHS ENDED SIX MONTHS ENDED NOVEMBER 30, 1997 NOVEMBER 30, 1996 DOLLARS SHARES DOLLARS SHARES Income before extraordinary item $ 26,706 $ 17,745 Extraordinary item - Loss on early extinguishment of debt, net of income tax benefit ( 2,663) - ----------- ----------- Net income $ 24,043 $ 17,745 =========== =========== Primary weighted average shares of common stock outstanding: Common stock (a) 53,910 54,868 Employee stock options (b) (d) 797 68 -------- --------- 54,707 54,936 ======== ========= Per share: Income before extraordinary item $ .49 $ .32 Extraordinary item ( .05) - ----------- ----------- Net income $ .44 $ .32 =========== =========== Fully diluted weighted average shares of common stock outstanding: Common stock (a) 53,910 54,868 Employee stock options (c) (d) 876 68 --------- --------- 54,786 54,936 ========= ========= Per Share: Income before extraordinary item $ .49 $ .32 Extraordinary item ( .05) - ----------- ----------- Net income $ .44 $ .32 =========== ===========
(a) Includes 3,880,140 additional shares issued to an escrow account on September 13, 1995 pursuant to the Consensual Plan. Does not include 1,395,992 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 average market price of the common stock during the period. (c) Same as (b) except that purchases of common stock were assumed to have been made at the higher of either the market price of the common stock at the end of the period or the average market price for the period. (d) For the six months ended November 30, 1996, does not include 1,485,000 shares subject to options because such options would have an anti-dilutive effect in such period. EX-27 4 FDS
5 THIS SCHEDULE CONTAINS SUMMARY FINANCIAL INFORMATION EXTRACTED FROM THE CONSOLIDATED FINANCIAL STATEMENTS AND RELATED NOTES THERETO AND IS QUALIFIED IN ITS ENTIRETY BY REFERENCE TO SUCH FINANCIAL STATEMENTS AND RELATED NOTES. 1,000 6-MOS MAY-31-1998 NOV-30-1997 39,575 262,731 1,585,706 (33,828) 276,180 0 1,151,059 (500,884) 3,529,931 0 2,514,643 0 0 551 321,818 3,529,931 716,187 847,402 564,887 113,279 29,316 (612) 92,911 47,621 (20,915) 26,706 0 (2,663) 0 24,043 .44 0 THIS LINE ITEM IS NOT PRESENTED ON THE CONSOLIDATED FINANCIAL STATEMENTS.
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