-----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, ORErEWv9mnrgNjtPLnxXburN3d5NonhSPUqXiR0xEig/SFv4rh6VWTlZPNR2qHYH bFwtpGNIgakvJItCk+h3RA== 0001047469-98-014803.txt : 19980415 0001047469-98-014803.hdr.sgml : 19980415 ACCESSION NUMBER: 0001047469-98-014803 CONFORMED SUBMISSION TYPE: 10-Q PUBLIC DOCUMENT COUNT: 2 CONFORMED PERIOD OF REPORT: 19980228 FILED AS OF DATE: 19980414 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: 98592752 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 February 28, 1998 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 53,792,393 shares of common stock of the registrant outstanding at March 31, 1998. PART I - FINANCIAL INFORMATION WALTER INDUSTRIES, INC. AND SUBSIDIARIES CONSOLIDATED BALANCE SHEET
February 28, 1998 May 31, (Unaudited) 1997 ------------- ------------ (in thousands) ASSETS - ------ Cash and cash equivalents $ 39,791 $ 35,782 Short-term investments, restricted 225,546 195,371 Marketable securities 38,810 41,222 Instalment notes receivable 4,271,528 4,256,845 Less - Provision for possible losses (26,442) (26,394) Unearned time charges (2,914,251) (2,896,517) Trade and other receivables, less provision for possible losses of $7,226 and $8,225, respectively 188,797 182,891 Inventories, at lower of cost (first in, first out or average) or market: Finished goods 211,835 117,949 Goods in process 40,965 32,291 Raw materials and supplies 53,527 52,066 Houses held for resale 3,349 3,068 Prepaid expenses 17,074 11,862 Property, plant and equipment, at cost 1,167,113 978,006 Less - Accumulated depreciation, depletion and amortization (517,114) (409,830) Investments and other assets 51,789 46,783 Deferred income taxes 84,110 109,023 Unamortized debt expense 32,343 22,793 Excess of purchase price over net assets acquired 538,705 274,174 ----------- ----------- $ 3,507,475 $ 3,027,385 =========== =========== LIABILITIES AND STOCKHOLDERS' EQUITY Short-term notes payable $ 2,900 $ - Bank overdrafts 18,507 25,523 Accounts payable 123,537 86,418 Accrued expenses 135,204 131,768 Income taxes payable 57,305 58,884 Long-term senior debt: Mortgage-backed/asset backed notes 1,796,173 1,752,125 Other senior debt 684,320 313,450 Accrued interest 25,304 23,220 Accumulated postretirement health benefits obligation 280,419 268,959 Other long-term liabilities 53,186 47,626 Stockholders' equity Common stock 551 551 Capital in excess of par value 1,165,386 1,164,261 Retained earnings (deficit) (808,993) (840,744) Cumulative foreign currency adjustment 153 - Excess of additional pension liability over unrecognized prior years service cost (4,656) (4,656) Treasury stock (21,821) - ----------- ----------- Total stockholders' equity 330,620 319,412 ----------- ----------- $ 3,507,475 $ 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 February 28, --------------------------------------- 1998 1997 -------- -------- (in thousands except per share amounts) Sales and revenues: Net sales $387,277 $276,912 Time charges 59,243 57,447 Miscellaneous 7,302 6,056 -------- -------- 453,822 340,415 -------- -------- Cost and expenses: Cost of sales 306,659 225,250 Depreciation, depletion and amortization 20,250 16,648 Selling, general and administrative 43,876 37,191 Postretirement health benefits 5,565 6,402 Provision for possible losses 593 580 Interest and amortization of debt expense 50,903 44,331 Amortization of excess of purchase price over net assets acquired 10,086 8,463 -------- -------- 437,932 338,865 -------- -------- 15,890 1,550 Income tax expense: Current (2,359) (545) Deferred (5,823) (3,253) -------- -------- Net income (loss) $ 7,708 $ (2,248) ======== ========= Basic earnings(loss) per share: $ .14 $ (.04) ======== ========= Diluted earnings(loss) per share: $ .14 $ (.04) ======== =========
See accompanying Notes to Consolidated Financial Statements 3 WALTER INDUSTRIES, INC. AND SUBSIDIARIES CONSOLIDATED STATEMENT OF OPERATIONS (UNAUDITED)
For the nine months ended February 28, ----------------------------------------- 1998 1997 ---------- ---------- (in thousands except per share amounts) Sales and revenues: Net sales $1,103,464 $ 915,516 Time charges 177,331 172,390 Miscellaneous 20,429 20,068 ---------- ---------- 1,301,224 1,107,974 ---------- ---------- Cost and expenses: Cost of sales 871,546 724,622 Depreciation, depletion and amortization 57,960 53,425 Selling, general and administrative 119,445 106,301 Postretirement health benefits 16,695 19,274 Provision for possible losses (19) 2,138 Interest and amortization of debt expense 143,814 136,598 Amortization of excess of purchase price over net assets acquired 28,272 26,295 ---------- ---------- 1,237,713 1,068,653 ---------- ---------- 63,511 39,321 Income tax expense: Current (4,184) (1,721) Deferred (24,913) (22,103) ---------- ---------- Income before extraordinary item 34,414 15,497 Extraordinary item - Loss on early extinguishment of debt (net of income tax benefit of $1,434) (2,663) - ---------- ---------- Net income $ 31,751 $ 15,497 ========== =========== Basic earnings per share: Income before extraordinary item $ .64 $ .28 Extraordinary item (.05) - ---------- ---------- Net income $ .59 $ .28 ========== =========== Diluted earnings per share: Income before extraordinary item $ .63 $ .28 Extraordinary item (.05) - ---------- ---------- Net income $ .58 $ .28 ========== ===========
See accompanying Notes to Consolidated Financial Statements 4 WALTER INDUSTRIES, INC. AND SUBSIDIARIES CONSOLIDATED STATEMENT OF CASH FLOWS (UNAUDITED)
For the nine months ended February 28, ------------------------------------------- 1998 1997 ---------- ---------- OPERATIONS (in thousands) - ---------- Net income $ 31,751 $ 15,497 Charges to income not affecting cash: Depreciation, depletion and amortization 57,960 53,425 Provision for deferred income taxes 24,913 22,103 Accumulated postretirement health benefits obligation 11,460 16,290 Benefit from other long-term liabilities (720) (394) Amortization of excess of purchase price over net assets acquired 28,272 26,295 Amortization of debt expense 5,084 5,265 Extraordinary item - Loss on early extinguishment of debt (net of income tax benefit) 2,663 - ---------- ---------- 161,383 138,481 Decrease (increase) in assets, net of effects from acquisitions: Short-term investments, restricted (30,175) (15,681) Marketable securities 2,412 20,245 Instalment notes receivable, net 3,099 (4,527) Trade and other receivables, net 51,838 32,981 Inventories (27,303) 11,733 Prepaid expenses (3,609) (2,379) Deferred income taxes - 21,411 Increase (decrease) in liabilities, net of effects from acquisitions: Bank overdrafts (7,016) (13,902) Accounts payable (7,882) (4,161) Accrued expenses (10,972) (536) Income taxes payable (101) (2,638) Accrued interest 2,084 (4,285) ---------- ---------- Cash flows from operations 133,758 176,742 ---------- ---------- FINANCING ACTIVITIES Issuance of short-term notes payable and long-term senior debt 1,342,450 110,000 Retirement of long-term senior debt (975,172) (232,698) Additions to unamortized debt expense (18,731) (159) Additions to treasury stock (21,821) - Fractional share payments - (5) Exercise of employee stock options 1,125 - ---------- ---------- Cash flows from (used in) financing activities 327,851 (122,862) ---------- ---------- INVESTING ACTIVITIES Acquisitions, net of cash acquired (403,006) - Additions to property, plant and equipment, net of normal retirements (57,590) (68,726) Decrease in investments and other assets 2,402 3,042 ---------- ---------- Cash flows used in investing activities (458,194) (65,684) ---------- ---------- Effect of exchange rate on cash 594 - ---------- ---------- Net increase (decrease) in cash and cash equivalents 4,009 (11,804) Cash and cash equivalents at beginning of period 35,782 32,543 ---------- ---------- Cash and cash equivalents at end of period $ 39,791 $ 20,739 ========== ==========
See accompanying Notes to Consolidated Financial Statements 5 WALTER INDUSTRIES, INC. AND SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS FEBRUARY 28, 1998 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 February 28, 1998 presentation. The results for the three and nine months ended February 28, 1998 and 1997 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 the petroleum, 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 $408 million, subject to 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 nine months ended February 28, 1998 consisting of a write-off of unamortized debt expense related to the early repayment of the Credit Facilities. The following unaudited results of operations reflects the effect on the Company's operations as if the acquisition of AIMCOR had occurred as of June 1, 1997. Nine months ended February 28, 1998 ----------------- Net sales and revenues $1,458,735 Net income $ 35,893 Basic earnings per share $ .67 Diluted earnings per share $ .66 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 June 1, 1997, nor are they necessarily indicative of future operating results. 6 WALTER INDUSTRIES, INC. AND SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (continued) 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 ($109,164,000) 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 ($101,225,000) and (iii) miscellaneous other segregated accounts restricted to specific uses ($15,157,000). 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 nine month period ended February 28, 1998 and 1997 consists of sales and resales, net of repossessions and provision for possible losses, of $128,503,000 and $129,871,000 and cash collections on account and payouts in advance of maturity of $131,602,000 and $125,344,000, 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):
February 28, 1998 ------------------------------------------------------ Gross Balance Economic Balance Debt Outstanding ------------- ---------------- ---------------- Trust II $ 831,300 $ 530,029 $ 344,750 Trust III 325,730 178,038 93,718 Trust IV 1,478,625 658,717 790,482 Trust V 544,322 211,674 152,000 Trust VI 1,088,628 431,539 415,223 Unpledged 2,923 1,280 - ---------- ---------- ---------- Total $4,271,528 $2,011,277 $1,796,173 ========== ========== ==========
On June 11, 1997, Mid-State Homes purchased from Mid-State Trust V mortgage instalment notes having a gross amount 7 WALTER INDUSTRIES, INC. AND SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (continued) of $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. 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 nine months ended February 28, 1998 are summarized as follows:
(in thousands) -------------------------------------------------------------------------------------------- Cumulative Excess of Retained Foreign Additional Common Stock Capital in Earnings Currency Pension Treasury Stock Shares Par Value Excess (Deficit) Adjust Liability Shares Amount ------ --------- ---------- ---------- ---------- ---------- ------ ------ Balance at May 31, 1997 55,063 $551 $1,164,261 $(840,744) $(4,656) Stock issued from option exercises 59 1,125 Canceled shares (10) Purchase of treasury stock 1,397 $(21,821) Cumulative foreign currency adjustment $153 Net income 31,751 Balance at February 28, 1998 55,112 $551 $1,165,386 $(808,993) $153 $(4,656) 1,397 $(21,821)
In February 1997, Statement of Financial Accounting Standards No. 128 - "Earnings per Share" ("FASB 128") was issued. FASB 128 became effective for the Company in the third quarter of fiscal 1998. FASB 128 established new standards for computing and presenting earnings per share and requires all prior period earnings per share data be restated to conform with the provisions of the statement. Basic earnings per share is computed by dividing net income by the weighted average number of common shares outstanding during each period. Diluted earnings per share is computed by dividing net income by the weighted average number of common shares outstanding during each period after giving effect to dilutive stock options. A reconciliation of the basic and diluted per share computations for the three months and nine months ended February 28, 1998 and 1997 are as follows (in thousands except per share amounts):
Three months ended February 28, ------------------------------------------- 1998 1997 ------------------------------------------- Basic Diluted Basic Diluted ------- ------- ------- ------- Net income (loss) $ 7,708 $ 7,708 $(2,248) $(2,248) ======= ======= ======= ======= Shares of common stock outstanding: Average number of common shares (a)(b) 53,706 53,706 50,989 50,989 Effect of diluted securities: Stock options (c)(d) - 869 - 230 ------- ------- ------- ------- Average common shares and dilutive effect 53,706 54,575 50,989 51,219 ======= ======= ======= ======= Per share: Net income (loss) $ .14 $ .14 $ (.04) $ (.04) ======= ======= ======= =======
(a) For the three months ended February 28, 1998, includes 3,880,140 additional shares issued to an escrow account 8 WALTER INDUSTRIES, INC. AND SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (continued) on September 13, 1995 pursuant to the Consensual Plan, but does not include 1,397,092 shares held in treasury. (b) For the three months ended February 28, 1997, does not include 3,880,140 additional shares issued to the escrow account because such issuance would be anti-dilutive in such period. (c) 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 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 February 28, 1997, does not include 1,485,000 shares subject to options because such options would have an anti-dilutive effect in such period.
Nine months ended February 28, ---------------------------------------------------- 1998 1997 ---------------------------------------------------- Basic Diluted Basic Diluted ------- ------- ------- ------- Income before extraordinary item $34,414 $34,414 $15,497 $15,497 Extraordinary item (2,663) (2,663) - - ------- ------- ------- ------- Net income $31,751 $31,751 $15,497 $15,497 ======= ======= ======= ======= Shares of common stock outstanding: Average number of common shares (a) 53,842 53,842 54,868 54,868 Effect of diluted securities: - 869 - 187 ------- ------- ------- ------- Stock options (b)(c) 53,842 54,711 54,868 55,055 ======= ======= ======= ======= Per share: Income before extraordinary item $ .64 $ .63 $ .28 $ .28 Extraordinary item (.05) (.05) - - ------- ------- ------- ------- Net income $ .59 $ .58 .28 .28 ======= ======= ======= =======
(a) Includes 3,880,140 additional shares issued to an escrow account on September 13, 1995 pursuant to the Consensual Plan, but does not include 1,397,092 shares held in treasury. (b) Represents the number of shares of common stock issuable on the exercise of dilutive employee stock options less the number of shares of common stock which could have been purchased with the proceeds from the exercise of such options. These purchases were assumed to have been made at the higher of either the market price of the common stock at the end of the period or the average market price for the period. (c) For the nine months ended February 28, 1997, does not include 1,485,000 shares subject to options because such options would have an anti-dilutive effect in such period. Note 6 - Segment Information Information relating to the Company's business segments is set forth below:
Three months ended February 28, --------------------------- 1998 1997 -------- -------- Sales and Revenues: (in thousands) Homebuilding and financing $108,219 $108,216 Water transmission products 84,482 74,934 Natural resources 78,945 86,881 Industrial products 72,538 70,113 Energy services 109,461 - Corporate 177 271 -------- -------- Consolidated sales and revenues $453,822 $340,415 ======== ========
9 WALTER INDUSTRIES, INC. AND SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (continued)
Three months ended February 28, --------------------------- 1998 1997 -------- -------- (in thousands) Contributions to Operating Income (a) : Homebuilding and financing (b) $ 22,965 $ 20,963 Water transmission products (2,892) (4,662) Natural resources 8,794 599 Industrial products 4,540 3,603 Energy services 10,826 - -------- -------- 44,233 20,503 Unallocated corporate interest and other expense (b) (28,343) (18,953) Income tax expense (8,182) (3,798) -------- -------- Net income (loss) $ 7,708 $ (2,248) ======== ======== (a) - Operating income amounts are after deducting amortization of excess of purchase price over net assets acquired (goodwill) of $10,086,000 in 1998 and $8,463,000 in 1997. A breakdown by segment is as follows: Three months ended February 28, ------------------------- 1998 1997 ------- ------- (in thousands) Homebuilding and financing $ 6,482 $ 6,905 Water transmission products 3,011 3,010 Natural resources (326) (328) Industrial products 160 156 Energy services 2,037 - Corporate (1,278) (1,280) ------- ------- $10,086 $ 8,463 ======= ======= (b) - Interest expense incurred by the Homebuilding and Financing Group and Corporate is as follows: Three months ended February 28, -------------------------- 1998 1997 -------- ------- (in thousands) Homebuilding and financing: Gross interest $ 38,553 $37,699 Less: Intercompany interest income (10,374) (8,611) -------- ------- Net interest 28,179 29,088 Corporate 22,724 15,243 -------- ------- $ 50,903 $44,331 ======== =======
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)
Nine months ended February 28, --------------------------------- 1998 1997 ---------- ---------- (in thousands) Sales and Revenues: Homebuilding and financing $ 332,782 $ 329,429 Water transmission products 309,009 308,965 Natural resources 269,718 252,935 Industrial products 223,389 215,753 Energy services 165,856 - Corporate 470 892 ---------- ---------- Consolidated sales and revenues $1,301,224 $1,107,974 ========== ========== Contributions to Operating Income (a) : Homebuilding and financing (b) $ 65,876 $ 59,181 Water transmission products 8,047 9,189 Natural resources 29,969 14,068 Industrial products 14,220 12,920 Energy services 12,767 - ---------- ---------- 130,879 95,358 Unallocated corporate interest and other expense (b) (67,368) (56,037) Income tax expense (29,097) (23,824) ---------- ---------- Income before extraordinary item $ 34,414 $ 15,497 ========== ========== (a) - Operating income amounts are after deducting amortization of excess of purchase price over net assets acquired (goodwill) of $28,272,000 in 1998 and $26,295,000 in 1997. A breakdown by segment is as follows: Nine months ended February 28, ------------------------------ 1998 1997 ------- ------- (in thousands) Homebuilding and financing $20,060 $21,563 Water transmission products 9,138 9,134 Natural resources (993) (994) Industrial products 480 475 Energy services 3,466 - Corporate (3,879) (3,883) ------- ------- $28,272 $26,295 ======= =======
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:
Nine months ended February 28, ------------------------------- 1998 1997 -------- -------- (in thousands) Homebuilding and financing: Gross interest $116,738 $114,718 Less: Intercompany interest income (28,981) (25,258) -------- -------- Net interest 87,757 89,460 Corporate 56,057 47,138 -------- -------- $143,814 $136,598 ======== ========
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 to fiscal years ended May 31, 1988 (nine months) and May 31, 1989 and $44,837,693 with respect to fiscal years ended May 31, 1990 and May 31, 1991. These proofs of claim represent total adjustments to taxable income of approximately $360 million for all tax periods at issue. Objections to the proofs of claim have been filed by the Company and the various issues are being litigated in the Bankruptcy Court. 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. Also by joint stipulation, confirmed by Order of the Bankruptcy Court dated March 10, 1998, the IRS has conceded 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 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. The Company's U.S. Federal income tax returns for the fiscal years ended May 31, 1992, 1993 and 1994 currently are being audited by the IRS. The IRS has not yet issued a notice of assessment with respect to those tax returns, but the Company believes that the IRS may assert, among other things, that certain of the issues underlying the aforementioned proofs of claim are relevant to those returns. 12 WALTER INDUSTRIES, INC. AND SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (continued) Note 8 - Commitments and Contingencies The Company's subsidiary, Jim Walter Resources, Inc. ("JWR"), supplies compliance steam coal to Alabama Power Company ("Alabama Power") under the terms of a contract entered into in May 1994. Under this contract, Alabama Power is obligated to purchase 4.0 million tons of coal per year from JWR until the expiration of the contract in August 31, 1999 at prices which are currently significantly above market prices for compliance steam coal as well as metallurgical coal. In February 1998, JWR entered into a contract with Alabama Power for the sale of 1.5 million tons per year of compliance steam coal commencing January 1, 2000 through December 31, 2005, at a price approximately equal to the February 1998 market price for compliance steam coal, subject to certain adjustments during the term of the contract. Based on the current market prices of metallurgical and compliance steam coal, the expiration of the May 1994 contract with Alabama Power could, in management's estimation, result in a decrease in JWR's annual revenue of up to $50 million. In 1996, JWR embarked on a cost cutting program intended to reduce operating costs at its Mining Division by 20% from fiscal 1997 levels over the next three years. If those cost cutting reductions are fully achieved, the Company currently believes that a decrease in annual revenue of the magnitude referred to above in fiscal 2000 will not have a material adverse effect on the results of operations of the Company as compared to fiscal 1997. However, there can be no assurances as to the extent to which such cost reductions will be achieved or what the market prices of metallurgical and compliance steam coal will be in the future. The Company currently intends that JWR will sell the 2.5 million tons of coal currently being sold to Alabama Power, which will not be subject to the February 1998 contract with Alabama Power, to other customers as metallurgical coal, the current market price of which generally exceeds the market price of compliance steam coal; however, there can be no assurance as to whether or on what terms JWR would be able to sell such coal. 13 MANAGEMENT'S DISCUSSION AND ANALYSIS OF RESULTS OF OPERATIONS AND FINANCIAL CONDITION 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). Results of Operations THREE MONTHS ENDED FEBRUARY 28, 1998 AND 1997 Net sales and revenues for the three months ended February 28, 1998 were $113.4 million, or 33.3%, above the prior year period. This performance, in addition to the contribution from AIMCOR, principally resulted from greater time charge income (revenues received from the Mid-State Homes instalment note portfolio), increased sales volumes for ductile iron pressure pipe and improved pricing and volumes for aluminum foil and sheet products, partially offset by lower coal selling prices and sales volumes and a reduction in the number of homes sold. Homebuilding and Financing Group sales and revenues approximated the prior year period. This performance includes an 8.4% decrease in the number of units sold, from 935 units in the 1997 period to 856 units in 1998, partially offset by a 2.7% increase in the average net selling price, from $48,200 in the 1997 period to $49,500 in 1998. 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 continuing intense competition from local and regional homebuilders as well as high demand for subcontractors and construction crews. Jim Walter Homes' backlog at February 28, 1998 was 1,894 units compared to 1,786 units at February 28, 1997. Time charge income increased from $57.4 million in the 1997 period to $59.2 million in 1998. 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 $23.0 million (net of interest expense) was $2.0 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 1998 period ($28.2 million) as compared to the prior year ($29.1 million) and lower goodwill amortization in the 1998 period ($6.5 million) versus 1997 ($6.9 million), partially offset by the decrease in the number of homes sold. Water Transmission Products Group sales and revenues were $9.5 million, or 12.7%, above the prior year period. The increase was the result of higher sales volumes for ductile iron pressure pipe, valves and hydrants reflecting mild winter weather conditions. Ductile iron pressure pipe shipments, at 102,000 tons, were 16.3% greater than the prior year period. Selling prices, however, were 1% lower than the prior year period due to continuing intense competitive conditions. The order backlog at February 28, 1998 was 135,000 tons, which represents approximately three months shipments compared with 116,000 tons at February 28, 1997. The Group incurred an operating loss of $2.9 million in the 1998 period compared to a $4.7 million loss in the prior year period. The improvement resulted from the increase in sales volumes combined with improved gross profit margins. Natural Resources Group sales and revenues were $7.9 million, or 9.1%, below the prior year period. The decrease resulted from lower coal shipments and reduced selling prices for coal and methane gas, partially offset by greater methane gas sales volumes. A total of 1.58 million tons of coal was sold at an average selling price per ton of $44.41 in the current year period compared with 1.72 million tons at $44.65 in 1997. The decrease in tonnage sold resulted from short-term delays of coal shipments that were scheduled to occur late in the fiscal quarter. 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 2.19 billion cubic feet in the 1998 period versus 1.97 billion cubic feet in 1997. The average selling price per thousand cubic feet, which included a monthly reservation fee of $675,000 in both periods, was $3.35 in the 1998 period versus $4.34 in 1997. The Group's operating income of $8.8 million exceeded the prior year period by $8.2 million. This performance reflected increased coal productivity which contributed to lower production costs ($35.80 per ton in the 1998 period versus $36.46 in 1997). Prior year results included a $6.2 million charge ($4.6 14 million included in cost of sales and $1.6 million in selling, general and administrative expenses) relating to a reduction in Jim Walter Resources' salaried workforce under a voluntary early retirement program. In addition, during the three months ended February 28, 1997, Mine No. 5 was in development and while in development the mine's costs were capitalized ($9.9 million). Industrial Products Group sales and revenues were $2.4 million, or 3.5% greater than the prior year period. The improved performance was the result of increased selling prices and volumes for aluminum foil and sheet products and greater sales volumes of foundry coke and slag wool. Operating income of $4.5 million was $.9 million above the prior year period which was the result of the sales increase and higher gross profit margins realized on aluminum products. Cost of sales, exclusive of depreciation, of $306.7 million was 79.2% of net sales in the 1998 period versus $225.2 million and 81.3% in 1997. The percentage decrease was primarily the result of improved gross profit margins on coal, pipe and aluminum foil and sheet products. Selling, general and administrative expenses of $43.9 million were 9.7% of net sales and revenues in the 1998 period versus $37.2 million and 10.9% in 1997. Interest and amortization of debt expense was $50.9 million in the 1998 period versus $44.3 million in 1997 reflecting higher outstanding debt balances. The average rate of interest in the 1998 period was 7.84% as compared to 8.02% in 1997. The prime rate of interest was 8.5% in the 1998 period compared to 8.25% in 1997. The Company's effective tax rate in the 1998 and 1997 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 1998 period. The net income in the 1998 period was $7.7 million compared to a net loss of $2.2 million in the 1997 period reflecting all of the previously mentioned factors as well as lower postretirement health benefits in the current year period. NINE MONTHS ENDED FEBRUARY 28, 1998 AND 1997 Net sales and revenues for the nine months ended February 28, 1998 were $193.2 million, or 17.4%, above the prior year period. This performance, in addition to the contribution from AIMCOR, was the result of improved performances from all other operating groups. Homebuilding and Financing Group sales and revenues were $3.4 million, or 1.0%, above the prior year period. This performance reflects a 2.7% increase in the average net selling price, from $47,100 in the 1997 period to $48,400 in 1998, which was more than offset by a 4.9% decrease in the number of units sold, from 2,958 units in the 1997 period to 2,813 units in 1998. 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 continuing intense competition from local and regional homebuilders as well as high demand for subcontractors and construction crews. Time charge income increased from $172.4 million in the 1997 period to $177.3 million in 1998. 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 $65.9 million (net of interest expense) was $6.7 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 homebuilding gross profit margin, lower interest expense in the 1998 period ($87.8 million) as compared to the prior year ($89.5 million) and lower goodwill amortization in the 1998 period ($20.1 million) versus 1997 ($21.6 million), partially offset by the decrease in the number of homes sold. Water Transmission Products Group sales and revenues approximated the prior year period. Reduced selling prices for ductile iron pressure pipe, fittings, valves and hydrants, combined with lower sales volumes of fittings were offset by increased shipments of ductile iron pressure pipe, valves and hydrants. Ductile iron pressure pipe shipments, at 399,000 tons, were 4.5% higher than the prior year period while average selling prices were 3% lower reflecting intense competitive conditions related to the continuing slow pace of funding for infrastructure repair and replacement projects. 15 Operating income of $8.0 million was $1.1 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, valves and hydrants sales volumes. Natural Resources Group sales and revenues were $16.8 million, or 6.6%, 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 and methane gas. A total of 5.6 million tons of coal was sold at an average selling price per ton of $43.26 in the current year period compared with 5.0 million tons at $44.73 in 1997. The decrease in the average selling price was primarily the result of a lower price realizations on coal sold to the worldwide metallurgical market. Methane gas sales volumes were 6.3 billion cubic feet in the 1998 period versus 5.6 billion cubic feet in 1997. The average selling price per thousand cubic feet, which included a monthly reservation fee of $675,000 in both periods, was $3.70 in the 1998 period versus $4.04 in 1997. The Group's operating income of $30.0 million exceeded the prior year period by $15.9 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 ($36.13 per ton in the 1998 period versus $38.35 in 1997), partially offset by the reduced coal and methane gas 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 $6.2 million charge relating to a reduction in Jim Walter Resources' salaried workforce under a voluntary early retirement program, partially offset by 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 nine months ended February 28, 1997, Mine No. 5 was in development and while in development the mine's costs were capitalized ($21.9 million). Industrial Products Group sales and revenues were $7.6 million, or 3.5%, greater than the prior year period. The improved performance was the result of increased shipments of aluminum sheet products, foundry coke and slag wool, combined with higher selling prices for aluminum foil and sheet products and furnace and foundry coke. These increases were partially offset by decreased shipments of aluminum foil products and furnace coke, and lower selling prices for window components. Operating income of $14.2 million exceeded the prior year period by $1.3 million. The improved performance primarily resulted from the sales increases and higher gross profit margins realized on aluminum products, and slag wool. Cost of sales, exclusive of depreciation, of $871.5 million was 79.0% of net sales in the 1998 period versus $724.6 million and 79.1% in 1997. The slight percentage decrease reflected improved gross profit margins on home sales, coal, aluminum products and slag wool, partially offset by lower margins realized on pipe products and methane gas. Selling, general and administrative expenses of $119.4 million were 9.2% of net sales and revenues in the 1998 period versus $106.3 million and 9.6% in 1997. Interest and amortization of debt expense was $143.8 million in the 1998 period versus $136.6 million in 1997 reflecting higher outstanding debt balances. The average rate of interest in the 1998 period was 8.09% as compared to 8.10% in 1997. The prime rate of interest was 8.5% in the 1998 period compared to 8.25% in 1997. The Company's effective tax rate in the 1998 and 1997 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 1998 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 1998 period was $31.8 million compared to net income of $15.5 million in the 1997 period 16 reflecting all of the previously mentioned factors as well as lower postretirement health benefits in the current year period. Financial Condition Since May 31, 1997, total debt increased $417.8 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 financing with NationsBank. The financing consisted of a $350 million revolving credit facility ("Revolving Credit Facility") and a $450 million 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 February 28, 1998, borrowing under the $800 Million Credit Agreement totaled $682.9 million. In addition, there were $25.2 million face amount letters of credit outstanding thereunder. During the nine month period ended February 28, 1998, borrowings under Mid-State Trust V Variable Funding Loan Agreement totaled $152.0 million and debt assumed from acquisitions totaled $2.6 million. Scheduled payments on the Mid-State Trust II Mortgage-Backed Notes, the Mid-State Trust III Asset Backed Notes, the Mid-State Trust IV Asset Backed Notes and the Mid-State Trust VI Asset Backed Notes amounted to $65.3 million, $23.2 million, $50.7 million and $23.9 million, respectively. In addition, scheduled retirements of other long-term debt amounted to $.7 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 ended February 28, 1998. The Company was in compliance with these covenants at February 28, 1998 and believes it will meet these financial tests over the remaining term of this agreement. 17 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 February 28, 1998. Liquidity and Capital Resources At February 28, 1998, cash and cash equivalents, net of bank overdrafts, were approximately $21.3 million. Operating cash flows for the nine months ended February 28, 1998 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 February 28, 1998 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 $60.0 million. Because the Company's operating cash flow is significantly influenced by the general economy and, in particular, the level of construction, current results should not necessarily be used to predict the Company's liquidity, capital expenditures, investment in 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. 18 PART II - OTHER INFORMATION Item 1. LEGAL PROCEEDINGS See Note 7 of Notes to Consolidated Financial Statements contained in Part I - Financial Information. Item 6. EXHIBITS AND REPORTS (a) Exhibit 27 - Financial Data Schedule (b) On December 29, 1997, the Company filed an amended Current Report on Form 8-K/A with respect to the acquisition of the stock of Applied Industrial Materials Corporation. Such amendment included the financial statements and pro forma financial information required to be filed relative to the acquired stock. 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: April 14, 1998 ----------------- 19 EX-27 2 FDS
5 This schedule contains summary financial information extracted from the Consolidated Financial Statements and related notes thereto and is qualified in its entirety by reference to such financial statements and related notes. 1,000 9-MOS MAY-31-1998 JUN-01-1997 FEB-28-1998 39,791 264,356 1,553,300 (33,668) 309,676 0 1,167,113 (517,114) 3,507,475 0 2,483,393 0 0 551 330,069 3,507,475 1,103,464 1,301,224 871,546 177,405 44,967 (19) 143,814 63,511 (29,097) 34,414 0 (2,663) 0 31,751 .59 .58 This line item is not presented on the Consolidated Financial Statements.
-----END PRIVACY-ENHANCED MESSAGE-----