-----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, L2Rftbby0DTD7Sek+GQs4rnWO1BbUgroOamTSvGAcFgngweeNLcvJv7w/3XDlUr9 QfgYkWmM3cz8IAO4lqN0Iw== 0001047469-99-014819.txt : 19990415 0001047469-99-014819.hdr.sgml : 19990415 ACCESSION NUMBER: 0001047469-99-014819 CONFORMED SUBMISSION TYPE: 10-Q PUBLIC DOCUMENT COUNT: 2 CONFORMED PERIOD OF REPORT: 19990228 FILED AS OF DATE: 19990414 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: 99593505 BUSINESS ADDRESS: STREET 1: 1500 N DALE MABRY HWY CITY: TAMPA STATE: FL ZIP: 33607 BUSINESS PHONE: 8138714811 MAIL ADDRESS: STREET 1: 1500 N DALE MABRY HWY CITY: TAMPA STATE: FL ZIP: 33607 FORMER COMPANY: FORMER CONFORMED NAME: HILLSBOROUGH HOLDINGS CORP DATE OF NAME CHANGE: 19910814 10-Q 1 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, 1999 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 50,671,492 shares of common stock of the registrant outstanding at March 31, 1999. PART I - FINANCIAL INFORMATION WALTER INDUSTRIES, INC. AND SUBSIDIARIES CONSOLIDATED BALANCE SHEETS
February 28, May 31, 1999 1998 (unaudited) (audited) ----------- ----------- (in thousands, except share amounts) ASSETS Cash and cash equivalents $ 58,057 $ 54,647 Short-term investments, restricted 140,511 244,173 Marketable securities 22,534 39,064 Instalment notes receivable 4,188,391 4,238,745 Less - Allowance for possible losses (25,830) (26,221) Unearned time charges (2,869,284) (2,894,459) Trade and other receivables, less allowance for possible losses of $4,773 and $3,933, respectively 177,639 197,747 Inventories, at lower of cost (first in, first out or average) or market: Finished goods 164,361 158,276 Goods in process 43,194 36,876 Raw materials and supplies 39,867 45,539 Houses held for resale 3,584 3,153 Prepaid expenses 15,187 8,117 Property, plant and equipment, at cost 739,387 722,905 Less - Accumulated depreciation (345,974) (326,565) Deferred income taxes 47,451 59,581 Investments and other long-term assets 44,852 44,740 Unamortized debt expense 51,706 31,215 Goodwill, net 527,591 543,896 Assets held for disposition 324,695 381,241 ----------- ----------- $ 3,347,919 $ 3,562,670 =========== =========== LIABILITIES AND STOCKHOLDERS' EQUITY Book overdrafts $ 29,336 $ 24,867 Accounts payable 117,600 145,476 Accrued expenses 129,758 126,022 Income taxes payable 53,069 60,098 Short-term notes payable 5,400 5,800 Long-term senior debt: Mortgage-backed/asset-backed notes 1,723,422 1,886,167 Other senior debt 598,000 589,450 Accrued interest 28,235 27,147 Accumulated postretirement benefits obligation 268,582 283,708 Other long-term liabilities 60,135 54,848 Stockholders' equity Common stock - 200,000,000 authorized, $.01 par value Issued - 55,304,184 and 55,283,686 shares, respectively 553 553 Capital in excess of par value 1,169,377 1,169,052 Retained earnings (accumulated deficit) (766,657) (784,503) Cumulative foreign currency translation adjustment (46) (52) Treasury stock - 4,371,092 and 1,398,092 shares, at cost (64,700) (21,841) Excess of additional pension liability over unrecognized prior years service cost (4,122) (4,122) Net unrealized depreciation in marketable securities (23) -- ----------- ----------- Total stockholders' equity 334,382 359,087 ----------- ----------- $ 3,347,919 $ 3,562,670 =========== ===========
See accompanying Notes to Consolidated Financial Statements WALTER INDUSTRIES, INC. AND SUBSIDIARIES CONSOLIDATED STATEMENTS OF OPERATIONS (UNAUDITED)
For the three months ended February 28, -------------------------- 1999 1998 ----------- ----------- (in thousands, except per share amounts) Sales and revenues: Net sales $ 287,024 $ 311,069 Time charges 59,958 59,243 Miscellaneous 5,595 6,647 --------- --------- 352,577 376,959 --------- --------- Cost and expenses: Cost of sales 228,315 252,155 Depreciation 11,278 11,493 Selling, general and administrative 39,362 41,881 Postretirement benefits 1,929 1,661 Provision for possible losses 565 593 Interest and amortization of debt expense 45,754 50,903 Amortization of goodwill 10,243 10,515 --------- --------- 337,446 369,201 --------- --------- 15,131 7,758 Income tax benefit (expense): Current (13,588) 991 Deferred 5,363 (7,253) --------- --------- Income from continuing operations 6,906 1,496 Income (loss) from discontinued operation (net of income tax benefit (expense) of $14,597 and ($1,920), respectively) (17,832) 6,212 --------- --------- Net income (loss) $ (10,926) $ 7,708 ========= ========= Basic earnings per share: Income from continuing operations $ .14 $ .03 Income (loss) from discontinued operation (.35) .11 --------- --------- Net income (loss) $ (.21) $ .14 ========= ========= Diluted earnings per share: Income from continuing operations $ .14 $ .03 Income (loss) from discontinued operation (.35) .11 --------- --------- Net income (loss) $ (.21) $ .14 ========= =========
See accompanying Notes to Consolidated Financial Statements WALTER INDUSTRIES, INC. AND SUBSIDIARIES CONSOLIDATED STATEMENTS OF OPERATIONS (UNAUDITED)
For the nine months ended February 28, -------------------------- 1999 1998 ----------- ----------- (in thousands, except per share amounts) Sales and revenues: Net sales $ 983,188 $ 841,636 Time charges 185,130 177,331 Miscellaneous 19,144 18,666 ----------- ----------- 1,187,462 1,037,633 ----------- ----------- Cost and expenses: Cost of sales 789,947 678,642 Depreciation 33,746 31,504 Selling, general and administrative 122,096 112,431 Postretirement benefits 5,839 4,984 Provision for possible losses 660 (19) Interest and amortization of debt expense 139,234 143,737 Amortization of goodwill 32,341 29,578 Loss on sale of subsidiary 3,849 -- ----------- ----------- 1,127,712 1,000,857 ----------- ----------- 59,750 36,776 Income tax benefit (expense): Current (15,873) 6,161 Deferred (6,329) (29,163) ----------- ----------- Income from continuing operations 37,548 13,774 Income (loss) from discontinued operation (net of income tax benefit (expense) of $18,005 and ($6,095), respectively) (19,702) 20,640 Extraordinary item - Loss on early extinguishment of debt (net of income tax benefit of $1,434) -- (2,663) ----------- ----------- Net income $ 17,846 $ 31,751 =========== =========== Basic earnings per share: Income from continuing operations $ .72 $ .26 Income (loss) from discontinued operation (.38) .38 Extraordinary item -- (.05) ----------- ----------- Net income $ .34 $ .59 =========== =========== Diluted earnings per share: Income from continuing operations $ .72 $ .25 Income (loss) from discontinued operation (.38) .38 Extraordinary item -- (.05) ----------- ----------- Net income $ .34 $ .58 =========== ===========
See accompanying Notes to Consolidated Financial Statements WALTER INDUSTRIES, INC. AND SUBSIDIARIES CONSOLIDATED STATEMENT OF CHANGES IN STOCKHOLDERS' EQUITY (UNAUDITED)
Retained Accumulated Earnings Other Comprehensive (Accumulated Comprehensive Common Capital in Treasury Total Income Deficit) Income Stock Excess Stock -------- ----- --------- ------- ---- ---------- -------- Balance at May 31, 1998 $359,087 $ -- $(784,503) $(4,174) $553 $1,169,052 $(21,841) Comprehensive income Net income 17,846 17,846 17,846 Other comprehensive income, net of tax: Net unrealized depreciation in marketable securities (23) (23) Foreign currency translation adjustment 6 6 ------- Other comprehensive income (17) (17) ------- Comprehensive income $17,829 ======= Stock issued from options exercises 325 325 Purchases of treasury stock (42,859) (42,859) -------- --------- ------- ---- ---------- -------- Balance at February 28, 1999 $334,382 $(766,657) $(4,191) $553 $1,169,377 $(64,700) ======== ========= ======= ==== ========== ========
See accompanying Notes to Consolidated Financial Statements WALTER INDUSTRIES, INC. AND SUBSIDIARIES CONSOLIDATED STATEMENTS OF CASH FLOWS (UNAUDITED)
For the nine months ended February 28, -------------------------- 1999 1998 ----------- ----------- (in thousands) OPERATING ACTIVITIES Net income $ 17,846 $ 31,751 Charges to income not affecting cash: Depreciation 33,746 31,504 Provision for deferred income taxes 6,329 29,163 Accumulated postretirement benefits obligation (15,126) 11,460 Provision for (benefit from) other long-term liabilities 5,287 (720) Amortization of goodwill 32,341 29,578 Amortization of debt expense 5,207 5,084 Net unrealized depreciation in marketable securities (23) -- Loss on sale of subsidiary 3,849 -- Extraordinary item - Loss on early extinguishment of debt (net of income tax benefit) -- 2,663 ----------- ----------- 89,456 140,483 Decrease (increase) in assets, net of effects from acquisitions: Short-term investments, restricted 103,662 (29,750) Marketable securities 16,530 2,412 Instalment notes receivable, net (a) 24,788 3,099 Trade and other notes and accounts receivables, net 21,420 28,120 Inventories (13,070) (12,196) Prepaid expenses (7,596) (8,627) Assets held for disposition (b) 56,546 12,062 Increase (decrease) in liabilities, net of effects from acquisitions: Book overdrafts 4,469 (7,016) Accounts payable (30,618) (7,882) Accrued expenses 1,282 (10,972) Income taxes payable (1,775) (101) Accrued interest 1,088 2,084 ----------- ----------- Cash flows from operating activities 266,182 111,716 ----------- ----------- INVESTING ACTIVITIES Additions to property, plant and equipment, net of retirements (35,663) (35,403) (Increase) decrease in investments and other assets, net (213) 2,250 Proceeds from sale of subsidiary 14,878 -- Acquisitions, net of cash acquired (18,953) (403,006) ----------- ----------- Cash flows used in investing activities (39,951) (436,159) ----------- ----------- FINANCING ACTIVITIES Issuance of short-term notes payable and long-term senior debt 516,659 1,342,450 Retirement of short-term notes payable and long-term senior debt (671,254) (975,172) Additions to unamortized debt expense (25,698) (18,731) Purchases of treasury stock (42,859) (21,821) Exercise of employee stock options 325 1,125 ----------- ----------- Cash flows (used in) from financing activities (222,827) 327,851 ----------- ----------- EFFECT OF EXCHANGE RATE ON CASH 6 594 ----------- ----------- Net increase in cash and cash equivalents 3,410 4,002 Cash and cash equivalents at beginning of period 54,647 35,726 ----------- ----------- Cash and cash equivalents at end of period $ 58,057 $ 39,728 =========== ===========
(a) Consists of sales and resales, net of repossessions and provision for possible losses, of $123,945 and $128,503 and cash collections on account and payouts in advance of maturity of $148,733 and $131,602 respectively. (b) Includes non-cash charges of approximately $30.9 million from write-down of impaired assets. See accompanying Notes to Consolidated Financial Statements WALTER INDUSTRIES, INC. AND SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS FEBRUARY 28, 1999 (in thousands, except per share data) Note 1 - Principles of Consolidation Walter Industries, Inc. (the "Company") is a diversified holding company with four operating segments: Homebuilding and Financing, Water Transmission Products, Industrial Products and Energy Services. Through these operating segments, the Company offers a diversified line of products and services including home construction and financing, ductile iron pressure pipe, furnace and foundry coke, chemicals, slag fiber, aluminum foil and sheet products, petroleum coke and distribution and refinery outsourcing 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 February 28, 1999 and 1998 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. The results for the three and nine months ended February 28, 1999 and 1998 are not necessarily indicative of results for a full fiscal year. These financial statements should be read in conjunction with the Company's audited consolidated financial statements and notes thereto in the Company's Annual Report on Form 10-K for the year ended May 31, 1998. Unless otherwise specified, accounting principles and capitalized terms used herein are as defined in the aforementioned Form 10-K. Note 2 - Acquisitions and Divestitures On February 26, 1999, Jim Walter Homes, Inc., the Company's homebuilding subsidiary, acquired Crestline Homes, Inc., a modular homebuilder, located in Laurinburg, North Carolina. Effective October 1, 1998, Jim Walter Homes, Inc. acquired Texas-based builder Dream Homes, Inc. On October 1, 1998, the Company sold the assets of the window balance operations of JW Window Components, Inc. ("JWWC"). On November 23, 1998, the Company sold the outstanding capital stock of JWWC, which comprised the roll form and screen products operations. These transactions completed the Company's divestiture of JWWC. The Company recorded a pretax loss of $3,849 and a tax benefit of $10,528 on the sale of JWWC. On October 15, 1997, the Company completed the acquisition of AIMCOR, which, through its Carbon Group, is a leading international provider of products and outsourcing services to the petroleum, steel, foundry and aluminum industries. Through its Metals Group, AIMCOR is also a leading supplier of ferrosilicon in the southeastern United States. The purchase price was approximately $400.0 million, including direct acquisition costs of $4.8 million, and is subject to certain indemnity obligations of the parties as required by the Stock Purchase Agreement. The acquisition was accounted for using the purchase method of accounting and had an effective date of September 30, 1997. Note 3 - Discontinued Operation In February 1999, a decision was made to dispose of Jim Walter Resources ("JWR"), the Company's coal mining and methane gas subsidiary. The Company expects to complete the disposition within calendar 1999. As a result, the operations of JWR have been classified as a discontinued operation in the consolidated financial statements. JWR comprised substantially all of the Company's Natural Resources operating segment. In February 1999 (the measurement date), a decision was also made to shut down Blue Creek Mine No. 3 ("Mine No. 3"). The estimated costs to shut down the mine approximated $53 million. In addition, the Company realized a $25 million pre-tax gain from a reduction in JWR's postretirement benefit obligation resulting from a recent actuarial analysis of medical claims experience, a reduction in the workforce and the decision to close Mine No. 3. Both of the above items were recorded in the fiscal 1999 third quarter, net of taxes, within the results of discontinued operations prior to the measurement date. The following is a summary of the operating results of JWR prior to the measurement date:
Three months ended February 28, Nine months ended February 28, 1999 1998 1999 1998 --------- --------- --------- --------- Sales and revenues $ 63,853 $ 76,863 $ 237,056 $ 263,591 Costs and expenses 96,282 68,731 274,763 236,856 --------- --------- --------- --------- Income (loss) before tax (32,429) 8,132 (37,707) 26,735 Income tax benefit (expense) 14,597 (1,920) 18,005 (6,095) --------- --------- --------- --------- Income (loss) from discontinued operation $ (17,832) $ 6,212 $ (19,702) $ 20,640 ========= ========= ========= =========
The assets of JWR have been segregated on the balance sheet from their historical classification to separately identify them as assets held for disposition. Such amounts are summarized as follows: February 28, May 31, 1999 1998 --------- --------- Cash and cash equivalents $ 53 $ 62 Short-term investments, restricted 3,461 3,290 Trade and other receivables, net 23,131 26,944 Inventories 45,249 55,210 Prepaid expenses 1,866 4,039 Property, plant and equipment, net 220,270 259,808 Deferred income taxes 24,359 24,828 Investments and other long-term assets 6,306 7,060 --------- --------- Total Assets Held for Disposition $ 324,695 $ 381,241 ========= ========= The liabilities of JWR have not been classified separately pending determination of the form and structure of disposition. Management does not presently anticipate a loss on the ultimate disposition. Note 4 - Restricted Short-Term Investments Restricted short-term investments at February 28, 1999 and May 31, 1998 include (i) temporary investment of reserve funds and collections on instalment notes receivable owned by Mid-State Trusts II, III, IV, V, VI and Mid-State Trust VII ("Trust VII") (collectively the "Trusts") ($127.8 million and $125.3 million, respectively), which are available only to pay expenses of the Trusts and principal and interest on indebtedness of the Trusts, (ii) miscellaneous other segregated accounts restricted to specific uses ($12.7 million and $12.0 million, respectively), and (iii) certain funds held by Trust II that are in excess of the interest on the Trust II Mortgage-Backed Notes, but which were subject to retention at May 31, 1998 ($106.9 million). In June 1998, an agreement was reached with Financial Security Assurance, Inc. to release approximately $121.6 million of funds held by Trust II which were subject to retention at July 1, 1998. These funds were utilized to pay down Trust IV indebtedness. Note 5 - Instalment Notes Receivable and Mortgage Backed/Asset Backed Notes Mid-State Trusts II, III, IV, VI and VII are business trusts organized by Mid-State Homes, Inc. ("Mid-State Homes"), which owns all of the beneficial interest in Trusts III, IV, VI and VII. 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 Homes with the net proceeds from the issuance of mortgage or asset-backed notes. The assets of Trusts II, III, IV, VI and VII, 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, VI and VII 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. Trust V, a business trust in which Mid-State Homes holds all the beneficial interest, was organized to hold instalment notes receivable as collateral for borrowings to provide temporary financing to Mid-State Homes for its current purchases of instalment notes and mortgages from Jim Walter Homes. On December 10, 1998, Mid-State Homes purchased from Trust V instalment notes having a gross value of $858.7 million and an economic balance of $335.3 million. Mid-State Homes subsequently sold these notes to Trust VII, a business trust organized by Mid-State Homes. These sales were in exchange for the net proceeds from the public issuance of $313.5 million of Asset Backed Notes by Trust VII ("Trust VII Asset Backed Notes"). The notes were issued in a single class and bear interest at 6.34% payable quarterly beginning March 15, 1999. The notes have a final maturity of December 15, 2036. The $313.5 million in proceeds were primarily used to repay related asset-backed borrowings of $284.0 million under the Trust V warehouse facility. Lehman Brothers, Inc., an affiliate of Lehman Brothers Holdings, Inc., which owned 2.8 million shares of the Company's common stock at February 28, 1999, served as an underwriter in connection with the public issuance of the Trust VII Asset Backed Notes and received underwriting commissions and fees of $1.3 million. The gross amount of instalment notes receivable, the economic balance and long-term debt outstanding by trust are as follows: February 28, 1999 --------------------------------------------------- Gross Balance Economic Balance Debt Outstanding ------------- ---------------- ---------------- Trust II $ 656,667 $ 422,905 $ 274,550 Trust III 269,043 151,019 57,187 Loan & Security Agreement -- -- 86,300 Trust IV 1,267,346 579,543 602,282 Trust V 180,016 68,361 20,000 Trust VI 958,789 389,952 369,615 Trust VII 835,934 328,674 313,488 Unpledged 20,596 7,946 -- ---------- ---------- ---------- Total $4,188,391 $1,948,400 $1,723,422 ========== ========== ========== At May 31, 1998, the Company had forward-interest rate lock agreements which fixed the interest rates on a portion of asset-backed long-term debt anticipated to be issued by Mid-State Homes in October 1998. The lock agreements in effect at May 31, 1998 were terminated on October 9, 1998. The losses incurred ($24.0 million) were deferred and are being amortized to interest expense over the life of the Trust VII Asset Backed Notes. Note 6 - Stockholders' Equity In September 1998, the Company's Board of Directors authorized an increase, from two to four million, in the number of shares of the Company's common stock which may be repurchased under the share repurchase program authorized in July 1998. Information relating to the Company's share repurchases under this program is set forth below (in thousands): Shares Amount ------ ------ Three months ended February 28, 1999 318 $ 4,711 ------- ------- Nine months ended February 28, 1999 2,973 $42,859 ======= ======= Note 7 - Earnings Per Share Shares of common stock outstanding used in the basic and diluted per share computations for the three months and nine months ended February 28, 1999 and 1998 are as follows: Three months ended February 28, --------------------------------- 1999 1998 --------------- --------------- Basic Diluted Basic Diluted ------ ------ ------ ------ Average number of common shares outstanding (a) 51,024 51,024 53,706 53,706 Effect of diluted securities: Stock options (b)(c) -- -- -- 869 ------ ------ ------ ------ 51,024 51,024 53,706 54,575 ====== ====== ====== ====== Nine months ended February 28, --------------------------------- 1999 1998 --------------- --------------- Basic Diluted Basic Diluted ------ ------ ------ ------ Average number of common shares outstanding (a) 51,980 51,980 53,842 53,842 Effect of diluted securities: Stock options (b)(c) -- 200 -- 869 ------ ------ ------ ------ 51,980 52,180 53,842 54,711 ====== ====== ====== ====== (a) For the three and nine months ended February 28, 1999 and 1998 include 3,880 additional shares issued to an escrow account on September 13, 1995 pursuant to the Consensual Plan, but does not include 4,371 and 1,398 shares, respectively, 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 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. (c) For the three months and nine months ended February 28, 1999, does not include 3,853 and 906 shares, respectively, subject to options because such options would have an anti-dilutive effect in such period. Note 8 - Segment Information Information relating to the Company's operating segments is set forth below: Three months ended February 28, ------------------------- 1999 1998 --------- --------- Sales and revenues: Homebuilding and Financing $ 110,507 $ 108,219 Water Transmission Products 87,673 84,482 Industrial Products 69,280 72,538 Energy Services 83,360 109,461 Corporate 1,757 2,259 --------- --------- Consolidated sales and revenues from continuing operations $ 352,577 $ 376,959 ========= ========= Operating income (a) : Homebuilding and Financing (b) $ 25,287 $ 22,965 Water Transmission Products 6,593 (2,892) Industrial Products 5,155 4,540 Energy Services 2,974 10,826 --------- --------- Operating income 40,009 35,439 Less: General corporate expense (b) (3,969) (4,957) Senior debt interest expense (b) (9,621) (12,350) Intercompany interest expense (b) (11,288) (10,374) --------- --------- Income before tax expense 15,131 7,758 Income tax expense (8,225) (6,262) --------- --------- Income from continuing operations $ 6,906 $ 1,496 ========= ========= (a) Operating income amounts are after deducting amortization of goodwill. A breakdown of goodwill amortization by segment is as follows: Three months ended February 28, ----------------------- 1999 1998 -------- -------- Homebuilding and Financing $ 6,121 $ 6,482 Water Transmission Products 3,012 3,011 Industrial Products 158 160 Energy Services 2,127 2,037 Corporate (1,175) (1,175) -------- -------- $ 10,243 $ 10,515 ======== ======== (b) Interest and amortization of debt expense incurred by the Homebuilding and Financing segment and Corporate is as follows: Three months ended February 28, --------------------- 1999 1998 -------- -------- Homebuilding and Financing: Gross interest $ 36,133 $ 38,553 Less: Intercompany interest income (11,288) (10,374) -------- -------- Net interest 24,845 28,179 Corporate: Senior debt interest 9,621 12,350 Intercompany interest 11,288 10,374 -------- -------- $ 45,754 $ 50,903 ======== ======== General corporate expense, senior debt interest expense and intercompany interest expense are attributable to all operating segments, but cannot be reasonably allocated to specific segments. Nine months ended February 28, ---------------------------- 1999 1998 ----------- ----------- Sales and revenues: Homebuilding and Financing $ 334,696 $ 332,782 Water Transmission Products 338,514 309,009 Industrial Products 235,615 223,389 Energy Services 270,191 165,856 Corporate 8,446 6,597 ----------- ----------- Consolidated sales and revenues from continuing operations $ 1,187,462 $ 1,037,633 =========== =========== Operating income (a) : Homebuilding and Financing (b) $ 82,180 $ 65,876 Water Transmission Products 22,229 8,047 Industrial Products 14,134 14,220 Energy Services 13,670 12,767 ----------- ----------- Operating income 132,213 100,910 Less: General corporate expense (b) (7,440) (8,154) Senior debt interest expense (b) (30,758) (26,999) Intercompany interest expense (b) (34,265) (28,981) ----------- ----------- Income before tax expense 59,750 36,776 Income tax expense (22,202) (23,002) ----------- ----------- Income from continuing operations $ 37,548 $ 13,774 =========== =========== (a) Operating income amounts are after deducting amortization of goodwill. A breakdown of goodwill amortization by segment is as follows: Nine months ended February 28, ----------------------- 1999 1998 -------- -------- Homebuilding and Financing $ 19,667 $ 20,060 Water Transmission Products 9,136 9,138 Industrial Products 477 480 Energy Services 6,629 3,466 Corporate (3,568) (3,566) -------- -------- $ 32,341 $ 29,578 ======== ======== (b) Interest and amortization of debt expense incurred by the Homebuilding and Financing segment and Corporate is as follows: Nine months ended February 28, ----------------------- 1999 1998 --------- --------- Homebuilding and Financing: Gross interest $ 108,476 $ 116,738 Less: Intercompany interest income (34,265) (28,981) --------- --------- Net interest 74,211 87,757 Corporate: Senior debt interest 30,758 26,999 Intercompany interest 34,265 28,981 --------- --------- $ 139,234 $ 143,737 ========= ========= General corporate expense, senior debt interest expense and intercompany interest expense are attributable to all operating segments, but cannot be reasonably allocated to specific segments. MANAGEMENT'S DISCUSSION AND ANALYSIS OF RESULTS OF OPERATIONS AND FINANCIAL CONDITION The Company completed the acquisition of Applied Industrial Materials Corporation ("AIMCOR") on October 15, 1997. AIMCOR is a leading international provider of products and outsourcing services to the petroleum, steel, foundry and aluminum industries. AIMCOR is also a leading supplier of ferrosilicon in the southeastern United States (see Note 2 of "Notes to Consolidated Financial Statements"). Net sales and revenues and operating income for AIMCOR are reflected in the Company's Energy Services operating segment. In February 1999, the decision was made to dispose of Jim Walter Resources ("JWR"), the Company's coal mining and methane gas subsidiary. JWR comprised substantially all of the Company's Natural Resources segment. The operations of JWR have been classified as a discontinued operation in the consolidated financial statements. The decision was also made to shut down Blue Creek Mine No. 3. The estimated cost to shut down the mine was approximately $53 million. In addition, the Company realized a $25 million pre-tax gain from a reduction in JWR's postretirement benefit obligation resulting from a recent actuarial analysis of medical claims experience, a reduction in the workforce and the decision to close Mine No. 3. Both of the above items were recorded in the fiscal 1999 third quarter, net of taxes, within the results of discontinued operations prior to the measurement date. RESULTS OF OPERATIONS Three Months ended February 28, 1999 and 1998 Sales and revenues for the three months ended February 28, 1999 were $24.4 million below the prior year period, a 6% decrease. The decrease was the result of lower sales and revenues from the Company's Industrial Products and Energy Services segments. Cost of sales, exclusive of depreciation, of $228.3 million was 79.5% of net sales in the 1999 period versus $252.2 million and 81.0 % in 1998. The improvement principally reflected higher gross profit margins realized on pipe and aluminum products. Selling, general and administrative expenses of $39.4 million were 11.2% of net sales and revenues in the 1999 period compared to $41.9 million and 11.1% in 1998. Interest and amortization of debt expense was $45.8 million in the 1999 period versus $50.9 million in 1998 as a result of lower interest rates and lower average outstanding debt balances. The average rate of interest in the 1999 period was 7.42% as compared to 7.84% in 1998. The average prime rate of interest was 7.75% and 8.5% in the 1999 and 1998 periods, respectively. The Company's effective tax rate in the 1999 and 1998 periods differed from the statutory tax rate primarily due to amortization of goodwill (excluding such amounts related to the AIMCOR acquisition), which is not deductible for tax purposes. The net loss in the 1999 period was $10.9 million, including an after-tax loss of $17.8 million from the discontinued operations of Jim Walter Resources. This compared to net income of $7.7 million in the 1998 period which included after-tax income of $6.2 million from the discontinued operations of Jim Walter Resources. The Company's diluted loss per share was $.21 compared to last year's diluted earnings per share of $.14. The increase in earnings adjusted for the results of the discontinued operation approximates $5.4 million which reflects all of the factors discussed in the following segment analysis. Segment Analysis: Homebuilding and Financing sales and revenues of $110.5 million were 2.1% above the prior year period. This performance reflects a 6.7% increase in the average net selling price per home sold, from $49,500 in the 1998 period to $52,800 in 1999, as well as an increase in the number of units sold, from 856 units in the 1998 period to 864 units in 1999. The higher average selling price is primarily attributable to price increases instituted to compensate for higher building material and labor costs, coupled with consumer preference for new and more upscale models and amenities being offered by Jim Walter Homes. The increase in unit sales resulted from the new home designs as well as more targeted marketing and advertising programs. Jim Walter Homes' backlog at February 28, 1999 was 2,401 units compared to 1,894 units at February 28, 1998. Time charge income (revenues received from Mid-State Homes' instalment note portfolio) increased from $59.2 million in the 1998 period to $60.0 million in 1999. The increase is attributable to increased payoffs received in advance of maturity and to an increase in the average balance per account in the portfolio, partially offset by a reduction in the total number of accounts. The aggregate amount of instalment notes receivable having at least one payment 90 or more days delinquent was 3.56% of the total instalment notes receivable in the 1999 period compared to 3.35% in the prior year period. The allowance for possible losses as a percentage of net instalment notes receivable was approximately 2.0% for both periods, which reflects management's assessment of the amount necessary to provide against future loss in the portfolio. Operating income of $25.3 million (net of interest expense) was $2.3 million greater than the prior year period, reflecting higher time charge income, the increase in the average net selling price per home sold, an increase in units sold and lower interest expense in the 1999 period ($24.8 million) as compared to the prior year period ($28.2 million). Water Transmission Products sales and revenues of $87.7 million were 3.8% above the prior year period. The increase was the result of increased shipments for ductile iron pressure pipe fittings, valves and hydrants and higher average selling prices for ductile iron pressure pipe. Ductile iron pressure pipe shipments of 104,300 tons were 2% greater than the prior year period. The order backlog at February 28, 1999 was 124,000 tons, representing approximately three months shipments, compared with 135,000 tons at February 28, 1998, which included 26,000 tons remaining in a large international contract that was fulfilled in the fall of 1998. Operating income of $6.6 million was $9.5 million above the prior year period. This performance was the result of the previously mentioned increase in sales and revenues, improved gross profit margins realized due to lower raw material costs (primarily scrap iron) and improved operating efficiencies. Industrial Products sales and revenues of $69.3 million were 4.5% lower than the prior year period. The decline is attributable to $7.0 million in revenues included in the prior year from JW Window Components, a former subsidiary that was sold in November 1998. Operating income of $5.2 million was above the prior year period by $.6 million. This performance resulted from an increase in sales due to higher shipments and higher gross profit margins realized on aluminum foil and sheet products, partially offset by lower gross profit margins on furnace coke. Energy Services sales and revenues of $83.4 million were 23.8% below the prior year period. Operating income of $3.0 million was $7.9 million lower than the prior year period. Unfavorable sales and earnings comparisons were attributable to two principal factors: a decline in U.S. and European steel production which affected pricing and demand for petroleum coke and specialty metal products; and a temporary slowdown in petroleum coke shipments and higher bulk handling costs at the Texas Gulf Coast terminals and services operations, principally caused by equipment problems following last fall's intense tropical storm activity in that region. Nine Months ended February 28, 1999 and 1998 Sales and revenues for the nine months ended February 28, 1999 were $149.8 million above the prior year period, representing a 14.4% increase of which $104.3 million, or 70%, was attributable to AIMCOR. In addition to the contribution from AIMCOR, the increase was the result of improved performances from all other operating segments. Cost of sales, exclusive of depreciation, of $789.9 million was 80.3% of net sales in the 1999 period versus $678.6 million and 80.6% in 1998. The percentage decrease principally reflected improved gross profit margins realized on homes sold, pipe and aluminum products. Selling, general and administrative expenses of $122.1 million were 10.3% of net sales and revenues in the 1999 period versus $112.4 million and 10.8% in 1998. Interest and amortization of debt expense was $139.2 million in the 1999 period versus $143.7 million in 1998 as a result of lower interest rates and lower average outstanding debt balances. The average rate of interest in the 1999 period was 7.48% as compared to 8.09% in 1998. The average prime rate of interest was 8.14% and 8.50% in the 1999 and 1998 periods, respectively. The Company's effective tax rate in the 1998 and 1999 periods differed from the statutory tax rate primarily due to amortization of goodwill (excluding such amounts related to the AIMCOR acquisition), which is not deductible for tax purposes. Additionally, in the 1999 period, the Company's effective tax rate differed from the statutory rate as a result of a $10.5 million non-recurring tax benefit recognized on the sale of JWWC. Net income in the 1999 period was $17.8 million, including an after-tax loss of $19.7 million from the discontinued operations of Jim Walter Resources and an after-tax gain of $6.7 million from the sale of JWWC. This compared to net income of $31.8 million in the 1998 period, which included an after-tax gain of $20.6 million from the discontinued operations of Jim Walter Resources and a $2.7 million extraordinary loss from the write-off of unamortized debt expense related to the refinancing of bank credit facilities in conjunction with the Company's October 1997 acquisition of AIMCOR. The Company's diluted earnings per share were $.34 compared to $.58 for the nine months ended February 28, 1998. The increase in earnings adjusted for the results of the discontinued operations, the sale of JWWC and the extraordinary item approximates $16.9 million, which reflects all of the factors discussed in the following segment analysis. Segment Analysis: Homebuilding and Financing sales and revenues of $334.7 million were 0.6% above the prior year period. This performance reflects a 6.4% increase in the average net selling price, from $48,400 in the 1998 period to $51,500 in 1999, which was more than offset by a decrease in the number of units sold, from 2,813 units in the 1998 period to 2,596 units in 1999. The higher average selling price is primarily attributable to price increases instituted to compensate for higher building material and labor costs, coupled with consumer preference for new and more upscale models and amenities being offered by Jim Walter Homes. The decrease in unit sales resulted from continuing intense competition from local and regional homebuilders as well as labor shortages due to high demand for subcontractors and construction crews during the first six months of fiscal 1999. Time charge income (revenues received from Mid-State Homes' instalment note portfolio) increased from $177.3 million in the 1998 period to $185.1 million in 1999. The increase is attributable to increased payoffs received in advance of maturity and 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 $82.2 million (net of interest expense) was $16.3 million greater than the prior year period, reflecting higher time charge income, the increase in the average net selling price per home sold and lower interest expense in the 1999 period ($74.2 million) compared to the prior year period ($87.8,million), partially offset by the decrease in the number of homes sold. Water Transmission Products sales and revenues of $338.5 million were 9.5% above the prior year period. The increase was the result of increased shipments of ductile iron pressure pipe, fittings, valves and hydrants and higher average selling prices for ductile iron pressure pipe. Ductile iron pressure pipe shipments of 431,000 tons were 7.9% greater than the prior year period. Operating income of $22.2 million was $14.2 million above the prior year period. This performance was the result of the previously mentioned increase in sales and revenues, improved gross profit margins realized due to lower raw material costs (primarily scrap iron) and improved operating efficiencies. Industrial Products sales and revenues of $235.6 million were 5.5% greater than the prior year period. The improved performance was the result of increased shipments of aluminum foil and sheet products, foundry coke, and metal building and foundry products, coupled with improved selling prices for furnace and foundry coke and slag fiber, partially offset by lower selling prices for aluminum foil and sheet products. Operating income of $14.1 million was $0.1 million lower than in the prior year period. This performance resulted from the pre-tax loss on the sale of JWWC, partially offset by sales increases and higher gross profit margins realized on aluminum products, foundry coke and metal building and foundry products. FINANCIAL CONDITION Total debt has been reduced $154.6 million since May 31, 1998. Scheduled payments on the mortgage-backed/asset-backed notes amounted to $446.6 million. In addition, $121.6 million of funds held by Trust II, which were subject to retention at July 1, 1998, were utilized to pay down Trust IV indebtedness, pursuant to an agreement reached with Financial Security Assurance, Inc. Scheduled retirements of other long-term debt amounted to $26.5 million. Also during the current nine month period, net borrowings under Trust VII, Mid-State Variable Funding Loan Agreements and the Credit Facilities totaled $405.5 million and $34.6 million, respectively. Borrowings under the Credit Facilities totaled $603.4 million at February 28, 1999. The Revolving Credit Facility includes a sub-facility for trade and other standby letters of credit in an amount up to $75.0 million at any time outstanding. There were $25.6 million face amount of letters of credit outstanding thereunder as of February 28, 1999. The Credit Facilities contain a number of significant covenants that, among other things, restrict the ability of the Company and its subsidiaries to dispose of assets, incur additional indebtedness, pay dividends, create liens on assets, enter into capital leases, make investments or acquisitions, engage in mergers or consolidations, or engage in certain transactions with subsidiaries and affiliates and otherwise restrict corporate activities (including change of control and asset sale transactions). In addition, under the Credit Facilities, the Company is required to maintain specified financial ratios and comply with certain financial tests, including fixed charge coverage ratios and maximum leverage ratios. The borrowers are required to maintain a leverage ratio (the ratio of indebtedness to consolidated EBITDA (as defined in the Credit Facilities)) of not more than 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-to-1 at the end of each Four Quarter Period (as defined in the Credit Facilities) ended February 28, 1999 and at least 1.25-to-1 at the end of each four quarter period for the duration of the Credit Facilities. The Company was in compliance with these covenants at February 28, 1999. 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, 1999. The Loan and Security Agreement contains a number of covenants that, among other things, restrict the ability of Mid-State Homes to dispose of assets, create liens on assets, engage in mergers, incur any unsecured or recourse debt, or make changes to their credit and collection policy. In addition, Mid-State Homes is required to maintain specified net income and net worth levels. The Company was in compliance with these covenants at February 28, 1999. LIQUIDITY AND CAPITAL RESOURCES Cash and cash equivalents, net of book overdrafts, were approximately $28.7 million at February 28, 1999. Operating cash flows for the nine months ended February 28, 1999, together with issuance of long-term debt under Trust VII and Trust V Variable Funding Loan Agreement, borrowings under the Credit Facilities and the use of available cash balances, were primarily used for retirement of long-term senior debt, interest payments, capital expenditures and to purchase approximately 3.0 million shares of common stock during the nine months ended February 28, 1999. In September 1998, the Company's Board of Directors authorized an increase, from two to four million, in the number of shares of the Company's common stock which may be repurchased under its stock repurchase program. Working capital is required to fund adequate levels of inventories and accounts receivable. Commitments for capital expenditures at February 28, 1999 were not significant; however, it is estimated that gross capital expenditures of the Company and its subsidiaries for the remaining three months of the fiscal year ending May 31, 1999 will approximate $38.3 million. Because the Company's operating cash flow is significantly influenced by the general economy and, in particular, levels of domestic construction activity, current results should not necessarily be used to predict the Company's liquidity, capital expenditures, investment in instalment notes receivable or results of operations. The Company believes that the 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 Homes asset-backed financings will be required over the next several years to repay borrowings under the 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 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 and to repurchase up to an additional 1.0 million shares of the Company's common stock, the amount remaining at February 28, 1999 under the current authorization. YEAR 2000 Introduction The Company is currently working to resolve the potential impact of the Year 2000 ("Y2K") on the processing of date-sensitive information by the Company's computerized information systems. The Y2K problem is the result of computer programs being written using two digits (rather than four) to define the applicable year. Any of the Company's programs that have time-sensitive software may recognize a date using "00" as the year 1900 rather than the year 2000, which could result in miscalculations or system failures. The problems created by using abbreviated dates appear in hardware (such as microchips), operating systems and other software programs. The Company's Y2K compliance project is intended to determine the readiness of the Company's business for the year 2000. The Company defines Y2K "compliance" to mean that the computer code will process all defined future dates properly and give accurate results. Description of Areas of Impact and Risk The Company has identified three areas where the Y2K problem creates risk to the Company. These areas are : a) internal Information Technology ("IT") systems; b) non-IT systems with embedded chip technology; and c) system capabilities of third party businesses with relationships with the Company, including product suppliers, customers, service providers (such as telephone, power, logistics, financial services) and other businesses whose failure to be Y2K compliant could have a material adverse effect on the Company's business, financial condition or results of operations. Plan to Address Year 2000 Compliance The Company has established a Corporate Steering Committee (the "Committee") to coordinate solutions to Y2K issues for its information systems. The Committee includes a representative from each subsidiary as well as a member of the Company's Law Department, the Director of Information Technology and the Chief Financial Officer. Each subsidiary also has a steering committee consisting of the representative on the Committee and other members from all functional areas of the respective subsidiary. The Committee has identified systems and applications that require modification and has evaluated alternative solutions. The Committee also developed a Y2K Standard that was issued to all subsidiaries and must be followed for Y2K compliance. Status conference calls are held monthly and on-site progress reviews are held quarterly. The Company has two data centers which have installed Y2K compliant mainframe equipment, operating systems and system software. Separate virtual machines within a computer have been installed for the purpose of testing. During the first calendar quarter of 1999, the Company conducted a detail review of all Year 2000 remediation activities and associated required documentation to ensure the process was on schedule. State of Readiness IT Systems - The initial inventory and prioritization process for the Company's IT systems has been completed. The Company's current focus in this area is on remediation and testing. Approximately 30% of all identified IT system business components have been deemed compliant as of March 31, 1999. Coding changes for all legacy systems have been completed and the testing phase is in process. The Y2K test environment is fully functional. Compliance testing will continue through 1999 and will be completed in a phase approach beginning with the financial systems in June 1999. Personal computer and other hardware upgrades are 85% complete with the remainder on order. Non-IT systems - Non-IT systems consist of any device which is able to store and report date-related information, such as access control systems, elevators, conveyors, and other items containing a microprocessor or internal clock. The plan utilized by the Company for analysis of the IT systems is also being used for non-IT systems. The Company currently plans to complete the Y2K compliance program for all material non-IT systems by November 1999. Material Third Parties - The Company has created an inventory of what it believes to be all material third parties with whom the Company has a business relationship in the United States. Y2K readiness surveys were sent to these third parties beginning in January 1998. The Company is currently reviewing the responses to these surveys to determine the Y2K readiness of these third parties. For those critical third party suppliers, service providers and customers that fail to respond to the Company's survey, the Company intends to pursue alternative means of obtaining Y2K readiness information, such as review of publicly available information published by such third parties. The Company has also implemented this same approach to third party Y2K readiness at the Company's foreign subsidiaries. The Company plans to continue to review its third party relationships throughout the Y2K compliance program to ensure all material third party relationships are addressed. Contingency Planning and Risks Contingency plan guidelines have been developed by the Committee and provided to each subsidiary. Contingency plans are currently being prepared at all subsidiaries. On-site reviews of written contingency plans will be conducted throughout calendar 1999. While the Company believes that its approach to Y2K readiness is sound, it is possible that some business components may not be identified in the inventory, or that the scanning or testing process may not result in analysis and remediation of all source code. The Company will assume a third party is not Y2K ready if no Y2K verification is obtained. The Company's contingency plan will address alternative providers and processes to deal with business interruptions that may be caused by the internal system or by the failure of third party providers to be Y2K ready to the extent possible. The failure to correct a material Y2K problem could result in an interruption in, or a failure of, certain normal business activities or operations. Such failure could materially and adversely affect the Company's results of operations, liquidity and financial condition. Cost of Project The overall cost of the Company's Y2K compliance effort is estimated to be approximately $12.2 million based on information currently available. EURO CONVERSION On January 1, 1999, eleven of the fifteen member countries of the European Union commenced conversion from their existing sovereign currencies to a new, single currency called the euro. Fixed conversion rates between the existing currencies, the legacy currencies, and the euro will be established and the euro will become the common legal currency of the participating countries on this date. The euro will then trade on currency exchanges and will be available for non-cash transactions. The participants will issue sovereign debt exclusively in euro and will, redenominate outstanding sovereign debt at this time. Following this introduction period, the participating members legacy currencies will remain legal tender as denominations of euro until January 1, 2002. At that time, countries will issue new euro-denominated bills for use in cash transactions. All legacy currency will be withdrawn prior to July 1, 2002, completing the euro conversion on this date. As of January 1, 1999, the participating countries no longer will control their own monetary policies by directing independent interest rates for the legacy currencies; instead, the authority to direct monetary policy, including money supply and official interest rates for the euro, will be exercised by the new European Central Bank. The Company has established a plan to address the issues raised by the euro conversion. These issues include, but are not limited to: the competitive impact created by cross-border price transparency; the need for the company and its business partners to adapt IT and non-IT systems to accommodate euro-denominated transactions; and the need to analyze the legal and contractual implications of the Company's contracts. The Company currently anticipates that the required modifications to its systems, equipment and processes will be made on a timely basis and does not expect that the costs of such modifications will have a material effect on the Company's financial position or results of operations. NEW ACCOUNTING PRONOUNCEMENTS In June 1997, Statement of Financial Accounting Standards No. 131 - "Disclosures about Segments of an Enterprise and Related Information" ("FAS 131") was issued. FAS 131 became effective for fiscal years beginning after December 15, 1997 and can be adopted at the end of the fiscal year (fiscal 1999 for the Company). This statement establishes standards for reporting information about operation segments in annual financial statements and interim financial reports to shareholders. As a result of the reclassification of Jim Walter Resources as a discontinued operation, the Natural Resources segment was eliminated in the third quarter of fiscal 1999. The Company anticipates further changes to its operating segments in the fourth quarter of fiscal 1999 as a result of implementing FAS 131. In February 1998, Statement of Financial Accounting Standards No. 132 - -"Employers' Disclosures about Pensions and Other Postretirement Benefits" ("FAS 132") was issued. FAS 132 becomes effective for fiscal years beginning after December 15, 1997 (fiscal 1999 for the Company). This statement revises employers' disclosures about pension and other postretirement benefit plans. The Company believes that the adoption of the above standard will not materially affect its financial performance or reporting. 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. PART II - OTHER INFORMATION Item 1. Legal Proceedings A substantial controversy exists with regard to federal income taxes allegedly owed by the Company. See "Note 7 - Income Taxes" of Notes to Consolidated Financial Statements contained in the Company's Annual Report on Form 10-K for the year ended May 31, 1998. The Company and its subsidiaries are parties to a number of other lawsuits arising in the ordinary course of their businesses. Most of these cases are in a preliminary stage and the Company is unable to predict a range of possible loss, if any. The Company provides for costs relating to these matters when a loss is probable and the amount is reasonably estimable. The effect of the outcome of these matters on the Company's future results of operations cannot be predicted because any such effect depends on future results of operations and the amount and timing of the resolution of such matters. While the results of litigation cannot be predicted with certainty, the Company believes that the final outcome of such other litigation will not have a materially adverse effect on the Company's consolidated financial condition. Item 6. Exhibits and Reports on Form 8-K (a) Exhibit 27 - Financial Data Schedule (b) On March 16, 1999, the Company filed a report on Form 8-K with respect to a decision to dispose of Jim Walter Resources, Inc. 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, 1999 EX-27 2 EXHIBIT 27
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-31-1999 JUN-01-1998 FEB-28-1999 58,057 163,045 1,501,519 (30,603) 251,006 0 739,387 (345,974) 3,347,919 0 2,326,822 553 0 0 333,829 3,347,919 983,188 1,187,462 789,947 155,842 42,029 660 139,234 59,750 22,202 37,548 (19,702) 0 0 17,846 .34 .34 This line item is not presented on the Consolidated Financial Statements.
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