-----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, PjMd0QUShgzq8hBSgnOy+hbXHrLRVNqPBr/OC3OhCTdCBfR2cGoVSMGQNAQVyEB2 A7K9Rz1jp8J3dB+na1CBqw== 0001047469-99-038391.txt : 19991018 0001047469-99-038391.hdr.sgml : 19991018 ACCESSION NUMBER: 0001047469-99-038391 CONFORMED SUBMISSION TYPE: 10-Q PUBLIC DOCUMENT COUNT: 4 CONFORMED PERIOD OF REPORT: 19990831 FILED AS OF DATE: 19991012 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: 99726164 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 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 August 31, 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 50,035,759 shares of common stock of the registrant outstanding at September 30, 1999. PART I - FINANCIAL INFORMATION WALTER INDUSTRIES, INC. AND SUBSIDIARIES CONSOLIDATED BALANCE SHEETS
August 31, May 31, 1999 1999 (UNAUDITED) (AUDITED) ----------- ----------- ASSETS (in thousands) - ------ Cash and cash equivalents $ 51,092 $ 40,783 Short-term investments, restricted 146,229 145,658 Marketable securities 30,774 4,803 Instalment notes receivable 4,207,966 4,191,138 Less -Allowance for possible losses (25,886) (25,813) Unearned time charges (2,889,345) (2,874,556) Trade receivables, less allowance for possible losses of $3,691 and $3,337, respectively 193,745 193,397 Other receivables 17,465 14,996 Inventories Finished goods 140,476 152,806 Goods in process 49,669 44,178 Raw materials and supplies 46,701 44,612 Houses held for resale 3,521 3,377 Prepaid expenses 11,969 9,270 Property, plant and equipment, net 399,555 398,591 Deferred income taxes 26,660 36,857 Investments and other long-term assets 47,786 47,002 Unamortized debt expense 48,655 50,623 Goodwill, net 508,251 518,575 Assets held for disposition 351,450 365,729 ----------- ----------- $ 3,366,733 $ 3,362,026 =========== =========== LIABILITIES AND STOCKHOLDERS' EQUITY Book overdrafts $ 33,697 $ 33,579 Accounts payable 119,658 125,846 Accrued expenses 112,936 135,959 Income taxes payable 53,534 53,032 Short-term notes payable -- 2,200 Long-term senior debt Mortgage-backed/asset-backed notes 1,752,473 1,758,151 Other senior debt 582,850 553,000 Accrued interest 24,668 25,670 Accumulated postretirement benefits obligation 274,185 270,409 Other long-term liabilities 61,317 61,261 Stockholders' equity Common stock - 200,000,000 authorized, $.01 par value Issued - 55,306,851 shares and 55,304,184 shares 553 553 Capital in excess of par value 1,169,410 1,169,377 Accumulated deficit (736,824) (748,905) Treasury stock - 5,271,092 and 4,992,292 shares, at cost (75,799) (72,078) Cumulative foreign currency translation adjustment (234) (341) Excess of additional pension liability over unrecognized prior years service cost (5,621) (5,621) Net unrealized depreciation in marketable securities (70) (66) ----------- ----------- Total stockholders' equity 351,415 342,919 ----------- ----------- $ 3,366,733 $ 3,362,026 =========== ===========
See accompanying Notes to Consolidated Financial Statements 2 WALTER INDUSTRIES, INC. AND SUBSIDIARIES CONSOLIDATED STATEMENTS OF OPERATIONS (UNAUDITED)
For the three months ended AUGUST 31, ---------------------- 1999 1998 --------- --------- (in thousands, except per share amounts) Sales and revenues: Net sales $ 334,674 $ 338,861 Time charges 58,316 64,231 Miscellaneous 4,209 5,460 --------- --------- 397,199 408,552 --------- --------- Cost and expenses: Cost of sales 258,781 273,591 Depreciation 11,046 10,823 Selling, general and administrative 44,763 40,927 Postretirement benefits 2,689 1,969 Provision for possible losses 610 85 Interest and amortization of debt expense 45,494 47,483 Amortization of goodwill 10,426 11,049 --------- --------- 373,809 385,927 --------- --------- 23,390 22,625 Income tax expense: Current (1,112) (3,245) Deferred (10,197) (8,580) --------- --------- Income from continuing operations 12,081 10,800 Loss from discontinued operation (net of income tax benefit of $3,450 in 1998) -- (1,763) --------- --------- Net income $ 12,081 $ 9,037 ========= ========= Basic earnings per share: Income from continuing operations $ .24 $ .20 Loss from discontinued operation -- (.03) --------- --------- Net income $ .24 $ .17 ========= ========= Diluted earnings per share: Income from continuing operations $ .24 $ .20 Loss from discontinued operation -- (.03) --------- --------- Net income $ .24 $ .17 ========= =========
See accompanying Notes to Consolidated Financial Statements 3 WALTER INDUSTRIES, INC. AND SUBSIDIARIES CONSOLIDATED STATEMENT OF CHANGES IN STOCKHOLDERS' EQUITY (UNAUDITED) (in thousands)
Accumulated Other Comprehensive Accumulated Comprehensive Common Capital in Treasury Total Income Deficit Income Stock Excess Stock --------- ------------- ----------- ------------- ------ ---------- -------- Balance at May 31, 1999 $ 342,919 435 $ (748,905) $ (6,028) $ 553 $1,169,377 $ (72,078) Comprehensive income Net income 12,081 $ 12,081 12,081 Other comprehensive income, net of tax Net unrealized depreciation in marketable securities (4) (4) (4) Foreign currency translation adjustment 107 107 107 --------- Other comprehensive income 103 --------- Comprehensive income $ 12,184 ========= Stock issued from option exercises 33 33 Purchases of treasury stock (3,721) (3,721) ---------- ---------- ---------- ------- ---------- --------- Balance at August 31, 1999 $ 351,415 $ (736,824) $ (5,925) $ 553 $1,169,410 $ (75,799) ========== ========== ========== ======= ========== =========
See accompanying Notes to Consolidated Financial Statements 4 WALTER INDUSTRIES, INC. AND SUBSIDIARIES CONSOLIDATED STATEMENTS OF CASH FLOWS (UNAUDITED)
For the three months ended August 31, -------------------------- 1999 1998 --------- --------- OPERATING ACTIVITIES (in thousands) Net income $ 12,081 $ 9,037 Charges to income not affecting cash: Depreciation 11,046 10,823 Provision for deferred income taxes 10,197 8,580 Accumulated postretirement benefits obligation 3,776 3,936 Provision for other long-term liabilities 56 205 Amortization of goodwill 10,426 11,049 Amortization of debt expense 1,968 1,440 --------- --------- 49,550 45,070 Decrease (increase) in assets: Short-term investments, restricted (571) 111,105 Marketable securities (25,975) (1,060) Instalment notes receivable, net (a) (1,966) 10,460 Trade and other receivables, net (2,817) 835 Inventories 4,606 6,292 Prepaid expenses (2,699) (3,079) Assets held for disposition 14,279 33,453 Increase (decrease) in liabilities: Book overdrafts 118 (1,234) Accounts payable (6,188) (23,046) Accrued expenses (23,023) (17,188) Income taxes payable 502 1,686 Accrued interest (1,002) (3,055) --------- --------- Cash flows from operating activities 4,814 160,239 --------- --------- INVESTING ACTIVITIES Additions to property, plant and equipment, net of retirements (12,010) (13,252) Increase in investments and other assets (886) (1,125) --------- --------- Cash flows used in investing activities (12,896) (14,377) --------- --------- FINANCING ACTIVITIES Issuance of short-term notes payable and long-term senior debt 179,600 53,701 Retirement of short-term notes payable and long-term senior debt (157,628) (192,870) Purchases of treasury stock (3,721) (13,683) Exercise of employee stock options 33 161 --------- --------- Cash flows from (used in) financing activities 18,284 (152,691) --------- --------- EFFECT OF EXCHANGE RATE ON CASH 107 78 --------- --------- Net increase (decrease) in cash and cash equivalents 10,309 (6,751) Cash and cash equivalents at beginning of period 40,783 54,647 --------- --------- Cash and cash equivalents at end of period $ 51,092 $ 47,896 ========= =========
(a) Consists of sales and resales, net of repossessions and provision for possible losses, of $48,091 and $40,944 and cash collections on account and payouts in advance of maturity of $46,125 and $51,404, respectively. See accompanying Notes to Consolidated Financial Statements 5 WALTER INDUSTRIES, INC. AND SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS AUGUST 31, 1999 Note 1 - Principles of Consolidation Walter Industries, Inc. (the "Company") is a diversified holding company with three reportable segments: Homebuilding and Financing, Water Transmission Products and Energy Services. Through these operating segments and other operations, the Company offers a diversified line of products and services primarily including home construction and financing, ductile iron pressure pipe, alloys, metals, petroleum coke distribution and refinery outsourcing services, aluminum foil and sheet products, furnace and foundry coke, chemicals and slag fiber. The Company's coal mining and methane gas subsidiary, Jim Walter Resources ("JWR"), has been classified as a discontinued operation (see Note 2 for further discussion). 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 August 31, 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 months ended August 31, 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, 1999. Unless otherwise specified, capitalized terms used herein are as defined in the aforementioned Form 10-K. Note 2 - Discontinued Operation In February 1999 (the "measurement date"), a decision was made to dispose of JWR, the Company's coal mining and methane gas subsidiary. As a result, the operations of JWR have been classified as a discontinued operation in the consolidated financial statements. The following is a summary of the operating results of JWR (in thousands):
Three Months Ended August 31, ----------------------------- 1999 1998 (B) -------- -------- Sales and revenues $ 62,611 $ 84,582 Costs and expenses 65,568 89,795 -------- -------- Loss before tax (2,957) (5,213) Income tax benefit 1,328 3,450 -------- -------- Loss from discontinued operation $ (1,629)(a) $ (1,763) ======== ========
(a) In accordance with Emerging Issues Task Force Issue No. 85-36 the net loss has been deferred pending disposition. Management does not presently anticipate a loss on the ultimate disposition. (b) Prior to measurement date. 6 WALTER INDUSTRIES, INC. AND SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (continued) 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 (in thousands):
August 31, May 31, --------- -------- 1999 1999 Cash and cash equivalents $ 1,079 $ 58 Short-term investments, restricted 3,545 3,491 Trade and other receivables, net 18,026 28,476 Inventories 57,407 61,434 Prepaid expenses 10,744 10,056 Property, plant and equipment, net, investments and other long-term assets 226,707 229,121 Deferred income taxes 33,942 33,093 -------- -------- Total Assets Held for Disposition $351,450 $365,729 ======== ========
The liabilities of JWR, aggregating approximately $228.7 million at August 31, 1999, have not been classified separately pending determination of the form and structure of disposition. Note 3 - Restricted Short-Term Investments Restricted short-term investments at August 31, 1999 and May 31, 1999 include (i) temporary investment of reserve funds and collections on instalment notes receivable owned by the Trusts ($108.2 million and $115.9 million, respectively) 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 were subject to retention at August 31, 1999 ($25.4 million and $17.1 million, respectively) and (iii) miscellaneous other segregated accounts restricted to specific uses ($12.6 million and $12.7 million, respectively). Note 4 - Instalment Notes Receivable and Mortgage-Backed/Asset-Backed Notes The gross amount of instalment notes receivable, the economic balance and long-term debt outstanding for each of the business trusts organized by Mid-State Homes are as follows (in thousands):
AUGUST 31, 1999 ------------------------------------------------- GROSS BALANCE ECONOMIC BALANCE DEBT OUTSTANDING ------------- ---------------- ---------------- Loan & Security Agreement $ -- $ -- $ 88,830 Trust II 581,540 376,716 242,250 Trust III 247,196 140,483 40,529 Trust IV 1,174,157 544,512 580,458 Trust V 484,656 183,983 153,000 Trust VI 898,318 370,299 347,175 Trust VII 800,811 318,648 300,231 Unpledged 21,288 8,180 -- ---------- ---------- ---------- Total $4,207,966 $1,942,821 $1,752,473 ========== ========== ==========
7 WALTER INDUSTRIES, INC. AND SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (continued) Note 5 - 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 is set forth below (in thousands):
AUGUST 31, 1999 --------------- Shares Amount ------ ------ Share repurchases for the three months ended August 31, 1999 279 $ 3,721 ===== ======= Cumulative amount repurchased under current authorization 3,873 $53,959 ===== ======= Total held in treasury 5,271 $75,799 ===== =======
Note 6 - Earnings Per Share A reconciliation of the basic and diluted earnings per share computations for the three months ended August 31, 1999 and 1998 are as follows (in thousands, except per share amounts):
THREE MONTHS ENDED AUGUST 31, ---------------------------------------- 1999 1998 ----------------- -------------------- BASIC DILUTED BASIC DILUTED ------- ------- -------- -------- Income from continuing operations $12,081 $12,081 $ 10,800 $ 10,800 Loss from discontinued operation -- -- (1,763) (1,763) ------- ------- -------- -------- Net income $12,081 $12,081 $ 9,037 $ 9,037 ======= ======= ======== ======== Average number of common shares outstanding (a) 50,084 50,084 53,458 53,458 Effect of diluted securities: Stock options (b) -- 28 -- 404 ------- ------- -------- -------- 50,084 50,112 53,458 53,862 ======= ======= ======== ======== Per share: Income from continuing operations $ .24 $ .24 $ .20 $ .20 Loss from discontinued operation -- -- (.03) (.03) ------- ------- -------- -------- Net income $ .24 $ .24 $ .17 $ .17 ======= ======= ======== ========
(a) For the three months ended August 31, 1999 and 1998, includes 3,880,140 additional shares issued to an escrow account on September 13, 1995 pursuant to the Consensual Plan, but does not include shares held in treasury. (b) Represents the number of shares of common stock issuable on the exercise of dilutive employee stock options less the number of shares of common stock which could have been purchased with the proceeds from the exercise of such options. These purchases 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. 8 WALTER INDUSTRIES, INC. AND SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (continued) Note 7 - Segment Information Information relating to the Company's operating segments is set forth below (in thousands):
Three months ended August 31, ------------------------ 1999 1998 --------- --------- Sales and revenues: Homebuilding and Financing $ 126,409 $ 111,850 Water Transmission Products 122,721 120,720 Energy Services 64,592 87,973 Other 83,152 87,969 Corporate 325 40 --------- --------- Consolidated sales and revenues from continuing operations (a) $ 397,199 $ 408,552 ========= ========= Operating income (b) : Homebuilding and Financing (c) $ 24,659 $ 28,688 Water Transmission Products 14,235 7,672 Energy Services 4,657 3,544 Other 7,991 8,076 --------- --------- Operating income 51,542 47,980 Less: General corporate expense (c) (5,410) (3,352) Senior debt interest expense (c) (10,154) (10,550) Intercompany interest expense (c) (12,588) (11,453) --------- --------- Income before tax expense 23,390 22,625 Income tax expense (11,309) (11,825) --------- --------- Income from continuing operations $ 12,081 $ 10,800 ========= ========= Depreciation: Homebuilding and Financing $ 1,327 $ 966 Water Transmission Products 4,209 3,947 Energy Services 1,643 1,541 Other 3,495 3,945 Corporate 372 424 --------- --------- Total $ 11,046 $ 10,823 ========= =========
(a) Inter-segment sales (made primarily at prevailing market prices) are deducted from the sales of the selling segment and are insignificant in amount with the exception of the sales of Other to Water Transmission Products of $3.6 million and $3.9 million in 1999 and 1998, respectively. 9 WALTER INDUSTRIES, INC. AND SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (continued) (b) Operating income amounts are after deducting amortization of goodwill. A breakdown of goodwill amortization by segment is as follows (in thousands):
Three months ended August 31, ------------------------ 1999 1998 ------- ------- Homebuilding and Financing $ 5,510 $ 6,145 Water Transmission Products 2,484 2,485 Energy Services 2,127 2,111 Other 266 267 Corporate 39 41 ------- ------- $10,426 $11,049 ======= =======
(c) Interest and amortization of debt expense incurred by the Homebuilding and Financing segment and Corporate are as follows (in thousands):
Three months ended August 31, ------------------------ 1999 1998 -------- -------- Homebuilding and Financing: Gross interest $ 35,340 $ 36,933 Less: Intercompany interest income (12,588) (11,453) -------- -------- Net interest expense 22,752 25,480 Corporate: Senior debt interest 10,154 10,550 Intercompany interest expense 12,588 11,453 -------- -------- $ 45,494 $ 47,483 ======== ========
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. 10 MANAGEMENT'S DISCUSSION AND ANALYSIS OF RESULTS OF OPERATIONS AND FINANCIAL CONDITION AND QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK This discussion should be read in conjunction with the consolidated financial statements and notes thereto of Walter Industries, Inc. and subsidiaries, particularly Note 7 of "Notes to Consolidated Financial Statements" which presents sales and revenues and operating income by operating segment. RESULTS OF OPERATIONS THREE MONTHS ENDED AUGUST 31, 1999 AND 1998 Net sales and revenues for the three months ended August 31, 1999 were $11.4 million, or 2.8%, below the prior year period. The decrease was primarily attributable to lower market prices for products sold by the Energy Services segment. In addition, prior year results included revenues of JW Window Components, Inc., which was sold in the fiscal 1999 second quarter. Cost of sales, exclusive of depreciation, of $258.8 million was 77.3% of net sales versus $273.6 million or 80.7%, in the prior year period. The improvement principally resulted from higher gross profit margins on pipe products, petroleum coke, aluminum foil and sheet products and chemicals. Selling, general and administrative expenses of $44.8 million were 11.3% of net sales and revenues versus $40.9 million and 10.0% in the prior year period. The dollar increase was primarily attributable to the acquisitions of Dream Homes, Inc. (October 1998) and Crestline Homes, Inc. (February 1999) coupled with expenditures associated with upgrading information technology capabilities and Year 2000 issues. Interest and amortization of debt expense was $45.5 million versus $47.5 million in the prior year period as a result of lower interest rates. The average rate of interest in the 1999 period was 7.4% as compared to 7.6% in 1998. The prime rate of interest ranged from 7.75% to 8.25% in the 1999 period compared to 8.5% in 1998. The Company's effective tax rate from continuing operations in the 1999 and 1998 periods differed from the statutory tax rate primarily due to amortization of goodwill which is not deductible for tax purposes, excluding amounts related to the AIMCOR acquisition. The discontinued operation incurred a loss, net of tax of $1.6 million in the current period; however, in accordance with the Emerging Issues Task Force Issue No. 85-36, the net loss has been deferred pending disposition. Management does not presently anticipate a loss on the ultimate disposition. The discontinued operation incurred a loss, net of tax, of $1.8 million in the prior year period. See Note 2 of "Notes to Consolidated Financial Statements". Net income in the 1999 period was $12.1 million compared to $9.0 million in the 1998 period, which included the after tax loss of $1.8 million from the discontinued operation. The Company's diluted earnings per share in the 1999 period were $.24 compared to $.17 in the 1998 period. Income from continuing operations in the 1999 period was $12.1 million ($.24 per diluted share) compared to $10.8 million ($.20 per diluted share) in the 1998 period and reflects all of the factors discussed in the following segment analysis. Segment Analysis: Homebuilding and Financing Group sales and revenues increased $14.6 million, or 13.0%, over the prior year period. The improved performance reflects an increase in the number of units sold, from 844 units in the 1998 period to 1,169 units in 1999, combined with a higher average net selling price, from $50,000 in the 1998 period to $54,100 in 1999, partially offset by lower time charge income (revenues received from Mid-State's instalment note portfolio), from $64.2 million in the 1998 period to $58.3 million in 1999. The higher average net selling price resulted from new product 11 options and amenity upgrades, as well as consumer preference for more upscale models being offered by Jim Walter Homes. The order backlog at August 31, 1999 was 2,817 units compared to 2,143 units at August 31, 1998. The decrease in time charge income resulted from a reduction in payoffs received in advance of maturity and a reduction in the total number of accounts, partially offset by an increase in the average balance per account in the portfolio. Operating income of $24.7 million (net of interest expense) was $4.0 million below the prior year period reflecting the lower time charge income and a decline in homebuilding gross profit margins due to increases in building material costs, partially offset by the increases in units sold and average net selling prices, lower interest expense in the 1999 period ($22.8 million) as compared to the prior year period ($25.5 million) and lower goodwill amortization in the 1999 period ($5.5 million) compared to 1998 ($6.1 million). Water Transmission Products sales and revenues increased $2.0 million, or 1.7%, above the prior year period. The increase was the result of improved selling prices and slightly higher shipments. Total shipments in the 1999 period were 168,100 tons compared to 167,600 tons in 1998. The order backlog of ductile iron pressure pipe at August 31, 1999 was 128,000 tons, representing approximately three months shipments, compared with 131,000 tons at August 31, 1998. Operating income of $14.2 million exceeded the prior year period by $6.6 million. This performance was the result of improved gross profit margins reflecting lower raw material costs (primarily scrap iron) and improved operating efficiencies combined with the previously mentioned increase in sales and revenues. Energy Services' sales and revenues decreased $23.4 million, or 26.6%, reflecting a year-to-year decline in worldwide market prices for petroleum coke and ferroalloys. Operating income of $4.7 million, however, was $1.1 million higher than the prior year period reflecting improved margins on petroleum coke. The Other segment's sales and revenues decreased $4.8 million, or 5.5%, from the prior year period. Prior year results included revenues of $11.6 million from JW Window Components, Inc. which was sold in the fiscal 1999 second quarter. Increased shipments of aluminum foil and sheet products were partially offset by lower volumes of furnace and foundry coke and slag fiber and reduced revenues from the Company's land management businesses. Operating income of $8.0 million was $.1 million below the prior year period which included a $.5 million contribution from JW Window Components. Improved operating margins for aluminum foil and sheet products and chemicals were partially offset by lower land management income. FINANCIAL CONDITION Since May 31, 1999, total debt increased $22.0 million. During the three month period ended August 31, 1999, net borrowings under the Mid-State Trust V Variable Funding Loan Agreement and the Credit Facilities totaled $48.0 million and $27.8 million, respectively. Scheduled payments on the mortgage-backed/asset-backed notes amounted to $53.7 million. Retirements of other long-term debt amounted to $.1 million. At August 31, 1999 borrowings under the Credit Facilities totaled $580.0 million. The Revolving Credit Facility includes a sub-facility for trade and other standby letters of credit in an amount up to $75.0 million at any time outstanding. At August 31, 1999, letters of credit with a face amount of $24.5 million were outstanding. The Credit Facilities contain a number of significant covenants that, among other things, restrict the ability of the Company and its subsidiaries to dispose of assets, incur additional indebtedness, pay dividends, create liens on assets, enter into capital leases, make investments or acquisitions, engage in mergers or consolidations, or engage in certain transactions with subsidiaries and affiliates and otherwise restrict corporate activities (including change of control and asset sale transactions). In addition, under the Credit Facilities, the Company is required to maintain specified financial ratios and comply with certain financial tests. Effective August 31, 1999, the Credit Facilities were amended to include, among other things, the following: (a) the Applicable Margin (as defined in the Credit Facilities) for LIBOR rate loans is amended in its entirety and includes a range from .625% to 2.25% (based upon a leverage ratio pricing grid); (b) the Applicable Unused Fee (as defined in the Credit Facilities) is amended in its entirety and includes a range from .20% to .40% (based upon a leverage ratio pricing grid); (c) the borrowers' fixed charge coverage ratio was replaced by an 12 interest coverage ratio (the ratio of Consolidated EBITDA (as defined in Amendment Agreement No. 5 to the Credit Facilities) to Consolidated Interest Expense (as defined in the Credit Facilities)). The interest coverage ratio is required to be at least 2.50-to-1 at the end of each Four Quarter Period (as defined in the Credit Facilities) for the duration of the Credit Facilities; and (d) the borrowers are required to maintain a leverage ratio (the ratio of indebtedness to Consolidated EBITDA) of not more than 3.75-to-1 for the duration of the Credit Facilities, provided, however, in the event of a Mining Sale (as defined in the Credit Facilities) the ratio must not exceed 4.25-to-1 for the period ending November 30, 1999, 4.0-to-1 for the periods ending February 29, 2000, and May 31, 2000, and 3.75-to-1 for the period ending August 31, 2000 and thereafter. The Company was in compliance with these covenants at August 31, 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 August 31, 1999. Effective September 29, 1999, the Trust V Variable Funding Loan Agreement was amended to include, among other things, the following: (a) the facility was increased to $500.0 million; (b) interest is based upon the cost of A-1 and P-1 rated commercial paper plus .25%; and (c) the facility fee on the maximum net investment is .25%. The agreement expires September 27, 2000. 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 August 31, 1999. LIQUIDITY AND CAPITAL RESOURCES Cash and cash equivalents, net of book overdrafts, were approximately $17.4 million at August 31, 1999. Operating cash flows for the three months ended August 31, 1999 together with issuance of long-term debt under the Mid-State 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 278,800 shares of common stock under the stock repurchase program authorized by the Company's Board of Directors in July 1998. Working capital is required to fund adequate levels of inventories and accounts receivable. Commitments for capital expenditures at August 31, 1999 were not significant; however, it is estimated that gross capital expenditures for the Company's continuing operations for the balance of the year ending May 31, 2000 will approximate $62.0 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 Homes 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 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 and to repurchase up to an additional 127,000 shares of the Company's common stock, the amount remaining at August 31, 1999 under the current share repurchase authorization. 13 MARKET RISK The Company is exposed to certain market risks inherent in the Company's financial instruments. These instruments arise from transactions entered into in the normal course of business. The Company is subject to interest rate risk on its existing Credit Facilities, Loan and Security Agreement, Trust V Variable Funding Loan, and any future financing requirements. The Company's primary market risk exposure relates to (i) the interest rate risk on long-term and short-term borrowings, (ii) the impact of interest rate movements on its ability to meet interest rate expense requirements and comply with financial covenants, and (iii) the impact of interest rate movements on the Company's ability to obtain adequate financing to fund future acquisitions. The Company has historically managed interest rate risk through the periodic use of interest rate hedging instruments. There were no such instruments outstanding at August 31, 1999. While the Company can not predict its ability to refinance existing debt or the impact interest rate movements will have on its existing debt, management continues to evaluate its financial position on an ongoing basis. The Company is also subject to a limited amount of foreign currency risk, but does not currently engage in any significant foreign currency hedging transactions to manage exposure for transactions denominated in currencies other than the U.S. dollar. YEAR 2000 DISCLOSURE Introduction This Year 2000 ("Y2K") disclosure is provided in accordance with the Federal Year 2000 Information and Readiness Disclosure Act, P.L. 105-271. The Company is currently working to resolve the potential impact of 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 and to address the issues, if any, which were identified. 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 issue creates risk to the Company: 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, non-IT systems with embedded chips and third party business trading partners. 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 14 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 was completed in 1998 with the current focus on remediation and testing. Approximately 95% of all identified IT system business components have been tested and are considered compliant as of August 31, 1999. Coding changes for all legacy systems have been completed and the final testing phase is in process. The Y2K test environment is fully functional. Compliance testing will continue through 1999 and will be completed by November 1999. All financial systems have been remediated, tested and were considered fully compliant as of May 31, 1999. Personal computer and other hardware compliant upgrades are 95% 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. All identified non-IT systems have been tested and were considered compliant as of May 31, 1999. Material Third Parties - The Company has created an inventory of what it believes to be all third parties with whom the Company has a material business relationship. Y2K readiness surveys were sent to these third parties beginning in January 1998. The Company has reviewed the responses to these surveys to determine the Y2K readiness of these third parties. For those critical third party suppliers, service providers and customers who fail to respond to the Company's survey, the Company is pursuing alternative means of obtaining Y2K readiness information, such as review of publicly available information published by such third parties. 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 and roll-over plans for December 31, 1999 to January 1, 2000 are complete. Each subsidiary has established a contingency action team and is conducting contingency training. 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 and take action, as appropriate. 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. In the unlikely event of a Y2K issue, the Company's contingency plan focus is on employee safety, equipment safety and prompt business resumption. The failure to correct a material Y2K issue 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. 15 Cost of Project The overall cost of the Company's Y2K compliance effort is estimated to be approximately $16.5 million. The project is 95% complete with the remaining 5% related to contingency planning, final testing of remediated applications and post-Y2K monitoring. Approximately $14.7 million or 89% of the project budget has been spent as of August 31, 1999. 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 by January 1, 2000. The Euro is trading on currency exchanges and is available for non-cash transactions. The participants are issuing sovereign debt exclusively in Euro and are redenominating outstanding sovereign debt. 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 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, is being exercised by the new European Central Bank. The Company has established a plan to address the issues raised by the Euro conversion. These issues, which are applicable to the operations of AIMCOR 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. As part of Phase I, the cost IT system has been modified for Euro Currency compliance. The Company's European locations are currently processing Euro-compliant transactions. Phase II of the Euro Currency project focuses on the conversion effect to a Euro base currency. Phase II is scheduled to be complete by July 1, 2002. The project budget is approximately $183,000 of which approximately $143,000 has been spent. 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. 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. 16 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 of Notes to Consolidated Financial Statements contained in the Company's Annual Report on Form 10-K for the year ended May 31, 1999. Jim Walter Resources and Cockerill Sambre S.A. ("Cockerill"), a Belgian steel producer, are parties to a long-term coal contract expiring December 31, 1999. In August 1999, Jim Walter Resources filed with the International Court of Arbitration of the International Chamber of Commerce, a Request for Arbitration concerning the contract. The Request for Arbitration alleged that Cockerill breached the contract by failing to purchase required minimum quantities of coal during calendar years 1998 and 1999 and failed to provide adequate assurances that it would perform under the contract during calendar year 2000. In early October 1999, an agreement was reached between the parties to resolve the dispute. The agreement provides, among other things, that tonnages to have been purchased in calendar years 1999 and 2000 will be purchased over calendar years 1999, 2000 and 2001. 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 Exhibit 99(a) - Amendment Agreement No. 5 to the Credit Agreement Exhibit 99(b) - Amendment Agreement to Variable Funding Loan Agreement (b) None 17 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/ A. W. HUGE /s/ F. A. HULT - ---------------------------- ------------------------------ A. W. Huge F. A. Hult Executive Vice President and Vice President, Controller and Principal Financial Officer Principal Accounting Officer Date: OCTOBER 12, 1999 18 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 3-MOS MAY-31-2000 JUN-01-1999 AUG-31-1999 51,092 177,003 1,533,522 29,577 240,367 0 399,555 0 3,366,733 0 2,335,323 553 0 0 350,862 3,366,733 334,674 397,199 258,781 55,809 13,115 610 45,494 23,390 11,309 12,081 0 0 0 12,081 .24 .24 This line item is not presented on the Consolidated Financial Statements.
EX-99.(A) 3 EXHIBIT 99.(A) Exhibit 99(a) AMENDMENT AGREEMENT NO. 5 TO CREDIT AGREEMENT THIS AMENDMENT AGREEMENT is made and entered into as of this 30th day of August, 1999, by and among WALTER INDUSTRIES, INC., a Delaware corporation (herein called the "Borrower"), BANK OF AMERICA, N.A., d/b/a NationsBank, National Association, successor by merger of NationsBank, National Association (the "Agent"), as Agent for the lenders (the "Lenders") party to the Credit Agreement dated October 15, 1997, as amended by Amendment Agreement No. 1 dated November 20, 1997, Amendment No. 2 dated January 28, 1998, Amendment No. 3 dated July 9, 1998 and Amendment No. 4 dated November 30, 1998 among such Lenders, Borrower and the Agent (the "Agreement"). W I T N E S S E T H: WHEREAS, the Borrower, the Agent and the Lenders have entered into the Agreement pursuant to which the Lenders have agreed to make term loans and revolving loans to the Borrower in the aggregate principal amount of up to $800,000,000 as evidenced by the Notes (as defined in the Agreement) and to issue Letters of Credit for the benefit of the Borrower; and WHEREAS, as a condition to the making of the loans pursuant to the Agreement the Lenders have required that all Restricted Subsidiaries (other than inactive Subsidiaries) of the Borrower guarantee payment of all Obligations of the Borrower arising under the Agreement; and WHEREAS, the Borrower has requested that the Agreement be further amended and the Agent and the Lenders, subject to the terms and conditions hereof, are willing to make such amendment, as provided herein; NOW, THEREFORE, the Borrower, the Agent and the Lenders do hereby agree as follows: 1. DEFINITIONS. The term "Agreement" as used herein and in the Loan Documents (as defined in the Agreement) shall mean the Agreement as hereinafter amended and modified. Unless the context otherwise requires, all terms used herein without definition shall have the definition provided therefor in the Agreement. 2. AMENDMENT. The Agreement is amended, effective as of August 31, 1999, as follows: (a) The table contained in the definition of "Applicable Margin" in SECTION 1.1 is hereby amended in its entirety so that as amended it shall read as follows:
Applicable Margin Consolidated for Eurodollar "Tier Leverage Ratio Rate Loans ------------------------------------------------------------------------------ 1 Equal to or Greater than 4.25 to 1.00 2.25% 2 Less than 4.25 to 1.00 and Equal to 1.75% or Greater than 3.75 to 1.00 3 Less than 3.75 to 1.00 and Equal to 1.375% or Greater than 3.25 to 1.00 4 Less than 3.25 to 1.00 and Equal to 1.125% or Greater than 2.75 to 1.00 5 Less than 2.75 to 1.00 and Equal to .75% or Greater than 2.25 to 1.00 6 Less than 2.25 to 1.00 .625%"
(b) The table contained in the definition of "Applicable Unused Fee" in SECTION 1.1 is hereby amended in its entirety so that as amended it shall read as follows:
Applicable Margin Consolidated for Eurodollar "Tier Leverage Ratio Rate Loans ------------------------------------------------------------------------------ 1 Equal to or Greater than 4.25 to 1.00 .40% 2 Less than 4.25 to 1.00 and Equal to .35% or Greater than 3.75 to 1.00 3 Less than 3.75 to 1.00 and Equal to .30% or Greater than 3.25 to 1.00 4 Less than 3.25 to 1.00 and Equal to .25% or Greater than 2.75 to 1.00 5 Less than 2.75 to 1.00 and Equal to .25% or Greater than 2.25 to 1.00 6 Less than 2.25 to 1.00 .20%"
(c) The definition of "Consolidated EBITDA" in SECTION 1.1 is hereby amended by (i) deleting the period at the end thereof and inserting in lieu thereof a semi-colon, and (ii) adding the further proviso at the end thereof: 2 "PROVIDED, FURTHER, however, upon the occurrence of the Mining Sale, the computation of Consolidated EBITDA for all periods preceding the date of such sale shall exclude the results of operations of the Mining Assets." (d) SECTION 1.1 is hereby amended by deleting the definitions "Consolidated Fixed Charge Coverage Ratio" and "Consolidated Fixed Charges" therefrom and inserting immediately preceding the definition "Consolidated Interest Expense" a new definition "Consolidated Interest Coverage Ratio" which shall read as follows: "CONSOLIDATED INTEREST COVERAGE RATIO" means, with respect to the Borrower and its Restricted Subsidiaries for any Four-Quarter Period ending on the date of computation thereof, the ratio of (i) Consolidated EBITDA for such period to (ii) Consolidated Interest Expense for such period. (e) The following new definitions are hereby added to SECTION 1.1 in the appropriate alphabetical order: "AMENDMENT NO. 5" means Amendment Agreement No. 5 to Credit Agreement dated August 30, 1999 among the Borrower, the Agent and the Lenders. "CAPITAL EXPENDITURES" means, with respect to Jim Walter Resources, Inc. and its Subsidiaries, if any, on a consolidated basis, for any period the sum of (without duplication) (i) all expenditures (whether paid in cash or accrued as liabilities) by Jim Walter Resources, Inc. or any of its Subsidiaries during such period for items that would be classified as "property, plant or equipment" or comparable items on the consolidated balance sheet of Jim Walter Resources, Inc. and its Subsidiaries, including without limitation all transactional costs incurred in connection with such expenditures provided the same have been capitalized, excluding, however, (A) the amount of any Capital Expenditures paid for with proceeds of casualty insurance as evidenced in writing and submitted to the Agent together with any compliance certificate delivered pursuant to SECTION 9.1(A) or (B), (B) non-cash capitalized depreciation arising in connection with mining operations, and (ii) with respect to any Capital Lease entered into by Jim Walter Resources, Inc. or its Subsidiaries during such period, the present value of the lease payments due under such Capital Lease over the term of such Capital Lease applying a discount rate equal to the interest rate provided in such lease (or in the absence of a stated interest rate, that rate used in the preparation of the financial statements described in SECTION 9.1(A), and (C) any portion of the purchase price of an Acquisition by Jim Walter Resources, Inc. which is accounted for as a Capital Expenditure, all the foregoing in accordance with GAAP applied on a Consistent Basis. "MINING ASSETS" means the capital stock of Jim Walter Resources, Inc. which includes its direct ownership interest in Black Warrior Methane Corp. and Black Warrior Transmission Corp. and its indirect ownership interest in International 3 Coalbed Methane Group and the assets of Jim Walter Resources, Inc. including its mining assets and its investments described herein and its De-Gas Division. "MINING SALE" means the sale, transfer or disposition of all or a part of the Mining Assets, including by split-up, spin-off or otherwise. "YEAR 2000 COMPLIANT" means all computer applications (including those affected by information received from its suppliers and vendors) that are material to the Borrower=s or any of its Subsidiaries= business and operations, taken as a whole, will on a timely basis be able to perform properly date-sensitive functions involving all dates on and after January 1, 2000. "YEAR 2000 PROBLEM" means the risk that computer applications used by the Borrower or any of its Subsidiaries (including those affected by information received from its suppliers and vendors) may be unable to recognize and perform properly date-sensitive functions involving certain dates on and after January 1, 2000. (f) A new SECTION 3.14 is hereby added to the Agreement which Section shall read as follows: "3.14. INTRADAY FUNDING. Without limiting the provisions of SECTION 3.11, unless the Borrower or any Lender has notified the Agent not later than 12:00 Noon of the Business Day before the date any payment (including in the case of Lenders any Advance) to be made by it is due, that it does not intend to remit such payment, the Agent may, in its discretion, assume that Borrower or each Lender, as the case may be, has timely remitted such payment in the manner required hereunder and may, in its discretion and in reliance thereon, make available such payment (or portion thereof) to the Person entitled thereto as otherwise provided herein. If such payment was not in fact remitted to the Agent in the manner required hereunder, then: (i) if Borrower failed to make such payment, each Lender shall forthwith on demand repay to the Agent the amount of such assumed payment made available to such Lender, together with interest thereon in respect of each day from and including the date such amount was made available by the Agent to such Lender to the date such amount is repaid to the Agent at the Federal Funds Effective Rate; and (ii) if any Lender failed to make such payment, the Agent shall be entitled to recover such corresponding amount forthwith upon the Agent=s demand therefor, the Agent promptly shall notify the Borrower, and the Borrower shall promptly pay such corresponding amount to the Agent in immediately available funds upon receipt of such demand. The Agent also shall be entitled to recover interest on such corresponding amount in respect of each day from the date such corresponding amount was made available by 4 the Agent to the Borrower to the date such corresponding amount is recovered by the Agent, (A) from such Lender at a rate per annum equal to the daily Federal Funds Effective Rate or (B) from the Borrower, at a rate per annum equal to the interest rate applicable to the Loan which includes such corresponding amount. Until the Agent shall recover such corresponding amount together with interest thereon, such corresponding amount shall constitute a deficiency advance within the meaning of SECTION 3.11. Nothing herein shall be deemed to relieve any Lender from its obligation to fulfill its commitments hereunder or to prejudice any rights which the Agent or the Borrower may have against any Lender as a result of any default by such Lender hereunder." (g) A new SECTION 8.23 is hereby added to ARTICLE VIII which Section shall read as follows: "8.23 YEAR 2000 COMPLIANCE DISCLOSURE. The Borrower and its Subsidiaries have (i) initiated a review and assessment of all areas within its and each of its Subsidiaries= business and operations (including those affected by information received from suppliers and vendors) that could reasonably be expected to be materially and adversely affected by the Year 2000 Problem, (ii) developed a plan and timeline for addressing the Year 2000 Problem on a timely basis, and (iii) to date, implemented that plan substantially in accordance with that timetable. The Borrower reasonably believes that all computer applications (including those affected by information received from its suppliers and vendors) that are material to its or any of its Subsidiaries= business and operations, taken as a whole, will on a timely basis be Year 2000 Compliant, except to the extent that a failure to do so could not reasonably be expected to have Material Adverse Effect." (h) A new SECTION 9.23 is hereby added to ARTICLE IX which Section shall read as follows: "9.23 YEAR 2000 COMPLIANCE. The Borrower will promptly notify the Agent and the Lenders in the event the Borrower discovers or determines that any computer application (including those affected by information received from its suppliers and vendors) that is material to its or any of its Subsidiaries= business and operations, taken as a whole, will not be Year 2000 Compliant on a timely basis, except to the extent that such failure could not reasonably be expected to have a Material Adverse Effect." (i) Subsection (f) of SECTION 9.1 is hereby amended in its entirety so that as amended it shall read as follows: "(f) Following the date of Amendment No. 5, as soon as available and in any event no later than 60 days after the beginning of each Fiscal Year, a consolidated 5 business plan for the Borrower and its Subsidiaries, a supplemental consolidated business plan for the Borrower and its Restricted Subsidiaries, in each case prepared by management of the Borrower, substantially similar in form and detail to the business plans prepared prior to the Closing Date and furnished to the Agent, of balance sheets, operations and retained earnings statements and cash flow statements (to include separate forecasts for Consolidated Capital Expenditures and Consolidated EBITDA), on a quarterly basis for such Fiscal Year, and a reasonably detailed explanation of any underlying assumptions with respect thereto; and" (j) SECTION 10.1 is hereby amended in its entirety so that as amended it shall read as follows: "10.1 FINANCIAL COVENANTS. (a) INTEREST COVERAGE RATIO. Cause, suffer or permit the Consolidated Interest Coverage Ratio as at the end of each Four-Quarter Period to be less than 2.50 to 1.00. (b) LEVERAGE. Cause, suffer or permit the Consolidated Leverage Ratio to be greater than 3.75 to 1.00; provided, however, in the event of a Mining Sale during any of the following fiscal quarters, cause, suffer, or permit the Consolidated Leverage Ratio as at the end of the following four quarter periods set forth below following such sale to be greater than the amount set forth opposite each such period:
Ratio Must Period Ending Not Exceed ------------- ---------- November 30, 1999 4.25 to 1.00 February 29, 2000 4.00 to 1.00 May 31, 2000 4.00 to 1.00 August 31, 2000 and thereafter 3.75 to 1.00
(c) CAPITAL EXPENDITURES. Permit Jim Walter Resources, Inc. and Subsidiaries of Jim Walter Resources, Inc. to make or become committed to make Capital Expenditures which exceed in the aggregate in any Fiscal Year of Jim Walter Resources, Inc. and its Subsidiaries $35,000,000 (on a cumulative basis, with the effect that amounts not expended in any Fiscal Year may be carried forward to a subsequent period)." (k) SECTION 10.2 is hereby amended by deleting the figure "$10,000,000" appearing therein and inserting in lieu thereof the figure "$25,000,000". (l) Subsection (h) of SECTION 10.3 is hereby amended by deleting the reference to SECTION 10.16(II) appearing therein and inserting in lieu thereof a reference to SECTION 10.16. 6 (m) SECTION 10.5 is hereby amended in order to (i) add to subsection (c) Sloss Industries Corporation as a Subsidiary of Borrower whose capital stock may be sold as provided therein, (ii) delete the word "and" at the end of subsection (g), (iii) delete the period at the end of subsection (h) and insert in lieu thereof a semi-colon and the word "and" and (iv) add a new subsection (i) thereto reading as follows: "(i) the Mining Sale provided that (i) the Net Cash Proceeds of such Mining Sale are applied to the Ratable Reduction of Term Loan Facilities, and (ii) immediately prior to and after giving effect to any such sale, no Default or Event of Default shall exist and be continuing hereunder." (n) SECTION 10.6 is hereby amended by (i) deleting in subsection (k) all words following the word "conducted" and (ii) deleting in subsection (l) the figure "$60,000,000" and inserting in lieu thereof the figure "$100,000,000". (o) SECTION 10.8 is hereby amended by (i) deleting the word "and" at the end of subsection (b); (ii) adding the word "and" at the end of subsection (c); (iii) deleting in its entirety the proviso following subsection (c); and (iv) amending subsection (b) in its entirety so that as amended it shall read as follows and adding a new subsection (d) reading as follows: "(b) Restricted Payments in an aggregate amount not to exceed the sum of (i) $100,000,000, (ii) plus 50% of Consolidated Net Income for each fiscal quarter ending following the date of Amendment No. 5, plus (iii) any increase in Subordinated Payables after the date of Amendment No. 5; PROVIDED, HOWEVER, that there shall be added back to Consolidated Net Income the actual amount of any losses or associated charges, net of any income tax effect, resulting from the Mining Sale; * * * * * * * * (d) distribution to shareholders of the Borrower of the capital stock of Jim Walter Resources, Inc.; provided such distribution shall be in addition to the Restricted Payments permitted under SECTION 10.8(B)." (p) SECTION 10.14 is hereby amended by deleting the reference to SECTION 10.16(II) appearing therein and inserting in lieu thereof a reference to SECTION 10.16. 3. SUBSIDIARY CONSENTS. Each Restricted Subsidiary of the Borrower that has delivered a Guaranty to the Agent has joined in the execution of this Amendment Agreement for the purpose of (i) agreeing to the amendment to the Agreement and (ii) confirming its guarantee of payment of all the Obligations. 4. CONDITIONS. This Amendment Agreement shall become effective upon execution by the Required Lenders and the Borrower delivering to the Agent five (5) counterparts of this 7 Amendment Agreement duly executed by the Borrower and consented to by each of the Restricted Subsidiaries. 5. ENTIRE AGREEMENT. This Amendment Agreement sets forth the entire understanding and agreement of the parties hereto in relation to the subject matter hereof and supersedes any prior negotiations and agreements among the parties relative to such subject matter. No promise, conditions, representation or warranty, express or implied, not herein set forth shall bind any party hereto, and no one of them has relied on any such promise, condition, representation or warranty. Each of the parties hereto acknowledges that, except as in this Amendment Agreement otherwise expressly stated, no representations, warranties or commitments, express or implied, have been made by any other party to the other. None of the terms or conditions of this Amendment Agreement may be changed, modified, waived or canceled orally or otherwise, except by writing, signed by all the parties hereto, specifying such change, modification, waiver or cancellation of such terms or conditions, or of any proceeding or succeeding breach thereof. 6. FULL FORCE AND EFFECT OF AGREEMENT. Except as hereby specifically amended, modified or supplemented, the Agreement and all of the other Loan Documents are hereby confirmed and ratified in all respects and shall remain in full force and effect according to their respective terms. [Remainder of page intentionally left blank.] 8 IN WITNESS WHEREOF, the parties hereto have caused this Amendment Agreement to be duly executed by their duly authorized officers, all as of the day and year first above written. BORROWER: WALTER INDUSTRIES, INC. WITNESS: /s/ L. PEAKE By: /s/ A. W. HUGE - ------------------------ ---------------------------------- Name: Arthur W. Huge /s/ DEBRA A. GARCIA Title: Executive Vice President and - ------------------------ Chief Financial Officer 9 GUARANTORS: AIMCOR ENTERPRISES INTERNATIONAL INCORPORATED AIMCOR (FAR EAST), INC. APPLIED INDUSTRIAL MATERIALS CORPORATION BEST INSURORS, INC. BEST INSURORS OF MISSISSIPPI, INC. COAST TO COAST ADVERTISING, INC. DIXIE BUILDING SUPPLIES, INC. HAMER PROPERTIES, INC. HOMES HOLDINGS CORPORATION JEFFERSON WARRIOR RAILROAD COMPANY, INC. JIM WALTER RESOURCES, INC. JW ALUMINUM COMPANY J.W. WALTER, INC. J.W.I. HOLDINGS CORPORATION LAND HOLDINGS CORPORATION SLOSS INDUSTRIES CORPORATION SOUTHERN PRECISION CORPORATION UNITED LAND CORPORATION UNITED STATES PIPE AND FOUNDRY COMPANY, INC. VESTAL MANUFACTURING COMPANY WITNESS: WALTER HOME IMPROVEMENT, INC. WALTER LAND COMPANY /s/ L. PEAKE GANS TRANSPORT AGENCIES (USA), INC. - --------------------------- /s/ DEBRA A. GARCIA By: /s/ A. W. HUGE - --------------------------- ----------------------------------- Name: Arthur W. Huge Title: Executive Vice President and Chief Financial Officer 10 JIM WALTER COMPUTER SERVICES, INC. JIM WALTER HOMES, INC. WITNESS: NEATHERLIN HOMES, INC. /s/ JONI WATERS - -------------------------- /s/ R. BEHOFF By: /s/ F. A. HULT - -------------------------- ------------------------------- Name: Frank A. Hult Title: Vice President WITNESS: JIM WALTER HOMES OF ASHEVILLE, INC. /s/ CECELIA COLLINS - -------------------------- /s/ PATTI SCHMID By: /s/ RONALD K. ACHILLE - -------------------------- ------------------------------- Name: Ronald K. Achille Title: Vice President DREAM HOMES USA, INC. DREAM HOMES, INC. CRESTLINE HOMES, INC. WITNESS: JWH ACQUISITION CO. /s/ LINDA NEWCOMB - -------------------------- /s/ SHEILA RAMDIAL By: /s/ JOSEPH H. KELLY, JR. - -------------------------- ------------------------------- Name: Joseph H. Kelly, Jr. Title: Vice President 11 BANK OF AMERICA, N.A., d/b/a NationsBank, National Association, as Agent for the Lenders By: /s/ RICHARD M. STARKE ------------------------------- Name: Richard M. Starke Title: Managing Director BANK OF AMERICA, N.A., d/b/a NationsBank, National Association, as Lender By: /s/ RICHARD M. STARKE ------------------------------- Name: Richard M. Starke Title: Managing Director 12 EX-99.(B) 4 EXHIBIT 99.(B) Exhibit 99(b) AMENDMENT NO. 5 TO VARIABLE FUNDING LOAN AGREEMENT AND AMENDMENT NO. 2 TO SECOND AMENDED AND RESTATED CUSTODIAN/COLLATERAL AGENT AGREEMENT AMENDMENT NO. 5 TO VARIABLE FUNDING LOAN AGREEMENT AND AMENDMENT NO. 2 TO SECOND AMENDED AND RESTATED CUSTODIAN/COLLATERAL AGENT AGREEMENT (this "Amendment"), dated as of September 29, 1999, by and among MID-STATE TRUST V, as Borrower (the "Borrower"), ENTERPRISE FUNDING CORPORATION, as Lender (the "Lender"), FIRST UNION NATIONAL BANK, as Collateral Agent (the "Collateral Agent"), CAPITAL MARKETS ASSURANCE CORPORATION, as Surety Provider (the "Surety Provider") and Bank of America, N.A., as successor by merger to NationsBank, N.A., as Administrative Agent (the "Administrative Agent"). Capitalized terms used and not defined in this Amendment shall have the meanings given such terms in the Variable Funding Loan Agreement, dated as of March 3, 1995, among the parties hereto, as amended from time to time (as so amended, the "Loan Agreement"). PRELIMINARY STATEMENTS WHEREAS, certain of the parties hereto are party to the Loan Agreement and the Second Amended and Restated Custodian/Collateral Agent Agreement, dated as of March 29, 1996, among the Collateral Agent, the Lender, the Borrower, the Administrative Agent and the Surety Provider, as amended from time to time (as so amended, the "CCA Agreement"); and WHEREAS, the parties hereto wish to amend certain terms of the Loan Agreement and certain terms of the CCA Agreement, as hereinafter provided; NOW, THEREFORE, in consideration of the mutual covenants contained herein, in the Loan Agreement and in the CCA Agreement, and other good and valuable consideration, the receipt and adequacy of which is hereby expressly acknowledged, and intending to be legally bound hereby, the parties hereto agree as follows: SECTION 1. AMENDMENT TO LOAN AGREEMENT. The Loan Agreement is hereby amended as follows: (a) Section 6.1 thereof is hereby amended by: (i) adding the following language at the end of clause (l) thereof after the word "thereafter": "; provided, HOWEVER, that no Event of Default shall be deemed to have occurred under this clause (l) during any of the six (6) Collection Periods following a Take-Out by reason of the Collections Coverage Ratio being less than the applicable percentage set forth above for any of such six Collection Periods and PROVIDED, FURTHER, that the Collections Coverage Ratio (A) with respect to the seventh Collection Period following any Take-Out, shall be the Collections Coverage Ratio solely for such Collection Period and (B) with respect to the eighth Collection Period following any Take-Out, shall be the average of the Collections Coverage Ratio for the seventh and eighth Collection Periods following such Take-Out"; and (ii) adding the following new clause (r) at the end thereof: "(r) For any of the first six (6) Remittance Dates following a Take-Out, the amount on deposit in the Reserve Account shall fail to be equal to or greater than the sum of (i) the Scheduled Reserve Account Payment for such Remittance Date and (ii) $1,000,000." (b) Annex A thereto is hereby amended by: (i) changing "$125,000" in clause (u) of the definition of "ELIGIBLE ACCOUNT" to "$150,000"; (ii) changing "2%" in clause (u) of the definition of "ELIGIBLE ACCOUNT" to "10%"; (iii) changing "Outstanding Balance" in clause (u) of the definition of "ELIGIBLE ACCOUNT" to "Economic Balance"; (iv) deleting the following language from clause (aa) of the definition of "ELIGIBLE ACCOUNT": "with respect to any Account originated by an Eligible Originator, the amount thereof, together with the amount of all other outstanding Accounts of such Eligible Originator purchased under the DAT Agreement, would not represent greater than 3% of the Borrowing Base, and (ii)"; (v) adding following new clause (bb) to the definition of "ELIGIBLE ACCOUNT" before the period at the end thereof: "(bb) with respect to any Account originated by an Eligible Originator (i) such Account was originated subsequent to the date the related Eligible Originator was acquired by the Originator or Walter Industries, Inc. and (ii) such Account was originated in accordance with the Credit and Collection Policy"; (vi) adding the following new definition after the definition of "HOLDING ACCOUNT": "INCREMENTAL AMOUNT" shall have the meaning given such term in Section 4.1(d)(vi) of the CCA Agreement."; (vii) changing "$400,000,000" in the definition of "MAXIMUM NET INVESTMENT" to "$500,000,000"; (viii) changing "clause (i)" in the definition of "SCHEDULED RESERVE ACCOUNT PAYMENT" to "clauses (i) through (v)"; and (ix) changing "September 29, 1999" in the definition of "SCHEDULED TERMINATION DATE" to "September 27, 2000". SECTION 2. AMENDMENT TO CCA AGREEMENT. The CCA Agreement is hereby amended as follows: Section 4.1(d) (vi) is hereby amended by adding the following proviso at the end thereof: "; PROVIDED, HOWEVER, that following a Take-Out, the amount to be deposited pursuant to this clause SIXTH shall be equal to (i) for the first Remittance Date following a Take-Out, the Scheduled Reserve Account Payment for such Remittance Date plus an amount (the "Incremental Amount") equal to $1,000,000 and (ii) for each of the next five (5) Remittance Dates thereafter, the Scheduled Reserve Account Payment for such Remittance Date plus $1,000,000 (after giving effect to the Incremental Amount deposited on any Remittance Date preceding such Remittance Date but after the related Take-Out). SECTION 3. CONDITIONS TO EFFECTIVENESS. This Amendment shall be effective on and as of the date on which all parties hereto have executed this Amendment and delivered their signature pages hereto to the Administrative Agent and the Lender shall have received the following, each of which shall be in form and satisfactory to the Lender: (a) An endorsement (the "Endorsement")to the Surety Bond issued by the Surety Bond Provider, dated July 31, 1997 duly executed by the Surety Bond Provider, dated the date hereof, in the form attached hereto as Exhibit A; (b) An opinion of counsel to the Surety Provider regarding the enforceability of the Surety Bond as modified by the Endorsement; (c) A new Variable Funding Note in the form of Exhibit B attached hereto, executed by the Trust; (d) Schedule A to the Depositor Account Transfer Agreement signed by each of Dream Homes, Inc. and Dream Homes USA, Inc.; (e) Opinions of counsel to Dream Homes, Inc. and Dream Homes USA, Inc. with respect to (A) the enforceability of the Amended and Restated DAT Agreement against each thereof and (B) the creation and perfection of a security interest by each such Eligible Originator in the Accounts and the Account Documents created under the DAT Agreement in favor of the Depositor; (f) A copy of Amendment No. 1 to the Amended and Restated DAT Agreement, dated the date hereof and duly executed by the parties thereto; and (g) Copies of proper financing statements (Form UCC-1) with respect to each of Dream Homes, Inc. and Dream Homes, USA, naming Dream Homes, Inc. or Dream Homes, USA, as the case may be, as debtor/seller in favor of the Depositor as secured party/purchaser, each for the benefit of the Borrower as assignee of the secured party/purchaser. SECTION 4. SEVERABILITY OF PROVISIONS. Any provision of this Amendment which is prohibited or unenforceable in any jurisdiction shall, as to such jurisdiction, be ineffective to the extent of such prohibition or unenforceability without invalidating the remaining provisions hereof or affecting the validity or enforceability of such provision in any other jurisdiction. SECTION 5. CAPTIONS. The captions in this Amendment are for convenience of reference only and shall not define or limit any of the terms or provisions hereof. SECTION 6. AGREEMENTS TO REMAIN IN FULL FORCE AND EFFECT. Except as amended hereby, each of the Loan Agreement and the CCA Agreement shall remain in full force and effect and is hereby ratified, adopted and confirmed in all respects. All references in the Loan Agreement or the CCA Agreement, as the case may be, to "herein," or words of like import, and all references to the Loan Agreement or the CCA Agreement, as the case may be, in any agreement or document shall hereafter be deemed to refer to the Loan Agreement or the CCA Agreement, as the case may be, as amended hereby. SECTION 7. GOVERNING LAW. THIS AMENDMENT SHALL BE GOVERNED BY AND CONSTRUED IN ACCORDANCE WITH THE LAWS OF THE STATE OF NEW YORK. SECTION 8. EXECUTION IN COUNTERPARTS. This Amendment may be executed in any number of counterparts and by different parties hereto on separate counterparts, each of which counterparts, when so executed and delivered, shall be deemed to be an original and all of which counterparts, taken together, shall constitute but one and the same amendment. SECTION 9. LIMITATION OF LIABILITY. It is expressly understood and agreed by the parties hereto that (a) this Amendment is executed and delivered by Wilmington Trust Company, not individually or personally but solely as trustee of the Trust, in the exercise of the powers and authority conferred and vested in it under the Trust Agreement, (b) each of the representations, undertakings and agreements herein made on the part of the Trust is made and intended not as personal representations, undertakings and agreements by Wilmington Trust Company but is made and intended for the purpose of binding only the Trust and (c) under no circumstances shall Wilmington Trust Company be personally liable for the payment of any indebtedness or expenses of the Trust or be liable for the breach or failure of any obligation, representation, warranty or covenant made or undertaken by the Trust under this Amendment. SECTION 10. REPRESENTATIONS AND WARRANTIES. The Borrower hereby certifies that (i) the representations and warranties made by it in Section 3.1 of the Loan Agreement are true and correct as of the date hereof, as though made on and as of the date hereof and (ii) as of the date hereof, there is no Event of Default or event which, with the passage of time of the giving of notice, could result in an Event of Default. IN WITNESS WHEREOF, the parties hereto have caused this Amendment to be executed as of the date and year first above written. MID-STATE TRUST V By: Wilmington Trust Company, not in its individual capacity but solely as Owner Trustee By: /s/ C. PAGLIA ----------------------------------- Name: Charlotte Paglia Title: Financial Services Officer ENTERPRISE FUNDING CORPORATION By: /s/ K. P. BURNS ----------------------------------- Name: Kevin P. Burns Title: Vice President BANK OF AMERICA, N.A., AS ADMINISTRATIVE AGENT By: /s/ STAN MEIHAUS ----------------------------------- Name: Stan Meihaus Title: Principal FIRST UNION NATIONAL BANK, AS COLLATERAL AGENT By: /s/ R. ASHBAUGH ----------------------------------- Name: Robert Ashbaugh Title: Vice President Capital Markets Assurance Corporation hereby consents to the foregoing amendment by the execution hereof: CAPITAL MARKETS ASSURANCE CORPORATION By: /s/ NICHOLAS SOURBIS ------------------------------ Name: Nicholas Sourbis Title: Managing Director Date: -----END PRIVACY-ENHANCED MESSAGE-----