EX-99.1 2 v082820_ex99-1.htm Unassociated Document

 
   
 
FOR IMMEDIATE RELEASE  
Investor Contact: Mark H. Tubb
   
Vice President - Investor Relations
   
813.871.4027
   
mtubb@walterind.com
Media Contact: Michael A. Monahan
Director - Corporate Communications
813.871.4132
mmonahan@walterind.com
 
 
WALTER INDUSTRIES, INC. ANNOUNCES SECOND QUARTER 2007 RESULTS
 
- Company Reports Income from Continuing Operations of $0.33 Per Diluted Share -
 
- Financing & Homebuilding Reports Significant Operating Income Growth -
 
- Financing’s Performance Remains Strong; Warehouse Loan Facility Renewed -
 
- Company Provides Coal Production Outlook Through 2010 -
 
 
(TAMPA, Fla.) - Walter Industries, Inc. (NYSE: WLT) today reported net income of $18.1 million, or $0.34 per diluted share for the second quarter ended June 30, 2007. Income from continuing operations for the second quarter totaled $17.8 million, or $0.33 per diluted share, compared with income from continuing operations of $44.2 million, or $0.86 per diluted share in the second quarter last year.

Net sales and revenues from continuing operations for the second quarter totaled $296.5 million, down from $319.0 million in the prior-year period. The decline was primarily a result of lower metallurgical coal sales prices and volumes at Natural Resources, as well as higher demurrage charges. These negative comparisons were partially offset by higher pricing and increased unit completions at Homebuilding.

Operating income from continuing operations for the second quarter totaled $33.0 million compared to $68.9 million in the second quarter 2006. Lower operating income in the current-year period primarily reflects lower metallurgical coal pricing, worse-than-anticipated geologic conditions and lower production volumes at Jim Walter Resources’ Mine No. 7, and increased operating losses at Kodiak Mining. The lower sales volumes and increases in production costs at Jim Walter Resources during the current quarter were driven by hard bottom-rock conditions on Mine No. 7’s longwall panel. These adverse conditions caused significant downtime at Mine No. 7 and reduced its coal inventory available for sale. At Kodiak Mining, low productivity and a $1.5 million inventory write-off drove the unfavorable results. These negatives were partially offset by improved results at Homebuilding.
 
“Although we expected lower coal production volumes in the second quarter at Mine No. 7 due to the thinner coal seam toward the end of the longwall panel, conditions were more difficult than anticipated,” said Jim Walter Resources CEO George R. Richmond. “In addition to the thinner coal seam, we encountered harder-than-expected rock in the floor that slowed advance rates and caused an increase in equipment downtime. These difficulties negatively affected costs and led to lower inventory levels that disrupted loading schedules, resulting in deferred shipments and excess demurrage costs.”
 
 
4211 W. Boy Scout Blvd.  |  Tampa, Florida 33607  |  Tel: 813.871.4811  |  Web site: www.walterind.com
Richmond added, “We have recently mined through the hard rock conditions and expect to move the longwall in early September. The coal seam is thicker at the beginning of Mine No. 7’s longwall panels, so production volumes are expected to improve significantly after the move.” 

Second Quarter Results by Operating Group

Natural Resources & Sloss
 
Natural Resources, which includes the operations of Jim Walter Resources and Kodiak Mining, reported revenues of $137.5 million in the second quarter, down $35.6 million versus the same period last year. The decline in revenues was principally driven by a $15.26 per ton reduction in metallurgical coal prices versus the prior-year period, as well as a 110,000-ton decline in coal sales volumes. Lower coal prices include the impact of reduced contract pricing and increased demurrage charges. Lower revenues also reflect a decline in natural gas volumes and pricing.

The Natural Resources segment reported operating income of $21.8 million in the second quarter, compared to $63.1 million in the prior-year period. Results in the current-year period include lower coal and gas sales volumes and pricing, higher labor costs, increased production costs at Mine No. 7 and $5.7 million of operating losses at Kodiak Mining.

Jim Walter Resources 

Jim Walter Resources sold 1.3 million tons of metallurgical coal during the second quarter at an average price of $94.29 per short ton FOB port, compared to 1.4 million tons of metallurgical coal at an average price of $109.55 per short ton FOB port during the same period last year. During the current quarter, average realized sales prices were negatively affected by lower contract pricing and approximately $4.3 million of demurrage charges.

Mine No. 4 produced 0.7 million tons in the current-year period compared to 0.4 million tons in last year’s second quarter, as the modified longwall shields performed as expected, preventing a recurrence of the roof control problems encountered in the prior panel. Mine No. 4’s cost-per-ton was $44.62, or $10.66 better than the prior-year period, primarily driven by the improvements in production, partially offset by higher labor costs associated with the new UMWA contract.

Mine No. 7 produced 0.5 million tons in the second quarter 2007 versus 0.6 million tons in the same period last year. Longwall production decreased 230,000 tons as a result of harder-than-anticipated mine bottom rock and related equipment downtime. This decrease was partially offset by 116,000 additional continuous miner tons, primarily from the continuing development of the Southwest “A” panel.

Production costs at Mine No. 7 were $71.23 per ton versus $39.76 per ton in the prior-year period, primarily reflecting additional spending due to a shift in mix to higher-cost continuous miner tons, approximately $8.70 per ton due to lower volumes produced, and $3.50 per ton for higher UMWA contract labor costs. Three incremental continuous miner units were operated at Mine No. 7 during the second quarter versus the same period last year, two of which are developing the Southwest “A” panel. This development work increased spending by approximately $13.60 per ton at Mine No. 7 in the second quarter and will set the stage for incremental, lower-cost longwall production in 2008.

Kodiak

Kodiak incurred $5.7 million of operating losses in the second quarter, including a $1.5 million write-off of inventory from lower-than-expected yields. Difficult geological conditions, slow advance rates and a delay in adding a second planned continuous miner unit led to worse-than-projected production and higher costs. The decision to postpone the second continuous miner unit was made to allow time to rectify some of Kodiak’s performance issues before committing incremental labor and equipment.

WALTER INDUSTRIES ANNOUNCES SECOND QUARTER 2007 RESULTS - Page 2 - 8/2/07
“We are disappointed with Kodiak’s results to date,” said Richmond. “We recently made significant changes to management, mine plans and operating procedures to improve performance. However, given Kodiak’s slow start and the delay in ramping up the second continuous miner unit, we expect their production to be between 140,000 and 170,000 tons in 2007 and do not expect profitability until 2008.”

Natural Gas

The natural gas operation sold 1.8 billion cubic feet of gas at an average price of $7.96 per thousand cubic feet in the second quarter 2007 versus $8.49 per thousand cubic feet in the prior-year period. Natural gas volumes were down 11.3 percent, primarily from the reduction in gas produced from the now- closed Mine No. 5 and lower gas production associated with slower advance rates at Mine No. 7. Natural gas prices realized in the current-year period include the benefit of hedging approximately 64 percent of production at an average price of $8.21 per thousand cubic feet, compared with approximately 53 percent of production hedged in the prior-year period at an average of $10.05.

Sloss

Sloss Industries generated second quarter revenues of $33.1 million, down $1.8 million from the prior-year period, and operating income of $2.9 million, up $0.9 million from the prior-year period. Results in the prior-year period included a $1.1 million asset impairment charge related to the segment’s chemicals business, which was sold in November 2006.

Financing & Homebuilding

The Financing & Homebuilding group reported combined revenues of $123.2 million for the second quarter, up 11.3 percent versus the prior-year period. The strong revenue increase was primarily due to higher average on-your-lot selling prices and unit completions at Homebuilding, slightly offset by lower prepayment income at Financing.

Combined operating income was up 40.3 percent for the quarter versus last year’s second quarter, primarily resulting from an improvement in gross margins at Homebuilding. These stronger gross margins were driven by improved cycle times, better pricing and lower material costs. These improvements were partially offset by higher selling, general and administrative expenses at Homebuilding and higher interest expense at Financing.

“Our Financing business continued its industry-leading performance, with delinquencies, repossessions, recovery rates and the number of ‘Real Estate Owned’ (REO) units all improved year over year,” said Financing & Homebuilding Chief Executive Officer Mark J. O’Brien. “In addition, continued gross margin expansion and reduced construction cycle times led to significantly better results at Homebuilding as we move closer to profitability in this business.”

At Financing, delinquencies on the mortgage portfolio were 3.8 percent at June 30, 2007, compared to 4.0 percent at June 30, 2006. Sequentially, delinquencies rose slightly, representing a typical seasonal increase. In addition, the number of repossessed units declined 14.2 percent and REO inventory as a percent of the total mortgage portfolio declined 13.2 percent versus the second quarter last year.

At Homebuilding, unit completions were 689 in the second quarter, up 9.0 percent versus the same period last year. Average unit net selling prices were $98,911 in the quarter, an increase of $12,121 per home versus the prior-year period. For the current period, new sales orders, net of cancellations, were 578, up 7.2 percent compared to the second quarter last year. Gross margin per unit improved approximately 530 basis points versus the second quarter last year and 170 basis points from the first quarter 2007, reflecting numerous improvements implemented to raise pricing, eliminate the backlog of low-margin units, speed up cycle times and enhance construction quality. While the backlog in units decreased 22.7 percent versus June 30, 2006, the dollar value of the backlog only declined 18.3 percent as a result of price increases.

WALTER INDUSTRIES ANNOUNCES SECOND QUARTER 2007 RESULTS - Page 3 - 8/2/07
The Company also said that the Financing business recently renewed its Trust IX Variable Funding Loan Agreement through July 28, 2008 on substantially similar terms. This $150.0 million warehouse facility provides short-term funding for instalment notes and mortgage loans originated by the Homebuilding business or purchased from third parties.

“The renewal of this facility at a time when problems in the sub-prime mortgage industry are significantly disrupting the credit markets is another indication of the strength of our mortgage portfolio and the outstanding performance of our mortgage servicing platform,” said O’Brien.

Other

Results in the “Other” segment, comprised of the Company’s corporate expenses and land subsidiaries, improved by approximately $0.9 million in the second quarter, driven by higher interest income.

Outlook

“While our financial results were mixed for the quarter, we made good progress on the strategic front,” said Walter Industries Chairman Michael T. Tokarz. “We continue to make important investments in our Natural Resources business as we execute on our organic growth strategy to expand future production capacity. At Financing & Homebuilding, we continue to build upon the strong, consistent performance at Financing while we make further strides toward profitability at Homebuilding.”

“We remain very confident in the long-term outlook for both our Natural Resources and Financing & Homebuilding businesses,” Tokarz added. “We expect our Natural Resources group to benefit from strengthening in the global metallurgical coal market which is driven by continued strong demand and increasing production capacity in the global steel industry. This positive market momentum aligns with our expansion plans to significantly increase production of our high-quality, metallurgical coal product. Our Mine No. 7 East expansion remains on track to deliver significant increases in low-vol met coal production beginning in 2009.”

Coal Production Update

The Company provided the following estimated coal production ranges for the remainder of 2007 through 2010 for Jim Walter Resources and Kodiak Mining:

Estimated Coal Production1
2007
2008
2009
2010
Jim Walter Resources
5.9 - 6.1
6.7 - 7.1
8.0 - 8.5
8.7 - 9.1
Kodiak2
0.1 - 0.2
0.3 - 0.4
0.4 - 0.5
0.4 - 0.5

1  Tons, in millions
2
Represents 100 percent of Kodiak’s expected production. The Company believes it will recognize all of Kodiak’s production and operating results through the projected period.

Homebuilding Unit Completion Update

The Company now expects unit completions to be between 2,500 and 2,700 units and maintains its expectation for a break-even run rate in 2007.

Conference Call Web cast

Members of the Company's leadership team will discuss Walter Industries’ second quarter 2007 results, its business drivers for the balance of 2007 and other general business matters during a conference call and live Web cast to be held on Friday, Aug. 3, 2007, at 10 a.m. Eastern Daylight Time. To listen to the event live or in archive, visit the Company Web site at www.walterind.com.

WALTER INDUSTRIES ANNOUNCES SECOND QUARTER 2007 RESULTS - Page 4 - 8/2/07
About Walter Industries
 
Walter Industries, Inc., based in Tampa, Fla., is a leading producer and exporter of metallurgical coal for the global steel industry and also produces steam coal, coal bed methane gas, furnace and foundry coke and other related products. The Company also operates a mortgage financing and affordable homebuilding business. The Company has annual revenues of approximately $1.3 billion and employs approximately 2,800 people. For more information about Walter Industries, please visit the Company Web site at www.walterind.com.
 
 
Safe Harbor Statement
 
Except for historical information contained herein, the statements in this release are forward-looking and made pursuant to the safe harbor provisions of the Private Securities Litigation Reform Act of 1995. Forward-looking statements involve known and unknown risks and uncertainties that may cause the Company's actual results in future periods to differ materially from forecasted results. Those risks include, among others, changes in customers' demand for the Company's products, changes in raw material, labor, equipment and transportation costs and availability, geologic and weather conditions, changes in extraction costs and pricing in the Company's mining operations, changes in customer orders, pricing actions by the Company's competitors, changes in law, potential changes in the mortgage-backed capital markets, and general changes in economic conditions. Those risks also include the timing of and ability to execute any strategic actions that may be pursued. Risks associated with forward-looking statements are more fully described in the Company's filings with the Securities and Exchange Commission. The Company assumes no duty to update its forward-looking statements as of any future date.
 

- WLT -
 
WALTER INDUSTRIES ANNOUNCES SECOND QUARTER 2007 RESULTS - Page 5 - 8/2/07


WALTER INDUSTRIES, INC. AND SUBSIDIARIES
      
CONSOLIDATED STATEMENTS OF OPERATIONS
      
($ in Thousands)
      
Unaudited
      
               
       
For the three months
  
       
ended June 30,
 
       
2007
  
2006
  
Net sales and revenues:
  
 
          
Net sales
        
$
239,146
  
$
258,354
  
Interest income on instalment notes
          
50,662
   
50,937
 
Miscellaneous
         
6,716
   
9,699
 
           
296,524
   
318,990
 
                     
Costs and expenses:
                    
Cost of sales (exclusive of depreciation)
          
174,457
   
168,359
 
Depreciation
          
11,591
   
9,414
 
Selling, general and administrative
         
38,125
   
35,784
 
Provision for losses on instalment notes
          
2,493
   
2,510
 
Postretirement benefits
          
6,687
   
4,407
 
Interest expense - mortgage-backed/asset-backed notes
          
29,745
   
28,958
 
Interest expense - corporate debt
          
7,218
   
8,920
 
Amortization of intangibles
          
442
   
642
 
           
270,758
   
258,994
 
                     
Income from continuing operations before income tax
          
expense and minority interest
          
25,766
   
59,996
 
Income tax expense
         
7,996
   
16,737
 
Income from continuing operations before minority interest
          
17,770
   
43,259
 
Minority interest in net loss of affiliate
          
-
   
941
 
Income from continuing operations
         
17,770
   
44,200
 
Discontinued operations (1)
          
281
   
19,761
 
Net income
       
$
18,051
  
$
63,961
  
                     
                     
Basic income per share:
                    
Income from continuing operations
        
$
0.34
  
$
1.02
  
Discontinued operations
          
0.01
   
0.45
 
                     
Net income
        
$
0.35
  
$
1.47
  
                     
Weighted average number of shares outstanding
          
52,081,436
   
43,529,838
 
                     
Diluted income per share:
                    
Income from continuing operations
        
$
0.33
  
$
0.86
  
Discontinued operations
          
0.01
   
0.38
 
                     
Net income
       
$
0.34
  
$
1.24
  
                     
Weighted average number of diluted shares outstanding
          
52,574,803
   
52,175,065
 
                     
                     

 
(1) The Company sold its modular home manufacturing business, which operated as Crestline Homes, Inc., in May 2007. As a result, the operating results of this business have been classified as discontinued operations for the three months ended June 30, 2007 and 2006. The three months ended June 30, 2006 also includes the results of Mueller Water Products, which was spun-off to shareholders in December 2006.
           

 

WALTER INDUSTRIES, INC. AND SUBSIDIARIES
      
RESULTS BY OPERATING SEGMENT
      
($ in Thousands)
      
Unaudited
      
               
       
For the three months
  
       
ended June 30,
 
       
2007
  
2006
  
               
NET SALES AND REVENUES:
  
 
          
Natural Resources
        
$
137,490
  
$
173,094
  
Sloss
          
33,122
   
34,912
 
Natural Resources and Sloss
          
170,612
   
208,006
 
                     
Financing
          
55,046
   
55,819
 
Homebuilding (1)
          
68,175
   
54,925
 
Financing and Homebuilding Group
          
123,221
   
110,744
 
                     
Other
          
4,965
   
2,857
 
Consolidating Eliminations
          
(2,274
)
  
(2,617
)
         
$
296,524
  
$
318,990
  
                     
OPERATING INCOME (LOSS) FROM CONTINUING OPERATIONS:
    
Natural Resources
       
$
21,764
  
$
63,104
  
Sloss
          
2,948
   
2,077
 
Natural Resources and Sloss
          
24,712
   
65,181
 
                     
Financing
          
13,045
   
13,358
 
Homebuilding (1)
          
(467
)
  
(4,394
)
Financing and Homebuilding Group
          
12,578
   
8,964
 
                     
Other
          
(4,306
)
  
(5,229
)
Consolidating Eliminations
          
-
   
-
 
Operating income from continuing
                    
operations
          
32,984
   
68,916
 
Corporate debt interest expense
          
(7,218
)
  
(8,920
)
Income from continuing operations before
         
income tax expense and minority interest
        
$
25,766
  
$
59,996
  

 
(1) Excludes Crestline Homes, which was sold in May 2007.
  
           
 
 

WALTER INDUSTRIES, INC. AND SUBSIDIARIES
      
CONSOLIDATED STATEMENTS OF OPERATIONS
      
($ in Thousands)
      
Unaudited
      
               
       
For the six months
 
       
ended June 30,
  
       
2007
  
2006
  
Net sales and revenues:
  
 
          
Net sales
        
$
498,533
  
$
512,828
  
Interest income on instalment notes
          
100,227
   
101,467
 
Miscellaneous
         
18,058
   
17,769
 
           
616,818
   
632,064
 
                     
Cost and expenses:
                    
Cost of sales (exclusive of depreciation)
          
346,097
   
332,151
 
Depreciation
          
22,221
   
17,848
 
Selling, general and administrative
         
75,576
   
70,958
 
Provision for losses on instalment notes
          
5,390
   
4,815
 
Postretirement benefits
          
13,019
   
8,814
 
Interest expense - mortgage-backed/asset-backed notes
          
59,516
   
58,934
 
Interest expense - corporate debt
          
14,565
   
21,389
 
Amortization of intangibles
          
920
   
1,339
 
           
537,304
   
516,248
 
                     
Income from continuing operations before income tax
          
expense and minority interest
          
79,514
   
115,816
 
Income tax expense
         
29,609
   
35,807
 
Income from continuing operations before minority interest
          
49,905
   
80,009
 
Minority interest in net loss of affiliate
          
-
   
941
 
Income from continuing operations
         
49,905
   
80,950
 
Discontinued operations (1)
          
(2,229
)
  
18,310
 
Net income
        
$
47,676
  
$
99,260
  
                     
                     
Basic income (loss) per share:
                    
Income from continuing operations
        
$
0.96
  
$
1.93
  
Discontinued operations
          
(0.04
)
  
0.43
 
                     
Net income
       
$
0.92
  
$
2.36
  
                     
Weighted average number of shares outstanding
          
52,046,083
   
42,024,801
 
                     
                     
Diluted income (loss) per share:
                    
Income from continuing operations
        
$
0.95
  
$
1.61
  
Discontinued operations
          
(0.04
)
  
0.36
 
                     
Net income
       
$
0.91
  
$
1.97
  
                     
Weighted average number of diluted shares outstanding
          
52,525,490
   
51,354,709
 

 
(1) In the first quarter of 2007, the Company decided to exit the modular home manufacturing business, which operated as Crestline Homes, Inc. As a result, the operating results of this business have been classified as discontinued operations for the six months ended June 30, 2007 and 2006. The six months ended June 30, 2006 also includes the results of Mueller Water Products, which was spun-off to shareholders in December 2006.
           

 

WALTER INDUSTRIES, INC. AND SUBSIDIARIES
      
RESULTS BY OPERATING SEGMENT
      
($ in Thousands)
      
Unaudited
      
               
       
For the six months
 
       
ended June 30,
  
       
2007
  
2006
  
               
NET SALES AND REVENUES:
  
 
          
Natural Resources
        
$
307,665
  
$
342,192
  
Sloss
          
65,923
   
68,197
 
Natural Resources and Sloss
          
373,588
   
410,389
 
                     
Financing
          
108,793
   
111,838
 
Homebuilding (1)
          
130,308
   
110,213
 
Financing and Homebuilding Group
          
239,101
   
222,051
 
                     
Other
          
8,483
   
6,020
 
Consolidating Eliminations
          
(4,354
)
  
(6,396
)
         
$
616,818
  
$
632,064
  
                     
OPERATING INCOME (LOSS) FROM CONTINUING OPERATIONS:
          
Natural Resources
       
$
78,205
  
$
127,029
  
Sloss
          
4,254
   
4,259
 
Natural Resources and Sloss
          
82,459
   
131,288
 
                     
Financing
          
23,616
   
26,350
 
Homebuilding (1)
          
(3,145
)
  
(9,245
)
Financing and Homebuilding Group
          
20,471
   
17,105
 
                     
Other
          
(8,851
)
  
(10,543
)
Consolidating Eliminations
          
-
   
(645
)
Operating income from continuing
                    
operations
          
94,079
   
137,205
 
Corporate debt interest expense
         
(14,565
)
  
(21,389
)
Income from continuing operations before
                   
income tax expense and minority interest
        
$
79,514
  
$
115,816
  

(1) Excludes Crestline Homes, which was sold in May 2007.
      
           

 

WALTER INDUSTRIES, INC. AND SUBSIDIARIES
      
SUPPLEMENTAL INFORMATION
      
Unaudited
      
                   
   
For the three months
  
For the six months
 
   
ended June 30,
 
ended June 30,
 
   
2007
  
2006
  
2007
  
2006
  
Operating Data:
                  
Jim Walter Resources
                  
Tons sold by type (in thousands):
                  
Metallurgical coal, contracts
    
1,301
   
1,409
   
2,727
   
2,655
 
Purchased metallurgical coal
    
-
   
-
   
96
   
-
 
Steam coal
    
-
   
2
   
-
   
300
 
     
1,301
   
1,411
   
2,823
   
2,955
 
                           
Average sale price per short ton:
                          
Metallurgical coal, contracts
  
$
94.29
  
$
109.55
  
$
97.55
  
$
111.02
  
Steam coal
  
$
-
  
$
34.70
  
$
-
  
$
35.02
  
Total average
  
$
94.29
  
$
109.44
  
$
97.55
  
$
103.30
  
                           
Tons sold by mine (in thousands):
                          
Mine No. 4
    
669
   
583
   
1,299
   
1,439
 
Mine No. 7
    
632
   
652
   
1,414
   
1,169
 
Subtotal
    
1,301
   
1,235
   
2,713
   
2,608
 
Mine No. 5 (1)
    
-
   
176
   
14
   
347
 
Total
    
1,301
   
1,411
   
2,727
   
2,955
 
                           
Coal cost of sales (exclusive of depreciation):
                  
Mine No. 4 per ton
  
$
51.40
  
$
63.21
  
$
50.18
  
$
54.45
  
Mine No. 7 per ton
  
$
73.71
  
$
51.77
  
$
62.41
  
$
50.94
  
Mines No. 4 and No. 7 per ton average
  
$
62.24
  
$
57.17
  
$
56.55
  
$
52.88
  
Mine No. 5 per ton (1)
  
$
-
  
$
71.69
  
$
57.98
  
$
77.40
  
Total average
  
$
62.24
  
$
58.98
  
$
56.56
  
$
55.76
  
Idle mine costs (in thousands) (2)
  
$
263
  
$
182
  
$
263
  
$
382
  
Purchased coal costs (in thousands)
  
$
-
  
$
-
  
$
8,192
  
$
-
  
Other costs (in thousands) (3)
  
$
2,776
  
$
2,868
  
$
7,361
  
$
5,493
  
                           
Tons of coal produced (in thousands)
                  
Mine No. 4
   
665
   
384
   
1,454
   
1,153
 
Mine No. 7
   
521
   
635
   
1,404
   
1,414
 
Subtotal
    
1,186
   
1,019
   
2,858
   
2,567
 
Mine No. 5
   
-
   
172
   
-
   
439
 
Total
    
1,186
   
1,191
   
2,858
   
3,006
 
                           
Coal production costs per ton: (4)
                          
Mine No. 4
  
$
44.62
  
$
55.28
  
$
40.66
  
$
41.37
  
Mine No. 7
  
$
71.23
  
$
39.76
  
$
52.89
  
$
37.02
  
Mines No. 4 and No. 7 average
  
$
56.31
  
$
45.61
  
$
46.67
  
$
38.97
  
Mine No. 5
  
$
-
  
$
59.05
  
$
-
  
$
60.56
  
Total average
  
$
56.31
  
$
47.55
  
$
46.67
  
$
42.12
  
                           
Natural gas sales, in mmcf (in thousands)
    
1,752
   
1,976
   
3,615
   
3,807
 
Natural gas average sale price per mmcf
  
$
7.96
  
$
8.49
  
$
7.94
  
$
8.88
  
Natural gas cost of sales per mmcf
  
$
3.27
  
$
2.57
  
$
3.01
  
$
2.89
  
                           
Kodiak
                          
Tons sold (in thousands)
    
-
   
3
   
9
   
3
 
Tons of coal produced (in thousands)
    
20
   
26
   
45
   
26
 
                           

(1) Mine No. 5 ceased production in December 2006 as planned. Sales and cost amounts in 2007 resulted from the sale of residual inventory on hand at December 31, 2006.
                 
                 
(2) Idle mine costs are charged to period expense when incurred.
      
                 
(3) Consists of charges (credits) not directly allocable to a specific mine.
     
                 
(4) Coal production costs per ton are a component of inventoriable costs, including depreciation. Other costs of sales not included in coal production costs per ton include Company-paid outbound freight, postretirement benefits, asset retirement obligation expenses, royalties, and Black Lung excise taxes.
                 
                 

 

WALTER INDUSTRIES, INC. AND SUBSIDIARIES
      
SUPPLEMENTAL INFORMATION
      
Unaudited
      
                   
   
For the three months
  
For the six months
 
   
ended June 30,
 
ended June 30,
 
   
2007
  
2006
  
2007
  
2006
  
Operating Data (continued):
                  
                   
Sloss Industries
                  
Furnace and foundry coke tons sold
    
102,780
   
104,129
   
211,736
   
205,138
 
Furnace and foundry coke average sale price per ton
  
$
225.91
  
$
221.44
  
$
221.09
  
$
222.07
  
Fiber tons sold
    
28,332
   
27,800
   
53,483
   
52,776
 
Fiber price per ton
  
$
265.42
  
$
264.56
  
$
266.07
  
$
263.01
  
                           
Financing
                          
Delinquencies, as of period end
    
3.8
%
  
4.0
%
  
3.8
%
  
4.0
%
Prepayment speeds
    
8.7
%
  
10.2
%
  
8.4
%
  
9.6
%
Number of repossessions
    
301
   
351
   
589
   
667
 
Repossession rate, annualized
    
3.0
%
  
3.3
%
  
2.9
%
  
3.1
%
Recovery rate on repossessions
    
87.4
%
  
86.4
%
  
85.9
%
  
87.2
%
 
                          
Homebuilding (excluding Crestline)
                          
New sales contracts
    
688
   
690
   
1,421
   
1,325
 
Cancellations
    
110
   
151
   
194
   
279
 
Unit completions
    
689
   
632
   
1,323
   
1,286
 
Average sale price
  
$
98,911
  
$
86,790
  
$
98,458
  
$
85,504
  
Ending backlog of homes
    
1,426
   
1,844
   
1,426
   
1,844
 
                           
Depreciation ($ in thousands):
                          
Natural Resources
  
$
8,696
  
$
6,700
  
$
16,496
  
$
12,545
  
Sloss
    
943
   
908
   
1,859
   
1,848
 
Financing
    
273
   
340
   
554
   
682
 
Homebuilding
   
1,272
   
1,098
   
2,506
   
2,180
 
Other
    
407
   
368
   
806
   
593
 
   
$
11,591
  
$
9,414
  
$
22,221
  
$
17,848
  
                           
Capital expenditures ($ in thousands):
                          
Natural Resources
  
$
33,699
  
$
20,767
  
$
55,590
  
$
44,915
  
Sloss
    
1,003
   
1,407
   
3,123
   
3,441
 
Financing
    
29
   
140
   
60
   
184
 
Homebuilding
   
610
   
1,225
   
1,856
   
2,425
 
Other
    
88
   
210
   
327
   
714
 
   
$
35,429
  
$
23,749
  
$
60,956
  
$
51,679
  
 
 

WALTER INDUSTRIES, INC. AND SUBSIDIARIES
  
CONDENSED CONSOLIDATED BALANCE SHEETS
  
($ in Thousands)
 
Unaudited
  
                   
       
June 30,
  
December 31,
 
June 30,
  
       
2007
  
2006
  
2006
  
ASSETS
  
 
              
Cash and cash equivalents
       
$
39,491
  
$
127,369
  
$
111,819
  
Short-term investments, restricted
          
83,517
   
90,042
   
86,998
 
Instalment notes receivable, net of allowance of $12,802,
               
$13,011 and $12,847, respectively
          
1,829,486
   
1,779,697
   
1,748,334
 
Receivables, net
          
77,921
   
85,094
   
104,962
 
Inventories
          
110,770
   
105,527
   
116,213
 
Prepaid expenses
         
44,714
   
29,727
   
22,800
 
Property, plant and equipment, net
          
349,151
   
310,163
   
283,717
 
Other long-term assets
          
170,490
   
135,274
   
102,712
 
Goodwill
          
10,895
   
10,895
   
10,895
 
Assets of discontinued operations
          
-
   
10,327
   
3,156,896
 
         
$
2,716,435
  
$
2,684,115
  
$
5,745,346
  
                           
LIABILITIES AND STOCKHOLDERS' EQUITY
                          
Accounts payable
        
$
59,937
  
$
62,323
  
$
61,950
  
Accrued expenses
          
71,210
   
94,930
   
82,139
 
Accrued interest on debt
          
14,855
   
17,053
   
18,221
 
Debt:
                          
Mortgage-backed/asset-backed notes
          
1,731,519
   
1,736,706
   
1,698,930
 
Corporate debt
         
232,936
   
249,491
   
473,428
 
Accumulated postretirement benefits obligation
          
347,846
   
330,241
   
225,302
 
Other long-term liabilities
          
214,535
   
189,458
   
185,697
 
Liabilities of discontinued operations
          
-
   
2,005
   
1,959,998
 
Total liabilities
          
2,672,838
   
2,682,207
   
4,705,665
 
                           
Minority interest in discontinued operations
                      
300,745
 
                           
Stockholders' equity
         
43,597
   
1,908
   
738,936
 
         
$
2,716,435
  
$
2,684,115
  
$
5,745,346
  
 
 
 

WALTER INDUSTRIES, INC. AND SUBSIDIARIES
      
CONSOLIDATED STATEMENT OF CHANGES IN STOCKHOLDERS' EQUITY
      
AND COMPREHENSIVE INCOME
      
FOR THE SIX MONTHS ENDED JUNE 30, 2007
      
($ in Thousands)
     
Unaudited
      
                               
                           
Accumulated
  
           
Capital in
          
Other
  
       
Common
  
Excess of
  
Comprehensive
  
Accumulated
  
Treasury
  
Comprehensive
  
   
Total
  
Stock
  
Par Value
  
Income
  
Deficit
  
Stock
  
Income (Loss)
  
                               
Balance at December 31, 2006
  
$
1,908
  
$
728
  
$
757,699
        
$
(398,564
)
$
(259,317
)
$
(98,638
)
Adjustment to initially apply FIN No. 48 (1)
    
(4,421
)
                    
(4,421
)
            
Adjusted balance at January 1, 2007
  
$
(2,513
)
$
728
  
$
757,699
        
$
(402,985
)
$
(259,317
)
$
(98,638
)
                                             
Comprehensive income:
                                            
Net income
    
47,676
             
$
47,676
    
47,676
             
Other comprehensive income (loss) , net of tax:
                                    
Amortization of prior service cost and net actuarial loss
                              
on postretirement benefits obligation
    
4,051
               
4,051
               
4,051
 
Increase in accumulated postretirement benefit obligation for
                             
plan amendments after measurement date
    
(9,347
)
              
(9,347
)
              
(9,347
)
Net unrealized gain on hedges
    
1,127
               
1,127
               
1,127
 
Comprehensive income
                    
$
43,507
                    
                                             
Retirement of treasury stock
    
-
   
(207
)
  
(259,902
)
              
260,109
       
Stock issued upon the exercise of stock options
    
643
         
643
                         
Tax benefit from the exercise of stock options
    
1,460
         
1,460
                         
Dividends paid, $0.10 per share
    
(5,209
)
        
(5,209
)
                        
Stock-based compensation
    
6,501
         
6,501
                         
Other
    
(792
)
                          
(792
)
      
                                             
Balance at June 30, 2007
  
$
43,597
  
$
521
  
$
501,192
        
$
(355,309
)
$
-
  
$
(102,807
)
                                             
                                             

(1) The Company adopted FIN No. 48, "Accounting for Uncertainty in Income Taxes," as required on January 1, 2007. Upon adoption, the Company
recognized a $4.4 million increase to the beginning accumulated deficit to reflect a necessary increase to the accrual for uncertain tax positions.

 

WALTER INDUSTRIES, INC. AND SUBSIDIARIES
  
CONSOLIDATED STATEMENTS OF CASH FLOWS
  
($ in Thousands)
 
Unadited
  
               
   
For the six months ended June 30,
  
   
2007
      
2006
  
               
OPERATING ACTIVITIES
              
Net income
 
$
47,676
        
$
99,260
  
Loss (income) from discontinued operations
    
2,229
         
(18,310
)
Income from continuing operations
    
49,905
         
80,950
 
                     
Adjustments to reconcile income from continuing operations to net cash provided by
operations:
                    
Provision for losses on instalment notes receivable
    
5,390
         
4,815
 
Depreciation
   
22,221
         
17,848
 
Provision (credit) for deferred income taxes
    
(12,454
)
        
14,167
 
Other
    
17,256
         
6,765
 
                     
Decrease (increase) in assets:
                    
Receivables
    
8,874
         
(29,011
)
Inventories
    
(5,175
)
        
536
 
Prepaid expenses
    
(639
)
        
3,350
 
Instalment notes receivable, net
    
(41,099
)
        
(7,071
)
Increase (decrease) in liabilities:
                    
Accounts payable
    
(2,888
)
        
457
 
Accrued expenses
    
(23,852
)
        
(10,768
)
Accrued interest
    
(2,198
)
        
(2,176
)
Cash flows provided by operating activities of continuing operations
    
15,341
         
79,862
 
                     
INVESTING ACTIVITIES
                    
Purchases of loans
    
(34,988
)
        
(70,614
)
Principal payments received on purchased loans
    
20,908
         
18,458
 
Decrease in short-term investments, restricted
    
6,525
         
37,575
 
Additions to property, plant and equipment
    
(60,956
)
        
(51,679
)
Escrow release from prior acquisition
    
-
         
10,500
 
Other
    
2,613
   
-
   
1,921
 
Cash flows used in investing activities of continuing operations
    
(65,898
)
        
(53,839
)
-
                   
FINANCING ACTIVITIES
                    
Issuances of mortgage-backed/asset-backed notes
    
113,350
         
97,600
 
Payments of mortgage-backed/asset-backed notes
    
(118,598
)
        
(126,080
)
Retirements of corporate debt
    
(29,071
)
        
(123,847
)
Dividends paid
    
(5,209
)
        
(3,309
)
Tax benefit on the exercise of employee stock options
    
1,460
         
6,156
 
Issuance of common stock
    
-
         
168,680
 
Other
    
116
         
12,293
 
Cash flows provided by (used in) financing activities of continuing operations
  
$
(37,952
)
      
$
31,493
  
Cash flows provided by (used in) continuing operations
  
$
(88,509
)
      
$
57,516
  
                     
CASH FLOWS FROM DISCONTINUED OPERATIONS
            
Cash flows provided by operating activities
  
$
630
        
$
27,256
  
Cash flows used in investing activities
    
-
         
(45,913
)
Cash flows provided by financing activities
    
-
         
187,272
 
Cash flows provided by discontinued operations
  
$
630
        
$
168,615
  
 
                    
Net increase (decrease) in cash and cash equivalents
  
$
(87,879
)
      
$
226,131
  
                     
Cash and cash equivalents at beginning of period
  
$
127,369
        
$
64,424
  
Add: Cash and cash equivalents of discontinued operations at beginning of period
    
1
         
72,972
 
Net increase (decrease) in cash and cash equivalents
    
(87,879
)
        
226,131
 
Less: Cash and cash equivalents of discontinued operations at end of period
    
-
         
(251,708
)
Cash and cash equivalents at end of period
  
$
39,491
        
$
111,819