AS FILED WITH THE SECURITIES AND EXCHANGE COMMISSION ON OCTOBER 6, 1995
REGISTRATION NO. 33-59013
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SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
-------------------
AMENDMENT NO. 3 TO
FORM S-1
REGISTRATION STATEMENT
UNDER
THE SECURITIES ACT OF 1933
-------------------
WALTER INDUSTRIES, INC.
(Exact name of registrant as specified in charter)
<TABLE>
<S> <C> <C>
DELAWARE 6711 13-3429953
(State or other jurisdiction of (Primary Standard Industrial (IRS Employer
incorporation or organization) Classification Code Number) Identification Number)
</TABLE>
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1500 NORTH DALE MABRY HIGHWAY
TAMPA, FL 33607
(813) 871-4811
(Address, including zip code, and telephone number, including area code, of
registrant's principal executive offices)
-------------------
KENNETH J. MATLOCK
EXECUTIVE VICE PRESIDENT AND CHIEF FINANCIAL OFFICER
WALTER INDUSTRIES, INC.
1500 NORTH DALE MABRY HIGHWAY
TAMPA, FL 33607
(813) 871-4531
(Name, address, including zip code, and telephone number, including area code,
of agent for service)
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COPY OF ALL COMMUNICATIONS, INCLUDING SERVICE OF PROCESS, TO:
PETER J. GORDON, ESQ.
SIMPSON THACHER & BARTLETT
425 LEXINGTON AVENUE
NEW YORK, NY 10017-3909
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APPROXIMATE DATE OF COMMENCEMENT OF PROPOSED SALE TO THE PUBLIC:
From time to time after the effective date of this Registration Statement.
If any of the securities being registered on this Form are to be offered on
a delayed or continuous basis pursuant to Rule 415 under the Securities Act of
1933, please check the following box. /X/
If this Form is filed to register additional securities for an offering
pursuant to Rule 462(b) under the Securities Act, please check the following box
and list the Securities Act registration statement number of the earlier
effective registration statement for the same offering. / / ___________________
If this Form is a post-effective amendment filed pursuant to Rule 462(c)
under the Securities Act, check the following box and list the Securities Act
registration statement number of the earlier effective registration statement
for the same offering. / / ___________________
If delivery of the prospectus is expected to be made pursuant to Rule 434,
please check the following box. / /
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THE REGISTRANT HEREBY AMENDS THIS REGISTRATION STATEMENT ON SUCH DATE OR
DATES AS MAY BE NECESSARY TO DELAY ITS EFFECTIVE DATE UNTIL THE REGISTRANT SHALL
FILE A FURTHER AMENDMENT WHICH SPECIFICALLY STATES THAT THIS REGISTRATION
STATEMENT SHALL THEREAFTER BECOME EFFECTIVE IN ACCORDANCE WITH SECTION 8(A) OF
THE SECURITIES ACT OF 1933 OR UNTIL THE REGISTRATION STATEMENT SHALL BECOME
EFFECTIVE ON SUCH DATE AS THE COMMISSION, ACTING PURSUANT TO SAID SECTION 8(A),
MAY DETERMINE.
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<PAGE>
WALTER INDUSTRIES, INC.
REGISTRATION STATEMENT ON FORM S-1
CROSS REFERENCE SHEET PURSUANT TO ITEM 501(B) OF REGULATION S-K SHOWING
THE LOCATION IN THE PROSPECTUS OF THE INFORMATION REQUIRED BY PART 1 OF FORM S-1
PROSPECTUS
<TABLE>
<CAPTION>
FORM S-1 ITEM AND HEADING CAPTION OR LOCATION IN PROSPECTUS
- ------------------------------------------------ ------------------------------------------
<C> <S> <C>
1. Forepart of the Registration Statement and
Outside Front Cover Page of Prospectus.. Front Cover Page
2. Inside Front and Outside Back Cover Page
of Prospectus........................... Inside Front Cover Page; Outside Back
Cover Page
3. Summary Information and Risk Factors...... Prospectus Summary; Certain Risk Factors;
The Company; Recent History; Selected
Historical Consolidated Financial Data
4. Use of Proceeds........................... Not Applicable
5. Determination of Offering Price........... Inside Front Cover Page; Plan of
Distribution
6. Dilution.................................. Not Applicable
7. Selling Security Holders.................. Selling Security Holders
8. Plan of Distribution...................... Inside Front Cover Page; Plan of
Distribution
9. Description of Securities to be
Registered.............................. Description of Capital Stock; Certain
Federal Income Tax Consequences
10. Interests of Named Experts and Counsel.... Legal Matters; Experts
11. Information with Respect to the
Registrant.............................. Outside Front Cover Page; Prospectus
Summary; Certain Risk Factors; The
Company; Recent History; Capitalization;
Selected Historical Consolidated
Financial Data; Management's Discussion
and Analysis of Financial Condition and
Results of Operations; Business and
Properties; Management; Security
Ownership of Management and Principal
Stockholders; Description of Certain
Indebtedness; Description of Capital
Stock
12. Disclosure of Commission Position on
Indemnification for Securities Act
Liabilities............................. Not Applicable
</TABLE>
<PAGE>
SUBJECT TO COMPLETION, DATED OCTOBER 6, 1995
PROSPECTUS
31,911,136 SHARES
WALTER INDUSTRIES, INC.
COMMON STOCK
This Prospectus relates to the offering from time to time of up to
31,911,136 shares (the "Shares") of Common Stock, par value $.01 per share (the
"Common Stock"), that were issued by Walter Industries, Inc. (the "Company" or
"Walter Industries"), a Delaware corporation formerly named Hillsborough
Holdings Corporation, to certain former creditors and stockholders of the
Company and its subsidiaries pursuant to the Company's Amended Joint Plan of
Reorganization dated as of December 9, 1994, as modified on March 1, 1995 (as so
modified, the "Plan of Reorganization"), under Section 1123(a) of the United
States Bankruptcy Code (the "Bankruptcy Code"). The Plan of Reorganization
became effective on March 17, 1995 (the "Effective Date of the Plan of
Reorganization"). Pursuant to the Plan of Reorganization, 50,494,313 shares of
Common Stock, including the Shares, were issued at that time.
The Shares may be sold to the public from time to time by certain holders
thereof (the "Selling Security Holders") in the amount and in the manner
described herein or as may be set forth in a Prospectus Supplement accompanying
this Prospectus. The Company will receive no proceeds from the sale of any of
the Shares by any of the Selling Security Holders. See "Plan of Distribution."
-------------------
SEE "CERTAIN RISK FACTORS" FOR INFORMATION CONCERNING CERTAIN RISKS
ASSOCIATED WITH AN INVESTMENT IN ANY OF THE SHARES.
THROUGH THE DATE HEREOF, THERE HAS BEEN NO ESTABLISHED PUBLIC TRADING MARKET
FOR THE COMMON STOCK. PURSUANT TO THE PLAN OF REORGANIZATION, THE COMMON STOCK
WAS ISSUED TO A LIMITED NUMBER OF INVESTORS. THE COMMON STOCK HAS BEEN APPROVED
FOR QUOTATION AND TRADING ON THE NATIONAL ASSOCIATION OF SECURITIES DEALERS
AUTOMATED QUOTATION SYSTEM ("NASDAQ") NATIONAL MARKET SYSTEM ("NASDAQ/NMS")
UNDER THE SYMBOL "WLTR". THERE CAN BE NO ASSURANCE THAT ANY ACTIVE TRADING
MARKET WILL DEVELOP OR WILL BE SUSTAINED FOR THE COMMON STOCK OR AS TO THE PRICE
AT WHICH THE COMMON STOCK MAY TRADE OR THAT THE MARKET FOR THE COMMON STOCK WILL
NOT BE SUBJECT TO DISRUPTIONS THAT WILL MAKE IT DIFFICULT OR IMPOSSIBLE FOR THE
HOLDERS OF COMMON STOCK TO SELL SHARES IN A TIMELY MANNER, IF AT ALL, OR TO
RECOUP THEIR INVESTMENT IN THE COMMON STOCK. SEE "CERTAIN RISK
FACTORS--LIQUIDITY; ABSENCE OF PUBLIC MARKET."
-------------------
THESE SECURITIES HAVE NOT BEEN APPROVED OR DISAPPROVED BY THE SECURITIES AND
EXCHANGE COMMISSION OR ANY STATE SECURITIES COMMISSION NOR HAS THE
SECURITIES AND EXCHANGE COMMISSION OR ANY STATE SECURITIES COMMISSION
PASSED UPON THE ACCURACY OR ADEQUACY OF THIS PROSPECTUS. ANY
REPRESENTATION TO THE CONTRARY IS A CRIMINAL OFFENSE.
-------------------
The date of this Prospectus is October , 1995
<PAGE>
INFORMATION CONTAINED HEREIN IS SUBJECT TO COMPLETION OR AMENDMENT. A
REGISTRATION STATEMENT RELATING TO THESE SECURITIES HAS BEEN FILED WITH THE
SECURITIES AND EXCHANGE COMMISSION. THESE SECURITIES MAY NOT BE SOLD NOR MAY
OFFERS TO BUY BE ACCEPTED PRIOR TO THE TIME THE REGISTRATION STATEMENT BECOMES
EFFECTIVE. THIS PROSPECTUS SHALL NOT CONSTITUTE AN OFFER TO SELL OR THE
SOLICITATION OF AN OFFER TO BUY NOR SHALL THERE BE ANY SALE OF THESE SECURITIES
IN ANY STATE IN WHICH SUCH OFFER, SOLICITATION OR SALE WOULD BE UNLAWFUL PRIOR
TO REGISTRATION OR QUALIFICATION UNDER THE SECURITIES LAWS OF ANY SUCH STATE.
<PAGE>
The Selling Security Holders directly, through agents designated from time
to time, or through dealers or underwriters also to be designated, may sell the
Shares from time to time on terms to be determined at the time of sale. To the
extent required, the specific Shares to be sold, the names of the Selling
Security Holders, the respective purchase prices and public offering prices,
historical trading information for the Common Stock, the names of any such
agent, dealer or underwriter, and any applicable commissions or discounts with
respect to a particular offer will be set forth in an accompanying Prospectus
Supplement. See "Plan of Distribution." If the Company is advised that an
underwriter has been engaged with respect to the sale of any Shares offered
hereby, or in the event of any other material change in the plan of
distribution, the Company will cause an appropriate amendment to the
Registration Statement of which this Prospectus forms a part to be filed with
the Securities and Exchange Commission (the "Commission") reflecting such
engagement or other change. See "Additional Information." Each of the Selling
Security Holders reserves the sole right to accept and, together with its agents
from time to time, to reject in whole or in part any proposed purchase of Shares
to be made directly or through agents.
The Company will not receive any proceeds from this offering, but agreed to
pay substantially all of the expenses of this offering other than applicable
transfer taxes and commissions and discounts payable to dealers, agents or
underwriters. The Selling Security Holders and any broker-dealers, agents or
underwriters that participate with the Selling Security Holders in the
distribution of the Shares may be deemed to be "underwriters" within the meaning
of the Securities Act of 1933, as amended (the "Securities Act"), and any
commissions received by them and any profit on the resale of the Shares
purchased by them may be deemed to be underwriting commissions or discounts
under the Securities Act. See "Description of Capital Stock--Common Stock
Registration Rights Agreement" and "Plan of Distribution" for a description of
certain indemnification arrangements.
2
<PAGE>
AVAILABLE INFORMATION
When the Registration Statement of which this Prospectus forms a part was
declared effective by the Commission, the Company became subject to the
informational requirements of the Securities Exchange Act of 1934, as amended
(the "Exchange Act"), and in accordance therewith became obligated to file
reports and other information with the Commission. Reports and other information
concerning the Company may be inspected and copied at the public reference
facilities maintained by the Commission at Room 1024, 450 Fifth Street, N.W.,
Washington, D.C. 20549, and at the regional offices of the Commission located at
Suite 1400, 500 West Madison Street, Chicago, Illinois 60661 and at Suite 1300,
7 World Trade Center, New York, New York 10048. Copies of such material can also
be obtained from the Public Reference Section of the Commission at 450 Fifth
Street, N.W., Washington, D.C. 20549 upon payment of the fees prescribed by the
Commission. Such reports and other information also can be inspected at the
offices of the National Association of Securities Dealers, Inc., 1735 K Street,
N.W., Washington, D.C. 20006.
ADDITIONAL INFORMATION
The Company has filed with the Commission a Registration Statement (which
term shall encompass any amendments and exhibits thereto) under the Securities
Act with respect to the Shares offered hereby. This Prospectus, which forms a
part of such Registration Statement, does not contain all the information set
forth in such Registration Statement, certain parts of which are omitted in
accordance with the rules and regulations of the Commission. Statements made in
this Prospectus as to the contents of any contract, agreement or other document
referred to are not necessarily complete; with respect to each such contract,
agreement or other document filed as an exhibit to such Registration Statement,
reference is made to the exhibit for a more complete description of the matter
involved, and each such statement shall be deemed qualified in its entirety by
such reference. Any interested parties may inspect such Registration Statement,
without charge, at the public reference facilities maintained by the Commission
at 450 Fifth Street, N.W., Washington D.C. 20549, and may obtain copies of all
or any part of it from the Commission upon payment of the fees prescribed by the
Commission. Such Registration Statement also can be inspected at the offices of
National Association of Securities Dealers, Inc., 1735 K Street, N.W.,
Washington, D.C. 20006. Neither the delivery of this Prospectus or any
Prospectus Supplement nor any sales made hereunder or thereunder shall under any
circumstances create any implication that the information contained herein or
therein is correct as of any time subsequent to the date hereof or thereof or
that there has been no change in the affairs of the Company since the date
hereof or thereof.
3
<PAGE>
PROSPECTUS SUMMARY
The following summary is qualified in its entirety by the detailed
information and consolidated financial statements (the "Consolidated Financial
Statements") and notes thereto appearing elsewhere in this Prospectus. The
Company operates, and during all periods for which financial information appears
herein operated, on a fiscal year ending May 31.
Reference is made to the "Index to Defined Terms" for information regarding
the location of certain definitions used in this Prospectus.
THE COMPANY
The Company, through its direct and indirect subsidiaries, currently offers
a diversified line of products and services for homebuilding, water and waste
water transmission, residential and non-residential construction, and industrial
markets.
The Homebuilding and Related Financing Group sells, constructs on the
customer's site, and finances standardized partially-finished homes. Sales are
made in approximately 23 states, primarily in the southern part of the United
States. Substantially all of the sales are made on credit provided by the Group.
A credit purchaser must provide his own land and give a first mortgage or deed
of trust to secure payment of the purchase price of the home.
The Water and Waste Water Transmission Products Group is one of the largest
domestic manufacturers of ductile iron pressure pipe and fittings. The Group
also manufactures valves and hydrants, fittings and castings.
The Natural Resources Group engages in coal mining and a related
degasification program. The Group owns four coal mines in Alabama and has the
capacity to produce a total of 9.5 million tons of coal annually. The Group
produced 7.6 million tons of coal in fiscal 1995. A substantial portion of this
output is under long-term contracts and the balance will be used internally to
produce furnace and foundry coke or sold to other customers on a short-term
contract or spot market basis. The Company does not consider itself to be a
significant factor in the domestic or international coal markets.
The Industrial and Other Products Group produces furnace and foundry grades
of coke, industrial chemicals, slag wool products, aluminum sheet, aluminum
foil, window and door screens, window balances, fireplace inserts, fireplaces
and accessories, municipal and original equipment manufacturer castings,
patterns and tooling and resin coated sand. See "The Company" and "Business and
Properties."
RECENT HISTORY
The Company was organized in August 1987 by a group of investors led by
Kohlberg Kravis Roberts & Co. ("KKR") for the purpose of acquiring Jim Walter
Corporation, a Florida corporation ("Original Jim Walter"), pursuant to a
leveraged buyout (the "LBO"). Following its organization, the Company organized
and acquired all of the outstanding shares of capital stock of a group of direct
and indirect wholly owned subsidiaries, including Hillsborough Acquisition
Corporation ("HAC"). On September 18, 1987, HAC acquired approximately 95% of
the outstanding shares of common stock of Original Jim Walter pursuant to a cash
tender offer (the "Tender Offer"). On January 7, 1988, (i) Original Jim Walter
merged (the "Merger") into HAC (which changed its name to Jim Walter
Corporation), (ii) HAC distributed substantially all of its assets (principally
excluding the stock of The Celotex Corporation ("Celotex") and several other
subsidiaries of Original Jim Walter) to a parent corporation of HAC (which was
merged into the Company on April 1, 1991) in redemption of all of the
4
<PAGE>
shares of capital stock of HAC owned by such parent corporation, (iii) HAC
merged into its other stockholder, another indirect wholly owned subsidiary of
the Company, and (iv) the surviving corporation of such merger changed its name
to Jim Walter Corporation (and is hereinafter referred to as "J-II" or "Jim
Walter Corporation").
Following the Merger and prior to the commencement of the Chapter 11 Cases
(as defined below), the Company undertook a program of corporate reorganizations
and asset dispositions, which were contemplated by all of the debt agreements
entered into in connection with the Tender Offer and the Merger. Pursuant to
this program the Company restructured and/or disposed of certain of the
businesses of Original Jim Walter, including the disposition in April, 1988 of
all of the stock of the parent corporation of J-II.
Also during this time, the Company and certain of its subsidiaries and
certain of their former and current directors and officers, stockholders and
other persons and entities which were parties to or beneficiaries of
indemnification agreements and other indemnification obligations of the Company
and its subsidiaries (the "Indemnitees") were named as co-defendants in lawsuits
(the "Veil Piercing Litigation") brought by or on behalf of thousands of persons
("Asbestos Claimants") claiming asbestos-related damages against Celotex
alleging, among other things, that (i) Original Jim Walter, its successors and
other entities, including the Company and certain of its subsidiaries, were
liable for all damages, including asbestos-related damages, caused by products
manufactured, sold and distributed by a predecessor of Celotex, by reason of
claims sounding in piercing the corporate veil, alter ego and related theories
("Veil Piercing Claims"), and (ii) the aforementioned distribution by HAC of
substantially all of its assets pursuant to the LBO constituted a fraudulent
conveyance. See "Business and Properties--Legal Proceedings--Asbestos-Related
Litigation Settlements."
On December 27, 1989, the Company and 31 of its subsidiaries each filed a
voluntary petition for reorganization under Chapter 11 ("Chapter 11") of the
Bankruptcy Code with the Bankruptcy Court for the Middle District of Florida,
Tampa Division (the "Bankruptcy Court"); one additional subsidiary also filed a
voluntary petition for reorganization under Chapter 11 with the Bankruptcy Court
on December 3, 1990 (all such voluntary petitions for reorganization,
collectively, the "Chapter 11 Cases"). Two other subsidiaries, Cardem Insurance
Co., Ltd. (Bermuda) ("Cardem Insurance") and Jefferson Warrior Railroad Company,
Inc. ("J.W. Railroad"), did not file petitions for reorganization under Chapter
11. The filing of the voluntary petitions resulted from a sequence of events
stemming primarily from an inability of the Company's interest reset advisors to
reset interest rates on approximately $624 million of outstanding indebtedness,
which indebtedness by its terms required that the interest rates thereon be
reset to the rate per annum such indebtedness should bear in order to have a bid
value of 101% of the principal amount thereof as of December 2, 1989. The reset
advisors' inability to reset the interest rates was primarily attributable to
two factors: (i) uncertainties arising from the pending Veil Piercing
Litigation, including the possibility either that such litigation would lead to
the prohibition of further asset sales and debt repayment or that substantial
new asbestos-related claims might become assertible against the Company, which
uncertainties materially hindered the ability of the Company and its
subsidiaries to pursue a refinancing or sell assets to reduce debt, and (ii)
general turmoil in the high yield bond markets at such time, both of which
depressed the bid value of such indebtedness.
On January 2, 1990, the Company and each of its subsidiaries party to the
Chapter 11 Cases filed a declaratory judgment action (the "Adversary
Proceeding") against all known Asbestos Claimants who had filed Veil Piercing
Claims, Celotex and Jim Walter Corporation seeking a declaration, among other
things, that (i) the corporate veil between Celotex and Original Jim Walter
could not be pierced, (ii) the Company could not be held liable for the
asbestos-related liabilities of either Celotex or Jim Walter Corporation on any
grounds and (iii) the LBO could not be deemed a fraudulent conveyance.
5
<PAGE>
In January 1994, the indenture trustees for certain pre-LBO debentures of
Original Jim Walter assumed by the Company brought an action (the "Fraudulent
Conveyance Lawsuit") for the benefit of the Company's estate and its creditors,
which alleged that the issuance of debt in connection with the LBO constituted a
fraudulent conveyance under New York and Florida law. The plaintiffs sought to
avoid the obligations incurred by the Company and its subsidiaries in the LBO.
On the Effective Date of the Plan of Reorganization, the Company and its
subsidiaries emerged from bankruptcy pursuant to the Plan of Reorganization. At
that time, pursuant to the Plan of Reorganization, 50,494,313 shares of Common
Stock were issued to certain former creditors and stockholders of the Company
and its subsidiaries and $490,000,000 aggregate principal amount of the
Company's 12.19% Series B Senior Notes Due 2000 (the "Series B Notes") were
issued to certain former creditors of the Company and its subsidiaries.
Also pursuant to the Plan of Reorganization, (i) the Veil Piercing Claims,
the Veil Piercing Litigation and the Adversary Proceeding, among other things,
were settled after a ruling by the Bankruptcy Court (which was affirmed on
appeal by the United States District Court for the Middle District of Florida)
finding in favor of the Company on every claim asserted in the Adversary
Proceeding and (ii) the Fraudulent Conveyance Lawsuit was settled. See "Recent
History" and "Business and Properties--Legal Proceedings--Asbestos Related
Litigation Settlements."
See "Certain Risk Factors" for information concerning certain risks
associated with an investment in the Shares.
6
<PAGE>
SUMMARY CONSOLIDATED HISTORICAL FINANCIAL DATA
The following data, insofar as it relates to each of the fiscal years 1991
through 1995, has been derived from annual financial statements, including the
consolidated balance sheets at May 31, 1995 and 1994 and the related
consolidated statements of operations and retained earnings (deficit) and of
cash flows for the three years ended May 31, 1995 and the notes thereto
appearing elsewhere herein. All of the information presented below should be
read in conjunction with the Company's Consolidated Financial Statements and the
notes thereto, the pro forma consolidated statement of operations of the Company
(the "Pro Forma Consolidated Statement of Operations") and the notes thereto and
the other information contained elsewhere in this Prospectus.
<TABLE>
<CAPTION>
YEARS ENDED MAY 31,
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1991(1) 1992 1993(4) 1994 1995
---------- ---------- ---------- ---------- ----------
(DOLLARS IN THOUSANDS)
<S> <C> <C> <C> <C> <C>
SUMMARY OF OPERATIONS:
Sales and revenues...................... $1,326,397 $1,366,581 $1,318,986 $1,328,524 $1,442,322
Cost of sales (exclusive of
depreciation)......................... 826,455 891,882 804,411 845,061 951,381
Depreciation, depletion and
amortization.......................... 75,099 82,801 70,483 71,035 72,037
Interest and amortization of debt
discount and expense(2)............... 209,511 177,060 171,581 155,470 304,548
Income tax expense (benefit)............ 19,454 12,463 24,328 28,917 (170,450)
Income (loss) before discontinued
operations and cumulative effect of
accounting change(1)(4)............... 20,632 22,342 46,594 7,175 (358,645)
Net income (loss)....................... 14,462 22,342 (58,014) 7,175 (358,645)
Ratio of earnings from continuing
operations to fixed charges (3)....... 1.19 1.18 1.39 1.22 --
ADDITIONAL FINANCIAL DATA:
Total assets............................ $3,276,211 $3,171,266 $3,223,234 $3,140,892 $3,245,153
Long-term senior debt................... 1,073,919 948,782 1,046,971 871,970 2,220,370
Liabilities subject to Chapter 11
proceedings........................... 1,883,704 1,845,328 1,725,631 1,727,684 --
Stockholders equity (deficit)........... (253,282) (230,119) (287,737) (282,353) 360,774
</TABLE>
- ------------
(1) The selected financial data reflects operations sold as discontinued
operations.
(2) Interest on unsecured obligations not accrued since December 27, 1989
amounted to $163.7 million in each of the years ended May 31, 1991 through
1994. The Company recorded additional interest and amortization of debt
discount and expense of $141.4 million related to the consummation of the
Plan of Reorganization in fiscal 1995.
(3) The ratio of earnings from continuing operations to fixed charges is
computed by dividing the sum of income (loss) from continuing operations and
fixed charges by fixed charges. Fixed charges consist of interest expense,
amortization of debt discount and expense and the portion (one-third) of
rent expense deemed to represent interest. For the year ended May 31, 1995,
the loss from continuing operations plus fixed charges was inadequate to
cover fixed charges. The coverage deficiency was $530.3 million. On a pro
forma basis for the fiscal year ended May 31, 1995, after giving effect to
the Plan of Reorganization and the related transactions as if they had
occurred as of June 1, 1994, the loss from continuing operations plus fixed
charges would have been inadequate to cover fixed charges. The coverage
deficiency would have been $14.2 million. See "Prospectus Summary--Summary
Pro Forma Consolidated Statement of Operations."
(4) The Company adopted Statement of Financial Accounting Standards No. 106
"Employers' Accounting for Postretirement Benefits Other Than Pensions"
("FAS 106") and Statement of Financial Accounting Standards No. 109
"Accounting for Income Taxes" ("FAS 109") during fiscal year 1993.
7
<PAGE>
SUMMARY PRO FORMA CONSOLIDATED STATEMENT OF OPERATIONS
The following unaudited summary pro forma consolidated statement of
operations was prepared to illustrate the estimated effects of the Plan of
Reorganization and related financings and the application of the proceeds
thereof as if they had occurred for statement of operations purposes as of June
1, 1994.
THE PRO FORMA CONSOLIDATED STATEMENT OF OPERATIONS DOES NOT PURPORT TO BE
INDICATIVE OF THE RESULTS OF OPERATIONS THAT WOULD ACTUALLY HAVE BEEN REPORTED
HAD SUCH TRANSACTIONS IN FACT BEEN CONSUMMATED ON SUCH DATE OR OF THE RESULTS OF
OPERATIONS THAT MAY BE REPORTED BY THE COMPANY IN THE FUTURE. The unaudited pro
forma adjustments are based upon available information and certain assumptions
that the Company believes are reasonable. All of the information presented below
should be read in conjunction with the Consolidated Financial Statements and the
notes thereto, the Pro Forma Consolidated Statement of Operations and the notes
thereto and the other information contained elsewhere in this Prospectus.
YEAR ENDED
MAY 31, 1995
------------------------
(DOLLARS IN THOUSANDS
EXCEPT PER SHARE AMOUNT)
Summary of Operations:
Sales and revenues................................. $1,434,694
Cost of sales (exclusive of depreciation).......... 951,381
Depreciation, depletion and amortization........... 72,037
Interest and amortization of debt expense.......... 223,184
Income tax expense................................. 25,280
Net loss........................................... (38,277)
Net loss per share(1).............................. (.75)
- ------------
(1) Net loss per share has been computed based on the weighted average number of
shares of Common Stock issuable (50,988,626, which includes 494,313
additional shares of Common Stock issued on September 13, 1995 (180 days
after the Effective Date of the Plan of Reorganization) pursuant to the Plan
of Reorganization, but does not include 3,880,140 additional shares issued
to an escrow account on such date pursuant to the Plan of Reorganization
because such issuance is contingent on future events and would be
anti-dilutive; see "Description of Capital Stock--Additional Stock
Issuances").
DEBT OFFERING
The Company also has filed with the Commission a shelf registration
statement with respect to the sale from time to time by certain selling security
holders of up to $218,609,000 aggregate principal amount of Series B Notes held
by such security holders. Such registration statement and the Registration
Statement of which this Prospectus forms a part were filed by the Company
pursuant to registration rights agreements entered into as part of the Plan of
Reorganization. See "Description of Capital Stock--Common Stock Registration
Rights Agreement" and "Description of Certain Indebtedness--Series B Senior
Notes--Senior Note Registration Rights Agreement." The Company will not receive
any proceeds from the offering of the Series B Notes, all of which will be
received by the selling holders thereof.
8
<PAGE>
CERTAIN RISK FACTORS
Set forth below are certain significant risks involved in investing in the
Shares offered by this Prospectus. See "Management's Discussion and Analysis of
Financial Condition and Results of Operations" and "Business and Properties" for
a description of other factors affecting the Company's businesses generally.
LEVERAGE
Upon completion of the Plan of Reorganization, the Company continued to have
significant indebtedness. At May 31, 1995, the Company had total consolidated
debt of approximately $2,220,370,000 and a ratio of total consolidated debt to
stockholders' equity of approximately 6.2 to 1.0. As a result of the Plan of
Reorganization, the Company will have substantially higher interest expense. On
a pro forma basis after giving effect to the Plan of Reorganization and related
transactions, the Company would have reported a loss of $38.3 million for the
year ended May 31, 1995. See "Pro Forma Consolidated Statement of Operations"
and "Management's Discussion and Analysis of Financial Condition and Results of
Operations."
The ability of the Company to meet its debt service obligations will be
dependent upon the future performance of the Company, which, in turn, will be
subject to general economic conditions and to financial, competitive, business
and other factors, including factors beyond the Company's control. The level of
the Company's indebtedness could restrict its flexibility in responding to
changing business and economic conditions. The Company believes that the
Mid-State Trust V Variable Funding Loan Agreement, a three-year $500 million
credit facility described under "Management's Discussion and Analysis of
Financial Condition and Results of Operations--Financial Condition," will
provide Mid-State Homes, Inc. ("Mid-State Homes") with the funds needed to
purchase the instalment notes and mortgages generated by Jim Walter Homes, Inc.
("Jim Walter Homes"). See "Business and Properties--Mid-State Homes." The
Company also believes that under present operating conditions sufficient
operating cash flow will be generated through fiscal year 1999 to make all
required interest and principal payments and planned capital expenditures and
meet substantially all operating needs and that amounts available under the Bank
Revolving Credit Facility described herein will be sufficient to meet peak
operating needs. However, it is currently anticipated that sufficient operating
cash flow will not be generated to repay at maturity the principal amount of the
Series B Notes without refinancing a portion of such debt or selling assets. No
assurance can be given that any refinancing will take place or that such sales
of assets can be consummated. See "Management's Discussion and Analysis of
Financial Condition and Results of Operations".
The degree to which the Company is leveraged and the terms governing the
Company's debt instruments, including restrictive covenants and events of
default, could have important consequences to holders of the Shares, including
the following: (i) the Company's ability to obtain additional financing in the
future for working capital, capital expenditures, acquisitions, general
corporate purposes or other purposes may be impaired; (ii) a substantial portion
of the Company's cash flow from operations must be dedicated to service its
indebtedness; (iii) terms of the Company's debt instruments will restrict the
Company's ability to pay dividends and will impose other operating and financial
restrictions; (iv) the Company may be more leveraged than other providers of
similar products and services, which may place the Company at a competitive
disadvantage; and (v) the Company's significant degree of leverage could make it
more vulnerable to changes in general economic conditions. Following the Plan of
Reorganization, the Company believes that it will be able through fiscal year
1999 to make its principal and interest payments as and when required with funds
derived from its operations. However, unexpected declines in the Company's
future business, increases in interest rates or the inability to borrow
additional funds for its operations if and when required could impair the
Company's ability to meet its debt service obligations and, therefore, have a
material adverse effect on the Company's business and future prospects. No
assurance can be given that additional debt or equity funds will be
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available when needed or, if available, on terms which are favorable to the
Company. Moreover, the terms of the Company's indebtedness contain change in
control provisions which may have the effect of discouraging a potential
takeover of the Company. See "Capitalization," "Pro Forma Consolidated Statement
of Operations," "Selected Historical Consolidated Financial Data," "Management's
Discussion and Analysis of Financial Condition and Results of
Operations--Financial Condition" and "-- Liquidity and Capital Resources" and
"Description of Certain Indebtedness."
Borrowings under the Company's $150 million Bank Revolving Credit Facility
bear interest at rates that fluctuate. As of May 31, 1995, there were no
borrowings under this facility; however there were $22,727,000 face amount of
letters of credit outstanding thereunder. See "Description of Certain
Indebtedness--Bank Revolving Credit Facility."
ACCOUNTING PRESENTATION
The Company emerged from bankruptcy on March 17, 1995. Accordingly, the
Company's Consolidated Balance Sheets at and after May 31, 1995 and its
Consolidated Statements of Operations and Retained Earnings (Deficit) for May
31, 1995 and periods thereafter will not be comparable to the Consolidated
Financial Statements for prior periods included elsewhere herein. Furthermore,
the Company's Consolidated Statement of Operations and Retained Earnings
(Deficit) for May 31, 1995 will not be comparable to the Company's consolidated
statements of operations and retained earnings (deficit) for periods thereafter.
Among other things, the Consolidated Statement of Operations and Retained
Earnings (Deficit) for the year ended May 31, 1995 includes numerous adjustments
required by the Plan of Reorganization, including adjustments to interest
expense, payment of substantial professional expenses related to the bankruptcy
and payment of $390 million pursuant to the Veil Piercing Settlement described
herein. See "Business and Properties--Legal Proceedings--Asbestos-Related
Litigation Settlements." Similarly, the Company's Consolidated Balance Sheet as
of May 31, 1995 reflects consummation of the Plan of Reorganization, and
therefore is not comparable to the Company's Consolidated Balance Sheets at May
31, 1994 or dates prior thereto.
DIVIDEND POLICY; RESTRICTIONS ON PAYMENT OF DIVIDENDS
The Company has never paid dividends on its common stock and has no present
intention of paying any dividends on the Common Stock. In addition, the
covenants in certain debt instruments to which the Company is a party restrict
the ability of the Company to pay dividends. Under the Bank Revolving Credit
Facility, the Company may pay cash dividends only after August 31, 1995 in an
amount during any twelve-month period not to exceed the lesser of $5,500,000 and
the Company's Available Cash Flow (as defined in the Bank Revolving Credit
Facility) during the four most recently completed fiscal quarters, and only
provided that the Company has met or exceeded certain financial ratio tests and
that no default under the Bank Revolving Credit Facility has occurred or would
result from the payment of such dividends. In addition, the Indenture prohibits
the Company from making Restricted Payments (defined to include cash dividends);
provided, however, the Company is permitted to declare and pay a regular
quarterly cash dividend not to exceed $.025 per share on its Common Stock and to
pay additional cash dividends in limited amounts (as determined under the
Indenture), in each case, so long as no default under the Indenture has occurred
or would result from the payment of such cash dividend and certain other
conditions are satisfied. See "Dividend Policy" and "Description of Certain
Indebtedness--Series B Senior Notes--Covenants" and "--Bank Revolving Credit
Facility."
HOLDING COMPANY STRUCTURE
The Company has no business operations other than (i) holding the capital
stock of its operating subsidiaries and intermediate holding companies, (ii)
holding cash, cash equivalents and marketable securities and (iii) advancing
funds to, and receiving funds from, its subsidiaries. In repaying its
indebtedness the Company relies primarily on cash flows from its subsidiaries,
including debt service
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and dividends. The ability of the Company's subsidiaries to make payments with
respect to advances from the Company will be affected by the obligations of such
subsidiaries to their creditors. Claims of holders of indebtedness of the
Company against the cash flows and assets of the Company's subsidiaries will be
effectively subordinated to claims of such creditors. The ability of such
subsidiaries to pay dividends will also be subject to applicable law and, under
certain circumstances, to restrictions contained in agreements entered into, or
debt instruments issued, by the Company and its subsidiaries. Under the terms of
the Bank Revolving Credit Facility, the subsidiaries of the Company may declare
and pay dividends in cash to the Company to enable it to pay, among other
things, amounts owing under the Series B Notes when such amounts become due and
payable under the terms of the Indenture. See "Description of Certain
Indebtedness--Bank Revolving Credit Facility." The Series B Notes are secured by
pledges of the capital stock of each of the direct and indirect subsidiaries of
the Company other than Mid-State Homes and its subsidiaries and Cardem
Insurance.
RESTRICTIVE COVENANTS
The Indenture and the Bank Revolving Credit Facility 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, make capital expenditures, pay dividends, create liens on assets,
enter into leases, 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 Bank Revolving
Credit Facility, the Company is required to maintain specified financial ratios
and comply with certain financial tests, including interest coverage and fixed
charge coverage ratios, maximum leverage ratios and minimum earnings before
interest, taxes, depreciation and amortization expense, some of which become
more restrictive over time. A substantial portion of the Company's indebtedness
is secured by the capital stock or assets of certain subsidiaries of the
Company.
The Company currently is in compliance with the covenants and restrictions
contained in its existing debt instruments. However, its ability to continue to
so comply may be affected by events beyond its control. The breach of any of
these covenants or restrictions could result in a default under those debt
instruments, which would permit the lenders or other creditors thereunder to
declare all amounts borrowed thereunder to be due and payable together with
accrued and unpaid interest, would result in the termination of the commitments
of the lenders under the Bank Revolving Credit Facility to make further loans
and issue letters of credit and could permit such lenders and other creditors to
proceed against the collateral securing the obligations owing to them. Any such
default could have a significant adverse effect on the market value and the
marketability of the Shares. See "Description of Certain Indebtedness."
RISKS OF BUSINESS DOWNTURN
Certain of the Company's businesses are affected by general economic or
other factors outside their control. The sales of United States Pipe and Foundry
Company ("U.S. Pipe") are dependent to some extent upon the rate of residential
and non-residential building construction and other forms of construction
activity, and are thus subject to certain economic factors such as general
economic conditions, the underlying need for construction projects, interest
rates and governmental incentives provided to building projects. The cyclical
nature of U.S. Pipe's business is offset to some extent by U.S. Pipe's sales to
the replacement market. The replacement market generally fluctuates less than
the rate of new construction and therefore tends to have a stabilizing influence
during a period of depressed construction activity. Jim Walter Homes is also
sensitive to certain general economic and other factors. Its business has tended
to be countercyclical to national home construction activity. In times of high
interest rates or lack of availability of mortgage funds, and thus limited new
home construction, Jim Walter Homes' volume of home sales tends to increase due
to the terms of the financing it offers.
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However, in times of low interest rates and increased availability of mortgage
funds, Jim Walter Homes' volume of home sales tends to decrease. Also, in times
of low interest rates and high availability of mortgage funds, additional
competition is able to enter the market. A significant portion of the sales of
Jim Walter Resources, Inc. ("Jim Walter Resources") are made pursuant to
long-term contracts, which tend to stabilize the results of its operations. See
"Management's Discussion and Analysis of Financial Condition and Results of
Operations" and "Business and Properties."
ASBESTOS-RELATED LITIGATION SETTLEMENTS
As discussed more fully under "Recent History" and "Business and
Properties--Legal Proceedings--Asbestos-Related Litigation Settlements," the
Company and the Indemnitees were defendants in the Veil Piercing Litigation and
are beneficiaries of the Veil Piercing Settlement.
In order for a holder of a Veil Piercing Claim or any claim related to the
LBO which is held by any person who has asserted or may in the future assert
Veil Piercing Claims (such claims and Veil Piercing Claims, whether asserted in
the past or in the future, collectively, the "Settlement Claims") to assert that
Settlement Claim against the Company or any of the Indemnitees, such holder
would have to attack the Plan of Reorganization, the approval of the Class (as
defined under "Business and Properties--Legal Proceedings--Asbestos-Related
Litigation Settlements"), the approval of the Veil Piercing Settlement and all
of the actions taken under the Veil Piercing Settlement. Because there were no
objections to the Plan of Reorganization or the Veil Piercing Settlement (apart
from an objection of the United States Environmental Protection Agency (the
"EPA") concerning the scope of certain releases affecting government
environmental claims; see "Business and Properties--Legal Proceedings--Plan of
Reorganization"), such an attack would have to be based upon an alleged failure
to provide due process under the United States Constitution. The Company
believes, and the Bankruptcy Court has found, that due process requirements have
been met. Should such an attack be sustained, however, the Company, the
Indemnitees and the other Released Parties (as defined under "Business and
Properties--Legal Proceedings--Asbestos-Related Litigation Settlements") could
be exposed to additional liabilities in the future of an indeterminate, but
possibly substantial, amount.
Future holders of Settlement Claims may also attack the injunctions
discussed under "Business and Properties--Legal Proceedings--Asbestos-Related
Litigation Settlements" on the grounds that the Bankruptcy Court did not have
jurisdiction over their future claims. The Company believes that the Bankruptcy
Court and the Celotex bankruptcy court have jurisdiction to issue "channelling"
injunctions barring such future claims, if any. In addition, the provisions of
Section 524(g) of the Bankruptcy Code explicitly authorize an injunction barring
claims by future claimants asserting asbestos-related diseases. Accordingly, if
the Celotex bankruptcy court confirms a plan of reorganization containing such
an injunction, as contemplated by the Veil Piercing Settlement, and such plan of
reorganization is consummated, Section 524(g) of the Bankruptcy Code would be an
additional basis for preventing future Settlement Claims from being asserted
against the Company, the Indemnitees and the other Released Parties. However,
there can be no assurance that such a plan of reorganization will be confirmed
and consummated. There will be an evidentiary hearing on October 17, 1995, in
the Celotex bankruptcy proceeding to consider all objections to the proposed
disclosure statement for the plan of reorganization proposed by Celotex. The
hearing will cover claims by certain constituencies in the Celotex bankruptcy
proceeding that the proposed Celotex plan of reorganization does not comply with
the Veil Piercing Settlement, and may result in changes to the proposed Celotex
plan of reorganization, which could affect the availability of a Section 524(g)
injunction in the Celotex bankruptcy proceeding. In addition, a future holder of
a Settlement Claim may try to attack Section 524(g) as unconstitutional or try
to preclude its application to the Company's case. Should that happen, the
Company, the Indemnitees and the other Released Parties could be exposed to
additional liabilities in the future of an indeterminate, but possibly
substantial, amount.
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It is also possible that some constituencies might seek to have the terms of
the Veil Piercing Settlement altered. In the National Gypsum reorganization, the
trust established to settle asbestos claims has sought an order requiring the
reorganized debtor in that case to make additional payments to the trust. The
Company believes that should not happen in its case because the settlement
amount is being paid into a separate trust with allocation of such funds to be
decided in the Celotex bankruptcy proceeding pursuant to final court orders in
both cases. Any such request would have to be made to the Bankruptcy Court,
which has previously approved the settlement payment as fair, and/or the Celotex
bankruptcy court, which also has previously approved the settlement payment as
fair. However, should such a request be made and granted, the Company, the
Indemnitees and the other Released Parties could be exposed to additional
liabilities in the future of an indeterminate, but possible substantial, amount.
LIQUIDITY; ABSENCE OF PUBLIC MARKET
Through the date hereof, there has been no established public trading market
for the Common Stock. Pursuant to the Plan of Reorganization the Common Stock
was issued to a limited number of investors. The Common Stock has been approved
for quotation and trading on NASDAQ/NMS under the symbol "WLTR". There can be no
assurance that any active trading market will develop or will be sustained for
the Common Stock or as to the price at which the Common Stock may trade or that
the market for the Common Stock will not be subject to disruptions that will
make it difficult or impossible for the holders of Common Stock to sell shares
in a timely manner, if at all, or to recoup their investment in the Common
Stock.
The prices at which the Shares may be sold will be determined by the Selling
Security Holders or by agreement between Selling Security Holders and
underwriters or dealers, if any. See "Plan of Distribution."
EFFECT OF FUTURE SALES OF COMMON STOCK
No prediction can be made as to the effect, if any, that future sales of
Shares, or the availability of Common Stock for future sale, will have on the
market price of the Common Stock prevailing from time to time. Sales of
substantial amounts of Common Stock, or the perception that such sales could
occur, could adversely affect prevailing market prices for the Common Stock.
Pursuant to the Plan of Reorganization, an aggregate of 50,494,313 shares of
Common Stock were issued on the Effective Date of the Plan of Reorganization.
Pursuant to Section 1145 of the Bankruptcy Code, all of the issued and
outstanding shares of Common Stock are freely tradeable without registration
under the Securities Act, except for shares issued to an "underwriter" (as
defined in Section 1145(b) of the Bankruptcy Code) or subsequently acquired by
an "affiliate" of the Company. Except in limited circumstances, none of the
holders of such shares has agreed to restrict or otherwise limit in any way such
holder's ability to dispose of such shares of Common Stock. See "Description of
Capital Stock--Common Stock Registration Rights Agreement." No assurance can be
given that sales of substantial amounts of Common Stock will not occur in the
foreseeable future or as to the effect that any such sales, or the perception
that such sales may occur, will have on the market or the market price of the
Common Stock. See "Market for the Common Stock."
TAX CONSIDERATIONS
A substantial controversy exists with regard to federal income taxes
allegedly owed by the Company. Proofs of claim have been filed by the Internal
Revenue Service (the "IRS") in the aggregate amount of $110,560,883 with respect
to fiscal years ended August 31, 1980 and August 31, 1983 through August 31,
1987, $31,468,189 with respect to fiscal years ended May 31, 1988 (nine months)
and May 31, 1989 and $44,837,693 with respect to fiscal years ended May 31, 1990
and May 31, 1991. Objections to the proofs of claim have been filed by the
Company and the various issues are being
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litigated in the Bankruptcy Court. The Company believes that such proofs of
claim are substantially without merit and intends to defend such claims against
the Company vigorously, but there can be no assurance as to the ultimate
outcome.
Set forth under "Certain Federal Income Tax Consequences" is a description
of certain United States federal income tax consequences to prospective
purchasers expected to result from the purchase, ownership and sale or other
disposition of the Shares under currently applicable law.
DISPUTED CLAIMS RESERVES
The total face amount of prepetition claims against the Company and certain
of its subsidiaries which are still being disputed by the Company, including the
Federal Income Tax Claims (see "Description of Capital Stock--Additional Stock
Issuances"), is substantial. If the Company or any of its subsidiaries is unable
to pay any claims which ultimately are allowed against it by the Bankruptcy
Court, under the Plan of Reorganization the holders of such allowed claims would
have recourse to the Company or any such subsidiary as applicable. Management
does not expect that any allowed claims will have a material adverse effect on
the Company's financial position.
CERTAIN CORPORATE GOVERNANCE MATTERS; ANTITAKEOVER LEGISLATION
The Restated Certificate of Incorporation of the Company (the "Charter") and
the Plan of Reorganization provide that until March 17, 1998 the Board of
Directors of the Company shall have nine members, two of whom must be
Independent Directors (as defined under "Management--Board of Directors"), three
of whom must be G. Robert Durham, James W. Walter and a senior officer of the
Company (currently Kenneth E. Hyatt) or their successors who shall be senior
officers of the Company, one of whom must be designated by KKR, an affiliate of
certain principal stockholders of the Company, and three of whom must be
designated by Lehman Brothers Inc. ("Lehman"), whose affiliate Lehman Brothers
Holdings, Inc. ("Lehman Holdings") is another principal stockholder of the
Company (except that (i) in certain circumstances KKR will have the right to
compel the resignation of one or two of Lehman's designees and designate the
successor(s), (ii) if more than one director is a designee of KKR, in certain
circumstances Lehman will have the right to compel the resignation of one of
KKR's designees and designate the successor and (iii) Lehman's or KKR's
designees must resign if Lehman or KKR, as the case may be, cease to
beneficially own a specified equity interest in the Company). Lehman has
informed the Company and KKR that it has determined to transfer, after October
17, 1995, to KKR the right to appoint one of the three Lehman designees. See
"Management--Board of Directors" and "Security Ownership of Management and
Principal Stockholders." As a result of the foregoing provision, stockholders of
the Company other than Lehman and KKR will not have the ability to elect any of
the Company's directors prior to March 17, 1998.
In addition, the Charter and the Company's By-laws provide that until March
17, 1998 each committee of the Board of Directors (other than the Tax Oversight
Committee) must include a number of directors designated by KKR and Lehman,
respectively, so that each of KKR and Lehman has representation on the committee
proportionate to its representation on the Board. The Charter provides that the
foregoing provision and certain other provisions of the By-laws cannot be
amended by the Board of Directors prior to March 17, 1998 unless 67% of the
whole Board of Directors votes in favor of the amendment. See
"Management--Committees of the Board of Directors."
The foregoing provisions would, among other things, impede the ability of a
third party to acquire control of the Company by seeking election of its
nominees to the Board of Directors.
In addition, Section 203 ("Section 203") of the Delaware General Corporation
Law (the "DGCL") provides that, subject to certain exceptions specified therein,
an "interested stockholder" of a Delaware corporation shall not engage in any
business combination, including mergers or consolidations
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or acquisitions of additional shares of the corporation, with the corporation
for a three-year period following the date on which such stockholder becomes an
"interested stockholder" unless (i) prior to such date, the board of directors
of the corporation approved either the business combination or the transaction
which resulted in the stockholder becoming an "interested stockholder," (ii)
upon consummation of the transaction which resulted in the stockholder becoming
an "interested stockholder," the interested stockholder owned at least 85% of
the voting stock of the corporation outstanding at the time the transaction
commenced (excluding certain shares), or (iii) on or subsequent to such date,
the business combination is approved by the board of directors of the
corporation and authorized at an annual or special meeting of stockholders by
the affirmative vote of at least 66-2/3% of the outstanding voting stock which
is not owned by the "interested stockholder." Except as otherwise specified in
Section 203, an "interested stockholder" is defined to include (x) any person
that is the owner of 15% or more of the outstanding voting stock of the
corporation, or is an affiliate or associate of the corporation and was the
owner of 15% or more of the outstanding voting stock of the corporation at any
time within three years immediately prior to the relevant date and (y) the
affiliates and associates of any such person. For purposes of Section 203, the
Board has approved the transaction (the consummation of the Plan of
Reorganization) which resulted in Lehman and the Celotex Settlement Fund
Recipient becoming "interested stockholders" and, accordingly, the Company
believes that neither of them will be subject to the restrictions of Section 203
unless it ceases to be the owner of 15% or more of the outstanding voting stock
of the Company and seeks to reattain such level of ownership. The Board also
approved the purchase of Common Stock by Channel One Associates, L.P., a limited
partnership the general partner of which is KKR Associates, L.P. ("Channel
One"), and its affiliates and associates of 15% or more of the outstanding
voting stock of the Company through open market purchases or otherwise.
Accordingly, the Company believes that none of Channel One and its affiliates
and associates (including the KKR Investors referred to in "Security Ownership
of Management and Principal Stockholders") will be subject to the restrictions
of Section 203. In connection with the above-described Board approval, Channel
One and the KKR Investors agreed with the Company that they will not, and will
not permit any of their affiliates to, vote any shares of Common Stock of the
Company or otherwise take any other action to modify the composition of the
Board of Directors of the Company prior to April 6, 1998 other than as expressly
provided for in the Company's Charter and the Plan of Reorganization and that
during such period they will not participate in the solicitation of proxies to
vote, or seek to advise or influence any person with respect to, voting
securities of the Company to modify the composition of the Board of Directors,
or propose, assist in or encourage any person in connection with any of the
foregoing. See "Description of Capital Stock--Antitakeover Legislation."
Under certain circumstances, Section 203 makes it more difficult for a
person who would be an "interested stockholder" to effect various business
combinations with a corporation for a three-year period, although the
stockholders may elect to exclude a corporation from the restrictions imposed
thereunder. The Charter does not exclude the Company from the restrictions
imposed under Section 203. The provisions of Section 203 may encourage companies
interested in acquiring the Company to negotiate in advance with the Board of
Directors because the stockholder approval requirement would be avoided if a
majority of the directors then in office approve either the business combination
or the transaction which results in the stockholder becoming an interested
stockholder. Such provisions also may have the effect of preventing changes in
the management of the Company. It is possible that such provisions could make it
more difficult to accomplish transactions which stockholders may otherwise deem
to be in their best interests.
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THE COMPANY
The Company, through its direct and indirect subsidiaries currently offers a
diversified line of products and services for homebuilding, water and waste
water transmission, residential and non-residential construction, and industrial
markets. A brief description of the Company's four major operating groups
follows.
The Homebuilding and Related Financing Group sells, constructs on the
customer's site, and finances standardized partially-finished homes. Sales are
made in approximately 23 states, primarily in the southern part of the United
States. Substantially all of the sales are made on credit provided by the Group.
A credit purchaser must provide his own land and give a first mortgage or deed
of trust to secure payment of the purchase price of the home.
The Water and Waste Water Transmission Products Group is one of the largest
domestic manufacturers of ductile iron pressure pipe and fittings. The Group
also manufactures valves and hydrants, fittings and castings.
The Natural Resources Group engages in coal mining and a related
degasification program. The Group owns four coal mines in Alabama and has the
capacity to produce a total of 9.5 million tons of coal annually. The Group
produced 7.6 million tons of coal in fiscal 1995. A substantial portion of this
output is under long-term contracts and the balance will be used internally to
produce furnace and foundry coke or sold to other customers on a short-term
contract or spot market basis. The Company does not consider itself to be a
significant factor in the domestic or international coal markets.
The Industrial and Other Products Group produces furnace and foundry grades
of coke, industrial chemicals, slag wool products, aluminum sheet, aluminum
foil, window and door screens, window balances, fireplace inserts, fireplaces
and accessories, municipal and original equipment manufacturer castings,
patterns and tooling and resin coated sand. See "Business and Properties."
The Company's executive offices are located at 1500 North Dale Mabry
Highway, Tampa, Florida 33607. The Company's telephone number is (813) 871-4811.
RECENT HISTORY
The Company was organized in August 1987 by a group of investors led by KKR
for the purpose of acquiring Original Jim Walter, pursuant to the LBO. Following
its organization, the Company organized and acquired all of the outstanding
shares of capital stock of a group of direct and indirect wholly owned
subsidiaries, including HAC. On September 18, 1987, HAC acquired approximately
95% of the outstanding shares of common stock of Original Jim Walter pursuant to
the Tender Offer. On January 7, 1988, (i) Original Jim Walter merged into HAC
(which changed its name to Jim Walter Corporation), (ii) HAC distributed
substantially all of its assets (principally excluding the stock of Celotex and
several other subsidiaries of Original Jim Walter) to a parent corporation of
HAC (which was merged into the Company on April 1, 1991) in redemption of all of
the shares of capital stock of HAC owned by such parent corporation, (iii) HAC
merged into its other stockholder, another indirect wholly owned subsidiary of
the Company, and (iv) the surviving corporation of such merger changed its name
to Jim Walter Corporation.
Following the Merger and prior to the commencement of the Chapter 11 Cases,
the Company undertook a program of corporate reorganizations and asset
dispositions, which were contemplated by all of the debt agreements entered into
in connection with the Tender Offer and the Merger. Pursuant to this program the
Company restructured and/or disposed of certain of the businesses of Original
Jim Walter, including the disposition in April, 1988 of all of the stock of the
parent corporation of J-II.
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Also during this time, the Company, certain of its subsidiaries and the
Indemnitees were named as co-defendants in the Veil Piercing Litigation brought
by or on behalf of the Asbestos Claimants against Celotex alleging, among other
things, that (i) Original Jim Walter, its successors and other entities,
including the Company and certain of its subsidiaries, were liable for all
damages, including asbestos-related damages, caused by products manufactured,
sold and distributed by a predecessor of Celotex by reason of the Veil Piercing
Claims, and (ii) the aforementioned distribution by HAC of substantially all of
its assets pursuant to the LBO constituted a fraudulent conveyance. See
"Business and Properties-- Legal Proceedings--Asbestos-Related Litigation
Settlements."
On December 27, 1989, the Company and 31 of its subsidiaries each filed a
voluntary petition for reorganization under Chapter 11 with the Bankruptcy
Court; one additional subsidiary also filed a voluntary petition for
reorganization under Chapter 11 with the Bankruptcy Court on December 3, 1990.
Two other subsidiaries, Cardem Insurance and J.W. Railroad, did not file
petitions for reorganization under Chapter 11. The filing of the voluntary
petitions resulted from a sequence of events stemming primarily from an
inability of the Company's interest reset advisors to reset interest rates on
approximately $624 million of outstanding indebtedness, which indebtedness by
its terms required that the interest rates thereon be reset to the rate per
annum such indebtedness should bear in order to have a bid value of 101% of the
principal amount thereof as of December 2, 1989. The reset advisors' inability
to reset the interest rates was primarily attributable to two factors: (i)
uncertainties arising from the pending Veil Piercing Litigation, including the
possibility either that such litigation would lead to the prohibition of further
asset sales and debt repayment or that substantial new asbestos-related claims
might become assertible against the Company, which uncertainties materially
hindered the ability of the Company and its subsidiaries to pursue a refinancing
or sell assets to reduce debt, and (ii) general turmoil in the high yield bond
markets at such time, both of which depressed the bid value of such
indebtedness.
On January 2, 1990, the Company and each of its subsidiaries party to the
Chapter 11 Cases filed the Adversary Proceeding against all known Asbestos
Claimants who had filed Veil Piercing Claims, Celotex and Jim Walter Corporation
seeking a declaration, among other things, that (i) the corporate veil between
Celotex and Original Jim Walter could not be pierced, (ii) the Company could not
be held liable for the asbestos-related liabilities of either Celotex or Jim
Walter Corporation on any grounds and (iii) the LBO could not be deemed a
fraudulent conveyance.
In January 1994, the indenture trustees for certain pre-LBO debentures of
Original Jim Walter assumed by the Company brought the Fraudulent Conveyance
Lawsuit for the benefit of the Company's estate and its creditors, which alleged
that the issuance of debt in connection with the LBO constituted a fraudulent
conveyance under New York and Florida law. The plaintiffs sought to avoid the
obligations incurred by the Company and its subsidiaries in the LBO.
On the Effective Date of the Plan of Reorganization, the Company and its
subsidiaries emerged from bankruptcy pursuant to the Plan of Reorganization. At
that time, pursuant to the Plan of Reorganization, 50,494,313 shares of Common
Stock were issued to certain former creditors and stockholders of the Company
and its subsidiaries and $490,000,000 aggregate principal amount of Series B
Notes were issued to certain former creditors of the Company and its
subsidiaries.
Also pursuant to the Plan of Reorganization, (i) the Veil Piercing Claims,
the Veil Piercing Litigation and the Adversary Proceeding, among other things,
were settled after a ruling by the Bankruptcy Court (which was confirmed on
appeal by the United States District Court for the Middle District of Florida)
finding in favor of the Company on every claim in the Adversary Proceeding and
(ii) the Fraudulent Conveyance Lawsuit was settled. See "Business and
Properties--Legal Proceedings-- Asbestos-Related Litigation Settlements."
17
<PAGE>
DIVIDEND POLICY
The Company has never paid dividends on its common stock and has no present
intention of paying any dividends on the Common Stock. The declaration and
payment of future dividends to holders of Common Stock will be at the discretion
of the Company's Board of Directors and will depend upon many factors, including
the Company's financial condition, earnings, capital requirements of its
operating subsidiaries, legal requirements and such other factors as the Board
of Directors deems relevant.
Under the DGCL, the Company may only declare and pay dividends out of
surplus (as defined in the DGCL), or, if there is no surplus and subject to
certain conditions, net profits for the fiscal year in which the dividend is
declared and/or the preceding fiscal year.
Under the Bank Revolving Credit Facility, the Company may pay cash dividends
only after August 31, 1995 in an amount during any twelve-month period not to
exceed the lesser of $5,500,000 and the Company's Available Cash Flow (as
defined in the Bank Revolving Credit Facility) during the four most recently
completed fiscal quarters, provided that the Company has met or exceeded certain
financial ratio tests and that no default under the Bank Revolving Credit
Facility has occurred or would result from the payment of such dividends. In
addition, the Indenture prohibits the Company from making Restricted Payments
(defined to include cash dividends); provided, however, the Company is permitted
to declare and pay a regular quarterly cash dividend not to exceed $.025 per
share on its Common Stock and to pay additional cash dividends in limited
amounts (as determined under the Indenture), in each case, so long as no default
under the Indenture has occurred or would result from the payment of such cash
dividend and certain other conditions are satisfied. See "Description of Certain
Indebtedness--Series B Senior Notes--Covenants" and "--Bank Revolving Credit
Facility."
MARKET FOR THE COMMON STOCK
Through the date hereof there has been no established public trading market
for the Common Stock. See "Certain Risk Factors--Liquidity; Absence of Public
Market." Pursuant to the Plan of Reorganization, an aggregate of 50,494,313
shares of Common Stock were issued on the Effective Date of the Plan of
Reorganization. Beginning on September 13, 1995 (180 days after the Effective
Date of the Plan of Reorganization), up to 4,374,453 additional shares of Common
Stock have been or may be issued to certain current and former stockholders of
the Company pursuant to the Plan of Reorganization. See "Security Ownership of
Management and Principal Stockholders" and "Description of Capital
Stock--Additional Stock Issuances." In reliance on the exemption provided by
Section 1145 of the Bankruptcy Code, none of the Common Stock was or will be
registered under the Securities Act in connection with its issuance pursuant to
the Plan of Reorganization; however, 31,911,136 of those shares are being
registered hereby for resale by the Selling Security Holders pursuant to certain
registration rights. See "Description of Capital Stock--Common Stock
Registration Rights Agreement." The remaining shares of Common Stock are or will
be freely tradeable without registration under the Securities Act, except for
shares issued to an "underwriter" (as defined in Section 1145(b) of the
Bankruptcy Code) or subsequently acquired by an "affiliate" of the Company, all
of which shares will be "restricted securities" within the meaning of Rule 144
under the Securities Act ("Rule 144"). Shares of Common Stock which are
"restricted securities" within the meaning of Rule 144 may not be resold in
absence of registration under the Securities Act other than in accordance with
Rule 144 or another exemption from registration. See "Description of Capital
Stock--Common Stock Registration Rights Agreement" for a discussion of the
rights of certain stockholders of the Company to request registration of sales
of their shares of Common Stock. As of September 15, 1995, there were
approximately 87 holders of record of Common Stock and there were no outstanding
options or warrants to purchase, or securities convertible into, Common Stock.
18
<PAGE>
CAPITALIZATION
The following table sets forth the consolidated capitalization of the
Company and its subsidiaries as of May 31, 1995. This table should be read in
conjunction with the Company's Consolidated Financial Statements and the notes
thereto.
MAY 31, 1995
----------------------
(DOLLARS IN THOUSANDS)
LONG-TERM SENIOR DEBT:
Mid-State Trust II Mortgage-Backed Notes............ $ 584,000
Mid-State Trust III Asset Backed Notes.............. 173,527
Mid-State Trust IV Asset Backed Notes............... 953,843
Mid-State Trust V Variable Funding Loan(1).......... 15,000
12.19% Series B Senior Notes Due 2000............... 490,000
Bank Revolving Credit Facility (2).................. --
Other Senior Debt................................... 4,000
-----------
$2,220,370
-----------
-----------
STOCKHOLDERS EQUITY:
Common Stock (par value $.01 per share, 200,000,000
shares authorized, 50,494,313 shares issued and
outstanding)...................................... $ 505
Capital in Excess of Par Value...................... 1,159,384
Retained Earnings (Deficit)......................... (793,165)
Excess of Additional Pension Liability over
Unrecognized Prior Years Service Cost............. (5,950)
-----------
$ 360,774
-----------
-----------
- ------------
(1) The Mid-State Trust V Variable Funding Loan is available to provide
temporary financing to Mid-State Homes for its current purchases of
instalment notes and mortgages from Jim Walter Homes. The agreement provides
for a three-year $500 million credit facility secured by the instalment
notes and mortgages Mid-State Trust V purchases from Mid-State Homes. See
"Business and Properties--Mid-State Homes."
(2) The Bank Revolving Credit Facility is available to provide up to $150
million at any time outstanding for working capital needs with a sublimit
for trade and standby letters of credit in an amount not in excess of $40
million and a sub-facility for swingline advances in an amount not in excess
of $15 million. See "Description of Certain Indebtedness--Bank Revolving
Credit Facility."
19
<PAGE>
PRO FORMA CONSOLIDATED STATEMENT OF OPERATIONS
The following unaudited pro forma consolidated statement of operations was
prepared to illustrate the estimated effects of the Plan of Reorganization and
related financings and the application of the proceeds thereof as if they had
occurred as of June 1, 1994.
THE FOLLOWING UNAUDITED PRO FORMA CONSOLIDATED STATEMENT OF OPERATIONS DOES
NOT PURPORT TO BE INDICATIVE OF THE RESULTS OF OPERATIONS THAT WOULD ACTUALLY
HAVE BEEN REPORTED HAD SUCH TRANSACTIONS IN FACT BEEN CONSUMMATED ON SUCH DATE
OR OF THE RESULTS OF OPERATIONS THAT MAY BE REPORTED BY THE COMPANY IN THE
FUTURE. The unaudited pro forma adjustments are based upon available information
and certain assumptions that the Company believes are reasonable. All of the
information presented below should be read in conjunction with the Company's
Consolidated Financial Statements and the notes thereto and the other
information contained elsewhere in this Prospectus.
PRO FORMA CONSOLIDATED STATEMENT OF OPERATIONS
(UNAUDITED)
<TABLE>
<CAPTION>
FOR THE YEAR ENDED MAY 31, 1995
--------------------------------------------
AS REPORTED ADJUSTMENTS PRO FORMA
----------- ----------- -----------
(DOLLARS IN THOUSANDS EXCEPT PER SHARE
AMOUNTS)
<S> <C> <C> <C>
Sales and revenues:
Net sales......................................... $ 1,181,635 $ 1,181,635
Time charges...................................... 222,221 222,221
Miscellaneous..................................... 30,838 30,838
Interest income from Chapter 11 proceedings....... 7,628 $ (7,628)(1) --
----------- ----------- -----------
1,442,322 (7,628) 1,434,694
----------- ----------- -----------
Costs and expenses:
Cost of sales..................................... 951,381 951,381
Depreciation, depletion and amortization.......... 72,037 72,037
Selling, general and administrative............... 130,616 130,616
Postretirement health benefits.................... 25,961 25,961
Provision for possible losses..................... 4,485 4,485
Chapter 11 costs.................................. 442,362 (442,362)(2) --
Interest and amortization of debt discount and
expense......................................... 304,548 (81,364)(3) 223,184
Amortization of excess of purchase price over net
assets acquired................................. 40,027 40,027
----------- ----------- -----------
1,971,417 (523,726) 1,447,691
----------- ----------- -----------
(529,095) 516,098 (12,997)
Income tax benefit (expense)........................ 170,450 (195,730)(4) (25,280)
----------- ----------- -----------
Net income (loss)................................... $ (358,645) $ 320,368 $ (38,277)
----------- ----------- -----------
----------- ----------- -----------
Net loss per share.................................. $ (0.75)(5)
-----------
-----------
Weighted average shares outstanding(5).............. 50,988,626(5)
</TABLE>
- ------------
Changes from historical financial statements in the pro forma consolidated
statement of operations consist of the following adjustments (all amounts in
thousands):
(1) Interest income from Chapter 11 proceedings of $7,628, which would not have
been realized assuming the Plan of Reorganization became effective June 1,
1994, has been eliminated.
(Footnotes continued on following page)
20
<PAGE>
(Footnotes continued from preceding page)
(2) Chapter 11 costs of $442,362, which would not have been incurred assuming
the Plan of Reorganization became effective June 1, 1994, have been
eliminated.
(3) Interest and amortization of debt discount and expense has been reduced by
$81,364 to give retroactive effect as if all indebtedness to be repaid
pursuant to the Plan of Reorganization was so done as of June 1, 1994 and
the $490 million of Series B Notes had been outstanding for the full year
ended May 31, 1995. Borrowings under the Mid-State Trust IV Asset Backed
Notes were assumed to increase during the period June 1, 1994 through
November 30, 1994 proportionately with the comparable period increase in the
outstanding economic balance of the instalment notes sold by Mid-State Homes
to Mid-State Trust IV on March 16, 1995. Borrowings under the Mid-State
Trust V Variable Funding Loan Agreement were based on 78% of Jim Walter
Homes' credit sales during the six-month period commencing on December 1,
1994 and ending on May 31, 1995. This time period is subsequent to the
Mid-State Trust IV cut-off date for purchases of instalment notes from
Mid-State Homes. See "Business and Properties--Mid-State Homes." No working
capital borrowings were assumed under the Bank Revolving Credit Facility.
Pro forma interest expense, however, includes letter of credit fees and
unused working capital commitment fees.
(4) The income tax benefit has been adjusted at the applicable statutory rates
to give effect to the pro forma adjustments described above.
(5) Net loss per share has been computed based on the weighted average number of
shares of Common Stock issuable (50,988,626, which includes 494,313
additional shares of Common Stock issued on September 13, 1995 (180 days
after the Effective Date of the Plan of Reorganization) pursuant to the Plan
of Reorganization, but does not include 3,880,140 additional shares issued
to an escrow account on such date pursuant to the Plan of Reorganization
because such issuance is contingent on future events and would be
anti-dilutive; see "Description of Capital Stock--Additional Stock
Issuances").
21
<PAGE>
SELECTED HISTORICAL CONSOLIDATED FINANCIAL DATA
The following data, insofar as it relates to each of the fiscal years 1991
through 1995, has been derived from annual financial statements, including the
consolidated balance sheets at May 31, 1995 and 1994 and the related
consolidated statements of operations and retained earnings (deficit) and of
cash flows for the three years ended May 31, 1995 and the notes thereto
appearing elsewhere herein. All of the information presented below should be
read in conjunction with the Company's Consolidated Financial Statements and the
notes thereto, the Pro Forma Consolidated Statement of Operations and the notes
thereto and the other information contained elsewhere in this Prospectus.
<TABLE>
<CAPTION>
YEARS ENDED MAY 31,
------------------------------------------------------------------
1991(1) 1992 1993(4) 1994 1995
---------- ---------- ---------- ---------- ----------
(DOLLARS IN THOUSANDS)
<S> <C> <C> <C> <C> <C>
Summary of Operations:
Sales and revenues................ $1,326,397 $1,366,581 $1,318,986 $1,328,524 $1,442,322
Cost of sales (exclusive of
depreciation)................... 826,455 891,882 804,411 845,061 951,381
Depreciation, depletion and
amortization.................... 75,099 82,801 70,483 71,035 72,037
Interest and amortization of debt
discount and expense(2)......... 209,511 177,060 171,581 155,470 304,548
Income tax expense (benefit)...... 19,454 12,463 24,328 28,917 (170,450)
Income (loss) before discontinued
operations and cumulative effect
of accounting change(1)(4)...... 20,632 22,342 46,594 7,175 (358,645)
Net income (loss)................. 14,462 22,342 (58,014) 7,175 (358,645)
Ratio of earnings from continuing
operations to fixed charges(3).. 1.19 1.18 1.39 1.22 --
Additional Financial Data:
Gross capital expenditures........ $ 69,046 $ 68,349 $ 71,708 $ 69,831 $ 91,317
Net property, plant and
equipment....................... 683,777 664,622 663,040 657,863 662,792
Total assets...................... 3,276,211 3,171,266 3,223,234 3,140,892 3,245,153
Long term senior debt............. 1,073,919 948,782 1,046,971 871,970 2,220,370
Liabilities subject to Chapter 11
proceedings..................... 1,883,704 1,845,328 1,725,631 1,727,684 --
Stockholders equity (deficit)..... (253,282) (230,119) (287,737) (282,353) 360,774
Employees at end of year........... 8,104 7,645 7,545 7,676 7,888
</TABLE>
- ------------
(1) The selected financial data reflects operations sold as discontinued
operations.
(2) Interest on unsecured obligations not accrued since December 27, 1989
amounted to $163.7 million in each of the years ended May 31, 1991 through
1994. The Company recorded additional interest and amortization of debt
discount and expense of $141.4 million related to the consummation of the
Plan of Reorganization in fiscal 1995.
(3) The ratio of earnings from continuing operations to fixed charges is
computed by dividing the sum of income (loss) from continuing operations and
fixed charges by fixed charges. Fixed charges consist of interest expense,
amortization of debt discount and expense and the portion (one-third) of
rent expense deemed to represent interest. For the year ended May 31, 1995,
the loss from continuing operations plus fixed charges was inadequate to
cover fixed charges. The coverage deficiency was $530.3 million. On a pro
forma basis for the fiscal year ended May 31, 1995, after giving effect to
the Plan of Reorganization and the related transactions as if they had
occurred as of June 1, 1994, the loss from continuing operations plus fixed
charges would have been inadequate to cover fixed charges. The coverage
deficiency would have been $14.2 million. See "Pro Forma Consolidated
Statement of Operations."
(4) The Company adopted FAS 106 and FAS 109 during fiscal year 1993.
22
<PAGE>
MANAGEMENT'S DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATIONS
INTRODUCTION
This discussion should be read in conjunction with the Company's
Consolidated Financial Statements and the notes thereto, particularly the
"Segment Information" on pages F-26 to F-28 which presents sales and operating
income by operating group.
Pursuant to the Plan of Reorganization, the Company emerged from bankruptcy
on March 17, 1995. Accordingly, the Company's Consolidated Balance Sheets at and
after May 31, 1995 and its Consolidated Statements of Operations and Retained
Earnings (Deficit) for May 31, 1995 and periods thereafter will not be
comparable to the Consolidated Financial Statements for prior periods included
elsewhere herein. Furthermore, the Company's Consolidated Statement of
Operations and Retained Earnings (Deficit) for May 31, 1995 will not be
comparable to the Company's consolidated statements of operations and retained
earnings (deficit) for periods thereafter.
RESULTS OF OPERATIONS
Years ended May 31, 1995 and 1994. Net sales and revenues for the year ended
May 31, 1995 were $113.8 million, or 8.6%, greater than the prior year, with a
7.0% increase in volume and a 1.6% increase in pricing and/or product mix. The
increase in net sales and revenues was the result of improved sales and revenues
in all operating groups except Homebuilding and Related Financing.
Industrial and Other Products Group sales and revenues were $59.6 million,
or 26.5%, greater than the prior year. Increased sales volumes of aluminum foil
and sheet products, foundry coke, chemicals, patterns and tooling, resin coated
sand, window components and metal building and foundry products, combined with
higher selling prices for aluminum foil and sheet products, furnace coke, window
components and metal building and foundry products and a $3.6 million gain from
the sale of JW Window Components, Inc.'s ("JW Window Components") Hialeah,
Florida facility were partially offset by reduced sales volumes of furnace coke
and slag wool. The Group's operating income of $11.9 million was $1.9 million
lower than the prior year. The decrease was the result of higher manufacturing
costs in the window components business due to increased raw material costs,
especially aluminum, a major raw material component, startup costs associated
with the consolidation and relocation during 1995 of JW Window Components'
Hialeah, Florida and Columbus, Ohio operations to Elizabethton, Tennessee and
reduced operating efficiencies, including startup problems associated with
relocation of Vestal Manufacturing Company's ("Vestal Manufacturing") steel
fabrication operation in May 1994. These decreases were partially offset by
increased income for aluminum foil and sheet, foundry coke, chemicals, patterns
and tooling and resin coated sand due to the sales increases, improved gross
profit margins for furnace coke and the gain from the Hialeah facility sale.
Water and Waste Water Transmission Products Group sales and revenues were
$55.0 million, or 15.4%, ahead of the prior year. The increase was the result of
higher sales volumes and prices for ductile iron pressure pipe, valves and
hydrants and castings. The order backlog for pressure pipe at May 31, 1995 was
121,548 tons, which represents approximately three months' shipments, compared
to 111,907 tons at May 31, 1994. Operating income of $28.5 million exceeded the
prior year by $2.8 million. The improved performance resulted from the increased
sales prices and volumes, partially offset by higher raw material costs,
especially scrap, a major raw material component.
Natural Resources Group sales and revenues were $12.8 million, or 4.0%,
greater than the prior year. The increase resulted from greater sales volumes
for coal and a $6.1 million gain from the sale of excess real estate, partially
offset by lower sale prices for coal and methane gas and lower outside coal and
gas royalty income. A total of 7.20 million tons of coal was sold in 1995 versus
6.56 million tons in 1994, a 9.8% increase. The increase in tonnage sold was the
result of increased shipments to Alabama
23
<PAGE>
Power Company ("Alabama Power") and certain export customers, partially offset
by lower shipments to Japanese steel mills. Increased shipments to Alabama Power
were the result of a new agreement signed May 10, 1994 (the "New Alabama Power
Contract") for the sale and purchase of coal, replacing the 1979 contract and
the 1988 amendment thereto. See "Business and Properties--Jim Walter Resources."
Under the New Alabama Power Contract, Alabama Power will purchase 4.0 million
tons of coal per year from Jim Walter Resources during the period July 1, 1994
through August 31, 1999. In addition, Jim Walter Resources will have the option
to extend the New Alabama Power Contract through August 31, 2004, subject to
mutual agreement on the market pricing mechanism and certain other terms and
conditions of such extension. The New Alabama Power Contract has a fixed price
subject to an escalation based on the Consumer Price Index or another
appropriate published index and adjustments for government impositions and
quality. The New Alabama Power Contract includes favorable modifications of
specification, shipping deviations and changes in transportation arrangements.
The average price per ton of coal sold decreased $2.79 from $44.13 in 1994 to
$41.34 in 1995 due to lower prices realized on shipments to Alabama Power, the
Japanese steel mills and certain export customers. Blue Creek Mine No. 5 ("Mine
No. 5") was shut down from November 17, 1993 through December 16, 1993 and from
early April 1994 until May 16, 1994 as a result of a fire due to spontaneous
combustion heatings. Representatives of Jim Walter Resources, the Mine Safety
and Health Administration ("MSHA"), Alabama State Mine Inspectors and the United
Mine Workers of America ("UMWA") agreed that the longwall coal panel being mined
in Mine No. 5 at the time the fire recurred in April 1994 would be abandoned and
sealed off. Development mining for the two remaining longwall coal panels in
this section of the mine resumed on May 16, 1994 and mining on the first
longwall panel resumed on January 17, 1995. Production was adversely impacted
until such date; however, a portion of the increased costs is expected to be
recovered from business interruption insurance and the Company has commenced
litigation seeking to enforce such insurance. See "Business and
Properties--Legal Proceedings--Jim Walter Resources" and Note 11 of Notes to
Financial Statements. Operating income of $20.1 million exceeded the prior year
by $21.2 million. The improved performance principally resulted from the
increased sales volumes of coal, lower costs per ton of coal produced ($37.13 in
1995 versus $38.29 in 1994) and the gain on the sale of certain excess real
estate, partially offset by decreases in selling prices for coal and methane gas
and lower outside coal and gas royalty income.
Homebuilding and Related Financing Group sales and revenues were $17.4
million, or 4.1%, below the prior year. This performance reflects a 4.7%
decrease in the number of homes sold, from 4,331 units in 1994 to 4,126 units in
1995, partially offset by an increase in the average selling price per home
sold, from $38,300 in 1994 to $40,200 in 1995. The decrease in unit sales
reflects continuing strong competition in virtually every Jim Walter Homes sales
region. The higher average selling price in 1995 principally reflects a smaller
percentage of the lower priced Affordable line homes sold. Jim Walter Homes'
backlog at May 31, 1995 was 1,529 units (all of which are expected to be
completed prior to the end of fiscal 1996) compared to 2,065 units at May 31,
1994. Time charge income (revenues received from Mid-State Homes' instalment
note portfolio) decreased from $238.1 million in 1994 to $222.2 million in 1995.
The decrease in time charge income is attributable to a reduction in the total
number of accounts and lower payoffs received in advance of maturity, partially
offset by an increase in the average balance per account in the portfolio. The
Group's operating income of $76.5 million (net of interest expense) was $25.4
million below the prior year. This decrease resulted from the lower number of
homes sold, reduced homebuilding gross profit margins resulting from discounts
related to sales promotions on certain models, the decrease in time charge
income and higher interest expense in 1995 ($131.6 million) as compared to that
incurred in 1994 ($128.8 million), partially offset by the increase in the
average selling price per home sold.
Cost of sales, exclusive of depreciation, of $951.4 million was 80.5% of net
sales versus $845.1 million and 79.1% in 1994. The cost of sales percentage
increase was primarily the result of lower gross
24
<PAGE>
profit margins on home sales, pipe products, window components and metal
building and foundry products.
Selling, general and administrative expenses (exclusive of postretirement
health benefits) of $130.6 million were 9.1% of net sales and revenues in 1995
versus $127.9 million and 9.6% in 1994.
Chapter 11 costs of $442.4 million in 1995 include $390 million in
settlement of all asbestos-related veil piercing claims and related legal fees
and $52.4 million for professional fees, settlement of various disputed claims
and other bankruptcy expenses. See "Business Properties--Legal Proceedings--
Asbestos-Related Litigation Settlements."
Interest and amortization of debt discount and expense increased $149.1
million principally due to $141.4 million of additional interest and
amortization of debt expense related to consummation of the Plan of
Reorganization. The average rate of interest in 1995 was 10.19% (such rate
calculated excluding $141.4 million additional interest and amortization of debt
discount and expense related to the consummation of the Plan of Reorganization)
versus 9.58% in 1994. The prime interest rate ranged from 7.25% to 9.0% in 1995
compared to a range of 6.0% to 7.25% in 1994. During the pendency of the Chapter
11 Cases, the Company did not accrue interest on its pre-filing date unsecured
debt obligations.
Amortization of excess of purchase price over net assets acquired (goodwill)
decreased $8.5 million primarily due to lower payoffs received in advance of
maturity on the instalment note portfolio.
The income tax benefit for 1995 was $170.5 million, which included
recognition of tax benefits resulting from $583.8 million of additional expenses
related to consummation of the Plan of Reorganization previously mentioned,
compared to income tax expense of $28.9 million in 1994. On August 10, 1993, the
Omnibus Budget Reconciliation Act of 1993 was signed into law raising the
federal corporate income tax rate to 35% from 34% retroactive to January 1,
1993. The effect of the rate change resulted in a $2.8 million charge to
deferred tax expense in 1994. See Note 8 of Notes to Financial Statements for
further discussion of income taxes.
The net loss for 1995 and the net income for 1994 reflect all of the
previously mentioned factors as well as the impact of slightly higher
postretirement health benefits, partially offset by greater interest income from
Chapter 11 proceedings.
Years ended May 31, 1994 and 1993. Net sales and revenues for the year ended
May 31, 1994 were $9.5 million, or .7%, greater than the prior year. The
improved performance was the result of increased pricing and/or product mix as
sales volumes were level with the prior year. The increase in net sales and
revenues was the result of improved sales and revenues in all operating groups
except the Natural Resources Group.
Homebuilding and Related Financing Group sales and revenues were $5.2
million, or 1.2%, greater than the prior year. This performance reflects a 3.5%
increase in the average selling price per home sold, from $37,000 in 1993 to
$38,300 in 1994, which was more than offset by a 9.5% decrease in the number of
homes sold, from 4,784 units in 1993 to 4,331 units in 1994. The higher average
selling price in 1994 reflects a price increase instituted on April 1, 1993 to
compensate for higher lumber costs and a greater percentage of "90% complete"
homes sold in 1994 versus the prior year. The decrease in unit sales resulted
from strong competition in virtually every Jim Walter Homes sales region. Jim
Walter Homes' backlog at May 31, 1994 was 2,065 units compared to 1,831 units at
May 31, 1993. Time charge income (revenues received from Mid-State Homes's
instalment note portfolio) increased from $218.7 million in 1993 to $238.1
million in 1994. The increase in time charge income is attributable to increased
payoffs received in advance of maturity and to an increase in the average
balance per account in the portfolio. The Group's operating income of $102.0
million (net of interest expense) exceeded the prior year by $13.1 million. This
improvement resulted from the increase in the average selling price per home
sold, the higher time charge income and lower interest expense in 1994 ($128.8
million) compared
25
<PAGE>
to that incurred in 1993 ($137.9 million), partially offset by the lower number
of homes sold, reduced homebuilding gross profit margins and higher selling,
general and administrative expenses. The lower gross profit margins were the
result of higher average lumber prices, the effect of discounts relating to
sales promotions on certain models instituted during the period February 1994
through May 1994 and the decision in October 1992 to reduce gross profit margins
on five smaller basic shelter homes to generate additional sales.
Industrial and Other Products Group sales and revenues were $12.1 million,
or 5.7%, ahead of the prior year. Increased sales volumes of aluminum foil,
foundry coke, window components, metal building and foundry products, resin
coated sand and chemicals, combined with higher selling prices for furnace coke
and window components, were partially offset by lower sales volumes of slag wool
and patterns and tooling and lower selling prices for aluminum foil and sheet
products. The Group's operating income of $13.9 million was $2.6 million greater
than the prior year. The improved performance resulted from the sales increases
and higher gross profit margins for furnace coke and slag wool, partially offset
by reduced margins for chemicals, foundry coke, window components, metal
building and foundry products, resin coated sand and patterns and tooling.
Water and Waste Water Transmission Products Group sales and revenues were
$26.0 million, or 7.8%, ahead of the prior year. The increase was the result of
higher selling prices and volumes for ductile iron pressure pipe and valves and
hydrants, greater castings sales volume and increased selling prices for
fittings, partially offset by lower fittings volume. The order backlog of
pressure pipe at May 31, 1994 was 111,907 tons compared to 121,173 tons at May
31, 1993. Operating income of $25.6 million exceeded the prior year period by
$9.6 million. The improved performance resulted from the increased sales prices
and volumes, partially offset by higher raw material costs, especially scrap (a
major raw material component) and lower gross profit margins for castings.
Natural Resources Group sales and revenues were $31.6 million, or 9.0%,
below the prior year. The decrease resulted from lower sales volumes and prices
for coal and reduced methane gas selling prices, partially offset by increased
methane gas sales volume and an increase in outside gas and timber royalty
income. A total of 6.56 million tons of coal was sold in 1994 versus 7.18
million tons in 1993, an 8.6% decrease. The decrease in tonnage sold was the
result of lower shipments to Alabama Power and Japanese steel mills. Reduced
shipments to Alabama Power were the result of an agreement reached with Alabama
Power to ship reduced tonnage for the contract year ending June 30, 1994 (see
"Business and Properties--Jim Walter Resources"). The average price per ton of
coal decreased 1.6%, from $44.84 in 1993 to $44.13 in 1994, due to lower prices
realized on shipments to Japanese steel mills and other export customers. As
previously mentioned, Mine No. 5 was shut down from November 17, 1993 through
December 16, 1993 and from early April 1994 until May 16, 1994 as a result of a
fire due to spontaneous combustion heatings. Representatives of Jim Walter
Resources, MSHA, Alabama State Mine Inspectors and the UMWA investigated the
problem. Because the area of the suspected fire was inaccessible, a decision was
made to drill vertical holes from the surface and flood the area with
combinations of water, carbon dioxide, foam and cementitious mixtures to
neutralize the fire. MSHA approved the resumption of operations at the mine on
December 17, 1993. In early April 1994, the fire recurred and the mine was shut
down. Representatives of Jim Walter Resources, MSHA, Alabama State Mine
Inspectors and the UMWA agreed that the longwall coal panel being mined at the
time the fire recurred would be abandoned and sealed off. Development mining for
the two remaining longwall coal panels in this section of the mine resumed on
May 16, 1994 and mining on the first longwall panel resumed on January 17, 1995.
Production was adversely impacted until January 17, 1995; however, a portion of
the increased costs is expected to be recovered from business interruption
insurance and the Company has commenced litigation seeking to enforce such
insurance. See "Business and Properties-- Legal Proceedings--Jim Walter
Resources" and Note 11 of Notes to Financial Statements. The Group incurred an
operating loss of $1.2 million in 1994 compared to operating income of $50.8
million in 1993. The lower performance reflects the decrease in sales volumes
and prices for coal, lower methane gas selling prices, reduced coal mining
productivity as a result of various geological problems in all
26
<PAGE>
mines during portions of the year which resulted in higher costs per ton of coal
produced ($38.29 in 1994 versus $33.45 in 1993) and idle plant costs of $5.7
million associated with the Mine No. 5 shut downs, all of which more than offset
the effect of increased methane gas sales volume and greater outside gas and
timber royalty income.
Cost of sales in fiscal 1994, exclusive of depreciation, of $845.1 million
was 79.1% of net sales versus $804.4 million and 75.0% in fiscal 1993. The cost
of sales percentage increase was primarily the result of lower gross profit
margins on home sales, coal, chemicals, foundry coke, castings, resin coated
sand, patterns and tooling, window components and metal building and foundry
products, partially offset by improved margins on furnace coke, slag wool and
pipe products.
Selling, general and administrative expenses (exclusive of postretirement
health benefits) of $127.9 million were 9.6% of net sales and revenues in 1994
versus $124.6 million and 9.4% in 1993.
The Company adopted Statement of FAS 106 in 1993 (see Note 12 of Notes to
Financial Statements). Upon adoption the Company elected to record the
transition obligation of $166.4 million pre-tax ($104.6 million after tax) as a
one time charge against earnings rather than amortize it over a longer period.
The annual accrual for postretirement health benefit costs in 1994 was $25.6
million versus $23.5 million in 1993.
Interest and amortization of debt discount and expense decreased $16.1
million. The decrease was principally the result of reductions in the
outstanding debt balances on the Mid-State Trust II Mortgaged-Backed Notes and
Mid-State Trust III Asset Backed Notes (see "Business and Properties--Mid-State
Homes" and Note 7 of Notes to Financial Statements) and lower amortization of
debt discount and expense, partially offset by higher interest rates. The
average interest rate in 1994 was 9.58% versus 9.44% in 1993. The prime interest
rate ranged from 6.0% to 7.25% in 1994 compared to a range of 6.0% to 6.5% in
1993. Interest in the amount of $724.3 million ($163.7 million in each of the
years 1994 and 1993) on unsecured obligations was not accrued in the
Consolidated Financial Statements since the date of the filing of petitions for
reorganization. This amount was based on the balances of the unsecured debt
obligations and their interest rates as of December 27, 1989 and did not
consider fluctuations in the level of short-term debt and interest rates and the
issuance of commercial paper that would have occurred to meet the working
capital requirements of the Homebuilding and Related Financing Group.
Amortization of excess of purchase price over net assets acquired (goodwill)
increased $9.1 million. The increase primarily resulted from adjustments to
amortization of the goodwill due to greater payoffs received in advance of
maturity on the instalment note portfolio.
On August 10, 1993, the Omnibus Budget Reconciliation Act of 1993 was signed
into law raising the federal corporate income tax rate to 35% from 34%,
retroactive to January 1, 1993. The effect of the rate change resulted in a $2.8
million charge to deferred tax expense. The rate change effect combined with
reduced percentage depletion and increased amortization of goodwill (both
permanent book/tax differences) resulted in an effective tax rate of 80.1% in
1994 versus an effective tax rate of 34.3% in 1993.
The net income for fiscal 1994 and the net loss for fiscal 1993 reflects all
of the previously mentioned factors as well as the $4.5 million increase in
Chapter 11 costs, partially offset by slightly higher interest income from
Chapter 11 proceedings. The increase in Chapter 11 costs was due to the Veil
Piercing Litigation (see Note 11 of Notes to Financial Statements) and the
filing of two amended plans of reorganization.
Years ended May 31, 1993 and 1992. As previously mentioned, the Company
adopted FAS 106 in 1993. Accordingly, operating income presented in the "Segment
Information" includes postretirement health benefits of $23.5 million in 1993.
However, for purposes of the following discussion of results of
27
<PAGE>
operations for the years ended May 31, 1993 and 1992, the fiscal 1993 operating
income referred to in each business segment excludes such postretirement health
benefits expenses (hereinafter referred to as "1993 adjusted operating income").
Net sales and revenues for the year ended May 31, 1993 decreased $47.6
million, or 3.5%. A 5.9% decrease in volume was partially offset by a 2.4%
increase in price and/or product mix. The decrease in net sales and revenues
resulted from lower sales and revenues in the Water and Waste Water Transmission
Products and Natural Resources Groups, partially offset by improved sales in the
Homebuilding and Related Financing and Industrial and Other Products Groups.
Water and Waste Water Transmission Products Group sales and revenues were
$953,000, or .3%, below the prior year. The decrease was basically the result of
lower ductile iron pressure pipe sales volume due to weak construction activity
and rehabilitation work, partially offset by improved selling prices and greater
castings sales volume. The order backlog of pressure pipe at May 31, 1993 was
121,173 tons compared to 121,956 tons at May 31, 1992. The 1993 adjusted
operating income of $20.2 million was $3.2 million below the prior year. The
effect of lower ductile iron pressure pipe sales volume on this highly capital
intensive product group was the primary reason for the decline in operating
profit, which was partially offset by lower scrap costs (a major raw material
component), improved selling prices, higher castings profit margins and reduced
selling, general and administrative expenses (due principally to legal and
settlement costs in 1992 associated with a lawsuit filed by the City of
Atlanta).
Natural Resources Group sales and revenues were $68.3 million, or 16.3%,
below the prior year. The decrease was the result of lower coal shipments and a
decrease in outside coal royalties, partially offset by higher average selling
prices for coal and methane gas and greater methane gas sales volume. A total of
7.18 million tons of coal was sold in 1993 versus 9.18 million tons in 1992, a
21.8% decrease. On June 17, 1992 a major production hoist accident occurred at
Blue Creek Mine No. 3 ("Mine No. 3") causing extensive damage. The mine did not
resume production until August 31, 1992. The hoist accident resulted in a
mutually agreed postponement of shipments of 400,000 tons to Alabama Power from
the period July through September 1992 to the period January through June 1993.
Fiscal 1992 tonnage shipments to Alabama Power were favorably impacted by a
separate lower selling price short-term contract for 964,000 tons. Shipments to
Japanese steel mills and other export customers were also below the prior year
due to the hoist accident and an April 1992 workforce reduction which reduced
production tonnage available for sale. The average price per ton of coal sold
increased 4.9%, from $42.76 in 1992 to $44.84 in 1993. The higher price
realization in 1993 was the result of coal shipped to Alabama Power in 1992
under the previously mentioned separate lower selling price short-term contract,
partially offset by lower selling prices to the Japanese steel mills and other
export customers in 1993. The Group's 1993 adjusted operating income of $64.2
million exceeded the prior year by $48.2 million. The improved performance
resulted from the increased coal and methane gas selling prices, higher methane
gas sales volume, lower selling, general and administrative expenses and
improved mining productivity, including the effect of the April 1992 workforce
reduction, which resulted in lower costs per ton of coal produced ($33.45 in
1993 versus $36.03 in 1992), partially offset by the reduced coal sales volume
and the decrease in outside coal royalties. Prior year results were also
adversely impacted by severance, vacation pay and ongoing medical benefits
associated with the April 1992 workforce reduction ($6.2 million), accelerated
depreciation on the remaining assets at a previously closed small coal mine
($5.6 million) and idle plant costs associated with a three-week shutdown of
Blue Creek Mine No. 4 ("Mine No. 4") due to an accident which damaged the
production hoist ($4.4 million) and wildcat strikes by the UMWA ($2.4 million)
in August 1991.
Homebuilding and Related Financing Group sales and revenues were $10.3
million, or 2.5%, greater than 1992. This performance reflects a 6.9% increase
in the average selling price per home sold, from $34,600 in 1992 to $37,000 in
1993, which was more than offset by a 9.8% decrease in the number of homes sold,
from 5,305 units in 1992 to 4,784 units in 1993. The increase in average selling
price in 1993 was attributable to higher average prices realized on both the
Standard line and the larger sized
28
<PAGE>
Regency homes combined with a greater percentage of Regency homes sold. The
decrease in unit sales reflected strong competition in virtually every Jim
Walter Homes sales region and 1993 having one-week shorter sales period than
1992. Jim Walter Homes' backlog at May 31, 1993 was 1,831 units compared to
1,637 units at May 31, 1992. Time charge income (revenues received from
Mid-State Homes' instalment note portfolio) increased from $195.0 million in
1992 to $218.7 million in 1993. The increase in time charge income was
attributable to the growth of the mortgage portfolio, increased payoffs received
in advance of maturity and new mortgages having a higher yield than the older
mortgages paying out. The Group's 1993 adjusted operating income of $90.9
million (net of interest expense) exceeded the prior year by $8.2 million. This
improvement resulted from the increase in average selling price per home sold,
the higher time charge income and lower selling, general and administrative
expenses, partially offset by the lower number of homes sold, reduced
homebuilding gross profit margins (due principally to the sales of the larger
sized, lower margin Regency homes and increased lumber prices) and slightly
higher interest expense in 1993 ($137.9 million) as compared to that incurred in
1992 ($137.0 million). Lumber prices rose from $259 per thousand board feet in
June 1992 to a high of $506 in March 1993 and ended the year at $325. A price
increase was instituted effective April 1, 1993 to compensate for these
increased costs.
Industrial and Other Products Group sales and revenues were $8.5 million, or
4.2%, greater than the prior year. Increased sales volumes of foundry coke,
chemicals and aluminum foil were partially offset by lower sales volumes of
aluminum sheet, resin coated sand, patterns and tooling, furnace coke and slag
wool and lower selling prices for aluminum foil and sheet, furnace coke, resin
coated sand and patterns and tooling. The Group's 1993 adjusted operating income
of $14.6 million was $120,000 below the prior year. The decrease was the result
of lower margins for chemicals, resin coated sand and patterns and tooling.
Cost of sales, exclusive of depreciation, of $804.4 million was 75.0% of net
sales versus $891.9 million and 78.3% in 1992. The cost of sales percentage
decrease was primarily the result of improved gross profit margins on coal,
metal building and foundry products and castings, partially offset by lower
margins on home sales, ductile iron pressure pipe, chemicals, resin coated sand
and patterns and tooling. Results in 1992 were adversely affected by the impact
of charges resulting from the previously mentioned Jim Walter Resources mining
operations workforce reduction and idle plant costs associated with the wildcat
strikes by the UMWA.
Selling, general and administrative expenses of $124.6 million were 9.4% of
net sales and revenues in 1993 as compared to $129.4 million and 9.5% in 1992.
Expenses in 1992 were adversely impacted by legal and settlement costs
associated with a lawsuit filed by the City of Atlanta.
As previously mentioned, the Company adopted FAS 106 in 1993. Upon adoption,
the Company elected to record the transition obligation of $166.4 million
pre-tax ($104.6 million after tax) as a one time charge against earnings rather
than amortize it over a longer period. The annual accrual under the new
accounting method amounted to $23.5 million in the year ended May 31, 1993. See
Note 12 of the Notes to Financial Statements.
Interest and amortization of debt discount and expense decreased $5.5
million. The decrease was the result of lower outstanding debt balances on
secured obligations and lower interest rates, partially offset by greater
amortization of debt discount and expense. The average interest rate in 1993 was
9.44% versus 9.62% in 1992. The prime interest rate ranged from 6.0% to 6.5% in
1993 compared to a range of 6.25% to 8.5% in 1992. Interest in the amount of
$560.6 million ($163.7 million in each of the years 1993 and 1992) on unsecured
obligations was not accrued in the Company's Consolidated Financial Statements
since the date of the filing of petitions for reorganization. This amount is
based on the balances of the unsecured debt obligations and their interest rates
as of December 27, 1989 and did not consider fluctuations in the level of
short-term debt and interest rates and the issuance of
29
<PAGE>
commercial paper that would have occurred to meet the working capital
requirements of the Homebuilding and Related Financing Group.
The net loss for 1993 and the net income for 1992 reflects all of the
previously mentioned factors as well as the impact of a slightly lower effective
income tax rate and slightly higher interest income from Chapter 11 proceedings,
partially offset by a $4.6 million increase in Chapter 11 costs.
FINANCIAL CONDITION
On December 27, 1989, the Company and 31 of its subsidiaries each filed a
voluntary petition for reorganization under Chapter 11 with the Bankruptcy
Court. On December 3, 1990, one additional subsidiary also filed a voluntary
petition for reorganization under Chapter 11 with the Bankruptcy Court. Two
other small subsidiaries, Cardem Insurance and J.W. Railroad, did not file
petitions for reorganization under Chapter 11. The filing of the voluntary
petitions resulted from a sequence of events stemming primarily from an
inability of the Company's interest reset advisors to reset interest rates on
approximately $624 million of outstanding indebtedness, which indebtedness by
its terms required that the interest rates thereon be reset to the rate per
annum such indebtedness should bear in order to have a bid value of 101% of the
principal amount thereof as of December 2, 1989. The reset advisors' inability
to reset the interest rates was primarily attributable to two factors: (i)
uncertainties arising from the then pending asbestos-related Veil Piercing
Litigation, including the possibility either that such litigation would lead to
the prohibition of further asset sales and debt repayment or that substantial
new asbestos-related claims might become assertible against the Company, which
uncertainties materially hindered the ability of the Company and its
subsidiaries to pursue a refinancing or sell assets to reduce debt, and (ii)
general turmoil in the high yield bond markets at such time, both of which
depressed the bid value of such notes.
On March 17, 1995, the Company and 32 of its subsidiaries emerged from
bankruptcy. In summary, pursuant to the Plan of Reorganization (the actual terms
of which govern and should be consulted), the Company has repaid or will repay
substantially all of its unsecured claims and senior and subordinated
indebtedness subject to the Chapter 11 Cases as follows:
. Trade creditors received 75% of their allowed claims plus interest in cash
following the Effective Date of the Plan of Reorganization and are
entitled to receive the remaining 25% six months following the Effective
Date of the Plan of Reorganization with additional interest for such
period at the prime rate. At May 31, 1995, the remaining amount to be
distributed to trade creditors approximated $23.5 million;
. Revolving Credit and Working Capital bank claims and Series B and C Senior
Note claims received a combination of cash and Common Stock following the
Effective Date of the Plan of Reorganization;
. Unsecured bondholders received or are entitled to receive following the
Effective Date of the Plan of Reorganization, depending on elections made,
either shares of Common Stock or a combination of cash, Series B Notes and
shares of Common Stock, in either case having an aggregate reorganization
value equal to their prepetition claims. In addition, pre-LBO bondholders
received shares of Common Stock having an aggregate reorganization value
equal to $11.3 million in settlement of the Fraudulent Conveyance Lawsuit
commenced by the indenture trustees for the pre-LBO bondholders;
. The Veil-Piercing Claimants (as defined in the Veil Piercing Settlement)
received cash, Series B Notes and shares of Common Stock with an aggregate
reorganization value of $375 million in settlement of all claims. In
addition, the attorneys for the Veil-Piercing Claimants (as defined in the
Veil Piercing Settlement) received a cash payment of $15 million.
30
<PAGE>
A substantial controversy exists with regard to federal income taxes
allegedly owed by the Company. Proofs of claim have been filed by the IRS in the
aggregate amount of $110,560,883 with respect to fiscal years ended August 31,
1980 and August 31, 1983 through August 31, 1987, $31,468,189 with respect to
fiscal years ended May 31, 1988 (nine months) and May 31, 1989 and $44,837,693
with respect to fiscal years ended May 31, 1990 and May 31, 1991. Objections to
the proofs of claim have been filed by the Company and the various issues are
being litigated in the Bankruptcy Court. The Company believes that such proofs
of claim are substantially without merit and intends to defend such claims
against the Company vigorously, but there can be no assurance as to the ultimate
outcome.
See "Capitalization" for the consolidated capitalization of the Company and
its subsidiaries as of May 31, 1995, as adjusted in March 1995 and all of the
distributions and adjustments required by the Plan of Reorganization.
For a description of Mid-State Trusts II, III and IV, see "Business and
Properties--Mid-State Homes."
The assets of Mid-State Trusts II, III and IV are not available to satisfy
claims of general creditors of Mid-State Homes or the Company and its other
subsidiaries. The liabilities of Mid-State Trusts II, III and IV for their
publicly issued debt are to be satisfied solely from proceeds of the underlying
instalment notes and are nonrecourse to Mid-State Homes and the Company and its
other subsidiaries.
In connection with the Plan of Reorganization, on March 16, 1995, pursuant
to approval by the Bankruptcy Court, Mid-State Homes sold mortgage instalment
notes having a gross amount of $2,020,258,000 and an economic balance of
$826,671,000 to Mid-State Trust IV. In addition, on such date Mid-State Homes
sold its beneficial interest in Mid-State Trust II to Mid-State Trust IV. At
such date, Mid-State Trust II had a total collateral value of $910,468,000 with
$605,750,000 of Mid-State Trust II Mortgage-Backed Notes outstanding. These
sales were in exchange for the net proceeds from the public issuance by
Mid-State Trust IV of $959,450,000 of Mid-State Trust IV Asset Backed Notes. See
"Business and Properties--Mid-State Homes" and Notes 1 and 7 of Notes to
Financial Statements.
On February 27, 1995, Mid-State Homes established Mid-State Trust V to
provide funds to Mid-State Homes for its current purchases of instalment notes
receivable from Jim Walter Homes. On March 3, 1995, Mid-State Trust V entered
into a Variable Funding Loan Agreement (the "Mid-State Trust V Variable Funding
Loan Agreement") with Enterprise Funding Corporation, an affiliate of
NationsBank N.A., as lender, and NationsBank N.A. (Carolinas), as Administrative
Agent. This agreement provides for a three-year $500 million credit facility
secured by the instalment notes and mortgages Mid-State Trust V purchases from
Mid-State Homes. See "Business and Properties--Mid-State Homes" and Notes 1 and
7 of Notes to Financial Statements.
The Series B Notes were issued by the Company pursuant to the Plan of
Reorganization as part of the distribution made in payment of claims of holders
of certain unsecured indebtedness of the Company and certain of its
subsidiaries. See "Description of Certain Indebtedness--Series B Senior Notes"
and Notes 1 and 7 of Notes to Financial Statements.
The Company and certain of its subsidiaries have entered into the Bank
Revolving Credit Facility, providing up to $150 million at any time outstanding
for working capital needs with a sub-limit for trade and standby letters of
credit in an amount not in excess of $40 million at any time outstanding and a
sub-facility for swingline advances in an amount not in excess of $15 million at
any time outstanding. See "Description of Certain Indebtedness--Bank Revolving
Credit Facility" and Notes 1 and 7 of Notes to Financial Statements.
The Series B Notes, the Bank Revolving Credit Facility and the Mid-State
Trust V Variable Funding Loan Agreement contain a number of significant
covenants that, among other things, restrict
31
<PAGE>
the ability of the Company and its subsidiaries to dispose of assets, incur
additional indebtedness, make capital expenditures, pay dividends, create liens
on assets, enter into leases, 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 Bank Revolving
Credit Facility, the Company is required to maintain specified financial ratios
and comply with certain financial tests, including interest coverage and fixed
charge coverage ratios, maximum leverage ratios and minimum earnings before
interest, taxes, depreciation and amortization expense, some of which become
more restrictive over time. See "Description of Certain Indebtedness--Bank
Revolving Credit Facility". The Company believes it will meet these financial
tests over the terms of these debt agreements.
LIQUIDITY AND CAPITAL RESOURCES
At May 31, 1995, cash and short-term investments were approximately $128
million. Principal sources of cash in 1995 were $959.5 million of proceeds from
the issuance of the Mid-State Trust IV Asset Backed Notes and cash flows from
operations, which were used, together with the issuance of Series B Notes and
shares of Common Stock, to repay Chapter 11 claimants pursuant to the terms of
the Plan of Reorganization. Operating cash flows were also used for working
capital requirements; for capital expenditures for business expansion,
productivity improvement, cost reduction and replacements necessary to maintain
the business; to retire long-term senior debt; and to provide a return to
lenders. Borrowings under the Mid-State Trust V Variable Funding Loan Agreement
totaled $15 million at May 31, 1995.
Working capital is required to fund adequate levels of inventories and
accounts receivable. Commitments for capital expenditures at May 31, 1995 are
not material; however, it is estimated that gross capital expenditures of the
Company and its subsidiaries for the year ending May 31, 1996 will approximate
$80 million.
Because the Company's operating cash flow is significantly influenced by the
general economy and, in particular, the level of construction, prior years'
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
contemplated that one or more permanent financings similar to the Mid-State
Trust II, III and IV financings will be required over the next four years in
order to repay borrowings under the Mid-State Trust V Variable Funding Loan
Agreement. The Company also believes that under present operating conditions
sufficient operating cash flow will be generated through fiscal year 1999 to
make all required interest and principal payments and planned capital
expenditures and meet substantially all operating needs and that amounts
available under the Bank Revolving Credit Facility will be sufficient to meet
peak operating needs. However, it is currently anticipated that sufficient
operating cash flow will not be generated to repay at maturity the principal
amount of the Series B Notes without refinancing a portion of such debt or
selling assets. No assurance can be given that any refinancing will take place
or that such sales of assets can be consummated.
32
<PAGE>
SELECTED QUARTERLY DATA
The following tables set forth quarterly unaudited financial data for fiscal
years 1993, 1994 and 1995:
<TABLE><CAPTION>
FISCAL YEAR 1993
FOR THE QUARTERS ENDED
---------------------------------------------------------------
AUG. 31, 1992 NOV. 30, 1992 FEB. 28, 1993 MAY 31, 1993
------------- ------------- ------------- ------------
(DOLLARS IN THOUSANDS)
(UNAUDITED)
<S> <C> <C> <C> <C>
Summary of Operations:
Sales and revenues............................. $ 326,839 $ 338,268 $ 306,002 $ 347,877
Cost of sales (exclusive of depreciation)...... 198,959 211,307 186,451 207,694
Depreciation, depletion and amortization....... 16,479 17,709 17,587 18,708
Interest and amortization of debt discount and
expense...................................... 42,802 42,507 41,930 44,342
Income tax expense............................. 9,739 8,305 4,223 2,061
Income before cumulative effect of accounting
change(1).................................... 8,455 6,133 6,030 25,976
Net income (loss).............................. (96,153) 6,133 6,030 25,976
Additional Financial Data:
Total assets................................... $ 3,254,952 $ 3,229,182 $ 3,219,923 $3,223,234
Long-term senior debt.......................... 1,157,964 1,118,696 1,077,694 1,046,971
Liabilities subject to Chapter 11
proceedings.................................. 1,724,616 1,724,868 1,725,014 1,725,631
Stockholders equity (deficit).................. (326,272) (320,139) (314,109) (287,737)
</TABLE>
<TABLE><CAPTION>
FISCAL YEAR 1994
FOR THE QUARTERS ENDED
---------------------------------------------------------------
AUG. 31, 1993 NOV. 30, 1993 FEB. 28, 1994 MAY 31, 1994
------------- ------------- ------------- ------------
(DOLLARS IN THOUSANDS)
(UNAUDITED)
<S> <C> <C> <C> <C>
Summary of Operations:
Sales and revenues............................. $ 333,770 $ 341,768 $ 309,492 $ 343,494
Cost of sales (exclusive of depreciation)...... 212,716 213,010 197,631 221,704
Depreciation, depletion and amortization....... 16,386 17,334 17,751 19,564
Interest and amortization of debt discount and
expense...................................... 40,112 40,375 37,642 37,341
Income tax expense............................. 10,390 9,659 5,323 3,545
Net income (loss).............................. 1,392 6,817 857 (1,891)(2)
Additional Financial Data:
Total assets................................... $ 3,198,288 $ 3,193,505 $ 3,162,660 $3,140,892
Long-term senior debt.......................... 1,003,240 958,670 907,504 871,970
Liabilities subject to Chapter 11
proceedings.................................. 1,725,952 1,726,421 1,727,345 1,727,684
Stockholders equity (deficit).................. (286,345) (279,528) (278,671) (282,353)
</TABLE>
<TABLE><CAPTION>
FISCAL YEAR 1995
FOR THE QUARTERS ENDED
---------------------------------------------------------------
AUG. 31, 1994 NOV. 30, 1994 FEB. 28, 1995 MAY 31, 1995
------------- ------------- ------------- ------------
(DOLLARS IN THOUSANDS)
(UNAUDITED)
<S> <C> <C> <C> <C>
Summary of Operations:
Sales and revenues........................... $ 340,640 $ 363,330 $ 338,691 $ 399,661
Cost of sales (exclusive of depreciation).... 224,119 237,737 221,074 268,451
Depreciation, depletion and amortization..... 16,757 17,930 18,407 18,943
Interest and amortization of debt discount
and expense................................ 36,463 36,290 34,994 196,801(3)
Income tax expense (benefit)................. 6,857 9,109 6,022 (192,438)
Net income (loss)............................ 1,433 4,920 (233) (364,765)(4)
Additional Financial Data:
Total assets................................. $ 3,107,659 $ 3,009,803 $ 3,098,947 $3,245,153
Long-term senior debt........................ 841,254 812,547 784,815 2,220,370(5)
Liabilities subject to Chapter 11
proceedings................................ 1,727,889 1,727,279 1,728,215 -- (5)
Stockholders equity (deficit)................ (280,920) (276,000) (276,233) 360,774(5)
</TABLE>
- ------------
(1) The Company adopted FAS 106 and FAS 109 during the first quarter of fiscal
year 1993.
(2) The net loss is primarily attributable to adjustments to amortization of
goodwill and the temporary shutdown of the Natural Resources Group's Mine
No. 5 in early April 1994. See "Management's Discussion and Analysis of
Financial Condition and Results of Operations--Results of Operations--Years
ended May 31, 1995 and 1994."
(3) Includes additional interest and amortization of debt expense of $141.4
million related to the consummation of the Plan of Reorganization.
(4) The net loss includes $583.8 million of additional expenses related to the
consummation of the Plan of Reorganization.
(5) Reflects the consummation of the Plan of Reorganization.
33
<PAGE>
BUSINESS AND PROPERTIES
GENERAL
The Company, through its direct and indirect subsidiaries, currently offers
a diversified line of products and services for homebuilding, water and waste
water transmission, residential and non-residential construction, and industrial
markets. The operations of the Company are carried out by its operating
subsidiaries, the business and properties of which are described below. For
financial information relating to the industry segments of the Company and its
subsidiaries, see "Segment Information" on pages F-26 to F-28.
JIM WALTER HOMES
Jim Walter Homes, headquartered in the Walter Industries building in Tampa,
Florida, is in the business of marketing and supervising the construction of
standardized, partially-finished and shell, detached, single family residential
homes, primarily in the southern region of the United States where the weather
permits year-round construction. Jim Walter Homes has concentrated on the low to
moderately priced segment of the housing market. Over 300,000 homes have been
completed by Jim Walter Homes and its predecessor since 1955.
Jim Walter Homes' products consist of 35 models of conventionally built
homes, built of wood on concrete foundations or wood pilings, and ranging in
size from approximately 640 to 2,214 square feet. Each home is completely
finished on the outside and is unfinished on the inside except for rough floors,
ceiling joists, partition studding and closet framing. The buyer may elect to
purchase optional interior components, including installation thereof, such as
plumbing and electrical materials, heating and air conditioning, wallboard,
interior doors, interior trim and floor finishing. A buyer selecting all options
receives a home considered to be "90 percent complete," excluding only floor
covering, inside paint, and water and sewer hookups. Shell homes are those which
are completely finished on the outside with the inside containing only rough
floors, partition studding and closet framing, but not interior walls, floor
finishing, plumbing, electrical wiring and fixtures, doors and cabinetry. The
remaining units are sold at varying "in-between" stages of interior finishing.
Jim Walter Homes builds all of its homes "on site," and only against firm
orders. The following chart shows the sales volume of Jim Walter Homes and the
percent of homes sold in the three stages of completion for fiscal years ended
May 31, 1995, 1994 and 1993:
<TABLE>
<CAPTION>
PERCENT OF UNIT SALES
---------------------------------------
FISCAL YEAR ENDED MAY 31, UNITS SOLD SHELL VARIOUS STAGES 90% COMPLETE
- -------------------------------- ---------- ----- -------------- ------------
<S> <C> <C> <C> <C>
1995............................ 4,126 25% 9% 66%
1994............................ 4,331 23 10 67
1993............................ 4,784 26 12 62
</TABLE>
During the fiscal years 1995, 1994 and 1993 the average net sales price of a
home was $40,200, $38,300 and $37,000, respectively.
Jim Walter Homes' backlog as of May 31, 1995 was 1,529 units, compared to
2,065 units at May 31, 1994. The average time to construct a home ranges from
four to twelve weeks.
Jim Walter Homes currently operates 105 branch offices located in 17 states
(Alabama, Arizona, Arkansas, Florida, Georgia, Kentucky, Louisiana, Mississippi,
New Mexico, North Carolina, Ohio, Oklahoma, South Carolina, Tennessee, Texas,
Virginia and West Virginia). In addition, Jim Walter Homes serves six adjoining
states (Delaware, Illinois, Indiana, Maryland, Missouri and Pennsylvania). Of
such branch offices, approximately 82% are owned, with the balance on leased
land. These branch offices serve as "display parks," which are designed to allow
customers to view actual models completed to the various stages of interior
finishing available. Jim Walter Homes does not own or acquire land for
34
<PAGE>
purposes of its operations and is not a real estate developer. Accordingly,
these operations are not subject to significant concentrations of credit risks.
The actual construction of all homes sold by Jim Walter Homes is done by local
building contractors with their own crews, pursuant to subcontracts executed in
connection with each home, and inspected by Jim Walter Homes' supervisory
personnel. Jim Walter Homes maintains warehouses near each of its district
offices from which a portion of the necessary building materials may be
obtained; the balance of the building materials is purchased locally.
Approximately 96% of the homes Jim Walter Homes sells are purchased with
financing it arranges. In order to qualify for a credit sale the purchaser of a
home must own his property free and clear of all encumbrances. In addition to
owning the land, the purchaser must perform certain steps to complete the home
and obtain a certificate of occupancy. Depending on the degree of completion of
the home purchased, these steps can cost a significant amount of money. The
credit terms offered by Jim Walter Homes have a maximum 30-year term, are
usually for 100% of the purchase price of the home, and carry a 10% "annual
percentage rate", without points or closing costs. The 10% "annual percentage
rate" has been in effect since 1979. To qualify for financing a potential
customer must also provide information concerning his or her monthly income and
employment history as well as a legal description of and evidence that the
customer owns the land on which the home is to be built. A customer's income and
employment usually are verified through telephone conversations with such
customer's employer and by examining his or her pay stubs, W2 forms or, if the
customer is self-employed, income tax returns. An applicant must have a minimum
of one year's continuous employment or, if he or she has changed jobs, the new
job must be in the same field of work. Only a small percentage of secondary
income (second job or part-time work) is utilized in qualifying applicants.
Ownership of the land is verified by examining the title record. In addition,
Jim Walter Homes' credit department obtains a credit report. If a favorable
report is obtained and the required monthly payment does not exceed 25% of the
customer's monthly gross income, the application usually is approved and a
building or instalment sales contract is executed, a title report is ordered and
frequently a survey of the property is made. Surveys are performed by
independent registered surveyors when, in the opinion of Jim Walter Homes,
additional information beyond examination of the title record in needed. Such
additional information is primarily concerned with verification of legal
description, ownership of land and existence of any encroachments. Jim Walter
Homes does not use a point or grade credit scoring system. Particular attention
is paid to the credit information for the most recent three to five years.
Attention is also given to the customer's total indebtedness and total other
monthly payments on a judgmental basis by the credit department. The customer's
credit standing is considered favorable if the employment history, income and
credit report meet the aforementioned criteria. The contract is subject to (i)
executing a promissory note which is secured by a first lien on the land and the
home to be built, (ii) executing a mortgage, deed of trust or other security
instrument, (iii) receiving a satisfactory title report, (iv) inspecting the
land to determine that it is suitable for building and (v) obtaining required
permits. Although the mortgages, deeds of trust and similar security instruments
constitute a first lien on the land and the home to be built, such security
instruments are not insured by the Federal Housing Administration or guaranteed
by the Veterans Administration or otherwise insured or guaranteed.
Jim Walter Homes does not obtain appraisals or title insurance. Although
consideration is given to the ratio of the amount financed to the estimated
value of the home and the land securing such amount, there is no explicit
appraisal-based loan-to-value test. However, there is a requirement that the
value of the lot on which the home is to be built, as estimated solely on the
basis of Jim Walter Homes' mortgage servicing division employees' experience and
knowledge, be at least equal to 10% of the principal amount of the loan. Before
occupying a new home, the customer must complete the utility and sewer hook-ups
and any of the other components not purchased from Jim Walter Homes, arrange for
the building inspection and, if required, obtain a certificate of occupancy. The
costs to complete a new home depend on the stage of completion of the home
purchased and whether public water and sewer systems are available or wells and
septic tanks must be installed. Such costs could range from $2,000-$3,000 to
35
<PAGE>
$30,000-$40,000. Upon construction of a new home to the agreed-upon percentage
of completion, Jim Walter Homes sells the building and instalment sales
contract, the note, and the related mortgage, deed of trust or other security
instrument to Mid-State Homes in the ordinary course of business pursuant to an
Agreement of Purchase and Sale of Instalment Obligations and Servicing of
Delinquent Accounts. Pursuant to this agreement, Jim Walter Homes provides field
servicing on all delinquent accounts, including collection of delinquent
accounts, recommendations of foreclosure, foreclosure and resale of foreclosed
properties.
The favorable financing offered by Jim Walter Homes normally has tended to
increase unit volume in times of high interest rates and limited availability of
mortgage financing funds. As a result, Jim Walter Homes' business has tended to
be counter-cyclical to national home construction activity. However, in times of
low interest rates and high availability of mortgage funds, Jim Walter Homes'
volume of home sales has tended to decrease. Also, in times of low interest
rates and high availability of mortgage funds, additional competition is able to
enter the market.
The single-family residential housing industry is highly competitive. Jim
Walter Homes competes in each of its market areas on the basis of price, design,
finishing options and accessibility to financing with numerous home builders
ranging from regional and national firms to small local companies. Jim Walter
Homes also competes with manufactured housing. For the calendar year 1994, Jim
Walter Homes was the sixth largest builder of detached single-family homes in
the United States after having been the fifth largest builder in 1993, the
fourth largest builder in 1992 and 1991, the third largest builder in 1990, the
fourth largest builder in 1988 and 1989, the second largest builder in 1986 and
1987 and the largest builder in 1984 and 1985. However, because there are so
many firms engaged in the single-family homebuilding industry, Jim Walter Homes
accounted for less than .5% of all new detached for sale homes built in 1994.
In the three years ended May 31, 1995, 1994 and 1993, Jim Walter Homes' net
sales and revenues amounted to $165.8 million, $166.0 million and $177.2
million, respectively.
MID-STATE HOMES
Mid-State Homes, headquartered in the Walter Industries building in Tampa,
Florida, was established in 1958 to purchase mortgage instalment notes from Jim
Walter Homes on homes constructed and sold by Jim Walter Homes and to service
such mortgage instalment notes. Mid-State Trust II, Mid-State Trust III and
Mid-State Trust IV are business trusts organized by Mid-State Homes, which owns
all of the beneficial interests in Mid-State Trust III and Mid-State Trust IV.
Mid-State Trust IV owns all of the beneficial interest in Mid-State Trust II.
In April 1988, Mid-State Homes sold to Mid-State Trust II instalment notes
and mortgages which it had acquired from Jim Walter Homes through February 29,
1988 with a gross amount of approximately $3,376,000,000 and an aggregate
outstanding economic balance of approximately $1,750,000,000, pursuant to a
purchase and sale agreement, in exchange for a purchase price of $1,326,665,600,
representing the net cash proceeds from the public offering of $1,450,000,000
aggregate face amount of mortgage-backed notes ("Mid-State Trust II
Mortgage-Backed Notes") of Mid-State Trust II after paying the expenses
associated with the sale of such Mid-State Trust II Mortgage-Backed Notes. The
outstanding balance at May 31, 1995 of such Mid-State Trust II Mortgage-Backed
Notes was $584,000,000. At May 31, 1995 such Mid-State Trust II instalment notes
and mortgages had a gross book value of $1,396,138,000 and an economic balance
of approximately $846,481,000.
Under the Mid-State Trust II indenture for the Mid-State Trust II
Mortgage-Backed Notes, if certain criteria as to performance of the pledged
instalment notes are met, Mid-State Trust II is allowed to make distributions of
cash to Mid-State Trust IV, its sole beneficial owner, to the extent that cash
collections on such instalment notes exceed Mid-State Trust II's cash
expenditures for its operating expenses, interest expense and mandatory debt
payments on the Mid-State Trust II Mortgage-Backed
36
<PAGE>
Notes. In addition to the performance-based distributions, the indenture permits
distribution of additional excess funds, if any, provided such distributions are
consented to by Financial Security Assurance Inc., a monoline property and
casualty insurance company and the guarantor of the Mid-State Trust II
Mortgage-Backed Notes. The guarantor has not approved any additional
distributions since the January 1, 1995 distribution and such excess funds
remain on deposit with Mid-State Trust II.
On July 1, 1992, pursuant to approval by the Bankruptcy Court, mortgage
instalment notes having a gross amount of $638,078,000 and an economic balance
of $296,160,000 were sold by Mid-State Homes to Mid-State Trust III in exchange
for the net proceeds from the public issuance by Mid-State Trust III of
$249,864,000 of asset backed notes ("Mid-State Trust III Asset Backed Notes").
Net proceeds were used to repay in full all outstanding indebtedness due under a
revolving credit facility, with the excess cash used to fund the ongoing
operations of the Company and its subsidiaries. The outstanding balance at May
31, 1995 of such Mid-State Trust III Asset Backed Notes was $173,527,000. At May
31, 1995, such Mid-State Trust III instalment notes and mortgages had a gross
book value of $472,980,000 and an economic balance of $239,200,000.
On March 16, 1995, pursuant to approval by the Bankruptcy Court, mortgage
instalment notes having a gross amount of $2,020,258,000 and an economic balance
of $826,671,000 were sold by Mid-State Homes to Mid-State Trust IV. In addition,
on such date, Mid-State Homes sold its beneficial interest in Mid-State Trust II
to Mid-State Trust IV. Mid-State Trust II had a total collateral value of
$910,468,000 with $605,750,000 of Mid-State Trust II Mortgage-Backed Notes
outstanding. These sales were in exchange for the net proceeds from the public
issuance by Mid-State Trust IV of $959,450,000 of asset backed notes ("Mid-State
Trust IV Asset Backed Notes"). The outstanding balance at May 31, 1995 of such
Mid-State Trust IV Asset Backed Notes was $953,843,000. At May 31, 1995, such
Mid-State Trust IV instalment notes and mortgages had a gross book value of
$1,970,887,000 and an economic balance of $814,182,000.
The instalment notes sold by Mid-State Homes to Mid-State Trusts II, III and
IV are serviced by Mid-State Homes pursuant to servicing agreements entered into
with each trust. Mid-State Homes in connection with such servicing agreements
has entered into sub-servicing agreements with Jim Walter Homes to provide field
servicing activities such as collections, repossessions and resale.
The assets of Mid-State Trusts II, III and IV are not available to satisfy
claims of general creditors of Mid-State Homes or the Company and its other
subsidiaries. The liabilities of Mid-State Trusts II, III and IV for their
publicly issued debt are to be satisfied solely from proceeds of the underlying
instalment notes and are nonrecourse to Mid-State Homes and the Company and its
other subsidiaries.
On February 27, 1995 Mid-State Homes established Mid-State Trust V, a
business trust in which Mid-State Homes owns all the beneficial interests, to
provide temporary financing to Mid-State Homes for its current purchases of
instalment notes and mortgages from Jim Walter Homes. On March 3, 1995 Mid-State
Trust V entered into the Mid-State Trust V Variable Funding Loan Agreement with
Enterprise Funding Corporation, an affiliate of NationsBank N.A., as lender, and
NationsBank N.A. (Carolinas), as Administrative Agent. The agreement provides
for a three-year $500,000,000 credit facility (the "Mid-State Trust V Variable
Funding Loan") secured by the instalment notes and mortgages Mid-State Trust V
purchases from Mid-State Homes. It is contemplated that the facility will be an
evergreen three-year facility with periodic paydowns from the proceeds of
permanent financings similar to those done by Mid-State Trusts II, III and IV.
The outstanding Mid-State Trust V Variable Funding Loan balance at May 31, 1995
was $15 million. At May 31, 1995, such Mid-State Trust V instalment notes and
mortgages had a gross book value of $254,871,000 and an economic balance of
$92,466,000.
The revenues of Mid-State Trusts II, III, IV and V are required by generally
accepted accounting principles to be consolidated as part of Mid-State Homes'
revenues for financial statement purposes. In the three years ended May 31,
1995, 1994 and 1993, Mid-State Homes' revenues amounted to $237.1
37
<PAGE>
million, $255.3 million and $235.7 million, respectively, including revenues of
Mid-State Trust II of $141.5 million, $164.5 million and $161.8 million,
respectively, and revenues of Mid-State Trust III of $24.1 million, $27.5
million and $23.2 million, respectively. Revenues of Mid-State Trusts IV and V
in the year ended May 31, 1995 amounted to $22.5 million and $.5 million,
respectively.
JIM WALTER RESOURCES
The operations of Jim Walter Resources are conducted through its Mining
Division, which mines and sells coal from four deep shaft mines in Alabama, and
its De-Gas Division, which extracts and sells methane gas from the coal seams
owned or leased by Jim Walter Resources.
Mining Division
The Mining Division, headquartered in Brookwood, Alabama, has approximately
9.5 million tons of rated annual coal production capacity from four deep shaft
mines. These mines extract coal from Alabama's Blue Creek seam, from which a
high quality metallurgical coal is obtained. This coal can be used as coking
coal as well as steam coal because it meets current environmental compliance
specifications. The Blue Creek coal has a low/medium volatility and high BTU and
low sulfur content. The mines are located in west central Alabama between the
cities of Birmingham and Tuscaloosa.
The majority of the coal is mined using longwall technology, complemented by
the more standard continuous mining method. Since the late 1970's, by replacing
the traditional methods of underground mining with the longwall technique, the
Mining Division has achieved greater production efficiency, improved safety,
generated superior coal recovery results and lowered production costs. There are
approximately 80 longwall mining systems in use in the United States, of which
the Mining Division operates six. The Mining Division's normal operating plan is
a longwall/continuous ratio of about 75%/25%, which is the long-term sustainable
ratio.
Recoverable reserves as of May 31, 1995 were estimated to be approximately
249 million tons, of which 224 million tons relate to the four Blue Creek mines.
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<PAGE>
A summary of the reserves is as follows:
ESTIMATED RECOVERABLE(1) COAL RESERVES AS OF MAY 31, 1995
(IN THOUSANDS OF TONS)
<TABLE>
<CAPTION>
TYPE(4)
---------
STEAM (S)
RESERVES(2) CLASSIFICATIONS(3) OR JWR'S INTEREST QUALITY(6)
------------------------------- -------------------- METALLUR- ------------------ ----------------------
MINING PROPERTY TOTAL ASSIGNED UNASSIGNED MEASURED INDICATED GICAL (M) OWNED LEASED(5) ASH SULF. BTU/LB.
- ------------------ ------- -------- ---------- -------- --------- --------- ------ --------- ---- ----- -------
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C>
No. 3 Mine........ 62,159 62,159 -- 45,763 16,396 S/M 1,446 60,713 8.2 0.56 14,469
No. 4 Mine........ 73,405 73,405 -- 43,435 29,970 S/M 4,328 69,077 9.4 0.69 14,240
No. 5 Mine........ 29,552 29,552 -- 24,566 4,986 S/M 27,217 2,335 8.8 0.66 14,334
No. 7 Mine........ 58,979 58,979 -- 33,471 25,508 S/M 16,261 42,718 8.0 0.65 14,499
------- -------- ----- -------- --------- ------ ---------
224,095 224,095 -- 147,235 76,860 49,252 174,843
Bessie(8)......... 24,919 -- 24,919 14,880 10,039 S/M 658 24,261 11.0 1.30 13,655
------- -------- ----- -------- --------- ------ ---------
TOTAL............. 249,014 224,095 24,919 162,115 86,899 49,910 199,104
------- -------- ----- -------- --------- ------ ---------
------- -------- ----- -------- --------- ------ ---------
<CAPTION>
PRODUCTION(7)
---------------------
MINING PROPERTY 1993 1994 1995
- ------------------ ----- ----- -----
<S> <C> <C> <C>
No. 3 Mine........ 1,564 1,347 1,730
No. 4 Mine........ 2,417 2,257 2,448
No. 5 Mine........ 1,326 1,074 948
No. 7 Mine........ 2,012 1,849 2,501
----- ----- -----
7,319 6,527 7,627
Bessie(8)......... -- -- --
----- ----- -----
TOTAL............. 7,319 6,527 7,627
----- ----- -----
----- ----- -----
</TABLE>
- ------------
(1) "Recoverable" reserves are defined as tons of mineable coal in the Blue
Creek and Mary Lee seams which can be extracted and marketed after deduction
for coal to be left in pillars, etc. and adjusted for reasonable preparation
and handling losses.
(2) "Assigned" reserves represent coal which has been committed by Jim Walter
Resources to its operating mines and plant facilities. "Unassigned" reserves
represent coal which is not committed to an operating mine and would require
additional expenditure to recover. The division of reserves into these two
categories is based upon current mining plans, projections, and techniques.
(3) The recoverable reserves (demonstrated resources) are the sum of "Measured"
and "Indicated" resources. Measured coal extends 1/4 mile from any point of
observation or measurement. Indicated coal is projected to extend from 1/4
mile to 3/4 mile from any point of observation or measurement. Inferred coal
extends from 3/4 mile to 3 miles from any point of observation or
measurement. Inferred reserves are not included in recoverable reserves.
(4) All of the coal in the Blue Creek and Mary Lee seams is suitable for
metallurgical purposes although, for marketing reasons, some is sold as
compliance steam coal.
(5) The leases are either renewable until the reserves are mined to exhaustion
or are of sufficient duration to permit mining of all of the reserves before
the expiration of the term.
(6) Values shown are weighted averages of all reserves and are calculated on a
dry basis. Bessie Mine reserves are equivalent to preparation at a 1.60
specific gravity whereas the others are at a 1.40 specific gravity.
(7) Production for 1995, 1994 and 1993 is for the fiscal years ended May 31.
(8) The Bessie Mine was closed in August 1988.
Environmental expenditures imposed by laws relating to deep shaft mining
have been insignificant to date and no substantial expenditures are expected in
the future. The Mining Division does not engage in any surface (strip) mining.
The facilities of the Mining Division are summarized as follows:
FACILITY LOCATION SQ. FOOTAGE
- ------------------------------------------- -------------- ---------------
Administration headquarters................ Brookwood, AL 41,500
Central shop, supply center and training
center................................... Brookwood, AL 128,400
CURRENT
OPERATING MINES LOCATION RATED CAPACITY
- ------------------------------------------- -------------- ---------------
Blue Creek No. 3........................... Adger, AL 2,500,000 tons
Blue Creek No. 4........................... Brookwood, AL 2,800,000 tons
Blue Creek No. 5........................... Brookwood, AL 1,600,000 tons
Blue Creek No. 7........................... Brookwood, AL 2,600,000 tons
Of the Mining Division's approximately 9.5 million tons of current rated
annual production capacity, 4.88 to 5.10 million tons are sold under long-term
contracts, leaving 4.40 to 4.62 million tons to be sold under short-term
contracts or on the spot market.
Jim Walter Resources' supply contract with Alabama Power that had been in
effect since January 1, 1979, as amended, was superseded by the New Alabama
Power Contract executed on
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<PAGE>
May 10, 1994. Under the New Alabama Power Contract, Alabama Power will purchase
4.0 million tons of coal per year from Jim Walter Resources during the period
from July 1, 1994 through August 31, 1999. In addition, Jim Walter Resources
will have the option to extend the New Alabama Power Contract through August 31,
2004, subject to mutual agreement on the market pricing mechanism and other
terms and conditions of such extension. The New Alabama Power Contract has a
fixed price subject to an escalation based on the Consumer Price Index and
adjustments for governmental impositions and quality. The New Alabama Power
Contract includes favorable modifications of specifications and shipping
deviations and changes in transportation arrangements. See "Management's
Discussion and Analysis of Financial Condition and Results of
Operations--Results of Operations."
Jim Walter Resources' long-term contracts with six Japanese steel mills for
2.75 to 3.0 million tons annually, depending on the level of steel production in
Japan, expired on March 31, 1994. The pricing mechanisms in such contracts were
market driven and reflected changes in the prices of four specific coal indices.
The composite change in market prices of these coal indices from the base point
was then reflected in the billing price to the steel mills. Jim Walter Resources
has negotiated one-year market-based contracts to sell approximately 1.5 million
tons of coal to a group of Japanese steel mills previously served under the
long-term contract. In addition, approximately 300,000 tons of coal not
previously shipped under terms of the long-term contracts will be shipped during
fiscal 1996 at the long-term contract price, which is substantially higher than
the current market price.
Jim Walter Resources and Carcoke, S.A. are parties to a long-term contract
which expires on December 31, 1996. The contract provides for the sale of
approximately 880,000 tons annually, with an option on approximately 220,000
additional tons annually. The pricing mechanism is market driven and reflects
changes in prices of three specific coals or coal indices.
Mine No. 5 was shut down for a substantial portion of the period from July
9, 1990 through September 16, 1990 as a result of safety concerns arising from
spontaneous combustion heatings which were a result of pyritic sulfur
concentrations occurring in the coal seam in the southern part of the mine being
exposed to the air by the mining process. The exposure of the sulfur deposits
and its reaction with oxygen contained in the ventilation air currents caused
the heatings to occur. Throughout this period, Jim Walter Resources was engaged
in discussions with MSHA regarding a new ventilating arrangement, designed to
reduce the contact between oxygen and sulfur, for the longwall faces at Mine No.
5. Idle plant expenses associated with the shutdown were $6.5 million. Although
MSHA approved the resumption of operations at the mine on September 14, 1990,
providing for a modified conventional ventilation system, productivity was poor
and costs were therefore high. In February 1991, the mine's one longwall unit
was moved from the southern part of the mine to a longwall coal panel in the
northern area and productivity improved. The southwestern area of the mine was
subsequently abandoned and sealed off as efforts to design a ventilation
arrangement acceptable to MSHA which properly controlled the spontaneous
combustion heatings and provided acceptable productivity and costs of operation
were not successful.
Mine No. 5 also was shut down from November 17, 1993 through December 16,
1993 and from early April 1994 until May 16, 1994 as a result of a fire due to
spontaneous combustion heatings. Representatives of Jim Walter Resources, MSHA,
Alabama State Mine Inspectors and the UMWA investigated the problem. Because the
area of the suspected fire was inaccessible, a decision was made to drill
vertical holes from the surface and flood the area with combinations of water,
carbon dioxide, foam and cementitious mixtures to neutralize the fire. MSHA
approved the resumption of operations at the mine on December 17, 1993. In early
April 1994, the fire recurred at Mine No. 5 and the mine was shut down. Jim
Walter Resources, MSHA, Alabama State Mine Inspectors and the UMWA agreed that
the longwall coal panel being mined at the time the fire recurred would be
abandoned and sealed off. Development mining for the two remaining longwall coal
panels in this section of the mine resumed on May 16, 1994 and the mining on the
first longwall panel resumed on January 17, 1995.
40
<PAGE>
Production was adversely impacted until January 17, 1995; however, a portion
of the increased costs is expected to be recovered from business interruption
insurance. On May 31, 1995, the Company commenced a lawsuit in the Circuit Court
for Tuscaloosa County, Alabama against a group of insurance companies with which
the Company has such business interruption insurance seeking damages in excess
of $25 million for loss from interruption to Jim Walter Resources' business
resulting from the shut down of Mine No. 5. The lawsuit is in its initial
stages, but the Company and Jim Walter Resources believe their claim is
meritorious and intend to pursue it vigorously. See "Legal Proceedings--Jim
Walter Resources" below and Note 11 of Notes to Financial Statements.
In the three years ended May 31, 1995, 1994 and 1993, the Mining Division's
net sales and revenues were $299.4 million, $290.3 million and $324.4 million,
respectively, including $5.4 million, $5.7 million and $7.1 million,
respectively, to Sloss Industries, Inc., a wholly owned subsidiary of the
Company ("Sloss Industries").
De-Gas Division
The De-Gas Division, through a joint venture headquartered in Brookwood,
Alabama, extracts and sells methane gas from the coal seams owned or leased by
Jim Walter Resources.
The original motivation for the joint venture was to increase safety in Jim
Walter Resources' Blue Creek mines by reducing the level of methane gas through
wells drilled in conjunction with the mining operations. As of May 1995, there
were 268 wells producing approximately 33 million cubic feet of gas per day. As
many as 250 additional wells are planned for development over the next several
years. The degasification operation, as had originally been expected, has had
the effect of improving mining operations and safety by reducing methane gas
levels in the mines, as well as becoming a profitable operation.
The gas is transported through a 12-mile pipeline (owned and operated by
Black Warrior Transmission Corp. ("Black Warrior Transmission"), a corporation
the stock of which is owned on a 50-50 basis by the De-Gas Division and Sonat
Exploration Company, an affiliate of Southern Natural Gas Company ("SNG")),
directly to SNG's pipeline.
The De-Gas Division began operations in 1981 with the formation of an equal
joint venture with Kaneb Services, Inc. ("Kaneb") to capture and market methane
gas from the Blue Creek seam. SNG is the joint venture's exclusive customer for
all output of methane gas, all of which was originally at a price tied to the
price of fuel oil in New York. Kaneb subsequently sold its 50% interest in the
degasification operation to an indirect wholly-owned subsidiary of Sonat, Inc.
In connection with such sale, additional areas were added to the gas sales
contract. This gas was priced at a market price nominated by SNG which was not
to be lower than the published price for spot purchases for SNG-South Louisiana
for the applicable month. Effective January 1, 1994, the gas sales contract was
amended. The price to be paid for gas delivered to SNG is now equal to the
average of two published spot prices; provided, however, that the price will not
be less than $2.00 per MMBTU (approximately $1.96 per MCF) on a weighted annual
average basis, calculated cumulatively each month. Beginning in January 1994 and
ending in December 2001, SNG will pay Jim Walter Resources a reservation fee of
$675,000 per month if certain minimum quantities of gas are delivered. Black
Warrior Methane Corp. ("Black Warrior Methane"), a corporation the stock of
which is owned on a 50-50 basis by the De-Gas Division and Sonat Exploration
Company, manages the operational activities of the joint venture.
In the three years ended May 31, 1995, 1994 and 1993, the De-Gas Division's
net sales and revenues amounted to $20.8 million, $23.0 million and $22.5
million, respectively.
U.S. PIPE
U.S. Pipe, headquartered in Birmingham, Alabama, conducts its business
through its Pressure Pipe Division and Castings Division. The Pressure Pipe
Division manufactures and sells a broad line of ductile iron pressure pipe, pipe
fittings and valves and hydrants. It is one of the nation's largest
41
<PAGE>
producers of ductile iron pressure pipe. The Castings Division produces and
sells a wide variety of gray and ductile iron castings.
In the three years ended May 31, 1995, 1994 and 1993, U.S. Pipe's net sales
and revenues amounted to $412.2 million, $357.2 million and $331.2 million,
respectively.
Pressure Pipe Division
The Pressure Pipe Division manufactures and sells a complete line of ductile
iron pipe ranging from 4" to 64" in diameter as well as most equivalent metric
sizes. In addition, this division produces and sells a full line of fittings,
valves and hydrants of various configurations to meet various municipal
specifications. Approximately 70%-75% of the ductile iron pressure pipe produced
by this division is used in the transmission and distribution of potable water
and the remaining 25%-30% is used in the transmission of waste water and
industrial applications. The majority of ductile iron pressure pipe and related
fittings, valves and hydrants are for new distribution systems. However, the
market for rehabilitation, upgrading and replacement of pipe systems has grown
significantly in recent years as major municipalities have initiated programs to
rehabilitate aging water and waste water transmission systems, and is currently
estimated to represent approximately 30% of ductile iron pressure pipe sales.
Fittings, valves and hydrants produced by this division account for
approximately 20% of sales.
Ductile iron pressure pipe is manufactured by the deLavaud centrifugal
casting process and is typically classified into three size categories. Small
pipe, ranging from 4" to 12" in diameter (approximately 54% of the Pressure Pipe
Division's pipe production), is used primarily for potable water distribution
systems and small water system grids. Medium pipe ranging from 14" to 24" in
diameter (approximately 29% of the Pressure Division's pipe production) is used
primarily in reinforcing distribution systems, including looping grids and
supply lines. Large pipe, 30" to 64" in diameter, which accounts for the
remaining 17% of pipe production, is used for major water and waste water
transmission and collection systems.
The ductile iron pressure pipe industry is highly competitive, with a small
number of manufacturers of ductile iron pressure pipe, fittings, valves and
hydrants as well as a larger number of manufacturers which produce substitute
materials, such as PVC, concrete, fiberglass, reinforced plastic and steel. U.S.
Pipe is one of the nation's largest producers of ductile iron pressure pipe.
Other major competitors include McWane, Inc., Griffin Ductile Iron Pipe Company
and American Cast Iron Pipe Company. The division competes with other
manufacturers of ductile iron pressure pipe on the basis of price, customer
service and product quality.
U.S. Pipe is also a manufacturer of ductile iron fittings. The Company
believes that Tyler Corporation and McWane, Inc. have larger market shares than
U.S. Pipe in this market segment. U.S. Pipe is not a major manufacturer of
valves and hydrants.
Additional competition for ductile iron pressure pipe comes from pipe
composed of other materials. Although ductile iron pressure pipe is typically
more expensive than competing forms of pipe, customers choose ductile iron for
its quality, longevity, strength, ease of installation and lack of maintenance
problems.
Products of the Pressure Pipe Division are sold primarily to contractors,
water works supply houses, municipalities and private utilities. Most ductile
iron pressure pipe orders result from contracts which are bid by contractors or
directly issued by municipalities or private utilities. A smaller portion of
ductile iron pressure pipe sales are made through independent water works supply
houses. The division maintains numerous supply depots in leased space throughout
the country which are used as a source of pipe for start-up projects, to supply
ongoing projects and to aid in completing projects. The Pressure Pipe Division's
sales are primarily domestic, with foreign sales accounting for approximately 4%
of dollar sales in 1995. U.S. Pipe has 34 sales offices in leased space in the
United States. It employs a salaried sales force of approximately 70 persons.
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The order backlog of pressure pipe at May 31, 1995 was 121,548 tons, which
represents approximately three months' shipments, compared to 111,907 tons at
May 31, 1994.
The Pressure Pipe Division manufactures ductile iron pressure pipe at four
owned plants located in (i) Bessemer, Alabama (566,000 square feet on 169 acres
of land); (ii) North Birmingham, Alabama (336,000 square feet on 61 acres of
land); (iii) Union City, California (116,000 square feet on 70 acres of land);
and (iv) Burlington, New Jersey (329,000 square feet on 109 acres of land). Such
plants have annual rated capacities, on a one shift per day basis, of 200,000
tons, 190,000 tons, 78,000 tons and 140,000 tons, respectively, of ductile iron
pressure pipe. In addition, the division manufactures fittings, valves and
hydrants at its owned plant in Chattanooga, Tennessee (623,000 square feet on 80
acres of land). The general offices contain 122,000 square feet of office space
on 6 acres of owned land and are located in Birmingham, Alabama.
While the pipe business is generally sensitive to recessions because of its
partial dependence on the level of new construction activity, certain aspects of
Pressure Pipe's operations have in the past helped to reduce the impact on such
division of the effects of a downturn in new construction.
First, Pressure Pipe's products have experienced a strong level of demand in
the replacement market. The Company believes that the growth of the replacement
market will continue as a result of major expenditures by governmental entities
in an effort to rebuild the nation's infrastructure, such as the replacement and
upgrading of water and waste water transmission systems. In addition,
legislation such as the Clean Water Act and the Safe Drinking Water Act may
force utilities and cities to upgrade and/or replace their pipe systems.
Second, Pressure Pipe's facilities are located in regions of the country
which have exhibited consistent economic strength. The Burlington, New Jersey
plant is adjacent to the northeastern market with its significant replacement
potential and the division's operations in the South are located in areas of
steady economic growth. The West Coast, served by the Union City, California
plant, has a critical shortage of water for many of the large metropolitan areas
which will require major transmission pipelines in the future. Because freight
costs for pipe are high, locations close to important markets lower
transportation costs, thereby making the Pressure Pipe Division's products more
competitive.
Castings Division
The Castings Division produces a wide variety of gray and ductile iron
castings for a diversified customer base including special hardness castings for
the pollution control industry. In the year ended May 31, 1995, approximately
37% of the Castings Division's sales were sales of castings to the Pressure Pipe
Division, with the balance of the sales to various capital goods industries.
Manufacturing operations are located in Anniston, Alabama (228,000 square feet
on 21 acres of owned land).
SLOSS INDUSTRIES
Sloss Industries is a diversified manufacturing operation headquartered in
Birmingham, Alabama, which has four major product lines: (1) foundry coke; (2)
furnace coke; (3) slag wool; and (4) specialty chemicals.
Foundry coke is marketed to cast iron pipe plants and foundries producing
castings, such as for the automotive and agricultural equipment industries. It
is shipped primarily into four geographic markets: the East Coast; the
Southeast; Mexico; and the West Coast. Competition comes primarily from three
merchant suppliers: ABC Coke, Koppers Company, Inc., and Empire Coke Company. In
the year ended May 31, 1995, approximately 60% of the foundry coke produced by
Sloss Industries was sold to U.S. Pipe.
Furnace coke is sold primarily to basic steel producers. Furnace coke sales
were depressed in recent years. During fiscal 1995, 1994 and 1993, however,
Sloss Industries' furnace coke production was at near capacity as a result of a
contract with National Steel Corporation. Sloss Industries has only an estimated
1% of the market for furnace coke. Competition comes primarily from Koppers
Company,
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Inc. in the southern United States, Citizens Gas & Coke Utility and steel
producers with excess coking capacity in the Midwest.
Slag wool is utilized principally by acoustical ceiling manufacturers, and
is also used in fireproofing cements. A related product, Processed Mineral
Fiber, is used in friction materials and phenolic molding compounds. The
continued success of the slag wool business depends upon Sloss Industries'
ability to produce ceiling tile fiber of consistent high quality and react to
customer demands for specific "customized" fiber composition. Of the total slag
wool sales in the year ended May 31, 1995, approximately 71% was sold to
Armstrong World Industries and 28% to Apache Building Products Company.
Chemical products are manufactured in plants located in Birmingham, Alabama
and Ariton, Alabama. The Birmingham product line is composed primarily of
aromatic sulfonic acids and sulfonyl chlorides used in the pharmaceutical,
plasticizer, foundry and coatings industries, but also includes a custom
manufactured specialty monomer for the plastic industry. The Ariton facility
produces custom manufactured specialty products for the rubber and plastics
industries.
Sloss Industries' manufacturing facilities located in Birmingham, Alabama
include 120 coke ovens with an annual rated capacity of 450,000 tons and related
buildings of 148,400 square feet, a slag wool plant with an annual rated
capacity of 96,000 tons in a building of 63,000 square feet and a synthetic
chemicals plant in a building of 63,300 square feet, all on 521 acres of owned
land. Sloss Industries also operates a specialty chemical facility in Ariton,
Alabama in a building of 6,900 square feet, on 53 acres of owned land.
In the three years ended May 31, 1995, 1994 and 1993, Sloss Industries' net
sales and revenues amounted to $88.0 million, $81.7 million and $77.5 million,
respectively, including $11.1 million, $9.4 million and $8.7 million,
respectively, to U.S. Pipe.
JW ALUMINUM
JW Aluminum Company ("JW Aluminum"), headquartered in Mt. Holly, South
Carolina, is a leading producer of fin stock used in heating and air
conditioning applications. Its second leading product is cable wrap used in the
manufacture of communications cable. JW Aluminum's other foil products are used
in a variety of convertor applications, such as lithoplate for newspapers and as
a facer on foam insulation products. Aluminum sheet products are used primarily
for general building applications such as siding, gutters, downspouts, trailer
siding, mobile home siding and skirting, residential siding and window
components.
JW Aluminum is one of a large number of suppliers nationwide of aluminum
sheet and foil. In fiscal 1995, JW Aluminum sold 120.6 million pounds of
aluminum products, 32% of which were sheet products and 68% foil products. JW
Aluminum has focused on directing its product mix away from building products
which are price sensitive, low value added products, toward higher value added
products such as fin stock, where product quality and service are relied upon
more than price.
JW Aluminum operates a single manufacturing facility in Mt. Holly, South
Carolina. Such facility is in a building of 210,000 square feet on 22 acres of
owned land. JW Aluminum's current rated capacity is 125 million pounds per year,
based on the present product mix.
In the three years ended May 31, 1995, 1994 and 1993, JW Aluminum's net
sales and revenues amounted to $134.2 million, $87.3 million and $82.3 million,
respectively, including $6.1 million, $2.1 million and $1.6 million,
respectively, to JW Window Components.
JW WINDOW COMPONENTS
JW Window Components produces a variety of screens and screen components and
a full line of window components, such as extruded aluminum components,
weatherstripping, sash balances and spiral balances. JW Window Components is
recognized as an industry leader in the production of block and tackle sash
balances. It also has the broadest product line of any supplier to the window
and patio
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door industry. The Company estimates that approximately 60% of total sales are
directed to the new construction market, approximately 30% to the renovation
market and approximately 10% to the commercial sector.
JW Window Components' products are sold through a network of independent
sales agents, who cover the continental United States, the Caribbean and Central
American countries.
JW Window Components operates three plants located in Elizabethton,
Tennessee (190,000 square feet on 31 acres of owned land); Sioux Falls, South
Dakota (50,000 square feet on 3 acres of owned land); and Merrill, Wisconsin
(54,000 square feet of leased space). The administrative offices are located in
the Company's headquarters building in Tampa, Florida.
In the three years ended May 31, 1995, 1994 and 1993, net sales and revenues
for JW Window Components amounted to $45.8 million, $38.7 million and $36.4
million, respectively.
SOUTHERN PRECISION
Southern Precision Corporation's ("Southern Precision") products and
services include metal and wood pattern tooling, plastic and rubber mold
tooling, computerized numerically controlled machining of products and resin
coated sand for the foundry industry.
Southern Precision's Irondale, Alabama manufacturing facility, which
incorporates the plant, warehouse and administrative functions, is the largest
of its type in the Southeast (85,000 square feet of building located on 6 acres
of owned land). The facility and equipment enable the company to service larger
and more sophisticated tooling programs. Competition for resin coated sand,
which has been strong in recent years, is concentrated primarily in the
Southeast.
In order to expand production capacity for resin coated sand, Southern
Precision entered into an agreement with Borden, Inc. in February 1994 to lease
Borden, Inc.'s resin coated sand plant (together with the machinery and
equipment) containing approximately 14,000 square feet of space and located in
Birmingham, Alabama. The lease contained an option to purchase the plant at the
end of the third year. The transaction also included the execution by Southern
Precision and Borden, Inc. of a sales agreement, a license agreement and other
ancillary agreements. On May 31, 1995, Southern Precision exercised its option
to purchase the plant and machinery and equipment for approximately $1.5
million.
In the three years ended May 31, 1995, 1994 and 1993, Southern Precision's
net sales and revenues amounted to $14.4 million, $11.0 million and $10.7
million, respectively, including $2.4 million, $2.2 million and $1.6 million,
respectively, to U.S. Pipe.
VESTAL MANUFACTURING
Vestal Manufacturing produces a diversified line of metal and foundry
products for residential, commercial and industrial use. Vestal Manufacturing
manufactures a line of energy saving fireplaces, fireplace inserts, accessories
and woodburning stoves, as well as lightweight castings for municipal markets
and metal building products.
Vestal Manufacturing's products are sold through a network of independent
sales agents to hardware and building materials distributors, home centers and
mass merchandisers throughout the United States and Canada.
Vestal Manufacturing's performance to a large extent is tied to residential
construction. Foreign competition has also been a factor in recent years.
Vestal Manufacturing, located in Sweetwater, Tennessee, operates a foundry
with 100,000 square feet of building and has a steel fabrication plant building
of 109,000 square feet, both on 32 acres of owned land. Vestal Manufacturing
also owns an unused 132,000 square foot plant and warehouse on 7 acres of land.
When market conditions are favorable, Vestal Manufacturing plans to sell the
unused facility.
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In the three years ended May 31, 1995, 1994 and 1993, Vestal Manufacturing's
net sales and revenues amounted to $19.4 million, $17.4 million and $15.2
million, respectively.
UNITED LAND
United Land owns approximately 56,000 acres of land and also owns
approximately 125,000 acres of mineral rights and 1,800 acres of surface rights,
all principally in Alabama.
United Land receives royalties resulting from leases to strip coal miners,
gas producers and timber companies. When market conditions are favorable,
management expects from time to time to sell excess real estate from the
holdings of United Land not utilized by any of the other subsidiaries of the
Company.
In the three years ended May 31, 1995, 1994 and 1993, United Land's net
sales and revenues amounted to $15.8 million, including a gain of $6.1 million
on the sale of certain excess real estate, $9.2 million and $9.3 million,
respectively.
WALTER LAND
Walter Land Company ("Walter Land") is a land sales operation with an
inventory at May 31, 1995 of approximately 7,500 acres, primarily on the south
side of Houma, Louisiana. The bulk of the commercial development in Houma is
tied directly to service and support for offshore oil and gas drilling, which
has been in a longer term recession. Land sales have been few and small in
recent years. Presently, the majority of Walter Land's income is derived from
rental income. Management and sale of the Louisiana properties are handled by
local personnel on a contract basis. In the three years ended May 31, 1995, 1994
and 1993, Walter Land's net sales and revenues amounted to $196,000, $247,000
and $241,000, respectively.
CARDEM INSURANCE
Cardem Insurance is a Hamilton, Bermuda based offshore reinsurance company.
The predominant part of its business is reinsuring 75% of the risk on fire and
extended coverage insurance policies issued by Westchester Insurance Company, an
unrelated insurance company. Such insurance policies are with individual owners
of homes constructed by Jim Walter Homes. In the years ended May 31, 1995, 1994
and 1993, Cardem Insurance's net sales and revenues amounted to $11.8 million,
$12.0 million and $14.1 million, respectively.
SEASONALITY
Certain of the businesses of the Company (primarily U.S. Pipe, Jim Walter
Homes, JW Window Components and Vestal Manufacturing) are subject to seasonal
variations to varying degrees. However, the businesses of the Company are
significantly influenced by the general economy.
TRADE NAMES, TRADEMARKS AND PATENTS
The names of each of the Company's subsidiaries are well established in the
respective markets served by them, and management believes that the reputation
of such trade names is of some importance. The Company's subsidiaries have
numerous patents and trademarks. Management does not believe, however, that any
one such patent or trademark is of material importance.
RESEARCH AND DEVELOPMENT
Research activities conducted by each business are directed toward new
products, processes and building systems development, improvement of existing
products, development of new uses for existing products and cost reduction
efforts. Total research and development expenditures in each of the last three
fiscal years were less than 1% of net sales and revenues.
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RAW MATERIALS
Substantially all of the raw materials needed for the operations of the
Company and its subsidiaries are either produced by the Company and its
subsidiaries or are purchased from domestic sources. All materials used by the
various businesses of the Company are available in the quantities necessary to
support their respective operations.
ENVIRONMENTAL
The Company and its subsidiaries are subject to a wide variety of laws and
regulations concerning the protection of the environment, both with respect to
the construction and operation of many of its plants, mines and other
facilities, and with respect to remediating environmental conditions that may
exist at its own and other properties. The Company believes that it and its
subsidiaries are in substantial compliance with federal, state and local
environmental laws and regulations. Expenditures for compliance of ongoing
operations and for remediation of environmental conditions arising from past
operations in the fiscal year ended May 31, 1995 were approximately $4.3
million. Because environmental laws and regulations on the federal, state, and
local levels continue to evolve, and because conditions giving rise to
obligations and liabilities under environmental laws are in some circumstances
not readily identified, it is difficult to forecast the amount of such
environmental expenditures or the effects of changing standards on business
operations, and the Company can give no assurance that such expenditures will
not, in the future, be material. Capital expenditures for environmental
requirements are anticipated in the next five years to average $6.0 million per
year.
U.S. Pipe is implementing an Administrative Consent Order ("ACO") for its
Burlington, New Jersey plant that was required under the New Jersey
Environmental Cleanup Responsibility Act (now known as the Industrial Site
Recovery Act) in connection with the completion of the LBO. The ACO required
soil and ground water cleanup. U.S. Pipe completed, pending final approval, the
soil cleanup required by the ACO. U.S. Pipe is now treating ground water as
ordered in the ACO, but it is not known how long treatment will be required in
order to meet the requirements of the ACO. Management does not believe the
cleanup costs will have a material adverse effect on the financial condition or
results of operations of the Company and its subsidiaries.
The federal Comprehensive Environmental Response, Compensation and Liability
Act ("CERCLA"), generally imposes liability, which may be joint and several and
is without regard to fault or the legality of waste generation or disposal, on
certain classes of persons, including owners and operators of sites at which
hazardous substances are released into the environment (or pose a threat of such
release), persons that disposed or arranged for the disposal of hazardous
substances at such sites, and persons who owned or operated such sites at the
time of such disposal. CERCLA authorizes the EPA, the states and, in some
circumstances, private entities to take actions in response to public health or
environmental threats and to seek to recover the costs they incur from the same
classes of persons. Certain governmental authorities can also seek recovery for
damages to natural resources. Various subsidiaries of the Company have been
identified as potentially responsible parties by the EPA under CERCLA with
respect to cleanup of hazardous substances at several sites to which their
wastes allegedly have been transported. The subsidiaries are in the process of
preliminary investigation of their relationship to these sites, if any, to
determine the nature of their potential liability and amount of remedial costs
to clean up such sites. Although no assurances can be given that the Company
will not be required in the future to make material expenditures relating to
these sites, management does not believe at this time that the cleanup costs its
subsidiaries will be called on to bear, if any, associated with these sites will
have a material adverse effect on the financial condition or results of
operations of the Company and its subsidiaries; management believes the extent
of the subsidiaries' involvement, if any, to be minor in relation to that of
other named potentially responsible parties, a significant number of which are
substantial companies.
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EMPLOYEES
As of May 31, 1995, the Company and its subsidiaries employed approximately
7,900 people, of whom approximately 4,900 were hourly workers and approximately
3,000 were salaried employees. Approximately 4,300 employees were represented by
unions under collective bargaining agreements, of which approximately 1,750 were
covered by one contract with the UMWA, which currently expires on August 1,
1998. The Company considers its relations with its employees to be satisfactory.
The Company and its subsidiaries have various pension and profit sharing
plans covering substantially all employees. In addition to its own pension
plans, contributions are made to certain multi-employer plans. The funding of
retirement and employee benefit plans is in accordance with the requirements of
the plans and, where applicable, in sufficient amounts to satisfy the "Minimum
Funding Standards" of the Employee Retirement Income Security Act of 1974
("ERISA"). The plans provide benefits based on years of service and compensation
or at stated amounts for each year of service.
PROPERTIES
The headquarters building of the Company is a modern twin tower eight-story
building of masonry and steel construction, containing approximately 200,000
square feet of office space, located on a plot of land in excess of 13 acres in
Tampa, Florida.
LEGAL PROCEEDINGS
Plan of Reorganization. The Plan of Reorganization was confirmed by the
Bankruptcy Court on March 2, 1995. A limited appeal from the order confirming
the Plan of Reorganization was filed by the United States on behalf of the EPA.
Notwithstanding the filing of such appeal, the Plan of Reorganization became
effective on March 17, 1995. The Company and the EPA have resolved all issues on
appeal. On July 11, 1995 the Bankruptcy Court entered its Order Granting Motion
to Approve Agreement of the United States and the Debtor Regarding Releases and
Injunctions Under Amended Joint Plan of Reorganization Dated as of December 9,
1994. A motion to dismiss the appeal has been filed and an order dismissing the
appeal will be entered shortly.
Despite the confirmation and effectiveness of the Plan of Reorganization,
the Bankruptcy Court continues to have jurisdiction to, among other things,
resolve disputed prepetition claims against the Company, resolve matters related
to the assumption, assumption and assignment, or rejection of executory
contracts pursuant to the Plan of Reorganization, and to resolve other matters
that may arise in connection with or relate to the Plan of Reorganization. (For
example, see Note 11 ("Litigation Related to Chapter 11 Distributions to Certain
Holders of Subordinated Notes and/or Debentures and Chapter 11 Adversary
Proceeding Filed by Certain Holders of Series B & C Senior Notes") of Notes to
Financial Statements.) Except as described in "Certain Risk Factors--Tax
Considerations" and "-- Disputed Claims Reserves," provision was made under the
Plan of Reorganization in respect of all prepetition liabilities of the Company.
Asbestos-Related Litigation Settlements. As discussed more fully under
"Recent History", prior to filing the Chapter 11 Cases, the Company and the
Indemnitees were subject to significant and mounting Veil Piercing Litigation
arising from the LBO and the activities of Celotex, a former subsidiary of the
Company. Celotex filed for protection under Chapter 11 on October 12, 1990 as a
result, in part, of increasingly burdensome asbestos litigation. In the Veil
Piercing Litigation, the Asbestos Claimants sought (i) to pierce the corporate
veil that existed between Celotex and Original Jim Walter prior to the LBO and
(ii) to unwind the LBO. According to the Asbestos Claimants, if Original Jim
Walter were to be deemed responsible for Celotex's alleged multi-billion dollar
asbestos liabilities, the debt issued in connection with the LBO would have
rendered the Company insolvent,
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making the LBO a fraudulent conveyance. The Asbestos Claimants asserted at
various times that the amount of Celotex's asbestos liabilities could reach $10
billion. Any finding that the Company could be liable for all or any part of
these liabilities would have threatened the Company's existence.
After the filing of the Chapter 11 Cases, the Company commenced the
Adversary Proceeding. After a full trial (the "Veil Piercing Trial"), the
Bankruptcy Court on April 18, 1994 found in favor of the Company on every claim
asserted in the Adversary Proceeding. The United States District Court for the
Middle District of Florida affirmed the Bankruptcy Court's decision on appeal on
October 13, 1995. The decision of the District Court was appealed to the United
States Court of Appeals for the Eleventh Circuit. On or about April 28, 1995, a
stipulation of dismissal of that appeal was filed pursuant to the terms of the
Veil Piercing Settlement described below.
On April 28, 1994, the Company commenced an action (the "Celotex Action") in
the Celotex bankruptcy proceeding seeking a ruling that, as a subsidiary of Jim
Walter Corporation, Celotex alone had standing to assert the Veil Piercing
Claims and that all creditors of Celotex were bound by the decisions in the
Adversary Proceeding. If granted, the relief sought in the Celotex Action would
have barred any future Veil Piercing Claims from being brought against the
Company or any other entity. Counsel for the Asbestos Claimants had indicated
that they would assert that only the named defendants in the Adversary
Proceeding could be bound by the decisions in that action, leaving thousands of
unnamed and future claimants free to relitigate the same issues raised therein.
The Celotex Action was dismissed without prejudice on October 13, 1994 for lack
of a case and controversy and for failure to join an indispensable party.
Counsel for the Asbestos Claimants asserted that they would vigorously oppose
any attempt by the Company to obtain an adjudication in any forum to the effect
that the Asbestos Claimants or any other individual claimants lack standing to
raise Veil Piercing Claims.
Prior to the Veil Piercing Trial, a number of the Company's creditors
reached a settlement agreement with the Asbestos Claimants and Celotex to
resolve the Veil Piercing Claims, the Veil Piercing Litigation and the Adversary
Proceeding (the "Initial Settlement"). The Company did not join in the Initial
Settlement and filed objections in the Chapter 11 Cases thereto.
On October 17, 1994, a hearing was commenced in the Chapter 11 Cases on the
fairness of the Initial Settlement and certain other issues relating to the
payment of post-petition interest to unsecured creditors of the Company and
challenges to the voting process. Before the completion of that hearing, all
parties conducted intensive settlement negotiations. As a result of those
negotiations, the Company, the Asbestos Claimants, certain creditors of the
Company, KKR, Jim Walter Corporation, Celotex and others agreed upon the terms
of a global settlement, ultimately resulting in the execution of the Second
Amended and Restated Veil Piercing Settlement Agreement dated as of November 22,
1994 (the "Veil Piercing Settlement"), the terms of which are embodied in and
made effective by the Plan of Reorganization.
Under the Veil Piercing Settlement, all pending and future Settlement Claims
are settled, satisfied, released, barred and discharged and all persons that
have asserted or may in the future assert Settlement Claims are permanently
enjoined from, among other things, (i) commencing, conducting or continuing in
any manner, directly or indirectly, any proceeding of any kind in respect of
Settlement Claims against, among others, the Company, KKR and any or all of
their present and former parents, subsidiaries, stockholders, partners,
officers, directors and employees (the "Released Parties"), (ii) enforcing,
levying, attaching, collecting or otherwise recovering by any manner, directly
or indirectly, any judgment, award, decree or order against any of the Released
Parties in respect of Settlement Claims and (iii) creating, perfecting or
otherwise enforcing in any manner, directly or indirectly, any encumbrance of
any kind against any of the Released Parties in respect of Settlement Claims.
The Veil Piercing Settlement was intended to resolve finally all Settlement
Claims. The Veil Piercing Settlement was signed by, among others, Celotex, Jim
Walter Corporation and counsel for the
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Asbestos Claimants, thus binding them to the terms thereof. To implement the
Veil Piercing Settlement, all present and future holders of Settlement Claims
other than Celotex, including Asbestos Claimants, were certified by the
Bankruptcy Court as a class (for settlement purposes only) under applicable
bankruptcy rules and the Federal Rules of Civil Procedure (the "Class"). A
representative of the Class was appointed by the Bankruptcy Court (the "Class
Representative"). All potential members of the Class who could be identified
received actual notice of the terms of the Veil Piercing Settlement and the Plan
of Reorganization in addition to wide publication notice. The forms of notice
were approved by the Bankruptcy Court. The Class Representative and Celotex each
filed proofs of claim in the Chapter 11 Cases for the Settlement Claims. The
Company filed objections to those proofs of claim and the Bankruptcy Court
allowed the Settlement Claims pursuant to the Veil Piercing Settlement in the
aggregate amount of $375 million.
The Plan of Reorganization established a class of all present and future
holders of Settlement Claims ("Class U-7"). A bar date for the filing of Class
U-7 claims was set and notice thereof was approved by the Bankruptcy Court and
given by the Company to all known Veil Piercing Claimants and by publication.
For voting purposes, every member of Class U-7 was temporarily allowed a $1
claim. Every Class U-7 claimant was given an opportunity to vote on the Plan of
Reorganization. Class U-7 approved the Plan of Reorganization by a vote of
73,861 in favor to 16 opposed. No member of Class U-7 filed an objection to the
Plan of Reorganization or to the Veil Piercing Settlement embodied therein.
The Plan of Reorganization provides that acceptance of the Plan of
Reorganization by Class U-7 binds any and all present or future holders of
Settlement Claims to the terms of the Plan of Reorganization and thus bars them
from bringing any Settlement Claims against the Company, the Indemnitees or any
of the other Released Parties. Under the terms of the Veil Piercing Settlement,
the stated amount of the settlement ($375 million) (the "Celotex Settlement
Fund") was paid under the Plan of Reorganization in the form of Common Stock,
cash and Series B Notes to a fund (the "Celotex Settlement Fund Recipient") that
will hold the proceeds for the exclusive benefit of the Veil Piercing Claimants
(as defined in the Veil Piercing Settlement). Under the Plan of Reorganization,
all Settlement Claims must be channeled to the Celotex Settlement Fund Recipient
to be administered under the jurisdiction of the bankruptcy court in the Celotex
bankruptcy proceeding.
On March 2, 1995, the Bankruptcy Court entered a confirmation order which,
among other things, (i) provided for the satisfaction, discharge and release of
the Settlement Claims, (ii) included an injunction permanently channelling all
Settlement Claims to the Celotex Settlement Fund Recipient, (iii) found the Veil
Piercing Settlement to be fair and reasonable and (iv) provided that the Class
shall be deemed to have provided releases of all Released Parties under the Veil
Piercing Settlement.
By orders dated February 13 and 25, 1995, the Celotex bankruptcy court
approved the Veil Piercing Settlement and directed Celotex to render performance
in accordance with its terms. In addition, the Celotex bankruptcy court
appointed a legal representative to protect the interests of unknown asbestos
bodily injury claimants. After review of the Veil Piercing Settlement, that
legal representative informed the Celotex bankruptcy court that the Veil
Piercing Settlement should be approved as being in the best interests of such
claimants.
On March 17, 1995, the Celotex bankruptcy court issued an order authorizing
the Celotex Settlement Fund Recipient to receive the Celotex Settlement Fund for
the exclusive benefit of the Veil Piercing Claimants (as defined in the Veil
Piercing Settlement). The Celotex bankruptcy court also ordered that "all claims
of the type settled by the Veil Piercing Settlement . . . shall attach solely to
the [Celotex] Settlement Fund and all persons and entities are enjoined from
commencing or continuing any suit, arbitration or other proceeding of any type
against any and all of the Released Parties . . . arising out of any such
claims." The Celotex bankruptcy court also enjoined anyone from taking any
action against the Celotex Settlement Fund without the prior approval of the
Celotex bankruptcy court.
50
<PAGE>
Under the terms of the Veil Piercing Settlement, all parties thereto have
agreed to use their best efforts to obtain a confirmation of a plan of
reorganization in the Celotex bankruptcy proceeding that includes a provision
for and injunction pursuant to Section 524(g) of the Bankruptcy Code. Section
524(g) is part of the 1994 amendments to the Bankruptcy Code. It provides for
permanent supplemental injunctions, such as the ones contemplated in the Veil
Piercing Settlement, to protect third parties who are not debtors in bankruptcy.
Thus, a supplemental injunction under Section 524(g) would operate to bar future
Settlement Claims against the Company, the Indemnitees and the other Released
Parties. There had been some disputes about the statutory authorization of such
injunctions under caselaw before the enactment of Section 524(g). Under Section
524(g), the Celotex bankruptcy court may (i) bind all present and future holders
of Settlement Claims to the terms of the Veil Piercing Settlement and (ii)
enjoin such holders from bringing Settlement Claims against any Released Party
in the future.
The Plan of Reorganization does not provide for a Section 524(g) injunction.
However, as discussed above, under the terms of the Veil Piercing Settlement the
parties to the Celotex bankruptcy proceeding are required to use their best
efforts to obtain the confirmation of a plan of reorganization that contains
such a provision. A plan of reorganization has already been proposed in the
Celotex bankruptcy proceeding which provides for an injunction under Section
524(g). There will be an evidentiary hearing on October 17, 1995, in the Celotex
bankruptcy proceeding to consider all objections to the proposed disclosure
statement for the plan of reorganization proposed by Celotex. The hearing will
cover claims by certain constituencies in the Celotex bankruptcy proceeding that
the proposed Celotex plan of reorganization does not comply with the Veil
Piercing Settlement, and may result in changes to the proposed Celotex plan of
reorganization, which could affect the availability of a Section 524(g)
injunction in the Celotex bankruptcy proceeding. Although there is no assurance
that it will be confirmed and consummated, if a Celotex plan of reorganization
is confirmed and consummated and it contains a Section 524(g) injunction, it
would provide additional protection for the Released Parties, including the
Company.
Jim Walter Homes/Mid-State Homes. Jim Walter Homes and Mid-State Homes,
together with Mid-State Trust II and certain other parties, are involved in
litigation, primarily in the Bankruptcy Court, with approximately 750 owners of
houses constructed by Jim Walter Homes in south Texas. The homeowners seek
damages based upon alleged construction defects, common law fraud, and
violations of the Texas Deceptive Trade Practices Act, the Texas Consumer Credit
Code, federal and state debt collections statutes and the Racketeering Influence
Corruptions and Practices Act. Although Jim Walter Homes and Mid-State Homes
believe that the litigation is substantially without merit, a settlement
agreement ("Texas Settlement Agreement") has been reached with the attorney for
the homeowner claimants. The anticipated settlement amount will be approximately
$3.6 million in account balance reductions (of which approximately $1.25 million
represents a principal reduction), plus an approximate aggregate payment of
$27,500 in cash to certain clients and $2.9 million as attorney's fees (of which
$900,000 may be deferred and payable over the next five years). The consummation
of the Texas Settlement Agreement is subject to various conditions, including
approval by all of the parties thereto. It also contains provisions allowing
claimants to "opt out" or not participate in the Texas Settlement Agreement and
for the defendants to avoid the settlement in its entirety if, in their
judgment, the number of claimants who opt out is so large as to make the
settlement of little value. It also has a provision for the attorney for the
homeowner claimants to indemnify and hold harmless the defendants from any and
all claims, demands, causes of actions, lawsuits and settlements by the
homeowners. Further, it provides for the Bankruptcy Court to retain jurisdiction
over any claims which are not resolved by the Texas Settlement Agreement. On
June 27, 1995 the Bankruptcy Court ordered a notice to be sent to creditors of
the Company concerning the Texas Settlement Agreement which provided that any
objections to the settlement be filed with the Bankruptcy Court by July 12,
1995. On July 13, 1995, the Bankruptcy Court entered its Order Granting Motion
to Approve Compromise and
51
<PAGE>
Settlement Agreement and the parties have commenced implementing the Texas
Settlement Agreement.
In May 1995 Jim Walter Homes and Mid-State Homes settled a class action by
purchasers of houses constructed by Jim Walter Homes in South Carolina since
December 27, 1989 in which the plaintiffs contended that Jim Walter Homes
violated certain provisions of the South Carolina Consumer Protection Code (the
"South Carolina Statute") relating to a borrower's right to choose the
borrower's attorney in certain transactions. See Note 11 ("South Carolina Class
Actions") of Notes to Financial Statements for additional information concerning
the settlement. Jim Walter Homes and Mid-State Homes had filed an action in the
Bankruptcy Court for a declaratory judgment with respect to their liability, if
any, to purchasers of houses built by Jim Walter Homes in South Carolina from
July 1, 1982 (the date on which the South Carolina Statute become effective) to
December 27, 1989. Jim Walter Homes, Mid-State Homes and representatives of the
homeowners have negotiated a proposed settlement of that action which will
require a cash payment of approximately $3 million, which after application of
these settlement proceeds to pay existing arrearages on the homeowners'
mortgages will result in a net cash outlay of approximately $1,050,000. In
addition, legal fees of approximately $360,000 will be paid. The proposed
settlement is subject to the Bankruptcy Court's approval upon submission of an
appropriate motion. The proposed settlement may involve additional account
classifications which are in the process of being analyzed and which may be
included in an amended complaint to be filed in the above-described declaratory
judgment action.
During the year ended May 31, 1995, $18.0 million was accrued for the
anticipated settlement amounts described in the two preceding paragraphs.
Jim Walter Resources. On May 31, 1995 the Company and Jim Walter Resources
commenced a lawsuit in the Circuit Court for Tuscaloosa County, Alabama against
a group of insurance companies with which the Company has business interruption
insurance seeking damages in excess of $25 million for loss from interruption of
Jim Walter Resources' business resulting from a fire in November 1993 in Jim
Walter Resources' Mine No. 5. See "Business and Properties--Jim Walter
Resources" and Note 11 of Notes to Financial Statements. The complaint also
seeks a declaratory judgment concerning the insurers' contentions that (i) the
risk which caused the loss was not insured because it was not fortuitous, but
was spontaneous combustion known to occur in Jim Walter Resources' mines, and
(ii) the Company failed to disclose the risk of loss from spontaneous combustion
and that the insurance policies are void or voidable because of such failure.
The lawsuit is in its initial stages, but the Company and Jim Walter Resources
believe their claim is meritorious and intend to pursue it vigorously.
U.S. Pipe--Environmental Penalty. U.S. Pipe has recently entered into an
administrative consent order with the New Jersey Department of Environmental
Protection pursuant to which it agreed, among other things, to pay a civil
penalty of $187,000 to resolve alleged violations regarding its plant in
Burlington, New Jersey. The Company does not expect the civil penalty or any
other aspect of the order to have a materially adverse effect on its
consolidated financial position. See Note 11 of Notes to Financial Statements
("Environmental Matters").
Other. The Company and its subsidiaries are involved in various other
proceedings arising in the ordinary course of their businesses. 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. Management does not expect that any of such other
proceedings will have a material adverse effect on the Company's consolidated
financial position.
52
<PAGE>
MANAGEMENT
DIRECTORS AND EXECUTIVE OFFICERS
Set forth below is a list showing the names, ages (as of September 15, 1995)
and positions of all Directors of the Company, and, where applicable, the
executive office or offices held by each Director with the Company.
<TABLE>
<CAPTION>
NAME AGE POSITION
- -------------------------------------- --- ----------------------------------------------
<S> <C> <C>
James W. Walter....................... 72 Chairman Emeritus and Director.
G. Robert Durham...................... 66 Director; Chairman and Chief Executive
Officer.
Kenneth E. Hyatt...................... 54 Director; President and Chief Operating
Officer.
Howard L. Clark, Jr................... 51 Director.
James B. Farley....................... 64 Director.
Eliot M. Fried........................ 62 Director.
James L. Johnson...................... 68 Director.
Robert I. Shapiro..................... 45 Director.
Michael T. Tokarz..................... 45 Director.
</TABLE>
James W. Walter has been a Director of the Company since 1988. Mr. Walter
retired as Chairman of the Company effective October 6, 1995 and thereafter
became the Chairman Emeritus. Mr. Walter founded Walter Construction Co., a
predecessor of Original Jim Walter, in 1948 and Original Jim Walter
(incorporated in 1955). He was President and Chief Executive Officer of Original
Jim Walter from 1955 to 1963, Chairman and Chief Executive Officer from 1963 to
1983 and Chairman until 1988. He is a Director of Anchor Glass Container
Corporation and Contel Cellular, Inc.
G. Robert Durham has been Chief Executive Officer and a Director of the
Company since June 1991, and also served as President of the Company from June
1991 to August 1995. Mr. Durham became the Chairman of the Company effective
October 6, 1995. He was Chairman, President and Chief Executive Officer of
Phelps Dodge Corporation, a producer of copper, truck wheels and rims, and
carbon black, from 1987 to 1989, when he took early retirement. Prior to 1987 he
was President and Chief Operating Officer (1985-1987) and held other executive
positions (1967-1985) with Phelps Dodge Corporation and/or its affiliated
companies. He also is a Director of Homestake Mining Company, MinCorp Holdings
Inc. and The FINOVA Group Inc. and a Trustee of Mutual of New York.
Kenneth E. Hyatt served as President and Chief Executive Officer and a
Director of Celotex from 1990 until shortly prior to his election, effective
September 1, 1995, as President and Chief Operating Officer of the Company.
Prior thereto, Mr. Hyatt held various management and executive positions with
various subsidiaries of Original Jim Walter. In 1986 he was elected Executive
Vice President and Chief Operating Officer of Original Jim Walter. Following the
LBO, Mr. Hyatt joined with an investors group in the acquisition of Celotex and
certain related entities. In October 1990 Celotex and one of its subsidiaries
filed voluntary petitions for reorganization under Chapter 11 of the Bankruptcy
Code in the Bankruptcy Court for the Middle District of Florida, Tampa Division,
as a result of massive litigation involving asbestos-related liabilities. The
Celotex Settlement Fund Recipient is a principal stockholder of the Company. See
"Security Ownership of Management and Principal Stockholders--Ownership of
Principal Stockholders." Mr. Hyatt has been a Director of the Company since
September 12, 1995.
Howard L. Clark, Jr. has been the Vice Chairman of Lehman, an
investment-banking firm, since February 1993; prior thereto he served as
Chairman and Chief Executive Officer of Shearson Lehman Brothers, Inc. Prior
thereto he was an Executive Vice President and the Chief Financial Officer of
American Express Company, a financial services firm. He also is a Director of
Lehman, Plasti-Line, Inc., The Maytag Corporation, the Securities Industry
Association and The Fund American Companies, Inc. Mr. Clark has been a Director
of the Company since March 17, 1995.
James B. Farley is the retired Chairman of the Board, and a current Trustee,
of Mutual of New York, a life insurance company. He served as Chairman and Chief
Executive Officer of Mutual of New
53
<PAGE>
York from 1989 to 1994. He also is a Director of Ashland Oil, Inc. and The
Promus Companies. Mr. Farley has been a Director of the Company since March 17,
1995.
Eliot M. Fried has been a Managing Director of Lehman or Shearson Lehman
Brothers, Inc. since 1991 and is Co-chairman of Lehman's Firm Wide Investment
Committee. He served as a Senior Vice President of Shearson Hayden Stone, a
predecessor firm of Lehman, from 1982 to 1991. He also is a Director of American
Marketing Industries, Bridgeport Machines, Inc., Energy Ventures, Inc., Lear
Seating Corporation, Sun Distributors L.P. and Vernitron Corporation. Mr. Fried
has been a Director of the Company since March 17, 1995.
James L. Johnson is Chairman Emeritus of GTE Corporation, a telephone
company and cellular service provider. From April 1988 to May 1992 he was
Chairman and Chief Executive Officer of GTE. He also is a Director of Contel
Cellular, Inc., CellStar Corporation, The FINOVA Group Inc., Harte-Hanks
Communications Inc. and Valero Energy Corp. and a Trustee of Mutual of New York.
Mr. Johnson has been a Director of the Company since March 17, 1995.
Robert I. Shapiro has been a Managing Director of Lehman since 1985. He is
Chairman of Lehman's Employee Benefit Plans Committee and a Trustee of the
Lehman Brothers Pension Plan. Mr. Shapiro has been a Director of the Company
since March 17, 1995.
Michael T. Tokarz has been a general partner of KKR, a private investment
firm, since January 1993; prior thereto he was an associate at KKR since
September 1985. He also is a Director of Safeway, Inc., K-III Communications
Corporation, Flagstar Companies, Inc., Flagstar Corporation, Neway Anchorlok
International, Inc., KSL Recreation Corporation and IDEX Corporation. Mr. Tokarz
has been a Director of the Company since 1987.
Except as described under "Board of Directors" below, Directors of the
Company are elected by the stockholders of the Company. Each Director holds
office until his successor is elected and qualified. The Company is not aware of
any family relationships among any of the foregoing Directors.
Set forth below is a list showing the names, ages (as of September 15, 1995)
and positions of the executive officers of the Company who are not Directors of
the Company.
<TABLE>
<CAPTION>
NAME AGE OFFICES
- -------------------------------------- --- ----------------------------------------------
<S> <C> <C>
Kenneth J. Matlock.................... 67 Executive Vice President and Chief Financial
Officer of the Company
William Carr.......................... 65 President and Chief Operating Officer of Jim
Walter Resources
Frank A. Hult......................... 44 Vice President and Controller of the Company
Donald M. Kurucz...................... 56 Vice President and Treasurer of the Company
Robert W. Michael..................... 54 Senior Vice President and Group Executive of
the Company; President and Chief Operating
Officer of Jim Walter Homes
Sam J. Salario........................ 66 President of Mid-State Homes; Vice President
of Jim Walter Homes
William N. Temple..................... 62 Senior Vice President and Group Executive of
the Company; President and Chief Operating
Officer of U.S. Pipe
David L. Townsend..................... 41 Vice President-Human Resources/Public
Relations of the Company
John F. Turbiville.................... 67 Vice President-Legal and Secretary of the
Company
William H. Weldon..................... 63 Senior Vice President-Finance and Chief
Accounting Officer of the Company
</TABLE>
Kenneth J. Matlock has been Executive Vice President and Chief Financial
Officer of the Company since 1991; prior thereto he was Senior Vice President
and Chief Financial Officer of the
54
<PAGE>
Company from 1988 to 1991. Mr. Matlock also served as a Director of the Company
from 1988 to September 1995. Mr. Matlock joined Original Jim Walter in 1964,
became Controller in 1970, Chief Financial Officer in 1974 and Senior Vice
President in 1984.
William Carr has been President and Chief Operating Officer of Jim Walter
Resources since 1991; prior thereto he was a Senior Executive Vice President and
Chief Operating Officer of Jim Walter Resources and President of its Mining
Division since 1976. He was a Vice President of Original Jim Walter from 1976 to
1988.
Frank A. Hult has been a Vice President of the Company since 1994 and the
Controller of the Company since 1991; he was Assistant Controller and Chief
Accountant (1989-1991) and Manager of Budgets (1988-1989) of the Company.
Previously he was Manager of Budgets (1984-1988) and Financial Analyst
(1978-1981) of Original Jim Walter and Manager-Operations Administration (1981-
1984); Plant Controller (1975-1978) and Cost Accountant (1974-1975) for Celotex.
Donald M. Kurucz has been a Vice President and the Treasurer of the Company
since 1991; he was Treasurer of the Company from 1988-1991. Previously he served
as Treasurer (1977-1988) and Assistant Treasurer (1975-1977) of Original Jim
Walter.
Robert W. Michael has been a Senior Vice President and Group Executive of
the Company since 1991 and President and Chief Operating Officer of Jim Walter
Homes since 1984. Prior thereto, he was Vice President-Sales (1975-1984), a
Regional Manager (1973-1975), an Assistant Regional Manager (1970-1973), a Main
Branch Manager (1967-1970) and a Sub-Branch Manager (1966-1967) with Jim Walter
Homes and held various managerial positions with Mid-State Homes (1964-1966). He
was a Vice President of Original Jim Walter (1984-1988).
Sam J. Salario has been President of Mid-State Homes since 1984, and a Vice
President of Jim Walter Homes since 1972. Previously he served as an Assistant
Vice President (1963-1984), a Regional Supervisor (1961-1963) and a
Representative (1960-1961) with Mid-State Homes.
William N. Temple has been a Senior Vice President and Group Executive of
the Company since 1991 and President and Chief Operating Officer of U.S. Pipe
since 1993; he was a Vice President of the Company from 1988 to 1991 and, from
1974, was a Vice President of Original Jim Walter. Previously he served as
President of the former Fasteners and Special Products Division of U.S. Pipe and
Vice President of U.S. Pipe (1972-1974), President of the former Southeastern
Bolt and Screw division of U.S. Pipe (1971-1974) and Controller of U.S. Pipe
(1965-1971).
David L. Townsend has been a Vice President of the Company since 1988.
Previously he served as a Vice President (since 1983), Director of Public
Relations (1982-1983) and Manager of Public Relations (1980-1982) of Original
Jim Walter and in various staff positions (1978-1980) with Original Jim Walter.
John F. Turbiville has been a Vice President and the Secretary of the
Company since 1988. Previously he served as Assistant Secretary of the Company
(1988) and Original Jim Walter (1981-1988) and as a staff attorney (1979-1981)
with Original Jim Walter.
William H. Weldon has been a Senior Vice President and the Chief Accounting
Officer of the Company since 1991; he was Vice President, Controller and Chief
Accounting Officer of the Company from 1988 to 1991. Previously he served as
Vice President and Controller (1977-1988), Controller (1972-1977) and Assistant
Controller (1970-1972) of Original Jim Walter.
Executive officers serve at the pleasure of the Board of Directors. The
Company is not aware of any family relationships among any of the foregoing
executive officers.
55
<PAGE>
BOARD OF DIRECTORS
Pursuant to the Plan of Reorganization and the Charter, the Board of
Directors of the Company consists of nine (9) directors. For the first three
years after the Effective Date of the Plan of Reorganization (the "Initial Three
Year Term"), the Board will be selected as follows (subject to the exceptions
discussed in the next paragraph): three directors will be G. Robert Durham,
James W. Walter and a senior officer of the Company (currently Kenneth E. Hyatt)
or their successors who shall be selected by the remaining directors from the
senior officers of the Company; one director will be a person designated by KKR
(the "KKR Director") (initially Michael T. Tokarz); three directors will be
persons designated by Lehman (the "Lehman Directors") (initially Howard L.
Clark, Jr., Eliot M. Fried and Robert I. Shapiro); and two directors (the
"Independent Directors") (initially James B. Farley and James L. Johnson) will
be persons who (a) are not (i) officers, affiliates, employees, Interested
Stockholders, consultants or partners of any Significant Stockholder or any
affiliate of any Significant Stockholder or of any entity that was dependent
upon any Significant Stockholder or any affiliate of any Significant Stockholder
for more than 5% of its revenues or earnings in its most recent fiscal year,
(ii) an officer, employee, consultant or partner of the Company or any of its
affiliates, or an officer, employee, Interested Stockholder, consultant or
partner or any entity that was dependent upon the Company or any of its
affiliates for more than 5% of its revenues or earnings in its most recent
fiscal year or (iii) any relative or spouse of any of the foregoing persons or a
relative of a spouse of any of the foregoing persons and (b) are selected by
management of the Company from a list of qualified candidates provided by an
independent search firm selected by management and Lehman. For these purposes
"Interested Stockholder" means, with respect to any person, any other person
that together with its affiliates and associates beneficially owns (as defined
in Rule 13d-3 under the Exchange Act) 5% or more of the equity securities of
such person, and "Significant Stockholder" means an Interested Stockholder of
the Company.
If, at any time during the Initial Three Year Term, (i) after six months
following the Effective Date of the Plan of Reorganization, Lehman notifies KKR
that it has determined to transfer to KKR the right to appoint one of the three
Lehman Directors or (ii) Lehman and its affiliates fail to have beneficial
ownership (as defined in Rule 13d-3 under the Exchange Act) of 8% of the
outstanding Common Stock (without giving effect to shares of Common Stock held
in escrow pursuant to the Plan of Reorganization; see "Security Ownership of
Management and Principal Stockholders" and "Description of Capital
Stock--Additional Stock Issuances") (the "Outstanding Common Stock") and KKR and
its affiliates have beneficial ownership of 8% or more of the Outstanding Common
Stock at such time, then, in each case, KKR shall have the right to compel one
Lehman Director selected by Lehman to resign as a director and to appoint as a
successor an additional KKR Director. If, at any time during the Initial Three
Year Term, there are two KKR Directors and KKR and its affiliates fail to have
beneficial ownership of 8% or more of the Outstanding Common Stock while Lehman
and its affiliates have beneficial ownership of 8% or more of the Outstanding
Common Stock, then Lehman shall have the right to compel one KKR Director
selected by KKR to resign as a director and to appoint as a successor an
additional Lehman Director. If, at any time during the Initial Three Year Term,
either Lehman and its affiliates or KKR and its affiliates fail to have
beneficial ownership of 5% or more of the Outstanding Common Stock, then the
Lehman Directors or the KKR Director(s), as the case may be, shall resign and
the remaining directors shall appoint their successor(s) for the remainder of
the Initial Three Year Term; provided, however, that KKR shall be entitled to
have one KKR Director during the Initial Three Year Term if the number of shares
of Common Stock beneficially owned by KKR and its affiliates, together with
shares of Common Stock held in escrow pursuant to the Plan of Reorganization
that would be distributed to KKR or its affiliates upon release from escrow,
constitutes 5% or more of the Outstanding Common Stock and shares held in escrow
pursuant to the Plan of Reorganization. Lehman has informed the Company and KKR
that it has determined to transfer, after October 17, 1995, to KKR the right to
appoint one of the three Lehman Directors.
56
<PAGE>
After the Initial Three Year Term, all the directors of the Company shall be
elected by the stockholders of the Company annually for a term of one year each.
COMMITTEES OF THE BOARD OF DIRECTORS
The Board of Directors of the Company has established an Audit Committee, a
Compensation Committee, a Finance Committee, a Nominating Committee, an
Environmental, Health and Safety Committee and one special committee, the Tax
Oversight Committee. The Board may, from time to time, establish certain other
committees to facilitate the management of the Company.
The Audit Committee is responsible for meeting with representatives of the
Company's independent certified public accountants and financial management to
review accounting, internal control, auditing and financial reporting matters,
and is also responsible, among other things, for maintaining liaison with and
exercising such supervision of the actions of said accountants in whatever
manner and to whatever extent shall be deemed, at its discretion, necessary,
proper and in the best interest of the Company and its stockholders. The Audit
Committee consists of five Directors who are not and never have been employees
of the Company (initially Eliot M. Fried, Chairman, James B. Farley, James L.
Johnson, Robert I. Shapiro and Michael T. Tokarz).
The Compensation Committee is responsible for reviewing and approving
officer and executive salaries in amounts over $100,000 annually and for
reviewing and recommending for approval by the Board of Directors executive and
key employee compensation plans, including incentive compensation, stock
incentives and other benefits, and consists of five Directors who are not and
never have been employees of the Company (initially James L. Johnson, Chairman,
Howard L. Clark, Jr., James B. Farley, Eliot M. Fried and Michael T. Tokarz).
The Finance Committee is responsible for recommendations to the Board of
Directors concerning financings, dividends, discretionary contributions by the
Company under the Company's employee benefit plans and other financial matters,
approval of the designation of the investment fund managers for the Company's
employee benefit plans, and approval of investment of the Company's funds, by
establishment of policies for investment of funds by the Company's officers. The
Finance Committee consists of five Directors (initially James B. Farley,
Chairman, Howard L. Clark, Jr., Eliot M. Fried, Michael T. Tokarz and James W.
Walter).
The Environmental, Health and Safety Committee is responsible for receiving
environmental, health and safety reports from the Company's and its
subsidiaries' environmental counsel and engineers and health and safety
personnel; examining the Company's and its subsidiaries' compliance with
environmental, reclamation, health and safety requirements and the policies
pertaining thereto; reporting the same to the Board of Directors; approving the
proposed scope of internal and independent environmental and health and safety
audits; and periodically evaluating and recommending to the Board of Directors
changes in the Company's and its subsidiaries' environmental, health and safety
policies. The Environmental, Health and Safety Committee consists of three
Directors (initially Michael T. Tokarz, Chairman, James L. Johnson and Robert I.
Shapiro).
The Nominating Committee is responsible for establishing the criteria for
and the qualifications of persons suitable for nomination as Directors,
including nominees recommended by stockholders, and reporting its
recommendations to the Board of Directors. During the Initial Three Year Term,
selection of Directors is subject to restrictions discussed in "Board of
Directors" above. The Nominating Committee consists of five Directors (initially
Howard L. Clark, Jr., Chairman, James B. Farley, Eliot M. Fried, James L.
Johnson and Michael T. Tokarz).
The Tax Oversight Committee is a special purpose temporary committee and is
responsible for (i) approving all settlements and agreements by the Company or
any of its subsidiaries regarding all Federal Income Tax Claims and (ii)
determining Veil Piercing Settlement Tax Savings Amounts and related
responsibilities, all as more particularly described under "Description of
Capital Stock--
57
<PAGE>
Additional Stock Issuances." The members of the Tax Oversight Committee shall
consist at all times of two Independent Directors and a Director (or other
person) designated by Lehman (initially Robert I. Shapiro, Chairman, James B.
Farley and James L. Johnson).
Pursuant to the Charter and By-laws, at all times during the Initial Three
Year Term each committee of the Board of Directors (other than the Tax Oversight
Committee, which shall be constituted as described above) shall include such
number of directors (but in any event at least one director) designated by each
of KKR and Lehman so that each of KKR and Lehman has representation on each such
committee proportionate to the representation it has on the Board of Directors.
The Charter provides that the foregoing provision of the By-laws and certain
other provisions of the By-laws cannot be amended by the Board of Directors
during the Initial Three Year Term unless 67% of the whole Board of Directors
votes in favor of the amendment. Thereafter, the affirmative vote of a majority
of directors will be required to amend those provisions.
DIRECTORS' COMPENSATION
Non-employee Directors of the Company (Messrs. Clark, Farley, Fried,
Johnson, Shapiro and Tokarz) are paid retainer fees of $25,000 per year;
committee chairmen receive an additional retainer fee of $5,000 per year. Each
non-employee Director also receives a fee of $1,500 for each Board or committee
meeting attended. The Company and its subsidiaries do not pay fees to Directors
who are employees of any of the Company and its subsidiaries.
On April 11, 1995, the Board approved and adopted the Walter Industries,
Inc. Directors' Deferred Fee Plan under which non-employee Directors may elect
to defer all or a portion of their Director's fees. The deferred fees, at each
electing Director's option, are credited to either an income account or a stock
equivalent account or divided between the two accounts. The income account is
credited quarterly with interest at the prime rate and the stock equivalent
account is credited with an amount equal to the number of equivalent shares of
Common Stock which could have been purchased with the cash dividend, if any,
which would have been payable had the participant been the actual owner of the
number of shares of Common Stock credited to his account. Payments begin, at the
participant's election, upon the later of the termination of his services as a
Director or the date of retirement from his principal occupation or employment
in such number of annual installments as shall be determined by the Company.
Payments from the income account are in cash and payments from the stock
equivalent account are in cash at the Common Stock's then current market value,
or, at the Company's option, in shares of Common Stock. Mr. Farley has elected
to have all of his Director's fees credited to a stock equivalent account.
58
<PAGE>
EXECUTIVE COMPENSATION
The following table sets forth information concerning compensation paid to
or accrued for the account of the Chief Executive Officer of the Company and
each of the next four (4) most highly compensated executive officers of the
Company whose cash compensation exceeded $100,000 (the Chief Executive Officer
and each other such executive officer, the "Named Executive Officers") during
the fiscal years ended May 31, 1995 and 1994 for services rendered in all
capacities:
SUMMARY COMPENSATION TABLE
<TABLE>
<CAPTION>
ANNUAL COMPENSATION
NAME AND YEAR ENDED ---------------------- ALL OTHER
PRINCIPAL POSITION MAY 31,(1) SALARY BONUS(2) COMPENSATION(3)
- ------------------------------------------------ ---------- -------- ---------- ---------------
<S> <C> <C> <C> <C>
G. Robert Durham, President and CEO............. 1995 $466,764 $1,225,000 N/A
1994 460,214 400,000 $69,275
James W. Walter, Chairman....................... 1995 370,366 1,225,000 N/A
1994 369,603 400,000 53,880
Kenneth J. Matlock, Executive Vice President and 1995 258,351 840,000 N/A
Chief Financial Officer........................ 1994 248,992 235,000 36,000
William H. Weldon, Senior Vice 1995 183,618 565,000 N/A
President--Finance and Chief Accounting
Officer........................................ 1994 173,688 160,000 25,798
William N. Temple, Senior Vice President and 1995 205,202 287,000 N/A
Group Executive; President of U.S. Pipe........ 1994 180,608 120,000 8,815
</TABLE>
- ------------
(1) Disclosure is only provided as to the last two full fiscal years of the
Company because prior thereto it was not a "reporting company" pursuant to
Section 13(a) or 15(d) of the Exchange Act.
(2) For fiscal 1995, the amounts shown in this column include bonuses paid to
the Named Executive Officers pursuant to the Plan of Reorganization in
addition to incentive bonus compensation. At the time of filing of the
Chapter 11 Cases, accounting professionals for the official committees in
the Chapter 11 Cases recommended that the Company adopt a retention bonus
arrangement, a common method of assuring retention of key personnel during
bankruptcy proceedings. The Company decided not to adopt such a retention
bonus plan, but determined instead to pay bonuses informally upon completion
of the reorganization to key personnel who continued their employment with
the Company and its subsidiaries during the pendency of the Chapter 11 Cases
(which were initiated on December 27, 1989 and concluded on March 17, 1995)
despite the unavailability of long-term incentive compensation plans and the
limitations on salaries and incentive compensation imposed by the Bankruptcy
Court during such time. The Company's proposal to make such informal
payments was incorporated in the Plan of Reorganization and approved by the
Bankruptcy Court. Such bonuses were paid upon the Effective Date of the Plan
of Reorganization in the amounts of $800,000, $800,000, $600,000, $400,000
and $175,000 for Messrs. Durham, Walter, Matlock, Weldon and Temple,
respectively.
(3) The amounts shown in this column for fiscal 1994 represent the Company's
contributions for the account of each of the Named Executive Officers to the
Walter Industries Profit Sharing Plan (the "Profit Sharing Plan") and
accruals for the related Supplemental Profit Sharing Plan (the "Supplemental
Profit Sharing Plan") which provides benefits which would have been provided
under the tax-qualified Profit Sharing Plan but for restrictions on such
benefits imposed by the Internal Revenue Code of 1986, as amended (the
"IRC"). The Profit Sharing Plan and the Supplemental Profit Sharing Plan
amounts are for the plan year ended August 31, 1994. Amounts for the plan
year ending August 31, 1995 are not currently available, but are anticipated
not to be materially different from amounts for the plan year ended August
31, 1994.
In its fiscal year ended May 31, 1995, the Company was not subject to
Section 162(m) of the IRC, which limits the deduction for compensation of
certain officers to one million dollars annually unless certain stated
performance goals are met.
PENSION PLANS
The table below sets forth the aggregate estimated annual retirement
benefits payable under the Pension Plan for Salaried Employees of Subsidiaries,
Divisions and/or Affiliates of Walter Industries (the "Pension Plan") and under
the Company's unfunded, non-qualified, Supplemental Pension Plan (the
"Supplemental Pension Plan" and together with the Pension Plan, the "Pension
Plans") for employees retiring at normal retirement age (65) on June 1, 1995 and
is based on social security covered compensation in effect on June 1, 1995:
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PENSION PLAN TABLE
YEARS OF SERVICE
---------------------------------------------------
REMUNERATION 15 20 25 30 35
- ------------ ------- ------- ------- ------- -------
$150,000 31,244 41,658 52,073 62,487 72,902
$175,000 36,775 49,033 61,291 73,550 85,808
$200,000 42,306 56,408 70,510 84,612 98,714
$225,000 47,837 63,783 79,729 95,675 111,620
$250,000 53,369 71,158 88,948 106,737 124,527
$300,000 64,431 85,908 107,385 128,862 150,339
$350,000 76,494 100,658 125,823 150,987 176,152
$400,000 86,556 115,408 144,260 173,112 201,964
$450,000 97,619 130,158 162,698 195,237 227,777
$500,000 108,681 144,908 181,135 217,362 253,589
$550,000 119,744 159,658 199,573 239,487 279,402
$600,000 130,806 174,408 218,010 261,612 305,214
Benefit payments under the Pension Plans are based on final average annual
compensation (including overtime pay, incentive compensation and certain other
forms of compensation reportable as wages taxable for federal income tax
purposes) for the five (5) consecutive years within the final ten (10) years of
employment prior to normal retirement date (65) which produce the highest
average. This is equivalent to the sum of the amounts included under the Salary
and Bonus column headings in the Summary Compensation Table above. Benefit
amounts are shown on a straight-line annuity basis, payable annually upon
retirement at age 65. No offsets are made for the value of any social security
benefits earned. In the case of the Supplemental Pension Plan, the applicable
company may, in its sole discretion, elect to furnish any and all benefits due
by purchasing annuities, or by other means at its disposal, including payment of
the present value of such benefits.
Only employees of the Company's subsidiaries (except Jim Walter Homes,
Mid-State Homes, Best Insurors, Inc. ("Best Insurors"), Best Insurors of
Mississippi, Inc., JW Insurance Services, Inc., Dixie Building Supplies, Inc.
("Dixie Building Supplies") and Coast to Coast Advertising, Inc.) participate in
the Pension Plans. Of the Named Executive Officers, only Messrs. Matlock (due to
his past service with a subsidiary of the Company) and Temple are participants
in the Pension Plans with six (6) and ten (10) years of credited service,
respectively; Messrs. Durham, Walter and Weldon are not participants in the
Pension Plans.
CERTAIN COMPENSATION ARRANGEMENTS
Durham Employment Agreement. The Company has an employment agreement with G.
Robert Durham dated June 19, 1993 (the "Durham Employment Agreement"), pursuant
to which the Company agreed to employ Mr. Durham as, and Mr. Durham agreed to
serve as, President and Chief Executive Officer and a member of the Board of
Directors of the Company until May 31, 1995. The Durham Employment Agreement was
automatically renewed on June 1, 1995 and shall be automatically renewed from
year to year on each June 1 thereafter until terminated by either Mr. Durham or
the Company on 60 days' written notice to the other party. The Durham Employment
Agreement provides that Mr. Durham will receive a base annual salary of
$450,000, with additional incentive compensation to be determined by the
Company's Board of Directors in accordance with past practices. Under the Durham
Employment Agreement, Mr. Durham is entitled to be indemnified for his acts as
an officer of the Company, and is entitled to participate in other Company
employee benefit plans, including the Profit Sharing Plan and the Supplemental
Profit Sharing Plan.
If Mr. Durham's employment is terminated, Mr. Durham shall be entitled to
receive his then current base salary for the balance of the Company's fiscal
year in which employment is terminated plus, if such termination is without
cause, a pro rata amount of incentive compensation for that year. In
60
<PAGE>
the case of Mr. Durham's death during any period of renewal of the Durham
Employment Agreement, his executor, administrator, testamentary trustee,
legatees or beneficiaries, as the case may be, shall be entitled to receive his
then current base salary during the nine-month period following the date of
death.
Profit Sharing Plans. Under the Profit Sharing Plan and the Supplemental
Profit Sharing Plan, amounts contributed by the Company for the benefit of the
participants become payable upon termination of employment. In the case of the
Supplemental Profit Sharing Plan, accrued amounts are payable, at the discretion
of the Company, in either a lump sum or in sixty (60) equal monthly
installments. While the Profit Sharing Plan provides retirement benefits for all
salaried employees of the Company and certain of its subsidiaries not covered by
the Pension Plans, the Company makes contributions to the Supplemental Profit
Sharing Plan only for such employees as to which the full contribution under the
Profit Sharing Plan has been limited by the IRC. For the Supplemental Profit
Sharing Plan year to end August 31, 1995, only four employees, Messrs. Walter,
Durham, Matlock and Weldon, will qualify for participation in the Supplemental
Profit Sharing Plan.
COMPENSATION COMMITTEE INTERLOCKS OR INSIDER PARTICIPATION IN COMPENSATION
DECISIONS
During the fiscal year ended May 31, 1995, James W. Walter, Chairman and a
Director of the Company, and G. Robert Durham, President and Chief Executive
Officer and a Director of the Company, participated in deliberations of the
Company's Board of Directors concerning executive compensation. However, none of
the employee Directors (Messrs. Walter, Durham and Matlock) voted on executive
compensation matters in which they were directly involved; instead they
abstained on such occasions.
CERTAIN RELATED TRANSACTIONS
In July 1986, Waltsons, Inc., a family owned corporation in which James W.
Walter, Chairman and a Director of the Company, has a twenty percent (20%)
interest, acquired a fifty percent (50%) interest in the operations of Booker &
Company, Inc. ("Booker"), a wholesale distributor of building supplies and
material headquartered in Tampa, Florida. For over 30 years, Booker has been a
supplier of various building supplies and materials to Dixie Building Supplies.
During the fiscal year ended May 31, 1995, Booker's sales of building supplies
and materials to such subsidiary totaled $5,433,513.
In March 1995, Lehman acted as an underwriter in connection with the public
issuance by Mid-State Trust IV of $959,450,000 of Mid-State Trust IV Asset
Backed Notes, for which it received underwriting commissions and fees of
approximately $5,004,200. See "Business and Properties--Mid-State Homes."
The Company believes that the terms of the transactions between the Company
and each of Booker and Lehman, respectively, are at least as favorable to the
Company as those that could be obtained from unaffiliated third parties.
On January 2, 1990, after filing for protection under Chapter 11 of the
Bankruptcy Code, the Company filed a declaratory judgment action in the
Bankruptcy Court. The suit named Celotex, Jim Walter Corporation (the company by
that name that was, in 1990, the parent of Celotex), and certain Asbestos
Claimants who had filed suits against, inter alia, the Company. The Company
sought a declaration, among other things, that the Company could not be held
liable for asbestos-related liabilities of Celotex under any theory, including
veil-piercing, alter ego, fraudulent conveyance or otherwise. On April 18, 1994
the Bankruptcy Court entered judgment in favor of the Company on all counts. The
judgment was affirmed by the District Court for the Middle District of Florida
on October 13, 1994. Thereafter, as part of an overall settlement leading to the
Plan of Reorganization, the Company entered into the Veil Piercing Settlement
with Celotex, Jim Walter Corporation, the Class, and various other parties. As
part of the Veil Piercing Settlement the Company paid $375 million to the
Celotex Settlement Fund Recipient. That $375 million consisted of Common Stock,
cash, and Series B Notes and will be held and distributed in accordance with the
terms of the Veil Piercing Settlement. See
61
<PAGE>
"The Company" and "Business and Properties--Legal Proceedings--Asbestos-Related
Litigation Settlements." Mr. Hyatt, who became the Company's President and Chief
Operating Officer on September 1, 1995 and a Director of the Company on
September 12, 1995, was formerly President of Celotex from 1990 until his recent
resignation.
The Company has entered into a consulting agreement with Mr. Walter which
will become effective upon his retirement on October 6, 1995. The term of the
agreement is for a period of three years, commencing October 6, 1995, during
which time Mr. Walter will render to the Company such services of an advisory or
consulting nature as the Company may reasonably require. Mr. Walter will be paid
an annual consulting fee of $150,000. The agreement also contains a restrictive
covenant prohibiting, during the term of the agreement and for a period of three
years after its termination, Mr. Walter's employment by any person, firm or
corporation which is engaged in business in competition with the Company or its
subsidiaries, or his engaging in such business on his own account.
62
<PAGE>
SECURITY OWNERSHIP OF MANAGEMENT AND
PRINCIPAL STOCKHOLDERS
The following tables furnish information, as of September 15, 1995, as to:
(i) shares of Common Stock beneficially owned by each Director and Named
Executive Officer of the Company and shares of Common Stock beneficially owned
by all Directors and executive officers of the Company as a group; and (ii)
shares of Common Stock known by the Company to be beneficially owned by any
person owning beneficially more than five percent (5%) of the outstanding shares
of Common Stock, together with such person's address. (Except as indicated
below, to the knowledge of the Company each person indicated in the following
tables has sole voting and investment power as to the shares shown.)
OWNERSHIP OF DIRECTORS AND EXECUTIVE OFFICERS
<TABLE>
<CAPTION>
NAME OF BENEFICIAL OWNER NUMBER OF SHARES PERCENT OF CLASS(1)
- ------------------------------------------------------------ ---------------- --------------------
<S> <C> <C>
James W. Walter,............................................ 66,044(5) *
Chairman Emeritus and Director
Howard L. Clark, Jr......................................... (2) (2)
Director
James B. Farley............................................. 0 0%
Director
Eliot M. Fried.............................................. (2) (2)
Director
James L. Johnson............................................ 10,000 *
Director
Robert I. Shapiro........................................... (2) (2)
Director
Michael T. Tokarz........................................... 14,268,589(3) 26.0
Director
G. Robert Durham............................................ 10,000 *
Director, Chairman and Chief Executive Officer
Kenneth E. Hyatt............................................ 17,380(5) *
Director, President and Chief Operating Officer
Kenneth J. Matlock.......................................... 8,690(5) *
Executive Vice President and Chief Financial Officer
William H. Weldon,.......................................... 6,950(5) *
Senior Vice President--Finance and Chief Accounting Officer
William N. Temple,.......................................... 3,474(5) *
Senior Vice President and Group Executive; President of U.S.
Pipe
All Directors and executive officers as a group............. 14,437,420(4)(5) 26.3
</TABLE>
- ------------
* Owns less than 1% of outstanding Common Stock
(1) Unless otherwise indicated, all percentages in the table and the
accompanying footnotes are based on 54,868,766 shares of Common Stock being
issued (which includes 3,880,140 shares of Common Stock issued to an escrow
account on September 13, 1995 (180 days after the Effective Date of the Plan
of Reorganization) pursuant to the Plan of Reorganization; see Footnote (5)
and "Description of Capital Stock--Additional Stock Issuances"). As of
September 15, 1995, 50,744,426 of such shares of Common Stock had been
delivered, with certain former creditors and stockholders of the Company and
its subsidiaries having the rights to receive
(Footnotes continued on following page)
63
<PAGE>
(Footnotes continued from preceding page)
delivery of the remaining 4,124,340 shares of the 54,868,766 shares issued
pursuant to the Plan of Reorganization on the Effective Date of the Plan of
Reorganization promptly following their tender of certain required
documentation on or prior to the second anniversary of the Effective Date of
the Plan of Reorganization.
(2) Messrs. Clark, Fried and Shapiro are the Vice Chairman and Managing
Directors, respectively, of Lehman. See "Ownership of Principal
Stockholders" below for information concerning ownership of shares by Lehman
and its affiliate, Lehman Holdings.
(3) Mr. Tokarz is a general partner of KKR Associates, which is the sole general
partner of each of JWC Associates, L.P., JWC Associates II, L.P. and KKR
Partners II, L.P. (the "KKR Investors") and Channel One, and thus Mr. Tokarz
may be deemed to be a "beneficial owner" of the shares owned by the KKR
Investors and Channel One (see "Ownership of Principal Stockholders" below)
within the meaning of Rule 13d-3 under the Exchange Act. Mr. Tokarz
disclaims beneficial ownership of such shares, except to the extent of his
pecuniary interest therein.
The number of shares of Common Stock indicated includes 3,553,380 shares of
Common Stock issued to an escrow account on September 13, 1995 (180 days
after the Effective Date of the Plan of Reorganization) for the benefit of
the KKR Investors pursuant to the Plan of Reorganization. See Footnote (4)
under "Ownership of Principal Stockholders" below and "Description of
Capital Stock--Additional Stock Issuances." For so long as the KKR Investors
have the power to exercise voting rights with respect to all such shares, or
if all such shares were distributed to the KKR Investors, Mr. Tokarz may be
deemed to be a "beneficial owner" of such 3,553,380 shares of Common Stock.
(4) Includes 14,268,589 shares of Common Stock beneficially owned by the KKR
Investors and Channel One which are deemed to be beneficially owned by Mr.
Tokarz. See Footnote (3). Does not include shares of Common Stock owned by
Lehman Holdings. See Footnote (2).
(5) Includes 23,689, 6,234, 3,117, 2,493, 1,246 and 3,604,495 additional shares
of Common Stock required to be issued to an escrow account for the benefit
of Messrs. Walter, Hyatt, Matlock, Weldon and Temple and all Directors and
executive officers as a group (including 3,553,380 shares for the benefit of
the KKR Investors), respectively, on September 13, 1995 (180 days after the
Effective Date of the Plan of Reorganization) pursuant to the Plan of
Reorganization. To the extent that certain contingencies regarding federal
income tax claims of the Company are resolved satisfactorily, such escrowed
shares will be distributed to such persons under the Plan of Reorganization.
To the extent such matters are not settled satisfactorily, such escrowed
shares will be returned to the Company and cancelled. Until such matters are
finally determined, such persons will have the power to exercise voting
rights with respect to such respective escrowed shares of Common Stock. See
"Description of Capital Stock--Additional Stock Issuances." For so long as
such persons have the power to exercise voting rights with respect to all
such escrowed shares, or if all such escrowed shares were distributed to
such persons, such persons will beneficially own such 23,689, 6,234, 3,117,
2,493, 1,246 and 3,604,495 escrowed shares of Common Stock, respectively.
OWNERSHIP OF PRINCIPAL STOCKHOLDERS
<TABLE>
<CAPTION>
NAME AND COMPLETE
MAILING ADDRESS NUMBER OF SHARES PERCENT OF CLASS(1)
- ------------------------------------------------------------ ---------------- -------------------
<S> <C> <C>
The Celotex Settlement Fund Recipient....................... 10,941,326(2) 19.9
1 Metro Center
4010 Boy Scout Boulevard
Tampa, Florida 33607
Lehman Brothers Holdings, Inc............................... 7,862,639(2) 3)(5) 14.3(5)
3 World Financial Center
New York, NY 10285
The KKR Investors (JWC Associates, L.P.,.................... 14,268,589(4) 26.0
JWC Associates II, L.P. and KKR Partners II, L.P.) and
Channel One Associates, L.P.
c/o Kohlberg Kravis Roberts & Co., L.P.
9 West 57th Street New York, NY 10009
</TABLE>
(Footnotes on following page)
64
<PAGE>
(Footnotes for preceding page)
- ------------
(1) Unless otherwise indicated, all percentages in the table and the
accompanying footnotes are based on 54,868,766 shares of Common Stock being
issued (which includes 3,880,140 shares of Common Stock issued to an escrow
account on September 13, 1995 (180 days after the Effective Date of the Plan
of Reorganization) pursuant to the Plan of Reorganization; see Footnote (4)
and "Description of Capital Stock--Additional Stock Issuances"). As of
September 15, 1995, 50,744,426 of such shares of Common Stock had been
delivered, with certain former creditors and stockholders of the Company and
its subsidiaries having the rights to receive delivery of the remaining
4,124,340 shares of the 54,868,766 shares issued pursuant to the Plan of
Reorganization on the Effective Date of the Plan of Reorganization promptly
following their tender of certain required documentation on or prior to the
second anniversary of the Effective Date of the Plan of Reorganization.
(2) The Celotex Settlement Fund Recipient has agreed to vote and execute written
consents with respect to the shares of Common Stock held by it in proportion
to the votes cast or consents executed and delivered by all other holders of
Common Stock. Identical restrictions on the voting of the Celotex Settlement
Fund Recipient's Common Stock are contained in the Charter and in the Plan
of Reorganization. See "Description of Capital Stock--Stockholder's
Agreement" and "--Tag-Along and Voting Rights Agreement."
(3) Lehman transferred the shares of Common Stock which it received pursuant to
the Plan of Reorganization to its affiliate, Lehman Holdings.
(4) The shares of Common Stock are beneficially owned by the KKR Investors as
follows: 9,610,144 shares are beneficially owned by JWC Associates, L.P.;
63,680 shares are beneficially owned by JWC Associates II, L.P.; and 232,965
shares are beneficially owned by KKR Partners II, L.P., including 3,446,979,
22,841 and 83,560 shares of Common Stock issued to an escrow account for the
benefit of the respective KKR Investors on September 13, 1995 (180 days
after the Effective Date of the Plan of Reorganization) pursuant to the Plan
of Reorganization. To the extent that certain contingencies regarding
federal income tax claims of the Company are resolved satisfactorily, such
escrowed shares will be distributed to the KKR Investors under the Plan of
Reorganization. To the extent such matters are not settled satisfactorily,
such escrowed shares will be returned to the Company and cancelled. Until
such matters are finally determined, the KKR Investors will have the power
to exercise voting rights with respect to such 3,553,380 escrowed shares of
Common Stock. See "Description of Capital Stock--Additional Stock
Issuances." For so long as the KKR Investors have the power to exercise
voting rights with respect to all such escrowed shares, or if all such
shares were distributed to the KKR Investors, the KKR Investors will
beneficially own such 3,553,380 escrowed shares of Common Stock. The Company
has been advised that as of September 15, 1995 Channel One beneficially
owned 4,361,800 shares.
KKR Associates is the sole general partner of each of the KKR Investors and
Channel One. The general partners of KKR Associates are Henry R. Kravis,
George R. Roberts, Robert I. MacDonnell, Michael W. Michelson, Saul A. Fox,
Paul E. Raether, Michael T. Tokarz, James H. Greene, Jr., Perry Golkin,
Scott M. Stewart, Clifton S. Robbins and Edward A. Gilhuly.
(5) As a result of errors by the balloting agent in recording elections to
receive cash and Series B Notes in lieu of a portion of Common Stock to be
received under the Plan of Reorganization by holders of subordinated debt of
the Company outstanding prior to the Effective Date of the Plan of
Reorganization, the exact number of shares of Common Stock to be received by
Lehman and other holders of such debt was determined by the Bankruptcy
Court. Appeals have been filed to the Bankruptcy Court's decision, which
appeals, if successful, could cause additional shares of Common Stock to be
delivered to Lehman (in lieu of a portion of the cash and Series B Notes
previously delivered to Lehman) pursuant to the Plan of Reorganization. When
such appeals have been finally adjudicated, such number of shares will be
finally determinable. See Note 11 ("Litigation Related to Chapter 11
Distributions to Certain Holders of Subordinate Notes and/or Debentures") of
Notes to Financial Statements.
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<PAGE>
DESCRIPTION OF CERTAIN INDEBTEDNESS
SERIES B SENIOR NOTES
The following summary of certain provisions of the Indenture dated as of
March 17, 1995 (the "Indenture") between the Company and United States Trust
Company of New York, as trustee (the "Trustee"), governing the Series B Notes
does not purport to be complete, and is qualified in its entirety by reference
to the relevant provisions of the Indenture, which is filed as an exhibit to the
Registration Statement of which this Prospectus forms a part and to which
exhibit reference is hereby made. Unless otherwise defined herein, terms defined
in the Indenture shall have their respective defined meanings when used herein.
The Notes. Pursuant to the Plan of Reorganization, $490,000,000 aggregate
principal amount of Series B Notes were issued to certain prepetition creditors
of the Company and its subsidiaries. The Notes are secured obligations of the
Company maturing on March 15, 2000 and bearing interest at 12.19% per annum.
Interest is payable semi-annually on September 15 and March 15 of each year,
commencing on September 15, 1995. The Notes rank senior in right of payment to
certain subordinated indebtedness of the Company and pari passu with other
senior indebtedness of the Company. The collateral securing the Notes is
described below in "Collateral Security."
The Notes will be subject to redemption at any time at the option of the
Company, in whole or in part, upon not less than 30 nor more than 60 days
notice, at a redemption price equal to 101% of the principal amount of the Notes
to be redeemed plus accrued and unpaid interest thereon, if any, to the date of
redemption, provided, however, that if a redemption is made from the Excess
Proceeds of any Asset Sales as discussed below, the redemption price will be
100% of the principal amount of the Notes to be redeemed, plus accrued and
unpaid interest thereon, if any, to the date of redemption, and provided further
that if there is a partial redemption, at least $150 million aggregate principal
amount of Notes must remain outstanding immediately after such redemption. In
addition, upon the occurrence of a Change of Control (as defined below), each
Holder will have the right to require the Company to purchase all or any part
(equal to $1,000 or an integral multiple thereof) of such Holder's Notes
pursuant to the Change of Control Offer at a price equal to 101% of the
aggregate principal amount thereof plus accrued and unpaid interest, if any, to
the date of purchase. Under the terms of the Indenture, if the Company or any
one of its Subsidiaries consummates an Asset Sale and does not apply any portion
of the Net Cash Proceeds of the sale to either repaying Indebtedness under the
Bank Revolving Credit Facility or, in certain circumstances, investing aggregate
proceeds of less than $25 million during any twelve- month period in a Related
Business, then the Company will be obligated to use the Excess Proceeds to
either redeem the Notes (on a pro rata basis if the available amount is less
than the outstanding principal amount of the Notes plus accrued and unpaid
interest, if any) at a redemption price equal to 100% of the principal amount
thereof plus accrued and unpaid interest, if any, to the date of redemption or
to offer to purchase the Notes by application of Excess Proceeds (on a pro rata
basis if the amount available for such purchase is less than the outstanding
principal amount of the Notes plus accrued and unpaid interest, if any, to the
date of purchase) at a purchase price equal to 100% of the principal amount
thereof plus accrued and unpaid interest, if any, to the date of purchase,
provided that at least $150 million aggregate principal amount of Notes must
remain outstanding immediately following such redemption or offer to repurchase.
"Change of Control" is defined in the Indenture as (i) any sale, lease or other
transfer of all or substantially all of the assets of the Company to any Person
(other than a Wholly Owned Subsidiary of the Company) in one transaction or a
series of related transactions; (ii) the Company consolidates or merges with
another Person pursuant to a transaction in which the outstanding Voting Stock
of the Company is changed into or exchanged for cash, securities or other
property, other than any such transaction where (a) no Disqualified Stock is
issued and (b) holders of Voting Stock of the Company immediately prior to such
transaction beneficially own (as defined in Rules 13d-3 and 13d-5 under the
Exchange Act as in effect on the date of the Indenture), directly or indirectly,
not less than a majority of the Voting Stock of the surviving corporation of
such merger or consolidation outstanding immediately after such transaction;
(iii) a
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<PAGE>
Person or group (other than a Permitted Holder or a group consisting of one or
more Permitted Holders) becomes the beneficial owner (as defined in Rules 13d-3
and 13d-5 under the Exchange Act as in effect on the date of the Indenture) of
Voting Stock of the Company representing more than 50% of the voting power of
all Voting Stock of the Company then outstanding; (iv) Continuing Directors
cease to constitute at least a majority of the Board of Directors of the
Company; provided, however, that this clause (iv) shall not be applicable if the
Continuing Directors do not constitute at least a majority of the Board of
Directors as a result of the election of directors nominated by any of the
Permitted Holders; or (v) the stockholders of the Company shall approve any plan
or proposal for the liquidation or dissolution of the Company.
Collateral Security. Pursuant to the Indenture, the Company and certain of
its Subsidiaries (defined with respect to the Company not to include Mid-State
Homes and its Subsidiaries or Cardem Insurance) entered into the Pledge
Agreement and the Subsidiary Pledge Agreements, respectively, which provide,
among other things, that the outstanding Capital Stock of each of the Company's
direct and indirect Subsidiaries, whether currently owned or hereafter acquired
or created, be pledged to the Trustee by the Company or the applicable pledgor
Subsidiaries. The payment and performance when due of all of the obligations of
the Company under the Indenture with respect to the Notes are secured by a first
priority security interest in such pledged Capital Stock.
Events of Default. In general, the following events constitute events of
default under the Indenture: (i) the failure by the Company to pay interest on
the Notes for 5 Business Days after becoming due; (ii) the failure by the
Company to pay principal of or premium, if any, on the Notes, whether at
maturity, upon acceleration or otherwise; (iii) the failure of the Company or
any of its Subsidiaries to perform certain obligations under the Pledge
Agreement or any Subsidiary Pledge Agreement or the Trustee being entitled to
exercise any remedies pursuant to certain provisions of the Pledge Agreement or
any Subsidiary Pledge Agreement; (iv) the failure to comply with certain
provisions of the Indenture regarding Change of Control, Asset Sales and
mergers, consolidations and sales of assets; (v) the failure of the Company or
any of its Subsidiaries to comply with certain provisions of the Indenture for
30 days after receipt of written notice thereof; (vi) with certain exceptions,
the failure by the Company or any of its Subsidiaries to comply with any of its
covenants or the breach of any of its representations and warranties under the
Indenture, the Pledge Agreement or any Subsidiary Pledge Agreement for 60 days
after receipt of written notice thereof; (vii) a default or defaults under one
or more agreements or other evidence of Indebtedness under which the Company or
any of its Significant Subsidiaries has an outstanding principal amount of
Indebtedness in excess of $25 million individually or $50 million in the
aggregate for all such issues of all such Persons and either (x) such
Indebtedness is already due and payable in full or (y) such default or defaults
have resulted in the acceleration of the maturity of such Indebtedness; (viii)
any final judgment or order (not covered by insurance) is entered against the
Company or any Significant Subsidiary in excess of $25 million individually or
$50 million in the aggregate for all such final judgements or orders against all
such Persons and remains undischarged or are unstayed for 60 days; (ix) certain
events of bankruptcy or insolvency with respect to the Company or any of its
Subsidiaries; or (x) any Lien granted or purported to be granted pursuant to the
Pledge Agreement or any Subsidiary Pledge Agreement shall be or become
unenforceable or invalid, or the priority thereof shall become diminished or,
the Company or any Subsidiary shall contest or disaffirm any such Lien.
Covenants. In general, the Indenture contains covenants which, among other
things, restrict the ability of: (A) the Company and its Subsidiaries (defined
with respect to the Company not to include Mid-State Homes and its Subsidiaries
or Cardem Insurance) to (i) incur, directly or indirectly, any Indebtedness
(including Acquired Indebtedness), unless, at any time after September 1, 1995,
(a) at the time of such incurrence, the ratio of Consolidated EBITDA to
Consolidated Fixed Charges for the period of the four consecutive fiscal
quarters then ended immediately prior to such incurrence, taken as one period
and calculated on a pro forma basis as if such Indebtedness had been incurred
and the proceeds therefrom applied on the first day of such four-quarter period
and, in the case of Acquired
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Indebtedness, as if the related acquisition (whether by means of purchase,
merger or otherwise) also had occurred on such date with the appropriate
adjustments with respect to such acquisition being included in such pro forma
calculation, would have been, in the case of an incurrence of Subordinated
Indebtedness by the Company, greater than 2.25 to 1 and, in the case of an
incurrence of any other Indebtedness by the Company or of any Indebtedness by a
Subsidiary, greater than 3.0 to 1 and (b) no Default or Event of Default shall
have occurred and be continuing because of the incurrence of such Indebtedness,
(ii) incur any Liens, or (iii) enter into sale and leaseback transactions; (B)
the Company, Mid-State Homes and their respective Subsidiaries to (i) make a
Restricted Payment (defined to include dividends in respect of, and redemptions
of, Capital Stock, optional prepayments of Indebtedness subordinate to the
Series B Notes and the making of certain investments) unless (a) no Default or
Event of Default shall have occurred and be continuing at the time of or
immediately after giving effect to such Restricted Payment, (b) at the time of
and immediately after giving effect to such Restricted Payment, at least $1.00
of additional Indebtedness could be incurred under the Consolidated EBITDA to
Consolidated Fixed Charges test applicable to Indebtedness incurred by the
Company (other than Subordinated Indebtedness) or a Subsidiary described in
clause (A)(i) above, and (c) immediately after giving effect to such Restricted
Payment, the aggregate amount of all Restricted Payments declared or made after
the Issue Date does not exceed a certain amount; except that the Company may
declare or pay a regular quarterly Common Stock cash dividend at a rate not to
exceed $.025 per share if no Default or Event of Default has occurred and is
continuing or would result therefrom and if at the time of and immediately after
giving effect to such Restricted Payment, at least $1.00 of additional
indebtedness could be incurred under the Consolidated EBITDA to Consolidated
Fixed Charges test applicable to Indebtedness (other than Subordinated
Indebtedness) described in clause (A)(i) above, (ii) enter into transactions
with Affiliates or holders of 5% or more of the Company's or Mid-State's or any
of their respective Subsidiaries' Common Stock (other than with the Company,
Mid-State Homes or a Wholly Owned Subsidiary of either) on terms that would be
less favorable to the Company, Mid-State Homes or their respective Subsidiaries
than would be the case on a transaction negotiated on an arm's-length basis or
otherwise not detrimental to the Company or any Subsidiary, (iii) sell or
dispose of any Capital Stock of their respective Subsidiaries; (C) the
Subsidiaries of the Company to encumber, among other things, their ability to
pay dividends or make any other distributions to the Company; and (D) the
Company to consolidate or merge with, or dispose of all or substantially all of
its assets to, any other Person unless (i) the entity formed by such
consolidation, merger or conveyance is a corporation organized and existing
under United States law, any state thereof, or the District of Columbia, (ii) if
the Company is not the Surviving Entity, the Surviving Entity assumes by
supplemental indenture all of the obligations of the Company under the Notes and
the Indenture, (iii) immediately after giving effect to such transaction, no
Default or Event of Default shall have occurred and be continuing, (iv)
immediately after giving effect to such transaction, the Consolidated Net Worth
of the Surviving Entity would be at least equal to the Consolidated Net Worth of
the Company immediately prior to such transaction and (iv) immediately after
giving effect to such transaction, the Surviving Entity could incur at least
$1.00 of additional Indebtedness under the Consolidated EBITDA to Consolidated
Fixed Charges test applicable to Indebtedness incurred by the Company (other
than Subordinated Indebtedness) or a subsidiary. In addition, the Indenture
contains covenants requiring the Company to (i) make regular reports to Holders
of Notes and to file all such reports with the Commission for public
availability and (ii) with certain exceptions, to maintain its corporate
existence and the corporate, partnership or other existence of its Subsidiaries
and to maintain licenses and franchises of the Company and its Subsidiaries.
Senior Note Registration Rights Agreement. The Company has entered into a
Registration Rights Agreement, dated as of the Effective Date of the Plan of
Reorganization (the "Senior Note Registration Rights Agreement"), with certain
holders ("Series B Note Holders") of Series B Notes pursuant to which the
Company agreed to file the registration statement referred to under "Prospectus
Summary-- Debt Offering" and use its reasonable best efforts to keep such
registration statement continuously effective for up to one year. Under the
Senior Note Registration Rights Agreement, the Series B Note
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Holders have certain demand and "piggyback" registration rights and certain
other rights and obligations, all on terms substantially similar to those
contained in the Common Stock Registration Rights Agreement. See "Description of
Capital Stock--Common Stock Registration Rights Agreement."
BANK REVOLVING CREDIT FACILITY
The Company and certain of its subsidiaries have entered into a revolving
credit facility (the "Bank Revolving Credit Facility") with Citicorp USA, Inc.,
NationsBank of Florida, N.A. and Merrill Lynch Capital Corporation. The Bank
Revolving Credit Facility is a three-year non-amortizing senior working capital
revolving credit facility pursuant to which borrowings not in excess of $150
million may be outstanding at any time, with a sublimit for trade and standby
letters of credit in an amount not in excess of $40,000,000 at any time
outstanding and a sub-facility for swingline advances in an amount not in excess
of $15,000,000 at any time outstanding, subject to compliance with a borrowing
base test comprised of eligible equipment, inventory and receivables. The
facility is secured by certain collateral, including equipment of JW Aluminum,
U.S. Pipe and Jim Walter Resources as well as the bank accounts, inventory and
accounts receivable of all of the borrowers and inter-company indebtedness.
Subject to certain exceptions, the net cash proceeds from the sale of collateral
must be applied to permanently reduce the facility. Under the facility each
borrower guarantees the obligations of each other borrower, subject to certain
limitations. As of May 31, 1995, there were no borrowings outstanding under this
facility; however, letters of credit in the aggregate face amount of $22,727,000
have been issued thereunder. The facility contains a number of covenants,
including restrictions on liens, indebtedness, leases, mergers, sales or
disposition of assets, investments, dividends, repurchases of shares of capital
stock, prepayment of indebtedness and capital expenditures, as well as financial
covenants with respect to leverage ratios, interest coverage, fixed charge
coverage ratios and earnings. Mid-State Homes and Cardem Insurance are not
parties to or governed by this facility. The borrowers are required to maintain
a leverage ratio (the ratio of indebtedness of the borrowers to EBITDA of the
borrowers) not more than a ratio ranging from 3.80 to 1 to 3.50 to 1 for
measurement periods in the year ending May 31, 1996, 3.35 to 1 for each
measurement period in the year ending May 31, 1997 and 3.30 to 1 thereafter. The
borrowers' interest coverage ratio (the ratio of EBITDA to interest expense) for
all measurement periods is required to be at least 2.40 to 1. The borrowers'
fixed charge coverage ratio (the ratio of (a) EBITDA minus capital expenditures
to (b) the sum of all required principal payments on outstanding indebtedness,
interest expense and dividends paid) is required to be at least 1.0 to 1 for the
measurement period ending August 31, 1995, 1.10 to 1 in each of the remaining
measurement periods in the year ending May 31, 1996 and 1.25 to 1 thereafter.
The minimum EBITDA of the borrowers is $175 million for the year ending May 31,
1996 and $180 million for the four most recently completed fiscal quarters at
each measurement period thereafter.
DESCRIPTION OF CAPITAL STOCK
AUTHORIZED CAPITAL STOCK
The Company's authorized capital stock consists of 200,000,000 shares of
Common Stock, par value $.01 per share. At September 15, 1995 there were
54,868,766 shares of Common Stock issued and outstanding. See "Additional Stock
Issuances" below. Harris Trust and Savings Bank is the transfer agent and
registrar for the Common Stock.
COMMON STOCK
The holders of the Common Stock are entitled to one vote for each share held
of record on all matters as to which stockholders are entitled to vote. There
are no cumulative voting rights in the election of directors. The quorum
required at any stockholders' meeting for consideration of any matter is a
majority of the issued and outstanding shares of Common Stock, represented in
person or by proxy.
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Holders of the Common Stock are entitled to receive dividends when, as and
if declared by the Board of Directors out of funds legally available for
dividends. See "Certain Risk Factors--Dividend Policy; Restrictions on Payment
of Dividends" and "Dividend Policy". In the event of any liquidation,
dissolution or winding up of the Company, the holders of the Common Stock are
entitled to receive pro rata any assets distributable to stockholders in respect
of shares held by them, after payment of all obligations of the Company.
The outstanding shares of the Common Stock (including the Shares offered
hereby) are duly authorized, validly issued, fully paid and nonassessable.
ADDITIONAL STOCK ISSUANCES
Pursuant to the Plan of Reorganization, the Company was or may be required
to issue additional Common Stock to the holders of common stock of the Company
immediately prior to the Effective Date of the Plan of Reorganization ("Original
Stockholders") on the dates and in the amounts described below, in each case on
a pro rata basis. Solely for the purpose of calculating the number of shares to
be issued in these issuances, such additional Common Stock will be valued at a
price per share of $22.86 (the "Common Stock Value Per Share"). Original
Stockholders will be entitled receive shares of Common Stock as follows:
(a) On the date on which a final, non-appealable order is entered
resolving the total amount of claims of the IRS against the Company or any
of its subsidiaries (other than Cardem Insurance and J.W. Railroad) arising
prior to the Effective Date of the Plan of Reorganization and entitled to
priority under Section 507(a)(7) of the Bankruptcy Code ("Federal Income Tax
Claims"), the Original Stockholders will receive Common Stock with an
aggregate Common Stock Value Per Share equal to the amount by which the
total amount of the Federal Income Tax Claims are reduced to below $27
million (the "Federal Income Tax Claims Differential"). Such Common Stock
shall be, first, issued by the Company directly to the Original Stockholders
up to a number of shares having an aggregate Common Stock Value Per Share
equal to the excess, if any, of (A) $88.7 million over (B) the aggregate
Common Stock Value Per Share of all shares of Common Stock theretofore
issued into escrow as described in the next paragraph, and second, be
satisfied by the release from such escrow of any remaining shares of Common
Stock issuable to Original Stockholders pursuant to such provisions.
(b) As soon as practicable after the Tax Oversight Committee of the
Board of Directors has determined that a tax return for a tax year ending on
or after May 31, 1995 or a claim for refund or deduction for a tax year
ending prior to May 31, 1995 has been filed by the Company's consolidated
tax group or any member thereof on which a Veil Piercing Settlement Tax
Savings Amount (as defined below) is claimed (each such filing, a "Veil
Piercing Settlement Tax Savings Event"), the Company will issue and place in
escrow with an escrow agent selected by the Company, Lehman and AIF II,
L.P., certain of its affiliates and certain accounts controlled or managed
by such affiliates (AIF II, L.P., such affiliates and accounts,
collectively, "Apollo") shares of Common Stock having an aggregate Common
Stock Value Per Share equal to the difference between (a) the aggregate
amount of federal, state and local tax payable by members of the Company's
consolidated group as reported on such members' relevant tax returns and (b)
the aggregate amount of federal, state and local income tax that would have
been reported on such returns if the distribution under the Veil Piercing
Settlement Agreement had not been made (the "Veil Piercing Settlement Tax
Savings Amount"). This amount will be determined by the Tax Oversight
Committee upon such Veil Piercing Settlement Tax Savings Event. The Company
intends to deduct in full in the year of payment the payment made under the
Plan of Reorganization to Celotex, in its capacity as the Celotex Settlement
Fund Recipient. The Company believes that such payment is properly
deductible, but there can be no assurance that the IRS will not challenge
the deduction and if it does so whether such challenge will succeed. The
issued shares will be released from escrow as soon as practicable after the
Tax Oversight Committee determines that
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the applicable Veil Piercing Settlement Tax Savings Amount is no longer
subject to adjustment because (i) the statutory period during which
assessments (or denial of a refund claim) can be made with respect to such
Veil Piercing Settlement Tax Savings Amount has passed, (ii) the Company and
the IRS or other relevant taxing authority have entered into a closing or
similar agreement governing the years or issues in question with respect to
such Veil Piercing Settlement Tax Savings Amount, or (iii) a court decision
determining the income tax liability (or the right to such refund) with
respect to such Veil Piercing Settlement Tax Savings Amount has been
rendered and the time period for the filing of an appeal has passed.
Notwithstanding and in addition to the foregoing, the Plan of Reorganization
provides that if, on or prior to August 24, 1995 (the 160th day following
the Effective Date of the Plan of Reorganization), (i) one or more Veil
Piercing Settlement Tax Savings Events shall not have occurred in respect of
(and the Tax Oversight Committee shall not have determined) the maximum Veil
Piercing Settlement Tax Savings Amount that could result from a good faith
claim by the Company's consolidated tax group of both (a) a refund with
respect to tax years prior to the tax year in which the Effective Date of
the Plan of Reorganization occurs, and (b) a deduction with respect to the
tax year in which the Effective Date of the Plan of Reorganization occurs
(collectively, the "Initial Claim"), or (ii) the Company shall not have
issued and delivered into escrow certificates representing shares of Common
Stock having an aggregate Common Stock Value Per Share equal to the full
amount of such maximum Veil Piercing Settlement Tax Savings Amount, then not
later than September 13, 1995 (the 180th day after the Effective Date of the
Plan of Reorganization) the Company shall issue and deliver into escrow
certificates representing Common Stock having an aggregate Common Stock
Value Per Share equal to the sum of (i) that part of the Veil Piercing
Settlement Tax Savings Amount arising from the Initial Claim in respect of
which shares of Common Stock had not theretofore been issued into escrow, as
such Veil Piercing Settlement Tax Savings Amount (whether or not a Veil
Piercing Settlement Tax Savings Event shall previously have occurred) shall
be estimated in good faith by the Chief Financial Officer of the Company and
set forth in a certificate delivered to the Tax Oversight Committee (and
such amount shall be the Veil Piercing Settlement Tax Savings Amount for
purposes of provisions described in this sentence) and (ii) an additional
amount equal to the lesser of (A) $13 million and (B) an amount that would
cause the total number of shares of Common Stock to be issued into escrow to
have an aggregate Common Stock Value Per Share equal to $88.7 million. On
August 23, 1995, the Chief Financial Officer of the Company delivered such
certificate to the Tax Oversight Committee, and on September 13, 1995 the
Company delivered 3,880,140 shares of Common Stock into escrow.
Notwithstanding and in addition to the foregoing, the Plan of Reorganization
provides that $11.3 million of Common Stock (using the Common Stock Value
Per Share) will be issued directly to the Original Stockholders on a pro
rata basis at the same time as shares of Common Stock are first issued into
escrow; accordingly, on September 13, 1995, the Company issued 494,313
shares of Common Stock to the Original Stockholders on a pro rata basis. The
Original Stockholders, on a pro rata basis, are entitled to exercise all
voting rights of, and receive all dividends and other distributions on,
Common Stock held in escrow. The amount of such dividends and other
distributions must be returned to the Company if such shares are
subsequently cancelled prior to release from escrow.
The Plan of Reorganization limits the number of shares issuable under the
provisions described in (a) and (b) above to that number of shares of Common
Stock that, when added to the shares issued to the Original Stockholders on the
Effective Date of the Plan of Reorganization, has an aggregate Common Stock
Value Per Share of $250 million. The Plan of Reorganization contains an
arbitration provision for the final determination of any dispute that may arise
between KKR (the principal Original Stockholder) and the Tax Oversight Committee
with respect to any determination made by the Tax Oversight Committee regarding
the provisions of the Plan of Reorganization described in (b) above. The Plan of
Reorganization also provides that, for purposes of the Federal Income Tax Claims
Differential, the amount of Federal Income Tax Claims shall not be reduced by
any Veil Piercing Settlement Tax Savings Amount and that any terms of any
settlement or agreement regarding Federal
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Income Tax Claims shall not be agreed to by the Company or any subsidiary
thereof without the prior consent of the Tax Oversight Committee.
The Company is authorized to issue additional shares of capital stock from
time to time. There are no specific restrictions upon such issuances, except
that the Charter prohibits the issuance of non-voting equity securities if, and
only to the extent that and so long as, Section 1123 of the Bankruptcy Code is
applicable and would prohibit such issuance. The Company's stockholders will not
have preemptive rights to purchase additional shares of capital stock of the
Company upon any issuance of such shares authorized by the Board.
STOCKHOLDER'S AGREEMENT
Pursuant to the Stockholder's Agreement dated as of the Effective Date of
the Plan of Reorganization (the "Stockholder's Agreement") between the Company
and the Celotex Settlement Fund Recipient, the Celotex Settlement Fund Recipient
has agreed, in any vote or action by written consent by holders of Common Stock
on any matter submitted to a vote of holders of Common Stock, to vote, and
execute written consents with respect to, the shares of Common Stock held by it
for and/or against such matter in proportion to the votes cast or consents
executed and delivered by all other holders of Common Stock. Identical
restrictions on the voting of the Celotex Settlement Fund Recipient's Common
Stock are contained in the Charter and in the Plan of Reorganization. Pursuant
to the Stockholder's Agreement, the Celotex Settlement Fund Recipient further
agreed not to, and to cause its affiliates not to, offer, sell, assign, give,
pledge, encumber or otherwise dispose of any shares of its Common Stock or any
interest therein or right thereto to any person that is a successor to or
creditor of the Celotex Settlement Fund Recipient or a creditor of Celotex (any
such creditor, a "Celotex Settlement Fund Beneficiary"), in such person's
capacity as such, unless such person executes and delivers an instrument, in
form and substance reasonably satisfactory to the Company, pursuant to which it
agrees to be bound by the Stockholder's Agreement to the same extent as the
Celotex Settlement Fund Recipient.
TAG-ALONG AND VOTING RIGHTS AGREEMENT
Pursuant to the Tag-Along and Voting Rights Agreement dated as of the
Effective Date of the Plan of Reorganization (the "Tag-Along and Voting Rights
Agreement") among Celotex, on behalf of the Celotex Settlement Fund Recipient,
Apollo and Lehman (collectively, the "Tag-Along Stockholders") each Tag-Along
Stockholder agreed that if it proposes to dispose of any Common Stock held by it
on the Effective Date of the Plan of Reorganization to any third party (other
than transactions described below), the other Tag-Along Stockholders will have
the right to include the shares of Common Stock held by them on the Effective
Date of the Plan of Reorganization in such disposition transaction on the same
terms and conditions, provided, however, that if the initiating Tag-Along
Stockholder is Lehman or Apollo, then Lehman or Apollo, respectively, will not
be entitled to participate in such disposition transaction. If the Tag-Along
Stockholders collectively desire to sell more shares of Common Stock than the
proposed purchaser desires to purchase, each Tag-Along Stockholder shall sell a
pro rata number of its shares. The foregoing does not apply to any transaction
effected on a national securities exchange, on the National Association of
Securities Dealers Automated Quotation System or through a registered-broker
dealer or made pursuant to a public offering under an effective registration
statement under the Securities Act. The foregoing also does not apply to any
disposition by a Tag-Along Stockholder to an affiliate or by the Celotex
Settlement Fund Recipient to a successor or a Celotex Settlement Fund
Beneficiary. The parties have agreed that any of their transferees which is an
affiliate or, in the case of the Celotex Settlement Fund Recipient, a successor
or a Celotex Settlement Fund Beneficiary must, prior to such transfer, agree in
writing to be bound by the Tag-Along and Voting Rights Agreement as if it had
been an original party thereto.
The Celotex Settlement Fund Recipient also has agreed to, and to cause each
of its affiliates to, vote and execute written consents with respect to their
shares of Common Stock in proportion to the
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votes cast or consents executed and delivered by all other holders of Common
Stock, in any vote or action by written consent by holders of Common Stock.
COMMON STOCK REGISTRATION RIGHTS AGREEMENT
The Company has entered into a Registration Rights Agreement, dated as of
the Effective Date of the Plan of Reorganization (the "Common Stock Registration
Rights Agreement"), with certain holders ("Common Stock Holders") of Common
Stock pursuant to which the Company agreed to file the Registration Statement of
which this Prospectus forms a part (the "Initial Common Stock Shelf
Registration") and use its reasonable best efforts to keep such Common Stock
Shelf Registration continuously effective for up to one year.
After the expiration of the Initial Common Stock Shelf Registration, one or
more Common Stock Holders may request to have all or part of their Common Stock
as to which registration pursuant to the Securities Act is required for public
sale ("Registrable Common Stock") registered under the Securities Act, and all
other Common Stock Holders have the right to participate in any such
registration; provided that (i) the Company is not required to effect more than
two such registrations, (ii) no such registration may be requested within 180
days of the effectiveness of any such earlier registration or a registration as
to which Common Stock Holders have "piggyback" registration rights (as discussed
below), (iii) the Company is not required to effect any such registration unless
at least 5% of the shares of Registrable Common Stock outstanding at the time of
such request is to be included in such registration and (iv) if the intended
method of distribution is an underwritten public offering, the Company may
require the underwriting to be conducted on a "firm commitment" basis. Any such
requested registration may be effected pursuant to a shelf registration
statement under Rule 415 of the Securities Act (a "Shelf Registration"); any
such registration (other than a Shelf Registration, which must be kept effective
by the Company for up to one year, if made pursuant to the first demand under
the provisions described in this paragraph or nine months otherwise) need not be
kept effective by the Company for more than 90 days. If the intended method of
distribution is an underwritten public offering, the underwriters must be
nationally recognized, selected by Common Stock Holders owning at least a
majority of the shares of Registrable Common Stock being registered (the
"Majority Selling Common Stock Holders") and reasonably acceptable to the
Company. In addition, if the managing underwriter advises the Company in writing
that, in its opinion, the number of shares requested to be registered exceeds
the number that can be sold within a price range specified by the Majority
Common Stock Selling Holders, the shares requested to be included by Common
Stock Holders shall be included in the registration on a pro rata basis in
preference to any other shares which the Company or any person wishes to include
in such registration.
If the Company at any time following the termination of the Initial Common
Stock Shelf Registration proposes to register any of its securities under the
Securities Act (other than any registration of Series B Notes pursuant to the
Senior Note Registration Rights Agreement or any registration of any securities
on Form S-4 or Form S-8), the Common Stock Holders have the right, pursuant to a
written request submitted within 20 days (10 days in certain circumstances) of
receipt of notice thereof from the Company, to participate in such registration.
Upon a request of Common Stock Holders owning at least a majority of the
shares of Registrable Common Stock requested to be included in a demand or
"piggyback" registration made at any time on or after March 17, 1996, the
Company has agreed to use its best efforts to (i) cause the Common Stock covered
by such registration to be listed on a national securities exchange or to be
quoted through NASDAQ or (ii) provide for at least two market makers for the
Common Stock.
All expenses of the Company in connection with the performance of its
obligations under the Common Stock Registration Rights Agreement and the
reasonable fees, disbursements and other charges of one firm of counsel (per
registration) selected by the Majority Selling Common Stock Holders (but
excluding underwriting discounts and commissions and transfer taxes) shall be
borne by
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the Company, except where some or all of the Common Stock Holders withdraw or
terminate their requests prior to the registration statement becoming effective,
in which case such Common Stock Holders shall be required to bear some or all of
such expenses, provided that if the Company elects not to proceed with a
registration as to which Common Stock Holders have "piggyback" registration
rights as described above or elects not to proceed with any registration as
described in the second succeeding paragraph, the Company must bear all
reasonable out-of-pocket costs (other than counsel fees, disbursements and other
charges not specifically referred to above) incurred by a Common Stock Holder in
connection with such terminated registration. In addition, pursuant to the
Common Stock Registration Rights Agreement, the Company has agreed to indemnify
each offeror of Registrable Common Stock covered by a registration statement
filed pursuant to the Common Stock Registration Rights Agreement, each other
person who participates as an underwriter in such offering, each other person
who controls such offerors or underwriters and their respective directors,
officers, partners, agents and affiliates against certain liabilities, including
liabilities under the Securities Act.
The Company is not obligated to file any registration statement under the
Common Stock Registration Rights Agreement or any amendment or supplement
thereto (other than the Registration Statement of which this Prospectus forms a
part and amendments and supplements thereto) and may suspend any seller's rights
to make sales pursuant to any effective registration statement (provided that
the right to effect sales pursuant to the Registration Statement of which this
Prospectus forms a part may not be suspended prior to the ninetieth day
following the date hereof) at any time when the Company, in the good faith
judgment of its Board of Directors, reasonably believes that the filing thereof
at the time requested, or the offering of securities thereto, would adversely
affect a pending or proposed public offering of the Company's securities, a
material financing, or a material acquisition, merger, recapitalization,
consolidation, reorganization or similar transaction, or negotiations,
discussions or pending proposals with respect thereto. Such a deferral of the
filing of a registration statement or an amendment or supplement thereto or
suspension of a seller's right to effect sales may continue for no more than 10
days after the abandonment or consummation of any of the foregoing proposals or
transactions or 60 days after the date of the Board's determination referred to
in the preceding sentence. In the event of such a suspension, the applicable
registration period will be extended by the number of days of the suspension.
Lock-Up Agreements
Pursuant to the Common Stock Registration Rights Agreement, each Common
Stock Holder has agreed, if required by the managing underwriter of any
underwritten offering and except as required otherwise under applicable law, not
to sell any equity securities of the Company during the 10 days preceding or 120
days following the effective date of an underwritten registration under the
Common Stock Registration Rights Agreement. The Company has agreed not to (and
to cause certain other holders of equity securities acquired after the Effective
Date of the Plan of Reorganization to agree not to) effect any public offering
and sale of Common Stock pursuant to an effective registration statement during
such period of time.
Channel One Registration Rights Agreement
The Company has entered into a Registration Rights Agreement dated as of
September 12, 1995 (the "Channel One Registration Rights Agreement") with
Channel One pursuant to which the Company has agreed to include in the Initial
Common Stock Shelf Registration all shares of Common Stock owned by Channel One.
The Company has also agreed to include all shares of Common Stock owned by
Channel One in each registration statement filed by the Company subsequent to
the filing of the Initial Common Stock Shelf Registration which includes shares
of Registrable Common Stock to the extent that the Company may do so without
breaching any of its obligations under the Common Stock Registration Rights
Agreement and otherwise on the terms and subject to the conditions of the Common
Stock Registration Rights Agreement that are applicable to the holders of the
shares of Registrable Common Stock included in such registration statement. The
Channel One Registration
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Rights Agreement provides that certain provisions of the Common Stock
Registration Rights Agreement are binding upon and applicable to the parties
thereto, including those provisions described above relating to expenses,
indemnification, postponements and suspensions.
ANTITAKEOVER LEGISLATION
Section 203 of the DGCL provides that, subject to certain exceptions
specified therein, an "interested stockholder" of a Delaware corporation shall
not engage in any business combination, including mergers or consolidations or
acquisitions of additional shares of the corporation, with the corporation for a
three-year period following the date on which such stockholder becomes an
"interested stockholder" unless (i) prior to such date, the board of directors
of the corporation approved either the business combination or the transaction
which resulted in the stockholder becoming an "interested stockholder," (ii)
upon consummation of the transaction which resulted in the stockholder becoming
an "interested stockholder," the interested stockholder owned at least 85% of
the voting stock of the corporation outstanding at the time the transaction
commenced (excluding certain shares), or (iii) on or subsequent to such date,
the business combination is approved by the board of directors of the
corporation and authorized at an annual or special meeting of stockholders by
the affirmative vote of at least 66-2/3% of the outstanding voting stock which
is not owned by the "interested stockholder." Except as otherwise specified in
Section 203, an "interested stockholder" is defined to include (x) any person
that is the owner of 15% or more of the outstanding voting stock of the
corporation, or is an affiliate or associate of the corporation and was the
owner of 15% or more of the outstanding voting stock of the corporation at any
time within three years immediately prior to the relevant date and (y) the
affiliates and associates of any such person. For purposes of Section 203, the
Board has approved the transaction (the consummation of the Plan of
Reorganization) which resulted in Lehman and the Celotex Settlement Fund
Recipient becoming "interested stockholders" and, accordingly, the Company
believes that neither of them will be subject to the restrictions of Section 203
unless it ceases to be the owner of 15% or more of the outstanding voting stock
of the Company and seeks to reattain such level of ownership. The Board also
approved the purchase of Common Stock by Channel One and its affiliates and
associates of 15% or more of the outstanding voting stock of the Company through
open market purchases or otherwise. Accordingly, the Company believes that none
of Channel One and its affiliates and associates (including the KKR Investors)
will be subject to the restrictions of Section 203. In connection with the
above-described Board approval, Channel One and the KKR Investors agreed with
the Company that they will not, and will not permit any of their affiliates to,
vote any shares of Common Stock of the Company or otherwise take any other
action to modify the composition of the Board of Directors of the Company prior
to April 6, 1998 other than as expressly provided for in the Company's Charter
and the Plan of Reorganization and that during such period they will not
participate in the solicitation of proxies to vote, or seek to advise or
influence any person with respect to, voting securities of the Company to modify
the composition of the Board of Directors, or propose, assist in or encourage
any person in connection with any of the foregoing.
Under certain circumstances, Section 203 makes it more difficult for a
person who would be an "interested stockholder" to effect various business
combinations with a corporation for a three-year period, although the
stockholders may elect to exclude a corporation from the restrictions imposed
thereunder. The Charter does not exclude the Company from the restrictions
imposed under Section 203. The provisions of Section 203 may encourage companies
interested in acquiring the Company to negotiate in advance with the Board of
Directors because the stockholder approval requirement would be avoided if a
majority of the directors then in office approve either the business combination
or the transaction which results in the stockholder becoming an interested
stockholder. Such provisions also may have the effect of preventing changes in
the management of the Company. It is possible that such provisions could make it
more difficult to accomplish transactions which stockholders may otherwise deem
to be in their best interests.
75
<PAGE>
CERTAIN FEDERAL INCOME TAX CONSEQUENCES
The following summary describes certain United States federal income tax
consequences of the ownership of Shares by Non-United States Holders (as defined
below) as of the date hereof. This discussion does not address all aspects of
United States federal income taxation and does not deal with foreign, state and
local consequences that may be relevant to such Non-United States Holders in
light of their personal circumstances. Furthermore, the discussion below is
based upon the provisions of the Internal Revenue Code of 1986, as amended (the
"Code"), and regulations, rulings and judicial decisions thereunder as of the
date hereof, and such authorities may be repealed, revoked or modified so as to
result in federal income tax consequences different from those discussed below.
PERSONS CONSIDERING THE PURCHASE, OWNERSHIP OR DISPOSITION OF SHARES SHOULD
CONSULT THEIR OWN TAX ADVISORS CONCERNING THE FEDERAL INCOME TAX CONSEQUENCES IN
LIGHT OF THEIR PARTICULAR SITUATIONS AS WELL AS ANY CONSEQUENCES ARISING UNDER
THE LAWS OF ANY OTHER TAXING JURISDICTION.
As used herein, a "Non-United States Holder" of Shares means a holder who is
not (i) a citizen or resident of the United States, (ii) a corporation,
partnership or other entity created or organized in or under the laws of the
United States or any political subdivision thereof or (iii) an estate or trust
the income of which is subject to United States federal income taxation
regardless of its source.
PAYMENT OF DIVIDENDS
If the Company pays dividends on its Shares, such dividends paid to a
Non-United States Holder of Shares will be subject to withholding of United
States federal income tax rate at a 30% rate or such lower rate as may be
specified by an applicable income tax treaty, unless the dividends are
effectively connected with the conduct of a trade or business of the Non-United
States Holder within the United States. Dividends that are effectively connected
with the conduct of a trade or business within the United States are subject to
United States federal income tax on a net income basis at applicable graduated
individual or corporate rates. Any such effectively connected dividends received
by a foreign corporation may, under certain circumstances, be subject to an
additional "branch profits tax" at a 30% rate or such lower rate as may be
specified by an applicable income tax treaty.
Under current United States Treasury regulations, dividends paid to an
address outside the United States are presumed to be paid to a resident of such
country for purposes of the withholding discussed above, and, under the current
interpretation of United States Treasury regulations, for purposes of
determining the applicability of a tax treaty rate. Under proposed Treasury
regulations not currently in effect, however, a Non-United States Holder of
Shares who wishes to claim the benefit of an applicable treaty rate would be
required to satisfy applicable certification and other requirements. Certain
certification and disclosure requirements must be complied with in order to be
exempt from withholding under the effectively connected income exception. A
Non-United States Holder of Shares eligible for a reduced rate of United States
withholding tax pursuant to an income tax treaty may obtain a refund of any
excess amounts withheld by filing an appropriate claim for refund with the IRS.
SALE OR EXCHANGE
A Non-United States Holder will generally not be subject to United States
federal income tax with respect to gain recognized on a sale, exchange or other
disposition of Shares unless (i) the gain is effectively connected with the
conduct of a trade or business of the Non-United States Holder in the United
States, (ii) in the case of a Non-United States Holder who is an individual and
holds the Shares as capital assets, such holder is present in the United States
for 183 days or more in the taxable year of sale, exchange or other disposition
and certain other conditions are met, or (iii) the Company is or has been a
"U.S. real property holding corporation" for United States federal income tax
purposes. The Company is not and does not anticipate becoming a "U.S. real
property holding corporation" for United States federal income tax purposes.
76
<PAGE>
BACKUP WITHHOLDING AND INFORMATION REPORTING
Payments of dividends to a Non-United States Holder at an address outside
the United States will generally not be subject to information reporting and
backup withholding. The payment of the proceeds of the sale, exchange or other
disposition of Shares to or through the United States office of a broker is
subject to information reporting and backup withholding at a rate of 31% unless
the owner certifies its non-United States status under penalties of perjury or
otherwise establishes an exemption. Backup withholding and information reporting
will not apply if a foreign office of a broker (as defined in applicable
Treasury regulations) pays the proceeds of the sale of Shares to the owner
thereof. If, however, such broker is, for United States federal income tax
purposes, a U.S. person, a controlled foreign corporation or a foreign person
that derives 50% or more of its gross income for certain periods from the
conduct of a trade or business in the United States, such payments will not be
subject to backup withholding but will be subject to information reporting,
unless (1) such broker has documentary evidence in its records that the
beneficial owner is not a U.S. person and certain other conditions are met or
(2) the beneficial owner otherwise establishes an exemption. Temporary Treasury
regulations provide that the Treasury is considering whether backup withholding
will apply with respect to payments of dividends or the proceeds of a sale that
are not subject to backup withholding under the current regulations. Under
proposed Treasury regulations not currently in effect backup withholding will
not apply to such payments absent actual knowledge that the payee is a United
States person.
Any amounts withheld under the backup withholding rules will be allowed as a
refund or a credit against such holder's U.S. federal income tax liability
provided the required information is furnished to the IRS.
PROSPECTIVE INVESTORS ARE URGED TO CONSULT THEIR OWN TAX ADVISORS AS TO THE
PARTICULAR TAX CONSEQUENCES TO THEM OF ANY INVESTMENT IN THE SHARES, INCLUDING
THE APPLICATION OF FEDERAL, STATE, LOCAL AND FOREIGN TAX LAWS.
77
<PAGE>
SELLING SECURITY HOLDERS
The following table sets forth information with respect to the Shares
offered hereby beneficially owned by each of the Selling Security Holders as of
September 15, 1995. The Shares offered hereby may be offered in whole or in part
from time to time by or on behalf of the Selling Security Holders named below.
<TABLE>
<CAPTION>
NUMBER OF SHARES OF PERCENTAGE OF
COMMON STOCK OWNED OUTSTANDING COMMON
SELLING SECURITY HOLDER AND REGISTERED HEREUNDER STOCK*
- -------------------------------------------- ------------------------ ------------------
<S> <C> <C>
Lehman Brothers Holdings, Inc............... 7,862,639 14.3%
JWC Associates L.P.......................... 6,163,165 11.2%
JWC Associates II, L.P...................... 40,839 **
KKR Partners II, L.P........................ 149,405 **
Channel One Associates, L.P................. 4,361,800 7.9%
William Carr................................ 14,126 **
Donald M. Kurucz............................ 2,674 **
Kenneth J. Matlock.......................... 5,573 **
Robert W. Michael........................... 7,801 **
Sam J. Salario.............................. 5,573 **
William N. Temple........................... 2,228 **
David L. Townsend........................... 1,783 **
James W. Walter............................. 42,355 **
William H. Weldon........................... 4,457 **
The Celotex Corporation, in its capacity as
the Celotex Settlement Fund Recipient..... 10,941,326 19.9%
AIF II, L.P.(1)............................. 1,152,681 2.1%
Lion Advisors, L.P.(1)...................... 1,152,711 2.1%
----------- ----
Total............................... 31,911,136 58.2%
----------- ----
----------- ----
</TABLE>
- ------------
* All percentages in the table are based on 54,868,766 shares of Common Stock
being issued and outstanding. See "Security Ownership of Management and
Principal Stockholders."
** Owns less than 1% of outstanding Common Stock.
(1) Lion Advisors, L.P. (a) holds the 1,152,711 Shares set forth next to its
name on behalf of an investment account under management over which Lion
Advisors, L.P. holds investment, voting and dispositive power and (b) is an
affiliate of AIF II, L.P. Neither AIF II, L.P. nor Lion Advisors, L.P. is an
affiliate of the Company.
PLAN OF DISTRIBUTION
The Company will receive no proceeds from this offering. The Shares may be
sold from time to time to purchasers directly by any of the Selling Security
Holders. Alternatively, any of the Selling Security Holders may from time to
time offer the Shares through underwriters, dealers or agents, who may receive
compensation in the form of underwriting discounts, concessions or commissions
from the Selling Security Holders and/or the purchasers of Shares for whom they
may act as agent. The Selling Security Holders and any underwriters, dealers or
agents that participate in the distribution of Shares may be deemed to be
underwriters, and any profit on the sale of Shares by them and any discounts,
commissions or concessions received by any such underwriters, dealers or agents
might be deemed to be underwriting discounts and commissions under the
Securities Act. If the Company is advised that an underwriter has been engaged
with respect to the sale of any Shares offered hereby, or in the event of any
other material change in the plan of distribution, the Company will cause
appropriate amendments
78
<PAGE>
to the Registration Statement of which this Prospectus forms a part to be filed
with the Commission reflecting such engagement or other change. See "Additional
Information."
At the time a particular offer of Shares is made, to the extent required, a
Prospectus Supplement will be provided by the Company and distributed by the
relevant Selling Security Holder which will set forth the aggregate amount and
type of Shares being offered and the terms of the offering, including the name
or names of any underwriters, dealers or agents, any discounts, commissions and
other items constituting compensation from the Selling Security Holders and any
discounts, commissions or concessions allowed or reallowed or paid to dealers.
The Shares may be sold from time to time in one or more transactions at a
fixed offering price, which may be changed, or at varying prices determined at
the time of sale or at negotiated prices. Such prices will be determined by the
Selling Security Holders or by agreement between the Selling Security Holders
and underwriters or dealers. To the extent not prohibited by applicable
securities laws, Selling Security Holders may sell the Shares other than
pursuant to the Registration Statement of which this Prospectus forms a part.
Through the date hereof, there has been no established public trading market
for the Common Stock. Pursuant to the Plan of Reorganization the Common Stock
was issued to a limited number of investors. The Common Stock has been approved
for quotation and trading on NASDAQ/NMS under the symbol "WLTR". There can be no
assurance that any active trading market will develop or will be sustained for
the Common Stock or as to the price at which the Common Stock may trade or that
the market for the Common Stock will not be subject to disruptions that will
make it difficult or impossible for the holders of Common Stock to sell shares
in a timely manner, if at all, or to recoup their investment in the Common
Stock. See "Certain Risk Factors--Liquidity; Absence of Public Market" and
"--Effect of Future Sales of Common Stock."
Under applicable rules and regulations under the Exchange Act any person
engaged in a distribution of the Shares may not simultaneously engage in
market-making activities with respect to such Shares for a period of nine
business days prior to the commencement of such distribution and ending upon the
completion of such distribution. In addition to and without limiting the
foregoing, each Selling Security Holder will be subject to applicable provisions
of the Exchange Act and the rules and regulations thereunder, including without
limitation rules 10b-6 and 10b-7, which provisions may limit the timing of
purchases and sales of any of the Shares by the Selling Security Holders. All of
the foregoing may affect the marketability of the Shares and the ability of any
person or entity to engage in market-making activities with respect to the
Shares.
Under guidelines adopted by the National Association of Securities Dealers,
Inc. (the "NASD"), the maximum commission that any NASD member firm can receive
in connection with a distribution of the Shares, without further clearance from
the NASD, is 8%.
Pursuant to the Common Stock Registration Rights Agreement, the Company is
obligated to pay substantially all of the expenses incident to the registration,
offering and sale of the Shares to the public other than commissions and
discounts of underwriters, dealers or agents, and the Selling Security Holders,
and any underwriter they may utilize, and their respective controlling persons
are entitled to be indemnified by the Company against certain liabilities,
including liabilities under the Securities Act. See "Description of Capital
Stock--Common Stock Registration Rights Agreement".
79
<PAGE>
LEGAL MATTERS
The validity of the Shares offered hereby has been passed upon for the
Company by Simpson Thacher & Bartlett (a partnership which includes professional
corporations), New York, New York.
EXPERTS
The consolidated financial statements as of May 31, 1995 and 1994 and for
each of the three years in the period ended May 31, 1995 included in this
Prospectus have been so included in reliance on the report of Price Waterhouse
LLP, independent certified public accountants, given on the authority of said
firm as experts in auditing and accounting.
80
<PAGE>
INDEX TO DEFINED TERMS
PAGE
DEFINED TERM NUMBER
- ---------------------------------------------------------------------- ------
ACO................................................................... 47
Adversary Proceeding.................................................. 5
Alabama Power......................................................... 24
Apollo................................................................ 70
Asbestos Claimants.................................................... 5
Bank Revolving Credit Facility........................................ 69
Bankruptcy Code....................................................... 1
Bankruptcy Court...................................................... 5
Best Insurors......................................................... 60
Black Warrior Methane................................................. 41
Black Warrior Transmission............................................ 41
Booker................................................................ 61
Cardem Insurance...................................................... 5
Celotex............................................................... 4
Celotex Action........................................................ 49
Celotex Settlement Fund............................................... 50
Celotex Settlement Fund Beneficiary................................... 72
Celotex Settlement Fund Recipient..................................... 50
CERCLA................................................................ 47
Change of Control..................................................... 66
Channel One........................................................... 15
Channel One Registration Rights Agreement............................. 74
Chapter 11............................................................ 5
Chapter 11 Cases...................................................... 5
Charter............................................................... 14
Class................................................................. 50
Class Representative.................................................. 50
Class U-7............................................................. 50
Code.................................................................. 76
Commission............................................................ 2
Common Stock.......................................................... 1
Common Stock Holders.................................................. 73
Common Stock Registration Rights Agreement............................ 73
Common Stock Value Per Share.......................................... 70
Company............................................................... 1
Consolidated Financial Statements..................................... 4
DGCL.................................................................. 14
Dixie Building Supplies............................................... 60
Durham Employment Agreement........................................... 60
Effective Date of the Plan of Reorganization.......................... 1
EPA................................................................... 12
ERISA................................................................. 42
Exchange Act.......................................................... 3
FAS 106............................................................... 7
FAS 109............................................................... 7
Federal Income Tax Claims............................................. 70
Federal Income Tax Claims Differential................................ 70
81
<PAGE>
PAGE
DEFINED TERM NUMBER
- ---------------------------------------------------------------------- ------
Fraudulent Conveyance Lawsuit......................................... 6
HAC................................................................... 4
Indemnitees........................................................... 5
Indenture............................................................. 66
Independent Directors................................................. 55
Initial Claim......................................................... 71
Initial Common Stock Shelf Registration............................... 73
Initial Settlement.................................................... 49
Initial Three Year Term............................................... 56
Interested Stockholder................................................ 56
IRC................................................................... 59
IRS................................................................... 13
J.W. Railroad......................................................... 5
J-II.................................................................. 5
Jim Walter Corporation................................................ 5
Jim Walter Homes...................................................... 9
Jim Walter Resources.................................................. 12
JW Aluminum........................................................... 44
JW Window Components.................................................. 23
Kaneb................................................................. 41
KKR................................................................... 4
KKR Director.......................................................... 56
KKR Investors......................................................... 64
LBO................................................................... 4
Lehman................................................................ 14
Lehman Directors...................................................... 56
Lehman Holdings....................................................... 14
Majority Selling Common Stock Holders................................. 13
Merger................................................................ 4
Mid-State Homes....................................................... 9
Mid-State Trust II Mortgage-Backed Notes.............................. 36
Mid-State Trust III Asset Backed Notes................................ 37
Mid-State Trust IV Asset Backed Notes................................. 37
Mid-State Trust V Variable Funding Loan............................... 37
Mid-State Trust V Variable Funding Loan Agreement..................... 31
Mine No. 3............................................................ 28
Mine No. 4............................................................ 28
Mine No. 5............................................................ 24
MSHA.................................................................. 24
Named Executive Officers.............................................. 59
NASD.................................................................. 71
NASDAQ................................................................ 1
NASDAQ/NMS............................................................ 1
New Alabama Power Contract............................................ 24
Non-United States Holder.............................................. 76
Original Jim Walter................................................... 4
Original Stockholders................................................. 70
Outstanding Common Stock.............................................. 56
Pension Plan.......................................................... 59
Pension Plans......................................................... 59
82
<PAGE>
PAGE
DEFINED TERM NUMBER
- ---------------------------------------------------------------------- ------
Plan of Reorganization................................................ 1
Pro Forma Consolidated Statement of Operations........................ 7
Profit Sharing Plan................................................... 59
Registrable Common Stock.............................................. 73
Released Parties...................................................... 49
Rule 144.............................................................. 18
Section 203........................................................... 14
Securities Act........................................................ 2
Selling Security Holders.............................................. 1
Senior Note Registration Rights Agreement............................. 68
Series B Note Holders................................................. 68
Series B Notes........................................................ 6
Settlement Claims..................................................... 12
Shares................................................................ 1
Shelf Registration.................................................... 73
Significant Stockholder............................................... 56
Sloss Industries...................................................... 41
SNG................................................................... 41
South Carolina Statute................................................ 52
Southern Precision.................................................... 45
Stockholder's Agreement............................................... 72
Supplemental Pension Plan............................................. 59
Supplemental Profit Sharing Plan...................................... 59
Tag-Along and Voting Rights Agreement................................. 72
Tag-Along Stockholders................................................ 72
Tender Offer.......................................................... 4
Texas Settlement Agreement............................................ 51
Trustee............................................................... 60
U.S. Pipe............................................................. 11
UMWA.................................................................. 24
Veil Piercing Claims.................................................. 5
Veil Piercing Litigation.............................................. 5
Veil Piercing Settlement.............................................. 49
Veil Piercing Settlement Tax Savings Amount........................... 70
Veil Piercing Settlement Tax Savings Event............................ 70
Veil Piercing Trial................................................... 49
Vestal Manufacturing.................................................. 23
Walter Industries..................................................... 1
Walter Land........................................................... 46
83
<PAGE>
INDEX TO FINANCIAL STATEMENTS
<TABLE><CAPTION>
PAGES
-----------
<C> <C>
Walter Industries, Inc. and Subsidiaries
Report of Independent Certified Public Accountants........................... F-2
Consolidated Balance Sheet--May 31, 1995 and 1994............................ F-3
Consolidated Statement of Operations and Retained Earnings (Deficit) for the
Three Years Ended May 31, 1995............................................. F-4
Consolidated Statement of Cash Flows for the Three Years Ended May 31, 1995.. F-5
Notes To Financial Statements................................................ F-6 to F-28
</TABLE>
F-1
<PAGE>
REPORT OF INDEPENDENT CERTIFIED PUBLIC ACCOUNTANTS
To the Board of Directors and Stockholders
Walter Industries, Inc.
In our opinion, the accompanying consolidated balance sheet and the related
consolidated statements of operations and retained earnings (deficit) and of
cash flows present fairly, in all material respects, the financial position of
Walter Industries, Inc. and its subsidiaries at May 31, 1995 and 1994, and the
results of their operations and their cash flows for each of the three years in
the period ended May 31, 1995 in conformity with generally accepted accounting
principles. These financial statements are the responsibility of the Company's
management; our responsibility is to express an opinion on these financial
statements based on our audits. We conducted our audits of these statements in
accordance with generally accepted auditing standards which require that we plan
and perform the audit to obtain reasonable assurance about whether the financial
statements are free of material misstatement. An audit includes examining, on a
test basis, evidence supporting the amounts and disclosures in the financial
statements, assessing the accounting principles used and significant estimates
made by management, and evaluating the overall financial statement presentation.
We believe that our audits provide a reasonable basis for the opinion expressed
above.
Our report dated July 8, 1994 on the May 31, 1994 consolidated financial
statements included a paragraph that raised substantial doubt about the
Company's ability to continue as a going concern due to the Company and
substantially all of its subsidiaries filing a voluntary petition for
reorganization under Chapter 11 of the United States Bankruptcy Code. As
discussed in Note 1, on March 2, 1995 the Bankruptcy Court confirmed the
Company's Consensual Plan dated as of December 9, 1994, as modified on March 1,
1995, which resulted in the discharge of all claims against the Company that
arose before December 27, 1989, other than those claims being litigated in the
Bankruptcy Court, and substantially altered the rights and interests of equity
security holders. The plan became effective on March 17, 1995 and the Company
emerged from bankruptcy.
As discussed in Note 12 to the Financial Statements, the Company changed its
method of accounting for postretirement benefits other than pensions in fiscal
year 1993.
Price Waterhouse LLP
Tampa, Florida
July 12, 1995
F-2
<PAGE>
WALTER INDUSTRIES, INC. AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEET
<TABLE>
<CAPTION>
MAY 31,
--------------------------
1995 1994
----------- -----------
(IN THOUSANDS)
<S> <C> <C>
ASSETS
Cash (includes short-term investments of $84,872,000 and
$177,040,000) (Notes 3 and 13)..................................... $ 128,007 $ 203,303
Short-term investments, restricted (Notes 3 and 13)................. 128,002 107,552
Instalment notes receivable (Notes 1, 4, 8 and 13).................. 4,256,866 4,176,040
Less--Provision for possible losses................................ ( 26,556) ( 26,301)
Unearned time charges........................................ ( 2,869,282) ( 2,790,560)
----------- -----------
Net.......................................................... 1,361,028 1,359,179
Trade receivables................................................... 160,584 135,431
Less--Provision for possible losses................................ ( 7,998) ( 7,392)
----------- -----------
Net.......................................................... 152,586 128,039
Federal income tax receivable (Note 8).............................. 99,875 --
Other notes and accounts receivable................................. 30,236 10,774
Inventories, at lower of cost (first in, first out or average) or
market:
Finished goods................................................... 111,792 95,270
Goods in process................................................. 29,593 27,090
Raw materials and supplies....................................... 53,453 48,533
Houses held for resale........................................... 1,599 1,686
----------- -----------
Total inventories............................................ 196,437 172,579
Prepaid expenses.................................................... 12,694 11,335
Property, plant and equipment, at cost (Note 5)..................... 1,186,407 1,123,939
Less--Accumulated depreciation, depletion and amortization......... ( 523,615) ( 466,076)
----------- -----------
Net.......................................................... 662,792 657,863
Investments......................................................... 6,191 5,753
Deferred income taxes (Note 8)...................................... 16,544 --
Unamortized debt expense............................................ 34,167 31,656
Other assets........................................................ 43,698 39,936
Excess of purchase price over net assets acquired (Notes 1 and 6)... 372,896 412,923
----------- -----------
$ 3,245,153 $ 3,140,892
----------- -----------
----------- -----------
LIABILITIES AND STOCKHOLDERS' EQUITY (DEFICIT)
Bank overdrafts (Note 3)............................................ $ 33,746 $ 29,879
Accounts payable (Note 1)........................................... 108,137 59,468
Accrued expenses.................................................... 150,907 122,665
Income taxes payable (Note 8)....................................... 53,261 21,543
Deferred income taxes (Note 8)...................................... -- 73,152
Long-term senior debt (Notes 1, 7 and 13)........................... 2,220,370 871,970
Accrued interest (Note 7)........................................... 37,854 258,032
Accumulated postretirement health benefits obligation (Note 12)..... 228,411 209,962
Other long-term liabilities......................................... 51,693 48,890
Liabilities subject to Chapter 11 proceedings (Notes 1 and 7)....... -- 1,727,684
Stockholders' equity (deficit) (Notes 1, 7, 9 and 10):
Common stock, $.01 par value per share:
Authorized--200,000,000 shares and 50,000,000 shares
Issued--50,494,313 shares and 31,120,773 shares.................. 505 311
Capital in excess of par value..................................... 1,159,384 155,293
Retained earnings (deficit), per accompanying statement............ ( 793,165) ( 434,520)
Excess of additional pension liability over unrecognized prior
years service cost............................................... ( 5,950) ( 3,437)
----------- -----------
Total stockholders' equity (deficit)........................... 360,774 ( 282,353)
----------- -----------
$ 3,245,153 $ 3,140,892
----------- -----------
----------- -----------
</TABLE>
F-3
<PAGE>
WALTER INDUSTRIES, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENT OF OPERATIONS AND RETAINED EARNINGS (DEFICIT)
<TABLE>
<CAPTION>
FOR THE YEARS ENDED MAY 31,
--------------------------------------
1995 1994 1993
---------- ---------- ----------
(IN THOUSANDS EXCEPT
PER SHARE AMOUNT)
<S> <C> <C> <C>
Sales and revenues:
Net sales............................................ $1,181,635 $1,068,387 $1,072,615
Time charges (Note 4)................................ 222,221 238,097 218,696
Miscellaneous........................................ 30,838 17,383 23,160
Interest income from Chapter 11 proceedings (Note 1). 7,628 4,657 4,515
---------- ---------- ----------
1,442,322 1,328,524 1,318,986
---------- ---------- ----------
Cost and expenses:
Cost of sales........................................ 951,381 845,061 804,411
Depreciation, depletion and amortization (Note 5).... 72,037 71,035 70,483
Selling, general and administrative.................. 130,616 127,901 124,616
Postretirement health benefits (Note 12)............. 25,961 25,585 23,474
Provision for possible losses........................ 4,485 4,611 4,236
Chapter 11 costs (Note 1)............................ 442,362 14,254 9,802
Interest and amortization of debt discount and
expense (Notes 1, 5 and 7)......................... 304,548 155,470 171,581
Amortization of excess of purchase price over net
assets acquired (Note 6)........................... 40,027 48,515 39,461
---------- ---------- ----------
1,971,417 1,292,432 1,248,064
---------- ---------- ----------
( 529,095) 36,092 70,922
Income tax benefit (expense) (Note 8):
Current.............................................. 80,754 ( 41,598) ( 48,141)
Deferred............................................. 89,696 12,681 23,813
Income (loss) from operations before cumulative effect
of accounting change................................. ( 358,645) 7,175 46,594
Cumulative effect of change in accounting principle--
postretirement benefits other than pensions (net of
income tax benefit of $61,823,000) (Note 12)......... -- -- ( 104,608)
---------- ---------- ----------
Net income (loss)...................................... ( 358,645) 7,175 ( 58,014)
Retained earnings (deficit) at beginning of year....... ( 434,520) ( 441,695) ( 383,681)
---------- ---------- ----------
Retained earnings (deficit) at end of year............. $( 793,165) $( 434,520) $( 441,695)
---------- ---------- ----------
---------- ---------- ----------
Net loss per share (Note 9):
--Primary............................................ $( 7.10)
----------
----------
</TABLE>
F-4
<PAGE>
WALTER INDUSTRIES, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENT OF CASH FLOWS
<TABLE>
<CAPTION>
FOR THE YEARS ENDED MAY 31,
-----------------------------------
1995 1994 1993
--------- --------- ---------
(IN THOUSANDS)
<S> <C> <C> <C>
OPERATIONS
Net income (loss)........................................... $(358,645) $ 7,175 $( 58,014)
Charges to income not affecting cash:
Settlement of Chapter 11 claims with debt and new Common
Stock..................................................... 444,752 -- --
Depreciation, depletion and amortization.................. 72,037 71,035 70,483
Provision for deferred income taxes....................... ( 89,696) ( 12,681) ( 23,813)
Accumulated postretirement health benefits obligation
(Note 12)................................................ 18,449 20,057 189,905
Adjustment to deferred taxes for accounting change (Note
12)...................................................... -- -- ( 61,823)
Provision for other long-term liabilities................. 294 280 ( 781)
Amortization of excess of purchase price over net assets
acquired (Note 6)....................................... 40,027 48,515 39,461
Amortization of debt discount and expense................. 11,783 17,597 22,148
--------- --------- ---------
139,001 151,978 177,566
Decrease (increase) in:
Short-term investments, restricted........................ ( 20,450) ( 1,932) 1,334
Instalment notes receivable, net (a)...................... ( 1,849) 27,680 ( 23,607)
Trade and other receivables, net.......................... ( 44,009) 12,747 1,429
Federal income tax receivable............................. ( 99,875) -- --
Inventories............................................... ( 23,858) ( 5,940) 627
Prepaid expenses.......................................... ( 1,359) ( 3,433) 236
Increase (decrease) in:
Bank overdrafts (Note 3).................................. 3,867 11,958 ( 9,758)
Accounts payable.......................................... 28,925 6,772 ( 1,692)
Accrued expenses.......................................... 28,242 6,427 ( 1,682)
Income taxes payable...................................... ( 15,348) 2,408 9,111
Accrued interest.......................................... 24,156 47,833 32,605
Liabilities subject to Chapter 11 proceedings (Note 1):
Accounts payable........................................ -- 1,438 811
Accrued expenses........................................ -- ( 152) 4
--------- --------- ---------
Cash flows from operations.......................... 17,443 257,784 186,984
--------- --------- ---------
FINANCING ACTIVITIES
Issuance of long-term senior debt (Notes 1 and 7)........... 974,450 2,000 256,128
Additions to unamortized debt expense....................... ( 17,153) -- ( 4,794)
Retirement of long-term senior debt (Note 7)................ ( 120,250) ( 178,865) ( 161,959)
Payment of liabilities subject to Chapter 11 proceedings.... ( 604,044)(b) -- ( 121,217)
Payment of accrued postpetition interest on Chapter 11
secured debt obligations.................................. ( 244,334) -- --
--------- --------- ---------
Cash flows from financing activities................ ( 11,331) ( 176,865) ( 31,842)
--------- --------- ---------
INVESTING ACTIVITIES
Additions to property, plant and equipment, net of normal
retirements............................................. ( 76,966) ( 65,858) ( 68,901)
(Increase) in investments................................... ( 438) ( 185) ( 128)
(Increase) in other assets.................................. ( 4,004) ( 1,943) ( 1,617)
--------- --------- ---------
Cash flows from investing activities................ ( 81,408) ( 67,986) ( 70,646)
Net increase (decrease) in cash and cash equivalents........ ( 75,296) 12,933 84,496
Cash and cash equivalents at beginning of year.............. 203,303 190,370 105,874
--------- --------- ---------
Cash and cash equivalents at end of year (Note
3)............................................... $ 128,007 $ 203,303 $ 190,370
--------- --------- ---------
--------- --------- ---------
</TABLE>
- ------------
<TABLE>
<C> <S>
(a) Consists of sales and resales, net of repossessions and provision for possible losses,
of $155,236,000, $153,776,000 and $172,707,000 and cash collections on account and
payouts in advance of maturity of $153,387,000, $181,456,000 and $149,100,000, for the
years ended May 31, 1995, 1994 and 1993, respectively.
(b) In addition, $490 million of Series B Senior Notes and 44,050,974 shares of new Common
Stock were issued to satisfy a portion of the allowed claims of holders of secured and
subordinated debt and settle a portion of the asbestos-related veil piercing claims and
6,443,339 shares of new Common Stock were issued to the former shareholders in
cancellation of their original holdings.
</TABLE>
F-5
<PAGE>
WALTER INDUSTRIES, INC. AND SUBSIDIARIES
NOTES TO FINANCIAL STATEMENTS
NOTE 1--RECENT HISTORY
Walter Industries, Inc. (formerly Hillsborough Holdings Corporation) (the
"Company") was organized in August 1987 by a group of investors led by Kohlberg
Kravis Roberts & Co. ("KKR") for the purpose of acquiring Jim Walter
Corporation, a Florida corporation ("Original Jim Walter"). Following its
organization, the Company organized and acquired all of the outstanding capital
stock of a group of direct wholly-owned subsidiaries (the "First Tier
Subsidiaries"). The First Tier Subsidiaries (except JWC Holdings Corporation)
and the Company organized and acquired all of the outstanding capital stock of
Walter Industries, Inc. ("Old Walter Industries"). JWC Holdings Corporation, a
Florida corporation and a First Tier Subsidiary ("JWC Holdings"), organized and
acquired all of the outstanding shares of J-II Acquisition Corporation, a
Florida corporation ("J-II"). Old Walter Industries and J-II, in turn, organized
and acquired all of the outstanding capital stock of Hillsborough Acquisition
Corporation ("HAC").
On September 18, 1987, HAC acquired approximately 95% of the outstanding
common stock of Original Jim Walter at a price of $60 per share in cash,
pursuant to an Agreement and Plan of Merger dated as of August 12, 1987 (the
"Acquisition"). On January 7, 1988, the Company caused Original Jim Walter to be
merged (the "Merger") into HAC (which changed its name to "Jim Walter
Corporation") and the remaining 5% of its common stock was converted into the
right to receive $60 in cash for each share. On that same date: (i) HAC
distributed substantially all of its assets (principally excluding the stock of
certain subsidiaries of Original Jim Walter engaged in building materials
businesses) to Old Walter Industries in redemption of all of its shares of
capital stock owned by Old Walter Industries; (ii) HAC merged into J-II; and
(iii) J-II changed its name to "Jim Walter Corporation". On April 1, 1991, Old
Walter Industries merged into Hillsborough Holdings Corporation thereby
completing its previously adopted plan of liquidation. The Company changed its
name to Walter Industries, Inc. in connection with such merger. Prior to
September 18, 1987, the Company had no significant assets or liabilities and did
not engage in any activities other than those related to the Acquisition. The
purchase price of the shares of Original Jim Walter was approximately
$2,425,000,000 plus expenses of the Acquisition and assumption of certain
outstanding indebtedness. For financial statement purposes, the Acquisition has
been accounted for as a purchase as of September 1, 1987 and, accordingly, the
purchase price has been allocated based upon the fair value of assets acquired
and liabilities assumed (see Note 6).
On December 27, 1989, the Company and 31 of its subsidiaries (including the
subsidiary in the next sentence, the "Debtors") each filed a voluntary petition
for reorganization under Chapter 11 of Title 11 of the United States Code (the
"Bankruptcy Code") in the United States Bankruptcy Court for the Middle District
of Florida, Tampa Division (the "Bankruptcy Court"). On December 3, 1990, one
additional small subsidiary filed a voluntary petition for reorganization under
the Bankruptcy Code. Two other small subsidiaries did not file petitions for
reorganization.
The Debtors' Chapter 11 cases resulted from a sequence of events stemming
primarily from an inability of the Company's interest reset advisors to reset
interest rates on approximately $624 million of outstanding Senior Extendible
Reset Notes and Senior Subordinated Extendible Reset Notes on which interest
rates were scheduled to be reset effective January 2, 1990. The inability to
reset the interest rates was primarily attributable to two factors: (i)
uncertainties arising from the then pending asbestos-related litigation,
including the possibility either that such litigation would lead to the
prohibition of further asset sales and debt repayment or that substantial new
asbestos-related claims might become assertable against the Company, which
uncertainties materially hindered the ability of the Company and its
subsidiaries to pursue a refinancing or sell assets to reduce debt, and (ii)
general turmoil in the high yield bond markets at such time, both of which
depressed the bid value of such notes.
F-6
<PAGE>
WALTER INDUSTRIES, INC. AND SUBSIDIARIES
NOTES TO FINANCIAL STATEMENTS (CONTINUED)
NOTE 1--RECENT HISTORY (CONTINUED)
On December 9, 1994, the Supplement to Disclosure Statement For Amended
Joint Plan of Reorganization Dated as of December 9, 1994 (the "Consensual
Plan") was filed with the Bankruptcy Court. The Consensual Plan, as modified on
March 1, 1995, was confirmed by the Bankruptcy Court on March 2, 1995, and
became effective on March 17, 1995 (the "Effective Date"). Despite the
confirmation and effectiveness of the Consensual Plan, the Bankruptcy Court
continues to have jurisdiction to, among other things, resolve disputed
prepetition claims against the Company and other matters that may arise in
connection with or relate to the Consensual Plan (see Note 8).
The essential terms of the Consensual Plan are as follows: Revolving Credit
Bank Claims, Working Capital Bank Claims, Series B and C Senior Note Claims, and
other unsecured creditors (i.e., trade creditors) received the full allowed
amounts of their claims in cash plus interest at negotiated amounts including a
portion in shares of new common stock ("Common Stock"). Subordinated Note Claims
received, depending on elections made, either shares of Common Stock or a
combination of cash, new debt securities and shares of Common Stock, in either
case having an aggregate reorganization value equal to their prepetition claims.
In addition, Pre-LBO Debenture Claims received shares of Common Stock having an
aggregate reorganization value equal to $11.3 million in settlement of the
fraudulent conveyance action commenced by the indenture trustees for the Pre-LBO
Debentures. The asbestos-related veil piercing claimants received cash, new debt
securities and Common Stock with an aggregate reorganization value of $375
million in settlement of all asbestos-related veil piercing or fraudulent
conveyance claims. In addition, the attorneys for the asbestos-related veil
piercing claimants received a cash payment of $15 million. The Company's former
stockholders received shares of Common Stock having a reorganization value equal
to $150 million. In addition, the former stockholders will receive shares of
Common Stock having a reorganization value of $11.3 million and have the right
to receive additional shares of Common Stock upon realization of certain future
tax benefits (see Note 9).
Pursuant to the Consensual Plan, trade creditors with prepetition allowed
claims in excess of $1,000 received 75% of their allowed claims in cash
following the Effective Date and are entitled to receive the remaining 25% six
months following the Effective Date with additional interest for such period at
the prime rate. At May 31, 1995, the remaining amount to be distributed to trade
creditors approximated $23.5 million.
In connection with the Consensual Plan, on March 16, 1995, pursuant to
approval by the Bankruptcy Court, Mid-State Homes, Inc. ("Mid-State"), a
wholly-owned indirect subsidiary of the Company, sold mortgage instalment notes
having a gross amount of $2,020,258,000 and an economic balance of $826,671,000
to Mid-State Trust IV ("Trust IV"), a business trust in which Mid-State owns all
the beneficial interest. In addition, on such date Mid-State sold its beneficial
interest in Mid-State Trust II ("Trust II") to Trust IV. Trust II had a total
collateral value of $910,468,000 with $605,750,000 of Mortgage-Backed Notes
outstanding. These sales were in exchange for the net proceeds from the public
issuance by Trust IV of $959,450,000 of Asset Backed Notes. The assets of Trust
IV are not available to satisfy claims of general creditors of Mid-State, or the
Company and its subsidiaries. The liabilities of Trust IV for its publicly
issued debt are to be satisfied solely from proceeds of the underlying
instalment notes and are non-recourse to Mid-State and the Company and its
subsidiaries.
On February 27, 1995, Mid-State established Mid-State Trust V ("Trust V"), a
business trust in which Mid-State owns all the beneficial interest, to provide
funds to Mid-State for its current purchases of instalment notes receivable from
Jim Walter Homes, Inc. ("Jim Walter Homes").
F-7
<PAGE>
WALTER INDUSTRIES, INC. AND SUBSIDIARIES
NOTES TO FINANCIAL STATEMENTS (CONTINUED)
NOTE 1--RECENT HISTORY (CONTINUED)
As of March 3, 1995, Trust V entered into a Variable Funding Loan Agreement
with Enterprise Funding Corporation, an affiliate of NationsBank N.A., as lender
and NationsBank N.A. (Carolinas), as Administrative Agent. The agreement
provides for a three-year $500 million credit facility secured by the instalment
notes and mortgages Trust V purchases from Mid-State.
On February 27, 1995, the Company and certain of its subsidiaries entered
into a Bank Revolving Credit Facility, providing up to $150 million at any time
outstanding for working capital needs with a sub-limit for trade and standby
letters of credit not in excess of $40 million and a sub-facility for swingline
advances in an amount not in excess of $15 million.
The Company recorded approximately $583.8 million of additional expenses
related to consummation of the Consensual Plan, including approximately $141.4
million of additional interest and amortization of debt discount and expense,
$390 million in settlement of all asbestos-related veil piercing claims and
related legal fees and $52.4 million for professional fees, settlement of
various disputed claims and other expenses, in the fiscal year ended May 31,
1995.
The following unaudited pro forma consolidated statement of operations was
prepared to illustrate the estimated effects of the Consensual Plan and related
financings as if they had occurred as of June 1, 1994.
F-8
<PAGE>
WALTER INDUSTRIES, INC. AND SUBSIDIARIES
NOTES TO FINANCIAL STATEMENTS (CONTINUED)
NOTE 1--RECENT HISTORY (CONTINUED)
PRO FORMA CONSOLIDATED STATEMENT OF OPERATIONS
(UNAUDITED)
<TABLE>
<CAPTION>
FOR THE YEAR ENDED MAY 31, 1995
---------------------------------------
AS REPORTED ADJUSTMENTS PRO FORMA
----------- ----------- -----------
(IN THOUSANDS EXCEPT
PER SHARE AMOUNT)
<S> <C> <C> <C>
Sales and revenues
Net sales................................................ $1,181,635 $ 1,181,635
Time charges............................................. 222,221 222,221
Miscellaneous............................................ 30,838 30,838
Interest income from Chapter 11 proceedings.............. 7,628 $( 7,628)(1) --
----------- ----------- -----------
1,442,322 ( 7,628) 1,434,694
----------- ----------- -----------
Cost and expenses:
Cost of sales............................................ 951,381 951,381
Depreciation, depletion and amortization................. 72,037 72,037
Selling, general and administrative...................... 130,616 130,616
Postretirement health benefits........................... 25,961 25,961
Provision for possible losses............................ 4,485 4,485
Chapter 11 costs......................................... 442,362 (442,362)(2) --
Interest and amortization of debt discount and expense... 304,548 (81,364)(3) 223,184
Amortization of excess of purchase price over net assets
acquired............................................... 40,027 40,027
----------- ----------- -----------
1,971,417 (523,726) 1,447,691
----------- ----------- -----------
( 529,095) 516,098 ( 12,997)
Income tax benefit (expense).............................. 170,450 (195,730)(4) ( 25,280)
----------- ----------- -----------
Net income (loss)......................................... ($ 358,645 $ 320,368 ($ 38,277
----------- ----------- -----------
----------- ----------- -----------
Net loss per share........................................ ($ .75(5)
-----------
-----------
Weighted average shares outstanding....................... 50,988,626
</TABLE>
- ------------
Changes from the historical financial statement in the pro forma
consolidated statement of operations consist of the following adjustments (all
amounts in thousands):
(1) Interest income from Chapter 11 proceedings of $7,628, which would not have
been realized assuming the Consensual Plan became effective June 1, 1994,
has been eliminated.
(2) Chapter 11 costs of $442,362, which would not have been incurred assuming
the Consensual Plan became effective June 1, 1994, have been eliminated.
(3) Interest and amortization of debt discount and expense has been reduced
$81,364 to give retroactive effect as if all indebtedness to be repaid
pursuant to the Consensual Plan was so done as of June 1, 1994 and the $490
million of Series B Senior Notes had been outstanding for the full year
ended May 31, 1995. Borrowings under the Trust IV Asset Backed Notes were
assumed to increase during the period June 1, 1994 through November 30, 1994
proportionately with the comparable period increase in the outstanding
economic balance of the instalment notes sold by Mid-State to Trust IV on
March 16, 1995.
Borrowings under the Trust V Variable Funding Loan Agreement were based on
78% of Jim Walter Homes' credit sales during the six-month period December
1, 1994 through May 31, 1995. This time period is subsequent to the Trust IV
cut-off date for purchases of instalment notes from Mid-State. No working
capital borrowings were assumed under the Bank Revolving Credit Facility.
Pro forma interest expense, however, includes letter of credit fees and
unused working capital commitment fees.
(4) The provision for income taxes has been adjusted at the applicable statutory
rates to give effect to the pro forma adjustments described above.
(5) Net loss per share has been computed based on the weighted average number of
common shares outstanding (including 494,313 additional shares of Common
Stock to be issued six months after the Effective Date of the Consensual
Plan, but not including up to 3,880,140 additional shares that will be
issued to an escrow account on September 13, 1995 pursuant to the Consensual
Plan of Reorganization because such issuance is contingent on future events
and would be anti-dilutive).
F-9
<PAGE>
WALTER INDUSTRIES, INC. AND SUBSIDIARIES
NOTES TO FINANCIAL STATEMENTS (CONTINUED)
NOTE 2--PRINCIPLES OF CONSOLIDATION
The Company through its direct and indirect subsidiaries currently offers a
diversified line of products and services for homebuilding, water and waste
water transmission, residential and non-residential construction, and industrial
markets. The consolidated financial statements include the accounts of the
Company and all of its subsidiaries. All significant intercompany balances have
been eliminated.
NOTE 3--CASH AND RESTRICTED SHORT-TERM INVESTMENTS
Cash includes short-term investments with original maturities of less than
one year. These investments are readily convertible to cash and are stated at
cost which approximates market. The Company's cash management system provides
for the reimbursement of all major bank disbursement accounts on a daily basis.
Checks issued but not yet presented to the banks for payment are classified as
bank overdrafts.
Restricted short-term investments include temporary investment of reserve
funds and collections on instalment notes receivable owned by Trusts II, III, IV
and V ($103,714,000). These funds are available only to pay expenses of the
Trusts and principal and interest on indebtedness of the Trusts. Miscellaneous
other segregated accounts restricted to specific uses ($24,288,000), are also
included in restricted short-term investments.
NOTE 4--INSTALMENT NOTES RECEIVABLE
The instalment notes receivable arise from sales of partially-finished homes
to customers for time payments primarily over periods of twelve to thirty years
and are secured by first mortgages or similar security instruments. Revenue and
income from the sale of homes is included in income upon completion of
construction and legal transfer to the customer. The buyer's ownership of the
land and the improvements necessary to complete the home constitute a
significant equity investment which the Company has access to should the buyer
default on payment of the instalment note obligation. Of the gross amount of
$4,256,866,000 an amount of $3,955,239,000 is due after one year. Instalment
payments estimated to be receivable within each of the five years from May 31,
1995 are $301,627,000, $294,808,000, $289,012,000, $283,044,000 and
$274,370,000, respectively, and $2,814,005,000 after five years. Of the gross
amount of instalment notes receivable of $4,256,866,000, 18.2%, 11.3% and 10.7%
are secured by homes located in the states of Texas, Florida and Mississippi,
respectively. Time charges are included in equal parts in each monthly payment
and are taken into income as collected. This method approximates the interest
method since a much larger provision for loan losses and other expenses would be
required if time charge income were accelerated. The aggregate amount of
instalment notes receivable having at least one payment ninety or more days
delinquent was 3.17% and 3.23% of total instalment notes receivable at May 31,
1995 and 1994, respectively.
Mid-State purchases instalment notes from Jim Walter Homes on homes
constructed and sold by Jim Walter Homes and services such instalment mortgage
notes. Trust II, Trust III and Trust IV are business trusts organized by
Mid-State, which owns all of the beneficial interest in Trust III and Trust IV.
Trust IV owns all of the beneficial interest in Trust II. The Trusts were
organized for the purpose of purchasing instalment notes receivable from
Mid-State from the net proceeds from the issuance of the Trust II
Mortgage-Backed Notes, the Trust III Asset Backed Notes and the Trust IV Asset
Backed Notes described in Note 7. The assets of Trust II, Trust III and Trust
IV, including the instalment notes receivable, are not available to satisfy
claims of general creditors of the Company and its subsidiaries. The liabilities
of Mid-State Trusts II, III and IV for their publicly issued debt are to be
satisfied solely
F-10
<PAGE>
WALTER INDUSTRIES, INC. AND SUBSIDIARIES
NOTES TO FINANCIAL STATEMENTS (CONTINUED)
NOTE 4--INSTALMENT NOTES RECEIVABLE (CONTINUED)
from the proceeds of the underlying instalment notes and are non-recourse to the
Company and its subsidiaries. Of the gross amount of instalment notes receivable
at May 31, 1995 of $4,256,866,000 with an economic balance of $2,057,896,000,
receivables owned by Trust II had a gross book value of $1,396,138,000 and an
economic balance of $846,481,000, receivables owned by Trust III had a gross
book value of $472,980,000 and an economic balance of $239,200,000 and
receivables owned by Trust IV had a gross book value of $1,970,887,000 and an
economic balance of $814,182,000. On February 27, 1995, Mid-State established
Trust V (see Note 1). At May 31, 1995, receivables owned by Trust V had a gross
book value of $254,871,000 and an economic balance of $92,466,000.
NOTE 5--PROPERTY, PLANT AND EQUIPMENT
Property, plant and equipment are summarized as follows (see Note 1
regarding purchase accounting):
MAY 31,
------------------------
1995 1994
---------- ----------
(IN THOUSANDS)
Land and minerals................................. $ 196,798 $ 200,337
Land improvements................................. 20,140 18,941
Buildings and leasehold improvements.............. 110,758 104,999
Mine development costs............................ 125,903 123,761
Machinery and equipment........................... 703,138 663,898
Construction in progress.......................... 29,670 12,003
---------- ----------
Total....................................... $1,186,407 $1,123,939
---------- ----------
---------- ----------
The Company provides depreciation for financial reporting purposes
principally on the straight line method over the useful lives of the assets.
Assets (primarily mine development costs) extending for the full life of a coal
mine are depreciated on the unit of production basis. For federal income tax
purposes accelerated methods are used for substantially all eligible properties.
Depletion of minerals is provided based on estimated recoverable quantities.
The Company has capitalized interest on qualifying properties in accordance
with Financial Accounting Standards Board Statement No. 34. Interest capitalized
for the years ended May 31, 1995, 1994 and 1993 was immaterial. Interest paid in
cash for the years ended May 31, 1995, 1994 and 1993 was $437,357,000,
$91,293,000 and $117,853,000, respectively.
NOTE 6--GOODWILL
The excess of purchase price over net assets acquired in connection with the
Acquisition is being amortized over periods ranging up to twenty years. At May
31, 1995, the accumulated amortization of goodwill was approximately $402.1
million. The Company evaluates, on a regular basis, whether events and
circumstances have occurred that indicate the carrying amount of goodwill may
warrant revision or may not be recoverable. The Company measures impairment of
goodwill based on estimated future undiscounted cash flows from operations of
the related business unit. At May 31, 1995, the net unamortized balance of
goodwill is not considered to be impaired.
F-11
<PAGE>
WALTER INDUSTRIES, INC. AND SUBSIDIARIES
NOTES TO FINANCIAL STATEMENTS (CONTINUED)
NOTE 7--DEBT
Long-term debt, in accordance with its contractual terms, consisted of the
following at each year end:
MAY 31,
----------------------
1995 1994
---------- --------
(IN THOUSANDS)
Senior debt:
Trust II Mortgage-Backed Notes.................... $ 584,000 $671,000
Trust III Asset Backed Notes...................... 173,527 200,970
Trust IV Asset Backed Notes....................... 953,843 --
Trust V Variable Funding Loan..................... 15,000 --
Series B Senior Notes Due 2000.................... 490,000 --
Bank Revolving Credit Facility.................... -- --
Other............................................. 4,000 --
---------- --------
$2,220,370 $871,970
---------- --------
---------- --------
Long-term debt included as liabilities subject to Chapter 11 Proceedings at
May 31, 1994 consisted of the following (see Note 1):
(IN THOUSANDS)
Revolving Credit Agreement..................................... $ 228,249
Series B Senior Extendible Reset Notes......................... 176,300
Series C Senior Extendible Reset Notes......................... 5,000
Senior Subordinated Extendible Reset Notes..................... 443,046
Subordinated Notes............................................. 350,000
13 1/8% Subordinated Notes..................................... 50,000
13 3/4% Subordinated Debentures................................ 100,000
10 7/8% Subordinated Debentures (less unamortized discount of
$7,513,000).................................................. 82,487
Other.......................................................... 7,080
--------------
$1,442,162
--------------
--------------
The Trust II Mortgage-Backed Notes (see Note 4) were issued in five classes
in varying principal amounts. Three of the classes have been fully repaid. The
two remaining classes A3 and A4 bear interest at the rates of 9.35% and 9.625%,
respectively. Interest on each class of notes is payable quarterly on each
January 1, April 1, July 1 and October 1 (each a "Payment Date"). On each
Payment Date, regular scheduled principal payments will be made on the Class A3
and Class A4 Notes in order of maturity. Maturities of the balance of these
Mortgage-Backed Notes range from April 1, 1998 for the Class A3 Notes to April
1, 2003 for the Class A4 Notes. The Class A3 and Class A4 Notes are subject to
special principal payments and the Class A4 Notes may be subject to optional
redemption under specified circumstances. The scheduled principal amount of
notes maturing in each of the five years from May 31, 1995 is $87,000,000,
$87,000,000, $87,000,000, $64,600,000 and $64,600,000, respectively.
The Trust III Asset Backed Notes (see Note 4) bear interest at 7 5/8%,
constitute a single class and have a final maturity date of April 1, 2022.
Payments are made quarterly on January 1, April 1, July 1
F-12
<PAGE>
WALTER INDUSTRIES, INC. AND SUBSIDIARIES
NOTES TO FINANCIAL STATEMENTS (CONTINUED)
NOTE 7--DEBT (CONTINUED)
and October 1, based on collections on the underlying collateral less amounts
paid for interest on the notes and Trust III expenses.
The Trust IV Asset Backed Notes (see Notes 1 and 4) bear interest at 8.33%,
constitute a single class and have a final maturity of April 1, 2030. Payments
are made quarterly on January 1, April 1, July 1 and October 1 based on
collections on the underlying collateral less amounts paid for interest on the
notes and Trust IV expenses.
On March 3, 1995, Mid-State Trust V entered into the three-year $500 million
Variable Funding Loan Agreement described in Note 1. It is contemplated that
this facility will be an evergreen three-year facility with periodic paydowns
from the proceeds of permanent financings similar to those done by Mid-State
Trusts II, III and IV. Accordingly, the $15 million of borrowings outstanding at
May 31, 1995 has been classified as long-term debt. Interest is based on the
cost of A-1 and P-1 rated commercial paper plus 3/4%. Commitment fees on the
unused facility are .55%.
The Series B Senior Notes Due 2000 ("Senior Notes") were issued by the
Company pursuant to the Consensual Plan as part of the distribution made in
payment of claims of holders of certain unsecured indebtedness of the Company
and certain of its subsidiaries (see Note 1). Interest on the Senior Notes is
payable semi-annually on September 15 and March 15 of each year at the rate of
12.19%. The Senior Notes may be redeemed at any time at the option of the
Company, in whole or in part, at a redemption price of 101% of the principal
amount thereof, plus accrued and unpaid interest, if any, to the date of
redemption, provided that no partial redemption may occur which results in less
than $150 million aggregate principal amount of the Senior Notes being
outstanding. Additionally, the Company is obligated in certain circumstances to
apply net cash proceeds from certain asset sales to either redeem or offer to
purchase notes at a price equal to 100% of the principal amount thereof, plus
accrued and unpaid interest, if any, to the date of redemption or purchase,
provided that no such redemption or purchase may occur which results in less
than $150 million aggregate principal amount of Senior Notes outstanding. The
Senior Notes rank pari passu with all other senior indebtedness of the Company.
The Senior Notes are secured by the capital stock of most of the Company's
subsidiaries.
The Bank Revolving Credit Facility is a three-year non-amortizing senior
working capital revolving credit facility pursuant to which borrowings not in
excess of $150 million may be outstanding at any time, with a sub-limit for
trade and standby letters of credit in an amount not in excess of $40 million at
any time outstanding and a sub-facility for swingline advances in an amount not
in excess of $15 million at any time outstanding. The facility is secured by
assets of certain subsidiaries of the Company. Subject to certain exceptions the
net cash proceeds from the sale of collateral must be applied to permanently
reduce the facility. Under the facility each borrower guarantees the obligations
of each other borrower, subject to certain limitations. Interest at the option
of the borrowers through November 30, 1995 is at (i) the Citibank Base Rate plus
3/4% or (ii) a LIBOR rate plus 2 1/4%. The fee for outstanding letters of credit
is 1 3/4%. Thereafter, interest shall be determined by the Performance Level in
effect from time to time ranging from 1/4% to 1% over the Citibank Base Rate, 1
3/4% to 2 1/2% over the LIBOR rate and 1 1/4% to 2% for letters of credit. A
commitment fee of 1/2 of 1% per annum is required based upon the unutilized
commitment. As of May 31, 1995, there were no borrowings outstanding under this
facility; however, letters of credit in the aggregate face amount of $22,727,000
have been issued thereunder.
The Senior Notes, the Bank Revolving Credit Facility and the Trust V
Variable Funding Loan Agreement contain a number of significant covenants that,
among other things, restrict the ability of the
F-13
<PAGE>
WALTER INDUSTRIES, INC. AND SUBSIDIARIES
NOTES TO FINANCIAL STATEMENTS (CONTINUED)
NOTE 7--DEBT (CONTINUED)
Company and its subsidiaries to dispose of assets, incur additional
indebtedness, make capital expenditures, pay dividends, create liens on assets,
enter into 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 Bank Revolving
Credit Facility, the Company is required to maintain specified financial ratios
and comply with certain financial tests, including minimum interest coverage,
fixed charge coverage ratios and maximum leverage ratios, some of which become
more restrictive over time.
NOTE 8--INCOME TAXES
Income tax expense (benefit) is made up of the following components:
<TABLE>
<CAPTION>
MAY 31, 1995 MAY 31, 1994 MAY 31, 1993
-------------------- ------------------- -------------------
CURRENT DEFERRED CURRENT DEFERRED CURRENT DEFERRED
-------- -------- ------- -------- ------- --------
(IN THOUSANDS)
<S> <C> <C> <C> <C> <C> <C>
United States.................... $(80,445) $(88,815) $38,712 $(11,716) $44,093 $(22,682)
State and local.................. ( 309) ( 881) 2,886 ( 965) 4,048 ( 1,131)
-------- -------- ------- -------- ------- --------
Total...................... $(80,754) $(89,696) $41,598 $(12,681) $48,141 $(23,813)
-------- -------- ------- -------- ------- --------
-------- -------- ------- -------- ------- --------
</TABLE>
Federal income tax paid in fiscal 1995, 1994 and 1993 was approximately
$30.6 million, $37.1 million and $35.9 million. State income taxes paid in
fiscal 1995, 1994 and 1993 were approximately $4.0 million, $2.1 million and
$3.1 million, respectively.
The Company complies with Statement of Financial Accounting Standards No.
109 ("FAS 109"), "Accounting for Income Taxes". FAS 109 is an asset and
liability approach that requires the recognition of deferred tax assets and
liabilities for the expected future tax consequences of events which have been
recognized in the Company's financial statements or tax returns. FAS 109
generally considers all expected future events other than changes in tax law or
rates.
F-14
<PAGE>
WALTER INDUSTRIES, INC. AND SUBSIDIARIES
NOTES TO FINANCIAL STATEMENTS (CONTINUED)
NOTE 8--INCOME TAXES (CONTINUED)
The income tax expense (benefit) at the Company's effective tax rate
differed from the statutory rate as follows:
FOR THE YEARS ENDED
MAY 31,
------------------------
1995 1994 1993
----- ----- ----
Statutory tax rate................................. (35.0)% 35.0% 34.0%
Effect of:
Adjustment to deferred taxes..................... -- 5.3 --
State and local income tax....................... ( .2) 3.3 2.7
Percentage depletion............................. ( .5) ( 1.7) (8.3)
Enacted tax rate change.......................... -- 9.4 --
Amortization of net investment tax credit........ -- -- ( .3)
Nonconventional source fuel credit............... -- (10.8) (7.7)
Amortization of excess of purchase price over net
assets acquired................................ 2.7 47.1 19.0
Benefit of capital loss carryforward............. ( 1.5) ( 8.5) (4.7)
Effect of rate change and loss of credits on loss
carryback...................................... 2.3 -- --
Other, net....................................... -- 1.0 ( .4)
----- ----- ----
Effective tax rate................................. (32.2)% 80.1% 34.3%
----- ----- ----
----- ----- ----
On August 10, 1993, the Omnibus Budget Reconciliation Act of 1993 was signed
into law raising the federal corporate income tax rate to 35% from 34%,
retroactive to January 1, 1993. FAS 109 requires that deferred tax liabilities
and assets be adjusted in the period of enactment for the effect of an enacted
change in the tax laws or rates. The effect of the change was $2,833,000 and
such amount is included in the provision for deferred income taxes for the year
ended May 31, 1994. Deferred tax liabilities (assets) are comprised of the
following:
MAY 31,
--------------------
1995 1994
-------- --------
(IN THOUSANDS)
Instalment sales method for instalment notes
receivable in prior years........................... $ 43,312 $ 52,549
Depreciation.......................................... 116,625 117,053
Difference in basis of assets under purchase
accounting.......................................... 23,894 27,269
Capital loss carryforward............................. ( 7,977) ( 12,600)
Tax credit carryforward............................... ( 31,488) --
Accrued expenses...................................... ( 81,855) ( 43,716)
Postretirement benefits other than pensions........... ( 87,032) ( 80,003)
Valuation allowance................................... 7,977 12,600
-------- --------
Total deferred tax (asset) liability............ $(16,544) $ 73,152
-------- --------
-------- --------
The Revenue Act of 1987 eliminated the instalment sales method of tax
reporting for instalment sales after December 31, 1987.
F-15
<PAGE>
WALTER INDUSTRIES, INC. AND SUBSIDIARIES
NOTES TO FINANCIAL STATEMENTS (CONTINUED)
NOTE 8--INCOME TAXES (CONTINUED)
The Company has a capital loss carryforward of approximately $22.8 million
which expires in fiscal 1997. The Company has established a valuation allowance
of approximately $8.0 million to offset the deferred tax asset related to the
carryforward since the Company cannot predict whether capital gains sufficient
to offset the carryforward will be realized in the two-year carryforward period.
As a result of the loss incurred in the 1995 fiscal year, the Company has
recorded a federal income tax receivable of approximately $99.9 million. The
Company has also recorded as an asset, in the deferred tax accounts, the benefit
of an alternative minimum tax credit carryover of approximately $31.5 million.
Under the Internal Revenue Code, if certain substantial changes in the
Company's ownership occur, there are annual limitations on the amount of loss
and credit carryforwards. The Reorganization created an ownership change;
however, the Company believes that the annual limitation will not affect the
realization of the capital loss carryforward and the alternative minimum tax
credit carryforward.
The Company allocates federal income tax expense (benefit) to its
subsidiaries based on their separate taxable income (loss).
A substantial controversy exists with regard to federal income taxes
allegedly owed by the Company. Proofs of claim have been filed by the Internal
Revenue Service in the amounts of $110,560,883 with respect to fiscal years
ended August 31, 1980 and August 31, 1983 through August 31, 1987, $31,468,189
with respect to fiscal years ended May 31, 1988 (nine months) and May 31, 1989
and $44,837,693 with respect to fiscal years ended May 31, 1990 and May 31,
1991. Objections to the proofs of claim have been filed by the Company and the
various issues are being litigated in the Bankruptcy Court. Although the range
for such claims is zero to $186 million, the Company believes that such proofs
of claim are substantially without merit and intends to defend such claims
against the Company vigorously.
NOTE 9--STOCKHOLDERS' EQUITY
As of the Effective Date, the outstanding old common stock issued in
connection with the Acquisition was cancelled and all stock option plans were
terminated. Pursuant to the Consensual Plan, the Company is authorized to issue
200,000,000 shares of Common Stock, $.01 par value. All 50,494,313 shares
outstanding at May 31, 1995 were issued in connection with the Consensual Plan.
Pursuant to the Consensual Plan, 494,313 additional shares of Common Stock
will be issued to all former stockholders as of the Effective Date six months
after the Effective Date of the Consensual Plan. In addition, up to 3,880,140
additional shares of Common Stock will be issued to an escrow account six months
after the Effective Date of the Consensual Plan. To the extent that certain
federal income tax matters of the Company are resolved satisfactorily, up to a
maximum 3,880,140 of the escrowed shares will be distributed to all former
stockholders of the Company as of the Effective Date. To the extent such matters
are not resolved satisfactorily, the escrowed shares will be returned to the
Company and cancelled.
Primary net loss per share has been computed using the weighted average
number of common shares outstanding, assuming the new capital structure had been
effective as of June 1, 1994. In management's opinion, per share information for
fiscal years 1994 and 1993 is not relevant given the significant change in the
Company's capital structure which occurred as a result of the Company's
reorganization pursuant to the Consensual Plan (see Note 1).
F-16
<PAGE>
WALTER INDUSTRIES, INC. AND SUBSIDIARIES
NOTES TO FINANCIAL STATEMENTS
NOTE 10--STOCK OPTIONS
The Company has reserved 3,000,000 shares of its Common Stock for issuance
under the 1995 Long-Term Incentive Stock Plan of Walter Industries, Inc. This
plan was established pursuant to the Consensual Plan which provided that 6% of
the shares to be outstanding on the Effective Date could be so reserved. As of
May 31, 1995, no options had been granted.
NOTE 11--LITIGATION AND OTHER MATTERS
Veil-Piercing Suits
Beginning in early 1989, the Company and certain of its officers, directors
and shareholders were named as co-defendants in a number of lawsuits brought by
persons ("Asbestos Claimants") claiming that the Company should be held liable
for all asbestos-related liabilities of The Celotex Corporation ("Celotex")
and/or its parent, Jim Walter Corporation ("JWC"). The stock of a predecessor of
JWC (Original Jim Walter) was acquired by a company known as Hillsborough
Acquisition Corporation ("HAC"), a former subsidiary of the Company, pursuant to
a 1988 leveraged buyout ("LBO"). Asserting a variety of theories of derivative
liability, including piercing the corporate veil, the suits alleged, among other
things, that Original Jim Walter was liable for all asbestos-related liabilities
of Celotex and that the distribution by HAC of substantially all of its assets
to the Company pursuant to the LBO was therefore a fraudulent conveyance (the
"Veil-Piercing Suits.").
On December 27, 1989, the Company and certain of its subsidiaries filed for
protection (the "Bankruptcy Case"), under Chapter 11 of Title 11 of the United
States Bankruptcy Code in the United States Bankruptcy Court for the Middle
District of Florida, Tampa Division, which stayed all Veil-Piercing Suits
pursuant to the automatic stay. On January 2, 1990, the Company filed a
declaratory judgment action ("Adversary Proceeding") against all Asbestos
Claimants who had filed Veil-Piercing Suits seeking a ruling that the Company
could not be held liable for any asbestos-related liabilities of Celotex or JWC
on any grounds, asserting that the corporate veil separating Original Jim Walter
and Celotex was intact, and asserting that the LBO could not be deemed a
fraudulent conveyance.
On April 18, 1994, the Bankruptcy Court ruled in favor of the Company on all
of the claims asserted in the Adversary Proceeding. The ruling was affirmed by
the District Court for the Middle District of Florida on October 13, 1994.
Thereafter, a settlement (the "Veil-Piercing Settlement") was entered into among
the Company, certain of its creditors, Celotex, JWC and representatives of the
Asbestos Claimants pursuant to which all the Veil-Piercing Suits would be
dismissed and the Company and its officers, directors and relevant stockholders
would be released from all liabilities relating to the LBO or associated with
asbestos-related liabilities of Celotex or JWC. The Veil-Piercing Settlement is
embodied in the Consensual Plan that was confirmed by the Bankruptcy Court
pursuant to an order signed on March 2, 1995. The Consensual Plan binds all
known and unknown claimants and enjoins such persons or entities from bringing
any suits against the Company in the future for asbestos or LBO related claims.
Dismissal of the Veil-Piercing Suits is in process and all of these suits will
be dismissed in the near future pursuant to the terms of the Veil-Piercing
Settlement and the Consensual Plan.
South Carolina Class Actions
On December 6, 1994, three South Carolina homeowners filed an amended
petition in the United States District Court for the District of South Carolina,
Columbia Division, (the "South Carolina District Court") seeking to certify a
class against Jim Walter Homes and Mid-State for alleged violations of a South
Carolina statute, which provided, among other things, that homeowners, under
F-17
<PAGE>
WALTER INDUSTRIES, INC. AND SUBSIDIARIES
NOTES TO FINANCIAL STATEMENTS (CONTINUED)
NOTE 11--LITIGATION AND OTHER MATTERS (CONTINUED)
certain circumstances, were to be informed that they could employ attorneys to
represent them in the closing of the purchase of their homes. The petition
sought to certify a class of homeowners who purchased their homes subsequent to
the filing of the Bankruptcy Case.
On January 18, 1995, counsel for the South Carolina homeowners filed in the
Bankruptcy Case a Notice of Class Demand for Recoupment or, in the Alternative,
Class Claim for Administrative Expense Priority and/or Class Claim for Setoff
for an estimated amount in excess of $122 million. At the same time, counsel for
the South Carolina homeowners also filed an objection to the Consensual Plan
asserting that payment of the Administrative Claim would render the Consensual
Plan not feasible.
Following extensive negotiations among counsel for the South Carolina
homeowners, the Debtors and the various creditor committees and constituencies,
a stipulation and settlement agreement (the "Homeowners Settlement Agreement")
was entered into. After two noticed hearings, the Bankruptcy Court entered a
preliminary order on February 28, 1995 and a final order on May 16, 1995
approving the Homeowners Settlement Agreement, as amended, and authorized the
Debtors to take such action and to execute such documents as are necessary to
consummate the agreement. On May 25, 1995, the South Carolina District Court
held a Fairness Hearing and found that the proposed settlement as set forth in
the Homeowners Settlement Agreement was fair, reasonable and adequate and in the
best interests of the settlement class. The settlement, which related to the
postpetition claims of the South Carolina homeowners, essentially provided for
(i) a reduction in the mortgage notes covering the property owned by the
homeowners in the aggregate principal amount of approximately $15.5 million
(less the allocated portion of any class members who "opt out" of the class);
(ii) cash disbursements of $1,000 each (with an aggregate cap of $300,000) to
certain classes of former homeowners who no longer have mortgage balances; (iii)
waiver of the first two months' mortgage payments after implementation of the
settlement; and (iv) legal fees and expenses for the South Carolina homeowners'
counsel in an amount as determined by the South Carolina District Court, but not
to exceed $3 million. The South Carolina District Court in entering its order
and final judgment on May 25, 1995, among other things, authorized and approved
the consummation of the Homeowners Settlement Agreement in accordance with its
terms and conditions, which included the release and satisfaction of all
actions, claims and demands against the Company, its past and present directors,
officers, employees, and others, including Jim Walter Homes and Mid-State
(except claims for construction defects and claims for breach of express written
warranties made by Jim Walter Homes), and approved payment of fees, costs and
expenses in the amount of $3 million to the homeowners' South Carolina counsel.
On February 28, 1995, Jim Walter Homes and Mid-State filed an adversary
action for declaratory judgment against all South Carolina homeowners who
purchased their homes between July 1, 1982 and December 27, 1989, and who might
assert prepetition claims against Jim Walter Homes and Mid-State for alleged
violation of the above mentioned South Carolina statute. The complaint seeks,
among other things, a declaration that Jim Walter Homes and Mid-State did not
violate the above mentioned South Carolina statute or, for other enumerated
reasons, should not be responsible for any damages alleged to the South Carolina
homeowners. The Debtors and homeowners have negotiated a proposed settlement
with prospective counsel for the South Carolina prepetition claimants which will
require a cash payment of approximately $3 million, which after application of
these settlement proceeds to pay existing arrearages on the homeowners'
mortgages, will result in a net cash outlay of approximately $1,050,000. In
addition, legal fees of approximately $360,000 will be paid. The proposed
settlement is subject to the Bankruptcy Court's approval upon submission of an
appropriate motion.
F-18
<PAGE>
WALTER INDUSTRIES, INC. AND SUBSIDIARIES
NOTES TO FINANCIAL STATEMENTS (CONTINUED)
NOTE 11--LITIGATION AND OTHER MATTERS (CONTINUED)
Texas Litigation
Since May 1991, Jim Walter Homes and Mid-State, together with Trust II and
certain other parties (collectively, the "Debtor/Mid-State Parties"), have been
involved in various lawsuits, primarily in the Bankruptcy Court, with
approximately 750 owners of houses constructed by Jim Walter Homes in south
Texas. The homeowners seek damages based upon alleged construction defects,
common law fraud, and violations of the Texas Deceptive Trade Practices Act, the
Texas Consumer Credit Code, federal and state debt collections statutes and the
Racketeering Influence Corruptions and Practices Act. Although Jim Walter Homes
and Mid-State believe that the litigation is substantially without merit, a
settlement agreement ("Settlement Agreement") has been reached with the attorney
for the homeowner claimants. The anticipated settlement figure will be
approximately $3,600,000 in account balance reductions (of which approximately
$1,250,000 represents a principal reduction), plus an approximate aggregate of
$27,500 cash to certain clients and $2,900,000 as attorney's fees (of which
$900,000 may be deferred and payable over the next five years). The consummation
of the Settlement Agreement is subject to various conditions, including approval
by all of the parties thereto. It also contains provisions allowing claimants to
"opt out" or not participate in the agreement and for the Debtor/Mid-State
Parties to avoid the settlement in its entirety if, in their judgment, the
number of claimants who opt out is so large as to make the settlement of little
value. It also has a provision for the attorney for the homeowner claimants to
indemnify and hold harmless Jim Walter Homes, Mid-State, Trust II, and the other
parties, from any and all claims, demands, causes of actions, lawsuits and
settlements by the homeowners. Further, it provides for the Bankruptcy Court to
retain jurisdiction over any claims which are not resolved by the Settlement
Agreement.
At a hearing in the Bankruptcy Court, held on June 27, 1995, on Debtors'
Motion to Approve Compromise and Settlement Agreement, the Bankruptcy Court
instructed the Debtors to prepare an Order to be sent to the creditors of the
Company, providing that any objections to the settlement be filed with the
Bankruptcy Court by July 12, 1995.
Suit by the Company and Jim Walter Resources, Inc. for Business Interruption
Losses
On May 31, 1995 the Company and Jim Walter Resources, Inc. ("JWR") commenced
a lawsuit in the Circuit Court for Tuscaloosa County, Alabama (Civil Action No.
CV-95-625) against certain insurers claiming damages for loss from interruption
of JWR's business resulting from a fire on or about November 17, 1993 in JWR's
underground coal mine No. 5, which caused the mining of coal to become
impossible because of blockage of corridors and passageways resulting from
efforts to extinguish or control the fire. After JWR believed that it had taken
the necessary steps to extinguish or control the fire, it resumed its longwall
mining. JWR learned, however, that the intensity of the fire, which it believed
to have been isolated and controlled, increased substantially, making it
necessary to seal off portions of the mine and to lose permanently the corridors
and passageways without which the longwall panel currently being mined could not
be completed. JWR's longwall mining was interrupted until another longwall panel
could be prepared. In addition to the mining of coal, JWR produced natural gas
from wells drilled into the mine, production from which was lost because of the
loss of the longwall panel. As a proximate consequence of the fire on November
17, 1993, the Company and JWR claimed losses compensable under the business
interruption coverage of the policies in excess of $25 million, for which
judgment was demanded, together with interest and costs.
Additionally, the complaint is for a declaratory judgment concerning the
insurers' contention that the risk which caused the loss was not insured because
it was not fortuitous, but was spontaneous
F-19
<PAGE>
WALTER INDUSTRIES, INC. AND SUBSIDIARIES
NOTES TO FINANCIAL STATEMENTS (CONTINUED)
NOTE 11--LITIGATION AND OTHER MATTERS (CONTINUED)
combustion known to occur in JWR's mines. Further, the insurers contend the
Company failed to disclose the risk of loss from spontaneous combustion and that
the policies are void or voidable because of such failure. Plaintiffs seek
declaratory judgment in their favor on these contentions and that each defendant
is liable to plaintiffs for its pro rata part of plaintiffs' business
interruption loss.
The suit is in its initial stages, but the Company and JWR believe the claim
is meritorious and intend to pursue it vigorously.
Litigation Related to Chapter 11 Distributions to Certain Holders
of Subordinated Notes and/or Debentures
The Plan of Reorganization originally proposed by certain creditors and
committees (the "Creditors' Plan") provided that subordinated bondholders could
elect to receive "Qualified Securities" (cash and/or new senior notes) in lieu
of shares of Common Stock. Such elections (the "Subordinated Note Claim
Election") were to be made on the ballots used for voting on the Creditors'
Plan. A balloting agent was retained to receive and separately tabulate ballots
cast on the Creditors' Plan and the Debtors' Fifth Amended Joint Plan of
Reorganization (the "Company's Plan"). Voting on the Company's Plan and the
Creditors' Plan took place during the period August 12, 1994 through September
23, 1994.
Subsequent to September 23, 1994, the balloting agent filed with the
Bankruptcy Court two (2) separate voting certifications. The voting
certification with respect to the Creditors' Plan not only set forth the voting
results but also listed the names of subordinated bondholders who made the
Subordinated Note Claim Election.
The Consensual Plan ultimately confirmed by the Bankruptcy Court (which
technically constituted a modification of the Creditors' Plan), (a) kept in
place the Subordinated Note Claim Election provisions and prior elections, (b)
contained as Exhibit 8 a schedule prepared by the balloting agent which set
forth the names of the subordinated bondholders who made the Subordinated Note
Claim Election (the "Exhibit 8 Schedule"), and (c) contained a new election (the
"Class U-4 Exchange Election") which provided that those subordinated
bondholders who made the Subordinated Note Claim Election were eligible to make
the Class U-4 Exchange Election whereby they could essentially "exchange" shares
of Common Stock for new senior notes which Lehman Brothers Inc. was otherwise
entitled to receive.
In February 1995, the balloting agent filed a voting certification with the
Bankruptcy Court which listed those subordinated bondholders who made the Class
U-4 Exchange Election (the "Exchange Election Schedule").
In preparing to make distributions to subordinated bondholders, it came to
the attention of the Company that the Exhibit 8 Schedule and the Exchange
Election Schedule were inaccurate. As a result, the Company reviewed all ballots
that the balloting agent claimed to be in its possession and determined that
discrepancies existed between the Exhibit 8 Schedule and Exchange Election
Schedule and certain of the ballots cast by subordinated bondholders.
On or about April 5, 1995, the Company filed a motion with the Bankruptcy
Court seeking to amend the Exhibit 8 Schedule and the Exchange Election
Schedule. On April 28, 1995, an order reflecting the Bankruptcy Court's decision
was entered (the "April 28 Order").
F-20
<PAGE>
WALTER INDUSTRIES, INC. AND SUBSIDIARIES
NOTES TO FINANCIAL STATEMENTS (CONTINUED)
NOTE 11--LITIGATION AND OTHER MATTERS (CONTINUED)
Four bondholders each filed a motion with the Bankruptcy Court seeking a
stay of the April 28 Order pending appeal to the United States District Court in
Tampa, Florida (the "District Court"). On May 10, 1995 the Bankruptcy Court
denied each of the stay motions. Two of such bondholders then each filed
emergency motions for a stay pending appeal with the District Court. On May 11,
1995 the District Court issued an order denying the emergency motions.
On May 14, 1995, one of such bondholders filed a petition for a writ of
mandamus with the Eleventh Circuit Court of Appeals which was denied on May 15,
1995.
Appeals from the April 28 Order were filed with the District Court by six
bondholders. The appeals raise similar issues and ultimately seek the same
relief--reversal of the April 28 Order as it applies to appellants and the
modification of the consideration that appellants are to be provided under the
Consensual Plan, so that a portion of their distribution would be comprised of
Qualified Securities, instead of Common Stock of the Company.
The Company has filed motions to consolidate the appeals and intends to file
motions to dismiss as moot the appeals of the appellants. At this time the
Company is unable to predict whether or not the appeals will be dismissed, or
the ultimate outcome of such appeals.
Chapter 11 Adversary Proceeding Filed by Certain Holders of Series B & C
Senior Notes
On June 15, 1995, certain holders of Series B & C Notes (the "Noteholders")
commenced an adversary proceeding in the Bankruptcy Court against the Company,
as Disbursing Agent, and its subsidiaries (the "Debtors") seeking payment of
interest for the period from the Effective Date (March 17, 1995) until the date
distribution was received by such Noteholders. The Debtors believe there is no
merit to the complaint and intend to vigorously oppose the relief requested
therein. Given the early stage of this proceeding, the Debtors cannot predict
the ultimate outcome of the litigation.
Environmental Matters
A Company subsidiary, United States Pipe and Foundry Company ("U.S. Pipe"),
was issued a revised New Jersey Pollutant Discharge Elimination System
("NJPDES") Permit in May 1991 relating to its facility in Burlington, New
Jersey, authorizing the discharge of storm water runoff to the Delaware River.
U.S. Pipe filed a timely appeal of the Permit to challenge certain effluent
limitations. In July 1992, the New Jersey Department of Environmental Protection
("NJDEP") issued to U.S. Pipe an Administrative Order and Notice of Civil
Administrative Penalty Assessment ("Order"), assessing a penalty in the amount
of $545,000 for alleged failure to comply with the effluent limitations in the
Permit. U.S. Pipe filed a timely appeal of the Order.
Extensive negotiations with the NJDEP were undertaken over the next three
years. On May 16, 1995, U.S. Pipe entered into an Administrative Consent Order
("ACO") with NJDEP settling both the permit appeal and the penalty case. Under
the ACO, U.S. Pipe will pay a civil penalty of $187,000 over a twelve-month
period to resolve all outstanding alleged permit violations through the date of
the ACO. In addition, U.S. Pipe will conduct studies of its Burlington facility
and will design and build a storm water treatment system to improve the quality
of storm water discharged to the Delaware River. During the time that U.S. Pipe
conducts these activities, it will not be required to meet effluent limitations,
but is obligated to monitor and report the quality of storm water discharges. By
executing the ACO, U.S. Pipe withdraws its appeals of the Permit and the Order.
The ACO is presently undergoing public review
F-21
<PAGE>
WALTER INDUSTRIES, INC. AND SUBSIDIARIES
NOTES TO FINANCIAL STATEMENTS (CONTINUED)
NOTE 11--LITIGATION AND OTHER MATTERS (CONTINUED)
and comment; if no significant changes are made to the ACO as a result of public
input, the agreement should be finalized in July.
The cost to construct the storm water treatment system required under the
ACO has not yet been ascertained but is estimated by the engineers to range from
$500,000--$1,000,000. Work on this project is expected to take three years or
more.
The Company is a party to a number of other lawsuits arising in the ordinary
course of its business. 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.
NOTE 12--PENSION AND OTHER EMPLOYEE BENEFITS
The Company has various pension and profit sharing plans covering
substantially all employees. In addition to its own pension plans, the Company
contributes to certain multi-employer plans. Total pension expense for the years
ended May 31, 1995, 1994 and 1993, was $8.2 million, $9.7 million and $16.5
million, respectively. The funding of retirement and employee benefit plans is
in accordance with the requirements of the plans and, where applicable, in
sufficient amounts to satisfy the "Minimum Funding Standards" of the Employee
Retirement Income Security Act of 1974 ("ERISA"). The plans provide benefits
based on years of service and compensation or at stated amounts for each year of
service.
The net pension costs for Company administered plans are as follows:
<TABLE>
<CAPTION>
FOR THE YEARS ENDED MAY 31,
--------------------------------
1995 1994 1993
-------- -------- --------
(IN THOUSANDS)
<S> <C> <C> <C>
Service cost-benefits earned during the period...... $ 5,817 $ 5,334 $ 5,233
Interest cost on projected benefit obligation....... 16,174 16,333 15,634
Actual loss (return) on assets...................... 4,304 ( 19,352) ( 18,131)
Net amortization and deferral....................... ( 21,377) 3,145 3,174
-------- -------- --------
Net pension costs............................. $ 4,918 $ 5,460 $ 5,910
-------- -------- --------
-------- -------- --------
</TABLE>
F-22
<PAGE>
WALTER INDUSTRIES, INC. AND SUBSIDIARIES
NOTES TO FINANCIAL STATEMENTS (CONTINUED)
NOTE 12--PENSION AND OTHER EMPLOYEE BENEFITS (CONTINUED)
The following table sets forth the funded status of Company administered
plans:
<TABLE>
<CAPTION>
MAY 31, 1995 MAY 31, 1994
------------------------------ ------------------------------
PLANS IN WHICH PLANS IN WHICH
------------------------------ ------------------------------
ASSETS EXCEED ACCUMULATED ASSETS EXCEED ACCUMULATED
ACCUMULATED BENEFITS ACCUMULATED BENEFITS
BENEFITS EXCEED ASSETS BENEFITS EXCEED ASSETS
------------- ------------- ------------- -------------
<S> <C> <C> <C> <C>
Actuarial present value of accumulated
benefit obligations:
Vested benefits........................ $ 134,589 $ 47,474 $ 133,348 $ 41,353
Non-vested benefits.................... 5,849 1,207 5,599 1,604
------------- ------------- ------------- -------------
$ 140,438 $ 48,681 $ 138,947 $ 42,957
------------- ------------- ------------- -------------
------------- ------------- ------------- -------------
Plan assets at fair value, primarily
stocks and bonds....................... $ 169,635 $ 31,023 $ 187,443 $ 27,012
Projected benefit obligations............ 169,984 49,681 166,386 42,957
------------- ------------- ------------- -------------
Plan assets in excess of (less than)
projected benefit obligations.......... (349) (8,658) 21,057 (15,945)
Unamortized portion of transition (asset)
obligation at June 1, 1986............. (10,507) 4,785 (11,281) 5,002
Unrecognized net loss from actual
experience different from that assumed. 20,545 6,610 808 2,903
Prior service cost not recognized........ 696 2,269 836 2,487
Contribution to plans after measurement
date................................... -- 667 879 819
------------- ------------- ------------- -------------
Prepaid (accrued) pension cost........... 10,385 (4,327) 12,299 (4,734)
Additional liability..................... -- (12,664) -- (10,393)
------------- ------------- ------------- -------------
Prepaid pension cost (pension liability)
recognized in the balance sheet........ $ 10,385 $( 16,991) $ 12,299 $( 15,127)
------------- ------------- ------------- -------------
------------- ------------- ------------- -------------
</TABLE>
The projected benefit obligations were determined using an assumed discount
rate of 8% in fiscal 1995 and 1994 and, where applicable, an assumed 5% rate of
increase in future compensation levels. The assumed long-term rate of return on
plan assets is 8%.
Under the labor contract with the United Mine Workers of America, Jim Walter
Resources makes payments into multi-employer pension plan trusts established for
union employees. Under ERISA, as amended by the Multiemployer Pension Plan
Amendments Act of 1980, an employer is liable for a proportionate part of the
plans' unfunded vested benefits liabilities. The Company estimates that its
allocated portion of the unfunded vested benefits liabilities of these plans
amounted to approximately $48.7 million at May 31, 1995. However, although the
net liability can be estimated, its components, the relative position of each
employer with respect to actuarial present value of accumulated benefits and net
assets available for benefits, are not available to the Company.
The Company adopted Statement of Financial Accounting Standards No. 106,
"Employers' Accounting for Postretirement Benefits Other Than Pensions" in
fiscal 1993. Upon adoption, the Company elected to record the transition
obligation of $166.4 million pre-tax ($104.6 million after tax) as a one-time
charge against earnings, rather than amortize it over a longer period. This
obligation is primarily related to the health benefits for eligible retirees.
Post-retirement benefit costs were $26.0
F-23
<PAGE>
WALTER INDUSTRIES, INC. AND SUBSIDIARIES
NOTES TO FINANCIAL STATEMENTS (CONTINUED)
NOTE 12--PENSION AND OTHER EMPLOYEE BENEFITS (CONTINUED)
million in 1995, $25.6 million in 1994 and $23.5 million in 1993. Amounts paid
for postretirement benefits were $7.5 million in 1995, $5.5 million in 1994 and
$6.5 million in 1993.
The net periodic postretirement benefit cost includes the following
components:
FOR THE YEARS ENDED MAY 31,
-----------------------------
1995 1994 1993
------- ------- -------
(IN THOUSANDS)
Service cost.................................. $ 8,491 $ 9,302 $ 8,495
Interest cost................................. 17,470 16,283 14,979
------- ------- -------
Net periodic postretirement benefit
cost.................................. $25,961 $25,585 $23,474
------- ------- -------
------- ------- -------
The accumulated postretirement benefits obligation at May 31, 1995 and 1994
are as follows:
MAY 31,
----------------------
1995 1994
--------- ---------
(IN THOUSANDS)
Retirees............................................ $ 92,550 $ 72,779
Fully eligible, active participants................. 30,129 26,234
Other active participants........................... 111,084 122,228
--------- ---------
Accumulated postretirement benefit obligation....... 233,763 221,241
Unrecognized net loss............................... ( 5,352) ( 11,279)
--------- ---------
Postretirement benefit liability recognized in the
balance sheet..................................... $ 228,411 $ 209,962
--------- ---------
--------- ---------
The principal assumptions used to measure the accumulated postretirement
benefit obligation include a discount rate of 8% in fiscal 1995 and 1994 and a
health care cost trend rate of 10% declining to 5.5% over a ten year period and
remaining level thereafter in fiscal 1995 and a health care cost trend rate of
13% declining to 6% over an eleven year period in fiscal 1994. A one percent
increase in trend rates would increase the accumulated postretirement benefit
obligation by 17% and increase net periodic postretirement benefit cost for 1995
by 20%.
Certain subsidiaries of the Company maintain profit sharing plans. The total
cost of these plans for the years ended May 31, 1995, 1994 and 1993 was $3.0
million, $3.1 million and $3.0 million, respectively.
NOTE 13--FAIR VALUE OF FINANCIAL INSTRUMENTS
Statement of Financial Accounting Standards No. 107, "Disclosures about Fair
Value of Financial Instruments" ("FAS 107") requires disclosure of estimated
fair values for all financial instruments for which it is practicable to
estimate fair value. Considerable judgment is necessary in developing estimates
of fair value and a variety of valuation techniques are allowed under FAS 107.
The derived fair value estimates resulting from the judgments and valuation
techniques applied cannot be substantiated by comparison to independent
materials or to disclosures by other companies with similar financial
instruments. Furthermore, FAS 107 fair value disclosures do not purport to be
the amount which could be attained in immediate settlement of the financial
instrument. Fair value estimates are not necessarily
F-24
<PAGE>
WALTER INDUSTRIES, INC. AND SUBSIDIARIES
NOTES TO FINANCIAL STATEMENTS (CONTINUED)
NOTE 13--FAIR VALUE OF FINANCIAL INSTRUMENTS (CONTINUED)
more relevant than historical cost values and have limited usefulness in
evaluating long-term assets and liabilities held in the ordinary course of
business. Accordingly, management believes that the disclosures required by FAS
107 have limited relevance to the Company and its operations.
The following methods and assumptions were used to estimate fair value
disclosures:
Cash (including short-term investments) and short-term investments,
restricted--The carrying amounts reported in the balance sheet approximates
fair value.
Instalment notes receivable--The estimated fair value of instalment
notes receivable at May 31, 1995 was in the range of $2.0 billion to $2.1
billion. The estimated fair value is based upon valuations prepared by an
investment banking firm as of January 31, 1995 adjusted to reflect increases
in value for the addition of net new mortgages to May 31, 1995. The value of
mortgage-backed instruments such as instalment notes receivable are very
sensitive to changes in interest rates.
Debt--The estimated fair value of long term debt at May 31, 1995 was
$2.332 billion based on current yields for comparable debt issues or prices
for actual transactions.
NOTE 14--SEGMENT INFORMATION
Information relating to the Company's business segments is set forth on
pages F-26 to F-28. Due to the divestiture of several building materials
subsidiaries in recent years, the Company has restructured certain of its
segment information. Prior years' information has been restated.
F-25
<PAGE>
WALTER INDUSTRIES, INC. AND SUBSIDIARIES
SEGMENT INFORMATION
<TABLE>
<CAPTION>
FOR THE YEARS ENDED MAY 31,
--------------------------------------
1995 1994 1993
---------- ---------- ----------
(IN THOUSANDS)
<S> <C> <C> <C>
Sales and Revenues:
Homebuilding and related financing................. $ 407,119 $ 424,530 $ 419,378
Industrial and other products...................... 284,230 224,673 212,606
Water and waste water transmission products........ 412,237 357,189 331,214
Natural resources(e)............................... 332,251 319,410 351,017
Corporate.......................................... 6,485 2,722 4,771
---------- ---------- ----------
Consolidated sales and revenues(a)(f)............ $1,442,322 $1,328,524 $1,318,986
---------- ---------- ----------
---------- ---------- ----------
Contributions to Operating Income:
Homebuilding and related financing................. $ 76,525 $ 101,954 $ 88,902
Industrial and other products...................... 11,902 13,851 11,301
Water and waste water transmission products........ 28,454 25,641 16,040
Natural resources.................................. 20,072 ( 1,175) 50,807
---------- ---------- ----------
136,953 140,271 167,050
Less-Unallocated corporate interest and other
expense(b)....................................... ( 666,048) ( 104,179) ( 96,128)
Income taxes......................................... 170,450 ( 28,917) ( 24,328)
---------- ---------- ----------
Income (loss) from operations(c)................. $( 358,645) $ 7,175 $ 46,594
---------- ---------- ----------
---------- ---------- ----------
Depreciation, Depletion and Amortization:
Homebuilding and related financing................. $ 3,336 $ 3,093 $ 3,113
Industrial and other products...................... 9,073 9,821 9,390
Water and waste water transmission products........ 16,520 16,063 15,764
Natural resources.................................. 41,434 40,326 40,714
Corporate.......................................... 1,674 1,732 1,502
---------- ---------- ----------
Total............................................ $ 72,037 $ 71,035 $ 70,483
---------- ---------- ----------
---------- ---------- ----------
Gross Capital Expenditures:
Homebuilding and related financing................. $ 4,192 $ 3,210 $ 6,284
Industrial and other products...................... 24,692 10,054 8,605
Water and waste water transmission products........ 15,538 14,426 12,821
Natural resources.................................. 46,214 40,224 42,941
Corporate.......................................... 681 1,917 1,057
---------- ---------- ----------
Total............................................ $ 91,317 $ 69,831 $ 71,708
---------- ---------- ----------
---------- ---------- ----------
</TABLE>
F-26
<PAGE>
WALTER INDUSTRIES, INC. AND SUBSIDIARIES
SEGMENT INFORMATION--(CONTINUED)
<TABLE>
<S> <C> <C> <C>
Identifiable Assets:
Homebuilding and related financing................. $1,789,582 $1,832,919 $1,907,199
Industrial and other products...................... 213,836 173,618 171,672
Water and waste water transmission products........ 480,617 490,004 493,297
Natural resources.................................. 465,680 450,468 475,533
Corporate(d)....................................... 295,438 193,883 175,533
---------- ---------- ----------
Total............................................ $3,245,153 $3,140,892 $3,223,234
---------- ---------- ----------
---------- ---------- ----------
</TABLE>
- ------------
<TABLE>
<C> <S>
(a) Inter-segment sales (made primarily at prevailing market prices) are deducted from
sales of the selling segment and are insignificant in amount with the exception of the
sales of the Industrial and Other Products Group to the Water and Waste Water
Transmission Products Group of $13,373,000, $11,480,000 and $10,298,000 and sales of
the Natural Resources Group to the Industrial and Other Products Group of $5,397,000,
$5,650,000 and $7,121,000 in 1995, 1994 and 1993, respectively.
(b) Excludes interest expense incurred by the Homebuilding and Related Financing Group of
$131,560,000, $128,828,000 and $137,945,000 in 1995, 1994 and 1993, respectively.
Unallocated expenses include amortization of excess purchase price over net assets
acquired (goodwill) of $40,027,000, $48,515,000 and $39,461,000 in 1995, 1994 and 1993,
respectively. In order to arrive at operating income by segment it is necessary to
deduct the goodwill amortization set forth below:
</TABLE>
FOR THE YEARS ENDED MAY 31,
---------------------------
1995 1994 1993
------- ------- -------
(IN THOUSANDS)
Goodwill Amortization:
Homebuilding and related financing.............. $31,703 $40,191 $31,074
Industrial and other products................... 2,627 2,624 2,625
Water and waste water transmission products..... 12,214 12,215 12,277
Natural resources............................... (1,328) (1,327) (1,328)
Corporate....................................... (5,189) (5,188) (5,187)
------- ------- -------
Total....................................... $40,027 $48,515 $39,461
------- ------- -------
------- ------- -------
<TABLE>
<C> <S>
The balance of unallocated expenses consisting primarily of Chapter 11 costs,
unallocated interest and corporate expenses are attributable to all groups and cannot
be reasonably allocated to specific groups.
(c) Includes postretirement health benefits of $25,961,000, $25,585,000 and $23,474,000 in
1995, 1994 and 1993. A breakdown by segment is as follows:
</TABLE>
FOR THE YEARS ENDED MAY 31,
---------------------------
1995 1994 1993
------- ------- -------
(IN THOUSANDS)
Homebuilding and related financing................ $ 2,295 $ 2,170 $ 1,991
Industrial and other products..................... 3,610 3,662 3,284
Water and waste water transmission products....... 4,362 4,391 4,136
Natural resources................................. 15,004 14,681 13,437
Corporate......................................... 690 681 626
------- ------- -------
$25,961 $25,585 $23,474
------- ------- -------
------- ------- -------
(d) Primarily cash and corporate headquarters buildings and equipment.
F-27
<PAGE>
WALTER INDUSTRIES, INC. AND SUBSIDIARIES
SEGMENT INFORMATION--(CONTINUED)
<TABLE>
<S> <S>
(e) Includes sales of coal of $297,650,000, $289,279,000 and $321,834,000 in 1995, 1994 and
1993, respectively. Jim Walter Resources' coal supply contract with Alabama Power
Company that had been in effect since January 1, 1979, as amended, was superceded by a
new contract executed May 10, 1994. The new contract is effective from July 1, 1994
through August 31, 1999 with Jim Walter Resources' option to extend such contract
through August 31, 2004, subject to mutual agreement on the market pricing mechanism
and other terms and conditions of such extension. Sales to Alabama Power Company in the
years ended May 31, 1995, 1994 and 1993 were 13%, 11% and 12% of net sales and
revenues, respectively.
(f) Export sales, primarily coal, were $129,071,000, $155,966,000 and $183,188,000 in 1995,
1994 and 1993, respectively. Export sales to any single geographic area do not exceed
10% of consolidated net sales and revenues.
</TABLE>
F-28
<PAGE>
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
NO DEALER, SALESMAN OR OTHER PERSON HAS BEEN AUTHORIZED TO GIVE ANY
INFORMATION OR TO MAKE ANY REPRESENTATIONS, OTHER THAN THOSE CONTAINED IN THIS
PROSPECTUS OR ANY PROSPECTUS SUPPLEMENT, IN CONNECTION WITH THE OFFERING MADE
BY THIS PROSPECTUS AND ANY PROSPECTUS SUPPLEMENT, AND INFORMATION OR AND
REPRESENTATIONS NOT HEREIN CONTAINED, IF GIVEN OR MADE, MUST NOT BE RELIED
UPON AS HAVING BEEN AUTHORIZED. THIS PROSPECTUS OR ANY PROSPECTUS SUPPLEMENT
DOES NOT CONSTITUTE AN OFFER TO SELL, OR A SOLICITATION OF AN OFFER TO BUY, THE
SECURITIES OFFERED HEREBY TO ANY PERSON OR BY ANYONE IN ANY JURISDICTION IN
WHICH SUCH OFFER OR SOLICITATION MAY NOT BE MADE. NEITHER THE DELIVERY OF
THIS PROSPECTUS OR ANY PROSPECTUS SUPPLEMENT NOR ANY SALES MADE HEREUNDER OR
THEREUNDER SHALL UNDER ANY CIRCUMSTANCES CREATE ANY IMPLICATION THAT THE
INFORMATION CONTAINED HEREIN IS CORRECT AS OF ANY TIME SUBSEQUENT TO THE DATE
HEREOF OR THEREOF OR THAT THERE HAS BEEN NO CHANGE IN THE AFFAIRS OF THE
COMPANY SINCE THE DATE HEREOF OR THEREOF.
-------------------
TABLE OF CONTENTS
PAGE
----
Available Information................. 3
Additional Information................ 3
Prospectus Summary.................... 4
Certain Risk Factors.................. 9
The Company........................... 16
Recent History........................ 16
Dividend Policy....................... 18
Market for the Common Stock........... 18
Capitalization........................ 19
Pro Forma Consolidated Statement of
Operations.......................... 20
Selected Historical Consolidated
Financial Data...................... 22
Management's Discussion and Analysis
of Financial Condition and Results
of Operations....................... 23
Business and Properties............... 34
Management............................ 53
Security Ownership of Management and
Principal Stockholders.............. 63
Description of Certain Indebtedness... 66
Description of Capital Stock.......... 69
Certain Federal Income Tax
Consequences........................ 76
Selling Security Holders.............. 78
Plan of Distribution.................. 78
Legal Matters......................... 80
Experts............................... 80
Index to Defined Terms................ 81
Index to Financial Statements......... F-1
31,911,136 SHARES
WALTER INDUSTRIES, INC.
COMMON STOCK
-------------------
PROSPECTUS
-------------------
October , 1995
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
<PAGE>
PART II
INFORMATION NOT REQUIRED IN PROSPECTUS
ITEM 13. OTHER EXPENSES OF ISSUANCE AND DISTRIBUTION.
Registration fee........................................... $139,072.62
Blue Sky fees and expenses................................. 1,500.00
Printing and engraving expenses............................ 50,000.00
Legal fees and expenses.................................... 230,000.00
Accounting fees and expenses............................... 50,000.00
Miscellaneous.............................................. 2,000.00
-----------
Total.................................................. $472,572.62
-----------
-----------
ITEM 14. INDEMNIFICATION OF DIRECTORS AND OFFICERS
Section 145 of the DGCL empowers a Delaware corporation to indemnify any
persons who are, or are threatened to be made, parties to any threatened,
pending or completed legal action, suit or proceeding, whether civil, criminal,
administrative or investigative (other than an action by or in the right of such
corporation), by reason of the fact that such person was an officer or director
of such corporation, or is or was serving at the request of such corporation as
a director, officer, employee or agent of another corporation or enterprise. The
indemnity may include expenses (including attorneys' fees), judgments, fines and
amounts paid in settlement actually and reasonably incurred by such person in
connection with such action, suit or proceeding, provided that such officer or
director acted in good faith and in a manner he reasonably believed to be in or
not opposed to the corporation's best interests, and, for criminal proceedings,
had no reasonable cause to believe his conduct was illegal. A Delaware
corporation may indemnify officers and directors against expenses (including
attorneys' fees) in connection with the defense or settlement of an action by or
in the right of the corporation under the same conditions, except that no
indemnification is permitted without judicial approval if the officer or
director is adjudged to be liable to the corporation. Where an officer or
director is successful on the merits or otherwise in the defense of any action
referred to above, the corporation must indemnify him against the expenses which
such officer or director actually and reasonably incurred.
Article IV of the By-laws of the Company provides for indemnification of its
officers and directors to the fullest extent permitted by Section 145 of the
DGCL.
Section 102(b)(7) of the DGCL provides that a Delaware corporation may
eliminate or limit the personal liability of a director to a Delaware
corporation or its stockholders for monetary damages for breach of fiduciary
duty as a director, provided that such provision shall not eliminate or limit
the liability of a director (i) for any breach of the director's duty of loyalty
to the corporation or its stockholders, (ii) for acts or omissions not in good
faith or which involve intentional misconduct or a knowing violation of law,
(iii) under Section 174 of the DGCL relating to the unlawful payment of a
dividend or an unlawful stock purchase or redemption or (iv) for any transaction
from which the director derived an improper personal benefit.
Article 6 of the Restated Certificate of Incorporation of the Company
provides for the elimination of personal liability of its directors for monetary
damages for breach of fiduciary duty as a director, except as otherwise provided
by the DGCL.
The Company has entered into a Directors and Officers Indemnification
Agreement which provides that directors and officers shall be indemnified to the
fullest extent permitted by applicable law and obligates the Company to
indemnify the directors and officers of the Company (a) if any director or
officer is or may become a party to any proceeding against all expenses
reasonably incurred by such director or officer in connection with the defense
or settlement of such proceeding, but only if such director or officer acted in
good faith and in a manner which such director or officer reasonably believed
II-1
<PAGE>
to be in or not opposed to the best interests of the Company, and in the case of
a criminal action or proceeding, in addition, only if such director or officer
had no reasonable cause to believe that his or her conduct was unlawful, (b) if
a director or officer is or may become a party to any proceeding by or in the
name of the Company to procure a judgement in its favor against all expenses
reasonably incurred by such director or officer in connection with the defense
or settlement of such proceeding, but only if such director or officer acted in
good faith and in a manner which such director or officer reasonably believed to
be in or not opposed to the best interests of the Company, except no
indemnification for expenses need be made in respect of any claim in which such
director or officer shall have been adjudged liable to the Company unless a
court in which the proceeding is brought determines otherwise and (c) if a
director or officer has been successful on the merits or otherwise in defense of
any proceeding or claim.
The Common Stock Registration Rights Agreement and the Senior Note
Registration Rights Agreement each require the Company, on the one hand, and the
Holders referred to therein, on the other hand, under certain circumstances, to
indemnify each other and, in the case of the Company's indemnification
obligations, each other person who participates as an underwriter in an offering
thereunder, and each other person who controls such parties and/or underwriters
and their respective directors, officers, partners, agents and affiliates
against certain liabilities, including liabilities under the Securities Act,
incurred in connection with each registration of securities pursuant to such
registration rights agreement.
Insofar as indemnification for liabilities arising under the Securities Act
may be permitted to directors, officers and controlling persons of the
Registrant pursuant to the provisions described hereunder or otherwise, the
Registrant has been advised that in the opinion of the Commission such
indemnification is against public policy as expressed in the Securities Act and
is, therefore, unenforceable. In the event that a claim for indemnification
against such liabilities (other than the payment to the Registrant of expenses
incurred or paid by a director, officer or controlling person of the Registrant
in the successful defense of any action, suit or proceeding) is asserted against
the Registrant by such director, officer or controlling person, in connection
with the Shares being registered hereby, the Registrant will, unless in the
opinion of its counsel the matter has been settled by controlling precedent,
submit to a court of appropriate jurisdiction the question whether such
indemnification by it is against public policy as expressed in the Securities
Act and will be governed by the final adjudication of such issue.
ITEM 15. RECENT SALES OF UNREGISTERED SECURITIES
Pursuant to the Plan of Reorganization, 50,494,313 shares of Common Stock
were issued to certain former creditors and stockholders of the Company and its
subsidiaries and $490,000,000 principal amount of Series B Senior Notes were
issued to certain former creditors of the Company and its subsidiaries on the
Effective Date of the Plan of Reorganization. Beginning on September 13, 1995
(180 days after the Effective Date of the Plan of Reorganization), up to
4,374,453 additional shares of Common Stock have been or may be issued to
certain current and former stockholders of the Company pursuant to the Plan of
Reorganization. All such securities were or will be issued in satisfaction of
various prepetition claims allowed by the Bankruptcy Court. In reliance on the
exemption provided by Section 1145 of the Bankruptcy Code, none of such
securities were or will be registered under the Securities Act in connection
with their issuance pursuant to the Plan of Reorganization.
ITEM 16. EXHIBITS AND FINANCIAL STATEMENT SCHEDULES
(a) Exhibits
<TABLE>
<CAPTION>
EXHIBIT
NUMBER DESCRIPTION
- ------------- -------------------------------------------------------------------------------
<S> <C>
2(a)(i) --Amended Joint Plan of Reorganization of Walter Industries, Inc. and certain
of its subsidiaries, dated as of December 9, 1994 (1)
</TABLE>
II-2
<PAGE>
<TABLE>
<CAPTION>
EXHIBIT
NUMBER DESCRIPTION
- ------------- -------------------------------------------------------------------------------
<S> <C>
2(a)(ii) --Modification to the Amended Joint Plan of Reorganization of Walter
Industries, Inc. and certain of its subsidiaries, as filed in the Bankruptcy
Court on March 1, 1995 (2)
2(a)(iii)** --Findings of Fact, Conclusions of Law and Order Confirming Amended Joint Plan
of Reorganization of Walter Industries, Inc. and certain of its subsidiaries,
as modified
3(a)** --Restated Certificate of Incorporation of the Company
3(b)** --By-Laws of the Company
4(a)(i)** --Restated Certificate of Incorporation of the Company (see Exhibit 3(a))
4(a)(ii)** --By-Laws of the Company (see Exhibit 3(b))
4(b)** --Specimen Stock Certificate
4(c)(i) --12.19% Series B Senior Note Indenture (3)
4(c)(ii) --Form of Company Pledge Agreement (included as Exhibit B to Exhibit 4(c)(i))
(3)
4(c)(iii) --Form of Subsidiary Pledge Agreement (included as Exhibit C to Exhibit
4(c)(i)) (3)
4(c)(iv) --Form of 12.19% Series B Senior Note Certificate (included as Exhibit A to
Exhibit 4(c)(i)) (3)
5 --Opinion of Simpson Thacher & Bartlett regarding legality of the securities
being registered
10(a)** --Stockholder's Agreement
10(b)(i)** --Form of Common Stock Registration Rights Agreement
10(b)(ii) --Form of Senior Note Registration Rights Agreement (3)
10(b)(iii)** --Channel One Registration Rights Agreement
10(c)** --Durham Employment Agreement
10(d) --Second Amended and Restated Veil Piercing Settlement Agreement (included as
Exhibit 3A to Exhibit 2(a)(i)) (1)
10(e) --12.19% Series B Senior Note Indenture (see Exhibit 4(c)) (3)
10(f) --Bank Revolving Credit Facility (5)
10(g)** --Director and Officer Indemnification Agreement, dated as of March 3, 1995,
among the Company and the Indemnitees parties thereto
10(h)** --New Alabama Power Contract (4)
10(i)** --Escrow Agreement, dated as of September 12, 1995, between the Company and
Harris Trust and Savings Bank, as Escrow Agent
10(j)** --Walter Industries, Inc. Directors' Deferred Fee Plan
10(k)** --1995 Long-Term Incentive Stock Plan of Walter Industries, Inc. (6)
10(l)** --Agreement, dated as of August 30, 1995, between the Company and James W.
Walter
21** --Subsidiaries of the Company
23(a) --Consent of Price Waterhouse LLP
23(b) --Consent of Simpson Thacher & Bartlett (included in their opinion filed as
Exhibit 5 hereto)
24** --Powers of Attorney
27** --Financial Data Schedule
</TABLE>
- ------------
** Previously filed
(1) This Exhibit is incorporated by reference to the Application for
Qualification of Indenture on Form T-3 filed by the Company with the
Commission on February 6, 1995.
(2) This Exhibit is incorporated by reference to Amendment No. 2 to the
Application for Qualification of Indenture on Form T-3 filed by the Company
with the Commission on March 7, 1995.
(3) This Exhibit is incorporated by reference to the Registration Statement on
Form S-1 (File No. 33-59021) filed by the Company with the Commission on May
2, 1995.
(4) Portions of this document have been omitted pursuant to a request for
confidential treatment.
(5) This Exhibit is incorporated by reference to Amendment No. 1 to the
Registration Statement on Form S-1 (File No. 33-59021) filed by the Company
with the Commission on May 2, 1995.
(6) This Exhibit is incorporated by reference to the Proxy Statement on Schedule
14A filed by the Company with the Commission on September 11, 1995.
II-3
<PAGE>
(b) Financial Statement Schedules
<TABLE>
<CAPTION>
SCHEDULE
NO.
- ---------
<S> <C>
V Report of Property, Plant and Equipment
VI Report of Accumulated Depreciation, Depletion and Amortization of Property, Plant
and Equipment
VIII Valuation and Qualifying Accounts
</TABLE>
ITEM 17. UNDERTAKINGS
The undersigned Registrant hereby undertakes:
(1) To file, during any period in which offers or sales are being made,
a post-effective amendment to this Registration Statement:
(i) To include any prospectus required by Section 10(a)(3) of the
Securities Act;
(ii) To reflect in the prospectus any facts or events arising after
the effective date of the Registration Statement (or the most recent
post-effective amendment thereof) which, individually or in the
aggregate, represent a fundamental change in the information set forth in
the Registration Statement;
(iii) To include any material information with respect to the plan of
distribution not previously disclosed in the Registration Statement or
any material change to such information in the Registration Statement;
(2) That, for the purpose of determining any liability under the
Securities Act, each such post-effective amendment shall be deemed to be a
new registration statement relating to the securities offered therein, and
the offering of such securities at that time shall be deemed to be the
initial bona fide offering thereof.
(3) To remove from registration by means of a post-effective amendment
any of the securities being registered which remain unsold at the
termination of the offering.
II-4
<PAGE>
SIGNATURES
Pursuant to the requirements of the Securities Act of 1933, the Registrant
has duly caused this Registration Statement Amendment to be signed on its behalf
by the undersigned, hereunto duly authorized in the City of Tampa, State of
Florida on the 5th day of October, 1995.
WALTER INDUSTRIES, INC.
By /s/ WILLIAM H. WELDON
...................................
William H. Weldon
Senior Vice President-Finance
and Chief Accounting Officer
Pursuant to the requirements of the Securities Act of 1933, this
Registration Statement Amendment has been signed by the following persons in the
capacities indicated on October 5, 1995.
<TABLE>
<CAPTION>
SIGNATURE TITLE
- --------------------------------------------- ---------------------------------------------
<S> <C>
* Chairman Emeritus and Director
.............................................
James W. Walter
* Chairman of the Board, Chief Executive
............................................. Officer and Director (Principal Executive
G. Robert Durham Officer)
* Executive Vice President and Chief Financial
............................................. Officer (Principal Financial Officer)
Kenneth J. Matlock
/s/ WILLIAM H. WELDON Senior Vice President-Finance and Chief
............................................. Accounting Officer (Principal Accounting
William H. Weldon Officer)
* Director
.............................................
Howard L. Clark, Jr.
* Director
.............................................
James B. Farley
* Director
.............................................
Eliot M. Fried
* Director
.............................................
James L. Johnson
* Director
.............................................
Robert I. Shapiro
* Director
.............................................
Michael T. Tokarz
By /s/ WILLIAM H. WELDON
...........................................
William H. Weldon
Attorney-in-fact
</TABLE>
II-5
<PAGE>
INDEX TO FINANCIAL STATEMENT SCHEDULES
<TABLE>
<CAPTION>
FINANCIAL STATEMENT SCHEDULES PAGE
- -------------------------------------------------------------------------------------- ----
<S> <C> <C>
V Report of Property, Plant and Equipment........................................ S-2
VI Report of Accumulated Depreciation, Depletion and Amortization of Property,
Plant and Equipment........................................................... S-5
VIII Valuation and Qualifying Accounts.............................................. S-8
</TABLE>
All other schedules are omitted because the required information is not
present in amounts sufficient to require submission of the schedules, or because
the information required is included in the consolidated financial statements or
notes thereto.
S-1
<PAGE>
SCHEDULE V
WALTER INDUSTRIES, INC. AND SUBSIDIARIES
PROPERTY, PLANT AND EQUIPMENT
FOR THE YEAR ENDED MAY 31, 1995
<TABLE>
<CAPTION>
BALANCE AT BALANCE
BEGINNING ADDITIONS RETIREMENTS AT END
CLASSIFICATION(1) OF YEAR AT COST OR SALES OTHER OF YEAR
- ------------------------------------ ---------- --------- ----------- -------- ----------
(IN THOUSANDS)
<S> <C> <C> <C> <C> <C>
Land and minerals................... $ 200,337 $ 1,856 $ 5,534 $ 139 $ 196,798
Land improvements................... 18,941 839 91 451 20,140
Building and leasehold
improvements........................ 104,999 3,332 3,607 6,034 110,758
Machinery and equipment............. 663,898 14,901 19,617 43,956 703,138
Mine development costs.............. 123,761 -- -- 2,142 125,903
Construction in progress............ 12,003 70,389 -- (52,722) 29,670
---------- --------- ----------- -------- ----------
$1,123,939 $ 91,317 $28,849 $ -- $1,186,407
---------- --------- ----------- -------- ----------
---------- --------- ----------- -------- ----------
</TABLE>
- ------------
(1) The Company and its subsidiaries provide depreciation for financial
reporting purposes principally on the straight line method over the useful
lives of the assets. For federal income tax purposes accelerated methods are
used for substantially all eligible properties. The depreciable property
categories and the principal rates for depreciation used are as follows:
<TABLE>
<S> <C>
Land Improvements................................................... 3 1/2% to 10%
Buildings........................................................... 2 1/2% to 20%
Machinery and equipment............................................. 3 1/2% to 33 1/3%
Leasehold improvements.............................................. Over term of leases
Mine development costs.............................................. Over life of mines
</TABLE>
Depletion on minerals is based on the estimated recoverable quantities and the
costs of the properties.
S-2
<PAGE>
SCHEDULE V
WALTER INDUSTRIES, INC. AND SUBSIDIARIES
PROPERTY, PLANT AND EQUIPMENT
FOR THE YEAR ENDED MAY 31, 1994
<TABLE>
<CAPTION>
BALANCE AT BALANCE
BEGINNING ADDITIONS RETIREMENTS AT END
CLASSIFICATION(1) OF YEAR AT COST OR SALES OTHER OF YEAR
- ------------------------------------------ ---------- --------- ----------- -------- ----------
(IN THOUSANDS)
<S> <C> <C> <C> <C> <C>
Land and minerals......................... $ 200,000 $ 436 $ 117 $ 18 $ 200,337
Land improvements......................... 17,349 886 42 748 18,941
Building and leasehold improvements....... 99,597 3,007 720 3,115 104,999
Machinery and equipment................... 617,987 6,360 17,819 57,370 663,898
Mine development costs.................... 116,576 -- 2,262 9,447 123,761
Construction in progress.................. 23,559 59,142 -- (70,698) 12,003
---------- --------- ----------- -------- ----------
$1,075,068 $ 69,831 $20,960 $ -- $1,123,939
---------- --------- ----------- -------- ----------
---------- --------- ----------- -------- ----------
</TABLE>
- ------------
(1) The Company and its subsidiaries provide depreciation for financial
reporting purposes principally on the straight line method over the useful
lives of the assets. For federal income tax purposes accelerated methods are
used for substantially all eligible properties. The depreciable property
categories and the principal rates for depreciation used are as follows:
<TABLE>
<CAPTION>
<S> <C>
Land Improvements................................................... 3 1/2% to 10%
Buildings........................................................... 2 1/2% to 20%
Machinery and equipment............................................. 3 1/2% to 33 1/3%
Leasehold improvements.............................................. Over term of leases
Mine development costs.............................................. Over life of mines
</TABLE>
Depletion on minerals is based on the estimated recoverable quantities and the
costs of the properties.
S-3
<PAGE>
SCHEDULE V
WALTER INDUSTRIES, INC. AND SUBSIDIARIES
PROPERTY, PLANT AND EQUIPMENT
FOR THE YEAR ENDED MAY 31, 1993
<TABLE>
<CAPTION>
BALANCE AT BALANCE
BEGINNING ADDITIONS RETIREMENTS AT END
CLASSIFICATION(1) OF YEAR AT COST OR SALES OTHER OF YEAR
- ------------------------------------------ ---------- --------- ----------- -------- ----------
(IN THOUSANDS)
<S> <C> <C> <C> <C> <C>
Land and minerals......................... $ 198,927 $ 1,219 $ 168 $ 22 $ 200,000
Land improvements......................... 16,556 1,122 72 (257) 17,349
Building and leasehold improvements....... 98,947 3,712 1,016 (2,046) 99,597
Machinery and equipment................... 567,218 7,948 10,867 53,688 617,987
Mine development costs.................... 116,576 -- -- -- 116,576
Construction in progress.................. 17,259 57,707 -- (51,407) 23,559
---------- --------- ----------- -------- ----------
$1,015,483 $ 71,708 $12,123 $ -- $1,075,068
---------- --------- ----------- -------- ----------
---------- --------- ----------- -------- ----------
</TABLE>
- ------------
(1) The Company and its subsidiaries provide depreciation for financial
reporting purposes principally on the straight line method over the useful
lives of the assets. For federal income tax purposes accelerated methods are
used for substantially all eligible properties. The depreciable property
categories and the principal rates for depreciation used are as follows:
<TABLE>
<S> <C>
Land Improvements................................................... 3 1/2% to 10%
Buildings........................................................... 2 1/2% to 20%
Machinery and equipment............................................. 3 1/2% to 33 1/3%
Leasehold improvements.............................................. Over term of leases
Mine development costs.............................................. Over life of mines
Depletion on minerals is based on the estimated recoverable quantities and the costs of
the properties.
</TABLE>
S-4
<PAGE>
SCHEDULE VI
WALTER INDUSTRIES, INC. AND SUBSIDIARIES
ACCUMULATED DEPRECIATION, DEPLETION AND AMORTIZATION OF
PROPERTY, PLANT AND EQUIPMENT
FOR THE YEAR ENDED MAY 31, 1995
<TABLE>
<CAPTION>
ADDITIONS
BALANCE AT CHARGED TO BALANCE
BEGINNING COST AND RETIREMENTS AT END
CLASSIFICATION OF YEAR EXPENSES OR SALES OTHER OF YEAR
- ----------------------------------------------- ---------- ---------- ----------- ----- --------
(IN THOUSANDS)
<S> <C> <C> <C> <C> <C>
Land and minerals.............................. $ 42,944 $ 5,671 $-- $-- $ 48,615
Land improvements.............................. 5,105 947 61 -- 5,991
Building and leasehold improvements............ 35,846 4,562 1,388 59 39,079
Machinery and equipment........................ 367,152 59,190 13,049 (59) 413,234
Mine development costs......................... 15,029 1,667 -- -- 16,696
---------- ---------- ----------- ----- --------
$ 466,076 $ 72,037 $14,498 $-- $523,615
---------- ---------- ----------- ----- --------
---------- ---------- ----------- ----- --------
</TABLE>
S-5
<PAGE>
SCHEDULE VI
WALTER INDUSTRIES, INC. AND SUBSIDIARIES
ACCUMULATED DEPRECIATION, DEPLETION AND AMORTIZATION OF
PROPERTY, PLANT AND EQUIPMENT
FOR THE YEAR ENDED MAY 31, 1994
<TABLE>
<CAPTION>
ADDITIONS
BALANCE AT CHARGED TO BALANCE
BEGINNING COST AND RETIREMENTS AT END
CLASSIFICATION OF YEAR EXPENSES OR SALES OTHER OF YEAR
- ----------------------------------------------- ---------- ---------- ----------- ----- --------
(IN THOUSANDS)
<S> <C> <C> <C> <C> <C>
Land and minerals.............................. $ 37,961 $ 4,983 $-- $-- $ 42,944
Land improvements.............................. 4,272 885 52 -- 5,105
Building and leasehold improvements............ 31,671 4,264 89 -- 35,846
Machinery and equipment........................ 323,557 58,188 14,593 -- 367,152
Mine development costs......................... 14,567 2,715 2,253 -- 15,029
---------- ---------- ----------- ----- --------
$ 412,028 $ 71,035 $16,987 $-- $466,076
---------- ---------- ----------- ----- --------
---------- ---------- ----------- ----- --------
</TABLE>
S-6
<PAGE>
SCHEDULE VI
WALTER INDUSTRIES, INC. AND SUBSIDIARIES
ACCUMULATED DEPRECIATION, DEPLETION AND AMORTIZATION OF
PROPERTY, PLANT AND EQUIPMENT
FOR THE YEAR ENDED MAY 31, 1993
<TABLE>
<CAPTION>
ADDITIONS
BALANCE AT CHARGED TO BALANCE
BEGINNING COST AND RETIREMENTS AT END
CLASSIFICATION OF YEAR EXPENSES OR SALES OTHER OF YEAR
- ---------------------------------------------- ---------- ---------- ----------- ------- --------
(IN THOUSANDS)
<S> <C> <C> <C> <C> <C>
Land and minerals............................. $ 32,366 $ 5,595 $-- $ -- $ 37,961
Land improvements............................. 4,203 729 32 (628) 4,272
Building and leasehold improvements........... 30,163 4,410 628 (2,274) 31,671
Machinery and equipment....................... 270,739 58,572 8,656 2,902 323,557
Mine development costs........................ 13,390 1,177 -- -- 14,567
---------- ---------- ----------- ------- --------
$ 350,861 $ 70,483 $ 9,316 $ -- $412,028
---------- ---------- ----------- ------- --------
---------- ---------- ----------- ------- --------
</TABLE>
S-7
<PAGE>
SCHEDULE VIII
WALTER INDUSTRIES, INC. AND SUBSIDIARIES
VALUATION AND QUALIFYING ACCOUNTS
FOR THE YEAR ENDED MAY 31, 1995
<TABLE>
<CAPTION>
ADDITIONS
BALANCE AT CHARGED TO BALANCE
BEGINNING COST AND DEDUCTIONS AT END
DESCRIPTION OF YEAR EXPENSES FROM RESERVES OF YEAR
- -------------------------------------------------- ---------- ---------- ------------- -------
(IN THOUSANDS)
<S> <C> <C> <C> <C>
Reserves (provision for possible losses) deducted
from instalment notes receivable................ $ 26,301 $1,155 $ 900(1) $26,556
---------- ---------- ------------- -------
---------- ---------- ------------- -------
Reserve (provision for possible losses) deducted
from trade receivables.......................... $ 7,392 $3,330 $ 2,724(1) $ 7,998
---------- ---------- ------------- -------
---------- ---------- ------------- -------
Accrued workmen's compensation(2)................. $ 3,737 $ 763 $-- $ 4,500
---------- ---------- ------------- -------
---------- ---------- ------------- -------
Black lung reserves(2)............................ $ 21,997 $-- $ 130(3) $21,867
---------- ---------- ------------- -------
---------- ---------- ------------- -------
</TABLE>
- ------------
(1) Notes and accounts written off as uncollectible.
(2) Included in other long-term liabilities.
(3) Losses sustained.
S-8
<PAGE>
SCHEDULE VIII
WALTER INDUSTRIES, INC. AND SUBSIDIARIES
VALUATION AND QUALIFYING ACCOUNTS
FOR THE YEAR ENDED MAY 31, 1994
<TABLE>
<CAPTION>
ADDITIONS
BALANCE AT CHARGED TO BALANCE
BEGINNING COST AND DEDUCTIONS AT END
DESCRIPTION OF YEAR EXPENSES FROM RESERVES OF YEAR
- ------------------------------------------------ ---------- ---------- ------------- -------
(IN THOUSANDS)
<S> <C> <C> <C> <C>
Reserves (provision for possible losses)
deducted from instalment notes receivable..... $ 26,579 $ 905 $ 1,183(1) $26,301
---------- ---------- ------------- -------
---------- ---------- ------------- -------
Reserve (provision for possible losses) deducted
from trade receivables.......................... $ 7,324 $3,706 $ 3,638(1) $ 7,392
---------- ---------- ------------- -------
---------- ---------- ------------- -------
Accrued workmen's compensation(3)............... $ 2,887 $ 824 $ (26)(2) $ 3,737
---------- ---------- ------------- -------
---------- ---------- ------------- -------
Black lung reserves(3).......................... $ 22,190 $-- $ 193(4) $21,997
---------- ---------- ------------- -------
---------- ---------- ------------- -------
</TABLE>
- ------------
(1) Notes and accounts written off as uncollectible.
(2) Expenditures or losses sustained and liabilities reclassified from accounts
payable.
(3) Included in other long-term liabilities.
(4) Losses sustained.
S-9
<PAGE>
SCHEDULE VIII
WALTER INDUSTRIES, INC. AND SUBSIDIARIES
VALUATION AND QUALIFYING ACCOUNTS
FOR THE YEAR ENDED MAY 31, 1993
<TABLE>
<CAPTION>
ADDITIONS
BALANCE AT CHARGED TO BALANCE
BEGINNING COST AND DEDUCTIONS AT END
DESCRIPTION OF YEAR EXPENSES FROM RESERVES OF YEAR
- ------------------------------------------------- ---------- ---------- ------------- -------
(IN THOUSANDS)
<S> <C> <C> <C> <C>
Reserves (provision for possible losses) deducted
from instalment notes receivable................. $ 25,965 $1,303 $ 689(1) $26,579
---------- ---------- ------------- -------
---------- ---------- ------------- -------
Reserve (provision for possible losses) deducted
from trade receivables......................... $ 6,080 $2,940 $ 1,696(1) $ 7,324
---------- ---------- ------------- -------
---------- ---------- ------------- -------
Accrued workmen's compensation(3)................ $ 3,411 $ (488) $ 36(2) $ 2,887
---------- ---------- ------------- -------
---------- ---------- ------------- -------
Black lung reserves(3)........................... $ 22,345 $-- $ 155(4) $22,190
---------- ---------- ------------- -------
---------- ---------- ------------- -------
</TABLE>
- ------------
(1) Notes and accounts written off as uncollectible.
(2) Expenditures or losses sustained and liabilities reclassified from accounts
payable.
(3) Included in other long-term liabilities.
(4) Losses sustained.
S-10
<PAGE>
EXHIBIT INDEX
<TABLE>
<CAPTION>
EXHIBIT
NUMBER DESCRIPTION PAGE
- ------------- ------------------------------------------------------------------------------- ----
<S> <C> <C>
2(a)(i) --Amended Joint Plan of Reorganization of Walter Industries, Inc. and certain
of its subsidiaries, dated as of December 9, 1994 (1)
</TABLE>
<TABLE>
<CAPTION>
EXHIBIT
NUMBER DESCRIPTION
- ------------- -------------------------------------------------------------------------------
<S> <C>
2(a)(ii) --Modification to the Amended Joint Plan of Reorganization of Walter
Industries, Inc. and certain of its subsidiaries, as filed in the Bankruptcy
Court on March 1, 1995 (2)
2(a)(iii)** --Findings of Fact, Conclusions of Law and Order Confirming Amended Joint Plan
of Reorganization of Walter Industries, Inc. and certain of its subsidiaries,
as modified
3(a)** --Restated Certificate of Incorporation of the Company
3(b)** --By-Laws of the Company
4(a)(i)** --Restated Certificate of Incorporation of the Company (see Exhibit 3(a))
4(a)(ii)** --By-Laws of the Company (see Exhibit 3(b))
4(b)** --Specimen Stock Certificate
4(c)(i) --12.19% Series B Senior Note Indenture (3)
4(c)(ii) --Form of Company Pledge Agreement (included as Exhibit B to Exhibit 4(c)(i))
(3)
4(c)(iii) --Form of Subsidiary Pledge Agreement (included as Exhibit C to Exhibit
4(c)(i)) (3)
4(c)(iv) --Form of 12.19% Series B Senior Note Certificate (included as Exhibit A to
Exhibit 4(c)(i)) (3)
5 --Opinion of Simpson Thacher & Bartlett regarding legality of the securities
being registered
10(a)** --Stockholder's Agreement
10(b)(i)** --Form of Common Stock Registration Rights Agreement
10(b)(ii) --Form of Senior Note Registration Rights Agreement (3)
10(b)(iii)** --Channel One Registration Rights Agreement
10(c)** --Durham Employment Agreement
10(d) --Second Amended and Restated Veil Piercing Settlement Agreement (included as
Exhibit 3A to Exhibit 2(a)(i)) (1)
10(e) --12.19% Series B Senior Note Indenture (see Exhibit 4(c)) (3)
10(f) --Bank Revolving Credit Facility (5)
10(g)** --Director and Officer Indemnification Agreement, dated as of March 3, 1995,
among the Company and the Indemnitees parties thereto
10(h)** --New Alabama Power Contract (4)
10(i)** --Escrow Agreement, dated as of September 12, 1995, between the Company and
Harris Trust and Savings Bank, as Escrow Agent
10(j)** --Walter Industries, Inc. Directors' Deferred Fee Plan
10(k)** --1995 Long-Term Incentive Stock Plan of Walter Industries, Inc. (6)
10(l)** --Agreement, dated as of August 30, 1995, between the Company and James W.
Walter
21** --Subsidiaries of the Company
23(a) --Consent of Price Waterhouse LLP
23(b) --Consent of Simpson Thacher & Bartlett (included in their opinion filed as
Exhibit 5 hereto)
24** --Powers of Attorney
27** --Financial Data Schedule
</TABLE>
- ------------
** Previously filed
(1) This Exhibit is incorporated by reference to the Application for
Qualification of Indenture on Form T-3 filed by the Company with the
Commission on February 6, 1995.
(2) This Exhibit is incorporated by reference to Amendment No. 2 to the
Application for Qualification of Indenture on Form T-3 filed by the Company
with the Commission on March 7, 1995.
(3) This Exhibit is incorporated by reference to the Registration Statement on
Form S-1 (File No. 33-59021) filed by the Company with the Commission on May
2, 1995.
(4) Portions of this document have been omitted pursuant to a request for
confidential treatment.
(5) This Exhibit is incorporated by reference to Amendment No. 1 to the
Registration Statement on Form S-1 (File No. 33-59021) filed by the Company
with the Commission on May 2, 1995.
(6) This Exhibit is incorporated by reference to the Proxy Statement on Schedule
14A filed by the Company with the Commission on September 11, 1995.
Exhibit 5
[SIMPSON THACHER & BARTLETT LETTERHEAD]
October 6, 1995
Walter Industries, Inc.
1500 North Dale Mabry Highway
Tampa, FL 33607
We have acted as special counsel to Walter Industries, Inc., a
Delaware corporation (the "Company"), in connection with the proposed sale
of up to 31,911,136 shares (the "Shares") of Common Stock, par value $0.01
per share, of the Company by the holders of such Shares, as described in
the Registration Statement on Form S-1 (File No. 33-59013), as amended (the
"Registration Statement"), filed by the Company under the Securities Act of
1933, as amended. The Shares may be sold to the public from time to time
in the amounts and manner set forth in the Registration Statement, any
amendment thereto, the prospectus contained therein (the "Prospectus") and
any supplements to the Prospectus.
We have examined the Registration Statement and a specimen of the
Common Stock certificates. In addition, we have examined, and have relied
as to matters of fact upon, original or copies, certified or otherwise
identified to our satisfaction, of such corporate records, agreements,
documents and other instruments and such certificates or comparable
documents of public officials and of officers and representatives of the
<PAGE>
Walter Industries, Inc. -2- October 6, 1995
Company, and have made such other and further investigations, as we have
deemed relevant and necessary as a basis for the opinion hereinafter set
forth.
In such examination, we have assumed the genuineness of all
signatures, the legal capacity of natural persons, the authenticity of all
documents submitted to us as originals, the conformity to original
documents of all documents submitted to us as certified or photostatic
copies, and the authenticity of the originals of such latter documents.
Based upon the foregoing, and subject to the qualifications and
limitations stated herein, we hereby advise you that in our opinion the
Shares have been duly authorized by the Company and are validly issued,
fully paid and nonassessable.
We are members of the Bar of the State of New York and we do not
express any opinion herein concerning any law other than the law of the
State of New York, the federal law of the United States and the Delaware
General Corporation Law.
This opinion is rendered to you in connection with the above
described transactions. This opinion may not be relied upon by you for any
other purpose, or relied upon by or furnished to, any other person, firm or
corporation without our prior written consent.
<PAGE>
Walter Industries, Inc. -3- October 6, 1995
We hereby consent to the filing of this opinion of counsel as
Exhibit 5 to the Registration Statement and to the use of our name under
the caption "Legal Matters" in the Registration Statement.
Very truly yours,
/s/ SIMPSON THACHER & BARTLETT
SIMPSON THACHER & BARTLETT
EXHIBIT 23(a)
CONSENT OF INDEPENDENT CERTIFIED PUBLIC ACCOUNTANTS
We hereby consent to the use in the Prospectus constituting part of this
Amendment No. 3 to the Registration Statement on Form S-1 of our report
dated July 12, 1995, relating to the consolidated financial statements of
Walter Industries, Inc. and its subsidiaries, which appears in such
Prospectus. We also consent to the application of such report to the
Financial Statement Schedules for the three years ended May 31, 1995
listed under Item 16(b) of this Registration Statement when such schedules
are read in conjunction with the financial statements referred to in our
report. The audits referred to in such report also included these schedules.
We also consent to the reference to us under the heading "Experts" in such
Prospectus.
/s/ Price Waterhouse LLP
- -----------------------------
Price Waterhouse LLP
Tampa, Florida
October 6, 1995
