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SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D. C. 20549
FORM 10-Q
/X/ QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d)
OF THE SECURITIES EXCHANGE ACT OF 1934
For the quarterly period ended August 31, 1996
or
/ / TRANSITION REPORT PURSUANT TO SECTION 13 OR 15 (d) OF
THE SECURITIES EXCHANGE ACT OF 1934
Commission File Number 000-20537
WALTER INDUSTRIES, INC.
Incorporated in Delaware IRS Employer Identification No. 13-3429953
1500 North Dale Mabry, Tampa, Florida 33607
Telephone Number 813-871-4811
Indicate by check mark whether the registrant (1) has filed all reports required
to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during
the preceding 12 months, and (2) has been subject to such filing requirements
for the past 90 days. Yes X . No .
--- ---
Indicate by check mark whether the registrant has filed all documents and
reports required to be filed by Sections 12, 13, or 15(d) of the Securities
Exchange Act of 1934 subsequent to the distribution of securities under a plan
confirmed by a court. Yes X . No .
--- ---
There were 54,868,335 shares of common stock of the registrant outstanding at
September 30, 1996.
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2
PART I - FINANCIAL INFORMATION
WALTER INDUSTRIES, INC. AND SUBSIDIARIES
CONSOLIDATED CONDENSED BALANCE SHEET
(UNAUDITED)
August 31, May 31,
1996 1996
----------- -----------
(in thousands)
ASSETS
Cash (includes short-term investments of
$43,200,000 and $64,338,000) (Note 3) $ 64,284 $ 81,881
Short-term investments, restricted (Note 3) 177,720 175,432
Instalment notes receivable (Note 4) 4,223,045 4,208,252
Less - Provision for possible losses ( 26,219) ( 26,138)
Unearned time charges (2,865,058) (2,851,961)
Trade and other receivables, less $8,145,000
and $8,180,000 provision for possible losses 173,637 191,722
Inventories, at lower of cost (first in,
first out or average) or market:
Finished goods 113,956 124,456
Goods in process 32,565 32,798
Raw materials and supplies 51,207 51,674
Houses held for resale 2,313 2,517
Prepaid expenses 8,802 11,937
Property, plant and equipment, at cost 905,894 888,991
Less - Accumulated depreciation,
depletion and amortization ( 364,411) ( 347,455)
Investments and other assets 51,806 51,617
Deferred income taxes 144,938 155,171
Unamortized debt expense 27,858 29,548
Excess of purchase price over net
assets acquired (Note 2) 301,933 310,935
----------- -----------
$ 3,024,270 $ 3,091,377
----------- -----------
----------- -----------
LIABILITIES AND STOCKHOLDERS' EQUITY
Bank overdrafts (Note 3) $ 15,755 $ 28,194
Accounts payable and accrued expenses 184,317 194,807
Income taxes payable 56,194 56,238
Long-term senior debt:
Mortgage-backed /asset backed notes (Note 4) 1,763,717 1,791,946
Other senior debt 389,950 419,350
Accrued interest 26,825 28,819
Accumulated postretirement health
benefits obligation 253,217 247,827
Other long-term liabilities 47,382 47,502
Stockholders' equity (Note 6):
Common stock 549 549
Capital in excess of par value 1,159,331 1,159,332
Retained earnings (deficit) ( 867,641) ( 877,861)
Excess of additional pension liability over
unrecognized prior years service cost ( 5,326) ( 5,326)
----------- -----------
Total stockholders' equity 286,913 276,694
----------- -----------
$ 3,024,270 $ 3,091,377
----------- -----------
----------- -----------
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3
WALTER INDUSTRIES, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENT OF OPERATIONS
(UNAUDITED)
For the three months ended
August 31,
------------------------
1996 1995
--------- ---------
(in thousands except
per share amounts)
Sales and revenues:
Net sales $ 306,229 $ 316,107
Time charges 57,590 56,355
Miscellaneous 5,844 7,686
--------- ---------
369,663 380,148
--------- ---------
Costs and expenses:
Cost of sales 234,960 249,833
Depreciation, depletion and amortization 17,582 18,517
Selling, general and administrative 33,263 33,104
Postretirement health benefits 6,447 6,679
Provision for possible losses 739 938
Interest and amortization of debt expense 46,534 54,581
Amortization of excess of purchase price
over net assets acquired (Note 2) 9,002 10,225
--------- ---------
348,527 373,877
--------- ---------
21,136 6,271
Income tax expense:
Current ( 683) ( 761)
Deferred ( 10,233) ( 5,269)
--------- ---------
Net income $ 10,220 $ 241
--------- ---------
--------- ---------
Net income per share: $ .19 $ -
--------- ---------
--------- ---------
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4
WALTER INDUSTRIES, INC. AND SUBSIDIARIES
CONSOLIDATED CONDENSED STATEMENT OF CASH FLOWS
(UNAUDITED)
For the three months ended
August 31,
------------------------
1996 1995
--------- ---------
(in thousands)
OPERATIONS
Net income $ 10,220 $ 241
Charges to income not affecting cash:
Depreciation, depletion and amortization 17,582 18,517
Provision for deferred income taxes 10,233 5,269
Accumulated postretirement health
benefits obligation 5,390 5,268
Provision for other long-term liabilities ( 120) ( 88)
Amortization of excess purchase price
over net assets acquired 9,002 10,225
Amortization of debt expense 1,849 1,942
--------- ---------
54,156 41,374
Decrease (increase) in:
Short-term investments, restricted ( 2,288) ( 12,827)
Instalment notes receivable, net (Note 4) ( 1,615) 11 283
Trade and other receivables, net 18,085 4,194
Inventories 11,404 11,832
Prepaid expenses 3,135 3,053
Increase (decrease) in:
Bank overdrafts (Note 3) ( 12,439) ( 9,046)
Accounts payable and accrued expenses ( 10,025) ( 25,420)
Income taxes payable ( 44) 377
Accrued interest ( 1,994) 13,594
--------- ---------
Cash flows from operations 58,375 38,414
--------- ---------
FINANCING ACTIVITIES
Issuance of long-term debt 20,000 -
Retirement of long-term senior debt ( 77,629) ( 38,743)
Additions to unamortized debt expense ( 159) ( 172)
Payment of liabilities subject to
Chapter 11 proceedings (Note 2) ( 465) ( 31,984)
Fractional share payments ( 1) -
--------- ---------
Cash flows from financing activities ( 58,254) ( 70,899)
--------- ---------
INVESTING ACTIVITIES
Additions to property, plant and
equipment, net of normal retirements ( 17,529) ( 12,575)
Decrease (increase) in investments and other
assets ( 189) 101
--------- ---------
Cash flows from investing activities ( 17,718) ( 12,474)
--------- ---------
Net decrease in cash and cash equivalents ( 17,597) ( 44,959)
Cash and cash equivalents at beginning of period 81,881 128,007
--------- ---------
Cash and cash equivalents at end of period
(Note 3) $ 64,284 $ 83,048
--------- ---------
--------- ---------
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5
WALTER INDUSTRIES, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED CONDENSED FINANCIAL STATEMENTS
AUGUST 31, 1996
(Unaudited)
Note 1 - Principles of Consolidation
Walter Industries, Inc.(the "Company") through its direct and indirect
subsidiaries currently offers a diversified line of products and services for
homebuilding, water and waste water transmission, coal mining and related
degasification, residential and non-residential construction, and industrial
markets. The consolidated financial statements include the accounts of the
Company and all of its subsidiaries. Preparation of financial statements in
accordance with generally accepted accounting principles requires management to
make estimates and assumptions that affect the amounts reported in the
consolidated financial statements. Actual amounts could differ from those
estimates. All significant intercompany balances have been eliminated. All of
the amounts are unaudited but in the opinion of management, all adjustments,
consisting only of normal recurring adjustments necessary for a fair
presentation have been made. The results for the three months ended August 31,
1996 and 1995 are not necessarily indicative of results for a full fiscal year.
These financial statements should be read in conjunction with the Company's
consolidated financial statements and notes thereto in the Company's Annual
Report on Form 10-K for the year ended May 31, 1996. Unless otherwise
specified, capitalized terms used herein are as defined in the aforementioned
Form 10-K.
Note 2 - Recent History
The Company was organized in 1987 for the purpose of acquiring Jim Walter
Corporation ("Original Jim Walter"). The Company's financial statements reflect
the allocation of the purchase price of Original Jim Walter based upon the fair
value of the assets acquired and the liabilities assumed. On December 27,
1989, the Company and most of its subsidiaries each filed a voluntary petition
for reorganization under Chapter 11 of Title 11 of the United States Code in the
United States Bankruptcy Court for the Middle District of Florida, Tampa
Division (the "Bankruptcy Court"). The Company emerged from bankruptcy on March
17, 1995 (the "Effective Date") pursuant to the Amended Joint Plan of
Reorganization Dated as of December 9, 1994, as modified on March 1, 1995 (as so
modified the "Consensual Plan"). Despite the confirmation and effectiveness of
the Consensual Plan, the Bankruptcy Court continues to have jurisdiction over,
among other things, the resolution of disputed prepetition claims against the
Company and other matters that may arise in connection with or relate to the
Consensual Plan.
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 into 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 (i) include temporary investment of reserve
funds and collections on instalment notes receivable owned by Mid-State Trusts
II, III, IV and V ($101,368,000) which are available only to pay expenses of the
Trusts and principal and interest on indebtedness of the Trusts, (ii) certain
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6
funds held by Trust II that are in excess of the amount required to be paid for
expenses, principal and interest on the Trust II Mortgage-Backed Notes but which
are subject to retention ($55,589,000) and (iii) miscellaneous other segregated
accounts restricted to specific uses ($20,763,000).
Note 4 - Instalment Notes Receivable
The net increase in instalment notes receivable for the three month period ended
August 31, 1996 and the net decrease for the three month period ended August 31,
1995 consists of sales and resales, net of repossessions and provision for
possible losses, of $44,567,000 and $36,250,000 and cash collections on account,
payouts in advance of maturity and reductions in account balances (in the three
months ended August 31, 1995 resulting from settlement agreements entered into
with South Carolina and Texas homeowners) of $42,952,000 and $47,533,000,
respectively.
Mid-State Trusts II, III, and IV are business trusts organized by Mid-State
Homes, Inc. ("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 with 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 with outstanding balances at August 31, 1996 of $475,250,000,
$138,753,000, and $884,714,000, respectively. 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 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 August 31, 1996 of $4,223,045,000 with an
economic balance of $2,018,280,000, receivables owned by Trust II had a gross
book value of $1,113,519,000 and an economic balance of $693,702,000,
receivables owned by Trust III had a gross book value of $403,485,000 and an
economic balance of $211,841,000, and receivables owned by Trust IV had a gross
book value of $1,744,153,000 and an economic balance of $746,253,000. Mid-State
Trust V, a business trust in which Mid-State Homes holds all the beneficial
interest, was organized to hold instalment notes receivable as collateral for
borrowings to provide temporary financing to Mid-State for its current purchases
of instalment notes and mortgages from Jim Walter Homes, Inc. At August 31,
1996, receivables owned by Mid-State Trust V had a gross book value of
$958,709,000 and an economic balance of $365,212,000, with outstanding
borrowings of $265,000,000.
Note 5 - Litigation and Other Matters
VEIL PIERCING LITIGATION
On July 12, 1996, in the Celotex bankruptcy, two competing plans of
reorganization were filed with the Celotex Bankruptcy Court, one by Celotex, the
Asbestos Bodily Injury Claimants Committee and others (the "Bodily Injury Plan")
and the other by the Asbestos Property Damage Claimants Committee (the "Property
Damage Plan"). The Company filed objections to both plans, on the grounds that
they did not comply fully with the Veil-Piercing Settlement. On August 23,
1996, both the Bodily Injury Plan proponents and the Property Damage Plan
proponent filed amended plans. The Property Damage Plan, as amended, provided
for a Section 524(g) injunction as to all claimants. The Bodily Injury Plan, as
amended, provided for a Section 524(g) injunction as to all claimants but
reserved the right to seek confirmation of the Bodily Injury Plan even if the
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7
asbestos property damage claimants class voted against that plan. The Company
filed an objection to the Bodily Injury Plan, as amended, on the grounds that it
did not comply fully with the Veil-Piercing Settlement.
On October 7, 1996, Celotex and various other parties in the Celotex bankruptcy
announced to the Celotex Bankruptcy Court that an agreement had been reached
between Bodily Injury Plan proponents and the Property Damage Plan proponent
pursuant to which the Bodily Injury Plan proponents agreed to file with the
Celotex Bankruptcy Court a Modified Joint Plan of Reorganization (the "Modified
Plan") which will provide, among other things, for revised treatment of asbestos
property damage claims. In accordance with the agreement the Modified Plan was
filed with the Celotex Bankruptcy Court on October 8, 1996 and supersedes and
replaces the Bodily Injury Plan and the Property Damage Plan. The Modified Plan
contains a provision for a Section 524(g) injunction as to all asbestos
claimants. The Modified Plan requires the approval of Celotex' creditors and
confirmation by the Celotex Bankruptcy Court. A confirmation hearing concerning
the Modified Plan is currently scheduled to commence on November 18, 1996.
Note 6 - Stockholders' Equity
The Company is authorized to issue 200,000,000 shares of common stock, $.01 par
value. As of August 31, 1996, there were 54,868,335 shares of common stock
outstanding. Pursuant to the Consensual Plan, 3,880,140 shares of common stock
were issued to an escrow account on September 13, 1995. 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 canceled.
Note 7 - Segment Information
Information relating to the Company's business segments is set forth on the
following page.
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8
For the three months ended
August 31,
------------------------
1996 1995
--------- ---------
(in thousands)
Sales and Revenues:
Homebuilding and related financing $ 110,929 $ 100,764
Water and waste water transmission products 111,695 119,448
Natural resources 74,393 89,515
Industrial and other products 72,365 69,559
Corporate 281 862
--------- ----------
Consolidated sales and revenues $ 369,663 $ 380,148
--------- ----------
--------- ----------
Contributions to Operating Income (a):
Homebuilding and related financing $ 19,153 $ 13,884
Water and waste water transmission products 6,958 8,817
Natural resources 9,789 7,124
Industrial and other products 4,476 1,867
--------- ----------
40,376 31,692
Less-Unallocated corporate interest and
other expense (b) ( 19,240) ( 25,421)
Income tax expense ( 10,916) ( 6,030)
--------- ----------
Net income $ 10,220 $ 241
--------- ----------
--------- ----------
(a) - Operating income amounts are after deducting amortization of excess of
purchase price over net assets acquired (goodwill) of $9,002,000 in 1996
and $10,225,000 in 1995. A breakdown by segment is as follows:
For the three months ended
August 31,
------------------------
1996 1995
--------- ---------
(in thousands)
Homebuilding and related financing $ 7,409 $ 8,125
Water and waste water transmission products 3,079 3,079
Natural resources ( 334) ( 335)
Industrial and other products 158 664
Corporate (1,310) (1,308)
------- -------
$ 9,002 $10,225
------- -------
------- -------
(b) - Excludes interest expense incurred by the Homebuilding and Related
Financing Group of $30,605,000 in 1996 and $31,653,000 in 1995. The
balance of unallocated expenses consisting of unallocated interest and
corporate expenses are attributable to all groups and cannot be reasonably
allocated to specific groups.
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9
MANAGEMENT'S DISCUSSION AND ANALYSIS OF
RESULTS OF OPERATIONS AND FINANCIAL CONDITION
Results of Operations
THREE MONTHS ENDED AUGUST 31, 1996 AND 1995
Net sales and revenues for the three months ended August 31, 1996 were $10.5
million, or 2.8%, below the prior year. The lower performance resulted from a
6.3% decrease in volume, partially offset by a 3.5% increase in pricing and/or
mix. The decrease in sales and revenues was due to lower sales and revenues in
the Water and Waste Water Transmission Products and Natural Resources Groups,
partially offset by higher sales and revenues from the Homebuilding and Related
Financing and Industrial and Other Products Groups.
Water and Waste Water Transmission Products Group sales and revenues were $7.8
million, or 6.5%, below the prior year period. The decrease was the result of
lower sales volumes for ductile iron pressure pipe and fittings, partially
offset by higher sales prices. The order backlog at August 31, 1996 was 131,615
tons, which represents approximately three months shipments compared with
124,456 tons at August 31, 1995. Operating income of $7.0 million was $1.9
million below the prior year period. This performance was the result of the
lower sales volume, partially offset by the higher sales prices and reduced raw
material costs, especially scrap, a major raw material component.
Natural Resources Group sales and revenues were $15.1 million, or 16.9%, below
the prior year period. The decrease resulted from lower sales volumes for coal
due to reduced production levels at three of the Group's coal mines, especially
at Blue Creek Mine No. 5 ("Mine No. 5"), where development of a new mining area
is in progress, and reduced royalty income, partially offset by higher average
selling prices for coal and methane gas and greater methane gas sales volume. A
total of 1.49 million tons of coal was sold in the 1996 period versus 1.92
million tons in the 1995 period, a 22% decline. The decrease in tonnage sold
was the result of lower shipments to Alabama Power Company ("Alabama Power")
and certain export customers. The average price per ton of coal sold increased
$1.95 from $42.49 in the 1995 period to $44.44 in 1996 due to higher prices
realized in the worldwide metallurgical market and a greater percentage of the
tonnage sold going to Alabama Power at above-market, contract prices. 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, Alabama State Mine Inspectors and the United Mine
Workers of America 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. As a
result of the fire, the Company and Jim Walter Resources claimed compensable
losses in the amount of $25 million under their business interruption insurance
coverage. When the insurers refused to pay their pro rata part of the claim,
the Company commenced litigation seeking to enforce such insurance. The
insurers issued policies insuring various percentages of the risk. The Company
entered into settlements with several insurers who, in the aggregate,
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10
have paid approximately $11.7 million, reducing the contract claims in the
lawsuit to $12.7 million. The Company and Jim Walter Resources continue to
pursue the litigation against the remaining carriers, and a trial is tentatively
scheduled for October 21, 1996. In late November 1995, Mine No. 5 experienced
another fire due to the unexpected recurrence of spontaneous combustion heatings
and the mine was shut down. Efforts to contain and extinguish the fire were
successful; however, conditions dictated the mine be shut down for several
weeks. Firefighting and idle plant costs associated with the November 1995 fire
were not insured since spontaneous combustion heatings caused by pyritic sulfur
concentrations in Jim Walter Resources' Mines No. 4 and No. 5 are now excluded
from the Company's and Jim Walter Resources' insurance policies. The affected
coal panels on the western side of the mine have been sealed off and development
work is under way on the eastern side of Mine No. 5. Longwall production on the
east side is expected to commence in the fourth quarter of fiscal 1997. While
in development, the mine's costs are being capitalized. Total development costs
for the three months ended August 31, 1996 were $3.2 million. Jim Walter
Resources' three other operating mines remain in full production. The Group's
operating income of $9.8 million exceeded the prior year period by $2.7 million.
This performance was due to a $4.7 million credit from settlement of a legal
claim relating to a theft of coal inventory from the Port of Mobile, Alabama
(settlement was reached with one party under a confidentiality agreement, but
there is still an action pending against other parties in Alabama State Court)
combined with the higher selling prices for coal and methane gas and greater
methane gas sales volume, partially offset by the reduced coal sales volume and
lower mining productivity which resulted in higher costs per ton of coal
produced ($38.87 in the 1996 period versus $34.50 in 1995).
Homebuilding and Related Financing sales and revenues were $10.2 million, or
10.1%, greater than the prior year period. The performance reflects an 11.2%
increase in the average net selling price per home sold, from $41,900 in the
1995 period to $46,600 in 1996, combined with a 10.2% increase in the number of
homes sold, from 925 units in 1995 to 1,019 units in 1996. The higher average
net selling price reflects a greater percentage of "90% complete" homes sold in
the current year period. The increase in unit sales reflects the decision by
Jim Walter Homes in December 1995 to reduce its financing rate to 8.5% from 10%
for its "90% complete" homes on a trial basis to generate additional unit sales.
In March 1996 the lower rate was formally advertised. Jim Walter Homes' backlog
at August 31, 1996 was 2,073 units compared to 1,770 units at August 31, 1995, a
17% increase. Time charge income (revenues received from Mid-State Homes'
instalment note portfolio) increased from $56.4 million in the 1995 period to
$57.6 million in 1996. The increase is attributable to increased payoffs
received in advance of maturity and to an increase in the average balance per
account in the portfolio, partially offset by a reduction in the total number of
accounts. Operating income of $19.2 million (net of interest expense) was $5.3
million greater than the prior year period. The performance was due to the
increase in the average net selling price and number of homes sold, higher time
charge income and lower interest expense in the 1996 period ($30.6 million) as
compared to that incurred in 1995 ($31.7 million), partially offset by slightly
lower homebuilding gross profit margins due to higher lumber costs.
Industrial and Other Products Group sales and revenues were $2.8 million, or
4.0%, greater than the prior year period. Increased sales prices for furnace
and foundry coke and window components combined with improved sales volumes for
aluminum foil and sheet products, chemicals, resin
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11
coated sand and metal building and foundry products were partially offset by
lower sales prices for aluminum foil and sheet products and reduced sales
volumes of furnace and foundry coke, slag wool and window components. Operating
income of $4.5 million exceeded the prior year period by $2.6 million. The
improved performance resulted from a return to profitability of the window
components business which absorbed losses last year stemming from a major
consolidation of its manufacturing operations. In addition, improved profit
margins were realized on furnace and foundry coke, resin coated sand and metal
building and foundry products.
Cost of sales, exclusive of depreciation, of $235.0 million was 76.7% of net
sales in the 1996 period versus $249.8 million and 79.0% in 1995. The cost of
sales decrease was primarily the result of improved gross profit margins for
window components, furnace and foundry coke, resin coated sand and metal
building and foundry products, combined with the $4.7 million credit from the
coal inventory theft settlement.
Depreciation, depletion and amortization expense of $17.6 million was $.9
million below the prior year period. The decrease primarily reflects the write-
down of fixed assets at two coal mines in the Natural Resources Group in the
fiscal 1996 third quarter.
Selling, general and administrative expenses of $33.3 million were 9.0% of net
sales and revenues in the 1996 period versus $33.1 million and 8.7% in 1995.
Interest and amortization of debt expense was $46.5 million in the 1996 period
versus $54.6 million in 1995 reflecting lower outstanding debt balances and
reduced interest rates resulting from the refinancing completed January 22,
1996. The average rate of interest in the 1996 period was 8.15% as compared to
9.49% in 1995. The prime rate of interest was 8.25% in the 1996 period compared
to a range of 8.75% to 9.0% in 1995.
The Company's effective tax rate in the 1996 and 1995 periods differed from the
statutory tax rate due to amortization of excess of purchase price over net
assets acquired (goodwill) which is not deductible for tax purposes.
The net income in the 1996 period was $10.2 million compared to net income of
$241,000 in the 1995 period reflecting all of the previously mentioned factors
as well as the impact of lower goodwill amortization in 1996.
Financial Condition
On March 17, 1995, the Company and its subsidiaries emerged from bankruptcy.
Pursuant to the Consensual Plan, the Company has repaid substantially all of its
unsecured claims and senior and subordinated indebtedness subject to the Chapter
11 reorganization proceedings. Despite the confirmation and effectiveness of
the Consensual Plan, the Bankruptcy Court continues to have jurisdiction over
among other things, the resolution of disputed prepetition claims against the
Company and other matters that may arise in connection with or relate to the
Consensual Plan.
A substantial controversy exists with regard to federal income taxes allegedly
owed by the Company. Proofs of claim have been filed by the
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12
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. The Company
believes that such proofs of claim are substantially without merit and intends
to vigorously defend such claims against the Company, but there can be no
assurance as to the ultimate outcome.
Since May 31, 1996, total debt has decreased $57.6 million resulting from early
repayment on the Credit Facilities debt ($25.0 million), quarterly principal
payments on the Credit Facilities ($4.0 million), Mid-State Trust II Mortgage-
Backed Notes ($21.7 million), Mid-State Trust III Asset Backed Notes ($8.9
million) and Mid-State Trust IV Asset Backed Notes ($17.6 million) and scheduled
retirements of other long-term debt ($0.4 million), partially offset by the
issuance of long-term debt under the Mid-State Trust V Variable Funding Loan
Agreement ($20.0 million).
The Credit Facilities contain a $365 million revolving credit facility which
includes a sub-facility for trade and other standby letters of credit in an
amount up to $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. At August 31, 1996, $33.1 million of letters of credit were
outstanding under this facility.
The Credit Facilities and the Mid-State Trust V Variable Funding Loan Agreement
contain a number of significant covenants that, among other things, restrict the
ability of the Company and its subsidiaries to dispose of assets, incur
additional indebtedness, pay dividends, create liens on assets, enter into
leases, make investments or acquisitions, engage in mergers or consolidations or
engage in certain transactions with subsidiaries and affiliates and otherwise
restrict corporate activities (including change of control and asset sale
transactions). In addition, under the Credit Facilities, the Company is
required to maintain specified financial ratios and comply with certain
financial tests, including interest coverage, fixed charge coverage ratios and
maximum leverage ratios, some of which become more restrictive over time. The
Company was in full compliance with these covenants at August 31, 1996 and
believes it will meet these financial tests over the remaining terms of these
debt agreements.
Liquidity and Capital Resources
At August 31, 1996, cash and short-term investments, net of bank overdrafts were
approximately $48.5 million. Operating cash flows for the three months ended
August 31, 1996 together with issuance of long-term debt under the Mid-State
Trust V Variable Funding Loan Agreement and the use of available cash balances
were primarily used for retirement of long-term senior debt, interest payments
and capital expenditures.
Working capital is required to fund adequate levels of inventories and accounts
receivable. Commitments for capital expenditures at August 31, 1996 were not
material; however, it is estimated that gross capital expenditures of the
Company and its subsidiaries for the balance of the year ending May 31, 1997
will approximate $81 million.
<PAGE>
13
Because the Company's operating cash flow is significantly influenced by the
general economy and, in particular, the level of construction, current results
should not necessarily be used to predict the Company's liquidity, capital
expenditures, investment in instalment notes receivable or results of
operations. The Company believes that the Mid-State Trust V Variable Funding
Loan Agreement will provide Mid-State Homes with the funds needed to purchase
the instalment notes and mortgages generated by Jim Walter Homes. It is
contemplated that one or more permanent financings similar to the Mid-State
Trusts II, III and IV financings will be required over the next several years to
repay borrowings under the Mid-State Trust V Variable Funding Loan Agreement.
The Company believes that under present operating conditions sufficient
operating cash flow will be generated to make all required interest and
principal payments and planned capital expenditures and meet substantially all
operating needs and that amounts available under the Credit Facilities will be
sufficient to meet peak operating needs.
<PAGE>
14
PART II - OTHER INFORMATION
Item 1. LEGAL PROCEEDINGS
See Note 5 of Notes to Consolidated Condensed Financial Statements
contained in Part I - Financial Information
Item 6. EXHIBITS AND REPORTS ON FORM 8-K
(a) Exhibit 11 - Earnings per share calculation for the three months
ended August 31, 1996 and 1995
Exhibit 27 - Financial Data Schedule
(b) The Company did not file any reports on Form 8-K during the three
months ended August 31, 1996.
SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of 1934, the
Registrant has duly caused this report to be signed on its behalf by the
undersigned thereunto duly authorized.
WALTER INDUSTRIES, INC.
/s/ D. M. Fjelstul /s/ F. A. Hult
- --------------------------- --------------------------------
D. M. Fjelstul F. A. Hult
Senior Vice President and Vice President and Controller
Principal Financial Officer and Principal Accounting Officer
Date: October 15, 1996
----------------
<PAGE>
Exhibit 11
NET INCOME PER SHARE CALCULATION
(in thousands, except per share amounts)
Three months ended Three months ended
August 31, 1996 August 31, 1995
------------------ -----------------
Dollars Shares Dollars Shares
-------- ------- ------- -------
Net income $ 10,220 $ 241
-------- -------
-------- -------
Primary weighted average
shares of common stock
outstanding 54,868 50,494
------ ------
------ ------
Fully diluted weighted
average shares of common
stock outstanding (a) 54,868 50,494
------ ------
------ ------
Per share (primary) $ .19 $ -
------ ------
------ ------
Per share (fully diluted) $ .19 $ -
------ ------
------ ------
(a) For the three months ended August 31, 1996, does not include 2,704,000
shares subject to options because such options would have an anti-dilutive
effect in such period.
<TABLE> <S> <C>
<PAGE>
<ARTICLE> 5
<LEGEND>
This schedule contains summary financial information extracted from the
Consolidated Financial Statements and related notes thereto and is qualified in
its entirety by reference to such financial statements and related notes.
</LEGEND>
<MULTIPLIER> 1,000
<S> <C>
<PERIOD-TYPE> 3-MOS
<FISCAL-YEAR-END> MAY-31-1997
<PERIOD-START> JUN-01-1996
<PERIOD-END> AUG-31-1996
<CASH> 64,284
<SECURITIES> 177,720
<RECEIVABLES> 1,539,769
<ALLOWANCES> ( 34,364)
<INVENTORY> 200,041
<CURRENT-ASSETS> 0 <F1>
<PP&E> 905,894
<DEPRECIATION> ( 364,411)
<TOTAL-ASSETS> 3,024,270
<CURRENT-LIABILITIES> 0 <F1>
<BONDS> 2,153,667
<COMMON> 549
0 <F1>
0 <F1>
<OTHER-SE> 286,364
<TOTAL-LIABILITY-AND-EQUITY> 3,024,270
<SALES> 306,229
<TOTAL-REVENUES> 369,663
<CGS> 234,960
<TOTAL-COSTS> 50,845
<OTHER-EXPENSES> 15,449
<LOSS-PROVISION> 739
<INTEREST-EXPENSE> 46,534
<INCOME-PRETAX> 21,136
<INCOME-TAX> ( 10,916)
<INCOME-CONTINUING> 10,220
<DISCONTINUED> 0 <F1>
<EXTRAORDINARY> 0 <F1>
<CHANGES> 0 <F1>
<NET-INCOME> 10,220
<EPS-PRIMARY> .19
<EPS-DILUTED> 0 <F1>
<FN>
<F1>This line item is not presented on the Consolidated Financial Statements.
</FN>
</TABLE>
