<PAGE>
UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D. C. 20549
FORM 10-Q
/x/ QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d)
OF THE SECURITIES EXCHANGE ACT OF 1934
For the quarterly period ended August 31, 1997
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 55,071,724 shares of common stock of the registrant outstanding at
September 30, 1997.
<PAGE>
PART I - FINANCIAL INFORMATION
------------------------------
WALTER INDUSTRIES, INC. AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEET
(UNAUDITED)
<TABLE>
<CAPTION>
August 31, May 31,
1997 1997
----------- -----------
(in thousands)
ASSETS
- ------
<S> <C> <C>
Cash and cash equivalents $ 27,719 $ 35,782
Short-term investments, restricted 205,169 195,371
Marketable securities 38,588 41,222
Instalment notes receivable 4,271,503 4,256,845
Less - Provision for possible losses (26,476) (26,394)
Unearned time charges (2,909,083) (2,896,517)
Trade and other receivables, less provision for possible
losses of $8,251 and $8,225, respectively 191,460 182,891
Inventories, at lower of cost (first in, first out
or average) or market:
Finished goods 95,754 117,949
Goods in process 34,253 32,291
Raw materials and supplies 51,052 52,066
Houses held for resale 3,065 3,068
Prepaid expenses 9,161 11,862
Property, plant and equipment, at cost 997,523 978,006
Less - Accumulated depreciation,
depletion and amortization (426,989) (409,830)
Investments and other assets 46,925 46,783
Deferred income taxes 97,126 109,023
Unamortized debt expense 33,161 22,793
Excess of purchase price over net assets acquired 267,407 274,174
----------- -----------
$ 3,007,318 $ 3,027,385
=========== ===========
LIABILITIES AND STOCKHOLDERS' EQUITY
- ------------------------------------
Bank overdrafts $ 23,777 $ 25,523
Accounts payable 71,412 86,418
Accrued expenses 113,035 131,768
Income taxes payable 59,345 58,884
Long-term senior debt:
Mortgage-backed/asset backed notes 1,820,464 1,752,125
Other senior debt 261,243 313,450
Accrued interest 26,345 23,220
Accumulated postretirement health benefits obligation 272,454 268,959
Other long-term liabilities 47,247 47,626
Stockholders' equity
Common stock 551 551
Capital in excess of par value 1,164,579 1,164,261
Retained earnings (deficit) (826,679) (840,744)
Excess of additional pension liability over
unrecognized prior years service cost (4,656) (4,656)
Treasury stock (21,799) -
----------- -----------
Total stockholders' equity 311,996 319,412
----------- -----------
$ 3,007,318 $ 3,027,385
=========== ===========
</TABLE>
See accompanying Notes to Consolidated Financial Statements.
<PAGE>
WALTER INDUSTRIES, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENT OF OPERATIONS
(UNAUDITED)
For the three months ended
August 31,
----------------------------
1997 1996
--------- ---------
(in thousands except per share amounts)
Sales and revenues:
Net sales $334,878 $306,229
Time charges 57,824 57,590
Miscellaneous 6,631 5,844
-------- --------
399,333 369,663
-------- --------
Cost and expenses:
Cost of sales 260,483 234,960
Depreciation, depletion and amortization 17,568 17,582
Selling, general and administrative 35,110 33,263
Postretirement health benefits 5,566 6,447
Provision for possible losses 319 739
Interest and amortization of debt expense 44,863 46,534
Amortization of excess of purchase
price over net assets acquired 8,416 9,002
-------- --------
372,325 348,527
-------- --------
27,008 21,136
Income tax expense:
Current (1,046) (683)
Deferred (11,897) (10,233)
-------- --------
Net income $ 14,065 $ 10,220
======== ========
Net income per share: $ .26 $ .19
======== ========
See accompanying Notes to Consolidated Financial Statements.
<PAGE>
WALTER INDUSTRIES, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENT OF CASH FLOWS
(UNAUDITED)
<TABLE>
<CAPTION>
For the three months ended
August 31,
---------------------------
1997 1996
---------- ----------
(in thousands)
OPERATIONS
<S> <C> <C>
Net income $ 14,065 $ 10,220
Charges to income not affecting cash:
Depreciation, depletion and amortization 17,568 17,582
Provision for deferred income taxes 11,897 10,233
Accumulated postretirement health benefits
obligation 3,495 5,390
Provision for other long-term liabilities (379) (120)
Amortization of excess of purchase price
over net assets acquired 8,416 9,002
Amortization of debt expense 1,756 1,849
--------- --------
56,818 54,156
Decrease (increase) in assets, net of effects
from Neatherlin Homes acquisition:
Short-term investments, restricted (9,798) (2,288)
Marketable securities 2,634 5,239
Instalment notes receivable, net (2,010) (1,615)
Trade and other receivables, net (8,287) 18,085
Inventories 21,713 11,404
Prepaid expenses 2,735 3,135
Increase (decrease) in liabilities, net of effects
from Neatherlin Homes acquisition:
Bank overdrafts (1,746) (12,439)
Accounts payable (15,095) (948)
Accrued expenses (20,463) (9,542)
Income taxes payable 505 (44)
Accrued interest 3,125 (1,994)
--------- --------
Cash flows from operations 30,131 63,149
--------- --------
FINANCING ACTIVITIES
Issuance of long-term senior debt 566,150 20,000
Retirement of long-term senior debt (550,018) (77,629)
Additions to unamortized debt expense (12,124) (159)
Fractional share payments - (1)
Additions to treasury stock (21,799) -
Exercise of employee stock options 318 -
--------- --------
Cash flows used in financing activities (17,473) (57,789)
--------- --------
INVESTING ACTIVITIES
Neatherlin Homes acquisition, net of cash acquired (1,893) -
Additions to property, plant and equipment,
net of normal retirements (18,686) (17,529)
Increase in investments and other assets (142) (189)
Cash flows used in investing activities (20,721) (17,718)
Net decrease in cash and cash equivalents (8,063) (12,358)
Cash and cash equivalents at beginning of year 35,782 32,543
--------- --------
Cash and cash equivalents at end of period $ 27,719 $ 20,185
========= ========
</TABLE>
See accompanying Notes to Consolidated Financial Statements.
<PAGE>
WALTER INDUSTRIES, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
AUGUST 31, 1997
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 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 results 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. In
addition, certain reclassifications have been made in the accompanying
consolidated financial statements in order to conform with the August 31, 1997
presentation. The results for the three months ended August 31, 1997 and 1996
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, 1997. Unless otherwise
specified, capitalized terms used herein are as defined in the aforementioned
Form 10-K.
Note 2 - Cash and Cash Equivalents, Restricted Short-Term Investments and
Marketable Securities
Cash and cash equivalents include short-term deposits and highly liquid
investments which have original maturities of three months or less 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 (i) temporary investment of reserve
funds and collections on instalment notes receivable owned by Mid-State Trusts
II, III, IV, V and VI ($103,308,000) which are available only to pay expenses of
the Trusts and principal and interest on indebtedness of the Trusts, (ii)
certain funds held by Trust II that are in excess of the amount required to be
paid for expenses, principal and interest on the Trust II Mortgage-Backed Notes
but which are subject to retention ($87,494,000) and (iii) miscellaneous other
segregated accounts restricted to specific uses ($14,367,000).
Investments with original maturities greater than three months are classified as
marketable securities. In accordance with Statement of Financial Accounting
Standards No. 115 - "Accounting for Certain Investments in Debt and Equity
Securities," the Company's marketable securities are classified as available for
sale and are carried at estimated fair values.
Note 3 - Installment Notes Receivable and Mortgage-Backed/Asset-Backed Notes
The net increase in instalment notes receivable for the three month period ended
August 31, 1997 and 1996 consists of sales and resales, net of repossessions and
provision for possible losses, of $43,662,000 and $44,567,000 and cash
collections on account and payouts in advance of maturity of $41,652,000 and
$42,952,000, respectively.
Mid-State Trusts II, III, IV and VI are business trusts organized by Mid-State
Homes, Inc. ("Mid-State"), which owns all of the beneficial interest in Trusts
III, IV and VI. 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
<PAGE>
WALTER INDUSTRIES, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS(continued)
issuance of mortgage or asset backed notes. The assets of Trusts II, III, IV and
VI, including the instalment notes receivable, are not available to satisfy
claims of general creditors of the Company and its subsidiaries. The
liabilities of Mid-State Trusts II, III, IV and VI 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.
Mid-State Trust V ("Trust V"), a business trust in which Mid-State 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.
The gross amount of instalment notes receivable, the economic balance and
long-term debt outstanding by trust are as follows (in thousands):
August 31, 1997
---------------------------------------------------
Gross Balance Economic Balance Debt Outstanding
------------- ---------------- ----------------
Trust II $ 920,035 $ 582,206 $ 388,250
Trust III 353,223 190,447 109,344
Trust IV 1,569,905 690,182 820,732
Trust V 279,187 108,298 70,000
Trust VI 1,146,383 448,460 432,138
Unpledged 2,770 1,217 -
---------- ---------- ----------
Total $4,271,503 $2,020,810 $1,820,464
========== ========== ==========
On June 11, 1997, Mid-State Homes purchased from Mid-State Trust V mortgage
instalment notes having a gross amount of $1.196 billion and subsequently sold
such mortgage instalment notes to Mid-State Trust VI. These sales were in
exchange for the net proceeds from the issuance by Mid-State Trust VI of $439.2
million of asset backed notes. The notes were issued in four classes, bear
interest at rates ranging from 7.34% to 7.79% and have a final maturity of July
1, 2035. Payments will be 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 VI expenses. Net proceeds from the public
offering were used to pay down the Trust V indebtedness of $384,000,000 and for
general corporate purposes.
On July 31, 1997, the Trust V Variable Funding Loan Agreement was amended to
reduce the aggregate availability under the facility from $500 million to $400
million. The Credit Facilities were also amended effective July 31, 1997,
reducing the aggregate amount required to be maintained in the mortgage
warehousing program from $500 million to $400 million.
<PAGE>
WALTER INDUSTRIES, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS(continued)
Note 4 - Stockholders' Equity
The Company is authorized to issue 200,000,000 shares of common stock, $.01 par
value. Changes in stockholders' equity for the three months ended August 31,
1997 are summarized as follows:
<TABLE>
<CAPTION>
(in thousands)
--------------------------------------------------------------------------
Excess of
Common Stock Retained Additional Treasury Stock
----------------- Capital in Earnings Pension --------------
Shares Par Value Excess (Deficit) Liability Shares Amount
------- --------- ---------- --------- --------- ------ ------
<S> <C> <C> <C> <C> <C> <C> <C>
Balance at May 31, 1997 55,063 $551 $1,164,261 $(840,744) $(4,656)
Stock issued from option
exercises 18 318
Canceled shares (10)
Purchase of treasury stock 1,396 $(21,799)
Net Income 14,065
------ ---- ---------- --------- ------- ----- --------
Balance at August 31, 1997 55,071 $551 $1,164,579 $(826,679) $(4,656) 1,396 $(21,799)
====== ==== ========== ========= ======= ===== ========
</TABLE>
Note 5 - Segment Information
Information relating to the Company's business segments is set forth below:
Three months ended
August 31,
----------------------
1997 1996
-------- ---------
(in thousands)
Sales and Revenues:
Homebuilding and financing $110,838 $110,929
Water transmission products 108,859 111,695
Natural resources 101,629 74,393
Industrial products 77,663 72,365
Corporate 344 281
-------- --------
Consolidated sales and revenues $399,333 $369,663
======== ========
Contributions to Operating Income (a) :
Homebuilding and financing (b) $ 19,687 $ 19,181
Water transmission products 5,348 6,266
Natural resources 13,543 9,400
Industrial products 4,755 4,197
Less-Unallocated corporate interest and
other expense (b) (16,325) (17,908)
-------- --------
Operating income 27,008 21,136
Income tax expense (12,943) (10,916)
-------- --------
Net income $ 14,065 $ 10,220
======== ========
<PAGE>
WALTER INDUSTRIES, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS(continued)
(a) - Operating income amounts are after deducting amortization of excess of
purchase price over net assets acquired (goodwill) of $8,416,000 in 1997
and $9,002,000 in 1996.
A breakdown by segment is as follows:
Three months ended
August 31,
------------------
1997 1996
------- -------
(in thousands)
Homebuilding and financing $ 6,816 $ 7,409
Water transmission products 3,081 3,079
Natural resources (335) (334)
Industrial products 161 158
Corporate (1,307) (1,310)
------- -------
$ 8,416 $ 9,002
======= =======
(b) - Interest expense incurred by the Homebuilding and Financing Group and
Corporate is as follows:
Three months ended
August 31,
------------------
1997 1996
------- -------
(in thousands)
Homebuilding and financing:
Gross interest $38,927 $38,823
Less: Intercompany interest income (8,672) (8,218)
------- -------
Net interest 30,255 30,605
Corporate 14,608 15,929
------- -------
$44,863 $46,534
======= =======
The Corporate interest and other expenses are attributable to all groups,
but cannot be reasonably allocated to specific groups.
Note 6 - Subsequent Events
The Company signed a definitive agreement on September 19, 1997 to acquire
Applied Industrial Materials Corporation ("AIMCOR"), a leading international
provider of petroleum coke and related value added services, and a supplier of
<PAGE>
WALTER INDUSTRIES, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS(continued)
ferroalloys and other metals. The transaction has been approved by the board of
directors of both companies and is expected to close during the second quarter
of fiscal 1998. On August 11, 1997, the Company signed a commitment letter with
NationsBank, N.A. ("NationsBank") and NationsBanc Capital Markets, Inc. ("NMCI")
obligating NationsBank to provide credit facilities consisting of a $350 million
revolving credit facility and a $450 million term loan facility (collectively,
the "$800 Million Credit Facility"). The $800 Million Credit Facility is to be
used to (a) finance the acquisition of AIMCOR, (b) refinance the existing Credit
Facilities, (c) pay transaction costs and (d) to provide ongoing working
capital. The $350 million revolving credit facility will include a sub-facility
for trade and other standby letters of credit in an amount up to $75 million at
any time outstanding and a sub-facility for swingline advances in an amount not
in excess of $25 million at any time outstanding. The Company is in the final
stages of negotiating definitive documentation for the $800 Million Credit
Facility. Closing is scheduled to occur in conjunction with the acquisition of
AIMCOR.
In October 1997, the Company and its subsidiary, Jim Walter Resources, Inc.
("JWR"), agreed to settle the lawsuit filed in the Circuit Court for Tuscaloosa
County, Alabama, against certain insurance carriers seeking payment of insurance
pertaining to losses associated with a fire in November 1993 at JWR's Mine No.
5. Under the terms of the settlement, the remaining defendant insurance
carriers will pay the Company and JWR a total of approximately $11.5 million in
full and final settlement of the remainder of the contract claim by the Company
and JWR.
<PAGE>
MANAGEMENT'S DISCUSSION AND ANALYSIS OF
RESULTS OF OPERATIONS AND FINANCIAL CONDITION
Results of Operations
Three Months ended August 31, 1997 and 1996
Net sales and revenues for the three months ended August 31, 1997 were $29.7
million, or 8.0%, above the prior year period. The improved performance
resulted from a 10.2% increase in volume, partially offset by a 2.2% decrease in
pricing and/or mix. The increase in volume was principally the result of
increased shipments of coal, pipe and aluminum foil and sheet products. The
decrease in pricing primarily resulted from lower average selling prices for
coal and ductile iron pressure pipe.
Homebuilding and Financing sales and revenues were essentially even with the
prior year period. This performance reflects a 3.9% decrease in the number of
units sold, from 1,019 units in the 1996 period to 979 units in 1997, partially
offset by a 2.4% increase in the average net selling price, from $46,600 in the
1996 period to $47,700 in 1997. The decrease in unit sales was due to a 13 week
sales period in the current year versus 14 weeks last year. The higher average
selling price is primarily attributable to price increases instituted to
compensate for higher building material and labor costs. Jim Walter Homes'
backlog at August 31, 1997 was 2,128 units compared to 2,073 units at August 31,
1996. Time charge income (revenues received from Mid-State Homes' instalment
note portfolio) increased slightly, from $57.6 million in the 1996 period to
$57.8 million in 1997. The increase is attributable 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 $19.7 million (net of
interest expense) was $0.5 million greater than the prior year period reflecting
the higher time charge income, the increase in the average net selling price per
home sold, lower interest expense in the 1997 period ($30.3 million) as compared
to the prior year ($30.6 million) and lower goodwill amortization in the 1997
period ($6.8 million) versus 1996 ($7.4 million), partially offset by the
decrease in the number of homes sold.
Water Transmission Products Group sales and revenues were $2.8 million, or 2.5%,
below the prior year period. The decrease was the result of lower sales prices
for ductile iron pressure pipe and lower sales prices and volumes for fittings,
valves and hydrants, partially offset by an increase in sales volumes for
ductile iron pressure pipe. The order backlog at August 31, 1997 was 135,788
tons, which represents approximately three months shipments compared with
131,615 tons at August 31, 1996. Operating income of $5.3 million was $0.9
million below the prior year period. This performance was the result of the
lower selling prices and gross profit margins for ductile iron pressure pipe and
fittings, partially offset by the previously mentioned increase in sales
volumes.
Natural Resources Group sales and revenues were $27.2 million, or 36.6%, above
the prior year period. The increase resulted from increased coal shipments due
to higher production levels and greater methane gas sales volumes, partially
offset by reduced selling prices for coal and methane gas. A total of 2.23
million tons of coal was sold at an average selling price per ton of $42.25 in
the current year period compared with 1.49 million tons at $44.44 in 1996. The
decrease in the average selling price was the result of a greater percentage of
tonnage sold to the worldwide metallurgical market. Methane gas sales volumes
were 1.9 billion cubic feet in the 1997 period versus 1.8 billion cubic feet in
1996. The average selling price per thousand cubic feet, which included a
monthly reservation fee of $675,000 in both periods, was $3.46 in the 1997
period versus $3.59 in 1996. The Group's operating income of $13.5 million
exceeded the prior year period by $4.1 million. This performance was the result
of higher coal shipments and methane gas sales volumes combined with increased
coal productivity which contributed to lower production costs ($35.46 per ton in
the 1997 period versus $38.87 in 1996), partially offset by the reduced coal and
methane gas selling prices. The current period results also included a $4.0
million credit from settlement of an insurance claim relating to a production
hoist accident at Blue Creek Mine No. 3 in fiscal 1993. Prior year results
included a $4.7 million credit from settlement of a legal claim relating to a
theft of coal inventory at the Port of Mobile, Alabama. In addition, during the
three months ended August 31, 1996, Mine No. 5 was in development and while in
development the mine's costs were capitalized ($3.2 million).
<PAGE>
Industrial Products Group sales and revenues were $5.3 million, or 7.3%, greater
than the prior year period. The improved performance was the result of
increased shipments of aluminum foil and sheet products, furnace and foundry
coke and slag wool, partially offset by lower selling prices for aluminum foil
products and window components. Operating income of $4.8 million exceeded the
prior year period by $0.6 million. The improved performance primarily resulted
from sales increases and higher gross profit margins realized on aluminum foil
and sheet products, furnace and foundry coke and slag wool.
Cost of sales, exclusive of depreciation, of $260.5 million was 77.8% of net
sales in the 1997 period versus $235.0 million and 76.7% in 1996.
Selling, general and administrative expenses of $35.1 million were 8.8% of net
sales and revenues in the 1997 period versus $33.3 million and 9.0% in 1996.
Interest and amortization of debt expense was $44.9 million in the 1997 period
versus $46.5 million in 1996 reflecting lower outstanding debt balances,
partially offset by slightly higher interest rates. The average rate of
interest in the 1997 period was 8.23% as compared to 8.15% in 1996. The prime
rate of interest was 8.50% in the 1997 period compared to 8.25% in 1996.
The Company's effective tax rate in the 1997 and 1996 periods differed from the
statutory tax rate primarily 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 1997 period was $14.1 million compared to net income of
$10.2 million in the 1996 period reflecting all of the previously mentioned
factors as well as lower postretirement health benefits in the current year
period.
Financial Condition
Since May 31, 1997, total debt increased $16.1 million. On June 11, 1997,
Mid-State purchased from Mid-State Trust V mortgage instalment notes having a
gross amount of $1.196 billion and an economic balance of $462.3 million and
subsequently sold such mortgage instalment notes to Mid-State Trust VI ("Trust
VI"), a business trust organized by Mid-State which owns all of the beneficial
interest in Trust VI. These sales were in exchange for the net proceeds from
the public issuance by Trust VI of $439.2 million of Trust VI Asset Backed
Notes. The notes were issued in four classes, bear interest at rates ranging
from 7.34% to 7.79% and have a final maturity of July 1, 2035. Payments will be
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 VI expenses. Net proceeds from the public offering were used to pay down
the Mid-State Trust V Variable Loan Agreement indebtedness of $384.0 million and
for general corporate purposes. Scheduled payments on the Mid-State Trust II
Mortgage-Backed Notes, the Mid-State Trust III Asset Backed Notes, the Mid-State
Trust IV Asset Backed Notes and the Mid-State Trust VI Asset Backed Notes
amounted to $21.7 million, $7.6 million, $20.5 million and $7.1 million,
respectively. Outstanding indebtedness under the Credit Facilities was reduced
$51.8 million and scheduled retirements of other long-term debt amounted to $0.4
million. Also, during the current three month period borrowings under the
Mid-State Trust V Variable Funding Loan Agreement totaled $70.0 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 $75 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, 1997, $32.5 million of letters of credit were
outstanding under this facility.
The Credit Facilities contain a number of significant covenants that, among
other things, restrict the ability of the
<PAGE>
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, 1997 and believes it will meet
these financial tests over the remaining terms of these debt agreements.
The Trust V Variable Funding Loan Agreement's covenants, among other things,
restrict the ability of Trust V to dispose of assets, create liens and engage in
mergers or consolidations. The Company was in compliance with these covenants
at August 31, 1997.
On October 14, 1997, the existing Credit Facilities are scheduled to be replaced
with a new credit facility containing a $350 million revolving credit facility
and a $450 million term loan facility. See "Liquidity and Capital Resources"
below. This new credit facility will contain covenants and financial tests
similar to those contained in the existing Credit Facilities. The Company
believes that it will meet these financial tests over the term of the new
agreement.
Liquidity and Capital Resources
At August 31, 1997, cash and cash equivalents, net of bank overdrafts, were
approximately $3.9 million. Operating cash flows for the three months ended
August 31, 1997 together with issuance of the Mid-State Trust VI Asset Backed
Notes and 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, capital expenditures and
the purchase of approximately 1.4 million shares of common stock in June 1997.
Working capital is required to fund adequate levels of inventories and accounts
receivable. Commitments for capital expenditures at August 31, 1997 were not
significant; however, it is estimated that gross capital expenditures of the
Company and its subsidiaries for the balance of the year ending May 31, 1998
will approximate $85 million.
Because the Company's operating cash flow is significantly influenced by the
general economy and, in particular, the level of construction, current results
should not necessarily be used to predict the Company's liquidity, capital
expenditures, investment in instalment notes receivable or results of
operations. The Company believes that the Mid-State Trust V Variable Funding
Loan Agreement will provide Mid-State Homes with the funds needed to purchase
the instalment notes and mortgages generated by Jim Walter Homes. It is
anticipated that one or more permanent financings similar to the previous
Mid-State asset backed financings will be required over the next several years
to repay borrowings under the Mid-State Trust V Variable Funding Loan Agreement.
On August 11, 1997, the Company signed a commitment letter with NationsBank,
N.A. ("NationsBank") and NationsBanc Capital Markets, Inc. ("NMCI")
obligating NationsBank to provide credit facilities consisting of a $350
million revolving credit facility and a $450 million term loan facility
(collectively, the "$800 Million Credit Facility"). The $800 Million Credit
Facility is to be used to (a) finance the acquisition of AIMCOR, (b)
refinance the existing Credit Facilities, (c) pay transaction costs and (d)
to provide ongoing working capital. The $350 million revolving credit
facility will include a sub-facility for trade and other standby letters of
credit in an amount up to $75 million at any time outstanding and a
sub-facility for swingline advances in an amount not in excess of $25 million
at any time outstanding. The Company is in the final stages of negotiating
definitive documentation for the $800 Million Credit Facility. Closing is
scheduled to occur in conjunction with the acquisition of AIMCOR.
The Company believes that it will be able to generate sufficient cash flow to
make all required interest and principal payments on its indebtedness, to make
all its planned capital expenditures and meet substantially all operating needs.
<PAGE>
Private Securities Litigation Reform Act Safe Harbor Statement
This Form 10-Q contains certain forward-looking statements (as such term is
defined in the Private Securities Litigation Reform Act of 1995) and information
relating to the Company that is based on the beliefs of the management of the
Company, as well as assumptions made by and information currently available to
the management of the Company. When used in this Form 10-Q, the words
"estimate," "project," "believe," "anticipate," "intend," "expect," and similar
expressions are intended to identify forward-looking statements. Such
statements reflect the current views of the Company with respect to future
events and are subject to risks and uncertainties that could cause actual
results to differ materially from those contemplated in such forward-looking
statements. Among those factors which could cause actual results to differ
materially are market demand, competition, interest rate fluctuations, weather
and other risk factors listed from time to time in the Company's filings with
the Securities and Exchange Commission. Readers are cautioned not to place
undue reliance on these forward-looking statements, which speak only as of the
date hereof. The Company does not undertake any obligation to publicly release
any revisions to these forward looking statements to reflect events or
circumstances after the date hereof or to reflect the occurrence of
unanticipated events.
<PAGE>
PART II - OTHER INFORMATION
Item 1. Legal Proceedings
See Note 6 of Notes to Consolidated Financial Statements contained in
Part I - Financial Information.
Item 6. Exhibits and Reports on Form 8-K
(a) Exhibit 11 - Net income per share calculation for the three
months ended August 31, 1997 and 1996
Exhibit 27 - Financial Data Schedule
(b) The Company filed a report on Form 8-K dated July 2, 1997. The
following two items were reported: (1) Mid-State Trust VI, a
Delaware business trust organized by a wholly owned subsidiary of
the Company completed its offering of $439.2 million aggregate
principal amount of asset-backed notes and (2) the Company
purchased 1,387,092 shares of its common stock in a negotiated
transaction.
<PAGE>
SIGNATURES
----------
Pursuant to the requirements of the Securities Exchange Act of 1934, the
Registrant has duly caused this report to be signed on its behalf by the
undersigned thereunto duly authorized.
WALTER INDUSTRIES, INC.
/s/ D. M. Fjelstul /s/ F. A. Hult
- ------------------------------ ------------------------------
D. M. Fjelstul F. A. Hult
Senior Vice President and Vice President, Controller and
Principal Financial Officer Principal Accounting Officer
Date: October 14, 1997
--------------------
<PAGE>
Exhibit 11
NET INCOME PER SHARE CALCULATION
(in thousands, except per share amounts)
Three months ended Three months ended
August 31, 1997 August 31, 1996
------------------ ------------------
Dollars Shares Dollars Shares
------- ------ ------- ------
Net income $14,065 $10,220
======= =======
Primary weighted average
shares of common stock
outstanding:
Common stock (a) 54,134 54,868
Employee stock options (b) (d) 579 -
------- -------
54,713 54,868
======= =======
Fully diluted weighted
average shares of common
stock outstanding: 54,134 54,868
Common stock (a) 715 -
------- -------
Employee stock options (c) (d) 54,849 54,868
======= =======
Per share (primary) $ .26 $ .19
======= =======
Per share (fully diluted) $ .26 $ .19
======= =======
(a) Includes 3,880,140 additional shares issued to an escrow account on
September 13, 1995 pursuant to the Consensual Plan. For the three months
ended August 31, 1997, does not include 1,395,992 shares held in treasury.
(b) Represents the number of shares of common stock issuable on the exercise of
dilutive employee stock options less the number of shares of common stock
which could have been purchased with the proceeds from the exercise of such
options. These purchases were assumed to have been made at the average
market price of the common stock during the period.
(c) Same as (b) except that purchases of common stock were assumed to have been
made at the higher of either the market price of the common stock at the
end of the period or the average market price for the period.
(d) For the three months ended August 31, 1997 and 1996, does not include
329,000 and 2,704,000 shares, respectively, 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-31-1998
<PERIOD-START> JUN-01-1997
<PERIOD-END> AUG-31-1997
<CASH> 27,719
<SECURITIES> 243,757
<RECEIVABLES> 1,562,131
<ALLOWANCES> (34,727)
<INVENTORY> 184,124
<CURRENT-ASSETS> 0<F1>
<PP&E> 997,523
<DEPRECIATION> (426,989)
<TOTAL-ASSETS> 3,007,318
<CURRENT-LIABILITIES> 0<F1>
<BONDS> 2,081,707
0<F1>
0<F1>
<COMMON> 551
<OTHER-SE> 311,445
<TOTAL-LIABILITY-AND-EQUITY> 3,007,318
<SALES> 334,878
<TOTAL-REVENUES> 399,333
<CGS> 260,483
<TOTAL-COSTS> 52,678
<OTHER-EXPENSES> 13,982
<LOSS-PROVISION> 319
<INTEREST-EXPENSE> 44,863
<INCOME-PRETAX> 27,008
<INCOME-TAX> (12,943)
<INCOME-CONTINUING> 14,065
<DISCONTINUED> 0<F1>
<EXTRAORDINARY> 0<F1>
<CHANGES> 0<F1>
<NET-INCOME> 14,065
<EPS-PRIMARY> .26
<EPS-DILUTED> 0<F1>
<FN>
<F1>This line item is not presented on the Consolidated Financial Statements.
</FN>
</TABLE>
