<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 November 30, 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 53,695,790 shares of common stock of the registrant
outstanding at December 31, 1997.
<PAGE>
PART I - FINANCIAL INFORMATION
WALTER INDUSTRIES, INC. AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEET
(UNAUDITED)
<TABLE>
<CAPTION>
November 30, May 31,
1997 1997
------------ --------
(in thousands)
ASSETS
<S> <C> <C>
Cash and cash equivalents $ 39,575 $ 35,782
Short-term investments, restricted 222,968 195,371
Marketable securities 39,763 41,222
Instalment notes receivable 4,273,926 4,256,845
Less -Provision for possible losses ( 26,475) ( 26,394)
Unearned time charges ( 2,913,439) ( 2,896,517)
Trade and other receivables, less provision for possible
losses of $7,353 and $8,225, respectively 217,866 182,891
Inventories, at lower of cost (first in, first out
or average) or market:
Finished goods 180,420 117,949
Goods in process 39,357 32,291
Raw materials and supplies 52,637 52,066
Houses held for resale 3,766 3,068
Prepaid expenses 16,753 11,862
Property, plant and equipment, at cost 1,151,059 978,006
Less - Accumulated depreciation,
depletion and amortization ( 500,884) ( 409,830)
Investments and other assets 51,064 46,783
Deferred income taxes 89,933 109,023
Unamortized debt expense 33,857 22,793
Excess of purchase price over net assets acquired 557,785 274,174
------------- ---------------
$ 3,529,931 $ 3,027,385
============= ===============
LIABILITIES AND STOCKHOLDERS' EQUITY
Short-term notes payable $ 12,100 $ -
Bank overdrafts 27,455 25,523
Accounts payable 115,562 86,418
Accrued expenses 138,879 131,768
Income taxes payable 55,508 58,884
Long-term senior debt:
Mortgage-backed/asset backed notes 1,817,123 1,752,125
Other senior debt 685,420 313,450
Accrued interest 26,578 23,220
Accumulated postretirement health benefits obligation 276,315 268,959
Other long-term liabilities 51,126 47,626
Minority interest 1,496 -
Stockholders' equity
Common stock 551 551
Capital in excess of par value 1,164,974 1,164,261
Retained earnings (deficit) ( 816,701) ( 840,744)
Excess of additional pension liability over
unrecognized prior years service cost ( 4,656) ( 4,656)
Treasury stock ( 21,799) -
------------- ---------------
Total stockholders' equity 322,369 319,412
------------- ---------------
$ 3,529,931 $ 3,027,385
============= ===============
</TABLE>
See accompanying Notes to Consolidated Financial Statements
2
<PAGE>
WALTER INDUSTRIES, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENT OF OPERATIONS
(UNAUDITED)
<TABLE>
<CAPTION>
FOR THE THREE MONTHS ENDED
NOVEMBER 30,
------------------------------------------------
1997 1996
------------- -------------
(in thousands except per share amounts)
Sales and revenues:
<S> <C> <C>
Net sales $ 381,309 $ 332,375
Time charges 60,264 57,353
Miscellaneous 6,496 8,168
------------- ------------
448,069 397,896
------------- ------------
Cost and expenses:
Cost of sales 304,404 264,412
Depreciation, depletion and amortization 20,142 19,195
Selling, general and administrative 40,459 35,847
Postretirement health benefits 5,564 6,425
Provision for possible losses ( 931) 819
Interest and amortization of debt expense 48,048 45,733
Amortization of excess of purchase
price over net assets acquired 9,770 8,830
------------- -------------
427,456 381,261
------------- -------------
20,613 16,635
Income tax expense:
Current ( 779) ( 493)
Deferred ( 7,193) ( 8,617)
------------- -------------
Income before extraordinary item 12,641 7,525
Extraordinary item - Loss on early extinguishment of
debt (net of income tax benefit of $1,434) ( 2,663) -
------------- --------------
Net income $ 9,978 $ 7,525
============= ==============
Income per share:
Income before extraordinary item $ .23 $ .13
Extraordinary item ( .05) -
------------- --------------
Net income $ .18 $ .13
============= ==============
</TABLE>
See accompanying Notes to Consolidated Financial Statements
3
<PAGE>
WALTER INDUSTRIES, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENT OF OPERATIONS
(UNAUDITED)
<TABLE>
<CAPTION>
FOR THE SIX MONTHS ENDED
NOVEMBER 30,
-------------------------------------------------
1997 1996
------------- --------------
(in thousands except per share amounts)
Sales and revenues:
<S> <C> <C>
Net sales $ 716,187 $ 638,604
Time charges 118,088 114,943
Miscellaneous 13,127 14,012
------------- -------------
847,402 767,559
------------- -------------
Cost and expenses:
Cost of sales 564,887 499,372
Depreciation, depletion and amortization 37,710 36,777
Selling, general and administrative 75,569 69,110
Postretirement health benefits 11,130 12,872
Provision for possible losses ( 612) 1,558
Interest and amortization of debt expense 92,911 92,267
Amortization of excess of purchase
price over net assets acquired 18,186 17,832
------------- -------------
799,781 729,788
------------- ------------
47,621 37,771
Income tax expense:
Current ( 1,825) ( 1,176)
Deferred ( 19,090) ( 18,850)
------------- -------------
Income before extraordinary item 26,706 17,745
Extraordinary item - Loss on early extinguishment of
debt, (net of income tax benefit of $1,434) ( 2,663) -
------------- -------------
Net income $ 24,043 $ 17,745
============= =============
Income per share:
Income before extraordinary item $ .49 $ .32
Extraordinary item ( .05) -
------------- --------------
Net income $ .44 $ .32
============= ==============
</TABLE>
See accompanying Notes to Consolidated Financial Statements
4
<PAGE>
WALTER INDUSTRIES, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENT OF CASH FLOWS
(UNAUDITED)
<TABLE>
<CAPTION>
FOR THE SIX MONTHS ENDED
NOVEMBER 30,
---------------------------------------------
1997 1996
------------- ------------
OPERATIONS (in thousands)
- ----------
<S> <C> <C>
Net income $ 24,043 $ 17,745
Charges to income not affecting cash:
Depreciation, depletion and amortization 37,710 36,777
Provision for deferred income taxes 19,090 18,850
Accumulated postretirement health benefits
obligation 7,356 10,807
Provision for other long-term liabilities ( 7) ( 320)
Amortization of excess of purchase price
over net assets acquired 18,186 17,832
Amortization of debt expense 3,413 3,579
Minority interest ( 77) -
Extraordinary item - Loss on early extinguishment of
debt (net of income tax benefit) 2,663 -
------------- --------------
112,377 105,270
Decrease (increase) in assets, net of effects
from acquisitions:
Short-term investments, restricted ( 27,597) ( 9,377)
Marketable securities 1,459 7,261
Instalment notes receivable, net ( 78) ( 2,548)
Trade and other receivables, net 22,769 6,549
Inventories 3,594 15,541
Prepaid expenses ( 3,288) 1,500
Deferred income taxes - 21,411
Increase (decrease) in liabilities, net of effects
from acquisitions:
Bank overdrafts 1,932 ( 6,612)
Accounts payable ( 15,857) ( 3,875)
Accrued expenses ( 15,333) ( 9,659)
Income taxes payable ( 1,898) ( 1,763)
Accrued interest 3,358 ( 3,015)
------------- -------------
Cash flows from operations 81,438 120,683
------------- -------------
FINANCING ACTIVITIES
Issuance of short-term notes payable
and long-term senior debt 1,318,221 62,000
Retirement of long-term senior debt ( 919,672) ( 153,203)
Additions to unamortized debt expense ( 18,574) ( 159)
Additions to treasury stock ( 21,799) -
Exercise of employee stock options 713 -
Fractional share payments - ( 5)
-------------- -------------
Cash flows from (used in) financing activities 358,889 ( 91,367)
-------------- -------------
INVESTING ACTIVITIES
Acquisitions, net of cash acquired ( 395,383) -
Additions to property, plant and equipment,
net of normal retirements ( 44,278) ( 46,991)
(Increase) decrease in investments and other assets 3,127 ( 182)
-------------- -------------
Cash flows used in investing activities ( 436,534) ( 47,173)
-------------- -------------
Net increase (decrease) in cash and cash equivalents 3,793 ( 17,857)
Cash and cash equivalents at beginning of period 35,782 32,543
-------------- -------------
Cash and cash equivalents at end of period $ 39,575 $ 14,686
============== =============
</TABLE>
See accompanying Notes to Consolidated Financial Statements
5
<PAGE>
WALTER INDUSTRIES, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
NOVEMBER 30, 1997
Note 1 - Principles of Consolidation
Walter Industries, Inc. (the "Company"), is a diversified holding company
with five operating groups: Homebuilding and Financing, Water Transmission
Products, Natural Resources, Industrial Products and Energy Services. 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 November 30, 1997 presentation. The results for the three
and six months ended November 30, 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 and
Amendment 1 thereto on Form 10-K/A for the year ended May 31, 1997. Unless
otherwise specified, capitalized terms used herein are as defined in the
aforementioned Form 10-K and Form 10-K/A.
Note 2 - Acquisition of Applied Industrial Materials Corporation
On October 15, 1997, the Company completed the acquisition of Applied
Industrial Materials Corporation ("AIMCOR") which, through its Carbon
Products Division, is a leading international provider of products and
outsourcing services to both the petroleum industry and to the steel, foundry
and aluminum industries. AIMCOR, through its Metals Division, is also a
leading supplier of ferrosilicon in the southeastern United States. The
purchase price was approximately $410 million, subject to adjustments and
certain indemnity obligations of the parties as required by the Stock
Purchase Agreement. Also, on October 15, 1997, the Company completed a
financing with NationsBank, N.A. ("NationsBank") whereby NationsBank provided
credit facilities consisting of a $350 million revolving credit facility and
a $450 million term loan facility (collectively, the "$800 Million Credit
Agreement"). The $800 Million Credit Agreement was used to (a) finance the
acquisition of AIMCOR, (b) replace the existing Credit Facilities, (c) pay
transaction costs and (d) provide ongoing working capital. The $350 million
revolving credit facility 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 $25
million at any time outstanding. The Company recorded an extraordinary loss
of $4,097,000 ($2,663,000 net of income tax benefit) in the three months
ended November 30, 1997 consisting of a write-off of unamortized debt expense
related to the early repayment of the Credit Facilities.
The unaudited pro forma information is presented for informational purposes
only and is not necessarily indicative of the operating results that would
have occurred had the acquisition been consummated as of the beginning of
the period, nor are they necessarily indicative of future operating results.
The unaudited pro forma combined results of operations of the Company and AIMCOR
for the six months ended November 30, 1997 after giving effect to certain pro
forma adjustments are as follows:
6
<PAGE>
<TABLE>
<CAPTION>
HISTORICAL
------------------------------
WALTER
INDUSTRIES AIMCOR
SIX MONTHS FOUR MONTHS PRO FORMA
ENDED 11/30/97 ENDED 9/30/97 ADJUSTMENTS PRO FORMA
-------------- ------------- ----------- ---------
(in thousands except per share amounts)
<S> <C> <C> <C> <C>
Net sales and revenues $ 847,402 $ 157,511 $1,004,913
Cost and expenses:
Cost of sales 564,887 126,790 691,677
Selling, general and administrative 123,797 11,397 1,067 (b) 136,261
Interest and amortization of debt expense 92,911 1,389 15,252 (c) 101,878
(7,712) (d)
343 (e)
(305) (f)
Amortization of excess of purchase price
over net assets acquired 18,186 - 2,871 (a) 21,057
----------- ------------- ----------- -----------
799,781 139,576 11,516 950,873
------------ ------------- ----------- -----------
47,621 17,935 (11,516) 54,040
Income tax expense (20,915) (472) 4,031 (g) (23,161)
(5,805) (h)
----------- ------------- ----------- -----------
Income before extraordinary item 26,706 17,463 (13,290) 30,879
Extraordinary item - loss on early extinguishment
of debt, net of income tax benefit (2,663) - (31) (f) (2,694)
----------- ------------- ----------- -----------
Net income $ 24,043 $17,463 $ (13,321) $ 28,185
=========== ============= =========== ===========
Income per share:
Income before extraordinary item $ .49 $ .57
Extraordinary item (.05) (.05)
----------- -----------
Net income $ .44 $ .52
=========== ===========
</TABLE>
(a) This adjustment reflects increase in amortization expense related to the
goodwill recorded under the purchase method of accounting of $2,871 for the
four months ended September 30, 1997.
(b) To adjust for changes in depreciation expense for the related period
associated with the write-up of property, plant and equipment as a result of
applying the purchase method of accounting.
(c) To record the interest expense related to the Company's new bank credit
facilities which were used to fund the AIMCOR acquisition and retire
existing bank debt. A .125% change in the Company's interest rate would have
a $285 effect on interest expense for the four months ended September 30,
1997.
(d) Interest expenses incurred under the Company's former credit facilities
($6,735 for four months ended September 30, 1997) and AIMCOR debt ($977 for
four months) which would not have been incurred if the new bank credit
facilities that were in place had been eliminated.
(e) To record the amortization of debt issuance costs incurred in connection
with the Company's new credit facilities.
(f) Amortization of debt issuance costs and the write-off of debt issuance
costs, net of income tax benefit, related to the Company's former credit
facilities have been eliminated.
(g) The provision for income taxes has been adjusted at the applicable statutory
rate to give effect to the pro forma adjustments described above.
(h) The provision for income taxes has been increased to reflect an effective
tax rate of 35% on AIMCOR's historical results of operations which would
have been incurred as part of the consolidated group.
7
<PAGE>
Note 3 - 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 ($112,050,000) 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 ($94,187,000) and (iii) miscellaneous other
segregated accounts restricted to specific uses ($16,731,000).
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 4 - Instalment Notes Receivable and Mortgage-Backed/Asset Backed Notes
The net increase in instalment notes receivable for the six month period ended
November 30, 1997 and 1996 consists of sales and resales, net of repossessions
and provision for possible losses, of $87,215,000 and $86,860,000 and cash
collections on account and payouts in advance of maturity of $87,137,000 and
$84,312,000, 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 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):
<TABLE>
<CAPTION>
NOVEMBER 30, 1997
----------------------------------------------------------------------
GROSS BALANCE ECONOMIC BALANCE DEBT OUTSTANDING
---------------- ---------------- -----------------
<S> <C> <C> <C>
Trust II $ 874,292 $ 555,244 $ 366,500
Trust III 339,521 184,352 102,039
Trust IV 1,522,090 673,340 809,078
Trust V 418,604 162,628 115,000
Trust VI 1,116,446 439,789 424,506
Unpledged 2,973 1,291 -
---------------- --------------- ---------------
Total $ 4,273,926 $ 2,016,644 $ 1,817,123
================ =============== ===============
</TABLE>
On June 11, 1997, Mid-State Homes purchased from Mid-State Trust V mortgage
instalment notes having a gross amount of
8
<PAGE>
WALTER INDUSTRIES, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (continued)
$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.
Note 5 - Stockholders' Equity
The Company is authorized to issue 200,000,000 shares of common stock, $.01 par
value. Changes in stockholders' equity for the six months ended November 30,
1997 are summarized as follows:
<TABLE>
<CAPTION>
(IN THOUSANDS)
-----------------------------------------------------------------------------------------------
EXCESS OF
RETAINED ADDITIONAL
COMMON STOCK CAPITAL IN EARNINGS PENSION TREASURY STOCK
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 39 713
Canceled shares (10)
Purchase of treasury stock 1,396 $(21,799)
Net income 24,043
------- ----- ------------ ------------ --------- ------- --------
Balance at November 30, 1997 55,092 $ 551 $ 1,164,974 $( 816,701) $( 4,656) 1,396 $(21,799)
======= ===== ============ ============ ========= ======= ========
</TABLE>
Note 6 - Segment Information
Information relating to the Company's business segments is set forth below:
<TABLE>
<CAPTION>
THREE MONTHS ENDED
NOVEMBER 30,
------------------------------------------
1997 1996
---------------- ----------------
(in thousands)
Sales and Revenues:
<S> <C> <C>
Homebuilding and financing $ 113,725 $ 110,284
Water transmission products 115,668 122,336
Natural resources 89,144 91,661
Industrial products 73,188 73,275
Energy services 56,395 -
Corporate ( 51) 340
---------------- ----------------
Consolidated sales and revenues $ 448,069 $ 397,896
================ ================
</TABLE>
9
<PAGE>
<TABLE>
<CAPTION>
THREE MONTHS ENDED
NOVEMBER 30,
------------------------------------------
1997 1996
--------------- ----------------
(in thousands)
Contributions to Operating Income (a) :
<S> <C> <C>
Homebuilding and financing (b) $ 23,224 $ 19,037
Water transmission products 5,591 7,585
Natural resources 7,632 4,069
Industrial products 4,925 5,120
Energy services 1,941 -
---------------- ----------------
43,313 35,811
Unallocated corporate interest and
other expense (b) ( 22,700) ( 19,176)
Income tax expense ( 7,972) ( 9,110)
---------------- ----------------
Income before extraordinary item $ 12,641 $ 7,525
================ ================
</TABLE>
(a) - Operating income amounts are after deducting amortization of excess
of purchase price over net assets acquired (goodwill) of $9,770,000
in 1997 and $8,830,000 in 1996. A breakdown by segment is as
follows:
<TABLE>
<CAPTION>
THREE MONTHS ENDED
NOVEMBER 30,
------------------------------------------
1997 1996
---------------- ----------------
(in thousands)
<S> <C> <C>
Homebuilding and financing $ 6,762 $ 7,249
Water transmission products 3,046 3,045
Natural resources ( 332) ( 332)
Industrial products 159 161
Energy services 1,429 -
Corporate ( 1,294) ( 1,293)
---------------- ----------------
$ 9,770 $ 8,830
================ ===============
</TABLE>
(b) - Interest expense incurred by the Homebuilding and Financing Group and
Corporate is as follows:
<TABLE>
<CAPTION>
THREE MONTHS ENDED
NOVEMBER 30,
------------------------------------------
1997 1996
---------------- ---------------
(in thousands)
Homebuilding and financing:
<S> <C> <C>
Gross interest $ 39,258 $ 38,196
Less: Intercompany interest income ( 9,935) ( 8,429)
---------------- ----------------
Net interest 29,323 29,767
Corporate 18,725 15,966
---------------- ----------------
$ 48,048 $ 45,733
================ ================
</TABLE>
The Corporate interest and other expenses are attributable to all
groups, but cannot be reasonably allocated to specific groups.
10
<PAGE>
WALTER INDUSTRIES, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (continued)
<TABLE>
<CAPTION>
SIX MONTHS ENDED
NOVEMBER 30,
------------------------------------------
1997 1996
---------------- ----------------
(in thousands)
Sales and Revenues:
<S> <C> <C>
Homebuilding and financing $ 224,563 $ 221,213
Water transmission products 224,527 234,031
Natural resources 190,773 166,054
Industrial products 150,851 145,640
Energy services 56,395 -
Corporate 293 621
---------------- ----------------
Consolidated sales and revenues $ 847,402 $ 767,559
================ ================
Contributions to Operating Income (a) :
Homebuilding and financing (b) $ 42,911 $ 38,218
Water transmission products 10,939 13,851
Natural resources 21,175 13,469
Industrial products 9,680 9,317
Energy services 1,941 -
---------------- ----------------
86,646 74,855
Unallocated corporate interest and
other expense (b) ( 39,025) ( 37,084)
Income tax expense ( 20,915) ( 20,026)
---------------- ----------------
Income before extraordinary item $ 26,706 $ 17,745
================ ================
</TABLE>
(a) - Operating income amounts are after deducting amortization of excess
of purchase price over net assets acquired (goodwill) of $18,186,000 in
1997 and $17,832,000 in 1996. A breakdown by segment is as follows:
<TABLE>
<CAPTION>
SIX MONTHS ENDED
NOVEMBER 30,
--------------------------------------------
1997 1996
---------------- -----------------
(in thousands)
<S> <C> <C>
Homebuilding and financing $ 13,578 $ 14,658
Water transmission products 6,127 6,124
Natural resources ( 667) ( 666)
Industrial products 320 319
Energy services 1,429 -
Corporate ( 2,601) ( 2,603)
---------------- ----------------
$ 18,186 $ 17,832
================ ================
</TABLE>
11
<PAGE>
WALTER INDUSTRIES, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (continued)
(b) - Interest expense incurred by the Homebuilding and Financing Group and
Corporate is as follows:
<TABLE>
<CAPTION>
SIX MONTHS ENDED
NOVEMBER 30,
------------------------------------------
1997 1996
--------------- ----------------
(in thousands)
Homebuilding and financing:
<S> <C> <C>
Gross interest $ 78,185 $ 77,019
Less: Intercompany interest income ( 18,607) ( 16,647)
---------------- ----------------
Net interest 59,578 60,372
Corporate 33,333 31,895
---------------- ----------------
$ 92,911 $ 92,267
================ ================
</TABLE>
The Corporate interest and other expenses are attributable to all groups,
but cannot be reasonably allocated to specific groups.
Note 7 - Litigation and Other Matters
SUIT BY THE COMPANY AND JIM WALTER RESOURCES, INC. FOR BUSINESS INTERRUPTION
LOSSES
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. The Company has entered into settlements with all of such insurers who, in
the aggregate, have paid $24 million in full and final settlement of the
Company's and JWR's claim.
FEDERAL INCOME TAX
A substantial controversy exists with regard to federal income taxes
allegedly owed by the Company. Proofs of claim have been filed in the
Bankruptcy Court by the Internal Revenue Service ("IRS") for taxes, interest
and penalties 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 for 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. These proofs of claim represent total adjustments to
taxable income of approximately $360 million for all tax periods at issue.
Objections to the proofs of claim have been filed by the Company and the
various issues are being litigated in the Bankruptcy Court. By joint
stipulation between the IRS and the Company, confirmed by Order of the
Bankruptcy Court dated January 3, 1997, the IRS conceded an issue involving
an adjustment to taxable income of approximately $51 million for hedging
losses incurred during fiscal year 1988. In December 1997, the IRS advised
the Company that the IRS has agreed to concede an issue involving adjustments
to taxable income of approximately $127 million for amortization deductions
for tax years 1988 through 1991 related to certain debt issuance costs. The
concession is subject to Bankruptcy Court approval which the Company expects
to obtain prior to the end of fiscal year 1998. The Company believes that the
balance of such proofs of claim are substantially without merit and intends
to defend vigorously such claims, but there can be no assurance as to the
ultimate outcome.
12
<PAGE>
MANAGEMENT'S DISCUSSION AND ANALYSIS OF
RESULTS OF OPERATIONS AND FINANCIAL CONDITION
RESULTS OF OPERATIONS
THREE MONTHS ENDED NOVEMBER 30, 1997 AND 1996
On October 15, 1997, the Company completed the acquisition of Applied Industrial
Materials Corporation ("AIMCOR"), which is a leading international provider of
products and outsourcing services to both the petroleum industry and to the
steel, foundry and aluminum industries. AIMCOR is also a leading supplier of
ferrosilicon in the southeastern United States. Sales and revenues and operating
income for AIMCOR are reflected in the Company's new business segment, the
Energy Services Group (see Notes 2 and 6 of Notes to Consolidated Financial
Statements).
Net sales and revenues for the three months ended November 30, 1997 were $50.2
million, or 12.6%, above the prior year period. This performance, in addition to
the contribution from AIMCOR, principally reflected increased time charge income
(revenues received for the Mid-State Homes instalment note portfolio), improved
pricing and/or mix from home sales and aluminum foil and sheet products and
higher coal and methane gas sales volumes, partially offset by a reduction in
home unit sales and lower selling prices and volumes of ductile iron pressure
pipe, fittings and window components and lower selling prices for coal.
Homebuilding and Financing Group sales and revenues were $3.4 million, or 3.1%
above the prior year period. This performance reflects a 3.0% increase in the
average net selling price, from $46,700 in the 1996 period to $48,100 in 1997,
partially offset by a 2.6% decrease in the number of units sold, from 1,004
units in the 1996 period to 978 units in 1997. The higher average selling price
is primarily attributable to price increases instituted to compensate for higher
building material and labor costs. The decrease in unit sales resulted from
intense competition from local and regional homebuilders. Jim Walter Homes'
backlog at November 30, 1997 was 2,041 units compared to 2,052 units at November
30, 1996. Time charge income increased from $57.4 million in the 1996 period to
$60.3 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 $23.2 million (net of interest
expense) was $4.2 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 ($29.3 million) as compared
to the prior year ($29.8 million) and lower goodwill amortization in the 1997
period ($6.7 million) versus 1996 ($7.2 million), partially offset by the
decrease in the number of homes sold.
Water Transmission Products Group sales and revenues were $ 6.7 million, or
5.5%, below the prior year period. The decrease was the result of lower sales
prices and volumes for ductile iron pressure pipe and fittings. Ductile iron
pressure pipe shipments, at 151,000 tons, declined 3% and selling prices were 4%
lower than the prior year period, reflecting intense competitive conditions
related to the continuing slow pace of funding for infrastructure repair and
replacement projects. The order backlog at November 30, 1997 was 117,510 tons,
which represents approximately three months shipments compared with 113,210 tons
at November 30, 1996. Operating income of $5.6 million was $2.0 million below
the prior year period. This performance was the result of the previously
mentioned lower sales prices and volumes and gross profit margins for ductile
iron pressure pipe and fittings.
Natural Resources Group sales and revenues were $2.5 million, or 2.7%, below the
prior year period. The decrease resulted from reduced selling prices for coal,
partially offset by slightly higher coal shipments due to higher production
levels and greater methane gas selling prices and sales volumes. A total of 1.81
million tons of coal was sold at an average selling price per ton of $43.50 in
the current year period compared with 1.78 million tons at $45.06 in 1996. The
decrease in the average selling price was the result of lower price realizations
on shipments to Alabama Power and the worldwide metallurgical market. Methane
gas sales volumes were 2.2 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 $4.27
in the 1997 period versus $4.17 in 1996. The Group's operating income of $7.6
million exceeded the prior year period by $3.6 million. This performance was the
result of the slightly higher level of coal shipments and improved methane gas
sales volumes and selling prices combined with increased coal productivity which
contributed to lower production costs ($37.13 per ton in the 1997 period versus
$39.89 in 1996), partially offset by the reduced selling prices for coal. During
the three months ended November 30, 1996, Mine No. 5 was in development and
13
<PAGE>
while in development the mine's costs were capitalized ($8.8 million).
Industrial Products Group sales and revenues approximated the prior year period.
Reduced shipments of aluminum foil products, foundry and furnace coke and lower
sales prices and volumes of window components were offset by increased shipments
of aluminum sheet products and slag wool and increased selling prices for
aluminum foil and sheet products and foundry and furnace coke. Operating income
of $4.9 million was $.2 million below the prior year period. This performance
was the result of an earlier than expected seasonal decline in shipments of
higher margin specialty foil products, as well as the short-term impact of
higher aluminum raw material costs and unfavorable results in the window
components and metal building and foundry businesses, partially offset by
improved profit margins realized on slag wool.
Cost of sales, exclusive of depreciation, of $304.4 million was 79.8% of net
sales in the 1997 period versus $264.4 million and 79.6% in 1996.
Selling, general and administrative expenses of $40.5 million were 9.0% of net
sales and revenues in the 1997 period versus $35.8 million and 9.0% in 1996.
Interest and amortization of debt expense was $48.0 million in the 1997 period
versus $45.7 million in 1996 reflecting higher outstanding debt balances and
interest rates. The average rate of interest in the 1997 period was 8.20% as
compared to 8.14% in 1996. The prime rate of interest was 8.5% 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 (excluding such amount related to the AIMCOR
acquisition) which is not deductible for tax purposes, and percentage depletion
recognized in the 1997 period.
On October 15, 1997, the Company completed a financing with NationsBank N.A.
("NationsBank") whereby NationsBank provided credit facilities totaling $800
million (the "$800 Million Credit Agreement"). The $800 Credit Agreement was
used to (a) finance the acquisition of AIMCOR, (b) replace the existing
Credit Facilities, (c) pay transaction costs and (d) provide ongoing working
capital. The Company recorded an extraordinary loss of $4.1 million ($2.7
million net of income tax benefit) consisting of write-off of unamortized
debt expense related to the early repayment of the existing Credit
Facilities. See "Financial Condition".
The net income in the 1997 period was $10.0 million compared to net income of
$7.5 million in the 1996 period reflecting all of the previously mentioned
factors as well as lower postretirement health benefits in the current year
period.
SIX MONTHS ENDED NOVEMBER 30, 1997 AND 1996
Net sales and revenues for the six months ended November 30, 1997 were $79.8
million, or 10.4%, above the prior year period. This performance, in addition to
the contribution from AIMCOR, which is reflected in the Company's new Energy
Services business segment, principally resulted from higher time charge income
(revenues received from the Mid-State Homes instalment note portfolio), improved
pricing and/or mix from home sales, aluminum sheet products and furnace and
foundry coke, and higher sales volumes of coal, methane gas, ductile iron
pressure pipe, aluminum sheet products and slag wool, partially offset by a
reduction in homes unit sales, lower aluminum foil products and fittings volumes
and reduced selling prices for pipe products.
Homebuilding and Financing sales and revenues were $3.4 million, or 1.5% above
the prior year period. This performance reflects a 2.8% increase in the average
net selling price, from $46,600 in the 1996 period to $47,900 in 1997,
offset by a 3.3% decrease in the number of units sold, from 2,023 units in the
1996 period to 1,957 units in 1997. The higher average selling price is
primarily attributable to price increases instituted to compensate for higher
building material and labor costs. The decrease in unit sales resulted from
intense competition in virtually every Jim Walter Homes sales region. Time
charge income increased from $114.9 million in the 1996 period to $118.1 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 $42.9 million (net of interest expense) was $4.7
million greater than the prior year period reflecting the higher time charge
income, the increase in the average net selling price per home sold, an
improved gross profit margin,
14
<PAGE>
lower interest expense in the 1997 period ($59.6 million) as compared to the
prior year ($60.4 million) and lower goodwill amortization in the 1997 period
($13.6 million) versus 1996 ($14.7 million), partially offset by the decrease in
the number of homes sold.
Water Transmission Products Group sales and revenues were $9.5 million, or 4.1%,
below the prior year period. The decrease was the result of lower selling prices
for ductile iron pressure pipe, fittings, valves and hydrants and reduced
fittings sales volumes, partially offset by an increase in shipments for ductile
iron pressure pipe. Ductile iron pressure pipe shipments, at 297,000 tons, were
1% higher than the prior year period while average selling prices were 4% lower
reflecting intense competitive conditions related to the continuing slow pace of
funding for infrastructure repair and replacement projects. Operating income of
$10.9 million was $2.9 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 pressure pipe sales volumes.
Natural Resources Group sales and revenues were $24.7 million, or 14.9%, above
the prior year period. The increase resulted from increased coal shipments due
to higher production levels coupled with greater methane gas sales volumes,
partially offset by reduced selling prices for coal. A total of 4.04 million
tons of coal was sold at an average selling price per ton of $42.81 in the
current year period compared with 3.27 million tons at $44.78 in 1996. The
decrease in the average selling price was primarily the result of a greater
percentage of tonnage sold to the worldwide metallurgical market. Methane gas
sales volumes were 4.1 billion cubic feet in the 1997 period versus 3.7 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 $3.89 in the
1997 period versus $3.88 in 1996. The Group's operating income of $21.2 million
exceeded the prior year period by $7.7 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 ($36.31 per ton in
the 1997 period versus $39.42 in 1996), partially offset by the reduced coal
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 six months ended November
30, 1996, Mine No. 5 was in development and while in development the mine's
costs were capitalized ($12.0 million).
Industrial Products Group sales and revenues were $5.2 million, or 3.6%,
greater than the prior year period. The improved performance was the result
of increased shipments of aluminum sheet products and slag wool, partially
offset by decreased shipments of aluminum foil products, furnace coke and
window components, combined with lower selling prices for aluminum foil
products and window components. Operating income of $9.7 million exceeded the
prior year period by $.4 million. The improved performance primarily resulted
from the sales increases and higher gross profit margins realized on aluminum
products, foundry and furnace coke and slag wool.
Cost of sales, exclusive of depreciation, of $564.9 million was 78.9% of
net sales in the 1997 period versus $499.4 million and 78.2% in 1996.
Selling, general and administrative expenses of $75.6 million were 8.9% of net
sales and revenues in the 1997 period versus $69.1 million and 9.0% in 1996.
Interest and amortization of debt expense was $92.9 million in the 1997 period
versus $92.3 million in 1996 reflecting higher outstanding debt balances and
interest rates. The average rate of interest in the 1997 period was 8.17% as
compared to 8.14% in 1996. The prime rate of interest was 8.5% 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 (excluding such amount related to the AIMCOR
acquisition) which is not deductible for tax purposes and percentage depletion
recognized in the 1997 period.
As previously mentioned, on October 15, 1997, the Company completed the $800
Million Credit Agreement financing with NationsBank. The Company recorded an
extraordinary loss of $4.1 million ($2.7 million net of income tax benefit)
consisting of write-off of unamortized debt expense related to the early
repayment of the existing Credit Facilities. See "Financial Condition".
The net income in the 1997 period was $24.0 million compared to net income of
$17.7 million in the 1996 period reflecting all of the previously mentioned
factors as well as lower postretirement health benefits in the current year
period.
15
<PAGE>
Financial Condition
Since May 31, 1997, total debt increased $449.1 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.
In conjunction with the closing of the AIMCOR acquisition, on October 15,
1997 the Company completed the $800 Million Credit Agreement with
NationsBank. The financing consisted of a $350 million revolving credit
facility ("Revolving Credit Facility") and a $450 million six-year term loan
(the "Term Loan"). Proceeds from the financing were used to (a) finance the
acquisition of AIMCOR, (b) pay transaction costs, (c) provide ongoing working
capital and (d) replace the Credit Facilities. The Revolving Credit Facility
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 $25 million at any time
outstanding. The $800 Million Credit Agreement is secured by guarantees and
pledges of the capital stock of all domestic subsidiaries of the Company
other than Mid-State Holdings. Net cash proceeds from (a) asset sales where
the aggregate consideration received exceeds $20,000,000 and the cumulative
amount of such proceeds from such sales since the most recent preceding
prepayment equals or exceeds $5,000,000, (b) each Permitted Receivables
Securitization (as defined in the $800 Million Credit Agreement) or (c) the
issuance of Consolidated Indebtedness (as defined in the $800 Million Credit
Agreement) permitted thereunder must be applied to permanently reduce the
$800 Million Credit Agreement. There have been no such proceeds to date. The
Revolving Credit Facility has a term of six years and the Term Loan amortizes
over a six-year period. Scheduled principal payments to be made on the Term
Loan in each of the six years commencing October 15, 1998 are $25,000,000,
$50,000,000, $75,000,000, $75,000,000, $100,000,000, and $125,000,000,
respectively. Borrowings under the Company's $800 Million Credit Agreement
bear interest at rates that fluctuate. As of November 30, 1997, borrowing
under the $800 Million Credit Agreement totaled $692.1 million. In addition,
there were $32.1 million face amount letters of credit outstanding thereunder.
During the six month period ended November 30, 1997, borrowings under Mid-State
Trust V Variable Funding Loan Agreement totaled $115.0 million and debt assumed
from acquisitions totaled $3.6 million. Scheduled payments on the Mid-State
Trust II Mortgage-Backed Notes, the Mid-State Trust II Asset Backed Notes, the
Mid-State Trust II Asset Backed Notes, the Mid-State Trust IV Asset Backed Notes
and the Mid-State Trust VI Asset Backed Notes amounted to $43.5 million, $14.9
million, $32.1 million and $14.7 million, respectively. In addition, scheduled
retirements of other long-term debt amounted to $.6 million.
The $800 Million Credit Agreement contains a number of covenants, including
restrictions on liens, indebtedness, leases, mergers, sales or dispositions 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, and fixed charge coverage ratios. The
borrowers are required to maintain a leverage ratio (the ratio of indebtedness
to consolidated EBITDA) of not more than 3.90 to 1 for the measurement period
ending May 30, 1998, 3.75 to 1 for the measurement period commencing May 31,
1998 and ending May 30, 1999 and 3.25 to 1 thereafter. 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 1.25 to 1 at the end of
each Four Quarter Period (as defined in the $800 Million Credit Agreement) for
the duration of the $800 Million Credit Agreement. Compliance by the borrowers
with the above-referenced measures is required under the $800 Million Credit
Agreement beginning with the period ending February 28, 1998.
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
November 30, 1997.
16
<PAGE>
Liquidity and Capital Resources
At November 30, 1997, cash and cash equivalents, net of bank overdrafts, were
approximately $12.1 million. Operating cash flows for the six months ended
November 30, 1997 together with issuance of the Mid-State Trust VI Asset Backed
Notes, the proceeds from the $800 Million Credit Agreement, borrowings 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, the
purchase of AIMCOR, 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 November 30, 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 $61 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.
The Company believes that under present operating conditions, sufficient cash
flow will be generated to make all required interest and principal payments on
its indebtedness, to make all of its planned capital expenditures and meet
substantially all operating needs. It is further expected that amounts under the
Revolving Credit Facility will be sufficient to meet peak operating needs of
the Company.
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.
17
<PAGE>
PART II - OTHER INFORMATION
Item 1. LEGAL PROCEEDINGS
See Note 7 of Notes to Consolidated Financial Statements contained in
Part I - Financial Information.
Item 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS
At the Company's Annual Meeting of Stockholders held September 16,
1997, the following proposals were approved:
<TABLE>
<CAPTION>
AFFIRMATIVE NEGATIVE VOTES
VOTES VOTES WITHHELD
<S> <C> <C> <C>
(1) Proposal to approve an Annual Incentive Plan for
Key Employees which is intended to
satisfy the provision of Section 162(m)
of the Internal Revenue Code 41,986,447 181,263 9,406,996
(2) Proposal to approve the Amended 1995 Long-Term
Incentive Stock Plan of Walter Industries,
Inc. 39,465,620 3,199,158 8,912,136
(3) Proposal to ratify the appointment of Price
Waterhouse LLP as independent certified public
accountants for the fiscal year ending
May 31, 1998. 51,554,345 5,146 15,214
</TABLE>
Item 6. EXHIBITS AND REPORTS ON FORM 8-K
(a) Exhibit 11(a) - Net income per share calculation for the three
months ended November 30, 1997 and 1996 Exhibit 11(b) - Net
income per share calculation for the six months ended
November 30, 1997 and 1996 Exhibit 27 -Financial Data Schedule
(b) On October 30, 1997, the Company filed a Current Report on Form
8-K with respect to the acquisition of the stock of Applied
Industrial Materials Corporation. The Company stated in such
Current Report of Form 8-K that it was impracticable to provide
the financial statements and pro forma financial information
required to be filed therewith relative to the acquired stock,
but that it intended to file the required financial statements
and pro forma financial information as soon as practicable, but
no later than 60 days from the date of that filing. On December
29, 1997, the Company filed an amendment to such Current Report
on Form 8-K/A to include the required financial statements and
pro forma financial information.
18
<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: JANUARY 14, 1998
<PAGE>
Exhibit 11(a)
NET INCOME PER SHARE CALCULATION
(in thousands except per share amounts)
<TABLE>
<CAPTION>
THREE MONTHS ENDED THREE MONTHS ENDED
NOVEMBER 30, 1997 NOVEMBER 30, 1996
DOLLARS SHARES DOLLARS SHARES
<S> <C> <C> <C> <C>
Income before extraordinary item $ 12,641 $ 7,525
Extraordinary item - Loss on early
extinguishment of debt, net of
income tax benefit ( 2,663) -
----------- ----------
Net income $ 9,978 $ 7,525
=========== ==========
Primary weighted average shares
of common stock outstanding:
Common stock (a) 53,685 54,868
Employee stock options (b) (d) 838 94
--------- ---------
54,523 54,962
========= =========
Per share:
Income before extraordinary item $ .23 $ .13
Extraordinary item ( .05) -
----------- ---------
Net income $ .18 $ .13
=========== =========
Fully diluted weighted average shares
of common stock outstanding:
Common stock (a) 53,685 54,868
Employee stock options (c) (d) 872 94
--------- ---------
54,557 54,962
========= =========
Per Share:
Income before extraordinary item $ .23 $ .13
Extraordinary item ( .05) -
----------- ---------
Net income $ .18 $ .13
=========== =========
</TABLE>
(a) Includes 3,880,140 additional shares issued to an escrow account on
September 13, 1995 pursuant to the Consensual Plan. 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 November 30, 1996, does not include
1,485,000 shares subject to options because such options would have an
anti-dilutive effect in such period.
<PAGE>
Exhibit 11(b)
NET INCOME PER SHARE CALCULATION
(in thousands except per share amounts)
<TABLE>
<CAPTION>
SIX MONTHS ENDED SIX MONTHS ENDED
NOVEMBER 30, 1997 NOVEMBER 30, 1996
DOLLARS SHARES DOLLARS SHARES
<S> <C> <C> <C> <C>
Income before extraordinary item $ 26,706 $ 17,745
Extraordinary item - Loss on early
extinguishment of debt, net of
income tax benefit ( 2,663) -
----------- -----------
Net income $ 24,043 $ 17,745
=========== ===========
Primary weighted average shares
of common stock outstanding:
Common stock (a) 53,910 54,868
Employee stock options (b) (d) 797 68
-------- ---------
54,707 54,936
======== =========
Per share:
Income before extraordinary item $ .49 $ .32
Extraordinary item ( .05) -
----------- -----------
Net income $ .44 $ .32
=========== ===========
Fully diluted weighted average shares
of common stock outstanding:
Common stock (a) 53,910 54,868
Employee stock options (c) (d) 876 68
--------- ---------
54,786 54,936
========= =========
Per Share:
Income before extraordinary item $ .49 $ .32
Extraordinary item ( .05) -
----------- -----------
Net income $ .44 $ .32
=========== ===========
</TABLE>
(a) Includes 3,880,140 additional shares issued to an escrow account on
September 13, 1995 pursuant to the Consensual Plan. 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 six months ended November 30, 1996, does not include 1,485,000
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> 6-MOS
<FISCAL-YEAR-END> MAY-31-1998
<PERIOD-END> NOV-30-1997
<CASH> 39,575
<SECURITIES> 262,731
<RECEIVABLES> 1,585,706
<ALLOWANCES> (33,828)
<INVENTORY> 276,180
<CURRENT-ASSETS> 0<F1>
<PP&E> 1,151,059
<DEPRECIATION> (500,884)
<TOTAL-ASSETS> 3,529,931
<CURRENT-LIABILITIES> 0<F1>
<BONDS> 2,514,643
0<F1>
0<F1>
<COMMON> 551
<OTHER-SE> 321,818
<TOTAL-LIABILITY-AND-EQUITY> 3,529,931
<SALES> 716,187
<TOTAL-REVENUES> 847,402
<CGS> 564,887
<TOTAL-COSTS> 113,279
<OTHER-EXPENSES> 29,316
<LOSS-PROVISION> (612)
<INTEREST-EXPENSE> 92,911
<INCOME-PRETAX> 47,621
<INCOME-TAX> (20,915)
<INCOME-CONTINUING> 26,706
<DISCONTINUED> 0<F1>
<EXTRAORDINARY> (2,663)
<CHANGES> 0<F1>
<NET-INCOME> 24,043
<EPS-PRIMARY> .44
<EPS-DILUTED> 0<F1>
<FN>
<F1>THIS LINE ITEM IS NOT PRESENTED ON THE CONSOLIDATED FINANCIAL STATEMENTS.
</FN>
</TABLE>
