<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 February 28, 1998
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 53,792,393 shares of common stock of the registrant outstanding at
March 31, 1998.
<PAGE>
PART I - FINANCIAL INFORMATION
WALTER INDUSTRIES, INC. AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEET
<TABLE>
<CAPTION>
February 28,
1998 May 31,
(Unaudited) 1997
------------- ------------
(in thousands)
ASSETS
- ------
<S> <C> <C>
Cash and cash equivalents $ 39,791 $ 35,782
Short-term investments, restricted 225,546 195,371
Marketable securities 38,810 41,222
Instalment notes receivable 4,271,528 4,256,845
Less - Provision for possible losses (26,442) (26,394)
Unearned time charges (2,914,251) (2,896,517)
Trade and other receivables, less provision for possible
losses of $7,226 and $8,225, respectively 188,797 182,891
Inventories, at lower of cost (first in, first out
or average) or market:
Finished goods 211,835 117,949
Goods in process 40,965 32,291
Raw materials and supplies 53,527 52,066
Houses held for resale 3,349 3,068
Prepaid expenses 17,074 11,862
Property, plant and equipment, at cost 1,167,113 978,006
Less - Accumulated depreciation,
depletion and amortization (517,114) (409,830)
Investments and other assets 51,789 46,783
Deferred income taxes 84,110 109,023
Unamortized debt expense 32,343 22,793
Excess of purchase price over net assets acquired 538,705 274,174
----------- -----------
$ 3,507,475 $ 3,027,385
=========== ===========
LIABILITIES AND STOCKHOLDERS' EQUITY
Short-term notes payable $ 2,900 $ -
Bank overdrafts 18,507 25,523
Accounts payable 123,537 86,418
Accrued expenses 135,204 131,768
Income taxes payable 57,305 58,884
Long-term senior debt:
Mortgage-backed/asset backed notes 1,796,173 1,752,125
Other senior debt 684,320 313,450
Accrued interest 25,304 23,220
Accumulated postretirement health benefits obligation 280,419 268,959
Other long-term liabilities 53,186 47,626
Stockholders' equity
Common stock 551 551
Capital in excess of par value 1,165,386 1,164,261
Retained earnings (deficit) (808,993) (840,744)
Cumulative foreign currency adjustment 153 -
Excess of additional pension liability over
unrecognized prior years service cost (4,656) (4,656)
Treasury stock (21,821) -
----------- -----------
Total stockholders' equity 330,620 319,412
----------- -----------
$ 3,507,475 $ 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
February 28,
---------------------------------------
1998 1997
-------- --------
(in thousands except per share amounts)
<S> <C> <C>
Sales and revenues:
Net sales $387,277 $276,912
Time charges 59,243 57,447
Miscellaneous 7,302 6,056
-------- --------
453,822 340,415
-------- --------
Cost and expenses:
Cost of sales 306,659 225,250
Depreciation, depletion and amortization 20,250 16,648
Selling, general and administrative 43,876 37,191
Postretirement health benefits 5,565 6,402
Provision for possible losses 593 580
Interest and amortization of debt expense 50,903 44,331
Amortization of excess of purchase
price over net assets acquired 10,086 8,463
-------- --------
437,932 338,865
-------- --------
15,890 1,550
Income tax expense:
Current (2,359) (545)
Deferred (5,823) (3,253)
-------- --------
Net income (loss) $ 7,708 $ (2,248)
======== =========
Basic earnings(loss) per share: $ .14 $ (.04)
======== =========
Diluted earnings(loss) per share: $ .14 $ (.04)
======== =========
</TABLE>
See accompanying Notes to Consolidated Financial Statements
3
<PAGE>
WALTER INDUSTRIES, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENT OF OPERATIONS
(UNAUDITED)
<TABLE>
<CAPTION>
For the nine months ended
February 28,
-----------------------------------------
1998 1997
---------- ----------
(in thousands except per share amounts)
<S> <C> <C>
Sales and revenues:
Net sales $1,103,464 $ 915,516
Time charges 177,331 172,390
Miscellaneous 20,429 20,068
---------- ----------
1,301,224 1,107,974
---------- ----------
Cost and expenses:
Cost of sales 871,546 724,622
Depreciation, depletion and amortization 57,960 53,425
Selling, general and administrative 119,445 106,301
Postretirement health benefits 16,695 19,274
Provision for possible losses (19) 2,138
Interest and amortization of debt expense 143,814 136,598
Amortization of excess of purchase
price over net assets acquired 28,272 26,295
---------- ----------
1,237,713 1,068,653
---------- ----------
63,511 39,321
Income tax expense:
Current (4,184) (1,721)
Deferred (24,913) (22,103)
---------- ----------
Income before extraordinary item 34,414 15,497
Extraordinary item - Loss on early extinguishment of
debt (net of income tax benefit of $1,434) (2,663) -
---------- ----------
Net income $ 31,751 $ 15,497
========== ===========
Basic earnings per share:
Income before extraordinary item $ .64 $ .28
Extraordinary item (.05) -
---------- ----------
Net income $ .59 $ .28
========== ===========
Diluted earnings per share:
Income before extraordinary item $ .63 $ .28
Extraordinary item (.05) -
---------- ----------
Net income $ .58 $ .28
========== ===========
</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 nine months ended February 28,
-------------------------------------------
1998 1997
---------- ----------
OPERATIONS (in thousands)
- ----------
<S> <C> <C>
Net income $ 31,751 $ 15,497
Charges to income not affecting cash:
Depreciation, depletion and amortization 57,960 53,425
Provision for deferred income taxes 24,913 22,103
Accumulated postretirement health benefits
obligation 11,460 16,290
Benefit from other long-term liabilities (720) (394)
Amortization of excess of purchase price
over net assets acquired 28,272 26,295
Amortization of debt expense 5,084 5,265
Extraordinary item - Loss on early extinguishment of
debt (net of income tax benefit) 2,663 -
---------- ----------
161,383 138,481
Decrease (increase) in assets, net of effects
from acquisitions:
Short-term investments, restricted (30,175) (15,681)
Marketable securities 2,412 20,245
Instalment notes receivable, net 3,099 (4,527)
Trade and other receivables, net 51,838 32,981
Inventories (27,303) 11,733
Prepaid expenses (3,609) (2,379)
Deferred income taxes - 21,411
Increase (decrease) in liabilities, net of effects
from acquisitions:
Bank overdrafts (7,016) (13,902)
Accounts payable (7,882) (4,161)
Accrued expenses (10,972) (536)
Income taxes payable (101) (2,638)
Accrued interest 2,084 (4,285)
---------- ----------
Cash flows from operations 133,758 176,742
---------- ----------
FINANCING ACTIVITIES
Issuance of short-term notes payable
and long-term senior debt 1,342,450 110,000
Retirement of long-term senior debt (975,172) (232,698)
Additions to unamortized debt expense (18,731) (159)
Additions to treasury stock (21,821) -
Fractional share payments - (5)
Exercise of employee stock options 1,125 -
---------- ----------
Cash flows from (used in) financing activities 327,851 (122,862)
---------- ----------
INVESTING ACTIVITIES
Acquisitions, net of cash acquired (403,006) -
Additions to property, plant and equipment,
net of normal retirements (57,590) (68,726)
Decrease in investments and other assets 2,402 3,042
---------- ----------
Cash flows used in investing activities (458,194) (65,684)
---------- ----------
Effect of exchange rate on cash 594 -
---------- ----------
Net increase (decrease) in cash and cash equivalents 4,009 (11,804)
Cash and cash equivalents at beginning of period 35,782 32,543
---------- ----------
Cash and cash equivalents at end of period $ 39,791 $ 20,739
========== ==========
</TABLE>
See accompanying Notes to Consolidated Financial Statements
5
<PAGE>
WALTER INDUSTRIES, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
FEBRUARY 28, 1998
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 February 28, 1998
presentation. The results for the three and nine months ended February 28, 1998
and 1997 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 the
petroleum, 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 $408 million, subject to
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 nine months ended February 28,
1998 consisting of a write-off of unamortized debt expense related to the early
repayment of the Credit Facilities.
The following unaudited results of operations reflects the effect on the
Company's operations as if the acquisition of AIMCOR had occurred as of June 1,
1997.
Nine months ended
February 28, 1998
-----------------
Net sales and revenues $1,458,735
Net income $ 35,893
Basic earnings per share $ .67
Diluted earnings per share $ .66
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 June 1, 1997, nor are they
necessarily indicative of future operating results.
6
<PAGE>
WALTER INDUSTRIES, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (continued)
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 ($109,164,000) 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 ($101,225,000) and (iii) miscellaneous other
segregated accounts restricted to specific uses ($15,157,000).
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 nine month period ended
February 28, 1998 and 1997 consists of sales and resales, net of repossessions
and provision for possible losses, of $128,503,000 and $129,871,000 and cash
collections on account and payouts in advance of maturity of $131,602,000 and
$125,344,000, 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>
February 28, 1998
------------------------------------------------------
Gross Balance Economic Balance Debt Outstanding
------------- ---------------- ----------------
<S> <C> <C> <C>
Trust II $ 831,300 $ 530,029 $ 344,750
Trust III 325,730 178,038 93,718
Trust IV 1,478,625 658,717 790,482
Trust V 544,322 211,674 152,000
Trust VI 1,088,628 431,539 415,223
Unpledged 2,923 1,280 -
---------- ---------- ----------
Total $4,271,528 $2,011,277 $1,796,173
========== ========== ==========
</TABLE>
On June 11, 1997, Mid-State Homes purchased from Mid-State Trust V mortgage
instalment notes having a gross amount
7
<PAGE>
WALTER INDUSTRIES, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (continued)
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.
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 nine months ended February 28,
1998 are summarized as follows:
<TABLE>
<CAPTION>
(in thousands)
--------------------------------------------------------------------------------------------
Cumulative Excess of
Retained Foreign Additional
Common Stock Capital in Earnings Currency Pension Treasury Stock
Shares Par Value Excess (Deficit) Adjust Liability Shares Amount
------ --------- ---------- ---------- ---------- ---------- ------ ------
<S> <C> <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 59 1,125
Canceled shares (10)
Purchase of treasury stock 1,397 $(21,821)
Cumulative foreign
currency adjustment $153
Net income 31,751
Balance at February 28, 1998 55,112 $551 $1,165,386 $(808,993) $153 $(4,656) 1,397 $(21,821)
</TABLE>
In February 1997, Statement of Financial Accounting Standards No. 128 -
"Earnings per Share" ("FASB 128") was issued. FASB 128 became effective for the
Company in the third quarter of fiscal 1998. FASB 128 established new standards
for computing and presenting earnings per share and requires all prior period
earnings per share data be restated to conform with the provisions of the
statement. Basic earnings per share is computed by dividing net income by the
weighted average number of common shares outstanding during each period.
Diluted earnings per share is computed by dividing net income by the weighted
average number of common shares outstanding during each period after giving
effect to dilutive stock options.
A reconciliation of the basic and diluted per share computations for the three
months and nine months ended February 28, 1998 and 1997 are as follows (in
thousands except per share amounts):
<TABLE>
<CAPTION>
Three months ended February 28,
-------------------------------------------
1998 1997
-------------------------------------------
Basic Diluted Basic Diluted
------- ------- ------- -------
<S> <C> <C> <C> <C>
Net income (loss) $ 7,708 $ 7,708 $(2,248) $(2,248)
======= ======= ======= =======
Shares of common stock outstanding:
Average number of common shares (a)(b) 53,706 53,706 50,989 50,989
Effect of diluted securities:
Stock options (c)(d) - 869 - 230
------- ------- ------- -------
Average common shares and dilutive effect 53,706 54,575 50,989 51,219
======= ======= ======= =======
Per share:
Net income (loss) $ .14 $ .14 $ (.04) $ (.04)
======= ======= ======= =======
</TABLE>
(a) For the three months ended February 28, 1998, includes 3,880,140
additional shares issued to an escrow account
8
<PAGE>
WALTER INDUSTRIES, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (continued)
on September 13, 1995 pursuant to the Consensual Plan, but does not
include 1,397,092 shares held in treasury.
(b) For the three months ended February 28, 1997, does not include 3,880,140
additional shares issued to the escrow account because such issuance would
be anti-dilutive in such period.
(c) 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 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 February 28, 1997, does not include 1,485,000
shares subject to options because such options would have an anti-dilutive
effect in such period.
<TABLE>
<CAPTION>
Nine months ended February 28,
----------------------------------------------------
1998 1997
----------------------------------------------------
Basic Diluted Basic Diluted
------- ------- ------- -------
<S> <C> <C> <C> <C>
Income before extraordinary item $34,414 $34,414 $15,497 $15,497
Extraordinary item (2,663) (2,663) - -
------- ------- ------- -------
Net income $31,751 $31,751 $15,497 $15,497
======= ======= ======= =======
Shares of common stock outstanding:
Average number of common shares (a) 53,842 53,842 54,868 54,868
Effect of diluted securities: - 869 - 187
------- ------- ------- -------
Stock options (b)(c) 53,842 54,711 54,868 55,055
======= ======= ======= =======
Per share:
Income before extraordinary item $ .64 $ .63 $ .28 $ .28
Extraordinary item (.05) (.05) - -
------- ------- ------- -------
Net income $ .59 $ .58 .28 .28
======= ======= ======= =======
</TABLE>
(a) Includes 3,880,140 additional shares issued to an escrow account on
September 13, 1995 pursuant to the Consensual Plan, but does not include
1,397,092 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
higher of either the market price of the common stock at the end of the
period or the average market price for the period.
(c) For the nine months ended February 28, 1997, does not include 1,485,000
shares subject to options because such options would have an anti-dilutive
effect in such period.
Note 6 - Segment Information
Information relating to the Company's business segments is set forth below:
<TABLE>
<CAPTION>
Three months ended
February 28,
---------------------------
1998 1997
-------- --------
<S> <C> <C>
Sales and Revenues: (in thousands)
Homebuilding and financing $108,219 $108,216
Water transmission products 84,482 74,934
Natural resources 78,945 86,881
Industrial products 72,538 70,113
Energy services 109,461 -
Corporate 177 271
-------- --------
Consolidated sales and revenues $453,822 $340,415
======== ========
</TABLE>
9
<PAGE>
WALTER INDUSTRIES, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (continued)
<TABLE>
<CAPTION>
Three months ended
February 28,
---------------------------
1998 1997
-------- --------
(in thousands)
<S> <C> <C>
Contributions to Operating Income (a) :
Homebuilding and financing (b) $ 22,965 $ 20,963
Water transmission products (2,892) (4,662)
Natural resources 8,794 599
Industrial products 4,540 3,603
Energy services 10,826 -
-------- --------
44,233 20,503
Unallocated corporate interest and
other expense (b) (28,343) (18,953)
Income tax expense (8,182) (3,798)
-------- --------
Net income (loss) $ 7,708 $ (2,248)
======== ========
(a) - Operating income amounts are after deducting amortization of excess of
purchase price over net assets acquired (goodwill) of $10,086,000 in
1998 and $8,463,000 in 1997. A breakdown by segment is as follows:
<CAPTION>
Three months ended
February 28,
-------------------------
1998 1997
------- -------
(in thousands)
<S> <C> <C>
Homebuilding and financing $ 6,482 $ 6,905
Water transmission products 3,011 3,010
Natural resources (326) (328)
Industrial products 160 156
Energy services 2,037 -
Corporate (1,278) (1,280)
------- -------
$10,086 $ 8,463
======= =======
(b) - Interest expense incurred by the Homebuilding and Financing Group and
Corporate is as follows:
<CAPTION>
Three months ended
February 28,
--------------------------
1998 1997
-------- -------
(in thousands)
<S> <C> <C>
Homebuilding and financing:
Gross interest $ 38,553 $37,699
Less: Intercompany interest income (10,374) (8,611)
-------- -------
Net interest 28,179 29,088
Corporate 22,724 15,243
-------- -------
$ 50,903 $44,331
======== =======
</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>
Nine months ended
February 28,
---------------------------------
1998 1997
---------- ----------
(in thousands)
<S> <C> <C>
Sales and Revenues:
Homebuilding and financing $ 332,782 $ 329,429
Water transmission products 309,009 308,965
Natural resources 269,718 252,935
Industrial products 223,389 215,753
Energy services 165,856 -
Corporate 470 892
---------- ----------
Consolidated sales and revenues $1,301,224 $1,107,974
========== ==========
Contributions to Operating Income (a) :
Homebuilding and financing (b) $ 65,876 $ 59,181
Water transmission products 8,047 9,189
Natural resources 29,969 14,068
Industrial products 14,220 12,920
Energy services 12,767 -
---------- ----------
130,879 95,358
Unallocated corporate interest and
other expense (b) (67,368) (56,037)
Income tax expense (29,097) (23,824)
---------- ----------
Income before extraordinary item $ 34,414 $ 15,497
========== ==========
(a) - Operating income amounts are after deducting amortization of excess of
purchase price over net assets acquired (goodwill) of $28,272,000 in
1998 and $26,295,000 in 1997. A breakdown by segment is as follows:
<CAPTION>
Nine months ended
February 28,
------------------------------
1998 1997
------- -------
(in thousands)
<S> <C> <C>
Homebuilding and financing $20,060 $21,563
Water transmission products 9,138 9,134
Natural resources (993) (994)
Industrial products 480 475
Energy services 3,466 -
Corporate (3,879) (3,883)
------- -------
$28,272 $26,295
======= =======
</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>
Nine months ended
February 28,
-------------------------------
1998 1997
-------- --------
(in thousands)
<S> <C> <C>
Homebuilding and financing:
Gross interest $116,738 $114,718
Less: Intercompany interest income (28,981) (25,258)
-------- --------
Net interest 87,757 89,460
Corporate 56,057 47,138
-------- --------
$143,814 $136,598
======== ========
</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 to fiscal
years ended May 31, 1988 (nine months) and May 31, 1989 and $44,837,693 with
respect to fiscal years ended May 31, 1990 and May 31, 1991. 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. Also by joint
stipulation, confirmed by Order of the Bankruptcy Court dated March 10, 1998,
the IRS has conceded 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 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. The Company's U.S. Federal income tax returns for the fiscal
years ended May 31, 1992, 1993 and 1994 currently are being audited by the
IRS. The IRS has not yet issued a notice of assessment with respect to those
tax returns, but the Company believes that the IRS may assert, among other
things, that certain of the issues underlying the aforementioned proofs of
claim are relevant to those returns.
12
<PAGE>
WALTER INDUSTRIES, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (continued)
Note 8 - Commitments and Contingencies
The Company's subsidiary, Jim Walter Resources, Inc. ("JWR"), supplies
compliance steam coal to Alabama Power Company ("Alabama Power") under the terms
of a contract entered into in May 1994. Under this contract, Alabama Power is
obligated to purchase 4.0 million tons of coal per year from JWR until the
expiration of the contract in August 31, 1999 at prices which are currently
significantly above market prices for compliance steam coal as well as
metallurgical coal. In February 1998, JWR entered into a contract with Alabama
Power for the sale of 1.5 million tons per year of compliance steam coal
commencing January 1, 2000 through December 31, 2005, at a price approximately
equal to the February 1998 market price for compliance steam coal, subject to
certain adjustments during the term of the contract.
Based on the current market prices of metallurgical and compliance steam coal,
the expiration of the May 1994 contract with Alabama Power could, in
management's estimation, result in a decrease in JWR's annual revenue of up to
$50 million. In 1996, JWR embarked on a cost cutting program intended to reduce
operating costs at its Mining Division by 20% from fiscal 1997 levels over the
next three years. If those cost cutting reductions are fully achieved, the
Company currently believes that a decrease in annual revenue of the magnitude
referred to above in fiscal 2000 will not have a material adverse effect on
the results of operations of the Company as compared to fiscal 1997. However,
there can be no assurances as to the extent to which such cost reductions will
be achieved or what the market prices of metallurgical and compliance steam
coal will be in the future. The Company currently intends that JWR will sell
the 2.5 million tons of coal currently being sold to Alabama Power, which will
not be subject to the February 1998 contract with Alabama Power, to other
customers as metallurgical coal, the current market price of which generally
exceeds the market price of compliance steam coal; however, there can be no
assurance as to whether or on what terms JWR would be able to sell such coal.
13
<PAGE>
MANAGEMENT'S DISCUSSION AND ANALYSIS OF
RESULTS OF OPERATIONS AND FINANCIAL CONDITION
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).
Results of Operations
THREE MONTHS ENDED FEBRUARY 28, 1998 AND 1997
Net sales and revenues for the three months ended February 28, 1998 were $113.4
million, or 33.3%, above the prior year period. This performance, in addition
to the contribution from AIMCOR, principally resulted from greater time charge
income (revenues received from the Mid-State Homes instalment note portfolio),
increased sales volumes for ductile iron pressure pipe and improved pricing and
volumes for aluminum foil and sheet products, partially offset by lower coal
selling prices and sales volumes and a reduction in the number of homes sold.
Homebuilding and Financing Group sales and revenues approximated the prior year
period. This performance includes an 8.4% decrease in the number of units sold,
from 935 units in the 1997 period to 856 units in 1998, partially offset by a
2.7% increase in the average net selling price, from $48,200 in the 1997 period
to $49,500 in 1998. 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 continuing intense
competition from local and regional homebuilders as well as high demand for
subcontractors and construction crews. Jim Walter Homes' backlog at February
28, 1998 was 1,894 units compared to 1,786 units at February 28, 1997. Time
charge income increased from $57.4 million in the 1997 period to $59.2 million
in 1998. 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 $23.0 million (net of interest expense) was $2.0
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 1998 period ($28.2 million) as compared to the prior
year ($29.1 million) and lower goodwill amortization in the 1998 period ($6.5
million) versus 1997 ($6.9 million), partially offset by the decrease in the
number of homes sold.
Water Transmission Products Group sales and revenues were $9.5 million, or
12.7%, above the prior year period. The increase was the result of higher sales
volumes for ductile iron pressure pipe, valves and hydrants reflecting mild
winter weather conditions. Ductile iron pressure pipe shipments, at 102,000
tons, were 16.3% greater than the prior year period. Selling prices, however,
were 1% lower than the prior year period due to continuing intense competitive
conditions. The order backlog at February 28, 1998 was 135,000 tons, which
represents approximately three months shipments compared with 116,000 tons at
February 28, 1997. The Group incurred an operating loss of $2.9 million in the
1998 period compared to a $4.7 million loss in the prior year period. The
improvement resulted from the increase in sales volumes combined with improved
gross profit margins.
Natural Resources Group sales and revenues were $7.9 million, or 9.1%, below the
prior year period. The decrease resulted from lower coal shipments and reduced
selling prices for coal and methane gas, partially offset by greater methane gas
sales volumes. A total of 1.58 million tons of coal was sold at an average
selling price per ton of $44.41 in the current year period compared with 1.72
million tons at $44.65 in 1997. The decrease in tonnage sold resulted from
short-term delays of coal shipments that were scheduled to occur late in the
fiscal quarter. 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 2.19 billion cubic feet in
the 1998 period versus 1.97 billion cubic feet in 1997. The average selling
price per thousand cubic feet, which included a monthly reservation fee of
$675,000 in both periods, was $3.35 in the 1998 period versus $4.34 in 1997.
The Group's operating income of $8.8 million exceeded the prior year period by
$8.2 million. This performance reflected increased coal productivity which
contributed to lower production costs ($35.80 per ton in the 1998 period versus
$36.46 in 1997). Prior year results included a $6.2 million charge ($4.6
14
<PAGE>
million included in cost of sales and $1.6 million in selling, general and
administrative expenses) relating to a reduction in Jim Walter Resources'
salaried workforce under a voluntary early retirement program. In addition,
during the three months ended February 28, 1997, Mine No. 5 was in development
and while in development the mine's costs were capitalized ($9.9 million).
Industrial Products Group sales and revenues were $2.4 million, or 3.5% greater
than the prior year period. The improved performance was the result of
increased selling prices and volumes for aluminum foil and sheet products and
greater sales volumes of foundry coke and slag wool. Operating income of $4.5
million was $.9 million above the prior year period which was the result of the
sales increase and higher gross profit margins realized on aluminum products.
Cost of sales, exclusive of depreciation, of $306.7 million was 79.2% of net
sales in the 1998 period versus $225.2 million and 81.3% in 1997. The
percentage decrease was primarily the result of improved gross profit margins on
coal, pipe and aluminum foil and sheet products.
Selling, general and administrative expenses of $43.9 million were 9.7% of net
sales and revenues in the 1998 period versus $37.2 million and 10.9% in 1997.
Interest and amortization of debt expense was $50.9 million in the 1998 period
versus $44.3 million in 1997 reflecting higher outstanding debt balances. The
average rate of interest in the 1998 period was 7.84% as compared to 8.02% in
1997. The prime rate of interest was 8.5% in the 1998 period compared to 8.25%
in 1997.
The Company's effective tax rate in the 1998 and 1997 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 1998 period.
The net income in the 1998 period was $7.7 million compared to a net loss of
$2.2 million in the 1997 period reflecting all of the previously mentioned
factors as well as lower postretirement health benefits in the current year
period.
NINE MONTHS ENDED FEBRUARY 28, 1998 AND 1997
Net sales and revenues for the nine months ended February 28, 1998 were $193.2
million, or 17.4%, above the prior year period. This performance, in addition
to the contribution from AIMCOR, was the result of improved performances from
all other operating groups.
Homebuilding and Financing Group sales and revenues were $3.4 million, or 1.0%,
above the prior year period. This performance reflects a 2.7% increase in the
average net selling price, from $47,100 in the 1997 period to $48,400 in 1998,
which was more than offset by a 4.9% decrease in the number of units sold, from
2,958 units in the 1997 period to 2,813 units in 1998. 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 continuing intense competition from local and regional
homebuilders as well as high demand for subcontractors and construction crews.
Time charge income increased from $172.4 million in the 1997 period to $177.3
million in 1998. 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 $65.9 million (net of interest
expense) was $6.7 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 homebuilding gross profit margin, lower interest expense
in the 1998 period ($87.8 million) as compared to the prior year ($89.5 million)
and lower goodwill amortization in the 1998 period ($20.1 million) versus 1997
($21.6 million), partially offset by the decrease in the number of homes sold.
Water Transmission Products Group sales and revenues approximated the prior year
period. Reduced selling prices for ductile iron pressure pipe, fittings, valves
and hydrants, combined with lower sales volumes of fittings were offset by
increased shipments of ductile iron pressure pipe, valves and hydrants. Ductile
iron pressure pipe shipments, at 399,000 tons, were 4.5% higher than the prior
year period while average selling prices were 3% lower reflecting intense
competitive conditions related to the continuing slow pace of funding for
infrastructure repair and replacement projects.
15
<PAGE>
Operating income of $8.0 million was $1.1 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, valves and hydrants sales
volumes.
Natural Resources Group sales and revenues were $16.8 million, or 6.6%, 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 and methane gas. A total of
5.6 million tons of coal was sold at an average selling price per ton of $43.26
in the current year period compared with 5.0 million tons at $44.73 in 1997.
The decrease in the average selling price was primarily the result of a lower
price realizations on coal sold to the worldwide metallurgical market. Methane
gas sales volumes were 6.3 billion cubic feet in the 1998 period versus 5.6
billion cubic feet in 1997. The average selling price per thousand cubic feet,
which included a monthly reservation fee of $675,000 in both periods, was $3.70
in the 1998 period versus $4.04 in 1997. The Group's operating income of $30.0
million exceeded the prior year period by $15.9 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 ($36.13
per ton in the 1998 period versus $38.35 in 1997), 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 $6.2 million charge relating to a reduction in Jim Walter
Resources' salaried workforce under a voluntary early retirement program,
partially offset by 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 nine months ended February 28, 1997, Mine No. 5 was in
development and while in development the mine's costs were capitalized ($21.9
million).
Industrial Products Group sales and revenues were $7.6 million, or 3.5%, greater
than the prior year period. The improved performance was the result of
increased shipments of aluminum sheet products, foundry coke and slag wool,
combined with higher selling prices for aluminum foil and sheet products and
furnace and foundry coke. These increases were partially offset by decreased
shipments of aluminum foil products and furnace coke, and lower selling prices
for window components. Operating income of $14.2 million exceeded the prior
year period by $1.3 million. The improved performance primarily resulted from
the sales increases and higher gross profit margins realized on aluminum
products, and slag wool.
Cost of sales, exclusive of depreciation, of $871.5 million was 79.0% of net
sales in the 1998 period versus $724.6 million and 79.1% in 1997. The slight
percentage decrease reflected improved gross profit margins on home sales, coal,
aluminum products and slag wool, partially offset by lower margins realized on
pipe products and methane gas.
Selling, general and administrative expenses of $119.4 million were 9.2% of net
sales and revenues in the 1998 period versus $106.3 million and 9.6% in 1997.
Interest and amortization of debt expense was $143.8 million in the 1998 period
versus $136.6 million in 1997 reflecting higher outstanding debt balances. The
average rate of interest in the 1998 period was 8.09% as compared to 8.10% in
1997. The prime rate of interest was 8.5% in the 1998 period compared to 8.25%
in 1997.
The Company's effective tax rate in the 1998 and 1997 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 1998 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 1998 period was $31.8 million compared to net income of
$15.5 million in the 1997 period
16
<PAGE>
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 $417.8 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 financing with
NationsBank. The financing consisted of a $350 million revolving credit
facility ("Revolving Credit Facility") and a $450 million 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 February 28,
1998, borrowing under the $800 Million Credit Agreement totaled $682.9 million.
In addition, there were $25.2 million face amount letters of credit outstanding
thereunder.
During the nine month period ended February 28, 1998, borrowings under Mid-State
Trust V Variable Funding Loan Agreement totaled $152.0 million and debt assumed
from acquisitions totaled $2.6 million. 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 $65.3 million, $23.2 million, $50.7 million and $23.9 million,
respectively. In addition, scheduled retirements of other long-term debt
amounted to $.7 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 ended February 28,
1998. The Company was in compliance with these covenants at February 28, 1998
and believes it will meet these financial tests over the remaining term of this
agreement.
17
<PAGE>
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 February 28, 1998.
Liquidity and Capital Resources
At February 28, 1998, cash and cash equivalents, net of bank overdrafts, were
approximately $21.3 million. Operating cash flows for the nine months ended
February 28, 1998 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 February 28, 1998 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 $60.0 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.
18
<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 6. EXHIBITS AND REPORTS
(a) Exhibit 27 - Financial Data Schedule
(b) On December 29, 1997, the Company filed an amended Current Report
on Form 8-K/A with respect to the acquisition of the stock of
Applied Industrial Materials Corporation. Such amendment
included the financial statements and pro forma financial
information required to be filed relative to the acquired stock.
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: April 14, 1998
-----------------
19
<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> 9-MOS
<FISCAL-YEAR-END> MAY-31-1998
<PERIOD-START> JUN-01-1997
<PERIOD-END> FEB-28-1998
<CASH> 39,791
<SECURITIES> 264,356
<RECEIVABLES> 1,553,300
<ALLOWANCES> (33,668)
<INVENTORY> 309,676
<CURRENT-ASSETS> 0<F1>
<PP&E> 1,167,113
<DEPRECIATION> (517,114)
<TOTAL-ASSETS> 3,507,475
<CURRENT-LIABILITIES> 0<F1>
<BONDS> 2,483,393
0<F1>
0<F1>
<COMMON> 551
<OTHER-SE> 330,069
<TOTAL-LIABILITY-AND-EQUITY> 3,507,475
<SALES> 1,103,464
<TOTAL-REVENUES> 1,301,224
<CGS> 871,546
<TOTAL-COSTS> 177,405
<OTHER-EXPENSES> 44,967
<LOSS-PROVISION> (19)
<INTEREST-EXPENSE> 143,814
<INCOME-PRETAX> 63,511
<INCOME-TAX> (29,097)
<INCOME-CONTINUING> 34,414
<DISCONTINUED> 0<F1>
<EXTRAORDINARY> (2,663)
<CHANGES> 0<F1>
<NET-INCOME> 31,751
<EPS-PRIMARY> .59
<EPS-DILUTED> .58
<FN>
<F1>This line item is not presented on the Consolidated Financial Statements.
</FN>
</TABLE>
