<PAGE>
UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D. C. 20549
FORM 10-Q
|X| QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d)
OF THE SECURITIES EXCHANGE ACT OF 1934
For the quarterly period ended August 31, 1999
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 50,035,759 shares of common stock of the registrant outstanding at
September 30, 1999.
<PAGE>
PART I - FINANCIAL INFORMATION
WALTER INDUSTRIES, INC. AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS
<TABLE>
<CAPTION>
August 31, May 31,
1999 1999
(UNAUDITED) (AUDITED)
----------- -----------
<S> <C> <C>
ASSETS (in thousands)
- ------
Cash and cash equivalents $ 51,092 $ 40,783
Short-term investments, restricted 146,229 145,658
Marketable securities 30,774 4,803
Instalment notes receivable 4,207,966 4,191,138
Less -Allowance for possible losses (25,886) (25,813)
Unearned time charges (2,889,345) (2,874,556)
Trade receivables, less allowance for possible
losses of $3,691 and $3,337, respectively 193,745 193,397
Other receivables 17,465 14,996
Inventories
Finished goods 140,476 152,806
Goods in process 49,669 44,178
Raw materials and supplies 46,701 44,612
Houses held for resale 3,521 3,377
Prepaid expenses 11,969 9,270
Property, plant and equipment, net 399,555 398,591
Deferred income taxes 26,660 36,857
Investments and other long-term assets 47,786 47,002
Unamortized debt expense 48,655 50,623
Goodwill, net 508,251 518,575
Assets held for disposition 351,450 365,729
----------- -----------
$ 3,366,733 $ 3,362,026
=========== ===========
LIABILITIES AND STOCKHOLDERS' EQUITY
Book overdrafts $ 33,697 $ 33,579
Accounts payable 119,658 125,846
Accrued expenses 112,936 135,959
Income taxes payable 53,534 53,032
Short-term notes payable -- 2,200
Long-term senior debt
Mortgage-backed/asset-backed notes 1,752,473 1,758,151
Other senior debt 582,850 553,000
Accrued interest 24,668 25,670
Accumulated postretirement benefits obligation 274,185 270,409
Other long-term liabilities 61,317 61,261
Stockholders' equity
Common stock - 200,000,000 authorized, $.01 par value
Issued - 55,306,851 shares and 55,304,184 shares 553 553
Capital in excess of par value 1,169,410 1,169,377
Accumulated deficit (736,824) (748,905)
Treasury stock - 5,271,092 and 4,992,292 shares, at cost (75,799) (72,078)
Cumulative foreign currency translation adjustment (234) (341)
Excess of additional pension liability over
unrecognized prior years service cost (5,621) (5,621)
Net unrealized depreciation in marketable securities (70) (66)
----------- -----------
Total stockholders' equity 351,415 342,919
----------- -----------
$ 3,366,733 $ 3,362,026
=========== ===========
</TABLE>
See accompanying Notes to Consolidated Financial Statements
2
<PAGE>
WALTER INDUSTRIES, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF OPERATIONS
(UNAUDITED)
<TABLE>
<CAPTION>
For the three months ended
AUGUST 31,
----------------------
1999 1998
--------- ---------
(in thousands, except per
share amounts)
<S> <C> <C>
Sales and revenues:
Net sales $ 334,674 $ 338,861
Time charges 58,316 64,231
Miscellaneous 4,209 5,460
--------- ---------
397,199 408,552
--------- ---------
Cost and expenses:
Cost of sales 258,781 273,591
Depreciation 11,046 10,823
Selling, general and administrative 44,763 40,927
Postretirement benefits 2,689 1,969
Provision for possible losses 610 85
Interest and amortization of debt expense 45,494 47,483
Amortization of goodwill 10,426 11,049
--------- ---------
373,809 385,927
--------- ---------
23,390 22,625
Income tax expense:
Current (1,112) (3,245)
Deferred (10,197) (8,580)
--------- ---------
Income from continuing operations 12,081 10,800
Loss from discontinued operation (net of income tax
benefit of $3,450 in 1998) -- (1,763)
--------- ---------
Net income $ 12,081 $ 9,037
========= =========
Basic earnings per share:
Income from continuing operations $ .24 $ .20
Loss from discontinued operation -- (.03)
--------- ---------
Net income $ .24 $ .17
========= =========
Diluted earnings per share:
Income from continuing operations $ .24 $ .20
Loss from discontinued operation -- (.03)
--------- ---------
Net income $ .24 $ .17
========= =========
</TABLE>
See accompanying Notes to Consolidated Financial Statements
3
<PAGE>
WALTER INDUSTRIES, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENT OF CHANGES IN STOCKHOLDERS' EQUITY
(UNAUDITED)
(in thousands)
<TABLE>
<CAPTION>
Accumulated
Other
Comprehensive Accumulated Comprehensive Common Capital in Treasury
Total Income Deficit Income Stock Excess Stock
--------- ------------- ----------- ------------- ------ ---------- --------
<S> <C> <C> <C> <C> <C> <C> <C>
Balance at May 31, 1999 $ 342,919 435 $ (748,905) $ (6,028) $ 553 $1,169,377 $ (72,078)
Comprehensive income
Net income 12,081 $ 12,081 12,081
Other comprehensive income, net of tax
Net unrealized depreciation in
marketable securities (4) (4) (4)
Foreign currency translation adjustment 107 107 107
---------
Other comprehensive income 103
---------
Comprehensive income $ 12,184
=========
Stock issued from option exercises 33 33
Purchases of treasury stock (3,721) (3,721)
---------- ---------- ---------- ------- ---------- ---------
Balance at August 31, 1999 $ 351,415 $ (736,824) $ (5,925) $ 553 $1,169,410 $ (75,799)
========== ========== ========== ======= ========== =========
</TABLE>
See accompanying Notes to Consolidated Financial Statements
4
<PAGE>
WALTER INDUSTRIES, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS
(UNAUDITED)
<TABLE>
<CAPTION>
For the three months ended
August 31,
--------------------------
1999 1998
--------- ---------
<S> <C> <C>
OPERATING ACTIVITIES (in thousands)
Net income $ 12,081 $ 9,037
Charges to income not affecting cash:
Depreciation 11,046 10,823
Provision for deferred income taxes 10,197 8,580
Accumulated postretirement benefits obligation 3,776 3,936
Provision for other long-term liabilities 56 205
Amortization of goodwill 10,426 11,049
Amortization of debt expense 1,968 1,440
--------- ---------
49,550 45,070
Decrease (increase) in assets:
Short-term investments, restricted (571) 111,105
Marketable securities (25,975) (1,060)
Instalment notes receivable, net (a) (1,966) 10,460
Trade and other receivables, net (2,817) 835
Inventories 4,606 6,292
Prepaid expenses (2,699) (3,079)
Assets held for disposition 14,279 33,453
Increase (decrease) in liabilities:
Book overdrafts 118 (1,234)
Accounts payable (6,188) (23,046)
Accrued expenses (23,023) (17,188)
Income taxes payable 502 1,686
Accrued interest (1,002) (3,055)
--------- ---------
Cash flows from operating activities 4,814 160,239
--------- ---------
INVESTING ACTIVITIES
Additions to property, plant and equipment, net of
retirements (12,010) (13,252)
Increase in investments and other assets (886) (1,125)
--------- ---------
Cash flows used in investing activities (12,896) (14,377)
--------- ---------
FINANCING ACTIVITIES
Issuance of short-term notes payable and long-term senior debt 179,600 53,701
Retirement of short-term notes payable and long-term senior debt (157,628) (192,870)
Purchases of treasury stock (3,721) (13,683)
Exercise of employee stock options 33 161
--------- ---------
Cash flows from (used in) financing activities 18,284 (152,691)
--------- ---------
EFFECT OF EXCHANGE RATE ON CASH 107 78
--------- ---------
Net increase (decrease) in cash and cash equivalents 10,309 (6,751)
Cash and cash equivalents at beginning of period 40,783 54,647
--------- ---------
Cash and cash equivalents at end of period $ 51,092 $ 47,896
========= =========
</TABLE>
(a) Consists of sales and resales, net of repossessions and provision for
possible losses, of $48,091 and $40,944 and cash collections on account and
payouts in advance of maturity of $46,125 and $51,404, respectively.
See accompanying Notes to Consolidated Financial Statements
5
<PAGE>
WALTER INDUSTRIES, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
AUGUST 31, 1999
Note 1 - Principles of Consolidation
Walter Industries, Inc. (the "Company") is a diversified holding company with
three reportable segments: Homebuilding and Financing, Water Transmission
Products and Energy Services. Through these operating segments and other
operations, the Company offers a diversified line of products and services
primarily including home construction and financing, ductile iron pressure pipe,
alloys, metals, petroleum coke distribution and refinery outsourcing services,
aluminum foil and sheet products, furnace and foundry coke, chemicals and slag
fiber. The Company's coal mining and methane gas subsidiary, Jim Walter
Resources ("JWR"), has been classified as a discontinued operation (see Note 2
for further discussion). 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 August 31, 1999 and 1998 amounts are unaudited but, in the opinion of
management, all adjustments, consisting only of normal recurring adjustments
necessary for a fair presentation have been made. The results for the three
months ended August 31, 1999 and 1998 are not necessarily indicative of results
for a full fiscal year. These financial statements should be read in conjunction
with the Company's audited consolidated financial statements and notes thereto
in the Company's Annual Report on Form 10-K for the year ended May 31, 1999.
Unless otherwise specified, capitalized terms used herein are as defined in the
aforementioned Form 10-K.
Note 2 - Discontinued Operation
In February 1999 (the "measurement date"), a decision was made to dispose of
JWR, the Company's coal mining and methane gas subsidiary. As a result, the
operations of JWR have been classified as a discontinued operation in the
consolidated financial statements.
The following is a summary of the operating results of JWR (in thousands):
<TABLE>
<CAPTION>
Three Months Ended August 31,
-----------------------------
1999 1998 (B)
-------- --------
<S> <C> <C>
Sales and revenues $ 62,611 $ 84,582
Costs and expenses 65,568 89,795
-------- --------
Loss before tax (2,957) (5,213)
Income tax benefit 1,328 3,450
-------- --------
Loss from discontinued operation $ (1,629)(a) $ (1,763)
======== ========
</TABLE>
(a) In accordance with Emerging Issues Task Force Issue No. 85-36 the net loss
has been deferred pending disposition. Management does not presently
anticipate a loss on the ultimate disposition.
(b) Prior to measurement date.
6
<PAGE>
WALTER INDUSTRIES, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (continued)
The assets of JWR have been segregated on the balance sheet from their
historical classification to separately identify them as assets held for
disposition. Such amounts are summarized as follows (in thousands):
<TABLE>
<CAPTION>
August 31, May 31,
--------- --------
1999 1999
<S> <C> <C>
Cash and cash equivalents $ 1,079 $ 58
Short-term investments, restricted 3,545 3,491
Trade and other receivables, net 18,026 28,476
Inventories 57,407 61,434
Prepaid expenses 10,744 10,056
Property, plant and equipment, net,
investments and other long-term assets 226,707 229,121
Deferred income taxes 33,942 33,093
-------- --------
Total Assets Held for Disposition $351,450 $365,729
======== ========
</TABLE>
The liabilities of JWR, aggregating approximately $228.7 million at August 31,
1999, have not been classified separately pending determination of the form and
structure of disposition.
Note 3 - Restricted Short-Term Investments
Restricted short-term investments at August 31, 1999 and May 31, 1999 include
(i) temporary investment of reserve funds and collections on instalment notes
receivable owned by the Trusts ($108.2 million and $115.9 million, respectively)
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 were subject to
retention at August 31, 1999 ($25.4 million and $17.1 million, respectively) and
(iii) miscellaneous other segregated accounts restricted to specific uses ($12.6
million and $12.7 million, respectively).
Note 4 - Instalment Notes Receivable and Mortgage-Backed/Asset-Backed Notes
The gross amount of instalment notes receivable, the economic balance and
long-term debt outstanding for each of the business trusts organized by
Mid-State Homes are as follows (in thousands):
<TABLE>
<CAPTION>
AUGUST 31, 1999
-------------------------------------------------
GROSS BALANCE ECONOMIC BALANCE DEBT OUTSTANDING
------------- ---------------- ----------------
<S> <C> <C> <C>
Loan & Security Agreement $ -- $ -- $ 88,830
Trust II 581,540 376,716 242,250
Trust III 247,196 140,483 40,529
Trust IV 1,174,157 544,512 580,458
Trust V 484,656 183,983 153,000
Trust VI 898,318 370,299 347,175
Trust VII 800,811 318,648 300,231
Unpledged 21,288 8,180 --
---------- ---------- ----------
Total $4,207,966 $1,942,821 $1,752,473
========== ========== ==========
</TABLE>
7
<PAGE>
WALTER INDUSTRIES, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (continued)
Note 5 - Stockholders' Equity
In September 1998, the Company's Board of Directors authorized an increase, from
two to four million, in the number of shares of the Company's common stock which
may be repurchased under the share repurchase program authorized in July 1998.
Information relating to the Company's share repurchases is set forth below (in
thousands):
<TABLE>
<CAPTION>
AUGUST 31, 1999
---------------
Shares Amount
------ ------
<S> <C> <C>
Share repurchases for the
three months ended August 31, 1999 279 $ 3,721
===== =======
Cumulative amount repurchased
under current authorization 3,873 $53,959
===== =======
Total held in treasury 5,271 $75,799
===== =======
</TABLE>
Note 6 - Earnings Per Share
A reconciliation of the basic and diluted earnings per share computations for
the three months ended August 31, 1999 and 1998 are as follows (in thousands,
except per share amounts):
<TABLE>
<CAPTION>
THREE MONTHS ENDED AUGUST 31,
----------------------------------------
1999 1998
----------------- --------------------
BASIC DILUTED BASIC DILUTED
------- ------- -------- --------
<S> <C> <C> <C> <C>
Income from continuing operations $12,081 $12,081 $ 10,800 $ 10,800
Loss from discontinued operation -- -- (1,763) (1,763)
------- ------- -------- --------
Net income $12,081 $12,081 $ 9,037 $ 9,037
======= ======= ======== ========
Average number of common shares outstanding (a) 50,084 50,084 53,458 53,458
Effect of diluted securities:
Stock options (b) -- 28 -- 404
------- ------- -------- --------
50,084 50,112 53,458 53,862
======= ======= ======== ========
Per share:
Income from continuing operations $ .24 $ .24 $ .20 $ .20
Loss from discontinued operation -- -- (.03) (.03)
------- ------- -------- --------
Net income $ .24 $ .24 $ .17 $ .17
======= ======= ======== ========
</TABLE>
(a) For the three months ended August 31, 1999 and 1998, includes 3,880,140
additional shares issued to an escrow account on September 13, 1995
pursuant to the Consensual Plan, but does not include 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 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.
8
<PAGE>
WALTER INDUSTRIES, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (continued)
Note 7 - Segment Information
Information relating to the Company's operating segments is set forth below (in
thousands):
<TABLE>
<CAPTION>
Three months ended
August 31,
------------------------
1999 1998
--------- ---------
<S> <C> <C>
Sales and revenues:
Homebuilding and Financing $ 126,409 $ 111,850
Water Transmission Products 122,721 120,720
Energy Services 64,592 87,973
Other 83,152 87,969
Corporate 325 40
--------- ---------
Consolidated sales and revenues
from continuing operations (a) $ 397,199 $ 408,552
========= =========
Operating income (b) :
Homebuilding and Financing (c) $ 24,659 $ 28,688
Water Transmission Products 14,235 7,672
Energy Services 4,657 3,544
Other 7,991 8,076
--------- ---------
Operating income 51,542 47,980
Less: General corporate expense (c) (5,410) (3,352)
Senior debt interest expense (c) (10,154) (10,550)
Intercompany interest expense (c) (12,588) (11,453)
--------- ---------
Income before tax expense 23,390 22,625
Income tax expense (11,309) (11,825)
--------- ---------
Income from continuing operations $ 12,081 $ 10,800
========= =========
Depreciation:
Homebuilding and Financing $ 1,327 $ 966
Water Transmission Products 4,209 3,947
Energy Services 1,643 1,541
Other 3,495 3,945
Corporate 372 424
--------- ---------
Total $ 11,046 $ 10,823
========= =========
</TABLE>
(a) Inter-segment sales (made primarily at prevailing market prices) are
deducted from the sales of the selling segment and are insignificant in
amount with the exception of the sales of Other to Water Transmission
Products of $3.6 million and $3.9 million in 1999 and 1998, respectively.
9
<PAGE>
WALTER INDUSTRIES, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (continued)
(b) Operating income amounts are after deducting amortization of goodwill. A
breakdown of goodwill amortization by segment is as follows (in
thousands):
<TABLE>
<CAPTION>
Three months ended
August 31,
------------------------
1999 1998
------- -------
<S> <C> <C>
Homebuilding and Financing $ 5,510 $ 6,145
Water Transmission Products 2,484 2,485
Energy Services 2,127 2,111
Other 266 267
Corporate 39 41
------- -------
$10,426 $11,049
======= =======
</TABLE>
(c) Interest and amortization of debt expense incurred by the Homebuilding
and Financing segment and Corporate are as follows (in thousands):
<TABLE>
<CAPTION>
Three months ended
August 31,
------------------------
1999 1998
-------- --------
<S> <C> <C>
Homebuilding and Financing:
Gross interest $ 35,340 $ 36,933
Less: Intercompany interest income (12,588) (11,453)
-------- --------
Net interest expense 22,752 25,480
Corporate:
Senior debt interest 10,154 10,550
Intercompany interest expense 12,588 11,453
-------- --------
$ 45,494 $ 47,483
======== ========
</TABLE>
General corporate expense, senior debt interest expense and
intercompany interest expense are attributable to all operating
segments, but cannot be reasonably allocated to specific segments.
10
<PAGE>
MANAGEMENT'S DISCUSSION AND ANALYSIS OF
RESULTS OF OPERATIONS AND FINANCIAL CONDITION AND
QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK
This discussion should be read in conjunction with the consolidated financial
statements and notes thereto of Walter Industries, Inc. and subsidiaries,
particularly Note 7 of "Notes to Consolidated Financial Statements" which
presents sales and revenues and operating income by operating segment.
RESULTS OF OPERATIONS
THREE MONTHS ENDED AUGUST 31, 1999 AND 1998
Net sales and revenues for the three months ended August 31, 1999 were $11.4
million, or 2.8%, below the prior year period. The decrease was primarily
attributable to lower market prices for products sold by the Energy Services
segment. In addition, prior year results included revenues of JW Window
Components, Inc., which was sold in the fiscal 1999 second quarter.
Cost of sales, exclusive of depreciation, of $258.8 million was 77.3% of net
sales versus $273.6 million or 80.7%, in the prior year period. The improvement
principally resulted from higher gross profit margins on pipe products,
petroleum coke, aluminum foil and sheet products and chemicals.
Selling, general and administrative expenses of $44.8 million were 11.3% of net
sales and revenues versus $40.9 million and 10.0% in the prior year period. The
dollar increase was primarily attributable to the acquisitions of Dream Homes,
Inc. (October 1998) and Crestline Homes, Inc. (February 1999) coupled with
expenditures associated with upgrading information technology capabilities and
Year 2000 issues.
Interest and amortization of debt expense was $45.5 million versus $47.5 million
in the prior year period as a result of lower interest rates. The average rate
of interest in the 1999 period was 7.4% as compared to 7.6% in 1998. The prime
rate of interest ranged from 7.75% to 8.25% in the 1999 period compared to 8.5%
in 1998.
The Company's effective tax rate from continuing operations in the 1999 and 1998
periods differed from the statutory tax rate primarily due to amortization of
goodwill which is not deductible for tax purposes, excluding amounts related to
the AIMCOR acquisition.
The discontinued operation incurred a loss, net of tax of $1.6 million in the
current period; however, in accordance with the Emerging Issues Task Force Issue
No. 85-36, the net loss has been deferred pending disposition. Management does
not presently anticipate a loss on the ultimate disposition. The discontinued
operation incurred a loss, net of tax, of $1.8 million in the prior year period.
See Note 2 of "Notes to Consolidated Financial Statements".
Net income in the 1999 period was $12.1 million compared to $9.0 million in the
1998 period, which included the after tax loss of $1.8 million from the
discontinued operation. The Company's diluted earnings per share in the 1999
period were $.24 compared to $.17 in the 1998 period. Income from continuing
operations in the 1999 period was $12.1 million ($.24 per diluted share)
compared to $10.8 million ($.20 per diluted share) in the 1998 period and
reflects all of the factors discussed in the following segment analysis.
Segment Analysis:
Homebuilding and Financing Group sales and revenues increased $14.6 million, or
13.0%, over the prior year period. The improved performance reflects an increase
in the number of units sold, from 844 units in the 1998 period to 1,169 units in
1999, combined with a higher average net selling price, from $50,000 in the 1998
period to $54,100 in 1999, partially offset by lower time charge income
(revenues received from Mid-State's instalment note portfolio), from $64.2
million in the 1998 period to $58.3 million in 1999. The higher average net
selling price resulted from new product
11
<PAGE>
options and amenity upgrades, as well as consumer preference for more upscale
models being offered by Jim Walter Homes. The order backlog at August 31, 1999
was 2,817 units compared to 2,143 units at August 31, 1998. The decrease in time
charge income resulted from a reduction in payoffs received in advance of
maturity and a reduction in the total number of accounts, partially offset by an
increase in the average balance per account in the portfolio. Operating income
of $24.7 million (net of interest expense) was $4.0 million below the prior year
period reflecting the lower time charge income and a decline in homebuilding
gross profit margins due to increases in building material costs, partially
offset by the increases in units sold and average net selling prices, lower
interest expense in the 1999 period ($22.8 million) as compared to the prior
year period ($25.5 million) and lower goodwill amortization in the 1999 period
($5.5 million) compared to 1998 ($6.1 million).
Water Transmission Products sales and revenues increased $2.0 million, or 1.7%,
above the prior year period. The increase was the result of improved selling
prices and slightly higher shipments. Total shipments in the 1999 period were
168,100 tons compared to 167,600 tons in 1998. The order backlog of ductile iron
pressure pipe at August 31, 1999 was 128,000 tons, representing approximately
three months shipments, compared with 131,000 tons at August 31, 1998. Operating
income of $14.2 million exceeded the prior year period by $6.6 million. This
performance was the result of improved gross profit margins reflecting lower raw
material costs (primarily scrap iron) and improved operating efficiencies
combined with the previously mentioned increase in sales and revenues.
Energy Services' sales and revenues decreased $23.4 million, or 26.6%,
reflecting a year-to-year decline in worldwide market prices for petroleum coke
and ferroalloys. Operating income of $4.7 million, however, was $1.1 million
higher than the prior year period reflecting improved margins on petroleum coke.
The Other segment's sales and revenues decreased $4.8 million, or 5.5%, from the
prior year period. Prior year results included revenues of $11.6 million from JW
Window Components, Inc. which was sold in the fiscal 1999 second quarter.
Increased shipments of aluminum foil and sheet products were partially offset by
lower volumes of furnace and foundry coke and slag fiber and reduced revenues
from the Company's land management businesses. Operating income of $8.0 million
was $.1 million below the prior year period which included a $.5 million
contribution from JW Window Components. Improved operating margins for aluminum
foil and sheet products and chemicals were partially offset by lower land
management income.
FINANCIAL CONDITION
Since May 31, 1999, total debt increased $22.0 million. During the three month
period ended August 31, 1999, net borrowings under the Mid-State Trust V
Variable Funding Loan Agreement and the Credit Facilities totaled $48.0 million
and $27.8 million, respectively. Scheduled payments on the
mortgage-backed/asset-backed notes amounted to $53.7 million. Retirements of
other long-term debt amounted to $.1 million.
At August 31, 1999 borrowings under the Credit Facilities totaled $580.0
million. The Revolving Credit Facility includes a sub-facility for trade and
other standby letters of credit in an amount up to $75.0 million at any time
outstanding. At August 31, 1999, letters of credit with a face amount of
$24.5 million were outstanding.
The Credit Facilities contain a number of significant covenants that, among
other things, restrict the ability of the Company and its subsidiaries to
dispose of assets, incur additional indebtedness, pay dividends, create liens on
assets, enter into capital leases, make investments or acquisitions, engage in
mergers or consolidations, or engage in certain transactions with subsidiaries
and affiliates and otherwise restrict corporate activities (including change of
control and asset sale transactions). In addition, under the Credit Facilities,
the Company is required to maintain specified financial ratios and comply with
certain financial tests. Effective August 31, 1999, the Credit Facilities were
amended to include, among other things, the following: (a) the Applicable Margin
(as defined in the Credit Facilities) for LIBOR rate loans is amended in its
entirety and includes a range from .625% to 2.25% (based upon a leverage ratio
pricing grid); (b) the Applicable Unused Fee (as defined in the Credit
Facilities) is amended in its entirety and includes a range from .20% to .40%
(based upon a leverage ratio pricing grid); (c) the borrowers' fixed charge
coverage ratio was replaced by an
12
<PAGE>
interest coverage ratio (the ratio of Consolidated EBITDA (as defined in
Amendment Agreement No. 5 to the Credit Facilities) to Consolidated Interest
Expense (as defined in the Credit Facilities)). The interest coverage ratio is
required to be at least 2.50-to-1 at the end of each Four Quarter Period (as
defined in the Credit Facilities) for the duration of the Credit Facilities; and
(d) the borrowers are required to maintain a leverage ratio (the ratio of
indebtedness to Consolidated EBITDA) of not more than 3.75-to-1 for the duration
of the Credit Facilities, provided, however, in the event of a Mining Sale (as
defined in the Credit Facilities) the ratio must not exceed 4.25-to-1 for the
period ending November 30, 1999, 4.0-to-1 for the periods ending February 29,
2000, and May 31, 2000, and 3.75-to-1 for the period ending August 31, 2000 and
thereafter. The Company was in compliance with these covenants at August 31,
1999.
The Trust V Variable Funding Loan Agreement's covenants, among other things,
restrict the ability of Trust V to dispose of assets, create liens and engage in
mergers or consolidations. The Company was in compliance with these covenants at
August 31, 1999. Effective September 29, 1999, the Trust V Variable Funding Loan
Agreement was amended to include, among other things, the following: (a) the
facility was increased to $500.0 million; (b) interest is based upon the cost of
A-1 and P-1 rated commercial paper plus .25%; and (c) the facility fee on the
maximum net investment is .25%. The agreement expires September 27, 2000.
The Loan and Security Agreement contains a number of covenants that, among other
things, restrict the ability of Mid-State Homes to dispose of assets, create
liens on assets, engage in mergers, incur any unsecured or recourse debt, or
make changes to their credit and collection policy. In addition, Mid-State Homes
is required to maintain specified net income and net worth levels. The Company
was in compliance with these covenants at August 31, 1999.
LIQUIDITY AND CAPITAL RESOURCES
Cash and cash equivalents, net of book overdrafts, were approximately $17.4
million at August 31, 1999. Operating cash flows for the three months ended
August 31, 1999 together with issuance of long-term debt under the Mid-State
Trust V Variable Funding Loan Agreement, borrowings under the Credit Facilities
and the use of available cash balances were primarily used for retirement of
long-term senior debt, interest payments, capital expenditures and to purchase
278,800 shares of common stock under the stock repurchase program authorized by
the Company's Board of Directors in July 1998.
Working capital is required to fund adequate levels of inventories and accounts
receivable. Commitments for capital expenditures at August 31, 1999 were not
significant; however, it is estimated that gross capital expenditures for the
Company's continuing operations for the balance of the year ending May 31, 2000
will approximate $62.0 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 Homes 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 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 and to repurchase up to an additional 127,000
shares of the Company's common stock, the amount remaining at August 31, 1999
under the current share repurchase authorization.
13
<PAGE>
MARKET RISK
The Company is exposed to certain market risks inherent in the Company's
financial instruments. These instruments arise from transactions entered into in
the normal course of business. The Company is subject to interest rate risk on
its existing Credit Facilities, Loan and Security Agreement, Trust V Variable
Funding Loan, and any future financing requirements.
The Company's primary market risk exposure relates to (i) the interest rate risk
on long-term and short-term borrowings, (ii) the impact of interest rate
movements on its ability to meet interest rate expense requirements and comply
with financial covenants, and (iii) the impact of interest rate movements on the
Company's ability to obtain adequate financing to fund future acquisitions. The
Company has historically managed interest rate risk through the periodic use of
interest rate hedging instruments. There were no such instruments outstanding at
August 31, 1999. While the Company can not predict its ability to refinance
existing debt or the impact interest rate movements will have on its existing
debt, management continues to evaluate its financial position on an ongoing
basis.
The Company is also subject to a limited amount of foreign currency risk, but
does not currently engage in any significant foreign currency hedging
transactions to manage exposure for transactions denominated in currencies other
than the U.S. dollar.
YEAR 2000 DISCLOSURE
Introduction
This Year 2000 ("Y2K") disclosure is provided in accordance with the Federal
Year 2000 Information and Readiness Disclosure Act, P.L. 105-271.
The Company is currently working to resolve the potential impact of Y2K on the
processing of date-sensitive information by the Company's computerized
information systems. The Y2K problem is the result of computer programs being
written using two digits (rather than four) to define the applicable year. Any
of the Company's programs that have time-sensitive software may recognize a date
using "00" as the year 1900 rather than the year 2000, which could result in
miscalculations or system failures. The problems created by using abbreviated
dates appear in hardware (such as microchips), operating systems and other
software programs. The Company's Y2K compliance project is intended to determine
the readiness of the Company's business for the year 2000 and to address the
issues, if any, which were identified. The Company defines Y2K "compliance" to
mean that the computer code will process all defined future dates properly and
give accurate results.
Description of Areas of Impact and Risk
The Company has identified three areas where the Y2K issue creates risk to the
Company: a) internal Information Technology ("IT") systems; b) non-IT systems
with embedded chip technology and c) system capabilities of third party
businesses with relationships with the Company, including product suppliers,
customers, service providers (such as telephone, power, logistics, financial
services) and other businesses whose failure to be Y2K compliant could have a
material adverse effect on the Company's business, financial condition or
results of operations.
Plan to Address Year 2000 Compliance
The Company has established a Corporate Steering Committee (the "Committee") to
coordinate solutions to Y2K issues for its information systems, non-IT systems
with embedded chips and third party business trading partners. The Committee
includes a representative from each subsidiary as well as a member of the
Company's Law Department, the Director of Information Technology and the Chief
Financial Officer. Each subsidiary also has a steering committee consisting of
the representative on the Committee and other members from all functional areas
of the respective
14
<PAGE>
subsidiary. The Committee has identified systems and applications that require
modification and has evaluated alternative solutions. The Committee also
developed a Y2K Standard that was issued to all subsidiaries and must be
followed for Y2K compliance. Status conference calls are held monthly and
on-site progress reviews are held quarterly. The Company has two data centers,
which have installed Y2K compliant mainframe equipment, operating systems and
system software. Separate virtual machines within a computer have been installed
for the purpose of testing. During the first calendar quarter of 1999, the
Company conducted a detail review of all Year 2000 remediation activities and
associated required documentation to ensure the process was on schedule.
State of Readiness
IT Systems - The initial inventory and prioritization process for the Company's
IT systems was completed in 1998 with the current focus on remediation and
testing. Approximately 95% of all identified IT system business components have
been tested and are considered compliant as of August 31, 1999. Coding changes
for all legacy systems have been completed and the final testing phase is in
process. The Y2K test environment is fully functional. Compliance testing will
continue through 1999 and will be completed by November 1999. All financial
systems have been remediated, tested and were considered fully compliant as of
May 31, 1999. Personal computer and other hardware compliant upgrades are 95%
complete with the remainder on order.
Non-IT systems - Non-IT systems consist of any device which is able to store and
report date-related information, such as access control systems, elevators,
conveyors, and other items containing a microprocessor or internal clock. The
plan utilized by the Company for analysis of the IT systems is also being used
for non-IT systems. All identified non-IT systems have been tested and were
considered compliant as of May 31, 1999.
Material Third Parties - The Company has created an inventory of what it
believes to be all third parties with whom the Company has a material business
relationship. Y2K readiness surveys were sent to these third parties beginning
in January 1998. The Company has reviewed the responses to these surveys to
determine the Y2K readiness of these third parties. For those critical third
party suppliers, service providers and customers who fail to respond to the
Company's survey, the Company is pursuing alternative means of obtaining Y2K
readiness information, such as review of publicly available information
published by such third parties. The Company plans to continue to review its
third party relationships throughout the Y2K compliance program to ensure all
material third party relationships are addressed.
Contingency Planning and Risks
Contingency plan guidelines have been developed by the Committee and provided to
each subsidiary. Contingency plans and roll-over plans for December 31, 1999 to
January 1, 2000 are complete. Each subsidiary has established a contingency
action team and is conducting contingency training. While the Company believes
that its approach to Y2K readiness is sound, it is possible that some business
components may not be identified in the inventory, or that the scanning or
testing process may not result in analysis and remediation of all source code.
The Company will assume a third party is not Y2K ready if no Y2K verification is
obtained and take action, as appropriate. The Company's contingency plan will
address alternative providers and processes to deal with business interruptions
that may be caused by the internal system or by the failure of third party
providers to be Y2K ready to the extent possible. In the unlikely event of a Y2K
issue, the Company's contingency plan focus is on employee safety, equipment
safety and prompt business resumption.
The failure to correct a material Y2K issue could result in an interruption in,
or a failure of, certain normal business activities or operations. Such failure
could materially and adversely affect the Company's results of operations,
liquidity and financial condition.
15
<PAGE>
Cost of Project
The overall cost of the Company's Y2K compliance effort is estimated to be
approximately $16.5 million. The project is 95% complete with the remaining 5%
related to contingency planning, final testing of remediated applications and
post-Y2K monitoring. Approximately $14.7 million or 89% of the project budget
has been spent as of August 31, 1999.
EURO CONVERSION
On January 1, 1999, eleven of the fifteen member countries of the European Union
commenced conversion from their existing sovereign currencies to a new, single
currency called the Euro. Fixed conversion rates between the existing
currencies, the legacy currencies, and the Euro will be established and the Euro
will become the common legal currency of the participating countries by January
1, 2000. The Euro is trading on currency exchanges and is available for non-cash
transactions. The participants are issuing sovereign debt exclusively in Euro
and are redenominating outstanding sovereign debt. Following this introduction
period, the participating members legacy currencies will remain legal tender as
denominations of Euro until January 1, 2002. At that time, countries will issue
new Euro-denominated bills for use in cash transactions. All legacy currency
will be withdrawn prior to July 1, 2002, completing the Euro conversion on this
date. As of January 1, 1999, the participating countries no longer control their
own monetary policies by directing independent interest rates for the legacy
currencies; instead, the authority to direct monetary policy, including money
supply and official interest rates for the Euro, is being exercised by the new
European Central Bank.
The Company has established a plan to address the issues raised by the Euro
conversion. These issues, which are applicable to the operations of AIMCOR
include but are not limited to: the competitive impact created by cross-border
price transparency; the need for the company and its business partners to adapt
IT and non-IT systems to accommodate Euro-denominated transactions and the need
to analyze the legal and contractual implications of the Company's contracts.
The Company currently anticipates that the required modifications to its
systems, equipment and processes will be made on a timely basis and does not
expect that the costs of such modifications will have a material effect on the
Company's financial position or results of operations. As part of Phase I, the
cost IT system has been modified for Euro Currency compliance. The Company's
European locations are currently processing Euro-compliant transactions. Phase
II of the Euro Currency project focuses on the conversion effect to a Euro base
currency. Phase II is scheduled to be complete by July 1, 2002. The project
budget is approximately $183,000 of which approximately $143,000 has been spent.
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. 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.
16
<PAGE>
PART II - OTHER INFORMATION
Item 1. LEGAL PROCEEDINGS
A substantial controversy exists with regard to federal income taxes
allegedly owed by the Company. See Note 7 of Notes to Consolidated
Financial Statements contained in the Company's Annual Report on Form
10-K for the year ended May 31, 1999.
Jim Walter Resources and Cockerill Sambre S.A. ("Cockerill"), a
Belgian steel producer, are parties to a long-term coal contract
expiring December 31, 1999. In August 1999, Jim Walter Resources
filed with the International Court of Arbitration of the
International Chamber of Commerce, a Request for Arbitration
concerning the contract. The Request for Arbitration alleged that
Cockerill breached the contract by failing to purchase required
minimum quantities of coal during calendar years 1998 and 1999 and
failed to provide adequate assurances that it would perform under
the contract during calendar year 2000. In early October 1999, an
agreement was reached between the parties to resolve the dispute.
The agreement provides, among other things, that tonnages to have
been purchased in calendar years 1999 and 2000 will be purchased
over calendar years 1999, 2000 and 2001.
The Company and its subsidiaries are parties to a number of other
lawsuits arising in the ordinary course of their businesses. Most of
these cases are in a preliminary stage and the Company is unable to
predict a range of possible loss, if any. The Company provides for
costs relating to these matters when a loss is probable and the amount
is reasonably estimable. The effect of the outcome of these matters on
the Company's future results of operations cannot be predicted because
any such effect depends on future results of operations and the amount
and timing of the resolution of such matters. While the results of
litigation cannot be predicted with certainty, the Company believes
that the final outcome of such other litigation will not have a
materially adverse effect on the Company's consolidated financial
condition.
Item 6. EXHIBITS AND REPORTS ON FORM 8-K
(a) Exhibit 27 - Financial Data Schedule
Exhibit 99(a) - Amendment Agreement No. 5 to the Credit Agreement
Exhibit 99(b) - Amendment Agreement to Variable Funding Loan
Agreement
(b) None
17
<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/ A. W. HUGE /s/ F. A. HULT
- ---------------------------- ------------------------------
A. W. Huge F. A. Hult
Executive Vice President and Vice President, Controller and
Principal Financial Officer Principal Accounting Officer
Date: OCTOBER 12, 1999
18
<TABLE> <S> <C>
<PAGE>
<ARTICLE> 5
<LEGEND>
This schedule contains summary financial information extracted from the
Consolidated Financial Statements and related notes thereto and is qualified in
its entirety by reference to such financial statements and related notes.
</LEGEND>
<MULTIPLIER> 1,000
<S> <C>
<PERIOD-TYPE> 3-MOS
<FISCAL-YEAR-END> MAY-31-2000
<PERIOD-START> JUN-01-1999
<PERIOD-END> AUG-31-1999
<CASH> 51,092
<SECURITIES> 177,003
<RECEIVABLES> 1,533,522
<ALLOWANCES> 29,577
<INVENTORY> 240,367
<CURRENT-ASSETS> 0<F1>
<PP&E> 399,555
<DEPRECIATION> 0<F1>
<TOTAL-ASSETS> 3,366,733
<CURRENT-LIABILITIES> 0<F1>
<BONDS> 2,335,323
553
0<F1>
<COMMON> 0<F1>
<OTHER-SE> 350,862
<TOTAL-LIABILITY-AND-EQUITY> 3,366,733
<SALES> 334,674
<TOTAL-REVENUES> 397,199
<CGS> 258,781
<TOTAL-COSTS> 55,809
<OTHER-EXPENSES> 13,115
<LOSS-PROVISION> 610
<INTEREST-EXPENSE> 45,494
<INCOME-PRETAX> 23,390
<INCOME-TAX> 11,309
<INCOME-CONTINUING> 12,081
<DISCONTINUED> 0
<EXTRAORDINARY> 0<F1>
<CHANGES> 0<F1>
<NET-INCOME> 12,081
<EPS-BASIC> .24
<EPS-DILUTED> .24
<FN>
<F1>This line item is not presented on the Consolidated Financial Statements.
</FN>
</TABLE>
<PAGE>
Exhibit 99(a)
AMENDMENT AGREEMENT NO. 5
TO CREDIT AGREEMENT
THIS AMENDMENT AGREEMENT is made and entered into as of this 30th day
of August, 1999, by and among WALTER INDUSTRIES, INC., a Delaware corporation
(herein called the "Borrower"), BANK OF AMERICA, N.A., d/b/a NationsBank,
National Association, successor by merger of NationsBank, National Association
(the "Agent"), as Agent for the lenders (the "Lenders") party to the Credit
Agreement dated October 15, 1997, as amended by Amendment Agreement No. 1 dated
November 20, 1997, Amendment No. 2 dated January 28, 1998, Amendment No. 3 dated
July 9, 1998 and Amendment No. 4 dated November 30, 1998 among such Lenders,
Borrower and the Agent (the "Agreement").
W I T N E S S E T H:
WHEREAS, the Borrower, the Agent and the Lenders have entered into the
Agreement pursuant to which the Lenders have agreed to make term loans and
revolving loans to the Borrower in the aggregate principal amount of up to
$800,000,000 as evidenced by the Notes (as defined in the Agreement) and to
issue Letters of Credit for the benefit of the Borrower; and
WHEREAS, as a condition to the making of the loans pursuant to the
Agreement the Lenders have required that all Restricted Subsidiaries (other than
inactive Subsidiaries) of the Borrower guarantee payment of all Obligations of
the Borrower arising under the Agreement; and
WHEREAS, the Borrower has requested that the Agreement be further
amended and the Agent and the Lenders, subject to the terms and conditions
hereof, are willing to make such amendment, as provided herein;
NOW, THEREFORE, the Borrower, the Agent and the Lenders do hereby agree
as follows:
1. DEFINITIONS. The term "Agreement" as used herein and in the Loan
Documents (as defined in the Agreement) shall mean the Agreement as hereinafter
amended and modified. Unless the context otherwise requires, all terms used
herein without definition shall have the definition provided therefor in the
Agreement.
2. AMENDMENT. The Agreement is amended, effective as of August 31,
1999, as follows:
(a) The table contained in the definition of "Applicable
Margin" in SECTION 1.1 is hereby amended in its entirety so that as
amended it shall read as follows:
<PAGE>
<TABLE>
<CAPTION>
Applicable Margin
Consolidated for Eurodollar
"Tier Leverage Ratio Rate Loans
------------------------------------------------------------------------------
<S> <C> <C>
1 Equal to or Greater than 4.25 to 1.00 2.25%
2 Less than 4.25 to 1.00 and Equal to 1.75%
or Greater than 3.75 to 1.00
3 Less than 3.75 to 1.00 and Equal to 1.375%
or Greater than 3.25 to 1.00
4 Less than 3.25 to 1.00 and Equal to 1.125%
or Greater than 2.75 to 1.00
5 Less than 2.75 to 1.00 and Equal to .75%
or Greater than 2.25 to 1.00
6 Less than 2.25 to 1.00 .625%"
</TABLE>
(b) The table contained in the definition of "Applicable
Unused Fee" in SECTION 1.1 is hereby amended in its entirety so that as
amended it shall read as follows:
<TABLE>
<CAPTION>
Applicable Margin
Consolidated for Eurodollar
"Tier Leverage Ratio Rate Loans
------------------------------------------------------------------------------
<S> <C> <C>
1 Equal to or Greater than 4.25 to 1.00 .40%
2 Less than 4.25 to 1.00 and Equal to .35%
or Greater than 3.75 to 1.00
3 Less than 3.75 to 1.00 and Equal to .30%
or Greater than 3.25 to 1.00
4 Less than 3.25 to 1.00 and Equal to .25%
or Greater than 2.75 to 1.00
5 Less than 2.75 to 1.00 and Equal to .25%
or Greater than 2.25 to 1.00
6 Less than 2.25 to 1.00 .20%"
</TABLE>
(c) The definition of "Consolidated EBITDA" in SECTION 1.1 is
hereby amended by (i) deleting the period at the end thereof and
inserting in lieu thereof a semi-colon, and (ii) adding the further
proviso at the end thereof:
2
<PAGE>
"PROVIDED, FURTHER, however, upon the occurrence of the Mining
Sale, the computation of Consolidated EBITDA for all periods
preceding the date of such sale shall exclude the results of
operations of the Mining Assets."
(d) SECTION 1.1 is hereby amended by deleting the definitions
"Consolidated Fixed Charge Coverage Ratio" and "Consolidated Fixed
Charges" therefrom and inserting immediately preceding the definition
"Consolidated Interest Expense" a new definition "Consolidated Interest
Coverage Ratio" which shall read as follows:
"CONSOLIDATED INTEREST COVERAGE RATIO" means, with
respect to the Borrower and its Restricted Subsidiaries for
any Four-Quarter Period ending on the date of computation
thereof, the ratio of (i) Consolidated EBITDA for such period
to (ii) Consolidated Interest Expense for such period.
(e) The following new definitions are hereby added to SECTION
1.1 in the appropriate alphabetical order:
"AMENDMENT NO. 5" means Amendment Agreement No. 5 to
Credit Agreement dated August 30, 1999 among the Borrower,
the Agent and the Lenders.
"CAPITAL EXPENDITURES" means, with respect to Jim
Walter Resources, Inc. and its Subsidiaries, if any, on a
consolidated basis, for any period the sum of (without
duplication) (i) all expenditures (whether paid in cash or
accrued as liabilities) by Jim Walter Resources, Inc. or any
of its Subsidiaries during such period for items that would be
classified as "property, plant or equipment" or comparable
items on the consolidated balance sheet of Jim Walter
Resources, Inc. and its Subsidiaries, including without
limitation all transactional costs incurred in connection with
such expenditures provided the same have been capitalized,
excluding, however, (A) the amount of any Capital Expenditures
paid for with proceeds of casualty insurance as evidenced in
writing and submitted to the Agent together with any
compliance certificate delivered pursuant to SECTION 9.1(A) or
(B), (B) non-cash capitalized depreciation arising in
connection with mining operations, and (ii) with respect to
any Capital Lease entered into by Jim Walter Resources, Inc.
or its Subsidiaries during such period, the present value of
the lease payments due under such Capital Lease over the term
of such Capital Lease applying a discount rate equal to the
interest rate provided in such lease (or in the absence of a
stated interest rate, that rate used in the preparation of the
financial statements described in SECTION 9.1(A), and (C) any
portion of the purchase price of an Acquisition by Jim Walter
Resources, Inc. which is accounted for as a Capital
Expenditure, all the foregoing in accordance with GAAP applied
on a Consistent Basis.
"MINING ASSETS" means the capital stock of Jim Walter
Resources, Inc. which includes its direct ownership interest
in Black Warrior Methane Corp. and Black Warrior Transmission
Corp. and its indirect ownership interest in International
3
<PAGE>
Coalbed Methane Group and the assets of Jim Walter Resources,
Inc. including its mining assets and its investments described
herein and its De-Gas Division.
"MINING SALE" means the sale, transfer or disposition
of all or a part of the Mining Assets, including by split-up,
spin-off or otherwise.
"YEAR 2000 COMPLIANT" means all computer applications
(including those affected by information received from its
suppliers and vendors) that are material to the Borrower=s or
any of its Subsidiaries= business and operations, taken as a
whole, will on a timely basis be able to perform properly
date-sensitive functions involving all dates on and after
January 1, 2000.
"YEAR 2000 PROBLEM" means the risk that computer
applications used by the Borrower or any of its Subsidiaries
(including those affected by information received from its
suppliers and vendors) may be unable to recognize and perform
properly date-sensitive functions involving certain dates on
and after January 1, 2000.
(f) A new SECTION 3.14 is hereby added to the Agreement which
Section shall read as follows:
"3.14. INTRADAY FUNDING. Without limiting the
provisions of SECTION 3.11, unless the Borrower or any Lender
has notified the Agent not later than 12:00 Noon of the
Business Day before the date any payment (including in the
case of Lenders any Advance) to be made by it is due, that it
does not intend to remit such payment, the Agent may, in its
discretion, assume that Borrower or each Lender, as the case
may be, has timely remitted such payment in the manner
required hereunder and may, in its discretion and in reliance
thereon, make available such payment (or portion thereof) to
the Person entitled thereto as otherwise provided herein. If
such payment was not in fact remitted to the Agent in the
manner required hereunder, then:
(i) if Borrower failed to make such payment,
each Lender shall forthwith on demand repay to the
Agent the amount of such assumed payment made
available to such Lender, together with interest
thereon in respect of each day from and including the
date such amount was made available by the Agent to
such Lender to the date such amount is repaid to the
Agent at the Federal Funds Effective Rate; and
(ii) if any Lender failed to make such
payment, the Agent shall be entitled to recover such
corresponding amount forthwith upon the Agent=s
demand therefor, the Agent promptly shall notify the
Borrower, and the Borrower shall promptly pay such
corresponding amount to the Agent in immediately
available funds upon receipt of such demand. The
Agent also shall be entitled to recover interest on
such corresponding amount in respect of each day from
the date such corresponding amount was made available
by
4
<PAGE>
the Agent to the Borrower to the date such
corresponding amount is recovered by the Agent, (A)
from such Lender at a rate per annum equal to the
daily Federal Funds Effective Rate or (B) from the
Borrower, at a rate per annum equal to the interest
rate applicable to the Loan which includes such
corresponding amount. Until the Agent shall recover
such corresponding amount together with interest
thereon, such corresponding amount shall constitute a
deficiency advance within the meaning of SECTION
3.11. Nothing herein shall be deemed to relieve any
Lender from its obligation to fulfill its commitments
hereunder or to prejudice any rights which the Agent
or the Borrower may have against any Lender as a
result of any default by such Lender hereunder."
(g) A new SECTION 8.23 is hereby added to ARTICLE VIII which
Section shall read as follows:
"8.23 YEAR 2000 COMPLIANCE DISCLOSURE. The Borrower
and its Subsidiaries have (i) initiated a review and
assessment of all areas within its and each of its
Subsidiaries= business and operations (including those
affected by information received from suppliers and vendors)
that could reasonably be expected to be materially and
adversely affected by the Year 2000 Problem, (ii) developed a
plan and timeline for addressing the Year 2000 Problem on a
timely basis, and (iii) to date, implemented that plan
substantially in accordance with that timetable. The Borrower
reasonably believes that all computer applications (including
those affected by information received from its suppliers and
vendors) that are material to its or any of its Subsidiaries=
business and operations, taken as a whole, will on a timely
basis be Year 2000 Compliant, except to the extent that a
failure to do so could not reasonably be expected to have
Material Adverse Effect."
(h) A new SECTION 9.23 is hereby added to ARTICLE IX which
Section shall read as follows:
"9.23 YEAR 2000 COMPLIANCE. The Borrower will
promptly notify the Agent and the Lenders in the event the
Borrower discovers or determines that any computer application
(including those affected by information received from its
suppliers and vendors) that is material to its or any of its
Subsidiaries= business and operations, taken as a whole, will
not be Year 2000 Compliant on a timely basis, except to the
extent that such failure could not reasonably be expected to
have a Material Adverse Effect."
(i) Subsection (f) of SECTION 9.1 is hereby amended in its
entirety so that as amended it shall read as follows:
"(f) Following the date of Amendment No. 5, as soon
as available and in any event no later than 60 days after the
beginning of each Fiscal Year, a consolidated
5
<PAGE>
business plan for the Borrower and its Subsidiaries, a
supplemental consolidated business plan for the Borrower and
its Restricted Subsidiaries, in each case prepared by
management of the Borrower, substantially similar in form and
detail to the business plans prepared prior to the Closing
Date and furnished to the Agent, of balance sheets, operations
and retained earnings statements and cash flow statements (to
include separate forecasts for Consolidated Capital
Expenditures and Consolidated EBITDA), on a quarterly basis
for such Fiscal Year, and a reasonably detailed explanation of
any underlying assumptions with respect thereto; and"
(j) SECTION 10.1 is hereby amended in its entirety so that as
amended it shall read as follows:
"10.1 FINANCIAL COVENANTS.
(a) INTEREST COVERAGE RATIO. Cause, suffer or permit
the Consolidated Interest Coverage Ratio as at the end of each
Four-Quarter Period to be less than 2.50 to 1.00.
(b) LEVERAGE. Cause, suffer or permit the
Consolidated Leverage Ratio to be greater than 3.75 to 1.00;
provided, however, in the event of a Mining Sale during any of
the following fiscal quarters, cause, suffer, or permit the
Consolidated Leverage Ratio as at the end of the following
four quarter periods set forth below following such sale to be
greater than the amount set forth opposite each such period:
<TABLE>
<CAPTION>
Ratio Must
Period Ending Not Exceed
------------- ----------
<S> <C>
November 30, 1999 4.25 to 1.00
February 29, 2000 4.00 to 1.00
May 31, 2000 4.00 to 1.00
August 31, 2000 and thereafter 3.75 to 1.00
</TABLE>
(c) CAPITAL EXPENDITURES. Permit Jim Walter
Resources, Inc. and Subsidiaries of Jim Walter Resources, Inc.
to make or become committed to make Capital Expenditures which
exceed in the aggregate in any Fiscal Year of Jim Walter
Resources, Inc. and its Subsidiaries $35,000,000 (on a
cumulative basis, with the effect that amounts not expended in
any Fiscal Year may be carried forward to a subsequent
period)."
(k) SECTION 10.2 is hereby amended by deleting the figure
"$10,000,000" appearing therein and inserting in lieu thereof the
figure "$25,000,000".
(l) Subsection (h) of SECTION 10.3 is hereby amended by
deleting the reference to SECTION 10.16(II) appearing therein and
inserting in lieu thereof a reference to SECTION 10.16.
6
<PAGE>
(m) SECTION 10.5 is hereby amended in order to (i) add to
subsection (c) Sloss Industries Corporation as a Subsidiary of Borrower
whose capital stock may be sold as provided therein, (ii) delete the
word "and" at the end of subsection (g), (iii) delete the period at the
end of subsection (h) and insert in lieu thereof a semi-colon and the
word "and" and (iv) add a new subsection (i) thereto reading as
follows:
"(i) the Mining Sale provided that (i) the Net Cash Proceeds
of such Mining Sale are applied to the Ratable Reduction of
Term Loan Facilities, and (ii) immediately prior to and after
giving effect to any such sale, no Default or Event of Default
shall exist and be continuing hereunder."
(n) SECTION 10.6 is hereby amended by (i) deleting in
subsection (k) all words following the word "conducted" and (ii)
deleting in subsection (l) the figure "$60,000,000" and inserting in
lieu thereof the figure "$100,000,000".
(o) SECTION 10.8 is hereby amended by (i) deleting the word
"and" at the end of subsection (b); (ii) adding the word "and" at the
end of subsection (c); (iii) deleting in its entirety the proviso
following subsection (c); and (iv) amending subsection (b) in its
entirety so that as amended it shall read as follows and adding a new
subsection (d) reading as follows:
"(b) Restricted Payments in an aggregate amount not
to exceed the sum of (i) $100,000,000, (ii) plus 50% of
Consolidated Net Income for each fiscal quarter ending
following the date of Amendment No. 5, plus (iii) any increase
in Subordinated Payables after the date of Amendment No. 5;
PROVIDED, HOWEVER, that there shall be added back to
Consolidated Net Income the actual amount of any losses or
associated charges, net of any income tax effect, resulting
from the Mining Sale;
* * * * * * * *
(d) distribution to shareholders of the Borrower of
the capital stock of Jim Walter Resources, Inc.; provided such
distribution shall be in addition to the Restricted Payments
permitted under SECTION 10.8(B)."
(p) SECTION 10.14 is hereby amended by deleting the reference
to SECTION 10.16(II) appearing therein and inserting in lieu thereof a
reference to SECTION 10.16.
3. SUBSIDIARY CONSENTS. Each Restricted Subsidiary of the Borrower that
has delivered a Guaranty to the Agent has joined in the execution of this
Amendment Agreement for the purpose of (i) agreeing to the amendment to the
Agreement and (ii) confirming its guarantee of payment of all the Obligations.
4. CONDITIONS. This Amendment Agreement shall become effective upon
execution by the Required Lenders and the Borrower delivering to the Agent five
(5) counterparts of this
7
<PAGE>
Amendment Agreement duly executed by the Borrower and consented to by each of
the Restricted Subsidiaries.
5. ENTIRE AGREEMENT. This Amendment Agreement sets forth the entire
understanding and agreement of the parties hereto in relation to the subject
matter hereof and supersedes any prior negotiations and agreements among the
parties relative to such subject matter. No promise, conditions, representation
or warranty, express or implied, not herein set forth shall bind any party
hereto, and no one of them has relied on any such promise, condition,
representation or warranty. Each of the parties hereto acknowledges that, except
as in this Amendment Agreement otherwise expressly stated, no representations,
warranties or commitments, express or implied, have been made by any other party
to the other. None of the terms or conditions of this Amendment Agreement may be
changed, modified, waived or canceled orally or otherwise, except by writing,
signed by all the parties hereto, specifying such change, modification, waiver
or cancellation of such terms or conditions, or of any proceeding or succeeding
breach thereof.
6. FULL FORCE AND EFFECT OF AGREEMENT. Except as hereby specifically
amended, modified or supplemented, the Agreement and all of the other Loan
Documents are hereby confirmed and ratified in all respects and shall remain in
full force and effect according to their respective terms.
[Remainder of page intentionally left blank.]
8
<PAGE>
IN WITNESS WHEREOF, the parties hereto have caused this Amendment
Agreement to be duly executed by their duly authorized officers, all as of the
day and year first above written.
BORROWER:
WALTER INDUSTRIES, INC.
WITNESS:
/s/ L. PEAKE By: /s/ A. W. HUGE
- ------------------------ ----------------------------------
Name: Arthur W. Huge
/s/ DEBRA A. GARCIA Title: Executive Vice President and
- ------------------------ Chief Financial Officer
9
<PAGE>
GUARANTORS:
AIMCOR ENTERPRISES INTERNATIONAL
INCORPORATED
AIMCOR (FAR EAST), INC.
APPLIED INDUSTRIAL MATERIALS
CORPORATION
BEST INSURORS, INC.
BEST INSURORS OF MISSISSIPPI, INC.
COAST TO COAST ADVERTISING, INC.
DIXIE BUILDING SUPPLIES, INC.
HAMER PROPERTIES, INC.
HOMES HOLDINGS CORPORATION
JEFFERSON WARRIOR RAILROAD
COMPANY, INC.
JIM WALTER RESOURCES, INC.
JW ALUMINUM COMPANY
J.W. WALTER, INC.
J.W.I. HOLDINGS CORPORATION
LAND HOLDINGS CORPORATION
SLOSS INDUSTRIES CORPORATION
SOUTHERN PRECISION CORPORATION
UNITED LAND CORPORATION
UNITED STATES PIPE AND FOUNDRY
COMPANY, INC.
VESTAL MANUFACTURING COMPANY
WITNESS: WALTER HOME IMPROVEMENT, INC.
WALTER LAND COMPANY
/s/ L. PEAKE GANS TRANSPORT AGENCIES (USA), INC.
- ---------------------------
/s/ DEBRA A. GARCIA By: /s/ A. W. HUGE
- --------------------------- -----------------------------------
Name: Arthur W. Huge
Title: Executive Vice President and
Chief Financial Officer
10
<PAGE>
JIM WALTER COMPUTER SERVICES, INC.
JIM WALTER HOMES, INC.
WITNESS: NEATHERLIN HOMES, INC.
/s/ JONI WATERS
- --------------------------
/s/ R. BEHOFF By: /s/ F. A. HULT
- -------------------------- -------------------------------
Name: Frank A. Hult
Title: Vice President
WITNESS: JIM WALTER HOMES OF ASHEVILLE, INC.
/s/ CECELIA COLLINS
- --------------------------
/s/ PATTI SCHMID By: /s/ RONALD K. ACHILLE
- -------------------------- -------------------------------
Name: Ronald K. Achille
Title: Vice President
DREAM HOMES USA, INC.
DREAM HOMES, INC.
CRESTLINE HOMES, INC.
WITNESS: JWH ACQUISITION CO.
/s/ LINDA NEWCOMB
- --------------------------
/s/ SHEILA RAMDIAL By: /s/ JOSEPH H. KELLY, JR.
- -------------------------- -------------------------------
Name: Joseph H. Kelly, Jr.
Title: Vice President
11
<PAGE>
BANK OF AMERICA, N.A.,
d/b/a NationsBank, National
Association, as Agent for the
Lenders
By: /s/ RICHARD M. STARKE
-------------------------------
Name: Richard M. Starke
Title: Managing Director
BANK OF AMERICA, N.A.,
d/b/a NationsBank, National
Association, as Lender
By: /s/ RICHARD M. STARKE
-------------------------------
Name: Richard M. Starke
Title: Managing Director
12
<PAGE>
Exhibit 99(b)
AMENDMENT NO. 5 TO VARIABLE FUNDING LOAN AGREEMENT AND
AMENDMENT NO. 2 TO SECOND AMENDED AND RESTATED
CUSTODIAN/COLLATERAL AGENT AGREEMENT
AMENDMENT NO. 5 TO VARIABLE FUNDING LOAN AGREEMENT AND AMENDMENT NO. 2
TO SECOND AMENDED AND RESTATED CUSTODIAN/COLLATERAL AGENT AGREEMENT (this
"Amendment"), dated as of September 29, 1999, by and among MID-STATE TRUST V, as
Borrower (the "Borrower"), ENTERPRISE FUNDING CORPORATION, as Lender (the
"Lender"), FIRST UNION NATIONAL BANK, as Collateral Agent (the "Collateral
Agent"), CAPITAL MARKETS ASSURANCE CORPORATION, as Surety Provider (the "Surety
Provider") and Bank of America, N.A., as successor by merger to NationsBank,
N.A., as Administrative Agent (the "Administrative Agent").
Capitalized terms used and not defined in this Amendment shall have the
meanings given such terms in the Variable Funding Loan Agreement, dated as of
March 3, 1995, among the parties hereto, as amended from time to time (as so
amended, the "Loan Agreement").
PRELIMINARY STATEMENTS
WHEREAS, certain of the parties hereto are party to the Loan Agreement
and the Second Amended and Restated Custodian/Collateral Agent Agreement, dated
as of March 29, 1996, among the Collateral Agent, the Lender, the Borrower, the
Administrative Agent and the Surety Provider, as amended from time to time (as
so amended, the "CCA Agreement"); and
WHEREAS, the parties hereto wish to amend certain terms of the Loan
Agreement and certain terms of the CCA Agreement, as hereinafter provided;
NOW, THEREFORE, in consideration of the mutual covenants contained
herein, in the Loan Agreement and in the CCA Agreement, and other good and
valuable consideration, the receipt and adequacy of which is hereby expressly
acknowledged, and intending to be legally bound hereby, the parties hereto agree
as follows:
SECTION 1. AMENDMENT TO LOAN AGREEMENT. The Loan Agreement is hereby
amended as follows:
(a) Section 6.1 thereof is hereby amended by:
(i) adding the following language at the end of
clause (l) thereof after the word "thereafter": "; provided,
HOWEVER, that no Event of Default shall be deemed to have
occurred under this clause (l) during any of the six (6)
Collection Periods following a Take-Out by reason of the
Collections Coverage Ratio being less than the applicable
percentage set forth above for any of such six Collection
Periods and PROVIDED, FURTHER, that the Collections Coverage
Ratio (A) with respect to the seventh Collection Period
following any Take-Out, shall be the Collections Coverage
Ratio solely for such Collection Period and (B) with respect
<PAGE>
to the eighth Collection Period following any Take-Out, shall
be the average of the Collections Coverage Ratio for the
seventh and eighth Collection Periods following such
Take-Out"; and
(ii) adding the following new clause (r) at the end
thereof: "(r) For any of the first six (6) Remittance Dates
following a Take-Out, the amount on deposit in the Reserve
Account shall fail to be equal to or greater than the sum of
(i) the Scheduled Reserve Account Payment for such Remittance
Date and (ii) $1,000,000."
(b) Annex A thereto is hereby amended by:
(i) changing "$125,000" in clause (u) of the
definition of "ELIGIBLE ACCOUNT" to "$150,000";
(ii) changing "2%" in clause (u) of the definition of
"ELIGIBLE ACCOUNT" to "10%";
(iii) changing "Outstanding Balance" in clause (u) of
the definition of "ELIGIBLE ACCOUNT" to "Economic Balance";
(iv) deleting the following language from clause (aa)
of the definition of "ELIGIBLE ACCOUNT": "with respect to any
Account originated by an Eligible Originator, the amount
thereof, together with the amount of all other outstanding
Accounts of such Eligible Originator purchased under the DAT
Agreement, would not represent greater than 3% of the
Borrowing Base, and (ii)";
(v) adding following new clause (bb) to the
definition of "ELIGIBLE ACCOUNT" before the period at the end
thereof: "(bb) with respect to any Account originated by an
Eligible Originator (i) such Account was originated subsequent
to the date the related Eligible Originator was acquired by
the Originator or Walter Industries, Inc. and (ii) such
Account was originated in accordance with the Credit and
Collection Policy";
(vi) adding the following new definition after the
definition of "HOLDING ACCOUNT": "INCREMENTAL AMOUNT" shall
have the meaning given such term in Section 4.1(d)(vi) of the
CCA Agreement.";
(vii) changing "$400,000,000" in the definition of
"MAXIMUM NET INVESTMENT" to "$500,000,000";
(viii) changing "clause (i)" in the definition of
"SCHEDULED RESERVE ACCOUNT PAYMENT" to "clauses (i) through
(v)"; and
(ix) changing "September 29, 1999" in the definition
of "SCHEDULED TERMINATION DATE" to "September 27, 2000".
SECTION 2. AMENDMENT TO CCA AGREEMENT. The CCA Agreement is hereby
amended as follows: Section 4.1(d) (vi) is hereby amended by adding the
following proviso at the end thereof: "; PROVIDED, HOWEVER, that following a
Take-Out, the amount to be deposited pursuant to this clause SIXTH shall be
equal to (i) for the first Remittance Date following a Take-Out, the
<PAGE>
Scheduled Reserve Account Payment for such Remittance Date plus an amount (the
"Incremental Amount") equal to $1,000,000 and (ii) for each of the next five (5)
Remittance Dates thereafter, the Scheduled Reserve Account Payment for such
Remittance Date plus $1,000,000 (after giving effect to the Incremental Amount
deposited on any Remittance Date preceding such Remittance Date but after the
related Take-Out).
SECTION 3. CONDITIONS TO EFFECTIVENESS. This Amendment shall be
effective on and as of the date on which all parties hereto have executed this
Amendment and delivered their signature pages hereto to the Administrative Agent
and the Lender shall have received the following, each of which shall be in form
and satisfactory to the Lender:
(a) An endorsement (the "Endorsement")to the Surety Bond
issued by the Surety Bond Provider, dated July 31, 1997 duly executed
by the Surety Bond Provider, dated the date hereof, in the form
attached hereto as Exhibit A;
(b) An opinion of counsel to the Surety Provider regarding the
enforceability of the Surety Bond as modified by the Endorsement;
(c) A new Variable Funding Note in the form of Exhibit B
attached hereto, executed by the Trust;
(d) Schedule A to the Depositor Account Transfer Agreement
signed by each of Dream Homes, Inc. and Dream Homes USA, Inc.;
(e) Opinions of counsel to Dream Homes, Inc. and Dream Homes
USA, Inc. with respect to (A) the enforceability of the Amended and
Restated DAT Agreement against each thereof and (B) the creation and
perfection of a security interest by each such Eligible Originator in
the Accounts and the Account Documents created under the DAT Agreement
in favor of the Depositor;
(f) A copy of Amendment No. 1 to the Amended and Restated DAT
Agreement, dated the date hereof and duly executed by the parties
thereto; and
(g) Copies of proper financing statements (Form UCC-1) with
respect to each of Dream Homes, Inc. and Dream Homes, USA, naming Dream
Homes, Inc. or Dream Homes, USA, as the case may be, as debtor/seller
in favor of the Depositor as secured party/purchaser, each for the
benefit of the Borrower as assignee of the secured party/purchaser.
SECTION 4. SEVERABILITY OF PROVISIONS. Any provision of this Amendment
which is prohibited or unenforceable in any jurisdiction shall, as to such
jurisdiction, be ineffective to the extent of such prohibition or
unenforceability without invalidating the remaining provisions hereof or
affecting the validity or enforceability of such provision in any other
jurisdiction.
SECTION 5. CAPTIONS. The captions in this Amendment are for convenience
of reference only and shall not define or limit any of the terms or provisions
hereof.
SECTION 6. AGREEMENTS TO REMAIN IN FULL FORCE AND EFFECT. Except as
amended hereby, each of the Loan Agreement and the CCA Agreement shall remain in
full force and effect and is hereby ratified, adopted and confirmed in all
respects. All references in the Loan Agreement or the CCA Agreement, as the case
may be, to "herein," or words of like import, and
<PAGE>
all references to the Loan Agreement or the CCA Agreement, as the case may be,
in any agreement or document shall hereafter be deemed to refer to the Loan
Agreement or the CCA Agreement, as the case may be, as amended hereby.
SECTION 7. GOVERNING LAW. THIS AMENDMENT SHALL BE GOVERNED BY AND
CONSTRUED IN ACCORDANCE WITH THE LAWS OF THE STATE OF NEW YORK.
SECTION 8. EXECUTION IN COUNTERPARTS. This Amendment may be executed in
any number of counterparts and by different parties hereto on separate
counterparts, each of which counterparts, when so executed and delivered, shall
be deemed to be an original and all of which counterparts, taken together, shall
constitute but one and the same amendment.
SECTION 9. LIMITATION OF LIABILITY. It is expressly understood and
agreed by the parties hereto that (a) this Amendment is executed and delivered
by Wilmington Trust Company, not individually or personally but solely as
trustee of the Trust, in the exercise of the powers and authority conferred and
vested in it under the Trust Agreement, (b) each of the representations,
undertakings and agreements herein made on the part of the Trust is made and
intended not as personal representations, undertakings and agreements by
Wilmington Trust Company but is made and intended for the purpose of binding
only the Trust and (c) under no circumstances shall Wilmington Trust Company be
personally liable for the payment of any indebtedness or expenses of the Trust
or be liable for the breach or failure of any obligation, representation,
warranty or covenant made or undertaken by the Trust under this Amendment.
SECTION 10. REPRESENTATIONS AND WARRANTIES. The Borrower hereby
certifies that (i) the representations and warranties made by it in Section 3.1
of the Loan Agreement are true and correct as of the date hereof, as though made
on and as of the date hereof and (ii) as of the date hereof, there is no Event
of Default or event which, with the passage of time of the giving of notice,
could result in an Event of Default.
<PAGE>
IN WITNESS WHEREOF, the parties hereto have caused this Amendment to be
executed as of the date and year first above written.
MID-STATE TRUST V
By: Wilmington Trust Company, not in its
individual capacity but solely as Owner
Trustee
By: /s/ C. PAGLIA
-----------------------------------
Name: Charlotte Paglia
Title: Financial Services Officer
ENTERPRISE FUNDING CORPORATION
By: /s/ K. P. BURNS
-----------------------------------
Name: Kevin P. Burns
Title: Vice President
BANK OF AMERICA, N.A.,
AS ADMINISTRATIVE AGENT
By: /s/ STAN MEIHAUS
-----------------------------------
Name: Stan Meihaus
Title: Principal
<PAGE>
FIRST UNION NATIONAL BANK,
AS COLLATERAL AGENT
By: /s/ R. ASHBAUGH
-----------------------------------
Name: Robert Ashbaugh
Title: Vice President
Capital Markets Assurance
Corporation hereby consents to
the foregoing amendment by the
execution hereof:
CAPITAL MARKETS ASSURANCE
CORPORATION
By: /s/ NICHOLAS SOURBIS
------------------------------
Name: Nicholas Sourbis
Title: Managing Director
Date:
