<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 29, 2000
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 47,221,992 shares of common stock of the registrant outstanding at
March 31, 2000.
<PAGE>
PART I - FINANCIAL INFORMATION
------------------------------
WALTER INDUSTRIES, INC. AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS
<TABLE>
<CAPTION>
February 29, May 31,
2000 1999
(unaudited) (audited)
----------- ---------
(in thousands)
<S> <C> <C>
ASSETS
Cash and cash equivalents .................................. $ 44,461 $ 40,841
Short-term investments, restricted ......................... 149,512 149,149
Marketable securities ...................................... 810 4,803
Instalment notes receivable ................................ 4,264,913 4,191,138
Less -Allowance for possible losses ..................... (26,143) (25,813)
Unearned time charges ............................. (2,936,107) (2,874,556)
Trade receivables, less allowance for possible
losses of $6,722 and $6,537, respectively ............... 202,947 219,490
Other receivables .......................................... 20,114 17,379
Inventories
Finished goods .......................................... 203,181 207,866
Goods in process ........................................ 48,375 44,178
Raw materials and supplies .............................. 55,389 50,986
Houses held for resale .................................. 4,939 3,377
Prepaid expenses ........................................... 16,842 19,326
Property, plant and equipment, net ......................... 634,526 634,246
Deferred income taxes ...................................... 55,229 69,950
Investments and other long-term assets ..................... 55,611 54,924
Unamortized debt expense ................................... 45,479 50,623
Goodwill, net .............................................. 474,968 504,119
---------- ----------
$3,315,046 $3,362,026
========== ==========
LIABILITIES AND STOCKHOLDERS' EQUITY
Book overdrafts ............................................ $ 23,265 $ 33,579
Accounts payable ........................................... 132,214 125,846
Accrued expenses ........................................... 110,090 135,959
Income taxes payable ....................................... 49,649 53,032
Short-term notes payable ................................... 1,688 2,200
Long-term senior debt:
Mortgage-backed/asset-backed notes ...................... 1,738,415 1,758,151
Other senior debt ....................................... 556,800 553,000
Accrued interest ........................................... 24,627 25,670
Accumulated postretirement benefits obligation ............. 280,907 270,409
Other long-term liabilities ................................ 61,764 61,261
Stockholders' equity
Common stock - 200,000,000 authorized, $.01 par value
Issued - 55,315,184 and 55,304,184 shares, respectively 553 553
Capital in excess of par value .......................... 1,169,492 1,169,377
Accumulated deficit ..................................... (726,253) (748,905)
Treasury stock - 7,783,192 and 4,992,292 shares, at cost (101,514) (72,078)
Cumulative foreign currency translation adjustment ...... (798) (341)
Excess of additional pension liability over
unrecognized prior years service cost ................. (5,621) (5,621)
Net unrealized depreciation in marketable securities .... (232) (66)
---------- ----------
Total stockholders' equity ................................. 335,627 342,919
---------- ----------
$3,315,046 $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
February 29, February 28,
2000 1999
--------- ---------
(in thousands, except per share amounts)
<S> <C> <C>
Sales and revenues:
Net sales $ 389,834 $ 350,450
Time charges 55,755 59,958
Miscellaneous 7,127 6,022
--------- ---------
452,716 416,430
--------- ---------
Cost and expenses:
Cost of sales 310,278 284,347
Depreciation 19,021 20,964
Selling, general and administrative 50,729 39,189
Postretirement benefits 5,469 5,560
Provision for possible losses 978 565
Interest and amortization of debt expense 46,780 45,805
Amortization of goodwill 9,160 9,813
Mine shutdown costs -- 27,485
--------- ---------
442,415 433,728
--------- ---------
10,301 (17,298)
Income tax benefit (expense):
Current (1,444) 3,906
Deferred (3,796) 2,466
--------- ---------
Net income (loss) $ 5,061 $ (10,926)
========= =========
Net income (loss) per share:
Basic $ .11 $ (.21)
========= =========
Diluted $ .11 $ (.21)
========= =========
</TABLE>
See accompanying Notes to Consolidated Financial Statements
3
<PAGE>
WALTER INDUSTRIES, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF OPERATIONS
(UNAUDITED)
<TABLE>
<CAPTION>
For the nine months ended
February 29, February 28,
2000 1999
----------- -----------
(in thousands, except per share amounts)
<S> <C> <C>
Sales and revenues:
Net sales $ 1,215,387 $ 1,218,540
Time charges 168,337 185,130
Miscellaneous 16,060 20,848
----------- -----------
1,399,784 1,424,518
----------- -----------
Cost and expenses:
Cost of sales 963,664 994,370
Depreciation 56,364 62,540
Selling, general and administrative 146,401 125,948
Postretirement benefits 16,376 17,277
Provision for possible losses 2,710 660
Interest and amortization of debt expense 139,156 139,310
Amortization of goodwill 28,534 31,036
Mine shutdown costs (3,500) 27,485
Loss on sale of subsidiary - 3,849
----------- -----------
1,349,705 1,402,475
----------- -----------
50,079 22,043
Income tax benefit (expense):
Current (9,764) 2,602
Deferred (14,719) (6,799)
----------- -----------
Net income $ 25,596 $ 17,846
=========== ===========
Net income per share:
Basic $ .52 $ .34
=========== ===========
Diluted $ .52 $ .34
=========== ===========
</TABLE>
See accompanying Notes to Consolidated Financial Statements
4
<PAGE>
WALTER INDUSTRIES, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENT OF CHANGES IN STOCKHOLDERS' EQUITY
(UNAUDITED)
<TABLE>
<CAPTION>
Retained Accumulated
Earnings 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 $ (748,905) $ (6,028) $ 553 $1,169,377 $ (72,078)
Comprehensive income
Net income 25,596 $ 25,596 25,596
Other comprehensive income,
net of tax:
Net unrealized depreciation in
marketable securities (166) (166) (166)
Foreign currency translation
adjustment (457) (457) (457)
----------
Other comprehensive income (623)
----------
Comprehensive income $ 24,973
==========
Stock issued from options exercises 115 115
Purchases of treasury stock (29,436) (29,436)
Dividends paid (2,944) (2,944)
---------- ---------- ---------- ---------- ---------- ----------
Balance at February 29, 2000 $ 335,627 $ (726,253) $ (6,651) $ 553 $1,169,492 $ (101,514)
========== ========== ========== ========== ========== ==========
</TABLE>
See accompanying Notes to Consolidated Financial Statements
5
<PAGE>
WALTER INDUSTRIES, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS
(UNAUDITED)
<TABLE>
<CAPTION>
For the nine months ended
February 29, February 28,
2000 1999
--------- ---------
OPERATING ACTIVITIES (in thousands)
<S> <C> <C>
Net income $ 25,596 $ 17,846
Charges to income not affecting cash:
Depreciation 56,364 62,540
Provision for deferred income taxes 14,719 6,799
Accumulated postretirement benefits obligation 10,498 10,411
Provision for other long-term liabilities 503 521
Amortization of goodwill 28,534 31,036
Amortization of debt expense 5,912 5,207
Mine shutdown costs (3,500) 27,485
Loss on sale of subsidiary - 3,849
--------- ---------
138,626 165,694
Decrease (increase) in assets, net of effects of acquisitions:
Short-term investments, restricted (363) 103,491
Marketable securities 3,827 16,507
Instalment notes receivable, net (a) (11,894) 24,788
Trade and other receivables, net 13,808 25,233
Inventories (5,477) (3,259)
Prepaid expenses 2,484 (6,038)
Increase (decrease) in liabilities, net of effects of acquisitions:
Book overdrafts (10,314) 4,469
Accounts payable 6,368 (30,618)
Accrued expenses (22,369) (16,112)
Income taxes payable (3,383) (1,775)
Accrued interest (1,043) 1,088
--------- ---------
Cash flows from operating activities 110,270 283,468
--------- ---------
INVESTING ACTIVITIES
Additions to property, plant and equipment, net of retirements (56,644) (53,713)
Increase in investments and other assets (68) 542
Proceeds from sale of subsidiary - 14,878
Acquisitions, net of cash - (18,953)
--------- ---------
Cash flows used in investing activities (56,712) (57,246)
--------- ---------
FINANCING ACTIVITIES
Issuance of short-term notes payable and long-term senior debt 522,252 516,659
Retirement of short-term notes payable and
long-term senior debt (538,700) (671,254)
Additions to unamortized debt expense (768) (25,698)
Purchases of treasury stock (29,436) (42,859)
Dividends paid (2,944) -
Exercise of employee stock options 115 325
--------- ---------
Cash flows used in financing activities (49,481) (222,827)
--------- ---------
EFFECT OF EXCHANGE RATE ON CASH (457) 6
--------- ---------
Net increase in cash and cash equivalents 3,620 3,401
Cash and cash equivalents at beginning of period 40,841 54,709
--------- ---------
Cash and cash equivalents at end of period $ 44,461 $ 58,110
========= =========
</TABLE>
(a) Consists of sales and resales, net of repossessions and provision for
possible losses, of $138,192 and $123,945 and cash collections on
account and payouts in advance of maturity of $126,298 and $148,733,
respectively.
See accompanying Notes to Consolidated Financial Statements
6
<PAGE>
WALTER INDUSTRIES, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
February 29, 2000
Note 1 - Principles of Consolidation
Walter Industries, Inc. (the "Company") is a diversified holding company with
four reportable operating segments: Homebuilding and Financing, Water
Transmission Products, Energy Services and Natural Resources. Through these
reportable operating segments and other operations, the Company offers a
diversified line of products and services including home construction and
financing, ductile iron pressure pipe, alloys, metals, petroleum coke
distribution and refinery outsourcing services, coal, methane gas, aluminum foil
and sheet products, furnace and foundry coke, chemicals and slag fiber. 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 February 29, 2000 and February 28, 1999 amounts are unaudited but, in
the opinion of management, all adjustments necessary for a fair presentation
have been made. The results for the three and nine months ended February 29,
2000 and February 28, 1999 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, accounting principles and capitalized terms used herein are
as defined in the aforementioned Form 10-K.
Note 2 - Reclassification of Jim Walter Resources to Continuing Operations
In February 1999, a decision was made to dispose of JWR. This program
resulted in a subsequent decision by the Company's Board of Directors to
retain JWR for the immediate future; however the Company is committed to
ultimately separating the operations of JWR at such time that it believes
shareholder value can be realized more fully than is possible under current
market and industry conditions.
As a result of the Board of Directors' decision, the results of operations of
JWR have been reclassified from discontinued operations to continuing
operations for all periods presented. Operating results, for segment
reporting purposes, are reported as Natural Resources.
The 1999 mine shutdown charge of $27,485 to close JWR's Mine No. 3 was comprised
of the following components (in thousands):
<TABLE>
<CAPTION>
<S> <C>
Impairment of long lived assets $ 30,097
Severance and other payroll related charges 9,626
Other charges 13,299
Curtailment of postretirement benefits (25,537)
----------
Mine shutdown charge $ 27,485
=========
</TABLE>
Results for the nine months ended February 29, 2000 include the reversal of $3.5
million in Mine No. 3 shutdown costs recorded in the second quarter.
<PAGE>
WALTER INDUSTRIES, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (continued)
Note 3 - Restricted Short-Term Investments
Restricted short-term investments at February 29, 2000 and May 31, 1999 include
(i) temporary investment of reserve funds and collections on instalment notes
receivable owned by the Trusts ($99.4 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 interest on the Trust II Mortgage-Backed Notes, but which
were subject to retention at February 29, 2000 and May 31, 1999 ($34.1 million
and $17.1 million, respectively) and (iii) miscellaneous other segregated
accounts restricted to specific uses ($16.0 million and $16.1 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 Trusts organized by Mid-State are as
follows (in thousands):
<TABLE>
<CAPTION>
February 29, 2000
-------------------------------------------------------
Gross Balance Economic Balance Debt Outstanding
------------- ---------------- ----------------
<S> <C> <C> <C>
Loan & Security Agreement - - $ 88,944
Trust II $ 520,315 $ 338,650 209,950
Trust III 227,304 130,821 25,319
Trust IV 1,102,726 518,049 561,098
Trust V 770,183 292,885 233,000
Trust VI 852,965 356,138 329,068
Trust VII 772,870 310,773 291,036
Unpledged 18,550 7,195 -
---------- ---------- ----------
Total $4,264,913 $1,954,511 $1,738,415
========== ========== ==========
</TABLE>
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. In October 1999, the Company's Board of Directors authorized up
to $25.0 million in additional repurchases of the Company's common stock. In
February 2000, the Board of Directors authorized additional repurchases of
the Company's common stock up to $25.0 million. Information relating to the
Company's share repurchases under this program is set forth below (in
thousands):
<TABLE>
<CAPTION>
February 29, 2000
-----------------
Shares Amount
------ ------
<S> <C> <C>
Share repurchases for the nine
months ended February 29, 2000 2,791 $ 29,436
======== ========
Cumulative amount repurchased
under current authorizations . 6,385 $ 79,673
======== ========
Total held in treasury ......... 7,783 $101,514
======== ========
</TABLE>
8
<PAGE>
WALTER INDUSTRIES, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (continued)
Note 6 - Earnings Per Share
A reconciliation of the basic and diluted per share computations for the
three and nine months ended February 29, 2000 and February 28, 1999 are as
follows (in thousands, except per share amounts):
<TABLE>
<CAPTION>
Three months ended
------------------------------------------------------
February 29, 2000 February 28, 1999
----------------------- ------------------------
Basic Diluted Basic Diluted
-------- -------- -------- --------
<S> <C> <C> <C> <C>
Net income (loss) $ 5,061 $ 5,061 $(10,926) $(10,926)
======== ======== ======== ========
Average number of common shares outstanding (a) 47,998 47,998 51,024 51,024
Effect of diluted securities:
Stock options (b) - - - 132
-------- -------- -------- --------
47,998 47,998 51,024 51,156
======== ======== ======== ========
Net income (loss) per share $ .11 $ .11 $ (.21) $ (.21)
======== ======== ======== ========
<CAPTION>
Nine months ended
------------------------------------------------------
February 29, 2000 February 28, 1999
----------------------- ------------------------
Basic Diluted Basic Diluted
-------- -------- -------- --------
<S> <C> <C> <C> <C>
Net income $ 25,596 $ 25,596 $ 17,846 $ 17,846
======== ======== ======== ========
Average number of common shares outstanding (a) 49,220 49,220 51,980 51,980
Effect of diluted securities:
Stock options (b) - 11 - 200
-------- -------- -------- --------
49,220 49,231 51,980 52,180
======== ======== ======== ========
Net income per share $ .52 $ .52 $ .34 $ .34
======== ======== ======== ========
</TABLE>
(a) The three and nine months ended February 29, 2000 and February 28, 1999
include 3,880,140 additional shares issued to an escrow account on
September 13, 1995 pursuant to the Consensual Plan, but do not include
shares held in treasury.
(b) Represents the number of shares of common stock issuable upon 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.
9
<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
February 29, February 28,
Sales and revenues: 2000 1999
--------- ---------
<S> <C> <C>
Homebuilding and Financing $ 117,661 $ 110,507
Water Transmission Products 101,965 92,246
Energy Services 93,150 83,360
Natural Resources 58,267 63,853
Other 78,958 65,855
Corporate 2,715 609
--------- ---------
Consolidated sales and revenues $ 452,716 $ 416,430
========= =========
Operating income (a):
Homebuilding and Financing (b) $ 20,149 $ 26,024
Water Transmission Products 7,424 7,266
Energy Services 9,401 2,974
Natural Resources (7,684) (32,378)
Other 7,748 5,678
--------- ---------
Operating income 37,038 9,564
Less: General corporate expense (b) (5,406) (5,902)
Senior debt interest expense (b) (11,292) (9,672)
Intercompany interest expense (b) (10,039) (11,288)
--------- ---------
Income (loss) before tax expense 10,301 (17,298)
Income tax benefit (expense) (5,240) 6,372
--------- ---------
Net income (loss) $ 5,061 $ (10,926)
========= =========
Depreciation:
Homebuilding and Financing $ 1,094 $ 983
Water Transmission Products 5,022 4,828
Energy Services 1,698 1,583
Natural Resources 7,420 9,686
Other 3,413 3,501
Corporate 374 383
--------- ---------
Total $ 19,021 $ 20,964
========= =========
</TABLE>
10
<PAGE>
WALTER INDUSTRIES, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (continued)
(a) Operating income amounts are after deducting amortization of goodwill. A
breakdown of goodwill amortization by segment is as follows:
<TABLE>
<CAPTION>
Three months ended
February 29, February 28,
2000 1999
------- -------
<S> <C> <C>
Homebuilding and Financing $ 4,707 $ 5,384
Water Transmission Products 2,465 2,432
Energy Services 2,140 2,127
Natural Resources (436) (430)
Other 262 262
Corporate 22 38
------- -------
$ 9,160 $ 9,813
======= =======
</TABLE>
(b) Interest and amortization of debt expense incurred by the Homebuilding and
Financing segment and Corporate is as follows:
<TABLE>
<CAPTION>
Three months ended
February 29, February 28,
2000 1999
-------- --------
<S> <C> <C>
Homebuilding and Financing:
Gross interest $ 35,488 $ 36,133
Less: Intercompany interest income (10,039) (11,288)
-------- --------
Net interest 25,449 24,845
Corporate:
Senior debt interest 11,292 9,672
Intercompany interest 10,039 11,288
-------- --------
$ 46,780 $ 45,805
======== ========
</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.
<TABLE>
<CAPTION>
Nine months ended
February 29, February 28,
2000 1999
---------- ----------
<S> <C> <C>
Sales and revenues:
Homebuilding and Financing $ 363,459 $ 334,696
Water Transmission Products 365,132 354,127
Energy Services 239,166 270,191
Natural Resources 192,569 237,056
Other 236,183 227,683
Corporate 3,275 765
---------- ----------
Consolidated sales and revenues $1,399,784 $1,424,518
========== ==========
</TABLE>
11
<PAGE>
WALTER INDUSTRIES, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (continued)
<TABLE>
<CAPTION>
Nine months ended
February 29, February 28,
2000 1999
--------- ---------
<S> <C> <C>
Operating income (a) :
Homebuilding and Financing (b) $ 68,092 $ 84,416
Water Transmission Products 35,013 24,777
Energy Services 22,026 13,670
Natural Resources (12,049) (37,631)
Other 23,703 16,422
--------- ---------
Operating income 136,785 101,654
Less: General corporate expense (b) (16,591) (14,512)
Senior debt interest expense (b) (32,937) (30,834)
Intercompany interest expense (b) (37,178) (34,265)
--------- ---------
Income before tax expense 50,079 22,043
Income tax expense (24,483) (4,197)
--------- ---------
Net income $ 25,596 $ 17,846
========= =========
Depreciation:
Homebuilding and Financing $ 3,725 $ 2,918
Water Transmission Products 14,563 13,816
Energy Services 4,957 4,690
Natural Resources 21,865 28,794
Other 10,139 11,094
Corporate 1,115 1,228
--------- ---------
Total $ 56,364 $ 62,540
========= =========
</TABLE>
(a) Operating income amounts are after deducting amortization of goodwill. A
breakdown of goodwill amortization by segment is as follows:
<TABLE>
<CAPTION>
Nine months ended
February 29, February 28,
2000 1999
-------- --------
<S> <C> <C>
Homebuilding and Financing $ 15,128 $ 17,431
Water Transmission Products 7,407 7,374
Energy Services 6,416 6,629
Natural Resources (1,310) (1,305)
Other 792 790
Corporate 101 117
-------- --------
$ 28,534 $ 31,036
======== ========
</TABLE>
12
<PAGE>
WALTER INDUSTRIES, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (continued)
(b) Interest and amortization of debt expense incurred by the Homebuilding and
Financing segment and Corporate is as follows:
<TABLE>
<CAPTION>
Nine months ended
February 29, February 28,
2000 1999
--------- ---------
<S> <C> <C>
Homebuilding and Financing:
Gross interest $ 106,219 $ 108,476
Less: Intercompany interest income (37,178) (34,265)
--------- ---------
Net interest 69,041 74,211
Corporate:
Senior debt interest 32,937 30,834
Intercompany interest 37,178 34,265
--------- ---------
$ 139,156 $ 139,310
========= =========
</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.
13
<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 2 of "Notes to Consolidated Financial Statements" which
discusses the reclassification of Jim Walter Resources, Inc. ("JWR") from
discontinued operations to continuing operations and 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 February 29, 2000 and February 28, 1999
- ----------------------------------------------------------
Net sales and revenues for the three months ended February 29, 2000 were $36.3
million, or 8.7%, above the prior year period. The increase resulted from higher
revenues from all operating segments except Natural Resources. The current
period includes a $2.4 million non-taxable gain from an executive life insurance
policy which is reflected in the Corporate segment results.
Cost of sales, exclusive of depreciation, of $310.3 million was 79.6% of net
sales in the current year period versus $284.3 million and 81.1% in 1999. The
improvement principally resulted from higher gross profit margins for pipe
products, petroleum coke products, furnace and foundry coke, specialty chemicals
and aluminum foil and sheet products.
Selling, general and administrative expenses of $50.7 million were 11.2% of net
sales and revenues in the 2000 period compared to $39.2 million and 9.4% in
1999. The increase includes the acquisition of Crestline Homes, Inc.
("Crestline") in February 1999, expenditures associated with upgrading
information technology capabilities and utilization of outside consultants who
are assisting the Company in identifying cost reduction opportunities.
Interest and amortization of debt expense was $46.8 million in the 2000
period versus $45.8 million in 1999. The increase was the result of higher
interest rates, partially offset by lower average outstanding debt balances.
The average rate of interest in the 2000 period was 7.60% compared to 7.44%
in 1999. The average prime rate of interest was 8.58% and 7.75% in the 2000
and 1999 periods, respectively.
The Company's effective tax rate in the 2000 and 1999 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. Current period results also include the $2.4 million non-taxable
insurance gain previously discussed.
Net income in the 2000 period was $5.1 million compared to a net loss of
$10.9 million in 1999. Prior year results included a $27.5 million charge
($16.9 million after-tax benefit) relating to the shutdown of Mine No. 3.
(See Note 2 of "Notes to Consolidated Financial Statements"). The Company's
diluted earnings per share in the 2000 period were $.11 compared to a loss of
$.21 in 1999. Current and prior year results reflect all of the factors
discussed in the following segment analysis.
Segment Analysis:
Homebuilding and Financing sales and revenues were $7.2 million, or 6.5%,
above the prior year period. The improved results reflect an increase in the
number of units sold, from 864 units in the 1999 period to 1,012 units in
2000, as well as an increase in the average net selling price per home sold,
from $52,800 in 1999 to $56,700 in 2000. The increase in units sold
principally reflects the acquisition of Crestline. The higher average selling
price reflects consumer preference for new and more upscale models and
amenities being offered by Jim Walter Homes coupled with price increases
instituted to compensate for higher building materials and labor costs. The
order backlog at February 29, 2000 was 1,987 units compared to 2,401 units at
February 28, 1999. The decrease in time charges (revenues received from
Mid-State's instalment note portfolio) resulted from a $5.0 million
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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 mortgage portfolio. Operating income of $20.1 million (net of
interest expense) was $5.9 million lower than the prior year period. The
decrease reflects the reduction in time charges, a decline in homebuilding gross
profit margins due to increases in building materials and labor costs in excess
of price increases realized, higher selling, general and administrative expenses
and higher interest expense ($25.4 million in 2000 versus $24.8 million in 1999)
partially offset by the increases in units sold and average net selling prices,
and lower goodwill amortization in the 2000 period ($4.7 million) compared to
1999 ($5.4 million).
Water Transmission Products sales and revenues were $9.7 million, or 10.5%,
above the prior year period. The increase was the result of greater shipments,
partially offset by lower selling prices. Total shipments in the 2000 period
were 128,200 tons compared to 110,900 tons in 1999. The order backlog at
February 29, 2000 was 133,500 tons, which represents approximately three months
shipments compared to 124,300 tons at February 28, 1999. Operating income of
$7.4 million was $0.2 million above the prior year period. This performance was
the result of increased revenues and improved gross profit margins, partially
offset by higher general and administrative expenses.
Energy Services sales and revenues increased $9.8 million, or 11.7%, over the
prior year period. Operating income of $9.4 million was $6.4 million greater
than the prior year period. The improvement in sales and revenues and operating
income resulted from greater demand for petroleum coke from European and U.S.
steel producers whose production was impacted by market volatility last year,
and improved results from its terminals and services operations which were
affected by equipment problems in the 1999 period caused by adverse weather in
the fiscal second quarter.
Natural Resources sales and revenues were $5.6 million, or 8.7%, below the 1999
period. The decrease was the result of lower coal selling prices and lower
methane gas sales volumes. A total of 1.55 million tons of coal was sold at an
average selling price per ton of $32.66 in the current year period compared to
1.39 million tons at $41.72 in 1999. Methane gas sales volumes were 2.2 billion
cubic feet in the 2000 period versus 2.4 billion cubic feet in 1999. The average
selling price per thousand cubic feet was $3.34 in the 2000 period versus $2.72
in 1999. Both periods included a monthly reservation fee of $.7 million. The
segment's operating loss in the 2000 period was $7.7 million compared to a loss
of $32.4 million in 1999, which included the $27.5 million charge associated
with the shutdown of Mine No. 3. Production costs in the 2000 period were $34.77
per ton as compared to $42.73 per ton in the prior year period.
The Other segment's sales and revenues were $13.1 million, or 19.9%, greater
than the prior year period. Increased shipments of aluminum foil and sheet
products, furnace coke and slag fiber were partially offset by lower revenues
from the Company's land management businesses. Operating income of $7.7 million
exceeded the prior year period by $2.1 million. The increase in sales and
revenues coupled with improved operating margins for aluminum foil and sheet
products, furnace coke and specialty chemicals were partially offset by the
lower land management income.
Nine Months ended February 29, 2000 and February 28, 1999
- ---------------------------------------------------------
Net sales and revenues for the nine months ended February 29, 2000 were $24.7
million, or 1.7% below the prior year period. The decrease was primarily
attributable to a decrease in time charges, lower market prices for products
sold by the Energy Services segment and lower shipments and selling prices for
coal. In addition, prior year results included revenues of $18.8 million from
JWWC which was sold in the fiscal 1999 second quarter. Fiscal 2000 results
include a $2.4 million non-taxable gain from an executive life insurance policy.
Cost of sales, exclusive of depreciation, of $963.7 million was 79.3% of net
sales in the 2000 period versus $994.4 million and 81.6% in 1999. The
improvement principally resulted from higher gross profit margins realized on
pipe products, petroleum coke products, chemicals and aluminum foil and sheet
products.
15
<PAGE>
Selling, general and administrative expenses of $146.4 million were 10.5% of
sales and revenues in the 2000 period compared to $125.9 million and 8.8% in
1999. The increase was primarily attributable to the acquisitions of Dream
Homes, Inc. ("Dream") in October 1998 and Crestline in February 1999,
expenditures associated with upgrading information technology capabilities and
addressing Year 2000 issues, and outside consultants who are assisting the
Company in identifying cost reduction opportunities.
Interest and amortization of debt expense was $139.2 million in the 2000 period
versus $139.3 million in 1999. The decrease was the result of lower average
outstanding debt balances, partially offset by higher interest rates. The
average rate of interest in the 2000 period was 7.60% as compared to 7.48% in
1999. The average prime rate of interest was 8.27% and 8.14% in the 2000 and
1999 periods, respectively.
The Company's effective tax rate in the 2000 and 1999 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. Additionally, in the 2000 period, the Company's recognized a $2.4
million non-taxable gain from an executive life insurance policy. In the 1999
period, the Company recognized a $10.5 million non-recurring tax benefit on the
sale of JWWC.
Net income in the 2000 period was $25.6 million compared to reversal $17.8
million in 1999. Current year results included a $3.5 million pre-tax
reversal ($2.2 million after-tax) of Mine No. 3 shutdown costs previously
recorded in the fiscal 1999 third quarter and recognition of the fiscal 2000
first quarter loss incurred by JWR of $3.0 million pre-tax ($1.6 million
after-tax) which had been deferred pending its disposition. Prior year
results included the $27.5 million pre-tax ($16.9 million after-tax) charge
to shutdown Mine No. 3 and an after-tax gain of $6.7 million from the sale of
JWWC. The Company's diluted earnings per share in the 2000 period was $.52
compared to $.34 in the 1999 period. The current and prior year results
reflect all of the factors discussed in the following segment analysis.
Segment Analysis:
Homebuilding and Financing sales and revenues were $28.8 million, or 8.6%,
above the prior year period. The increase reflects an increase in the number
of homes sold, from 2,596 units in the 1999 period to 3,288 units in 2000,
combined with a higher average net selling price per home sold, from $51,500
in the 1999 period to $55,200 in 2000, partially offset by lower time charges
(revenues received from Mid-State's instalment note portfolio) from $185.1
million in 1999 to $168.3 million in 2000. The increase in unit sales
principally resulted from a full nine month contribution from Dream and
Crestline. The higher average net selling price resulted from new product
options, amenity upgrades and consumer preference for more upscale models
being offered by Jim Walter Homes as well as from price increases instituted
to compensate for higher building materials and labor costs. The decrease in
time charges resulted from a $14.0 million 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 $68.1 million (net of interest expense) was
$16.3 million below the prior year period, reflecting the lower time charges
and a decline in homebuilding gross profit margins due to increases in
building materials and labor costs in excess of price increases realized and
higher general and administrative expenses, partially offset by the increase
in units sold and the average net selling price, lower interest expense in
the 2000 period ($69.0 million) as compared to the prior year period ($74.2
million), and lower goodwill amortization in the 2000 period ($15.1 million)
compared to 1999 ($17.4 million).
Water Transmission Products sales and revenues were $11.0 million or 3.1%,
above the prior year period. The increase was the result of higher shipments,
partially offset by a decline in ductile iron pressure pipe selling prices.
Total shipments in the 2000 period were 473,800 tons compared to 454,400 tons
in 1999. Operating income of $35.0 million exceeded the prior year period by
$10.2 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, partially offset by an increase in general
and administrative expenses.
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<PAGE>
Energy Services sales and revenues decreased $31.0 million, or 11.5%, reflecting
a year to year decline in world-wide market prices for petroleum coke and
ferroalloys. Operating income of $22.0 million, however, was $8.4 million
greater than the prior year period reflecting higher earnings within its carbon
products units, principally driven by a more normalized margin and cost
environment for petroleum coke products and related outsourcing services. Prior
year results were also impacted by equipment problems at the Texas Gulf Coast
terminals and services operations caused by adverse weather conditions in that
region in the fiscal second quarter.
Natural Resources sales and revenues decreased $44.5 million, or 18.8%, from the
prior year period. The decrease was the result of reduced coal and methane gas
shipments coupled with lower average selling prices for coal. A total of 4.6
million tons of coal was sold at an average selling price per ton of $36.71
compared with 5.2 million tons at $42.23 in 1999. The decrease in shipments
principally reflects lower production levels due to the shutdown of Mine No. 3.
Methane gas sales volumes were 6.6 billion cubic feet in the 2000 period versus
7.0 billion cubic feet in 1999. The average selling price per thousand cubic
feet was $3.30 in the 2000 period versus $2.92 in 1999. Both periods included a
monthly reservation fee of $.7 million. The segment's operating loss was $12.0
million in the 2000 period which included the reversal of $3.5 million in Mine
No. 3 shutdown costs previously recorded in the fiscal 1999 third quarter. The
segment incurred an operating loss of $37.6 million in the 1999 period which
included the $27.5 million charge for Mine No. 3 shutdown costs. Coal production
costs in the 2000 period were $36.02 per ton compared to $41.57 in 1999.
The Other segment's sales and revenues were $8.5 million, or 3.7%, above the
prior year period. Increased sales of aluminum foil and sheet products, slag
fiber and specialty chemicals were partially offset by lower revenues from
the Company's land management businesses. Prior year results also included
revenues from JWWC as previously mentioned. Operating income of $23.7 million
exceeded the prior year period by $7.3 million. Fiscal 1999 results included
a pre-tax loss on the sale of JWWC of $3.8 million. Improved operating
margins for aluminum foil and sheet products and specialty chemicals were
partially offset by lower land management income.
FINANCIAL CONDITION
Since May 31, 1999, total debt decreased $16.4 million. During the nine
months ended February 29, 2000, net borrowings under the Mid-State Trust V
Variable Funding Loan Agreement totaled $128.0 million. Scheduled payments on
the mortgage-backed/asset-backed notes amounted to $147.7 million. Other
senior debt increased by $3.3 million.
Borrowings outstanding under the Credit Facilities totaled $555.0 million at
February 29, 2000. 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. There were $31.1 million face amount of letters of
credit outstanding thereunder as of February 29, 2000.
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:
(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
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
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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 4.0-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 February 29, 2000.
The Trust V Variable Funding Loan Agreement 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 29, 2000. Effective September 29, 1999, the Trust V
Variable Funding Loan Agreement was amended to include, among other things,
the following: (a) the facility is 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 February 29,
2000.
LIQUIDITY AND CAPITAL RESOURCES
Cash and cash equivalents, net of book overdrafts, were approximately $21.2
million at February 29, 2000. Operating cash flows for the nine months ended
February 29, 2000, together with issuance of long-term debt under the 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, the purchase
of approximately 2.8 million shares of common stock and payment of dividends.
In October 1999, the Company's Board of Directors authorized up to $25.0
million in additional repurchases of the Company's common stock. In February
2000, the Board of Directors authorized additional repurchases of the
Company's common stock up to $25.0 million.
Working capital is required to fund adequate levels of inventories and
accounts receivable. Commitments for capital expenditures at February 29,
2000 were not significant; however, it is estimated that gross capital
expenditures of the Company and its subsidiaries for the fiscal year ending
May 31, 2000 will approximate $90.0 million.
Because the Company's operating cash flow is significantly influenced by the
general economy and, in particular, levels of domestic construction activity,
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 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, cash flow from
operations, together with borrowing capacity under the Revolving Credit
Facility, will be sufficient to make all required interest and principal
payments on its indebtedness, to make all planned capital expenditures and
dividend payments, and meet substantially all operating needs as well as
repurchase up to an additional $25.9 million of the Company's common stock,
the amount remaining at February 29, 2000 under current authorizations.
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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
February 29, 2000. 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
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 successfully completed all work to resolve the potential impact of
the Y2K on the processing of date-sensitive information by the Company's
computerized information systems and equipment with embedded chips. The Company
did not experience any material disruption from the Year 2000 issue relating to
the century rollover. The Company will continue to monitor all critical systems
for the appearance of delayed Year 2000 related issues, problems relative to the
leap year and problems encountered through suppliers, customers and other third
parties with whom the Company deals.
Description of Areas of Impact and Risk
The Company identified three areas where the Y2K problem created risk. These
areas were: 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 established a Corporate Steering Committee (the "Committee") to
coordinate solutions to Y2K issues. The Committee included 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. The
Committee identified systems and applications that require modification and
evaluated alternative solutions. The Committee developed a Y2K Standard that was
issued to all subsidiaries to follow for Y2K compliance. Status conference calls
were held monthly and on-site progress reviews were held quarterly.
19
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State of Readiness
The Company completed an inventory assessment, remediation or replacement, and
testing for all of its internal information systems and non-IT systems with
embedded chip technology. A readiness assessment was completed on all material
third parties with whom the Company does business.
Cost of Project
The overall cost of the Company's Y2K compliance effort was approximately $16.5
million.
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 on this
date. The euro will then trade on currency exchanges and will be available for
non-cash transactions. The participants will issue sovereign debt exclusively in
euro and will, redenominate outstanding sovereign debt at this time. 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 will 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, will be exercised by the new European Central Bank.
The Company has established a plan to address the issues raised by the euro
conversion. These issues 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.
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.
20
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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 - Income Taxes" of Notes to
Consolidated Financial Statements contained in the Company's Annual
Report on Form 10-K for the year ended May 31, 1999.
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 5. Other Information
On March 27, 2000, the Company announced that Kenneth E. Hyatt
resigned from his position as Chairman, President and Chief Executive
Officer in order to pursue other interests. The Board of Directors has
appointed G. Robert Durham to replace Mr. Hyatt on an interim basis
while a search for a long-term successor is underway.
Item 6. Exhibits and Reports on Form 8-K
(a) Exhibit 3 (ii) - By-laws Amendments
Exhibit 27 - Financial Data Schedule
(b) None
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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: April 6, 2000
<PAGE>
Exhibit 3(ii)
WALTER INDUSTRIES, INC.
AMENDED AND RESTATED
BY-LAWS
ARTICLE I
MEETING OF STOCKHOLDERS
Section 1. PLACE OF MEETING AND NOTICE. Meetings of the stockholders of the
Corporation shall be held at such place either within or without the State of
Delaware as the Board of Directors may determine.
Section 2. (A) MEETINGS. Annual meetings of stockholders shall be held, at
a date, time and place fixed by the Board of Directors and stated in the notice
of meeting, to elect a Board of Directors and to transact such other business as
may properly come before the meeting. Special meetings of the stockholders may
be called by the President for any purpose and shall be called by the President
or Secretary if directed by a majority of the whole Board of Directors.
(B) ANNUAL MEETINGS. (1) Nominations of persons for election to
the board of directors of the Corporation and the proposal of business to be
considered by the stockholders may be made at an annual meeting of stockholders
(a) pursuant to the Corporation's notice of meeting delivered pursuant to
Article I, Section 3 of these by-laws, (b) by or at the direction of the board
of directors or (c) by any stockholder of the Corporation who is entitled to
vote at the meeting, who complies with the notice procedures set forth in
subparagraphs (2) and (3) of this paragraph (B) of this by-law and who is a
stockholder of record at the time such notice is delivered to the Secretary of
the Corporation.
(2) For nominations or other business to be properly brought
before an annual meeting by a stockholder pursuant to clause (c) of subparagraph
(B)(1) of this by-law, the stockholder must have given timely notice thereof in
writing to the Secretary of the Corporation, and, in the case of business other
than nominations, such other business must be a proper matter for stockholder
action. To be timely a stockholder's notice shall be delivered to the Secretary
at the principal executive offices of the Corporation not less than ninety days
nor more than one hundred and ten days prior to the first anniversary of the
preceding year's annual meeting; provided, however, that if the date of the
annual meeting is advanced by more than twenty days, or delayed by more than
ninety days, from such anniversary date, notice by the stockholder to be timely
must be so delivered not earlier than the one hundred and tenth day prior to
such annual meeting and not later than the close of business on the later of the
ninetieth day prior to such annual meeting or the tenth day following the day on
which public announcement of the date of such meeting is first made. Such
stockholder's notice shall set forth (a) as to each person who the stockholder
proposes to nominate for election or re-election as a director all information
relating to such person that is required to be disclosed in solicitations of
<PAGE>
proxies for election of directors, or is otherwise required, in each case
pursuant to Regulation 14A under the Securities Exchange Act of 1934, as amended
(the "Exchange Act"), including such person's written consent to being named in
the proxy statement as a nominee and to serving as a director if elected; (b) as
to any other business that the stockholder proposes to bring before the meeting,
a brief description of the business desired to be brought before the meeting,
the reasons for conducting such business at the meeting and any material
interest in such business of such stockholder and the beneficial owner, if any,
on whose behalf the proposal is made; and (c) as to the stockholder giving the
notice and the beneficial owner, if any, on whose behalf the nomination or
proposal is made (i) the name and address of such stockholder, as they appear on
the Corporation's books, and of such beneficial owner, and (ii) the class and
number of shares of the Corporation which are owned beneficially and of record
by such stockholder and such beneficial owner.
(3) Notwithstanding anything in the first sentence of
Article II, Section 1 of these by-laws to the contrary, if the number of
directors to be elected to the board of directors of the Corporation is
increased and there is no public announcement naming all of the nominees for
director or specifying the size of the increased board of directors made by the
Corporation at least eight days prior to the first anniversary of the preceding
year's annual meeting, a stockholder's notice required by this by-law shall also
be considered timely, but only with respect to nominees for any new positions
created by such increase, if it shall be delivered to the Secretary at the
principal executive offices of the Corporation not later than the close of
business on the tenth day following the day on which such public announcement is
first made by the Corporation.
(C) SPECIAL MEETINGS. Only such business shall be conducted at a
special meeting of stockholders as shall have been brought before the meeting
pursuant to the Corporation's notice of meeting pursuant to Article I, Section 3
of these by-laws. Nominations of persons for election to the board of directors
may be made at a special meeting of stockholders at which directors are to be
elected pursuant to the Corporation's notice of meeting (a) by or at the
direction of the board of directors or (b) by any stockholder of the Corporation
who is entitled to vote at the meeting, who complies with the notice procedures
set forth in this by-law and who is a stockholder of record at the time such
notice if delivered to the Secretary of the Corporation. Nominations by
stockholders of persons for election to the board of directors may be made at
such a special meeting of stockholders if the stockholder's notice as required
by subparagraph (B)(2) of this by-law shall be delivered to the Secretary at the
principal executive offices of the Corporation not earlier than the one hundred
and tenth day prior to such special meeting and not later than the close of
business on the later of the ninetieth day prior to such special meeting or the
tenth day following the day on which public announcement is first made of the
date of the special meeting and of the nominees proposed by the board of
directors to be elected at such meeting.
(D) GENERAL. (1) Only persons who are nominated in accordance
with the procedures set forth in this by-law shall be eligible to serve as
directors and only such business shall be conducted at a meeting of stockholders
as shall have been brought before the meeting in accordance with the procedures
set forth in this by-law. Except as otherwise provided by law, the Amended and
Restated Certificate of Incorporation of Walter Industries, Inc. or these by-
2
<PAGE>
laws, the chairman of the meeting shall have the power and duty to determine
whether a nomination or any business proposed to be brought before the meeting
was made in accordance with the procedures set forth in this by-law and, if any
proposed nomination or business is not in compliance with this by-law, to
declare that such defective nomination shall be disregarded or that such
proposed business shall not be transacted.
(2) For purposes of this by-law, "public announcement" shall mean
disclosure in a press release reported by the Dow Jones News Service, Associated
Press or comparable national news service or in a document publicly filed by the
Corporation with the Securities and Exchange Commission pursuant to Section 13,
14 or 15(d) of the Exchange Act.
(3) For purposes of this by-law, no adjournment or notice of
adjournment of any meeting shall be deemed to constitute a new notice of such
meeting for purposes of this Section 2, and in order for any notification
required to be delivered by a stockholder pursuant to this Section 2, to be
timely, such notification must be delivered within the periods set forth above
with respect to the originally scheduled meeting.
(4) Notwithstanding the foregoing provisions of this by-law, a
stockholder shall also comply with all applicable requirements of the Exchange
Act and the rules and regulations thereunder with respect to the matters set
forth in this by-law. Nothing in this by-law shall be deemed to affect any
rights of stockholders to request inclusion of proposals in the Corporation's
proxy statement pursuant to Rule 14a-8 under the Exchange Act nor shall anything
in this by-law relieve any stockholder of the obligation to comply with any
notice or other requirement in Rule 14a-8 that is not provided for in, or is
more stringent than any comparable provision of, this by-law.
Section 3. NOTICE. Except as otherwise provided by law, at least 10 and not
more than 60 days before each meeting of stockholders, written notice of the
time, date and place of the meeting, and, in the case of a special meeting, the
purpose or purposes for which the meeting is called, shall be given to each
stockholder.
Section 4. QUORUM. At any meeting of stockholders, the holders of record,
present in person or by proxy, of a majority of the Corporation's issued and
outstanding shares of capital stock shall constitute a quorum for the
transaction of business, except as otherwise provided by law. In the absence of
a quorum, any officer entitled to preside at or to act as secretary of the
meeting shall have power to adjourn the meeting from time to time until a quorum
is present.
Section 5. VOTING. Except as otherwise provided by law, all matters
submitted to a meeting of stockholders shall be decided by vote of the holders
of record of a majority of the Corporation's issued and outstanding shares of
capital stock present at such meeting, in person or by proxy.
3
<PAGE>
ARTICLE II
DIRECTORS
Section 1. NUMBER, ELECTION AND REMOVAL OF DIRECTORS. The number of
Directors that shall constitute the Board of Directors shall be not less than 5
nor more than 13. The number of Directors, within the limits specified above,
shall be determined by resolution of the Board of Directors. The Directors shall
be elected by the stockholders at the annual meeting of the stockholders.
Vacancies and newly created directorships resulting from any increase in the
number of Directors may be filled by a majority of the Directors then in office,
although less than a quorum, or by the sole remaining Director or by the
stockholders. A Director may be removed in accordance with applicable law.
Section 2. MEETINGS. Regular meetings of the Board of Directors shall be
held at such times and places as may from time to time be fixed by a majority of
the whole Board of Directors or as may be specified in a notice of meeting.
Special meetings of the Board of Directors may be held at any time upon the call
of the President and shall be called by the President or Secretary if directed
by a majority of the whole Board of Directors. Telegraphic or written notice of
each special meeting of the Board of Directors shall be sent to each Director
not less than twenty-four hours before such meeting. A meeting of the Board of
Directors may be held without notice immediately after the annual meeting of the
stockholders. Notice need not be given of regular meetings of the Board of
Directors.
Section 3. QUORUM. A majority of the whole Board of Directors shall
constitute a quorum for the transaction of business. If a quorum is not present
at any meeting of the Board of Directors, the Directors present may adjourn the
meeting from time to time, without notice other than announcement at the
meeting, until such a quorum is present. Except as otherwise provided by law,
the Certificate of Incorporation of the Corporation, or these by-laws, the act
of a majority of the Directors present at any meeting at which there is a quorum
shall be the act of the Board of Directors.
Section 4. COMMITTEES OF DIRECTORS. The Board of Directors may, by
resolution adopted by the affirmative vote of a majority of the whole Board of
Directors designate one or more committees, including without limitation an
Executive Committee, to have and exercise such power and authority as the Board
of Directors shall specify. In the absence or disqualification of a member of a
committee, the member or members thereof present at any meeting and not
disqualified from voting, whether or not such member or members constitute a
quorum, may unanimously appoint another Director to act at the meeting in place
of any such absent or disqualified member. The Tax Oversight Committee,
established pursuant to the Amended Joint Plan of Reorganization dated as of
December 9, 1994, shall consist of such members as provided in Section 1.229 of
said Plan.
Section 5. COMPENSATION. Each Director who is not an employee of the
Corporation or any of its subsidiaries, in consideration of his or her service
as such, shall be entitled to receive from the Corporation such amount per annum
or such fees for attendance at Directors meetings, or both, as the Board may
from time to time determine, together with reimbursement for the
4
<PAGE>
reasonable out-of-pocket expenses, if any, incurred by such Director in
connection with the performance of his or her duties. Each Director who is not
an employee of the Corporation or any of its subsidiaries who shall serve as a
member of any committee of Directors in consideration of serving as such shall
be entitled to such additional amount per annum or such fees for attendance at
committee meetings, or both, as the Board may, from time to time determine,
together with reimbursement for the reasonable out-of-pocket expenses, if any,
incurred by such Director in the performance of his or her duties. Nothing
contained in this Section 5 shall preclude any Director from serving the
Corporation or its subsidiaries in any other capacity and receiving proper
compensation therefor.
ARTICLE III
OFFICERS
The officers of the Corporation shall consist of a President, a Secretary,
a Treasurer and such other additional officers with such titles as the Board of
Directors shall determine, all of whom shall be chosen by and shall serve at the
pleasure of the Board of Directors. Such officers shall have the usual powers
and shall perform all the usual duties incident to their respective offices. All
officers shall be subject to the supervision and direction of the Board of
Directors. The authority, duties or responsibilities of any officer of the
Corporation may be suspended by the President with or without cause. Any officer
elected or appointed by the Board of Directors may be removed by the Board of
Directors with or without cause.
ARTICLE IV
INDEMNIFICATION
To the fullest extent permitted by applicable law, the Corporation shall
indemnify any current or former Director, officer, employee or agent of the
Corporation and such director's, officer's, employee's or agent's heirs,
executors and administrators against all expenses, judgments, fines and amounts
paid in settlement actually and reasonably incurred by such indemnified party in
connection with any threatened, pending or completed action, suit or proceeding
brought by or in the right of the Corporation, or otherwise, to which such
indemnified party was or is a party or is threatened to be made a party by
reason of such indemnified party's current or former position with the
Corporation or by reason of the fact that such indemnified party is or was
serving, at the request of the Corporation, as a director, officer, partner,
trustee, employee or agent of another Corporation, partnership, joint venture,
trust or other enterprise. The Corporation shall, from time to time, reimburse
or advance to any current or former director or officer or other person entitled
to indemnification hereunder the funds necessary for payment of defense expenses
as incurred. Any repeal or modification of this Article IV by the stockholders
of the Corporation shall not adversely affect any right or protection of a
director of the Corporation in respect of any act or omission occurring prior to
the time of such repeal or modification.
5
<PAGE>
ARTICLE V
GENERAL PROVISIONS
Section 1. NOTICES. Whenever any statute, the Certificate of Incorporation
or these by-laws require notice to be given to any Director, such notice shall
be deemed to have been given when it is sent by telegram, telex or telecopy or
hand delivered or deposited in the United States mail, as the case may be. A
waiver of such notice in writing signed by the person or persons entitled
thereto, whether before or after the time stated in such notice, shall be
equivalent to the giving of such notice. Attendance of a Director at a meeting
shall constitute a waiver of notice of such meeting except where a Director
attends a meeting for the express purpose of objecting to the transaction of any
business because the meeting is not lawfully called or convened.
Section 2. FISCAL YEAR. The fiscal year of the Corporation shall be fixed
by the Board of Directors.
6
<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-31-2000
<PERIOD-START> JUN-01-1999
<PERIOD-END> FEB-29-2000
<CASH> 44,461
<SECURITIES> 150,322
<RECEIVABLES> 1,558,589
<ALLOWANCES> (32,865)
<INVENTORY> 311,884
<CURRENT-ASSETS> 0<F1>
<PP&E> 634,526
<DEPRECIATION> 0<F1>
<TOTAL-ASSETS> 3,315,046
<CURRENT-LIABILITIES> 0<F1>
<BONDS> 2,296,903
0<F1>
0<F1>
<COMMON> 553
<OTHER-SE> 335,074
<TOTAL-LIABILITY-AND-EQUITY> 3,315,046
<SALES> 1,215,387
<TOTAL-REVENUES> 1,399,784
<CGS> 963,664
<TOTAL-COSTS> 199,265
<OTHER-EXPENSES> 44,910
<LOSS-PROVISION> 2,710
<INTEREST-EXPENSE> 139,156
<INCOME-PRETAX> 50,079
<INCOME-TAX> 24,483
<INCOME-CONTINUING> 25,596
<DISCONTINUED> 0<F1>
<EXTRAORDINARY> 0<F1>
<CHANGES> 0<F1>
<NET-INCOME> 25,596
<EPS-BASIC> .52
<EPS-DILUTED> .52
<FN>
<F1>This line item is not presented on the Consolidated Financial Statements.
</FN>
</TABLE>
