<PAGE>
UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D. C. 20549
FORM 10-Q
|X| QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d)
OF THE SECURITIES EXCHANGE ACT OF 1934
For the quarterly period ended November 30, 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 48,463,259 shares of common stock of the registrant outstanding at
December 31, 1999.
<PAGE>
PART I - FINANCIAL INFORMATION
WALTER INDUSTRIES, INC. AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS
<TABLE>
<CAPTION>
November 30, May 31,
1999 1999
(unaudited) (audited)
------------ ----------
(in thousands)
<S> <C> <C>
ASSETS
Cash and cash equivalents $ 57,786 $ 40,841
Short-term investments, restricted 145,602 149,149
Marketable securities 27,811 4,803
Instalment notes receivable 4,239,915 4,191,138
Less -Allowance for possible losses (26,043) (25,813)
Unearned time charges (2,914,815) (2,874,556)
Trade receivables, less allowance for possible
losses of $6,970 and $6,537, respectively 208,384 219,490
Other receivables 17,707 17,379
Inventories
Finished goods 178,609 207,866
Goods in process 50,277 44,178
Raw materials and supplies 53,434 50,986
Houses held for resale 3,751 3,377
Prepaid expenses 13,074 19,326
Property, plant and equipment, net 635,567 634,246
Deferred income taxes 59,026 69,950
Investments and other long-term assets 54,781 54,924
Unamortized debt expense 47,353 50,623
Goodwill, net 484,930 504,119
---------- ----------
$3,337,149 $3,362,026
========== ==========
LIABILITIES AND STOCKHOLDERS' EQUITY
Book overdrafts $ 30,484 $ 33,579
Accounts payable 130,423 125,846
Accrued expenses 114,169 135,959
Income taxes payable 52,454 53,032
Short-term notes payable -- 2,200
Long-term senior debt:
Mortgage-backed/asset-backed notes 1,747,287 1,758,151
Other senior debt 552,650 553,000
Accrued interest 27,710 25,670
Accumulated postretirement benefits obligation 276,996 270,409
Other long-term liabilities 61,777 61,261
Stockholders' equity
Common stock - 200,000,000 authorized, $.01 par value
Issued - 55,306,851 and 55,304,184 shares 553 553
Capital in excess of par value 1,169,410 1,169,377
Accumulated deficit (729,864) (748,905)
Treasury stock - 6,576,092 and 4,992,292 shares, at cost (90,618) (72,078)
Cumulative foreign currency translation adjustment (529) (341)
Excess of additional pension liability over
unrecognized prior years service cost (5,621) (5,621)
Net unrealized depreciation in marketable securities (132) (66)
---------- ----------
Total stockholders' equity 343,199 342,919
---------- ----------
$3,337,149 $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
November 30,
---------------------------------------
1999 1998
-------- ---------
(in thousands, except per share amounts)
<S> <C> <C>
Sales and revenues:
Net sales $428,680 $445,490
Time charges 54,266 60,941
Miscellaneous 4,312 8,523
-------- --------
487,258 514,954
-------- --------
Cost and expenses:
Cost of sales 343,747 361,495
Depreciation 19,431 21,543
Selling, general and administrative 48,940 43,650
Postretirement benefits 4,887 5,844
Provision for possible losses 1,121 10
Interest and amortization of debt expense 46,856 46,020
Amortization of goodwill 9,388 10,614
Reversal of mine shutdown costs (3,500) --
Loss on sale of subsidiary -- 3,849
-------- --------
470,870 493,025
-------- --------
16,388 21,929
-------- --------
Income tax expense:
Current (7,686) (309)
Deferred (248) (1,885)
-------- --------
Net income $ 8,454 $ 19,735
======== ========
Net income per share:
Basic $ .17 $ .38
======== ========
Diluted $ .17 $ .38
======== ========
</TABLE>
See accompanying Notes to Consolidated Financial Statements
3
<PAGE>
WALTER INDUSTRIES, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF OPERATIONS
(UNAUDITED)
<TABLE>
<CAPTION>
For the six months ended
November 30,
-----------------------------------------------
1999 1998
------------- ------------
(in thousands except per share amounts)
<S> <C> <C>
Sales and revenues:
Net sales $ 825,553 $ 868,090
Time charges 112,582 125,172
Miscellaneous 8,933 14,826
------------- ------------
947,068 1,008,088
------------- ------------
Cost and expenses:
Cost of sales 653,386 710,023
Depreciation 37,343 41,576
Selling, general and administrative 95,672 86,759
Postretirement benefits 10,907 11,717
Provision for possible losses 1,732 95
Interest and amortization of debt expense 92,376 93,505
Amortization of goodwill 19,374 21,223
Reversal of mine shutdown costs (3,500) -
Loss on sale of subsidiary - 3,849
------------- ------------
907,290 968,747
------------- ------------
39,778 39,341
Income tax expense:
Current (8,320) (1,304)
Deferred (10,923) (9,265)
------------- -------------
Net income $ 20,535 $ 28,772
============= ===========
Net income per share:
Basic $ .41 $ .55
============= ===========
Diluted $ .41 $ .55
============= ===========
</TABLE>
See accompanying Notes to Consolidated Financial Statements
4
<PAGE>
WALTER INDUSTRIES, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENT OF CHANGES IN STOCKHOLDERS' EQUITY
(UNAUDITED)
(in thousands)
<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>
Balance at May 31, 1999 $ 342,919 $(748,905) $ (6,028) $553 $1,169,377 $(72,078)
Comprehensive income
Net income 20,535 $ 20,535 20,535
Other comprehensive income, net of tax
Net unrealized depreciation in
marketable securities (66) (66) (66)
Foreign currency translation adjustment (188) (188) (188)
---------
Other comprehensive income (254)
---------
Comprehensive income $ 20,281
=========
Stock issued from options exercises 33 33
Purchases of treasury stock (18,540) (18,540)
Dividends paid (1,494) (1,494)
--------- --------- -------- ------ ---------- --------
Balance at November 30, 1999 $ 343,199 $(729,864) $ (6,282) $553 $1,169,410 $(90,618)
========= ========= ========= ====== ========== ========
</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 six months ended
November 30,
-----------------------
1999 1998
-------- ---------
<S> <C> <C>
OPERATING ACTIVITIES (in thousands)
Net income $ 20,535 $ 28,772
Charges to income not affecting cash:
Depreciation 37,343 41,576
Provision for deferred income taxes 10,923 9,265
Accumulated postretirement benefits obligation 6,587 7,619
Provision for other long-term liabilities 516 (1,598)
Amortization of goodwill 19,374 21,223
Amortization of debt expense 3,270 2,892
Reversal of mine shutdown costs (3,500) --
Loss on sale of subsidiary -- 3,849
======== =========
95,048 113,598
Decrease (increase) in assets:
Short-term investments, restricted 3,547 118,682
Marketable securities (23,074) 33,473
Instalment notes receivable, net (a) (8,288) 18,023
Trade and other receivables, net 10,778 11,519
Inventories 20,336 30,341
Prepaid expenses 6,252 1,223
Increase (decrease) in liabilities:
Book overdrafts (3,095) (1,643)
Accounts payable 4,577 (27,042)
Accrued expenses (18,290) (17,559)
Income taxes payable (578) (3,957)
Accrued interest 2,040 (5,448)
-------- ---------
Cash flows from operating activities 89,253 271,210
-------- ---------
INVESTING ACTIVITIES
Additions to property, plant and equipment, net of retirements (38,664) (38,202)
Increase in investments and other assets (41) (249)
Proceeds from sale of subsidiary -- 14,878
Acquisitions, net of cash -- (6,976)
======== =========
Cash flows used in investing activities (38,705) (30,549)
-------- ---------
FINANCING ACTIVITIES
Issuance of short-term notes payable and long-term senior debt 335,000 151,771
Retirement of short-term notes payable and
long-term senior debt (348,414) (338,305)
Additions to unamortized debt expense -- (23,700)
Purchases of treasury stock (18,540) (38,148)
Dividends paid (1,494) --
Exercise of employee stock options 33 208
--------- ---------
Cash flows used in investing activities (33,415) (248,174)
--------- ---------
EFFECT OF EXCHANGE RATE ON CASH (188) 296
--------- ---------
Net increase (decrease) in cash and cash equivalents 16,945 (7,217)
Cash and cash equivalents at beginning of period 40,841 54,709
--------- ---------
Cash and cash equivalents at end of period $ 57,786 $ 47,492
======== ========
</TABLE>
(a) Consists of sales and resales, net of repossessions and provision for
possible losses, of $94,414 and $82,335 and cash collections on account and
payouts in advance of maturity of $86,126 and $100,358, respectively.
See accompanying Notes to Consolidated Financial Statements
6
<PAGE>
WALTER INDUSTRIES, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
NOVEMBER 30, 1999
Note 1 - Principles of Consolidation
Walter Industries, Inc. (the "Company") is a diversified holding company with
four reportable segments: Homebuilding and Financing, Water Transmission
Products, Energy Services and Natural Resources. 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, coal, methane gas, 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, Inc. ("JWR"), has been
reclassified from discontinued operations to continuing operations (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 November 30, 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
and six months ended November 30, 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 - Reclassification of Jim Walter Resources to Continuing Operations
In February 1999, a decision was made to dispose of JWR. The program initiated
has resulted in a decision by the Company's Board of Directors to retain JWR for
the immediate future. The Company, however, is committed to ultimately separate
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.
The Company pursued a sale as the first and most preferred objective, but
ultimately no acceptable proposals were received. This effort was impacted to a
great extent by the deterioration in worldwide coal markets during the second
half of calendar 1999, which disrupted a number of major coal asset transactions
and thus seriously eroded the base of potential viable buyers of JWR.
A tax-free spin-off in the form of a stock dividend to Company shareholders was
also examined by management, the Company's Board of Directors and outside
advisors. The Board of Directors ultimately decided that anticipated financial
benefits of recent productivity improvements at JWR need to be further
demonstrated before they can reasonably assess whether a spin-off would be in
the best interests of the shareholders. Although the prospects of a sale or
spin-off in the near term are unlikely given prevailing market conditions, the
Company still intends to pursue these alternatives at the appropriate time.
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, is
reported as Natural Resources.
7
<PAGE>
WALTER INDUSTRIES, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (continued)
Results for the three months and six months ended November 30, 1999 include the
reversal of $3.5 million ($2.2 million after-tax) in shutdown costs associated
with Mine No. 3 recorded in the fiscal 1999 third quarter and recognition of the
fiscal 2000 first quarter pre-tax loss of JWR of $3.0 million ($1.6 million
after-tax) which had been deferred pending its disposition.
The following is a summary of the operating results and assets for each of the
fiscal years ended May 31, during which JWR was reported as a discontinued
operation (in thousands).
<TABLE>
<CAPTION>
1999 1998
------------- -------------
<S> <C> <C>
Revenues $ 296,308 $ 354,149
Net income (loss) (17,917) 29,831
Assets 365,729 382,509
</TABLE>
Note 3 - Restricted Short-Term Investments
Restricted short-term investments at November 30, 1999 and May 31, 1999 include
(i) temporary investment of reserve funds and collections on instalment notes
receivable owned by the Trusts ($98.5 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 November 30, 1999 and May 31, 1999 ($31.0 million and $17.1
million, respectively) and (iii) miscellaneous other segregated accounts
restricted to specific uses ($16.1 million in both periods).
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 Homes
are as follows (in thousands):
<TABLE>
<CAPTION>
November 30, 1999
-------------------------------------------------
Gross Balance Economic Balance Debt Outstanding
------------- ---------------- ----------------
<S> <C> <C> <C>
Loan & Security Agreement $ -- $ -- $ 88,579
xTrust II 549,985 356,932 226,100
Trust III 236,687 135,331 32,889
Trust IV 1,137,517 530,805 569,607
Trust V 632,016 240,184 198,000
Trust VI 876,410 363,674 337,155
Trust VII 786,949 314,842 294,957
Unpledged 20,351 7,846 --
---------- ---------- ----------
Total $4,239,915 $1,949,614 $1,747,287
========== ========== ==========
</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.
Additionally, in October 1999, the Company's Board of Directors authorized up to
$25.0 million in additional repurchases of the Company's common stock.
8
<PAGE>
WALTER INDUSTRIES, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (continued)
Information relating to the Company's share repurchases is set forth below (in
thousands):
<TABLE>
<CAPTION>
November 30, 1999
-------------------
Shares Amount
<S> <C> <C>
Share repurchases for the six
months ended November 30, 1999 1,584 $18,540
====== =======
Cumulative amount repurchased
under current authorizations 5,178 $68,778
====== =======
Total held in treasury 6,576 $90,618
====== =======
</TABLE>
Note 6 - Earnings Per Share
A reconciliation of the basic and diluted per share computations for the three
months and six months ended November 30, 1999 and 1998 are as follows (in
thousands, except per share amounts):
<TABLE>
<CAPTION>
Three Months Ended November 30,
----------------------------------------------
1999 1998
-------------------- --------------------
Basic Diluted Basic Diluted
------- ------- ------- -------
<S> <C> <C> <C> <C>
Net income $ 8,454 $ 8,454 $19,735 $19,735
======= ======= ======= =======
Average number of common shares outstanding (a) 49,577 49,577 51,458 51,458
Effect of diluted securities:
Stock options (b) -- 1 -- 49
======= ======= ======= =======
49,577 49,578 51,458 51,507
======= ======= ======= =======
Net income per share $ .17 $ .17 $ .38 $ .38
======= ======= ======= =======
</TABLE>
9
<PAGE>
WALTER INDUSTRIES, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (continued)
<TABLE>
<CAPTION>
Six Months Ended November 30,
----------------------------------------------
1999 1998
-------------------- --------------------
Basic Diluted Basic Diluted
------- ------- ------ -------
<S> <C> <C> <C> <C>
Net income $20,535 $20,535 $28,772 $28,772
======= ======= ======= =======
Average number of common shares outstanding (a) 49,831 49,831 52,458 52,458
Effect of diluted securities:
Stock options (b) -- 14 -- 227
------- ------- ------- -------
49,831 49,845 52,458 52,685
======= ======= ======= =======
Net income per share $ .41 $ .41 $ .55 $ .55
======= ======= ======= =======
</TABLE>
(a) For the three and six months ended November 30, 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.
Note 7 - Segment Information
Information relating to the Company's operating segments is set forth below (in
thousands):
<TABLE>
<CAPTION>
Three months ended
November 30,
----------------------------------
1999 1998
------------ ------------
<S> <C> <C>
Sales and revenues:
Homebuilding and Financing $ 119,389 $ 112,339
Water Transmission Products 134,563 135,641
Energy Services 81,424 98,858
Natural Resources 71,691 88,621
Other 79,956 79,379
Corporate 235 116
------------ ------------
Consolidated sales and revenues $ 487,258 $ 514,954
============ ============
</TABLE>
10
<PAGE>
WALTER INDUSTRIES, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (continued)
<TABLE>
<CAPTION>
Three months ended
November 30,
---------------------
1999 1998
-------- ---------
<S> <C> <C>
Operating income (a):
Homebuilding and Financing (b) $ 23,284 $ 29,704
Water Transmission Products 13,058 9,587
Energy Services 7,968 7,152
Natural Resources (4,391) (42)
Other 8,260 2,920
-------- ---------
Operating income 48,179 49,321
Less: General corporate expense (b) (5,775) (5,258)
Senior debt interest expense (b) (11,465) (10,610)
Intercompany interest expense (b) (14,551) (11,524)
-------- ---------
Income before tax expense 16,388 21,929
Income tax expense (7,934) (2,194)
-------- ---------
Net income $ 8,454 $ 19,735
======== =========
Depreciation:
Homebuilding and Financing $ 1,304 $ 969
Water Transmission Products 5,201 4,911
Energy Services 1,616 1,566
Natural Resources 7,579 9,898
Other 3,362 3,778
Corporate 369 421
-------- ---------
Total $ 19,431 $ 21,543
======== =========
</TABLE>
(a) 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
November 30,
--------------------
1999 1998
------- -------
<S> <C> <C>
Homebuilding and Financing $ 4,911 $ 5,902
Water Transmission Products 2,458 2,457
Energy Services 2,149 2,391
Natural Resources (434) (435)
Other 264 261
Corporate 40 38
------- -------
$ 9,388 $10,614
======= =======
</TABLE>
11
<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 are as follows (in thousands):
<TABLE>
<CAPTION>
Three months ended
November 30,
---------------------
1999 1998
-------- --------
<S> <C> <C>
Homebuilding and Financing:
Gross interest $ 35,391 $ 35,410
Less: Intercompany interest income (14,551) (11,524)
-------- --------
Net interest expense 20,840 23,886
Corporate:
Senior debt interest 11,465 10,610
Intercompany interest expense 14,551 11,524
-------- --------
$ 46,856 $ 46,020
======== ========
</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>
Six months ended
November 30,
---------------------------
1999 1998
--------- -----------
<S> <C> <C>
Sales and revenues:
Homebuilding and Financing $ 245,798 $ 224,189
Water Transmission Products 263,167 261,881
Energy Services 146,016 186,831
Natural Resources 134,302 173,203
Other 157,225 161,828
Corporate 560 156
--------- -----------
Consolidated sales and revenues $ 947,068 $ 1,008,088
========= ===========
Operating income (a):
Homebuilding and Financing (b) $ 47,943 $ 58,392
Water Transmission Products 27,589 17,511
Energy Services 12,625 10,696
Natural Resources (4,365) (5,253)
Other 15,955 10,744
--------- -----------
Operating income 99,747 92,090
Less: General corporate expense (b) (11,185) (8,610)
Senior debt interest expense (b) (21,645) (21,162)
Intercompany interest expense (b) (27,139) (22,977)
--------- -----------
Income before tax expense 39,778 39,341
Income tax expense (19,243) (10,569)
--------- -----------
Net Income $ 20,535 $ 28,772
========= ===========
Depreciation:
Homebuilding and Financing $ 2,631 $ 1,935
Water Transmission Products 9,541 8,988
Energy Services 3,259 3,107
Natural Resources 14,445 19,108
Other 6,726 7,593
Corporate 741 845
--------- -----------
Total $ 37,343 $ 41,576
========= ===========
</TABLE>
12
<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 by segment is as follows (in thousands):
<TABLE>
<CAPTION>
Six months ended
November 30,
-----------------------------
1999 1998
--------- ----------
<S> <C> <C>
Homebuilding and Financing $ 10,421 $ 12,047
Water Transmission Products 4,942 4,942
Energy Services 4,276 4,502
Natural Resources (874) (875)
Other 530 528
Corporate 79 79
--------- ----------
$ 19,374 $ 21,223
========= ==========
</TABLE>
(b) Interest and amortization of debt expense incurred by the Homebuilding and
Financing segment and Corporate are as follows (in thousands):
<TABLE>
<CAPTION>
Six months ended
November 30,
-----------------------------
1999 1998
--------- ----------
<S> <C> <C>
Homebuilding and Financing:
Gross interest $ 70,731 $ 72,343
Less: Intercompany interest income (27,139) (22,977)
--------- ----------
Net interest 43,592 49,366
Corporate:
Senior debt interest 21,645 21,162
Intercompany interest 27,139 22,977
--------- ----------
$ 92,376 $ 93,505
========= ==========
</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 NOVEMBER 30, 1999 AND 1998
Net sales and revenues for the three months ended November 30, 1999 were $27.7
million, or 5.4%, below the prior year period. The decrease was primarily
attributable to a decrease in time charge income, 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 $7.2
million from JW Window Components, Inc. ("JWWC") which was sold in the fiscal
1999 second quarter.
Cost of sales, exclusive of depreciation, of $343.7 million was 80.2% of net
sales in the 1999 period versus $361.5 million and 81.1% in 1998. The
improvement principally resulted from higher gross profit margins for pipe
products, petroleum coke products and aluminum foil and sheet products.
Selling, general and administrative expenses of $48.9 million were 10.0% of net
sales and revenues in the 1999 period compared to $43.6 million and 8.5% in
1998. The increase was primarily attributable to the acquisitions of Dream
Homes, Inc. (October 1998) and Crestline Homes, Inc. (February 1999) and
expenditures associated with upgrading information technology capabilities and
addressing Year 2000 issues.
Interest and amortization of debt expense was $46.9 million in the 1999 period
versus $46.0 million in 1998 as a result of higher interest rates, partially
offset by slightly lower average outstanding debt balances. The average rate of
interest in the 1999 period was 7.78% as compared to 7.52% in 1998. The average
prime rate of interest was 8.29% and 8.17% in the 1999 and 1998 periods,
respectively.
The Company's effective tax rate 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. Additionally, in the 1998 period, the Company's effective tax rate
differed from the statutory rate as a result of a $10.5 million non-recurring
tax benefit recognized on the sale of JWWC.
Net income in the 1999 period was $8.5 million compared to $19.7 million in the
1998 period. Current year results included a $3.5 million pre-tax ($2.2 million
after-tax) reversal of Mine No. 3 shutdown costs previously recorded in the
fiscal 1999 third quarter and recognition of the fiscal 2000 first quarter loss
of JWR of $3.0 million pre-tax ($1.6 million after-tax) which had been deferred
pending its disposition. Prior year results included an after-tax gain of $6.7
million from the sale of JWWC. The Company's diluted earnings per share in the
1999 period were $.17 compared to $.38 in the 1998 period. 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 $7.0 million, or 6.3%, above
the prior year period. The improved revenues reflects an increase in the number
of units sold, from 888 units in the 1998 period to 1,107 units in 1999 and a
6.2% increase in the average net selling price, from $51,600 in the 1998 period
to $54,800 in 1999,
14
<PAGE>
partially offset by lower time charge income (revenues received from Mid-State's
instalment note portfolio), from $60.9 million in the 1998 period to $54.3
million in 1999. The higher average selling price resulted from new product
options and amenity upgrades as well as consumer preference for new and more
upscale models being offered by Jim Walter Homes. The order backlog at November
30 1999 was 2,262 units compared with 2,404 units at November 30, 1998. The
decrease in time charge income resulted from a $5.3 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 $23.3 million (net of interest expense) was $6.4
million lower than the prior year period, primarily reflecting the reduction in
time charge income and a decline in homebuilding gross profit margins due to
increases in building material costs, partially offset by increases in units
sold and average net selling prices, lower interest expense in the 1999 period
($20.8 million) as compared to the prior year period ($23.9 million) and lower
goodwill amortization in the 1999 period ($4.9 million) compared to 1998 ($5.9
million).
Water Transmission Products sales and revenues were $1.1 million, or .8%, below
the prior year period. The decrease was the result of lower selling prices,
partially offset by higher shipments. Total shipments in the 1999 period were
177,500 tons compared to 175,900 tons in 1998. The order backlog at November 30,
1999 was 133,800 tons, which represents approximately three months shipments
compared with 116,600 tons at November 30, 1998. Operating income of $13.1
million was $3.5 million above the prior year period. This performance was the
result of higher gross profit margins realized due to lower raw material costs
(primarily scrap iron) and improved operating efficiencies, partially offset by
the lower revenues.
Energy Services' sales and revenues decreased $17.4 million, or 17.6%, from the
prior year period reflecting a year-to-year decline in worldwide market prices
for petroleum coke and ferroalloys. Operating income of $8.0 million, however,
was $.8 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.
Natural Resources sales and revenues decreased $16.9 million, or 19.1%, 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 1.69 million tons of coal was sold at an average selling price per
ton of $38.10 in the 1999 period compared to 1.97 million tons at $41.83 in
1998. The decrease in shipments principally reflects lower production levels
due to the shutdown of Mine No. 3. Methane gas sales volumes were 2.3 billion
cubic feet in the 1999 period versus 2.4 billion in 1998. The average selling
price per thousand cubic feet was $3.55 in the 1999 period versus $2.90 in
1998. Both periods included a monthly reservation fee of $.7 million. The
segment's operating loss in the 1999 period was $4.4 million versus a loss of
$42,000 in 1998. Lower revenues in the current year period were partially
offset by improved production costs ($34.65 per ton in the 1999 period as
compared to $38.56 in 1998). In addition, current period results included the
reversal of $3.5 million in Mine No. 3 shutdown costs previously recorded in
the fiscal 1999 third quarter, partially offset by recognition of the fiscal
2000 first quarter operating loss of $3.0 million which had been deferred
pending disposition of JWR.
The Other segment's sales and revenues were $.6 million, or .7%, greater than
the prior year period. Increased shipments of aluminum foil and sheet products
and specialty chemicals were partially offset by reduced revenues from the
Company's land management businesses. In addition, 1998 results included
revenues from JWWC previously mentioned. Operating income of $8.3 million was
$5.3 million above the prior year period which 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.
SIX MONTHS ENDED NOVEMBER 30, 1999 AND 1998
Net sales and revenues for the six months ended November 30, 1999 were $61.0
million, or 6.1%, below the prior year period. The decrease was primarily
attributable to a decrease in time charge income, lower market prices for
products sold by the Energy Services segment and lower shipments and selling
prices for coal. In addition, prior
15
<PAGE>
year results included revenues of $18.8 million from JWWC which was sold in the
fiscal 1999 second quarter.
Cost of sales, exclusive of depreciation, of $653.4 million was 79.1% of net
sales in the 1999 period versus $710.0 million, and 81.8%, in 1998. The
improvement principally resulted from higher gross profit margins on pipe
products, petroleum coke products and aluminum foil and sheet products.
Selling, general and administrative expenses of $95.7 million were 10.1% of
sales and revenues in the 1999 period compared to $86.8 million and 8.6% in
1998. The increase was primarily attributable to the acquisitions of Dream
Homes, Inc. (October 1998) and Crestline Homes, Inc. (February 1999) and
expenditures associated with upgrading information technology capabilities and
addressing Year 2000 issues.
Interest and amortization of debt expense was $92.4 million in the 1999 period
versus $93.5 million in the prior year period as a result of lower average
outstanding debt balances, partially offset by slightly higher interest rates.
The average rate of interest in the 1999 period was 7.60% as compared to 7.53%
in 1998. The average prime rate of interest was 8.11% and 8.33% in the 1999 and
1998 periods, respectively.
The Company's effective tax rates 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 relating to the AIMCOR
acquisition. Additionally, in the 1998 period, the Company's effective tax rate
differed from the statutory rate as a result of a $10.5 million non-recurring
tax benefit recognized on the sale of JWWC.
Net income in the 1999 period was $20.5 million compared to $28.8 million in the
1998 period. Current year results included a $3.5 million pre-tax ($2.2 million
after-tax) reversal of Mine No. 3 shutdown costs recorded in the fiscal 1999
third quarter and recognition of the fiscal 2000 first quarter loss of JWR of
$3.0 million pre-tax ($1.6 million after-tax) which had been deferred pending
its disposition. Prior year results included an after-tax gain of $6.7 million
from the sale of JWWC. The Company's diluted earnings per share in the 1999
period was $.41 compared to $.55 in the 1998 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 $21.6 million, or 9.6%, above
the prior year period. The increase reflects an increase in the number of homes
sold from 1,732 units in the 1998 period to 2,276 units in 1999, combined with a
higher average net selling price, from $50,900 in 1998 to $54,500 in 1999,
partially offset by lower time charge income (revenues received from Mid-State's
instalment note portfolio) from $125.2 million in the 1998 period to $112.6
million in 1999. The higher average net selling price resulted from new product
options and amenity upgrades, as well as consumer preference for more upscale
models being offered by Jim Walter Homes. The decrease in time charge income
resulted from a $9.0 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 $47.9 million (net of interest expense) was $10.4 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 increase in units sold and the average net selling
prices, lower interest expense in the 1999 period ($43.6 million) as compared to
the prior year period ($49.4 million), and lower goodwill amortization in the
1999 period ($10.4 million) compared to 1998 ($12.0 million).
Water Transmission Products sales and revenues were $1.3 million, or .5%, above
the prior year period. The performance was the result of higher shipments,
partially offset by a slight decline in ductile iron pressure pipe selling
prices. Total shipments in the 1999 period were 345,600 tons compared to 343,500
tons in 1998. Operating income of $27.6 million exceeded the prior year period
by $10.1 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 $40.8 million, or 21.8%, from the
prior year period reflecting a year-
16
<PAGE>
to-year decline in worldwide market prices for petroleum coke and ferroalloys.
Operating income of $12.6 million, however, was $1.9 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.
Natural Resources sales and revenues decreased $38.9 million, or 22.5%, 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 3.1
million tons of coal was sold at an average selling price per ton of $38.74 in
the current year period compared with 3.80 million tons at $42.42 in 1998. The
decrease in shipments principally reflects lower production levels due to the
shutdown of Mine No. 3. Methane gas sales volumes were 4.5 billion cubic feet in
the 1999 period versus 4.6 billion cubic feet in 1998. The average selling price
per thousand cubic feet was $3.29 in the 1999 period versus $3.03 in 1998. Both
periods included a monthly reservation fee of $.7 million. The segment's
operating loss was $4.4 million in the 1999 period compared to an operating loss
of $5.3 million in 1998. This performance was the result of reduced production
costs ($36.78 per ton in the 1999 period versus $40.96 in 1998), partially
offset by the lower revenues. In addition, current year results included the
reversal of $3.5 million in Mine No. 3 shutdown costs previously recorded in the
fiscal 1999 third quarter.
The Other segment's sales and revenues decreased $4.6 million, or 2.8%, from the
prior year period. Prior year results included revenues from JWWC previously
mentioned. Increased shipments of aluminum foil and sheet products and specialty
chemicals were partially offset by lower sales of furnace and foundry coke and
reduced revenues from the Company's land management businesses. Operating income
of $16.0 million exceeded the prior year period by $5.2 million which 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 $13.4 million. During the six months
ended November 30, 1999, net borrowings under the Mid-State Trust V Variable
Funding Loan Agreement totaled $93.0 million. Scheduled payments on the
mortgage-backed / asset-backed notes amounted to $103.9 million. Retirement of
other senior debt amounts to $2.5 million.
Borrowings under the Credit Facilities totaled $550.0 million at November 30,
1999. 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 $20.8 million face amount of letters of credit
outstanding thereunder as of November 30, 1999.
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 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
17
<PAGE>
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
November 30, 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
November 30, 1999. 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 November 30, 1999.
LIQUIDITY AND CAPITAL RESOURCES
Cash and cash equivalents, net of book overdrafts, were approximately $27.3
million at November 30, 1999. Operating cash flows for the six months ended
November 30, 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, cash dividends
and the purchase of approximately 1.6 million shares of common stock during the
six months ended November 30, 1999. In October 1999, the Company's Board of
Directors authorized up to $25.0 million in additional repurchases of the
Company's common stock.
Working capital is required to fund adequate levels of inventories and accounts
receivable. Commitments for capital expenditures at November 30, 1999 were not
significant; however, it is estimated that gross capital expenditures of the
Company and its subsidiaries for the remaining six months of the fiscal year
ending May 31, 2000 will approximate $75.0 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 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 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 $11.6 million of the
Company's common stock, the amount remaining at November 30, 1999 under the
current authorization.
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
18
<PAGE>
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
November 30, 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
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 to the
Company, 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 by 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.
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.
Contingency plans were developed and contingency action teams are in place in
each business unit to mitigate possible disruptions in business operations as a
result of a Year 2000 issue. These plans and teams will remain in
19
<PAGE>
effect until March 2000 to handle any delayed or leap year issues.
Cost of Project
The overall cost of the Company's Y2K compliance effort was approximately $16.5
million.
20
<PAGE>
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, 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 June 1, 2001. 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. 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.
21
<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.
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 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS
At the Company's Annual Meeting of Stockholders held October 14, 1999,
the following proposals were approved:
<TABLE>
<CAPTION>
Affirmative Negative Votes
VOTES VOTES WITHHELD
<S> <C> <C> <C>
(1) Proposal to elect nine members to the
Board of Directors to serve for the
ensuing year 46,418,873 138,774 --
(2) Proposal to ratify the appointment of
PricewaterhouseCoopers LLP as independent
certified public accountants for the fiscal
year ending May 31, 2000 46,485,516 40,518 31,613
</TABLE>
Item 6. EXHIBITS AND REPORTS ON FORM 8-K
(a) Exhibit 27 -- Financial Data Schedule
(b) None
22
<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: January 14, 2000
------------------------
23
<TABLE> <S> <C>
<PAGE>
<ARTICLE> 5
<LEGEND>
THIS SCHEDULE CONTAINS SUMMARY FINANCIAL INFORMATION EXTRACTED FROM THE
CONSOLIDATED FINANCIAL STATEMENTS AND RELATED NOTES THERETO AND IS QUALIFIED IN
ITS ENTIRETY BY REFERENCE TO SUCH FINANCIAL STATEMENTS AND RELATED NOTES.
</LEGEND>
<MULTIPLIER> 1,000
<S> <C>
<PERIOD-TYPE> 6-MOS
<FISCAL-YEAR-END> MAY-31-2000
<PERIOD-START> JUN-01-1999
<PERIOD-END> NOV-30-1999
<CASH> 57,786
<SECURITIES> 173,413
<RECEIVABLES> 1,558,161
<ALLOWANCES> 33,013
<INVENTORY> 286,071
<CURRENT-ASSETS> 0<F1>
<PP&E> 635,567
<DEPRECIATION> 0<F1>
<TOTAL-ASSETS> 3,337,149
<CURRENT-LIABILITIES> 0<F1>
<BONDS> 2,299,937
0<F1>
0<F1>
<COMMON> 553
<OTHER-SE> 342,646
<TOTAL-LIABILITY-AND-EQUITY> 3,337,149
<SALES> 825,553
<TOTAL-REVENUES> 947,068
<CGS> 653,386
<TOTAL-COSTS> 129,515
<OTHER-EXPENSES> 30,281
<LOSS-PROVISION> 1,732
<INTEREST-EXPENSE> 92,376
<INCOME-PRETAX> 39,778
<INCOME-TAX> 19,243
<INCOME-CONTINUING> 20,535
<DISCONTINUED> 0<F1>
<EXTRAORDINARY> 0<F1>
<CHANGES> 0<F1>
<NET-INCOME> 20,535
<EPS-BASIC> .41
<EPS-DILUTED> .41<F1>
<FN>
<F1>This line item is not presented on the Consolidated Financial Statements.
</FN>
</TABLE>
