Exhibit 99(a)
(b) Pro Forma Financial Information
On October 3, 2005, Walter Industries, Inc. (the “Company”) acquired all of the outstanding common stock Mueller Water Products, Inc. and subsidiaries (“Mueller Water”). In conjunction with the acquisition, United States Pipe and Foundry Company, LLC (“U.S. Pipe”) was contributed to Mueller Water. Due to the spin-off of Mueller Water on December 14, 2006, the historical results of operations of Mueller Water through the date of the spin-off will be reflected in the historical financial statements of the Company as discontinued operations. Such results include Mueller Water and U.S. Pipe since the date the Company acquired Mueller Water on October 3, 2005. Discontinued operations for all periods prior to October 3, 2005, reflect the results of U.S. Pipe. The following Unaudited Pro Forma Condensed Consolidated Financial Statements reflecting the spin-off are based on and should be read in conjunction with the Company's historical Consolidated Financial Statements and related notes appearing in the Company's Annual Report on form 10-K for the year ended December 31, 2005 and the Unaudited Condensed Consolidated Financial Statements appearing in the Company's Quarterly Report on Form 10-Q for the nine month period ended September 30, 2006.
The Unaudited Pro Forma Condensed Consolidated Statements of Operations for the nine months ended September 30, 2006 and for the years ended December 31, 2005, 2004 and 2003 are prepared as though the Mueller Water spin-off occurred as of the beginning of the earliest period presented. The Unaudited Pro Forma Condensed Consolidated Balance Sheet as of September 30, 2006 is prepared as if the Mueller Water spin-off occurred as of September 30, 2006. Pro forma adjustments are described in the Notes to Unaudited Pro Forma Condensed Consolidated Financial Statements.
The following Unaudited Pro Forma Condensed Consolidated Financial Statements are presented for illustrative and informational purposes only and are not intended to represent or be indicative of the financial condition or results of operations which would actually have been recorded if the Mueller Water spin-off had occurred during the periods presented. In addition, the Unaudited Pro Forma Condensed Consolidated Financial Statements are not intended to represent the Company’s financial position or results of operations for any future date or period.
1
WALTER INDUSTRIES INC. AND SUBSIDIARIES
UNAUDITED PRO FORMA CONDENSED CONSOLIDATED BALANCE SHEET
AS OF SEPTEMBER 30, 2006
(in thousands)
| | | | Discontinued | | | | | |
| | | | Operations | | Proforma | | | |
| | Historical | | Adjustments (a) | | Adjustments | | Pro Forma | |
| | | | | | | | | |
ASSETS | | | | | | | | | |
| | | | | | | | | |
Cash and cash equivalents | | $ | 160,644 | | $ | (91,380 | ) | $ | 5,091 | (b) (c) | $ | 74,355 | |
Short-term investments, restricted | | 86,296 | | — | | | | 86,296 | |
Instalment notes receivable, net | | 1,765,794 | | — | | | | 1,765,794 | |
Receivables, net | | 436,954 | | (322,880 | ) | | | 114,074 | |
Inventories | | 557,183 | | (454,640 | ) | | | 102,543 | |
Prepaid expenses | | 63,987 | | (20,212 | ) | | | 43,775 | |
Property, plant and equipment, net | | 637,272 | | (336,985 | ) | | | 300,287 | |
Other long-term assets | | 159,061 | | (47,999 | ) | | | 111,062 | |
Identifiable intangibles, net | | 842,271 | | (837,979 | ) | | | 4,292 | |
Goodwill | | 876,370 | | (868,109 | ) | | | 8,261 | |
Total assets | | $ | 5,585,832 | | $ | (2,980,184 | ) | $ | 5,091 | | $ | 2,610,739 | |
| | | | | | | | | |
LIABILITIES AND STOCKHOLDERS’ EQUITY | | | | | | | | | |
| | | | | | | | | |
Accounts payable | | $ | 197,457 | | $ | (136,301 | ) | | | $ | 61,156 | |
Accrued expenses | | 215,772 | | (123,163 | ) | (475 | )(b) | 92,134 | |
Payable to affiliate-Walter Industries | | — | | (6,291 | ) | 6,291 | (c) | — | |
Deferred income taxes | | 252,464 | | (231,294 | ) | | | 21,170 | |
Debt: | | | | | | | | | |
Mortgage-backed / asset-backed notes | | 1,687,968 | | — | | | | 1,687,968 | |
Other debt | | 1,549,992 | | (1,127,256 | ) | | | 422,736 | |
Accrued interest | | 32,143 | | (13,555 | ) | | | 18,588 | |
Accumulated postretirement benefits obligation | | 271,634 | | (46,232 | ) | | | 225,402 | |
Other long-term liabilities | | 271,346 | | (85,072 | ) | | | 186,274 | |
Total liabilities | | 4,478,776 | | (1,769,164 | ) | 5,816 | | 2,715,428 | |
| | | | | | | | | |
Minority interest | | 304,733 | | (304,733 | ) | | | — | |
| | | | | | | | | |
Commitments and contingencies | | | | | | | | | |
| | | | | | | | | |
Stockholders’ equity | | | | | | | | | |
Common stock, $.01 par value per share: | | | | | | | | | |
Authorized - 200,000,000 shares | | | | | | | | | |
Issued - 64,442,771 | | 645 | | — | | | | 645 | |
Capital in excess of par value | | 1,545,852 | | (928,756 | ) | (725 | )(b) (c) | 616,371 | |
Retained earnings (accumulated deficit) | | (439,497 | ) | | | | | (439,497 | ) |
Treasury stock, at cost | | (259,317 | ) | | | | | (259,317 | ) |
Accumulated other comprehensive loss | | (45,360 | ) | 22,469 | | | | (22,891 | ) |
Total stockholders’ equity (deficit) | | 802,323 | | $ | (906,287 | ) | (725 | ) | (104,689 | ) |
Total liabilities and stockholders’ equity (deficit) | | $ | 5,585,832 | | $ | (2,980,184 | ) | $ | 5,091 | | $ | 2,610,739 | |
See accompanying notes
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WALTER INDUSTRIES INC. AND SUBSIDIARIES
UNAUDITED PRO FORMA CONDENSED CONSOLIDATED STATEMENT OF OPERATIONS
FOR THE NINE MONTHS ENDED SEPTEMBER 30, 2006
(in thousands, except per share and share amounts)
| | | | | | Pro Forma | |
| | | | Discontinued | | Continuing | |
| | Historical | | Operations (a) | | Operations (e) | |
Net sales and revenues: | | | | | | | |
Net sales | | $ | 2,255,361 | | $ | 1,441,643 | | $ | 813,718 | |
Interest income on instalment notes | | 150,901 | | — | | 150,901 | |
Miscellaneous | | 29,765 | | 1,355 | | 28,410 | |
| | 2,436,027 | | 1,442,998 | | 993,029 | |
Costs and expenses: | | | | | | | |
Cost of sales (exclusive of depreciation) | | 1,573,801 | | 1,028,840 | | 544,961 | |
Depreciation | | 79,932 | | 51,447 | | 28,485 | |
Selling, general and administrative | | 274,302 | | 161,146 | | 113,156 | |
Provision for losses on instalment notes | | 6,761 | | — | | 6,761 | |
Postretirement benefits | | 12,052 | | (1,167 | ) | 13,219 | |
Interest expense - mortgage-backed/asset-backed notes | | 88,399 | | — | | 88,399 | |
Interest expense - other debt | | 121,045 | | 89,689 | | 31,356 | |
Amortization of intangibles | | 23,413 | | 21,514 | | 1,899 | |
Credit for estimated hurricane insurance losses | | (1,046 | ) | — | | (1,046 | ) |
Restructuring and impairment charges | | 5,622 | | 4,487 | | 1,135 | |
| | 2,184,281 | | 1,355,956 | | 828,325 | |
| | | | | | | |
Income from continuing operations before income tax expense and minority interest | | 251,746 | | 87,042 | | 164,704 | |
Income tax expense | | (79,856 | ) | (37,158 | ) | (42,698 | ) |
Income from continuing operations before minority interest | | 171,890 | | 49,884 | | 122,006 | |
| | | | | | | |
Minority interest in net income (loss) of affiliates | | 7,176 | | 8,176 | | (1,000 | ) |
Income from continuing operations | | $ | 164,714 | | $ | 41,708 | | $ | 123,006 | |
| | | | | | | |
Basic income per share: | | | | | | | |
Income from continuing operations | | $ | 3.87 | | | | $ | 2.89 | |
| | | | | | | |
Weighted average number of basic shares outstanding | | 42,511,178 | | | | 42,511,178 | |
| | | | | | | |
Diluted income per share: | | | | | | | |
Income from continuing operations | | $ | 3.25 | | | | $ | 2.44 | |
| | | | | | | |
Weighted average number of diluted shares outstanding | | 51,601,866 | | | | 51,601,866 | |
See accompanying notes
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WALTER INDUSTRIES INC. AND SUBSIDIARIES
UNAUDITED PRO FORMA CONDENSED CONSOLIDATED STATEMENT OF OPERATIONS
FOR THE YEAR ENDED DECEMBER 31, 2005
(in thousands, except per share and share amounts)
| | | | | | Pro Forma | |
| | | | Discontinued | | Continuing | |
| | Historical | | Operations (a) | | Operations (e) | |
Net sales and revenues: | | | | | | | |
Net sales | | $ | 1,823,654 | | $ | 914,957 | | $ | 908,697 | |
Interest income on instalment notes | | 206,582 | | — | | 206,582 | |
Miscellaneous | | 23,904 | | 1,141 | | 22,763 | |
| | 2,054,140 | | 916,098 | | 1,138,042 | |
Costs and expenses: | | | | | | | |
Cost of sales (exclusive of depreciation) | | 1,416,334 | | 783,523 | | 632,811 | |
Depreciation | | 68,461 | | 36,485 | | 31,976 | |
Selling, general and administrative | | 232,036 | | 77,510 | | 154,526 | |
Provision for losses on instalment notes | | 10,724 | | — | | 10,724 | |
Postretirement benefits | | 12,948 | | (1,453 | ) | 14,401 | |
Interest expense - mortgage-backed/asset-backed notes | | 122,005 | | — | | 122,005 | |
Interest expense - other debt | | 55,852 | | 32,452 | | 23,400 | |
Amortization of intangibles | | 10,267 | | 6,626 | | 3,641 | |
Provision for estimated hurricane insurance losses | | 10,044 | | — | | 10,044 | |
Restructuring and impairment charges | | 87,583 | | 24,138 | | 63,445 | |
| | 2,026,254 | | 959,281 | | 1,066,973 | |
| | | | | | | |
Income (loss) from continuing operations before income tax expense | | 27,886 | | (43,183 | ) | 71,069 | |
Income tax (expense) benefit | | (20,142 | ) | 16,576 | | (36,718 | ) |
| | | | | | | |
Income (loss) from continuing operations | | $ | 7,744 | | $ | (26,607 | ) | $ | 34,351 | |
| | | | | | | |
Basic income per share: | | | | | | | |
Income from continuing operations | | $ | 0.20 | | | | $ | 0.89 | |
| | | | | | | |
Weighted average number of basic shares outstanding | | 38,484,675 | | | | 38,484,675 | |
| | | | | | | |
Diluted income per share: (d) | | | | | | | |
Income from continuing operations | | $ | 0.20 | | | | $ | 0.78 | |
| | | | | | | |
Weighted average number of diluted shares outstanding | | 39,403,873 | | | | 49,209,176 | |
See accompanying notes
4
WALTER INDUSTRIES INC. AND SUBSIDIARIES
UNAUDITED PRO FORMA CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS
FOR THE YEAR ENDED DECEMBER 31, 2004
(in thousands, except per share and share amounts)
| | | | | | Pro Forma | |
| | | | Discontinued | | Continuing | |
| | Historical | | Operations (a) | | Operations (e) | |
Net sales and revenues: | | | | | | | |
Net sales | | $ | 1,311,831 | | $ | 561,953 | | $ | 749,878 | |
Interest income on instalment notes | | 220,041 | | — | | 220,041 | |
Miscellaneous | | 17,407 | | 2,525 | | 14,882 | |
| | 1,549,279 | | 564,478 | | 984,801 | |
Costs and expenses: | | | | | | | |
Cost of sales (exclusive of depreciation) | | 1,048,404 | | 494,991 | | 553,413 | |
Depreciation | | 60,220 | | 26,523 | | 33,697 | |
Selling, general and administrative | | 207,451 | | 39,112 | | 168,339 | |
Provision for losses on instalment notes | | 12,402 | | — | | 12,402 | |
Postretirement benefits | | 8,140 | | (1,347 | ) | 9,487 | |
Interest expense - mortgage-backed/asset-backed notes | | 127,273 | | — | | 127,273 | |
Interest expense - other debt | | 18,687 | | 505 | | 18,182 | |
Amortization of intangibles | | 4,976 | | — | | 4,976 | |
Provision for estimated hurricane insurance losses | | 3,983 | | — | | 3,983 | |
Restructuring and impairment charges | | 591 | | 121 | | 470 | |
| | 1,492,127 | | 559,905 | | 932,222 | |
| | | | | | | |
Income from continuing operations before income tax expense | | 57,152 | | 4,573 | | 52,579 | |
Income tax expense | | (7,235 | ) | (5,190 | ) | (2,045 | ) |
| | | | | | | |
Income (loss) from continuing operations | | $ | 49,917 | | $ | (617 | ) | $ | 50,534 | |
| | | | | | | |
Basic income per share: | | | | | | | |
Income from continuing operations | | $ | 1.29 | | | | $ | 1.31 | |
| | | | | | | |
Weighted average number of basic shares outstanding | | 38,581,893 | | | | 38,581,893 | |
| | | | | | | |
Diluted income per share: | | | | | | | |
Income from continuing operations | | $ | 1.14 | | | | $ | 1.16 | |
| | | | | | | |
Weighted average number of diluted shares outstanding | | 46,254,746 | | | | 46,254,746 | |
See accompanying notes
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WALTER INDUSTRIES INC. AND SUBSIDIARIES
UNAUDITED PRO FORMA CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS
FOR THE YEAR ENDED DECEMBER 31, 2003
(in thousands, except per share and share amounts)
| | | | | | Pro Forma | |
| | | | Discontinued | | Continuing | |
| | Historical | | Operations (a) | | Operations (e) | |
Net sales and revenues: | | | | | | | |
Net sales | | $ | 1,163,897 | | $ | 452,909 | | $ | 710,988 | |
Interest income on instalment notes | | 220,401 | | — | | 220,401 | |
Miscellaneous | | 20,634 | | 639 | | 19,995 | |
| | 1,404,932 | | 453,548 | | 951,384 | |
Costs and expenses: | | | | | | | |
Cost of sales (exclusive of depreciation) | | 1,001,432 | | 394,232 | | 607,200 | |
Depreciation | | 53,376 | | 25,182 | | 28,194 | |
Selling, general and administrative | | 178,340 | | 43,384 | | 134,956 | |
Provision for losses on instalment notes | | 15,660 | | — | | 15,660 | |
Postretirement benefits | | 8,080 | | (1,601 | ) | 9,681 | |
Interest expense - mortgage-backed/asset-backed notes | | 129,344 | | — | | 129,344 | |
Interest expense - other debt | | 22,572 | | 464 | | 22,108 | |
Amortization of intangibles | | 6,132 | | — | | 6,132 | |
Restructuring and impairment charges | | 16,792 | | 5,938 | | 10,854 | |
| | 1,431,728 | | 467,599 | | 964,129 | |
| | | | | | | |
Loss from continuing operations before income tax benefit | | (26,796 | ) | (14,051 | ) | (12,745 | ) |
Income tax benefit | | 30,115 | | 6,092 | | 24,023 | |
| | | | | | | |
Income (loss) from continuing operations | | $ | 3,319 | | $ | (7,959 | ) | $ | 11,278 | |
| | | | | | | |
Basic income per share: | | | | | | | |
Income from continuing operations | | $ | 0.08 | | | | $ | 0.26 | |
| | | | | | | |
Weighted average number of basic shares outstanding | | 43,025,909 | | | | 43,025,909 | |
| | | | | | | |
Diluted income per share: | | | | | | | |
Income from continuing operations | | $ | 0.08 | | | | $ | 0.26 | |
| | | | | | | |
Weighted average number of diluted shares outstanding | | 43,363,826 | | | | 43,363,826 | |
See accompanying notes
6
WALTER INDUSTRIES, INC. AND SUBSIDIARIES
NOTES TO UNAUDITED PRO FORMA CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(UNAUDITED)
(a) | Reflects the elimination of the financial results, assets, liabilities and accumulated other comprehensive income amounts associated with Mueller Water Products, Inc., and the distibution of Mueller Water Products, Inc. to the Walter Industries, Inc. shareholders. |
(b) | Estimated non-recurring costs, primarily legal, accounting and consulting fees, associated with the distribution of Mueller Water Products, Inc. in the amount of approximately $1.2 million are expected to be incurred during the remainder of 2006. These costs have been shown separately as a charge directly to pro forma equity, net of tax. |
(c) | The net payable from Mueller Water Products, Inc. to Walter Industries, Inc. totaling $6.3 million will be settled in cash after the distribution date. |
(d) | The interest, net of tax, and shares issuable upon conversion related to the Company’s $175 million contingent convertible senior subordinated notes were not included in the calculation of historical consolidated diluted income per share for 2005, as they would have an anti-dilutive effect. However, they were included in the Pro Forma Continuing Operations calculation, as they did not have an anti-dilutive impact on pro forma EPS. |
(e) | There were no pro forma adjustments required for the presentation of Pro Forma Continuing Operations in the Unaudited Pro Forma Condensed Consolidated Statements of Operations other than that noted in (d) above. |
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