<Page>
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
------------------------
FORM 10-Q/A
<Table>
/X/ QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d)
OF THE SECURITIES EXCHANGE ACT OF 1934
</Table>
FOR THE QUARTERLY PERIOD ENDED MARCH 31, 2001
OR
<Table>
/ / TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d)
OF THE SECURITIES EXCHANGE ACT OF 1934
</Table>
COMMISSION FILE NUMBER 000-20537
------------------------
WALTER INDUSTRIES, INC.
<Table>
Incorporated in DELAWARE IRS Employer Identification No. 13-3429953
4211 W. BOY SCOUT BOULEVARD, TAMPA, FLORIDA 33607
Telephone Number (813) 871-4811
</Table>
------------------------
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 / /.
There were 45,270,392 shares of common stock of the registrant outstanding
at April 30, 2001.
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
<Page>
PART I--FINANCIAL INFORMATION
WALTER INDUSTRIES, INC. AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS
RESTATED
<Table>
<Caption>
MARCH 31, DECEMBER 31,
2001 2000
(UNAUDITED) (NOTE 1)
----------- -------------
(IN THOUSANDS, EXCEPT
SHARE AMOUNTS)
ASSETS
Cash and cash equivalents................................... $ 13,612 $ 11,513
Short-term investments, restricted.......................... 105,351 100,901
Marketable securities....................................... 2,180 1,980
Instalment notes receivable, net............................ 1,689,119 1,686,277
Receivables, net............................................ 239,126 239,620
Inventories................................................. 281,298 261,441
Prepaid expenses............................................ 12,955 13,079
Property, plant and equipment, net.......................... 479,167 480,361
Investments................................................. 13,307 13,226
Unamortized debt expense.................................... 41,325 42,432
Other long-term assets, net................................. 38,658 37,129
Goodwill, net............................................... 443,093 452,234
---------- ----------
$3,359,191 $3,340,193
========== ==========
LIABILITIES AND STOCKHOLDERS' EQUITY
Accounts payable............................................ $ 169,650 $ 171,949
Accrued expenses............................................ 113,849 118,644
Income taxes payable........................................ 67,213 61,027
Debt
Mortgage-backed/asset-backed notes........................ 1,747,021 1,769,833
Other senior debt......................................... 450,250 411,500
Accrued interest............................................ 30,320 28,231
Deferred income taxes....................................... 10,801 11,976
Accumulated postretirement benefits obligation.............. 290,704 286,903
Other long-term liabilities................................. 54,605 54,679
Stockholders' equity
Common stock, $.01 par value per share:
Authorized--200,000,000 shares
Issued--55,355,184 shares............................... 554 554
Capital in excess of par value............................ 1,160,937 1,162,767
Accumulated deficit....................................... (615,261) (620,688)
Treasury stock--9,823,492 and 9,296,592 shares, at cost... (120,566) (116,113)
Accumulated other comprehensive loss...................... (886) (1,069)
---------- ----------
Total stockholders' equity.............................. 424,778 425,451
---------- ----------
$3,359,191 $3,340,193
========== ==========
</Table>
See accompanying "Notes to Consolidated Financial Statements"
2
<Page>
WALTER INDUSTRIES, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF OPERATIONS
(UNAUDITED)
RESTATED
<Table>
<Caption>
FOR THE THREE MONTHS
ENDED
MARCH 31,
---------------------
2001 2000
--------- ---------
(IN THOUSANDS, EXCEPT
PER SHARE AMOUNTS)
Sales and revenues:
Net sales................................................. $404,867 $401,451
Time charges.............................................. 54,698 54,980
Miscellaneous............................................. 4,873 7,222
-------- --------
464,438 463,653
-------- --------
Cost and expenses:
Cost of sales............................................. 324,912 313,630
Depreciation.............................................. 16,118 19,471
Selling, general and administrative....................... 48,271 55,207
Provision for losses on instalment notes.................. 2,444 2,736
Postretirement benefits................................... 5,472 5,465
Interest and amortization of debt expense................. 46,767 46,819
Amortization of goodwill and other intangibles............ 9,262 9,212
-------- --------
453,246 452,540
-------- --------
Income before income tax expense............................ 11,192 11,113
Income tax expense.......................................... 5,765 5,599
-------- --------
Net income.................................................. $ 5,427 $ 5,514
======== ========
Basic net income per share.................................. $ .12 $ .12
======== ========
Diluted net income per share................................ $ .12 $ .12
======== ========
</Table>
See accompanying "Notes to Consolidated Financial Statements"
3
<Page>
WALTER INDUSTRIES, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENT OF CHANGES IN STOCKHOLDERS' EQUITY
(UNAUDITED)
RESTATED
(IN THOUSANDS)
<Table>
<Caption>
ACCUMULATED
COMPREHENSIVE OTHER
INCOME ACCUMULATED COMPREHENSIVE COMMON CAPITAL IN TREASURY
TOTAL (LOSS) DEFICIT INCOME (LOSS) STOCK EXCESS STOCK
-------- -------------- ------------ -------------- -------- ---------- ---------
Balance at December 31, 2000...... $425,451 $(620,688) $(1,069) $554 $1,162,767 $(116,113)
Comprehensive income
Net income...................... 5,427 $5,427 5,427
Other comprehensive income, net
of tax
Net unrealized gain on
hedge....................... 368 368 368
Foreign currency translation
adjustment.................. (185) (185) (185)
------
Comprehensive income.............. $5,610
------
Dividends paid.................... (1,830) (1,830)
Purchases of treasury stock....... (4,453) (4,453)
-------- --------- ------- ---- ---------- ---------
Balance at March 31, 2001......... $424,778 $(615,261) $ (886) $554 $1,160,937 $(120,566)
======== ========= ======= ==== ========== =========
</Table>
See accompanying "Notes to Consolidated Financial Statements"
4
<Page>
WALTER INDUSTRIES, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS
(UNAUDITED)
RESTATED
<Table>
<Caption>
FOR THE THREE MONTHS
ENDED
MARCH 31,
---------------------
2001 2000
--------- ---------
(IN THOUSANDS)
OPERATING ACTIVITIES
Net income................................................ $ 5,427 $ 5,514
Charges to income not affecting cash:
Depreciation............................................ 16,118 19,471
Provision for deferred income taxes..................... (1,175) 4,771
Accumulated postretirement benefits obligation.......... 3,801 2,461
Provision for other long-term liabilities............... (74) 156
Amortization of goodwill and other intangibles.......... 9,262 9,212
Amortization of debt expense............................ 1,440 1,997
--------- ---------
34,799 43,582
Decrease (increase) in assets:
Short-term investments, restricted...................... (4,450) (19,195)
Marketable securities................................... (200) 42,471
Instalment notes receivable, net(a)..................... (2,842) (6,724)
Trade and other receivables, net........................ 494 (6,407)
Inventories............................................. (19,857) (34,303)
Prepaid expenses........................................ 124 (1,051)
Increase (decrease) in liabilities:
Accounts payable........................................ (2,299) (14,081)
Accrued expenses........................................ (4,795) 656
Income taxes payable.................................... 6,186 (3,755)
Accrued interest........................................ 2,089 (1,534)
--------- ---------
Cash flows from operating activities.................. 9,249 (341)
--------- ---------
INVESTING ACTIVITIES
Additions to property, plant and equipment, net of
retirements............................................. (14,924) (17,543)
Increase in investments and other assets.................. (1,731) 2,354
--------- ---------
Cash flows used in investing activities............... (16,655) (15,189)
--------- ---------
FINANCING ACTIVITIES
Issuance of debt.......................................... 302,803 184,689
Retirement of debt........................................ (286,865) (180,597)
Additions to unamortized debt expense..................... (333) --
Purchases of treasury stock............................... (4,453) (11,094)
Dividends paid............................................ (1,830) (1,450)
Net unrealized gain on hedge.............................. 368 --
Exercise of employee stock options........................ -- 82
--------- ---------
Cash flows from (used in) financing activities........ 9,690 (8,370)
--------- ---------
EFFECT OF EXCHANGE RATE ON CASH............................. (185) (725)
--------- ---------
Net increase (decrease) in cash and cash equivalents........ 2,099 (24,625)
Cash and cash equivalents at beginning of period............ 11,513 57,508
--------- ---------
Cash and cash equivalents at end of period.................. $ 13,612 $ 32,883
========= =========
</Table>
- ------------------------------
(a) Consists of sales and resales, net of repossessions and provision for losses
of $33.9 million and $32.1 million and cash collections on account and
payouts in advance of maturity of $36.7 million and $38.8 million,
respectively.
See accompanying "Notes to Consolidated Financial Statements"
5
<Page>
WALTER INDUSTRIES, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
MARCH 31, 2001 (UNAUDITED)
RESTATED
NOTE 1--BASIS OF PRESENTATION
The accompanying unaudited consolidated financial statements have been
prepared in accordance with generally accepted accounting principles for interim
financial information and with the instructions to Form 10-Q and Article 10 of
Regulation S-X. Accordingly, they do not include all of the information and
footnotes required by generally accepted accounting principles for complete
financial statements. In the opinion of management, all adjustments (consisting
of normal recurring accruals) considered necessary for a fair presentation have
been included. Operating results for the three month period ended March 31, 2001
are not necessarily indicative of the results that may be expected for the year
ended December 31, 2001.
The balance sheet at December 31, 2000 has been derived from the audited
financial statements at that date but does not include all of the information
and footnotes required by generally accepted accounting principles for complete
financial statements.
For further information, refer to the consolidated financial statements and
footnotes thereto included in the Walter Industries, Inc. and Subsidiaries
Transition Report on Form 10-K/A for the transition period ended December 31,
2000.
NOTE 2--RESTATEMENT
The following amounts have been restated for certain accounting policy
changes, collectively referred to as the "revised accounting policies" including
use of the interest method of revenue recognition on the instalment note
portfolio, related provision for losses on instalment notes, deferral and
amortization of note origination costs and the deferral of gains recognized upon
the sale of repossessed properties. Previously, time charges were included in
equal parts in each monthly payment (i.e. straight-line method) and taken into
income as collected.
Generally, the effect of the revised accounting policies was to reduce
revenues, including principally time-charge income which is reflected in net
sales and revenues, and to increase provision for losses on instalment notes.
The restatements reflect deferral and amortization of nominal gains on the sale
of repossessed properties and nominal deferral and amortization of note
origination costs. In addition, stockholders' equity increased by
$229.9 million as of December 31, 2000, the earliest date presented as a result
of the impact of the restatements discussed above, net of tax. Previously
reported selling, general and administrative expense amounts have been reduced
in each period presented to reflect the amount of provision for losses on
instalment notes that has been reclassified to a separate line item in the
restated format. All financial data in the Form 10-Q/A reflects the impact of
the
6
<Page>
WALTER INDUSTRIES, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
MARCH 31, 2001 (UNAUDITED)
RESTATED
NOTE 2--RESTATEMENT (CONTINUED)
restatement. The following table summarizes the impact of applying the interest
method on the statement of operations and balance sheet:
<Table>
<Caption>
FOR THE THREE MONTHS
ENDED
MARCH 31, 2001
------------------------
AS PREVIOUSLY AS
REPORTED RESTATED
------------- --------
Statement of operations data:
Net sales and revenues................................ $463,455 $464,438
Cost of sales......................................... 325,462 324,912
Selling, general and administrative................... 48,853 48,271
Provision for losses on instalment notes.............. 312 2,444
Income before income taxes............................ 11,791 11,192
Income tax expense.................................... (5,975) (5,765)
Net income............................................ 5,816 5,427
Basic and diluted net income per share................ $ .13 $ .12
</Table>
<Table>
<Caption>
MARCH 31, 2001
--------------------------
AS PREVIOUSLY AS
REPORTED RESTATED
------------- ----------
Balance sheet data:
Instalment notes receivable......................... $1,362,374 $1,698,719
Allowance for losses on instalment notes............ (26,935) (9,600)
Inventories......................................... 281,880 281,298
Deferred income taxes--asset (liability)............ 112,783 (10,801)
Total assets........................................ 3,118,876 3,359,191
Accumulated deficit................................. (844,775) (615,261)
Stockholders' equity................................ 195,264 424,778
</Table>
<Table>
<Caption>
FOR THE THREE MONTHS
ENDED
MARCH 31, 2000
------------------------
AS PREVIOUSLY AS
REPORTED RESTATED
------------- --------
Statement of operations data:
Net sales and revenues................................ $464,702 $463,653
Cost of sales......................................... 314,233 313,630
Selling, general and administrative................... 55,740 55,207
Provision for losses on instalment notes.............. -- 2,736
Income before income taxes............................ 13,762 11,113
Income tax expense.................................... (6,526) (5,599)
Net income............................................ 7,236 5,514
Basic and diluted net income per share................ $ .15 $ .12
</Table>
7
<Page>
WALTER INDUSTRIES, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
MARCH 31, 2001 (UNAUDITED)
RESTATED
NOTE 2--RESTATEMENT (CONTINUED)
<Table>
<Caption>
DECEMBER 31, 2000
--------------------------
AS PREVIOUSLY AS
REPORTED RESTATED
------------- ----------
Balance sheet data:
Instalment notes receivable......................... $1,358,858 $1,696,577
Allowance for losses on instalment notes............ (26,839) (10,300)
Inventories......................................... 262,002 261,441
Deferred income taxes--asset (liability)............ 111,818 (11,976)
Total assets........................................ 3,098,314 3,340,193
Accumulated deficit................................. (850,591) (620,688)
Stockholders' equity................................ 195,548 425,451
</Table>
NOTE 3--RESTRICTED SHORT-TERM INVESTMENTS
Restricted short-term investments at March 31, 2001 and December 31, 2000
include (i) temporary investment of reserve funds and collections on instalment
notes receivable owned by Mid-State Trusts II, IV, VI, VII, VIII, and IX at
March 31, 2001 and Mid-State Trusts II, IV, V, VI, VII, and VIII at
December 31, 2000 (the "Trusts") ($100.1 million and $94.1 million,
respectively), which are available only to pay expenses of the Trusts and
principal and interest on indebtedness of the Trusts and (ii) miscellaneous
other segregated accounts restricted to specific uses ($5.3 million and
$6.8 million), respectively.
NOTE 4--INSTALMENT NOTES RECEIVABLE--RESTATED (SEE NOTE 2)
The instalment notes receivable is summarized as follows (in thousands):
<Table>
<Caption>
MARCH 31, DECEMBER 31,
2001 2000
---------- -------------
Instalment Notes Receivable......................... $1,698,719 $1,696,577
Less: Allowance for losses on instalment notes...... 9,600 10,300
---------- ----------
Net................................................. $1,689,119 $1,686,277
========== ==========
</Table>
Activity in the allowance for losses on instalment notes is summarized as
follows (in millions):
<Table>
<Caption>
MARCH 31, DECEMBER 31,
2001 2000
---------- -------------
Balance at beginning of period........................ $10,300 $10,700
Provisions charged to income.......................... 2,444 5,310
Charge-offs, net of recoveries........................ (3,144) (5,710)
------- -------
Balance at end of period.............................. $ 9,600 $10,300
======= =======
</Table>
8
<Page>
WALTER INDUSTRIES, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
MARCH 31, 2001 (UNAUDITED)
RESTATED
NOTE 5--INVENTORIES--RESTATED (SEE NOTE 2)
Inventories are summarized as follows (in thousands):
<Table>
<Caption>
MARCH 31, DECEMBER 31,
2001 2000
---------- -------------
Finished goods........................................ $177,266 $159,069
Goods in process...................................... 46,400 46,289
Raw materials and supplies............................ 51,493 49,387
Houses held for resale................................ 6,139 6,696
-------- --------
Total inventories..................................... $281,298 $261,441
======== ========
</Table>
NOTE 6--DEBT
Debt, in accordance with its contractual terms, consisted of the following
(in thousands):
<Table>
<Caption>
MARCH 31, DECEMBER 31,
2001 2000
---------- -------------
Mortgage-Backed/Asset-Backed Notes:
Trust II Mortgage-Backed Notes.................... $ 145,350 $ 161,500
Trust IV Asset Backed Notes....................... 496,068 502,174
Trust V Variable Funding Loan..................... -- 161,000
Trust VI Asset Backed Notes....................... 304,256 309,803
Trust VII Asset Backed Notes...................... 268,338 272,192
Trust VIII Asset Backed Notes..................... 356,506 363,164
Trust IX Asset Backed Notes....................... 176,503 --
---------- ----------
1,747,021 1,769,833
---------- ----------
Other senior debt:
Walter Industries, Inc.
Revolving Credit Facility....................... 149,700 110,000
Term Loan....................................... 300,000 300,000
Other........................................... 550 1,500
---------- ----------
450,250 411,500
---------- ----------
Total............................................... $2,197,271 $2,181,333
========== ==========
</Table>
9
<Page>
WALTER INDUSTRIES, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
MARCH 31, 2001 (UNAUDITED)
RESTATED
NOTE 7--STOCKHOLDERS' EQUITY
Information relating to the Company's share repurchases is set forth in the
following table (in thousands):
<Table>
<Caption>
SHARES AMOUNT
-------- --------
Treasury stock at December 31, 2000........................ 9,297 $116,113
Share repurchases for the three months ended March 31,
2001..................................................... 526 4,453
----- --------
Total held in treasury at March 31, 2001................... 9,823 $120,566
===== ========
</Table>
On April 2, 2001 the Board of Directors increased the authorization to
repurchase the Company's common stock to $25 million.
NOTE 8--EARNINGS PER SHARE--RESTATED (SEE NOTE 2)
A reconciliation of the basic and diluted earnings per share computations
for the three months ended March 31, 2001 and 2000 are as follows (in thousands,
except per share data):
<Table>
<Caption>
FOR THE THREE MONTHS ENDED MARCH 31,
-----------------------------------------
2001 2000
------------------- -------------------
BASIC DILUTED BASIC DILUTED
-------- -------- -------- --------
Net income.............................. $ 5,427 $ 5,427 $ 5,514 $ 5,514
======= ======= ======= =======
Shares of common stock outstanding:
Average number of common shares(a).... 45,733 45,733 47,584 47,584
Effect of diluted securities:
Stock options(b)........................ -- 129 -- --
------- ------- ------- -------
45,733 45,862 47,584 47,584
======= ======= ======= =======
Net income per share.................... $ .12 $ .12 $ .12 $ .12
======= ======= ======= =======
</Table>
- ------------------------
(a) The three months ended March 31, 2001 and 2000 shares 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 on the exercise of
dilutive employee stock options less the number of shares of common stock
which could have been purchased with the proceeds from the exercise of such
options. These purchases were assumed to have been made at the higher of
either the market price of the common stock at the end of the period or the
average market price for the period.
On February 1, 2001, the Company declared a $.04 per share dividend for the
four months ended December 31, 2000 payable to shareholders of record on
February 15, 2001. On April 26, 2001, the Company declared a $.03 per share
dividend for the three months ended March 31, 2001 payable to shareholders of
record on May 16, 2001.
10
<Page>
WALTER INDUSTRIES, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
MARCH 31, 2001 (UNAUDITED)
RESTATED
NOTE 9--DERIVATIVES
Financial Accounting Standards Board Statement No. 133, ACCOUNTING FOR
DERIVATIVE INSTRUMENTS AND HEDGING ACTIVITIES (Statement 133), requires
companies to recognize all of its derivative instruments as either assets or
liabilities in the statement of financial position at fair value. The accounting
for changes in the fair value (i.e., gains or losses) of a derivative instrument
depends on whether it has been designated and qualifies as part of a hedging
relationship and further, on the type of hedging relationship. For those
derivative instruments that are designated and qualify as hedging instruments, a
company must designate the hedging instrument based on the exposure being
hedged, as either a fair value hedge, cash flow hedge or a hedge of a net
investment in a foreign operation.
For derivative instruments that are designated and qualify as a cash flow
hedge (i.e., hedging the exposure to variability in expected future cash flows
that is attributable to a particular risk), the effective portion of the gain or
loss on the derivative instrument is reported as a component of other
comprehensive income and reclassified into earnings in the same period or
periods during which the hedged transaction affects earnings. The remaining gain
or loss on the derivative instrument in excess of the cumulative change in the
present value of future cash flows of the hedged item, if any, is recognized in
current earnings during the period of change.
The Company uses derivative instruments principally to manage exposures to
natural gas price fluctuations. The Company's objective for holding derivatives
is to minimize risk using the most effective methods to eliminate or reduce the
impacts of exposures. The Company documents all relationships between hedging
instruments and hedged items, and links all derivatives designated as fair
value, cash flow or foreign currency hedges to specific assets and liabilities
on the balance sheet or to specific firm commitments or forecasted transactions.
The Company also assesses and documents, both at the hedge's inception and on an
ongoing basis, whether the derivatives that are used in hedging transactions are
highly effective in offsetting changes in fair values or cash flows associated
with the hedged items.
To protect against the reduction in value of forecasted cash flows resulting
from sales of natural gas over the remainder of 2001, the Company has instituted
a natural gas hedging program. The Company hedges portions of its forecasted
revenues from sales of natural gas with swap contracts. The Company has entered
into natural gas swap agreements that effectively convert a portion of its
forecasted sales at floating-rate natural gas prices to a fixed-rate basis for
the remainder of 2001, thus reducing the impact of natural gas price changes on
future sales revenues. When natural gas prices fall, the decline in value of
future natural gas sales is offset by gains in the value of swap contracts
designated as hedges. Conversely, when natural gas prices rise, the increase in
the value of future cash flows from natural gas sales is offset by losses in the
value of the swap contracts. At March 31, 2001, approximately 50% of the
Company's forecasted natural gas sales for the remainder of the year were
designated as the hedged items to natural gas swap agreements.
During the quarter ended March 31, 2001, the Company recognized a net loss
of $14,000 related to the ineffective portion of its hedging instruments. All
amounts have been included in net sales in the statement of operations.
At March 31, 2001, the Company expects to reclassify, during the next nine
months, $368,000 of net gains on derivative instruments from accumulated other
comprehensive income to earnings as actual natural gas sales occur.
11
<Page>
WALTER INDUSTRIES, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
MARCH 31, 2001 (UNAUDITED)
RESTATED
NOTE 10--SEGMENT INFORMATION--RESTATED (SEE NOTE 2)
Summarized financial information concerning the Company's reportable
segments is shown in the following tables (in thousands):
<Table>
<Caption>
THREE MONTHS ENDED
MARCH 31,
-------------------
2001 2000
-------- --------
Sales and revenues:
Homebuilding and Financing............................ $113,716 $121,195
Industrial Products................................... 197,665 196,475
Energy Services....................................... 85,620 92,251
Natural Resources..................................... 66,307 50,607
Other................................................. 1,130 3,125
-------- --------
Sales and revenues.................................. $464,438 $463,653
======== ========
Operating income(a):
Homebuilding and Financing............................ $ 9,504 $ 9,749
Industrial Products................................... 14,837 18,194
Energy Services....................................... 5,164 8,770
Natural Resources..................................... 607 (8,251)
-------- --------
Operating income.................................... 30,112 28,462
Less: General corporate expense....................... 7,604 6,066
Senior debt interest expense........................ 11,316 11,283
-------- --------
Income before tax expense............................. 11,192 11,113
Income tax expense.................................... 5,765 5,599
-------- --------
Net income.......................................... $ 5,427 $ 5,514
======== ========
Depreciation:
Homebuilding and Financing............................ $ 1,088 $ 1,088
Industrial Products................................... 9,493 8,411
Energy Services....................................... 1,670 1,708
Natural Resources..................................... 2,908 7,624
Other................................................. 959 640
-------- --------
Total............................................... $ 16,118 $ 19,471
======== ========
</Table>
- ------------------------
(a) Operating income amounts are after deducting amortization of goodwill and
other intangibles. A breakdown of amortization by segment is as follows (in
thousands):
<Table>
<Caption>
THREE MONTHS ENDED
MARCH 31,
-------------------
2001 2000
-------- --------
Homebuilding and Financing............................ $ 4,270 $ 4,749
Industrial Products................................... 2,591 2,616
Energy Services....................................... 2,139 2,139
Natural Resources..................................... -- (436)
Other................................................. 262 144
-------- --------
$ 9,262 $ 9,212
======== ========
</Table>
12
<Page>
MANAGEMENT'S DISCUSSION AND ANALYSIS OF
RESULTS OF OPERATIONS AND FINANCIAL CONDITION AND
QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK
As more fully described in Note 2 of "Notes to Consolidated Financial
Statements," on January 28, 2002, the Company restated its previously issued
financial statements for certain accounting policy changes, collectively
referred to as the "revised accounting policies." Accordingly, all prior period
information presented herein has been restated to reflect these changes. Total
assets, net instalment notes receivable, allowance for losses, equity, certain
income statement amounts and net income were restated on this Form 10-Q/A from
amounts previously reported in the Company's Form 10-Q, as filed May 15, 2001.
The principal differences result from a change in the method of recognizing time
charge income from the straight-line method to the interest method, which also
has a related impact on the allowance for losses. These changes are reflected in
the Homebuilding and Financing segment. The following discussion of operating
results includes the impact of these restatements.
This discussion should be read in conjunction with the consolidated
financial statements and notes thereto of Walter Industries, Inc. and
subsidiaries, particularly Note 10 of "Notes to Consolidated Financial
Statements," which presents sales and revenues and operating income by operating
segment.
RESULTS OF OPERATIONS
THREE MONTHS ENDED MARCH 31, 2001 AND 2000
Net sales and revenues for the three months ended March 31, 2001 were
$464.4 million, an increase of $.8 million from the comparable three month
period in 2000. Revenue growth within the Industrial Products and Natural
Resources segments was offset by declines in unit sales of homes and a
$.3 million decrease in time charges in the Homebuilding and Financing segment.
Also, volumes for the Energy Services segment declined due to delayed timing of
petroleum coke shipments. Miscellaneous income decreased because the prior year
quarter included a $2.4 million gain from an executive life insurance policy.
Cost of sales, exclusive of depreciation, of $324.9 million was 80.3% of net
sales in the 2001 period versus $313.6 million and 78.1% of net sales in the
comparable period of 2000. The increase in cost of sales was principally the
result of higher petroleum coke costs and higher energy costs. The increase in
cost of sales as a percent of net sales reflects lower gross profit margins
realized on petcoke sales, lost fixed absorption in some of the Industrial
Products businesses and higher energy costs. This increase was partially offset
by cost reductions and productivity improvements in other business segments,
principally lower materials cost for homebuilding and lower scrap iron cost for
U.S. Pipe.
Depreciation for the three months ended March 31, 2001 was $16.1 million, a
decrease of $3.4 million from the same period in 2000. This decrease was
primarily attributable to lower depreciation expense resulting from the
$166.7 million pretax asset impairment charge to the Company's coal mining
assets taken in May 2000.
Selling, general and administrative expenses of $48.3 million were 10.4% of
net sales and revenues in the 2001 period, compared to $55.2 million and 11.9%
in 2000. The decrease in expenses was due to lower expenses from cost reduction
and productivity improvement programs implemented in the last twelve months,
including the reorganization of the European operations in the Energy Services
segment.
Provision for losses on instalment notes of $2.4 million were 4.5% of time
charges in the 2001 period, compared to $2.7 million and 5.0% in 2000.
Interest and amortization of debt expense was $46.8 million for each of the
three month periods ended March 31, 2001 and 2000. The average rate of interest
for the three months ended March 31,
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<Page>
2001 was 7.97% as compared to 7.74% for the three months ended March 31, 2000.
The prime rate of interest was a range from 9.05% to 8.32% in the current year
period compared to a range of 8.50% to 8.83% in 2000.
The Company's effective tax rate for the three months ended March 31, 2001
differed from the federal statutory tax rate primarily due to amortization of
goodwill (excluding amounts related to the AIMCOR acquisition) which is not
deductible for tax purposes, the utilization of certain federal tax credits, and
the effect of state and local income taxes. The effective tax rate for the three
months ended March 31, 2000 differed from the federal statutory tax rate
primarily due to amortization of goodwill and the effect of the gain from the
executive life insurance policy which is not subject to income taxes.
Net income for the three months ended March 31, 2001 was $5.4 million
compared to $5.5 million in the comparable 2000 period. The Company's diluted
earnings per share in the 2001 period was $.12 compared to $.12 in the 2000
period. The current and prior period results also reflect the factors discussed
in the following segment analysis.
Segment Analysis:
HOMEBUILDING AND FINANCING
Net sales and revenues were $113.7 million for the three months ended
March 31, 2001, a decrease of $7.5 million from the quarter ended March 31,
2000. During the three months ended March 31, 2001, the Company completed fewer
homes, which was partially offset by an increase in the average net selling
price. The average net selling price increased as a result of new product
options, amenity upgrades and consumer preference for more upscale models.
<Table>
<Caption>
THREE MONTHS ENDED THREE MONTHS ENDED
MARCH 31, 2001 MARCH 31, 2000
------------------ ------------------
Homes Completed.......................... 924 1,065
Average Net Selling Price................ $58,500 $57,700
</Table>
In addition to the decrease in the homes completed and the increase in the
average net selling price, time charge income decreased $.3 million principally
as the result of the prepayment speed decreasing to 4.7% for the quarter ended
March 31, 2001 compared to 5.3% for the quarter ended March 31, 2000.
The estimated backlog of homes to be constructed at March 31, 2001 was
$101.7 million compared to $99.0 million at December 31, 2000 and
$112.4 million at March 31, 2000.
Operating income was $9.5 million for the three months ended March 31, 2001
compared to $9.7 million in the prior year period. The $.2 million decrease was
principally caused by the $.3 million decline in time charges. Improved
operating margins on home sales, attributable to lower materials cost and other
expense reductions, were offset by lower revenues from fewer unit completions.
INDUSTRIAL PRODUCTS
Net sales and revenues were $197.7 million for the three months ended
March 31, 2001, an increase of $1.2 million from the $196.5 million for the
three months ended March 31, 2000. The increase is due primarily to an increase
in shipments at U.S. Pipe as well as from an increase in the average selling
price per ton for pipe products. Compared to the quarter ended March 31, 2000,
U.S. Pipe revenues were up 14% as shipment tonnage increased by 11,500 tons, or
8.3%, and the average selling price per ton for pipe products increased 4.9%
with a slightly more favorable product mix. Recent weakness in the domestic
steel industry, caused by competition from foreign suppliers and a slower
economy, has significantly impacted sales at Sloss. Sloss' revenues decreased by
$6.7 million from the comparable period a year earlier, principally due to
reduced sales of furnace coke.
14
<Page>
JW Aluminum also experienced lower shipments during the current quarter,
principally due to weather-related delays in seasonal demand for its fin stock
products used in air conditioning applications.
The order backlog for U.S. Pipe at March 31, 2001 was $57.1 million compared
to $82.2 million at March 31, 2000 and $82.0 million at December 31, 2000.
Operating income of $14.8 million for the first quarter of 2001 was down
$3.4 million from the $18.2 million for the three months ended March 31, 2000.
Operating income at U.S. Pipe improved 16% during the current quarter reflecting
strong demand for it's ductile iron pipe products and continuing productivity
improvements. Higher energy costs at U.S. Pipe of approximately $3.6 million
were substantially offset by a $3.5 million reduction in scrap iron costs.
However, strong results at U.S. Pipe were more than offset by other decreases in
operating income, primarily at Sloss Industries Corporation. Sloss' operating
income declined $3.8 million from last year, on lower furnace coke sales, and JW
Aluminum's operating income declined due to it's lower shipments, and energy
costs that were $1.1 million higher than last year's first quarter.
ENERGY SERVICES
Net sales and revenues were $85.6 million for the three months ended
March 31, 2001, a decrease of $6.6 million from the three months ended
March 31, 2000. The decrease is primarily due to delays of petroleum coke
shipments that are now expected in the second quarter. Operating income of
$5.2 million, was $3.6 million below the prior year period due to the shipment
delays and due to lower margins per ton on current contracts as compared to the
prior year.
NATURAL RESOURCES
Net sales and revenues were $66.3 million for the three months ended
March 31, 2001, an increase of $15.7 million from the $50.6 million in the prior
year period. This improvement is primarily attributable to an increase in
methane gas revenues, which rose $10.5 million, resulting from an increase in
methane gas produced, a higher number of methane gas wells, and an increase in
average sales price. Additionally, coal revenues rose $5.2 million due to an
increase in tons of coal sold, which was partially offset by a slight decrease
in average coal sales prices.
<Table>
<Caption>
THREE MONTHS ENDED THREE MONTHS ENDED
MARCH 31, 2001 MARCH 31, 2000
------------------ ------------------
Average Methane Selling Price (per
MCF)................................... $ 6.84 $ 2.49
Number of Methane Wells.................. 325 320
Average Coal Selling Price (per ton)..... $ 28.11 $ 29.80
Average Cost Per Ton Produced............ $ 30.12 $ 32.07
Tons of Coal Sold........................ 1.7 million 1.4 million
</Table>
For the three months ended March 31, 2001, Natural Resources had operating
income of $0.6 million, compared to operating loss of $8.3 million for the
quarter ended March 31, 2000. The improvement in operating income was
principally driven by significant increases in natural gas prices and a 5%
decline in average production costs from successful cost reduction efforts in
the mining operations.
GENERAL CORPORATE EXPENSES
General corporate expenses were $7.6 million during the three months ended
March 31, 2001 compared to $6.1 million for the three months ended March 31,
2000. This reflects a $0.9 million reduction offset by a $2.4 million
non-taxable gain from an executive life insurance policy included in the prior
year amount but not reflected in the current year.
15
<Page>
FINANCIAL CONDITION, LIQUIDITY AND CAPITAL RESOURCES
Since December 31, 2000, total debt has increased by $15.9 million. During
the three month period ended March 31, 2001, net borrowings under the Mid-State
Trust IX Variable Funding Loan Agreement totaled $176.5 million. Payments on the
mortgage-backed/asset-backed notes amounted to $199.3 million. Other senior debt
increased by $38.8 million.
At March 31, 2001 borrowings under the Revolving Credit Facility totaled
$149.7 million. The Revolving Credit Facility includes a sub-facility for trade
and other standby letters of credit in an amount up to $75.0 million at any time
outstanding. At March 31, 2001 letters of credit with a face amount of
$45.6 million were outstanding.
The Credit Facilities contain a number of significant covenants that, among
other things, restrict the ability of the Company and its subsidiaries to
dispose of assets, incur additional indebtedness, pay dividends, create liens on
assets, enter into capital leases, make investments or acquisitions, engage in
mergers or consolidations, or engage in certain transactions with subsidiaries
and affiliates and otherwise restrict corporate activities (including change of
control and asset sale transactions). In addition, under the Credit Facilities,
the Company and its Restricted Subsidiaries is required to maintain specified
financial ratios and comply with certain financial tests. The most restrictive
of these limitations are requirements to maintain (a) a minimum interest
coverage ratio (the ratio of EBITDA to interest expense for the Company and its
Restricted Subsidiaries as defined in the Credit Facilities) of at least
2.50-to-1 and (b) a maximum leverage ratio (the ratio of indebtedness to EBITDA
for the Company and its Restricted Subsidiaries as defined in the Credit
Facilities) of not more than 3.75-to-1. The Company was in compliance with these
covenants at March 31, 2001.
The Trust IX Variable Funding Loan Agreement's covenants, among other
things, restrict the ability of Trust IX to dispose of assets, create liens and
engage in mergers or consolidations. The Company was in compliance with these
covenants at March 31, 2001.
Cash and cash equivalents were approximately $13.6 million at March 31,
2001. Operating cash flows for the three months ended March 31, 2001 together
with issuance of long-term debt under the Mid-State Trust IX Variable Funding
Loan Agreement and borrowings under the Revolving Credit Facility were primarily
used for retirement of long-term senior debt, capital expenditures, dividends
and to purchase 526,900 shares of common stock under the stock repurchase
program.
Cash flow from operating activities for the three months ended March 31,
2001, were $9.2 million, principally reflecting net income for the period and
non-cash charges for depreciation and amortization, offset by an increase in
working capital. The increase in working capital reflected higher inventory
levels at U.S. Pipe and JW Aluminum due to seasonality.
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.
Capital expenditures totaled $15.4 in the three months ended March 31, 2001.
These capital expenditures reflect the Company's ongoing commitment to maintain
safe, efficient plants and continually increase productivity. Commitments for
capital expenditures at March 31, 2001 were not significant; however, it is
estimated that gross capital expenditures for the year ending December 31, 2001
will approximate $90 million. Actual expenditures in 2001 may be more or less
than this amount, depending upon the level of earnings and cash flow, or
expansion opportunities in certain markets.
In the three months ended March 31, 2001, the Company repurchased
$4.5 million of its Common Stock. On April 2, 2001 the Board of Directors
increased the authorization to repurchase the Company's common stock to
$25 million.
16
<Page>
The Board of Directors approved a $0.04 per share dividend payable
March 15, 2001 to shareholders of record on February 15, 2001. The $0.04 per
share dividend reflects a one-time, non-recurring adjustment to the Company's
regular dividend rate of $0.03 per share because of a one-time dividend
reporting period of four months due to the change in fiscal year end. On
April 26, 2001, the Board of Directors declared a $0.03 per share dividend
payable to shareholders of record on May 16, 2001.
The Company believes that the Mid-State Trust IX 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 and its affiliates.
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 IX Variable Funding Loan
Agreement. The Company believes that under present operating conditions,
sufficient cash flow will be generated to make all required interest and
principal payments on its indebtedness, to make all its planned capital
expenditures to pay dividends, 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.
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 IX 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 and (ii) the impact of interest rate
movements on its ability to meet interest rate expense requirements and comply
with financial covenants. The Company has historically managed interest rate
risk through the periodic use of interest rate hedging instruments. There were
no such instruments outstanding at March 31, 2001. 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 at risk on its portfolio of instalment notes receivable. The
Company's instalment notes receivable are fixed rate and have terms ranging from
12 to 30 years. The Company manages its risk by securitizing its instalment
notes into asset-backed trust agreements funded by fixed rate debt. Therefore,
the Company's asset/liability management requires a high degree of analysis and
estimation.
In the ordinary course of business, the Company is also exposed to commodity
price risks. These exposures primarily relate to the acquisition of raw
materials and the purchase and the sale of natural gas. The Company may
occasionally utilize derivative financial instruments to manage certain of these
exposures where it considers it practical to do so. In the first quarter of
2001, the Company entered into a commodity swap to hedge anticipated sales of
natural gas. At March 31, 2001, the Company had outstanding commodity swaps with
a notionable amount of approximately 3.8 million cubic feet. These commodity
swaps, which cover the period from April through December of 2001, provide for
the Company to receive a weighted average fixed price of approximately $5.30 per
MMBTU and to pay a variable price that is substantially the same as the price to
be received by the Company from its sales contract with Southern Natural Gas.
For further information about the Company's use of derivative instruments, see
Note 9 of "Notes to Consolidated Financial Statements."
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.
17
<Page>
PRIVATE SECURITIES LITIGATION REFORM ACT SAFE HARBOR STATEMENT
This Form 10-Q/A 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/A, the words "estimate," "project," "believe," "anticipate," "intend,"
"expect," and similar expressions are intended to identify forward-looking
statements. Such statements reflect the current views of the Company with
respect to future events and are subject to risks and uncertainties that could
cause actual results to differ materially from those contemplated in such
forward-looking statements. Readers are cautioned not to place undue reliance on
these forward-looking statements, which speak only as of the date hereof. The
Company does not undertake any obligation to publicly release any revisions to
these forward-looking statements to reflect events or circumstances after the
date hereof or to reflect the occurrence of unanticipated events.
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 11 of Notes to Consolidated Financial
Statements contained in the Company's Annual Report on Form 10-K/A for the year
ended December 31, 2000.
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 on April 26, 2001, the
following proposals were submitted to the Stockholders:
1. The election of the following directors:
<Table>
<Caption>
DIRECTOR FOR WITHHELD BROKER NON-VOTES
- -------- ---------- --------- ----------------
Robert F. Amter................ 40,726,507 2,126,562 0
Donald N. Boyce................ 40,674,836 2,178,233 0
Howard L. Clark, Jr............ 40,709,971 2,143,098 0
Don DeFosset................... 40,727,707 2,125,362 0
Perry Golkin................... 40,704,624 2,148,445 0
James L. Johnson............... 40,709,871 2,143,198 0
Scott C. Nuttall............... 40,725,057 2,128,012 0
Wayne W. Robinson.............. 40,727,607 2,125,462 0
Neil A. Springer............... 40,727,207 2,125,862 0
Michael T. Tokarz.............. 40,704,324 2,148,745 0
</Table>
18
<Page>
2. A proposal to ratify the appointment of PricewaterhouseCoopers LLP as
independent certified public accountants for the year ending
December 31, 2001: For, 42,566,766; Against, 282,878; Abstain, 3,425; and
Broker Non-Votes, 0.
3. A stockholder proposal to liquidate the Company: For, 6,740,704;
Against, 32,372,230; Abstain, 205,462; and Broker Non-Votes, 3,534,673.
ITEM. 6 EXHIBITS AND REPORTS ON FORM 8-K
(a) None
(b) None
19
<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.
<Table>
WALTER INDUSTRIES, INC.
/s/ W.F. OHRT /s/ C.E. CAUTHEN
------------------------------------------- --------------------------------------
W.F. Ohrt C.E. Cauthen
EXECUTIVE VICE PRESIDENT AND SENIOR VICE PRESIDENT, CONTROLLER AND
PRINCIPAL FINANCIAL OFFICER PRINCIPAL ACCOUNTING OFFICER
Date: January 28, 2002
</Table>
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