Filed pursuant to
Rule 424(b) and (c)
with respect to
Reg. No. 33-59013
THIRD PROSPECTUS SUPPLEMENT
dated April 11, 1997 to
PROSPECTUS dated September 17, 1996
of WALTER INDUSTRIES, INC.
Relating to 31,885,363
Shares of Common Stock
UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D. C. 20549
FORM 10-Q
/X/ QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d)
OF THE SECURITIES EXCHANGE ACT OF 1934
For the quarterly period ended February 28, 1997
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 55,095,445 shares of common stock of the registrant outstanding
at March 31, 1997.
PART I - FINANCIAL INFORMATION
WALTER INDUSTRIES, INC. AND SUBSIDIARIES
CONSOLIDATED CONDENSED BALANCE SHEET
(UNAUDITED)
February 28, May 31,
1997 1996
------------ --------
(in thousands)
ASSETS
- ------
Cash (includes short-term investments of
$29,694,000 and $64,338,000) (Note 3) $ 49,832 $ 81,881
Short-term investments, restricted (Note 3) 191,113 175,432
Instalment notes receivable (Note 4) 4,250,741 4,208,252
Less - Provision for possible losses ( 26,368) ( 26,138)
Unearned time charges ( 2,889,693) ( 2,851,961)
Trade and other receivables, less $8,091,000
and $8,180,000 provision for possible losses 158,741 191,722
Inventories, at lower of cost (first in,
first out or average) or market:
Finished goods 113,725 124,456
Goods in process 34,009 32,798
Raw materials and supplies 48,919 51,674
Houses held for resale 3,059 2,517
Prepaid expenses 14,316 11,937
Property, plant and equipment, at cost 950,116 888,991
Less - Accumulated depreciation,
depletion and amortization ( 393,279) ( 347,455)
Investments and other assets 48,575 51,617
Deferred income taxes 111,657 155,171
Unamortized debt expense 24,442 29,548
Excess of purchase price over net
assets acquired (Note 2) 284,640 310,935
------------ ------------
$ 2,974,545 $ 3,091,377
------------ ------------
------------ ------------
LIABILITIES AND STOCKHOLDERS' EQUITY
- ------------------------------------
Bank overdrafts (Note 3) $ 14,292 $ 28,194
Accounts payable and accrued expenses 190,110 194,807
Income taxes payable 53,600 56,238
Long-term senior debt:
Mortgage-backed /asset backed notes (Note 4) 1,756,848 1,791,946
Other senior debt 331,750 419,350
Accrued interest 24,534 28,819
Accumulated postretirement health benefits
obligation 264,117 247,827
Other long-term liabilities 47,108 47,502
Stockholders' equity (Notes 6 and 7):
Common stock 549 549
Capital in excess of par value 1,159,327 1,159,332
Retained earnings (deficit) ( 862,364) ( 877,861)
Excess of additional pension liability over
unrecognized prior years service cost ( 5,326) ( 5,326)
------------ ------------
Total stockholders' equity 292,186 276,694
------------ ------------
$ 2,974,545 $ 3,091,377
------------ ------------
------------ ------------
2
WALTER INDUSTRIES, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENT OF OPERATIONS
(UNAUDITED)
FOR THE THREE MONTHS ENDED
--------------------------
February 28, February 29,
1997 1996
------------ -----------
(in thousands except
per share amount)
Sales and revenues:
Net sales $ 276,912 $ 262,969
Time charges 57,447 56,478
Miscellaneous 6,056 9,695
---------- ----------
340,415 329,142
---------- ----------
Costs and expenses:
Cost of sales 225,250 229,386
Depreciation, depletion and amortization 16,648 19,187
Selling, general and administrative 37,191 34,306
Postretirement health benefits 6,402 6,848
Provision for possible losses 580 953
Interest and amortization of debt expense 44,331 51,958
Amortization of excess of purchase price
over net assets acquired (Note 1) 8,463 9,510
Long-lived asset impairment - 143,265
---------- ----------
338,865 495,413
---------- ----------
1,550 ( 166,271)
Income tax benefit(expense):
Current ( 545) ( 2,450)
Deferred ( 3,253) 50,562
------------- -------------
Loss before extraordinary item ( 2,248) ( 118,159)
Extraordinary item - Loss on debt repayment
(net of income tax benefit of $2,910,000) - ( 5,404)
------------- -------------
Net loss $( 2,248) $( 123,563)
------------- -------------
------------- -------------
Primary net loss per share:
Loss before extraordinary item $( .04) $( 2.32)
Extraordinary item - ( .10)
------------- -------------
Net loss $( .04) $( 2.42)
------------- -------------
------------- -------------
Fully diluted net loss per share:
Loss before extraordinary item $( .04) $( 2.32)
Extraordinary item - ( .10)
------------- -------------
Net loss $( .04) $( 2.42)
------------- -------------
------------- -------------
3
WALTER INDUSTRIES, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENT OF OPERATIONS
(UNAUDITED)
FOR THE NINE MONTHS ENDED
--------------------------
February 28, February 29,
1997 1996
------------ ------------
(in thousands except
per share amount)
Sales and revenues:
Net sales $ 915,516 $ 889,603
Time charges 172,390 168,399
Miscellaneous 20,068 29,424
---------- ----------
1,107,974 1,087,426
---------- ----------
Costs and expenses:
Cost of sales 724,622 729,013
Depreciation, depletion and amortization 53,425 56,629
Selling, general and administrative 106,301 100,902
Postretirement health benefits 19,274 20,370
Provision for possible losses 2,138 2,613
Interest and amortization of debt expense 136,598 161,451
Amortization of excess of purchase price
over net assets acquired (Note 1) 26,295 29,479
Long-lived asset impairment - 143,265
---------- ----------
1,068,653 1,243,722
---------- ----------
39,321 ( 156,296)
Income tax benefit (expense):
Current ( 1,721) ( 3,950)
Deferred ( 22,103) 41,234
----------- -------------
Income (loss) before extraordinary item 15,497 ( 119,012)
Extraordinary item - Loss on debt repayment (net
of income tax benefit of $2,910,000) - ( 5,404)
----------- -------------
Net income (loss) $ 15,497 $( 124,416)
----------- -------------
----------- -------------
Primary net income (loss) per share:
Income (loss) before extraordinary item $ .28 $( 2.34)
Extraordinary item - ( .10)
----------- -------------
Net income (loss) $ .28 $( 2.44)
----------- -------------
----------- -------------
Fully diluted net income (loss) per share:
Income (loss) before extraordinary item $ .28 $( 2.34)
Extraordinary item - ( .10)
----------- -------------
Net income (loss) $ .28 $( 2.44)
----------- -------------
----------- -------------
4
WALTER INDUSTRIES, INC. AND SUBSIDIARIES
CONSOLIDATED CONDENSED STATEMENT OF CASH FLOWS
(UNAUDITED)
FOR THE NINE MONTHS ENDED
-------------------------
February 28, February 29,
1997 1996
------------ -----------
(in thousands)
OPERATIONS
- ----------
Income (loss) before extraordinary item $ 15,497 $( 119,012)
Charges to income not affecting cash:
Depreciation, depletion and amortization 53,425 56,629
Provision for deferred income taxes 22,103 ( 41,234)
Accumulated postretirement health
benefits obligation 16,290 14,722
Provision for other long-term liabilities ( 394) ( 811)
Amortization of excess purchase price
over net assets acquired 26,295 29,479
Amortization of debt expense 5,265 5,551
Long-lived asset impairment - 143,265
----------- -----------
138,481 88,589
Decrease (increase) in:
Short-term investments, restricted ( 15,681) ( 29,302)
Instalment notes receivable, net (Note 4) ( 4,527) 20,369
Trade and other receivables, net 32,981 33,004
Inventories 11,733 ( 6,087)
Prepaid expenses ( 2,379) ( 787)
Deferred income taxes 21,411 -
Increase (decrease) in:
Bank overdrafts (Note 3) ( 13,902) ( 17,672)
Accounts payable and accrued expenses ( 3,487) ( 16,168)
Income taxes payable ( 2,638) ( 124)
Accrued interest ( 4,285) ( 10,520)
----------- -----------
Cash flows from operations 157,707 61,302
----------- -----------
FINANCING ACTIVITIES
- --------------------
Issuance of long-term debt 110,000 625,000
Retirement of long-term senior debt ( 232,698) ( 632,762)
Additions to unamortized debt expense ( 159) ( 5,968)
Extraordinary item - Loss on debt repayment - ( 5,404)
Charge to income not affecting cash:
Write off of unamortized debt expense - 3,414
Payment of liabilities subject to
Chapter 11 proceedings (Note 2) ( 1,210) ( 62,489)
Fractional share payments ( 5) ( 2)
----------- -----------
Cash flows used in financing activities ( 124,072) ( 78,211)
----------- -----------
INVESTING ACTIVITIES
- --------------------
Additions to property, plant and
equipment, net of normal retirements ( 68,726) ( 43,719)
Decrease (increase) in investments and
other assets 3,042 ( 630)
----------- -----------
Cash flows used in investing activities ( 65,684) ( 44,349)
----------- -----------
Net decrease in cash and cash equivalents ( 32,049) ( 61,258)
Cash and cash equivalents at beginning of period 81,881 128,007
----------- -----------
Cash and cash equivalents at end of period
(Note 3) $ 49,832 $ 66,749
----------- -----------
----------- -----------
5
WALTER INDUSTRIES, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED CONDENSED FINANCIAL STATEMENTS
FEBRUARY 28, 1997
(Unaudited)
Note 1 - Principles of Consolidation
Walter Industries, Inc.(the "Company") through its direct and indirect
subsidiaries currently offers a diversified line of products and services for
homebuilding, water and waste water transmission, coal mining and related
degasification, residential and non-residential construction, and industrial
markets. 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 amounts could differ from those
estimates. All significant intercompany balances have been eliminated. All of
the 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 nine months ended
February 28, 1997, and February 29, 1996 are not necessarily indicative of
results for a full fiscal year. These financial statements should be read in
conjunction with the Company's consolidated financial statements and notes
thereto in the Company's Annual Report on Form 10-K for the year ended May 31,
1996. Unless otherwise specified, capitalized terms used herein are as defined
in the aforementioned Form 10-K.
Note 2 - Recent History
The Company was organized in 1987 for the purpose of acquiring Jim Walter
Corporation ("Original Jim Walter"). The Company's financial statements reflect
the allocation of the purchase price of Original Jim Walter based upon the fair
value of the assets acquired and the liabilities assumed. On December 27,
1989, the Company and most of its subsidiaries each filed a voluntary petition
for reorganization under Chapter 11 of Title 11 of the United States Code in the
United States Bankruptcy Court for the Middle District of Florida, Tampa
Division (the "Bankruptcy Court"). The Company emerged from bankruptcy on March
17, 1995 (the "Effective Date") pursuant to the Amended Joint Plan of
Reorganization Dated as of December 9, 1994, as modified on March 1, 1995 (as so
modified the "Consensual Plan"). Despite the confirmation and effectiveness of
the Consensual Plan, the Bankruptcy Court continues to have jurisdiction over,
among other things, the resolution of disputed prepetition claims against the
Company and other matters that may arise in connection with or relate to the
Consensual Plan.
Note 3 - Cash and Restricted Short-Term Investments
Cash includes short-term investments with original maturities of less than one
year. These investments are readily convertible into cash and are stated at
cost which approximates market. The Company's cash management system provides
for the reimbursement of all major bank disbursement accounts on a daily basis.
Checks issued but not yet presented to the banks for payment are classified as
bank overdrafts.
Restricted short-term investments include (i) temporary investment of reserve
funds and collections on instalment notes receivable owned by Mid-State Trusts
II, III, IV and V ($98,841,000) 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
are subject to retention ($72,784,000) and (iii) miscellaneous other segregated
accounts restricted to specific uses ($19,488,000).
6
WALTER INDUSTRIES, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED CONDENSED FINANCIAL STATEMENTS (continued)
Note 4 - Instalment Notes Receivable
The net increase in instalment notes receivable for the nine month period ended
February 28, 1997 and the net decrease for the nine month period ended February
29, 1996 consists of sales and resales, net of repossessions and provision for
possible losses, of $129,871,000 and $111,035,000 and cash collections on
account and payouts in advance of maturity (and reductions in account balances
in the nine months ended February 29, 1996 resulting from settlement agreements
entered into with South Carolina and Texas homeowners) of $125,344,000 and
$131,404,000, respectively.
Mid-State Trusts II, III, and IV are business trusts organized by Mid-State
Homes, Inc. ("Mid-State"), which owns all of the beneficial interest in Trust
III and Trust IV. Trust IV owns all of the beneficial interest in Trust II.
The Trusts were organized for the purpose of purchasing instalment notes
receivable from Mid-State with the net proceeds from the issuance of the Trust
II Mortgage-Backed Notes, the Trust III Asset Backed Notes and the Trust IV
Asset Backed Notes with outstanding balances at February 28, 1997 of
$431,750,000, $124,192,000, and $855,906,000, respectively. The assets of Trust
II, Trust III and Trust IV, including the instalment notes receivable, are not
available to satisfy claims of general creditors of the Company and its
subsidiaries. The liabilities of Mid-State Trusts II, III and IV for their
publicly issued debt are to be satisfied solely from the proceeds of the
underlying instalment notes and are non-recourse to the Company and its
subsidiaries. Of the gross amount of instalment notes receivable at February
28, 1997 of $4,250,741,000 with an economic balance of $2,021,499,000,
receivables owned by Trust II had a gross book value of $1,014,188,000 and an
economic balance of $637,127,000, receivables owned by Trust III had a gross
book value of $377,819,000 and an economic balance of $201,064,000, and
receivables owned by Trust IV had a gross book value of $1,659,391,000 and an
economic balance of $719,785,000. Mid-State Trust V, a business trust in which
Mid-State holds all the beneficial interest, was organized to hold instalment
notes receivable as collateral for borrowings to provide temporary financing to
Mid-State for its current purchases of instalment notes and mortgages from Jim
Walter Homes, Inc. At February 28, 1997, receivables owned by Mid-State Trust V
had a gross book value of $1,196,479,000 and an economic balance of
$462,288,000, with outstanding borrowings of $345,000,000.
Note 5 - Litigation and Other Matters
VEIL PIERCING LITIGATION
The Modified Plan of Reorganization (the "Modified Plan") filed October 8, 1996
by Celotex and others in its Chapter 11 proceeding was approved by a vote of the
Celotex creditors, and on December 6, 1996 the Celotex Bankruptcy Court entered
an Order (the "Celotex Confirmation Order") confirming the Modified Plan. The
Modified Plan contains a provision for an injunction, pursuant to Section 524(g)
of the Bankruptcy Code, as to all asbestos-related claimants and affording to
various non-debtor third parties, including the Company, protection from current
and future asbestos-related claims. The Modified Plan sets forth various
requirements for the plan to become effective, including that the Celotex
Confirmation Order shall have been affirmed by the District Court and shall have
become a final Order. The Celotex Confirmation Order was affirmed by the
District Court by an Order dated March 4, 1997. No appeal of such Order was
taken and that Order is now final. Celotex has stated publically that it
believes the Modified Plan will become effective in mid-1997.
7
WALTER INDUSTRIES, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED CONDENSED FINANCIAL STATEMENTS (continued)
SUIT BY THE COMPANY AND JIM WALTER RESOURCES, INC.
FOR BUSINESS INTERRUPTION LOSSES
In December 1996, one of the defendant-insurers tendered to the Company
$687,500, the face amount of one primary insurance policy at issue in the
litigation. Settling insurance carriers have paid approximately $12.4 million
to date, reducing the contract claim in the lawsuit to approximately $12
million. The Company and Jim Walter Resources, Inc. continue to pursue the
litigation against the remaining carriers and a trial is tentatively scheduled
for late 1997.
LITIGATION RELATED TO CHAPTER 11 DISTRIBUTIONS TO CERTAIN
HOLDERS OF SUBORDINATED NOTES AND/OR DEBENTURES
On November 14, 1996, the District Court entered an order granting the Company's
motion to dismiss and dismissing as moot all appeals in this matter. No appeal
of the District Court's Order was taken and that Order is now final.
FEDERAL INCOME TAX
A substantial controversy exists with regard to federal income taxes allegedly
owed by the Company. Proofs of claim have been filed in the Bankruptcy Court by
the Internal Revenue Service for taxes, interest and penalties in the amounts of
$110,560,883 with respect to fiscal years ended August 31, 1980 and August 31,
1983 through August 31, 1987, $31,468,189 with respect to fiscal years ended May
31, 1988 (nine months) and May 31, 1989 and $44,837,693 with respect to fiscal
years ended May 31, 1990 and May 31, 1991. These proofs of claim represent total
adjustments to taxable income of approximately $360 million for all tax periods
at issue. Objections to the proofs of claim have been filed by the Company and
the various issues are being litigated in the Bankruptcy Court. Included in the
proofs of claim is an adjustment to taxable income disallowing a deduction of
approximately $51 million for hedging losses incurred during fiscal year 1988.
This issue was conceded by the Internal Revenue Service pursuant to a joint
stipulation of parties approved by the Bankruptcy Court by an Order dated
January 3, 1997. The Company believes that the balance of such proofs of claim
are substantially without merit and intends to defend vigorously such claims,
but there can be no assurance as to the ultimate outcome.
Note 6 - Stockholders' Equity
The Company is authorized to issue 200,000,000 shares of common stock, $.01 par
value. As of February 28, 1997, there were 54,868,335 shares of common stock
outstanding. Pursuant to the Consensual Plan, 3,880,140 shares of common stock
were issued to an escrow account on September 13, 1995. To the extent that
certain federal income tax matters of the Company are resolved satisfactorily,
up to a maximum 3,880,140 of the escrowed shares will be distributed to all
former stockholders of the Company as of the Effective Date. To the extent such
matters are not resolved satisfactorily, the escrowed shares will be returned to
the Company and canceled.
Note 7 - Stock Options
Under the Walter Industries, Inc. Long-Term Incentive Stock Plan approved by
stockholders in October 1995, options totaling 1,219,000 shares were granted to
certain officers and employees to purchase shares of the Company's common stock
at an option price of $12.3125 per share in July 1996.
8
WALTER INDUSTRIES, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED CONDENSED FINANCIAL STATEMENTS (continued)
Note 8 - Segment Information
Information relating to the Company's business segments is set forth below.
THREE MONTHS ENDED
-----------------------------
February 28, February 29,
1997 1996
------------ ------------
(in thousands)
Sales and Revenues:
Homebuilding and related financing $ 108,216 $ 100,062
Water and waste water transmission products 74,934 76,816
Natural resources 86,881 84,047
Industrial and other products 70,113 67,711
Corporate 271 506
----------- -----------
Consolidated sales and revenues $ 340,415 $ 329,142
----------- -----------
----------- -----------
Contributions to Operating Income (a):
Homebuilding and related financing $ 20,934 $ 13,759
Water and waste water transmission products ( 3,988) ( 4,674)
Natural resources ( 282) ( 130,911)(b)
Industrial and other products 3,878 ( 21,156)(b)
----------- -----------
20,542 ( 142,982)
Less-Unallocated corporate interest and
other expense (c) ( 18,992) ( 23,289)
Income tax benefit (expense) ( 3,798) 48,112
----------- -----------
Loss before extraordinary item $( 2,248) $( 118,159)
----------- -----------
----------- -----------
(a) - Operating income amounts are after deducting amortization of excess of
purchase price over net assets acquired (goodwill) of $8,463,000 in
1997 and $9,510,000 in 1996. A breakdown by segment is as follows:
THREE MONTHS ENDED
---------------------------
February 28, February 29,
1997 1996
------------ ------------
(in thousands)
Homebuilding and related financing $ 6,905 $ 7,434
Water and waste water transmission products 3,010 3,043
Natural resources ( 328) ( 331)
Industrial and other products 156 656
Corporate ( 1,280) ( 1,292)
----------- -----------
$ 8,463 $ 9,510
----------- -----------
----------- -----------
(b) - Includes long-lived asset impairment charges of $120,400,000 and
$22,865,000 in the Natural Resources and Industrial and Other Products
Groups, respectively.
(c) - Excludes interest expense incurred by the Homebuilding and Related
Financing Group of $29,088,000 in 1997 and $32,498,000 in 1996. The
balance of unallocated expenses consisting of unallocated interest and
corporate expenses are attributable to all groups and cannot be
reasonably allocated to specific groups.
9
WALTER INDUSTRIES, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED CONDENSED FINANCIAL STATEMENTS (continued)
NINE MONTHS ENDED
----------------------------
February 28, February 29,
1997 1996
------------- -------------
(in thousands)
Sales and Revenues:
Homebuilding and related financing $ 329,429 $ 303,528
Water and waste water transmission products 308,965 306,372
Natural resources 252,935 271,560
Industrial and other products 215,753 204,097
Corporate 892 1,869
------------ ------------
Consolidated sales and revenues $ 1,107,974 $ 1,087,426
------------ ------------
------------ ------------
Contributions to Operating Income (a):
Homebuilding and related financing $ 59,095 $ 41,287
Water and waste water transmission products 11,239 11,510
Natural resources 14,054 ( 117,834)(b)
Industrial and other products 13,750 ( 16,227)(b)
------------ ------------
98,138 ( 81,264)
Less-unallocated corporate interest and
other expense (c) ( 58,817) ( 75,032)
Income tax expense ( 23,824) 37,284
------------ ------------
Income (loss) before extraordinary item $ 15,497 $( 119,012)
------------ ------------
------------ ------------
(a) - Operating income amounts are after deducting amortization of excess of
purchase price over net assets acquired (goodwill) of $26,295,000 in
1997 and $29,479,000 in 1996. A breakdown by segment is as follows:
NINE MONTHS ENDED
----------------------------
February 28, February 29,
1997 1996
------------- ------------
(in thousands)
Homebuilding and related financing $ 21,563 $ 23,229
Water and waste water transmission products 9,134 9,168
Natural resources ( 994) ( 997)
Industrial and other products 475 1,974
Corporate ( 3,883) ( 3,895)
------------ ------------
$ 26,295 $ 29,479
------------ ------------
------------ ------------
(b) - Includes long-lived asset impairment charges of $120,400,000 and
$22,865,000 in the Natural Resources and Industrial and Other Products
Groups, respectively.
(c) - Excludes interest expense incurred by the Homebuilding and Related
Financing Group of $89,460,000 in 1997 and $96,747,000 in 1996. The
balance of unallocated expenses consisting of unallocated interest and
corporate expenses are attributable to all groups and cannot be
reasonably allocated to specific groups.
10
MANAGEMENT'S DISCUSSION AND ANALYSIS OF
RESULTS OF OPERATIONS AND FINANCIAL CONDITION
RESULTS OF OPERATIONS
THREE MONTHS ENDED FEBRUARY 28, 1997 AND FEBRUARY 29, 1996
Net sales and revenues for the three months ended February 28, 1997 were $11.3
million, or 3.4%, above the prior year. The higher performance resulted from a
2.7% increase in pricing and/or mix and a .7% increase in volume. The increase
in sales and revenues was due to higher sales and revenues in the Homebuilding
and Related Financing, Natural Resources and Industrial and Other Products
Groups, partially offset by lower sales and revenues from the Water and Waste
Water Transmission Products Group.
Homebuilding and Related Financing sales and revenues were $8.2 million, or
8.1%, greater than the prior year period. The performance reflects a 12.6%
increase in the average net selling price per home sold, from $42,800 in the
1996 period to $48,200 in 1997, and a 5.2% increase in the number of homes sold,
from 889 units in 1996 to 935 units in 1997. The higher average net selling
price principally reflects a greater percentage of "90% complete" homes sold in
the current year period and a price increase instituted effective August 17,
1996 to compensate for increased lumber costs. The increase in unit sales
reflects the decision by Jim Walter Homes in December 1995 to reduce its
financing rate to 8.5% from 10.0% for its "90% complete" homes on a trial basis.
In March 1996 the lower rate was formally advertised. Jim Walter Homes extended
the 8.5% financing rate to the remainder of its product line ("shell" and homes
sold at various "in between" stages of interior finishing which currently
accounts for 12% of unit sales) in March 1997. Jim Walter Homes' backlog at
February 28, 1997 was 1,786 units compared to 1,700 units at February 29, 1996,
a 5.1% increase. Time charge income (revenues received from Mid-State Homes'
instalment note portfolio) increased from $56.5 million in the 1996 period to
$57.4 million in 1997. The increase is attributable to increased payoffs
received in advance of maturity and to an increase in the average balance per
account in the portfolio, partially offset by a reduction in the total number of
accounts. Operating income of $20.9 million (net of interest expense) was $7.2
million greater than the prior year period. This performance reflects the
increase in the average net selling price and number of homes sold, improved
homebuilding gross profit, the higher time charge income and lower interest
expense in the 1997 period ($29.1 million) as compared to that incurred in 1996
($32.5 million), partially offset by higher selling, general and administrative
expenses principally resulting from changes to the base salary and commission
structure at Jim Walter Homes to reward and retain higher caliber sales people.
Natural Resources Group sales and revenues were $2.8 million, or 3.4%, above the
prior year period reflecting increased sales volumes and prices for coal and
methane gas, partially offset by lower coal and timber royalty income and a $3.5
million gain from the sale of excess real estate in the 1996 period. A total of
1.72 million tons of coal was sold in the 1997 period versus 1.70 million tons
in the 1996 period, an 1.2% increase. The increase in tonnage sold reflects
higher shipments to Alabama Power Company ("Alabama Power") and to certain
export customers. The average price per ton of coal sold increased $1.50, from
$43.15 in the 1996 period to $44.65 in 1997, due to higher prices realized in
the worldwide metallurgical market. The Group incurred an operating loss in the
1997 period of $.3 million as compared to a $130.9 million operating loss in the
prior period. The 1997 period performance includes a $6.2 million charge ($4.6
million included in cost of sales and $1.6 million in selling, general and
administrative expenses) relating to a reduction in Jim Walter Resources'
salaried workforce under a voluntary early retirement program. Annualized
savings from the program approximate $4.5 million.
11
Results for the prior year period included a $120.4 million write down of fixed
assets at two coal mines to estimated fair market values in accordance with
Statement of Financial Accounting Standards No. 121 "Accounting for the
Impairment of Long-Lived Assets and for Long-Lived Assets to Be Disposed Of"
("FASB 121"), and firefighting and idle plant costs of $14 million principally
associated with the fire at Mine No. 5 in late November 1995. Production costs
for the 1997 period were $36.46 per ton compared with $38.91 for the prior year
period. Longwall production at Blue Creek Mine No. 5 ("Mine No. 5") is expected
to commence in the fiscal 1997 fourth quarter. While in development, the mine's
costs are being capitalized. Total development costs at Mine No. 5 for the
three months ended February 28, 1997 were $9.9 million. Jim Walter Resources'
three other operating mines remain in full production.
Industrial and Other Products Group sales and revenues were $2.4 million, or
3.5%, greater than the prior year period. Increased sales volumes for aluminum
foil products, furnace coke, slag wool, metal building and foundry products and
window components combined with higher sales prices for furnace and foundry
coke, metal building and foundry products and window components were partially
offset by lower sales prices for aluminum foil and sheet products and lower
sales volumes for foundry coke, aluminum sheet products and chemicals. The
Group's operating income in the 1997 period was $3.9 million as compared to a
$21.2 million loss in the prior period. The improved performance resulted from
the overall increase in sales and improved gross profit margins realized on
furnace and foundry coke, slag wool, aluminum foil and sheet products, window
components and metal building and foundry products. In addition, results in the
1996 period were adversely impacted by a $22.9 million FASB 121 write off of
goodwill substantially all of which was at JW Window Components.
Water and Waste Water Transmission Products Group sales and revenues were $1.9
million, or 2.5%, below the prior year period. The decrease was the result of
lower selling prices and sales volumes for ductile iron pressure pipe, partially
offset by higher selling prices and sales volumes for valves and hydrants and
higher selling prices for fittings. The order backlog at February 28, 1997 was
116,179 tons, which represents approximately three months shipments compared
with 126,893 tons at February 29, 1996. The Group incurred a $4.0 million loss
in the 1997 period compared to a $4.7 million loss in the prior year period.
This improvement over the prior year period was principally due to the increase
in valves and hydrants sales lower raw material costs, especially scrap iron
which is a major raw material component, and lower selling, general and
administrative expenses.
Cost of sales, exclusive of depreciation, of $225.2 million was 81.3% of net
sales in the 1997 period versus $229.4 million and 87.2% in 1996. The cost of
sales percentage decrease was primarily the result of improved gross profit
margins on homes sales, window components, furnace and foundry coke, slag wool,
coal, aluminum foil and sheet products and metal building and foundry products.
Selling, general and administrative expenses of $37.2 million were 10.9% of net
sales and revenues in the 1997 period versus $34.3 million and 10.4% in 1996.
The increases principally reflect higher expenses at Jim Walter Homes and Jim
Walter Resources previously discussed.
Interest and amortization of debt expense was $44.3 million in the 1997 period
versus $52.0 million in 1996 reflecting lower outstanding debt balances and
reduced interest rates. The average rate of interest in the 1997 period was
8.02% as compared to 8.95% in 1996. The prime rate of interest was 8.25% in the
1997 period compared to a range of 8.25% to 8.75% in 1996.
The Company's effective tax rate in the 1997 and 1996 periods differed from the
statutory tax rate due primarily to amortization of excess of purchase price
over
12
net assets acquired (goodwill) and the FASB 121 write off of goodwill of $22.9
million (in the 1996 period) which are not deductible for tax purposes.
The net loss in the 1997 period was $2.2 million compared to a net loss of
$123.6 million in the 1996 period reflecting all of the previously mentioned
factors as well as the impact of lower goodwill amortization and postretirement
health benefits in 1997. The 1996 period also included an extraordinary loss of
$8.3 million ($5.4 million net of income tax benefit) consisting of a redemption
premium and write off of deferred financing costs resulting from the refinancing
completed January 22, 1996.
NINE MONTHS ENDED FEBRUARY 28, 1997 AND FEBRUARY 29, 1996
Net sales and revenues for the nine months ended February 28, 1997 were $20.5
million, or 1.9%, above the prior year. The higher performance resulted from a
3.6% increase in pricing and/or mix, partially offset by a 1.7% decrease in
volume. The increase in sales and revenues was due to higher sales and revenues
from the Homebuilding and Related Financing, Water and Waste Water Transmission
Products and Industrial and Other Products Groups, partially offset by lower
sales and revenues from the Natural Resources Group.
Homebuilding and Related Financing sales and revenues were $25.9 million, or
8.5%, greater than the prior year period. The performance reflects a 12.7%
increase in the average net selling price per home sold, from $41,800 in the
1996 period to $47,100 in 1997, combined with a 4.5% increase in the number of
homes sold, from 2,830 units in 1996 to 2,958 units in 1997. The higher average
net selling price reflects a greater percentage of "90% complete" homes sold in
the current year period and a price increase instituted August 17, 1996 to
compensate for higher lumber costs. The increase in unit sales reflects the
decision by Jim Walter Homes in December 1995 to reduce its financing rate to
8.5% from 10% for its "90% complete" homes on a trial basis to generate
additional unit sales. In March 1996 the lower rate was formally advertised.
Jim Walter Homes extended the 8.5% financing rate to the remainder of its
product line ("shell" and homes sold at various "in between" stages of interior
finishing which currently accounts for 12% of unit sales) in March 1997. Time
charge income (revenues received from Mid-State Homes' instalment note
portfolio) increased from $168.4 million in the 1996 period to $172.4 million in
1997. The increase is attributable to increased payoffs received in advance of
maturity and to an increase in the average balance per account in the portfolio,
partially offset by a reduction in the total number of accounts. Operating
income of $59.1 million (net of interest expense) was $17.8 million greater than
the prior year period. The performance was due to the increase in the average
net selling price and number of homes sold, the higher time charge income and
lower interest expense in the 1997 period ($89.5 million) as compared to that
incurred in 1996 ($96.7 million), partially offset by slightly lower
homebuilding gross profit margins (due to higher lumber and labor costs) and
higher selling, general and administrative expenses principally resulting from
changes to the base salary and commission structure at Jim Walter Homes to
reward and retain higher caliber sales people.
Water and Waste Water Transmission Products Group sales and revenues were $2.6
million, or .8%, above the prior year period. The increase was principally the
result of higher sales prices and volumes for valves and hydrants and higher
sales prices, but lower sales volumes for ductile iron pressure pipe and
fittings. Operating income of $11.2 million was $.3 million below the prior year
period. This performance was principally the result of slightly lower gross
profit margins and an increase in general and administrative expenses
principally due to the utilization of outside consultants who are working with
management to improve manufacturing
13
processes and further reduce costs through plant modifications and better
management of raw materials.
Industrial and Other Products Group sales and revenues were $11.7 million, or
5.7%, greater than the prior year period. Increased sales volumes for aluminum
foil products, furnace coke, slag wool, metal building products and window
components coupled with improved sales prices for furnace and foundry coke and
window components were partially offset by lower sales volumes for chemicals,
foundry coke and aluminum sheet products and lower sales prices for aluminum
foil and sheet products. The Group's operating income in the 1997 period was
$13.7 million compared to an operating loss of $16.2 million in the prior year
period. The improved performance was the result of the overall sales increase
and higher gross profit margins realized on furnace and foundry coke, slag wool,
aluminum sheet and foil products, window components and metal building and
foundry products. In addition, results in the 1996 period were adversely
impacted by a $22.9 million FASB 121 write off of goodwill substantially all of
which was at JW Window Components.
Natural Resources Group sales and revenues were $18.6 million, or 6.9%, below
the prior year period. The decrease resulted from lower coal shipments, reduced
coal and timber royalty income, a $3.7 million gain in the 1996 period from the
sale of gas royalty interests in certain mineral properties and lower gains
realized from the sales of excess real estate in the 1997 period ($2.5 million)
versus last year ($5.8 million), partially offset by higher average selling
prices for coal and methane gas and greater methane gas sales volume. A total of
5.0 million tons of coal was sold in the 1997 period versus 5.64 million tons in
the 1996 period, an 11.3% decline. The decrease in tonnage sold reflected lower
shipments to export customers due to reduced production levels, especially at
Mine No. 5 where development of a new mining area is in progress. The average
price per ton of coal sold increased $2.07, from $42.66 in the 1996 period to
$44.73 in 1997, due to higher prices realized in the worldwide metallurgical
market and a greater percentage of the tonnage sold going to Alabama Power at
above-market, contract prices. Operating income in the 1997 period was $14.1
million compared to an operating loss of $117.8 million in 1996. The 1997
period performance includes a $4.7 million settlement of a legal claim related
to a theft of coal inventory from the Port of Mobile, Alabama (settlement was
reached with two parties under a confidentiality agreements, one which was
subsequent to February 28, 1997) and a $6.2 million charge relating to the
reduction in Jim Walter Resources' salaried workforce under a voluntary early
retirement program, previously mentioned. Results for the prior year period
included a $120.4 million FASB 121 write down of fixed assets to estimated fair
market values at two coal mines and firefighting and idle plant costs of $16.0
million principally associated with the fire at Mine No. 5. Production costs in
the 1997 period were $38.35 per ton compared with $37.64 in the prior year
period. Longwall production at Mine No. 5 is expected to commence in the fiscal
1997 fourth quarter. While in development, the mine's costs are being
capitalized. Total development costs at Mine No. 5 for the nine months ended
February 28, 1997 were $21.9 million, Jim Walter Resources' three other
operating mines remain in full production.
Cost of sales, exclusive of depreciation, of $724.6 million was 79.1% of net
sales in the 1997 period versus $729.0 million and 81.9% in 1996. The cost of
sales percentage decrease was primarily the result of improved gross profit
margins for furnace and foundry coke, slag wool, aluminum sheet and foil
products, window components and metal building and foundry products combined
with firefighting and idle plant costs principally associated with the fire at
Mine No. 5 in the prior year period, partially offset by lower gross profit
margins on home sales and pipe products.
Selling, general and administrative expenses of $106.3 million were 9.6% of net
sales and revenues in the 1997 period versus $100.9 million and 9.3% in 1996.
The
14
increase principally reflects higher expenses at Jim Walter Homes, U.S. Pipe and
Jim Walter Resources previously discussed.
Interest and amortization of debt expense was $136.6 million in the 1997 period
versus $161.5 million in 1996 reflecting lower outstanding debt balances and
reduced interest rates principally resulting from the refinancing completed
January 22, 1996. The average rate of interest in the 1997 period was 8.10% as
compared to 9.31% in 1996. The prime rate of interest was 8.25% in the 1997
period compared to a range of 8.25% to 9.0% in 1996.
The Company's effective tax rate in the 1997 and 1996 periods differed from the
statutory tax rate due to amortization of goodwill and the FASB 121 write off of
goodwill of $22.9 million (in the 1996 period) which are not deductible for tax
purposes.
The net income in the 1997 period was $15.5 million compared to net loss of
$124.4 million in the 1996 period reflecting all of the previously mentioned
factors as well as the impact of lower goodwill amortization and postretirement
health benefits in 1997. The 1996 period also included an extraordinary loss of
$8.3 million ($5.4 million net of income tax benefit) consisting of a redemption
premium and write off of deferred financing costs resulting from the refinancing
completed January 22, 1996.
Financial Condition
On March 17, 1995, the Company and its subsidiaries emerged from bankruptcy
pursuant to the Consensual Plan. Despite the confirmation and effectiveness of
the Consensual Plan, the Bankruptcy Court continues to have jurisdiction over
among other things, the resolution of disputed prepetition claims against the
Company and other matters that may arise in connection with or relate to the
Consensual Plan.
A substantial controversy exists with regard to federal income taxes allegedly
owed by the Company. Proofs of claim have been filed in the Bankruptcy Court by
the Internal Revenue Service for taxes, interest and penalties in the amounts of
$110,560,883 with respect to fiscal years ended August 31, 1980 and August 31,
1983 through August 31, 1987, $31,468,189 with respect to fiscal years ended May
31, 1988 (nine months) and May 31, 1989 and $44,837,693 with respect to fiscal
years ended May 31, 1990 and May 31, 1991. These proofs of claim represent total
adjustments to taxable income of approximately $360 million for all tax periods
at issue. Objections to the proofs of claim have been filed by the Company and
the various issues are being litigated in the Bankruptcy Court. Included in the
proofs of claim is an adjustment to taxable income disallowing a deduction of
approximately $51 million for hedging losses incurred during fiscal year 1988.
This issue was conceded by the Internal Revenue Service pursuant to a joint
stipulation of parties approved by the Bankruptcy Court by an Order dated
January 3, 1997. The Company believes that the balance of such proofs of claim
are substantially without merit and intends to defend vigorously such claims,
but there can be no assurance as to the ultimate outcome.
Since May 31, 1996, total debt has decreased $122.7 million resulting from early
repayment on the Revolving Credit Facility ($75.0 million), quarterly principal
payments on Term Loan A and Term Loan B ($12.0 million), Mid-State Trust II
Mortgage-Backed Notes ($65.2 million), Mid-State Trust III Asset Backed Notes
($23.5 million) Mid-State Trust IV Asset Backed Notes ($46.4 million)and
scheduled retirements of other long-term debt ($.6 million), partially offset by
the issuance of long-term debt under the Mid-State Trust V Variable Funding Loan
Agreement ($100.0 million).
The Credit Facilities contain a $365 million revolving credit facility which
15
includes a sub-facility for trade and other standby letters of credit in an
amount up to $50 million at any time outstanding and a sub-facility for
swingline advances in an amount not in excess of $15 million at any time
outstanding. At February 28, 1997, $32.7 million of letters of credit were
outstanding under this facility.
The Credit Facilities and the Mid-State Trust V Variable Funding Loan Agreement
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
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, including interest coverage, fixed charge coverage ratios and
maximum leverage ratios, some of which become more restrictive over time. The
Company was in full compliance with these covenants at February 28, 1997 and
believes it will meet these financial tests over the remaining terms of these
debt agreements.
Liquidity and Capital Resources
At February 28, 1997, cash and short-term investments, net of bank overdrafts
were approximately $35.5 million. Operating cash flows for the nine months
ended February 28, 1997 together with issuance of long-term debt under the
Mid-State Trust V Variable Funding Loan Agreement and the use of available cash
balances were primarily used for retirement of long-term senior debt, interest
payments and capital expenditures.
Working capital is required to fund adequate levels of inventories and accounts
receivable. Commitments for capital expenditures at February 28, 1997 were not
material; however, it is estimated that gross capital expenditures of the
Company and its subsidiaries for the balance of the year ending May 31, 1997
will approximate $30.0 million.
Because the Company's operating cash flow is significantly influenced by the
general economy and, in particular, the level of construction, current results
should not necessarily be used to predict the Company's liquidity, capital
expenditures, investment in instalment notes receivable or results of
operations. On March 20, 1997, Mid-State Trust VI, a business trust organized by
Mid-State, filed a Registration Statement (which is subject to completion or
amendment) under the Securities Act of 1933, as amended, with the Securities and
Exchange Commission with respect to the offering of asset backed notes. The
Company anticipates that the offering when completed will approximate $425
million. The net proceeds from the sale of the asset backed notes will be used
by Mid-State Trust VI to purchase instalment notes receivable (the "Accounts")
from Mid-State Homes, which in turn will apply a portion of such funds to repay
borrowings under the Mid-State Trust V Variable Funding Loan Agreement in
exchange for the transfer of the Accounts from Mid-State Trust V. The remainder
of such funds will be utilized for general corporate purposes. It is
contemplated that similar permanent 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 operating cash flow will be generated to make all required interest
and principal payments and planned capital expenditures and meet substantially
all operating needs and that amounts available under the Credit Facilities will
be sufficient to meet peak operating needs.
16
PART II - OTHER INFORMATION
Item 1. LEGAL PROCEEDINGS
See Note 5 of Notes to Consolidated Condensed Financial Statements
contained in Part I - Financial Information
Item 6. EXHIBITS AND REPORTS ON FORM 8-K
(a) Exhibit 11 - Net income(loss) per share calculations for the three
months and nine months ended February 28, 1997 and February 29, 1996
Exhibit 27 - Financial Data Schedule
(b) The Company did not file any reports on Form 8-K during the nine
months ended February 28, 1997.
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/ D. M. Fjelstul /s/ F. A. Hult
- ------------------ --------------
D. M. Fjelstul F. A. Hult
Senior Vice President and Vice President, Controller and
Principal Financial Officer Principal Accounting Officer
Date: April 11, 1997
---------------
17
Exhibit 11
Page 1 of 4
NET INCOME(LOSS) PER SHARE CALCULATION
(in thousands, except per share amounts)
THREE MONTHS ENDED FEBRUARY 28, 1997
--------------------------------------------
PRIMARY FULLY DILUTED
DOLLARS SHARES DOLLARS SHARES
Net loss $ (2,248) $ (2,248)
--------- ---------
--------- ---------
Weighted average shares of
common stock outstanding:
Common stock (a) 50,989 50,989
Employee stock options 153 (b)(d) 230(c)(d)
-------- --------
51,142 50,989
-------- --------
-------- --------
Per share $( .04) $( .04)
-------- --------
-------- --------
(a) Does not include 3,880,140 additional shares issued to an escrow account on
September 13, 1995 pursuant to the Consensual Plan because such issuance is
contingent on future events and would be anti-dilutive in such period.
(b) Represents the number of shares of common stock issuable on the exercise of
dilutive employee stock options granted in July 1996 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 average market price of the common stock during the
period.
(c) Same as (b) except that 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.
(d) Does not include 1,485,000 shares subject to options granted in July 1995
at an average price of $14.120 per share because such options would have an
anti-dilutive effect in such period.
18
Exhibit 11
Page 2 of 4
NET INCOME(LOSS) PER SHARE CALCULATION
(in thousands, except per share amounts)
THREE MONTHS ENDED FEBRUARY 29, 1996
--------------------------------------------
PRIMARY FULLY DILUTED
-------------------- ---------------------
DOLLARS SHARES DOLLARS SHARES
-------- --------- ---------- --------
Net loss before extraordinary
item $(118,159) $(118,159)
Weighted average shares of
common stock outstanding:
Common stock (a) 50,989 50,989
Employee stock options (b) - -
-------- --------
50,989 50,989
-------- --------
-------- --------
Per share $( 2.32) $( 2.32)
Extraordinary item ( 5,404) ( 5,404)
Per share ( .10) ( .10)
--------- -------- --------- --------
Net loss $(123,563) $(123,563)
-------- --------
-------- --------
Per share $( 2.42) $( 2.42)
--------- ---------
--------- ---------
(a) Does not include 3,880,140 additional shares issued to an escrow account on
September 13, 1995 pursuant to the Consensual Plan because such issuance is
contingent on future events and would be anti-dilutive in such period.
(b) Does not include 1,500,000 shares subject to options granted in July 1995
at an average price of $14.120 per share because such options would have an
anti-dilutive effect in such period.
19
Exhibit 11
Page 3 of 4
NET INCOME(LOSS) PER SHARE CALCULATION
(in thousands, except per share amounts)
NINE MONTHS ENDED FEBRUARY 28, 1997
-------------------------------------------------
PRIMARY FULLY DILUTED
------------------ ------------------
DOLLARS SHARES DOLLARS SHARES
---------- -------- --------- ---------
Net income $ 15,497 $ 15,497
--------- --------
--------- --------
Weighted average shares of
common stock outstanding:
Common stock (a) 54,868 54,868
Employee stock options 105 (b)(d) 187 (c)(d)
------ ------
54,973 55,055
------ ------
------ ------
Per share $ .28 $ .28
------ ------
------ ------
(a) Includes 3,880,140 shares issued to an escrow account on September 13, 1995
pursuant to the Consensus Plan.
(b) Represents the number of shares of common stock issuable on the exercise of
dilutive employee stock options granted in July 1996 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 average market price of the common stock during the
period.
(c) Same as (a) except that 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.
(d) Does not include 1,485,000 shares subject to options granted in July 1995
at an average price of $14.120 per share because such options would have an
anti-dilutive effect in such period.
20
Exhibit 11
Page 4 of 4
NET INCOME(LOSS) PER SHARE CALCULATION
(in thousands, except per share amounts)
NINE MONTHS ENDED FEBRUARY 29, 1996
--------------------------------------------------------
PRIMARY FULLY DILUTED
------------------------- --------------------------
DOLLARS SHARES DOLLARS SHARES
--------- ---------- ------------ ------------
Net loss before extraordinary
item $(119,012) $(119,012)
Weighted average shares of
common stock outstanding:
Common stock (a) 50,989 50,989
Employee stock options (b) - -
-------- --------
50,989 50,989
-------- --------
-------- --------
Per share $( 2.34) $( 2.34)
Extraordinary item ( 5,404) ( 5,404)
Per share ( .10) ( .10)
--------- -------- --------- ---------
Net loss $(124,416) $(124,416)
---------- ----------
---------- ----------
Per share $( 2.44) $( 2.44)
--------- ---------
--------- ---------
(a) Does not include 3,880,140 additional shares issued to an escrow account on
September 13, 1995 pursuant to the Consensual Plan because such issuance is
contingent on future events and would be anti-dilutive in such period.
(b) Does not include 1,500,000 shares subject to options granted in July 1995
at an average price of $14.120 per share because such options would have an
anti-dilutive effect in such period.
21