Filed pursuant to
Rule 424(b)(3) and (c)
with respect to
Reg. No. 33-59013
SECOND PROSPECTUS SUPPLEMENT
dated January 12, 1996 to
PROSPECTUS dated October 11, 1995
of WALTER INDUSTRIES, INC.
Relating to 31,911,136
Shares of Common Stock
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D. C. 20549
FORM 10-Q
QUARTERLY REPORT UNDER SECTION 13 OR 15(d)
OF THE SECURITIES EXCHANGE ACT OF 1934
FOR THE QUARTER ENDED NOVEMBER 30, 1995
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 .
--- ---
There were 54,868,766 shares of common stock of the registrant outstanding at
November 30, 1995.
2
PART I - FINANCIAL INFORMATION
------------------------------
WALTER INDUSTRIES, INC. AND SUBSIDIARIES
----------------------------------------
CONSOLIDATED CONDENSED BALANCE SHEET
------------------------------------
(UNAUDITED)
November 30, May 31,
1995 1995
------------ ----------
(in thousands)
ASSETS
- ------
Cash (includes short-term investments of
$56,817,000 and $84,872,000) (Note 3) $ 78,841 $ 128,007
Short-term investments, restricted (Note 3) 150,126 128,002
Instalment notes receivable (Note 4) 4,238,155 4,256,866
Less - Provision for possible losses ( 26,388) ( 26,556)
Unearned time charges (2,864,560) (2,869,282)
Trade and other receivables, less $8,193,000
and $7,998,000 provision for possible losses 166,677 182,822
Federal income tax receivable 99,875 99,875
Inventories, at lower of cost (first in,
first out or average) or market:
Finished goods 108,944 111,792
Goods in process 33,015 29,593
Raw materials and supplies 53,071 53,453
Houses held for resale 1,952 1,599
Prepaid expenses 12,524 12,694
Property, plant and equipment, at cost 1,212,017 1,186,407
Less - Accumulated depreciation,
depletion and amortization ( 556,222) ( 523,615)
Investments and other assets 49,713 49,889
Deferred income taxes 7,216 16,544
Unamortized debt expense 30,509 34,167
Excess of purchase price over net
assets acquired (Note 1) 352,927 372,896
----------- -----------
$ 3,148,392 $ 3,245,153
=========== ===========
LIABILITIES AND STOCKHOLDERS' EQUITY
- ------------------------------------
Bank overdrafts (Note 3) $ 16,390 $ 33,746
Accounts payable and accrued expenses 186,492 259,044
Income taxes payable 53,712 53,261
Long-term senior debt 2,205,152 2,220,370
Accrued interest 36,976 37,854
Accumulated postretirement health
benefits obligation 238,618 228,411
Other long-term liabilities 51,133 51,693
Stockholders' equity (Note 6):
Common stock 549 505
Capital in excess of par value 1,159,338 1,159,384
Retained earnings (deficit) ( 794,018) ( 793,165)
Excess of additional pension liability over
unrecognized prior years service cost ( 5,950) ( 5,950)
----------- -----------
Total stockholders' equity 359,919 360,774
----------- -----------
$ 3,148,392 $ 3,245,153
=========== ===========
3
WALTER INDUSTRIES, INC. AND SUBSIDIARIES
----------------------------------------
CONSOLIDATED STATEMENT OF OPERATIONS
-------------------------------------
(UNAUDITED)
For the three months ended
November 30,
------------------------------
1995 1994
---------- ----------
(in thousands except
per share amount)
Sales and revenues:
Net sales $ 310,527 $ 299,695
Time charges 55,566 55,809
Miscellaneous 12,043 6,150
Interest income from Chapter 11
proceedings (Note 1) - 1,676
--------- ---------
378,136 363,330
--------- ---------
Costs and expenses:
Cost of sales 249,794 237,737
Depreciation, depletion and amortization 18,925 17,930
Selling, general and administrative 33,492 31,621
Postretirement health benefits 6,843 6,435
Provision for possible losses 722 1,169
Chapter 11 costs (Note 1) - 7,803
Interest and amortization of debt discount
and expense 54,912 36,290
Amortization of excess of purchase price
over net assets acquired (Note 1) 9,744 10,316
--------- ---------
374,432 349,301
--------- ---------
3,704 14,029
Income tax benefit (expense):
Current ( 739) ( 14,679)
Deferred ( 4,059) 5,570
--------- ---------
Net income (loss) $( 1,094) $ 4,920
========= =========
Net loss per share - Primary $( .02)
=========
The results of operations for the three month periods ended November 30, 1995
and 1994 are not necessarily indicative of results of operations for a full
fiscal year. All of the amounts are unaudited, but, in the opinion of the
Company, all adjustments, consisting only of normal recurring adjustments,
necessary for a fair statement of the results of each period have been made.
Per share information for the three months ended November 30, 1994 is not
relevant given the significant change in capital structure which occurred as a
result of the Company's reorganization pursuant to the Consensual Plan (see
Note 1).
4
WALTER INDUSTRIES, INC. AND SUBSIDIARIES
----------------------------------------
CONSOLIDATED STATEMENT OF OPERATIONS
-------------------------------------
(UNAUDITED)
For the six months ended
November 30,
------------------------------
1995 1994
---------- ----------
(in thousands except
per share amount)
Sales and revenues:
Net sales $ 626,634 $ 576,847
Time charges 111,921 112,558
Miscellaneous 19,729 11,471
Interest income from Chapter 11
proceedings (Note 1) - 3,094
--------- ---------
758,284 703,970
--------- ---------
Costs and expenses:
Cost of sales 499,627 461,856
Depreciation, depletion and amortization 37,442 34,687
Selling, general and administrative 66,596 63,971
Postretirement health benefits 13,522 13,082
Provision for possible losses 1,660 2,466
Chapter 11 costs (Note 1) - 11,952
Interest and amortization of debt discount
and expense 109,493 72,753
Amortization of excess of purchase price
over net assets acquired (Note 1) 19,969 20,884
--------- ---------
748,309 681,651
--------- ---------
9,975 22,319
Income tax benefit (expense):
Current ( 1,500) ( 27,574)
Deferred ( 9,328) 11,608
--------- ---------
Net income (loss) $( 853) $ 6,353
========= =========
Net income per share - Primary $( .02)
=========
The results of operations for the six month periods ended November 30, 1995 and
1994 are not necessarily indicative of results of operations for a full fiscal
year. All of the amounts are unaudited, but, in the opinion of the Company,
all adjustments, consisting only of normal recurring adjustments, necessary for
a fair statement of the results of each period have been made. Per share
information for the six months ended November 30, 1994 is not relevant given
the significant change in capital structure which occurred as a result of the
Company's reorganization pursuant to the Consensual Plan (see Note 1).
5
WALTER INDUSTRIES, INC. AND SUBSIDIARIES
----------------------------------------
CONSOLIDATED CONDENSED STATEMENT OF CASH FLOWS
----------------------------------------------
(UNAUDITED)
For the six months ended
November 30,
--------------------------
1995 1994
---------- ---------
(in thousands)
OPERATIONS
- ----------
Net income (loss) $( 853) $ 6,353
Charges to income not affecting cash:
Depreciation, depletion and amortization 37,442 34,687
Provision for deferred income taxes 9,328 ( 11,608)
Accumulated postretirement health
benefits obligation 10,207 11,087
Provision for other long-term liabilities ( 560) ( 208)
Amortization of excess purchase price
over net assets acquired (Note 1) 19,969 20,884
Amortization of debt discount and expense 3,841 6,570
--------- ---------
79,374 67,765
Decrease (increase) in:
Short-term investments, restricted ( 22,124) 12,292
Instalment notes receivable, net (Note 4) 13,821 2,311
Trade and other receivables, net 16,145 ( 19,460)
Inventories ( 545) 1,547
Prepaid expenses 170 ( 4,468)
Increase (decrease) in:
Bank overdrafts (Note 3) ( 17,356) ( 11,550)
Accounts payable and accrued expenses ( 16,125) ( 412)
Income taxes payable 451 ( 1,220)
Accrued interest ( 876) 26,297
Liabilities subject to Chapter 11
proceedings (Note 1):
Accounts payable and accrued expenses - ( 790)
--------- ---------
Cash flows from operations 52,935 72,312
--------- ---------
FINANCING ACTIVITIES
- --------------------
Issuance of long-term debt 65,000 -
Retirement of long-term senior debt ( 80,218) ( 59,423)
Additions to unamortized debt expense ( 183) -
Payment of liabilities subject to
Chapter 11 proceedings (Note 1) ( 56,429) -
Fractional share payments ( 2) -
--------- ---------
Cash flows from financing activities ( 71,832) ( 59,423)
--------- ---------
INVESTING ACTIVITIES
- --------------------
Additions to property, plant and
equipment, net of normal retirements ( 30,445) ( 25,666)
Decrease in investments and other assets 176 318
--------- ---------
Cash flows from investing activities ( 30,269) ( 25,348)
--------- ---------
Net decrease in cash and cash equivalents ( 49,166) ( 12,459)
Cash and cash equivalents at beginning of period 128,007 203,303
--------- ---------
Cash and cash equivalents at end
of period (Note 3) $ 78,841 $ 190,844
========= =========
6
WALTER INDUSTRIES, INC. AND SUBSIDIARIES
----------------------------------------
NOTES TO CONSOLIDATED CONDENSED FINANCIAL STATEMENTS
----------------------------------------------------
NOVEMBER 30, 1995
-----------------
Note 1 - Recent History
Walter Industries, Inc. (formerly Hillsborough Holdings Corporation) (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 2 - Principles of Consolidation
The Company through its direct and indirect subsidiaries currently offers a
diversified line of products and services for homebuilding, water and waste
water transmission, residential and non-residential construction, and
industrial markets. The consolidated financial statements include the accounts
of the Company and all of its subsidiaries. All significant intercompany
balances have been eliminated.
Note 3 - Cash and Restricted Short-Term Investments
Cash includes short-term investments with original maturities of less than one
year. 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 temporary investment of reserve funds
and collections on instalment notes receivable owned by Mid-State Trusts II,
III, IV and V ($125,820,000). These funds are available only to pay expenses
of the Trusts and principal and interest on indebtedness of the Trusts.
Miscellaneous other segregated accounts restricted to specific uses
($24,306,000), are also included in restricted short-term investments.
WALTER INDUSTRIES, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED CONDENSED FINANCIAL STATEMENTS (Continued)
Note 4 - Installment Notes Receivable
The net decrease in instalment notes receivable for the six month periods ended
November 30, 1995 and 1994 consists of sales and resales, net of repossessions
and provision for possible losses, of $75,616,000 and $77,831,000 and cash
collections on account, payouts in advance of maturity and reductions in
account balances (in the six months ended November 30, 1995 resulting from
settlement agreements entered into with South Carolina and Texas homeowners) of
$89,437,000 and $80,142,000, respectively. The cost of the settlement
agreements was accrued in the fiscal year ended May 31, 1995.
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 from 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 November 30, 1995 of
$540,500,000; $160,672,000, and $930,230,000, 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 November
30, 1995 of $4,238,155,000 with an economic balance of $2,038,661,000,
receivables owned by Trust II had a gross book value of $1,279,356,000 and an
economic balance of $785,080,000, receivables owned by Trust III had a gross
book value of $445,645,000 and an economic balance of $228,984,000, and
receivables owned by Trust IV had a gross book value of $1,884,666,000 and an
economic balance of $789,459,000. Mid-State Trust V, a business trust in which
Mid-State Homes 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. ("Jim Walter Homes"). At November 30,
1995, receivables owned by Mid-State Trust V had a gross book value of
$502,072,000 and an economic balance of $182,876,000, with outstanding
borrowings of $80,000,000.
Note 5 - Litigation and Other Matters
South Carolina Class Actions
- ----------------------------
As previously reported in Note 11 of Notes to Financial Statements for the year
ended May 31, 1995, Jim Walter Homes and Mid-State have filed an adversary
action for declaratory judgment against all South Carolina homeowners who
purchased their homes between July 1, 1982 and December 27, 1989.
On September 15, 1995, Jim Walter Homes and Mid-State entered into a
Stipulation and Settlement Agreement with the homeowners substantially along
the lines previously reported. On September 25, 1995, the Bankruptcy Court
entered an order that provisionally certified the settlement class,
provisionally approved the settlement reached, provisionally designated the
class representatives and provisionally designated class counsel. The order
also provided that any homeowner that did not want to be a member of the
proposed class must have filed with the Bankruptcy Court on or before November
6, 1995 a notice of their intention to "opt out" or not participate in the
agreement. On November 22, 1995, the Bankruptcy Court entered an order that
gave final approval to the settlement. Three individuals "opted out" of the
class and will have their claims, if any, adjudicated by the Bankruptcy Court
through a proof of claims process.
WALTER INDUSTRIES, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED CONDENSED FINANCIAL STATEMENTS (Continued)
Texas Litigation
- ----------------
As previously reported in Note 11 of Notes to Financial Statements for the year
ended May 31, 1995, Jim Walter Homes and Mid-State reached a settlement on
litigation brought by certain homeowners in Texas. Certain of the Texas
homeowners (nine as of January 8, 1996) have not signed the settlement
documents and Jim Walter Homes and Mid-State continue to work with their
counsel. The Bankruptcy Court has set a hearing for April 12, 1996 to discuss
the status of the non-settling homeowners. The settling homeowners who have a
remaining account balance began making monthly payments on September 15, 1995.
Note 6 - Stockholders' Equity
As of November 30, 1995, there were 54,868,766 shares of common stock
outstanding. Pursuant to the Consensual Plan, 494,313 shares were issued on
September 13, 1995 to all former stockholders of the Company as of the
Effective Date of the Consensual Plan. Also on September 13, 1995, pursuant to
the Consensual Plan, 3,880,140 shares of common stock were issued to an escrow
account. 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 cancelled.
Note 7 - Segment Information
Information relating to the Company's business segments is set forth below.
Due to divestitures of several building materials subsidiaries in recent years,
the Company has restructured certain of its segment information. Prior year
information has been restated.
WALTER INDUSTRIES, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED CONDENSED FINANCIAL STATEMENTS (Continued)
Three months ended November 30,
-------------------------------
1995 1994
--------- ---------
(in thousands)
Sales and Revenues:
Homebuilding and related financing $ 102,702 $ 103,206
Water and waste water transmission products 110,108 109,689
Natural resources 97,998 79,613
Industrial and other products 66,827 68,953
Corporate 501 1,869
--------- ---------
Consolidated sales and revenues $ 378,136 $ 363,330
========= =========
Contributions to Operating Income (a):
Homebuilding and related financing $ 13,644 $ 13,579
Water and waste water transmission products 7,367 7,144
Natural resources 5,953 6,047
Industrial and other products 3,062 1,920
--------- ---------
30,026 28,690
Less-Unallocated corporate interest and
other expense (b) ( 26,322) ( 14,661)
Income taxes ( 4,798) ( 9,109)
--------- ---------
Net income (loss) $( 1,094) $ 4,920
========= =========
(a) - Includes amortization of excess of purchase price over net assets
acquired (goodwill) of $9,744,000 in 1995 and $10,316,000 in 1994. A
breakdown by segment is as follows:
Three months ended November 30,
-------------------------------
1995 1994
-------- --------
(in thousands)
Homebuilding and related financing $ 7,670 $ 8,243
Water and waste water transmission products 3,046 3,044
Natural resources ( 331) ( 332)
Industrial and other products 654 654
Corporate ( 1,295) ( 1,293)
-------- --------
$ 9,744 $ 10,316
======== ========
(b) - Excludes interest expense incurred by the Homebuilding and Related
Financing Group of $32,596,000 in 1995 and $31,197,000 in 1994. The
balance of unallocated expenses consisting of unallocated interest,
corporate expenses and Chapter 11 costs in 1994 are attributable to
all groups and cannot be reasonably allocated to specific groups.
WALTER INDUSTRIES, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED CONDENSED FINANCIAL STATEMENTS (Continued)
Six months ended November 30,
-----------------------------
1995 1994
--------- ---------
(in thousands)
Sales and Revenues:
Homebuilding and related financing $ 203,466 $ 206,288
Water and waste water transmission products 229,556 215,023
Natural resources 187,513 148,225
Industrial and other products 136,386 130,904
Corporate 1,363 3,530
--------- ---------
Consolidated sales and revenues $ 758,284 $ 703,970
========= =========
Contributions to Operating Income (a):
Homebuilding and related financing $ 27,528 $ 24,998
Water and waste water transmission products 16,184 14,505
Natural resources 13,077 3,923
Industrial and other products 4,929 3,657
--------- ---------
61,718 47,083
Less-Unallocated corporate interest and
other expense (b) ( 51,743) ( 24,764)
Income taxes ( 10,828) ( 15,966)
--------- ---------
Net income (loss) $( 853) $ 6,353
========= =========
(a) - Includes amortization of excess of purchase price over net assets
acquired (goodwill) of $19,969,000 in 1995 and $20,884,000 in 1994. A
breakdown by segment is as follows:
Six months ended November 30,
-----------------------------
1995 1994
-------- --------
(in thousands)
Homebuilding and related financing $ 15,795 $ 16,713
Water and waste water transmission products 6,125 6,122
Natural resources ( 666) ( 667)
Industrial and other products 1,318 1,317
Corporate ( 2,603) ( 2,601)
-------- --------
$ 19,969 $ 20,884
======== ========
(b) - Excludes interest expense incurred by the Homebuilding and Related
Financing Group of $64,249,000 in 1995 and $62,317,000 in 1994. The
balance of unallocated expenses consisting of unallocated interest,
corporate expenses and Chapter 11 costs in 1994 are attributable to all
groups and cannot be reasonably allocated to specific groups.
MANAGEMENT'S DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATIONS
The Company emerged from bankruptcy on March 17, 1995. Accordingly, the
Company's Consolidated Statement of Operations for the three months ended and
six months ended November 30, 1995 are not comparable to the Consolidated
Statement of Operations for the periods ended November 30, 1994.
The following unaudited pro forma consolidated statement of operations for the
three months ended and six months ended November 30, 1994 have been prepared to
illustrate the estimated effects of the Consensual Plan and related financings
as if they had occurred as of June 1, 1994. This discussion should be read in
conjunction with such pro forma consolidated statement of operations and the
consolidated financial statements and notes thereto of Walter Industries, Inc.
and subsidiaries for the three months ended and six months ended November 30,
1995, particularly Note 7 - "Segment Information" which presents sales and
operating income by operating group.
Pro Forma Consolidated Statement of Operations
(Unaudited)
For the three months ended November 30, 1994
---------------------------------------------
As Reported Adjustments Pro Forma
----------- ----------- -----------
(in thousands except
per share amount)
Sales and revenues
Net sales $ 299,695 $ 299,695
Time charges 55,809 55,809
Miscellaneous 6,150 6,150
Interest income from Chapter 11 proceedings 1,676 $( 1,676)1 -
---------- --------- ----------
363,330 ( 1,676) 361,654
---------- --------- ----------
Cost and expenses:
Cost of sales 237,737 237,737
Depreciation, depletion and amortization 17,930 17,930
Selling, general and administrative 31,621 31,621
Postretirement health benefits 6,435 6,435
Provision for possible losses 1,169 1,169
Chapter 11 costs 7,803 ( 7,803)2 -
Interest and amortization of debt discount
and expense 36,290 19,489 3 55,779
Amortization of excess of purchase price
over net assets acquired 10,316 10,316
---------- --------- ----------
349,301 11,686 360,987
---------- --------- ----------
14,029 ( 13,362) 667
Income tax benefit (expense) ( 9,109) 5,068 4 ( 4,041)
---------- --------- ----------
Net income (loss) $ 4,920 $( 8,294) $( 3,374)
========== ========= ==========
Net loss per share $( .07)5
==========
Weighted average shares outstanding 50,988,626
For the six months ended November 30, 1994
-------------------------------------------
As Reported Adjustments Pro Forma
----------- ----------- -----------
(in thousands except
per share amount)
Sales and revenues
Net sales $ 576,847 $ 576,847
Time charges 112,558 112,558
Miscellaneous 11,471 11,471
Interest income from Chapter 11 proceedings 3,094 $( 3,094)1 -
---------- --------- ----------
703,970 ( 3,094) 700,876
---------- --------- ----------
Cost and expenses:
Cost of sales 461,856 461,856
Depreciation, depletion and amortization 34,687 34,687
Selling, general and administrative 63,971 63,971
Postretirement health benefits 13,082 13,082
Provision for possible losses 2,466 2,466
Chapter 11 costs 11,952 ( 11,952)2 -
Interest and amortization of debt discount
and expense 72,753 39,032 3 111,785
Amortization of excess of purchase price
over net assets acquired 20,884 - 20,884
---------- --------- ----------
681,651 27,080 708,731
---------- --------- ----------
22,319 ( 30,174) ( 7,855)
Income tax benefit (expense) ( 15,966) 11,443 4 ( 4,523)
---------- --------- ----------
Net income (loss) $ 6,353 $( 18,731) $( 12,378)
========== ========= ==========
Net loss per share $( .24)5
=========
Weighted average shares outstanding 50,988,626
- --------------------------
Changes from the historical financial statements in the pro forma consolidated
statement of operations consist of the following adjustments (all amounts in
thousands):
(1) Interest income from Chapter 11 proceedings of $1,676 in the three month
period and $3,094 in the six month period, which would not have been
realized assuming the Consensual Plan became effective June 1, 1994, have
been eliminated.
(2) Chapter 11 costs of $7,803 in the three month period and $11,952 in the six
month period, which would not have been incurred assuming the Consensual
Plan became effective June 1, 1994, have been eliminated.
(3) Interest and amortization of debt discount and expense has been increased
$19,489 in the three month period and $39,032 in the six month period to
give retroactive effect as if all indebtedness to be repaid pursuant to
the Consensual Plan was so done as of June 1, 1994 and the $490 million of
Series B Senior Notes had been outstanding for the full three months and
six months ended November 30, 1994. Borrowings under the Trust IV Asset
Backed Notes were assumed to increase during the period June 1, 1994
through November 30, 1994 proportionately with the comparable period
increase in the outstanding economic balance of the instalment notes sold
by Mid-State to Trust IV on March 16, 1995. No borrowings were assumed
under the Mid-State Trust V Variable Funding Loan Agreement as this time
period was prior to the Mid-State Trust IV cut off date for purchases of
instalment notes from Mid-State. No working capital borrowings were
assumed under the Bank Revolving Credit Facility. Pro forma interest
expense, however, includes letter of credit fees and unused working
capital commitment fees.
(4) The provision for income taxes has been adjusted at the applicable
statutory rates to give effect to the pro forma adjustments described
above.
(5) Net loss per share has been computed based on the weighted average number
of common shares outstanding.
Results of Operations
Three months ended November 30, 1995 and 1994
- ---------------------------------------------
Net sales and revenues for the three months ended November 30, 1995 increased
$16.5 million, or 4.6%, over the prior year period (on a pro forma basis), with
a 2.6% increase in pricing and/or mix and a 2.0% increase in volume. The
increase in net sales and revenues was the result of improved sales and revenues
in the Water and Waste Water Transmission Products and Natural Resources Groups,
partially offset by lower sales and revenues in the Homebuilding and Related
Financing and Industrial and Other Products Groups.
Water and Waste Water Transmission Products Group sales and revenues were
$419,000, or less than 1%, ahead of the prior year period. The increase was
the result of higher selling prices for ductile iron pressure pipe, fittings
and castings, partially offset by reduced sales volumes for ductile iron
pressure pipe and fittings. The order backlog at November 30, 1995 was 115,360
tons, which represents approximately three months shipments compared to 121,548
tons at May 31, 1995 and 131,631 tons at November 30, 1994. Operating income
of $7.4 million exceeded the prior year period by $223,000. The improved
performance resulted from the increased selling prices, partially offset by
the reduced sales volumes and higher raw material costs, especially scrap
iron, a major raw material component.
Natural Resources Group sales and revenues exceeded the prior year period by
$18.4 million, or 23.1%. The increase resulted from greater sales volumes for
coal and methane gas, higher outside gas and timber royalty income and a $3.7
million gain from the sale of gas royalty interests in certain mineral
properties, partially offset by lower average selling prices for coal and
methane gas. A total of 2.02 million tons of coal was sold in the 1995 period
versus 1.69 million tons in the 1994 period, a 20% increase. The increase in
tonnage sold was the result of greater shipments to certain export customers,
partially offset by lower shipments to Alabama Power Company ("Alabama Power")
and Japanese steel mills. The average price per ton of coal sold decreased
$.20 from $42.62 in the 1994 period to $42.42 in the 1995 period reflecting a
substantially higher percentage of lower priced coal shipped to certain export
customers. Blue Creek Mine No. 5 ("Mine No. 5") was shutdown from November 17,
1993 through December 16, 1993 and from early April 1994 until May 16, 1994 as
a result of a fire due to spontaneous combustion heating. Representatives of
Jim Walter Resources, the Mine Safety and Health Administration, Alabama State
Mine Inspectors and the United Mine Workers of America agreed that the longwall
coal panel being mined in Mine No. 5 at the time the fire recurred in April
1994 would be abandoned and sealed off. Development mining for the two
remaining longwall coal panels in this section of the mine resumed on May 16,
1994 and mining on the first longwall panel resumed on January 17, 1995.
Production was adversely impacted until such date; however, a portion of the
increased costs is expected to be recovered from business interruption
insurance and the Company has commenced litigation seeking to enforce such
insurance. In late November 1995 Mine No. 5 experienced an unexpected
recurrence of spontaneous combustion heating conditions and the mine was shut
down. Efforts to contain and extinguish the fire appear to have been
successful; however, the mine remains shut down while representatives of Jim
Walter Resources and mine safety officials assess the timing for resuming
production. Although Jim Walter Resources' three other mines remain in full
production, results of the Natural Resources Group are now expected to be
adversely impacted in the fiscal third quarter which ends February 29, 1996 as
a result of the higher costs associated with the continuing problems at Mine
No. 5. Operating income of $6.0 million was $94,000 below the prior year
period. This performance was the result of higher costs per ton of coal
produced ($39.52 in the 1995 period versus $38.37 in the 1994 period)
reflecting various geological problems and the decreases in selling prices for
coal and methane gas, partially offset by the increase sales volumes for coal
and methane gas, the greater outside gas and timber royalty income and the gain
from the sale of certain gas royalty interests.
Homebuilding and Related Financing Group sales and revenues were $504,000, or
less than 1%, below the prior year period. This performance reflects a 6.4%
decrease in the number of homes sold, from 1,085 units in the 1994 period to
1,016 units in the 1995 period, partially offset by a 4.2% increase in the
average net selling price per home sold from $39,300 in 1994 to $40,900 in
1995. The decrease in unit sales reflects continuing strong competitive
conditions in virtually every Jim Walter Homes sales region. The higher
average net selling price in the 1995 period reflects a price increase
instituted February 1, 1995 to compensate for higher building material costs.
Jim Walter Homes' backlog at November 30, 1995 was 1,589 units compared to
1,529 units at May 31, 1995 and 1,849 units at November 30, 1994. Time charge
income (revenues received from Mid-State Homes' instalment note portfolio)
decreased slightly, from $55.8 million in the 1994 period to $55.6 million in
the 1995 period. The decrease in time charge income is attributable to a
reduction in the total number of accounts, partially offset by an increase in
the average balance per account in the portfolio. Operating income of $13.6
million (net of interest expense) was $65,000 greater than the prior year
period. This performance was due to improved homebuilding gross profit margins
reflecting the higher average net selling prices per home sold and lower lumber
costs, partially offset by the lower number of homes sold, the decrease in time
charge income and higher interest expense in the 1995 period ($32.6 million) as
compared to that incurred in the 1994 period ($31.2 million).
Industrial and Other Products Group sales and revenues were $2.1 million, or
3.1%, below the prior year period. Reduced sales volumes of aluminum foil and
sheet products, furnace coke, mineral wool, window components and metal
building and foundry products were partially offset by increased selling prices
for aluminum foil and sheet products, furnace coke, window components
and metal building and foundry products combined with greater sales volumes of
resin coated sand and patterns and tooling. The Group's operating income of
$3.1 million exceeded the prior year period by $1.1 million. The improved
performance resulted from increased income from aluminum foil and sheet
products, furnace coke, resin coated sand and patterns and tooling. These
increases were partially offset by a lower performance in the window components
business due to the decrease in sales volume.
Cost of sales, exclusive of depreciation, of $249.8 million was 80.4% of net
sales compared with $237.7 million and 79.3% in the 1994 period. The cost of
sales percentage increase was primarily the result of reduced gross profit
margins for pipe products, coal and window components, partially offset by
improved gross profit margins on home sales, aluminum foil and sheet products,
furnace coke, resin coated sand and patterns and tooling.
Selling, general and administrative expenses of $33.5 million was 8.9% of net
sales and revenues versus $31.6 million and 8.7% in the 1994 period.
Interest and amortization of debt discount and expense was $54.9 million in the
1995 period versus $55.8 million, on a pro forma basis, in the 1994 period
reflecting lower average outstanding debt balances. The prime interest rate
was 8.75%in the 1995 period compared to a range of 7.75% to 8.5% in the 1994
period.
The Company's effective tax rate in the 1995 period and on a pro forma basis in
the 1994 period differed substantially from the statutory tax rate due
primarily to amortization of excess of purchase price over net assets acquired
(goodwill) which is not deductible for tax purposes.
The net loss for the three months ended November 30, 1995 was $1.1 million
compared to a net loss of $3.4 million, on a pro forma basis, in the 1994
period reflecting all of the previously mentioned factors.
Six Months Ended November 30, 1995 and 1994
- -------------------------------------------
Net sales and revenues for the six months ended November 30, 1995 increased
$57.4 million, or 8.2%, over the prior year period (on a pro forma basis), with
a 5.6% increase in volume and a 2.6% increase in pricing and/or mix. The
increase in net sales and revenues was the result of improved sales and
revenues in the Water and Waste Water Transmission Products, Natural Resources
and Industrial and Other Products Groups, partially offset by lower sales and
revenues in the Homebuilding and Related Financing Group.
Water and Waste Water Transmission Products Group sales and revenues were $14.5
million, or 6.8%, ahead of the prior year period. The increase was the result
of higher sales prices and volumes for ductile iron pressure pipe, valves and
hydrants and improved castings sales prices. Operating income of $16.2 million
exceeded the prior year period by $1.7 million. The improved performance
resulted from the increased sales volumes and prices, partially offset by
higher raw material costs, especially scrap iron, a major raw material
component.
Natural Resources Group sales and revenues exceeded the prior year period by
$39.3 million, or 26.5%. The increase resulted from greater sales volumes for
coal and methane gas, higher outside gas and timber royalty income and a $3.7
million gain from the sale of gas royalty interests in certain mineral
properties, partially offset by lower average selling prices for coal and
methane gas. A total of 3.94 million tons of coal was sold in the 1995 period
versus 3.10 million tons in the 1994 period, a 27% increase. The increase in
tonnage sold was the result of greater shipments to Japanese steel mills and
certain export customers, partially offset by lower shipments to Alabama Power.
The average price per ton of coal sold decreased $.84 from $43.30 in the 1994
period to $42.46 in the 1995 period due to a combination of slightly lower
pricing to Alabama Power and a substantially higher percentage of lower priced
coal shipped to Japanese steel mills and certain export customers. As
previously mentioned, Mine No. 5 was shutdown from November 17, 1993 through
December 16, 1993 and from early April 1994 until May 16, 1994 as a result of a
fire due to spontaneous combustion heating. Representatives of Jim Walter
Resources, the Mine Safety and Health Administration, Alabama State Mine
Inspectors and the United Mine Workers of America agreed that the longwall coal
panel being mined in Mine No. 5 at the time the fire recurred in April 1994
would be abandoned and sealed off. Development mining for the two remaining
longwall coal panels in this section of the mine resumed on May 16, 1994 and
mining on the first longwall panel resumed on January 17, 1995. Production was
adversely impacted until such date; however, a portion of the increased costs
is expected to be recovered from business interruption insurance and the
Company has commenced litigation seeking to enforce such insurance. In late
November 1995 Mine No. 5 experienced an unexpected recurrence of spontaneous
combustion heating conditions and the mine was shut down. Efforts to contain
and extinguish the fire appear to have been successful; however, the mine
remains shut down while representatives of Jim Walter Resources and mine safety
officials assess the timing for resuming production. Although Jim Walter
Resources' three other mines remain in full production, results of the Natural
Resources Group are now expected to be adversely impacted in the fiscal third
quarter which ends February 29, 1996 as a result of the higher costs associated
with the continuing problems at Mine No. 5. Operating income of $13.1 million
exceeded the prior year period by $9.2 million. The improved performance
principally resulted from the increased sales volumes of coal and methane gas,
improved mining productivity which resulted in lower costs per ton of coal
produced ($37.00 in the 1995 period versus $40.44 in the 1994 period), greater
outside gas and timber royalty income and the gain from the sale of certain gas
royalty interests, partially offset by the decreases in selling prices for coal
and methane gas.
Industrial and Other Products Group sales and revenues were $5.5 million, or
4.2%, greater than the prior year period. Increased selling prices for furnace
coke, aluminum foil and sheet products, window components and metal building
and foundry products combined with greater sales volumes of furnace and foundry
coke, chemicals, resin coated sand and patterns and tooling were partially
offset by reduced sales volumes of window components, aluminum sheet and foil
products and metal building and foundry products. The Group's operating income
of $4.9 million exceeded the prior year period by $1.3 million. The improved
performance resulted from increased income for aluminum foil and sheet
products, furnace and foundry coke, resin coated sand and patterns and tooling
due to the sales volume and price increases. These increases were partially
offset by lower income in the window components business resulting from the
decrease in sales volume, increased raw material costs, especially aluminum, a
major raw material component, and reduced efficiencies due to prolonged start
up problems associated with the consolidation and relocation of JW Window
Components, Inc.'s Hialeah, Florida and Columbus, Ohio operations to
Elizabethton, Tennessee.
Homebuilding and Related Financing Group sales and revenues were $2.8 million,
or 1.4%, below the prior year period. This performance reflects a 9.6%
decrease in the number of homes sold, from 2,147 units in the 1994 period to
1,941 units in the 1995 period, partially offset by a 5.1% increase in the
average net selling price per home sold from $39,400 in 1994 to $41,400 in
1995. The decrease in unit sales reflects continuing strong competitive
conditions in virtually every Jim Walter Homes sales region. The higher
average net selling price in the 1995 period reflects a price increase
instituted February 1, 1995 to compensate for higher building material costs.
Time charge income (revenues received from Mid-State Homes' instalment note
portfolio) decreased slightly from $112.6 million in the 1994 period to $111.9
million in the 1995 period. The decrease is attributable to a reduction in the
total number of accounts, partially offset by an increase in the average
balance per account in the portfolio. Operating income (net of interest
expense) was $2.5 million greater than the prior year period. This increase
resulted from improved homebuilding gross profit margins reflecting the higher
average net selling price per home sold and lower lumber costs, partially
offset by the decrease in time charge income and higher interest expense in
the 1995 period ($64.2 million) as compared to that incurred in the 1994 period
($62.3 million).
Cost of sales, exclusive of depreciation, of $499.6 million was 79.7% of net
sales in the 1995 period versus $461.9 million and 80.1% in the 1994 period.
The cost of sales percentage decrease was primarily the result of improved
gross profit margins on home sales, coal, furnace coke, aluminum foil and sheet
products, resin coated sand and patterns and tooling, partially offset by
reduced margins for pipe products and window components.
Selling, general and administrative expenses of $66.6 million were 8.8% of net
sales and revenues in the 1995 period versus $64.0 million and 9.1% in the 1994
period.
Interest and amortization of debt discount and expense was $109.5 million in
the 1995 period as compared to $111.8 million, on a pro forma basis, in the
1994 period reflecting lower average outstanding debt balances. The prime
interest rate ranged from 8.75% to 9.0% in the 1995 period compared to a range
of 7.25% to 8.5% in the 1994 period.
The Company's effective tax rate in the 1995 period and on a pro forma basis in
the 1994 period differed substantially from the statutory tax rate due
primarily to amortization of excess purchase price over net asset acquired
(goodwill) which is not deductible for tax purposes.
The net loss for the six months ended November 30, 1995 was $853,000 as
compared to a net loss of $12.4 million, on a pro forma basis, in the 1994
period reflecting all of the previously mentioned factors.
Financial Condition
On December 27, 1989, the Company and 31 of its subsidiaries each filed a
voluntary petition for reorganization under Chapter 11 with the Bankruptcy
Court. On December 3, 1990, one additional small subsidiary also filed a
voluntary petition for reorganization under Chapter 11 with the Bankruptcy
Court. Two other small subsidiaries did not file petitions for reorganization
under Chapter 11. The filing of the voluntary petitions resulted from a
sequence of events stemming primarily from an inability of the Company's
interest reset advisors to reset interest rates on approximately $624 million
of outstanding indebtedness, which indebtedness by its terms required that the
interest rates thereon be reset to the rate per annum such indebtedness should
bear in order to have a bid value of 101% of the principal amount thereof as of
December 2, 1989. The reset advisors' inability to reset the interest rates
was primarily attributable to two factors: (i) uncertainties arising from the
then pending asbestos-related veil piercing litigation, including the
possibility either that such litigation would lead to the prohibition of
further asset sales and debt repayment or that substantial new asbestos-related
claims might become assertible against the Company, which uncertainties
materially hindered the ability of the Company and its subsidiaries to pursue a
refinancing or sell assets to reduce debt, and (ii) general turmoil in the high
yield bond markets at such time, both of which depressed the bid value of such
notes.
On March 17, 1995, the Company and its subsidiaries emerged from bankruptcy.
Pursuant to the Consensual Plan, the Company has repaid substantially all of
its unsecured claims and senior and subordinated indebtedness subject to the
Chapter 11 reorganization proceedings.
A substantial controversy exists with regard to federal income taxes allegedly
owed by the Company. Proofs of claim have been filed by the Internal Revenue
Service 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.
Objections to the proofs of claim have been filed by the Company and the
various issues are being litigated in the Bankruptcy Court. The Company
believes that such proofs of claim are substantially without merit and intends
to defend such claims against the Company vigorously.
Since May 31, 1995, total debt has decreased $15.2 million principally
resulting from quarterly principal payments on the Mid-State Trust II Mortgage-
Backed Notes ($43.5 million), Mid-State Trust III Asset Backed Notes ($12.9
million) and Mid-State Trust IV Asset Backed Notes ($23.6 million), partially
offset by the issuance of long-term debt under the Mid-State Trust V Variable
Funding Loan Agreement ($65.0 million).
The Company and certain of its subsidiaries have entered into a Bank Revolving
Credit Facility, providing up to $150 million at any time outstanding for
working capital needs with a sub-limit for trade and standby letters of credit
in an amount not in excess of $40 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 November 30, 1995, $18.0 million of letters of credit
were outstanding under this agreement.
The Series B Senior Notes Due 2000, the Bank Revolving Credit Facility and the
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, make capital
expenditures, 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 Bank Revolving Credit Facility, the Company is required
to maintain specified financial ratios and comply with certain financial tests,
including interest coverage, fixed charge coverage ratios, maximum leverage
ratios and minimum earnings before interest, taxes, depreciation and
amortization expense, some of which become more restrictive over time. The
Company believes it will meet these financial tests over the terms of these
debt agreements.
On January 22, 1996, the existing $150 million Bank Revolving Credit Facility
is scheduled to be replaced with credit facilities containing a $350 million
revolving credit facility. See "Liquidity and Capital Resources" below. The
replacement credit facilities will contain covenants and financial tests
similar to those contained in the existing $150 million Bank Revolving Credit
Facility. The Company believes that it will meet the financial tests of the
replacement credit facilities over the term of the agreement.
Liquidity and Capital Resources
At November 30, 1995, cash and short-term investments, net of bank overdrafts
were approximately $62.5 million. Operating cash flows for the six months
ended November 30, 1995 together with the use of available cash balances were
primarily used for working capital requirements, payment of liabilities
resulting from Chapter 11 proceedings and previously accrued in the fiscal year
ended May 31, 1995, 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 November 30, 1995 are 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, 1996
will approximate $46 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. The Company believes that the Mid-State Trust V Variable Funding
Loan Agreement will provide Mid-State Homes with the funds needed to purchase
the instalment notes and mortgages generated by Jim Walter Homes. It is
contemplated that one or more permanent financings similar to the Mid-State
Trusts II, II and IV financings will be required over the next four years in
order to repay borrowings under the Variable Funding Loan Agreement.
On November 21, 1995, the Company signed a commitment letter with NationsBank
National Association (South) ("NationsBank") obligating NationsBank to provide
(or form a syndicate to provide) credit facilities consisting of a $375 million
revolving credit facility, a $125 million six-year term loan and a $50 million
seven-year term loan (collectively, the "Credit Facilities"). The $375 million
revolving credit facility will include a sub-facility for trade and other
standby letters of credit in an amount up to $40 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. The Company is in the final
stages of negotiating definitive documentation for the Credit Facilities with a
syndicate of banks led by NationsBank, and the closing is scheduled for January
22, 1996.
The Credit Facilities will be used, together with a drawing of approximately
$50 million under the Variable Funding Loan Agreement, to redeem in full the
$490 million aggregate principal amount of 12.19% Series B Senior Notes Due
2000 (the "Senior Notes") at a redemption price equal to 101% of the principal
amount thereof plus accrued and unpaid interest thereon to the date of
redemption. In addition, the Credit Facilities will provide for the Company's
ongoing general working capital requirements in replacement of the current Bank
Revolving Credit Facility. The Company has sent redemption notices to all
holders of its Senior Notes setting a January 22, 1996 redemption date.
Simultaneously with the closing of the Credit Facilities, the Company will
terminate the existing Bank Revolving Credit Facility.
Interest savings from the refinancing are expected to exceed $20 million
annually. The Company believes that it will be able to generate sufficient
operating cash flow to make all required interest and principal payments on its
indebtedness, to make all its planned capital expenditures and to meet
substantially all its operating needs.
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 - Earnings per share calculation for the three months ended
and six months ended November 30, 1995
Exhibit 27 - Financial Data Schedule
(b) Reports on Form 8-K - None Filed
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/ W. H. Weldon /s/ F. A. Hult
- --------------------------------- ---------------------------------
W. H. Weldon F. A. Hult
Executive Vice President and Vice President and Controller and
Principal Financial Officer Principal Accounting Officer
Date: January 12, 1996
-----------------