Walter Industries Reports Second Quarter, Six Month Results
Announces Board Decision To Retain Coal Assets For Immediate Term,
Reclassification As A Continuing Operation
Second Quarter EPS (Before Reclassifying Coal Operations)
Reaches $0.22, In Line With Expectations
TAMPA, Fla., Jan. 12 /PRNewswire/ -- Walter Industries, Inc. (NYSE: WLT)
today reported results for its fiscal 2000 second quarter and six months ended
November 30, 1999. The Company also announced that a program initiated in
February 1999 to dispose of its Jim Walter Resources, Inc. (JWR) coal and
methane gas operations has resulted in a decision by the Company's Board of
Directors to retain the JWR assets for the immediate future.
In announcing the decision, the Board emphasized its ongoing commitment to
ultimately separate the coal operations from Walter Industries at such time
that it believes shareholder value can be realized more fully than is possible
under current market and industry conditions.
Commenting on the Board's decision, Walter Industries Chairman and Chief
Executive Officer Kenneth E. Hyatt said: "Our efforts from the outset of this
intensive process have focused on the two most likely divestiture
alternatives: a sale or spin-off. We pursued a sale as our first and most
preferred objective, but ultimately no acceptable proposals were received.
This effort was impacted to a great extent by the deterioration in worldwide
coal markets during the second half of 1999, which disrupted a number of major
coal asset transactions involving key industry players and thus significantly
eroded the base of potential viable buyers of the Jim Walter Resources
properties."
"A tax-free spin-off of the coal operations in the form of a stock dividend
to Walter Industries shareholders was also examined by management, the Board
of Directors and our outside advisors, Salomon Smith Barney and
PricewaterhouseCoopers," Hyatt said. "It was the Board's view that
anticipated financial benefits of recent productivity improvements at Jim
Walter Resources need to be further demonstrated in order for the Board to
reasonably assess whether a spin-off would be in the best interests of
shareholders."
"Although the prospects of a sale or spin-off in the near term are
unlikely given prevailing market conditions, the Company still intends to
pursue these alternatives at the appropriate time," Hyatt said.
As a result of the Board's decision -- and in accordance with accounting
standards -- the Company is required to reverse its prior reclassification of
JWR as a "discontinued operation" and reclassify the results of JWR into the
continuing operations of Walter Industries effective with the fiscal second
quarter and six months ended November 30, 1999. An operating loss incurred by
JWR for Walter Industries' fiscal 2000 first quarter -- which had been
deferred pending disposition -- coupled with a loss in the second quarter, are
recognized in the financial tables accompanying this report. Operating
results of JWR are reported under its previous business segment designation,
"Natural Resources."
Second Quarter Results
Net income, before reclassifying the JWR operations, amounted to
$10.8 million, or $0.22 per basic and diluted share in the current second
quarter. This compares with net income of $13.2 million, or $0.25 per basic
and diluted share, before a non-recurring $6.7 million gain ($0.13 per share)
from the sale of the Company's window components operations in the prior year
second quarter. The reclassification of JWR resulted in the recognition of a
net operating loss from the mining operations of $1.6 million, or $0.03 per
share, for the fiscal 2000 first quarter ended August 31, 1999 -- which was
previously deferred pending disposition of the discontinued operation -- as
well as an operating loss of $747,000, or $0.02 per share, during the current
quarter, which included reversal of $3.5 million ($2.2 million after-tax) in
mine shutdown costs recorded in the fiscal 1999 third quarter. As a result,
after reclassifying JWR, net income amounted to $8.5 million, or $0.17 per
basic and diluted share, in the fiscal 2000 second quarter versus
$13.1 million, or $0.25 per basic and diluted share, in the prior year second
quarter, before the non-recurring gain.
Net sales and revenues totaled $487.3 million for the current quarter
compared with $515.0 million in the 1999 second quarter.
Operating income totaled $48.2 million compared with $53.2 million in the
1999 period. Earnings Before Interest, Taxes, Depreciation and Amortization
(EBITDA) totaled $71.2 million versus $80.1 million in the prior year period.
Operating and net income included goodwill expense totaling $9.4 million,
equivalent to $0.17 per share (net of tax benefit), in the fiscal 2000
quarter, compared with $10.6 million, or $0.19 per share last year.
As previously announced, income in the current quarter was adversely
impacted by a decline ($5.3 million) in prepayment income resulting from a
reduction in early payoffs within the Company's $4.2 billion Mid-State Homes
mortgage portfolio, from record levels reached in prior periods.
Homebuilding and Financing and Natural Resources were the Company's only
business segments to report a year-over-year decline in operating income
during the quarter; operating income from the Company's Water Transmission
Products, Energy Services and Other segments was sharply higher for both the
second quarter and six month reporting periods.
"As expected, our second quarter results demonstrated the continuing
strength of our pipe manufacturing, specialty industrial products and energy
services businesses, as well as the positive trend of quarterly unit
completions and pricing within our homebuilding operations," said Kenneth E.
Hyatt, Walter Industries Chairman and Chief Executive Officer. "The sharp
decline in mortgage prepayment income experienced during the quarter impacted
our Homebuilding and Financing segment to a greater degree than previously
anticipated; however, moving through the remainder of fiscal 2000, we look for
our industrial operations to expand their contributions to the Company's
overall results and, over the longer term, to generate increasingly higher
income. We remain confident in the strength of our operations mix and the
underlying balance it provides us in varying economic climates."
Share Repurchase Activity
The Company reported that it has repurchased 1,669,700 shares of its
common stock since the initiation of its renewed stock buyback program on
October 14, 1999. The Company initiated its previous buyback program in July
1998, and since that time has repurchased a total of 5,542,700 shares in open
market purchases. Combined with 1,398,092 shares purchased in 1997, the
Company has used its surplus cash flow to repurchase a total of 6,940,792
shares, representing an investment of approximately $94 million.
Second Quarter Results by Operating Segment
* The Homebuilding and Financing segment posted a 6% revenue increase on
the strength of 25% higher unit completions and a 6% rise in average selling
price, partially offset by an 11% decrease in time charge income from the
Company's $4.2 billion mortgage portfolio. Operating income decreased by 22%
during the quarter, however, largely due to the decline in mortgage prepayment
income. Jim Walter Homes and its affiliated homebuilding operations reported
1,107 home completions for the quarter at an average net selling price of
$54,800 versus 888 homes at an average price of $51,600 in the comparable
period last year. The company ended the quarter with 2,262 orders in backlog
compared with 2,404 homes a year earlier.
As noted, the Company's three other core business segments generated
sharply higher operating income for the second quarter:
* Water Transmission Products reported a 36% increase in operating
income, to $13.1 million. The Company's U.S. Pipe and Foundry subsidiary, the
nation's leading supplier of ductile iron pressure pipe and related valve and
hydrant products, benefited from the success of ongoing margin improvement
efforts, higher product shipments and lower raw material costs. Revenues of
$134.6 million were comparable with the prior year second quarter.
* Energy Services, comprised of the operations of Applied Industrial
Materials Corporation ("AIMCOR"), reported an 11% increase in operating
income, to $8 million, over a strong fiscal 1999 second quarter on the
strength of higher earnings within its carbon product units, principally
driven by a more normalized margin and cost environment for the company's
petroleum coke products and related outsourcing services.
* The "Other" group, led by JW Aluminum Company and Sloss Industries,
generated a 22% increase in operating income, to $8.3 million, on 1% higher
revenues. This improvement was driven by a 16% increase in shipments at JW
Aluminum Company, which is benefiting from additional production capacity
brought onstream in May 1999, as well as 13% higher operating income at Sloss
Industries, principally due to improved margins in specialty chemicals. Prior
year results also included revenues of $7.2 million and a $100,000 operating
income contribution from JW Window Components which, as previously noted, was
sold in the prior year second quarter.
Six Month Results
For the fiscal six months ended November 30, 1999, net income -- before
reclassifying the JWR operations and excluding the non-recurring item in the
fiscal 1999 second quarter -- amounted to $22.9 million, or $0.46 per basic
and diluted share, in the current first half compared with income of
$24.0 million, or $0.45 per basic and diluted share, in the prior year period.
After giving effect to the reclassification of JWR, net income for the fiscal
2000 first half amounted to $20.5 million, or $0.41 per basic and diluted
share, versus prior year net income of $22.1 million, or $0.42 per basic and
diluted share, before the non-recurring $0.13 gain.
Net sales and revenues were $947.1 million compared with $1,008.1 million
in the prior year.
Operating income totaled $99.7 million compared with $95.9 million last
year, up 4%. EBITDA amounted to $145.3 million versus $150.1 million in the
1999 period.
Six month operating and net income included goodwill expense of
$19.4 million, or $0.36 per share (net of tax benefit), versus $21.2 million,
or $0.37 per share, in the fiscal 1999 period.
Free cash flow (cash flow from operating activities, less changes in
marketable securities and restricted cash, and net of capital expenditures)
was $70.1 million in the current six months compared with $80.9 million a year
ago. Capital expenditures, net of retirements, totaled $38.7 million versus
$38.2 million in the prior year first half. |
