TAMPA, Fla., Aug. 2 /PRNewswire-FirstCall/ -- Walter Industries, Inc. today reported net income of $18.1 million, or $0.34 per diluted share for the second quarter ended June 30, 2007. Income from continuing operations for the second quarter totaled $17.8 million, or $0.33 per diluted share, compared with income from continuing operations of $44.2 million, or $0.86 per diluted share in the second quarter last year.
Net sales and revenues from continuing operations for the second quarter totaled $296.5 million, down from $319.0 million in the prior-year period. The decline was primarily a result of lower metallurgical coal sales prices and volumes at Natural Resources, as well as higher demurrage charges. These negative comparisons were partially offset by higher pricing and increased unit completions at Homebuilding.
Operating income from continuing operations for the second quarter totaled $33.0 million compared to $68.9 million in the second quarter 2006. Lower operating income in the current-year period primarily reflects lower metallurgical coal pricing, worse-than-anticipated geologic conditions and lower production volumes at Jim Walter Resources' Mine No. 7, and increased operating losses at Kodiak Mining. The lower sales volumes and increases in production costs at Jim Walter Resources during the current quarter were driven by hard bottom-rock conditions on Mine No. 7's longwall panel. These adverse conditions caused significant downtime at Mine No. 7 and reduced its coal inventory available for sale. At Kodiak Mining, low productivity and a $1.5 million inventory write-off drove the unfavorable results. These negatives were partially offset by improved results at Homebuilding.
"Although we expected lower coal production volumes in the second quarter at Mine No. 7 due to the thinner coal seam toward the end of the longwall panel, conditions were more difficult than anticipated," said Jim Walter Resources CEO George R. Richmond. "In addition to the thinner coal seam, we encountered harder-than-expected rock in the floor that slowed advance rates and caused an increase in equipment downtime. These difficulties negatively affected costs and led to lower inventory levels that disrupted loading schedules, resulting in deferred shipments and excess demurrage costs."
Richmond added, "We have recently mined through the hard rock conditions and expect to move the longwall in early September. The coal seam is thicker at the beginning of Mine No. 7's longwall panels, so production volumes are expected to improve significantly after the move."
Second Quarter Results by Operating Group
Natural Resources & Sloss
Natural Resources, which includes the operations of Jim Walter Resources and Kodiak Mining, reported revenues of $137.5 million in the second quarter, down $35.6 million versus the same period last year. The decline in revenues was principally driven by a $15.26 per ton reduction in metallurgical coal prices versus the prior-year period, as well as a 110,000-ton decline in coal sales volumes. Lower coal prices include the impact of reduced contract pricing and increased demurrage charges. Lower revenues also reflect a decline in natural gas volumes and pricing.
The Natural Resources segment reported operating income of $21.8 million in the second quarter, compared to $63.1 million in the prior-year period. Results in the current-year period include lower coal and gas sales volumes and pricing, higher labor costs, increased production costs at Mine No. 7 and $5.7 million of operating losses at Kodiak Mining.
Jim Walter Resources
Jim Walter Resources sold 1.3 million tons of metallurgical coal during the second quarter at an average price of $94.29 per short ton FOB port, compared to 1.4 million tons of metallurgical coal at an average price of $109.55 per short ton FOB port during the same period last year. During the current quarter, average realized sales prices were negatively affected by lower contract pricing and approximately $4.3 million of demurrage charges.
Mine No. 4 produced 0.7 million tons in the current-year period compared to 0.4 million tons in last year's second quarter, as the modified longwall shields performed as expected, preventing a recurrence of the roof control problems encountered in the prior panel. Mine No. 4's cost-per-ton was $44.62, or $10.66 better than the prior-year period, primarily driven by the improvements in production, partially offset by higher labor costs associated with the new UMWA contract.
Mine No. 7 produced 0.5 million tons in the second quarter 2007 versus 0.6 million tons in the same period last year. Longwall production decreased 230,000 tons as a result of harder-than-anticipated mine bottom rock and related equipment downtime. This decrease was partially offset by 116,000 additional continuous miner tons, primarily from the continuing development of the Southwest "A" panel.
Production costs at Mine No. 7 were $71.23 per ton versus $39.76 per ton in the prior-year period, primarily reflecting additional spending due to a shift in mix to higher-cost continuous miner tons, approximately $8.70 per ton due to lower volumes produced, and $3.50 per ton for higher UMWA contract labor costs. Three incremental continuous miner units were operated at Mine No. 7 during the second quarter versus the same period last year, two of which are developing the Southwest "A" panel. This development work increased spending by approximately $13.60 per ton at Mine No. 7 in the second quarter and will set the stage for incremental, lower-cost longwall production in 2008.
Kodiak
Kodiak incurred $5.7 million of operating losses in the second quarter, including a $1.5 million write-off of inventory from lower-than-expected yields. Difficult geological conditions, slow advance rates and a delay in adding a second planned continuous miner unit led to worse-than-projected production and higher costs. The decision to postpone the second continuous miner unit was made to allow time to rectify some of Kodiak's performance issues before committing incremental labor and equipment.
"We are disappointed with Kodiak's results to date," said Richmond. "We recently made significant changes to management, mine plans and operating procedures to improve performance. However, given Kodiak's slow start and the delay in ramping up the second continuous miner unit, we expect their production to be between 140,000 and 170,000 tons in 2007 and do not expect profitability until 2008."
Natural Gas
The natural gas operation sold 1.8 billion cubic feet of gas at an average price of $7.96 per thousand cubic feet in the second quarter 2007 versus $8.49 per thousand cubic feet in the prior-year period. Natural gas volumes were down 11.3 percent, primarily from the reduction in gas produced from the now- closed Mine No. 5 and lower gas production associated with slower advance rates at Mine No. 7. Natural gas prices realized in the current-year period include the benefit of hedging approximately 64 percent of production at an average price of $8.21 per thousand cubic feet, compared with approximately 53 percent of production hedged in the prior-year period at an average of $10.05.
Sloss
Sloss Industries generated second quarter revenues of $33.1 million, down $1.8 million from the prior-year period, and operating income of $2.9 million, up $0.9 million from the prior-year period. Results in the prior-year period included a $1.1 million asset impairment charge related to the segment's chemicals business, which was sold in November 2006.
Financing & Homebuilding
The Financing & Homebuilding group reported combined revenues of $123.2 million for the second quarter, up 11.3 percent versus the prior-year period. The strong revenue increase was primarily due to higher average on-your-lot selling prices and unit completions at Homebuilding, slightly offset by lower prepayment income at Financing.
Combined operating income was up 40.3 percent for the quarter versus last year's second quarter, primarily resulting from an improvement in gross margins at Homebuilding. These stronger gross margins were driven by improved cycle times, better pricing and lower material costs. These improvements were partially offset by higher selling, general and administrative expenses at Homebuilding and higher interest expense at Financing.
"Our Financing business continued its industry-leading performance, with delinquencies, repossessions, recovery rates and the number of 'Real Estate Owned' (REO) units all improved year over year," said Financing & Homebuilding Chief Executive Officer Mark J. O'Brien. "In addition, continued gross margin expansion and reduced construction cycle times led to significantly better results at Homebuilding as we move closer to profitability in this business."
At Financing, delinquencies on the mortgage portfolio were 3.8 percent at June 30, 2007, compared to 4.0 percent at June 30, 2006. Sequentially, delinquencies rose slightly, representing a typical seasonal increase. In addition, the number of repossessed units declined 14.2 percent and REO inventory as a percent of the total mortgage portfolio declined 13.2 percent versus the second quarter last year.
At Homebuilding, unit completions were 689 in the second quarter, up 9.0 percent versus the same period last year. Average unit net selling prices were $98,911 in the quarter, an increase of $12,121 per home versus the prior-year period. For the current period, new sales orders, net of cancellations, were 578, up 7.2 percent compared to the second quarter last year. Gross margin per unit improved approximately 530 basis points versus the second quarter last year and 170 basis points from the first quarter 2007, reflecting numerous improvements implemented to raise pricing, eliminate the backlog of low-margin units, speed up cycle times and enhance construction quality. While the backlog in units decreased 22.7 percent versus June 30, 2006, the dollar value of the backlog only declined 18.3 percent as a result of price increases.
The Company also said that the Financing business recently renewed its Trust IX Variable Funding Loan Agreement through July 28, 2008 on substantially similar terms. This $150.0 million warehouse facility provides short-term funding for instalment notes and mortgage loans originated by the Homebuilding business or purchased from third parties.
"The renewal of this facility at a time when problems in the sub-prime mortgage industry are significantly disrupting the credit markets is another indication of the strength of our mortgage portfolio and the outstanding performance of our mortgage servicing platform," said O'Brien.
Other
Results in the "Other" segment, comprised of the Company's corporate expenses and land subsidiaries, improved by approximately $0.9 million in the second quarter, driven by higher interest income.
Outlook
"While our financial results were mixed for the quarter, we made good progress on the strategic front," said Walter Industries Chairman Michael T. Tokarz. "We continue to make important investments in our Natural Resources business as we execute on our organic growth strategy to expand future production capacity. At Financing & Homebuilding, we continue to build upon the strong, consistent performance at Financing while we make further strides toward profitability at Homebuilding."
"We remain very confident in the long-term outlook for both our Natural Resources and Financing & Homebuilding businesses," Tokarz added. "We expect our Natural Resources group to benefit from strengthening in the global metallurgical coal market which is driven by continued strong demand and increasing production capacity in the global steel industry. This positive market momentum aligns with our expansion plans to significantly increase production of our high-quality, metallurgical coal product. Our Mine No. 7 East expansion remains on track to deliver significant increases in low-vol met coal production beginning in 2009."
Coal Production Update
The Company provided the following estimated coal production ranges for the remainder of 2007 through 2010 for Jim Walter Resources and Kodiak Mining:
Estimated Coal Production(1) 2007 2008 2009 2010
Jim Walter Resources 5.9 - 6.1 6.7 - 7.1 8.0 - 8.5 8.7 - 9.1
Kodiak(2) 0.1 - 0.2 0.3 - 0.4 0.4 - 0.5 0.4 - 0.5
1 Tons, in millions
2 Represents 100 percent of Kodiak's expected production. The Company
believes it will recognize all of Kodiak's production and operating
results through the projected period.
Homebuilding Unit Completion Update
The Company now expects unit completions to be between 2,500 and 2,700 units and maintains its expectation for a break-even run rate in 2007.
Conference Call Web cast
Members of the Company's leadership team will discuss Walter Industries' second quarter 2007 results, its business drivers for the balance of 2007 and other general business matters during a conference call and live Web cast to be held on Friday, Aug. 3, 2007, at 10 a.m. Eastern Daylight Time. To listen to the event live or in archive, visit the Company Web site at http://www.walterind.com/.
About Walter Industries
Walter Industries, Inc., based in Tampa, Fla., is a leading producer and exporter of metallurgical coal for the global steel industry and also produces steam coal, coal bed methane gas, furnace and foundry coke and other related products. The Company also operates a mortgage financing and affordable homebuilding business. The Company has annual revenues of approximately $1.3 billion and employs approximately 2,800 people. For more information about Walter Industries, please visit the Company Web site at http://www.walterind.com/.
Safe Harbor Statement
Except for historical information contained herein, the statements in this release are forward-looking and made pursuant to the safe harbor provisions of the Private Securities Litigation Reform Act of 1995. Forward-looking statements involve known and unknown risks and uncertainties that may cause the Company's actual results in future periods to differ materially from forecasted results. Those risks include, among others, changes in customers' demand for the Company's products, changes in raw material, labor, equipment and transportation costs and availability, geologic and weather conditions, changes in extraction costs and pricing in the Company's mining operations, changes in customer orders, pricing actions by the Company's competitors, changes in law, potential changes in the mortgage-backed capital markets, and general changes in economic conditions. Those risks also include the timing of and ability to execute any strategic actions that may be pursued. Risks associated with forward-looking statements are more fully described in the Company's filings with the Securities and Exchange Commission. The Company assumes no duty to update its forward-looking statements as of any future date.
WALTER INDUSTRIES, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF OPERATIONS
($ in Thousands, except per share amounts)
Unaudited
For the three months
ended June 30,
2007 2006
Net sales and revenues:
Net sales $239,146 $258,354
Interest income on instalment notes 50,662 50,937
Miscellaneous 6,716 9,699
296,524 318,990
Costs and expenses:
Cost of sales (exclusive of depreciation) 174,457 168,359
Depreciation 11,591 9,414
Selling, general and administrative 38,125 35,784
Provision for losses on instalment notes 2,493 2,510
Postretirement benefits 6,687 4,407
Interest expense - mortgage-
backed/asset-backed notes 29,745 28,958
Interest expense - corporate debt 7,218 8,920
Amortization of intangibles 442 642
270,758 258,994
Income from continuing operations
before income tax expense and
minority interest 25,766 59,996
Income tax expense 7,996 16,737
Income from continuing operations
before minority interest 17,770 43,259
Minority interest in net loss of affiliate - 941
Income from continuing operations 17,770 44,200
Discontinued operations (1) 281 19,761
Net income $18,051 $63,961
Basic income per share:
Income from continuing operations $0.34 $1.02
Discontinued operations 0.01 0.45
Net income $0.35 $1.47
Weighted average number of shares
outstanding 52,081,436 43,529,838
Diluted income per share:
Income from continuing operations $0.33 $0.86
Discontinued operations 0.01 0.38
Net income $0.34 $1.24
Weighted average number of diluted
shares outstanding 52,574,803 52,175,065
(1) The Company sold its modular home manufacturing business, which
operated as Crestline Homes, Inc., in May 2007. As a result, the
operating results of this business have been classified as
discontinued operations for the three months ended June 30, 2007 and
2006. The three months ended June 30, 2006 also includes the results
of Mueller Water Products, which was spun-off to shareholders in
December 2006.
WALTER INDUSTRIES, INC. AND SUBSIDIARIES
RESULTS BY OPERATING SEGMENT
($ in Thousands)
Unaudited
For the three months
ended June 30,
2007 2006
NET SALES AND REVENUES:
Natural Resources $137,490 $173,094
Sloss 33,122 34,912
Natural Resources and Sloss 170,612 208,006
Financing 55,046 55,819
Homebuilding (1) 68,175 54,925
Financing and Homebuilding Group 123,221 110,744
Other 4,965 2,857
Consolidating Eliminations (2,274) (2,617)
$296,524 $318,990
OPERATING INCOME (LOSS) FROM
CONTINUING OPERATIONS:
Natural Resources $21,764 $63,104
Sloss 2,948 2,077
Natural Resources and Sloss 24,712 65,181
Financing 13,045 13,358
Homebuilding (1) (467) (4,394)
Financing and Homebuilding Group 12,578 8,964
Other (4,306) (5,229)
Consolidating Eliminations - -
Operating income from continuing operations 32,984 68,916
Corporate debt interest expense (7,218) (8,920)
Income from continuing operations before
income tax expense and minority interest $25,766 $59,996
(1) Excludes Crestline Homes, which was sold in May 2007.
WALTER INDUSTRIES, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF OPERATIONS
($ in Thousands, except per share amounts)
Unaudited
For the six months
ended June 30,
2007 2006
Net sales and revenues:
Net sales $498,533 $512,828
Interest income on instalment notes 100,227 101,467
Miscellaneous 18,058 17,769
616,818 632,064
Cost and expenses:
Cost of sales (exclusive of depreciation) 346,097 332,151
Depreciation 22,221 17,848
Selling, general and administrative 75,576 70,958
Provision for losses on instalment notes 5,390 4,815
Postretirement benefits 13,019 8,814
Interest expense - mortgage-
backed/asset-backed notes 59,516 58,934
Interest expense - corporate debt 14,565 21,389
Amortization of intangibles 920 1,339
537,304 516,248
Income from continuing operations
before income tax expense and
minority interest 79,514 115,816
Income tax expense 29,609 35,807
Income from continuing operations
before minority interest 49,905 80,009
Minority interest in net loss of affiliate - 941
Income from continuing operations 49,905 80,950
Discontinued operations (1) (2,229) 18,310
Net income $47,676 $99,260
Basic income (loss) per share:
Income from continuing operations $0.96 $1.93
Discontinued operations (0.04) 0.43
Net income $0.92 $2.36
Weighted average number of shares
outstanding 52,046,083 42,024,801
Diluted income (loss) per share:
Income from continuing operations $0.95 $1.61
Discontinued operations (0.04) 0.36
Net income $0.91 $1.97
Weighted average number of diluted
shares outstanding 52,525,490 51,354,709
(1) In the first quarter of 2007, the Company decided to exit the
modular home manufacturing business, which operated as Crestline
Homes, Inc. As a result, the operating results of this business have
been classified as discontinued operations for the six months ended
June 30, 2007 and 2006. The six months ended June 30, 2006 also
includes the results of Mueller Water Products, which was spun-off
to shareholders in December 2006.
WALTER INDUSTRIES, INC. AND SUBSIDIARIES
RESULTS BY OPERATING SEGMENT
($ in Thousands)
Unaudited
For the six months
ended June 30,
2007 2006
NET SALES AND REVENUES:
Natural Resources $307,665 $342,192
Sloss 65,923 68,197
Natural Resources and Sloss 373,588 410,389
Financing 108,793 111,838
Homebuilding (1) 130,308 110,213
Financing and Homebuilding Group 239,101 222,051
Other 8,483 6,020
Consolidating Eliminations (4,354) (6,396)
$616,818 $632,064
OPERATING INCOME (LOSS) FROM
CONTINUING OPERATIONS:
Natural Resources $78,205 $127,029
Sloss 4,254 4,259
Natural Resources and Sloss 82,459 131,288
Financing 23,616 26,350
Homebuilding (1) (3,145) (9,245)
Financing and Homebuilding Group 20,471 17,105
Other (8,851) (10,543)
Consolidating Eliminations - (645)
Operating income from continuing operations 94,079 137,205
Corporate debt interest expense (14,565) (21,389)
Income from continuing operations before
income tax expense and minority interest $79,514 $115,816
(1) Excludes Crestline Homes, which was sold in May 2007.
WALTER INDUSTRIES, INC. AND SUBSIDIARIES
SUPPLEMENTAL INFORMATION
Unaudited
For the three months For the six months
ended June 30, ended June 30,
2007 2006 2007 2006
Operating Data:
Jim Walter Resources
Tons sold by type (in thousands):
Metallurgical coal, contracts 1,301 1,409 2,727 2,655
Purchased metallurgical coal - - 96 -
Steam coal - 2 - 300
1,301 1,411 2,823 2,955
Average sale price per short ton:
Metallurgical coal, contracts $94.29 $109.55 $97.55 $111.02
Steam coal $- $34.70 $- $35.02
Total average $94.29 $109.44 $97.55 $103.30
Tons sold by mine (in thousands):
Mine No. 4 669 583 1,299 1,439
Mine No. 7 632 652 1,414 1,169
Subtotal 1,301 1,235 2,713 2,608
Mine No. 5 (1) - 176 14 347
Total 1,301 1,411 2,727 2,955
Coal cost of sales
(exclusive of depreciation):
Mine No. 4 per ton $51.40 $63.21 $50.18 $54.45
Mine No. 7 per ton $73.71 $51.77 $62.41 $50.94
Mines No. 4 and No. 7
per ton average $62.24 $57.17 $56.55 $52.88
Mine No. 5 per ton (1) $- $71.69 $57.98 $77.40
Total average $62.24 $58.98 $56.56 $55.76
Idle mine costs
(in thousands) (2) $263 $182 $263 $382
Purchased coal costs
(in thousands) $- $- $8,192 $-
Other costs (in thousands) (3) $2,776 $2,868 $7,361 $5,493
Tons of coal produced
(in thousands)
Mine No. 4 665 384 1,454 1,153
Mine No. 7 521 635 1,404 1,414
Subtotal 1,186 1,019 2,858 2,567
Mine No. 5 - 172 - 439
Total 1,186 1,191 2,858 3,006
Coal production costs
per ton: (4)
Mine No. 4 $44.62 $55.28 $40.66 $41.37
Mine No. 7 $71.23 $39.76 $52.89 $37.02
Mines No. 4 and No. 7
average $56.31 $45.61 $46.67 $38.97
Mine No. 5 $- $59.05 $- $60.56
Total average $56.31 $47.55 $46.67 $42.12
Natural gas sales, in mmcf
(in thousands) 1,752 1,976 3,615 3,807
Natural gas average sale price
per mmcf $7.96 $8.49 $7.94 $8.88
Natural gas cost of sales
per mmcf $3.27 $2.57 $3.01 $2.89
Kodiak
Tons sold (in thousands) - 3 9 3
Tons of coal produced (in thousands) 20 26 45 26
(1) Mine No. 5 ceased production in December 2006 as planned. Sales and
cost amounts in 2007 resulted from the sale of residual inventory on
hand at December 31, 2006.
(2) Idle mine costs are charged to period expense when incurred.
(3) Consists of charges (credits) not directly allocable to a specific
mine.
(4) Coal production costs per ton are a component of inventoriable costs,
including depreciation. Other costs of sales not included in coal
production costs per ton include Company-paid outbound freight,
postretirement benefits, asset retirement obligation expenses,
royalties, and Black Lung excise taxes.
WALTER INDUSTRIES, INC. AND SUBSIDIARIES
SUPPLEMENTAL INFORMATION
Unaudited
For the three months For the six months
ended June 30, ended June 30,
2007 2006 2007 2006
Operating Data (continued):
Sloss Industries
Furnace and foundry coke tons
sold 102,780 104,129 211,736 205,138
Furnace and foundry coke average
sale price per ton $225.91 $221.44 $221.09 $222.07
Fiber tons sold 28,332 27,800 53,483 52,776
Fiber price per ton $265.42 $264.56 $266.07 $263.01
Financing
Delinquencies, as of period end 3.8% 4.0% 3.8% 4.0%
Prepayment speeds 8.7% 10.2% 8.4% 9.6%
Number of repossessions 301 351 589 667
Repossession rate, annualized 3.0% 3.3% 2.9% 3.1%
Recovery rate on repossessions 87.4% 86.4% 85.9% 87.2%
Homebuilding (excluding Crestline)
New sales contracts 688 690 1,421 1,325
Cancellations 110 151 194 279
Unit completions 689 632 1,323 1,286
Average sale price $98,911 $86,790 $98,458 $85,504
Ending backlog of homes 1,426 1,844 1,426 1,844
Depreciation ($ in thousands):
Natural Resources $8,696 $6,700 $16,496 $12,545
Sloss 943 908 1,859 1,848
Financing 273 340 554 682
Homebuilding 1,272 1,098 2,506 2,180
Other 407 368 806 593
$11,591 $9,414 $22,221 $17,848
Capital expenditures ($ in thousands):
Natural Resources $33,699 $20,767 $55,590 $44,915
Sloss 1,003 1,407 3,123 3,441
Financing 29 140 60 184
Homebuilding 610 1,225 1,856 2,425
Other 88 210 327 714
$35,429 $23,749 $60,956 $51,679
WALTER INDUSTRIES, INC. AND SUBSIDIARIES
CONDENSED CONSOLIDATED BALANCE SHEETS
($ in Thousands)
Unaudited
June 30, December 31, June 30,
2007 2006 2006
ASSETS
Cash and cash equivalents $39,491 $127,369 $111,819
Short-term investments, restricted 83,517 90,042 86,998
Instalment notes receivable, net of
allowance of $12,802,$13,011 and
$12,847, respectively 1,829,486 1,779,697 1,748,334
Receivables, net 77,921 85,094 104,962
Inventories 110,770 105,527 116,213
Prepaid expenses 44,714 29,727 22,800
Property, plant and equipment, net 349,151 310,163 283,717
Other long-term assets 170,490 135,274 102,712
Goodwill 10,895 10,895 10,895
Assets of discontinued operations - 10,327 3,156,896
$2,716,435 $2,684,115 $5,745,346
LIABILITIES AND STOCKHOLDERS' EQUITY
Accounts payable $59,937 $62,323 $61,950
Accrued expenses 71,210 94,930 82,139
Accrued interest on debt 14,855 17,053 18,221
Debt:
Mortgage-backed/asset-backed notes 1,731,519 1,736,706 1,698,930
Corporate debt 232,936 249,491 473,428
Accumulated postretirement benefits
obligation 347,846 330,241 225,302
Other long-term liabilities 214,535 189,458 185,697
Liabilities of discontinued
operations - 2,005 1,959,998
Total liabilities 2,672,838 2,682,207 4,705,665
Minority interest in discontinued
operations 300,745
Stockholders' equity 43,597 1,908 738,936
$2,716,435 $2,684,115 $5,745,346
WALTER INDUSTRIES, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENT OF CHANGES IN STOCKHOLDERS' EQUITY
AND COMPREHENSIVE INCOME
FOR THE SIX MONTHS ENDED JUNE 30, 2007
($ in Thousands)
Unaudited
Capital in Compre-
Common Excess of hensive
Total Stock Par Value Income
Balance at December 31, 2006 $1,908 $728 $757,699
Adjustment to initially apply
FIN No. 48 (1) (4,421)
Adjusted balance at
January 1, 2007 $(2,513) $728 $757,699
Comprehensive income:
Net income 47,676 $47,676
Other comprehensive income
(loss), net of tax:
Amortization of prior service
cost and net actuarial loss on
postretirement benefits
obligation 4,051 4,051
Increase in accumulated
postretirement benefit
obligation for plan
amendments after measurement
date (9,347) (9,347)
Net unrealized gain on hedges 1,127 1,127
Comprehensive income $43,507
Retirement of treasury stock - (207) (259,902)
Stock issued upon the exercise
of stock options 643 643
Tax benefit from the exercise
of stock options 1,460 1,460
Dividends paid, $0.10 per share (5,209) (5,209)
Stock-based compensation 6,501 6,501
Other (792)
Balance at June 30, 2007 $43,597 $521 $501,192
Accumulated
Other
Accumulated Treasury Comprehensive
Deficit Stock Income (Loss)
Balance at December 31, 2006 $(398,564) $ (259,317) $ (98,638)
Adjustment to initially apply
FIN No. 48 (1) (4,421)
Adjusted balance at January 1,
2007 $(402,985) $ (259,317) $ (98,638)
Comprehensive income:
Net income 47,676
Other comprehensive income
(loss), net of tax:
Amortization of prior service
cost and net actuarial loss
on postretirement benefits
obligation 4,051
Increase in accumulated
postretirement benefit
obligation for plan amendments
after measurement date (9,347)
Net unrealized gain on hedges 1,127
Comprehensive income
Retirement of treasury stock 260,109
Stock issued upon the exercise of
stock options
Tax benefit from the exercise of
stock options
Dividends paid, $0.10 per share
Stock-based compensation
Other (792)
Balance at June 30, 2007 $(355,309) $ - $(102,807)
(1) The Company adopted FIN No. 48, "Accounting for Uncertainty in
Income Taxes," as required on January 1, 2007. Upon adoption, the
Company recognized a $4.4 million increase to the beginning
accumulated deficit to reflect a necessary increase to the accrual
for uncertain tax positions.
WALTER INDUSTRIES, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS
($ in Thousands)
Unaudited
For the six months
ended June 30,
2007 2006
OPERATING ACTIVITIES
Net income $47,676 $99,260
Loss (income) from discontinued operations 2,229 (18,310)
Income from continuing operations 49,905 80,950
Adjustments to reconcile income from continuing
operations to net cash provided by continuing
operations:
Provision for losses on instalment notes
receivable 5,390 4,815
Depreciation 22,221 17,848
Provision (credit) for deferred income taxes (12,454) 14,167
Other 17,256 6,765
Decrease (increase) in assets:
Receivables 8,874 (29,011)
Inventories (5,175) 536
Prepaid expenses (639) 3,350
Instalment notes receivable, net (41,099) (7,071)
Increase (decrease) in liabilities:
Accounts payable (2,888) 457
Accrued expenses (23,852) (10,768)
Accrued interest (2,198) (2,176)
Cash flows provided by operating
activities of continuing operations 15,341 79,862
INVESTING ACTIVITIES
Purchases of loans (34,988) (70,614)
Principal payments received on purchased loans 20,908 18,458
Decrease in short-term investments, restricted 6,525 37,575
Additions to property, plant and equipment (60,956) (51,679)
Escrow release from prior acquisition - 10,500
Other 2,613 1,921
Cash flows used in investing
activities of continuing operations (65,898) (53,839)
FINANCING ACTIVITIES
Issuances of mortgage-backed/asset-backed notes 113,350 97,600
Payments of mortgage-backed/asset-backed notes (118,598) (126,080)
Retirements of corporate debt (29,071) (123,847)
Dividends paid (5,209) (3,309)
Tax benefit on the exercise of
employee stock options 1,460 6,156
Issuance of common stock - 168,680
Other 116 12,293
Cash flows provided by (used in) financing
activities of continuing operations $(37,952) $31,493
Cash flows provided by (used in)
continuing operations $(88,509) $57,516
CASH FLOWS FROM DISCONTINUED OPERATIONS
Cash flows provided by operating activities $630 $27,256
Cash flows used in investing activities - (45,913)
Cash flows provided by financing activities - 187,272
Cash flows provided by discontinued
operations $630 $168,615
Net increase (decrease) in cash and
cash equivalents $(87,879) $226,131
Cash and cash equivalents at beginning of period $127,369 $64,424
Add: Cash and cash equivalents of
discontinued operations at beginning of period 1 72,972
Net increase (decrease) in cash and
cash equivalents (87,879) 226,131
Less: Cash and cash equivalents of
discontinued operations at end of period - (251,708)
Cash and cash equivalents at end of period $39,491 $111,819
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