TAMPA, Fla., Feb. 19 /PRNewswire-FirstCall/ -- Walter Industries, Inc. today reported net income from continuing operations of $40.0 million, or $0.76 per diluted share for the fourth quarter ended Dec. 31. 2007 compared to $28.5 million, or $0.55 per diluted share, in the fourth quarter 2006. Fourth quarter 2007 results include favorable pre-tax adjustments of $12.7 million comprised of $8.9 million of interest capitalization and $3.8 million to increase deferred loan origination costs, plus a $3.2 million favorable tax adjustment. Excluding these adjustments, fourth quarter 2007 results would have been approximately $0.54 per diluted share. Income from continuing operations for the full-year 2007 totaled $114.2 million, or $2.18 per diluted share, while full-year 2006 income from continuing operations totaled $152.9 million, or $3.00 per diluted share.
"Our 2007 operating and financial results were very positive. But more importantly, we made great progress toward opening the reserves in Mine No. 7 East for near-term production," said Walter Industries Chairman Michael T. Tokarz. "The global metallurgical coal market continues to strengthen at a time when our Mine No. 7 expansion activities are nearing completion. We expect significant increases in production volumes in each of the next three years, with current initiatives generating an annual tonnage increase of more than 50 percent by 2010. Our expanding production volumes and ability to capitalize on extremely favorable market conditions make us confident we can continue to deliver significant value to our shareholders in 2008 and beyond."
Fourth Quarter 2007 Financial Results
Net sales and revenues for the fourth quarter 2007 totaled $312.3 million, up $4.1 million from the prior-year period. Prior year revenues included $23.4 million from an insurance claim. Excluding this claim, fourth quarter 2007 revenues improved 5.1 percent organically, and 9.7 percent in total, primarily due to higher metallurgical coal sales volumes and the acquisition of Tuscaloosa Resources, Inc. ("TRI") in 2007, partially offset by lower metallurgical coal contract pricing and fewer unit deliveries at Homebuilding.
Operating income from continuing operations for the fourth quarter 2007 totaled $49.4 million compared to $80.0 million in the fourth quarter 2006. Excluding the insurance claim income in 2006 and the $3.8 million in 2007 related to the deferred loan origination costs noted above, operating income in the current-year period fell $11.0 million due to declines in metallurgical coal prices, partially offset by improvements in coal sales volumes.
Full-Year 2007 Financial Results
Net sales and revenues from continuing operations decreased 2.5 percent versus the prior year. The decline in revenues primarily reflects lower metallurgical coal pricing versus the prior period, higher demurrage costs and the insurance claim revenue in the prior year, partially offset by a 0.4 million ton improvement in metallurgical tons sold and the addition of TRI.
Operating income from continuing operations was $184.3 million, down 28.5 percent, excluding the insurance claim income. The decrease in full-year operating income was driven by the revenue impacts described above, higher depreciation expense, increased post-retirement benefits expense and increased losses at Kodiak Mining.
Fourth Quarter Results by Operating Group Natural Resources & Sloss
The Natural Resources & Sloss group generated combined revenues of $199.0 million in the fourth quarter, up $37.1 million versus the same period last year, excluding the insurance claim revenue. The increase in revenues from the prior year was the result of a 0.5 million ton increase, to 1.6 million tons, in metallurgical coal tons sold in the current period and the addition of TRI, partially offset by a 15.6 percent reduction in metallurgical coal prices, which included a $4.18 per ton increase in demurrage charges. Metallurgical coal sales prices (in short tons, FOB port) averaged $85.73 in the fourth quarter compared to $101.59 during the same period last year.
Natural Resources & Sloss reported combined operating income of $40.7 million in the fourth quarter, compared to $44.5 million in the prior-year period without the insurance claim income. Operating income in the current- year period reflects the revenue impacts noted above along with $4.0 million in losses at Kodiak, partially offset by cost improvements on higher production volumes.
"Our Natural Resources business continues to deliver outstanding results, with Mine Nos. 4 and 7 both producing record tonnage for the full year," said Jim Walter Resources Chief Executive Officer George R. Richmond. "In 2008, our internal expansion initiatives will drive significant increases in metallurgical coal production, as we will add a third longwall at Southwest "A" in the second half of the year. In addition, we are developing the first longwall panel in 7-East and we expect to begin longwall mining late in the first quarter or early in the second quarter 2009."
Richmond added, "Demand for our high-quality coking coal remains very strong and market pricing continues to escalate. We have settled a portion of our new contracts at record-high prices and we have 1.6 million tons of calendar 2008 volume still to be priced."
Mine No. 4 produced 0.8 million tons in the current-year period compared to 0.6 million tons in last year's fourth quarter, primarily as a result of improved longwall efficiency. Mine No. 4's cost per ton was $38.81, an improvement of $1.08 per ton versus the prior-year period, reflecting the higher production volumes partially offset by increased labor costs.
Mine No. 7 produced 0.8 million tons in the fourth quarter 2007 versus 0.6 million tons in the same period last year, as the longwall mined in a section of thicker coal during the current period and as continuous miner tons were higher in conjunction with development of the Southwest "A" panel. Fourth quarter production costs at Mine No. 7 were $46.73 per ton versus $43.75 per ton in the prior-year period. The cost per ton increase reflects higher expenses associated with the less-than-optimal mix of continuous miner tons to longwall tons, along with higher labor costs in the current year.
Richmond added, "Along with our record production performance, I am pleased with our safety achievements in 2007. Reportable accidents declined 25 percent versus 2006. In addition, Mine No. 4 reported its best-ever safety performance and both mines continued to track well below the national average for lost-time incident rates."
Natural Gas
The natural gas business sold 1.8 billion cubic feet of gas at an average price of $7.78 per thousand cubic feet in the fourth quarter 2007 compared to sales of 1.9 billion cubic feet at an average price of $8.44 per thousand cubic feet in the prior-year period. The decline in natural gas volumes primarily reflects reduced output from Mine No. 5, which completed production at the end of 2006. The decrease in average price was primarily due to the expiration of more favorable hedges executed in the prior-year period.
Sloss
Sloss Industries generated fourth quarter revenues of $34.5 million, up 13.5 percent versus the prior-year period as additional furnace coke tons were sold at higher spot prices. Operating income rose $1.8 million from the prior- year period on increased furnace and foundry coke volumes and pricing, as well as improved plant performance in the current-year period. Results in the prior-year period included a $1.2 million insurance recovery.
"Similar to the met coal market, conditions for our furnace and foundry coke business have improved dramatically versus previous years. We have achieved significantly higher furnace and foundry coke pricing in 2008, with a substantial portion falling to the bottom line," said Richmond. "As a result, within the Walter Industries portfolio of businesses, Sloss will deliver operating income second only to Jim Walter Resources."
Financing & Homebuilding
The Financing & Homebuilding group reported combined revenues of $114.4 million in the fourth quarter, down 8.3 percent versus the prior-year period. The decrease was primarily the result of fewer unit completions at Homebuilding, partially offset by increases in average net selling prices. Results in the fourth quarter 2007 also included a favorable adjustment at Financing of $3.8 million related to loan origination costs that had been deferred in prior periods and amortized at a more rapid pace than required.
Combined operating income for Financing & Homebuilding was $12.7 million, down $1.6 million versus last year's fourth quarter and down $1.3 million, excluding the deferred loan origination cost adjustment this year and a $4.1 million post-retirement benefits expense curtailment gain in the prior year. These results reflect fewer Homebuilding unit completions, lower prepayment income and higher provision for losses, partially offset by significantly improved Homebuilding gross margins. Gross margins improved 590 basis points in the fourth quarter versus the same period last year, primarily on increased pricing and continued improvements in cycle times. The Company strengthened its allowance for losses by $1.3 million in the fourth quarter, principally reflecting weaker performance in the adjustable rate mortgage ("ARM") portion of its mortgage portfolio. At Dec. 31, 2007, the ARM portfolio was $44.7 million, less than 2.5 percent of the entire loan portfolio.
Delinquencies on the mortgage portfolio were 4.6 percent at Dec. 31, 2007, compared to 4.4 percent at Dec. 31, 2006 and 4.9 percent at Sept. 30, 2007. Delinquencies improved to 4.3 percent at Jan. 31, 2008, as performance in the fixed rate portion of the portfolio improved.
Average unit net selling prices at Homebuilding were $99,522 in the quarter, an increase of 1.9 percent versus the prior-year period. Homebuilding completed 602 units in the fourth quarter, down 15.8 percent versus the same period last year, reflecting continued weakness in sales orders. New sales orders in the quarter, net of cancellations, decreased 22.1 percent compared to the fourth quarter last year due to difficult housing and mortgage market conditions.
"Despite difficult headwinds throughout 2007, operating income for the Financing and Homebuilding business improved from $43.2 million to $44.3 million for the full year. However, the persistent weakness in new sales orders over the past six months led us to take the restructuring and reorganization actions announced today," said JWH Holding Company, LLC Chairman and CEO Mark J. O'Brien. "We have closed 36 underperforming sales centers and expect to incur approximately $6 to $8 million in restructuring charges related to these closures and related headcount reductions."
Business Outlook
The Company expects full year metallurgical coal production to be between 6.7 and 7.1 million tons in 2008, consistent with previous expectations. Production volumes in the first half of the year are expected to be between 2.8 and 3.0 million tons, with the balance in the second half. Incremental tonnage in the second half of the year is primarily associated with adding a longwall mining unit at Mine No. 7's Southwest "A" panel. Metallurgical coal production expectations are summarized below:
Metallurgical coal production (tons in millions): 2007(Actual) 2008 (Est.) 2009 (Est.) 2010 (Est.) 5.8 6.7 - 7.1 8.0 - 8.5 8.7 - 9.1
Metallurgical coal sales will reflect 2007-2008 contract pricing of $101 per metric ton (FOB Port of Mobile) on approximately 2.7 million carryover tons, primarily in the first and second quarter. While negotiations have not yet been completed, remaining metallurgical coal tonnage in 2008 will reflect significantly higher pricing. The Company will announce pricing for its 2008 - 2009 contracts once a substantial portion of these contracts have been settled.
Coal production costs per ton are expected to range between $45.00 and $50.00 per ton in 2008, reflecting a continued high ratio of continuous miner development tons to longwall tons. Cost per ton throughout the year will mirror forecasted production volumes with higher cost per ton in the first half versus the second half. The higher mix of continuous miner tons, when compared to historical averages, is expected to return to more normal levels when the Mine 7 East longwall begins operation in 2009. As a result, 2009 average costs are expected to decline by approximately $3.00 to $5.00 per ton.
Freight costs are projected to average $13.00 to $14.00 per ton. Royalties are expected to average 5.0 to 5.5 percent of revenues in 2008.
Natural gas production in 2008 is projected to range between 6.8 and 7.2 billion cubic feet.
Furnace and foundry coke volumes at Sloss are expected to total between 410,000 and 430,000 tons in 2008. Average prices are expected to increase approximately 70 percent versus 2007. Production costs are expected to increase by 8 to 10 percent in 2008.
The Company's effective tax rate is expected to be between 32 and 34 percent in 2008.
Management Change
As announced separately today, Victor P. Patrick, the Company's vice chairman and general counsel has been named to the additional role of chief financial officer, succeeding Joseph J. Troy, whom the Board of Directors has asked to focus exclusively on accelerating the implementation of separating the Financing & Homebuilding business from the remaining Walter Industries energy assets."
Conference Call Webcast
Members of the Company's leadership team will discuss Walter Industries' fourth quarter and full year 2007 results, its outlook and drivers for 2008 and other general business matters during a conference call and live Web cast to be held on Wed., Feb. 20, 2008, at 10 a.m. Eastern Standard 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 $1.2 billion and employs approximately 2,500 people. For more information about Walter Industries, please visit the Company Web site at http://www.walterind.com/.
Safe Harbor Statement
Except for historical information contained herein, the statements in this release are forward-looking and made pursuant to the safe harbor provisions of the Private Securities Litigation Reform Act of 1995. Forward-looking statements involve known and unknown risks and uncertainties that may cause the Company's actual results in future periods to differ materially from forecasted results. Those risks include, among others, changes in customers' demand for the Company's products as well as changes in costs and the availability of raw material, labor, equipment and transportation. Other risks include changes in geologic and weather conditions, changes in extraction costs and pricing in the Company's mining operations, changes in customer orders, pricing actions by the Company's competitors, changes in law, changes in the mortgage-backed capital markets and changes in economic conditions. Those risks also include the timing of and ability to execute any strategic actions that may be pursued. Risks associated with forward-looking statements are more fully described in the Company's filings with the Securities and Exchange Commission. The Company assumes no duty to update its forward-looking statements as of any future date.
WALTER INDUSTRIES, INC. AND SUBSIDIARIES CONSOLIDATED STATEMENTS OF OPERATIONS ($ in Thousands) Unaudited For the three months ended December 31, 2007 2006 Net sales and revenues: Net sales $254,228 $224,169 Interest income on instalment notes 52,715 48,758 Miscellaneous (1) 5,405 35,318 312,348 308,245 Costs and expenses: Cost of sales (exclusive of depreciation) 173,111 149,680 Depreciation 12,985 10,302 Selling, general and administrative 34,721 34,786 Provision for losses on instalment notes 5,133 2,301 Postretirement benefits (1) 6,852 320 Interest expense - mortgage-backed/ asset-backed notes 29,590 30,344 Interest expense - other debt (2) (3,088) 8,237 Debt conversion expense - 17,789 Amortization of intangibles 557 506 259,861 254,265 Income from continuing operations before income tax expense 52,487 53,980 Income tax expense (3) 12,527 25,502 Income from continuing operations 39,960 28,478 Discontinued operations (4) - 7,386 Net income $39,960 $35,864 Basic income per share: Income from continuing operations $0.77 $0.60 Discontinued operations - 0.15 Net income $0.77 $0.75 Weighted average number of shares outstanding 51,943,456 47,736,741 Diluted income per share: Income from continuing operations $0.76 $0.55 Discontinued operations - 0.14 Net income $0.76 $0.69 Weighted average number of diluted shares outstanding 52,564,599 52,464,828 (1) In 2006, miscellaneous income included $23.4 million related to the settlement of an insurance claim for a water intrusion incident at Mine No. 5 that occurred in 2005, and 2006 postretirement benefits expense included a net curtailment gain of $4.1 million. (2) In the fourth quarter of 2007, the Company capitalized interest in the amount of $10.9 million primarily related to Natural Resources' capital expansion projects. Of this amount, $8.9 million represents capitalized interest applicable to prior periods. (3) In the fourth quarter of 2007, a $3.2 million favorable adjustment to the tax provision was necessary to reduce taxes payable to amounts determined to be owed. Excluding this adjustment results in a normalized tax rate of 30.0%. In the fourth quarter of 2006, a tax benefit was not provided for $17.8 million of non-deductible debt conversion expense. Excluding this non-deductible item results in a normalized tax rate of 35.5%. (4) The Company sold its modular home manufacturing business, which operated as Crestline Homes, Inc., in May 2007. As a result, operating results of this business for the three months ended December 31, 2006 have been classified as discontinued operations. Discontinued operations for the three months ended December 31, 2006 also include the results of Mueller Water Products, Inc., which was spun off to shareholders in December 2006. WALTER INDUSTRIES, INC. AND SUBSIDIARIES RESULTS BY OPERATING SEGMENT ($ in Thousands) Unaudited For the three months ended December 31, 2007 2006 NET SALES AND REVENUES: Natural Resources (1) $164,457 $154,814 Sloss 34,524 30,422 Natural Resources and Sloss 198,981 185,236 Financing 56,839 53,126 Homebuilding (2) 57,580 71,662 Financing and Homebuilding Group 114,419 124,788 Other (1) 802 2,206 Consolidating Eliminations (1,854) (3,985) $312,348 $308,245 OPERATING INCOME (LOSS) FROM CONTINUING OPERATIONS: Natural Resources (1) $36,326 $65,339 Sloss 4,376 2,541 Natural Resources and Sloss 40,702 67,880 Financing 14,726 13,411 Homebuilding (2) (2,038) 912 Financing and Homebuilding Group 12,688 14,323 Other (1) (1,359) (2,197) Consolidating Eliminations (2,632) - Operating income from continuing operations 49,399 80,006 Other debt interest and debt conversion expense (3) 3,088 (26,026) Income from continuing operations before income tax expense $52,487 $53,980 (1) Results for 2006 have been revised to reflect the reclassification of United Land (the parent company of Kodiak and TRI) from "Other" to Natural Resources. (2) Excludes Crestline Homes, Inc., which was sold in May 2007. (3) In the fourth quarter of 2007, the Company capitalized interest in the amount of $10.9 million primarily related to Natural Resources' capital expansion projects. Of this amount, $8.9 million represents capitalized interest applicable to prior periods. WALTER INDUSTRIES, INC. AND SUBSIDIARIES CONSOLIDATED STATEMENTS OF OPERATIONS ($ in Thousands) Unaudited For the years ended December 31, 2007 2006 Net sales and revenues: Net sales $1,001,924 $1,010,464 Interest income on instalment notes 202,654 199,659 Miscellaneous 36,794 63,471 1,241,372 1,273,594 Cost and expenses: Cost of sales (exclusive of depreciation) 703,743 667,495 Depreciation 47,295 38,113 Selling, general and administrative 144,385 143,133 Provision for losses on instalment notes 13,889 9,062 Postretirement benefits 26,734 13,540 Interest expense - mortgage-backed/ asset-backed notes 119,102 118,743 Interest expense - other debt (1) 18,835 38,011 Debt conversion expense - 19,370 Amortization of intangibles 1,932 2,405 1,075,915 1,049,872 Income from continuing operations before income tax expense and minority interest 165,457 223,722 Income tax expense 51,229 71,788 Income from continuing operations before minority interest 114,228 151,934 Minority interest in net loss of affiliate - 1,000 Income from continuing operations 114,228 152,934 Discontinued operations (2) (2,229) 45,435 Net income $111,999 $198,369 Basic income (loss) per share: Income from continuing operations $2.20 $3.47 Discontinued operations (0.05) $1.04 Net income $2.15 $4.51 Weighted average number of shares outstanding 52,015,569 44,029,837 Diluted income (loss) per share: Income from continuing operations $2.18 $3.00 Discontinued operations (0.05) 0.87 Net income $2.13 $3.87 Weighted average number of diluted shares outstanding 52,489,977 52,077,356 (1) In the fourth quarter of 2007, the Company capitalized interest in the amount of $10.9 million primarily related to Natural Resources' capital expansion projects. Of this amount, $4.6 million represents capitalized interest applicable to prior years. (2) The Company sold its modular home manufacturing business, which operated as Crestline Homes, Inc., in May 2007. As a result, operating results of this business for the years ended December 31, 2007 and 2006 have been classified as discontinued operations. Discontinued operations for the year ended December 31, 2006 also include the results of Mueller Water Products, Inc., which was spun off to shareholders in December 2006. WALTER INDUSTRIES, INC. AND SUBSIDIARIES RESULTS BY OPERATING SEGMENT ($ in Thousands) Unaudited For the years ended December 31, 2007 2006 NET SALES AND REVENUES: Natural Resources (1) $640,412 $687,611 Sloss 134,918 133,033 Natural Resources and Sloss 775,330 820,644 Financing 219,736 219,551 Homebuilding (2) 245,948 242,729 Financing and Homebuilding Group 465,684 462,280 Other (1) 6,366 4,773 Consolidating Eliminations (6,008) (14,103) $1,241,372 $1,273,594 OPERATING INCOME (LOSS) FROM CONTINUING OPERATIONS: Natural Resources (1) $148,001 $252,209 Sloss 11,861 8,071 Natural Resources and Sloss 159,862 260,280 Financing 49,589 53,987 Homebuilding (2) (5,265) (10,800) Financing and Homebuilding Group 44,324 43,187 Other (1) (17,262) (21,719) Consolidating Eliminations (2,632) (645) Operating income from continuing operations 184,292 281,103 Other debt interest and debt conversion expense (3) (18,835) (57,381) Income from continuing operations before income tax expense and minority interest $165,457 $223,722 (1) Results for 2006 have been revised to reflect the reclassification of United Land (the parent company of Kodiak and TRI) from "Other" to Natural Resources. (2) Excludes Crestline Homes, Inc., which was sold in May 2007. (3) In the fourth quarter of 2007, the Company capitalized interest in the amount of $10.9 million primarily related to Natural Resources' capital expansion projects. Of this amount, $4.6 million represents capitalized interest applicable to prior years. WALTER INDUSTRIES, INC. AND SUBSIDIARIES SUPPLEMENTAL INFORMATION Unaudited For the three For the months ended years ended December 31, December 31, 2007 2006 2007 2006 Operating Data: Jim Walter Resources Tons sold by type (in thousands): Metallurgical coal, contracts 1,598 1,068 5,895 5,234 Purchased metallurgical coal - 28 96 84 Steam coal - - - 300 1,598 1,096 5,991 5,618 Average sale price per short ton: Metallurgical coal, contracts $85.73 $101.59 $92.21 $107.45 Steam coal $- $- $- $35.02 Total average $85.73 $101.59 $92.21 $103.58 Tons sold by mine (in thousands): Mine No. 4 752 362 3,159 2,224 Mine No. 7 846 532 2,722 2,506 Subtotal 1,598 894 5,881 4,730 Mine No. 5 (1) - 174 14 804 Total 1,598 1,068 5,895 5,534 Coal cost of sales (exclusive of depreciation): Mine No. 4 per ton $47.13 $60.34 $50.94 $59.89 Mine No. 7 per ton $60.74 $54.36 $64.54 $53.68 Mines No. 4 and No. 7 per ton average $54.34 $56.78 $57.23 $56.60 Mine No. 5 per ton (1) $- $67.94 $52.63 $70.56 Total average $54.34 $58.60 $57.22 $58.62 Idle mine costs (in thousands) (2) $- $667 $263 $1,249 Purchased coal costs (in thousands) $- $2,432 $8,192 $8,934 Other costs (in thousands) (3) $(491) $1,020 $9,578 $8,868 Tons of coal produced (in thousands) Mine No. 4 797 648 3,074 2,187 Mine No. 7 821 577 2,692 2,558 Subtotal 1,618 1,225 5,766 4,745 Mine No. 5 - 152 - 806 Total 1,618 1,377 5,766 5,551 Coal production costs per ton: (4) Mine No. 4 $38.81 $39.89 $38.64 $45.14 Mine No. 7 $46.73 $43.75 $53.72 $40.12 Mines No. 4 and No. 7 average $42.83 $41.71 $45.68 $42.43 Mine No. 5 $- $58.95 $- $56.64 Total average $42.83 $43.61 $45.68 $44.50 Natural gas sales, in mmcf (in thousands) 1,800 1,933 7,204 7,712 Natural gas average sale price per mmcf $7.78 $8.44 $7.81 $8.67 Natural gas cost of sales per mmcf $2.75 $2.54 $2.80 $2.69 Tuscaloosa Resources, Inc. (5) Tons sold (in thousands) 183 - 247 - Tons of coal produced (in thousands) 180 - 247 - Kodiak Tons sold (in thousands) - 7 39 11 Tons of coal produced (in thousands) 17 40 74 100 (1) Mine No. 5 ceased production in December 2006 as planned. Sales and cost of sales 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 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. (5) Tuscaloosa Resources, Inc. was acquired on August 31, 2007. Year- to- date information represent tons sold and produced from September 2007 through December 2007. WALTER INDUSTRIES, INC. AND SUBSIDIARIES SUPPLEMENTAL INFORMATION Unaudited For the three For the months ended years ended December 31, December 31, 2007 2006 2007 2006 Operating Data (continued): Sloss Industries Furnace and foundry coke tons sold 109,041 93,559 430,887 399,321 Furnace and foundry coke average sale price per ton $225.60 $221.36 $223.08 $222.04 Financing Delinquencies, as of period end 4.6% 4.4% 4.6% 4.4% Prepayment speeds 6.9% 9.9% 8.0% 10.0% Number of repossessions 388 299 1,193 1,283 Repossession rate, annualized 3.9% 2.9% 2.9% 3.0% Recovery rate on repossessions 81.5% 88.6% 84.7% 87.9% Homebuilding (excluding Crestline) New sales contracts 499 628 2,487 2,623 Cancellations 101 117 421 532 Unit completions 602 715 2,510 2,663 Average sale price $99,522 $97,703 $98,683 $90,292 Ending backlog of homes 1,085 1,642 1,085 1,642 Depreciation ($ in thousands): Natural Resources $10,275 $7,531 $36,113 $27,286 Sloss 998 896 3,822 3,623 Financing 308 356 1,174 1,387 Homebuilding 1,355 1,176 5,151 4,483 Other 49 343 1,035 1,334 $12,985 $10,302 $47,295 $38,113 Capital expenditures ($ in thousands): Natural Resources $41,970 $21,216 $144,690 $86,990 Sloss 2,729 2,060 7,019 7,761 Financing 80 74 156 295 Homebuilding 1,561 1,315 4,200 4,813 Other - - 327 480 $46,340 $24,665 $156,392 $100,339 WALTER INDUSTRIES, INC. AND SUBSIDIARIES CONDENSED CONSOLIDATED BALANCE SHEETS ($ in Thousands) Unaudited As of December 31, 2007 2006 ASSETS Cash and cash equivalents $30,614 $127,369 Short-term investments, restricted 75,851 90,042 Instalment notes receivable, net of allowance of $13,992 and $13,011, respectively 1,837,059 1,779,697 Receivables, net 81,698 85,094 Inventories 101,676 105,527 Prepaid expenses 38,340 29,727 Property, plant and equipment, net 435,035 310,163 Other assets 156,113 135,274 Goodwill 10,895 10,895 Assets of discontinued operations - 10,327 $2,767,281 $2,684,115 LIABILITIES, TEMPORARY EQUITY AND STOCKHOLDERS' EQUITY Accounts payable $72,072 $62,323 Accrued expenses 83,072 94,930 Accrued interest on debt 13,940 17,053 Debt: Mortgage-backed/asset-backed notes 1,706,218 1,736,706 Other debt 225,860 249,491 Accumulated postretirement benefits obligation 335,034 330,241 Other liabilities 216,372 189,458 Liabilities of discontinued operations - 2,005 Total liabilities 2,652,568 2,682,207 Temporary equity 4,499 - Stockholders' equity 110,214 1,908 $2,767,281 $2,684,115 WALTER INDUSTRIES, INC. AND SUBSIDIARIES CONSOLIDATED STATEMENT OF CHANGES IN STOCKHOLDERS' EQUITY AND COMPREHENSIVE INCOME FOR THE YEAR ENDED DECEMBER 31, 2007 ($ in Thousands) Unaudited Capital in Comprehen- Common Excess of sive 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 111,999 $111,999 Other comprehensive income (loss), net of tax: Change in pension and postretirement benefit plans 15,231 15,231 Net unrealized loss on hedges (8,446) (8,446) Comprehensive income $118,784 Retirement of treasury stock - (207) (259,902) Purchases of stock under stock repurchase program (5,627) (1) (5,626) Stock issued upon the exercise of stock options 1,447 1,447 Tax benefit from the exercise of stock options 2,015 2,015 Dividends paid, $0.20 per share (10,411) (10,411) Stock-based compensation (net of $4,499 temporary equity) 7,311 7,311 Other (792) - Balance at December 31, 2007 $110,214 $520 $492,533 Accumulated Other Comprehen- sive Accumulated Treasury Income Deficit Stock (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 111,999 Other comprehensive income (loss), net of tax: Change in pension and postretirement benefit plans 15,231 Net unrealized loss on hedges (8,446) Comprehensive income Retirement of treasury stock 260,109 Purchases of stock under stock repurchase program Stock issued upon the exercise of stock options Tax benefit from the exercise of stock options Dividends paid, $0.20 per share Stock-based compensation (net of $4,499 temporary equity) Other (792) Balance at December 31, 2007 $(290,986) $- $(91,853) (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 years ended December 31, 2007 2006 OPERATING ACTIVITIES Net income $111,999 $198,369 Loss (income) from discontinued operations 2,229 (45,435) Income from continuing operations 114,228 152,934 Adjustments to reconcile income from continuing operations to net cash provided by continuing operations: Provision for losses on instalment notes receivable 13,889 9,062 Depreciation 47,295 38,113 Provision for (benefit from) deferred income taxes (4,279) 15,406 Restructuring and impairment charges - 1,639 Other 27,268 12,594 Decrease (increase) in assets, net of effect of acquisition: Receivables 9,630 (29,633) Inventories 4,194 11,222 Prepaid expenses 6,636 (5,177) Instalment notes receivable, net (65,432) (33,755) Increase (decrease) in liabilities, net of effect of acquisition: Accounts payable 2,546 (213) Accrued expenses (12,846) 16,796 Accrued interest (3,113) (3,344) Cash flows provided by operating activities of continuing operations 140,016 185,644 INVESTING ACTIVITIES Acquisition (11,650) - Purchases of loans (39,900) (103,823) Principal payments received on purchased loans 34,081 45,954 Decrease in short-term investments, restricted 14,585 34,531 Additions to property, plant and equipment (156,392) (100,339) Cash proceeds from sale of property, plant, and equipment 3,258 4,273 Escrow release from prior acquisition - 10,500 Other 2,717 11,159 Cash flows used in investing activities of continuing operations (153,301) (97,745) FINANCING ACTIVITIES Issuances of mortgage-backed/ asset-backed notes 189,200 401,876 Payments of mortgage-backed/ asset-backed notes (219,793) (392,647) Retirements of other debt (1) (44,679) (200,169) Dividends paid (10,411) (6,825) Tax benefit on the exercise of employee stock options 2,015 8,310 Issuance of common stock - 168,680 Purchases of stock under stock repurchase program (5,627) - Exercise of employee stock options 1,447 4,735 Cash spun-off to Mueller Water Products - (82,145) Other 3,747 8,197 Cash flows used in financing activities of continuing operations (84,101) (89,988) Cash flows provided by (used in) continuing operations $(97,386) $(2,089) CASH FLOWS FROM DISCONTINUED OPERATIONS Cash flows provided by operating activities $630 $59,662 Cash flows used in investing activities - (80,980) Cash flows provided by financing activities - 13,391 Cash flows provided by (used in) discontinued operations $630 $(7,927) Net increase (decrease) in cash and cash equivalents $(96,756) $(10,016) Cash and cash equivalents at beginning of year $127,369 $64,424 Add: Cash and cash equivalents of discontinued operations at beginning of year 1 72,960 Net increase (decrease) in cash and cash equivalents (96,756) (10,016) Less: Cash and cash equivalents of discontinued operations at end of year - 1 Cash and cash equivalents at end of year $30,614 $127,369 (1) Includes the repayment of $7.0 million of debt assumed in the acquisition of Tuscaloosa Resources, Inc.
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