- Company Reports Fourth Quarter Net Income of $240.3 Million, or $4.37 per Diluted Share -
- Fourth Quarter Results Include Benefit of $3.36 per Diluted Share and Charges of $0.72 per Diluted Share in Unusual Items -
- Mine No. 4 and Mine No. 7 Post Record Full-Year Metallurgical Coal Production -
- Production Outlook from Current Coal Operations Remains Stable; Startup Timing of Previously Announced Expansion Projects Under Review -
TAMPA, Fla., Feb. 16 /PRNewswire-FirstCall/ -- Walter Industries, Inc. (NYSE: WLT), a leading producer and exporter of U.S. metallurgical coal for the global steel industry, today reported net income of $240.3 million, or $4.37 per diluted share, for the quarter ended Dec. 31, 2008, and net income for the full year 2008 of $346.6 million, or $6.35 per diluted share. This compares to $40.0 million, or $0.76 per share in the fourth quarter 2007 and $112.0 million, or $2.13 per diluted share, for the full year 2007.
"We reported outstanding operating results in the fourth quarter with revenues from our core natural resources businesses nearly doubling and operating income more than tripling compared to the fourth quarter last year," said Walter Industries Chairman Michael T. Tokarz. "The quality of our Blue Creek coal continues to provide stability in our core metallurgical coal business, despite difficult conditions in the global steel industry. Looking ahead, we are excited that we will see the culmination of our strategy to transform Walter Industries into a 'pure play' natural resources and energy company in 2009."
Fourth Quarter 2008 Financial Results
Net sales and revenues for the fourth quarter 2008 totaled $447.3 million, up 43.2 percent from the prior-year period. Income from continuing operations before income taxes for the fourth quarter 2008 totaled $132.0 million compared to $56.5 million in the fourth quarter 2007, an increase of 133.7 percent. Revenue and income from continuing operations before income taxes in the current period improved primarily due to the record metallurgical coal and coke pricing.
Results for the fourth quarter 2008 include charges of $0.72 per diluted share related to the following:
- The decision to close Homebuilding resulted in a pre-tax charge of $7.4 million for impairment charges and severance benefits.
- The closure of United Land's Kodiak mine resulted in a $21.3 million pre-tax impairment charge, which is included in the loss from discontinued operations.
- A required valuation of the recently acquired Taft business resulted in a pre-tax charge of $32.4 million for impairment of mineral interests.
Results for the quarter also included the benefit of $3.36 per diluted share for the following:
- The recognition of an income tax benefit of $167.0 million, or $3.04 per diluted share, which was also related to the decision to close the Homebuilding business.
- A pre-tax credit of $26.9 million was recorded for a Black Lung Excise Tax refund claim.
Full-Year 2008 Financial Results
For the full year 2008, net sales and revenues were $1.5 billion, a 19.9 percent increase versus the prior year. The increase in revenues primarily reflects higher metallurgical coal and coke pricing versus the prior year and revenues from the additional surface mining operations acquired in late 2007 and in 2008.
Income from continuing operations before income taxes for the full year was $292.3 million, an increase of 59.5 percent. The increase in full-year operating results was driven by the higher metallurgical coal and coke pricing, partially offset by higher production costs at Jim Walter Resources and the effect of unusual items.
Fourth Quarter Operating Results
Jim Walter Resources
Metallurgical coal sales were 1.7 million tons in the fourth quarter at an average selling price of $167.19 per short ton FOB Port, versus $85.73 in the prior-year period. Sales were negatively impacted by dredging activities and weather conditions at the Port of Mobile, resulting in delayed shipments of approximately 0.2 million tons until early January 2009. Realized prices increased significantly versus the prior-year period, reflecting a mix of contracts with pricing at approximately $135 and $315 per metric ton FOB Port in the current-year period.
"Our premium Blue Creek Coal generated record pricing in the fourth quarter," said Jim Walter Resources Chief Executive Officer George R. Richmond. "For the full year 2008, our metallurgical coal mines produced record tonnage, with the No. 7 Mine producing more than a million tons in the fourth quarter as a result of the addition of the Southwest 'A' longwall."
Metallurgical coal production at Mine No. 4 totaled just over 0.7 million tons in the fourth quarter, contributing to a record 3.2 million tons for the full year. Mine No. 4's production cost per ton in the quarter was $51.59, in line with expectations and also in line with the third quarter 2008. Mine No. 4's full-year production costs averaged $45.52 per ton.
Mine No. 7 produced 1.1 million tons of coal in the fourth quarter 2008, representing a 31.4 percent increase over the prior-year period. Production costs at Mine No. 7 were $52.74 per ton, in line with expectations and significantly lower than the past several quarters, as the operation of the second longwall has substantially lowered cost per ton.
United Land
United Land sold 362,000 tons of steam and industrial coal during the fourth quarter and produced 348,000 tons, compared to sales of 183,000 tons and production of 180,000 tons in the prior-year period. Increases are attributable to the acquisition of Taft Coal Sales & Associates in the third quarter 2008.
Sloss
Sloss sold 97,927 tons of metallurgical coke at an average price of $391.28 per ton compared to 109,041 tons at $225.60 per ton in the prior-year period. Operating results improved significantly compared to the prior-year period, driven by the substantial increase in price, which was offset to some degree by higher raw material coal costs and a decrease in volume. Sales volumes declined month-to-month during the fourth quarter 2008, mirroring trends in the steel industry.
Natural Gas
The natural gas business sold 1.8 billion cubic feet of gas, even with the prior year, at an average price of $7.92 per thousand cubic feet in the fourth quarter 2008 compared to an average price of $7.78 per thousand cubic feet in the prior-year period.
Other Operations
The Financing business reported fourth quarter revenues of $48.7 million, compared to $56.8 million in the prior-year period. Revenues decreased primarily on lower payment income resulting from a lower portfolio balance. Financing reported operating income of $8.1 million in the fourth quarter 2008 compared to operating income of $14.7 million in the 2007 fourth quarter. Operating income declined primarily due to lower revenues and increased provision for loan losses, partially offset by lower interest expense on mortgage-backed/asset-backed notes. Delinquencies on the mortgage portfolio were 5.4 percent at Dec. 31, 2008, compared to 4.6 percent at Dec. 31, 2007.
The Homebuilding business reported an operating loss of $13.4 million in the fourth quarter 2008, primarily resulting from significantly lower revenues, as well as restructuring and impairment charges associated with the previously announced closure of that business.
The Company continues to make progress on the previously announced spin-off of its Financing business and merger with Hanover Capital Mortgage Holdings, which is expected to occur in the second quarter 2009.
Corporate and Other
As of Dec. 31, 2008, the Company had available liquidity of about $394 million, including cash of about $118 million and $276 million available under its credit facility. Total net debt outstanding at Dec. 31, 2008 was $107.7 million compared to $195.2 million at the end of the prior year.
The Company repurchased 1.38 million shares for $50.1 million during the fourth quarter 2008 and 1.63 million shares for $64.6 million for the full year 2008.
Business Outlook
Given the current limited visibility in the outlook for the global steel industry, the Company will communicate detailed operating expectations only for the first quarter 2009, as shown in the following schedule:
Metallurgical Coal Sales Q4-2008 A Q1-2009 E
Tons Sold (short tons, in millions) 1.7 1.4 - 1.5
Average Operating Margin Per Ton (1) $77.04 $55 - $60
Steam & Industrial Coal Sales Q4-2008 A Q1-2009 E
Tons Sold (short tons) 362,000 360,000 - 375,000
Average Operating Margin Per Ton (2) $5.84 $7 - $10
Coke Sales Q4-2008 A Q1-2009 E
Tons Sold 97,927 50,000 - 55,000
Average Operating Margin Per Ton $125.02 $27 - $29
Quarter-to-quarter variability in timing, availability and pricing of
shipments may result in significant shifts in income between quarters.
(1) 2008 excludes $26.9 million related to the Black Lung Excise Tax
refund claim
(2) 2008 excludes a $32.4 million asset impairment charge at United
Land's Taft subsidiary
First quarter 2009 metallurgical coal sales expectations are based on shipments to date and the shipping schedules agreed upon with the Company's customers for the rest of the quarter. These sales are reduced by 250,000 tons due to concerns about availability of coal at the Port of Mobile as a result of a two-week rail disruption. Anticipated metallurgical coal margins reflect the expected mix of pricing in the first quarter. This takes into consideration the deferral of some higher-priced tons into the second half of the year, as the Company works with customers to manage their coal requirements and cash flow, while maintaining contract pricing.
Metallurgical coal production is expected to range between 1.7 - 1.9 million tons in the first quarter, reflecting the continuation of production from Mine No. 7's Southwest "A" longwall through the completion of the panel. Given recently communicated volume requirements and corresponding shipping schedules from its customers, the Company expects continued stable production through the first half of 2009. However, given current market conditions, the Company plans to delay the start up of the Mine No. 7 East expansion until at least Sept. 1, 2009. The Company will continue to monitor the market closely to determine an appropriate start date for this project.
The metallurgical coal average operating margin per ton reflects estimated production costs of $50 - $55 per ton, along with freight costs of approximately $15 per ton and royalties of approximately 7 - 8 percent, all in line with previously communicated expectations.
The Company will defer start up of United Land's Flat Top and Reid School surface mining projects until a later date. For 2009, United Land has 90 percent of its expected steam and industrial coal production under contract.
Expected results at Sloss include a significant reduction in coke sales volumes, reflecting the slowdown in steel production. While foundry coke pricing is expected to remain relatively stable, furnace coke prices are projected to be significantly lower than 2008's realized prices.
During 2009, the Company expects to spend approximately $100 million for sustaining capital expenditures, including approximately $23 million for the completion of Mine No. 7 East.
Conference Call Webcast
Members of the Company's leadership team will discuss Walter Industries' fourth quarter and full-year 2008 results, its outlook for 2009 and other general business matters during a conference call and live Web cast to be held on Tuesday, Feb. 17, 2009, at 10 a.m. Eastern Standard Time. To listen to the event live or in archive, visit the Company Web site at 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 business. The Company has annual revenues of approximately $1.5 billion and employs approximately 2,400 people. For more information about Walter Industries, please visit the Company Web site at www.walterind.com.
Additional Information and Where to Find It
In connection with the proposed spin-off of the Financing business of Walter Industries, Inc. through its wholly-owned subsidiary, Walter Investment Management LLC, a wholly-owned subsidiary of Walter Industries, Inc. and the proposed merger of Walter Investment Management LLC with Hanover Capital Mortgage Holdings, Inc. and certain related transactions, Hanover Capital Mortgage Holdings, Inc. filed a registration statement on Form S-4 containing a preliminary proxy statement/prospectus with the SEC (Registration No. 333-155091), and Hanover Capital Mortgage Holdings, Inc. will be filing other documents regarding the proposed transaction with the SEC as well. BEFORE MAKING ANY VOTING OR INVESTMENT DECISION, INVESTORS ARE URGED TO READ THE FINAL PROXY STATEMENT/PROSPECTUS REGARDING THE PROPOSED TRANSACTION AND ANY OTHER RELEVANT DOCUMENTS CAREFULLY IN THEIR ENTIRETY WHEN THEY BECOME AVAILABLE BECAUSE THEY WILL CONTAIN IMPORTANT INFORMATION ABOUT THE PROPOSED TRANSACTION. The final proxy statement/prospectus will be mailed to stockholders of Hanover Capital Mortgage Holdings, Inc. and Walter Industries, Inc. Stockholders will be able to obtain a free copy of the proxy statement/prospectus, as well as other filings containing information about Hanover Capital Mortgage Holdings, Inc. and Walter Industries, Inc., without charge, at the SEC's Internet site (http://www.sec.gov). Copies of the proxy statement/prospectus and the filings with the SEC that will be incorporated by reference in the proxy statement/prospectus can also be obtained, without charge, at Hanover Capital Mortgage Holdings, Inc.'s Web site (http://www.hanovercapitalholdings.com).
Walter Industries and Hanover and their respective directors and executive officers and other persons may be deemed to be participants in the solicitation of proxies in respect of the proposed merger and related transactions. Information regarding Walter Industries' directors and executive officers is available in Walter Industries' proxy statement for its 2008 annual meeting of stockholders and Walter Industries' 2007 Annual Report on Form 10-K, which were filed with the SEC on March 19, 2008, and March 7, 2008, respectively, and information regarding Hanover's directors and executive officers is available in Hanover's proxy statement for its 2008 annual meeting of stockholders and Hanover's 2007 Annual Report on Form 10-K, which were filed with the SEC on April 24, 2008, and April 2, 2008, respectively. Other information regarding the participants in the proxy solicitation and a description of their direct and indirect interests, by security holdings or otherwise, is contained in Hanover's proxy statement/prospectus and other materials referred to in Hanover's proxy statement/prospectus.
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, including expressions such as "believe," "anticipate," "expect," "estimate," "intend," "may," "will," and similar expressions involve known and unknown risks, uncertainties, and other factors that may cause Walter Industries' or Hanover's actual results in future periods to differ materially from the expectations expressed or implied by such forward-looking statements. These factors include, among others, the following: the market demand for Walter Industries' and Hanover's products as well as changes in costs and the availability of raw material, labor, equipment and transportation; changes in weather and geologic conditions; changes in extraction costs, pricing and assumptions and projections concerning reserves in Walter Industries' mining operations; changes in customer orders; pricing actions by Walter Industries' and Hanover's competitors, customers, suppliers and contractors; changes in governmental policies and laws; further changes in the mortgage-backed capital markets; changes in general economic conditions; and the successful implementation and anticipated timing of any strategic actions and objectives that may be pursued, including the announced separation of the Financing business from Walter Industries. In particular, the separation of Walter Industries' Financing business is subject to a number of closing conditions which may be outside of Walter Industries' control. Forward- looking statements made by Walter Industries' in this release, or elsewhere, speak only as of the date on which the statements were made. Any forward-looking statements should be considered in context with the various disclosures made by Walter Industries and Hanover about our respective businesses, including the Risk Factors described in Walter Industries' 2007 Annual Report on Form 10-K, the Risk Factors described in Hanover's 2007 Annual Report on Form 10-K, and each of Walter Industries' and Hanover's other filings with the Securities and Exchange Commission. Neither Walter Industries nor Hanover undertakes any obligation 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,
------------------
2008 2007
---- ----
Net sales and revenues:
Net sales $379,786 $254,228
Interest income on notes 44,119 52,715
Miscellaneous (1) 23,413 5,385
------ -----
447,318 312,328
------- -------
Costs and expenses:
Cost of sales (exclusive of
depreciation) (1) 180,669 169,569
Depreciation 19,032 12,518
Selling, general and administrative 32,869 34,686
Provision for losses on instalment notes 8,381 5,133
Postretirement benefits 6,711 6,852
Interest expense - mortgage-backed/asset-
backed notes 23,682 29,590
Interest expense - other debt (2) 3,849 (3,090)
Amortization of intangibles 271 557
Restructuring and impairment
charges (3), (4) 39,808 -
------ ------
315,272 255,815
------- -------
Income from continuing operations before
income taxes 132,046 56,513
Income tax expense (benefit) (4) (125,217) 13,766
-------- ------
Income from continuing operations 257,263 42,747
Discontinued operations (5) (16,958) (2,787)
------- ------
Net income $240,305 $39,960
======== =======
Basic income (loss) per share:
Income from continuing operations $4.72 $0.82
Discontinued operations (0.31) (0.05)
----- ------
Basic net income per share $4.41 $0.77
===== =====
Weighted average number of shares
outstanding 54,534,083 51,943,456
========== ==========
Diluted income (loss) per share:
Income from continuing operations $4.68 $0.81
Discontinued operations (0.31) (0.05)
----- ------
Diluted net income per share $4.37 $0.76
===== =====
Weighted average number of diluted shares
outstanding 54,944,493 52,564,599
========== ==========
(1) During the quarter ended December 31, 2008, miscellaneous income
includes $17.1 million of interest income, while cost of sales has
been reduced by $9.8 million, both relating to a Black Lung Excise
Tax refund claim.
(2) During the quarter ended December 31, 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) Restructuring and impairment charges for the quarter ended December
31, 2008 includes $32.4 million to write down the value of Taft's
coal mineral interest to estimated fair value as a result of a
significant decline in forecasted future coal pricing as compared
to similar forecasts as of the September 2, 2008 acquisition date.
(4) In the fourth quarter ended December 31, 2008, the decision to close
Homebuilding resulted in a charge of $7.4 million for severance
benefits and asset impairments and the recognition of an income tax
benefit of $167.0 million related to the deemed liquidation of this
business for tax purposes.
(5) In December 2008, the Company announced the closure of Kodiak Mining
Co. ("Kodiak"). As a result, the operating results of Kodiak have
been presented as discontinued operations for all periods. Included
in discontinued operations for the quarter ended December 31, 2008
is a pre-tax charge of $21.3 million primarily relating to the
impairment of mining equipment and facilities.
WALTER INDUSTRIES, INC. AND SUBSIDIARIES
RESULTS BY OPERATING SEGMENT
($ in Thousands)
Unaudited
For the three
months
ended December 31,
------------------
2008 2007
---- ----
NET SALES AND REVENUES:
Natural Resources (1) $343,387 $164,437
Sloss 48,356 34,524
------ ------
Natural Resources and Sloss 391,743 198,961
Financing 48,689 56,839
Homebuilding 16,184 57,580
------ ------
Financing and Homebuilding Group 64,873 114,419
Other 805 802
Consolidating eliminations of intersegment
activity (10,103) (1,854)
------- ------
$447,318 $312,328
======== ========
SEGMENT OPERATING INCOME (LOSS):
Natural Resources (1) $136,689 $40,350
Sloss 12,243 4,376
------ -----
Natural Resources and Sloss 148,932 44,726
Financing 8,149 14,726
Homebuilding (2) (13,354) (2,038)
------- ------
Financing and Homebuilding Group (5,205) 12,688
Other (7,338) (1,359)
Consolidating eliminations of intersegment
activity (494) (2,632)
---- ------
Segment operating income 135,895 53,423
Other debt interest expense (3) (3,849) 3,090
------ -----
Income from continuing operations before
income taxes $132,046 $56,513
======== =======
(1) Results for 2007 have been revised to exclude Kodiak, which is
reported as discontinued operations.
(2) In the fourth quarter ended December 31, 2008, the decision to close
Homebuilding resulted in a charge of $7.4 million for severance
benefits and asset impairments. Results will be reflected as
discontinued operations when contractual commitments to complete
the construction of homes have been fulfilled, which is expected to
be substantially complete by June 30, 2009.
(3) During the quarter ended December 31, 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 year ended
December 31,
------------
2008 2007
---- ----
Net sales and revenues:
Net sales $1,263,834 $1,000,411
Interest income on instalment notes 187,094 202,654
Miscellaneous 36,142 36,756
------ ------
1,487,070 1,239,821
--------- ---------
Cost and expenses:
Cost of sales (exclusive of depreciation) 729,833 686,326
Depreciation 59,772 45,559
Selling, general and administrative 142,912 144,186
Provision for losses on instalment notes 21,315 13,889
Postretirement benefits 26,494 26,734
Interest expense - mortgage-backed/asset-
backed notes 102,115 119,102
Interest rate hedge ineffectiveness (1) 16,981 -
Interest expense - other debt 26,223 18,830
Amortization of intangibles 1,278 1,932
Provision for estimated hurricane insurance
losses (2) 3,853 -
Restructuring and impairment charges (3) 63,958 -
------ ------
1,194,734 1,056,558
--------- ---------
Income from continuing operations before
income taxes 292,336 183,263
Income tax expense (benefit) (4) (75,798) 58,261
------- ------
Income from continuing operations 368,134 125,002
Discontinued operations (5) (21,554) (13,003)
------- -------
Net income $346,580 $111,999
======== ========
Basic income (loss) per share:
Income from continuing operations $6.84 $2.40
Discontinued operations (0.40) (0.25)
----- -----
Net income $6.44 $2.15
===== =====
Weighted average number of shares
outstanding 53,791,058 52,015,569
========== ==========
Diluted income (loss) per share:
Income from continuing operations $6.74 $2.38
Discontinued operations (0.39) (0.25)
----- -----
Net income $6.35 $2.13
===== =====
Weighted average number of diluted shares
outstanding 54,584,672 52,489,977
========== ==========
(1) During the quarter ended March 31, 2008, the Company recognized a
loss of $17.0 million for the ineffectiveness of interest rate
hedges held by Financing that were intended to hedge an April 2008
securitization of instalment notes receivable. Unfavorable market
conditions precluded an April 2008 securitization and management
could not predict when such a securitization might occur.
These hedges were settled on April 1, 2008 and no similar hedges
remain outstanding at December 31, 2008.
(2) During the quarter ended September 30, 2008, Financing recorded a
provision totaling $3.9 million for estimated insurance losses
related to Hurricanes Gustav and Ike.
(3) Restructuring and impairment charges were as follows in 2008:
Taft write down of mineral interest
to estimated fair value $32,387
Homebuilding closure-related asset
impairments and severance obligations 20,676
Financing goodwill write-off 10,895
------
$63,958
=======
(4) The results for the year ended December 31, 2008 include a
tax benefit of $167.0 million resulting from the deemed
liquidation, for tax purposes, of the Homebuilding group.
(5) In December 2008, the Company announced the closure of Kodiak
Mining Co. ("Kodiak"). As a result, the operating results of
Kodiak have been presented as discontinued operations for all
periods. In addition, a pre-tax charge of $21.3 million is
included in discontinued operations for the quarter ended
December 31, 2008 primarily relating to the impairment of
mining equipment and facilities. Discontinued operations in
2007 also includes the results of Crestline Homes, Inc.,
which was sold in May 2007.
WALTER INDUSTRIES, INC. AND SUBSIDIARIES
RESULTS BY OPERATING SEGMENT
($ in Thousands)
Unaudited
For the year ended
December 31,
------------
2008 2007
---- ----
NET SALES AND REVENUES:
Natural Resources (1) $988,385 $638,861
Sloss 206,230 134,918
------- -------
Natural Resources and Sloss 1,194,615 773,779
Financing 202,702 219,736
Homebuilding 118,541 245,948
------- -------
Financing and Homebuilding Group 321,243 465,684
Other 3,968 6,366
Consolidating eliminations of intersegment
activity (32,756) (6,008)
------- ------
$1,487,070 $1,239,821
========== ==========
SEGMENT OPERATING INCOME (LOSS):
Natural Resources (1) $321,781 $165,802
Sloss 60,672 11,861
------ ------
Natural Resources and Sloss 382,453 177,663
Financing (2) 10,986 49,589
Homebuilding (3) (43,925) (5,265)
------- ------
Financing and Homebuilding Group (32,939) 44,324
Other (29,803) (17,262)
Consolidating eliminations of intersegment
activity (1,152) (2,632)
------ ------
Segment operating income 318,559 202,093
Other debt interest expense (26,223) (18,830)
------- -------
Income from continuing operations before
income tax expense $292,336 $183,263
======== ========
(1) Results for 2007 have been revised to exclude Kodiak, which is
reported as discontinued operations.
(2) In 2008, Financing recorded a loss of $17.0 million for the
ineffectiveness of interest rate hedges that were intended to
hedge an April 2008 securitization of instalment notes receivable.
Results for 2008 also include a $10.9 million impairment of
goodwill and a $3.9 million provision for estimated hurricane
insurance losses related to Hurricanes Gustav and Ike.
(3) During 2008, Homebuilding recorded charges totaling $20.7 million
related to asset impairment and severance obligations arising from
restructuring actions, including the previously announced closure
of the business. Results will be reflected as discontinued
operations when contractual commitments to complete the
construction of homes have been fulfilled, which is
expected to be substantially complete by June 30, 2009.
WALTER INDUSTRIES, INC. AND SUBSIDIARIES
SUPPLEMENTAL INFORMATION
Unaudited
For the three For the year
months ended ended
December 31, December 31,
-------------- ------------
2008 2007 2008 2007
---- ---- ---- ----
Operating Data:
Jim Walter Resources
Tons sold by type (in thousands):
Metallurgical coal, contracts 1,583 1,598 5,844 5,895
Purchased metallurgical coal 126 - 490 96
----- ----- ----- -----
1,709 1,598 6,334 5,991
===== ===== ===== =====
Average sale price per short ton:
Metallurgical coal, contracts $167.19 $85.73 $130.95 $92.21
Coal cost of sales (exclusive of
depreciation):
Mine No. 4 per ton $69.08 $47.13 $61.60 $50.94
Mine No. 7 per ton $65.00 $60.74 $77.82 $64.54
Mines No. 4 and No. 7 per ton
average $66.71 $54.34 $68.81 $57.23
Mine No. 5 per ton (1) $- $- $- $52.63
Total average $66.71 $54.34 $68.81 $57.22
Purchased coal costs (in thousands) $7,740 $- $28,150 $8,328
Other costs (in thousands) (2) $5,971 $(491) $16,650 $9,705
Tons of coal produced (in thousands)
Mine No. 4 715 797 3,188 3,074
Mine No. 7 1,079 821 2,852 2,692
----- --- ----- -----
Total 1,794 1,618 6,040 5,766
===== ===== ===== =====
Coal production costs per ton: (3)
Mine No. 4 $51.59 $38.81 $45.52 $38.64
Mine No. 7 $52.74 $46.73 $67.48 $53.72
Total average $52.28 $42.83 $55.89 $45.68
Natural gas sales, in mmcf (in
thousands) 1,781 1,800 6,625 7,204
Natural gas average sale price
per mmcf $7.92 $7.78 $8.39 $7.81
Natural gas cost of sales per mmcf $2.93 $2.75 $3.32 $2.80
United Land (4)
Tons sold (in thousands) 362 183 1,069 247
Tons of coal produced (in thousands) 348 180 1,049 247
(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) Consists of charges (credits) not directly allocable to a specific
mine. Increase in other costs as compared to 2007 includes
increased idle mine costs, unfavorable reclamation costs, higher
freight and increased royalties.
(3) 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.
(4) United Land includes Tuscaloosa Resources, Inc., which was acquired
on August 31, 2007, and Taft Coal Sales and Associates, Inc.,
which was acquired on September 2, 2008. It excludes Kodiak Mining
Co., which is reported as discontinued operations.
WALTER INDUSTRIES, INC. AND SUBSIDIARIES
SUPPLEMENTAL INFORMATION
Unaudited
For the three For the
months ended year ended
December 31, December 31,
--------------- ------------
2008 2007 2008 2007
---- ---- ---- ----
Operating Data (continued):
Sloss Industries
Metallurigical coke
tons sold 97,927 109,041 409,457 430,887
Metallurigical coke average
sale price per ton $391.28 $225.60 $393.66 $223.08
Financing
Delinquencies, as of
period end 5.4% 4.6% 5.4% 4.6%
Prepayment speeds 3.2% 6.9% 4.7% 8.0%
Number of repossessions 323 388 1,170 1,193
Repossession rate,
annualized 3.4% 3.9% 3.0% 2.9%
Recovery rate on
repossessions 78.2% 81.5% 83.2% 84.7%
Homebuilding
(excluding Crestline)
New sales contracts 187 499 1,149 2,487
Cancellations 160 101 561 421
Unit completions 146 598 1,252 2,494
Average contractual
sales price $120,274 $99,522 $101,538 $98,683
Average revenue per
home sold (1) $99,736 $95,657 $89,747 $97,773
Ending backlog of homes 421 1,085 421 1,085
Depreciation ($ in
thousands):
Natural Resources $17,372 $9,808 $51,476 $34,377
Sloss 1,119 998 4,152 3,822
Financing 85 308 416 1,174
Homebuilding 238 1,355 2,814 5,151
Other 218 49 914 1,035
--- -- --- -----
$19,032 $12,518 $59,772 $45,559
======= ======= ======= =======
Capital expenditures ($ in
thousands):(2)
Natural Resources $33,842 $40,782 $134,415 $140,210
Sloss 1,333 2,729 6,904 7,019
Financing 12 80 217 156
Homebuilding 240 1,561 1,650 4,200
Other 96 274 308 327
-- --- --- ---
$35,523 $45,426 $143,494 $151,912
======= ======= ======== ========
(1) Includes the effect of the discount required to record instalment
notes receivable at estimated market value.
(2) Includes the acquisition of property, plant and equipment under
capital lease and other obligations totaling $16.4 million and
$41.7 million during the quarter and year ended
December 31, 2008, respectively.
WALTER INDUSTRIES, INC. AND SUBSIDIARIES
CONDENSED CONSOLIDATED BALANCE SHEETS
($ in Thousands)
Unaudited
As of December 31,
2008 2007
---- ----
ASSETS
Cash and cash equivalents $117,672 $30,614
Short-term investments, restricted 56,275 75,198
Instalment notes receivable, net of
allowance of $18,969
and $13,992, respectively 1,769,688 1,837,059
Receivables, net 176,601 81,011
Inventories 133,129 97,324
Prepaid expenses 26,418 36,005
Property, plant and equipment, net 515,418 414,463
Other assets 266,125 159,064
Goodwill - 10,895
Assets of discontinued operations 6,667 25,648
----- ------
$3,067,993 $2,767,281
========== ==========
LIABILITIES AND STOCKHOLDERS' EQUITY
Accounts payable $72,801 $71,930
Accrued expenses 91,213 83,050
Accrued interest on debt 11,362 13,940
Debt:
Mortgage-backed/asset-backed notes 1,372,821 1,706,218
Other debt 225,385 225,860
Accumulated postretirement benefits obligation 369,055 335,034
Other liabilities 293,759 216,007
Liabilities of discontinued operations 1,328 529
----- ---
Total liabilities 2,437,724 2,652,568
Stockholders' equity 630,269 114,713
------- -------
$3,067,993 $2,767,281
========== ==========
WALTER INDUSTRIES, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENT OF CHANGES IN STOCKHOLDERS' EQUITY
AND COMPREHENSIVE INCOME
FOR THE YEAR ENDED DECEMBER 31, 2008
($ in Thousands)
Unaudited
Capital in
Common Excess of
Total Stock Par Value
----- ----- ---------
Balance at December 31, 2007 $114,713 $520 $497,032
Comprehensive income:
Net income 346,580
Other comprehensive income
(loss), net of tax:
Change in pension and
postretirement benefit plans (50,961)
Change in unrealized gain
(loss) on hedges, net of
taxes 6,710
Comprehensive income
Effects of changing the
pension plan measurement date
pursuant to FASB 158:
Service cost, interest cost, and
expected return on plan assets
for October 1 -
December 31, 2007, net of taxes (4,604)
Amortization of actuarial gain
and prior service cost for
October 1 -
December 31, 2007, net of taxes 668
Purchases of stock
under stock
repurchase programs (64,644) (16) (64,628)
Proceeds from public
stock offering (1) 280,464 32 280,432
Stock issued upon the
exercise of stock
options 7,993 4 7,989
Stock issued upon
conversion of
convertible notes 785 1 784
Dividends paid, $0.30
per share (16,233) (16,233)
Stock-based
compensation 10,439 10,439
Other (1,641) (1,641)
------ ---- ------
Balance at December 31, 2008 $630,269 $541 $714,174
======== ==== ========
Accumulated
Retained Other
Comprehensive Earnings Comprehensive
Income (Deficit) Income (Loss)
------ --------- -------------
Balance at December 31, 2007 $(290,986) $(91,853)
Comprehensive income:
Net income $346,580 346,580
Other comprehensive income
(loss), net of tax:
Change in pension and
postretirement benefit plans (50,961) (50,961)
Change in unrealized
gain (loss) on hedges,
net of taxes 6,710 6,710
-----
Comprehensive income $302,329
========
Effects of changing the
pension plan measurement
date pursuant to FASB 158:
Service cost, interest cost,
and expected return on plan
assets for October 1 -
December 31, 2007, net
of taxes (4,604)
Amortization of actuarial gain
and prior service cost for
October 1 - December 31, 2007,
net of taxes 668
Purchases of stock under
stock repurchase programs
Proceeds from public stock
offering (1)
Stock issued upon the
exercise of stock options
Stock issued upon conversion
of convertible notes
Dividends paid, $0.30 per share
Stock-based compensation
Other
------- ---------
Balance at December 31, 2008 $50,990 $(135,436)
======= =========
(1) In June, the Company completed an offering of 3.2 million shares of
its common stock at $90.75 per share and received $280.5 million in
proceeds net of underwriting discounts and offering expenses.
WALTER INDUSTRIES, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS
($ in Thousands)
Unaudited
For the year ended
December 31,
------------------
2008 2007
---- ----
OPERATING ACTIVITIES
Net income $346,580 $111,999
Loss from discontinued operations 21,554 13,003
------ ------
Income from continuing operations 368,134 125,002
Adjustments to reconcile income from continuing
operations to net cash flows provided
by operating activities net of
effects of business acquisitions:
Provision for losses on instalment notes
receivable 21,315 13,889
Depreciation 59,772 45,559
Provision for (benefit from) deferred income
taxes (92,520) (7,066)
Non cash restructuring and impairment charges 61,459 -
Other 12,276 27,241
Decrease (increase) in assets:
Receivables (96,506) 9,282
Inventories (34,340) 4,825
Prepaid expenses 23,878 8,021
Instalment notes receivable, net 31,415 (65,432)
Increase (decrease) in liabilities:
Accounts payable (816) 2,439
Accrued expenses 2,833 (12,832)
Accrued interest (2,578) (3,113)
------ ------
Cash flows provided by operating activities 354,322 147,815
------- -------
INVESTING ACTIVITIES
Acquisitions, net of cash acquired (1) (17,932) (11,650)
Purchases of loans - (39,900)
Principal payments received on purchased loans 14,641 34,081
Decrease in short-term investments, restricted 18,923 14,584
Additions to property, plant and equipment (2) (101,813) (151,913)
Other 8,099 5,975
----- -----
Cash flows used in investing activities (78,082) (148,823)
------- --------
FINANCING ACTIVITIES (2)
Issuances of mortgage-backed/asset-backed notes 25,000 189,200
Payments of mortgage-backed/asset-backed notes (358,458) (219,793)
Proceeds from issuances of other debt 340,000 -
Retirements of other debt (398,709) (44,679)
Proceeds from stock offering 280,464 -
Purchases of stock under stock repurchase
program (64,644) (5,627)
Other (11,061) (3,202)
------- ------
Cash flows used in financing activities (187,408) (84,101)
-------- -------
Cash flows provided by (used in)
continuing operations 88,832 (85,109)
------ -------
CASH FLOWS FROM DISCONTINUED OPERATIONS
Cash flows provided by (used in)
operating activities 2,695 (7,169)
Cash flows used in investing activities (4,469) (4,478)
------ -------
Cash flows used in discontinued operations (1,774) (11,647)
------ -------
Net increase (decrease) in cash and cash
equivalents $87,058 $(96,756)
------- --------
Cash and cash equivalents at beginning of year $30,614 $127,369
Add: Cash and cash equivalents of
discontinued operations at beginning of year - 1
Net increase (decrease) in cash and cash
equivalents 87,058 (96,756)
------- --------
Cash and cash equivalents at end of year $117,672 $30,614
======== =======
(1) On September 2, 2008, the Company acquired Taft Coal Sales &
Associates, Inc. for a cash payment of $17.1 million, net of
$3.0 million of cash acquired. The fair value of assets acquired
and liabilities assumed totaled $71.7 million and $51.6 million,
respectively. On August 31, 2007, the Company acquired Tuscaloosa
Resources, Inc. for a cash payment of $11.7 million, net of
$0.4 million of cash acquired. The fair value of the assets acquired
and liabilities assumed totaled $26.3 million and $14.2 million,
respectively.
(2) Non-cash investing and financing activities include the acquisition of
property, plant and equipment under capital lease and other
obligations totaling $41.7 million in 2008 and one-year property
insurance financing totaling $13.9 million and $12.5 million in 2008
and 2007, respectively.
