Walter Industries stated last week that it has taken “several critical steps” towards ultimately separating its financing and home building businesses from its core natural resources and coke and fiber operations.
In its quarterly filing with the U.S. Securities and Exchange Commission, the Tampa, Fla.-based corporation said it expected to complete the spinoffs by the end of this year, although it provided no specifics about what form the separations might take, or if they would occur together or apart. Walter Industries said that its tax, legal, and investment banking advisors are currently working on devising “structures” of the spinoffs.
On May 1, the company stopped offering financing to new home buyers through its Walter Mortgaging Co., which will continue to service its existing $1.8 billion portfolio. In its quarterly financial statement, Walter Industries generated only $499,000 in net income, from $32.1 million a year ago. It attributed that decline to “the unprecedented disruption in the residential mortgage market.” Michael O’Brien, who runs Walter’s home building and finance units, told the St. Petersburg Times that “right now, you cannot finance the origination of mortgage assets, short-term or long-term, no matter what the quality.” The company’s homebuilding division, Jim Walter Homes, is transitioning to a third-party financing model that would include government-sponsored loans such as those offered by Fannie Mae or insured by FHA. Walter Industries suggested that this model might allow Jim Walter to build homes that could be priced substantively higher than its $99,000 average last year.
The prospective spinoff of Jim Walter Homes isn’t really a surprise, given that Walter Industries announced last February that it was closing 36 of the builder’s 83 sales branches, for which it took a $6.8 million restructuring charge against earnings. In the quarter ended March 31, Jim Walter Homes recorded an operating loss of $14.2 million, during which it completed nearly 30 percent fewer homes and its revenue fell 35.5 percent, to $40.1 million, from the same period in 2007.
Prior to making its announcement about the spinoff, Walter Industries had projected that Jim Walter Homes would complete between 1,600 and 1,800 on-your-lot homes in 2008, compared with 2,594 units competed in 2007 and 3,047 in 2006.