Seeking Alpha
We cover over 5K calls/quarter
Profile| Send Message|
( followers)  

Walter Industries Inc. (NYSE:WLT)

Q3 2008 Earnings Call

October 29, 2008 10:00 am ET

Executives

Mark Tubb – Vice President of Investor Relations

Victor P. Patrick – Chief Financial Officer and General Counsel

George R. Richmond – Chief Executive Officer of Jim Walter Resources

Vic Patrick – Vice Chairman, CFO

George Richmond- CEO

Analysts

James Rollyson – Raymond James

Daniel Mannes – Avondale Partners LLC

Luther Lu – FBR Capital Markets

[Robert Spivey] – The Abernathy Group

David Taylor – David P. Taylor & Company

Jeremy Sussman – Natixis Bleichroeder

Mark Caruso – Millennium Partners

Operator

Good morning. (Operator Instructions). I would now like to introduce your conference leader for today’s call, Mr. Mark Tubb Vice President of Investor Relations. Sir, you may begin.

Mark Tubb

Thanks operator good morning and thank you for joining us for Walter Industries third quarter 2008 earnings conference call. This call is being webcast live on the Internet and a recording of today’s call will be archived on our website for up to 30 days.

This morning management will discuss third quarter 2008 earnings and our business outlook. During today’s call we may refer to forward-looking statements made in yesterday’s press release, and may make these and other forward-looking statements. For more information regarding risks associated with forward looking statements please refer to the company’s SEC filings.

Today Walter Industries Vice Chairman, CFO, and General Counsel, Vic Patrick will discuss our financial results for the quarter, our consolidated outlook for the remained of 2008, and will also provide an update on our strategic actions.

Vic will also cover our results at Financing and Home Building today as JWH Holding Company Chairman and CEO, Mark O’Brien, is unable to join us. Following Vic’s remarks Jim Walter Resources CEO, George Richmond, will discuss our natural resources and Sloss businesses.

Once our management team has completed their prepared remarks we will open the call to questions from our dial in participants. At this time I will turn the call over to Vic.

Vic Patrick

Thank you, Mark, and good morning. Walter Industries recorded third quarter 2008 earnings of $0.97 per diluted share representing net income of $55 million. Operating income increased $48 million compared to the third quarter 2007, driven largely by $75 million increase of natural resources and Sloss, offset in part by a $29 million decrease in Financing and Home Building.

As we announced in the press release last night our results for the quarter included several unusual items from the Financing and Home Building businesses, including a $10.9 million goodwill impairment charge at financing, $6.5 million of asset impairments and severance cost at Home Building and $3.9 million insurance expenses resulting from the recent hurricanes.

Excluding the unusual items earnings for the third quarter 2008 would’ve been $1.27 per diluted share. Revenues and natural resources were up more than $100 million driven largely by record metallurgical coal prices in the current contract cycle.

Jim Walter Resources sold 1.1 million tons of metallurgical coal in the third quarter, at contract prices between $135 and over $315 per metric ton F.O.B. [quart]. Third quarter revenues also included sales of 300,000 tons at the old rollover $101 per ton pricing, which concludes our coal delivery commitments to that price.

Operating income at natural resources tripled in the third quarter versus last year, driven mainly by the higher met coal pricing. The increase in coal cost of sales for this year’s third quarter included higher labor, material and power costs, a significant portion of which were related to the development of the Southwest A panels and the number seven East expansion.

Financial results for United Land Corporation fell just below breakeven for the quarter. Sloss generated outstanding results in the third quarter from record contract pricing and spot sales for metallurgical coke. In the quarter, operating income at Sloss was $14.6 million on $53.7 million of revenues compared to operating income of $3.2 million on $34.5 million of revenues in the prior year period. Sloss sold also just over 101,000 tons of metallurgical coke in the third quarter 2008 compared to just over 110,000 tons in the prior year period.

Sloss experienced lower volumes primarily as a result of planned coke oven through-all repairs. These repairs were completed in September and production has returned to normal. The natural gas business generated operating income of approximately $7 million in the quarter, which was inline with prior quarters.

Consolidated capital spending in the quarter was $53.3 million, driven by continued expansion and development in natural resources. We expect to spend about $43 million in the fourth quarter, which will result in full year 2008 capital spending of about $154 million.

Our balance sheet remains in very good shape. With net debt as of September 30, 2008 of $174.4 million and a net debt to total capitalization ration of less 26%. In the next calendar year our investors can expect to see an even stronger balance sheet as our cash flow continues to reduce net debt. From a liquidity standpoint we had more than $294 million in available cash and undrawn revolver at quarter end in recognition of coal pricing strength and low financial leverage.

Last month S&P upgraded the company’s corporate credit rating to double B minus from single B plus. We expect to generate strong cash flows in 2009 from all time high metallurgical coal contract pricing, which will be enhanced by the completion of the capital spending for the number seven East expansion project. These cash flows will be available to fund organic growth, dividends and share repurchases. Under our share repurchase programs over the past several weeks we have repurchased about 1.5 million shares.

Turning to Financing and Home Building these businesses reported a combined operating loss of $17.4 million for the quarter, primarily as a result of the goodwill impairment, restructuring charges, hurricane related insurance charges, fewer unit deliveries and provision for losses.

On an operating basis Financing continues to perform well despite the difficult headwinds in the larger financial markets. Excluding the impairment and hurricane charges operating income for Financing would have been $10 million for the quarter. Delinquency rates have remained stable, increasing by only 10 basis points versus the same period last year. Additionally Financing’s remaining obligation to fund home building backlog has decreased to less than $15 million.

In early 2009 shareholders of Walter Industries will receive shares in the spin off financing business. As you know over the past few years this business has generated nearly $50 million in operating income annually or about $0.90 per Walter Industries share. As a real estate investment trust after the spin off Walter investment management company will distribute a large percentage of this income to its shareholders in the form of dividends.

At this time I’ll turn the call over to George to discuss Natural Resources and Sloss.

George Richmond

Thanks, Vic, and good morning. Look at our met coal operations, combined production at Jim Walter Resources was $1.2 million in the third quarter. Number four mine produced 700,000 tons during the quarter, down 100,000 tons from the prior year period.

The production shortfall was due to unexpected delays in receiving new shields and a replacement shearer. Had the new shields arrived on time we would’ve eliminated six idle days experienced during the quarter.

Production costs for the period were approximately $51 per ton at number four mine of which $4.36 was associated with volume variance. Excluding this, costs are in line with our expected annualized cost return.

At number seven mine we produced 500,000 tons of coal, even with the prior year. With the second longwall now operating in the Southwest A panel during the quarter we have expected significantly high production from the mine. However, longwall started producing one week later than originally scheduled and production was at a lower rate than planned due methane liberation being higher than expected. Our balance rates are improving as we progress in the panel.

Production was also affected during the period due to 12 days lost production related to a longwall move on the north panel and a two-week miner's vacation. These idle days were planned, were necessary to commission major infrastructure elements for the East expansion, including the bunker, the second hoist, and the overland conveyor.

These systems are now operating. Increases in production costs at number seven mine are essentially the result of having all the infrastructure and cost elements in place to run a two longwall mine but only achieving tons equivalent to one longwall in the period.

Our East expansion remains on track and was completed. Number seven mine will be the largest low vault metallurgical coal mine in the United States. And overall both mines are in place due to deliver record tonnages in 2008. With the expansion we expect metallurgical coal production for 2009 to be, to total between 8 and 8.4 million tons compared to a prior range of 8 to 8.5 million tons.

We are assuming the first longwall in the mine number seven East expansion will start in the late second quarter about two months later than planned; a reduction of 400,000 tons from prior expectations. We also expect to mine an additional 350,000 tons of coal in the first quarter 2009 from the Southwest A panel.

These tons were originally planned for 2008. For the first half 2009 we have 2.7 million metric tons priced as an average price of $225 FOB port and in the third quarter 2009 we expect to rollover 450,000 metric tons at an average price of $243 FOB port. Our remaining 2009 production is unpriced.

We will provide more detailed business drivers for 2009 once our business plans are complete. Sloss posted another outstanding quarter on the strength of increased coal prices. Sales for the quarter included some spot sales at $640 per ton FOB plant. As Vic mentioned, production was lower due to oven repairs. These repairs were completed and no major mention is currently scheduled for the remainder of 2008.

Before turning to the market outlook I would like to comment about safety. Our lost time incident rate continues below the national average. For third quarter 2008 our lost time incident rate at Jim Walter Resources was 3.9 compared to the most recent national average available of [4.12].

Metallurgical coal sales volumes in the quarter total 1.4 million tons. Although the steel industry is experiencing a softening in global steel demand, this is not translated into a decline in the demand for our coal.

Our fourth quarter shipments are proceeding as planned. Our metallurgical coal is used as a base coal by our customers. We believe that on weakening demand lower quality coals will be the first ones to be dropped. In such an environment we further believe that our very high quality coking coal still will be in demand and will receive premium prices as a result of customer's focus on value and use.

Industry publications have reported recent domestic settlements for low, hard and low vault high coking coal at record prices. International negotiations for the 2009, 2010 contract period have not yet started. We believe these negotiations as in past years will take place in the first quarter 2009 as customers contemplate the impact of global economic events on their businesses.

We remain confident in the underlying dynamics of our business, irrespective of current economic conditions and resulting uncertainty in the global steel industry to which illustrate. We’re very well positioned in the global metallurgical coal market. We have a premium product. Our Blue Creek coal is recognized among the highest quality hard coking coals globally. We’re very competitive in our strategic markets, South America and Europe. We consistently achieve the high end of the price range for settlements.

Long-term customer relationships are important and these relationships will work in our favor as they have in the past. Finally, over the long term, we believe global steel demand will be strong and there will be a structural deficit and the availability of high quality hard coking coal for some time to come. I will now turn the call back over to Vic to wrap up today’s call.

Vic Patrick

Thank you, George. We all know there’s been a revaluation of stock prices through out our industry. We believe that Walter Industries continues to present a significant value proposition to our shareholders.

We’re positioned to deliver a strong fourth quarter resulting in a record 2008 and the price book in the first half of 2009 is sufficient to setup a record 2009 under any reasonable pricing scenario for our unpriced tons.

We’re positioned to deliver significant free cash flows over the next several quarters driven by strong contract pricing, declining capital expenditures, and declining per ton production costs.

In addition to strong cash flows we have ample credit availability and our balance sheet is strong. As a result we’ll be able to invest in organic growth if appropriate and deliver significant returns to our shareholders in the form of dividends and share repurchases.

We have a distributed soft dividend to our shareholders resulting in the separation of our financing business early next year. Our businesses should yield a significant dividend return to its shareholders and will result in Walter Industries being a pure play natural resources energy company.

In summary we have among the highest quality coals in the world. Our customers use our Blue Creek coal as the base coal in their steel-making process. We believe that over the long term significant reinvestment in infrastructure will occur in the developed world and similarly developing nations will continue to invest in their infrastructure as they industrialize and increase their standards of living.

Our strong leverage, the global steel industry, positions us to take advantage of these global secular trends. With that we’ve completed our prepared remarks, and operator will now open the call for questions.

Question-and-Answer Session

Operator

Thank you. (Operator Instructions). Your first question today comes from James Rollyson – Raymond James.

James Rollyson – Raymond James

George, you talked a little bit about costs and kind of why they were up this quarter, obviously part of that was the lack of volume versus maybe going where it’s supposed to be going. As you jump into the fourth quarter and looking ahead to next year when you get up into this 2 to 2.1 million ton per quarter range where do you expect that kind of cost to trend back to?

And I think this year you were kind of talking production costs expectations around the high 40s to low $50 range. Thoughts on where that stands today and looking into ’09?

George Richmond

Yes, Jim, we’ve had some increases. We’ve just had a recent I think 15% power increase going into next year. We’ve also acquired a lot of increase in steel prices and diesel but some of those are moderating. We’re starting to see them down so as we put it all together we then conclude number for the fourth quarter and next year right now is 50 to 55 range on cost.

James Rollyson – Raymond James

And any, the spread between sales costs and production costs kind of bounce around from quarter to quarter any thoughts on how that looks? Transportation is obviously a big part of that, but just kind of what you're thinking right now there?

George Richmond

We’ve give the margins obviously on what we think the sales is going to be and I just give the, what I expect the selling price to be for the first and second quarter. Obviously there’s still some unpriced tons, but there’s not a significant difference in the transportation; there’s small adjustments for – it’s not material. Obviously royalties do change as we go into these higher price sales. It’s a percentage of selling price. So I do expect the higher the prices the greater the royalties. I think this year royalties is around 6% and next year we’re expecting it to be in the 7.5% to 8% range.

James Rollyson – Raymond James

Okay that’s helpful and just last question for me. You guys obviously are setup to generate some pretty strong cash fourth quarter and going into next year and I know we’ve asked this before but given the way the market looks today and how things have changed kind of what you guys thinking in terms of uses of free cash now and has that changed at all from where it might have been three or six months ago?

Vic Patrick

Well our overall view hasn’t changed. We’re being, obviously like anyone in this environment, we’re being more careful with our liquidity. Our share repurchases for example, we’re not going into the revolver to fund share repurchases. We’re doing that our of current cash flows. So I guess what I say is we’re increasing our verbals in terms of our capital spending projects, our organic growth and so on.

We want to make sure that if we’re doing a project it’s going to make sense for the markets. It’s going to be there when the project is complete. So I'd say we’re increasing our hurdles in terms of the use of cash and we’re conserving liquidity more aggressively than we normally would have. Not that we’re not conservative on that anyway, we are, but we just added a little bit of conservatism in that respect in this environment.

Operator

Your next question comes from Dan Mannes – Avondale Partners.

Dan Mannes – Avondale Partners

A couple of questions first just starting on, and I know we’re early on the negotiation side; you said they haven’t even started yet, but just one question that has been kicking around for me is the currency side. I mean, we’ve seen a massive change in the U.S. dollar both versus the Real as well as the Aussie dollar. How do you seeing that playing in and how is that played into prior negotiations on price?

George Richmond

You know at the end of the day if FBHP settled at a certain price and that’s considered the benchmark, then the rest of those based on quality will somewhat move around that cape. I think the biggest factor is if the Australian dollar significantly weakens the question is do the BHPs, etc. Are they willing to accept the same dollars in Australian dollars and therefore lower their international prices and therefore we’re – the baseline changes. So I think that’s the major effect but once the benchmark is set pretty much everything goes in Australia. It goes in U.S. dollars.

Dan Mannes – Avondale Partners

Right I mean I guess the idea being that since the beginning of the year the U.S. dollar is up, I don’t know 40% against the Australian dollar, so theoretically they can take a hair cut on price in U.S. dollar terms and be indifferent.

So I am just trying to figure out, so theoretically that should be some of – it's pretty big, pretty well into their assumptions.

George Richmond

Yes, I mean, they clearly can do that but at the end of the day they’re going to try and understand what the market will bear and take it from there.

Vic Patrick

I mean they could by why would they? I mean they’re going to maximize their price whatever that’s going to be in whatever environment they’re in.

George Richmond

And just let me add one other to that over the long period, yes, some of the currencies are down, but if you looked over the last four or five years it’s not too long ago the Australian dollar was at about $0.47. So we see these bounces but I think that’s the only major effect is whether they are willing to put coal into the at-will market it at a lower, the same Australian dollar prices but less U.S. dollars.

Dan Mannes – Avondale Partners

Just a quick question on Home Building, you did pick up some incremental impairment coup charges this quarter. Was this related to the prior severance were these incremental layoffs, shutdowns, etc.?

Vic Patrick

Incremental.

Dan Mannes – Avondale Partners

So, okay, so can you give us an estimate of what percentages of sites now have been shut down or anything like that?

Vic Patrick

Well, relative to where we were at the beginning of the year we’ve closed about half the facilities.

Dan Mannes – Avondale Partners

Right, I, okay I thought that was the, about the amount you announced you were going to do in the first quarter.

Vic Patrick

Well, that’s right, I mean the charges that we’ve taken at Home Building for the severance fees have the additional positions, and the rest of it is to mark the assets of the existing Home Building part down to fair value in the environment in which we find ourselves.

Dan Mannes – Avondale Partners

And then just one last quick question, you mentioned that United Land is – it was currently at or slightly below breakeven.

Vic Patrick

Right.

Dan Mannes – Avondale Partners

Can you give us some color, the costs, sort of the non-operating costs or the non-Kodiak and mining costs. Are there a significant amount of operating costs there or are those mines actually running at break even?

George Richmond

Yes, the mine, lets check TRI. I think that’s the best conclusion. It’s the biggest one, okay. When we bought it the mine looked like it was operating at about $7.5 million EBITDA. The selling price was around about $60 a ton and the margins came from that production costs, a little over 50.

The breakeven is really come, nothing has changed, the mine is running quite well. The difference of why the break even today is really some fairly big increases in diesel and explosive costs which is eating up the profit. We are now seeing obviously decreases in diesel costs and explosives so some of that margin will come back.

But going forward into the next year we’ve already announced and we don’t want to give an update on where we are in the market, but what we previously announced was we’ve sold approximately, after production, right about $100 a ton. So on that production that’s a $40 margin I think you can work from there it’s going to look quite nice as a business next year.

Operator

Thank you. Our next question comes from the Luther Lu – FBR Capital Markets.

Luther Lu – FBR Capital Markets

Wondering if you guys could provide some color on your natural gas hedge for next year?

George Richmond

Yes, we have a percentage that’s through March I think it’s probably, I don’t know 50%, 60%. About 50% to 60%; we have not been hedged after March.

Luther Lu – FBR Capital Markets

Okay. Who priced the hedge?

George Richmond

About $8.50 an MCF.

Luther Lu – FBR Capital Markets

Okay. And, can you guys give us an update on the coke pricing perhaps for what you think the coke pricing will be for 2009?

George Richmond

No, we are not, oh, coke pricing, I’m sorry I thought you said coal. We’re in the middle of our coke discussions for 2009 so we won’t normally give that number until we’re settled a substantial part of it. We’re right in the middle of those discussions right now. We’ll come out and announce coke pricing as soon as a substantial part of that business has been settled.

Luther Lu – FBR Capital Markets

Okay. But is there indication that the prices are weaker or stronger than this year?

George Richmond

Well, obviously we’ve seen, I mean, look at the worldwide business. We have seen a weakening of coke prices out of China, but even at $500 and by the time you transport that coke to U.S. or other places it is still a substantial price when we have to match it on a delivered basis into the U.S. But I don’t want to go any further than that. We have seen some weakening out of China but that doesn’t totally reflect the same sense of reduction or increase in our coke sales.

Luther Lu – FBR Capital Markets

Okay and last question is on the your coking coal shipment to Europe, can you give us a breakdown of how much is to Western Europe how much is to Eastern Europe and what – are you seeing any difference in the customer wanting coal on this stage?

George Richmond

Virtually all of our European coal goes to Western Europe with one exception. There’s one customer, a large customer, that does the right to move, once we’ve loaded the coal, they have the right to move it anywhere so sometimes that goes into South America or South Africa or sometimes into, once in a while into Eastern Europe. And obviously the other one is where we have a fairly large customer in Turkey. But most, from a European point of view, it virtually all goes into Western Europe.

Operator

(Operator Instructions). Your next question comes from [Robert Spivey] – The Abernathy Group.

[Robert Spivey] – The Abernathy Group

The first question I have for you guys is kind of a piggyback of the, one of the first questions you had. You mentioned that you expect costs to be in the $50 to $55 range long-term probably or the metallurgical coal mines.

And also in this quarter mine forwards are on $51. Knowing that mine seven this quarter was a little funky, for your point that you were investing in a lot of infrastructure and you guys didn’t get a lot pulled out, what do you guys expect your long-term costs to kind of run for mine seven compared to mine five?

So that when we’re understanding that $50 to $55 range, what’s your expectation for mine four and mine seven if we were to split those up?

George Richmond

Yes, in general if you look at the – try and look at the number seven mine as two number four mines. It is twice the size. It’s got two longwalls and they have twice as many sections. So generally the mines will be of similar cost, doubling the volume of number seven versus number four, with an exception. I always expect number seven mine to be a couple of dollars a ton, $2 to $3 a ton more than number four mine purely because the mining conditions of the mine.

The coal tends to be somewhat thinner therefore we mine more rock and it has more wear and tear on the equipment. So round about 50 to 55 and obviously we expect number four mine to be the lower range, at the lower end of that range, and number seven min to be two, three bucks more.

[Robert Spivey] – The Abernathy Group

I got you and to kind of switch directions then a quick question about Sloss. You guys gave some discussion about having to take down some of the coke ovens for maintenance. Do you have any color on any incremental maintenance you’re going to have to do through the remainder of this year and early next year? And, also, those are relatively old assets, so what do you think is the realistic life remaining on those assets?

George Richmond

Okay, one, we are not going to take any more coke ovens down this year. Two, we traditionally take down a few of them sometime during the year. We may have three or four ovens down for a one to two months period during the year. The reason we do that is we have a long-term maintenance program and that’s what it takes.

We examine them every year and do a few, and the object is to keep the ovens running for a long time. So I don’t want to put an exact 5, 10, 15, 20 years worth. They have a lot of life left providing we continue to do this annualized maintenance.

[Robert Spivey] – The Abernathy Group

And the last question I have is you guys are obviously one of the largest in the U.S. exporters of metallurgical coal and a lot of what we have been hearing about in the last few weeks at least about why the world is all going to hell is that letters of credit have been freezing up and all these issues in financing.

One, has that been affecting you at all, and two, if you guys can give us some color since you guys are always kind of out there on how you’ve seen it effect the market as a whole? That would be really helpful.

George Richmond

Okay, well, obviously we don’t, we’re not – we don’t full understand every announcement that may come out on reductions of steel. I mean there's been a lot, but first of all in the short term every boat that we have planned to load we’ve either got lay days or nominations already so that for the fourth quarter, obviously there's some effect in the world's steel-making it and there will be some reductions in the demand for coal but so far it’s unaffected us.

As we go forward I think the story rarely changes in this business from a metallurgical point of view. We traditionally see the very, very high quality coals demand, commanding a margin over other coals.

Over the last years negotiations we saw some metallurgical coals, and I’m using that term very loosely, that commanded $300 a ton. They clearly do not create value and use and they will be the first coals to drop out.

Also I would imagine we will start to see some greater margins between the semi-soft, which is basically a steam coal that’s been washed to a higher level, to a better quality. I mean $250 versus very, very high quality $300 coal the margins I believe have got to spread, so I think we will see some coals dropping out.

I think the base coals are some what protected; there's still not a lot of new volume coming on. On the same footing we don’t know how long this downturn is going to be and how much steel production it's eventually going to effect.

Vic Patrick

I think another aspect of this question was how do credit issues fit in with everything that George was just talking about and it’s certainly true that you see on the individual country basis some banks filling up on their willingness to take country risks and respective letters of credit. We haven’t faced that issue so much because of the kind of thing George was just talking about.

As our customers who all seem, who all tend to be very strong financially and good shape in terms of their liquidity and available cash flows, but as our customers have to choose where they are going to put the bang for their LC International buck they’re going to choose the highest quality coal because those are the base coals for their steel-making and so that would tend to favor us relative to competition as, if that factor became more key.

[Robert Spivey] – The Abernathy Group

I see. Well, just, clarification because we note there are a lot of different ways that you can trade internationally, are you guys involved with letters of credit or do you guys have different ways that your buyers finance their purchases from you?

George Richmond

We use a few letters of credit depending upon the customer. We spend a lot of time obviously looking at where we need to put LCs and where we don’t. We also have a lot of open accounts which have, that tend to be the very, very strong customers. We’re somewhat selective and I guess that’s the best way to say it.

Operator

(Operator Instructions). Your last question today comes from David Taylor – David P. Taylor & Company.

David Taylor – David P. Taylor & Company

Can you, do you have a handle on when the S-4 on the spin out is going to be filed?

Vic Patrick

I would expect that that would be shortly. When you’re dealing with lawyers and accountants you don’t, being a lawyer myself I can say this, you don’t – you tend to be hedge your bets a little bit but we really should be able to get that in within the next week or two.

Operator

Excuse me gentlemen, we do have one final question from Jeremy Sussman – Natixis Bleichroeder

Jeremy Sussman – Natixis Bleichroeder

You mentioned that your higher quality coal is likely to hold up a bit better in sort of a falling price environment. Just wondering if you could give us, first give us a sense of how much lower quality met coal you think is at risk domestically of going back into the steam market and then maybe give us a sense of where you think marginal cost of production is both for the lower quality and the higher quality coals here? Thank you.

George Richmond

Yes I don’t think I have spent a lot of time on some of the higher coals, but let me just try and talk about our product. The U.S. produces approximately 24, 20, 24 million tons of low vault coal a year.

And the mine, there may have been a small amount added to that, but the major five mines have never really changed and I think everybody knows those mines. So there’s not been – that coal always goes into the met market and continues to go and it really is not a – it doesn’t change the depending upon the international market.

Clearly there’s some higher [balls], coals that have gone into the international market, particularly, out of Appalachia and as we see either prices are dropping for those products or the demand dropping the only really option is to switch them back to the domestic steam market.

To give you a good handle on the percentage that I really can’t. We try and really focus on our markets and our – we have a little Australia and Canada are really our major competition in the world markets.

Operator

Gentlemen, we do have another question from Mark Caruso – Millennium Partners.

Mark Caruso – Millennium Partners

I just had a follow-up question; I apologize as I got on late. Do you guys go over sort of what you are thinking for Sloss if things do weaken? I know early in the year, George, you'd kind of joked on the calls saying you know Sloss had a great year, last quarter I think is was even. And I just kind of want to get a sense of how things will play out on the Sloss side if things do weaken a little bit here?

George Richmond

I don’t think we can give a lot of color on it. Sloss's production nest year will be at the similar range to this year; the 400, 000 to the 420,000. Obviously their margins and their profitability is going to be clearly dependent upon the negotiations in both coke and coal.

And we are right in the middle of looking at those numbers right now. But just let me remind you about a third of Sloss's coal comes from Jim Walters Resources and so they’ve been getting coal at a relatively reasonable price compared to the time we set for last year.

So even if coal prices go up next year that just adds, it just really switches revenues and income from Jim Walters Resources to – from Sloss to Jim Walter Resources. But we really don’t want to give a lot of color we don’t want to handicap ourselves in these negotiations.

Mark Caruso – Millennium Partners

And then one question I know everybody’s sort of tried to ask about the coking negotiations but I just wanted to get a sense of how you see the landscape right now. Obviously we all know about what’s going on with the economy and [inaudible] but I wanted to see what you, on the production side, as you look at sort of the global landscape and I know you just made the comment of obviously the higher quality coals like yours will end up deserving a premium.

But I just wanted to see – we’ve seen some of your competitors have some issues, so their domestic mines and don’t have a real good feel necessarily as far as internationally if you're seeing that. So I just want to see supply and demand as where we stand right now as things are still relatively tight, your quality coal or just kind of get a better feel for that?

George Richmond

I think over any medium to long-term view the very high quality coals are always going to be in short supply for a long time. We, over the short term above the [inaudible] quarter ,demand is not slackened off for us. All the boats we plan to load with either received lay days or nominations and they’re pretty much stacked up.

So whether there is a short, we really don’t know how deep this thing is going to go but I think if you’d look at the numbers we quote, we clearly have got a contract for a very nice, for significant part of our production during the first half of the year. And that’s being contracted so we do have some time to see where this situation is going.

Operator

At this time we have no further questions.

Vic Patrick

All right thank you very much. Thank you everyone for your interest in Walter Industries and that concludes our call for this morning.

Operator

This does conclude today’s conference you may disconnect at this time.

Copyright policy: All transcripts on this site are the copyright of Seeking Alpha. However, we view them as an important resource for bloggers and journalists, and are excited to contribute to the democratization of financial information on the Internet. (Until now investors have had to pay thousands of dollars in subscription fees for transcripts.) So our reproduction policy is as follows: You may quote up to 400 words of any transcript on the condition that you attribute the transcript to Seeking Alpha and either link to the original transcript or to www.SeekingAlpha.com. All other use is prohibited.

THE INFORMATION CONTAINED HERE IS A TEXTUAL REPRESENTATION OF THE APPLICABLE COMPANY'S CONFERENCE CALL, CONFERENCE PRESENTATION OR OTHER AUDIO PRESENTATION, AND WHILE EFFORTS ARE MADE TO PROVIDE AN ACCURATE TRANSCRIPTION, THERE MAY BE MATERIAL ERRORS, OMISSIONS, OR INACCURACIES IN THE REPORTING OF THE SUBSTANCE OF THE AUDIO PRESENTATIONS. IN NO WAY DOES SEEKING ALPHA ASSUME ANY RESPONSIBILITY FOR ANY INVESTMENT OR OTHER DECISIONS MADE BASED UPON THE INFORMATION PROVIDED ON THIS WEB SITE OR IN ANY TRANSCRIPT. USERS ARE ADVISED TO REVIEW THE APPLICABLE COMPANY'S AUDIO PRESENTATION ITSELF AND THE APPLICABLE COMPANY'S SEC FILINGS BEFORE MAKING ANY INVESTMENT OR OTHER DECISIONS.

If you have any additional questions about our online transcripts, please contact us at: transcripts@seekingalpha.com. Thank you!

Copyright policy: All transcripts on this site are the copyright of Seeking Alpha. However, we view them as an important resource for bloggers and journalists, and are excited to contribute to the democratization of financial information on the Internet. (Until now investors have had to pay thousands of dollars in subscription fees for transcripts.) So our reproduction policy is as follows: You may quote up to 400 words of any transcript on the condition that you attribute the transcript to Seeking Alpha and either link to the original transcript or to www.SeekingAlpha.com. All other use is prohibited.

THE INFORMATION CONTAINED HERE IS A TEXTUAL REPRESENTATION OF THE APPLICABLE COMPANY'S CONFERENCE CALL, CONFERENCE PRESENTATION OR OTHER AUDIO PRESENTATION, AND WHILE EFFORTS ARE MADE TO PROVIDE AN ACCURATE TRANSCRIPTION, THERE MAY BE MATERIAL ERRORS, OMISSIONS, OR INACCURACIES IN THE REPORTING OF THE SUBSTANCE OF THE AUDIO PRESENTATIONS. IN NO WAY DOES SEEKING ALPHA ASSUME ANY RESPONSIBILITY FOR ANY INVESTMENT OR OTHER DECISIONS MADE BASED UPON THE INFORMATION PROVIDED ON THIS WEB SITE OR IN ANY TRANSCRIPT. USERS ARE ADVISED TO REVIEW THE APPLICABLE COMPANY'S AUDIO PRESENTATION ITSELF AND THE APPLICABLE COMPANY'S SEC FILINGS BEFORE MAKING ANY INVESTMENT OR OTHER DECISIONS.

If you have any additional questions about our online transcripts, please contact us at: transcripts@seekingalpha.com. Thank you!

Source: Walter Industries, Inc. Q3 2008 Earnings Call Transcript
This Transcript
All Transcripts