WALTER INDUSTRIES INC /NEW/, S-1/A, 1995-08-09

WALTER INDUSTRIES INC /NEW/
S-1/A, 1995-08-09
GENERAL BLDG CONTRACTORS - RESIDENTIAL BLDGS

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As filed with the Securities and Exchange Commission on August 9, 1995

Registration No. 33-59013

===============================================================================
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
______________________________

AMENDMENT NO. 1 TO

FORM S-1
REGISTRATION STATEMENT
UNDER
THE SECURITIES ACT OF 1933
______________________________
WALTER INDUSTRIES, INC.
(Exact name of registrant as specified in charter)
<TABLE><CAPTION>
<S> <C> <C>
Delaware 6711 13-3429953
(State or other jurisdiction of (Primary Standard Industrial (IRS Employer
incorporation or organization) Classification Code Number) Identification Number)
</TABLE>

1500 North Dale Mabry Highway
Tampa, FL 33607
(813) 871-4811
(Address, including zip code, and telephone number, including area code,
of registrant's principal executive offices)
______________________________
Kenneth J. Matlock
Executive Vice President and Chief Financial Officer
Walter Industries, Inc.
1500 North Dale Mabry Highway
Tampa, FL 33607
(813) 871-4531

(Name, address, including zip code, and telephone number, including area code,
of agent for service)
______________________________

Copy of all communications, including service of process, to:
Peter J. Gordon, Esq.
Simpson Thacher & Bartlett
425 Lexington Avenue
New York, NY 10017-3909
______________________________

Approximate date of commencement of proposed sale to the public:
From time to time after the effective date of this Registration Statement.
If any of the securities being registered on this Form are to be offered on a
delayed or continuous basis pursuant to Rule 415 under the Securities Act of
1933, please check the following box. /X/

If this Form is filed to register additional securities for an offering
pursuant to Rule 462(b) under the Securities Act, please check the following
box and list the Securities Act registration statement number of the earlier
effective registration statement for the same offering. / / ______________

If this Form is a post-effective amendment filed pursuant to Rule 462(c) under
the Securities Act, check the following box and list the Securities Act
registration statement number of the earlier effective registration statement
for the same offering. / / ______________

If delivery of the prospectus is expected to be made pursuant to Rule 434,
please check the following box. / /

______________________________
<PAGE>
<TABLE><CAPTION>

CALCULATION OF REGISTRATION FEE
Proposed Proposed
Maximum Maximum
Title of each Amount Offering Aggregate Amount of
Class of Securities to be Price Offering Registration
to be Registered Registered per Share(1) Price(1)(2) Fee(2)
<S> <C> <C> <C> <C>
Common Stock, par value $.01 31,446,414 $15.38 $396,981,105 $136,890.03
per share shares
</TABLE>

(1) Estimated solely for the purpose of calculating the registration fee.

(2) A registration fee of $114,197.73 was previously paid on May 2, 1995, the
time of the initial filing of this Registration Statement, in respect of
27,167,631 shares of Common Stock at an estimated proposed maximum
offering price of $12.19 per share, or $331,173,422 in the aggregate for
all such shares. Accordingly, an additional filing fee of $22,692.30 in
respect of the 4,278,783 additional shares of Common Stock included hereby
is being paid in connection with the filing of this Amendment No. 1,
calculated on the basis of an estimated proposed maximum offering price of
$15.38 per additional share, or $65,807,683 in the aggregate for all such
additional shares.

The registrant hereby amends this Registration Statement on such date
or dates as may be necessary to delay its effective date until the registrant
shall file a further amendment which specifically states that this Registration
Statement shall thereafter become effective in accordance with Section 8(a) of
the Securities Act of 1933 or until the Registration Statement shall become
effective on such date as the Commission, acting pursuant to said Section 8(a),
may determine.

<PAGE>
WALTER INDUSTRIES, INC.

Registration Statement on Form S-1

Cross Reference Sheet Pursuant to Item 501(b) of Regulation S-K Showing
the Location in the Prospectus of the Information Required by Part 1 of Form
S-1

PROSPECTUS

Form S-1 Item and Heading Caption or Location in
------------------------------ ----------------------
Prospectus
----------

1. Forepart of the Front Cover Page
Registration Statement
and Outside Front Cover
Page of Prospectus

2. Inside Front and Outside Inside Front Cover Page;
Back Cover Page of Outside Back Cover Page
Prospectus

3. Summary Information and Prospectus Summary; Certain
Risk Factors Risk Factors; The Company;
Recent History; Selected
Historical Consolidated
Financial Data

4. Use of Proceeds Not Applicable

5. Determination of Offering Inside Front Cover Page; Plan
Price of Distribution

6. Dilution Not Applicable

7. Selling Security Holders Selling Security Holders

8. Plan of Distribution Inside Front Cover Page; Plan
of Distribution

9. Description of Securities Description of Capital Stock;
to be Registered Certain Federal Income Tax
Consequences

10. Interests of Named Legal Matters; Experts
Experts and Counsel

11. Information with Respect Outside Front Cover Page;
to the Registrant Prospectus Summary; Certain
Risk Factors; The Company;
Recent History;
Capitalization; Selected
Historical Consolidated
Financial Data; Management's
Discussion and Analysis of
Financial Condition and
Results of Operations;
Business and Properties;
Management; Security Ownership
of Management and Principal
Stockholders; Description of
Certain Indebtedness;
Description of Capital Stock

12. Disclosure of Commission Not Applicable
Position on
Indemnification for
Securities Act
Liabilities

<PAGE>

SUBJECT TO COMPLETION, DATED AUGUST 9, 1995

PROSPECTUS
----------

31,446,414 Shares

WALTER INDUSTRIES, INC.

Common Stock

This Prospectus relates to the offering from time to time of up to
31,446,414 shares (the "Shares") of Common Stock, par value $.01 per share (the
"Common Stock"), that were issued by Walter Industries, Inc. (the "Company" or
"Walter Industries"), a Delaware corporation formerly named Hillsborough
Holdings Corporation, to certain former creditors and stockholders of the
Company and its subsidiaries pursuant to the Company's Amended Joint Plan of
Reorganization dated as of December 9, 1994, as modified on March 1, 1995 (as
so modified, the "Plan of Reorganization"), under Section 1123(a) of the United
States Bankruptcy Code (the "Bankruptcy Code"). The Plan of Reorganization
became effective on March 17, 1995 (the "Effective Date of the Plan of
Reorganization"). Pursuant to the Plan of Reorganization, 50,494,313 shares of
Common Stock, including the Shares, were issued.

The Shares may be sold to the public from time to time by certain holders
thereof (the "Selling Security Holders") in the amount and in the manner
described herein or as may be set forth in a Prospectus Supplement accompanying
this Prospectus. The Company will receive no proceeds from the sale of any of
the Shares by any of the Selling Security Holders. See "Plan of Distribution."
______________________________

SEE "CERTAIN RISK FACTORS" FOR INFORMATION CONCERNING CERTAIN RISKS
ASSOCIATED WITH AN INVESTMENT IN ANY OF THE SHARES.

Through the date hereof, there has been no established public trading
market for the Common Stock. Pursuant to the Plan of Reorganization, the Common
Stock was issued to a limited number of investors. Application will be made to
list the Common Stock on the National Association of Securities Dealers
Automated Quotation System ("NASDAQ") National Market System ("NASDAQ/NMS").
There can be no assurance that any active trading market will develop or will
be sustained for the Common Stock or as to the price at which the Common Stock
may trade or that the market for the Common Stock will not be subject to
disruptions that will make it difficult or impossible for the holders of Common
Stock to sell shares in a timely manner, if at all, or to recoup their
investment in the Common Stock. See "Certain Risk Factors -- Liquidity; Absence
of Public Market."

______________________________

THESE SECURITIES HAVE NOT BEEN APPROVED OR DISAPPROVED BY THE SECURITIES
AND EXCHANGE COMMISSION OR ANY STATE SECURITIES COMMISSION NOR HAS THE
SECURITIES AND EXCHANGE COMMISSION OR ANY STATE SECURITIES COMMISSION PASSED
UPON THE ACCURACY OR ADEQUACY OF THIS PROSPECTUS. ANY REPRESENTATION TO THE
CONTRARY IS A CRIMINAL OFFENSE.
______________________________

The date of this Prospectus is August , 1995

[End of Cover Page]

<PAGE>

INFORMATION CONTAINED HEREIN IS SUBJECT TO COMPLETION OR AMENDMENT. A
REGISTRATION STATEMENT RELATING TO THESE SECURITIES HAS BEEN FILED WITH THE
SECURITIES AND EXCHANGE COMMISSION. THESE SECURITIES MAY NOT BE SOLD NOR MAY
OFFERS TO BUY BE ACCEPTED PRIOR TO THE TIME THE REGISTRATION STATEMENT BECOMES
EFFECTIVE. THIS PROSPECTUS SHALL NOT CONSTITUTE AN OFFER TO SELL OR THE
SOLICITATION OF AN OFFER TO BUY NOR SHALL THERE BE ANY SALE OF THESE SECURITIES
IN ANY STATE IN WHICH SUCH OFFER, SOLICITATION OR SALE WOULD BE UNLAWFUL PRIOR
TO REGISTRATION OR QUALIFICATION UNDER THE SECURITIES LAWS OF ANY SUCH STATE.

<PAGE>

The Selling Security Holders directly, through agents designated from time
to time, or through dealers or underwriters also to be designated, may sell the
Shares from time to time on terms to be determined at the time of sale. To the
extent required, the specific Shares to be sold, the names of the Selling
Security Holders, the respective purchase prices and public offering prices,
historical trading information for the Common Stock, the names of any such
agent, dealer or underwriter, and any applicable commissions or discounts with
respect to a particular offer will be set forth in an accompanying Prospectus
Supplement. See "Plan of Distribution." If the Company is advised that an
underwriter has been engaged with respect to the sale of any Shares offered
hereby, or in the event of any other material change in the plan of
distribution, the Company will cause an appropriate amendment to the
Registration Statement of which this Prospectus forms a part to be filed with
the Securities and Exchange Commission (the "Commission") reflecting such
engagement or other change. See "Additional Information." Each of the Selling
Security Holders reserves the sole right to accept and, together with its
agents from time to time, to reject in whole or in part any proposed purchase
of Shares to be made directly or through agents.

The Company will not receive any proceeds from this offering, but agreed
to pay substantially all of the expenses of this offering other than applicable
transfer taxes and commissions and discounts payable to dealers, agents or
underwriters. The Selling Security Holders and any broker-dealers, agents or
underwriters that participate with the Selling Security Holders in the
distribution of the Shares may be deemed to be "underwriters" within the
meaning of the Securities Act of 1933, as amended (the "Securities Act"), and
any commissions received by them and any profit on the resale of the Shares
purchased by them may be deemed to be underwriting commissions or discounts
under the Securities Act. See "Description of Capital Stock -- Common Stock
Registration Rights Agreement" and "Plan of Distribution" for a description of
certain indemnification arrangements.

3
<PAGE>
AVAILABLE INFORMATION

When the Registration Statement of which this Prospectus forms a part was
declared effective by the Commission, the Company became subject to the
informational requirements of the Securities Exchange Act of 1934, as amended
(the "Exchange Act"), and in accordance therewith became obligated to file
reports and other information with the Commission. Reports and other
information concerning the Company may be inspected and copied at the public
reference facilities maintained by the Commission at Room 1024, 450 Fifth
Street, N.W., Washington, D.C. 20549, and at the regional offices of the
Commission located at Suite 1400, 500 West Madison Street, Chicago, Illinois
60661 and at Suite 1300, 7 World Trade Center, New York, New York 10048. Copies
of such material can also be obtained from the Public Reference Section of the
Commission at 450 Fifth Street, N.W., Washington, D.C. 20549 upon payment of
the fees prescribed by the Commission. If and when the Common Stock is listed
on NASDAQ/NMS, such reports and other information also could be inspected at
the offices of the National Association of Securities Dealers, Inc., 1735 K
Street, N.W., Washington, D.C. 20006.

ADDITIONAL INFORMATION

The Company has filed with the Commission a Registration Statement (which
term shall encompass any amendments and exhibits thereto) under the Securities
Act with respect to the Shares offered hereby. This Prospectus, which forms a
part of such Registration Statement, does not contain all the information set
forth in such Registration Statement, certain parts of which are omitted in
accordance with the rules and regulations of the Commission. Statements made in
this Prospectus as to the contents of any contract, agreement or other document
referred to are not necessarily complete; with respect to each such contract,
agreement or other document filed as an exhibit to such Registration Statement,
reference is made to the exhibit for a more complete description of the matter
involved, and each such statement shall be deemed qualified in its entirety by
such reference. Any interested parties may inspect such Registration Statement,
without charge, at the public reference facilities maintained by the Commission
at 450 Fifth Street, N.W., Washington D.C. 20549, and may obtain copies of all
or any part of it from the Commission upon payment of the fees prescribed by
the Commission. If and when such Common Stock is listed on NASDAQ/NMS, such
Registration Statement also could be inspected at the offices of National
Association of Securities Dealers, Inc., 1735 K Street, N.W., Washington, D.C.
20006. Neither the delivery of this Prospectus or any Prospectus Supplement nor
any sales made hereunder or thereunder shall under any circumstances create any
implication that the information contained herein or therein is correct as of
any time subsequent to the date hereof or thereof or that there has been no
change in the affairs of the Company since the date hereof or thereof.

<PAGE>
PROSPECTUS SUMMARY

The following summary is qualified in its entirety by the detailed
information and consolidated financial statements (the "Consolidated Financial
Statements") and notes thereto appearing elsewhere in this Prospectus. The
Company operates, and during all periods for which financial information
appears herein operated, on a fiscal year ending May 31.

Reference is made to the "Index to Defined Terms" for information
regarding the location of certain definitions used in this Prospectus.

The Company

The Homebuilding and Related Financing Group sells, constructs on the
customer's site, and finances standardized partially-finished homes. Sales are
made in approximately 23 states, primarily in the southern part of the United
States. Substantially all of the sales are made on credit provided by the
Group. A credit purchaser must provide his own land and give a first mortgage
or deed of trust to secure payment of the purchase price of the home.

The Water and Waste Water Transmission Products Group is one of the
largest domestic manufacturers of ductile iron pressure pipe and fittings. The
Group also manufactures valves and hydrants, fittings and castings.

The Natural Resources Group engages in coal mining and a related
degasification program. The Group owns four coal mines in Alabama and has the
capacity to produce a total of 9.5 million tons of coal annually. The Group
produced 7.6 million tons of coal in fiscal 1995. A substantial portion of this
output is under long-term contracts and the balance will be used internally to
produce furnace and foundry coke or sold to other customers on a short-term
contract or spot market basis. The Company does not consider itself to be a
significant factor in the domestic or international coal markets.

The Industrial and Other Products Group produces furnace and foundry
grades of coke, industrial chemicals, slag wool products, aluminum sheet,
aluminum foil, window and door screens, window balances, fireplace inserts,
fireplaces and accessories, municipal and original equipment manufacturer
castings, patterns and tooling and resin coated sand. See "The Company" and
"Business and Properties."

Recent History

The Company was organized in August 1987 by a group of investors led by
Kohlberg Kravis Roberts & Co. ("KKR") for the purpose of acquiring Jim Walter
Corporation, a Florida corporation ("Original Jim Walter"), pursuant to a
leveraged buyout (the "LBO"). Following its organization, the Company organized
and acquired all of the outstanding shares of capital stock of a group of
direct and indirect wholly owned subsidiaries, including Hillsborough
Acquisition Corporation ("HAC"). On September 18, 1987, HAC acquired
approximately 95% of the outstanding shares of common stock of Original Jim
Walter pursuant to a cash tender offer (the "Tender Offer"). On January 7,
1988, (i) Original Jim Walter merged (the "Merger") into HAC (which changed its
name to Jim Walter Corporation), (ii) HAC distributed substantially all of its
assets (principally excluding the stock of The Celotex Corporation ("Celotex")
and several other subsidiaries of Original Jim Walter) to a parent corporation
of HAC (which was merged into the Company on April 1, 1991) in redemption of
all of the shares of capital stock of HAC owned by such parent corporation,
(iii) HAC merged into its other stockholder, another indirect wholly owned
subsidiary of the Company, and (iv) the surviving corporation of such merger
changed its name to Jim Walter Corporation (and is hereinafter referred to as
"J-II" or "Jim Walter Corporation").

<PAGE>

Following the Merger and prior to the commencement of the Chapter 11 Cases
(as defined below), the Company undertook a program of corporate
reorganizations and asset dispositions, which were contemplated by all of the
debt agreements entered into in connection with the Tender Offer and the
Merger. Pursuant to this program the Company restructured and/or disposed of
certain of the businesses of Original Jim Walter, including the disposition in
April, 1988 of all of the stock of the parent corporation of J-II.

Also during this time, the Company and certain of its subsidiaries and
certain of their former and current directors and officers, stockholders and
other persons and entities which were parties to or beneficiaries of
indemnification agreements and other indemnification obligations of the Company
and its subsidiaries (the "Indemnitees") were named as co-defendants in
lawsuits (the "Veil Piercing Litigation") brought by or on behalf of thousands
of persons ("Asbestos Claimants") claiming asbestos-related damages against
Celotex alleging, among other things, that (i) Original Jim Walter, its
successors and other entities, including the Company and certain of its
subsidiaries, were liable for all damages, including asbestos-related damages,
caused by products manufactured, sold and distributed by a predecessor of
Celotex, by reason of claims sounding in piercing the corporate veil, alter ego
and related theories ("Veil Piercing Claims"), and (ii) the aforementioned
distribution by HAC of substantially all of its assets pursuant to the LBO
constituted a fraudulent conveyance. See "Business and Properties -- Legal
Proceedings -- Asbestos-Related Litigation Settlements."

On December 27, 1989, the Company and 31 of its subsidiaries each filed a
voluntary petition for reorganization under Chapter 11 ("Chapter 11") of the
Bankruptcy Code with the Bankruptcy Court for the Middle District of Florida,
Tampa Division (the "Bankruptcy Court"); one additional subsidiary also filed a
voluntary petition for reorganization under Chapter 11 with the Bankruptcy
Court on December 3, 1990 (all such voluntary petitions for reorganization,
collectively, the "Chapter 11 Cases"). Two other subsidiaries, Cardem Insurance
Co., Ltd. (Bermuda) ("Cardem Insurance") and Jefferson Warrior Railroad
Company, Inc. ("J.W. Railroad"), did not file petitions for reorganization
under Chapter 11. The filing of the voluntary petitions resulted from a
sequence of events stemming primarily from an inability of the Company's
interest reset advisors to reset interest rates on approximately $624 million
of outstanding indebtedness, which indebtedness by its terms required that the
interest rates thereon be reset to the rate per annum such indebtedness should
bear in order to have a bid value of 101% of the principal amount thereof as of
December 2, 1989. The reset advisors' inability to reset the interest rates was
primarily attributable to two factors: (i) uncertainties arising from the
pending Veil Piercing Litigation, including the possibility either that such
litigation would lead to the prohibition of further asset sales and debt
repayment or that substantial new asbestos-related claims might become
assertible against the Company, which uncertainties materially hindered the
ability of the Company and its subsidiaries to pursue a refinancing or sell
assets to reduce debt, and (ii) general turmoil in the high yield bond markets
at such time, both of which depressed the bid value of such indebtedness.

On January 2, 1990, the Company and each of its subsidiaries party to the
Chapter 11 Cases filed a declaratory judgment action (the "Adversary
Proceeding") against all known Asbestos Claimants who had filed Veil Piercing
Claims, Celotex and Jim Walter Corporation seeking a declaration, among other
things, that (i) the corporate veil between Celotex and Original Jim Walter
could not be pierced, (ii) the Company could not be held liable for the
asbestos-related liabilities of either Celotex or Jim Walter Corporation on any
grounds and (iii) the LBO could not be deemed a fraudulent conveyance.

In January 1994, the indenture trustees for certain pre-LBO debentures of
Original Jim Walter assumed by the Company brought an action (the "Fraudulent
Conveyance Lawsuit") for the benefit of the Company's estate and its creditors,
which alleged that the issuance of debt in connection with the LBO constituted
a fraudulent conveyance under New York and Florida law. The plaintiffs sought
to avoid the obligations incurred by the Company and its subsidiaries in the
LBO.

On the Effective Date of the Plan of Reorganization, the Company and its
subsidiaries emerged from bankruptcy pursuant to the Plan of Reorganization.
Pursuant to the Plan of Reorganization, 50,494,313 shares of Common Stock were
issued to certain former creditors and stockholders of the Company and its
subsidiaries and

6
<PAGE>

$490,000,000 aggregate principal amount of the Company's 12.19% Series B Senior
Notes Due 2000 (the "Series B Notes") were issued to certain former creditors
of the Company and its subsidiaries.

Also pursuant to the Plan of Reorganization, (i) the Veil Piercing Claims,
the Veil Piercing Litigation and the Adversary Proceeding, among other things,
were settled after a ruling by the Bankruptcy Court (which was confirmed on
appeal by the United States District Court for the Middle District of Florida)
finding in favor of the Company on every claim asserted in the Adversary
Proceeding and (ii) the Fraudulent Conveyance Lawsuit was settled. See "Recent
History" and "Business and Properties -- Legal Proceedings -- Asbestos Related
Litigation Settlements."

See "Certain Risk Factors" for information concerning certain risks
associated with an investment in the Shares.

7
<PAGE>
Summary Consolidated Historical Financial Data

The following data, insofar as it relates to each of the fiscal years 1991
through 1995, has been derived from annual financial statements, including the
consolidated balance sheets at May 31, 1995 and 1994 and the related
consolidated statements of operations and retained earnings (deficit) and of
cash flows for the three years ended May 31, 1995 and the notes thereto
appearing elsewhere herein. All of the information presented below should be
read in conjunction with the Company's Consolidated Financial Statements and
the notes thereto, the pro forma consolidated statement of operations of the
Company (the "Pro Forma Consolidated Statement of Operations") and the notes
thereto and the other information contained elsewhere in this Prospectus.

------------------------------------------------------------------------
Years ended May 31,
1991(1) 1992 1993(4) 1994 1995
------------- ------------- ------------- ------------- ------------
(Dollars in thousands)
<S> <C> <C> <C> <C> <C>
Summary of Operations:
Sales and revenues . . . . . . . . $ 1,326,397 $ 1,366,581 $ 1,318,986 $ 1,328,524 $ 1,442,322
Cost of sales (exclusive of
depreciation) . . . . . . . . . . 826,455 891,882 804,411 845,061 951,381
Depreciation, depletion and
amortization . . . . . . . . . . 75,099 82,801 70,483 71,035 72,037
Interest and amortization of debt
discount and expense(2) . . . . . 209,511 177,060 171,581 155,470 304,548
Income tax expense (benefit) . . . 19,454 12,463 24,328 28,917 (170,450)
Income (loss) before discontinued
operations and cumulative effect of
accounting change(1)(4) . . . . . 20,632 22,342 46,594 7,175 (358,645)
Net income (loss) . . . . . . . . . 14,462 22,342 (58,014) 7,175 (358,645)
Ratio of earnings from continuing
operations to fixed charges(3) . 1.19 1.18 1.39 1.22 --

Additional Financial Data:
Total assets . . . . . . . . . . . $ 3,276,211 $ 3,171,266 $ 3,223,234 $ 3,140,892 $ 3,245,153
Long-term senior debt . . . . . . . 1,073,919 948,782 1,046,971 871,970 2,220,370
Liabilities subject to Chapter 11
proceedings . . . . . . . . . . . 1,883,704 1,845,328 1,725,631 1,727,684 --
Stockholders equity (deficit) . . . (253,282) (230,119) (287,737) (282,353) 360,774
</TABLE>

(1) The selected financial data reflects operations sold as discontinued
operations.

(2) Interest on unsecured obligations not accrued since December 27, 1989
amounted to $163.7 million in each of the years ended May 31, 1991 through
1994. The Company recorded additional interest and amortization of debt
discount and expense of $141.4 million related to the consummation of the
Plan of Reorganization in fiscal 1995.

(3) The ratio of earnings from continuing operations to fixed charges is
computed by dividing the sum of income (loss) from continuing operations
and fixed charges by fixed charges. Fixed charges consist of interest
expense, amortization of debt discount and expense and the portion (one-
third) of rent expense deemed to represent interest. For the year ended May
31, 1995, the loss from continuing operations plus fixed charges was
inadequate to cover fixed charges. The coverage deficiency was $530.3
million. On a pro forma basis for the fiscal year ended May 31, 1995, after
giving effect to the Plan of Reorganization and the related transactions as
if they had occurred as of June 1, 1994, the loss from continuing
operations plus fixed charges would have been inadequate to cover fixed
charges. The coverage deficiency would have been $14.2 million. See
"Prospectus Summary -- Summary Pro Forma Consolidated Statement of
Operations."

(4) The Company adopted Statement of Financial Accounting Standards No. 106
"Employers' Accounting for Postretirement Benefits Other Than Pensions"
("FAS 106") and Statement of Financial Accounting Standards No. 109
"Accounting for Income Taxes" ("FAS 109") during fiscal year 1993.

8
<PAGE>

Summary Pro Forma Consolidated Statement of Operations

The following unaudited summary pro forma consolidated statement of
operations was prepared to illustrate the estimated effects of the Plan of
Reorganization and related financings and the application of the proceeds
thereof as if they had occurred for statement of operations purposes as of June
1, 1994.

The pro forma consolidated statement of operations does not purport to be
indicative of the results of operations that would actually have been reported
had such transactions in fact been consummated on such date or of the results
of operations that may be reported by the Company in the future. The unaudited
pro forma adjustments are based upon available information and certain
assumptions that the Company believes are reasonable. All of the information
presented below should be read in conjunction with the Consolidated Financial
Statements and the notes thereto, the Pro Forma Consolidated Statement of
Operations and the notes thereto and the other information contained elsewhere
in this Prospectus.

Year ended
May 31, 1995
--------------------------
(Dollars in thousands
except per share amount)
<S> <C>
Summary of Operations:
Sales and revenues . . . . . . . . . . . . . . . . . . . . . . . . . . . $ 1,434,694
Cost of sales (exclusive of depreciation) . . . . . . . . . . . . . . . . 951,381
Depreciation, depletion and amortization . . . . . . . . . . . . . . . . 72,037
Interest and amortization of debt expense . . . . . . . . . . . . . . . . 223,184
Income tax expense . . . . . . . . . . . . . . . . . . . . . . . . . . . 25,280
Net loss . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . (38,277)
Net loss per share(1) . . . . . . . . . . . . . . . . . . . . . . . . . . (.75)
</TABLE>

(1) Net loss per share has been computed based on the weighted average number
of shares of Common Stock issuable (50,988,626, which includes 494,313
additional shares of Common Stock required to be issued on September 13,
1995 (180 days after the Effective Date of the Plan of Reorganization)
pursuant to the Plan of Reorganization, but does not include up to
3,880,140 additional shares that will be issued to an escrow account on
such date pursuant to the Plan of Reorganization because such issuance is
contingent on future events and would be anti-dilutive; see "Description of
Capital Stock -- Future Stock Issuances").

Contemporaneous Debt Offering

The Company also has filed with the Commission a shelf registration
statement with respect to the sale from time to time by certain selling
security holders of up to $218,609,000 aggregate principal amount of Series B
Notes held by such security holders. Such registration statement and the
Registration Statement of which this Prospectus forms a part were filed by the
Company pursuant to registration rights agreements entered into as part of the
Plan of Reorganization. See "Description of Capital Stock -- Common Stock
Registration Rights Agreement" and "Description of Certain Indebtedness --
Series B Senior Notes -- Senior Note Registration Rights Agreement." The Company
will not receive any proceeds from the contemporaneous offering of the Series B
Notes, all of which will be received by the selling holders thereof.

9
<PAGE>
CERTAIN RISK FACTORS

Set forth below are certain significant risks involved in investing in the
Shares offered by this Prospectus. See "Management's Discussion and Analysis of
Financial Condition and Results of Operations" and "Business and Properties"
for a description of other factors affecting the Company's businesses
generally.

Leverage

Upon completion of the Plan of Reorganization, the Company continued to
have significant indebtedness. At May 31, 1995, the Company had total
consolidated debt of approximately $2,220,370,000 and a ratio of total
consolidated debt to stockholders' equity of approximately 6.2 to 1.0. As a
result of the Plan of Reorganization, the Company will have substantially
higher interest expense. On a pro forma basis after giving effect to the Plan
of Reorganization and related transactions, the Company would have reported a
loss of $38.3 million for the year ended May 31, 1995. See "Pro Forma
Consolidated Statement of Operations" and "Management's Discussion and Analysis
of Financial Condition and Results of Operations."

The ability of the Company to meet its debt service obligations will be
dependent upon the future performance of the Company, which, in turn, will be
subject to general economic conditions and to financial, competitive, business
and other factors, including factors beyond the Company's control. The level of
the Company's indebtedness could restrict its flexibility in responding to
changing business and economic conditions. The Company believes that the Mid-
State Trust V Variable Funding Loan Agreement, a three-year $500 million credit
facility described under "Management's Discussion and Analysis of Financial
Condition and Results of Operations -- Financial Condition," will provide Mid-
State Homes, Inc. ("Mid-State Homes") with the funds needed to purchase the
instalment notes and mortgages generated by Jim Walter Homes, Inc. ("Jim Walter
Homes"). See "Business and Properties -- Mid-State Homes." The Company also
believes that under present operating conditions sufficient operating cash flow
will be generated through fiscal year 1999 to make all required interest and
principal payments and planned capital expenditures and meet substantially all
operating needs and that amounts available under the Bank Revolving Credit
Facility described herein will be sufficient to meet peak operating needs.
However, it is currently anticipated that sufficient operating cash flow will
not be generated to repay at maturity the principal amount of the Series B
Notes without refinancing a portion of such debt or selling assets. No
assurance can be given that any refinancing will take place or that such sales
of assets can be consummated. See "Management's Discussion and Analysis of
Financial Condition and Results of Operations".

The degree to which the Company is leveraged and the terms governing the
Company's debt instruments, including restrictive covenants and events of
default, could have important consequences to holders of the Shares, including
the following: (i) the Company's ability to obtain additional financing in the
future for working capital, capital expenditures, acquisitions, general
corporate purposes or other purposes may be impaired; (ii) a substantial
portion of the Company's cash flow from operations must be dedicated to service
its indebtedness; (iii) terms of the Company's debt instruments will restrict
the Company's ability to pay dividends and will impose other operating and
financial restrictions; (iv) the Company may be more leveraged than other
providers of similar products and services, which may place the Company at a
competitive disadvantage; and (v) the Company's significant degree of leverage
could make it more vulnerable to changes in general economic conditions.
Following the Plan of Reorganization, the Company believes that it will be able
through fiscal year 1999 to make its principal and interest payments as and when
required with funds derived from its operations. However, unexpected declines
in the Company's future business, increases in interest rates or the inability
to borrow additional funds for its operations if and when required could impair
the Company's ability to meet its debt service obligations and, therefore, have
a material adverse effect on the Company's business and future prospects. No
assurance can be given that additional debt or equity funds will be available
when needed or, if available, on terms which are favorable to the Company.
Moreover, the terms of the Company's indebtedness contain change in control
provisions which may have the effect of discouraging a potential takeover of
the Company. See "Capitalization," "Pro Forma Consolidated Statement of
Operations," "Selected Historical Consolidated Financial Data," "Management's
Discussion and Analysis of Financial Condition and Results of Operations --
Financial Condition" and " -- Liquidity and Capital Resources" and "Description
of Certain Indebtedness."

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Borrowings under the Company's $150 million Bank Revolving Credit Facility
bear interest at rates that fluctuate. As of May 31, 1995, there were no
borrowings under this facility; however there were $22,727,000 face amount of
letters of credit outstanding thereunder. See "Description of Certain
Indebtedness -- Bank Revolving Credit Facility."

Accounting Presentation

The Company emerged from bankruptcy on March 17, 1995. Accordingly, the
Company's Consolidated Balance Sheets at and after May 31, 1995 and its
Consolidated Statements of Operations and Retained Earnings (Deficit) for May
31, 1995 and periods thereafter will not be comparable to the Consolidated
Financial Statements for prior periods included elsewhere herein. Furthermore,
the Company's Consolidated Statement of Operations and Retained Earnings
(Deficit) for May 31, 1995 will not be comparable to the Company's consolidated
statements of operations and retained earnings (deficit) for periods
thereafter. Among other things, the Consolidated Statement of Operations and
Retained Earnings (Deficit) for the year ended May 31, 1995 includes numerous
adjustments required by the Plan of Reorganization, including adjustments to
interest expense, payment of substantial professional expenses related to the
bankruptcy and payment of $390 million pursuant to the Veil Piercing Settlement
described herein. See "Business and Properties -- Legal Proceedings -- Asbestos-
Related Litigation Settlements." Similarly, the Company's Consolidated Balance
Sheet as of May 31, 1995 reflects consummation of the Plan of Reorganization,
and therefore is not comparable to the Company's Consolidated Balance Sheets at
May 31, 1994 or dates prior thereto.

Dividend Policy;
Restrictions on Payment of Dividends

The Company has never paid dividends on its common stock and has no
present intention of paying any dividends on the Common Stock. In addition, the
covenants in certain debt instruments to which the Company is a party restrict
the ability of the Company to pay dividends. Under the Bank Revolving Credit
Facility, the Company may pay cash dividends only after August 31, 1995 in an
amount during any twelve-month period not to exceed the lesser of $5,500,000
and the Company's Available Cash Flow (as defined in the Bank Revolving Credit
Facility) during the four most recently completed fiscal quarters, and only
provided that the Company has met or exceeded certain financial ratio tests and
that no default under the Bank Revolving Credit Facility has occurred or would
result from the payment of such dividends. In addition, the Indenture prohibits
the Company from making Restricted Payments (defined to include cash
dividends); provided, however, the Company is permitted to declare and pay a
regular quarterly cash dividend not to exceed $.025 per share on its Common
Stock and to pay additional cash dividends in limited amounts (as determined
under the Indenture), in each case, so long as no default under the Indenture
has occurred or would result from the payment of such cash dividend and certain
other conditions are satisfied. See "Dividend Policy" and "Description of
Certain Indebtedness -- Series B Senior Notes -- Covenants" and "-- Bank
Revolving Credit Facility."

Holding Company Structure

The Company has no business operations other than (i) holding the capital
stock of its operating subsidiaries and intermediate holding companies, (ii)
holding cash, cash equivalents and marketable securities and (iii) advancing
funds to, and receiving funds from, its subsidiaries. In repaying its
indebtedness the Company relies primarily on cash flows from its subsidiaries,
including debt service and dividends. The ability of the Company's subsidiaries
to make payments with respect to advances from the Company will be affected by
the obligations of such subsidiaries to their creditors. Claims of holders of
indebtedness of the Company against the cash flows and assets of the Company's
subsidiaries will be effectively subordinated to claims of such creditors. The
ability of such subsidiaries to pay dividends will also be subject to
applicable law and, under certain circumstances, to restrictions contained in
agreements entered into, or debt instruments issued, by the Company and its
subsidiaries. Under the terms of the Bank Revolving Credit Facility, the
subsidiaries of the Company may declare and pay dividends in cash to the
Company to enable it to pay, among other things, amounts owing under the
Series B Notes when such amounts become due and payable under the terms of the
Indenture. See "Description of Certain Indebtedness -- Bank Revolving Credit
Facility." The Series B Notes are secured by pledges of the capital stock of
each of the direct and indirect subsidiaries of the Company other than Mid-
State Homes and its subsidiaries and Cardem Insurance.

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<PAGE>
Restrictive Covenants

The Indenture and the Bank Revolving Credit Facility contain a number of
significant covenants that, among other things, restrict the ability of the
Company and its subsidiaries to dispose of assets, incur additional
indebtedness, make capital expenditures, pay dividends, create liens on assets,
enter into leases, investments or acquisitions, engage in mergers or
consolidations, or engage in certain transactions with subsidiaries and
affiliates and otherwise restrict corporate activities (including change of
control and asset sale transactions). In addition, under the Bank Revolving
Credit Facility, the Company is required to maintain specified financial ratios
and comply with certain financial tests, including interest coverage and fixed
charge coverage ratios, maximum leverage ratios and minimum earnings before
interest, taxes, depreciation and amortization expense, some of which become
more restrictive over time. A substantial portion of the Company's indebtedness
is secured by the capital stock or assets of certain subsidiaries of the
Company.

The Company currently is in compliance with the covenants and restrictions
contained in its existing debt instruments. However, its ability to continue to
so comply may be affected by events beyond its control. The breach of any of
these covenants or restrictions could result in a default under those debt
instruments, which would permit the lenders or other creditors thereunder to
declare all amounts borrowed thereunder to be due and payable together with
accrued and unpaid interest, would result in the termination of the commitments
of the lenders under the Bank Revolving Credit Facility to make further loans
and issue letters of credit and could permit such lenders and other creditors
to proceed against the collateral securing the obligations owing to them. Any
such default could have a significant adverse effect on the market value and
the marketability of the Shares. See "Description of Certain Indebtedness."

Risks of Business Downturn

Certain of the Company's businesses are affected by general economic or
other factors outside their control. The sales of United States Pipe and
Foundry Company ("U.S. Pipe") are dependent to some extent upon the rate of
residential and non-residential building construction and other forms of
construction activity, and are thus subject to certain economic factors such as
general economic conditions, the underlying need for construction projects,
interest rates and governmental incentives provided to building projects. The
cyclical nature of U.S. Pipe's business is offset to some extent by U.S. Pipe's
sales to the replacement market. The replacement market generally fluctuates
less than the rate of new construction and therefore tends to have a
stabilizing influence during a period of depressed construction activity. Jim
Walter Homes is also sensitive to certain general economic and other factors.
Its business has tended to be countercyclical to national home construction
activity. In times of high interest rates or lack of availability of mortgage
funds, and thus limited new home construction, Jim Walter Homes' volume of home
sales tends to increase due to the terms of the financing it offers. However,
in times of low interest rates and increased availability of mortgage funds,
Jim Walter Homes' volume of home sales tends to decrease. Also, in times of low
interest rates and high availability of mortgage funds, additional competition
is able to enter the market. A significant portion of the sales of Jim Walter
Resources, Inc. ("Jim Walter Resources") are made pursuant to long-term
contracts, which tend to stabilize the results of its operations. See
"Management's Discussion and Analysis of Financial Condition and Results of
Operations" and "Business and Properties."

Asbestos-Related Litigation Settlements

As discussed more fully under "Recent History" and "Business and
Properties -- Legal Proceedings -- Asbestos-Related Litigation Settlements," the
Company and the Indemnitees were defendants in the Veil Piercing Litigation and
are beneficiaries of the Veil Piercing Settlement.

In order for a holder of a Veil Piercing Claim or any claim related to the
LBO which is held by any person who has asserted or may in the future assert
Veil Piercing Claims (such claims and Veil Piercing Claims, whether asserted in
the past or in the future, collectively, the "Settlement Claims") to assert
that Settlement Claim against the Company or any of the Indemnitees, such
holder would have to attack the Plan of Reorganization, the approval of the
Class (as defined under "Business and Properties -- Legal Proceedings --
Asbestos-Related Litigation Settlements"), the approval of the Veil Piercing
Settlement and all of the actions taken under the Veil Piercing Settlement.
Because there were no objections to the Plan of Reorganization or the

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<PAGE>

Veil Piercing Settlement (apart from an objection of the United States
Environmental Protection Agency (the "EPA") concerning the scope of certain
releases affecting government environmental claims; see "Business and
Properties -- Legal Proceedings -- Plan of Reorganization"), such an attack
would have to be based upon an alleged failure to provide due process under the
United States Constitution. The Company believes, and the Bankruptcy Court has
found, that due process requirements have been met. Should such an attack be
sustained, however, the Company, the Indemnitees and the other Released Parties
(as defined under "Business and Properties -- Legal Proceedings -- Asbestos-
Related Litigation Settlements") could be exposed to additional liabilities in
the future of an indeterminate, but possibly substantial, amount.

Future holders of Settlement Claims may also attack the injunctions
discussed under "Business and Properties -- Legal Proceedings --
Asbestos-Related Litigation Settlements" on the grounds that the Bankruptcy
Court did not have jurisdiction over their future claims. The Company believes
that the Bankruptcy Court and the Celotex bankruptcy court have jurisdiction
to issue "channelling" injunctions barring such future claims. In addition,
the provisions of Section 524(g) of the Bankruptcy Code explicitly authorize
an injunction barring claims by future claimants asserting asbestos-related
diseases. Accordingly, if the Celotex bankruptcy court confirms a plan of
reorganization containing such an injunction, as contemplated by the Veil
Piercing Settlement, and such plan of reorganization is consummated, Section
524(g) of the Bankruptcy Code would be an additional basis for preventing
future Settlement Claims from being asserted against the Company, the
Indemnitees and the other Released Parties. However, there can be no assurance
that such a plan of reorganization will be confirmed and consummated. In
addition, a future holder of a Settlement Claim may try to attack Section
524(g) as unconstitutional or try to preclude its application to the Company's
case. Should that happen, the Company, the Indemnitees and the other Released
Parties could be exposed to additional liabilities in the future of an
indeterminate, but possibly substantial, amount.

It is also possible that some constituencies might seek to have the terms
of the Veil Piercing Settlement altered. In the National Gypsum reorganization,
the trust established to settle asbestos claims has sought an order requiring
the reorganized debtor in that case to make additional payments to the trust.
The Company believes that should not happen in its case because the settlement
amount is being paid into another reorganization pursuant to final court orders
in both cases. Any such request would have to be made to the Bankruptcy Court,
which has previously approved the settlement payment as fair. However, should
such a request be made and granted, the Company, the Indemnitees and the other
Released Parties could be exposed to additional liabilities in the future of an
indeterminate, but possible substantial, amount.

Liquidity; Absence of Public Market

Through the date hereof, there has been no established public trading
market for the Common Stock. Pursuant to the Plan of Reorganization the Common
Stock was issued to a limited number of investors. Application will be made to
list the Common Stock on NASDAQ/NMS. There can be no assurance that any active
trading market will develop or will be sustained for the Common Stock or as to
the price at which the Common Stock may trade or that the market for the Common
Stock will not be subject to disruptions that will make it difficult or
impossible for the holders of Common Stock to sell shares in a timely manner,
if at all, or to recoup their investment in the Common Stock.

The prices at which the Shares may be sold will be determined by the
Selling Security Holders or by agreement between Selling Security Holders and
underwriters or dealers, if any. See "Plan of Distribution."

Effect of Future Sales of Common Stock

No prediction can be made as to the effect, if any, that future sales of
Shares, or the availability of Common Stock for future sale, will have on the
market price of the Common Stock prevailing from time to time. Sales of
substantial amounts of Common Stock, or the perception that such sales could
occur, could adversely affect prevailing market prices for the Common Stock.
Pursuant to the Plan of Reorganization, an aggregate of 50,494,313 shares of
Common Stock were issued on the Effective Date of the Plan of Reorganization.
Pursuant to Section 1145 of the Bankruptcy Code, all of the issued and
outstanding shares of Common Stock are freely tradeable without registration
under the Securities Act, except for shares issued to an "underwriter" (as
defined in Section 1145(b) of the Bankruptcy Code) or subsequently acquired by
an "affiliate" of the Company. Except in

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<PAGE>

limited circumstances, none of the holders of such shares has agreed to
restrict or otherwise limit in any way such holder's ability to dispose of such
shares of Common Stock. See "Description of Capital Stock -- Common Stock
Registration Rights Agreement." No assurance can be given that sales of
substantial amounts of Common Stock will not occur in the foreseeable future or
as to the effect that any such sales, or the perception that such sales may
occur, will have on the market or the market price of the Common Stock. See
"Market for the Common Stock."

Tax Considerations

A substantial controversy exists with regard to federal income taxes
allegedly owed by the Company. Proofs of claim have been filed by the Internal
Revenue Service (the "IRS") in the aggregate amount of $110,560,883 with
respect to fiscal years ended August 31, 1980 and August 31, 1983 through
August 31, 1987, $31,468,189 with respect to fiscal years ended May 31, 1988
(nine months) and May 31, 1989 and $44,837,693 with respect to fiscal years
ended May 31, 1990 and May 31, 1991. Objections to the proofs of claim have
been filed by the Company and the various issues are being litigated in the
Bankruptcy Court. The Company believes that such proofs of claim are
substantially without merit and intends to defend such claims against the
Company vigorously, but there can be no assurance as to the ultimate outcome.

Set forth under "Certain Federal Income Tax Consequences" is a description
of certain United States federal income tax consequences to prospective
purchasers expected to result from the purchase, ownership and sale or other
disposition of the Shares under currently applicable law.

Disputed Claims Reserves

The total face amount of prepetition claims against the Company and
certain of its subsidiaries which are still being disputed by the Company,
including the Federal Income Tax Claims (see "Description of Capital Stock --
Future Stock Issuances"), is substantial. If the Company or any of its
subsidiaries is unable to pay any claims which ultimately are allowed against
it by the Bankruptcy Court, under the Plan of Reorganization the holders of
such allowed claims would have recourse to the Company or any such subsidiary
as applicable. Management does not expect that any allowed claims will have a
material adverse effect on the Company's financial position.

Certain Corporate Governance Matters; Antitakeover Legislation

The Restated Certificate of Incorporation of the Company (the "Charter")
and the Plan of Reorganization provide that until March 17, 1998 the Board of
Directors of the Company shall have nine members, two of whom must be
Independent Directors (as defined under "Management -- Board of Directors"),
three of whom must be senior officers of the Company, one of whom must be
designated by KKR, an affiliate of certain principal stockholders of the
Company, and three of whom must be designated by Lehman Brothers Inc.
("Lehman"), whose affiliate Lehman Brothers Holdings, Inc. ("Lehman Holdings")
is another principal stockholder of the Company (except that (i) in certain
circumstances KKR will have the right to compel the resignation of one or two
of Lehman's designees and designate the successor(s), (ii) if more than one
director is a designee of KKR, in certain circumstances Lehman will have the
right to compel the resignation of one of KKR's designees and designate the
successor and (iii) Lehman's or KKR's designees must resign if Lehman or KKR,
as the case may be, cease to beneficially own a specified equity interest in
the Company). See "Management -- Board of Directors" and "Security Ownership of
Management and Principal Stockholders." As a result of this provision,
stockholders of the Company other than Lehman and KKR will not have the ability
to elect any of the Company's directors prior to March 17, 1998.

In addition, the Charter and the Company's By-laws provide that until
March 17, 1998 each committee of the Board of Directors (other than the Tax
Oversight Committee) must include a number of directors designated by KKR and
Lehman, respectively, so that each of KKR and Lehman has representation on the
committee proportionate to its representation on the Board. The Charter
provides that the foregoing provision and certain other provisions of the By-
laws cannot be amended by the Board of Directors prior to March 17, 1998 unless
67% of the whole Board of Directors votes in favor of the amendment. See
"Management -- Committees of the Board of Directors."

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<PAGE>
The foregoing provisions would, among other things, impede the ability of
a third party to acquire control of the Company by seeking election of its
nominees to the Board of Directors.

In addition, Section 203 ("Section 203") of the Delaware General
Corporation Law (the "DGCL") provides that, subject to certain exceptions
specified therein, an "interested stockholder" of a Delaware corporation shall
not engage in any business combination, including mergers or consolidations or
acquisitions of additional shares of the corporation, with the corporation for
a three-year period following the date on which such stockholder becomes an
"interested stockholder" unless (i) prior to such date, the board of directors
of the corporation approved either the business combination or the transaction
which resulted in the stockholder becoming an "interested stockholder," (ii)
upon consummation of the transaction which resulted in the stockholder becoming
an "interested stockholder," the interested stockholder owned at least 85% of
the voting stock of the corporation outstanding at the time the transaction
commenced (excluding certain shares), or (iii) on or subsequent to such date,
the business combination is approved by the board of directors of the
corporation and authorized at an annual or special meeting of stockholders by
the affirmative vote of at least 66-2/3% of the outstanding voting stock which
is not owned by the "interested stockholder." Except as otherwise specified in
Section 203, an "interested stockholder" is defined to include (x) any person
that is the owner of 15% or more of the outstanding voting stock of the
corporation, or is an affiliate or associate of the corporation and was the
owner of 15% or more of the outstanding voting stock of the corporation at any
time within three years immediately prior to the relevant date and (y) the
affiliates and associates of any such person. For purposes of Section 203, the
Board has approved the transaction (the consummation of the Plan of
Reorganization) which resulted in Lehman and the Celotex Settlement Fund
Recipient becoming "interested stockholders" and, accordingly, the Company
believes that neither of them will be subject to the restrictions of Section
203 unless it ceases to be the owner of 15% or more of the outstanding voting
stock of the Company and seeks to reattain such level of ownership. The Board
also approved the purchase of Common Stock by Channel One Associates, L.P., a
limited partnership the general partner of which is KKR Associates, L.P.
("Channel One"), and its affiliates and associates of 15% or more of the
outstanding voting stock of the Company through open market purchases or
otherwise. Accordingly, the Company believes that none of Channel One and its
affiliates and associates (including the KKR Investors referred to in "Security
Ownership of Management and Principal Stockholders") will be subject to the
restrictions of Section 203. In connection with the above-described Board
approval, Channel One and the KKR Investors agreed with the Company that they
will not, and will not permit any of their affiliates to, vote any shares of
Common Stock of the Company or otherwise take any other action to modify the
composition of the Board of Directors of the Company prior to April 6, 1998
other than as expressly provided for in the Company's Charter and the Plan of
Reorganization and that during such period they will not participate in the
solicitation of proxies to vote, or seek to advise or influence any person with
respect to, voting securities of the Company to modify the composition of the
Board of Directors, or propose, assist in or encourage any person in connection
with any of the foregoing. See "Description of Capital Stock -- Antitakeover
Legislation."

Under certain circumstances, Section 203 makes it more difficult for a
person who would be an "interested stockholder" to effect various business
combinations with a corporation for a three-year period, although the
stockholders may elect to exclude a corporation from the restrictions imposed
thereunder. The Charter does not exclude the Company from the restrictions
imposed under Section 203. The provisions of Section 203 may encourage
companies interested in acquiring the Company to negotiate in advance with the
Board of Directors because the stockholder approval requirement would be
avoided if a majority of the directors then in office approve either the
business combination or the transaction which results in the stockholder
becoming an interested stockholder. Such provisions also may have the effect of
preventing changes in the management of the Company. It is possible that such
provisions could make it more difficult to accomplish transactions which
stockholders may otherwise deem to be in their best interests.

THE COMPANY

The Company, through its direct and indirect subsidiaries currently offers
a diversified line of products and services for homebuilding, water and waste
water transmission, residential and non-residential construction, and
industrial markets. A brief description of the Company's four major operating
groups follows.

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<PAGE>

The Company's executive offices are located at 1500 North Dale Mabry
Highway, Tampa, Florida 33607. The Company's telephone number is (813) 871-
4811.

RECENT HISTORY

The Company was organized in August 1987 by a group of investors led by
KKR for the purpose of acquiring Original Jim Walter, pursuant to the LBO.
Following its organization, the Company organized and acquired all of the
outstanding shares of capital stock of a group of direct and indirect wholly
owned subsidiaries, including HAC. On September 18, 1987, HAC acquired
approximately 95% of the outstanding shares of common stock of Original Jim
Walter pursuant to the Tender Offer. On January 7, 1988, (i) Original Jim
Walter merged into HAC (which changed its name to Jim Walter Corporation), (ii)
HAC distributed substantially all of its assets (principally excluding the
stock of Celotex and several other subsidiaries of Original Jim Walter) to a
parent corporation of HAC (which was merged into the Company on April 1, 1991)
in redemption of all of the shares of capital stock of HAC owned by such parent
corporation, (iii) HAC merged into its other stockholder, another indirect
wholly owned subsidiary of the Company, and (iv) the surviving corporation of
such merger changed its name to Jim Walter Corporation.

Following the Merger and prior to the commencement of the Chapter 11
Cases, the Company undertook a program of corporate reorganizations and asset
dispositions, which were contemplated by all of the debt agreements entered
into in connection with the Tender Offer and the Merger. Pursuant to this
program the Company restructured and/or disposed of certain of the businesses
of Original Jim Walter, including the disposition in April, 1988 of all of the
stock of the parent corporation of J-II.

Also during this time, the Company, certain of its subsidiaries and the
Indemnitees were named as co-defendants in the Veil Piercing Litigation brought
by or on behalf of the Asbestos Claimants against Celotex alleging, among other
things, that (i) Original Jim Walter, its successors and other entities,
including the Company and certain of its subsidiaries, were liable for all
damages, including asbestos-related damages, caused by products manufactured,
sold and distributed by a predecessor of Celotex by reason of the Veil Piercing
Claims, and (ii) the aforementioned distribution by HAC of substantially all of
its assets pursuant to the LBO constituted a fraudulent conveyance. See
"Business and Properties -- Legal Proceedings -- Asbestos-Related Litigation
Settlements."

On December 27, 1989, the Company and 31 of its subsidiaries each filed a
voluntary petition for reorganization under Chapter 11 with the Bankruptcy
Court; one additional subsidiary also filed a voluntary

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<PAGE>

petition for reorganization under Chapter 11 with the Bankruptcy Court on
December 3, 1990. Two other subsidiaries, Cardem Insurance and J.W. Railroad,
did not file petitions for reorganization under Chapter 11. The filing of the
voluntary petitions resulted from a sequence of events stemming primarily from
an inability of the Company's interest reset advisors to reset interest rates
on approximately $624 million of outstanding indebtedness, which indebtedness
by its terms required that the interest rates thereon be reset to the rate per
annum such indebtedness should bear in order to have a bid value of 101% of the
principal amount thereof as of December 2, 1989. The reset advisors' inability
to reset the interest rates was primarily attributable to two factors: (i)
uncertainties arising from the pending Veil Piercing Litigation, including the
possibility either that such litigation would lead to the prohibition of
further asset sales and debt repayment or that substantial new asbestos-related
claims might become assertible against the Company, which uncertainties
materially hindered the ability of the Company and its subsidiaries to pursue a
refinancing or sell assets to reduce debt, and (ii) general turmoil in the high
yield bond markets at such time, both of which depressed the bid value of such
indebtedness.

On January 2, 1990, the Company and each of its subsidiaries party to the
Chapter 11 Cases filed the Adversary Proceeding against all known Asbestos
Claimants who had filed Veil Piercing Claims, Celotex and Jim Walter
Corporation seeking a declaration, among other things, that (i) the corporate
veil between Celotex and Original Jim Walter could not be pierced, (ii) the
Company could not be held liable for the asbestos-related liabilities of either
Celotex or Jim Walter Corporation on any grounds and (iii) the LBO could not be
deemed a fraudulent conveyance.

In January 1994, the indenture trustees for certain pre-LBO debentures of
Original Jim Walter assumed by the Company brought the Fraudulent Conveyance
Lawsuit for the benefit of the Company's estate and its creditors, which
alleged that the issuance of debt in connection with the LBO constituted a
fraudulent conveyance under New York and Florida law. The plaintiffs sought to
avoid the obligations incurred by the Company and its subsidiaries in the LBO.

Also pursuant to the Plan of Reorganization, (i) the Veil Piercing Claims,
the Veil Piercing Litigation and the Adversary Proceeding, among other things,
were settled after a ruling by the Bankruptcy Court (which was confirmed on
appeal by the United States District Court for the Middle District of Florida)
finding in favor of the Company on every claim in the Adversary Proceeding and
(ii) the Fraudulent Conveyance Lawsuit was settled. See "Business and
Properties -- Legal Proceedings -- Asbestos-Related Litigation Settlements."

DIVIDEND POLICY

The Company has never paid dividends on its common stock and has no
present intention of paying any dividends on the Common Stock. The declaration
and payment of future dividends to holders of Common Stock will be at the
discretion of the Company's Board of Directors and will depend upon many
factors, including the Company's financial condition, earnings, capital
requirements of its operating subsidiaries, legal requirements and such other
factors as the Board of Directors deems relevant.

Under the DGCL, the Company may only declare and pay dividends out of
surplus (as defined in the DGCL), or, if there is no surplus and subject to
certain conditions, net profits for the fiscal year in which the dividend is
declared and/or the preceding fiscal year.

Under the Bank Revolving Credit Facility, the Company may pay cash
dividends only after August 31, 1995 in an amount during any twelve-month
period not to exceed the lesser of $5,500,000 and the Company's Available Cash
Flow (as defined in the Bank Revolving Credit Facility) during the four most
recently completed fiscal quarters, provided that the Company has met or
exceeded certain financial ratio tests and that no default under the Bank
Revolving Credit Facility has occurred or would result from the payment of such
dividends. In

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addition, the Indenture prohibits the Company from making Restricted Payments
(defined to include cash dividends); provided, however, the Company is
permitted to declare and pay a regular quarterly cash dividend not to exceed
$.025 per share on its Common Stock and to pay additional cash dividends in
limited amounts (as determined under the Indenture), in each case, so long as
no default under the Indenture has occurred or would result from the payment of
such cash dividend and certain other conditions are satisfied. See "Description
of Certain Indebtedness -- Series B Senior Notes -- Covenants" and "-- Bank
Revolving Credit Facility."

MARKET FOR THE COMMON STOCK

Through the date hereof there has been no established public trading
market for the Common Stock. See "Certain Risk Factors -- Liquidity; Absence of
Public Market." Pursuant to the Plan of Reorganization, an aggregate of
50,494,313 shares of Common Stock were issued on the Effective Date of the Plan
of Reorganization. Beginning on September 13, 1995 (180 days after the
Effective Date of the Plan of Reorganization), up to 4,374,453 additional
shares of Common Stock may be issued to certain current and former stockholders
of the Company pursuant to the Plan of Reorganization. See "Security Ownership
of Management and Principal Stockholders" and "Description of Capital Stock --
Future Stock Issuances." In reliance on the exemption provided by Section 1145
of the Bankruptcy Code, none of the Common Stock was or will be registered
under the Securities Act in connection with its issuance pursuant to the Plan
of Reorganization; however, 31,446,414 of those shares are being registered
hereby for resale by the Selling Security Holders pursuant to certain
registration rights. See "Description of Capital Stock -- Common Stock
Registration Rights Agreement." The remaining shares of Common Stock are or
will be freely tradeable without registration under the Securities Act, except
for shares issued to an "underwriter" (as defined in Section 1145(b) of the
Bankruptcy Code) or subsequently acquired by an "affiliate" of the Company, all
of which shares will be "restricted securities" within the meaning of Rule 144
under the Securities Act ("Rule 144"). Shares of Common Stock which are
"restricted securities" within the meaning of Rule 144 may not be resold in
absence of registration under the Securities Act other than in accordance with
Rule 144 or another exemption from registration. See "Description of Capital
Stock -- Common Stock Registration Rights Agreement" for a discussion of the
rights of certain stockholders of the Company to request registration of sales
of their shares of Common Stock. As of July 11, 1995, there were approximately
89 holders of record of Common Stock and there were no outstanding options or
warrants to purchase, or securities convertible into, Common Stock.

18
<PAGE>
CAPITALIZATION

The following table sets forth the consolidated capitalization of the
Company and its subsidiaries as of May 31, 1995. This table should be read in
conjunction with the Company's Consolidated Financial Statements and the notes
thereto.

May 31, 1995
--------------------
(Dollars in thousands)

Long-Term Senior Debt:
Mid-State Trust II Mortgage-Backed Notes . . $ 584,000
Mid-State Trust III Asset Backed Notes . . . 173,527
Mid-State Trust IV Asset Backed Notes . . . . 953,843
Mid-State Trust V Variable Funding Loan(1) . 15,000
12.19% Series B Senior Notes Due 2000 . . . . 490,000
Bank Revolving Credit Facility(2) . . . . . . --
Other Senior Debt . . . . . . . . . . . . . . 4,000
-----------
$ 2,220,370
===========

Stockholders Equity:
Common Stock (par value $.01 per share,
200,000,000 shares authorized, 50,494,313
shares issued and outstanding) . . . . . . . $ 505
Capital in Excess of Par Value . . . . . . . 1,159,384
Retained Earnings (Deficit) . . . . . . . . . (793,165)
Excess of Additional Pension Liability
over Unrecognized Prior Years Service Cost . (5,950)
-----------
$ 360,774
===========

(1) The Mid-State Trust V Variable Funding Loan is available to provide
temporary financing to Mid-State Homes for its current purchases of
instalment notes and mortgages from Jim Walter Homes. The agreement
provides for a three-year $500 million credit facility secured by the
instalment notes and mortgages Mid-State Trust V purchases from Mid-State
Homes. See "Business and Properties -- Mid-State Homes."

(2) The Bank Revolving Credit Facility is available to provide up to $150
million at any time outstanding for working capital needs with a sublimit
for trade and standby letters of credit in an amount not in excess of $40
million and a sub-facility for swingline advances in an amount not in
excess of $15 million. See "Description of Certain Indebtedness -- Bank
Revolving Credit Facility."

19
<PAGE>

PRO FORMA CONSOLIDATED STATEMENT OF OPERATIONS

The following unaudited pro forma consolidated statement of operations was
prepared to illustrate the estimated effects of the Plan of Reorganization and
related financings and the application of the proceeds thereof as if they had
occurred as of June 1, 1994.

The following unaudited pro forma consolidated statement of operations
does not purport to be indicative of the results of operations that would
actually have been reported had such transactions in fact been consummated on
such date or of the results of operations that may be reported by the Company
in the future. The unaudited pro forma adjustments are based upon available
information and certain assumptions that the Company believes are reasonable.
All of the information presented below should be read in conjunction with the
Company's Consolidated Financial Statements and the notes thereto and the other
information contained elsewhere in this Prospectus.

Pro Forma Consolidated Statement of Operations
(Unaudited)

For the year ended May 31, 1995
----------------------------------------------------------
As Reported Adjustments Pro Forma
------------------- --------------------------------------
(Dollars in thousands except per share amounts)

<S> <C> <C> <C>
Sales and revenues:
Net sales . . . . . . . . . . . . . . . . . . . . . . . $1,181,635 $1,181,635
Time charges . . . . . . . . . . . . . . . . . . . . . 222,221 222,221
Miscellaneous . . . . . . . . . . . . . . . . . . . . . 30,838 30,838
Interest income from Chapter 11 proceedings . . . . . . 7,628 $ (7,628)(1) --
---------- ---------- ----------
1,442,322 (7,628) 1,434,694
---------- ---------- ----------

Costs and expenses:
Cost of sales . . . . . . . . . . . . . . . . . . . . . 951,381 951,381
Depreciation, depletion and amortization . . . . . . . 72,037 72,037
Selling, general and administrative . . . . . . . . . . 130,616 130,616
Postretirement health benefits . . . . . . . . . . . . 25,961 25,961
Provision for possible losses . . . . . . . . . . . . . 4,485 4,485
Chapter 11 costs . . . . . . . . . . . . . . . . . . . 442,362 (442,362)(2) --
Interest and amortization of debt discount and expense 304,548 (81,364)(3) 223,184
Amortization of excess of purchase price over net assets
acquired . . . . . . . . . . . . . . . . . . . . . . 40,027 40,027
---------- ---------- ----------
1,971,417 (523,726) 1,447,691
---------- ---------- ----------
(529,095) 516,098 (12,997)

Income tax benefit (expense) . . . . . . . . . . . . . . 170,450 (195,730)(4) (25,280)
---------- ---------- ----------
Net income (loss) . . . . . . . . . . . . . . . . . . . . $ (358,645) $ 320,368 $ (38,277)
========== ========== ==========
Net loss per share . . . . . . . . . . . . . . . . . . . $ (0.75)(5)
==========
Weighted average shares outstanding(5) . . . . . . . . . 50,988,626(5)
</TABLE>

Changes from historical financial statements in the pro forma consolidated
statement of operations consist of the following adjustments (all amounts in
thousands):

(1) Interest income from Chapter 11 proceedings of $7,628, which would not have
been realized assuming the Plan of Reorganization became effective June 1,
1994, has been eliminated.

(2) Chapter 11 costs of $442,362, which would not have been incurred assuming
the Plan of Reorganization became effective June 1, 1994, have been
eliminated.

(3) Interest and amortization of debt discount and expense has been reduced by
$81,364 to give retroactive effect as if all indebtedness to be repaid
pursuant to the Plan of Reorganization was so done as of June 1, 1994 and
the $490 million of Series B Notes had been outstanding for the full year
ended May 31, 1995. Borrowings under the Mid-State Trust IV Asset Backed
Notes were assumed to increase during the period June 1, 1994 through
November 30, 1994 proportionately with the comparable period increase in
the outstanding economic balance of the instalment notes sold by
Mid-State Homes to Mid-State Trust IV on March 16, 1995. Borrowings
under the Mid-State Trust V Variable Funding Loan Agreement were based
on 78%

20
<PAGE>

of Jim Walter Homes' credit sales during the six-month period commencing
on December 1, 1994 and ending on May 31, 1995. This time period is
subsequent to the Mid-State Trust IV cut-off date for purchases of
instalment notes from Mid-State Homes. See "Business and Properties --
Mid-State Homes." No working capital borrowings were assumed under the
Bank Revolving Credit Facility. Pro forma interest expense, however,
includes letter of credit fees and unused working capital commitment fees.

(4) The income tax benefit has been adjusted at the applicable statutory rates
to give effect to the pro forma adjustments described above.

(5) Net loss per share has been computed based on the weighted average number
of shares of Common Stock issuable (50,988,626, which includes 494,313
additional shares of Common Stock required to be issued on September 13,
1995 (180 days after the Effective Date of the Plan of Reorganization)
pursuant to the Plan of Reorganization, but does not include up to
3,880,140 additional shares that will be issued to an escrow account on
such date pursuant to the Plan of Reorganization because such issuance is
contingent on future events and would be anti-dilutive; see "Description of
Capital Stock -- Future Stock Issuances").

21
<PAGE>
SELECTED HISTORICAL CONSOLIDATED FINANCIAL DATA

The following data, insofar as it relates to each of the fiscal years 1991
through 1995, has been derived from annual financial statements, including the
consolidated balance sheets at May 31, 1995 and 1994 and the related
consolidated statements of operations and retained earnings (deficit) and of
cash flows for the three years ended May 31, 1995 and the notes thereto
appearing elsewhere herein. All of the information presented below should be
read in conjunction with the Company's Consolidated Financial Statements and
the notes thereto, the Pro Forma Consolidated Statement of Operations and the
notes thereto and the other information contained elsewhere in this Prospectus.

Years ended May 31,
----------------------------------------------------------------------------
1991(1) 1992 1993(4) 1994 1995
-------------- -------------- -------------- -------------- ------------
(Dollars in thousands)

<S> <C> <C> <C> <C> <C>
Summary of Operations:
Sales and revenues . . . . . . . $ 1,326,397 $ 1,366,581 $ 1,318,986 $ 1,328,524 $ 1,442,322
Cost of sales (exclusive of
depreciation) . . . . . . . . . 826,455 891,882 804,411 845,061 951,381
Depreciation, depletion and
amortization . . . . . . . . . 75,099 82,801 70,483 71,035 72,037
Interest and amortization of debt
discount and expense(2) . . . . 209,511 177,060 171,581 155,470 304,548
Income tax expense (benefit) . . 19,454 12,463 24,328 28,917 (170,450)
Income (loss) before discontinued
operations and cumulative
effect of accounting
change(1)(4) . . . . . . . . . 20,632 22,342 46,594 7,175 (358,645)
Net income (loss) . . . . . . . . 14,462 22,342 (58,014) 7,175 (358,645)
Ratio of earnings from continuing
operations to fixed charges(3) 1.19 1.18 1.39 1.22 --

Additional Financial Data:
Gross capital expenditures . . . $ 69,046 $ 68,349 $ 71,708 $ 69,831 $ 91,317
Net property, plant and equipment
683,777 664,622 663,040 657,863 662,792
Total assets . . . . . . . . . . 3,276,211 3,171,266 3,223,234 3,140,892 3,245,153
Long term senior debt . . . . . . 1,073,919 948,782 1,046,971 871,970 2,220,370
Liabilities subject to Chapter 11
proceedings . . . . . . . . . . 1,883,704 1,845,328 1,725,631 1,727,684 --
Stockholders equity (deficit) . . (253,282) (230,119) (287,737) (282,353) 360,774

Employees at end of year . . . . 8,104 7,645 7,545 7,676 7,888
</TABLE>

(1) The selected financial data reflects operations sold as discontinued
operations.

(4) The Company adopted FAS 106 and FAS 109 during fiscal year 1993.

22
<PAGE>
MANAGEMENT'S DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATIONS

Introduction

This discussion should be read in conjunction with the Company's
Consolidated Financial Statements and the notes thereto, particularly the
"Segment Information" on pages F-25 and F-26 which presents sales and operating
income by operating group.

Pursuant to the Plan of Reorganization, the Company emerged from
bankruptcy on March 17, 1995. Accordingly, the Company's Consolidated Balance
Sheets at and after May 31, 1995 and its Consolidated Statements of Operations
and Retained Earnings (Deficit) for May 31, 1995 and periods thereafter will
not be comparable to the Consolidated Financial Statements for prior periods
included elsewhere herein. Furthermore, the Company's Consolidated Statement of
Operations and Retained Earnings (Deficit) for May 31, 1995 will not be
comparable to the Company's consolidated statements of operations and retained
earnings (deficit) for periods thereafter.

Results of Operations

Years ended May 31, 1995 and 1994. Net sales and revenues for the year
ended May 31, 1995 were $113.8 million, or 8.6%, greater than the prior year,
with a 7.0% increase in volume and a 1.6% increase in pricing and/or product
mix. The increase in net sales and revenues was the result of improved sales
and revenues in all operating groups except Homebuilding and Related Financing.

Industrial and Other Products Group sales and revenues were $59.6 million,
or 26.5%, greater than the prior year. Increased sales volumes of aluminum foil
and sheet products, foundry coke, chemicals, patterns and tooling, resin coated
sand, window components and metal building and foundry products, combined with
higher selling prices for aluminum foil and sheet products, furnace coke,
window components and metal building and foundry products and a $3.6 million
gain from the sale of JW Window Components, Inc.'s ("JW Window Components")
Hialeah, Florida facility were partially offset by reduced sales volumes of
furnace coke and slag wool. The Group's operating income of $11.9 million was
$1.9 million lower than the prior year. The decrease was the result of higher
manufacturing costs in the window components business due to increased raw
material costs, especially aluminum, a major raw material component, startup
costs associated with the consolidation and relocation during 1995 of JW Window
Components' Hialeah, Florida and Columbus, Ohio operations to Elizabethton,
Tennessee and reduced operating efficiencies, including startup problems
associated with relocation of Vestal Manufacturing Company's ("Vestal
Manufacturing") steel fabrication operation in May 1994. These decreases were
partially offset by increased income for aluminum foil and sheet, foundry coke,
chemicals, patterns and tooling and resin coated sand due to the sales
increases, improved gross profit margins for furnace coke and the gain from the
Hialeah facility sale.

Water and Waste Water Transmission Products Group sales and revenues were
$55.0 million, or 15.4%, ahead of the prior year. The increase was the result
of higher sales volumes and prices for ductile iron pressure pipe, valves and
hydrants and castings. The order backlog for pressure pipe at May 31, 1995 was
121,548 tons, which represents approximately three months' shipments, compared
to 111,907 tons at May 31, 1994. Operating income of $28.5 million exceeded the
prior year by $2.8 million. The improved performance resulted from the
increased sales prices and volumes, partially offset by higher raw material
costs, especially scrap, a major raw material component.

Natural Resources Group sales and revenues were $12.8 million, or 4.0%,
greater than the prior year. The increase resulted from greater sales volumes
for coal and a $6.1 million gain from the sale of excess real estate, partially
offset by lower sale prices for coal and methane gas and lower outside coal and
gas royalty income. A total of 7.20 million tons of coal was sold in 1995
versus 6.56 million tons in 1994, a 9.8% increase. The increase in tonnage sold
was the result of increased shipments to Alabama Power Company ("Alabama
Power") and certain export customers, partially offset by lower shipments to
Japanese steel mills. Increased shipments to Alabama Power were the result of a
new agreement signed May 10, 1994 (the "New Alabama Power Contract") for the
sale and purchase of coal, replacing the 1979 contract and the 1988 amendment
thereto. See "Business and Properties -- Jim Walter Resources." Under the New
Alabama Power Contract, Alabama Power will purchase 4.0 million tons of coal
per year from Jim Walter Resources during the period July 1, 1994 through
August 31, 1999. In addition, Jim Walter Resources will have the option to
extend the New Alabama

23
<PAGE>

Power Contract through August 31, 2004, subject to mutual agreement on the
market pricing mechanism and certain other terms and conditions of such
extension. The New Alabama Power Contract has a fixed price subject to an
escalation based on the Consumer Price Index or another appropriate published
index and adjustments for government impositions and quality. The New Alabama
Power Contract includes favorable modifications of specification, shipping
deviations and changes in transportation arrangements. The average price per
ton of coal sold decreased $2.79 from $44.13 in 1994 to $41.34 in 1995 due to
lower prices realized on shipments to Alabama Power, the Japanese steel mills
and certain export customers. Blue Creek Mine No. 5 ("Mine No. 5") was shut
down from November 17, 1993 through December 16, 1993 and from early April 1994
until May 16, 1994 as a result of a fire due to spontaneous combustion
heatings. Representatives of Jim Walter Resources, the Mine Safety and Health
Administration ("MSHA"), Alabama State Mine Inspectors and the United Mine
Workers of America ("UMWA") agreed that the longwall coal panel being mined in
Mine No. 5 at the time the fire recurred in April 1994 would be abandoned and
sealed off. Development mining for the two remaining longwall coal panels in
this section of the mine resumed on May 16, 1994 and mining on the first
longwall panel resumed on January 17, 1995. Production was adversely impacted
until such date; however, a portion of the increased costs is expected to be
recovered from business interruption insurance and the Company has commenced
litigation seeking to enforce such insurance. See "Business and Properties --
Legal Proceedings -- Jim Walter Resources" and Note 11 of Notes to Financial
Statements. Operating income of $20.1 million exceeded the prior year by $21.2
million. The improved performance principally resulted from the increased sales
volumes of coal, lower costs per ton of coal produced ($37.13 in 1995 versus
$38.29 in 1994) and the gain on the sale of certain excess real estate,
partially offset by decreases in selling prices for coal and methane gas and
lower outside coal and gas royalty income.

Homebuilding and Related Financing Group sales and revenues were $17.4
million, or 4.1%, below the prior year. This performance reflects a 4.7%
decrease in the number of homes sold, from 4,331 units in 1994 to 4,126 units
in 1995, partially offset by an increase in the average selling price per home
sold, from $38,300 in 1994 to $40,200 in 1995. The decrease in unit sales
reflects continuing strong competition in virtually every Jim Walter Homes
sales region. The higher average selling price in 1995 principally reflects a
smaller percentage of the lower priced Affordable line homes sold. Jim Walter
Homes' backlog at May 31, 1995 was 1,529 units (all of which are expected to be
completed prior to the end of fiscal 1996) compared to 2,065 units at May 31,
1994. Time charge income (revenues received from Mid-State Homes' instalment
note portfolio) decreased from $238.1 million in 1994 to $222.2 million in
1995. The decrease in time charge income is attributable to a reduction in the
total number of accounts and lower payoffs received in advance of maturity,
partially offset by an increase in the average balance per account in the
portfolio. The Group's operating income of $76.5 million (net of interest
expense) was $25.4 million below the prior year. This decrease resulted from
the lower number of homes sold, reduced homebuilding gross profit margins
resulting from discounts related to sales promotions on certain models, the
decrease in time charge income and higher interest expense in 1995 ($131.6
million) as compared to that incurred in 1994 ($128.8 million), partially
offset by the increase in the average selling price per home sold.

Cost of sales, exclusive of depreciation, of $951.4 million was 80.5% of
net sales versus $845.1 million and 79.1% in 1994. The cost of sales percentage
increase was primarily the result of lower gross profit margins on home sales,
pipe products, window components and metal building and foundry products.

Selling, general and administrative expenses (exclusive of postretirement
health benefits) of $130.6 million were 9.1% of net sales and revenues in 1995
versus $127.9 million and 9.6% in 1994.

Chapter 11 costs of $442.4 million in 1995 include $390 million in
settlement of all asbestos-related veil piercing claims and related legal fees
and $52.4 million for professional fees, settlement of various disputed claims
and other bankruptcy expenses. See "Business Properties -- Legal Proceedings --
Asbestos-Related Litigation Settlements."

Interest and amortization of debt discount and expense increased $149.1
million principally due to $141.4 million of additional interest and
amortization of debt expense related to consummation of the Plan of
Reorganization. The average rate of interest in 1995 was 10.19% (such rate
calculated excluding $141.4 million additional interest and amortization of
debt discount and expense related to the consummation of the Plan of
Reorganization) versus 9.58% in 1994. The prime interest rate ranged from 7.25%
to 9.0% in 1995 compared to a range of 6.0% to 7.25% in 1994. During the
pendency of the Chapter 11 Cases, the Company did not accrue interest on its
pre-filing date unsecured debt obligations.

24
<PAGE>

Amortization of excess of purchase price over net assets acquired
(goodwill) decreased $8.5 million primarily due to lower payoffs received in
advance of maturity on the instalment note portfolio.

The income tax benefit for 1995 was $170.5 million, which included
recognition of tax benefits resulting from $583.8 million of additional
expenses related to consummation of the Plan of Reorganization previously
mentioned, compared to income tax expense of $28.9 million in 1994. On August
10, 1993, the Omnibus Budget Reconciliation Act of 1993 was signed into law
raising the federal corporate income tax rate to 35% from 34% retroactive to
January 1, 1993. The effect of the rate change resulted in a $2.8 million
charge to deferred tax expense in 1994. See Note 8 of Notes to Financial
Statements for further discussion of income taxes.

The net loss for 1995 and the net income for 1994 reflect all of the
previously mentioned factors as well as the impact of slightly higher
postretirement health benefits, partially offset by greater interest income
from Chapter 11 proceedings.

Years ended May 31, 1994 and 1993. Net sales and revenues for the year
ended May 31, 1994 were $9.5 million, or .7%, greater than the prior year. The
improved performance was the result of increased pricing and/or product mix as
sales volumes were level with the prior year. The increase in net sales and
revenues was the result of improved sales and revenues in all operating groups
except the Natural Resources Group.

Homebuilding and Related Financing Group sales and revenues were $5.2
million, or 1.2%, greater than the prior year. This performance reflects a 3.5%
increase in the average selling price per home sold, from $37,000 in 1993 to
$38,300 in 1994, which was more than offset by a 9.5% decrease in the number of
homes sold, from 4,784 units in 1993 to 4,331 units in 1994. The higher average
selling price in 1994 reflects a price increase instituted on April 1, 1993 to
compensate for higher lumber costs and a greater percentage of "90% complete"
homes sold in 1994 versus the prior year. The decrease in unit sales resulted
from strong competition in virtually every Jim Walter Homes sales region. Jim
Walter Homes' backlog at May 31, 1994 was 2,065 units compared to 1,831 units
at May 31, 1993. Time charge income (revenues received from Mid-State Homes's
instalment note portfolio) increased from $218.7 million in 1993 to $238.1
million in 1994. The increase in time charge income is attributable to
increased payoffs received in advance of maturity and to an increase in the
average balance per account in the portfolio. The Group's operating income of
$102.0 million (net of interest expense) exceeded the prior year by $13.1
million. This improvement resulted from the increase in the average selling
price per home sold, the higher time charge income and lower interest expense
in 1994 ($128.8 million) compared to that incurred in 1993 ($137.9 million),
partially offset by the lower number of homes sold, reduced homebuilding gross
profit margins and higher selling, general and administrative expenses. The
lower gross profit margins were the result of higher average lumber prices, the
effect of discounts relating to sales promotions on certain models instituted
during the period February 1994 through May 1994 and the decision in October
1992 to reduce gross profit margins on five smaller basic shelter homes to
generate additional sales.

Industrial and Other Products Group sales and revenues were $12.1 million,
or 5.7%, ahead of the prior year. Increased sales volumes of aluminum foil,
foundry coke, window components, metal building and foundry products, resin
coated sand and chemicals, combined with higher selling prices for furnace coke
and window components, were partially offset by lower sales volumes of slag
wool and patterns and tooling and lower selling prices for aluminum foil and
sheet products. The Group's operating income of $13.9 million was $2.6 million
greater than the prior year. The improved performance resulted from the sales
increases and higher gross profit margins for furnace coke and slag wool,
partially offset by reduced margins for chemicals, foundry coke, window
components, metal building and foundry products, resin coated sand and patterns
and tooling.

Water and Waste Water Transmission Products Group sales and revenues were
$26.0 million, or 7.8%, ahead of the prior year. The increase was the result of
higher selling prices and volumes for ductile iron pressure pipe and valves and
hydrants, greater castings sales volume and increased selling prices for
fittings, partially offset by lower fittings volume. The order backlog of
pressure pipe at May 31, 1994 was 111,907 tons compared to 121,173 tons at May
31, 1993. Operating income of $25.6 million exceeded the prior year period by
$9.6 million. The improved performance resulted from the increased sales prices
and volumes, partially offset by higher raw material costs, especially scrap (a
major raw material component) and lower gross profit margins for castings.

Natural Resources Group sales and revenues were $31.6 million, or 9.0%,
below the prior year. The decrease resulted from lower sales volumes and prices
for coal and reduced methane gas selling prices, partially

25
<PAGE>

offset by increased methane gas sales volume and an increase in outside gas and
timber royalty income. A total of 6.56 million tons of coal was sold in 1994
versus 7.18 million tons in 1993, an 8.6% decrease. The decrease in tonnage
sold was the result of lower shipments to Alabama Power and Japanese steel
mills. Reduced shipments to Alabama Power were the result of an agreement
reached with Alabama Power to ship reduced tonnage for the contract year ending
June 30, 1994 (see "Business and Properties -- Jim Walter Resources"). The
average price per ton of coal decreased 1.6%, from $44.84 in 1993 to $44.13 in
1994, due to lower prices realized on shipments to Japanese steel mills and
other export customers. As previously mentioned, Mine No. 5 was shut down from
November 17, 1993 through December 16, 1993 and from early April 1994 until May
16, 1994 as a result of a fire due to spontaneous combustion heatings.
Representatives of Jim Walter Resources, MSHA, Alabama State Mine Inspectors
and the UMWA investigated the problem. Because the area of the suspected fire
was inaccessible, a decision was made to drill vertical holes from the surface
and flood the area with combinations of water, carbon dioxide, foam and
cementitious mixtures to neutralize the fire. MSHA approved the resumption of
operations at the mine on December 17, 1993. In early April 1994, the fire
recurred and the mine was shut down. Representatives of Jim Walter Resources,
MSHA, Alabama State Mine Inspectors and the UMWA agreed that the longwall coal
panel being mined at the time the fire recurred would be abandoned and sealed
off. Development mining for the two remaining longwall coal panels in this
section of the mine resumed on May 16, 1994 and mining on the first longwall
panel resumed on January 17, 1995. Production was adversely impacted until
January 17, 1995; however, a portion of the increased costs is expected to be
recovered from business interruption insurance and the Company has commenced
litigation seeking to enforce such insurance. See "Business and Properties --
Legal Proceedings -- Jim Walter Resources" and Note 11 of Notes to Financial
Statements. The Group incurred an operating loss of $1.2 million in 1994
compared to operating income of $50.8 million in 1993. The lower performance
reflects the decrease in sales volumes and prices for coal, lower methane gas
selling prices, reduced coal mining productivity as a result of various
geological problems in all mines during portions of the year which resulted in
higher costs per ton of coal produced ($38.29 in 1994 versus $33.45 in 1993)
and idle plant costs of $5.7 million associated with the Mine No. 5 shut downs,
all of which more than offset the effect of increased methane gas sales volume
and greater outside gas and timber royalty income.

Cost of sales in fiscal 1994, exclusive of depreciation, of $845.1 million
was 79.1% of net sales versus $804.4 million and 75.0% in fiscal 1993. The cost
of sales percentage increase was primarily the result of lower gross profit
margins on home sales, coal, chemicals, foundry coke, castings, resin coated
sand, patterns and tooling, window components and metal building and foundry
products, partially offset by improved margins on furnace coke, slag wool and
pipe products.

Selling, general and administrative expenses (exclusive of postretirement
health benefits) of $127.9 million were 9.6% of net sales and revenues in 1994
versus $124.6 million and 9.4% in 1993.

The Company adopted Statement of FAS 106 in 1993 (see Note 12 of Notes to
Financial Statements). Upon adoption the Company elected to record the
transition obligation of $166.4 million pre-tax ($104.6 million after tax) as a
one time charge against earnings rather than amortize it over a longer period.
The annual accrual for postretirement health benefit costs in 1994 was $25.6
million versus $23.5 million in 1993.

Interest and amortization of debt discount and expense decreased $16.1
million. The decrease was principally the result of reductions in the
outstanding debt balances on the Mid-State Trust II Mortgaged-Backed Notes and
Mid-State Trust III Asset Backed Notes (see "Business and Properties -- Mid-
State Homes" and Note 7 of Notes to Financial Statements) and lower
amortization of debt discount and expense, partially offset by higher interest
rates. The average interest rate in 1994 was 9.58% versus 9.44% in 1993. The
prime interest rate ranged from 6.0% to 7.25% in 1994 compared to a range of
6.0% to 6.5% in 1993. Interest in the amount of $724.3 million ($163.7 million
in each of the years 1994 and 1993) on unsecured obligations was not accrued in
the Consolidated Financial Statements since the date of the filing of petitions
for reorganization. This amount was based on the balances of the unsecured debt
obligations and their interest rates as of December 27, 1989 and did not
consider fluctuations in the level of short-term debt and interest rates and
the issuance of commercial paper that would have occurred to meet the working
capital requirements of the Homebuilding and Related Financing Group.

Amortization of excess of purchase price over net assets acquired
(goodwill) increased $9.1 million. The increase primarily resulted from
adjustments to amortization of the goodwill due to greater payoffs received in
advance of maturity on the instalment note portfolio.

26
<PAGE>
On August 10, 1993, the Omnibus Budget Reconciliation Act of 1993 was
signed into law raising the federal corporate income tax rate to 35% from 34%,
retroactive to January 1, 1993. The effect of the rate change resulted in a
$2.8 million charge to deferred tax expense. The rate change effect combined
with reduced percentage depletion and increased amortization of goodwill (both
permanent book/tax differences) resulted in an effective tax rate of 80.1% in
1994 versus an effective tax rate of 34.3% in 1993.

The net income for fiscal 1994 and the net loss for fiscal 1993 reflects
all of the previously mentioned factors as well as the $4.5 million increase in
Chapter 11 costs, partially offset by slightly higher interest income from
Chapter 11 proceedings. The increase in Chapter 11 costs was due to the Veil
Piercing Litigation (see Note 11 of Notes to Financial Statements) and the
filing of two amended plans of reorganization.

Years ended May 31, 1993 and 1992. As previously mentioned, the Company
adopted FAS 106 in 1993. Accordingly, operating income presented in the
"Segment Information" includes postretirement health benefits of $23.5 million
in 1993. However, for purposes of the following discussion of results of
operations for the years ended May 31, 1993 and 1992, the fiscal 1993 operating
income referred to in each business segment excludes such postretirement health
benefits expenses (hereinafter referred to as "1993 adjusted operating
income").

Net sales and revenues for the year ended May 31, 1993 decreased $47.6
million, or 3.5%. A 5.9% decrease in volume was partially offset by a 2.4%
increase in price and/or product mix. The decrease in net sales and revenues
resulted from lower sales and revenues in the Water and Waste Water
Transmission Products and Natural Resources Groups, partially offset by
improved sales in the Homebuilding and Related Financing and Industrial and
Other Products Groups.

Water and Waste Water Transmission Products Group sales and revenues were
$953,000, or .3%, below the prior year. The decrease was basically the result
of lower ductile iron pressure pipe sales volume due to weak construction
activity and rehabilitation work, partially offset by improved selling prices
and greater castings sales volume. The order backlog of pressure pipe at May
31, 1993 was 121,173 tons compared to 121,956 tons at May 31, 1992. The 1993
adjusted operating income of $20.2 million was $3.2 million below the prior
year. The effect of lower ductile iron pressure pipe sales volume on this
highly capital intensive product group was the primary reason for the decline
in operating profit, which was partially offset by lower scrap costs (a major
raw material component), improved selling prices, higher castings profit
margins and reduced selling, general and administrative expenses (due
principally to legal and settlement costs in 1992 associated with a lawsuit
filed by the City of Atlanta).

Natural Resources Group sales and revenues were $68.3 million, or 16.3%,
below the prior year. The decrease was the result of lower coal shipments and a
decrease in outside coal royalties, partially offset by higher average selling
prices for coal and methane gas and greater methane gas sales volume. A total
of 7.18 million tons of coal was sold in 1993 versus 9.18 million tons in 1992,
a 21.8% decrease. On June 17, 1992 a major production hoist accident occurred
at Blue Creek Mine No. 3 ("Mine No. 3") causing extensive damage. The mine did
not resume production until August 31, 1992. The hoist accident resulted in a
mutually agreed postponement of shipments of 400,000 tons to Alabama Power from
the period July through September 1992 to the period January through June 1993.
Fiscal 1992 tonnage shipments to Alabama Power were favorably impacted by a
separate lower selling price short-term contract for 964,000 tons. Shipments to
Japanese steel mills and other export customers were also below the prior year
due to the hoist accident and an April 1992 workforce reduction which reduced
production tonnage available for sale. The average price per ton of coal sold
increased 4.9%, from $42.76 in 1992 to $44.84 in 1993. The higher price
realization in 1993 was the result of coal shipped to Alabama Power in 1992
under the previously mentioned separate lower selling price short-term
contract, partially offset by lower selling prices to the Japanese steel mills
and other export customers in 1993. The Group's 1993 adjusted operating income
of $64.2 million exceeded the prior year by $48.2 million. The improved
performance resulted from the increased coal and methane gas selling prices,
higher methane gas sales volume, lower selling, general and administrative
expenses and improved mining productivity, including the effect of the April
1992 workforce reduction, which resulted in lower costs per ton of coal
produced ($33.45 in 1993 versus $36.03 in 1992), partially offset by the
reduced coal sales volume and the decrease in outside coal royalties. Prior
year results were also adversely impacted by severance, vacation pay and
ongoing medical benefits associated with the April 1992 workforce reduction
($6.2 million), accelerated depreciation on the remaining assets at a
previously closed small coal mine ($5.6 million) and idle plant costs
associated with a three-week shutdown of Blue Creek Mine No. 4 ("Mine No. 4")
due to an accident which damaged the production hoist ($4.4 million) and
wildcat strikes by the UMWA ($2.4 million) in August 1991.

27
<PAGE>

Homebuilding and Related Financing Group sales and revenues were $10.3
million, or 2.5%, greater than 1992. This performance reflects a 6.9% increase
in the average selling price per home sold, from $34,600 in 1992 to $37,000 in
1993, which was more than offset by a 9.8% decrease in the number of homes
sold, from 5,305 units in 1992 to 4,784 units in 1993. The increase in average
selling price in 1993 was attributable to higher average prices realized on
both the Standard line and the larger sized Regency homes combined with a
greater percentage of Regency homes sold. The decrease in unit sales reflected
strong competition in virtually every Jim Walter Homes sales region and 1993
having one-week shorter sales period than 1992. Jim Walter Homes' backlog at
May 31, 1993 was 1,831 units compared to 1,637 units at May 31, 1992. Time
charge income (revenues received from Mid-State Homes' instalment note
portfolio) increased from $195.0 million in 1992 to $218.7 million in 1993. The
increase in time charge income was attributable to the growth of the mortgage
portfolio, increased payoffs received in advance of maturity and new mortgages
having a higher yield than the older mortgages paying out. The Group's 1993
adjusted operating income of $90.9 million (net of interest expense) exceeded
the prior year by $8.2 million. This improvement resulted from the increase in
average selling price per home sold, the higher time charge income and lower
selling, general and administrative expenses, partially offset by the lower
number of homes sold, reduced homebuilding gross profit margins (due
principally to the sales of the larger sized, lower margin Regency homes and
increased lumber prices) and slightly higher interest expense in 1993 ($137.9
million) as compared to that incurred in 1992 ($137.0 million). Lumber prices
rose from $259 per thousand board feet in June 1992 to a high of $506 in March
1993 and ended the year at $325. A price increase was instituted effective
April 1, 1993 to compensate for these increased costs.

Industrial and Other Products Group sales and revenues were $8.5 million,
or 4.2%, greater than the prior year. Increased sales volumes of foundry coke,
chemicals and aluminum foil were partially offset by lower sales volumes of
aluminum sheet, resin coated sand, patterns and tooling, furnace coke and slag
wool and lower selling prices for aluminum foil and sheet, furnace coke, resin
coated sand and patterns and tooling. The Group's 1993 adjusted operating
income of $14.6 million was $120,000 below the prior year. The decrease was the
result of lower margins for chemicals, resin coated sand and patterns and
tooling.

Cost of sales, exclusive of depreciation, of $804.4 million was 75.0% of
net sales versus $891.9 million and 78.3% in 1992. The cost of sales percentage
decrease was primarily the result of improved gross profit margins on coal,
metal building and foundry products and castings, partially offset by lower
margins on home sales, ductile iron pressure pipe, chemicals, resin coated sand
and patterns and tooling. Results in 1992 were adversely affected by the impact
of charges resulting from the previously mentioned Jim Walter Resources mining
operations workforce reduction and idle plant costs associated with the wildcat
strikes by the UMWA.

Selling, general and administrative expenses of $124.6 million were 9.4%
of net sales and revenues in 1993 as compared to $129.4 million and 9.5% in
1992. Expenses in 1992 were adversely impacted by legal and settlement costs
associated with a lawsuit filed by the City of Atlanta.

As previously mentioned, the Company adopted FAS 106 in 1993. Upon
adoption, the Company elected to record the transition obligation of $166.4
million pre-tax ($104.6 million after tax) as a one time charge against
earnings rather than amortize it over a longer period. The annual accrual under
the new accounting method amounted to $23.5 million in the year ended May 31,
1993. See Note 12 of the Notes to Financial Statements.

Interest and amortization of debt discount and expense decreased $5.5
million. The decrease was the result of lower outstanding debt balances on
secured obligations and lower interest rates, partially offset by greater
amortization of debt discount and expense. The average interest rate in 1993
was 9.44% versus 9.62% in 1992. The prime interest rate ranged from 6.0% to
6.5% in 1993 compared to a range of 6.25% to 8.5% in 1992. Interest in the
amount of $560.6 million ($163.7 million in each of the years 1993 and 1992) on
unsecured obligations was not accrued in the Company's Consolidated Financial
Statements since the date of the filing of petitions for reorganization. This
amount is based on the balances of the unsecured debt obligations and their
interest rates as of December 27, 1989 and did not consider fluctuations in the
level of short-term debt and interest rates and the issuance of commercial
paper that would have occurred to meet the working capital requirements of the
Homebuilding and Related Financing Group.

The net loss for 1993 and the net income for 1992 reflects all of the
previously mentioned factors as well as the impact of a slightly lower
effective income tax rate and slightly higher interest income from Chapter 11
proceedings, partially offset by a $4.6 million increase in Chapter 11 costs.

28
<PAGE>
Financial Condition

On December 27, 1989, the Company and 31 of its subsidiaries each filed a
voluntary petition for reorganization under Chapter 11 with the Bankruptcy
Court. On December 3, 1990, one additional subsidiary also filed a voluntary
petition for reorganization under Chapter 11 with the Bankruptcy Court. Two
other small subsidiaries, Cardem Insurance and J.W. Railroad, did not file
petitions for reorganization under Chapter 11. The filing of the voluntary
petitions resulted from a sequence of events stemming primarily from an
inability of the Company's interest reset advisors to reset interest rates on
approximately $624 million of outstanding indebtedness, which indebtedness by
its terms required that the interest rates thereon be reset to the rate per
annum such indebtedness should bear in order to have a bid value of 101% of the
principal amount thereof as of December 2, 1989. The reset advisors' inability
to reset the interest rates was primarily attributable to two factors: (i)
uncertainties arising from the then pending asbestos-related Veil Piercing
Litigation, including the possibility either that such litigation would lead to
the prohibition of further asset sales and debt repayment or that substantial
new asbestos-related claims might become assertible against the Company, which
uncertainties materially hindered the ability of the Company and its
subsidiaries to pursue a refinancing or sell assets to reduce debt, and (ii)
general turmoil in the high yield bond markets at such time, both of which
depressed the bid value of such notes.

On March 17, 1995, the Company and 32 of its subsidiaries emerged from
bankruptcy. In summary, pursuant to the Plan of Reorganization (the actual
terms of which govern and should be consulted), the Company has repaid or will
repay substantially all of its unsecured claims and senior and subordinated
indebtedness subject to the Chapter 11 Cases as follows:

- Trade creditors received 75% of their allowed claims plus interest in
cash following the Effective Date of the Plan of Reorganization and
are entitled to receive the remaining 25% six months following the
Effective Date of the Plan of Reorganization with additional interest
for such period at the prime rate. At May 31, 1995, the remaining
amount to be distributed to trade creditors approximated $23.5
million;

- Revolving Credit and Working Capital bank claims and Series B and C
Senior Note claims received a combination of cash and Common Stock
following the Effective Date of the Plan of Reorganization;

- Unsecured bondholders received or are entitled to receive following the
Effective Date of the Plan of Reorganization, depending on elections made,
either shares of Common Stock or a combination of cash, Series B Notes and
shares of Common Stock, in either case having an aggregate reorganization
value equal to their prepetition claims. In addition, pre-LBO bondholders
received shares of Common Stock having an aggregate reorganization value
equal to $11.3 million in settlement of the Fraudulent Conveyance Lawsuit
commenced by the indenture trustees for the pre-LBO bondholders;

- The Veil-Piercing Claimants (as defined in the Veil Piercing Settlement)
received cash, Series B Notes and shares of Common Stock with an aggregate
reorganization value of $375 million in settlement of all claims. In
addition, the attorneys for the Veil-Piercing Claimants (as defined in the
Veil Piercing Settlement) received a cash payment of $15 million.

A substantial controversy exists with regard to federal income taxes
allegedly owed by the Company. Proofs of claim have been filed by the IRS in
the aggregate amount of $110,560,883 with respect to fiscal years ended August
31, 1980 and August 31, 1983 through August 31, 1987, $31,468,189 with respect
to fiscal years ended May 31, 1988 (nine months) and May 31, 1989 and
$44,837,693 with respect to fiscal years ended May 31, 1990 and May 31, 1991.
Objections to the proofs of claim have been filed by the Company and the
various issues are being litigated in the Bankruptcy Court. The Company
believes that such proofs of claim are substantially without merit and intends
to defend such claims against the Company vigorously, but there can be no
assurance as to the ultimate outcome.

See "Capitalization" for the consolidated capitalization of the Company
and its subsidiaries as of May 31, 1995, as adjusted in March 1995 and all of
the distributions and adjustments required by the Plan of Reorganization.

For a description of Mid-State Trusts II, III and IV, see "Business and
Properties -- Mid-State Homes."

29
<PAGE>
The assets of Mid-State Trusts II, III and IV are not available to satisfy
claims of general creditors of Mid-State Homes or the Company and its other
subsidiaries. The liabilities of Mid-State Trusts II, III and IV for their
publicly issued debt are to be satisfied solely from proceeds of the underlying
instalment notes and are nonrecourse to Mid-State Homes and the Company and its
other subsidiaries.

In connection with the Plan of Reorganization, on March 16, 1995, pursuant
to approval by the Bankruptcy Court, Mid-State Homes sold mortgage instalment
notes having a gross amount of $2,020,258,000 and an economic balance of
$826,671,000 to Mid-State Trust IV. In addition, on such date Mid-State Homes
sold its beneficial interest in Mid-State Trust II to Mid-State Trust IV. At
such date, Mid-State Trust II had a total collateral value of $910,468,000 with
$605,750,000 of Mid-State Trust II Mortgage-Backed Notes outstanding. These
sales were in exchange for the net proceeds from the public issuance by Mid-
State Trust IV of $959,450,000 of Mid-State Trust IV Asset Backed Notes. See
"Business and Properties -- Mid-State Homes" and Notes 1 and 7 of Notes to
Financial Statements.

On February 27, 1995, Mid-State Homes established Mid-State Trust V to
provide funds to Mid-State Homes for its current purchases of instalment notes
receivable from Jim Walter Homes. On March 3, 1995, Mid-State Trust V entered
into a Variable Funding Loan Agreement (the "Mid-State Trust V Variable Funding
Loan Agreement") with Enterprise Funding Corporation, an affiliate of
NationsBank N.A., as lender, and NationsBank N.A. (Carolinas), as
Administrative Agent. This agreement provides for a three-year $500 million
credit facility secured by the instalment notes and mortgages Mid-State Trust V
purchases from Mid-State Homes. See "Business and Properties -- Mid-State Homes"
and Notes 1 and 7 of Notes to Financial Statements.

The Series B Notes were issued by the Company pursuant to the Plan of
Reorganization as part of the distribution made in payment of claims of holders
of certain unsecured indebtedness of the Company and certain of its
subsidiaries. See "Description of Indebtedness -- Series B Senior Notes" and
Notes 1 and 7 of Notes to Financial Statements.

The Company and certain of its subsidiaries have entered into the Bank
Revolving Credit Facility, providing up to $150 million at any time outstanding
for working capital needs with a sub-limit for trade and standby letters of
credit in an amount not in excess of $40 million at any time outstanding and a
sub-facility for swingline advances in an amount not in excess of $15 million
at any time outstanding. See "Description of Certain Indebtedness -- Bank
Revolving Credit Facility" and Notes 1 and 7 of Notes to Financial Statements.

The Series B Notes, the Bank Revolving Credit Facility and the Mid-State
Trust V Variable Funding Loan Agreement contain a number of significant
covenants that, among other things, restrict the ability of the Company and its
subsidiaries to dispose of assets, incur additional indebtedness, make capital
expenditures, pay dividends, create liens on assets, enter into leases,
investments or acquisitions, engage in mergers or consolidations, or engage in
certain transactions with subsidiaries and affiliates and otherwise restrict
corporate activities (including change of control and asset sale transactions).
In addition, under the Bank Revolving Credit Facility, the Company is required
to maintain specified financial ratios and comply with certain financial tests,
including interest coverage and fixed charge coverage ratios, maximum leverage
ratios and minimum earnings before interest, taxes, depreciation and
amortization expense, some of which become more restrictive over time. See
"Description of Certain Indebtedness -- Bank Revolving Credit Facility". The
Company believes it will meet these financial tests over the terms of these
debt agreements.

Liquidity and Capital Resources

At May 31, 1995, cash and short-term investments were approximately $128
million. Principal sources of cash in 1995 were $959.5 million of proceeds from
the issuance of the Mid-State Trust IV Asset Backed Notes and cash flows from
operations, which were used, together with the issuance of Series B Notes and
shares of Common Stock, to repay Chapter 11 claimants pursuant to the terms of
the Plan of Reorganization. Operating cash flows were also used for working
capital requirements; for capital expenditures for business expansion,
productivity improvement, cost reduction and replacements necessary to maintain
the business; to retire long-term senior debt; and to provide a return to
lenders. Borrowings under the Mid-State Trust V Variable Funding Loan Agreement
totaled $15 million at May 31, 1995.

Working capital is required to fund adequate levels of inventories and
accounts receivable. Commitments for capital expenditures at May 31, 1995 are
not material; however, it is estimated that gross

30
<PAGE>

capital expenditures of the Company and its subsidiaries for the year ending
May 31, 1996 will approximate $80 million.

Because the Company's operating cash flow is significantly influenced by
the general economy and, in particular, the level of construction, prior years'
results should not necessarily be used to predict the Company's liquidity,
capital expenditures, investment in instalment notes receivable or results of
operations. The Company believes that the Mid-State Trust V Variable Funding
Loan Agreement will provide Mid-State Homes with the funds needed to purchase
the instalment notes and mortgages generated by Jim Walter Homes. It is
contemplated that one or more permanent financings similar to the Mid-State
Trust II, III and IV financings will be required over the next four years in
order to repay borrowings under the Mid-State Trust V Variable Funding Loan
Agreement. The Company also believes that under present operating conditions
sufficient operating cash flow will be generated through fiscal year 1999 to
make all required interest and principal payments and planned capital
expenditures and meet substantially all operating needs and that amounts
available under the Bank Revolving Credit Facility will be sufficient to meet
peak operating needs. However, it is currently anticipated that sufficient
operating cash flow will not be generated to repay at maturity the principal
amount of the Series B Notes without refinancing a portion of such debt or
selling assets. No assurance can be given that any refinancing will take place
or that such sales of assets can be consummated.

Selected Quarterly Data

The following tables set forth quarterly unaudited financial data for
fiscal years 1993, 1994 and 1995:

31
<PAGE>
<TABLE><CAPTION>

Fiscal Year 1993
For the quarters ended
---------------------------------------------------------------
Aug. 31, 1992 Nov. 30, 1992 Feb. 28, 1993 May 31, 1993
--------------- --------------- --------------- ---------------
(Dollars in thousands)
(Unaudited)
<S> <C> <C> <C> <C>
Summary of Operations:
Sales and revenues . . . . . . . . . . . . . $ 326,839 $ 338,268 $ 306,002 $ 347,877
Cost of sales (exclusive of depreciation) . . 198,959 211,307 186,451 207,694
Depreciation, depletion and amortization . . 16,479 17,709 17,587 18,708
Interest and amortization of debt discount
and expense . . . . . . . . . . . . . . . . 42,802 42,507 41,930 44,342
Income tax expense . . . . . . . . . . . . . 9,739 8,305 4,223 2,061
Income before cumulative effect of
accounting change(1) . . . . . . . . . . . 8,455 6,133 6,030 25,976
Net income (loss) . . . . . . . . . . . . . . (96,153) 6,133 6,030 25,976

Additional Financial Data:
Total assets . . . . . . . . . . . . . . . . $3,254,952 $3,229,182 $3,219,923 $3,223,234
Long-term senior debt . . . . . . . . . . . . 1,157,964 1,118,696 1,077,694 1,046,971
Liabilities subject to Chapter 11
proceedings . . . . . . . . . . . . . . . . 1,724,616 1,724,868 1,725,014 1,725,631
Stockholders equity (deficit) . . . . . . . . (326,272) (320,139) (314,109) (287,737)
</TABLE>

<TABLE><CAPTION>
Fiscal Year 1994
For the quarters ended
---------------------------------------------------------------
Aug. 31, 1993 Nov. 30, 1993 Feb. 28, 1994 May 31, 1994
--------------- --------------- --------------- ---------------
(Dollars in thousands)
(Unaudited)
<S> <C> <C> <C> <C>
Summary of Operations:
Sales and revenues . . . . . . . . . . . . . $ 333,770 $ 341,768 $ 309,492 $ 343,494
Cost of sales (exclusive of depreciation) . . 212,716 213,010 197,631 221,704
Depreciation, depletion and amortization . . 16,386 17,334 17,751 19,564
Interest and amortization of debt discount
and expense . . . . . . . . . . . . . . . . 40,112 40,375 37,642 37,341
Income tax expense . . . . . . . . . . . . . 10,390 9,659 5,323 3,545
Net income (loss) . . . . . . . . . . . . . . 1,392 6,817 857 (1,891)(2)

Additional Financial Data:
Total assets . . . . . . . . . . . . . . . . $3,198,288 $3,193,505 $3,162,660 $3,140,892
Long-term senior debt . . . . . . . . . . . . 1,003,240 958,670 907,504 871,970
Liabilities subject to Chapter 11
proceedings . . . . . . . . . . . . . . . . 1,725,952 1,726,421 1,727,345 1,727,684
Stockholders equity (deficit) . . . . . . . . (286,345) (279,528) (278,671) (282,353)
</TABLE>

<TABLE><CAPTION>
Fiscal Year 1995
For the quarters ended
---------------------------------------------------------------
Aug. 31, 1994 Nov. 30, 1994 Feb. 28, 1995 May 31, 1995
--------------- --------------- --------------- ---------------
(Dollars in thousands)
(Unaudited)
<S> <C> <C> <C> <C>
Summary of Operations:
Sales and revenues . . . . . . . . . . . . . $ 340,640 $ 363,330 $ 338,691 $ 399,661
Cost of sales (exclusive of depreciation) . . 224,119 237,737 221,074 268,451
Depreciation, depletion and amortization . . 16,757 17,930 18,407 18,943
Interest and amortization of debt discount
and expense . . . . . . . . . . . . . . . . 36,463 36,290 34,994 196,801(3)
Income tax expense (benefit) . . . . . . . . 6,857 9,109 6,022 (192,438)
Net income (loss) . . . . . . . . . . . . . . 1,433 4,920 (233) (364,765)(4)

Additional Financial Data:
Total assets . . . . . . . . . . . . . . . . $3,107,659 $3,009,803 $3,098,947 $3,245,153
Long-term senior debt . . . . . . . . . . . . 841,254 812,547 784,815 2,220,370(5)
Liabilities subject to Chapter 11
proceedings . . . . . . . . . . . . . . . . 1,727,889 1,727,279 1,728,215 --(5)
Stockholders equity (deficit) . . . . . . . . (280,920) (276,000) (276,233) 360,774(5)
</TABLE>

32
<PAGE>
(1) The Company adopted FAS 106 and FAS 109 during the first quarter of fiscal
year 1993.

(2) The net loss is primarily attributable to adjustments to amortization of
goodwill and the temporary shutdown of the Natural Resources Group's Mine
No. 5 in early April 1994. See "Management's Discussion and Analysis of
Financial Condition and Results of Operations -- Results of Operations --
Years ended May 31, 1995 and 1994."
(3) Includes additional interest and amortization of debt expense of $141.4
million related to the consummation of the Plan of Reorganization.
(4) The net loss includes $583.8 million of additional expenses related to the
consummation of the Plan of Reorganization.
(5) Reflects the consummation of the Plan of Reorganization.

BUSINESS AND PROPERTIES

General

The Company, through its direct and indirect subsidiaries, currently
offers a diversified line of products and services for homebuilding, water and
waste water transmission, residential and non-residential construction, and
industrial markets. The operations of the Company are carried out by its
operating subsidiaries, the business and properties of which are described
below. For financial information relating to the industry segments of the
Company and its subsidiaries, see "Segment Information" on pages F-25 and F-26.

Jim Walter Homes

Jim Walter Homes, headquartered in the Walter Industries building in
Tampa, Florida, is in the business of marketing and supervising the
construction of standardized, partially-finished and shell, detached, single
family residential homes, primarily in the southern region of the United States
where the weather permits year-round construction. Jim Walter Homes has
concentrated on the low to moderately priced segment of the housing market.
Over 300,000 homes have been completed by Jim Walter Homes and its predecessor
since 1955.

Jim Walter Homes' products consist of 35 models of conventionally built
homes, built of wood on concrete foundations or wood pilings, and ranging in
size from approximately 640 to 2,214 square feet. Each home is completely
finished on the outside and is unfinished on the inside except for rough
floors, ceiling joists, partition studding and closet framing. The buyer may
elect to purchase optional interior components, including installation thereof,
such as plumbing and electrical materials, heating and air conditioning,
wallboard, interior doors, interior trim and floor finishing. A buyer selecting
all options receives a home considered to be "90 percent complete," excluding
only floor covering, inside paint, and water and sewer hookups. Shell homes are
those which are completely finished on the outside with the inside containing
only rough floors, partition studding and closet framing, but not interior
walls, floor finishing, plumbing, electrical wiring and fixtures, doors and
cabinetry. The remaining units are sold at varying "in-between" stages of
interior finishing. Jim Walter Homes builds all of its homes "on site," and
only against firm orders. The following chart shows the sales volume of Jim
Walter Homes and the percent of homes sold in the three stages of completion
for fiscal years ended May 31, 1995, 1994 and 1993:

Percent of Unit Sales
--------------------------------------------
Fiscal Year Ended May 31, Units Sold Shell Various Stages 90% Complete
-------------------------------------- ------------- ------------- -------------- ---------------
<S> <C> <C> <C> <C>
1995 . . . . . . . . . . . . . . . . 4,126 25% 9% 66%
1994 . . . . . . . . . . . . . . . . 4,331 23 10 67
1993 . . . . . . . . . . . . . . . . 4,784 26 12 62
</TABLE>

During the fiscal years 1995, 1994 and 1993 the average net sales price of
a home was $40,200, $38,300 and $37,000, respectively.

Jim Walter Homes' backlog as of May 31, 1995 was 1,529 units, compared to
2,065 units at May 31, 1994. The average time to construct a home ranges from
four to twelve weeks.

Jim Walter Homes currently operates 105 branch offices located in 17
states, serving 23 states, primarily in the southern region of the United
States. Of such branch offices, approximately 82% are owned, with the balance
on leased land. These branch offices serve as "display parks," which are
designed to allow customers to view actual models completed to the various
stages of interior finishing available. Jim Walter Homes does not

33
<PAGE>

own or acquire land for purposes of its operations and is not a real estate
developer. Accordingly, these operations are not subject to significant
concentrations of credit risks. The actual construction of all homes sold by
Jim Walter Homes is done by local building contractors with their own crews,
pursuant to subcontracts executed in connection with each home, and inspected
by Jim Walter Homes' supervisory personnel. Jim Walter Homes maintains
warehouses near each of its district offices from which a portion of the
necessary building materials may be obtained; the balance of the building
materials is purchased locally.

Approximately 96% of the homes Jim Walter Homes sells are purchased with
financing it arranges. In order to qualify for a credit sale the purchaser of a
home must own his property free and clear of all encumbrances. In addition to
owning the land, the purchaser must perform certain steps to complete the home
and obtain a certificate of occupancy. Depending on the degree of completion of
the home purchased, these steps can cost a significant amount of money. The
credit terms offered by Jim Walter Homes have a maximum 30-year term, are
usually for 100% of the purchase price of the home, and carry a 10% "annual
percentage rate", without points or closing costs. To qualify for financing a
potential customer must also provide information concerning his or her monthly
income and employment history as well as a legal description of and evidence
that the customer owns the land on which the home is to be built. A customer's
income and employment usually are verified through telephone conversations with
such customer's employer and by examining his or her pay stubs, W2 forms or, if
the customer is self-employed, income tax returns. An applicant must have a
minimum of one year's continuous employment or, if he or she has changed jobs,
the new job must be in the same field of work. Only a small percentage of
secondary income (second job or part-time work) is utilized in qualifying
applicants. Ownership of the land is verified by examining the title record. In
addition, Jim Walter Homes' credit department obtains a credit report. If a
favorable report is obtained and the required monthly payment does not exceed
25% of the customer's monthly gross income, the application usually is approved
and a building or instalment sales contract is executed, a title report is
ordered and frequently a survey of the property is made. Surveys are performed
by independent registered surveyors when, in the opinion of Jim Walter Homes,
additional information beyond examination of the title record in needed. Such
additional information is primarily concerned with verification of legal
description, ownership of land and existence of any encroachments. Jim Walter
Homes does not use a point or grade credit scoring system. Particular attention
is paid to the credit information for the most recent three to five years.
Attention is also given to the customer's total indebtedness and total other
monthly payments on a judgmental basis by the credit department. The customer's
credit standing is considered favorable if the employment history, income and
credit report meet the aforementioned criteria. The contract is subject to (i)
executing a promissory note which is secured by a first lien on the land and
the home to be built, (ii) executing a mortgage, deed of trust or other
security instrument, (iii) receiving a satisfactory title report, (iv)
inspecting the land to determine that it is suitable for building and (v)
obtaining required permits. Although the mortgages, deeds of trust and similar
security instruments constitute a first lien on the land and the home to be
built, such security instruments are not insured by the Federal Housing
Administration or guaranteed by the Veterans Administration or otherwise
insured or guaranteed.

Jim Walter Homes does not obtain appraisals or title insurance. Although
consideration is given to the ratio of the amount financed to the estimated
value of the home and the land securing such amount, there is no explicit
appraisal-based loan-to-value test. However, there is a requirement that the
value of the lot on which the home is to be built, as estimated solely on the
basis of Jim Walter Homes' mortgage servicing division employees' experience
and knowledge, be at least equal to 10% of the principal amount of the loan.
Before occupying a new home, the customer must complete the utility and sewer
hook-ups and any of the other components not purchased from Jim Walter Homes,
arrange for the building inspection and, if required, obtain a certificate of
occupancy. The costs to complete a new home depend on the stage of completion
of the home purchased and whether public water and sewer systems are available
or wells and septic tanks must be installed. Such costs could range from
$2,000-$3,000 to $30,000-$40,000. Upon construction of a new home to the
agreed-upon percentage of completion, Jim Walter Homes sells the building and
instalment sales contract, the note, and the related mortgage, deed of trust or
other security instrument to Mid-State Homes in the ordinary course of business
pursuant to an Agreement of Purchase and Sale of Instalment Obligations and
Servicing of Delinquent Accounts. Pursuant to this agreement, Jim Walter Homes
provides field servicing on all delinquent accounts, including collection of
delinquent accounts, recommendations of foreclosure, foreclosure and resale of
foreclosed properties.

The favorable financing offered by Jim Walter Homes normally has tended to
increase unit volume in times of high interest rates and limited availability
of mortgage financing funds. As a result, Jim Walter Homes' business has tended
to be counter-cyclical to national home construction activity. However, in
times of low interest rates and high availability of mortgage funds, Jim Walter
Homes' volume of home sales has tended to

34
<PAGE>

decrease. Also, in times of low interest rates and high availability of
mortgage funds, additional competition is able to enter the market.

For the calendar year 1994, Jim Walter Homes was the fifth largest builder
of detached single-family homes in the United States after having been the
sixth largest builder in 1993, the fourth largest builder in 1992 and 1991, the
third largest builder in 1990, the fourth largest builder in 1988 and 1989, the
second largest builder in 1986 and 1987 and the largest builder in 1984 and
1985.

In the three years ended May 31, 1995, 1994 and 1993, Jim Walter Homes'
net sales and revenues amounted to $165.8 million, $166.0 million and $177.2
million, respectively.

Mid-State Homes

Mid-State Homes, headquartered in the Walter Industries building in Tampa,
Florida, was established in 1958 to purchase mortgage instalment notes from Jim
Walter Homes on homes constructed and sold by Jim Walter Homes and to service
such mortgage instalment notes. Mid-State Trust II, Mid-State Trust III and
Mid-State Trust IV are business trusts organized by Mid-State Homes, which owns
all of the beneficial interests in Mid-State Trust III and Mid-State Trust IV.
Mid-State Trust IV owns all of the beneficial interest in Mid-State Trust II.

In April 1988, Mid-State Homes sold to Mid-State Trust II instalment notes
and mortgages which it had acquired from Jim Walter Homes through February 29,
1988 with a gross amount of approximately $3,376,000,000 and an aggregate
outstanding economic balance of approximately $1,750,000,000, pursuant to a
purchase and sale agreement, in exchange for a purchase price of
$1,326,665,600, representing the net cash proceeds from the public offering of
$1,450,000,000 aggregate face amount of mortgage-backed notes ("Mid-State Trust
II Mortgage-Backed Notes") of Mid-State Trust II after paying the expenses
associated with the sale of such Mid-State Trust II Mortgage-Backed Notes. The
outstanding balance at May 31, 1995 of such Mid-State Trust II Mortgage-Backed
Notes was $584,000,000. At May 31, 1995 such Mid-State Trust II instalment
notes and mortgages had a gross book value of $1,396,138,000 and an economic
balance of approximately $846,481,000.

Under the Mid-State Trust II indenture for the Mid-State Trust II
Mortgage-Backed Notes, if certain criteria as to performance of the pledged
instalment notes are met, Mid-State Trust II is allowed to make distributions
of cash to Mid-State Trust IV, its sole beneficial owner, to the extent that
cash collections on such instalment notes exceed Mid-State Trust II's cash
expenditures for its operating expenses, interest expense and mandatory debt
payments on the Mid-State Trust II Mortgage-Backed Notes. In addition to the
performance-based distributions, the indenture permits distribution of
additional excess funds, if any, provided such distributions are consented to
by Financial Security Assurance Inc., a monoline property and casualty
insurance company and the guarantor of the Mid-State Trust II Mortgage-Backed
Notes. The guarantor has not approved any additional distributions since the
January 1, 1995 distribution and such excess funds remain on deposit with Mid-
State Trust II.

On July 1, 1992, pursuant to approval by the Bankruptcy Court, mortgage
instalment notes having a gross amount of $638,078,000 and an economic balance
of $296,160,000 were sold by Mid-State Homes to Mid-State Trust III in exchange
for the net proceeds from the public issuance by Mid-State Trust III of
$249,864,000 of asset backed notes ("Mid-State Trust III Asset Backed Notes").
Net proceeds were used to repay in full all outstanding indebtedness due under
a revolving credit facility, with the excess cash used to fund the ongoing
operations of the Company and its subsidiaries. The outstanding balance at
May 31, 1995 of such Mid-State Trust III Asset Backed Notes was $173,527,000.
At May 31, 1995, such Mid-State Trust III instalment notes and mortgages had a
gross book value of $472,980,000 and an economic balance of $239,200,000.

On March 16, 1995, pursuant to approval by the Bankruptcy Court, mortgage
instalment notes having a gross amount of $2,020,258,000 and an economic
balance of $826,671,000 were sold by Mid-State Homes to Mid-State Trust IV. In
addition, on such date, Mid-State Homes sold its beneficial interest in Mid-
State Trust II to Mid-State Trust IV. Mid-State Trust II had a total collateral
value of $910,468,000 with $605,750,000 of Mid-State Trust II Mortgage-Backed
Notes outstanding. These sales were in exchange for the net proceeds from the
public issuance by Mid-State Trust IV of $959,450,000 of asset backed notes
("Mid-State Trust IV Asset Backed Notes"). The outstanding balance at May 31,
1995 of such Mid-State Trust IV Asset Backed Notes was

35
<PAGE>

$953,843,000. At May 31, 1995, such Mid-State Trust IV instalment notes and
mortgages had a gross book value of $1,970,887,000 and an economic balance of
$814,182,000.

The instalment notes sold by Mid-State Homes to Mid-State Trusts II, III
and IV are serviced by Mid-State Homes pursuant to servicing agreements entered
into with each trust. Mid-State Homes in connection with such servicing
agreements has entered into sub-servicing agreements with Jim Walter Homes to
provide field servicing activities such as collections, repossessions and
resale.

The assets of Mid-State Trusts II, III and IV are not available to satisfy
claims of general creditors of Mid-State Homes or the Company and its other
subsidiaries. The liabilities of Mid-State Trusts II, III and IV for their
publicly issued debt are to be satisfied solely from proceeds of the underlying
instalment notes and are nonrecourse to Mid-State Homes and the Company and its
other subsidiaries.

On February 27, 1995 Mid-State Homes established Mid-State Trust V, a
business trust in which Mid-State Homes owns all the beneficial interests, to
provide temporary financing to Mid-State Homes for its current purchases of
instalment notes and mortgages from Jim Walter Homes. On March 3, 1995 Mid-
State Trust V entered into the Mid-State Trust V Variable Funding Loan
Agreement with Enterprise Funding Corporation, an affiliate of NationsBank
N.A., as lender, and NationsBank N.A. (Carolinas), as Administrative Agent. The
agreement provides for a three-year $500,000,000 credit facility (the "Mid-
State Trust V Variable Funding Loan") secured by the instalment notes and
mortgages Mid-State Trust V purchases from Mid-State Homes. It is contemplated
that the facility will be an evergreen three-year facility with periodic
paydowns from the proceeds of permanent financings similar to those done by
Mid-State Trusts II, III and IV. The outstanding Mid-State Trust V Variable
Funding Loan balance at May 31, 1995 was $15 million. At May 31, 1995, such
Mid-State Trust V instalment notes and mortgages had a gross book value of
$254,871,000 and an economic balance of $92,466,000.

The revenues of Mid-State Trusts II, III, IV and V are required by
generally accepted accounting principles to be consolidated as part of Mid-
State Homes' revenues for financial statement purposes. In the three years
ended May 31, 1995, 1994 and 1993, Mid-State Homes' revenues amounted to $237.1
million, $255.3 million and $235.7 million, respectively, including revenues of
Mid-State Trust II of $141.5 million, $164.5 million and $161.8 million,
respectively, and revenues of Mid-State Trust III of $24.1 million, $27.5
million and $23.2 million, respectively. Revenues of Mid-State Trusts IV and V
in the year ended May 31, 1995 amounted to $22.5 million and $.5 million,
respectively.

Jim Walter Resources

The operations of Jim Walter Resources are conducted through its Mining
Division, which mines and sells coal from four deep shaft mines in Alabama, and
its De-Gas Division, which extracts and sells methane gas from the coal seams
owned or leased by Jim Walter Resources.

Mining Division

The Mining Division, headquartered in Brookwood, Alabama, has
approximately 9.5 million tons of rated annual coal production capacity from
four deep shaft mines. These mines extract coal from Alabama's Blue Creek seam,
from which a high quality metallurgical coal is obtained. This coal can be used
as coking coal as well as steam coal because it meets current environmental
compliance specifications. The Blue Creek coal has a low/medium volatility and
high BTU and low sulfur content. The mines are located in west central Alabama
between the cities of Birmingham and Tuscaloosa.

The majority of the coal is mined using longwall technology, complemented
by the more standard continuous mining method. Since the late 1970's, by
replacing the traditional methods of underground mining with the longwall
technique, the Mining Division has achieved greater production efficiency,
improved safety, generated superior coal recovery results and lowered
production costs. There are approximately 80 longwall mining systems in use in
the United States, of which the Mining Division operates six. The Mining
Division's normal operating plan is a longwall/continuous ratio of about
75%/25%, which is the long-term sustainable ratio.

Recoverable reserves as of May 31, 1995 were estimated to be approximately
249 million tons, of which 224 million tons relate to the four Blue Creek
mines.

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<PAGE>
A summary of the reserves is as follows:

ESTIMATED RECOVERABLE(1) COAL RESERVES AS OF MAY 31, 1995
(In Thousands of Tons)

JWR's
Reserves(2) Classifications(3) Type(4) Interest Quality(6) Production(7)
--------------------------- ------------------ ------- ----------------- ------------------- ------------------

Steam(S)
or
Mining Metallur-
Property Total Assigned Unassigned Measured Indicated gical(M) Owned Leased(5) Ash Sulf. BTU/lb 1993 1994 1995
---------- ------- -------- ---------- -------- --------- --------- ------ --------- ----- ----- ------ ----- ----- -----
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C>
No. 3 Mine 62,159 62,159 -- 45,763 16,396 S/M 1,446 60,713 8.2 0.56 14,469 1,564 1,347 1,730
No. 4 Mine 73,405 73,405 -- 43,435 29,970 S/M 4,328 69,077 9.4 0.69 14,240 2,417 2,257 2,448
No. 5 Mine 29,552 29,552 -- 24,566 4,986 S/M 27,217 2,335 8.8 0.66 14,334 1,326 1,074 948
No. 7 Mine 58,979 58,979 -- 33,471 25,508 S/M 16,261 42,718 8.0 0.65 14,499 2,012 1,849 2,501
------- ------- ------- ------- ------- ------ ------- ----- ----- -----
224,095 224,095 -- 147,235 76,860 49,252 174,843 7,319 6,527 7,627
Bessie(8) 24,919 -- 24,919 14,880 10,039 S/M 658 24,261 11.0 1.30 13,655 -- -- --
------- ------- ------- ------- ------- ------ ------- ----- ----- -----
TOTAL 249,014 224,095 24,919 162,115 86,899 49,910 199,104 7,319 6,527 7,627
======= ======= ======= ======= ======= ====== ======= ===== ===== =====
</TABLE>

(1) "Recoverable" reserves are defined as tons of mineable coal in the Blue
Creek and Mary Lee seams which can be extracted and marketed after
deduction for coal to be left in pillars, etc. and adjusted for reasonable
preparation and handling losses.
(2) "Assigned" reserves represent coal which has been committed by Jim Walter
Resources to its operating mines and plant facilities. "Unassigned"
reserves represent coal which is not committed to an operating mine and
would require additional expenditure to recover. The division of reserves
into these two categories is based upon current mining plans, projections,
and techniques.
(3) The recoverable reserves (demonstrated resources) are the sum of
"Measured" and "Indicated" resources. Measured coal extends 1/4 mile from
any point of observation or measurement. Indicated coal is projected to
extend from 1/4 mile to 3/4 mile from any point of observation or
measurement. Inferred coal extends from 3/4 mile to 3 miles from any point
of observation or measurement. Inferred reserves are not included in
recoverable reserves.
(4) All of the coal in the Blue Creek and Mary Lee seams is suitable for
metallurgical purposes although, for marketing reasons, some is sold as
compliance steam coal.
(5) The leases are either renewable until the reserves are mined to exhaustion
or are of sufficient duration to permit mining of all of the reserves
before the expiration of the term.
(6) Values shown are weighted averages of all reserves and are calculated on a
dry basis. Bessie Mine reserves are equivalent to preparation at a 1.60
specific gravity whereas the others are at a 1.40 specific gravity.

(7) Production for 1995, 1994 and 1993 is for the fiscal years ended May 31.

(8) The Bessie Mine was closed in August 1988.

Environmental expenditures imposed by laws relating to deep shaft mining
have been insignificant to date and no substantial expenditures are expected in
the future. The Mining Division does not engage in any surface (strip) mining.

The facilities of the Mining Division are summarized as follows:

<TABLE><CAPTION>
Facility Location Sq. Footage
------------------------------------------------------------ ----------------------------- -----------------------------
<S> <C> <C>
Administration headquarters . . . . . . . . . . . . . . . . Brookwood, AL 41,500

Central shop, supply center and training center . . . . . . Brookwood, AL 128,400

Current
Operating Mines Location Rated Capacity
------------------------------------------------------------ ----------------------------- -----------------------------
Blue Creek No. 3 . . . . . . . . . . . . . . . . . . . . . Adger, AL 2,500,000 tons

Blue Creek No. 4 . . . . . . . . . . . . . . . . . . . . . Brookwood, AL 2,800,000 tons

Blue Creek No. 5 . . . . . . . . . . . . . . . . . . . . . Brookwood, AL 1,600,000 tons

Blue Creek No. 7 . . . . . . . . . . . . . . . . . . . . . Brookwood, AL 2,600,000 tons
</TABLE>

Of the Mining Division's approximately 9.5 million tons of current rated
annual production capacity, 4.88 to 5.10 million tons are sold under long-term
contracts, leaving 4.40 to 4.62 million tons to be sold under short-term
contracts or on the spot market.

Jim Walter Resources' supply contract with Alabama Power that had been in
effect since January 1, 1979, as amended, was superseded by the New Alabama
Power Contract executed on May 10, 1994. Under the

37
<PAGE>
New Alabama Power Contract, Alabama Power will purchase 4.0 million tons of
coal per year from Jim Walter Resources during the period from July 1, 1994
through August 31, 1999. In addition, Jim Walter Resources will have the option
to extend the New Alabama Power Contract through August 31, 2004, subject to
mutual agreement on the market pricing mechanism and other terms and conditions
of such extension. The New Alabama Power Contract has a fixed price subject to
an escalation based on the Consumer Price Index and adjustments for
governmental impositions and quality. The New Alabama Power Contract includes
favorable modifications of specifications and shipping deviations and changes
in transportation arrangements. See "Management's Discussion and Analysis of
Financial Condition and Results of Operations -- Results of Operations."

Jim Walter Resources' long-term contracts with six Japanese steel mills
for 2.75 to 3.0 million tons annually, depending on the level of steel
production in Japan, expired on March 31, 1994. The pricing mechanisms in such
contracts were market driven and reflected changes in the prices of four
specific coal indices. The composite change in market prices of these coal
indices from the base point was then reflected in the billing price to the
steel mills. Jim Walter Resources has negotiated one-year market-based
contracts to sell approximately 1.5 million tons of coal to a group of Japanese
steel mills previously served under the long-term contract. In addition,
approximately 300,000 tons of coal not previously shipped under terms of the
long-term contracts will be shipped during fiscal 1996 at the long-term
contract price, which is substantially higher than the current market price.

Jim Walter Resources and Carcoke, S.A. are parties to a long-term contract
which expires on December 31, 1996. The contract provides for the sale of
approximately 880,000 tons annually, with an option on approximately 220,000
additional tons annually. The pricing mechanism is market driven and reflects
changes in prices of three specific coals or coal indices.

Mine No. 5 was shut down for a substantial portion of the period from July
9, 1990 through September 16, 1990 as a result of safety concerns arising from
spontaneous combustion heatings which were a result of pyritic sulfur
concentrations occurring in the coal seam in the southern part of the mine
being exposed to the air by the mining process. The exposure of the sulfur
deposits and its reaction with oxygen contained in the ventilation air currents
caused the heatings to occur. Throughout this period, Jim Walter Resources was
engaged in discussions with MSHA regarding a new ventilating arrangement,
designed to reduce the contact between oxygen and sulfur, for the longwall
faces at Mine No. 5. Idle plant expenses associated with the shutdown were $6.5
million. Although MSHA approved the resumption of operations at the mine on
September 14, 1990, providing for a modified conventional ventilation system,
productivity was poor and costs were therefore high. In February 1991, the
mine's one longwall unit was moved from the southern part of the mine to a
longwall coal panel in the northern area and productivity improved. The
southwestern area of the mine was subsequently abandoned and sealed off as
efforts to design a ventilation arrangement acceptable to MSHA which properly
controlled the spontaneous combustion heatings and provided acceptable
productivity and costs of operation were not successful.

Mine No. 5 also was shut down from November 17, 1993 through December 16,
1993 and from early April 1994 until May 16, 1994 as a result of a fire due to
spontaneous combustion heatings. Representatives of Jim Walter Resources, MSHA,
Alabama State Mine Inspectors and the UMWA investigated the problem. Because
the area of the suspected fire was inaccessible, a decision was made to drill
vertical holes from the surface and flood the area with combinations of water,
carbon dioxide, foam and cementitious mixtures to neutralize the fire. MSHA
approved the resumption of operations at the mine on December 17, 1993. In
early April 1994, the fire recurred at Mine No. 5 and the mine was shut down.
Jim Walter Resources, MSHA, Alabama State Mine Inspectors and the UMWA agreed
that the longwall coal panel being mined at the time the fire recurred would be
abandoned and sealed off. Development mining for the two remaining longwall
coal panels in this section of the mine resumed on May 16, 1994 and the mining
on the first longwall panel resumed on January 17, 1995.

Production was adversely impacted until January 17, 1995; however, a
portion of the increased costs is expected to be recovered from business
interruption insurance. On May 31, 1995, the Company commenced a lawsuit in the
Circuit Court for Tuscaloosa County, Alabama against a group of insurance
companies with which the Company has such business interruption insurance
seeking damages in excess of $25 million for loss from interruption to Jim
Walter Resources' business resulting from the shut down of Mine No. 5. The
lawsuit is in its initial stages, but the Company and Jim Walter Resources
believe their claim is meritorious and intend to pursue

38
<PAGE>

it vigorously. See "Legal Proceedings -- Jim Walter Resources" below and Note 11
of Notes to Financial Statements.

In the three years ended May 31, 1995, 1994 and 1993, the Mining
Division's net sales and revenues were $299.4 million, $290.3 million and
$324.4 million, respectively, including $5.4 million, $5.7 million and $7.1
million, respectively, to Sloss Industries, Inc., a wholly owned subsidiary of
the Company ("Sloss Industries").

De-Gas Division

The De-Gas Division, through a joint venture headquartered in Brookwood,
Alabama, extracts and sells methane gas from the coal seams owned or leased by
Jim Walter Resources.

The original motivation for the joint venture was to increase safety in
Jim Walter Resources' Blue Creek mines by reducing the level of methane gas
through wells drilled in conjunction with the mining operations. As of May
1995, there were 268 wells producing approximately 33 million cubic feet of gas
per day. As many as 250 additional wells are planned for development over the
next several years. The degasification operation, as had originally been
expected, has had the effect of improving mining operations and safety by
reducing methane gas levels in the mines, as well as becoming a profitable
operation.

The gas is transported through a 20-mile pipeline (owned and operated by
Black Warrior Transmission Corp. ("Black Warrior Transmission"), a corporation
the stock of which is owned on a 50-50 basis by the De-Gas Division and Sonat
Exploration Company, an affiliate of Southern Natural Gas Company ("SNG")),
directly to SNG's pipeline.

The De-Gas Division began operations in 1981 with the formation of an
equal joint venture with Kaneb Services, Inc. ("Kaneb") to capture and market
methane gas from the Blue Creek seam. SNG is the joint venture's exclusive
customer for all output of methane gas, all of which was originally at a price
tied to the price of fuel oil in New York. Kaneb subsequently sold its 50%
interest in the degasification operation to an indirect wholly-owned subsidiary
of Sonat, Inc. In connection with such sale, additional areas were added to the
gas sales contract. This gas was priced at a market price nominated by SNG
which was not to be lower than the published price for spot purchases for SNG -
South Louisiana for the applicable month. Effective January 1, 1994, the gas
sales contract was amended. The price to be paid for gas delivered to SNG is
now equal to the average of two published spot prices; provided, however, that
the price will not be less than $2.00 per MMBTU (approximately $1.96 per MCF)
on a weighted annual average basis, calculated cumulatively each month.
Beginning in January 1994 and ending in December 2001, SNG will pay Jim Walter
Resources a reservation fee of $675,000 per month if certain minimum quantities
of gas are delivered. Black Warrior Methane Corp. ("Black Warrior Methane"), a
corporation the stock of which is owned on a 50-50 basis by the De-Gas Division
and Sonat Exploration Company, manages the operational activities of the joint
venture.

In the three years ended May 31, 1995, 1994 and 1993, the De-Gas
Division's net sales and revenues amounted to $20.8 million, $23.0 million and
$22.5 million, respectively.

U.S. Pipe

U.S. Pipe, headquartered in Birmingham, Alabama, conducts its business
through its Pressure Pipe Division and Castings Division. The Pressure Pipe
Division manufactures and sells a broad line of ductile iron pressure pipe,
pipe fittings and valves and hydrants. It is one of the nation's largest
producers of ductile iron pressure pipe. The Castings Division produces and
sells a wide variety of gray and ductile iron castings.

In the three years ended May 31, 1995, 1994 and 1993, U.S. Pipe's net
sales and revenues amounted to $412.2 million, $357.2 million and $331.2
million, respectively.

Pressure Pipe Division

The Pressure Pipe Division manufactures and sells a complete line of
ductile iron pipe ranging from 4" to 64" in diameter as well as most equivalent
metric sizes. In addition, this division produces and sells a full line of
fittings, valves and hydrants of various configurations to meet various
municipal specifications. Approximately

39
<PAGE>
70%-75% of the ductile iron pressure pipe produced by this division is used in
the transmission and distribution of potable water and the remaining 25%-30% is
used in the transmission of waste water and industrial applications. The
majority of ductile iron pressure pipe and related fittings, valves and
hydrants are for new distribution systems. However, the market for
rehabilitation, upgrading and replacement of pipe systems has grown
significantly in recent years as major municipalities have initiated programs
to rehabilitate aging water and waste water transmission systems, and is
currently estimated to represent approximately 30% of ductile iron pressure
pipe sales. Fittings, valves and hydrants produced by this division account for
approximately 20% of sales.

Ductile iron pressure pipe is manufactured by the deLavaud centrifugal
casting process and is typically classified into three size categories. Small
pipe, ranging from 4" to 12" in diameter (approximately 54% of the Pressure
Pipe Division's pipe production), is used primarily for potable water
distribution systems and small water system grids. Medium pipe ranging from 14"
to 24" in diameter (approximately 29% of the Pressure Division's pipe
production) is used primarily in reinforcing distribution systems, including
looping grids and supply lines. Large pipe, 30" to 64" in diameter, which
accounts for the remaining 17% of pipe production, is used for major water and
waste water transmission and collection systems.

The ductile iron pressure pipe industry is highly competitive, with a
small number of manufacturers of ductile iron pressure pipe, fittings, valves
and hydrants as well as a larger number of manufacturers which produce
substitute materials, such as PVC, concrete, fiberglass, reinforced plastic and
steel. U.S. Pipe is one of the nation's largest producers of ductile iron
pressure pipe. Other major competitors include McWane, Inc., Griffin Ductile
Iron Pipe Company and American Cast Iron Pipe Company. The division competes
with other manufacturers of ductile iron pressure pipe on the basis of price,
customer service and product quality.

U.S. Pipe is also a manufacturer of ductile iron fittings. The Company
believes that Tyler Corporation and McWane, Inc. have larger market shares than
U.S. Pipe in this market segment. U.S. Pipe is not a major manufacturer of
valves and hydrants.

Additional competition for ductile iron pressure pipe comes from pipe
composed of other materials. Although ductile iron pressure pipe is typically
more expensive than competing forms of pipe, customers choose ductile iron for
its quality, longevity, strength, ease of installation and lack of maintenance
problems.

Products of the Pressure Pipe Division are sold primarily to contractors,
water works supply houses, municipalities and private utilities. Most ductile
iron pressure pipe orders result from contracts which are bid by contractors or
directly issued by municipalities or private utilities. A smaller portion of
ductile iron pressure pipe sales are made through independent water works
supply houses. The division maintains numerous supply depots in leased space
throughout the country which are used as a source of pipe for start-up
projects, to supply ongoing projects and to aid in completing projects. The
Pressure Pipe Division's sales are primarily domestic, with foreign sales
accounting for approximately 4% of dollar sales in 1995. U.S. Pipe has 34 sales
offices in leased space in the United States. It employs a salaried sales force
of approximately 70 persons.

The order backlog of pressure pipe at May 31, 1995 was 121,548 tons, which
represents approximately three months' shipments, compared to 111,907 tons at
May 31, 1994.

The Pressure Pipe Division manufactures ductile iron pressure pipe at four
owned plants located in (i) Bessemer, Alabama (566,000 square feet on 169 acres
of land); (ii) North Birmingham, Alabama (336,000 square feet on 61 acres of
land); (iii) Union City, California (116,000 square feet on 70 acres of land);
and (iv) Burlington, New Jersey (329,000 square feet on 109 acres of land).
Such plants have annual rated capacities, on a one shift per day basis, of
200,000 tons, 190,000 tons, 78,000 tons and 140,000 tons, respectively, of
ductile iron pressure pipe. In addition, the division manufactures fittings,
valves and hydrants at its owned plant in Chattanooga, Tennessee (623,000
square feet on 80 acres of land). The general offices contain 122,000 square
feet of office space on 6 acres of owned land and are located in Birmingham,
Alabama.

While the pipe business is generally sensitive to recessions because of
its partial dependence on the level of new construction activity, certain
aspects of Pressure Pipe's operations have in the past helped to reduce the
impact on such division of the effects of a downturn in new construction.

First, Pressure Pipe's products have experienced a strong level of demand
in the replacement market. The Company believes that the growth of the
replacement market will continue as a result of major expenditures

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by governmental entities in an effort to rebuild the nation's infrastructure,
such as the replacement and upgrading of water and waste water transmission
systems. In addition, legislation such as the Clean Water Act and the Safe
Drinking Water Act may force utilities and cities to upgrade and/or replace
their pipe systems.

Second, Pressure Pipe's facilities are located in regions of the country
which have exhibited consistent economic strength. The Burlington, New Jersey
plant is adjacent to the northeastern market with its significant replacement
potential and the division's operations in the South are located in areas of
steady economic growth. The West Coast, served by the Union City, California
plant, has a critical shortage of water for many of the large metropolitan
areas which will require major transmission pipelines in the future. Because
freight costs for pipe are high, locations close to important markets lower
transportation costs, thereby making the Pressure Pipe Division's products more
competitive.

Castings Division

The Castings Division produces a wide variety of gray and ductile iron
castings for a diversified customer base including special hardness castings
for the pollution control industry. In the year ended May 31, 1995,
approximately 37% of the Castings Division's sales were sales of castings to
the Pressure Pipe Division, with the balance of the sales to various capital
goods industries. Manufacturing operations are located in Anniston, Alabama
(228,000 square feet on 21 acres of owned land).

Sloss Industries

Sloss Industries is a diversified manufacturing operation headquartered in
Birmingham, Alabama, which has four major product lines: (1) foundry coke; (2)
furnace coke; (3) slag wool; and (4) specialty chemicals.

Foundry coke is marketed to cast iron pipe plants and foundries producing
castings, such as for the automotive and agricultural equipment industries. It
is shipped primarily into four geographic markets: the East Coast; the
Southeast; Mexico; and the West Coast. Competition comes primarily from three
merchant suppliers: ABC Coke, Koppers Company, Inc., and Empire Coke Company.
In the year ended May 31, 1995, approximately 60% of the foundry coke produced
by Sloss Industries was sold to U.S. Pipe.

Furnace coke is sold primarily to basic steel producers. Furnace coke
sales were depressed in recent years. During fiscal 1995, 1994 and 1993,
however, Sloss Industries' furnace coke production was at near capacity as a
result of a contract with National Steel Corporation. Sloss Industries has only
an estimated 1% of the market for furnace coke. Competition comes primarily
from Koppers Company, Inc. in the southern United States, Citizens Gas & Coke
Utility and steel producers with excess coking capacity in the Midwest.

Slag wool is utilized principally by acoustical ceiling manufacturers, and
is also used in fireproofing cements. A related product, Processed Mineral
Fiber, is used in friction materials and phenolic molding compounds. The
continued success of the slag wool business depends upon Sloss Industries'
ability to produce ceiling tile fiber of consistent high quality and react to
customer demands for specific "customized" fiber composition. Of the total slag
wool sales in the year ended May 31, 1995, approximately 71% was sold to
Armstrong World Industries and 28% to Apache Building Products Company.

Chemical products are manufactured in plants located in Birmingham,
Alabama and Ariton, Alabama. The Birmingham product line is composed primarily
of aromatic sulfonic acids and sulfonyl chlorides used in the pharmaceutical,
plasticizer, foundry and coatings industries, but also includes a custom
manufactured specialty monomer for the plastic industry. The Ariton facility
produces custom manufactured specialty products for the rubber and plastics
industries.

Sloss Industries' manufacturing facilities located in Birmingham, Alabama
include 120 coke ovens with an annual rated capacity of 450,000 tons and
related buildings of 148,400 square feet, a slag wool plant with an annual
rated capacity of 96,000 tons in a building of 63,000 square feet and a
synthetic chemicals plant in a building of 63,300 square feet, all on 521 acres
of owned land. Sloss Industries also operates a specialty chemical facility in
Ariton, Alabama in a building of 6,900 square feet, on 53 acres of owned land.

In the three years ended May 31, 1995, 1994 and 1993, Sloss Industries'
net sales and revenues amounted to $88.0 million, $81.7 million and $77.5
million, respectively, including $11.1 million, $9.4 million and $8.7 million,
respectively, to U.S. Pipe.

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JW Aluminum

JW Aluminum Company ("JW Aluminum"), headquartered in Mt. Holly, South
Carolina, is a leading producer of fin stock used in heating and air
conditioning applications. Its second leading product is cable wrap used in the
manufacture of communications cable. JW Aluminum's other foil products are used
in a variety of convertor applications, such as lithoplate for newspapers and
as a facer on foam insulation products. Aluminum sheet products are used
primarily for general building applications such as siding, gutters,
downspouts, trailer siding, mobile home siding and skirting, residential siding
and window components.

JW Aluminum is one of a large number of suppliers nationwide of aluminum
sheet and foil. In fiscal 1995, JW Aluminum sold 120.6 million pounds of
aluminum products, 32% of which were sheet products and 68% foil products. JW
Aluminum has focused on directing its product mix away from building products
which are price sensitive, low value added products, toward higher value added
products such as fin stock, where product quality and service are relied upon
more than price.

JW Aluminum operates a single manufacturing facility in Mt. Holly, South
Carolina. Such facility is in a building of 210,000 square feet on 22 acres of
owned land. JW Aluminum's current rated capacity is 125 million pounds per
year, based on the present product mix.

In the three years ended May 31, 1995, 1994 and 1993, JW Aluminum's net
sales and revenues amounted to $134.2 million, $87.3 million and $82.3 million,
respectively, including $6.1 million, $2.1 million and $1.6 million,
respectively, to JW Window Components.

JW Window Components

JW Window Components produces a variety of screens and screen components
and a full line of window components, such as extruded aluminum components,
weatherstripping, sash balances and spiral balances. JW Window Components is
recognized as an industry leader in the production of block and tackle sash
balances. It also has the broadest product line of any supplier to the window
and patio door industry. The Company estimates that approximately 60% of total
sales are directed to the new construction market, approximately 30% to the
renovation market and approximately 10% to the commercial sector.

JW Window Components' products are sold through a network of independent
sales agents, who cover the continental United States, the Caribbean and
Central American countries.

JW Window Components operates three plants located in Elizabethton,
Tennessee (190,000 square feet on 31 acres of owned land); Sioux Falls, South
Dakota (50,000 square feet on 3 acres of owned land); and Merrill, Wisconsin
(54,000 square feet of leased space). The administrative offices are located in
the Company's headquarters building in Tampa, Florida.

In the three years ended May 31, 1995, 1994 and 1993, net sales and
revenues for JW Window Components amounted to $45.8 million, $38.7 million and
$36.4 million, respectively.

Southern Precision

Southern Precision Corporation's ("Southern Precision") products and
services include metal and wood pattern tooling, plastic and rubber mold
tooling, computerized numerically controlled machining of products and resin
coated sand for the foundry industry.

Southern Precision's Irondale, Alabama manufacturing facility, which
incorporates the plant, warehouse and administrative functions, is the largest
of its type in the Southeast (85,000 square feet of building located on 6 acres
of owned land). The facility and equipment enable the company to service larger
and more sophisticated tooling programs. Competition for resin coated sand,
which has been strong in recent years, is concentrated primarily in the
Southeast.

In order to expand production capacity for resin coated sand, Southern
Precision entered into an agreement with Borden, Inc. in February 1994 to lease
Borden, Inc.'s resin coated sand plant (together with the machinery and
equipment) containing approximately 14,000 square feet of space and located in
Birmingham, Alabama. The lease contained an option to purchase the plant at the
end of the third year. The transaction also

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included the execution by Southern Precision and Borden, Inc. of a sales
agreement, a license agreement and other ancillary agreements. On May 31, 1995,
Southern Precision exercised its option to purchase the plant and machinery and
equipment for approximately $1.5 million.

In the three years ended May 31, 1995, 1994 and 1993, Southern Precision's
net sales and revenues amounted to $14.4 million, $11.0 million and $10.7
million, respectively, including $2.4 million, $2.2 million and $1.6 million,
respectively, to U.S. Pipe.

Vestal Manufacturing

Vestal Manufacturing produces a diversified line of metal and foundry
products for residential, commercial and industrial use. Vestal Manufacturing
manufactures a line of energy saving fireplaces, fireplace inserts, accessories
and woodburning stoves, as well as lightweight castings for municipal markets
and metal building products.

Vestal Manufacturing's products are sold through a network of independent
sales agents to hardware and building materials distributors, home centers and
mass merchandisers throughout the United States and Canada.

Vestal Manufacturing's performance to a large extent is tied to
residential construction. Foreign competition has also been a factor in recent
years.

Vestal Manufacturing, located in Sweetwater, Tennessee, operates a foundry
with 100,000 square feet of building and has a steel fabrication plant building
of 109,000 square feet, both on 32 acres of owned land. Vestal Manufacturing
also owns an unused 132,000 square foot plant and warehouse on 7 acres of land.
When market conditions are favorable, Vestal Manufacturing plans to sell the
unused facility.

In the three years ended May 31, 1995, 1994 and 1993, Vestal
Manufacturing's net sales and revenues amounted to $19.4 million, $17.4 million
and $15.2 million, respectively.

United Land

United Land owns approximately 56,000 acres of land and also owns
approximately 125,000 acres of mineral rights and 1,800 acres of surface
rights, all principally in Alabama.

United Land receives royalties resulting from leases to strip coal miners,
gas producers and timber companies. When market conditions are favorable,
management expects from time to time to sell excess real estate from the
holdings of United Land not utilized by any of the other subsidiaries of the
Company.

In the three years ended May 31, 1995, 1994 and 1993, United Land's net
sales and revenues amounted to $15.8 million, including a gain of $6.1 million
on the sale of certain excess real estate, $9.2 million and $9.3 million,
respectively.

Walter Land

Walter Land Company ("Walter Land") is a land sales operation with an
inventory at May 31, 1995 of approximately 7,500 acres, primarily on the south
side of Houma, Louisiana. The bulk of the commercial development in Houma is
tied directly to service and support for offshore oil and gas drilling, which
has been in a longer term recession. Land sales have been few and small in
recent years. Presently, the majority of Walter Land's income is derived from
rental income. Management and sale of the Louisiana properties are handled by
local personnel on a contract basis. In the three years ended May 31, 1995,
1994 and 1993, Walter Land's net sales and revenues amounted to $196,000,
$247,000 and $241,000, respectively.

Cardem Insurance

Cardem Insurance is a Hamilton, Bermuda based offshore reinsurance
company. The predominant part of its business is reinsuring 75% of the risk on
fire and extended coverage insurance policies issued by Westchester Insurance
Company, an unrelated insurance company. Such insurance policies are with
individual owners of homes constructed by Jim Walter Homes. In the years ended
May 31, 1995, 1994 and 1993, Cardem Insurance's net sales and revenues amounted
to $11.8 million, $12.0 million and $14.1 million, respectively.

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Seasonality

Certain of the businesses of the Company (primarily U.S. Pipe, Jim Walter
Homes, JW Window Components and Vestal Manufacturing) are subject to seasonal
variations to varying degrees. However, the businesses of the Company are
significantly influenced by the general economy.

Trade Names, Trademarks and Patents

The names of each of the Company's subsidiaries are well established in
the respective markets served by them, and management believes that the
reputation of such trade names is of some importance. The Company's
subsidiaries have numerous patents and trademarks. Management does not believe,
however, that any one such patent or trademark is of material importance.

Research and Development

Research activities conducted by each business are directed toward new
products, processes and building systems development, improvement of existing
products, development of new uses for existing products and cost reduction
efforts. Total research and development expenditures in each of the last three
fiscal years were less than 1% of net sales and revenues.

Raw Materials

Substantially all of the raw materials needed for the operations of the
Company and its subsidiaries are either produced by the Company and its
subsidiaries or are purchased from domestic sources. All materials used by the
various businesses of the Company are available in the quantities necessary to
support their respective operations.

Environmental

The Company and its subsidiaries are subject to a wide variety of laws and
regulations concerning the protection of the environment, both with respect to
the construction and operation of many of its plants, mines and other
facilities, and with respect to remediating environmental conditions that may
exist at its own and other properties. The Company believes that it and its
subsidiaries are in substantial compliance with federal, state and local
environmental laws and regulations. Expenditures for compliance of ongoing
operations and for remediation of environmental conditions arising from past
operations in the fiscal year ended May 31, 1995 were approximately $4.3
million. Because environmental laws and regulations on the federal, state, and
local levels continue to evolve, and because conditions giving rise to
obligations and liabilities under environmental laws are in some circumstances
not readily identified, it is difficult to forecast the amount of such
environmental expenditures or the effects of changing standards on business
operations, and the Company can give no assurance that such expenditures will
not, in the future, be material. Capital expenditures for environmental
requirements are anticipated in the next five years to average $6.0 million per
year.

U.S. Pipe is implementing an Administrative Consent Order ("ACO") for its
Burlington, New Jersey plant that was required under the New Jersey
Environmental Cleanup Responsibility Act (now known as the Industrial Site
Recovery Act) in connection with the completion of the LBO. The ACO required
soil and ground water cleanup. U.S. Pipe completed, pending final approval, the
soil cleanup required by the ACO. U.S. Pipe is now treating ground water as
ordered in the ACO, but it is not known how long treatment will be required in
order to meet the requirements of the ACO. Management does not believe the
cleanup costs will have a material adverse effect on the financial condition or
results of operations of the Company and its subsidiaries.

The federal Comprehensive Environmental Response, Compensation and
Liability Act ("CERCLA"), generally imposes liability, which may be joint and
several and is without regard to fault or the legality of waste generation or
disposal, on certain classes of persons, including owners and operators of
sites at which hazardous substances are released into the environment (or pose
a threat of such release), persons that disposed or arranged for the disposal
of hazardous substances at such sites, and persons who owned or operated such
sites at the time of such disposal. CERCLA authorizes the EPA, the states and,
in some circumstances, private entities to take actions in response to public
health or environmental threats and to seek to recover the costs they incur
from the same classes of persons. Certain governmental authorities can also
seek recovery for damages to natural resources. Various subsidiaries of the
Company have been identified as potentially responsible parties by the

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EPA under CERCLA with respect to cleanup of hazardous substances at several
sites to which their wastes allegedly have been transported. The subsidiaries
are in the process of preliminary investigation of their relationship to these
sites, if any, to determine the nature of their potential liability and amount
of remedial costs to clean up such sites. Although no assurances can be given
that the Company will not be required in the future to make material
expenditures relating to these sites, management does not believe at this time
that the cleanup costs its subsidiaries will be called on to bear, if any,
associated with these sites will have a material adverse effect on the
financial condition or results of operations of the Company and its
subsidiaries; management believes the extent of the subsidiaries' involvement,
if any, to be minor in relation to that of other named potentially responsible
parties, a significant number of which are substantial companies.

Employees

As of May 31, 1995, the Company and its subsidiaries employed
approximately 7,900 people, of whom approximately 4,900 were hourly workers and
approximately 3,000 were salaried employees. Approximately 4,300 employees were
represented by unions under collective bargaining agreements, of which
approximately 1,750 were covered by one contract with the UMWA, which currently
expires on August 1, 1998. The Company considers its relations with its
employees to be satisfactory.

The Company and its subsidiaries have various pension and profit sharing
plans covering substantially all employees. In addition to its own pension
plans, contributions are made to certain multi-employer plans. The funding of
retirement and employee benefit plans is in accordance with the requirements of
the plans and, where applicable, in sufficient amounts to satisfy the "Minimum
Funding Standards" of the Employee Retirement Income Security Act of 1974
("ERISA"). The plans provide benefits based on years of service and
compensation or at stated amounts for each year of service.

Properties

The headquarters building of the Company is a modern twin tower eight-
story building of masonry and steel construction, containing approximately
200,000 square feet of office space, located on a plot of land in excess of 13
acres in Tampa, Florida.

Legal Proceedings

Plan of Reorganization. The Plan of Reorganization was confirmed by the
Bankruptcy Court on March 2, 1995. A limited appeal from the order confirming
the Plan of Reorganization was filed by the United States on behalf of the EPA.
Notwithstanding the filing of such appeal, the Plan of Reorganization became
effective on March 17, 1995. The Company and the EPA have resolved all issues
on appeal. On July 11, 1995 the Bankruptcy Court entered its Order Granting
Motion to Approve Agreement of the United States and the Debtor Regarding
Releases and Injunctions Under Amended Joint Plan of Reorganization Dated as of
December 9, 1994. A motion to dismiss the appeal has been filed and an order
dismissing the appeal will be entered shortly.

Despite the confirmation and effectiveness of the Plan of Reorganization,
the Bankruptcy Court continues to have jurisdiction to, among other things,
resolve disputed prepetition claims against the Company, resolve matters
related to the assumption, assumption and assignment, or rejection of executory
contracts pursuant to the Plan of Reorganization, and to resolve other matters
that may arise in connection with or relate to the Plan of Reorganization. (For
example, see Note 11 ("Litigation Related to Chapter 11 Distributions to
Certain Holders of Subordinated Notes and/or Debentures and Chapter 11
Adversary Proceeding Filed by Certain Holders of Series B & C Senior Notes") of
Notes to Financial Statements.) Except as described in "Certain Risk
Factors -- Tax Considerations" and "-- Disputed Claims Reserves," provision was
made under the Plan of Reorganization in respect of all prepetition liabilities
of the Company.

Asbestos-Related Litigation Settlements. As discussed more fully under
"Recent History", prior to filing the Chapter 11 Cases, the Company and the
Indemnitees were subject to significant and mounting Veil Piercing Litigation
arising from the LBO and the activities of Celotex, a former subsidiary of the
Company. Celotex filed for protection under Chapter 11 on October 12, 1990 as a
result, in part, of increasingly burdensome asbestos litigation. In the Veil
Piercing Litigation, the Asbestos Claimants sought (i) to pierce the corporate
veil that existed between Celotex and Original Jim Walter prior to the LBO and
(ii) to unwind the LBO. According to the Asbestos Claimants, if Original Jim
Walter were to be deemed responsible for Celotex's alleged multi-billion dollar
asbestos liabilities, the debt issued in connection with the LBO would have
rendered the Company

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insolvent, making the LBO a fraudulent conveyance. The Asbestos Claimants
asserted at various times that the amount of Celotex's asbestos liabilities
could reach $10 billion. Any finding that the Company could be liable for all
or any part of these liabilities would have threatened the Company's existence.

After the filing of the Chapter 11 Cases, the Company commenced the
Adversary Proceeding. After a full trial (the "Veil Piercing Trial"), the
Bankruptcy Court on April 18, 1994 found in favor of the Company on every claim
asserted in the Adversary Proceeding. The United States District Court for the
Middle District of Florida affirmed the Bankruptcy Court's decision on appeal
on October 13, 1995. The decision of the District Court was appealed to the
United States Court of Appeals for the Eleventh Circuit. On or about April 28,
1995, a stipulation of dismissal of that appeal was filed pursuant to the terms
of the Veil Piercing Settlement described below.

On April 28, 1994, the Company commenced an action (the "Celotex Action")
in the Celotex bankruptcy proceeding seeking a ruling that, as a subsidiary of
Jim Walter Corporation, Celotex alone had standing to assert the Veil Piercing
Claims and that all creditors of Celotex were bound by the decisions in the
Adversary Proceeding. If granted, the relief sought in the Celotex Action would
have barred any future Veil Piercing Claims from being brought against the
Company or any other entity. Counsel for the Asbestos Claimants had indicated
that they would assert that only the named defendants in the Adversary
Proceeding could be bound by the decisions in that action, leaving thousands of
unnamed and future claimants free to relitigate the same issues raised therein.
The Celotex Action was dismissed without prejudice on October 13, 1994 for lack
of a case and controversy and for failure to join an indispensable party.
Counsel for the Asbestos Claimants asserted that they would vigorously oppose
any attempt by the Company to obtain an adjudication in any forum to the effect
that the Asbestos Claimants or any other individual claimants lack standing to
raise Veil Piercing Claims.

Prior to the Veil Piercing Trial, a number of the Company's creditors
reached a settlement agreement with the Asbestos Claimants and Celotex to
resolve the Veil Piercing Claims, the Veil Piercing Litigation and the
Adversary Proceeding (the "Initial Settlement"). The Company did not join in
the Initial Settlement and filed objections in the Chapter 11 Cases thereto.

On October 17, 1994, a hearing was commenced in the Chapter 11 Cases on
the fairness of the Initial Settlement and certain other issues relating to the
payment of post-petition interest to unsecured creditors of the Company and
challenges to the voting process. Before the completion of that hearing, all
parties conducted intensive settlement negotiations. As a result of those
negotiations, the Company, the Asbestos Claimants, certain creditors of the
Company, KKR, Jim Walter Corporation, Celotex and others agreed upon the terms
of a global settlement, ultimately resulting in the execution of the Second
Amended and Restated Veil Piercing Settlement Agreement dated as of
November 22, 1994 (the "Veil Piercing Settlement"), the terms of which are
embodied in and made effective by the Plan of Reorganization.

Under the Veil Piercing Settlement, all pending and future Settlement
Claims are settled, satisfied, released, barred and discharged and all persons
that have asserted or may in the future assert Settlement Claims are
permanently enjoined from, among other things, (i) commencing, conducting or
continuing in any manner, directly or indirectly, any proceeding of any kind in
respect of Settlement Claims against, among others, the Company, KKR and any or
all of their present and former parents, subsidiaries, stockholders, partners,
officers, directors and employees (the "Released Parties"), (ii) enforcing,
levying, attaching, collecting or otherwise recovering by any manner, directly
or indirectly, any judgment, award, decree or order against any of the Released
Parties in respect of Settlement Claims and (iii) creating, perfecting or
otherwise enforcing in any manner, directly or indirectly, any encumbrance of
any kind against any of the Released Parties in respect of Settlement Claims.

The Veil Piercing Settlement was intended to resolve finally all
Settlement Claims. The Veil Piercing Settlement was signed by, among others,
Celotex, Jim Walter Corporation and counsel for the Asbestos Claimants, thus
binding them to the terms thereof. To implement the Veil Piercing Settlement,
all present and future holders of Settlement Claims other than Celotex,
including Asbestos Claimants, were certified by the Bankruptcy Court as a class
(for settlement purposes only) under applicable bankruptcy rules and the
Federal Rules of Civil Procedure (the "Class"). A representative of the Class
was appointed by the Bankruptcy Court (the "Class Representative"). All
potential members of the Class who could be identified received actual notice
of the terms of the Veil Piercing Settlement and the Plan of Reorganization in
addition to wide publication notice. The forms of notice were approved by the
Bankruptcy Court. The Class Representative and Celotex each filed proofs

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of claim in the Chapter 11 Cases for the Settlement Claims. The Company filed
objections to those proofs of claim and the Bankruptcy Court allowed the
Settlement Claims pursuant to the Veil Piercing Settlement in the aggregate
amount of $375 million.

The Plan of Reorganization established a class of all present and future
holders of Settlement Claims ("Class U-7"). A bar date for the filing of Class
U-7 claims was set and notice thereof was approved by the Bankruptcy Court and
given by the Company to all known Veil Piercing Claimants and by publication.
For voting purposes, every member of Class U-7 was temporarily allowed a $1
claim. Every Class U-7 claimant was given an opportunity to vote on the Plan of
Reorganization. Class U-7 approved the Plan of Reorganization by a vote of
73,861 in favor to 16 opposed. No member of Class U-7 filed an objection to the
Plan of Reorganization or to the Veil Piercing Settlement embodied therein.

The Plan of Reorganization provides that acceptance of the Plan of
Reorganization by Class U-7 binds any and all present or future holders of
Settlement Claims to the terms of the Plan of Reorganization and thus bars them
from bringing any Settlement Claims against the Company, the Indemnitees or any
of the other Released Parties. Under the terms of the Veil Piercing Settlement,
the stated amount of the settlement ($375 million) (the "Celotex Settlement
Fund") was paid under the Plan of Reorganization in the form of Common Stock,
cash and Series B Notes to a fund (the "Celotex Settlement Fund Recipient")
that will hold the proceeds for the exclusive benefit of the Veil Piercing
Claimants (as defined in the Veil Piercing Settlement). Under the Plan of
Reorganization, all Settlement Claims must be channeled to the Celotex
Settlement Fund Recipient to be administered under the jurisdiction of the
bankruptcy court in the Celotex bankruptcy proceeding.

On March 2, 1995, the Bankruptcy Court entered a confirmation order which,
among other things, (i) provided for the satisfaction, discharge and release of
the Settlement Claims, (ii) included an injunction permanently channelling all
Settlement Claims to the Celotex Settlement Fund Recipient, (iii) found the
Veil Piercing Settlement to be fair and reasonable and (iv) provided that the
Class shall be deemed to have provided releases of all Released Parties under
the Veil Piercing Settlement.

By orders dated February 13 and 25, 1995, the Celotex bankruptcy court
approved the Veil Piercing Settlement and directed Celotex to render
performance in accordance with its terms. In addition, the Celotex bankruptcy
court appointed a legal representative to protect the interests of unknown
asbestos bodily injury claimants. After review of the Veil Piercing Settlement,
that legal representative informed the Celotex bankruptcy court that the Veil
Piercing Settlement should be approved as being in the best interests of such
claimants.

On March 17, 1995, the Celotex bankruptcy court issued an order
authorizing the Celotex Settlement Fund Recipient to receive the Celotex
Settlement Fund for the exclusive benefit of the Veil Piercing Claimants (as
defined in the Veil Piercing Settlement). The Celotex bankruptcy court also
ordered that "all claims of the type settled by the Veil Piercing Settlement
. . . shall attach solely to the [Celotex] Settlement Fund and all persons and
entities are enjoined from commencing or continuing any suit, arbitration or
other proceeding of any type against any and all of the Released Parties . . .
arising out of any such claims." The Celotex bankruptcy court also enjoined
anyone from taking any action against the Celotex Settlement Fund without the
prior approval of the Celotex bankruptcy court.

Under the terms of the Veil Piercing Settlement, all parties thereto have
agreed to use their best efforts to obtain a confirmation of a plan of
reorganization in the Celotex bankruptcy proceeding that includes a provision
for and injunction pursuant to Section 524(g) of the Bankruptcy Code. Section
524(g) is part of the 1994 amendments to the Bankruptcy Code. It provides for
permanent supplemental injunctions, such as the ones contemplated in the Veil
Piercing Settlement, to protect third parties who are not debtors in
bankruptcy. Thus, a supplemental injunction under Section 524(g) would operate
to bar future Settlement Claims against the Company, the Indemnitees and the
other Released Parties. There had been some disputes about the statutory
authorization of such injunctions under caselaw before the enactment of Section
524(g). Under Section 524(g), the Celotex bankruptcy court may (i) bind all
present and future holders of Settlement Claims to the terms of the Veil
Piercing Settlement and (ii) enjoin such holders from bringing Settlement
Claims against any Released Party in the future.

The Plan of Reorganization does not provide for a Section 524(g)
injunction. However, as discussed above, under the terms of the Veil Piercing
Settlement the parties to the Celotex bankruptcy proceeding are required to
seek in good faith the confirmation of a plan of reorganization that contains
such a provision. A plan of reorganization has already been proposed in the
Celotex bankruptcy proceeding which provides for an

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injunction under Section 524(g). Although there is no assurance that it will be
confirmed and consummated, if a Celotex plan of reorganization is confirmed and
consummated and it contains a Section 524(g) injunction, it would provide
additional protection for the Released Parties, including the Company.

Jim Walter Homes/Mid-State Homes. Jim Walter Homes and Mid-State Homes,
together with Mid-State Trust II and certain other parties, are involved in
litigation, primarily in the Bankruptcy Court, with approximately 750 owners of
houses constructed by Jim Walter Homes in south Texas. The homeowners seek
damages based upon alleged construction defects, common law fraud, and
violations of the Texas Deceptive Trade Practices Act, the Texas Consumer
Credit Code, federal and state debt collections statutes and the Racketeering
Influence Corruptions and Practices Act. Although Jim Walter Homes and Mid-
State Homes believe that the litigation is substantially without merit, a
settlement agreement ("Texas Settlement Agreement") has been reached with the
attorney for the homeowner claimants. The anticipated settlement amount will be
approximately $3.6 million in account balance reductions (of which
approximately $1.25 million represents a principal reduction), plus an
approximate aggregate payment of $27,500 in cash to certain clients and $2.9
million as attorney's fees (of which $900,000 may be deferred and payable over
the next five years). The consummation of the Texas Settlement Agreement is
subject to various conditions, including approval by all of the parties
thereto. It also contains provisions allowing claimants to "opt out" or not
participate in the Texas Settlement Agreement and for the defendants to avoid
the settlement in its entirety if, in their judgment, the number of claimants
who opt out is so large as to make the settlement of little value. It also has
a provision for the attorney for the homeowner claimants to indemnify and hold
harmless the defendants from any and all claims, demands, causes of actions,
lawsuits and settlements by the homeowners. Further, it provides for the
Bankruptcy Court to retain jurisdiction over any claims which are not resolved
by the Texas Settlement Agreement. On June 27, 1995 the Bankruptcy Court
ordered a notice to be sent to creditors of the Company concerning the Texas
Settlement Agreement which provided that any objections to the settlement be
filed with the Bankruptcy Court by July 12, 1995. On July 13, 1995, the
Bankruptcy Court entered its Order Granting Motion to Approve Compromise and
Settlement Agreement and the parties have commenced implementing the Texas
Settlement Agreement.

In May 1995 Jim Walter Homes and Mid-State Homes settled a class action by
purchasers of houses constructed by Jim Walter Homes in South Carolina since
December 27, 1989 in which the plaintiffs contended that Jim Walter Homes
violated certain provisions of the South Carolina Consumer Protection Code (the
"South Carolina Statute") relating to a borrower's right to choose the
borrower's attorney in certain transactions. See Note 11 ("South Carolina Class
Actions") of Notes to Financial Statements for additional information
concerning the settlement. Jim Walter Homes and Mid-State Homes had filed an
action in the Bankruptcy Court for a declaratory judgment with respect to their
liability, if any, to purchasers of houses built by Jim Walter Homes in South
Carolina from July 1, 1982 (the date on which the South Carolina Statute become
effective) to December 27, 1989. Jim Walter Homes, Mid-State Homes and
representatives of the homeowners have negotiated a proposed settlement of that
action which will require a cash payment of approximately $3 million, which
after application of these settlement proceeds to pay existing arrearages on
the homeowners' mortgages will result in a net cash outlay of approximately
$1,050,000. In addition, legal fees of approximately $360,000 will be paid. The
proposed settlement is subject to the Bankruptcy Court's approval upon
submission of an appropriate motion. The proposed settlement may involve
additional account classifications which are in the process of being analyzed
and which may be included in an amended complaint to be filed in the above-
described declaratory judgment action.

Jim Walter Resources. On May 31, 1995 the Company and Jim Walter Resources
commenced a lawsuit in the Circuit Court for Tuscaloosa County, Alabama against
a group of insurance companies with which the Company has business interruption
insurance seeking damages in excess of $25 million for loss from interruption
of Jim Walter Resources' business resulting from a fire in November 1993 in Jim
Walter Resources' Mine No. 5. See "Business and Properties -- Jim Walter
Resources" and Note 11 of Notes to Financial Statements. The complaint also
seeks a declaratory judgment concerning the insurers' contentions that (i) the
risk which caused the loss was not insured because it was not fortuitous, but
was spontaneous combustion known to occur in Jim Walter Resources' mines, and
(ii) the Company failed to disclose the risk of loss from spontaneous
combustion and that the insurance policies are void or voidable because of such
failure. The lawsuit is in its initial stages, but the Company and Jim Walter
Resources believe their claim is meritorious and intend to pursue it
vigorously.

U.S. Pipe -- Environmental Penalty. U.S. Pipe has recently entered into an
administrative consent order with the New Jersey Department of Environmental
Protection pursuant to which it agreed, among other things, to pay a civil
penalty of $187,000 to resolve alleged violations regarding its plant in
Burlington, New Jersey. The

48
<PAGE>

Company does not expect the civil penalty or any other aspect of the order to
have a materially adverse effect on its consolidated financial position. See
Note 11 of Notes to Financial Statements ("Environmental Matters").

Other. The Company and its subsidiaries are involved in various other
proceedings arising in the ordinary course of their businesses. Management does
not expect that any of such other proceedings will have a material adverse
effect on the Company's consolidated financial position.

MANAGEMENT
Directors and Executive Officers

Set forth below is a list showing the names, ages (as of July 1, 1995) and
positions of all Directors of the Company, and, where applicable, the executive
office or offices held by each Director with the Company.

Name Age Position
---- --- --------

James W. Walter 72 Chairman and Director.

G. Robert Durham 66 Director; President and Chief Executive Officer.

Kenneth J. Matlock 67 Director; Executive Vice President and Chief
Financial Officer.

Howard L. Clark, Jr. 51 Director.

James B. Farley 64 Director.

Eliot M. Fried 62 Director.

James L. Johnson 68 Director.

Robert I. Shapiro 45 Director.

Michael T. Tokarz 45 Director.

James W. Walter has been the Chairman and a Director of the Company since
1988. Mr. Walter will retire as Chairman of the Company effective October 6,
1995 and therafter will be the Chariman Emeritus and a Director of the Company.
Mr. Walter founded Walter Construction Co., a predecessor of Original Jim
Walter, in 1948 and Original Jim Walter (incorporated in 1955). He was
President and Chief Executive Officer of Original Jim Walter from 1955 to 1963,
Chairman and Chief Executive Officer from 1963 to 1983 and Chairman thereafter.
He is a Director of Anchor Glass Container Corporation and Contel Cellular,
Inc.

G. Robert Durham has been President and Chief Executive Officer and a
Director of the Company since June 1991. Mr. Durham will also become the
Chairman of the Company effective October 6, 1995. He was Chairman, President
and Chief Executive Officer of Phelps Dodge Corporation, a producer of copper,
truck wheels and rims, and carbon black, from 1987 to 1989, when he took early
retirement. Prior to 1987 he was President and Chief Operating Officer (1985-
1987) and held other executive positions (1967-1985) with Phelps Dodge
Corporation and/or its affiliated companies. He also is a Director of Homestake
Mining Company, MinCorp Holdings Inc. and The FINOVA Group Inc. and a Trustee
of Mutual of New York.

Kenneth J. Matlock has been Executive Vice President and Chief Financial
Officer of the Company since 1991; prior thereto he was Senior Vice President
and Chief Financial Officer of the Company from 1988 to 1991. Mr. Matlock
joined Original Jim Walter in 1964, became Controller in 1970, Chief Financial
Officer in 1974 and Senior Vice President in 1984. Mr. Matlock has been a
Director of the Company since 1988.

Howard L. Clark, Jr. has been the Vice Chairman of Lehman, an investment-
banking firm, since February 1993; prior thereto he served as Chairman and
Chief Executive Officer of Shearson Lehman Brothers, Inc. Prior thereto he was
an Executive Vice President and the Chief Financial Officer of American Express
Company, a financial services firm. He also is a Director of Lehman, Plasti-
Line, Inc., The Maytag Corporation,

49
<PAGE>
the Securities Industry Association and The Fund American Companies, Inc. Mr.
Clark has been a Director of the Company since March 17, 1995.

James B. Farley is the retired Chairman of the Board, and a current
Trustee, of Mutual of New York, a life insurance company. He served as Chairman
and Chief Executive Officer of Mutual of New York from 1989 to 1994. He also is
a Director of Ashland Oil, Inc. and The Promus Companies. Mr. Farley has been a
Director of the Company since March 17, 1995.

Eliot M. Fried has been a Managing Director of Lehman or Shearson Lehman
Brothers, Inc. since 1991 and is Co-chairman of Lehman's Firm Wide Investment
Committee. He served as a Senior Vice President of Shearson Hayden Stone, a
predecessor firm of Lehman, from 1982 to 1991. He also is a Director of
American Marketing Industries, Bridgeport Machines, Inc., Energy Ventures,
Inc., Lear Seating Corporation, Sun Distributors L.P. and Vernitron
Corporation. Mr. Fried has been a Director of the Company since March 17, 1995.

James L. Johnson is Chairman Emeritus of GTE Corporation, a telephone
company and cellular service provider. From April 1988 to May 1992 he was
Chairman and Chief Executive Officer of GTE. He also is a Director of Contel
Cellular, Inc., CellStar Corporation, The FINOVA Group Inc., Harte-Hanks
Communications Inc. and Valero Energy Corp. and a Trustee of Mutual of New
York. Mr. Johnson has been a Director of the Company since March 17, 1995.

Robert I. Shapiro has been a Managing Director of Lehman since 1985. He is
Chairman of Lehman's Employee Benefit Plans Committee and a Trustee of the
Lehman Brothers Pension Plan. Mr. Shapiro has been a Director of the Company
since March 17, 1995.

Michael T. Tokarz has been a general partner of KKR, a private investment
firm, since January 1993; prior thereto he was an associate at KKR since
September 1985. He also is a Director of Safeway, Inc., K-III Communications
Corporation, Flagstar Companies, Inc., Flagstar Corporation, Neway Anchorlok
International, Inc., KSL Recreation Corporation and IDEX Corporation. Mr.
Tokarz has been a Director of the Company since 1987.

Except as described under "Board of Directors" below, Directors of the
Company are elected by the stockholders of the Company. Each Director holds
office until his successor is elected and qualified. The Company is not aware
of any family relationships among any of the foregoing Directors.

Set forth below is a list showing the names, ages (as of July 1, 1995) and
positions of the executive officers of the Company who are not Directors of the
Company.

50
<PAGE>
Name Age Offices
---- --- -------

William Carr 64 President and Chief Operating Officer of Jim
Walter Resources

Frank A. Hult 44 Vice President and Controller of the Company

Donald M. Kurucz 55 Vice President and Treasurer of the Company

Robert W. Michael 53 Senior Vice President and Group Executive of the
Company; President and Chief Operating Officer of
Jim Walter Homes

Sam J. Salario 66 President of Mid-State Homes; Vice President of
Jim Walter Homes

William N. Temple 62 Senior Vice President and Group Executive of the
Company; President and Chief Operating Officer of
U.S. Pipe

David L. Townsend 41 Vice President-Human Resources/Public Relations
of the Company

John F. Turbiville 66 Vice President-Legal and Secretary of the
Company

William H. Weldon 63 Senior Vice President-Finance and Chief
Accounting Officer of the Company

William Carr has been President and Chief Operating Officer of Jim Walter
Resources since 1991; prior thereto he was a Senior Executive Vice President
and Chief Operating Officer of Jim Walter Resources and President of its Mining
Division since 1976. He was a Vice President of Original Jim Walter from 1976
to 1988.

Frank A. Hult has been a Vice President of the Company since 1994 and the
Controller of the Company since 1991; he was Assistant Controller and Chief
Accountant (1989-1991) and Manager of Budgets (1988-1989) of the Company.
Previously he was Manager of Budgets (1984-1988) and Financial Analyst (1978-
1981) of Original Jim Walter and Manager-Operations Administration (1981-1984);
Plant Controller (1975-1978) and Cost Accountant (1974-1975) for Celotex.

Donald M. Kurucz has been a Vice President and the Treasurer of the
Company since 1991; he was Treasurer of the Company from 1988-1991. Previously
he served as Treasurer (1977-1988) and Assistant Treasurer (1975-1977) of
Original Jim Walter.

Robert W. Michael has been a Senior Vice President and Group Executive of
the Company since 1991 and President and Chief Operating Officer of Jim Walter
Homes since 1984. Prior thereto, he was Vice President-Sales (1975-1984), a
Regional Manager (1973-1975), an Assistant Regional Manager (1970-1973), a Main
Branch Manager (1967-1970) and a Sub-Branch Manager (1966-1967) with Jim Walter
Homes and held various managerial positions with Mid-State Homes (1964-1966).
He was a Vice President of Original Jim Walter (1984-1988).

Sam J. Salario has been President of Mid-State Homes since 1984, and a
Vice President of Jim Walter Homes since 1972. Previously he served as an
Assistant Vice President (1963-1984), a Regional Supervisor (1961-1963) and a
Representative (1960-1961) with Mid-State Homes.

William N. Temple has been a Senior Vice President and Group Executive of
the Company since 1991 and President and Chief Operating Officer of U.S. Pipe
since 1993; he was a Vice President of the Company from 1988 to 1991 and, from
1974, was a Vice President of Original Jim Walter. Previously he served as
President of the former Fasteners and Special Products Division of U.S. Pipe
and Vice President of U.S. Pipe (1972-1974), President of the former
Southeastern Bolt and Screw division of U.S. Pipe (1971-1974) and Controller of
U.S. Pipe (1965-1971).

David L. Townsend has been a Vice President of the Company since 1988.
Previously he served as a Vice President (since 1983), Director of Public
Relations (1982-1983) and Manager of Public Relations (1980-1982) of Original
Jim Walter and in various staff positions (1978-1980) with Original Jim Walter.

51
<PAGE>
John F. Turbiville has been a Vice President and the Secretary of the
Company since 1988. Previously he served as Assistant Secretary of the Company
(1988) and Original Jim Walter (1981-1988) and as a staff attorney (1979-1981)
with Original Jim Walter.

William H. Weldon has been a Senior Vice President and the Chief
Accounting Officer of the Company since 1991; he was Vice President, Controller
and Chief Accounting Officer of the Company from 1988 to 1991. Previously he
served as Vice President and Controller (1977-1988), Controller (1972-1977) and
Assistant Controller (1970-1972) of Original Jim Walter.

Executive officers serve at the pleasure of the Board of Directors. The
Company is not aware of any family relationships among any of the foregoing
executive officers.

Board of Directors

Pursuant to the Plan of Reorganization and the Charter, the Board of
Directors of the Company consists of nine (9) directors. For the first three
years after the Effective Date of the Plan of Reorganization (the "Initial
Three Year Term"), the Board will be selected as follows (subject to the
exceptions discussed in the next paragraph): three directors will be senior
officers of the Company (initially G. Robert Durham, James W. Walter and
Kenneth J. Matlock; any successors will be selected by the remaining directors
from the senior officers of the Company); one director will be a person
designated by KKR (the "KKR Director") (initially Michael T. Tokarz); three
directors will be persons designated by Lehman (the "Lehman Directors")
(initially Howard L. Clark, Jr., Eliot M. Fried and Robert I. Shapiro); and two
directors (the "Independent Directors") (initially James B. Farley and James L.
Johnson) will be persons who (a) are not (i) officers, affiliates, employees,
Interested Stockholders, consultants or partners of any Significant Stockholder
or any affiliate of any Significant Stockholder or of any entity that was
dependent upon any Significant Stockholder or any affiliate of any Significant
Stockholder for more than 5% of its revenues or earnings in its most recent
fiscal year, (ii) an officer, employee, consultant or partner of the Company or
any of its affiliates, or an officer, employee, Interested Stockholder,
consultant or partner or any entity that was dependent upon the Company or any
of its affiliates for more than 5% of its revenues or earnings in its most
recent fiscal year or (iii) any relative or spouse of any of the foregoing
persons or a relative of a spouse of any of the foregoing persons and (b) are
selected by management of the Company from a list of qualified candidates
provided by an independent search firm selected by management and Lehman. For
these purposes "Interested Stockholder" means, with respect to any person, any
other person that together with its affiliates and associates beneficially owns
(as defined in Rule 13d-3 under the Exchange Act) 5% or more of the equity
securities of such person, and "Significant Stockholder" means an Interested
Stockholder of the Company.

If, at any time during the Initial Three Year Term, (i) after six months
following the Effective Date of the Plan of Reorganization, Lehman notifies KKR
that it has determined to transfer to KKR the right to appoint one of the three
Lehman Directors or (ii) Lehman and its affiliates fail to have beneficial
ownership (as defined in Rule 13d-3 under the Exchange Act) of 8% of the
outstanding Common Stock (without giving effect to shares of Common Stock held
in escrow pursuant to the Plan of Reorganization; see "Security Ownership of
Management and Principal Stockholders" and "Description of Capital Stock --
Future Stock Issuances") (the "Outstanding Common Stock") and KKR and its
affiliates have beneficial ownership of 8% or more of the Outstanding Common
Stock at such time, then, in each case, KKR shall have the right to compel one
Lehman Director selected by Lehman to resign as a director and to appoint as a
successor an additional KKR Director. If, at any time during the Initial Three
Year Term, there are two KKR Directors and KKR and its affiliates fail to have
beneficial ownership of 8% or more of the Outstanding Common Stock while Lehman
and its affiliates have beneficial ownership of 8% or more of the Outstanding
Common Stock, then Lehman shall have the right to compel one KKR Director
selected by KKR to resign as a director and to appoint as a successor an
additional Lehman Director. If, at any time during the Initial Three Year Term,
either Lehman and its affiliates or KKR and its affiliates fail to have
beneficial ownership of 5% or more of the Outstanding Common Stock, then the
Lehman Directors or the KKR Director(s), as the case may be, shall resign and
the remaining directors shall appoint their successor(s) for the remainder of
the Initial Three Year Term; provided, however, that KKR shall be entitled to
have one KKR Director during the Initial Three Year Term if the number of
shares of Common Stock beneficially owned by KKR and its affiliates, together
with shares of Common Stock held in escrow pursuant to the Plan of
Reorganization that would be distributed to KKR or its affiliates upon release
from escrow, constitutes 5% or more of the Outstanding Common Stock and shares
held in escrow pursuant to the Plan of Reorganization.

52
<PAGE>

After the Initial Three Year Term, all the directors of the Company shall
be elected by the stockholders of the Company annually for a term of one year
each.

Committees of the Board of Directors

The Board of Directors of the Company has established a Tax Oversight
Committee, an Audit Committee, a Compensation Committee, a Finance Committee, a
Nominating Committee and an Environmental, Health and Safety Committee. The
Board may, from time to time, establish certain other committees to facilitate
the management of the Company.

The Tax Oversight Committee is responsible for (i) approving all
settlements and agreements by the Company or any of its subsidiaries regarding
all Federal Income Tax Claims and (ii) determining Veil Piercing Settlement Tax
Savings Amounts and related responsibilities, all as more particularly
described under "Description of Capital Stock -- Future Stock Issuances." The
members of the Tax Oversight Committee shall consist at all times of two
Independent Directors and a Director (or other person) designated by Lehman
(initially Robert I. Shapiro, Chairman, James B. Farley and James L. Johnson).

The Audit Committee is responsible for meeting with representatives of the
Company's independent certified public accountants and financial management to
review accounting, internal control, auditing and financial reporting matters,
and is also responsible, among other things, for maintaining liaison with and
exercising such supervision of the actions of said accountants in whatever
manner and to whatever extent shall be deemed, at its discretion, necessary,
proper and in the best interest of the Company and its stockholders. The Audit
Committee consists of five Directors who are not and never have been employees
of the Company (initially Eliot M. Fried, Chairman, James B. Farley, James L.
Johnson, Robert I. Shapiro and Michael T. Tokarz).

The Compensation Committee is responsible for reviewing and approving
officer and executive salaries in amounts over $100,000 annually and for
reviewing and recommending for approval by the Board of Directors executive and
key employee compensation plans, including incentive compensation and other
benefits, and consists of five Directors who are not and never have been
employees of the Company (initially James L. Johnson, Chairman, Howard L.
Clark, Jr., James B. Farley, Eliot M. Fried and Michael T. Tokarz).

The Finance Committee is responsible for recommendations to the Board of
Directors concerning financings, dividends, discretionary contributions by the
Company under the Company's employee benefit plans and other financial matters,
approval of the designation of the investment fund managers for the Company's
employee benefit plans, and approval of investment of the Company's funds, by
establishment of policies for investment of funds by the Company's officers.
The Financing Committee consists of five Directors (initially James B. Farley,
Chairman, Howard L. Clark, Jr., Eliot M. Fried, Michael T. Tokarz and James W.
Walter).

The Environmental, Health and Safety Committee is responsible for
receiving environmental, health and safety reports from the Company's and its
subsidiaries' environmental counsel and engineers and health and safety
personnel; examining and reporting upon the Company's and its subsidiaries'
compliance with environmental, reclamation, health and safety requirements and
the policies pertaining thereto; reporting the same to the Board of Directors;
approving the proposed scope of internal and independent environmental and
health and safety audits; and periodically evaluating and recommending to the
Board of Directors changes in the Company's and its subsidiaries'
environmental, health and safety policies. The Environmental, Health and Safety
Committee consists of three Directors (initially Michael T. Tokarz, Chairman,
James L. Johnson and Robert I. Shapiro).

The Nominating Committee is responsible for establishing the criteria for
and the qualifications of persons suitable for nomination as Directors,
including nominees recommended by stockholders, and reporting its
recommendations to the Board of Directors. During the Initial Three Year Term,
selection of Directors is subject to restrictions discussed in "Board of
Directors" above. The Nominating Committee consists of five Directors
(initially Howard L. Clark, Jr., Chairman, James B. Farley, Eliot M. Fried,
James L. Johnson and Michael T. Tokarz).

Pursuant to the Charter and By-laws, at all times during the Initial Three
Year Term each committee of the Board of Directors (other than the Tax
Oversight Committee, which shall be constituted as described above) shall
include such number of directors (but in any event at least one director)
designated by each of KKR and

53
<PAGE>
Lehman so that each of KKR and Lehman has representation on each such committee
proportionate to the representation it has on the Board of Directors. The
Charter provides that the foregoing provision of the By-laws and certain other
provisions of the By-laws cannot be amended by the Board of Directors during
the Initial Three Year Term unless 67% of the whole Board of Directors votes in
favor of the amendment. Thereafter, the affirmative vote of a majority of
directors will be required to amend those provisions.

Directors' Compensation

Non-employee Directors of the Company (Messrs. Clark, Farley, Fried,
Johnson, Shapiro and Tokarz) are paid retainer fees of $25,000 per year;
committee chairmen receive an additional retainer fee of $5,000 per year. Each
non-employee Director also receives a fee of $1,500 for each Board or committee
meeting attended. The Company and its subsidiaries do not pay fees to Directors
who are employees of any of the Company and its subsidiaries.

Executive Compensation

The following table sets forth information concerning compensation paid to
or accrued for the account of the Chief Executive Officer of the Company and
each of the next four (4) most highly compensated executive officers of the
Company whose cash compensation exceeded $100,000 (the Chief Executive Officer
and each other such executive officer, the "Named Executive Officers") during
the fiscal years ended May 31, 1995 and 1994 for services rendered in all
capacities:

54
<PAGE>
<TABLE><CAPTION>

SUMMARY COMPENSATION TABLE

Annual Compensation
-----------------------------------------
Name and Year ended All Other
Principal Position May 31,(1) Salary Bonus(2) Compensation(3)
--------------------------- ----------------- -------------------- -------------------- -----------------------

<S> <C> <C> <C> <C>
G. Robert Durham, 1995 $466,764 $1,225,000 N/A
President and CEO 1994 460,214 400,000 $69,275

James W. Walter, Chairman 1995 370,366 1,225,000 N/A
1994 369,603 400,000 53,880

Kenneth J. Matlock, 1995 258,351 840,000 N/A
Executive Vice President 1994 248,992 235,000 36,000
and Chief Financial
Officer

William H. Weldon, Senior 1995 183,618 565,000 N/A
Vice President--Finance 1994 173,688 160,000 25,798
and Chief Accounting
Officer

William N. Temple, Senior 1995 205,202 287,000 63,053(4)
Vice President and Group 1994 180,608 120,000 8,815
Executive; President of
U.S. Pipe
</TABLE>

(1) Disclosure is only provided as to the last two full fiscal years of the
Company because prior thereto it was not a "reporting company" pursuant to
Section 13(a) or 15(d) of the Exchange Act.

(2) For fiscal 1995, the amounts shown in this column include bonuses paid to
the Named Executive Officers pursuant to the Plan of Reorganization in
addition to incentive bonus compensation. At the time of filing of the
Chapter 11 Cases, accounting professionals for the official committees in
the Chapter 11 Cases recommended that the Company adopt a retention bonus
arrangement, a common method of assuring retention of key personnel during
bankruptcy proceedings. The Company decided not to adopt such a retention
bonus plan, but determined instead to pay bonuses informally upon
completion of the reorganization to key personnel who continued their
employment with the Company and its subsidiaries during the pendency of
the Chapter 11 Cases (which were initiated on December 27, 1989 and
concluded on March 17, 1995) despite the unavailability of long-term
incentive compensation plans and the limitations on salaries and incentive
compensation imposed by the Bankruptcy Court during such time. The
Company's proposal to make such informal payments was incorporated in the
Plan of Reorganization and approved by the Bankruptcy Court. Such bonuses
were paid upon the Effective Date of the Plan of Reorganization in the
amounts of $800,000, $800,000, $600,000, $400,000 and $175,000 for Messrs.
Durham, Walter, Matlock, Weldon and Temple, respectively.

(3) The amounts shown in this column for fiscal 1994 represent the Company's
contributions for the account of each of the Named Executive Officers to
the Walter Industries Profit Sharing Plan (the "Profit Sharing Plan") and
accruals for the related Supplemental Profit Sharing Plan (the
"Supplemental Profit Sharing Plan") which provides benefits which would
have been provided under the tax-qualified Profit Sharing Plan but for
restrictions on such benefits imposed by the Internal Revenue Code of
1986, as amended (the "IRC"). The Profit Sharing Plan and the Supplemental
Profit Sharing Plan amounts are for the plan year ended August 31, 1994.
Amounts for the plan year ending August 31, 1995 are not currently
available, but are anticipated not to be materially different from amounts
for the plan year ended August 31, 1994.

(4) In fiscal 1995, Mr. Temple was paid $63,053 in reimbursement of expenses
he incurred in moving from Tampa, Florida, the location of the Company's
headquarters, to Birmingham, Alabama, the location of U.S. Pipe's
headquarters. No amount in respect of the Profit Sharing Plan or the
Supplemental Profit Sharing Plan is included for fiscal 1995. See Footnote
(3).

Pension Plans

The table below sets forth the aggregate estimated annual retirement
benefits payable under the Pension Plan for Salaried Employees of Subsidiaries,
Divisions and/or Affiliates of Walter Industries (the "Pension Plan") and under
the Company's unfunded, non-qualified, Supplemental Pension Plan (the
"Supplemental Pension Plan" and together with the Pension Plan, the "Pension
Plans") for employees retiring at normal retirement age (65) on June 1, 1995
and is based on social security covered compensation in effect on June 1, 1995:

55
<PAGE>
<TABLE><CAPTION>

PENSION PLAN TABLE

Years of Service
Remuneration 15 20 25 30 35
--------------------------------------------------------------

Benefit payments under the Pension Plans are based on final average annual
compensation (including overtime pay, incentive compensation and certain other
forms of compensation reportable as wages taxable for federal income tax
purposes) for the five (5) consecutive years within the final ten (10) years of
employment prior to normal retirement date (65) which produce the highest
average. This is equivalent to the sum of the amounts included under the Salary
and Bonus column headings in the Summary Compensation Table above. Benefit
amounts are shown on a straight-line annuity basis, payable annually upon
retirement at age 65. No offsets are made for the value of any social security
benefits earned. In the case of the Supplemental Pension Plan, the applicable
company may, in its sole discretion, elect to furnish any and all benefits due
by purchasing annuities, or by other means at its disposal, including payment
of the present value of such benefits.

Only employees of the Company's subsidiaries (except Jim Walter Homes,
Mid-State Homes, Best Insurors, Inc. ("Best Insurors"), Best Insurors of
Mississippi, Inc., JW Insurance Services, Inc., Dixie Building Supplies, Inc.
("Dixie Building Supplies") and Coast to Coast Advertising, Inc.) participate
in the Pension Plans. Of the Named Executive Officers, only Messrs. Matlock
(due to his past service with a subsidiary of the Company) and Temple are
participants in the Pension Plans with six (6) and ten (10) years of credited
service, respectively; Messrs. Durham, Walter and Weldon are not participants
in the Pension Plans.

Certain Compensation Arrangements

Durham Employment Agreement. The Company has an employment agreement with
G. Robert Durham dated June 19, 1993 (the "Durham Employment Agreement"),
pursuant to which the Company agreed to employ Mr. Durham as, and Mr. Durham
agreed to serve as, President and Chief Executive Officer and a member of the
Board of Directors of the Company until May 31, 1995. The Durham Employment
Agreement was automatically renewed on June 1, 1995 and shall be automatically
renewed from year to year on each June 1 thereafter until terminated by either
Mr. Durham or the Company on 60 days' written notice to the other party. The
Durham Employment Agreement provides that Mr. Durham will receive a base annual
salary of $450,000, with additional incentive compensation to be determined by
the Company's Board of Directors in accordance with past practices. Under the
Durham Employment Agreement, Mr. Durham is entitled to be indemnified for his
acts as an officer of the Company, and is entitled to participate in other
Company employee benefit plans, including the Profit Sharing Plan and the
Supplemental Profit Sharing Plan.

If Mr. Durham's employment is terminated, Mr. Durham shall be entitled to
receive his then current base salary for the balance of the Company's fiscal
year in which employment is terminated plus, if such termination is without
cause, a pro rata amount of incentive compensation for that year. In the case
of Mr. Durham's death during any period of renewal of the Durham Employment
Agreement, his executor, administrator, testamentary trustee, legatees or
beneficiaries, as the case may be, shall be entitled to receive his then
current base salary during the nine-month period following the date of death.

Profit Sharing Plans. Under the Profit Sharing Plan and the Supplemental
Profit Sharing Plan, amounts contributed by the Company for the benefit of the
participants become payable upon termination of employment. In the case of the
Supplemental Profit Sharing Plan, accrued amounts are payable, at the
discretion of the Company, in either a lump sum or in sixty (60) equal monthly
installments. While the Profit Sharing Plan

56
<PAGE>

provides retirement benefits for all salaried employees of the Company and
certain of its subsidiaries not covered by the Pension Plans, the Company makes
contributions to the Supplemental Profit Sharing Plan only for such employees
as to which the full contribution under the Profit Sharing Plan has been
limited by the IRC. For the Supplemental Profit Sharing Plan year to end August
31, 1995, only four employees, Messrs. Walter, Durham, Matlock and Weldon, will
qualify for participation in the Supplemental Profit Sharing Plan.

Compensation Committee Interlocks or Insider Participation in Compensation
Decisions

During the fiscal year ended May 31, 1995, James W. Walter, Chairman and a
Director of the Company, and G. Robert Durham, President and Chief Executive
Officer and a Director of the Company, participated in deliberations of the
Company's Board of Directors concerning executive compensation.

Certain Related Transactions

In July 1986, Waltsons, Inc., a family owned corporation in which James W.
Walter, Chairman and a Director of the Company, has a twenty percent (20%)
interest, acquired a fifty percent (50%) interest in the operations of Booker &
Company, Inc. ("Booker"), a wholesale distributor of building supplies and
material headquartered in Tampa, Florida. For over 30 years, Booker has been a
supplier of various building supplies and materials to Dixie Building Supplies.
During the fiscal year ended May 31, 1995, Booker's sales of building supplies
and materials to such subsidiary totaled $5,433,513.

In March 1995, Lehman acted as an underwriter in connection with the
public issuance by Mid-State Trust IV of $959,450,000 of Mid-State Trust IV
Asset Backed Notes, for which it received underwriting commissions and fees of
approximately $__________. See "Business and Properties -- Mid-State Homes."

The Company believes that the terms of the agreements between the Company
and each of Booker and Lehman, respectively, are at least as favorable to the
Company as those that could be obtained from unaffiliated third parties.

SECURITY OWNERSHIP OF MANAGEMENT AND
PRINCIPAL STOCKHOLDERS

The following tables furnish information, as of July 21, 1995, as to: (i)
shares of Common Stock beneficially owned by each Director and Named Executive
Officer of the Company and shares of Common Stock beneficially owned by all
Directors and executive officers of the Company as a group; and (ii) shares of
Common Stock known by the Company to be beneficially owned by any person owning
beneficially more than five percent (5%) of the outstanding shares of Common
Stock, together with such person's address. (Except as indicated below, to the
knowledge of the Company each person indicated in the table has sole voting and
investment power as to the shares shown.)

57
<PAGE>
<TABLE><CAPTION>
Ownership of Directors and Executive Officers
---------------------------------------------

Name of Beneficial Owner Number of Shares Percent of Class(1)
------------------------ ---------------- -------------------

<S> <C> <C>
James W. Walter, 42,355(5) *
Chairman and Director

Howard L. Clark, Jr. (2) (2)
Director

James B. Farley 0 0%
Director

Eliot M. Fried (2) (2)
Director

James L. Johnson 0 0%
Director

Robert I. Shapiro (2) (2)
Director

Michael T. Tokarz 10,715,209(3) 21.0(3)
Director

G. Robert Durham 0 0%
Director, President and Chief Executive
Officer

Kenneth J. Matlock 5,573(5) *
Director, Executive Vice President
and Chief Financial Officer

William H. Weldon, 4,457(5) *
Senior Vice President--Finance
and Chief Accounting Officer

William N. Temple, 2,228(5) *
Senior Vice President and
Group Executive; President of U.S. Pipe

All Directors and executive officers as 10,795,454(4)(5) 21.2(4)(5)
a group
</TABLE>

____________________

* Owns less than 1% of outstanding Common Stock

(1) Unless otherwise indicated, all percentages in the table and the
accompanying footnotes are based on 50,988,626 shares of Common Stock
being issued (which includes 494,313 shares of Common Stock required to be
issued on September 13, 1995 (180 days after the Effective Date of the
Plan of Reorganization) pursuant to the Plan of Reorganization, but does
not include up to 3,880,140 additional shares that will be issued to an
escrow account on such date pursuant to the Plan of Reorganization; see
Footnote (5) and "Description of Capital Stock -- Future Stock Issuances").
As of July 21, 1995, 44,981,755 of such shares of Common Stock had been
delivered, with certain former creditors and stockholders of the Company
and its subsidiaries having the rights to receive delivery of the
remaining 5,512,558 shares of the 50,494,313 shares issued pursuant to the
Plan of Reorganization on the Effective Date of the Plan of Reorganization
promptly following their tender of certain required documentation on or
prior to the second anniversary of the Effective Date of the Plan of
Reorganization.

(2) Messrs. Clark, Fried and Shapiro are the Vice Chairman and Managing
Directors, respectively, of Lehman. See "Ownership of Principal
Stockholders" below for information concerning ownership of shares by
Lehman and its affiliate, Lehman Holdings.

(3) Mr. Tokarz is a general partner of KKR Associates, which is the sole
general partner of each of JWC Associates, L.P., JWC Associates II, L.P.
and KKR Partners II, L.P. (the "KKR Investors") and Channel One, and thus
Mr. Tokarz may be deemed to be a "beneficial owner" of the shares owned by
the KKR Investors and Channel One (see "Ownership of Principal
Stockholders" below) within the meaning of Rule 13d-3 under the Exchange
Act. Mr. Tokarz disclaims beneficial ownership of such shares.

The number of shares of Common Stock indicated includes 452,684 shares
required to be issued to the KKR Investors on September 13, 1995 (180 days
after the Effective Date of the Plan of Reorganization) pursuant to the
Plan of Reorganization. In addition, on September 13, 1995, up to
3,553,380 additional shares of Common Stock will be issued to an escrow
account for the benefit of the KKR Investors pursuant to the Plan of
Reorganization. See Footnote (4) under "Ownership of Principal
Stockholders" below and "Description of Capital Stock -- Future Stock
Issuances." For so long as the KKR Investors have the power to exercise
voting rights with respect to all such shares, or if all such shares were
distributed to the KKR Investors, Mr. Tokarz may be deemed to be a
"beneficial owner" of approximately 14,268,589 shares of Common Stock, or
26.0% of the shares of Common Stock outstanding after giving effect to
such issuance.

(4) Includes 10,715,209 shares of Common Stock beneficially owned by the KKR
Investors and Channel One which are deemed to be beneficially owned by Mr.
Tokarz. See Footnote (3). Does not include shares of Common Stock owned by
Lehman Holdings. See Footnote (2).

(5) Includes 3,017, 397, 317, 158 and 458,397 additional shares of Common
Stock required to be issued to Messrs. Walter, Matlock, Weldon and Temple
and to all Directors and executive officers as a group (including 452,684
shares of Common Stock required to

58
<PAGE>

be issued to the KKR Investors; see Footnotes (3) and (4)), respectively,
on September 13, 1995 (180 days after the Effective Date of the Plan of
Reorganization) pursuant to the Plan of Reorganization. In addition, up to
3,880,140 additional shares of Common Stock will be issued to an escrow
account on September 13, 1995 pursuant to the Plan of Reorganization. To
the extent that certain contingencies regarding federal income tax claims
of the Company are resolved satisfactorily, up to 23,689, 3,117, 2,493,
1,246 and 3,598,261 of the escrowed shares will be distributed to Messrs.
Walter, Matlock, Weldon and Temple and to all Directors and executive
officers as a group (including 3,553,380 shares to be distributed to the
KKR Investors), respectively, under the Plan of Reorganization. To the
extent such matters are not settled satisfactorily, the escrowed shares
will be returned to the Company and cancelled. Until such matters are
finally determined, such persons will have the power to exercise voting
rights with respect to such respective shares of Common Stock. See
"Description of Capital Stock -- Future Stock Issuances." For so long as
such persons have the power to exercise voting rights with respect to all
such shares, or if all such shares were distributed to such persons, such
persons would beneficially own approximately 66,044, 8,690, 6,950, 3,474
and 14,393,715 shares of Common Stock, respectively, which in the case of
each individual would constitute less than 1% of the shares of Common
Stock then outstanding after giving effect to such issuance and in the
case of all Directors and executive officers as a group would constitute
approximately 26.2% of the shares of Common Stock then outstanding after
giving effect to such issuance.

Ownership of Principal Stockholders
-----------------------------------

Name and Complete
Mailing Address Number of Shares Percent of Class(1)
-------------------- ---------------- -------------------

<S> <C> <C>
The Celotex Settlement Fund Recipient 10,941,326(2) 21.5(2)
1 Metro Center
4010 Boy Scout Boulevard
Tampa, Florida 33607

Lehman Brothers Holdings, Inc. 7,862,639(3)(5) 15.4(3)(5)
3 World Financial Center
New York, NY 10285

The KKR Investors (JWC Associates, L.P., 10,715,209(4) 21.0(4)
JWC Associates II, L.P. and
KKR Partners II, L.P.) and
Channel One Associates, L.P.
c/o Kohlberg Kravis Roberts & Co., L.P.
9 West 57th Street
New York, NY 10009
</TABLE>

____________________

(1) Unless otherwise indicated, all percentages in the table and the
accompanying footnotes are based on 50,988,626 shares of Common Stock
being issued (which includes 494,313 shares of Common Stock required to be
issued on September 13, 1995 (180 days after the Effective Date of the
Plan of Reorganization) pursuant to the Plan of Reorganization, but does
not include up to 3,880,140 additional shares that will be issued to an
escrow account on such date pursuant to the Plan of Reorganization; see
Footnote (4) and "Description of Capital Stock -- Future Stock Issuances").
As of July 21, 1995, 44,981,755 of such shares of Common Stock had been
delivered, with certain former creditors and stockholders of the Company
and its subsidiaries having the rights to receive delivery of the
remaining 5,512,558 shares of the 50,494,313 shares issued pursuant to the
Plan of Reorganization on the Effective Date of the Plan of Reorganization
promptly following their tender of certain required documentation on or
prior to the second anniversary of the Effective Date of the Plan of
Reorganization.

(2) If all the additional shares of Common Stock that may be issued pursuant
to the Plan of Reorganization to the KKR Investors and other former
stockholders of the Company are issued (see Footnote (4)), the percentage
would be reduced to approximately 19.9%.

The Celotex Settlement Fund Recipient has agreed to vote and execute
written consents with respect to the shares of Common Stock held by it in
proportion to the votes cast or consents executed and delivered by all
other holders of Common Stock. Identical restrictions on the voting of the
Celotex Settlement Fund Recipient's Common Stock are contained in the
Charter and in the Plan of Reorganization. See "Description of Capital
Stock -- Stockholder's Agreement" and "-- Tag-Along and Voting Rights
Agreement."

(3) Lehman transferred the shares of Common Stock which it received pursuant
to the Plan of Reorganization to its affiliate, Lehman Holdings. If all
the additional shares of Common Stock that may be issued pursuant to the
Plan of Reorganization to the KKR Investors and other former stockholders
of the Company are issued (see Footnote (4)), the percentage would be
reduced to approximately 14.3%

The Celotex Settlement Fund Recipient has agreed with Lehman that it will
vote and execute written consents with respect to the shares of Common
Stock held by it in proportion to the votes cast or consents executed and
delivered by all other holders of Common Stock. See "Description of
Capital Stock -- Tag-Along and Voting Rights Agreement" and Footnote (2)
above.

(4) The shares of Common Stock are beneficially owned by the KKR Investors as
follows: 6,163,165 shares are beneficially owned by JWC Associates, L.P.;
40,839 shares are beneficially owned by JWC Associates II, L.P.; and
149,405 shares are beneficially owned by KKR Partners II, L.P., including
439,130, 2,909 and 10,645 shares, respectively, required to be issued to
such KKR Investors on September 13, 1995 (180 days after the Effective
Date of the Plan of Reorganization) pursuant to the Plan of
Reorganization. See "Description of Capital Stock -- Future Stock
Issuances". The Company has been advised that as of July 21,

59
<PAGE>

1995 Channel One beneficially owned 4,361,800 shares. KKR Associates is
the sole general partner of each of the KKR Investors and Channel One. The
general partners of KKR Associates are Henry R. Kravis, George R. Roberts,
Robert I. MacDonnell, Michael W. Michelson, Saul A. Fox, Paul E. Raether,
Michael T. Tokarz, James H. Greene, Jr., Perry Golkin, Scott M. Stewart,
Clifton S. Robbins and Edward A. Gilhuly.

In addition, pursuant to the Plan of Reorganization up to 3,880,140
additional shares of Common Stock will be issued to an escrow account on
September 13, 1995. To the extent that certain contingencies regarding
federal income tax claims of the Company are resolved satisfactorily, up
to 3,553,380 of the escrowed shares will be distributed to the KKR
Investors under the Plan of Reorganization. To the extent such matters are
not settled satisfactorily, the escrowed shares will be returned to the
Company and cancelled. Until such matters are finally determined, the KKR
Investors will have the power to exercise voting rights with respect to
such shares of Common Stock. See "Description of Capital Stock -- Future
Stock Issuances." For so long as the KKR Investors have the power to
exercise voting rights with respect to all such shares, or if all such
shares were distributed to the KKR Investors, the KKR Investors and
Channel One would beneficially own approximately 14,268,589 shares of
Common Stock, or 26.0% of the shares of Common Stock then outstanding
after giving effect to such issuance.

(5) As a result of errors by the balloting agent in recording elections to
receive cash and Series B Notes in lieu of a portion of Common Stock to be
received under the Plan of Reorganization by holders of subordinated debt
of the Company outstanding prior to the Effective Date of the Plan of
Reorganization, the exact number of shares of Common Stock to be received
by Lehman and other holders of such debt was determined by the Bankruptcy
Court. Appeals have been filed to the Bankruptcy Court's decision, which
appeals, if successful, could cause additional shares of Common Stock to
be delivered to Lehman (in lieu of a portion of the cash and Series B
Notes previously delivered to Lehman) pursuant to the Plan of
Reorganization. When such appeals have been finally adjudicated, such
number of shares will be finally determinable. See Note 11 ("Litigation
Related to Chapter 11 Distributions to Certain Holders of Subordinate
Notes and/or Debentures") of Notes to Financial Statements.

DESCRIPTION OF CERTAIN INDEBTEDNESS

Series B Senior Notes

The following summary of certain provisions of the Indenture dated as of
March 17, 1995 (the "Indenture") between the Company and United States Trust
Company of New York, as trustee (the "Trustee"), governing the Series B Notes
does not purport to be complete, and is qualified in its entirety by reference
to the relevant provisions of the Indenture, which is filed as an exhibit to
the Registration Statement of which this Prospectus forms a part and to which
exhibit reference is hereby made. Unless otherwise defined herein, terms
defined in the Indenture shall have their respective defined meanings when used
herein.

The Notes. Pursuant to the Plan of Reorganization, $490,000,000 aggregate
principal amount of Series B Notes were issued to certain prepetition creditors
of the Company and its subsidiaries. The Notes are secured obligations of the
Company maturing on March 15, 2000 and bearing interest at 12.19% per annum.
Interest is payable semi-annually on September 15 and March 15 of each year,
commencing on September 15, 1995. The Notes rank senior in right of payment to
certain subordinated indebtedness of the Company and pari passu with other
senior indebtedness of the Company. The collateral securing the Notes is
described below in "Collateral Security."

The Notes will be subject to redemption at any time at the option of the
Company, in whole or in part, upon not less than 30 nor more than 60 days
notice, at a redemption price equal to 101% of the principal amount of the
Notes to be redeemed plus accrued and unpaid interest thereon, if any, to the
date of redemption, provided, however, that if a redemption is made from the
Excess Proceeds of any Asset Sales as discussed below, the redemption price
will be 100% of the principal amount of the Notes to be redeemed, plus accrued
and unpaid interest thereon, if any, to the date of redemption, and provided
further that if there is a partial redemption, at least $150 million aggregate
principal amount of Notes must remain outstanding immediately after such
redemption. In addition, upon the occurrence of a Change of Control (as defined
below), each Holder will have the right to require the Company to purchase all
or any part (equal to $1,000 or an integral multiple thereof) of such Holder's
Notes pursuant to the Change of Control Offer at a price equal to 101% of the
aggregate principal amount thereof plus accrued and unpaid interest, if any, to
the date of purchase. Under the terms of the Indenture, if the Company or any
one of its Subsidiaries consummates an Asset Sale and does not apply any
portion of the Net Cash Proceeds of the sale to either repaying Indebtedness
under the Bank Revolving Credit Facility or, in certain circumstances,
investing aggregate proceeds of less than $25 million during any twelve- month
period in a Related Business, then the Company will be obligated to use the
Excess Proceeds to either redeem the Notes (on a pro rata basis if the
available amount is less than the outstanding principal amount of the Notes
plus accrued and unpaid interest, if any) at a redemption price equal to 100%
of the principal amount thereof plus accrued and unpaid interest, if any, to
the date of redemption or to offer to purchase the Notes by application of
Excess Proceeds (on a pro rata basis if the amount available for such
purchase is less

60
<PAGE>

than the outstanding principal amount of the Notes plus accrued and unpaid
interest, if any, to the date of purchase) at a purchase price equal to 100%
of the principal amount thereof plus accrued and unpaid interest, if any, to
the date of purchase, provided that at least $150 million aggregate principal
amount of Notes must remain outstanding immediately following such redemption
or offer to repurchase. "Change of Control" is defined in the Indenture as
(i) any sale, lease or other transfer of all or substantially all of the
assets of the Company to any Person (other than a Wholly Owned Subsidiary of
the Company) in one transaction or a series of related transactions; (ii) the
Company consolidates or merges with another Person pursuant to a transaction
in which the outstanding Voting Stock of the Company is changed into or
exchanged for cash, securities or other property, other than any such
transaction where (a) no Disqualified Stock is issued and (b) holders of
Voting Stock of the Company immediately prior to such transaction beneficially
own (as defined in Rules 13d-3 and 13d-5 under the Exchange Act as in effect
on the date of the Indenture), directly or indirectly, not less than a
majority of the Voting Stock of the surviving corporation of such merger or
consolidation outstanding immediately after such transaction; (iii) a Person
or group (other than a Permitted Holder or a group consisting of one or more
Permitted Holders) becomes the beneficial owner (as defined in Rules 13d-3
and 13d-5 under the Exchange Act as in effect on the date of the Indenture)
of Voting Stock of the Company representing more than 50% of the voting power
of all Voting Stock of the Company then outstanding; (iv) Continuing Directors
cease to constitute at least a majority of the Board of Directors of the
Company; provided, however, that this clause (iv) shall not be applicable if
the Continuing Directors do not constitute at least a majority of the Board
of Directors as a result of the election of directors nominated by any of
the Permitted Holders; or (v) the stockholders of the Company shall approve
any plan or proposal for the liquidation or dissolution of the Company.

Collateral Security. Pursuant to the Indenture, the Company and certain of
its Subsidiaries (defined with respect to the Company not to include Mid-State
Homes and its Subsidiaries or Cardem Insurance) entered into the Pledge
Agreement and the Subsidiary Pledge Agreements, respectively, which provide,
among other things, that the outstanding Capital Stock of each of the Company's
direct and indirect Subsidiaries, whether currently owned or hereafter acquired
or created, be pledged to the Trustee by the Company or the applicable pledgor
Subsidiaries. The payment and performance when due of all of the obligations of
the Company under the Indenture with respect to the Notes are secured by a
first priority security interest in such pledged Capital Stock.

Events of Default. In general, the following events constitute events of
default under the Indenture: (i) the failure by the Company to pay interest on
the Notes for 5 Business Days after becoming due; (ii) the failure by the
Company to pay principal of or premium, if any, on the Notes, whether at
maturity, upon acceleration or otherwise; (iii) the failure of the Company or
any of its Subsidiaries to perform certain obligations under the Pledge
Agreement or any Subsidiary Pledge Agreement or the Trustee being entitled to
exercise any remedies pursuant to certain provisions of the Pledge Agreement or
any Subsidiary Pledge Agreement; (iv) the failure to comply with certain
provisions of the Indenture regarding Change of Control, Asset Sales and
mergers, consolidations and sales of assets; (v) the failure of the Company or
any of its Subsidiaries to comply with certain provisions of the Indenture for
30 days after receipt of written notice thereof; (vi) with certain exceptions,
the failure by the Company or any of its Subsidiaries to comply with any of its
covenants or the breach of any of its representations and warranties under the
Indenture, the Pledge Agreement or any Subsidiary Pledge Agreement for 60 days
after receipt of written notice thereof; (vii) a default or defaults under one
or more agreements or other evidence of Indebtedness under which the Company or
any of its Significant Subsidiaries has an outstanding principal amount of
Indebtedness in excess of $25 million individually or $50 million in the
aggregate for all such issues of all such Persons and either (x) such
Indebtedness is already due and payable in full or (y) such default or defaults
have resulted in the acceleration of the maturity of such Indebtedness; (viii)
any final judgment or order (not covered by insurance) is entered against the
Company or any Significant Subsidiary in excess of $25 million individually or
$50 million in the aggregate for all such final judgements or orders against
all such Persons and remains undischarged or are unstayed for 60 days; (ix)
certain events of bankruptcy or insolvency with respect to the Company or any
of its Subsidiaries; or (x) any Lien granted or purported to be granted
pursuant to the Pledge Agreement or any Subsidiary Pledge Agreement shall be or
become unenforceable or invalid, or the priority thereof shall become
diminished or, the Company or any Subsidiary shall contest or disaffirm any
such Lien.

Covenants. In general, the Indenture contains covenants which, among other
things, restrict the ability of: (A) the Company and its Subsidiaries (defined
with respect to the Company not to include Mid-State Homes and its Subsidiaries
or Cardem Insurance) to (i) incur, directly or indirectly, any Indebtedness
(including Acquired Indebtedness), unless, at any time after September 1, 1995,
(a) at the time of such incurrence, the ratio of Consolidated EBITDA to
Consolidated Fixed Charges for the period of the four consecutive fiscal
quarters then ended immediately prior to such incurrence, taken as one period
and calculated on a pro forma basis as if

61
<PAGE>
such Indebtedness had been incurred and the proceeds therefrom applied on the
first day of such four-quarter period and, in the case of Acquired
Indebtedness, as if the related acquisition (whether by means of purchase,
merger or otherwise) also had occurred on such date with the appropriate
adjustments with respect to such acquisition being included in such pro forma
calculation, would have been, in the case of an incurrence of Subordinated
Indebtedness by the Company, greater than 2.25 to 1 and, in the case of an
incurrence of any other Indebtedness by the Company or of any Indebtedness by a
Subsidiary, greater than 3.0 to 1 and (b) no Default or Event of Default shall
have occurred and be continuing because of the incurrence of such Indebtedness,
(ii) incur any Liens, or (iii) enter into sale and leaseback transactions; (B)
the Company, Mid-State Homes and their respective Subsidiaries to (i) make a
Restricted Payment (defined to include dividends in respect of, and redemptions
of, Capital Stock, optional prepayments of Indebtedness subordinate to the
Series B Notes and the making of certain investments) unless (a) no Default or
Event of Default shall have occurred and be continuing at the time of or
immediately after giving effect to such Restricted Payment, (b) at the time of
and immediately after giving effect to such Restricted Payment, at least $1.00
of additional Indebtedness could be incurred under the Consolidated EBITDA to
Consolidated Fixed Charges test applicable to Indebtedness incurred by the
Company (other than Subordinated Indebtedness) or a Subsidiary described in
clause (A)(i) above, and (c) immediately after giving effect to such Restricted
Payment, the aggregate amount of all Restricted Payments declared or made after
the Issue Date does not exceed a certain amount; except that the Company may
declare or pay a regular quarterly Common Stock cash dividend at a rate not to
exceed $.025 per share if no Default or Event of Default has occurred and is
continuing or would result therefrom and if at the time of and immediately
after giving effect to such Restricted Payment, at least $1.00 of additional
indebtedness could be incurred under the Consolidated EBITDA to Consolidated
Fixed Charges test applicable to Indebtedness (other than Subordinated
Indebtedness) described in clause (A)(i) above, (ii) enter into transactions
with Affiliates or holders of 5% or more of the Company's or Mid-State's or any
of their respective Subsidiaries' Common Stock (other than with the Company,
Mid-State Homes or a Wholly Owned Subsidiary of either) on terms that would be
less favorable to the Company, Mid-State Homes or their respective Subsidiaries
than would be the case on a transaction negotiated on an arm's-length basis or
otherwise not detrimental to the Company or any Subsidiary, (iii) sell or
dispose of any Capital Stock of their respective Subsidiaries; (C) the
Subsidiaries of the Company to encumber, among other things, their ability to
pay dividends or make any other distributions to the Company; and (D) the
Company to consolidate or merge with, or dispose of all or substantially all of
its assets to, any other Person unless (i) the entity formed by such
consolidation, merger or conveyance is a corporation organized and existing
under United States law, any state thereof, or the District of Columbia, (ii)
if the Company is not the Surviving Entity, the Surviving Entity assumes by
supplemental indenture all of the obligations of the Company under the Notes
and the Indenture, (iii) immediately after giving effect to such transaction,
no Default or Event of Default shall have occurred and be continuing, (iv)
immediately after giving effect to such transaction, the Consolidated Net Worth
of the Surviving Entity would be at least equal to the Consolidated Net Worth
of the Company immediately prior to such transaction and (iv) immediately after
giving effect to such transaction, the Surviving Entity could incur at least
$1.00 of additional Indebtedness under the Consolidated EBITDA to Consolidated
Fixed Charges test applicable to Indebtedness incurred by the Company (other
than Subordinated Indebtedness) or a subsidiary. In addition, the Indenture
contains covenants requiring the Company to (i) make regular reports to Holders
of Notes and to file all such reports with the Commission for public
availability and (ii) with certain exceptions, to maintain its corporate
existence and the corporate, partnership or other existence of its Subsidiaries
and to maintain licenses and franchises of the Company and its Subsidiaries.

Senior Note Registration Rights Agreement. The Company has entered into a
Registration Rights Agreement, dated as of the Effective Date of the Plan of
Reorganization (the "Senior Note Registration Rights Agreement"), with certain
holders ("Series B Note Holders") of Series B Notes pursuant to which the
Company agreed to file the registration statement referred to under "Prospectus
Summary -- Contemporaneous Debt Offering" and use its reasonable best efforts to
keep such registration statement continuously effective for up to one year.
Under the Senior Note Registration Rights Agreement, the Series B Note Holders
have certain demand and "piggyback" registration rights and certain other
rights and obligations, all on terms substantially similar to those contained
in the Common Stock Registration Rights Agreement. See "Description of Capital
Stock -- Common Stock Registration Rights Agreement."

Bank Revolving Credit Facility

The Company and certain of its subsidiaries have entered into a revolving
credit facility (the "Bank Revolving Credit Facility") with Citicorp USA, Inc.,
NationsBank of Florida, N.A. and Merrill Lynch Capital Corporation. The Bank
Revolving Credit Facility is a three-year non-amortizing senior working capital
revolving

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<PAGE>

credit facility pursuant to which borrowings not in excess of $150 million may
be outstanding at any time, with a sublimit for trade and standby letters of
credit in an amount not in excess of $40,000,000 at any time outstanding and a
sub-facility for swingline advances in an amount not in excess of $15,000,000
at any time outstanding, subject to compliance with a borrowing base test
comprised of eligible equipment, inventory and receivables. The facility is
secured by certain collateral, including equipment of JW Aluminum, U.S. Pipe
and Jim Walter Resources as well as the bank accounts, inventory and accounts
receivable of all of the borrowers and inter-company indebtedness. Subject to
certain exceptions, the net cash proceeds from the sale of collateral must be
applied to permanently reduce the facility. Under the facility each borrower
guarantees the obligations of each other borrower, subject to certain
limitations. As of May 31, 1995, there were no borrowings outstanding under
this facility; however, letters of credit in the aggregate face amount of
$22,727,000 have been issued thereunder. The facility contains a number of
covenants, including restrictions on liens, indebtedness, leases, mergers,
sales or disposition of assets, investments, dividends, repurchases of shares
of capital stock, prepayment of indebtedness and capital expenditures, as well
as financial covenants with respect to leverage ratios, interest coverage,
fixed charge coverage ratios and earnings. Mid-State Homes and Cardem Insurance
are not parties to or governed by this facility. The borrowers are required to
maintain a leverage ratio (the ratio of indebtedness of the borrowers to EBITDA
of the borrowers) not more than a ratio ranging from 3.80 to 1 to 3.50 to 1 for
measurement periods in the year ending May 31, 1996, 3.35 to 1 for each
measurement period in the year ending May 31, 1997 and 3.30 to 1 thereafter.
The borrowers' interest coverage ratio (the ratio of EBITDA to interest
expense) for all measurement periods is required to be at least 2.40 to 1. The
borrowers' fixed charge coverage ratio (the ratio of (a) EBITDA minus capital
expenditures to (b) the sum of all required principal payments on outstanding
indebtedness, interest expense and dividends paid) is required to be at least
1.0 to 1 for the measurement period ending August 31, 1995, 1.10 to 1 in each
of the remaining measurement periods in the year ending May 31, 1996 and 1.25
to 1 thereafter. The minimum EBITDA of the borrowers is $175 million for the
year ending May 31, 1996 and $180 million for the four most recently completed
fiscal quarters at each measurement period thereafter.

DESCRIPTION OF CAPITAL STOCK

Authorized Capital Stock

The Company's authorized capital stock consists of 200,000,000 shares of
Common Stock, par value $.01 per share. At July 21, 1995 there were 50,494,313
shares of Common Stock issued and outstanding. Harris Trust and Savings Bank is
the transfer agent and registrar for the Common Stock.

Common Stock

The holders of the Common Stock are entitled to one vote for each share
held of record on all matters as to which stockholders are entitled to vote.
There are no cumulative voting rights in the election of directors. The quorum
required at any stockholders' meeting for consideration of any matter is a
majority of the issued and outstanding shares of Common Stock, represented in
person or by proxy.

Holders of the Common Stock are entitled to receive dividends when, as and
if declared by the Board of Directors out of funds legally available for
dividends. See "Certain Risk Factors -- Dividend Policy; Restrictions on Payment
of Dividends" and "Dividend Policy". In the event of any liquidation,
dissolution or winding up of the Company, the holders of the Common Stock are
entitled to receive pro rata any assets distributable to stockholders in
respect of shares held by them, after payment of all obligations of the
Company.

The outstanding shares of the Common Stock (including the Shares offered
hereby) are duly authorized, validly issued, fully paid and nonassessable.

Future Stock Issuances

Pursuant to the Plan of Reorganization, the Company may be required to
issue additional Common Stock to the holders of common stock of the Company
immediately prior to the Effective Date of the Plan of Reorganization
("Original Stockholders") on the dates and in the amounts described below, in
each case on a pro rata basis. Solely for the purpose of calculating the number
of shares to be issued in these issuances, such additional Common Stock will be
valued at a price per share of $22.86 (the "Common Stock Value Per Share").
Original Stockholders will be entitled receive shares of Common Stock as
follows:

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(a) On the date on which a final, non-appealable order is entered
resolving the total amount of claims of the IRS against the Company or any
of its subsidiaries (other than Cardem Insurance and J.W. Railroad)
arising prior to the Effective Date of the Plan of Reorganization and
entitled to priority under Section 507(a)(7) of the Bankruptcy Code
("Federal Income Tax Claims"), the Original Stockholders will receive
Common Stock with an aggregate Common Stock Value Per Share equal to the
amount by which the total amount of the Federal Income Tax Claims are
reduced to below $27 million (the "Federal Income Tax Claims
Differential"). Such Common Stock shall be, first, issued by the Company
directly to the Original Stockholders up to a number of shares having an
aggregate Common Stock Value Per Share equal to the excess, if any, of (A)
$88.7 million over (B) the aggregate Common Stock Value Per Share of all
shares of Common Stock theretofore issued into escrow as described in the
next paragraph, and second, be satisfied by the release from such escrow
of any remaining shares of Common Stock issuable to Original Stockholders
pursuant to such provisions.

(b) As soon as practicable after the Tax Oversight Committee of the
Board of Directors has determined that a tax return for a tax year ending
on or after May 31, 1995 or a claim for refund or deduction for a tax year
ending prior to May 31, 1995 has been filed by the Company's consolidated
tax group or any member thereof on which a Veil Piercing Settlement Tax
Savings Amount (as defined below) is claimed (each such filing, a "Veil
Piercing Settlement Tax Savings Event"), the Company will issue and place
in escrow with an escrow agent selected by the Company, Lehman and AIF II,
L.P., certain of its affiliates and certain accounts controlled or managed
by such affiliates (AIF II, L.P., such affiliates and accounts,
collectively, "Apollo") shares of Common Stock having an aggregate Common
Stock Value Per Share equal to the difference between (a) the aggregate
amount of federal, state and local tax payable by members of the Company's
consolidated group as reported on such members' relevant tax returns and
(b) the aggregate amount of federal, state and local income tax that would
have been reported on such returns if the distribution under the Veil
Piercing Settlement Agreement had not been made (the "Veil Piercing
Settlement Tax Savings Amount"). This amount will be determined by the Tax
Oversight Committee upon such Veil Piercing Settlement Tax Savings Event.
The Company intends to deduct in full in the year of payment the payment
made under the Plan of Reorganization to Celotex, in its capacity as the
Celotex Settlement Fund Recipient. The Company believes that such payment
is properly deductible, but there can be no assurance that the IRS will
not challenge the deduction and if it does so whether such challenge will
succeed. The issued shares will be released from escrow as soon as
practicable after the Tax Oversight Committee determines that the
applicable Veil Piercing Settlement Tax Savings Amount is no longer
subject to adjustment because (i) the statutory period during which
assessments (or denial of a refund claim) can be made with respect to such
Veil Piercing Settlement Tax Savings Amount has passed, (ii) the Company
and the IRS or other relevant taxing authority have entered into a closing
or similar agreement governing the years or issues in question with
respect to such Veil Piercing Settlement Tax Savings Amount, or (iii) a
court decision determining the income tax liability (or the right to such
refund) with respect to such Veil Piercing Settlement Tax Savings Amount
has been rendered and the time period for the filing of an appeal has
passed. Notwithstanding and in addition to the foregoing, the Plan of
Reorganization provides that if, on or prior to August 24, 1995 (the 160th
day following the Effective Date of the Plan of Reorganization), (i) one
or more Veil Piercing Settlement Tax Savings Events shall not have
occurred in respect of (and the Tax Oversight Committee shall not have
determined) the maximum Veil Piercing Settlement Tax Savings Amount that
could result from a good faith claim by the Company's consolidated tax
group of both (a) a refund with respect to tax years prior to the tax year
in which the Effective Date of the Plan of Reorganization occurs, and (b)
a deduction with respect to the tax year in which the Effective Date of
the Plan of Reorganization occurs (collectively, the "Initial Claim"), or
(ii) the Company shall not have issued and delivered into escrow
certificates representing shares of Common Stock having an aggregate
Common Stock Value Per Share equal to the full amount of such maximum Veil
Piercing Settlement Tax Savings Amount, then not later than September 13,
1995 (the 180th day after the Effective Date of the Plan of
Reorganization) the Company shall issue and deliver into escrow
certificates representing Common Stock having an aggregate Common Stock
Value Per Share equal to the sum of (i) that part of the Veil Piercing
Settlement Tax Savings Amount arising from the Initial Claim in respect of
which shares of Common Stock had not theretofore been issued into escrow,
as such Veil Piercing Settlement Tax Savings Amount (whether or not a Veil
Piercing Settlement Tax Savings Event shall previously have occurred)
shall be estimated in good faith by the Chief Financial Officer of the
Company and set forth in a certificate delivered to the Tax Oversight
Committee (and such amount shall be the Veil Piercing Settlement Tax
Savings Amount for purposes of provisions described in this sentence) and
(ii) an additional amount equal to the lesser of (A) $13 million and (B)
an amount that would cause the

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total number of shares of Common Stock to be issued into escrow to have an
aggregate Common Stock Value Per Share equal to $88.7 million.
Notwithstanding and in addition to the foregoing, $11.3 million of Common
Stock (using the Common Stock Value Per Share) will be issued directly to
the Original Stockholders on a pro rata basis at the same time as shares
of Common Stock are first issued into escrow. The Original Stockholders,
on a pro rata basis, are entitled to exercise all voting rights of, and
receive all dividends and other distributions on, Common Stock held in
escrow. The amount of such dividends and other distributions must be
returned to the Company if such shares are subsequently cancelled prior to
release from escrow.

The Plan of Reorganization limits the number of shares issuable under the
provisions described in (a) and (b) above to that number of shares of Common
Stock that, when added to the shares issued to the Original Stockholders on the
Effective Date of the Plan of Reorganization, has an aggregate Common Stock
Value Per Share of $250 million. The Plan of Reorganization contains an
arbitration provision for the final determination of any dispute that may arise
between KKR (the principal Original Stockholder) and the Tax Oversight
Committee with respect to any determination made by the Tax Oversight Committee
regarding the provisions of the Plan of Reorganization described in (b) above.
The Plan of Reorganization also provides that, for purposes of the Federal
Income Tax Claims Differential, the amount of Federal Income Tax Claims shall
not be reduced by any Veil Piercing Settlement Tax Savings Amount and that any
terms of any settlement or agreement regarding Federal Income Tax Claims shall
not be agreed to by the Company or any subsidiary thereof without the prior
consent of the Tax Oversight Committee.

The Company is authorized to issue additional shares of capital stock from
time to time. There are no specific restrictions upon such issuances, except
that the Charter prohibits the issuance of non-voting equity securities if, and
only to the extent that and so long as, Section 1123 of the Bankruptcy Code is
applicable and would prohibit such issuance. The Company's stockholders will
not have preemptive rights to purchase additional shares of capital stock of
the Company upon any issuance of such shares authorized by the Board.

Stockholder's Agreement

Pursuant to the Stockholder's Agreement dated as of the Effective Date of
the Plan of Reorganization (the "Stockholder's Agreement") between the Company
and the Celotex Settlement Fund Recipient, the Celotex Settlement Fund
Recipient has agreed, in any vote or action by written consent by holders of
Common Stock on any matter submitted to a vote of holders of Common Stock, to
vote, and execute written consents with respect to, the shares of Common Stock
held by it for and/or against such matter in proportion to the votes cast or
consents executed and delivered by all other holders of Common Stock. Identical
restrictions on the voting of the Celotex Settlement Fund Recipient's Common
Stock are contained in the Charter and in the Plan of Reorganization. Pursuant
to the Stockholder's Agreement, the Celotex Settlement Fund Recipient further
agreed not to, and to cause its affiliates not to, offer, sell, assign, give,
pledge, encumber or otherwise dispose of any shares of its Common Stock or any
interest therein or right thereto to any person that is a successor to or
creditor of the Celotex Settlement Fund Recipient or a creditor of Celotex (any
such creditor, a "Celotex Settlement Fund Beneficiary"), in such person's
capacity as such, unless such person executes and delivers an instrument, in
form and substance reasonably satisfactory to the Company, pursuant to which it
agrees to be bound by the Stockholder's Agreement to the same extent as the
Celotex Settlement Fund Recipient.

Tag-Along and Voting Rights Agreement

Pursuant to the Tag-Along and Voting Rights Agreement dated as of the
Effective Date of the Plan of Reorganization (the "Tag-Along and Voting Rights
Agreement") among Celotex, on behalf of the Celotex Settlement Fund Recipient,
Apollo and Lehman (collectively, the "Tag-Along Stockholders") each Tag-Along
Stockholder agreed that if it proposes to dispose of any Common Stock held by
it on the Effective Date of the Plan of Reorganization to any third party
(other than transactions described below), the other Tag-Along Stockholders
will have the right to include the shares of Common Stock held by them on the
Effective Date of the Plan of Reorganization in such disposition transaction on
the same terms and conditions, provided, however, that if the initiating Tag-
Along Stockholder is Lehman or Apollo, then Lehman or Apollo, respectively,
will not be entitled to participate in such disposition transaction. If the
Tag-Along Stockholders collectively desire to sell more shares of Common Stock
than the proposed purchaser desires to purchase, each Tag-Along Stockholder
shall sell a pro rata number of its shares. The foregoing does not apply to any
transaction effected on a national securities exchange, on the National
Association of Securities Dealers Automated Quotation System or through a
registered-broker dealer or made pursuant to a public offering under an
effective registration statement under the

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Securities Act. The foregoing also does not apply to any disposition by a Tag-
Along Stockholder to an affiliate or by the Celotex Settlement Fund Recipient
to a successor or a Celotex Settlement Fund Beneficiary. The parties have
agreed that any of their transferees which is an affiliate or, in the case of
the Celotex Settlement Fund Recipient, a successor or a Celotex Settlement Fund
Beneficiary must, prior to such transfer, agree in writing to be bound by the
Tag-Along and Voting Rights Agreement as if it had been an original party
thereto.

The Celotex Settlement Fund Recipient also has agreed to, and to cause
each of its affiliates to, vote and execute written consents with respect to
their shares of Common Stock in proportion to the votes cast or consents
executed and delivered by all other holders of Common Stock, in any vote or
action by written consent by holders of Common Stock.

Common Stock Registration Rights Agreement

The Company has entered into a Registration Rights Agreement, dated as of
the Effective Date of the Plan of Reorganization (the "Common Stock
Registration Rights Agreement"), with certain holders ("Common Stock Holders")
of Common Stock pursuant to which the Company agreed to file the Registration
Statement of which this Prospectus forms a part (the "Initial Common Stock
Shelf Registration") and use its reasonable best efforts to keep such Common
Stock Shelf Registration continuously effective for up to one year.

After the expiration of the Initial Common Stock Shelf Registration, one
or more Common Stock Holders may request to have all or part of their Common
Stock as to which registration pursuant to the Securities Act is required for
public sale ("Registrable Common Stock") registered under the Securities Act,
and all other Common Stock Holders have the right to participate in any such
registration; provided that (i) the Company is not required to effect more than
two such registrations, (ii) no such registration may be requested within 180
days of the effectiveness of any such earlier registration or a registration as
to which Common Stock Holders have "piggyback" registration rights (as
discussed below), (iii) the Company is not required to effect any such
registration unless at least 5% of the shares of Registrable Common Stock
outstanding at the time of such request is to be included in such registration
and (iv) if the intended method of distribution is an underwritten public
offering, the Company may require the underwriting to be conducted on a "firm
commitment" basis. Any such requested registration may be effected pursuant to
a shelf registration statement under Rule 415 of the Securities Act (a "Shelf
Registration"); any such registration (other than a Shelf Registration, which
must be kept effective by the Company for up to one year, if made pursuant to
the first demand under the provisions described in this paragraph or nine
months otherwise) need not be kept effective by the Company for more than 90
days. If the intended method of distribution is an underwritten public
offering, the underwriters must be nationally recognized, selected by Common
Stock Holders owning at least a majority of the shares of Registrable Common
Stock being registered (the "Majority Selling Common Stock Holders") and
reasonably acceptable to the Company. In addition, if the managing underwriter
advises the Company in writing that, in its opinion, the number of shares
requested to be registered exceeds the number that can be sold within a price
range specified by the Majority Common Stock Selling Holders, the shares
requested to be included by Common Stock Holders shall be included in the
registration on a pro rata basis in preference to any other shares which the
Company or any person wishes to include in such registration.

If the Company at any time following the termination of the Initial Common
Stock Shelf Registration proposes to register any of its securities under the
Securities Act (other than any registration of Series B Notes pursuant to the
Senior Note Registration Rights Agreement or any registration of any securities
on Form S-4 or Form S-8), the Common Stock Holders have the right, pursuant to
a written request submitted within 20 days (10 days in certain circumstances)
of receipt of notice thereof from the Company, to participate in such
registration.

Upon a request of Common Stock Holders owning at least a majority of the
shares of Registrable Common Stock requested to be included in a demand or
"piggyback" registration made at any time on or after March 17, 1996, the
Company has agreed to use its best efforts to (i) cause the Common Stock
covered by such registration to be listed on a national securities exchange or
to be quoted through NASDAQ or (ii) provide for at least two market makers for
the Common Stock.

All expenses of the Company in connection with the performance of its
obligations under the Common Stock Registration Rights Agreement and the
reasonable fees, disbursements and other charges of one firm of counsel (per
registration) selected by the Majority Selling Common Stock Holders (but
excluding underwriting discounts and commissions and transfer taxes) shall be
borne by the Company, except where some or all of the

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Common Stock Holders withdraw or terminate their requests prior to the
registration statement becoming effective, in which case such Common Stock
Holders shall be required to bear some or all of such expenses, provided that
if the Company elects not to proceed with a registration as to which Common
Stock Holders have "piggyback" registration rights as described above or elects
not to proceed with any registration as described in the second succeeding
paragraph, the Company must bear all reasonable out-of-pocket costs (other than
counsel fees, disbursements and other charges not specifically referred to
above) incurred by a Common Stock Holder in connection with such terminated
registration. In addition, pursuant to the Common Stock Registration Rights
Agreement, the Company has agreed to indemnify each offeror of Registrable
Common Stock covered by a registration statement filed pursuant to the Common
Stock Registration Rights Agreement, each other person who participates as an
underwriter in such offering, each other person who controls such offerors or
underwriters and their respective directors, officers, partners, agents and
affiliates against certain liabilities, including liabilities under the
Securities Act.

The Company is not obligated to file any registration statement under the
Common Stock Registration Rights Agreement or any amendment or supplement
thereto (other than the Registration Statement of which this Prospectus forms a
part and amendments and supplements thereto) and may suspend any seller's
rights to make sales pursuant to any effective registration statement (provided
that the right to effect sales pursuant to the Registration Statement of which
this Prospectus forms a part may not be suspended prior to the ninetieth day
following the date hereof) at any time when the Company, in the good faith
judgment of its Board of Directors, reasonably believes that the filing thereof
at the time requested, or the offering of securities thereto, would adversely
affect a pending or proposed public offering of the Company's securities, a
material financing, or a material acquisition, merger, recapitalization,
consolidation, reorganization or similar transaction, or negotiations,
discussions or pending proposals with respect thereto. Such a deferral of the
filing of a registration statement or an amendment or supplement thereto or
suspension of a seller's right to effect sales may continue for no more than 10
days after the abandonment or consummation of any of the foregoing proposals or
transactions or 60 days after the date of the Board's determination referred to
in the preceding sentence. In the event of such a suspension, the applicable
registration period will be extended by the number of days of the suspension.

Lock-Up Agreements

Pursuant to the Common Stock Registration Rights Agreement, each Common
Stock Holder has agreed, if required by the managing underwriter of any
underwritten offering and except as required otherwise under applicable law,
not to sell any equity securities of the Company during the 10 days preceding
or 120 days following the effective date of an underwritten registration under
the Common Stock Registration Rights Agreement. The Company has agreed not to
(and to cause certain other holders of equity securities acquired after the
Effective Date of the Plan of Reorganization to agree not to) effect any public
offering and sale of Common Stock pursuant to an effective registration
statement during such period of time.

Channel One Registration Rights Agreement

The Company has entered into a Registration Rights Agreement dated as of
August __, 1995 (the "Channel One Registration Rights Agreement") with Channel
One pursuant to which the Company has agreed to include in the Initial Common
Stock Shelf Registration all shares of Common Stock owned by Channel One. The
Company has also agreed to include all shares of Common Stock owned by Channel
One in each registration statement filed by the Company subsequent to the
filing of the Initial Common Stock Shelf Registration which includes shares of
Registrable Common Stock to the extent that the Company may do so without
breaching any of its obligations under the Common Stock Registration Rights
Agreement and otherwise on the terms and subject to the conditions of the
Common Stock Registration Rights Agreement that are applicable to the holders
of the shares of Registrable Common Stock included in such registration
statement. The Channel One Registration Rights Agreement provides that certain
provisions of the Common Stock Registration Rights Agreement are binding upon
and applicable to the parties thereto, including those provisions described
above relating to expenses, indemnification, postponements and suspensions.

Antitakeover Legislation

Section 203 of the DGCL provides that, subject to certain exceptions
specified therein, an "interested stockholder" of a Delaware corporation shall
not engage in any business combination, including mergers or consolidations or
acquisitions of additional shares of the corporation, with the corporation for
a three-year period following the date on which such stockholder becomes an
"interested stockholder" unless (i) prior to such date,

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the board of directors of the corporation approved either the business
combination or the transaction which resulted in the stockholder becoming an
"interested stockholder," (ii) upon consummation of the transaction which
resulted in the stockholder becoming an "interested stockholder," the
interested stockholder owned at least 85% of the voting stock of the
corporation outstanding at the time the transaction commenced (excluding
certain shares), or (iii) on or subsequent to such date, the business
combination is approved by the board of directors of the corporation and
authorized at an annual or special meeting of stockholders by the affirmative
vote of at least 66-2/3% of the outstanding voting stock which is not owned by
the "interested stockholder." Except as otherwise specified in Section 203, an
"interested stockholder" is defined to include (x) any person that is the owner
of 15% or more of the outstanding voting stock of the corporation, or is an
affiliate or associate of the corporation and was the owner of 15% or more of
the outstanding voting stock of the corporation at any time within three years
immediately prior to the relevant date and (y) the affiliates and associates of
any such person. For purposes of Section 203, the Board has approved the
transaction (the consummation of the Plan of Reorganization) which resulted in
Lehman and the Celotex Settlement Fund Recipient becoming "interested
stockholders" and, accordingly, the Company believes that neither of them will
be subject to the restrictions of Section 203 unless it ceases to be the owner
of 15% or more of the outstanding voting stock of the Company and seeks to
reattain such level of ownership. The Board also approved the purchase of
Common Stock by Channel One and its affiliates and associates of 15% or more of
the outstanding voting stock of the Company through open market purchases or
otherwise. Accordingly, the Company believes that none of Channel One and its
affiliates and associates (including the KKR Investors) will be subject to the
restrictions of Section 203. In connection with the above-described Board
approval, Channel One and the KKR Investors agreed with the Company that they
will not, and will not permit any of their affiliates to, vote any shares of
Common Stock of the Company or otherwise take any other action to modify the
composition of the Board of Directors of the Company prior to April 6, 1998
other than as expressly provided for in the Company's Charter and the Plan of
Reorganization and that during such period they will not participate in the
solicitation of proxies to vote, or seek to advise or influence any person with
respect to, voting securities of the Company to modify the composition of the
Board of Directors, or propose, assist in or encourage any person in connection
with any of the foregoing.

CERTAIN FEDERAL INCOME TAX CONSEQUENCES

The following summary describes certain United States federal income tax
consequences of the ownership of Shares by Non-United States Holders (as
defined below) as of the date hereof. This discussion does not address all
aspects of United States federal income taxation and does not deal with
foreign, state and local consequences that may be relevant to such Non-United
States Holders in light of their personal circumstances. Furthermore, the
discussion below is based upon the provisions of the Internal Revenue Code of
1986, as amended (the "Code"), and regulations, rulings and judicial decisions
thereunder as of the date hereof, and such authorities may be repealed, revoked
or modified so as to result in federal income tax consequences different from
those discussed below. Persons considering the purchase, ownership or
disposition of Shares should consult their own tax advisors concerning the
federal income tax consequences in light of their particular situations as well
as any consequences arising under the laws of any other taxing jurisdiction.

As used herein, a "Non-United States Holder" of Shares means a holder who
is not (i) a citizen or resident of the United States, (ii) a corporation,
partnership or other entity created or organized in or under the laws of the
United States or any political subdivision thereof or (iii) an estate or trust
the income of which is subject to United States federal income taxation
regardless of its source.

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Payment of Dividends

If the Company pays dividends on its Shares, such dividends paid to a Non-
United States Holder of Shares will be subject to withholding of United States
federal income tax rate at a 30% rate or such lower rate as may be specified by
an applicable income tax treaty, unless the dividends are effectively connected
with the conduct of a trade or business of the Non-United States Holder within
the United States. Dividends that are effectively connected with the conduct of
a trade or business within the United States are subject to United States
federal income tax on a net income basis at applicable graduated individual or
corporate rates. Any such effectively connected dividends received by a foreign
corporation may, under certain circumstances, be subject to an additional
"branch profits tax" at a 30% rate or such lower rate as may be specified by an
applicable income tax treaty.

Under current United States Treasury regulations, dividends paid to an
address outside the United States are presumed to be paid to a resident of such
country for purposes of the withholding discussed above, and, under the current
interpretation of United States Treasury regulations, for purposes of
determining the applicability of a tax treaty rate. Under proposed Treasury
regulations not currently in effect, however, a Non-United States Holder of
Shares who wishes to claim the benefit of an applicable treaty rate would be
required to satisfy applicable certification and other requirements. Certain
certification and disclosure requirements must be complied with in order to be
exempt from withholding under the effectively connected income exception. A
Non-United States Holder of Shares eligible for a reduced rate of United States
withholding tax pursuant to an income tax treaty may obtain a refund of any
excess amounts withheld by filing an appropriate claim for refund with the IRS.

Sale or Exchange

A Non-United States Holder will generally not be subject to United States
federal income tax with respect to gain recognized on a sale, exchange or other
disposition of Shares unless (i) the gain is effectively connected with the
conduct of a trade or business of the Non-United States Holder in the United
States, (ii) in the case of a Non-United States Holder who is an individual and
holds the Shares as capital assets, such holder is present in the United States
for 183 days or more in the taxable year of sale, exchange or other disposition
and certain other conditions are met, or (iii) the Company is or has been a
"U.S. real property holding corporation" for United States federal income tax
purposes. The Company is not and does not anticipate becoming a "U.S. real
property holding corporation" for United States federal income tax purposes.

Backup Withholding and Information Reporting

Payments of dividends to a Non-United States Holder at an address outside
the United States will generally not be subject to information reporting and
backup withholding. The payment of the proceeds of the sale, exchange or other
disposition of Shares to or through the United States office of a broker is
subject to information reporting and backup withholding at a rate of 31% unless
the owner certifies its non-United States status under penalties of perjury or
otherwise establishes an exemption. Backup withholding and information
reporting will not apply if a foreign office of a broker (as defined in
applicable Treasury regulations) pays the proceeds of the sale of Shares to the
owner thereof. If, however, such broker is, for United States federal income
tax purposes, a U.S. person, a controlled foreign corporation or a foreign
person that derives 50% or more of its gross income for certain periods from
the conduct of a trade or business in the United States, such payments will not
be subject to backup withholding but will be subject to information reporting,
unless (1) such broker has documentary evidence in its records that the
beneficial owner is not a U.S. person and certain other conditions are met or
(2) the beneficial owner otherwise establishes an exemption. Temporary Treasury
regulations provide that the Treasury is considering whether backup withholding
will apply with respect to payments of dividends or the proceeds of a sale that
are not subject to backup withholding under the current regulations. Under
proposed Treasury regulations not currently in effect backup withholding will
not apply to such payments absent actual knowledge that the payee is a United
States person.

Any amounts withheld under the backup withholding rules will be allowed as
a refund or a credit against such holder's U.S. federal income tax liability
provided the required information is furnished to the IRS.

PROSPECTIVE INVESTORS ARE URGED TO CONSULT THEIR OWN TAX ADVISORS AS TO
THE PARTICULAR TAX CONSEQUENCES TO THEM OF ANY INVESTMENT IN THE SHARES,
INCLUDING THE APPLICATION OF FEDERAL, STATE, LOCAL AND FOREIGN TAX LAWS.

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SELLING SECURITY HOLDERS

The following table sets forth information with respect to the Shares
offered hereby beneficially owned by each of the Selling Security Holders as of
July 21, 1995. The Shares offered hereby may be offered in whole or in part
from time to time by or on behalf of the Selling Security Holders named below.

<TABLE><CAPTION>
Number of Shares of Percentage of
Common Stock Owned Outstanding
Selling Security Holder and Registered Hereunder Common Stock*
----------------------- ------------------------ -------------

<S> <C> <C> <C>
Lehman Brothers Holdings, Inc. 7,862,639 15.6%
JWC Associates L.P. . . . . . 5,724,035 11.3%
JWC Associates II, L.P. . . . 37,930 **
KKR Partners II, L.P. . . . . 138,760 **
Channel One Associates, L.P. . 4,361,800 8.6%
William Carr . . . . . . . . . 7,246 **
Donald M. Kurucz . . . . . . . 2,484 **
Kenneth J. Matlock . . . . . . 5,176 **
Robert W. Michael . . . . . . . 7,246 **
Sam J. Salario . . . . . . . . 5,176 **
William N. Temple . . . . . . . 2,070 **
David L. Townsend . . . . . . . 1,656 **
James W. Walter . . . . . . . . 39,338 **
William H. Weldon . . . . . . . 4,140 **
The Celotex Corporation, in its
capacity as the Celotex
Settlement Fund Recipient . . 10,941,326 21.7%
AIF II, L.P. . . . . . . . . . 1,152,681 2.3%
Artemis America LLC . . . . . . 1,152,711 2.3%
--------- ----
Total . . . . . . . . . . . 31,446,414 62.3%
========== ====
</TABLE>

* All percentages in the table are based on 50,494,313 shares of Common
Stock being issued and outstanding. See "Security Ownership of Management
and Principal Stockholders."

** Owns less than 1% of outstanding Common Stock.

PLAN OF DISTRIBUTION

The Company will receive no proceeds from this offering. The Shares may be
sold from time to time to purchasers directly by any of the Selling Security
Holders. Alternatively, any of the Selling Security Holders may from time to
time offer the Shares through underwriters, dealers or agents, who may receive
compensation in the form of underwriting discounts, concessions or commissions
from the Selling Security Holders and/or the purchasers of Shares for whom they
may act as agent. The Selling Security Holders and any underwriters, dealers or
agents that participate in the distribution of Shares may be deemed to be
underwriters, and any profit on the sale of Shares by them and any discounts,
commissions or concessions received by any such underwriters, dealers or agents
might be deemed to be underwriting discounts and commissions under the
Securities Act. If the Company is advised that an underwriter has been engaged
with respect to the sale of any Shares offered hereby, or in the event of any
other material change in the plan of distribution, the Company will cause
appropriate amendments to the Registration Statement of which this Prospectus
forms a part to be filed with the Commission reflecting such engagement or
other change. See "Additional Information."

At the time a particular offer of Shares is made, to the extent required,
a Prospectus Supplement will be provided by the Company and distributed by the
relevant Selling Security Holder which will set forth the aggregate amount and
type of Shares being offered and the terms of the offering, including the name
or names of any underwriters, dealers or agents, any discounts, commissions and
other items constituting compensation

70
<PAGE>
from the Selling Security Holders and any discounts, commissions or concessions
allowed or reallowed or paid to dealers.

The Shares may be sold from time to time in one or more transactions at a
fixed offering price, which may be changed, or at varying prices determined at
the time of sale or at negotiated prices. Such prices will be determined by the
Selling Security Holders or by agreement between the Selling Security Holders
and underwriters or dealers.

Under applicable rules and regulations under the Exchange Act any person
engaged in a distribution of the Shares may not simultaneously engage in
market-making activities with respect to such Shares for a period of nine
business days prior to the commencement of such distribution and ending upon
the completion of such distribution. In addition to and without limiting the
foregoing, each Selling Security Holder will be subject to applicable
provisions of the Exchange Act and the rules and regulations thereunder,
including without limitation rules 10b-2, 10b-6 and 10b-7, which provisions may
limit the timing of purchases and sales of any of the Shares by the Selling
Security Holders. All of the foregoing may affect the marketability of the
Shares and the ability of any person or entity to engage in market-making
activities with respect to the Shares.

Under guidelines adopted by the National Association of Securities
Dealers, Inc. (the "NASD"), the maximum commission that any NASD member firm
can receive in connection with a distribution of the Shares, without further
clearance from the NASD, is 8%.

Pursuant to the Common Stock Registration Rights Agreement, the Company is
obligated to pay substantially all of the expenses incident to the
registration, offering and sale of the Shares to the public other than
commissions and discounts of underwriters, dealers or agents, and the Selling
Security Holders, and any underwriter they may utilize, and their respective
controlling persons are entitled to be indemnified by the Company against
certain liabilities, including liabilities under the Securities Act. See
"Description of Capital Stock -- Common Stock Registration Rights Agreement".

LEGAL MATTERS

The validity of the Shares offered hereby has been passed upon for the
Company by Simpson Thacher & Bartlett (a partnership which includes
professional corporations), New York, New York.

EXPERTS

The consolidated financial statements as of May 31, 1995 and 1994 and for
each of the three years in the period ended May 31, 1995 included in this
Prospectus have been so included in reliance on the report of Price Waterhouse
LLP, independent certified public accountants, given on the authority of said
firm as experts in auditing and accounting.

71
<PAGE>
INDEX TO DEFINED TERMS

Page
Defined Term Number
------------ ------

ACO . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 44
Adversary Proceeding . . . . . . . . . . . . . . . . . . . . . . . . . . . . 6
Alabama Power . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 23
Apollo . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 64
Asbestos Claimants . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 6
Bank Revolving Credit Facility . . . . . . . . . . . . . . . . . . . . . . 62
Bankruptcy Code . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 1
Bankruptcy Court . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 6
Best Insurors . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 56
Black Warrior Methane . . . . . . . . . . . . . . . . . . . . . . . . . . . 39
Black Warrior Transmission . . . . . . . . . . . . . . . . . . . . . . . . 39
Booker . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 57
Cardem Insurance . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 6
Celotex . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 5
Celotex Action . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 46
Celotex Settlement Fund . . . . . . . . . . . . . . . . . . . . . . . . . . 47
Celotex Settlement Fund Beneficiary . . . . . . . . . . . . . . . . . . . . 65
Celotex Settlement Fund Recipient . . . . . . . . . . . . . . . . . . . . . 47
CERCLA . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 44
Change of Control . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 61
Channel One . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 15
Channel One Registration Rights Agreement . . . . . . . . . . . . . . . . . 67
Chapter 11 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 6
Chapter 11 Cases . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 6
Charter . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 14
Class . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 46
Class Representative . . . . . . . . . . . . . . . . . . . . . . . . . . . 46
Class U-7 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 47
Code . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 68
Commission . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 3
Common Stock . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 1
Common Stock Holders . . . . . . . . . . . . . . . . . . . . . . . . . . . 66
Common Stock Registration Rights Agreement . . . . . . . . . . . . . . . . 66
Common Stock Value Per Share . . . . . . . . . . . . . . . . . . . . . . . 63
Company . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 1
Consolidated Financial Statements . . . . . . . . . . . . . . . . . . . . . . 5
DGCL . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 15
Dixie Building Supplies . . . . . . . . . . . . . . . . . . . . . . . . . . 56
Durham Employment Agreement . . . . . . . . . . . . . . . . . . . . . . . . 56
Effective Date of the Plan of Reorganization . . . . . . . . . . . . . . . . 1
EPA . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 13
ERISA . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 45
Exchange Act . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 4
FAS 106 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 8
FAS 109 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 8
Federal Income Tax Claims . . . . . . . . . . . . . . . . . . . . . . . . . 64
Federal Income Tax Claims Differential . . . . . . . . . . . . . . . . . . 64
Fraudulent Conveyance Lawsuit . . . . . . . . . . . . . . . . . . . . . . . . 6
HAC . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 5
Indemnitees . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 6
Indenture . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 60
Independent Directors . . . . . . . . . . . . . . . . . . . . . . . . . . . 52
Initial Claim . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 64
Initial Common Stock Shelf Registration . . . . . . . . . . . . . . . . . . 66

72
<PAGE>
Page
Defined Term Number
------------ ------

Initial Settlement . . . . . . . . . . . . . . . . . . . . . . . . . . . . 46
Initial Three Year Term . . . . . . . . . . . . . . . . . . . . . . . . . . 52
Interested Stockholder . . . . . . . . . . . . . . . . . . . . . . . . . . 52
IRC . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 55
IRS . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 14
J.W. Railroad . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 6
J-II . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 5
Jim Walter Corporation . . . . . . . . . . . . . . . . . . . . . . . . . . . 5
Jim Walter Homes . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 10
Jim Walter Resources . . . . . . . . . . . . . . . . . . . . . . . . . . . 12
JW Aluminum . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 42
JW Window Components . . . . . . . . . . . . . . . . . . . . . . . . . . . 23
Kaneb . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 39
KKR . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 5
KKR Director . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 52
KKR Investors . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 58
LBO . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 5
Lehman . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 14
Lehman Directors . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 52
Lehman Holdings . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 14
Majority Selling Common Stock Holders . . . . . . . . . . . . . . . . . . . 66
Merger . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 5
Mid-State Homes . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 10
Mid-State Trust II Mortgage-Backed Notes . . . . . . . . . . . . . . . . . 35
Mid-State Trust III Asset Backed Notes . . . . . . . . . . . . . . . . . . 35
Mid-State Trust IV Asset Backed Notes . . . . . . . . . . . . . . . . . . . 35
Mid-State Trust V Variable Funding Loan . . . . . . . . . . . . . . . . . . 36
Mid-State Trust V Variable Funding Loan Agreement . . . . . . . . . . . . . 30
Mine No. 3 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 27
Mine No. 4 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 27
Mine No. 5 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 24
MSHA . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 24
Named Executive Officers . . . . . . . . . . . . . . . . . . . . . . . . . 54
NASD . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 71
NASDAQ . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 1
NASDAQ/NMS . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 1
New Alabama Power Contract . . . . . . . . . . . . . . . . . . . . . . . . 23
Non-United States Holder . . . . . . . . . . . . . . . . . . . . . . . . . 68
Original Jim Walter . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 5
Original Stockholders . . . . . . . . . . . . . . . . . . . . . . . . . . . 63
Outstanding Common Stock . . . . . . . . . . . . . . . . . . . . . . . . . 52
Pension Plan . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 55
Pension Plans . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 55
Plan of Reorganization . . . . . . . . . . . . . . . . . . . . . . . . . . . 1
Pro Forma Consolidated Statement of Operations . . . . . . . . . . . . . . . 8
Profit Sharing Plan . . . . . . . . . . . . . . . . . . . . . . . . . . . . 55
Registrable Common Stock . . . . . . . . . . . . . . . . . . . . . . . . . 66
Released Parties . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 46
Rule 144 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 18
Section 203 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 15
Securities Act . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 3
Selling Security Holders . . . . . . . . . . . . . . . . . . . . . . . . . . 1
Senior Note Registration Rights Agreement . . . . . . . . . . . . . . . . . 62
Series B Note Holders . . . . . . . . . . . . . . . . . . . . . . . . . . . 62
Series B Notes . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 7
Settlement Claims . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 12

73
<PAGE>
Page
Defined Term Number
------------ ------

Shares . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 1
Shelf Registration . . . . . . . . . . . . . . . . . . . . . . . . . . . . 66
Significant Stockholder . . . . . . . . . . . . . . . . . . . . . . . . . . 52
Sloss Industries . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 39
SNG . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 39
South Carolina Statute . . . . . . . . . . . . . . . . . . . . . . . . . . 48
Southern Precision . . . . . . . . . . . . . . . . . . . . . . . . . . . . 42
Stockholder's Agreement . . . . . . . . . . . . . . . . . . . . . . . . . . 65
Supplemental Pension Plan . . . . . . . . . . . . . . . . . . . . . . . . . 55
Supplemental Profit Sharing Plan . . . . . . . . . . . . . . . . . . . . . 55
Tag-Along and Voting Rights Agreement . . . . . . . . . . . . . . . . . . . 65
Tag-Along Stockholders . . . . . . . . . . . . . . . . . . . . . . . . . . 65
Tender Offer . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 5
Texas Settlement Agreement . . . . . . . . . . . . . . . . . . . . . . . . 48
Trustee . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 60
U.S. Pipe . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 12
UMWA . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 24
Veil Piercing Claims . . . . . . . . . . . . . . . . . . . . . . . . . . . . 6
Veil Piercing Litigation . . . . . . . . . . . . . . . . . . . . . . . . . . 6
Veil Piercing Settlement . . . . . . . . . . . . . . . . . . . . . . . . . 46
Veil Piercing Settlement Tax Savings Amount . . . . . . . . . . . . . . . . 64
Veil Piercing Settlement Tax Savings Event . . . . . . . . . . . . . . . . 64
Veil Piercing Trial . . . . . . . . . . . . . . . . . . . . . . . . . . . . 46
Vestal Manufacturing . . . . . . . . . . . . . . . . . . . . . . . . . . . 23
Walter Industries . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 1
Walter Land . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 43

74
<PAGE>

INDEX TO FINANCIAL STATEMENTS

Pages
-----
Walter Industries, Inc. and Subsidiaries

Report of Independent Certified Public Accountants..........F-2

Consolidated Balance Sheet - May 31, 1995 and 1994..........F-3

Consolidated Statement of Operations and Retained
Earnings (Deficit) for the Three Years Ended
May 31, 1995..............................................F-4

Consolidated Statement of Cash Flows for the Three
Years Ended May 31, 1995..................................F-5

Notes To Financial Statements...............................F-6 to F-26

F-1
<PAGE>

REPORT OF INDEPENDENT CERTIFIED PUBLIC ACCOUNTANTS

To the Board of Directors and Stockholders
Walter Industries, Inc.

In our opinion, the accompanying consolidated balance sheet and the related
consolidated statements of operations and retained earnings (deficit) and of
cash flows present fairly, in all material respects, the financial position of
Walter Industries, Inc. and its subsidiaries at May 31, 1995 and 1994, and the
results of their operations and their cash flows for each of the three years in
the period ended May 31, 1995 in conformity with generally accepted accounting
principles. These financial statements are the responsibility of the Company's
management; our responsibility is to express an opinion on these financial
statements based on our audits. We conducted our audits of these statements in
accordance with generally accepted auditing standards which require that we
plan and perform the audit to obtain reasonable assurance about whether the
financial statements are free of material misstatement. An audit includes
examining, on a test basis, evidence supporting the amounts and disclosures in
the financial statements, assessing the accounting principles used and
significant estimates made by management, and evaluating the overall financial
statement presentation. We believe that our audits provide a reasonable basis
for the opinion expressed above.

Our report dated July 8, 1994 on the May 31, 1994 consolidated financial
statements included a paragraph that raised substantial doubt about the
Company's ability to continue as a going concern due to the Company and
substantially all of its subsidiaries filing a voluntary petition for
reorganization under Chapter 11 of the United States Bankruptcy Code. As
discussed in Note 1, on March 2, 1995 the Bankruptcy Court confirmed the
Company's Consensual Plan dated as of December 9, 1994, as modified on March 1,
1995, which resulted in the discharge of all claims against the Company that
arose before December 27, 1989, other than those claims being litigated in the
Bankruptcy Court, and substantially altered the rights and interests of equity
security holders. The plan became effective on March 17, 1995 and the Company
emerged from bankruptcy.

As discussed in Note 12 to the Financial Statements, the Company changed its
method of accounting for postretirement benefits other than pensions in fiscal
year 1993.

Price Waterhouse LLP
Tampa, Florida
July 12, 1995

F-2

WALTER INDUSTRIES, INC. AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEET

May 31,
--------------------------
1995 1994
----------- -----------
(in thousands)
<S> <C> <C>
ASSETS
Cash (includes short-term investments of $ 84,872,000
and $177,040,000) (Notes 3 and 13) $ 128,007 $ 203,303
Short-term investments, restricted (Notes 3 and 13) 128,002 107,552
Instalment notes receivable (Notes 1, 4, 8 and 13) 4,256,866 4,176,040
Less - Provision for possible losses ( 26,556) ( 26,301)
Unearned time charges (2,869,282) (2,790,560)
----------- ----------
Net 1,361,028 1,359,179

Trade receivables 160,584 135,431
Less - Provision for possible losses ( 7,998) ( 7,392)
----------- ----------
Net 152,586 128,039
Federal income tax receivable (Note 8) 99,875 -
Other notes and accounts receivable 30,236 10,774
Inventories, at lower of cost (first in, first out or average)
or market:
Finished goods 111,792 95,270
Goods in process 29,593 27,090
Raw materials and supplies 53,453 48,533
Houses held for resale 1,599 1,686
----------- ----------
Total inventories 196,437 172,579

Prepaid expenses 12,694 11,335

Property, plant and equipment, at cost (Note 5) 1,186,407 1,123,939
Less - Accumulated depreciation, depletion and amortization ( 523,615) ( 466,076)
----------- ----------
Net 662,792 657,863

Investments 6,191 5,753
Deferred income taxes (Note 8) 16,544 -
Unamortized debt expense 34,167 31,656
Other assets 43,698 39,936
Excess of purchase price over net assets acquired (Notes 1 and 6) 372,896 412,923
----------- -----------
$ 3,245,153 $ 3,140,892
=========== ===========

LIABILITIES AND STOCKHOLDERS' EQUITY (DEFICIT)
Bank overdrafts (Note 3) $ 33,746 $ 29,879
Accounts payable (Note 1) 108,137 59,468
Accrued expenses 150,907 122,665
Income taxes payable (Note 8) 53,261 21,543
Deferred income taxes (Note 8) - 73,152
Long-term senior debt (Notes 1, 7 and 13) 2,220,370 871,970
Accrued interest (Note 7) 37,854 258,032
Accumulated postretirement health benefits obligation (Note 12) 228,411 209,962
Other long-term liabilities 51,693 48,890
Liabilities subject to Chapter 11 proceedings (Notes 1 and 7) - 1,727,684
Stockholders' equity (deficit) (Notes 1, 7, 9 and 10):
Common stock, $.01 par value per share:
Authorized - 200,000,000 shares and 50,000,000 shares
Issued - 50,494,313 shares and 31,120,773 shares 505 311
Capital in excess of par value 1,159,384 155,293
Retained earnings (deficit), per accompanying statement ( 793,165) ( 434,520)
Excess of additional pension liability over
unrecognized prior years service cost ( 5,950) ( 3,437)
----------- -----------
Total stockholders' equity (deficit) 360,774 ( 282,353)
----------- -----------
$ 3,245,153 $ 3,140,892
=========== ===========
</TABLE>

F-3
<PAGE>
<TABLE><CAPTION>

WALTER INDUSTRIES, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENT OF OPERATIONS AND RETAINED EARNINGS (DEFICIT)

For the years ended May 31,
---------------------------------------------------
1995 1994 1993
----------- ----------- ----------
(in thousands except
per share amount)

<S> <C> <C> <C>
Sales and revenues:
Net sales $ 1,181,635 $ 1,068,387 $ 1,072,615
Time charges (Note 4) 222,221 238,097 218,696
Miscellaneous 30,838 17,383 23,160
Interest income from Chapter 11
proceedings (Note 1) 7,628 4,657 4,515
----------- ----------- -----------
1,442,322 1,328,524 1,318,986
----------- ----------- -----------

Cost and expenses:
Cost of sales 951,381 845,061 804,411
Depreciation, depletion and
amortization (Note 5) 72,037 71,035 70,483
Selling, general and administrative 130,616 127,901 124,616
Postretirement health benefits (Note 12) 25,961 25,585 23,474
Provision for possible losses 4,485 4,611 4,236
Chapter 11 costs (Note 1) 442,362 14,254 9,802
Interest and amortization of debt
discount and expense (Notes 1, 5 and 7) 304,548 155,470 171,581
Amortization of excess of purchase price
over net assets acquired (Note 6) 40,027 48,515 39,461
----------- ----------- -----------
1,971,417 1,292,432 1,248,064
----------- ----------- -----------
( 529,095) 36,092 70,922

Income tax benefit (expense) (Note 8):
Current 80,754 ( 41,598) ( 48,141)
Deferred 89,696 12,681 23,813
----------- ----------- -----------

Income (loss) from operations before
cumulative effect of accounting change ( 358,645) 7,175 46,594

Cumulative effect of change in accounting
principle - postretirement benefits other
than pensions (net of income tax benefit
of $61,823,000) (Note 12) - - ( 104,608)
----------- ----------- ----------
Net income (loss) ( 358,645) 7,175 ( 58,014)

Retained earnings (deficit) at
beginning of year ( 434,520) ( 441,695) ( 383,681)
----------- ----------- ----------

Retained earnings (deficit) at end
of year $( 793,165) $( 434,520) $( 441,695)
=========== =========== ===========
Net loss per share (note 9):
- Primary $( 7.10)
===========
</TABLE>

F-4
<PAGE>

<TABLE><CAPTION>
WALTER INDUSTRIES, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENT OF CASH FLOWS

For the years ended May 31,
----------------------------------------------------
1995 1994 1993
---------- ---------- ----------
(in thousands)
<S> <C> <C> <C>
OPERATIONS
Net income (loss) $( 358,645) $ 7,175 $( 58,014)
Charges to income not affecting cash:
Settlement of Chapter 11 claims with
debt and new Common Stock 444,752 - -
Depreciation, depletion and amortization 72,037 71,035 70,483
Provision for deferred income taxes ( 89,696) ( 12,681) ( 23,813)
Accumulated postretirement health benefits
obligation (Note 12) 18,449 20,057 189,905
Adjustment to deferred taxes for accounting change (Note 12) - - ( 61,823)
Provision for other long-term liabilities 294 280 ( 781)
Amortization of excess of purchase price
over net assets acquired (Note 6) 40,027 48,515 39,461
Amortization of debt discount and expense 11,783 17,597 22,148
----------- --------- ---------
139,001 151,978 177,566
Decrease (increase) in:
Short-term investments, restricted ( 20,450) ( 1,932) 1,334
Instalment notes receivable, net (a) ( 1,849) 27,680 ( 23,607)
Trade and other receivables, net ( 44,009) 12,747 1,429
Federal income tax receivable ( 99,875) - -
Inventories ( 23,858) ( 5,940) 627
Prepaid expenses ( 1,359) ( 3,433) 236
Increase (decrease) in:
Bank overdrafts (Note 3) 3,867 11,958 ( 9,758)
Accounts payable 28,925 6,772 ( 1,692)
Accrued expenses 28,242 6,427 ( 1,682)
Income taxes payable ( 15,348) 2,408 9,111
Accrued interest 24,156 47,833 32,605
Liabilities subject to Chapter 11 proceedings (Note 1):
Accounts payable - 1,438 811
Accrued expenses - ( 152) 4
----------- --------- ---------
Cash flows from operations 17,443 257,784 186,984
----------- --------- ---------

FINANCING ACTIVITIES
Issuance of long-term
senior debt (Notes 1 and 7) 974,450 2,000 256,128
Additions to unamortized debt expense ( 17,153) - ( 4,794)
Retirement of long-term senior debt (Note 7) ( 120,250) (178,865) (161,959)
Payment of liabilities subject
to Chapter 11 proceedings ( 604,044)(b) - (121,217)
Payment of accrued postpetition interest on
Chapter 11 secured debt obligations ( 244,334) - -
----------- --------- ---------
Cash flows from financing activities ( 11,331) (176,865) ( 31,842)
----------- --------- ---------

INVESTING ACTIVITIES
Additions to property, plant and equipment,
net of normal retirements ( 76,966) ( 65,858) ( 68,901)
(Increase) in investments ( 438) ( 185) ( 128)
(Increase) in other assets ( 4,004) ( 1,943) ( 1,617)
----------- --------- ---------
Cash flows from investing activities ( 81,408) ( 67,986) ( 70,646)
----------- --------- ---------
Net increase (decrease) in cash and
cash equivalents ( 75,296) 12,933 84,496
Cash and cash equivalents at beginning of year 203,303 190,370 105,874
----------- --------- ---------
Cash and cash equivalents at end of year (Note 3) $ 128,007 $ 203,303 $ 190,370
=========== ========= =========
</TABLE>

(a) Consists of sales and resales, net of repossessions and provision for
possible losses, of $155,236,000, $153,776,000 and $172,707,000 and cash
collections on account and payouts in advance of maturity of
$153,387,000, $181,456,000 and $149,100,000, for the years ended May 31,
1995, 1994 and 1993, respectively.

(b) In addition, $490 million of Series B Senior Notes and 44,050,974 shares
of new Common Stock were issued to satisfy a portion of the allowed
claims of holders of secured and subordinated debt and settle a portion
of the asbestos-related veil piercing claims and 6,443,339 shares of new
Common Stock were issued to the former shareholders in cancellation of
their original holdings.

F-5
<PAGE>

WALTER INDUSTRIES, INC. AND SUBSIDIARIES
NOTES TO FINANCIAL STATEMENTS

NOTE 1 - Recent History

Walter Industries, Inc. (formerly Hillsborough Holdings Corporation) (the
"Company") was organized in August 1987 by a group of investors led by Kohlberg
Kravis Roberts & Co. ("KKR") for the purpose of acquiring Jim Walter
Corporation, a Florida corporation ("Original Jim Walter"). Following its
organization, the Company organized and acquired all of the outstanding capital
stock of a group of direct wholly-owned subsidiaries (the "First Tier
Subsidiaries"). The First Tier Subsidiaries (except JWC Holdings Corporation)
and the Company organized and acquired all of the outstanding capital stock of
Walter Industries, Inc. ("Old Walter Industries"). JWC Holdings Corporation, a
Florida corporation and a First Tier Subsidiary ("JWC Holdings"), organized and
acquired all of the outstanding shares of J-II Acquisition Corporation, a
Florida corporation ("J-II"). Old Walter Industries and J-II, in turn,
organized and acquired all of the outstanding capital stock of Hillsborough
Acquisition Corporation ("HAC").

On September 18, 1987, HAC acquired approximately 95% of the outstanding
common stock of Original Jim Walter at a price of $60 per share in cash,
pursuant to an Agreement and Plan of Merger dated as of August 12, 1987 (the
"Acquisition"). On January 7, 1988, the Company caused Original Jim Walter to
be merged (the "Merger") into HAC (which changed its name to "Jim Walter
Corporation") and the remaining 5% of its common stock was converted into the
right to receive $60 in cash for each share. On that same date: (i) HAC
distributed substantially all of its assets (principally excluding the stock of
certain subsidiaries of Original Jim Walter engaged in building materials
businesses) to Old Walter Industries in redemption of all of its shares of
capital stock owned by Old Walter Industries; (ii) HAC merged into J-II; and
(iii) J-II changed its name to "Jim Walter Corporation". On April 1, 1991, Old
Walter Industries merged into Hillsborough Holdings Corporation thereby
completing its previously adopted plan of liquidation. The Company changed its
name to Walter Industries, Inc. in connection with such merger. Prior to
September 18, 1987, the Company had no significant assets or liabilities and
did not engage in any activities other than those related to the Acquisition.
The purchase price of the shares of Original Jim Walter was approximately
$2,425,000,000 plus expenses of the Acquisition and assumption of certain
outstanding indebtedness. For financial statement purposes, the Acquisition
has been accounted for as a purchase as of September 1, 1987 and, accordingly,
the purchase price has been allocated based upon the fair value of assets
acquired and liabilities assumed (see Note 6).

On December 27, 1989, the Company and 31 of its subsidiaries (including the
subsidiary in the next sentence, the "Debtors") each filed a voluntary petition
for reorganization under Chapter 11 of Title 11 of the United States Code (the
"Bankruptcy Code") in the United States Bankruptcy Court for the Middle
District of Florida, Tampa Division (the "Bankruptcy Court"). On December 3,
1990, one additional small subsidiary filed a voluntary petition for
reorganization under the Bankruptcy Code. Two other small subsidiaries did not
file petitions for reorganization.

The Debtors' Chapter 11 cases resulted from a sequence of events stemming
primarily from an inability of the Company's interest reset advisors to reset
interest rates on approximately $624 million of outstanding Senior Extendible
Reset Notes and Senior Subordinated Extendible Reset Notes on which interest
rates were scheduled to be reset effective January 2, 1990. The inability to
reset the interest rates was primarily attributable to two factors: (i)
uncertainties arising from the then pending asbestos-related litigation,
including the possibility either that such litigation would lead to the
prohibition of further asset sales and debt repayment or that substantial new
asbestos-related claims might become assertable against the Company, which
uncertainties materially hindered the ability of the Company and its
subsidiaries to pursue a refinancing or sell assets to reduce debt, and (ii)
general turmoil in the high yield bond markets at such time, both of which
depressed the bid value of such notes.

On December 9, 1994, the Supplement to Disclosure Statement For Amended
Joint Plan of Reorganization Dated as of December 9, 1994 (the "Consensual
Plan") was filed with the Bankruptcy Court. The Consensual Plan, as modified
on March 1, 1995, was confirmed by the Bankruptcy Court on March 2, 1995, and
became effective on March 17, 1995 (the "Effective

F-6
<PAGE>

WALTER INDUSTRIES, INC. AND SUBSIDIARIES
NOTES TO FINANCIAL STATEMENTS (Continued)

Date"). Despite the confirmation and effectiveness of the Consensual Plan, the
Bankruptcy Court continues to have jurisdiction to, among other things, resolve
disputed prepetition claims against the Company and other matters that may
arise in connection with or relate to the Consensual Plan (see Note 8).

The essential terms of the Consensual Plan are as follows: Revolving Credit
Bank Claims, Working Capital Bank Claims, Series B and C Senior Note Claims,
and other unsecured creditors (i.e., trade creditors) received the full allowed
----
amounts of their claims in cash plus interest at negotiated amounts including a
portion in shares of new common stock ("Common Stock"). Subordinated Note
Claims received, depending on elections made, either shares of Common Stock or
a combination of cash, new debt securities and shares of Common Stock, in
either case having an aggregate reorganization value equal to their prepetition
claims. In addition, Pre-LBO Debenture Claims received shares of Common Stock
having an aggregate reorganization value equal to $11.3 million in settlement
of the fraudulent conveyance action commenced by the indenture trustees for the
Pre-LBO Debentures. The asbestos-related veil piercing claimants received
cash, new debt securities and Common Stock with an aggregate reorganization
value of $375 million in settlement of all asbestos-related veil piercing or
fraudulent conveyance claims. In addition, the attorneys for the asbestos-
related veil piercing claimants received a cash payment of $15 million. The
Company's former stockholders received shares of Common Stock having a
reorganization value equal to $150 million. In addition, the former
stockholders will receive shares of Common Stock having a reorganization value
of $11.3 million and have the right to receive additional shares of Common
Stock upon realization of certain future tax benefits (see Note 9).

Pursuant to the Consensual Plan, trade creditors with prepetition allowed
claims in excess of $1,000 received 75% of their allowed claims in cash
following the Effective Date and are entitled to receive the remaining 25% six
months following the Effective Date with additional interest for such period at
the prime rate. At May 31, 1995, the remaining amount to be distributed to
trade creditors approximated $23.5 million.

In connection with the Consensual Plan, on March 16, 1995, pursuant to
approval by the Bankruptcy Court, Mid-State Homes, Inc. ("Mid-State"), a
wholly-owned indirect subsidiary of the Company, sold mortgage instalment notes
having a gross amount of $2,020,258,000 and an economic balance of $826,671,000
to Mid-State Trust IV ("Trust IV"), a business trust in which Mid-State owns
all the beneficial interest. In addition, on such date Mid-State sold its
beneficial interest in Mid-State Trust II ("Trust II") to Trust IV. Trust II
had a total collateral value of $910,468,000 with $605,750,000 of Mortgage-
Backed Notes outstanding. These sales were in exchange for the net proceeds
from the public issuance by Trust IV of $959,450,000 of Asset Backed Notes.
The assets of Trust IV are not available to satisfy claims of general creditors
of Mid-State, or the Company and its subsidiaries. The liabilities of Trust IV
for its publicly issued debt are to be satisfied solely from proceeds of the
underlying instalment notes and are non-recourse to Mid-State and the Company
and its subsidiaries.

On February 27, 1995, Mid-State established Mid-State Trust V ("Trust V"),
a business trust in which Mid-State owns all the beneficial interest, to
provide funds to Mid-State for its current purchases of instalment notes
receivable from Jim Walter Homes, Inc. ("Jim Walter Homes").

As of March 3, 1995, Trust V entered into a Variable Funding Loan Agreement
with Enterprise Funding Corporation, an affiliate of NationsBank N.A., as
lender and NationsBank N.A. (Carolinas), as Administrative Agent. The
agreement provides for a three-year $500 million credit facility secured by the
instalment notes and mortgages Trust V purchases from Mid-State.

On February 27, 1995, the Company and certain of its subsidiaries entered
into a Bank Revolving Credit Facility, providing up to $150 million at any time
outstanding for working capital needs with a sub-limit for trade and standby
letters of credit not in

F-7
<PAGE>

WALTER INDUSTRIES, INC. AND SUBSIDIARIES
NOTES TO FINANCIAL STATEMENTS (Continued)

excess of $40 million and a sub-facility for swingline advances in an amount
not in excess of $15 million.

The Company recorded approximately $583.8 million of additional expenses
related to consummation of the Consensual Plan, including approximately $141.4
million of additional interest and amortization of debt discount and expense,
$390 million in settlement of all asbestos-related veil piercing claims and
related legal fees and $52.4 million for professional fees, settlement of
various disputed claims and other expenses, in the fiscal year ended May 31,
1995.

The following unaudited pro forma consolidated statement of operations was
prepared to illustrate the estimated effects of the Consensual Plan and related
financings as if they had occurred as of June 1, 1994.

F-8
<PAGE>

WALTER INDUSTRIES, INC. AND SUBSIDIARIES
NOTES TO FINANCIAL STATEMENTS (Continued)

<TABLE><CAPTION>
Pro Forma Consolidated Statement of Operations
(Unaudited)

For the year ended May 31, 1995
-------------------------------------
As Reported Adjustments Pro Forma
----------- ----------- -----------
(in thousands except
per share amount)
<S> <C> <C> <C>
Sales and Revenues
Net sales $1,181,635 $1,181,635
Time charges 222,221 222,221
Miscellaneous 30,838 30,838
Interest income from Chapter 11 proceedings 7,628 $( 7,628)1 -
---------- --------- ----------
1,442,322 ( 7,628) 1,434,694
---------- --------- ----------
Cost and expenses:
Cost of sales 951,381 951,381
Depreciation, depletion and amortization 72,037 72,037
Selling, general and administrative 130,616 130,616
Postretirement health benefits 25,961 25,961
Provision for possible losses 4,485 4,485
Chapter 11 costs 442,362 (442,362)2 -
Interest and amortization of debt discount
and expense 304,548 ( 81,364)3 223,184
Amortization of excess of purchase price
over net assets acquired 40,027 40,027
---------- --------- ----------
1,971,417 (523,726) 1,447,691
---------- --------- ----------
( 529,095) 516,098 ( 12,997)

Income tax benefit (expense) 170,450 (195,730)4 ( 25,280)
---------- --------- ----------
Net income (loss) $( 358,645) $ 320,368 $( 38,277)
========== ========= ==========

Net loss per share $( .75)5
==========

Weighted average shares outstanding 50,988,626
</TABLE>

--------------

Changes from the historical financial statement in the pro forma consolidated
statement of operations consist of the following adjustments (all amounts in
thousands):

(1) Interest income from Chapter 11 proceedings of $7,628, which would not
have been realized assuming the Consensual Plan became effective June
1, 1994, has been eliminated.

(2) Chapter 11 costs of $442,362, which would not have been incurred assuming
the Consensual Plan became effective June 1, 1994, have been eliminated.

(3) Interest and amortization of debt discount and expense has been reduced
$81,364 to give retroactive effect as if all indebtedness to be repaid
pursuant to the Consensual Plan was so done as of June 1, 1994 and the $490
million of Series B Senior Notes had been outstanding for the full year
ended May 31, 1995. Borrowings under the Trust IV Asset Backed Notes were
assumed to increase during the period June 1, 1994 through November 30,
1994 proportionately with the comparable period increase in the
outstanding economic balance of the instalment notes sold by Mid-State
to Trust IV on March 16, 1995.

Borrowings under the Trust V Variable Funding Loan Agreement were based on
78% of Jim Walter Homes' credit sales during the six-month period December
1, 1994 through May 31, 1995. This time period is subsequent to the Trust
IV cut-off date for purchases of instalment notes from Mid-State. No
working capital borrowings were assumed under the Bank Revolving Credit
Facility. Pro forma interest expense, however, includes letter of credit
fees and unused working capital commitment fees.

(4) The provision for income taxes has been adjusted at the applicable
statutory rates to give effect to the pro forma adjustments described
above.

(5) Net loss per share has been computed based on the weighted average number
of common shares outstanding (including 494,313 additional shares
of Common Stock to be issued six months after the Effective Date of the
Consensual Plan, but not including up to 3,880,140 additional shares that
will be issued to an escrow account on September 13, 1995 pursuant to the
Consensual Plan of Reorganization because such issuance is contingent on
future events and would be anti- dilutive).

F-9
<PAGE>

WALTER INDUSTRIES, INC. AND SUBSIDIARIES
NOTES TO FINANCIAL STATEMENTS (Continued)

NOTE 2 - Principles of Consolidation

The Company through its direct and indirect subsidiaries currently offers a
diversified line of products and services for homebuilding, water and waste
water transmission, residential and non-residential construction, and
industrial markets. The consolidated financial statements include the accounts
of the Company and all of its subsidiaries. All significant intercompany
balances have been eliminated.

NOTE 3 - Cash and Restricted Short-Term Investments

Cash includes short-term investments with original maturities of less than
one year. These investments are readily convertible to cash and are stated at
cost which approximates market. The Company's cash management system provides
for the reimbursement of all major bank disbursement accounts on a daily basis.
Checks issued but not yet presented to the banks for payment are classified as
bank overdrafts.

Restricted short-term investments include temporary investment of reserve
funds and collections on instalment notes receivable owned by Trusts II, III,
IV and V ($103,714,000). These funds are available only to pay expenses of the
Trusts and principal and interest on indebtedness of the Trusts. Miscellaneous
other segregated accounts restricted to specific uses ($24,288,000), are also
included in restricted short-term investments.

NOTE 4 - Instalment Notes Receivable

The instalment notes receivable arise from sales of partially-finished
homes to customers for time payments primarily over periods of twelve to thirty
years and are secured by first mortgages or similar security instruments.
Revenue and income from the sale of homes is included in income upon completion
of construction and legal transfer to the customer. The buyer's ownership of
the land and the improvements necessary to complete the home constitute a
significant equity investment which the Company has access to should the buyer
default on payment of the instalment note obligation. Of the gross amount of
$4,256,866,000 an amount of $3,955,239,000 is due after one year. Instalment
payments estimated to be receivable within each of the five years from May 31,
1995 are $301,627,000, $294,808,000, $289,012,000, $283,044,000 and
$274,370,000, respectively, and $2,814,005,000 after five years. Time charges
are included in equal parts in each monthly payment and are taken into income
as collected. This method approximates the interest method since a much larger
provision for loan losses and other expenses would be required if time charge
income were accelerated. The aggregate amount of instalment notes receivable
having at least one payment ninety or more days delinquent was 3.17% and 3.23%
of total instalment notes receivable at May 31, 1995 and 1994, respectively.

Mid-State purchases instalment notes from Jim Walter Homes on homes
constructed and sold by Jim Walter Homes and services such instalment mortgage
notes. Trust II, Trust III and Trust IV are business trusts organized by Mid-
State, which owns all of the beneficial interest in Trust III and Trust IV.
Trust IV owns all of the beneficial interest in Trust II. The Trusts were
organized for the purpose of purchasing instalment notes receivable from Mid-
State from the net proceeds from the issuance of the Trust II Mortgage-Backed
Notes, the Trust III Asset Backed Notes and the Trust IV Asset Backed Notes
described in Note 7. The assets of Trust II, Trust III and Trust IV, including
the instalment notes receivable, are not available to satisfy claims of general
creditors of the Company and its subsidiaries. The liabilities of Mid-State
Trusts II, III and IV for their publicly issued debt are to be satisfied solely
from the proceeds of the underlying instalment notes and are non-recourse to
the Company and its subsidiaries. Of the gross amount of instalment notes
receivable at May 31, 1995 of $4,256,866,000 with an economic balance of
$2,057,896,000, receivables owned by Trust II had a gross book value of
$1,396,138,000 and

F-10
<PAGE>

WALTER INDUSTRIES, INC. AND SUBSIDIARIES
NOTES TO FINANCIAL STATEMENTS (Continued)

an economic balance of $846,481,000, receivables owned by Trust III had a gross
book value of $472,980,000 and an economic balance of $239,200,000 and
receivables owned by Trust IV had a gross book value of $1,970,887,000 and an
economic balance of $814,182,000. On February 27, 1995, Mid-State established
Trust V (see Note 1). At May 31, 1995, receivables owned by Trust V had a
gross book value of $254,871,000 and an economic balance of $92,466,000.

NOTE 5 - Property, Plant and Equipment

Property, plant and equipment are summarized as follows (see Note 1
regarding purchase accounting):
May 31,
-------------------------
1995 1994
----------- -----------
(in thousands)
Land and minerals $ 196,798 $ 200,337
Land improvements 20,140 18,941
Buildings and leasehold improvements 110,758 104,999
Mine development costs 125,903 123,761
Machinery and equipment 703,138 663,898
Construction in progress 29,670 12,003
----------- -----------
Total $ 1,186,407 $ 1,123,939
=========== ===========

The Company provides depreciation for financial reporting purposes
principally on the straight line method over the useful lives of the assets.
Assets (primarily mine development costs) extending for the full life of a coal
mine are depreciated on the unit of production basis. For federal income tax
purposes accelerated methods are used for substantially all eligible
properties. Depletion of minerals is provided based on estimated recoverable
quantities.

The Company has capitalized interest on qualifying properties in accordance
with Financial Accounting Standards Board Statement No. 34. Interest
capitalized for the years ended May 31, 1995, 1994 and 1993 was immaterial.
Interest paid in cash for the years ended May 31, 1995, 1994 and 1993 was
$437,357,000, $91,293,000 and $117,853,000, respectively.

NOTE 6 - Goodwill

The excess of purchase price over net assets acquired in connection with
the Acquisition is being amortized over periods ranging up to twenty years. At
May 31, 1995, the accumulated amortization of goodwill was approximately $402.1
million. The Company evaluates, on a regular basis, whether events and
circumstances have occurred that indicate the carrying amount of goodwill may
warrant revision or may not be recoverable. The Company measures impairment of
goodwill based on estimated future undiscounted cash flows from operations of
the related business unit. At May 31, 1995, the net unamortized balance of
goodwill is not considered to be impaired.

F-11
<PAGE>

WALTER INDUSTRIES, INC. AND SUBSIDIARIES
NOTES TO FINANCIAL STATEMENTS (Continued)

NOTE 7 - Debt

Long-term debt, in accordance with its contractual terms, consisted of the
following at each year end:
May 31,
------------------------
1995 1994
---------- -----------
(in thousands)
Senior debt:
Trust II Mortgage-Backed Notes $ 584,000 $ 671,000
Trust III Asset Backed Notes 173,527 200,970
Trust IV Asset Backed Notes 953,843 -
Trust V Variable Funding Loan 15,000 -
Series B Senior Notes Due 2000 490,000 -
Bank Revolving Credit Facility - -
Other 4,000 -
---------- ----------
$2,220,370 $ 871,970
========== ==========

Long-term debt included as liabilities subject to Chapter 11 Proceedings at May
31, 1994 consisted of the following (see Note 1):
(in thousands)

Revolving Credit Agreement $ 228,249
Series B Senior Extendible Reset Notes 176,300
Series C Senior Extendible Reset Notes 5,000
Senior Subordinated Extendible Reset Notes 443,046
Subordinated Notes 350,000
13-1/8% Subordinated Notes 50,000
13-3/4% Subordinated Debentures 100,000
10-7/8% Subordinated Debentures
(less unamortized discount of $7,513,000) 82,487
Other 7,080
----------

$1,442,162
==========

The Trust II Mortgage-Backed Notes (see Note 4) were issued in five
classes in varying principal amounts. Three of the classes have been fully
repaid. The two remaining classes A3 and A4 bear interest at the rates of
9.35% and 9.625%, respectively. Interest on each class of notes is payable
quarterly on each January 1, April 1, July 1 and October 1 (each a "Payment
Date"). On each Payment Date, regular scheduled principal payments will be
made on the Class A3 and Class A4 Notes in order of maturity. Maturities of
the balance of these Mortgage-Backed Notes range from April 1, 1998 for the
Class A3 Notes to April 1, 2003 for the Class A4 Notes. The Class A3 and Class
A4 Notes are subject to special principal payments and the Class A4 Notes may
be subject to optional redemption under specified circumstances. The scheduled
principal amount of notes maturing in each of the five years from May 31, 1995
is $87,000,000, $87,000,000, $87,000,000, $64,600,000 and $64,600,000,
respectively.

The Trust III Asset Backed Notes (see Note 4) bear interest at 7-5/8%,
constitute a single class and have a final maturity date of April 1, 2022.
Payments are made quarterly on January 1, April 1, July 1 and October 1, based
on collections on the underlying collateral less amounts paid for interest on
the notes and Trust III expenses.

The Trust IV Asset Backed Notes (see Notes 1 and 4) bear interest at
8.33%, constitute a single class and have a final maturity of April 1, 2030.
Payments are made quarterly on January 1, April 1, July 1 and October 1 based
on collections on the underlying collateral less amounts paid for interest on
the notes and Trust IV expenses.

On March 3, 1995, Mid-State Trust V entered into the three-year $500
million Variable Funding Loan Agreement described in Note 1. It is
contemplated that this facility will be

F-12
<PAGE>

WALTER INDUSTRIES, INC. AND SUBSIDIARIES
NOTES TO FINANCIAL STATEMENTS (Continued)

an evergreen three-year facility with periodic paydowns from the proceeds of
permanent financings similar to those done by Mid-State Trusts II, III and IV.
Accordingly, the $15 million of borrowings outstanding at May 31, 1995 has been
classified as long-term debt. Interest is based on the cost of A-1 and P-1
rated commercial paper plus 3/4%. Commitment fees on the unused facility are
.55%.

The Series B Senior Notes Due 2000 ("Senior Notes") were issued by the
Company pursuant to the Consensual Plan as part of the distribution made in
payment of claims of holders of certain unsecured indebtedness of the Company
and certain of its subsidiaries (see Note 1). Interest on the Senior Notes is
payable semi-annually on September 15 and March 15 of each year at the rate of
12.19%. The Senior Notes may be redeemed at any time at the option of the
Company, in whole or in part, at a redemption price of 101% of the principal
amount thereof, plus accrued and unpaid interest, if any, to the date of
redemption, provided that no partial redemption may occur which results in less
than $150 million aggregate principal amount of the Senior Notes being
outstanding. Additionally, the Company is obligated in certain circumstances
to apply net cash proceeds from certain asset sales to either redeem or offer
to purchase notes at a price equal to 100% of the principal amount thereof,
plus accrued and unpaid interest, if any, to the date of redemption or
purchase, provided that no such redemption or purchase may occur which results
in less than $150 million aggregate principal amount of Senior Notes
outstanding. The Senior Notes rank pari passu with all other senior
indebtedness of the Company. The Senior Notes are secured by the capital stock
of most of the Company's subsidiaries.

The Bank Revolving Credit Facility is a three-year non-amortizing
senior working capital revolving credit facility pursuant to which borrowings
not in excess of $150 million may be outstanding at any time, with a sub-limit
for trade and standby letters of credit in an amount not in excess of $40
million at any time outstanding and a sub-facility for swingline advances in an
amount not in excess of $15 million at any time outstanding. The facility is
secured by assets of certain subsidiaries of the Company. Subject to certain
exceptions the net cash proceeds from the sale of collateral must be applied to
permanently reduce the facility. Under the facility each borrower guarantees
the obligations of each other borrower, subject to certain limitations.
Interest at the option of the borrowers through November 30, 1995 is at (i) the
Citibank Base Rate plus 3/4% or (ii) a LIBOR rate plus 2-1/4%. The fee for
outstanding letters of credit is 1-3/4%. Thereafter, interest shall be
determined by the Performance Level in effect from time to time ranging from
1/4% to 1% over the Citibank Base Rate, 1-3/4% to 2-1/2% over the LIBOR rate
and 1-1/4% to 2% for letters of credit. A commitment fee of 1/2 of 1% per
annum is required based upon the unutilized commitment. As of May 31, 1995,
there were no borrowings outstanding under this facility; however, letters of
credit in the aggregate face amount of $22,727,000 have been issued thereunder.

The Senior Notes, the Bank Revolving Credit Facility and the Trust V
Variable Funding Loan Agreement contain a number of significant covenants that,
among other things, restrict the ability of the Company and its subsidiaries to
dispose of assets, incur additional indebtedness, make capital expenditures,
pay dividends, create liens on assets, enter into leases, make investments or
acquisitions, engage in mergers or consolidations, or engage in certain
transactions with subsidiaries and affiliates and otherwise restrict corporate
activities (including change of control and asset sale transactions). In
addition, under the Bank Revolving Credit Facility, the Company is required to
maintain specified financial ratios and comply with certain financial tests,
including minimum interest coverage, fixed charge coverage ratios and maximum
leverage ratios, some of which become more restrictive over time.

F-13
<PAGE>

WALTER INDUSTRIES, INC. AND SUBSIDIARIES
NOTES TO FINANCIAL STATEMENTS (Continued)

NOTE 8 - Income Taxes

Income tax expense (benefit) is made up of the following components:

<TABLE><CAPTION>
May 31, 1995 May 31, 1994 May 31, 1993
------------------------ ------------------------- ----------------------
Current Deferred Current Deferred Current Deferred
-------- -------- -------- -------- -------- ---------
(in thousands)

<S> <C> <C> <C> <C> <C> <C>
United States $(80,445) $(88,815) $ 38,712 $(11,716) $ 44,093 $(22,682)
State and local ( 309) ( 881) 2,886 ( 965) 4,048 ( 1,131)
-------- -------- -------- -------- -------- --------
Total $(80,754) $(89,696) $ 41,598 $(12,681) $ 48,141 $(23,813)
======== ======== ======== ======== ======== ========
</TABLE>

Federal income tax paid in fiscal 1995, 1994 and 1993 was
approximately $30.6 million, $37.1 million and $35.9 million. State income
taxes paid in fiscal 1995, 1994 and 1993 were approximately $4.0 million, $2.1
million and $3.1 million, respectively.

The Company complies with Statement of Financial Accounting Standards
No. 109 ("FAS 109"), "Accounting for Income Taxes". FAS 109 is an asset and
liability approach that requires the recognition of deferred tax assets and
liabilities for the expected future tax consequences of events which have been
recognized in the Company's financial statements or tax returns. FAS 109
generally considers all expected future events other than changes in tax law or
rates.

The income tax expense (benefit) at the Company's effective tax rate
differed from the statutory rate as follows:

<TABLE><CAPTION>
For the years ended May 31,
-----------------------------------------
1995 1994 1993
--------- --------- ---------
<S> <C> <C> <C>
Statutory tax rate ( 35.0)% 35.0% 34.0%
Effect of:
Adjustment to deferred taxes - 5.3 -
State and local income tax ( .2) 3.3 2.7
Percentage depletion ( .5) ( 1.7) ( 8.3)
Enacted tax rate change - 9.4 -
Amortization of net investment tax credit - - ( .3)
Nonconventional source fuel credit - ( 10.8) ( 7.7)
Amortization of excess of purchase price over
net assets acquired 2.7 47.1 19.0
Benefit of capital loss carryforward ( 1.5) ( 8.5) ( 4.7)
Effect of rate change and loss of credits
on loss carryback 2.3 - -
Other, net - 1.0 ( .4)
--------- --------- ---------

Effective tax rate ( 32.2)% 80.1% 34.3%
========= ========= =========
</TABLE>

F-14
<PAGE>

WALTER INDUSTRIES, INC. AND SUBSIDIARIES
NOTES TO FINANCIAL STATEMENTS (Continued)

On August 10, 1993, the Omnibus Budget Reconciliation Act of 1993 was
signed into law raising the federal corporate income tax rate to 35% from 34%,
retroactive to January 1, 1993. FAS 109 requires that deferred tax
liabilities and assets be adjusted in the period of enactment for the effect
of an enacted change in the tax laws or rates. The effect of the change was
$2,833,000 and such amount is included in the provision for deferred income
taxes for the year ended May 31, 1994. Deferred tax liabilities (assets)
are comprised of the following:

May 31,
--------------------------
1995 1994
---------- ----------
(in thousands)

<S> <C> <C>
Instalment sales method for
instalment notes receivable
in prior years $ 43,312 $ 52,549
Depreciation 116,625 117,053
Difference in basis of assets
under purchase accounting 23,894 27,269
Capital loss carryforward ( 7,977) ( 12,600)
Tax credit carryforward ( 31,488) -
Accrued expenses ( 81,855) ( 43,716)
Postretirement benefits other
than pensions ( 87,032) ( 80,003)
Valuation allowance 7,977 12,600
--------- ---------

Total deferred tax (asset) liability $( 16,544) $ 73,152
========= =========
</TABLE>

The Revenue Act of 1987 eliminated the instalment sales method of tax
reporting for instalment sales after December 31, 1987.

The Company has a capital loss carryforward of approximately $22.8
million which expires in fiscal 1997. The Company has established a valuation
allowance of approximately $8.0 million to offset the deferred tax asset
related to the carryforward since the Company cannot predict whether capital
gains sufficient to offset the carryforward will be realized in the two-year
carryforward period.

As a result of the loss incurred in the 1995 fiscal year, the Company
has recorded a federal income tax receivable of approximately $99.9 million.
The Company has also recorded as an asset, in the deferred tax accounts, the
benefit of an alternative minimum tax credit carryover of approximately $31.5
million.

Under the Internal Revenue Code, if certain substantial changes in the
Company's ownership occur, there are annual limitations on the amount of loss
and credit carryforwards. The Reorganization created an ownership change;
however, the Company believes that the annual limitation will not affect the
realization of the capital loss carryforward and the alternative minimum tax
credit carryforward.

The Company allocates federal income tax expense (benefit) to its
subsidiaries based on their separate taxable income (loss).

A substantial controversy exists with regard to federal income taxes
allegedly owed by the Company. Proofs of claim have been filed by the Internal
Revenue Service in the amounts of $110,560,883 with respect to fiscal years
ended August 31, 1980 and August 31, 1983 through August 31, 1987, $31,468,189
with respect to fiscal years ended May 31, 1988 (nine months) and May 31, 1989
and $44,837,693 with respect to fiscal years ended May 31, 1990 and May 31,
1991. Objections to the proofs of claim have been filed by the Company and the
various issues are being litigated in the Bankruptcy Court. The Company
believes that such proofs of claim are substantially without merit and intends
to defend such claims against the Company vigorously.

F-15
<PAGE>

WALTER INDUSTRIES, INC. AND SUBSIDIARIES
NOTES TO FINANCIAL STATEMENTS (Continued)

NOTE 9 - Stockholders' Equity

As of the Effective Date, the outstanding old common stock issued in
connection with the Acquisition was cancelled and all stock option plans were
terminated. Pursuant to the Consensual Plan, the Company is authorized to
issue 200,000,000 shares of Common Stock, $.01 par value. All 50,494,313
shares outstanding at May 31, 1995 were issued in connection with the
Consensual Plan.

Pursuant to the Consensual Plan, 494,313 additional shares of Common
Stock will be issued to all former stockholders as of the Effective Date six
months after the Effective Date of the Consensual Plan. In addition, up to
3,880,140 additional shares of Common Stock will be issued to an escrow account
six months after the Effective Date of the Consensual Plan. To the extent that
certain federal income tax matters of the Company are resolved satisfactorily,
up to a maximum 3,880,140 of the escrowed shares will be distributed to all
former stockholders of the Company as of the Effective Date. To the extent
such matters are not resolved satisfactorily, the escrowed shares will be
returned to the Company and cancelled.

Primary net loss per share has been computed using the weighted
average number of common shares outstanding, assuming the new capital structure
had been effective as of June 1, 1994. In management's opinion, per share
information for fiscal years 1994 and 1993 is not relevant given the
significant change in the Company's capital structure which occurred as a
result of the Company's reorganization pursuant to the Consensual Plan (see
Note 1).

NOTE 10 - Stock Options

The Company has reserved 3,000,000 shares of its Common Stock for
issuance under the 1995 Long-Term Incentive Stock Plan of Walter Industries,
Inc. This plan was established pursuant to the Consensual Plan which provided
that 6% of the shares to be outstanding on the Effective Date could be so
reserved. As of May 31, 1995, no options had been granted.

NOTE 11 - Litigation and Other Matters

Veil-Piercing Suits
-------------------

Beginning in early 1989, the Company and certain of its officers,
directors and shareholders were named as co-defendants in a number of lawsuits
brought by persons ("Asbestos Claimants") claiming that the Company should be
held liable for all asbestos-related liabilities of The Celotex Corporation
("Celotex") and/or its parent, Jim Walter Corporation ("JWC"). The stock of a
predecessor of JWC (Original Jim Walter) was acquired by a company known as
Hillsborough Acquisition Corporation ("HAC"), a former subsidiary of the
Company, pursuant to a 1988 leveraged buyout ("LBO"). Asserting a variety of
theories of derivative liability, including piercing the corporate veil, the
suits alleged, among other things, that Original Jim Walter was liable for all
asbestos-related liabilities of Celotex and that the distribution by HAC of
substantially all of its assets to the Company pursuant to the LBO was
therefore a fraudulent conveyance (the "Veil-Piercing Suits.").

On December 27, 1989, the Company and certain of its subsidiaries
filed for protection (the "Bankruptcy Case"), under Chapter 11 of Title 11 of
the United States Bankruptcy Code in the United States Bankruptcy Court for the
Middle District of Florida, Tampa Division, which stayed all Veil-Piercing
Suits pursuant to the automatic stay. On January 2, 1990, the Company filed a
declaratory judgment action ("Adversary Proceeding") against all Asbestos
Claimants who had filed Veil-Piercing Suits seeking a ruling that the Company
could not be held liable for any asbestos-related liabilities of Celotex or JWC
on any grounds, asserting that the corporate veil separating Original Jim
Walter and Celotex was intact, and asserting that the LBO could not be deemed a
fraudulent conveyance.

F-16
<PAGE>

WALTER INDUSTRIES, INC. AND SUBSIDIARIES
NOTES TO FINANCIAL STATEMENTS (Continued)

On April 18, 1994, the Bankruptcy Court ruled in favor of the Company
on all of the claims asserted in the Adversary Proceeding. The ruling was
affirmed by the District Court for the Middle District of Florida on October
13, 1994. Thereafter, a settlement (the "Veil- Piercing Settlement") was
entered into among the Company, certain of its creditors, Celotex, JWC and
representatives of the Asbestos Claimants pursuant to which all the Veil-
Piercing Suits would be dismissed and the Company and its officers, directors
and relevant stockholders would be released from all liabilities relating to
the LBO or associated with asbestos-related liabilities of Celotex or JWC. The
Veil-Piercing Settlement is embodied in the Consensual Plan that was confirmed
by the Bankruptcy Court pursuant to an order signed on March 2, 1995. The
Consensual Plan binds all known and unknown claimants and enjoins such persons
or entities from bringing any suits against the Company in the future for
asbestos or LBO related claims. Dismissal of the Veil-Piercing Suits is in
process and all of these suits will be dismissed in the near future pursuant to
the terms of the Veil-Piercing Settlement and the Consensual Plan.

South Carolina Class Actions
----------------------------

On December 6, 1994, three South Carolina homeowners filed an amended
petition in the United States District Court for the District of South
Carolina, Columbia Division, (the "South Carolina District Court") seeking to
certify a class against Jim Walter Homes and Mid-State for alleged violations
of a South Carolina statute, which provided, among other things, that
homeowners, under certain circumstances, were to be informed that they could
employ attorneys to represent them in the closing of the purchase of their
homes. The petition sought to certify a class of homeowners who purchased
their homes subsequent to the filing of the Bankruptcy Case.

On January 18, 1995, counsel for the South Carolina homeowners filed
in the Bankruptcy Case a Notice of Class Demand for Recoupment or, in the
Alternative, Class Claim for Administrative Expense Priority and/or Class Claim
for Setoff for an estimated amount in excess of $122 million. At the same
time, counsel for the South Carolina homeowners also filed an objection to the
Consensual Plan asserting that payment of the Administrative Claim would render
the Consensual Plan not feasible.

Following extensive negotiations among counsel for the South Carolina
homeowners, the Debtors and the various creditor committees and constituencies,
a stipulation and settlement agreement (the "Homeowners Settlement Agreement")
was entered into. After two noticed hearings, the Bankruptcy Court entered a
preliminary order on February 28, 1995 and a final order on May 16, 1995
approving the Homeowners Settlement Agreement, as amended, and authorized the
Debtors to take such action and to execute such documents as are necessary to
consummate the agreement. On May 25, 1995, the South Carolina District Court
held a Fairness Hearing and found that the proposed settlement as set forth in
the Homeowners Settlement Agreement was fair, reasonable and adequate and in
the best interests of the settlement class. The settlement, which related to
the postpetition claims of the South Carolina homeowners, essentially provided
for (i) a reduction in the mortgage notes covering the property owned by the
homeowners in the aggregate principal amount of approximately $15.5 million
(less the allocated portion of any class members who "opt out" of the class);
(ii) cash disbursements of $1,000 each (with an aggregate cap of $300,000) to
certain classes of former homeowners who no longer have mortgage balances;
(iii) waiver of the first two months' mortgage payments after implementation of
the settlement; and (iv) legal fees and expenses for the South Carolina
homeowners' counsel in an amount as determined by the South Carolina District
Court, but not to exceed $3 million. The South Carolina District Court in
entering its order and final judgment on May 25, 1995, among other things,
authorized and approved the consummation of the Homeowners Settlement Agreement
in accordance with its terms and conditions, which included the release and
satisfaction of all actions, claims and demands against the Company, its past
and present directors, officers, employees, and others, including Jim Walter
Homes and Mid-State (except claims for construction defects and claims for
breach of express written warranties made by Jim Walter Homes), and approved
payment of fees, costs and expenses in the amount of $3 million to the
homeowners' South Carolina counsel.

F-17
<PAGE>

WALTER INDUSTRIES, INC. AND SUBSIDIARIES
NOTES TO FINANCIAL STATEMENTS (Continued)

On February 28, 1995, Jim Walter Homes and Mid-State filed an
adversary action for declaratory judgment against all South Carolina homeowners
who purchased their homes between July 1, 1982 and December 27, 1989, and who
might assert prepetition claims against Jim Walter Homes and Mid-State for
alleged violation of the above mentioned South Carolina statute. The complaint
seeks, among other things, a declaration that Jim Walter Homes and Mid-State
did not violate the above mentioned South Carolina statute or, for other
enumerated reasons, should not be responsible for any damages alleged to the
South Carolina homeowners. The Debtors and homeowners have negotiated a
proposed settlement with prospective counsel for the South Carolina prepetition
claimants which will require a cash payment of approximately $3 million, which
after application of these settlement proceeds to pay existing arrearages on
the homeowners' mortgages, will result in a net cash outlay of approximately
$1,050,000. In addition, legal fees of approximately $360,000 will be paid.
The proposed settlement is subject to the Bankruptcy Court's approval upon
submission of an appropriate motion.

Texas Litigation
----------------

Since May 1991, Jim Walter Homes and Mid-State, together with Trust II
and certain other parties (collectively, the "Debtor/Mid-State Parties"), have
been involved in various lawsuits, primarily in the Bankruptcy Court, with
approximately 750 owners of houses constructed by Jim Walter Homes in south
Texas. The homeowners seek damages based upon alleged construction defects,
common law fraud, and violations of the Texas Deceptive Trade Practices Act,
the Texas Consumer Credit Code, federal and state debt collections statutes and
the Racketeering Influence Corruptions and Practices Act. Although Jim Walter
Homes and Mid-State believe that the litigation is substantially without merit,
a settlement agreement ("Settlement Agreement") has been reached with the
attorney for the homeowner claimants. The anticipated settlement figure will
be approximately $3,600,000 in account balance reductions (of which
approximately $1,250,000 represents a principal reduction), plus an approximate
aggregate of $27,500 cash to certain clients and $2,900,000 as attorney's fees
(of which $900,000 may be deferred and payable over the next five years). The
consummation of the Settlement Agreement is subject to various conditions,
including approval by all of the parties thereto. It also contains provisions
allowing claimants to "opt out" or not participate in the agreement and for the
Debtor/Mid-State Parties to avoid the settlement in its entirety if, in their
judgment, the number of claimants who opt out is so large as to make the
settlement of little value. It also has a provision for the attorney for the
homeowner claimants to indemnify and hold harmless Jim Walter Homes, Mid-State,
Trust II, and the other parties, from any and all claims, demands, causes of
actions, lawsuits and settlements by the homeowners. Further, it provides for
the Bankruptcy Court to retain jurisdiction over any claims which are not
resolved by the Settlement Agreement.

At a hearing in the Bankruptcy Court, held on June 27, 1995, on
Debtors' Motion to Approve Compromise and Settlement Agreement, the Bankruptcy
Court instructed the Debtors to prepare an Order to be sent to the creditors of
the Company, providing that any objections to the settlement be filed with the
Bankruptcy Court by July 12, 1995.

Suit by the Company and Jim Walter Resources, Inc. for Business
---------------------------------------------------------------
Interruption Losses
-------------------

On May 31, 1995 the Company and Jim Walter Resources, Inc. ("JWR")
commenced a lawsuit in the Circuit Court for Tuscaloosa County, Alabama (Civil
Action No. CV-95-625) against certain insurers claiming damages for loss from
interruption of JWR's business resulting from a fire on or about November 17,
1993 in JWR's underground coal mine No. 5, which caused the mining of coal to
become impossible because of blockage of corridors and passageways resulting
from efforts to extinguish or control the fire. After JWR believed that it had
taken the necessary steps to extinguish or control the fire, it resumed its
longwall mining. JWR learned, however, that the intensity of the fire, which
it believed to have been isolated and controlled, increased substantially,
making it necessary to seal off portions of the mine and to lose permanently
the corridors and passageways without which the longwall panel currently being
mined could not be completed. JWR's longwall mining was interrupted until
another longwall panel could be prepared. In addition to the

F-18
<PAGE>

WALTER INDUSTRIES, INC. AND SUBSIDIARIES
NOTES TO FINANCIAL STATEMENTS (Continued)

mining of coal, JWR produced natural gas from wells drilled into the mine,
production from which was lost because of the loss of the longwall panel. As a
proximate consequence of the fire on November 17, 1993, the Company and JWR
claimed losses compensable under the business interruption coverage of the
policies in excess of $25 million, for which judgment was demanded, together
with interest and costs.

Additionally, the complaint is for a declaratory judgment concerning
the insurers' contention that the risk which caused the loss was not insured
because it was not fortuitous, but was spontaneous combustion known to occur in
JWR's mines. Further, the insurers contend the Company failed to disclose the
risk of loss from spontaneous combustion and that the policies are void or
voidable because of such failure. Plaintiffs seek declaratory judgment in
their favor on these contentions and that each defendant is liable to
plaintiffs for its pro rata part of plaintiffs' business interruption loss.

The suit is in its initial stages, but the Company and JWR believe the
claim is meritorious and intend to pursue it vigorously.

Litigation Related to Chapter 11 Distributions to Certain
---------------------------------------------------------
Holders of Subordinated Notes and/or Debentures.
------------------------------------------------

The Plan of Reorganization originally proposed by certain creditors
and committees (the "Creditors' Plan") provided that subordinated bondholders
could elect to receive "Qualified Securities" (cash and/or new senior notes) in
lieu of shares of Common Stock. Such elections (the "Subordinated Note Claim
Election") were to be made on the ballots used for voting on the Creditors'
Plan. A balloting agent was retained to receive and separately tabulate
ballots cast on the Creditors' Plan and the Debtors' Fifth Amended Joint Plan
of Reorganization (the "Company's Plan"). Voting on the Company's Plan and the
Creditors' Plan took place during the period August 12, 1994 through September
23, 1994.

Subsequent to September 23, 1994, the balloting agent filed with the
Bankruptcy Court two (2) separate voting certifications. The voting
certification with respect to the Creditors' Plan not only set forth the voting
results but also listed the names of subordinated bondholders who made the
Subordinated Note Claim Election.

The Consensual Plan ultimately confirmed by the Bankruptcy Court
(which technically constituted a modification of the Creditors' Plan), (a) kept
in place the Subordinated Note Claim Election provisions and prior elections,
(b) contained as Exhibit 8 a schedule prepared by the balloting agent which set
forth the names of the subordinated bondholders who made the Subordinated Note
Claim Election (the "Exhibit 8 Schedule"), and (c) contained a new election
(the "Class U-4 Exchange Election") which provided that those subordinated
bondholders who made the Subordinated Note Claim Election were eligible to make
the Class U-4 Exchange Election whereby they could essentially "exchange"
shares of Common Stock for new senior notes which Lehman Brothers Inc. was
otherwise entitled to receive.

In February 1995, the balloting agent filed a voting certification
with the Bankruptcy Court which listed those subordinated bondholders who made
the Class U-4 Exchange Election (the "Exchange Election Schedule").

In preparing to make distributions to subordinated bondholders, it
came to the attention of the Company that the Exhibit 8 Schedule and the
Exchange Election Schedule were inaccurate. As a result, the Company reviewed
all ballots that the balloting agent claimed to be in its possession and
determined that discrepancies existed between the Exhibit 8 Schedule and
Exchange Election Schedule and certain of the ballots cast by subordinated
bondholders.

On or about April 5, 1995, the Company filed a motion with the
Bankruptcy Court seeking to amend the Exhibit 8 Schedule and the Exchange
Election Schedule. On April 28, 1995, an order reflecting the Bankruptcy
Court's decision was entered (the "April 28 Order").

F-19
<PAGE>

WALTER INDUSTRIES, INC. AND SUBSIDIARIES
NOTES TO FINANCIAL STATEMENTS (Continued)

Four bondholders each filed a motion with the Bankruptcy Court seeking
a stay of the April 28 Order pending appeal to the United States District Court
in Tampa, Florida (the "District Court"). On May 10, 1995 the Bankruptcy Court
denied each of the stay motions. Two of such bondholders then each filed
emergency motions for a stay pending appeal with the District Court. On May
11, 1995 the District Court issued an order denying the emergency motions.

On May 14, 1995, one of such bondholders filed a petition for a writ
of mandamus with the Eleventh Circuit Court of Appeals which was denied on May
15, 1995.

Appeals from the April 28 Order were filed with the District Court by
six bondholders. The appeals raise similar issues and ultimately seek the same
relief - reversal of the April 28 Order as it applies to appellants and the
modification of the consideration that appellants are to be provided under the
Consensual Plan, so that a portion of their distribution would be comprised of
Qualified Securities, instead of Common Stock of the Company.

The Company has filed motions to consolidate the appeals and intends
to file motions to dismiss as moot the appeals of the appellants. At this time
the Company is unable to predict whether or not the appeals will be dismissed,
or the ultimate outcome of such appeals.

Chapter 11 Adversary Proceeding Filed by Certain Holders of
------------------------------------------------------------
Series B & C Senior Notes
-------------------------

On June 15, 1995, certain holders of Series B & C Notes (the
"Noteholders") commenced an adversary proceeding in the Bankruptcy Court
against the Company, as Disbursing Agent, and its subsidiaries (the "Debtors")
seeking payment of interest for the period from the Effective Date (March 17,
1995) until the date distribution was received by such Noteholders. The Debtors
believe there is no merit to the complaint and intend to vigorously oppose the
relief requested therein. Given the early stage of this proceeding, the
Debtors cannot predict the ultimate outcome of the litigation.

Environmental Matters
---------------------

A Company subsidiary, United States Pipe and Foundry Company ("U.S.
Pipe"), was issued a revised New Jersey Pollutant Discharge Elimination System
("NJPDES") Permit in May 1991 relating to its facility in Burlington, New
Jersey, authorizing the discharge of storm water runoff to the Delaware River.
U.S. Pipe filed a timely appeal of the Permit to challenge certain effluent
limitations. In July 1992, the New Jersey Department of Environmental
Protection ("NJDEP") issued to U.S. Pipe an Administrative Order and Notice of
Civil Administrative Penalty Assessment ("Order"), assessing a penalty in the
amount of $545,000 for alleged failure to comply with the effluent limitations
in the Permit. U.S. Pipe filed a timely appeal of the Order.

Extensive negotiations with the NJDEP were undertaken over the next
three years. On May 16, 1995, U.S. Pipe entered into an Administrative Consent
Order ("ACO") with NJDEP settling both the permit appeal and the penalty case.
Under the ACO, U.S. Pipe will pay a civil penalty of $187,000 over a twelve-
month period to resolve all outstanding alleged permit violations through the
date of the ACO. In addition, U.S. Pipe will conduct studies of its Burlington
facility and will design and build a storm water treatment system to improve
the quality of storm water discharged to the Delaware River. During the time
that U.S. Pipe conducts these activities, it will not be required to meet
effluent limitations, but is obligated to monitor and report the quality of
storm water discharges. By executing the ACO, U.S. Pipe withdraws its appeals
of the Permit and the Order. The ACO is presently undergoing public review and
comment; if no significant changes are made to the ACO as a result of public
input, the agreement should be finalized in July.

F-20
<PAGE>

WALTER INDUSTRIES, INC. AND SUBSIDIARIES
NOTES TO FINANCIAL STATEMENTS (Continued)

The cost to construct the storm water treatment system required under
the ACO has not yet been ascertained but is estimated by the engineers to range
from $500,000 - $1,000,000. Work on this project is expected to take three
years or more.

The Company is a party to a number of other lawsuits arising in the
ordinary course of its business. While the results of litigation cannot be
predicted with certainty, the Company believes that the final outcome of such
other litigation will not have a materially adverse effect on the Company's
consolidated financial condition.

NOTE 12 - Pension and Other Employee Benefits

The Company has various pension and profit sharing plans covering
substantially all employees. In addition to its own pension plans, the Company
contributes to certain multi-employer plans. Total pension expense for the
years ended May 31, 1995, 1994 and 1993, was $8.2 million, $9.7 million and
$16.5 million, respectively. The funding of retirement and employee benefit
plans is in accordance with the requirements of the plans and, where
applicable, in sufficient amounts to satisfy the "Minimum Funding Standards" of
the Employee Retirement Income Security Act of 1974 ("ERISA"). The plans
provide benefits based on years of service and compensation or at stated
amounts for each year of service.

The net pension costs for Company administered plans are as follows:

For the years ended May 31,
-------------------------------
1995 1994 1993
-------- -------- -------
(in thousands)

Service cost-benefits earned during the period $ 5,817 $ 5,334 $ 5,233
Interest cost on projected benefit obligation 16,174 16,333 15,634
Actual loss (return) on assets 4,304 (19,352) (18,131)
Net amortization and deferral (21,377) 3,145 3,174
-------- -------- ----------
Net pension costs $ 4,918 $ 5,460 $ 5,910
======== ======== ========

F-21
<PAGE>

WALTER INDUSTRIES, INC. AND SUBSIDIARIES
NOTES TO FINANCIAL STATEMENTS (Continued)

The following table sets forth the funded status of Company
administered plans:

<TABLE><CAPTION>
May 31, 1995 May 31, 1994
-------------------------- -------------------------------
Plans in which Plans in which
-------------------------- -------------------------------
Assets exceed Accumulated Assets exceed Accumulated
accumulated benefits accumulated benefits
benefits exceed assets benefits exceed assets
----------- ------------- ----------- -------------

<S> <C> <C> <C> <C>
Actuarial present value of
accumulated benefit obligations:
Vested benefits $ 134,589 $ 47,474 $ 133,348 $ 41,353
Non-vested benefits 5,849 1,207 5,599 1,604
---------- --------- ---------- ----------
$ 140,438 $ 48,681 $ 138,947 $ 42,957
========== ========= ========== ==========
Plan assets at fair value, primarily
stocks and bonds $ 169,635 $ 31,023 $ 187,443 $ 27,012
Projected benefit obligations 169,984 49,681 166,386 42,957
---------- --------- ---------- ----------
Plan assets in excess of (less than)
projected benefit obligations ( 349) ( 18,658) 21,057 ( 15,945)
Unamortized portion of transition
(asset) obligation at June 1, 1986 ( 10,507) 4,785 ( 11,281) 5,002
Unrecognized net loss from actual
experience different from
that assumed 20,545 6,610 808 2,903
Prior service cost not recognized 696 2,269 836 2,487
Contribution to plans after
measurement date - 667 879 819
---------- --------- ---------- ----------
Prepaid (accrued) pension cost 10,385 ( 4,327) 12,299 ( 4,734)
Additional liability - ( 12,664) - ( 10,393)
---------- --------- ---------- ----------
Prepaid pension cost (pension
liability) recognized in the
balance sheet $ 10,385 $( 16,991) $ 12,299 $( 15,127)
========== ========= ========== ==========
</TABLE>

The projected benefit obligations were determined using an assumed
discount rate of 8% in fiscal 1995 and 1994 and, where applicable, an
assumed 5% rate of increase in future compensation levels. The assumed
long-term rate of return on plan assets is 8%.

Under the labor contract with the United Mine Workers of America, Jim
Walter Resources makes payments into multi-employer pension plan trusts
established for union employees. Under ERISA, as amended by the
Multiemployer Pension Plan Amendments Act of 1980, an employer is liable
for a proportionate part of the plans' unfunded vested benefits
liabilities. The Company estimates that its allocated portion of the
unfunded vested benefits liabilities of these plans amounted to
approximately $48.7 million at May 31, 1995. However, although the net
liability can be estimated, its components, the relative position of each
employer with respect to actuarial present value of accumulated benefits
and net assets available for benefits, are not available to the Company.

The Company adopted Statement of Financial Accounting Standards No.
106, "Employers' Accounting for Postretirement Benefits Other Than
Pensions" in fiscal 1993. Upon adoption, the Company elected to record
the transition obligation of $166.4 million pre-tax ($104.6 million
after tax) as a one-time charge against earnings, rather than amortize
it over a longer period. This obligation is primarily related to the
health benefits for eligible retirees. Post-retirement benefit costs
were $26.0 million in 1995, $25.6 million in 1994 and $23.5 million in
1993. Amounts paid for postretirement benefits were $7.5 million in
1995, $5.5 million in 1994 and $6.5 million in 1993.

F-22
<PAGE>

WALTER INDUSTRIES, INC. AND SUBSIDIARIES
NOTES TO FINANCIAL STATEMENTS (Continued)

The net periodic postretirement benefit cost includes the following
components:

<TABLE><CAPTION>
For the years ended May 31,
---------------------------------------
1995 1994 1993
---------- --------- --------
(in thousands)
<S> <C> <C> <C>

Service cost $ 8,491 $ 9,302 $ 8,495
Interest cost 17,470 16,283 14,979
-------- -------- --------
Net periodic postretirement benefit cost $ 25,961 $ 25,585 $ 23,474
======== ======== ========
</TABLE>

The accumulated postretirement benefits obligation at May 31, 1995 and
1994 are as follows:

<TABLE><CAPTION>
May 31,
-----------------------------
1995 1994
---------- ----------
(in thousands)

<S> <C> <C>
Retirees $ 92,550 $ 72,779
Fully eligible, active participants 30,129 26,234
Other active participants 111,084 122,228
--------- ---------
Accumulated postretirement benefit
obligation 233,763 221,241
Unrecognized net loss ( 5,352) ( 11,279)
--------- ---------
Postretirement benefit liability recognized
in the balance sheet $ 228,411 $ 209,962
========= =========
</TABLE>

The principal assumptions used to measure the accumulated
postretirement benefit obligation include a discount rate of 8% in fiscal
1995 and 1994 and a health care cost trend rate of 10% declining to 5.5%
over a ten year period and remaining level thereafter in fiscal 1995 and a
health care cost trend rate of 13% declining to 6% over an eleven year
period in fiscal 1994. A one percent increase in trend rates would
increase the accumulated postretirement benefit obligation by 17% and
increase net periodic postretirement benefit cost for 1995 by 20%.

Certain subsidiaries of the Company maintain profit sharing plans.
The total cost of these plans for the years ended May 31, 1995, 1994 and
1993 was $3.0 million, $3.1 million and $3.0 million, respectively.

NOTE 13 - Fair Value of Financial Instruments

Statement of Financial Accounting Standards No. 107, "Disclosures
about Fair Value of Financial Instruments" ("FAS 107") requires disclosure
of estimated fair values for all financial instruments for which it is
practicable to estimate fair value. Considerable judgment is necessary in
developing estimates of fair value and a variety of valuation techniques
are allowed under FAS 107. The derived fair value estimates resulting
from the judgments and valuation techniques applied cannot be
substantiated by comparison to independent materials or to disclosures by
other companies with similar financial instruments. Furthermore, FAS 107
fair value disclosures do not purport to be the amount which could be
attained in immediate settlement of the financial instrument. Fair value
estimates are not necessarily more relevant than historical cost values
and have limited usefulness in evaluating long-term assets and liabilities
held in the ordinary course of business. Accordingly, management believes
that the disclosures required by FAS 107 have limited relevance to the
Company and its operations.

The following methods and assumptions were used to estimate fair value
disclosures:

F-23
<PAGE>

WALTER INDUSTRIES, INC. AND SUBSIDIARIES
NOTES TO FINANCIAL STATEMENTS (Continued)

Cash (including short-term investments) and short-term investments,
restricted - The carrying amounts reported in the balance sheet
approximates fair value.

Instalment notes receivable - The estimated fair value of instalment
notes receivable at May 31, 1995 was in the range of $2.0 billion to
$2.1 billion. The estimated fair value is based upon valuations
prepared by an investment banking firm as of January 31, 1995 adjusted
to reflect increases in value for the addition of net new mortgages to
May 31, 1995. The value of mortgage-backed instruments such as
instalment notes receivable are very sensitive to changes in interest
rates.

Debt - The estimated fair value of long term debt at May 31, 1995
was $2.332 billion based on current yields for comparable debt
issues or prices for actual transactions.

NOTE 14 - Segment Information

Information relating to the Company's business segments is set forth
on pages F-25 and F-26. Due to the divestiture of several building
materials subsidiaries in recent years, the Company has restructured
certain of its segment information. Prior years' information has been
restated.

F-24
<PAGE>

WALTER INDUSTRIES, INC. AND SUBSIDIARIES
SEGMENT INFORMATION

<TABLE><CAPTION>
For the years ended May 31,
-------------------------------------------
1995 1994 1993
---------- ----------- -----------
(in thousands)
<S> <C> <C> <C>
Sales and Revenues:

Homebuilding and related financing $ 407,119 $ 424,530 $ 419,378
Industrial and other products 284,230 224,673 212,606
Water and waste water transmission products 412,237 357,189 331,214
Natural resources(e) 332,251 319,410 351,017
Corporate 6,485 2,722 4,771
---------- ---------- ----------
Consolidated sales and revenues(a)(f) $1,442,322 $1,328,524 $1,318,986
========== ========== ==========

Contributions to Operating Income:

Homebuilding and related financing $ 76,525 $ 101,954 $ 88,902
Industrial and other products 11,902 13,851 11,301
Water and waste water transmission products 28,454 25,641 16,040
Natural resources 20,072 ( 1,175) 50,807
---------- ---------- ----------
136,953 140,271 167,050
Less-Unallocated corporate interest and
other expense(b) ( 666,048) ( 104,179) ( 96,128)
Income taxes 170,450 ( 28,917) ( 24,328)
---------- ---------- ----------

Income (loss) from operations (c) $( 358,645) $ 7,175 $ 46,594
========== ========== ==========

Depreciation, Depletion and Amortization:
Homebuilding and related financing $ 3,336 $ 3,093 $ 3,113
Industrial and other products 9,073 9,821 9,390
Water and waste water transmission products 16,520 16,063 15,764
Natural resources 41,434 40,326 40,714
Corporate 1,674 1,732 1,502
---------- ---------- ----------

Total $ 72,037 $ 71,035 $ 70,483
========== ========== ==========

Gross Capital Expenditures:
Homebuilding and related financing $ 4,192 $ 3,210 $ 6,284
Industrial and other products 24,692 10,054 8,605
Water and waste water transmission products 15,538 14,426 12,821
Natural resources 46,214 40,224 42,941
Corporate 681 1,917 1,057
---------- ---------- ----------

Total $ 91,317 $ 69,831 $ 71,708
========== ========== ==========
</TABLE>

F-25
<PAGE>

WALTER INDUSTRIES, INC. AND SUBSIDIARIES
SEGMENT INFORMATION

<TABLE><CAPTION>
May 31,
------------------------------------------
1995 1994 1993
---------- ---------- ----------
(in thousands)
<S> <C> <C> <C>
Identifiable Assets:

Homebuilding and related financing $1,789,582 $1,832,919 $1,907,199
Industrial and other products 213,836 173,618 171,672
Water and waste water transmission products 480,617 490,004 493,297
Natural resources 465,680 450,468 475,533
Corporate (d) 295,438 193,883 175,533
---------- ---------- ----------
Total $3,245,153 $3,140,892 $3,223,234
========== ========== ==========
</TABLE>

--------------

(a) Inter-segment sales (made primarily at prevailing market prices) are
deducted from sales of the selling segment and are insignificant in
amount with the exception of the sales of the Industrial and Other
Products Group to the Water and Waste Water Transmission Products
Group of $13,373,000, $11,480,000 and $10,298,000 and sales of the
Natural Resources Group to the Industrial and Other Products Group of
$5,397,000, $5,650,000 and $7,121,000 in 1995, 1994 and 1993,
respectively.
(b) Excludes interest expense incurred by the Homebuilding and Related
Financing Group of $131,560,000, $128,828,000 and $137,945,000 in
1995, 1994 and 1993, respectively. The balance of unallocated
expenses is attributable to all groups and cannot be reasonably
allocated to specific groups.
(c) Includes postretirement health benefits of $25,961,000, $25,585,000
and $23,474,000 in 1995, 1994 and 1993. A breakdown by segment is as
follows:

<TABLE><CAPTION>
For the years ended May 31,
--------------------------------------
1995 1994 1993
-------- -------- --------
(in thousands)
<S> <C> <C> <C>
Homebuilding and related financing $ 2,295 $ 2,170 $ 1,991
Industrial and other products 3,610 3,662 3,284
Water and waste water transmission products 4,362 4,391 4,136
Natural resources 15,004 14,681 13,437
Corporate 690 681 626
--------- -------- --------
$ 25,961 $ 25,585 $ 23,474
========= ======== ========
</TABLE>

(d) Primarily cash and corporate headquarters buildings and equipment.
(e) Includes sales of coal of $297,650,000, $289,279,000 and $321,834,000
in 1995, 1994 and 1993, respectively. Jim Walter Resources' coal
supply contract with Alabama Power Company that had been in effect
since January 1, 1979, as amended, was superceded by a new contract
executed May 10, 1994. The new contract is effective from July 1,
1994 through August 31, 1999 with Jim Walter Resources' option to
extend such contract through August 31, 2004, subject to mutual
agreement on the market pricing mechanism and other terms and
conditions of such extension. Sales to Alabama Power Company in the
years ended May 31, 1995, 1994 and 1993 were 13%, 11% and 12% of net
sales and revenues, respectively.
(f) Export sales, primarily coal, were $129,071,000, $155,966,000 and
$183,188,000 in 1995, 1994 and 1993, respectively. Export sales to
any single geographic area do not exceed 10% of consolidated net
sales and revenues.

F-26

<PAGE>

No dealer, salesman or other
person has been authorized to
give any information or to make
any representations, other than
those contained in this 31,446,414 Shares
Prospectus or any Prospectus
Supplement, in connection with
the offering made by this
Prospectus and any Prospectus Walter Industries, Inc.
Supplement, and information or
and representations not herein
contained, if given or made, Common Stock
must not be relied upon as
having been authorized. This ________________________
Prospectus or any Prospectus
Supplement does not constitute PROSPECTUS
an offer to sell, or a ________________________
solicitation of an offer to buy,
the securities offered hereby to
any person or by anyone in any
jurisdiction in which such offer
or solicitation may not be made.
Neither the delivery of this
Prospectus or any Prospectus
Supplement nor any sales made
hereunder or thereunder shall August , 1995
under any circumstances create
any implication that the
information contained herein is
correct as of any time
subsequent to the date hereof or
thereof or that there has been
no change in the affairs of the
Company since the date hereof or
thereof.

___________________________
TABLE OF CONTENTS
Page

Available Information . . 4
Additional Information . . 4
Prospectus Summary . . . . 5

Certain Risk Factors . . . 10
The Company . . . . . . . 15
Recent History . . . . . . 16
Dividend Policy . . . . . 17
Market for the Common Stock 18
Capitalization . . . . . . 19
Pro Forma Consolidated
Statement of Operations 20
Selected Historical
Consolidated Financial
Data . . . . . . . . . . 22
Management's Discussion and
Analysis of Financial
Condition and Results of
Operations . . . . . . . 23
Business and Properties . 33
Management . . . . . . . . 49
Security Ownership of
Management and Principal
Stockholders . . . . . . 57
Description of Certain
Indebtedness . . . . . . 60
Description of Capital Stock
63
Certain Federal Income Tax
Consequences . . . . . . 68
Selling Security Holders . 70
Plan of Distribution . . . 70
Legal Matters . . . . . . 71
Experts . . . . . . . . . 71
Index to Defined Terms . . 72
Index to Financial
Statements . . . . . . . F-1

<PAGE>
PART II

INFORMATION NOT REQUIRED IN PROSPECTUS

Item 13. Other Expenses of Issuance and Distribution.

Registration fee . . . . . . . . . . . . . . . . . $136,890.03
Blue Sky fees and expenses . . . . . . . . . . . . *
Printing and engraving expenses . . . . . . . . . *
Legal fees and expenses . . . . . . . . . . . . . *
Accounting fees and expenses . . . . . . . . . . . *
Miscellaneous . . . . . . . . . . . . . . . . . . *
-----------
Total . . . . . . . . . . . . . . . . . $ *
===========
_____________
* To be provided by amendment.

Item 14. Indemnification of Directors and Officers

Section 145 of the DGCL empowers a Delaware corporation to indemnify
any persons who are, or are threatened to be made, parties to any threatened,
pending or completed legal action, suit or proceeding, whether civil, criminal,
administrative or investigative (other than an action by or in the right of
such corporation), by reason of the fact that such person was an officer or
director of such corporation, or is or was serving at the request of such
corporation as a director, officer, employee or agent of another corporation or
enterprise. The indemnity may include expenses (including attorneys' fees),
judgments, fines and amounts paid in settlement actually and reasonably
incurred by such person in connection with such action, suit or proceeding,
provided that such officer or director acted in good faith and in a manner he
reasonably believed to be in or not opposed to the corporation's best
interests, and, for criminal proceedings, had no reasonable cause to believe
his conduct was illegal. A Delaware corporation may indemnify officers and
directors against expenses (including attorneys' fees) in connection with the
defense or settlement of an action by or in the right of the corporation under
the same conditions, except that no indemnification is permitted without
judicial approval if the officer or director is adjudged to be liable to the
corporation. Where an officer or director is successful on the merits or
otherwise in the defense of any action referred to above, the corporation must
indemnify him against the expenses which such officer or director actually and
reasonably incurred.

Article IV of the By-laws of the Company provides for indemnification of
its officers and directors to the fullest extent permitted by Section 145 of
the DGCL.

Section 102(b)(7) of the DGCL provides that a Delaware corporation may
eliminate or limit the personal liability of a director to a Delaware
corporation or its stockholders for monetary damages for breach of fiduciary
duty as a director, provided that such provision shall not eliminate or limit
the liability of a director (i) for any breach of the director's duty of
loyalty to the corporation or its stockholders, (ii) for acts or omissions not
in good faith or which involve intentional misconduct or a knowing violation of
law, (iii) under Section 174 of the DGCL relating to the unlawful payment of a
dividend or an unlawful stock purchase or redemption or (iv) for any
transaction from which the director derived an improper personal benefit.

Article 6 of the Restated Certificate of Incorporation of the Company
provides for the elimination of personal liability of its directors for
monetary damages for breach of fiduciary duty as a director, except as
otherwise provided by the DGCL.

The Company has entered into a Directors and Officers Indemnification
Agreement which provides that directors and officers shall be indemnified to
the fullest extent permitted by applicable law and obligates the Company to
indemnify the directors and officers of the Company (a) if any director or
officer is or may become a party to any proceeding against all expenses
reasonably incurred by such director or officer in connection with the defense
or settlement of such proceeding, but only if such director or officer acted in
good faith and in a manner which such director or officer reasonably believed
to be in or not opposed to the best interests of the Company, and in the case
of a criminal action or proceeding, in addition, only if such director or
officer had no reasonable cause to believe that his or her conduct was
unlawful, (b) if a director or officer is or may become a party to any
proceeding by or in the name of the Company to procure a judgement in its favor
against all expenses reasonably incurred by such director or officer in
connection with the defense or settlement of

II-1
<PAGE>
such proceeding, but only if such director or officer acted in good faith and
in a manner which such director or officer reasonably believed to be in or not
opposed to the best interests of the Company, except no indemnification for
expenses need be made in respect of any claim in which such director or officer
shall have been adjudged liable to the Company unless a court in which the
proceeding is brought determines otherwise and (c) if a director or officer has
been successful on the merits or otherwise in defense of any proceeding or
claim.

The Common Stock Registration Rights Agreement and the Senior Note
Registration Rights Agreement each require the Company, on the one hand, and
the Holders referred to therein, on the other hand, under certain
circumstances, to indemnify each other and, in the case of the Company's
indemnification obligations, each other person who participates as an
underwriter in an offering thereunder, and each other person who controls such
parties and/or underwriters and their respective directors, officers, partners,
agents and affiliates against certain liabilities, including liabilities under
the Securities Act, incurred in connection with each registration of securities
pursuant to such registration rights agreement.

Insofar as indemnification for liabilities arising under the Securities
Act may be permitted to directors, officers and controlling persons of the
Registrant pursuant to the provisions described hereunder or otherwise, the
Registrant has been advised that in the opinion of the Commission such
indemnification is against public policy as expressed in the Securities Act and
is, therefore, unenforceable. In the event that a claim for indemnification
against such liabilities (other than the payment to the Registrant of expenses
incurred or paid by a director, officer or controlling person of the Registrant
in the successful defense of any action, suit or proceeding) is asserted
against the Registrant by such director, officer or controlling person, in
connection with the Shares being registered hereby, the Registrant will, unless
in the opinion of its counsel the matter has been settled by controlling
precedent, submit to a court of appropriate jurisdiction the question whether
such indemnification by it is against public policy as expressed in the
Securities Act and will be governed by the final adjudication of such issue.

Item 15. Recent Sales of Unregistered Securities

Pursuant to the Plan of Reorganization, 50,494,313 shares of Common Stock
were issued to certain former creditors and stockholders of the Company and its
subsidiaries and $490,000,000 principal amount of Series B Senior Notes were
issued to certain former creditors of the Company and its subsidiaries on the
Effective Date of the Plan of Reorganization. All such securities were issued
in satisfaction of various prepetition claims allowed by the Bankruptcy Court.
In reliance on the exemption provided by Section 1145 of the Bankruptcy Code,
none of such securities were registered under the Securities Act in connection
with their issuance pursuant to the Plan of Reorganization.

II-2
<PAGE>

Item 16. Exhibits and Financial Statement Schedules

(a) Exhibits

<TABLE><CAPTION>
Exhibit Number Description
-------------- -----------

<S> <C>
2(a)(i) -- Amended Joint Plan of Reorganization of Walter Industries, Inc. and certain of its subsidiaries, dated as
of December 9, 1994 (1)

2(a)(ii) -- Modification to the Amended Joint Plan of Reorganization of Walter Industries, Inc. and certain of its
subsidiaries, as filed in the Bankruptcy Court on March 1, 1995 (2)

2(a)(iii)** -- Findings of Fact, Conclusions of Law and Order Confirming Amended Joint Plan of Reorganization of Walter
Industries, Inc. and certain of its subsidiaries, as modified

3(a)** -- Restated Certificate of Incorporation of the Company

3(b)** -- By-Laws of the Company

4(a)(i)** -- Restated Certificate of Incorporation of the Company (see Exhibit 3(a))

4(a)(ii)** -- By-Laws of the Company (see Exhibit 3(b))

4(b)** -- Specimen Stock Certificate

4(c)(i) -- 12.19% Series B Senior Note Indenture (3)

4(c)(ii) -- Form of Company Pledge Agreement (included as Exhibit B to Exhibit 4(c)(i)) (3)

4(c)(iii) -- Form of Subsidiary Pledge Agreement (included as Exhibit C to Exhibit 4(c)(i)) (3)

4(c)(iv) -- Form of 12.19% Series B Senior Note Certificate (included as Exhibit A to Exhibit 4(c)(i)) (3)

5 * -- Opinion of Simpson Thacher & Bartlett regarding legality of the securities being registered

10(a)** -- Stockholder's Agreement

10(b)(i)** -- Form of Common Stock Registration Rights Agreement

10(b)(ii) -- Form of Senior Note Registration Rights Agreement (3)

10(b)(iii) * -- Channel One Registration Rights Agreement

10(c)** -- Durham Employment Agreement

10(d) -- Second Amended and Restated Veil Piercing Settlement Agreement (included as Exhibit 3A to Exhibit 2(a)(i))(1)

10(e) -- 12.19% Series B Senior Note Indenture (see Exhibit 4(c)) (3)

10(f) -- Bank Revolving Credit Facility (5)

10(g) -- Director and Officer Indemnification Agreement, dated as of March 3, 1995, among the Company and the
Indemnitees parties thereto

10(h) -- New Alabama Power Contract (4)

21** -- Subsidiaries of the Company
</TABLE>

II-3
<PAGE>

<TABLE><CAPTION>
Exhibit Number Description
-------------- -----------

<S> <C>
23(a) -- Consent of Price Waterhouse LLP

23(b) * -- Consent of Simpson Thacher & Bartlett (included in their opinion filed as Exhibit 5 hereto)

24 ** -- Powers of Attorney

27 -- Financial Data Schedule
</TABLE>
_________________

* To be filed by amendment.

** Previously filed

(1) This Exhibit is incorporated by reference to the Application for
Qualification of Indenture on Form T-3 filed by the Company with the Commission
on February 6, 1995.

(2) This Exhibit is incorporated by reference to Amendment No. 2 to the
Application for Qualification of Indenture on Form T-3 filed by the Company
with the Commission on March 7, 1995.

(3) This Exhibit is incorporated by reference to the Registration Statement on
Form S-1 (File No. 33-59021) filed by the Company with the Commission on May 2,
1995.

(4) Portions of this document have been omitted pursuant to a request for
confidential treatment.

(5) This Exhibit is incorporated by reference to Amendment No. 1 to the
Registration Statement on Form S-1 (File No. 33-59021) filed by the Company
with the Commission on May 2, 1995.

(b) Financial Statement Schedules

Schedule No.
------------

V Report of Property, Plant and Equipment
VI Report of Accumulated Depreciation, Depletion and Amortization of
Property, Plant and Equipment
VIII Valuation and Qualifying Accounts

Item 17. Undertakings

The undersigned Registrant hereby undertakes:

(1) To file, during any period in which offers or sales are being
made, a post-effective amendment to this Registration Statement:

(i) To include any prospectus required by Section 10(a)(3) of
the Securities Act;

(ii) To reflect in the prospectus any facts or events arising
after the effective date of the Registration Statement (or the most
recent post-effective amendment thereof) which, individually or in
the aggregate, represent a fundamental change in the information set
forth in the Registration Statement;

(iii) To include any material information with respect to the
plan of distribution not previously disclosed in the Registration
Statement or any material change to such information in the
Registration Statement;

(2) That, for the purpose of determining any liability under the
Securities Act, each such post-effective amendment shall be deemed to be a
new registration statement relating to the securities offered therein, and
the offering of such securities at that time shall be deemed to be the
initial bona fide offering thereof.

II-4
<PAGE>
(3) To remove from registration by means of a post-effective
amendment any of the securities being registered which remain unsold at
the termination of the offering.

II-5
<PAGE>
SIGNATURES

Pursuant to the requirements of the Securities Act of 1933, the Registrant
has duly caused this Registration Statement Amendment to be signed on its
behalf by the undersigned, hereunto duly authorized in the City of Tampa, State
of Florida on the 9th day of August, 1995.

WALTER INDUSTRIES, INC.

By /s/ William H. Weldon
----------------------------
William H. Weldon
Senior Vice President-Finance and Chief
Accounting Officer

Pursuant to the requirements of the Securities Act of 1933, this
Registration Statement Amendment has been signed by the following persons in
the capacities indicated on August 9, 1995.

<TABLE><CAPTION>
Signature Title
--------- -----

<S> <C>
* Chairman of the Board and Director
----------------------------------------------------
James W. Walter

* President, Chief Executive Officer
----------------------------------------------------
G. Robert Durham and Director (Principal Executive Officer)

* Executive Vice President, Chief
----------------------------------------------------
Kenneth J. Matlock Financial Officer and Director (Principal
Financial Officer)

/s/ William H. Weldon Senior Vice President-Finance and Chief
----------------------------------------------------
William H. Weldon Accounting Officer (Principal Accounting Officer)

* Director
----------------------------------------------------
Howard L. Clark, Jr.

* Director
----------------------------------------------------
James B. Farley

* Director
----------------------------------------------------
Eliot M. Fried

* Director
----------------------------------------------------
James L. Johnson

* Director
----------------------------------------------------
Robert I. Shapiro

* Director
----------------------------------------------------
Michael T. Tokarz
</TABLE>

*By /s/ William H. Weldon
--------------------------
William H. Weldon
Attorney-in-fact

II-6
<PAGE>

<TABLE><CAPTION>
INDEX TO FINANCIAL STATEMENT SCHEDULES

Financial Statement Schedules Page
----------------------------- ----

<S> <C> <C>
V Report of Property, Plant and Equipment . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . S-2
VI Report of Accumulated Depreciation, Depletion and Amortization of Property, Plant and Equipment . . . . . . . . . S-5
VIII Valuation and Qualifying Accounts . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . S-8
</TABLE>

All other schedules are omitted because the required information is not present
in amounts sufficient to require submission of the schedules, or because the
information required is included in the consolidated financial statements or
notes thereto.

S-1
<PAGE>
<TABLE><CAPTION>

SCHEDULE V

WALTER INDUSTRIES, INC. AND SUBSIDIARIES
PROPERTY, PLANT AND EQUIPMENT
For the Year Ended May 31, 1995

Balance at Balance
Beginning Additions Retirements at End
Classification(1) of Year at Cost or Sales Other of Year
-------------------------------------- -------------- ----------- --------------- -------------- --------------
(in thousands)

<S> <C> <C> <C> <C> <C>
Land and minerals . . . . . . . . . . $ 200,337 $ 1,856 $ 5,534 $ 139 $ 196,798
Land improvements . . . . . . . . . . 18,941 839 91 451 20,140
Building and leasehold improvements . 104,999 3,332 3,607 6,034 110,758
Machinery and equipment . . . . . . . 663,898 14,901 19,617 43,956 703,138
Mine development costs . . . . . . . 123,761 -- -- 2,142 125,903
Construction in progress . . . . . . 12,003 70,389 -- (52,722) 29,670
---------- ------- ------- ------- ----------
$1,123,939 $91,317 $28,849 $ -- $1,186,407
========== ======= ======= ======= ==========
</TABLE>

(1) The Company and its subsidiaries provide depreciation for financial
reporting purposes principally on the straight line method over the useful
lives of the assets. For federal income tax purposes accelerated methods
are used for substantially all eligible properties. The depreciable
property categories and the principal rates for depreciation used are as
follows:

Land Improvements . . . . . . . . . . . . . . . . . 3 1/2% to 10%
Buildings . . . . . . . . . . . . . . . . . . . . . 2 1/2% to 20%
Machinery and equipment . . . . . . . . . . . . 3 1/2% to 33-1/3%
Leasehold improvements . . . . . . . . . . . Over term of leases
Mine development costs . . . . . . . . . . . Over life of mines

Depletion on minerals is based on the estimated recoverable quantities and
the costs of the properties.

S-2
<PAGE>
<TABLE><CAPTION>

SCHEDULE V

WALTER INDUSTRIES, INC. AND SUBSIDIARIES
PROPERTY, PLANT AND EQUIPMENT
For the Year Ended May 31, 1994

Land and minerals . . . . . . . . . . $ 200,000 $ 436 $ 117 $ 18 $200,337
Land improvements . . . . . . . . . . 17,349 886 42 748 18,941
Building and leasehold improvements . 99,597 3,007 720 3,115 104,999
Machinery and equipment . . . . . . . 617,987 6,360 17,819 57,370 663,898
Mine development costs . . . . . . . 116,576 -- 2,262 9,447 123,761
Construction in progress . . . . . . 23,559 59,142 -- (70,698) 12,003
---------- ------- ------- ------- ----------
$1,075,068 $69,831 $20,960 $ -- $1,123,939
========== ======= ======= ======= ==========
</TABLE>

Land Improvements . . . . . . . . . . . . . . . . 3 1/2% to 10%
Buildings . . . . . . . . . . . . . . . . . . . . 2 1/2% to 20%
Machinery and equipment . . . . . . . . . . . 3 1/2% to 33-1/3%
Leasehold improvements . . . . . . . . . . Over term of leases
Mine development costs . . . . . . . . . . Over life of mines

Depletion on minerals is based on the estimated recoverable quantities and
the costs of the properties.

S-3
<PAGE>
<TABLE><CAPTION>
SCHEDULE V

WALTER INDUSTRIES, INC. AND SUBSIDIARIES
PROPERTY, PLANT AND EQUIPMENT
For the Year Ended May 31, 1993

<S> <C> <C> <C> <C> <C>
Land and minerals . . . . . . . . . . $ 198,927 $ 1,219 $ 168 $ 22 $200,000
Land improvements . . . . . . . . . . 16,556 1,122 72 (257) 17,349
Building and leasehold improvements . 98,947 3,712 1,016 (2,046) 99,597
Machinery and equipment . . . . . . . 567,218 7,948 10,867 53,688 617,987
Mine development costs . . . . . . . 116,576 -- -- -- 116,576
Construction in progress . . . . . . 17,259 57,707 -- (51,407) 23,559
---------- ------- ------- ------- ----------
$1,015,483 $71,708 $12,123 $ -- $1,075,068
========== ======= ======= ======= ==========
</TABLE>

Depletion on minerals is based on the estimated recoverable quantities and
the costs of the properties.

S-4
<PAGE>
<TABLE><CAPTION>

SCHEDULE VI

WALTER INDUSTRIES, INC. AND SUBSIDIARIES
ACCUMULATED DEPRECIATION, DEPLETION AND AMORTIZATION OF
PROPERTY, PLANT AND EQUIPMENT
For the Year Ended May 31, 1995

Additions
Balance at Charged to Balance
Beginning Cost and Retirements at End
Classification of Year Expenses or Sales Other of Year
-------------------------------------- -------------- ----------- --------------- -------------- --------------
(in thousands)

<S> <C> <C> <C> <C> <C>
Land and minerals . . . . . . . . . . $ 42,944 $ 5,671 $ -- $ -- $ 48,615
Land improvements . . . . . . . . . . 5,105 947 61 -- 5,991
Building and leasehold improvements . 35,846 4,562 1,388 59 39,079
Machinery and equipment . . . . . . . 367,152 59,190 13,049 (59) 413,234
Mine development costs . . . . . . . 15,029 1,667 -- -- 16,696
---------- ------- ------- ------- --------
$466,076 $72,037 $14,498 $ -- $523,615
========== ======= ======= ======= ========
</TABLE>

S-5
<PAGE>
<TABLE><CAPTION>
SCHEDULE VI

WALTER INDUSTRIES, INC. AND SUBSIDIARIES
ACCUMULATED DEPRECIATION, DEPLETION AND AMORTIZATION OF
PROPERTY, PLANT AND EQUIPMENT
For the Year Ended May 31, 1994

<S> <C> <C> <C> <C> <C>
Land and minerals . . . . . . . . . . $ 37,961 $ 4,983 $ -- $ -- $ 42,944
Land improvements . . . . . . . . . . 4,272 885 52 -- 5,105
Building and leasehold improvements . 31,671 4,264 89 -- 35,846
Machinery and equipment . . . . . . . 323,557 58,188 14,593 -- 367,152
Mine development costs . . . . . . . 14,567 2,715 2,253 -- 15,029
---------- ------- ------- ------- --------
$412,028 $71,035 $16,987 $ -- $466,076
========== ======= ======= ======= ========
</TABLE>

S-6
<PAGE>
<TABLE><CAPTION>
SCHEDULE VI

WALTER INDUSTRIES, INC. AND SUBSIDIARIES
ACCUMULATED DEPRECIATION, DEPLETION AND AMORTIZATION OF
PROPERTY, PLANT AND EQUIPMENT
For the Year Ended May 31, 1993

<S> <C> <C> <C> <C> <C>
Land and minerals . . . . . . . . . . $ 32,366 $ 5,595 $ -- $ -- $ 37,961
Land improvements . . . . . . . . . . 4,203 729 32 (628) 4,272
Building and leasehold improvements . 30,163 4,410 628 (2,274) 31,671
Machinery and equipment . . . . . . . 270,739 58,572 8,656 2,902 323,557
Mine development costs . . . . . . . 13,390 1,177 -- -- 14,567
---------- ------- ------- ------ --------
$350,861 $70,483 $ 9,316 $ -- $412,028
========== ======= ======= ====== ========
</TABLE>

S-7
<PAGE>
<TABLE><CAPTION>

SCHEDULE VIII

WALTER INDUSTRIES, INC. AND SUBSIDIARIES
VALUATION AND QUALIFYING ACCOUNTS
For the Year Ended May 31, 1995

Additions
Balance at Charged to Balance
Beginning Cost and Deductions at End
Description of Year Expenses from reserves of Year
-------------------------------------------- ---------------- ---------------- ---------------- -----------------
(in thousands)

<S> <C> <C> <C> <C>
Reserves (provision for possible losses)
deducted from instalment notes
receivable . . . . . . . . . . . . . . . $26,301 $1,155 $ 900(1) $26,556
======= ====== ====== =======

Reserve (provision for possible losses)
deducted from trade receivables . . . . . $ 7,392 $3,330 $2,724(1) $ 7,998
======= ====== ====== =======

Accrued workmen's compensation(2) . . . . . $ 3,737 $ 763 $ -- $ 4,500
======= ====== ====== =======

Black lung reserves(2) . . . . . . . . . . $21,997 $ -- $ 130(3) $21,867
======= ====== ====== =======
</TABLE>

____________________
(1) Notes and accounts written off as uncollectible.
(2) Included in other long-term liabilities.
(3) Losses sustained.

S-8
<PAGE>
<TABLE><CAPTION>
SCHEDULE VIII

WALTER INDUSTRIES, INC. AND SUBSIDIARIES
VALUATION AND QUALIFYING ACCOUNTS
For the Year Ended May 31, 1994

Reserves (provision for possible losses)
deducted from instalment notes
receivable . . . . . . . . . . . . . . . $26,579 $ 905 $1,183(1) $26,301
======= ====== ====== =======

Reserve (provision for possible losses)
deducted from trade receivables . . . . . $ 7,324 $3,706 $3,638(1) $ 7,392
======= ====== ====== =======

Accrued workmen's compensation(3) . . . . . $ 2,887 $ 824 $ (26)(2) $ 3,737
======= ====== ====== =======
Black lung reserves(3) . . . . . . . . . . $22,190 $ -- $ 193(4) $21,997
======= ====== ====== =======
</TABLE>

____________________
(1) Notes and accounts written off as uncollectible.
(2) Expenditures or losses sustained and liabilities reclassified from
accounts payable.
(3) Included in other long-term liabilities.
(4) Losses sustained.

S-9
<PAGE>
<TABLE><CAPTION>
SCHEDULE VIII

WALTER INDUSTRIES, INC. AND SUBSIDIARIES
VALUATION AND QUALIFYING ACCOUNTS
For the Year Ended May 31, 1993

<S> <C> <C> <C> <C>
Reserves (provision for possible losses)
deducted from instalment notes
receivable . . . . . . . . . . . . . . . $25,965 $1,303 $ 689(1) $26,579
======= ====== ====== =======

Reserve (provision for possible losses)
deducted from trade receivables . . . . . $ 6,080 $2,940 $1,696(1) $ 7,324
======= ====== ====== =======

Accrued workmen's compensation(3) . . . . . $ 3,411 $ (488) $ 36(2) $ 2,887
======= ====== ====== =======

Black lung reserves(3) . . . . . . . . . . $22,345 $ -- $ 155(4) $22,190
======= ====== ====== =======
</TABLE>

____________________
(1) Notes and accounts written off as uncollectible.
(2) Expenditures or losses sustained and liabilities reclassified from
accounts payable.

(3) Included in other long-term liabilities.

(4) Losses sustained.

S-10
<PAGE>

EXHIBIT INDEX

<TABLE><CAPTION>
Exhibit Number Description
-------------- -----------

<S> <C>
2(a)(i) -- Amended Joint Plan of Reorganization of Walter Industries, Inc. and certain of its subsidiaries, dated as
of December 9, 1994 (1)

2(a)(ii) -- Modification to the Amended Joint Plan of Reorganization of Walter Industries, Inc. and certain of its
subsidiaries, as filed in the Bankruptcy Court on March 1, 1995 (2)

2(a)(iii)** -- Findings of Fact, Conclusions of Law and Order Confirming Amended Joint Plan of Reorganization of Walter
Industries, Inc. and certain of its subsidiaries, as modified

3(a)** -- Restated Certificate of Incorporation of the Company

3(b)** -- By-Laws of the Company

4(a)(i)** -- Restated Certificate of Incorporation of the Company (see Exhibit 3(a))

4(a)(ii)** -- By-Laws of the Company (see Exhibit 3(b))

4(b)** -- Specimen Stock Certificate

4(c)(i) -- 12.19% Series B Senior Note Indenture (3)

4(c)(ii) -- Form of Company Pledge Agreement (included as Exhibit B to Exhibit 4(c)(i)) (3)

4(c)(iii) -- Form of Subsidiary Pledge Agreement (included as Exhibit C to Exhibit 4(c)(i)) (3)

4(c)(iv) -- Form of 12.19% Series B Senior Note Certificate (included as Exhibit A to Exhibit 4(c)(i)) (3)

5 * -- Opinion of Simpson Thacher & Bartlett regarding legality of the securities being registered

10(a)** -- Stockholder's Agreement

10(b)(i)** -- Form of Common Stock Registration Rights Agreement

10(b)(ii) -- Form of Senior Note Registration Rights Agreement (3)

10(b)(iii) * -- Channel One Registration Rights Agreement

10(c)** -- Durham Employment Agreement

10(d) -- Second Amended and Restated Veil Piercing Settlement Agreement (included as Exhibit 3A to Exhibit 2(a)(i))(1)

10(e) -- 12.19% Series B Senior Note Indenture (see Exhibit 4(c)) (3)

10(f) -- Bank Revolving Credit Facility (5)

10(g) -- Director and Officer Indemnification Agreement, dated as of March 3, 1995, among the Company and the
Indemnitees parties thereto

10(h) -- New Alabama Power Contract (4)

21** -- Subsidiaries of the Company
</TABLE>

<PAGE>

<TABLE><CAPTION>
Exhibit Number Description
-------------- -----------

<S> <C>
23(a) -- Consent of Price Waterhouse LLP

23(b) * -- Consent of Simpson Thacher & Bartlett (included in their opinion filed as Exhibit 5 hereto)

24 ** -- Powers of Attorney

27 -- Financial Data Schedule
</TABLE>
_________________

* To be filed by amendment.

** Previously filed

(1) This Exhibit is incorporated by reference to the Application for
Qualification of Indenture on Form T-3 filed by the Company with the Commission
on February 6, 1995.

(2) This Exhibit is incorporated by reference to Amendment No. 2 to the
Application for Qualification of Indenture on Form T-3 filed by the Company
with the Commission on March 7, 1995.

(3) This Exhibit is incorporated by reference to the Registration Statement on
Form S-1 (File No. 33-59021) filed by the Company with the Commission on May 2,
1995.

(4) Portions of this document have been omitted pursuant to a request for
confidential treatment.

(5) This Exhibit is incorporated by reference to Amendment No. 1 to the
Registration Statement on Form S-1 (File No. 33-59021) filed by the Company
with the Commission on May 2, 1995.

Exhibit 10.(g)

DIRECTOR AND OFFICER
INDEMNIFICATION AGREEMENT

AGREEMENT entered into as of March 3, 1995 between Walter

Industries, Inc. (formerly known as Hillsborough Holdings Corporation), a

Delaware corporation ("WII" or "Indemnitor"), and the persons listed on the

signature pages hereto (each, an "Indemnitee" and, collectively,

"Indemnitees").

WHEREAS, on December 27, 1989 (the "Filing Date"), WII and

thirty-one of its affiliates each filed petitions for reorganization under

Chapter 11, Sec. 301 of the Bankruptcy Code (the "Code"), and on December 3,

1990 JW Resources, Inc., an additional affiliate of WII, also filed a

petition for reorganization under Chapter 11, Sec. 301 of the Code

(collectively, the "Debtors"); and

WHEREAS, since the Filing Date, the Debtors have continued in the

management and possession of their businesses and properties as

debtors-in-possession pursuant to Sec.Sec. 1107 and 1108 of the Code and

pursuant to an order of the United States Bankruptcy Court for the Middle

District of Florida (Tampa Division); and

WHEREAS, there is now a plan of reorganization supported and

proposed by the Debtors, WII's largest stockholder, the Official

Bondholders Committee, the Official Committee of General Unsecured

Creditors, Lehman Brothers Inc., AIF II, L.P., certain affiliates of AIF

II, L.P., and certain accounts managed or controlled by such affiliates,

and the Ad Hoc Committee of Pre-LBO Bondholders; and

<PAGE>

WHEREAS, a hearing to consider confirmation of the Amended Joint

Plan of Reorganization dated as of December 9, 1994 (the "Consensual Plan")

is scheduled to commence on March 1, 1995, and it is anticipated that the

Consensual Plan will be consummated by no later than March 31, 1995; and

WHEREAS, Sec. 10.1 of the Consensual Plan sets forth the conditions

precedent to confirmation of the Consensual Plan, which conditions must be

satisfied or waived prior to March 1, 1995, and one of the conditions of

confirmation is that the Debtors are required to execute certain

Reorganization Documents (as defined in the Consensual Plan), including an

indemnification agreement between WII, on the one hand, and the directors

and certain officers thereof, on the other (the "Agreement"); and

WHEREAS, it is essential to Indemnitor to retain and attract as

directors and officers the most capable persons available; and

WHEREAS, various Indemnitees are current or former directors

and/or officers of the Indemnitor or certain of its direct or indirect

subsidiaries; and

WHEREAS, the Indemnitor and Indemnitees recognize the increased

risk of litigation and other claims being asserted against directors and

officers of corporations in today's environment; and

WHEREAS, Article III of the current By-Laws of WII (the

"By-Laws"), as well as Section 7 of Article Third of the proposed Restated

Certificate of Incorporation of WII (the "Certificate of

<PAGE>

Incorporation"), provide for the indemnification of any current or former

director, officer, employee or agent of the Corporation to the fullest

extent permitted by applicable law (including the advancement of defense

expenses as incurred) in connection with any threatened, pending or

completed action, suit or proceeding brought by or in the right of the

Corporation, or otherwise; and

WHEREAS, in recognition of Indemnitees' need for substantial

protection against personal liability in order to enhance Indemnitees'

continued service to the Indemnitor in an effective manner and as an

inducement to Indemnitees to continue to serve as directors and/or officers;

and to provide Indemnitees with specific contractual assurance that the

maximum protection permitted by applicable law will be available to

Indemnitees (in addition to, among other things, any indemnification

provision in the Certificate of Incorporation or By-Laws and notwithstanding

any change in the composition of Indemnitor's Board of Directors, any

amendment to the Certificate of Incorporation or By-Laws or any acquisition

involving WII), Indemnitor wishes to provide in this Agreement for the

indemnification of and the advancing of Expenses (as defined in paragraph

1(j) hereof) to Indemnitees to the fullest extent permitted by applicable

law; and to the extent insurance is maintained, for the continued coverage

of Indemnitees under any of Indemnitor's directors' and officers' liability

insurance policies.

NOW, THEREFORE, in consideration of the premises and of each

Indemnitee continuing to serve Indemnitor directly or, at

<PAGE>

its request, with another enterprise, and intending to be legally bound

hereby, the parties hereto agree as follows:

1. INDEMNIFICATION
---------------

Indemnitor hereby agrees to indemnify each Indemnitee as follows:

(a) Indemnity in Third-Party Proceedings. Indemnitor shall
------------------------------------

indemnify an Indemnitee in accordance with the provisions of this section

if such Indemnitee is a party to or threatened to be made a party to or

otherwise involved in any Proceeding (as defined in paragraph 1(j) hereof)

(other than a Proceeding by or in the name of Indemnitor to procure a

judgment in its favor) against all Expenses, judgments, fines, penalties

and amounts paid in settlement (including, without limitation, all losses,

claims, damages, fees, interest, expenses, liabilities and actions)

actually and reasonably incurred by such Indemnitee in connection with the

defense or settlement of such Proceeding, but only if such Indemnitee acted

in good faith and in a manner which such Indemnitee reasonably believed to

be in or not opposed to the best interests of Indemnitor and, in the case

of a criminal action or proceeding, in addition, had no reasonable cause to

believe that his or her conduct was unlawful. The termination of any such

Proceeding by judgment, order of court, settlement, conviction, or upon a

plea of nolo contendere, or its equivalent, shall not, of itself, create a

presumption that such Indemnitee did not act in the best interests of

Indemnitor, and, with

<PAGE>

respect to any criminal Proceeding, that such person had reasonable cause

to believe that his or her conduct was unlawful.

(b) Indemnity in Proceedings by or in the Name of Indemnitor.
--------------------------------------------------------

Indemnitor shall indemnify an Indemnitee in accordance with the provisions

of this section if such Indemnitee is a party to or threatened to be made

a party to or otherwise involved in any Proceeding by or in the name of

Indemnitor to procure a judgment in its favor against all Expenses actually

and reasonably incurred by such Indemnitee in connection with the defense

or settlement of such Proceeding, but only if such Indemnitee acted in good

faith and in a manner which such Indemnitee reasonably believed to be in or

not opposed to the best interests of Indemnitor, except that no

indemnification for Expenses shall be made under this paragraph 1(b) in

respect of any claim, issue or matter as to which such Indemnitee shall have

been adjudged to be liable to Indemnitor, unless and only to the extent that

the Delaware Court of Chancery or any court in which such Proceeding is

brought shall determine upon application that, despite the adjudication of

liability but in view of all the circumstances of the case, such Indemnitee

is fairly and reasonably entitled to indemnity for such expenses as such

court shall deem proper.

provisions of this paragraph 1, to the extent that an Indemnitee has been

successful on the merits or otherwise in defense of any Proceeding or in

defense of any claim, issue or

<PAGE>

matter therein, including the dismissal of all actions without prejudice,

such Indemnitee shall be indemnified against all Expenses actually and

reasonably incurred in connection therewith.

(d) Advance of Expenses. The Expenses incurred by an Indemnitee
-------------------

pursuant to paragraphs l(a) and (b) in any Proceeding shall be paid by

Indemnitor in advance of the final disposition of such Proceeding at the

written request of such Indemnitee, provided that Indemnitor shall receive
--------

from such Indemnitee an undertaking, in writing, to repay such amount to

the extent that it is ultimately determined that such Indemnitee is not

entitled to indemnification.

(e) Right of Indemnitees to Indemnification Upon Application;
---------------------------------------------------------

Procedure Upon Application. Amy indemnification or advance under paragraph
--------------------------

1(a), (b) or (d) hereof shall be made no later than fifteen (15) days after

receipt of the written request of the Indemnitee, but any such

indemnification or advance shall be made only in the event of a

determination within said 15-day period by (a) the Board of Directors of

Indemnitor by a majority vote of the directors who were not parties to such

Proceeding, even if less than a quorum, or (b) if there are no such

directors, or if such directors so direct, independent legal counsel (who

may be the outside counsel regularly employed by Indemnitor) in a written

opinion, or (a) the Indemnitor's stockholders, that such Indemnitee has met

the relevant standards for indemnification sat forth in paragraphs 1(a) and

(b).

<PAGE>

(f) Procedural Matters. The right to indemnification or
------------------

advances as provided by this paragraph 1 shall be enforceable by

Indemnitees in the Delaware Court of Chancery. The burden of proving that

indemnification or advances are not appropriate shall be on Indemnitor.

Neither the failure of Indemnitor (including its Board of Directors,

independent legal counsel or stockholders) to have made a determination

prior to the commencement of such action that indemnification or advances

are proper in the circumstances because an Indemnitee has met the

applicable standard of conduct, nor an actual determination by Indemnitor

(including its Board of Directors, independent legal counsel or

stockholders) that an Indemnitee has not met such applicable standard of

conduct, shall be a defense to the action or create a presumption that such

Indemnitee has not met the applicable standard of conduct. An Indemnitee's

Expenses incurred in connection with successfully establishing his or her

rights to indemnification or advances, in whole or in part, in any such

Proceeding, shall also be indemnified by Indemnitor.

(g) Non-exclusivity, Etc. The rights of Indemnitees hereunder
--------------------

shall be in addition to any other rights Indemnitees may have under the

Certificate of Incorporation, By-Laws or the applicable laws of the State

of Delaware, by contract, agreement or otherwise, and nothing herein shall

he deemed to diminish, limit, or otherwise restrict Indemnitees' rights to

indemnification thereunder. It is the intent of this paragraph 1 to

provide the maximum indemnification possible under applicable

<PAGE>

law. In the event of any conflict or inconsistency between the provisions

of this paragraph 1 and the Certificate of Incorporation and/or By-Laws of

the Indemnitor, the provisions of this paragraph 1 shall control to the

extent that the provisions hereof afford broader indemnification. To the

extent applicable law, the Certificate of Incorporation, or the By-Laws, as

in effect on the date hereof or at any time in the future, permit greater

indemnification than provided for in this paragraph 1, the parties hereto

agree that Indemnitees shall enjoy by this paragraph 1 the greater benefits

so afforded by such law or provision of the Certificate of Incorporation or

By-Laws. An Indemnitee may elect to have such Indemnitee's rights

hereunder interpreted on the basis of the applicable law in effect at the

time of execution of this Agreement, at the time of the occurrence of

conduct giving rise to the claim against such Indemnitee, or at the time

indemnification is sought. In the event any one or more of the provisions

of this paragraph 1 should be held invalid, illegal or unenforceable in any

respect, the validity, legality and enforceability of the remaining

provisions contained herein shall not in any way be affected or impaired

thereby.

(h) Partial Indemnification. If an Indemnitee is entitled under
-----------------------

any provision of this paragraph 1 to indemnification by Indemnitor for some

or a portion of the Expenses, judgments, fines or penalties incurred by

such Indemnitee in the investigation, defense, appeal or settlement of

<PAGE>

any Proceeding but not, however, for the total amount thereof, Indemnitor

shall nevertheless indemnify such Indemnitee for the portion of such

Expenses, judgments, fines or penalties to which such Indemnitee is

entitled.

(i) Liability Insurance. To the extent Indemnitor maintains, on
-------------------

its own behalf and an behalf of its subsidiaries, at any time, an insurance

policy or policies providing directors' and officers' liability insurance,

each Indemnitee shall be covered by such policy or policies, in accordance

with its or their terms, to the maximum extent of the coverage available

for other directors or officers under such insurance policy. The purchase

and maintenance of such insurance shall not in any way limit or affect the

rights and obligations of the parties hereto, and the execution and

delivery of this Agreement shall not in any way be construed to limit or

affect the rights and obligations of WII and its subsidiaries and/or of the

other parties under any such insurance policy.

(j) Definitions. As used in paragraph 1:
-----------

(i) The term "Proceeding" shall include any threatened,

pending or completed action, suit, proceeding, arbitration,

alternate dispute resolution mechanism or any inquiry or

investigation, whether brought in the name of Indemnitor or any

of its subsidiaries, or otherwise, and whether of civil,

criminal, administrative or investigative nature, including, but

not limited to, an action by or in the

<PAGE>

right of any corporation of any type or kind, domestic or

foreign, or any partnership, joint venture, trust, employee

benefit plan or other enterprise, whether predicated on foreign,

federal, state or local law and whether formal or informal, and

any action, suit, proceeding, arbitration, alternate dispute

resolution mechanism or any inquiry or investigation, brought

under and/or predicated upon the Securities Act of 1933, as

amended (the "Securities Act"), and/or the Securities Exchange

Act of 1934, as amended, and/or their respective state

counterparts and/or any rule or regulation promulgated

thereunder, and whether such action, suit, proceeding,

arbitration, alternate dispute resolution mechanism, inquiry or

investigation commenced on, before or after the date hereof, in

which an Indemnitee may be or may have been involved as a party

or otherwise, by reason of any action taken by such Indemnitee or

any inaction on such Indemnitee's part, whether occurring on,

before or after the date hereof, while acting as a director

and/or officer of the Indemnitor or by reason of the fact that

such Indemnitee is or was serving as a director, officer,

employee, or agent of Indemnitor or, at the request of

Indemnitor, and/or any of its subsidiaries, as a director,

officer, employee or agent of another corporation, partnership,

joint venture, trust or other

<PAGE>

enterprise, whether or not or such Indemnitee is serving in such

capacity at the time any liability or Expenses are incurred for

which indemnification or reimbursement can be provided under this

paragraph 1.

(ii) The term "Expenses" includes, without limitation

thereto, expenses of investigations, judicial or administrative

proceedings or appeals, including preparation to defend or be a

witness in any of the foregoing, amounts paid in settlement by or

on behalf of an Indemnitee, attorneys' fees and disbursements and

any expenses of establishing a right to indemnification under

this paragraph 1, but shall not include the amount of judgments,

fines or penalties actually levied against an Indemnitee.

(iii) References to "other enterprise" shall include

Indemnitor benefit plans; references to "fines," shall include an

excise tax assessed with respect to any employee benefit plan;

references to "serving at the request of Indemnitor" shall

include any service as directors, officers, employees or agents

of Indemnitor which imposes duties on, or involves services by,

such directors, officers, employees, or agents with respect to an

employee benefit plan, its participants, or beneficiaries, and a

person who acts in good faith and in a manner he or she

reasonably believes to be in the interest of the participants and

beneficiaries of an

<PAGE>

employee benefit plan shall be deemed to have acted in a manner

"not opposed to the best interests of Indemnitor" as referred to

in this paragraph 1.

2. MISCELLANEOUS.
-------------

(a) No Construction as Employment Agreement. Nothing
---------------------------------------

contained herein shall be construed as giving an Indemnitee any right to be

retained in the employ of Indemnitor or any of its subsidiaries.

(b) Amendments. No supplement, modification or amendment of
----------

this Agreement shall be binding unless executed in writing by the parties

hereto.

Indemnitor shall be subrogated to the extent of such payment to all of the

rights of recovery of an Indemnitee, who shall execute all papers required

and shall do everything that may be necessary to secure such rights,

including the execution of such documents necessary to enable Indemnitor

effectively to bring suit to enforce such rights.

(d) No Duplication of Payments. Indemnitor will not be liable
--------------------------

under this Agreement to make any payment in connection with any claim made

against an Indemnitee to the extent such Indemnitee has otherwise actually

received payment (under any insurance policy, the Certificate of

Incorporation or By Laws or otherwise) of the amounts otherwise

indemnifiable hereunder.

(e) Severability. The provisions of this Agreement will be
------------

severable in the event that any of the provisions hereof

<PAGE>

(including any provision within a single section, paragraph or sentence)

are hold by a court of competent jurisdiction to be invalid, void or

otherwise unenforceable, and the remaining provisions shall remain

enforceable to the fullest extent permitted by law. Furthermore, to the

fullest extent possible, the provisions of this Agreement (including,

without limitation, each portion of this Agreement containing any provision

held to be invalid, void or otherwise unenforceable, that is not itself

invalid, void or unenforceable) will be construed so as to give effect to

the intent manifested by the provision held invalid, illegal or

unenforceable.

(f) Notwithstanding anything to the contrary contained herein,

nothing in this Agreement shall modify substantive indemnification rights

in existence prior to the date of this Agreement with respect to

occurrences prior to the effective date of the Consensual Plan.

(g) Notices. Any notice or other communication provided for in
-------

this Agreement or contemplated hereby shall be sufficiently given if given

in writing and delivered by certified mail, return receipt requested, and

addressed in the case of Indemnitor, to WII at 1500 North Dale Mabry

Highway, Tampa, Florida 33607, Attention: Secretary; and, in the case of

an Indemnitee, to such Indemnitee at his or her address as it appears in

the corporate records of Indemnitor. Either party may designate a

different address by giving notice of change of address in the manner

provided above.

<PAGE>

(h) Waiver. No waiver or modification in whole or in part of
------

this Agreement, or any term or condition hereof, shall be effective against

any party unless in writing and duly signed by the party sought to be

bound. Any waiver of any breach of any provision hereof or any right or

power by any party on one occasion shall not be construed as a waiver of,

or a bar to, the exercise of such right or power on any other occasion or

as a waiver of any subsequent breach.

(i) Binding Effect; Successors. This Agreement shall be binding
--------------------------

upon and shall inure to the benefit of Indemnitor and each Indemnitee and

their respective heirs, legal representatives, successors and assigns. If

Indemnitor, or any of its subsidiaries, shall be merged into or

consolidated with another entity, the provisions of this Agreement shall be

binding upon and inure to the benefit of the entity surviving such merger

or resulting from such consolidation. Indemnitor will require any

successor (whether direct or indirect, by purchase, merger, consolidation

or otherwise) to all or substantially all of the business or assets of

Indemnitor or stock of any subsidiary, by agreement in form and substance

satisfactory to Indemnitees, to expressly assume and agree to perform this

Agreement in the same manner and to the same extent that Indemnitor would

be required to perform it if no such succession or sale had taken place.

The provisions of this paragraph shall continue to apply to each subsequent

employer of each Indemnitee hereunder in the event of

<PAGE>

any subsequent merger, consolidation or transfer of assets of such

subsequent employer.

(j) Governing Law. This Agreement shall be construed and
-------------

interpreted in accordance with the laws of the State of Delaware and

without regard to the conflict of law principles thereof.

(k) This Agreement may be executed in as many counterparts as

are necessary, each of which shall be deemed an original.

[Signature pages follow this page]

<PAGE>

IN WITNESS WHEREOF, THE PARTIES hereto have executed this
Agreement effective as of the day and year first above written.

INDEMNITOR:

Walter Industries, Inc.

By: /s/ Kenneth J. Matlock
----------------------

Title: Executive Vice President
------------------------

INDEMNITEES:

/s/ James W. Walter
------------------------------
James W. Walter

/s/ G. Robert Durham
------------------------------
G. Robert Durham

/s/ Perry Golkin
-----------------------------
Perry Golkin

<PAGE>

/s/ Henry R. Kravis
-----------------------------
Henry R. Kravis

/s/ Kenneth J. Matlock
-----------------------------
Kenneth J. Matlock

/s/ Paul E. Raether
-----------------------------
Paul E. Raether

/s/ George R. Roberts
------------------------------
George R. Roberts

/s/ Michael T. Tokarz
------------------------------
Michael T. Tokarz

/s/ Robert W. Michael
------------------------------
Robert W. Michael

/s/ William N. Temple
------------------------------
William N. Temple

/s/ William H. Weldon
------------------------------
William H. Weldon

<PAGE>

/s/ Donald M. Kurucz
------------------------------
Donald M. Kurucz

/s/ David L. Townsend
------------------------------
David L. Townsend

/s/ John F. Turbiville
------------------------------
John F. Turbiville

/s/ Frank A. Hult
------------------------------
Frank A. Hult

/s/ William Kendall Baker
------------------------------
William Kendall Baker

/s/ Stephen H. Foxworth
------------------------------
Stephen H. Foxworth

/s/ S. Louise Russell
------------------------------
S. Louise Russell

<PAGE>

/s/ Mary C. Snow
-----------------------------
Mary C. Snow

/s/ Joseph W. Spransy
-----------------------------
Joseph W. Spransy

/s/ Thomas G. Ketcham
------------------------------
Thomas G. Ketcham

/s/ Dana A. Snyder
------------------------------
Dana A. Snyder

/s/ L. M. Voss
------------------------------
L. M. Voss

/s/ Roger A. Crabb
------------------------------
Roger A. Crabb

/s/ David Engebretson
------------------------------
David Engebretson

<PAGE>

/s/ R. E. Rudolph
------------------------------
R. E. Rudolph

/s/ Richard E. Almy
------------------------------
Richard E. Almy

/s/ Russell F. Penley
------------------------------
Russell F. Penley

/s/ Bobby J. Proctor
------------------------------
Bobby J. Proctor

/s/ Roger W. Wilson
------------------------------
Roger W. Wilson

/s/ Edmund W. Lanctot, Jr.
-----------------------------
Edmund W. Lanctot, Jr.

/s/ Lee Houlditch
------------------------------
Lee Houlditch

/s/ M. M. Wade
------------------------------
M. M. Wade

<PAGE>

/s/ W. M. Lammons
------------------------------
W. M. Lammons

/s/ Sam P. Bullara, Jr.
------------------------------
Sam P. Bullara, Jr.

/s/ D. Wayne Hornsby
------------------------------
D. Wayne Hornsby

/s/ Michael Roberts
------------------------------
Michael Roberts

/s/ Leo Almerico
------------------------------
Leo Almerico

/s/ Ronald K. Achille
------------------------------
Ronald K. Achille

/s/ B. Craig Calhoun
------------------------------
B. Craig Calhoun

/s/ H. R. Clarkson
------------------------------
H. R. Clarkson

<PAGE>

/s/ Daisy B. Collins
------------------------------
Daisy B. Collins

/s/ Joseph P. Richardson, Jr.
------------------------------
Joseph P. Richardson, Jr.

/s/ Sam J. Salario
------------------------------
Sam J. Salario

/s/ Richard A. Ward
------------------------------
Richard A. Ward

/s/ N. J. Padron
------------------------------
N. J. Padron

/s/ William Carr
------------------------------
William Carr

/s/s James M. Sims
------------------------------
James M. Sims

<PAGE>

/s/ Bonnie Doyne
------------------------------
Bonnie Doyne

/s/ R. Lee Vinzant
------------------------------
R. Lee Vinzant

/s/ Robert N. McCulley
------------------------------
Robert N. McCulley

/s/ Harold Bailey
------------------------------
Harold Bailey

/s/ E. J. Mize, Jr.
------------------------------
E. J. Mize, Jr.

/s/ L. O. Bailey
------------------------------
L. O. Bailey

/s/ L. R. Knowles
------------------------------
L. R. Knowles

/s/ William E. Fleck
------------------------------
William E. Fleck

<PAGE>

/s/ H. L. Ranson
------------------------------
H. L. Ranson

/s/ Michael Roper
------------------------------
Michael Roper

/s/ David M. Vestal, Sr.
------------------------------
David M. Vestal, Sr.

/s/ Clyde Wells
------------------------------
Clyde Wells

/s/ Keith Shope
------------------------------
Keith Shope

/s/ Elliot M. Fried
------------------------------
Elliot M. Fried

/s/ Howard L. Clark, Jr.
------------------------------
Howard L. Clark, Jr.

<PAGE>

/s/ Robert I. Shapiro
------------------------------
Robert I. Shapiro

/s/ James B. Farley
------------------------------
James B. Farley

/s/ James L. Johnson
------------------------------
James L. Johnson

Exhibit 10(h)

PURSUANT TO RULE 406(B) OF THE SECURITIES ACT OF 1933, AS
AMENDED, CERTAIN CONFIDENTIAL INFORMATION (INDICATED BY "***")
HAS BEEN OMITTED AND FILED SEPARATELY WITH THE SECURITIES AND
EXCHANGE COMMISSION.

AGREEMENT BETWEEN ALABAMA POWER COMPANY AND
JIM WALTER RESOURCES, INC. FOR THE SALE AND PURCHASE OF COAL

This Agreement is made and entered into as of the 10th day

of May, 1994, by and between Alabama Power Company, a corporation

organized and existing under the laws of the State of Alabama and

having its principal office in Birmingham, Alabama ("Purchaser"),

and Jim Walter Resources, Inc., a corporation organized and

existing under the laws of the State of Alabama and having its

principal office in Brookwood, Alabama ("Seller").

WITNESSETH:
----------

WHEREAS, Purchaser is a public utility corporation that owns

and operates certain coal-fired facilities for the purpose of

generating electrical power; and

WHEREAS, Seller owns or otherwise controls certain land and

mineral interests in land located in Jefferson and Tuscaloosa

Counties, Alabama, from which Seller desires to

mine coal for sale to Purchaser; and

WHEREAS, Purchaser and Seller have previously entered into

an agreement dated January 1, 1979, for the sale and purchase of

coal, which agreement has been amended on numerous occasions (the

"1979 Contract"); and

WHEREAS, several disputes have arisen in the past regarding

the 1979 Contract, and the 1979 Contract is currently the subject

of proceedings in the United States Bankruptcy Court for the

Middle District of Florida, Tampa Division, and in the United

States District Court for the Middle District of Florida; and

WHEREAS, Purchaser and Seller reached an agreement in

principle on March 14,

<PAGE>

1994, to resolve their current disputes arising under the 1979

Contract by (among other things) terminating the 1979 Contract

and replacing it with a new contract; and

WHEREAS, the contractual provisions contemplated by the

parties' agreement in principle are incorporated in this new

Agreement.

NOW, THEREFORE, in consideration of the foregoing premises

and of the terms and conditions hereinafter set forth, Purchaser

and Seller agree as follows:

1.01 Mutual Obligations. Seller agrees to sell coal to
------------------

Purchaser and Purchaser agrees to buy coal from Seller on the

terms and conditions and in the quantities set forth herein.

1.02 Condition Precedent. This Agreement shall not become
-------------------

effective except upon prior approval by the Bankruptcy Court of

the settlement of which this Agreement is a part, as provided in

the "Agreement Governing the Transition to the New Agreement

between Alabama Power Company and Jim Walter Resources, Inc. for

the Sale and Purchase of Coal" executed by the parties

contemporaneously herewith.

1.03 Termination of 1979 Contract. Subject to Section
----------------------------

1.02, the 1979 Contract between Purchaser and Seller is hereby

terminated effective July 1, 1994, and neither party shall have

any further rights or obligations thereunder.

2.01 Sellers Reserves and Preparations for Selling Coal.
--------------------------------------------------

Seller represents and warrants that it owns or otherwise controls

the real property, mineral interests, preparation plant

facilities and loading facilities, with improvements thereto, as

described in Annex A attached hereto and made a part hereof

(collectively referred to as the "Coal Property").

-2-

<PAGE>

Seller warrants, based on information currently known and

reasonably available data, that the Coal Property contains

economically recoverable coal of a quality and in quantities

that, under mining laws and practices in effect at April 15,

1994, will be sufficient, when prepared and loaded by Seller, to

satisfy the requirements of this Agreement. Seller shall mine

the coal to be furnished hereunder from mines on the Coal

Property described in Annex A. Seller further agrees and

warrants that:

(a) it will not sell or use, or contract to sell or use,

coal from its mines on the Coal Property in amounts that will

reduce the economically recoverable balance of coal to an amount

less than the amount required to be supplied Purchaser hereunder;

(b) it will not sell or use, or contract to sell or use,

coal from the mines on the Coal Property in amounts that will

render Seller unable to supply coal to Purchaser in the annual

and monthly quantities set forth in Section 8.01 hereof; and

disposition to others of coal from mines on the Coal Property

that would impair the obligations of Seller to Purchaser under

the terms of this Agreement to such an extent that Seller would

be unable to supply the quality and quantity of coal provided for

herein, except to the extent Seller is rendered incapable of

furnishing such coal because of the occurrence of events of force

majeure as described in Section 15.01.

2.02 Preparation of Mining Plan. In the event of any
--------------------------

extension of the term of this Agreement and/or any increase in

the quantity of coal to be provided hereunder, Seller shall

prepare a complete mining plan for the Coal Property with

adequate supporting data

-3-

<PAGE>

and conduct any additional exploration of the Coal Property that

Purchaser reasonably deems necessary in connection therewith to

demonstrate Seller's capability both to produce coal from the

Coal Property meeting the quantity and quality specifications of

this Agreement and to meet such expanded obligations. Seller

shall provide Purchaser with two copies of such mining plan,

which shall contain maps and a narrative depicting areas and

seams of coal to be mined and shall include (but not be limited

to) the following information: (i) reserves under the ownership

or control of Seller from which the coal will be produced and the

mining sequence, by year (or such other time intervals as

mutually agreed), from which coal will be mined; (ii) quality

data plotted on the maps depicting data points and isolines by

ash, sulfur, and Btu; (iii) quality control plans including

sampling and analysis procedures to insure shipments meet quality

specifications; and (iv) Seller's aggregate commitments to others

to produce coal from the Coal Property. Such complete mining

plan shall be presented to Purchaser as soon as practicable and

sufficiently in advance of any proposed extension in term or

increase in quantities so as to enable Purchaser to make a

reasoned determination regarding Seller's ability to perform.

Upon receipt thereof, Purchaser shall have the right to review

such plan, both individually and jointly with Seller, and the

parties shall consult in good faith with respect to matters

considered by Purchaser to be inadequate.

If the parties fail to agree upon the adequacy of Seller's

mining plan to demonstrate Seller's ability to produce and

deliver coal from the Coal Property meeting the quality and

quantity requirements of this Agreement through any extension

term, Seller and Purchaser

-4-

<PAGE>

shall select an independent mining consulting firm, the cost of

which shall be shared equally by Purchaser and Seller. If the

parties are unable to agree upon the identity of such firm, they

will jointly request that the firm be selected by the American

Arbitration Association, with the cost of this selection process

also being shared equally. The independent mining consulting

firm will utilize the mining plan submitted to Purchaser plus any

additional information it may reasonably request to form an

opinion as to whether or not Seller can meet the quality and

quantity requirements of this Agreement through any extension

term. If the independent mining consulting firm concludes that

Seller can reasonably meet the quality and quantity requirements

of this Agreement through any extension term, the mining plan

shall be deemed accepted and approved. If the independent mining

consulting firm does not, for any reason, conclude that in its

opinion Seller can reasonably meet the quantity requirements of

this Agreement through any extension term, Purchaser and Seller

will negotiate in good faith for a reduction in the annual

quantity or the term of the Agreement, as extended, to reflect

Seller's capability to perform the quantity requirements of the

Agreement. If the independent mining consulting firm does not,

for any reason, conclude that in its opinion Seller can

reasonably meet all of the quality requirements of this Agreement

through any extension term, Purchaser will consider whether it

can, in its sole judgment, take deliveries at a different quality

specification to accommodate the anticipated quality of Seller's

shipments. If Purchaser determines that it can accommodate a

different quality specification, Purchaser and Seller will

negotiate in good faith a reduction in the price per ton to

reflect such different specification. If Purchaser determines

that it

-5-

<PAGE>

cannot accommodate a different specification, Purchaser shall be

under no further obligation to extend the term of the Agreement.

Acceptance and approval of mining plans, whether by

Purchaser or an independent mining consulting firm, shall not

relieve Seller of its obligations to meet the quantity and

quality requirements of this Agreement.

Upon request, Seller shall provide Purchaser with a mining

plan update showing progress to date, conformity to original

mining plan, and then known changes in reserve data and planned

changes in mining progression, plans or procedures.

3.01 Term of Agreement. The primary term of this Agreement
-----------------

shall commence on July 1, 1994, and extend through August 31,

1999.

Between the date of this Agreement and ***, Purchaser and

Seller will negotiate in good faith in an effort to reach mutual

agreement concerning the market pricing mechanism, terms and

conditions that would govern an extension of the term of this

Agreement for four million (4,000,000) tons of coal per year for

an additional five (5) years (i.e., through August 31, 2004). In

the event such mutual agreement is reached, the applicable market

pricing mechanism, terms and conditions will be reflected in an

amendment to this Agreement giving Seller an option, to be

exercised on or before ***, to so extend the term. It is

expressly agreed, however, that neither party shall initiate

litigation against the other in any forum should they be unable

to reach mutual agreement in this regard, nor shall the matter be

the subject of arbitration.

4.01 Price Per Ton of Coal. During the primary term of
---------------------

this Agreement (July 1,

-6-

<PAGE>

1994 through August 31, 1999) the Base Price of coal is $*** per

ton (***) at Seller's Mines No. 3, 4 (subject to Seller's

installation of unit train loading capability), 5, or 7, and is

subject to adjustment in accordance with this Section and Section

4.02. This adjusted Base Price (referred to as the "Billing

Price") is further subject to the calorific and other adjustments

provided for in this Agreement. As used herein, "ton" shall mean

a ton of two thousand (2000) pounds avoirdupois weight.

Beginning *** and on each *** thereafter during the primary

term of this Agreement, the Base Price ($*** per ton) shall be

adjusted (increased or decreased) for the next succeeding ***

month period on the basis of *** the percentage change in the ***

for the immediately preceding *** compared to *** of the previous

year (*** period). This percentage change will be expressed to

the nearest tenth of a percent (0.1%) and multiplied times the

Base Price. The resulting per ton adjustment amount (rounded to

the nearest cent per ton) will be added to or subtracted from the

Base Price to derive the Billing Price per ton (***). The above-

described adjustment to the Base Price will be *** from year to

year. Examples of adjustment calculations pursuant to this

Section 4.01 are attached hereto as Annex B, and such adjustments

shall be made in accordance with Annex B. In the event the

adjustment Index used in this calculation is unavailable or

becomes discontinued or rebased, the parties will mutually agree

upon a reasonably comparable method of adjustment under this

Section 4.01.

4.02 Adjustment for Changes in Governmental Impositions.
--------------------------------------------------

The Base Price set

-7-

<PAGE>

forth in Section 4.01 recognizes all costs of compliance by

Seller with all taxes, fees or other costs of any sort resulting

(or to result) from all statutes, ordinances and enactments by

any government or governmental agency (whether federal, state, or

local) adopted and effective as of July 1, 1994, as well as any

and all existing regulations, interpretations and rulings related

thereto, applicable to Seller's operations used in the

performance of its obligations under this Agreement. These costs

include (but are not limited to) compliance with the Federal Coal

Mine Health and Safety Act of 1969, the Federal Black Lung Excise

Tax, the Federal Surface Mining Control and Reclamation Act of

1977, and the Coal Industry Retiree Health Benefit Act of 1992.

The fact that the ultimate costs of compliance with existing

regulations, interpretations and rulings as described above may

not be known or reflected in Seller's costs as of July 1, 1994

shall provide no basis for adjustment under this Section 4.02.

To the extent not prohibited by or inconsistent with other

provisions of this Section 4.02, price adjustments shall be made

to the Base Price for changes in costs that directly affect coal

actually mined for delivery to Purchaser hereunder and that

result from Seller's compliance with statutes, ordinances and

enactments (including amendments to existing statutes, ordinances

and enactments) and with regulations, interpretations and rulings

adopted by any government or governmental agency (whether

federal, state or local) after July 1, 1994. In the event and

whenever after July 1, 1994 any such event occurs that removes,

increases or decreases any existing governmental imposition or

imposes a new governmental imposition, Seller shall give

Purchaser notice of the change. In the event of

-8-

<PAGE>

a decrease in cost, Purchaser also shall have the right (but not

the obligation) to give Seller notice of any such change in

governmental impositions. Notice hereunder by either party shall

be in the manner described in Section 22.01, and shall also

contain sufficient documentation and data to permit the other

party to review and quantify the effect of such governmental

imposition on Seller's costs. Purchaser and Seller shall

thereafter jointly estimate and agree on the cost effect of such

imposition, removal, increase or decrease applicable to the coal

sold hereunder and shall make an adjustment (increase or

decrease) to the Base Price accordingly. This adjustment shall

be effective for the period during which such imposition,

removal, increase or decrease is in effect unless said period

began more than twelve (12) months prior to the notice regarding

such changed governmental imposition, in which case recognition

of the prior cost effect shall be limited to those twelve (12)

months.

The term "governmental imposition" used in this Agreement

means taxes, fees or other costs imposed on Seller by any

government or governmental agency as a result of any governmental

law or regulation affecting the production, severance,

preparation or sale of coal hereunder. The term does not
---

include: (i) impositions that are not levied upon the

production, severance, preparation or sale of coal hereunder,

such as federal or state income taxes, unmined mineral taxes,

payroll taxes, special fund assessments related to worker's

compensation, orders or decrees revoking Seller's self-insurance

privileges, and sales or use taxes (even if imposed on materials

and supplies used in the production of coal under this

Agreement); (ii) any civil or criminal money fine or penalty

imposed on Seller as the result

-9-

<PAGE>

of failure to comply with any statute, administrative regulation

or ruling, local ordinance, or judgment, order of decree or any

court; or (iii) any normal changes in the valuation of property

for purposes of assessing any ad valorem tax. However, any state

or county-wide restructuring of ad valorem taxes dictated by

governmental authorities would be allowable as governmental

imposition.

It is expressly agreed and understood that, in consideration

of Purchaser's prior payments for potential black lung liability

associated with Seller's Mine No. 4 and of Purchaser's

disclaiming any interest (direct or indirect) in the Jim Walter

Resources, Inc. Black Lung Benefits Trust, Purchaser shall have

no liability or cost responsibility whatsoever for black lung

benefits payable to any of Seller's miners (past, present or

future), their dependents, survivors and/or beneficiaries,

pursuant to part C of Title IV of the Federal Mine Safety and

Health Act of 1977 (30 U.S.C. Sec. 931, et seq.) (or any successor
-- ---

federal statute that is substantially the same in purpose) or any

state law providing for payment, compensation, or other benefits

for disability or death due to pneumoconiosis (these federal and

state laws being collectively referred to as "Black Lung Acts").

Purchaser agrees to execute such document and take such actions

as may be reasonably required to disclaim any interest in the

aforesaid Black Lung Benefits Trust. Seller acknowledges that

this Section 4.02 does not contemplate any price adjustment as a
---

consequence of changes in eligibility requirements, amount or

form of benefits, or any other revision to or modification of the

Black Lung Acts relative to any of Seller's miners. Seller

further agrees to defend, indemnify, and hold harmless Purchaser

(including its servants, agents, employees, officers,

-10-

<PAGE>

directors, affiliates and subsidiaries) from and against any and

all claims, demands, suits or actions (and any loss, damage, cost

or liability resulting therefrom, including reasonable attorneys

fees) relating to the payment of black lung benefits to any of

Seller's miners (past, present or future), their dependents,

survivors and/or beneficiaries pursuant to the Black Lung Acts.

Notwithstanding the above, changes in the Black Lung Acts

resulting in taxes, fees, or other costs imposed on Seller by any

government or governmental agency affecting the production,

severance, preparation or sale of coal hereunder shall be

considered a "governmental imposition" as defined herein, except

as such changes relate to payments to Seller's miners (past,

present, or future), their dependents, survivors, and/or

beneficiaries.

4.03 Notice and Substantiation of Price Adjustments.
----------------------------------------------

Seller shall promptly notify Purchaser of the amount and

effective date of any claimed adjustment (either increases or

decreases) to the Base Price pursuant to Section 4.01 or 4.02,

and shall furnish Purchaser with whatever computations and data

are reasonably necessary to substantiate such adjustment(s).

Purchaser shall process any adjustment(s) within sixty (60) days

after receipt from Seller of all substantiating computations and

required data. If Purchaser contests any claimed adjustment,

Purchaser shall pay to Seller, or Seller shall credit Purchaser

with, the undisputed portion of the claimed adjustment.

Purchaser or Purchaser's representative shall have the right to

audit the applicable portion of Seller's books and records

relative to Seller's claim at all reasonable times during normal

business hours to determine whether any claimed adjustment is

proper and has been properly computed by Seller in accordance

with the applicable provisions of this Agreement. In the event

of a dispute relative to any

-11-

<PAGE>

claimed amount, the parties will make all reasonable efforts to

resolve such disputes prior to invoking arbitration pursuant to

Section 25.02.

4.04. Calorific Value Adjustment. The amount to be paid by
--------------------------

Purchaser for the coal delivered under this Agreement shall be

determined on the basis of the actual "as received" calorific

value of the coal as determined from the samples taken and

analyzed in accordance with Section 11.01 and Annex F hereof.

This determination shall be made as follows: The weighted

average "as received" calorific value (expressed in Btus/lb.) of

all coal shipped by Seller and accepted by Purchaser hereunder

during the Billing Period shall be divided by 12,500 Btus/lb. to

derive a "Calorific Adjustment Factor". This Calorific

Adjustment Factor shall be multiplied times the Billing Price.

The resulting product, less the Billing Price, shall constitute a

"Calorific Value Adjustment". The amount to be paid by Purchaser

for coal purchased hereunder shall be the Billing Price adjusted

upward or downward to the nearest cent per ton by the amount of

the Calorific Value Adjustment computed for the coal delivered in

each Billing Period. The Calorific Value Adjustment mechanism is

further detailed and illustrated in Annex C, and such adjustments

shall be made in accordance with Annex C.

4.05 Excess Ash Adjustment. In addition to other
---------------------

adjustments, the price per ton to be paid by Purchaser for coal

delivered under this Agreement shall be adjusted downward in

proportion to the ash content in excess of 14.00% as determined

from the samples taken and analyzed in accordance with Section

11.01 and Annex F hereof. This adjustment shall be subtracted

from the Billing Price (as adjusted for calorific value pursuant

to Section

-12-

<PAGE>

4.04), and shall be based upon the "as received" ash content of

coal shipped to Purchaser. The amount per ton of this excess ash

adjustment shall be the greater of the "per shipment" deduction

or the "average" deduction, as described below.

For each shipment of coal, the excess ash adjustment is

based upon the following table:

Ash Content (%) Per Shipment Deduction ($/ton)
--------------- ------------------------------
14.00 or less ***
14.01 - 14.50 ***
14.51 - 15.00 ***
15.01 - 15.50 ***
15.51 or more ***

For all coal shipped during a Billing Period, the excess ash

adjustment is based upon

the following table:

Ash Content (%) Average Deduction ($/ton)
--------------- -------------------------
14.00 or less ***
14.01 - 14.50 ***
14.51 - 15.00 ***
15.01 - 15.50 ***
15.51 or more ***

For each Billing Period, Purchaser will compare the total dollar

amount of adjustment derived under the per shipment deduction and

under the average deduction, with the greater of these dollar

amounts being the excess ash adjustment referred to in Section

5.01. The excess ash adjustment is further detailed and

illustrated in Annex D, and such adjustment shall be made in

accordance with Annex D.

4.06 Excess Moisture Adjustment. In addition to other
--------------------------

adjustments, the price per ton to be paid by Purchaser for coal

delivered under this Agreement shall be adjusted

-13-

<PAGE>

downward in proportion to the moisture content in excess of

10.00% as determined from the samples taken and analyzed in

accordance with Section 11.01 and Annex F hereof. This

adjustment shall be subtracted from the Billing Price (as

adjusted for calorific value pursuant to Section 4.04) and shall

be based upon the "as received" moisture content of coal shipped

to Purchaser. The amount per ton of this excess moisture

adjustment shall be the greater of the "per shipment" deduction

or the "average" deduction, as described below.

For each shipment of coal, the excess moisture adjustment is

based upon the following table:

Moisture Content (%) Per Shipment Deduction ($/ton)
-------------------- ------------------------------
10.00 or less ***
10.01 - 10.50 ***
10.51 - 11.00 ***
11.01 - 11.50 ***
11.51 or more ***

For all coal shipped during a Billing Period, the excess

moisture adjustment is based upon the following table:

Moisture Content (%) Average Deduction ($/ton)
-------------------- -------------------------
10.00 or less ***
10.01 - 10.50 ***
10.51 - 11.00 ***
11.01 - 11.50 ***
11.51 or more ***

For each Billing Period, Purchaser will compare the total dollar

amount of adjustment derived under the per shipment deduction and

under the average deduction, with the greater of these dollar

amounts being the excess moisture adjustment referred to in

Section 5.01.

-14-
<PAGE>

The excess moisture adjustment is further detailed and

illustrated in Annex E, and such adjustments shall be made in

accordance with Annex E.

5.01 Billing and Payment. An invoice shall be prepared by
-------------------

Purchaser and a copy sent to Seller as soon as practicable after

the 14th day of each calendar month for all coal shipped to

Purchaser during the first 14 days of the month, and as soon as

practicable after the last day of the month for all coal shipped

to Purchaser from the 15th day of each calendar month to the end

of the month (each of these periods constituting a "Billing

Period"). Each invoice will indicate the amount of coal shipped

by Seller during the Billing Period and the Billing Price

established pursuant to Sections 4.01 and 4.02 hereof. Within

fifteen (15) days after the preparation of each such invoice,

Purchaser will pay Seller the invoiced amount, plus or minus any

adjustments pursuant to Sections 4.04 (Calorific Value

Adjustment), 4.05 (Excess Ash Adjustment) and 4.06 (Excess

Moisture Adjustment) hereof. Purchaser will include with its

payment a report showing the basis for and computation of any

such adjustments. Should it later be determined that an invoice

was incorrect for any reason, Purchaser will prepare a revised

invoice for the subject Billing Period and the difference

(overpayment or underpayment) between the original invoice and

the revised invoice will either be included (or credited, in the

case of an overpayment) in the next regularly-scheduled payment

to Seller, or otherwise properly compensated.

6.01 Shipment. It is anticipated that coal sold hereunder
--------

will be shipped by rail from Seller's rail loading facilities at

Mines No. 3, 4 (subject to the conditions of this Section 6.01),

5 or 7 (the "loading facilities") located in Tuscaloosa and

Jefferson Counties, Alabama,

-15-

<PAGE>

ultimately to be delivered to locations designated by Purchaser

(including, but not limited to, any plants on or off the Southern

electric system). Seller may elect to install unit train loading

capability at its Mine No. 4 (at its own expense) that may be

used for shipments under this Agreement, subject to the

conditions that: (1) said facility must meet the requirements of

this Agreement; and (2) weighing and sampling must meet with the

requirements of this Agreement, using similar equipment and

procedures as at Seller's other mines. Purchaser, at its sole

option, may elect to have the coal sold f.o.b. truck at Seller's

facilities at the then current Billing Price plus a mutually

agreed fee (based upon Seller's demonstrated incremental cost of

providing such service) for truck loading, if loading trucks is

more costly than loading railcars.

Purchaser shall arrange for the carrier to provide Seller

with a multiple copy waybill, Arrival Notice or other such form

that accurately describes each shipment. Such form shall be

prepared by Seller to incorporate Seller's name, shipment date,

destination point, origin, Purchaser's transportation contract

identification, railcars by initials and number, unit train

number, purchase order number, weight and any other applicable

data that may be reasonably required. One copy of such form

shall be retained by Seller and the remaining copies shall be

provided to the carrier at the time the railcars are moved. Upon

delivery, the carrier shall forward such form to Purchaser's

destination plant.

6.02 Rail Shipments. Seller shall provide off-main line
--------------

rail trackage sufficient for efficient and dependable loading of

unit trains of not more than ninety (90) cars at Seller's loading

facilities at Mines No. 3, 4 (if installed by Seller), 5 and 7.

Seller will operate its

-16-

<PAGE>

loading facilities twenty-four (24) hours per day, seven (7) days

per week, if needed, in order to comply with the rail tariff,

unless modified by the loading requirements summary (attached as

Annex H) applicable to deliveries under this Agreement (the rail

tariff and Annex H being collectively referred to hereinafter as

"Seller's Shipment Requirements Document"). Seller agrees to

provide loading facilities capable of loading unit trains at an

effective rate of *** tons in four (4) hours (excluding switching

and inspection time) in the case of Mines No. 3, 4 (if installed

by Seller), 5, and 7. Seller agrees and warrants that no

existing or future agreement of Seller providing for shipments

through its loading facilities shall interfere with or impair

Seller's loading obligations set forth in this Agreement.

Shipping schedules shall be coordinated by Purchaser and

Seller's Transportation Coordinators in accordance with monthly

quantities of coal to be delivered under this Agreement, which

deliveries shall be approximately ratable over the month. Seller

shall load the railcars in a timely manner that coincides with

the loading times specified in Seller's Shipment Requirements

Document.

6.03 Freight Charges, Title, and Risk of Loss. Subject to
----------------------------------------

reimbursement by Seller as provided in Sections 6.04, 6.05, 6.06

and 7.01, Purchaser shall pay all freight and other charges

imposed by Seller's Shipment Requirements Document and shall bear

the risk of loss of or damage to each shipment after it has been

properly loaded by Seller into railcars.

6.04 Loading Costs Chargeable to Seller. If Seller fails
----------------------------------

to satisfy the loading requirements of Seller's Shipment

Requirements Document and such failure is not excused pursuant to

the force majeure provisions of this Agreement, Seller shall pay

Purchaser any

-17-

<PAGE>

resulting penalties under Seller's Shipment Requirements Document

for railcar detention, demurrage, or charges for railcars loaded

in excess of capacity. Seller shall also pay the per ton

transportation rate required to be paid by Purchaser under

Seller's Shipment Requirements Document for all tons not loaded

to the per railcar and per trainload minimum capacity, as

specified in the Shipment Requirements Document.

6.05 Freight Costs Chargeable to Seller. If Seller fails
----------------------------------

to tender sufficient coal to satisfy the quantity requirements in

accordance with Section 8.01 of this Agreement and thereby fails

to satisfy the tonnage requirements of Purchaser's rail contract,

and such failure is not excused pursuant to the force majeure

provisions of this Agreement. Seller shall pay Purchaser any

resulting freight charges that Purchaser is required to pay the

carrier over the amount of such charges otherwise payable.

Seller and Purchaser agree that the penalty under this Section

6.05 will be no greater than $*** per ton, during the primary

term of the Agreement. Seller is also responsible for freight

charges associated with any shipments of coal that are properly

rejected by Purchaser in accordance with Section 12.01.

6.06 Payment of Freight Costs to Purchaser. Any payment
-------------------------------------

required by Sections 6.03, 6.04, 6.05 and 7.01 shall be paid by

Seller within fifteen (15) days after Seller's receipt of a

written statement from Purchaser itemizing such charges.

7.01 Shipping Notice. After loading each shipment, and
---------------

before said shipment arrives at its destination, Seller shall

telephone, telecopy, or transmit (via any other means of

communication acceptable to both parties) Purchaser a notice of

shipment setting forth Seller's name, train number, railcar

numbers, tonnage shipped, date of shipment, and other

-18-

<PAGE>

such information as required by Purchaser from time to time.

Notices of shipment shall be sent to:

Alabama Power Company
Fuel Supply Analyst
Telephone: (205) 250-3273
Fax: (205) 250-3263

and
---

Plant Manager
(as designated by Purchaser)
Telephone: (205)__________
Fax: (205)__________

and
---

Southern Company Services, Inc.
Traffic and Fleet Analyst
Production Support Department
Telephone: (205) 877-7612
Fax: (205) 877-7288

Seller shall promptly confirm by telephone the receipt of any

shipping notices sent by telecopy.

In addition to the above-described shipping notice, Seller

shall determine the "as loaded" sulfur and Btu of each shipment

in accordance with the quick sulfur and Btu analysis procedures

set forth on Annex G, and shall telecopy and/or telephone such

analysis prior to such shipment's arrival at destination to the

locations designated by Purchaser. In addition to its rights

under Section 12.01, Purchaser may reject any shipment that, on

the basis of the pounds of sulfur per million Btus determined by

Seller, fails to comply with the sulfur quality limitation set

forth in Section 12.01. Should Seller fail to provide this quick

-19-

<PAGE>

sulfur and Btu analysis of any shipment as specified herein,

Purchaser may elect to delay unloading the shipment until the

analysis is provided. Seller shall be liable for any demurrage

and other costs occasioned by such delay.

8.01 Quantity Requirements. Except as otherwise provided
---------------------

herein, Seller will supply and Purchaser will buy the following

quantities of washed underground mined coal from the Coal

Property during each of the periods described below, beginning

July 1, 1994.

Period Tonnage
------ -------
July 1, 1994 - June 30, 1995 4,000,000
July 1, 1995 - June 30, 1996 4,000,000
July 1, 1996 - June 30, 1997 4,000,000
July 1, 1997 - June 30, 1998 4,000,000
July 1, 1998 - June 30, 1999 4,000,000
July 1, 1999 - August 31, 1999 666,667

These quantities of coal (plus any Carryover Tons, as described

in the next paragraph) shall be shipped by Seller in equal

monthly amounts, plus or minus five percent (+/=5%).

For the period July 1, 1994 through June 30, 1995, the total

quantity to be shipped cannot exceed four million (4,000,000)

tons. In each of the subsequent twelve (12) month periods,

however, Seller may, at its option, carry forward from the

immediately preceding period up to two hundred thousand (200,000)

tons of coal that otherwise would have been shipped during such

immediately preceding period (the "Carryover Tons"). Any

Carryover Tons are non-cumulative and can only be shipped during

the next twelve (12) month period. In no event shall any

Carryover Tons be shipped after June 30, 1999. Seller must

exercise its carryover option by July 15 of each twelve (12)

month period (beginning July 15, 1995

-20-

<PAGE>

and excluding the last period, for which no such option is

available) by giving notice in the manner described in Section

22.01. The price to be paid by Purchaser for the Carryover Tons

shall be the weighted average Billing Price during the preceding

twelve (12) month period from which the tons are being carried

over or the Billing Price at the time of shipment (whichever is

less), plus applicable adjustments as provided in this Agreement.

9.01 Weighing. A net weight will be determined and
--------

reported for each shipment of coal hereunder. The aggregate

weights determined during any Billing Period shall be accepted as

the quantity of coal sold and purchased during such period. The

weight of coal sold and delivered by rail shall be determined

from Seller's belt weightometer.

All scales and methods of weighing shall be acceptable to

Purchaser, and shall be certified within the accuracy stated in

the Association of American Railroads (AAR) "Scale Handbook".

The regulations contained in the AAR Scale Handbook are based on

National Bureau of Standards Handbook 44, "Specifications,

Tolerances, and Other Technical Requirements for Commercial

Weights and Measuring Devices." All scales used to determine the

governing weight of coal shall be material tested and certified

(at Seller's expense) on at least a semi-annual basis. Purchaser

shall have the right to have a representative present at any and

all times to observe scale testing or the determination of

weights. Additional tests shall be performed if requested by

Purchaser. Purchaser shall be responsible for the cost of

additional tests unless the results thereof show that the scale

failed to conform to certification standards, in which event

Seller shall be responsible for such cost.

-21-

<PAGE>

In the absence of scale weights from Seller, Purchaser and

Seller will mutually agree by what means the weight of coal sold,

delivered and purchased hereunder shall be determined. Such

mutually agreed method shall not necessarily be the same as that

required under the tariff for payment of freight. Seller shall

reimburse Purchaser for any cost or expense charged to or

incurred by Purchaser as a result of the absence of scale weights

from Seller.

10.01 Coal Specifications. The coal sold by Seller and
-------------------

purchased by Purchaser hereunder shall be a run of mine washed

product with no intermediate sizes having been added or removed

(provided, however, that intermediate sizes of Seller's coal may

be added, but only if such additions do not adversely affect the

handling characteristics of Seller's coal and all other

specifications are met as loaded); shall be uniformly blended;

shall be two inches and under in size (2" x 0") as defined in the

then-current American Society for Testing and Materials (ASTM)

Designation D-4749 Standard for Designating Size of Coal; shall

be substantially free of bone, slate, shale, rock, dirt, and

clay, and substantially free of extraneous material, including

(but not limited to) plastic, rubber, iron, wood and other waste

materials; and shall conform to the following analysis on an "as

received" basis:

<TABLE>
<S> <C>
Moisture (total) 10.00% or less
Ash 14.00% or less
Sulfur 0.60 lbs. sulfur per million Btu "as received" or less
Volatile Greater than 17.00%
Ash Fusion Softening (H = W) Greater than 2600 degrees F.
Grindability Greater than 80 (Hardgrove scale)
Calorific Value Greater than 12,000 Btu/lb.
</TABLE>

-22-
<PAGE>

11.01 Sampling and Analysis. Seller shall provide at the
---------------------

coal loading facility a mechanical sampling system of the

"cutting the full stream" type or other system acceptable to

Purchaser. The design and operation of the sampling system shall

meet the basic requirements of ASTM Designation D-2234 Standard

for Collection of a Gross Sample of Coal. Seller shall collect

representative samples using this mechanical sampling system for

each shipment of coal sold hereunder. Purchaser shall have the

right to have a representative present at any and all times to

observe sampling or sample preparation performed by Seller. The

final sample of No. 8 sieve size coal from the mechanical

sampling system shall be reduced to at least two (2),

approximately 1000 gram sample splits using an enclosed riffle

and put in suitable air tight containers following the basic

requirements of ASTM Designation D-2013 Standard for Preparing

Coal Samples for Analysis. The first container in each case

shall be forwarded to the Purchaser (or its designated

independent laboratory) and the second container in each case

(the "referee sample") shall be held available by Seller for a

period of not less than thirty (30) days from the actual date of

receipt of coal by Purchaser to be analyzed if a dispute arises

between Purchaser and Seller.

Purchaser shall analyze the samples in accordance with Annex

F, which sets forth laboratory sample preparation and analytical

procedures that are consistent with ASTM and industry standards.

Purchaser may, at its option and at its cost, contract with an

independent laboratory to perform the analysis of the samples

referred to above. Seller may observe any analysis performed by

Purchaser or its designated independent laboratory.

-23-

<PAGE>

Any dispute between Purchaser and Seller over the results or

method of any analysis shall be resolved by a further analysis of

the referee sample made by an independent laboratory mutually

agreed to by both parties. The results of such further

independent analysis shall be binding, and the cost thereof shall

be borne equally by Seller and Purchaser.

12.01 Quality Variations. Purchaser may reject any
------------------

shipment that, on the basis of analysis under Section 11.01

hereof, fails to comply with the following quality limitations on

an "as received" basis.

<TABLE><CAPTION>
<S> <C>
Moisture (total) May not be more than 10.00%
Ash May not be more than 14.00%
Sulfur May not be more than 0.60 lbs. of sulfur
per million Btu "as received"
Volatile Not less than 16.00%
Ash Fusion Softening (H = W) Not less than 2300 degrees F.
Grindability Not less than 45 (Hardgrove scale)
Calorific Value Not less than 12,000 Btu/lb.
</TABLE>

In an effort to accommodate occasional variations in the

quality of shipments and to avoid the disruptive effect of

suspension of shipments, the parties have agreed to the excess

ash and excess moisture adjustments set forth in Sections 4.05

and 4.06. Notwithstanding those provisions, Purchaser expressly

retains the right, at its option and in the exercise of

reasonable business judgment, to suspend shipments from the

applicable railcar loading facility(ies) if other than minor

handling, burn, disposal or other problems arise because of

deviations from the moisture, ash and calorific value quality

limitations set forth in this Section 12.01. Purchaser will give

Seller at least seven (7) calendar days notice in the event

-24-
<PAGE>

Purchaser deems it necessary to begin suspending shipments on the

basis of the moisture, ash, or calorific value specifications of

this Section. During this seven (7) day period, representatives

of Purchaser and Seller may meet at Seller's request to discuss

the problems that have arisen and to explore any reasonable

solutions to such problems.

Notwithstanding the foregoing paragraph, no prior notice for

suspension is required if the above-referenced problems arising

from deviations from the moisture, ash or calorific value quality

limitations set forth in this Section 12.01 are so severe that,

in the judgment of the officer in charge at production for APC,

immediate suspension is necessary in order to avoid a material

disruption in the operation of its generating facilities. In

addition, no prior notice is required for suspension if the

moisture content of any shipment exceeds ***%, if the ash content

of any shipment exceeds ***%, if the Btu content of any shipment

is less than *** Btu/lb. or if any shipment fails to satisfy any

of the other quality limitations set forth in this Section 12.01.

After receipt of notice to suspend, Seller shall immediately

commence appropriate actions to correct the quality deficiency.

At Seller's discretion, such actions may include the blending of

coal from other JWR mines. After Seller has determined that

subsequent deliveries can be made from the suspended railcar

loading facility in compliance with the quality specifications of

Section 10.01, Seller will so notify Purchaser and test

deliveries will be scheduled as soon as practicable. If analysis

of such test deliveries shows the coal to be in compliance with

the quality specifications of Section 10.01, normal deliveries

hereunder will be resumed. If such analysis shows the test

deliveries fail to so comply, the above

-25-

<PAGE>

described procedure will be repeated.

13.01 Termination of Agreement for Coal Quality Failures.
--------------------------------------------------

If Seller is unable to demonstrate its ability to comply with the

quality specifications in Section 10.01 after using its best

efforts within sixty (60) days from the date of the most recent

notice of suspension for quality variations, this Agreement may

be terminated by Purchaser.

14.01 Termination for Unremedied Default. In the event of
----------------------------------

the failure of either party to comply in good faith with any or

all of their respective obligations herein set forth, the party

not in default shall have the right to terminate this Agreement

at any time by giving to the other ninety (90) days written

notice of its intention so to do, which notice shall specify in

reasonable detail the failure upon which it is based. Unless the

party in default shall have remedied the specified failure within

ninety (90) days after receipt of the notice, the party not in

default shall have the right at its option to terminate this

Agreement immediately. This right shall be in addition to the

rights provided to either party in other portions of this

Agreement or at law or in equity.

15.01 Force Majeure. "Force Majeure" as used herein shall
-------------

mean a cause reasonably beyond the control of the Seller or

Purchaser (as the case may be) that wholly or in substantial part

prevents the mining or loading of coal at or from the Coal

Property, the delivery of coal to Purchaser, or the unloading,

storing or burning of coal by Purchaser at its destination.

Examples (without limitations) of force majeure, but only if

reasonably beyond the control of the Seller or Purchaser, include

the following: acts of God; acts of the public enemy;

insurrections; riots; strikes; labor disputes; work stoppages;

unforeseen

-26-

<PAGE>

and materially adverse geologic conditions; fires; explosions;

floods; electric power failures; interruptions to transportation;

embargoes; and orders or acts of civil (including, without

limitation, a city or county ordinance, orders of a regulatory

authority, an act of a state legislature and an act of the United

States Congress) or military authority. In the event force

majeure prevents delivery of coal to Purchaser, or the unloading,

storing or burning of coal by Purchaser at the destination or

destinations to which the coal is then being shipped, Purchaser

shall promptly consider what steps can be taken in the

transportation and utilization of the coal, including diversion

of the coal to other of its plants so as to allow the coal to be

used by Purchaser, and if such steps can be accomplished without

unreasonable expense, in Purchaser's sole opinion, Purchaser

shall promptly take such steps.

Purchaser and Seller recognize that environmental

restrictions (including air quality considerations) may

substantially hinder the purchasing or burning of coal hereunder

by Purchaser at one or more of its plants. If any such

restriction substantially hinders the burning of the coal by the

Miller Plant or other plants of Purchaser then receiving coal

hereunder, Purchaser shall promptly consider what steps can be

taken in the handling, combustion (including stack gas

treatment), transportation and utilization of the coal, including

diversion of the coal to other of its plants so as to allow the

coal to be used by Purchaser. If such steps can be accomplished

without unreasonable expense, in Purchaser's sole opinion,

Purchaser shall promptly take such steps and this Agreement shall

continue in full force and effect. Further, if such steps cannot

be accomplished without unreasonable expense but the effect of

such restriction can be avoided through a variance or other

-27-

<PAGE>

available administrative relief, Purchaser shall seek such

variance or other available administrative relief if in the sole

opinion of Purchaser such relief can be obtained without undue

effect on the business operations of Purchaser. If such steps

will not permit the burning of such coal, Seller shall have the

right at its option to take any steps available to it in the

mining and processing of the coal that will permit the coal to be

burned by Purchaser free of such restrictions and hindrance or to

supply Purchaser with a suitable substitute fuel that can be so

burned without change to Purchaser's facilities. In either such

event, the price hereunder shall be adjusted by mutual agreement

to compensate Seller for additional expense incurred in supplying

such fuel; however, nothing in this Section shall be deemed to

require the price of such fuel to increase beyond the cost of

other suitable fuel reasonably available to Purchaser. In the

event that such environmental restrictions are not avoided by

either Purchaser or Seller as hereinabove provided, then the

enforcement of such restrictions shall constitute an event of

force majeure that shall operate to suspend all of Seller and

Purchaser's obligations under this Agreement.

If because of force majeure either Purchaser or Seller is

unable to carry out its obligations under this Agreement, and if

such party promptly gives the other party hereto written notice

of such force majeure, the obligations and liabilities of the

party giving such notice and the corresponding obligations of the

other party shall be suspended to the extent made necessary by

and during the continuance of such force majeure; provided,

however, that the disabling effects of such force majeure shall

be eliminated as soon as and to the extent possible (except that

either party may settle any of its own labor disputes or strikes

-28-

<PAGE>

or terminate any of its own lockouts in its sole discretion).

Subject to the provisions of this Section as to partial

force majeure, if: (a) a condition of force majeure occurs; (b)

mutual obligations are suspended with respect to the total

tonnages to be supplied hereunder; (c) such condition (alone or

extended by other conditions of force majeure) continues so that

the mutual obligations remain suspended for a period of six (6)

months; and (d) at the end of said six (6) months or at any time

thereafter, the party to whom notice of force majeure has been

given, in the exercise of reasonable judgment, concludes that

there is no likelihood of ending the condition(s) in the

immediate future, then such party may terminate this Agreement

without liability to the other party by giving thirty (30) days

notice in writing of its intention to terminate. This Agreement

will thus be terminated as of the last day of notice period

unless the condition of force majeure has ended during said

thirty (30) day notice period.

16.01 Independent Contractor. This is an agreement fur the
----------------------

purchase and sale of coal in which the parties recognize and

agree that Seller is an independent contractor and not an agent

or employee of Purchaser. Seller is independent of any

managerial or other control or direction by Purchaser in the

performance of its work hereunder, and is free to perform such

work in pursuance of its commitments hereunder by such means and

in such manner as Seller may choose.

17.01 Binding Effect. This Agreement shall bind and inure
--------------

to the benefit of the parties and, subject to the provisions of

Section 18.01, to their successors and assigns.

18.01 Assignments. Neither party may assign this Agreement
-----------

or any rights or

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<PAGE>

obligations hereunder without the prior written consent of the

other party, which consent shall not be unreasonably withheld;

provided, however, that consent shall not be required for Seller

to assign, pledge or hypothecate this Agreement solely for

financing purposes and without relinquishing or in any way

transferring its own performance obligations hereunder. Neither

the sale by Purchaser of any or all of the coal shipped under

this Agreement nor Purchaser's exercise of its right under

Section 6.01 to direct coal shipments to other destinations shall

be considered an assignment of this Agreement.

19.01 Right of Inspection; Accounting. Seller shall keep
-------------------------------

accurate books and records in accordance with generally accepted

accounting principles associated with any claimed adjustment

under Section 4.02 for governmental imposition, and shall provide

such additional documentation related thereto as may be

reasonably requested by Purchaser. Seller shall preserve in an

orderly manner the records supporting any such claimed

adjustments and shall make such records available to Purchaser,

its accountants, auditor or other authorized representatives.

Purchaser and its designated representatives shall also at all

reasonable times have the right and privilege of visiting and

inspecting the site of the work of Seller and the facilities,

equipment and operations of Seller hereunder. No inspection by

Purchaser shall be deemed as a waiver of any of Purchaser's

rights or relieve Seller of any obligations of this Agreement.

20.01 Waiver. The failure of either party to insist on
------

strict performance of any provisions of this Agreement, or to

take advantage of any right hereunder, shall not be construed as

a waiver of such provision or right.

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<PAGE>

21.01 Remedies Cumulative. Remedies provided under this
-------------------

Agreement shall be non-exclusive, cumulative and in addition to

other remedies provided at law or in equity, provided however,

that Seller shall not be liable for incidental or consequential

damages directly traceable to deviations from the per shipment

moisture specifications (up to ***%) or from the per shipment ash

specifications (up to ***%).

22.01 Notices. Any notice, request, protest, consent,
-------

demand, report or statement given by one party to the other shall

be in writing and deemed effective when received (including

receipt by telecopy, facsimile, hand delivery, United States mail

or other means) as follows:

(1) If the notice is to Purchaser, to:

Vice President, Fuel Services
Southern Company Services, Inc.
P. O. Box 2625
Bin B266
Birmingham, Alabama 35202
Fax: (205) 802-0334

With a copy to:

Manager, Fuels
Alabama Power Company
P. O. Box 2641
Birmingham, Alabama 35291
Fax: (205) 250-3184

(or to such other person, address or number as
Purchaser shall have designated by due notice to
Seller).

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<PAGE>

(2) If the notice is to Seller, to:

President, Mining Division
Jim Walter Resources, Inc.
P. O. Box 830079
Birmingham, Alabama 35283
Fax: (205) 481-6161

With a copy to:

Secretary
Jim Walter Resources, Inc.
1500 North Dale Mabry Highway
Tampa, Florida 33602
Fax: (813) 871-4430

(or to such other person, address or number as Seller
shall
have designated by due notice to Purchaser).

23.01 Captions. The captions to sections hereof are for
--------

convenience only and shall not be considered in construing the

intent of the parties.

24.01 Compliance with Laws and Regulations. In connection
------------------------------------

with performance of this Agreement, Seller agrees to comply with

governmental laws and regulations, including (but not limited to)

those set forth in Annex I attached hereto and incorporated

herein by reference.

25.01 Applicable Law. This Agreement shall be construed
--------------

under the laws of the State of Alabama.

25.02 Arbitration. Any dispute, difference of opinion or
-----------

controversy arising out of this Agreement (except for Section

3.01) or the breach thereof shall be settled by arbitration in

accordance with the Commercial Arbitration Rules of the American

Arbitration

-32-
<PAGE>

Association (the "Rules"); provided, however, that should such

Rules conflict with the provisions hereof, the provisions of this

Agreement shall govern. Either party shall have the right to

request arbitration by giving written notice to the other party

and to any regional office of the American Arbitration

Association. Three (3) arbitrators shall be appointed by the

American Arbitration Association in accordance with the Rules.

The decision of the majority of the three arbitrators shall be

final and binding on the parties as to such matters that are

submitted to and determined by them, and judgment upon the

decision rendered by the arbitrators may be entered in any court

having jurisdiction thereof. Unless otherwise agreed, the

arbitration hearing shall take place in Birmingham, Alabama. The

cost of the arbitration shall be shared equally by the parties to

this Agreement.

The parties acknowledge that the subject of this Agreement

is a transaction involving interstate commerce, and that the

enforceability of this provision is governed by the Federal

Arbitration Act, 9 U.S.C. Sec.Sec. 1 et seq. This provision is a
-- ----

material term of the parties' agreement and the failure of either

party to comply with this provision will release the party not in

default under this provision, at its option, from its future

obligations under the Agreement, notwithstanding any claim that

this provision is not specifically enforceable under Alabama law.

26.01 Entire Agreement. This instrument contains the
----------------

entire Agreement between the parties, and there are no

representations, understandings or agreements, oral or written,

which are not included herein. This Agreement cannot be changed

except in writing by duly authorized representatives of both

parties. It is understood that Purchaser from time to

-33-

<PAGE>

time in the administration of this Agreement may issue and

transmit to Seller documents designated as "Purchase Orders" and

"Change Orders" which documents serve only instructional or

accounting functions and do nut constitute amendments to or

constructions of this Agreement.

IN WITNESS WHEREOF, the parties have caused this Agreement

to be executed by their authorized officers, effective as of the

date first shown above.

Alabama Power Company

Attest: By: /s/ Bill M. Guthrie
----------------------------
Executive Vice President

/s/ Shirley A. Thomas May 10, 1994
------------------------- ----------------------------
Assistant Secretary Date

Jim Walter Resources, Inc.

Attest: By: /s/ William Carr
----------------------------
President & Chief Operating
Officer

/s/ James M. Sims May 10, 1994
------------------------- ----------------------------
Vice President Date

-34-
<PAGE>

AMENDMENT NO. 1

TO THE AGREEMENT BETWEEN ALABAMA POWER COMPANY AND
JIM WALTER RESOURCES, INC. FOR THE SALE AND PURCHASE OF COAL

This Amendment No. 1 is made and entered into as of the

day of February, 1995, by and between Alabama Power Company, a
--

corporation organized and existing under the laws of the State of

Alabama and having its principal office in Birmingham, Alabama

("Purchaser"), and Jim Walter Resources, Inc., a corporation

organized and existing under the laws of the State of Alabama and

having its principal office in Brookwood, Alabama ("Seller"),

being an amendment to their Agreement for the Sale and Purchase

of Coal dated May 10, 1994.

WITNESSETH:
----------

WHEREAS, Purchaser and Seller have previously entered

into an Agreement for the Sale and Purchase of Coal dated May 10,

1994 (the "Agreement"); and

WHEREAS, Section 3.01 of the Agreement provides (among

other things) for Purchaser and Seller to negotiate in good faith

in an effort to reach mutual agreement by April 15, 1995,

concerning the market pricing mechanism, terms and conditions

that would govern an extension of the term of the Agreement; and

WHEREAS, pursuant to the request of Seller for its

convenience, the parties desire to extend to ***, the deadline

for these negotiations.

NOW, THEREFORE, in consideration of the premises,

Purchaser and Seller agree as follows:

-1-

<PAGE>

1. The date "***", appearing on the third line of Section

3.01 Term of Agreement, is hereby amended to read "***".
-----------------

2. All other terms and conditions of the Agreement shall

remain in full force and effect.

IN WITNESS WHEREOF, the parties have caused this

Amendment No. 1 to be executed by their authorized officers,

effective as of the date first shown above.

Alabama Power Company

Attest: By: /s/ Bill M. Guthrie
-------------------------------
Executive Vice President

/s/ Richard Simon March 15, 1995
--------------------------- -------------------------------
Date

Jim Walter Resources, Inc.

Attest: By: /s/ William Carr
-------------------------------
President & Chief Operating Officer

/s/ Robert W. Pollard March 7, 1995
--------------------------- -------------------------------
Date

-2-

<PAGE>

Annex B
(Reference to Section 4.01)
Computation of Adjustment for Change in the Base Price

NOTE: Figures used are hypothetical.

Example 1
---------

Description Index No. (*** 1994) Index No. (*** 1995)
----------- -------------------- --------------------

*** *** ***

Percentage Change = *** - *** = *** x ***% = *** = ***%
------
***

Change in Base Price = $*** x ***% = $***

Billing Price Per Ton effective *** through ***:

Base Price $ ***
Adjustment ***
Billing Price $ ***

Example 2
---------

Description Index No. (*** 1995) Index No. (*** 1996)
----------- -------------------- --------------------

*** *** ***

Percentage Change = *** - *** = *** x ***% = *** = ***%
------
***

Change in Base Price = $*** x ***% = $***

Billing Price effective *** through ***:

Base Price $ ***
Adjustment ***
Billing Price $ ***

<PAGE>

Annex C
(Reference to Section 4.04)
Computation of Calorific Value Adjustment to the Billing Price

This adjustment is intended to adjust the amount per ton paid by
Purchaser for coal shipped during each Billing Period on the basis
of the extent by which the calorific value of such coal is greater
than or is less than 12,500 Btu's per pound of coal.
Determination of the Calorific Value Adjustment is made as
follows:

<TABLE><CAPTION>
(X) (Y) (Z)
Base Factor Hypothetical Billing Periods
----------- ----------------------------

At the
Specification At a At a
Calorific Calorific Calorific
Value of Value of Value of

*** Btu/lb. *** Btu/lb. *** Btu/lb.
----------- ----------- -----------
ITEM

<S> <C> <C> <C>
1. Per ton - Billing Price $ *** $ *** $ ***

2. Calorific Btu Value per Pound *** *** ***

3. Calorific Adjustment Fraction *** ***

*** ***
4. Calorific Adjustment Factor *** *** ***

5. Calorific Value Adjustment
(1x4)-l *** *** ***

6. Amount per ton to be paid by
Purchaser (1 + 5) *** $ *** $ ***
</TABLE>

Figures used in Columns (Y) and (Z) of Items 1 and 4 are
hypothetical and are used for illustrative purposes only.

<PAGE>

Annex D
(Reference to Section 4.05)
Computation of Excess Ash Adjustment

The adjustment to the Billing Price to be paid by Purchaser for
coal for which the "as received" ash content exceeds 14.00% is
calculated as follows.

Assume that the following shipments are made for the Billing
Period January 1 - January 14:

"As-Received"
Shipment Tonnage Ash Content (%)
-------- ------- ---------------

1 5,450.32 14.20
2 7,083.23 13.73
3 8,400.78 16.15
4 5,602.27 15.00
5 8,383.83 15.25
6 7,010.52 14.75
7 8,397.99 13.24
8 5,499.85 11.73
--------- -----
Total for Period 55,828.79 14.35

Per Shipment Adjustment Calculation:

Per Shipment Per Shipment
Shipment Tonnage Adjustment($ /Ton) Adjustment($)
-------- ------- ------------------ -------------
1 5,450.32 *** ***
2 7,083.23 *** ***
3 8,400.78 *** ***
4 5,602.27 *** ***
5 8,383.83 *** ***
6 7,010.52 *** ***
7 8,397.99 *** ***
8 5,499.85 *** ***
Per Shipment Adjustment $***

Average Adjustment Calculation:

<TABLE>
<S> <C>
Average Adjustment Calculation:
Total Tonnage Shipped for Billing Period: 55,828.79 tons
Weighted Average Ash Content: ***%
Average Adjustment Per Ton: $***/ton
Average Adjustment: 55,828.79 tons x $***/ton = $***
</TABLE>

Since the Per Shipment Adjustment ($***) for this Billing Period
is greater than the Average Adjustment ($***), Purchaser shall
adjust the price to be paid for this tonnage downward by $***
pursuant to Section 5.01.

<PAGE>

Annex E
(Reference to Section 4.06)
Computation of Excess Moisture Adjustment

The adjustment to the Billing Price to be paid by Purchaser for
coal for which the "as received" moisture content exceeds 10.00%
is calculated as follows.

Assume that the following shipments are made for the Billing
Period January 1 - January 14:

"As-Received"
Shipment Tonnage Ash Content (%)
-------- ------- ---------------

1 5,450.32 11.00
2 7,083.23 10.49
3 8,400.78 9.49
4 5,602.27 11.38
5 8,383.83 14.23
6 7,010.52 9.99
7 8,397.99 10.28
8 5,499.85 10.43
--------- -----
Total for Period 55,828.79 10.97

Per Shipment Adjustment Calculation:

<TABLE><CAPTION>
Per Shipment Per Shipment
Shipment Tonnage Adjustment($ /Ton) Adjustment($)
-------- ------- ------------------ -------------

<S> <C> <C> <C>
1 5,450.32 *** ***
2 7,083.23 *** ***
3 8,400.78 *** ***
4 5,602.27 *** ***
5 8,383.83 *** ***
6 7,010.52 *** ***
7 8,397.99 *** ***
8 5,499.85 *** ***
Per Shipment Adjustment $***
</TABLE>

Average Adjustment Calculation:

<TABLE>
<S> <C>
Total Tonnage Shipped for Billing Period: 55,828.79 tons
Weighted Average Moisture Content: 10.97%
Average Adjustment Per Ton: $***/ton
Average Adjustment: 55,828.79 tons x $***/ton = $***
</TABLE>

Since the Average Adjustment ($***) for this Billing Period is
greater than the Per Shipment Adjustment ($***), Purchaser shall
adjust the price to be paid for this tonnage downward by $***
pursuant to Section 5.01.

<PAGE>

Annex F
Coal Sample Preparation and Analysis
Laboratory Procedures

Procedures utilized by Alabama Power Company for coal sample
preparation and analysis will be performed manually or by
utilization of automated equipment that conforms with the
referenced ASTM Standards.

<TABLE>
<S> <C> <C>
1. Total Moisture in Coal (Air drying will be continued ASTM D-3302
for a predetermined time necessary to achieve a loss
in weight of no more than 0.1 percent per hour.)
2. Preparing Coal Samples for Analysis ASTM D-2013

3. Moisture in the Analysis Sample of Coal ASTM D-3173

4. Ash in the Analysis Sample of Coal ASTM D-3174

5. Gross Calorific Value of coal by the Adiabatic Bomb ASTM D-2015
Calorimeter
(or)

Gross Calorific Value of Coal by the Isoperibol Bomb Calorimeter ASTM D-3286

6. Total Sulfur in the Analysis Sample of Coal Using High Temperature ASTM D-4239
Tube Furnace Combustion Method
7. Volatile Matter in the Analysis Sample of Coal ASTM D-3175

8. Fusibility of Coal Ash ASTM D-1875

9. Grindability of Coal by the Hardgrove Grindability Machine ASTM D-409
Method (No. 8 coal samples will be used for this analysis)

10. Calculating Coal Analyses from As-Determined to Different Bases ASTM D-3180
</TABLE>

<PAGE>

Annex G
Quick Sulfur and Btu Analysis

1. Place the entire 500 gram 8-mesh sample in a clean drying
pan, spread the coal uniformly in the pan, and observe it
with respect to moisture. If the coal appears to be too wet
to pulverize, dry it in the 105 C oven in ten-minute
intervals, stirring the sample with a spatula and observing
it with respect to moisture, until coal appears to be dried
to a point in which it is ready to pulverize.

2. Check the pulverizer to make sure it is clean and that its
pan is properly in place. Also check to make sure the door
is secured properly.

3. Transfer the entire sample from Step 1 to the pulverizer feed
hopper and turn pulverizer on.

4. When the sample is pulverized, partially remove the pan and
open the door. Use a brush to remove any coal particles on
the door or inside the pulverizer. Remove pan and brush
underneath the pulverizer screen to remove particles adhering
to the bottom of the screen. Add all sample particles to the
pulverized sample.

5. After pulverizing, divide sample using the small rifle. Two
additional passes through the riffle should yield about 50-70
grams or about two-thirds of an eight-ounce sample bottle.

6. Carefully transfer the sample to an eight-ounce sample
bottle, place on the mixing wheel and mix for 15 to 20
minutes. This is the Analysis Sample.
---------------------------

7. Determine sulfur content using ASTM Procedure D-4239.

8. Determine Btu content using ASTM Procedure D-2015 or D-3286.

<PAGE>

Annex H
(Reference to Section 6.02)
Loading Requirements Summary

1. Loading Time - Mine Maximum Loading Time Per Train*
------------ ---- ------------------------------
3 4 hours
4 4 hours (if applicable)
5 4 hours
7 4 hours (90 car)
7 4 hours (75 car)

* Excludes inspection and switching time

2. Minimum/Maximum Loading Weights for Railcars - Subject to
--------------------------------------------
8200 Series Tariff (may vary by car type) and maximum gross
weight on rail Agreements between Purchaser and Carrier.

3. Bill of Lading Language - Subject to 8200 Series Tariff,
-----------------------
unless mutually agreed by Purchaser, Seller, and Carrier.
Seller will transmit shipping instructions and Billing of
Lading. Seller, Purchaser, and Carrier will work together to
implement the electronic transmittal of shipping instructions
and Billing of Lading.

4. Detention Charges and Adjustment to Charges - Amounts subject
-------------------------------------------
to 8200 Series Tariff, as amended from time to time by CSX
and to the extent that such changes are applied to all CSX
unit train coal shipments.

5. Actual and Constructive Placement - Definition as per 8200
---------------------------------
Series Tariff, as amended from time to time by CSX and to the
extent that such changes are applied to all CSX unit train
coal shipments.

6. Crew and Locomotive Release Charges - Amounts subject to 8200
-----------------------------------
Series Tariff, as amended from time to time by CSX and to the
extent that such changes are applied to all CSX unit train
coal shipments.

7. Notice of Disabilities - In the event Seller has a disability
----------------------
that will prevent loading, there will be a specific notice
requirement to Purchaser.

8. Origin Detention - Subject to 8200 Series Tariff, as amended
----------------
from time to time by CSX and to the extent that such changes
are applied to all CSX unit train coal shipments.

9. Arrival Time Reporting - Purchaser and/or Carrier shall
----------------------
provide advance notice of arrival time of empty trains for
loading.

10. Overloaded Railcars - Seller shall have the responsibility
-------------------
for arranging any necessary offloading (including the payment
of all charges) and performing such in an expeditious manner
only if Seller exceeds maximum limits established by CSX.

11. Off-Mainline Rail Trackage - Seller shall provide necessary
--------------------------
trackage to accommodate loading 90-car unit trains
effectively, dependably, and safely (recognizing the present
limitation at Mine No. 7).

Page 1 of 2
<PAGE>
Annex H
Loading Requirements Summary

12. Loading Facility - Seller shall maintain loading facilities
----------------
in good repair for efficient, dependable and safe loading and
shall be responsible for any damage to Purchaser's railcars
occurring at Seller's facilities.

13. Loading Priority - Seller shall give Purchaser priority when
----------------
loading trains. Seller shall not place another customer's
train ahead of or otherwise delay Purchaser's train if
Purchaser's train is available and ready for loading.

14. Loading Facility Operation - Seller shall be prepared to
--------------------------
operate any of its loading facilities 24-hours per day,
7-days per week, (excluding typically recognized holidays) so
as to be able to load up to three cycling unit trains upon
arrival, subject to mutually agreed advance scheduling.

15. Amendments to Rail Contracts or Tariffs - In the event rail
---------------------------------------
contracts or tariffs between Purchaser and Carrier shall be
amended, then Seller shall be subject to such amendments to
the extent such amendments are applied to all CSX unit train
coal shipments. Purchaser shall provide such amendment
language to Seller if it affects Seller.

16. Shipping Schedules/Train Loading Coordination - Purchaser and
---------------------------------------------
Seller shall coordinate shipping schedules with Carrier in
accordance with monthly quantities of coal to be delivered,
on a mutually agreed schedule.

17. Loading Interference - Seller shall warrant that shipments
--------------------
through its loading facilities shall not interfere with,
impair, or delay Purchaser's loadings.

18. Shipping Schedule Flexibility - Seller and Purchaser shall
-----------------------------
work in good faith to accommodate Seller's and Purchaser's
requirements to periodically adjust shipping schedules to
meet coal needs or equipment availability.

19. Freight Charges - Purchaser shall pay all freight charges and
---------------
bear the risk of loss after proper loading of coal into
railcars.

20. Loading Costs Chargeable to Seller - Seller is responsible
----------------------------------
for freight charges associated with any properly rejected
shipments. Seller is also responsible for payments related
to overloading or underloading railcars.

21. Certified Weights - Certified weights will be supplied to
-----------------
Carrier by Seller at no cost to Carrier.

22. All Other Applications - Unless specifically excepted or
----------------------
addressed by this document or the Agreement, all other rail
shipment matters shall be governed by the 8200 Series Tariff,
as amended from time to time by CSX and to the extent such
amendments are applied to all CSX unit train coal shipments.

Page 2 of 2
<PAGE>

Annex I
Agreement and Certification of Compliance with Federal
Laws and Regulations

Alabama Power Company is a government contractor under an
Area-Wide Utilities Service Contract with the General Services
Administration of the United States Government. The Seller agrees
that the provisions referred to below shall, as if set forth
herein in full text, be incorporated into and form a part of every
contract or purchase order as may be entered into between the
Seller and Alabama Power Company after the effective date of the
Agreement if the amount and circumstances of each such contract or
purchase order meet the criteria set out in each of the provisions
referred to below for incorporation of the provision into
contracts or purchase orders between Alabama Power Company and
others.

<TABLE>
<S> <C> <C>
(1) Utilization of Small Business Concerns and Small 52.219-8
Disadvantaged Business Concerns

(2) Small Business and Small Disadvantaged Business 52.219-9
Subcontracting Plan

(3) Utilization of Labor Surplus Area Concerns 52.220-3

(4) Labor Surplus Area Subcontracting Program 52.220-4

(5) Contract Work Hours and Safety Standards Act - 52.222-4
Overtime Compensation - General

(6) Equal Opportunity 2.222-26

(7) Affirmative Action for Special Disabled and Vietnam 2.222-35
Era Veterans

(8) Affirmative Action for Handicapped Workers 52.222-36

(9) Clean Air and Water 52.223-2
</TABLE>

This Annex shall remain in effect and binding upon the Seller.
Upon the Seller's request, Alabama Power Company will provide the
full text of any of the above provisions or clauses incorporated
herein by reference.

EXHIBIT 23(a)

CONSENT OF INDEPENDENT CERTIFIED PUBLIC ACCOUNTANTS

We hereby consent to the use in the Prospectus constituting part of this
Registration Statement on Form S-1 of our report dated July 12, 1995, relating
to the consolidated financial statements of Walter Industries, Inc. and its
subsidiaries, which appears in such Prospectus. We also consent to the
application of such report to the Financial Statement Schedules for the three
years ended May 31, 1995 listed under Item 16(b) of this Registration Statement
when such schedules are read in conjunction with the financial statements
referred to in our report. The audits referred to in such report also included
these schedules. We also consent to the reference to us under the heading
"Experts" in such Prospectus.

/s/ Price Waterhouse LLP
-----------------------------
Price Waterhouse LLP
Tampa, Florida
August 9, 1995

<ARTICLE> 5
<LEGEND>
This schedule contains summary financial information extracted from the
Consolidated Financial Statements and related notes thereto and is qualified in
its entirety by reference to such financial statements and related notes.
</LEGEND>
<MULTIPLIER> 1,000

<S> <C>
<PERIOD-TYPE> 12-MOS
<FISCAL-YEAR-END> MAY-31-1995
<PERIOD-START> JUN-01-1994
<PERIOD-END> MAY-31-1995
<CASH> 128,007
<SECURITIES> 128,002
<RECEIVABLES> 1,678,279
<ALLOWANCES> (34,554)
<INVENTORY> 196,437
<CURRENT-ASSETS> 0<F1>
<PP&E> 1,186,407
<DEPRECIATION> 523,615
<TOTAL-ASSETS> 3,245,153
<CURRENT-LIABILITIES> 0<F1>
<BONDS> 2,220,370
<COMMON> 505
0<F1>
0<F1>
<OTHER-SE> 360,269
<TOTAL-LIABILITY-AND-EQUITY> 3,245,153
<SALES> 1,181,635
<TOTAL-REVENUES> 1,442,322
<CGS> 951,381
<TOTAL-COSTS> 202,653
<OTHER-EXPENSES> 508,350
<LOSS-PROVISION> 4,485
<INTEREST-EXPENSE> 304,548
<INCOME-PRETAX> (529,095)
<INCOME-TAX> (170,450)
<INCOME-CONTINUING> (358,645)
<DISCONTINUED> 0<F1>
<EXTRAORDINARY> 0<F1>
<CHANGES> 0<F1>
<NET-INCOME> (358,645)
<EPS-PRIMARY> (7.10)
<EPS-DILUTED> 0<F1>
<FN>
<F1>This line item is not presented on the Consolidated Financial Statements.
</FN>

</TABLE>