WALTER INDUSTRIES INC /NEW/, 8-K/A, 1997-12-29

WALTER INDUSTRIES INC /NEW/
8-K/A, 1997-12-29
GENERAL BLDG CONTRACTORS - RESIDENTIAL BLDGS

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<PAGE>
UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549

FORM 8-K/A

AMENDMENT NO. 1

CURRENT REPORT

Pursuant to Section 13 or 15(d) of the Securities Exchange Act of 1934

Date of Report (Date of earliest event reported) October 15, 1997

WALTER INDUSTRIES, INC.
- ------------------------------------------------------------

(Exact name of registrant as specified in its charter)

<TABLE>
<S> <C> <C>
DELAWARE 33-59021 13-3429953
(State or other
jurisdiction (Commission (IRS Employer
of incorporation) File Number) Identification No.)
</TABLE>

1500 NORTH DALE MABRY HIGHWAY, TAMPA, FL 33607
(Address of principal executive offices) (Zip Code)

Registrant's telephone number, including area code (813) 871-4811

NOT APPLICABLE
- --------------------------------------------------------------------------------

(Former name or former address, if changed since last report.)
<PAGE>
On October 30, 1997, the Company filed a Current Report on Form 8-K with
respect to the acquisition of the stock of Applied Industrial Materials
Corporation. At that time it was impracticable to provide the financial
statements and pro forma financial information required to be filed therewith
relative to the acquired stock, and the Company stated in such Current Report on
Form 8-K that it intended to file the required financial statements and pro
forma financial information as soon as practicable, but no later than 60 days
from the date of that filing. By this amendment to such Current Report on Form
8-K, the Company is amending and restating Item 7 thereof to include the
required financial statements and pro forma financial information.

ITEM 7. FINANCIAL STATEMENTS AND EXHIBITS

(a) FINANCIAL STATEMENTS OF BUSINESS ACQUIRED
Report of Independent Public Accountants
Combined Balance Sheets as of September 30, 1997 and 1996
Combined Statements of Earnings for the Years Ended September 30, 1997,
1996 and 1995
Combined Statements of Shareholders' Equity for the Years Ended September
30, 1997, 1996 and 1995
Combined Statements of Cash Flows for the Years Ended September 30, 1997,
1996 and 1995
Notes to Combined Financial Statements

(b) PRO FORMA FINANCIAL INFORMATION
Introduction to Unaudited Pro Forma Condensed Financial Information
Pro Forma Condensed Balance Sheet as of August 31, 1997 (Unaudited)
Notes to Pro Forma Condensed Balance Sheet as of August 31, 1997
(Unaudited)
Pro Forma Condensed Statement of Operations for the year ended May 31,
1997 (Unaudited)
Pro Forma Condensed Statement of Operations for the three months ended
August 31,
1997 (Unaudited)
Notes to Pro Forma Condensed Statements of Operations (Unaudited)

2
<PAGE>
SIGNATURES

Pursuant to the requirements of the Securities Exchange Act of 1934, the
registrant has duly caused this report to be signed on its behalf by the
undersigned hereunto duly authorized.

<TABLE>
<S> <C> <C>
Date: December 29, 1997

WALTER INDUSTRIES, INC.

By: /s/ Dean M. Fjelstul
-----------------------------------------
Name: Dean M. Fjelstul
Title: Senior Vice President and
Principal Financial Officer
</TABLE>

3
<PAGE>
AIMCOR ENTITIES
INDEX TO COMBINED FINANCIAL STATEMENTS

<TABLE>
<CAPTION>
PAGE
-----
<S> <C>
Report of Independent Public Accountants................................................................... 5
Combined Balance Sheets.................................................................................... 6
Combined Statements of Earnings............................................................................ 7
Combined Statements of Shareholders' Equity................................................................ 8
Combined Statements of Cash Flows.......................................................................... 9
Notes to Combined Financial Statements..................................................................... 11
</TABLE>

4
<PAGE>
Report of Independent Public Accountants

To the AIMCOR Entitities:

We have audited the accompanying combined balance sheets of the AIMCOR
Entitities (see Note 2) as of September 30, 1997 and 1996, and the related
combined statements of earnings, shareholders' equity and cash flows for each of
the three years ended September 30, 1997. 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 in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to obtain
reasonable assurance about whether the combined financial statements are free of
material misstatement. An audit includes examining, on a test basis, evidence
supporting the amounts and disclosures in the combined financial statements. An
audit also includes assessing the accounting principles used and significant
estimates made by management, as well as evaluating the overall financial
statement presentation. We believe that our audits provide a reasonable basis
for our opinion.

In our opinion, the combined financial statements referred to above present
fairly, in all material respects, the financial position of the AIMCOR Entities
as of September 30, 1997 and 1996, and the results of their operations and their
cash flows for each of the three years ended September 30, 1997 in conformity
with generally accepted accounting principles.

/s/ ARTHUR ANDERSEN LLP

Denver, Colorado

December 19, 1997

5
<PAGE>
AIMCOR ENTITIES

COMBINED BALANCE SHEETS

AS OF SEPTEMBER 30, 1997 AND 1996

(DOLLARS IN THOUSANDS)
<TABLE>
<CAPTION>
ASSETS
- ---------------------------------------------------------------------------------------------
<S> <C> <C>
1997 1996
--------- ---------
CURRENT ASSETS:
Cash and cash equivalents.................................................................... $ 20,245 $ 32,439
Accounts receivable, net of allowance for
doubtful accounts of $897 and $865......................................................... 47,149 43,779
Inventories.................................................................................. 76,536 68,633
Prepaid expenses............................................................................. 1,569 1,170
--------- ---------
145,499 146,021
NOTES RECEIVABLE FROM:
Selling Shareholders......................................................................... 9,164 9,164
Interest receivable on notes................................................................. 988 1,001
Other........................................................................................ 161 17
--------- ---------
10,313 10,182

PROPERTY, PLANT AND EQUIPMENT................................................................ 105,092 102,619
Less- accumulated depreciation, depletion and amortization................................... (62,901) (59,535)
--------- ---------
42,191 43,084
OTHER ASSETS
Net of accumulated amortization
of $169 and $74............................................................................ 7,408 3,782
--------- ---------
$ 205,411 $ 203,069
--------- ---------
--------- ---------

<CAPTION>
LIABILITIES AND
SHAREHOLDERS' EQUITY
- ---------------------------------------------------------------------------------------------
1997 1996
--------- ---------
<S> <C> <C>
CURRENT LIABILITIES:
Accounts payable--trade...................................................................... $ 44,912 $ 50,312
Accrued liabilities.......................................................................... 12,699 17,229
Shareholder notes payable.................................................................... -- 2,145
Short term bank credits...................................................................... 129 594
Current portion of industrial revenue bonds.................................................. 850 850
--------- ---------
58,590 71,130
LONG-TERM LIABILITIES:
Long-term debt............................................................................... 46,990 45,000
Industrial revenue bonds..................................................................... 2,550 3,400
Other noncurrent liabilities................................................................. 4,707 6,142
--------- ---------
54,247 54,542

MINORITY INTEREST............................................................................ 1,573 1,148

SHAREHOLDERS' EQUITY:
Preferred stock, no par value per share,
91,023 shares authorized and issued........................................................ 904 904
Common stock, $0.01 par value per share,
11,000 shares authorized, 9,781 issued..................................................... 286 286
Additional paid-in capital................................................................... 2,786 2,786
Retained earnings............................................................................ 90,189 75,152
Treasury stock, at cost...................................................................... (2,639) (2,639)
Notes receivable from shareholders for
purchase of common stock................................................................... (84) (406)
Cumulative translation adjustments........................................................... (441) 166
--------- ---------
91,001 76,249
--------- ---------
$ 205,411 $ 203,069
--------- ---------
--------- ---------
</TABLE>

The accompanying notes are an integral part of these combined financial
statements.

6
<PAGE>
AIMCOR ENTITIES

COMBINED STATEMENTS OF EARNINGS
FOR THE YEARS ENDED SEPTEMBER 30, 1997, 1996 AND 1995

(DOLLARS IN THOUSANDS)

<TABLE>
<CAPTION>
1997 1996 1995
---------- ---------- ----------
<S> <C> <C> <C>
NET SALES.................................................................... $ 443,783 $ 463,325 $ 390,377

COST OF GOODS SOLD........................................................... 368,789 384,088 329,197
---------- ---------- ----------
Gross Profit............................................................... 74,994 79,237 61,180

SELLING AND ADMINISTRATIVE EXPENSES.......................................... 29,781 35,377 28,619
---------- ---------- ----------
Earnings from operations................................................... 45,213 43,860 32,561

OTHER INCOME (EXPENSE):
Interest expense........................................................... (4,048) (3,561) (3,608)
Interest income............................................................ 1,178 1,754 2,917
Gain (Loss) associated with AIMCOR Formed Products Production
Corporation.............................................................. 5,136 (669) (24,144)
Miscellaneous, net......................................................... 2,145 (130) (32)
---------- ---------- ----------
Earnings before provision for income taxes................................. 49,624 41,254 7,694

PROVISION FOR INCOME TAXES................................................... 1,887 1,127 1,550
---------- ---------- ----------
NET EARNINGS................................................................. $ 47,737 $ 40,127 $ 6,144
---------- ---------- ----------
---------- ---------- ----------
</TABLE>

The accompanying notes are an integral part of these combined financial
statements.

7
<PAGE>
AIMCOR ENTITIES

COMBINED STATEMENTS OF SHAREHOLDERS' EQUITY

FOR THE YEARS ENDED SEPTEMBER 30, 1997, 1996 AND 1995

(DOLLARS IN THOUSANDS)
<TABLE>
<CAPTION>
PREFERRED STOCK COMMON STOCK ADDITIONAL TREASURY STOCK
------------------------ ------------------------ PAID-IN RETAINED ------------------------
SHARES AMOUNT SHARES AMOUNT CAPITAL EARNINGS SHARES AMOUNT
----------- ----------- ----------- ----------- ----------- ----------- ----------- -----------
<S> <C> <C> <C> <C> <C> <C> <C> <C>
BALANCE, September
30, 1994.......... 91,023 $ 904 9,781 $ 286 $ 2,786 $ 69,963 (505) $ (2,922)

Net Earnings........ 6,144
Dividends paid to
shareholders...... (7,446)
Distributions to
selling
shareholders...... (1,087)
Income tax
distributions paid
to shareholders... (3,909)
Repayment of notes
receivable from
shareholders...... (67)
Translation
adjustment........
----------- ----- ----- ----- ----------- ----------- --- -----------
BALANCE, September
30, 1995.......... 91,023 904 9,781 286 2,786 63,665 (505) (2,989)

Net earnings........ 40,127
Dividends paid to
shareholders...... (22,275)
Distributions to
selling
shareholders...... (6,365)
Issuance of shares
of stock from
treasury stock at
average cost...... 50 350
Repayment of notes
receivable from
shareholders......
Translation
adjustment........
----------- ----- ----- ----- ----------- ----------- --- -----------
BALANCE, September
30, 1996.......... 91,023 904 9,781 286 2,786 75,152 (455) (2,639)

Net earnings........ 47,737
Dividends paid to
shareholders...... (25,504)
Distributions to
selling
shareholders...... (5,704)
Income tax
distributions paid
to shareholders... (1,492)
Repayment of notes
receivable from
shareholders......
Translation
adjustment........
----------- ----- ----- ----- ----------- ----------- --- -----------
BALANCE, September
30, 1997.......... 91,023 $ 904 9,781 $ 286 $ 2,786 $ 90,189 (455) $ (2,639)
----------- ----- ----- ----- ----------- ----------- --- -----------
----------- ----- ----- ----- ----------- ----------- --- -----------

<CAPTION>
NOTES
RECEIVABLE CUMULATIVE TOTAL
FROM SELLING TRANSLATION SHAREHOLDERS'
SHAREHOLDERS ADJUSTMENTS EQUITY
------------- --------------- -------------
<S> <C> <C> <C>
BALANCE, September
30, 1994.......... $ (1,198) $ 161 $ 69,980
Net Earnings........ 6,144
Dividends paid to
shareholders...... (7,446)
Distributions to
selling
shareholders...... (1,087)
Income tax
distributions paid
to shareholders... (3,909)
Repayment of notes
receivable from
shareholders...... 427 360
Translation
adjustment........ 354 354
------------- ----- -------------
BALANCE, September
30, 1995.......... (771) 515 64,396
Net earnings........ 40,127
Dividends paid to
shareholders...... (22,275)
Distributions to
selling
shareholders...... (6,365)
Issuance of shares
of stock from
treasury stock at
average cost...... (324) 26
Repayment of notes
receivable from
shareholders...... 689 689
Translation
adjustment........ (349) (349)
------------- ----- -------------
BALANCE, September
30, 1996.......... (406) 166 76,249
Net earnings........ 47,737
Dividends paid to
shareholders...... (25,504)
Distributions to
selling
shareholders...... (5,704)
Income tax
distributions paid
to shareholders... (1,492)
Repayment of notes
receivable from
shareholders...... 322 322
Translation
adjustment........ (607) (607)
------------- ----- -------------
BALANCE, September
30, 1997.......... $ (84) $ (441) $ 91,001
------------- ----- -------------
------------- ----- -------------
</TABLE>

The accompanying notes are an integral part of these combined financial
statements.

8
<PAGE>
AIMCOR ENTITIES

COMBINED STATEMENTS OF CASH FLOWS

FOR THE YEARS ENDED SEPTEMBER 30, 1997, 1996 AND 1995

(DOLLARS IN THOUSANDS)

<TABLE>
<CAPTION>
1997 1996 1995
--------- ---------- ----------

<S> <C> <C> <C>
CASH FLOWS FROM OPERATING ACTIVITIES:
Net earnings................................................................. $ 47,737 $ 40,127 $ 6,144
Adjustments to reconcile net earnings to net cash provided from operating
activities--
Depreciation and amortization............................................ 4,801 3,231 3,094
Minority interest expense (income)....................................... 425 (60) 56
Equity in earnings of unconsolidated affiliates.......................... (2,292)
Exchange rate (gain) loss................................................ (607) (349) 353
Loss associated with write-offs of AIMCOR Formed Products Production
Corporation assets 20,284
(Increase) decrease in receivables....................................... (3,501) 16,670 (10,065)
(Increase) decrease in inventories....................................... (7,903) (18,673) 13,628
(Increase) decrease in prepaid expenses.................................. (399) 180 (180)
Increase (decrease) in accounts payable.................................. (5,400) (1,390) 7,804
Increase (decrease) in other current liabilities......................... (4,530) 3,258 (4,693)
Increase (decrease) in other noncurrent liabilities...................... (1,435) 385 (3,793)
--------- ---------- ----------
NET CASH PROVIDED FROM OPERATING
ACTIVITIES............................................................. 26,896 43,379 32,632
--------- ---------- ----------
CASH FLOWS FROM INVESTING ACTIVITIES:
Capital expenditures......................................................... (3,797) (13,401) (14,080)
Purchases of marketable securities........................................... (580)
Proceeds from sales of marketable securities................................. 2,150 18,237
Repayment of notes receivable from shareholders.............................. 2,065
(Increase) decrease in other assets.......................................... (1,445) 1,740 (3,575)
--------- ---------- ----------
NET CASH (USED IN) PROVIDED FROM INVESTING ACTIVITIES.................... $ (5,242) $ (7,446) $ 2
--------- ---------- ----------
</TABLE>

The accompanying notes are an integral part of these combined financial
statements.

9
<PAGE>
AIMCOR ENTITIES

COMBINED STATEMENTS OF CASH FLOWS

FOR THE YEARS ENDED SEPTEMBER 30, 1997, 1996 AND 1995
(DOLLARS IN THOUSANDS)

<TABLE>
<CAPTION>
1997 1996 1995
----------- ----------- -----------
<S> <C> <C> <C>
CASH FLOWS FROM FINANCING ACTIVITIES:
Repayment of industrial revenue bonds..................................... $ (850) $ (850) $ (850)
Bank borrowings........................................................... 1,990
Net (payments) borrowings from short term bank credits.................... (465) 353 241
Income tax distributions paid to shareholders............................. (1,492) (11,509)
Dividends paid to shareholders............................................ (25,504) (22,275) (7,446)
Distributions to selling shareholders..................................... (5,704) (6,365) (1,087)
Repayment of notes receivable from shareholders
for common stock........................................................ 322 689 360
(Payments) proceeds of shareholder notes payable.......................... (2,145) (368) 572
Proceeds from issuance of treasury stock.................................. 26
----------- ----------- -----------
NET CASH USED IN FINANCING ACTIVITIES................................ (33,848) (28,790) (19,719)
----------- ----------- -----------
Increase (decrease) in cash and cash equivalents.......................... (12,194) 7,143 12,915
Cash and cash equivalents at beginning of period.......................... 32,439 25,296 12,381
----------- ----------- -----------
Cash and cash equivalents at end of period................................ $ 20,245 $ 32,439 $ 25,296
----------- ----------- -----------
----------- ----------- -----------

SUPPLEMENTAL DISCLOSURE OF
CASH FLOW INFORMATION:...................................................
Interest received......................................................... $ 1,141 $ 1,048 $ 2,400
----------- ----------- -----------
----------- ----------- -----------
Interest paid............................................................. $ 3,994 $ 3,767 $ 3,552
----------- ----------- -----------
----------- ----------- -----------
Income taxes paid......................................................... $ 1,119 $ 986 $ 2,477
----------- ----------- -----------
----------- ----------- -----------
</TABLE>

The accompanying notes are an integral part
of these combined financial statements.

10
<PAGE>
AIMCOR ENTITIES

NOTES TO COMBINED FINANCIAL STATEMENTS

(DOLLARS IN THOUSANDS)

1. DESCRIPTION OF BUSINESS

Applied Industrial Materials Corporations ("AIMCOR"), a Delaware
corporation, is a major international, broad-range supplier of raw and processed
petroleum coke and provides related services encompassing marketing,
distribution, port operations and in-plant services, as well as processing and
manufacturing of specialty products. The Company (as defined below) serves
customers in the petroleum, steel, aluminum, cement, utility and consumer
markets. Purchases of petroleum coke are made through both long-term contracts
with oil refineries and spot purchases. Certain sales of petroleum coke are made
through long-term sales affiliations. Purchase and sales contracts generally
provide for periodic adjustments to product pricing commensurate with world
market pricing. The Company also manufactures and markets a variety of
ferroalloys, metals, minerals and specialty materials for use in the steel
manufacturing industry.

2. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES

BASIS OF PRESENTATION--

The combined financial statements consist of the accounts of AIMCOR, AIMCOR
Enterprises International, Inc. ("Enterprises"), AIMCOR Mannheim GmbH ("AIMCOR
Germany") and AIMCOR Luxembourg, S.A. ("AIMCOR Luxembourg") (collectively, the
"AIMCOR Entities" or the "Company").

Pursuant to a stock purchase agreement dated as of September 19, 1997 (the
"Agreement"), on October 15, 1997, Walter Industries, Inc. ("Walter") acquired
all of the ownership interests in the Company for approximately $410,000. The
final purchase price to be paid is subject to certain adjustments as set forth
in the Agreement. Prior to the consummation of the sale, certain shareholders of
AIMCOR purchased all of the outstanding stock of AIMCOR Consumer Products LLC,
an absorbent clay products business, and certain other assets as specified in
the Agreement. See Note 10 for further discussion.

The accompanying combined financial statements consist of the AIMCOR
Entities exclusive of AIMCOR's Consumer Products business and certain other
assets which were excluded from the transaction in accordance with the
Agreement, all of which were previously owned by AIMCOR. The accompanying
financial statements also exclude certain related party notes receivable and
accrued interest totaling approximately $4 million which were satisfied
concurrent with the closing of the transaction. Income and expense items related
to the excluded assets have also been excluded in the presentation of the
results of operations and cash flows of the Company as if it had been an
independent reporting entity for all periods presented. The allocations and
estimates utilized in the reporting of the Company's results of operations are
based on assumptions that the Company's management believes are reasonable under
the circumstances. However, these allocations and estimates are not necessarily
indicative of the costs and expenses that would have resulted if the Company had
operated as a separate entity.

PRINCIPLES OF COMBINATION--

The combined financial statements include the accounts of the AIMCOR
Entities. All significant intercompany accounts and transactions have been
eliminated.

11
<PAGE>
AIMCOR ENTITIES

NOTES TO COMBINED FINANCIAL STATEMENTS (CONTINUED)

(DOLLARS IN THOUSANDS)

2. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (CONTINUED)
USE OF ESTIMATES--

The preparation of financial statements in conformity with generally
accepted accounting principles requires management to make estimates and
assumptions that affect the amounts reported in the financial statements and
accompanying notes. Actual results could differ from those estimates.

TRANSLATION OF FOREIGN CURRENCY FINANCIAL STATEMENTS--

The functional currency for combined foreign operations is primarily the
United States dollar. Net transaction gains and losses are reflected in earnings
and amounted to net gains of $1,025 and net losses of ($126) and ($1,902) for
the years ended September 30, 1997, 1996 and 1995, respectively. Such amounts
are included in miscellaneous income (expense) in the accompanying Combined
Statements of Earnings. The assets and liabilities of foreign operations are
translated at the exchange rates prevailing at the date of the balance sheets
with the related translation gain or loss reflected as a separate component of
Shareholders' Equity. Foreign currency denominated revenue and expenses are
translated at the prior month average exchange rates.

CASH AND CASH EQUIVALENTS--

Cash equivalents include time deposits with commercial banking institutions
and investments in commercial paper having original maturities of three months
or less.

INVENTORIES--

The majority of the Company's inventories (approximately 68% in 1997 and 79%
in 1996) are valued using the last-in, first-out (LIFO) method and are stated at
the lower of cost or market. The remaining inventories are stated at the lower
of cost or market using the first-in, first-out (FIFO) method.

Inventories as of September 30, 1997 and 1996 are as follows:

<TABLE>
<CAPTION>
1997 1996
--------- ---------
<S> <C> <C>
Finished goods.......................................................... $ 68,441 $ 64,874
Raw materials and in-process............................................ 3,872 1,843
Production materials, supplies and other................................ 1,624 1,237
--------- ---------
73,937 67,954
Excess of LIFO cost over FIFO cost...................................... 2,599 679
--------- ---------
$ 76,536 $ 68,633
--------- ---------
--------- ---------
</TABLE>

The Company recorded an aggregate LIFO (benefit) expense of ($1,920), $3,445
and $6,600 for the years ended September 30, 1997, 1996 and 1995, respectively.

12
<PAGE>
AIMCOR ENTITIES

NOTES TO COMBINED FINANCIAL STATEMENTS (CONTINUED)

(DOLLARS IN THOUSANDS)

2. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (CONTINUED)
PROPERTY, PLANT AND EQUIPMENT--

Property, plant and equipment is recorded at historical cost. Depreciation
is provided using the straight-line method over the estimated useful lives,
ranging from 3 to 31 years. Property, plant and equipment as of September 30,
1997 and 1996 are as follows:

<TABLE>
<CAPTION>
1997 1996
---------- ----------
<S> <C> <C>
Land.................................................................. $ 300 $ 301
Buildings and structures.............................................. 31,064 30,414
Machinery and equipment............................................... 73,480 67,847
Construction in progress.............................................. 248 4,057
---------- ----------
105,092 102,619
Accumulated depreciation, depletion and amortization.................. (62,901) (59,535)
---------- ----------
Net property, plant and equipment..................................... $ 42,191 $ 43,084
---------- ----------
---------- ----------
</TABLE>

Effective October 1, 1996, the Company adopted Statement of Financial
Accounting Standards No. 121, "Accounting for the Impairment of Long-Lived
Assets and Long-Lived Assets to be Disposed Of." This statement establishes
standards for the evaluation of potential impairment of long-lived assets
whenever events or changes in circumstances indicate that the carrying amount of
an asset may not be recoverable. Accordingly, the Company reviews its long-lived
assets for such impairments on an ongoing basis. No impairments of long-lived
assets were recognized in the current or prior year.

OTHER ASSETS--

Other assets are comprised primarily of investments, deposits and deferred
financing costs. The deferred financing costs are amortized utilizing the
straight-line method over the term of the corresponding debt (see Note 5).

INCOME TAXES--

AIMCOR is an S-Corporation under the provisions of the Internal Revenue Code
for its U.S. entities and, as such, income tax liabilities were passed through
to shareholders. The operations of AIMCOR Germany and AIMCOR Luxembourg are
subject to income taxes in their respective countries. It has been the Company's
practice to declare and pay dividends to cover shareholder tax liabilities
associated with income earned by the Company.

3. FINANCIAL INSTRUMENTS AND CONCENTRATIONS OF CREDIT RISK

As part of its daily cash management activities, the Company routinely
invests in overnight time deposits which are generally not collateralized. As of
September 30, 1997 and 1996, the Company had invested approximately $246 and
$20,314 in unsecured time deposits with a foreign branch of a U.S. financial
institution. From time to time the Company also invests in high quality
investment grade commercial paper. Commercial paper investments totaled $9,979
as of September 30, 1996. No such investments were held at September 30, 1997.

13
<PAGE>
AIMCOR ENTITIES

NOTES TO COMBINED FINANCIAL STATEMENTS (CONTINUED)

(DOLLARS IN THOUSANDS)

3. FINANCIAL INSTRUMENTS AND CONCENTRATIONS OF CREDIT RISK (CONTINUED)
The Company's financial instruments consist of cash and cash equivalents,
notes receivable, notes payable and long-term debt. The carrying values of the
Company's cash and cash equivalents approximate fair market values due to the
nature of the investments and their relatively short maturities. The fair market
values of the Company's notes receivable, notes payable and long-term debt are
estimated based on current investment borrowing rates for similar instruments as
of September 30, 1997 and 1996, and approximate their carrying values.

The Company routinely extends credit to its customers in the normal course
of business. The requirements for collateral or other security interests is
generally not practiced within the industries in which the Company operates. To
minimize the credit risk associated with its receivables, the Company routinely
evaluates the credit worthiness of its customers. As of September 30, 1997,
management does not believe that significant credit risk exists.

The Company's customer base consists primarily of large commercial
enterprises located throughout Europe, Asia and the Americas. Due to the
diversity of the Company's customer base, management does not believe that
significant concentrations of credit risk exist as of September 30, 1997.
Transactions resulting in the creation or settlement of financial instruments
are typically denominated in U.S. dollars and are thus not generally subject to
off-balance sheet currency fluctuation risks.

4. TRANSACTIONS WITH SELLING SHAREHOLDERS AND AFFILIATED COMPANIES

Prior to the election of S-Corporation status, AIMCOR sold its interest in
certain subsidiaries to its shareholders and partnerships (the "Partnerships")
owned by the shareholders of the Company in exchange for interest-bearing notes
receivable. The shareholders and Partnerships acquired 100% of AIMCOR Luxembourg
and 100% of AIMCOR Germany. The purchase price was based on an appraisal of the
businesses and, in the opinion of management, approximated their fair market
values at date of sale. The total purchase price was $12,114.

The notes receivable remaining from the Partnerships of $9,164 at September
30, 1997 and 1996 are one-year notes which accrue interest at the prime rate.
These notes are automatically renewable at July 1 of each year. Interest income
associated with these notes totaled $811 and $844 for the years ended September
30, 1997 and 1996, respectively. In conjunction with the sale of the stock of
the Company, these notes and the related interest receivable were collected
subsequent to year end (see Note 2).

5. LONG-TERM DEBT

In February 1996, AIMCOR completed an unsecured Amended and Restated Credit
Agreement which replaced the existing Revolving Credit Agreement. Under the
terms of the new agreement, AIMCOR may borrow up to $50,000 at rates equal to
the prime commercial rate less 1/4% or LIBOR plus 1/2%, depending on the nature
of the loan. Annual facility fees, not to exceed 1/4% of the maximum commitment
amount, are payable on a quarterly basis. The maturity dates of the loans vary
based upon the nature of the loans and have a final maturity of April 30, 1999.
Borrowings outstanding under the Amended and Restated Credit Agreement were
$1,990 as of September 30, 1997. Letters of credit outstanding under these
agreements totaled $2,396 and $5,412 as of September 30, 1997 and 1996,
respectively. Subsequent to year end, all amounts outstanding under the Amended
and Restated Credit

14
<PAGE>
AIMCOR ENTITIES

NOTES TO COMBINED FINANCIAL STATEMENTS (CONTINUED)

(DOLLARS IN THOUSANDS)

5. LONG-TERM DEBT (CONTINUED)
Agreement including related accrued interest were repaid and the Amended and
Restated Credit Agreement was terminated in conjunction with the sale of the
Company's stock (see Note 2).

During 1994, AIMCOR issued $45,000 of unsecured long-term notes payable to a
group of investors through the private market. The proceeds of the notes were
used to repay the balance outstanding under the Revolving Credit Agreement, with
the excess invested in marketable securities. The notes vary in notional value
ranging from $1,000 to $20,000 per investor and accrue interest at the rate of
6.51% per annum. Interest expense associated with these notes totaled $2,930 for
the years ended September 30, 1997 and 1996. Interest on the outstanding notes
is payable semi-annually. Principal on the notes is payable in six equal annual
installments commencing in the year 1999. Fees of $252 incurred in connection
with the debt offering were capitalized and are being amortized over the life of
the notes. In conjunction with the sale of the AIMCOR stock, the long-term notes
payable and related accrued interest were repaid subsequent to year end (see
Note 2).

AIMCOR has $3,400 and $4,250 of Industrial Development and Pollution Control
Revenue Bonds outstanding as of September 30, 1997 and 1996, respectively,
collateralized by AIMCOR's raw materials inventory. The bonds accrue interest at
the rate of 7.75% per annum, and require annual sinking fund payments of $850
through 2001. The bonds are currently subject to redemption, at AIMCOR's option,
at 100% of the outstanding principal balance. In connection with the bonds,
AIMCOR is required to maintain specified financial ratios. AIMCOR was in
compliance with these covenants at September 30, 1997.

6. EMPLOYEE BENEFIT PLANS

The AIMCOR Entities have defined benefit pension plans covering
substantially all domestic and foreign employees. Total pension expense for the
years ended September 30, 1997, 1996 and 1995, was $244, $339 and $326,
respectively. The funding of retirement and employee benefit plans is in
accordance with applicable country requirements of the plans and for the U.S.
plans, is in an amount sufficient to satisfy the "Minimum Funding Standards" of
the Employment Retirement Income Security Act of 1974 ("ERISA"). Plan assets are
invested in debt and equity securities and money market funds.

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

<TABLE>
<CAPTION>
FOR THE YEARS ENDED
SEPTEMBER 30,
-------------------------------
1997 1996 1995
--------- --------- ---------
<S> <C> <C> <C>
(IN THOUSANDS)
Service cost-benefits earned during the period...................... $ 143 $ 219 $ 203
Interest cost on projected benefit obligation....................... 296 300 291
Actual return on assets............................................. (603) (217) (266)
Net amortization and deferral....................................... 408 37 98
--------- --------- ---------
Net pension costs............................................... $ 244 $ 339 $ 326
--------- --------- ---------
--------- --------- ---------
</TABLE>

15
<PAGE>
AIMCOR ENTITIES

NOTES TO COMBINED FINANCIAL STATEMENTS (CONTINUED)

(DOLLARS IN THOUSANDS)

6. EMPLOYEE BENEFIT PLANS (CONTINUED)

<TABLE>
<CAPTION>
SEPTEMBER 30, 1997 SEPTEMBER 30, 1996
--------------------------- ---------------------------
PLANS IN WHICH PLANS IN WHICH
--------------------------- ---------------------------
ACCUMULATED ACCUMULATED
ASSETS EXCEED BENEFITS ASSETS EXCEED BENEFITS
ACCUMULATED EXCEED ACCUMULATED EXCEED
BENEFITS ASSETS BENEFITS ASSETS
------------- ------------ ------------- ------------
<S> <C> <C> <C> <C>
(IN THOUSANDS)
Actuarial present value of
accumulated benefit obligations:
Vested benefits................. $ 2,187 $ 2,381 $ 2,124 $ 2,454
Non-vested benefits............. 98 368 86 486
------ ------------ ------ ------------
$ 2,285 $ 2,749 $ 2,210 $ 2,940
------ ------------ ------ ------------
------ ------------ ------ ------------
Plan assets at fair value, primarily
stocks and bonds.................. $ 2,997 $ 0 $ 2,487 $ 0
Projected benefit obligations....... 2,285 3,324 2,210 3,620
------ ------------ ------ ------------
Plan assets in excess of (less than)
projected benefit obligations..... 712 (3,324) 277 (3,620)
Unrecognized net (loss) gain from
actual experience different from
that assumed...................... (746) 25 (298) 57
Prior service cost not recognized... 151 -- 157 --
Contribution to plans after
measurement date.................. -- -- -- --
------ ------------ ------ ------------
Prepaid (accrued) pensions cost..... 117 (3,299) 136 (3,563)
Additional liability................ -- -- -- --
------ ------------ ------ ------------
Prepaid pension cost (pension
liability) recognized in the
balance sheet..................... $ 117 $ (3,299) $ 136 $ (3,563)
------ ------------ ------ ------------
------ ------------ ------ ------------
</TABLE>

The projected benefit obligations were determined using an assumed weighted
average discount rate of 7.1% for the Company's domestic and foreign plans for
1997, 1996 and 1995. The assumed long-term rate of return on plan assets was
8.0% for 1997, 1996 and 1995.

The Company has a defined contribution retirement plan covering
substantially all domestic salaried employees. Retirement fund contributions are
determined at the sole discretion of the Board of Directors and totaled $409,
$396 and $413 for the years ended September 30, 1997, 1996 and 1995,
respectively.

7. GAIN/(LOSS) ASSOCIATED WITH AIMCOR FORMED PRODUCTS PRODUCTION CORPORATION

Beginning in 1990, AIMCOR made a series of loans to AIMCOR Formed Products
Production Corporation ("AFPPC") under subordinated note agreements. The balance
receivable on these notes, including accrued interest, totaled $15,606 at
September 30, 1995. After an extended start-up period and extensive downtime for
a series of plant modifications, AFPPC's Rotterdam manufacturing facility
commenced full operations in 1994. On August 10, 1995, AFPPC decided to close
the Rotterdam

16
<PAGE>
AIMCOR ENTITIES

NOTES TO COMBINED FINANCIAL STATEMENTS (CONTINUED)

(DOLLARS IN THOUSANDS)

7. GAIN/(LOSS) ASSOCIATED WITH AIMCOR FORMED PRODUCTS PRODUCTION CORPORATION
(CONTINUED)
manufacturing facility due to unacceptable operating results. On August 14,
1995, AFPPC filed for bankruptcy in the Netherlands. As of September 30, 1995,
AIMCOR wrote off its AFPPC notes and related accrued interest receivable, trade
receivables and other impaired assets. Losses recorded to other income (expense)
in 1995 as a result of these write-offs were $20,284. Additionally, $668, $(669)
and $(3,861) in gains (losses) were included in the gain (loss) associated with
AFPPC for the years ended September 30, 1997, 1996 and 1995, respectively.

Due to the losses incurred during 1995 from the unacceptable operating
results, AIMCOR commenced litigation with the manufacturer of the production
facilities for non-performance. This litigation was settled through arbitration
during 1997 resulting in a favorable settlement to AIMCOR of $4,468 which is
reflected in the gain (loss) associated with AFPPC. The entire settlement was
collected as of September 30, 1997.

8. OPERATING LEASES

The Company has various land, building, and equipment leases expiring at
various dates through the year 2013. Aggregate rent expense for the Company's
various operating leases totaled $4,231, $4,020 and $3,983 for the years ended
September 30, 1997, 1996 and 1995, respectively. Future minimum lease payments
under existing operating leases in place as of September 30, 1997 are as
follows:

<TABLE>
<CAPTION>
FISCAL YEAR
- ---------------------------------------------------------------
<S> <C>
1998........................................................... $ 2,640
1999........................................................... 2,137
2000........................................................... 1,918
2001........................................................... 1,595
2002........................................................... 1,415
Thereafter..................................................... 4,476
---------
$ 14,181
---------
---------
</TABLE>

Certain leases have options which allow the Company to purchase the leased
equipment at fair market value at the end of the lease term. The underlying
assets of these leases may be sold at the Company's option, the proceeds of
which may be used to reduce the minimum payments required under the terms of the
respective lease.

17
<PAGE>
AIMCOR ENTITIES

NOTES TO COMBINED FINANCIAL STATEMENTS (CONTINUED)

(DOLLARS IN THOUSANDS)

9. SEGMENT INFORMATION

Information relating to the Company's business segments, foreign operations
and export sales are as follows:

BUSINESS SEGMENTS--

<TABLE>
<CAPTION>
1997 1996 1995
---------- ---------- ----------
<S> <C> <C> <C>
Net Sales:
Carbon................................................. $ 367,289 $ 389,295 $ 317,709
Metals................................................. 76,494 74,030 72,668
---------- ---------- ----------
Combined net sales................................... $ 443,783 $ 463,325 $ 390,377
---------- ---------- ----------
---------- ---------- ----------
Earnings before provision for income taxes:
Carbon................................................. $ 44,973 $ 37,445 $ 18,761
Metals................................................. 11,565 10,030 12,210
Unallocated Corporate interest and other expense....... (6,914) (6,221) (23,277)
---------- ---------- ----------
Earnings before provision for income taxes:.......... $ 49,624 $ 41,254 $ 7,694
---------- ---------- ----------
---------- ---------- ----------
Depreciation and Amortization:
Carbon................................................. $ 3,035 $ 1,551 $ 1,404
Metals................................................. 1,766 1,680 1,690
---------- ---------- ----------
Total................................................ $ 4,801 $ 3,231 $ 3,094
---------- ---------- ----------
---------- ---------- ----------
Gross Capital Expenditures:
Carbon................................................. $ 2,790 $ 10,628 $ 13,051
Metals................................................. 1,007 2,773 1,029
---------- ---------- ----------
Total................................................ $ 3,797 $ 13,401 $ 14,080
---------- ---------- ----------
---------- ---------- ----------
Identifiable Assets:
Carbon................................................. $ 154,023 $ 135,930 $ 125,743
Metals................................................. 41,862 30,718 29,358
Corporate.............................................. 9,526 36,421 34,387
---------- ---------- ----------
Total................................................ $ 205,411 $ 203,069 $ 189,488
---------- ---------- ----------
---------- ---------- ----------
</TABLE>

18
<PAGE>
AIMCOR ENTITIES

NOTES TO COMBINED FINANCIAL STATEMENTS (CONTINUED)

(DOLLARS IN THOUSANDS)

9. SEGMENT INFORMATION (CONTINUED)
FOREIGN OPERATIONS--

<TABLE>
<CAPTION>
1997 1996 1995
---------- ---------- ----------

<S> <C> <C> <C>
Sales to Unaffiliated Customers
United States.......................................... $ 291,958 $ 309,441 $ 248,244
Europe................................................. 151,825 153,884 142,133
Transfers between geographic areas....................... 114,415 116,298 108,651
Eliminations............................................. (114,415) (116,298) (108,651)
---------- ---------- ----------
Combined............................................. $ 443,783 $ 463,325 $ 390,377
---------- ---------- ----------
---------- ---------- ----------

Earnings before provision for income taxes:
United States.......................................... $ 54,690 $ 45,943 $ 30,271
Europe................................................. 1,848 1,532 700
Unallocated Corporate interest and other expenses...... (6,914) (6,221) (23,277)
---------- ---------- ----------
Combined............................................. $ 49,624 $ 41,254 $ 7,694
---------- ---------- ----------
---------- ---------- ----------

Identifiable Assets
United States.......................................... $ 166,312 $ 174,587 $ 165,695
Europe................................................. 39,099 28,482 23,793
---------- ---------- ----------
Combined............................................. $ 205,411 $ 203,069 $ 189,488
---------- ---------- ----------
---------- ---------- ----------

Export Sales (a)--

Europe................................................. $ 178,200 $ 184,829 $ 187,499
Asia................................................... 84,641 103,140 76,871
Other.................................................. 48,137 53,689 36,113
---------- ---------- ----------
Total................................................ $ 310,978 $ 341,658 $ 300,483
---------- ---------- ----------
---------- ---------- ----------
</TABLE>

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

(a) Export sales to Asia reflect sales made and shipped from the Company's West
Coast domestic operations. Export sales to Europe include sales from the
European operations in addition to sales originating from the Company's
domestic operations.

10. SUBSEQUENT EVENT

In October, 1997 the shareholders of the Company sold all of the outstanding
stock of the Company and certain other investments owned by the shareholders to
Walter Industries, Inc. for approximately $410,000, subject to certain
adjustments. In conjunction with the stock sale, the shareholders of the Company
were required to make certain guarantees and representations that are secured
via escrowed funds totaling $33,750, which expire at various dates ranging
between two and 72 months from the date of closing.

Prior to the consummation of this sale, certain shareholders purchased all
of the outstanding stock of AIMCOR Consumer Products LLC, AIMCOR's absorbent
clay products business, and certain other assets in exchange for notes payable.
In connection with the closing, all notes receivable and related interest due
from shareholders were collected in full, and all notes payable and amounts due
under the Amended and Restated Credit Agreement were repaid (see Notes 2 and 5).

19
<PAGE>
WALTER INDUSTRIES, INC.

INTRODUCTION TO UNAUDITED PRO FORMA CONDENSED
FINANCIAL INFORMATION

The following unaudited pro forma condensed financial information for the
year ended May 31, 1997 and the three months ended August 31, 1997 has been
prepared to reflect the financial position of Walter Industries, Inc. (the
"Company") as if the acquisition of Applied Industrial Materials Corporation
("AIMCOR") in October 1997 had occurred effective June 1, 1996 (with respect to
the year ended May 31, 1997) and June 1, 1997 (with respect to the three months
ended August 31, 1997).

AIMCOR ACQUISITION

The acquisition was treated as a purchase for financial reporting purposes.
Pursuant to a Stock Purchase Agreement dated as of September 19, 1997 (the
"Agreement"), on October 15, 1997, the Company acquired all of the ownership
interests in AIMCOR for approximately $410,000 in cash and incurred
approximately $5 million in direct acquisition costs. The purchase price was
determined through arms-length negotiations between the parties. The final
purchase price to be paid is subject to certain adjustments as set forth in the
Agreement.

The unaudited pro forma condensed financial statements are derived, in part,
from historical financial statements and should be read in conjunction with
those financial statements and the notes thereto. The unaudited pro forma
condensed financial statements are not necessarily indicative of the results
that would have occurred if the transaction had occurred on the dates indicated
or the expected financial position or results of operations in the future. The
unaudited pro forma condensed statements of operations should be read in
conjunction with the separate historical financial statements of Walter
Industries, Inc. and AIMCOR filed herewith and in conjunction with the related
assumptions and notes to these unaudited pro forma condensed financial
statements.

20
<PAGE>
WALTER INDUSTRIES, INC.

UNAUDITED PRO FORMA CONDENSED BALANCE SHEET
AS OF AUGUST 31, 1997

<TABLE>
<CAPTION>
HISTORICAL
------------------------
WALTER
INDUSTRIES AIMCOR PRO FORMA
(IN THOUSANDS) 8/31/97 9/30/97 ADJUSTMENTS PRO FORMA
------------ ---------- ----------- ------------
<S> <C> <C> <C> <C>
ASSETS
Cash and cash equivalents.............................. $ 27,719 $ 20,245 $(401,520)(a) $ 29,682
685,000(b)
(260,601)(c)
(6,176)(d)
(45,298)(f)
10,313(g)
Short-term investments, restricted..................... 205,169 -- 205,169
Marketable securities.................................. 38,588 -- 38,588
Instalment notes receivable, net....................... 1,335,944 -- 1,335,944
Trade and other receivables, net....................... 191,460 47,149 238,609
Notes receivable....................................... -- 10,313 (10,313)(g) --
Inventories............................................ 184,124 76,536 (2,599)(a) 258,061
Prepaid expenses....................................... 9,161 1,569 10,730
Property, plant and equipment, net..................... 570,534 42,191 32,000(a) 644,725
Excess of purchase price over net assets acquired...... 267,407 -- 301,413(a) 568,820
Deferred income taxes.................................. 97,126 -- 97,126
Unamortized debt expense............................... 33,161 -- 6,176(d) 35,192
(4,145)(e)

Investments and other assets........................... 46,925 7,408 54,333
------------ ---------- ----------- ------------
$ 3,007,318 $ 205,411 $ 304,250 $ 3,516,979
------------ ---------- ----------- ------------
------------ ---------- ----------- ------------

LIABILITIES AND STOCKHOLDER'S EQUITY

Bank overdrafts........................................ $ 23,777 $ -- $ 23,777
Accounts payable....................................... 71,412 44,912 116,324
Accrued liabilities.................................... 113,035 12,699 $ 13,480(a) 147,229
8,015(a)
Income taxes payable................................... 59,345 -- (1,451)(e) 57,894
Long-term senior debt:
Mortgage-backed/asset backed notes................... 1,820,464 -- 1,820,464
Other senior debt.................................... 261,243 50,519 685,000(b) 692,271
(259,193)(c)
(45,298)(f)
Accrued interest....................................... 26,345 -- (1,408)(c) 24,937
Accumulated postretirement health benefits obligation.. 272,454 -- 272,454
Other long-term liabilities............................ 47,247 4,707 (1,200)(a) 50,754
Minority interest...................................... -- 1,573 1,573
Equity (net assets).................................... 311,996 91,001 (91,001)(a) 309,302
(2,694)(e)
------------ ---------- ----------- ------------
$ 3,007,318 $ 205,411 $ 304,250 $ 3,516,979
------------ ---------- ----------- ------------
------------ ---------- ----------- ------------
</TABLE>

See Notes to Unaudited Pro Forma Condensed Balance Sheet

21
<PAGE>
WALTER INDUSTRIES, INC.

NOTES TO UNAUDITED PRO FORMA CONDENSED
BALANCE SHEET

The accompanying pro forma condensed balance sheet as of August 31, 1997 has
been prepared to reflect the acquisition of AIMCOR as if it had occurred on the
balance sheet date.

Balance Sheet Adjustments. The following pro forma adjustments were made to the
historical balance sheets:

(a) To reflect purchase accounting adjustments, including the carrying value of
inventories and property, plant and equipment to estimated fair market
value, for the allocation of purchase price and to reflect the use of cash
by Walter Industries, Inc. to consummate the transaction.

(b) To record borrowings under the Company's new credit facilities to finance
the acquisition and repay the Company's former bank credit facilities.

(d) To record costs incurred in connection with the issuance of debt under the
Company's new credit facilities.

(e) To reflect the write-off of unamortized debt issuance costs associated with
the Company's former bank credit facilities.

(f) To record repayment of AIMCOR debt assumed in the acquisition.

(g) To record collection of notes receivable from previous owners received at
closing of the AIMCOR transaction.

22
<PAGE>
WALTER INDUSTRIES, INC.

UNAUDITED PRO FORMA CONDENSED STATEMENT OF OPERATIONS

FOR THE YEAR ENDED MAY 31, 1997

<TABLE>
<CAPTION>
HISTORICAL
YEAR ENDED 5/31/97
-------------------------
WALTER PRO FORMA
(IN THOUSANDS) INDUSTRIES AIMCOR ADJUSTMENTS PRO FORMA
------------- ---------- --------------- -------------
<S> <C> <C> <C> <C>
Net sales and revenues............................ $ 1,507,061 $ 440,700 $ 1,947,761
Cost and expenses:
Cost of sales................................... 980,235 367,771 1,348,006
Selling, general and administrative............. 242,567 33,194 $ 3,200(b) 278,961
Interest and amortization of debt expense....... 179,291 3,744 44,913(c) 199,403
(28,487)(d)
1,029(e)
(1,087)(f)
Amortization of excess of purchase price over
net assets acquired........................... 34,870 -- 8,612(a) 43,482
------------- ---------- --------------- -------------
1,436,963 404,709 28,180 1,869,852
------------- ---------- --------------- -------------
70,098 35,991 (28,180) 77,909
Income tax expense................................ (32,981) (1,212) 9,863(g) (35,715)
(11,385)(h)
------------- ---------- --------------- -------------
Income before extraordinary item.................. 37,117 34,779 (29,702) 42,194
Extraordinary item--loss on early extinguishment
of debt, net of income tax benefit.............. -- -- (2,863)(f) (2,863)
------------- ---------- --------------- -------------
Net income........................................ $ 37,117 $ 34,779 $ (32,565) $ 39,331
------------- ---------- --------------- -------------
------------- ---------- --------------- -------------
Net income per share:
Income before extraordinary item................ $ .67 $ .76
Extraordinary item.............................. -- (.05)
------------- -------------
Net income.................................... $ .67 $ .71
------------- -------------
------------- -------------
</TABLE>

See Notes to Unaudited Pro Forma Condensed Statement of Operations

23
<PAGE>
WALTER INDUSTRIES, INC.

UNAUDITED PRO FORMA CONDENSED STATEMENT OF OPERATIONS
FOR THE THREE MONTHS ENDED AUGUST 31, 1997
(IN THOUSANDS)

<TABLE>
<CAPTION>
HISTORICAL
----------------------------
WALTER
INDUSTRIES AIMCOR
THREE MONTHS THREE MONTHS PRO FORMA
ENDED 8/31/97 ENDED 9/30/97 ADJUSTMENTS PRO FORMA
------------- ------------- --------------- -------------
<S> <C> <C> <C> <C>
Net sales and revenues........................... $ 399,333 $ 124,968 $ 524,301
Cost and expenses:
Cost of sales.................................. 260,483 100,411 360,894
Selling, general and administrative............ 58,563 9,639 $ 800(b) 69,002
Interest and amortization of debt expense...... 44,863 1,042 11,617(c) 51,526
(5,995)(d)
257(e)
(258)(f)
Amortization of excess of purchase price over net
assets acquired................................ 8,416 -- 2,153(a) 10,569
------------- ------------- --------------- -------------
372,325 111,092 8,574 491,991
------------- ------------- --------------- -------------
27,008 13,876 (8,574) 32,310
Income tax expense............................. (12,943) (365) 3,001(g) (14,799)
(4,492)(h)
------------- ------------- --------------- -------------
Income before extraordinary item................. 14,065 13,511 (10,065) 17,511
Extraordinary item--loss on early extinguishment
of debt, net of
income tax benefit............................. -- -- (2,694)(f) (2,694)
------------- ------------- --------------- -------------
Net income....................................... $ 14,065 $ 13,511 $ (12,759) $ 14,817
------------- ------------- --------------- -------------
------------- ------------- --------------- -------------
Net income per share:
Income before extraordinary item............... $ .26 $ .32
Extraordinary item............................. -- (.05)
------------- -------------
Net income....................................... $ .26 $ .27
------------- -------------
------------- -------------
</TABLE>

See Notes to Unaudited Pro Forma Condensed Statement of Operations

24
<PAGE>
WALTER INDUSTRIES, INC.

NOTES TO UNAUDITED PRO FORMA CONDENSED
STATEMENTS OF OPERATIONS

The accompanying pro forma condensed statements of operations for the year
ended May 31, 1997 and the three months ended August 31, 1997, have been
prepared to reflect the operations of the company as if the acquisition of
AIMCOR had occurred June 1, 1996 (with respect to the year ended May 31, 1997)
and June 1, 1997 (with respect to the three months ended August 31, 1997).

Statements of Operations Adjustments. The following pro forma adjustments
were made to the historical statements of the Company.

(a) This adjustment reflects increase in amortization expense related to the
goodwill recorded under the purchase method of accounting of $8,612 and
$2,153 for the year ended May 31, 1997 and the three months ended August
31, 1997, respectively.

(b) To adjust for changes in depreciation expense for the related periods
associated with the write-up of property, plant and equipment as a result
of applying the purchase method of accounting.

(c) To record the interest expense related to the Company's new bank credit
facilities which were used to fund the AIMCOR acquisition and retire
existing bank debt. A .125% change in the Company's interest rate would
have an $856 and $215 effect on interest expense for the year ended May
31, 1997 and for the three months ended August 31, 1997, respectively.

(d) Interest expenses incurred under the Company's former credit facilities
($25,557 for year ended May 31, 1997 and $5,263 for three months ended
August 31, 1997) and AIMCOR debt ($2,930 for year ended May 31, 1997 and
$732 for three months) which would not have been incurred if the new bank
credit facilities were in place have been eliminated.

(e) To record the amortization of debt issuance costs incurred in connection
with the Company's new credit facilities.

(f) Amortization of debt issuance costs and the write-off of debt issuance
costs, net of income tax benefit, related to the Company's former credit
facilities have been eliminated.

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

(h) The provision for income taxes has been increased to reflect an
effective tax rate of 35% on AIMCOR's historical results of operations
which would have been incurred as part of the consolidated group.