<PAGE>
SCHEDULE 14A INFORMATION
Proxy Statement Pursuant to Section 14(a) of
the Securities Exchange Act of 1934 (Amendment No. )
Filed by the Registrant / /
Filed by a Party other than the Registrant / /
Check the appropriate box:
/ / Preliminary Proxy Statement
/ / Confidential, for Use of the Commission Only (as permitted by Rule
14a-6(e)(2))
/X/ Definitive Proxy Statement
/ / Definitive Additional Materials
/ / Soliciting Material Pursuant to Section240.14a-11(c) or
Section240.14a-12
WALTER INDUSTRIES, INC.
- --------------------------------------------------------------------------------
(Name of Registrant as Specified In Its Charter)
- --------------------------------------------------------------------------------
(Name of Person(s) Filing Proxy Statement, if other than the Registrant)
Payment of Filing Fee (Check the appropriate box):
/X/ No fee required.
/ / Fee computed on table below per Exchange Act Rules 14a-6(i)(1)
and 0-11.
(1) Title of each class of securities to which transaction applies:
-----------------------------------------------------------------------
(2) Aggregate number of securities to which transaction applies:
-----------------------------------------------------------------------
(3) Per unit price or other underlying value of transaction computed
pursuant to Exchange Act Rule 0-11 (set forth the amount on which the
filing fee is calculated and state how it was determined):
-----------------------------------------------------------------------
(4) Proposed maximum aggregate value of transaction:
-----------------------------------------------------------------------
(5) Total fee paid:
-----------------------------------------------------------------------
/ / Fee paid previously with preliminary materials.
/ / Check box if any part of the fee is offset as provided by Exchange Act Rule
0-11(a)(2) and identify the filing for which the offsetting fee was paid
previously. Identify the previous filing by registration statement number,
or the Form or Schedule and the date of its filing.
(1) Amount Previously Paid:
-----------------------------------------------------------------------
(2) Form, Schedule or Registration Statement No.:
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(3) Filing Party:
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(4) Date Filed:
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<PAGE>
[LOGO]
August 30, 1999
To Our Stockholders:
You are cordially invited to attend the 1999 Annual Meeting of Stockholders
of Walter Industries, Inc. (the "Company") to be held at 10:00 A.M., local time,
on Thursday, October 14, 1999, in the Regency 1 Room of the Hyatt Regency Tampa,
Two Tampa City Center, Tampa, FL 33602.
As discussed in the accompanying Proxy Statement, stockholders will be asked
to consider and approve proposals to (1) elect nine directors to the Board of
Directors and (2) ratify the appointment of PricewaterhouseCoopers LLP as
independent certified public accountants for the Company for the fiscal year
ending May 31, 2000.
The Board of Directors unanimously recommends that all stockholders vote in
favor of both of these proposals, and we urge you to sign, date and return your
proxy in the addressed envelope enclosed for your convenience so that as many
shares as possible may be represented at the Annual Meeting. The giving of the
proxy will not affect your right to attend the meeting nor, if you choose to
revoke the proxy, your right to vote in person.
Sincerely,
/s/ Kenneth E. Hyatt
Kenneth E. Hyatt
Chairman of the Board
<PAGE>
[LOGO]
NOTICE OF ANNUAL MEETING OF STOCKHOLDERS
OCTOBER 14, 1999
NOTICE IS HEREBY GIVEN that the Annual Meeting of Stockholders of Walter
Industries, Inc. (the "Company"), a Delaware corporation, will be held on
Thursday, October 14, 1999 at 10:00 A.M., local time, in the Regency 1 Room of
the Hyatt Regency Tampa, Two Tampa City Center, Tampa, Florida 33602, for the
following purposes:
1. to elect nine members to the Board of Directors to serve for the ensuing
year,
2. to ratify the appointment of PricewaterhouseCoopers LLP as independent
certified public accountants for the Company for the fiscal year ending
May 31, 2000, and
3. to transact such other business as may properly come before the Annual
Meeting or any adjournments thereof.
Only stockholders of record at the close of business on August 16, 1999 are
entitled to notice of and to vote at the Annual Meeting. The Annual Report of
the Company for the fiscal year ended May 31, 1999 is enclosed.
The mailing address of the principal executive offices of the Company is
Post Office Box 31601, Tampa, Florida 33631-3601.
Your attention is invited to the Proxy Statement on the following pages.
By Order of the Board of Directors
/s/ Edward A. Porter
EDWARD A. PORTER
Secretary
Tampa, Florida
August 30, 1999
<PAGE>
WALTER INDUSTRIES, INC.
1500 North Dale Mabry Highway
Tampa, Florida 33607
PROXY STATEMENT
------------------------
This Proxy Statement is furnished in connection with the solicitation by the
Board of Directors of Walter Industries, Inc. (the "Company") of proxies for the
Annual Meeting of Stockholders of the Company to be held on October 14, 1999 at
10:00 a.m., local time, in the Regency 1 Room of the Hyatt Regency Tampa, Two
Tampa City Center, Tampa, Florida 33602, and any adjournments thereof (the
"Annual Meeting") for the purposes set forth in the accompanying Notice of
Annual Meeting of Stockholders.
THE PROXY
The cost of soliciting proxies will be borne by the Company. In addition to
soliciting stockholders by mail, the Company will request banks, brokerage
houses and other custodians, nominees and fiduciaries to forward solicitation
materials to the beneficial owners of the stock held of record by such persons
and the Company will reimburse them for their reasonable out-of-pocket expenses
incurred in doing so. The Company may use the services of its officers, and
other employees of the Company who will receive no compensation for their
services, other than their regular compensation, to solicit proxies personally,
by telephone or by facsimile transmission.
This Proxy Statement and enclosed proxy is first being mailed to
stockholders on or about August 30, 1999.
The close of business on August 16, 1999 has been fixed by the Board of
Directors as the record date (the "Record Date") for determination of
stockholders entitled to notice of and to vote at the Annual Meeting. On the
Record Date there were outstanding and entitled to vote 50,035,759 shares of
common stock, par value $.01 per share, of the Company (the "Common Stock").
Each stockholder is entitled to one vote for each share of stock held. Presence
in person or by proxy of a majority of the shares of Common Stock outstanding
and entitled to vote on the Record Date is required for a quorum. The
affirmative vote of a plurality of the shares of Common Stock represented in
person or by proxy and entitled to vote at the Annual Meeting is required to
approve the proposal regarding the election of directors. The affirmative vote
of holders of a majority of the Common Stock represented in person or by proxy
and entitled to vote at the Annual Meeting is required to approve the
appointment of PricewaterhouseCoopers LLP as independent certified public
accountants for the fiscal year ending May 31, 2000.
If the enclosed proxy is properly signed and returned and not revoked, the
shares represented thereby will be voted at the Annual Meeting. If the
stockholder specifies in the proxy how the shares are to be voted, they will be
voted accordingly. If the stockholder does not specify how the shares are to be
voted, they will be voted FOR the election of the director nominees named in
this Proxy Statement, and FOR the ratification of the appointment of
PricewaterhouseCoopers LLP as independent certified public accountants for the
Company for the fiscal year ending May 31, 2000.
A stockholder giving a proxy has the power to revoke it at any time prior to
its exercise by giving written notice revoking it or by a later proxy, in either
case delivered by mail to the Secretary of the Company. Attendance at the Annual
Meeting will not automatically revoke a proxy, but a stockholder in attendance
may request a ballot and vote in person, thereby revoking a prior granted proxy.
The Stockholder's Agreement dated as of March 17, 1995 between the Company
and The Celotex Corporation ("Celotex"), solely in its capacity as the Celotex
Settlement Fund Recipient, (the "Stockholders Agreement") under and as defined
in the Second Amended and Restated Veil Piercing Settlement Agreement dated as
of November 22, 1994 (the "Veil Piercing Settlement Agreement"), provides that
Celotex or its successor will vote the shares of Common Stock held by said fund
for and/or against each matter in proportion to the votes cast by the other
holders of Common Stock who voted. The
<PAGE>
Common Stock held by the Celotex Settlement Fund Recipient was transferred to
the Asbestos Settlement Trust (the "Celotex Trust") on May 30, 1997, and the
rights and obligations of Celotex under the Stockholders Agreement were
subsequently assumed by the Celotex Trust. The Company will advise the Celotex
Trust of the proportion of such votes and the Celotex Trust shall have no
responsibility for the determination thereof. The Celotex Trust is obliged to be
present in person or by proxy at all meetings of holders of Common Stock so that
all shares of Common Stock beneficially owned by the Celotex Trust may be
counted for the purpose of determining the presence of a quorum at such
meetings. See "Security Ownership of Management and Principal
Stockholders--Ownership of Principal Stockholders" herein for information
concerning the Celotex Trust's beneficial ownership of Common Stock.
The Annual Report of the Company for the year ended May 31, 1999, containing
audited financial statements for such year, is enclosed with this Proxy
Statement.
IN ORDER THAT YOUR SHARES OF COMMON STOCK MAY BE REPRESENTED AT THIS
MEETING, IN CASE YOU ARE NOT PERSONALLY PRESENT, YOU ARE REQUESTED TO PLEASE
SIGN, DATE AND MAIL THE PROXY PROMPTLY.
2
<PAGE>
PROPOSAL ONE
ELECTION OF DIRECTORS
NOMINEES
A board of nine (9) directors is to be elected at the Annual Meeting. Unless
otherwise instructed, the proxy holders will vote the proxies received by them
for the nine (9) nominees named below, all of whom are presently directors of
the Company. In the event that any such nominee is unable or declines to serve
as a director at the time of the Annual Meeting, the proxies will be voted for
any nominee who shall be designated by the present Board of Directors to fill
the vacancy. The Company is not aware of any nominee who will be unable or will
decline to serve as a director. The term of office for each person elected as a
director will continue until the next Annual Meeting of Stockholders or until
his successor has been elected and qualified.
The names of the nominees and certain information about them (as of August
1, 1999) are set forth below:
<TABLE>
<CAPTION>
SERVED AS DIRECTOR
NAME AGE POSITION OF THE COMPANY FROM
- ------------------------------------------ --- ------------------------------------------ -----------------------
<S> <C> <C> <C>
James W. Walter........................... 76 Chairman Emeritus 1988
Kenneth E. Hyatt.......................... 58 Chairman, Chief Executive Officer and 1995
President
Richard E. Almy........................... 57 Director, Executive Vice President and 1996
Chief Operating Officer
Donald N. Boyce........................... 61 Director 1998
Howard L. Clark, Jr....................... 55 Director 1995
Perry Golkin.............................. 45 Director 1995
James L. Johnson.......................... 72 Director 1995
Charles E. Long........................... 59 Director 1998
Michael T. Tokarz......................... 49 Director 1987
</TABLE>
JAMES W. WALTER has been a director of the Company since 1988, serving as
Chairman until October 6, 1995 and Chairman Emeritus thereafter. Mr. Walter
founded Walter Construction Co., a predecessor of Jim Walter Corporation, in
1948 and Jim Walter Corporation in 1955. He was President and Chief Executive
Officer of Jim Walter Corporation from 1955 to 1963, Chairman and Chief
Executive Officer from 1963 to 1983 and Chairman until 1988.
KENNETH E. HYATT has been Chairman of the Board and Chief Executive Officer
of the Company since June 1, 1996 and has been President of the Company since
September 1, 1995. Between September 1, 1995 and June 1, 1996, he also served as
Chief Operating Officer of the Company. He was elected a director on September
12, 1995. Mr. Hyatt served as President and Chief Executive Officer and a
director of Celotex, a former subsidiary of the Company, from 1990 until shortly
prior to his election, effective September 1, 1995, as President and Chief
Operating Officer of the Company. Mr. Hyatt held various management and
executive positions with various subsidiaries of Jim Walter Corporation from
1966 until 1984, at which time he was named Vice President and Group Executive
of Jim Walter Corporation. In 1986 he was elected Executive Vice President and
Chief Operating Officer of Jim Walter Corporation. Following Jim Walter
Corporation's leveraged buyout in 1988 by Kohlberg Kravis Roberts & Co. L.P.,
Mr. Hyatt joined with an investor group in the acquisition of Celotex and
certain related entities. In October 1990 Celotex and one of its subsidiaries
filed voluntary petitions for reorganization under Chapter 11 of the Bankruptcy
Code, as a result of massive litigation involving asbestos-related liabilities.
The Celotex Plan of Reorganization was confirmed in December 1996 and became
effective May 1997. The
3
<PAGE>
Celotex Trust is a principal stockholder of the Company. See "Security Ownership
of Management and Principal Stockholders--Ownership of Principal Stockholders"
herein.
RICHARD E. ALMY has been Executive Vice President and Chief Operating
Officer of the Company since June 1, 1996. Previously, Mr. Almy had been
President and Chief Operating Officer at JW Aluminum Company (since 1991), a
subsidiary of the Company.
DONALD N. BOYCE has been a director of the Company since August 18, 1998.
Mr. Boyce has been Chairman of the Board of IDEX since April 1, 1988. He also is
a director of United Dominion Industries, Ltd.
HOWARD L. CLARK, JR. has been the Vice Chairman of Lehman Brothers Inc., 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 Brothers Inc., Compass International Services Corporation, Maytag
Corporation and Fund American Enterprises Holdings, Inc.
PERRY GOLKIN is a member of the limited liability company which serves as
the general partner of Kohlberg Kravis Roberts & Co. L.P. He is also a general
partner of KKR Associates, L.P. Prior to 1995, he was an executive of Kohlberg
Kravis Roberts & Co. L.P. He is also a director of PRIMEDIA Inc. Mr. Golkin was
a director of the Company from 1987 to March 2, 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.
CHARLES E. LONG has been a director of the Company since August 18, 1998.
Until his retirement in March 1999, Mr. Long was Vice Chairman of Citicorp from
1998 and, since 1982, had been Executive Vice President of Citicorp.
MICHAEL T. TOKARZ is a member of the limited liability company which serves
as the general partner of Kohlberg Kravis Roberts & Co. L.P. He is also a
general partner of KKR Associates L.P. Prior to 1993 he was an executive of
Kohlberg Kravis Roberts & Co. L.P. He also is a director of IDEX Corporation,
Spalding Holdings Corporation, Evenflo Company, Inc., KSL Recreation Corporation
and PRIMEDIA Inc.
In order to be elected, a nominee must receive the vote of a plurality of
the shares of Common Stock represented in person or by proxy and entitled to
vote at the Annual Meeting. Abstentions from voting, as well as broker
non-votes, will be considered as votes withheld in the election of directors and
will have no effect on the outcome of the vote.
THE COMPANY'S BOARD OF DIRECTORS RECOMMENDS A VOTE "FOR" THE
ELECTION OF THE NOMINEES SET FORTH ABOVE
4
<PAGE>
CORPORATE GOVERNANCE
COMMITTEES OF THE BOARD OF DIRECTORS
There are five standing committees of the Board: the Audit Committee, the
Compensation Committee, the Finance Committee, the Nominating Committee and the
Environmental, Health and Safety Committee. There is one special committee, the
Tax Oversight Committee. The Board may, from time to time, establish certain
other committees to facilitate the management of the Company.
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 the Company's public 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 directors who are not and never have been
employees of the Company. The present members of the Committee are Howard L.
Clark, Jr., Chairman, Donald N. Boyce, James L. Johnson and Charles E. Long.
The Compensation Committee is responsible for reviewing and approving
officer and executive salaries of the Company and its subsidiaries in amounts
over $150,000 annually and for reviewing and recommending for approval by the
Board executive and key employee compensation plans, including incentive
compensation, stock incentives and other benefits. The Committee consists of
directors who are not and never have been employees of the Company. The present
members of the Committee are James L. Johnson, Chairman, Howard L. Clark, Jr.,
Perry Golkin and Charles E. Long.
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 and reporting the same to the Board; approving
the proposed scope of internal and independent environmental and health and
safety audits; and periodically evaluating and recommending to the Board changes
in the Company's and its subsidiaries' environmental, health and safety
policies. The present members of the Committee are Donald N. Boyce, Chairman,
James L. Johnson, Perry Golkin, James W. Walter, and Michael T. Tokarz.
The Finance Committee is responsible for recommendations to the Board
concerning public and private financings, dividends, discretionary contributions
by the Company under the Company's and its subsidiaries' employee benefit plans
and other financial matters, approval of the designation of the investment fund
managers for the Company's and its subsidiaries' 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 present members of the
Committee are Michael T. Tokarz, Chairman, Howard L. Clark, Jr., James W. Walter
and Donald N. Boyce.
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. The present members of the Committee are Perry
Golkin, Chairman, James L. Johnson, Charles E. Long, Michael T. Tokarz and James
W. Walter.
The Tax Oversight Committee is a special purpose temporary committee and is
responsible for (i) approving all settlements and agreements by the Company or
any of its subsidiaries regarding all claims of the Internal Revenue Service
that are entitled to priority under the United States Bankruptcy Code, and (ii)
determining final resolution of certain contingencies regarding Federal income
tax claims, both as more fully described in the Company's Amended Joint Plan of
Reorganization, dated as of December 9, 1994, as modified on March 1, 1995 and
confirmed on March 15, 1995 ("Plan of Reorganization"). The Plan of
Reorganization provides that the members of the Tax Oversight Committee shall
consist at all
5
<PAGE>
times of two "Independent Directors" and a director (or other person) designated
by Lehman Brothers Inc. ("Lehman"), whose affiliate, Lehman Brothers Holdings,
Inc., is a stockholder of the Company. The present members of the Committee are
Charles E. Long, Chairman, Donald N. Boyce, Howard L. Clark, Jr. and James L.
Johnson.
"Independent Directors" are defined in the Plan of Reorganization as persons
who (i) are not (a) 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, (b) officers,
employees, consultants or partners of the Company or any of its affiliates, or
officers, employees, Interested Stockholders, consultants or partners of 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 (c) any
relative or spouse of any of the foregoing persons or a relative of a spouse of
any of the foregoing persons, and (ii) 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 Securities Exchange Act of 1934, as amended) (the "Exchange Act") 5% or more
of the equity securities of such person, and "Significant Stockholder" means an
Interested Stockholder of the Company.
BOARD AND COMMITTEE MEETINGS
During the fiscal year ended May 31, 1999, there were seven meetings of the
Board, two meetings of the Audit Committee, four meetings of the Compensation
Committee, two meetings of the Finance Committee and two meetings of the
Environmental, Health and Safety Committee. The Nominating Committee and the Tax
Oversight Committee did not meet.
All of the directors attended at least 75% of the combined number of Board
meetings and meetings of Committees of which they were members that were held
during the fiscal year ended May 31, 1999.
DIRECTORS' COMPENSATION
No directors' fees are paid to directors who are full-time employees of the
Company or any of its subsidiaries. Non-employee directors of the Company 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 and is reimbursed for
travel and lodging expenses.
On April 11, 1995, the Board approved and adopted the Walter Industries,
Inc. Directors' Deferred Fee Plan under which non-employee directors may elect
to defer all or a portion of their director's fees. The deferred fees, at each
electing director's option, are credited to either an income account or a stock
equivalent account or divided between the two accounts. The income account is
credited quarterly with interest at the prime rate and the stock equivalent
account is credited with an amount equal to the number of equivalent shares of
Common Stock which could have been purchased with the cash dividend, if any,
which would have been payable had the participant been the actual owner of the
number of shares of Common Stock credited to his account. Payments begin, at the
participant's election, upon the later of the termination of his services as a
director or date of retirement from his principal occupation or employment in
such number of annual installments as shall be determined by the Company.
Payments from the income account are in cash and payments from the stock
equivalent account are in cash at the Common Stock's then current market value,
or, at the Company's option, in shares of Common Stock. Of the current
directors, Mr. Long has elected to participate in the Directors' Deferred Fee
Plan and have his director's fees credited to a stock equivalent account.
6
<PAGE>
Mr. Walter, Chairman Emeritus, entered into a consulting agreement upon his
retirement from employment with the Company on October 6, 1995 (see "Certain
Relationships and Certain Related Transactions").
CERTAIN RELATIONSHIPS AND CERTAIN RELATED TRANSACTIONS
In December 1998, Lehman acted as an underwriter in connection with the
public issuance by Mid-State Trust VII, an affiliate of the Company, of
$313,488,000 of Mid-State Trust VII asset backed notes, for which Lehman
received underwriting commissions and fees of $752,400.
The Company entered into a consulting agreement with Mr. Walter effective
upon his retirement on October 6, 1995. In October 1998 the initial three year
term of the agreement expired and the agreement was extended for an additional
period of one year, during which time Mr. Walter will render to the Company such
services of an advisory or consulting nature as the Company may reasonably
require. Mr. Walter is paid an annual consulting fee of $150,000. The agreement
also contains a restrictive covenant prohibiting, during the term of the
agreement and for a period of three years after its termination, Mr. Walter's
employment by any person, firm or corporation which is engaged in a business in
competition with the Company or its subsidiaries, or his engaging in such
business for his own account.
SECURITY OWNERSHIP OF MANAGEMENT AND PRINCIPAL STOCKHOLDERS
The following tables furnish information, as of August 2, 1999 as to: (i)
shares of Common Stock beneficially owned by each nominee for director and each
executive officer of the Company named in the Summary Compensation Table herein;
(ii) shares of Common Stock beneficially owned by all current directors and
executive officers of the Company as a group; and (iii) the name and address of
each person known by the Company to be the beneficial owner of more than five
percent (5%) of the outstanding shares of Common Stock. (Except as indicated
below, to the knowledge of the Company each person indicated in the following
tables has sole voting and investment power as to the shares shown.)
7
<PAGE>
OWNERSHIP OF DIRECTORS AND EXECUTIVE OFFICERS
<TABLE>
<CAPTION>
NUMBER OF SHARES
OF COMMON STOCK PERCENT OF COMMON
NAME OF BENEFICIAL OWNER BENEFICIALLY OWNED STOCK OUTSTANDING
- ------------------------------------------------------------------- ------------------ -------------------
<S> <C> <C>
James W. Walter.................................................... 206,032 (2) *
Chairman Emeritus and Director
Kenneth E. Hyatt................................................... 357,230 (3) *
Chairman, Chief Executive Officer
and President
Howard L. Clark, Jr................................................ (4) (4)
Director
James L. Johnson................................................... 10,000 *
Director
Perry Golkin....................................................... 13,958,589(5) 27.3(5)
Director
Michael T. Tokarz.................................................. 13,958,589(5) 27.3(5)
Director
Donald N. Boyce.................................................... 0 *
Director
Charles E. Long.................................................... 10,000 *
Director
Richard E. Almy.................................................... 158,963(6) *
Director, Executive Vice President and
Chief Operating Officer
Dean M. Fjelstul(7)................................................ 118,408(8) *
Senior Vice President and
Chief Financial Officer
Peter Scott-Hansen................................................. 35,399 *
President of Applied Industrial Materials
Corporation, a subsidiary of the Company
Ralph E. Fifield................................................... 46,767(9) *
President of United States Pipe and Foundry
Company, Inc. a subsidiary of the Company
All current directors and 15,285,660 10) 29.9
executive officers as a group
(19 individuals)
</TABLE>
- ------------------------
* LESS THAN 1% OF OUTSTANDING COMMON STOCK
(1) Includes 23,689, 6,234, 5,360 and 3,553,380 shares of Common Stock issued
to an escrow account for the benefit of Mr. Walter, Mr. Hyatt, two other
executive officers of the Company and the KKR Investors, respectively, 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, such escrowed shares will be
distributed to such persons under the Plan of Reorganization. To
8
<PAGE>
the extent such matters are not settled satisfactorily, some or all of the
escrowed shares may be returned to the Company and canceled. Until such
matters are finally determined, such persons will have the power to
exercise voting rights with respect to such respective escrowed shares of
Common Stock. For so long as such persons have the power to exercise voting
rights with respect to such escrowed shares, or if all such escrowed shares
were distributed to such persons, such persons will beneficially own such
escrowed shares of Common Stock.
(2) Includes options to purchase 139,988 shares, exercisable currently or
within 60 days of August 2, 1999.
(3) Includes options to purchase 300,000 shares exercisable currently or within
60 days of August 2, 1999. Also includes 100 shares held by Mr. Hyatt's son
of which Mr. Hyatt disclaims beneficial ownership.
(4) Mr. Clark is Vice Chairman of Lehman. See "Ownership of Principal
Stockholders" below for information concerning ownership of shares by
Lehman's affiliate, Lehman Brothers Holdings, Inc.
(5) Messrs. Tokarz and Golkin are general partners of KKR Associates, L.P.,
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 Associates, L.P. ("Channel One"), and thus Messrs. Tokarz and
Golkin may be deemed to be beneficial owners of the shares owned by the KKR
Investors and Channel One (see "Ownership of Principal Stockholders"
below). Messrs. Tokarz and Golkin disclaim beneficial ownership of such
shares. The number of shares of Common Stock includes 3,553,380 shares of
Common Stock issued to an escrow account on September 13, 1995 for the
benefit of the KKR Investors pursuant to the Plan of Reorganization. See
Footnote (1) under "Ownership of Principal Stockholders" below. For so long
as the KKR Investors have the power to exercise voting rights with respect
to all such escrowed shares, or if all such escrowed shares were
distributed to the KKR Investors, Messrs. Tokarz and Golkin may be deemed
to be beneficial owners of such 3,553,380 escrowed shares of Common Stock.
Messrs. Tokarz and Golkin disclaim beneficial ownership of such shares.
(6) Includes options to purchase 143,000 shares exercisable currently or within
60 days of August 2, 1999.
(7) Mr. Fjelstul retired on July 31, 1999. In anticipation of his retirement,
Mr. Fjelstul relinquished the position of Chief Financial Officer on June
21, 1999 to his successor.
(8) Includes options to purchase 96,666 shares exercisable currently or within
60 days of August 2, 1999.
(9) Includes options to purchase 41,666 shares exercisable currently or within
60 days of August 2, 1999.
(10) Includes 13,958,589 shares of Common Stock beneficially owned by the KKR
Investors and Channel One, which may be deemed to be beneficially owned by
Messrs. Tokarz and Golkin. See Footnote (5) above. Does not include shares
of Common Stock owned by Lehman Brothers Holdings, Inc. See Footnote (4)
above. Also includes 1,072,350 shares purchasable by the individuals listed
in the Summary Compensation Table and by all other executive officers under
stock options exercisable currently or within 60 days of August 2, 1999.
9
<PAGE>
OWNERSHIP OF PRINCIPAL STOCKHOLDERS
The following table sets forth, as of the close of business on August 2,
1999, information as to those holders (other than officers and directors of the
Company), known to the Company to be the beneficial owners of more than 5% of
the outstanding shares of the Company's Common Stock.
<TABLE>
<CAPTION>
NAME AND COMPLETE MAILING ADDRESS NUMBER OF SHARES PERCENT OF CLASS
- ------------------------------------------------------------------------------ ----------------- -----------------
<S> <C> <C>
The KKR Investors(1).......................................................... 13,958,589 27.3
(JWC Associates, L.P., 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
Asbestos Settlement Trust(2).................................................. 5,470,662 10.7
Mellon Bank Center
919 Market Center
Wilmington, DE 19801
The Baupost Group, L.L.C.(3).................................................. 3,157,000 6.2
44 Brattle St. 5th Floor
Cambridge MA 02238-9125
Lehman Brothers Holdings, Inc................................................. 2,849,321 5.6
3 World Financial Center
New York, NY 10285
Shapiro Capital Management Company, Inc.(4)................................... 2,841,210 5.6
Samuel R. Shapiro
3060 Peachtree Road, N.W.
Atlanta, GA 30305
Leon G. Cooperman(5).......................................................... 2,832,821 5.5
(Omega Capital Partners, L.P.,
Omega Institutional Partners, L.P.,
Omega Overseas Partners, Ltd.(5)
Omega Capital Investors, L.P.)
88 Pine Street
Wall Street Plaza--31(st) Floor
New York, NY 10005
</TABLE>
- ------------------------
(1) The shares of Common Stock beneficially owned by the KKR Investors are as
follows: 9,309,427 shares are beneficially owned by JWC Associates, L.P.;
61,687 shares are beneficially owned by JWC Associates II, L.P.; and 225,675
shares are beneficially owned by KKR Partners II, L.P., including 3,446,979,
22,841, and 83,560 shares, respectively, 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 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, some or all of
the escrowed shares may be returned to the Company and canceled. Until such
matters are fully determined, the KKR Investors will have the power to
exercise voting rights with respect to such shares of Common Stock. For so
long as the KKR Investors have the power to exercise voting rights with
respect to all such escrowed shares, or if all such escrowed shares were
distributed to the KKR Investors, the KKR Investors will beneficially own
such 3,553,380 shares
10
<PAGE>
of Common Stock. The Company has been advised that as of August 2, 1999
Channel One beneficially owned 4,361,800 shares of Common Stock.
KKR Associates, L.P. is the sole general partner of each of the KKR
Investors and Channel One. The general partners of KKR Associates, L.P. are
Henry R. Kravis, George R. Roberts, Robert I. MacDonnell, Michael W.
Michelson, Paul E. Raether, Michael T. Tokarz, James H. Greene, Jr., Perry
Golkin, Scott M. Stuart, Clifton S. Robbins and Edward A. Gilhuly.
(2) The Celotex Trust is subject to an agreement with the Company and Lehman
pursuant to which it is obligated 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
on each matter voted on by stockholders. Identical restrictions on the
voting of Common Stock by the Celotex Trust are contained in the Company's
Amended and Restated Certificate of Incorporation and the Plan of
Reorganization.
(3) Based on information provided to the Company by the Baupost Group, L.L.C.,
the Baupost Group, L.L.C. serves as the investment advisor for six limited
partnerships and one registered investment company which own, in the
aggregate, 3,157,000 shares. The Baupost Group, L.L.C. has the right to vote
and exercises dispositive power with respect to such shares.
(4) According to the Schedule 13G filed by Shapiro Capital Management Company,
Inc. and Samuel R. Shapiro with the Securities and Exchange Commission on
February 4, 1999, advisory clients of Shapiro Capital Management Company,
Inc. own 2,841,210 shares of Common Stock. Mr. Shapiro is the president and
majority shareholder of Shapiro Capital Management Company, Inc. and he
exercises dispositive power over such shares.
(5) According to the Schedule 13G filed by Mr. Cooperman with the Securities and
Exchange Commission on January 28, 1999, the shares of Common Stock
beneficially owned by Mr. Cooperman are as follows: 797,160 shares are
beneficially owned by Omega Capital Partners, L.P.; 49,739 shares are
beneficially owned by Omega Institutional Partners, L.P.; 97,400 shares are
beneficially owned by Omega Capital Investors, L.P.; 1,231,835 shares are
beneficially owned by Omega Overseas Partners, Ltd.; and 656,687 shares are
beneficially owned by certain institutional clients for which Mr. Cooperman
serves as the discretionary investment advisor.
EXECUTIVE COMPENSATION
The following table sets forth information concerning compensation paid to
or accrued by the Company for the account of the Chief Executive Officer of the
Company and each of the next four most highly compensated executive officers of
the Company during the fiscal year ended May 31, 1999.
11
<PAGE>
SUMMARY COMPENSATION TABLE
<TABLE>
<CAPTION>
LONG-TERM
COMPENSATION
AWARDS
-------------
YEAR ANNUAL COMPENSATION SECURITIES
ENDED ---------------------- UNDERLYING ALL OTHER
NAME AND PRINCIPAL POSITION MAY 31 SALARY ($) BONUS ($) OPTIONS (#) COMPENSATION($)(1)
- ---------------------------------------------- ---------- ---------- ---------- ------------- ------------------
<S> <C> <C> <C> <C> <C>
Kenneth E. Hyatt.............................. 1999 615,000 600,000 100,000 *
Chairman of the Board, Chief 1998 576,000 600,000 0 98,439
Executive Officer and President 1997 551,083 550,000 150,000 93,659
Richard E. Almy............................... 1999 300,000 230,000 50,000 *
Executive Vice President and 1998 273,000 190,000 0 44,938
Chief Operating Officer 1997 260,542 160,000 115,000 42,367
Dean M. Fjelstul (2).......................... 1999 219,167 160,000 0 *
Senior Vice President and 1998 209,167 150,000 10,000 33,033
Chief Financial Officer 1997 191,667 139,000 90,000 30,250
Peter Scott-Hansen............................ 1999 306,200 110,766 10,000 14,600
President of Applied Industrial 1998 205,000 144,320 30,000 220,454
Materials Corporation, a 1997 (3) (3) (3) (3)
subsidiary of the Company
Ralph E. Fifield.............................. 1999 239,493 240,000 50,000 *
President of United States Pipe 1998 230,000 115,000 50,000 15,471
and Foundry Company, Inc., 1997 (4) (4) (4) (4)
a subsidiary of the Company
</TABLE>
- ------------------------
* Not currently available. See footnote 1.
(1) The amount shown in this column for Messrs. Hyatt, Almy and Fjelstul
represents the Company's contributions for each of the officer's account in
the Walter Industries, Inc. 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 Profit Sharing Plan and the Supplemental Profit Sharing Plan
amounts are for the plan years ended August 31, 1997 and August 31, 1998.
Amounts for the plan year ended August 31, 1999 are not currently available,
but are anticipated not to be materially different from amounts for the plan
year ended August 31, 1998. Due to his retirement on July 31, 1999, Mr.
Fjelstul will not receive a contribution under either the Profit Sharing
Plan or the Supplemental Profit Sharing Plan for the plan year ended August
31, 1999.
The amount shown in this column for Mr. Scott-Hansen represents the matching
and discretionary contributions by his employer, Applied Industrial
Materials Corporation ("AIMCOR") under the employer's 401(k) Plan and, for
the fiscal year ended May 31, 1998, a bonus of $216,000 paid to Mr.
Scott-Hansen upon the consummation of the sale of AIMCOR to the Company in
October 1997.
The amount shown in this column for Mr. Fifield represents accruals under
the Company's Supplemental Pension Plan which provides benefits which would
have been provided under a tax-qualified pension plan but for restrictions
on such benefits imposed by the Internal Revenue Code of 1986, as amended.
The current Supplemental Pension Plan year ends December 31, 1999; the
amount to be accrued for Mr. Fifield under the Supplemental Pension Plan for
1999 has thus not been determined.
Except as noted above, the Company did not pay or provide other forms of
compensation (such as perquisites) to any of the named executive officers in
amounts having an aggregate value exceeding the lesser of $50,000 or 10% of
the total annual salary and bonus reported for such officers.
(2) Mr. Fjelstul retired on July 31, 1999. In anticipation of his retirement,
Mr. Fjelstul relinquished the position of Chief Financial Officer on June
21, 1999 to his successor.
(3) Mr. Scott-Hansen became an executive officer of the Company on October 15,
1997.
(4) Mr. Fifield became an executive officer of the Company on August 1, 1997.
12
<PAGE>
OPTION GRANTS IN LAST FISCAL YEAR
<TABLE>
<CAPTION>
INDIVIDUAL GRANTS
--------------------------- POTENTIAL REALIZABLE
% OF VALUE AT ASSUMED
NUMBER OF TOTAL ANNUAL RATES OF STOCK
SECURITIES OPTIONS EXERCISE PRICE APPRECIATION FOR
UNDERLYING GRANTED TO OR BASE OPTION TERM
OPTIONS EMPLOYEES PRICE EXPIRATION ----------------------
NAME GRANTED (#)(1) IN FISCAL 1999 ($/SH) DATE(2) 5%($)(3) 10%($)(3)
- --------------------------------------- -------------- --------------- ---------- ------------ ---------- ----------
<S> <C> <C> <C> <C> <C> <C>
Kenneth E. Hyatt....................... 100,000 13.75 14.84375 12/01/2008 1,558,594 1,632,813
Richard E. Almy........................ 50,000 6.87 14.84375 12/01/2008 779,297 816,406
Dean M. Fjelstul....................... 0 0 -- -- -- --
Peter Scott-Hansen..................... 10,000 1.37 14.84375 12/01/2008 155,859 163,281
Ralph E. Fifield....................... 25,000 3.44 18.40625 7/23/2008 483,164 506,172
Ralph E. Fifield....................... 25,000 3.44 14.84375 12/01/2008 389,648 408,203
</TABLE>
- ------------------------
(1) All options included in this table will become exercisable in three equal
installments commencing on the first anniversary of the date of grant and
continuing on each of the two anniversaries thereafter. The right to
exercise all of the options is contingent on the optionee's refraining from
conduct which the Compensation Committee determines is contrary to the best
interests of the Company (including but not limited to competition with the
Company) and upon the optionee's remaining in the employ of the Company or a
subsidiary of the Company until the date on which the installment becomes
exercisable.
(2) The right to exercise all of the options expires on the tenth anniversary of
the date on which they were granted or, if earlier, three months after
termination of employment (one year in the event of retirement, death or
disability).
(3) The amounts of hypothetical potential appreciation shown in these columns
reflect required calculations at annual appreciation rates of 5% and 10% set
by the Securities and Exchange Commission and, therefore, are not intended
to represent either historical appreciation or anticipated future
appreciation in the price of Common Stock.
AGGREGATED OPTION EXERCISES IN LAST FISCAL YEAR AND FISCAL YEAR-END OPTION
VALUES
<TABLE>
<CAPTION>
NUMBER OF SECURITIES
UNDERLYING UNEXERCISED VALUE OF UNEXERCISED
SHARES OPTIONS AT FISCAL YEAR-END IN-THE-MONEY OPTIONS AT
ACQUIRED ON VALUE (#) FISCAL YEAR-END ($)(1)
NAME EXERCISE (#) REALIZED ($) EXERCISABLE/UNEXERCISABLE EXERCISABLE/UNEXERCISABLE
- ------------------------------- ----------------- ----------------- ---------------------------- -----------------------
<S> <C> <C> <C> <C>
Kenneth E. Hyatt............... 0 0 250,000/150,000 81,250/40,625
Richard E. Almy................ 0 0 104,667/88,333 56,604/31,146
Dean M. Fjelstul............... 0 0 63,333/36,667 48,750/24,375
Peter Scott-Hansen............. 0 0 0/40,000 0/0
Ralph E. Fifield............... 0 0 16,666/83,334 0/0
</TABLE>
- ------------------------
(1) Represents the fair market value as of May 28, 1999 ($13.125 per share
closing stock price) of the option shares less the exercise price of the
options.
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 equal monthly installments. While the Profit
Sharing Plan provides retirement benefits for all salaried employees of the
Company and certain of its subsidiaries, the Company makes accruals for 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 Internal
Revenue Code. For the
13
<PAGE>
Supplemental Profit Sharing Plan year ending August 31, 1999, Messrs. Hyatt and
Almy qualified for participation in the Supplemental Profit Sharing Plan.
Amounts for the plan year ended August 31, 1999 are not currently available. See
footnote (1) to the Summary Compensation Table herein.
ANNUAL BENEFITS PAYABLE UNDER 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, Inc. (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 of certain subsidiaries of the Company retiring at normal
retirement age (65) on June 1, 1999, and is based on social security covered
compensation in effect on June 1, 1999:
PENSION PLAN TABLE
<TABLE>
<CAPTION>
YEARS OF SERVICE
-----------------------------------------------------
<S> <C> <C> <C> <C> <C>
REMUNERATION 15 20 25 30 35
- ----------------------------------------------------------- --------- --------- --------- --------- ---------
150,000.................................................... 30,708 40,944 51,180 61,416 71,652
175,000.................................................... 36,239 48,319 60,399 72,479 84,558
200,000.................................................... 41,771 55,694 69,618 83,541 97,465
225,000.................................................... 47,302 63,069 78,836 94,604 110,371
250,000.................................................... 52,833 70,444 88,055 105,666 123,277
300,000.................................................... 63,896 85,194 106,493 127,791 149,090
350,000.................................................... 74,958 99,944 124,930 149,916 174,902
400,000.................................................... 86,021 114,694 143,368 172,041 200,715
450,000.................................................... 97,083 129,444 161,805 194,166 226,527
500,000.................................................... 108,146 144,194 180,243 216,291 252,340
550,000.................................................... 119,208 158,944 198,680 238,416 278,152
600,000.................................................... 130,271 173,694 217,118 260,541 303,965
650,000.................................................... 141,333 188,444 235,555 282,666 329,777
700,000.................................................... 152,396 203,194 253,993 304,791 355,590
750,000.................................................... 163,458 217,944 272,430 326,916 381,402
800,000.................................................... 174,521 232,694 290,868 349,041 407,215
</TABLE>
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 consecutive years within the final ten years of
employment prior to normal retirement age (65) which produce the highest
average. This is generally 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. The Company makes accruals for the Supplemental
Pension Plan only for such employees as to which the pension benefits under the
Pension Plan have been limited by the Internal Revenue Code of 1986 as amended.
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.
Of the named executive officers only Mr. Fifield is a participant in the
Pension Plans. Prior to June 1, 1996, Mr. Almy was employed by a subsidiary of
the Company and participated in the Pension Plans, and, upon retirement, is
eligible to receive pension benefits.
COMPENSATION COMMITTEE INTERLOCKS OR INSIDER PARTICIPATION IN COMPENSATION
DECISIONS
During the fiscal year ended May 31, 1999, the two employee directors,
Messrs. Hyatt and Almy, participated in deliberations of the Company's Board
concerning executive compensation. However,
14
<PAGE>
neither Mr. Hyatt or Mr. Almy voted on executive compensation matters in which
they were directly involved; instead they abstained on such occasions.
PERFORMANCE GRAPH
The following line graph illustrates the Company's cumulative stock market
performance for the four fiscal years since the Company's Common Stock was
issued in conjunction with the Company's emergence from its five-year Chapter 11
reorganization in March 1995.
For purposes of this graph, the Company's performance is measured against
the Standard & Poor's 500 Stock Index ("S&P 500") and the Dow Jones
Industrial-Diversified Index ("Dow Jones Industrial-Diversified"), as in
previous reports to stockholders. In addition, for the first time the Company's
performance is also measured against the Russell 2000 Stock Index ("Russell
2000"). The performance graph includes the Russell 2000 because the Company is a
component of that index and the Company believes that the size of the other
companies included in that index relative to the Company make it useful for
purposes of comparison. In future reports to stockholders the S&P 500 will not
be included in comparative performance graphs.
Total return values were calculated based on cumulative total return
assuming (i) the investment of $100 in the Company's Common Stock, the S&P 500,
the Russell 2000 and the Dow Jones Industrial-Diversified on June 1, 1995 and
(ii) reinvestment of dividends.
COMPARISON OF FOUR-YEAR CUMULATIVE TOTAL RETURN
AMONG WALTER INDUSTRIES, INC., S&P 500, RUSSELL 2000 AND DOW JONES
INDUSTRIAL-DIVERSIFIED
EDGAR REPRESENTATION OF DATA POINTS USED IN PRINTED GRAPHIC
<TABLE>
<CAPTION>
JUN 1995 MAY 1996 MAY 1997 MAY 1998 MAY 1999
<S> <C> <C> <C> <C> <C>
WALTER INDUSTRIES INC 100.00 96.26 106.54 142.99 98.13
DOW JONES INDUSTRIAL DIVERSIFIED 100.00 129.79 164.38 208.69 246.43
RUSSELL 2000 INDEX 100.00 133.89 140.89 168.96 162.32
S&P 500 INDEX 100.00 128.44 166.22 217.22 262.89
</TABLE>
<TABLE>
<CAPTION>
INDEXED RETURNS
YEARS ENDING
BASE PERIOD --------------------------------------------------
COMPANY/INDEX 1-JUN-95 MAY 1996 MAY 1997 MAY 1998 MAY 1999
- ------------------------------------------------------- --------------- ----------- ----------- ----------- -----------
<S> <C> <C> <C> <C> <C>
Walter Industries, Inc................................. 100 96.26 106.54 142.99 98.13
Dow Jones Industrial-Diversified....................... 100 129.79 164.38 208.69 246.43
Russell 2000 Index..................................... 100 133.89 140.89 168.96 162.32
S&P 500 Index.......................................... 100 128.44 166.22 217.22 262.89
</TABLE>
15
<PAGE>
REPORT OF THE COMPENSATION COMMITTEE
The Compensation Committee of the Board of Directors (the "Committee"),
consisting entirely of non-employee directors, reviews and approves executive
compensation philosophy and policies, as well as the application of such
policies to the compensation of the Company's Chief Executive Officer and other
executive officers. The Committee is also responsible for the administration of
and awards under the Amended 1995 Long-Term Incentive Stock Plan of Walter
Industries, Inc.
GENERAL COMPENSATION POLICY
The purpose of the Company's executive compensation program is to (i)
attract, motivate and retain qualified key executives who are responsible for
the success of the Company as a whole, (ii) provide incentives to management to
increase stockholder value, (iii) increase the overall performance of the
Company and (iv) increase the performance of individual executives.
PRINCIPAL COMPENSATION ELEMENTS
For fiscal 1999 the principal elements of the Company's executive
compensation were base pay, short-term cash incentive compensation and
stock-based incentives. To determine guidelines for each of these elements of
compensation, the Company has, for many years, maintained specific salary grade
levels and corresponding pay ranges for every salaried position in the Company.
Such salary ranges are periodically benchmarked against external salary survey
data, including comparable compensation data for numerous diversified
manufacturing and residential construction companies. The Committee believes
that such surveys provide a reliable standard for measuring the Company's
compensation practices. As part of this benchmarking process, the Company
reviews and evaluates its executive pay structure with outside compensation
consultants to confirm the validity of the executive salary ranges and to
conform such structure with competitive market levels for several key positions,
including the Chief Executive Officer.
BASE SALARY
The Committee annually reviews and approves the base salary of each
executive officer. In determining salary adjustments, the Committee considers
the responsibilities associated with the position, individual contribution and
performance and applicable external salary survey data.
EXECUTIVE INCENTIVE COMPENSATION
For fiscal 1999, the Committee, after discussions with its outside
consultant, developed a comprehensive incentive plan for key employees including
Messrs. Hyatt, Almy, Fjelstul and Fifield (the "1999 Incentive Plan"). The 1999
Incentive Plan utilized targets based on operating income and return on assets
employed objectives to determine bonus funding pools for key corporate and
subsidiary employees. Under the 1999 Incentive Plan, the Company's plan
participants (including Mr. Hyatt) were paid from a pool that could not exceed
2 1/2% of consolidated earnings after dedicated interest expense of the
Company's mortgage portfolio but before corporate interest, taxes, goodwill
amortization and extraordinary items. For fiscal 1999, 61% of the maximum
permitted amount was paid to eligible employees. Incentive compensation awards
paid to individual plan participants, other than Mr. Hyatt, were based on the
relative performances of each of the Company's operating subsidiaries, and, for
corporate participants, aggregate results of the Company. The amount of
incentive compensation paid to Mr. Hyatt for fiscal 1999 was recommended by the
Committee, after consultation with its outside consultant, and approved by the
Board. Under the 1999 Incentive Plan, Mr. Hyatt could have earned an amount
equal to up to 130% of his base annual compensation. Mr. Hyatt's bonus award in
any given year reflects the Company's operating results and in fiscal 1999 was
based on year-over-year growth in operating income and return on assets employed
at the Company's subsidiaries as well as the Company's performance in the
aggregate.
16
<PAGE>
Mr. Scott-Hansen became a key employee of the Company with the acquisition
of Applied Industrial Materials Corporation (AIMCOR) in October 1997.
Accordingly, his compensation data for fiscal 1998 was comprised of amounts paid
by the Company for the eight month period October 1, 1997 through May 31, 1998.
Annual incentive compensation paid to Mr. Scott-Hansen is determined under a
Management Incentive Compensation Plan for the executives of AIMCOR which was in
effect at the time of the acquisition and was subsequently adopted by the
Committee and Board of Directors.
STOCK-BASED COMPENSATION
The Committee believes that equity ownership by management is beneficial in
aligning the interests of management and the Company's stockholders for the
purpose of enhancing stockholder value. To this end, in July 1995, the Company
adopted the 1995 Long-Term Incentive Stock Plan of Walter Industries, Inc. (the
"Stock Plan") and in September 1997 amended the Stock Plan to provide for
additional shares of Common Stock.
The purpose of the Stock Plan is to utilize stock options, stock
appreciation rights and stock awards as components of executive compensation to
assure external competitiveness of total compensation, encourage equity
ownership by key executives, motivate executives to improve long-term stock
performance, and align executives' interests with the enhancement of stockholder
value. Grants are made periodically by the Committee, with the exception of
grants to the Chief Executive Officer, based on recommendations of the Chief
Executive Officer and the advice of the Committee's outside consultant, taking
into consideration the respective responsibilities of each position, external
stock-based compensation survey data, and the strategic and operational goals
and performance of each participant. Awards to the Chief Executive Officer are
determined separately by the Committee and are based, among other things, on the
Committee's perception of expected future contributions to the Company's
long-term performance.
The exercise price for all options granted during fiscal 1999 were at the
then market value of the Common Stock based on an average of the high and low
prices on the date of the grant. The exercise price of awards granted, the life
of such awards, vesting of awards and other terms and conditions of awards
granted under the Stock Plan are determined by the Committee, in its discretion.
Options must expire not more than 10 years from their date of grant.
COMPLIANCE WITH INTERNAL REVENUE CODE SECTION 162(M)
Section 162(m) of the Internal Revenue Code of 1986, as amended, limits the
tax deductibility by a company of compensation in excess of $1 million paid to
any of its five most highly compensated executive officers. However,
performance-based compensation that has been approved by stockholders is
excluded from the $1 million limit if, among other requirements, the
compensation is payable only upon attainment of pre-established, objective
performance goals and the board committee that establishes such goals consists
only of "outside directors" as defined for purposes of Section 162(m). All of
the members of the Committee qualify as "outside directors." The Committee
intends to maximize the extent of tax deductibility of executive compensation
under the provisions of Section 162(m) so long as doing so is compatible with
its determinations as to the most appropriate methods and approaches for the
design and delivery of compensation. In September 1997 the stockholders approved
an executive incentive plan which is intended to ensure that amounts paid under
such plan are deductible for federal income tax purposes.
17
<PAGE>
SUMMARY
The Committee believes that the mix of market-based salaries, significant
variable cash incentives for short-term performance, and long-term incentives in
the form of stock-based awards which provide the potential for equity ownership
in the Company, represents a balance that will enable the Company to attract and
retain key executive talent necessary for sustainable, long-term growth. The
Committee further believes that this program strikes an appropriate balance
between the interests of stockholders and needs of the Company in operating its
businesses.
COMPENSATION COMMITTEE
James L. Johnson, Chairman
Howard L. Clark, Jr.
Perry Golkin
Charles E. Long
18
<PAGE>
SECTION 16(A) BENEFICIAL OWNERSHIP REPORTING COMPLIANCE
Section 16(a) of the Exchange Act requires executive officers and directors,
and persons who beneficially own more than ten percent (10%) of the Company's
Common Stock to file initial reports of ownership and reports of changes in
ownership with the Securities and Exchange Commission ("SEC"). Executive
officers, directors and greater than ten percent (10%) beneficial owners are
required by SEC regulations to furnish the Company with copies of all Section
16(a) forms they file.
Based solely on a review of the copies of such forms furnished to the
Company and written representations from the executive officers and directors,
the Company believes that all Section 16(a) filing requirements applicable to
its executive officers and directors were complied with during its 1999 fiscal
year, except for the late filing of a Form 4 by Mr. Fifield with respect to one
transaction.
PROPOSAL TWO
TO RATIFY THE APPOINTMENT OF PRICEWATERHOUSECOOPERS LLP AS INDEPENDENT CERTIFIED
PUBLIC ACCOUNTANTS FOR THE FISCAL YEAR ENDING MAY 31, 2000
The Board has appointed PricewaterhouseCoopers LLP as independent certified
public accountants for the fiscal year ending May 31, 2000. Unless the
stockholder shall direct otherwise, properly executed proxies will be voted FOR
the proposal to ratify the appointment of PricewaterhouseCoopers LLP as
independent certified public accountants for the fiscal year ending May 31,
2000. A representative of PricewaterhouseCoopers LLP will be present at the
Annual Meeting. He will have the opportunity to make a statement if he desires
to do so and will be available to respond to appropriate questions.
PricewaterhouseCoopers LLP has served as independent certified public
accountants for the Company since its formation in 1987.
The appointment of PricewaterhouseCoopers LLP as independent certified
public accountants for the fiscal year ending May 31, 2000 will be ratified if
approved by the affirmative vote of the holders of a majority of the Common
Stock represented in person or by proxy and entitled to vote at the Annual
Meeting under Delaware law. Abstentions from voting will be considered as votes
cast and, therefore, will have the same effect as a vote against the appointment
of PricewaterhouseCoopers LLP as independent certified public accountants.
Broker non-votes will not be counted as votes cast and, therefore, will have no
effect on the proposal to appoint PricewaterhouseCoopers LLP as independent
certified public accountants. Unless marked to the contrary, proxies will be
voted FOR ratification of the appointment of PricewaterhouseCoopers LLP as
independent certified public accountants for the fiscal year ending May 31,
2000.
THE BOARD RECOMMENDS VOTING FOR THE RATIFICATION OF THE APPOINTMENT OF
PRICEWATERHOUSECOOPERS LLP AS INDEPENDENT CERTIFIED PUBLIC ACCOUNTANTS FOR THE
COMPANY FOR THE FISCAL YEAR ENDING MAY 31, 2000.
OTHER BUSINESS
The Board and management do not now intend to bring before the Annual
Meeting any matters other than those disclosed in the Notice of Annual Meeting
of Stockholders, nor do they know of any business which other persons intend to
present at the Annual Meeting. Should any other matter or business requiring a
vote of stockholders arise, the persons named in the enclosed proxy intend to
exercise the authority conferred by the proxy and vote the shares represented
thereby in respect of any such other matter or business in accordance with their
best judgment in the interest of the Company.
19
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DEADLINE FOR STOCKHOLDER PROPOSALS FOR 2000 ANNUAL MEETING
Under regulations issued by the Securities and Exchange Commission, all
stockholder proposals to be presented at the 2000 Annual Meeting must be
received at the principal office of the Company no later than the close of
business on May 2, 2000 to be considered for inclusion in the proxy statement
and form of proxy relating to that meeting. In addition, pursuant to regulations
issued by the Securities and Exchange Commission, the Company may exercise
discretionary authority to vote proxies on any stockholder proposal of which the
Company did not have notice on or before July 16, 2000.
By Order of the Board of Directors
/s/ Edward A. Porter
EDWARD A. PORTER
Secretary
Walter Industries, Inc.
Tampa, Florida
August 30, 1999
20
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[LOGO]
Walter Industries, Inc.
PROXY FOR 1999 ANNUAL MEETING OF STOCKHOLDERS
THIS PROXY IS SOLICITED ON BEHALF OF THE BOARD OF DIRECTORS OF THE COMPANY
J.W. Walter, K.E. Hyatt and R.E. Almy, or any of them, with full power of
substitution, are here authorized to represent and to vote the stock of the
undersigned at the Annual Meeting of Stockholders Walter Industries, Inc. to
be held at the Hyatt Regency Tampa, Two Tampa City Center, Tampa, Florida,
2 Floor Level, Meeting Room--Regency 1 on Thursday, October 14, 1999 at
10:00 a.m. or at an adjournment thereof.
THIS PROXY WHEN PROPERLY EXECUTED WILL BE VOTED IN THE MANNER DIRECTED HEREIN
BY THE UNDERSIGNED STOCKHOLDER(S). IF NO DIRECTION IS MADE, THIS PROXY WILL BE
VOTED FOR ITEM 1, THE ELECTION OF ALL DIRECTOR NOMINEES AND FOR ITEM 2, THE
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RATIFICATION OF THE APPOINTMENT OF PRICEWATERHOUSECOOPERS LLP.
THIS PROXY IS CONTINUED ON THE REVERSE SIDE.
PLEASE SIGN ON THE REVERSE SIDE AND RETURN PROMPTLY.
<PAGE>
TEAR OFF THIS PORTION
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<S> <C> <C> <C> <C> <C> <C>
IF YOU PLAN TO ATTEND THE ANNUAL MEETING, PLEASE MARK THE "WILL ATTEND" BLOCK: WILL ATTEND / /
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THE BOARD OF DIRECTORS RECOMMENDS A VOTE FOR ITEMS 1 AND 2.
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Item 1. ELECTION OF DIRECTORS
NOMINEES: J.W. WALTER K.E. HYATT R.E. ALMY C.E. LONG J.L. JOHNSON
M.T. TOKARZ H.L. CLARK P. GOLKIN D.N. BOYCE
FOR ALL NOMINEES / / WITHHOLD ALL NOMINEES / / FOR ALL EXCEPT / /
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(INSTRUCTION: TO WITHHOLD AUTHORITY TO VOTE FOR ANY INDIVIDUAL NOMINEE, PRINT THAT NOMINEE'S NAME ON THE LINE ABOVE)
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<S> <C> <C> <C> <C>
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Item 2. Ratification of the appointment of PricewaterhouseCoopers LLP
as independent certified public accountants for the fiscal year PLEASE MARK, SIGN (EXACTLY AS NAME(S) APPEARS BELOW,
ending May 31, 2000. DATE AND MAIL THIS PROXY CARD PROMPTLY IN THE POSTAGE
PAID RETURN ENVELOPE PROVIDED. EXECUTORS, TRUSTEES,
FOR / / AGAINST / / ABSTAIN / / ADMINISTRATORS, ATTORNEYS, GUARDIANS, ETC., SHOULD SO
- ------------------------------------------------------------------------- INDICATE WHEN SIGNING. CORPORATION PROXIES SHOULD BE
Item 3. In their discretion the Proxies are authorized to vote upon such SIGNED BY AUTHORIZED OFFICERS.
other business as may properly come before the meeting and any
adjournment thereof.
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, 1999
_ _ -----------------------------------------------------
Date
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Signature
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Signature
_ _
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Title or Authority
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REMOVE PROXY AT PERFORATION AND RETURN IN ENCLOSED BUSINESS REPLY ENVELOPE
