SCHEDULE 14A INFORMATION
Proxy Statement Pursuant to Section 14(a) of
the Securities Exchange Act of 1934 (Amendment No. )
Filed by the Registrant /X/
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 240.14a-11(c) or 240.14a-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:
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(2) Aggregate number of securities to which transaction
applies:
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(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):
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/ / 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
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[LOGO]
March 22, 2001
To Our Stockholders:
You are cordially invited to attend the Annual Meeting of Stockholders of
Walter Industries, Inc. (the "Company") to be held at 10:00 A.M. local time, on
Thursday, April 26, 2001 at the Tampa Marriott Waterside Hotel, 700 S. Florida
Ave., Tampa, Florida, 33602. As we previously announced, we have changed our
annual accounting period from a fiscal year ending on May 31 to a calendar year
ending December 31. The accompanying Annual Report covers the seven-month
transition period ended December 31, 2000 required to effect the transition to a
calendar year reporting cycle.
As discussed in the accompanying Proxy Statement, stockholders will be asked
to consider and approve proposals to (1) elect ten directors to the Board of
Directors and (2) ratify the appointment of PricewaterhouseCoopers LLP as
independent certified public accountants for the Company for the year ending
December 31, 2001. In addition, one stockholder proposal will be acted on at the
Annual Meeting.
The Board of Directors urges 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 or, if you choose to revoke the
proxy, your right to vote in person.
Sincerely,
/s/ Don DeFosset
Don DeFosset
President and Chief Executive Officer
[LOGO]
NOTICE OF ANNUAL MEETING OF STOCKHOLDERS
APRIL 26, 2001
NOTICE IS HEREBY GIVEN that the Annual Meeting of Stockholders of Walter
Industries, Inc. (the "Company"), a Delaware corporation, will be held on
Thursday, April 26, 2001 at 10:00 A.M., local time, at the Tampa Marriott
Waterside Hotel, 700 S. Florida Ave., Tampa, Florida, 33602, for the following
purposes:
1. to elect ten 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 year ending
December 31, 2001;
3. to vote upon one stockholder proposal which is described in the
accompanying proxy statement; and
4. 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 March 5, 2001 are
entitled to notice of and to vote at the Annual Meeting. The Annual Report of
the Company for the seven-month transition period ended December 31, 2000 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
March 22, 2001
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 April 26, 2001 at
10:00 a.m., local time, at the Tampa Marriott Waterside Hotel, 700 S. Florida
Ave., Tampa, Florida, 33602 and any adjournments thereof (the "Annual Meeting")
for the purposes set forth in the accompanying Notice of Annual Meeting of
Stockholders.
As previously announced, the Company has changed its annual accounting
period from a fiscal year ending on May 31 to a calendar year ending on
December 31. As a result of this change and the need to transition to a calendar
year reporting cycle, the Company's accounting period ending December 31, 2000
is a seven-month period. Accordingly, in this Proxy Statement such seven-month
period is referred to as the "Transition Period". The Company's Annual Report
for the Transition Period, which includes the Company's audited financial
statements as of and for the seven-month period ended December 31, 2000, is
enclosed with this Proxy Statement.
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 March 27, 2001.
The close of business on March 5, 2001 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 issued and outstanding 45,754,092 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. The presence in person or
by proxy of a majority of the shares of Common Stock issued and outstanding on
the Record Date is required for a quorum. The affirmative vote of a majority of
the shares of Common Stock represented in person or by proxy at the Annual
Meeting is required to approve the proposal regarding the election of directors.
The affirmative vote of a majority of the shares of Common Stock represented in
person or by proxy at the Annual Meeting is required to approve the appointment
of PricewaterhouseCoopers LLP as independent certified public accountants for
the year ending December 31, 2001. The affirmative vote of a majority of the
shares of Common Stock represented in person or by proxy at the Annual Meeting
is required to approve the stockholder proposal regarding liquidation of the
Company.
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 in the proxy how the
shares are to be voted, the shares 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
1
certified public accountants for the Company for the year ending December 31,
2001 and AGAINST the stockholder proposal.
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 giving 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 Stockholders' 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 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 obligated to be present in person or by proxy at
all meetings of holders of Common Stock so that all shares of Common Stock 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 ownership of Common Stock.
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
PROPOSAL ONE
ELECTION OF DIRECTORS
NOMINEES
A board of ten (10) directors is to be elected at the Annual Meeting. The
ten (10) nominees for election as directors are 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 is 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 are set forth
below:
SERVED AS DIRECTOR
NAME AGE OF THE COMPANY FROM
- ---- -------- -------------------
Robert F. Amter............................................. 62 2000
Donald N. Boyce............................................. 62 1998
Howard L. Clark, Jr......................................... 57 1995
Don DeFosset................................................ 52 2000
Perry Golkin................................................ 47 1987
James L. Johnson............................................ 73 1995
Scott C. Nuttall............................................ 28 2000
Wayne W. Robinson........................................... 40 2000
Neil A. Springer............................................ 62 2000
Michael T. Tokarz........................................... 51 1987
ROBERT F. AMTER was appointed to the Board of Directors on August 3, 2000.
Mr. Amter has been Chief Executive Officer of Amter & Associates since 1991.
DONALD N. BOYCE has been a director of the Company since August 1998.
Mr. Boyce was appointed Interim Chairman of the Board, President and Chief
Executive Officer on August 3, 2000 and resigned as President and Chief
Executive Officer on November 2, 2000. He continues to serve as Chairman of the
Board. Mr. Boyce was Chairman of the Board of IDEX Corporation from April 1,
1999 until March 31, 2000 and was Chairman of the Board, President and Chief
Executive Officer of IDEX Corporation from January 1988 until March 31, 1999.
Mr. Boyce also is a director of United Dominion Industries, Ltd.
HOWARD L. CLARK, JR. has been a director of the Company since March 1995.
Mr. Clark has been Vice Chairman of Lehman Brothers Inc., an investment-banking
firm, since February 1993; prior thereto Mr. Clark served as Chairman and Chief
Executive Officer of Shearson Lehman Brothers Inc. Prior thereto Mr. Clark was
an Executive Vice President and Chief Financial Officer of American Express
Company, a financial services firm. Mr. Clark also is a director of Lehman
Brothers Inc., Maytag Corporation, H Power Corp. and White Mountains Insurance
Group, Ltd.
DON DEFOSSET was appointed to the Board of Directors effective November 6,
2000. He was appointed President and Chief Executive Officer on November 2,
2000. From October 1999 to June 2000, he served as Executive Vice President and
Chief Operating Officer of Dura Automotive Systems, Inc. From October 1996 to
August 1999 he was Executive Vice President and President of the Truck Group of
Navistar International Corporation and from 1993 to 1996, he was
President--Safety Restraint division of Allied Signal, Inc. He is also a
director of Terex Corporation and Safelite Glass Corp.
PERRY GOLKIN was a director of the Company from 1987 to March 2, 1995. On
November 14, 1995, he was re-elected a director of the Company. Mr. Golkin has
been a member of the limited liability
3
company which serves as the general partner of Kohlberg Kravis Roberts & Co.
L.P. since January 1996. Mr. Golkin was a general partner of Kohlberg Kravis
Roberts & Co. L.P. from January 1995 to January 1996. Prior to 1995 Mr. Golkin
was an executive of Kohlberg Kravis Roberts & Co. L.P. Mr. Golkin also is a
director of PRIMEDIA Inc.
JAMES L. JOHNSON has been a director of the Company since March 1995.
Mr. Johnson has been Chairman Emeritus of GTE Corporation since 1992. From
April 1988 to May 1992 he was Chairman and Chief Executive Officer of GTE
Corporation. Mr. Johnson also is a director of CellStar Corporation, The FINOVA
Group Inc., Harte-Hanks Communications Inc. and MONY Group.
SCOTT C. NUTTALL was appointed to the Board of Directors on August 3, 2000.
Mr. Nuttall has been an associate of Kohlberg Kravis Roberts & Co. L.P. since
1996. From 1995 to 1996, Mr. Nuttall was an executive with the Blackstone Group.
Mr. Nuttall also is a director of Kinder Care Learning Centers and Amphenol
Corp.
WAYNE W. ROBINSON was appointed to the Board of Directors on August 3, 2000.
Mr. Robinson has been the Chairman and Chief Executive Officer of United
Fixtures Company since 1998. From 1996 to 1998 Mr. Robinson served as President
and Chief Executive Officer of Allied Foods, Inc., and from 1994 to 1996
Mr. Robinson was the General Manager-Manufacturing of GE Power Delivery for
General Electric Company.
NEIL A. SPRINGER was appointed to the Board of Directors on August 3, 2000.
Mr. Springer is managing director of Springer & Associates LLC which was
established in 1994. Mr. Springer also is a director of IDEX Corporation and US
Freightways.
MICHAEL T. TOKARZ has been a director of the Company since 1987. Mr. Tokarz
has been a member of the limited liability company which serves as the general
partner of Kohlberg Kravis Roberts & Co. L.P. since January 1996. Mr. Tokarz was
a general partner of Kohlberg Kravis Roberts & Co. L.P. from January 1993 to
January 1996. Prior to 1993 Mr. Tokarz was an executive of Kohlberg Kravis
Roberts & Co. L.P. Mr. Tokarz also is a director of Evenflo Company, Inc., IDEX
Corporation, KSL Recreation Corporation, PRIMEDIA Inc. and Spalding Holdings
Corporation.
In order to be elected, a nominee must receive the vote of a majority of the
shares of Common Stock represented in person or by proxy at the Annual Meeting.
Abstentions from voting, as well as broker non-votes, will be considered as
votes cast against and therefore will have the same effect as a vote against the
election of directors. Unless otherwise instructed, the proxy holders will vote
proxies held by them FOR the election of the nominees listed above.
THE BOARD OF DIRECTORS RECOMMENDS A VOTE FOR THE ELECTION OF THE NOMINEES
SET FORTH ABOVE.
PROPOSAL TWO
TO RATIFY THE APPOINTMENT OF PRICEWATERHOUSECOOPERS LLP AS INDEPENDENT CERTIFIED
PUBLIC ACCOUNTANTS FOR THE YEAR ENDING
DECEMBER 31, 2001
The Board has appointed PricewaterhouseCoopers LLP as independent certified
public accountants for the year ending December 31, 2001. 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 year ending December 31, 2001 will be ratified if
approved by the affirmative vote of a majority of the shares of Common Stock
represented in person or by proxy at the Annual Meeting. Abstentions from
4
voting, as well as broker non-votes, will be considered as votes cast against
the proposal and, therefore, will have the same effect as a vote against the
appointment of PricewaterhouseCoopers LLP as independent certified public
accountants. Unless otherwise instructed, the proxy holders will vote proxies
held by them FOR the ratification of the appointment of PricewaterhouseCoopers
LLP as independent certified public accountants for the year ending
December 31, 2001.
THE BOARD OF DIRECTORS RECOMMENDS A VOTE FOR THE RATIFICATION OF THE
APPOINTMENT OF PRICEWATERHOUSECOOPERS LLP AS INDEPENDENT CERTIFIED PUBLIC
ACCOUNTANTS FOR THE COMPANY FOR THE YEAR ENDING DECEMBER 31, 2001.
FEES PAID TO INDEPENDENT AUDITOR
The fees paid to PricewaterhouseCoopers LLP, the Company's independent
auditor, during the Transition Period are as follows:
FEES PAID
----------
Audit Fees(1)............................................... $ 895,000
Financial Information Systems Design and Implementation
Fees(2)................................................... $ 317,000
All Other Fees(3)........................................... $1,295,950
- ------------------------
(1) Includes the aggregate fees billed for professional services rendered by
PricewaterhouseCoopers LLP for the audit of the Company's annual financial
statements for the Transition Period and the reviews of the financial
statements included in the Company's Quarterly Report on Form 10-Q for the
Transition Period.
(2) Includes the aggregate fees billed for professional services rendered by
PricewaterhouseCoopers LLP for the provision of information technology
services of the type described in Rule 2-01(c)(4)(ii) of Regulation S-X
during the Transition Period.
(3) Includes the aggregate fees billed for all services, including tax
consultation services, rendered by PricewaterhouseCoopers LLP, other than
fees for the services which must be reported under "Audit Fees" and
"Financial Information Systems Design and Implementation Fees," during the
Transition Period.
In discussing the independence of the Company's independent auditor, the
Audit Committee considered whether the provision of information technology
services and other non-audit services is compatible with maintaining the
auditor's independence.
CORPORATE GOVERNANCE
BOARD MEETINGS AND COMMITTEES
During the Transition Period, there were seven (7) meetings of the Board,
two (2) meetings of the Audit Committee, three (3) meetings of the Compensation
Committee and one (1) meeting of the Nominating and Corporate Governance
Committee.
All of the incumbent 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 Transition Period. Messrs. Amter, Nuttall, Robinson and
Springer were appointed to the Board on August 3, 2000. Mr. DeFosset was
appointed to the Board effective November 6, 2000.
The Audit Committee adopted a written charter on May 26, 2000 in compliance
with the rules of the New York Stock Exchange. The charter, as set forth in
Exhibit A to this Proxy Statement, provides that the Audit Committee shall
assist the Board of Directors in fulfilling its responsibility to the Company's
stockholders relating to the Company's financial reporting process and systems
of internal control. The
5
Audit Committee is also responsible for determining whether the Company's
financial systems and reporting practices are in accordance with applicable
requirements. The Audit Committee has the authority to institute special
investigations and to retain special counsel or experts as it deems appropriate.
The Audit Committee consists solely of directors who are "independent" within
the meaning of Section 303 of the New York Stock Exchange listing standards. The
present members of the Audit Committee are Neil A. Springer, Chairman, Robert F.
Amter, James L. Johnson and Wayne W. Robinson.
The Compensation Committee is responsible for reviewing and approving
salaries of senior executives of the Company and the presidents of its
significant subsidiaries 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 Compensation Committee
consists of directors who are not and never have been employees of the Company.
The present members of the Compensation Committee are James L. Johnson,
Chairman, Robert F. Amter, Wayne W. Robinson and Neil A. Springer.
The Nominating and Corporate Governance Committee is responsible for
establishing the criteria for and the qualifications of persons suitable for
nomination as directors and reporting its recommendations to the Board. The
Nominating and Corporate Governance Committee will consider candidates for
nominees for election as directors of the Company submitted by stockholders. Any
stockholder who wishes to have the Nominating and Corporate Governance Committee
consider a candidate is required to give written notice of the stockholder's
intention to make such a nomination. Notices of nomination for the 2002 annual
meeting must be received by the Company's Secretary at the address on the first
page of this Proxy Statement no earlier than January 6, 2002 and no later than
January 26, 2002. The notice of nomination is required to contain certain
information about both the nominee and the stockholder making the nomination, as
set forth in the Company's by-laws. A proposed nomination which does not comply
with the above requirements will not be considered. The present members of the
Nominating and Corporate Governance Committee are Howard L. Clark, Jr.,
Chairman, Donald N. Boyce, Perry Golkin and Michael T. Tokarz.
DIRECTORS' COMPENSATION
No directors' fees are paid to directors who are full-time employees of the
Company or any of its subsidiaries. For the Transition Period, non-employee
directors of the Company were paid retainer fees of $7,500 per quarter. Each
non-employee director also received a fee of $1,500 for each Board or Committee
meeting attended and was reimbursed for travel and lodging expenses. Beginning
November 3, 2000, when he resigned as Interim Chief Executive Officer and
President of the Company, Mr. Boyce, as non-executive Chairman of the Board,
receives an annual retainer fee of $250,000 and is not paid additional
compensation for attendance at Board or Committee meetings.
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 are divided between the two accounts. If a
director elects the income account, the director's fees otherwise payable are
credited as a dollar amount to the director's income account on the date such
fees would otherwise have been paid. If a director elects the stock equivalent
account, director's fees otherwise payable are converted to stock equivalent
shares equal in number to the maximum number of shares of Common Stock, or
fraction thereof (to the nearest one hundredth (1/100) of one share), which
could be purchased with the dollar amount of such fees at the closing market
price of the Common Stock on the date such fees would otherwise have been paid,
or if that date is not a trading date, on the next trading date. The income
account is credited quarterly with interest at the prime rate, and the stock
equivalent account is credited with stock equivalent shares equal in number to
the maximum number of shares of Common Stock, or fraction thereof (to the
nearest one hundredth (1/100) of one share), 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 immediately prior to such dividend. Payments under the
Deferred Fee Plan begin upon the later of the
6
termination of the director's services as a director or date of retirement from
the director's principal occupation or employment in such number of annual
installments as shall be determined by the Company. Payments from the income
account are made in cash, and payments from the stock equivalent account are
made in cash at the Common Stock's then current market value, or, at the
Company's option, in shares of Common Stock. As of March 5, 2001, none of the
incumbent directors had elected to participate in the Directors' Deferred Fee
Plan.
CERTAIN RELATIONSHIPS AND CERTAIN RELATED TRANSACTIONS
Upon his appointment as Chairman of the Board, Chief Executive Officer and
President of the Company on April 24, 2000, Robert G. Burton purchased from the
Company 242,425 shares of Common Stock at an aggregate purchase price of
$2,000,006. Mr. Burton resigned on August 2, 2000. In connection with his
resignation, Mr. Burton entered into a Separation Agreement with the Company
pursuant to which: the Company purchased 242,425 shares of Common Stock owned by
Mr. Burton at an aggregate price of $2,000,006; Mr. Burton received a lump sum
payout of $2,353,222 in cash; and Mr. Burton forfeited options to acquire
1,000,000 shares of Common Stock previously granted to him.
In connection with the resignation of Richard E. Almy, Executive Vice
President and Chief Operating Officer, on June 21, 2000, the Company entered
into a Separation Agreement with Mr. Almy which includes the following
provisions: a payment of $230,000, representing a bonus payment for the fiscal
year ended May 31, 2000 under the Company's Annual Incentive Plan for Key
Employees; payments of $230,000 in August 2001 and August 2002; salary
continuation of $400,000 per year for two years; executive outplacement services
for up to 12 months; and a payment of $60,000 in lieu of any contributions the
Company would have made on his behalf to the Company's Profit Sharing and
Supplemental Profit Sharing Plans had he not resigned from the Company.
In connection with the resignation of Thomas J. Quinlan, Executive Vice
President, Treasurer, effective September 29, 2000, Mr. Quinlan, pursuant to his
employment agreement, received a severance payment of $1,162,904.
In connection with the resignation of James E. Lillie, Executive Vice
President, Operations, effective October 20, 2000, Mr. Lillie, pursuant to his
employment agreement, received a severance payment of $2,101,208.
In connection with the resignation of Robert B. Lewis, Executive Vice
President and Chief Financial Officer, effective November 3, 2000, Mr. Lewis,
pursuant to his employment agreement, received a severance payment of
$2,101,208.
In connection with the resignation of Donald N. Boyce as Interim Chief
Executive Officer and President of the Company, effective November 3, 2000,
Mr. Boyce, as non-executive Chairman of the Board, pursuant to an agreement with
the Company, receives an annual retainer fee of $250,000 and he is not paid
additional compensation for attendance at Board or Committee meetings.
7
EXECUTIVE COMPENSATION
The following table sets forth information concerning compensation paid to
or accrued by the Company for the account of (i) each of the individuals who
served as the Chief Executive Officer of the Company during the Transition
Period and (ii) each of the next four most highly compensated individuals who
were serving as executive officers of the Company as of December 31, 2000, the
end of the Transition Period.
SUMMARY COMPENSATION TABLE
LONG-TERM
COMPENSATION
AWARDS
------------
ANNUAL COMPENSATION SECURITIES
FISCAL ------------------------- UNDERLYING ALL OTHER
NAME AND PRINCIPAL POSITION YEAR(1) SALARY ($) BONUS ($) OPTIONS (#) COMPENSATION($)(2)
- --------------------------- -------- ---------- --------- ------------ ------------------
Donald N. Boyce....................... 2000.7 375,000 0 75,000 --
Chairman of the Board and former 2000 (3) (3) (3) (3)
Chief Executive Officer and 1999 (3) (3) (3) (3)
President 1998 (3) (3) (3) (3)
Don DeFosset(4)....................... 2000.7 105,871 110,175 500,000 --
Chief Executive Officer and 2000 (4) (4) (4) (4)
President 1999 (4) (4) (4) (4)
1998 (4) (4) (4) (4)
Robert G. Burton(5)................... 2000.7 156,818 0 0 2,353,222(a)
Former Chairman of the Board, 2000 93,750 0 1,000,000(6) --
Chief Executive Officer and 1999 (5) (5) (5) (5)
President 1998 (5) (5) (5) (5)
Ralph E. Fifield...................... 2000.7 200,303 125,000 50,000 (b)
Executive Vice President of the 2000 262,946 275,000 35,500 (b)
Company and President of United 1999 239,493 240,000 50,000 (b)
States Pipe and Foundry Company, 1998 230,000 115,000 50,000 (b)
Inc.,
a subsidiary of the Company
Edward A. Porter...................... 2000.7 139,167 103,819 50,000 --
Senior Vice President, 2000 213,000 136,000 15,000 34,465(c)
General Counsel and Secretary 1999 204,000 140,000 15,000 32,011(c)
1998 196,563 130,000 10,000 20,666(c)
George R. Richmond.................... 2000.7 134,250 71,138 50,000 (b)
President of Jim Walter Resources, 2000 200,000 100,000 0 (b)
Inc., 1999 185,000 65,000 20,000 (b)
a subsidiary of the Company 1998 165,000 125,000 50,000 (b)
Gerard M. Sweeney..................... 2000.7 142,147 65,935 50,000 10,283(d)
President of Applied Industrial 2000 140,625 44,331 5,000 12,251(d)
Materials Corporation, a 1999 126,810 27,140 5,000 118,919(d)
subsidiary of the Company 1998 115,050 54,432 20,000 9,223(d)
- --------------------------
(1) The seven-month Transition Period (June 1, 2000 to December 31, 2000)
representing a seven-month fiscal year is identified as fiscal year 2000.7
for purposes of this table. All other fiscal years represent a 12-month
period ending May 31. As a result, the amounts shown for the Transition
Period are not comparable to the amounts shown for the prior three fiscal
years.
(2) This column consists of the following:
(a) A severance payment of $2,353,222 paid upon Mr. Burton's resignation on
August 2, 2000 pursuant to his separation agreement with the Company.
8
(b) Messrs. Fifield and Richmond participate in the Pension Plan for
Salaried Employees of Subsidiaries, Divisions and/or Affiliates of Walter
Industries, Inc. and the Company's unfunded, non-qualified Supplemental
Pension Plan, both of which are defined benefit plans described herein
under "Executive Compensation--Annual Benefits Payable Under Pension
Plans."
(c) The Company's contribution for the accounts of Mr. Porter 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 included in this table are for the plan years ended
August 31, 1998, August 31, 1999 and August 31, 2000.
(d) The matching and discretionary contributions by Mr. Sweeney's employer,
Applied Industrial Materials Corporation ("AIMCOR"), under the employer's
401(K) Plan and, for the fiscal year ended May 31, 1999, a retention
bonus of $107,085 paid to Mr. Sweeney in October 1998, one year after the
purchase of AIMCOR by the Company.
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 $50,000 or
10% of the total annual salary and bonus reported for such officers.
(3) Mr. Boyce was elected Interim Chairman, Chief Executive Officer and
President on August 3, 2000. He resigned as Chief Executive Officer and
President on November 2, 2000. He continues to serve as Chairman of the
Board.
(4) Mr. DeFosset was elected Chief Executive Officer and President on
November 2, 2000 and a Director effective November 6, 2000.
(5) Mr. Burton was elected Chairman, Chief Executive Officer and President on
April 24, 2000. Mr. Burton resigned on August 2, 2000.
(6) Mr. Burton forfeited his options upon his resignation on August 2, 2000.
9
The following table contains information regarding the grant of stock
options to the executives named in the Summary Compensation Table during the
Transition Period.
OPTION GRANTS IN TRANSITION PERIOD
INDIVIDUAL GRANTS
--------------------------------------------------------- POTENTIAL REALIZABLE
% OF VALUE AT ASSUMED
NUMBER OF TOTAL ANNUAL RATES OF STOCK
SECURITIES OPTIONS EXERCISE PRICE APPRECIATION FOR
UNDERLYING GRANTED TO OR BASE OPTION TERM($)
OPTIONS EMPLOYEES PRICE EXPIRATION -----------------------
NAME GRANTED IN TRANSITION PERIOD ($/SH) DATE(1) 5%(2) 10%(2)
- ---- ---------- -------------------- -------- ---------- ---------- ----------
Donald N. Boyce................. 75,000 4.3 7.46875 11/2/2010 356,097 898,824
Robert G. Burton................ -- -- -- -- -- --
Don DeFosset.................... 500,000 28.6 7.46875 11/2/2010 2,373,980 5,992,159
Ralph E. Fifield................ 50,000 2.9 7.46875 11/2/2010 237,398 599,216
Edward A. Porter................ 50,000 2.9 7.46875 11/2/2010 237,398 599,216
George R. Richmond.............. 50,000 2.9 7.46875 11/2/2010 237,398 599,216
Gerard M. Sweeney............... 50,000 2.9 7.46875 11/2/2010 237,398 599,216
- ------------------------
(1) The right to exercise all of the options expires no later than the tenth
anniversary of the date on which they were granted. All of the options,
except for those granted to Mr. Boyce, vest at the rate of 20% per annum,
beginning on the first anniversary of the grant. Mr. Boyce's options vest
November 2, 2001, one year from the date of grant.
(2) The amounts of hypothetical potential appreciation shown in these columns
reflect required calculations at annual appreciation rates of 5% and 10% set
by the Securities and Exchange Commission and, therefore, are not intended
to represent either historical appreciation or anticipated future
appreciation in the price of Common Stock.
The following table contains information covering the exercise of options by
the executives named in the Summary Compensation Table during the Transition
Period and unexercised options held as of the end of the Transition Period.
AGGREGATED OPTION EXERCISES IN TRANSITION PERIOD AND TRANSITION PERIOD-END
OPTION VALUES
NUMBER OF SECURITIES VALUE OF UNEXERCISED
SHARES UNDERLYING UNEXERCISED IN-THE-MONEY OPTIONS AT
ACQUIRED ON VALUE OPTIONS AT DECEMBER 31, 2000 DECEMBER 31, 2000 ($)(1)
NAME EXERCISE (#) REALIZED ($) (EXERCISABLE/UNEXERCISABLE) (EXERCISABLE/UNEXERCISABLE)
- ---- ------------ ------------ ---------------------------- ---------------------------
Donald N. Boyce......... 0 0 0/75,000 0/2,344
Robert G. Burton(2)..... 0 0 -- --
Don DeFosset............ 0 0 0/500,000 0/15,625
Ralph E. Fifield........ 0 0 95,165/90,335 0/1,563
Edward A. Porter........ 0 0 105,000/65,000 0/1,563
George R. Richmond...... 0 0 87,333/56,667 0/1,563
Gerard M. Sweeney....... 0 0 5,000/75,000 0/1,563
- ------------------------
(1) Represents the fair market value as of December 29, 2000 ($7.50 per share,
the closing stock price on such date) of the option shares less the exercise
price of the options.
(2) On April 24, 2000, Mr. Burton was granted options to purchase 1,000,000
shares of the Company's Common Stock. Due to his resignation prior to the
first anniversary of the grant date of such options, Mr. Burton forfeited
such 1,000,000 options upon termination of his employment with the Company
on August 2, 2000.
10
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 whom the full
contribution under the Profit Sharing Plan has been limited by the Internal
Revenue Code.
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 January 1, 2001, and is based on social security covered
compensation in effect on January 1, 2001:
YEARS OF SERVICE
----------------------------------------------------
REMUNERATION 15 20 25 30 35
- ------------ -------- -------- -------- -------- --------
$150,000.................................. $ 30,397 $ 40,529 $ 50,661 $ 60,793 $ 70,925
175,000.................................. 35,928 47,904 59,880 71,856 83,832
200,000.................................. 41,459 55,279 69,099 82,918 96,738
225,000.................................. 46,990 62,654 78,317 93,981 109,644
250,000.................................. 52,522 70,029 87,536 105,043 122,550
300,000.................................. 63,584 84,779 105,974 127,168 148,363
350,000.................................. 74,647 99,529 124,411 149,293 174,175
400,000.................................. 85,709 114,279 142,849 171,418 199,988
450,000.................................. 96,772 129,029 161,286 193,543 225,800
500,000.................................. 107,834 143,779 179,724 215,668 251,613
550,000.................................. 118,897 158,529 198,161 237,793 277,425
600,000.................................. 129,959 173,279 216,599 259,918 303,238
650,000.................................. 141,022 188,029 235,036 282,043 329,050
700,000.................................. 152,084 202,779 253,474 304,168 354,863
750,000.................................. 163,147 217,529 271,911 326,293 380,675
800,000.................................. 174,209 232,279 290,349 348,418 406,488
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 whom the pension benefits under the
Pension Plan have been limited by the Internal Revenue Code. In the case of the
Supplemental Pension Plan, the employer 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, Mr. Fifield and Mr. Richmond are
participants in the Pension Plans with 3 and 22 credited years of service,
respectively.
11
COMPENSATION COMMITTEE INTERLOCKS OR INSIDER PARTICIPATION IN COMPENSATION
DECISIONS
None of the members of the Compensation Committee was an officer or employee
of the Company or had any relationship with the Company requiring disclosure
under applicable SEC regulations during the Transition Period.
EMPLOYMENT, SEVERANCE AND CHANGE-OF-CONTROL ARRANGEMENTS
The Company has employment agreements with Mr. DeFosset and Mr. Porter.
Under Mr. DeFosset's agreement dated November 4, 2000, he receives a base salary
of $650,000 per annum and a target bonus level of 100% of base salary.
Mr. DeFosset's agreement also provides that if he is involuntarily terminated,
other than for cause (as defined in the agreement), prior to December 31, 2001,
he is entitled to (a) guaranteed continuation of base salary for 12 months,
(b) a pro rata bonus for the portion of the fiscal year actually worked and
(c) 12 months of additional bonus computed in accordance with the plan terms in
effect at the date of termination. If Mr. DeFosset is terminated, other than for
cause, after December 31, 2001, he is entitled to (a) guaranteed continuation of
base salary for 24 months, (b) a pro rata bonus for the portion of the year
actually worked and (c) 12 months of additional bonus computed in accordance
with the plan terms in effect at the date of termination. Under Mr. Porter's
agreement dated August 23, 2000, Mr. Porter receives a base salary of $250,000
per annum and a target bonus of 70% of base salary. Mr. Porter's agreement also
provides that in the event of involuntary termination, other than for cause (as
defined in the agreement), he is entitled to (a) 18 months of continuing salary
and bonus at the rate in effect at the time of termination and (b) three years
from date of termination to exercise all vested stock options or awards.
12
PERFORMANCE GRAPH
The following line graph compares the Company's cumulative stock market
performance with the Russell 2000 Stock Index ("Russell 2000") and the Dow Jones
Industrial-Diversified Index ("Dow Jones Industrial-Diversified").
Total return values were calculated based on cumulative total return
assuming (i) the investment of $100 in the Company's Common Stock, the Russell
2000 and the Dow Jones Industrial-Diversified on June 1, 1995 and
(ii) reinvestment of all dividends.
COMPARISON OF FIVE-YEAR CUMULATIVE TOTAL RETURN
AMONG WALTER INDUSTRIES, INC., RUSSELL 2000 AND DOW JONES INDUSTRIAL-DIVERSIFIED
EDGAR REPRESENTATION OF DATA POINTS USED IN PRINTED GRAPHIC
Dollars
JUNE 1, 1995 MAY 31, 1996 MAY 31, 1997 MAY 31, 1998 MAY 31, 1999 MAY 31, 2000
WALTER INDUSTRIES INC 100 96.26 106.54 142.99 98.13 81.57
RUSSELL 2000 INDEX 100 133.89 140.89 168.96 162.32 176.2
DOW JONES INDUSTRIAL- DIVERSIFIED 100 129.79 164.38 208.69 246.43 314.77
DECEMBER 31, 2000
WALTER INDUSTRIES INC 56.97
RUSSELL 2000 INDEX 178.92
DOW JONES INDUSTRIAL- DIVERSIFIED 308.93
Years Ending
INDEXED RETURNS
YEARS ENDING
BASE PERIOD ------------------------------------------------------------------------
COMPANY/INDEX JUNE 1, 1995 MAY 31, 1996 MAY 31, 1997 MAY 31, 1998 MAY 31, 1999 MAY 31, 2000
- ------------- ------------ ------------ ------------ ------------ ------------ ------------
WALTER INDUSTRIES, INC............. 100 96.26 106.54 142.99 98.13 81.57
DOW JONES INDUSTRIAL--
DIVERSIFIED...................... 100 129.79 164.38 208.69 246.43 314.77
RUSSELL 2000....................... 100 133.89 140.89 168.96 162.32 176.20
INDEXED RETURNS
YEARS ENDING
-----------------
COMPANY/INDEX DECEMBER 31, 2000
- ------------- -----------------
WALTER INDUSTRIES, INC............. 56.97
DOW JONES INDUSTRIAL--
DIVERSIFIED...................... 308.93
RUSSELL 2000....................... 178.92
13
REPORT OF THE COMPENSATION COMMITTEE ON EXECUTIVE COMPENSATION
The Compensation Committee of the Board of Directors (the "Committee"),
consists entirely of non-employee directors and is responsible for reviewing and
approving 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. (the "1995 Stock
Plan").
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
The principal elements of the Company's executive compensation for the
Transition Period resulting from the change to a fiscal year ending
December 31, 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 BONUSES
The Company's executive officers are eligible for annual cash bonuses under
the Company's Annual Incentive Plan for Key Employees (the "Incentive Plan").
The Incentive Plan utilizes targets based on objectives for operating income and
return on assets employed to determine bonus funding pools for key corporate and
subsidiary employees. Bonuses paid to employees of the Company's operating
subsidiaries are based on the relative performances of each of the Company's
operating subsidiaries, and bonuses paid to corporate employees are based on the
performance of the Company as a whole.
Neither Mr. Burton nor Mr. Boyce was eligible to participate in the
Incentive Plan. Mr. DeFosset received a pro rata bonus under the Incentive Plan
reflecting his employment by the Company on November 2, 2000 and his performance
during the Transition Period.
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,
14
in July 1995 the Company adopted the 1995 Stock Plan and in September 1997
amended the 1995 Stock Plan to provide for additional shares of Common Stock.
The purpose of the 1995 Stock Plan is to provide stock based 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.
Under the 1995 Stock Plan, grants are made periodically by the Committee
based on recommendations of the Chief Executive Officer (with the exception of
grants to 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 on,
among other things, the Committee's perception of expected future contributions
by the Chief Executive Officer to the Company's long-term performance.
The exercise prices for all options granted during the Transition Period
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, or a price higher than market
value. The exercise price of awards granted, the life of such awards, vesting of
awards and other terms and conditions of awards granted under the 1995 Stock
Plan are determined by the Committee, in its discretion. Options must expire not
more than ten 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 in 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 the Incentive Plan
which is intended to ensure that amounts paid under such plan are deductible for
federal income tax purposes.
COMPENSATION OF CHAIRMEN OF THE BOARD AND CHIEF EXECUTIVE OFFICERS
Mr. DeFosset joined the Company as President and Chief Executive Officer on
November 2, 2000. The Board of Directors, after due consideration, agreed that
Mr. DeFosset's base compensation would be at a rate of $650,000 per annum. In
setting Mr. DeFosset's compensation the Board considered factors such as
Mr. DeFosset's individual experience, expertise in his prior position,
anticipated contribution to the Company and pay practices in effect for chief
executive officers generally. An option to purchase 500,000 shares of Common
Stock was granted to Mr. DeFosset on November 2, 2000 pursuant to the 1995 Stock
Plan with a price of $7.46875 per share.
Mr. Burton resigned on August 2, 2000 and, in addition to his compensation
paid to the date of his resignation, was paid a lump sum of $2,353,222 pursuant
to his Separation Agreement with the Company.
Mr. Boyce, who acted as Interim Chairman of the Board, President and Chief
Executive Officer from August 3, 2000 until November 2, 2000, received $375,000
from the Company for his services during that period, together with a grant of
an option to purchase 75,000 shares of Common Stock pursuant to the 1995 Stock
Plan at a price of $7.46875 per share. As non-executive Chairman of the Board of
Directors,
15
Mr. Boyce receives $250,000 per year and does not receive any additional
compensation for attendance at Board or Committee meetings.
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 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
Robert F. Amter
Wayne W. Robinson
Neil A. Springer
16
REPORT OF THE AUDIT COMMITTEE OF THE BOARD OF DIRECTORS
The Audit Committee reports as follows with respect to the audit of the
Company's audited financial statements for the Transition Period (June 1, 2000
to December 31, 2000):
Management of the Company is responsible for the Company's internal controls
and the financial reporting process. The Company's independent auditor is
responsible for performing an independent audit of the Company's consolidated
financial statements in accordance with generally accepted auditing standards
and for issuing a report thereon. The Audit Committee's responsibility is to
monitor and oversee the processes.
The Audit Committee has met and held discussions with management and the
Company's independent auditor. Management has represented to the Audit Committee
that the Company's consolidated financial statements were prepared in accordance
with generally accepted accounting principles and the Audit Committee has
reviewed and discussed the audited consolidated financial statements with
management and the independent auditor. The Audit Committee also discussed with
the independent auditor matters required to be discussed by Statement on
Auditing Standards No. 61 (Communication with Audit Committees).
The Company's independent auditor also provided to the Audit Committee the
written disclosures and the letter required by Independence Standards Board
Standard No. 1 (Independence Discussion with Audit Committees), and the Audit
Committee discussed with the independent auditor that firm's independence from
the Company. Based on the Audit Committee's discussions with management and the
independent auditor of the Company's consolidated audited financial statements
and the Audit Committee's review of the representations of management and the
report of the independent auditor to the Audit Committee, the Audit Committee
recommended to the Board of Directors that the audited consolidated financial
statements be included in the Company's Transition Report on Form 10-K for the
seven-month transition period ended December 31, 2000 filed with the Securities
and Exchange Commission.
This report by the Audit Committee shall not be deemed to be incorporated by
reference by any general statement incorporating by reference this Proxy
Statement into any filing under the Securities Act or the Exchange Act, and
shall not otherwise be deemed filed under such Acts.
AUDIT COMMITTEE
Neil A. Springer, Chairman
Robert F. Amter
James L. Johnson
Wayne W. Robinson
17
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 the Transition
Period ended December 31, 2000.
SECURITY OWNERSHIP OF MANAGEMENT AND PRINCIPAL STOCKHOLDERS
The following tables furnish information, as of March 7, 2001, 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.
OWNERSHIP OF DIRECTORS AND EXECUTIVE OFFICERS
NUMBER OF SHARES
OF COMMON STOCK PERCENT OF COMMON
NAME OF BENEFICIAL OWNER BENEFICIALLY OWNED STOCK OUTSTANDING
- ------------------------ ------------------ -----------------
Robert F. Amter........................................ 0 *
Director
Donald N. Boyce........................................ 20,000(1) *
Chairman of the Board of Directors and former Chief
Executive Officer and President
Howard L. Clark, Jr.................................... (2) (2)
Director
Don DeFosset(3)........................................ 22,251 *
Director, President and Chief Executive Officer
Perry Golkin........................................... 13,958,589(4)(5) 30.5(4)(5)
Director
James L. Johnson....................................... 10,000 *
Director
Scott C. Nuttall....................................... 0 *
Director
Wayne W. Robinson...................................... 0 *
Director
Neil A. Springer....................................... 500 *
Director
18
NUMBER OF SHARES
OF COMMON STOCK PERCENT OF COMMON
NAME OF BENEFICIAL OWNER BENEFICIALLY OWNED STOCK OUTSTANDING
- ------------------------ ------------------ -----------------
Michael T. Tokarz...................................... 13,958,589(4)(5) 30.5(4)(5)
Director
Robert G. Burton(6).................................... 0 *
Former Chairman, Chief Executive Officer and President
Ralph E. Fifield....................................... 106,914(7) *
Executive Vice President of the Company and President
of United States Pipe and Foundry Company, Inc. a
subsidiary of the Company
Edward A. Porter....................................... 118,794(8) *
Senior Vice President, General Counsel and Secretary
George R. Richmond..................................... 90,960(9) *
President of Jim Walter Resources, Inc., a subsidiary
of the Company
Gerard M. Sweeney...................................... 26,937(10) *
President of Applied Industrial Materials Corporation,
a subsidiary of the Company
All current directors and executive officers as a group
(20 individuals)..................................... 14,400,690(5)(11) 31.3
- ------------------------
* LESS THAN 1% OF OUTSTANDING COMMON STOCK
(1) Includes 10,000 shares owned by Mr. Boyce's wife.
(2) Mr. Clark is Vice Chairman of Lehman Brothers, Inc. See "Ownership of
Principal Stockholders" below for information concerning ownership of shares
by Lehman Brothers, Inc.'s affiliate, Lehman Brothers Holdings, Inc.
(3) Mr. DeFosset was appointed President and Chief Executive Officer on
November 2, 2000 and elected a Director effective November 6, 2000.
(4) 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
held in an escrow account established on September 13, 1995 for the benefit
of the KKR Investors pursuant to 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"). Each of the KKR
Investors currently has the power to vote a portion of such shares. See
Footnote (5) below and 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 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.
(5) Includes 3,553,380 shares of Common Stock held in an escrow account for the
benefit of the KKR Investors, established on September 13, 1995 pursuant to
the Plan of Reorganization. To the extent
19
that certain contingencies regarding Federal income tax claims of the
Company are resolved satisfactorily, such 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 finally determined, the KKR Investors will have the power to
exercise voting rights with respect to such respective escrowed shares of
Common Stock. For so long as the KKR Investors have the power to exercise
voting rights with respect to such escrowed shares, or if all such escrowed
shares were distributed to the KKR Investors, the KKR Investors will be
deemed to beneficially own such escrowed shares of Common Stock.
(6) Mr. Burton was appointed Chairman, Chief Executive Officer and President on
April 24, 2000 and resigned on August 2, 2000.
(7) Includes options to purchase 95,165 shares exercisable currently or within
60 days of March 7, 2001.
(8) Includes options to purchase 105,000 shares exercisable currently or within
60 days of March 7, 2001.
(9) Includes options to purchase 87,333 shares exercisable currently or within
60 days of March 7, 2001.
(10) Includes options to purchase 24,999 shares exercisable currently or within
60 days of March 7, 2001.
(11) Includes 13,958,589 shares of Common Stock owned of record by the KKR
Investors and Channel One, which may be deemed to be beneficially owned by
Messrs. Tokarz and Golkin. See Footnotes (4) and (5) above. Does not include
shares of Common Stock owned by Lehman Brothers Holdings, Inc. See Footnote
(2) above. Also includes 323,830 shares purchasable by all current directors
and executive officers under stock options exercisable currently or within
60 days of March 7, 2001.
20
OWNERSHIP OF PRINCIPAL STOCKHOLDERS
The following table sets forth, as of the close of business on March 7,
2001, 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. Except as indicated below,
to the knowledge of the Company, each stockholder indicated in the following
table has sole voting and investment power as to the shares shown.
PERCENT OF
COMMON
STOCK
NAME AND COMPLETE MAILING ADDRESS NUMBER OF SHARES OUTSTANDING
- --------------------------------- ---------------- -----------
The KKR Investors(1)........................................ 13,958,589 30.5
(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 12.0
Mellon Bank Center
919 Market Center
Wilmington, DE 19801
Lehman Brothers Holdings, Inc. ............................. 2,849,321 6.2
3 World Financial Center
New York, NY 10285
Samuel R. Shapiro........................................... 7,177,080 15.7
Shapiro Capital Management Company, Inc.(3)
Kaleidoscope Fund, L.P.
3060 Peachtree Road, N.W.
Atlanta, GA 30305
Leon G. Cooperman(4)........................................ 2,839,963 6.2
(Omega Capital Partners, L.P.,
Omega Institutional Partners, L.P.
Omega Overseas Partners, Ltd.
Omega Capital Investors, L.P.)
88 Pine Street
Wall Street Plaza, 31st Floor
New York, NY 10005
- ------------------------
(1) The shares of Common Stock are owned of record by the KKR Investors as
follows: 9,309,427 shares are owned of record by JWC Associates, L.P.;
61,687 shares are owned of record by JWC Associates II, L.P.; and 225,675
shares are owned of record by KKR Partners II, L.P., including 3,446,979,
22,841, and 83,560 shares, respectively, held in an escrow account
established 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
21
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 of Common Stock. The
Company has been advised that as of March 7, 2001 Channel One owned of
record 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 and Edward A. Gilhuly, each of whom disclaims
beneficial ownership of such shares. See "Ownership of Directors and
Executive Officers" above.
(2) The Celotex Trust is subject to an agreement with the Company and Lehman
Brothers Inc. 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) According to the Schedule 13G filed by Shapiro Capital Management
Company, Inc., Samuel R. Shapiro and the Kaleidoscope Fund, LP with the
Securities and Exchange Commission on January 10, 2001 (the "Shapiro 13G"),
advisory clients of Shapiro Capital Management Company, Inc. and the
Kaleidoscope Fund, LP own an aggregate of 7,177,080 shares of Common Stock.
According to the Shapiro 13G, Mr. Shapiro is the president and majority
shareholder of Shapiro Capital Management Company, Inc. and the Kaleidoscope
Fund, LP and exercises dispositive power over such shares.
(4) According to the Schedule 13G filed by Mr. Cooperman with the Securities and
Exchange Commission on February 7, 2001 (the "Cooperman 13G"), the shares of
Common Stock beneficially owned by Mr. Cooperman are as follows: 800,160
shares are beneficially owned by Omega Capital Partners, L.P.; 49,739 shares
are beneficially owned by Omega Institutional Partners, L.P.; 105,400 shares
are beneficially owned by Omega Capital Investors, L.P.; 1,100,635 shares
are beneficially owned by Omega Overseas Partners, Ltd.; and 784,029 shares
are beneficially owned by certain institutional clients for which
Mr. Cooperman serves as the discretionary investment advisor. According to
the Cooperman 13G, Mr. Cooperman has shared voting and investment power for
784,029 shares.
22
STOCKHOLDER PROPOSAL
The Company has been advised that T. A. McKay & Co., Inc. ("McKay"), 630
Fifth Avenue, Suite 1956, New York, NY, 10111, as fund manager of Simplon
Investments Limited and Simplon Partners, L.P., intends to introduce the
following resolution at the Annual Meeting:
Resolved: That the shareholders of Walter Industries, Inc. hereby
request and recommend that the Board of Directors take all necessary action
to liquidate Walter Industries, Inc. through the sale of all of its
operating businesses for cash and use the proceeds to repay all of its
outstanding debt, pay capital gains taxes due, and make liquidating
distributions to its shareholders.
McKay has submitted the following statement in support of the resolution:
"When Walter Industries, Inc. emerged from Chapter 11 reorganization in
1995, its stock traded in the mid-teens. Since then, the Dow Jones Industrial
Average and the Standard & Poor's 500 Index have nearly tripled, while the price
of Walter Industries stock has declined to the $6 - 14 range.
"None of Walter Industries, Inc.'s five business units has any connection to
any of the others, making the combination difficult for management to oversee
effectively. This is evident from the disappointing results achieved by AIMCOR
since its acquisition and the ongoing problems in the coal mining unit. None of
the businesses except for homebuilding is located anywhere near the corporate
headquarters in Tampa. Moreover, the collection of unrelated businesses makes
Walter Industries exceedingly difficult for investors to analyze and value
appropriately. There is no reason to believe that the current chief executive
officer will be any more successful than the previous four CEOs that the company
had last year.
"If Walter Industries were to be liquidated, we believe that cash
distributions in the $20 1/2--25 range, net of all taxes and debt repayment,
could be made. Therefore, we believe a liquidation of Walter Industries is in
the best interest of all of Walter Industries' shareholders."
The Company has been advised by McKay that investment funds managed by McKay
beneficially own 795,000 shares of Common Stock.
COMPANY'S RESPONSE IN OPPOSITION TO THE STOCKHOLDER PROPOSAL
The Board opposes the proposal because it believes that liquidation of the
Company is not in the best interests of stockholders. The proposal fails to
recognize the Company's September 2000 announcement of its change in strategic
direction and the significant actions taken in recent months to implement that
new strategy, which calls for streamlining the Company's focus, reducing costs
and unlocking the value associated with the Company's asset base.
In a significant first step to streamline its diverse business operations,
the Company has announced that it is engaged in a due diligence process with a
number of potential buyers for its JW Aluminum Company subsidiary. Should an
acceptable offer be received, a divestiture transaction could be finalized
during the first half of 2001, with the proceeds applied toward debt reduction,
share repurchases and investment in the Company's core businesses. The Company
further announced that its coal mining and methane gas subsidiary, Jim Walter
Resources, Inc., is no longer considered a core business of Walter
Industries, Inc. and all options for its divestiture, including a sale, continue
to be explored. The Company believes that an orderly exit from the mining
business can be achieved at an appropriate future date that is in the best
interest of shareholders.
In the area of enhancing profitability, the Company embarked on a
$25 million pre-tax cost-cutting program in April 2000 and remains on track to
achieve this cost-reduction target through Companywide productivity efforts
which have resulted in headcount reductions as well as the ongoing consolidation
of the Company's suppliers, purchasing services, logistics, travel, energy,
communications and employee benefits. During its seven-month Transition Period
ended December 31, 2000, the Company realized a
23
$15 million pre-tax impact from these cost reduction and productivity
enhancement efforts, with the balance to be realized in 2001.
In an action taken to unlock the value associated with its surplus assets,
the Company recently announced the signing of a $16 million agreement for the
sale of its Tampa headquarters property. This transaction is expected to close
in the 2001 fourth quarter, generating after-tax net proceeds of $11 million and
resulting in a small book gain.
Another key initiative underway is the Companywide deployment of
value-enhancing initiatives such as Six Sigma and Lean Manufacturing
methodologies to further decrease costs and enhance productivity. Employees from
both manufacturing and transactional areas of the Company are being assigned to
Six Sigma cost reduction and quality improvement projects on a full-time basis.
Detailed tracking and measurement systems are being refined to monitor the
Company's progress toward achieving cost reduction and productivity
enhancements. Significant emphasis is also being placed on working capital and
cash flow improvements throughout the Company.
The Company believes that its management team, headed by President and Chief
Executive Officer Don DeFosset, has the experience and leadership skills
necessary to carry out the productivity enhancing programs, focus the Company on
its core businesses and improve returns. Mr. DeFosset is a proven leader with
29 years of experience in manufacturing and an outstanding record of operations
improvement and earnings growth, as well as a solid background in strategic
development. Mr. DeFosset and the Walter Industries' leadership team are fully
committed to reengineering the Company to produce greater value for
shareholders.
Beyond the recently implemented operational and administrative improvements,
the Board believes that the proposal's premise--that the sale of the Company's
various operating businesses and its subsequent liquidation can yield the stated
premium to current market value of the Common Stock--lacks merit. Liquidation of
any business is a lengthy and time consuming process, often yielding
substantially less than preliminary estimates of value while having a
detrimental effect on a company's work force and customer base, depressing its
value and, accordingly, the amount of cash distributions to stockholders. The
Board believes that the long-term value of the Company to its stockholders can
best be realized as a going concern, not pursuant to a liquidation.
The approval of the stockholder proposal requires the affirmative vote of a
majority of the shares of Common Stock represented in person or by proxy at the
Annual Meeting. Abstentions from voting, as well as broker non-votes, will be
considered as votes cast against the proposal and, therefore, will have the same
effect as a vote against the liquidation of the Company. Unless otherwise
instructed, the proxy holders will vote the proxies held by them AGAINST the
stockholder proposal.
THE BOARD OF DIRECTORS RECOMMENDS A VOTE AGAINST THE STOCKHOLDER PROPOSAL.
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.
24
DEADLINE FOR STOCKHOLDER PROPOSALS FOR 2002 ANNUAL MEETING
Stockholder proposals must conform to the Company's by-laws and the
requirements of the SEC. If a stockholder intends to present a proposal at the
2002 Annual Meeting, SEC rules require that the Company receive the proposal by
November 27, 2001, for possible inclusion in the Proxy Statement. If the date of
the 2002 Annual Meeting changes by more than 30 days from April 26, 2002, then
the deadline is a reasonable time before the Company begins to print and mail
its proxy materials for the 2002 Annual Meeting. The Company will determine
whether to include a proposal in the Proxy Statement in accordance with SEC
rules governing the solicitation of proxies.
If a stockholder intends to nominate a candidate for director, the Company's
by-laws require that the Company receive timely notice of the nomination. A
nomination for the 2002 Annual Meeting will be considered timely if it is
received no earlier than January 6, 2002 and no later than January 26, 2002. The
notice of nomination must describe various matters specified in the Company's
by-laws, including the name and address of the stockholder making the
nomination, the number of shares held by the stockholder, each proposed nominee,
each of their occupations, and certain other information.
Each notice must be given to the Secretary of the Company, whose address is
1500 N. Dale Mabry Highway, Tampa, Florida, 33607.
By Order of the Board of Directors
/s/ Edward A. Porter
EDWARD A. PORTER
Secretary
Walter Industries, Inc.
Tampa, Florida
March 22, 2001
25
EXHIBIT A
WALTER INDUSTRIES, INC.
AUDIT COMMITTEE OF THE BOARD OF DIRECTORS
CHARTER
I. STATEMENT OF PURPOSE
A. The Audit Committee of Walter Industries, Inc. ("the Company") shall assist
the Board of Directors in fulfilling its responsibility to the Company's
Stockholders relating to the Company's financial reporting process and
systems of internal control. The Audit Committee shall be responsible for
determining that the Company's financial systems and reporting practices are
in accordance with applicable requirements. The Audit Committee shall have
the authority to institute special investigations and to retain special
counsel or experts as it deems appropriate.
II. COMPOSITION AND QUALIFICATIONS
A. The Audit Committee shall be appointed by the Board of Directors and shall be
composed of not less than three Directors. The chairman of the Audit
Committee shall be designated by the Board of Directors. At least one Audit
Committee member shall have accounting or financial management expertise as
the Board of Directors interprets such qualification in its business
judgement.
B. The following restrictions shall apply to every Audit Committee member:
1. No Audit Committee member shall have a relationship to the Company that
may interfere with the exercise of his or her independence from
management and the Company.
2. A Director who is an employee (including non-employee executive
officers) of the Company or any of its affiliates may not serve on the
Audit Committee until three years following the termination of his or
her employment. In the event the employment relationship is with a
former parent or predecessor of the Company, the Director may serve on
the Audit Committee after three years following the termination of the
relationship between the Company and the former parent or predecessor.
3. A Director (i) who is a partner, controlling shareholder, or executive
officer of an organization that has a business relationship with the
Company, or (ii) who has a direct business relationship with the Company
may serve on the Audit Committee only if the Company's Board of
Directors determines in its business judgement that the relationship
does not interfere with the Director's exercise of independent judgment.
4. A Director who is employed as an executive of another corporation where
any of the Company's executives serves on that corporation's
compensation committee may not serve on the Audit Committee.
5. A Director who is an immediate family member of an individual who is an
executive officer of the Company or any of its affiliates cannot serve
on the Audit Committee until three years following the termination of
such employment relationship.
6. Each member of the Audit Committee shall be financially literate, as
such qualification is interpreted by the Company's Board of Directors in
its business judgment, or must become financially literate within a
reasonable period of time after his or her appointment to the Audit
Committee.
A-1
C. The Company's Board of Directors may approve exceptions to the foregoing
restrictions where, in its business judgment, a Director's membership on the
Audit Committee is in the best interests of the Company and its
Stockholders.
III. DUTIES AND RESPONSIBILITIES
A. MEETINGS--The Audit Committee shall meet at least two times a year or as
otherwise directed by the Board of Directors. A simple majority of the Audit
Committee shall constitute a quorum for the transaction of business. The
Audit Committee shall report to the full Board of Directors and keep the
Board informed of the Audit Committee's activities on a current basis. The
Audit Committee shall communicate and meet with the Company's internal
auditors, its independent public accountants and financial management on a
regular basis. Further, the Audit Committee shall provide the independent
public accountants and the Company's Director of Internal Audit the
opportunity to meet with the Audit Committee without members of management
present. The Audit Committee shall also meet as necessary with the Company's
General Counsel to discuss legal matters that may have a significant impact
on the Company's financial statements.
B. INDEPENDENT PUBLIC ACCOUNTANTS--The independent public accountants are
ultimately accountable to the Board of Directors and the Audit Committee.
The Audit Committee, as representatives of the Stockholders, has the
ultimate authority and responsibility to select, evaluate, and where
appropriate, replace the outside auditor and to nominate the outside auditor
for Stockholder approval in any proxy statement.
1. The Audit Committee shall recommend annually the appointment of
independent public accountants to audit the consolidated financial
statements of the Company and its subsidiaries. Such recommendation
shall be subject to approval of the Board of Directors and ratification
of the Stockholders.
2. The following are among the factors the Audit Committee may consider in
its review of the independent public accountants:
a. Opinions on the performance of the independent public accountants by
appropriate Company Management and the Director of Internal Audit.
b. Proposed audit fees and explanation of fee changes.
c. Rotation of the audit partner and review of the examination by an
independent partner.
d. Any significant litigation or disciplinary actions by the SEC or
others involving the proposed independent public accountants.
e. The extent of non-audit services and fees, including consideration of
the effect such services and fees could have on the independence of
the public accountants.
3. The Audit Committee shall obtain from the independent public accountants
at least annually a formal written statement of all relationships
between the outside auditor and the Company, consistent with
INDEPENDENCE STANDARDS BOARD STANDARD 1 (and any subsequent amendments
thereto) and will assess the effects of any disclosed relationships or
services on objectivity and independence.
C. AUDIT PLANS--The Audit Committee shall consider, in consultation with the
independent public accountants and the Director of Internal Audit:
1. The proposed scope and plan for the annual audit as well as the related
estimated fees.
2. The degree of coordination between the independent public accountants
and the internal audit department.
A-2
3. A summary comparison of current and prior year audit and non-audit
services performed by the independent public accountants, including
related fees.
D. INTERNAL AUDIT--The Audit Committee shall also review the internal audit
staff as to manpower, experience, professional development and overall
effectiveness in communicating audit results. The Audit Committee may
request, as appropriate, that the internal audit staff make special
presentations on any matter to assist the Audit Committee in fulfilling its
responsibilities. The Audit Committee shall have the authority to select,
evaluate and, where appropriate, replace the Director of Internal Audit.
E. FINANCIAL OVERSIGHT--The Audit Committee shall have responsibility for
oversight of the Company's financial reporting process. In connection with
this oversight function, the Audit Committee shall undertake the following
practices:
1. Review the financial statements included in the Company's annual report,
Form 10-K and proxy statement (including the Management Discussion and
Analysis section contained in any such report) prior to the release of
such reports to Stockholders.
2. Review with financial management and the independent public accountants
the 10-Q prior to its filing or prior to the release of earnings. The
Chair of the Audit Committee may represent the entire Committee for
purposes of this review.
3. Inquire as to the status of open years on federal income tax returns and
whether there are any significant items that have been or might be
disputed by the IRS, and the status of any related tax reserves.
4. Inquire of management and the independent public accountants if there
were any significant financial reporting issues during the accounting
period and if so how they were resolved.
5. Inquire of the independent public accountants and the Director of
Internal Audit if any restrictions were placed on the scope of
activities or access to required information.
6. Meet privately with the independent public accountants to determine such
accountants' opinion on various matters, including the quality of
financial and accounting personnel and the internal audit staff.
7. Consider whether the independent public accountants should meet with the
full Board to discuss any matters relative to the financial statements
and to answer any questions that other Directors may have.
8. Review with the independent public accountants all matters required to
be discussed by SAS Communications with the Audit Committee (as amended
by SAS-90 and any subsequent amendments thereto).
9. Review the adequacy of the Company's systems of internal accounting
controls and overall compliance with administrative policies and
recommend to the Board of Directors any changes in the system of
internal controls, procedures and practices which the Audit Committee
determines to be appropriate. Such controls shall be evaluated through a
review of the reports issued by the internal audit function and the
independent public accountants which identify and describe control
weaknesses. The Audit Committee shall inquire as to whether management
is taking appropriate corrective action.
10. Consider and provide to the Board of Directors the Audit Committee's
recommendations concerning significant matters that may arise with
respect to the Company's financial and accounting procedures, controls
and practices, including any disagreements arising between the Company's
management and its independent public accountants and any proposal to
change the Company's independent public accountants.
A-3
F. OTHER RESPONSIBILITIES--The Audit Committee shall have the following
additional responsibilities:
1. Review of procedures employed by management to monitor compliance with
the Company's Code of Conduct.
2. Perform an annual review and assessment of the adequacy of the Audit
Committee Charter.
3. Perform any other activities consistent with this Charter, the Company's
By-Laws and governing law, as the Audit Committee or the Board deems
necessary or appropriate.
A-4
[LOGO OF WALTER INDUSTRIES, INC.]
PROXY FOR 2001 ANNUAL MEETING OF STOCKHOLDERS
THIS PROXY IS SOLICITED ON BEHALF OF THE BOARD OF DIRECTORS OF THE COMPANY
D. N. Boyce, D. DeFosset and M. T. Tokarz, or any of them, with full
power of substitution, are hereby authorized to represent and to vote the
stock of the undersigned at the Annual Meeting of Stockholders of Walter
Industries, Inc. to be held at the Tampa Marriott Waterside Hotel, 700 S.
Florida Avenue, Tampa, Florida, Meeting Room--Grand Ball Room, Salon G on
Thursday, April 26, 2001 at 10:00 a.m. or at any 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 RATIFICATION OF THE APPOINTMENT OF PRICEWATERHOUSECOOPERS LLP AND
AGAINST ITEM 3, THE STOCKHOLDER PROPOSAL REQUESTING LIQUIDATION OF THE
COMPANY.
THE PROXY IS CONTINUED ON THE REVERSE SIDE.
PLEASE SIGN ON THE REVERSE SIDE AND RETURN PROMPTLY.
WALTER INDUSTRIES, INC.
P.O. BOX 11018
NEW YORK, N.Y. 10203-0018
[LOGO OF WALTER INDUSTRIES INC.]
DETACH PROXY CARD HERE
- --------------------------------------------------------------------------------
[ ]
THE BOARD OF DIRECTORS RECOMMENDS A VOTE FOR ITEMS 1 AND 2 AND AGAINST ITEM 3.
--- -------
ITEM 1. ELECTION OF FOR all nominees WITHHOLD AUTHORITY to vote *EXCEPTIONS
DIRECTORS listed below for all nominees listed below
Nominees: D.N. BOYCE, P. GOLKIN, S.C. NUTTALL, N.A. SPRINGER, M.T. TOKARZ,
R.F. AMTER, H.L. CLARK, J.L. JOHNSON, W.W. ROBINSON, D. DEFOSSET
(INSTRUCTIONS: TO WITHHOLD AUTHORITY TO VOTE FOR ANY INDIVIDUAL NOMINEE, MARK
THE "EXCEPTIONS" BOX AND WRITE THAT NOMINEE'S NAME IN THE SPACE PROVIDED
BELOW.)
* Exceptions
--------------------------------------------------------------------
ITEM 2. RATIFICATION OF THE APPOINTMENT OF PRICEWATERHOUSECOOPERS LLP AS
INDEPENDENT CERTIFIED PUBLIC ACCOUTANTS FOR THE YEAR ENDING
DECEMBER 31, 2001.
FOR AGAINST ABSTAIN
ITEM 3. A PROPOSAL MADE BY ONE STOCKHOLDER REQUESTING LIQUIDATION OF THE
COMPANY.
FOR AGAINST ABSTAIN
ITEM 4. UPON ANY OTHER BUSINESS WHICH MAY PROPERLY COME BEFORE THE MEETING
OR ANY ADJOURNMENT THEREOF.
IF YOU PLAN TO ATTEND CHANGE OF ADDRESS AND
THE ANNUAL MEETING, OR COMMENTS MARK HERE
PLEASE MARK HERE
Please mark, sing (exactly as name(s) appears below), date and mail this
proxy card promptly in the postage paid return envelope provided.
Executors, trustees, administrators, attorneys, guardians, etc. should so
indicate when signing. Corporation proxies should be signed by authorized
officers.
Dated: , 2001
---------------
---------------------------
Signature
---------------------------
Signature
---------------------------
Title or Authority
VOTES MUST BE INDICATED X
(PLEASE SIGN, DATE AND RETURN THIS PROXY IN THE ENCLOSED POSTAGE PREPAID
ENVELOPE.)