8-K

UNITED STATES

SECURITIES AND EXCHANGE COMMISSION

Washington, DC 20549

FORM 8-K

CURRENT REPORT

Pursuant to Section 13 or 15(d) of The

Securities Exchange Act of 1934

Date of Report (Date of earliest event reported) February 21, 2006

WALTER INDUSTRIES, INC.

(Exact name of registrant as specified in its charter)

Delaware	001-13711	13-3429953
(State or other jurisdiction of	(Commission	(IRS Employer
incorporation or organization)	File Number)	Identification No.)
4211 W. Boy Scout Boulevard, Tampa, Florida		33607
(Address of principal executive offices)		(Zip Code)

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

NOT APPLICABLE

(Former name or former address, if changed since last report)

Check the appropriate box below if the Form 8-K filing is intended to simultaneously satisfy the filing obligation of the registrant under any of the following provisions:

oWritten communications pursuant to Rule 425 under the Securities Act (17 CFR 230.425)

oSoliciting material pursuant to Rule 14a-12 under the Exchange Act (17 CFR 240.14a-12)

oPre-commencement communications pursuant to Rule 14d-2(b) under the Exchange Act (17 CFR 240.14d-2(b))

oPre-commencement communications pursuant to Rule 13e-4(c) under the Exchange Act (17 CFR 240.13-4(c))

Item 1.01Material Definitive Agreement

1. Annual Incentive Plan Awards

The Compensation and Human Resources Committee (the “Committee”) of the Board of Directors of Walter Industries, Inc. (the “Company”) has approved certain cash awards to be paid to its Named Executive Officers. Cash awards were made pursuant to and will be paid subject to the Annual Incentive Plan for Key Employees.

The financial goals, which account for 80% of the potential incentive award, are tied to 2005 Corporate Net Income and Return on Net Asset (RONA) for corporate executives and operating income and subsidiary RONA for subsidiary executives. Each participant also has specific individual, non-financial performance objectives which account for 20% of the potential incentive award. These non-financial objectives vary among executives and are determined based on position, operating unit and areas of responsibility. The incentive formulas also provide that if earnings per share do not meet a minimum value, no bonus will be paid. Each Named Executive Officer has a bonus target expressed as a percentage of salary. Bonus targets for Named Executive Officers range from 60% to 100% of base salary, with potential incentive awards ranging from 0% to 200% of target.

Consistent with incentive plan requirements, earnings per share and financial objectives, RONA and Net Income and Operating Income, as applicable, were evaluated as were non-financial individual performance objectives. The Incentive Plan awards for 2005 were measured against performance measures established at the beginning of the year. The cash awards to the Named Executive Officers for the Incentive Plan year 2005 are as set forth below:

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Name and Principal Position	Incentive Award
Gregory E. Hyland Chairman, CEO and President	$	350,000
William F. Ohrt, Executive VP and CFO	$	423,122
Victor P. Patrick, Senior VP, Secretary and General Counsel	$	343,684
George R. Richmond, President, Jim Walter Resources, Inc.	$	367,500

2. Letter Agreement

On February 23, 2006, Mueller Water Products, Inc., a wholly owned subsidiary of the Company (“Mueller Water”), DLJ Merchant Banking II, Inc., as the Stockholders Representative, and the Company entered into a letter agreement with respect to the Agreement and Plan of Merger dated as of June 17, 2005, as amended (the “Merger Agreement”) among Mueller Water, the Company,  JW MergerCo, Inc. and DLJ Merchant Banking II, Inc., as the Stockholders Representative. Under the terms of the February 23, 2006 letter agreement, the parties determined the Final Closing Cash and Final Working Capital (as these terms are defined in the Merger Agreement) and agreed that the Shortfall Amount under the Merger Agreement is $10,527,000. As a result, Mueller Water, DLJ Merchant Banking II, Inc. and the Company have jointly instructed The Bank of New York, as Escrow Ag ent, to pay and, as of February 23, 2006, the Escrow Agent has paid, the amounts in the Escrow Account (as defined in the Merger Agreement), including the $25 million initially deposited in the Escrow Account and the approximately $0.4 million in interest earned through February 23, 2006, net of fees and expenses, as follows: approximately $10.8 million to the Company and approximately $14.6 to the former equity holders of Mueller Water, with approximately $11.3 million being paid to DLJ Merchant Banking II, Inc. and its affiliates, and approximately $3.3 million being paid to Mueller Water for further distribution to Mueller Water’s former equity holders. This represents a per-share payment to the former equity holders of Mueller Water equal to approximately $0.06/share, and makes the total Share Consideration (as defined in the Merger Agreement) to the Mueller Water’s former shareholders equal to approximately $3.75/share. The February 23, 2006 letter agreement is filed herewi th as Exhibit 10.1.

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Item 9.01Financial Statements and Exhibits

The following exhibits are filed herewith:

(d)Exhibits

10.1Letter Agreement dated as February 23, 2006 between Walter Industries, Inc. and Mueller Water Products, Inc.

SIGNATURES

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

WALTER INDUSTRIES, INC.
By:	/s/ Victor P. Patrick
Title:	Victor P. Patrick
	Sr. Vice President, General Counsel
	and Secretary

Date:  February 27, 2006

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EX-10.1

Exhibit 10.1

February 23, 2006

Walter Industries, Inc.

4211 West Boy Scout Boulevard

Tampa, Florida 33607

Attention:  General Counsel

Mueller Water Products, Inc.

4211 West Boy Scout Boulevard

Tampa, Florida 33607

Attention: Jeffery W. Sprick

Ladies and Gentlemen:

Reference is made to the Agreement and Plan of Merger dated as of June 17, 2005 (as amended, the “Merger Agreement”) among Mueller Water Products, Inc., Walter Industries, Inc., JW MergerCo, Inc. and DLJ Merchant Banking II, Inc., as the Stockholders’ Representative. Capitalized terms used but not defined herein shall have the meanings specified in the Merger Agreement.

Following the delivery of the Closing Statements by the Surviving Corporation, and delivery of a notice of disagreement therewith by the Stockholders’ Representative, the parties hereto have resolved all disputed items and amounts required to determine Final Closing Cash and Final Working Capital and have agreed that the Shortfall Amount is $10,527,000. Accordingly, the parties hereto have agreed that in accordance with the Escrow Agreement, an officer of Buyer and an officer of the Stockholders’ Representative shall, contemporaneously with the execution of this letter agreement, execute and deliver the notice attached as Annex A hereto to the Escrow Agent, to direct the Escrow Agent to release and distribute all funds remaining in the Escrow Account in accordance with the instructions set forth on such notice.

Upon the completion of the payments set forth above, the parties confirm that all obligations of the parties under Sections 2.12 and 2.13 of the Merger Agreement shall have been performed and satisfied in full.

This letter agreement shall not constitute an amendment or waiver of any term or condition of the Merger Agreement or any other Transaction Agreement, and all of such terms and conditions shall remain in full force and effect. This letter agreement shall be governed by and construed in accordance with the laws of the State of New York applicable to contracts entered into and performed entirely in such state. This letter agreement may be signed in any number of counterparts, each of which shall be deemed an original, and all such counterparts shall together constitute one and the same instrument.

[Signature Page Follows]

IN WITNESS WHEREOF, the parties hereto have caused this letter agreement to be duly executed by their respective authorized officers as of the day and year first above written.

DLJ MERCHANT BANKING II, INC.,
as the Stockholders’ Representative
By:	/s/ MICHAEL S. ISIKOW
	Name: Michael S. Isikow
	Title:   Vice President

Agreed and Acknowledged

WALTER INDUSTRIES, INC.
By:	/s/  JOSEPH J. TROY
	Name: Joseph J. Troy
	Title:   Senior Vice President
MUELLER WATER PRODUCTS, INC.
By:	/s/  VICTOR P. PATRICK
	Name: Victor P. Patrick
	Title:   Vice President

Annex A

February 23, 2006

The Bank of New York

101 Barclay Street - 8W/Escrow

New York, NY 10286

Attention:  Carlos Luciano

Ladies and Gentlemen:

Reference is made to the Escrow Agreement dated as of October 3, 2005 among Mueller Water Products, Inc., Walter Industries, Inc., DLJ Merchant Banking II, Inc., as the Stockholders’ Representative, and The Bank of New York (the “Escrow Agreement”). Capitalized terms used but not defined herein shall have the meanings specified in the Escrow Agreement. This certificate is executed by Buyer and the Stockholders’ Representative pursuant to Section 5(a) of the Escrow Agreement.

The Escrow Agent is hereby directed to promptly release and deliver all funds remaining in the Escrow Account as follows:

a)$11,223,543.07, plus 26.975% of all interest earned on the Escrow Amount to the date of payment, to the Stockholders’ Representative, who shall distribute such amount to the DLJ Entities in accordance with the provisions of the Merger Agreement:

Bank:	Citibank, N.A.
	399 Park Avenue
	New York, NY 10036
ABA:  021000089
Account Name:  DLJ Merchant Banking II, Inc.
Account Number:  30554143
Reference:  Mueller Water Products

b)$3,228,793.03, plus 7.760% of all interest earned on the Escrow Amount to the date of payment, to the Company, which shall distribute such amount to the Stockholders and holders of Company Warrants (in each case, other than the DLJ Entities), subject to the deduction of the applicable withholding taxes, in accordance with the provisions of the Merger Agreement:

Bank:	Mellon Bank
	Pittsburgh, PA
ABA:	043000261
Account Name:  Mueller Water Products, Inc.
Account Number: 077-1243

c)$20,663.90 to Davis Polk & Wardwell in respect of Transaction Expenses incurred after the Effective Time (in each case, as defined in the Merger Agreement); and

Bank:	JPMorgan Chase Bank
	500 Stanton Christiana Rd.
	Newark, DE  19713
ABA:  021 000021
Account Name:  Davis Polk & Wardwell
Account Number:  001533316
Reference:  Mueller Water Products 14530/006

d)$10,527,000, plus 65.265% of all interest earned on the Escrow Amount to the date of payment, to:

Bank:	Bank of America
	Charlotte, NC
ABA:	111000012
Account Name:  Walter Industries, Inc.
Account Number:  3750658039

The Escrow Agreement shall terminate in accordance with its terms when the Escrow Agent shall have released all amounts in the Escrow Account pursuant to the instructions set forth above.

[Signature Page Follows]

IN WITNESS WHEREOF, the parties hereto have caused this certificate to be duly executed by their respective authorized officers as of the day and year first above written.

DLJ MERCHANT BANKING II, INC.,
as the Stockholders’ Representative
By:		/s/ MICHAEL S. ISIKOW
			Name:	Michael S. Isikow
			Title:	Vice President
WALTER INDUSTRIES, INC.
By:	/s/ JOSEPH J. TROY
			Name:	Joseph J. Troy
			Title:	Senior Vice President