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Walter retirement gift: a house

By SCOTT BARANCIK, Times Staff Writer
© St. Petersburg Times
published March 31, 2002

TAMPA -- It pays to be a board member at Walter Industries Inc.

Walter, a Tampa company best known for its selection of inexpensive homes, is designing and building a $310,000 doozy in Texas for longtime director James L. "Rocky" Johnson. His bill: cost plus 5 percent.

A profit margin of 12 percent to 20 percent is typical on the open market, said Kosse Maykus, president of the Greater Fort Worth (Texas) Homebuilders Association and a local builder.

Walter spokesman Kyle Parks defended the transaction. "We don't believe this is a sweetheart deal," he said. "It's not like he's getting the house for free." Parks said the idea was Johnson's, a former chairman and chief executive at GTE Corp.

But former Stetson University law professor Charles Elson disagreed. Walter already paid Johnson $61,500 for his service as a director in 2001. Whatever profit the company sacrificed to build the house should be considered a gift, he said. Johnson is retiring from Walter's board on April 24, a day before the company's annual shareholders meeting.

"I can see a clock, or a piece of crystal," said Elson, who chairs the Center for Corporate Governance at the University of Delaware. "But a house? I would not have allowed a transaction like that."

Elson said the deal also could create the appearance of a conflict of interest. As chairman of Walter's compensation committee, Johnson helps set salary and bonus levels for officers such as CEO Don DeFosset. DeFosset took home more than $1.8-million in 2001, including a $1.05-million bonus.

Because DeFosset and other company officials considered the deal an "arms length" transaction, they did not ask for board approval. No other current directors have received a similar deal.

Walter subsidiary Jim Walter Homes Inc. built 4,021 houses last year, with an average sales price of $59,100. Dream Homes, a Houston offshoot that builds more upscale homes, is building Johnson's three-bedroom house.

But Johnson's home -- 3,400 square feet heated, plus porches and a garage that bring the total square footage to 6,000 -- is beyond Dream Homes' size and cost range and had to be specially designed. Construction began in August and is scheduled for completion in July.

Johnson has a long affiliation with Walter. His most recent stint as a director began in 1995, but he was on the board when Kohlberg, Kravis, Roberts & Co. of New York acquired the company in the late 1980s. Johnson also was "good friends" with late founder Jim Walter, spokesman Parks said, though he merits just one passing mention in a 330-page biography titled Building a Business: The Jim Walter Story.

In addition to serving on Walter's board, Johnson is a director at Contel Cellular Inc., CellStar Corp., FINOVA Group Inc., Harte-Hanks Communications Inc. and Valero Energy Corp., and is a trustee of Mutual of New York. He could not be reached for comment.

-- Scott Barancik can be reached at barancik@sptimes.com or (727) 893-8751. Times researcher Kitty Bennett contributed to this report.

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