10-K

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UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549

FORM 10-K

(Mark One)
ý	ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(D) OF THE SECURITIES EXCHANGE ACT OF 1934
For the year ended December 31, 2008
or
o	TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(D) OF THE SECURITIES EXCHANGE ACT OF 1934

Commission File Number 001-13711

WALTER INDUSTRIES, INC.
(Exact name of registrant as specified in its charter)

Delaware (State or other jurisdiction of incorporation or organization)	13-3429953 (IRS Employer Identification No.)
4211 W. Boy Scout Boulevard Tampa, Florida (Address of principal executive offices)	33607 (Zip Code)
(813) 871-4811 Registrant's telephone number, including area code:
Securities registered pursuant to Section 12(b) of the Act:
Title of each class	Name of exchange on which registered
Common Stock, par value $0.01	New York Stock Exchange

Securities registered pursuant to Section 12(g) of the Act: NONE

Indicate by check mark if the registrant is a well-known seasoned issuer, as defined in Rule 405 of the Securities Act. Yes ý    No o

Indicate by check mark if the registrant is not required to file reports pursuant to Section 13 or Section 15(d) of the Act. Yes o    No ý

Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days. Yes ý    No o

Indicate by check mark if disclosure of delinquent filers pursuant to Item 405 of Regulation S-K is not contained herein, and will not be contained, to the best of registrant's knowledge, in definitive proxy or information statements incorporated by reference in Part III of this Form 10-K or any amendment to this Form 10-K. o

Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, or a smaller reporting company. See the definitions of "large accelerated filer," "accelerated filer," and "smaller reporting company" in Rule 12b-2 of the Exchange Act.

Large accelerated filer ý Accelerated filer o Non-accelerated filer o
(Do not check if a smaller
reporting company) Smaller reporting
company o

Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act). Yes o    No ý

The aggregate market value of voting stock held by non-affiliates of the registrant, based on the closing price of the Common Stock on June 30, 2008, the registrant's most recently completed second fiscal quarter, as reported by the New York Stock Exchange, was approximately $6.1 billion.

Number of shares of common stock outstanding as of January 31, 2009: 53,276,191

Documents Incorporated by Reference

Applicable portions of the Proxy Statement for the Annual Meeting of Stockholders of the Company to be held April 23, 2009 are incorporated by reference in Part III of this Form 10-K.

PART I

Item 1.    Description of Business and

Item 1A.    Risk Factors

(a)    Narrative Description of Business

General

        Walter Industries, Inc. ("the Company", "Walter"), organized in 1987, is a leading producer and exporter of metallurgical coal for the global steel industry and also produces steam coal, coal bed methane gas, metallurgical coke and other related products. The Company also operates a mortgage financing business, which is expected to be divested in 2009, as discussed further below, and decided to close its Homebuilding business in December 2008.

        Our businesses may be grouped in the following broad categories:

        Natural Resources and Sloss.    Our Natural Resources segment consists primarily of Jim Walter Resources, Inc. ("JWR"), Tuscaloosa Resources, Inc. ("TRI"), Taft Coal Sales & Associates ("Taft") and United Land Corporation ("United Land"). In 2008, JWR produced 6.0 million tons of high quality metallurgical coal. In addition, JWR owns 50% of Black Warrior Methane Corp., which extracts coalbed methane gas; JWR's portion of the production was 6.6 billion cubic feet of natural gas in 2008. United Land is the parent company of TRI and Taft. TRI, acquired in 2007, is a Brookwood, Alabama-based surface coal miner with an annual production capacity of approximately 0.8 million tons of primarily low-sulfur steam coal for the industrial and electric utility markets. In 2008, TRI produced 0.8 million tons of steam coal. Taft, located in Jasper, Alabama, was acquired on September 2, 2008 and operates a surface steam and industrial coal mine for the industrial and electric utility markets. Since the acquisition, Taft has produced 0.2 million tons of steam coal. Sloss Industries Corporation ("Sloss") is a manufacturer of metallurgical coke, primarily for foundry and furnace use. In 2008, Sloss produced 0.4 million tons of metallurgical coke.

        Financing and Homebuilding.    Our Financing segment, which includes Walter Mortgage Company ("WMC"), services non-conforming instalment notes and loans that are secured by mortgages and liens. The mortgage portfolio at December 31, 2008 was approximately $1.8 billion. Our Homebuilding segment includes Jim Walter Homes, Inc. ("JWH"), which was an on-your-lot homebuilder.

        Other.    The Other segment includes the Company's other land subsidiaries and corporate expenses.

2008 Developments

Natural Resources and Sloss

        Kodiak Closure.    On December 26, 2008, the Company announced the permanent closure of the underground coal mine owned by the Kodiak Mining Company, LLC ("Kodiak"), located in Shelby County, Alabama, as a result of high operational costs, difficult operating conditions and a challenging pricing environment for Kodiak's product. As a result of the closure of the Kodiak mine in December 2008, historical results have been presented as discontinued operations. For additional discussion, see Note 3 of "Notes to the Consolidated Financial Statements."

        Acquisition of Coal Reserves.    On December 11, 2008, we announced that JWR has leased approximately 46.0 million tons of additional high-quality Blue Creek Coal reserves contiguous to its Mine No. 4 and Mine No. 7 operations near Brookwood, Alabama. Terms of the leases, including royalty rates, are consistent with the Company's existing lease agreements.

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        Taft Acquisition.    On September 2, 2008, we acquired Taft Coal Sales & Associates, a central Alabama surface coal producer with steam, industrial and metallurgical coal reserves, for $23.5 million, which includes the assumption of $3.4 million of debt. Taft operates a surface steam and industrial coal mine with annual production capacity of approximately 0.6 million tons and has reserves of approximately 5.0 million tons at December 31, 2008. Included in Taft's reserves are approximately 0.6 million tons of metallurgical coal, which the Company plans to mine in future periods. Taft is based in Jasper, Alabama, approximately 40 miles northwest of Birmingham, and employs approximately 100 people.

        TRI Contractual Commitments.    In 2008, TRI committed to sell 1.2 million tons of steam and industrial coal, or approximately half of its current annual production capacity for the next three calendar years, at approximately $100 per short ton FOB mine. This three-year commitment is expected to contribute significantly to TRI's operating income and cash flows.

Financing and Homebuilding

        Plan of Spin-off and Merger of our Financing Segment.    On September 30, 2008, the Company outlined its plans to separate its Financing business from the Company's core Natural Resources businesses through a spin-off to our shareholders and subsequent merger with Hanover Capital Mortgage Holdings, Inc. ("Hanover"), a New Jersey-based real estate investment trust ("REIT"). As a step toward the completion of this plan, on February 3, 2009, the Company formed Walter Investment Management LLC ("Spinco"), a wholly owned, Delaware limited liability company, to receive our Financing business and facilitate the spin-off and merger. The subsidiaries and assets that Spinco will own at the time of the spin-off and merger include all assets of our Financing business except for those associated with the workers' compensation program and various other runoff insurance programs within Cardem Insurance Co., Ltd. Spinco's total assets and liabilities at the time of the spin-off and merger are expected to be approximately $1.9 billion and $1.5 billion, respectively.

        Following the merger of Spinco with Hanover, the combined company will continue to operate as a publicly traded REIT and will be named Walter Investment Management Corporation ("Walter Investment Management"). The spin-off and merger are expected to be completed in the second quarter of 2009. After the spin-off and merger, Walter's shareholders will own approximately 95.17% of Walter Investment Management's publicly traded common stock, certain holders of options to acquire limited liability interest of Spinco outstanding immediately prior to the effective time of the merger will own 3.33%, and shareholders of Hanover will own the remaining 1.5%. Walter Investment Management plans to apply to list its shares on the American Stock Exchange under the ticker symbol "WAC".

        The transaction is subject to certain closing conditions including, but not limited to, approval of the merger by Hanover's shareholders and favorable rulings from the Internal Revenue Service. Financing will continue to be reported as part of the Company's continuing operations until the date of the spin-off, at which time the historical results of the Financing segment will be reported as discontinued operations.

        Homebuilding Closure.    In December 2008, the Company made the decision to close the Homebuilding business. This decision was reached despite the efforts of management and employees, including a major restructuring during 2008 that closed nearly half of the sales centers. Homebuilding will continue to be reported as part of the Company's continuing operations until the closure is complete, at which time the historical results of the Homebuilding segment will be reported as discontinued operations. See also Note 4 of "Notes to Consolidated Financial Statements."

Corporate Liquidity and Capital Activity

        Share Repurchase Program.    In 2008, the Company repurchased $64.6 million, or 1.6 million shares, of its outstanding stock. On December 31, 2008, we announced a $50.0 million expansion to the

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Company's share repurchase program. The new program began on January 1, 2009, and, as of February 27, 2009, 1.4 million shares have been repurchased for $27.9 million.

        Debt Amendment.    In April 2008, the Company amended its 2005 Walter Credit Agreement, increasing the revolver capacity from $225.0 million to $475.0 million. Approximately $214.8 million of available revolver funds were used to repay and terminate the Financing segment's Mid-State Trust IX and Trust XIV mortgage warehouse facilities, which were due to mature in 2008. As of the warehouse facilities' repayment and termination in April 2008, the Company's Financing segment had unencumbered mortgage assets exceeding $330.0 million and is no longer reliant on the availability of mortgage warehouses or asset-backed securitization markets. In addition, the credit agreement amendment allows for the spin-off of Financing and the closure of Homebuilding.

        Share Issuance.    In June 2008, the Company completed an offering of 3.2 million shares of its common stock for $90.75 per share and received $280.5 million of net proceeds from this offering, after deducting underwriting discounts and estimated offering expenses. The Company used the net proceeds to (1) repay $77.9 million of the term loan outstanding under the 2005 Walter Credit Agreement and (2) repay $202.5 million of revolving credit facility borrowings under the 2005 Walter Credit Agreement. In connection with this offering, the revolving credit commitments under the 2005 Walter Credit Agreement were reduced from $475.0 million to approximately $373.8 million.

        The Company makes its Annual Report on Form 10-K, Quarterly Reports on Form 10-Q and Current Reports on Form 8-K and amendments thereto available on its website at www.walterind.com without charge as soon as reasonably practical after filing or furnishing these reports to the Securities and Exchange Commission ("SEC"). Additionally, the Company will also provide, without charge, a copy of its Form 10-K to any shareholder by mail. Requests should be sent to Walter Industries Inc., Attention: Shareholder Relations, 4211 W. Boy Scout Boulevard, Tampa, Florida 33607. You may read and copy any document the Company files at the SEC's public reference room at 450 Fifth Street, N.W., Washington, D.C. 20549. Please call the SEC at 1-800-SEC-0330 for further information on the public reference room. The Company's SEC filings are also available to the public from the SEC's website at http://www.sec.gov.

(b)    Industry Segments

        The Company's industry segment information is included in Note 18 of "Notes to Consolidated Financial Statements" included herein.

(c)    Description of Business

Natural Resources and Sloss

        The following map provides the Company's Natural Resources and Sloss locations as of December 31, 2008. We operate two metallurgical coal mines, the No. 7 Mine (which includes No. 7 East) and the No. 4 Mine, both owned by JWR, and three steam coal mines, TRI's East Brookwood Mine and Howton Mine and Taft's Choctaw South Mine. In addition, the Company has mines that are ready for operations, including Taft's Reid School Mine and Choctaw West Mine and United Land Corporation's ("ULC's") Flat Top Mine, as well as mines that are under development, including Taft's Gayosa South Mine, ULC's Highway 59 Mine, ULC's Beltona East Mine, ULC's Swann's Crossing Mine and ULC's Morris Mine. All of our properties are located in the state of Alabama. This map does not include the Kodiak Mine, which was closed in December 2008.

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Map, Location and Access to Property

        Jim Walter Resources' Mines Nos. 4 and 7, located near Brookwood, Alabama, are serviced by CSX rail. Both mines also have access to the Company's barge load out facility on the Black Warrior River. Service via rail or the Black Warrior River culminates in delivery to the Port of Mobile, whereby shipments are delivered to our international customers via ocean vessels.

        TRI's East Brookwood and Howton mines, and ULC's Highway 59 and Swann's Crossing mines, all located in Tuscaloosa County near Brookwood, Alabama, have access to the Company's barge load out facility on the Black Warrior River. Approximately half of TRI's coal is delivered via barges to a local power company. The remainder of TRI's coal is delivered to local customers via truck. ULC's mines are yet to be developed.

        Taft's Choctaw South, Choctaw West and Gayosa mines, located near Parrish in Walker County, Alabama, have an onsite rail facility serviced by Norfolk Southern rail. Access to Highway 269 provides delivery access to local customers via truck.

        Taft's Reid School Mine, located in Blount County, Alabama will have access to Highway 79 whereby coal shipments will be delivered to local customers via truck.

        ULC's Flat Top Mine is located in Adamsville, Alabama near Highway 78. This mine will deliver coal via trucks.

        ULC's Beltona East and Morris mines, located in Jefferson County, Alabama, will have access to Warrior Jasper Road whereby coal shipments will be delivered to local customers via truck

        Sloss Industries Corporation, located in Birmingham, Alabama, delivers metallurgical coke to its customers via rail and truck.

        For additional information regarding the Company's coal mineral reserves, coal ownership and leases, and average selling price per ton by mine, see Item 2., "Properties."

Jim Walter Resources, Inc.

        The operations of JWR are conducted through its Mining Division, which mines and sells high quality metallurgical coal from two underground mines, the No. 4 and No. 7 mines, and its De-Gas Division, which extracts and sells natural gas from the coal seams owned or leased by JWR.

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        The Mining Division, headquartered in Brookwood, Alabama, currently has approximately 6.5 million tons of rated annual coal production capacity from its mines located in west central Alabama between the cities of Birmingham and Tuscaloosa. Operating at about 2,000 feet below the surface, the No. 4 and No. 7 mines are some of the deepest underground coal mines in North America. The Mining Division extracts coal primarily from Alabama's Blue Creek and Mary Lee seams, which contain high-quality bituminous coal. Blue Creek coal offers high coking strength with low coking pressure, low sulfur and low-to-medium ash content with high BTU values that can be sold either as metallurgical coal (used to produce coke) or as compliance steam coal (used by electric utilities because it meets current environmental compliance specifications).

        The Mining Division had net sales and revenues of $805.7 million, $556.7 million and $611.7 million in the years ended December 31, 2008, 2007 and 2006, respectively.

        In 2004, the Company announced a project to expand production in an area called Mine No. 7 East. The new mine area will consist of one additional longwall unit and three continuous miner sections, providing incremental annual production capacity of approximately 2.7 million tons. The investment of approximately $185 million to develop this new mine area will result in longwall production beginning in 2009. Capital expenditures through December 31, 2008 related to this expansion project amounted to $160.4 million and are expected to be approximately $23.0 million in 2009. In December 2006, mining operations ceased at Mine No. 5 as planned. The preparation plant at Mine No. 5 will remain operational and serve as the washing and shipping point for production associated with the Mine No. 7 East expansion project.

        JWR's coal is mined using longwall extraction technology with development support from continuous miners. Underground mining with longwall technology drives greater production efficiency, improved safety, higher coal recovery and lower production costs. Historically, the Mining Division has operated one longwall mining system in each mine for primary production and four to six continuous miner sections in each mine for the development of mains and longwall panel entries. As noted above, the Company is investing in Mine No. 7 East such that the mine will operate two longwall mining systems. The Mining Division's normal operating plan is a longwall/continuous miner production ratio of approximately 80% / 20%. This ratio is expected to remain consistent after the start of longwall operations for the Mine No. 7 East expansion in 2009.

        Beginning in 2008, the Mining Division developed and mined an additional section in the No. 7 Mine known as the Southwest "A" panel. This panel has approximately 1.0 million tons of high-quality metallurgical coal, of which approximately 450,000 tons were mined in 2008. The remainder is expected to be mined in 2009, completing the production of this additional section.

        The Mining Division's coal is principally sold to a diversified base of offshore metallurgical coal customers. The division's metallurgical coal is sold to customers in numerous markets throughout Europe, South America, Turkey and Africa. Most metallurgical coal sales are made under fixed price supply contracts, usually with a duration of one year, running principally from July through June. However, some sales of metallurgical coal can occur in the spot market as dictated by available JWR supply and market demand. During 2008, JWR's two largest customers represented approximately 14.8% and 11.2% of the Mining Division's sales, respectively. The Company believes that the loss of these customers would not have a material adverse effect on the results of operations of the Company as the loss of volume from these customers would be replaced with sales to other existing or new customers due to the demand for JWR's metallurgical coal. Foreign sales accounted for approximately 96.5% of the Mining Division's net sales during the year. Domestic sales include coal sold to Sloss.

        The De-Gas Division, headquartered in Brookwood, Alabama, extracts and sells natural gas from the coal seams owned or leased by JWR, primarily through Black Warrior Methane Corp., an equal ownership joint venture with El Paso Production Co., a subsidiary of El Paso Corporation. JWR also operates a wholly owned low quality gas ("LQG") facility. The original motivation for the joint venture

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was to increase safety in JWR's Blue Creek mines by reducing natural gas concentrations with wells drilled in conjunction with the mining operations. There were 442 wells producing approximately 11.8 billion cubic feet of natural gas in 2008. JWR generated 6.6 billion cubic feet in 2008, including 1.3 billion cubic feet from its LQG operations. The degasification operation has improved mining operations and safety by reducing methane gas levels in the mines, and has been a profitable operation. Natural gas production level is expected to be 7.0 to 7.2 billion cubic feet in 2009.

Tuscaloosa Resources, Inc.

        In 2007, the Company acquired TRI. Founded in 1995, TRI is a producer of surface coal for the industrial and steam coal markets. Based in Birmingham, Alabama, it employs approximately 100 people. TRI's mines, which have historically produced approximately 800,000 tons of high BTU coal annually, are located near United Land's barge load-out facility and Jim Walter Resources' existing operations. The close proximity of TRI to the Company's existing infrastructure is expected to provide opportunities for revenue and cost-related synergies, including opportunities to blend TRI's coal production with the Company's existing coal products, such as pond fine material. TRI controls approximately 2.9 million tons of coal reserves at December 31, 2008.

Taft Coal Sales & Associates, Inc.

        On September 2, 2008, the Company, through its wholly owned subsidiary United Land Corporation, acquired all of the outstanding common shares of Taft. Located in Jasper, Alabama, Taft currently operates a surface steam and industrial coal mine and primarily mines coal for the industrial and electric utility markets. The acquisition of Taft expands the Company's coal production base in the southern Appalachian coal region of Alabama and will be instrumental in helping to grow the Company's domestic Natural Resources business. For additional information on this acquisition, see Notes 3 and 4 of "Notes to the Consolidated Financial Statements."

Sloss

        Sloss is a manufacturing company that began operations at its current location in 1920. Founded in 1881, Sloss is headquartered in Birmingham and has two major product lines: metallurgical coke, which includes coke for furnace and foundry applications, and slag fiber. Foundry coke is marketed to ductile iron pipe plants and foundries producing castings, such as for the automotive and agricultural equipment industries. Furnace coke is sold primarily to the domestic steel industry for producing steel in blast furnaces. Sloss utilizes 120 coke ovens with the capacity to produce 420,000 tons of metallurgical coke and is the second largest merchant foundry coke producer in the United States. Slag fiber is an insulating fiber utilized principally as a raw material by acoustical ceiling tile manufacturers.

Financing

        The Financing segment is primarily comprised of WMC, a Delaware corporation that owns and services non-conforming instalment notes and loans that are secured by mortgages and liens on residential property. Prior to May 1, 2008, the Financing business purchased and originated mortgage loans and purchased instalment notes originated by its homebuilding affiliate, JWH. Since May 1, 2008, WMC has been engaged in servicing its portfolio of mortgage assets, as well as financing the backlog of home mortgages originated prior to May 1, 2008. Currently, the servicing activities are solely dedicated to its portfolio of owned mortgage assets. The portfolio of mortgage assets are primarily domiciled in the southeastern U.S., and therefore the servicing business and the field service representatives conducting that business are located in that region.

        At December 31, 2008, the Company held fixed (98%) and variable-rate (2%) instalment notes ranging from 2.13% to 13.66% annual percentage rate, without points or closing costs. See also Note 2

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of "Notes to Consolidated Financial Statements" included herein for a description of the revenue recognition policies of Financing.

Walter Mortgage Company

        WMC, headquartered in Tampa, Florida, was established in 2001 to provide home financing to the customers of JWH and is the successor to MSH (Mid-State Homes) subsequent to a merger during 2007. MSH was established in 1958 to purchase and service mortgage instalment notes originated by JWH. WMC initiated a program to acquire mortgage loans in 2003 that met the Company's underwriting criteria. Loans were purchased from various sellers of first lien mortgages. In August 2007, the Company terminated its third party loan acquisition program in light of volatile market conditions for securitizations of subprime mortgages. On May 1, 2008, WMC made a decision to cease offering mortgage related financing instruments to new JWH customers.

        Historically, WMC funded instalment notes, as well as mortgage loans it originated, using various warehouse lines of credit. Once a critical mass of assets had been accumulated, WMC would securitize the assets using a grantor trust, structured as a financing, which required that the assets and liabilities be recorded on the balance sheet with no gain for tax purposes. These business trusts acquired the mortgage instalment notes and loans using the proceeds from borrowings secured by the notes. WMC owns, directly or indirectly, all of the beneficial interests in these trusts. Only the notes in the trusts secure the borrowings of these trusts, and therefore these borrowings are non-recourse to the Company. In April 2008, primarily in light of the difficult mortgage market, WMC repaid in full all amounts outstanding under its $350.0 million mortgage warehouse facilities and then terminated those facilities. For additional information on the notes, the trusts and their related borrowings, see Notes 7 and 12 of "Notes to Consolidated Financial Statements."

        On September 30, 2008, the Company outlined its plans to separate its Financing business from the Company's core Natural Resources businesses, as discussed previously. For additional information, see Note 3 of "Notes to Consolidated Financial Statements."

        At December 31, 2008, WMC's portfolio was geographically distributed as follows: Texas (33%), Mississippi (15%), Alabama (9%) and Florida and Louisiana each (6%). The remaining portfolio was spread primarily in other southeastern states.

Insurance

        Best Insurors, Inc. ("Best"), located in Tampa, Florida, is an agency that primarily places fire and extended insurance coverage for homeowners who finance through WMC or JWH. Cardem Insurance Company Ltd. ("Cardem"), located in Bermuda, primarily provides reinsurance of such insurance placed through Best and provides captive coverage for various other Company risks, including workers' compensation for Homebuilding. Following the spin-off of our Financing segment, the Company will retain the assets and liabilities of Cardem associated with workers' compensation and other runoff insurance programs.

Homebuilding

Jim Walter Homes, Inc.

        Jim Walter Homes, Inc. and its subsidiaries ("JWH"), headquartered in Tampa, Florida, marketed and supervised the construction of detached, single-family residential homes, on land owned by its customers, primarily in the southeastern United States where the weather generally permits year-round construction. JWH historically concentrated on the low- to moderately-priced segment of the housing market. JWH's products consisted of over 60 models ranging in size from approximately 800 to over

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3,000 square feet. During the years ended December 31, 2008, 2007 and 2006, the average net contract price of all homes sold was $102,000, $98,000 and $90,000, respectively.

        In 2008, JWH transitioned to a third-party financing model including the use of government-sponsored loan programs. Up until May 1, 2008, if JWH financed the new home purchase, upon completion of construction to the agreed-upon percentage, in the ordinary course of business, JWH sold the building and instalment sale contract, the note and the related mortgage, deed of trust or other security instrument to WMC, pursuant to an agreement between JWH and WMC. However, after May 1, 2008, WMC no longer provides financing to customers of JWH, except for the backlog of homes with signed contracts and those which were under construction as of May 1, 2008. Despite this transition, the continuing sluggish housing market and credit liquidity crisis experienced in recent months in the United States resulted in declining unit deliveries.

        Due to unprecedented changes in the economy, specifically in the housing and credit markets over the course of 2008, on December 30, 2008, the decision was made to wind down the operations and liquidate JWH. Prior to this decision, management took several steps to weather the economic storm. In February 2008, the Company closed 36 underperforming sales centers and eliminated 25% of its workforce as part of a restructuring effort to improve operating performance.

        The decision to liquidate JWH resulted in plans to wind down operations by canceling the majority of homes that had not started construction and to build out the remaining backlog of units already under construction. The estimated backlog of homes as of December 31, 2008 included 421 units of which an estimated 160 will be built out with the remaining being canceled. The average construction time for these homes should remain within historical averages of thirteen to twenty-one weeks.

Other

        The Other segment includes the Company's land subsidiaries other than United Land and corporate expenses. The land subsidiaries engage in maximizing the value of vacant land, primarily through outright property sales and realizing royalty income on coal, timber and other minerals. Corporate expenses consist primarily of salaries, overhead and other costs associated with executive management, finance, accounting, tax, treasury, legal, information technology, risk management, human resources, payroll and other management services.

General Business Matters

Seasonality

        Certain of the businesses of the Company are subject to seasonal fluctuations to varying degrees. Sales at JWH are usually their lowest in the winter months due to weather and the lower level of construction activity. The businesses of the Company may also be significantly influenced by the general economy, interest rates, levels of construction activity and commodity prices.

Competition

        See "Risks Related to the Business—We face significant competition in the industries in which we operate and this competition could harm our sales, profitability and cash flows."

Trade Names, Trademarks and Patents

        The names of each of the Company's subsidiaries are well established in the respective markets they serve. Management believes that customer recognition of such trade names is of significant importance. The Company's subsidiaries have numerous patents and trademarks. Management does not believe, however, that any one such patent or trademark is material to the Company's individual segments or to the business as a whole.

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Environmental

        The Company and its subsidiaries are subject to a wide variety of laws and regulations concerning the protection of the environment, both with respect to the construction and operation of many of its plants, mines and other facilities, and with respect to remediating environmental conditions that may exist at its own and other properties. The Company believes that it and its subsidiaries are in substantial compliance with federal, state and local environmental laws and regulations. Expenses charged to continuing operations for compliance of ongoing operations, including asset retirement obligations and for remediation of environmental conditions arising from past operations in the years ended December 31, 2008, 2007 and 2006 were approximately $9.3 million, $4.9 million and $4.9 million, respectively. Because environmental laws and regulations continue to evolve, and because conditions giving rise to obligations and liabilities under environmental laws are in some circumstances not readily identifiable, it is difficult to forecast the amount of such future environmental expenditures or the effects of changing standards on future business operations or results. Consequently, such expenditures may be material in the future.

        Environmental matters are more fully described in Note 16 of "Notes to Consolidated Financial Statements."

Employees

        As of December 31, 2008, the Company and its subsidiaries employed approximately 2,600 people, of whom approximately 1,400 were hourly workers and 1,200 were salaried employees. Unions represented approximately 1,400 employees under collective bargaining agreements, of which approximately 1,100 were covered by one contract with the United Mine Workers of America that expires on December 31, 2011.

Item 1A.    Risk Factors

        Our business and the investment in our securities are subject to various risks and uncertainties. In addition to the risks and uncertainties set forth below related to our business, operations, financial position or future financial performance or cash flows, we may face other risks and uncertainties, some of which may be unknown to us. These risks and uncertainties may cause an investment in our securities to decline and result in a loss.

Disruptions in the financial markets have created uncertainty and deteriorating economic conditions may adversely affect our business and financial condition.

        The financial markets in the United States, Europe, South America and Asia have been experiencing extreme disruption in recent months. As widely reported, these markets have experienced, among other things, extreme volatility in security prices, commodities and currencies; severely diminished liquidity and credit availability, rating downgrades and declining valuations of certain investments. The current tightening of credit in financial markets, the inability to access capital markets, the bankruptcy, failure, collapse or sale of various financial institutions and an unprecedented level of intervention from the United States federal government could have a material adverse effect on the demand for our products and on our sales, pricing and profitability. Continuation or worsening of the current economic conditions, a prolonged global, national or regional economic recession or other similar events could have a material adverse effect on the demand for our products and on our sales, pricing and profitability. We are unable to predict the likely duration and severity of the current disruption in financial markets and adverse economic conditions in the U.S. and other countries and the impact these events may have on our operations and the industry in general.

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Our business may suffer as a result of a substantial or extended decline in pricing, demand and other factors beyond our control, which could negatively affect our operating results and cash flows.

        Our businesses are cyclical and have experienced significant difficulties in the past. Our financial performance depends, in large part, on varying conditions in the domestic and international markets we serve, which fluctuate in response to various factors beyond our control. The prices at which we sell our coal and natural gas are largely dependent on prevailing market prices for those products. We have experienced significant price fluctuations in our coal and natural gas businesses, and we expect that such fluctuations will continue. Demand for and, therefore, the price of, coal and natural gas are driven by a variety of factors such as availability, price, location and quality of competing sources of coal or natural gas, availability of alternative fuels or energy sources, government regulation and economic conditions. In addition, reductions in the demand for metallurgical coal caused by reduced steel production by our customers, increases in the use of substitutes for steel (such as aluminum, composites or plastics) and the use of steel-making technologies that use less or no metallurgical coal can significantly affect our financial results and impede growth. Demand for steam coal is primarily driven by the consumption patterns of the domestic electric power generation industry, which, in turn, is influenced by demand for electricity and technological developments. We estimate that a 10% decrease in the price of coal in 2008 would have resulted in a reduction in pre-tax income of $83.7 million. Demand for natural gas is also affected by storage levels of natural gas in North America and consumption patterns, which can be affected by weather conditions. We estimate that a 10% decrease in the price in natural gas in 2008 would have resulted in a reduction in pre-tax income of approximately $1.3 million in that year, which includes the benefit of hedges. Occasionally we utilize derivative commodity instruments to manage fluctuations in natural gas prices. If we choose not to engage in, or reduce our use of hedging arrangements in the future, we may be more adversely affected by changes in natural gas pricing. Currently, we have hedged approximately 7% of our anticipated 2009 natural gas production at an average price of $9.06 per mmbtu.

The failure of our customers to honor or renew contracts could adversely affect our business.

        A significant portion of the sales of our coal and methane gas are to long-term customers. The success of our businesses depends on our ability to retain our current clients, renew our existing customer contracts and solicit new customers. Our ability to do so generally depends on a variety of factors, including the quality and price of our products, our ability to market these products effectively and the level of competition we face. If current customers do not honor current contract commitments, terminate agreements or exercise force majeure provisions allowing for the temporary suspension of performance, our revenues will be adversely affected and may negatively impact our collection of trade receivables from our customers. If we are unsuccessful in renewing contracts with our long-term customers and they discontinue purchasing coal or methane gas from us, renew contracts on terms less favorable than in the past, or if we are unable to sell our coal or methane gas to new customers on terms as favorable to us, our revenues could suffer significantly.

Coal mining is subject to inherent risks and is dependent upon many factors and conditions beyond our control, which may cause our profitability and our financial position to decline.

        A majority of our coal mining operations are conducted in underground mines and the balance of our operations is surface mining operations. Coal mining is subject to inherent risks and is dependent upon a number of conditions beyond our control that can affect our costs and production schedules at particular mines. These risks and conditions include:

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variations in geological conditions, such as the thickness of the coal seam and amount of rock embedded in the coal deposit;

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unexpected equipment or maintenance problems;

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adverse weather and natural disasters, such as heavy rains and flooding;

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the shortage of qualified labor;

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strikes and other labor-related interruptions;

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environmental hazards, such as subsidence and excess water ingress;

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delays and difficulties in acquiring, maintaining or renewing necessary permits or mining rights; and

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unexpected mine accidents, including explosions caused by the ignition of coal dust, methane or other explosive sources at our mines sites or fires caused by the spontaneous combustion of coal.

        These risks and conditions could result in damage to or the destruction of mineral properties or production facilities, personal injury or death, environmental damage, delays in mining, monetary losses and legal liability. For example, an explosion and fire occurred in Mine No. 5 in September 2001. This accident resulted in the deaths of thirteen employees and caused extensive damage to the mine. Our insurance coverage may not be available or sufficient to fully cover claims which may arise from these risks and conditions. We have also experienced adverse geological conditions in our mines, such as variations in coal seam thickness, variations in the competency and make-up of the roof strata, fault-related discontinuities in the coal seam and the potential for ingress of excessive amounts of methane gas or water. Such adverse conditions may increase our cost of sales and reduce our profitability, and may cause us to decide to close a mine. Any of these risks or conditions could have a negative impact on our profitability, the cash available from our operations and our financial position.

Defects in title of any real property or leasehold interests in our properties could limit our ability to mine these properties or result in significant unanticipated costs.

        Our right to mine some of our reserves may be materially adversely affected by defects in title or boundaries. In order to obtain mining contracts or leases or to conduct our mining operations on property where these defects exist, we may in the future have to incur unanticipated costs or could even lose our right to mine, which could adversely affect our profitability.

If transportation for our coal becomes unavailable or uneconomic for our customers, our ability to sell coal could suffer.

        Transportation costs represent a significant portion of the total cost of coal to the customer and, as a result, the cost of transportation is a critical factor in a customer's purchasing decision. Increases in our transportation costs could make our coal less competitive with the same or alternative products from competitors with lower transportation costs. We typically depend upon overland conveyor, rail or barge to deliver coal to the Port of Mobile, Alabama. While our coal customers typically arrange and pay for transportation from the Port of Mobile to the point of use, disruption of any of these transportation services because of weather-related problems, strikes, lock-outs, transportation delays or other events could temporarily impair our ability to supply our products to our customers, thereby resulting in lost sales and reduced profitability. All of our metallurgical mines are served by only one rail carrier, which increases our vulnerability to these risks, although our access to barge transportation partially mitigates that risk. In addition, port congestion in the Port of Mobile and delayed coal shipments result in demurrage fees to us. If this disruption were to persist over an extended period of time, demurrage costs could significantly impact profits.

We face significant competition and this competition could harm our sales, profitability and cash flows.

        The consolidation of the U.S. coal industry over the last several years has contributed to increased competition among coal producers. Some of our competitors have significantly greater financial

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resources than we do. This competition may affect domestic coal prices and impact our ability to retain or attract customers. In addition, our coal business faces competition from foreign producers that sell their coal in the export market. The general economic conditions in foreign markets and changes in currency exchange rates are factors outside of our control that may affect coal prices If our competitors' currencies decline against the U.S. dollar or against our customers' currencies, those competitors may be able to offer lower prices to our customers. Furthermore, if the currencies of our overseas customers were to significantly decline in value in comparison to the U.S. dollar, those customers may seek decreased prices for the coal we sell to them. In addition, these factors may negatively impact our collection of trade receivables from our customers. These factors could reduce our profitability or result in lower coal sales.

Our business is subject to risk of cost increases and fluctuations and delay in the delivery of raw materials and purchased components.

        Our business requires significant amounts of raw materials and labor and, therefore, shortages or increased costs of raw materials and labor could adversely affect our business or results of operations. Our coal mining operations rely on the availability of steel, petroleum products and other raw materials for use in various mining equipment. The availability and market prices of these materials are influenced by various factors that are beyond our control. Over the last year petroleum prices have risen significantly and historically, pricing for steel scrap and petroleum have fluctuated. Any inability to secure a reliable supply of these materials or shortages in raw materials used in the manufacturing of mining equipment or replacement parts could negatively impact our operating results.

Work stoppages, labor shortages and other labor relations matters may harm our business.

        The majority of our employees within the Natural Resources and Sloss businesses are unionized and we have a risk of work stoppages as the result of strike or lockout. The majority of employees of JWR are members of United Mine Workers of America ("UMWA"). Normally, our negotiations with the UMWA follow the national contract negotiated with the UMWA by the Bituminous Coal Operators Association. The collective bargaining agreement expires December 31, 2011. At our Sloss subsidiary, our contract with the United Steelworkers of America expires December 6, 2010. We experienced a strike at Sloss at the end of 2001 that lasted eight months. Future work stoppages, labor union issues or labor disruptions at our key customers or service providers could impede our ability to produce and deliver our products, to receive critical equipment and supplies or to collect payment. This may increase our costs or impede our ability to operate one or more of our operations.

We require a skilled workforce to run our business. If we cannot hire qualified people to meet replacement or expansion needs, we may not be able to achieve planned results.

        The demand for coal in recent years has caused a significant constriction of the labor supply resulted in higher labor costs. As coal producers compete for skilled miners, employee turnover rates have increased which negatively affects operating costs. If the shortage of skilled workers continues and we are unable to train and retain the necessary number of miners, it could adversely affect our productivity, costs and ability to expand production.

We have reclamation and mine closure obligations. If the assumptions underlying our accruals are inaccurate, we could be required to expend greater amounts than anticipated.

        The Surface Mining Control and Reclamation Act established operational, reclamation and closure standards for all aspects of surface mining as well as most aspects of deep mining. We accrue for the costs of final mine closure. Estimates of our total reclamation and mine-closing liabilities are based upon permit requirements and our experience. The amounts recorded are dependent upon a number of variables, including the estimated future retirement costs, estimated proven reserves, assumptions

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involving profit margins, inflation rates, and the assumed credit-adjusted risk-free interest rates. Furthermore, these obligations are unfunded. If these accruals are insufficient or our liability in a particular year is greater than currently anticipated, our future operating results could be adversely affected.

Factors impacting our forecasts of future performance, reserve estimates and a decline in pricing could affect our revenues.

        Forecasts of our future performance are based on estimates of our recoverable coal reserves. Reserve estimates are based on a number of sources of information, including engineering, geological, mining and property control maps, our operational experience of historical production from similar areas with similar conditions and assumptions governing future pricing and operational costs. Reserves estimates will change periodically to reflect mining activities, the acquisition or divestiture of reserve holdings and modifications of mining plans. Certain factors beyond our control could affect the accuracy of these estimates, including unexpected mining conditions, future coal prices, operating and development costs and federal, state and local regulations affecting mining operations. In addition, since we deplete our reserves as we mine, the ability to acquire additional reserves that are economically recoverable at the time and have comparable costs is paramount. Our results of operations are dependent upon our ability to mine our reserves and the prices at which we sell our coal. A decline in reserves or an inability to acquire additional reserves could adversely affect our operating results and profitability.

The government extensively regulates our mining operations, which imposes significant costs on us, and future regulations could increase those costs or limit our ability to produce coal.

        Federal, state and local authorities regulate the coal mining industry with respect to matters such as employee health and safety, permitting and licensing requirements, air quality standards, water pollution, plant and wildlife protection, reclamation and restoration of mining properties after mining is completed, the discharge of materials into the environment, surface subsidence from underground mining, and the effects that mining has on groundwater quality and availability. In addition, we are subject to significant legislation mandating specified benefits for retired coal miners. Numerous governmental permits and approvals are required for mining operations. We are required to prepare and present to federal, state or local authorities data pertaining to the effect or impact that any proposed exploration for or production of coal may have upon the environment. Compliance with these regulations may be costly and time-consuming and may delay commencement or continuation of exploration or production operations. The possibility exists that new legislation and/or regulations and orders may be adopted that may have a material adverse effect on our mining operations, our cost structure and/or our customers' ability to use coal. New legislation or administrative regulations (or judicial interpretations of existing laws and regulations), including proposals related to the protection of the environment that would further regulate and tax the coal industry, may also require us or our customers to change operations significantly or incur increased costs.

        Global climate change continues to attract considerable public and scientific attention with widespread concern about the impacts of human activity, especially the emissions of greenhouse gases (GHGs), such as carbon dioxide and methane. Combustion of fossil fuels, such as the coal and gas we produce, results in the creation of carbon dioxide that is currently emitted into the atmosphere by coal and gas end users. Numerous proposals have been made and are likely to continue to be made at the international, national, regional, and state levels of government that are intended to limit emissions of GHGs. In addition, the United States and over 160 other nations are signatories to the 1992 Framework Convention on Climate Change, which is intended to limit emissions of greenhouse gases, such as carbon dioxide. In December 1997, in Kyoto, Japan, the signatories to the convention established a binding set of emission targets for developed nations. Although the specific emission

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targets vary from country to country, the United States would have been required to reduce emissions to 93% of 1990 levels over a five-year budget period from 2008 through 2012. Although the United States has not ratified the emission targets and no comprehensive regulations focusing on U.S. GHGs are in place, a 2007 U.S. Supreme Court case upheld the authority of the Environmental Protection Agency (EPA) to regulate GHG's under the Clean Air Act and a number of states have filed lawsuits seeking to force the EPA to adopt GHG regulations. In July 2008, the EPA published an Advance Notice of Proposed Rulemaking seeking comments and discussion of the complex issues associated with the possible regulation of greenhouse gases under the Clean Air Act. These regulations or other efforts to stabilize or reduce greenhouse gas emissions, could adversely impact the price of and demand for coal.

        Coalbed methane must be expelled from our underground coal mines for mining safety reasons. Our gas operations capture coalbed methane from our underground coal mines, although some coalbed methane is vented into the atmosphere when the coal is mined. If regulation of GHG emissions does not exempt the release of coalbed methane, we may have to curtail coal production, pay higher taxes, or incur costs to purchase credits that permit us to continue operations as they now exist at our underground coal mines. The amount of coalbed methane we capture is recorded, on a voluntary basis, with the U.S Department of Energy. We have recorded the amounts we have captured since 1992 and Jim Walter Resources, Inc. has registered as an offset provider of credits with the Chicago Climate Exchange. If regulation of GHGs does not give us credit for capturing methane that would otherwise be released into the atmosphere at our coal mines, any value associated with our historical or future credits would be reduced or eliminated.

        Recent mining accidents involving fatalities in Utah, West Virginia, Kentucky and Mexico have received national attention and prompted responses at the state and federal level that have resulted in increased scrutiny of current safety practices and procedures in the mining industry. For example, on January 26, 2006, West Virginia passed a new law imposing stringent new mine safety and accident reporting requirements and increased civil and criminal penalties for violations of mine safety laws. Other states have proposed or passed similar bills and resolutions addressing mine safety practices. On January 25, 2006, an Alabama circuit judge ordered the Alabama governor and legislature to take action to ensure the safety of Alabama's mineworkers. In addition, several mine safety bills have been introduced in Congress that would mandate improvements in mine safety practices, increase or add civil and criminal penalties for non-compliance with such laws or regulations, and expand the scope of federal oversight, inspection and enforcement activities. On February 7, 2006, the federal Mine Safety and Health Administration announced the promulgation of new emergency rules on mine safety. These rules address mine safety, equipment, training and emergency reporting requirements. On June 15, 2006, the Federal Mine Improvement and New Emergency Response (MINER) Act of 2006 was signed into law and implementation of the specific requirements is currently underway. The implementation of these new requirements will cause us to incur substantial additional costs which will impact our operating costs. The additional requirements of the MINER Act and implementing federal regulations include, among other things, expanded emergency response plans, providing additional quantities of breathable air for emergencies, installation of refuge chambers in underground coal mines, installation of two-way communications and tracking systems for underground coal mines, new standards for sealing mined out areas of underground coal mines, more available mine rescue teams and enhanced training for emergencies.

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Environmental, health and safety laws and regulations could subject us to liability for fines, clean-ups and other damages, require us to incur significant costs to modify our operations and increase our costs.

        We are subject to a wide variety of laws and regulations concerning the protection of the environment and human health and safety, both with respect to the construction and operation of our mines and other facilities and with respect to remediating environmental conditions that may exist at our own and other properties. Certain of our facilities have been in operation for many years and, over time, we and predecessor operators of these facilities may have generated, used, handled and disposed of hazardous and other regulated wastes. Environmental liabilities could exist, including cleanup obligations at these or at other locations where materials from our operations were disposed of, which could result in future expenditures that cannot be currently quantified and which could reduce our profits. Failure to comply with any environmental, health or safety requirements could result in the assessment of damages, or imposition of penalties, suspension of production, a required upgrade or change to equipment or processes or a cessation of operations at one or more of our facilities. Because these laws are complex, constantly changing and may be applied retroactively, there is a risk that these requirements, in particular as they change in the future, may impair our business, profitability and results of operations.

        We may be required to conduct investigations and perform remedial activities that could require us to incur material costs in the future. Our operations involve the use of hazardous substances and the disposal of hazardous wastes. We may incur costs to manage these substances and wastes and may be subject to claims for damage for personal injury, property damages or damage to natural resources.

Our expenditures for postretirement benefit and pension obligations are significant and could be materially higher than we have predicted if our underlying assumptions prove to be incorrect.

        We provide a range of benefits to our employees and retired employees, including pensions and postretirement healthcare. We record annual amounts relating to these plans based on calculations specified by generally accepted accounting principles, which include various actuarial assumptions. As of December 31, 2008, we estimate that our pension plans' aggregate accumulated benefit obligation had a present value of approximately $185.2 million, and our fair value of plan assets was approximately $128.3 million. As of December 31, 2008, we estimate that our postretirement health care and life insurance plans' aggregate accumulated benefit obligation would have had a present value of approximately $369.1 million, and such benefits are not required to be funded. In respect of the funding obligations for our pension plans, we must make minimum cash contributions on a quarterly basis. The current volatile economic environment and the rapid deterioration in the equity markets have caused investment income and the values of investment assets held in our pension trust to decline and lose value. As a result, we may be required to increase the amount of cash contributions we make into the pension trust in the future in order to meet the funding level requirements of the Pension Act. Our estimated minimum funding obligation relating to these plans in 2009 is $29.6 million. We have estimated these obligations based on assumptions described under the heading "Critical Accounting Policies and Estimates—Employee Benefits" in "Management's Discussion and Analysis of Results of Operations and Financial Condition" in our Annual Report on Form 10-K and in the notes to our consolidated financial statements. Assumed health care cost trend rates, discount rates, expected return on plan assets and salary increases have a significant effect on the amounts reported for the pension and health care plans. If our assumptions do not materialize as expected, cash expenditures and costs that we incur could be materially higher. Moreover, regulatory changes could increase our obligations to provide these or additional benefits.

        In addition, certain of our subsidiaries participate in multiemployer pension and healthcare plan trusts established for union employees. Contributions to these funds could increase as a result of future collective bargaining with the UMWA, a shrinking contribution base as a result of the insolvency of other coal companies who currently contribute to these funds, lower than expected returns on pension fund assets, or other funding deficiencies.

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        We have no current intention to withdraw from any multiemployer pension plan, but if we were to do so, under the Employee Retirement Income Security Act of 1974, as amended ("ERISA"), we would be liable for a proportionate share of the plan's unfunded vested benefit liabilities upon our withdrawal. Through July 1, 2009, our withdrawal liability for the multiemployer pension plans amounts to $204.3 million.

We self-insure workers' compensation and certain medical and disability benefits, and greater than expected claims could reduce our profitability.

        We are self-insured for workers' compensation benefits for work-related injuries. Workers' compensation liabilities, including those related to claims incurred but not reported, are recorded principally using annual valuations based on discounted future expected payments using historical data of the division or combined insurance industry data when historical data is limited. In addition, certain of our subsidiaries are responsible for medical and disability benefits for black lung disease under the Federal Coal Mine Health and Safety Act of 1969, as amended, and is self-insured against black lung related claims. We perform an annual evaluation of the overall black lung liabilities at the balance sheet date, using assumptions regarding rates of successful claims, discount factors, benefit increases and mortality rates, among others.

        Based on the actuarially determined present value of workers' compensation liabilities using a discount factor of 1.89% and 4.22% for 2008 and 2007, respectively, we have recorded liabilities of $37.6 million and $33.7 million as of December 31, 2008 and 2007, respectively. A one-percentage-point increase in the discount rate on the discounted claims liability at December 31, 2008 would decrease our liability by $0.2 million, while a one-percentage-point decrease in the discount rate would increase our liability by $0.2 million.

        If the number or severity of claims for which we are self insured increases, or we are required to accrue or pay additional amounts because the claims prove to be more severe than our original assessment, our operating results could be reduced.

Restrictive covenants in our debt instruments may limit our ability to engage in certain transactions and may diminish our ability to make payments on our indebtedness.

        Our 2005 Credit Agreement contains various covenants that limit our ability to engage in certain transactions. Our 2005 Credit Agreement requires the maintenance of specified financial ratios and the satisfaction of other financial condition tests. Specifically, our ability to make investments, cash acquisitions and repurchase shares and pay dividends is more restrictive if our consolidated senior secured leverage ratio, as defined, is greater than 1.50 to 1.00. In addition, our 2005 Credit Agreement requires us to provide regular financial information to our lenders. Such requirements generally may be satisfied by our timely filing with the SEC of annual and quarterly reports under the Exchange Act. Our ability to satisfy the financial ratios, tests or covenants related to our existing or future indebtedness can be affected by events beyond our control, and there is a risk that we will not meet those tests. A breach of any such covenants could result in a default under the 2005 Credit Agreement or under any other debt instrument that we may enter into in the future. If an event of default were not remedied after the delivery of notice of default and lapse of any relevant grace period, the holders of our debt could declare it immediately due and payable.

Currently the majority of our coal and gas producing properties are located predominately in four counties in central Alabama, making us vulnerable to risks associated with having our production concentrated in one area.

        The vast majority of our mining properties are geographically concentrated in four counties in Alabama. As a result of this concentration, we may be disproportionately exposed to the impact of delays or interruptions of production caused by significant governmental regulation, transportation

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capacity constraints, curtailment of production, natural disasters or interruption of transportation or other events which impact this area.

Our success depends on attracting and retaining key personnel.

        Our success depends partly upon the efforts and abilities of our key personnel and our ability to attract and retain key personnel. Our management teams have significant experience in the industries in which we operate and have made an important contribution to our growth and success. Although we have been successful in attracting and retaining such people in the past, competition for highly skilled individuals is intense. There can be no assurance that we will continue to be successful in attracting and retaining such individuals in the future. The loss of the services of any of these individuals could have an adverse effect on our business, results of operations and cash flows.

We may be unsuccessful in identifying or integrating suitable acquisitions, which could impair our growth.

        Our growth strategy is built upon organic growth and on taking advantage of opportunities to acquire complementary businesses. This strategy depends on the availability of acquisition candidates with businesses that can be successfully integrated into our existing business and that will provide us with complementary capabilities, products or services. However, we may be unable to identify targets that will be suitable for acquisition. In addition, if we identify a suitable acquisition candidate, our ability to successfully implement the acquisition will depend on a variety of factors, including our ability to finance the acquisition. Our ability to finance our acquisitions is subject to a number of factors, including the availability of adequate cash from operations or of acceptable financing terms and the terms of our debt instruments. In addition, there are many challenges to integrating acquired companies and businesses in our company, including eliminating redundant operations, facilities and systems, coordinating management and personnel, retaining key employees, managing different corporate cultures and achieving cost reductions and cross-selling opportunities. We may not be able to meet these challenges in the future.

The price of our common stock may be volatile and may be affected by market conditions beyond our control.

        Our share price is likely to fluctuate in the future because of the volatility of the stock market in general and a variety of factors, many of which are beyond our control, including:

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general economic conditions that impact infrastructure activity, including interest rate movements;

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quarterly variations in actual or anticipated results of our operations;

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speculation in the press or investment community;

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changes in financial estimates by securities analysts;

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actions or announcements by our competitors;

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actions by our principal stockholders;

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trading volumes of our common stock;

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regulatory actions;

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litigation;

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U.S. and international economic, legal and regulatory factors unrelated to our performance;

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loss or gain of a major customer;

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additions or departures of key personnel; and

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future sales of our common stock.

        Market fluctuations could result in extreme volatility in the price of shares of our common stock, which could cause a decline in the value of your investment. You should also be aware that price

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volatility may be greater if the public float and trading volume of shares of our common stock is low. In addition, if our operating results and net income fail to meet the expectations of stock analysts and investors, we may experience an immediate and significant decline in the trading price of our stock.

Our ability to pay regular dividends to our stockholders is subject to the discretion of our board of directors and may be limited by our holding company structure, the covenants in our debt instruments and applicable provisions of Delaware law.

        Our board of directors may, in its discretion, decrease the level of dividends or discontinue the payment of dividends entirely. In addition, as a holding company, we will be dependent upon the ability of our subsidiaries to generate earnings and cash flows and distribute them to us so that we may pay our obligations and expenses and pay dividends to our stockholders. Our ability to pay future dividends and the ability of our subsidiaries to make distributions to us will be subject to our and their respective operating results, cash requirements and financial condition, the applicable laws of the State of Delaware (which may limit the amount of funds available for distribution), compliance with covenants and financial ratios related to existing or future indebtedness and other agreements with third parties. If, as a consequence of these various limitations and restrictions, we are unable to generate sufficient distributions from our business, we may not be able to make, or may have to reduce or eliminate, the payment of dividends on our shares.

Our stockholder rights agreement could discourage potential acquisition proposals and could deter a change of control.

        On November 21, 2008, we adopted a rights agreement which, in certain circumstances, including a person or group acquiring, or the commencement of a tender or exchange offer that would result in a person or group acquiring, beneficial ownership of more than 20% of the outstanding shares of common stock, would entitle each right holder, other than the person or group triggering the plan, to receive, upon exercise of the right, shares of common stock having a value equal to twice the exercise price of a right. This rights agreement provides us with a defensive mechanism that decreases the risk that a hostile acquirer will attempt to take control of the Company without negotiating directly with our Board of Directors. This and other provisions of our rights agreement may discourage third parties from attempting to purchase our Company, which may adversely affect the price of our common stock.

We may incur substantial expenses and payments if the spin-off and merger of our financing business merger does not occur.

        We have announced the spin-off and a merger of our finance business with Hanover Capital Mortgage Holdings, Inc. ("HCM") a publicly traded real estate investment trust. It is possible that the merger may not be completed. The closing of the merger depends on the satisfaction or waiver of specified conditions. Some of these conditions are beyond our control. For example, the closing of the merger is conditioned on approval by HCM's stockholders. If this approval is not received the merger cannot be completed even if all of the other conditions to the merger are satisfied or waived. If the merger is not completed, we will have incurred substantial expenses without realizing the expected benefits of the transactions. In addition, we may also be subject to additional risks if the merger is not completed, including:

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substantial costs related to the merger, such as legal, accounting and financial advisory fees, must be paid regardless of whether the spin-off and merger is completed;

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potential disruption to our businesses and distraction of our workforce and management team; and

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a decline in the price of our common stock to the extent that the market price reflects positive market assumptions that the spin-off and the merger will be completed and the related benefits will be realized.

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If the spin-off does not constitute a tax-free spin-off or the merger does not constitute a tax-free reorganization under the Code, then one or more of the Company and its stockholders may be responsible for the payment of U.S. federal income taxes.

        The spin-off and merger of our financing business are conditioned upon, among other things, Walter's receipt of a ruling from the IRS to the effect that (among other things) the spin-off would be tax-free to the Company and its stockholders for U.S. federal income tax purposes under Section 355 of the Code. Although a private letter ruling from the IRS is generally binding upon the IRS, if the factual representations or assumptions made in the letter ruling request are untrue or incomplete in any material respect, then the Company will not be able to rely on the ruling.

        In addition, the IRS will not rule on whether a distribution satisfies certain requirements necessary to obtain tax-free treatment under Section 355 of the Code. Therefore, the spin-off and merger are also conditioned on the Company's receipt of an opinion from its accountants as to the satisfaction of these required qualifying conditions for the application to the spin-off of Section 355 of the Code. The tax opinion is not binding on the IRS or the courts. Lastly, the spin-off and merger are conditioned, among other things, on the Company's receipt of an opinion from its legal counsel and counsel representing Hanover Capital Mortgage Holdings, Inc. ("HCM"), each to the effect that the merger will be treated as a tax-free reorganization within the meaning of Section 368 of the Code. On February 17, 2009, the merger agreement was amended to eliminate the right to waive the condition to closing relating to receipt by the Company of rulings from the IRS and an opinion from the Company's accountants in respect of the tax-free nature of the spin-off and certain other federal income tax consequences of the spin-off and merger. These opinions will rely on, among other things, current law and certain representations and assumptions as to factual matters made by the Company and HCM. Any change in applicable law or the failure of any factual representation or assumption to be true and complete in all material respects, could adversely affect the conclusions reached in these opinions. The opinions will not be binding on the IRS or the courts, and the IRS and the courts may not agree with the opinions.

Following the spin-off and merger of the financing business, the surviving corporation may not be able to satisfy certain indemnification obligations to the Company.

        The surviving corporation following the merger of the financing business with Hanover Capital Mortgage Holdings, Inc. ("HCM"), as successor to the financing business, will be party to certain agreements with the Company, including a tax sharing agreement, transition services and a joint litigation agreement. Under the terms of the tax sharing agreement, to the extent that the Company or the surviving corporation takes any action that would be inconsistent with the treatment of the spin-off of the financing business from the Company as a tax-free transaction under Section 355 of the Code, then any tax resulting from such actions will be attributable to the acting company and will result in indemnification obligations that could be significant. Under the terms of the transition services agreement, the Company and the financing business will provide certain services to each party for a limited duration. Under the terms of the joint litigation agreement, the surviving corporation, as successor to the financing business, will indemnify the Company for certain liabilities arising from businesses and operations of the financing business at the time of the spin-off. The ability to satisfy these indemnities if called upon to do so will depend upon the future financial strength of the surviving company. If the surviving corporation is unable to satisfy its obligations under its indemnity to us, we may have to satisfy those obligations.

Our financing business is exposed to increased risks of delinquencies, defaults and losses on mortgages and loans associated with our strategy of providing credit or loans to lower credit grade borrowers.

        Our financing business specializes in originating and servicing mortgage notes and loans (which we refer to as "mortgage assets") to credit-impaired borrowers who are generally unable to qualify for loans from conventional mortgage sources due to loan size, credit characteristics or other requirements.

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We are subject to various risks associated with the lower credit homeowners, including, but not limited to, the risk that these borrowers will not pay the principal and finance charges or interest when due, and that the value received from the sale of the borrower's home in a repossession will not be sufficient to repay the borrower's obligation to us. Delinquencies and defaults cause reductions in our interest income and our net income.

        If delinquency rates and losses are greater than we expect:

•

the fair market value of our ownership interest in the securitizations we have sponsored in the past may decline; or

•

the allowances that we establish for losses on mortgage assets may be insufficient, which could depress our business, financial condition, liquidity and net income.

        During economic slowdowns or recessions, mortgage and loan delinquencies and defaults generally increase. In addition, significant declines in market values of residences securing mortgages and loans reduce homeowners' equity in their homes. The limited borrowing power of our customers increases the likelihood of delinquencies, defaults and credit losses on foreclosure. Many of our borrowers have limited access to consumer financing for a variety of reasons, including a relatively high level of debt service, lower credit scores, higher loan-to-value ratios of the mortgage assets, past credit write-offs, outstanding judgments or prior bankruptcies. As a result, the actual rate of delinquencies, repossessions and credit losses on our loans are often higher under adverse economic conditions than those experienced in the mortgage loan industry in general.

        Approximately 2% of our mortgage portfolio is comprised of adjustable rate mortgage loans that require payment adjustments during the term of the loan. This adjustment in payment may result in increased payment defaults by borrowers who are unprepared or unable to meet higher payment requirements, resulting in higher losses to us. In addition, the rate of delinquencies may be higher after natural disasters or adverse weather conditions. For example, during 2005, Hurricane Katrina impacted several states where our mortgage asset portfolio had high concentrations of customers. As a result, our delinquency rate in those states increased substantially and we incurred a special $1.3 million provision for estimated losses on installment notes that was anticipated as a result. In 2008, Hurricanes Gustav and Ike also impacted the financing business, with recorded estimated losses of $3.9 million during its third quarter ended September 30, 2008, for these hurricane impacts.

        After a default by a borrower, we evaluate the cost effectiveness of repossessing the property. Such default may cause us to charge our allowances for credit losses on our loan portfolio. Any material decline in real estate values increases the loan-to-value ratios of our loans and the loans backing our mortgage related securities. This weakens collateral values and the amount, if any, obtained upon repossessions. If we must take losses on a mortgage or loan backing our mortgage related securities or loans that exceed our allowances, our financial condition, net income and cash flows could suffer.

Our mortgage-backed and asset-backed securitizations require over-collateralization and credit enhancement, which may decrease our cash flow and net income.

        The financing business securitizations typically have over-collateralization requirements that may decrease the value of our ownership interests in our securitizations and have a negative impact on our cash flow. Generally, if the mortgage assets of a securitization trust perform poorly, the over-collateralization feature of the securitization directs excess cash flow from the securitized pool of mortgage assets to the senior debt securities of the trust. During any period in which this happens we may not receive any cash distributions from such mortgage trust. In addition, the pool of mortgage assets of a securitization must meet certain performance tests based on delinquency levels, losses and other criteria in order for us to receive excess cash flow. If these performance tests, or significant terms regarding the calculation of such tests, are not satisfied, we would not be permitted to receive excess cash flow from the securitizations. Material variations in the rate or timing of our receipt of cash

20

distributions from these mortgage assets may adversely affect our mortgage servicing business and net income and may affect our overall financial condition.

We are subject to a number of federal, local and state laws and regulations that may prohibit or restrict our financing or servicing in some regions or areas.

        We are subject to a number of federal, state and local laws that affect sales, mortgage financing and servicing. There have been an increasing number of "anti-predatory" lending and consumer protection laws that impose restrictions on mortgage loans, including the amount of fees, interest or annual percentage rates that may be charged. As a result of current market conditions, the U.S. Congress has announced that it will be considering new legislation in the mortgage sector. To the extent that the enactment of new laws imposes broad restrictions on our homebuilding, financing and servicing, we may be subject to the imposition of requirements that offset sales, costs, profitability or may be prohibited or restricted from operating in certain regions or areas which could negatively impact our future revenue and earnings.

Economic conditions in Texas, North Carolina, Louisiana, Mississippi, Alabama and Florida have a material impact on our financing business' profitability because it conducts a significant portion of our business in these markets.

        The mortgage assets of the financing business currently are concentrated in the Texas, North Carolina, Louisiana, Mississippi, Alabama and Florida markets. In the past, rates of loss and delinquency on mortgage assets have increased from time to time, driven primarily by weaker economic conditions in these markets. Furthermore, precarious economic and budget situations at the state government level may hinder the ability of our customers to repay their obligations in areas in which we conduct the majority of our financing operations. Our concentration of mortgage assets in such markets may have a negative impact on our operating results.

Natural disasters and adverse weather conditions could disrupt our businesses and adversely affect our results of operations.

        The climates of many of the states in which the financing business operates, including Louisiana, Mississippi, Alabama, Florida and Texas, present increased risks of natural disaster and adverse weather. Natural disasters or adverse weather in the areas in which we finance or insure homes or in nearby areas, have in the past, and may in the future, lead to significant insurance claims, cause increases in delinquencies and defaults in our mortgage portfolio and weaken the demand for new homes in affected areas, which could adversely affect its results. In addition, the rate of delinquencies may be higher after natural disasters or adverse weather conditions. For example, during the third quarter of 2008 and 2005 Hurricanes Ike, Gustav and Katrina impacted several states where our mortgage asset portfolio had high concentrations of customers. As a result, our delinquency rate in those states increased substantially and we incurred a special $3.9 million provision related to Hurricanes Ike and Gustav in 2008 and a provision of $1.3 million related to Hurricane Katrina in 2005, for estimated losses on installment notes that were anticipated as a result of the hurricanes. The occurrence of large loss events due to natural disasters or adverse weather could reduce the insurance coverage available to us, increase the cost of our insurance premiums and weaken the financial condition of our insurers, thereby limiting our ability to mitigate any future losses we may incur from such events. Moreover, severe flooding, wind and water damage, forced evacuations, contamination, gas leaks, fire and environmental and other damage caused by natural disasters or adverse weather could lead to a general economic downturn, including increased prices for oil, gas and energy, loss of jobs, regional disruptions in travel, transportation and tourism and a decline in real-estate related investments, especially in the areas most directly damaged by the disaster or storm.

21

The financing business is subject to a number of federal, local and state laws and regulations that may prohibit or restrict our financing or servicing in some regions or areas.

        The financing business is subject to a number of federal, state and local laws that affect mortgage financing and servicing. There have been an increasing number of "anti-predatory" lending and consumer protection laws that impose restrictions on mortgage loans, including the amount of fees, interest or annual percentage rates that may be charged. As a result of current market conditions, the U.S. Congress has announced that it will be considering new legislation in the mortgage sector. To the extent that the enactment of new laws imposes broad restrictions on our financing and servicing, we may be subject to the imposition of requirements that offset sales, costs, profitability or may be prohibited or restricted from operating in certain regions or areas which could negatively impact our future revenue and earnings.

We may be required to satisfy certain indemnification obligations to Mueller Water or may not be able to collect on indemnification rights from Mueller Water.

        In connection with the spin-off of Mueller Water Products, Inc. ("Mueller Water") on December 14, 2006, we entered into certain agreements with Mueller Water, including an income tax allocation agreement and a joint litigation agreement. Under the terms of those agreements, we and Mueller Water agreed to indemnify each other with respect to the indebtedness, liabilities and obligations that will be retained by our respective companies, including certain tax and litigation liabilities. These indemnification obligations could be significant. For example, to the extent that we or Mueller Water take any action that would be inconsistent with the treatment of the spin-off of Mueller Water as a tax-free transaction under Section 355 of the Internal Revenue Code, then any tax resulting from such actions is attributable to the acting company. The ability to satisfy these indemnities if called upon to do so will depend upon the future financial strength of each of our companies. We cannot determine whether we will have to indemnify Mueller Water for any substantial obligations after the distribution. If Mueller Water has to indemnify us for any substantial obligations, Mueller Water may not have the ability to satisfy those obligations. If Mueller Water is unable to satisfy its obligations under its indemnity to us, we may have to satisfy those obligations.

We may have substantial additional federal tax liability for accounting adjustments related to our method of recognizing revenue on the sale of homes and interest on related installment note receivables, as well as to federal income taxes allegedly owed.

        The Internal Revenue Service has issued a Notice of Proposed Deficiency assessing additional tax of $82.2 million for the fiscal years ended May 31, 2000, December 31, 2000 and December 31, 2001. The proposed adjustments relate primarily to our method of recognizing revenue on the sale of homes and related interest on the installment note receivables. In addition, a controversy exists with regard to federal income taxes allegedly owed by our consolidated group of companies for fiscal years 1980 through 1994. It is estimated that the amount of tax presently claimed by the Internal Revenue Service is approximately $34.0 million for issues currently in dispute in bankruptcy court. This amount if determined to be owed would result in substantial interest and penalties. While we believe that our tax filing positions have substantial merit and intend to defend any tax claims asserted, we cannot offer any assurance that the Internal Revenue Service or a federal court will uphold our tax filing positions. Moreover, although we believe that we have sufficient accruals to address any such tax claims, including related interest and penalties, an adverse ruling, judgment or court order could impose significant financial liabilities in excess of our accruals, which could have an adverse effect on our financial condition and results of operations and could require a significant cash payment.

Recently announced closure of the Homebuilding businesses may negatively impact results of operations.

        Any costs, taxes, charges and write-offs that result from a closure of our homebuilding operations will have a negative impact on our results of operations. Additionally, in connection with the

22

wind-down and closure of the homebuilding operations, we may agree to provide indemnities with respect to, or remain liable for, warranty, contractual, health and welfare benefit obligations, taxes and other liabilities of our Homebuilding business. These retained liabilities and indemnification obligations may be material and may result in us incurring additional expenses even after a wind-down and closure is completed, which could have a negative impact on our results of operations.

Item 1B.    Unresolved Staff Comments:

None

23

Item 2.    Description of Property

        The administrative headquarters and production facilities of the Company and its subsidiaries as of December 31, 2008 are summarized as follows:

						Square Footage
				Land Acreage
Facility/Location		Principal Products/Operations				Leased		Owned
Natural Resources
Jim Walter Resources
	Brookwood, AL		Administrative headquarters						42,000
	Brookwood, AL		Central shop, supply center and training center						131,100
	Brookwood, AL		Real estate- Owned		7,000
	Brookwood, AL		Coal mines		34,259				460,600
United Land Corporation
	Birmingham, AL		Administrative headquarters				800
	Brookwood, AL		Mine support facilities		40
Kodiak(1)
	Shelby County, AL		Mine support facilities						13,100
	Shelby County, AL		Administrative headquarters				2,700
	Shelby County, AL		Supply shop						9,800
	Shelby County, AL		Real estate		76
Tuscaloosa Resources
	Mt. Brook, AL		Administrative headquarters				1,681
	Brookwood, AL		Mine support facilities				576		5,576
	Brookwood, AL		Real estate—Leased		2,240
Taft Coal Sales & Associates
	Jasper, AL		Administrative headquarters				3,680
	Walker County, AL		Mine support facilities						1,800
	Walker County, AL		Supply shop						4,075
	Walker County, AL		Real estate—Owned		1,468
	Walker County, AL		Real estate—Leased		2,664
Sloss
	Birmingham, AL		Administrative headquarters						12,000
	Birmingham, AL		Furnace & foundry coke battery		511				148,000
	Birmingham, AL		Slag fiber		5				63,000
	Birmingham, AL		Closed facility		3				53,000
	Birmingham, AL		Closed facility		2				10,000
	Alexandria, IN		Closed facility		33				112,000
Homebuilding
	Tampa, FL		Administrative headquarters				24,200
Financing
	Tampa, FL		Administrative headquarters				22,300
	Richland Hills, TX		Call Center / Divisional office for Walter Mortgage Company				4,028
Other
	Tampa, FL		Administrative headquarters				31,574

(1)

Kodiak's mining operations ceased in December 2008. Facilities have been idled.

24

        Recoverable coal reserves as of December 31, 2008 were as follows.

ESTIMATED RECOVERABLE (1) COAL RESERVES
AS OF DECEMBER 31, 2008
(In Thousands of Tons)

		RESERVES(2)																QUALITY
								CLASSIFICATIONS(3)					Compliant	WII'S INTEREST				(Wet Basis)
	Status of Operation	Recoverable(1) Reserves																									Average Coal Seam Thickness (in Feet)
Mine				Assigned(2)		Unassigned(2)		Measured		Indicated		Type(4)	Y / N	Owned		Leased(5)		Ash		Sulfur		BTU/lb.		Reportable Acres		Coal Beds
JWR's No. 4 Mine(6,7,8)	Operational		71,801		71,801		—		69,230		2,571	Steam and/or Metallurgical	Yes		—		71,801		9.00		0.80		13,909		16,296	Mary Lee and Blue Creek		4.67
JWR's No. 5 Mine(9)	Closed Dec. 2006		—		—		—		—		—	—	Yes		—		—		—		—		—		—	—		—
JWR's No. 7 Mine(10,11)	Operational		80,282		80,282		—		68,779		11,503	Steam and/or Metallurgical	Yes		1,144		79,138		9.00		0.65		13,952		17,963	Mary Lee and Blue Creek		4.75
TRI's(12) East Brookwood Mine(14)	Operational		2,232		2,232		—		2,232		—	Steam and/or Metallurgical	No		2,232		—		12.06		1.08		12,775		128	Upper & Lower Brookwood, Milldale, Carter & Johnson		12.50
TRI's(12) Howton Mine(14)	Operational		411		411		—		411		—	Steam and/or Metallurgical	No		319		92		12.20		1.23		12,705		111	Guide, Lower Brookwood, Milldale, Carter		5.50
TRI's(12) Panther 3 Mine(15)	Idled		289		289		—		289		—	Steam	No		289		—		8.93		1.47		13,636		161	Carter, Johnson		1.99
Taft's(13) Choctaw South Mine(14)	Operational		3,180		3,180		—		3,180		—	Steam and/or Metallurgical	No		—		3,180		12.27		1.96		12,797		331	Pratt, Nickle Plate, Top American, Bot. American & American No. 3		6.89
Taft's(13) Choctaw West Mine(15)	Ready for Operation		855		855		—		855		—	Steam and/or Metallurgical	No		—		855		11.73		1.40		12,280		102	Pratt, Nickle Plate, Top American, Bot. American & American No. 3		6.19
Taft's(13) Reid School Mine(15)	Ready for Operation		569		569		—		569		—	Steam and/or Metallurgical	Yes—Black Creek Only		—		569		3.36		1.13		14,927		130	Lick Creek Jefferson & Black Creek		4.40
Taft's(13) Gayosa South Mine(15)	Development		389		389		—		389		—	Steam and/or Metallurgical	No		—		389		14.69		1.32		12,484		70	Pratt, Nickle Plate, Top American, Bot. American		4.79
United Land Corp. Flat Top Mine(15)	Ready for Operation		2,285		2,285		—		2,285		—	Steam	No		2,285		—		10.89		2.13		13,590		356	Pratt, Nickle Plate, Top American		5.80
United Land Corp. Highway 59 Mine(15)	Development		799		799		—		799		—	Steam and/or Metallurgical	No		799		—		7.81		1.21		13,404		128	Lower Brookwood, Mildale, Carter & Johnson		7.84
United Land Corp. Beltona East Mine(15)	Development		1,117		1,117		—		1,117		—	Steam and/or Metallurgical	Yes—Black Creek Only		1,117		—		7.79		2.58		14,162		184	Lick Creek Jefferson & Black Creek		4.88
United Land Corp. Swann's Crossing Mine(15)	Development		1,376		1,376		—		1,376		—	Steam and/or Metallurgical	No		1,376		—		12.57		1.29		12,395		98	Guide 1 & 2, Lower Brookwood, Mildale, Carter		9.51
United Land Corp. Morris Mine(15)	Development		1,985		1,985		—		579		1,406	Steam	No		1,985		—		20.80		1.60		12,175		249	Upper & Lower New Castle, Marylee, Blue Creek		5.46
Total(16)			167,570		167,570				152,090		15,480				11,546		156,024								36,307

25

(1)

"Recoverable" reserves are defined as tons of mineable coal which can be extracted and marketed after deduction for coal to be left in pillars, etc. and adjusted for reasonable preparation and handling losses. Resource recovery is estimated at 54% for JWR's No. 4 and No. 7 Mines. For all other mines, recovery is estimated at 81%. Third-party review of the Company's reserve estimates have not been performed for JWR's No. 4 and No. 7 mines.

(2)

"Assigned" reserves represent coal which has been committed to mines, whether operating or in development. "Unassigned" reserves represent coal which is not committed to a mine. The division of reserves into these two categories is based upon current mining plans, projections and techniques.

(3)

The recoverable reserves (demonstrated resources) are the sum of "Measured" and "Indicated" resources. Measured coal extends 1/4 mile from any point of observation or measurement. Indicated coal is projected to extend from 1/4 mile to 3/4 miles from any point of observation or measurement. Inferred coal extends from 3/4 mile to 3 miles from any point of observation or measurement. Inferred resources are not included in the recoverable reserves.

(4)

All of the coal in the Blue Creek, Mary Lee and Black Creek seams is suitable for metallurgical purposes and as a compliance steam coal.

(5)

A majority of the leases are either renewable until the reserves are mined to exhaustion or are of sufficient duration to permit mining of all the reserves before the expiration of the term. Leases that expire before mining occurs have been removed from the reserve estimate.

(6)

No. 4 Mine is an underground longwall mine. Production levels are a function of several processes operating simultaneously, each with it's own capacity limitations. Coal production starts at either the longwall face or a miner section face. No. 4 Mine has one longwall unit capable of producing at a rate of 4,000 raw tons per hour at any given instant. In addition, No. 4 Mine has at any time 3 or 4 continuous miner units with each capable of producing at a rate of 33 raw tons per minute. Both the longwall and the continuous miner units load raw coal onto a series of conveyor belts. These belts are capable of hauling from 4,000 raw tons per hour for face belts to 5,000 raw tons per hour for main line belts. The belt conveyors take the raw coal to the production shaft and hoist which is capable of hoisting 1,300 raw tons per hour to the surface storage piles.

(7)

No. 4 Mine has a 1,300 raw ton per hour preparation plant consisting of heavy media baths, spirals, and flotation. There is also a unit train load out facility capable of loading at a rate of 2,400 tons per hour.

(8)

No. 4 Mine expanded its reserves by acquiring an additional lease encompassing over 7,000 acres in 2008.

(9)

No. 5 Mine suspended operations in December 2006.

(10)

No. 7 Mine is similar in production method and capacity to No. 4 Mine, with the exception of the recent expansion of the mine to increase from one longwall unit to two longwall units and from 3 to 4 continuous miner units to 5 to 6 continuous miner units. Further, a second production hoist has been added.

(11)

No. 7 Mine has two preparation plants. The first one has a capacity to process 1,400 raw tons per hour and the second one has a capacity to process 1,000 raw tons per hour. Both plants consist of cyclones, spirals, and flotation. No. 7 Mine also has two unit train load-outs on separate track loops. Both load-outs are capable of loading 2,400 tons per hour.

(12)

United Land Corporation (ULC) purchased 100% of the stock of TRI effective August 31, 2007.

(13)

ULC purchased 100% of the stock of Taft effective September 2, 2008.

(14)

These active mines are surface mines utilizing drills, excavators, dozers and rock trucks for coal removal. In addition, the Taft Choctaw South Mine uses a 47 cubic yard dragline.

(15)

Mines labeled as "ready for operation" will begin production when market conditions permit. Tons at TRI's idled Panther 3 Mine will be mined when market conditions permit. Mines that are labeled as "development" are undeveloped surface mines that are intended to be fully developed and mined as market conditions permit. No definitive production dates have been identified for these mines.

(16)

Additional properties that are currently not under lease are under review for possible leasing options.

        Production and average coal selling price per ton for each of the three years in the period ended December 31, 2008 were as followings (production in thousands):

	Production(1) /Average Coal Selling Price per Ton
Mine	2008				2007				2006
JWR's No. 4 Mine		3,188	$	137.74		3,074	$	92.39		2,187	$	100.16
JWR's No. 5 Mine(2)		—	$	—		—	$	76.48		821	$	102.87
JWR's No. 7 Mine		2,854	$	127.17		2,764	$	91.88		2,646	$	106.22
TRI's East Brookwood Mine(3)		529	$	64.48		172	$	61.42		NA		NA
TRI's Howton Mine(3)		297	$	66.03		75	$	62.06		NA		NA
Taft's Choctaw South Mine(4)		219	$	64.45		NA		NA		NA		NA
Total		7,087				6,085				5,654

(1)

The production year ends December 31st.

(2)

No. 5 Mine ceased operations in December 2006. Coal sales in 2007 represent sales of inventory remaining as of December 31, 2006.

(3)

TRI was acquired on August 31, 2007. Production and average coal selling price per ton include activity since the date of acquisition.

(4)

Taft was acquired on September 2, 2008. Production and average coal selling price per ton include activity since the date of acquisition.

Item 3.    Legal Proceedings

        See the section entitled "Environmental" in Description of Business and Notes 2 and 16 of "Notes to Consolidated Financial Statements" included herein.

Item 4.    Submission of Matters to a Vote of Security Holders

None

26

PART II

Item 5.    Market for the Registrant's Common Stock, Related Stockholder Matters and Issuer Purchases of Equity Securities

        The Company's common stock (the "Common Stock") has been listed on the New York Stock Exchange under the trading symbol "WLT" since December 18, 1997. The table below sets forth, for the fiscal periods indicated, the range of high and low closing sales prices of the Common Stock.

	Year ended December 31, 2008
	High		Low
1st Fiscal quarter	$	62.90	$	32.74
2nd Fiscal quarter		108.77		64.58
3rd Fiscal quarter		109.77		42.09
4th Fiscal quarter		45.31		12.20

	Year ended December 31, 2007
	High		Low
1st Fiscal quarter	$	28.50	$	24.09
2nd Fiscal quarter		32.22		26.74
3rd Fiscal quarter		31.91		21.62
4th Fiscal quarter		38.50		27.24

        During the year ended December 31, 2008 the Company declared and paid a dividend of $0.05 per share to shareholders of record on February 20 and May 9 declared and paid a dividend of $0.10 per share to shareholders of record on September 12 and November 7. During the year ended December 31, 2007, the Company declared and paid to shareholders of record on March 16, June 8, September 14 and December 7 a dividend of $0.05 per share as of each of these dates. Covenants contained in certain of the debt instruments referred to in Note 12 of "Notes to Consolidated Financial Statements" may restrict the amount the Company can pay in cash dividends. Future dividends will be declared at the discretion of the Board of Directors and will depend on the Company's future earnings, financial condition and other factors affecting dividend policy. As of February 25, 2008, there were 106 shareholders of record of the Common Stock.

        The following table sets forth certain information relating to the Company's equity compensation plans as of December 31, 2008:

		Number of Securities to be Issued upon Exercise of Outstanding Options, Warrants and Rights		Weighted Average Exercise Price of Outstanding Options, Warrants and Rights		Number of Securities Remaining Available for Future Issuance
Equity compensation plans approved by Security holders:
	2002 Long-term Incentive Award Plan		1,522,950	$	30.09		2,146,724
	1995 Long-term Incentive Stock Plan		184,765		7.42		—
	1996 Employee Stock Purchase Plan		—		—		1,500,143

Sales of Unregistered Securities

        In 2004, the Company issued and sold in a private placement $175.0 million principal amount of 3.75% Convertible Senior Subordinated Notes, due 2024, to qualified institutional buyers pursuant to Rule 144A under the Securities Act of 1933, as amended on April 20, 2004. Proceeds to the Company were approximately $168.9 million, net of approximately $6.1 million of underwriting fees and expenses.

27

During 2006, holders of $174.2 million of the Company's Convertible Senior Subordinated Notes surrendered convertible notes in exchange for 9.761 million shares of the Company's common stock and $19.4 million of conversion inducement payments. In January 2008, the holders of the remaining notes agreed to convert the $0.8 million principal amount in exchange for 84,013 shares of the Company's common stock and $0.1 million of conversion inducement payments.

Common Stock Offering

        In June 2008, the Company completed an offering of 3.2 million shares of its common stock, from which it received $280.5 million of net proceeds. The Company used these proceeds to repay a portion of the term loan and revolving credit facility borrowings under the Company's Amended 2005 Walter Credit Agreement.

Purchase of Equity Securities by the Company and Affiliated Purchasers

Period	Total Number of Shares Purchased		Average Price Paid per Share Units		Total Number of Shares Purchased as Part of Publicly Announced Plans or Programs		Approximate Dollar Value of Shares that May Yet Be Purchased Under the Plans or Programs (in millions)(1)(3)(4)
January 1, 2008–January 31, 2008		11,400	$	31.83		11,400	$	19.0
February 1, 2008– February 29,2008(2)		26,800	$	52.41		—	$	19.0
March 1, 2008–March 31, 2008		—	$	—		—	$	19.0
April 1, 2008–April 30, 2008		—	$	—		—	$	19.0
May 1, 2008–May 31, 2008		—	$	—		—	$	19.0
June 1, 2008–June 30, 2008		—	$	—		—	$	19.0
July 1, 2008–July 31, 2008		—	$	—		—	$	19.0
August 1, 2008–August 31, 2008		—	$	—		—	$	19.0
September 1, 2008– September 30, 2008		237,127	$	59.43		237,127	$	4.9
October 1, 2008–October 31, 2008		1,184,872	$	36.09		1,184,872	$	12.2
November 1, 2008– November 30, 2008		197,600	$	37.36		197,600	$	4.8
December 1, 2008– December 31, 2008		—	$	—		—	$	54.8
		1,657,799				1,630,999

(1)

On August 13, 2007, the Company's Board of Directors authorized a $25.0 million Common Stock Open Market share buyback program to replace the July 21, 2003 authorized program which was fully utilized on October 3, 2008.

(2)

On February 25, 2008, the Company acquired 26,800 shares from employees at an average price of $52.41 per share. These shares were acquired to satisfy the employees' tax withholding obligations associated with the lapse of restrictions on certain stock awards granted under the 1995 Long-Term Incentive Stock Plan and the 2002 Long-Term Incentive Award Plan. Upon acquisition, these shares were retired.

(3)

On September 26, 2008, the Board of Directors approved a new $50.0 million share repurchase program, which is intended to replace the previously authorized $25.0 million share repurchase program.

(4)

On December 31, 2008, the Company announced that its Board of Directors had authorized a $50.0 million expansion of the Company's share repurchase program. The new program began on January 1, 2009 and purchases will be based on liquidity and market conditions. See Note 14 of "Notes to Consolidated Financial Statements."

28

Item 6.    Selected Financial Data

        The following data, insofar as it relates to each of the years ended December 31, 2008, 2007, 2006, 2005 and 2004 has been derived from annual consolidated financial statements, including the consolidated balance sheets and the related consolidated statements of operations, changes in stockholders' equity and comprehensive income (loss) and statements of cash flows and the notes thereto as they relate to the Company's continuing operations as of December 31, 2008. The information presented below is for continuing operations only and should be read in conjunction with the Company's consolidated financial statements and the notes thereto including Note 2 related to significant accounting policies, Note 3 related to discontinued operations and acquisitions, and the other information contained elsewhere in this report.

29

		Years ended December 31,
		2008			2007			2006		2005		2004
		(in thousands, except per share data)
Net sales and revenues		$	1,487,070		$	1,239,821		$	1,272,908	$	1,098,225	$	951,178
Income from continuing operations(1)		$	368,134		$	125,002		$	156,297	$	42,974	$	53,282
Basic income per share from continuing operations		$	6.84		$	2.40		$	3.55	$	1.12	$	1.38
Number of shares used in calculation of basic income per share from continuing operations			53,791			52,016			44,030		38,485		38,582
Diluted income per share from continuing operations		$	6.74		$	2.38		$	3.07	$	0.96	$	1.22
Number of shares used in calculation of diluted income per share from continuing operations			54,585			52,490			52,078		49,209		46,255
Capital expenditures		$	143,494		$	151,913		$	90,528	$	104,084	$	29,654
Net property, plant and equipment		$	515,418		$	414,463		$	292,334	$	244,512	$	175,757
Total assets(2)		$	3,061,326		$	2,741,633		$	2,649,763	$	2,436,236	$	2,433,302
Debt:
	Mortgage-backed/asset-backed notes	$	1,372,821		$	1,706,218		$	1,736,706	$	1,727,329	$	1,763,827
	2005 Walter term loan	$	138,934		$	218,517		$	248,706	$	448,875	$	—
	2005 Walter revolving credit facility	$	40,000		$	—		$	—	$	—	$	—
	Convertible senior subordinated notes	$	—		$	785		$	785	$	175,000	$	175,000
	Miscellaneous debt	$	46,451		$	6,558		$	—	$	—	$	—
Quarterly cash dividend per common share		$	0.10	(4)	$	0.05	(3)	$	0.04	$	0.04	$	0.03

(1)

Includes a tax benefit of $167.0 million resulting from a worthless stock deduction as a result of the deemed liquidation of the Company's Homebuilding business on December 31, 2008.

(2)

Excludes assets of discontinued operations.

(3)

Raised to $0.05 per common share on February 7, 2007.

(4)

Raised to $0.10 per common share on July 31, 2008.

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Item 7.    Management's Discussion and Analysis of Results of Operations and Financial Condition and

Item 7A.    Quantitative and Qualitative Disclosures About Market Risk

CRITICAL ACCOUNTING ESTIMATES

        Management's discussion and analysis is based on, and should be read in conjunction with, the consolidated financial statements and notes thereto, particularly Note 18 of "Notes to Consolidated Financial Statements" which presents net sales and revenues and operating income by reportable segment. The preparation of financial statements in accordance with accounting principles generally accepted in the United States of America ("U.S. GAAP") requires management to make estimates and assumptions that affect the amounts reported in these financial statements or disclosed in the related notes thereto. Management evaluates these estimates and assumptions on an ongoing basis, utilizing historical experience, consultation with experts and other methods considered reasonable in the particular circumstances. Nevertheless, actual results may differ significantly from management's estimates.

        Management believes the following discussion addresses the Company's most critical accounting estimates, which are those that are most important to the portrayal of the Company's financial condition and results and require management's most difficult, subjective and complex judgments, often as a result of the need to make estimates about the effect of matters that are inherently uncertain. These estimates are based upon management's historical experience and on various other assumptions that the Company believes reasonable under the circumstances. Changes in estimates used in these and other items could have a material impact on our financial statements.

Revenue recognition

        Revenue transactions involving the sale of homes, products and commodities are recorded when title to the goods is transferred. Interest income on instalment notes is recognized using the interest method. Instalment notes receivable are initially recorded at the discounted value of the future instalment note payments using an imputed interest rate which represents the estimated prevailing market rate of interest for credit of similar terms issued to customers with credit ratings similar to Homebuilding's customers. The Company estimates this rate by reference to rates charged by competitors and other lenders to customers of similar credit quality. These estimates affect revenue recognition by determining the allocation of income between the amount recognized by the Homebuilding segment from the construction of the home and the amount recognized by the Financing segment over the life of the instalment note as interest income. Variations in the estimated market rate of interest used to initially record the instalment notes receivable could affect the amount and timing of income recognition in each of these segments.

Allowances for Losses

        Allowances for losses on trade and other accounts receivable are based, in large part, upon judgments and estimates of expected losses and specific identification of problem trade accounts and other receivables. Significantly weaker than anticipated industry or economic conditions could impact customers' ability to pay or could impact the value of underlying collateral such that actual losses are greater than the amounts provided for in these allowances.

        Management's periodic evaluation of the adequacy of the allowance for losses on instalment notes is based on the Company's past loss experience, known and inherent risks in the portfolio, delinquencies, the estimated value of the underlying real estate collateral, and current economic and market conditions within the applicable geographic areas surrounding the underlying real estate. The allowance for losses on instalment notes and mortgage loans is increased by provisions for losses charged to income and is reduced by charge-offs net of recoveries.

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        The allowance for losses on instalment notes receivable was $19.0 million at December 31, 2008 compared to $14.0 million at December 31, 2007. See Note 7 of "Notes to the Consolidated Financial Statements." The following table shows information about the allowance for losses for the periods presented.

($ in thousands)	Allowance for Losses		As a % of Net Instalment Notes Receivable			Net Losses and Charge Offs Deducted from the Allowance		As a % of Net Instalment Notes Receivable
December 31, 2008	$	18,969		1.07	%	$	16,338		0.92	%
December 31, 2007	$	13,992		0.76	%	$	12,908		0.70	%
December 31, 2006	$	13,011		0.73	%	$	8,540		0.48	%

        The following table presents information about delinquencies in the instalment notes receivable portfolio.

		December 31,
		2008			2007			2006
Total number of accounts outstanding			36,767			39,053			40,991
Delinquencies as a percent of number of accounts outstanding
	31-60 Days		1.32	%		1.36	%		1.43	%
	61-90 Days		0.60	%		0.51	%		0.55	%
	91-Days or more		2.23	%		1.82	%		1.95	%
			4.15	%		3.69	%		3.93	%
Instalment notes receivable outstanding(1)($ in millions)		$	1,789		$	1,851		$	1,793
Delinquencies as a percent of amounts outstanding(1)
	31-60 Days		1.58	%		1.55	%		1.59	%
	61-90 Days		0.72	%		0.64	%		0.65	%
	91-Days or more		3.05	%		2.40	%		2.19	%
			5.35	%		4.59	%		4.43	%

(1)

Based on gross instalment balances outstanding.

        The calculation of delinquencies excludes from delinquent amounts those accounts that are in bankruptcy proceedings that are paying their mortgage payments in contractual compliance with bankruptcy court approved mortgage payment obligations.

Inventory valuation

        The valuation of coal inventories are subject to estimates due to possible gains or losses resulting from inventory movements from the mine site to storage facilities at the Port of Mobile, inherent inaccuracies in belt scales and aerial surveys used to measure quantities and due to fluctuations in moisture content. Adjustments to coal tonnages on hand are made for an estimate of coal shortages due to these inherent losses, primarily based on historical findings, the results of aerial surveys and periodic coal pile clean-ups. During the three years ended December 31, 2008, results of aerial surveys have indicated that perpetual records require adjustments ranging from +3.5% to - -5.5% of the ending inventory balance. As a result of these historical results, the Company has recognized a reduction to the ending coal inventory at December 31, 2008 in the amount of $0.3 million, or 1.1% of the ending balance, as the estimate of the probable valuation inaccuracy inherent in the inventory balance. A 1.0% gain or loss of the inventory balance at December 31, 2008 potentially resulting from these inherent inaccuracies in the measurement processes would result in an increase or decrease, respectively, to

32

income of approximately $0.3 million. Additionally, the Company evaluates its non-coal inventories for indications of excess and obsolete exposure based upon anticipated usage, inventory turnover, inventory levels and ultimate product sales value. If necessary, an adjustment for losses related to inventory values is recognized. This evaluation of inventory values is based on management's estimation of market conditions relating to both pricing and anticipated sales volumes for the Company's products.

Employee Benefits

        The Company provides a range of benefits to its employees and retired employees, including pensions and postretirement healthcare. The Company records annual amounts relating to these plans based on calculations specified by U.S. GAAP, which include various actuarial assumptions used in developing the required estimates including the following key factors:

•

Discount rate

•

Salary growth

•

Retirement rates

•

Mortality rates

•

Healthcare cost trends

•

Expected return on plan assets

		Pension Benefits						Other Benefits
		December 31, 2008			December 31, 2007			December 31, 2008			December 31, 2007
Weighted average assumptions used to determine benefit obligations:
	Discount rate		6.50	%		6.50	%		6.50	%		6.50	%
	Rate of compensation increase		3.70	%		3.60	%		—			—
Weighted average assumptions used to determine net periodic cost:
	Discount rate		6.50	%		5.90	%		6.50	%		5.90	%
	Expected return on plan assets		8.90	%		8.90	%		—			—
	Rate of compensation increase		3.60	%		3.50	%		—			—

		December 31,
		2008						2007
		Pre-65			Post-65			Pre-65			Post-65
Assumed health care cost trend rates:
	Health care cost trend rate assumed for next year		7.60	%		8.40	%		8.60	%		9.40	%
	Rate to which the cost trend rate is assumed to decline (the ultimate trend rate)		5.00	%		5.00	%		5.00	%		5.00	%
	Year that the rate reaches the ultimate trend rate		2014			2014			2013			2013

        The discount rate used to determine pension and other post-retirement expense is 6.50% for both 2008 and 2007. The rate of return on plan assets used to determine pension expense is 8.90% for both 2008 and 2007. The discount rate is based on a yield-curve approach which discounts each projected benefit obligation based cash flow of the liability stream at an interest rate specifically applicable to the timing of each respective liability stream cash flow. The model sums the present values of all of the cash flows and then calculates the equivalent weighted-average discount rate by imputing the single interest rate that equates the total present value with the stream of future cash flows. The Company

33

reviews its actuarial assumptions on an annual basis and makes modifications to the assumptions based on current rates and trends when appropriate. As required by U.S. GAAP, the effects of modifications are amortized over future periods.

        Assumed healthcare cost trend rates, discount rates, expected return on plan assets and salary increases have a significant effect on the amounts reported for the pension and healthcare plans. A one-percentage-point change in the rate for each of these assumptions would have the following effects as of and for the year ended December 31, 2008 (in thousands):

		Increase (Decrease)
		1-Percentage Point Increase			1-Percentage Point Decrease
Healthcare cost trend:
	Effect on total of service and interest cost components	$	3,773		$	(3,045	)
	Effect on postretirement benefit obligation		43,495			(36,324	)
Discount rate:
	Effect on postretirement service and interest cost components		(178	)		(35	)
	Effect on postretirement benefit obligation		(40,206	)		46,669
	Effect on current year postretirement expense		(3,068	)		3,371
	Effect on pension service and interest cost components		27			(95	)
	Effect on pension benefit obligation		(18,473	)		22,032
	Effect on current year pension expense		(1,914	)		2,220
Expected return on plan assets:
	Effect on current year pension expense		(1,271	)		1,271
Rate of compensation increase:
	Effect on pension service and interest cost components		410			(372	)
	Effect on pension benefit obligation		3,230			(2,983	)
	Effect on current year pension expense		767			(703	)

        The Company also has significant liabilities for uninsured or partially insured employee-related liabilities, including workers' compensation liabilities, miners' Black Lung benefit liabilities, and liabilities for various life and health benefits. The recorded amounts of these liabilities are based on estimates of loss from individual claims and on estimates determined on an actuarial basis from historical experience using assumptions regarding rates of successful claims, discount factors, benefit increases and mortality rates.

        Workers' compensation and Black Lung benefit liabilities are also affected by discount rates used. Changes in the frequency or severity of losses from historical experience, changes in discount rates or actual losses on individual claims that differ materially from estimated amounts could affect the recorded amount of these liabilities. At December 31, 2008, a one-percentage-point increase in the discount rate on the discounted Black Lung liability would decrease the liability by $1.2 million, while a one-percentage-point decrease in the discount rate would increase the liability by $1.5 million.

        For the workers' compensation liability, the Company applies a discount rate at a risk-free interest rate, generally a U.S. Treasury bill rate, for each policy year. The rate used is one with a duration that corresponds to the weighted average expected payout period for each policy year. Once a discount rate is applied to a policy year, it remains the discount rate for the year until all claims are paid. The use of this method decreases the volatility of the liability as impacted by changes in the discount rate. At December 31, 2008, a one-percentage-point increase in the discount rate on the discounted workers' compensation liability would decrease the liability by $0.2 million, while a one-percentage-point decrease in the discount rate would increase the liability by $0.2 million.

34

Litigation, Investigations and Claims

        The Company is involved in litigation, investigations and claims arising out of the normal conduct of its business, including those relating to commercial transactions, as well as environmental, health and safety matters. The Company estimates and accrues its liabilities resulting from such matters based on a variety of factors, including outstanding legal claims and proposed settlements; assessments by internal counsel of pending or threatened litigation; and assessments of potential environmental liabilities and remediation costs. These accruals are recorded when the costs are determined to be probable and are reasonably estimable. The Company believes it has adequately accrued for these potential liabilities; however, facts and circumstances may change that could cause the actual liabilities to differ from the estimates, or that may require adjustments to the recorded liability balances in the future.

        As discussed in Note 11 of "Notes to Consolidated Financial Statements," the Company is in dispute with the Internal Revenue Service (the "IRS") on a number of Federal income tax issues. The Company believes that its tax filing positions have substantial merit and it intends to vigorously defend these positions. The Company has established accruals that it feels are sufficient to address claims related to its uncertain tax positions, including related interest and penalties, in accordance with FASB Interpretation "FIN 48: Accounting for Uncertainty in Income Taxes an interpretation of FASB Statement No. 109." Since the issues involved are highly complex, are subject to the uncertainties of extensive litigation and/or administrative processes and may require an extended period of time to reach ultimate resolution, it is possible that management's estimate of this liability could change.

        Accruals for property-liability claims and claims expense are recognized when probable and reasonably estimable at amounts necessary to settle both reported and unreported claims of insured property-liability losses, based upon the facts in each case and the Company's experience with similar cases. The establishment of appropriate accruals, including accruals for catastrophes such as hurricanes, is an inherently uncertain process. Accrual estimates are regularly reviewed and updated using the most current information available. Accruals for catastrophic uninsured losses at plant or mine facilities would be made on an ad hoc basis based on relevant facts and circumstances at the time such losses were determined to be probable and reasonably estimable.

        The Company capitalizes environmental expenditures that increase the life or efficiency of property or that reduces or prevents environmental contamination. The Company accrues for environmental expenses resulting from existing conditions that relate to past operations when the costs are probable and reasonably estimable. Environmental laws and regulations continue to evolve and because conditions giving rise to obligations and liabilities under environmental laws are in some circumstances not readily identifiable, it is difficult to forecast the amount of such future environmental expenditures or the effects of changing standards on future business operations or results.

Accounting for the Impairment of Long-Lived Assets Including Goodwill and Intangibles

        Long-lived assets, including goodwill and intangibles, are reviewed for impairment whenever events or changes in circumstances indicate that the book value of the asset may not be recoverable and, in the case of goodwill, at least annually. The Company periodically evaluates whether events and circumstances have occurred that indicate possible impairment.

        Long-lived assets of Homebuilding have been reviewed for impairment during each of the years ended December 31, 2008, 2007 and 2006 due to the operating losses incurred by this segment. No impairment charges were recorded in 2006 or 2007. In 2008, the Company recognized total impairment charges of $13.5 million for Homebuilding's long-lived assets. These charges occurred during the year as a result of (1) the decision to close certain non-performing sales centers in the first quarter of 2008, (2) a deterioration in the housing market and general economy resulting in unfavorable future forecasted cash flows in the third quarter of 2008, and, finally, (3) due to the decision to close the business on December 30, 2008. As a result of the decision to close the business, all of the long-lived

35

assets will be sold or otherwise disposed, as the assets cease to be used during the wind down period in 2009.

        The estimates of fair value used to determine the amount of the impairment charges were primarily based on management's estimates and judgments, including management's knowledge of the marketplace in which each of the properties are located (there are approximately 80 locations) and recent transactions of assets of a similar nature. Although the net book value of long-lived assets of Homebuilding has been reduced from $26.0 million at December 31, 2007 to $10.4 million at December 31, 2008, primarily as a result of these impairment charges, further charges or losses could be necessary if the Company is unable to recover the net book value. Management believes that gains or losses resulting from the sale or impairments of remaining long-lived assets will not be material to the future financial condition, operating results or cash flows of the Company.

        As previously noted above and discussed in Note 3 of "Notes to the Consolidated Financial Statements", the Company acquired Taft in September 2008. A significant portion of the purchase price was allocated to the mineral interests, valued at $44.0 million. The value of the mineral interests was based, in part, on the market price of similar coals at the date of acquisition and the forecasts that existed as of that date. Subsequent to the acquisition, the market price and future forecasted market prices for similar coal dropped significantly, triggering an impairment test of the mineral interests under the guidance of SFAS 144, "Accounting for the Impairment or Disposal of Long-lived Assets." The results of the impairment test indicated that there was an asset impairment since the fair value of the mineral interests were significantly below the carrying value. As a result, the Company recorded a $32.4 million impairment charge in the 2008 fourth quarter. The estimated fair value of the mineral interests is extremely sensitive to the estimated market price of similar coals. For example, a 10% increase or decrease in the market pricing used as of December 31, 2008 would have increased or decreased, respectively, the estimated fair value by approximately $5.0 million.

        In 2008, the Company recorded a charge of $10.9 million for the impairment of Financing's goodwill. As discussed in Note 3 of "Notes to the Consolidated Financial Statements", the Company announced its plans to separate its Financing segment via a spin-off to Walter shareholders and merger with Hanover. As a result of this decision, the Company analyzed goodwill for potential impairment. The fair value of the reporting unit was determined using a discounted cash flow approach which indicated that the carrying value exceeded the fair value and that the implied value of goodwill was $0. The discount rate of interest used to determine both the fair value of the reporting unit and the implied value of goodwill was a contributing factor in this impairment charge. The continued increase in perceived risk in the financial services markets resulted in a significant increase in the discount rate applied to the projected future cash flows, as compared to the discount rate applied to similar analyses performed in previous periods. As a result of this write- off, the Company no longer has any goodwill on its balance sheet.

DISCONTINUED OPERATIONS

        As more fully discussed in Note 3 of "Notes to Consolidated Financial Statements," the Company announced the permanent closure of the underground coal mine owned by the Kodiak Mining Company LLC. ("Kodiak") in December 2008, due to high operational costs, difficult operating conditions and a challenging pricing environment for Kodiak's product. In addition, during the first quarter of 2007, the Company decided to exit the manufacture and distribution of modular homes due to the poor performance of this division, which operated as Crestline Homes, Inc. ("Crestline"). Also, the Company completed the spin-off of Mueller Water on December 14, 2006. As such, the operating results, assets and liabilities, and cash flows of Kodiak, Crestline and Mueller Water have been reported apart from the Company's continuing operations as "discontinued operations" for all periods presented. Income (loss) from discontinued operations includes the net operating results of the Kodiak, Crestline and Mueller Water businesses.

36

RESULTS OF CONTINUING OPERATIONS

2008 Summary Operating Results

		For the Year Ended December 31, 2008
		Natural Resources		Sloss			Financing			Homebuilding			Other			Cons Elims			Total
		($ in thousands)
Net sales		$	959,853	$	205,398		$	13,425		$	116,312		$	1,602		$	(32,756	)	$	1,263,834
Interest income on instalment notes			—		—			187,094			—			—			—			187,094
Miscellaneous income			28,532		832			2,183			2,229			2,366			—			36,142
	Net sales and revenues		988,385		206,230			202,702			118,541			3,968			(32,756	)		1,487,070
Cost of sales			530,320		128,653			5,537			96,732			228			(31,637	)		729,833
Interest expense(1)			—		—			102,115			—			—			—			102,115
Interest rate hedge ineffectiveness			—		—			16,981			—			—			—			16,981
Depreciation			51,476		4,152			416			2,814			914			—			59,772
Selling, general, & administrative			23,020		13,398			30,055			42,851			33,555			33			142,912
Provision for losses on instalment notes			—		—			21,315			—			—			—			21,315
Postretirement benefits			29,128		(645	)		(456	)		(607	)		(926	)		—			26,494
Amortization of intangibles			273		—			1,005						—			—			1,278
Provision for estimated hurricane insurance losses			—		—			3,853			—			—			—			3,853
Restructuring & impairment charges			32,387		—			10,895			20,676			—			—			63,958
	Operating income (loss)	$	321,781	$	60,672		$	10,986		$	(43,925	)	$	(29,803	)	$	(1,152	)		318,559
	Other debt interest																			(26,223	)
	Income from continuing operations before income taxes																		$	292,336

(1)

Excludes other debt interest expense.

Year Ended December 31, 2008 as Compared to the Year Ended December 31, 2007

Overview

        The Company's income from continuing operations for the year ended December 31, 2008 was $368.1 million or $6.74 per diluted share, which compares to $125.0 million, or $2.38 per diluted share in 2007.

        Principal factors impacting income from continuing operations in 2008 compared to 2007 include:

•

Net sales and revenues from continuing operations for the year ended December 31, 2008 increased $247.2 million, or 19.9% from 2007. The increase in revenues was primarily driven by higher metallurgical coal and coke pricing and increased coal sales volumes, partially offset by a decline in unit deliveries at Homebuilding due to fewer unit completions resulting from the deteriorating market conditions and the closure of almost half of the sales centers early in 2008.

37

•

Cost of sales, exclusive of depreciation, for 2008 increased $43.5 million, or 6.3% from 2007. Increased costs were primarily due to increased sales volumes and increased material, labor and freight at Natural Resources, partially offset by lower cost of sales at Homebuilding due to lower volumes. Cost of sales as a percentage of net sales decreased from 68.6% in 2007 to 57.7% in 2008 primarily due to the increase in metallurgical coal pricing which significantly exceeded the increase in costs at Natural Resources.

•

Operating income was $318.6 million in 2008, a 57.6% improvement from 2007. The increase in 2008 operating income was driven by the revenue impacts described above, partially offset by higher cost of sales and higher restructuring and impairment charges.

•

Results in 2008 include restructuring and impairment charges of $64.0 million, with $57.7 million related to asset impairment charges in Natural Resources, Homebuilding and Financing. See Note 4 of "Notes to the Consolidated Financial Statements."

•

Interest expense on mortgage-backed/asset backed notes deceased $17.0 million in 2008 compared to 2007. The decrease was primarily due to a reduction in the weighted average mortgage-backed/asset backed borrowings compared to 2007, including the 2008 payoff of the mortgage warehouse facilities.

•

Results in 2008 include a charge of $17.0 million for interest rate hedge ineffectiveness to recognize a loss on Financing's maturing interest rate swaps. The interest rate swaps, originally intended to hedge the Company's next securitization, no longer qualified for hedge accounting treatment because the Company no longer planned to access the distressed securitization market. This loss would normally have been amortized over the life of the securitization and the cash outflow would have been offset by increased securitization cash proceeds. All of Financing's hedges were settled on April 1, 2008 and Financing has no more hedges outstanding.

•

The Company's 2008 effective tax rate was a benefit of 25.9%. The effective tax rate for the year ended December 31, 2008 includes a tax benefit of $167.0 million from the deemed liquidation for income tax purposes of Homebuilding resulting from the decision to close this business. See Note 11 of "Notes to the Consolidated Financial Statements."

Outlook and Strategic Initiatives

Natural Resources and Sloss

•

The global steel industry has experienced significant volatility during the past months. As such, there is limited visibility as to the overall volume requirements for metallurgical coal over the next twelve months. Consequently, expectations regarding the Company's future production and sales volumes are limited to the first quarter of 2009.

•

Approximately 6.3 million tons of metallurgical coal were sold in 2008 at an average sales price of $130.95 versus 6.0 tons in 2007 at an average sales price of $92.21.

•

For the first quarter of 2009, metallurgical coal production is expected to range between 1.7 and 1.9 million tons reflecting the continuation of production from Mine No. 7's Southwest "A" longwall panel.

•

The core infrastructure is complete for the Mine No. 7 East expansion which will add capacity of 2.7 million tons per year. The East expansion will result in Mine No. 7 with its very high quality, low vol, hard coking coal becoming the largest low vol metallurgical coal mine in the United States. Given current market conditions, the Company plans to delay the start up of the Mine No. 7 East expansion until at least September 1, 2009. In preparation for the start up, the Company expects to spend approximately $23.0 million in capital expenditures during 2009.

38

•

Metallurgical coal sales for the first quarter of 2009 are expected to range between 1.4 million to 1.5 million tons at average operating margins of between $55 and $60 per ton. These estimated coal shipments reflect a 250,000 ton decline as compared to the 2008 fourth quarter sales volume due to concerns about availability of coal at the Port of Mobile resulting from a two-week rail disruption in February 2009. Along with this coal availability issue, certain customers have deferred the schedule of coal shipments due to the reduced global demand for steel and its raw materials. The net effect of these deferrals is to shift some of the planned coal shipments into the second half of 2009. Although the Company has worked with customers to match deliveries with their raw material requirements, contracts have not been renegotiated. However, further weakening of the steel market based on capacity reduction or demand could result in lower prices or in delays in shipments on current contracts. Further, due to significant uncertainty in the marketplace, the Company expects contract pricing settlements for the 2009-2010 contract year to occur later than the normal April to June timeframe.

•

Coal production costs averaged $55.89 per ton in 2008. With the anticipated increase in longwall tons versus continuous miner tons, the Company expects a reduction of production costs through 2009 such that these costs will range between $50.00 and $55.00 per ton, along with freight costs of approximately $15 per ton and royalties of approximately 7 to 8 percent, all in line with previously communicated expectations.

•

With the acquisition of Taft, the Company's steam and industrial coal business reached approximately 1.5 million tons of annual capacity, almost doubling the previous run rate production.

•

During 2008 the Company began the expansion of United Land's barge loadout facility. When completed in the first quarter of 2009, the Company will be able to ship up to 4 million tons of coal per year by barge, significantly increasing shipping flexibility.

•

Natural gas production in 2009 is projected to range between 7.0 and 7.2 billion cubic feet. Market pricing during February 2009 has approximated $3.00 to $4.00 per MCF, which is significantly less than our selling price in 2008. In the near-term, prices may remain at these lower levels. As a result of hedges put in place in 2008, approximately 30% of estimated first quarter 2009 activity is hedged at $8.84 per MCF.

•

Sloss posted operating income of $60.7 million in 2008 on the strength of increased metallurgical coke prices. Given the current reduction in domestic steel capacity utilization, Sloss estimates that production will decline by approximately 20% from 2008 levels. Additionally, while foundry coke pricing is expected to remain relatively stable, furnace coke prices are projected to be significantly lower than 2008 prices. As a result of the lower sales volumes and expected lower furnace coke pricing, Sloss' 2009 operating income is expected to be significantly lower than the record level of 2008.

•

The Company continues to focus on growing its Natural Resources business internally and externally. Recent expansion activities include the following:

•

Internal growth is expected from the Mine No. 7 East expansion project. Although longwall production in Mine No. 7 East will be delayed until at least September 1, 2009, when started, production will be approximately 225,000 tons per month.

•

On July 31, 2008, the Board of Directors approved a plan to expand the Company's United Land subsidiary's surface mining operations by opening a new coal mine with 0.4 million tons of annual capacity. United Land's new mine, to be known as Flat Top Mine, is a 600-acre surface coal mine with reserves of approximately 2.3 million tons of steam and industrial coal on land owned by the Company. Due to current economic conditions,

39

however, the Company's plans to open the mine have been delayed until market conditions improve.

•

In 2008 the Company leased 46.0 million tons of additional high-quality Blue Creek Coal reserves contiguous to its Mine No. 4 and Mine No. 7 operations near Brookwood, Alabama.

•

On September 2, 2008, the Company, through its wholly owned subsidiary United Land Corporation, acquired all of the outstanding common shares of Taft. Taft, located in Jasper, Alabama, currently operates a surface steam and industrial coal mine and primarily mines coal for the industrial and electric utility markets. The acquisition of Taft expands the Company's coal production base in the southern Appalachian coal region of Alabama and will be instrumental in helping to grow the Company's domestic Natural Resources business. Taft produced 219,000 tons of coal since its acquisition in 2008.

•

The Company routinely evaluates potential new coal reserves and also explores for natural gas to supplement its existing businesses, both within close proximity and outside of its existing operations. While there are coal seams adjacent to Jim Walter Resources' mines that have substantially similar characteristics to the Company's existing coal products, there is no assurance that these coal seams would have economic viability. The Company is also exploring for additional sources of natural gas within coal beds and various shale strata at depths down to approximately 8,000 feet below the surface. Although natural gas is known to exist in many of these strata, there is no assurance that this exploration activity will result in commercially viable operations.

Homebuilding and Financing

•

On September 30, 2008, the Company outlined its plans to separate its Financing business from the Company's core Natural Resources businesses through a spin-off to Walter's shareholders and subsequent merger with Hanover Capital Mortgage Holdings, Inc. ("Hanover"), a New Jersey-based real estate investment trust ("REIT"). As a step toward the completion of this plan, on February 3, 2009, the Company formed Walter Management Investment LLC, ("Spinco"), a wholly owned, Delaware limited liability company, to receive our Financing business and facilitate the spin-off and merger. The subsidiaries and assets that Spinco will own at the time of the spin-off and merger include all assets of our Financing business except for those associated with the worker's compensation program and various other runoff insurance programs within Cardem Insurance Co., Ltd. Spinco's total assets and liabilities at the time of the spin-off and merger are expected to be approximately $1.9 billion and $1.5 billion, respectively.

•

In 2008, the Company recorded a charge of $10.9 million for the impairment of Financing's goodwill. As a result of the Company's plans to separate its Financing business discussed above, the Company analyzed goodwill for potential impairment. The fair value of the reporting unit was determined using a discounted cash flow approach. As a result, the carrying value exceeded the fair value and the implied value of goodwill was $0 as of September 30, 2008.

•

In 2008, Financing recorded a provision for estimated hurricane insurance losses of $3.9 million as a result of damages from Hurricanes Gustav and Ike that impacted the Company's market area.

•

In April 2008, the Company amended its 2005 Walter Credit Agreement, increasing the revolver portion of the agreement by $250.0 million to $475.0 million. Available funds of $214.8 million were used to repay principal, interest and fees and terminate the Mid-State Trust IX and Mid-State Trust XIV mortgage warehouse facilities, which were due to expire in 2008. With the

40

termination of the warehouse facilities, the Company no longer uses mortgage warehouse facilities or accesses the mortgage-backed securitization market. See Note 12 of "Notes to Consolidated Financial Statements" for additional details.

•

In addition, after May 1, 2008, Walter Mortgage Company ("WMC") no longer provides financing to customers of Homebuilding. However, the backlog of homes with signed contracts and those which were under construction as of May 1, 2008 are being financed by WMC. The Company will finance these WMC installment notes receivable with operating cash flows or funds from borrowings under the increased revolving credit facility.

•

In December 2008, the Company decided to close Homebuilding. The Company recorded restructuring charges in 2008 totaling $20.7 million. The $20.7 million charge is comprised of asset impairments of $14.4 million, severance obligations of $5.5 million, and $0.8 million of charges related to lease obligations of closed sales centers. This charge appears as restructuring and impairment charges in the 2008 statement of operations. See Note 4 of "Notes to Consolidated Financial Statements" for additional information.

•

As of December 31, 2008, Homebuilding had approximately 160 homes to complete, of which 20 are expected to be financed by WMC. After contractual commitments to complete the construction of homes have been fulfilled, which is expected to be substantially complete by June 30, 2009, results will be reflected as discontinued operations.

Other

•

In June 2008, the Company completed an offering of 3.2 million shares of its common stock, from which it received $280.5 million of net proceeds. The Company used these proceeds to repay a portion of the term loan and revolving credit facility borrowings under the Company's Amended 2005 Walter Credit Agreement. As a result of this debt repayment, interest expense in 2008 included $3.1 million in accelerated amortization of deferred financing fees.

•

During the third quarter ended September 30, 2008, the Board of Directors approved an increase in the Company's regular quarterly dividend rate from $0.05 per common share to $0.10 per common share.

•

In October 2008, the Company fulfilled its $25.0 million share repurchase program that had begun on August 13, 2007. Over the course of this program, the Company acquired 587,009 shares at an average price of $42.58 per share. On September 26, 2008, the Board of Directors approved a new $50.0 million share repurchase program which was intended to replace the previously authorized $25.0 million share repurchase program. Through December 31, 2008, the Company has repurchased 1,276,743 shares at an average price of $35.42 per share under this $50.0 million share repurchase program. In December 2008, the Company's Board of Directors authorized a $50.0 million expansion of this share repurchase program. The new program began on January 1, 2009 and purchases will continue to be based on liquidity and market conditions. See Note 14 of "Notes to the Consolidated Financial Statements."

•

As a result of the deemed liquidation of the Company's Homebuilding business on December 31, 2008, the Company recorded an income tax benefit of $167.0 million due to a worthless stock loss deduction. The Company expects it will not pay any federal income taxes in 2009 as a result of the carryforward of this worthless stock deduction.

        The current and prior year results also include the impact of the factors discussed in the following segment analysis.

41

Segment Analysis

Natural Resources

        Natural Resources, which includes the operations of Jim Walter Resources and United Land (parent company of Taft and TRI), reported net sales and revenues of $988.4 million in 2008, an increase of $349.5 million from $638.9 million in 2007. The increase in revenues was driven primarily by increased metallurgical coal pricing and volumes versus 2007. Also contributing to the higher 2008 revenues, sales of steam and industrial coal increased from 0.2 million tons to 1.1 million tons due to the inclusion of TRI for a full year and Taft for four months of 2008.

	For the year ended December 31,
	2008		2007
Average metallurgical coal selling price (per ton)	$	130.95	$	92.21
Tons of metallurgical coal sold (in millions)		6.3		6.0
Average natural gas selling price (per MCF)	$	8.39	$	7.81
Billion cubic feet of natural gas sold		6.6		7.2
Number of natural gas wells		442		408

        For 2008, Natural Resources' operating income was $321.8 million, compared to operating income of $165.8 million in 2007. Results in 2008 benefited from record metallurgical coal pricing, which was partially offset by higher production costs. Production costs per ton for the year ended December 31, 2008 were higher than the same period in 2007 due to inflationary increases in labor and materials as well as a higher mix of continuous miner tons versus longwall tons. The Company expects a reduction of production costs in 2009 with an anticipated increase in longwall tons. In addition, 2008 operating income positively benefited from a 5% increase in production over the prior year but decreased due to higher depreciation. Operating results in 2008 were reduced by a $32.4 million impairment of mineral interests. See "Critical Accounting Estimates" included herein.

Sloss

        Net sales and revenues were $206.2 million for 2008, an increase of $71.3 million compared to 2007. This increase in revenues is due to an increase in metallurgical coke pricing as shown in the table below, which more than offset a slight decrease in tons sold.

	For the year ended December 31,
	2008		2007
Metallurgical coke tons sold		409,457		430,887
Metallurgical coke average selling price per ton	$	393.66	$	223.08

        Sloss reported operating income of $60.7 million for the year ended December 31, 2008 compared to $11.9 million in the same period in 2007, an increase of $48.8 million. Most of the increase results from the increase in metallurgical coke pricing as noted above, partially offset by higher raw material coal cost and a $2.4 million charge related to the resolution of a legal matter. Given the current reduction in domestic steel capacity utilization, the Company expects a reduction in sales volume and pricing for 2009 and thus, much lower operating income from Sloss in 2009.

Financing

        Net sales and revenues were $202.7 million for the year ended December 31, 2008, a decrease of $17.0 million from 2007. This decrease is primarily attributable to lower payment income resulting from a smaller portfolio balance than 2007, lower prepayment-related interest income and a $3.8 million one time favorable adjustment in 2007 not repeated in 2008.

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        Operating income was $11.0 million in 2008, a decrease of $38.6 million from 2007. In addition to lower revenues, the decrease in operating income is primarily a result of a $17.0 million charge for interest rate hedge ineffectiveness that was intended to hedge an April 2008 securitization of instalment notes receivable, a $10.9 million impairment of goodwill, a $7.4 million increase in provision for losses on installment notes and a $3.9 million provision for estimated hurricane insurance losses. These unfavorable items were partially offset by lower interest expense primarily due to a decrease in the average balance of mortgage-backed/asset-backed notes outstanding during the year. See the Liquidity and Capital Resources discussion. The increase in the provision for loan losses is due to higher delinquencies and losses in 2008 resulting in an expectation of increased loan defaults, combined with the effect of increased write downs of repossessed property due to declining conditions in the housing market in 2008.

        Delinquencies (the percentage of amounts outstanding over 30 days past due) were 5.4% at December 31, 2008, up from 4.6% at December 31, 2007. This increase was primarily due to the Company's third party purchased loans, (including the ARM portion of the Company's portfolio) which exhibited higher levels of delinquencies and losses. The calculation of delinquencies excludes from delinquent amounts those accounts that are in bankruptcy proceedings and are paying their mortgage payments in contractual compliance with bankruptcy court approved mortgage payment plans.

Homebuilding

        Net sales and revenues were $118.5 million in 2008, a decrease of $127.4 million from 2007 primarily as a result of a 49.8% decrease in unit completions and an $11.8 million increase in the discount required to record to transfer the instalment notes receivable to Financing at estimated market value. As a result of the current volatility and lack of liquidity in the residential mortgage market, the discount required to fairly value the instalment notes receivable increased significantly and resulted in an additional discount within Homebuilding. The discount will be recognized as interest income over the life of the instalment notes receivable in the Financing segment.

	For the year ended December 31,
	2008		2007
Unit completions		1,252		2,494
Average revenue per home sold	$	89,747	$	97,773

        The operating loss was $43.9 million for 2008 compared to an operating loss of $5.3 million in 2007. The $38.6 million increase in operating loss was primarily due to the effect of lower sales volumes net of cost of sales decreases in the net amount of $38.6 million, restructuring and impairment charges totaling $20.7 million, as further discussed in Note 4 of the "Notes to Consolidated Financial Statements", partially offset by reduced salary related expenses ($13.0 million), lower depreciation ($2.4 million) and lower advertising expense ($2.4 million). In December 2008, the Company decided to close Homebuilding. Results in 2009 will reflect the build-out of the homes in backlog, other costs to close the business and gains or losses on the liquidation of property, and are not expected to be material to the Company.

Other

        Net sales and revenues were $4.0 million for 2008 compared to $6.4 million in 2007. The operating loss in the "Other" segment which is comprised of the Company's corporate expenses and land subsidiaries other than United Land, increased by $12.5 million during the year ended December 31, 2008 when compared to the same period in 2007. The increased operating loss was primarily due to approximately $6.8 million of professional fees incurred in 2008 relating to the planned divestiture of Financing and increased employee-related expenses.

43

2007 Summary Operating Results

		For the Year Ended December 31, 2007
		Natural Resources		Sloss			Financing			Homebuilding			Other			Cons Elims			Total
		($ in thousands)
Net sales		$	610,265	$	134,279		$	12,935		$	245,409		$	2,315		$	(4,792	)	$	1,000,411
Interest income on instalment notes			—		—			202,654			—			—			—			202,654
Miscellaneous income			28,596		639			4,147			539			4,051			(1,216	)		36,756
	Net sales and revenues		638,861		134,918			219,736			245,948			6,366			(6,008	)		1,239,821
Cost of sales			389,223		110,659			6,753			185,574			(141	)		(5,742	)		686,326
Interest expense(1)			—		—			119,102			—			—			—			119,102
Depreciation			34,377		3,822			1,174			5,151			1,035			—			45,559
Selling, general, & administrative			19,524		9,440			28,072			61,080			23,704			2,366			144,186
Provision for losses on instalment notes			—		—			13,889			—			—			—			13,889
Postretirement benefits			29,584		(864	)		(424	)		(592	)		(970	)		—			26,734
Amortization of intangibles			351		—			1,581			—			—			—			1,932
	Operating income (loss)	$	165,802	$	11,861		$	49,589		$	(5,265	)	$	(17,262	)	$	(2,632	)		202,093
	Other debt interest																			(18,830	)
	Income from continuing operations before income taxes																		$	183,263

(1)

Excludes other debt interest expense.

Year Ended December 31, 2007 as Compared to the Year Ended December 31, 2006

Overview

        The Company's income from continuing operations for the year ended December 31, 2007 was $125.0 million, or $2.38 per diluted share, which compares to $156.3 million, or $3.07 per diluted share in 2006.

        Principal factors impacting income from continuing operations in 2007 compared to 2006 include:

•

Net sales and revenues from continuing operations decreased 2.6% versus 2006. The decline in revenues primarily reflects lower metallurgical coal pricing, including the effect of higher demurrage costs, versus 2006, as well as $23.4 million of insurance claim revenue in 2006. These decreases were partially offset by a 0.4 million ton improvement in metallurgical tons sold and the August 31, 2007 acquisition of TRI.

•

Operating income from continuing operations was $202.1 million, down 29.7%. The decrease in 2007 operating income from 2006 was primarily due to the revenue impacts described above, higher depreciation expense and increased postretirement benefits expense.

•

Results in 2007 include capitalized interest in the amount of $10.9 million primarily related to Natural Resources' capital expansion projects. Of this amount, $4.6 million represents capitalized interest applicable to prior years.

44

•

Results in 2006 include $19.4 million of debt conversion expense to induce the conversion of $174.2 million of the Company's Convertible Senior Subordinated Notes into 9.761 million shares of common stock.

Consolidated Results of Continuing Operations

        Net sales and revenues for the year ended December 31, 2007 were $1.2 billion. Revenues declined by $33.1 million, or 2.6% from $1.3 billion in 2006. Decreased revenues at Natural Resources were partially offset by increased revenues at Homebuilding and Sloss. Natural Resources revenues decreased primarily due to lower pricing for coal and natural gas and lower natural gas volumes partially offset by an increase in the volume of metallurgical coal sales. Results in 2006 included $23.4 million of miscellaneous income relating to an insurance settlement for a 2005 Mine No. 5 water ingress problem. Homebuilding revenues increased due to higher average selling prices partially offset by lower unit completions. Revenue growth at Sloss reflects increased furnace coke volumes and foundry coke pricing.

        Cost of sales, exclusive of depreciation, increased $23.4 million to $686.3 million and represented 68.6% of net sales in 2007 versus $662.9 million and 65.6% of net sales in 2006. The increase in percentage in 2007 primarily reflects the effect of lower revenues on a relatively fixed cost structure at Natural Resources, partially offset by improvements at Homebuilding and Sloss. Homebuilding's cost of sales, exclusive of depreciation, as a percentage of net sales decreased from 79.8% in 2006 to 75.6% in 2007 while cost of sales, exclusive of depreciation, as a percentage of net sales at Sloss decreased from 84.7% in 2006 to 82.4% in 2007.

        Depreciation for the year ended December 31, 2007 was $45.6 million, an increase of $8.8 million compared to 2006. This increase is primarily due to the Company's continued investment in the expansion of Natural Resources' mining operations and the replacement of mining equipment.

        Provision for losses on instalment notes was $13.9 million in 2007, compared to $9.1 million in 2006. This increase in 2007 provision is primarily due to continued weakness in Financing's Adjusted Rate Mortgage ("ARM") portfolio.

        Postretirement benefits expense increased to $26.7 million in 2007, compared to $13.5 million in 2006, primarily due to an unfavorable change in actuarial assumptions year over year and a plan amendment resulting from the January 2007 contract with the United Mine Workers of America. Additionally, a $4.1 million curtailment gain recognized in 2006 by the Financing and Homebuilding segments affects comparability.

        Interest expense on other debt decreased $19.2 million to $18.8 million resulting from the recognition of $10.9 million in capitalized interest primarily related to Natural Resources capital expansion projects as well as a reduction of interest expense resulting from reduced term debt outstanding. In 2006, the Company recorded $19.4 million of debt conversion expense related to the conversion of approximately $174.2 million of the Company's Convertible Senior Subordinated Notes.

        The Company's effective tax rate of 31.8% in 2007 and 32.1% in 2006 differed from the Federal statutory rate primarily in both years as a result of the favorable effect of Natural Resources' percentage depletion deductions. See Note 11 to "Notes to Consolidated Financial Statements."

        The current and prior year results also include the impact of the factors discussed in the following segment analysis.

45

Segment Analysis

Natural Resources

        Natural Resources, which includes the operations of Jim Walter Resources and United Land (parent company of TRI), reported net sales and revenues of $638.9 million for the year ended December 31, 2007, a decrease of $48.0 million from $686.9 million in 2006. The decrease was primarily due to lower metallurgical coal prices, natural gas prices and natural gas volumes, partially offset by increased metallurgical coal volumes. In addition, miscellaneous income in 2006 included $23.4 million for the settlement of an insurance claim for a 2005 Mine No. 5 water ingress problem. Statistics in the following table relate to Jim Walter Resources, only.

	For the year ended December 31,
	2007		2006
Average coal selling price (per ton)	$	92.21	$	103.58
Tons of coal sold (in millions)		6.0		5.6
Average natural gas selling price (per MCF)	$	7.81	$	8.67
Billion cubic feet of natural gas sold		7.2		7.7
Number of natural gas wells		408		415

        For the year ended 2007, Natural Resources' operating income was $165.8 million, compared to operating income of $258.8 million in 2006. The decrease in operating income in 2007 reflects lower metallurgical coal and natural gas prices and lower natural gas volumes and higher coal production costs. 2006 included $23.4 million of operating income recognized for the settlement of an insurance claim for a 2005 Mine No. 5 water ingress problem.

Sloss

        Net sales and revenues were $134.9 million for 2007, an increase of $1.9 million compared to 2006. Revenues increased in 2007 primarily as a result of higher metallurgical coke volumes and, to a lesser degree, due to increased metallurgical coke pricing as shown below:

	For the year ended December 31,
	2007		2006
Metallurgical coke tons sold		430,887		399,321
Metallurgical coke average selling price per ton	$	223.08	$	222.04

        Sloss' operating income was $11.9 million in 2007 as compared to $8.1 million in 2006, an increase of $3.8 million, primarily as a result of increased metallurgical coke volumes and pricing and lower raw material costs. Operating income for 2006 includes an impairment charge of $1.6 million relating to the sale of the Sloss' chemical division, which was sold in November 2006. The 2006 sale of the chemical division did not have a material affect on the revenues, cash flows or operating income of Sloss in 2007 as compared to 2006 and is not expected to have a significant effect on the future revenues, cash flows or operating results of Sloss, as compared to prior periods.

Financing

        Net sales and revenues were comparable year over year, $219.7 million in 2007 versus $219.6 million in 2006. Operating income was $49.6 million in 2007, compared to $54.0 million in 2006. Operating income decreased primarily as a result of lower prepayment income and an increase in the provision for losses on instalment notes reflecting weaker performance in the ARM portion of the portfolio.

46

        Delinquencies (the percentage of amounts outstanding over 30 days past due) were 4.6% at December 31, 2007, up from 4.4% at December 31, 2006 primarily as the Company's third party purchased loans, which include the ARM portion of the Company's portfolio, exhibited higher levels of delinquencies and losses. The calculation of delinquencies excludes from delinquent amounts those accounts that are in bankruptcy proceedings and are paying their mortgage payments in contractual compliance with bankruptcy court approved mortgage payment plans.

Homebuilding

        Net sales and revenues were $245.9 million in 2007, an increase of $3.2 million from 2006 as a result of higher average revenue per home sold, partially offset by lower unit completions as shown in the table below.

	For the year ended December 31,
	2007		2006
Unit completions		2,494		2,663
Average revenue per home sold	$	97,773	$	90,292

        The operating loss was $5.3 million for 2007 compared to an operating loss of $10.8 million in 2006. The improved performance in 2007 was due to higher average revenue per home sold and a reduction in cost of sales as a percent of net sales resulting from improved productivity, partially offset by an increase in postretirement benefits cost which reflected a curtailment gain of $2.7 million in 2006.

Other

        Net sales and revenues were $6.4 million for 2007 compared to $4.8 million in 2006. Contributing to this revenue growth was a $0.7 million increase in sales of land. Net general corporate expenses, principally included in selling, general and administrative expense, were $23.7 million for the year ended 2007 compared to $25.3 million for 2006, reflecting lower personnel related expenses and professional fees.

FINANCIAL CONDITION

        Cash and cash equivalents increased by $87.1 million from $30.6 million at December 31, 2007 to $117.7 million at December 31, 2008 reflecting $354.3 million in cash flows provided by operating activities, partially offset by $78.1 million of cash flows used in investing activities and $187.4 million of cash flows used in financing activities. See additional discussion in the Statement of Cash Flows section that follows.

        Short-term investments, restricted were $56.3 million at December 31, 2008, down $18.9 million from December 31, 2007, attributable to cash collections on mortgages previously pledged as collateral against the warehouse facilities no longer being restricted as a result of the pay-off and termination of the warehouse facilities in April 2008.

        Net instalment notes receivable were $1,769.7 million at December 31, 2008, down $67.4 million from December 31, 2007 as a result of payments received on outstanding notes exceeding new loan originations. The reduction in new loan originations is the result of WMC no longer providing financing to new customers of Homebuilding effective May 1, 2008.

        Net receivables were $176.6 million at December 31, 2008, an increase of $95.6 million from December 31, 2007 primarily attributable to increased pricing on customer sales within the Natural Resources and Sloss segments and timing of sales within the fourth quarter of 2008 as compared to the fourth quarter of 2007. Also included in the increase is a net receivable of $26.9 million related to Black Lung Excise Tax refund claim, which was recorded in December 2008.

47

        Inventories were $133.1 million at December 31, 2008, an increase of $35.8 million from December 31, 2007 primarily due to increased inventories at Sloss and Natural Resources as well as an increase in repossessed property at Financing. The increase at Natural Resources includes increased supplies inventory required to support certain mining operations in addition to slightly higher production costs on inventory available to complete customer orders. The increase in Sloss inventory primarily results from higher raw material coal costs and increases in on-hand quantities needed to complete customer orders. These increases were partially offset by a reduction of homes under construction at Homebuilding

        Net property, plant and equipment was $515.4 million at December 31, 2008, up $101.0 million from December 31, 2007 primarily due to the Company's continued investment in the replacement of equipment and expansion at Natural Resources' mining operations in addition to increases associated with the Company's acquisition of Taft.

        Deferred income tax assets were $206.7 million at December 31, 2008, up $111.4 million from December 31, 2007 primarily due to a net operating loss carryforward resulting from a $167.0 million tax benefit recognized in 2008 from the deemed liquidation of the Homebuilding business for tax purposes. The NOL carryforward benefit is expected to be fully utilized in 2009.

        Mortgage-backed/asset-backed notes were $1,372.8 million at December 31, 2008, down $333.4 million from December 31, 2007 as a result of debt principal payments, which included the $214.0 million pay-off and termination of the warehouse facilities in April 2008.

        Accumulated postretirement benefits obligation was $369.1 million at December 31, 2008, up $34.0 million from December 31, 2007 primarily due to unfavorable development in the cost of healthcare benefits for participants in the United Mine Workers of America postretirement benefit plan, which caused a $21.2 million actuarially-determined increase to the liability as of December 31, 2008. This adjustment is recognized as a decrease to stockholders' equity. Furthermore, an additional liability of $6.1 million for the 3-month transition from a September 30 to a December 31 measurement date was recorded directly as a decrease to stockholders' equity in 2008, as required by SFAS No. 158, "Employers' Accounting for Defined Benefit Pension and Other Postretirement Plans." Also in 2008, the Company assumed $3.0 million of accumulated postretirement benefits obligation due to the Taft acquisition.

        Other liabilities were $293.8 million at December 31, 2008, up $77.8 million from December 31, 2007. This increase is primarily due a $44.9 million increase in the pension liability primarily due to a significant decline in the fair value of the pension plan assets since 2007. In addition, the increase in other liabilities relates to a $29.7 million liability assigned to Taft's unfavorable coal supply agreements at September 2, 2008.

LIQUIDITY AND CAPITAL RESOURCES

Overview

        The Company's principal sources of short-term funding are its existing cash balances, operating cash flows and borrowings under its revolving credit facility. The Company's principal source of long-term funding is its bank term loan. As of December 31, 2008, total debt decreased $333.9 million as compared to December 31, 2007. See discussion below and Note 12 of "Notes to Consolidated Financial Statements."

        Cash inflows from the sale of goods at the Company's Natural Resources and Sloss segments are generated in the normal course, generally within 90 days or less from the date of title transfer of the goods sold. The majority of homes constructed and sold by the Homebuilding segment were internally financed through May 1, 2008. However, effective May 1, 2008, the Financing segment no longer funds any mortgage financing for customers of the Homebuilding segment. Furthermore, the Company

48

decided to close Homebuilding in December 2008. The following discussion relates to houses built prior to May 1, 2008 and the signed contract backlog as of May 1, 2008.

        Historically, the Homebuilding segment incurred construction costs to build the home, which were financed with resources provided by Walter, including existing cash balances, cash flows generated from operations or borrowings under credit facilities. When the home was completed, the Homebuilding business tendered it to the customer. Upon tender, Homebuilding recognized the sale of the home and sold the instalment note contract to WMC, which recognized an increase in instalment notes receivable. No cash was generated from this transaction. WMC then borrowed periodically under its warehouse facilities, typically at 80% of the face of the instalment note contract, using the instalment note contract as collateral. On a monthly basis, WMC paid interest and other funding costs under the warehouse facilities using collections from instalment notes receivable. Historically, once there were approximately $200.0 million to $300.0 million of accumulated borrowings under the warehouse facilities, WMC packaged the instalment notes and pledged them as collateral to complete a mortgage-backed/asset-backed securitized debt offering. WMC historically received 90% to 95% of the face value of the instalment notes receivable as proceeds from the securitized debt offering. WMC used these proceeds to pay-off the warehouse facilities and any excess cash flow would be available for general corporate purposes of the Company.

        The Company believes that, based on current forecasts and anticipated market conditions, operating cash flows and available sources of liquidity will be sufficient to meet substantially all operating needs, to make planned capital expenditures and to make all required interest and principal payments on indebtedness for the next twelve to eighteen months. However, the Company's operating cash flows and liquidity are significantly influenced by numerous factors, including prices of coal and natural gas, coal production, costs of raw materials, interest rates and the general economy. Currently there is an unprecedented uncertainty in the financial markets, less availability and higher costs of credit, potential counterparty defaults, and commercial and investment bank failures. While we have no indication that the uncertainty in the financial markets would impact our current credit facility or our current credit providers, the possibility does exist.

2005 Walter Credit Agreement

        In 2005, Walter entered into a $675.0 million credit agreement ("2005 Walter Credit Agreement") which included, prior to its amendment in April 2008, (1) an amortizing term loan facility with an initial aggregate principal amount of $450.0 million, $138.9 million of which was outstanding as of December 31, 2008 with a weighted average interest rate of 3.588%, and (2) an initial $225.0 million revolving credit facility which provides for loans and letters of credit. The 2005 Walter Credit Agreement is a secured obligation of the Company and substantially all of its wholly owned domestic subsidiaries. The term loan requires quarterly principal payments of $0.4 million through October 3, 2012, at which time the remaining outstanding principal is due.

        On April 30, 2008, Walter amended the 2005 Walter Credit Agreement to allow an additional $250.0 million of borrowings under the revolving credit facility, thereby increasing the revolving credit facility to $475.0 million. Available funds of $214.8 million were used to repay principal, interest and fees and terminate the Mid-State Trust IX and Mid-State Trust XIV mortgage warehouse facilities, which were due to mature in 2008. The amendment also increased the interest rate on the revolving credit facility and the term loan to LIBOR plus 300 basis points. The commitment fee on the unused portion of the revolving facility also increased from 0.375% per year to 0.5% per year. In addition, the amended 2005 Walter Credit Agreement contains a reducing revolver commitment feature, where the total available revolver commitment may not exceed $400.0 million at March 31, 2009, $350.0 million at June 30, 2009, $300.0 million at September 30, 2009, and $250.0 million at December 31, 2009.

49

        Certain other terms, including affirmative and negative covenants as well as restrictions on the Company's ability to engage in specified activities, were also amended and include, but are not limited to, increased indebtedness and approval of certain activities associated with the Company's strategic initiatives in the Homebuilding and Financing businesses.

        In connection with the amendment to the 2005 Walter Credit Agreement, the Company incurred $3.9 million of refinancing fees. These fees were deferred and are being amortized over the remaining life of the revolving credit facility.

        During 2008, the Company borrowed $340.0 million under the revolving credit facility. On June 16, 2008, the Company completed an offering of shares of its common stock and received $280.5 million of net proceeds, as more fully discussed in Note 14. The net proceeds from the offering were used to repay $77.9 million on the outstanding term loan and $202.5 million on the revolving credit facility. Additional repayments on the revolving credit facility during 2008 totaled $97.5 million, such that the balance outstanding was $40.0 million at December 31, 2008.

        Under the terms of the Company's amended 2005 Walter Credit Agreement, availability under the revolving credit facility was reduced from $475.0 million to $373.8 million in connection with the completion of the stock offering. As of December 31, 2008, the Company had $58.2 million in outstanding stand-by letters of credit and $275.6 million of availability for future borrowings under the revolving credit facility.

        In connection with the repayments discussed above, the Company recognized an additional amortization of $3.1 million in 2008 of previously deferred financing fees. This amortization charge is included in interest expense in the 2008 statement of operations.

Mortgage-Backed and Asset-Backed Notes and Variable Funding Loan Facilities

        At December 31, 2008, non-recourse mortgage-backed/asset-backed notes outstanding totaled $1.4 billion and consisted of eight separate series of public debt offerings and one issue of private debt providing long-term financing for instalment notes receivable and mortgage assets purchased by WMC.

        Prior to April 30, 2008, Trust IX and Trust XIV were borrowers under a $150.0 million and a $200.0 million Variable Funding Loan Agreement ("warehouse facilities"), respectively, providing temporary financing to WMC for its purchases of instalment notes from Homebuilding and for its mortgage loans originations. At the beginning of 2008, there were $189.2 million of borrowings outstanding under these warehouse facilities. On April 30, 2008, the Company repaid all outstanding borrowings and terminated these facilities using proceeds from the amended 2005 Walter Credit Agreement, as discussed above. During 2008 and 2007, mortgage securitization markets generally, and subprime mortgage securitization markets especially, have experienced a significant disruption that continues today. A large number of other companies' mortgage-backed securities have been down-graded or placed on credit watch, resulting in investors in asset-backed securities and other structured vehicles experiencing problems including declines in value and losses from their investments in subprime mortgage securities. However, with the termination of the warehouse facilities, the Company is no longer reliant on the availability of mortgage warehouse facilities or the mortgage-backed securitization market.

        Effective May 1, 2008, WMC no longer funds new originations for customers of Homebuilding. However, the backlog of homes with signed contracts and those which were under construction as of May 1, 2008, have been and will continue to be funded by WMC. As of December 31, 2008, an estimated 20 homes remain in the backlog, representing a total of approximately $2.7 million in value that will be funded by WMC in 2009. The Company will finance these WMC instalment notes receivable with operating cash flows or borrowings under the 2005 Walter Credit Facility.

50

        Prior to their termination on April 1, 2008, the Company held multiple interest rate hedge agreements with various counterparties with an aggregate notional value of $215.0 million, the objective of which was to protect against changes in the benchmark interest rate on the 2008 forecasted issuance of mortgage-backed notes in a securitization (the "Securitization Hedges"). At March 31, 2008, these Securitization Hedges no longer qualified for hedge accounting treatment because the Company no longer planned to access the distressed securitization market. As a result, the Company recognized a loss on interest rate hedge ineffectiveness of $17.0 million in the first quarter of 2008. On April 1, 2008, the Company settled the Securitization Hedges for a payment of $17.0 million. No similar hedges are outstanding at December 31, 2008.

Statements of Cash Flows

        The following table sets forth, for the periods indicated, selected consolidated cash flow information (in thousands):

	For the year ended December 31,
	2008			2007
Cash flows provided by operating activities	$	354,322		$	147,815
Cash flows used in investing activities		(78,082	)		(148,823	)
Cash flows used in financing activities		(187,408	)		(84,101	)
Cash flows provided by (used in) continuing operations		88,832			(85,109	)
Cash flows used in discontinued operations		(1,774	)		(11,647	)
Net increase (decrease) in cash and cash equivalents	$	87,058		$	(96,756	)

        Cash balances were $117.7 million and $30.6 million at December 31, 2008 and December 31, 2007, respectively. The increase in cash in 2008 results from cash provided by operating activities of $354.3 million, proceeds totaling $280.5 million from the June 2008 stock offering, $18.9 million from short-term investments, restricted, and $14.6 million from the receipt of payments on purchased loans. These sources of cash were partially offset by net payments of mortgage-backed/asset-backed notes of $333.5 million, capital expenditures of $101.8 million, purchases of stock of $64.6 million, net payments on other debt that totaled $58.7 million, the acquisition of Taft for $17.1 million, net of cash acquired, and cash dividend payments of $16.2 million.

        Net cash provided by operating activities of continuing operations was $354.3 million for the year ended December 31, 2008 compared to $147.8 million for 2007. The increase of $206.5 million is primarily attributable to $225.8 million of increased income from continuing operations, adjusted for non-cash items, $145.0 million for increases in receivables and inventories in 2008 as compared to the decreases in 2007, offset in part by $96.8 million for a decrease in instalment notes receivable, net in 2008 as compared to the increase in 2007.

        Cash flows used in investing activities of continuing operations for the year ended December 31, 2008 were $78.1 million compared to $148.8 million for the same period in 2007. Significant cash flows used in investing activities in 2008 included $101.8 million for additions to property, plant and equipment as the Company continued to invest in the replacement of equipment and expansion of Natural Resources' mining operations and $17.1 million, net of cash acquired, for the acquisition of Taft. Significant cash flows used in investing activities in the 2007 period included $151.9 million of additions to property plant and equipment, primarily in the Natural Resources segment, the purchase of loans for $39.9 million and the acquisition of TRI for $11.7 million, net of cash acquired.

        Cash flows used in financing activities of continuing operations for the year ended December 31, 2008 were $187.4 million compared to $84.1 million in the same period in 2007. Cash flows used in

51

financing activities in 2008 included: retirements of other debt of $398.7 million, partially offset by proceeds from other debt of $340.0 million, retirement of mortgage-backed/asset-backed notes of $358.5 million, partially offset by the issuance of mortgage-backed/asset-backed notes of $25.0 million purchases of stock under the stock repurchase program of $64.6 million and dividends paid of $16.2 million, offset in part by proceeds from the June 2008 stock offering of $280.5 million. Cash flows used in financing activities in 2007 included retirements of mortgage-backed/asset-backed notes of $219.8 million, partially offset by the issuance of mortgage-backed/asset-backed notes of $189.2 million, retirements of corporate debt of $44.7 million, dividends paid of $10.4 million and purchases of stock under the stock repurchase program of $5.6 million.

        Capital expenditures totaled $143.5 million in 2008 related principally to the Mine No. 7 East expansion project and other mine development activities at Natural Resources. Included in 2008 capital expenditures is $41.7 million of equipment financed with a long-tem financing arrangement. The Company estimates that capital expenditures for 2009 will approximate $100.0 million. Of this amount, $23.0 million relates to the Mine No. 7 East expansion project. Actual expenditures in 2009 may be more or less than this amount, depending upon the level of earnings and cash flow, or expansion opportunities in certain markets.

Contractual Obligations and Commercial Commitments

        The Company has certain contractual obligations and commercial commitments. Contractual obligations are those that will require cash payments in accordance with the terms of a contract, such as a borrowing or lease agreement. Commercial commitments represent potential obligations for performance in the event of demands by third parties or other contingent events, such as lines of credit or guarantees of debt.

        The following tables summarize the Company's contractual obligations and commercial commitments as of December 31, 2008. This table does not include interest payable on these obligations. In 2008, the Company paid approximately $18.6 million of interest on the term loan, revolver and other debt financings. In 2009, the Company estimates total cash interest payments related to these obligations will be approximately $14.3 million. The unconditional purchase obligations primarily represent commitments to purchase raw materials and equipment.

        Contractual obligations and commercial commitments:

			Payments Due by Period (in thousands)
	Total		2009		2010		2011		2012		2013		Thereafter
2005 Walter term loan	$	138,934	$	1,436	$	1,436	$	1,436	$	134,626	$	—	$	—
2005 Walter revolving credit facility		40,000		—		40,000		—		—		—		—
Other debt(1)		46,451		12,044		7,622		7,916		8,523		8,563		1,783
Operating leases		18,480		8,191		5,999		2,832		1,140		264		54
Unconditional purchase obligations(2)		90,506		47,320		11,529		11,529		11,529		8,599		—
Total contractual cash obligations	$	334,371		68,991		66,586		23,713		155,818		17,426	$	1,837
Other long-term liabilities(3)				29,586		21,101		22,892		24,009		25,171
Total cash obligations(4)			$	98,577	$	87,687	$	46,605	$	179,827	$	42,597

(1)

Primarily includes equipment financing, capital leases and a one-year property insurance financing agreement. See Note 12 of "Notes to Consolidated Financial Statements" for further discussion.

(2)

Includes $54.7 million for minimum maintenance payments due for assets under capital lease.

(3)

Other long-term liabilities include pension and other post-retirement benefit liabilities. While the estimated total liability is actuarially determined, there are no definitive payments by period, as pension contributions

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depend on government-mandated minimum funding requirements and other post-retirement benefits are paid as incurred. Accordingly, amounts by period included in this schedule are estimates and primarily include estimated post-retirement benefits.

(4)

The timing of cash outflows related to liabilities for uncertain tax positions, and the interest thereon, as established pursuant to FIN 48, "Accounting for Uncertainty in Income Taxes," cannot be estimated and, therefore, has not been included in the table. See Note 11 of "Notes to Consolidated Financial Statements."

        Environmental, miscellaneous litigation and other commitments and contingencies:

        See Note 16 of "Notes to Consolidated Financial Statements" for discussion of these matters not included in the tables above due to their contingent nature.

Pension Benefits

        As a result of the unprecedented distress in the credit and capital markets, the fair value of the Company's pension plan assets has declined substantially since December 31, 2007. A sustained decline in the fair value of pension plan assets will result in increased pension contributions in 2009 and future years. The Company's minimum pension plan funding requirement for 2009 is $10.3 million, which the Company expects to fully fund. The Company also expects to pay $19.3 million in 2009 for benefits related to its other postretirement healthcare plan.

MARKET RISK

        The Company is exposed to certain market risks inherent in the Company's operations. These risks generally arise from transactions entered into in the normal course of business. The Company's primary market risk exposures relate to interest rate risk and commodity risks. The Company does not enter into derivatives or other financial instruments for trading or speculative purposes.

Interest rate risk

        The Company has the following financial instruments that are exposed to interest rate risk (dollars in thousands):

		Carrying value as of December 31,
See Note	Financial Instrument	2008			2007
		Asset (Liability)
(1)	2005 Walter term loan	$	(138,934	)	$	(218,517	)
(1)	2005 Walter revolving credit facility		(40,000	)		—
(2)	$75.0 million notional of Walter term loan hedges		—			(202	)
(3)	Other debt		(46,451	)		(6,558	)
(4)	Instalment notes receivable		1,769,688			1,837,059
(4)	Mortgage-backed/asset-backed notes		(1,372,821	)		(1,706,218	)
(5)	$215.0 million notional of Securitization Hedges		—			(9,160	)

(1)

On October 3, 2005, the Company entered into a credit agreement as more fully described in Note 12 of "Notes to Consolidated Financial Statements" with floating rate interest rates based on LIBOR plus a spread.

(2)

On November 1, 2005, the Company entered into an interest rate hedge agreement ("hedge") with a notional value of $75.0 million, as more fully described in Note 12 of "Notes to Consolidated Financial Statements." As expected, the hedge was settled upon maturity in November 2008.

(3)

Other debt consists primarily of equipment financing at a floating rate of one-month LIBOR plus 375 basis points.

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(4)

The Company's fixed-rate instalment notes receivables were $1.8 billion and fixed-rate mortgage-backed/asset-backed notes were $1.4 billion as of December 31, 2008. The fixed rate nature of these instruments and their offsetting positions effectively mitigate significant interest rate risk exposure from these instruments. If interest rates decrease, the Company may be exposed to higher prepayment speeds. This could result in a modest increase in short-term profitability. However, it could adversely impact long-term profitability as a result of a shrinking portfolio. Changes in interest rates may impact the fair value of these financial instruments.

(5)

As of December 31, 2007, the Company held multiple interest rate hedge agreements with various counterparties with an aggregate notional value of $215.0 million, the objective of which was to protect against changes in the benchmark interest rate on the 2008 forecasted issuance of mortgage-backed notes in a securitization (the "Securitization Hedges"). On April 1, 2008 the Company settled the Securitization Hedges for a payment of $17.0 million. No similar hedges remain outstanding at December 31, 2008.

        A ten percent decrease in interest rates from the December 31, 2008 and 2007 rates would result in an increase to annual pre-tax income from these financial instruments of approximately $0.6 million and $2.4 million, respectively, while a ten percent increase in rates would decrease annual pre-tax income approximately $0.6 million and $2.4 million, respectively.

Commodity risks

        The Company is exposed to commodity price risk on sales of natural gas. On an annual basis, the Company's sales of natural gas approximates 6.6 million mmbtu (equivalent of 6.8 billion cubic feet).

        The Company occasionally utilizes derivative commodity instruments to manage the exposure to changing natural gas prices. Such derivative instruments are structured as cash flow hedges and not for trading. During 2008 and 2007, the Company hedged approximately 73% and 57%, respectively, of its natural gas sales with swap contracts. These swap contracts effectively converted a portion of forecasted sales at floating-rate natural gas prices to a fixed-rate basis. These swap contracts resulted in cash outlows of $3.6 million in 2008 and cash inflows of $8.7 million in 2007, impacting net sales and revenues.

        At December 31, 2008, swap contracts to hedge approximately 0.5 million mmbtu of anticipated natural gas sales in 2009 and at December 31, 2007, swap contracts to hedge approximately 0.8 million mmbtu of anticipated natural gas sales in 2008, were outstanding as more fully described in Note 17 of "Notes to Consolidated Financial Statements." A ten percent favorable or unfavorable change in the natural gas prices would not have a material effect in the fair value of the swap contracts outstanding at December 31, 2008 and 2007.

NEW ACCOUNTING PRONOUNCEMENTS

        In 2006 the FASB issued SFAS No. 158, "Employers' Accounting for Defined Benefit Pension and Other Postretirement Plans," which requires the Company to measure plan assets and liabilities as of the fiscal year-end reporting date. The Company used a September 30 measurement date and was required to adopt this provision on December 31, 2008. The adoption of this statement did not have a material effect on its consolidated financial statements.

        In December 2007, the FASB issued SFAS No. 160, "Noncontrolling Interests in Consolidated Financial Statements," that amends ARB 51, "Consolidated Financial Statements," to establish accounting and reporting standards for the noncontrolling interest in a subsidiary and for the deconsolidation of a subsidiary. It clarifies that a noncontrolling interest in a subsidiary is an ownership interest in the consolidated entity that should be reported as equity in the consolidated financial statements. The Company does not expect the adoption of this statement, which became effective January 1, 2009, to have a material effect on its consolidated financial statements.

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        Also in December 2007, the FASB issued SFAS No. 141(R), "Business Combinations," a replacement of SFAS No. 141, "Business Combinations." The objective of this Statement is to improve the relevance, representational faithfulness and comparability of the information that a reporting entity provides in its financial reports about a business combination and its effects. This Statement establishes principles and requirements for how the acquirer recognizes and measures the identifiable assets acquired and liabilities assumed, measures the goodwill acquired or gain from a bargain purchase, and determines what information to disclose. The Company can not determine what impact the adoption of this requirement, which became effective January 1, 2009, will have on its consolidated financial statements with respect to future acquisitions.

PRIVATE SECURITIES LITIGATION REFORM ACT SAFE HARBOR STATEMENT

        Except for historical information contained herein, the statements in this document are forward-looking and made pursuant to the safe harbor provisions of the Private Securities Litigation Reform Act of 1995. Forward-looking statements involve known and unknown risks and uncertainties that may cause the Company's actual results in future periods to differ materially from forecasted results. Those risks include, among others, changes in customers' demand for the Company's products, changes in raw material, labor, equipment and transportation costs and availability, geologic and weather conditions, changes in extraction costs and pricing in the Company's mining operations, changes in customer orders, pricing actions by the Company's competitors, potential changes in the mortgage-backed capital market, and general changes in economic conditions. Those risks also include the timing of and ability to execute other strategic actions that may be pursued. The Company has no duty to update its outlook statements as of any future date.

UNAUDITED INTERIM FINANCIAL INFORMATION:
(in thousands, except per share amounts)

	Quarter ended
Fiscal Year 2008(1)	March 31			June 30			September 30			December 31
Net sales and revenues	$	292,781		$	365,150		$	381,821		$	447,318
Income from continuing operations	$	3,172		$	52,147		$	55,552		$	257,263
Loss from discontinued operations		(2,673	)		(1,371	)		(552	)		(16,958	)
Net income	$	499		$	50,776		$	55,000		$	240,305
Diluted income (loss) per share:(2)
Income from continuing operations	$	0.06		$	0.97		$	0.98		$	4.68
Loss from discontinued operations		(0.05	)		(0.03	)		(0.01	)		(0.31	)
Net income	$	0.01		$	0.94		$	0.97		$	4.37

	Quarter ended
Fiscal Year 2007(1)	March 31			June 30			September 30			December 31
Net sales and revenues	$	319,586		$	296,515		$	311,392		$	312,328
Income from continuing operations	$	34,277		$	21,682		$	26,296		$	42,747
Loss from discontinued operations		(4,652	)		(3,631	)		(1,933	)		(2,787	)
Net income	$	29,625		$	18,051		$	24,363		$	39,960
Diluted income (loss) per share:(2)(3)
Income from continuing operations	$	0.65		$	0.41		$	0.50		$	0.81
Loss from discontinued operations		(0.09	)		(0.07	)		(0.04	)		(0.05	)
Net income	$	0.56		$	0.34		$	0.46		$	0.76

(1)

Amounts vary from previous Form 10-Q disclosures as a result of classifying Kodiak as discontinued operations.

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(2)

The sum of quarterly EPS amounts may be different than annual amounts as a result of the impact of variations in shares outstanding due to rounding differences.

(3)

Diluted earnings per share includes the dilutive effect of the Company's contingent convertible senior subordinated notes, issued April 2004.

        Fourth quarter 2008 results include the following large, unusual items:

•

Pre-tax income of $26.9 million relating to a Black Lung Excise Tax refund claim.

•

Pre-tax charge of $32.4 million to write down the value of Taft's mineral interests to estimated fair value as a result of a significant decline in forecasted future coal pricing as compared to similar forecasts as of the September 2, 2008 acquisition date.

•

Pre-tax charge of $7.4 million for severance benefits and asset impairments relating to the decision to close Homebuilding.

•

Tax benefit of $167.0 million related to the deemed liquidation of Homebuilding for tax purposes, resulting from the decision to close Homebuilding.

•

Pre-tax charge of $21.3 million primarily for the impairment of Kodiak's mining equipment and facilities included in the loss from discontinued operations.

        Fourth quarter 2007 results include the following large, unusual items:

•

Favorable pre-tax adjustments of $12.7 million comprised of $8.9 million of interest capitalization primarily related to Natural Resources' capital expansion projects, applicable to prior periods, and $3.8 million to increase deferred loan origination fees, previously amortized too quickly.

•

A favorable adjustment of $3.2 million to reduce taxes payable to amounts determined to be owed for prior years.

•

These adjustments were not considered to have a material effect on the full-year 2007 results.

Item 8.    Financial Statements and Supplementary Data

        Financial Statements and Supplementary Data consist of the financial statements as indexed on page F-1 and unaudited financial information presented in Part II, Item 7, "Management's Discussion and Analysis of Results of Operations and Financial Condition".

Item 9.    Changes in and Disagreements with Accountants on Accounting and Financial Disclosure

        Incorporated by reference to the 2009 Proxy Statement.

Item 9A.    Controls and Procedures

Evaluation of Disclosure Controls and Procedures

        An evaluation was performed under the supervision and with the participation of our management, including our Vice Chairman (principal executive and financial officer), of the effectiveness of our disclosure controls and procedures as such term is defined in Rule 13a-15(e) under the Securities Exchange Act of 1934 as amended ("Exchange Act") as of the end of the period covered by this annual report on Form 10-K. Based on that evaluation, our management, including our principal executive and financial officer, concluded that our disclosure controls and procedures are effective as of December 31, 2008 to ensure that information required to be disclosed by us in reports that we file or submit under the Exchange Act is (1) recorded, processed, summarized and reported within the time periods specified in the SEC's rules and forms, and (2) accumulated and communicated to our management, including our principal executive and financial officer, as appropriate to allow timely

56

decisions regarding required disclosures. There has been no change in our internal control over financial reporting during the year ended December 31, 2008 that has materially affected, or is reasonably likely to materially affect, internal control over financial reporting.

Management's Report on Internal Control over Financial Reporting

        Management, under the supervision of our Vice Chairman (principal executive and financial officer), is responsible for establishing and maintaining adequate internal control over financial reporting (as defined in Exchange Act Rule 13a-15(f)). Internal control over financial reporting is a process designed to provide reasonable assurance regarding the reliability of financial reporting and the preparation of financial statements for external purposes in accordance with generally accepted accounting principles in the United States of America. A company's internal control over financial reporting includes those policies and procedures that (i) pertain to the maintenance of records that, in reasonable detail, accurately and fairly reflect the transactions and dispositions of the assets of the company; (ii) provide reasonable assurance that transactions are recorded as necessary to permit preparation of financial statements in accordance with generally accepted accounting principles, and that receipts and expenditures of the company are being made only in accordance with authorizations of management and directors of the company; and (iii) provide reasonable assurance regarding prevention or timely detection of unauthorized acquisition, use, or disposition of the company's assets that could have a material effect on the financial statements.

        Because of its inherent limitations, internal control over financial reporting may not prevent or detect misstatements. Also, projections of any evaluation of effectiveness to future periods are subject to the risk that controls may become inadequate because of changes in conditions, or that the degree of compliance with the policies or procedures may deteriorate.

        Management assessed the effectiveness of the Company's internal control over financial reporting as of December 31, 2008. In making this assessment, management used the criteria set forth by the Committee of Sponsoring Organizations of the Treadway Commission ("COSO") in Internal Control-Integrated Framework. Based on this assessment, management has concluded that, as of December 31, 2008, the Company's internal control over financial reporting was effective.

Evaluation of Changes in Internal Control over Financial Reporting

        There were no changes in the Company's internal control over financial reporting (as defined in Rule 13a-15(f) under the Securities Exchange Act of 1934) during the year ended December 31, 2008 that have materially affected, or are reasonably likely to materially affect the Company's internal control over financial reporting.

Item 9B.    Other Information

None

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Part III

Item 10.    Directors, Executive Officers and Corporate Governance

Executive Officers of the Registrant

        Set forth below is a list showing the names, ages and positions of the executive officers of the Company.

Name	Age		Position
Victor P. Patrick		51	Vice Chairman, Chief Financial Officer and General Counsel
Mark J. O'Brien		66	Chairman and Chief Executive Officer, JWH Holding Company, LLC
George R. Richmond		58	Chief Executive Officer, Jim Walter Resources, Inc.
Charles E. Cauthen		50	Chief Financial Officer, JWH Holding Company, LLC and President, Walter Mortgage Company
Miles C. Dearden, III		49	Senior Vice President, Treasurer
Lisa A. Honnold		41	Senior Vice President, Controller
Larry E. Williams		61	Senior Vice President, Human Resources
Charles C. Stewart		53	President, Sloss Industries Corporation and United Land Corporation

        Our executive officers as of February 27, 2009 are listed below.

Victor P. Patrick was appointed Vice Chairman, Chief Financial Officer and General Counsel in February 2008. Mr. Patrick previously served as Vice Chairman and General Counsel since April 2007 and Vice Chairman, General Counsel and Secretary since August 2006. Mr. Patrick joined the Company in 2002 as Senior Vice President, General Counsel and Secretary. Prior to joining the Company, he worked for Honeywell International from 1994 to July 2002, most recently as Vice President, Secretary and Deputy General Counsel. Mr. Patrick has also served as a Director of the Company since December 2006.

Mark J. O'Brien was appointed Chairman and Chief Executive Officer of the Company's JWH Holding Company, LLC (consisting of its Financing and Homebuilding businesses) in February 2006. Mr. O'Brien has also served as a member of the Company's Board of Directors since June 2005. Previously, he was the Chief Executive Officer of Pulte Homes, Inc., where he served in various capacities for 21 years until his retirement in 2003.

George R. Richmond was appointed Chief Executive Officer of Jim Walter Resources in February 2006, serving previously as President and Chief Operating Officer of Jim Walter Resources since 1997. Mr. Richmond, has over 43 years experience in mining, having joined Jim Walter Resources, Inc. in 1978 after 13 years in various apprentice and engineering capacities for Great Britain's National Coal Board (now known as British Coal). Jim Walter Resources, Inc. is the largest producer of Blue Creek coal and currently operates two of North America's deepest vertical underground coal mines in Alabama's Black Warrior Coal Basin, No. 4 Mine, and No. 7 Mine.

Charles E. Cauthen was appointed Chief Financial Officer of JWH Holding Company, LLC and President of Walter Mortgage Company in November 2006. Prior thereto, he served as President of Jim Walter Homes since August 2005. Previously, he served the Company as Chief Operating Officer of Jim Walter Homes since February 2005 and Senior Vice President and Controller since November 2000. Prior thereto, he was Senior Vice President and Chief Financial Officer—Consumer Products Group, Bank of America, from 1999 to November 2000.

Miles C. Dearden, III was appointed Senior Vice President in February 2005 and Vice President, Treasurer in April 2002. Previously, he was Assistant Treasurer beginning in March 2001. Prior to joining the Company, he worked for Bank of America from 1987 until 2001, most recently as a managing director for the bank's Global Corporate and Investment Bank.

58

Lisa A. Honnold was appointed Senior Vice President, Controller of the Company in March 2006. Ms. Honnold previously served as Vice President of Corporate Accounting for the Company since December 2005. Prior to joining the Company, Ms. Honnold was Vice President, Corporate Controller of Catalina Marketing Corporation from December 2004 to November 2005, holding the previous title of Assistant Controller since November 2003. From 1996 to November 2003, Ms. Honnold held various positions with NACCO Industries, Inc., last serving as Manager of Financial Reporting and Analysis.

Larry E. Williams was appointed Senior Vice President, Human Resources in November 2001. Previously, he was Senior Vice President/Human Resources for CoBank from 1989 to 2001.

Charles C. Stewart was appointed President of Sloss Industries Corporation in May 2003 and President of United Land Corporation in July 2007. Mr. Stewart has a B.S in Mineral Engineering from the University of Alabama and previously served in various mining and engineering capacities for Jim Walter Resources for 25 years, culminating in his appointment as Vice President of Engineering.

Code of Conduct

        The Board has adopted a Code of Conduct Policy and Compliance Program ("Code of Conduct") which is applicable to all employees, directors and officers of the Company. The code of Conduct is posted on the Company's website at www.walterind.com and is available in print to stockholders who request a copy. The Company has made available an Ethics Hotline, where employees can anonymously report a violation of the Code of Conduct.

Additional Information

        Additional information, as required in Item 10. "Directors and Executive Officers of the Registrant" are incorporated by reference to the Proxy Statement (the "2009 Proxy Statement") included in the Schedule 14A to be filed by the Company with the Securities and Exchange Commission (the "Commission") under the Securities Exchange Act of 1934, as amended.

Item 11.    Executive Compensation

        Incorporated by reference to the 2009 Proxy Statement.

Item 12.    Security Ownership of Certain Beneficial Owners and Management and Related Stockholder Matters

        The equity compensation plan information as required by Item 201(d) of Regulation S-K is illustrated in Part II, Item 5 of this document. All other information as required by Item 12 is incorporated by reference to the 2009 Proxy Statement.

Item 13.    Certain Relationships and Related Transactions, and Director Independence

        Incorporated by reference to the 2009 Proxy Statement.

Item 14.    Principal Accounting Fees and Services

        Incorporated by reference to the 2009 Proxy Statement.

Part IV

Item 15.    Exhibits, Financial Statement Schedules

(a)(1)    Financial Statements—See Index to Financial Statements on page F-1.
     (2)    Exhibits—See Item 15(b).

(b)    Exhibits—See Index to Exhibits on pages E1-E-4.

59

SIGNATURES

        Pursuant to the requirements of Section 13 or 15(d) of the Securities Exchange Act of 1934, the registrant has duly caused this report to be signed on its behalf by the undersigned, thereunto duly authorized.

	WALTER INDUSTRIES, INC.
February 27, 2009	/s/ VICTOR P. PATRICK Victor P. Patrick, Vice Chairman and Director, Chief Financial Officer and General Counsel (Principal Executive and Financial Officer)

        Pursuant to the requirements of the Securities Exchange Act of 1934, this report has been signed below by the following persons on behalf of the registrant and in the capacities and on the dates indicated.

February 27, 2009	/s/ HOWARD L. CLARK JR. Howard L. Clark, Jr., Director*
February 27, 2009	/s/ JERRY W. KOLB Jerry W. Kolb, Director*
February 27, 2009	/s/ PATRICK A. KRIEGSHAUSER Patrick A. Kriegshauser, Director*
February 27, 2009	/s/ JOSEPH B. LEONARD Joseph B. Leonard, Director*
February 27, 2009	/s/ MARK J. O'BRIEN Mark J. O'Brien, Director, Chairman and Chief Executive Officer, JWH Holding Company, LLC*
February 27, 2009	/s/ BERNARD G. RETHORE Bernard G. Rethore, Director*

60

February 27, 2009	/s/ GEORGE R. RICHMOND George R. Richmond, Director, President and Chief Executive Officer, Jim Walter Resources*
February 27, 2009	/s/ MICHAEL T. TOKARZ Michael T. Tokarz, Chairman*
February 27, 2009	/s/ A.J. WAGNER A.J. Wagner, Director*
February 27, 2009	/s/ LISA A. HONNOLD Lisa A. Honnold, Senior Vice President, Controller and Principal Accounting Officer

*By: /s/ VICTOR P. PATRICK
Victor P. Patrick
Attorney-in-Fact

61

INDEX TO CONSOLIDATED FINANCIAL STATEMENTS

Walter Industries, Inc. and Subsidiaries
	Reports of Independent Registered Certified Public Accounting Firms	F-2
	Consolidated Balance Sheets—December 31, 2008 and 2007	F-5
	Consolidated Statements of Operations for Each of the Three Years in the Period Ended December 31, 2008	F-6
	Consolidated Statements of Changes in Stockholders' Equity and Comprehensive Income for Each of the Three Years in the Period Ended December 31, 2008	F-7
	Consolidated Statements of Cash Flows for Each of the Three Years in the Period Ended December 31, 2008	F-8
	Notes to Consolidated Financial Statements	F-10

F-1

Report of Independent Registered Certified Public Accounting Firm

The Board of Directors and Stockholders of Walter Industries, Inc.

        We have audited the accompanying consolidated balance sheets of Walter Industries, Inc. and subsidiaries as of December 31, 2008 and 2007, and the related consolidated statements of operations, changes in stockholders' equity and comprehensive income, and cash flows for each of the two years in the period ended December 31, 2008. These financial statements are the responsibility of the Company's management. Our responsibility is to express an opinion on these financial statements based on our audits.

        We conducted our audits in accordance with the standards of the Public Company Accounting Oversight Board (United States). Those standards require that we plan and perform the audit to obtain reasonable assurance about whether the financial statements are free of material misstatement. An audit includes examining, on a test basis, evidence supporting the amounts and disclosures in the financial statements. An audit also includes assessing the accounting principles used and significant estimates made by management, as well as evaluating the overall financial statement presentation. We believe that our audits provide a reasonable basis for our opinion.

        In our opinion, the financial statements referred to above present fairly, in all material respects, the consolidated financial position of Walter Industries, Inc. and subsidiaries at December 31, 2008 and 2007, and the consolidated results of their operations and their cash flows for each of the two years in the period ended December 31, 2008, in conformity with U.S. generally accepted accounting principles.

        As discussed in Note 11 to the consolidated financial statements, the Company adopted FASB Interpretation No. 48, "Accounting for Uncertainty in Income Taxes," in 2007. As discussed in Note 13 to the consolidated financial statements, the Company adopted the measurement provisions of Statement of Financial Accounting Standards No. 158, "Employers' Accounting for Defined Benefit Pension and Other Postretirement Plans," in 2008.

        We also have audited, in accordance with the standards of the Public Company Accounting Oversight Board (United States), Walter Industries, Inc. and subsidiaries' internal control over financial reporting as of December 31, 2008, based on criteria established in Internal Control-Integrated Framework issued by the Committee of Sponsoring Organizations of the Treadway Commission and our report dated February 26, 2009 expressed an unqualified opinion thereon.

/s/ Ernst & Young LLP

Tampa, Florida
February 26, 2009

F-2

Report of Independent Registered Certified Public Accounting Firm

The Board of Directors and Stockholders of Walter Industries, Inc.

        We have audited Walter Industries, Inc. and subsidiaries' internal control over financial reporting as of December 31, 2008, based on criteria established in Internal Control—Integrated Framework issued by the Committee of Sponsoring Organizations of the Treadway Commission (the COSO criteria). Walter Industries, Inc.'s management is responsible for maintaining effective internal control over financial reporting, and for its assessment of the effectiveness of internal control over financial reporting included in the accompanying Management's Report on Internal Control over Financial Reporting. Our responsibility is to express an opinion on the company's internal control over financial reporting based on our audit.

        We conducted our audit in accordance with the standards of the Public Company Accounting Oversight Board (United States). Those standards require that we plan and perform the audit to obtain reasonable assurance about whether effective internal control over financial reporting was maintained in all material respects. Our audit included obtaining an understanding of internal control over financial reporting, assessing the risk that a material weakness exists, testing and evaluating the design and operating effectiveness of internal control based on the assessed risk, and performing such other procedures as we considered necessary in the circumstances. We believe that our audit provides a reasonable basis for our opinion.

        A company's internal control over financial reporting is a process designed to provide reasonable assurance regarding the reliability of financial reporting and the preparation of financial statements for external purposes in accordance with generally accepted accounting principles. A company's internal control over financial reporting includes those policies and procedures that (1) pertain to the maintenance of records that, in reasonable detail, accurately and fairly reflect the transactions and dispositions of the assets of the company; (2) provide reasonable assurance that transactions are recorded as necessary to permit preparation of financial statements in accordance with generally accepted accounting principles, and that receipts and expenditures of the company are being made only in accordance with authorizations of management and directors of the company; and (3) provide reasonable assurance regarding prevention or timely detection of unauthorized acquisition, use, or disposition of the company's assets that could have a material effect on the financial statements.

        Because of its inherent limitations, internal control over financial reporting may not prevent or detect misstatements. Also, projections of any evaluation of effectiveness to future periods are subject to the risk that controls may become inadequate because of changes in conditions, or that the degree of compliance with the policies or procedures may deteriorate.

        In our opinion, Walter Industries, Inc. and subsidiaries maintained, in all material respects, effective internal control over financial reporting as of December 31, 2008, based on the COSO criteria.

        We also have audited, in accordance with the standards of the Public Company Accounting Oversight Board (United States), the consolidated balance sheets of Walter Industries, Inc. and subsidiaries as of December 31, 2008 and 2007, and the related consolidated statements of operations, changes in stockholders' equity and comprehensive income, and cash flows for each of the two years in the period ended December 31, 2008 and our report dated February 26, 2009 expressed an unqualified opinion thereon.

/s/ Ernst & Young LLP

Tampa, Florida
February 26, 2009

F-3

Report of Independent Registered Certified Public Accounting Firm

To Board of Directors and Stockholders of Walter Industries, Inc.:

        In our opinion, the consolidated statements of operations, changes in stockholders' equity and comprehensive income, and cash flows for the year ended December 31, 2006 present fairly, in all material respects, the results of operations and cash flows of Walter Industries, Inc. and its subsidiaries for the year ended December 31, 2006, in conformity with accounting principles generally accepted in the United States of America. These financial statements are the responsibility of the Company's management. Our responsibility is to express an opinion on these financial statements based on our audit. We conducted our audit of these statements in accordance with the standards of the Public Company Accounting Oversight Board (United States). Those standards require that we plan and perform the audit to obtain reasonable assurance about whether the financial statements are free of material misstatement. An audit includes examining, on a test basis, evidence supporting the amounts and disclosures in the financial statements, assessing the accounting principles used and significant estimates made by management, and evaluating the overall financial statement presentation. We believe that our audit provides a reasonable basis for our opinion.

/s/ PricewaterhouseCoopers LLP

Tampa, Florida

February 28, 2007 except as it relates to the discontinued operations of Crestline Homes, Inc. and Kodiak Mining Company, LLC as described in Note 3 as to which the date is March 7, 2008 and February 26, 2009, respectively, and as it relates to the change in segments as described in Note 18, as to which the date is March 7, 2008

F-4

WALTER INDUSTRIES, INC. AND SUBSIDIARIES

CONSOLIDATED BALANCE SHEETS

(in thousands, except share amounts)

			December 31,
			2008			2007
ASSETS
Cash and cash equivalents			$	117,672		$	30,614
Short-term investments, restricted				56,275			75,198
Instalment notes receivable, net of allowance of $18,969 and $13,992, respectively				1,769,688			1,837,059
Receivables, net				176,601			81,011
Inventories				133,129			97,324
Prepaid expenses				26,418			36,005
Property, plant and equipment, net				515,418			414,463
Deferred income taxes				206,733			95,380
Other assets				59,392			63,684
Goodwill				—			10,895
Assets of discontinued operations				6,667			25,648
			$	3,067,993		$	2,767,281
LIABILITIES AND STOCKHOLDERS' EQUITY
Accounts payable			$	72,801		$	71,930
Accrued expenses				91,213			83,050
Accrued interest				11,362			13,940
Debt:
	Mortgage-backed/asset-backed notes			1,372,821			1,706,218
	Other debt			225,385			225,860
Accumulated postretirement benefits obligation				369,055			335,034
Other liabilities				293,759			216,007
Liabilities of discontinued operations				1,328			529
	Total liabilities			2,437,724			2,652,568
Commitments and Contingencies (Note 16)
Stockholders' equity:
	Common stock, $0.01 par value per share:
		Authorized—200,000,000 shares
		Issued—54,143,958 and 51,991,134 shares, respectively		541			520
	Capital in excess of par value			714,174			497,032
	Retained earnings (deficit)			50,990			(290,986	)
	Accumulated other comprehensive income (loss):
		Pension and other post-retirement benefit plans, net of tax		(137,364	)		(87,071	)
		Unrealized gain (loss) on hedges, net of tax		1,928			(4,782	)
		Total stockholders' equity		630,269			114,713
			$	3,067,993		$	2,767,281

The accompanying notes are an integral part of the consolidated financial statements.

F-5

WALTER INDUSTRIES, INC. AND SUBSIDIARIES

CONSOLIDATED STATEMENTS OF OPERATIONS

(in thousands, except per share amounts)

		For the years ended December 31,
		2008			2007			2006
Net sales and revenues:
	Net sales	$	1,263,834		$	1,000,411		$	1,009,781
	Interest income on instalment notes		187,094			202,654			199,659
	Miscellaneous income		36,142			36,756			63,468
			1,487,070			1,239,821			1,272,908
Cost and expenses:
	Cost of sales (exclusive of depreciation)		729,833			686,326			662,877
	Depreciation		59,772			45,559			36,764
	Selling, general and administrative		142,912			144,186			141,265
	Provision for losses on instalment notes		21,315			13,889			9,062
	Postretirement benefits		26,494			26,734			13,540
	Interest expense—mortgage-backed/asset-backed notes		102,115			119,102			118,743
	Interest rate hedge ineffectiveness		16,981			—			—
	Interest expense—other debt		26,223			18,830			38,009
	Amortization of intangibles		1,278			1,932			2,405
	Restructuring and impairment charges		63,958			—			1,639
	Provision (credit) for estimated hurricane insurance losses		3,853			—			(1,046	)
	Debt conversion expense		—			—			19,370
			1,194,734			1,056,558			1,042,628
Income from continuing operations before income tax expense (benefit)			292,336			183,263			230,280
Income tax expense (benefit)			(75,798	)		58,261			73,983
Income from continuing operations			368,134			125,002			156,297
Income (loss) from discontinued operations			(21,554	)		(13,003	)		42,072
Net income		$	346,580		$	111,999		$	198,369
Basic income (loss) per share:
	Income from continuing operations	$	6.84		$	2.40		$	3.55
	Income (loss) from discontinued operations		(0.40	)		(0.25	)		0.96
	Net income	$	6.44		$	2.15		$	4.51
Diluted income (loss) per share:
	Income from continuing operations	$	6.74		$	2.38		$	3.07
	Income (loss) from discontinued operations		(0.39	)		(0.25	)		0.80
	Net income	$	6.35		$	2.13		$	3.87

The accompanying notes are an integral part of the consolidated financial statements.

F-6

WALTER INDUSTRIES, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CHANGES IN STOCKHOLDERS' EQUITY
AND COMPREHENSIVE INCOME
FOR THE THREE YEARS ENDED DECEMBER 31, 2008
(in thousands)

			Total			Common Stock			Capital in Excess of Par Value			Comprehensive Income			Retained Earnings (Deficit)			Treasury Stock			Accumulated Other Comprehensive Income (Loss)
Balance at December 31, 2005			$	288,616		$	598		$	1,210,751					$	(602,002	)	$	(259,317	)	$	(61,414	)
Adjustment to initially apply SEC SAB No. 108				5,069												5,069
Adjusted balance at December 31, 2005				293,685			598			1,210,751						(596,933	)		(259,317	)		(61,414	)
Comprehensive income:
	Net income			198,369								$	198,369			198,369
	Other comprehensive income, net of tax:
		Cumulative foreign currency translation adjustment		1,053									1,053									1,053
		Decrease in additional pension liability, net of $0.3 million tax provision		703									703									703
		Net unrealized gain on hedges, net of $2.8 million tax provision		4,113									4,113									4,113
Comprehensive income												$	204,238
Adjustment to initially apply FASB Statement No. 158				(74,513	)																	(74,513	)
Sale of common stock				168,680			26			168,654
Stock issued upon conversion of convertible notes				176,108			98			176,010
Gain on sale of investment in Mueller Water Products, Inc. through initial public offering				132,048						125,088												6,960
Stock dividend for spin-off of Mueller Water Products, Inc.				(919,933	)					(944,393	)											24,460
Stock issued upon exercise of stock options				4,735			6			4,729
Tax benefit on the exercise of stock options				8,310						8,310
Dividends paid, $0.16 per share				(6,825	)					(6,825	)
Stock-based compensation				15,375						15,375
Balance at December 31, 2006				1,908			728			757,699						(398,564	)		(259,317	)		(98,638	)
Adjustment to initially apply FIN 48				(4,421	)											(4,421	)
Adjusted balance at January 1, 2007				(2,513	)		728			757,699						(402,985	)		(259,317	)		(98,638	)
Comprehensive income:
	Net income			111,999								$	111,999			111,999
	Other comprehensive income, net of tax:
		Change in pension and postretirement benefit plans, net of $9.7 million tax provision		15,231									15,231									15,231
		Net unrealized loss on hedges, net of $4.3 million tax benefit		(8,446	)								(8,446	)								(8,446	)
Comprehensive income												$	118,784
Retirement of treasury stock				—			(207	)		(259,902	)								260,109
Purchases of stock under stock repurchase program				(5,627	)		(1	)		(5,626	)
Stock issued upon exercise of stock options				1,447						1,447
Tax benefit on the exercise of stock options				2,015						2,015
Dividends paid, $0.20 per share				(10,411	)					(10,411	)
Stock-based compensation				11,810						11,810
Other				(792	)														(792	)
Balance at December 31, 2007				114,713			520			497,032						(290,986	)		—			(91,853	)
Comprehensive income:
	Net income			346,580								$	346,580			346,580
	Other comprehensive income, net of tax:
		Change in pension and postretirement benefit plans, net of $32.3 million tax benefit		(50,961	)								(50,961	)								(50,961	)
		Net unrealized gain on hedges, net of $4.5 million tax provision		6,710									6,710									6,710
Comprehensive income												$	302,329
Effects of changing the pension plan measurement date pursuant to FASB Statement No. 158:
	Service cost, interest cost, and expected return on plan assets for October 1–December 31, 2007, net of $3.0 million tax benefit			(4,604	)											(4,604	)
	Amortization of prior service cost and actuarial gain/loss for October 1–December 31, 2007, net of $0.5 million tax provision			668																		668
Proceeds from public stock offering				280,464			32			280,432
Purchases of stock under stock repurchase program				(64,644	)		(16	)		(64,628	)
Stock issued upon exercise of stock options				7,993			4			7,989
Stock issued upon conversion of convertible notes				785			1			784
Dividends paid, $0.30 per share				(16,233	)					(16,233	)
Stock-based compensation				10,439						10,439
Other				(1,641	)					(1,641	)
Balance at December 31, 2008			$	630,269		$	541		$	714,174					$	50,990		$	—		$	(135,436	)

The accompanying notes are an integral part of the consolidated financial statements.

F-7

WALTER INDUSTRIES, INC. AND SUBSIDIARIES

CONSOLIDATED STATEMENTS OF CASH FLOWS

(in thousands)

			For the years ended December 31,
			2008			2007			2006
OPERATING ACTIVITIES
Net income			$	346,580		$	111,999		$	198,369
	Loss (income) from discontinued operations			21,554			13,003			(42,072	)
	Income from continuing operations			368,134			125,002			156,297
Adjustments to reconcile income from continuing operations to net cash provided by operating activities:
	Provision for losses on instalment notes receivable			21,315			13,889			9,062
	Depreciation			59,772			45,559			36,764
	Non-cash restructuring and impairment charges			61,459			—			1,639
	Provision for (benefit from) deferred income taxes			(92,520	)		(7,066	)		15,242
	Other			12,276			27,241			13,602
Decrease (increase) in assets, net of effect of acquisitions:
	Receivables			(96,506	)		9,282			(28,598	)
	Inventories			(34,340	)		4,825			14,943
	Prepaid expenses			23,878			8,021			(4,484	)
	Instalment notes receivable, net			31,415			(65,432	)		(33,755	)
Increase (decrease) in liabilities, net of effect of acquisitions:
	Accounts payable			(816	)		2,439			(86	)
	Accrued expenses			2,833			(12,832	)		16,773
	Accrued interest			(2,578	)		(3,113	)		(3,344	)
		Cash flows provided by operating activities		354,322			147,815			194,055
INVESTING ACTIVITIES
	Acquisitions, net of cash acquired			(17,932	)		(11,650	)		10,500
	Purchases of loans			—			(39,900	)		(103,823	)
	Principal payments received on purchased loans			14,641			34,081			45,954
	Additions to property, plant and equipment			(101,813	)		(151,913	)		(90,528	)
	Cash proceeds from sale of property, plant and equipment			8,167			3,258			4,273
	Decrease (increase) in short-term investments, restricted			18,923			14,584			35,185
	Other			(68	)		2,717			11,159
		Cash flows used in investing activities		(78,082	)		(148,823	)		(87,280	)
FINANCING ACTIVITIES
	Issuance of mortgage-backed/asset-backed notes			25,000			189,200			401,876
	Payments on mortgage-backed/asset-backed notes			(358,458	)		(219,793	)		(392,647	)
	Proceeds from issuance of other debt			340,000			—			—
	Retirement of other debt			(398,709	)		(44,679	)		(200,169	)
	Sale of common stock			280,464			—			168,680
	Cash spun-off to Mueller Water Products, Inc.			—			—			(82,145	)
	Dividends paid			(16,233	)		(10,411	)		(6,825	)
	Purchases of stock under stock repurchase program			(64,644	)		(5,627	)		—
	Other			5,172			7,209			21,242
		Cash flows used in financing activities		(187,408	)		(84,101	)		(89,988	)
		Cash flows provided by (used in) continuing operations		88,832			(85,109	)		16,787
CASH FLOWS FROM DISCONTINUED OPERATIONS
	Cash flows provided by (used in) operating activities			2,695			(7,169	)		50,616
	Cash flows used in investing activities			(4,469	)		(4,478	)		(90,791	)
	Cash flows provided by financing activities			—			—			13,391
		Cash flows used in discontinued operations		(1,774	)		(11,647	)		(26,784	)
Net increase (decrease) in cash and cash equivalents			$	87,058		$	(96,756	)	$	(9,997	)
Cash and cash equivalents at beginning of year			$	30,614		$	127,369		$	64,405
	Add: Cash and cash equivalents of discontinued operations at beginning of year			—			1			72,960
Net increase (decrease) in cash and cash equivalents				87,058			(96,756	)		(9,997	)
	Less: Cash and cash equivalents of discontinued operations at end of year			—			—			1
Cash and cash equivalents at end of year			$	117,672		$	30,614		$	127,369

F-8

WALTER INDUSTRIES, INC. AND SUBSIDIARIES

CONSOLIDATED STATEMENTS OF CASH FLOWS (Continued)

(in thousands)

			For the years ended December 31,
			2008			2007			2006
SUPPLEMENTAL DISCLOSURES:
	Interest paid, net of capitalized interest		$	137,871		$	125,694		$	148,703
	Income taxes paid (refunded), net		$	27,680		$	54,818		$	32,495
	Non-Cash Investing Activities:
	Acquisition of Taft in 2008 and TRI in 2007:
		Fair value of assets acquired	$	71,679		$	26,260
		Fair value of liabilities assumed		(51,579	)		(14,216	)
		Less: Cash acquired		(3,011	)		(394	)
		Net cash paid	$	17,089		$	11,650
	Non-Cash Financing Activities:
	One-year property insurance policy financing agreement		$	13,884		$	5,277
	Equipment acquired with specific financing arrangements		$	41,681
	Non-cash conversion of Senior Subordinated Convertible Notes into common stock		$	785					$	174,215
	Non-cash dividend to spin-off Mueller Water Products, Inc.								$	944,393

The accompanying notes are an integral part of the consolidated financial statements.

F-9

WALTER INDUSTRIES, INC. AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

NOTE 1—Organization

        Walter Industries, Inc. ("Walter"), together with its consolidated subsidiaries, ("the Company") is a diversified company that operates in five reportable segments: Natural Resources, Sloss, Financing, Homebuilding and Other, see Note 18. Through these operating segments, the Company offers a diversified line of products and services including coal and natural gas, metallurgical coke, mortgage financing and home construction. See Note 3.

NOTE 2—Summary of Significant Accounting Policies

Basis of Presentation

        The consolidated financial statements include the accounts of all wholly and majority owned subsidiaries. Preparation of financial statements in accordance with U.S. generally accepted accounting principles requires management to make estimates and assumptions that affect the amounts reported in the consolidated financial statements. Actual results could differ from those estimates. All significant intercompany balances and transactions have been eliminated. The notes to consolidated financial statements, except where otherwise indicated, relate to continuing operations only.

Concentrations of Credit Risk

        Financial instruments, which potentially subject the Company to significant concentrations of credit risk, consist principally of cash and cash equivalents, investments, instalment notes receivable, and trade and other receivables.

        The Company maintains cash and cash equivalents in high quality securities with various financial institutions. Concentrations of credit risk with respect to instalment notes receivable and trade and other receivables are limited due to the large number of customers and their dispersion across many geographic areas. However, of the gross amount of instalment notes receivable at December 31, 2008, 33%, 15%, 9%, and 6% (December 31, 2007, 33%, 15%, 9%, and 6%) are secured by homes located in the states of Texas, Mississippi, Alabama, and Florida and Louisiana (each 6%), respectively. The Company believes the potential for incurring material losses related to the concentration of these credit risks is remote.

        The Company provides insurance to homeowners primarily in the southeastern United States and, due to the concentration in this area, is subject to risk of loss due to the threat of hurricanes and other natural disasters.

Revenue Recognition

        Natural Resources—Revenue is recognized when the following criteria have been met: persuasive evidence of an arrangement exists; the price to the buyer is fixed or determinable; delivery has occurred; and collectability is reasonably assured. Delivery is considered to have occurred at the time title and risk of loss transfers to the customer. For coal shipments via rail, delivery generally occurs when the railcar is loaded. For coal shipments via ocean vessel, delivery generally occurs when the vessel is loaded. For the Company's natural gas operations, delivery occurs when the gas has been transferred to the customer's pipeline.

        Miscellaneous income in 2008 includes interest income of $17.1 million related to a Black Lung Excise Tax refund claim. Miscellaneous income in 2006 includes $23.4 million related to the settlement of an insurance claim associated with a 2005 water ingress problem at Mine No. 5.

F-10

        Sloss—For products shipped via rail or truck, revenue is recognized when title and risk of loss transfer to the customer, generally at the point of shipment.

        Financing—Within the Financing segment, Walter Mortgage Company ("WMC") services instalment notes and mortgages originated by Jim Walter Homes ("JWH"). Through May 1, 2008, JWH offered financing to homebuyers and WMC originated and purchased loans that are secured by mortgages and liens. Subsequent to May 1, 2008, except for homes under contract as of that date, WMC will no longer purchase instalment notes from JWH or originate loans for JWH customers. References to instalment notes or mortgage instalment notes include mortgage loans offered by WMC.

        Instalment notes are initially recorded by JWH at the discounted value of the future instalment note payments using an imputed interest rate. The imputed interest rate used represents the estimated prevailing market rate of interest for credit of similar terms issued to customers with similar credit ratings to JWH's customers. The Company estimates this rate by adding a credit spread and a margin to a benchmark funding rate in order to cover costs and expected losses. This rate is periodically compared to rates charged by competitors and other lenders to customers of similar credit quality to validate that the methodology results in a market rate of interest. These estimates affect revenue recognition by determining the allocation of income between the amount recognized by the Homebuilding segment from the construction of the home and the amount recognized by the Financing segment over the life of the instalment note as interest income. Variations in the estimated market rate of interest used to initially record instalment notes receivable could affect the amount and timing of income recognition in each of these segments. Instalment note pay-offs received in advance of scheduled maturity (prepayments) effect the amount of interest income due to the recognition of any remaining unamortized discounts or premiums arising from the note's inception.

        The instalment notes state the maximum amount to be charged to the customer, and ultimately recognized as revenue, based on the contractual number of payments and dollar amount of monthly payments. Prior to 2008, in each of the years ended December 31, 2007 and 2006, WMC purchased fixed and variable rate mortgage loans and offered mortgage loans that have fixed monthly payments and repayment terms similar to instalment notes. The interest income earned by WMC is recognized using the interest method. WMC has the ability to levy costs to protect its collateral position upon default, such as attorney fees and late charges, as allowed by state law. The various legal instruments used allow for different fee structures to be charged to the customer, for example late fees and prepayment fees. These fees are recognized as revenue.

        Instalment notes are placed on non-accrual status when any portion of the principal or interest is ninety days past due. When placed on non-accrual status, the related interest receivable is reversed against interest income of the current period. Instalment notes are removed from non-accrual status when the amount financed and the associated interest are no longer over ninety days past due. Recoveries of advanced taxes and insurance related to instalment notes are recognized as income when collected.

        The Financing segment sells homes and related real estate repossessed or foreclosed on from customers in default of their loans or notes ("Repo Sales"). Repo Sales involve the sale and, in most circumstances, the financing of both a home and related real estate. Revenues from Repo Sales are recognized by the full accrual method where appropriate. However, the requirement for a minimum 5% initial cash investment, (for primary residences), frequently is not met. When this is the case, losses are immediately recognized, and gains are deferred and recognized by the instalment method until the buyer's investment reaches the minimum 5%. At that time, revenue is recognized by the full accrual method.

        Homebuilding—The Company's Homebuilding operations primarily involve selling a home constructed for consumers on real estate owned by the consumer ("On Your Lot Sales"). Sales for cash at closing are occasionally made, however, most involve some form of seller financing. Since the real

F-11

estate (land) is already owned by the customer and is not financed by the Company, these transactions represent sales of personal property financed by instalment sales contracts ("Notes"). Revenue from the construction and sale of a home is recognized upon completion of construction and legal transfer of ownership to the customer.

        Other—Generally, land sales are recognized as revenue when legal transfer of ownership to the buyer occurs, which is at closing.

Shipping and Handling

        Costs to ship products to customers are included in cost of sales and amounts billed to customers, if any, to cover shipping and handling are included in net sales.

Advertising

        The Company recognizes advertising costs as incurred in selling, general and administrative expenses in the statement of operations. The amount of advertising expense recognized in 2008, 2007 and 2006 was $2.7 million, $5.0 million and $5.2 million, respectively.

Cash and Cash Equivalents

        Cash and cash equivalents include short-term deposits and highly liquid investments that have original maturities of three months or less when purchased and are stated at cost.

Allowances for Losses

        Allowances for losses on trade and other accounts receivables are based, in large part, upon judgments and estimates of expected losses and specific identification of problem trade accounts and other receivables. Significantly weaker than anticipated industry or economic conditions could impact customers' ability to pay such that actual losses may be greater than the amounts provided for in these allowances.

        Management's periodic evaluation of the adequacy of the allowance for losses on instalment notes is based on the Company's past loss experience, known and inherent risks in the portfolio, delinquencies, the estimated value of the underlying real estate collateral and current economic and market conditions within the applicable geographic areas surrounding the underlying real estate. The calculation of delinquencies excludes from delinquent amounts those accounts that are in bankruptcy proceedings that are paying their mortgage payments in contractual compliance with bankruptcy court approved mortgage payment obligations. The allowance for losses on instalment notes is increased by provisions for losses charged to income and is reduced by charge-offs, net of recoveries.

Inventories

        Inventories are valued at the lower of cost or market. Natural Resources' coal inventory costs include labor, supplies, equipment costs, operating overhead, freight, royalties and other related costs. Coal inventories are determined using the first-in, first-out ("FIFO") method, while supplies inventory is determined using the average cost method of accounting. Homes under construction are determined using actual costs. Financing's inventory of repossessed property is recorded at its estimated fair value less estimated costs to sell, which is based on historical recovery rates and current market conditions. The valuation of coal inventories are subject to estimates due to possible gains or losses resulting from inventory movements from the mine site to storage facilities at the Port of Mobile, inherent inaccuracies in belt scales and aerial surveys used to measure quantities and fluctuations in moisture content. Periodic adjustments to coal tonnages on hand are made for an estimate of coal shortages due to these inherent gains and losses, primarily based on historical findings, the results of aerial surveys

F-12

and periodic coal pile clean-ups. Additionally, the Company evaluates its inventory in terms of excess and obsolete exposures. This evaluation includes such factors as anticipated usage, inventory turnover, inventory levels and ultimate product sales value.

Property, Plant and Equipment

        Property, plant and equipment are recorded at cost. Depreciation is recorded principally on the straight-line method over the estimated useful lives of the assets. Leasehold improvements are amortized on the straight-line method over the lesser of the useful life of the improvement or the remaining lease term. Estimated useful lives used in computing depreciation expense range from 3 to 20 years for machinery and equipment, 3 to 50 years for land improvements and buildings, and mine life for mineral interests and mine development costs. Gains and losses upon disposition are reflected in the statement of operations in the period of disposition. Maintenance and repair expenditures are charged to expense as incurred.

        Direct internal and external costs to implement computer systems and software are capitalized and are amortized over the estimated useful life of the system or software, beginning when site installations or module development is complete and ready for its intended use, which generally is 3 to 5 years.

        The Company has certain asset retirement obligations, primarily related to reclamation efforts for its Natural Resources segment. These obligations are recognized at fair value in the period in which they are incurred and the carrying amount of the related long-lived asset is correspondingly increased. Over time, the liability is accreted to its future value. The corresponding asset capitalized at inception is amortized over the useful life of the asset. In addition, the Company has certain legal obligations for asset retirements related to disposing of materials in the event of closure, abandonment or sale of certain of its facilities, primarily in the Sloss segment. The Company plans to operate the facilities that are subject to the asset retirement obligations for the foreseeable future and as such has not estimated a liability at December 31, 2008. The Company will recognize a liability in the period in which it is determined that the plant will not operate in the foreseeable future and information is available to reasonably estimate the liability's fair value.

        For the years ended December 31, 2008, 2007 and 2006, the Company capitalized interest costs in the amount of $3.9 million, $10.9 million and $0.5 million, respectively. Interest capitalization increased in 2007 primarily due to Natural Resources' capital expansion projects and the recognition of $4.6 million of capitalized interest applicable to prior years' expansion projects. This amount was recorded in 2007 as the amount was determined to be immaterial to those prior years on both a quantitative basis and on a qualitative basis.

Accounting for the Impairment of Long-Lived Assets

        Long-lived assets are reviewed for impairment whenever events or changes in circumstances indicate that the book value of the asset may not be recoverable. The Company periodically evaluates whether events and circumstances have occurred that indicate possible impairment. When impairment indicators exist, the Company uses an estimate of the future undiscounted net cash flows of the related asset or asset group over the remaining life in measuring whether or not the asset values are recoverable. Fair value is generally determined using market quotes, if available, or a discounted cash flow approach. There were no significant impairments of long-lived assets during the years ended December 31, 2007 and 2006. However, during the year ended December 31, 2008, the Company recorded impairment charges relating to certain long-lived assets of the Natural Resources, Homebuilding and Financing segments. See Note 4 for discussion.

Workers' Compensation and Pneumoconiosis ("Black Lung")

        The Company is self-insured for workers' compensation benefits for work related injuries. Liabilities, including those related to claims incurred but not reported, are recorded principally using

F-13

annual valuations based on discounted future expected payments and using historical data of the division or combined insurance industry data when historical data is limited. Workers' compensation liabilities were as follows (in thousands):

	December 31,
	2008		2007
Undiscounted aggregated estimated claims to be paid	$	43,584	$	39,773
Workers' compensation liability recorded on a discounted basis	$	37,592	$	33,696

        The Company applies a discount rate at a risk-free interest rate, generally a U.S. Treasury bill rate, for each policy year. The rate used is one with a duration that corresponds to the weighted average expected payout period for each policy year. Once a discount rate is applied to a policy year, it remains the discount rate for that year until all claims are paid. The weighted average rate used for discounting the liability at December 31, 2008 was 1.89%. A one-percentage-point increase in the discount rate on the discounted claims liability would decrease the liability by $0.2 million, while a one-percentage-point decrease in the discount rate would increase the liability by $0.2 million.

        The Company is responsible for medical and disability benefits for black lung disease under the Federal Coal Mine Health and Safety Act of 1969, as amended, and is self-insured against black lung related claims. The Company performs an annual evaluation of the overall black lung liabilities at the balance sheet date. The calculation is performed using assumptions regarding rates of successful claims, discount factors, benefit increases and mortality rates, among others. The present value of the obligation recorded by the Company using a discount factor of 6.5% both for 2008 and 2007 was $8.6 million and $8.2 million as of December 31, 2008 and 2007, respectively, and was recorded in other liabilities. A one-percentage-point increase in the discount rate on the discounted claims liability would decrease the liability by $1.2 million, while a one-percentage-point decrease in the discount rate would increase the liability by $1.5 million.

Insurance Claims (Hurricane Losses)

        Accruals for property-liability claims and claims expense are recognized when probable and reasonably estimable at amounts necessary to settle both reported and unreported claims of insured property-liability losses, based upon the facts in each case and the Company's experience with similar cases. The establishment of appropriate accruals, including accruals for catastrophes such as hurricanes, is an inherently uncertain process. Accrual estimates are regularly reviewed and updated, using the most current information available. The Financing segment recorded a provision of $3.9 million for claim losses as a result of damage from Hurricanes Ike and Gustav in 2008 that impacted the Company's market area. The credit of $(1.0) million in 2006 relates to a revision of the estimated claim losses for Hurricanes Katrina and Rita in 2005.

Derivative Instruments and Hedging Activities

        The Company enters into interest rate hedge agreements in accordance with the Company's internal debt and interest rate risk management policy, which is designed to mitigate risks related to floating rate financing agreements that are subject to changes in the market rate of interest. Changes in the fair value of interest rate hedge agreements that are designated and effective as hedges are recorded in accumulated other comprehensive income (loss) ("OCI"). Deferred gains or losses are reclassified from OCI to the statement of operations in the same period as the underlying transactions are recorded and are recognized in the caption, interest expense. In addition, the settled amount of an interest rate hedge agreement that has been terminated prior to its original term continues to be deferred in OCI and is recognized in the statement of operations over the term of the underlying debt agreement designated as the hedged item. Changes in the fair value of interest rate hedge agreements

F-14

that are not effective as hedges are recorded immediately in the statement of operations as interest expense.

        To protect against the reduction in the value of forecasted cash flows resulting from sales of natural gas, the Company periodically engages in a natural gas hedging program. The Company hedges portions of its forecasted revenues from sales of natural gas with natural gas derivative contracts, generally either "swaps" or "collars". The Company enters into natural gas derivatives that effectively convert a portion of its forecasted sales at floating-rate natural gas prices to a fixed-rate basis, thus reducing the impact of natural gas price changes on net sales and revenues. When natural gas prices fall, the decline in value of future natural gas sales is offset by gains in the value of swap contracts designated as hedges. Conversely, when natural gas prices rise, the increase in the value of future cash flows from natural gas sales is offset by losses in the value of the swap contracts. Changes in the fair value of natural gas derivative agreements that are designated and effective as hedges are recorded in OCI. Deferred gains or losses are reclassified from OCI and recognized as miscellaneous income in the statement of operations in the same period as the underlying transactions. Changes in the fair value of natural gas hedge agreements that are not effective as hedges or are not designated as hedges are recorded immediately in the statement of operations as miscellaneous income.

        During the three years ended December 31, 2008, the Company did not hold any non-derivative instruments designated as hedges or any derivatives designated as fair value hedges. In addition, the Company does not enter into derivative financial instruments for speculative or trading purposes. Derivative contracts are entered into only with counterparties that management considers credit-worthy.

        Cash flows from hedging activities are reported in the statement of cash flows in the same classification as the hedged item, generally as a component of cash flows from operations.

Stock-Based Compensation Plans

        As of January 1, 2006, the Company adopted SFAS No. 123 (revised 2004), "Share-Based Payment" and the Securities and Exchange Commission Staff Bulletin No. 107 (collectively "SFAS 123(R)"), which requires the Company to value and record, as compensation expense, stock awards granted to employees under a fair value based method. Prior to January 1, 2006, compensation expense was not required for stock options granted to the Company's employees because all stock options granted had an intrinsic value of $0 at the date of the grant. However, compensation expense associated with restricted stock unit grants was required to be recognized over the vesting period of the grant.

        SFAS 123(R) applies to new awards and to awards modified, repurchased or canceled after January 1, 2006. The Company utilizes the modified prospective application method for stock options and restricted stock units granted prior to January 1, 2006, which requires the Company to record compensation expense beginning January 1, 2006 for the unvested portion of those stock awards. This compensation expense is charged to the statement of operations with a corresponding credit to capital in excess of par value and is generally recognized utilizing the graded vesting method for stock options and straight-line method for restricted stock units. The Company uses the Black- Scholes option pricing model to value its stock option grants and estimates forfeitures in calculating the expense related to stock-based compensation.

Environmental Expenditures

        The Company capitalizes environmental expenditures that increase the life or efficiency of property or that reduce or prevent environmental contamination. The Company accrues for environmental expenses resulting from existing conditions that relate to past operations when the costs are probable and reasonably estimable. See Note 16 for additional discussion of environmental matters.

F-15

Income (Loss) per Share

        The Company calculates basic income (loss) per share based on the weighted average common shares outstanding during each period and diluted income (loss) per share based on weighted average and dilutive common equivalent shares outstanding during each period. Dilutive common equivalent shares include the dilutive effect of stock awards, as well as the Company's convertible senior subordinated notes, see Note 15.

NOTE 3—Discontinued Operations & Acquisitions

Planned Separation and Merger of Financing

        On September 30, 2008, the Company outlined its plans to separate its Financing business from the Company's core Natural Resources businesses through a spin-off to shareholders and subsequent merger with Hanover Capital Mortgage Holdings, Inc. ("Hanover"), a New Jersey-based real estate investment trust ("REIT"). As a step toward the completion of this plan, on February 3, 2009, the Company formed Walter Investment Management LLC ("Spinco"), a wholly owned, Delaware limited liability company, to receive the Financing business and facilitate the spin-off and merger. The subsidiaries and assets that Spinco will own at the time of the spin-off and merger include all assets of Financing except for those associated with the workers' compensation program and various other runoff insurance programs within Cardem Insurance Co., Ltd. At December 31, 2008, Financing's total assets and liabilities were $1.9 billion and $1.5 billion, respectively.

        Following the merger of Spinco with Hanover, the combined company will continue to operate as a publicly traded REIT and will be named Walter Investment Management Corporation ("Walter Investment Management"). The spin-off and merger are expected to be completed in mid 2009. After the spin-off and merger, Walter's shareholders will own approximately 95.17% of Walter Investment Management's publicly traded common stock, certain holders of options to acquire limited liability interest of Spinco outstanding immediately prior to the effective time of the merger will own 3.33%, and shareholders of Hanover will own the remaining 1.5%.

        The transaction is subject to certain closing conditions including, but not limited to, approval of the merger by Hanover's shareholders and favorable rulings from the Internal Revenue Service. Financing will continue to be reported as part of the Company's continuing operations until the date of the spin-off, at which time the historical results of Financing will be reported as discontinued operations.

Discontinued Operations

        Kodiak Mining Co.    In December 2008, the Company announced the permanent closure of the underground coal mine owned by its subsidiary, Kodiak Mining Company, LLC ("Kodiak") due to high operational costs, difficult operating conditions and a challenging pricing environment for Kodiak's product. As such, the Company has reported the results of operations, assets, liabilities and cash flows of Kodiak as discontinued operations for all periods presented. Kodiak's results were previously reported in the Natural Resources segment.

        Crestline Homes.    In 2007, the Company sold Crestline Homes, Inc. ("Crestline"). As such, the Company has reported the results of operations, assets, liabilities and cash flows of Crestline as discontinued operations for 2007 and 2006. Crestline's results were previously reported in the Homebuilding segment. The loss from discontinued operations for the year ended December 31, 2007 includes the results of operations of this business through May 30, 2007, partially offset by a modest gain on the sale of the business on that date.

        Mueller Water Products, Inc.    In 2005, the Company acquired all of the outstanding common stock of Mueller Water Products,  Inc. ("Mueller Water") for $943.4 million and assumed approximately $1.1 billion of indebtedness at Mueller Water. In conjunction with the acquisition, the Company's

F-16

wholly owned subsidiary, United States Pipe and Foundry Company, LLC, ("U.S. Pipe") was contributed to Mueller Water.

        In 2006, Mueller Water completed its initial public offering ("IPO") of 28.8 million shares of Series A common stock, at $16 per share (NYSE: MWA). In connection with the IPO, Mueller Water issued approximately 85.8 million shares of Series B common stock to the Company in exchange for the Company's one share held prior to the IPO. On December 14, 2006, the Company distributed all of its 85.8 million shares of Mueller Water Series B common stock to its shareholders. The distribution took place in the form of a pro rata common stock dividend whereby each shareholder received 1.6524432 shares of Mueller Water Series B common stock for each share of Company common stock held on the record date ("the spin-off"). The spin-off was intended to be tax-free to the Company and to the shareholders of the Company for U.S. income tax purposes, except for any cash received in lieu of fractional shares.

        As a result of the 2006 distribution, the Company no longer holds an ownership interest in Mueller Water. The Company and Mueller Water have entered into several agreements to facilitate the spin-off, including an Income Tax Allocation Agreement that sets forth the rights and obligations of the Company and Mueller Water with respect to taxes and other liabilities that could be imposed in the event of a determination by the Internal Revenue Service, upon audit, that is inconsistent with the tax-free status of the spin-off or any other consequences anticipated in connection with the spin-off. Additionally, the Company and Mueller Water entered into a Joint Litigation Agreement that allocates responsibilities for pending and future litigation and claims, allocates insurance coverages and third-party indemnification rights, where appropriate, and provides that each party should cooperate with each other regarding such litigation claims and rights going forward.

        As a result of the spin-off, amounts previously reported in the Mueller Co., Anvil and U.S. Pipe segments (collectively, "Mueller Water") are presented as discontinued operations for 2006. The Company allocated certain corporate expenses, limited to specifically identified costs and other corporate shared services that support segment operations, to discontinued operations. These costs represent expenses that have historically been allocated to and recorded by these operating segments as selling, general and administrative expenses. The Company did not elect to allocate additional interest expense to discontinued operations.

        Other.    During 2006, the Company recorded a charge of $1.7 million, net of a tax benefit of $0.9 million, to recognize the effect of certain post-closing adjustments resulting from the 2003 sale of Applied Industrial Materials Corporation ("AIMCOR"). This charge, as well as other legal and consulting costs resulting from the transaction, is included as a loss from discontinued operations in the 2006 consolidated statement of operations.

        The table below presents the significant components of operating results included in income (loss) from discontinued operations (primarily Kodiak, Crestline and Mueller Water) for the years ended December 31, 2008, 2007 and 2006 (in thousands).

	For the years ended December 31,
	2008			2007			2006
Net sales and revenues	$	15,570		$	13,909		$	1,829,312
Income (loss) from discontinued operations before income tax expense and minority interest	$	(33,571	)	$	(21,234	)	$	93,270
Income tax (expense) benefit		12,017			8,231			(40,054	)
Minority interest		—			—			(11,144	)
Income (loss) from discontinued operations	$	(21,554	)	$	(13,003	)	$	42,072

F-17

        The assets and liabilities of Kodiak included as discontinued operations in the consolidated balance sheet as of December 31, 2008 and 2007 are shown below (in thousands).

		December 31,
		2008		2007
Current and other long-term assets		$	4,745	$	5,076
Property, plant and equipment, net(1)			1,922		20,572
	Total assets	$	6,667	$	25,648
Accounts payable		$	466	$	142
Accrued expenses			112		22
Other long-term liabilities			750		365
	Total liabilities	$	1,328	$	529

(1)

In 2008, a pre-tax charge of $21.3 million, primarily for the impairment of Kodiak's mining equipment and facilities, was included in the loss from discontinued operations.

Acquisitions

        Taft Coal Sales & Associates.    On September 2, 2008, the Company, through its wholly owned subsidiary United Land Corporation, acquired all of the outstanding common shares of Taft Coal Sales & Associates ("Taft") for $23.5 million which includes a cash payment of $20.1 million, including $0.3 million of acquisition costs and the assumption of $3.4 million of debt, which was immediately paid off. The fair value of assets acquired and liabilities assumed totaled $71.7 million and $51.6 million, respectively. Taft, located in Jasper, Alabama, operates a surface steam and industrial coal mine and primarily mines coal for the industrial and electric utility markets. The acquisition of Taft, included in the Natural Resources segment, expands the Company's coal production base in the southern Appalachian coal region of Alabama.

        The financial results of Taft have been included in the Company's consolidated financial statements beginning on September 2, 2008. The assets acquired and liabilities assumed were recorded at their estimated fair values as of the acquisition date. Fair values were determined by using the income, cost and market price valuation methods as deemed appropriate by management. The purchase price allocation, while substantially complete, is subject to future adjustments based on the resolution of certain contractual obligations and contingencies. The resolution of these items is expected to be resolved during 2009. The following table summarizes the allocation of the purchase price based on the fair value of the net assets acquired and liabilities assumed at the acquisition date (in thousands):

		Amount
Cash		$	3,011
Receivables			2,370
Inventory			1,865
Other assets			547
Land			2,505
Mineral interests			44,044
Mine equipment			16,929
Buildings			408
	Total assets	$	71,679
Accounts payable			1,687
Other accrued expenses			8,091
Notes payable			3,363
Deferred tax liability			8,710
Unfavorable coal supply agreements			29,728
Total liabilities			51,579
Purchase price paid		$	20,100

F-18

        Tuscaloosa Resources, Inc.    On August 31, 2007, the Company acquired all of the outstanding common shares of Tuscaloosa Resources, Inc. ("TRI") for $12.5 million, of which $11.7 million was paid in 2007 and the remainder was paid in 2008. TRI's debt at the date of acquisition totaled $8.5 million of which, $7.1 million was retired in 2007. TRI mines primarily low-sulfur coal for the industrial and electric utility markets and is located in Brookwood, Alabama. The acquisition of TRI, included in the Natural Resources segment, diversifies the Company's coal production base and provides an opportunity to grow the Company's domestic Natural Resources business.

        The financial results of TRI have been included in the Company's consolidated financial statements beginning on September 1, 2007. Assets acquired and liabilities assumed were recorded at their estimated fair values as of August 31, 2007. The purchase price allocation has been finalized as all adjustments based on the resolution of a working capital adjustment, certain loss contingencies and tax matters, as provided in the purchase agreement, have been resolved.

NOTE 4—Restructurings and Impairments

        Natural Resources—As previously discussed in Note 3, the Company acquired Taft in September 2008. A significant portion of the purchase price was allocated to the mineral interests, valued at $44.0 million. The initial value assigned to the mineral interests was determined using a discounted cash flow approach incorporating market-based assumptions when available. One of the significant assumptions used to determine the discounted cash flows associated with the minerals was the market price of similar coals at the date of acquisition and the future market pricing forecasts that existed as of that date. Subsequent to September 2, 2008, the market price and future forecasted market prices for similar coals dropped significantly, triggering an impairment test of the mineral interests under the guidance of SFAS 144, "Accounting for the Impairment or Disposal of Long-Lived Assets." The results of the impairment test indicated that there was an asset impairment and, as a result, the Company recorded a $32.4 million impairment charge in the 2008 fourth quarter.

        Homebuilding—In February 2008, the Company announced a restructuring of Homebuilding, resulting in the closure of 36 underperforming Jim Walter Homes sales centers. As such, the Company recorded a restructuring charge of $6.8 million in the 2008 first quarter, of which $4.3 million related to the impairment of property, plant and equipment, $1.7 million related to severance obligations due to a 25% reduction in workforce and $0.8 million related to lease obligations of closed sales centers.

        During the third quarter of 2008, Homebuilding recorded a charge of $6.5 million, of which $6.0 million related to the impairment of property, plant and equipment and $0.5 million related to additional severance obligations. As a result of continued losses in the Homebuilding segment, the Company reviewed its long-lived assets for potential impairment at September 30, 2008. Projected undiscounted cash flows generated from the operating sales centers were lower than the net book value of the model park assets at those sales centers. As a result, the estimated fair values of the model parks were compared to book values, resulting in an impairment charge of $6.0 million. The estimated fair values were determined based on Homebuilding's sales of similar assets in 2008.

        In December 2008, the Company made the decision to close Homebuilding. As a result, the Company recorded a charge of $7.4 million, of which $3.2 million related to the impairment of property, plant and equipment, $3.3 million related to severance obligations, and $0.9 million related to other asset write-downs. The asset impairment charges reflect a further decline in estimated fair values since September 30, 2008.

        Financing—During 2008, the Company recorded a charge of $10.9 million for the impairment of Financing's goodwill. As discussed in Note 3, the Company announced plans to separate its Financing segment via a spin-off to Walter shareholders and merger with Hanover. As a result of this decision, the Company analyzed goodwill for potential impairment. The fair value of the reporting unit was determined using a discounted cash flow approach which indicated that the carrying value exceeded the

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fair value and that the implied value of goodwill was $0. The discount rate of interest used to determine both the fair value of the reporting unit and the implied value of goodwill was a contributing factor in the determination of this impairment charge. The continued increase in perceived risk in the financial services markets resulted in a significant increase in the discount rate applied to projected future cash flows, as compared to the discount rate applied to similar analyses performed in previous periods.

        The charges as described above appear as restructuring and impairment charges in the 2008 statement of operations.

        The following table summarizes the impairment and restructuring activity for the year ended December 31, 2008 (in thousands):

	Balance at January 1, 2008		Restructuring and Impairment Charges		Cash Payments			Asset Impairments			Balance at December 31, 2008
Financing
Impairment of goodwill	$	—	$	10,895	$	—		$	(10,895	)	$	—
Homebuilding
Impairments of property, plant and equipment		—		13,522		—			(13,522	)		—
Severance obligations		—		5,506		(1,863	)		—			3,643
Writedown of other assets				864					(864	)		—
Lease obligations		—		785		(636	)		—			149
Natural Resourses
Impairments of mineral interests		—		32,386		—			(32,386	)		—
Total	$	—	$	63,958	$	(2,499	)	$	(57,667	)	$	3,792

        The remaining liabilities related to the restructuring are expected to be paid in 2009.

NOTE 5—Equity Award Plans

        The stockholders of the Company approved the 2002 Long-Term Incentive Award Plan (the "2002 Plan"), under which an aggregate of 3.9 million shares of the Company's common stock, as restated to reflect the modification for the Mueller Water spin-off, have been reserved for grant and issuance of incentive and non-qualified stock options, stock appreciation rights and stock awards.

        Under the Long-Term Incentive Stock Plan approved by stockholders in October 1995 (the "1995 Plan") and amended in September 1997, an aggregate of 6.0 million shares of the Company's common stock were reserved for the grant and issuance of incentive and non-qualified stock options, stock appreciation rights and stock awards. However, the 1995 Plan expired in 2005 and, therefore, no further grants will be issued under this plan.

        Under both plans (collectively, the "Equity Award Plans"), an option becomes exercisable at such times and in such installments as set by the Compensation Committee of the Board of Directors (generally, vesting occurs over three years in equal annual increments), but no option will be exercisable after the tenth anniversary of the date on which it is granted.

        Under both plans, the Company may issue restricted stock units. The Company has issued restricted stock units which fully vest generally after three or seven years of continuous employment or over three years in equal annual increments. Certain of these units are subject to accelerated vesting if the stock price of the Company reaches certain pre-established targets within certain time periods after issuance.

        In connection with the spin-off of Mueller Water, and in accordance with the anti-dilution provisions contained within the Equity Award Plans, the Company modified the equity awards

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outstanding at December 14, 2006, the spin-off date. The modifications were structured to maintain the intrinsic value for the employee. All equity awards in the Company's stock held by employees of or employees transferring to Mueller Water were cancelled and replaced by equity awards in Mueller Water stock. Similarly, all equity awards held by employees remaining with the Company were cancelled and replaced by new equity awards with similar terms such that the intrinsic value immediately after the spin-off was the same as the intrinsic value immediately prior to the spin-off. There were no modifications to any other terms of the awards. These modifications did not yield any incremental compensation cost under SFAS 123(R).

        For the years ended December 31, 2008, 2007 and 2006, the Company recorded stock-based compensation expense related to equity awards of Walter Industries, Inc. in its continuing operations of approximately $9.5 million, $9.1 million, and $8.1 million, respectively. These amounts are included in selling, general and administrative expenses and have been allocated to the reportable segments. The total income tax benefits in the Company's continuing operations recognized in the statements of operations for share-based compensation arrangements were $3.3 million, $3.2 million, and $2.9 million for such years, respectively.

        A summary of activity related to stock options under the Equity Award Plans during the year ended December 31, 2008, including awards applicable to discontinued operations, is presented below:

	Shares			Weighted Average Exercise Price		Weighted Average Remaining Contractual Term (in years)		Aggregate Intrinsic Value ($000)
Outstanding at December 31, 2007		1,716,277		$	22.98
Granted		113,918			61.79
Exercised		(431,041	)		18.58
Cancelled		(32,262	)		26.11
Outstanding at December 31, 2008		1,366,892		$	27.52		7.17	$	2,436
Exercisable at December 31, 2008		819,101		$	22.16		6.58	$	2,436

        Weighted average assumptions used to determine the grant-date fair value of options granted under the Equity Award Plans were:

	For the year ended December 31,
	2008			2007			2006
Risk free interest rate		2.81	%		4.72	%		4.67	%
Dividend yield		0.60	%		0.78	%		0.30	%
Expected life (years)		5.10			4.29			5.20
Volatility		41.52	%		34.49	%		36.76	%
Forfeiture rate		2.41	%		3.22	%		4.50	%

        The risk-free interest rate is based on the U.S. Treasury yield in effect at the time of grant with a term equal to the expected life. The expected dividend yield is based on the Company's estimated annual dividend payout at grant date. The expected term of the options represents the period of time the options are expected to be outstanding. Expected volatility is based on historical volatility of the Company's share price for the expected term of the options.

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        A summary of activity related to restricted stock units under the Equity Award Plans during the year ended December 31, 2008, is as follows:

	Shares			Aggregate Intrinsic Value ($000)		Weighted Average Contractual Term in Years
Outstanding at December 31, 2007		325,034
Granted		112,590
Exercised		(78,498	)
Cancelled		(18,303	)
Outstanding at December 31, 2008		340,823		$	5,968		2.56

        The weighted-average grant-date fair values of stock options granted during the years ended December 31, 2008, 2007 and 2006 were $23.86, $9.43 and $11.48, respectively. The weighted-average grant-date fair values of restricted stock units granted during the years ended December 31, 2008, 2007 and 2006 were $74.69, $28.02 and $32.85, respectively. The total amount of cash received from exercise of stock options was $8.0 million, $1.4 million and $4.7 million for the years ended December 31, 2008, 2007 and 2006, respectively. The total intrinsic value of stock awards exercised or converted during 2008 was $19.5 million and $4.0 million, respectively, and the total intrinsic value of stock awards exercised or converted during 2007 was $7.0 million and $26.4 million, respectively. The collective intrinsic value of stock award exercised or converted during 2006 was $26.4 million. The total fair value of shares vested during the years 2008, 2007 and 2006 were $5.9 million, $6.8 million and $2.2 million, respectively.

        Unrecognized compensation costs related to non-vested share-based compensation arrangements granted under the Equity Award Plans were approximately $8.0 million, $6.8 million and $10.9 million as of December 31, 2008, 2007 and 2006, respectively; these costs are to be recognized over a weighted average period of 1.8 years, 1.8 years and 2.3 years, respectively.

Subsidiary Equity Award

        Effective March 1, 2007, JWH Holding Company, LLC, a wholly owned subsidiary of the Company, adopted the 2007 Long-term Incentive Award Plan (the "2007 Plan") of JWH Holding Company, LLC, under which up to 20% of the JWH Holding Company, LLC interest may be awarded or granted as incentive and non-qualified stock options to eligible employees, consultants and directors.

        In 2006, the Board of Directors granted a special equity award to certain executives of the Financing and Homebuilding businesses whereby the employees received non-qualified options in JWH Holding Company, LLC to acquire the equivalent of 11.25% of the total combined designated equity of the Financing and Homebuilding businesses. The exercise price of these options was equal to the fair value at date of grant. These options vest over a three-year period and expire in ten years. As of December 31, 2008, none of the options have been forfeited or exercised. Exercisable options totaled 67% and 33% as of December 31, 2008 and 2007, respectively.

        The Company calculated the fair value of these options awards using the Black- Scholes model using the following assumptions:

Risk free interest rate	4.62	%
Dividend yield	0.00	%
Expected life (years)	3.0
Volatility	41.85	%
Forfeiture rate	0.00	%

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        Compensation expense for the years ended December 31, 2008 and 2007, totaled $0.9 million and $2.6 million, respectively. These amounts are included in selling, general and administrative expenses and have been allocated to the reportable segments. The total income tax benefits recognized for these share based compensation arrangements in the Company's continuing operations in the statements of operations was $0.4 million in 2008 and $1.0 million in 2007 and 2006. As of December 31, 2008, there was $0.1 million of unrecognized compensation cost that is expected to be recognized in the first quarter of 2009. In conjunction with the planned spin-off of Financing and the closure of Homebuilding, these awards have been terminated by agreement in 2009, in the case of Homebuilding, and will be cancelled and replaced at the time of the spin-off, which is expected to occur in the second quarter of 2009, in the case of Financing.

Employee Stock Purchase Plan

        The Walter Industries, Inc. Employee Stock Purchase Plan was adopted in January 1996 and amended in April 2004. All full-time employees of the Company who have attained the age of majority in the state in which they reside are eligible to participate. The Company contributes a sum equal to 15% (20% after five years of continuous participation) of each participant's actual payroll deduction as authorized, and remits such funds to a designated brokerage firm that purchases in the open market shares of the Company's common stock for the accounts of the participants. The total number of shares that may be purchased under the plan is 3.5 million. Total shares purchased under the plan during the years ended December 31, 2008, 2007 and 2006 were approximately 38,000, 50,000 and 35,000, respectively, and the Company's contributions recognized as expense were approximately $0.2 million, $0.2 million and $0.3 million, respectively, during such years.

NOTE 6—Restricted Short-Term Investments

        Restricted short-term investments at December 31, 2008 and 2007 include (i) temporary investments, primarily in commercial paper or money market accounts, with maturities less than 90 days from collections on instalment notes receivable owned by various Mid-State Trusts (the "Trusts") ($49.0 million and $68.8 million, respectively) which are available only to pay expenses of the Trusts and principal and interest on indebtedness of the Trusts, and (ii) miscellaneous other segregated accounts restricted to specific uses ($7.3 million and $6.4 million at December 31, 2008 and 2007, respectively).

NOTE 7—Instalment Notes Receivable and Mortgage Loans

        Instalment notes receivable arise from sales of detached, single-family homes to JWH customers. Mortgage loans are originated by WMC by providing both land and home financing and re-financing for JWH customers. These receivables require periodic payments, over periods of 10 to 30 years, and are secured by first mortgages or similar security instruments. Cash flows from the financing of the Company's Homebuilding customers are classified as operating activities. WMC also has purchased loans from third parties, including mortgage companies and other homebuilders. Purchases of loans from third parties, as well as the principal payments on those loans, are considered investing activities in the statement of cash flows.

        The credit terms offered by JWH and its affiliates are usually for 100% of the purchase price of the home. The buyer's ownership of the land and improvements necessary to complete the home constitute an equity investment to which the Company has access should the buyer default on payment of the instalment note obligation. The Company currently holds fixed (98%) and variable-rate (2%) instalment notes ranging from 2.13% to 13.66% annual percentage rate, without points or closing costs.

        Instalment notes receivable and mortgage loans receivable are held for investment and are not held for sale. WMC and Mid-State Capital Corporation, a wholly owned subsidiary of WMC, have

F-23

created a number of business trusts for the purpose of purchasing instalment notes and mortgage loans owned by WMC with the net proceeds from the issuance of mortgage-backed notes or asset-backed notes. WMC and Mid-State Capital Corporation directly or indirectly own all of the beneficial interests in these trusts. The assets of the trusts are not available to satisfy claims of general creditors of the Company and the liabilities for notes issued by the trusts are to be satisfied solely from the proceeds of the instalment notes owned by the trusts and are non-recourse to the Company.

        After May 1, 2008, WMC no longer provides financing to new customers of JWH. See Note 12.

        Instalment notes receivable are summarized as follows (in thousands):

	December 31,
	2008			2007
Instalment notes receivable	$	1,572,173		$	1,616,753
Mortgage loans		216,484			234,298
Less: Allowance for losses		(18,969	)		(13,992	)
Instalment notes receivable, net(1)(2)(3)(4)	$	1,769,688		$	1,837,059

(1)

Origination costs are deferred and amortized over the life of the note portfolio. Deferred loan origination costs included in net instalment notes receivable at December 31, 2008 and 2007 were $12.7 million and $13.1 million, respectively.

(2)

At December 31, 2008 and 2007, the amount of net instalment notes receivable that had not been securitized by a long-term note was $377.9 million and $297.8 million, respectively. Of these balances, $268.7 million had been pledged as collateral against WMC's variable funding loan agreements at December 31, 2007. These variable funding loan agreements were terminated on April 30, 2008. See Note 12.

(3)

The amount of net instalment notes receivable that had been put on nonaccrual status due to delinquent payments of ninety days past due or greater was $54.4 million and $43.7 million at December 31, 2008 and 2007, respectively.

(4)

At December 31, 2008 and 2007, instalment notes receivable balances are net of unearned discounts of $205.3 million and $205.4 million, respectively.

        Activity in the allowance for losses is summarized as follows (in thousands):

	For the years ended December 31,
	2008			2007			2006
Balance at beginning of year	$	13,992		$	13,011		$	12,489
Provisions charged to income		21,315			13,889			9,062
Charge-offs, net of recoveries		(16,338	)		(12,908	)		(8,540	)
Balance at end of year	$	18,969		$	13,992		$	13,011

        Charge-offs on instalment notes and mortgage loans occur when management believes it will be unable to collect amounts which are contractually due. The charge-off is measured based upon the excess of the recorded investment in the receivable over the estimated fair value of the collateral as reduced by estimated selling costs. Recoveries on charge-offs, recognized when received, are immaterial to aggregate charge-offs.

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NOTE 8—Receivables

        Receivables are summarized as follows (in thousands):

		December 31,
		2008			2007
Trade receivables		$	113,136		$	60,534
Other receivables			68,806			23,218
	Less: Allowance for losses		(5,341	)		(2,741	)
Receivables, net		$	176,601		$	81,011

        At December 31, 2008, other receivables includes $29.4 million relating to a Black Lung Excise Tax refund claim.

NOTE 9—Inventories

        Inventories are summarized as follows (in thousands):

		December 31,
		2008		2007
Finished goods		$	45,641	$	25,298
Goods in process			9,743		19,598
Raw materials and supplies			29,547		16,021
Repossessed houses held for resale			48,198		36,407
	Total inventories	$	133,129	$	97,324

NOTE 10—Property, Plant and Equipment

        Property, plant and equipment are summarized as follows (in thousands):

		December 31,
		2008			2007
Land		$	56,302		$	55,569
Land improvements			18,872			20,659
Mineral interests			34,069			23,781
Buildings and leasehold improvements			70,630			69,536
Mine development costs			99,400			56,274
Machinery and equipment			489,984			351,038
Construction in progress			74,570			110,080
	Total		843,827			686,937
	Less: Accumulated depreciation		(328,409	)		(272,474	)
	Net	$	515,418		$	414,463

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NOTE 11—Income Taxes

        Income tax expense (benefit) applicable to continuing operations consists of the following (in thousands):

		For the years ended December 31,
		2008								2007							2006
		Current		Deferred			Total			Current		Deferred			Total		Current		Deferred		Total
Federal		$	2,999	$	(91,104	)	$	(88,105	)	$	52,820	$	(8,180	)	$	44,640	$	51,892	$	8,395	$	60,287
State and local			13,723		(1,416	)		12,307			12,507		1,114			13,621		6,849		6,847		13,696
	Total	$	16,722	$	(92,520	)	$	(75,798	)	$	65,327	$	(7,066	)	$	58,261	$	58,741	$	15,242	$	73,983

        The income tax expense (benefit) at the Company's effective tax rate differed from the statutory rate as follows (in thousands):

		For the years ended December 31,
		2008			2007			2006
Income from continuing operations before income tax expense (benefit)		$	292,336		$	183,263		$	230,280
Tax provision (benefit) at statutory tax rate of 35%		$	102,318		$	64,142		$	80,598
Effect of:
	Worthless stock deduction		(167,002	)		—			—
	Excess depletion benefit		(20,837	)		(12,897	)		(14,667	)
	State and local income tax, net of federal effect		6,219			8,025			8,636
	Domestic production benefits		—			(824	)		(5,698	)
	Non-deductible debt conversion expense		—			—			6,779
	Other		3,504			(185	)		(1,665	)
Tax expense (benefit) recognized		$	(75,798	)	$	58,261		$	73,983

        Deferred tax assets (liabilities) related to the following (in thousands):

			December 31,
			2008			2007
Deferred tax assets:
	Allowance for loan losses		$	7,157		$	6,271
	Inventories			2,761			1,598
	Net operating loss/capital loss/credit carryforwards			102,093			7,122
	Accrued expenses			21,722			26,310
	Stock award compensation			9,660			7,577
	Workers' compensation obligations			12,032			9,859
	Unfavorable coal supply agreements			10,443			—
	Contingent interest			26,610			25,544
	Postretirement benefits other than pensions			145,016			131,522
	Pension obligations			27,124			9,725
				364,618			225,528
Less: valuation allowance				—			(6,639	)
		Total deferred tax assets		364,618			218,889
Deferred tax liabilities:
	Interest income on instalment notes			(71,287	)		(86,947	)
	Prepaid expenses			(22,304	)		(7,778	)
	Depreciation			(69,612	)		(38,328	)
		Total deferred tax liabilities		(163,203	)		(133,053	)
Net deferred tax assets applicable to continuing operations(1)			$	201,415		$	85,836

(1)

Consist of $206,733 and $95,380 deferred tax assets and $5,318 and $9,544 of deferred tax liabilities at December 31, 2008 and 2007, respectively. Deferred tax liabilities are included in other liabilities.

F-26

        A summary of activity in the valuation allowance for deferred tax assets is shown below (in thousands):

	For the years ended December 31,
	2008			2007			2006
Balance at beginning of period	$	6,639		$	6,708		$	7,128
Additions charged to tax provision		3,220			—			—
Reductions		(9,859	)		(69	)		(420	)
Balance at end of period	$	—		$	6,639		$	6,708

        The Company recorded a benefit of $167.0 million from a worthless stock deduction as a result of the deemed liquidation of the Company's Homebuilding business on December 31, 2008. The change in valuation allowances recorded as a component of income tax expense at December 31, 2008 consists primarily of an increase due to current year state tax benefits from losses at Homebuilding and a decrease in the NOL carryforward due to the deemed liquidation of the Homebuilding business.

        The Company has Federal net operating loss carryforwards of approximately $306.4 million that expire beginning 2028 and Alabama net operating loss carryforwards at Sloss Industries Corporation of approximately $7.8 million that would expire beginning in 2020. The Company believes that the losses will be utilized within the carryforward period due to expected profitability of operations and tax planning strategies.

        The Company files income tax returns in the U.S. and in various state and local jurisdictions which are routinely examined by tax authorities in these jurisdictions. The statute of limitations related to the consolidated federal income tax return is closed for the years prior to August 31, 1983 and the years ended May 31, 1997, 1998 and 1999. The state impact of any federal changes for these years remains subject to examination for a period up to five years after formal notification to the states. The Company generally remains subject to income tax in various states for prior periods ranging from three to eleven years depending on jurisdiction.

        The Internal Revenue Service ("IRS") has completed its audits of the Company's federal income tax returns for the years ended May 31, 2000 through December 31, 2005. The IRS only issued a 30-day letter proposing tax deficiencies in the amount of $82.2 million for the years ended May 31, 2000, December 31, 2000, and December 31, 2001. The unresolved issues relate primarily to the Company's method of recognizing revenue on the sale of homes and related interest on the installment notes receivable. The items at issue relate primarily to the timing of revenue recognition and consequently, should the IRS prevail on its positions, the Company's financial exposure is limited to interest and penalties.

        On December 27, 1989, the Company and most of its subsidiaries each filed a voluntary petition for reorganization under Chapter 11 of Title 11 of the United States Code (the "Bankruptcy Proceedings") in the United States Bankruptcy Court for the Middle District of Florida, Tampa Division (the "Bankruptcy Court"). The Company emerged from bankruptcy on March 17, 1995 (the "Effective Date") pursuant to the Amended Joint Plan of Reorganization dated as of December 9, 1994, as modified on March 1, 1995 (as so modified the "Consensual Plan"). Despite the confirmation and effectiveness of the Consensual Plan, the Bankruptcy Court continues to have jurisdiction over, among other things, the resolution of disputed prepetition claims against the Company and other matters that may arise in connection with or related to the Consensual Plan, including claims related to Federal income taxes.

        A controversy exists with regard to Federal income taxes allegedly owed by the Company for fiscal years 1980 through 1994. In connection with the bankruptcy proceedings, the IRS filed a proof of claim

F-27

in the Bankruptcy Court (the "Proof of Claim") for a substantial amount of taxes, interest and penalties with respect to fiscal years ended August 31, 1980 and August 31, 1983 through May 31, 1994. The Company filed an adversary proceeding in the Bankruptcy Court disputing the Proof of Claim (the "Adversary Proceeding") and the various issues have been and are being litigated in the Bankruptcy Court.

        The amounts initially asserted by the Proof of Claim do not reflect the subsequent resolution of various issues through settlements or concessions by the parties. After adjustment for these items, the Company estimates that the amount of tax presently claimed by the IRS is approximately $34.0 million for issues currently in dispute in the Adversary Proceeding. This amount is subject to interest and penalties. Of the $34.0 million in claimed tax, $21.0 million represents issues in which the IRS is not challenging the deductibility of the particular expense but only whether such expense is deductible in a particular year. Consequently, the Company believes that, should the IRS prevail on any such issues, the Company's financial exposure is limited to interest and possible penalties and the amount of tax claimed will be offset by deductions in other years. Substantially all of the issues in the Proof of Claim, which have not been settled or conceded, have been litigated before the Bankruptcy Court and are subject to appeal but only at the conclusion of the entire Adversary Proceeding.

        The Company believes that those portions of the Proof of Claim which remain in dispute or are subject to appeal substantially overstate the amount of taxes allegedly owing. However, because of the complexity of the issues presented and the uncertainties associated with litigation, the Company is unable to predict the ultimate outcome of the Adversary Proceeding.

        The Company believes that all of its current and prior tax filing positions have substantial merit and intends to defend vigorously any tax claims asserted. The Company believes that it has sufficient accruals to address any claims, including interest and penalties.

        On January 1, 2007, as required, the Company adopted FASB Interpretation No. 48, "Accounting for Uncertainty in Income Taxes" ("FIN 48"), which prescribes the minimum recognition threshold a tax position is required to meet before being recognized in the financial statements. As a result of adoption, the Company recognized an increase of $4.4 million in the liability for unrecognized tax benefits with a corresponding increase to the accumulated deficit as of January 1, 2007.

        A reconciliation of the beginning and ending balances of the total amounts of gross unrecognized tax benefits is as follows (in thousands):

	December 31,
	2008			2007
Gross unrecognized tax benefits at beginning of year	$	49,975		$	53,287
Increases/(Decreases) for tax positions taken in prior years		2,597			(4,190	)
Increases in tax positions for the current year		876			1,305
Increases/(Decreases) for changes in temporary differences		1,191			(427	)
Decreases relating to settlements with taxing authorities		(4,978	)		—
Gross unrecognized tax benefits at end of year	$	49,661		$	49,975

        The total amount of net unrecognized tax benefits that, if recognized, would affect the effective tax rate by $35.5 million at December 31, 2008. The Company recognizes interest related to unrecognized tax benefits in interest expense-other debt and penalties in selling, general and administrative expenses. For the years ended December 31, 2008, 2007 and 2006, interest expense includes $6.4 million, $9.2 million and $4.7 million, respectively, for interest accrued on the liability for unrecognized tax benefits. As of December 31, 2008, the Company had accrued interest and penalties related to the unrecognized tax benefits of $82.7 million. Due to the expected spin-off of the financing business, it is

F-28

reasonably possible that the Company's gross unrecognized tax benefits balance may change within the next twelve months by $9.6 million.

NOTE 12—Debt

        Debt consisted of the following (in thousands):

			December 31,				Weighted Average Stated Interest Rate At December 31, 2008
										Estimated Final Maturity
			2008		2007
Mortgage-Backed/Asset Backed Notes:
	Trust IV Asset Backed Notes		$	144,950	$	171,536		8.33	%		2030
	Trust VI Asset Backed Notes			121,776		135,242		7.42	%		2035
	Trust VII Asset Backed Notes			106,874		115,126		6.34	%		2036
	Trust VIII Asset Backed Notes			120,506		134,235		7.79	%		2038
	Trust IX Variable Funding Loan			—		95,100
	Trust X Asset Backed Notes			183,489		201,540		6.30	%		2036
	Trust XI Asset Backed Notes			167,448		179,350		5.51	%		2038
	Trust XIV Variable Funding Loan			—		94,100
	2004-1 Trust Asset Backed Notes			160,277		173,712		6.64	%		2037
	2005-1 Trust Asset Backed Notes			172,921		190,122		6.15	%		2040
	2006-1 Trust Asset Backed Notes			194,580		216,155		6.28	%		2040
				1,372,821		1,706,218
Other debt:
	2005 Walter term loan(1)			138,934		218,517		3.59	%		2012
	2005 Walter revolving credit facility			40,000		—		2.80	%		2010
	Convertible senior subordinated notes(2)			—		785
	Other(3)			46,451		6,558		Various			Various
				225,385		225,860
		Total	$	1,598,206	$	1,932,078

        The Company's debt repayment schedule, excluding interest, as of December 31, 2008 is as follows (in thousands):

	Payments Due
	2009		2010		2011		2012		2013		Thereafter
2005 Walter term loan	$	1,436	$	1,436	$	1,436	$	134,626	$	—	$	—
2005 Walter revolving credit facility		—		40,000		—		—		—		—
Other debt		12,044		7,622		7,916		8,523		8,563		1,783
	$	13,480	$	49,058	$	9,352	$	143,149	$	8,563	$	1,783

(1)

In June 2008, the Company used some of the net proceeds from a stock offering to repay $77.9 million on the outstanding term loan. See note below.

(2)

In January 2008, the remaining principal balance of the Convertible Senior Subordinated Notes was converted. See note below.

(3)

This balance primarily represents a one-year property insurance financing agreement at a fixed rate of 2.99%, equipment financing agreement and capital lease obligations.

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Mortgage-Backed and Asset-Backed Notes and Variable Funding Loan Facilities

        At December 31, 2008, non-recourse mortgage-backed/asset-backed notes outstanding totaled $1.4 billion and consisted of eight separate series of public debt offerings and one issue of private debt providing long-term financing for instalment notes receivable and mortgage assets purchased by WMC. Prior to April 30, 2008, Trust IX and Trust XIV were borrowers under a $150.0 million and a $200.0 million Variable Funding Loan Agreement ("warehouse facilities") providing temporary financing to WMC for its purchases of instalment notes from Homebuilding and for its mortgage loans originations. On April 30, 2008, the Company repaid all outstanding borrowings and terminated these facilities using proceeds from the amended 2005 Walter Credit Agreement. With the termination of the warehouse facilities, the Company is no longer reliant on the availability of mortgage warehouse facilities or the mortgage-backed securitization market.

        Effective May 1, 2008, WMC no longer funds new originations for customers of the Homebuilding segment. However, the backlog of homes with signed contracts and those which were under construction as of May 1, 2008, will be funded by WMC. As of December 31, 2008, an estimated 20 homes remain in the backlog, representing a total of approximately $2.7 million in value, to be funded by WMC in 2009. The Company will finance these WMC instalment notes receivable with operating cash flows or funds provided by the 2005 Walter Credit Agreement.

2005 Walter Credit Agreement

        In 2005, Walter entered into a $675.0 million credit agreement ("2005 Walter Credit Agreement") which included, prior to its amendment in April 2008 (1) an amortizing term loan facility with an initial aggregate principal amount of $450.0 million, $138.9 million of which was outstanding as of December 31, 2008 with a weighted average interest rate of 3.59%, and (2) an initial $225.0 million revolving credit facility which provides for loans and letters of credit. The 2005 Walter Credit Agreement is a secured obligation of the Company and substantially all of its wholly owned domestic subsidiaries. The term loan requires quarterly principal payments of $0.4 million through October 3, 2012, at which time the remaining outstanding principal is due.

        On April 30, 2008, Walter amended the 2005 Walter Credit Agreement to allow an additional $250.0 million of borrowings under the revolving credit facility, thereby increasing the revolving credit facility to $475.0 million. Available funds of $214.8 million were used to repay principal, interest and fees and terminate the Mid-State Trust IX and Mid-State Trust XIV mortgage warehouse facilities, which were due to mature in 2008. The amendment also increased the interest rate on the revolving credit facility and the term loan to LIBOR plus 300 basis points. The commitment fee on the unused portion of the revolving facility also increased from 0.375% per year to 0.5% per year. In addition, the amended 2005 Walter Credit Agreement contains a reducing revolver commitment feature, where the total available revolver commitment may not exceed $400.0 million at March 31, 2009, $350.0 million at June 30, 2009, $300.0 million at September 30, 2009, and $250.0 million at December 31, 2009.

        Certain other terms, including affirmative and negative covenants as well as restrictions on the Company's ability to engage in specified activities, were also amended and include, but are not limited to, increased indebtedness and approval of certain activities associated with the Company's strategic initiatives in the Homebuilding and Financing businesses.

        In connection with the amendment to the 2005 Walter Credit Agreement, the Company incurred $3.9 million of refinancing fees. These fees were deferred and are being amortized over the remaining life of the revolving credit facility.

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        During 2008, the Company borrowed $340.0 million under the revolving credit facility. On June 16, 2008, the Company completed an offering of shares of its common stock and received $280.5 million of net proceeds, as more fully discussed in Note 14. The net proceeds from the offering were used to repay $77.9 million on the outstanding term loan and $202.5 million on the revolving credit facility. Additional repayments on the revolving credit facility during 2008 totaled $97.5 million, leaving a balance of $40.0 million at December 31, 2008.

        Under the terms of the Company's amended 2005 Walter Credit Agreement, availability under the revolving credit facility was reduced from $475.0 million to $373.8 million in connection with the completion of the stock offering. As of December 31, 2008, the Company had $58.2 million in outstanding stand-by letters of credit and $275.6 million of availability for future borrowings under the revolving credit facility.

        In connection with the repayments discussed above, the Company recognized additional amortization of $3.1 million of previously deferred financing fees. This amortization charge is included in interest expense in the 2008 statement of operations.

Convertible Notes

        In 2004, the Company issued $175.0 million aggregate principal amount of 3.75% Convertible Senior Subordinated Notes due May 1, 2024 (the "convertible notes"). During 2006, holders of approximately $174.2 million of the Company's convertible notes surrendered their convertible notes in exchange for 9.761 million shares of the Company's common stock and $19.4 million of conversion inducement payments. A tax benefit of $6.4 million related to these conversions was recognized as an increase to stockholders' equity. In January 2008, the holders of the remaining $0.8 million notes agreed to convert the principal amount in exchange for 84,013 shares of the Company's common stock and $0.1 million of conversion inducement payments.

Other Debt

        In October 2008, the Company entered into a $32.3 million equipment financing arrangement for certain previously procured mining equipment. This facility requires monthly payments using a commercial mortgage style amortization, carries an interest rate of 1-month LIBOR plus 375 basis points, will mature in the first quarter of 2014 and is secured by the financed equipment. At December 31, 2008, there was $31.9 million outstanding at an interest rate of 4.21%. In addition, in 2008, the Company entered into a $9.4 million capital lease arrangement to procure certain mining equipment. The capital lease covers a sixty month period and has an implicit interest rate of 9.78%. At December 31, 2008 there was a balance remaining of $9.1 million.

Interest Rate Hedge Agreements

        Prior to their termination on April 1,2008, the Company held multiple interest rate hedge agreements with various counterparties with an aggregate notional value of $215.0 million, the objective of which was to protect against changes in the benchmark interest rate on the forecasted issuance of mortgage-backed notes in a securitization (the "Securitization Hedges"). At March 31, 2008, these Securitization Hedges no longer qualified for hedge accounting treatment because the Company no longer planned to access the distressed securitization market. As a result, the Company recognized a loss on interest rate hedge ineffectiveness of $17.0 million in the first quarter of 2008. On April 1, 2008, the Company settled the Securitization Hedges for a payment of $17.0 million. No similar hedges remain outstanding at December 31, 2008.

        On November 1, 2005, the Company entered into an interest rate hedge agreement with a notional value of $75.0 million. The objective of the hedge was to protect the Company against rising LIBOR interest rates that would have a negative effect on the Company's cash flows due to changes in interest

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payments on its 2005 Walter Credit Agreement. The structure of the hedge was a three-year collar contract with a floor of 4.25% and a cap of 5.69%. The collar agreement called for the Company to make fixed rate payments over the term of the hedge when stated three-month LIBOR rates were below the floor and to receive payments from the counter-party when the three-month LIBOR was above the cap. In November 2008, the Company settled the interest rate hedge agreement as expected.

        On December 30, 2008, the Company entered into an interest rate hedge agreement with a notional value of $31.5 million. The objective of the hedge is to protect against the variability in expected future cash flows attributable to changes in the benchmark interest rate related to 62 of the 64 monthly interest payments required under the equipment financing arrangement for a new longwall shield system entered into on October 21, 2008. The interest rate on the debt is subject to change due to fluctuations in the benchmark interest rate of 1-month LIBOR. The structure of the hedge is a 62 month amortizing interest rate swap with a 5.59% fixed rate and fixed rate and floating rate payment dates effective February 1, 2009. It is anticipated that the hedge will be settled upon maturity and will be accounted for as a cash flow hedge. As such, changes in the fair value of the hedge that take place through the date of maturity will be recorded in accumulated other comprehensive income (loss).

        The fair value of interest rate hedges outstanding at December 31, 2008 and 2007 was $0 and a liability of $9.4 million, respectively. During 2008, 2007 and 2006, the Company recorded an unrealized gain (loss) from interest rate hedge agreements, net of tax, of $0 million, ($6.1) million and $0.2 million, respectively, in accumulated other comprehensive income (loss).

NOTE 13—Pension and Other Employee Benefits

        The Company has various pension and profit sharing plans covering substantially all employees. In addition to its own pension plans, the Company contributes to certain multi-employer plans. The Company funds its retirement and employee benefit plans in accordance with the requirements of the plans and, where applicable, in amounts sufficient to satisfy the "Minimum Funding Standards" of the Employee Retirement Income Security Act of 1974 ("ERISA"). The plans provide benefits based on years of service and compensation or at stated amounts for each year of service.

        The Company also provides certain postretirement benefits other than pensions, primarily healthcare, to eligible retirees. The Company's postretirement benefit plans are not funded. New salaried employees have been ineligible to participate in postretirement healthcare benefits since May 2000. Effective January 1, 2003, the Company placed a monthly cap on Company contributions for postretirement healthcare coverage. In 2006, the Company terminated benefits for certain employees of Financing and Homebuilding that had not reached a certain number of years of continuous service and/or age. Those employees are no longer eligible to earn postretirement healthcare benefits. In addition, retiree medical coverage was terminated for those retirees who are eligible for Medicare. As a result of these changes, the Company recognized a curtailment gain of $4.1 million in 2006.

        In 2006 the FASB issued SFAS No. 158, "Employers' Accounting for Defined Benefit Pension and Other Postretirement Plans," which requires the Company to measure plan assets and liabilities as of the fiscal year-end reporting date. The Company used a September 30 measurement date and was required to adopt this provision on December 31, 2008. Upon adoption, the Company changed its valuation measurement date to December 31, 2008. As a result of the change in valuation date during 2008, plan year 2008 consisted of fifteen months beginning October 1, 2007 and ending December 31, 2008. Plan

F-32

year 2007 consisted of twelve months beginning October 1, 2006 and ending September 2007. The amounts recognized for all the Company's pension and postretirement benefit plans are as follows:

		Pension Benefits						Other Benefits
		December 31, 2008			December 31, 2007			December 31, 2008			December 31, 2007
		(in thousands)
Accumulated benefit obligation		$	185,207		$	173,546		$	369,055		$	339,168
Change in projected benefit obligation:
	Benefit obligation at beginning of year	$	189,547		$	189,443		$	339,168		$	334,513
	Service cost		5,012			4,058			3,765			3,130
	Interest cost		15,017			10,899			26,884			19,863
	Amendments		15			—			—			15,445
	Actuarial loss/(gain)		962			(5,254	)		21,918			(15,683	)
	Addition of plan, Taft		—			—			2,090			—
	Benefits paid		(12,263	)		(9,599	)		(24,643	)		(18,100	)
	Special termination benefits		—			—			(127	)		—
	Benefit obligation at end of year	$	198,290		$	189,547		$	369,055		$	339,168
Change in plan assets:
	Fair value of plan assets at beginning of year	$	163,841		$	141,478		$	—		$	—
	Actual (loss)/gain on plan assets		(47,049	)		22,970			—			—
	Employer contributions		23,741			8,992			24,643			18,100
	Benefits paid		(12,263	)		(9,599	)		(24,643	)		(18,100	)
	Fair value of plan assets at end of year	$	128,270		$	163,841		$	—		$	—
Unfunded status of the plan		$	(70,020	)	$	(25,706	)	$	(369,055	)	$	(339,168	)
	Post-measurement date contributions		N/A			624			N/A			4,134
Net amount recognized		$	(70,020	)	$	(25,082	)	$	(369,055	)	$	(335,034	)
Amounts recognized in the consolidated balance sheet:
	Other liabilities	$	(70,020	)	$	(26,274	)	$	—		$	—
	Accumulated postretirement benefits obligation		—			—			(369,055	)		(335,034	)
	Other assets		—			1,192			—			—
Net amount recognized		$	(70,020	)	$	(25,082	)	$	(369,055	)	$	(335,034	)
Amounts recognized in accumulated other comprehensive income, pre-tax
	Prior service cost (credit)	$	1,795		$	2,160		$	2,850		$	(969	)
	Net actuarial loss		100,222			37,143			122,139			106,573
Net amount recognized		$	102,017		$	39,303		$	124,989		$	105,604

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        The components of net periodic benefit cost are as follows (in thousands):

		Pension Benefits									Other Benefits
		For the years ended December 31,									For the years ended December 31,
		2008			2007			2006			2008			2007			2006
Components of net periodic benefit cost:
	Service cost	$	4,010		$	4,058		$	3,745		$	3,012		$	3,130		$	2,122
	Interest cost		12,013			10,899			9,465			21,620			19,863			14,928
	Expected return on plan assets		(14,528	)		(12,237	)		(11,385	)		—			—			—
	Amortization of prior service cost		305			415			415			(3,175	)		(3,550	)		(4,402	)
	Amortization of net loss		2,459			4,573			4,226			5,037			7,291			4,953
	Curtailment gain		—			—			—			—			—			(4,061	)
Net periodic benefit cost for continuing operations		$	4,259		$	7,708		$	6,466		$	26,494		$	26,734		$	13,540

        Information for pension plans with an accumulated benefit obligation in excess of plan assets are as follows (in thousands):

	December 31,
	2008		2007
Projected benefit obligation	$	198,290	$	164,526
Accumulated benefit obligation		185,207		148,525
Fair value of plan assets		128,270		138,253

        The estimated portion of net prior service cost and net actuarial loss remaining in accumulated other comprehensive income that is expected to be recognized as a component of net periodic benefit cost in 2009 are as follows (in thousands):

	Pension Benefits		Other Benefits
Prior service cost	$	305	$	(2,959	)
Net actuarial loss		9,356		6,297
Net amount to be recognized	$	9,661	$	3,338

        Changes in plan assets and benefit obligations recognized in other comprehensive income as (income) loss in 2008 are as follows (in thousands):(1)

	Pension Benefits			Other Benefits			Total
Current year net actuarial loss	$	66,146		$	21,869		$	88,015
Amortization of actuarial loss		(3,074	)		(6,296	)		(9,370	)
Amortization of prior service cost (credit)		(380	)		3,819			3,439
Amendment		15			—			15
Total		62,707			19,392			82,099
Deferred taxes		(24,208	)		(7,598	)		(31,806	)
Total recognized in other comprehensive (income) loss, net of taxes(1)	$	38,499		$	11,794		$	50,293

(1)

Includes the amortization of prior service cost and actuarial gain for the period beginning October 1, 2007 and ending December 31, 2007 reflecting the change in the plan measurement date pursuant to SFAS 158.

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        In 2007, Jim Walter Resources signed a new contract with the United Mine Workers of America ("UMWA") which eliminated certain retiree deductible requirements for employees who are members of the UMWA. This enhanced employee benefit increased the reported accumulated postretirement benefits obligation by $15.4 million in 2007 with $9.3 million in accumulated other comprehensive income net of a $6.1 million tax benefit.

        A summary of key assumptions used is as follows:

		Pension Benefits						Other Benefits
		December 31,						December 31,
		2008		2007		2006		2008		2007		2006
Weighted average assumptions used to determine benefit obligations:
	Discount rate		6.50%		6.50%		5.90%		6.50%		6.50%		5.90%
	Rate of compensation increase		3.70%		3.60%		3.50%		—		—		—
Weighted average assumptions used to determine net periodic cost:
	Discount rate		6.50%		5.90%		5.40%		6.50%		5.90%		5.40%
	Expected return on plan assets		8.90%		8.90%		8.90%		—		—		—
	Rate of compensation increase		3.60%		3.50%		3.50%		—		—		—

		December 31,
		2008						2007						2006
		Pre-65			Post-65			Pre-65			Post-65			Pre-65			Post-65
Assumed health care cost trend rates at December 31:
	Health care cost trend rate assumed for next year		7.60	%		8.40	%		8.60	%		9.40	%		8.60	%		9.40	%
	Rate to which the cost trend rate is assumed to decline (the ultimate trend rate)		5.00	%		5.00	%		5.00	%		5.00	%		5.00	%		5.00	%
	Year that the rate reaches the ultimate trend rate		2014			2014			2013			2013			2012			2012

        The discount rate is based on a yield-curve approach which discounts each projected benefit obligation based cash flow of the liability stream at an interest rate specifically applicable to the timing of each respective liability stream cash flow. The model sums the present values of all of the cash flows and then calculates the equivalent weighted-average discount rate by imputing the single interest rate that equates the total present value with the stream of future cash flows.

        The yield curve used is a hypothetical Aa spot yield-curve represented by a series of 60 individual semi-annual discount rates from one-half to thirty years. Each discount rate in the curve was determined by creating a hypothetical zero coupon bond derived by bootstrapping. Bootstrapping is a technique used by bond analysts to derive the yield of hypothetical zero coupon bonds from coupon bonds. It assumes that the value of any individual Aa coupon security should equal the value of a package of zero coupon Aa securities that duplicates the coupon bond's cash flow. It is an iterative calculation that determines the discount rate which equates the cash flows of each semi-annual coupon bond with a hypothetical zero coupon bond based on the actual coupon bond price quotations for each semi-annual maturity cell and equal weighting of the highest yielding (yield to maturity) quartile of bonds in five distinct maturity groups. Each bond was a Aa rated, non-callable bond with at least $150 million par outstanding.

        The expected return on pension assets is based on the long-term actual average rate of return on the Plans' pension assets and projected returns using asset mix forecasts and historical return data.

F-35

        The Company's pension plans' weighted-average asset allocations at December 31, 2008 and September 30, 2007, by asset category, are as follows:

	2008			2007
Asset Category:
Equity securities		64	%		70	%
Debt securities		35	%		29	%
Other		1	%		1	%
Total		100	%		100	%

        The plan assets of the pension plans are held and invested by the Walter Industries, Inc. Subsidiaries Master Pension Trust ("Pension Trust"). The Pension Trust employs a total return investment approach whereby a mix of equity and fixed income investments are used to meet the long-term funding requirements of the Pension Trust. The asset mix strives to generate rates of return sufficient to fund plan liabilities and exceed the long-term rate of inflation, while maintaining an appropriate level of portfolio risk. Risk tolerance is established through consideration of plan liabilities, plan funded status and corporate financial condition. The investment portfolio is diversified across domestic and foreign equity holdings, and by investment styles and market capitalizations. Fixed income holdings are diversified by issuer, security type and principal and interest payment characteristics. Derivatives may be used to gain market exposure in an efficient and timely manner; however, derivatives may not be used to leverage the portfolio beyond the market value of the underlying investments. Investment risk is measured and monitored on an ongoing basis through quarterly investment portfolio reviews, annual benefits liability measurements, and periodic asset/liability studies.

        As December 31, 2008 the Trust's strategic asset allocation was as follows:

		Strategic Allocation			Tactical Range
Asset Class
Total Equity			70	%		65-70	%
	Large Capitalization Stocks		45	%		40-50	%
	Mid Capitalization Stocks		10	%		8-12	%
	International Stocks		15	%		12-18	%
Total Fixed Income			30	%		25-35	%
Total Cash			0	%		0-2	%

        These ranges are targets and deviations may occur from time-to-time due to market fluctuations. Portfolio assets are typically rebalanced to the allocation targets at least annually.

        The Pension Trust employs a building block approach in determining the long-term rate of return for plan assets. Historical market returns are studied and long-term risk/return relationships between equity and fixed income asset classes are analyzed. This analysis supports the widely accepted fundamental investment principle that assets with greater risk generate higher returns over long periods of time. The historical impact of returns in one asset class on returns of another asset class is reviewed to evaluate portfolio diversification benefits. Current market factors including inflation rates and interest rate levels are considered before assumptions are developed. The long-term portfolio return is established via the building block approach by adding interest rate risk and equity risk premiums to the anticipated long-term rate of inflation. Proper consideration is given to the importance of portfolio diversification and periodic rebalancing. Peer data and historical return assumptions are reviewed to check for reasonableness.

        Assumed healthcare cost trend rates, discount rates, expected return on plan assets and salary increases have a significant effect on the amounts reported for the pension and healthcare plans. A

F-36

one-percentage-point change in the trend rate for these assumptions would have the following effects (in thousands):

		Increase (Decrease)
		1-Percentage Point Increase			1-Percentage Point Decrease
Health care cost trend:
	Effect on total of service and interest cost components	$	3,773		$	(3,045	)
	Effect on postretirement benefit obligation		43,495			(36,324	)
Discount rate:
	Effect on postretirement service and interest cost components		(178	)		(35	)
	Effect on postretirement benefit obligation		(40,206	)		46,669
	Effect on current year postretirement benefits expense		(3,068	)		3,371
	Effect on pension service and interest cost components		27			(95	)
	Effect on pension benefit obligation		(18,473	)		22,032
	Effect on current year pension expense		(1,914	)		2,220
Expected return on plan assets:
	Effect on current year pension expense		(1,271	)		1,271
Rate of compensation increase:
	Effect on pension service and interest cost components		410			(372	)
	Effect on pension benefit obligation		3,230			(2,983	)
	Effect on current year pension expense		767			(703	)

        The Company's minimum pension plan funding requirement for 2009 is $10.3 million, which the Company expects to fully fund. The Company also expects to pay $19.3 million in 2009 for benefits related to its other postretirement healthcare plan. The following estimated benefit payments from the plans, which reflect expected future service, as appropriate, are expected to be paid as follows (in thousands):

	Pension Benefits		Other Postretirement Benefits Before Medicare Subsidy		Medicare Part D Subsidy
2009	$	13,455	$	20,613	$	1,303
2010		15,299		22,480		1,379
2011		12,613		23,341		1,449
2012		13,399		25,481		1,472
2013		14,100		26,675		1,503
Years 2014 - 2018		80,310		148,376		7,589

        The Company and certain of its subsidiaries maintain profit sharing and 401(k) plans. The total cost of these plans in 2008, 2007 and 2006 was $2.1 million, $2.4 million and $2.4 million, respectively.

UMWA Pension and Benefit Trusts

        The Company is required under the agreement with the UMWA to pay amounts to the UMWA Pension Trusts based principally on hours worked by UMWA represented employees. These multi-employer pension trusts provide benefits to eligible retirees through a defined benefit plan. The Employee Retirement Income Security Act of 1974 ("ERISA"), as amended in 1980, imposes certain liabilities on contributors to multi-employer pension plans in the event of a contributor's withdrawal from the plan. The Company does not have any intention to withdraw from the plan; however, through July 1, 2009, the calculation of the Company's combined withdrawal liability amounts to $204.3 million.

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The withdrawal liability is calculated based on the contributor's proportionate share of the plan's unfunded vested liabilities.

        The Coal Industry Retiree Health Benefit Act of 1992 ("Coal Act") created two multiemployer benefit plans: (1) the United Mine Workers of America Combined Benefit Fund ("Combined Fund") into which the former UMWA Benefit Trusts were merged, and (2) the 1992 Benefit Fund.

        The Combined Fund provides medical and death benefits for all beneficiaries of the former UMWA Benefit Trusts who were actually receiving benefits as of July 20, 1992. The 1992 Benefit Fund provides medical and death benefits to orphan UMWA-represented members eligible for retirement on February 1, 1993, and who actually retired between July 20, 1992 and September 30, 1994. The Coal Act provides for the assignment of beneficiaries to former employers and the allocation of unassigned beneficiaries (referred to as orphans) to companies using a formula set forth in the Coal Act. The Coal Act requires that responsibility for funding the benefits to be paid to beneficiaries, be assigned to their former signatory employers or related companies. This cost is recognized as an expense in the year the payments are assessed.

        The UMWA 1993 Benefit Plan is a defined contribution plan that was created as the result of negotiations for the National Bituminous Coal Wage Agreement (NBCWA) of 1993. This plan provides healthcare benefits to orphan UMWA retirees who are not eligible to participate in the Combined Fund, or the 1992 Benefit Fund or whose last employer signed the 1993, or a later, NBCWA and who subsequently goes out of business.

        Contributions to these plans in 2008, 2007 and 2006 were $13.0 million, $10.4 million and $2.2 million, respectively. The increase in the 2007 multi-employer benefits expense compared to 2006 is primarily due to an increase in the hourly rate of funding resulting from the new agreement with the UMWA effective January 1, 2007.

NOTE 14—Stockholders' Equity

        On June 16, 2008, the Company completed a public offering of 3,220,000 shares of its common stock at a price of $90.75 per share. The Company received $280.5 million of net proceeds from this offering, after deducting underwriting discounts and offering expenses. The Company used the net proceeds from this offering to repay $280.4 million of the borrowings outstanding under the Company's 2005 Walter Credit Agreement. See Note 12.

        On July 31, 2008, the Board of Directors approved an increase in the Company's regular quarterly dividend rate from $0.05 per common share to $0.10 per common share.

        On August 13, 2007, the Company's Board of Directors authorized a $25.0 million Common Stock Open Market share buyback program to replace the July 21, 2003 authorized program. During 2007, the Company acquired 232,753 shares. During 2008, the Company repurchased 354,256 shares under its $25.0 million share repurchase program, thereby fulfilling the program's authorized allotment. On September 26, 2008, the Board of Directors approved a new $50.0 million share repurchase program, which is intended to replace the previously authorized $25.0 million share repurchase program. Through December 31, 2008, the Company has repurchased 1,276,743 shares for $45.2 million under this program. On December 31, 2008, the Company announced that its Board of Directors had authorized a $50.0 million expansion of the Company's share repurchase program. The new program began on January 1, 2009 and purchases will be based on liquidity and market conditions. Through February 27, 2009, 1,371,756 shares for $27.9 million have been repurchased under this program.

F-38

NOTE 15—Net Income (Loss) Per Share

        A reconciliation of the basic and diluted net income (loss) per share computations for the years ended December 31, 2008, 2007 and 2006 are as follows (in thousands, except per share data):

			For the years ended December 31,
			2008						2007						2006
			Basic			Diluted			Basic			Diluted			Basic		Diluted
Numerator:
	Income from continuing operations		$	368,134		$	368,134		$	125,002		$	125,002		$	156,297	$	156,297
	Effect of dilutive securities:
		Interest related to 3.75% convertible senior subordinated notes, net of tax(a)		—			—			—			19			—		3,385
			$	368,134		$	368,134		$	125,002		$	125,021		$	156,297	$	159,682
	Income (loss) from discontinued operations		$	(21,554	)	$	(21,554	)	$	(13,003	)	$	(13,003	)	$	42,072	$	42,072
Denominator:
	Average number of common shares outstanding			53,791			53,791			52,016			52,016			44,030		44,030
	Effect of dilutive securities:
		Stock options(b)		—			794			—			390			—		642
		3.75% convertible senior subordinated notes(a)		—			—			—			84			—		7,406
				53,791			54,585			52,016			52,490			44,030		52,078
Income from continuing operations			$	6.84		$	6.74		$	2.40		$	2.38		$	3.55	$	3.07
Income (loss) from discontinued operations				(0.40	)		(0.39	)		(0.25	)		(0.25	)		0.96		0.80
Net income (loss) per share			$	6.44		$	6.35		$	2.15		$	2.13		$	4.51	$	3.87

(a)

The numerator represents the weighted-average interest, net of tax, and the denominator represents the weighted-average shares issuable upon conversion related to the Company's 3.75% contingent convertible senior subordinated notes.

(b)

Represents the weighted average number of shares of common stock issuable on the exercise of dilutive employee stock options and restricted stock units less the number of shares of common stock which could have been purchased with the proceeds from the exercise of such stock awards. These purchases were assumed to have been made at the average market price of the common stock for the period. Weighted average number of stock options and restricted stock units outstanding for the years ended December 31, 2008, 2007, and 2006 totaling 87,673, 613,128, and 408,238, respectively, were excluded because their effect would have been anti-dilutive.

NOTE 16—Commitments and Contingencies

Income Tax Litigation

        The Company is currently engaged in litigation with regard to Federal income tax disputes; see Note 11 for a more complete explanation.

F-39

Environmental Matters

        The Company is subject to a wide variety of laws and regulations concerning the protection of the environment, both with respect to the construction and operation of its plants, mines and other facilities and with respect to remediating environmental conditions that may exist at its own and other properties.

        The Company believes that it is in substantial compliance with federal, state and local environmental laws and regulations. The Company accrues for environmental expenses resulting from existing conditions that relate to past operations when the costs are probable and reasonably estimable.

        Sloss and Walter Industries, Inc. have received a letter from attorneys purporting to represent a group of residents of the North Birmingham area of Jefferson County, Alabama alleging personal injury, property damage, nuisance and trespass. The allegations against Sloss relate to air emissions from its coking facility. Walter is named in this litigation because of its ownership interest in Sloss. The Company has reached an agreement for the settlement of these allegations. As a result, the Company recognized a charge of $2.4 million in 2008, which is included in selling, general and administrative expenses in the statement of operations.

        Sloss Industries entered into a decree order in 1989 relative to a Resource Conservation Recovery Act ("RCRA") compliance program mandated by the EPA. A RCRA Facility Investigation ("RFI") Work Plan was prepared which proposed investigative tasks to assess the presence of contamination at the Sloss facility. The Work Plan was approved in 1994 and the Phase I investigations were conducted and completed between 1995 and 1999. Phase II investigations for the Chemical Plant/Coke Plant and Biological Treatment Facility and Sewers/Land Disposal Areas were performed in 2000 and 2001 and are substantially complete. At the end of 2004, the EPA re-directed Sloss' RFI efforts toward completion of the Environmental Indicator ("EI") determinations for the Current Human Exposures. This EI effort was completed to assist the EPA in meeting goals set by the Government Performance Results Act ("GPRA") for RCRA by 2005. Sloss implemented the approved EI Sampling Plan in April 2005. The EPA approved/finalized the EI determinations for Sloss' Birmingham facility in September 2005. In an effort to refocus the RFI, the EPA has now provided technical comments on the Phase II RFI report and the report recently submitted as part of the EI effort. A Phase III work plan was submitted to the EPA during the first quarter of 2007. The EPA commented on the Phase III plan and Sloss has responded. Subsequently, a meeting was held with the EPA during the third quarter of 2007 with the objective of finalization of the Phase III Plan. However, additional requests by EPA expanded the scope of the project which required additional sampling and testing.

        The Company has incurred costs to investigate the presence of contamination at the Sloss site and to define remediation actions to address this environmental liability in accordance with the agreements reached with the EPA per the findings in the Phase I and Phase II investigations. In conjunction with the Phase III work plan, the Company continues to incur costs related to defining remediation efforts and establishing a plan for remediation. At December 31, 2008, the Company has accrued an amount that is probable and reasonably estimatable for the costs to be incurred to identify necessary remediation actions and establish a remediation plan. The amount of this accrual was not material to the financial statements. While it is probable that the Company will incur additional future costs to remediate liabilities defined by the Phase III analysis, the amount of these costs cannot be reasonably estimated at this time. Although no assurances can be given that the Company will not be required in the future to make material expenditures relating to the Sloss site or other sites, management does not believe at this time that the cleanup costs, if any, associated with these sites will have a material adverse effect on the financial condition of the Company, but such cleanup costs could be material to results of operations in a future reporting period.

F-40

Miscellaneous Litigation

        The Company and its subsidiaries are parties to a number of other lawsuits arising in the ordinary course of their businesses. The Company records costs relating to these matters when a loss is probable and the amount is reasonably estimable. The effect of the outcome of these matters on the Company's future results of operations cannot be predicted with certainty as any such effect depends on future results of operations and the amount and timing of the resolution of such matters. While the results of litigation cannot be predicted with certainty, the Company believes that the final outcome of such other litigation will not have a materially adverse effect on the Company's consolidated financial statements.

Commitments and Contingencies—Other

        In the opinion of management, accruals associated with contingencies incurred in the normal course of business are sufficient. Resolution of existing known contingencies is not expected to significantly affect the Company's financial position and result of operations.

Purchase and Lease Obligations

        The Company accounts for leases in accordance with SFAS 13, "Accounting for Leases," which includes guidance for evaluating free rent periods, amortization period of leasehold improvements and incentives related to leasehold improvements. The Company's leases are primarily for mining equipment, automobiles and office space. Purchase obligations primarily represent commitments to purchase equipment and raw materials.

        Rent expense was $9.1 million, $13.9 million, and $11.8 million for the years ended December 31, 2008, 2007 and 2006, respectively. Future minimum payments under non-cancelable capitalized and operating leases and purchase obligations as of December 31, 2008 are (in thousands):

	Capitalized Leases			Operating Leases		Purchase Obligations
2009	$	3,000		$	8,191	$	47,320
2010		2,671			5,999		11,529
2011		2,400			2,832		11,529
2012		2,400			1,140		11,529
2013		1,790			264		8,599
Thereafter		—			54		—
Total		12,261			18,480		90,506
Less: amount representing interest and other executory costs		(2,360	)
Present value of minimum lease payments	$	9,901

NOTE 17—Financial Instruments

Fair Value of Financial Instruments

        The following methods and assumptions were used to estimate fair value disclosures:

        Cash and cash equivalents, restricted short-term investments, receivables and accounts payable.—The carrying amounts reported in the balance sheet approximate fair value.

        Instalment notes receivable—Instalment notes receivable at December 31, 2008 and 2007 in the amounts of $1.8 billion and $1.8 billion, respectively, are carried at cost. The estimated fair value of the instalment notes receivable is estimated to be $1.5 billion and $1.9 billion as of December 31, 2008 and 2007, respectively. This value represents the estimated fair value of the instalment notes receivable, as

F-41

determined by discounting the net cash flows estimated to be generated from the instalment notes receivable. The discounted cash flows were determined using assumptions for the prepayment speeds, default rates, losses and a risk-adjusted market discount rate. The value of mortgage-backed assets such as instalment notes receivable is very sensitive to changes in interest rates.

        Debt—Mortgage-backed/asset backed notes in the amount of $1.4 billion and $1.7 billon at December 31, 2008 and 2007, respectively, are carried at cost. The estimated fair value of mortgage-backed/asset-backed notes is approximately $1.1 billion and $1.6 billion for the period ended December 31, 2008 and 2007, respectively. For 2008, this value represents the estimated fair value of the mortgage-backed/asset backed notes, as determined by discounting the net cash outflows estimated to be used to repay the debt. For 2007 this value is based on current yields for comparable debt issues or prices for actual transactions. During 2008, a discounted cash flow approach was used to determine fair value since data for market trades of comparable transactions were unavailable. These obligations are expected to be satisfied using the proceeds from the instalment notes receivable that back these obligations and are non-recourse to the Company. The value of mortgage- backed debt obligations is very sensitive to changes in interest rates. In addition, the fair value of the mortgage-backed/asset-backed notes may decrease if default rates on the instalment notes receivable increase.

        The Company's term loan in the amount of $138.9 million and $218.5 million at December 31, 2008 and 2007, respectively, is carried at cost. The estimated fair value of the Company's term loan was $104.2 million and $210.0 million at December 31, 2008 and 2007, respectively based on similar transactions and yields in an active market for similarly rated debt.

        The estimated fair value of the Company's 3.75% convertible senior subordinated notes due May 1, 2024 was estimated based on several standard market variables including the Company's common stock price, its volatility and yields on comparable debt. The estimated fair value of the Company's convertible notes was $0.0 and $3.1 million at December 31, 2008 and 2007, respectively. As of December 31, 2008, all convertible senior subordinated notes had been converted to shares of the Company's common stock.

        The Company's revolving credit facility of $40.0 million and $0.0 at December 31, 2008 and 2007, respectively, is carried at cost. The estimated fair value of the revolver debt at December 31, 2008 was $28.4 million based on similar transactions and yields in an active market for similarly rated companies.

        The Company's equipment financing debt was entered into during 2008 and has a balance (carried at cost) of $31.9 million at December 31, 2008. The estimated fair value of this equipment financing debt as of December 31, 2008 is $23.9 million based on comparable equipment financing transactions that similarly rated companies entered into at that date.

        Commodity hedges—At December 31, 2008, the Company had two contracts outstanding: one to hedge 0.3 mmbtus of natural gas or 17% of anticipated sales for the first quarter of 2009 at a price of $9.27 per mmbtu and another to hedge 0.2 mmbtus of natural gas or 11% of anticipated sales for the first quarter of 2009 at a price of $8.75 per mmbtu. The fair value of the unsettled commodity hedges at December 31, 2008 was an asset of $2.2 million and was recognized in accumulated other comprehensive income. At December 31, 2007, the Company had two contracts outstanding: one to hedge 0.3 mmbtus or 17% of anticipated sales for the first quarter of 2008 at a price of $8.76 per mmbtu and another to hedge 0.5 mmbtus or 25% of anticipated sales for the first quarter of 2008 at a price of $8.60 per mmbtu. The fair value of these contracts at December 31, 2007 was an asset of $0.9 million and was recognized immediately in income instead of deferred into the first quarter of 2008.

        The net change in the unrealized gain on the commodity cash flow hedges was $1.3 million, net of taxes of $0.9 million and realized losses recognized in net income was $2.5 million, net of taxes of $1.7 million, for the year ended December 31, 2008. In 2007, all gains and losses on the commodity cash flow hedges were recognized in net income and totaled $5.3 million, net of taxes of $3.4 million.

F-42

        The natural gas hedge agreements are valued using quoted dealer prices for similar contracts in active over-the-counter markets (Level 2 criteria). The Company measures these financial instruments at fair value on a recurring basis. The following table summarizes the fair value of these financial instruments at December 31, 2008 by type of inputs used (in thousands):

Assets	Total		Quoted Prices in Active Markets for Identical Assets (Level 1)		Significant Other Observable Inputs (Level 2)		Significant Unobservable Inputs (Level 3)
Natural gas hedge agreements	$	2,212	$	—	$	2,212	$	—

NOTE 18—Segment Analysis

        The Company's reportable segments are strategic business units that offer different products and services and have separate management teams. The business units have been aggregated into five reportable segments: Natural Resources, Sloss, Homebuilding, Financing, and Other. The Natural Resources segment is comprised of coal mining, methane gas operations and royalties and land sales generated by certain land holdings. Sloss manufactures foundry and furnace coke and slag fiber. The Financing segment provides mortgage financing on homes constructed by the Homebuilding segment and purchases mortgages originated by others. The Company markets and supervises the construction of detached, single-family residential homes, primarily in the southern United States, through the Homebuilding segment. The Other segment includes the other land divisions and corporate expenses.

        The accounting policies of the segments are the same as those described in the summary of significant accounting policies. The Company evaluates performance based on operating earnings of the respective business segments.

F-43

        Summarized financial information concerning the Company's reportable segments is shown in the following tables (in thousands):

			For the years ended December 31,
			2008			2007			2006
Sales and revenues:
	Natural Resources		$	988,385		$	638,861		$	686,925
	Sloss			206,230			134,918			133,033
	Natural Resources and Sloss			1,194,615			773,779			819,958
	Financing			202,702			219,736			219,551
	Homebuilding			118,541			245,948			242,729
	Financing and Homebuilding Group			321,243			465,684			462,280
	Other			3,968			6,366			4,773
	Consolidating eliminations and intersegment activity(a)			(32,756	)		(6,008	)		(14,103	)
		Net sales and revenues(b)	$	1,487,070		$	1,239,821		$	1,272,908
Segment operating income (loss)(c)(d):
	Natural Resources		$	321,781		$	165,802		$	258,765
	Sloss			60,672			11,861			8,071
	Natural Resources and Sloss			382,453			177,663			266,836
	Financing(e)			10,986			49,589			53,987
	Homebuilding			(43,925	)		(5,265	)		(10,800	)
	Financing and Homebuilding Group			(32,939	)		44,324			43,187
	Other			(29,803	)		(17,262	)		(21,719	)
	Consolidating eliminations and intersegment activity			(1,152	)		(2,632	)		(645	)
	Segment operating income (loss)			318,559			202,093			287,659
	Less other debt interest and debt conversion costs			(26,223	)		(18,830	)		(57,379	)
	Income (loss) from continuing operations before income tax expense			292,336			183,263			230,280
	Income tax benefit (expense)			75,798			(58,261	)		(73,983	)
		Income from continuing operations	$	368,134		$	125,002		$	156,297
Depreciation:
	Natural Resources		$	51,476		$	34,377		$	25,937
	Sloss			4,152			3,822			3,623
	Natural Resources and Sloss			55,628			38,199			29,560
	Financing			416			1,174			1,387
	Homebuilding			2,814			5,151			4,483
	Financing and Homebuilding Group			3,230			6,325			5,870
	Other			914			1,035			1,334
		Total	$	59,772		$	45,559		$	36,764
Capital expenditures:
	Natural Resources		$	134,415		$	140,210		$	77,179
	Sloss			6,904			7,019			7,761
	Natural Resources and Sloss			141,319			147,229			84,940
	Financing			217			156			295
	Homebuilding			1,650			4,200			4,813
	Financing and Homebuilding Group			1,867			4,356			5,108
	Other			308			328			480
		Total	$	143,494		$	151,913		$	90,528

F-44

			For the years ended December 31,
			2008		2007		2006
Identifiable assets:
	Natural Resources		$	785,104	$	604,874	$	574,880
	Sloss			69,916		58,270		57,686
	Natural Resources and Sloss			855,020		663,144		632,566
	Financing			1,897,531		1,973,340		1,940,103
	Homebuilding			26,213		64,748		71,388
	Financing and Homebuilding Group			1,923,744		2,038,088		2,011,491
	Other			282,562		40,401		5,706
	Assets of discontinued operations			6,667		25,648		34,352
		Total	$	3,067,993	$	2,767,281	$	2,684,115

(a)

Included in consolidating eliminations are inter-segment sales of $31.1 million during the year ended December 31, 2008 between Natural Resources and Sloss, inter-segment sales of $1.6 million, $3.2 million and $3.9 million during the years ended December 31, 2008, 2007 and 2006, respectively, between Financing and Other and inter-segment sales of $0.7 during the year ended December 31, 2006 between Financing and Natural Resources.

(b)

Export sales were $781.2 million, $531.7 million and $551.9 million in the years ended December 31, 2008, 2007 and 2006, respectively. Based on location of customer, export sales to Brazil were 18.7% and 14.2% of consolidated net sales and revenues for the year ended December 31, 2008 and 2006, respectively. Export sales to any single geographic area, based on location of customer, did not exceed 10% of consolidated sales and revenues for the year ended December 31, 2007.

(c)

Segment operating income (loss) amounts include amortization of intangibles. The Company recorded approximately $1.0 million, $1.9 million and $2.4 million of amortization expense related to the Financing segment for the years ended December 31, 2008, 2007 and 2006, respectively.

(d)

Segment operating income (loss) amounts include expenses for postretirement benefits. A breakdown by segment of postretirement benefits (income) expense is as follows (in thousands):

	For the years ended December 31,
	2008			2007			2006
Natural Resources	$	29,128		$	29,584		$	19,764
Sloss		(645	)		(864	)		(680	)
Financing		(456	)		(424	)		(1,544	)
Homebuilding		(607	)		(592	)		(3,224	)
Other		(926	)		(970	)		(776	)
	$	26,494		$	26,734		$	13,540

(e)

Operating income amounts for the Financing segment include interest expense on the mortgage-backed/asset-backed notes of $102.1 million, $119.1 million and $118.7 million for the years ended December 31, 2008, 2007 and 2006, respectively.

NOTE 19—Related Party Transactions

        The Company owns a 50% interest in the joint venture Black Warrior Methane ("BWM"), which is accounted for under the proportionate consolidation method. The Company has granted the rights to produce and sell methane gas from its coal mines to BWM. The Company also supplies labor and equipment to BWM and charges the joint venture for such costs on a monthly basis. These charges for 2008, 2007 and 2006 were $2.0 million, $2.1 million and $2.1 million, respectively.

F-45

NOTE 20—Accounting Pronouncements Not Yet Adopted

        In December 2007, the FASB issued SFAS No. 160, "Noncontrolling Interests in Consolidated Financial Statements," that amends ARB 51, "Consolidated Financial Statements," to establish accounting and reporting standards for the noncontrolling interest in a subsidiary and for the deconsolidation of a subsidiary. It clarifies that a noncontrolling interest in a subsidiary is an ownership interest in the consolidated entity that should be reported as equity in the consolidated financial statements. The Company does not expect the adoption of this statement, which becomes effective January 1, 2009, to have a material effect on its consolidated financial statements.

        Also in December 2007, the FASB issued SFAS No. 141(R), "Business Combinations," a replacement of SFAS No. 141, "Business Combinations." The objective of this Statement is to improve the relevance, representational faithfulness and comparability of the information that a reporting entity provides in its financial reports about a business combination and its effects. This Statement establishes principles and requirements for how the acquirer recognizes and measures the identifiable assets acquired and liabilities assumed, measures the goodwill acquired or gain from a bargain purchase, and determines what information to disclose. The Company can not determine what impact the adoption of this requirement, which becomes effective January 1, 2009, will have on its consolidated financial statements with respect to future acquisitions.

F-46

EXHIBIT INDEX

Exhibit Number		Description
2(a)(i)	—	Amended Joint Plan of Reorganization of Walter Industries, Inc. and certain of its subsidiaries, dated as of December 9, 1994 (1)
2(a)(ii)	—	Modification to the Amended Joint Plan of Reorganization of Walter Industries, Inc. and certain of its subsidiaries, as filed in the Bankruptcy Court on March 1, 1995 (2)
2(a)(iii)	—	Findings of Fact, Conclusions of Law and Order Confirming Amended Joint Plan of Reorganization of Walter Industries, Inc. and certain of its subsidiaries, as modified (3)
3.1	—	Amended and Restated Certificate of Incorporation of the Company (4)
3.2	—	Amended and Restated By-Laws (5)
4	—	Form of Specimen Certificate for Registrant's Common Stock (incorporated by reference to Exhibit 4(b) to Registration Statement on Form S-1 filed by the Registrant (No. 033-59013) (6)
4.1	—	Rights Agreement, dated as of November 21, 2008, between Walter Industries, Inc. and Mellon Investor Services LLC, as Rights Agent, which includes the Form of Right Certificate as Exhibit A and the Summary of Rights as Exhibit B (5)
10.1*	—	Director and Officer Indemnification Agreement, dated as of March 3, 1995, among the Company and the Indemnitee parties thereto (7)
10.2*	—	Amended and Restated Executive Change-in-Control Severance Agreement—form of
10.3*	—	Walter Industries Executive Deferred Compensation and Supplemental Retirement Plan (8)
10.4*	—	Amended and Restated Walter Industries, Inc. Directors' Deferred Fee Plan
10.5*	—	Amended and Restated Walter Industries, Inc. Supplemental Pension Plan
10.6*	—	Walter Industries, Inc. Executive Incentive Plan (10)
10.6.1*	—	First Amendment to the Walter Industries, Inc. Executive Incentive Plan
10.7*	—	Amended 1995 Long-Term Incentive Stock Plan of Walter Industries, Inc. (11)
10.7.1*	—	Amendment to Amended 1995 Long-Term Incentive Stock Plan of Walter Industries, Inc.
10.8*	—	Amended and Restated 2002 Long-Term Incentive Award Plan of Walter Industries, Inc.
10.9*	—	Form of Restricted Stock Unit Award Agreement
10.10*	—	Form of Non-Qualified Stock Option Agreement
10.11*	—	Walter Industries, Inc. Amended and Restated Employee Stock Purchase Plan (13)

E-1

Exhibit Number		Description
10.12	—	Walter Credit Agreement dated as of October 3, 2005 among Walter Industries, Inc. as borrower, Bank of America, N.A., as Administrative Agent, Morgan Stanley Senior Funding, Inc, as Syndication Agent and SunTrust Bank, BNP Paribas and Calyon New York Branch, as co-documentation agents and the other lenders named therein (14)
10.12.1	—	Amendment No. 1 to Walter Credit Agreement dated as of January 24, 2006 (15)
10.12.2	—	Amendment No. 2 to Walter Credit Agreement dated as of February 14, 2006 (16)
10.12.3	—	Amendment No. 3 to Walter Credit Agreement dated as of September 14, 2006 (17)
10.12.4	—	Amendment No. 4 to Walter Credit Agreement dated as of October 9, 2007 (18)
10.12.5	—	Amendment No. 5 to Walter Credit Agreement dated as of April 30, 2008 (9)
10.15*	—	Agreement dated as of August 1, 2006, between the Company and Victor P. Patrick (19)
10.15.1*	—	Amendment dated as of December 22 2008, between the Company and Victor P. Patrick
10.16*	—	Agreement, dated as of May 9, 2008, between the Company and Joseph J. Troy (12)
10.17*	—	Agreement dated March 13, 2006, between the Company and George R. Richmond (20)
10.17.1*	—	Amendment dated as of December 22, 2008, between the Company and George R. Richmond
10.18*	—	Agreement dated as of December 23, 2008, between JWH Holding Company, LLC and Mark J. O'Brien (21)
10.19*	—	Agreement dated as of December 23, 2008, between JWH Holding Company, LLC and Charles E. Cauthen (21)
10.20*	—	JWH Holding Company, LLC Economic Profit Plan Document (17)
10.21*	—	Amended and Restated 2007 Long-Term Incentive Award Plan of JWH Holding Company, LLC
10.22*	—	JWH Holding Company, LLC Option Agreement (22)
10.23*	—	Walter Industries, Inc. Involuntary Severance Benefit Plan
10.23.1*	—	First Amendment to the Walter Industries, Inc. Involuntary Severance Benefit Plan
21	—	Subsidiaries of the Company
23.1	—	Consent of Ernst & Young LLP
23.2	—	Consent of PricewaterhouseCoopers LLP
24	—	Power of Attorney

E-2

Exhibit Number		Description
31.1	—	Certification Pursuant to Section 302 of the Sarbanes-Oxley Act of 2002—Chief Executive Officer and Chief Financial Officer
32.1	—	Certification Pursuant to Section 906 of the Sarbanes-Oxley Act of 2002, 18 U.S.C. Section 1350—Chief Executive Officer and Chief Financial Officer

The Exhibits identified above with an asterisk (*) are management contracts or compensatory plans or arrangements.

(1)

This Exhibit is incorporated by reference to the Application for Qualification of Indenture of Form T-3 filed by the Company with the Commission on February 6, 1995.

(2)

This Exhibit is incorporated by reference to Amendment No. 2 to the Application for Qualification of Indenture on Form T-3 filed by the Company with the Commission on March 7, 1995.

(3)

This Exhibit is incorporated by reference to the Registration Statement of Form S-1 (File No. 33-59013) filed by the Company with the Commission on May 2, 1995.

(4)

This Exhibit is incorporated by reference to the Form 10-Q filed by the Company with the Commission on August 9, 2004.

(5)

This Exhibit is incorporated by reference to Form 8-K filed by the Company with the Commission on November 24, 2008.

(6)

This Exhibit is incorporated by reference to Exhibit 4(b) to Registration Statement on Form S-1 filed by the Company with the Commission on May 2, 1995.

(7)

This Exhibit is incorporated by reference to Exhibit 10(g) to Amendment No. 1 to the Registration Statement on Form S-1 (File No. 33-59013) filed by the Company with the Commission on August 9, 1995.

(8)

This Exhibit is incorporated by reference to Form 10-K filed by the Company with the Commission on March 16, 2005.

(9)

This Exhibit is incorporated by reference to Form 8-K filed by the Company with the Commission on May 2, 2008.

(10)

This Exhibit is incorporated by reference to the Company's Proxy Statement, dated March 31, 2006, filed by the Company with the Commission on March 31, 2006.

(11)

This Exhibit is incorporated by reference to the Company's Proxy Statement, dated August 12, 1997, filed by the Company with the Commission on August 12, 1997.

(12)

This Exhibit is incorporated by reference to Form 10-K filed by the Company with the Commission on May 9, 2008.

(13)

This Exhibit is incorporated by reference to the Company's Proxy Statement, dated March 22, 2004, filed by the Company with the Commission on March 19, 2004.

(14)

This Exhibit is incorporated by reference to Form 8-K filed by the Company with the Commission on October 5, 2005.

(15)

This Exhibit is incorporated by reference to Form 8-K filed by the Company with the Commission on January 27, 2006.

(16)

This Exhibit is incorporated by reference to Form 8-K filed by the Company with the Commission on February 21, 2006.

E-3

(17)

This Exhibit is incorporated by reference to the Form 10-K filed by the Company with the Commission on March 1, 2007.

(18)

This Exhibit is incorporated by reference to Form 8-K filed by the Company with the Commission on October 15, 2007.

(19)

This Exhibit is incorporated by reference to Form 8-K filed by the Company with the Commission on August 7, 2006.

(20)

This Exhibit is incorporated by reference to Form 10-K filed by the Company with the Commission on March 16, 2006.

(21)

This Exhibit is incorporated by reference to Form 8-K filed by the Company with the Commission on December 30, 2008.

(22)

This Exhibit is incorporated by reference to the Amended Form 8-K filed by the Company with the Commission on March 20, 2007.

E-4

QuickLinks

PART I

Item 1. Description of Business and
Item 1A. Risk Factors

Item 1A. Risk Factors

Item 1B. Unresolved Staff Comments
Item 2. Description of Property

Item 3. Legal Proceedings
Item 4. Submission of Matters to a Vote of Security Holders

PART II

Item 5. Market for the Registrant's Common Stock, Related Stockholder Matters and Issuer Purchases of Equity Securities
Item 6. Selected Financial Data

Item 7. Management's Discussion and Analysis of Results of Operations and Financial Condition and
Item 7A. Quantitative and Qualitative Disclosures About Market Risk

Item 8. Financial Statements and Supplementary Data
Item 9. Changes in and Disagreements with Accountants on Accounting and Financial Disclosure
Item 9A. Controls and Procedures
Item 9B. Other Information

Item 10. Directors, Executive Officers and Corporate Governance
Item 11. Executive Compensation
Item 12. Security Ownership of Certain Beneficial Owners and Management and Related Stockholder Matters
Item 13. Certain Relationships and Related Transactions, and Director Independence
Item 14. Principal Accounting Fees and Services
Item 15. Exhibits, Financial Statement Schedules

SIGNATURES
INDEX TO CONSOLIDATED FINANCIAL STATEMENTS
Report of Independent Registered Certified Public Accounting Firm
Report of Independent Registered Certified Public Accounting Firm
Report of Independent Registered Certified Public Accounting Firm
WALTER INDUSTRIES, INC. AND SUBSIDIARIES CONSOLIDATED BALANCE SHEETS (in thousands, except share amounts)
WALTER INDUSTRIES, INC. AND SUBSIDIARIES CONSOLIDATED STATEMENTS OF OPERATIONS (in thousands, except per share amounts)
WALTER INDUSTRIES, INC. AND SUBSIDIARIES CONSOLIDATED STATEMENTS OF CHANGES IN STOCKHOLDERS' EQUITY AND COMPREHENSIVE INCOME FOR THE THREE YEARS ENDED DECEMBER 31, 2008 (in thousands)
WALTER INDUSTRIES, INC. AND SUBSIDIARIES CONSOLIDATED STATEMENTS OF CASH FLOWS (in thousands)
WALTER INDUSTRIES, INC. AND SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
EXHIBIT INDEX

EX-10.2

Exhibit 10.2

Amended and Restated Executive Change-in-Control Severance Agreement for

Adopted:

Amended and Restated: December, 2008

Contents

Article 1. Definitions	1
Article 2. Severance Benefits	5
Article 3. Form and Timing of Severance Benefits	8
Article 4. Noncompetition and Confidentiality	9
Article 5. Excise Tax Equalization Payment	10
Article 6. The Company’s Payment Obligation	11
Article 7. [RESERVED]	12
Article 8. Legal Remedies	12
Article 9. Successors	12
Article 10. Miscellaneous	12

Walter Industries, Inc.
Amended and Restated Executive Change-in-Control Severance Agreement

THIS AMENDED AND RESTATED EXECUTIVE CHANGE-IN-CONTROL SEVERANCE AGREEMENT is made, entered into, and is effective this       day of                         , 2008 (hereinafter referred to as the “Effective Date”), by and between Walter Industries, Inc. (the “Company”), a Delaware corporation, and                                                      (the “Executive”).

WHEREAS, the Executive is currently employed by                                            (“      ”), a [subsidiary of the Company,] and possesses considerable experience and knowledge of the business and affairs of the Company concerning its policies, methods, personnel, and operations; and

WHEREAS, the Company is desirous of assuring insofar as possible, that it will continue to have the benefit of the Executive’s services; and the Executive is desirous of having such assurances; and

WHEREAS, the Company recognizes that circumstances may arise in which a Change in Control of the Company occurs, through acquisition or otherwise, thereby causing uncertainty of employment without regard to the Executive’s competence or past contributions. Such uncertainty may result in the loss of the valuable services of the Executive to the detriment of the Company and its shareholders; and

WHEREAS, both the Company and the Executive are desirous that any proposal for a Change in Control or acquisition will be considered by the Executive objectively and with reference only to the business interests of the Company and its shareholders;

WHEREAS, the Executive will be in a better position to consider the Company’s best interests if the Executive is afforded reasonable security, as provided in this Agreement, against altered conditions of employment which could result from any such Change in Control or acquisition; and

WHEREAS, the Company and the Executive previously entered into an Executive Change-in-Control Severance Agreement dated as of                                        (“Prior Agreement”); and

WHEREAS, the Company and the Executive now desire to amend and restate the terms of Executive’s Executive Change-in-Control Severance Agreement in its entirety in order to comply with the requirements of Section 409A of the Code.

NOW, THEREFORE, in consideration of the foregoing and of the mutual covenants and agreements of the parties set forth in this Agreement, and of other good and valuable consideration, the receipt and sufficiency of which are hereby acknowledged, the parties hereto, intending to be legally bound, agree as follows:

Article 1. Definitions

Wherever used in this Agreement, the following terms shall have the meanings set forth below and, when the meaning is intended, the initial letter of the word is capitalized:

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(a)“Agreement” means this Amended and Restated Executive Change-in-Control Severance Agreement.

(b)“Base Salary” means, at any time, the then regular annual rate of pay which the Executive is receiving as annual salary, excluding amounts: (i) received under short-term or long-term incentive or other bonus plans, regardless of whether or not the amounts are deferred, or (ii) designated by the Company as payment toward reimbursement of expenses.

(c)“Board” means the Board of Directors of the Company.

(d)“Cause” shall be determined solely by the Committee in the exercise of good faith and reasonable judgment, and shall mean the occurrence of any one or more of the following:

(i)The Executive’s willful and continued failure to substantially perform his duties with the Company and/or one or more of its subsidiaries (other than any such failure resulting from the Executive’s Disability), after a written demand for substantial performance is delivered to the Executive that specifically identifies the manner in which the Committee believes that the Executive has not substantially performed his duties, and the Executive has failed to remedy the situation within fifteen (15) business days of such written notice from the Company or a subsidiary; or

(ii)The Executive’s conviction of a felony; or

(iii)The Executive’s willful engaging in conduct that is demonstrably and materially injurious to the Company and/or one or more of its subsidiaries, monetarily or otherwise. However, no act or failure to act on the Executive’s part shall be deemed “willful” unless done, or omitted to be done, by the Executive not in good faith and without reasonable belief that the action or omission was in the best interests of the Company and/or one or more of its subsidiaries.

(e)“Change in Control” of the Company shall mean the occurrence of any one (1) or more of the following events:

(i)A change in the effective control of the Company, which occurs only on either of the following dates:

(A)The date any Person or more than one Person acting as a group (other than the Company or any corporation owned, directly or indirectly, by the stockholders of the Company in substantially the same proportions as their ownership of stock of the Company, and any trustee or other fiduciary holding securities under an employee benefit plan of the Company or such proportionately owned corporation), acquires (or has acquired during the 12-month period ending on the date of the most recent acquisition by such Person or Persons) ownership of stock of the Company representing more than thirty percent (30%) of the total voting power of the stock of the Company; or

2

(B)The date a majority of the members of the Board is replaced during any 12-month period by directors whose appointment or election is not endorsed by a majority of the members of the Board before the date of the appointment or election;

provided that, in any event, the transaction must constitute a “change in the effective control” of the Company within the meaning of Section 409A(a)(2)(A)(v) of the Code and Treasury Regulations Section 1.409A-3(i)(5)(vi).

(ii)The date any Person or more than one Person acting as a group acquires (or has acquired during the 12-month period ending on the date of the most recent acquisition by such Person or Persons) all or substantially all of the Company’s assets; provided that the transaction must constitute a “change in the ownership of a substantial portion of the assets” of the Company within the meaning of Section 409A(a)(2)(A)(v) of the Code and Treasury Regulations Section 1.409A-3(i)(5)(vii).

Notwithstanding the foregoing, in no event shall a Change in Control of the Company be deemed to have occurred if the Company undergoes a strategic realignment of its businesses (such as a split-up or spin-off transaction), with or without a shareholder vote, including, without limitation, a spin-off or other transaction separating Jim Walter Homes, Inc., Walter Mortgage Company or JWH Holding Company, LLC from the Company.

(f)“Code” means the Internal Revenue Code of 1986, as amended.

(g)“Committee” means the Compensation Committee of the Board of Directors of the Company, or, if no Compensation Committee exists, then the full Board of Directors of the Company, or a committee of Board members, as appointed by the full Board to administer this Agreement.

(h)“Company” means Walter Industries, Inc., a Delaware corporation, or any successor thereto as provided in Article 9 herein.

(i)“Constructive Termination” means the Executive’s voluntary Separation from Service for Good Reason; provided that a voluntary Separation from Service shall be a Constructive Termination only if (i) Executive provides written notice of the facts or circumstances constituting a Good Reason condition to the Company within 30 days after the initial existence of the Good Reason condition, (y) the Company does not remedy the Good Reason condition within 30 days after it receives such notice, and (z) the voluntary Separation from Service occurs within 90 days after the initial existence of the Good Reason condition. The foregoing definition of Constructive Termination is intended to qualify for the safe harbor under Treasury Regulations Section 1.409A-1(n)(2)(ii) for treating a voluntary separation from service as an involuntary separation from service.

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(j)“Disability” or “Disabled” shall have the meaning ascribed to such term in the Executive’s governing long-term disability plan, or if no such plan exists, at the discretion of the Board.

(k)“Effective Date” means the date this Agreement is approved by the Board, or such other date as the Board shall designate in its resolution approving this Agreement, and as specified in the opening sentence of this Agreement.

(l)“Effective Date of Termination” means the date on which a Qualifying Termination occurs, as provided in Section 2.2 herein, which triggers the payment of Severance Benefits hereunder.

(m)“Exchange Act” means the Securities Exchange Act of 1934, as amended.

(n)“Good Reason” means the occurrence of any of the following conditions after a Change in Control of the Company (in each case arising without the Executive’s consent):

(i)A material diminution of the Executive’s authority, duties or responsibilities from those in effect as of ninety (90) calendar days prior to the Change in Control;

(ii)The Company requiring the Executive to be based at a location in excess of fifty (50) miles from the location of the Executive’s principal job location or office immediately prior to the Change in Control; except for required travel on the Company’s business to an extent substantially consistent with the Executive’s then present business travel obligations;

(iii)A material reduction by the Company of the Executive’s Base Salary in effect on the Effective Date hereof, or as the same shall be increased from time to time; or

(iv)A material breach of this Agreement by the Company, including Section 9.1.

Unless the Executive becomes Disabled, the Executive’s right to terminate employment for Good Reason shall not be affected by the Executive’s incapacity due to physical or mental illness. The Executive’s continued employment shall not, by itself, constitute consent to, or a waiver of rights with respect to, any circumstance constituting Good Reason herein.

(o)“Involuntary Termination” means the Executive’s involuntary Separation from Service within the meaning of Treasury Regulations Section 1.409A-1(n)(1).

(p)“Normal Retirement Age” means the earliest normal retirement age available under the established rules of the Company’s tax-qualified retirement plans in which the Executive is eligible to participate.

(q)“Notice of Termination” shall mean a written notice which shall indicate the specific termination provision in this Agreement relied upon, and shall set forth in reasonable

4

detail the facts and circumstances claimed to provide a basis for termination of the Executive’s employment under the provision so indicated.

(r)“Person” shall have the meaning ascribed to such term in the Code and Treasury Regulations.

(s)“Qualifying Termination” means a Separation from Service described in Section 2.2 herein, the occurrence of which triggers the payment of Severance Benefits hereunder.

(t)“Separation from Service” means the Executive’s “separation from service” from Executive’s employer within the meaning of Section 409A(a)(2)(A)(i) of the Code and the default rules of Treasury Regulations Section 1.409A-1(h). For this purpose, Executive’s “employer” is JWR and every entity or other person which collectively with JWR constitutes a single “service recipient” (as that term is defined in Treasury Regulations Sections 1.409A-1(g)) as the result of the application of the rules of Treasury Regulations Sections 1.409A-1(h)(3); provided that an 80% standard (in lieu of the default 50% standard) shall be used for purposes of determining the service recipient / employer for this purpose.

(u)“Specified Employee” means a “specified employee” of the service recipient that includes JWR (as determined under Treasury Regulations Sections 1.409A-1(g))  within the meaning of Section 409A(a)(2)(B)(i) of the Code and Treasury Regulations Section 1.409A-1(i), as determined in accordance with the procedures adopted by such service recipient that are then in effect, or, if no such procedures are then in effect, in accordance with the default procedures set forth in Treasury Regulations Section 1.409A-1(i).

(v)“Severance Benefits” mean the payment of severance compensation as provided in Section 2.3 herein.

Article 2. Severance Benefits

2.1Right to Severance Benefits. The Executive shall be entitled to receive from the Company Severance Benefits as described in Section 2.3 herein, if there has been a Change in Control of the Company and if, within twenty-four (24) calendar months thereafter, the Executive experiences a Separation from Service for any reason specified in Section 2.2 herein as being a Qualifying Termination.

The Executive shall not be entitled to receive Severance Benefits if he experiences an Involuntary Termination for Cause, a Separation from Service by reason of his death or Disability, a voluntary Separation from Service after attaining his Normal Retirement Age, or a voluntary Separation from Service that is not a Constructive Termination.

2.2Qualifying Termination. The occurrence of any one of the following events within twenty-four (24) calendar months after a Change in Control of the Company shall trigger the payment of Severance Benefits to the Executive under this Agreement:

(a)An Involuntary Termination without Cause; or

5

(b)A Constructive Termination.

For purposes of this Agreement, a Qualifying Termination shall not include a Separation from Service by reason of the Executive’s death or Disability, a voluntary Separation from Service after attaining his Normal Retirement Age, a voluntary Separation from Service that is not a Constructive Termination, or an Involuntary Termination for Cause.

2.3        Description of Severance Benefits. In the event the Executive becomes entitled to receive Severance Benefits, as provided in Sections 2.1 and 2.2 herein, the Company shall pay or provide, as the case may be, to the Executive the following Severance Benefits:

(a)A lump-sum amount equal to the Executive’s accrued but unpaid Base Salary, accrued but unused vacation pay and unreimbursed business expenses (in accordance with the standard reimbursement policy applicable to the Executive then in effect) earned by and owed to the Executive through and including the Effective Date of Termination.

(b)A lump-sum amount equal to one and one-half (1.5) multiplied by the sum of the following: (i) the higher of: (A) the Executive’s annual rate of Base Salary in effect upon the Effective Date of Termination, or (B) the Executive’s annual rate of Base Salary in effect on the date of the Change in Control; and (ii) the average of the actual annual bonus earned (whether or not deferred) by the Executive under the annual bonus plan (excluding any special bonus payments) in which the Executive participated in the three (3) years preceding the year in which the Executive’s Effective Date of Termination occurs. If the Executive has less than three (3) years of annual bonus participation preceding the year in which the Executive’s Effective Date of Termination occurs, then the Executive’s annual target bonus established under the annual bonus plan in which the Executive is then participating for the bonus plan year in which the Executive’s Effective Date of Termination occurs shall be used for each year that the Executive did not participate in the annual bonus plan, up to a maximum of three (3) years, to calculate the three (3) year average bonus payment.

(c)A lump-sum amount equal to one-half (.5) multiplied by the sum of the following: (i) the higher of: (A) the Executive’s annual rate of Base Salary in effect upon the Effective Date of Termination, or (B) the Executive’s annual rate of Base Salary in effect on the date of the Change in Control; and (ii) the average of the actual annual bonus earned (whether or not deferred) by the Executive under the annual bonus plan (excluding any special bonus payments) in which the Executive participated in the three (3) years preceding the year in which the Executive’s Effective Date of Termination occurs. If the Executive has less than three (3) years of annual bonus participation preceding the year in which the Executive’s Effective Date of Termination occurs, then the Executive’s annual target bonus established under the annual bonus plan in which the Executive is then participating for the bonus plan year in which the Executive’s Effective Date of Termination occurs shall be used for each year that the Executive did not participate in the annual bonus plan, up to a maximum of three (3) years, to

6

calculate the three (3) year average bonus payment. Such amount shall be in consideration for the Executive entering into a noncompete agreement as described in Article 4 herein.

(d)Upon the occurrence of a Change in Control, to the extent permitted by Section 409A of the Code, an immediate full vesting and lapse of all restrictions on any and all outstanding equity based long term incentives, including but not limited to stock options and restricted stock unit awards held by the Executive. This provision shall override any conflicting language contained in the Executive’s respective Award Agreements.

(e)The Executive shall continue to be entitled to receive payments or benefits under any annual bonus plan and/or long-term incentive plans, whether cash-based or equity-based, or retirement plans and insurance plans in which Executive is a participant, if any, in each case in accordance with the terms and conditions of such plans. The Committee shall authorize a pro-rata bonus under the Executive Incentive Plan (or successor annual bonus plan) (“EIP”) earned as of the Effective Date of Termination, based on actual year to date performance, as determined at the Committee’s discretion. Such pro-rata bonus shall be paid during the year following the year that includes the Effective Date of Termination in accordance with the terms of the EIP.

(f)Continuation for twenty-four (24) months of the Executive’s medical insurance and life insurance coverage. These benefits shall be provided by the Company to the Executive beginning immediately upon the Effective Date of Termination. Such benefits shall be provided to the Executive at the same coverage level and cost to the Executive as in effect immediately prior to the Executive’s Effective Date of Termination.

To the extent required by law, the Executive shall qualify for full COBRA health benefit continuation coverage beginning upon the expiration of the aforementioned twenty-four (24) month period.

Notwithstanding the above, these medical and life insurance benefits shall be discontinued prior to the end of the stated continuation period in the event the Executive receives substantially similar benefits from a subsequent employer, as determined solely by the Committee in good faith. For purposes of enforcing this offset provision, the Executive shall be deemed to have a duty to keep the Company informed as to the terms and conditions of any subsequent employment and the corresponding benefits earned from such employment, and shall provide, or cause to provide, to the Company in writing correct, complete, and timely information concerning the same.

(g)For a period of up to twenty-four (24) months following a Qualifying Termination, the Executive shall be entitled, at the expense of the Company, to receive standard outplacement services from a nationally recognized outplacement firm of the Executive’s selection. However, the Company’s total obligation shall not exceed

7

thirty-five percent (35%) of the Executive’s final annual rate of Base Salary with the Company, and such Company obligation shall end prior to the end of the twenty-four (24) month period upon the Executive becoming employed by a subsequent employer.

2.4        Termination for Total and Permanent Disability. Following a Change in Control, if the Executive experiences a Separation from Service due to Disability, the Executive’s benefits shall be determined in accordance with the Company’s retirement, insurance, and other applicable plans and programs then in effect.

2.5        Termination for Retirement or Death. Following a Change in Control, if the Executive experiences a Separation from Service by reason of a voluntary Separation from Service after attaining his Normal Retirement Age, or by reason of his death, the Executive’s benefits shall be determined in accordance with the Company’s retirement, survivor’s benefits, insurance, and other applicable programs then in effect.

2.6        Termination for Cause or by the Executive Other Than for Good Reason. Following a Change in Control, if the Executive experiences (i) an Involuntary Termination for Cause, or (ii) a voluntary Separation from Service that is not a Constructive Termination, the Company shall pay the Executive his accrued but unpaid Base Salary at the rate then in effect and accrued but unused vacation pay. Further, the Executive shall continue to be entitled to receive payments or benefits under any annual bonus plan and/or long-term incentive plans, whether cash-based or equity-based, or retirement plans and insurance plans in which Executive is a participant, if any, in each case in accordance with the terms and conditions of such plans.

2.7        Notice of Termination. Any Involuntary Termination by the Company for Cause or voluntary Separation from Service by the Executive for Good Reason shall be communicated by Notice of Termination to the other party.

Article 3. Form and Timing of Severance Benefits

3.1        Form and Timing of Severance Benefits.

(a)The amount described in Section 2.3(a) herein and, except as provided in Section 3.1(b) herein, the amounts described in Sections 2.3(b), 2.3(c) and 5.1 herein shall be paid in cash to the Executive in a single lump sum within ten (10) calendar days following the Effective Date of Termination.

(b)Notwithstanding anything to the contrary in this agreement, if Executive is a Specified Employee on the Effective Date of Termination, to the extent that Executive is entitled to receive any benefit or payment under this Agreement that constitutes deferred compensation within the meaning of Section 409A of the Code before the date that is six (6) months after the Effective Date of Termination, such benefits or payments shall not be provided or paid to Executive on the date otherwise required to be provided or paid. Instead, all such amounts shall be accumulated and paid in a single lump sum to Executive on the first business day after the date that is six (6) months after the Effective Date of Termination (or, if earlier, within fifteen (15) days following Executive’s date of death). If Executive

8

is required to pay for a benefit that is otherwise required to be provided by the Company under this Agreement by reason of this Section 3.1(b), Executive shall be entitled to reimbursement for such payments on the first business day after the date that is six (6) months after the Effective Date of Termination (or, if earlier, within fifteen (15) days following Executive’s date of death). All benefits or payments otherwise required to be provided or paid on or after the date that is six (6) months after the Effective Date of Termination shall not be affected by this Section 3.1(b) and shall be provided or paid in accordance with the payment schedule applicable to such benefit or payment under this Agreement.  Prior to the imposition of the six month delay as set forth in this Section 3.1(b), it is intended that (i) each installment under this Agreement be regarded as a separate “payment” for purposes of Section 409A of the Code, and (ii) all benefits or payments provided under this Agreement satisfy, to the greatest extent possible, the exemptions from the application of Section 409A of the Code provided under Treasury Regulations Sections 1.409A-1(b)(4) (short-term deferral) or 1.409A-1(b)(9) (certain separation pay plans). This Section 3.1(b) is intended to comply with the requirements of Section 409A(a)(2)(B)(i) of the Code.

3.2        Withholding of Taxes. The Company shall withhold from any amounts payable under this Agreement all federal, state, city, or other taxes as legally shall be required.

3.3        Reimbursement and In-Kind Benefits. To the extent this Agreement provides for reimbursements of expenses incurred by Executive or in-kind benefits the provision of which are not exempt from the requirements of Section 409A of the Code, the following terms apply with respect to such reimbursements or benefits: (1) the reimbursement of expenses or provision of in-kind benefits will be made or provided only during the period of time specifically provided herein; (2) the amount of expenses eligible for reimbursement, or in-kind benefits provided, during a calendar year will not affect the expenses eligible for reimbursement, or in-kind benefits to be provided, in any other calendar year; (3) all reimbursements will be made upon Executive’s request in accordance with the Company’s normal policies but no later than the last day of the calendar year immediately following the calendar year in which the expense was incurred; and (4) the right to the reimbursement or the in-kind benefit will not be subject to liquidation or exchange for another benefit.

Article 4. Noncompetition and Confidentiality

In the event the Executive becomes entitled to receive Severance Benefits as provided in Section 2.3 herein, the following shall apply:

(a)Noncompetition. During the term of employment and for a period of twelve (12) months after the Effective Date of Termination, the Executive shall not: (i) directly or indirectly act in concert or conspire with any person employed by the Company in order to engage in or prepare to engage in or to have a financial or other interest in any business or any activity which he knows (or reasonably should have known) to be directly competitive with the business of the Company as then being carried on; or (ii) serve as an employee, agent, partner, shareholder, director or consultant for, or in any other capacity participate, engage, or have a financial or other interest in any business or any activity which he knows (or reasonably should have known) to be directly competitive with the business of

9

the Company as then being carried on (provided, however, that notwithstanding anything to the contrary contained in this Agreement, the Executive may own up to two percent (2%) of the outstanding shares of the capital stock of a company whose securities are registered under Section 12 of the Securities Exchange Act of 1934).

(b)Confidentiality. The Company has advised the Executive and the Executive acknowledges that it is the policy of the Company to maintain as secret and confidential all Protected Information (as defined below), and that Protected Information has been and will be developed at substantial cost and effort to the Company. All Protected Information shall remain confidential permanently and no Executive shall at any time, directly or indirectly, divulge, furnish, or make accessible to any person, firm, corporation, association, or other entity (otherwise than as may be required in the regular course of the Executive’s employment with the Company), nor use in any manner, either during the term of employment or after termination, at any time, for any reason, any Protected Information, or cause any such information of the Company to enter the public domain.

For purposes of this Agreement, “Protected Information” means trade secrets, confidential and proprietary business information of the Company, and any other information of the Company, including, but not limited to, customer lists (including potential customers), sources of supply, processes, plans, materials, pricing information, internal memoranda, marketing plans, internal policies, and products and services which may be developed from time to time by the Company and its agents or employees, including the Executive; provided, however, that information that is in the public domain (other than as a result of a breach of this Agreement), approved for release by the Company or lawfully obtained from third parties who are not bound by a confidentiality agreement with the Company, is not Protected Information.

(c)Nonsolicitation. During the term of employment and for a period of twelve (12) months after the Effective Date of Termination, the Executive shall not employ or retain or solicit for employment or arrange to have any other person, firm, or other entity employ or retain or solicit for employment or otherwise participate in the employment or retention of any person who is an employee or consultant of the Company.

(d)Cooperation. Executive agrees to cooperate with the Company and its attorneys in connection with any and all lawsuits, claims, investigations, or similar proceedings that have been or could be asserted at any time arising out of or related in any way to Executive’s employment by the Company or any of its subsidiaries.

(e)Nondisparagement. At all times, the Executive agrees not to disparage the Company or otherwise make comments harmful to the Company’s reputation.

Article 5. Excise Tax Equalization Payment

5.1        Excise Tax Equalization Payment. If any portion of the Severance Benefits or any other payment under this Agreement, or under any other agreement with, or plan of the Company (in the aggregate, “Total Payments”) would constitute an “excess parachute payment,” such that a golden parachute excise tax is due, the Company shall provide to the Executive, in cash, an additional

10

payment in an amount sufficient to cover the full cost of any excise tax and all of the Executive’s additional federal, state, and local income, excise, and employment taxes that arise on this additional payment (cumulatively, the “Full Gross-Up Payment”), such that the Executive is in the same after-tax position as if he had not been subject to the excise tax. For this purpose, the Executive shall be deemed to be in the highest marginal rate of federal, state, and local income taxes in the state and locality of the Executive’s residence on the Effective Date of Termination. This payment shall be made in accordance with Section 3.1.

For purposes of this Agreement, the term “excess parachute payment” shall have the meaning assigned to such term in Section 280G of the Internal Revenue Code, as amended (the “Code”), and the term “excise tax” shall mean the tax imposed on such excess parachute payment pursuant to Sections 280G and 4999 of the Code.

5.2        Subsequent Recalculation. In the event the Internal Revenue Service subsequently adjusts the excise tax computation herein described, the Company shall reimburse the Executive for the full amount necessary to make the Executive whole on an after-tax basis (less any amounts received by the Executive that the Executive would not have received had the computations initially been computed as subsequently adjusted), including the value of any underpaid excise tax, and any related interest and/or penalties due to the Internal Revenue Service. This payment shall be made as promptly as possible after Executive remits the related taxes and in any event no later than the end of the Executive’s taxable year immediately following the Executive’s taxable year in which Executive remits the related taxes.

Article 6. The Company’s Payment Obligation

6.1        Payment Obligations Absolute. The Company’s obligation to make the payments and the arrangements provided for herein shall be absolute and unconditional, and shall not be affected by any circumstances including, without limitation, any offset, counterclaim, recoupment, defense, or other right which the Company may have against the Executive or anyone else. All amounts payable by the Company hereunder shall be paid without notice or demand. Each and every payment made hereunder by the Company shall be final, and the Company shall not seek to recover all or any part of such payment from the Executive or from whomsoever may be entitled thereto, for any reasons whatsoever.

The Executive shall not be obligated to seek other employment in mitigation of the amounts payable or arrangements made under any provision of this Agreement, and the obtaining of any such other employment shall in no event effect any reduction of the Company’s obligations to make the payments and arrangements required to be made under this Agreement, except to the extent provided in Sections 2.3(f) and 2.3(g) herein.

6.2        Contractual Rights to Benefits. This Agreement establishes and vests in the Executive a contractual right to the benefits to which he is entitled hereunder. However, nothing herein contained shall require or be deemed to require, or prohibit or be deemed to prohibit, the Company to segregate, earmark, or otherwise set aside any funds or other assets, in trust or otherwise, to provide for any payments to be made or required hereunder.

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Article 7. [RESERVED]

Article 8. Legal Remedies

8.1        Dispute Resolution. The Executive shall have the right and option to elect to have any good faith dispute or controversy arising under or in connection with this Agreement settled by litigation or arbitration. If arbitration is selected, such proceeding shall be conducted by final and binding arbitration before a panel of three (3) arbitrators in accordance with the laws then in effect and under the administration of the American Arbitration Association.

8.2        Payment of Legal Fees. In the event that it shall be necessary or desirable for the Executive to retain legal counsel and/or to incur other costs and expenses in connection with the enforcement of any or all of his rights under this Agreement, the Company shall pay (or the Executive shall be entitled to recover from the Company) the Executive’s attorneys’ fees, costs, and expenses in connection with the enforcement of his rights including the enforcement of any arbitration award. This shall include, without limitation, court costs and attorneys’ fees incurred by the Executive as a result of any claim, action, or proceeding, including any such action against the Company arising out of, or challenging the validity or enforceability of, this Agreement or any provision hereof.

Article 9. Successors

9.1        Successors to the Company. The Company shall require any successor (whether direct or indirect, by purchase, merger, reorganization, consolidation, acquisition of property or stock, liquidation, or otherwise) of all or a significant portion of the assets of the Company by agreement, in form and substance satisfactory to the Executive, to expressly assume and agree to perform this Agreement in the same manner and to the same extent that the Company would be required to perform if no such succession had taken place. Regardless of whether such agreement is executed, this Agreement shall be binding upon any successor in accordance with the operation of law and such successor shall be deemed the “Company” for purposes of this Agreement.

9.2        Assignment by the Executive. This Agreement shall inure to the benefit of and be enforceable by the Executive’s personal or legal representatives, executors, administrators, successors, heirs, distributees, devisees, and legatees. If the Executive dies while any amount would still be payable to him hereunder had he continued to live, all such amounts, unless otherwise provided herein, shall be paid in accordance with the terms of this Agreement to the Executive’s devisee, legatee, or other designee, or if there is no such designee, to the Executive’s estate.

Article 10. Miscellaneous

10.1      Employment Status. This Agreement is not, and nothing herein shall be deemed to create, an employment contract between the Executive and the Company or any of its subsidiaries. The Executive acknowledges that the rights of the Company remain wholly intact to change or reduce at any time and from time to time his compensation, title, responsibilities, location, and all other aspects of the employment relationship, or to discharge him prior to a Change in Control (subject to such discharge possibly being considered a Qualifying Termination pursuant to Section 2.2).

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10.2      Entire Agreement. This Agreement contains the entire understanding of the Company and the Executive with respect to the subject matter hereof, and amends and restates in its entirety the Prior Agreement.

10.3      Notices. All notices, requests, demands, and other communications hereunder shall be sufficient if in writing and shall be deemed to have been duly given if delivered by hand or if sent by registered or certified mail to the Executive at the last address he has filed in writing with the Company or, in the case of the Company, at its principal offices.

10.4      Execution in Counterparts. This Agreement may be executed by the parties hereto in counterparts, each of which shall be deemed to be original, but all such counterparts shall constitute one and the same instrument, and all signatures need not appear on any one counterpart.

10.5      Conflicting Agreements. The Executive hereby represents and warrants to the Company that his entering into this Agreement, and the obligations and duties undertaken by him hereunder, will not conflict with, constitute a breach of, or otherwise violate the terms of, any other employment or other agreement to which he is a party, except to the extent any such conflict, breach, or violation under any such agreement has been disclosed to the Board in writing in advance of the signing of this Agreement.

10.6      Severability. In the event any provision of this Agreement shall be held illegal or invalid for any reason, the illegality or invalidity shall not affect the remaining parts of the Agreement, and the Agreement shall be construed and enforced as if the illegal or invalid provision had not been included. Further, the captions of this Agreement are not part of the provisions hereof and shall have no force and effect.

Notwithstanding any other provisions of this Agreement to the contrary, the Company shall have no obligation to make any payment to the Executive hereunder to the extent, but only to the extent, that such payment is prohibited by the terms of any final order of a federal or state court or regulatory agency of competent jurisdiction; provided, however, that such an order shall not affect, impair, or invalidate any provision of this Agreement not expressly subject to such order.

10.7      Modification. No provision of this Agreement may be modified, waived, or discharged unless such modification, waiver, or discharge is agreed to in writing and signed by the Executive and by a member of the Board, as applicable, or by the respective parties’ legal representatives or successors.

10.8      Applicable Law. To the extent not preempted by the laws of the United States, the laws of Delaware shall be the controlling law in all matters relating to this Agreement without giving effect to principles of conflicts of laws.

[signature page follows]

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              IN WITNESS WHEREOF, the parties have executed this Agreement on this          day of                             , 2008.

	ATTEST	Walter Industries, Inc.
By:		By:
	Corporate Secretary	Title:

EX-10.4

Exhibit 10.4

WALTER INDUSTRIES, INC.

DIRECTORS’ DEFERRED FEE PLAN

AMENDED AND RESTATED

AS OF

JANUARY 1, 2008

WALTER INDUSTRIES, INC.

DIRECTORS’ DEFERRED FEE PLAN

AMENDED AND RESTATED

AS OF

JANUARY 1, 2008

Table of Contents

Article	Title	Page
ARTICLE I	Purpose	I-1
ARTICLE II	Definitions	II-1
ARTICLE III	Administration	III-1
ARTICLE IV	Eligibility and Participation	IV-1
ARTICLE V	Deferral Elections and Discretionary Contributions	V-1
ARTICLE VI	Participant Accounts and Investment of Deferred Amounts	VI-1
ARTICLE VII	Plan Benefits and Distributions	VII-1
ARTICLE VIII	Amendment and Termination	VIII-1
ARTICLE IX	Miscellaneous	IX-1

WALTER INDUSTRIES, INC.

DIRECTORS’ DEFERRED FEE PLAN

AMENDED AND RESTATED

AS OF

JANUARY 1, 2008

ARTICLE I

Purpose

Walter Industries, Inc. (the “Company”) previously established the Walter Industries, Inc. Directors’ Deferred Fee Plan (the “Plan”) effective as of January 1, 2008, for eligible members of the Board of Directors of the Company.  The Company has determined that it would be in the best interest of the Participants to amend and restate the Plan effective as of January 1, 2008 to comply with Code Section 409A and to make other desired changes.  The Plan is an unfunded plan.  The Plan is intended to comply with Section 409A of the Internal Revenue Code.

I-1

ARTICLE II

Definitions

(a)“Account” or “Accounts” shall mean a Participant’s Income Account or Stock Equivalent Account.

(b)“Beneficiary” shall mean the person or persons designated by the Participant on a form prescribed by and filed with the Plan Administrator, and may be changed at any time by filing a new form with the Plan Administrator.  If the Participant has designated no Beneficiary, or if no Beneficiary that he has designated survives him, then such unpaid amounts shall be paid to his estate.  In the event of any dispute as to the entitlement of any Beneficiary, the Plan Administrator’s determination shall be final, and the Plan Administrator may withhold any payment until such dispute has been resolved.

(c)“Board” or “Board of Directors” shall mean the board of directors of the Company.

(d)“Code” shall mean the Internal Revenue Code of 1986, as it may be amended from time to time, or any successor statute.  Reference to a specific Section of the Code shall include a reference to any successor provision.

(e)“Common Stock” shall mean the common stock of the Company, par value $.01 per share.

(f)“Company” shall mean Walter Industries, Inc., and its successors.

(g)“Compensation” shall mean the fees paid by the Company to a Participant related to services as a member of the Board of Directors, but does not include travel expenses.

(h)“Dividend Equivalent” shall mean, with respect to any cash dividend declared and paid by the Company, an amount equal (i) the cash dividend paid by the Company per share of Common Stock, multiplied by (ii) the number of Stock Equivalent Shares in the Participant’s Stock Equivalent Account on the record date of such dividend.

(i)“Effective Date” shall mean, for purposes of this amendment and restatement, January 1, 2008.

(j)“Fair Market Value” shall mean, with respect to a share of Common Stock on any given date, (i) if the Common Stock is readily tradable on an established securities market, the closing price per share on such date as reported on the principal securities market on which the Common Stock is so traded (or, if the date is not a trading day, on the trading day next preceding such date), or (ii) if the Common Stock is not readily tradable on an established securities market, the fair market value of the Common Stock as determined by the Plan Administrator in good faith, taking into account all applicable laws, rules and regulations.

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(k)“Income Account” shall mean a bookkeeping account established in accordance with Article VI that represents a Participant’s hypothetical interest with respect to the amounts credited to such Account in accordance with paragraph (a) of Article V and paragraph (c) of Article VI.

(l)“Participant” shall mean any member of the Board of Directors of the Company who is covered by this Plan as provided in Article IV.

(m)“Plan” shall mean the Walter Industries, Inc. Directors’ Deferred Fee Plan and as it may be amended from time to time.

(n)“Plan Administrator” shall mean the Company.

(o)“Plan Year” shall mean the 12-month period ending on each December 31.

(p)“Stock Equivalent Account” shall mean a bookkeeping account established in accordance with Article VI that represents a Participant’s hypothetical interest with respect to the Stock Equivalent Shares credited to such Account in accordance with paragraph (a) of Article V and paragraph (c) of Article VI.

(q)“Stock Equivalent Share” shall mean a bookkeeping entry that is equivalent in value, at any given time, to one (1) share of Common Stock.

(r)“Termination Event” shall mean any event that results in the termination of a Participant’s service as a member of the Board (including, death, resignation or removal).

II-2

ARTICLE III

Administration

(a)Plan Administrator.

(1)The Plan Administrator shall have complete control and discretion to manage the operation and administration of the Plan.  Not in limitation, but in amplification of the foregoing, the Plan Administrator shall have the following powers:

(A)To determine all questions relating to the eligibility of members of the Board, to participate or continue to participate;

(B)To maintain all records and books of account necessary for the administration of the Plan;

(C)To interpret the provisions of the Plan and to make and to publish such interpretive or procedural rules as are not inconsistent with the Plan and applicable law;

(D)To compute, certify and arrange for the payment of benefits to which any Participant or Beneficiary is entitled;

(E)To process claims for benefits under the Plan by Participants or Beneficiaries;

(F)To engage consultants and professionals to assist the Plan Administrator in carrying out its duties under this Plan; and

(G)To develop and maintain such instruments as may be deemed necessary from time to time by the Plan Administrator to facilitate payment of benefits under the Plan.

(2)The Plan Administrator may designate a committee to assist the Plan Administrator in the administration of the Plan and perform the duties required of the Plan Administrator hereunder.

(b)Plan Administrator’s Authority.  The Plan Administrator may consult with Company officers, legal and financial advisers to the Company and others, but nevertheless the Plan Administrator shall have the full authority and discretion to act, and the Plan Administrator’s actions shall be final and conclusive on all parties.

(c)Claims and Appeal Procedure for Denial of Benefits.  The Participant or a Beneficiary (“Claimant”) may file with the Plan Administrator a written claim for benefits if the Participant or Beneficiary determines the distribution procedures of the Plan have not provided him his proper interest in the Plan.  The Plan Administrator must render a decision on the claim within a reasonable period of time of the Claimant’s written claim for benefits. The Plan Administrator must provide adequate notice in

III-1

writing to the Claimant whose claim for benefits under the Plan the Plan Administrator has denied.  Notice must be provided to the Claimant within a reasonable period of time, but not later than 90 days (45 days in the case of a claim for disability benefits) after the receipt of a claim.  If the Plan Administrator determines the additional time is needed, written notice will be forwarded to the Participant prior to the expiration of the 90-day period (45 days in the case of a claim for disability benefits).  The extension will not exceed 90 days (30 days in the case of a claim for disability benefits) from the end of the initial period.  The Plan Administrator’s notice to the Claimant must set forth:

(1)The specific reason for the denial;

(2)Specific references to pertinent Plan provisions on which the Plan Administrator based its denial;

(3)A description of any additional material and information needed for the Claimant to perfect his claim and an explanation of why the material or information is needed; and

(4)Appropriate information as to the steps to be taken if the Claimant wants to submit the claim for review; and

(5)In the case of disability benefits, where disability is determined by a physician appointed by the Plan Administrator, the specific basis for the determination of the physician.

Any appeal the Claimant wishes to make of an adverse determination must be made in writing to the Plan Administrator within sixty (60) days (or 180 days in the case of a claim for disability benefits where the disability is determined by a physician chosen by the Plan Administrator) after receipt of the Plan Administrator’s notice of denial of benefits.  The Plan Administrator’s notice must further advise the Claimant that his failure to appeal the action to the Plan Administrator in writing will render the Plan Administrator’s determination final, binding and conclusive.  The Plan Administrator’s notice of denial of benefits must identify the name and address of the Plan Administrator to whom the Claimant may forward his appeal.

If the Claimant should appeal to the Plan Administrator, he, or his duly authorized representative, must submit, in writing, whatever issues and comments he, or his duly authorized representative, believes are pertinent.  The Claimant, or his duly authorized representative, may review pertinent Plan documents free of charge.  The Plan Administrator will re-examine all facts related to the appeal and make a final determination as to whether the denial of benefits is justified under the circumstances.  The Plan Administrator must advise the Claimant of its decision within 60 days following (45 days in the case of a claim for disability benefits) the Claimant’s written request for review.  If the Plan Administrator determines the additional time is needed, written notice will be forwarded to the Participant prior to the expiration of the 60-day period.  The extension will not exceed 60 days (45 days in the case of a claim for disability benefits) from the end of the initial period.

III-2

ARTICLE IV

Eligibility and Participation

(a)Eligibility.  Each person who is elected to be a member of the Board and who is not an employee of the Company or any of its subsidiaries is eligible to elect to participate in the Plan.

(b)Participation.  An eligible person shall become a Participant upon receiving notification from the Plan Administrator and the timely filing of elections pursuant to Article V.

IV-1

ARTICLE V

Deferral Elections and Discretionary Contributions

(a)Deferral Elections and Procedures.

(1)Any Participant may elect to defer, for any calendar year, all or a portion of his Compensation earned during such calendar year as may be permitted by the Plan Administrator in its discretion.

(2)(A)Any deferral election permitted under this paragraph (a) shall be in writing, signed by the Participant.  Any election to defer a portion of Compensation must be delivered to the Plan Administrator prior to the January 1 of the calendar year in which the Compensation to be deferred is otherwise earned.

(B)Notwithstanding the foregoing, an election may be made by a Participant to defer Compensation earned subsequent to his deferral election within the 30-day period following a Participant’s initial eligibility to participate in the Plan.

(3)Any deferral election will continue until revoked or modified by a new election in writing delivered to the Plan Administrator.  Such new election will be effective as of the next January 1.

(4)A Participant who elects to defer all or a portion of his Compensation shall designate whether such amount will be contributed to the Income Account or the Stock Equivalent Account.  Such election may be revoked or amended, only with regard to fees covering the Participant’s services as a member of the Board.

(b)Election Forms.  Any election to defer or revocation or change of an existing deferral election or account allocation election by a Participant under this Article V shall be made on a form or forms prescribed by the Plan Administrator (the terms of which are incorporated herein by reference), and shall specify the amount of Compensation to be deferred.

V-1

ARTICLE VI

Participant Accounts and Investment of Deferred Amounts

(a)In General.

(1)Any Compensation deferred pursuant to this Plan shall be recorded by the Plan Administrator in an Income Account or Stock Equivalent Account, based on the Participant’s election.  Such Accounts will be bookkeeping accounts maintained in the name of the Participant.  The Accounts shall be credited at least quarterly with all amounts that have been deferred by the Participant during the Plan Year pursuant to Article V, and such Account shall be charged from time to time with all amounts that are distributed to the Participant.  Each Account shall be adjusted periodically to reflect all investment gains and losses accruing to amounts credited to each Participant’s Account pursuant to the investment selections made by each Participant in accordance with paragraph (c) of Article VI.

(2)All amounts that are credited to a Participant’s Accounts shall be credited solely for purposes of accounting and computation.  A Participant shall not have any interest in or right to such Accounts at any time.

(b)Subject to Claims.  The Plan constitutes an unsecured promise by the Company to pay benefits in the future.  Participants shall have the status of general unsecured creditors of the Company.  The Plan is unfunded for Federal tax purposes and for purposes of Title I of the Employee Retirement Income Security Act of 1974.  All amounts credited to a Participant’s Accounts will remain the general assets of the Company shall remain subject to the claims of the Company’s creditors until such amounts are distributed to the Participants.

(c)Credited Earnings.

(1)Income Account.  Amounts credited to the Income Account shall be credited as a dollar amount on the date the Compensation would have otherwise been paid.  At the end of each calendar quarter each Participant’s Income Account will be credited with interest at an annual rate equal to the yield of a 10-year U.S. Treasury Note as of the beginning of such calendar quarter plus 1.00%.  Interest shall be computed on the basis of the beginning monthly credit balance in the Participant’s Income Account during such quarter.

(2)Stock Equivalent Account.  For Compensation deferred to the Stock Equivalent Account, on the first business day of each calendar quarter, the amount of such Compensation otherwise payable during the preceding calendar quarter shall be converted into Stock Equivalent Shares equal in number to the maximum number of shares of Common Stock, or fraction thereof, to the nearest one hundredth of one share, which could be purchased with such dollar amount at the Fair Market Value of the Common Stock on that date, and such Stock

VI-1

Equivalent Shares shall be credited to the Participant’s Stock Equivalent Account on that date. If the electing Participant incurs a Termination Event prior to such date, such electing Participant’s Compensation deferred to the Stock Equivalent Account that is otherwise payable prior to the date of the Termination Event shall, no later than the tenth day after the Termination Event, and without duplication for Compensation already converted into Stock Equivalent Shares, be converted into Stock Equivalent Shares equal in number to the maximum number of shares of Common Stock, or fraction thereof, to the nearest one hundredth of one share, which could be purchased with such dollar amount at the Fair Market Value of the Common Stock on the date of the Termination Event, and such Stock Equivalent Shares shall be credited to the Participant’s Stock Equivalent Account on the date of the Termination Event.

If the Company declares and pays a cash dividend on its Common Stock, an amount equal to the Dividend Equivalent for such dividend shall be converted into Stock Equivalent Shares equal in number to the maximum number of shares of Common Stock, or fraction thereof, to the nearest one hundredth of one share, which could be purchased with such dollar amount at the Fair Market Value of the Common Stock on the payment date of the dividend to which the Dividend Equivalent relates, and such Stock Equivalent Shares shall be credited to the Participant’s Stock Equivalent Account on that date.

Subject to the Section 409A Requirements, Stock Equivalent Shares shall be appropriately adjusted in the event of any stock dividends, stock splits or any other similar changes in the Company’s Common Stock, as determined by the Plan Administrator in a manner it deems equitable, in order to prevent dilution or enlargement of the benefits or potential benefits intended to be made available under this Plan.

(d)Valuation; Annual Statement.  The value of a Participant’s Accounts shall be determined by the Plan Administrator and the Plan Administrator may establish such accounting procedures as are necessary to account for the Participant’s interest in the Plan.  Each Participant’s Account shall be valued as of the last day of each Plan Year or more frequently as determined by the Plan Administrator.  The Plan Administrator shall furnish each Participant with an annual statement of his Accounts.

(e)Establishment of Trust.

(1)The Company may establish one or more trusts substantially in conformance with the terms of the model trust described in Revenue Procedure 92-64 to assist in meeting its obligations to Participants under this Plan.  Except as provided in paragraph (b) above and the terms of the trust agreement, any such trust or trusts shall be established in such manner as to permit the use of assets transferred to the trust and the earnings thereon to be used by the trustee solely to satisfy the liability of the Company in accordance with the Plan.

VI-2

(2)Except as otherwise provided in the trust established with respect to the Plan, the Company, in its sole discretion, and from time to time, may make contributions to the trust.  Unless otherwise paid by the Company, all benefits under the Plan and expenses chargeable to the Plan shall be paid from the trust.

(3)The powers, duties and responsibilities of the trustee shall be as set forth in the trust agreement and nothing contained in the Plan, either expressly or by implication, shall impose any additional powers, duties or responsibilities upon the trustee.

VI-3

ARTICLE VII

Plan Benefits and Distributions

(a)Plan Benefits.  In the event of a Termination Event, a Participant will be entitled to a benefit equal to the balance in his Accounts.  The balance of a Participant’s Income Account as of any given date shall be determined as of such date by crediting earnings in accordance with paragraph (c) of Article VI up to and including such date. The balance of a Participant’s Stock Equivalent Account as of any given date shall be equal to (1) the Fair Market Value of a share of Common Stock on such date, multiplied by (2) the number of Stock Equivalent Shares in the Participant’s Stock Equivalent Account on such date.

(b)Death Benefit.  In the event of the death of a Participant, the Participant’s Beneficiary shall be entitled to a death benefit equal to all or any remaining portion of the amounts credited to his Accounts determined as of the date of his death, payable in accordance with paragraph (c) or (d) of Article VII below.

(c)Timing of Payment.

(1)Payment of the amount credited to the Participant’s Accounts shall commence on the earlier of:

(A)the first day of the seventh month following the Participant’s death; or

(B)unless otherwise elected under (c)(2) below, the first day of the seventh month following the date of the Participant’s Termination Event.

(2)The Participant may elect to receive payment in any year following his 72nd birthday or the year following his termination of services as a member of the Board. Such payment shall be made on the later of (A) the January 15th of the calendar year elected by the Participant or (B) the first day of the seventh month following the Participant’s Termination Event.  Such election must be made prior to December 31, 2008 or, if later, the date the Participant commences participation in the Plan.

(3)Effective as of January 1, 2009, an election made pursuant to (c)(2) is generally irrevocable unless the Participant requests a change and (i) the change does not take effect until at least 12 months after the date on which the election is made, (ii) the change is made at least 12 months prior to the date the payment is scheduled to commence, and (iii) payment is deferred for a period of not less than 5 years from the date payment would otherwise have been made (unless payment is being made for disability or death) and such request is permitted under Section 409A of the Code.

VII-1

(d)Form of Benefit Payment.

(1)Benefits paid under the Plan shall be paid in a lump sum on the date specified above unless the Participant elects to receive benefits in the form of installments over 5, 10 or 15 years.  Amounts credited to the Income Account shall be distributed in cash.  Amounts credited to the Stock Equivalent Account shall be distributed in shares of Common Stock, provided, however, that any fractional shares shall be distributed in cash.  All fractional shares shall be cashed in at the Fair Market Value on the day before the benefits under the Plan are distributed.  Such election must be made on or before December 31, 2008 or, if later, the date the Participant commences participation in the Plan. If installments are elected, the first installment will be paid on the date specified in paragraph (c)(1)(A) of this Article VII and each additional installment will be paid on each anniversary of such date.

(2)Notwithstanding the foregoing, in the event of the death of the Participant, any death benefit paid to the Participant’s Beneficiary pursuant to paragraph (c) of Article IV shall be paid in the form of a lump sum on the date specified in paragraph (c)(1)(A) of this Article VII.

(3)Pursuant to subparagraphs (b)(2) and (b)(3) of this Article VI, a Participant may elect an optional form of benefit.  Effective as of January 1, 2009, an election made pursuant to (b)(2) above is generally irrevocable unless the Participant requests a change and (i) the change does not take effect until at least 12 months after the date on which the election is made, (ii) the change is made at least 12 months prior to the date the payment is scheduled to commence, and (iii) payment is deferred for a period of not less than 5 years from the date payment would otherwise have been made (unless payment is being made for death) and such request is permitted under Section 409A of the Code.

(e)Accounting Procedures.  The Plan Administrator shall establish such accounting procedures as are necessary to implement the provisions of this Article.

VII-2

ARTICLE VIII

Amendment and Termination

(a)Amendment and Termination.  The Plan may be amended at any time, or from time to time, by the Company, and the Plan may be terminated at any time by the Company.  The ability of the Company to terminate the Plan shall comply with Section 409A of the Code and the regulations thereunder.

(b)Effect of Amendment or Termination.  No amendment or termination of the Plan shall affect the rights of any Participant with respect to any amounts credited to the Account as of the date of such amendment or termination.  Upon termination, the Participants shall become fully vested.  The timing and manner of distribution benefits in connection with any termination of the Plan shall comply with Section 409A of the Code and the regulations thereunder.  No payment of any Participant’s benefits under the Plan may be accelerated as a result of the termination of the Plan unless:

(1)the Plan is terminated within the period of 30 days preceding or the 12 months following a Change of Control event (as the term is defined in Treasury Regulations Section 1.409A-2(g)(4));

(2)the Plan is terminated within 12 months of a corporate dissolution or is terminated with the approval of a bankruptcy court overseeing a bankruptcy of the Company;

(3)the Company terminates this Plan and all other similar deferred compensation arrangements that would be aggregated with the Plan under Treasury Regulation Section 1.409A-1(c), provided that (A) any benefits payable as a result of the termination (other than benefits that would have been payable under the terms of the Plan without regard to the termination) are not paid until at least 12 months after the date of termination of the Plan, (B) all benefit payments under the Plan are completed within 24 months after the date of termination of the Plan, and (C) the Company does not adopt a new or replacement deferred compensation plan within 5 years after the date of termination of the Plan.

VIII-1

ARTICLE IX

Miscellaneous

(a)Payments to Minors and Incompetents.  If the Plan Administrator receives satisfactory evidence that a person who is entitled to receive any benefit under the Plan, at the time such benefit becomes available, is a minor or is physically unable or mentally incompetent to receive such benefit and to give a valid release therefore, and that another person or an institution is then maintaining or has custody of such person, and that no guardian committee, or other representative of the estate of such person shall have been duly appointed, the Plan Administrator may authorize payment of such benefit otherwise payable to such person to such other person or institution; and the release of such other person or institution shall be a valid and complete discharge for the payment of such benefit.

(b)Plan Not a Contract of Employment.  The Plan shall not be deemed to constitute a contract between the Company and any Participant, nor to be consideration for the employment of any Participant.  Nothing in the Plan shall give a Participant the right to be retained in the employ of the Company; all Participants shall remain subject to discharge or discipline as employees to the same extent as if the Plan had not been adopted.

(c)Non-Alienation of Benefits.  No benefit under the Plan shall be subject in any manner to anticipation, alienation, sale, transfer, assignment, pledge, encumbrance or charge, and any attempt to do so shall be void.  No benefit under the Plan shall in any manner be liable for or subject to the debts, contracts, liabilities, engagements or torts of any person.  If any person entitled to benefits under the Plan shall become bankrupt or shall attempt to anticipate, alienate, sell, transfer, assign, pledge, encumber or charge any benefit under the Plan, or if any attempt shall be made to subject any such benefit to the debts, contracts, liabilities, engagements or torts of the person entitled to any such benefit, except as specifically provided in the Plan, then such benefits shall cease and terminate at the discretion of the Plan Administrator.  The Plan Administrator may then hold or apply the same or any part thereof to or for the benefit of such person or any dependent or Beneficiary of such person in such manner and proportions as it shall deem proper.

(d)Severability.  The invalidity of any portion of this Plan shall not invalidate the remainder and the remainder shall continue in full force and effect.

(e)Section 409A Compliance.  The Company intends for this Plan to conform in all respects to the requirements under Section 409A of the Code, the failure of which would result in the imposition or accrual of penalties, interest or additional taxes under Section 409A of the Code (the “Section 409A Requirements”). Accordingly, the Company intends for this Plan to be interpreted, construed, administered and applied in a manner as shall meet and comply with the Section 409A Requirements, and in the event of any inconsistency between this Plan and the Section 409A Requirements, this Plan shall be reformed so as to meet the Section 409A

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Requirements. Any reference in this Plan to Section 409A of the Code, or any subsection thereof, shall be deemed to mean and include, to the extent then applicable and then in force and effect (but not to the extent overruled, limited or superseded), published rulings, notices and similar announcements issued by the Internal Revenue Service under or interpreting Section 409A of the Code and regulations (proposed, temporary or final) issued by the Secretary of the Treasury under or interpreting Section 409A of the Code.

(f)State Law.  This instrument shall be construed in accordance with and governed by the laws of the State of Florida, to the extent not superseded by the laws of the United States.

(g)No Interest in Assets.  Nothing contained in the Plan shall be deemed to give any Participant any equity or other interest in the assets, business or affairs of the Company.  No Participant in the Plan shall have a security interest in assets of the Company used to make contributions or pay benefits.

(h)Recordkeeping.  Appropriate records shall be maintained for the Plan, subject to the supervision and control of the Plan Administrator.

(i)Gender.  Throughout this Plan, and whenever appropriate, the masculine gender shall be deemed to include the feminine and neuter; the singular, the plural; and vice versa.

(j)Corporate Successors.  The Plan shall not be automatically terminated by a transfer or sale of assets of the Company or by the merger or consolidated of the Company into or with any other corporation or other entity, but the Plan shall be continued after such sale, merger or consolidation only if and to the extent that the transferee, purchaser or successor entity agrees to continue the Plan.

(k)Liability Limited.  In administering the Plan, neither the Plan Administrator nor any officer, director or employee thereof, shall be liable for any act or omission performed or omitted, as the case may be, by such person with respect to the Plan; provided, that the foregoing shall not relieve any person of liability for gross negligence, fraud or bad faith.  The Plan Administrator, its officers, directors and employees shall be entitled to rely conclusively on all tables, valuations, certificates, opinions and reports that shall be furnished by any actuary, accountant, trustee, insurance company, consultant, counsel or other expert who shall be employed or engaged by the Plan Administrator in good faith.

(l)Protective Provisions.  Each Participant shall cooperate with the Plan Administrator by furnishing any and all information requested by the Plan Administrator in order to facilitate the payment of benefits hereunder, taking such physical examinations as the Plan Administrator may deem necessary and taking such other relevant action as may be requested by the Plan Administrator.  If a Participant refuses so to cooperate or makes any material misstatement of information or nondisclosure of medical history, then no benefits will be payable hereunder to such Participant or his

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Beneficiary, provided that, in the Plan Administrator’s sole discretion, benefits may be payable in an amount reduced to compensate the Company for any loss, cost, damage or expense suffered or incurred by the Company as a result in any way of such action, misstatement or nondisclosure.

IN WITNESS WHEREOF, the Company has caused this Plan to be executed by its duly authorized officer on this 17th day of December, 2008.

WALTER INDUSTRIES, INC.
By:	Larry E. Williams
Title:		Senior Vice President
“COMPANY”

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EX-10.5

Exhibit 10.5

WALTER INDUSTRIES, INC.

SUPPLEMENTAL PENSION PLAN

AMENDED AND RESTATED

AS OF

JANUARY 1, 2008

WALTER INDUSTRIES, INC.

SUPPLEMENTAL PENSION PLAN

AMENDED AND RESTATED

AS OF

JANUARY 1, 2008

Table of Contents

Article	Title	Page
ARTICLE I	Purpose	I-1
ARTICLE II	Definitions	II-1
ARTICLE III	Administration	III-1
ARTICLE IV	Eligibility and Participation	IV-1
ARTICLE V	Plan Benefits/Vesting	V-1
ARTICLE VI	Funding	VI-1
ARTICLE VII	Benefit Distributions	VII-1
ARTICLE VIII	Amendment and Termination	VIII-1
ARTICLE IX	Miscellaneous	IX-1

WALTER INDUSTRIES, INC.

SUPPLEMENTAL PENSION PLAN

AMENDED AND RESTATED

AS OF

JANUARY 1, 2008

ARTICLE I

Purpose

Walter Industries, Inc. (the “Company”) previously established the Walter Industries, Inc. Supplemental Pension Plan (the “Plan”) to be effective as of July 31, 1989.  The Company has determined it would be in the best interests of the Participants to amend and restate the Plan effective as of January 1, 2008 to comply with Section 409A of the Internal Revenue Code of 1986, as amended from time to time (the “Code”).  The Plan is an unfunded plan established and maintained to provide supplemental benefits for employees who substantially contribute to the success of the Company or a Related Employer.  The purpose of the Plan is to supplement the benefits of those select management or highly compensated employees whose pension benefits under the Pension Plan for Salaried Employees of Walter Industries, Inc. Subsidiaries, Divisions and Affiliates (the “Qualified Plan”) are limited by reason of the restrictions under Sections 401(a)(17) and 415 of the Code.  The Plan is a nonqualified deferred compensation plan that is intended to comply with Section 409A of the Code.

I-1

ARTICLE II

Definitions

Whenever used hereinafter, the following terms shall have the meaning set forth below.

(a)           “Accrued Benefit” shall mean the Supplemental Benefit which the Participant is entitled to as of the date of determination, calculated under paragraph (a) of Article V and paid in accordance with Article VII.

(b)           “Actuarial Equivalent” shall mean a benefit of equivalent current value to the benefit that would otherwise have been provided to the Participant, determined in accordance with the rules established by the Plan Administrator using the actuarial methods and actuarial assumptions set forth under the Qualified Plan.

(c)           “Actuarial Present Value” shall mean, with respect to determining the amount of a lump sum payment, an amount determined by using the actuarial assumptions set forth in the Qualified Plan.

(d)           “Affiliate” shall mean, with respect to the Company, any corporation other than such Company that is a member of a controlled group of corporations, within the meaning of Section 414(b) of the Code, of which such Company is a member; all other trades or businesses (whether or not incorporated) under common control, within the meaning of Section 414(c) of the Code, with such Company; any service organization other than such Company that is a member of an affiliated service group, within the meaning of Section 414(m) of the Code, of which such Company is a member; and any other organization that is required to be aggregated with such Company under Section 414(o) of the Code.

(e)           “Board of Directors” shall mean the Board of Directors of the Company.

(f)            “Change in Control” of the Company shall mean the occurrence of any one (1) or more of the following events:

(1)           A change in the effective control of the Company, which occurs only on either of the following dates:

(A)          The date any Person or more than one Person acting as a group (other than the Company or any corporation owned, directly or indirectly, by the stockholders of the Company in substantially the same proportions as their ownership of stock of the Company, and any trustee or other fiduciary holding securities under an employee benefit plan of the Company or such proportionately owned corporation), acquires (or has acquired during the 12-month period ending on the date of the most recent acquisition by such Person or Persons) ownership of stock of the Company representing more than thirty percent (30%) of the total voting power of the stock of the Company; or

II-1

(B)           The date a majority of the members of the Board is replaced during any 12-month period by directors whose appointment or election is not endorsed by a majority of the members of the Board before the date of the appointment or election;

provided that, in any event, the transaction must constitute a “change in the effective control” of the Company within the meaning of Section 409A(a)(2)(A)(v) of the Code and Treasury Regulations Section 1.409A-3(i)(5)(vi).

(2)           The date any Person or more than one Person acting as a group acquires (or has acquired during the 12-month period ending on the date of the most recent acquisition by such Person or Persons) all or substantially all of the Company’s assets; provided that the transaction must constitute a “change in the ownership of a substantial portion of the assets” of the Company within the meaning of Section 409A(a)(2)(A)(v) of the Code and Treasury Regulations Section 1.409A-3(i)(5)(vii).

Notwithstanding the foregoing, in no event shall a Change in Control of the Company be deemed to have occurred if the Company undergoes a strategic realignment of its businesses (such as a split-up or spin-off transaction), with or without a shareholder vote.

(3)           Notwithstanding the foregoing, it shall not be considered a Change in Control for the chief executive officer of Jim Walter Resources, if the Company undergoes a strategic realignment of its businesses (such as a split-up or spin-off transaction), with or without a shareholder vote, and provided that he retains the position of chief executive officer of Jim Walter Resources with the same compensation arrangements that existed prior to such strategic realignment.

(g)           “Code” shall mean the Internal Revenue Code of 1986, as it may be amended from time to time, or any successor statute.  Reference to a specific section of the Code shall include a reference to any successor provision.

(h)           “Company” shall mean Walter Industries, Inc. and its successors.

(i)            “Effective Date” shall mean, with respect to this amendment and restatement, January 1, 2008.  The Plan was originally effective July 31, 1989.

(j)            “Participant” shall mean any employee of the Company or Related Employer who is covered by this Plan as provided in Article IV.

(k)           “Person” shall have the meaning ascribed to such term in the Code and Treasury Regulations.

(l)            “Plan” shall mean the Walter Industries, Inc. Supplemental Pension Plan as it may be amended from time to time.

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(m)          “Plan Administrator” shall mean the Executive Compensation Committee of the Board of the Company.

(n)           “Plan Year” shall mean the 12-month period ending each December 31.

(o)           “Qualified Plan” shall mean the Pension Plan for Salaried Employees of Walter Industries, Inc. Subsidiaries, Divisions and Affiliates.

(p)           “Related Employer” shall mean any Affiliate who adopts this Plan with the consent of the Company.

(q)           “Separation from Service shall mean the Participant’s termination of employment with the employer within the meaning of Section 409A(a)(2)(A)(i) of the Code and the default rules of Treasury Regulations Section 1.409A-1(h). For this purpose, the “employer” is the Company and every entity or other person which collectively with the Company constitutes a single service recipient (as that term is defined in Treasury Regulations Sections 1.409A-1(g)) as the result of the application of the rules of Treasury Regulations Sections 1.409A-1(h)(3); provided that an 80% standard (in lieu of the default 50% standard) shall be used for purposes of determining the service recipient/employer for this purpose.

(r)            “Service Recipient” shall mean the Company or an Affiliate of the Company for which the Employee performs services and any Affiliates of the Company or a subsidiary of the Company that are required to be considered a single employer under Sections 414(b) and 414(c) of the Code.

(s)           “Specified Employee” shall mean a key employee of the Service Recipient within the meaning of Section 409A(a)(2)(B)(i) of the Code and Treasury Regulations Section 1.409A-1(i), as determined in accordance with the procedures adopted by the Company that are then in effect, or, if no such procedures are then in effect, in accordance with the default procedures set forth in Treasury Regulations Section 1.409A-1(i).

(t)            “Spouse” shall mean a person legally married to the Participant in accordance with Federal law.

(u)           “Supplemental Benefit” shall mean the benefit provided for a Participant by the Company in accordance with Article V.

(v)           “Year of Service” shall mean each 12-month period of employment with the Company or Related Employer or an Affiliate of the Company or Related Employer commencing on the Participant’s initial date of hire.  Periods of employment of less than 12 months will be aggregated.

II-3

ARTICLE III

Administration

(a)           Plan Administrator.

(1)           The Plan Administrator shall have complete control and discretion to manage the operation and administration of the Plan, with all powers necessary to enable it to carry out its duties in that respect.  Not in limitation, but in amplification of the foregoing, the Plan Administrator shall have the following powers:

(A)          To determine all questions relating to the eligibility of Participants to continue to participate;

(B)           To maintain all records and books of account necessary for the administration of the Plan;

(C)           To interpret the provisions of the Plan and to make and to publish such interpretive or procedural rules as are not inconsistent with the Plan and applicable law;

(D)          To compute, certify and arrange for the payment of benefits to which the Participant or any Beneficiary is entitled;

(E)           To process claims for benefits under the Plan by the Participant or any Beneficiary;

(F)           To engage consultants and professionals to assist the Plan Administrator in carrying out its duties under this Plan; and

(G)           To develop and maintain such instruments as may be deemed necessary from time to time by the Plan Administrator to facilitate payment of benefits under the Plan.

(2)           The Plan Administrator may designate employees of the Company to assist the Plan Administrator in the administration of the Plan and perform the duties required of the Plan Administrator hereunder.

(b)           Plan Administrator’s Authority.  The Plan Administrator may consult with Company’s officers, legal and financial advisers and others, but nevertheless the Plan Administrator shall have the full authority and discretion to act, and the Plan Administrator’s actions shall be final and conclusive on all parties.

(c)           Claims and Appeal Procedure for Denial of Benefits.  A Participant or a beneficiary (the “Claimant”) may file with the Plan Administrator a written claim for benefits if the Participant determines the distribution procedures of the Plan have not provided him his proper interest in the Plan.  The Plan Administrator must render a decision on the claim within a reasonable period of time of the Claimant’s written claim

III-1

for benefits.  The Plan Administrator must provide adequate notice in writing to the Claimant whose claim for benefits under the Plan the Plan Administrator has denied.  Notice must be provided to the Claimant within a reasonable period of time, but not later than 90 days (45 days in the case of a claim for disability benefits) after the receipt of a claim.  If the Plan Administrator determines the additional time is needed, written notice will be forwarded to the Participant prior to the expiration of the 90-day period (45 days in the case of a claim for disability benefits).  The extension will not exceed 90 days (30 days in the case of a claim for disability benefits) from the end of the initial period.  The Plan Administrator’s notice to the Claimant must set forth:

(1)           The specific reason for the denial;

(2)           Specific references to pertinent Plan provisions on which the Plan Administrator based its denial;

(3)           A description of any additional material and information needed for the Claimant to perfect his claim and an explanation of why the material or information is needed;

(4)           Appropriate information as to the steps to be taken if the Claimant wants to submit the claim for review; and

(5)           In the case of disability benefits, where disability is determined by a physician appointed by the Plan Administrator, the specific basis for the determination of the physician.

Any appeal the Claimant wishes to make of an adverse determination must be made in writing to the Plan Administrator within sixty (60) days (or 180 days in the case of a claim for disability benefits where the disability is determined by a physician chosen by the Plan Administrator) after receipt of the Plan Administrator’s notice of denial of benefits.  The Plan Administrator’s notice must further advise the Claimant that his failure to appeal the action to the Plan Administrator in writing will render the Plan Administrator’s determination final, binding and conclusive.  The Plan Administrator’s notice of denial of benefits must identify the name and address of the Plan Administrator to whom the Claimant may forward his appeal.

If the Claimant should appeal to the Plan Administrator, he, or his duly authorized representative, must submit, in writing, whatever issues and comments he, or his duly authorized representative, believes are pertinent.  The Claimant, or his duly authorized representative, may review pertinent Plan documents free of charge.  The Plan Administrator will re-examine all facts related to the appeal and make a final determination as to whether the denial of benefits is justified under the circumstances.  The Plan Administrator must advise the Claimant of its decision within 60 days following (45 days in the case of a claim for disability benefits) the Claimant’s written request for review.  If the Plan Administrator determines the additional time is needed, written notice will be forwarded to the Participant prior to the expiration of the 60-day period.  The extension will not exceed 60 days (45 days in the case of a claim for disability benefits) from the end of the initial period.

III-2

ARTICLE IV

Eligibility and Participation

All employees of the Company or a Related Employer whose pension benefits are limited under the Qualified Plan by reason of the restrictions under Sections 401(a)(17) and 415 of the Code shall be eligible to participate in the Plan.

IV-1

ARTICLE V

Plan Benefits/Vesting

(a)           Supplemental Benefit.  In the event that a Participant incurs a Separation from Service, the Participant shall be entitled to a Supplemental Benefit payable in accordance with Article VII and equal to the excess, if any, of (1) over (2), where:

(1)           is the Actuarial Equivalent of the accrued benefit that would have been payable to or on behalf of such Participant under the Qualified Plan determined as of the date benefits under this Plan become payable, if the provisions of the Qualified Plan were administered without regard to any limitations imposed by the Code (including but not limited to the application of Code Sections 401(a)(17) and 415) on the rate or amount of benefit accrual; and

(2)           is the Actuarial Equivalent of the accrued benefit that is payable to or on behalf of the Participant under the Qualified Plan determined as of the date the benefit under this Plan becomes payable.

(b)           Death Benefit.  In the event of the death of a married Participant while employed with the Company or Related Employer, his Spouse shall be entitled to a death benefit payable pursuant to Article VII in an amount equal to 100% of the Actuarial Present Value of the Participant’s Accrued Benefit determined in accordance with (a) above, except that the benefit shall be calculated as if the Participate terminated employment on the day before his death.  If a Participant is not married on the date of his death, death benefits are not available under this Plan.

(c)           Change in Control Benefit.  Participants who have an employment agreement that provides for a Change in Control benefit under this Plan will, upon a Change in Control, be entitled to a benefit payable pursuant to Article VII in an amount equal to 100% of the Actuarial Present Value of the Accrued Benefit determined in accordance with paragraph (a) above, except that the benefit shall be calculated as of the date of the Change in Control.

(d)           Vesting.  A Participant shall become vested in the Supplemental Benefit provided under the Plan upon the earlier of:

(1)           completion of 5 Years of Service;

(2)           the date a Change in Control occurs provided that vesting will occur only if the Participant is entitled to the Change in Control benefit described in paragraph (c) above; or

(3)           the date of the Participant’s death.

V-1

ARTICLE VI

Funding

(a)           Financing.  The benefits under this Plan, and the expenses of administering the Plan and maintaining any trust created pursuant to paragraph (d) of this Article VI, shall be paid out of the general assets of the Company.

(b)           No Trust Created. Nothing contained in this Plan, and no action taken pursuant to the provisions of this Plan, shall create or be construed to create a funded plan, a trust of any kind or a fiduciary relationship between the Company and the Participant, his Beneficiary or any other person.

(c)           Unsecured Interest. The Participant shall not have any interest whatsoever in any specific asset of the Company or the Related Employer.  To the extent that any person acquires a right to receive payments under this Plan, such right shall be no greater than the right of any unsecured general creditor of the Company or other Related Employer.

(d)           Establishment of Rabbi Trust.

(1)           The Company may utilize one or more trusts in conformance with the terms of the model trust described in Revenue Procedure 92-64 to assist in meeting its obligations to Participants under this Plan.

(2)           Except as otherwise provided in the trust established with respect to the Plan, the Company or a Related Employer, in its sole discretion, and from time to time, may make contributions to the trust.  Unless otherwise paid by the Company or a Related Employer, all benefits under the Plan and expenses chargeable to the Plan shall be paid from the trust.

(3)           The powers, duties and responsibilities of the trustee of the trust shall be as set forth in the trust agreement and nothing contained in the Plan, either expressly or by implication, shall impose any additional powers, duties or responsibilities upon the trustee.

(e)           Subject to Claims. The Plan constitutes an unsecured promise by the Company to pay benefits in the future and the Participants employed by the Company or the Related Employer shall have the status of general unsecured creditors of the Company or Related Employer.  The Plan is unfunded for Federal income tax purposes and for purposes of Title I of the Employee Retirement Income Security Act of 1974. All amounts credited to the Participants’ accounts will remain the general assets of the Company or a Related Employer and shall remain subject to the claims of the Company’s or the Related Employer’s creditors until such amounts are distributed to the Participants.

VI-1

ARTICLE VII

Benefit Distributions

(a)           Time of Distribution of Benefits.  Benefits shall commence on the first day of the second month following the first to occur of the following:

(1)           the Participant’s Separation from Service for any reason, including retirement; provided, any distribution to be made to a Specified Employee as a result of a Separation from Service (for any reason other than death) shall occur on the first day of the seventh month following the date of the Participant’s Separation from Service;

(2)           the Participant’s death; or

(3)           a Change in Control.

(b)           Form of Payment.  All benefits under the Plan shall be paid as a single lump sum.

(c)           Forfeitures.  Upon a Participant’s Separation from Service with the Company or a Related Employer (including an Affiliate of the Company), the nonvested interest in his Supplemental Benefit, if any, shall be forfeited.  Such forfeited amount may be used, in the discretion of the Plan Administrator, to offset administrative expenses of the Plan or any trust established pursuant to the Plan or to reduce any future contributions of the Company or a Related Employer.

(d)           Tax Withholding.  The Company may withhold, or require the withholding from any benefit payment which it is required to make, any federal, state or local taxes required by law to be withheld with respect to a benefit payment and such sum as the Company may reasonably estimate as necessary to cover any taxes for which the Company may be liable and which may be assessed with regard to such payment.  Upon discharge or settlement of such tax liability, the Company shall distribute the balance of such sum, if any, to the Participant, or if the Participant is then deceased, to the Beneficiary of the Participant.  Prior to making any payment hereunder, the Company may require such documents from any taxing authority, or may require such indemnities or surety bond, as the Company shall reasonably deem necessary for its protection.

VII-1

ARTICLE VIII

Amendment and Termination

(a)           Amendment and Termination.  The Plan may be amended at any time, or from time to time, by the Company, and the Plan may be terminated at any time by the Company.  Any such amendment or termination shall be ratified and approved by the Company’s Board of Directors.  Notice of any such amendment or termination shall be given in writing to each Participant having an interest in the Plan.  The ability of the Company to terminate the Plan shall comply with Section 409A of the Code and the regulations thereunder.

(b)           Effect of Amendment or Termination.

(1)           No amendment or termination of the Plan shall affect the rights of any Participant with respect to any Accrued Benefits determined as of the date of such amendment or termination.

(2)           In the event that the Plan is terminated, the Participant’s Accrued Benefit shall be distributed to the extent permitted under Section 409A of the Code.  The timing and manner of the distribution of benefits in connection with any termination of the Plan shall comply with Section 409A of the Code and the regulations thereunder.  No payment of any Participant’s benefit under the Plan may be accelerated as a result of the termination of the Plan unless:

(A)          the Plan is terminated within the period of 30 days preceding or the 12 months following a “Change in Control” event (as the term is defined in Treasury Regulations Section 1.409A-2(g)(4));

(B)           the Plan is terminated within 12 months of a corporate dissolution or is terminated with the approval of a bankruptcy court overseeing a bankruptcy of the Company;

(C)           The Company terminates this Plan and all other similar deferred compensation arrangements that would be aggregated with the Plan under Treasury Regulation Section 1.409A-1(c), provided that (i) any benefits payable as a result of the termination (other than benefits that would have been payable under the terms of the Plan without regard to the termination) are not paid until at least 12 months after the date of termination of the Plan, (ii) all benefit payments under the Plan are completed within 24 months after the date of termination of the Plan, and (iii) the Company does not adopt a new or replacement deferred compensation plan within 5 years after the date of termination of the Plan.

VIII-1

ARTICLE IX

Miscellaneous

(a)           Payments to Minors and Incompetents.  If the Plan Administrator receives satisfactory evidence that a person who is entitled to receive any benefit under the Plan, at the time such benefit becomes available, is a minor or is physically unable or mentally incompetent to receive such benefit and to give a valid release therefor, and that another person or an institution is then maintaining or has custody of such person, and that no guardian, or other representative of the estate of such person shall have been duly appointed, the Plan Administrator may authorize payment of such benefit otherwise payable to such person to such other person or institution; and the release of such other person or institution shall be a valid and complete discharge for the payment of such benefit.

(b)           Plan Not a Contract of Employment.  The Plan shall not be deemed to constitute a contract between the Company and the Participant, nor to be consideration for the employment of the Participant.  Nothing in the Plan shall give the Participant the right to be retained in the employ of the Company; the Participant shall remain subject to discharge or discipline as an employee to the same extent as if the Plan had not been adopted.

(c)           No Interest in Assets.  Nothing contained in the Plan shall be deemed to give any Participant any equity or other interest in the assets, business or affairs of the Company or a Related Employer. No Participant in the Plan shall have a security interest in assets of the Company or a Related Employer used to make contributions or pay benefits.

(d)           Recordkeeping.  Appropriate records shall be maintained for the purpose of the Plan by the officers and employees of the Company at the Company’s expense and subject to the supervision and control of the Plan Administrator.

(e)           Non-Alienation of Benefits.

(1)           No benefit under the Plan shall be subject in any manner to anticipation, alienation, sale, transfer, assignment, pledge, encumbrance or charge, and any attempt to do so shall be void.  No benefit under the Plan shall in any manner be liable for or subject to the debts, contracts, liabilities, engagements or torts of any person.  If any person entitled to benefits under the Plan shall become bankrupt or shall attempt to anticipate, alienate, sell, transfer, assign, pledge, encumber or charge any benefit under the Plan, or if any attempt shall be made to subject any such benefit to the debts, contracts, liabilities, engagements or torts of the person entitled to any such benefit, except as specifically provided in the Plan, then such benefits shall cease and terminate at the discretion of the Plan Administrator.  The Plan Administrator may then hold or apply the same or any part thereof to or for the benefit of such person or any

IX-1

dependent or Beneficiary of such person in such manner and proportions as it shall deem proper.

(2)           Notwithstanding the provisions of paragraph (e)(1) or any other provision of the Plan, payment of benefits to a divorced Spouse pursuant to a domestic relations order as defined under Section 414(p) of the Code, as determined by the Plan Administrator, shall be permitted at any time provided that the Participant is vested.  Distributions required by a domestic relations order shall be payable only in the form of a lump sum payment.

(f)            Section 409A Compliance.  The Company intends for this Plan to conform in all respects to the requirements under Section 409A of the Code, the failure of which would result in the imposition or accrual of penalties, interest or additional taxes under Section 409A of the Code (the “Section 409A Requirements”). Accordingly, the Company intends for this Plan to be interpreted, construed, administered and applied in a manner as shall meet and comply with the Section 409A Requirements, and in the event of any inconsistency between this Plan and the Section 409A Requirements, this Plan shall be reformed so as to meet the Section 409A Requirements. Any reference in this Plan to Section 409A of the Code, or any subsection thereof, shall be deemed to mean and include, to the extent then applicable and then in force and effect (but not to the extent overruled, limited or superseded), published rulings, notices and similar announcements issued by the Internal Revenue Service under or interpreting Section 409A of the Code and regulations (proposed, temporary or final) issued by the Secretary of the Treasury under or interpreting Section 409A of the Code

(g)           Severability.  The invalidity of any portion of this Plan shall not invalidate the remainder and the remainder shall continue in full force and effect.

(h)           State Law. This instrument shall be construed in accordance with and governed by the laws of the State of Florida, to the extent not superseded by the laws of the United States.

IN WITNESS WHEREOF, this Plan is effective as of the date first written above and has been executed on the dates written below.

	WALTER INDUSTRIES, INC.
December 17, 2008	By:	Larry E. Williams
Date
	Title:		Senior Vice President

IX-2

EX-10.6.1

Exhibit 10.6.1

FIRST AMENDMENT

TO THE

WALTER INDUSTRIES, INC.

EXECUTIVE INCENTIVE PLAN

This First Amendment to the Walter Industries, Inc. Executive Incentive Plan is made and entered into by Walter Industries, Inc. (the “Company”) this 17th day of December, 2008, but is effective as of January 1, 2009.

WITNESSETH:

WHEREAS, the Company has previously adopted the Walter Industries, Inc. Executive Incentive Plan (the “Plan”); and

WHEREAS, the Company is authorized and empowered to amend the Plan; and

WHEREAS, the Company has determined that it is appropriate to amend the Plan in the manner indicated hereinbelow.

NOW, THEREFORE, Section 7 of Article VIII of the Plan is hereby amended as follows:

7.             Incentive awards may not be paid until the completion of the Company’s audited financial statements corresponding to the Plan Year and the approval of the Company’s Audit Committee has been received.  The Company intends to pay any such incentive award in the year following the year in which the incentive award is earned, but no later than December 31 of such year.

IN WITNESS WHEREOF, this First Amendment has been executed and is effective as of the dates set forth hereinabove.

WALTER INDUSTRIES, INC.
By:	/s/ Larry E. Williams
Title:  Senior Vice President

EX-10.7.1

Exhibit 10.7.1

AMENDMENT TO
AMENDED 1995 LONG-TERM INCENTIVE STOCK PLAN
OF WALTER INDUSTRIES, INC.

Walter Industries, Inc., a Delaware corporation, hereby amends the 1995 Long-Term Incentive Stock Plan of Walter Industries, Inc. (the “Plan”) as follows:

1.The following is inserted as new Section 3(d) of the Plan:

“It is the intention of the Company that the awards granted under the Plan will be exempt from, or will comply with the requirements of, Section 409A of the Code, and the Plan and the terms and conditions of all awards shall be interpreted, construed and administered consistent with such intent Although the Company intends for the awards to be in compliance with Section 409A of the Code or an exemption thereto, the Company does not warrant that the terms of any award or the Company’s administration thereof will be exempt from, or will comply with the requirements of, Section 409A of the Code. The Company shall not be liable to any participant or any other person for any tax, interest, or penalties that the person may incur as a result of an award or the Company’s administration thereof not satisfying any of the requirements of Section 409A of the Code or an exemption thereto.”

2.The following is inserted at the end of Section 5(c) of the Plan:

“Further, no adjustment shall be authorized to the extent such adjustment would cause any award that is otherwise exempt from the requirements of Section 409A of the Code to become subject to Section 409A of the Code, or would cause any award that is subject to Section 409A of the Code to fail to satisfy any requirement of Section 409A of the Code.”

3.The following is inserted at the end of Section 7(b) of the Plan:

“The Committee shall not permit the modification or extension (in each case as defined under Section 409A of the Code) of a stock option that is exempt from the requirements of Section 409A of the Code in a manner that would cause such stock option to become subject to the requirements of Section 409A of the Code, or would otherwise violate any applicable requirement of Section 409A of the Code.”

4.The following is inserted at the end of Section 9 of the Plan:

“Notwithstanding the foregoing, the Committee shall not permit any deferrals under this Section 9 if such deferral would be inconsistent with the last sentence of Section 7(b) of the Plan, or would otherwise violate any applicable requirement of Section 409A of the Code.”

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5.The following phrase is inserted at the beginning of Section 11 of the Plan:

“Subject to compliance with all applicable requirements of Section 409A of the Code,”

6.The following is inserted at the end of Section 13 of the Plan:

“Notwithstanding anything to the contrary, the Committee shall have the right to amend the Plan and any outstanding awards or adopt other policies and procedures applicable to the Plan and awards (including amendments, policies and procedures with retroactive effect) without participant consent as may be necessary or appropriate to comply with the requirements of Section 409A of the Code or an exemption thereto.”

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EX-10.8

Exhibit 10.8

AMENDED AND RESTATED

2002 LONG-TERM INCENTIVE AWARD PLAN

OF

WALTER INDUSTRIES, INC.

Walter Industries, Inc., a Delaware corporation, has adopted the 2002 Long-Term Incentive Award Plan of Walter Industries, Inc., (the “Plan”), effective February 21, 2002, for the benefit of its eligible employees, consultants and directors.

The purposes of the Plan are as follows:

(1) To provide an additional incentive for directors, Employees and Consultants (as such terms are defined below) to further the growth, development and financial success of the Company by personally benefiting through the ownership of Company stock and/or rights which recognize such growth, development and financial success.

(2) To enable the Company to obtain and retain the services of directors, Employees and Consultants considered essential to the long range success of the Company by offering them an opportunity to own stock in the Company and/or rights which will reflect the growth, development and financial success of the Company.

ARTICLE I.

DEFINITIONS

Wherever the following terms are used in the Plan they shall have the meanings specified below, unless the context clearly indicates otherwise. The singular pronoun shall include the plural where the context so indicates.

1.1. “Administrator” shall mean the entity that conducts the general administration of the Plan as provided herein. With reference to the administration of the Plan with respect to Options granted to Independent Directors, the term “Administrator” shall refer to the Board. With reference to the administration of the Plan with respect to any other Award, the term “Administrator” shall refer to the Committee unless the Board has assumed the authority for administration of the Plan generally as provided in Section 10.2.

1.2. “Award” shall mean an Option, a Restricted Stock award, a Performance Award, a Dividend Equivalents award, a Deferred Stock award, a Stock Payment award or a Stock Appreciation Right which may be awarded or granted under the Plan (collectively, “Awards”).

1.3. “Award Agreement” shall mean a written agreement executed by an authorized officer of the Company and the Holder which shall contain such terms and conditions with respect to an Award as the Administrator shall determine, consistent with the Plan.

1.4. “Award Limit” shall mean 1,000,000 shares of Common Stock, as adjusted pursuant to Section 11.3; provided, however, that solely with respect to Performance Awards granted pursuant to Section 8.2(b), Award Limit shall mean $2,000,000.

1.5. “Board” shall mean the Board of Directors of the Company.

1.6. “Change in Control” shall mean a change in ownership or control of the Company effected through any of the following transactions:

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(a) (i) Any person or related group of persons (other than the Company or a person that, prior to such transaction, directly or indirectly controls, is controlled by, or is under common control with, the Company or any person which as of the date of adoption of this Plan by the Board, has “beneficial ownership” (within the meaning of Rule 13d-3 under the Exchange Act) of securities possessing more than 30% of the total combined voting power of the Company’s outstanding securities) directly or indirectly acquires beneficial ownership of securities possessing more than 40% of the total combined voting power of the Company’s outstanding securities, or

(ii) Any person or related group of persons (other than the Company or a person that, prior to such transaction, directly or indirectly controls, is controlled by, or is under common control with, the Company) who is not, as of the date of adoption of this Plan by the Board, a beneficial owner of 1% or more of the total combined voting power of the Company’s outstanding securities, directly or indirectly acquires beneficial ownership of securities possessing more than 25% of the total combined voting power of the Company’s outstanding securities and is, upon the consummation of such acquisition, the beneficial owner of the largest percentage of the total combined voting power of the Company’s outstanding securities; or

(b) There is a change in the composition of the Board over a period of 36 consecutive months (or less) such that a majority of the Board members (rounded up to the nearest whole number) ceases to be comprised of individuals who either (i) have been Board members continuously since the beginning of such period, or (ii) have been elected or nominated for election as Board members during such period by at least a majority of the Board members described in clause (i) who were still in office at the time such election or nomination was approved by the Board; or

(c) The stockholders of the Company approve a merger or consolidation of the Company with any other corporation (or other entity), other than a merger or consolidation which would result in the voting securities of the Company outstanding immediately prior thereto continuing to represent (either by remaining outstanding or by being converted into voting securities of the surviving entity) more than 66 2/3% of the combined voting power of the voting securities of the Company or such surviving entity outstanding immediately after such merger or consolidation; provided, however, that a merger or consolidation effected to implement a recapitalization of the Company (or similar transaction) in which no person acquires more than 25% of the combined voting power of the Company’s then outstanding securities shall not constitute a Change in Control; or

(d) The stockholders of the Company approve a plan of complete liquidation of the Company or an agreement for the sale, lease or other disposition by the Company of all or substantially all of the Company’s assets.

1.7. “Code” shall mean the Internal Revenue Code of 1986, as amended.

1.8. “Committee” shall mean the Compensation Committee of the Board, or another committee or subcommittee of the Board, appointed as provided in Section 10.1.

1.9. “Common Stock” shall mean the common stock of the Company, par value $.01 per share.

1.10. “Company” shall mean Walter Industries, Inc., a Delaware corporation.

1.11. “Consultant” shall mean any consultant or adviser if:

(a) The consultant or adviser renders bona fide services to the Company;

(b) The services rendered by the consultant or adviser are not in connection with the offer or sale of

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securities in a capital-raising transaction and do not directly or indirectly promote or maintain a market for the Company’s securities; and

(c) The consultant or adviser is a natural person who has contracted directly with the Company to render such services.

1.12. “Deferred Stock” shall mean an Award under Article VIII of the Plan of the right to receive Common Stock at the end of specified period and under specified conditions.

1.13. “Director” shall mean a member of the Board.

1.14. “Dividend Equivalent” shall mean a right to receive the equivalent value (in cash or Common Stock) of dividends paid on Common Stock, awarded under Article VIII of the Plan.

1.15. “DRO” shall mean a domestic relations order as defined by the Code or Title I of the Employee Retirement Income Security Act of 1974, as amended, or the rules thereunder.

1.16. “Employee” shall mean any officer or other employee (as defined in accordance with Section 3401(c) of the Code) of the Company, or of any corporation which is a Subsidiary.

1.17. “Exchange Act” shall mean the Securities Exchange Act of 1934, as amended.

1.18. “Fair Market Value” of a share of Common Stock as of a given date shall be (a) if the Common Stock is traded on the New York Stock Exchange or another securities exchange, the mean of the high and low sales prices (rounded to the nearest $0.01) of a share of Common Stock as reported by the New York Stock Exchange or such other exchange on such date, or if shares were not traded on such date, then on the next preceding date on which a trade occurred; or (b) if the Common Stock is not traded on the New York Stock Exchange or another securities exchange, the fair market value of a share of Common Stock as established by the Administrator acting in good faith based on a reasonable valuation method that is consistent with the requirements of Section 409A of the Code and all other applicable rules and regulations.

1.19. “Holder” shall mean a person who has been granted or awarded an Award.

1.20. “Incentive Stock Option” shall mean an option which conforms to the applicable provisions of Section 422 of the Code and which is designated as an Incentive Stock Option by the Administrator.

1.21. “Independent Director” shall mean a member of the Board who is not an employee of the Company.

1.22. “Non-Qualified Stock Option” shall mean an Option which is not designated as an Incentive Stock Option by the Administrator.

1.23. “Option” shall mean a stock option granted under Article IV of the Plan. An Option granted under the Plan shall, as determined by the Administrator, be either a Non-Qualified Stock Option or an Incentive Stock Option; provided, however, that Options granted to Independent Directors and Consultants shall be Non-Qualified Stock Options.

1.24. “Performance Award” shall mean a cash bonus, stock bonus or other performance or incentive award that is paid in cash, Common Stock or a combination of both, awarded under Article VIII of the Plan.

1.25. “Performance Criteria” shall mean any objective business criterion with respect to the Company,

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any Subsidiary or any division or operating unit, as determined by the Administrator. Such performance criteria may include, without limitation, one or more of: (a) net income, (b) pre-tax income, (c) operating income, (d) cash flow, (e) earnings per share, (f) return on equity, (g) return on invested capital or assets, (h) cost reductions or savings, (i) funds from operations, (j) appreciation in the fair market value of Common Stock, (k) earnings before any one or more of the following items: interest, taxes, depreciation or amortization and (l) consummations of acquisitions or sales of certain of the Company’s assets, subsidiaries or other businesses. With respect to Awards intended to qualify as “performance-based compensation” under Section 162(m)(4)(C) of the Code, “Performance Criteria” shall be limited to the criteria set forth in Section 1.25(a)-(l) above, and such criteria shall be applied only to the extent permissible with respect to such qualification under Section 162(m)(4)(C).

1.26. “Plan” shall mean the 2002 Long-Term Incentive Award Plan of Walter Industries, Inc.

1.27. “Restricted Stock” shall mean Common Stock awarded under Article VII of the Plan.

1.28. “Rule 16b-3” shall mean Rule 16b-3 promulgated under the Exchange Act, as such Rule may be amended from time to time.

1.29. “Section 162(m) Participant” shall mean any Employee whose compensation for a given fiscal year may be subject to the limit on deductible compensation imposed by Section 162(m) of the Code.

1.30. “Securities Act” shall mean the Securities Act of 1933, as amended.

1.31. “Stock Appreciation Right” shall mean a stock appreciation right granted under Article IX of the Plan.

1.32. “Stock Payment” shall mean (a) a payment in the form of shares of Common Stock, or (b) an option or other right to purchase shares of Common Stock, as part of a deferred compensation arrangement, made in lieu of all or any portion of the compensation, including without limitation, salary, bonuses and commissions, that would otherwise become payable to an Employee or Consultant in cash, awarded under Article VIII of the Plan.

1.33. “Subsidiary” shall mean any corporation in an unbroken chain of corporations beginning with the Company if each of the corporations other than the last corporation in the unbroken chain then owns stock possessing 50% or more of the total combined voting power of all classes of stock in one of the other corporations in such chain.

1.34. “Substitute Award” shall mean an Option granted under this Plan upon the assumption of, or in substitution for, outstanding equity awards previously granted by a company or other entity in connection with a corporate transaction, such as a merger, combination, consolidation or acquisition of property or stock; provided, however, that in no event shall the term “Substitute Award” be construed to refer to an award made in connection with the cancellation and repricing of an Option.

1.35. “Termination of Consultancy” shall mean the time when the engagement of a Holder as a Consultant to the Company or a Subsidiary is terminated for any reason, with or without cause, including, but not by way of limitation, by resignation, discharge, death or retirement, but excluding terminations where there is a simultaneous commencement of employment with the Company or any Subsidiary. The Administrator, in its discretion, shall determine the effect of all matters and questions relating to Termination of Consultancy, including, but not by way of limitation, the question of whether a Termination of Consultancy resulted from a discharge for good cause, and all questions of whether a particular leave of absence constitutes a Termination of Consultancy. Notwithstanding any other provision of the Plan, the Company or any Subsidiary has an absolute and unrestricted right to terminate a Consultant’s service at any time for any reason whatsoever, with or without cause, except to the extent

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expressly provided otherwise in writing.

1.36. “Termination of Directorship” shall mean the time when a Holder who is an Independent Director ceases to be a Director for any reason, including, but not by way of limitation, a termination by resignation, failure to be elected, death or retirement. The Administrator, in its discretion, shall determine the effect of all matters and questions relating to Termination of Directorship with respect to Independent Directors.

1.37. “Termination of Employment” shall mean the time when the employee-employer relationship between a Holder and the Company or any Subsidiary is terminated for any reason, with or without cause, including, but not by way of limitation, a termination by resignation, discharge, death, disability or retirement; but excluding (a) terminations where there is a simultaneous reemployment or continuing employment of a Holder by the Company or any Subsidiary, (b) at the discretion of the Administrator, terminations which result in a temporary severance of the employee-employer relationship, and (c) at the discretion of the Administrator, terminations which are followed by the simultaneous establishment of a consulting relationship by the Company or a Subsidiary with the former employee. The Administrator, in its discretion, shall determine the effect of all matters and questions relating to Termination of Employment, including, but not by way of limitation, the question of whether a Termination of Employment resulted from a discharge for good cause, and all questions of whether a particular leave of absence constitutes a Termination of Employment; provided, however, that, with respect to Incentive Stock Options, unless otherwise determined by the Administrator in its discretion, a leave of absence, change in status from an employee to an independent contractor or other change in the employee-employer relationship shall constitute a Termination of Employment if, and to the extent that, such leave of absence, change in status or other change interrupts employment for the purposes of Section 422(a)(2) of the Code and the then applicable regulations and revenue rulings under said Section.

ARTICLE II.

SHARES SUBJECT TO PLAN

2.1. Shares Subject to Plan.

(a) The shares of stock subject to Awards shall be Common Stock. Subject to adjustment as provided in Section 11.3, the aggregate number of such shares which may be issued upon exercise of such Options or rights or upon any such Awards under the Plan shall not exceed 3,000,000. The shares of Common Stock issuable upon exercise of such Options or rights or upon any such awards may be either previously authorized but unissued shares or treasury shares.

(b) The maximum number of shares which may be subject to Awards granted under the Plan to any individual in any calendar year shall not exceed the Award Limit. To the extent required by Section 162(m) of the Code, shares subject to Options which are canceled continue to be counted against the Award Limit.

2.2. Add-back of Options and Other Rights; Certain Acquired Entities.

(a) If any Option, or other right to acquire shares of Common Stock under any other Award under the Plan, expires or is canceled without having been fully exercised, or is exercised in whole or in part for cash as permitted by the Plan, the number of shares subject to such Option or other right but as to which such Option or other right was not exercised prior to its expiration, cancellation or exercise may again be optioned, granted or awarded hereunder, subject to the limitations of Section 2.1. Furthermore, any shares subject to Awards which are adjusted pursuant to Section 11.3 and become exercisable with respect to shares of stock of another corporation shall be considered cancelled and may again be optioned, granted or awarded hereunder, subject to the limitations of Section 2.1. Shares of Common Stock which are delivered by the Holder or withheld by the Company upon the exercise of any Award under the Plan, in

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payment of the exercise price thereof or tax withholding thereon, may again be optioned, granted or awarded hereunder, subject to the limitations of Section 2.1. If any shares of Restricted Stock are surrendered by the Holder or repurchased by the Company pursuant to Section 7.4 or 7.5 hereof, such shares may again be optioned, granted or awarded hereunder, subject to the limitations of Section 2.1. Notwithstanding the provisions of this Section 2.2, no shares of Common Stock may again be optioned, granted or awarded if such action would cause an Incentive Stock Option to fail to qualify as an incentive stock option under Section 422 of the Code.

(b) Subject to Sections 3.2(d) and 3.3, any shares of Common Stock that are issued by the Company, and any Awards that are granted as a result of the assumption of, or in substitution for, outstanding awards previously granted by an acquired entity shall not be counted against the limitations set forth in Section 2.1.

ARTICLE III.

GRANTING OF AWARDS

3.1. Award Agreement. Each Award shall be evidenced by an Award Agreement. Award Agreements evidencing Awards intended to qualify as performance-based compensation as described in Section 162(m)(4)(C) of the Code shall contain such terms and conditions as may be necessary to meet the applicable provisions of Section 162(m) of the Code. Award Agreements evidencing Incentive Stock Options shall contain such terms and conditions as may be necessary to meet the applicable provisions of Section 422 of the Code.

3.2. Provisions Applicable to Section 162(m) Participants.

(a) The Committee, in its discretion, may determine whether an Award is to qualify as performance-based compensation as described in Section 162(m)(4)(C) of the Code.

(b) Notwithstanding anything in the Plan to the contrary, the Committee may grant any Award to a Section 162(m) Participant, including Restricted Stock the restrictions with respect to which lapse upon the attainment of performance goals which are related to one or more of the Performance Criteria, and any performance or incentive award described in Article VIII that vests or becomes exercisable or payable upon the attainment of performance goals which are related to one or more of the Performance Criteria.

(c) To the extent necessary to comply with the performance-based compensation requirements of Section 162(m)(4)(C) of the Code, with respect to any Award granted under Articles VII and VIII which may be granted to one or more Section 162(m) Participants, no later than ninety (90) days following the commencement of any fiscal year in question or any other designated fiscal period or period of service (or such other time as may be required or permitted by Section 162(m) of the Code), the Committee shall, in writing, (i) designate one or more Section 162(m) Participants,(ii) select the Performance Criteria applicable to the fiscal year or other designated fiscal period or period of service, (iii) establish the various performance targets, in terms of an objective formula or standard, and amounts of such Awards, as applicable, which may be earned for such fiscal year or other designated fiscal period or period of service, and (iv) specify the relationship between Performance Criteria and the performance targets and the amounts of such Awards, as applicable, to be earned by each Section 162(m) Participant for such fiscal year or other designated fiscal period or period of service. Following the completion of each fiscal year or other designated fiscal period or period of service, the Committee shall certify in writing whether the applicable performance targets have been achieved for such fiscal year or other designated fiscal period or period of service. In determining the amount earned by a Section 162(m) Participant, the Committee shall have the right to reduce (but not to increase) the amount payable at a given level of performance to take into account additional factors that the Committee may deem relevant to the assessment of individual or corporate performance for the fiscal year or other designated fiscal period or period of service.

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(d) Furthermore, notwithstanding any other provision of the Plan, any Award which is granted to a Section 162(m) Participant and is intended to qualify as performance-based compensation as described in Section 162(m)(4)(C) of the Code shall be subject to any additional limitations set forth in Section 162(m) of the Code (including any amendment to Section 162(m) of the Code) or any regulations or rulings issued thereunder that are requirements for qualification as performance-based compensation as described in Section 162(m)(4)(C) of the Code, and the Plan shall be deemed amended to the extent necessary to conform to such requirements.

3.3. Limitations Applicable to Section 16 Persons. Notwithstanding any other provision of the Plan, the Plan, and any Award granted or awarded to any individual who is then subject to Section 16 of the Exchange Act, shall be subject to any additional limitations set forth in any applicable exemptive rule under Section 16 of the Exchange Act (including any amendment to Rule 16b-3 of the Exchange Act) that are requirements for the application of such exemptive rule. To the extent permitted by applicable law, the Plan and Awards granted or awarded hereunder shall be deemed amended to the extent necessary to conform to such applicable exemptive rule.

3.4. Consideration. In consideration of the granting of an Award under the Plan, the Holder shall agree, in the Award Agreement, to remain in the employ of (or to consult for or to serve as an Independent Director of, as applicable) the Company or any Subsidiary for a period of at least one year (or such shorter period as may be fixed in the Award Agreement or by action of the Administrator following grant of the Award) after the Award is granted (or, in the case of an Independent Director, until the next annual meeting of stockholders of the Company).

3.5. At-Will Employment. Nothing in the Plan or in any Award Agreement hereunder shall confer upon any Holder any right to continue in the employ of, or as a Consultant for, the Company or any Subsidiary, or as a director of the Company, or shall interfere with or restrict in any way the rights of the Company and any Subsidiary, which are hereby expressly reserved, to discharge any Holder at any time for any reason whatsoever, with or without cause, except to the extent expressly provided otherwise in a written employment agreement between the Holder and the Company and any Subsidiary.

3.6   Non-Qualified Deferred Compensation. In the event that any Award granted under the Plan is determined to constitute nonqualified deferred compensation within the meaning of Section 409A of the Code (a “NQDC Award”), in whole or in part, the Award Agreement evidencing such NQDC Award shall contain such terms and conditions as may be necessary to meet the applicable provisions of Section 409A of the Code, subject to the following:

(a)  The Award Agreement for the NQDC Award shall set forth the amount (or the method or formula for determining the amount) of the deferred compensation and the time and form of payment, which shall comply with Section 3.6(b).

(b)  The NQDC Award shall provide for payment of the deferred compensation in a manner consistent with the permissible payment rules of Section 409A of the Code and Treasury Regulation Section 1.409A-3 not earlier than (i) the Holder’s Separation from Service (as defined below, and subject to Section 3.6(e)) (ii) the Holder’s death, (iii) the Holder becoming  “disabled” (as defined under Section 409A of the Code), (iv) a specified time or fixed schedule set forth in the Award Agreement, (v) the occurrence of a 409A Change in Control (as defined below), and/or (vi) the occurrence of an “unforeseeable emergency” (as defined under Section 409A of the Code, and subject to the limitation on payment described in Section 409A(a)(2)(B)(ii)(II)). With respect to an Option or Stock Appreciation Right, payment means the exercise of the Option or Stock Appreciation Right

(b)  The NQDC Award shall not permit the acceleration of the time or schedule of payment of deferred compensation within the meaning of Section 409A of the Code and Treasury Regulation Section

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1.409A-3(j), except that the Administrator, in its sole discretion, may accelerate payment of deferred compensation if such acceleration is permitted by Section 409A of the Code.

(c)  Unless the Administrator elects otherwise, the NQDC Award shall not permit either initial deferral elections (under Treasury Regulations Section 1.409A-2(a)) or subsequent deferral elections (under Treasury Regulations Section 1.409A-2(b)). If a NQDC Award provides either the Company or the Holder with the right to make an initial deferral election, the conditions under which such election may be made must be set forth in writing on or before the date the applicable election is required to be irrevocable to satisfy the requirements of Treasury Regulations Section 1.409A-2(a). If a NQDC Award provides either the Company or the Holder with the right to make an subsequent deferral election, the conditions under which such election may be made must be set forth in writing on or before the date the applicable election is required to be irrevocable to satisfy the requirements of Treasury Regulations Section 1.409A-2(b).

(d)   If an amount of deferred compensation is otherwise payable upon a Termination of Consultancy, Termination of Directorship or Termination of Employment, such payment shall not be made unless and until the Holder experiences a Separation from Service. “Separation from Service” means Holder’s “separation from service” from Holder’s service recipient within the meaning of Section 409A(a)(2)(A)(i) of the Code and the default rules of Treasury Regulations Section 1.409A-1(h). For this purpose, Holder’s “service recipient” is the Company or the Subsidiary that, if Holder is an employee, directly employs Holder or, if Holder is an independent contractor, Holder performs services for, and every entity or other person which collectively with such direct employer/service recipient constitutes a single service recipient (as that term is defined in Treasury Regulations Sections 1.409A-1(g)) as the result of the application of the rules of Treasury Regulations Sections 1.409A-1(h)(3); provided that an 80% standard (in lieu of the default 50% standard) shall be used for purposes of determining the employer/service recipient for this purpose.

(e) If Holder is a Specified Employee (as defined below), a payment of an amount of deferred compensation upon the Holder’s Separation from Service shall not be made before the date that is six (6) months after the date of Holder’s Separation from Service (or, if earlier, the date of Holder’s death). The Administrator shall set forth in the Award Agreement the time in which amounts otherwise payable during such period shall be paid to Holder, subject to compliance with the applicable requirements of Section 409A of the Code, or, if no time is specified, all such amounts shall be accumulated and paid in a single lump sum to Holder on the first business day after the date that is six (6) months after the date of Holder’s Separation from Service (or, if earlier, within fifteen (15) days following Holder’s date of death). “Specified Employee” means a “ specified employee” of the service recipient that includes the Company or the Subsidiary that directly employs Holder (as determined under Treasury Regulations Sections 1.409A-1(g)) within the meaning of Section 409A(a)(2)(B)(i) of the Code and Treasury Regulations Section 1.409A-1(i), as determined in accordance with the procedures adopted by such service recipient that are then in effect, or, if no such procedures are then in effect, in accordance with the default procedures set forth in Treasury Regulations Section 1.409A-1(i).

(f)   A “409A Change in Control” means a transaction that (i) constitutes a Change in Control as defined under the terms of the Plan, and (ii) constitutes a change in the ownership of the Company, a change in the effective control of the Company, or a change in the ownership of a substantial portion of the assets of the Company, in each case as defined under Section 409A of the Code and Treasury Regulations 1.409A-3(i)(5).

ARTICLE IV.

GRANTING OF OPTIONS TO EMPLOYEES,

CONSULTANTS AND INDEPENDENT DIRECTORS

4.1. Eligibility. Any Employee or Consultant selected by the Administrator pursuant to Section 4.4(a)(i)

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shall be eligible to be granted an Option. Each Independent Director of the Company shall be eligible to be granted Options at the times and in the manner set forth in Section 4.5.

4.2. Disqualification for Stock Ownership. No person may be granted an Incentive Stock Option under the Plan if such person, at the time the Incentive Stock Option is granted, owns stock possessing more than 10% of the total combined voting power of all classes of stock of the Company or any then existing Subsidiary or parent corporation (within the meaning of Section 422 of the Code) unless such Incentive Stock Option conforms to the applicable provisions of Section 422 of the Code.

4.3. Qualification of Incentive Stock Options. No Incentive Stock Option shall be granted to any person who is not an Employee.

4.4. Granting of Options to Employees and Consultants.

(a) The Administrator shall from time to time, in its discretion, and subject to applicable limitations of the Plan:

(i) Select from among the Employees or Consultants (including Employees or Consultants who have previously received Awards under the Plan) such of them as in its opinion should be granted Options;

(ii) Subject to the Award Limit, determine the number of shares to be subject to such Options granted to the selected Employees or Consultants;

(iii) Subject to Section 4.3, determine whether such Options are to be Incentive Stock Options or Non-Qualified Stock Options and whether such Options are to qualify as performance-based compensation as described in Section 162(m)(4)(C) of the Code; and

(iv) Determine the terms and conditions of such Options, consistent with the Plan; provided, however, that the terms and conditions of Options intended to qualify as performance-based compensation as described in Section 162(m)(4)(C) of the Code shall include, but not be limited to, such terms and conditions as may be necessary to meet the applicable provisions of Section 162(m) of the Code.

(b) Upon the selection of an Employee or Consultant to be granted an Option, the Administrator shall instruct the Secretary of the Company to issue the Option and may impose such conditions on the grant of the Option as it deems appropriate.

(c) Any Incentive Stock Option granted under the Plan may be modified by the Administrator, with the consent of the Holder, to disqualify such Option from treatment as an “incentive stock option” under Section 422 of the Code.

4.5. Grants of Options to Independent Directors.

(a) Automatic Grants. Each person who is an Independent Director as of the effective date hereof automatically shall be granted (i) an Option to purchase 4,000 shares of Common Stock (subject to adjustment as provided in Section 11.3) on such effective date and (ii) commencing in the first calendar year which begins after the effective date hereof, an Option to purchase 4,000 shares of Common Stock (subject to adjustment as provided in Section 11.3) on the date of each annual meeting of the Company’s stockholders at which the Independent Director is reelected to the Board. During the term of the Plan, a person who is initially elected to the Board after the effective date hereof and who is an Independent Director at the time of such initial election automatically shall be granted (i) an Option to purchase 4,000 shares of Common Stock (subject to adjustment as provided in Section 11.3) on the date of such initial election and (ii) commencing in the first calendar year which begins after the date of such election, an

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Option to purchase 4,000 shares of Common Stock (subject to adjustment as provided in Section 11.3) on the date of each annual meeting of the Company’s stockholders at which the Independent Director is reelected to the Board. Members of the Board who are employees of the Company who subsequently retire from the Company and remain on the Board will not receive an Option grant pursuant to this Section 4.5(a).

(b) Discretionary Grants. In addition to the grants set forth in Section 4.5(a) hereof, the Administrator may from time to time, in its discretion, and subject to applicable limitations of the Plan:

(i) Select from among the Independent Directors (including Independent Directors who have previously received Options under the Plan) such of them as in its opinion should be granted Options;

(ii) Subject to the Award Limit, determine the number of shares to be subject to such Options granted to the selected Independent Directors;

(iii) Subject to the provisions of Article 5, determine the terms and conditions of such Options, consistent with the Plan.

The foregoing Option grants authorized by this Section 4.5 are subject to stockholder approval of the Plan.

4.6. Options in Lieu of Cash Compensation. Options may be granted under the Plan to Employees and Consultants in lieu of cash bonuses which would otherwise be payable to such Employees and Consultants and to Independent Directors in lieu of directors’ fees which would otherwise be payable to such Independent Directors, pursuant to such policies which may be adopted by the Administrator from time to time and subject to compliance with the applicable requirements of Section 409A of the Code (including the requirements applicable to substitutions).

ARTICLE V.

TERMS OF OPTIONS

5.1. Option Price; Options Exempt from Section 409A. The price per share of the shares subject to each Option granted to Employees and Consultants shall be set by the Administrator; provided, however, that such price shall be no less than the par value of a share of Common Stock, unless otherwise permitted by applicable state law, and:

(a) In the case of Options intended to qualify as performance-based compensation as described in Section 162(m)(4)(C) of the Code, such price shall not be less than 100% of the Fair Market Value of a share of Common Stock on the date the Option is granted;

(b) In the case of Incentive Stock Options such price shall not be less than 100% of the Fair Market Value of a share of Common Stock on the date the Option is granted (or the date the Option is modified, extended or renewed for purposes of Section 424(h) of the Code);

(c) In the case of Incentive Stock Options granted to an individual then owning (within the meaning of Section 424(d) of the Code) more than 10% of the total combined voting power of all classes of stock of the Company or any Subsidiary or parent corporation thereof (within the meaning of Section 422 of the Code), such price shall not be less than 110% of the Fair Market Value of a share of Common Stock on the date the Option is granted (or the date the Option is modified, extended or renewed for purposes of Section 424(h) of the Code); and

(d) In the case of a Non-Qualified Stock Option that is intended not to provide for a deferral of compensation within the meaning of Section 409A (and is therefore intended to qualify for the exemption

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from the requirements of Section 409A of the Code for non-qualified stock options under Treasury Regulations Section 1.409A-1(b)(5)): (i) the exercise price of the Option shall not be less than 100% of the Fair Market Value of a share of Common Stock on the date the Option is granted, (ii) the number of shares subject to the Option shall be fixed on the date the Option is granted, and (iii) the Option shall not include any feature for the deferral of compensation within the meaning of Treasury Regulations Section 1.409A-1(b)(5) other than the deferral of recognition of income until the later of the exercise or disposition of the Option under Treasury Regulation Section 1.83-7, or the time the shares of Common Stock acquired pursuant to the exercise of the Option becomes substantially vested within the meaning of Treasury Regulations Section 1.83-3(b).

5.2. Option Term. The term of an Option granted to an Employee or Consultant shall be set by the Administrator in its discretion; provided, however, that, in the case of Incentive Stock Options, the term shall not be more than 10 years from the date the Incentive Stock Option is granted, or five years from the date the Incentive Stock Option is granted if the Incentive Stock Option is granted to an individual then owning (within the meaning of Section 424(d) of the Code) more than 10% of the total combined voting power of all classes of stock of the Company or any Subsidiary or parent corporation thereof (within the meaning of Section 422 of the Code). Except as limited by requirements of Section 422 of the Code and regulations and rulings thereunder applicable to Incentive Stock Options, the Administrator may in its discretion (a) extend the term of any outstanding Option in connection with any Termination of Employment or Termination of Consultancy of the Holder, or amend any other term or condition of such Option relating to such a termination or (b) grant an Option for a term of less than 10 years and subsequently extend the term of such Option to 10 years without consideration. Notwithstanding the foregoing, the Administrator shall not permit the modification or extension (in each case as defined under Section 409A) of an Option that is exempt from the requirements of Section 409A of the Code in a manner that would cause such Option to become subject to the requirements of Section 409A of the Code, or would otherwise violate any applicable requirement of Section 409A of the Code.

5.3. Option Vesting.

(a) The period during which the right to exercise, in whole or in part, an Option granted to an Employee or a Consultant vests in the Holder shall be set by the Administrator and the Administrator may determine that an Option may not be exercised in whole or in part for a specified period after it is granted. At any time after grant of an Option, the Administrator may, in its discretion and subject to whatever terms and conditions it selects, accelerate the period during which an Option granted to an Employee or Consultant vests.

(b) No portion of an Option granted to an Employee or Consultant which is unexercisable at Termination of Employment or Termination of Consultancy, as applicable, shall thereafter become exercisable, except as may be otherwise provided by the Administrator either in the Award Agreement or by action of the Administrator following the grant of the Option.

(c) To the extent that the aggregate Fair Market Value of stock with respect to which “incentive stock options” (within the meaning of Section 422 of the Code, but without regard to Section 422(d) of the Code) are exercisable for the first time by a Holder during any calendar year (under the Plan and all other incentive stock option plans of the Company and any parent or subsidiary corporation, within the meaning of Section 422 of the Code) of the Company, exceeds $100,000, such Options shall be treated as Non-Qualified Stock Options to the extent required by Section 422 of the Code. The rule set forth in the preceding sentence shall be applied by taking Options into account in the order in which they were granted. For purposes of this Section 5.3(c), the Fair Market Value of stock shall be determined as of the time the Option with respect to such stock is granted.

5.4. Terms of Options Granted to Independent Directors. The price per share of the shares subject to each Option granted to an Independent Director shall equal 100% of the Fair Market Value of a share of

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Common Stock on the date the Option is granted. Options granted to Independent Directors pursuant to Section 4.5(a) hereof shall become exercisable in cumulative annual installments of one-third each on each of the first, second and third anniversaries of the date of Option grant and, subject to Section 6.6, the term of each Option granted to an Independent Director shall be a maximum of 10 years from the date the Option is granted, except that any Option granted to an Independent Director shall by its terms become immediately exercisable in full upon the retirement of the Independent Director at age 65 with 5 years of service as an Independent Director. Unless otherwise provided for by the Administrator, no portion of an Option which is unexercisable at Termination of Directorship shall thereafter become exercisable.

5.5. Substitute Awards. Notwithstanding the foregoing provisions of this Article V to the contrary, but subject to compliance with the applicable requirements of Section 409A of the Code, in the case of an Option that is a Substitute Award, the price per share of the shares subject to such Option may be less than the Fair Market Value per share on the date of grant, provided, that the excess of:

(a) The aggregate Fair Market Value (as of the date such Substitute Award is granted) of the shares subject to the Substitute Award; over

(b) The aggregate exercise price thereof;

does not exceed the excess of:

(c) The aggregate fair market value (as of the time immediately preceding the transaction giving rise to the Substitute Award, such fair market value to be determined by the Administrator) of the shares of the predecessor entity that were subject to the grant assumed or substituted for by the Company; over

(d) The aggregate exercise price of such shares.

ARTICLE VI.

EXERCISE OF OPTIONS

6.1. Partial Exercise. An exercisable Option may be exercised in whole or in part. However, an Option shall not be exercisable with respect to fractional shares and the Administrator may require that, by the terms of the Option, a partial exercise be with respect to a minimum number of shares.

6.2. Manner of Exercise. All or a portion of an exercisable Option shall be deemed exercised upon delivery of all of the following to the Secretary of the Company or his or her office:

(a) A written notice complying with the applicable rules established by the Administrator stating that the Option, or a portion thereof, is exercised. The notice shall be signed by the Holder or other person then entitled to exercise the Option or such portion of the Option;

(b) Such representations and documents as the Administrator, in its discretion, deems necessary or advisable to effect compliance with all applicable provisions of the Securities Act and any other federal or state securities laws or regulations. The Administrator may, in its discretion, also take whatever additional actions it deems appropriate to effect such compliance including, without limitation, placing legends on share certificates and issuing stop-transfer notices to agents and registrars;

(c) Any form or forms of identification requested by the Administrator and, in the event that the Option shall be exercised pursuant to Section 11.1 by any person or persons other than the Holder, appropriate proof of the right of such person or persons to exercise the Option; and

(d) Full cash payment to the Secretary of the Company for the shares with respect to which the Option, or portion thereof, is exercised. However, the Administrator may, in its discretion, (i) allow a

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delay in payment up to 30 days from the date the Option, or portion thereof, is exercised; (ii) allow payment, in whole or in part, through the delivery of shares of Common Stock which have been owned by the Holder for at least six months, duly endorsed for transfer to the Company with a Fair Market Value on the date of delivery equal to the aggregate exercise price of the Option or exercised portion thereof; (iii) allow payment, in whole or in part, through the surrender of shares of Common Stock then issuable upon exercise of the Option having a Fair Market Value on the date of Option exercise equal to the aggregate exercise price of the Option or exercised portion thereof; (iv) allow payment, in whole or in part, through the delivery of property of any kind which constitutes good and valuable consideration; (v) allow payment, in whole or in part, through the delivery of a full recourse promissory note bearing interest (at no less than such rate as shall then preclude the imputation of interest under the Code) and payable upon such terms as may be prescribed by the Administrator; (vi) allow payment, in whole or in part, through the delivery of a notice that the Holder has placed a market sell order with a broker with respect to shares of Common Stock then issuable upon exercise of the Option, and that the broker has been directed to pay a sufficient portion of the net proceeds of the sale to the Company in satisfaction of the Option exercise price, PROVIDED that payment of such proceeds is then made to the Company upon settlement of such sale; or (vii) allow payment through any combination of the consideration provided in the foregoing subparagraphs (ii), (iii), (iv), (v) and (vi). In the case of a promissory note, the Administrator may also prescribe the form of such note and the security to be given for such note. The Option may not be exercised, however, by delivery of a promissory note or by a loan from the Company when or where such loan or other extension of credit is prohibited by law.

6.3. Conditions to Issuance of Stock Certificates. The Company shall not be required to issue or deliver any certificate or certificates for shares of stock purchased upon the exercise of any Option or portion thereof prior to fulfillment of all of the following conditions:

(a) The admission of such shares to listing on all stock exchanges on which such class of stock is then listed;

(b) The completion of any registration or other qualification of such shares under any state or federal law, or under the rulings or regulations of the Securities and Exchange Commission or any other governmental regulatory body which the Administrator shall, in its discretion, deem necessary or advisable;

(c) The obtaining of any approval or other clearance from any state or federal governmental agency which the Administrator shall, in its discretion, determine to be necessary or advisable;

(d) The lapse of such reasonable period of time following the exercise of the Option as the Administrator may establish from time to time for reasons of administrative convenience; and

(e) The receipt by the Company of full payment for such shares, including payment of any applicable withholding tax, which in the discretion of the Administrator may be in the form of consideration used by the Holder to pay for such shares under Section 6.2(d).

6.4. Rights as Stockholders. Holders shall not be, nor have any of the rights or privileges of, stockholders of the Company in respect of any shares purchasable upon the exercise of any part of an Option unless and until certificates representing such shares have been issued by the Company to such Holders.

6.5. Ownership and Transfer Restrictions. The Administrator, in its discretion, may impose such restrictions on the ownership and transferability of the shares purchasable upon the exercise of an Option as it deems appropriate; provided, however, that with respect to any shares purchasable on the exercise of a Non-Qualified Stock Option intended to be exempt from the requirements of Section 409A of the Code, the Administrator shall not impose any restrictions that would cause such shares to fail to qualify as

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“service recipient stock” within the meaning of Section 409A of the Code. Any such restriction shall be set forth in the respective Award Agreement and may be referred to on the certificates evidencing such shares. The Holder shall give the Company prompt notice of any disposition of shares of Common Stock acquired by exercise of an Incentive Stock Option within (a) two years from the date of granting (including the date the Option is modified, extended or renewed for purposes of Section 424(h) of the Code) such Option to such Holder, or (b) one year after the transfer of such shares to such Holder.

6.6. Additional Limitations on Exercise of Options. Holders may be required to comply with any timing or other restrictions with respect to the settlement or exercise of an Option, including a window-period limitation, as may be imposed in the discretion of the Administrator.

ARTICLE VII.

AWARD OF RESTRICTED STOCK

7.1. Eligibility. Subject to the Award Limit, Restricted Stock may be awarded to any Employee or Consultant who the Administrator determines should receive such an Award.

7.2. Award of Restricted Stock.

(a) The Administrator may from time to time, in its discretion:

(i) Select from among the Employees or Consultants (including Employees or Consultants who have previously received other Awards under the Plan) such of them as in its opinion should be awarded Restricted Stock; and

(ii) Determine the purchase price, if any, and other terms and conditions applicable to such Restricted Stock, consistent with the Plan.

(b) The Administrator shall establish the purchase price, if any, and form of payment for Restricted Stock; provided, however, that such purchase price shall be no less than the par value of the Common Stock to be purchased, unless otherwise permitted by applicable state law. In all cases, legal consideration shall be required for each issuance of Restricted Stock.

(c) Upon the selection of an Employee or Consultant to be awarded Restricted Stock, the Administrator shall instruct the Secretary of the Company to issue such Restricted Stock and may impose such conditions on the issuance of such Restricted Stock as it deems appropriate.

7.3. Rights as Stockholders. Subject to Section 7.4, upon delivery of the shares of Restricted Stock to the escrow holder pursuant to Section 7.6, the Holder shall have, unless otherwise provided by the Administrator, all the rights of a stockholder with respect to said shares, subject to the restrictions in his or her Award Agreement, including the right to receive all dividends and other distributions paid or made with respect to the shares; provided, however that in the discretion of the Administrator, any extraordinary distributions with respect to the Common Stock shall be subject to such restrictions as the Administrator may provide under Section 7.4. All dividends payable on Restricted Stock shall be paid to the Holder as and when such dividends are paid to the holders of Common Stock.

7.4. Restriction. All shares of Restricted Stock issued under the Plan (including any shares received by holders thereof with respect to shares of Restricted Stock as a result of stock dividends, stock splits or any other form of recapitalization) shall, in the terms of each individual Award Agreement, be subject to such restrictions as the Administrator shall provide, which restrictions may include, without limitation, restrictions concerning voting rights and transferability and restrictions based on duration of employment with the Company, Company performance and individual performance; provided, however, that, except with respect to shares of Restricted Stock granted to Section 162(m) Participants, by action taken after the

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Restricted Stock is issued, the Administrator may, on such terms and conditions as it may determine to be appropriate, remove any or all of the restrictions imposed by the terms of the Award Agreement. Restricted Stock may not be sold or encumbered until all restrictions are terminated or expire. If no consideration was paid by the Holder upon issuance, a Holder’s rights in unvested Restricted Stock shall lapse, and such Restricted Stock shall be surrendered to the Company without consideration, upon Termination of Employment or, if applicable, upon Termination of Consultancy with the Company; provided, however, that the Administrator in its discretion may provide that such rights shall not lapse in the event of a Termination of Employment following a “change of ownership or control” (within the meaning of Treasury Regulation Section 7.162-27(e)(2)(v) or any successor regulation thereto) of the Company or because of the Holder’s death or disability; provided, further, except with respect to shares of Restricted Stock granted to Section 162(m) Participants, the Administrator in its discretion may provide that no such lapse or surrender shall occur in the event of a Termination of Employment, or a Termination of Consultancy, without cause or following any Change in Control of the Company or because of the Holder’s retirement, or otherwise.

7.5. Repurchase of Restricted Stock. The Administrator shall provide in the terms of each individual Award Agreement that the Company shall have the right to repurchase from the Holder the Restricted Stock then subject to restrictions under the Award Agreement immediately upon a Termination of Employment or, if applicable, upon a Termination of Consultancy between the Holder and the Company, at a cash price per share equal to the price paid by the Holder for such Restricted Stock; provided, however, that the Administrator in its discretion may provide that no such right of repurchase shall exist in the event of a Termination of Employment following a “change of ownership or control” (within the meaning of Treasury Regulation Section 7.162-27(e)(2)(v) or any successor regulation thereto) of the Company or because of the Holder’s death or disability; provided, further, that, except with respect to shares of Restricted Stock granted to Section 162(m) Participants, the Administrator in its discretion may provide that no such right of repurchase shall exist in the event of a Termination of Employment or a Termination of Consultancy without cause or Following any Change in Control of the Company or because of the Holder’s retirement, or otherwise.

7.6. Escrow. The Secretary of the Company or such other escrow holder as the Administrator may appoint shall retain physical custody of each certificate representing Restricted Stock until all of the restrictions imposed under the Award Agreement with respect to the shares evidenced by such certificate expire or shall have been removed.

7.7. Legend. In order to enforce the restrictions imposed upon shares of Restricted Stock hereunder, the Administrator shall cause a legend or legends to be placed on certificates representing all shares of Restricted Stock that are still subject to restrictions under Award Agreements, which legend or legends shall make appropriate reference to the conditions imposed thereby.

7.8. Section 83(b) Election. If a Holder makes an election under Section 83(b) of the Code, or any successor section thereto, to be taxed with respect to the Restricted Stock as of the date of transfer of the Restricted Stock rather than as of the date or dates upon which the Holder would otherwise be taxable under Section 83(a) of the Code, the Holder shall deliver a copy of such election to the Company immediately after filing such election with the Internal Revenue Service.

ARTICLE VIII.

DIVIDEND EQUIVALENTS, DEFERRED STOCK, STOCK PAYMENTS

8.1. Eligibility. Subject to the Award Limit, one or more Performance Awards, Dividend Equivalents, awards of Deferred Stock and/or Stock Payments may be granted to any Employee or any Consultant whom the Administrator determines should receive such an Award.

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8.2. Performance Awards.

(a) Any Employee or Consultant selected by the Administrator may be granted one or more Performance Awards. The value of such Performance Awards may be linked to any one or more of the Performance Criteria or other specific performance criteria determined appropriate by the Administrator, in each case on a specified date or dates or over any period or periods determined by the Administrator. In making such determinations, the Administrator shall consider (among such other factors as it deems relevant in light of the specific type of award) the contributions, responsibilities and other compensation of the particular Employee or Consultant.

(b) Without limiting Section 8.2(a), the Administrator may grant Performance Awards to any 162(m) Participant in the form of a cash bonus payable upon the attainment of objective performance goals which are established by the Administrator and relate to one or more of the Performance Criteria, in each case on a specified date or dates or over any period or periods determined by the Administrator. Any such bonuses paid to Section 162(m) Participants shall be based upon objectively determinable bonus formulas established in accordance with the provisions of Section 3.2. The maximum amount of any Performance Award payable to a Section 162(m) Participant under this Section 8.2(b) shall not exceed the Award Limit with respect to any calendar year of the Company.

8.3. Dividend Equivalents.

(a) Any Employee or Consultant selected by the Administrator may be granted Dividend Equivalents based on the dividends declared on Common Stock, to be credited as of dividend payment dates, during the period between the date a Stock Appreciation Right, award of Deferred Stock, or Performance Award is granted, and the date such Stock Appreciation Right, award of Deferred Stock, or Performance Award is exercised, vests or expires, as determined by the Administrator. Such Dividend Equivalents shall be converted to cash or additional shares of Common Stock by such formula and at such time and subject to such limitations as may be determined by the Administrator, subject to compliance with the applicable requirements of Section 409A of the Code.

(b) Any Holder of an Option who is an Employee or Consultant selected by the Administrator may be granted Dividend Equivalents based on the dividends declared on Common Stock, to be credited as of dividend payment dates, during the period between the date an Option is granted, and the date such Option is exercised, vests or expires, as determined by the Administrator.  Such Dividend Equivalents shall be converted to cash or additional shares of Common Stock by such formula and at such time and subject to such limitations as may be determined by the Administrator, subject to compliance with the applicable requirements of Section 409A of the Code.

(c) Any Holder of an Option who is an Independent Director selected by the Administrator may be granted Dividend Equivalents based on the dividends declared on Common Stock, to be credited as of dividend payment dates, during the period between the date an Option is granted and the date such Option is exercised, vests or expires, as determined by the Administrator. Such Dividend Equivalents shall be converted to cash or additional shares of Common Stock by such formula and at such time and subject to such limitations as may be determined by the Administrator, subject to compliance with the applicable requirements of Section 409A of the Code.

(d) Dividend Equivalents granted with respect to Options intended to be qualified performance-based compensation for purposes of Section 162(m) of the Code shall be payable, with respect to pre-exercise periods, regardless of whether such Option is subsequently exercised.

(e) Notwithstanding the foregoing, with respect to Non-Qualified Stock Options or Stock Appreciation Rights intended to be exempt from the requirements of Section 409A of the Code, no Dividend Equivalents shall relate to the shares subject to such Option or Stock Appreciation Right unless the right to the Dividend Equivalent is not contingent, directly or indirectly, upon the exercise of the

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Option or Stock Appreciation Right and otherwise does not cause the Option or Stock Appreciation Right to be subject to the requirements of Section 409A of the Code.

8.4. Stock Payments. Any Employee or Consultant selected by the Administrator may receive Stock Payments in the manner determined from time to time by the Administrator. The number of shares shall be determined by the Administrator and may be based upon the Performance Criteria or other specific performance criteria determined appropriate by the Administrator, determined on the date such Stock Payment is made or on any date thereafter.

8.5. Deferred Stock. Any Employee or Consultant selected by the Administrator may be granted an award of Deferred Stock (or “restricted stock unit”) in the manner determined from time to time by the Administrator. The number of shares of Deferred Stock shall be determined by the Administrator and may be linked to the Performance Criteria or other specific performance criteria determined to be appropriate by the Administrator, in each case on a specified date or dates or over any period or periods determined by the Administrator. Common Stock underlying a Deferred Stock award will not be issued until the Deferred Stock award has vested, pursuant to a vesting schedule or performance criteria set by the Administrator. Unless otherwise provided by the Administrator, a Holder of Deferred Stock shall have no rights as a Company stockholder with respect to such Deferred Stock until such time as the Award has vested and the Common Stock underlying the Award has been issued.

8.6. Term; Payment Date. The term of a Performance Award, Dividend Equivalent, award of Deferred Stock and/or Stock Payment shall be set by the Administrator in its discretion. Unless the Administrator determines otherwise, a Performance Award, Stock Payment or Deferred Stock shall be paid to the Holder during the period ending on the 15th day of the third month following the year in which the Holder’s right to payment under the Performance Award, Stock Payment or Deferred Stock is no longer subject to a substantial risk of forfeiture within the meaning of Section 409A of the Code (or, if the right to payment is not subject to a substantial risk of forfeiture, the year in which the Holder obtains a legally binding right to the Performance Award, Stock Payment or Deferred Stock), so as to qualify the Performance Award, Stock Payment or Deferred Stock for the exemption from Section 409A of the Code as a “short-term deferral” under Treasury Regulations Section 1.409A-1(b)(4).

8.7. Exercise or Purchase Price. The Administrator may establish the exercise or purchase price of a Performance Award, shares of Deferred Stock or shares received as a Stock Payment; provided, however, that such price shall not be less than the par value of a share of Common Stock, unless otherwise permitted by applicable state law.

8.8. Exercise Upon Termination of Employment, Termination of Consultancy or Termination of Directorship. A Performance Award, Dividend Equivalent, award of Deferred Stock and/or Stock Payment is exercisable or payable only while the Holder is an Employee, Consultant or Independent Director, as applicable; provided, however, that, subject to compliance with the applicable requirements of Section 409A of the Code, the Administrator in its discretion may provide that the Performance Award, Dividend Equivalent, award of Deferred Stock and/or Stock Payment may be exercised or paid subsequent to a Termination of Employment following a “change of control or ownership” (within the meaning of Section 7.162-27(e)(2)(v) or any successor regulation thereto) of the Company; provided, further, that except with respect to Performance Awards granted to Section 162(m) Participants, the Administrator in its discretion may provide that Performance Awards may be exercised or paid following a Termination of Employment or a Termination of Consultancy without cause, or following a Change in Control of the Company, or because of the Holder’s retirement, death or disability, or otherwise.

8.9. Form of Payment. Payment of the amount determined under Section 8.2 or 8.3 above shall be in cash, in Common Stock or a combination of both, as determined by the Administrator. To the extent any payment under this Article VIII is effected in Common Stock, it shall be made subject to satisfaction of all provisions of Section 6.9.

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ARTICLE IX.

STOCK APPRECIATION RIGHTS

9.1. Grant of Stock Appreciation Rights. A Stock Appreciation Right may be granted to any Employee or Consultant selected by the Administrator. A Stock Appreciation Right may be granted (a) in connection and simultaneously with the grant of an Option, (b) subject to compliance with the applicable requirements of Section 409A of the Code, with respect to a previously granted Option, or (c) independent of an Option. A Stock Appreciation Right shall be subject to such terms and conditions not inconsistent with the Plan as the Administrator shall impose and shall be evidenced by an Award Agreement.

9.2. Coupled Stock Appreciation Rights.

(a) A Coupled Stock Appreciation Right (“CSAR”) shall be related to a particular Option and shall be exercisable only when and to the extent the related Option is exercisable.

(b) A CSAR may be granted to the Holder for no more than the number of shares subject to the simultaneously or previously granted Option to which it is coupled.

(c) A CSAR shall entitle the Holder (or other person entitled to exercise the Option pursuant to the Plan) to surrender to the Company unexercised a portion of the Option to which the CSAR relates (to the extent then exercisable pursuant to its terms) and to receive from the Company in exchange therefor an amount determined by multiplying the difference obtained by subtracting the Option exercise price from the Fair Market Value of a share of Common Stock on the date of exercise of the CSAR by the number of shares of Common Stock with respect to which the CSAR shall have been exercised, subject to any limitations the Administrator may impose.

9.3. Independent Stock Appreciation Rights.

(a) An Independent Stock Appreciation Right (“ISAR”) shall be unrelated to any Option and shall have a term set by the Administrator. An ISAR shall be exercisable in such installments as the Administrator may determine. An ISAR shall cover such number of shares of Common Stock as the Administrator may determine. The exercise price per share of Common Stock subject to each ISAR shall be set by the Administrator. An ISAR is exercisable only while the Holder is an Employee or Consultant; provided, that the Administrator may determine that the ISAR may be exercised subsequent to Termination of Employment or Termination of Consultancy without cause, or following a Change in Control of the Company, or because of the Holder’s retirement, death or disability, or otherwise.

(b) An ISAR shall entitle the Holder (or other person entitled to exercise the ISAR pursuant to the Plan) to exercise all or a specified portion of the ISAR (to the extent then exercisable pursuant to its terms) and to receive from the Company an amount determined by multiplying the difference obtained by subtracting the exercise price per share of the ISAR from the Fair Market Value of a share of Common Stock on the date of exercise of the ISAR by the number of shares of Common Stock with respect to which the ISAR shall have been exercised, subject to any limitations the Administrator may impose.

9.4. Payment and Limitations on Exercise.

(a) Payment of the amounts determined under Section 9.2(c) and 9.3(b) above shall be in cash, in Common Stock (based on its Fair Market Value as of the date the Stock Appreciation Right is exercised) or a combination of both, as determined by the Administrator. To the extent such payment is effected in Common Stock it shall be made subject to satisfaction of all provisions of Section 6.3 above pertaining to Options.

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(b) Holders of Stock Appreciation Rights may be required to comply with any timing or other restrictions with respect to the settlement or exercise of a Stock Appreciation Right, including a window-period limitation, as may be imposed in the discretion of the Administrator.

(c) In the case of a Stock Appreciation Right that is intended not to provide for a deferral of compensation within the meaning of Section 409A (and is therefore intended to qualify  for the exemption from the requirements of Section 409A of the Code for stock appreciation rights under Treasury Regulations Section 1.409A-1(b)(5)), (i) the number of shares of Common Stock subject to the Stock Appreciation Right shall be fixed on the date the Stock Appreciation Right is granted, (ii) the exercise price per share of the Stock Appreciation Right shall not be less than 100% of the Fair Market Value of a share of Common Stock on the date the Stock Appreciation Right is granted, (iii) compensation payable per share under the Stock Appreciation Right shall not be greater than the excess of the Fair Market Value of a share of Common Stock on the date the Stock Appreciation Right is exercised over such exercise price per share, and (iv) the Stock Appreciation Right shall not include any feature for the deferral of compensation within the meaning of Treasury Regulations Section 1.409A-1(b)(5) other than the deferral of recognition of income until the exercise of the Stock Appreciation Right.

ARTICLE X.

ADMINISTRATION

10.1. Compensation Committee. The Compensation Committee (or one or more other committees or subcommittees of the Board assuming the functions of the Committee under the Plan) shall consist solely of two or more Independent Directors appointed by and holding office at the pleasure of the Board, each of whom is both a “non-employee director” as defined by Rule 16b-3 and an “outside director” for purposes of Section 162(m) of the Code. Appointment of Committee members shall be effective upon acceptance of appointment. Committee members may resign at any time by delivering written notice to the Board. Vacancies in the Committee may be filled by the Board.

10.2. Duties and Powers of Administrator. It shall be the duty of the Administrator to conduct the general administration of the Plan in accordance with its provisions. The Administrator shall have the power to interpret the Plan and the Award Agreements, and to adopt such rules for the administration, interpretation and application of the Plan as are consistent therewith, to interpret, amend or revoke any such rules and to amend any Award Agreement provided that the rights or obligations of the Holder of the Award that is the subject of any such Award Agreement are not affected adversely. Any such grant or award under the Plan need not be the same with respect to each Holder. Any such interpretations and rules with respect to Incentive Stock Options shall be consistent with the provisions of Section 422 of the Code. In its discretion, the Board may at any time and from time to time exercise any and all rights and duties of the Administrator under the Plan except with respect to matters which under Rule 16b-3 or Section 162(m) of the Code, or any regulations or rules issued thereunder, are required to be determined in the discretion of the Committee. Notwithstanding the foregoing, the full Board, acting by a majority of its members in office, shall conduct the general administration of the Plan with respect to Options and Dividend Equivalents granted to Independent Directors.

10.3. Majority Rule; Unanimous Written Consent. The Committee shall act by a majority of its members in attendance at a meeting at which a quorum is present or by a memorandum or other written instrument signed by all members of the Committee.

10.4. Compensation; Professional Assistance; Good Faith Actions. Members of the Committee shall receive such compensation, if any, for their services as members as may be determined by the Board. All expenses and liabilities which members of the Committee incur in connection with the administration of the Plan shall be borne by the Company. The Committee may, with the approval of the Board, employ attorneys, consultants, accountants, appraisers, brokers or other persons. The Committee, the Company

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and the Company’s officers and Directors shall be entitled to rely upon the advice, opinions or valuations of any such persons. All actions shall be taken and all interpretations and determinations shall be made by the Administrator reasonably and in good faith. No member of the Administrator shall be personally liable for any action, determination or interpretation made in good faith with respect to the Plan or Awards, and all members of the Administrator shall be fully protected by the Company in respect of any such action, determination or interpretation.

10.5. Delegation of Authority to Grant Awards. The Committee may, but need not, delegate from time to time some or all of its authority to grant Awards under the Plan to a committee consisting of one or more members of the Committee or of one or more officers of the Company; provided, however, that the Committee may not delegate its authority to grant Awards to individuals (a) who are subject on the date of the grant to the reporting rules under Section 16(a) of the Exchange Act, (b) who are Section 162(m) Participants, or (c) who are officers of the Company who are delegated authority by the Committee hereunder. Any delegation hereunder shall be subject to the restrictions and limits that the Committee specifies at the time of such delegation of authority and may be rescinded at any time by the Committee. At all times, any committee appointed under this Section 10.5 shall serve in such capacity at the pleasure of the Committee.

10.6 No Warranty as to Tax Treatment. It is the intention of the Company that the Awards granted under the Plan will be exempt from, or will comply with the requirements of, Section 409A of the Code, and the Plan and the terms and conditions of all Awards shall be interpreted, construed and administered consistent with such intent. Although the Company intends for the Awards to be in compliance with Section 409A of the Code or an exemption thereto, the Company does not warrant that the terms of any Award or the Company’s administration thereof will be exempt from, or will comply with the requirements of, Section 409A of the Code. The Company shall not be liable to any Holder or any other person for any tax, interest, or penalties that the person may incur as a result of an Award or the Company’s administration thereof not satisfying any of the requirements of Section 409A of the Code or an exemption thereto.

ARTICLE XI.

MISCELLANEOUS PROVISIONS

11.1. Transferability of Awards.

(a) Except as otherwise provided in Section 11.1(b), and subject to compliance with the applicable requirements of Section 409A of the Code:

(i) No Award under the Plan may be sold, pledged, assigned or transferred in any manner other than by will or the laws of descent and distribution or, subject to the consent of the Administrator, pursuant to a DRO, unless and until such Award has been exercised, or the shares underlying such Award have been issued, and all restrictions applicable to such shares have lapsed;

(ii) No Award or interest or right therein shall be liable for the debts, contracts or engagements of the Holder or his or her successors in interest or shall be subject to disposition by transfer, alienation, anticipation, pledge, encumbrance, assignment or any other means whether such disposition be voluntary or involuntary or by operation of law by judgment, levy, attachment, garnishment or any other legal or equitable proceedings (including bankruptcy), and any attempted disposition thereof shall be null and void and of no effect, except to the extent that such disposition is permitted by the preceding sentence; and

(iii) During the lifetime of the Holder, only he or she may exercise an Option or other Award (or any portion thereof) granted to him or her under the Plan, unless it has been disposed of pursuant to a DRO; after the death of the Holder, any exercisable portion of an Option or other Award may, prior to the

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time when such portion becomes unexercisable under the Plan or the applicable Award Agreement, be exercised by his or her personal representative or by any person empowered to do so under the deceased Holder’s will or under the then applicable laws of descent and distribution.

(b) Notwithstanding Section 11.1(a), the Administrator, in its discretion, may determine to permit a Holder to transfer a Non-Qualified Stock Option to any one or more Permitted Transferees (as defined below), subject to the following terms and conditions: (i) a Non-Qualified Stock Option transferred to a Permitted Transferee shall not be assignable or transferable by the Permitted Transferee other than by will or the laws of descent and distribution; (ii) any Non-Qualified Stock Option which is transferred to a Permitted Transferee shall continue to be subject to all the terms and conditions of the Non-Qualified Stock Option as applicable to the original Holder (other than the ability to further transfer the Non-Qualified Stock Option); and (iii) the Holder and the Permitted Transferee shall execute any and all documents requested by the Administrator, including, without limitation documents to (A) confirm the status of the transferee as a Permitted Transferee, (B) satisfy any requirements for an exemption for the transfer under applicable federal and state securities laws and (C) evidence the transfer. For purposes of this Section 11.1(b), “Permitted Transferee” shall mean, with respect to a Holder, any child, stepchild, grandchild, parent, stepparent, grandparent, spouse, former spouse, sibling, niece, nephew, mother-in-law, father-in-law, son-in-law, daughter-in-law, brother-in-law, or sister-in-law, including adoptive relationships, any person sharing the Holder’s household (other than a tenant or employee), a trust in which these persons (or the Holder) control the management of assets, and any other entity in which these persons (or the Holder) own more than fifty percent of the voting interests, or any other transferee specifically approved by the Administrator after  taking into account any state or federal tax or securities laws applicable to transferable Non-Qualified Stock Options.

11.2. Amendment, Suspension or Termination of the Plan. Except as otherwise provided in this Section 11.2, the Plan may be wholly or partially amended or otherwise modified, suspended or terminated at any time or from time to time by the Administrator. However, without approval of the Company’s stockholders given within 12 months before or after the action by the Administrator, no action of the Administrator may, except as provided in Section 11.3, increase the limits imposed in Section 2.1 on the maximum number of shares which may be issued under the Plan. No amendment, suspension or termination of the Plan shall, without the consent of the Holder, alter or impair any rights or obligations under any Award theretofore granted or awarded, unless the Award itself otherwise expressly so provides. No Awards may be granted or awarded during any period of suspension or after termination of the Plan, and in no event may any Incentive Stock Option be granted under the Plan after the first to occur of the following events:

(a) The expiration of 10 years from the date the Plan is adopted by the Board; or

(b) The expiration of 10 years from the date the Plan is approved by the Company’s stockholders under Section 11.4.

Notwithstanding anything to the contrary, the Administrator shall have the right to amend the Plan and any outstanding Awards or adopt other policies and procedures applicable to the Plan and Awards (including amendments, policies and procedures with retroactive effect) without Holder consent as may be necessary or appropriate to comply with the requirements of Section 409A of the Code or an exemption thereto.

11.3. Changes in Common Stock or Assets of the Company, Acquisition or Liquidation of the Company and Other Corporate Events.

(a) Subject to Section 11.3(d), in the event that the Administrator determines that any dividend or other distribution (whether in the form of cash, Common Stock, other securities or other property), recapitalization, reclassification, stock split, reverse stock split, reorganization, merger, consolidation,

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split-up, spin-off, combination, repurchase, liquidation, dissolution, or sale, transfer, exchange or other disposition of all or substantially all of the assets of the Company, or exchange of Common Stock or other securities of the Company, issuance of warrants or other rights to purchase Common Stock or other securities of the Company, or other similar corporate transaction or event, in the Administrator’s discretion, affects the Common Stock such that an adjustment is determined by the Administrator to be appropriate in order to prevent dilution or enlargement of the benefits or potential benefits intended to be made available under the Plan or with respect to an Award, then the Administrator shall, in such manner as it may deem equitable, adjust any or all of:

(i) The number and kind of shares of Common Stock (or other securities or property) with respect to which Awards may be granted or awarded (including, but not limited to, adjustments of the limitations in Section 8.1 on the maximum number and kind of shares which may be issued and adjustments of the Award Limit);

(ii) The number and kind of shares of Common Stock (or other securities or property) subject to outstanding Awards; and

(iii) The grant or exercise price with respect to any Award.

(b) Subject to Sections 11.3(b)(vii) and 11.3(d), in the event of any transaction or event described in Section 11.3(a) or any unusual or nonrecurring transactions or events affecting the Company, any affiliate of the Company, or the financial statements of the Company or any affiliate, or of changes in applicable laws, regulations or accounting principles, the Administrator, in its discretion, and on such terms and conditions as it deems appropriate, either by the terms of the Award or by action taken prior to the occurrence of such transaction or event and either automatically or upon the Holder’s request, is hereby authorized to take any one or more of the following actions whenever the Administrator determines that such action is appropriate in order to prevent dilution or enlargement of the benefits or potential benefits intended to be made available under the Plan or with respect to any Award under the Plan, to facilitate such transactions or events or to give effect to such changes in laws, regulations or principles:

(i) To provide for either the purchase of any such Award for an amount of cash equal to the amount that could have been attained upon the exercise of such Award or realization of the Holder’s rights had such Award been currently exercisable or payable or fully vested or the replacement of such Award with other rights or property selected by the Administrator in its discretion;

(ii) To provide that the Award cannot vest, be exercised or become payable after such event;

(iii) To provide that such Award shall be exercisable as to all shares covered thereby, notwithstanding anything to the contrary in Section 5.3 or 5.4 or the provisions of such Award;

(iv) To provide that such Award be assumed by the successor or survivor corporation, or a parent or subsidiary thereof, or shall be substituted for by similar options, rights or awards covering the stock of the successor or survivor corporation, or a parent or subsidiary thereof, with appropriate adjustments as to the number and kind of shares and prices; and

(v) To make adjustments in the number and type of shares of Common Stock (or other securities or property) subject to outstanding Awards, and in the number and kind of outstanding Restricted Stock or Deferred Stock and/or in the terms and conditions of (including the grant or exercise price), and the criteria included in, outstanding options, rights and awards and options, rights and awards which may be granted in the future.

(vi) To provide that, for a specified period of time prior to such event, the restrictions imposed under an Award Agreement upon some or all shares of Restricted Stock or Deferred Stock may be

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terminated, and, in the case of Restricted Stock, some or all shares of such Restricted Stock may cease to be subject to repurchase under Section 7.5 or forfeiture under Section 7.4 after such event.

(vii) Notwithstanding any other provision of the Plan, but subject to compliance with the applicable requirements of Section 409A of the Code, in the event of a Change in Control, each outstanding Award shall, immediately prior to the effective date of the Change in Control, automatically become fully exercisable for all of the shares of Common Stock at the time subject to such rights and may be exercised for any or all of those shares as fully-vested shares of Common Stock.

(c) Subject to the terms of the Plan, the Administrator may, in its discretion, include such further provisions and limitations in any Award, agreement or certificate, as it may deem equitable and in the best interests of the Company.

(d) No adjustment or action described in this Section 11.3 or in any other provision of the Plan shall be authorized to the extent that such adjustment or action would cause the Plan to violate Section 422(b)(1) of the Code. Furthermore, no such adjustment or action shall be authorized to the extent such adjustment or action would result in short-swing profits liability under Section 16 or violate the exemptive conditions of Rule 16b-3 unless the Administrator determines that the Award is not to comply with such exemptive conditions. Furthermore, no adjustment or action described in this Section 11.3 or in any other provision of the Plan shall be authorized to the extent such adjustment or action would cause any Award that is otherwise exempt from the requirements of Section 409A of the Code to become subject to Section 409A of the Code, or would cause any Award that is subject to Section 409A of the Code to fail to satisfy any requirement of Section 409A of the Code. The number of shares of Common Stock subject to any Award shall always be rounded to the next whole number.

(e) The existence of the Plan, the Award Agreement and the Awards granted hereunder shall not affect or restrict in any way the right or power of the Company or the stockholders of the Company to make or authorize any adjustment, recapitalization, reorganization or other change in the Company’s capital structure or its business, any merger or consolidation of the Company, any issue of stock or of options, warrants or rights to purchase stock or of bonds, debentures, preferred or prior preference stocks whose rights are superior to or affect the Common Stock or the rights thereof or which are convertible into or exchangeable for Common Stock, or the dissolution or liquidation of the company, or any sale or transfer of all or any part of its assets or business, or any other corporate act or proceeding, whether of a similar character or otherwise.

11.4. Approval of Plan by Stockholders. The Plan will be submitted for the approval of the Company’s stockholders within 12 months after the date of the Board’s initial adoption of the Plan. Awards may be granted or awarded prior to such stockholder approval, provided that such Awards shall not be exercisable nor shall such Awards vest prior to the time when the Plan is approved by the stockholders, and provided further that if such approval has not been obtained at the end of said twelve-month period, all Awards previously granted or awarded under the Plan shall thereupon be canceled and become null and void. In addition, if the Board determines that Awards other than Options or Stock Appreciation Rights which may be granted to Section 162(m) Participants should continue to be eligible to qualify as performance-based compensation under Section 162(m)(4)(C) of the Code, the Performance Criteria must be disclosed to and approved by the Company’s stockholders no later than the first stockholder meeting that occurs in the fifth year following the year in which the Company’s stockholders previously approved the Performance Criteria.

11.5. Tax Withholding. The Company shall be entitled to require payment in cash or deduction from other compensation payable to each Holder of any sums required by federal, state or local tax law to be withheld with respect to any Award. The Administrator may in its discretion and in satisfaction of the foregoing requirement allow such Holder to elect to have the Company withhold shares of Common Stock otherwise issuable under such Award (or allow the return of shares of Common Stock) having a

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Fair Market Value equal to the sums required to be withheld. Notwithstanding any other provision of the Plan, the number of shares of Common Stock which may be withheld with respect to the issuance, vesting, exercise or payment of any Award (or which may be repurchased from the Holder of such Award within six months after such shares of Common Stock were acquired by the Holder from the Company) in order to satisfy the Holder’s federal and state income and payroll tax liabilities with respect to the issuance, vesting, exercise or payment of the Award shall be limited to the number of shares which have a Fair Market Value on the date of withholding or repurchase equal to the aggregate amount of such liabilities based on the minimum statutory withholding rates for federal and state tax income and payroll tax purposes that are applicable to such supplemental taxable income.

11.6. Loans. The Administrator may, in its discretion, extend one or more loans to Employees in connection with the exercise or receipt of an Award granted or awarded under the Plan, or the issuance of Deferred Stock awarded under the Plan. The terms and conditions of any such loan shall be set by the Administrator.

11.7. Forfeiture Provisions. Pursuant to its general authority to determine the terms and conditions applicable to Awards under the Plan, the Administrator shall have the right to provide, in the terms of Awards made under the Plan, or to require a Holder to agree by separate written instrument, that (a)(i) any proceeds, gains or other economic benefit actually or constructively received by the Holder upon any receipt or exercise of the Award, or upon the receipt or resale of any Common Stock underlying the Award, must be paid to the Company, and (ii) the Award shall terminate and any unexercised portion of the Award (whether or not vested) shall be forfeited, if (b)(i) a Termination of Employment, Termination of Consultancy or Termination of Directorship occurs prior to a specified date, or within a specified time period following receipt or exercise of the Award, or (ii) the Holder at any time, or during a specified time period, engages in any activity in competition with the Company, or which  is inimical, contrary or harmful to the interests of the Company, as further defined by the Administrator or (iii) the Holder incurs a Termination of Employment, Termination of Consultancy or Termination of Directorship for cause.

11.8. Effect of Plan Upon Options and Compensation Plans. The adoption of the Plan shall not affect any other compensation or incentive plans in effect for the Company or any Subsidiary. Nothing in the Plan shall be construed to limit the right of the Company (a) to establish any other forms of incentives or compensation for Employees, Directors or Consultants of the Company or any Subsidiary, or (b) to grant or assume options or other rights or awards otherwise than under the Plan in connection with any proper corporate purpose including but not by way of limitation, the grant or assumption of options in connection with the acquisition by purchase, lease, merger, consolidation or otherwise, of the business, stock or assets of any corporation, partnership, limited liability company, firm or association.

    11.9. Compliance with Laws. The Plan, the granting and vesting of Awards under the Plan and the issuance and delivery of shares of Common Stock and the payment of money under the Plan or under Awards granted or awarded hereunder are subject to compliance with all applicable federal and state laws, rules and regulations (including but not limited to state and federal securities law and federal margin requirements) and to such approvals by any listing, regulatory or governmental authority as may, in the opinion of counsel for the Company, be necessary or advisable in connection therewith. Any securities delivered under the Plan shall be subject to such restrictions, and the person acquiring such securities shall, if requested by the Company, provide such assurances and representations to the Company as the Company may deem necessary or desirable to assure compliance with all applicable legal requirements. To the extent permitted by applicable law, the Plan and Awards granted or awarded hereunder shall be deemed amended to the extent necessary to conform to such laws, rules and regulations.

11.10. Titles. Titles are provided herein for convenience only and are not to serve as a basis for interpretation or construction of the Plan.

11.11. Governing Law. The Plan and any agreements hereunder shall be administered, interpreted and

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enforced under the internal laws of the State of Delaware without regard to conflicts of laws thereof.

11.12. Effective Date. The Plan was originally adopted by the Board and approved the shareholders effective as of February 21, 2002. The Plan was amended and restated by the Board effective as of December 17, 2008.

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EX-10.9

Exhibit 10.9

This document constitutes part of the prospectus covering
securities that have been registered under the Securities Act of 1933.

Walter Industries, Inc.
Long-Term Incentive Award Plan
Restricted Stock Unit Award Agreement

THIS AGREEMENT, effective as of the Date of Grant set forth below, represents a grant of restricted stock units (“RSUs”) by Walter Industries, Inc., a Delaware corporation (the “Company”), to the Participant named below, pursuant to the provisions of the 2002 Long-Term Incentive Award Plan of Walter Industries, Inc. (the “Plan”). You have been selected to receive a grant of RSUs pursuant to the Plan, as specified below.

The Plan provides a complete description of the terms and conditions governing the grant of RSUs. If there is any inconsistency between the terms of this Agreement and the terms of the Plan, the Plan’s terms shall completely supersede and replace the conflicting terms of this Agreement. All capitalized terms shall have the meanings ascribed to them in the Plan, unless specifically set forth otherwise herein.

Participant:  <NAME>

Date of Grant: <GRANT DATE>

Number of RSUs Granted: <NUMBER OF SHARES>

Purchase Price: None

The parties hereto agree as follows:

1.           Employment With the Company. Except as may otherwise be provided in Section 6, the RSUs granted hereunder are granted on the condition that the Participant remains an Employee of the Company or its Subsidiaries from the Date of Grant through (and including) the vesting date, as set forth in Section 2 (referred to herein as the “Period of Restriction”).

This grant of RSUs shall not confer any right to the Participant (or any other Participant) to be granted RSUs or other Awards in the future under the Plan.

2.           Vesting. RSUs shall vest in three installments, and each installment shall consist of one-third (1/3) of the RSUs granted becoming vested on the first, second and third anniversary of the Date of Grant (                        , 20      , 20       and 20      ).

3.           Timing of Payout. Payout of a RSU shall occur within thirty (30) days following the vesting date of such RSU.

4.           Form of Payout. Vested RSUs will be paid out solely in the form of shares of stock of the Company.

5.           Voting Rights and Dividends. Until such time as the RSUs are paid out in shares of Company stock, the Participant shall not have voting rights. Further, no dividends shall be paid on any RSUs.

6.           Termination of Employment. In the event of the Participant’s termination of employment with the Company or its Subsidiaries for any reason during the Period of Restriction, all RSUs held by the Participant at the time of employment termination and still subject to the Period of Restriction shall be forfeited by the Participant to the Company. However, the Committee may, in its sole discretion, vest all or any portion of the RSUs held by the Participant.

7.           Change in Control. Notwithstanding anything to the contrary in this Agreement, in the event of a Change in Control of the Company during the Period of Restriction and prior to the Participant’s termination of employment, the Period of Restriction imposed on the RSUs shall immediately lapse, with all such RSUs vesting subject to applicable federal and state securities laws.  Notwithstanding the foregoing, a transaction or series of transactions in which Walter Industries separates one or more of its existing businesses, whether by sale, spin-off or otherwise, and whether or not any such transaction or series of transactions requires a vote of the stockholders, shall not be considered a “Change in Control.”

8.           Restrictions on Transfer. Unless and until actual shares of stock of the Company are received upon payout, RSUs granted pursuant to this Agreement may not be sold, transferred, pledged, assigned, or otherwise alienated or hypothecated (a “Transfer”), other than by will or by the laws of descent and distribution, except as provided in the Plan. If any Transfer, whether voluntary or involuntary, of RSUs is made, or if any attachment, execution, garnishment, or lien shall be issued against or placed upon the RSUs, the Participant’s right to such RSUs shall be immediately forfeited by the Participant to the Company, and this Agreement shall lapse.

9.           Recapitalization. In the event of any change in the capitalization of the Company such as a stock split or a corporate transaction such as any merger, consolidation, separation, or otherwise, the number and class of RSUs subject to this Agreement shall be equitably adjusted by the Committee, in its sole discretion, to prevent dilution or enlargement of rights.

10.        Beneficiary Designation. The Participant may, from time to time, name any beneficiary or beneficiaries (who may be named contingently or successively) to whom any benefit under this Agreement is to be paid in case of his or her death before he or she receives any or all of such benefit. Each such designation shall revoke all prior designations by the Participant, shall be in a form prescribed by the Company, and will be effective only when filed by the Participant in writing with the Secretary of the Company during the Participant’s lifetime. In the absence of any such designation, benefits remaining unpaid at the Participant’s death shall be paid to the Participant’s estate.

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11.        Continuation of Employment. This Agreement shall not confer upon the Participant any right to continue employment with the Company or its Subsidiaries, nor shall this Agreement interfere in any way with the Company’s or its Subsidiaries’ right to terminate the Participant’s employment at any time.

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12.	Miscellaneous.
	(a)	This Agreement and the rights of the Participant hereunder are subject to all the terms and conditions of the Plan, as the same may be amended from time to time, as well as to such rules and regulations as the Committee may adopt for administration of the Plan. The Committee shall have the right to impose such restrictions on any shares acquired pursuant to this Agreement, as it may deem advisable, including, without limitation, restrictions under applicable federal securities laws, under the requirements of any stock exchange or market upon which such shares are then listed and/or traded, and under any blue sky or state securities laws applicable to such shares. It is expressly understood that the Committee is authorized to administer, construe, and make all determinations necessary or appropriate to the administration of the Plan and this Agreement, all of which shall be binding upon the Participant.
	(b)	The Committee may terminate, amend, or modify the Plan; provided, however, that no such termination, amendment, or modification of the Plan may in any material way adversely affect the Participant’s rights under this Agreement, without the written consent of the Participant. Notwithstanding the foregoing, the Committee may, without obtaining the written consent of the Participant, amend this Agreement in any manner that it deems necessary or desirable to comply with the requirements of Section 409A of the Code or an exemption thereto.
	(c)	The Participant may elect, subject to any procedural rules adopted by the Committee, to satisfy the withholding requirement, in whole or in part, by having the Company withhold and sell shares having an aggregate Fair Market Value on the date the tax is to be determined, equal to the amount required to be withheld.
		The Company shall have the power and the right to deduct or withhold from the Participant’s compensation, or require the Participant to remit to the Company, an amount sufficient to satisfy federal, state, and local taxes (including the Participant’s FICA obligation), domestic or foreign, required by law to be withheld with respect to any payout to the Participant under this Agreement.
	(d)	The Participant agrees to take all steps necessary to comply with all applicable provisions of federal and state securities laws in exercising his or her rights under this Agreement.
	(e)	This Agreement shall be subject to all applicable laws, rules, and regulations, and to such approvals by any governmental agencies or national securities exchanges as may be required.
	(f)	This Agreement and the Plan constitute the entire understanding between the Participant and the Company regarding the RSUs granted hereunder. This Agreement and the Plan supersedes any prior agreements, commitments or negotiations concerning the RSUs granted hereunder.

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(g)	All obligations of the Company under the Plan and this Agreement, with respect to the RSUs, shall be binding on any successor to the Company, whether the existence of such successor is the result of a direct or indirect purchase, merger, consolidation, or otherwise, of all or substantially all of the business and/or assets of the Company.
(h)	To the extent not preempted by federal law, this Agreement shall be governed by, and construed in accordance with, the laws of the state of Delaware.

IN WITNESS WHEREOF, the parties have caused this Agreement to be executed effective as of the Date of Grant.

	Walter Industries, Inc.
	By:
ATTEST:
		Participant

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EX-10.10

Exhibit 10.10

NON-QUALIFIED STOCK OPTION AGREEMENT

THIS AGREEMENT (the “Agreement”), dated <GRANT DATE> (the “Grant Date”), is made by and between Walter Industries, Inc., a Delaware corporation (the “Company”) and <NAME>, <POSITION>, of the Company (or one of its Subsidiaries, as defined herein), hereinafter referred to as the “Optionee”:

WHEREAS, pursuant to the 2002 Long-Term Incentive Award Plan of Walter Industries, Inc. (the “Plan”) the Company has granted to the Optionee, effective as of the Grant Date, an option to purchase a number of shares of its common stock, par value $0.01 per share (the “Common Stock”) on the terms and subject to the conditions set forth in this Agreement and the Plan;

NOW, THEREFORE, in consideration of the mutual covenants herein contained and other good and valuable consideration, receipt of which is hereby acknowledged, the parties hereto do hereby agree as follows:

ARTICLE I.

DEFINITIONS

Whenever the following terms are used in this Agreement, they shall have the meaning specified below unless the context clearly indicates to the contrary. Capitalized terms used in this Agreement and not defined below shall have the meaning given such terms in the Plan. The masculine pronoun shall include the feminine, and the singular the plural, where the context so indicates.

Section 1.1             “Administrator” shall mean the Committee unless the Board has assumed the authority for administration of the Plan generally as provided in Section 10.2 of the Plan.

Section 1.2             “Board” shall mean the Board of Directors of the Company

Section 1.3             “Cause” shall mean  (a) any form of dishonesty or criminal conduct connected with the employment of Optionee, (b) the refusal of Optionee to comply with the Company’s lawful written instructions, policies or rules as approved or mandated by the Board, (c) gross or willful misconduct by Optionee during employment with the Company, or (d) Optionee’s conviction of, or plea of guilty or nolo contendere to, a felony. All disputes concerning whether a particular termination is for “Cause” shall be determined in good faith by the Administrator.

Section 1.4             “Change in Control.” shall mean a change in ownership or control of the Company effected through any of the following transactions:

(a)           (i)            Any person or related group of persons (other than the Company or a person that, prior to such transaction, directly or indirectly controls, is controlled by, or is under common control with, the Company or any person which as of the date of adoption of this Plan by the Board, has “beneficial ownership” (within the meaning of Rule 13d-3

under the Exchange Act) of securities possessing more than 30% of the total combined voting power of the Company’s outstanding securities) directly or indirectly acquires beneficial ownership of securities possessing more than 40% of the total combined voting power of the Company’s outstanding securities, or

(ii)           Any person or related group of persons (other than the Company or a person that, prior to such transaction, directly or indirectly controls, is controlled by, or is under common control with, the Company) who is not, as of the date of adoption of this Plan by the Board, a beneficial owner of 1% or more of the total combined voting power of the Company’s outstanding securities, directly or indirectly acquires beneficial ownership of securities possessing more than 25% of the total combined voting power of the Company’s outstanding securities and is, upon the consummation of such acquisition, the beneficial owner of the largest percentage of the total combined voting power of the Company’s outstanding securities; or

(b)           There is a change in the composition of the Board over a period of 36 consecutive months (or less) such that a majority of the Board members (rounded up to the nearest whole number) ceases to be comprised of individuals who either (i) have been Board members continuously since the beginning of such period, or (ii) have been elected or nominated for election as Board members during such period by at least a majority of the Board members described in clause (i) who were still in office at the time such election or nomination was approved by the Board; or

(c)           The consummation of a merger or consolidation of the Company with any other corporation (or other entity) where such merger or consolidation has been approved by the stockholders of the Company, other than a merger or consolidation which would result in the voting securities of the Company outstanding immediately prior thereto continuing to represent (either by remaining outstanding or by being converted into voting securities of the surviving entity) more than 66-2/3% of the combined voting power of the voting securities of the Company or such surviving entity outstanding immediately after such merger or consolidation; provided, however, that a merger or consolidation effected to implement a recapitalization of the Company (or similar transaction) in which no person acquires more than 25% of the combined voting power of the Company’s then outstanding securities shall not constitute a Change in Control; or

(d)           Notwithstanding the foregoing, a transaction or series of transactions in which Walter Industries separates one or more of its existing businesses, whether by sale, spin-off or otherwise, and whether or not any such transaction or series of transactions requires a vote of the stockholders, shall not be considered a “Change in Control.”

(e)           The stockholders of the Company approve a plan of complete liquidation of the Company or an agreement for the sale, lease or other disposition by the Company of all or substantially all of the Company’s assets.

Section 1.5             “Code” shall mean the Internal Revenue Code of 1986, as amended.

Section 1.6             “Committee” shall mean the Compensation Committee of the Board, or another committee or subcommittee of the Board, appointed as provided in Section 10.2 of the Plan.

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Section 1.7             “Common Stock” shall mean the common stock of the Company, par value $0.01 per share.

Section 1.8             “Company” shall mean Walter Industries, Inc., a Delaware corporation.

Section 1.9             “Disability” shall mean any medical condition whatsoever which leads to the absence of the Optionee from his or her job function for a continuous period of six months without the Optionee being able to resume such functions on a full time basis at the expiration of such period, it being understood that unsuccessful attempts to return to work for periods under thirty days shall not be deemed to have interrupted said continuity.

Section 1.10           “Eligible Representative” shall mean, upon the Optionee’s death, the Optionee’s personal representative or such other person as is empowered under the deceased Optionee’s will or the then applicable laws of descent and distribution to represent the Optionee hereunder.

Section 1.11           “Employee” shall mean any officer or other employee (as defined in accordance with Section 3401(c) of the Code) of the Company, or of any corporation which is a Subsidiary.

Section 1.12           “Exchange Act” shall mean the Securities Exchange Act of 1934, as amended.

Section 1.13           “Option” shall mean the non-qualified option to purchase Common Stock of the Company granted under this Agreement, which option is not intended to qualify as an “incentive stock option” under Section 422 of the Code.

Section 1.14           “Plan” shall mean the 2002 Long-Term Incentive Award Plan of Walter Industries, Inc

Section 1.15           “Retirement” shall mean the time when the employee-employer relationship between the Optionee and the Company or any Subsidiary is terminated (a) other than for Cause, and (b) such termination occurs either (i) on or after the date on which the Optionee attains the age of sixty (60), or (ii) on or after the date on which the sum of the Optionee’s age and completed years of employment (as determined by the Administrator in its discretion) with the Company and any Subsidiary is at least eighty (80).

Section 1.16           “Rule 16b-3” shall mean Rule 16b-3 promulgated under the Exchange Act, as such Rule may be amended from time to time.

Section 1.17           “Secretary” shall mean the Secretary of the Company.

Section 1.18           “Securities Act” shall mean the Securities Act of 1933, as amended.

Section 1.19           “Subsidiary” shall mean any corporation in an unbroken chain of corporations beginning with the Company if each of the corporations other than the last corporation in the unbroken chain then owns stock possessing 50% or more of the total combined voting power of all classes of stock in one of the other corporations in such chain.

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Section 1.20           “Termination of Employment” shall mean the time when the employee-employer relationship between the Optionee and the Company or any Subsidiary is terminated for any reason, with or without Cause, including, but not by way of limitation, a termination by resignation, discharge, death, Disability or Retirement; but excluding (a) terminations where there is a simultaneous reemployment or continuing employment of the Optionee by the Company or any Subsidiary, (b) at the discretion of the Administrator, terminations which result in a temporary severance of the employee-employer relationship, and (c) at the discretion of the Administrator, terminations which are followed by the simultaneous establishment of a consulting relationship by the Company or a Subsidiary with the former employee. The Administrator, in its discretion, shall determine the effect of all matters and questions relating to Termination of Employment, including, but not by way of limitation, the question of whether a Termination of Employment resulted from a discharge for Cause, and all questions of whether a particular leave of absence constitutes a Termination of Employment.

ARTICLE II.

GRANT OF OPTION

Section 2.1             Grant of Option. In consideration of the Optionee’s agreement to remain in the employ of the Company or its Subsidiaries and for other good and valuable consideration, on the effective date hereof the Company irrevocably grants to the Optionee the option to purchase any part or all of an aggregate of <NUMBER OF SHARES> shares of Common Stock (the “Option”) upon the terms and conditions set forth in this Agreement.

Section 2.2             Options Subject to the Plan. The Option granted hereunder is subject to the terms and provisions of the Plan, including without limitation, Article VI and Sections 11.1, 11.2 and 11.3 thereof.

Section 2.3             Option Price. The purchase price of the shares of Common Stock covered by the Option shall be $<EXERCISE PRICE> per share (without commission or other charge).

Section 2.4             Not a Contract of Employment. Nothing in this Agreement or in the Plan shall confer upon the Optionee any right to continue in the employ of the Company or any of its Subsidiaries or shall interfere with or restrict in any way the rights of the Company or its Subsidiaries, which are hereby expressly reserved, to discharge the Optionee at any time for any reason whatsoever, with or without Cause.

ARTICLE III.

PERIOD OF EXERCISABILITY

Section 3.1             Commencement of Exercisability

(a)           Subject to subsections (b) and (c) and Section 3.3, the Option shall become exercisable in three cumulative installments as follows:

(i)            The first installment shall consist of one-third (1/3) of the shares covered by the Option and shall become exercisable on the first anniversary of the Grant Date;

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(ii)           The second installment shall consist of one-third (1/3) of the shares covered by the Option and shall become exercisable on the second anniversary of the Grant Date; and

(iii)          The third installment shall consist of one-third (1/3) of the shares covered by the Option and shall become exercisable on the third anniversary of the Grant Date.

(b)           Notwithstanding subsection (a), but subject to subsection (c) and Section 3.3, the Option shall become fully exercisable upon the date of consummation of the first Change in Control.

(c)           No portion of the Option which is unexercisable at Termination of Employment shall thereafter become exercisable.

Section 3.2             Duration of Exercisability. The installments provided for in Section 3.1 are cumulative. Each such installment which becomes exercisable pursuant to Section 3.1 shall remain exercisable until it becomes unexercisable under Section 3.3.

Section 3.3             Expiration of Option. The Option may not be exercised to any extent by anyone after the first to occur of the following events:

(a)           The expiration of ten years from the Grant Date; or

(b)           Except as the Administrator may otherwise approve (subject to compliance with the requirements of Section 409A related to modifications and extensions of stock rights), the date of the Optionee’s Termination of Employment by reason of termination for Cause; or

(c)           The expiration of 90 days from the date of the Optionee’s Termination of Employment for any reason other than his or her death, Disability or Retirement; or

(d)           The expiration of three (3) years from the date of the Optionee’s Termination of Employment by reason of his or her death, Disability or Retirement.

ARTICLE IV.

EXERCISE OF OPTION

Section 4.1             Person Eligible to Exercise. During the lifetime of the Optionee, only he or she may exercise the Option or any portion thereof. After the death of the Optionee, any exercisable portion of the Option may, prior to the time when the Option becomes unexercisable under Section 3.3, be exercised by his or her Eligible Representative.

Section 4.2             Partial Exercise. Any exercisable portion of the Option or the entire Option, if then wholly exercisable, may be exercised in whole or in part at any time prior to the time when the Option or portion thereof becomes unexercisable under Section 3.3; provided, however, that each partial exercise shall be for not less than 100 shares (or the total amount then

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exercisable pursuant to Section 3.1, if a smaller number of shares) and shall be for whole shares only.

Section 4.3             Manner of Exercise. The exercise of the Option shall be governed by the terms of this Agreement and the terms of the Plan, including, without limitation, the provisions of Article VI of the Plan.

Section 4.4             Conditions to Issuance of Stock Certificates. The Company shall not be required to issue or deliver any certificate or certificates for shares of stock purchased upon the exercise of the Option or portion thereof prior to fulfillment of all of the conditions set forth in Section 6.3 of the Plan.

Section 4.5             Rights as Shareholder. The holder of the Option shall not be, nor have any of the rights or privileges of, a shareholder of the Company in respect of any shares purchasable upon the exercise of any part of the Option unless and until certificates representing such shares shall have been issued by the Company to such holder.

ARTICLE V.

OTHER PROVISIONS

Section 5.1             Administration. The Administrator shall have the power to interpret this Agreement and to adopt such rules for the administration, interpretation and application of this Option as are consistent therewith and to interpret, amend or revoke any such rules. All actions taken and all interpretations and determinations made by the Administrator in good faith shall be final and binding upon the Optionee, the Company and all other interested persons. No member of the Committee or the Board shall be personally liable for any action, determination or interpretation made in good faith with respect to the Option.

Section 5.2             Transferability of Option. Neither the Option nor any interest or right therein or part thereof shall be sold, pledged, assigned, or transferred in any manner other than by will or the laws of descent and distribution, unless and until such Option has been exercised, or the shares underlying such Option have been issued, and all restrictions applicable to such shares have lapsed. Neither the Option nor any interest or right therein or part thereof shall be liable for the debts, contracts or engagements of the Optionee or his successors in interest or shall be subject to disposition by transfer, alienation, anticipation, pledge, encumbrance, assignment or any other means whether such disposition be voluntary or involuntary or by operation of law by judgment, levy, attachment, garnishment or any other legal or equitable proceedings (including bankruptcy), and any attempted disposition thereof shall be null and void and of no effect, except to the extent that such disposition is permitted by the preceding sentence.

Section 5.3             Notices. Any notice to be given under the terms of this Agreement to the Company shall be addressed to the Company in care of its Secretary, and any notice to be given to the Optionee shall be addressed to him at the address given beneath his signature hereto. By a notice given pursuant to this Section 5.3, either party may hereafter designate a different address for notices to be given to him. Any notice which is required to be given to the Optionee shall, if the Optionee is then deceased, be given to the Optionee’s personal representative if such representative has previously informed the Company of his status and address by written notice under this Section 5.3. Any notice shall be deemed duly given five (5) days after such notice is enclosed in a properly sealed envelope or wrapper addressed as aforesaid, and deposited as

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Certified Mail or Registered Mail, Return Receipt Requested (with postage prepaid) in a post office or branch post office regularly maintained by the United States Postal Service; provided, however, that any notice to be given by the Optionee relating to the exercise of the Option or any portion thereof shall be deemed duly given upon receipt by the Secretary or his office.

Section 5.4             Entire Agreement. This Agreement and the Plan constitute the entire understanding between Employee and the Company regarding the Options. This Agreement and the Plan supersedes any prior agreements, commitments or negotiations concerning the Option.

Section 5.5             Titles. Titles are provided herein for convenience only and are not to serve as a basis for interpretation or construction of this Agreement.

Section 5.6             Construction. This Agreement shall be administered, interpreted and enforced under the internal laws of the State of Delaware without regard to conflicts of laws thereof.

Section 5.7             Conformity to Securities Laws. The Optionee acknowledges that this Option is intended to conform to the extent necessary with all provisions of the Securities Act and the Exchange Act and any and all regulations and rules promulgated by the Securities and Exchange Commission thereunder, including, without limitation, Rule 16b-3. Notwithstanding anything herein to the contrary, the Plan shall be administered, and the Option is granted and may be exercised only in such a manner as to conform to such laws, rules and regulations. To the extent permitted by applicable law, the Plan and this Agreement shall be deemed amended to the extent necessary to conform to such laws, rules and regulations.

Section 5.8             Amendments or Terminations. This Agreement and the Plan may be amended or terminated without the consent of the Optionee provided that such amendment or termination would not impair any rights of the Optionee under this Agreement. No amendment or termination of this Agreement shall, without the consent of the Optionee, impair any rights of the Optionee under this Agreement; provided, however, that notwithstanding the foregoing, the Administrator may, without obtaining the written consent of the Optionee, amend this Agreement in any manner that it deems necessary or desirable to comply with the requirements of Section 409A of the Code or an exemption thereto.

[signature page follows]

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IN WITNESS WHEREOF, this Agreement has been executed and delivered by the parties hereto.

	WALTER INDUSTRIES, INC.
	By
	Its
Name of Optionee
Residence Address
Optionee’s Social
Security Number:

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EX-10.15.1

Exhibit 10.15.1

CONFIDENTIAL

December 22, 2008

Mr. Victor P. Patrick

4211 West Boy Scout Blvd.

Tampa, FL 33607

Dear Vic:

The terms of your employment with Walter Industries, Inc. (the “Company”) are currently governed by a letter employment agreement dated August 1, 2006 (the “Original Agreement”). New tax rules under Section 409A of the Internal Revenue Code of 1986, as amended (the “Code”) require that certain provisions of our Original Agreement be amended. Accordingly, you and the Company hereby amend the terms of your employment as set forth below. To the extent the terms of this letter agreement are inconsistent with the terms of the Original Agreement, the terms of this letter agreement will control.

1.Section 2(d) of the Original Agreement is deleted in its entirety and replaced with the following:

“(d)You will receive a vehicle allowance of $2,000 per month, subject to usual withholding and employment taxes, payable in cash during the succeeding month in accordance with normal payroll practices.”

2.Section 3 of the Original Agreement is deleted in its entirety and replaced with the following:

“3.Severance Benefits

a)  In the event of your Involuntary Termination (as defined below), other than for “Cause” (as defined in Section 9), or your Constructive Termination (as defined below), but, in each case, excluding any separation from service by reason of your death or disability, you will be eligible for the following severance benefits:

(i)Eighteen (18) months of base salary continuation at the rate in effect at the date of your separation from service (the “Severance Date”); provided that base salary will be paid in accordance with the payroll dates in effect on the Severance Date, and such payment dates will not be affected by any subsequent change in payroll practices.

(ii)Payment of an amount equal to one and a half (1.5) times your target bonus for the year that includes the Severance Date

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under the Executive Incentive Plan (or successor annual bonus plan), payable as follows: (A) one (1) times your target bonus shall be paid during the year following the year that includes the Severance Date, and (B) one-half (0.5) times your target bonus shall be paid during the second year following the year that includes the Severance Date.

(iii)Except as provided below, continuation of all fringe benefits at the level in effect on the Severance Date, in each case beginning immediately upon the Severance Date and continuing until the earlier of (A) the date that is eighteen (18) months after the Severance Date, (B) the last date you are eligible to participate in the benefit under applicable law, or (C) the date you are eligible to receive comparable benefits from a subsequent employer, as determined solely by the Company in good faith. Such benefits shall be provided to you at the same coverage level and cost to you as in effect on the Severance Date. Notwithstanding the foregoing, your participation in the Employee Stock Purchase Plan and long-term disability insurance plan, and your ability to make deferrals under the 401(k) plan, will cease effective on the Severance Date.

To the extent required by law, you shall qualify for COBRA health benefit continuation coverage beginning upon expiration of the eighteen (18) month benefit continuation period described above.

For purposes of enforcing this subsection (iii), you shall be deemed to have a duty to keep the Company informed as to the terms and conditions of any subsequent employment and the corresponding benefits earned from such employment, and shall provide, or cause to provide, to the Company in writing correct, complete, and timely information concerning the same.

b)Notwithstanding anything to the contrary in this agreement, if you are a Specified Employee (as defined below) on the Severance Date, to the extent that you are entitled to receive any benefit or payment under this agreement that constitutes deferred compensation within the meaning of Section 409A of the Code before the date that is six (6) months after the Severance Date, such benefits or payments shall not be provided or paid to you on the date otherwise required to be provided or paid. Instead, all such amounts shall be accumulated and paid in a single lump sum to you on the first business day after the date that is six (6) months after the Severance Date (or, if earlier, within fifteen (15) days following your date of death). If you are required to pay for a benefit that is otherwise required to be provided by the Company under this agreement by reason of this Section 3(b), you shall be entitled to reimbursement for such payments on the first business day after the date that is six (6) months after the Severance Date (or, if earlier, within fifteen (15) days following your date of death). All

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benefits or payments otherwise required to be provided or paid on or after the date that is six (6) months after the Severance Date shall not be affected by this Section 3(b) and shall be provided or paid in accordance with the payment schedule applicable to such benefit or payment under this agreement.  Prior to the imposition of the six month delay as set forth in this Section 3(b), it is intended that (i) each installment under this agreement be regarded as a separate “payment” for purposes of Section 409A of the Code, and (ii) all benefits or payments provided under this agreement satisfy, to the greatest extent possible, the exemptions from the application of Section 409A of the Code provided under Treasury Regulations Sections 1.409A-1(b)(4) (short-term deferral) or 1.409A-1(b)(9) (certain separation pay plans). This Section 3(b) is intended to comply with the requirements of Section 409A(a)(2)(B)(i) of the Code.

c) For purposes of this agreement, the following terms have the meanings set forth below:

(i) “Involuntary Termination” means your involuntary separation from service within the meaning of Treasury Regulations Section 1.409A-1(n)(1).

(ii) “Constructive Termination” means your voluntary separation from service for Good Reason. “Good Reason” means the occurrence of any of the following conditions (in each case arising without your consent): (A) a change in the principal geographic location at which you must perform services to a location that is more than more than 50 miles from current headquarters in Tampa, Florida, (B) a material breach of this agreement by the Company, including Section 14 of this agreement, or (C) a material diminution in your authority, duties or responsibilities or the authority, duties, or responsibilities of the supervisor to whom your are required to report. Notwithstanding the foregoing, your voluntary separation from service shall be a Constructive Termination only if (x) you provide written notice of the facts or circumstances constituting a Good Reason condition to the Company within 30 days after the initial existence of the Good Reason condition, (y) the Company does not remedy the Good Reason condition within 30 days after it receives such notice, and (z) the voluntary separation from service occurs within 90 days after the initial existence of the Good Reason condition. The foregoing definition of Constructive Termination is intended to qualify for the safe harbor under Treasury Regulations Section 1.409A-1(n)(2)(ii) for treating a voluntary separation from service as an involuntary separation from service.

(iii) “Separation from service” means your “separation from service” from your employer within the meaning of Section 409A(a)(2)(A)(i) of the Code and the default rules of Treasury Regulations Section 1.409A-1(h). For this purpose, your “employer” is the Company and every entity or other person which collectively with the

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Company constitutes a single service recipient (as that term is defined in Treasury Regulations Sections 1.409A-1(g)) as the result of the application of the rules of Treasury Regulations Sections 1.409A-1(h)(3); provided that an 80% standard (in lieu of the default 50% standard) shall be used for purposes of determining the service recipient / employer for this purpose.

(iv)”Specified Employee” means a “specified employee” of the service recipient that includes the Company (as determined under Treasury Regulations Sections 1.409A-1(g)) within the meaning of Section 409A(a)(2)(B)(i) of the Code and Treasury Regulations Section 1.409A-1(i), as determined in accordance with the procedures adopted by such service recipient that are then in effect, or, if no such procedures are then in effect, in accordance with the default procedures set forth in Treasury Regulations Section 1.409A-1(i).

d)You shall not be entitled to severance benefits under this agreement in the event you experience a separation from service within twenty-four months after a Change in Control of the Company (as defined in your Executive Change in Control Severance Agreement with the Company). Severance benefits payable upon a separation from service during such period, if any, shall be determined and paid under such Executive Change in Control Severance Agreement.”

3.The definition of “Constructive Termination” in Section 9 of the Original Agreement (the second paragraph thereof) is deleted in its entirety. Further, the parties agree that “Good Reason” (as defined above) will not exist solely because of the occurrence of any of the events described in the current third paragraph of Section 9 of the Original Agreement.

4.The penultimate sentence of Section 11 of the Original Agreement is deleted in its entirety and replaced with the following:

“This payment shall be paid to you as promptly as possible after you remit the related taxes and in any event no later than the end of your taxable year immediately following your taxable year in which you remit the related taxes.”

5.A new Section 13 and new Section 14 are inserted immediately after Section 12 of the Original Agreement, as follows:

“13.To the extent this agreement provides for reimbursements of expenses incurred by you or in-kind benefits the provision of which are not exempt from the requirements of Section 409A of the Code, the following terms apply with respect to such reimbursements or benefits: (1) the reimbursement of expenses or provision of in-kind benefits will be made or provided only during the period of time in which you are employed by the Company or during the other period of time specifically

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provided herein; (2) the amount of expenses eligible for reimbursement, or in-kind benefits provided, during a calendar year will not affect the expenses eligible for reimbursement, or in-kind benefits to be provided, in any other calendar year; (3) all reimbursements will be made upon your request in accordance with the Company’s normal policies but no later than the last day of the calendar year immediately following the calendar year in which the expense was incurred; and (4) the right to the reimbursement or the in-kind benefit will not be subject to liquidation or exchange for another benefit.

14.The Company shall require any successor (whether direct or indirect, by purchase, merger, reorganization, consolidation, acquisition of property or stock, liquidation, or otherwise) of all or a significant portion of the assets of the Company by agreement, in form and substance satisfactory to you, to expressly assume and agree to perform this agreement in the same manner and to the same extent that the Company would be required to perform if no such succession had taken place.”

6.This letter agreement records the final, complete, and exclusive understanding among the parties regarding the amendment of the Original Agreement. As amended by this letter agreement, the Original Agreement is ratified and remains in full force and effect in accordance with its terms.

If you are in agreement with the foregoing terms, please sign and return one copy of this letter agreement, and retain one for your record.

Very truly yours,

/s/ Larry E. Williams
Name:		Larry E. Williams
Title:	Senior Vice President

Agreed and Accepted:

/s/ Victor P. Patrick
Victor P. Patrick
Date:	12-31-2008

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EX-10.17.1

Exhibit 10.17.1

CONFIDENTIAL

December 22, 2008

Mr. George R. Richmond

16243 Highway 216

Brookwood, AL 35444

Dear George:

The terms of your employment with Jim Walter Resources, Inc. (the “Company”) are currently governed by a letter employment agreement dated March 13, 2006 (the “Original Agreement”). New tax rules under Section 409A of the Internal Revenue Code of 1986, as amended (the “Code”), require that certain provisions of our Original Agreement be amended. Accordingly, you and the Company hereby amend the terms of your employment as set forth below. To the extent the terms of this letter agreement are inconsistent with the terms of the Original Agreement, the terms of this letter agreement will control.

1.     Section 2(d) of the Original Agreement is deleted in its entirety and replaced with the following:

“d) You will receive a car allowance of $2,000 per month, subject to usual withholding and employment taxes, payable in cash during the succeeding month in accordance with normal payroll practices.”

2.     Section 4 of the Original Agreement is deleted in its entirety and replaced with the following:

“4.           Your supplemental pension plan benefits will be funded through a rabbi trust. Any benefits payable under the supplemental pension plan will be paid in accordance with the terms of the supplemental pension plan document.”

3.     Section 5 of the Original Agreement is deleted in its entirety and replaced with the following:

“5.           Severance Benefits

a)  In the event of your Involuntary Termination (as defined below), other than for “Cause” (as defined in Section 10(a)), or your Constructive Termination (as defined below), you will be eligible for the following severance benefits:

(i)            Eighteen (18) months of base salary continuation at the rate in effect at the date of your separation from service (the

1

“Severance Date”); provided that base salary will be paid in accordance with the payroll dates in effect on the Severance Date, and such payment dates will not be affected by any subsequent change in payroll practices.

(ii)           Walter Industries, Inc. shall authorize a pro-rata bonus under the EIP (or successor annual bonus plan) based on the portion of the year actually worked and computed based on actual year to date performance up to the Severance Date. Such pro-rata bonus shall be paid during the year following the year that includes the Severance Date in accordance with the terms of the EIP.

(iii)          Payment of an amount equal to your target bonus for the year that includes the Severance Date under the EIP (or successor annual bonus plan), payable during the year following the year that includes the Severance Date.

(iv)          Except as provided below, continuation of all fringe benefits at the level in effect on the Severance Date, in each case beginning immediately upon the Severance Date and continuing until the earlier of (A) the date that is eighteen (18) months after the Severance Date, (B) the last date you are eligible to participate in the benefit under applicable law, or (C) the date you are eligible to receive comparable benefits from a subsequent employer, as determined solely by the Company in good faith. Such benefits shall be provided to you at the same coverage level and cost to you as in effect on the Severance Date. Notwithstanding the foregoing, your participation in the Employee Stock Purchase Plan and long-term disability insurance plan, and your ability to make deferrals under the 401(k) plan, will cease effective on the Severance Date.

To the extent required by law, you shall qualify for COBRA health benefit continuation coverage beginning upon expiration of the eighteen (18) month benefit continuation period described above.

For purposes of enforcing this subsection (iv), you shall be deemed to have a duty to keep the Company informed as to the terms and conditions of any subsequent employment and the corresponding benefits earned from such employment, and shall provide, or cause to provide, to the Company in writing correct, complete, and timely information concerning the same.

b)             Notwithstanding anything to the contrary in this agreement, if you are a Specified Employee (as defined below) on the Severance Date, to the extent that you are entitled to receive any benefit or payment under this agreement that constitutes deferred compensation within the meaning of

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Section 409A of the Code before the date that is six (6) months after the Severance Date, such benefits or payments shall not be provided or paid to you on the date otherwise required to be provided or paid. Instead, all such amounts shall be accumulated and paid in a single lump sum to you on the first business day after the date that is six (6) months after the Severance Date (or, if earlier, within fifteen (15) days following your date of death). If you are required to pay for a benefit that is otherwise required to be provided by the Company under this agreement by reason of this Section 5(b), you shall be entitled to reimbursement for such payments on the first business day after the date that is six (6) months after the Severance Date (or, if earlier, within fifteen (15) days following your date of death). All benefits or payments otherwise required to be provided or paid on or after the date that is six (6) months after the Severance Date shall not be affected by this Section 5(b) and shall be provided or paid in accordance with the payment schedule applicable to such benefit or payment under this agreement.  Prior to the imposition of the six month delay as set forth in this Section 5(b), it is intended that (i) each installment under this agreement be regarded as a separate “payment” for purposes of Section 409A of the Code, and (ii) all benefits or payments provided under this agreement satisfy, to the greatest extent possible, the exemptions from the application of Section 409A of the Code provided under Treasury Regulations Sections 1.409A-1(b)(4) (short-term deferral) or 1.409A-1(b)(9) (certain separation pay plans). This Section 5(b) is intended to comply with the requirements of Section 409A(a)(2)(B)(i) of the Code.

c) For purposes of this agreement, the following terms have the meanings set forth below:

(i) “Involuntary Termination” means your involuntary separation from service within the meaning of Treasury Regulations Section 1.409A-1(n)(1).

(ii) “Constructive Termination” means your voluntary separation from service for Good Reason. “Good Reason” means the occurrence of any of the following conditions (in each case arising without your consent): (A) a material diminution in your base compensation; or (B) a material diminution in your authority, duties or responsibilities. Notwithstanding the foregoing, your voluntary separation from service shall be a Constructive Termination only if (x) you provide written notice of the facts or circumstances constituting a Good Reason condition to the Company within 30 days after the initial existence of the Good Reason condition, (y) the Company does not remedy the Good Reason condition within 30 days after it receives such notice, and (z) the voluntary separation from service occurs within 90 days after the initial existence of the Good Reason condition. The foregoing definition of Constructive Termination is intended to qualify for the safe harbor under Treasury

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Regulations Section 1.409A-1(n)(2)(ii) for treating a voluntary separation from service as an involuntary separation from service.

(iii) “Separation from service” means your “separation from service” from your employer within the meaning of Section 409A(a)(2)(A)(i) of the Code and the default rules of Treasury Regulations Section 1.409A-1(h). For this purpose, your “employer” is the Company and every entity or other person which collectively with the Company constitutes a single service recipient (as that term is defined in Treasury Regulations Sections 1.409A-1(g)) as the result of the application of the rules of Treasury Regulations Sections 1.409A-1(h)(3); provided that an 80% standard (in lieu of the default 50% standard) shall be used for purposes of determining the service recipient / employer for this purpose.

(iv)”Specified Employee” means a “specified employee” of the service recipient that includes the Company (as determined under Treasury Regulations Sections 1.409A-1(g)) within the meaning of Section 409A(a)(2)(B)(i) of the Code and Treasury Regulations Section 1.409A-1(i), as determined in accordance with the procedures adopted by such service recipient that are then in effect, or, if no such procedures are then in effect, in accordance with the default procedures set forth in Treasury Regulations Section 1.409A-1(i).

d)             You shall not be entitled to severance benefits under this agreement in the event you experience a separation from service within twenty-four months after a Change in Control of Walter Industries, Inc. (as defined in your Executive Change in Control Severance Agreement with Walter Industries, Inc.). Severance benefits payable upon a separation from service during such period, if any, shall be determined and paid under such Executive Change in Control Severance Agreement.”

4.     The parties agree that “Good Reason” (as defined above) will not exist solely because of the occurrence of any of the events described in Section 10(b) of the Original Agreement.

5.     The penultimate sentence of Section 11 of the Original Agreement is deleted in its entirety and replaced with the following:

“This payment shall be paid to you as promptly as possible after you remit the related taxes and in any event no later than the end of your taxable year immediately following your taxable year in which you remit the related taxes.”

6.     A new Section 13 is inserted immediately after Section 12 of the Original Agreement, as follows:

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“13.         To the extent this agreement provides for reimbursements of expenses incurred by you or in-kind benefits the provision of which are not exempt from the requirements of Section 409A of the Code, the following terms apply with respect to such reimbursements or benefits: (1) the reimbursement of expenses or provision of in-kind benefits will be made or provided only during the period of time in which you are employed by the Company or during the other period of time specifically provided herein; (2) the amount of expenses eligible for reimbursement, or in-kind benefits provided, during a calendar year will not affect the expenses eligible for reimbursement, or in-kind benefits to be provided, in any other calendar year; (3) all reimbursements will be made upon your request in accordance with the Company’s normal policies but no later than the last day of the calendar year immediately following the calendar year in which the expense was incurred; and (4) the right to the reimbursement or the in-kind benefit will not be subject to liquidation or exchange for another benefit.”

7.     This letter agreement records the final, complete, and exclusive understanding among the parties regarding the amendment of the Original Agreement. As amended by this letter agreement, the Original Agreement is ratified and remains in full force and effect in accordance with its terms.

If you are in agreement with the foregoing terms, please sign and return one copy of this letter agreement, and retain one for your record.

Very truly yours,
/s/ Larry E. Williams
Name:		Larry E. Williams
Title:	Senior Vice President
Agreed and Accepted:
/s/ George R. RIchmond
George R. Richmond
Date:	12/29/08

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EX-10.21

Exhibit 10.21

AMENDED AND RESTATED

2007 LONG-TERM INCENTIVE AWARD PLAN

OF

JWH HOLDING COMPANY, LLC

JWH Holding Company, LLC, a Delaware limited liability company, has adopted the 2007 Long-Term Incentive Award Plan of JWH Holding Company, LLC, (the “Plan”), effective March 1, 2007, for the benefit of its eligible employees, consultants and directors.

The purposes of the Plan are as follows:

(1) To provide an additional incentive for Employees (as defined below) to further the growth, development and financial success of the Company by personally benefiting through the ownership of Company equity and/or rights which recognize such growth, development and financial success.

(2) To enable the Company to obtain and retain the services of Employees considered essential to the long-range success of the company by offering them an opportunity to own equity in the Company and/or rights which will reflect the growth, development and financial success of the Company.

ARTICLE I.

DEFINITIONS

Wherever the following terms are used in the Plan, they shall have the meanings specified below, unless the context clearly indicates otherwise. The singular pronoun shall include the plural where the context so indicates.

1.1. “Administrator” shall mean the entity that conducts the general administration of the Plan as provided herein.

1.2. “Award” shall mean an Option that may be awarded or granted under the Plan.

1.3. “Award Agreement” shall mean a written agreement executed by an authorized officer of the Company and the Holder that shall contain such terms and conditions with respect to an Award as the Administrator shall determine, consistent with the Plan.

1.4. “Award Limit” shall mean 0.2 LLC Interests, as adjusted pursuant to Section 8.3.

1.5. “Board” shall mean the Board of Directors of Walter.

1.6. “Change in Control” shall mean a change in ownership or control of the Company effected through any of the following:

(a) Any person or related group of persons (other than Walter or a person that, prior to such transaction, directly of indirectly controls, is controlled by, or is under common control with, Walter) directly or indirectly acquires beneficial ownership of securities, possessing more than 40% of the total combined voting power of the Company’s outstanding securities, or

(b) There is a change in the composition of the Board over a period of 36 consecutive months (or less) such that a majority of the Board members (rounded up to the nearest whole

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number) ceases to be comprised of individuals who either (i) have been Board members continuously since the beginning of such period, or (ii) have been elected or nominated for election as Board members during such period by at least a majority of the Board members described in clause (i) who were still in office at the time such election or nomination was approved by the Board; or

(c) The equity holders of the Company approve a merger or consolidation of the Company with any other corporation (or other entity), other than a merger or consolidation which would result in the voting securities of the Company outstanding immediately prior thereto continuing to represent (either by remaining outstanding or by being converted into voting securities of the surviving entity) more than 66 2/3% of the combined voting power of the voting securities of the Company or such surviving entity outstanding immediately after such merger or consolidation; provided, however, that a merger or consolidation effected to implement a recapitalization of the Company (or similar transaction) in which no person acquires more than 25% of the combined voting power of the Company’s then outstanding securities shall not constitute a Change in Control; or

(d) The equity holders of the Company approve a plan of complete liquidation of the Company of an agreement for the sale, lease or other disposition by the Company of all or substantially all of the Company’s assets.

1.7. “Code” shall mean the Internal Revenue Code of 1986, as amended.

1.8. “Committee” shall mean the Compensation Committee of the Board, or another committee or subcommittee of the Board, appointed as provided in Section 7.1.

1.9. “Common Equity” shall mean the LLC Interests of the Company.

1.10. “Company” shall mean JWH Holding Company, LLC, a Delaware limited liability company.

1.11. “Director” shall mean a member of the Board.

1.12. “DRO” shall mean a domestic relations order as defined by the Code or Title I of the Employee Retirement Income Security Act of 1974, as amended, or the rules thereunder.

1.13. “Employee” shall mean any officer, or other employee (as defined in accordance with Section 3401 (c) of the Code) of the Company, or of any Subsidiary.  An employee may be a Director.

1.14. “Exchange Act” shall mean the Securities Exchange Act of 1934, as amended.

1.15. “Fair Market Value” shall have the meaning assigned in the applicable Award Agreement. Fair Market Value of the LLC Interests shall be established by the Administrator acting in good faith based on a reasonable valuation method that is consistent with the requirements of Section 409A of the Code and all other applicable rules and regulations.

1.16. “Holder” shall mean a person who has been granted or awarded an Award.

1.17. “Independent Director” shall mean a member of the Board who is not an Employee of the Company.

1.18. “Option” shall mean an equity option granted under Article IV of the Plan.

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119. “Plan” shall mean the 2007 Long-Term Incentive Award Plan of JWH Holding Company, LLC.

1.20. “Rule 16b-3” shall mean Rule 16b-3 promulgated under the Exchange Act, as such Rule may be amended from time to time.

1.21. “Section 162(m) Participant” shall mean any Employee whose compensation for a given fiscal year may be subject to the limit on deductible compensation imposed by Section 162(m) of the Code.

1.22. “Securities Act” shall mean the Securities Act of 1933, as amended.

1.23. “Subsidiary” shall mean any corporation in an unbroken chain of corporations beginning with the Company if each of the corporations other than the last corporation in the unbroken chain then owns equity possessing 50% or more of the total combined voting power of all classes of equity in one of the other corporations in such chain.

1.24. “Substitute Award” shall mean an Option granted under this Plan upon the assumption of, or in substitution for, outstanding equity awards previously granted by a company or other entity in connection with a corporate transaction, such as a merger, combination, consolidation or acquisition or property or equity; provided, however, that in no event shall the term “Substitute Award” be construed to refer to an award made in connection with the cancellation and repricing of an Option.

1.25. “Termination of Employment” shall mean the time when the employee-employer relationship between a Holder and the Company or any Subsidiary is terminated for any reason, with or without cause, including, but not by way of limitation, a termination by resignation, discharge, death, disability or retirement; but excluding (a) terminations where there is a simultaneous reemployment or continuing employment of a Holder by the Company or any Subsidiary, (b) at the discretion of the Administrator, terminations which result in a temporary severance of the employee-employer relationship, and (c) at the discretion of the Administrator, terminations which are followed by the simultaneous establishment of a consulting relationship by the Company or a Subsidiary with the former employee. The Administrator, in its discretion, shall determine the effect of all matters and questions relating to Terminations of Employment, including, but not by way of limitation, the question of whether a Termination of Employment resulted from a discharge for good cause, and all questions of whether a particular leave of absence constitutes a Termination of Employment.

1.26. “Walter” shall mean Walter Industries, Inc.

ARTICLE II.

LLC INTERESTS SUBJECT TO PLAN

2.1. LLC Interests Subject to Plan.

(a) The LLC Interests subject to Awards shall be Common Equity. Subject to adjustment as provided in Section 8.3, the aggregate number of such LLC Interests which may be issued upon exercise of Awards under the Plan shall not exceed 0.2.

(b) The maximum number of LLC Interests which may be subject to Awards granted under the Plan to any individual in any calendar year shall not exceed the Award Limit.

2.2 Add-back of Options and Other Rights; Certain Acquired Entities

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(a) If any Option expires or is canceled without having been fully exercised, or is exercised in whole or in part for cash as permitted by the Plan, the number of LLC Interests subject to such Options but as to which such Option was not exercised prior to its expiration, cancellation or exercise may again be optioned, granted or awarded hereunder, subject to the limitations of Section 2.1. Furthermore, any LLC Interests subject to Award which are adjusted pursuant to Section 8.3 and become exercisable with respect to equity of another corporation shall be considered cancelled and may again be optioned, granted or awarded hereunder subject to the limitations of Section 2.1. LLC Interests which are delivered by the Holder or withheld by the company upon the exercise of any Award under the Plan, in payment of the exercise price thereof or tax withholding thereon, may again be optioned, granted or awarded hereunder, subject to the limitations of Section 2.1.

(b) Subject to Sections 3.2(d) and 3.3, any LLC Interests that are issued by the Company, and any Awards that are granted as a result of the assumption of, or in substitution for, outstanding awards previously granted by an acquired entity shall not be counted against the limitations set forth in Section 2.1.

ARTICLE III.

GRANTING OF AWARDS

3.1 Award Agreement. Each Award shall be evidenced by an Award Agreement.

3.2. Provisions Applicable to Section 162(m) Participants.

(a) The Committee, in its discretion, may determine whether an Award is to qualify as performance-based compensation as described in Section 162(m) (4) (C) of the Code.

(b) Notwithstanding anything in the Plan to the contrary, the Committee may grant any Award to a Section 162(m) Participant.

(c) Furthermore, notwithstanding any other provision of the Plan, any Award which is granted to a Section 162(m) Participant and is intended to qualify as performance-based compensation as described in Section 162(m)(4)(C) of the Code shall be subject to any additional limitations set forth in Section 162(m) of the Code (including any amendment to Section 162(m) of the Code) or any regulations or rulings issued thereunder that are requirements for qualification as performance-based compensation as described in Section 162(m)(4)(C) of the Code, and the Plan shall be deemed amended to the extent necessary to conform to such requirements.

3.3. Limitations Applicable to Section 16 Persons. Notwithstanding any other provisions of the Plan, the Plan, and any Award granted or awarded to any individual who is then subject to Section 16 of the Exchange Act, shall be subject to any additional limitations set forth in any applicable exemptive rule under Section 16 of the Exchange Act (including any amendment to Rule 16b-3 of the Exchange Act) that are requirements for the application of such exemptive rule. To the extent permitted by applicable law, the Plan and Awards granted or awarded hereunder shall be deemed amended to the extent necessary to conform to such applicable exemptive rule.

3.4. Consideration. In consideration of the granting of an Award under the Plan, the Holder shall agree, in the Award Agreement, to remain in the employ of the Company or any Subsidiary for a period of at least one year (of such shorter period as may be fixed in the Award Agreement of by action of the Administrator following grant of the Award) after the Award is granted.

3.5. At-Will Employment. Nothing in the Plan or in any Award Agreement hereunder shall confer upon any Holder any right to continue in the employ of the Company or any Subsidiary, or as a director

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of the Company, or shall interfere with or restrict in any way the rights of the Company and any Subsidiary, which are hereby expressly reserved, to discharge any Holder at any time for any reason whatsoever, with or without cause, except to the extent expressly provided otherwise in a written employment agreement between the Holder and the Company or any Subsidiary.

3.6 Non-Qualified Deferred Compensation. In the event that any Award granted under the Plan is determined to constitute nonqualified deferred compensation within the meaning of Section 409A of the Code (a “NQDC Award”), in whole or in part, the Award Agreement evidencing such NQDC Award shall contain such terms and conditions as may be necessary to meet the applicable provisions of Section 409A of the Code.

ARTICLE IV.

GRANTING OF OPTIONS

4.1. Eligibility. Any Employee selected by the Administrator pursuant to Section 4.4(a)(i) shall be eligible to be granted an Option.

4.2. Granting of Options to Employees.

(a) The Administrator shall from time to time, in its discretion, and subject to applicable limitations of the Plan:

(i) Select from among the Employees (including Employees who have previously received Awards under the Plan) such of them as in its opinion should be granted Options;

(ii) Subject to the Award Limit, determine the number of LLC Interests to be subject to such Options granted to the selected Employees;

(iii) Subject to Section 4.3, determine whether such Options are to be Incentive Equity Options or Non-Qualified Equity Options and determine whether such Options are to qualify as performance-based compensation as described in Section 162(m)(4)(C) of the Code; and

(iv) Determine the terms and conditions of such Options, consistent with the Plan; provided, however, that the terms and conditions of Options intended to qualify as performance-based compensation as described in Section 162(m)(4)(C) of the Code shall include, but not be limited to, such terms and conditions as may be necessary to meet the applicable provisions of Section 162(m) of the Code.

(b) Upon the selection of an Employee to be granted an Option, the Administrator shall instruct the Secretary of the Company to issue the Option and may impose such conditions on the grant of the Option as it deems appropriate.

ARTICLE V.

TERMS OF OPTIONS

5.1. Option Price; Options Exempt from Section 409A.

(a) The exercise price of the LLC Interests subject to each Option granted to Employees shall be set by the Administrator, provided, however, that in the case of Options intended to

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qualify as performance-based compensation as described in Section 162(m)(4)(C) of the Code, such exercise price shall not be less than 100% of the Fair Market Value of the LLC Interests subject to the Award on the date the Option is granted.

(b) In the case of a Option that is intended not to provide for a deferral of compensation within the meaning of Section 409A (and is therefore intended to qualify for the exemption from the requirements of Section 409A of the Code for non-qualified stock options under Treasury Regulations Section 1.409A-1(b)(5)): (i) the exercise price of the Option shall not be less than 100% of the Fair Market Value of the LLC Interests subject to the Option on the date the Option is granted, (ii) the number of LLC Interests subject to the Option shall be fixed on the date the Option is granted, and (iii) the Option shall not include any feature for the deferral of compensation within the meaning of Treasury Regulations Section 1.409A-1(b)(5) other than the deferral of recognition of income until the later of the exercise or disposition of the Option under Treasury Regulation Section 1.83-7, or the time the LLC Interests acquired pursuant to the exercise of the Option becomes substantially vested within the meaning of Treasury Regulations Section 1.83-3(b).

5.2. Option Term.  The term of an Option granted to an Employee shall be set by the Administrator in its discretion.  The Administrator may in its discretion (a) extend the term of any outstanding Option in connection with any Termination of Employment, or amend any other term or condition of such Option relating to such a termination or (b) grant an Option for a term of less than 10 years and subsequently extend the term of such Option to 10 years without consideration. Notwithstanding the foregoing, the Administrator shall not permit the modification or extension (in each case as defined under Section 409A) of an Option that is exempt from the requirements of Section 409A of the Code in a manner that would cause such Option to become subject to the requirements of Section 409A of the Code, or would otherwise violate any applicable requirement of Section 409A of the Code.

5.3. Option Vesting.

(a) The period during which the right to exercise, in whole or in part, an Option granted to an Employee vests in the Holder shall be set by the Administrator and the Administrator may determine that an Option may not be exercised in whole or in part for a specified period after it is granted.  At any time after grant of an Option, the Administrator may, in its discretion and subject to whatever terms and conditions it selects, accelerate the period during which an Option granted to an Employee vests.

(b) No portion of an Option granted to an Employee which is unexercisable at Termination of Employment shall thereafter become exercisable, except as may be otherwise provided by the Administrator either in the Award Agreement or by action of the Administrator following the grant of the Option.

5.4. Substitute Awards.  Notwithstanding the foregoing provisions of this Article V to the contrary, but subject to compliance with the applicable requirements of Section 409A of the Code, in the case of an Option that is a Substitute Award, the price per share of the LLC Interests subject to such Option may be less than the Fair Market Value per share on the date of grant, provided, that the excess of:

(a) The aggregate Fair Market Value (as of the date such Substitute Award is granted) of the LLC Interests subject to the Substitute Award; over

(b) The aggregate exercise price thereof; does not exceed the excess of:

(c) The aggregate fair market value (as of the time immediately preceding the transaction giving rise to the Substitute Award, such fair market value to be determined by the Administrator)

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of the LLC Interests of the predecessor entity that were subject to the grant assumed or substituted for by the Company; over

(d) The aggregate exercise price of such LLC Interests.

ARTICLE VI.

EXERCISE OF OPTIONS

6.1. Partial Exercise. An exercisable Option may be exercised in whole or in part.  However, the Administrator may require that by the terms of the Option, a partial exercise be with respect to a minimum number of LLC Interests.

6.2. Manner of Exercise.  All or a portion of an exercisable Option shall be deemed exercised upon delivery of all of the following to the Secretary of the Company or his or her office;

(a) A written notice complying with the applicable rules established by the Administrator stating that the Option, or a portion thereof, is exercised.  The notice shall be signed by the Holder or other person then entitled to exercise the Option or such portion of the Option;

(b) Such representations and documents as the Administrator, in its discretion, deems necessary or advisable to effect compliance with all applicable provisions of the Securities Act and any other federal or state securities laws or regulations.   The Administrator may, in its discretion, also take whatever additional actions it deems appropriate to effect such compliance including, without limitation, placing legends on share certificates and issuing stop-transfer notices to agents and registrars;

(c) Any form or forms of identification requested by the Administrator and, in the event that the Option shall be exercised pursuant to Section 8.1 by any person or persons other than the Holder, appropriate proof of the right of such person or persons to exercise the Option; and

(d) Full cash payment to the Secretary of the Company for the LLC Interests with respect to which the Option, or portion thereof, is exercised.  However, the Administrator may, in its discretion, (i) allow payment, in whole or in part, through the delivery of LLC Interests which have been owned by the Holder for at least six months with a Fair Market Value on the date of delivery equal to the aggregate exercise price of the Option or exercised portion thereof; (ii) allow payment, in whole or in part, through the surrender of LLC Interests then issuable upon exercise of the Option having a Fair Market Value on the date of Option exercise equal to the aggregate exercise price of the Option or exercised portion thereof; (iii) allow payment, in whole or in part, through the delivery of property of any kind which continues good and valuable consideration, or (iv) allow payment through any combination of the consideration provided in the foregoing subparagraphs (i), (ii) and (iii).

6.3. Conditions to Issuance of LLC Interests.  The Company shall not be required to issue or deliver any LLC Interests purchased upon the exercise of any Option or portion thereof prior to fulfillment of all of the following conditions:

(a) The completion of any registration or other qualification of such LLC Interests under any state or federal law, or under the rulings or regulations of the Securities and Exchange Commission or any other governmental regulatory body which the Administrator shall, in its discretion, deem necessary or advisable;

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(b) The obtaining of any approval or other clearance from any state or federal governmental agency which the Administrator shall, in its discretion, determine to be necessary or advisable;

(c) The lapse of such reasonable period of time following the exercise of the Option as the Administrator may establish from time to time for reasons of administrative convenience; and

(d) The receipt by the Company of full payment for such LLC Interests, including payment of any applicable withholding tax, which in the discretion of the Administrator may be in the form of consideration used by the Holder to pay for such LLC Interests under Section 6.2(d).

6.4. Rights as Equity Holders.  Holders shall not be, nor have any of the rights or privileges of, equity holders of the Company in respect of any LLC Interests purchasable upon the exercise of any part of an Option unless and such LLC Interests have been issued by the Company to such Holders.

6.5. Ownership and Transfer Restrictions.  The Administrator, in its discretion, may impose such restrictions on the ownership and transferability of the LLC Interests purchasable upon the exercise of an Option as it deems appropriate; provided, however, that with respect to any LLC Interests purchasable on the exercise of an Option intended to be exempt from the requirements of Section 409A of the Code, the Administrator shall not impose any restrictions that would cause such LLC Interests to fail to qualify as “service recipient stock” within the meaning of Section 409A of the Code.  Any such restrictions shall be set forth in the respective Award Agreement.

6.6. Additional Limitations on Exercise of Options.  Holders may be required to comply with any timing or other restrictions with respect to the settlement or exercise of an Option, including a window-period limitation, as may be imposed in the discretion of the Administrator.

ARTICLE VII.

ADMINISTRATION

7.1. Compensation Committee. The Compensation Committee (or one or more other committees or subcommittees of the Board assuming the functions of the Committee under the Plan) shall consist solely of two or more Independent Directors appointed by and holding office at the pleasure of the Board, each of whom is both a “non-employee director” as defined by Rule 16b-3 and an “outside director” for purposes of Section 162(m) of the Code.  Appointment of Committee members shall be effective upon acceptance of appointment.  Committee members may resign at any time by delivering written notice to the Board.  Vacancies in the Committee may be filled by the Board.

7.2. Duties and Powers of Administrator.  It shall be the duty of the Administrator to conduct the general administration of the Plan in accordance with its provisions.  The administrator shall have the power to interpret the Plan and the Award Agreements, and to adopt such rules for the administration, interpretation and application of the Plan as are consistent therewith, to interpret, amend or revoke any such rules and to amend any Award Agreement provided that the rights or obligations of the Holder of the Award that is the subject of any such Award Agreement are not affected adversely.  Any such grant or award under the Plan need not be the same with respect to each Holder.  In its discretion, the Board may at any time and from time to time exercise any and all rights and duties of the Administrator under the Plan except with respect to matters which under Rule 16b-3 or Section 162(m) of the Code, or any regulations or rules issued thereunder, are required to be determined in the discretion of the Committee.

7.3. Majority Rule; Unanimous Written Consent.  The Committee shall act by a majority of its members in attendance at a meeting at which a quorum is present or by a memorandum or other written instrument signed by all members of the Committee.

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7.4. Compensation; Professional Assistance; Good Faith Actions.  Members of the Committee shall receive such compensation, if any, for their services as members as may be determined by the Board.  All expenses and liabilities which members of the Committee incur in connection with the administration of the Plan shall be borne by the Company.  The Committee may, with the approval of the Board, employ attorneys, consultants, accountants, appraisers, brokers or other persons.  The Committee, the Company and the Company’s officers and Directors shall be entitled to rely upon the advice, opinions or valuations of any such persons.  All actions shall be taken and all interpretations and determinations shall be made by the Administrator reasonably and in good faith.  No member of the Administrator shall be personally liable for any action, determination or interpretation made in good faith with respect to the Plan or Awards, and all members of the Administrator shall be fully protected by the Company in respect of any such action, determination or interpretation.

7.5. Delegation of Authority to Grant Awards.  The Committee may, but need not, delegate from time to time some or all of its authority to grant Awards under the Plan to a committee consisting of one or more members of the Committee or of one or more officers of the Company; provided, however, that the Committee may not delegate its authority to grant Awards to individuals (a) who are subject on the date of the grant to the reporting rule under Section 16(a) of the Exchange Act, (b) who are Section 162(m) Participants, or (c) who are officers of the Company who are delegated authority by the Committee hereunder.  Any delegation hereunder shall be subject to the restrictions and limits that the Committee specifies at the time of such delegation of authority and may be rescinded at any time by the Committee.  At all times, any committee appointed under this Section 7.5 shall serve in such capacity at the pleasure of the Committee.

7.6 No Warranty as to Tax Treatment. It is the intention of the Company that the Awards granted under the Plan will be exempt from, or will comply with the requirements of, Section 409A of the Code, and the Plan and the terms and conditions of all Awards shall be interpreted, construed and administered consistent with such intent. Although the Company intends for the Awards to be in compliance with Section 409A of the Code or an exemption thereto, the Company does not warrant that the terms of any Award or the Company’s administration thereof will be exempt from, or will comply with the requirements of, Section 409A of the Code. The Company shall not be liable to any Holder or any other person for any tax, interest, or penalties that the person may incur as a result of an Award or the Company’s administration thereof not satisfying any of the requirements of Section 409A of the Code or an exemption thereto.

ARTICLE VIII.

MISCELLANEOUS PROVISIONS

8.1. Transferability of Awards.

(a)           Except as otherwise provided in Section 8.1(b), and subject to compliance with the applicable requirements of Section 409A of the Code:

(i) No Award under the Plan may be sold, pledged, assigned or transferred in any manner other than by will or the laws of descent and distribution or, subject to the consent of the Administrator, pursuant to a DRO, unless and until such Award has been exercised, or the LLC Interests underlying such Award have been issued, and all restrictions applicable to such LLC Interests have lapsed;

(ii) No Award or interest or right therein shall be liable for the debts, contracts or engagements of the Holder or his or her successors in interest or shall be subject to disposition by transfer, alienation, anticipation, pledge, encumbrance, assignment or any other means whether such disposition be voluntary or involuntary or by operation of law by judgment, levy, attachment, garnishment or any other legal or equitable proceedings

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(including bankruptcy), and any attempted disposition is permitted by the preceding sentence; and

(iii) During the lifetime of the Holder, only he or she may exercise an Option (or any portion thereof) granted to him or her under the Plan, unless it has been disposed of pursuant to a DRO; after the death of the Holder, any exercisable portion of an Option may, prior to the time when such portions becomes unexercisable under the Plan or the applicable Award Agreement, be exercised by his or her personal representative or by any person empowered to do so under the deceased Holder’s will or under the then applicable laws of descent and distributions.

(b) Notwithstanding Section 8.1(a), the Administrator, in its discretion, may determine to permit a Holder to transfer an Option to any one or more Permitted Transferees (as defined below), subject to the following terms and conditions: (i) an Option transferred to a Permitted Transferee shall not be assignable or transferable by the Permitted Transferee other than by will of the laws of descent and distribution; (ii) any Option which is transferred to a Permitted Transferee shall continue to be subject to all the terms and conditions of the Option as applicable to the original Holder (other than the ability to further transfer the Option); and (iii) the Holder and the Permitted Transferee shall execute any and all documents requested by the Administrator, including, without limitation documents to (A) confirm the status of the transferee as a Permitted Transferee, (B) satisfy any requirements for an exemption for the transfer under applicable federal and state securities laws and (C) evidence the transfer. For purposed of this Section 8.1(b), “Permitted Transferee” shall mean with respect to a Holder, any child, stepchild, grandchild, parent, stepparent, grandparent, spouse, former spouse, sibling, niece, nephew, mother-in-law, father-in-law, son-in-law, daughter-in-law, brother-in-law, or sister-in-law, including adoptive relationships, and person sharing the Holder’s household (other than a tenant or employee), a trust in which these persons (or the Holder) control the management of assets, and any other entity in which these persons (or the Holder) own more than fifty percent of the voting interests, or any other transferee specifically approved by the Administrator after taking into account any state or federal tax or securities laws applicable to transferable Options.

8.2. Amendments, Suspension, or Termination of the Plan. Except as otherwise provided in this Section 8.2, the Plan may be wholly or partially amended or otherwise modified, suspended or terminated at any time or from time to time by the Administrator. However, without approval of the Company’s equity holders, no action of the Administrator may, except as provided in Section 8.3, increase the limits imposed in Section 8.1 on the maximum number of LLC Interests which may be issued under the Plan. No amendment, suspension or termination of the Plan shall, without the consent of the Holder, alter or impair any rights or obligations under any Award theretofore granted or awarded, unless the Award itself otherwise expressly so provides. No awards may be granted or awarded during any period of suspension or after termination of the Plan.

Notwithstanding anything to the contrary, the Administrator shall have the right to amend the Plan and any outstanding Awards or adopt other policies and procedures applicable to the Plan and Awards (including amendments, policies and procedures with retroactive effect) without Holder consent as may be necessary or appropriate to comply with the requirements of Section 409A of the Code or an exemption thereto.

8.3. Changes in Common Equity or Assets of the Company, Acquisition or Liquidation of the Company and Other Corporate Events.

(a) Subject to Section 8.3(d), in the event that the Administrator determines that any dividend or other distribution (whether in the form of cash, Common Equity, other securities or other property), recapitalization, reclassification, equity split, reverse equity split, reorganization,

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merger, consolidation, split-up, spin-off, combination, repurchase, liquidation, dissolution, or sale, transfer, exchange or other disposition of all or substantially all of the assets of the Company, or exchange of Common Equity or other securities of the company, issuance of warrants or other rights to purchase Common Equity or other securities of the Company, or other similar corporate transaction or event, in the Administrator’s discretion, affects the Common Equity such that an adjustment is determined by the Administrator to be appropriate in order to prevent dilution or enlargement of the benefits or potential benefits intended to be made available under the Plan or with respect to an Award, then the Administrator shall, in such manner as it may deem equitable, adjust any or all of:

(i) The number and kind of LLC Interests (or other securities or property) with respect to which Awards may be granted or awarded (including, but not limited to, adjustments of the limitations in Section 8.1 on the maximum number and kind of LLC Interests which may be issued and adjustments of the Award limited);

(ii) The number and kind of LLC Interests (or other securities or property) subject to outstanding Awards; and

(iii) The grant or exercise price with respect to any Award.

(b) Subject to Sections 8.3(b)(vi) and 8.3(d), in the event of any transaction or event described in Section 8.3(a) or any unusual or nonrecurring transactions or events affecting the Company, any affiliate of the Company, or the financial statements of the Company or any affiliate, or of changes in applicable laws, regulations or accounting principles, the Administrator, in its discretion, and on such terms and conditions as it deems appropriate, either by the terms of the Award or by action taken prior to the occurrence of such transaction or event and either automatically or upon the Holder’s request, is hereby authorized to take any one or more of the following actions whenever the Administrator determines that such action is appropriate in order to prevent dilution or enlargement of the benefits or potential benefits intended to be made available under the Plan or with respect to any Award under the Plan, to facilitate such transactions or events or to give effect to such changes in laws, regulations or principles:

(i) To provide for either the purchase of any such Award for an amount of cash equal to the amount that could have been attained upon the exercise of such Award or realization of the Holder’s rights had such Award been currently exercisable or payable or fully vested or the replacement of such Award with other rights or property selected by the Administrator in its discretion;

(ii) To provide that the Award cannot vest, be exercised or become payable after such event;

(iii) To provide that such Award shall be exercisable as to all LLC Interests covered thereby, notwithstanding anything to the contrary in Section 5.3 or 5.4 or the provisions of such Award;

(iv) To provide that such Award be assumed by the successor or survivor corporation, or a parent of subsidiary thereof, or shall be substituted for by similar options, rights or awards covering the equity of the successor or survivor corporation, or a parent or subsidiary thereof, with appropriate adjustments as to the number and kind of LLC Interests and prices; and

(v) To make adjustments in the number and type of LLC Interests (or other securities or property) subject to outstanding Awards and/or in the terms and conditions

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of (including the grant or exercise price), and the criteria included in, outstanding options, and options that may be granted in the future.

(vi) Notwithstanding any other provision of the Plan, but subject to compliance with the applicable requirements of Section 409A of the Code, in the event of a Change in Control, each outstanding Award shall, immediately prior to the effective date of the Change in Control, automatically become fully exercisable for all of the LLC Interests at the time subject to such rights and may be exercised for any or all of those LLC Interests as fully-vested LLC Interests.

(c) Subject to Sections 8.3(d), the Administrator may, in its discretion, include such further provisions and limitations in any Award, agreement or certificate, as it may deem equitable and in the best interests of the Company.

(d) No adjustment or action described in this Section 8.3 or in any other provision of the Plan shall be authorized to the extent such adjustment or action would result in short-swing profits liability under Section 16 or violate the exemptive conditions of Rule 16b-3 unless the Administrator determines that the Award is not to comply with such exemptive conditions. Furthermore, no adjustment or action described in this Section 8.3 or in any other provision of the Plan shall be authorized to the extent such adjustment or action would cause any Award that is otherwise exempt from the requirements of Section 409A of the Code to become subject to Section 409A of the Code, or would cause any Award that is subject to Section 409A of the Code to fail to satisfy any requirement of Section 409A of the Code.

(e) The existence of the plan, the Award Agreement and the Awards granted hereunder shall not affect or restrict in any way the right or power of the Company or the equity holders of the Company to make or authorize any adjustment, recapitalization, reorganization or other change in the Company’s capital structure or its business, any merger or consolidation of the Company, any issue of equity or of options, warrants or rights to purchase equity or of bonds, debentures, preferred or prior preference equitys whose rights are superior to or affect the Common Equity or the rights thereof or which are convertible into or exchangeable for Common Equity, or the dissolution or liquidation of the company, or any sale or transfer of all or any part of its assets or business, or any other corporate act or proceeding, whether of a similar character or otherwise.

8.4. Tax Withholding.  The company shall be entitled to require payment in cash or deduction from other compensation payable to each Holder of any sums required by federal, state or local tax law to be withheld with respect to any Award.

8.5. Forfeiture Provisions.  Pursuant to its general authority to determine the terms and conditions applicable to Awards under the Plan, the Administrator shall have the right to provide, in the terms of Awards made under the plan, or to require a Holder to agree by separate written instrument, that (a)(i) any proceeds, gains or other economic benefit actually or constructively received by the Holder upon any receipt or exercise of the Award, or upon the receipt or resale of any Common Equity underlying the Award, must be paid to the Company, and (ii) the Award shall terminate and any unexercised portion of the Award (whether or not vested) shall be forfeited, if (b)(i) a Termination of Employment occurs prior to a specified date, or within a specified time period following receipt or exercise of the Award, or (ii) the Holder at any time, or during a specified time period, engages in any activity in competition with the Company, or which is inimical, contrary or harmful to the interests of the Company, as further defined by the Administrator or (iii) the Holder incurs a Termination of Employment for cause.

8.6. Effect of Plan Upon Options and Compensation Plans.  The adoption of the Plan shall not affect any other compensation or incentive plans in effect for the Company or any Subsidiary.  Nothing in

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the Plan shall be construed to limit the right of the Company (a) to establish any other forms of incentives or compensation for Employees of the Company or any Subsidiary, or (b) to grant or assume options or other rights or awards otherwise than under the Plan in connection with any proper corporate purpose including but not by way of limitation, the grant or assumption of options in connection with the acquisition by purchase, lease, merger, consolidation or otherwise, of the business, equity or assets of any corporation, partnership, limited liability company, firm or association.

8.7. Compliance with Laws.  The Plan, the granting and vesting of Awards under the Plan and the issuance and delivery of LLC Interests and the payment of money under the Plan or under Awards granted or awarded hereunder are subject to compliance with all applicable federal and state laws, rules and regulations (including but not limited to state and federal securities law and federal margin requirements) and to such approvals by any listing, regulatory or governmental authority as may, in the option of counsel for the Company, be necessary or advisable in connection therewith.  Any securities delivered under the Plan shall be subject to such restrictions, and the person acquiring such securities shall, if requested by the Company, provide such assurances and representations to the Company as the Company may deem necessary or desirable to assure compliance with all applicable legal requirements.  To the extent permitted by applicable law, the Plan and Awards granted or awarded hereunder shall be deemed amended to the extent necessary to conform to such laws, rules and regulations.

8.8. Titles.  Titles are provided herein for convenience only and are not to serve as a basis for interpretation or construction of the Plan.

8.9. Governing Law.  The Plan and any agreements hereunder shall be administered, interpreted and enforced under the internal laws of the State of Delaware without regard to conflicts of laws thereof.

8.10 Effective Date. The Plan was originally adopted by the Company effective as of March 1, 2007. The Plan was amended and restated by the Company effective as of December 17, 2008.

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EX-10.23

Exhibit 10.23

WALTER INDUSTRIES, INC.

INVOLUNTARY SEVERANCE BENEFIT PLAN

EFFECTIVE AS OF JANUARY 1, 2008

WALTER INDUSTRIES, INC.

INVOLUNTARY SEVERANCE BENEFIT PLAN

EFFECTIVE AS OF JANUARY 1, 2008

TABLE OF CONTENTS

		Page
1.	POLICY	1
2.	DEFINITIONS	1
3.	ELIGIBILITY AND PARTICIPATION	5
4.	SEVERANCE PAY	6
5.	DISTRIBUTION OF BENEFITS	9
6.	PLAN ADMINISTRATION	11
7.	PLAN MODIFICATION OR TERMINATION	12
8.	GENERAL PROVISIONS	12

WALTER INDUSTRIES, INC.

INVOLUNTARY SEVERANCE BENEFIT PLAN

EFFECTIVE AS OF JANUARY 1, 2008

THIS INVOLUNTARY SEVERANCE BENEFIT PLAN is hereby established effective the 1st day of January, 2008, by Walter Industries, Inc. (the “Company”).

1.POLICY

Circumstances may make it necessary for an employee to be involuntarily separated from employment with Walter Industries, Inc. This involuntary severance benefit plan has been established to assist eligible terminating Employees of the Participating Employer affected by such circumstances to reduce the adverse financial effects of their termination of employment.  All other policies, practices, procedures and plans providing for severance payments, whether known as severance pay, separation pay, termination pay, notice, layoff allowance, supplemental unemployment benefits, or the like, on behalf of Participants (except for any Change of Control Severance Agreement or Employment Agreement between the Participant and the Service Recipient), are hereby superseded.

2.DEFINITIONS

2.1“Board” shall mean the Board of Directors of the Company.

2.2“Cause” shall include, but is not limited to:

(a)Acts or omissions constituting dishonesty, potential breach of fiduciary obligation or intentional wrongdoing or malfeasance, potential violation or negligent disregard for workplace rules and procedures, insubordination, theft, violent acts or threats of violence or possession of alcohol or controlled substances on the property of a Participating Employer;

(b)Conviction of a criminal violation involving fraud or dishonesty;

(c)The failure to materially satisfy the conditions and requirements of an Employee’s employment with a Participating Employer, and such failure by its nature is incapable of being cured, or such failure remains uncured for more than 30 days following receipt by the Employee of written notice from the Participating Employer specifying the nature of the failure and demanding the cure thereof.  For purposes of this Section, inattention by the Employee to his duties shall be deemed a failure capable of cure.

Cause shall be determined by the Plan Administrator in its sole discretion.

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2.3“Code” means the Internal Revenue Code of 1986, as amended, and any successor statute.

2.4“Company” means Walter Industries, Inc. and any successor thereto by merger, purchase or otherwise which expressly adopts the Plan.

2.5“Effective Date” of the Plan is January 1, 2008.

2.6“Eligible Employee” means an Employee who is employed at the corporate headquarters of Walter Industries, Inc. or any other Participating Employer as a Salaried Employee or Non-Union Hourly Employee.  No temporary, occasional or seasonal Employee, as defined within the payroll records of the Participating Employer, is an Eligible Employee under the Plan.  Further, Employees covered by a collective bargaining agreement will not be considered Eligible Employees.  An employee who is on a leave of absence covered by the Family and Medical Leave Act, or who is otherwise on a leave of absence with guaranteed reinstatement rights, shall be deemed to qualify as an Eligible Employee if, immediately prior to taking such leave of absence, he would have qualified as an Eligible Employee.

Each Eligible Employee shall be provided with notice indicating that he is eligible for the Plan and has been categorized into one of four groups (Group A, Group B, Group C or Group D)  by the Compensation Committee of the Board.  The Compensation Committee of the Board of Directors has the sole discretion to determine to which group an Eligible Employee belongs.

2.7“Employee” means any common law employee employed by a Participating Employer.

2.8“Good Reason” means existence of the following conditions, arising without the Eligible Employee’s consent:  the Participating Employer requiring the Eligible Employee to be based at a location in excess of fifty (50) miles from the location of the Eligible Employee’s principal job location, and/or a material reduction of the Eligible Employee’s base salary from his previous position.  Notwithstanding anything to the contrary, the existence of any of the above conditions shall not constitute Good Reason unless the Eligible Employee provides notice to the Participating Employer of the existence of the condition within 90 days after the initial existence of the condition and the Participating Employer does not remedy the condition within 30 days after it receives such notice.

2.9“Individual Employment Agreement” means any Change of Control Severance Agreement or Employment Agreement between the Employee and a Participating Employer that provides benefits upon Separation from Service.

2.10“Involuntary Separation from Service” means a Separation form Service without Cause due to:

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(a)a reduction in work force (including layoffs and consolidations of operations);

(b)the transfer of work to another location; or

(c)a determination that an Employee’s ability to satisfy the criteria of his position has declined through no fault of the Employee as determined in the sole discretion of the Plan Administrator.

For purposes of the Plan, an Involuntary Separation from Service includes a Separation from Service for Good Reason, provided that the Separation from Service occurs within two (2) years following the initial existence of Good Reason.  The foregoing definition is intended to meet the definition of an “involuntary separation from service” within the meaning of Treasury Regulations Section 1.409A-1(n)(1), and the safe harbor under Treasury Regulations Section 1.409A-1(n)(2)(ii) for treating a “voluntary separation from service” as an Involuntary Separation from Service, and both shall be interpreted, construed, administered, and applied consistently therewith.

2.11“Non-Union Hourly Employee” means an Employee identified as a “Non-Union Hourly Employee” within the payroll records of the Participating Employer.

2.12“Participant” means an Eligible Employee who participates in the Plan pursuant to the provisions of Article 3.

2.13“Participating Employer” means the Company and any other Service Recipient that adopts this Plan as set forth on Appendix A, as amended from time to time.

2.14“Pay” means the annual base rate of pay of an Eligible Employee on his Severance Date at his stated rate as set forth within the payroll records of the Participating Employer.  “Pay” does not include any remuneration other than base salary.  “Week’s Pay” and “Month’s Pay” shall be calculated in accordance with a Participating Employer’s regular payroll procedures (including the division of annual base rate of pay by 52 for Week’s Pay, and 12 for Month’s Pay). For part-time Employees, the base rate of pay will be a pro-rated salary computation based on the ratio of scheduled part-time hours compared to scheduled full-time hours during the twelve (12) months immediately preceding his Severance Date.  The annual base rate of pay for Employees subject to a sales commission plan shall be based on the actual earnings during the most recent 24-month period.

2.15“Plan” means the Walter Industries, Inc. Involuntary Severance Benefit Plan as set forth herein, as amended from time to time.

2.16“Plan Administrator” means the Company.

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2.17“Plan Year” means the twelve (12) consecutive month period beginning on January 1 and ending on December 31.

2.18“Salaried Employee” means an Employee identified as a “Salaried Employee” within the payroll records of the Participating Employer.

2.19“Separation Agreement, Waiver and General Release” means the documentation prescribed by the Plan Administrator pursuant to which a Participant waives and/or releases any and all claims, demands or causes of action of any kind whatsoever arising out of the Participant’s employment and/or termination of employment.

2.20“Separation from Service”means the termination of the Employee’s employment with the Service Recipient, determined as follows:

(a)The Employee’s employment will be considered terminated effective as of the date that both the Employee and the Participating Employer reasonably anticipate, based on all of the facts and circumstances, that either (A) no services will be performed by the Employee for the Service Recipient after such date, whether as an employee or as an independent contractor, or (B) the level of bona fide services that the Employee will perform for the Service Recipient after such date, whether as an employee or as an independent contractor, will be permanently reduced to no more than twenty percent (20%) of the average level of bona fide services the Employee performed over the immediately preceding thirty-six (36) month period (or, if less, the Employee’s full period of service to the Service Recipient).

(b)If the Employee is on a “bona fide leave of absence” (as defined below) from the Service Recipient, the Employee’s employment will be considered terminated, notwithstanding that the Employee is reasonably expected to return to perform services for the Service Recipient (at a level such that the Employee’s employment is not terminated pursuant to subsection (a) above), on the later of: (A) the first date immediately following the end of the Six-Month Period (as defined below), or (B) the date the Employee’s right to reemployment under applicable law or contract, if any, expires. A “bona fide leave of absence” is a leave of absence, including military leave or sick leave, in which there is a reasonable expectation that the Employee will return to perform service for the Service Recipient. The “Six-Month Period” is the period that begins on the date the leave of absence commences and ends on the date that is six months thereafter.

(c)The foregoing definition is intended to meet the requirements for a “separation from service” from the Service Recipient within the meaning of Section 409A(a)(2)(A)(i) of the Code and Treasury Regulations Section 1.409A-1(h), and shall be interpreted, construed, administered and applied consistently therewith. Without limiting the generality of the foregoing, for purposes of this

4

definition, the definition of the term “Participating Employer” set forth below shall be modified as provided in Treasury Regulations Section 1.409A-1(h)(3).

2.21“Service” means the Employee’s periods of eligible service with the Service Recipient or any other entity that was a Service Recipient at the time the service was performed.  For purposes of determining Service for each Employee who was employed by a Participating Employer on January 1, 2008, all continuous service ending with a Severance Date will be taken into account.  In addition, non-continuous periods of service will be taken into account under the following limited circumstances:  If an Employee has terminated employment with a Participating Employer after January 1, 2008 and has been rehired within less than six (6) months, prior service as an Employee of a Participating Employer will be taken into consideration.

2.22“Service Recipient” means the Company or an affiliate of the Company for which the Employee performs services and any affiliates of the Company or a subsidiary of the Company that are required to be considered a single employer under Sections 414(b) and 414(c) of the Code.

2.23“Severance Date” means the date after the Effective Date on which an Employee involuntarily has a Separation from Service without Cause.

2.24“Severance Pay” or “Severance Payment” or “Severance Payments” means payments to eligible Employees pursuant to Section 4 hereof.

2.25“Specified Employee” means a key employee of the Service Recipient within the meaning of Section 409A(a)(2)(B)(i) of the Code and Treasury Regulations Section 1.409A-1(i), as determined in accordance with the procedures adopted by the Company that are then in effect, or, if no such procedures are then in effect, in accordance with the default procedures set forth in Treasury Regulations Section 1.409A-1(i).

2.26“Staff Reduction Policy” means any administrative policy adopted by the Company, as in effect from time to time, and attached hereto as Appendix B, which sets forth the policies for the Participating Employer with respect to management initiated terminations resulting from force/skills and balances, site closings, and job eliminations.

2.27“Year of Service” means each twelve (12) months of Service.  “Years of Service” shall be determined as of the Employee’s Severance Date.

3.ELIGIBILITY AND PARTICIPATION

3.1An Eligible Employee will become a Participant under the Plan for purposes of receiving benefits upon his Severance Date.

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The Plan Administrator shall have complete power and discretion to determine if and when an Eligible Employee shall participate in the Plan; provided, however, that the Plan Administrator’s decision shall be made in accordance with the terms of the Plan and the requirements of any Staff Reduction Policy.

3.2An Employee shall not be eligible to receive a benefit from the Plan if his Separation from Service occurs by reason of death or disability, as determined in the discretion of the Board (other than any disability described in, and subject to, Section 4.8) or if the Separation from Service is for Cause or is voluntary (unless such voluntary Separation from Service is for a Good Reason).

4.SEVERANCE PAY

4.1Basic Severance.  Each Participant who incurs a Severance Date and is not provided severance benefits under an Individual Employment Agreement shall be entitled to receive basic Severance Pay pursuant to this Section 4.1.  The amount of basic Severance Pay to be paid to a Participant shall be determined in accordance with the following schedule:

Years of Service	Pay
Less than 1 year	1 week
1 year or more	½ month

4.2Additional Severance.  Except as otherwise provided in this Section 4, each Participant who incurs a Severance Date and is not provided severance benefits under an Individual Employment Agreement will be entitled to the greater of the Severance Pay provided by Option A or Option B below:

(a)Option A:  Two weeks Severance Pay per Years of Service, minus the Basic Severance Pay set forth in Section 4.1, up to a maximum of fifty-two (52) weeks’ Pay and a minimum of four (4) weeks’ Pay for each salaried exempt Employee, and a maximum of twenty-six (26) weeks’ Pay and a minimum of four (4) weeks’ Pay for a Non-Union Non-Exempt or Non-Union Hourly Employee.

(b)Option B:  Basic Severance as noted in Section 4.1, plus the combination of (1), (2), and (3) below, as applicable:

(1)Participants age 40 through 45 at the time of their Severance Date will receive an additional half month’s Pay.

(2)Participants age 46 and above at the time of their Severance Date will receive one additional month’s Pay.

(3)Severance Pay determined in accordance with the following schedule:

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Years of Service	Pay
Less than 1 year	1 week
1 to 3 years	½ month
3 to 6 years	1 month
6 to 9 years	1 ½ months
9 to 12 years	2 ½ months
12 to 15 years	3 months
15 to 18 years	3 ½ months
18 to 21 years	4 ½ months
21 to 24 years	5 months
24 to 27 years	5 ½ months
27 + years	6 months

(4)  A Non-Union Non-Exempt or Non-Union Hourly Employee is entitled to a maximum of 32.5 weeks of Severance Pay when combining the Basic Severance set forth in Section 4.1 and this Severance set forth in Option B.

4.3Additional Group Severance.

(a)Group A employees will receive 26 weeks of Severance Pay in addition to Severance Pay provided by an Individual Employment Agreement or Severance Pay as defined and provided in Sections 4.1 and 4.2.

(b)Group B employees will receive 13 weeks of Severance Pay in addition to Severance Pay provided by an Individual Employment Agreement or Severance Pay as defined and provided in Sections 4.1 and 4.2.

(c)Group C employees (salaried exempt Employees not in Group A or Group B) will not receive any additional group severance pursuant to this section.

(d)Group D employees (Non-Union Non-Exempt and Non-Union Hourly Employees) will not receive any additional group severance pursuant to this section.

4.4The additional Severance Pay described in Sections 4.2 and 4.3 shall be contingent upon the Participant’s timely execution of a Separation Agreement, Waiver and General Release, which releases and discharges each Participating Employer and Affiliate (and its officers, employees and agents) from all claims, demands or causes of action of any kind whatsoever arising out of the Participant’s employment and termination of employment.  No Participant shall be eligible to receive additional Severance Pay unless he executes a Separation Agreement, Waiver and General Release in a manner as may be prescribed by the Plan Administrator.

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4.5To the extent permitted by law, if the Participating Employer is obligated by law to pay any severance type remuneration other than unemployment compensation, including but not limited to payments pursuant to the Worker Adjustment and Retraining Notification Act (WARN), on account of, or in connection with, a Participant’s termination of employment on a Severance Date, the Severance Payments pursuant to this Article, as applicable, shall be reduced, dollar for dollar, by the amount of any such remuneration, without regard to the minimum amount of Severance Pay specified in this Article, as applicable.

4.6To the extent permitted by law and unless otherwise provided by an administrative policy adopted by the Company, the amount of an Employee’s Severance Pay will be reduced by any amounts the Employee owes a Participating Employer or other Service Recipient, including but not limited to, salary and expense advances and employee loans, as of the Severance Date.

4.7Notwithstanding any other provision of the Plan and unless otherwise provided by an administrative policy adopted by the Company, if a Participant violates the Company’s business practices and/or policies and/or fails to continue to fulfill his obligations not to disclose the private, confidential or proprietary information of the Service Recipient, the Participant shall not be entitled to receive any payment pursuant to Sections 4.2 or 4.3, or if payments have been made, he will be required to repay to the Company all Plan payments.

4.8If an Employee incurs an Involuntary Separation from Service without Cause while receiving disability benefits from the Participating Employer, the Severance Payments pursuant to this Article, as applicable, shall be reduced, dollar for dollar, by the amount of any such disability payments to the Employee, without regard to the minimum amount of Severance Pay specified in this Article.

4.9If a Participant becomes (a) reemployed by (i) the Company, (ii) any Service Recipient, or (iii) any other company that participates in any retirement plan sponsored by Walter Industries, Inc. that is tax-qualified under Internal Revenue Code Section 401(a), or (b) employed within sixty (60) days of his Severance Date by any purchaser or surviving business of the Company, then the Participant shall not be entitled to receive any payment under the terms of this Plan.  If a former Participant has received a payment and becomes reemployed (or employed, as described above), he shall be required to repay to the Participating Employer the difference between the total number of weeks for which payments were made and the number of weeks from the former Participant’s Severance Date to the effective date of his reemployment.  For example, if the Participant receives sixteen (16) weeks’ Pay and is reemployed after eight (8) weeks, the equivalent of eight (8) weeks’ Pay must be repaid to the Participating Employer.

4.10Unless an Individual Employment Agreement provides otherwise, and notwithstanding anything above in this Article 4, if a Participant is a “disqualified individual” (as defined in Section 280G(c) of the Code), and the Severance Payment

8

provided for in this Article 4, together with any other payments which the Participant has the right to receive from a Participating Employer (or other Service Recipient), would constitute a “parachute payment” (as defined in Section 280(G)(b)(2) of the Code), the Severance Payment shall be reduced.  The reduction shall be in an amount so that the present value of the total amount received by the Participant from the Participating Employer (or other Service Recipient) will be one dollar ($1.00) less than three (3) times the Employee’s base amount (as defined in Section 280G of the Code) and so that no portion of the amounts received by the Employee shall be subject to the excise tax imposed by Section 4999 of the Code (excise tax).  The determination as to whether any reduction in the Severance Payment is necessary shall be made by the Plan Administrator in good faith, and the determination shall be conclusive and binding on the Participant.  If through error or otherwise the Participant should receive payments under this Plan, together with other payments the Participant has the right to receive from the Participating Employer (or other Service Recipient), excluding deferred compensation plan payments, in excess of one dollar ($1.00) less than three times his base amount, the Participant shall immediately repay the excess to his employer upon notification that an overpayment has been made.

4.11The Plan Administrator will provide an Employee with a notification of the Employee’s right to continue health and dental insurance coverage (hereinafter referred to as “Health Insurance”) under COBRA (ERISA §§ 601-606; 29 USCS §§ 1161-1166) as a result of his Severance Date in accordance with the Participating Employer’s usual procedures. If an Employee does not elect continuation coverage under COBRA, the Employee’s health and dental insurance coverage will cease in accordance with the Participating Employer’s usual practice as permitted under applicable law and the terms of the relevant benefit plan document and/or underlying insurance policy.

5.DISTRIBUTION OF BENEFITS

5.1(a)Except as set forth in Section 5.1(b), basic Severance Pay to which a Participant may be entitled pursuant to Section 4.1 shall be paid under the regular payroll schedule in effect on the Severance Date, starting not later than fifteen (15) days following the Participant’s Severance Date.  Additional Severance Pay to which a Participant may be entitled pursuant to Sections 4.2 and/or 4.3 shall be paid on regular paydays, starting after the full amount of basic Severance Pay is paid to a Participant.

All applicable federal, state and local taxes (including Social Security taxes) and all other welfare benefit plan coverage payments will be deducted and withheld from all Severance Payments.

Subject to the requirements of Section 409A, the Employee shall be eligible to receive payment for any earned and unused vacation, in accordance with the Participating Employer’s policy in existence on the Severance Date.

9

(b)If the Participant is a Specified Employee as of his Severance Date, to the extent the Participant is entitled to receive any benefit or payment under this Plan that constitutes deferred compensation within the meaning of Section 409A (and exceeds the limits on any exceptions to deferred compensation permitted under Section 409A with respect to severance pay and other types of payments) of the Code (after first accounting for all other separation pay, as that term is defined under Section 409A of the Code, to be paid or provided to the Participant, including under any Individual Employment Agreement) before the date that is six (6) months after the Severance Date, such benefits or payments shall not be provided or paid to the Participant on the date otherwise required to be provided or paid. Instead, all such amounts shall be accumulated and paid in a single lump sum to the Participant on the first business day after the date that is six (6) months after the Severance Date. All benefits or payments otherwise required to be provided or paid on or after the date that is six (6) months after the Severance Date shall not be affected by this Section 5(b) and shall be provided or paid in accordance with the payment schedule applicable to such benefit or payment under this Plan. Prior to the imposition of the six month delay as set forth in this Section 5.1(b), it is intended that (i) each installment under this Plan be regarded as a separate “payment” for purposes of Treasury Regulations Section 1.409A-2(b)(2)(i), and (ii) all benefits or payments provided under this Plan satisfy, to the greatest extent possible, the exemptions from the application of Section 409A provided under Treasury Regulations Sections 1.409A-1(b)(4) (short-term deferral) or 1.409A-1(b)(9) (certain separation pay plans). This Section 5.1(b) is intended to comply with the requirements of Section 409A(a)(2)(B)(i) of the Code and shall be interpreted, construed, administered and applied consistently therewith.

5.2Severance Payments shall be made from the general assets of the Participant’s Participating Employer.

5.3(a)In the event of a claim by an Employee as to entitlement or the amount of any distribution or its method of payment, such Employee shall present the reason for his claim in writing to the Plan Administrator.  The Plan Administrator shall, within ninety (90) days after receipt of such written claim, send a written notification to the Employee as to its disposition, unless the Plan Administrator determines that special circumstances require an extension of time for processing the claim.  If the Plan Administrator determines that an extension of time for processing is required, written notice of the extension will be furnished to the Employee prior to the termination of the initial 90-day period.  In no event will such extension exceed a period of 90 days from the end of such initial period.  The extension notice will indicate the special circumstances requiring an extension of time and the date by which the plan expects to render the benefit determination.

10

(b)In the event the claim is wholly or partially denied, such written notification shall (i) state specifically the reason or reasons for the denial, (ii) reference to the specific Plan provisions on which the determination is based, (iii) provide a description of any additional material or information necessary for the Employee to perfect the claim and an explanation of why such material or information is necessary, and (iv) set forth the procedure by which the Employee may appeal the denial of the claim.

(c)In the event an Employee wishes to appeal the denial of his claim, he may request a review of such denial by making application in writing to the Plan Administrator within sixty (60) days after the receipt of the denial.  Such Employee (or his duly authorized legal representative) may, upon written request to the Plan Administrator, review any documents pertinent to his claim, and submit in writing issues and comments in support of his position.  Within sixty (60) days after receipt of the written appeal (unless special circumstances, such as the need to hold a hearing, require an extension of time, but in no event more than one hundred twenty (120) days after such receipt), the Plan Administrator shall notify the Employee of the final decision. The final decision shall be in writing and shall include specific reasons for the decision, written in a manner calculated to be understood by the claimant, and specify references to the pertinent Plan provisions on which the decision is based.

6.PLAN ADMINISTRATION

6.1The Plan shall be interpreted, administered and operated by the Plan Administrator who shall have complete authority and discretion, subject to the express provisions of the Plan and any Staff Reduction Policy, to determine who shall be eligible to participate in the Plan and receive Severance Pay, to interpret the Plan, to prescribe, amend and rescind rules and regulations relating to it, and to make all other determinations necessary or advisable for the administration of the Plan.

6.2All questions of any character whatsoever arising in connection with the interpretation of the Plan or its administration or operation shall be submitted to and settled and determined by the Plan Administrator in accordance with the procedure for claims and appeals described in Section 5.3.  Any such settlement and determination shall be final and conclusive, and shall bind and may be relied upon by each Participating Employer, each of the Employees and all other parties in interest.

6.3The Plan Administrator may delegate any of the duties hereunder to such person or persons from time to time as it may designate.  Except to the extent prohibited by law, any person acting hereunder pursuant to the delegation of the Plan Administrator shall be indemnified for actions taken pursuant to such delegation, by the Company.

11

7.PLAN MODIFICATION OR TERMINATION

7.1Subject to Code Section 409A, the Plan may be modified or amended at any time by the Company, with or without notice.  Without limiting the foregoing, subject to Code Section 409A, the Plan may be modified or amended to increase, decrease or eliminate the Severance Payments to any Employee who incurs a Severance Date after such modification or amendment.

7.2It is the intention of the Company to continue the Plan and make Severance Payments to all eligible terminating Employees.  However, the Company may, for any reason subject to Code Section 409A, terminate the Plan or amend the Plan to withhold its application as to all or some Employees in a location or other portion of the Company, a Participating Employer or other Service Recipient, and the Plan Administrator may, accordingly, make no Severance Payment to anyone who has not incurred a Severance Date at the time of such termination or amendment.  The Company may also extend the applicability of the Plan to all or some Employees in a location or other portion of the Company, a Participating Employer or other Service Recipient.

7.3Any modification, amendment, termination, withholding, extension or other action shall be in writing and apply only to Employees with Severance Dates occurring after such action.  Any such modification, amendment, termination, withholding, extension or other action shall be authorized or ratified by the Company’s Board.  No such action shall reduce or eliminate the Severance Pay of any Employee whose Severance Date occurs before such action is taken.

8.GENERAL PROVISIONS

8.1This Plan is intended to be an unfunded employee welfare benefit plan for the purposes of providing severance benefits to a Participating Employer’s eligible terminating Employees.  The Plan is subject to Department of Labor Regulation 2510.3-1 and, notwithstanding any other provision of this Plan, will not provide a benefit to exceed twice the equivalent of an Employee’s annual compensation during the year preceding termination of employment.  In addition, all Severance Payments hereunder will be completed within twenty-four (24) months of an Employee’s Severance Date.

8.2Nothing in the Plan shall be deemed to give any Employee the right to be retained in the employ of a Participating Employer, or to interfere with the right of the Participating Employer to discharge him at any time and for any lawful reason, without notice.

8.3Except as otherwise provided herein or by law, no right or interest of any Employee under the Plan shall be assignable or transferable, in whole or in part, either directly or by operation of law or otherwise, including, without limitation, by execution, levy or garnishment, attachment, or pledge.  No attempted assignment or transfer thereof shall be effective, and no right or interest of any Employee under the Plan shall

12

be liable for, or subject to, any obligation or liability of such Employee.  As to an Employee who is unable to care for his affairs, payment pursuant to this Plan may be made directly to his legal guardian or personal representative, in which case all liabilities of the Plan to any such Employee shall be fully discharged.

8.4If an Employee dies after a Severance Date, but before receiving all Severance Payments due pursuant to this Plan, remaining payments will be made in one lump sum to his beneficiary(ies) entitled to receive any available death benefits under the Walter Industries, Inc. Profit Sharing Plan, or any successor to that plan, or if the Participant does not participate in that plan, then the beneficiary designated under the Walter Industries, Inc. 401(k) Plan, or any successor to that plan, or if no beneficiary is so designated, to his estate within 90 days of death.

8.5The Plan shall be governed by, and construed in accordance with, the Employee Retirement Income Security Act of 1974, as amended (“ERISA”), and all applicable rules and regulations thereunder, and, to the extent not preempted by ERISA, with the laws of the State of Florida.

8.6Descriptive headings within this Plan are for convenience and reference only.  The words of the headings will in no way be held or deemed to define, describe, explain, modify or limit the meaning of any provision, or the scope or the intent of this Plan document.

8.7Whenever the Company or another Participating Employer under the terms of this Plan is permitted or required to do or perform any act, it shall be done and performed by the board of directors of the Company or such other Participating Employer or any properly authorized designee of the board of directors.

8.8Throughout this Plan, and whenever appropriate, the masculine gender shall be deemed to include the feminine and neuter; the singular, the plural; and vice versa.

8.9Section 409A; Taxes.  This Plan is intended to conform in all respects to the requirements under Section 409A of the Code. Accordingly, the Plan should be interpreted, construed, administered and applied in a manner as shall meet and comply with the requirements of Section 409A of the Code, and the Board may amend this Plan in its discretion so as to comply with any such requirement. Any reference in this Plan to Section 409A of the Code, or any subsection thereof, shall be deemed to mean and include, to the extent then applicable and then in force and effect (but not to the extent overruled, limited or superseded), published rulings, notices and similar announcements issued by the Internal Revenue Service under or interpreting Section 409A of the Code and regulations (proposed, temporary or final) issued by the Secretary of the Treasury under or interpreting Section 409A of the Code. Notwithstanding any other provision of this Plan, neither the Company nor any individual acting as a director, officer, employee, agent or other representative of the Company shall be liable to the Employee or any other Person for any claim, loss, liability or expense arising out of any interest, penalties

13

or additional taxes due by the Employee or any other Person as a result of this Plan or the Company’s administration of the terms of this Plan not satisfying any of the requirements of Section 409A of the Code.

IN WITNESS WHEREOF, this Plan has been executed this 17th day of October, 2008.

WALTER INDUSTRIES, INC.
By:	Larry E. Williams
	Senior Vice President

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EX-10.23.1

Exhibit 10.23.1

FIRST AMENDMENT

TO THE

WALTER INDUSTRIES, INC.

INVOLUNTARY SEVERANCE BENEFIT PLAN

This First Amendment to the Walter Industries, Inc. Involuntary Severance Benefit Plan is made and entered into by Walter Industries, Inc. (the “Company”) this 17th day of December, 2008, but is effective as of January 1, 2009.

WITNESSETH:

WHEREAS, the Company has previously adopted the Walter Industries, Inc. Involuntary Severance Benefit Plan (the “Plan”); and

WHEREAS, the Company is authorized and empowered to amend the Plan; and

WHEREAS, the Company has determined that it is appropriate to amend the Plan in the manner indicated hereinbelow.

NOW, THEREFORE, Section 2.20(c) of Article II of the Plan is hereby amended as follows:

(c)           The foregoing definition is intended to meet the requirements for a “separation from service” from the Service Recipient within the meaning of Section 409A(a)(2)(A)(i) of the Code and Treasury Regulations Section 1.409A-1(h), and shall be interpreted, construed, administered and applied consistently therewith. Without limiting the generality of the foregoing, for purposes of this definition, the definition of the term “Participating Employer” set forth below shall be modified as provided in Treasury Regulations Section 1.409A-1(h)(3), provided that an 80% standard (in lieu of the default 50% standard) shall be used for purposes of determining the service recipient/employer for this purpose.

IN WITNESS WHEREOF, this First Amendment has been executed and is effective as of the dates set forth hereinabove.

WALTER INDUSTRIES, INC.
By:	Larry E. Williams
	Title:	Senior Vice President

EX-21

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EXHIBIT 21

LIST OF THE SUBSIDIARIES OF THE COMPANY
(Jurisdiction of incorporation as noted in parenthesis)

The direct and indirect subsidiaries of Walter Industries, Inc. are:

1.

Blue Creek Coal Sales, Inc. (AL)

2.

Coast to Coast Advertising, Inc. (FL)

3.

Dixie Building Supplies, Inc. (FL)

4.

Hamer Properties, Inc. (WV)

5.

Jefferson Warrior Railroad Company, Inc. (AL)

6.

JWH Holding Company, LLC (DE)

a.

Best Insurors, Inc. (FL) (a subsidiary of JWH Holding Company, LLC)

b.

Cardem Insurance Co., Ltd. (Bermuda) (a subsidiary of JWH Holding Company, LLC)

c.

Walter Investment Reinsurance Co., Ltd. (Bermuda) (a subsidiary of JWH Holding Company, LLC)

d.

Walter Mortgage Company (DE) (a subsidiary of JWH Holding Company, LLC)

i.

Mid-State Trust IV (a business trust of which 100% of the beneficial interest in the trust is held by Walter Mortgage Company)

ii.

Mid-State Trust VI (a business trust of which 100% of the beneficial interest in the trust is held by Walter Mortgage Company)

iii.

Mid-State Trust VII (a business trust of which 100% of the beneficial interest in the trust is held by Walter Mortgage Company)

iv.

Mid-State Trust VIII (a business trust of which 100% of the beneficial interest in the trust is held by Walter Mortgage Company)

v.

Mid-State Trust IX (a business trust of which 100% of the beneficial interest in the trust is held by Walter Mortgage Company)

vi.

Mid-State Trust X (a statutory trust of which 100% of the beneficial interest in the trust is held by Walter Mortgage Company)

vii.

Mid-State Trust XI (a statutory trust of which 100% of the beneficial interest in the trust is held by Walter Mortgage Company)

viii.

Mid-State Capital, LLC (DE) (a subsidiary of Walter Mortgage Company)

1.

Mid-State Capital Corporation 2004-1 Trust (a statutory trust of which 100% of the beneficial interest in the trust is held by Mid-State Capital, LLC)

2.

Mid-State Capital Corporation 2005-1 Trust (a statutory trust of which 100% of the beneficial interest in the trust is held by Mid-State Capital, LLC)

3.

Mid-State Capital Corporation 2006-1 Trust (a statutory trust of which 100% of the beneficial interest in the trust is held by Mid-State Capital, LLC)

7.

Jim Walter Homes, LLC (FL)

i.

Crestline of NC, LLC (NC) (a subsidiary of Jim Walter Homes, LLC)



ii.

Dream Homes, LLC (TX) (subsidiary of Jim Walter Homes, LLC.)



iii.

Dream Homes USA, Inc. (TX) (a subsidiary of Jim Walter Homes, LLC)

iv.

Jim Walter Homes Finance, L.L.C. (a subsidiary of Jim Walter Homes, LLC)



v.

Jim Walter Homes of Arkansas, Inc. (AR) (a subsidiary of Jim Walter Homes, LLC)



vi.

Jim Walter Homes of Tennessee, Inc. (DE) (a subsidiary of Jim Walter Homes, LLC)



vii.

Neatherlin Homes, LLC (TX) (a subsidiary of Jim Walter Homes, LLC)



viii.

Walter Home Improvement, Inc. (FL) (a subsidiary of Jim Walter Homes, LLC)

8.

J.W.I. Holdings Corporation (DE)

a.

J.W. Walter, Inc. (DE) (a subsidiary of J.W.I. Holdings Corporation)

9.

Jim Walter Resources, Inc. (AL)

a.

Black Warrior Transmission Corp. (AL) (50% interest owned by Jim Walter Resources, Inc.)

b.

Black Warrior Methane Corp. (AL) (50% interest owned by Jim Walter Resources, Inc.)

10.

Land Holdings Corporation (DE)

a.

Walter Land Company (DE) (a subsidiary of Land Holdings Corporation)

11.

Sloss Industries Corporation (DE)

12.

SP Machine Inc. (DE)

13.

United Land Corporation (DE)

a.

Taft Coal Sales & Associates, Inc. (AL) (a subsidiary of United Land)

i.

Clearwater Energy, Inc. (AL) (a subsidiary of Taft Coal Sales & Associates, Inc.)

b.

Tuscaloosa Resources, Inc. (AL) (a subsidiary of United Land)

c.

Kodiak Mining Company, LLC (DE) (51% owned by United Land Corporation)

14.

V Manufacturing Company (DE)

        The names of particular subsidiaries may have been omitted if the unnamed subsidiaries, considered in the aggregate as a single subsidiary, would not constitute a significant subsidiary as of December 31, 2008.

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EXHIBIT 21

EX-23.1

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EXHIBIT 23.1

CONSENT OF INDEPENDENT REGISTERED CERTIFIED PUBLIC ACCOUNTING FIRM

        We consent to the incorporation by reference in the Registration Statement (Form S-8 No. 333-02095) pertaining to the Employee Stock Purchase Plan and Long-Term Incentive Stock Plan of Walter Industries, Inc. and its subsidiaries of our reports dated February 26, 2009, with respect to the consolidated financial statements of Walter Industries, Inc. and its subsidiaries and the effectiveness of internal control over financial reporting of Walter Industries, Inc. and its subsidiaries included in the Annual Report (Form 10-K) for the year ended December 31, 2008.

/s/ Ernst & Young LLP
Tampa, Florida
February 26, 2009

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EXHIBIT 23.1

EX-23.2

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EXHIBIT 23.2

CONSENT OF INDEPENDENT REGISTERED CERTIFIED PUBLIC ACCOUNTING FIRM

        We hereby consent to the incorporation by reference in the Registration Statement on Form S-8 (No. 333-02095) of Walter Industries, Inc. of our report dated February 28, 2007 except as it relates to the discontinued operations of Crestline Homes Inc. and Kodiak Mining Company, LLC as described in Note 3 as to which the date is March 7, 2008 and February 26, 2009, respectively, and as it relates to the change in segments as described in Note 18, as to which the date is March 7, 2008 relating to the financial statements, which appear in this Form 10-K.

/s/ PricewaterhouseCoopers LLP
Tampa, Florida
February 26, 2009

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EXHIBIT 23.2

CONSENT OF INDEPENDENT REGISTERED CERTIFIED PUBLIC ACCOUNTING FIRM

EX-24

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EXHIBIT 24

POWER OF ATTORNEY TO SIGN ANNUAL REPORT

        KNOW ALL MEN BY THESE PRESENTS, that each person whose signature appears below constitutes and appoints Victor P. Patrick, as his or her true and lawful attorneys-in-fact and agents, with full power of substitution and resubstitution, for him or her in his or her name, place and stead, in any and all capacities, to sign the name of such person in the capacity indicated below opposite the name of each person to the Annual Report for the fiscal year ended December 31, 2008 of Walter Industries, Inc. on Form 10-K and any and all amendments thereto and to file the same with all exhibits thereto, and other documents in connection therewith, with the Securities and Exchange Commission, granting unto said attorneys-in-fact and agent, and each of them, full power and authority to do and perform each and every act and thing requisite and necessary to be done in and about the premises, as fully to all intents and purposes as he or she might or could do in person, hereby ratifying and confirming all that said attorneys-in-fact and agent, or his or his or her substitute or substitutes, may lawfully do or cause to be done by virtue hereof.

        This Power of Attorney has been signed this 27^th day of February, 2009.

/s/ HOWARD L. CLARK, JR.
Director

/s/ JERRY W. KOLB
Director

/s/ PATRICK A. KRIEGSHAUSER
Director

/s/ JOSEPH B. LEONARD
Director

/s/ A. J. WAGNER
Director

/s/ Mark J. O'Brien
Director

/s/ BERNARD G. RETHORE
Director

/s/ GEORGE R. RICHMOND
Director

/s/ MICHAEL T. TOKARZ
Chairman

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EXHIBIT 24

POWER OF ATTORNEY TO SIGN ANNUAL REPORT

EX-31.

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EXHIBIT 31.1

Walter Industries, Inc.
Certification Pursuant to Section 302 of the Sarbanes-Oxley Act of 2002
CERTIFICATION OF PERIODIC REPORT

I, Victor P. Patrick, certify that:

1.

I have reviewed this annual report on Form 10-K of Walter Industries, Inc.;

2.

Based on my knowledge, this report does not contain any untrue statement of a material fact or omit to state a material fact necessary to make the statements made, in light of the circumstances under which such statements were made, not misleading with respect to the period covered by this report;

3.

Based on my knowledge, the financial statements, and other financial information included in this report, fairly present in all material respects the financial condition, results of operations and cash flows of the registrant as of, and for, the periods presented in this report;

4.

I am responsible for establishing and maintaining disclosure controls and procedures (as defined in Exchange Act Rules 13a-15(e) and 15d-15(e)) and internal control over financial reporting (as defined in Exchange Act Rules 13a-15(f) and 15d-15(f)) for the registrant and have:

(a)

Designed such disclosure controls and procedures, or caused such disclosure controls and procedures to be designed under my supervision, to ensure that material information relating to the registrant, including its consolidated subsidiaries, is made known to me by others within those entities, particularly during the period in which this report is being prepared;

(b)

Designed such internal control over financial reporting, or caused such internal control over financial reporting to be designed under my supervision, to provide reasonable assurance regarding the reliability of financial reporting and the preparation of financial statements for external purposes in accordance with generally accepted accounting principles;

(c)

Evaluated the effectiveness of the registrant's disclosure controls and procedures and presented in this report my conclusions about the effectiveness of the disclosure controls and procedures, as of the end of the period covered by this report based on such evaluation; and

(d)

Disclosed in this report any change in the registrant's internal control over financial reporting that occurred during the registrant's most recent fiscal quarter (the registrant's fourth fiscal quarter in the case of an annual report) that has materially affected, or is reasonably likely to materially affect, the registrant's internal control over financial reporting; and

5.

I have disclosed, based on my most recent evaluation of internal control over financial reporting, to the registrant's auditors and the audit committee of the registrant's Board of Directors (or persons performing the equivalent functions):

(a)

All significant deficiencies and material weaknesses in the design or operation of internal control over financial reporting which are reasonably likely to adversely affect the registrant's ability to record, process, summarize and report financial information; and

(b)

Any fraud, whether or not material, that involves management or other employees who have a significant role in the registrant's internal control over financial reporting.

Date: February 27, 2009

/s/ VICTOR P. PATRICK
Victor P. Patrick
Vice Chairman, Chief Financial Officer and
General Counsel
(Principal Executive and Financial Officer)

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EXHIBIT 31.1

Walter Industries, Inc. Certification Pursuant to Section 302 of the Sarbanes-Oxley Act of 2002 CERTIFICATION OF PERIODIC REPORT

EX-32.1

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EXHIBIT 32.1

Walter Industries, Inc.
Certification Pursuant to Section 906 of the Sarbanes-Oxley Act of 2002
18 U.S.C. Section 1350

In connection with the accompanying Annual Report of Walter Industries, Inc. (the "Company") on Form 10-K for the fiscal year ended December 31, 2008 (the "Report"), I, Victor P. Patrick, Vice Chairman, Chief Financial Officer and General Counsel of the Company, certify, pursuant to 18 U.S.C. Section 1350, as adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002, that:

(1)

The Report fully complies with the requirements of Section 13(a) of the Securities Exchange Act of 1934; and

(2)

The information contained in the Report fairly presents, in all material respects, the financial condition and results of operations of the Company.

Date: February 27, 2009

/s/ VICTOR P. PATRICK
Victor P. Patrick
Vice Chairman, Chief Financial Officer and General Counsel
(Principal Executive and Financial Officer)

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EXHIBIT 32.1

Walter Industries, Inc. Certification Pursuant to Section 906 of the Sarbanes-Oxley Act of 2002 18 U.S.C. Section 1350