837173--2/27/2009--WALTER_INDUSTRIES_INC

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{condition, economic, financial}

{gas, price, oil}

{cost, regulation, environmental}

{tax, income, asset}

{loss, insurance, financial}

{cost, operation, labor}

{regulation, government, change}

{personnel, key, retain}

{investment, property, distribution}

{debt, indebtedness, cash}

{cost, contract, operation}

{acquisition, growth, future}

{interest, director, officer}

{provision, law, control}

{loan, real, estate}

{operation, natural, condition}

{competitive, industry, competition}

{stock, price, operating}

{customer, product, revenue}

Disruptions in the financial markets have created uncertainty and deteriorating economic conditions may adversely affect our business and financial condition. 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. The failure of our customers to honor or renew contracts could adversely affect our business. 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. 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. If transportation for our coal becomes unavailable or uneconomic for our customers, our ability to sell coal could suffer. We face significant competition and this competition could harm our sales, profitability and cash flows. Our business is subject to risk of cost increases and fluctuations and delay in the delivery of raw materials and purchased components. Work stoppages, labor shortages and other labor relations matters may harm our business. 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. 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. Factors impacting our forecasts of future performance, reserve estimates and a decline in pricing could affect our revenues. 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. 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. 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 self-insure workers' compensation and certain medical and disability benefits, and greater than expected claims could reduce our profitability. 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. 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. Our success depends on attracting and retaining key personnel. We may be unsuccessful in identifying or integrating suitable acquisitions, which could impair our growth. The price of our common stock may be volatile and may be affected by market conditions beyond our control. 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 stockholder rights agreement could discourage potential acquisition proposals and could deter a change of control. We may incur substantial expenses and payments if the spin-off and merger of our financing business merger does not occur. 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. 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. 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 mortgage-backed and asset-backed securitizations require over-collateralization and credit enhancement, which may decrease our cash flow and net income. 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. 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. Natural disasters and adverse weather conditions could disrupt our businesses and adversely affect our results of operations. 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. 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. 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. Recently announced closure of the Homebuilding businesses may negatively impact results of operations.

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837173--2/27/2009--WALTER_INDUSTRIES_INC_/NEW/