837173--3/16/2006--WALTER_INDUSTRIES_INC

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Water Products Business (Mueller, Anvil and Industrial Products) The original motivation for the joint venture 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 405 wells producing approximately 12.5 billion cubic feet of natural gas in 2005 (JWR s interest was 6.9 billion cubic feet in 2005). The degasification operation has improved mining operations and safety by reducing methane gas levels in the mines, and has been a profitable operation. Trade Names, Trademarks and Patents Risk Related to the Business Our businesses may suffer as a result of changes in general and local economic conditions and other factors beyond our control, which could depress demand for our products. Shortages or price fluctuations in raw materials and labor could delay or increase the cost of construction or production and adversely affect our results of operations. We face significant competition in many of the industries in which we operate and some of our products are commodities. Foreign competition is intense and could have a material adverse effect on our sales, profitability and cash flows. Our revenues are seasonal due to weather conditions and the level of construction activity at different times of the year; we may not be able to generate revenues that are sufficient to cover our expenses during certain periods of the year. We are 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. We depend on short-term borrowings to fund our mortgage origination business which exposes us to liquidity risks. Our strategy of securitizing our mortgage assets makes us dependent on the capital markets for liquidity and cash flow and exposes us to substantial risks. Our mortgage-backed and asset-backed securitizations require over-collateralization and credit enhancement, which may decrease our cash flow and net income. We may be subject to product liability or warranty claims that could require us to make significant payments. We rely on Tyco to indemnify us for certain liabilities 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 manufacturing costs. Our homebuilding operations expose us to a variety of risks including liability for action of third parties. Economic conditions in Texas, North Carolina, Mississippi, Alabama and Florida have a material impact on our profitability because we conduct a significant portion of our business in these markets. Our failure to retain our current customers and renew our existing customer contracts could adversely affect our business. If transportation for our ductile iron pipe products or coal becomes unavailable or uneconomic for our customers, our ability to sell ductile iron pipe products or coal could suffer. 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. 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. Our business may be harmed by work stoppages and other labor relations matters. 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. We have a significant amount of debt and the instruments governing our existing indebtedness contain covenants that may restrict our ability to operate and impair our financial condition. We will require a significant amount of cash to service our debt and our ability to generate cash depends on many factors beyond our control. 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. We may be unsuccessful in identifying or integrating suitable acquisitions, which could impair our growth. Businesses we have acquired or will acquire may not perform as expected. We have recorded a significant amount of goodwill and other identifiable intangible assets, and we may never realize the full value of our intangible assets. 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 instalment note receivables, as well as to federal income taxes allegedly owed. We need to improve our internal controls to comply with SEC reporting requirements; public reporting obligations have put significant demands on our financial, operational and management resources. Compliance with internal control reporting requirements and securities laws and regulations is likely to increase our compliance costs. We may not be able to achieve the anticipated synergies in connection with our integration and rationalization plans. We are a holding company and may not have access to the cash flow and other assets of our subsidiaries. If we fail to protect our intellectual property, our business and ability to compete could suffer. Natural disasters and adverse weather conditions could disrupt our businesses and adversely affect our results of operations. Operation of our key manufacturing facilities includes various operating risks. Our brass valve products contain lead, which may be replaced in the future, and certain of our brass valve products may not be in compliance with NSF standards, which could limit the ability of municipalities to buy our products.

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837173--3/16/2006--WALTER_INDUSTRIES_INC_/NEW/