Home | A Changing Landscape

2005 marked a landscape-altering year for Walter Industries, Inc.. Significant actions were taken to change our structure, strategies and operations in order to strengthen our business now and for the future.

In October, we acquired Mueller Water Products (Mueller Water) for approximately $2.0 billion. Combining Mueller Water and U.S. Pipe makes Walter Industries, Inc. a leading supplier to the North American water infrastructure market.

This significant transaction led us to announce our value-creation strategy to separate Walter Industries, Inc. into two distinct, publicly traded companies: a Water Products business, made up of Mueller Water and U.S. Pipe, and a business led by Jim Walter Resources, along with our Homebuilding and Financing group.

More recently, we announced another step in the process. Mark O’Brien, a member of our Board and the retired CEO of Pulte Homes, has joined the Company as Chairman and CEO of the combined Homebuilding and Financing business. In connection with this announcement, we stated that we are evaluating a potential spin-off of the Homebuilding and Financing group, which would be the final step in transforming Walter Industries, Inc. into three “pure play” entities.

The ultimate separation of Walter Industries, Inc. is the culmination of intensive efforts over a multiyear period to streamline the Company’s businesses, sharpen our focus, reinforce our shared commitment to excellence and increase shareholder value. 2 Walter Industries, Inc. 2005 Annual Report In addition to the progress we made in changing the landscape at Walter Industries, Inc., 2005 was also a year of strong operating performance.

Jim Walter Resources, our coal and natural gas business, set the pace for our 2005 performance. Strong global demand from steel producers for our high-quality metallurgical coal continues to drive pricing and earnings.

U.S. Pipe also made marked improvement in profitability, and while Mueller Water’s financial results were only consolidated with ours starting in the fourth quarter, its performance has already exceeded our expectations.

Our shareholders were well rewarded in 2005, as our earnings and our transformation strategy drove a 47% increase in share price during the year.

Our challenge, especially after such strong results in 2005, is to continue to enhance shareholder value, so let me expand on what we have accomplished and share our 2006 plans for each of the three major operating groups.