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, and (2) has been subject to such filing requirements for the past 90 days. Yes ý No o

Indicate by check mark whether the registrant has submitted electronically and posted on its corporate Web site, if any, every Interactive Data File required to be submitted and posted pursuant to Rule 405 of Regulation S-T (§ 232.405 of this chapter) during the preceding 12 months (or for such shorter period that the registrant was required to submit and post such files). Yes ý No 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 definitions of "large accelerated filer," "accelerated filer," and "smaller reporting company" in Rule 12b-2 of the Exchange Act. (Check one):

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

Number of shares of common stock outstanding as of July 31, 2009: 52,893,702

WALTER ENERGY, INC. AND SUBSIDIARIES

CONDENSED CONSOLIDATED BALANCE SHEETS (UNAUDITED)

(IN THOUSANDS, EXCEPT SHARE AMOUNTS)

			June 30, 2009			December 31, 2008

ASSETS
Assets of continuing operations:
Cash and cash equivalents			$	42,030		$	116,074
Receivables, net				102,469			140,423
Inventories				136,583			75,172
Deferred income taxes				27,329			84,669
Other current assets				34,466			26,119

	Total current assets			342,877			442,457
Property, plant and equipment, net				519,847			504,585
Deferred income taxes				224,747			179,402
Other long-term assets				67,215			69,251

	Total assets of continuing operations			1,154,686			1,195,695

Assets of discontinued operations:
Current assets				26,505			16,158
Long-term assets				—			18,396
Unclassified assets				—			1,837,744

	Total assets of discontinued operations			26,505			1,872,298

			$	1,181,191		$	3,067,993

LIABILITIES AND STOCKHOLDERS' EQUITY
Liabilities of continuing operations:
Accounts payable			$	46,858		$	60,497
Accrued expenses				39,231			57,230
Current debt				21,835			13,480
Accumulated postretirement benefits obligation				19,130			19,124
Other current liabilities				19,663			20,801

	Total current liabilities			146,717			171,132
Long-term debt				167,353			211,905
Accumulated postretirement benefits obligation				351,116			349,184
Other long-term liabilities				262,532			273,645

	Total liabilities of continuing operations			927,718			1,005,866

Liabilities of discontinued operations:
Current liabilities				9,419			12,400
Unclassified liabilities				—			1,419,458

	Total liabilities of discontinued operations			9,419			1,431,858

Total liabilities				937,137			2,437,724

Stockholders' equity:
	Common stock, $0.01 par value per share:
		Authorized—200,000,000 shares
		Issued—52,892,421 and 54,143,958 shares, respectively		529			541
	Preferred stock, $0.01 par value per share:
		Authorized—20,000,000 shares, issued—0 shares		—			—
	Capital in excess of par value			369,814			714,174
	Retained earnings			8,460			50,990
	Accumulated other comprehensive income (loss):
		Pension and other postretirement benefit plans, net of tax		(134,811	)		(137,364	)
		Unrealized gain on hedges, net of tax		62			1,928

Total stockholders' equity				244,054			630,269

			$	1,181,191		$	3,067,993

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

WALTER ENERGY, INC. AND SUBSIDIARIES

CONDENSED CONSOLIDATED STATEMENTS OF INCOME (UNAUDITED)

(IN THOUSANDS, EXCEPT PER SHARE AMOUNTS)

		For the three months ended June 30,

		2009			2008
Net sales and revenues:
	Net sales	$	167,005		$	269,439
	Miscellaneous income		2,115			4,969

			169,120			274,408

Costs and expenses:
	Cost of sales (exclusive of depreciation)		105,343			164,123
	Depreciation		18,268			12,180
	Selling, general and administrative		16,188			19,192
	Postretirement benefits		7,781			6,860
	Amortization of intangibles		111			67

			147,691			202,422

Operating income			21,429			71,986
	Interest expense		(4,416	)		(11,183	)
	Interest income		202			185

Income from continuing operations before income tax expense			17,215			60,988
Income tax expense			5,879			15,357

Income from continuing operations			11,336			45,631
Income (loss) from discontinued operations			(265	)		5,145

Net income		$	11,071		$	50,776

Basic income per share:
	Income from continuing operations	$	0.21		$	0.86
	Income from discontinued operations		—			0.10

	Net income	$	0.21		$	0.96

Diluted income per share:
	Income from continuing operations	$	0.21		$	0.85
	Income from discontinued operations		—			0.09

Diluted net income per share		$	0.21		$	0.94

Dividends declared per common share		$	0.10		$	0.05

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

WALTER ENERGY, INC. AND SUBSIDIARIES

CONDENSED CONSOLIDATED STATEMENTS OF INCOME (UNAUDITED)

(IN THOUSANDS, EXCEPT PER SHARE AMOUNTS)

		For the six months ended June 30,

		2009			2008
Net sales and revenues:
	Net sales	$	445,171		$	467,415
	Miscellaneous income		7,086			7,926

			452,257			475,341

Costs and expenses:
	Cost of sales (exclusive of depreciation)		245,809			297,811
	Depreciation		36,002			24,308
	Selling, general and administrative		31,853			35,657
	Postretirement benefits		15,425			13,717
	Amortization of intangibles		223			139

			329,312			371,632

Operating income			122,945			103,709
	Interest expense		(9,215	)		(16,897	)
	Interest income		476			365

Income from continuing operations before income tax expense			114,206			87,177
Income tax expense			30,020			24,266

Income from continuing operations			84,186			62,911
Loss from discontinued operations			(12	)		(11,636	)

Net income		$	84,174		$	51,275

Basic income (loss) per share:
	Income from continuing operations	$	1.58		$	1.20
	Loss from discontinued operations		—			(0.22	)

	Net income	$	1.58		$	0.98

Diluted income (loss) per share:
	Income from continuing operations	$	1.57		$	1.18
	Loss from discontinued operations		—			(0.22	)

	Net income	$	1.57		$	0.96

Dividends declared per common share		$	0.20		$	0.10

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

WALTER ENERGY, INC. AND SUBSIDIARIES

CONDENSED CONSOLIDATED STATEMENT OF CHANGES

IN STOCKHOLDERS' EQUITY AND COMPREHENSIVE INCOME

FOR THE SIX MONTHS ENDED JUNE 30, 2009 (UNAUDITED)

(IN THOUSANDS)

		Total			Common Stock			Capital in Excess of Par Value			Comprehensive Income			Retained Earnings			Accumulated Other Comprehensive Income (Loss)

Balance at December 31, 2008		$	630,269		$	541		$	714,174					$	50,990		$	(135,436	)
Comprehensive income:
Net income			84,174								$	84,174			84,174
Other comprehensive income (loss), net of tax:
	Change in pension and postretirement benefit plans		3,711									3,711						3,711
	Change in unrealized gain (loss) on hedges		(1,338	)								(1,338	)					(1,338	)

Comprehensive income											$	86,547

Purchases of stock under stock repurchase program			(27,963	)		(13	)		(27,950	)
Stock dividend for spin-off of Financing			(439,093	)					(321,301	)					(116,106	)		(1,686	)
Dividends paid, $0.20 per share			(10,598	)											(10,598	)
Stock-based compensation			4,053						4,053
Other			839			1			838

Balance at June 30, 2009		$	244,054		$	529		$	369,814					$	8,460		$	(134,749	)

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

WALTER ENERGY, INC. AND SUBSIDIARIES

CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS (UNAUDITED)

(IN THOUSANDS)

			For the six months ended June 30

			2009			2008
OPERATING ACTIVITIES
Net income			$	84,174		$	51,275
	Loss from discontinued operations			12			11,636

	Income from continuing operations			84,186			62,911
Adjustments to reconcile income from continuing operations to net cash provided by operating activities:
	Depreciation			36,002			24,308
	Other			20,694			9,556
Decrease (increase) in current assets:
	Receivables			37,960			(49,527	)
	Inventories			(61,411	)		(16,236	)
	Other current assets			6,968			13,976
Increase (decrease) in current liabilities:
	Accounts payable			(13,639	)		15,938
	Accrued expenses and other current liabilities			(17,601	)		(10,051	)

		Cash flows provided by operating activities		93,159			50,875

INVESTING ACTIVITIES
	Additions to property, plant and equipment			(52,363	)		(53,999	)
	Other			2,278			(1,134	)

		Cash flows used in investing activities		(50,085	)		(55,133	)

FINANCING ACTIVITIES
	Proceeds from issuance of debt			—			280,000
	Retirements of debt			(48,907	)		(315,669	)
	Proceeds from stock offering			—			280,432
	Dividends paid			(10,598	)		(5,225	)
	Cash spun off to Financing			(33,821	)		—
	Purchases of stock under stock repurchase program			(27,963	)		(1,765	)
	Other			63			6,307

		Cash flows provided by (used in) financing activities		(121,226	)		244,080

		Cash flows provided by (used in) continuing operations		(78,152	)		239,822

CASH FLOWS FROM DISCONTINUED OPERATIONS
	Cash flows provided by (used in) operating activities			21,981			(6,856	)
	Cash flows provided by investing activities			23,006			20,521
	Cash flows used in financing activities			(41,385	)		(266,448	)

		Cash flows provided by (used in) discontinued operations		3,602			(252,783	)

Net decrease in cash and cash equivalents			$	(74,550	)	$	(12,961	)

Cash and cash equivalents at beginning of period			$	116,074		$	27,459
Add: Cash and cash equivalents of discontinued operations at beginning of period				1,598			3,155
Net decrease in cash and cash equivalents				(74,550	)		(12,961	)
Less: Cash and cash equivalents of discontinued operations at end of period				1,092			2,455

Cash and cash equivalents at end of period			$	42,030		$	15,198

SUPPLEMENTAL DISCLOSURE
Non-cash transaction: financing of one-year property insurance policy			$	12,710		$	17,355

Non-cash transaction: dividend to spin off Financing			$	437,407			N/A

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

WALTER ENERGY, INC. AND SUBSIDIARIES

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

AS OF AND FOR THE SIX MONTHS ENDED JUNE 30, 2009 (Unaudited)

On April 23, 2009, Walter Industries, Inc. changed its name to Walter Energy, Inc. ("Walter"). Walter, together with its consolidated subsidiaries ("the Company"), is a leading U.S. producer and exporter of premium metallurgical coal for the global steel industry (Underground Mining), operates surface mines for the steam coal and industrial coal markets (Surface Mining) and produces metallurgical coke (Walter Coke). In December 2008, the Company announced the closure of its Homebuilding segment and on April 17, 2009, the Company spun off its Financing segment. As a result of the closure and spin-off, amounts previously reported in those segments are presented as discontinued operations for all periods presented. See Note 2. These actions have completed the transformation of Walter Industries, Inc. from a diversified corporation to a pure play natural resources and energy company, now renamed Walter Energy, Inc.

Prior to the first quarter of 2009, the Company's underground and surface coal mining operations were reported together as the Natural Resources segment. Beginning with the first quarter of 2009, the Company revised its reportable segments to separate the Natural Resources segment into Underground Mining and Surface Mining. Underground Mining includes the Company's underground metallurgical coal operations from the No. 4 and No. 7 mines and its natural gas operations. Surface Mining includes the Company's surface coal mining operations for Tuscaloosa Resources, Inc. ("TRI") and Taft Coal Sales & Associates, Inc. ("Taft") as well as Walter Minerals, Inc. (formerly known as United Land Corporation) results. In addition, during the second quarter of 2009 the Company changed the name of its metallurgical coke manufacturer from Sloss Industries Corporation to Walter Coke, Inc. See Note 9 for segment information.

Historically, the Company has prepared its balance sheet on an unclassified basis because the operating cycle of Financing exceeded one year. As a result of the spin-off of this business, the assets and liabilities for continuing operations are now presented on a classified basis for all periods presented to reflect our current operating cycle. The assets and liabilities of discontinued operations attributable to Kodiak and Homebuilding have also been restated to reflect their one-year operating cycle. The assets and liabilities attributable to Financing continue to be presented on an unclassified basis.

The accompanying unaudited condensed consolidated financial statements of the Company have been prepared in accordance with accounting principles generally accepted in the United States for interim financial information and with the instructions to Form 10-Q and Article 10 of Regulation S-X. Accordingly, they do not include all of the information and footnotes required by accounting principles generally accepted in the United States for complete financial statements. In the opinion of management, all adjustments (consisting of normal recurring accruals) considered necessary for a fair presentation have been included. Operating results for the three and six months ended June 30, 2009 are not necessarily indicative of the results that may be expected for the year ending December 31, 2009. In addition, in accordance with FASB Statement No. 165, Subsequent Events, the accompanying condensed consolidated financial statements of the Company reflect the evaluation of subsequent events through the date of this filing.

Spin-off of Financing On April 17, 2009, the Company completed the spin-off of its Financing business and the merger of that business with Hanover Capital Mortgage Holdings, Inc. to create

Walter Investment Management Corp. ("Walter Investment"), which operates as a publicly traded real estate investment trust. The subsidiaries and assets that Walter Investment owned at the time of the spin-off included all assets of Financing except for those associated with the workers' compensation program and various other run-off insurance programs within Cardem Insurance Co., Ltd.

As a result of the distribution, the Company no longer has any ownership interest in Walter Investment. The Company and Walter Investment have entered into several agreements to facilitate the spin-off. These include the following: (1) A Transition Services Agreement to provide certain services to each other, including tax, accounting, human resources and communication. The Company and Walter Investment will provide certain services to each party for a limited duration, in all cases not expected to exceed 24 months, with the precise term of each service set forth in the Transition Services Agreement; (2) A Tax Separation Agreement that sets forth the rights and obligations of the Company and Walter Investment with respect to taxes and other liabilities that could be imposed if Walter Investment is required to pay an additional dividend in order to maintain its REIT status for U.S. federal income tax purposes. If that need arises, the Company will be required to reimburse Walter Investment for a portion of such additional dividend; (3) 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 on a going forward basis, and; (4) A Trademark Licensing Agreement whereby the Company granted Walter Investment a paid-up, perpetual, non-exclusive, non-transferable (except to affiliates) license to use certain variations and/or acronyms of the "Walter", "Best Insurors" and "Mid-State" names in connection with mortgage finance, lending, insurance and reinsurance services, and financial services related thereto, in the United States.

In order to facilitate the successful spin-off of Financing, the Company entered into a Support Letter of Credit Agreement (the "L/C Agreement") and a revolving credit facility agreement with Walter Investment and certain of its subsidiaries on April 20, 2009. The L/C Agreement provides Walter Investments' financial lending institutions with a stand-by letter of credit totaling $15.7 million. This stand-by letter of credit was issued under the Company's 2005 Walter Credit Agreement and enabled Walter Investment to obtain third-party financing under a revolving credit agreement. The maximum amount of future payments that the Company could be required to make under the L/C Agreement is $15.7 million, plus any unreimbursed fees, in the event of a default. To date, no event of default has occurred that would trigger a draw under the stand-by letter of credit. The Company believes that the likelihood of a triggering event is remote. In addition, should a loss occur, sufficient collateral is available for the recovery of any loss the Company might suffer in the event of a default by Walter Investment. Under the terms of the L/C Agreement, Walter Investment agrees to reimburse the Company for all costs incurred in posting the support letter of credit for Walter Investment's bank credit agreement as well as any draws under bonds posted in support of Walter Investment and its subsidiaries. All obligations of the L/C Agreement will terminate on April 20, 2011.

In addition, the Company also entered into a revolving credit facility and security agreement with Walter Investment in which the Company has committed to make available up to $10.0 million in the event that a major hurricane occurs and causes projected losses greater than $2.5 million. A condition precedent to a draw under this facility is the granting of a security interest in certain collateral. Under the terms of the revolving credit and security agreement, Walter Investment will pay all fees and repay

all loans made under the facility. Any obligations under the revolving credit and security agreement will be due and payable on April 20, 2011. There have been no loans made to Walter Investment pursuant to this arrangement.

As a result of the spin-off, amounts previously reported in the Financing segment are presented as discontinued operations for all periods presented.

Closure of Homebuilding 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. After the decision was made, the Company immediately took steps to liquidate the remaining assets and wind down the business. As a result of the closure of Homebuilding, the Company has reported the results of operations, assets, liabilities and cash flows as discontinued operations for all periods presented.

Closure of Kodiak Mining Co. In December 2008, the Company announced the permanent closure of the underground coal mine operations owned by Kodiak Mining Company, LLC ("Kodiak"), which is majority owned by Walter Minerals, 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.

The table below presents the significant components of operating results included in the income (loss) from discontinued operations for the three and six months ended June 30, 2009 and 2008 (in thousands):

The Company allocated certain corporate expenses, limited to specifically identified costs and other corporate shared services which supported segment operations, to discontinued operations. These costs represent expenses that have historically been allocated to and recorded by the Company's operating segments as selling, general & administrative expenses. The Company did not elect to allocate corporate interest expense to discontinued operations.

The assets and liabilities of Financing, Homebuilding and Kodiak included as discontinued operations in the consolidated balance sheets as of June 30, 2009 and December 31, 2008 are shown below (in thousands):

	June 30, 2009(a)			December 31, 2008(a)

Cash and cash equivalents	$	1,092		$	1,598
Instalment notes receivable		—			1,769,688
Receivables, net		611			5,235
Inventories		6,491			58,465
Property, plant and equipment, net		8,278			12,755
Other assets		10,033			24,557

Total assets	$	26,505	(b)	$	1,872,298

Accounts payable	$	906		$	2,756
Accrued expenses		6,759			34,420
Other liabilities		1,754			21,861
Mortgage-backed/asset-back notes		—			1,372,821

Total liabilities	$	9,419	(b)	$	1,431,858

As of June 30, 2009, borrowings under the 2005 Walter Credit Agreement consisted of a term loan balance of $138.2 million with a weighted average interest rate of 2.59%. 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. The revolving credit facility and the term loan bear interest at LIBOR plus 200 and 225 basis points, respectively. The commitment fee on the unused portion of the revolving facility is 0.4% per year. The revolving credit facility matures on October 3, 2010. In addition, the 2005 Walter Credit Agreement contains a reducing revolver commitment feature, where the total available revolver commitment may not exceed $350.0 million at June 30, 2009, $300.0 million at September 30, 2009, and $250.0 million at December 31, 2009. As of June 30, 2009, the Company had $66.1 million in outstanding stand-by letters of credit, of which $15.7 million relates to the support letter of credit discussed in Note 2, and $283.9 million of availability for future borrowings under the revolving credit facility.

In 2008, the Company entered into a financing arrangement and a capital lease arrangement to procure mining equipment. At June 30, 2009, $29.3 million was outstanding at an interest rate of 4.06% related to the equipment financing and $8.4 million was outstanding at an implicit rate of 9.78% related to the capital lease. In June 2009, the Company entered into a $12.7 million arrangement to finance the premium payments of its property insurance. The debt obligation will be repaid in nine monthly installments of $1.4 million beginning in July 2009 and has an implicit interest rate of 3.9%. As of June 30, 2009, the full $12.7 million was outstanding. In addition, as of June 30, 2009, $0.6 million of other debt was outstanding.

Comprehensive income is comprised primarily of net income, gains or losses from the effect of cash flow hedges and changes in pension and postretirement benefits obligations. Comprehensive income for the three months ended June 30, 2009 and 2008 was $12.8 million and $46.5 million, respectively. Comprehensive income for the six months ended June 30, 2009 and 2008 was $86.5 million and $48.2 million, respectively.

In 2008, the Board of Directors approved a $100.0 million share repurchase program. Purchases are based on liquidity and market conditions. In the first quarter of 2009, 1,371,750 shares were repurchased for $28.0 million. No repurchases were made in the second quarter of 2009. A total of 2,648,493 shares have been repurchased for $73.1 million under this program. In addition, on April 23, 2009, shareholders voted to grant the Company the authority to issue 20,000,000 shares of Preferred Stock, par value $.01 per share. The Board believes the ability to issue preferred stock is necessary in order to provide the Company with greater flexibility in structuring future capital raising transactions, acquisitions and/or joint ventures, including taking advantage of financing techniques that receive favorable treatment from credit rating agencies. No preferred shares have been issued.

A reconciliation of the basic and diluted net income per share computations for the three and six months ended June 30, 2009 and 2008 are as follows (in thousands, except per share data):

		For the three months ended June 30,

		2009						2008
		Basic			Diluted			Basic		Diluted
Numerator:
Income from continuing operations		$	11,336		$	11,336		$	45,631	$	45,631

Income (loss) from discontinued operations		$	(265	)	$	(265	)	$	5,145	$	5,145

Denominator:
Average number of common shares outstanding			52,875			52,875			52,983		52,983
Effect of dilutive securities:
	Stock options and restricted stock units ("units")(a)		—			537			—		788

			52,875			53,412			52,983		53,771

Income from continuing operations		$	0.21		$	0.21		$	0.86	$	0.85
Income from discontinued operations			—			—			0.10		0.09

Net income per share		$	0.21		$	0.21		$	0.96	$	0.94

		For the six months ended June 30,

		2009						2008
		Basic			Diluted			Basic			Diluted
Numerator:
Income from continuing operations		$	84,186		$	84,186		$	62,911		$	62,911

Loss from discontinued operations		$	(12	)	$	(12	)	$	(11,636	)	$	(11,636	)

Denominator:
Average number of common shares outstanding			53,114			53,114			52,582			52,582
Effect of dilutive securities:
	Stock options and restricted stock units ("units")(a)		—			401			—			751

			53,114			53,515			52,582			53,333

Income from continuing operations		$	1.58		$	1.57		$	1.20		$	1.18
Loss from discontinued operations			—			—			(0.22	)		(0.22	)

Net income per share		$	1.58		$	1.57		$	0.98		$	0.96

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

			For the three months ended June 30,

			2009			2008
Sales and revenues:
	Underground Mining		$	130,411		$	227,664
	Surface Mining			21,680			15,218
	Walter Coke			18,650			53,265
	Other			809			550
	Consolidating eliminations of intersegment activity(a)			(2,430	)		(22,289	)

		Net sales and revenues	$	169,120		$	274,408

Segment operating income (loss):
	Underground Mining		$	22,637		$	63,717
	Surface Mining			5,338			1,351
	Walter Coke			(2,665	)		15,091
	Other			(4,663	)		(8,012	)
	Consolidating eliminations of intersegment activity			782			(161	)

	Operating income			21,429			71,986
	Less interest expense, net of interest income			(4,214	)		(10,998	)

	Income from continuing operations before income tax expense			17,215			60,988
	Income tax expense			5,879			15,357

		Income from continuing operations	$	11,336		$	45,631

Depreciation:
	Underground Mining		$	14,787		$	9,995
	Surface Mining			2,226			978
	Walter Coke			1,151			979
	Other			104			228

		Total	$	18,268		$	12,180

			For the six months ended June 30,

			2009			2008
Sales and revenues:
	Underground Mining		$	374,610		$	370,869
	Surface Mining			48,298			29,695
	Walter Coke			40,557			104,136
	Other			1,129			841
	Consolidating eliminations of intersegment activity(a)			(12,337	)		(30,200	)

		Net sales and revenues	$	452,257		$	475,341

Segment operating income (loss):
	Underground Mining		$	122,490		$	83,045
	Surface Mining			10,853			3,982
	Walter Coke			(1,072	)		33,791
	Other			(9,814	)		(16,441	)
	Consolidating eliminations of intersegment activity			488			(668	)

	Operating income			122,945			103,709
	Less interest expense, net of interest income			(8,739	)		(16,532	)

	Income from continuing operations before income tax expense			114,206			87,177
	Income tax expense			30,020			24,266

		Income from continuing operations	$	84,186		$	62,911

Depreciation:
	Underground Mining		$	28,936		$	19,755
	Surface Mining			4,552			2,108
	Walter Coke			2,278			1,985
	Other			236			460

		Total	$	36,002		$	24,308

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 instalment 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 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.

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 can be reasonably estimated.

Walter Coke 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 Walter Coke 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 complete. At the end of 2004, the EPA re-directed Walter Coke's 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. Walter Coke implemented the approved EI Sampling Plan in April 2005. The EPA approved/finalized the EI determinations for Walter Coke's Birmingham facility in September 2005. In an effort to refocus the RFI, the EPA approved technical comments on the Phase II RFI report and the report 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 Walter Coke 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 Walter Coke 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. The Phase III final report was submitted in March 2009 and the Company is awaiting comments from the EPA. At June 30, 2009, the Company has accrued an amount that is probable and can be reasonably estimated 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 Walter Coke 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.

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 can be reasonably estimated. 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.

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.

The following methods and assumptions were used to estimate fair value for purposes of disclosure:

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

Debt—The Company's term loan in the amount of $138.2 million and $138.9 million at June 30, 2009 and December 31, 2008, respectively, is carried at cost. The estimated fair value of the Company's term loan was $126.5 million and $104.2 million at June 30, 2009 and December 31, 2008, respectively, based on similar transactions and yields in an active market for similarly rated debt.

The Company's revolving credit facility of $0 and $40.0 million at June 30, 2009 and December 31, 2008, respectively, is carried at cost. The estimated fair value of the revolver debt at June 30, 2009 and December 31, 2008 was $0 and $28.4 million, respectively, based on similar transactions and yields in an active market for similarly rated companies.

The Company's equipment financing debt was $29.3 million and $31.9 million at June 30, 2009 and December 31, 2008, respectively and is carried at cost. The estimated fair value of this equipment financing debt as of June 30, 2009 and December 31, 2008 is $26.8 million and $23.9 million, respectively, based on comparable equipment financing transactions that similarly rated companies entered into at that date.

The Company's short term borrowing to finance the premium payments on certain of its property insurance was $12.7 million and $4.7 million at June 30, 2009 and December 31, 2008, respectively, and is carried at cost. The carrying amounts reported on the balance sheet on this short term financing approximate fair value.

ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF RESULTS OF OPERATIONS, FINANCIAL CONDITION AND LIQUIDITY AND CAPITAL RESOURCES

This discussion should be read in conjunction with the condensed consolidated financial statements and notes thereto of Walter Energy, Inc. and its subsidiaries, particularly Note 9 of "Notes to Condensed Consolidated Financial Statements," which provides our net sales and revenues and operating income by reportable segment.

As more fully discussed in Note 2 of "Notes to Consolidated Financial Statements," we announced the permanent closure of the underground coal mine owned by the Kodiak Mining Company LLC ("Kodiak") in December 2008, which is majority owned by Walter Minerals (formerly United Land Corporation), due to high operational costs, difficult operating conditions and a challenging pricing environment for Kodiak's product. In December 2008, we also made the decision to close our Homebuilding business ("Homebuilding"). Additionally, on April 17, 2009, we completed the spin-off of our Financing segment, which subsequently merged with Hanover Capital Mortgage Holdings, Inc. and became Walter Investment Management Corp. As such, the operating results, assets and liabilities, and cash flows of Kodiak, Homebuilding and Financing have been reported apart from our continuing operations as "discontinued operations" for all periods presented.

Summary Operating Results of Continuing Operations for the
Three Months Ended June 30, 2009 and 2008

		For the three months ended June 30, 2009

(in thousands)		Underground Mining		Surface Mining		Walter Coke			Other			Cons Elims			Total
Net sales		$	129,371	$	21,005	$	18,590		$	469		$	(2,430	)	$	167,005
Miscellaneous income			1,040		675		60			340			—			2,115

	Net sales and revenues		130,411		21,680		18,650			809			(2,430	)		169,120
Cost of sales (exclusive of depreciation)			79,097		12,549		16,756			153			(3,212	)		105,343
Depreciation			14,787		2,226		1,151			104			—			18,268
Selling, general & administrative			5,840		1,323		3,539			5,486			—			16,188
Postretirement benefits			8,050		133		(131	)		(271	)		—			7,781
Amortization of intangibles			—		111		—			—			—			111

	Operating income (loss)	$	22,637	$	5,338	$	(2,665	)	$	(4,663	)	$	782		$	21,429

		For the three months ended June 30, 2008

(in thousands)		Underground Mining		Surface Mining			Walter Coke			Other			Cons Elims			Total
Net sales		$	223,907	$	14,475		$	52,862		$	80		$	(21,885	)	$	269,439
Miscellaneous income			3,757		743			403			470			(404	)		4,969

	Net sales and revenues		227,664		15,218			53,265			550			(22,289	)		274,408
Cost of sales (exclusive of depreciation)			141,684		11,983			32,038			16			(21,598	)		164,123
Depreciation			9,995		978			979			228			—			12,180
Selling, general & administrative			4,980		843			5,319			8,580			(530	)		19,192
Postretirement benefits			7,288		(4	)		(162	)		(262	)		—			6,860
Amortization of intangibles			—		67			—			—			—			67

	Operating income (loss)	$	63,717	$	1,351		$	15,091		$	(8,012	)	$	(161	)	$	71,986

Our income from continuing operations for the three months ended June 30, 2009 was $11.3 million, or $0.21 per diluted share, which compares to $45.6 million, or $0.86 per diluted share, for the three months ended June 30, 2008. In the three months ended June 30, 2009, net sales and revenues decreased $105.3 million and operating income decreased $50.6 million versus the same period in 2008. These decreases were primarily due to lower sales volumes of metallurgical coal and coke in the Underground Mining and Walter Coke segments.

After completing our transformation from a diversified corporation to a pure play natural resources and energy company by closing our Homebuilding segment and spinning off our Financing segment, we changed our name to Walter Energy, Inc. ("Walter"). Beginning with the first quarter of 2009, the reporting segments were revised to separate the Natural Resources segment into Underground Mining and Surface Mining. Underground Mining includes our underground metallurgical coal operations from the No. 4 and No. 7 mines and the natural gas operations. Surface Mining includes the surface coal mining operations of Tuscaloosa Resources, Inc. ("TRI") and Taft Coal Sales & Associates ("Taft") as well as the results of Walter Minerals.

Net sales and revenues for the three months ended June 30, 2009 were $169.1 million, a decrease of $105.3 million, or 38.4% from $274.4 million in the same period in 2008. This decline in revenues primarily resulted from a decrease in the volume of metallurgical coal sales and a decrease in natural gas revenues principally due to lower natural gas pricing in the Underground Mining segment, as well as decreased volume and pricing on metallurgical coke sales in the Walter Coke segment. These reductions in revenue were somewhat offset by an increase in revenue in the Surface Mining segment primarily due to the inclusion of Taft, which was acquired in the third quarter of 2008.

Cost of sales, exclusive of depreciation, decreased $58.8 million to $105.3 million, a 35.8% reduction from $164.1 million in the second quarter of 2008. Cost of sales represented 63.1% of net sales for the three months ended June 30, 2009 versus 60.9% of net sales for the same period in 2008. The reduction in cost of sales in the current quarter is primarily due to the decrease in volume of sales in the Underground Mining and the Walter Coke segments.

Depreciation for the three months ended June 30, 2009 was $18.3 million, an increase of $6.1 million compared to the same period in 2008. The increase was primarily due to investment in the expansion of mining operations, mostly during 2008, as well as replacement of certain mining equipment.

Selling, general & administrative expenses decreased $3.0 million to $16.2 million for the quarter ended June 30, 2009 as compared to the quarter ended June 30, 2008. This decrease was primarily attributable to decreases in compensation-related expenses at corporate and lower legal expenses at Walter Coke.

The effective tax rates for the three months ended June 30, 2009 and 2008 were 34.2% and 25.2%, respectively, and reflect the impact of changes in the estimates for the full-year tax rate as compared to the estimates made as of March 31, 2009 and 2008, respectively.

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

Underground Mining, which includes the operations of Jim Walter Resources and Blue Creek Coal Sales, reported revenues of $130.4 million in the second quarter of 2009, a decrease of $97.3 million

from the same period last year. The decrease in revenues was primarily due to a 37.6% decrease in tons of coal sold as compared to the same period in 2008 as shown in the table below:

Underground Mining reported operating income of $22.6 million in the second quarter of 2009, compared to $63.7 million in the same period in 2008. The $41.1 million decrease in operating income was primarily the result of reduced coal sales volumes, a 61.6% reduction in natural gas pricing and a $4.8 million increase in depreciation expenses as a result of continued investment in the No. 7 East mine expansion project and the replacement of certain mining equipment.

Surface Mining, which includes the operations of TRI, Taft and Walter Minerals, reported revenues of $21.7 million in the second quarter of 2009, an increase of $6.5 million from the same period last year. The increase in revenues was primarily due to higher sales volumes resulting from the acquisition of Taft in September 2008 and an increase in the average coal selling price for TRI. Statistics for Surface Mining are presented in the following table:

Surface Mining reported operating income of $5.3 million in the second quarter of 2009, compared to $1.4 million in the same period in 2008. The $3.9 million increase in operating income was primarily due to increased volumes and selling prices noted above, partially offset by $1.2 million in higher depreciation primarily as a result of the addition of Taft's expenses in the 2009 period.

Walter Coke's net sales and revenues were $18.7 million for the three months ended June 30, 2009, a decrease of $34.6 million compared to the same period in 2008 reflecting decreased customer demand in the weak domestic steel market. The decrease in demand resulted in a 73.5% decrease in metallurgical coke sales volumes and a 7.2% decrease in metallurgical coke selling price as shown below:

Walter Coke's operating loss was $2.7 million for the three months ended June 30, 2009 compared to an operating profit of $15.1 million in the same period in 2008, a decrease of $17.8 million. This operating loss was primarily the result of decreased sales volumes and pricing on a relatively high fixed cost structure, partially offset by lower legal expenses.

Summary Operating Results of Operations for the Six Months Ended June 30, 2009 and 2008

		For the six months ended June 30, 2009

(In thousands)		Underground Mining		Surface Mining		Walter Coke			Other			Cons Elims			Total
Net sales		$	371,249	$	45,423	$	40,327		$	509		$	(12,337	)	$	445,171
Miscellaneous income			3,361		2,875		230			620			—			7,086

	Net sales and revenues		374,610		48,298		40,557			1,129			(12,337	)		452,257
Cost of sales (exclusive of depreciation)			194,872		29,847		33,749			166			(12,825	)		245,809
Depreciation			28,936		4,552		2,278			236			—			36,002
Selling, general & administrative			12,212		2,697		5,865			11,079			—			31,853
Postretirement benefits			16,100		126		(263	)		(538	)		—			15,425
Amortization of intangibles			—		223					—			—			223

	Operating income (loss)	$	122,490	$	10,853	$	(1,072	)	$	(9,814	)	$	488		$	122,945

		For the six months ended June 30, 2008

(in thousands)		Underground Mining		Surface Mining			Walter Coke			Other			Cons Elims			Total
Net sales		$	365,590	$	28,017		$	103,524		$	80		$	(29,796	)	$	467,415
Miscellaneous income			5,279		1,678			612			761			(404	)		7,926

	Net sales and revenues		370,869		29,695			104,136			841			(30,200	)		475,341
Cost of sales (exclusive of depreciation)			244,417		21,867			60,367			83			(28,923	)		297,811
Depreciation			19,755		2,108			1,985			460			—			24,308
Selling, general & administrative			9,077		1,609			8,316			17,264			(609	)		35,657
Postretirement benefits			14,575		(10	)		(323	)		(525	)		—			13,717
Amortization of intangibles			—		139			—			—			—			139

	Operating income (loss)	$	83,045	$	3,982		$	33,791		$	(16,441	)	$	(668	)	$	103,709

Net sales and revenues for the six months ended June 30, 2009 were $452.3 million. Revenues decreased by $23.0 million, or 4.8%, from $475.3 million in the same period in 2008. The decrease in revenues was primarily due to lower volumes and average selling prices for metallurgical coke partially offset by increased Surface Mining revenue resulting from the September 2008 acquisition of Taft, and from higher average selling prices for steam coal than in the prior year. Underground Mining revenues increased slightly due to significantly higher average selling prices largely offset by lower sales volumes and lower natural gas revenues due to lower natural gas selling prices.

Cost of sales, exclusive of depreciation, decreased $52.0 million to $245.8 million for the six months ended June 30, 2009 and represented 55.2% of net sales in 2009 versus $297.8 million and 63.7% of net sales in the same period of 2008. The primary reason for the decrease results from reduced sales volumes at Underground Mining and Walter Coke, offset in part by increased volumes at

Surface Mining resulting from the third quarter 2008 acquisition of Taft. The decrease in cost of sales as a percentage of net sales in the 2009 period resulted primarily from the higher average selling prices at Underground Mining and Surface Mining, partially offset by lower average selling prices and higher production costs at Walter Coke.

Depreciation for the six months ended June 30, 2009 was $36.0 million, an increase of $11.7 million compared to the same period in 2008. The increase was primarily due to our continued investment in the expansion of Underground Mining's mine operations and depreciation related to Taft.

Selling, general & administrative expenses decreased $3.8 million to $31.9 million for the six months ended June 30, 2009 as compared to the six months ended June 30, 2008. This decrease was primarily attributable to decreases in compensation-related expenses at corporate and lower legal expenses at Walter Coke.

Our effective tax rate for the six months ended June 30, 2009 and 2008 was 26.3% and 27.8%, respectively. Both the 2009 and 2008 effective tax rates differ from the Federal statutory rate primarily due to the benefits from percentage depletion deductions.

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

Underground Mining reported revenues of $374.6 million for the six months ended June 30, 2009, an increase of $3.7 million from the same period in 2008. The increase in revenues was primarily due to significantly higher average selling prices for metallurgical coal in the current year, largely offset by lower sales volumes and a decline in natural gas revenues due to lower average selling prices for natural gas versus the prior year period.

Underground Mining reported operating income of $122.5 million for the six month period ended June 30, 2009, compared to $83.0 million in the same period in 2008. The $39.5 million increase in operating income was primarily due to a 27.5% increase in the average selling prices for coal versus the prior year period. Reduced coal sales volumes and reduced natural gas sales prices partially offset the impact of the price increase as did a $9.2 million increase in depreciation resulting from the continued investment in the expansion of Underground Mining's operations.

Surface Mining reported revenues of $48.3 million for the six month period ended June 30, 2009, an increase of $18.6 million from the same period last year. The increase in revenues was primarily due

to the acquisition of Taft in September 2008 and an increase in the average coal selling price at TRI. Statistics for Surface Mining are presented in the following table:

Surface Mining reported operating income of $10.9 million for the six month period ended June 30, 2009, compared to $4.0 million in the same period in 2008. The $6.9 million increase in operating income was primarily due to increased sales volumes and prices for the six month period ended June 30, 2009, partially offset by higher depreciation of $2.4 million, mostly due to the inclusion of Taft's depreciation.

Walter Coke's net sales and revenues were $40.6 million for the six month period ended June 30, 2009, a decrease of $63.6 million compared to the same period in 2008 reflecting decreased customer demand in the weak domestic steel market. The decrease in demand resulted in a 65.1% decrease in metallurgical coke sales volumes and a 15.6% decrease in metallurgical coke selling price as shown below:

Walter Coke's operating loss was $1.1 million for the six month period ended June 30, 2009 compared to an operating profit of $33.8 million in the same period in 2008, a decrease of $34.9 million. This operating loss was primarily the result of decreased sales volumes and pricing on a relatively high fixed cost structure.

Cash and cash equivalents of continuing operations decreased by $74.1 million from $116.1 million at December 31, 2008 to $42.0 million at June 30, 2009 reflecting $93.2 million in cash flows provided by operating activities, $50.1 million of cash flows used in investing activities and $121.2 million of cash flows used in financing activities. See additional discussion in the Statement of Cash Flows section that follows.

Net receivables were $102.5 million at June 30, 2009, a decrease of $38.0 million from December 31, 2008 primarily attributable to the collection of $23.2 million in 2009 related to the 2008 Black Lung Excise Tax refund claim and decreases in trade receivables in Walter Coke and Underground Mining resulting from lower revenues in the second quarter of 2009 as compared to the fourth quarter of 2008.

Inventories were $136.6 million at June 30, 2009, an increase of $61.4 million from December 31, 2008 primarily due to metallurgical coal and coke production exceeding sales volume during the first six months of 2009, predominately at Underground Mining. Additionally, Underground Mining's inventory carried higher production costs resulting from lower production volumes as well as a higher mix of continuous miner tons to longwall tons produced.

Net property, plant and equipment was $519.8 million at June 30, 2009, up $15.3 million from December 31, 2008, primarily due to the continued investment in the expansion and the replacement of equipment at Underground Mining's operations.

Accounts payable were $46.9 million at June 30, 2009, down $13.6 million from December 31, 2008 primarily due to decreased demurrage and royalty costs in the Underground Mining segment as well as decreased raw material purchases in the Walter Coke segment, all of which resulted from decreased customer demand.

Accrued expenses were $39.2 million at June 30, 2009, down $18.0 million from December 31, 2008 primarily due to the payment of bonuses and other payroll related expenses, state income taxes and various other expenses in 2009 that were accrued as of December 31, 2008.

Long-term debt was $167.4 million at June 30, 2009, down $44.6 million from December 31, 2008 primarily due to payments of $40.0 million on the revolving credit facility.

Our principal sources of short-term funding are existing cash balances, operating cash flows and borrowings under the revolving credit facility. Our principal source of long-term funding is the bank term loan. As of June 30, 2009, total debt decreased $36.2 million as compared to December 31, 2008. See discussion below and Note 4 of "Notes to Condensed Consolidated Financial Statements."

Based on current forecasts and anticipated market conditions, we believe that funding generated from 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, our operating cash flows and liquidity are significantly influenced by numerous factors, including prices of coal and natural gas, coal production, costs of raw materials and interest rates and the general economy. We have experienced a reduction in prices and customer demand as a result of the current worldwide economic downturn, particularly in the worldwide steel market. Although we are beginning to see signs of improvement in the market, a continued deterioration of economic conditions could adversely impact our operating cash flows. Additionally, although financial market conditions appear to be improving, there remains volatility and uncertainty, less availability and higher costs of credit, potential counterparty defaults, and commercial and investment bank stress. While we have no indication that the uncertainty in the financial markets would impact our current credit facility or current credit providers, the possibility does exist.

As of June 30, 2009, borrowings under the 2005 Walter Credit Agreement consisted of a term loan balance of $138.2 million with a weighted average interest rate of 2.59% and a revolving credit facility with no borrowings outstanding. The 2005 Walter Credit Agreement is a secured obligation of our Company and substantially all of our 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. The revolving credit facility and the term loan bear interest at LIBOR plus 200 and 225 basis points, respectively. The commitment fee on the unused portion of the revolving credit facility is 0.4% per year. The revolving credit facility matures on October 3, 2010. In addition, the 2005 Walter Credit Agreement contains a reducing revolver commitment feature, where the total available revolver commitment may not exceed $350.0 million at June 30, 2009, $300.0 million at September 30, 2009, and $250.0 million at December 31, 2009. As of June 30, 2009, we had $66.1 million in outstanding stand-by letters of credit, of which $15.7 million relates to the support

letter of credit discussed below, and $283.9 million of availability for future borrowings under the revolving credit facility.

In 2008, we entered into a financing arrangement and a capital lease arrangement to procure mining equipment. At June 30, 2009, $29.3 million was outstanding at an interest rate of 4.06% related to the equipment financing and $8.4 million was outstanding at an implicit rate of 9.78% related to the capital lease. In June 2009, we entered into a $12.7 million arrangement to finance the premium payments of its property insurance. The debt obligation will be repaid in nine monthly installments of $1.4 million beginning in July 2009 and has an implicit interest rate of 3.9%. As of June 30, 2009, the full $12.7 million was outstanding. In addition, as of June 30, 2009, $0.6 million of other debt was outstanding.

On April 20, 2009, we entered into a Support Letter of Credit Agreement (the "L/C Agreement") and a revolving credit facility agreement with Walter Investment and certain of its subsidiaries. The L/C Agreement provides Walter Investments' financial lending institutions with a stand-by letter of credit totaling $15.7 million. This stand-by letter of credit was drawn from our 2005 Walter Credit Agreement and enabled Walter Investment to obtain third-party financing under a revolving credit agreement. The maximum amount of future payments that we could be required to make under the L/C Agreement is $15.7 million, plus any unreimbursed fees, in the event of a default. To date, no event of default has occurred that would trigger a draw under the stand-by letter of credit. We believe that the likelihood of a triggering event is remote. In addition, should a loss occur, sufficient collateral is available for the recovery of any loss we might suffer in the event of a default by Walter Investment. Under the terms of the support letter of credit agreement, Walter Investment agrees to reimburse us for all costs incurred in posting the support letter of credit for Walter Investment's bank credit agreement as well as any draws under bonds posted in support of Walter Investment and its subsidiaries. All obligations of the L/C Agreement terminate on April 20, 2011.

In addition, we also entered into a revolving credit facility and security agreement with Walter Investment in which we have committed to make available up to $10.0 million in the event that a major hurricane has occurred and has caused projected losses greater than $2.5 million. A condition precedent to a draw under this facility is the granting of a security interest in certain collateral. Under the terms of the revolving credit and security agreement, Walter Investment will pay all fees and repay all loans made under the facility. Any obligations under the revolving credit and security agreement will be due and payable on April 20, 2011. There have been no loans made to Walter Investment pursuant to this arrangement.

Cash balances of continuing operations were $42.0 million and $116.1 million at June 30, 2009 and December 31, 2008, respectively. The decrease in cash in the six months ended June 30, 2009 was primarily attributable to capital expenditures of $52.4 million, stock repurchases of $28.0 million, retirement of debt of $48.9 million, cash spun off to Financing of $33.8 million and cash dividend payments of $10.6 million. These uses of cash were partially offset by cash provided by operating activities of $93.2 million.

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

Net cash provided by operating activities of continuing operations was $93.2 million for the six months ended June 30, 2009 as compared to $50.9 million for the same period in 2008. The increase of $42.3 million is primarily attributable to $44.1 million of increased income from continuing operations, adjusted for non-cash items.

Cash flows used in investing activities of continuing operations for the six months ended June 30, 2009 were $50.1 million compared to $55.1 million for the same period in 2008. Cash flows used in investing activities in the 2009 period were primarily related to additions to property, plant and equipment of $52.4 million for the replacement of equipment and the expansion of Underground Mining and Surface Mining operations as compared to $54.0 million in the 2008 period. Given current market conditions, we expect to reduce capital expenditures to about $34.0 million for the remainder of the year resulting in an expected $55.5 million decrease in full-year 2009 capital expenditures compared to full-year 2008.

Cash flows used in financing activities of continuing operations for the six months ended June 30, 2009 were $121.2 million compared to cash flows provided by financing activities of $244.1 million in the same period in 2008. Cash flows used in financing activities in 2009 included: retirement of debt of $48.9 million, stock repurchases of $28.0 million, dividend payments of $10.6 million and cash spun off to Financing of $33.8 million, of which $16.0 million was distributed by Financing to stockholders in the form of a cash dividend. Cash flows provided by financing activities for the six months ended June 30, 2008 were primarily attributable to $280.4 million of proceeds from a stock offering, partially offset by a $35.7 million net debt retirement and dividend payments of $5.2 million.

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

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 quarterly report on Form 10-Q. Based on that evaluation, our management, including our principal executive and financial officer, concluded that our disclosure controls and procedures are effective as of

June 30, 2009 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 decisions regarding required disclosures. There has been no change in our internal control over financial reporting during the six months ended June 30, 2009 that has materially affected, or is reasonably likely to materially affect, internal control over financial reporting.

Except for historical information contained herein, the statements in this release are forward-looking and made pursuant to the safe harbor provisions of the Private Securities Litigation Reform Act of 1995. Forward-looking statements, including expressions such as "believe," "anticipate," "expect," "estimate," "intend," "may," "will," and similar expressions involve known and unknown risks, and uncertainties, and other factors that may cause Walter Energy's actual results in future periods to differ materially from the expectations expressed or implied by such forward-looking statements. These factors include, among others, the following: the market demand for our products as well as changes in costs and the availability of raw material, labor, equipment and transportation; changes in weather and geologic conditions; changes in extraction costs and pricing and our assumptions and projections concerning our reserves in our mining operations; changes in customer orders; pricing actions by our competitors, customers, suppliers and contractors; changes in governmental policies and laws and changes in general economic conditions. Forward-looking statements made in this Form 10-Q, or elsewhere, speak only as of the date on which the statements were made. Any forward-looking statements should be considered in context with the various disclosures made by Walter Energy, including the Risk Factors described in our 2008 Annual Report on Form 10-K and our other filings with the Securities and Exchange Commission. Walter Energy has no obligation to update its forward-looking statements as of any future date.

See Note 10 of the "Notes to Condensed Consolidated Financial Statements" in this Form 10-Q for a description of current legal proceedings.

We and our subsidiaries are parties to a number of other lawsuits arising in the ordinary course of our businesses. Most of these cases are in a preliminary stage and we are unable to predict a range of possible loss, if any. We provide for costs relating to these matters when a loss is probable and the amount can be reasonably estimated. The effect of the outcome of these matters on our future results of operations cannot be predicted because 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, we believe that the final outcome of such other litigation will not have a material adverse effect on our consolidated financial position.

Our business, financial condition, operating results and cash flows can be impacted by a number of factors, any one of which could cause actual results to vary materially from recent results or from anticipated future results. For a discussion of our risk factors, please refer to Part 1, "Item 1A. Risk Factors" in our Annual Report on Form 10-K for the year ended December 31, 2008. In addition, we are updating our risk factor that was previously disclosed in Item 1A. Risk Factors in our Annual Report on Form 10-K for the year ended December 31, 2008 relating to the indemnification obligations of the financing business following its spin-off and merger with Hanover Capital Mortgage Holdings, Inc., as follows:

Following the spin-off and merger of the our financing business, the surviving corporation, Walter Investment Management Corporation, may not be able to satisfy certain indemnification obligations to us. In addition, we have contingent obligations in respect of Walter Investment Management Corporation which, in certain circumstances, could become significant.

Our financing business has merged with Hanover Capital Mortgage Holdings, Inc. and the surviving corporation, Walter Investment Management Corp. ("Walter Investment Management") is now a separately traded independent public company. Walter Investment Management is a party to certain agreements with us, including a tax sharing agreement, transition services, a joint litigation agreement, a support letter of credit agreement in the amount of $15.7 million and a revolving credit facility and security agreement in which we have committed to make available up to $10.0 million in the event a major hurricane has occurred with projected losses greater than $2.5 million. Under the terms of the tax sharing agreement, to the extent that we or Walter Investment Management takes any action that would be inconsistent with the treatment of the spin-off of the financing business from us 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, we and Walter Investment Management will provide certain services to each party for a limited duration. Under the terms of the joint litigation agreement, Walter Investment Management will indemnify us for certain liabilities arising from businesses and operations of the financing business at the time of the spin-off. Under the terms of the support letter of credit agreement, Walter Investment Management agrees to reimburse us for all costs incurred in posting the support letter of credit for Walter Investment Management's bank credit agreement as well as any draws under bonds posted in support of Walter Investment Management and its subsidiaries. Under the terms of the revolving credit and security agreement, Walter Investment Management will pay all fees and repay all loans made under the facility. All obligations of the support letter of credit and the revolving credit and security agreement will be due and payable on April 20, 2011. The ability to satisfy these indemnities if called upon to do so will

depend upon the future financial strength of Walter Investment Management. If Walter Investment Management is unable to satisfy its obligations under its indemnity to us, we may have to satisfy those obligations. In the case of the support letter of credit agreement and the revolving credit facility and security agreement, if Walter Investment Management cannot pay its obligations and the collateral backing those agreements is insufficient to satisfy the obligations, we could lose money in the satisfaction of those obligations.

In 2008, the Board of Directors approved a $100.0 million share repurchase program. Purchases are based on liquidity and market conditions. Through June 30, 2009, 2,648,493 shares for $73.1 million have been repurchased under this program. See following table for detail of equity security purchases during the first six months of 2009:

Our Annual Meeting of Shareholders was held on April 23, 2009. The stockholders voted on the following matters:

Proposal 1. The election of 9 directors (Howard L. Clark, Jr., Jerry W. Kolb, Patrick A. Kriegshauser, Joseph B. Leonard, Victor P. Patrick, Bernard G. Rethore, George R. Richmond, Michael T. Tokarz, A. J. Wagner).

Proposal 2: Approval of an amendment to Article 1 of the Amended and Restated Certificate of Incorporation to change our name to Walter Energy, Inc.

Proposal 3: Approval of an amendment of Article 4 of the Amended and Restated Certificate of Incorporation to authorize the issuance of preferred stock.

Proposal 5: Approval of an amendment of the Amended and Restated 2002 Long-Term Incentive Award Plan to authorize discretion in grant of awards to independent directors and ability to claw-back awards in certain circumstances.

Pursuant to the requirements 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.


ý		QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934
For the quarterly period ended June 30, 2009
or
o		TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934


Incorporated in 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)


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

	For the three months ended June 30,					For the six months ended June 30,

	2009			2008		2009			2008
Net sales and revenues	$	17,171		$	95,442	$	76,992		$	190,018

Income (loss) from discontinued operations before income tax expense (benefit)	$	(1,530	)	$	10,154	$	2,451		$	(15,274	)
Income tax expense (benefit)		(1,265	)		5,009		2,463			(3,638	)

Income (loss) from discontinued operations	$	(265	)	$	5,145	$	(12	)	$	(11,636	)

	June 30, 2009		December 31, 2008

Finished goods	$	116,441	$	45,642
Raw materials and supplies		20,142		29,530

Total inventories	$	136,583	$	75,172

		June 30, 2009			December 31, 2008

Debt:
	2005 Walter term loan	$	138,217		$	138,934
	2005 Walter revolving credit facility		—			40,000
	Other		50,971			46,451

Total debt			189,188			225,385
Less: current debt			(21,835	)		(13,480	)

Long-term debt		$	167,353		$	211,905

	Three months ended June 30,

	2009		2008
Average coal selling price⁽¹⁾ (per short ton)	$	113.63	$	110.79
Tons of coal sold⁽¹⁾ (in thousands)		1,090		1,747
Average hedged natural gas selling price (per mcf)	$	3.45	$	8.99
Billion cubic feet of natural gas sold		1.6		1.6
Number of natural gas wells		424		412

	Three months ended June 30,

	2009		2008
Average coal selling price (per short ton)	$	73.60	$	61.71
Tons of coal sold (in thousands)		277		224

	Three months ended June 30,

	2009		2008
Metallurgical coke average selling price per ton	$	369.07	$	397.50
Metallurgical coke tons sold		28,247		106,431

Period			Average Price Paid per Share			Approximate Dollar Value of Shares that May Yet Be Purchased Under the Plans or Programs (in millions)(1)

January 1, 2009 - January 31, 2009	870,450		$	21.77	870,450	$	35.8
February 1, 2009 - February 28, 2009	516,753	(2)	$	17.89	501,300	$	26.9
March 1, 2009 - March 31, 2009	35	(3)	$	21.21	—	$	26.9
April 1, 2009 - June 30, 2009	—	(4)		—	—		—

	1,387,238				1,371,750

Director

Howard L. Clark, Jr.	41,849,689	6,245,047
Jerry W. Kolb	43,003,586	5,091,150
Patrick A. Kriegshauser	45,379,782	2,714,954
Joseph B. Leonard	47,348,984	745,752
Victor P. Patrick	43,380,831	4,713,904
Bernard G. Rethore	45,977,367	2,117,369
George R. Richmond	46,008,402	2,086,334
Michael T. Tokarz	42,404,395	5,690,341
A J. Wagner	45,447,334	2,647,402

Exhibit Number

	31.1		Certification Pursuant to Section 302 of the Sarbanes-Oxley Act of 2002—Principal Executive and Financial Officer
	32.1		Certification Pursuant to Section 906 of the Sarbanes-Oxley Act of 2002, 18 U.S.C. Session 1350—Principal Executive and Financial Officer
	101		XBRL (Extensible Business Reporting Language)—The following materials from Walter Energy, Inc.'s Quarterly Report on Form 10-Q for the quarter ended June 30, 2009, formatted in XBRL (eXtensible Business Reporting Language): (i) the Condensed Consolidated Balance Sheets, (ii) the Condensed Consolidated Statements of Income, (iii) the Condensed Consolidated Statement of Changes in Stockholders' Equity and Comprehensive Income, (iv) the Condensed Consolidated Statements of Cash Flows, (v) Notes to Condensed Consolidated Financial Statements, tagged as blocks of text.


WALTER ENERGY, INC.
/s/ VICTOR P. PATRICK Vice Chairman, Chief Financial Officer and General Counsel (Principal Executive and Financial Officer)

For			Against			Abstain

	46,763,025			1,285,582			46,128

For			Against			Abstain

	31,359,189			7,282,324			48,976

For			Against			Abstain

	29,499,716			9,133,139			57,635

For			Against			Abstain

	36,198,331			2,423,448			68,711