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

FORM 10-Q

Commission File Number 001-13711

WALTER INDUSTRIES, INC.

4211 W. Boy Scout Boulevard, Tampa, Florida 33607

Telephone Number (813) 871-4811

        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 is an accelerated filer (as defined in Rule 12b-2 of the Exchange Act). Yes ý    No o

        There were 35,994,147 shares of common stock of the registrant outstanding at October 31, 2004.

PART I—FINANCIAL INFORMATION
WALTER INDUSTRIES, INC. AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS
(UNAUDITED)

See accompanying "Notes to Consolidated Financial Statements"

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WALTER INDUSTRIES, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF OPERATIONS
(UNAUDITED)

See accompanying "Notes to Consolidated Financial Statements"

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WALTER INDUSTRIES, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF OPERATIONS
(UNAUDITED)

See accompanying "Notes to Consolidated Financial Statements"

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WALTER INDUSTRIES, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENT OF CHANGES IN STOCKHOLDERS' EQUITY
For The Nine Months Ended September 30, 2004
(UNAUDITED)
(in thousands)

See accompanying "Notes to Consolidated Financial Statements"

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WALTER INDUSTRIES, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS
(UNAUDITED)

See accompanying "Notes to Consolidated Financial Statements"

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WALTER INDUSTRIES, INC. AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
FOR THE THREE AND NINE MONTHS ENDED SEPTEMBER 30, 2004
(Unaudited)

Note 1—Basis of Presentation

        The accompanying unaudited consolidated financial statements of Walter Industries, Inc. ("the Company") and subsidiaries have been prepared in accordance with generally accepted accounting principles for interim financial information and 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 generally accepted accounting principles 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 nine month periods ended September 30, 2004 are not necessarily indicative of the results that may be expected for the year ending December 31, 2004.

        The balance sheet at December 31, 2003 has been derived from the audited financial statements at that date but does not include all of the information and footnotes required by generally accepted accounting principles for complete financial statements.

        In December 2003, the Company completed the sales of Applied Industrial Materials Corporation ("AIMCOR") and JW Aluminum Company ("JW Aluminum") (see Note 2). The Notes to Consolidated Financial Statements, except where otherwise indicated, relate to continuing operations only. Certain reclassifications have been made to prior year's amounts to conform to the current period classifications.

        On April 30, 2004, the Company completed the sale of the assets of Vestal Manufacturing Company, a wholly-owned subsidiary, for $6.0 million, subject to certain post-closing adjustments. The Company recorded an after tax loss of approximately $0.8 million on the sale. Michael T. Tokarz, a member of the Company's Board of Directors, is the chairman and investment manager of MVC Capital, an investment fund that participated in the acquisition of Vestal's assets. Mr. Tokarz owns less than five percent of the equity of MVC Capital. There were no fees paid to Mr. Tokarz in connection with the sale. Mr. Tokarz did not vote on the transaction or participate in the Board's decision to approve the sale of Vestal.

Note 2—Discontinued Operations

        On December 3, 2003, the Company completed the sale of AIMCOR, previously a wholly-owned subsidiary of the Company, to Oxbow Carbon and Minerals LLC ("Oxbow") for $127.7 million, subject to certain post-closing adjustments. This resulted in a loss on the sale of approximately $71.5 million, net of $27.6 million of income tax benefit. Based on the Company's history of taxable earnings and expectations for future earnings, it is more likely than not that the Company will achieve sufficient future taxable income to recognize all of the tax benefits associated with the tax loss from the disposition of AIMCOR. The Company also completed the sale of JW Aluminum, previously a wholly-owned subsidiary of the Company, to Wellspring Capital Management LLC for $125.0 million, subject to certain post-closing adjustments, on December 5, 2003, resulting in a gain on the sale of approximately $20.1 million, net of $15.5 million of income tax expense.

        Per the AIMCOR sales agreement for the divestiture of the business, the final sales price is subject to certain post-closing cash and net working capital adjustments. The cash and working capital adjustments are defined in the sales agreement and is subject to resolution and arbitration process provided for in the agreement. The Company is currently in arbitration against the purchaser of AIMCOR. The Company recorded a receivable in 2003 of approximately $16 million for estimated net

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cash and working capital adjustments due to the Company. The ultimate recovery of this receivable is subject to the resolution and arbitration processes described above. Management believes it has a valid basis for its claims and intends to vigorously pursue recovery through these resolution and arbitration processes.

        As a result of the adoption of plans to dispose of AIMCOR and JW Aluminum, their operations have been classified as discontinued operations in the accompanying statements of operations for the three and nine months ended September 30, 2003.

        Net sales and revenues and income from such discontinued operations were as follows (in thousands):

Note 3—Stock Options & Stock Compensation

        The Company applies Accounting Principles Board Opinion No. 25 and related interpretations in accounting for stock options using the intrinsic value method at the grant dates. Had compensation cost for the Company's stock option plans been determined based on fair value at the grant dates as prescribed by Statement of Financial Accounting Standards No. 123, Accounting for Stock Based Compensation, the Company's net income (loss) and net income (loss) per share on a pro forma basis would have been (in thousands, except per share data):

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        The preceding pro forma results were calculated with the use of the Black Scholes option-pricing model. Weighted average assumptions used for the following periods were:

        During the first quarter of 2004, the Company established the Long-Term Incentive Award Plan Restricted Stock Unit Award Agreement (the "Agreement") pursuant to the provisions of the 2002 Long-Term Incentive Award Plan. Under the Agreement, restricted stock units fully vest after seven years of continuous employment with the Company. The Agreement contains an acceleration provision for vesting if the stock price of the Company reaches certain pre-established amounts. The Company records deferred compensation related to the restricted stock units as a component of capital in excess of par value in the period of grant, based on the number of units granted and the market value of the Company's stock on the grant date, and amortizes the deferred compensation to expense over the vesting period.

Note 4—Restructuring and Impairments

        On December 1, 2003, the Company announced that Jim Walter Resources expected to close Mine No. 5 during the fourth quarter of 2004 due to continuing adverse geologic conditions. The mine was originally scheduled to close in 2006. However, given the poor operating conditions, management concluded that it was not economically feasible to access Mine No. 5's remaining coal reserves beyond 2004. On April 6, 2004, the Company announced that it would extend its coal production schedule for Mine No. 5 to mid-2005 due to favorable increases in metallurgical coal prices around the world. The Company previously estimated total costs of the shutdown at approximately $17.8 million, of which approximately $12.7 million would qualify as restructuring costs. As a result of the delay in the shutdown of the mine, total expected costs have decreased to approximately $14.5 million, of which approximately $9.4 million would qualify as restructuring costs. Due to the change in the timing of the mine shutdown and the related decrease in estimated restructuring costs, the Company remeasured the

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liability, which resulted in a $0.7 million reversal during the first quarter of 2004 of amounts previously charged to restructuring expense in 2003. The Company recorded approximately $0.5 million of restructuring and impairment charges for each of the three months ended March 31, 2004, June 30, 2004 and September 30, 2004 related to the shutdown of Mine No. 5. Estimated costs associated with the shutdown and amounts recorded as restructuring expenses are as follows (in thousands):

        Termination benefits consist primarily of one year's post-employment health benefits for United Mine Workers of America ("UMWA") employees and severance related to staff reductions of salaried personnel. Other employee-related costs include approximately $5.8 million expensed in 2003 related to an increase in benefit costs associated with the curtailment of the UMWA other post-retirement benefits plan and increases in other employee-related costs, such as workers compensation, that will be expensed when incurred. Other costs primarily represent incremental costs related to the closure of the mine that will be charged to operating costs when incurred.

        Amounts recorded in accrued restructuring for the closure of Mine No. 5 are as follows (in thousands):

        On April 29, 2003, U.S. Pipe, the primary component of the Industrial Products segment, ceased production and manufacturing operations at its castings plant in Anniston, Alabama. The decision to cease operations was the result of several years of declining financial results and resulted in the

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termination of approximately 80 employees. Exit costs associated with the plant closure were $6.1 million. Costs associated with the restructuring are as follows (in thousands):

        Other associated costs principally include site clean-up costs that were expensed as restructuring charges when incurred.

        Amounts recorded in accrued restructuring for ceasing production and manufacturing operations in Anniston, Alabama are as follows (in thousands):

Note 5—Restricted Short-Term Investments

        Restricted short-term investments at September 30, 2004 and December 31, 2003 include (i) temporary investment of reserve funds and collections on instalment notes receivable owned by Mid-State Trusts IV, VI, VII, VIII, IX, X, XI and 2004-1 (the "Trusts") ($98.2 million and $94.0 million, respectively) which are available only to pay expenses of the Trusts and principal and interest on indebtedness of the Trusts and (ii) miscellaneous other segregated amounts restricted to specific uses ($7.5 million and $6.3 million), respectively.

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Note 6—Instalment Notes Receivable

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

        During the three and nine months ended September 30, 2004, the Company purchased portfolios of $16.6 million and $31.3 million, respectively, of seasoned mortgage loans.

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

Note 7—Inventories

        Inventories are summarized as follows (in thousands):

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Note 8—Debt

        Debt, in accordance with its contractual terms, consisted of the following (in thousands):

        On July 15, 2004, Mid-State Capital Corporation, a wholly-owned subsidiary of the Company, issued notes under the 2004-1 Trust offering of asset-backed notes. These notes are secured by instalment sale contracts, promissory notes and mortgages originated by Jim Walter Homes, Inc. and its affiliated homebuilding companies and mortgage loans, promissory notes and mortgages originated and/or purchased by Walter Mortgage Company. The notes were issued in four separate classes with a single maturity date of August 2037 and with a weighted average, fixed interest coupon of 6.64%. The initial net proceeds of approximately $244.0 million were used to repay borrowings of $205.8 million under the Company's Mid-State Trust IX Variable Funding Loan Facility, and provided approximately $38.2 million for general corporate purposes. Mid-State Capital Corporation also incurred debt issuance costs of approximately $1.8 million that will be amortized to interest expense based on the paydown of the related notes. During the three months ended September 30, 2004, the Company received additional net proceeds of approximately $50 million under the offering, related to instalment sales contracts and notes originated or purchased during that period, for a total offering of $294 million. The additional proceeds were used for general corporate purposes.

        In April 2004, the Company issued $175 million of convertible senior subordinated notes which will mature May 1, 2024, unless earlier converted, redeemed or repurchased. The notes are redeemable by the Company at par on or after May 6, 2011. The holders of the notes may require the Company to repurchase some or all of the notes at par plus accrued and unpaid interest, including contingent interest, if any, initially on May 1, 2014, and subsequently on May 1, 2019, or at any time prior to their maturity following a fundamental change, as defined in the indenture.

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        The notes bear interest at 3.75% per annum. Commencing on May 1, 2011, the Company will pay contingent interest for the applicable interest period if the average trading price of the notes during the specified five trading days in the applicable interest period equals or exceeds 120% of the principal amount of the notes. The contingent interest payable per note will equal 0.40% per year of the average trading price of such note during the applicable five trading-day reference period. The notes are convertible into shares of the Company's common stock, initially at a conversion rate of 56.0303 shares of common stock per $1,000 principal amount of notes (equivalent to a conversion price of approximately $17.85 per share), subject to adjustment and under certain circumstances as outlined in the indenture. Holders can surrender their notes for conversion in any fiscal quarter after the quarter ending June 30, 2004 if the last reported sale price per share of Walter Industries' common stock for at least 20 trading days during the period of 30 consecutive trading days ending on the last trading day of the previous fiscal quarter is greater than or equal to 130% of the applicable conversion price per share of Walter Industries' common stock on such last trading day. Holders may also convert the notes if certain trading price conditions are met, the notes are called for redemption, upon the occurrence of certain corporate transactions or if future credit ratings are three or more subcategories below the initial credit rating. Other than the occurrence of certain corporate transactions, such as the sale of the Company, the agreement has no provisions that accelerate maturity of the debt. A significant downgrade of the credit rating of the debt or a suspension of the ratings by both rating agencies would result in an acceleration of the conversion feature of the notes.

        Proceeds upon issuance of the notes were approximately $168.9 million, net of approximately $6.1 million of underwriting fees and expenses. A portion of the proceeds was used to repay in full the Term Loan, which had a principal balance outstanding of approximately $111.7 million. Using the remaining proceeds and borrowings under the revolving credit facility, the Company repurchased 4,960,784 shares of its common stock for approximately $63.0 million, of which 3,960,784 shares totaling $50.0 million were repurchased from certain affiliates of Kohlberg, Kravis, Roberts and Co ("KKR"). After the repurchase, KKR affiliates owned approximately 27% of the Company's outstanding stock.

        In April 2003, the Company entered into a new $500 million bank credit facility (the "2003 Credit Facility") which consists of a $245 million senior secured revolving credit facility that matures in April 2008 and a $255 million senior secured Term Loan originally maturing in April 2010. In April 2004, the Company repaid the remaining balance of the term loan from the proceeds of the convertible debt issue. The 2003 revolving credit facility is secured by the stock of Walter Industries' subsidiaries and by certain assets (excluding real property) of the Company. The interest rate on the revolving credit facility is a floating rate of 400 basis points over LIBOR and on the retired term loan was a floating rate of 425 basis points over LIBOR. LIBOR was 1.8% and 1.2% at September 30, 2004 and December 31, 2003, respectively.

        In connection with the 2003 Credit Facility, the Company originally incurred debt issuance costs of approximately $5.4 million, which was being amortized over the life of the loans. In addition, the Company recorded a discount on the term loan of approximately $3.2 million, which was recorded as a reduction of the term loan and was being accreted to face value over the life of the loan. As the result of the repayment of the term loan, unamortized term loan debt issue costs of approximately $1.2 million and discount of approximately $1.4 million were charged to interest expense in the three months ended June 30, 2004.

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        Effective March 24, 2004, April 13, 2004 and October 28, 2004, the Company entered into amendments of the 2003 Credit Facility to provide the Company with flexibility in the timing of its long term financing under mortgage backed/asset-backed notes; to permit the issuance of senior convertible notes; and to increase the amount of availability to make restricted payments such as share repurchases and dividends under the 2003 Credit Facility. These amendments modified the 2003 Credit Facility as follows: (a) the definition of Consolidated EBITDA will not include any cash expenditure made on or after July 1, 2004 in connection with post employment benefits to the extent such expenditures are not deducted in computing Consolidated Net Income; (b) permitted the Company to incur additional indebtedness related to the issuance of convertible senior subordinated notes and repurchase additional shares of the Company's common stock and (c) increased the amount available to make restricted payments, which includes share repurchases.

        The revolving credit facility includes a sub-facility for trade and other standby letters of credit in an amount up to $100.0 million at any time outstanding. At September 30, 2004 letters of credit with a face amount of $59.5 million were outstanding and approximately $185.5 million was available under the revolving credit facility. No amounts were outstanding under the revolving credit facility at September 30, 2004 and December 31, 2003.

        The Mid-State Trust IX Variable Funding Loan Facility (or "Trust IX") is a $400.0 million warehouse facility with Bank of America as lender and as Administrative Agent maturing January 31, 2005. Interest is based on the cost of A-1 and P-1 rated commercial paper plus .35% and a facility fee on the committed amount of .40%. The weighted average interest rate was 2.51% as of September 30, 2004.

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Note 9—Pension and Other Employee Benefits

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

        In May 2004, the Financial Accounting Standards Board ("FASB") issued FASB Staff Position 106-2, Accounting and Disclosure Requirements Related to the Medicare Prescription Drug Improvement and Modernization Act of 2003, which provides guidance on the accounting for the effects of the Act. FASB Staff Position 106-2 is effective for the first interim or annual period ending after June 15, 2004. The Company has determined that it sponsors health care benefit plans that provide a benefit that is at least actuarially equivalent to Medicare Part D. The effect of the subsidy on the measurement of net periodic postretirement benefit cost for 2004 is estimated to be $0.7 million. The Company recorded $0.4 million as a reduction to Other Postretirement Benefits expense for the three months ended September 30, 2004 and expects to record $0.3 million as a reduction to Other Postretirement Benefits expense for the three months ended December 31, 2004.

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        During the second quarter of 2004, the Company reduced the Other Postretirement Benefits liability by $1.6 million to reverse an overaccrual for certain retiree life insurance benefits which are provided by the UMWA union plans which are indirectly funded by Jim Walter Resources.

Note 10—Income Taxes

        The Company established a $1.8 million valuation allowance for certain Homebuilding segment state deferred tax assets during the second quarter of 2004.

Note 11—Earnings Per Share

        Calculations of basic and diluted net income (loss) per share for the three and nine months ended September 30, 2004 and 2003 are as follows (in thousands, except per share data):