Walter Energy, Inc. (WLT) 10-K

Transcription

1 Walter Energy, Inc. (WLT) 10-K Annual report pursuant to section 13 and 15(d) Filed on 02/29/2012 Filed Period 12/31/2011

2 Table of Contents UNITED STATES SECURITIES AND EXCHANGE COMMISSION Washington, D.C FORM 10-K (Mark One) ý ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(D) OF THE SECURITIES EXCHANGE ACT OF 1934 For the year ended December 31, 2011 or o TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(D) OF THE SECURITIES EXCHANGE ACT OF 1934 Commission File Number WALTER ENERGY, INC. (Exact name of registrant as specified in its charter) Delaware (State or other jurisdiction of incorporation or organization) 3000 Riverchase Galleria, Suite 1700 Birmingham, Alabama (Address of principal executive offices) (IRS Employer Identification No.) (Zip Code) (205) Registrant's telephone number, including area code: Securities registered pursuant to Section 12(b) of the Act: Title of each class Name of exchange on which registered Common Stock, par value $0.01 New York Stock Exchange Toronto Stock Exchange Securities registered pursuant to Section 12(g) of the Act: NONE Indicate by check mark if the registrant is a well-known seasoned issuer, as defined in Rule 405 of the Securities Act. Yes ý No o Indicate by check mark if the registrant is not required to file reports pursuant to Section 13 or Section 15(d) of the Act. Yes o No ý 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 (or for such shorter period that the registrant was required to file such reports), 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 ( 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

3 Indicate by check mark if disclosure of delinquent filers pursuant to Item 405 of Regulation S-K ( ) is not contained herein, and will not be contained, to the best of registrant's knowledge, in definitive proxy or information statements incorporated by reference in Part III of this Form 10-K or any amendment to this Form 10-K. ý 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 the definitions of "large accelerated filer," "accelerated filer," and "smaller reporting company" in Rule 12b-2 of the Exchange Act. Large accelerated filer ý Accelerated filer o Non-accelerated filer o Smaller reporting company o (Do not check if a smaller reporting company) Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act). Yes o No ý The aggregate market value of voting stock held by non-affiliates of the registrant, based on the closing price of the Common Stock on June 30, 2011, the registrant's most recently completed second fiscal quarter, as reported by the New York Stock Exchange, was approximately $7.2 billion. Number of shares of common stock outstanding as of January 31, 2012: 62,444,905 Documents Incorporated by Reference Applicable portions of the Proxy Statement for the Annual Meeting of Stockholders of the Company to be held April 19, 2012 are incorporated by reference in Part III of this Form 10-K.

4 Table of Contents CAUTIONARY NOTE REGARDING FORWARD LOOKING STATEMENTS This report includes statements of our expectations, intentions, plans and beliefs that constitute "forward-looking statements" within the meaning of Section 27A of the Securities Act of 1933 and Section 21E of the Securities Exchange Act of 1934 and are intended to come within the safe harbor protection provided by those sections. These statements, which involve risks and uncertainties, relate to analyses and other information that are based on forecasts of future results and estimates of amounts not yet determinable and may also relate to our future prospects, developments and business strategies. We have used the words "anticipate," "believe," "could," "estimate," "expect," "intend," "may," "plan," "predict," "project," "should" and similar terms and phrases, including references to assumptions, in this report to identify forward-looking statements. These forward-looking statements are made based on expectations and beliefs concerning future events affecting us and are subject to uncertainties and factors relating to our operations and business environment, all of which are difficult to predict and many of which are beyond our control, that could cause our actual results to differ materially from those matters expressed in or implied by these forward-looking statements. These risks and uncertainties include, but are not limited to: Deteriorating conditions in the financial markets; Global economic crisis; Market conditions beyond our control; Prolonged decline in the price of coal; Decline in global steel demand; Our customer's refusal to honor or renew contracts; Title defects preventing us from (or resulting in additional costs for) mining our mineral interests; Concentration of our coal and gas producing mineral interests in limited number of areas subjects us to risk; Weather patterns and conditions affecting production; Geological, equipment and operational risks associated with mining; Unavailability of cost-effective transportation for our coal; Significant increase in competitive pressures; Significant cost increases and delays in the delivery of purchased components; Availability of adequate skilled employees and other labor relations matters; Greater than anticipated costs incurred for compliance with environmental liabilities; Our ability to attract and retain key personnel; Future regulations that increase our costs or limit our ability to produce coal; New laws and regulations to reduce greenhouse gas emissions that impact the demand for our coal reserves; Adverse rulings in current or future litigation; Inability to access needed capital; Downgrade in our credit rating; 1

5 Table of Contents Our ability to identify suitable acquisition candidates to promote growth; Our ability to successfully integrate acquisitions, including the recent acquisition of Western Coal Corp.; Volatility in the price of our common stock; Our ability to pay regular dividends to stockholders; Potential suitors could be discouraged by our stockholder rights agreement; Our exposure to indemnification obligations; and Other factors, including the other factors discussed in Item 1A, "Risk Factors," as updated by any subsequent Form 10-Qs or other documents that are on file with the Securities and Exchange Commission. You should keep in mind that any forward-looking statement made by us in this Annual Report on Form 10-K or elsewhere speaks only as of the date on which we make it. New risks and uncertainties come up from time to time, and it is impossible for us to predict these events or how they may affect us. We have no duty to, and do not intend to, update or revise the forward-looking statements in this Annual Report on Form 10-K after the date of this Annual Report on Form 10-K, except as may be required by law. In light of these risks and uncertainties, you should keep in mind that any forward-looking statement made in this Annual Report on Form 10-K or elsewhere might not occur. 2

6 Table of Contents GLOSSARY OF SELECTED MINING TERMS Anthracite coal. A hard natural coal containing little volatile hydrocarbons which burns slowly and gives intense heat almost without flame. Ash. Impurities consisting of silica, iron, alumina and other incombustible matter that are contained in coal. Since ash increases the weight of coal, it adds to the cost of handling and can affect the burning characteristics of coal. Assigned reserves. Coal that is planned to be mined at an operation that is currently operating, currently idled, or for which permits have been submitted and plans are eventually to develop the operation. Bituminous coal. A common type of coal with moisture content less than 20% by weight. It is dense and black and often has well-defined bands of bright and dull material. British thermal unit, or "Btu". A measure of the thermal energy required to raise the temperature of one pound of pure liquid water one degree Fahrenheit at the temperature at which water has its greatest density (39 degrees Fahrenheit). Coal seam. Coal deposits occur in layers. Each layer is called a "seam." Coke. A hard, dry carbon substance produced by heating coal to a very high temperature in the absence of air. Coke is used in the manufacture of iron and steel. Its production results in a number of useful by-products. Compliance coal. Coal which, when burned, emits 1.2 pounds or less of sulfur dioxide per million Btus, as required by Phase II of the Clean Air Act. Continuous miner. A machine used in underground mining to cut coal from the seam and load onto conveyers or shuttle cars in a continuous operation. In contrast, a conventional mining unit must stop extracting in order to begin loading. Continuous mining. A form of underground mining that cuts the coal from the seam and loads continuously, thus eliminating the separate cycles of cutting, drilling, shooting and loading. Hard coking coal. Hard coking coal is a type of metallurgical coal that is a necessary input in the production of strong coke. It is evaluated based on the strength, yield and size distribution of coke produced which is dependent on rank and plastic properties of the coal. Hard coking coals trade at a premium to other coals due to their importance in producing strong coke and as they are of limited resources. Industrial coal. Coal generally used as a heat source in the production of lime, cement, or for other industrial uses and is not considered thermal coal or metallurgical coal. Longwall mining. A form of underground mining that employs two rotating drums pulled mechanically back and forth across a long surface of the coal. A hydraulic system supports the roof of the mine while the drum is mining the coal. Chain conveyors move the loosened coal to an underground mine conveyor to transport to the surface. Longwall mining is the most efficient underground mining method in the United States. Metallurgical coal. The various grades of coal suitable for carbonization to make coke for steel manufacture, including hard coking coal (see definition above), semi-soft coking coal (SSCC) and PCI coal (see definition below). Also known as "met" coal, its quality depends on four important criteria: (1) volatility, which affects coke yield; (2) the level of impurities including sulfur and ash, which affect coke quality; (3) composition, which affects coke strength; and (4) other basic characteristics that affect coke oven safety. Met coal typically has a particularly high Btu but low ash and sulfur content. Nitrogen oxide (NOx). Produced as a gaseous by-product of coal combustion. It is a harmful pollutant that contributes to smog. 3

7 Table of Contents Overburden. Layers of earth and rock covering a coal seam. In surface mining operations, overburden is removed prior to coal extraction. PCI Coal. Coal used by steelmakers for pulverized coal injection (PCI) into blast furnaces rather than the coking coals used to produce coke. Preparation plant. Usually located on a mine site, although one plant may serve several mines. A preparation plant is a facility for crushing, sizing and washing coal to remove impurities and prepare it for use by a particular customer. The washing process has the added benefit of removing some of the coal's sulfur content. Probable reserves. Reserves for which quantity and grade and/or quality are computed from information similar to that used for proven reserves, but the sites for inspection, sampling and measurement are farther apart or are otherwise less adequately spaced. The degree of assurance, although lower than that for proven reserves, is high enough to assume continuity between points of observation. Proven reserves. Reserves for which: (a) quantity is computed from dimensions revealed in outcrops (part of a rock formation that appears at the surface of the ground), trenches, workings or drill holes; grade and/or quality are computed from the results of detailed sampling; and (b) the sites for inspection, sampling and measurement are spaced so closely and the geologic character is so well defined that size, shape, depth and mineral content of reserves are well-established. Recoverable reserves. Tons of mineable coal which can be extracted and marketed after deduction for coal to be left in pillars, etc. and adjusted for reasonable preparation and handling losses. Reclamation. The process of restoring land and the environment to their original state following mining activities. The process commonly includes "recontouring" or reshaping the land to its approximate original appearance, restoring topsoil and planting native grass and ground covers. Reclamation operations are usually underway before the mining of a particular site is completed. Reclamation is closely regulated by both state and federal law. Reserve. That part of a mineral deposit that could be economically and legally extracted or produced at the time of the reserve determination. Roof. The stratum of rock or other mineral above a coal seam; the overhead surface of a coal working place. Sulfur. One of the elements present in varying quantities in coal that contributes to environmental degradation when coal is burned. Sulfur dioxide is produced as a gaseous by-product of coal combustion. Surface mine. A mine in which the coal lies near the surface and can be extracted by removing the covering layer of soil (see "Overburden"). About 65% of total U.S. coal production comes from surface mines. Thermal coal. Coal used by power plants and industrial steam boilers to produce electricity, steam or both. It generally is lower in Btu heat content and higher in volatile matter than metallurgical coal. Tons. A "short" or net ton is equal to 2,000 pounds. A "metric" ton is approximately 2,205 pounds; a "long" or British ton is equal to 2,240 pounds. Unless otherwise indicated, the metric ton is the unit of measure referred to in this document. The international standard for quoting price per ton is based on the U.S. dollar per metric ton. Unassigned reserves. Coal that is likely to be mined in the future, but which is not considered Assigned reserves. Underground mine. Also known as a "deep" mine. Usually located several hundred feet or more below the earth's surface, an underground mine's coal is removed mechanically and transferred by shuttle car and conveyor to the surface. Underground mines account for about 35% of annual U.S. coal production. 4

8 Table of Contents PART I Item 1. Business Introduction and History We are a leading producer and exporter of metallurgical coal for the global steel industry and also produce thermal coal and industrial coal, anthracite, metallurgical coke, coal bed methane gas ("natural gas") and other related products. We trace our roots back to 1946 when Jim Walter began a homebuilding business in Tampa, Florida. Although initially focused on Homebuilding, the company Mr. Walter founded later became Jim Walter Corporation and branched out into many different businesses, including the 1972 development of four underground coal mines in the Blue Creek coal seam near Brookwood, Alabama. In 1987 a group of investors that included Jim Walter formed a new company, subsequently named Walter Industries, Inc., and the following year completed a leveraged buyout of most of the businesses of Jim Walter Corporation. In 1997, Walter Industries, Inc. began trading on the New York Stock Exchange. In 2009 we closed our Homebuilding business and spun off our Financing business. Our Homebuilding business was an on-your-lot homebuilder and our Financing business serviced non-conforming installment notes and loans that were secured by mortgages and liens. With all of our remaining businesses concentrated in coal and natural gas, we changed our name to Walter Energy, Inc. in April On April 1, 2011 we completed the acquisition of all the outstanding common shares of Western Coal Corp. ("Western Coal"). The acquisition included high quality metallurgical coal mines in Northeast British Columbia (Canada), high quality metallurgical coal and compliant thermal coal from mines in West Virginia (United States), and high quality anthracite coal from mines located in South Wales (United Kingdom, "U.K."). The acquisition of Western Coal substantially increased our reserves available for future production, the majority of which is high-demand metallurgical coal, and created a diverse geographical footprint with strategic access to high-growth steel-producing countries in both the Atlantic and Pacific basins. On May 6, 2011, we acquired mineral rights for approximately 68 million metric tons of recoverable Blue Creek metallurgical coal reserves to the Northwest of our existing Alabama mines from a subsidiary of Chevron Corporation. The mineral leases are expected to form the core of what is a planned new underground metallurgical coal mine. In addition, we acquired Chevron Corporation's existing North River thermal coal mine in Fayette and Tuscaloosa Counties of Alabama. Overview Our primary business, the mining and exporting of metallurgical coal for the steel industry, is conducted by two business segments, our U.S. Operations segment and Canadian and U.K. Operations segment. As a result of the Western Coal acquisition, beginning with the second quarter of 2011 the Company revised its reportable segments by arranging them geographically. We now report all of our operations located in the U.S. under the U.S. Operations segment, including the West Virginia mining operations acquired through the acquisition of Western Coal. We report our mining operations acquired through the Western Coal acquisition located in Northeast British Columbia and South Wales under the Canadian and U.K. Operations segment. The U.S. Operations segment includes the operations of our underground mines, surface mines, coke plant and natural gas operations located in Alabama, and our underground and surface mining operations located in West Virginia. Our Alabama mining operations mine metallurgical coal from both underground and surface mines. Our Alabama underground mining operation represents the country's southernmost Appalachian coal producer where we mine high quality metallurgical coal from Alabama's Blue Creek coal seam. Our Alabama underground mines are 1,500 to 2,200 feet underground, making them some of the deepest vertical shaft coal mines in North America. 5

9 Table of Contents Metallurgical coal mined from the Blue Creek seam contains very low sulfur, has strong coking properties and high heat value making it ideally suited to the needs of steel makers as a coking coal. The Alabama operations also mine thermal coal for sale to industrial and electric utility customers at our surface mines and underground North River mine. Our Alabama mining operations have convenient access to the port of Mobile, Alabama through barge and by railroad allowing us to minimize our transportation costs. In 2011, the Alabama mining operations produced 5.5 million metric tons of metallurgical coal and 2.5 million metric tons of thermal coal. The U.S. Operations segment also extracts methane gas, principally from the Blue Creek coal seam. Our natural gas business represents one of the most extensive and comprehensive commercial programs for coal seams degasification in the country, producing approximately 52 million cubic feet of gas daily from over 1,760 wells. Through the acquisition of Western Coal we acquired two underground and two surface mines located in West Virginia, which produce both metallurgical coal and thermal coal. The West Virginia mining operations lie within the Appalachian coal-producing region and have a long history of mining development and production. Our West Virginia mining operations operate a rail-loading facility and utilize an extensive network of public roads to transport coal to markets along the Kanawha River or to independent river terminals for transfer to barges along the Kanawha River. The West Virginia mining operations have produced approximately 400 thousand metric tons of metallurgical coal and 900 thousand metric tons of thermal coal since the April 1, 2011 date of acquisition. The Canadian and U.K. Operations segment includes the operations of surface mines in Northeast British Columbia (Canada) and underground and surface mines in South Wales (U.K.) The Canadian operations currently operate three surface mines that produce primarily metallurgical and low-volatile PCI coals. The Canadian mines are located adjacent to or nearby existing infrastructure established for the Northeast coalfields, including established rail and road networks that are available all year round. Coal produced from the mines is shipped by rail to a coal terminal facility at the Port of Prince Rupert, British Columbia. The U.K. mining operations mine PCI, anthracite and thermal coal from its underground and surface mines. All coal mined is processed at the Company's nearby preparation plant where both road and rail coal transportation are available. The Canadian and U.K. mining operations have produced 1.1 million metric tons of hard coking coal, 1.7 million metric tons of low volatile PCI coal and 91 thousand metric tons of thermal coal since the April 1, 2011 date of acquisition. The financial results of our industry segments are included in Note 17 of "Notes to Consolidated Financial Statements" included in this Form 10-K. The Coal Industry Coal is one of the most available and important energy sources in the world, providing approximately 30% of the world's primary energy needs according to the World Coal Association ("WCA"). Per the WCA, the most significant uses for coal are for electricity generation, steel production, cement manufacturing and as a liquid fuel. According to the WCA, approximately 41% of the world's electricity is generated from coal and this level is expected to increase to 44% by During 2011, coal was used to generate approximately 49% of the electricity in the United States according to the International Energy Agency ("IEA"). Approximately 68% of global steel production relies directly on inputs of metallurgical coal according to the WCA. After metallurgical coal is converted to coke it is used in blast furnaces to smelt iron ore which is subsequently used to produce steel. The steel industry uses metallurgical coal which is distinguishable from other types of coal by its characteristics: lower volatility, lower sulfur and ash content and favorable coking characteristics (higher coke strength). Additionally, metallurgical coal has a higher Btu value. Approximately 29% of steel is also produced in electric arc furnaces, a process in which a large percentage of the electricity is generated from coal-fired power stations. The top five 6

10 Table of Contents steel producing countries are China, Japan, the United States, India and Russia. In 2011, approximately 1.5 billion metric tons of steel was produced globally, a 7% increase over Coal reserves are available in almost every country worldwide, with recoverable reserves in around 70 countries. The largest reserves are in the U.S., Russia, China and India. Coal's appeal is that it is readily available from a wide variety of sources; its prices have been lower and more stable than oil and gas prices; and it is likely to remain the most affordable fuel for power generation in many developing and industrialized nations for several decades per the WCA. The top five coal producing countries in the world are China, the United States, India, Australia and South Africa. The largest exporters of coal in 2011 were Australia, Indonesia and Russia (the U.S. is 4 th ) according to the WCA. The leading exporters of metallurgical coal for coking, per the WCA, are Australia, the United States and Canada. Because metallurgical coal is more expensive than thermal coal, exporters are able to afford the high freight rates involved in exporting metallurgical coal worldwide. Coal Characteristics Coal is generally classified as either metallurgical coal or thermal coal (also known as steam and industrial coal). Sulfur, ash and moisture content as well as coking characteristics are key attributes in grading metallurgical coal while heat value, ash and sulfur content are important variables in rating thermal coal. We currently mine, process, market and ship coal with the characteristics described below. Heat Value: The heating value of coal is supplied by its carbon content and volatile matter and commonly measured in British thermal units ("Btus"). A Btu is the amount of heat needed to raise the temperature of one pound of water by one degree Fahrenheit. Coal deposits are generally classified into four categories, ranging from lignite, subbituminous, bituminous and anthracite, reflecting their response to increasing heat and pressure. We primarily mine bituminous coal which is used to make coke for the steel industry or generate electricity with a heating value ranging between 10,500 and 15,500 Btus per pound. Anthracite coal has the highest carbon content and a heat value nearing 15,000 Btus per pound. Approximately 88.5% of our proven and probable reserves has a heat value above 13,500 Btus per pound, making it very desirable to our customers. Sulfur Content: Although sulfur content can differ from seam to seam, approximately 95% of our estimated million metric tons of proven and probable reserves are low sulfur coals, which are preferred by our customers. Low sulfur coals have a sulfur content of 1.5% or less. Coal produces undesirable sulfur dioxide when it burns, the amount of which depends on the concentration of sulfur in the coal as well as the chemical composition of the coal itself. Ash and Moisture Content: Ash residue is what remains after the combustion of coal. Low ash is desirable because businesses must dispose of ash after the coal is used. High moisture content decreases the heat value of the coal which is undesirable and increases the coal's weight which is also negative because higher weight increases transportation charges. Our metallurgical coal, particularly the coal from the Blue Creek seam in Alabama, has a low ash rating and moisture content which is desirable to our customers. Coking Characteristics (metallurgical coal only): Two important coking characteristics are coke strength and volatility. Measuring the expansion and contraction of coal when heated determines the strength of coke that could be produced from the coal. When coal is heated in the absence of air, the loss in mass less moisture is volatility. Volatility of metallurgical coal is used to determine the percentage of coal that becomes coke. This measure is known as coke yield. A low volatility results in a higher coke yield. Our metallurgical coal, particularly the coal from the Blue Creek seam in Alabama, has both a high rating for coke strength as well as a low measure of volatility. 7

11 Table of Contents Types of Coal Metallurgical coal is classified into three major categories of hard coking coal ("HCC"), semi-soft coking coal, and pulverized coal injection coal ("PCI"). Coking coals are the basic ingredients for manufacture of metallurgical coke. PCI coal is not used in coke making, but is injected directly into the lower region of blast furnaces to supply both energy and carbon for iron reduction, thus replacing some of the metallurgical coke that may otherwise have been used. Thermal and industrial coal is the most abundant form of coal which is also referred to as steam coal. It has relatively high heat value and has long been used for steam generation in electric power and industrial boiler plants. Anthracite coal is commonly used as a reduction agent for various applications such as briquetting, charcoal and iron ore pellets. The primary current use of our anthracite coal is for a domestic fuel in either hand fired stoker or automatic stoker furnaces. However, the intent is to sell anthracite coal into the PCI coal market. Anthracite is a crossover coal and has been successfully used in the PCI coal market. Coal Mining Methods We use two primary methods for mining coal of underground mining and surface mining. The mining methods that we employ are largely determined by the geological characteristics of our coal reserves. Underground Mining: We employ underground mining methods when our coal reserves are located deep beneath the surface. Our underground mines typically use the two different mining techniques of longwall mining and room-and-pillar mining. In 2011, approximately 60% of the coal we produced was from underground mining operations. In longwall mining, mechanized shearers are used to cut and remove the coal from long rectangular blocks of medium to thick seams. Continuous miners are used to develop access to these coal blocks. After the coal is removed, it drops onto a chain conveyor, which moves it to a second conveyor that will ultimately take the coal to production shafts or slopes where it will be hoisted to the surface. In longwall mining mobile hydraulic powered roof supports hold up the roof throughout the extraction process. This method of mining has proven to be more efficient than other mining methods, with an extraction rate of nearly 100 percent, but the equipment is more expensive than that for other conventional mining methods and cannot be used in all geological circumstances. In longwall mining, only the gate entries are bolted. The longwall panel is allowed to collapse behind the shields which hold the roof as coal is extracted. Underground mining with longwall technology drives greater production efficiency, improved safety, higher coal recovery and lower production costs. We currently operate 4 longwall mining systems at our Alabama underground mining operations for primary production and four to six continuous miner sections in each mine for the development of mains and longwall panel entries. We expect to have four longwalls in operation through the second quarter of 2012 at which time one of our existing longwalls at our Mine No. 7 will be decommissioned. Our optimal operating plan is a longwall/continuous miner production ratio of approximately 80% / 20%. In room-and-pillar mining a network of rooms are cut into the coal seam by remote-controlled continuous miners, leaving a series of coal pillars to support the mine roof. Shuttle cars and battery coal haulers transport coal to conveyor belt systems for further transportation to the surface. Ultimate seam recovery is typically less than that achieved with longwall mining as the pillars generated as part of this mining method can constitute up to 40% of the total coal seam. We employ this method to mine smaller blocks of coal in thinner seams as compared to longwall mining. 8

12 Table of Contents Surface Mining: We employ surface mining methods when our coal reserves are located close to the surface. In 2011, approximately 40% of the coal we produced came from surface mining operations. Surface mining involves removing the topsoil then drilling and blasting the earth and rock covering the coal (overburden) with explosives. The overburden is then removed with heavy earth-moving equipment such as draglines, power shovels, excavators and loaders exposing the coal seam. Once exposed, the coal seam is extracted and loaded into haul trucks for transportation to a preparation plant or load out facility. After the coal is removed, as part of our normal mining activities, we use the topsoil and overburden removed at the beginning of the process to backfill the excavated coal pits and reclaim disturbed areas. Once we replace the overburden and topsoil, we reestablish vegetation and plant life into the natural habitat and make other improvements that have local community and environmental benefits. Ultimate seam recovery typically exceeds 80% and is dependent on overburden, coal thickness, geological factors, and equipment. Description of Our Business We operate our business through two principal business segments: U.S. Operations and Canadian and U.K. Operations. Our business segment financial information is included in Note 17 of "Notes to Consolidated Financial Statements" included herein. During 2011, we actively operated 14 mines. For a comprehensive summary of all of our coal properties and of our coal reserves and production levels, see the tables summarizing our coal reserves and production in "Item 2. Properties" in this Form 10-K. U.S. Operations The U.S. Operations segment includes metallurgical coal and thermal coal mines in both Alabama and West Virginia and a coke plant in Alabama. In 2011 metallurgical coal production totaled 5.9 million metric tons and thermal coal production totaled 3.4 million metric tons. Alabama Operations: Our mining operations in Alabama operate two underground metallurgical coal mines in Southern Appalachia's Blue Creek coal seam, the No. 7 Mine (which includes No. 7 East) and the No. 4 Mine, one underground thermal coal mine, the North River Mine, one surface metallurgical coal mine, the Reid School Mine, one surface metallurgical and thermal coal mine, the Swann's Crossing mine and one surface thermal coal mine, the Choctaw Mine. Our Alabama underground mining operations are headquartered in Brookwood, Alabama and currently have approximately million metric tons of recoverable reserves from our mines and nearby reserves located in west central Alabama between the cities of Birmingham and Tuscaloosa. Operating at about 2,000 feet below the surface, the No. 4 and No. 7 mines are two of the deepest underground coal mines in North America. The coal is mined using longwall extraction technology with development support from continuous miners. We extract coal primarily from Alabama's Blue Creek and Mary Lee seams, which contain high-quality bituminous coal. Blue Creek coal offers high coking strength with low coking pressure, low sulfur and low-to-medium ash content with high Btu values that can be sold either as metallurgical coal (used to produce coke) or as compliance thermal coal (used by electric utilities because it meets current environmental compliance specifications). The coal from our No. 4 and 7 mines is currently sold as a high quality low and mid-vol metallurgical coal. At forecasted production levels, we estimate the current reserves at these mines to have a 25 to 30 year life. As described above, in May 2011 we acquired mineral rights for approximately 68 million metric tons of recoverable Blue Creek metallurgical coal reserves to the northwest of our No. 4 mine. The mineral leases are expected to form the core of a planned new underground metallurgical coal mine that could increase the life to 40 to 50 years. Mines No. 4 and No.7 are located near Brookwood, Alabama, and are serviced by CSX rail. Both mines have access to our barge load out facility on the Black Warrior River. Service via both rail and barge culminates in delivery to the Port of Mobile, where shipments are delivered to our international customers via ocean 9

13 Table of Contents vessels. Approximately 86% of the metallurgical coal sales in our Alabama underground mining operations are sales to international customers. The coal producer is responsible for transporting the coal from the mine to the export coal-loading facility. Export coal is usually sold at the loading port, with the buyer responsible for further transportation to their location. Since potential customers may choose a metallurgical coal supplier largely based on transportation costs, this is a critical issue. We have the advantage of having our mines conveniently located near both river barge load out facilities and railroad transportation (CSX rail) with direct access to the Port of Mobile, minimizing our transportation costs. In May 2011 we acquired Chevron Corporation's existing North River thermal coal mine in Alabama. The North River Mine is near the end of its life and mining is currently expected to be completed in Our Alabama natural gas operations extract and sell natural gas from the coal seams owned or leased by the Company and others. Prior to May 2010, our natural gas operations solely consisted of Black Warrior Methane Corp., an equal ownership venture with El Paso Production Co., a subsidiary of El Paso Corporation. In May 2010, we acquired HighMount Exploration and Production Alabama, LLC's coal bed methane business. The acquisition of this business included approximately 1,300 conventional gas wells, pipeline infrastructure and related equipment located adjacent to our existing underground mining and coal bed methane business. As of December 31, 2011, there were 1,768 wells that produced approximately 19.5 billion cubic feet of natural gas in The degasification operations have improved mining operations and safety by reducing methane gas levels in the mines. We are currently operating three surface mines in Alabama. The Choctaw Mine is located near Parrish in Walker County, Alabama and primarily produces thermal coal. The mine has an onsite rail facility serviced by Norfolk Southern rail. Access to Highway 269 provides delivery access to local customers via truck. The Reid School Mine is located in Blount County, Alabama and primarily produces metallurgical coal. Access to Highway 79 provides delivery to local customers via truck. Metallurgical coal mined at the Reid School Mine is primarily sold to our Coke plant and underground mining operations for resale. The Swann's Crossing Mine is located in Tuscaloosa County near Brookwood, Alabama and produces both metallurgical and thermal coal. The mine has access to our barge load out facility on the Black Warrior River. We also own other surface mine coal reserves including the Flat Top surface mine that is a thermal mine and is ready for operation and will be placed in service when market conditions permit. This mine is located in Adamsville, Alabama near Highway 78 where coal will be delivered to local customers via truck. We operate a coke plant, Walter Coke, located in Birmingham, Alabama. The plant's major product line is metallurgical coke, which includes coke for furnace and foundry applications. Foundry coke is marketed to ductile iron pipe plants and foundries producing castings, such as for the automotive and agricultural equipment industries. Furnace coke is sold to the domestic and international steel industry for producing steel in blast furnaces. The plant utilizes 120 coke ovens with a capacity to produce 381,000 tons of metallurgical coke and is the second largest merchant foundry coke producer in the United States. West Virginia Operations: As a result of the acquisition of Western Coal on April 1, 2011, we acquired four mines on two properties in West Virginia which produce both metallurgical and thermal coal: the Gauley Eagle underground mine and surface mine and the Maple underground mine and surface mine. The Maple Coal mines, located in Fayette and Kanawha counties and the Gauley Eagle mines located in Nicholas and Webster counties of West Virginia contain approximately 38.7 million metric 10

14 Table of Contents tons of recoverable reserves within the Appalachian coal-producing region. The Maple underground mine operates in the Eagle coal seam and employs roomand-pillar mining with continuous miners to produce a premium high volatile coking coal, which is used in the steelmaking process. The Gauley Eagle underground mine also employs room-and-pillar mining to produce a high volatile semisoft coking coal, which can be used in the steelmaking process or as a premium low-sulfur thermal coal. The Gauley Eagle underground mine was temporarily idled in mid-2011, due to economic conditions and the reallocation of personnel and equipment to the Maple underground mine. Both the Maple and Gauley Eagle surface mines produce primarily thermal coal. At forecasted production levels, we estimate the current reserves to have a year life. Coal from the Gauley Eagle and Maple mines is either transported by rail or by barge on the river systems to our customers. Coal shipped from our rail load out facility can access regional markets and ports on the eastern U.S. seaboard. Coal shipped by barge on the river systems is trucked to the Kanawha River and shipped locally or offshore via the Mississippi River or Tennessee-Tombigbee river system. The transportation infrastructure and strategic location of the mines close to customers, ensures continuous and reliable delivery of our products. The metallurgical coal produced by our West Virginia operations is sold to both domestic and international steel mills, while the thermal coal is sold domestically to regional electrical power plants on the eastern U.S. seaboard. Production comes from over 14 mineable seams which allow us to blend coal to virtually any quality specifications that our customers request. Canadian and U.K. Operations The Canadian and U.K. Operations segment includes metallurgical coal and thermal coal mines located in Northeast British Columbia (Canada) and South Wales (U.K.). Since being acquired on April 1, 2011, the Canadian and U.K. Operations metallurgical coal production totaled 2.8 million metric tons and thermal coal production totaled 91 thousand metric tons in the aggregate. Canadian Operations: The Canadian mining operations currently operate three surface metallurgical coal mines in Northeast British Columbia's coalfields, the Wolverine Mine, the Brule Mine, and the Willow Creek Mine. Within British Columbia, the Company holds the right to two large multideposit coal property groups: the Wolverine group, consisting of the Perry Creek (Wolverine Mine), EB and Hermann deposits; and the Brazion group, consisting of the Brule Mine and the Willow Creek Mine and less explored portions of these properties and adjacent properties. We also have a 50% interest in the Belcourt-Saxon multi-deposit coal property groups described below. Our Canadian surface mining operations are located in Northeast British Columbia near the towns of Tumbler Ridge and Chetwynd. Our Canadian operations currently have approximately million metric tons of recoverable coal reserves including 47.5 million metric tons at future mine sites. The Wolverine surface mine is located near the town of Tumbler Ridge and produces a high grade hard coking coal. We expect mining at the Wolverine mine to continue until approximately Future projects at Wolverine include the EB and Hermann surface mines which are currently expected to each have lives of 10 years. The Brule surface mine is located near the town of Chetwynd and produces a premium grade low-volatile PCI coal. We expect mining at the Brule mine to continue until approximately The Willow Creek surface mine, also located near the town of Chetwynd, produces metallurgical coal with production plans of one third hard coking coal and two thirds low-volatile PCI coal over the mine's life which is currently expected to be through A key strategic advantage of the Canadian operations is the proximity to existing infrastructure. Our wholly-owned properties are located near rail and port infrastructure that is operational all year around. The rail line is approximately 590 miles from our mines to the port at Prince Rupert, British Columbia. From the port facility, shipments are delivered to our international customers via ocean 11

15 Table of Contents vessels. This combined infrastructure provides cost effective and reliable delivery of our products to our customers. Our Falling Creek connector road project was substantially commissioned near the end of the 2011 third quarter and truck hauling volumes on the road have continued to increase into the 2012 first quarter. The road connects the Brule mine to the Willow Creek mine where Brule's coal is processed and loaded at the rail load out facility. The new road reduces the hauling distance as compared to the previous route from just over 62 miles down to 37 miles. It is anticipated that the road will eventually allow us to increase our payload capacity resulting in future lower transportation costs. The metallurgical coal produced by our Canadian operations is sold to international customers located in Asia to meet the demand for steel produced in the region. Our Wolverine mine's metallurgical coal is a hard coking coal and forms a key coke oven blend component with many of the leading steel mills in Asia. The Brule and Willow Creek mine's low-volatile PCI coal is ranked as a premium PCI coal and can replace up to 30% of the coke feed in a blast furnace. Willow Creek also has hard coking coal reserves that we will begin to produce in These high quality metallurgical coals in conjunction with the infrastructure present in Northeast British Columbia continue to provide us with an opportunity to grow and diversify our customer base. Additionally, we have a 50.0% interest in the Belcourt Saxon Coal Limited Partnership which includes two multi-deposit metallurgical coal properties comprised of approximately 28.5 million metric tons of recoverable reserves which are located approximately 40 to 80 miles south of our Wolverine mine. We believe that the area has the potential to support significant mining operations and we expect that the partnership will develop these properties in the future. We also own or hold an interest in a number of other property assets located in Southeast British Columbia that are in the early stages of development. Mine planning is progressing for the proposed EB mine and Hermann mine located near our existing Wolverine mine. These mines together have approximately 19 million metric tons of recoverable high quality metallurgical coal reserves. Exploration has been completed within the proposed mining areas and production is expected to commence in EB as early as U.K. Operations: Our U.K. mining operations consist of underground and surface mines located in South Wales. Our U.K. underground operations currently have approximately 5.3 million metric tons of recoverable reserves. The U.K. operations' primary activity is the development and expansion of the Aberpergwm underground coal mine located at Glynneath in the Neath Valley. We also operate the smaller Forest Quarry surface mine which is expected to end production in These mines produce low-volatile PCI metallurgical coal, anthracite coal and thermal coal. Our current plan for the U.K. operations is for mining operations to continue until approximately 2025 across different reserve areas. The U.K. operations are ideally located to take advantage of the high demand from U.K. steel mills and the European export market. Coal is processed in the operation's new preparation plant and loaded at a nearby rail load out facility or shipped to customers by road. Our mines currently supply high quality metallurgical coal to nearby steel mills and thermal coal and anthracite coal to a nearby electrical power plant and for various other commercial purposes. Coal Preparation and Blending All of our coal mines have coal preparation and blending facilities convenient to each mine, each of which receive, blend, process and ship coal that is produced from one or more mines. Using our facilities, we are able to ensure a consistent quality and efficiently blend our coal to meet our customers' specifications. 12

16 Table of Contents Marketing, Sales and Customers Coal prices differ substantially by region and are impacted by many factors including the overall economy, the demand for steel, the demand for electricity, location, the market, quality and type of coal, mine operation costs and the cost of alternative fuels. The major factors influencing our business are the economy and the demand for steel. Our Alabama operations' high quality Blue Creek coal and our Canadian operations' high quality hard coking coal are rated among the highest quality coals in the world and are preferred as a base coal in our customers' blends. The low-volatile PCI coal produced by our Canadian operations has proven itself in the marketplace as a desired source for steel makers to complement their coking coal blends. Our marketing strategy is to focus on international markets mostly in Europe, South America and Asia where we have a significant transportation cost advantage and where our coal is in high demand. During 2011, approximately 48% of our metallurgical coal shipments were to customers in Europe, approximately 16% to South America and approximately 32% to Asia. We are the largest U.S. supplier of metallurgical coal into South America. Further, we focus on long-term customer relationships where we have a competitive advantage. We sell most of our metallurgical coal under fixed price supply contracts primarily with terms of three and six months. Some sales of metallurgical coal can, however, occur in the spot market as dictated by available supply and market demand. During 2011, our five largest customers represented approximately 29% of our sales. Even in this challenging economy we believe that the loss of these customers would not have a material adverse effect on our results of operations as the loss of volume from these customers would be replaced with sales to other existing or new customers due to the demand for our metallurgical coal. Our outlook on the long-term prospects for growth and related demand for our product is very strong. Our thermal coal is primarily marketed to customers in the United States, generally under long-term contracts. Trade Names, Trademarks and Patents The names of each of our subsidiaries are well established in the respective markets they serve. Management believes that customer recognition of such trade names is of significant importance. Our subsidiaries have numerous trademarks. Management does not believe, however, that any one such trademark is material to our individual segments or to the business as a whole. Competition A large percentage all of our metallurgical coal sales are exported. Our major competitors are businesses that sell into our core business areas of Europe, South America and Asia. In both Europe and South America, we primarily compete with producers of premium metallurgical coal from Australia, Canada and the United States. In Asia, we primarily compete with producers of metallurgical coal from the United States, Australia and Canada. The principal areas in which we compete are coal prices at the port of shipment, coal quality and characteristics, customer relationships and the reliability of supply. The demand for our metallurgical coal is significantly dependent on the general economy and the worldwide demand for steel. Although there are significant challenges in this current difficult economy, we believe that we have competitive strengths in our business areas that provide us with distinct advantages. Competitive Strengths We have premium products. Blue Creek coal from our Alabama mining operations is recognized to be among the highest quality coals in the world. Its characteristics are very low sulfur, low ash and low volatility. These strong coking properties and high heat value make it ideally suited for steel makers as a coking coal. Hard coking coal produced from the Canadian mining operations has been well accepted 13

17 Table of Contents by steel makers, with 5 of the top 10 largest steel mills as customers. The low-volatile PCI coal from the Canadian operations has been widely accepted by customers. We have a significant transportation advantage in shipping to our customers. Our principal mines in our Alabama operations are serviced by CSX rail. We also have access to our barge load out facility on the Black Warrior River. Service via rail or barge is a relatively short distance to the Port of Mobile. Since customers for our Alabama metallurgical coal are primarily in Europe and South America, we are able to ship our coal quickly and at a relatively favorable cost. Our Canadian operations are located on CN Rail's high capacity and uncongested rail lines. Also in Canada, Ridley Terminals located in the port utilized by our operations can handle 12 million metric tons per year of coal with the potential to expand to 24 million metric tons per year. Our West Virginia operations are situated near both rail lines and a river system that can readily ship our coal to customers on the eastern seaboard and off shore. The unconstrained infrastructure represents a competitive advantage for us. We maintain excellent relationships with our customers. Customers want good products, delivered on a timely basis at a fair price. Having premium products and with our production and transportation efficiencies, we are able to reliably deliver premium products at a competitive price on a timely basis. As a result, we have maintained excellent relationships with our customers over many years. We are able to purchase and blend coal to the customer's specifications. In order to meet the exact needs of our customers, we are able to blend the high quality coals we sell to meet our customer's requirements at competitive prices. Environmental and Other Regulatory Matters Our businesses are subject to numerous federal, state, provincial and local laws and regulations with respect to matters such as permitting and licensing requirements, employee health and safety, reclamation and restoration of property and protection of the environment. In the United States, environmental laws and regulations include, but are not limited to, the federal Clean Air Act ("CAA") and its state counterparts with respect to air emissions; the Clean Water Act ("CWA") and its state counterparts with respect to water discharges; the Resource Conservation and Recovery Act ("RCRA") and its state counterparts with respect to solid and hazardous waste generation, treatment, storage and disposal, as well as the regulation of underground storage tanks; and the Comprehensive Environmental Response, Compensation and Liability Act ("CERCLA") and its state counterparts with respect to releases, threatened releases, and remediation of hazardous substances. In Canada, the Company's operations are primarily regulated by provincial legislation, with some regional and federal authorizations required. Applicable environmental laws and regulations include, but are not limited to, the federal Fisheries Act with respect to protection of fish and fish habitat; the Species at Risk Act ("SARA") with respect to protection of identified species of risk, particularly caribou; the British Columbia Environmental Assessment Act with respect to conditions of applicable environmental assessment certificates; the Canadian Environmental Assessment Act with respect to potential federal environmental assessment processes; the British Columbia Mines Act (including the Health, Safety and Reclamation Code); the British Columbia Environmental Management Act and associated regulations with respect to waste discharges, air emissions, hazardous waste disposal, contaminated sites and spills; and the British Columbia Greenhouse Gas Reduction (Cap and Trade) Act with respect to reporting greenhouse gas emissions. Other environmental laws and regulations require reporting, even though the impact of that reporting is unknown. Compliance with these laws and regulations may be costly and time-consuming and may delay commencement or continuation of exploration or production at our operations. These laws are constantly evolving and becoming increasingly stringent. The ultimate impact of complying with existing laws and regulations is not always clearly known or determinable due in part to the fact that certain implementing regulations for these environmental laws have not yet been promulgated and in certain instances are undergoing revision. These laws and regulations, particularly new legislative or administrative proposals (or judicial interpretations of existing laws and regulations) 14

18 Table of Contents related to the protection of the environment, could result in substantially increased capital, operating and compliance costs and have a material adverse effect on our operations and/or our customers' ability to use our products. We strive to conduct our mining, natural gas and coke operations in compliance with all applicable federal, provincial, state and local laws and regulations. However, due in part to the extensive and comprehensive regulatory requirements, along with changing interpretations of these requirements, violations occur from time to time in our industry and at our operations. In recent years, expenditures for regulatory or environmental obligations in the United States have been mainly for safety or process changes, although certainly some expenditures continue to be made at several facilities to comply with ongoing monitoring or investigation obligations. Expenditures relating to environmental compliance are a major cost consideration for our Canadian operations and environmental compliance is a significant factor in mine design, both to meet regulatory requirements and to minimize long-term environmental liabilities. To the extent these expenditures, as with all costs, are not ultimately reflected in the prices of our products and services, operating results will be reduced. We believe that our major North American competitors are confronted by substantially similar conditions and thus do not believe that our relative position with regard to such competitors is materially affected by the impact of environmental laws and regulations. However, the costs and operating restrictions necessary for compliance with environmental laws and regulations may have an adverse effect on our competitive position with regard to foreign producers and operators who may not be required to undertake equivalent costs in their operations. In addition, the specific impact on each competitor may vary depending on a number of factors, including the age and location of its operating facilities, applicable state legislation and its production methods. Permitting and Approvals Numerous governmental permits and approvals are required for mining operations. We are required to prepare and present to federal, state, provincial or local authorities data pertaining to the effect or impact that any proposed exploration for or production of coal or gas may have upon the environment, the public and our employees. In addition, we must also submit a comprehensive plan for mining and restoring, upon the completion of mining operations, the mined property to its prior condition, productive use or other permitted condition. The requirements are costly and time-consuming and may delay commencement or continuation of exploration or production at our operations. Typically we submit our necessary mining permit applications several months, or even years, before we anticipate mining a new area. Our coking operation is subject to numerous regulatory permits and approvals, including air and water permits. These permits subject us to monitoring and reporting requirements. We typically submit our necessary permit renewal applications several months prior to expiration. Applications for permits and permit renewals at our mining and coking operations are subject to public comment and may be subject to litigation from third parties seeking to deny issuance of a permit or to overturn the agency's grant of the permit application, which may also delay commencement or continuation of our mining and coking operations. Further, regulations provide that applications for certain permits or permit modifications in the United States can be delayed, refused or revoked if an officer, director or a stockholder with a 10% or greater interest in the entity is affiliated with or is in a position to control another entity that has outstanding permit violations. In the current regulatory environment, we anticipate approvals will take even longer than previously experienced, and some permits may not be issued at all. Significant delays in obtaining, or denial of, permits could have a material adverse effect on our business. 15

19 Table of Contents U.S. Operations Mine Safety and Health The Coal Mine Health and Safety Act of 1969, the Federal Mine Safety and Health Act of 1977 ("MSHA"), and the Mine Improvement and New Emergency Response Act of 2006 (the "MINER Act"), as well as regulations adopted under these federal laws, impose rigorous safety and health standards on mining operations. Such standards are comprehensive and affect numerous aspects of mining operations, including but not limited to: training of mine personnel, mining procedures, ventilation, blasting, use of mining equipment, dust and noise control, communications, and emergency response. MSHA monitors compliance with these laws and standards by regularly inspecting mining operations and taking enforcement actions where MSHA believes there to be non-compliance. Maximum civil penalties for violations of these laws and standards are $70,000 per violation, unless the violation is deemed to be flagrant which can result in a maximum civil penalty of $220,000. These federal mine safety and health laws and regulations have a significant effect on our operating costs. The MINER Act mandated increased regulations in some of the areas listed above, and some of those regulations are now effective. The MINER Act and other legislative and regulatory initiatives, such as the Dodd-Frank Wall Street Reform and Consumer Protection Act ("Dodd-Frank Act") passed by the U.S. Congress and signed into law on July 21, 2010 are still ongoing. While the Dodd-Frank Act is focused primarily on the regulation and oversight of financial institutions, it also provides for regulatory compliance related to mining safety and health matters. The Dodd-Frank Act requires the SEC to enact numerous rules and regulations, some of which could impact our business practices or place additional reporting burdens on us. It is not possible at this time to predict the full effect that the new or proposed regulations and policies will have on our operating costs, but it will likely increase our costs and those of our competitors. Workers' Compensation and Black Lung We are self-insured for workers' compensation benefits for work-related injuries. Workers' compensation liabilities, including those related to claims incurred but not reported, are recorded principally using annual valuations based on discounted future expected payments using historical data of the division or combined insurance industry data when historical data is limited. In addition, certain of our subsidiaries are responsible for medical and disability benefits for black lung disease under the Federal Coal Mine Health and Safety Act of 1969 and the Federal Mine Safety and Health Act of 1977, as amended, and are self-insured against black lung related claims. We perform periodic evaluations of our black lung liability, using assumptions regarding rates of successful claims, discount factors, benefit increases and mortality rates, among others. See "Item 7. Management's Discussion and Analysis of Results of Operations and Financial Condition" for further information on assumptions utilized. Surface Mining Control and Reclamation Act The Surface Mining Control and Reclamation Act of 1977 ("SMCRA"), requires that comprehensive environmental protection and reclamation standards be met during the course of and following completion of mining activities. Permits for all mining operations must be obtained from the Federal Office of Surface Mining Reclamation and Enforcement or, where state regulatory agencies have adopted federally approved state programs under the Act, the appropriate state regulatory authority. In Alabama, the Alabama Surface Mining Commission reviews and approves SMCRA permits. SMCRA permit provisions include requirements for coal prospecting, mine plan development, topsoil removal, storage and replacement, selective handling of overburden materials, mine pit backfilling and grading, subsidence control for underground mines, surface drainage control, mine 16

20 Table of Contents drainage and mine discharge control, treatment and revegetation. These requirements seek to limit the adverse impacts of coal mining and more restrictive requirements may be adopted from time to time. Before a SMCRA permit is issued, a mine operator must submit a bond or otherwise secure the performance of reclamation obligations. The Abandoned Mine Land Fund, which is part of SMCRA, requires a fee on all coal produced. The proceeds are used to reclaim mine lands closed or abandoned prior to On December 7, 2006, the Abandoned Mine Land Program was extended for 15 years. SMCRA stipulates compliance with many other major environmental statutes, including: the Clean Air Act, the Clean Water Act, the Resource Conservation and Recovery Act, and the Comprehensive Environmental Response, Compensation and Liability Act. On December 12, 2008, the Office of Surface Mining (OSM), finalized rulemaking regarding the interpretation of the stream buffer zone provisions of SMCRA which confirmed that excess spoil from mining and refuse from coal preparation could be placed in permitted areas of a mine site that constitute waters of the United States. The rule was challenged in U.S. District Court. A settlement agreement staying the litigation established a timeframe for revision of the regulations. The OSM anticipates publishing a proposed rule and draft impact statement during We accrue for the costs of final mine closure. Estimates of our total reclamation and mine-closing liabilities are based upon permit requirements and our experience. The amounts recorded are dependent upon a number of variables, including the estimated future retirement costs, estimated proven reserves, assumptions involving profit margins, inflation rates, and the assumed credit-adjusted risk-free interest rates. Furthermore, these obligations are unfunded. If these accruals are insufficient or our liability in a particular year is greater than currently anticipated, our future operating results could be adversely affected. At December 31, 2011, we have accrued $75.1 million for our asset retirement obligations, most of which will be incurred at our underground mining operations at the end of the mines' lives. Surety Bonds/Financial Assurance We use surety bonds, trusts and letters of credit to provide financial assurance for certain transactions and business activities. Federal and state laws require us to obtain surety bonds to secure payment of certain long-term obligations, including mine closure or reclamation costs and other miscellaneous obligations. The bonds are renewable on a yearly basis. Surety bond costs have increased in recent years while the market terms of such bonds have generally become more unfavorable. In addition, the number of companies willing to issue surety bonds has decreased. Bonding companies also require posting of collateral, typically in the form of letters of credit, to secure the surety bonds. As of December 31, 2011, we had outstanding surety bonds and collateral with parties for post-mining reclamation at all of our mining operations totaling $68.5 million, plus $9.9 million for miscellaneous purposes. As of December 31, 2011, we maintained letters of credit totaling $34.2 million to secure surety bonds plus $24.9 million in other forms of collateral to satisfy reclamation obligations. Climate Change Global climate change continues to attract considerable public and scientific attention with widespread concern about the impacts of human activity, especially the emission of greenhouse gases ("GHGs"), such as carbon dioxide and methane. Combustion of fossil fuels, such as the coal and methane gas we produce results in the creation of carbon dioxide that is currently emitted into the atmosphere by coal and gas end-users. Further, some of our operations such as coal mining and coke production directly emit GHGs. Laws and regulations governing emissions of GHGs have been adopted by foreign governments, including the European Union and member countries, individual states in the United States and regional governmental authorities. Further, numerous proposals have been made and are likely to continue to be made at the international, national, regional, and state levels of government 17

21 Table of Contents that are intended to limit emissions of GHGs by enforceable requirements and voluntary measures. In addition, the United States and over 160 other nations are signatories to the 1992 Framework Convention on Climate Change, which is intended to limit emissions of GHGs. In December 1997, in Kyoto, Japan, the signatories to the convention established a binding set of emission targets for developed nations. Although the specific emission targets vary from country to country, the United States would have been required to reduce emissions to 93% of 1990 levels from 2008 through During his campaign for office, President Obama pledged to implement an economy-wide cap-and-trade program to reduce GHG emissions 80 percent by 2050 and pledged that he would cause the United States to be a world leader on GHG reduction and re-engage with the United Nations Framework Convention on Climate Change to develop a global GHG program. However, following the mid-term elections, President Obama has placed a greater emphasis on clean energy technology as a means to reduce GHG emissions. In April 2009, in response to a 2007 U.S. Supreme Court decision, the Environmental Protection Agency ("EPA") proposed findings that emissions of GHGs from motor vehicles are contributing to air pollution which, in turn, is endangering the public health and welfare. These proposed findings (which were made final in December 2009) set in motion the process for EPA to regulate GHGs from mobile sources, which in turn may result in regulation of GHGs from stationary sources under the Clean Air Act. EPA's findings focus on six GHGs, including carbon dioxide and nitrous oxide (which are emitted from coal combustion) and methane (which is emitted from coal beds). Although EPA has stated a preference that GHG reduction be based on new federal legislation rather than through agency regulation pursuant to the existing Clean Air Act, EPA is nonetheless taking steps to regulate many sources of GHGs without further legislation (see Clean Air Act below). It is difficult to predict reliably how such regulation will develop and when or whether it will take effect, as EPA's recently finalized findings that underpin such regulation are the subject of a number of lawsuits. Also, bills have been introduced in Congress that would, if enacted, prevent EPA from regulating GHGs under the Clean Air Act. In June 2010, the U.S. House of Representatives passed a bill that would regulate GHG emissions through a "cap and trade" system and related programs, which generally would require emitters of GHGs to purchase or otherwise obtain allowances to emit GHGs. However, the bill failed to make it through the U.S. Senate. Thus, it is uncertain whether Congress will enact "cap and trade" or other legislation to address climate change and, if it does, when it will occur and what it will require. Coal bed methane must be expelled from our underground coal mines for mining safety reasons. Our gas operations extract coal bed methane from our underground coal mines prior to mining. With the exception of some coal bed methane which is vented into the atmosphere when the coal is mined, the methane is captured. If regulation of GHG emissions does not exempt the release of coal bed methane, we may have to curtail coal production, pay higher taxes, or incur costs to purchase credits that allow us to continue operations as they now exist at our underground coal mines. The amount of coal bed methane we capture is recorded, on a voluntary basis, with the U.S. Department of Energy. We have recorded the amounts we have captured since In 2009, JWR partnered with Biothermica Technologies to capture and mitigate the methane that is vented into the atmosphere as a result of the mining process. This project resulted in the listing of the project with the Climate Action Reserve on February 2, 2010, a national offsets program working to ensure integrity, transparency and financial value in the U.S. carbon market by establishing regulatory-quality standards for the development, quantification and verification of GHG emissions reduction projects in North America. If regulation of GHGs does not give us credit for capturing methane that would otherwise be released into the atmosphere at our coal mines, any value associated with our historical or future credits would be reduced or eliminated. The EPA released results of the 2010 GHG reports that were filed by about 6,700 entities with GHG emissions over 25,000 tons per year. The data is available to the public online in a form similar to Toxic Release Inventory data, i.e., searchable by state, industry sector, and source. Oral arguments in 18

22 Table of Contents the litigation over EPA's GHG regulations are scheduled before the U.S. Court of Appeals for the DC Circuit on February 28, On December 1, 2011, EPA and the National Highway Traffic Safety Administration published a proposed rule for progressively tighter fuel economy and GHG emission standards for cars and light trucks beginning with the 2017 model year and culminating with limits of 56 mpg for passenger cars and 40.3 mpg for light trucks by The combined fleet average of 49.6 mpg compares to the current 25 mpg and the already promulgated average of 35.5 mpg to be achieved by model year At the 17th Conference of the Parties (COP-17) of the U.N. Framework Convention on Climate Change in Durban, South Africa, negotiations extended beyond the planned conclusion of the meeting and led to a somewhat vague and inexact agreement that would obligate major GHG emitting countries including the U.S., China and India to begin to reduce emissions beyond The agreement sets 2015 as a target date to complete a text for a legally binding agreement. A second commitment period for the Kyoto Protocol was also agreed to, although several major countries Canada, Japan, and Russia opted out, and a decision on the length of the second commitment period is being deferred to COP-18 in late Meanwhile, Canada has withdrawn from the original Kyoto Protocol, opting instead to commit to the Copenhagen Accord, which called for reducing GHG emissions to 2005 levels by Additional laws or regulations regarding GHG emissions or other actions to limit GHG emissions could result in fuel switching from coal, or to a lesser degree natural gas to other fuel sources. Alternative fuels (non-fossil fuels) could become more attractive than coal, or to a lesser degree natural gas, in order to reduce GHG emissions. This could result in a reduction in the demand for our coal, and to a lesser degree, our natural gas, and therefore, our revenues, as well as reduce the value of our reserves (although fuel switching could increase demand for our natural gas, which emits less GHG when burned than an equivalent quantity of coal). The anticipation of such requirements could also lead to reduced demand for some of our products. Additional GHG laws or regulations could also increase our costs, such as those to produce natural gas and manufacture coke. Although the potential impacts on us of additional climate change regulation are difficult to reliably quantify, they could be material. Clean Air Act The federal Clean Air Act ("CAA") and comparable state laws that regulate air emissions affect coal mining and coking operations both directly and indirectly. Direct impacts on coal mining may occur through permitting requirements and/or emission control requirements relating to particulate matter, such as fugitive dust, or fine particulate matter measuring 2.5 micrometers in diameter or smaller. The Clean Air Act indirectly affects our mining operations and directly affects our coking operations by extensively regulating the air emissions of sulfur dioxide, nitrogen oxides, mercury and other compounds emitted by coal-fired utilities, steel manufacturers and coke ovens. As described below, proposed regulations would also subject GHG emissions to regulation under the Clean Air Act. The CAA requires, among other things, the regulation of hazardous air pollutants through the development and promulgation of Maximum Achievable Control Technology ("MACT") Standards. The EPA has developed various industry-specific MACT standards pursuant to this requirement. The CAA requires EPA to promulgate regulations establishing emission standards for each category of Hazardous Air Pollutants. EPA must also conduct risk assessments on each source category that is already subject to MACT standards and determine if additional standards are needed to reduce residual risks. Our coking facility is subject to certain MACT standards and NESHAPS (National Emissions Standards for Hazardous Air Pollutants). Relative to MACT, these standards apply to pushing, quenching, and under-firing stacks and went into effect in April Concerning NESHAPS, the standards include Coke Oven NESHAPS (1993), Benzene NESHAPS and Benzene Waste NESHAPS, which were also enacted in the early 1990's. The portion of NESHAP which applies to coke ovens 19

23 Table of Contents addresses emissions from charging, coke oven battery tops, and coke oven doors. With regard to this standard, Walter Coke chose the LAER (Lowest Achievable Emissions Rate) track, and therefore is not required to comply with residual risk until On January 9, 2012, the DC U.S. District Court overturned EPA's stay of the Boiler MACT and solid waste incinerator (CISWI) rules based on the Sierra Club's challenge of the stay, which was intended to provide time for EPA to reconsider and re-propose the rule. This means the 3-year period for existing sources to comply with the previously issued rule in March 2011 is effective, although the December 23, 2011 re-proposed rule, subject to comments by February 21, 2012 would re-set the compliance timetable when finalized. In a January 18, 2012 letter responding to a Congressional inquiry, EPA stated that no enforcement action would be taken relative to notification requirements in the original (no longer stayed) rule until a final rule is issued and EPA re-sets these dates. A request for an extension of the comment deadline has been made by a multi-industry group. Since the scope of future changes is relatively uncertain, the magnitude of the impact of any such anticipated changes cannot be estimated at this time. The CAA also requires EPA to develop and implement National Ambient Air Quality Standards or NAAQS for criteria pollutants, which include sulfur dioxide, particulate matter, nitrogen oxides, and ozone. Areas that are not in compliance with these standards, referred to as non-attainment areas, must take steps to reduce emission levels. Individual states must identify the sources of emissions and develop emission reduction plans. These plans may be statespecific or regional in scope. It is anticipated that EPA's fine particle programs will affect many power plants, especially coal-fueled power plants and all plants in non-attainment areas, and could result in significant costs; however, it is impossible to estimate the magnitude of these costs at this time as state and federal agencies are still developing regulations for the programs and implementation. EPA announced on January 6, 2010 a proposal to adopt a new, more stringent primary ambient air quality standard for ground-level ozone and to change the way in which the secondary standard is calculated. The EPA has entered into a consent decree with environmental groups that commits the agency to publish by May 31, 2012 designations for areas not attaining the 2008 ozone ambient air standard. Litigation over EPA's missed deadlines for implementing state implementation plans and air permitting requirements relative to the 2008 standard is not addressed in the consent decree and is continuing. The EPA has submitted for review a rule that would designate areas that are not attaining the 2008 ozone ambient air standards, which the agency agreed in a consent order to do by May 31, The agency is also working on guidance for states to implement those standards. Meanwhile, environmental groups continue to pursue their challenge to the 2008 standard as well as separate litigation challenging the Administration's September 2011 decision to withdraw its proposal to tighten the 2008 standard and instead roll consideration of a new standard into the ongoing review that would lead to a new proposal in Should these NAAQS withstand scrutiny, additional emission control expenditures will likely be required at coal-fueled power plants. On December 16, 2011, the EPA signed a rule to reduce emissions of toxic air pollutants from power plants. Specifically, these mercury and air toxics standards (MATS) for power plants will reduce emissions from new and existing coal and oil-fired eclectic utility steam generating units. The required reduction in emissions may require the installation of additional costly control technology or the implementation of other measures, including trading of emission allowances and switching to alternative fuels. These reductions in permissible emission levels will likely make it more costly to operate coal-fired power plants and may adversely affect the demand for coal. On January 22, 2010, EPA set a new one-hour Nitrogen Dioxide (NO2) standard and retained the annual average. The new standard must be taken into account when permitting new or modified major sources of NO2 emissions such as fossil-fueled power plants, boilers, and a variety of manufacturing operations. The EPA expects to designate non-attainment areas in early 2012 and based on additional 20

24 Table of Contents monitoring, re-designate areas in 2016 or Additional emission control expenditure may be required at coal-fueled power plants and may adversely affect the demand for coal. On June 2, 2010, EPA revised the NAAQS for Sulfur Dioxide (SO2) by establishing a new one-hour standard and revoking the existing 24-hour and annual standards. EPA intends to complete non-attainment designation by June 2, 2012 and require state implementation plans by 2014 and standards to be met by August, Additional emission control expenditure may be required at coal-fueled power plants and may adversely affect the demand for coal. The EPA has initiated a regional haze program designed to protect and improve visibility at and around national parks, national wilderness areas and international parks. This program may result in additional emissions restrictions from new coal-fired power plants whose operation may impair visibility at and around federally protected areas. This program may also require certain existing coal-fired power plants to install additional control measures designed to limit haze-causing emissions, such as sulfur dioxide, nitrogen oxides, volatile organic chemicals and particulate matter. EPA's finding concerning GHG endangerment of public health and welfare (see the discussion on Climate Change) may lead to regulation of GHG emissions from stationary sources under the Clean Air Act. In connection with that finding, EPA also finalized a tailoring rule which would set emission thresholds for GHG regulation under EPA's current Clean Air Act stationary source permitting requirements. Finalized on May 13, 2010 and effective January 2, 2011, this rule has drawn legal challenges. Accordingly, the impact of such regulation on us cannot be reliably estimated at this time, although it could be material. Clean Water Act The federal Clean Water Act ("CWA") and corresponding state laws affect our operations by imposing restrictions on discharges of wastewater into creeks and streams. These restrictions, more often than not, require us to pre-treat the wastewater prior to discharging it. Permits requiring regular monitoring and compliance with effluent limitations and reporting requirements govern the discharge of pollutants into regulated waters. Our mining and coking operations maintain water discharge permits as required under the National Pollutant Discharge Elimination System program of the CWA, and conduct their operations to be in compliance with such permits. We believe we have obtained all permits required under the Clean Water Act and corresponding state laws and are in substantial compliance with such permits. However, new requirements under the Clean Water Act and corresponding state laws may cause us to incur significant additional costs that could adversely affect our operating results. Resource Conservation and Recovery Act The Resource Conservation and Recovery Act ("RCRA") and corresponding state laws establish standards for the management of solid and hazardous wastes generated at our various facilities. Besides affecting current waste disposal practices, RCRA also addresses the environmental effects of certain past hazardous waste treatment, storage and disposal. In addition, RCRA also requires certain of our facilities to evaluate and respond to any past release, or threatened release, of a hazardous substance that may pose a risk to human health or the environment. RCRA may affect coal mining operations by establishing requirements for the proper management, handling, transportation and disposal of solid and hazardous wastes. Currently, certain coal mine wastes, such as earth and rock covering a mineral deposit (commonly referred to as overburden) and coal cleaning wastes, are exempted from hazardous waste management under RCRA. Any change or reclassification of this exemption could significantly increase our coal mining costs. Our coking operation is in the study phase of a RCRA corrective action program. Until the studies are complete, we are unable to determine the final cleanup or remediation that may be required and are unable to estimate the total cost of any such remediation activities. For additional information 21

25 Table of Contents regarding significant enforcement actions, capital expenditures and costs of compliance, see "Item 3. Legal Proceedings" and Environmental Matters in Note 14 of "Notes to Consolidated Financial Statements" included in this form 10-K Comprehensive Environmental Response, Compensation and Liability Act The Comprehensive Environmental Response, Compensation and Liability Act, CERCLA or Superfund, and similar state laws affect our coal mining and coking operations by, among other things, imposing investigation and cleanup requirements for threatened or actual releases of hazardous substances. Under CERCLA, joint and several liability may be imposed on operators, generators, site owners, lessees and others regardless of fault or the legality of the original activity that caused or resulted in the release of the hazardous substances. Although the EPA excludes most wastes generated by coal mining and processing operations from the hazardous waste laws, the universe of materials and wastes governed by CERCLA is broader than "hazardous waste" and as such even non-hazardous wastes can, in certain circumstances, contain hazardous substances which, if released into the environment, are governed by CERCLA. Alabama's version of CERCLA mirrors the federal version with the important difference that there is no joint and several liability. Liability is consistent with one's contribution to the contamination. In addition, the disposal, release or spilling of some products used by coal and coking companies in operations, such as chemicals, could trigger the liability provisions of CERCLA or similar state laws because, at that point they are deemed to be waste and the activity, even though inadvertent, is deemed to constitute disposal or a covered CERCLA release. Thus, we may be subject to liability under CERCLA and similar state laws for properties that (1) we currently own, lease or operate (2) we, our predecessors, or former subsidiaries have previously owned, leased or operated, (3) sites to which we, our predecessors or former subsidiaries sent waste materials, or (4) sites at which hazardous substances from our facilities' operations have otherwise come to be located. Other Environmental Laws We are required to comply with numerous other federal, state and local environmental laws and regulations in addition to those previously discussed. These additional laws include, for example, the Endangered Species Act, the Safe Drinking Water Act, the Toxic Substance Control Act and the Emergency Planning and Community Right-to-Know Act. Canadian and U.K. Operations Endangered Species Legislation The Company has operations that may be affected by ongoing and proposed planning to protect certain species that are listed as threatened under the federal Species at Risk Act. The Species at Risk Act prohibits killing, harming, harassing, capturing or taking an individual of a wildlife species that is listed as threatened, and also makes it an offense to damage or destroy that species' residence, meaning a den, nest or other similar area of place that is occupied or habitually occupied by one for more individuals during all or part of their life cycles. The Act is federal legislation, which is generally applicable only on federal lands and to species under federal jurisdiction (fish and migratory birds), but under certain circumstances, the provisions of the Species at Risk Act may be extended by the federal government to apply on provincial lands. Species considered to be at risk by the province of British Columbia are identified by order of the provincial Minister of Environment under the authority of the Forest and Range Practices Act (British Columbia) and managed under the Identified Wildlife Management Strategy (IWMS), an initiative of the Ministry of Environment in partnership with the Ministry of Forests and Range. The IWMS provides direction, policy, procedures and guidelines for managing identified species, which may entail restoration of previously occupied habitats, particularly for those species most at risk, and the establishment of wildlife habitat areas and wildlife habitat area management objectives. 22

26 Table of Contents The species of the highest concern in respect of the Company's operations is the caribou, although we continue to consider the impacts of our operations on other threatened species in the area. While we take great care to cause little or no impact on caribou in the area of our operations, protection of caribou and their habitat has attracted significant attention in areas where we operate due to the drastic reduction in caribou herd numbers in those areas. The Company has experienced significant delays in obtaining new or amended permits and mining tenures in areas frequented by caribou, which could have a significant impact on the continued development of our Canadian operations. Further, infractions under the federal Act could attract penalties of up to CAD$1.0 million. Environmental Management Act The Environmental Management Act affects our operations by requiring us to obtain authorizations to introduce "waste" into the environment, including air contaminants, effluent, and hazardous and solid waste. Permits requiring regular monitoring and compliance with waste discharge limitations and reporting requirements govern the discharge of various substances into the environment, including air and water. We have obtained all permits required under the Environmental Management Act and corresponding regulations and are in substantial compliance with such permits, subject to the considerations relating to selenium levels described below. However, any new requirements under the Environmental Management Act and corresponding regulations may cause us to incur significant additional costs that could adversely affect our operating results. The Company is currently not meeting revised provincial water quality guidelines relating to selenium levels at the Brule mine, and is cooperating and working with the British Columbia Ministry of Environment to reduce selenium levels in its effluent to meet these guidelines. As a result, the Company is considering various alternatives for selenium management and effluent treatment at the Brule mine, which will likely lead to significantly increased compliance costs at the operation and increased bonding requirements. The Environmental Management Act and the Contaminated Sites Regulation also affect our operations by, among other things, imposing investigation and cleanup requirements for contaminated sites. Part 5 of the Environmental Management Act makes specific provision for "Remediation of Mineral Exploration Sites and Mines" and gives general jurisdiction to the Chief Inspector of Mines, who is also responsible for the reclamation requirements imposed under the Mines Act and the Mine Code, with respect to "core areas" of a producing mine site. The Contaminated Sites Regulation continues to govern any contamination at "non-core areas", such as maintenance shops, storage facilities and crushing or processing mills, as well as the disposal, release or spilling of some chemical products used by coal and coking companies in operations. Under the Contaminated Sites Regulation, joint and several liability may be imposed on current operators or owners of a site, previous operators or owners of a site, producers or transporters of a substance that caused contamination and others regardless of fault or the legality of the original activity that caused or resulted in the release of the hazardous substances. First Nations Considerations Canadian law recognizes the existence of Aboriginal and Treaty rights, including Aboriginal title to lands. The Canadian courts have confirmed that when the federal and provincial governments contemplate conduct that may adversely affect the Aboriginal or Treaty rights of a First Nation, they must consult with and accommodate the First Nation. In the regulatory context, the government's duty to consult may be triggered by a variety of decisions, including the decision to issue or amend a permit. In order to meet their duties to consult and accommodate in this context, the federal and provincial governments require a company seeking a new or amended permit or other authorization to engage and consult with the First Nation about the potential effects of granting the requested authorization. Based on this process, the company is then expected to assist the government in determining what 23

27 Table of Contents accommodations of the First Nation's rights by the company may be necessary prior to granting the requested authorization. As the Company is governed by a significant number of permits in British Columbia and anticipates the need to both obtain new permits and amend existing permits in connection with its current and future operations, the government's duty to consult with First Nations may have a significant impact on the Company's ability to operate in the future. If a governmental authority determines that it has a duty to consult in a permitting matter, the consultation process could add significant delays in, and additional costs relating to the eventual issuance or amendment of the relevant permit. Further, where a governmental authority fails to meet its duty to consult in granting a government authorization, such a failure may expose the Company's permits and authorizations to judicial review, lengthy court processes and the risk of cancellation of the government authorization. The Company strives to build beneficial relationships with the First Nations in its areas of operation and participates in any consultation process that relates to its operations. Although ultimately the duty to consult is a duty of the government, the consultation process would not progress without the involvement of the Company and its strong interest in ensuring that the process is carried out effectively and comprehensively. The Company is committed to engaging with First Nations in a meaningful way and devotes significant time and resources to working proactively and cooperatively with local First Nations to acknowledge and address their concerns. Fisheries Act The Fisheries Act (Canada) affects our Canadian operations by, amongst other things, prohibiting the harmful alteration, disruption or destruction of fish habitat without authorization as well as the deposit of deleterious substances into fish-bearing waters. We may be exposed to liability in the event that we cause harmful alteration, disruption or destruction of fish habitat or that we discharge, or are responsible for the discharge of, deleterious substances (as defined in the Act) into waters frequented by fish. Offenses under the Act resulting in the harmful alteration, disruption or destruction of fish habitat or the deposit of deleterious substances into fish habitat could attract fines of up to CAD$1.0 million for each day that an offence continues. Liability under the Act is for owners of the property or substance, as well as their directors and officers, agents, tenants, occupiers, partners or persons actually in charge of the property or substance. The Company is currently cooperating with regulatory authorities to address concerns relating to a release in April 2011 of sediment and debris into Willow Creek from the forest service road leading to the Willow Creek mine. Although the investigation into the matter is being led by the provincial Ministry of Environment, there is the potential that the discharge and deposit of sediment in the stream bed could be determined to be a harmful alteration, disruption or destruction of fish habitat contrary to the Fisheries Act. Provincial and Federal Environmental Assessment Acts Our Canadian operations have been subject to an environmental assessment under the provincial Environmental Assessment Act. Each project was issued an environmental assessment certificate that sets out the criteria according to which the project must be designed and constructed, along with a schedule that sets out the commitments the Company has made to address concerns raised through the environmental assessment process. If, for any reason our operations are not conducted in accordance with the environmental assessment certificate, then our operations may be temporarily suspended until such time as our operations are brought back into compliance. Any significant changes to our current operations or further development of our properties in British Columbia may trigger a federal or provincial environmental assessment or both. In particular, the proposed project amendments at the EB mine have the potential to trigger an assessment under the Canadian Environmental Assessment Act. Although the Company considers that a federal 24

28 Table of Contents environmental assessment would be unlikely, an additional environmental assessment, including the requirement for a substantive public review and First Nations consultation process, could result in significant delays for the operation. Mines Act and the Health, Safety and Reclamation Code for Mines in British Columbia (the "Mine Code") Our Canadian operations require permits issued pursuant to the Mines Act outlining the details of the work at the mine and a program for the conservation of cultural heritage resources and for the protection and reclamation of the land, watercourses and cultural heritage resources affected by the mine. The Chief Inspector of Mines may issue a permit with conditions, including requiring that the owner, agent, manager or permittee give security in the amount and form specified by the Chief Inspector for mine reclamation and to provide for the protection of watercourses and cultural heritage resources affected by the mine. The reclamation security may be applied towards mine closure or reclamation costs and other miscellaneous obligations if permit conditions are not met. Detailed reclamation and closure requirements are contained in the Mine Code. Under the Mines Act and the Mine Code, we have filed mine plans and reclamation programs for each of our operations. As of December 31, 2011, we had posted surety bonds and letters of credit for post-mining reclamation, as required by our Mines Act permits, totaling CAD$22.4 million for all of our Canadian operations. We anticipate that the total amount of the required surety bonds and letters of credit will increase in 2012, primarily relating to selenium management, effluent discharge and permitting requirements (see above under "Environmental Management Act"). Climate Change While initially a signatory to the December 1997 Kyoto Protocol that established a set of greenhouse gas emission targets for developed countries, Canada withdrew from the Kyoto Protocol at the Conference of Parties 17 of the United Nations Framework Convention on Climate Change in December While the government of Canada has a previously stated goal of reducing Canada's total greenhouse gas emissions by 17 percent from 2005 levels by 2020, it has not indicated how it will achieve such a reduction. The Canadian government has also publicly stated that any legislative action to reduce greenhouse gas emissions at the federal level must be integrated with U.S. legislation. While there are currently no federal emissions targets affecting the Company's operations, the Company is currently required to report its emissions from the Perry Creek mine, and may in the future be required to report emissions for its other Canadian operations, pursuant to the federal Canadian Environmental Protection Act. This Act requires operators of facilities emitting greater than 50,000 metric tons per year of carbon dioxide equivalent to report emissions annually. In British Columbia, the provincial government has legislated a target of greenhouse gas emissions reductions of 33% below 2007 emissions levels by 2020 and 80% below 2007 emissions levels by British Columbia has also had a carbon tax on fuel since In 2008, the provincial government introduced legislation that was intended to establish a cap and trade system by January 1, The establishment of the cap and trade system in British Columbia has been delayed, however, and as of February 29, 2012, the provincial government has not released the regulatory details of the proposed cap and trade system, nor has it announced a start date. British Columbia remains a member of the Western Climate Initiative ("WCI"), which is a cooperative effort of the State of California and participating Canadian provinces to design a comprehensive regional model cap and trade program. It is expected that any cap and trade system to be implemented under the provincial legislation will be based on the model program developed by WCI. In preparation for the implementation of an emissions cap and trade system, in November 2009 the provincial government enacted a reporting regulation that requires facilities emitting greater than 10,000 metric tons of carbon dioxide equivalent per year to register and report emissions annually for periods beginning on January 1, Any facilities emitting greater than 25,000 metric tons per year are also subject to certain emissions reporting verification 25

29 Table of Contents requirements. Each of the Company's Canadian operations is required to report emissions under the provincial legislation. Although the costs currently associated with emissions reporting under federal and provincial legislation are not material, the implementation of emissions targets or the proposed provincial cap and trade system may result in material financial impacts on our Canadian operations. As in the United States, it is unclear in the current political climate (both federally and provincially) whether or not a cap and trade system or other emissions reductions programs will be enacted and if so, when it would be enacted or what the program would require. U.K. Environmental Laws The Company's operations in Wales are subject to certain environmental laws and regulations of the United Kingdom, including the Environmental Protection Act 1990, Environment Act 1995, Environmental Permitting Regulations 2010, and Town and Country Planning Act The costs of compliance with these environmental laws have not had a material impact on the Company's financial position in the most recently completed financial year, and the Company does not expect that compliance with these laws will have a material impact on the Company's financial position in the current or future financial years. Other Environmental Laws We are required to comply with numerous other federal, state, provincial and local environmental laws and regulations in addition to those previously discussed. These additional laws include, for example, the Endangered Species Act, the Safe Drinking Water Act, the Toxic Substance Control Act, the Emergency Planning and Community Right-to-Know Act, the British Columbia Water Act and the British Columbia Forest Act. Seasonality Our primary business is not materially impacted by seasonal fluctuations. Demand for coal is generally more heavily influenced by other factors such as the general economy, interest rates and commodity prices. Employees As of December 31, 2011, we employed approximately 4,200 employees, of whom approximately 3,000 were hourly employees and 1,200 were salaried employees. As of December 31, 2011, unions represented approximately 2,100 employees under collective bargaining agreements, of which approximately 1,600 were covered by one contract with the United Mine Workers of America that expires on December 31, Available Information We make our Annual Report on Form 10-K, Quarterly Reports on Form 10-Q and Current Reports on Form 8-K and amendments thereto available on our website at without charge as soon as reasonably practical after filing or furnishing these reports to the Securities and Exchange Commission ("SEC"). Additionally, we will also provide, without charge, a copy of our Form 10-K to any shareholder by mail. Requests should be sent to Walter Energy, Inc., Attention: Shareholder Relations, 3000 Riverchase Galleria, Suite 1700, Birmingham, Alabama You may read and copy any document the Company files at the SEC's public reference room at 450 Fifth Street, N.W., Washington, D.C Please call the SEC at SEC-0330 for further information on the public reference room. Our SEC filings are also available to the public from the SEC's website at Executive Officers of the Registrant Incorporated by reference into this Part I is the information set forth in Part III, "Item 10. Directors, Executive Officers and Corporate Governance." 26

30 Table of Contents Item 1A. Risk Factors Risks Associated with our Current Continuing Operations Unfavorable global economic, financial and business conditions may adversely affect our businesses. The global financial markets have been experiencing volatility and disruption over the last several years. These markets have experienced, among other things, volatility in security prices, commodities and currencies; diminished liquidity and credit availability, rating downgrades and declining valuations of certain investments. Weaknesses in global economic conditions could have a material adverse effect on the demand for our coal, coke and natural gas products and on our sales, pricing and profitability. We are not able to predict whether the global economic conditions will continue or worsen and the impact these events may have on our operations and the industry in general. Our businesses may suffer as a result of a substantial or extended decline in pricing, demand and other factors beyond our control, which could negatively affect our operating results and cash flows. Our businesses are cyclical and have experienced significant difficulties in the past. Our financial performance depends, in large part, on varying conditions in the international and domestic markets we serve, which fluctuate in response to various factors beyond our control. The prices at which we sell our coal, coke and natural gas are largely dependent on prevailing market prices for those products. We have experienced significant price fluctuations in our coal, coke and natural gas businesses, and we expect that such fluctuations will continue. Demand for and, therefore, the price of, coal, coke and natural gas are driven by a variety of factors, including, but not limited to, the following: the domestic and foreign supply and demand for coal; the quantity and quality of coal available from competitors; adverse weather, climatic or other natural conditions, including natural disasters; domestic and foreign economic conditions, including economic slowdowns; global or regional political events; legislative, regulatory and judicial developments, environmental regulatory changes or changes in energy policy and energy conservation measures that would adversely affect the coal industry, such as legislation limiting carbon emissions or providing for increased funding and incentives for alternative energy sources; the proximity to, capacity of and cost of transportation and port facilities; and market price fluctuations for sulfur dioxide emission allowances. In addition, reductions in the demand for metallurgical coal caused by reduced steel production by our customers, increases in the use of substitutes for steel (such as aluminum, composites or plastics) and the use of steel-making technologies that use less or no metallurgical coal can significantly affect our financial results and impede growth. Demand for thermal coal is primarily driven by the price of thermal coal and natural gas and the consumption patterns of the domestic electric power generation industry, which, in turn, is influenced by demand for electricity and technological developments. We estimate that a 10% decrease in the price of metallurgical coal for the full year 2011 would have resulted in a reduction in pre-tax income of $205.4 million. The failure of our customers to honor or renew contracts could adversely affect our business. A significant portion of the sales of our coal, coke and natural gas are to long-term customers. The success of our businesses depends on our ability to retain our current customers, renew our existing customer contracts and solicit new customers. Our ability to do so generally depends on a 27

31 Table of Contents variety of factors, including the quality and price of our products, our ability to market these products effectively, our ability to deliver on a timely basis and the level of competition we face. If current customers do not honor current contract commitments, terminate agreements or exercise force majeure provisions allowing for the temporary suspension of performance, our revenues will be adversely affected. If we are unsuccessful in renewing contracts with our longterm customers and they discontinue purchasing coal, coke or natural gas from us, renew contracts on terms less favorable than in the past, or if we are unable to sell our coal, coke or natural gas to new customers on terms as favorable to us, our revenues could suffer significantly. Our ability to collect payments from our customers could be impaired if their creditworthiness deteriorates. Our ability to receive payment for coal sold and delivered depends on the continued creditworthiness of our customers. If we determine that a customer is not creditworthy, we may not be required to deliver coal under the customer's coal sales contract. If this occurs, we may decide to sell the customer's coal on the spot market, which may be at prices lower than the contracted price, or we may be unable to sell the coal at all. Furthermore, the bankruptcy of any of our customers could materially and adversely affect our financial position. In addition, competition with other coal suppliers could cause us to extend credit to customers and on terms that could increase the risk of payment default. Coal mining is subject to inherent risks and is dependent upon many factors and conditions beyond our control, which may cause our profitability and our financial position to decline. Coal mining is subject to inherent risks and is dependent upon a number of conditions beyond our control that can affect our costs and production schedules at particular mines. These risks and conditions include, but are not limited to: variations in geological conditions, such as the thickness of the coal seam and amount of rock embedded in the coal deposit and variations in rock and other natural materials overlying the coal deposit; mining, process and equipment or mechanical failures and unexpected maintenance problems; adverse weather and natural disasters, such as heavy rains or snow, flooding and other natural events affecting the operations, transportation or customers; environmental hazards, such as subsidence and excess water ingress; delays and difficulties in acquiring, maintaining or renewing necessary permits or mining rights; unexpected mine accidents, including rock-falls and explosions caused by the ignition of coal dust, natural gas or other explosive sources at our mine sites or fires caused by the spontaneous combustion of coal or similar mining accidents; and competition and/or conflicts with other natural resource extraction activities and production within our operating areas, such as coalbed methane extraction or oil and gas development. These risks and conditions could result in damage to or the destruction of mineral properties or production facilities, personal injury or death, environmental damage, delays in mining, monetary losses and legal liability. For example, an explosion and fire occurred in our underground No. 5 mine in Alabama in September This accident resulted in the deaths of thirteen employees and caused extensive damage to the mine. Our insurance coverage may not be available or sufficient to fully cover claims which may arise from these risks and conditions. We have also experienced adverse geological conditions in our mines, such as variations in coal seam thickness, variations in the competency and makeup of the roof strata, fault-related 28

32 Table of Contents discontinuities in the coal seam and the potential for ingress of excessive amounts of methane gas or water. We do not have meaningful excess capacity for current production needs, and we are not able to quickly increase production at one mine to offset an interruption in production at another mine. Such adverse conditions may increase our cost of sales and reduce our profitability, and may cause us to decide to close a mine. Any of these risks or conditions could have a negative impact on our profitability, the cash available from our operations and our financial position. Defects in title of any real property or leasehold interests in our properties could limit our ability to mine or develop these properties or result in significant unanticipated costs. Our right to mine some of our reserves and extract natural gas may be materially adversely affected by defects in title or boundaries. We may not verify title to our leased properties or associated coal reserves until we have committed to developing those properties or coal reserves. We may not commit to develop property or coal reserves until we have obtained necessary permits and completed exploration. Any challenge to our title could delay the development of the property and could ultimately result in the loss of some or all of our interest in the property and could increase our costs. In addition, if we mine or conduct our natural gas operations on property that we do not own or lease, we could incur liability for such mining and gas operations. Some leases have minimum production requirements or require us to commence mining or gas operations in a specified term to retain the lease. Failure to meet those requirements could result in losses of prepaid royalties and, in some rare cases, could result in a loss of the lease itself. Currently we have significant mining operations located predominately in central Alabama and northeast British Columbia, making us vulnerable to risks associated with having our production concentrated in two geographic areas. Our mining operations are geographically concentrated in central Alabama and Northeast British Columbia. As a result of this concentration, we may be disproportionately exposed to the impact of delays or interruptions of production caused by significant governmental regulation, transportation capacity constraints, curtailment of production, extreme weather conditions, natural disasters or interruption of transportation or other events which impact this area. A significant reduction of, or loss of, purchases by our largest customers could adversely affect our profitability. For the year ended December 31, 2011, we derived approximately 29% of our total sales revenues from sales to our 5 largest customers. We expect to renew, extend or enter into new supply agreements with these and other customers. However, we may be unsuccessful in obtaining such agreements with these customers and these customers may discontinue purchasing coal from us. If any of our major customers were to significantly reduce the quantities of coal they purchase from us and we are unable to replace these customers with new customers, or if we are unable to sell coal to those customers or on terms favorable to us, our profitability could suffer significantly. If transportation for our coal becomes unavailable or uneconomic for our customers, our ability to sell coal could suffer. Transportation costs can represent a significant portion of the total cost of coal to be delivered to the customer and, as a result, overall price increases in our transportation costs could make our coal less competitive with the same or alternative products from competitors with lower transportation costs. We typically depend upon overland conveyor, trucks, rail or barge to deliver our products. Disruption of any of these transportation services because of weatherrelated problems, which are variable and unpredictable; strikes, lock-outs; transportation delays or other events could temporarily impair our ability to supply our products to our customers, thereby resulting in lost sales and reduced profitability. 29

33 Table of Contents All of our U.S. metallurgical mines are served by only one rail carrier, which increases our vulnerability to these risks, although our access to barge transportation partially mitigates that risk. In addition, the majority of the metallurgical coal produced by our Alabama underground mining operations is sold to coal customers who typically arrange and pay for transportation through the state-run docks at the Port of Mobile, Alabama to the point of use. As a result, disruption at the docks, port congestion and delayed coal shipments may result in demurrage fees to us. If this disruption were to persist over an extended period of time, demurrage costs could significantly impact profits. Substantially all of the Company's coal produced by its Canadian operations is exported to port facilities by one railway for which there are limited alternatives. Additionally, all of the Company's Canadian export sales are loaded through one port facility, for which there are limited cost-effective alternatives. The cost of securing additional facilities and services of this nature could significantly increase transportation and other costs. An interruption of rail or port services could significantly limit the Company's ability to operate and to the extent that alternate sources of transportation of port and rail services are available, it could increase transportation and port costs significantly. Further, the inconsistent nature of the shipping industry could affect the Company's revenues as a result of delays of ocean vessels and could significantly affect the Company's costs and relative competitiveness against the supply of coal from other markets. Significant competition and foreign currency fluctuations could harm our sales, profitability and cash flows. The consolidation of the U.S. and global coal industry over the last several years has contributed to increased competition among coal producers. Some of our competitors have significantly greater financial resources than we do. This competition may affect domestic and foreign coal prices and impact our ability to retain or attract coal customers. In addition, our metallurgical coal business faces competition from foreign producers that sell their coal in the export market. The general economic conditions in foreign markets and changes in currency exchange rates are factors outside of our control that may affect international coal prices. If our competitors' currencies decline against our local currency or against our customers' currencies, those competitors may be able to offer lower prices to our customers. Furthermore, if the currencies of our overseas customers were to significantly decline in value in comparison to our local currency, those customers may seek decreased prices for the coal we sell to them. In addition, these factors may negatively impact our collection of trade receivables from our customers. These factors could reduce our profitability or result in lower coal sales. Expenses from our Canadian operations are typically incurred and paid in Canadian dollars and our United Kingdom operations revenues and expenses are incurred and paid in British pounds. We have elected not to adopt a formal foreign currency hedging strategy and as a result any significant fluctuation in foreign exchange rates could adversely affect our financial position and operating results. Our businesses are subject to risk of cost increases and fluctuations and delay in the delivery of raw materials, mining equipment and purchased components. Our businesses require significant amounts of raw materials, mining equipment and labor and, therefore, shortages or increased costs of raw materials, mining equipment and labor could adversely affect our business or results of operations. Our coal mining operations rely on the availability of steel, petroleum products and other raw materials for use in various mining equipment. The availability and market prices of these materials are influenced by various factors that are beyond our control. Over the last year petroleum prices have fluctuated significantly and pricing for steel scrap has fluctuated markedly. Any inability to secure a reliable supply of these materials or shortages in raw materials used in the operation and manufacturing of mining equipment or replacement parts could negatively impact our operating results. 30

34 Table of Contents Work stoppages, labor shortages and other labor relations matters may harm our business. The majority of our employees in our underground mining and coking operations in Alabama are unionized and we have a risk of work stoppages as the result of strike or lockout. The majority of employees of our underground mining operations in Alabama are members of United Mine Workers of America ("UMWA"). Normally, our negotiations with the UMWA follow the national contract negotiated with the UMWA by the Bituminous Coal Operators Association. The collective bargaining agreement expires December 31, At our coking operation, our contract with the United Steelworkers of America expires December 6, We experienced a strike at our coke facilities at the end of 2001 that lasted eight months. Future work stoppages, labor union issues or labor disruptions at our key customers or service providers could impede our ability to produce and deliver our products, to receive critical equipment and supplies or to collect payment. This may increase our costs or impede our ability to operate one or more of our operations. We require a skilled workforce to run our business. If we cannot hire qualified people to meet replacement or expansion needs, we may not be able to achieve planned results. The demand for coal in recent years has caused a significant constriction of the labor supply resulting in higher labor costs. Efficient coal mining using modern techniques and equipment requires skilled laborers with mining experience and proficiency as well as qualified managers and supervisors. As coal producers compete for skilled miners, employee turnover rates have increased which negatively affects operating costs. If the shortage of skilled workers continues and we are unable to train and retain the necessary number of miners, it could adversely affect our productivity, costs and ability to expand production. We have reclamation and mine closure obligations. If the assumptions underlying our accruals are inaccurate, we could be required to expend greater amounts than anticipated. The Surface Mining Control and Reclamation Act and counterpart state laws and regulations in the United States and the Mines Act (British Columbia) and the Reclamation Code for Mines in British Columbia in Canada have established operational, reclamation and closure standards for all aspects of surface mining as well as most aspects of deep mining. We accrue for the costs of final mine closure. Estimates of our total reclamation and mine-closing liabilities are based upon permit requirements and our experience. The amounts recorded are dependent upon a number of variables, including the estimated future retirement costs, estimated proven reserves, assumptions involving profit margins, inflation rates, and the assumed credit-adjusted risk-free interest rates. Furthermore, these obligations are unfunded. If these accruals are insufficient or our liability in a particular year is greater than currently anticipated, our future operating results could be adversely affected. At December 31, 2011, we have accrued $75.1 million for our asset retirement obligations. Factors impacting our forecasts of future performance, reserve estimates and a decline in pricing could affect our revenues. Forecasts of our future performance are based on estimates of our recoverable coal reserves. Reserve estimates are based on a number of sources of information, including engineering, geological, mining and property control maps, our operational experience of historical production from similar areas with similar conditions and assumptions governing future pricing and operational costs. Reserve estimates will change periodically to reflect mining activities, the acquisition or divestiture of reserve holdings and modifications of mining plans. Certain factors beyond our control could affect the accuracy of these estimates, including unexpected mining conditions, future coal prices, operating and development costs and federal, state, provincial and local regulations affecting mining operations. 31

35 Table of Contents Inaccuracies in our estimates of our coal reserves could result in decreased profitability from lower than expected revenues or higher than expected costs. Our future performance depends on, among other things, the accuracy of our estimates of our proven and probable coal reserves. We base our estimates of reserves on engineering, economic and geological data assembled, analyzed and reviewed by internal and third-party engineers and consultants. We update our estimates of the quantity and quality of proven and probable coal reserves at least annually to reflect the production of coal from the reserves, updated geological models and mining recovery data, the tonnage contained in new lease areas acquired and estimated costs of production and sales prices. There are numerous factors and assumptions inherent in estimating the quantities and qualities of, and costs to mine, coal reserves, including many factors beyond our control, including the following: quality of the coal; geological and mining conditions, which may not be fully identified by available exploration data and/or may differ from our experiences in areas where we currently mine; the percentage of coal ultimately recoverable; the assumed effects of regulation, including the issuance of required permits, taxes, including severage and excise taxes and royalties, and other payments to governmental agencies; assumptions concerning the timing of the development of the reserves; and assumptions concerning the equipment and productivity, future coal prices, operating costs, including for critical supplies such as fuel, tires and explosives, capital expenditures and development and reclamation costs. As a result, estimates of the quantities and qualities of economically recoverable coal attributable to any particular group of properties, classifications of reserves based on risk of recovery, estimated cost of production, and estimates of future net cash flows expected from these properties as prepared by different engineers, or by the same engineers at different times, may vary materially due to changes in the above factors and assumptions. Actual production recovered from identified reserve areas and properties, and revenues and expenditures associated with our mining operations, may vary materially from estimates. Any inaccuracy in our estimates related to our reserves could result in decreased profitability from lower than expected revenues and/or higher than expected costs. Canadian licenses, permits and other authorizations may be subject to challenges based on Aboriginal or Treaty rights Canadian judicial decisions have recognized the continued existence of Aboriginal and Treaty rights in Canada, including title to lands continuously used or occupied by Aboriginal groups. Our Northeast British Columbia operations are located within Treaty 8 territory, to which nine First Nations in British Columbia are signatories. Current operations are in or near the traditional territories of the West Moberly, Saulteau and Halfway River First Nations, and the McLeod Lake Indian Band. The Province of British Columbia has signed an Economic Benefits Agreement and related land and resource use agreements with several of the First Nations, including the West Moberly First Nation, over the last few years. The Treaty 8, as well as the Economic Benefits Agreement and related agreements, establish First Nations rights and define roles for their involvement in land and resource use. As a means of protecting Treaty and Aboriginal rights, as well as undetermined aboriginal rights, Canadian courts continue to confirm a duty to consult with Aboriginal groups when the Crown has knowledge of existing rights or the potential existence of an Aboriginal right, such as title or hunting rights, and contemplates conduct that might adversely impact First Nations. As issues relating to Aboriginal and Treaty rights and consultation continue to be heard, developed and resolved in Canadian courts, we will 32

36 Table of Contents continue to cooperate, communicate and exchange information and views with Aboriginal groups and government, and participate with the Crown in its consultation processes with Aboriginal groups in order to foster good relationships and minimize risks to its mineral rights and operational plans. Due to their complexity, it is not expected that the issues regarding Aboriginal and Treaty rights or consultation will be finally resolved in the short term and, accordingly, the impact of these issues on mineral resources and on our mining operations is unknown at this time. We believe in building mutually beneficial and lasting relationships with local First Nations whose Treaty rights or potential Aboriginal rights overlap with our areas of operations. We are in the process of formalizing our relationships with local First Nations through agreements that generally seek to increase First Nations' participation in our planning and operational activities. Should a dispute arise between the First Nations and the Crown, it could significantly restrict the Company's ability to operate and transport coal within the region. Also, such action could have a detrimental impact on our financial condition and results of operations as well as our customers. Failure to meet our project development and expansion targets could have a material adverse effect on our business There can be no assurance that we will be able to manage effectively the expansion of our operations or that our current personnel, systems, procedures and controls will be adequate to support our operations. Any failure of management to effectively manage our growth and development could have a material adverse effect on our business, financial condition and results of operations. Our operational targets are subject to the completion of planned operational goals on time and within budget, and are dependent on the effective support of our personnel, systems, procedures and controls. Any failure of these may result in delays in the achievement of operational targets with a consequent material adverse impact on our business, operations and financial performance. Our operations in foreign jurisdictions are subject to risks and uncertainties which may have a negative impact on our profitability We operate in a number of foreign countries where there are added risks and uncertainties due to the different economic, cultural and political environments. We face risks in securing additional property licenses, as the process for obtaining these is likely to be different from that in the jurisdictions in which we have operated historically, which could result in failed attempts to obtain licenses which would have used up management time and financial resources. We also face risks from trade barriers, exchange controls and material changes in taxation which could negatively impact our ability to sell into foreign markets, as well as our profitability. Extensive environmental, health and safety laws and regulations impose significant costs on our operations and future regulations could increase those costs, limit our ability to produce or adversely affect the demand for our products. Our businesses are subject to numerous federal, state, provincial and local laws and regulations with respect to matters such as: permitting and licensing requirements; employee health and safety, including: occupational safety and health; mine health and safety; workers' compensation; black lung; 33

37 Table of Contents reclamation and restoration of property; environmental laws and regulations, including: greenhouse gases and climate change; air quality standards; water quality standards; management of materials generated by mining and coking operations; the storage, treatment and disposal of wastes; remediation of contaminated soil and groundwater; and protection of human health, plant-life and wildlife, including endangered species, and emergency planning and community right to know. Compliance with these regulations may be costly and time-consuming and may delay commencement or continuation of exploration or production at our operations. These laws are constantly evolving and becoming increasingly stringent. The ultimate impact of complying with existing laws and regulations is not always clearly known or determinable due in part to the fact that certain implementing regulations for these laws have not yet been promulgated and in certain instances are undergoing revision. These laws and regulations, particularly new legislative or administrative proposals (or judicial interpretations of existing laws and regulations) could result in substantially increased capital, operating and compliance costs and could have a material adverse effect on our operations and/or our customers' ability to use our products. In addition, the industry in the United States is affected by significant legislation mandating certain benefits for current and retired coal miners. We strive to conduct our mining, natural gas and coke operations in compliance with all applicable federal, provincial, state and local laws and regulations. However, due in part to the extensive and comprehensive regulatory requirements, along with changing interpretations of these requirements, violations occur from time to time in our industry and at our operations. In recent years, expenditures at our U.S. operations for regulatory or environmental obligations have been mainly for safety or process changes. Although it is not possible at this time to predict the final outcome of these rule-making and standard-setting efforts, it is likely that the magnitude of these changes will require an unprecedented compliance effort on our part, could divert management's attention, and may require significant expenditures. To the extent these expenditures, as with all costs, are not ultimately reflected in the prices of our products and services, operating results will be reduced. We believe that our major North American competitors are confronted by substantially similar conditions and thus do not believe that our relative position with regard to such competitors is materially affected by the impact of environmental laws and regulations. However, the costs and operating restrictions necessary for compliance with environmental laws and regulations, which is a major cost consideration for our Canadian operations in particular, may have an adverse effect on our competitive position with regard to foreign producers and operators who may not be required to undertake equivalent costs in their operations. In addition, the specific impact on each competitor may vary depending on a number of factors, including the age and location of its operating facilities, applicable state or provincial legislation and its production methods. Federal, state or provincial regulatory agencies have the authority to order certain of our mines to be temporarily or permanently closed under certain circumstances, which could materially and adversely affect our ability to meet our customers' demands. Federal, state or provincial regulatory agencies have the authority under certain circumstances following significant health and safety incidents, such as fatalities, to order a mine to be temporarily or 34

38 Table of Contents permanently closed. If this occurred, we may be required to incur capital expenditures to re-open the mine. In the event that these agencies order the closing of our mines, our coal sales contracts generally permit us to issue force majeure notices which suspend our obligations to deliver coal under these contracts. However, our customers may challenge our issuances of force majeure notices. If these challenges are successful, we may have to purchase coal from thirdparty sources, if it is available, to fulfill these obligations, incur capital expenditures to re-open the mines and/or negotiate settlements with the customers, which may include price reductions, the reduction of commitments or the extension of time for delivery or terminate customers' contracts. Any of these actions could have a material adverse effect on our business and results of operations. Increased focus by regulatory authorities on the effects of surface coal mining on the environment and recent regulatory developments related to surface coal mining operations could make it more difficult or increase our costs to receive new permits or to comply with our existing permits to mine coal or otherwise adversely affect us. Regulatory agencies are increasingly focused on the effects of surface coal mining on the environment, particularly as it relates to water quality, which has resulted in more rigorous permitting requirements and enforcement efforts. Section 404 of the Clean Water Act requires mining companies to obtain U.S. Army Corps of Engineers permits to place material in streams for the purpose of creating slurry ponds, water impoundments, refuse areas, valley fills or other mining activities. As is the case with other coal mining companies operating in Appalachia, our construction and mining activities, including certain of our surface mining operations, frequently require Section 404 permits. The issuance of permits to construct valley fills and refuse impoundments under Section 404 of the Clean Water Act has been the subject of many court cases and increased regulatory oversight, resulting in additional permitting requirements that are expected to delay or even prevent the opening of new mines. For example, in April 2010, the EPA issued comprehensive guidance to provide clarification as to the water quality standards that should apply when reviewing Clean Water Act permit applications for Appalachian surface coal mining operations. This guidance establishes threshold conductivity levels to be used as a basis for evaluating compliance with narrative water quality standards. To obtain necessary permits, we and other mining companies are required to meet these requirements. We have begun to incorporate these new requirements into our current permit applications; however, there can be no guarantee that we will be able to meet these or any other new standards with respect to our permit applications. Additionally, in January 2011, the EPA rescinded a federal Clean Water Act permit held by another coal mining company for a surface mine in Appalachia citing associated environmental damage and degradation. While our operations are not directly impacted, this could be an indication that other surface mining water permits could be subject to more substantial review in the future. It is unknown what future changes will be implemented to the permitting review and issuance process or to other aspects of surface mining operations, but the increased regulatory focus, future laws and judicial decisions and any other future changes could materially and adversely affect all coal mining companies operating in Appalachia, including us. Regulatory agencies in Canada are also increasingly focused on the effects of surface coal mining on the environment, particularly as it relates to water quality and to wildlife habitat. The British Columbia Ministry of Environment is updating its existing selenium guidelines which could affect water quality issues and effluent discharge standards. Expansion of existing coal mines and development of new coal mines in northeast British Columbia have also been the focus of consideration with respect to the impacts on caribou habitat, particularly in areas where caribou has been identified as a threatened species under the federal Species at Risk Act. It is unknown what future changes will be implemented to 35

39 Table of Contents the permitting review and issuance process or to other aspects of surface mining operations in British Columbia, but the increased regulatory focus, future laws and judicial decisions, and any other future changes could materially and adversely affect all coal mining companies operating in British Columbia, including us. In particular, in each jurisdiction in which we operate, we will incur additional permitting and operating costs, could be unable to obtain new permits or maintain existing permits and could incur fines, penalties and other costs, any of which could materially adversely affect our business. If surface coal mining methods are limited or prohibited, it could significantly increase our operational costs and make it more difficult to economically recover a significant portion of our reserves. In the event that we cannot increase the price we charge for coal to cover the higher production costs without reducing customer demand for our coal, there could be a material adverse effect on our financial condition and results of operations. In addition, increased public focus on the environmental, health and aesthetic impacts of surface coal mining could harm our reputation and reduce demand for coal. Climate change concerns could negatively affect our results of operations and cash flows. The combustion of fossil fuels, such as the coal, coke and natural gas we produce, results in the creation of carbon dioxide that is currently emitted into the atmosphere by coal, coke and gas end-users. Further, some of our operations emit GHGs directly, such as methane incident to coal mining and carbon dioxide during our coke production. Carbon dioxide is considered a greenhouse gas and is a major source of concern with respect to global warming, also known as climate change. Climate change continues to attract public and scientific attention, and increasing government attention is being paid to reducing GHG emissions. There are many legal and regulatory approaches currently in effect or being considered to address GHGs, including possible future U.S. treaty commitments, new federal or state legislation that may impose a carbon emissions tax or establish a "cap and trade" program, and regulation by the U.S. Environmental Protection Agency. Canadian legal and regulatory approaches include both federal and provincial regulations requiring the reporting of GHG emissions. At both the federal and provincial level, governments are considering the implementation of GHG regulatory structures such as a "cap and trade" program, and emissions trading. These programs could force reductions in total GHG emissions on an industry or on a facility basis. In British Columbia, the government charges a carbon emissions tax with scheduled increases. These existing laws and regulations or other current and future efforts to stabilize or reduce GHG emissions, could adversely impact the demand for, price of and the value of our products and reserves. Passage of additional state, provincial, federal or foreign laws or regulations regarding GHG emissions or other actions to limit GHG emissions could result in switching from coal to other fuel sources. The anticipation of such additional requirements could also lead to reduced demand for some of our products. Alternative fuels (including non-fossil fuels) could become more attractive than coal in order to reduce GHG emissions, which could result in a reduction in the demand for coal and, therefore, our revenues. As our operations also emit GHGs directly, current or future laws or regulations limiting GHG emissions could increase our own costs. Although the potential impacts on us of additional climate change regulation are difficult to reliably quantify, they could be material. Our operations may impact the environment or cause exposure to hazardous substances, and our properties may have environmental contamination, which could result in material liabilities to us. Our operations currently use hazardous materials and generate limited quantities of hazardous wastes from time to time. We could become subject to claims for toxic torts, natural resource damages and other damages as well as for the investigation and clean up of soil, surface water, groundwater, and other media. Such claims may arise, for example, out of conditions at sites that we currently own or 36

40 Table of Contents operate, as well as at sites that we previously owned or operated, or may acquire. Our liability for such claims may be joint and several, so that we may be held responsible for more than our share of the contamination or other damages, or even for the entire share. We maintain extensive coal refuse areas and slurry impoundments at a number of our mining complexes. Such areas and impoundments are subject to extensive regulation. Slurry impoundments have been known to fail, releasing large volumes of coal slurry into the surrounding environment. Structural failure of an impoundment can result in extensive damage to the environment and natural resources, such as bodies of water that the coal slurry reaches, as well as liability for related personal injuries and property damages, and injuries to wildlife. Some of our impoundments overlie mined out areas, which can pose a heightened risk of failure and of damages arising out of failure. If one of our impoundments were to fail, we could be subject to substantial claims for the resulting environmental contamination and associated liability, as well as for fines and penalties. Drainage flowing from or caused by mining activities can be acidic with elevated levels of dissolved metals, a condition referred to as "acid mine drainage," which we refer to as AMD. The treating of AMD can be costly. Although we do not currently face material costs associated with AMD, it is possible that we could incur significant costs in the future. These and other similar unforeseen impacts that our operations may have on the environment, as well as exposures to hazardous substances or wastes associated with our operations, could result in costs and liabilities that could materially and adversely affect us. See also "Environmental and Other Regulatory Matters" in Part I of this Annual Report. Other Business Risks Our substantial debt could adversely affect our financial condition, and our related debt service obligations may adversely affect our cash flow and ability to invest in and grow our businesses. We have approximately $2.2 billion of indebtedness outstanding under a new $2.7 billion credit agreement ("Credit Agreement"). Under the repayment schedule relating to the Credit Agreement we will be required to make principal payments totaling at least $19.8 million in 2012 and at least $82.5 million in In addition, we will be required to pay a percentage of excess cash flow, as defined in the Credit Agreement, to reduce the principal balance of the indebtedness. If we are unable to satisfy our indebtedness obligations, we will be unable to continue our operations, including our planned development and growth initiatives. Access to capital, financing availability and our debt instruments may limit our ability to engage in certain transactions. Our business requires continued capital investment for, among other purposes, managing acquired assets, acquiring new equipment, maintaining the condition of our existing equipment and maintaining compliance with environmental and safety laws and regulations. To the extent that cash generated internally and cash available under our credit facilities are not sufficient to fund capital requirements, we will require additional debt and/or equity financing. However, this type of financing may not be available, or if available, may not be on satisfactory terms. Future debt financings, if available, may result in increased interest expense, increased financial leverage and decreased income available to fund further acquisitions and expansion. In addition, future debt financings may limit our ability to withstand competitive pressures and render us more vulnerable to economic downturns. If we fail to generate sufficient earnings or to obtain sufficient additional capital in the future or fail to manage our capital investments effectively, we could be forced to reduce or delay capital expenditures, sell assets or restructure or refinance our indebtedness. 37

41 Table of Contents In addition, our Credit Agreement contains customary affirmative and negative covenants for credit facilities of this type, including, but not limited to, limitations on the incurrence of indebtedness, asset dispositions, acquisitions, investments, dividends and other restricted payments, liens and transactions with affiliates. The Credit Agreement requires us to meet certain financial tests, including a maximum leverage ratio and a minimum fixed charge coverage ratio. Our ability to satisfy the financial ratios, tests or covenants related to our existing or future indebtedness can be affected by events beyond our control, and there is a risk that we will not meet those tests. A breach of any such covenants could result in a default under our credit facilities or under any other debt instrument that we may enter into in the future. If an event of default were not remedied after the delivery of notice of default and lapse of any relevant grace period, the holders of our debt could declare it immediately due and payable. Failure to obtain or renew surety bonds on acceptable terms could affect our ability to secure reclamation and coal lease obligations and, therefore, our ability to mine or lease coal. Federal, state and provincial laws require us to obtain surety bonds or post other financial security to secure performance or payment of certain long-term obligations, such as mine closure or reclamation costs, federal and state workers' compensation costs, coal leases and other obligations. We may have difficulty procuring or maintaining our surety bonds. Our bond issuers may demand higher fees, additional collateral, including letters of credit or other terms less favorable to us upon those renewals. Because we are required by state and federal law to have these bonds in place before mining can commence or continue, or failure to maintain surety bonds, letters of credit or other guarantees or security arrangements would materially and adversely affect our ability to mine or lease coal. That failure could result from a variety of factors, including lack of availability, higher expense or unfavorable market terms, the exercise by third party surety bond issuers of their right to refuse to renew the surety and restrictions on availability on collateral for current and future third party surety bond issuers under the terms of our financing arrangements. Our expenditures for postretirement benefit and pension obligations are significant and could be materially higher than we have predicted if our underlying assumptions prove to be incorrect. We provide a range of benefits to our employees and retirees, including pensions and postretirement healthcare. We record annual amounts relating to these plans based on calculations specified by generally accepted accounting principles, which include various actuarial assumptions. As of December 31, 2011, we estimate that our pension plans' aggregate accumulated benefit obligation had a present value of approximately $246.0 million, and our fair value of plan assets was approximately $202.5 million. As of December 31, 2011, we estimate that our postretirement health care and life insurance plans' aggregate accumulated benefit obligation would have had a present value of approximately $577.9 million, and such benefits are not required to be funded. In respect of the funding obligations for our pension plans, we must make minimum cash contributions on a quarterly basis. The weakening of the economic environment and uncertainty in the equity markets have caused investment income and the values of investment assets held in our pension trust to decline in the past and lose value. As a result, we may be required to increase the amount of cash contributions we make into the pension trust in the future in order to meet the funding level requirements of the Pension Protection Act of 2006 (Pension Act). Our estimated minimum funding obligation relating to these plans in 2012 is $55.3 million. We have estimated these obligations based on assumptions described under the heading "Critical Accounting Estimates Employee Benefits" in "Item 7. Management's Discussion and Analysis of Results of Operations and Financial Condition," and in the notes to our consolidated financial statements. Assumed health care cost trend rates, discount rates, expected return on plan assets and salary increases have a significant effect on the amounts reported for the pension and health care plans. If our assumptions do not materialize as expected, cash expenditures and costs that we incur could be materially higher. Moreover, regulatory changes could increase our obligations to provide these or additional benefits. 38

42 Table of Contents The 2010 healthcare legislation impacts our costs to provide healthcare benefits to our eligible active and certain retired employees and to provide workers' compensation benefits related to occupational disease resulting from black lung disease. The 2010 healthcare legislation has both short-term and long-term implications on healthcare benefit plan standards. Implementation of the 2010 healthcare legislation will occur in phases, with plan standard changes taking effect beginning in 2010, but to a greater extent with the 2011 benefit plan year and extending through Plan standard changes that affect us in the short term include raising the maximum age for covered dependents to continue to receive benefits, the elimination of lifetime dollar limits per covered individual and restrictions on annual dollar limits per covered individual, among other standard requirements. Plan standard changes that could affect us in the long-term include a tax on "high cost" plans (excise tax) and the elimination of annual dollar limits per covered individual, among other standard requirements. Beginning in 2018, the 2010 healthcare legislation will impose a 40% excise tax on employers to the extent that the value of their healthcare plan coverage exceeds certain dollar thresholds. We anticipate that certain government agencies will provide additional regulations or interpretations concerning the application of this excise tax. Until these regulations or interpretations are published, it is impractical to reasonably estimate the ultimate impact of the excise tax on our future healthcare costs or postretirement benefit obligation. We have incorporated changes to our actuarial assumptions to determine our postretirement benefit obligations utilizing preliminary estimates and basic assumptions around the pending interpretations of these regulations. In addition, certain of our subsidiaries participate in multiemployer pension and healthcare plan trusts established for union employees. Contributions to these funds could increase as a result of future collective bargaining with the UMWA, a shrinking contribution base as a result of the insolvency of other coal companies who currently contribute to these funds, lower than expected returns on pension fund assets, or other funding deficiencies. We have no current intention to withdraw from any multiemployer pension plan, but if we were to do so, under the Employee Retirement Income Security Act of 1974, as amended ("ERISA"), we would be liable for a proportionate share of the plan's unfunded vested benefit liabilities upon our withdrawal. Through June 30, 2012, our estimated withdrawal liability for the multiemployer pension plans amounts to $484.4 million. Changes in our credit ratings could adversely affect our costs and expenses. Any downgrade in our credit ratings could adversely affect our ability to borrow and result in more restrictive borrowing terms, including increased borrowing costs and more restrictive covenants. This, in turn, could affect our internal cost of capital estimates and therefore impact operational and investment decisions. We self-insure workers' compensation and certain medical and disability benefits, and greater than expected claims could reduce our profitability. We are self-insured for workers' compensation benefits for work-related injuries. Workers' compensation liabilities, including those related to claims incurred but not reported, are recorded principally using annual valuations based on discounted future expected payments using historical data of the division or combined insurance industry data when historical data is limited. In addition, certain of our subsidiaries are responsible for medical and disability benefits for black lung disease under the Federal Coal Mine Health and Safety Act of 1969 and the Federal Mine Safety and Health Act of 1977, as amended, and is self-insured against black lung related claims. We perform periodic evaluations of our black lung liability, using assumptions regarding rates of successful claims, discount factors, benefit increases and mortality rates, among others. See additional information under the 39

43 Table of Contents heading "Critical Accounting Estimates Employee Benefits" in "Item 7. Management's Discussion and Analysis of Results of Operations and Financial Condition." If the number or severity of claims for which we are self insured increases, or we are required to accrue or pay additional amounts because the claims prove to be more severe than our original assessment, our operating results could be reduced. We may be subject to litigation, the disposition of which could negatively affect our profitability and cash flow in a particular period. Our profitability or cash flow in a particular period could be affected by an adverse ruling in any litigation currently pending in the courts or by litigation that may be filed against us in the future. For information regarding our current significant legal proceedings, see "Item 3. Legal Proceedings", "Note 9- Income Taxes" and "Note 14- Commitments and Contingencies." Our executive officers and other key personnel are important to our success and the loss of some of these individuals could harm our business. Our executive officers and other key personnel have significant experience in the businesses in which we operate and the loss of certain of these individuals could harm our business. Although we have been successful in attracting qualified individuals for key management and corporate positions in the past, as our business develops and expands, there can be no assurance that we will continue to be successful in attracting and retaining a sufficient number of qualified personnel in the future. The loss of the services of management personnel could harm our ability to successfully manage our business functions, prevent us from executing our business strategy and have an adverse effect on our results of operations and cash flows. We may be unsuccessful in identifying or integrating suitable acquisitions, which could impair our growth. Our ability to grow depends upon our ability to identify, negotiate, complete and integrate suitable acquisitions. This strategy depends on the availability of acquisition candidates with businesses that can be successfully integrated into our existing business and that will provide us with complementary capabilities, products or services. There are many challenges to integrating acquired companies and businesses, including eliminating redundant operations, facilities and systems, coordinating management and personnel, retaining key employees, managing different corporate cultures and achieving cost reductions and cross-selling opportunities. It is possible that we will be unable to successfully complete potential acquisitions which could impair our growth. The price of our common stock may be volatile and may be affected by market conditions beyond our control. Our share price is likely to fluctuate in the future because of the volatility of the stock market in general and a variety of factors, many of which are beyond our control, including: general global economic conditions that impact infrastructure activity, including interest rate and currency movements; quarterly variations in actual or anticipated results of our operations; speculation in the press or investment community; changes in financial estimates by securities analysts; actions or announcements by our competitors; actions by our principal stockholders; trading volumes of our common stock; 40

44 Table of Contents regulatory actions; litigation; U.S. and international economic, legal and regulatory factors unrelated to our performance; loss or gain of a major customer; additions or departures of key personnel; and future issuances of our common stock. Market fluctuations could result in extreme volatility in the price of shares of our common stock, which could cause a decline in the value of our stock. Price volatility may be greater if the public float and trading volume of shares of our common stock is low. In addition, if our operating results and net income fail to meet the expectations of stock analysts and investors, we may experience an immediate and significant decline in the trading price of our stock. Our ability to pay regular dividends to our stockholders is subject to the discretion of our Board of Directors and may be limited by our holding company structure, the covenants in our debt instruments and applicable provisions of Delaware law. Our Board of Directors may, in its discretion, decrease the level of dividends or discontinue the payment of dividends entirely. In addition, as a holding company, we will be dependent upon the ability of our subsidiaries to generate earnings and cash flows and distribute them to us so that we may pay our obligations and expenses and pay dividends to our stockholders. Our ability to pay future dividends and the ability of our subsidiaries to make distributions to us will be subject to our and their respective operating results, cash requirements and financial condition, the applicable laws of the State of Delaware (which may limit the amount of funds available for distribution), compliance with covenants and financial ratios related to existing or future indebtedness and other agreements with third parties. If, as a consequence of these various limitations and restrictions, we are unable to generate sufficient distributions from our business, we may not be able to make, or may have to reduce or eliminate, the payment of dividends on our shares. Our stockholder rights agreement, designed to increase benefit to our shareholders, could also discourage or prevent potential acquisition proposals and could deter a change of control. On February 27, 2009, our Board of Directors authorized and declared a dividend of one preferred stock purchase right (a "Right") for each share of common stock to stockholders of record as of the close of business on April 23, Our shareholders approved this action and we entered into a rights agreement on April 24, Initially the Right is not exercisable and will trade with our common stock. The Right may be exercisable under certain circumstances, including a person or group acquiring, or the commencement of a tender or exchange offer that would result in a person or group acquiring, beneficial ownership of more than 20% of the outstanding shares of common stock. Upon exercise of the Right, each Right holder, other than the person or group triggering the plan, will have the right to purchase from us 1/1000 th of a share of junior preferred stock (subject to adjustment) or, at our option, shares of common stock having a value equal to two times the exercise price of the Right. Each fractional share of the junior preferred stock has terms designed to make it substantially the economic equivalent of one share of common stock. This rights agreement expires on April 23, Our rights agreement is designed to, among other things, deter the use of coercive or abusive takeover tactics by one or more parties interested in acquiring the Company or a significant position in the Company's common stock without offering fair value to all stockholders, as well as to generally assist the Board in representing the interests of all stockholders in connection with any takeover proposals. The rights agreement would accomplish these objectives by encouraging a potential acquirer to negotiate with the Board to have the Rights redeemed or the rights agreement amended prior to such 41

45 Table of Contents party exceeding the ownership thresholds set forth in the rights agreement. If the Rights are not redeemed (or the rights agreement is not amended to permit the particular acquisition) and such party exceeds the ownership thresholds, the Rights become exercisable at a discounted price resulting in both a dilution of the party's holding in the Company and making an acquisition thereof significantly more expensive by significantly increasing the number of shares that would have to be acquired to effect a takeover. Our rights agreement, though designed to benefit current shareholders by allowing more time for thoughtful consideration of the offer and encouraging officers to suggest a higher price for the Company's shares, may also discourage third parties from attempting to purchase our Company or a significant position in our common stock, which may adversely affect the price of our common stock. We may be required to satisfy certain indemnification obligations to Mueller Water or may not be able to collect on indemnification rights from Mueller Water. In connection with the spin-off of Mueller Water Products, Inc. ("Mueller Water") on December 14, 2006, we entered into certain agreements with Mueller Water, including an income tax allocation agreement and a joint litigation agreement. Under the terms of those agreements, we and Mueller Water agreed to indemnify each other with respect to the indebtedness, liabilities and obligations that will be retained by our respective companies, including certain tax and litigation liabilities. These indemnification obligations could be significant. For example, to the extent that we or Mueller Water take any action that would be inconsistent with the treatment of the spin-off of Mueller Water as a tax-free transaction under Section 355 of the Internal Revenue Code, then any tax resulting from such actions is attributable to the acting company. The ability to satisfy these indemnities if called upon to do so will depend upon the future financial strength of each of our companies. We cannot determine whether we will have to indemnify Mueller Water for any substantial obligations after the distribution. If Mueller Water has to indemnify us for any substantial obligations, Mueller Water may not have the ability to satisfy those obligations. If Mueller Water is unable to satisfy its obligations under its indemnity to us, we may have to satisfy those obligations. Terrorist attacks and threats, escalation of military activity in response to such attacks or acts of war may negatively affect our business, financial condition and results of operations. Terrorist attacks against U.S. targets, rumors or threats of war, actual conflicts involving the U.S. or its allies, or military or trade disruptions affecting our customers or the economy as a whole may materially adversely affect our operations or those of our customers. As a result, there could be delays or losses in transportation and deliveries of coal to our customers, decreased sales of our coal and extension of time for payment of accounts receivable from our customers. Strategic targets such as energy-related assets may be at greater risk of future terrorist attacks than other targets in the United States. In addition, disruption or significant increases in energy prices could result in government-imposed price controls. Any of these occurrences, or a combination of them, could have a material adverse effect on our business, financial condition and results of operations. Item 1B. Unresolved Staff Comments None 42

46 Table of Contents Item 2. Properties The administrative headquarters and production facilities of the Company and its subsidiaries as of December 31, 2011 are summarized as follows: Building Square Footage Reportable Segment Business Unit / Location Principal Operations Land Acreage(4) Leased Owned U.S. Operations Alabama Operations: Blue Creek Coal Sales Mobile, AL River terminal Owned 49 Jim Walter Resources Brookwood, AL Administrative headquarters & mine support facilities Brookwood, AL Coal mines, land holdings and coal bed methane fields Owned Brookwood, AL Coal mines, land holdings and coal bed methane fields Leased Walter Black Warrior Basin Tuscaloosa County, AL Walter Minerals Tuscaloosa County, AL Various Counties in Coal bed methane fields Leased, developed Mine support facilities Barge load out AL Real estate Owned Various Counties in Real estate Owned, AL mineral interest only Tuscaloosa Resources Tuscaloosa Administrative County, AL headquarters & mine 173,100 17,323 49,623 48, ,568 31, ,293 support facilities Tuscaloosa County, AL Coal mines and land holdings Leased 1,132 Tuscaloosa County, AL Real estate Owned 693 Pickens County, AL Real estate Owned ,600 Taft Walker County, AL Administrative headquarters & mine 3,680 11,075 support facilities Walker County, AL Coal mines and land holdings Owned 1,490 Walker County, AL Coal mines and land holdings Leased 1,820 Blount County, AL Mine support facilities 1,200 Blount County, AL Coal mines and land holdings Leased 820 Walter Coke Birmingham, AL Administrative headquarters 12,000 Birmingham, AL Furnace & foundry coke battery Owned ,400 U.S. Operations West Virginia Operations Atlantic Leaseco Nicholas County, WV Nicholas County, WV Nicholas County, WV Maple Coal Fayette & Kanawha Counties, WV Fayette & Kanawha Counties, WV Administrative headquarters Coal mines and land holdings Owned Coal mines and land holdings Leased Coal mines and land holdings Owned Coal mines and land holdings Leased 43 6,038 2,296 50,083 19, ,500 21,960

47 Table of Contents Building Square Land Footage Reportable Segment Business Unit /Location Principal Operations Acreage(4) Leased Owned Canadian and U.K. Operations Canadian Operations Walter Energy Canada Holdings, Inc. Northeast, B.C. Administrative headquarters 2,780 Coal mines and land Northeast, B.C. holdings Leased 108,919 Canadian and U.K. Operations U.K. Operations Energybuild South Wales, U.K Other Other Kodiak(1) Administrative headquarters & mine support facilities 37,685 39,292 Coal mines and land holdings Leased 5,953 South Wales, U.K South Wales, U.K Real estate Leased 247 Shelby County, AL Shelby County, AL Administrative headquarters & mine support facilities 22,900 Coal mines and land holdings Owned 70 Birmingham, AL(2) Executive headquarters 40,390 Vancouver, B.C Administrative headquarters 16,472 Tampa, FL(2) Administrative headquarters 31,574 Tampa, FL(3) Former Administrative headquarters for our Financing and Homebuilding businesses 46,500 (1) (2) (3) (4) Kodiak's mining operations ceased in December Facilities have been idled. In January 2010, we signed a 10-year, non-cancellable lease agreement for 40,390 square feet of space at the Galleria Tower at Riverchase Galleria in Hoover, AL, a suburb of Birmingham, AL. The lease obligation related to the space at our executive offices in Tampa remains until April In April 2009, we spun off our Financing business and, also in 2009, our Homebuilding business was closed. The lease obligation related to this space remains until April Real estate and land holdings include mineral interests owned and leased. 44

48 Table of Contents The following table provides the location of our recoverable reserves as of December 31, 2011: ESTIMATED RECOVERABLE(1) COAL RESERVES AS OF DECEMBER 31, 2011 (In Thousands of Metric Tons) Location/Mine Alabama: JWR's No. 4 Mine JWR's No. 7 Mine JWR's North River Mine Walter Energy's Blue Creek Energy No. 1 TRI's Carter/ Swann's Crossing Mine(5) Status of Operation Coal Beds Operational Operational Operational Prefeasibility Operational TRI's Panther 3 Mine Idled Taft's Choctaw Mine(5) Taft's Reid School Mine(5) Taft's Gayosa South Mine Taft's Robbins Road Mine Walter Minerals' Flat Top Mine Walter Minerals' Beltona East Mine Walter Minerals' Morris Mine Operational Operational Development Development Ready for Operation Reserves Classifications(3) Our Interest Recoverable Reportable Reserves(1) Assigned(2) Unassigned(2) Proven Probable Owned Leased(4) Acres Mary Lee and Blue Creek 69,854 69,854 67,425 2,429 1,013 68,841 17,802 Mary Lee 60,652 60,652 55,281 5,371 2,475 58,177 16,984 and Blue Creek Pratt 4,634 4,634 4, , Mary Lee and Blue Creek Guide 1 & 2, Lower Brookwood, Milldale, Carter Carter, Johnson Pratt, Nickle Plate, Top American, Bot. American & American No. 3 Lick Creek Jefferson & Black Creek Pratt, Nickle Plate, Top American, Bot. American Pratt, Nickle Plate, Top American, Bot. American & American No. 3 Pratt, Nickle Plate, Top American Lick Creek Jefferson & Development Black Creek Development Upper & Lower New Castle, Mary Lee, Blue Creek 81,908 81,908 78,574 3,334 81,908 20,406 3,185 3,185 3,185 3, ,050 2,050 2,050 2, ,434 1,434 1,434 1, ,073 2,073 2,073 2, ,013 1,013 1,013 1, ,801 1, ,276 1,

49 Total Alabama West Virginia: Gauley Eagle Underground Mine Gauley Eagle Surface Mine(5) Maple Coal Eagle Underground Mine Maple Coal Peerless Underground Mine Maple Surface Mine(5) Total West Virginia Idled Operational Operational Prefeasibility Operational Allegheny, Kanawha, New River Allegheny, Kanawha, New River Allegheny, Kanawha, New River Allegheny, Kanawha, New River Allegheny, Kanawha, New River 229, ,789 81, ,893 12,804 12, ,156 57,954 7,107 7,107 6, ,107 2,393 6,879 6,879 6, ,879 1,831 4,602 4,602 4, ,602 1,977 6,406 6,406 4,769 1,637 6,406 2,168 13,796 9,116 4,680 12, ,796 3,413 38,790 27,704 11,086 34,212 4,578 38,790 11,782 45

50 Table of Contents Location/Mine Status of Operation Coal Beds Reserves Classifications(3) Our Interest Recoverable Reserves(1) Assigned(2) Unassigned(2) Proven Probable Owned Leased(4) Reportable Acres Northeast B.C., Canada: Wolverine's Perry Creek Mine(5) Wolverine's Mt. Spieker (EB) Area Wolverine's Hermann Area Gates Formation Operational Gates Formation Development Gates Formation Brazion's Brule Mine(5) Operational Brazion's Willow Creek Area(5) Operational Belcourt Saxon Properties(6) Prefeasibility Prefeasibility Total Canada South Wales, U.K.: Energybuild's Aberpergwm Mine Development Total Walter Energy(7) Gething Formation Gething Formation Gates Formation Nine & Eighteen Feet 12,851 12,851 12,851 12, ,856 9,856 9,856 9, ,075 9,075 6,775 2,300 9, ,090 21,090 21,090 21, ,897 19,897 18,617 1,280 19, ,523 28,523 28, , ,292 53,838 47,454 97,462 3, ,292 2,522 5,289 5, ,498 2,791 5,289 1, , , , ,065 24,003 12, ,527 73,770 (1) (2) (3) (4) (5) (6) (7) "Recoverable" reserves are defined as tons of mineable coal which can be extracted and marketed after deduction for coal to be left in pillars, etc. and adjusted for reasonable preparation and handling losses. "Assigned" reserves represent coal which has been committed to mines, whether operating or in development. "Unassigned" reserves represent coal which is not committed to a mine. The division of reserves into these two categories is based upon current mining plans, projections and techniques. The recoverable reserves (demonstrated reserves) are the sum of "Proven" and "Probable" reserves. Proven coal extends 1 /4 mile from any point of observation or measurement. Probable coal is projected to extend from 1 /4 mile to 3 /4 miles from any point of observation or measurement. See Glossary for definition of Proven and Probable reserves. A majority of the leases are either renewable until the reserves are mined to exhaustion or are of sufficient duration to permit mining of all the reserves before the expiration of the term. Leases that expire before mining occurs have been removed from the reserve estimate. These active mines are surface mines utilizing drills, excavators, dozers and rock trucks for coal removal. In addition, the Taft Choctaw Mine uses a 47 cubic yard dragline. The Belcourt Saxon Properties are part of a joint venture partnership in which Walter Energy has a 50% ownership interest. The reserves reported represent 50% of the reserves held by the joint venture. Additional properties that are currently not under lease are under review for possible leasing options. Note: Also see Glossary for definitions of technical terms 46

51 Table of Contents The following table provides the quality (average ash and sulfur content and Btus per pound) of our recoverable coal reserves as of December 31, 2011: ESTIMATED RECOVERABLE COAL RESERVES (Continued) AS OF DECEMBER 31, 2011 (In Thousands of Metric Tons) QUALITY (Wet Basis) Average Compliant(5) Coal Location/Mine Status of Operation(2) (3) Recoverable Reserves Type Y / N % % Ash Sulfur BTU/lb. Seam (in Feet) Alabama(1): Thermal and/ Yes , JWR's No. 4 or Mine Operational 69,854 Metallurgical Thermal and/ Yes , JWR's No. 7 Mine(4) Operational or 60,652 Metallurgical JWR's North River Mine Operational 4,634 Thermal No , Walter Thermal and/ Yes , Energy's or Blue Creek Energy Prefeasibility Metallurgical No. 1 81,908 TRI's Carter/ Swann's Crossing Mine Operational 3,185 TRI's Panther 3 Mine Idled 262 Thermal and/ or Metallurgical Thermal and/ Taft's Choctaw Mine Operational or 2,050 Metallurgical No , Thermal No , No , Thermal and/ Yes , Taft's Reid or Black School Mine Operational 478 Metallurgical Creek Only Thermal and/ No , Taft's Gayosa South Mine Development or 353 Metallurgical Thermal and/ No , Taft's Robbins Road Mine Development or 1,434 Metallurgical Walter Thermal No , Minerals' Flat Top Ready for Mine Operation 2,073 Walter Minerals' Beltona East Mine Development 1,013 Walter Minerals' Morris Mine Development 1,801 Total Alabama 229,697 West Virginia: Gauley Eagle Underground Mine Idled 7,107 Gauley Eagle Surface Mine Operational 6,879 Thermal and/ or Metallurgical Yes Black Creek Only , Thermal No , Thermal and/ or Metallurgical Thermal and/ or Metallurgical Thermal and/ Maple Coal Eagle Operational or 4,602 Metallurgical Yes , Yes , Yes ,

52 Underground Mine 47

53 Table of Contents Location/Mine Maple Coal Peerless Underground Mine Status of Operation(2) (3) Prefeasibility 6,406 Recoverable Reserves Type Compliant(5) % Ash Maple Coal Thermal and/ Surface or Mine Operational 13,796 Metallurgical QUALITY (Wet Basis) Average Coal Seam (in Feet) % Sulfur BTU/lb. Thermal No N/A 3.59 Yes , Total West Virginia 38,790 Northeast B.C., Canada: Wolverine's Perry Creek Metallurgical Yes , Mine Operational 12,851 Wolverine's Mt. Spieker Metallurgical Yes , (EB) Area Development 9,856 Wolverine's Hermann Prefeasibility Metallurgical Yes , Area 9,075 Brazion's Brule Metallurgical Yes , Mine Operational 21,090 (PCI) Brazion's Willow Metallurgical Yes , Creek Area Operational 13,043 Brazion's Metallurgical Yes , Willow (PCI) Creek Area Operational 6,854 Belcourt Saxon Prefeasibility Metallurgical Yes , Properties 28,523 Total Canada 101,292 South Wales, U.K.: Energybuild's Aberpergwm Mine Development 5,289 Total Walter Energy 375,068 Thermal and/ or Metallurgical Yes , (1) (2) (3) (4) (5) The majority of our reserves at our Alabama mines qualify as metallurgical coal and are within the Blue Creek, Mary Lee and Black Creek seams. Mines labeled as "ready for operation" will begin production when market conditions permit. Tons at TRI's idled Panther 3 Mine will be mined when market conditions permit. Mines that are labeled as development are undeveloped mines that are being developed or intended to be fully developed and mined as market conditions permit. Mine No. 5 closed in December 2006, however, the related preparation plant remains operational and serves as the washing and shipping point for production associated with the Mine No. 7 East expansion project. Compliant coal, when burned, emits 1.2 pounds or less of sulfur dioxide per million Btus as required by Phase II of the Clean Air Act. Note: Also see Glossary for definitions of technical terms. 48

54 Table of Contents Production and average coal selling price per metric ton for each of the three years in the period ended December 31, 2011 were as follows (production in thousands): Production(1)/Average Coal Selling Price per Ton Location/Mine Alabama: JWR's No. 4 Mine 1,926 $ ,537 $ ,467 $ JWR's No. 7 Mine 3,275 $ ,511 $ ,054 $ JWR's North River Mine(3) 1,539 $ TRI's East Brookwood Mine 97 $ $ $ TRI's Howton Mine NA NA NA NA 73 $ Taft's Choctaw Mine 549 $ $ $ TRI's Swann's Crossing(6) 183 $ NA NA NA NA Walter Minerals' Highway 59 Mine(4) 192 $ $ $ Taft's Reid School Mine(5) 221 $ $ NA NA Total Alabama 7,982 7,418 6,725 West Virginia(2): Atlantic Development Capital's Gauley Eagle Underground Mine 8 $ Atlantic Development Capital's Gauley Eagle Surface Mine 519 $ Atlantic Development Capital's Maple Underground Mine 448 $ Atlantic Development Capital's Maple Surface Mine 391 $ Total West Virginia 1,366 Northeast B.C., Canada(2): Wolverine's Perry Creek Mine 1,083 $ Brazion's Brule Mine 1,100 $ Brazion's Willow Creek Mine 568 $ Total Canada 2,751 South Wales, U.K.(2): Energybuild's Aberpergwm Mine 100 $ Total Walter Energy 12,200 8,178 7,412 (1) (2) (3) (4) (5) (6) The production year ends December 31. Acquired in the Western Coal acquisition on April 1, Production and average coal selling price per metric ton include activity since the date of acquisition. The North River Mine was acquired on May 6, Production and average coal selling price per metric ton include activity since the date of acquisition. The contract price was lower than current market price at the time of acquisition and a liability for this impact was recorded as a part of the purchase price allocation process. This liability is amortized to revenue as tons are sold. Operations of Walter Minerals' Highway 59 Mine commenced August 2009 and this mine was closed in Operations of Taft's Reid School Mine commenced May Operations of TRI's Swann's Crossing Mine commenced May

55 Table of Contents Information concerning our properties has been prepared in accordance with applicable United States federal securities laws. All mineral reserve estimates have been prepared in accordance with SEC Industry Guide 7 Description of Property by Issuers Engaged or to be Engaged in Significant Mining Operations. We are also required to comply with the requirements of applicable Canadian securities law and, in particular, National Instrument Standards of Disclosure for Mineral Projects ("NI ") of the Canadian Securities Administrators which contains requirements and standards for mineral disclosure which differ from SEC Industry Guide 7. In this regard, we have filed technical reports in respect of certain of our properties to comply with the requirements of NI and which have been filed with the Canadian securities regulatory authorities and are available at Investors resident in Canada should be aware that Canadian standards for mineral disclosure, including NI , differ significantly from the requirements of the SEC. Without limiting the generality of the foregoing, the requirements of NI for identification of "mineral reserves" are not the same as those of the SEC, and reserves reported in compliance with NI may not qualify as "reserves" under SEC Industry Guide 7. Accordingly, information contained in this annual report containing descriptions of mineral reserves may not be comparable to similar information made public by Canadian companies subject to the reporting and disclosure requirements under NI Item 3. Legal Proceedings See the section entitled "Environmental" in Business and Notes 2 and 14 of "Notes to Consolidated Financial Statements" included herein. Item 4. Mine Safety Disclosures The information concerning mine safety violations and other regulatory matters is filed as Exhibit 95 to this form pursuant to the requirements of Section 1503(a) of the Dodd-Frank Wall Street Reform and Consumer Protection Act and Item 104 of Regulation S-K (17 CFR ). 50

56 Table of Contents PART II Item 5. Market for the Registrant's Common Equity, Related Stockholder Matters and Issuer Purchases of Equity Securities Our common stock (the "Common Stock") has been listed on the New York Stock Exchange under the trading symbol "WLT" since December 18, 1997 and the Toronto Stock Exchange under the trading symbol "WLT" since April 12, The table below sets forth the range of high and low closing sales prices of the Common Stock for the fiscal periods indicated. Year ended December 31, 2011 High Low 1 st Fiscal quarter $ $ nd Fiscal quarter $ $ rd Fiscal quarter $ $ th Fiscal quarter $ $ Year ended December 31, 2010 High Low 1 st Fiscal quarter $ $ nd Fiscal quarter $ $ rd Fiscal quarter $ $ th Fiscal quarter $ $ During the year ended December 31, 2011, we declared and paid a dividend of $0.125 per share to shareholders of record on each of February 18, May 6, August 12, and November 4. During the year ended December 31, 2010, we declared and paid a dividend of $0.10 per share to shareholders of record on February 19, and declared and paid a dividend of $0.125 per share to shareholders of record on each of May 7, August 6 and November 5. Covenants contained in certain of the debt instruments referred to in Note 10 of "Notes to Consolidated Financial Statements" may restrict the amount the Company can pay in cash dividends. Future dividends will be declared at the discretion of the Board of Directors and will depend on our future earnings, financial condition and other factors affecting dividend policy. As of February 22, 2012, there were 582 shareholders of record of the Common Stock. 51

57 Table of Contents The following graph shows changes over the past five-year period in the value of $100 invested in (1) Walter Energy's common shares; (2) Russell 3000 Stock Index; and (3) Dow Jones U.S. Coal Index. The values of each investment are based on price change plus reinvestment of all dividends reported to shareholders. The information below is being furnished pursuant to Regulation S-K, Item 201 (e) (Performance Graph) Walter Energy, Inc Russell 3000 Stock Index Dow Jones U.S. Coal Index The following table sets forth certain information relating to our equity compensation plans as of December 31, 2011: Number of Securities to be Issued upon Exercise of Outstanding Options, Warrants and Rights Weighted Average Exercise Price of Outstanding Options, Warrants and Rights Number of Securities Remaining Available for Future Issuance Equity compensation plans approved by security holders: 2002 Long-term Incentive Award Plan 635,098 $ ,997, Long-term Incentive Stock Plan 22,571 $ Employee Stock Purchase Plan 1,172,153 Sales of Unregistered Securities None Common Stock Issuance On April 1, 2011, we issued 8,951,558 shares of common stock to partially fund the acquisition of Western Coal. 52

58 Table of Contents Purchase of Equity Securities by the Company and Affiliated Purchasers Total Number of Shares Purchased(1) Average Price Paid per Share Total Number of Shares Purchased as Part of Publicly Announced Plans or Programs Approximate Dollar Value of Shares that May Yet Be Purchased Under the Plans or Programs (in millions)(1) Period January 1, 2011 January 31, 2011 $ 0.2 February 1, 2011 February 28, ,541 $ $ 0.2 March 1, 2011 March 31, ,097 $ $ 0.2 April 1, 2011 April 30, 2011 $ 0.2 May 1, 2011 May 31, $ $ 0.2 June 1, 2011 June 30, $ $ 0.2 July 1, 2011 July 31, $ $ 0.2 August 1, 2011 August 31, 2011 $ 0.2 September 1, 2011 September 30, $ $ 0.2 October 1, 2011 October 31, 2011 $ 0.2 November 1, 2011 November 30, $ $ 0.2 December 1, 2011 December 31, $ ,776 (1) These shares were acquired to satisfy certain employees' tax withholding obligations associated with the lapse of restrictions on certain stock awards granted under the Amended and Restated 2002 Long-Term Incentive Award Plan. Upon acquisition, these shares were retired. Item 6. Selected Financial Data The following data, insofar as it relates to each of the years ended December 31, 2011, 2010, 2009, 2008 and 2007 has been derived from annual consolidated financial statements, including the consolidated balance sheets and the related consolidated statements of operations, changes in stockholders' equity and comprehensive income and statements of cash flows and the notes thereto as they relate to our continuing operations. The information presented below should be read in conjunction with our consolidated financial statements and the notes thereto, including Note 2 related 53

59 Table of Contents to significant accounting policies, Note 3 for acquisitions and Note 4 related to discontinued operations, and the other information contained elsewhere in this report. Years ended December 31, (in thousands, except per share data) Revenues $2,571,358 $1,587,730 $ 966,827 $1,149,684 $774,795 Income from continuing operations $ 349,176 $ 389,425 $ 141,850 $ 231,192 $ 98,227 Basic income per share from continuing operations $ 5.79 $ 7.32 $ 2.67 $ 4.30 $ 1.89 Number of shares used in calculation of basic income per share from continuing operations 60,257 53,179 53,076 53,791 52,016 Diluted income per share from continuing operations $ 5.76 $ 7.25 $ 2.64 $ 4.24 $ 1.87 Number of shares used in calculation of diluted income per share from continuing operations 60,611 53,700 53,819 54,585 52,490 Capital expenditures $ 414,566 $ 157,476 $ 96,298 $ 141,627 $147,556 Net property, plant and equipment $4,583,295 $ 790,001 $ 522,931 $ 504,585 $385,140 Total assets(1) $6,812,203 $1,651,853 $1,244,159 $1,195,695 $777,262 Debt: 2011 term loan A $ 894,837 $ $ $ $ 2011 term loan B $1,333,163 $ $ $ $ 2011 revolving credit facility $ 10,000 $ $ $ $ 2005 Walter term loan $ $ 136,062 $ 137,498 $ 138,934 $218, Walter revolving credit facility $ $ $ $ 40,000 $ Convertible senior subordinated notes $ $ $ $ $ 785 Miscellaneous debt(2) $ 87,715 $ 32,411 $ 39,000 $ 46,451 $ 6,558 Quarterly cash dividend per common share $ $ $ 0.10 $ 0.10 $ 0.05 (1) (2) Excludes assets of discontinued operations. This balance includes capital lease obligations and an equipment financing agreement. 54

60 Table of Contents Item 7. Management's Discussion and Analysis of Financial Condition and Results of Operations ORGANIZATION Walter Energy, Inc. ("Walter") is a leading producer and exporter of metallurgical coal for the global steel industry from underground and surface mines located in the United States, Canada and the United Kingdom. Walter also produces thermal coal, anthracite coal, metallurgical coke and coal bed methane gas. As described in Note 3 of "Notes to Consolidated Financial Statements", on April 1, 2011 we completed the acquisition of Western Coal Corp. ("Western Coal"). The accompanying summary of operating results includes the results of operations of Western Coal since April 1, As a result of the Western Coal acquisition and the change in how our Chief Operating Decision Maker evaluates the business operations, beginning with the second quarter of 2011 we have revised our reportable segments by arranging them geographically. We now report all of our operations located in the U.S. in the U.S. Operations segment which includes our previous operating segments of Underground Mining, Surface Mining and Walter Coke. The U.S. Operations segment also includes the West Virginia mining operations acquired through the acquisition of Western Coal. We report our mining operations acquired through the Western Coal acquisition located in Northeast British Columbia (Canada) and South Wales (United Kingdom) in the Canadian and U.K. Operations segment. Previously reported segment amounts have been restated to conform to the current period presentation. Previously reported ton and per ton statistics have been restated to metric tons from short tons for all periods presented. In December 2008, we announced the closure of our Homebuilding segment and on April 17, 2009, we spun off our Financing segment, creating Walter Investment Management Corp., a publicly-traded real estate investment trust. As a result of the closure and spin-off, those segments are presented as discontinued operations for the years ended December 31, 2010 and See further discussion in Note 4 of "Notes to Consolidated Financial Statements." Unless otherwise noted, this "Management's Discussion and Analysis of Financial Condition and Results of Operations" addresses our continuing operations only. EXECUTIVE DISCUSSION In 2011 we achieved record revenues, EBITDA and metallurgical coal sales largely due to the acquisition of Western Coal and strong pricing through much of the year for hard coking coal. Our key accomplishments in 2011 include: On April 1, 2011 we completed the acquisition of Western Coal for a total purchase price of approximately $3.7 billion. Western Coal is a producer of high quality metallurgical coal from mines in Northeast British Columbia (Canada), high quality metallurgical coal and compliant thermal coal from mines located in West Virginia (United States), and high quality anthracite coal in South Wales (United Kingdom). The acquisition of Western Coal transformed the Company into the leading, publicly traded 'pure-play' metallurgical coal producer in the world with strategic access to high-growth steel-producing countries in Asia, South America and Europe. We have significant reserves available for future production, the majority of which is high-demand metallurgical coal, with a diverse geographical footprint. On May 6, 2011 we acquired mineral rights for approximately 68 million metric tons of recoverable Blue Creek metallurgical coal reserves to the northwest of our existing Alabama mines from a subsidiary of Chevron Corporation. The transaction captured an integral portion of the last remaining block of Blue Creek metallurgical coal and paves the way for a strategic opportunity to assemble approximately 170 million metric tons of high quality hard coking coal and the development of a new underground mine. In addition, we acquired Chevron 55

61 Table of Contents Corporation's existing North River thermal coal mine in Fayette and Tuscaloosa Counties of Alabama. Within our Canadian and U.K. Operations segment, our Falling Creek connector road project was substantially commissioned near the end of the 2011 third quarter and truck hauling volumes on the road have continued to increase into the 2012 first quarter. The Falling Creek connector road connects the Brule mine to the Willow Creek mine where Brule's coal is processed and loaded at the rail load out facility. The new connector road reduces the hauling distance as compared to the previous route from just over 62 miles down to 37 miles. It is anticipated that we will be able to increase our payload capacity resulting in lower transportation costs. Our Canadian operations continued to implement expansion plans and initiatives designed to increase production, optimize equipment and move from contract to owner operated mines at two of the mines, one in 2012 and the other in Industry Overview and Outlook Global steel production reached a record 1.5 billion metric tons in 2011, an increase of 6.8% from the previous record of 1.4 billion metric tons set in 2010, including in countries in our key markets of Asia, South America and Europe. All major steel producing countries showed growth in Annual 2011 steel production for Asia was 988 million metric tons, an increase of 7.9% compared to The share of global steel production by countries in Asia, South America and Europe increased slightly in 2011 to 64.7% from 64.0% in Steel production in South America experienced significant gains, up 10.2% for the year, while steel production in Europe showed a modest gain of 4.6% compared to Coking coal prices have softened somewhat as we have entered into 2012, with spot prices slightly below the first quarter benchmark price of $235 per metric ton. Prices have been recently constrained by contracting Chinese and emerging market growth, continued monetary issues in Europe, and slow growth in both the U.S. and European economies. However, the long-term demand for metallurgical coal within all our geographic markets is anticipated to remain strong as industry projections continue to suggest that global steelmaking will continue to require increasing amounts of high quality metallurgical coal. If necessary, we will leverage the opportunity to potentially increase coal inventory to working levels which could help both quality and profitability as it may provide better opportunities for blending as well as lower demurrage costs. We are focused on the long-term contractual market and anticipate continued strong demand for the high-quality metallurgical coals we produce. For 2012 we remain well positioned to achieve record metallurgical coal production and currently expect 2012 metallurgical coal production to be within the range of 11.5 million and 13.0 million metric tons of which approximately 75% will be hard coking coal and 25% will be low-volatile PCI coal. We expect more than one-third of the growth in production to come from our Alabama underground Mine No. 7 after having experienced slow cutting rates for the majority of 2011, just under one third of the growth in production is expected to come from our other U.S. mining operations in Alabama and West Virginia, and one-third of the growth is anticipated to come from increased production at our Canadian operations. 56

62 Table of Contents The strong market environment influences Walter's investment considerations and is the primary driver for our growth prospects: Our coking coal product is among the highest quality in the world. Our low-volatile PCI coals possess the chemical and physical characteristics, including high coke strength and good fluidity, which steel producers prefer. We believe that demand for high quality, metallurgical coals, will continue to increase and that these raw materials will continue to grow in scarcity, particularly for the highest-grade coals, such as ours. RESULTS OF CONTINUING OPERATIONS 2011 Summary Operating Results For the Year Ended December 31, 2011 Canadian and U.K. (in thousands) U.S. Operations Operations Other Total Sales $ 1,850,015 $ 711,322 $ 988 $ 2,562,325 Miscellaneous income (loss) 21,167 (13,268) 1,134 9,033 Revenues 1,871, ,054 2,122 2,571,358 Cost of sales (exclusive of depreciation and depletion) 1,050, ,213 1,156 1,561,112 Depreciation and depletion 151,341 93, ,509 Selling, general and administrative 61,622 28,100 76, ,749 Postretirement benefits 41,745 (1,360) 40,385 Operating income (loss) $ 565,731 $ 67,349 $ (74,477) 558,603 Interest expense, net (96,214) Other income, net 17,606 Income tax expense (130,819) Income from continuing operations $ 349,176 For the Year Ended December 31, 2010 Canadian and U.K. (in thousands) U.S. Operations Operations Other Total Sales $ 1,569,939 $ $ 906 $ 1,570,845 Miscellaneous income 14,795 2,090 16,885 Revenues 1,584,734 2,996 1,587,730 Cost of sales (exclusive of depreciation and depletion) 766, ,516 Depreciation and depletion 98, ,702 Selling, general and administrative 42,615 44,357 86,972 Postretirement benefits 43,228 (1,750) 41,478 Operating income (loss) $ 634,442 $ $ (40,380) 594,062 Interest expense, net (16,466) Income tax expense (188,171) Income from continuing operations $ 389,425 57

63 Table of Contents Increase (Decrease) for the Year Ended December 31, 2011 Canadian and U.K. (in thousands) U.S. Operations Operations Other Total Sales $ 280,076 $ 711,322 $ 82 $ 991,480 Miscellaneous income (loss) 6,372 (13,268) (956) (7,852) Revenues 286, ,054 (874) 983,628 Cost of sales (exclusive of depreciation and depletion) 284, , ,596 Depreciation and depletion 53,171 93, ,807 Selling, general and administrative 19,007 28,100 31,670 78,777 Postretirement benefits (1,483) 390 (1,093) Operating income (loss) $ (68,711) $ 67,349 $ (34,097) (35,459) Interest expense, net (79,748) Other income, net 17,606 Income tax expense 57,352 Income from continuing operations $ (40,249) Year Ended December 31, 2011 as Compared to the Year Ended December 31, 2010 Overview of Consolidated Financial Results Our income from continuing operations for the year ended December 31, 2011 was $349.2 million or $5.76 per diluted share, which compares to $389.4 million, or $7.25 per diluted share for the year ended December 31, Principal factors impacting income from continuing operations in 2011 compared to 2010 include: Revenues in 2011 increased $983.6 million, or 62.0% from The increase in revenues was primarily attributable to the addition of the Canadian and U.K. Operations segment and the West Virginia and North River mining operations within our U.S. Operations segment. These recently acquired operations contributed $942.6 million of the increase. The remainder of the increase was driven by higher hard coking coal pricing from our U.S. Operations, partially offset by lower hard coking coal sales volumes. Cost of sales, exclusive of depreciation and depletion, increased $794.6 million to $1.6 billion in 2011 as compared to 2010, primarily as a result of the addition of the Canadian and U.K. Operations segment and the West Virginia and North River mining operations within our U.S. Operations segment, which accounted for 88.1% of the increase. The remainder of the increase was attributable to increased production costs at our Alabama underground mining operations, primarily due to difficult geological conditions, higher royalties and freight costs during 2011 as well as difficult weather conditions during the second quarter of Cost of sales, exclusive of depreciation and depletion, represented 60.7% of revenues in 2011 versus 48.3% of revenues for Depreciation and depletion expense in 2011 increased $146.8 million as compared to The addition of the Canadian and U.K. Operations segment and the West Virginia and North River mining operations in our U.S. Operations segment represents $125.3 million of the increase. The remainder of the increase is primarily due to higher depreciation and depletion in our U.S. Operations resulting from the acquisition of the Walter Black Warrior Basin coal bed methane operations on May 28,

64 Table of Contents Selling, general & administrative expenses increased $78.8 million, or 90.6%, from 2010 primarily attributable to $48.4 million due to the addition of the Canadian and U.K. Operations segment and the West Virginia and North River mining operations in our U.S. Operations segment. The remainder of the increase was primarily attributable to $23.2 million of costs associated with the acquisition of Western Coal and increases in professional fees. Other income for the year ended December 31, 2011 is primarily attributable to a gain of $20.5 million recognized on April 1, 2011 as a result of remeasuring to fair value the Western Coal shares acquired from Audley Capital in January 2011, partially offset by a net loss on the sale and remeasurement to fair value of other equity investments. Interest expense, net of interest income was $96.2 million in 2011, an increase of $79.7 million compared to The increase reflects interest on borrowings of $2.35 billion on April 1, 2011 to fund a portion of the Western Coal acquisition. Our effective tax rate for 2011 and 2010 was 27.3% and 32.6%, respectively. Our effective tax rate for 2011 declined primarily due to certain undistributed foreign earnings for which no U.S. taxes are provided because such earnings are intended to be indefinitely reinvested outside of the U.S. In addition, the tax expense for 2010 included a one-time tax charge of $20.7 million related to the elimination of the favorable tax treatment of Medicare Part D subsidies due to the passage of the Health Care Reform Act in March 2010, as well as a one-time tax benefit of $17.4 million related to unconventional fuel source credits for our Walter Coke operations for the years 2006 through Overview of Our Operating Segments and Outlook In addition to the general overview discussions above, the following discussion provides specific operating and forward-looking information regarding each of our operating segments. U.S. Operations Hard coking coal sales totaled 5.7 million metric tons in 2011, a decrease as compared to 6.3 million metric tons during 2010 due to lower production volumes. The average selling price in 2011 was $ per metric ton, a 18.4% increase as compared to an average selling price of $ per metric ton in Hard coking coal production totaled 5.9 million metric tons in 2011, a decline of 405,000 metric tons as compared to 2010 as lower production in Alabama due to difficult geology more than offset the addition of hard coking coal production from the West Virginia operations. In the fourth quarter of 2011, we sold 1.4 million metric tons of hard coking coal at an average selling price of $ per metric ton as compared to 1.5 million metric tons at an average selling price of $ per metric ton during the same period in Fourth quarter 2011 sales volumes were negatively impacted by production shortfalls at our Alabama operations as a result of equipment issues on the second longwall at Mine No. 7 and ventilation issues associated with the startup of the nearby third longwall. The third longwall is currently scheduled to replace the existing second longwall during the second quarter of Partially offsetting the decline were sales from inventory and purchased coal. Pricing for premium coking coal produced by our Alabama operations for the first quarter of 2012 is expected to average approximately $240 per metric ton FOB port, which includes a mix of carryover tons at $284 per metric ton as well as new contract tons for the first quarter averaging at the $235 per metric ton benchmark price. Thermal coal sales totaled 3.7 million metric tons in 2011 as compared to 1.1 million metric tons during The increase was primarily due to sales of the recently acquired West Virginia and North River mining operations. The average selling price in 2011 was $72.42 per metric ton, 59

65 Table of Contents down 13.0% from the average selling price of $83.24 per metric ton in Lower average pricing was the result of lower prices for tons sold by the North River mine. Thermal coal production totaled 3.4 million metric tons in 2011, as compared to 1.1 million metric tons in The increase was due to the addition of the West Virginia and North River mining operations. In the fourth quarter of 2011, we sold 1.0 million metric tons of thermal coal, at an average selling price of $68.71 per metric ton. Canadian and U.K. Operations The Canadian and U.K. Operations segment was acquired during the second quarter of 2011 as part of the Western Coal acquisition and therefore there are no comparable results from the prior year and we have therefore limited our historic discussion to factors impacting the second, third and fourth quarters of We experienced production delays during the second and third quarters of 2011 which were caused by the effects of adverse weather conditions experienced during the second quarter of In addition, during 2011 we experienced delays in the commissioning of the Falling Creek connector road and delays in the issuance of mining permits. These delays adversely impacted sales and production volumes as well as transportation costs. While production volumes remained relatively flat during the fourth quarter as compared to the third quarter, we experienced sales volume increases as conditions improved and we anticipate further improvement in Metallurgical coal sales from the Canadian and U.K. Operations since the April 1, 2011 date of acquisition totaled 1.3 million metric tons of hard coking coal at an average selling price of $ per metric ton and 1.7 million metric tons of low-volatile PCI coal at an average selling price of $ per metric ton. Metallurgical coal sales in the fourth quarter of 2011 totaled 488,000 metric tons of hard coking coal at an average selling price of $ per metric ton and 523,000 metric tons of low-volatile PCI coal at an average selling price of $ per metric ton. We have seen some weakness in the 2011 market and anticipate 2012 prices to be somewhat lower than those of The Canadian and U.K. Operations segment produced a total of 1.1 million metric tons of hard coking coal and 1.7 million metric tons of lowvolatile PCI coal since the April 1, 2011 date of acquisition. During the fourth quarter of 2011 the Canadian and U.K. Operations segment produced 391,000 metric tons of hard coking coal as compared to 371,000 metric tons of hard coking coal during the third quarter of Lowvolatile PCI coal production during the fourth quarter of 2011 from the Canadian and U.K. Operations segment totaled 567,000 metric tons as compared to production of 587,000 metric tons during the third quarter of In December 2011, operations of the Ridley terminal used by our Canadian mines was affected by the commissioning of an upgraded rail-car dumping system, which is the first stage towards a doubling of the annual capacity of the terminal to 24 million metric tons. The commissioning prevented the unloading of rail-cars. However, this did not delay any scheduled shipments of the fourth quarter. Project work at our Willow Creek mine coal handling and preparation plant upgrades were coordinated with the coal terminal upgrade, where possible, to minimize our downtime and advance the project completion date. The coal handling and preparation plant upgrades were executed in two phases with the last phase completed in the first quarter of In 2012, our Canadian mines are continuing with expansion plans and initiatives designed to improve our long-term production, optimize equipment and decrease costs. The current and prior year results also included the effect of the factors discussed in the following segment analysis. 60

66 Table of Contents Segment Analysis U.S. Operations Our U.S. Operations segment reported revenues of $1.9 billion in 2011, an increase of $286.4 million from The increase in revenues was primarily due to the addition of the West Virginia and North River mining operations acquired in the second quarter of 2011 which added $244.5 million in revenues to the segment, however at lower gross margins than those of the legacy operations. Increased revenues were also due to higher average selling prices for hard coking coal, partially offset by lower hard coking coal sales volumes. The lower hard coking coal sales volumes in 2011 as compared to 2010 reflects lower production at our Alabama underground mines due to geology issues during 2011 and weather related issues in the second quarter of Statistics for U.S. Operations are presented in the following table: For the year ended December 31, Average hard coking coal selling price(1) (per metric ton) $ $ Tons of hard coking coal sold(1) (in thousands) 5,655 6,270 Average thermal coal selling price(1) (per metric ton) $ $ Tons of thermal coal sold(1) (in thousands) 3,673 1,077 (1) Includes sales of both coal produced and purchased coal. U.S. Operations reported operating income of $565.7 million in 2011, as compared to $634.4 million in The $68.7 million decrease in operating income was primarily due to the increase in cost of sales, a higher mix of lower margin thermal coal sales, and increased depreciation and depletion and selling, general and administrative expenses associated with the recently acquired North River and West Virginia operations. Cost of sales increased as a result of increased production costs at our Alabama underground operations primarily due to difficult geological conditions and higher thermal coal sales volumes as well as higher royalty and freight costs. Canadian and U.K. Operations Results for 2011 represent the results of the segment since the April 1, 2011 date of acquisition. The segment reported revenues of $698.1 million and operating income of $67.3 million. Results for 2011 were adversely impacted by challenging weather conditions during the second quarter and their lingering effects during the third quarter, delays in the issuance of mining permits at the Willow Creek mine, delays in the commissioning of the Falling Creek connector road and higher mining ratios at our Northeast British Columbia mining operations. These conditions and delays impacted sales and production volumes during the year as well as production and transportation costs. Cost of sales during the fourth quarter for hard coking coal was negatively impacted by purchased coal related to the Ridley terminal upgrade. Fourth quarter cost of sales for PCI coal was also negatively impacted by our expediting the migration from a contractor base to owner base for our Willow Creek mine workers. Although this move will help lower overall future costs, it caused some short term 61

67 Table of Contents increases as we prepared for the move. Statistics for Canadian and U.K. Operations are presented in the following table: For the year ended December 31, 2011 Average hard coking coal selling price (per metric ton)(1) $ Tons of hard coking coal sold (in thousands)(1) 1,321 Average low-volatile PCI coal selling price (per metric ton) $ Tons of low-volatile PCI coal sold (in thousands) 1,732 Average thermal coal selling price (per metric ton) $ Tons of thermal coal sold (in thousands) 94 (1) Includes sales of both coal produced and purchased coal Summary Operating Results As described above, we now report under the U.S. Operations segment our previous operating segments of Underground Mining, Surface Mining and Walter Coke. In the following discussion of our 2010 operating results, previously reported segment amounts have been restated to conform to the current period presentation. For the Year Ended December 31, 2010 (in thousands) U.S. Operations Other Total Sales $ 1,569,939 $ 906 $ 1,570,845 Miscellaneous income 14,795 2,090 16,885 Revenues 1,584,734 2,996 1,587,730 Cost of sales (exclusive of depreciation and depletion) 766, ,516 Depreciation and depletion 98, ,702 Selling, general and administrative 42,615 44,357 86,972 Postretirement benefits 43,228 (1,750) 41,478 Operating income (loss) $ 634,442 $ (40,380) 594,062 Interest expense, net (16,466) Income tax expense (188,171) Income from continuing operations $ 389,425 For the Year Ended December 31, 2009 (in thousands) U.S. Operations Other Total Sales $ 954,924 $ 584 $ 955,508 Miscellaneous income 9,434 1,885 11,319 Revenues 964,358 2, ,827 Cost of sales (exclusive of depreciation and depletion) 587,186 (412) 586,774 Depreciation and depletion 72, ,939 Selling, general and administrative 37,433 32,630 70,063 Postretirement benefits 31,902 (1,069) 30,833 Amortization of intangibles Restructuring & impairment charges 3,601 3,601 Operating income (loss) $ 231,256 $ (29,086) 202,170 Interest expense, net (18,176) Income tax expense (42,144) Income from continuing operations $ 141,850 62

68 Table of Contents Increase (Decrease) For the Year Ended December 31, 2010 (in thousands) U.S. Operations Other Total Sales $ 615,015 $ 322 $ 615,337 Miscellaneous income 5, ,566 Revenues 620, ,903 Cost of sales (exclusive of depreciation and depletion) 179, ,742 Depreciation and depletion 25, ,763 Selling, general and administrative 5,182 11,727 16,909 Postretirement benefits 11,326 (681) 10,645 Amortization of intangibles (447) (447) Restructuring & impairment charges (3,601) (3,601) Operating income (loss) $ 403,186 $ (11,294) 391,892 Interest expense, net 1,710 Income tax expense (146,027) Income from continuing operations $ 247,575 Year Ended December 31, 2010 as Compared to the Year Ended December 31, 2009 Overview of Consolidated Financial Results Our income from continuing operations for the year ended December 31, 2010 was $389.4 million or $7.25 per diluted share, which compares to $141.9 million, or $2.64 per diluted share for the year ended December 31, Principal factors impacting income from continuing operations in 2010 compared to 2009 included: Revenues in 2010 increased $620.9 million, or 64.2% from The increase in revenues was primarily due to significantly higher average selling prices and higher volumes for hard coking coal, along with increased volumes and higher average selling prices for metallurgical coke and thermal coal. Cost of sales, exclusive of depreciation and depletion, increased $179.7 million to $766.5 million in 2010 as compared to 2009, primarily as a result of increased volumes in all our operations along with higher freight and royalty costs at our underground mining operations, higher production costs at our surface mining operations, and higher raw material costs at our coke plant. Cost of sales represented 48.8% of sales in 2010 versus 61.4% of This reduction of cost of sales as a percentage of sales is primarily the result of increased selling prices. Depreciation and depletion expense in 2010 increased $25.8 million as compared to The increase was primarily due to higher depreciation and depletion resulting from a change to the unit-of-production method of depletion on certain gas properties, as well as depreciation and depletion related to the acquisition of HighMount Exploration and Production Alabama, LLC ("HighMount") and from capital expenditures to develop our Mine No. 7 East longwall operation. Selling, general & administrative expenses increased $16.9 million, or 24.1%, from 2009 primarily attributable to costs associated with the pending acquisition of Western Coal, acquisition and integration costs associated with the purchase of HighMount, costs associated with the relocation of our corporate headquarters and increases in employee compensation and benefit related expenses. Costs associated with completed and pending acquisitions totaled $9.5 million in

69 Table of Contents Restructuring and impairment charges in 2009 of $3.6 million were for the closure of our fiber plant in December Our effective tax rate for 2010 and 2009 was 32.6% and 22.9%, respectively. Income tax expense for 2010 included a one-time tax charge of $20.7 million related to the elimination of the favorable tax treatment of post 2012 Medicare Part D subsidies due to the passage of the Health Care Reform Act in March 2010, as well as a one-time tax benefit of $17.4 million related to unconventional fuel source credits for the years 2006 through These items are not expected to recur. Additionally, the impact of percentage depletion resulted in a significantly larger favorable impact on the full year effective tax rate in 2009 compared to the 2010 effective tax rate. The 2010 and 2009 results also include the impact of the factors discussed in the following segment analysis. Segment Analysis U.S. Operations Our U.S. Operations segment reported revenues of approximately $1.6 billion for 2010, an increase of $620.4 million from the same period in The increase in revenues was primarily due to significantly higher average selling prices and higher volumes of hard coking coal and metallurgical coke sales during 2010 as compared to 2009 as shown in the table below: For the year ended December 31, Average hard coking coal selling price(1) (per metric ton) $ $ Tons of hard coking coal sold(1) (in thousands) 6,270 5,519 Average thermal coal selling price (per metric ton) $ $ Tons of thermal coal sold (in thousands) 1,077 1,119 Metallurgical coke average selling price (per metric ton) $ $ Tons of metallurgical coke sold (in thousands) Billion cubic feet of natural gas sold Number of producing natural gas wells(2) 1, (1) Includes sales of both hard coking coal produced and purchased coal. (2) Includes 1,370 wells associated with the acquisition of HighMount in The U.S. Operations segment reported operating income of $634.4 million in 2010 as compared to $231.3 million in The $403.1 million increase in operating income was almost entirely due to the increase in revenue as noted above, partially offset by higher cost of sales and depreciation and depletion. Cost of sales, exclusive of depreciation and depletion, increased as a result of higher sales volumes and higher freight and royalty costs. Depreciation and depletion increased as a result of implementing the unit-of-production method of accounting for depletion of certain gas properties during 2010, as well as depreciation and depletion related to the HighMount acquisition and the Mine No. 7 East mine expansion. FINANCIAL CONDITION Cash and cash equivalents decreased by $165.0 million to $128.4 at December 31, 2011 from $293.4 million at December 31, 2010, primarily resulting from the use of cash during 2011 for capital expenditures of $436.7 million, $293.7 million used in January 2011 to acquire approximately 25.3 million common shares of Western Coal, $122.0 million of principal payments on our 2011 term 64

70 Table of Contents loans, and dividends paid of $30.0 million. Offsetting these uses of cash was $706.9 million in cash flows provided by operating activities during See additional discussion in the Statement of Cash Flows section that follows. Net receivables and inventories increased by $170.1 million and $145.0 million at December 31, 2011 as compared to December 31, 2010, respectively, primarily due to the acquisition of Western Coal and the North River Mine during the second quarter of See Note 3 of the "Notes to Consolidated Financial Statements" for further details around these acquisitions. Net mineral interests were $2.9 billion at December 31, 2011 as compared to $17.3 million at December 31, The increase was due to the acquisition of Western Coal. Net property, plant and equipment was $1.6 billion at December , an increase of $864.5 million from December 31, 2010, primarily due to additions of $560.9 million as a result of the Western Coal acquisition and capital expenditures during 2011 of $414.6 million, partially offset by depreciation expense. Accrued expenses and accounts payable were $229.1 million and $112.7 million at December 31, 2011, an increase of $176.7 million and $42.0 million from December 31, 2010, respectively, primarily due to the acquisitions of Western Coal and the North River Mine. Deferred income tax liabilities were $1.0 billion at December 31, 2011 primarily due to the acquisition of Western Coal. The long-term portion of the accumulated postretirement benefits obligation was $550.7 million at December 31, 2011, up $99.4 million from $451.3 million at December 31, The increase was primarily attributed to a decrease in the discount rate, an increase in health care cost trend rates and revised mortality assumptions for the United Mine Workers of America portion of the postretirement benefit plan obligation causing an actuarially-determined increase to the liability at December 31, This adjustment is recognized as a corresponding decrease to stockholders' equity. Other long-term liabilities were $381.5 million at December 31, 2011, an increase of $118.6 from December 31, 2010 primarily due to the acquisition of Western Coal during the second quarter of LIQUIDITY AND CAPITAL RESOURCES Overview Our principal sources of short-term funding are our existing cash balances, operating cash flows and borrowings under our revolving credit facility. Our principal source of long-term funding is our bank term loans entered into on April 1, 2011 as discussed below. Based on current forecasts and anticipated market conditions, we believe that funding provided by 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, coal production, costs of raw materials, interest rates and the general economy. Although we have experienced improvement in the market for our products, renewed deterioration of economic conditions or deteriorating mining conditions could adversely impact our operating cash flows. Additionally, although financial market conditions have improved there remains volatility and uncertainty, limited availability of credit, potential counterparty defaults, sovereign credit concerns 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 Credit Agreement On April 1, 2011, we entered into a $2.725 billion credit agreement (the "2011 Credit Agreement") to partially fund the acquisition of Western Coal and to pay off all outstanding loans under the 2005 Credit Agreement. The 2011 Credit Agreement consists of (1) a $950.0 million 65

71 Table of Contents principal amortizing term loan A facility maturing in April 2016, at which time the remaining outstanding principal is due, (2) a $1.4 billion principal amortizing term loan B facility maturing in April 2018, at which time the remaining outstanding principal is due and (3) a $375.0 million multi-currency revolving credit facility ("Revolver") maturing in April 2016, at which time any remaining balance is due. The Revolver provides for operational needs and letters of credit. Our obligations under the 2011 Credit Agreement are secured by our domestic and foreign real, personal and intellectual property. The 2011 Credit Agreement contains customary events of default and covenants, including among other things, covenants that do not prevent but restrict us and our subsidiaries ability to incur certain additional indebtedness, create or permit liens on assets, pay dividends and repurchase stock, engage in mergers or acquisitions, and make investments and loans. The 2011 Credit Agreement also includes certain financial covenants that must be maintained. The Revolver, term loan A and term loan B interest rates are tied to LIBOR or the Canadian Dealer Offered Rate ("CDOR"), plus a credit spread ranging from 225 to 300 basis points for the Revolver and term loan A, and 275 to 300 basis points on the term loan B, adjusted quarterly based on our total leverage ratio as defined by the 2011 Credit Agreement. The term loan B has a minimum LIBOR floor of 1.0%. The Revolver loans can be denominated in either U.S. dollars or Canadian dollars at our option. The commitment fee on the unused portion of the Revolver is 0.5% per year for all pricing levels. As of December 31, 2011, borrowings under the 2011 Credit Agreement consisted of a term loan A balance of $894.8 million with a weighted average interest rate of 3.44%, a term loan B balance of $1.333 billion with a weighted average interest rate of 4.00% and, under the Revolver, $10.0 million in borrowings with $71.2 million in outstanding stand-by letters of credit and $293.8 million of availability for future borrowings. During the 2011 fourth quarter, we prepaid $92.5 million of the outstanding principal balances of the term loans. On January 20, 2012, we entered into Amendment No. 1 to the 2011 Credit Agreement that provides for an increase in the amount available for the Canadian borrowers under the Credit Agreement and an increase in the amount that may be borrowed in Canadian Dollars, in each case from $150.0 million to $275.0 million Credit Agreement, as Amended On April 1, 2011, in connection with the acquisition of Western Coal, we repaid all outstanding loans and accrued interest under the 2005 credit agreement, as amended ("2005 Credit Agreement") and it was simultaneously terminated. No penalties were due in connection with the repayments. As of March 31, 2011 the 2005 Credit Agreement included (1) an amortizing term loan facility ("2005 Term Loan") with an initial aggregate principal amount of $450.0 million and (2) a $300.0 million revolving credit facility ("2005 Revolver") which provided for loans and letters of credit. The 2005 Term Loan bore interest at LIBOR plus as much as 300 basis points and required quarterly principal payments of $0.4 million through October 3, 2012, at which time the remaining outstanding principal was to be due. The 2005 Revolver bore interest at LIBOR plus as much as 400 basis points and was due to mature on July 2, The commitment fee on the unused portion of the 2005 Revolver was 0.5% per year for all pricing levels. Our obligations under the 2005 Credit Agreement were secured by substantially all of the Company's real, personal and intellectual property. Statements of Cash Flows Cash balances were $128.4 million and $293.4 million at December 31, 2011 and December 31, 2010, respectively. The decrease in cash during the year ended December 31, 2011 of $165.0 million primarily resulted from capital expenditures of $436.7 million, $293.7 million of cash used in the acquisition of Western Coal during January 2011 (see Note 3 of "Notes to Consolidated Financial Statements"), $122.0 million of principal payments on our 2011 term loans and dividends paid of $30.0 million, partially offset by cash provided by operating activities of $706.9 million. 66

72 Table of Contents The following table sets forth, for the periods indicated, selected consolidated cash flow information (in thousands): For the years ended December 31, Cash flows provided by operating activities $ 706,866 $ 574,150 Cash flows used in investing activities (2,840,660) (370,854) Cash flows provided by (used in) financing activities 1,971,947 (74,682) Effect of foreign exchange rates on cash (3,668) Cash flows (used in) provided by continuing operations (165,515) 128,614 Cash flows provided by (used in) discontinued operations 535 (1,202) Net increase (decrease) in cash and cash equivalents $ (164,980) $ 127,412 The $132.7 million increase in cash flows provided by operating activities is primarily attributable to an increase of $111.7 million in income from continuing operations, after adjusting for non-cash items such as depreciation and depletion and deferred taxes. Cash flows used in investing activities for the year ended December 31, 2011 were $2.8 billion as compared to $370.9 million for the same period in The increase in cash flows used in investing activities of $2.5 billion was primarily attributable to an increase in cash used in acquisitions of $2.2 billion as a result of the acquisition of Western Coal and an increase in capital expenditures of $279.2 million, primarily associated with expansion projects at the acquired Western Coal operations. Cash flows provided by financing activities for the year ended December 31, 2011 were $2.0 billion as compared to cash flows used in financing activities of $74.7 million in The increase in cash flows used in financing activities was primarily attributable to $2.4 billion of borrowings under the 2011 Credit Agreement to fund a portion of the Western Coal acquisition, offset by an increase in debt retirements of $263.7 million and $80.0 million of debt issuance costs. Capital Expenditures Capital expenditures totaled $414.6 million in 2011 and included significant expansion projects at the operations acquired in the Western Coal acquisition on April 1, Capital expenditures for 2012 are expected to total approximately $450 million. Contractual Obligations and Commercial Commitments We have certain contractual obligations and commercial commitments. Contractual obligations are those that will require cash payments in accordance with the terms of a contract, such as a borrowing or lease agreement. Commercial commitments represent potential obligations for performance in the event of demands by third parties or other contingent events, such as lines of credit or guarantees of debt. The following tables summarize our contractual obligations and commercial commitments as of December 31, This table does not include interest payable on these obligations. In 2011, we paid approximately $74.4 million of interest on the term loan, revolver and other debt financings. 67

73 Table of Contents Contractual obligations and commercial commitments(4) (in thousands): Payments Due by Period 2011 credit Total Thereafter agreement $2,238,000 $ 19,837 $ 82,500 $112,500 $517,500 $182,663 $1,323,000 Other debt(1) 87,715 36,858 27,215 17,530 6, Operating leases 67,348 22,435 16,310 13,471 7,327 4,869 2,936 Long-term purchase obligations(2) 332,463 49,760 45,782 33,846 33,846 33, ,383 Capital expenditure obligations 122, ,194 7,578 Total contractual cash obligations $2,848, , , , , ,432 $1,461,319 Other long-term liabilities(3) 27,246 29,116 30,718 32,124 33,528 Total cash obligations $271,330 $208,501 $208,065 $596,855 $254,960 (1) (2) (3) Primarily includes capital lease obligations and an equipment financing agreements. See Note 14 of "Notes to Consolidated Financial Statements" for further discussion of our capital lease obligations. Represents minimum throughput obligations and minimum maintenance payments due for assets under capital lease. Other long-term liabilities include pension and other post-retirement benefit liabilities. While the estimated total liability is actuarially determined, there are no definitive payments by period, as pension contributions depend on government-mandated minimum funding requirements and other post-retirement benefits are paid as incurred. Accordingly, amounts by period included in this schedule are estimates and primarily include estimated post-retirement benefits. (4) The timing of cash outflows related to liabilities for uncertain tax positions, and the interest thereon, as established pursuant to ASC Topic 740, "Income Taxes," cannot be estimated and, therefore, has not been included in the table. See Note 9 of "Notes to Consolidated Financial Statements." Environmental, Miscellaneous Litigation and Other Commitments and Contingencies See Note 14 of "Notes to Consolidated Financial Statements" for discussion of these matters not included in the tables above due to their contingent nature. EBITDA EBITDA is defined as earnings from continuing operations before interest, income taxes, depreciation, depletion and amortization expense. EBITDA is a financial measure which is not calculated in conformity with accounting principles generally accepted in the United States of America ("U.S. GAAP") and should be considered supplemental to, and not as a substitute or superior to financial measures calculated in conformity with U.S. GAAP. We believe that EBITDA is a useful measure as some investors and analysts use EBITDA to compare us against other companies and to help analyze our ability to satisfy principal and interest obligations and capital expenditure needs. EBITDA may not be comparable to similarly titled measures used by other entities. 68

74 Table of Contents Reconciliation of Net Income to EBITDA (in thousands): CRITICAL ACCOUNTING ESTIMATES For the years ended December 31, Net income $349,176 $385,797 Add: Interest expense 96,820 17,250 Less: Interest income (606) (784) Add: Income tax expense 130, ,171 Add: Depreciation and depletion expense 245,509 98,702 Add: Loss from discontinued operations 3,628 Earnings from continuing operations before interest, income taxes, and depreciation and depletion (EBITDA) $821,718 $692,764 Management's discussion and analysis is based on, and should be read in conjunction with, the consolidated financial statements and notes thereto, particularly Note 17 of "Notes to Consolidated Financial Statements" which presents revenues and operating income by reportable segment. The preparation of financial statements in accordance with U.S. GAAP requires management to make estimates and assumptions that affect the amounts reported in these financial statements or disclosed in the related notes thereto. Management evaluates these estimates and assumptions on an ongoing basis, using historical experience, consultation with experts and other methods considered reasonable in the particular circumstances. Nevertheless, actual results may differ significantly from management's estimates. We believe the following discussion addresses our most critical accounting estimates, which are those that are most important to the portrayal of our financial condition and results of operations and require management's most difficult, subjective and complex judgments, often as a result of the need to make estimates about the effect of matters that are inherently uncertain. These estimates are based upon management's historical experience and on various other assumptions that we believe reasonable under the circumstances. Changes in estimates used in these and other items could have a material impact on our financial statements. Coal Reserves There are numerous uncertainties inherent in estimating quantities and values of economically recoverable coal reserves, many of which are beyond our control. As a result, estimates of economically recoverable coal reserves are by their nature uncertain. Information about our reserves consists of estimates based on engineering, economic and geological data assembled by our internal engineers and geologists or third party consultants. A number of sources of information are used to determine accurate recoverable reserves estimates including: geological conditions; historical production from the area compared with production from other producing areas; the assumed effects of regulations and taxes by governmental agencies; previously completed geological and reserve studies; assumptions governing future prices; and future operating costs. 69

75 Table of Contents Reserve estimates will change from time to time to reflect, among other factors: mining activities; new engineering and geological data; acquisition or divestiture of reserve holdings; and modification of mining plans or mining methods. Each of these factors may vary considerably from the assumptions used in estimating reserves. For these reasons, estimates of economically recoverable quantities of coal attributable to a particular group of properties, and classifications of these reserves based on risk of recovery and estimates of future net cash flows, may vary substantially. Actual production, revenues and expenditures with respect to reserves will likely vary from estimates, and these variances may be material. Variances could affect our projected future revenues and expenditures, as well as the valuation of coal reserves and depletion rates. At December 31, 2011, our current operations had million metric tons of proven and probable coal reserves. Business Combinations At acquisition, we allocate the cost of a business acquisition to the specific tangible and intangible assets acquired and liabilities assumed based upon their relative fair values. Significant judgments and estimates are often made to determine these allocated values, and may include the use of appraisals, consideration of market quotes for similar transactions, employment of discounted cash flow techniques or consideration of other information we believe relevant. The finalization of the purchase price allocation will typically take a number of months to complete, and if final values are materially different from initially recorded amounts, adjustments are recorded. Subsequent to the finalization of the purchase price allocation, any adjustments to the recorded values of acquired assets and liabilities would be reflected in the consolidated statement of operations. Once final, it is not permitted to revise the allocation of the original purchase price, even if subsequent events or circumstances prove the original judgments and estimates to be incorrect. In addition, long-lived assets like mineral interests, property, plant and equipment and goodwill may be deemed to be impaired in the future resulting in the recognition of an impairment loss. The assumptions and judgments made when recording business combinations will have an impact on reported results of operations for many years into the future. Asset Retirement Obligations Our asset retirement obligations primarily consist of spending estimates to reclaim surface lands and supporting infrastructure at both surface and underground mines in accordance with applicable reclamation laws in the U.S., Canada and U.K. as defined by each mining permit. Significant reclamation activities include reclaiming refuse piles and slurry ponds, reclaiming the pit and support acreage at surface mines, and sealing portals at underground mines. Asset retirement obligations are determined for each mine using various estimates and assumptions, including estimates of disturbed acreage as determined from engineering data, estimates of future costs to reclaim the disturbed acreage and the timing of these cash flows, discounted using a credit-adjusted, riskfree rate. On at least an annual basis, we review our entire asset retirement obligation liability and make necessary adjustment for permit changes, the timing of mine closures, and revisions to cost estimates and productivity assumptions, to reflect current experience. As changes in estimates occur, the carrying amount of the obligation and asset are revised to reflect the new estimate after applying the appropriate credit-adjusted, risk-free rate. If our assumptions differ from actual experience, or if changes in the regulatory environment occur, our actual cash expenditures and costs that we incur could be materially different 70

76 Table of Contents than currently estimated. At December 31, 2011, we had recorded asset retirement obligation liabilities of $75.1 million, including amounts reported as current. Employee Benefits We provide a range of benefits to our employees and retirees, including pensions and postretirement healthcare. We record annual amounts relating to these plans based on calculations specified by U.S. GAAP, which include various actuarial assumptions used in developing the required estimates including the following key factors: Discount rate Salary growth Retirement rates Mortality rates Healthcare cost trends Expected return on plan assets Pension Benefits Other Benefits December 31, December 31, December 31, 2011 December 31, 2010 Weighted average assumptions used to determine benefit obligations: Discount rate 5.02% 5.30% 5.14% 5.35% Rate of compensation increase 3.70% 3.70% Weighted average assumptions used to determine net periodic cost: Discount rate 5.30% 5.90% 5.35% 5.90% Expected return on plan assets 7.75% 8.25% Rate of compensation increase 3.70% 3.70% December 31, Pre-65 Post-65 Pre-65 Post-65 Assumed health care cost trend rates: Health care cost trend rate assumed for next year 8.00% 8.00% 7.50% 7.50% Rate to which the cost trend rate is assumed to decline (the ultimate trend rate) 5.00% 5.00% 5.00% 5.00% Year that the rate reaches the ultimate trend rate We review our actuarial assumptions on an annual basis and make modifications to the assumptions based on current rates and trends when appropriate. As required by U.S. GAAP, the effects of modifications are amortized over future periods. Assumed healthcare cost trend rates, discount rates, expected return on plan assets and salary increases have a significant effect on the amounts reported for the pension and healthcare plans. A one-percentage-point change in the rate for 71

77 Table of Contents each of these assumptions would have had the following effects as of and for the year ended December 31, 2011 (in thousands): 1-Percentage Point Increase Increase (Decrease) 1-Percentage Point Decrease Healthcare cost trend: Effect on total of service and interest cost components $ 4,580 $ (3,693) Effect on postretirement benefit obligation $ 79,862 $ (65,409) Discount rate: Effect on postretirement service and interest cost components $ 13,897 $ (85) Effect on postretirement benefit obligation $ (68,165) $ 84,930 Effect on current year postretirement expense $ (3,820) $ 4,621 Effect on pension service and interest cost components $ 127 $ (237) Effect on pension benefit obligation $ (26,555) $ 32,101 Effect on current year pension expense $ (2,554) $ 2,995 Expected return on plan assets: Effect on current year pension expense $ (1,905) $ 1,905 Rate of compensation increase: Effect on pension service and interest cost components $ 444 $ (396) Effect on pension benefit obligation $ 3,452 $ (3,185) Effect on current year pension expense $ 836 $ (757) We also have significant liabilities for uninsured or partially insured employee-related liabilities, including workers' compensation liabilities, miners' Black Lung benefit liabilities, and liabilities for various life and health benefits. The recorded amounts of these liabilities are based on estimates of loss from individual claims and on estimates determined on an actuarial basis from historical experience using assumptions regarding rates of successful claims, discount factors, benefit increases and mortality rates. Workers' compensation and Black Lung benefit liabilities are also affected by discount rates used. Changes in the frequency or severity of losses from historical experience and changes in discount rates or actual losses on individual claims that differ materially from estimated amounts could affect the recorded amount of these liabilities. At December 31, 2011, a one-percentage-point increase in the discount rate on the discounted Black Lung liability would decrease the liability by $1.8 million, while a one-percentage-point decrease in the discount rate would increase the liability by $2.3 million. For the workers' compensation liability, we apply a discount rate at a risk-free interest rate, generally a U.S. Treasury bill rate, for each policy year. The rate used is one with a duration that corresponds to the weighted average expected payout period for each policy year. Once a discount rate is applied to a policy year, it remains the discount rate for the year until all claims are paid. The use of this method decreases the volatility of the liability as impacted by changes in the discount rate. At December 31, 2011, a one-percentage-point increase in the discount rate on the discounted workers' compensation liability would decrease the liability by $0.1 million, while a one-percentage-point decrease in the discount rate would increase the liability by $0.1 million. 72

78 Table of Contents Income Taxes Accounting principles generally accepted in the U.S. require that deferred tax assets and liabilities be recognized using enacted tax rates for the effect of temporary differences between the book and tax bases of recorded assets and liabilities. Deferred tax assets are required to be reduced by a valuation allowance if it is "more likely than not" that some portion or the entire deferred tax asset will not be realized. As of December 31, 2011 we had valuation allowances totaling $1.7 million primarily for capital loss carry forwards not expected to provide future tax benefits. In our evaluation of the need for a valuation allowance, we considered various factors including the reversal of taxable temporary differences, expected level of future taxable income and available tax planning strategies. If actual results differ from the assumptions made in this evaluation, we may need to record a charge to earnings to reflect the change in our expected valuation of the deferred tax assets. As discussed in Note 9 of "Notes to Consolidated Financial Statements," we are in dispute with the Internal Revenue Service (the "IRS") on a number of federal income tax issues, primarily related to the discontinued Homebuilding and Financing businesses. We believe that our tax filing positions have substantial merit and we intend to vigorously defend these positions. We have established accruals that we believe are sufficient to address claims related to our uncertain tax positions, including related interest and penalties. Since the issues involved are highly complex, are subject to the uncertainties of extensive litigation and/or administrative processes and may require an extended period of time to reach ultimate resolution, it is possible that management's estimate of this liability could change. Accounting for the Impairment of Long-Lived Assets Mineral interests, property, plant and equipment and other long-lived assets are reviewed for impairment whenever events or changes in circumstances indicate that the book value of the asset may not be recoverable. We periodically evaluate whether events and circumstances have occurred that indicate possible impairment and, if so, assessing whether the asset net book values are recoverable from estimated future undiscounted cash flows. The actual amount of an impairment loss to be recorded, if any, is equal to the amount by which the asset's net book value exceeds its fair market value. Fair market value is generally based on the present values of estimated future cash flows in the absence of quoted market prices. Inherent in our development of cash flow projections are assumptions and estimates derived from a review of our operating results, operating budgets, expected growth rates, and cost of capital. We also make certain assumptions about future economic conditions, interest rates and other market data. Many of the factors used in assessing fair value are outside of management's control and these assumptions and estimates can change in future periods. Accounting for Natural Gas Exploration Activities We apply the successful efforts method of accounting for our natural gas exploration activities. The costs of drilling exploratory wells are initially capitalized, pending determination of a commercially sufficient quantity of proved reserves attributable to the area as a result of drilling. If a commercially sufficient quantity of proved reserves is not discovered, any associated previously capitalized exploration costs associated with the drilling area are expensed. In some circumstances, it may be uncertain whether sufficient proved reserves have been found when drilling of an individual exploratory well has been completed. Such exploratory drilling costs, as well as additional exploratory well costs for the area, may continue to be capitalized if the reserve quantity is sufficient to justify the area's completion as a producing well, or field of production and sufficient progress in assessing the reserves and the economic and operating viability of the project is being made. At December 31, 2011 and 2010, capitalized exploratory drilling costs were $43.9 million and $37.3 million, respectively. Costs to develop proved reserves, including the cost of all development wells and related equipment used in the production of natural gas, are capitalized. 73

79 Table of Contents Goodwill As of December 31, 2011 we had goodwill of $1.1 billion. Goodwill represents the excess of the purchase price over the fair value assigned to the net tangible and identifiable intangible assets acquired in a business combination. Goodwill is not amortized, but tested for impairment annually or when circumstances indicate a possible impairment may exist. We perform our annual goodwill testing as of the beginning of the fourth quarter at the reporting unit level. The fair value of each reporting unit is determined using valuation models and expected future cash flows projections, which are then discounted using a risk-adjusted discount rate. A number of significant assumptions and estimates are involved in forecasting future cash flows including markets, sales volumes and prices, costs to produce, capital spending, working capital changes and the discount rate. Our assumptions regarding future prices and sales volumes require significant judgment as actual prices and volumes have fluctuated in the past and will likely continue to do so. Changes in market conditions could result in impairment charges in the future. Management considers historical experience and all available information at the time the fair values of its reporting units are estimated. NEW ACCOUNTING PRONOUNCEMENTS In June 2011, the Financial Accounting Standards Board ("FASB") issued an accounting standard update that requires companies to present the components of net income and other comprehensive income either in a single continuous statement or as two separate but consecutive statements. The accounting standard update eliminates the option to present components of other comprehensive income as part of the statement of changes in stockholders' equity, and is effective for interim and annual periods beginning after December 15, The adoption of this accounting standard update will not have an impact on the Company's operating results or financial position as it only requires a change in the format of our current presentation of comprehensive income. In September 2011, the FASB issued an accounting standard update that requires employers that participate in multiemployer pension plans to provide additional quantitative and qualitative disclosures. The amended disclosures provide users with more detailed information about an employer's involvement and related commitments associated with multiemployer pension plans and became effective for the year ended December 31, See Note 11 of "Notes to Consolidated Financial Statements" for discussion of the multiemployer pension plan in which the Company participates. Item 7A. Quantitative and Qualitative Disclosures About Market Risk 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 commodity price risk, interest rate risk and foreign currency risks. We do not enter into derivatives or other financial instruments for trading or speculative purposes. Interest Rate Risk We have exposure to changes in interest rates under the 2011 Credit Agreement through our term loan A, term loan B and Revolver loans. The interest rates for the term loan A, term loan B and revolver loans are tied to LIBOR or the Canadian Dealer Offered Rate ("CDOR"), plus a credit spread ranging from 225 to 300 basis points for the revolver and term loan A and 275 to 300 basis points on the term loan B adjusted quarterly based on our total leverage ratio as defined by the 2011 Credit Agreement. As of December 31, 2011, our borrowings due under the 2011 Credit Agreement totaled $2.239 billion. As of December 31, 2011 a 100 basis point increase in interest rates would increase our yearly expense by approximately $11.5 million while a 100 basis point decrease in interest rates would decrease our yearly interest expense by approximately $2.2 million due to the LIBOR floor. 74

80 Table of Contents Our objective in managing exposure to interest rate changes is to protect against the variability in expected future cash flows attributable to changes in the benchmark interest rate related to interest payments required under the 2011 Credit Agreement. To achieve this objective, we manage a portion of our interest rate exposure through the use of interest rate swaps and an interest rate cap. To reduce our exposure to rising interest rates and the risk that changing interest rates could have on our operations, during June 2011 we entered into an interest rate swap agreement and an interest rate cap agreement as described in Note 15 of "Notes to Consolidated Financial Statements." The interest rate swap agreement has a notional value of $450.0 million and is based on a 1.17% fixed rate. The interest rate cap agreement has a notional value of $255.0 million and has a strike price of 2.00%. Commodity Risks We are exposed to commodity price risk on sales of natural gas. Our natural gas business sold 12.4 billion cubic feet of gas during the year ended December 31, We occasionally utilize derivative commodity instruments to manage the exposure to changing natural gas prices. Such derivative instruments are structured as cash flow hedges and not for trading. These swap contracts effectively converted a portion of forecasted sales at floating-rate natural gas prices to a fixed-rate basis. As described in Note 15 of "Notes to Consolidated Financial Statements," in order to reduce the risk associated with natural gas price volatility, on June 7, 2011 we entered into a one year swap contract to hedge 4.2 million MMBTUs of natural gas sales at a price of $5.00 per MMBTU beginning in July 2011 and ending June The swap agreement will hedge approximately 35% of anticipated natural gas sales from July 2011 until June During 2010, we hedged approximately 15% of our natural gas sales with swap contracts. At December 31, 2010, no swap contracts were outstanding. Item 8. Financial Statements and Supplementary Data Financial Statements and Supplementary Data consist of the financial statements as indexed on page F-1 and unaudited financial information presented in Part II, Item 7, "Management's Discussion and Analysis of Financial Condition and Results of Operations." Item 9. Changes in and Disagreements with Accountants on Accounting and Financial Disclosure None Item 9A. Controls and Procedures Evaluation of Disclosure Controls and Procedures An evaluation was performed under the supervision and with the participation of our management, including our Chief Executive Officer and Interim Principal 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 annual report on Form 10-K. Based on that evaluation, our management, including our Chief Executive Officer and Interim Principal Financial Officer, concluded that our disclosure controls and procedures were effective as of December 31, 2011 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 Chief Executive Officer and Interim Principal Financial Officer, as appropriate to allow timely decisions regarding required disclosures. 75

81 Table of Contents Management's Annual Report on Internal Control over Financial Reporting Management, under the supervision of our Chief Executive Officer and Interim Principal Financial Officer, is responsible for establishing and maintaining adequate internal control over financial reporting (as defined in Exchange Act Rule 13a-15(f)). Internal control over financial reporting is a process designed to provide reasonable assurance regarding the reliability of financial reporting and the preparation of financial statements for external purposes in accordance with generally accepted accounting principles in the United States of America. A company's internal control over financial reporting includes those policies and procedures that (i) pertain to the maintenance of records that, in reasonable detail, accurately and fairly reflect the transactions and dispositions of the assets of the company; (ii) provide reasonable assurance that transactions are recorded as necessary to permit preparation of financial statements in accordance with generally accepted accounting principles, and that receipts and expenditures of the company are being made only in accordance with authorizations of management and directors of the company; and (iii) provide reasonable assurance regarding prevention or timely detection of unauthorized acquisition, use, or disposition of the company's assets that could have a material effect on the financial statements. Because of its inherent limitations, internal control over financial reporting may not prevent or detect misstatements. Also, projections of any evaluation of effectiveness to future periods are subject to the risk that controls may become inadequate because of changes in conditions, or that the degree of compliance with the policies or procedures may deteriorate. Management assessed the effectiveness of our internal control over financial reporting as of December 31, In making this assessment, management used the criteria set forth by the Committee of Sponsoring Organizations of the Treadway Commission ("COSO") in Internal Control-Integrated Framework. Based on this assessment, management has concluded that, as of December 31, 2011, our internal control over financial reporting was effective. Management's assessment of and conclusion on the effectiveness of our internal control over financial reporting as of December 31, 2011 excludes the internal control over financial reporting of Western Coal acquired on April 1, 2011 (as defined and described in Note 3 of "Notes to Consolidated Financial Statements"). Registrants are permitted to exclude acquisitions from their assessment of internal control over financial reporting during the first year if, among other circumstances and factors, there is not adequate time between the consummation date of the acquisition and the assessment date for assessing internal controls. Our independent registered public accounting firm, Ernst & Young, has audited the effectiveness of our internal control over financial reporting, as stated in their attestation report included in this Annual Report on Form 10-K. Evaluation of Changes in Internal Control over Financial Reporting There were no changes in our internal control over financial reporting (as defined in Rule 13a-15(f) under the Securities Exchange Act of 1934) during the year ended December 31, 2011 that have materially affected, or are reasonably likely to materially affect our internal control over financial reporting. Item 9B. Other Information None 76

82 Table of Contents Part III Item 10. Directors, Executive Officers and Corporate Governance Executive Officers of the Registrant Set forth below is a list showing the names, ages and positions of the executive officers of the Company. Name Age Position Walter J. Scheller, III 51 Chief Executive Officer Robert P. Kerley 50 Chief Accounting Officer, Vice President and Corporate Controller (Interim Principal Financial Officer) Michael T. Madden 60 Senior Vice President, Marketing James M. Griffin 58 Senior Vice President, Business Development Earl H. Doppelt 58 Senior Vice President, General Counsel and Secretary Richard A. Donnelly 57 President, Jim Walter Resources, Inc. Daniel P. Cartwright 59 President, Canadian Operations Charles C. Stewart 56 President and Chief Operating Officer, Walter Coke, Inc. and Walter Minerals, Inc. Our executive officers as of February 29, 2012, are listed below. Walter J. Scheller, III was appointed Chief Executive Officer of Walter Energy in September 2011 after serving as President and Chief Operating Officer of the Company's primary subsidiary, Jim Walter Resources, beginning in June Prior to joining Walter Energy, Mr. Scheller served from June 2006 until June 2010 at Peabody Energy Corporation as Group Executive, Colorado Operations and before that Senior Vice President, Strategic Operations. Prior to his career at Peabody, Mr. Scheller worked for CNX Gas Corporation as Vice President, Northern Appalachia Gas Operations as well as Consol Energy where he held a number of executive and operational roles, the last of which was Vice President, Operations. Mr. Scheller holds an MBA from University of Pittsburgh Joseph M. Katz Graduate School of Business, a Juris Doctor degree from Duquesne University and a bachelor's degree in mining engineering from West Virginia University. Robert P. Kerley was named Walter Energy's Chief Accounting Officer, Vice President, Corporate Controller and Interim Principal Financial Officer in July 2011 and was previously Vice President and Corporate Controller since joining the Company in September Prior to his career with Walter Energy, Mr. Kerley held various senior finance positions across the globe for more than 20 years, including most recently (from September 2006 to September 2010) as Vice President and Corporate Controller Worldwide at Avocent Corporation, a developer and manufacturer of server and desktop management solutions. Prior to Avocent, he held the position of Senior Director and Divisional Chief Financial Officer for the Mobile Computing Division at Symbol Technologies, a manufacturer and worldwide supplier of mobile data capture delivery equipment. Before Symbol Technologies, Mr. Kerley worked in Asia for more than eight years in multiple senior management positions. Mr. Kerley began his accounting career in June 1985 with Arthur Andersen & Co. He is a Certified Public Accountant and holds a Bachelor of Science degree in accounting from Oklahoma Christian University (formerly Oklahoma Christian College). Michael T. Madden was appointed Senior Vice President, Marketing for Walter Energy in April 2011 after serving as Senior Vice President, Sales and Marketing since February 2010 and Vice President, Marketing, Transportation, and Quality Control since 1997 for the Company's primary subsidiary, Jim Walter Resources. Prior to beginning his career with the Company in 1997, Mr. Madden held various management positions in the coal industry for both the domestic and export markets from 1974 through He is a member of the National Mining Association, the Alabama Coal 77

83 Table of Contents Association, and the Coal Trade Association of New York, and he previously served as a director of the Coal Exporters Association. Mr. Madden holds a bachelor's degree in marketing from St. Bonaventure University. James M. Griffin was named Senior Vice President, Business Development of Walter Energy in April 2011 after serving as Global Head, Commercial and Business Development since joining the Company's subsidiary, Western Coal, in September Prior to joining Walter Energy, Mr. Griffin previously held a Managing Director role at Rothschild Inc.'s investment bank from April 1998 to September 2010 where he had primary responsibility for initiating its North American coal practice. Prior to that, Mr. Griffin managed the global mining and metals group at Chase Manhattan Bank where he was an employee from May 1981 to April His previous experience also includes progressively challenging senior mining engineering positions at Consol Energy, Union Pacific Corporation, and Energy Fuels Corporation. Mr. Griffin holds a degree in mining engineering from McGill University in Montreal, Canada. Earl H. Doppelt was named Senior Vice President, General Counsel and Secretary of Walter Energy in January With more than 30 years of legal experience, he joined the Company from Information Services Group, Inc. where he served as Executive Vice President, General Counsel and Secretary from December 2006 to May Mr. Doppelt has also served as the senior legal officer of other major global companies, including The Nielsen Corporation (formerly VNU), ACNielsen Corporation, The Dun & Bradstreet Corporation and Paramount Communications Inc. He is a summa cum laude graduate of Cornell Law School and University of Rochester. Richard A. Donnelly was named President, Jim Walter Resources (JWR) in January 2012 after most recently serving as Vice President, Engineering at JWR since March Beginning his career with the Company in 1977, Mr. Donnelly has extensive experience in all aspects of the mining business. He has held numerous positions within the engineering and operations areas of various Walter Energy properties, including Deputy Mine Manager and Mine Manager positions as well as Vice President, Operations. Mr. Donnelly holds a Bachelor of Science degree in mining engineering from the University of Missouri Rolla. Daniel P. Cartwright was appointed President, Canadian Operations in January Mr. Cartwright joined Walter Energy in July 2011 as Vice President, Underground Mining Operations. With more than 37 years of mining experience, he previously worked for Peabody Energy from January 2011 to December 2011 as Vice President, Operations Support Powder River Basin and Southwest where he supported six large mines across Wyoming, New Mexico and Arizona. Prior to that, from May 2004 to December 2010 Mr. Cartwright was Operations Director North Antelope Rochelle Operations Unit, Peabody's flagship operation. He also served Shell Mining Company for more than 15 years in various positions, the last of which was President, Shell/ Marrowbone Development Company. Mr. Cartwright graduated summa cum laude from University of Missouri Rolla with a Bachelor of Science degree in mining engineering. Charles C. Stewart has served as President and Chief Operating Officer of Walter Coke, Inc. since May 2003, as well as President and Chief Operating Officer of Walter Minerals, Inc. since November 2010 after previously serving Walter Minerals as President since July In 2011, he also assumed responsibility for Walter Energy's operations in West Virginia and Wales. Beginning his career with the Company in 1978, Mr. Stewart has held a number of progressively responsible leadership roles in various mining and engineering capacities across the Company, culminating in his appointment as Vice President, Engineering. Mr. Stewart holds an MBA from Samford University and a Bachelor of Science degree in mineral engineering from the University of Alabama. 78

84 Table of Contents Code of Conduct The Board has adopted a Business Ethics and Code of Conduct ("Code of Conduct") which is applicable to all employees, directors and officers of the Company. The Code of Conduct is posted on our website at and is available in print to stockholders who request a copy. We have made available an Ethics Hotline, where employees can anonymously report a violation of the Code of Conduct. Additional Information Additional information, as required in Item 10, "Directors and Executive Officers of the Registrant" are incorporated by reference to the Proxy Statement (the "2012 Proxy Statement") included in the Schedule 14A to be filed by the Company with the Securities and Exchange Commission (the "Commission") under the Securities Exchange Act of 1934, as amended. Item 11. Executive Compensation Incorporated by reference to the 2012 Proxy Statement. Item 12. Security Ownership of Certain Beneficial Owners and Management and Related Stockholder Matters The equity compensation plan information as required by Item 201(d) of Regulation S-K is illustrated in Part II, Item 5 of this document. All other information as required by Item 12 is incorporated by reference to the 2012 Proxy Statement. Item 13. Certain Relationships and Related Transactions, and Director Independence Incorporated by reference to the 2012 Proxy Statement. Item 14. Principal Accounting Fees and Services Incorporated by reference to the 2012 Proxy Statement. Item 15. Exhibits, Financial Statement Schedules PART IV (a) (b) For Financial Statements See Index to Financial Statements on page F-1. For Exhibits See Item 15(b). For Exhibits See Index to Exhibits on pages E-1-E-5. 79

85 Table of Contents SIGNATURES Pursuant to the requirements of Section 13 or 15(d) 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. WALTER ENERGY, INC. February 29, 2012 /s/ WALTER J. SCHELLER, III Walter J. Scheller, III, Chief Executive Officer (Principal Executive Officer) Pursuant to the requirements of the Securities Exchange Act of 1934, this report has been signed below by the following persons on behalf of the registrant and in the capacities and on the dates indicated. February 29, 2012 /s/ ROBERT P. KERLEY February 29, 2012 /s/ DAVID R. BEATTY Robert P. Kerley, Chief Accounting Officer, Vice President and Corporate Controller (Interim Principal Financial Officer) David R. Beatty, O.B.E., Director* February 29, 2012 /s/ HOWARD L. CLARK JR. Howard L. Clark, Jr., Director* February 29, 2012 /s/ JERRY W. KOLB Jerry W. Kolb, Director* February 29, 2012 /s/ PATRICK A. KRIEGSHAUSER Patrick A. Kriegshauser, Director* February 29, 2012 /s/ JOSEPH B. LEONARD Joseph B. Leonard, Director* February 29, 2012 /s/ GRAHAM MASCALL Graham Mascall, Director* February 29, 2012 /s/ BERNARD G. RETHORE Bernard G. Rethore, Director* February 29, 2012 /s/ MICHAEL T. TOKARZ Michael T. Tokarz, Chairman* February 29, 2012 /s/ A.J. WAGNER A.J. Wagner, Director*

86 *By: /s/ EARL H. DOPPELT Earl H. Doppelt Attorney-in-Fact 80

87 Table of Contents INDEX TO CONSOLIDATED FINANCIAL STATEMENTS Walter Energy, Inc. and Subsidiaries Reports of Independent Registered Certified Public Accounting Firm F-2 Consolidated Balance Sheets December 31, 2011 and 2010 F-4 Consolidated Statements of Operations for Each of the Three Years in the Period Ended December 31, 2011 F-5 Consolidated Statements of Changes in Stockholders' Equity and Comprehensive Income for Each of the Three Years in the Period Ended December 31, 2011 F-6 Consolidated Statements of Cash Flows for Each of the Three Years in the Period Ended December 31, 2011 F-7 Notes to Consolidated Financial Statements F-9 F-1

88 Table of Contents The Board of Directors and Stockholders of Walter Energy, Inc. Report of Independent Registered Public Accounting Firm We have audited the accompanying consolidated balance sheets of Walter Energy, Inc and subsidiaries as of December 31, 2011 and 2010, and the related consolidated statements of operations, changes in shareholders' equity and comprehensive income, and cash flows for each of the three years in the period ended December 31, These financial statements are the responsibility of the Company's management. Our responsibility is to express an opinion on these financial statements based on our audits. We conducted our audits in accordance with the standards of the Public Company Accounting Oversight Board (United States). Those standards require that we plan and perform the audit to obtain reasonable assurance about whether the financial statements are free of material misstatement. An audit includes examining, on a test basis, evidence supporting the amounts and disclosures in the financial statements. An audit also includes assessing the accounting principles used and significant estimates made by management, as well as evaluating the overall financial statement presentation. We believe that our audits provide a reasonable basis for our opinion. In our opinion, the financial statements referred to above present fairly, in all material respects, the consolidated financial position of Walter Energy, Inc. and subsidiaries at December 31, 2011 and 2010, and the consolidated results of their operations and their cash flows for each of the three years in the period ended December 31, 2011, in conformity with U.S. generally accepted accounting principles. We also have audited, in accordance with the standards of the Public Company Accounting Oversight Board (United States), Walter Energy, Inc.'s internal control over financial reporting as of December 31, 2011, based on criteria established in Internal Control-Integrated Framework issued by the Committee of Sponsoring Organizations of the Treadway Commission and our report dated February 29, 2012 expressed an unqualified opinion thereon. /s/ Ernst & Young, LLP Birmingham, Alabama February 29, 2012 F-2

89 Table of Contents The Board of Directors and Shareholders of Walter Energy, Inc. Report of Independent Registered Public Accounting Firm We have audited Walter Energy, Inc. and subsidiaries' internal control over financial reporting as of December 31, 2011, based on criteria established in Internal Control Integrated Framework issued by the Committee of Sponsoring Organizations of the Treadway Commission (the COSO criteria). Walter Energy, Inc. and subsidiaries' management is responsible for maintaining effective internal control over financial reporting, and for its assessment of the effectiveness of internal control over financial reporting included in the accompanying Management's Annual Report on Internal Control over Financial Reporting. Our responsibility is to express an opinion on the company's internal control over financial reporting based on our audit. We conducted our audit in accordance with the standards of the Public Company Accounting Oversight Board (United States). Those standards require that we plan and perform the audit to obtain reasonable assurance about whether effective internal control over financial reporting was maintained in all material respects. Our audit included obtaining an understanding of internal control over financial reporting, assessing the risk that a material weakness exists, testing and evaluating the design and operating effectiveness of internal control based on the assessed risk, and performing such other procedures as we considered necessary in the circumstances. We believe that our audit provides a reasonable basis for our opinion. A company's internal control over financial reporting is a process designed to provide reasonable assurance regarding the reliability of financial reporting and the preparation of financial statements for external purposes in accordance with generally accepted accounting principles. A company's internal control over financial reporting includes those policies and procedures that (1) pertain to the maintenance of records that, in reasonable detail, accurately and fairly reflect the transactions and dispositions of the assets of the company; (2) provide reasonable assurance that transactions are recorded as necessary to permit preparation of financial statements in accordance with generally accepted accounting principles, and that receipts and expenditures of the company are being made only in accordance with authorizations of management and directors of the company; and (3) provide reasonable assurance regarding prevention or timely detection of unauthorized acquisition, use or disposition of the company's assets that could have a material effect on the financial statements. Because of its inherent limitations, internal control over financial reporting may not prevent or detect misstatements. Also, projections of any evaluation of effectiveness to future periods are subject to the risk that controls may become inadequate because of changes in conditions, or that the degree of compliance with the policies or procedures may deteriorate. As indicated in the accompanying Management's Annual Report on Internal Control over Financial Reporting, management's assessment of and conclusion on the effectiveness of internal control over financial reporting did not include the internal controls of Western Coal Corp., which is included in the 2011 consolidated financial statements of Walter Energy, Inc. and constituted $5.1 billion and $3.8 billion of total and net assets, respectively, as of December 31, 2011 and $846.7 million and $60.5 million of revenues and net income, respectively, for the year then ended. Our audit of internal control over financial reporting of Walter Energy, Inc. also did not include an evaluation of the internal control over financial reporting Western Coal Corp. In our opinion, Walter Energy, Inc. and subsidiaries maintained, in all material respects, effective internal control over financial reporting as of December 31, 2011, based on the COSO criteria. We have also audited, in accordance with the standards of the Public Company Accounting Oversight Board (United States), the consolidated balance sheets of Walter Energy, Inc. and subsidiaries as of December 31, 2011 and 2010, and the related consolidated statements of operations, changes in stockholders' equity and comprehensive income, and cash flows for each of the three years in the period ended December 31, 2011 and our report dated February 29, 2012 expressed an unqualified opinion thereon. /s/ Ernst & Young, LLP Birmingham, Alabama February 29, 2012 F-3

90 Table of Contents WALTER ENERGY, INC. AND SUBSIDIARIES CONSOLIDATED BALANCE SHEETS (in thousands, except share amounts) December 31, ASSETS Cash and cash equivalents $ 128,430 $ 293,410 Receivables, net 313, ,238 Inventories 242,607 97,631 Deferred income taxes 61,079 62,371 Prepaid expenses 49,974 28,179 Other current assets 45,627 4,798 Current assets of discontinued operations 5,912 Total current assets 841, ,539 Mineral interests, net 2,946,113 17,305 Property, plant and equipment, net 1,637, ,696 Deferred income taxes 109, ,520 Goodwill 1,124,597 Other long-term assets 153,951 82,705 $ 6,812,203 $ 1,657,765 LIABILITIES AND STOCKHOLDERS' EQUITY Current debt $ 56,695 $ 13,903 Accounts payable 112,661 70,692 Accrued expenses 229,067 52,399 Accumulated postretirement benefits obligation 27,247 24,753 Other current liabilities 59,827 24,362 Current liabilities of discontinued operations 7,738 Total current liabilities 485, ,847 Long-term debt 2,269, ,570 Deferred income taxes 1,003,383 Accumulated postretirement benefits obligation 550, ,348 Other long-term liabilities 381, ,934 Total liabilities 4,690,108 1,062,699 Commitments and Contingencies (Note 14) Stockholders' equity: Common stock, $0.01 par value per share: Authorized 200,000,000 shares; issued 62,444,905 and 53,136,977 shares, respectively Preferred stock, $0.01 par value per share: Authorized 20,000,000 shares; issued 0 shares Capital in excess of par value 1,620, ,540 Retained earnings 730, ,383 Accumulated other comprehensive income (loss): Pension and other post-retirement benefit plans, net of tax (225,541) (172,317) Foreign currency translation adjustment (3,276) Unrealized loss on hedges, net of tax (787) (71) Unrealized investment gain, net of tax 128 Total stockholders' equity 2,122, ,066 $ 6,812,203 $ 1,657,765 The accompanying notes are an integral part of the consolidated financial statements. F-4

91 Table of Contents WALTER ENERGY, INC. AND SUBSIDIARIES CONSOLIDATED STATEMENTS OF OPERATIONS (in thousands, except per share amounts) For the years ended December 31, Revenues: Sales $ 2,562,325 $ 1,570,845 $ 955,508 Miscellaneous income 9,033 16,885 11,319 2,571,358 1,587, ,827 Cost and expenses: Cost of sales (exclusive of depreciation and depletion) 1,561, , ,774 Depreciation and depletion 245,509 98,702 72,939 Selling, general and administrative 165,749 86,972 70,510 Postretirement benefits 40,385 41,478 30,833 Restructuring and impairment charges 3,601 2,012, , ,657 Operating income 558, , ,170 Interest expense (96,820) (17,250) (18,975) Interest income Other income, net 17,606 Income from continuing operations before income tax expense 479, , ,994 Income tax expense 130, ,171 42,144 Income from continuing operations 349, , ,850 Loss from discontinued operations (3,628) (4,692) Net income $ 349,176 $ 385,797 $ 137,158 Basic income per share: Income from continuing operations $ 5.79 $ 7.32 $ 2.67 Loss from discontinued operations (0.07) (0.09) Net income $ 5.79 $ 7.25 $ 2.58 Diluted income per share: Income from continuing operations $ 5.76 $ 7.25 $ 2.64 Loss from discontinued operations (0.07) (0.09) Net income $ 5.76 $ 7.18 $ 2.55 The accompanying notes are an integral part of the consolidated financial statements. F-5

92 Table of Contents WALTER ENERGY, INC. AND SUBSIDIARIES CONSOLIDATED STATEMENTS OF CHANGES IN STOCKHOLDERS' EQUITY AND COMPREHENSIVE INCOME FOR THE THREE YEARS ENDED DECEMBER 31, 2011 (in thousands, except per share amounts) Common Stock Capital in Excess of Comprehensive Par Value Income Retained Earnings (Deficit) Treasury Stock Accumulated Other Comprehensive Income (Loss) Total Balance at December 31, 2008 $ 630,269 $ 541 $ 714,174 $ 50,990 $ (135,436) Comprehensive income: Net income 137,158 $ 137, ,158 Other comprehensive income, net of tax: Change in pension and postretirement benefit plans, net of $44.2 million tax benefit (28,513) (28,513) (28,513) Change in unrealized loss on hedges, net of $0.4 million tax (877) (877) (877) Comprehensive income $ 107,768 Purchases of stock under stock repurchase program (34,254) (14) (34,240) Stock issued upon exercise of stock options 9, ,882 Stock dividend for spin-off of Financing (439,093) (321,301) (116,106) (1,686) Dividends paid, $0.40 per share (21,190) (21,190) Stock based compensation 6,703 6,703 Other (696) (696) Balance at December 31, , ,522 50,852 (166,512) Comprehensive income: Net income 385,797 $ 385, ,797 Other comprehensive income, net of tax: Change in pension and postretirement benefit plans, net of $2.2 million tax benefit (5,280) (5,280) (5,280) Change in unrealized loss on hedges, net of $0.2 million tax (596) (596) (596) Comprehensive income $ 379,921 Purchases of stock under stock repurchase program (65,438) (9) (65,429) Stock issued upon exercise of stock options 17, ,126 Dividends paid, $0.475 per share (25,266) (25,266) Stock based compensation 3,460 3,460 Excess tax benefits from stock-based 28,875 28,875

93 compensation arrangements Other (3,015) (1) (3,014) Balance at December 31, , , ,383 (172,388) Comprehensive income: Net income 349,176 $ 349, ,176 Other comprehensive income: Change in pension and postretirement benefit plans, net of $33.2 million tax benefit (53,224) (53,224) (53,224) Change in unrealized loss on hedges, net of $0.3 million tax benefit (716) (716) (716) Change in foreign currency translation adjustment (3,276) (3,276) (3,276) Change in unrealized gain on investments, net of $0.09 million tax provision Comprehensive income $ 292,088 Stock issued upon the exercise of stock options 8, ,917 Dividends paid, $0.50 per share (30,042) (30,042) Stock based compensation 9,384 9,384 Excess tax benefits from stock-based compensation arrangements 8,929 8,929 Issuance of common stock in connection with the Western Coal Corp. acquisition 1,224, ,224,036 Fair value of replacement stock options and warrants issued in connection with the Western Coal Corp. acquisition 18,844 18,844 Other (5,220) (5,220) Balance at December 31, 2011 $2,122,095 $ 624 $1,620,430 $ 730,517 $ $ (229,476) The accompanying notes are an integral part of the consolidated financial statements. F-6

94 Table of Contents WALTER ENERGY, INC. AND SUBSIDIARIES CONSOLIDATED STATEMENTS OF CASH FLOWS (in thousands) For the years ended December 31, OPERATING ACTIVITIES Net income $ 349,176 $ 385,797 $ 137,158 Loss from discontinued operations 3,628 4,692 Income from continuing operations 349, , ,850 Adjustments to reconcile income from continuing operations to net cash flows provided by (used in) operating activities: Depreciation and depletion 245,509 98,702 72,939 Deferred income tax provision 66,397 83,174 29,038 Amortization of debt issuance costs 21,154 2,975 2,559 Excess tax benefits from stock-based compensation arrangements (8,929) (28,875) Gain on initial investment in Western Coal Corp (20,553) Non-cash restructuring and impairment charges 3,601 Other 18,764 14,433 15,778 Decrease (increase) in current assets, net of effect of business acquisitions: Receivables (1,605) (65,935) 69,772 Inventories (1,885) 1,966 (25,076) Prepaid expenses and other current assets 18,929 13,155 17,624 Increase (decrease) in current liabilities, net of effect of business acquisitions: Accounts payable 13,676 23,717 (16,286) Accrued expenses and other current liabilities 6,233 41,413 (27,831) Cash flows provided by operating activities 706, , ,968 INVESTING ACTIVITIES Additions to property, plant and equipment (436,705) (157,476) (96,298) Acquisition of Western Coal Corp., net of cash acquired (2,432,693) Acquisition of HighMount Exploration & Production Alabama, LLC (209,964) Proceeds from sales of investments 27,325 Other 1,413 (3,414) 3,270 Cash flows used in investing activities (2,840,660) (370,854) (93,028) FINANCING ACTIVITIES Proceeds from issuance of debt 2,350,000 Borrowings under revolving credit agreement 71,259 Repayments on revolving credit agreement (61,259) Retirements of debt (290,630) (26,972) (61,597) Dividends paid (30,042) (25,266) (21,190) Cash spun off to Financing (33,821) Purchases of stock under stock repurchase program (65,438) (34,254) Excess tax benefits from stock-based compensation arrangements 8,929 28,875 Proceeds from stock options exercised 8,920 17,134 9,888 Debt issuance costs (80,027) Other (5,203) (3,015) (6,169) Cash flows provided by (used in) financing activities 1,971,947 (74,682) (147,143) Cash flows provided by (used in) continuing operations (161,847) 128,614 43,797 CASH FLOWS FROM DISCONTINUED OPERATIONS Cash flows provided by (used in) operating activities (6,268) 19,070 Cash flows provided by investing activities 5,066 27,379 Cash flows used in financing activities (41,385) Cash flows provided by (used in) discontinued operations (1,202) 5,064 Effect of foreign exchange rates on cash (3,668) Net increase (decrease) in cash and cash equivalents $ (165,515)$ 127,412 $ 48,861 F-7

95 Table of Contents For the years ended December 31, Cash and cash equivalents at beginning of year $ 293,410 $ 165,279 $ 116,074 Add: Cash and cash equivalents of discontinued operations at beginning of year 535 1,254 1,598 Net increase (decrease) in cash and cash equivalents (165,515) 127,412 48,861 Less: Cash and cash equivalents of discontinued operations at end of year 535 1,254 Cash and cash equivalents at end of year $ 128,430 $ 293,410 $ 165,279 SUPPLEMENTAL DISCLOSURES: Interest paid, net of capitalized interest $ 63,828 $ 9,848 $ 9,991 Income taxes paid $ 69,101 $ 77,247 $ 15,326 Non-Cash Investing Activities: Acquisition of Western Coal in 2011 and HighMount in 2010: Fair value of assets acquired $ 5,135,365 $ 217,607 Less: fair value of liabilities assumed (1,389,163) (7,643) fair value of shares of common stock issued (1,224,126) fair value of stock options issued and warrants (34,765) gain on initial investment (20,553) cash acquired (34,065) Net cash paid $ 2,432,693 $ 209,964 $ Non-Cash Financing Activities: One-year property insurance policy financing agreement $ $ 18,947 $ 12,710 Dividend to spin off Financing $ $ $ 437,407 The accompanying notes are an integral part of the consolidated financial statements. F-8

96 Table of Contents WALTER ENERGY, INC. AND SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS FOR THE YEAR ENDED DECEMBER 31, 2011 NOTE 1 Organization Walter Energy, Inc. ("Walter"), together with its consolidated subsidiaries ("the Company"), is a leading producer and exporter of metallurgical coal for the global steel industry from underground and surface mines located in the United States, Canada and the United Kingdom. The Company also produces thermal coal, anthracite coal, metallurgical coke and coal bed methane gas. As described in Note 3, on April 1, 2011, the Company completed the acquisition of all the outstanding common shares of Western Coal Corp. ("Western Coal"). The accompanying financial statements include the results of operations of Western Coal since April 1, As a result of the Western Coal acquisition and the change in how our Chief Operating Decision Maker evaluates the business operations, beginning with the second quarter of 2011, the Company has revised its reportable segments by arranging them geographically. The Company now reports all of its operations located in the U.S. in the U.S. Operations segment which includes the Company's previous operating segments of Underground Mining, Surface Mining and Walter Coke. The U.S. Operations segment also includes the West Virginia mining operations acquired through the acquisition of Western Coal. The Company reports its mining operations acquired through the Western Coal acquisition located in Northeast British Columbia (Canada) and South Wales (United Kingdom) in the Canadian and U.K. Operations segment. The Other segment primarily consists of Corporate activities and expenditures. See Note 17 for segment information. Previously reported segment amounts have been restated to conform to the current period presentation. In December 2008, the Company announced the closure of its Homebuilding segment and Kodiak Mining Co. and on April 17, 2009 the Company spun off its Financing segment. As a result of the closure and spin-off, those segments are presented as discontinued operations for the years ended December 31, 2010 and See Note 4. NOTE 2 Summary of Significant Accounting Policies Basis of Presentation The consolidated financial statements include the accounts of all wholly and majority owned subsidiaries. Preparation of financial statements in accordance with accounting principles generally accepted in the U.S. requires management to make estimates and assumptions that affect the amounts reported in the consolidated financial statements. Actual results could differ from those estimates. All significant intercompany balances and transactions have been eliminated. The notes to consolidated financial statements, except where otherwise indicated, relate to continuing operations only. Concentrations of Credit Risk and Major Customers The Company's principal line of business is the mining and marketing of its metallurgical coal to foreign steel and coke producers. In 2011, approximately 76% of the Company's revenues were derived from coal shipments to these customers, located primarily in Europe, South America, and Asia. At December 31, 2011 and 2010, approximately 63% and 69%, respectively, of the Company's net receivables related to these customers. Furthermore, sales to a single customer represented 6.8%, 13.0% and 13.7% of consolidated revenues in 2011, 2010 and 2009, respectively, while sales to another single customer represented 6.2%, 10.3% and 12.6% of consolidated revenues in 2011, 2010 and 2009, respectively. Credit is extended based on an evaluation of the customer's financial condition. In some F-9

97 Table of Contents instances, the Company requires letters of credit, cash collateral or prepayment for shipment from its customers to mitigate the risk of loss. These efforts have consistently led to minimal credit losses. Revenue Recognition Revenue is recognized when the following criteria have been met: persuasive evidence of an arrangement exists; the price to the buyer is fixed or determinable; delivery has occurred; and collectability is reasonably assured. Delivery is considered to have occurred at the time title and risk of loss transfers to the customer. For coal shipments via rail, delivery generally occurs when the railcar is loaded. For coal shipments via ocean vessel, delivery generally occurs when the vessel is loaded. For coke shipments via rail or truck, revenue is recognized when title and risk of loss transfer to the customer, generally at the point of shipment. For the Company's natural gas operations, delivery occurs when the gas has been transferred to the customer's pipeline. Shipping and Handling Costs to ship products to customers are included in cost of sales and amounts billed to customers, if any, to cover shipping and handling are included in sales. Cash and Cash Equivalents Cash and cash equivalents include short-term deposits and highly liquid investments that have original maturities of three months or less when purchased and are stated at cost. Allowances for Losses Allowances for losses on trade and other accounts receivables are based, in large part, upon judgments and estimates of expected losses and specific identification of problem trade accounts and other receivables. Significantly weaker than anticipated industry or economic conditions could impact customers' ability to pay such that actual losses may be greater than the amounts provided for in these allowances. Inventories Inventories are valued at the lower of cost or market. The Company's coal inventory costs include labor, supplies, equipment costs, operating overhead, freight, royalties and other related costs. As of December 31, 2011, all of the Company's coal inventories are determined using the first-in, first-out ("FIFO") inventory valuation method. The Company's supplies inventories are determined using the average cost method of accounting. The valuation of coal inventories are subject to estimates due to possible gains and losses resulting from inventory movements from the mine site to storage facilities, inherent inaccuracies in belt scales and aerial surveys used to measure quantities and fluctuations in moisture content. Periodic adjustments to coal tonnages on hand are made for an estimate of coal shortages due to these inherent gains and losses, primarily based on historical findings, the results of aerial surveys and periodic coal pile clean-ups. Additionally, the Company evaluates its inventory in terms of excess and obsolete exposures. This evaluation includes such factors as anticipated usage, inventory turnover, inventory levels and ultimate market value. Owned and Leased Mineral Interests Costs to obtain coal reserves and lease mineral rights are capitalized based on the fair value at acquisition and depleted using the unit-of-production method over the life of proven and probable reserves. Lease agreements are generally long-term in nature (original terms range from 10 to 50 years), and substantially all of the leases contain provisions that allow for automatic extension of the lease term providing certain requirements are met. F-10

98 Table of Contents Property, Plant and Equipment Property, plant and equipment are recorded at cost. Depreciation is recorded principally on the straight-line method over the estimated useful lives of the assets. Leasehold improvements are amortized on the straight-line method over the lesser of the useful life of the improvement or the remaining lease term. Estimated useful lives used in computing depreciation expense range from 3 to 10 years for machinery and equipment, and from 15 to 30 years for land improvements and buildings, well life for gas properties and related development, and mine life for mine development costs. Gains and losses upon disposition are reflected in the statement of operations in the period of disposition. Maintenance and repair expenditures are charged to expense as incurred. Costs of developing new underground mines and certain underground expansion projects are capitalized. Underground development costs, which are costs incurred to make the coal physically accessible, may include construction permits and licenses, mine design, construction of access roads, main entries, airshafts, roof protection and other facilities. Costs of developing the first pit within a permitted area of a surface mine are capitalized up to the point of coal production attaining a level that would be more than de minimis. A surface mine is defined as the permitted mining area which includes various adjacent pits that share common infrastructure, processing equipment and a common coal reserve. Surface mine development costs include construction costs for entry roads, drilling, blasting and removal of overburden to access the first coal seam. Mine development costs are amortized primarily on a unit-of-production basis over the estimated reserve tons directly benefiting from the capital expenditures. Costs incurred during the production phase of a mine are capitalized into inventory and expensed to cost of sales as the coal is sold. Direct internal and external costs to implement computer systems and software are capitalized and are amortized over the estimated useful life of the system or software, generally 3 to 5 years, beginning when site installations or module development is complete and ready for its intended use. For the years ended December 31, 2011, 2010 and 2009, the Company capitalized interest costs in the amounts of $5.4 million, $1.4 million and $1.2 million, respectively. The Company has certain asset retirement obligations, primarily related to reclamation efforts for its mining operations. These obligations are recognized at fair value in the period in which they are incurred and the carrying amount of the related long-lived asset is correspondingly increased. Over time, the liability is accreted to its future value. The corresponding asset cost capitalized at inception is amortized over the useful life of the asset. The present values of the Company's asset retirement obligations were $75.1 million and $25.3 million as of December 31, 2011 and 2010, respectively. The increase is primarily attributable to $30.5 million of asset retirement obligations assumed in connection with the acquisition of Western Coal on April 1, 2011 as described in Note 3. The Company accounts for its natural gas exploration activities under the successful efforts method of accounting. Costs of exploratory wells are capitalized pending determination of whether the wells found commercially sufficient quantities of proved reserves. If a commercially sufficient quantity of proved reserves is not discovered, any associated previously capitalized exploratory costs associated with the drilling area are expensed. Costs of producing properties and natural gas mineral interests are amortized using the unit-of-production method. Costs incurred to develop proved reserves, including the cost of all development wells and related equipment used in the production of natural gas, are capitalized and amortized using the unit-of-production method. Unitof-production amortization rates are revised when events and circumstances indicate an adjustment is necessary, but at least once a year, and such revisions are accounted for prospectively as changes in accounting estimates. F-11

99 Table of Contents Impairment of Long-Lived Assets Property, plant and equipment and other long-lived assets are reviewed for impairment whenever events or changes in circumstances indicate that the book value of the asset may not be recoverable. The Company periodically evaluates whether events and circumstances have occurred that indicate possible impairment. When impairment indicators exist, the Company uses an estimate of the future undiscounted net cash flows of the related asset or asset group over the remaining life in measuring whether or not the asset values are recoverable. Fair value is generally determined using market quotes, if available, or a discounted cash flow approach. There were no significant impairments of long-lived assets during the years ended December 31, 2011, 2010 or Goodwill Goodwill represents the excess of the purchase price over the fair value assigned to the net tangible and identifiable intangible assets acquired in a business combination. Goodwill is to be tested for impairment at a minimum annually unless circumstances indicate a possible impairment may exist. The Company performs its annual goodwill testing as of the beginning of the fourth quarter at the reporting unit level. An impairment loss generally would be recognized when the carrying amount of the reporting unit exceeds the fair value of the reporting unit. The fair value of each reporting unit is determined using valuation models and expected future cash flows projections, which are then discounted using a risk-adjusted discount rate. A number of significant assumptions and estimates are involved in forecasting future cash flows including markets, sales volumes and prices, costs to produce, capital spending, working capital changes and the discount rate. Management considers historical experience and all available information at the time the fair values of its reporting units are estimated. Workers' Compensation and Pneumoconiosis ("Black Lung") The Company is self-insured for workers' compensation benefits for work related injuries. Liabilities, including those related to claims incurred but not reported, are recorded principally using annual valuations based on discounted future expected payments and using historical data of the division or combined insurance industry data when historical data is limited. Workers' compensation liabilities were as follows (in thousands): December 31, Undiscounted aggregated estimated claims to be paid $ 43,501 $ 45,497 Workers' compensation liability recorded on a discounted basis $ 36,987 $ 37,761 The Company applies a discount rate at a risk-free interest rate, generally a U.S. Treasury bill rate, for each policy year. The rate used is one with a duration that corresponds to the weighted average expected payout period for each policy year. Once a discount rate is applied to a policy year, it remains the discount rate for that year until all claims are paid. The weighted average rate used for discounting the 2011 policy year liability at December 31, 2011 was 0.81%. A one-percentage-point increase in the discount rate on the discounted claims liability would decrease the liability by $0.1 million, while a onepercentage-point decrease in the discount rate would increase the liability by $0.1 million. The Company is responsible for medical and disability benefits for black lung disease under the Federal Coal Mine Health and Safety Act of 1969, as amended, and is self-insured against black lung related claims. The Company performs an annual evaluation of the overall black lung liabilities at the December 31 st balance sheet date. The calculation is performed using assumptions regarding rates of successful claims, discount factors, benefit increases and mortality rates, among others. The present value of the obligation recorded by the Company using a discount factor of 5.14% for 2011 and 5.35% for 2010 was $12.0 million and $9.2 million as of December 31, 2011 and 2010, respectively. A F-12

100 Table of Contents one-percentage-point increase in the discount rate on the discounted claims liability would decrease the liability by $1.8 million, while a one-percentage-point decrease in the discount rate would increase the liability by $2.3 million. Derivative Instruments and Hedging Activities The Company enters into interest rate hedge agreements in accordance with the Company's internal debt and interest rate risk management policy, which is designed to mitigate risks related to floating rate financing agreements that are subject to changes in the market rate of interest. Changes in the fair value of interest rate hedge agreements that are designated and effective as hedges are recorded in accumulated other comprehensive income (loss) ("OCI"). Deferred gains or losses are reclassified from OCI to the statement of operations in the same period as the underlying transactions are recorded and are recognized in the caption, interest expense. Changes in the fair value of interest rate hedge agreements that are not effective as hedges would be recorded immediately in the statement of operations as interest expense. To protect against the reduction in the value of forecasted cash flows resulting from sales of natural gas, the Company periodically engages in a natural gas hedging program. The Company periodically hedges portions of its forecasted revenues from sales of natural gas with natural gas derivative contracts, generally either "swaps" or "collars". The Company enters into natural gas derivatives that effectively convert a portion of its forecasted sales at floating-rate natural gas prices to a fixed-rate basis, thus reducing the impact of natural gas price changes on revenues. When natural gas prices fall, the decline in value of future natural gas sales is offset by gains in the value of swap contracts designated as hedges. Conversely, when natural gas prices rise, the increase in the value of future cash flows from natural gas sales is offset by losses in the value of the swap contracts. Changes in the fair value of natural gas derivative agreements that are designated and effective as hedges are recorded in OCI. Deferred gains or losses are reclassified from OCI and recognized as miscellaneous income in the statement of operations in the same period as the underlying transactions are recognized. Changes in the fair value of natural gas hedge agreements that are not effective as hedges or are not designated as hedges would be recorded immediately in the statement of operations as miscellaneous income. During the three years ended December 31, 2011, the Company did not hold any non-derivative instruments designated as hedges or any derivatives designated as fair value hedges. In addition, the Company does not enter into derivative financial instruments for speculative or trading purposes. Derivative contracts are entered into only with counterparties that management considers creditworthy. Cash flows from hedging activities are reported in the statement of cash flows in the same classification as the hedged item, generally as a component of cash flows from operations. Foreign Currency Translation The functional currency of the Company's Canadian operations is the U.S. dollar, while the U.K. operations functional currency is the British Pound. As such, monetary assets and liabilities are remeasured at period end exchange rates while non-monetary items are remeasured at historical rates. Income and expense accounts are remeasured at the average rates in effect during the year, except for those expenses related to balance sheet amounts that are remeasured at historical exchange rates. For the Company's Canadian operations, gains and losses from foreign currency remeasurement related to tax balances are included as a component of income tax expense while all other remeasurement gains and losses are included in miscellaneous income. For the Company's U.K. operations, foreign currency translation adjustments are reported in OCI. The foreign currency remeasurement gain recognized in miscellaneous income for the year ended December 31, 2011 was $3.8 million. The Company had no foreign operations prior to the acquisition of Western Coal on April 1, 2011 as described in Note 3. F-13

101 Table of Contents Stock-Based Compensation The Company periodically grants stock-based awards to employees and its Board of Directors and records the related compensation expense during the period of vesting. This compensation expense is charged to the statement of operations with a corresponding credit to capital in excess of par value and is generally recognized utilizing the graded vesting method for stock options and the straight-line method for restricted stock units. The Company uses the Black-Scholes option pricing model to value its stock option grants and estimates forfeitures in calculating the expense related to stock-based compensation. See Note 5 for additional information on stock-based compensation. Environmental Expenditures The Company capitalizes environmental expenditures that increase the life or efficiency of property or that reduce or prevent environmental contamination. The Company accrues for environmental expenses resulting from existing conditions that relate to past operations when the costs are probable and reasonably estimable. See Note 14 for additional discussion of environmental matters. Income (Loss) per Share The Company calculates basic income (loss) per share based on the weighted average common shares outstanding during each period and diluted income (loss) per share based on weighted average common shares and dilutive common equivalent shares outstanding during each period. Dilutive common equivalent shares include the dilutive effect of stock awards, see Note 13. NOTE 3 Acquisitions Western Coal Corp. On November 18, 2010, the Company announced its intent to acquire all of the outstanding common shares of Western Coal. Western Coal is a producer of high quality metallurgical coal from mines in Northeast British Columbia (Canada), high quality metallurgical coal and compliant thermal coal from mines located in West Virginia (United States), and high quality anthracite coal from mines located in South Wales (United Kingdom). The acquisition of Western Coal substantially increased the Company's reserves available for future production, the majority of which is highquality metallurgical coal, and created a diverse geographical footprint with strategic access to high-growth steel-producing countries in both the Atlantic and Pacific basins. On November 17, 2010, the Company entered into a share purchase agreement with various funds advised by Audley Capital to purchase approximately 54.5 million common shares, or 19.8%, of the outstanding common shares of Western Coal for CAD$11.50 per share in two separate transactions. On December 2, 2010 the Company entered into an arrangement agreement with Western Coal to acquire all the remaining outstanding common shares of Western Coal for CAD$11.50 per share in cash or of a Walter Energy share, or for a combination thereof at the holder's election, subject to proration. In January 2011, the Company completed the first transaction to acquire 25,274,745 common shares of Western Coal, or 9.15% of the outstanding shares, from funds advised by Audley Capital. The shares were purchased for $293.7 million in cash and had a fair value of $314.2 million on April 1, The Company recognized a gain on April 1, 2011 of $20.5 million as a result of remeasuring to fair value the Western Coal shares acquired from Audley Capital which is included in other income in the Consolidated Statements of Operations for the year ended December 31, On April 1, 2011, the Company acquired the remaining outstanding common shares of Western Coal (including the second Audley Capital transaction) for a combination of $2.2 billion in cash and the issuance of 8,951,558 common shares of Walter Energy valued at $1.2 billion. The fair value of Walter Energy's common stock on April 1, 2011 was $ per share based on the closing value on the New York Stock Exchange. The cash portion was funded with part of the proceeds from the new $2.725 billion F-14

102 Table of Contents credit facility discussed in Note 10. All of the outstanding options to purchase Western Coal common shares that were not exercised prior to the acquisition were exchanged for fully-vested and immediately exercisable options to purchase shares of Walter Energy common stock. The Company issued 193,498 stock options in exchange for the Western Coal stock options outstanding as of April 1, The stock options issued had a fair value of $15.5 million, which was estimated using the Black-Scholes option pricing model. The outstanding warrants of Western Coal were not directly affected by the acquisition. Instead, upon exercise each warrant entitled the holder to receive cash and shares of Walter Energy common stock that would have been issued if the warrants had been exercised immediately before closing the acquisition. The purchase consideration has been preliminarily allocated to the assets acquired and liabilities assumed based upon their estimated fair values at the date of acquisition. A full and detailed valuation of the assets and liabilities is being completed with the assistance of an independent third party and certain information and analysis remains pending at this time. Accordingly, the allocation is preliminary and may change as additional information becomes available and is assessed by the Company. The final allocation of the consideration transferred may include adjustment to the fair value estimates of identifiable assets and liabilities, including but not limited to depreciable tangible assets, proven and probable reserves, reserves related to current development projects, value beyond proven and probable reserves, intangible assets and contract-related liabilities after a full review has been completed. The impact of such changes may be material. Fair values were determined using the income, cost and market price valuation methods as deemed appropriate. Management further refined information regarding acquired mineral interests during the fourth quarter of 2011 including refined estimates for future costs and production volumes and timing which resulted in a $1.4 billion reduction in fair value initially allocated to mineral interests. This also resulted in an increase in goodwill of $845.5 million and the deferred tax liability was reduced by $555.7 million reflecting a reduction in future depletion expense not deductible for tax. Changes made to the preliminary allocation of the purchase consideration and the alignment of accounting policies in the 2011 fourth quarter impacted the Company's previously reported quarterly results by an increase in net income of $7.8 million and a $0.13 increase in diluted net income per share for the three months ended June 30, 2011 and an increase in net income of $4.1 million and a $0.07 increase in diluted net income per share for the three months ended September 30, These amounts are included in the Company's results of operations for the year ended December 31, The Company did not consider the effect of these changes to be material to its second quarter 2011 and third quarter 2011 operating results or financial condition. The following tables summarizes the purchase consideration, the December 31, 2011 preliminary purchase price allocation, the preliminary purchase price allocation reported in the Company's quarterly report on Form 10-Q for the period ended September 30, 2011 and the adjustments made in the three months ended December 31, 2011 (in thousands): Purchase consideration: Cash $ 2,173,080 Fair value of shares of common stock issued 1,224,126 Fair value of stock options issued and warrants 34,765 Fair value of consideration transferred 3,431,971 Fair value of equity interest in Western Coal held before the acquisition 314,231 Total consideration $ 3,746,202 F-15

103 Table of Contents Preliminary September 30, 2011 Adjustments Preliminary December 31, 2011 Fair value of assets acquired and liabilities assumed: Cash and cash equivalents $ 34,065 $ $ 34,065 Receivables 163, ,668 Inventories 122,012 (783) 121,229 Other current assets 65,606 20,869 86,475 Mineral interests 4,399,000 (1,407,000) 2,992,000 Property, plant and equipment 565,228 (4,334) 560,894 Goodwill 277, ,480 1,122,884 Other long-term assets 54,150 54,150 Total assets 5,681,133 (545,768) 5,135,365 Accounts payable and accrued liabilities 180,157 4, ,983 Other current liabilities 75,824 6,351 82,175 Deferred tax liability 1,576,896 (555,735) 1,021,161 Other long-term liabilities 102,054 (1,210) 100,844 Total liabilities 1,934,931 (545,768) 1,389,163 Net assets acquired $ 3,746,202 $ $ 3,746,202 Goodwill is calculated as the excess of the purchase consideration transferred over the fair value of the identifiable assets acquired and liabilities assumed. The factors that contribute to the recognition of goodwill include Western Coal's (i) historical cash flows and income levels, (ii) reputation in its markets, (iii) strength of its management team, (iv) efficiency of its operations, and (v) future cash flows and income growth projections. Goodwill has been assigned to the Canadian and U.K. Operations segment and the U.S. Operations segment in the amounts of $1.054 billion and $68.7 million, respectively. None of the goodwill is expected to be tax deductible. The Company incurred acquisition costs related to the purchase of approximately $23.2 million during the year ended December 31, 2011, which is included in selling, general and administrative expenses in the Company's Consolidated Statements of Operations. The amounts of revenues and earnings of Western Coal included in the Company's consolidated statement of operations from the acquisition date are as follows (in thousands): For the year ended December 31, 2011 Revenues $ 846,682 Net income $ 60,538 The unaudited supplemental pro forma information presented below includes the effects of the Western Coal acquisition as if it had been completed as of January 1, The pro forma results include (i) the impact of certain estimated fair value adjustments, including additional estimated depreciation and depletion expense associated with the acquired mineral interests and property, plant and equipment and (ii) interest expense associated with debt used to fund the acquisition. The pro forma results for the year ended December 31, 2010 include adjustments for the financial impact of certain acquisition related items incurred during the year ended December 31, Accordingly, the following unaudited pro forma financial information should not be considered indicative of either F-16

104 Table of Contents future results or results that might have occurred had the acquisition been consummated as of January 1, 2010 (in thousands): For the years ended December 31, Revenues $ 2,795,566 $ 2,358,040 Net income $ 403,945 $ 325,196 North River Mine On May 6, 2011, the Company acquired the North River thermal coal mine in Fayette and Tuscaloosa Counties of Alabama from a subsidiary of Chevron Corporation for $1.1 million in cash and the assumption of certain liabilities totaling approximately $90.9 million, including a $70.0 million below-market coal sales contract liability. The below-market contract has a remaining term of 26 months as of December 31, 2011 and such contracts acquired in a business combination are recorded at their fair value with this fair value being amortized into revenues over the tons of coal sold during the contract term. The Company has recognized goodwill of $1.7 million. None of the goodwill is expected to be tax deductible. The purchase consideration has been allocated to the assets acquired and liabilities assumed based upon their estimated fair values at the date of acquisition. The inclusion of this business for the current period did not have a material impact on either the Company's revenues or operating income, and the Company does not expect the results of this business to have a material effect on future operating results. HighMount Exploration & Production Alabama, LLC On May 28, 2010, the Company acquired 100% of the issued and outstanding membership interests of HighMount Exploration & Production Alabama, LLC's ("HighMount") coal bed methane business for a cash payment of $210.0 million and renamed the business Walter Black Warrior Basin, LLC ("WBWB"). The fair value of the assets acquired and liabilities assumed totaled $217.6 million and $7.6 million, respectively. The Company incurred acquisition costs related to the purchase of approximately $2.7 million during the year ended December 31, 2010, which is included in selling, general and administrative expenses in the Company's Consolidated Statement of Operations. The acquisition of the coal bed methane operations included approximately 1,300 existing conventional gas wells, pipeline infrastructure and related equipment located adjacent to the Company's existing underground mining and coal bed methane business in Alabama. Current proven reserves are approximately 79 bcf (billion cubic feet), with annual coal bed methane production of approximately 8.0 bcf expected. The acquisition of this natural gas business, included in the U.S. Operations segment, helps ensure that future coal production areas will be properly degasified, thereby improving safety and operating efficiency of the Company's existing underground metallurgical coal production. WBWB's financial results have been included in the Company's financial statements since the date of acquisition. The inclusion of this business for 2010 and 2011 did not have a material impact on either the Company's revenues or operating income and the Company does not expect the results of this business to have a material impact in the foreseeable future. Assets acquired and liabilities assumed were recorded at estimated fair value as of the acquisition date. Fair values were determined using the income, cost and market price valuation methods as deemed appropriate. The following table F-17

105 Table of Contents summarizes the fair value of the assets acquired and liabilities assumed at the acquisition date (in thousands): NOTE 4 Discontinued Operations Fair value of assets acquired and liabilities assumed: Receivables $ 5,439 Other current assets 340 Property, plant and equipment 210,323 Identifiable intangible asset 1,505 Total assets 217,607 Accounts payable & accrued liabilities (4,282) Asset retirement obligations (3,361) Total liabilities (7,643) Net assets acquired $ 209,964 Spin-off of Financing In 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 spin-off, the Company no longer has any ownership interest in Walter Investment. Amounts previously reported in the Financing segment are presented as discontinued operations for the years ended December 31, 2010 and Closure of Homebuilding In 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. This wind down was substantially complete in 2009 and as a result, the Company has reported the results of operations, assets, liabilities and cash flows of the Homebuilding segment as discontinued operations for the years ended December 31, 2010 and Closure of Kodiak Mining Co. In 2008, the Company announced the permanent closure of the underground coal mine operations of Kodiak Mining Company, LLC ("Kodiak"), which is wholly-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 the years ended December 31, 2010 and F-18

106 Table of Contents The table below presents the significant components of operating results included in loss from discontinued operations (primarily Financing, Homebuilding and Kodiak) for the years ended December 31, 2010 and 2009 (in thousands): For the years ended December 31, Sales and revenues $ 4,293 $ 83,673 Loss from discontinued operations before income tax expense (benefit) $ (5,856) $ (3,725) Income tax expense (benefit) (2,228) 967 Loss from discontinued operations $ (3,628) $ (4,692) Prior to the Company discontinuing these operations, 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 represented expenses that had historically been allocated to and recorded by the Company's operating segments as selling, general and administrative expenses. The Company did not elect to allocate corporate interest expense to discontinued operations. The remaining assets and liabilities of Homebuilding and Kodiak included as discontinued operations in the consolidated balance sheet as of December 31, 2010 are shown below (in thousands): December 31, 2010 Cash and cash equivalents $ 535 Receivables, net 563 Inventories 613 Property, plant and equipment, net 3,691 Other assets 510 Total assets(a) $ 5,912 Accounts payable $ 943 Accrued expenses 6,045 Other liabilities 750 Total liabilities(a) $ 7,738 (a) Total assets and liabilities of discontinued operations are shown as "current" in the consolidated balance sheet at December 31, NOTE 5 Equity Award Plans The stockholders of the Company approved the 2002 Long-Term Incentive Award Plan (the "2002 Plan"), under which an aggregate of 4.3 million shares of the Company's common stock, as restated to reflect the modification for the Financing spin-off, have been reserved for grant and issuance of incentive and non-qualified stock options, stock appreciation rights and stock awards. Under the 2002 Plan, an option becomes exercisable at such times and in such installments as set by the Compensation Committee of the Board of Directors (generally, vesting occurs over three years in equal annual increments), but no option will be exercisable after the tenth anniversary of the date on which it is granted. The Company may also issue restricted stock units. The Company has issued F-19

107 Table of Contents restricted stock units which generally fully vest after three years of continuous employment or over three years in equal annual increments. Upon completion of the Western Coal acquisition, all of the outstanding options to purchase Western Coal common shares that were not exercised prior to the acquisition were exchanged for fully-vested and immediately exercisable Walter energy stock options. The Company issued 193,498 stock options in exchange for the Western Coal stock options outstanding as of April 1, For the years ended December 31, 2011, 2010 and 2009, the Company recorded stock-based compensation expense for its continuing operations related to equity awards totaling approximately $9.2 million, $3.3 million, and $6.7 million, respectively. These amounts are included in selling, general and administrative expenses and have been allocated to the reportable segments. The total income tax benefits in the Company's continuing operations recognized in the statements of operations for share-based compensation arrangements were $3.2 million, $1.2 million, and $2.4 million during 2011, 2010 and 2009, respectively. A summary of activity related to stock options during the year ended December 31, 2011, including awards applicable to discontinued operations, is presented below: Weighted Average Exercise Shares Price Outstanding at December 31, ,708 $ Granted 80,432 $ Granted in exchange for Western Coal stock options 193,498 $ Exercised (265,833) $ Cancelled (27,481) $ Weighted Average Remaining Contractual Term (in years) Aggregate Intrinsic Value ($000) Outstanding at December 31, ,324 $ $ 12,259 Exercisable at December 31, ,507 $ $ 10,623 Weighted average assumptions used to determine the grant-date fair value of options granted were: For the year ended December 31, 2011(1) Risk free interest rate 0.88% 2.22% 2.12% Dividend yield 0.52% 0.75% 0.75% Expected life (years) Volatility 57.51% 69.64% 64.37% (1) Includes fully vested replacement stock options issued on April 1, 2011 in connection with the acquisition of Western Coal described in Note 3, which significantly reduced the expected life as compared to prior periods. The risk-free interest rate is based on the U.S. Treasury yield in effect at the time of grant with a term equal to the expected life. The expected dividend yield is based on the Company's estimated annual dividend payout at grant date. The expected term of the options represents the period of time the options are expected to be outstanding. Expected volatility is based on historical volatility of the Company's share price for the expected term of the options. F-20

108 Table of Contents A summary of activity related to restricted stock units during the year ended December 31, 2011, including awards applicable to discontinued operations, is as follows: Shares Outstanding at December 31, ,838 Granted 144,517 Vested (127,598) Cancelled (55,510) Aggregate Intrinsic Value ($000) Weighted Average Remaining Contractual Term in Years Outstanding at December 31, ,247 $ 9, The weighted-average grant-date fair values of stock options granted during the years ended December 31, 2011, 2010 and 2009 were $81.82, $46.43 and $10.67, respectively. The weighted-average grant-date fair values of restricted stock units granted during the years ended December 31, 2011, 2010 and 2009 were $133.15, $82.30 and $20.70, respectively. The total amount of cash received from exercise of stock options was $8.9 million, $17.1 million and $9.9 million for the years ended December 31, 2011, 2010 and 2009, respectively. The total intrinsic value of stock awards exercised or converted during 2011 was $24.2 million and $7.7 million, respectively, and the total intrinsic value of stock awards exercised or converted during 2010 was $43.1 million and $11.0 million, respectively. The total intrinsic value of stock awards exercised or converted during 2009 was $20.0 million and $3.0 million, respectively. The total fair value of shares vested during the years 2011, 2010 and 2009 was $4.9 million, $5.8 million and $9.0 million respectively. Unrecognized compensation costs related to non-vested share-based compensation arrangements granted were approximately $12.6 million, $2.3 million and $5.4 million as of December 31, 2011, 2010 and 2009, respectively. These costs are to be recognized over a weighted average period of 2.3 years. Employee Stock Purchase Plan All full-time employees of the Company who have attained the age of majority in the country in which they reside are eligible to participate in the employee stock purchase plan, which was adopted in January 1996 and amended in April The Company contributes a sum equal to 15% (20% after five years of continuous participation) of each participant's actual payroll deduction as authorized, and remits such funds to a designated brokerage firm that purchases, in the open market, shares of the Company's common stock for the accounts of the participants. The total number of shares that may be purchased under the plan is 3.5 million. Total shares purchased under the plan during the years ended December 31, 2011, 2010 and 2009 were approximately 29,500, 20,000 and 47,000, respectively, and the Company's contributions recognized as expense were approximately $0.4 million, $0.2 million and $0.3 million, respectively, during such years. NOTE 6 Receivables Receivables are summarized as follows (in thousands): December 31, Trade receivables $ 233,568 $ 130,904 Other receivables 86,493 14,856 Less: Allowance for losses (6,718) (2,522) Receivables, net $ 313,343 $ 143,238 F-21

109 Table of Contents NOTE 7 Inventories Inventories are summarized as follows (in thousands): December 31, Coal $ 182,707 $ 69,110 Raw materials and supplies 59,900 28,521 Total inventories $ 242,607 $ 97,631 NOTE 8 Mineral Interests and Property, Plant and Equipment The book value of mineral interests totaled $3,047.3 million and $34.9 million as of December 31, 2011 and 2010, respectively. Accumulated amortization totaled $101.2 million and $17.6 million as of December 31, 2011 and 2010, respectively. Property, plant and equipment are summarized as follows (in thousands): NOTE 9 Income Taxes December 31, Land $ 85,439 $ 68,695 Land improvements 14,484 12,356 Buildings and leasehold improvements 564,088 25,091 Mine development costs 36,861 84,930 Machinery and equipment 995, ,262 Gas properties and related development 222, ,697 Construction in progress 332,474 94,798 Total 2,251,810 1,205,829 Less: Accumulated depreciation and depletion (614,628) (433,133) Net $ 1,637,182 $ 772,696 Income tax expense (benefit) applicable to continuing operations consists of the following (in thousands): For the years ended December 31, Current Deferred Total Current Deferred Total Current Deferred Total Federal $37,307 $ 82,228 $119,535 $ 77,400 $75,579 $152,979 $ 3,423 $35,515 $38,938 State 6,226 3,129 9,355 27,597 7,595 35,192 9,683 (6,477) 3,206 Foreign 20,889 (18,960) 1,929 Total $64,422 $ 66,397 $130,819 $104,997 $83,174 $188,171 $13,106 $29,038 $42,144 The foreign provision for income taxes is based on foreign pretax earnings of $64.8 million in The Company did not have foreign operations in 2010 and The Company records a provision for income taxes on amounts that may be repatriated but not on undistributed foreign earnings of the Company's foreign subsidiaries that are intended to be indefinitely reinvested in operations outside of the United States. As of December 31, 2011, United States income taxes have not been provided on the cumulative earnings of foreign subsidiaries considered to be indefinitely reinvested in operations outside of the United States. F-22

110 Table of Contents Deferred tax assets and liabilities reflect the effects of tax losses, credits, and the future income tax effects of temporary differences between the consolidated financial statements carrying amounts of existing assets and liabilities and their respective tax bases and are measured using enacted tax rates that apply to taxable income in the years in which those temporary differences are expected to be recovered or settled. As of December 31, 2011 and December 31, 2010, the significant components of the Company's deferred income tax assets and liabilities were (in thousands): December 31, Deferred income tax assets: Net operating loss and credit carryforwards $ 56,970 $ 31,578 Accrued expenses 18,773 17,367 Contingent interest 36,441 33,515 Postretirement benefits other than pensions 219, ,711 Pension obligations 20,229 22,071 Other 31,623 29,476 Total deferred tax assets 383, ,718 Less: valuation allowance for deferred tax assets (1,729) (1,549) Net deferred income tax asset 381, ,169 Deferred income tax liabilities: Prepaid expenses (12,069) (10,181) B.C. minerals tax (262,413) Property, plant and equipment (940,228) (94,097) Total deferred income tax liabilities (1,214,710) (104,278) Net deferred income tax (liability) asset $ (833,004) $ 211,891 Deferred income taxes are classified as follows: Current deferred income tax asset $ 61,079 $ 62,371 Noncurrent deferred income tax asset 109, ,520 Noncurrent deferred income tax liability, net (1,003,383) Net deferred tax (liability) asset $ (833,004) $ 211,891 At December 31, 2011, approximately $41.0 million of federal net operating losses ("NOLs") and $71.6 million of state tax NOLs were available. The NOLs primarily expire between 2025 and We believe the U.S. operations will have sufficient taxable income to utilize the domestic NOLs prior to expiration. At December 31, 2011, approximately $161.9 million of non-u.s. NOLs were available. Canadian NOLs of $121.5 million will expire between 2025 and U.K. NOLs of $40.4 million have an indefinite carryforward period. As of December 31, 2011 we had valuation allowances totaling $1.7 million primarily for non-u.s. capital loss carry forwards not expected to provide future tax benefits. F-23

111 Table of Contents The income tax expense (benefit) at the Company's effective tax rate differed from the U.S. statutory rate of 35% as follows (in thousands): For the years ended December 31, Income from continuing operations before income tax expense $ 479,995 $ 577,596 $ 183,994 Tax expense at statutory tax rate of 35% $ 167,998 $ 202,159 $ 64,398 Effect of: Excess depletion benefit (32,370) (31,572) (18,693) Impact of foreign taxes (29,774) B.C. minerals tax 9,947 State and local income tax, net of federal effect 7,416 26,134 2,158 U.S. domestic production activities benefit (5,583) (3,871) Acquisition costs 8,078 Other 5,107 (4,679) (5,719) Tax expense recognized $ 130,819 $ 188,171 $ 42,144 Our effective tax rate for 2011 declined from 2010 due primarily to certain undistributed foreign earnings for which U.S. taxes are not provided because such earnings are intended to be indefinitely reinvested outside of the U.S. The effective tax rate was also impacted by certain foreign taxes, including the British Columbia, Canada minerals tax, which were not applicable to the Company in The Company's income taxes payable have been reduced by the tax benefits from employee stock plan awards. For stock options, the Company receives an income tax benefit calculated as the difference between the fair market value of the stock issued at the time of the exercise and the option price, tax effected. For restricted stock units, the Company receives an income tax benefit upon the award's vesting equal to the tax effect of the underlying stock's fair market value. The Company had net excess tax benefits from equity awards of $23.6 million, $16.8 million, and $6.8 million in 2011, 2010, and 2009, respectively. The Company files income tax returns in the U.S., Canada, UK, Australia and in various state, provincial and local jurisdictions which are routinely examined by tax authorities in these jurisdictions. The statute of limitations related to the U.S. consolidated federal income tax return is closed for the years prior to August 31, 1983 and for the years ended May 31, 1997, 1998 and The impact of any U.S. federal changes for these years on state income taxes remains subject to examination for a period up to five years after formal notification to the states. The Company generally remains subject to income tax in various states for prior periods ranging from three to eleven years depending on jurisdiction. In our major non-u.s. jurisdictions, tax years are typically subject to examination for three to six years. On December 27, 1989, the Company and most of its U.S. 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. F-24

112 Table of Contents In connection with the U.S. Bankruptcy Proceedings, the Internal Revenue Service ("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, 1983 through May 31, The Company filed an adversary proceeding in the Bankruptcy Court disputing the Proof of Claim (the "Adversary Proceeding") and the various issues have been litigated in the Bankruptcy Court. An opinion was issued by the Bankruptcy Court in June 2010 as to the remaining disputed issues. The Bankruptcy Court instructed both parties to submit a proposed final order addressing all issues that have been litigated for the tax years 1983 through 1995 in the Adversary Proceeding by late August At the request of both parties, the Bankruptcy Court granted an extension of time of 90 days from the initial submission date to submit the proposed final order. Additional extensions of time to submit the proposed final order were granted in November 2010, February 2011, May 2011 and September At the request of both parties, in January 2012 the Bankruptcy Court granted an additional extension of time until May 10, 2012 to submit the proposed final order. 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. The Company believes that any financial exposure with respect to those issues that have not been resolved or settled in the Proof of Claim is limited to interest and possible penalties and the amount of tax assessed has been offset by tax reductions in future years. 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 owed. 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 IRS completed its audit of the Company's federal income tax returns for the years ended May 31, 2000 through December 31, The IRS issued 30-Day Letters to the Company in June 2010, proposing changes to tax for these tax years. The Company filed a formal protest with the IRS within the prescribed 30-day time limit for those issues which have not been previously settled or conceded. The IRS filed a rebuttal to the Company's formal protest and the case was assigned to the Appeals Division of the IRS. The Appeals Division convened a hearing on March 8, 2011 and heard arguments from both parties as to issues not settled or conceded for the 2000 through 2005 audit period. At this time, no final resolution has been reached with the Appeals Division pertaining to these matters. The disputed issues in this audit period are similar to the issues remaining in the Proof of Claim and consequently, should the IRS prevail on its positions, the Company believes its financial exposure is limited to interest and possible penalties. The IRS is conducting an audit of the Company's income tax returns filed for 2006 through Since the IRS examination is ongoing, any resulting tax deficiency or overpayment cannot be estimated at this time. The Company expects the current IRS exam to conclude during During the next year, the statute of limitations for assessing additional income tax deficiencies will expire for certain tax years in several state tax jurisdictions. The expiration of the statute of limitations for these years is expected to have an immaterial impact on the total uncertain income tax positions and net income. 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, and as a result, believes that any potential difference between actual losses and costs incurred and the amounts accrued would be immaterial. F-25

113 Table of Contents A reconciliation of the beginning and ending balances of the total amounts of gross unrecognized tax benefits is as follows (in thousands): December 31, Gross unrecognized tax benefits at beginning of year $ 39,191 $ 34,300 Increases for tax positions taken in prior years 31,704 5,216 Increases in tax positions for the current year 23,169 Decreases for changes in temporary differences (1,306) (325) Gross unrecognized tax benefits at end of year $ 92,758 $ 39,191 The total amount of net unrecognized tax benefits that, if recognized, would affect the effective tax rate totaled $92.1 million and $37.3 million at December 31, 2011 and 2010, respectively. The Company recognizes interest expense and penalties related to unrecognized tax benefits in interest expense and selling, general and administrative expenses, respectively. For the years ended December 31, 2011, 2010 and 2009, interest expense includes $7.2 million, $5.6 million and $7.4 million, respectively, for interest accrued on the liability for unrecognized tax benefits and for issues identified in the Proof of Claim. As of December 31, 2011, the Company had accrued interest and penalties related to unrecognized tax benefits and the Adversary Proceeding of $105.3 million. Due to the uncertainties associated with litigation and the Adversary Proceeding, the Company is unable to predict the amount, if any, of the change in the gross unrecognized tax benefits balance in the next twelve months. NOTE 10 Debt Debt consisted of the following (in thousands): December 31, 2011 December 31, 2010 Weighted Average Stated Interest Rate At December 31, 2011 Estimated Final Maturity 2011 term loan A $ 894,837 $ 3.44% term loan B 1,333, % term loan 136,062 Revolving credit facility 10, % 2016 Other(1) 87,715 32,411 Various Various Total debt 2,325, ,473 Less current debt (56,695) (13,903) Total long-term debt $ 2,269,020 $ 154,570 (1) This balance includes capital lease obligations (see Note 14) and an equipment financing agreement. The Company's minimum debt repayment schedule, excluding interest, as of December 31, 2011 is as follows (in thousands): Payments Due Thereafter 2011 term loan A $ 19,837 $ 82,500 $ 112,500 $ 517,500 $ 162,500 $ 2011 term loan B 10,163 1,323,000 Revolving credit facility 10,000 Other debt 36,858 27,215 17,530 6, $ 56,695 $ 109,715 $ 130,030 $ 523,558 $ 182,717 $ 1,323,000 F-26

114 Table of Contents 2011 Credit Agreement On April 1, 2011, the Company entered into a $2.725 billion credit agreement (the "2011 Credit Agreement") to partially fund the acquisition of Western Coal and to pay off all outstanding loans under the 2005 Credit Agreement described below. The 2011 Credit Agreement consists of (1) a $950.0 million principal amortizing term loan A facility maturing in April 2016, at which time the remaining outstanding principal is due, (2) a $1.4 billion principal amortizing term loan B facility maturing in April 2018, at which time the remaining outstanding principal is due and (3) a $375.0 million multi-currency revolving credit facility ("Revolver") maturing in April 2016, at which time any remaining balance is due. The Revolver provides for operational needs and letters of credit. The Company's obligations under the 2011 Credit Agreement are secured by substantially all of the Company's domestic and foreign real, personal and intellectual property. The 2011 Credit Agreement contains customary events of default and covenants, including among other things, covenants that restrict but do not prevent the ability of the Company and its subsidiaries to incur certain additional indebtedness, create or permit liens on assets, pay dividends and repurchase stock, engage in mergers or acquisitions and make investments and loans. The 2011 Credit Agreement also includes certain financial covenants that must be maintained. The Revolver, term loan A and term loan B interest rates are tied to LIBOR or the Canadian Dealer Offered Rate ("CDOR"), plus a credit spread ranging from 225 to 300 basis points for the Revolver and term loan A, and 275 to 300 basis points on the term loan B adjusted quarterly based on the Company's total leverage ratio as defined by the 2011 Credit Agreement. The term loan B has a minimum LIBOR floor of 1.0%. The Revolver loans can be denominated in either U.S. dollars or Canadian dollars at the Company's option. The commitment fee on the unused portion of the Revolver is 0.5% per year for all pricing levels. As of December 31, 2011, the Revolver had $10.0 million in borrowings, with $71.2 million outstanding stand-by letters of credit and $293.8 million of availability for future borrowings Credit Agreement, as Amended On April 1, 2011, in connection with the acquisition of Western Coal, the Company repaid all outstanding loans and accrued interest under the 2005 credit agreement, as amended ("2005 Credit Agreement") and it was simultaneously terminated. No penalties were due in connection with the repayments. As of March 31, 2011 the 2005 Credit Agreement included (1) an amortizing term loan facility ("2005 Term Loan") with an initial aggregate principal amount of $450.0 million and (2) a $300.0 million revolving credit facility ("2005 Revolver") which provided for loans and letters of credit. The 2005 Term Loan bore interest at LIBOR plus as much as 300 basis points and required quarterly principal payments of $0.4 million through October 3, 2012, at which time the remaining outstanding principal was to be due. The 2005 Revolver bore interest at LIBOR plus as much as 400 basis points and was due to mature on July 2, The commitment fee on the unused portion of the 2005 Revolver was 0.5% per year for all pricing levels. The Company's obligations under the 2005 Credit Agreement were secured by substantially all of the Company's real, personal and intellectual property. NOTE 11 Pension and Other Employee Benefits The Company has various defined benefit pension plans covering certain U.S. salaried employees and eligible hourly employees. In addition to its own pension plans, the Company contributes to a multi-employer defined benefit pension plan covering eligible employees who are represented by the United Mine Workers of America ("UMWA"). The Company funds its retirement and employee benefit plans in accordance with the requirements of the plans and, where applicable, in amounts sufficient to satisfy the "Minimum Funding Standards" of the Employee Retirement Income Security Act of 1974 ("ERISA"). The plans provide benefits based on years of service and compensation or at stated amounts for each year of service. The Company also provides certain postretirement benefits other than pensions, primarily healthcare, to eligible retirees. The Company's postretirement benefit plans are not funded. New F-27

115 Table of Contents salaried employees have been ineligible to participate in postretirement healthcare benefits since May Effective January 1, 2003 the Company placed a monthly cap on Company contributions for postretirement healthcare coverage. The Company is required to measure plan assets and liabilities as of the fiscal year-end reporting date. As of December 31, 2011 and 2010, respectively, all of our pension plans have obligations that exceed plan assets. The amounts recognized for all of the Company's pension and postretirement benefit plans are as follows (in thousands): Pension Benefits Other Benefits December 31, December 31, December 31, December 31, Accumulated benefit obligation $ 246,021 $ 235,727 $ 577,918 $ 476,101 Change in projected benefit obligation: Benefit obligation at beginning of year $ 250,005 $ 226,580 $ 476,101 $ 452,659 Service cost 5,163 4,419 6,160 3,014 Interest cost 12,576 12,906 25,140 26,040 Actuarial loss 5,895 16,338 84,796 16,594 Benefits paid (11,027) (10,238) (21,813) (22,732) Plan amendments Plan settlements (4,207) Business combinations 7,430 Other 526 Benefit obligation at end of year $ 258,780 $ 250,005 $ 577,918 $ 476,101 Change in plan assets: Fair value of plan assets at beginning of year $ 191,736 $ 160,944 $ $ Actual gain on plan assets 1,163 21,270 Employer contributions 24,871 19,760 21,813 22,732 Benefits paid (11,026) (10,238) (21,813) (22,732) Plan settlements (4,207) Fair value of plan assets at end of year $ 202,537 $ 191,736 Unfunded status of the plan $ (56,243) $ (58,269) $ (577,918) $ (476,101) Amounts recognized in the balance sheet: Other current liabilities $ (5,083) $ (8,892) $ $ Accumulated postretirement benefits obligation Current $ (27,247) $ (24,753) Long-term (550,671) (451,348) Other long-term liabilities (51,160) (49,377) Net amount recognized $ (56,243) $ (58,269) $ (577,918) $ (476,101) Amounts recognized in accumulated other comprehensive income, pre-tax Prior service cost $ 1,290 $ 1,187 $ 9,916 $ 8,852 Net actuarial loss 106,479 96, , ,299 Net amount recognized $ 107,769 $ 97,277 $ 284,965 $ 209,151 F-28

116 Table of Contents The components of net periodic benefit cost are as follows (in thousands): Pension Benefits Other Benefits For the years ended December 31, For the years ended December 31, Components of net periodic benefit cost: Service cost $ 5,163 $ 4,419 $ 4,154 $ 6,160 $ 3,014 $ 3,049 Interest cost 12,576 12,906 12,458 25,140 26,040 23,294 Expected return on plan assets (15,717) (13,076) (11,304) Amortization of prior service cost (credit) (961) (2,098) (1,950) Amortization of net actuarial loss 8,252 8,922 9,356 10,046 14,522 6,440 Settlement loss 1,807 Net periodic benefit cost for continuing operations $ 12,353 $ 13,475 $ 14,968 $ 40,385 $ 41,478 $ 30,833 The estimated portion of net prior service cost and net actuarial loss remaining in accumulated other comprehensive income that is expected to be recognized as a component of net periodic benefit cost in 2012 are as follows (in thousands): Pension Benefits Other Benefits Prior service cost $ 256 $ 1,045 Net actuarial loss 9,252 14,725 Net amount to be recognized $ 9,508 $ 15,770 Changes in plan assets and benefit obligations recognized in other comprehensive income as (income) loss in 2011 are as follows (in thousands): Pension Benefits Other Benefits Total Current year net actuarial loss $ 20,544 $ 84,796 $ 105,340 Current year prior service cost Amortization of actuarial loss (10,059) (10,046) (20,105) Amortization of prior service cost (credit) (272) Total 10,587 75,815 86,402 Deferred income taxes (4,037) (29,141) (33,178) Total recognized in other comprehensive (income) loss, net of taxes $ 6,550 $ 46,674 $ 53,224 F-29

117 Table of Contents A summary of key assumptions used is as follows: Pension Benefits Other Benefits December 31, December 31, Weighted average assumptions used to determine benefit obligations: Discount rate 5.02% 5.30% 5.90% 5.14% 5.35% 5.90% Rate of compensation increase 3.70% 3.70% 3.70% Weighted average assumptions used to determine net periodic cost: Discount rate 5.30% 5.90% 6.50% 5.35% 5.90% 6.50% Expected return on plan assets 7.75% 8.25% 8.90% Rate of compensation increase 3.70% 3.70% 3.70% December 31, Pre-65 Post-65 Pre-65 Post-65 Pre-65 Post-65 Assumed health care cost trend rates at December 31: Health care cost trend rate assumed for next year 8.00% 8.00% 7.50% 7.50% 8.00% 8.00% Rate to which the cost trend rate is assumed to decline (the ultimate trend rate) 5.00% 5.00% 5.00% 5.00% 5.00% 5.00% Year that the rate reaches the ultimate trend rate The discount rate is based on a yield-curve approach which matches the expected cash flows to high quality corporate bonds available at the measurement date. The model constructs a hypothetical bond portfolio whose cash flows match the year-by-year, projected benefit cash flow from the benefit plan. The yield on this hypothetical portfolio is the maximum discount rate used. The yield curve is based on a universe of bonds available from the Barclays Capital bond database at the measurement date, with a quality rating of AA or better by Moody's or S&P. To minimize any potential distortion only bonds with significant issues of at least 100,000 outstanding are used. Bonds whose yields exceed two standard deviations from the yield curve derived from similar quality bonds are excluded. In addition, other tests are performed to eliminate bonds that do not appear to be priced properly by the market. The plan assets of the pension plans are held and invested by the Walter Energy, Inc. Subsidiaries Master Pension Trust ("Pension Trust"). The Pension Trust employs a total return investment approach whereby a mix of equity and fixed income investments are used to meet the long-term funding and nearterm cash flow requirements of the pension plan. The asset mix strives to generate rates of return sufficient to fund plan liabilities and exceed the long-term rate of inflation, while maintaining an appropriate level of portfolio risk. Risk tolerance is established through consideration of plan liabilities, plan funded status and corporate financial condition. The investment portfolio is diversified across domestic and foreign equity holdings, and by investment styles and market capitalizations. Domestic equity holdings primarily consist of investments in large-cap and mid-cap companies located in the United States, and of investments in collective trusts managed to replicate the investment performance of industry standard investment indexes. Foreign equity holdings primarily consist of investments in domestically managed mutual funds located in the United States. Fixed income holdings are diversified by issuer, security type and principal and interest payment characteristics. Derivatives may be used to gain market exposure in an efficient and timely manner; however, derivatives may not be used to leverage the portfolio beyond the market value of the underlying investments. Fixed income and derivatives holdings primarily consist of investments in domestically managed mutual funds located in the United States. Investment risk is measured and monitored on an ongoing basis through quarterly F-30

118 Table of Contents investment portfolio reviews, annual benefits liability measurements, and periodic asset/liability studies. Management believes the only significant concentration of investment risk lies in exposure to the U.S. domestic markets as compared to total global investment opportunities. Effective January 1, 2011, the Company lowered its expected return on plan assets from 8.25% to 7.75% given the decline in asset performance due to the ongoing global recession and disruption in the financial markets, as well as management's reevaluation of the ongoing impact of active management of assets by outside investment advisors. During 2009, the strategic allocation in the fixed income component was raised from 30% to 40% with a corresponding reduction in equity allocation from 70% to 60%. As a result of this change, the expected return on asset assumption decreased from 8.90% in 2009 to 8.25% in As of December 31, 2011, the Pension Trust's strategic asset allocation targets are as follows: Actual Allocation Strategic Allocation Tactical Range Equity investments: Large capitalization stocks 38.5% 29-48% 37.2% 39.1% Mid capitalization stocks 8.5% 6-11% 9.5% 11.2% Small capitalization stocks 0.0% 0% 0.0% 0.0% International stocks 13.0% 9-17% 12.5% 11.6% Total equity investments 60.0% 50-70% 59.2% 61.9% Fixed income investments 40.0% 30-50% 39.0% 37.5% Cash 0.0% 0-5% 1.8% 0.6% Total 100.0% 100.0% 100.0% These ranges are targets and deviations may occur from time-to-time due to market fluctuations. Portfolio assets are typically rebalanced to the allocation targets at least annually. As of December 31, 2011, the fair values of the Pension Trust's assets were as follows ($ in thousands): Asset category Level 1(L1) Level 2(L2) Level 3(L3) Cash $ 3,568 X Equity investments Large cap value Index(a) 16,586 X Large cap value(b) 16,658 X Large cap growth Index(c) 21,195 X Large cap growth(d) 20,894 X Mid-cap growth(e) 19,350 X International(f) 25,332 X Fixed income investments: Intermediate-term bond(g) 73,928 X Long-term bond(h) 5,026 X Total $ 202,537 (a) (b) This category comprises an investment in a low-cost, non-actively managed, U.S.-regulated equity index mutual fund that tracks the Russell 1000 Value Index. This category comprises an investment in an actively managed, U.S.-regulated mutual fund with a goal of achieving a return above the Russell 1000 Value Index. F-31

119 Table of Contents (c) (d) (e) (f) (g) (h) (L1) (L2) This category comprises an investment in a low-cost, non-actively managed, U.S.-regulated equity index mutual fund that tracks the Russell 1000 Growth Index. This category primarily consists of U.S. common stocks selected using a large-capitalization, growth-oriented investment strategy with a goal of achieving a return above the Russell 1000 Growth Index. This category primarily consists of U.S. common stocks selected using a mid-capitalization, growth-oriented investment strategy with a goal of achieving a return above the Russell Mid Cap Index. This category comprises an investment in an actively managed, U.S.-regulated mutual fund with a goal of achieving a return above the MSCI EAFE Index. This category comprises an investment in an actively managed, U.S.-regulated mutual fund with a goal of achieving a return above the Barclays Capital U.S. Aggregate Bond Index. This category comprises an investment in a low-cost, non-actively managed, U.S.-regulated mutual fund that tracks the Barclays Capital U.S. Long Government/Credit Float Adjusted Index. These assets are equity securities or exchange traded funds whose fair value is determined from quoted prices on nationally recognized securities exchanges. The Pension Trust does not invest in any Level 2 assets with unobservable inputs. (L3) The Pension Trust does not invest in any Level 3 assets with significant unobservable inputs. The Pension Trust employs a building block approach in determining the long-term rate of return for plan assets. Historical market returns are studied and long-term risk/return relationships between equity and fixed income asset classes are analyzed. This analysis supports the widely accepted fundamental investment principle that assets with greater risk generate higher returns over long periods of time. The historical impact of returns in one asset class on returns of another asset class is reviewed to evaluate portfolio diversification benefits. Current market factors including inflation rates and interest rate levels are considered before assumptions are developed. The long-term portfolio return is established via the building block approach by adding interest rate risk and equity risk premiums to the anticipated long-term rate of inflation. Proper consideration is given to the importance of portfolio diversification and periodic rebalancing. Peer data and historical return assumptions are reviewed to check for reasonableness. F-32

120 Table of Contents Assumed healthcare cost trend rates, discount rates, expected return on plan assets and salary increases have a significant effect on the amounts reported for the pension and healthcare plans. A one-percentage-point change in the trend rate for these assumptions would have the following effects (in thousands): Increase (Decrease) 1-Percentage Point Increase 1-Percentage Point Decrease Health care cost trend: Effect on total of service and interest cost components $ 4,580 $ (3,693) Effect on postretirement benefit obligation $ 79,862 $ (65,409) Discount rate: Effect on postretirement service and interest cost components $ 13,897 $ (85) Effect on postretirement benefit obligation $ (68,165) $ 84,930 Effect on current year postretirement benefits expense $ (3,820) $ 4,621 Effect on pension service and interest cost components $ 127 $ (237) Effect on pension benefit obligation $ (26,555) $ 32,101 Effect on current year pension expense $ (2,554) $ 2,995 Expected return on plan assets: Effect on current year pension expense $ (1,905) $ 1,905 Rate of compensation increase: Effect on pension service and interest cost components $ 444 $ (396) Effect on pension benefit obligation $ 3,452 $ (3,185) Effect on current year pension expense $ 836 $ (757) The Company's minimum pension plan funding requirement for 2012 is $28.1 million, which the Company expects to fully fund. The Company also expects to pay $27.2 million in 2012 for benefits related to its other postretirement healthcare plan. The following estimated benefit payments from the plans, which reflect expected future service, as appropriate, are expected to be paid as follows (in thousands): Pension Benefits Other Postretirement Benefits Before Medicare Subsidy Medicare Part D Subsidy 2012 $ 18,479 $ 29,006 $ 1, $ 14,304 $ 31,102 $ 1, $ 15,173 $ 32,952 $ 2, $ 16,566 $ 34,626 $ 2, $ 16,736 $ 36,268 $ 2,740 Years $ 92,313 $ 197,460 $ 17,761 The Company and certain of its subsidiaries maintain profit sharing and 401(k) plans. The total cost of these plans in 2011, 2010 and 2009 was $0.4 million, $0.4 million and $0.5 million, respectively. UMWA Pension and Benefit Trusts The Company is required under its agreement with the UMWA to contribute to multi-employer plans providing pension, healthcare and other postretirement benefits. The risks of participating in these multi-employer plans are different from single-employer plans in the following aspects: Assets contributed to the multiemployer plan by one employer may be used to provide benefits to employees of other participating employers. F-33

121 Table of Contents If a participating employer stops contributing to the plan, the unfunded obligations of the plan may be borne by the remaining participating employers. The Employee Retirement Income Security Act of 1974 ("ERISA"), as amended in 1980, imposes certain liabilities on contributors to multiemployer pension plans in the event of a contributor's withdrawal from the plan. At December 31, 2011, approximately 38% of Walter Energy's workforce was represented by the UMWA and covered under our collective bargaining agreement which began July 11, 2012 and will expire December 31, During 2011 the number of UMWA represented employees increased by approximately 300 as a result of the acquisition of the North River mine described in Note 3. UMWA 1974 Pension Plan The Company is required under the agreement with the UMWA to pay amounts to the 1974 UMWA Pension Plan ("the 1974 Pension Plan") based principally on hours worked by UMWA represented employees. The required contribution called for by our current collective bargaining agreement is $5.50 per hour worked. This cost is recognized as an expense in the year the payments are assessed. The benefits provided by the 1974 Pension Plan to the participating employees are determined based on age and years of service at retirement. The Company was listed in the 1974 Pension Plan's Form 5500, filed April 15, 2011, as providing more than 5 percent of the total contributions for the 2009 plan year. As of June 30, 2011, the most recent date for which information is available, the 1974 Pension Plan was underfunded. This determination was made in accordance with ERISA calculations. In October 2011, the Company received notice from the trustees of the 1974 Pension Plan stating that the plan is considered to be "seriously endangered" for the plan year beginning July 1, The Pension Protection Act ("Pensions Act") requires a funded percentage of 80% be maintained for this multi-employer pension plan, and if the plan is determined to have a funded percentage of less than 80% it will be deemed to be "endangered" or "seriously endangered", if the number of years to reach a projected funding deficiency equals 7 or less in addition to having a funded percentage of less than 80%, and if less than 65%, it will be deemed to be in "critical" status. The funded percentage certified by the actuary for the 1974 Pension Plan was determined to be 76.50% under the Pension Act. The Company faces risks and uncertainties by participating in the 1974 Pension Plan. All assets contributed to the plan are pooled and available to provide benefits for all participants and beneficiaries. As a result, contributions made by the Company benefit the employees of other employers. If the 1974 Pension Plan fails to meet ERISA's minimum funding requirements or fails to develop and adopt a rehabilitation plan, a nondeductible excise tax of five percent of the accumulated funding deficiency may be imposed on an employer's contribution to this multi-employer pension plan. As a result of the 1974 Pension Plan's "seriously endangered" status, steps must be taken under the Pension Act to improve the funded status of the plan. As a result, the Pension Act requires the 1974 Pension Plan to adopt a funding improvement plan no later than May 25, 2012, to improve the funded status of the plan, which may include increased contributions to the 1974 Pension Plan from employers in the future. Because our current collective bargaining agreement established our contribution obligations through December 31, 2016, our contributions to the 1974 Pension Plan should not increase during the term of the current collective bargaining agreement as a consequence of any funding improvement plan adopted by the 1974 Pension Plan to address the plan's seriously endangered status. Under current law governing multi-employer defined benefit plans, if the Company voluntarily withdrew from the 1974 Pension Plan, the currently underfunded multi-employer defined benefit plan would require the Company to make payments to the plan which would approximate the proportionate share of the multiemployer plan's unfunded vested benefit liabilities at the time of the withdrawal. The 1974 Pension Plan uses a modified "rolling five" method for calculating an employer's share of the F-34

122 Table of Contents unfunded vested benefits, or the withdrawal liability, for a plan year. An employer would be obligated to pay its pro-rata share of the unfunded vested benefits based on the ratio of hours worked by the employer's employees during the previous five plan years for which contributions were due compared to the number of hours worked by all the employees of the employers from which contributions were due. The 1974 Pension Plan's unfunded vested benefits at June 30, 2011, the end of the latest plan year, were $4.3 billion. The Company's percentage of hours worked compared during the previous five plan years to the total hours worked by all plan participants during the same period was estimated to be approximately 9%. The Company does not have any intention to withdraw from the plan; however, through June 30, 2012, the calculation of the Company's combined withdrawal liability amounts to $484.4 million. The following table provides additional information regarding the multiemployer plan in which the Company participates as of December 31, 2011 (in thousands): Pension Protection Act Zone Status Contributions of Walter Energy FIP/RP Status EIN/Pension Pending/ Pension Fund Plan Number Implemented Surcharge Imposed Expiration Date of Collective- Bargaining Agreement United Mine Workers of America 1974 Pension Plan(1) /002 Yellow Green Yes $19,520 $13,425 $10,732 No 12/31/2016 (1) UMWA Benefit Trusts The enrolled actuary for the UMWA 1974 Pension Plan ("the Plan") certified to the U.S. Department of the Treasury and the plan sponsor that the Plan is in "Seriously Endangered Status" for the plan year beginning July 1, 2011 and ending June 30, A funding improvement plan is currently pending. Federal law requires the Plan to adopt a funding improvement plan by May 25, The Coal Industry Retiree Health Benefit Act of 1992 ("Coal Act") created two multiemployer benefit plans: (1) the United Mine Workers of America Combined Benefit Fund ("Combined Fund") into which the former UMWA Benefit Trusts were merged, and (2) the 1992 Benefit Fund. The Combined Fund provides medical and death benefits for all beneficiaries of the former UMWA Benefit Trusts who were actually receiving benefits as of July 20, The 1992 Benefit Fund provides medical and death benefits to orphan UMWA-represented members eligible for retirement on February 1, 1993, and who actually retired between July 20, 1992 and September 30, The Coal Act provides for the assignment of beneficiaries to former employers and the allocation of unassigned beneficiaries (referred to as orphans) to companies using a formula set forth in the Coal Act. The Coal Act requires that responsibility for funding the benefits to be paid to beneficiaries, be assigned to their former signatory employers or related companies. This cost is recognized as an expense in the year the payments are assessed. The Company made no contributions to these funds for the years ended December 31, 2011 and 2010 and made contributions of $0.3 million during the year ended December 31, The UMWA 1993 Benefit Plan is a defined contribution plan that was created as the result of negotiations for the National Bituminous Coal Wage Agreement (NBCWA) of This plan provides healthcare benefits to orphan UMWA retirees who are not eligible to participate in the Combined Fund, or the 1992 Benefit Fund or whose last employer signed the 1993, or a later, NBCWA and who subsequently goes out of business. Contributions to the trust under the 2011 labor agreement are $0.50 per hour worked by UMWA represented employees for the year ended December 31, Contributions to the trust under the 2007 agreement were $1.42 per hour worked by UMWA represented employees for the year ended December 31, 2010, comprised of a $0.50 per hour worked under the labor agreement and $0.92 per hour worked by UMWA represented employees under the Tax Relief and Health Care Act of 2006 (the 2006 Act). Contributions to the trust under the 2007 agreement were $1.44 per hour worked by UMWA represented employees for the year ended December 31, 2009, comprised of a $0.50 per hour worked under the labor agreement and $0.94 per F-35

123 Table of Contents hour worked by UMWA represented employees under the 2006 Act. Total contributions to the UMWA 1993 Benefit Plan in 2011, 2010 and 2009 were $1.8 million, $3.8 million and $3.6 million, respectively. NOTE 12 Stockholders' Equity In September 2008 the Board of Directors approved a $50.0 million share repurchase program and in December 2008 the Board of Directors authorized a $50.0 million expansion of the Company's share repurchase program. The new program began on January 1, 2009 and purchases were based on liquidity and market conditions. Through December 31, 2009, the Company purchased a total of 2,747,659 shares for $79.4 million. The Company purchased an additional 270,159 shares for $20.5 million andcompleted the program during the second quarter of On May 14, 2010, the Board of Directors authorized a $45.0 million share repurchase program, which was substantially completed during the third quarter of Through December 31, 2010, a total of 3,658,408 shares were repurchased under the programs for a total cost of approximately $144.8 million. No shares were repurchased in On February 27, 2009, the Company's Board of Directors authorized and declared a dividend of one preferred stock purchase right (a "Right") for each share of common stock to stockholders of record as of the close of business on April 23, The shareholders approved this action and the Company entered into a rights agreement on April 24, Initially the Right is not exercisable and will trade with our common stock. The Right may be exercisable under certain circumstances, including a person or group acquiring, or the commencement of a tender or exchange offer that would result in a person or group acquiring, beneficial ownership of more than 20% of the outstanding shares of common stock. Upon exercise of the Right, each Right holder, other than the person or group triggering the plan, will have the right to purchase from us 1/1000 th of a share of junior preferred stock (subject to adjustment) or, at the Company's option, shares of common stock having a value equal to two times the exercise price of the Right. Each fractional share of the junior preferred stock has terms designed to make it substantially the economic equivalent of one share of common stock. This rights agreement expires on April 23, On April 23, 2009, shareholders voted to grant the Company the authority to issue 20,000,000 shares of preferred stock, at a par value of $0.01 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. On April 1, 2011, the Company issued 8,951,558 common shares valued at $1.2 billion in connection with the acquisition of Western Coal as described in Note 3. In connection with the acquisition of Western Coal, the Company assumed all the outstanding warrants of Western Coal (see Note 3). Upon exercise the outstanding Western Coal warrants will entitle the holder to receive cash and shares of Walter Energy common stock that would have been issued if the warrants had been exercised immediately before closing of the acquisition. Warrants to purchase an aggregate of 19,119 shares of Walter Energy common stock are exercisable and outstanding as of December 31, The warrants have an exercise price of CAD$3.25 and expire on June 28, F-36

124 Table of Contents NOTE 13 Net Income Per Share A reconciliation of the basic and diluted net income per share computations for the years ended December 31, 2011, 2010 and 2009 is as follows (in thousands, except per share data): For the years ended December 31, Basic Diluted Basic Diluted Basic Diluted Numerator: Income from continuing operations $349,176 $349,176 $389,425 $389,425 $141,850 $141,850 Loss from discontinued operations $ $ $ (3,628)$ (3,628)$ (4,692)$ (4,692) Denominator: Average number of common shares outstanding 60,257 60,257 53,179 53,179 53,076 53,076 Effect of dilutive securities Stock awards and warrants(a) ,257 60,611 53,179 53,700 53,076 53,819 Income from continuing operations $ 5.79 $ 5.76 $ 7.32 $ 7.25 $ 2.67 $ 2.64 Loss from discontinued operations (0.07) (0.07) (0.09) (0.09) Net income per share $ 5.79 $ 5.76 $ 7.25 $ 7.18 $ 2.58 $ 2.55 (a) Stock awards represent the weighted average number of shares of common stock issuable on the exercise of dilutive employee stock options and restricted stock units, less the number of shares of common stock which could have been purchased with the proceeds from the exercise of such stock awards. These purchases were assumed to have been made at the average market price of the common stock for the period. The weighted average number of stock options outstanding of 31,511, 25,177, and 150,907 for the years ended December 31, 2011, 2010 and 2009, respectively, were excluded because their effect would have been anti-dilutive. Outstanding warrants entitle the holder to receive cash and shares of common stock upon exercise. NOTE 14 Commitments and Contingencies Income Tax Litigation The Company is currently engaged in litigation with the IRS with regard to certain federal income tax issues; see Note 9 for a more complete explanation. Environmental Matters 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. F-37

125 Table of Contents Walter Coke, Inc. Walter Coke entered into a decree order in 1989 relative to a Resource Conservation Recovery Act ("RCRA") compliance program mandated by the Environmental Protection Agency ("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. A work plan was approved in 1994 and the Phase I investigations were conducted and completed between 1995 and Phase II investigations for the Chemical Plant/Coke Plant and Biological Treatment Facility and Sewers/Land Disposal Areas at the Walter Coke facility 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 Walter Coke implemented the approved EI sampling plan in April The EPA approved and finalized the EI determinations for Walter Coke's Birmingham facility in September 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 The EPA commented on the Phase III plan and Walter Coke 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. Phase III sampling reports were submitted in March 2009 and June Beyond the scope of the Phase III activity performed in 2007 through 2009, additional requests by EPA expanded the scope of the project which required additional sampling and testing. In January 2008, as a follow-up to the EI determination, the EPA requested that Walter Coke perform additional soil sampling and testing in the neighborhoods surrounding its facility. Subsequent to EPA's initial request and presentation of a residential sampling plan to EPA by Walter Coke, the plan was finalized and community involvement initiated, with sampling and testing commencing in July The results of this sampling and testing were submitted to the EPA for review in December In conjunction with the plan, Walter Coke agreed to remediate portions of 23 properties based on the 2009 sampling and that process was started in July, As of December 31, 2011, Walter Coke had completed soil removal action at portions of 16 residential properties for which access agreements were obtained. In December 2011, the EPA notified Walter Coke in the form of a General Notice Letter that it proposed that the offsite remediation project be classified and managed as a Superfund site under CERCLA, allowing other Potentially Responsible Parties (PRP's) to be brought in. The Company has incurred costs to investigate the presence of contamination at the Walter Coke facility and to define remediation actions to address this environmental liability in accordance with the agreements reached with the EPA under the RFI and the residential soil sampling conducted by Walter Coke in the neighborhoods surrounding its facility. At December 31, 2011, the Company has an amount accrued that is probable and can be reasonably estimated for the costs to be incurred to identify and define remediation actions, as well as to perform certain remedial tasks which can be quantified, in accordance with the agreements reached and proposals that continue to be coordinated with the EPA to date. The amount of this accrual is not material to the financial statements. While it is probable that the Company will incur additional future costs to remediate environmental liabilities at the Walter Coke facility, the amount of these costs cannot be reasonably estimated at this time. Because the RCRA and CERCLA compliance programs are in the study phase with negotiation of final orders ongoing, until these processes are complete the Company is unable to fully estimate the cost of remediation activities that will be required. 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. F-38

126 Table of Contents The Company and Walter Coke were named in a suit filed by Louise Moore on April 26, 2011 (Louise Moore v. Walter Energy, Inc. and Walter Coke, Inc., Case No. 2:11-CV-01391) in the federal District Court for the Northern District of Alabama. This is a putative civil class action alleging state law tort claims arising from the alleged presence on properties of substances, including arsenic, BaP, and other hazardous substances, allegedly as a result of current and/or historic operations in the area conducted by the companies and/or their predecessors. This action is still in the earliest stages of litigation. On June 6, 2011, the plaintiff filed an amended complaint eliminating Walter Energy as a defendant and amending the claims alleged against Walter Coke to relate to Walter Coke's alleged conduct for the period commencing after March 2, Based on initial evaluation, management believes that both procedural and substantive defenses are available to the Company and Walter Coke expects to vigorously defend this matter. No specific dollar value has been claimed in the suit's demand for monetary damages. On June 20, 2011, Walter Coke filed a Motion to Dismiss which, was heard on October 28, As of the date of filing this annual report on Form 10-K, a ruling has not been received. Maple Coal Company Maple Coal Company ("Maple") was the subject of a compliance order issued against its water discharge permit in April, 2007 by the West Virginia Department of Environmental Protection ("WVDEP"). This order provided that Maple would have until April 5, 2010 to comply with certain water qualitybased effluent limitations for selenium concentrations in discharges from its mining operations. Maple sought a permit modification to extend the selenium compliance date beyond April 5, That permit modification application was denied by the WVDEP. Maple appealed that denial to the West Virginia Environmental Quality Board ("EQB"), which issued a Stay of those limits, to be effective until it had issued a ruling. The Kanawha County (West Virginia) Circuit Court also issued Stay Orders, preventing the selenium effluent limits in Maple's National Pollutant Discharge Elimination System ("NPDES") permit from taking effect until the exhaustion of all appeals from the WVDEP denial and the conclusion of the WVDEP's civil enforcement action. The EQB ruled against Maple's appeal. Maple has filed an appeal of these rulings (consolidated into one case) with the Fayette County (West Virginia) Circuit Court. In connection with this administrative appeal, Maple has also obtained a Stay Order from the Fayette County Circuit Court, suspending the effective date of the selenium limits in its NPDES permit pending the outcome of that appeal. The parties to that appeal agreed to defer briefing, pending negotiation of a comprehensive settlement of all such issues (discussed below) and the Court entered an order suspending the briefing schedule. In a related action, in June, 2010 the WVDEP instituted a civil enforcement action against Maple seeking to enforce effluent limits for non-selenium parameters found in the Maple permit, asserting violations of various in-stream water quality standards, and alleging a violation of the April 5, 2007 selenium compliance order. Maple has entered into a comprehensive Consent Decree with the WVDEP with civil penalties of $229,350 resolving that case and the EQB case mentioned above. In a second related action, in January, 2011 three environmental interest groups filed a Clean Water Act citizen's suit against Maple, seeking more than $14 million in civil penalties for selenium violations since April, 2010 and injunctive relief in the form of mandatory treatment plant installations. The plaintiffs filed a Motion for Partial Summary Judgment on Jurisdiction and Liability, and Maple filed a Cross-Motion for Summary Judgment. On September 2, 2011, the Court issued a Memorandum Opinion and Order (the "Sept. 2 Order") granting, in part, and denying, in part, both motions. In partially granting Maple's motion, the Court held that the plaintiffs' members had not shown a sufficient connection to establish standing to bring a claim as to discharges from one of the outlet F-39

127 Table of Contents under the Maple NPDES Permit at issue. The Court upheld jurisdiction over claims based on discharges from one of the outlets, and found that the plaintiffs were entitled to summary judgment on liability as to past and continuing selenium discharges from that outlet. The plaintiffs filed a Motion to Amend Judgment, asking the Court to reverse its Sept. 2 Order as to their dismissed claims, that was denied by Order dated October 24, Maple, in turn, filed a motion seeking the right to file an interlocutory appeal of that part of the Court's Sept. 2 Order that denied its motion to dismiss based on the WVDEP's diligent enforcement against Maple, which the Court denied by Order dated December 19, Maple has filed a Motion for Summary Judgment on the basis of mootnes with the entering into a Consent Order with WVDEP. As of the date of filing this annual report on Form 10-K, a ruling has not been received. A trial on civil penalties for past violations and injunctive relief to address continuing violations at the remaining outlet is scheduled for May, In addition, these same plaintiffs served a second Notice of Intent to Sue under the Clean Water Act on September 23, 2011, alleging that Maple Coal is liable for having caused selenium water quality standard violations authorized under a different NPDES permit. Maple responded to that Notice on October 31, 2011, and plaintiffs have not filed a lawsuit or amended their existing suit addressing those threatened claims. At present the likelihood of an unfavorable outcome as to the federal court citizens' suit is neither remote nor probable and no opinion can be offered regarding the likelihood of the citizens suit plaintiffs succeeding in this action. As such, the Company has not made a provision for these claims in its consolidated financial statements. Regardless of the manner of their disposition, however, civil penalties, mandatory treatment facility costs, and other costs that may ultimately be incurred as a result of these proceedings could be material. Jim Walter Resources In July, 2011, Jim Walter Resources, Inc. ("JWR") reported a slurry spill at its North River mine to the Alabama Department of Environmental Management ("ADEM") and the Alabama Surface Mining Commission ("ASMC"). As a result, a penalty of $145,200 was assessed and paid to ASMC in November, A penalty of $60,000 was assessed by ADEM in December, JWR has expended approximately $5.0 million in remediation costs which is substantially complete and is pursuing insurance claims. Securities Class Actions and Shareholder Derivative Actions On January 26, 2012, a putative class action was filed against Walter Energy and some of its current and former senior executive officers in the U.S. District Court for the Northern District of Alabama (Rush v. Walter Energy, Inc., et al.). The three executive officers named in the complaint are: Keith Calder, Walter's former CEO; Walter Scheller, the Company's current CEO; and Neil Winkelmann, former President of Walter's Canadian and European Operations (collectively the "Individual Defendants"). The complaint was filed by Peter Rush, a purported shareholder of Walter Energy who seeks to represent a class of Walter shareholders who purchased the common stock of Walter between April 20, 2011 and September 21, The complaint alleges that Walter and the Individual Defendants made false and misleading statements regarding the Company's operations outlook for the second quarter of The complaint further alleges that the Company and the Individual Defendants knew that these statements were misleading and failed to disclose material facts that were necessary in order to make the statements not misleading. Plaintiff claims violations of Section 10(b) of the Securities Exchange Act of 1934, Rule 10b-5 promulgated thereunder, and Section 20(a) of the 1934 Act. The Court has not yet appointed lead plaintiff or lead plaintiff's counsel. Defendants have yet to be served with a complaint F-40

128 Table of Contents in this action. Walter Energy and the other named defendants believe that there is no merit to the claims alleged and intend to vigorously defend the action. On February 7, 2012, a shareholder derivative lawsuit was filed in the 10th Judicial Circuit of Alabama (Israni v. Clark et al.). On February 10, 2012 a second shareholder derivative suit was filed in the same court (Himmel v. Scheller et al.), and on February 16, 2010 a third derivative suit was filed (Walters v. Scheller et al.). All three complaints name as defendants the Company's current Board of Directors, Keith Calder and Neil Winkelmann. The Company is named as a nominal defendant in each complaint. The three complaints allege similar facts to those alleged in the Rush complaint. The complaints variously assert state law claims, for breaches of fiduciary duties for alleged failures to maintain internal controls and to properly manage the Company, unjust enrichment, waste of corporate assets, gross mismanagement and abuse of control. The three derivative actions seek, among other things, recovery for the company for damages that the company suffered as a result of alleged wrongful conduct. Walter Energy and the other named defendants believe that there is no merit to the claims alleged and intend to vigorously defend these actions. In November, 2009, Western Coal was named as a defendant in a statement of claim issued by a plaintiff who seeks leave of the Ontario Courts to proceed with a securities class action. This claim also named Western Coal's former President and director, John Hogg, and two of its non-executive directors, John Brodie and Robert Chase, as defendants. The plaintiff subsequently delivered an amended claim that added new allegations that seeks to have the amended claim certified as a class action separately from the proposed securities class action allegations. The new allegations focused on certain transactions the plaintiff claims were oppressive and unfair to the interests of shareholders. The amended claim included additional defendants of Western Coal's former Chairman, John Byrne, its remaining nonexecutive directors John Conlon and Charles Pitcher, Audley European Opportunities Master Fund Limited, Audley Capital Management Limited, and Audley Advisors LLP. The proposed securities claims allege that those persons who acquired or disposed of Western Coal shares between November 14, 2007 and December 10, 2007 should be entitled to recover $200 million for general damages and $20 million in punitive damages. The plaintiff alleges that Western Coal's consolidated financial statements for the second quarter of fiscal 2008 and the accompanying news release issued on November 14, 2007 misrepresented Western Coal's financial condition and that Western Coal failed to make full, plain and true disclosure of all material facts and changes. The plaintiff's oppression claims are advanced in respect of security holders in the period between April 26, 2007 and July 13, The claims are that the defendants caused Western Coal to enter into transactions that had a dilutive effect on the interests of shareholders. The damages associated with these alleged dilutive effects have not been developed or quantified. The plaintiff's motions to proceed with securities claims and also to certify the securities and oppression claims as class actions were rescheduled to allow the plaintiff additional time to answer the Company's position. This has now been done. The hearing dates are set for June Western Coal and the other named defendants continue to, and will vigorously defend the allegations. They maintain that there is no merit to the claims and that the damages are without foundation and excessive. Accordingly, the Company has made no provision for the claims in its financial statements. F-41

129 Table of Contents Miscellaneous Litigation 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 material adverse effect on the Company's consolidated financial statements. Commitments and Contingencies Other 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 results of operations. Undistributed Foreign Earnings The Company has not provided U.S. income taxes and foreign withholding taxes on the undistributed earnings of foreign subsidiaries as of December 31, 2011 because it intends to indefinitely reinvest such earnings outside the U.S. If this intent changes, additional income tax expense would likely be recorded due to the differential in tax rates between the U.S. and the international jurisdictions. If these foreign earnings were to be repatriated in the future, the related U.S. tax liability on such repatriation may be partially reduced by any foreign income taxes previously paid on these earnings. Determination of the amount of taxes that might be paid on these undistributed earnings if eventually remitted is not practicable. Ridley Terminal Services Agreement In connection with the acquisition of Western Coal, the Company assumed a terminal services agreement (the "Agreement") with Ridley Terminals Inc. located in British Columbia. The Agreement contains minimum throughput obligations each calendar year through December 31, If the Company does not meet its minimum throughput obligation, the Company shall pay Ridley Terminals a contractually specified amount per metric ton for the difference between the actual throughput and the minimum throughput requirement. The Company expects to meet future minimum throughput requirements and as such no liability has been established at December 31, Lease Obligations The Company's leases are primarily for mining equipment, automobiles and office space. The total cost of assets under capital leases was $118.8 million and $9.4 million at December 31, 2011 and 2010, respectively. Accumulated amortization on assets under capital leases was $16.8 million and $4.2 million at December 31, 2011 and 2010, respectively. Amortization expense for capital leases is included in depreciation and depletion expense. Rent expense was $21.0 million, $13.7 million, and $10.9 million for the years ended December 31, 2011, 2010 and 2009, respectively. Future minimum payments under F-42

130 Table of Contents non-cancellable capitalized and operating leases obligations as of December 31, 2011 are as follows (in thousands): Capitalized Leases Operating Leases 2012 $ 29,843 $ 22, ,948 16, ,273 13, ,980 7, ,869 Thereafter 2,936 Total 74,105 $ 67,348 Less: amount representing interest and other executory costs (6,002) Present value of minimum lease payments $ 68,103 A substantial amount of the coal we mine is produced from mineral reserves leased from third-party land owners. These leases convey mining rights to the coal producer in exchange for royalties to be paid to the lessor either as a fixed amount per ton or as a percentage of the sales price. Although coal leases have varying renewal term and conditions, they generally last for the economic life of the reserves. Coal royalty expense was $111.5 million, $88.8 million and $41.6 million for the years ended December 31, 2011, 2010 and 2009 respectively. NOTE 15 Derivative Financial Instruments Interest Rate Swaps On June 27, 2011, the Company entered into an interest rate swap agreement with a notional value of $450.0 million. The objective of the swap is to protect against the variability in expected future cash flows attributable to changes in the benchmark interest rate related to interest payments required under the 2011 Credit Agreement. The interest rate on the debt is subject to change due to fluctuations in the benchmark interest rate of 3-month LIBOR. The structure of the hedge is a three year amortizing interest rate swap based on a 1.17% fixed rate with fixed rate and floating rate payment dates effective July 18, The hedge will be settled upon maturity and is being accounted for as a cash flow hedge. Changes in the fair value of the hedge that take place through the date of maturity are reported in accumulated other comprehensive income (loss) and reclassified into earnings in the same period or periods during which the hedged transactions affect earnings. On December 30, 2008, the Company entered into an interest rate hedge agreement with a notional value of $31.5 million. The objective of the hedge is to protect against the variability in expected future cash flows attributable to changes in the benchmark interest rate related to 62 of the 64 monthly interest payments required under an equipment financing arrangement for a new longwall shield system entered into on October 21, The interest rate on the debt is subject to change due to fluctuations in the benchmark interest rate of 1-month LIBOR. The structure of the hedge is a 62 month amortizing interest rate swap based on a 1.84% fixed rate with fixed rate and floating rate payment dates effective February 1, The hedge will be settled upon maturity and is being accounted for as a cash flow hedge. Changes in the fair value of the hedge that take place through the date of maturity are reported in accumulated other comprehensive income (loss) and reclassified into earnings in the same period or periods during which the hedged transactions affect earnings. F-43

131 Table of Contents Interest Rate Cap On June 27, 2011, the Company entered into an interest rate cap agreement related to interest payments required under the 2011 Credit Agreement with a notional value of $255.0 million. The objective of the cap is to protect against the variability in expected future cash flows attributable to changes in the benchmark interest rate above 2.00%. The interest rate on the debt is subject to change due to fluctuations in the benchmark interest rate of 3-month LIBOR. The structure of the hedge is a three year amortizing interest rate cap based on a strike price of 2.00% with fixed rate and floating rate payment dates effective July 7, The hedge will be settled upon maturity and is being accounted for as a cash flow hedge. Changes in the fair value of the hedge that take place through the date of maturity are reported in accumulated other comprehensive income (loss) and reclassified into earnings in the same period or periods during which the hedged transactions affect earnings. Natural Gas Hedge Revenues derived from the sale of natural gas are subject to volatility based on changes in market prices. In order to reduce the risk associated with natural gas price volatility, on June 7, 2011 the Company entered into a one year swap contract to hedge 4.2 million MMBTUs of natural gas sales beginning in July 2011 and ending June 2012, at a price of $5.00 per MMBTU. The swap agreement will hedge approximately 35% of anticipated natural gas sales from July 2011 through June The hedge will be settled upon maturity and is being accounted for as a cash flow hedge. Changes in the fair value of the hedge that take place through the date of maturity are reported in accumulated other comprehensive income (loss) and reclassified into earnings in the same period or periods during which the hedged transactions affect earnings. The following table presents the fair values of the Company's derivative instruments as well as the classification in the Condensed Consolidated Balance Sheets (in thousands). See Note 16 for additional information related to the fair values of our derivative instruments. December 31, 2011 December 31, 2010 Asset derivatives designated as cash flow hedging instruments: Natural gas hedge(1) $ 4,050 $ Interest rate cap(2) 432 Total asset derivatives $ 4,482 $ Liability derivatives designated as cash flow hedging instruments: Interest rate swaps(3) $ 5,683 $ 386 (1) (2) (3) Included in other current assets. $143 thousand is included in other current assets and $289 thousand is included in other long-term assets. As of December 31, 2011, $1.8 million is included in other current liabilities and $3.9 million is included in other long-term liabilities. The December 31, 2010 balance was included in other long-term liabilities. F-44

132 Table of Contents The following tables present the gains and losses from derivative instruments for the years ended December 31, 2011 and 2010 and their location within the Consolidated Financial Statements (in thousands). The Company utilizes only cash flow hedges that are considered highly effective. Derivatives designated as cash flow hedging instruments Gain (loss) recognized in accumulated other comprehensive income, net of tax For the years ended December 31, Gain (loss) reclassified from accumulated other comprehensive income (loss) to earnings For the years ended December 31, Gain (loss) recognized in earnings For the years ended December 31, Natural gas hedges(1) $ 2,309 $ (386) $ 2,387 $ 3,017 $ $ Interest rate swaps(2) (3,294) (210) (1,342) (375) Interest rate cap(2) 269 Total $ (716) $ (596) $ 1,045 $ 2,642 $ $ (1) Amounts recorded in miscellaneous income in the Consolidated Statements of Operations (2) Amounts recorded in interest expense in the Consolidated Statements of Operations NOTE 16 Fair Value of Financial Instruments Fair value is defined as the price that would be received to sell an asset or paid to transfer a liability in an orderly transaction between market participants at the measurement date. A three level hierarchy has been established for valuing assets and liabilities based on how transparent (observable) the inputs are that are used to determine fair value, with the inputs considered most observable categorized as Level 1 and those that are the least observable categorized as Level 3. Hierarchy levels are defined as follows: Level 1: Quoted prices in active markets for identical assets and liabilities; Level 2: Quoted prices for similar assets and liabilities in active markets; quoted prices for identical or similar instruments in markets that are not active; and Level 3: Unobservable inputs that are supported by little or no market data which require the reporting entity to develop its own assumptions. The following table presents information about the Company's assets and liabilities that are measured at fair value on a recurring basis as of December 31, 2011 and indicate the fair value hierarchy of the valuation techniques utilized to determine such values. For some assets, the inputs used to measure fair value may fall into different levels of the fair value hierarchy. When this is the case, the asset is categorized based on the level of the most significant input to the fair value measurement. The Company's assessment of the significance of a particular input to the fair value measurement requires judgment and considers factors specific to the assets being valued. The F-45

133 Table of Contents Company's assets and liabilities measured at fair value on a recurring basis were not material at December 31, December 31, 2011 Fair Value Measurements Using (in thousands) Level 1 Level 2 Level 3 Total Fair Value Assets: Equity securities, trading $ 12,369 $ $ $ 12,369 Equity securities, available-for-sale 12,099 12,099 Interest rate cap Natural gas hedge 4,050 4,050 Total assets $ 24,468 $ 4,482 $ $ 28,950 Liabilities: Interest rate swaps $ $ 5,683 $ $ 5,683 Below is a summary of the Company's valuation techniques for Level 1 and Level 2 financial assets and liabilities: Equity securities As of December 31, 2011 the Company held equity investments in other current assets classified as trading and available-for-sale. Changes in the fair value of trading securities are recorded in other income and determined using observable market prices. For the year ended December 31, 2011 a loss of $2.9 million was recorded related to trading securities held at the reporting date. Changes in the fair value of available-for-sale securities are recorded in accumulated other comprehensive income (loss) and determined using observable market prices. Interest rate cap The fair value of the interest rate cap was determined using quoted dealer prices for similar contracts in active over-the-counter markets. Natural gas hedge The fair value of the natural gas hedge was determined using quoted dealer prices for similar contracts in active over-the-counter markets. Interest rate swaps The fair value of interest rate swaps were determined using quoted dealer prices for similar contracts in active over-the-counter markets. The following methods and assumptions were used to estimate the fair value for which the fair value option was not elected: Cash and cash equivalents, receivables and accounts payable The carrying amounts reported in the balance sheet approximate fair value. Debt On April 1, 2011, the Company entered into a $2.725 billion credit agreement to partially fund the acquisition of Western Coal and to pay off all outstanding loans under the 2005 Credit Agreement (see Note 10). Debt associated with the Company's 2011 term loan A, term loan B and revolving credit facility in the amount of $894.8 million, $1.333 billion and $10.0 million at December 31, 2011, respectively, are carried at cost. The estimated fair value of the Company's term loan A, term loan B and revolving credit facility was $880.6 million, $1.319 billion and $9.7 million at December 31, 2011, respectively, based on similar transactions and yields in an active market for similarly rated debt (Level 2). F-46

134 Table of Contents NOTE 17 Segment Information The Company's reportable segments are strategic business units arranged geographically which have separate management teams. The business units have been aggregated into three reportable segments following the Western Coal acquisition described in Note 1. These reportable segments are U.S. Operations, Canadian and U.K. Operations, and Other. Both the U.S. Operations and Canadian and U.K. Operations reportable segments primary business is that of mining and exporting metallurgical coal for the steel industry. The U.S. Operations segment includes Walter Energy's historical operating segments of Underground Mining, Surface Mining and Walter Coke as well as the results of the West Virginia mining operations acquired through the acquisition of Western Coal. The Canadian and U.K. segment includes the results of the mining operations located in Northeast British Columbia (Canada) and South Wales (United Kingdom). The Other segment primarily includes corporate expenses. Previously reported segment amounts have been restated to conform to the current period presentation. The accounting policies of the segments are the same as those described in the summary of significant accounting policies. The Company evaluates performance primarily based on operating income of the respective business segments. Summarized financial information concerning the Company's reportable segments is shown in the following tables (in thousands): For the years ended December 31, Revenues: U.S. Operations $ 1,871,182 $ 1,584,734 $ 964,358 Canadian and U.K. Operations 698,054 Other 2,122 2,996 2,469 Total Revenues(a) $ 2,571,358 $ 1,587,730 $ 966,827 Segment operating income (loss):(b) U.S. Operations $ 565,731 $ 634,442 $ 231,256 Canadian and U.K. Operations 67,349 Other (74,477) (40,380) (29,086) Operating income 558, , ,170 Less interest expense, net (96,214) (16,466) (18,176) Other income, net 17,606 Income from continuing operations before income tax expense 479, , ,994 Income tax expense (130,819) (188,171) (42,144) Income from continuing operations $ 349,176 $ 389,425 $ 141,850 F-47

135 Table of Contents For the years ended December Depreciation and depletion: U.S. Operations $ 151,341 $ 98,170 $ 72,533 Canadian and U.K. Operations 93,392 Other Total $ 245,509 $ 98,702 $ 72,939 Capital expenditures: U.S. Operations $ 149,996 $ 152,299 $ 95,672 Canadian and U.K. Operations 264,476 Other 94 5, Total $ 414,566 $ 157,476 $ 96,298 As of December 31, Identifiable assets by segment: U.S. Operations $ 1,087,430 $ 1,021,534 $ 800,238 Canadian and U.K. Operations 5,008,237 Other 716, , ,920 Assets of discontinued operations 5,912 15,198 Total $ 6,812,203 $ 1,657,765 $ 1,259,356 Long-lived assets by country: U.S. $ 1,069,863 $ 790,001 $ 522,931 Canada 3,191,615 U.K. 321,817 Total $ 4,583,295 $ 790,001 $ 522,931 (a) (b) Export sales were $2.0 billion, $1.2 billion and $728.4 million for the years ended December 31, 2011, 2010 and 2009, respectively. Export sales to customers in foreign countries in excess of 10% of consolidated revenues for the years ended December 31, 2011, 2010 and 2009 were as follows: Percent of Consolidated Revenues For the years ended December 31, Country Brazil 10.5% 24.9% 20.2% U.K. 6.2% 10.3% 12.6% Germany 9.8% 13.7% 14.0% Segment operating income (loss) amounts include expenses for postretirement benefits. A breakdown by segment of postretirement benefits (income) expense is as follows (in thousands): For the years ended December 31, U.S. Operations $ 41,745 $ 43,228 $ 31,902 Canadian and U.K. Operations Other (1,360) (1,750) (1,069) $ 40,385 $ 41,478 $ 30,833 F-48

136 Table of Contents NOTE 18 Related Party Transactions The Company owns a 50% interest in the joint venture Black Warrior Methane ("BWM"), which is accounted for under the proportionate consolidation method. The Company has granted the rights to produce and sell methane gas from its coal mines to BWM. The Company also supplies labor to BWM and incurs costs, including property and liability insurance, to support the joint venture. The Company charges the joint venture for such costs on a monthly basis. These charges for 2011, 2010 and 2009 were $2.9 million, $2.5 million and $2.5 million, respectively. In connection with the acquisition of Western Coal on April 1, 2011, the Company acquired a 50% interest in the Belcourt Saxon Coal Limited Partnership ("Belcourt Saxon"). Belcourt Saxon owns two multi-deposit coal properties which are located approximately 40 to 80 miles south of the Wolverine surface mine in Northeast British Columbia. The joint venture was formed for the future exploration and development of surface coal mines. Belcourt Saxon is accounted for under the proportionate consolidation method. Costs associated with the joint venture were not material for No field work was conducted on the Belcourt Saxon properties during 2011, other than maintenance of environmental monitoring stations. NOTE 19 Restructuring and Impairments In December 2009, the Company closed its Walter Coke fiber plant. The fiber plant produced approximately 100,000 tons of various slag wool fiber products annually. The closure resulted in a restructuring and impairment charge of $3.6 million, of which $2.2 million related to the impairment of property, plant and equipment and $1.4 million related to severance and other obligations. In addition, Walter Coke recorded a charge of $0.9 million included in cost of sales in the 2009 statement of operations related to inventory write-downs. Approximately $0.1 million of cash was used in 2009 for severance and other obligations, with the remainder expended in As a result, there were no restructuring obligations remaining at December 31, The property, plant and equipment of the fiber plant was written down to fair value of $0.2 million, which was estimated using comparable transactions of similar assets, less the cost to dispose of the assets. NOTE 20 Recent Accounting Pronouncements In June 2011, the Financial Accounting Standards Board ("FASB") issued an accounting standard update that requires companies to present the components of net income and other comprehensive income either in a single continuous statement or as two separate but consecutive statements. The accounting standard update eliminates the option to present components of other comprehensive income as part of the statement of changes in stockholders' equity, and is effective for interim and annual periods beginning after December 15, The adoption of this accounting standard update will not have an impact on the Company's operating results or financial position as it only requires a change in the format of our current presentation of comprehensive income. Supplemental Summary Quarterly Financial Information (Unaudited) (in thousands, except per share amounts) Quarter ended Fiscal Year 2011(1) March 31 June 30 September 30 December 31 Revenues $ 408,734 $ 773,000 $ 690,069 $ 699,555 Operating income $ 119,767 $ 153,649 $ 148,650 $ 136,537 Net income $ 81,813 $ 107,358 $ 76,221 $ 83,784 Diluted income per share:(2) Net income per share $ 1.53 $ 1.71 $ 1.21 $ 1.34 F-49

137 Table of Contents Quarter ended Fiscal Year 2010 March 31 June 30 September 30 December 31 Revenues $ 312,049 $ 410,622 $ 464,262 $ 400,797 Operating income $ 71,307 $ 170,223 $ 207,787 $ 144,735 Income from continuing operations $ 42,695 $ 116,110 $ 136,972 $ 93,648 Income (loss) from discontinued operations $ (1,144) $ 53 $ (757) $ (1,780) Net income $ 41,551 $ 116,163 $ 136,215 $ 91,868 Diluted income (loss) per share:(2) Income from continuing operations $ 0.79 $ 2.16 $ 2.57 $ 1.75 Loss from discontinued operations (0.02) (0.02) (0.03) Net income per share $ 0.77 $ 2.16 $ 2.55 $ 1.72 (1) (2) Results include the Western Coal operations since the date of acquisition on April 1, 2011 The sum of quarterly EPS amounts may be different than annual amounts as a result of the impact of variations in shares outstanding. F-50

138 Table of Contents EXHIBIT INDEX Exhibit Number Description of Exhibit 2 Amended Joint Plan of Reorganization of Registrant and certain of its subsidiaries, dated as of December 9, 1994 (Incorporated by reference to Exhibit T3E2 to Registrant's Applications for Qualification of Indentures on Form T-3, filed on February 6, 1995). 2.1 Modification to the Amended Joint Plan of Reorganization of Registrant and certain of its subsidiaries, as filed in the Bankruptcy Court on March 1, 1995 (Incorporated by reference to Exhibit T3E24 to Registrant's Amendment No. 2 to the Applications for Qualification of Indentures on Form T-3, filed on March 7, 1995). 2.2 Findings of Fact, Conclusions of Law and Order Confirming Amended Joint Plan of Reorganization of Walter Energy, Inc. and certain of its subsidiaries, as modified (Incorporated by reference to Exhibit 2(a) (iii) to the Registration Statement on Form S-1 (File No ), filed on May 2, 1995). 2.3 Arrangement Agreement, dated as of December 2, 2010, between Registrant and Western Coal Corp. (Incorporated by reference to Exhibit 2.1 of the Registrant's Current Report on Form 8-K, filed on December 3, 2010). 3.1 Amended and Restated Certificate of Incorporation (Incorporated by reference to Exhibit 3.1 of the Registrant's Current Report on Form 8-K, filed on April 28, 2009). 3.2 Amended and Restated By-Laws (Incorporated by reference to Exhibit 3.1 of the Registrant's Current Report on Form 8-K, filed on February 23, 2012). 4 Form of Specimen Certificate for Registrant's Common Stock (Incorporated by reference to Exhibit 4(b) to Registration Statement on Form S-1 (No ), filed on May 2, 1995). 4.1 Rights Agreement, dated as of April 24, 2009, between Walter Energy, Inc. and Mellon Investor Services LLC, as Rights Agent, which includes the Form of Certificate of Designations of Junior Participating Preferred Stock as Exhibit A, Form of Right Certificate as Exhibit B and the Summary of Rights as Exhibit C (Incorporated by reference to Exhibit 4.1 of the Registrant's Registration Statement on Form 8-A, filed on April 28, 2009). 4.2 Form of Certificate of Designations of Junior Participating Preferred Stock, filed with the Secretary of State of Delaware on April 24, 2009 (Incorporated by reference to Exhibit A to Exhibit 4.1 of the Registrant's Registration Statement on Form 8-A, filed on April 28, 2009). 10.1* Director and Officer Indemnification Agreement, dated as of March 3, 1995, among the Registrant and the Indemnities parties thereto (Incorporated by reference to Exhibit 10(g) to Amendment No. 1 to the Registration Statement on Form S-1 (File No ), filed on August 9, 1995). 10.2* Form of Indemnification Agreement for Directors and Executive Officers (Incorporated by reference to Exhibit 10.1 of the Registrant's Current Report on Form 8-K, filed on November 24, 2008) * Form of Indemnification Agreement for Directors and Executive Officers. E-1

139 Table of Contents Exhibit Number Description of Exhibit 10.3* Form of Amended and Restated Executive Change-in-Control Severance Agreement (for executives executing agreements on or prior to January 1, 2010) (Incorporated by reference to Exhibit 10.2 of the Registrant's Annual Report on Form 10-K for the year ended December 31, 2008). 10.4* Form of Executive Change-in-Control Severance Agreement (for executives executing agreements after January 1, 2010 and prior to April 1, 2011) * Form of Executive Change-in-Control Severance Agreement (for executives executing agreements after April 1, 2011). 10.5* Registrant's Executive Deferred Compensation and Supplemental Retirement Plan. 10.6* Registrant's Amended and Restated Directors' Deferred Fee Plan. 10.7* Registrant's Amended and Restated Supplemental Pension Plan (Incorporated by reference to Exhibit 10.5 of the Registrant's Annual Report on Form 10-K for the year ended December 31, 2008). 10.8* Executive Incentive Plan (Incorporated by reference to Appendix A to the Registrant's Proxy Statement for the 2006 Annual Meeting of Stockholders, filed on March 31, 2006) * First Amendment to the Registrant's Executive Incentive Plan (Incorporated by reference to Exhibit of the Registrant's Annual Report on Form 10-K for the year ended December 31, 2008). 10.9* Amended 1995 Long-Term Incentive Stock Plan (Incorporated by reference to Exhibit B to the Registrant's Proxy Statement for the 1997 Annual Meeting of Stockholders, filed on August 12, 1997) * Amendment to Amended 1995 Long-Term Incentive Stock Plan (Incorporated by reference to Exhibit of the Registrant's Annual Report on Form 10-K for the year ended December 31, 2008) * 2011 Executive Incentive Plan * Amended and Restated Western Stock Option Plan (Incorporated by reference to Exhibit 4.5 of the Registrant's Registration Statement on Form S-8 filed on April 6, 2011) * Form of Director Stock Option Agreement for the Amended and Restated Western Stock Option Plan * Amended and Restated 2002 Long-Term Incentive Award Plan (Incorporated by reference to Appendix C to the Registrant's Proxy Statement for the 2009 Annual Meeting of Stockholders, filed on March 31, 2009) * Form of Restricted Stock Unit Award Agreement (for executives executing agreements prior to February 23, 2012) (Incorporated by reference to Exhibit 10.9 of the Registrant's Annual Report on Form 10-K for the year ended December 31, 2008) * Form of Restricted Stock Unit Award Agreement (for executives executing agreements after February 23, 2012) * Form of Retention Restricted Stock Unit Agreement. E-2

140 Table of Contents Exhibit Number Description of Exhibit * Form of Retention Restricted Stock Unit Agreement * Form of Director Restricted Stock Unit Award Agreement * Form of Non-Qualified Stock Option Agreement (for executives executing agreements prior to February 23, 2012) (Incorporated by reference to Exhibit of the Registrant's Annual Report on Form 10-K for the year ended December 31, 2008) * Form of Non-Qualified Stock Option Agreement (for executives executing agreements after February 23, 2012) * Form of Director Stock Option Award Agreement * Amended and Restated Employee Stock Purchase Plan (Incorporated by reference to Appendix B to the Registrant's Proxy Statement for the 2004 Annual Meeting of Stockholders, filed on March 19, 2004) * Registrant's Involuntary Severance Benefit Plan (Incorporated by reference to Exhibit of the Registrant's Annual Report on Form 10-K for the year ended December 31, 2008) * First Amendment to the Walter Energy, Inc. Involuntary Severance Benefit Plan (Incorporated by reference to Exhibit of the Registrant's Annual Report on Form 10-K for the year ended December 31, 2008) * Agreement dated September 12, 2011 between the Company and Walter J. Scheller, III (Incorporated by reference to Exhibit 10.1 of the Registrant's Quarterly Report on Form 10-Q, filed on November 7, 2011) * Agreement dated March 1, 2011 between the Company and Keith Calder (Incorporated by reference to Exhibit 10.1 of the Registrant's Current Report on Form 8-K, filed on March 2, 2011) * Agreement dated July 15, 2011 between the Company and Robert P. Kerley (Incorporated by reference to Exhibit 10.1 of the Registrant's Quarterly Report on Form 10-Q, filed on August 9, 2011) * Agreement dated February 28, 2012 between the Company and Robert P. Kerley * Agreement dated March 14, 2006 between the Company and Lisa A. Honnold (Incorporated by reference to Exhibit of the Registrant's Annual Report on Form 10-K for the year ended December 31, 2010) * Amendment Agreement dated December 22, 2008 between the Company and Lisa A. Honnold (Incorporated by reference to Exhibit of the Registrant's Annual Report on Form 10-K for the year ended December 31, 2010) * Retention and Severance Agreement with Lisa A. Honnold dated February 2, * Agreement dated April 1, 2011 between the Company and Michael T. Madden. E-3

141 Table of Contents Exhibit Number Description of Exhibit * Amended and Restated Change-in-Control Agreement dated as of December 18, 2008 between the Company and Michael T. Madden (Incorporated by reference to Exhibit 10.5 of the Registrant's Quarterly Report on Form 10-Q, filed on May 7, 2010) * Agreement dated April 1, 2011 between the Company and Neil Winklemann * Agreement dated June 24, 2011 between the Company and James Griffin * Amendment No. 1, dated October 28, 2011 to Agreement dated June 24, 2011 between the Company and James Griffin * Agreement dated June 24, 2011 between the Company and Graham Foyle-Twining Income Tax Allocation Agreement, dated as of May 26, 2006, between Registrant and Mueller Water Products, Inc. (Incorporated by reference to Exhibit 10.2 of the Registrant's Current Report on Form 8-K, filed on May 30, 2006) Joint Litigation Agreement, effective as of December 14, 2006, between Registrant and Mueller Water Products, Inc. (Incorporated by reference to Exhibit 10.1 of the Registrant's Current Report on Form 8-K, filed on December 20, 2006) Tax Separation Agreement, dated as of April 17, 2009, between Registrant and Walter Investment Management, LLC (Incorporated by reference to Exhibit 10.3 of the Registrant's Current Report on Form 8-K, filed on April 23, 2009) Joint Litigation Agreement, dated as of April 17, 2009, between Registrant and Walter Investment Management, LLC (Incorporated by reference to Exhibit 10.4 of the Registrant's Current Report on Form 8-K, filed on April 23, 2009) Share Purchase Agreement, dated as of November 17, 2010, between Registrant and Audley Capital Management Limited, Audley European Opportunities Master Fund Limited, Audley Investment I and Audley Investment II (Incorporated by reference to Exhibit 10.1 of the Registrant's Current Report on Form 8-K, filed on November 18, 2010) Credit Agreement, dated as of April 1, 2011, between the Registrant and Walter Energy Canada Holdings, Inc. and the various lenders, including Morgan Stanley Senior Funding, Inc., as administrative agent and collateral agent and the other agents named therein. (Incorporated by reference to Exhibit 10.1 of the Registrant's Current Report on Form 8-K, filed on April 6, 2011) Amendment No. 1 to the Credit Agreement, dated as of January 20, 2012, by and among the Registrant, Western Coal Corp., Walter Energy Canada Holdings, Inc., the various lenders thereunder, Morgan Stanley Senior Funding, Inc., as Administrative Agent and the other agents named therein. (Incorporated by reference to Exhibit 10.1 of the Registrant's Current Report on Form 8-K, filed on January 25, 2012). E-4

142 Table of Contents Exhibit Number Description of Exhibit 14 Business Ethics and Code of Conduct. (Incorporated by reference to Exhibit 14.1 of the Registrant's Current Report on Form 8-K, filed on November 7, 2011). 21 Subsidiaries of the Company 23.1 Consent of Ernst & Young LLP 24 Power of Attorney 31.1 Certification Pursuant to Section 302 of the Sarbanes-Oxley Act of 2002 Chief Executive Officer 31.2 Certification Pursuant to Section 302 of the Sarbanes-Oxley Act of 2002 Chief Financial Officer 32.1 Certification Pursuant to Section 906 of the Sarbanes-Oxley Act of 2002, 18 U.S.C. Section 1350 Chief Executive Officer 32.2 Certification Pursuant to Section 906 of the Sarbanes-Oxley Act of 2002, 18 U.S.C. Section 1350 Chief Financial Officer 95 Mine Safety Disclosures Pursuant to Section 1503(a) of the Dodd-Frank Wall Street Reform and Consumer Protection Act and Item 104 of Regulation S-K (17 CFR ) 101 XBRL (Extensible Business Reporting Language) The following materials from Walter Energy, Inc.'s Annual Report on Form 10-K for the year ended December 31, 2011, 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. The Exhibits identified above with an asterisk (*) are management contracts or compensatory plans or arrangements. E-5

143

144 Exhibit Indemnification Agreement AGREEMENT, effective as of (the "Indemnitee")., 2012, between Walter Energy, Inc., a Delaware corporation (the "Corporation"), and WHEREAS, it is essential to the Corporation to retain and attract as directors and officers the most capable persons available; WHEREAS, Indemnitee is a director or officer of the Corporation; WHEREAS, both the Corporation and Indemnitee recognize the increased risk of litigation and other claims being asserted against directors and officers of public companies in today's environment and that competent and experienced individuals are increasingly reluctant to serve or to continue to serve as directors or officers of public corporations unless they are protected by comprehensive liability insurance or indemnification, or both, due to such increased risk; WHEREAS, Section 145 of the Delaware General Corporation Law ("Section 145"), under which the Corporation is organized, empowers the Corporation to indemnify its directors and officers by agreement and to indemnify persons who serve, at the request of the Corporation, as directors or officers, and expressly provides that the indemnification provided by Section 145 is not exclusive; WHEREAS, the By-Laws of the Corporation require the Corporation to indemnify and advance expenses to its directors and officers to the full extent permitted by law and the Indemnitee has agreed to serve as a director or officer of the Corporation in part in reliance on such By-Laws; WHEREAS, the Corporation, after reasonable investigation, has determined that the liability insurance coverage presently available to the Corporation may be inadequate in certain circumstances to cover all possible exposure for which Indemnitee should be protected, in the judgment of the Corporation, and the Corporation is of the opinion that the best interests of the Corporation and its stockholders would best be served by a combination of insurance and indemnification from the Corporation; WHEREAS, in recognition of Indemnitee's need for substantial protection against personal liability in order to enhance Indemnitee's continued service to the Corporation in an effective manner and Indemnitee's reliance on the aforesaid By-Laws, and in part to provide Indemnitee with specific contractual assurance that the protection promised by such By-Laws will be available to Indemnitee (regardless of, among other things, any amendment to or revocation of such By-Laws or any change in the composition of the Corporation's Board of Directors or acquisition transaction relating to the Corporation), the Corporation wishes to provide in this Agreement for the indemnification of and the advancing of expenses to Indemnitee to the full extent (whether partial or complete) permitted by law and as set forth in this Agreement, and, to the extent insurance is maintained, for the continued coverage of Indemnitee under the Corporation's directors' and officers' liability insurance policies; NOW, THEREFORE, in consideration of the premises set forth above, and the mutual covenants and agreement set forth below, and of Indemnitee continuing to serve the Corporation as a director or officer, and intending to be legally bound hereby, the parties hereto agree as follows:

145 1. Certain Definitions: (a) (b) (c) (d) Change in Control: shall be deemed to have occurred if (i) any "person" (as such term is used in Sections 13(d) and 14(d) of the Securities Exchange Act of 1934, as amended), other than a trustee or other fiduciary holding securities under an employee benefit plan of the Corporation or a corporation owned directly or indirectly by the stockholders of the Corporation in substantially the same proportions as their ownership of stock of the Corporation, is or becomes the "beneficial owner" (as defined in Rule 13d-3 under said Act), directly or indirectly, of securities of the Corporation representing 20% or more of the total voting power represented by the Corporation's then outstanding Voting Securities, or (ii) during any period of two consecutive years, individuals who at the beginning of such period constitute the Board of Directors of the Corporation and any new director whose election by the Board of Directors or nomination for election by the Corporation's stockholders was approved by a vote of at least two-thirds (2/3) of the directors then still in office who either were directors at the beginning of the period or whose election or nomination for election was previously so approved, cease for any reason to constitute a majority thereof, or (iii) the stockholders of the Corporation approve a merger or consolidation of the Corporation with any other entity, other than a merger or consolidation which would result in the Voting Securities of the Corporation outstanding immediately prior thereto continuing to represent (either by remaining outstanding or by being converted into Voting Securities of the surviving entity) at least 80% of the total voting power represented by the Voting Securities of the Corporation or such surviving entity outstanding immediately after such merger or consolidation, or the stockholders of the Corporation approve a plan of complete liquidation of the Corporation or an agreement for the sale or disposition by the Corporation (in one transaction or a series of transactions) of all or substantially all of the Corporation's assets. Corporate Capacity: shall mean Indemnitee's status or capacity as, or fact that Indemnitee is or was, a director, officer, employee, agent or fiduciary of the Corporation, or is or was serving at the request of the Corporation as a director, officer, employee, trustee, agent or fiduciary of another Entity. Entity: shall mean a corporation, partnership, limited liability company, joint venture, employee benefit plan, trust or other enterprise. References herein to a director of an Entity shall include, in the case of any Entity that is not managed by a board of directors, such other position, such as manager or trustee or member of the governing body of such Entity, that entails responsibility for the management and direction of such Entity's affairs, including, without limitation, the general partner of any partnership (general or limited) and the manager or managing member of any limited liability company. Expenses: include attorneys' fees and all other costs, expenses and obligations reasonably paid or incurred in connection with investigating, defending, being a witness in or participating in (including on appeal), or preparing to defend, be a witness in or participate in any Proceeding for which indemnity is available under Section 2(a) hereof or in connection with seeking recovery under any directors' and officers' liability insurance policies maintained by the Corporation. 2

146 (e) (f) (g) (h) Indemnifiable Event: any event or occurrence related to the fact that Indemnitee is or was a director, officer, employee, agent or fiduciary of the Corporation, or is or was serving at the request of the Corporation as a director, officer, employee, trustee, agent or fiduciary of another Entity, or by reason of anything done or not done by Indemnitee in any such capacity. Proceeding: is any threatened, pending or completed action, suit, arbitration, alternative dispute mechanism or proceeding, or any inquiry or investigation (including an internal investigation), whether conducted by the Corporation or any other party, that Indemnitee in good faith believes might lead to the institution of any such action, suit or proceeding, whether civil, criminal, administrative, investigative or other. Reviewing Party: subject to Section 3 of this Agreement, a committee or person consisting of a member or members of the Corporation's Board of Directors or any other person or body appointed by the Board who is not a party to or affected by the particular claim for which Indemnitee is seeking indemnification. If there has not been a Change in Control, the Reviewing Party shall be selected by the Board of Directors (unless the Indemnitee is a director or officer of the Corporation at the time of the determination of entitlement to indemnification contemplated by Section 3 of this Agreement, in which case the Reviewing Party shall be determined as provided in Section 3), and if there has been such a Change in Control, the Reviewing Party shall be special, independent counsel selected by Indemnitee and approved by the Corporation (which approval shall not be unreasonably withheld), and who has not otherwise performed services for the Corporation or Indemnitee within the last 5 years (other than in connection with such matters). Such counsel, among other things, shall render its written opinion to the Corporation and Indemnitee as to whether and to what extent the Indemnitee would be permitted to be indemnified under applicable law. The Corporation agrees to pay the reasonable fees of such special, independent counsel and to indemnify fully such counsel against any and all expenses (including attorney's fees), claims, liabilities and damages arising out of or relating to this Agreement or its engagement pursuant hereto. Voting Securities: any securities of the Corporation which vote generally in the election of directors. 2. Basic Indemnification Arrangement. (a) In the event Indemnitee was, is or becomes a party to or witness or other participant in, or is threatened to be made a party to or witness or other participant in a Proceeding by reason of (or arising in part out of) the Indemnitee's Corporate Capacity or an Indemnifiable Event, the Corporation shall indemnify Indemnitee to the fullest extent authorized by applicable law as soon as practicable but in any event no later than thirty days (60 days if the Reviewing Party is special, independent counsel) after written demand is presented to the Corporation, against any and all Expenses, judgments, fines, penalties and amounts paid in settlement (including all interest, assessments and other charges paid or payable in connection with or in respect of such Expenses, judgments, fines, penalties or amounts paid in settlement), paid or incurred in connection with such Proceeding. 3

147 (b) (c) To the fullest extent authorized by applicable law, if so requested by Indemnitee in writing, the Corporation shall advance (within ten business days of such request) any and all Expenses to Indemnitee in advance of the final disposition of a Proceeding to which Indemnitee was, is or becomes a party to or in which Indemnitee was, is or becomes a witness or other participant in, or to which Indemnitee is threatened to be made a party to or witness or other participant in, by reason of (or arising in part out of) the Indemnitee's Corporate Capacity or an Indemnifiable Event or in connection with seeking recovery under any directors' and officers' liability insurance policies maintained by the Corporation (an "Expense Advance"). The Indemnitee hereby undertakes to repay an Expense Advance to the extent that it is ultimately determined in accordance with this Agreement that the Indemnitee is not entitled to be indemnified by the Corporation as authorized in this Agreement and applicable law. No other form of undertaking shall be required of the Indemnitee other than the execution of this Agreement. An Expense Advance shall be made only upon receipt of satisfactory evidence as to the amount of such Expenses. The Indemnitee's copy of the statement paid, or to be paid by the Indemnitee, shall constitute satisfactory evidence of the amount of such Expenses. Notwithstanding anything in this Agreement to the contrary, prior to a Change in Control, the Indemnitee shall not be entitled to indemnification or Expense Advance pursuant to this Agreement in connection with any Proceeding, however denominated, initiated by Indemnitee against the Corporation or any director or officer of the Corporation unless the Corporation has joined in or consented to the initiation of such Proceeding. 3. Indemnification Determination: Any indemnification under this agreement (unless ordered by a Court) shall be made by the Corporation only as authorized in the specific case upon a determination by the Reviewing Party that indemnification of the Indemnitee is proper in the circumstance because Indemnitee has satisfied the standards of conduct set forth in Section 145 of the General Corporation Law of the State of Delaware and is otherwise entitled to be indemnified pursuant to this Agreement and applicable law. The Corporation agrees that all determinations of the right of Indemnitee to indemnification under this Agreement or any other agreement, insurance policy, by-law or certificate of incorporation of the Corporation and its predecessors shall be made by the Reviewing Party in a writing delivered to the Corporation and the Indemnitee (and if the Reviewing Party is special, independent counsel, in a written opinion delivered to the Corporation and the Indemnitee). If the Reviewing Party determines that the Indemnitee is not entitled to indemnification, then such writing (or opinion) shall disclose the bases for such determination in reasonable detail. Notwithstanding anything in this Agreement to the contrary, if Indemnitee is a director or officer of the Corporation at the time of the determination contemplated by this Section 3, then to the extent required by applicable law, the Reviewing Party that makes the determination of entitlement to indemnification contemplated by this Section 3 shall be one of the following: (i) if there has been a Change in Control, the Reviewing Party shall be special, independent counsel selected in the manner provided in Section 1(g); and (ii) if there has not been a Change in Control, the Reviewing Party shall be (A) the directors who are not parties to the Proceeding in connection with which Indemnification is sought, even though less than a quorum of the Board of Directors, (B) a committee of such directors designated by a majority vote of such directors, even though less than a quorum of the Board of Directors, or (C) if there are no such directors, or if a majority of such directors so direct, special, independent legal counsel who has not otherwise performed services for the Corporation or Indemnitee within the last 5 years (other than in connection with such matters). If 4

148 there has been no determination by the Reviewing Party within thirty days (60 days if the Reviewing Party is special, independent counsel) after written demand for indemnification is presented to the Corporation or if the Reviewing Party determines that Indemnitee is not permitted to be indemnified in whole or in part under applicable law, Indemnitee shall have the right to commence litigation in any court in the State of Delaware having subject matter jurisdiction thereof and in which venue is proper seeking a determination by the court or challenging any such determination by the Reviewing Party or any aspect thereof, and the Corporation hereby consents to service of process and to appear in any such proceeding. 4. Indemnification for Expenses. To the fullest extent permitted by applicable law, the Corporation shall indemnify Indemnitee against any and all Expenses. 5. Partial Indemnity, Etc. If Indemnitee is entitled under any provision of this Agreement to indemnification by the Corporation for some or a portion of the Expenses, judgments, fines, penalties and amounts paid in settlement of a Proceeding but not, however, for all of the total amount thereof, the Corporation shall nevertheless indemnify Indemnitee for the portion thereof to which Indemnitee is entitled. Moreover, notwithstanding any other provision of this Agreement, to the extent that Indemnitee has been successful on the merits or otherwise in defense of any or all Proceedings relating in whole or in part to an Indemnifiable Event or Indemnitee's Corporate Capacity or in defense of any issue or matter therein, including dismissal without prejudice, Indemnitee shall be indemnified against all Expenses incurred in connection therewith. In connection with any determination by the Reviewing Party or otherwise as to whether Indemnitee is entitled to be indemnified hereunder the burden of proof shall be on the Corporation to establish that Indemnitee is not so entitled. 6. No Presumption. For purposes of this Agreement, the termination of any claim, action, suit or proceeding, by judgment, order, settlement (whether with or without court approval) or conviction, or upon a plea of nolo contendere, or its equivalent, shall not create a presumption that Indemnitee did not meet any particular standard of conduct or have any particular belief or that a court has determined that indemnification is not permitted by applicable law. 7. Non-exclusivity, Etc. The rights of the Indemnitee hereunder shall be in addition to any other rights Indemnitee may have under the Corporation's Certificate of Incorporation or By-Laws, the Delaware General Corporation Law, a vote of stockholders, a resolution of directors, or otherwise. To the extent that a change in the Delaware General Corporation Law (whether by statute or judicial decision) permits greater indemnification by agreement than would be afforded currently under the Corporation's By-Laws and this Agreement, it is the intent of the parties hereto that Indemnitee shall enjoy by this Agreement the greater benefits so afforded by such change. But no amendment or alteration of the Corporation's Certificate of Incorporation or By-Laws or any other agreement shall adversely affect the rights provided to Indemnitee hereunder. 8. Liability Insurance. To the extent the Corporation maintains an insurance policy or policies providing directors' and officers' liability insurance, Indemnitee shall be covered by such policy or policies, in accordance with its or their terms, to the maximum extent of the coverage available for any Corporation director or officer. If, at the time of the receipt of a notice of a claim pursuant to the terms hereof, the Corporation has director and officer liability insurance in effect, the Corporation shall give prompt notice of such claim or of the commencement of a proceeding, as the case may be, to the insurers in accordance with the procedures set forth in the respective policies. The Corporation shall thereafter take all necessary or desirable action to cause such insurers to pay, on behalf of the Indemnitee, all amounts payable as a result of such proceeding in accordance with the terms of such policies. This Agreement shall not limit the Indemnitee's rights under any direct of so-called "Side A" coverages available to the Indemnitee. 5

149 9. Period of Limitations. No legal action shall be brought and no cause of action shall be asserted by or on behalf of the Corporation or any affiliate of the Corporation against Indemnitee, Indemnitee's spouse, heirs, executors or personal or legal representatives after the expiration of two years from the date of accrual of such cause of action, and any claim or cause of action of the Corporation or its affiliate shall be extinguished and deemed released unless asserted by the timely filing of a legal action within such two-year period; provided, however, that if any shorter period of limitations is otherwise applicable to any such cause of action such shorter period shall govern. 10. No Modification. This Agreement supersedes any prior indemnification agreement between Indemnitee and the Corporation or its predecessors (but not any indemnification provision contained in any by-law or certificate of incorporation of any of the foregoing). No supplement, modification or amendment of this Agreement shall be binding unless executed in writing by both of the parties hereto. No waiver of any of the provisions of this Agreement shall be deemed or shall constitute a waiver of any other provisions hereof (whether or not similar) nor shall such waiver constitute a continuing waiver. 11. Subrogation. In the event of payment under this Agreement, the Corporation shall be subrogated to the extent of such payment to all of the rights of recovery of Indemnitee, who shall execute all papers required and shall do everything reasonably necessary to secure such rights, including the execution of such documents necessary to enable the Corporation effectively to bring suit to enforce such rights. 12. Contribution. In order to provide for just and equitable contribution in circumstances in which the indemnification provided for herein is held by a court of competent jurisdiction to be unavailable to the Indemnitee in whole or in part, it is agreed that, in such event, the Corporation shall, to the fullest extent permitted by law, contribute to the payment of all of the Indemnitee's loss and liability suffered and expenses (including attorneys' fees), judgments, fines and amounts paid in settlement reasonably incurred by or on behalf of Indemnitee in connection with any action, suit or proceeding, including any appeals, in an amount that is just and equitable in the circumstances; provided that, without limiting the generality of the foregoing, such contribution shall not be required where such holding by the court is due to any limitation on indemnification set forth in Sections 2(b) or No Duplication of Payments. The Corporation shall not be liable under this Agreement to make any payment in connection with any claim made against Indemnitee to the extent Indemnitee has otherwise actually received payment (under any insurance policy, by-law, certificate of incorporation, other indemnity provision, or otherwise) of the amounts otherwise indemnifiable hereunder. 14. Binding Effect, Etc. This Agreement shall be binding upon and inure to the benefit of and be enforceable by the parties hereto and their respective successors, assigns, including any direct or indirect successor by purchase, merger, consolidation or otherwise to all or substantially all of the business and/or assets of the Corporation, spouses, heirs, and personal and legal representatives. The Corporation shall require and cause any successor (whether direct or indirect by purchase, merger, consolidation or otherwise) to all, substantially all, or a substantial part, of the business and/or assets of the Corporation, by written agreement in form and substance satisfactory to the Indemnitee, expressly to assume and agree to perform this Agreement in the same manner and to the same extent that the Corporation would be required to perform if no such succession had taken place. This Agreement shall continue in effect regardless of whether 6

150 Indemnitee continues to serve as a director or officer of the Corporation or of any other enterprise at the Corporation's request. 15. Severability. The provisions of this Agreement shall be severable in the event that any of the provisions hereof (including any provision within a single section, paragraph or sentence) are held by a court of competent jurisdiction to be invalid, void or otherwise unenforceable, and the remaining provisions shall remain enforceable to the fullest extent permitted by law. 16. Savings Clause. If this Agreement or any portion thereof shall be invalidated on any ground by any court of competent jurisdiction, then the Corporation shall nevertheless indemnifty the Indemnitee as to Expenses, judgments, fines, penalties and amounts paid in settlement with respect to any Proceeding to the full extent permitted by any applicable portion of this Agreement that shall not have been invalidated and to the fullest extent permitted by applicable law. 17. Governing Law. This Agreement shall be governed by and construed and enforced in accordance with the laws of the State of Delaware applicable to contracts made and to be performed in such State without giving effect to the principles of conflicts of laws. Indemnitee is specifically authorized to bring suit in the event of any determination by any person that indemnification is not available to the Indemnitee hereunder or that Indemnitee will not be entitled to an Expense Advance, if a payment owed to Indemnitee has not been made in a timely manner, or if there is any other breach of the Agreement. For purposes of any action or proceeding arising out of or in connection with this Agreement, the Indemnitee agrees to (i) the exclusive jurisdiction of the Chancery Court of the State of Delaware (the "Delaware Court"), and not in any other state or federal court in the United States of America or any court in any other country, (ii) waive any objection to the laying of venue of any such action or proceeding in the Delaware Court and (iii) waive any claim that any such action or proceeding brought in the Delaware Court has been brought in an improper or inconvenient forum. IN WITNESS WHEREOF, the Corporation has duly executed and delivered this Agreement to the director as of the date first above written. Walter Energy, Inc. Accepted and agreed as of the date first written above: By: Name: Title: [Name of Director or Officer] 7

151 Exhibit 10.4 Executive Change-in-Control Severance Agreement for [Employee] Walter Energy, Inc. Adopted:, 2010

152 Contents Article 1. Definitions 1 Article 2. Severance Benefits 5 Article 3. Form and Timing of Severance Benefits 9 Article 4. Noncompetition and Confidentiality 10 Article 5. Claw-Back 12 Article 6. The Company's Payment Obligation 12 Article 7. Legal Remedies 12 Article 8. Successors 13 Article 9. Miscellaneous 13

153 Walter Energy, Inc. Executive Change-in-Control Severance Agreement THIS EXECUTIVE CHANGE-IN-CONTROL SEVERANCE AGREEMENT is made, entered into, and is effective this [ ] day of [ ], 2010 (hereinafter referred to as the "Effective Date"), by and between Walter Energy, Inc. (the "Company"), a Delaware corporation, and [employee] (the "Executive"). WHEREAS, the Executive is currently employed by the Company and possesses considerable experience and knowledge of the business and affairs of the Company concerning its policies, methods, personnel, and operations; and WHEREAS, the Company is desirous of assuring insofar as possible, that it will continue to have the benefit of the Executive's services; and the Executive is desirous of having such assurances; and WHEREAS, the Company recognizes that circumstances may arise in which a Change in Control of the Company occurs, through acquisition or otherwise, thereby causing uncertainty of employment without regard to the Executive's competence or past contributions. Such uncertainty may result in the loss of the valuable services of the Executive to the detriment of the Company and its shareholders; and WHEREAS, both the Company and the Executive are desirous that any proposal for a Change in Control or acquisition will be considered by the Executive objectively and with reference only to the business interests of the Company and its shareholders; and WHEREAS, the Executive will be in a better position to consider the Company's best interests if the Executive is afforded reasonable security, as provided in this Agreement, against altered conditions of employment which could result from any such Change in Control or acquisition. NOW, THEREFORE, in consideration of the foregoing and of the mutual covenants and agreements of the parties set forth in this Agreement, and of other good and valuable consideration, the receipt and sufficiency of which are hereby acknowledged, the parties hereto, intending to be legally bound, agree as follows: Article 1. Definitions Wherever used in this Agreement, the following terms shall have the meanings set forth below and, when the meaning is intended, the initial letter of the word is capitalized: (a) (b) "Agreement" means this Executive Change-in-Control Severance Agreement. "Base Salary" means, at any time, the then regular annual rate of pay which the Executive is receiving as annual salary, excluding amounts: (i) received under short-term or long-term incentive or other bonus plans, regardless of whether or not the amounts are deferred, or (ii) designated by the Company as payment toward reimbursement of expenses. 1

154 (c) (d) "Board" means the Board of Directors of the Company. "Cause" shall be determined solely by the Committee in the exercise of good faith and reasonable judgment, and shall mean the occurrence of any one or more of the following: (i) (ii) (iii) The Executive's willful and continued failure to substantially perform his duties with the Company and/or one or more of its subsidiaries (other than any such failure resulting from the Executive's Disability), after a written demand for substantial performance is delivered to the Executive that specifically identifies the manner in which the Committee believes that the Executive has not substantially performed his duties, and the Executive has failed to remedy the situation within fifteen (15) business days of such written notice from the Company or a subsidiary; or The Executive's conviction of a felony; or The Executive's willful engaging in conduct that is demonstrably and materially injurious to the Company and/ or one or more of its subsidiaries, monetarily or otherwise. However, no act or failure to act on the Executive's part shall be deemed "willful" unless done, or omitted to be done, by the Executive not in good faith and without reasonable belief that the action or omission was in the best interests of the Company and/or one or more of its subsidiaries. (e) "Change in Control" of the Company shall mean the occurrence of any one (1) or more of the following events: (i) A change in the effective control of the Company, which occurs only on either of the following dates: (A) The date any Person or more than one Person acting as a group (other than the Company or any corporation owned, directly or indirectly, by the stockholders of the Company in substantially the same proportions as their ownership of stock of the Company, and any trustee or other fiduciary holding securities under an employee benefit plan of the Company or such proportionately owned corporation), acquires (or has acquired during the 12-month period ending on the date of the most recent acquisition by such Person or Persons) ownership of stock of the Company representing more than thirty percent (30%) of the total voting power of the stock of the Company; or (B) The date a majority of the members of the Board is replaced during any 12-month period by directors whose appointment or election is not endorsed by a majority of the members of the Board before the date of the appointment or election; provided that, in any event, the transaction must constitute a "change in the effective control" of the Company within the meaning of Section 2

155 409A(a)(2)(A)(v) of the Code and Treasury Regulations Section 1.409A-3(i)(5)(vi). (ii) The date any Person or more than one Person acting as a group acquires (or has acquired during the 12-month period ending on the date of the most recent acquisition by such Person or Persons) all or substantially all of the Company's assets; provided that the transaction must constitute a "change in the ownership of a substantial portion of the assets" of the Company within the meaning of Section 409A(a)(2)(A)(v) of the Code and Treasury Regulations Section 1.409A-3(i)(5)(vii). Notwithstanding the foregoing, in no event shall a Change in Control of the Company be deemed to have occurred if the Company undergoes a strategic realignment of its businesses (such as a split-up or spin-off transaction), with or without a shareholder vote. (f) (g) (h) (i) (j) (k) "Code" means the Internal Revenue Code of 1986, as amended. "Committee" means the Compensation Committee of the Board of Directors of the Company, or, if no Compensation Committee exists, then the full Board of Directors of the Company, or a committee of Board members, as appointed by the full Board to administer this Agreement. "Company" means Walter Energy, Inc., a Delaware corporation, or any successor thereto as provided in Article 8 herein. "Constructive Termination" means the Executive's voluntary Separation from Service for Good Reason; provided that a voluntary Separation from Service shall be a Constructive Termination only if (i) Executive provides written notice of the facts or circumstances constituting a Good Reason condition to the Company within 30 days after the initial existence of the Good Reason condition, (y) the Company does not remedy the Good Reason condition within 30 days after it receives such notice, and (z) the voluntary Separation from Service occurs within 90 days after the initial existence of the Good Reason condition. The foregoing definition of Constructive Termination is intended to qualify for the safe harbor under Treasury Regulations Section 1.409A-1(n)(2)(ii) for treating a voluntary separation from service as an involuntary separation from service. "Disability" or "Disabled" shall have the meaning ascribed to such term in the Executive's governing long-term disability plan, or if no such plan exists, at the discretion of the Board. "Effective Date" means the date this Agreement is approved by the Board, or such other date as the Board shall designate in its resolution approving this Agreement, and as specified in the opening sentence of this Agreement. (l) "Effective Date of Termination" means the date on which a Qualifying Termination occurs, as provided in Section 2.2 herein, which triggers the payment of Severance Benefits hereunder. 3

156 (m) (n) "Exchange Act" means the Securities Exchange Act of 1934, as amended. "Good Reason" means the occurrence of any of the following conditions after a Change in Control of the Company (in each case arising without the Executive's consent): (i) (ii) (iii) A material diminution of the Executive's authority, duties or responsibilities from those in effect as of ninety (90) calendar days prior to the Change in Control; The Company requiring the Executive to be based at a location in excess of fifty (50) miles from the location of the Executive's principal job location or office immediately prior to the Change in Control; except for required travel on the Company's business to an extent substantially consistent with the Executive's then present business travel obligations; A material reduction by the Company of the Executive's Base Salary in effect on the Effective Date hereof, or as the same shall be increased from time to time; or (iv) A material breach of this Agreement by the Company, including Section 8.1. Unless the Executive becomes Disabled, the Executive's right to terminate employment for Good Reason shall not be affected by the Executive's incapacity due to physical or mental illness. The Executive's continued employment shall not, by itself, constitute consent to, or a waiver of rights with respect to, any circumstance constituting Good Reason herein. (o) (p) (q) (r) (s) (t) "Involuntary Termination" means the Executive's involuntary Separation from Service within the meaning of Treasury Regulations Section 1.409A-1(n)(1). "Normal Retirement Age" means the earliest normal retirement age available under the established rules of the Company's tax-qualified retirement plans in which the Executive is eligible to participate. "Notice of Termination" shall mean a written notice which shall indicate the specific termination provision in this Agreement relied upon, and shall set forth in reasonable detail the facts and circumstances claimed to provide a basis for termination of the Executive's employment under the provision so indicated. "Person" shall have the meaning ascribed to such term in the Code and Treasury Regulations. "Qualifying Termination" means a Separation from Service described in Section 2.2 herein, the occurrence of which triggers the payment of Severance Benefits hereunder. "Separation from Service" means the Executive's "separation from service" from Executive's employer within the meaning of Section 409A(a)(2)(A)(i) of the Code and the default rules of Treasury Regulations Section 1.409A-1(h). For this purpose, Executive's "employer" is the Company and every entity or other person which 4

157 collectively with the Company constitutes a single "service recipient" (as that term is defined in Treasury Regulations Sections 1.409A-1(g)) as the result of the application of the rules of Treasury Regulations Sections 1.409A-1(h)(3); provided that an 80% standard (in lieu of the default 50% standard) shall be used for purposes of determining the service recipient / employer for this purpose. (u) (v) "Specified Employee" means a "specified employee" of the service recipient that includes the Company (as determined under Treasury Regulations Sections 1.409A-1(g)) within the meaning of Section 409A(a)(2)(B)(i) of the Code and Treasury Regulations Section 1.409A-1(i), as determined in accordance with the procedures adopted by such service recipient that are then in effect, or, if no such procedures are then in effect, in accordance with the default procedures set forth in Treasury Regulations Section 1.409A-1(i). "Severance Benefits" mean the payment of severance compensation as provided in Section 2.3 herein. Article 2. Severance Benefits 2.1 Right to Severance Benefits. The Executive shall be entitled to receive from the Company Severance Benefits as described in Section 2.3 herein, if there has been a Change in Control of the Company and if, within twenty-four (24) calendar months thereafter, the Executive experiences a Separation from Service for any reason specified in Section 2.2 herein as being a Qualifying Termination. The Executive shall not be entitled to receive Severance Benefits if he experiences an Involuntary Termination for Cause, a Separation from Service by reason of his death or Disability, a voluntary Separation from Service after attaining his Normal Retirement Age, or a voluntary Separation from Service that is not a Constructive Termination. 2.2 Qualifying Termination. The occurrence of any one of the following events within twenty-four (24) calendar months after a Change in Control of the Company shall trigger the payment of Severance Benefits to the Executive under this Agreement: (a) (b) An Involuntary Termination without Cause; or A Constructive Termination. For purposes of this Agreement, a Qualifying Termination shall not include a Separation from Service by reason of the Executive's death or Disability, a voluntary Separation from Service after attaining his Normal Retirement Age, a voluntary Separation from Service that is not a Constructive Termination, or an Involuntary Termination for Cause. 2.3 Description of Severance Benefits. In the event the Executive becomes entitled to receive Severance Benefits, as provided in Sections 2.1 and 2.2 herein, the Company shall pay or provide, as the case may be, to the Executive the following Severance Benefits: 5

158 (a) (b) (c) (d) A lump-sum amount equal to the Executive's accrued but unpaid Base Salary, accrued but unused vacation pay and unreimbursed business expenses (in accordance with the standard reimbursement policy applicable to the Executive then in effect) earned by and owed to the Executive through and including the Effective Date of Termination. A lump-sum amount equal to one and one-half (1.5) multiplied by the sum of the following: (i) the higher of: (A) the Executive's annual rate of Base Salary in effect upon the Effective Date of Termination, or (B) the Executive's annual rate of Base Salary in effect on the date of the Change in Control; and (ii) the average of the actual annual bonus earned (whether or not deferred) by the Executive under the annual bonus plan (excluding any special bonus payments) in which the Executive participated in the three (3) years preceding the year in which the Executive's Effective Date of Termination occurs. If the Executive has less than three (3) years of annual bonus participation preceding the year in which the Executive's Effective Date of Termination occurs, then the Executive's annual target bonus established under the annual bonus plan in which the Executive is then participating for the bonus plan year in which the Executive's Effective Date of Termination occurs shall be used for each year that the Executive did not participate in the annual bonus plan, up to a maximum of three (3) years, to calculate the three (3) year average bonus payment. A lump-sum amount equal to one-half (.5) multiplied by the sum of the following: (i) the higher of: (A) the Executive's annual rate of Base Salary in effect upon the Effective Date of Termination, or (B) the Executive's annual rate of Base Salary in effect on the date of the Change in Control; and (ii) the average of the actual annual bonus earned (whether or not deferred) by the Executive under the annual bonus plan (excluding any special bonus payments) in which the Executive participated in the three (3) years preceding the year in which the Executive's Effective Date of Termination occurs. If the Executive has less than three (3) years of annual bonus participation preceding the year in which the Executive's Effective Date of Termination occurs, then the Executive's annual target bonus established under the annual bonus plan in which the Executive is then participating for the bonus plan year in which the Executive's Effective Date of Termination occurs shall be used for each year that the Executive did not participate in the annual bonus plan, up to a maximum of three (3) years, to calculate the three (3) year average bonus payment. Such amount shall be in consideration for the Executive entering into a noncompete agreement as described in Article 4 herein. Upon the occurrence of a Change in Control, to the extent permitted by Section 409A of the Code, an immediate full vesting and lapse of all restrictions on any and all outstanding equity based long term incentives, including but not limited to stock options and restricted stock unit awards held by the Executive. This provision shall override any conflicting language contained in the Executive's respective Award Agreements. 6

159 (e) (f) The Executive shall continue to be entitled to receive payments or benefits under any annual bonus plan and/or long-term incentive plans, whether cash-based or equity-based, or retirement plans and insurance plans in which Executive is a participant, if any, in each case in accordance with the terms and conditions of such plans. The Committee shall authorize a pro-rata bonus under the Executive Incentive Plan (or successor annual bonus plan) ("EIP") earned as of the Effective Date of Termination, based on actual year to date performance, as determined at the Committee's discretion. Such pro-rata bonus shall be paid during the year following the year that includes the Effective Date of Termination in accordance with the terms of the EIP. Continuation for twenty-four (24) months of the Executive's medical insurance and life insurance coverage. These benefits shall be provided by the Company to the Executive beginning immediately upon the Effective Date of Termination. Such benefits shall be provided to the Executive at the same coverage level and cost to the Executive as in effect immediately prior to the Executive's Effective Date of Termination. To the extent required by law, the Executive shall qualify for full COBRA health benefit continuation coverage beginning upon the expiration of the aforementioned twenty-four (24) month period. Notwithstanding the above, these medical and life insurance benefits shall be discontinued prior to the end of the stated continuation period in the event the Executive receives substantially similar benefits from a subsequent employer, as determined solely by the Committee in good faith. For purposes of enforcing this offset provision, the Executive shall be deemed to have a duty to keep the Company informed as to the terms and conditions of any subsequent employment and the corresponding benefits earned from such employment, and shall provide, or cause to provide, to the Company in writing correct, complete, and timely information concerning the same. (g) For a period of up to twenty-four (24) months following a Qualifying Termination, the Executive shall be entitled, at the expense of the Company, to receive standard outplacement services from a nationally recognized outplacement firm of the Executive's selection. However, the Company's total obligation shall not exceed thirtyfive percent (35%) of the Executive's final annual rate of Base Salary with the Company, and such Company obligation shall end prior to the end of the twenty-four (24) month period upon the Executive becoming employed by a subsequent employer. 2.4 Termination for Total and Permanent Disability. Following a Change in Control, if the Executive experiences a Separation from Service due to Disability, the Executive's benefits shall be determined in accordance with the Company's retirement, insurance, and other applicable plans and programs then in effect. 7

160 2.5 Termination for Retirement or Death. Following a Change in Control, if the Executive experiences a Separation from Service by reason of a voluntary Separation from Service after attaining his Normal Retirement Age, or by reason of his death, the Executive's benefits shall be determined in accordance with the Company's retirement, survivor's benefits, insurance, and other applicable programs then in effect. 2.6 Termination for Cause or by the Executive Other Than for Good Reason. Following a Change in Control, if the Executive experiences (i) an Involuntary Termination for Cause, or (ii) a voluntary Separation from Service that is not a Constructive Termination, the Company shall pay the Executive his accrued but unpaid Base Salary at the rate then in effect and accrued but unused vacation pay. Further, the Executive shall continue to be entitled to receive payments or benefits under any annual bonus plan and/or long-term incentive plans, whether cash-based or equity-based, or retirement plans and insurance plans in which Executive is a participant, if any, in each case in accordance with the terms and conditions of such plans. 2.7 Notice of Termination. Any Involuntary Termination by the Company for Cause or voluntary Separation from Service by the Executive for Good Reason shall be communicated by Notice of Termination to the other party. 2.8 Limitation on Severance Benefits. (a) Notwithstanding any other provision of this Agreement, in the event that any payment or benefit received or to be received by the Executive in connection with a Change in Control or Executive's employment termination (whether pursuant to the terms of this Agreement or any other plan, arrangement or agreement with the Company, any person whose actions result in a Change in Control or any person affiliated with the Company or such person) (all such payments and benefits being hereinafter called "Total Payments") would be an "excess parachute payment" pursuant to Section 280G of the Code or any successor or substitute provision of the Code, with the effect that Executive would be liable for the payment of the excise tax described in Section 4999 of the Code or any successor or substitute provision of the Code, or any interest or penalties are incurred by Executive with respect to such Total Payments (such excise tax, together with any such interest and penalties, are hereinafter collectively referred to as the "Excise Tax"), then, after taking into account any reduction in the Total Payments provided by reason of Section 280G of the Code in such other plan, arrangement or agreement, the cash payments provided in Section 2.3 herein shall first be reduced, and the non-cash payments and benefits shall thereafter be reduced, to the extent necessary so that no portion of the Total Payments is subject to the Excise Tax. Notwithstanding the foregoing, no payments or benefits under this Agreement will be reduced unless: (i) the net amount of the Total Payments, as so reduced (and after subtracting the net amount of federal, state and local income taxes on such reduced Total Payments) is greater than (ii) the excess of (A) the net amount of such Total Payments, without reduction (but after subtracting the net amount of federal, state and local income taxes on such Total Payments), over (B) the amount of Excise Tax to which the Executive would be subject in respect of such unreduced Total Payments. 8 (b) Subject to the provisions of Section 2.8(c) below, all determinations required to be made under this Section 2.8, and the assumptions to be utilized in arriving at such determinations shall be made by the public accounting firm that serves the Company's auditors (the "Accounting Firm"), which shall provide detailed supporting calculations both to the Company and Executive within 15 business days of the receipt of notice from the Company or Executive that there have been Total Payments, or such earlier time as is requested by the Company. In the event that the Accounting Firm is serving as accountant or auditor for the individual, entity or group effecting the Change in Control, Executive shall designate another nationally recognized accounting firm to make the determinations required hereunder (which accounting firm shall then be referred to as the Accounting Firm hereunder). All fees and expenses of the Accounting Firm shall be borne solely by the Company. If the Accounting Firm determines that no Excise Tax is payable by Executive, it shall furnish Executive with a written opinion that failure to report the Excise Tax on Executive's applicable federal income tax return would not result in the imposition of a negligence or similar penalty. Any determination by the Accounting Firm shall be binding upon the Company and Executive, except as provided in Section 2.8(c) below. (c) As a result of an uncertainty in the application of Section 280G of the Code at the time of the initial determination by the Accounting Firm hereunder, it is possible that the Internal Revenue Service ("IRS") or other agency may claim that an Excise Tax, or a greater Excise Tax, is due, and thus the Company should have made a lesser amount of Total Payment than that determined pursuant to Section 2.8(a) above. Executive shall notify the Company in writing of any claim by the IRS or other agency that, if successful, would require Executive to pay an Excise Tax or an additional Excise Tax. If the IRS or other agency makes a claim that, if successful, could require Executive to pay an Excise Tax or an additional Excise Tax, the Company shall reduce or further reduce Executive's payments and benefits in accordance with this Section 2.8 to the amount necessary to eliminate such Excise Tax or additional Excise Tax. Any reduction will be made by the end of the second calendar year following the Change in Control. Article 3. Form and Timing of Severance Benefits 3.1 Form and Timing of Severance Benefits.

161 (a) (b) The amount described in Section 2.3(a) herein and, except as provided in Section 3.1(b) herein, the amounts described in Sections 2.3(b) and 2.3(c) herein shall be paid in cash to the Executive in a single lump sum within ten (10) calendar days following the Effective Date of Termination. Notwithstanding anything to the contrary in this agreement, if Executive is a Specified Employee on the Effective Date of Termination, to the extent that Executive is entitled to receive any benefit or payment under this Agreement that constitutes deferred compensation within the meaning of Section 409A of the Code before the date that is six (6) months after the Effective Date of Termination, such benefits or payments shall not be provided or paid to Executive on the date 9

162 otherwise required to be provided or paid. Instead, all such amounts shall be accumulated and paid in a single lump sum to Executive on the first business day after the date that is six (6) months after the Effective Date of Termination (or, if earlier, within fifteen (15) days following Executive's date of death). If Executive is required to pay for a benefit that is otherwise required to be provided by the Company under this Agreement by reason of this Section 3.1(b), Executive shall be entitled to reimbursement for such payments on the first business day after the date that is six (6) months after the Effective Date of Termination (or, if earlier, within fifteen (15) days following Executive's date of death). All benefits or payments otherwise required to be provided or paid on or after the date that is six (6) months after the Effective Date of Termination shall not be affected by this Section 3.1(b) and shall be provided or paid in accordance with the payment schedule applicable to such benefit or payment under this Agreement. Prior to the imposition of the six month delay as set forth in this Section 3.1(b), it is intended that (i) each installment under this Agreement be regarded as a separate "payment" for purposes of Section 409A of the Code, and (ii) all benefits or payments provided under this Agreement satisfy, to the greatest extent possible, the exemptions from the application of Section 409A of the Code provided under Treasury Regulations Sections 1.409A-1(b)(4) (short-term deferral) or 1.409A-1(b)(9) (certain separation pay plans). This Section 3.1(b) is intended to comply with the requirements of Section 409A(a)(2)(B)(i) of the Code. 3.2 Withholding of Taxes. The Company shall withhold from any amounts payable under this Agreement all federal, state, city, or other taxes as legally shall be required. 3.3 Reimbursement and In-Kind Benefits. To the extent this Agreement provides for reimbursements of expenses incurred by Executive or in-kind benefits the provision of which are not exempt from the requirements of Section 409A of the Code, the following terms apply with respect to such reimbursements or benefits: (1) the reimbursement of expenses or provision of in-kind benefits will be made or provided only during the period of time specifically provided herein; (2) the amount of expenses eligible for reimbursement, or in-kind benefits provided, during a calendar year will not affect the expenses eligible for reimbursement, or in-kind benefits to be provided, in any other calendar year; (3) all reimbursements will be made upon Executive's request in accordance with the Company's normal policies but no later than the last day of the calendar year immediately following the calendar year in which the expense was incurred; and (4) the right to the reimbursement or the in-kind benefit will not be subject to liquidation or exchange for another benefit. Article 4. Noncompetition and Confidentiality In the event the Executive becomes entitled to receive Severance Benefits as provided in Section 2.3 herein, the following shall apply: (a) Noncompetition. During the term of employment and for a period of twelve (12) months after the Effective Date of Termination, the Executive shall not: (i) directly or indirectly act in concert or conspire with any person employed by the Company in order to engage in or prepare to engage in or to have a financial or other interest in any business or any activity which he knows (or reasonably should have known) to be directly competitive 10

163 with the business of the Company as then being carried on; or (ii) serve as an employee, agent, partner, shareholder, director or consultant for, or in any other capacity participate, engage, or have a financial or other interest in any business or any activity which he knows (or reasonably should have known) to be directly competitive with the business of the Company as then being carried on (provided, however, that notwithstanding anything to the contrary contained in this Agreement, the Executive may own up to two percent (2%) of the outstanding shares of the capital stock of a company whose securities are registered under Section 12 of the Securities Exchange Act of 1934). (b) Confidentiality. The Company has advised the Executive and the Executive acknowledges that it is the policy of the Company to maintain as secret and confidential all Protected Information (as defined below), and that Protected Information has been and will be developed at substantial cost and effort to the Company. All Protected Information shall remain confidential permanently and no Executive shall at any time, directly or indirectly, divulge, furnish, or make accessible to any person, firm, corporation, association, or other entity (otherwise than as may be required in the regular course of the Executive's employment with the Company), nor use in any manner, either during the term of employment or after termination, at any time, for any reason, any Protected Information, or cause any such information of the Company to enter the public domain. For purposes of this Agreement, "Protected Information" means trade secrets, confidential and proprietary business information of the Company, and any other information of the Company, including, but not limited to, customer lists (including potential customers), sources of supply, processes, plans, materials, pricing information, internal memoranda, marketing plans, internal policies, and products and services which may be developed from time to time by the Company and its agents or employees, including the Executive; provided, however, that information that is in the public domain (other than as a result of a breach of this Agreement), approved for release by the Company or lawfully obtained from third parties who are not bound by a confidentiality agreement with the Company, is not Protected Information. (c) (d) (e) Nonsolicitation. During the term of employment and for a period of twelve (12) months after the Effective Date of Termination, the Executive shall not employ or retain or solicit for employment or arrange to have any other person, firm, or other entity employ or retain or solicit for employment or otherwise participate in the employment or retention of any person who is an employee or consultant of the Company. Cooperation. Executive agrees to cooperate with the Company and its attorneys in connection with any and all lawsuits, claims, investigations, or similar proceedings that have been or could be asserted at any time arising out of or related in any way to Executive's employment by the Company or any of its subsidiaries. Nondisparagement. At all times, the Executive agrees not to disparage the Company or otherwise make comments harmful to the Company's reputation. 11

164 Article 5. Claw-Back 5.1 Claw-Backs. If any of the Company's financial statements are required to be restated due to errors, omissions, fraud, or misconduct, the Committee may, in its sole discretion but acting in good faith, direct that the Company recover all or a portion of the Severance Benefits under this Agreement from the Executive with respect to any fiscal year in which the Company's financial statements are restated to reflect adverse results from those previously released financial statements, as a consequence of errors, omissions, fraud, or misconduct. For purposes of this Section 5.1, errors, omissions, fraud, or misconduct may include and is not limited to circumstances where the Company has been required to prepare an accounting restatement due to material noncompliance with any financial reporting requirement, as enforced by the Securities and Exchange Commission, and the Committee has determined in its sole discretion that the Executive had knowledge of the material noncompliance or the circumstances that gave rise to such noncompliance and failed to take reasonable steps to bring it to the attention of the appropriate individuals within the Company, or the Executive personally and knowingly engaged in practices which materially contributed to the circumstances that enabled a material noncompliance to occur. Article 6. The Company's Payment Obligation 6.1 Payment Obligations Absolute. The Company's obligation to make the payments and the arrangements provided for herein shall be absolute and unconditional, and shall not be affected by any circumstances including, without limitation, any offset, counterclaim, recoupment, defense, or other right which the Company may have against the Executive or anyone else. All amounts payable by the Company hereunder shall be paid without notice or demand. Each and every payment made hereunder by the Company shall be final, and the Company shall not seek to recover all or any part of such payment from the Executive or from whomsoever may be entitled thereto, for any reasons whatsoever. The Executive shall not be obligated to seek other employment in mitigation of the amounts payable or arrangements made under any provision of this Agreement, and the obtaining of any such other employment shall in no event effect any reduction of the Company's obligations to make the payments and arrangements required to be made under this Agreement, except to the extent provided in Sections 2.3(f) and 2.3(g) herein. 6.2 Contractual Rights to Benefits. This Agreement establishes and vests in the Executive a contractual right to the benefits to which he is entitled hereunder. However, nothing herein contained shall require or be deemed to require, or prohibit or be deemed to prohibit, the Company to segregate, earmark, or otherwise set aside any funds or other assets, in trust or otherwise, to provide for any payments to be made or required hereunder. Article 7. Legal Remedies 7.1 Dispute Resolution. The Executive shall have the right and option to elect to have any good faith dispute or controversy arising under or in connection with this Agreement settled by litigation or arbitration. If arbitration is selected, such proceeding shall be conducted by final and binding arbitration before a panel of three (3) arbitrators in accordance with the laws then in effect and under the administration of the American Arbitration Association. 12

165 7.2 Payment of Legal Fees. In the event that it shall be necessary or desirable for the Executive to retain legal counsel and/ or to incur other costs and expenses in connection with the enforcement of any or all of his rights under this Agreement, the Company shall pay (or the Executive shall be entitled to recover from the Company) the Executive's attorneys' fees, costs, and expenses in connection with the enforcement of his rights including the enforcement of any arbitration award. This shall include, without limitation, court costs and attorneys' fees incurred by the Executive as a result of any claim, action, or proceeding, including any such action against the Company arising out of, or challenging the validity or enforceability of, this Agreement or any provision hereof. Article 8. Successors 8.1 Successors to the Company. The Company shall require any successor (whether direct or indirect, by purchase, merger, reorganization, consolidation, acquisition of property or stock, liquidation, or otherwise) of all or a significant portion of the assets of the Company by agreement, in form and substance satisfactory to the Executive, to expressly assume and agree to perform this Agreement in the same manner and to the same extent that the Company would be required to perform if no such succession had taken place. Regardless of whether such agreement is executed, this Agreement shall be binding upon any successor in accordance with the operation of law and such successor shall be deemed the "Company" for purposes of this Agreement. 8.2 Assignment by the Executive. This Agreement shall inure to the benefit of and be enforceable by the Executive's personal or legal representatives, executors, administrators, successors, heirs, distributees, devisees, and legatees. If the Executive dies while any amount would still be payable to him hereunder had he continued to live, all such amounts, unless otherwise provided herein, shall be paid in accordance with the terms of this Agreement to the Executive's devisee, legatee, or other designee, or if there is no such designee, to the Executive's estate. Article 9. Miscellaneous 9.1 Employment Status. This Agreement is not, and nothing herein shall be deemed to create, an employment contract between the Executive and the Company or any of its subsidiaries. The Executive acknowledges that the rights of the Company remain wholly intact to change or reduce at any time and from time to time his compensation, title, responsibilities, location, and all other aspects of the employment relationship, or to discharge him prior to a Change in Control (subject to such discharge possibly being considered a Qualifying Termination pursuant to Section 2.2). 9.2 Entire Agreement. This Agreement contains the entire understanding of the Company and the Executive with respect to the subject matter hereof. 9.3 Notices. All notices, requests, demands, and other communications hereunder shall be sufficient if in writing and shall be deemed to have been duly given if delivered by hand or if sent by registered or certified mail to the Executive at the last address he has filed in writing with the Company or, in the case of the Company, at its principal offices. 9.4 Execution in Counterparts. This Agreement may be executed by the parties hereto in counterparts, each of which shall be deemed to be original, but all such counterparts shall constitute one and the same instrument, and all signatures need not appear on any one counterpart. 13

166 9.5 Conflicting Agreements. The Executive hereby represents and warrants to the Company that his entering into this Agreement, and the obligations and duties undertaken by him hereunder, will not conflict with, constitute a breach of, or otherwise violate the terms of, any other employment or other agreement to which he is a party, except to the extent any such conflict, breach, or violation under any such agreement has been disclosed to the Board in writing in advance of the signing of this Agreement. 9.6 Severability. In the event any provision of this Agreement shall be held illegal or invalid for any reason, the illegality or invalidity shall not affect the remaining parts of the Agreement, and the Agreement shall be construed and enforced as if the illegal or invalid provision had not been included. Further, the captions of this Agreement are not part of the provisions hereof and shall have no force and effect. Notwithstanding any other provisions of this Agreement to the contrary, the Company shall have no obligation to make any payment to the Executive hereunder to the extent, but only to the extent, that such payment is prohibited by the terms of any final order of a federal or state court or regulatory agency of competent jurisdiction; provided, however, that such an order shall not affect, impair, or invalidate any provision of this Agreement not expressly subject to such order. 9.7 Modification. No provision of this Agreement may be modified, waived, or discharged unless such modification, waiver, or discharge is agreed to in writing and signed by the Executive and by a member of the Board, as applicable, or by the respective parties' legal representatives or successors. 9.8 Applicable Law. To the extent not preempted by the laws of the United States, the laws of Delaware shall be the controlling law in all matters relating to this Agreement without giving effect to principles of conflicts of laws. [signature page follows] 14

167 IN WITNESS WHEREOF, the parties have executed this Agreement on this day of, ATTEST Walter Energy, Inc. By: By: Corporate Secretary Title: 15 [Employee]

168 Exhibit Executive Change-in-Control Severance Agreement for [Name of Executive] Walter Energy, Inc. Adopted: [ ]

169 Contents Article 1. Definitions 1 Article 2. Severance Benefits 5 Article 3. Form and Timing of Severance Benefits 10 Article 4. Restrictive Covenants 11 Article 5. Claw-Back 12 Article 6. The Company's Payment Obligation 12 Article 7. Legal Remedies 13 Article 8. Successors 13 Article 9. Miscellaneous 13

170 Walter Energy, Inc. Executive Change-in-Control Severance Agreement THIS EXECUTIVE CHANGE-IN-CONTROL SEVERANCE AGREEMENT is made and entered into this [ ] day of [ ], 201[ ], by and between Walter Energy, Inc. (the "Company"), a Delaware corporation, and [ ] (the "Executive"), and will be effective as of the date the Executive's employment with the Company commences. WHEREAS, effective [ ], 201[ ], the Executive will commence employment with the Company and will possess considerable experience and knowledge of the business and affairs of the Company concerning its policies, methods, personnel and operations; and WHEREAS, the Company is desirous of assuring, insofar as possible, that it will have the benefit of the Executive's services; and the Executive is desirous of having such assurances; and WHEREAS, the Company recognizes that circumstances may arise in which a Change in Control of the Company occurs, through acquisition or otherwise, thereby causing uncertainty of employment without regard to the Executive's competence or past contributions. Such uncertainty may result in the loss of the valuable services of the Executive to the detriment of the Company and its shareholders; and WHEREAS, both the Company and the Executive are desirous that any proposal for a Change in Control will be considered by the Executive objectively and with reference only to the business interests of the Company and its shareholders; and WHEREAS, the Executive will be in a better position to consider the Company's best interests if the Executive is afforded reasonable assurances, as provided in this Agreement, against altered conditions of employment which could result from any such Change in Control. NOW, THEREFORE, in consideration of the foregoing and of the mutual covenants and agreements of the parties set forth in this Agreement, and of other good and valuable consideration, the receipt and sufficiency of which are hereby acknowledged, the parties hereto, intending to be legally bound, agree as follows: Article 1. Definitions Wherever used in this Agreement, the following terms shall have the meanings set forth below and, when the meaning is intended, the initial letter of the word is capitalized: (a) (b) (c) "Agreement" means this Executive Change-in-Control Severance Agreement, as it may be amended from time to time. "Base Salary" means "Base Salary" as defined in the Employment Letter Agreement. "Board" means the Board of Directors of the Company. 1

171 (d) "Cause" shall be determined solely by the Committee in the exercise of good faith and reasonable judgment, and shall mean the occurrence of any one or more of the following: (i) (ii) (iii) (iv) willful and continued refusal to perform the duties of the Executive's position (other than any such failure resulting from the Executive's incapacity due to physical or mental illness); the Executive's conviction or guilty plea of a felony involving fraud or dishonesty; theft or embezzlement by the Executive of property from the Company; or fraudulent preparation by the Executive of financial information of the Company or any subsidiary or affiliate. (e) "Change in Control" of the Company shall mean the occurrence of any one or more of the following events: (i) A change in the effective control of the Company, which occurs only on either of the following dates: (A) The date any Person or Group (other than the Company, any Subsidiary of the Company or any corporation owned, directly or indirectly, by the stockholders of the Company in substantially the same proportions as their ownership of stock of the Company, or any trustee or other fiduciary holding securities under an employee benefit plan of the Company, such Subsidiary or such proportionately owned corporation), acquires (or has acquired during the 12-month period ending on the date of the most recent acquisition by any such Person or Group) ownership of stock of the Company representing more than thirty percent (30%) of the total voting power of the stock of the Company; or (B) The date a majority of the members of the Board is replaced during any 12-month period by directors whose appointment or election is not endorsed by a majority of the members of the Board before the date of the appointment or election; provided that, in any event, the transaction must constitute a "change in the effective control" of the Company within the meaning of Section 409A(a)(2)(A)(v) of the Code and Treasury Regulation Section 1.409A-3(i)(5) (vi). (ii) The date any Person or Group (other than the Company, any Subsidiary of the Company or any corporation owned, directly or indirectly, by the stockholders of the Company in substantially the same proportions as their ownership of stock 2

172 of the Company, or any trustee or other fiduciary holding securities under an employee benefit plan of the Company, such Subsidiary or such proportionately owned corporation) acquires (or has acquired during the 12- month period ending on the date of the most recent acquisition by such Person or Group) all or substantially all of the Company's assets; provided that the transaction must constitute a "change in the ownership of a substantial portion of the assets" of the Company within the meaning of Section 409A(a)(2)(A)(v) of the Code and Treasury Regulation Section 1.409A-3(i)(5)(vii). (f) (g) (h) (i) (j) "Code" means the Internal Revenue Code of 1986, as amended. "Committee" means the Compensation and Human Resources Committee of the Board, or, if no Compensation and Human Resources Committee exists, then the full Board, or a committee of Board members, as appointed by the full Board to administer this Agreement. "Company" means Walter Energy, Inc., a Delaware corporation, or any successor thereto as provided in Article 8 herein. "Constructive Termination" means the Executive's voluntary Separation from Service for Good Reason; provided that a voluntary Separation from Service shall be a Constructive Termination only if (x) Executive provides written notice of the facts or circumstances constituting a Good Reason condition to the Company within 30 days after the initial existence of the Good Reason condition, (y) the Company does not remedy the Good Reason condition within 30 days after it receives such notice, and (z) the voluntary Separation from Service occurs within 90 days after the initial existence of the Good Reason condition. The foregoing definition of Constructive Termination is intended to qualify for the safe harbor under Treasury Regulation Section 1.409A-1(n)(2)(ii) for treating a voluntary separation from service as an involuntary separation from service. "Disability" or "Disabled" means "Disability" as defined in the Employment Letter Agreement. (k) "Effective Date of Termination" means the date on which a Qualifying Termination occurs, as provided in Section 2.2 herein, which triggers the payment of Severance Benefits hereunder. (l) (m) (n) "Employment Letter Agreement" means that certain letter agreement, dated [ ], by and between the Executive and the Company, as it may be amended from time to time. "Exchange Act" means the Securities Exchange Act of 1934, as amended. "Good Reason" means the occurrence of any of the following conditions after a Change in Control of the Company (in each case arising without the Executive's consent): 3

173 (i) (ii) (iii) A material diminution of the Executive's authority, duties or responsibilities from those in effect as of ninety (90) calendar days prior to the Change in Control; The Company requiring the Executive to be based at a location in excess of fifty (50) miles from the location of the Executive's principal job location or office immediately prior to the Change in Control; except for required travel on the Company's business to an extent substantially consistent with the Executive's then present business travel obligations; A material reduction by the Company of the Executive's Base Salary; or (iv) A material breach of this Agreement by the Company, including Section 8.1. Unless the Executive becomes Disabled, the Executive's right to terminate employment for Good Reason shall not be affected by the Executive's incapacity due to physical or mental illness. The Executive's continued employment shall not, by itself, constitute consent to, or a waiver of rights with respect to, any circumstance constituting Good Reason herein. (o) (p) (q) (r) (s) (t) (u) "Group" means "group," as such term is used for purposes of Section 13(d) or 14(d) of the Exchange Act. "Involuntary Termination" means the Executive's involuntary Separation from Service within the meaning of Treasury Regulation Section 1.409A-1(n)(1). "Normal Retirement Age" means the earliest normal retirement age available under the established rules of the Company's tax-qualified retirement plans, as they may be amended from time to time, in which the Executive is eligible to participate. "Notice of Termination" shall mean a written notice which shall indicate the specific termination provision in this Agreement relied upon, and shall set forth in reasonable detail the facts and circumstances claimed to provide a basis for termination of the Executive's employment under the provision so indicated. "Person" means "person," as such term is used for purposes of Section 13(d) or 14(d) of the Exchange Act. "Qualifying Termination" means a Separation from Service described in Section 2.2 herein, the occurrence of which triggers the payment of Severance Benefits hereunder. "Separation from Service" means the Executive's "separation from service" from Executive's employer within the meaning of Section 409A(a)(2)(A)(i) of the Code and the default rules of Treasury Regulation Section 1.409A-1(h). For this purpose, Executive's "employer" is the Company and every entity or other person which collectively with the 4

174 Company constitutes a single "service recipient" (as that term is defined in Treasury Regulation Section 1.409A-1(g)) as the result of the application of the rules of Treasury Regulation Section 1.409A-1(h)(3); provided that an 80% standard (in lieu of the default 50% standard) shall be used for purposes of determining the service recipient / employer for this purpose. (v) (w) (x) (y) "Specified Employee" means a "specified employee" of the service recipient that includes the Company (as determined under Treasury Regulation Section 1.409A-1(g)) within the meaning of Section 409A(a)(2)(B)(i) of the Code and Treasury Regulation Section 1.409A-1(i), as determined in accordance with the procedures adopted by such service recipient that are then in effect, or, if no such procedures are then in effect, in accordance with the default procedures set forth in Treasury Regulation Section 1.409A-1(i). "Severance Benefits" mean the payment of severance compensation as provided in Section 2.3 herein. "Subsidiary" means "subsidiary," as defined in Section 3 of the Exchange Act. "Target Bonus" means "Target Bonus" as defined in the Employment Letter Agreement. Article 2. Severance Benefits 2.1 Right to Severance Benefits. The Executive shall be entitled to receive from the Company Severance Benefits, if there has been a Change in Control of the Company and if, within twenty-four (24) calendar months thereafter, the Executive experiences a Qualifying Termination. The Executive shall not be entitled to receive Severance Benefits if he experiences an Involuntary Termination for Cause, a Separation from Service by reason of his death or Disability, a voluntary Separation from Service after attaining his Normal Retirement Age, or a voluntary Separation from Service that is not a Constructive Termination. 2.2 Qualifying Termination. The occurrence of any one of the following events within twenty-four (24) calendar months after a Change in Control of the Company shall trigger the payment of Severance Benefits to the Executive under this Agreement: (a) (b) An Involuntary Termination without Cause; or A Constructive Termination. For purposes of this Agreement, a Qualifying Termination shall not include a Separation from Service by reason of the Executive's death or Disability, a voluntary Separation from Service after attaining his Normal Retirement Age, a voluntary Separation from Service that is not a Constructive Termination, or an Involuntary Termination for Cause. 5

175 2.3 Description of Severance Benefits. In the event the Executive becomes entitled to receive Severance Benefits, as provided in Sections 2.1 and 2.2 herein, subject to the Executive's execution, delivery and non-revocation of a waiver and release of claims in a form substantially similar to the form attached hereto as Exhibit A on or prior to the 45 th day following the Effective Date of Termination, the Company shall pay or provide, as the case may be, to the Executive the following Severance Benefits: (a) (b) (c) (d) A lump-sum amount equal to the Executive's accrued but unpaid Base Salary, accrued but unused vacation pay and unreimbursed business expenses (in accordance with the standard reimbursement policy applicable to the Executive then in effect) earned by and owed to the Executive through and including the Effective Date of Termination. A lump-sum amount equal to one and one-half (1.5) multiplied by the sum of the following: (i) the higher of: (A) the Executive's Base Salary in effect upon the Effective Date of Termination, or (B) the Executive's Base Salary in effect on the date of the Change in Control; and (ii) the average of the actual annual bonus earned (whether or not deferred) by the Executive under the Company's Executive Incentive Plan (or successor annual bonus plan) ("EIP") (excluding any special bonus payments) in respect of the three (3) years preceding the year in which the Executive's Effective Date of Termination occurs. If the Executive has less than three (3) years of annual bonus participation preceding the year in which the Executive's Effective Date of Termination occurs, then the Executive's Target Bonus for the bonus plan year in which the Executive's Effective Date of Termination occurs shall be used for each year that the Executive did not participate in the EIP, up to a maximum of three (3) years, to calculate the three (3) year average bonus payment. A lump-sum amount equal to one-half (.5) multiplied by the sum of the following: (i) the higher of: (A) the Executive's Base Salary in effect upon the Effective Date of Termination, or (B) the Executive's Base Salary in effect on the date of the Change in Control; and (ii) the average of the actual annual bonus earned (whether or not deferred) by the Executive under the EIP (excluding any special bonus payments) in respect of the three (3) years preceding the year in which the Executive's Effective Date of Termination occurs. If the Executive has less than three (3) years of annual bonus participation preceding the year in which the Executive's Effective Date of Termination occurs, then the Executive's Target Bonus for the bonus plan year in which the Executive's Effective Date of Termination occurs shall be used for each year that the Executive did not participate in the EIP, up to a maximum of three (3) years, to calculate the three (3) year average bonus payment. Such amount shall be in consideration for the Executive agreeing to the restrictive covenants contained in Article 4. The Executive shall continue to be entitled to receive payments or benefits under any annual bonus plan and/or long-term incentive plans, whether cash-based or 6

176 equity-based, or retirement plans and insurance plans in which Executive is a participant, if any, in each case in accordance with the terms and conditions of such plans. (e) (f) A pro-rata bonus under the EIP based on the portion of the year actually worked up to the Effective Date of Termination and computed based on actual annual performance. Such pro-rata bonus shall be paid during the year following the year that includes the Effective Date of Termination in accordance with the terms of the EIP. Continuation for twenty-four (24) months of the Executive's medical insurance and life insurance coverage. These benefits shall be provided by the Company to the Executive beginning immediately upon the Effective Date of Termination. Such benefits shall be provided to the Executive at the same coverage level and cost to the Executive as in effect immediately prior to the Executive's Effective Date of Termination. To the extent permitted by law, the Executive shall qualify for COBRA health care continuation coverage under Section 4980B of the Code or any replacement or successor provision of United States tax law, beginning upon the expiration of the aforementioned twenty-four (24) month period. Notwithstanding the above, these medical and life insurance benefits shall be discontinued prior to the end of the stated continuation period in the event the Executive receives substantially similar benefits from a subsequent employer, as determined solely by the Committee in good faith. For purposes of enforcing this offset provision, the Executive shall send written notice of the terms and conditions of any subsequent employment and the corresponding benefits earned from such employment, and shall provide, or cause to provide, to the Company, in writing, correct, complete, and timely information concerning the same to the extent requested by the Company. (g) For a period of up to twenty-four (24) months following the Effective Date of Termination, the Executive shall be entitled, at the expense of the Company, to receive standard outplacement services through DBM or such other nationally recognized outplacement firm as may be reasonably selected by the Company. However, the Company's total obligation shall not exceed thirty-five percent (35%) of the Executive's Base Salary in effect upon the Effective Date of Termination, and such Company obligation shall end prior to the end of the twentyfour (24) month period upon the Executive becoming employed by a subsequent employer. 2.4 Termination due to Disability. Following a Change in Control, if the Executive experiences a Separation from Service due to Disability, the Executive's benefits shall be 7

177 determined in accordance with the Company's retirement, insurance, and other applicable plans and programs then in effect. 2.5 Termination due to Retirement or Death. Following a Change in Control, if the Executive experiences a Separation from Service by reason of a voluntary Separation from Service after attaining his Normal Retirement Age, or by reason of his death, the Executive's benefits shall be determined in accordance with the Company's retirement, survivor's benefits, insurance, and other applicable plans and programs then in effect. 2.6 Termination for Cause or by the Executive Other Than for Good Reason. Following a Change in Control, if the Executive experiences (i) an Involuntary Termination for Cause, or (ii) a voluntary Separation from Service that is not a Constructive Termination, the Company shall pay the Executive his accrued but unpaid Base Salary at the rate then in effect and accrued but unused vacation pay. Further, the Executive shall continue to be entitled to receive payments or benefits under any annual bonus plan and/or long-term incentive plans, whether cash-based or equity-based, or retirement plans and insurance plans in which Executive is a participant, if any, in each case in accordance with the terms and conditions of such plans. 2.7 Notice of Termination. Any Involuntary Termination by the Company for Cause or voluntary Separation from Service by the Executive that is not a Constructive Termination shall be communicated by Notice of Termination to the other party. 2.8 Limitation on Severance Benefits. (a) Notwithstanding any other provision of this Agreement, in the event that any payment or benefit received or to be received by the Executive in connection with a Change in Control or the termination of the Executive's employment with the Company (whether pursuant to the terms of this Agreement or any other plan, arrangement or agreement with the Company, any person whose actions result in a Change in Control or any person affiliated with the Company or such person) (all such payments and benefits being hereinafter called "Total Payments") would be an "excess parachute payment" pursuant to Section 280G of the Code or any successor or substitute provision of the Code, with the effect that the Executive would be liable for the payment of the excise tax described in Section 4999 of the Code or any successor or substitute provision of the Code, or any interest or penalties are incurred by the Executive with respect to such Total Payments (such excise tax, together with any such interest and penalties, are hereinafter collectively referred to as the "Excise Tax"), then, after taking into account any reduction in the Total Payments provided by reason of Section 280G of the Code in such other plan, arrangement or agreement, the cash payments provided in Section 2.3 herein shall first be reduced, and the noncash payments and benefits shall thereafter be reduced, to the extent necessary so that no portion of the Total Payments is subject to the Excise Tax. Notwithstanding the foregoing, no payments or benefits under this Agreement will be reduced unless: (i) the net amount of the Total Payments, as so reduced (and after subtracting 8 the net amount of federal, state and local income taxes on such reduced Total Payments) is greater than (ii) the excess of (A) the net amount of such Total Payments, without reduction (but after subtracting the net amount of federal, state and local income taxes on such Total Payments), over (B) the amount of Excise Tax to which the Executive would be subject in respect of such unreduced Total Payments. (b) Subject to the provisions of Section 2.8(c) below, all determinations required to be made under this Section 2.8, and the assumptions to be utilized in arriving at such determinations shall be made by the public accounting firm that serves the Company's auditors (the "Accounting Firm"), which shall provide detailed supporting calculations both to the Company and the Executive within 15 business days of the receipt of notice from the Company or the Executive that there have been Total Payments, or such earlier time as is requested by the Company. In the event that the Accounting Firm is serving as accountant or auditor for the individual, entity or group effecting the Change in Control, the Executive shall designate another nationally recognized accounting firm to make the determinations required hereunder (which accounting firm shall then be referred to as the Accounting Firm hereunder). All fees and expenses of the Accounting Firm shall be borne solely by the Company. If the Accounting Firm determines that no Excise Tax is payable by the Executive, it shall furnish the Executive with a written opinion that failure to report the Excise Tax on the Executive's applicable federal income tax return would not result in the imposition of a negligence or similar penalty. Any determination by the Accounting Firm shall be binding upon the Company and the Executive, except as provided in Section 2.8(c) below. (c) As a result of an uncertainty in the application of Section 280G of the Code at the time of the initial determination by the Accounting Firm hereunder, it is possible that the Internal Revenue Service ("IRS") or other agency may claim that an Excise Tax, or a greater Excise Tax, is due, and thus the Company should have made a lesser amount of Total Payments than that determined pursuant to Section 2.8(a) above. The Executive shall notify the Company in writing of any claim by the IRS or other agency that, if successful, would require the Executive to pay an Excise Tax or an additional Excise Tax. If the IRS or other agency makes a claim that, if successful, could require the Executive to pay an Excise Tax or an additional Excise Tax, the Company shall reduce or further reduce the Executive's payments and benefits in accordance with this Section 2.8 to the amount necessary to eliminate such Excise Tax or additional Excise Tax. Any reduction will be made by the end of the second calendar year following the Change in Control. 9

178

179 Article 3. Form and Timing of Severance Benefits 3.1 Form and Timing of Severance Benefits. (a) (b) The amount described in Section 2.3(a) herein and, except as provided in Section 3.1(b) herein, the amounts described in Sections 2.3(b) and 2.3(c) herein shall be paid in cash to the Executive in a single lump sum on the 60 th day following the Effective Date of Termination. Notwithstanding anything to the contrary in this Agreement, if the Executive is a Specified Employee on the Effective Date of Termination, to the extent that the Executive is entitled to receive any benefit or payment under this Agreement that constitutes deferred compensation within the meaning of Section 409A of the Code before the date that is six (6) months after the Effective Date of Termination, such benefits or payments shall not be provided or paid to the Executive on the date otherwise required to be provided or paid. Instead, all such amounts shall be accumulated and paid in a single lump sum to the Executive on the first business day after the date that is six (6) months after the Effective Date of Termination (or, if earlier, within fifteen (15) days following the Executive's date of death). If the Executive is required to pay for a benefit that is otherwise required to be provided by the Company under this Agreement by reason of this Section 3.1(b), the Executive shall be entitled to reimbursement for such payments on the first business day after the date that is six (6) months after the Effective Date of Termination (or, if earlier, within fifteen (15) days following the Executive's date of death). All benefits or payments otherwise required to be provided or paid on or after the date that is six (6) months after the Effective Date of Termination shall not be affected by this Section 3.1(b) and shall be provided or paid in accordance with the payment schedule applicable to such benefit or payment under this Agreement. Prior to the imposition of the six month delay as set forth in this Section 3.1(b), it is intended that (i) each installment under this Agreement be regarded as a separate "payment" for purposes of Section 409A of the Code, and (ii) all benefits or payments provided under this Agreement satisfy, to the greatest extent possible, the exemptions from the application of Section 409A of the Code provided under Treasury Regulation Section 1.409A-1(b)(4) (shortterm deferral) or 1.409A-1(b)(9) (certain separation pay plans). This Section 3.1(b) is intended to comply with the requirements of Section 409A(a)(2)(B)(i) of the Code. 3.2 Withholding of Taxes. The Company shall withhold from any amounts payable under this Agreement all federal, state, city, or other taxes as legally shall be required. 3.3 Reimbursement and In-Kind Benefits. Notwithstanding anything to the contrary in this Agreement, to the extent this Agreement provides for reimbursements of expenses incurred by the Executive or in-kind benefits the provision of which are not exempt from the requirements of Section 409A of the Code, the following terms apply with respect to such reimbursements or benefits: (1) the reimbursement of expenses or provision of in-kind benefits will be made or provided only during the period of time specifically provided herein; (2) the amount of expenses eligible for reimbursement, or in-kind benefits provided, during a calendar year will not affect the expenses eligible for reimbursement, or in-kind benefits to be provided, in any other calendar year; 10

180 (3) all reimbursements will be made upon the Executive's request in accordance with the Company's normal policies but no later than the last day of the calendar year immediately following the calendar year in which the expense was incurred; and (4) the right to the reimbursement or the in-kind benefit will not be subject to liquidation or exchange for another benefit. Article 4. Restrictive Covenants In consideration of the Severance Benefits, the following shall apply: (a) (b) Noncompetition. During the term of employment and for a period of twelve (12) months after the Executive's employment terminates for any reason, the Executive shall not with respect to the coal industry: (i) directly or indirectly act in concert or conspire with any person employed by the Company or any of its subsidiaries in order to engage in or prepare to engage in or to have a financial or other interest in any business or any activity which he knows (or reasonably should have known) to be directly competitive with the business of the Company and its subsidiaries as then being carried on; or (ii) serve as an employee, agent, partner, shareholder, director or consultant for, or in any other capacity participate, engage, or have a financial or other interest in, any business or any activity which he knows (or reasonably should have known) to be directly competitive with the business of the Company and its subsidiaries as then being carried on (provided, however, that notwithstanding anything to the contrary contained in this Agreement, the Executive may own up to two percent (2%) of the outstanding shares of the capital stock of a company whose securities are registered under Section 12 of the Exchange Act). Confidentiality. The Company has advised the Executive and the Executive acknowledges that it is the policy of the Company to maintain as secret and confidential all Protected Information (as defined below), and that Protected Information has been and will be developed at substantial cost and effort to the Company. All Protected Information shall remain confidential permanently and the Executive shall not at any time, directly or indirectly, divulge, furnish, or make accessible to any person, firm, corporation, association, or other entity (otherwise than as may be required in the regular course of the Executive's employment with the Company), nor use in any manner, either during the term of employment or after termination, at any time, for any reason, any Protected Information, or cause any such information of the Company or any of its subsidiaries to enter the public domain. For purposes of this Agreement, "Protected Information" means trade secrets, confidential and proprietary business information of the Company and its subsidiaries, and any other information of the Company, including, but not limited to, customer lists (including potential customers), sources of supply, processes, plans, materials, pricing information, internal memoranda, marketing plans, internal policies, and products and services which may be developed from time to time by the Company and its subsidiaries and their respective agents or employees, including the Executive; provided, however, that information that is in the public domain (other than as a result of a breach of this Agreement), approved for release by the Company or lawfully obtained from third 11

181 parties who are not bound by a confidentiality agreement with the Company, is not Protected Information. (c) (d) (e) Nonsolicitation. During the term of employment and for a period of twelve (12) months after the Executive's employment terminates for any reason, the Executive shall not employ or retain or solicit for employment or arrange to have any other person, firm, or other entity employ or retain or solicit for employment or otherwise participate in the employment or retention of any person who is an employee or consultant of the Company or any of its subsidiaries. Cooperation. The Executive agrees to cooperate with the Company and its attorneys in connection with any and all lawsuits, claims, investigations, or similar proceedings that have been or could be asserted at any time arising out of or related in any way to the Executive's employment by the Company or any of its subsidiaries. Nondisparagement. At all times, the Executive agrees not to disparage the Company or any of its subsidiaries or otherwise make comments harmful to the Company's reputation. Article 5. Claw-Back 5.1 Claw-Backs. If any of the Company's financial statements are required to be restated due to errors, omissions, fraud, or misconduct, the Committee may, in its sole discretion but acting in good faith, direct that the Company recover all or a portion of the Severance Benefits under this Agreement from the Executive with respect to any fiscal year in which the Company's financial statements are restated to reflect adverse results from those previously released financial statements, as a consequence of errors, omissions, fraud, or misconduct. For purposes of this Section 5.1, errors, omissions, fraud, or misconduct may include and is not limited to circumstances where the Company has been required to prepare an accounting restatement due to material noncompliance with any financial reporting requirement, as enforced by the Securities and Exchange Commission, and the Committee has determined in its sole discretion that the Executive had knowledge of the material noncompliance or the circumstances that gave rise to such noncompliance and failed to take reasonable steps to bring it to the attention of the appropriate individuals within the Company, or the Executive personally and knowingly engaged in practices which materially contributed to the circumstances that enabled a material noncompliance to occur. Article 6. The Company's Payment Obligation 6.1 Payment Obligations Absolute. The Company's obligation to make the payments and the arrangements provided for herein shall be absolute and unconditional, and shall not be affected by any circumstances including, without limitation, any offset, counterclaim, recoupment, defense, or other right which the Company may have against the Executive or anyone else. All amounts payable by the Company hereunder shall be paid without notice or demand. Each and every payment made hereunder by the Company shall be final, and, except as expressly provided for in Section 5.1, the Company shall not seek to recover all or any part of such payment from the Executive or from whomsoever may be entitled thereto, for any reasons whatsoever. 12

182 The Executive shall not be obligated to seek other employment in mitigation of the amounts payable or arrangements made under any provision of this Agreement, and the obtaining of any such other employment shall in no event effect any reduction of the Company's obligations to make the payments and arrangements required to be made under this Agreement, except to the extent provided in Sections 2.3(f) and 2.3(g) herein. 6.2 Contractual Rights to Benefits. This Agreement establishes and vests in the Executive a contractual right to the benefits to which he is entitled hereunder. However, nothing herein contained shall require or be deemed to require, or prohibit or be deemed to prohibit, the Company to segregate, earmark, or otherwise set aside any funds or other assets, in trust or otherwise, to provide for any payments to be made or required hereunder. Article 7. Legal Remedies 7.1 Dispute Resolution. The Executive shall have the right and option to elect to have any good faith dispute or controversy arising under or in connection with this Agreement settled by litigation or arbitration. If arbitration is selected, such proceeding shall be conducted by final and binding arbitration before a panel of three (3) arbitrators in accordance with the laws then in effect and under the administration of the American Arbitration Association. The Executive shall be entitled to reimbursement by the Company of all reasonable legal fees incurred by the Executive in connection with any such litigation or arbitration, so long as the Executive prevails on any material issues. Article 8. Successors 8.1 Successors to the Company. The Company shall require any successor (whether direct or indirect, by purchase, merger, reorganization, consolidation, acquisition of property or stock, liquidation, or otherwise) of all or substantially all the assets of the Company by agreement, to expressly assume and agree to perform this Agreement in the same manner and to the same extent that the Company would be required to perform if no such succession had taken place. Regardless of whether such agreement is executed, this Agreement shall be binding upon any successor in accordance with the operation of law and such successor shall be deemed the "Company" for purposes of this Agreement. 8.2 Assignment by the Executive. This Agreement shall inure to the benefit of and be enforceable by the Executive's personal or legal representatives, executors, administrators, successors, heirs, distributees, devisees, and legatees. If the Executive dies while any amount would still be payable to him hereunder had he continued to live, all such amounts, unless otherwise provided herein, shall be paid in accordance with the terms of this Agreement to the Executive's devisee, legatee, or other designee, or if there is no such designee, to the Executive's estate. Article 9. Miscellaneous 9.1 Entire Agreement. This Agreement contains the entire understanding of the Company and the Executive with respect to the termination of the Executive's employment and the consequences thereof (including, without limitation, severance, benefits and other programs maintained by the Company). 13

183 9.2 Notices. All notices, requests, demands, and other communications hereunder shall be sufficient if in writing and shall be deemed to have been duly given if delivered by hand or if sent by registered or certified mail to the Executive at the last address he has filed in writing with the Company or, in the case of the Company, at its principal offices. 9.3 Execution in Counterparts. This Agreement may be executed by the parties hereto in counterparts, each of which shall be deemed to be original, but all such counterparts shall constitute one and the same instrument, and all signatures need not appear on any one counterpart. 9.4 Conflicting Agreements. The Executive hereby represents and warrants to the Company that his entering into this Agreement, and the obligations and duties undertaken by him hereunder, will not conflict with, constitute a breach of, or otherwise violate the terms of, any other employment or other agreement to which he is a party, except to the extent any such conflict, breach, or violation under any such agreement has been disclosed to the Board in writing in advance of the signing of this Agreement. 9.5 Severability. In the event any provision of this Agreement shall be held illegal or invalid for any reason, the illegality or invalidity shall not affect the remaining parts of the Agreement, and the Agreement shall be construed and enforced as if the illegal or invalid provision had not been included. Further, the captions of this Agreement are not part of the provisions hereof and shall have no force and effect. Notwithstanding any other provisions of this Agreement to the contrary, the Company shall have no obligation to make any payment to the Executive hereunder to the extent, but only to the extent, that such payment is prohibited by the terms of any final order of a federal or state court or regulatory agency of competent jurisdiction; provided, however, that such an order shall not affect, impair, or invalidate any provision of this Agreement not expressly subject to such order. 9.6 Modification. No provision of this Agreement may be modified, waived, or discharged unless such modification, waiver, or discharge is agreed to in writing and signed by the Executive and by a member of the Board, as applicable, or by the respective parties' legal representatives or successors. 9.7 Applicable Law. To the extent not preempted by the laws of the United States, the laws of Delaware shall be the controlling law in all matters relating to this Agreement without giving effect to principles of conflicts of laws. [signature page follows] 14

184 IN WITNESS WHEREOF, the parties have executed this Agreement on this [ ] day of [ ], 201[]. ATTEST Walter Energy, Inc. By: By: Corporate Secretary Walter J. Scheller, III Chief Executive Officer Walter Energy Inc. 15 [Executive]

185 Exhibit 10.5 WALTER INDUSTRIES EXECUTIVE DEFERRED COMPENSATION AND SUPPLEMENTAL RETIREMENT PLAN AMENDED & RESTATED AS OF JANUARY 1, 2005

186 WALTER INDUSTRIES EXECUTIVE DEFERRED COMPENSATION AND SUPPLEMENTAL RETIREMENT PLAN Table of Contents Article Title Page ARTICLE I Purpose I-1 ARTICLE II Definitions II-1 ARTICLE III Administration III-1 ARTICLE IV Eligibility and Participation IV-1 ARTICLE V Deferral Elections and Supplemental Retirement Contributions V-1 ARTICLE VI Participant Accounts and Investment of Deferred Amounts VI-1 ARTICLE VII Plan Benefits and Distributions VII-1 ARTICLE VIII Amendment and Termination VIII-1 ARTICLE IX Miscellaneous IX-1

187 WALTER INDUSTRIES EXECUTIVE DEFERRED COMPENSATION AND SUPPLEMENTAL RETIREMENT PLAN ARTICLE I Purpose Walter Industries, Inc. (the "Company") previously established the Walter Industries Executive Deferred Compensation Plan (the "Plan") and the Walter Industries, Inc. Supplemental Profit Sharing Plan (the "Supplemental Plan") for a select group of key management and highly compensated personnel to ensure that the Company's and its Related Employer's compensation program will attract, retain and motivate qualified personnel. The Plan is hereby amended and restated effective as of January 1, 2005 to provide for the merger of the Supplemental Plan into the Plan and to rename the Plan the "Walter Industries Executive Deferred Compensation and Supplemental Retirement Plan". The purpose of this Plan is to provide certain key management and highly compensated employees who contribute or who are expected to contribute substantially to the success of the Company and its Related Employers with the opportunity to defer the receipt of compensation and to permit certain employees of the Company and its Related Employers who participate in the Walter Industries, Inc. Retirement Savings Plan to receive contributions equal to amounts in excess of the limitations on contributions imposed by Section 415 and 401(a)(17) of the Code, on defined contribution plans. The Plan is intended to be an unfunded plan. I-1

188 ARTICLE II Definitions Whenever used hereinafter, the following terms shall have the meaning set forth below. (a) "Account" or "Accounts" shall mean a Participant's Deferred Compensation Account, and/or Supplemental Retirement Account as described in Article VI. These Accounts are bookkeeping accounts that represent a Participant's hypothetical interest with respect to the amounts credited to such Accounts in accordance with Article VI. (b) "Beneficiary" shall mean the person or persons designated by the Participant made on a form prescribed by and filed with the Plan Administrator, and may be changed at any time by filing a new form with the Plan Administrator. If the Participant has designated no beneficiary, or if no beneficiary that he has designated survives him, then such unpaid amounts shall be paid to his estate. In the event of any dispute as to the entitlement of any beneficiary, the Plan Administrator's determination shall be final, and the Plan Administrator may withhold any payment until such dispute has been resolved. (c) (d) "Board" or "Board of Directors" shall mean the board of directors of the Company. "Change in Control" of the Company shall mean the occurrence of any one (1) or more of the following events: (1) A change in the effective control of the Company, which occurs only on either of the following dates: (A) The date any Person or more than one Person acting as a group (other than the Company or any corporation owned, directly or indirectly, by the stockholders of the Company in substantially the same proportions as their ownership of stock of the Company, and any trustee or other fiduciary holding securities under an employee benefit plan of the Company or such proportionately owned corporation), acquires (or has acquired during the 12- month period ending on the date of the most recent acquisition by such Person or Persons) ownership of stock of the Company representing more than thirty percent (30%) of the total voting power of the stock of the Company; or (B) The date a majority of the members of the Board is replaced during any 12-month period by directors whose appointment or election is not endorsed by a majority of the members of the Board before the date of the appointment or election; II-1

189 provided that, in any event, the transaction must constitute a "change in the effective control" of the Company within the meaning of Section 409A(a)(2)(A)(v) of the Code and Treasury Regulations Section 1.409A-3(i)(5)(vi). (2) The date any Person or more than one Person acting as a group acquires (or has acquired during the 12- month period ending on the date of the most recent acquisition by such Person or Persons) all or substantially all of the Company's assets; provided that the transaction must constitute a "change in the ownership of a substantial portion of the assets" of the Company within the meaning of Section 409A(a)(2)(A)(v) of the Code and Treasury Regulations Section 1.409A-3(i)(5)(vii). Notwithstanding the foregoing, in no event shall a Change in Control of the Company be deemed to have occurred if the Company undergoes a strategic realignment of its businesses (such as a split-up or spin-off transaction), with or without a shareholder vote. (e) (f) (g) "Code" shall mean the Internal Revenue Code of 1986, as amended. "Company" shall mean Walter Industries, Inc. and its successors. "Compensation" shall mean the same as "Compensation" under the Qualified Plan. (h) "Deferred Compensation Account" shall mean the Account established pursuant to Article VI, Section (a)(1), to hold Participant deferrals under the Plan. (i) "Effective Date" shall mean, for purposes of this amendment and restatement, January 1, The Plan was originally effective January 1, The Walter Industries, Inc. Supplemental Profit Sharing Plan was originally effective June 16, (j) "Participant" shall mean any employee of the Company or a Related Employer who is covered by this Plan as provided in Article IV. (k) "Performance Based Compensation" shall mean compensation where the amount of, or entitlement to, the compensation is contingent on the satisfaction of preestablished organizational or individual performance criteria relating to a performance period of at least 12 months in which the Participant performs services. Organizational or individual performance criteria are considered preestablished if established, in writing, by not later than 90 days after the commencement of the period of service to which the criteria relates, provided that the outcome is substantially uncertain at the time the criteria are established. Performance Based Compensation may include payments based on performance criteria that are not approved by a compensation committee of the Board of Directors, or by the shareholders or members II-2

190 of the Company. Notwithstanding any provisions above to the contrary, Performance Based Compensation does not include any amount or portion of any amount that shall be paid either regardless of performance, or based upon the level of performance that is substantially certain to be met at the time the criteria is established. (l) "Person" shall have the meaning ascribed to such term in the Code and Treasury Regulations. (m) "Plan" shall mean the Walter Industries Executive Deferred Compensation and Supplemental Retirement Plan hereby amended and restated and as it may be further amended from time to time. (n) "Plan Administrator" shall mean the Retirement Plans Administrative Committee that has been appointed from time to time by the Board of Directors of the Company to serve as the Plan Administrator for the Plan. (o) "Plan Year" shall mean the 12-month period ending on December 31. (p) "Qualified Plan" shall mean the Walter Industries, Inc. Retirement Savings Plan, as amended, and each predecessor, successor or replacement profit sharing arrangement. (q) "Qualified Plan Contribution" shall mean the total of all profit sharing contributions and/or matching contributions made by the Company or a Related Employer for the benefit of a Participant as well as any forfeitures allocated to a Participant's Account under and in accordance with the terms of the Qualified Plan in any Plan Year. (r) "Related Employer" shall mean any affiliate of the Company who adopts the Plan with the consent of the Company. (s) "Separation from Service" shall mean the Participant's termination of employment with the employer within the meaning of Section 409A(a)(2)(A)(i) of the Code and the default rules of Treasury Regulations Section 1.409A-1(h). For this purpose, the "employer" is the Company and every entity or other person which collectively with the Company constitutes a single service recipient (as that term is defined in Treasury Regulations Sections 1.409A-1(g)) as the result of the application of the rules of Treasury Regulations Sections 1.409A-1 (h)(3); provided that an 80% standard (in lieu of the default 50% standard) shall be used for purposes of determining the service recipient/employer for this purpose. (t) "Service Recipient" means the Company or an affiliate of the Company for which the Employee performs services and any affiliates of the Company or a subsidiary of the Company that are required to be considered a single employer under Sections 414(b) and 414(c) of the Code. II-3

191 (u) "Specified Employee" means a key employee of the Service Recipient within the meaning of Section 409A(a)(2)(B) (i) of the Code and Treasury Regulations Section 1.409A-1(i), as determined in accordance with the procedures adopted by the Company that are then in effect, or, if no such procedures are then in effect, in accordance with the default procedures set forth in Treasury Regulations Section 1.409A-1(i). (v) "Supplemental Retirement Account" shall mean the Account established pursuant to Article VI, Section (a)(2) to hold Supplemental Retirement Contributions. (w) "Supplemental Retirement Contribution" shall mean the contribution made by the Company or a Related Employer for the benefit of a Participant under and in accordance with the terms of the Plan in any Plan Year. (x) "Unforeseeable Emergency" shall mean a severe financial hardship to the Participant resulting from an illness or accident of the Participant, the Participant's spouse, the Participant's Beneficiary, or the Participant's dependent (as defined in Code Section 152, without regard to Code Sections 152(b)(1), (b)(2), and (d)(1)(b)); loss of the Participant's property due to casualty (including the need to rebuild a home following damage to a home not otherwise covered by insurance); or other similar extraordinary and unforeseeable circumstances arising from the events beyond the control of the Participant. The need to pay for medical expenses, including nonrefundable deductibles, as well as for the cost of prescription drug medication may constitute an unforeseeable emergency. The need to pay for the funeral expenses of a spouse, a Beneficiary, or a dependent (as defined in Code Section 152, without regard to Code Sections 152(b)(1), (b)(2), and (d)(1)(b)) may also constitute an unforeseeable emergency. Except as otherwise provided in this paragraph, the purchase of a home and payment of college tuition are not unforeseeable emergencies. II-4

192 ARTICLE III Administration (a) Plan Administrator. The Plan Administrator shall have complete control and discretion to manage the operation and administration of the Plan. Not in limitation, but in amplification of the foregoing, the Plan Administrator shall have the following powers: (1) To determine all questions relating to the eligibility of employees to participate or continue to participate; (2) To maintain all records and books of account necessary for the administration of the Plan; (3) To interpret the provisions of the Plan and to make and to publish such interpretive or procedural rules as are not inconsistent with the Plan and applicable law; (4) To compute, certify and arrange for the payment of benefits to which any Participant or Beneficiary is entitled; (5) To process claims for benefits under the Plan by Participants or beneficiaries; (6) To engage consultants and professionals to assist the Plan Administrator in carrying out its duties under this Plan; and (7) To develop and maintain such instruments as may be deemed necessary from time to time by the Plan Administrator to facilitate payment of benefits under the Plan. (b) Plan Administrator's Authority. The Plan Administrator may consult with Company officers, legal and financial advisers to the Company and others, but nevertheless the Plan Administrator shall have the full authority and discretion to act, and the Plan Administrator's actions shall be final and conclusive on all parties. (c) Claims and Appeal Procedure for Denial of Benefits. A Participant or a Beneficiary (the "Claimant") may file with the Plan Administrator a written claim for benefits if the Participant determines the distribution procedures of the Plan have not provided him his proper interest in the Plan. The Plan Administrator must render a decision on the claim within a reasonable period of time of the Claimant's written claim for benefits. The Plan Administrator must provide adequate notice in writing to the Claimant whose claim for benefits under the Plan the Plan Administrator has denied. Notice must be provided to the Claimant within a reasonable period of time, but not later than 90 days (45 days in the case of a claim for disability benefits) after the receipt of a claim. If the Plan Administrator determines the additional time is needed, III-1

193 written notice will be forwarded to the Participant prior to the expiration of the 90-day period (45 days in the case of a claim for disability benefits). The extension will not exceed 90 days (30 days in the case of a claim for disability benefits) from the end of the initial period. The Plan Administrator's notice to the Claimant must set forth: (1) The specific reason for the denial; (2) Specific references to pertinent Plan provisions on which the Plan Administrator based its denial; (3) A description of any additional material and information needed for the Claimant to perfect his claim and an explanation of why the material or information is needed; and (4) Appropriate information as to the steps to be taken if the Claimant wants to submit the claim for review; (5) In the case of disability benefits, where disability is determined by a physician appointed by the Plan Administrator, the specific basis for the determination of the physician. Any appeal the Claimant wishes to make of an adverse determination must be made in writing to the Plan Administrator within sixty (60) days (or 180 days in the case of a claim for disability benefits where the disability is determined by a physician chosen by the Plan Administrator) after receipt of the Plan Administrator's notice of denial of benefits. The Plan Administrator's notice must further advise the Claimant that his failure to appeal the action to the Plan Administrator in writing will render the Plan Administrator's determination final, binding and conclusive. The Plan Administrator's notice of denial of benefits must identify the name and address of the Plan Administrator to whom the Claimant may forward his appeal. If the Claimant should appeal to the Plan Administrator, he, or his duly authorized representative, must submit, in writing, whatever issues and comments he, or his duly authorized representative, believes are pertinent. The Claimant, or his duly authorized representative, may review pertinent Plan documents free of charge. The Plan Administrator will re-examine all facts related to the appeal and make a final determination as to whether the denial of benefits is justified under the circumstances. The Plan Administrator must advise the Claimant of its decision within 60 days following (45 days in the case of a claim for disability benefits) the Claimant's written request for review. If the Plan Administrator determines the additional time is needed, written notice will be forwarded to the Participant prior to the expiration of the 60-day period. The extension will not exceed 60 days (45 days in the case of a claim for disability benefits) from the end of the initial period. III-2

194 ARTICLE IV Eligibility and Participation (a) Deferral Contributions. For purposes of making deferral elections in accordance with paragraph (a) of Article V, the Plan Administrator, in its sole discretion, shall determine those employees of the Company or a Related Employer eligible to participate in the Plan. Accordingly, an employee of the Company or a Related Employer who, in the opinion of the Plan Administrator based upon its then current guidelines, has contributed or is expected to contribute significantly to the growth and successful operations of the Company or a Related Employer and who meets any additional criteria for eligibility that the Plan Administrator, in its sole discretion, may adopt from time to time. An eligible employee shall become a Participant for purposes of making deferral elections upon being notified by the Company and making the required elections under Article V. (b) Supplemental Retirement Contributions. Notwithstanding anything in the Plan to the contrary, Employees of the Company or Related Employer who participate in the Qualified Plan and who are restricted by the limitations on employer matching or profit sharing contributions imposed by Code Sections 415 and 401 (a)(17) shall automatically become Participants in the Plan for purposes of receiving Supplemental Retirement Contributions a described in paragraph (d) of Article V. IV-1 ARTICLE V Deferral Elections and Supplemental Retirement Contributions (a) Deferral Procedures. (1) Any Participant may elect to defer for any calendar year all or any portion of his base salary and/or cash bonus payable during such calendar year as may be permitted by the Plan Administrator in its discretion; provided, however, that the minimum annual deferral amount from a Participant's base salary shall be $2,000. (2) (A) Any deferral election permitted under this paragraph (a) shall be in writing, signed by the Participant. Any election to defer a portion of base salary or cash bonus (including Performance Based Compensation) must be delivered to the Plan Administrator prior to the January 1 of the calendar year in which the base salary or cash bonus (including Performance Based Compensation) to be deferred is otherwise earned. (B) Notwithstanding the foregoing, an election may be made by a Participant to defer base salary or cash bonuses earned subsequent to his deferral election within the 30-day period following a Participant's initial eligibility to participate in the Plan. (3) A Participant's deferral election shall remain in effect until modified or revoked. Except as provided in subparagraph (4) below, any modification or revocation will not be effective until the January 1 next following the date the modification or revocation is received by the Plan Administrator. (4) A Participant may only cancel a deferral election during the Plan Year with respect to which such election is in effect due to an Unforeseeable Emergency or if necessary to receive a hardship distribution from a qualified cash or deferred arrangement pursuant to income Treasury Regulation Section 1.401(k)-1(d)(3). The Participant may make a new deferral election pursuant to the provision of subparagraph (2) above, which new election shall only apply to amounts earned by the Participant after the end of the calendar year in which such new election is delivered to the Plan Administrator. (b) Election Forms. Any election by a Participant under this Article V shall be made on a form or forms prescribed by the Plan Administrator (the terms of which are incorporated herein by reference), and shall specify the amount of compensation to be deferred. V-1

195 (c) Revocation or Change. Any permitted revocation of or change in any deferral election under this Article V shall be in writing and shall be on such form as may be approved by the Plan Administrator. (d) Supplemental Retirement Contributions. (1) For any Plan Year, the Company or a Related Employer may, in its discretion, credit a Participant with a Supplemental Retirement Contribution in an amount equal to the difference between (1) and (2) below: (A) The Qualified Plan Contribution which would have been contributed to the Qualified Plan on behalf of the Participant for the Plan Year without giving effect to any reduction in the Qualified Plan Contribution required by the limitations imposed by Code Sections 415 or 401(a)(17) on the Qualified Plan; LESS (B) The amount of the Qualified Plan Contribution actually contributed to the Qualified Plan on behalf of the Participant for the Plan Year. (2) Supplemental Retirement Contributions made for the benefit of a Participant for any Plan Year shall be credited to a Supplemental Retirement Contribution Account maintained under the Plan in the name of such Participant within thirty (30) days after the profit sharing contribution under the Qualified Plan is allocated to the Participant's accounts in the Qualified Plan. V-2

196 ARTICLE VI Participant Accounts and Investment of Deferred Amounts (a) In General. (1) Any compensation deferred pursuant to Section (a) of Article V of this Plan shall be recorded by the Plan Administrator in a Deferred Compensation Account maintained in the name of the Participant. The Deferred Compensation Account shall be credited with all amounts that have been deferred by the Participant during the Plan Year pursuant to Article V, Section (a), and such Account shall be charged from time to time with amounts that are distributed to the Participant from such Account. (2) Any Supplemental Retirement Contributions credited pursuant to this Plan shall be recorded by the Plan Administrator in a Supplemental Retirement Account maintained in the name of the Participant. The Supplemental Retirement Account shall be credited with all Supplemental Retirement Contributions that have been credited to the Participant during the Plan Year pursuant to Article V, and such Account shall be charged from time to time with all amounts that are distributed to the Participant from such Account. (3) All amounts that are credited to a Participant's Accounts shall be credited solely for purposes of accounting and computation. A Participant shall not have any interest in or right to such Accounts at any time. (b) Subject to Claims. The Plan constitutes an unsecured promise by the Company or Related Employer to pay benefits in the future. Participants shall have the status of general unsecured creditors of the Company or Related Employer. The Plan is unfunded for Federal tax purposes and for purposes of Title I of the Employee Retirement Income Security Act of All amounts credited to a Participant's Accounts will remain the general assets of the Company or Related Employer and shall remain subject to the claims of the Company's or Related Employer's creditors until such amounts are distributed to the Participants. (c) Crediting of Interest. (1) The Plan Administrator shall allow a Participant to make a hypothetical allocation of the amounts credited to his Accounts among investment options/indices that the Plan Administrator shall make available from time to time. The Plan Administrator shall establish procedures regarding Participant investment allocations as are necessary, which procedures shall be communicated to the Participants. VI-1

197 (2) A Participant's Accounts shall be credited at least monthly with interest equal to the aggregate/weighted average return on the investment options/indices selected by the Participant, less expenses. (d) Valuation; Annual Statement. The value of a Participant's Accounts shall be determined by the Plan Administrator and the Plan Administrator may establish such accounting procedures as are necessary to account for the Participant's interest in the Plan. Each Participant's Account shall be valued as of the last day of each Plan Year or more frequently as determined by the Plan Administrator. The Plan Administrator shall furnish each Participant with an annual statement of his Accounts. (e) Accounting Procedures. The Plan Administrator shall establish such accounting procedures as are necessary to implement the provisions of the Plan. (f) Establishment of Trust. (1) The Company may establish one or more trusts located in the United States substantially in conformance with the terms of the model trust described in Revenue Procedure to assist in meeting its obligations to Participants under this Plan. Except as provided in paragraph (b) above and the terms of the trust agreement, any such trust or trusts shall be established in such manner as to permit the use of assets transferred to the trust and the earnings thereon to be used by the trustee solely to satisfy the liability of the Company in accordance with the Plan. (2) The Company, in its sole discretion, and from time to time, may make contributions to the trust. Unless otherwise paid by the Company, all benefits under the Plan and expenses chargeable to the Plan shall be paid from the trust. (3) The powers, duties and responsibilities of the trustee shall be as set forth in the trust agreement and nothing contained in the Plan. either expressly or by implication, shall impose any additional powers, duties or responsibilities upon the trustee. VI-2

198 ARTICLE VII Plan Benefits and Distributions (a) Plan Benefit. Subject to the remainder of this Article, a Participant shall be entitled to receive a benefit under this Plan equal to the amounts credited to his Accounts upon a Separation from Service, death or a Change in Control. (b) Timing of Payment. (1) Unless a Participant makes an election in accordance with paragraph (2) below, a Participant's distributions on account of a Separation from Service shall commence as of the first day of the second month following such Participant's Separation from Service; provided, however, that any distribution to Specified Employees of the Company or a Related Employer will commence on the first day of the seventh month following the date that the Participant incurs a Separation from Service. In the event that a Specified Employee dies prior to his benefit commences under this paragraph, the distributions shall be made to the Beneficiary in accordance with paragraph (3) below. (2) (A) Notwithstanding anything in this Article VII to the contrary, at the time of each election to defer under paragraph (a) of Article V, a Participant may elect to receive a distribution of such deferred amounts (plus earnings or losses thereon) in a lump sum as of a specified future calendar year date. The date of distribution elected by the Participant shall be at least five full calendar years following the Participant's deferral election. Any distribution pursuant to this subparagraph shall be made as of January 1 of the calendar year selected by the Participant for the receipt of his distribution. (B) Effective as of January 1, 2009, an election made pursuant to paragraph (b)(2)(a) above is generally irrevocable unless the Participant requests a change and (i) the change does not take effect until at least 12 months after the date on which the election is made, (ii) the change is made at least 12 months prior to the date the payment is scheduled to commence, and (iii) payment is deferred for a period of not less than 5 years from the date payment would otherwise have been made (unless payment is being made for death) and such request is permitted under Section 409A of the Code. (C) If the Participant dies or there is a Change in Control prior to the distribution date or dates elected in accordance with subparagraph (3) and (4) below and the election made under this subparagraph (2) shall be null and void. VII-1

199 (3) Distributions on account of a Change in Control shall commence on the first day of the second month following the Change in Control. (4) Distributions on account of a Participant' death shall commence on the first day of the second month following the date of the Participant's death. (c) Form of Benefit Payment. (1) (A) If the Participant incurs a Separation from Service, a Participant shall elect one of the following forms of payment for his benefit upon commencing participation in the Plan or prior to December 31, 2008, if later: (i) (ii) a lump sum, or annual installments over a period of 5, 10 or 15 years. (B) In the event a Participant elects installment payments, each such payment shall be equal to the balance in the Participant's Account as of the end of the valuation date immediately preceding the date of payment, divided by the number of payment years remaining. The initial installment payment shall be paid on the date specified in (b) above and therefrom, on the anniversary of the Participant's Separation from Service. (C) Effective as of January 1, 2009, an election made pursuant to (c)(1) above is generally irrevocable unless the Participant requests a change and (i) the change does not take effect until at least 12 months after the date on which the election is made, (ii) the change is made at least 12 months prior to the date the payment is scheduled to commence, and (iii) payment is deferred for a period of not less than 5 years from the date payment would otherwise have been made (unless payment is being made for death) and such request is permitted under Section 409A of the Code. (2) In the event that the Participant (or in the case of death, the Participant's Beneficiary) is entitled to a benefit under this Plan as a result of a Change in Control, the Participant's benefit shall be paid in a lump sum. If the Participant dies before he has commenced receiving benefits under the Plan, the death benefit shall be paid to his Beneficiary or Beneficiaries designated to receive such benefits in a lump sum. If a Participant dies after benefits have commenced, but before he has received all of his benefits under the Plan, all unpaid amounts shall be paid to his Beneficiary or Beneficiaries in a lump sum. times. (d) Vesting of Amounts Credited to Participants. A Participant shall be fully vested in all of his Accounts at all VII-2

200 (e) Accelerated Distribution for Unforeseeable Emergency. If a Participant suffers an unforeseeable emergency, the Plan Administrator may, in its discretion, accelerate the distribution of all or a portion of the amounts credited to his Accounts. Any such accelerated distribution shall be made in a lump sum as soon as administratively practicable following a determination that the Participant has incurred an unforeseeable emergency. The amount of any such distribution shall be limited to the amount necessary to satisfy the emergency need, including any amounts necessary to pay any federal, state or local income taxes reasonably anticipated to result from the distribution. VII-3

201 ARTICLE VIII Amendment and Termination (a) Amendment and Termination. The Plan may be amended at any time, or from time to time, by the Company, and the Plan may be terminated at any time by the Company. Any such amendment or termination shall be ratified and approved by the Company's Board of Directors. Notice of any such amendment or termination shall be given in writing to each Participant having an interest in the Plan. The ability of the Company to terminate the Plan shall comply with Section 409A of the Code and the regulations thereunder. (b) Effect of Amendment or Termination. (1) No amendment or termination of the Plan shall affect the rights of any Participant with respect to any Accrued Benefits determined as of the date of such amendment or termination. (2) In the event that the Plan is terminated, the Participant's Accrued Benefit shall be distributed to the extent permitted under Section 409A of the Code. The timing and manner of the distribution of benefits in connection with any termination of the Plan shall comply with Section 409A of the Code and the regulations thereunder. No payment of any Participant's benefit under the Plan may be accelerated as a result of the termination of the Plan unless: (A) the Plan is terminated within the period of 30 days preceding or the 12 months following a "Change in Control" event (as the term is defined in Treasury Regulations Section 1.409A-2(g)(4)); (B) the Plan is terminated within 12 months of a corporate dissolution or is terminated with the approval of a bankruptcy court overseeing a bankruptcy of the Company; (C) The Company terminates this Plan and all other similar deferred compensation arrangements that would be aggregated with the Plan under Treasury Regulation Section 1.409A-1(c), provided that (i) any benefits payable as a result of the termination (other than benefits that would have been payable under the terms of the Plan without regard to the termination) are not paid until at least 12 months after the date of termination of the Plan, (ii) all benefit payments under the Plan are completed within 24 months after the date of termination of the Plan, and (iii) the Company does not adopt a new or replacement deferred compensation plan within 5 years after the date of termination of the Plan. VIII-1

202 ARTICLE IX Miscellaneous (a) Payments to Minors and Incompetents. if the Plan Administrator receives satisfactory evidence that a person who is entitled to receive any benefit under the Plan, at the time such benefit becomes available, is a minor or is physically unable or mentally incompetent to receive such benefit and to give a valid release therefore, and that another person or an institution is then maintaining or has custody of such person, and that no guardian committee, or other representative of the estate of such person shall have been duly appointed, the Plan Administrator may authorize payment of such benefit otherwise payable to such person to such other person or institution; and the release of such other person or institution shall be a valid and complete discharge for the payment of such benefit. (b) Plan Not a Contract of Employment. The Plan shall not be deemed to constitute a contract between the Company or a Related Employer and any Participant, nor to be consideration for the employment of any Participant. Nothing in the Plan shall give a Participant the right to be retained in the employ of the Company or a Related Employer; all Participants shall remain subject to discharge or discipline as employees to the same extent as if the Plan had not been adopted. (c) No Interest in Assets. Nothing contained in the Plan shall be deemed to give any Participant any equity or other interest in the assets, business or affairs of the Company or a Related Employer. No Participant in the Plan shall have a security interest in assets of the Company or a Related Employer used to make contributions or pay benefits. (d) Recordkeeping. Appropriate records shall be maintained for the Plan, subject to the supervision and control of the Plan Administrator. (e) Non-Alienation of Benefits. No benefit under the Plan shall be subject in any manner to anticipation, alienation, sale, transfer, assignment, pledge, encumbrance or charge, and any attempt to do so shall be void. No benefit under the Plan shall in any manner be liable for or subject to the debts, contracts, liabilities, engagements or torts of any person. If any person entitled to benefits under the Plan shall become bankrupt or shall attempt to anticipate, alienate, sell, transfer, assign, pledge, encumber or charge any benefit under the Plan, or if any attempt shall be made to subject any such benefit to the debts, contracts, liabilities, engagements or torts of the person entitled to any such benefit, except as specifically provided in the Plan, then such benefits shall cease and terminate at the discretion of the Plan Administrator. The Plan Administrator may then hold or apply the same or any part thereof to or for the benefit of such person or any dependent or beneficiary of such person in such manner and proportions as it shall deem proper. IX-1

203 (f) Severability. The invalidity of any portion of this Plan shall not invalidate the remainder and the remainder shall continue in full force and effect. (g) Section 409A Compliance. The Company intends for this Plan to conform in all respects to the requirements under Section 409A of the Code, the failure of which would result in the imposition or accrual of penalties, interest or additional taxes under Section 409A of the Code (the "Section 409A Requirements"). Accordingly, the Company intends for this Plan to be interpreted, construed, administered and applied in a manner as shall meet and comply with the Section 409A Requirements, and in the event of any inconsistency between this Plan and the Section 409A Requirements, this Plan shall be reformed so as to meet the Section 409A Requirements. Any reference in this Plan to Section 409A of the Code, or any subsection thereof, shall be deemed to mean and include, to the extent then applicable and then in force and effect (but not to the extent overruled, limited or superseded), published rulings, notices and similar announcements issued by the Internal Revenue Service under or interpreting Section 409A of the Code and regulations (proposed, temporary or final) issued by the Secretary of the Treasury under or interpreting Section 409A of the Code. (h) State Law. This Plan shall be construed in accordance with the laws of Florida. (i) Corporate Successors. The Plan shall not be automatically terminated by a transfer or sale of assets of the Company or a Related Employer or by the merger or consolidated of the Company or a Related Employer into or with any other corporation or other entity, but the Plan shall be continued after such sale, merger or consolidation only if and to the extent that the transferee, purchaser or successor entity agrees to continue the Plan. In the event that the Plan is not continued by the transferee, purchaser or successor entity, then the Plan shall terminate subject to the provisions of Article VIII. (j) Liability Limited. In administering the Plan, neither the Plan Administrator nor any officer, director or employee thereof, shall be liable for any act or omission performed or omitted, as the case may be, by such person with respect to the Plan; provided, that the foregoing shall not relieve any person of liability for gross negligence, fraud or bad faith. The Plan Administrator, its officers, directors and employees shall be entitled to rely conclusively on all tables, valuations, certificates, opinions and reports that shall be furnished by any actuary, accountant, trustee, insurance company, consultant, counsel or other expert who shall be employed or engaged by the Plan Administrator in good faith. (k) Protective Provisions. Each Participant shall cooperate with the Plan Administrator by furnishing any and all information requested by the Plan Administrator in order to facilitate the payment of benefits hereunder, taking such physical examinations as the Plan Administrator may deem necessary and taking such other relevant action as may be requested by the Plan Administrator. If a Participant refuses IX-2

204 so to cooperate or makes any material misstatement of information or nondisclosure of medical history, then no benefits will be payable hereunder to such Participant or his Beneficiary, provided that, in the Plan Administrator's sole discretion, benefits may be payable in an amount reduced to compensate the Company or a Related Employer for any loss, cost, damage or expense suffered or incurred by the Company as a result in any way of such action, misstatement or nondisclosure. (l) General Conditions. Any Qualified Plan Contribution shall be made solely in accordance with the terms and conditions of the Qualified Plan and nothing in this Plan shall operate or be construed in any way to modify, amend or affect the terms and provisions of the Qualified Plan. (m) Plan Benefits Not Compensation. The benefit payable to an Employee under this Plan shall not be deemed salary or other compensation for the purpose of computing any benefit to which an Employee may be entitled under the Company's Qualified Plan, group insurance plan or any other benefit program maintained by the Company. IN WITNESS WHEREOF, the Company has caused this Plan to be executed by its duly authorized officers on this 17 th day of December, WALTER INDUSTRIES, INC. By: Title: /s/ Larry E. Williams SVP Human Resources "COMPANY" IX-3

205 Exhibit 10.6 WALTER ENERGY, INC. DIRECTORS' DEFERRED FEE PLAN AMENDED AND RESTATED AS OF JANUARY 1, 2008

206 WALTER ENERGY, INC. DIRECTORS' DEFERRED FEE PLAN AMENDED AND RESTATED AS OF JANUARY 1, 2008 Table of Contents Article Title Page ARTICLE I Purpose I-1 ARTICLE II Definitions II-1 ARTICLE III Administration III-1 ARTICLE IV Eligibility and Participation IV-1 ARTICLE V Deferral Elections and Discretionary Contributions V-1 ARTICLE VI Participant Accounts and Investment of Deferred Amounts VI-1 ARTICLE VII Plan Benefits and Distributions VII-1 ARTICLE VIII Amendment and Termination VIII-1 ARTICLE IX Miscellaneous IX-1

207 WALTER ENERGY, INC. DIRECTORS' DEFERRED FEE PLAN AMENDED AND RESTATED AS OF JANUARY 1, 2008 ARTICLE I Purpose WALTER ENERGY, INC. (the "Company") previously established the WALTER ENERGY, INC. Directors' Deferred Fee Plan (the "Plan") effective as of January 1, 2008, for eligible members of the Board of Directors of the Company. The Company has determined that it would be in the best interest of the Participants to amend and restate the Plan effective as of January 1, 2008 to comply with Code Section 409A and to make other desired changes. The Plan is an unfunded plan. The Plan is intended to comply with Section 409A of the Internal Revenue Code. I-1

208 ARTICLE II Definitions (a) "Account" or "Accounts" shall mean a Participant's Income Account or Stock Equivalent Account. (b) "Beneficiary" shall mean the person or persons designated by the Participant on a form prescribed by and filed with the Plan Administrator, and may be changed at any time by filing a new form with the Plan Administrator. If the Participant has designated no Beneficiary, or if no Beneficiary that he has designated survives him, then such unpaid amounts shall be paid to his estate. In the event of any dispute as to the entitlement of any Beneficiary, the Plan Administrator's determination shall be final, and the Plan Administrator may withhold any payment until such dispute has been resolved. (c) "Board" or "Board of Directors" shall mean the board of directors of the Company. (d) "Code" shall mean the Internal Revenue Code of 1986, as it may be amended from time to time, or any successor statute. Reference to a specific Section of the Code shall include a reference to any successor provision. (e) (f) "Common Stock" shall mean the common stock of the Company, par value $.01 per share. "Company" shall mean WALTER ENERGY, INC., and its successors. (g) "Compensation" shall mean the fees paid by the Company to a Participant related to services as a member of the Board of Directors, but does not include travel expenses. (h) "Dividend Equivalent" shall mean, with respect to any cash dividend declared and paid by the Company, an amount equal (i) the cash dividend paid by the Company per share of Common Stock, multiplied by (ii) the number of Stock Equivalent Shares in the Participant's Stock Equivalent Account on the record date of such dividend. (i) "Effective Date" shall mean, for purposes of this amendment and restatement, January 1, (j) "Fair Market Value" shall mean, with respect to a share of Common Stock on any given date, (i) if the Common Stock is readily tradable on an established securities market, the closing price per share on such date as reported on the principal securities market on which the Common Stock is so traded (or, if the date is not a trading day, on the trading day next preceding such date), or (ii) if the Common Stock is not readily tradable on an established securities market, the fair market value of the Common Stock as determined by the Plan Administrator in good faith, taking into account all applicable laws, rules and regulations. II-1

209 (k) "Income Account" shall mean a bookkeeping account established in accordance with Article VI that represents a Participant's hypothetical interest with respect to the amounts credited to such Account in accordance with paragraph (a) of Article V and paragraph (c) of Article VI. (l) "Participant" shall mean any member of the Board of Directors of the Company who is covered by this Plan as provided in Article IV. to time. (m) (n) "Plan" shall mean the WALTER ENERGY, INC. Directors' Deferred Fee Plan and as it may be amended from time "Plan Administrator" shall mean the Company. (o) "Plan Year" shall mean the 12-month period ending on each December 31. (p) "Stock Equivalent Account" shall mean a bookkeeping account established in accordance with Article VI that represents a Participant's hypothetical interest with respect to the Stock Equivalent Shares credited to such Account in accordance with paragraph (a) of Article V and paragraph (c) of Article VI. (q) "Stock Equivalent Share" shall mean a bookkeeping entry that is equivalent in value, at any given time, to one (1) share of Common Stock. (r) "Termination Event" shall mean any event that results in the termination of a Participant's service as a member of the Board (including, death, resignation or removal). II-2

210 ARTICLE III Administration (a) Plan Administrator. (1) The Plan Administrator shall have complete control and discretion to manage the operation and administration of the Plan. Not in limitation, but in amplification of the foregoing, the Plan Administrator shall have the following powers: (A) To determine all questions relating to the eligibility of members of the Board, to participate or continue to participate; (B) To maintain all records and books of account necessary for the administration of the Plan; (C) To interpret the provisions of the Plan and to make and to publish such interpretive or procedural rules as are not inconsistent with the Plan and applicable law; (D) To compute, certify and arrange for the payment of benefits to which any Participant or Beneficiary is entitled; (E) To process claims for benefits under the Plan by Participants or Beneficiaries; (F) To engage consultants and professionals to assist the Plan Administrator in carrying out its duties under this Plan; and (G) To develop and maintain such instruments as may be deemed necessary from time to time by the Plan Administrator to facilitate payment of benefits under the Plan. (2) The Plan Administrator may designate a committee to assist the Plan Administrator in the administration of the Plan and perform the duties required of the Plan Administrator hereunder. (b) Plan Administrator's Authority. The Plan Administrator may consult with Company officers, legal and financial advisers to the Company and others, but nevertheless the Plan Administrator shall have the full authority and discretion to act, and the Plan Administrator's actions shall be final and conclusive on all parties. (c) Claims and Appeal Procedure for Denial of Benefits. The Participant or a Beneficiary ("Claimant") may file with the Plan Administrator a written claim for benefits if the Participant or Beneficiary determines the distribution procedures of the Plan have not provided him his proper interest in the Plan. The Plan Administrator must render a decision on the claim within a reasonable period of time of the Claimant's written claim for benefits. The Plan Administrator must provide adequate notice in III-1

211 writing to the Claimant whose claim for benefits under the Plan the Plan Administrator has denied. Notice must be provided to the Claimant within a reasonable period of time, but not later than 90 days (45 days in the case of a claim for disability benefits) after the receipt of a claim. If the Plan Administrator determines the additional time is needed, written notice will be forwarded to the Participant prior to the expiration of the 90-day period (45 days in the case of a claim for disability benefits). The extension will not exceed 90 days (30 days in the case of a claim for disability benefits) from the end of the initial period. The Plan Administrator's notice to the Claimant must set forth: (1) The specific reason for the denial; (2) Specific references to pertinent Plan provisions on which the Plan Administrator based its denial; (3) A description of any additional material and information needed for the Claimant to perfect his claim and an explanation of why the material or information is needed; and and (4) Appropriate information as to the steps to be taken if the Claimant wants to submit the claim for review; (5) In the case of disability benefits, where disability is determined by a physician appointed by the Plan Administrator, the specific basis for the determination of the physician. Any appeal the Claimant wishes to make of an adverse determination must be made in writing to the Plan Administrator within sixty (60) days (or 180 days in the case of a claim for disability benefits where the disability is determined by a physician chosen by the Plan Administrator) after receipt of the Plan Administrator's notice of denial of benefits. The Plan Administrator's notice must further advise the Claimant that his failure to appeal the action to the Plan Administrator in writing will render the Plan Administrator's determination final, binding and conclusive. The Plan Administrator's notice of denial of benefits must identify the name and address of the Plan Administrator to whom the Claimant may forward his appeal. If the Claimant should appeal to the Plan Administrator, he, or his duly authorized representative, must submit, in writing, whatever issues and comments he, or his duly authorized representative, believes are pertinent. The Claimant, or his duly authorized representative, may review pertinent Plan documents free of charge. The Plan Administrator will re-examine all facts related to the appeal and make a final determination as to whether the denial of benefits is justified under the circumstances. The Plan Administrator must advise the Claimant of its decision within 60 days following (45 days in the case of a claim for disability benefits) the Claimant's written request for review. If the Plan Administrator determines the additional time is needed, written notice will be forwarded to the Participant prior to the expiration of the 60-day period. The extension will not exceed 60 days (45 days in the case of a claim for disability benefits) from the end of the initial period. III-2

212 ARTICLE IV Eligibility and Participation (a) Eligibility. Each person who is elected to be a member of the Board and who is not an employee of the Company or any of its subsidiaries is eligible to elect to participate in the Plan. (b) Participation. An eligible person shall become a Participant upon receiving notification from the Plan Administrator and the timely filing of elections pursuant to Article V. IV-1

213 ARTICLE V Deferral Elections and Discretionary Contributions (a) Deferral Elections and Procedures. (1) Any Participant may elect to defer, for any calendar year, all or a portion of his Compensation earned during such calendar year as may be permitted by the Plan Administrator in its discretion. (2) (A) Any deferral election permitted under this paragraph (a) shall be in writing, signed by the Participant. Any election to defer a portion of Compensation must be delivered to the Plan Administrator prior to the January 1 of the calendar year in which the Compensation to be deferred is otherwise earned. (B) Notwithstanding the foregoing, an election may be made by a Participant to defer Compensation earned subsequent to his deferral election within the 30-day period following a Participant's initial eligibility to participate in the Plan. (3) Any deferral election will continue until revoked or modified by a new election in writing delivered to the Plan Administrator. Such new election will be effective as of the next January 1. (4) A Participant who elects to defer all or a portion of his Compensation shall designate whether such amount will be contributed to the Income Account or the Stock Equivalent Account. Such election may be revoked or amended, only with regard to fees covering the Participant's services as a member of the Board. (b) Election Forms. Any election to defer or revocation or change of an existing deferral election or account allocation election by a Participant under this Article V shall be made on a form or forms prescribed by the Plan Administrator (the terms of which are incorporated herein by reference), and shall specify the amount of Compensation to be deferred. V-1

214 ARTICLE VI Participant Accounts and Investment of Deferred Amounts (a) In General. (1) Any Compensation deferred pursuant to this Plan shall be recorded by the Plan Administrator in an Income Account or Stock Equivalent Account, based on the Participant's election. Such Accounts will be bookkeeping accounts maintained in the name of the Participant. The Accounts shall be credited at least quarterly with all amounts that have been deferred by the Participant during the Plan Year pursuant to Article V, and such Account shall be charged from time to time with all amounts that are distributed to the Participant. Each Account shall be adjusted periodically to reflect all investment gains and losses accruing to amounts credited to each Participant's Account pursuant to the investment selections made by each Participant in accordance with paragraph (c) of Article VI. (2) All amounts that are credited to a Participant's Accounts shall be credited solely for purposes of accounting and computation. A Participant shall not have any interest in or right to such Accounts at any time. (b) Subject to Claims. The Plan constitutes an unsecured promise by the Company to pay benefits in the future. Participants shall have the status of general unsecured creditors of the Company. The Plan is unfunded for Federal tax purposes and for purposes of Title I of the Employee Retirement Income Security Act of All amounts credited to a Participant's Accounts will remain the general assets of the Company shall remain subject to the claims of the Company's creditors until such amounts are distributed to the Participants. (c) Credited Earnings. (1) Income Account. Amounts credited to the Income Account shall be credited as a dollar amount on the date the Compensation would have otherwise been paid. At the end of each calendar quarter each Participant's Income Account will be credited with interest at an annual rate equal to the yield of a 10-year U.S. Treasury Note as of the beginning of such calendar quarter plus 1.00%. Interest shall be computed on the basis of the beginning monthly credit balance in the Participant's Income Account during such quarter. (2) Stock Equivalent Account. For Compensation deferred to the Stock Equivalent Account, on the first business day of each calendar quarter, the amount of such Compensation otherwise payable during the preceding calendar quarter shall be converted into Stock Equivalent Shares equal in number to the maximum number of shares of Common Stock, or fraction thereof, to the nearest one hundredth of one share, which could be purchased with such dollar amount at the Fair Market Value of the Common Stock on that date, and such Stock VI-1 Equivalent Shares shall be credited to the Participant's Stock Equivalent Account on that date. If the electing Participant incurs a Termination Event prior to such date, such electing Participant's Compensation deferred to the Stock Equivalent Account that is otherwise payable prior to the date of the Termination Event shall, no later than the tenth day after the Termination Event, and without duplication for Compensation already converted into Stock Equivalent Shares, be converted into Stock Equivalent Shares equal in number to the maximum number of shares of Common Stock, or fraction thereof, to the nearest one hundredth of one share, which could be purchased with such dollar amount at the Fair Market Value of the Common Stock on the date of the Termination Event, and such Stock Equivalent Shares shall be credited to the Participant's Stock Equivalent Account on the date of the Termination Event. If the Company declares and pays a cash dividend on its Common Stock, an amount equal to the Dividend Equivalent for such dividend shall be converted into Stock Equivalent Shares equal in number to the maximum number of shares of Common Stock, or fraction thereof, to the nearest one hundredth of one share, which could be purchased with such dollar amount at the Fair Market Value of the Common Stock on the payment date of the dividend to which the Dividend Equivalent relates, and such Stock Equivalent Shares shall be credited to the Participant's Stock Equivalent Account on that date. Subject to the Section 409A Requirements, Stock Equivalent Shares shall be appropriately adjusted in the event of any stock dividends, stock splits or any other similar changes in the Company's Common Stock, as determined by the Plan Administrator in a manner it deems equitable, in order to prevent dilution or enlargement of the benefits or potential benefits intended to be made available under this Plan. (d) Valuation; Annual Statement. The value of a Participant's Accounts shall be determined by the Plan Administrator and the Plan Administrator may establish such accounting procedures as are necessary to account for the Participant's interest in the Plan. Each Participant's Account shall be valued as of the last day of each Plan Year or more frequently as determined by the Plan Administrator. The Plan Administrator shall furnish each Participant with an annual statement of his Accounts. (e) Establishment of Trust.

215 (1) The Company may establish one or more trusts substantially in conformance with the terms of the model trust described in Revenue Procedure to assist in meeting its obligations to Participants under this Plan. Except as provided in paragraph (b) above and the terms of the trust agreement, any such trust or trusts shall be established in such manner as to permit the use of assets transferred to the trust and the earnings thereon to be used by the trustee solely to satisfy the liability of the Company in accordance with the Plan. VI-2

216 (2) Except as otherwise provided in the trust established with respect to the Plan, the Company, in its sole discretion, and from time to time, may make contributions to the trust. Unless otherwise paid by the Company, all benefits under the Plan and expenses chargeable to the Plan shall be paid from the trust. (3) The powers, duties and responsibilities of the trustee shall be as set forth in the trust agreement and nothing contained in the Plan, either expressly or by implication, shall impose any additional powers, duties or responsibilities upon the trustee. VI-3

217 ARTICLE VII Plan Benefits and Distributions (a) Plan Benefits. In the event of a Termination Event, a Participant will be entitled to a benefit equal to the balance in his Accounts. The balance of a Participant's Income Account as of any given date shall be determined as of such date by crediting earnings in accordance with paragraph (c) of Article VI up to and including such date. The balance of a Participant's Stock Equivalent Account as of any given date shall be equal to (1) the Fair Market Value of a share of Common Stock on such date, multiplied by (2) the number of Stock Equivalent Shares in the Participant's Stock Equivalent Account on such date. (b) Death Benefit. In the event of the death of a Participant, the Participant's Beneficiary shall be entitled to a death benefit equal to all or any remaining portion of the amounts credited to his Accounts determined as of the date of his death, payable in accordance with paragraph (c) or (d) of Article VII below. (c) Timing of Payment. (1) Payment of the amount credited to the Participant's Accounts shall commence on the earlier of: (A) the first day of the seventh month following the Participant's death; or (B) unless otherwise elected under (c)(2) below, the first day of the seventh month following the date of the Participant's Termination Event. (2) The Participant may elect to receive payment in any year following his 72 nd birthday or the year following his termination of services as a member of the Board. Such payment shall be made on the later of (A) the January 15th of the calendar year elected by the Participant or (B) the first day of the seventh month following the Participant's Termination Event. Such election must be made prior to December 31, 2008 or, if later, the date the Participant commences participation in the Plan. (3) Effective as of January 1, 2009, an election made pursuant to (c)(2) is generally irrevocable unless the Participant requests a change and (i) the change does not take effect until at least 12 months after the date on which the election is made, (ii) the change is made at least 12 months prior to the date the payment is scheduled to commence, and (iii) payment is deferred for a period of not less than 5 years from the date payment would otherwise have been made (unless payment is being made for disability or death) and such request is permitted under Section 409A of the Code. VII-1

218 (d) Form of Benefit Payment. (1) Benefits paid under the Plan shall be paid in a lump sum on the date specified above unless the Participant elects to receive benefits in the form of installments over 5, 10 or 15 years. Amounts credited to the Income Account shall be distributed in cash. Amounts credited to the Stock Equivalent Account shall be distributed in shares of Common Stock, provided, however, that any fractional shares shall be distributed in cash. All fractional shares shall be cashed in at the Fair Market Value on the day before the benefits under the Plan are distributed. Such election must be made on or before December 31, 2008 or, if later, the date the Participant commences participation in the Plan. If installments are elected, the first installment will be paid on the date specified in paragraph (c)(1)(a) of this Article VII and each additional installment will be paid on each anniversary of such date. (2) Notwithstanding the foregoing, in the event of the death of the Participant, any death benefit paid to the Participant's Beneficiary pursuant to paragraph (c) of Article IV shall be paid in the form of a lump sum on the date specified in paragraph (c)(1)(a) of this Article VII. (3) Pursuant to subparagraphs (b)(2) and (b)(3) of this Article VI, a Participant may elect an optional form of benefit. Effective as of January 1, 2009, an election made pursuant to (b)(2) above is generally irrevocable unless the Participant requests a change and (i) the change does not take effect until at least 12 months after the date on which the election is made, (ii) the change is made at least 12 months prior to the date the payment is scheduled to commence, and (iii) payment is deferred for a period of not less than 5 years from the date payment would otherwise have been made (unless payment is being made for death) and such request is permitted under Section 409A of the Code. (e) Accounting Procedures. The Plan Administrator shall establish such accounting procedures as are necessary to implement the provisions of this Article. VII-2

219 ARTICLE VIII Amendment and Termination (a) Amendment and Termination. The Plan may be amended at any time, or from time to time, by the Company, and the Plan may be terminated at any time by the Company. The ability of the Company to terminate the Plan shall comply with Section 409A of the Code and the regulations thereunder. (b) Effect of Amendment or Termination. No amendment or termination of the Plan shall affect the rights of any Participant with respect to any amounts credited to the Account as of the date of such amendment or termination. Upon termination, the Participants shall become fully vested. The timing and manner of distribution benefits in connection with any termination of the Plan shall comply with Section 409A of the Code and the regulations thereunder. No payment of any Participant's benefits under the Plan may be accelerated as a result of the termination of the Plan unless: (1) the Plan is terminated within the period of 30 days preceding or the 12 months following a Change of Control event (as the term is defined in Treasury Regulations Section 1.409A-2(g)(4)); (2) the Plan is terminated within 12 months of a corporate dissolution or is terminated with the approval of a bankruptcy court overseeing a bankruptcy of the Company; (3) the Company terminates this Plan and all other similar deferred compensation arrangements that would be aggregated with the Plan under Treasury Regulation Section 1.409A-1(c), provided that (A) any benefits payable as a result of the termination (other than benefits that would have been payable under the terms of the Plan without regard to the termination) are not paid until at least 12 months after the date of termination of the Plan, (B) all benefit payments under the Plan are completed within 24 months after the date of termination of the Plan, and (C) the Company does not adopt a new or replacement deferred compensation plan within 5 years after the date of termination of the Plan. VIII-1

220 ARTICLE IX Miscellaneous (a) Payments to Minors and Incompetents. If the Plan Administrator receives satisfactory evidence that a person who is entitled to receive any benefit under the Plan, at the time such benefit becomes available, is a minor or is physically unable or mentally incompetent to receive such benefit and to give a valid release therefore, and that another person or an institution is then maintaining or has custody of such person, and that no guardian committee, or other representative of the estate of such person shall have been duly appointed, the Plan Administrator may authorize payment of such benefit otherwise payable to such person to such other person or institution; and the release of such other person or institution shall be a valid and complete discharge for the payment of such benefit. (b) Plan Not a Contract of Employment. The Plan shall not be deemed to constitute a contract between the Company and any Participant, nor to be consideration for the employment of any Participant. Nothing in the Plan shall give a Participant the right to be retained in the employ of the Company; all Participants shall remain subject to discharge or discipline as employees to the same extent as if the Plan had not been adopted. (c) Non-Alienation of Benefits. No benefit under the Plan shall be subject in any manner to anticipation, alienation, sale, transfer, assignment, pledge, encumbrance or charge, and any attempt to do so shall be void. No benefit under the Plan shall in any manner be liable for or subject to the debts, contracts, liabilities, engagements or torts of any person. If any person entitled to benefits under the Plan shall become bankrupt or shall attempt to anticipate, alienate, sell, transfer, assign, pledge, encumber or charge any benefit under the Plan, or if any attempt shall be made to subject any such benefit to the debts, contracts, liabilities, engagements or torts of the person entitled to any such benefit, except as specifically provided in the Plan, then such benefits shall cease and terminate at the discretion of the Plan Administrator. The Plan Administrator may then hold or apply the same or any part thereof to or for the benefit of such person or any dependent or Beneficiary of such person in such manner and proportions as it shall deem proper. (d) Severability. The invalidity of any portion of this Plan shall not invalidate the remainder and the remainder shall continue in full force and effect. (e) Section 409A Compliance. The Company intends for this Plan to conform in all respects to the requirements under Section 409A of the Code, the failure of which would result in the imposition or accrual of penalties, interest or additional taxes under Section 409A of the Code (the "Section 409A Requirements"). Accordingly, the Company intends for this Plan to be interpreted, construed, administered and applied in a manner as shall meet and comply with the Section 409A Requirements, and in the event of any inconsistency between this Plan and the Section 409A Requirements, this Plan shall be reformed so as to meet the Section 409A IX-1

221 Requirements. Any reference in this Plan to Section 409A of the Code, or any subsection thereof, shall be deemed to mean and include, to the extent then applicable and then in force and effect (but not to the extent overruled, limited or superseded), published rulings, notices and similar announcements issued by the Internal Revenue Service under or interpreting Section 409A of the Code and regulations (proposed, temporary or final) issued by the Secretary of the Treasury under or interpreting Section 409A of the Code. (f) State Law. This instrument shall be construed in accordance with and governed by the laws of the State of Florida, to the extent not superseded by the laws of the United States. (g) No Interest in Assets. Nothing contained in the Plan shall be deemed to give any Participant any equity or other interest in the assets, business or affairs of the Company. No Participant in the Plan shall have a security interest in assets of the Company used to make contributions or pay benefits. (h) Recordkeeping. Appropriate records shall be maintained for the Plan, subject to the supervision and control of the Plan Administrator. (i) Gender. Throughout this Plan, and whenever appropriate, the masculine gender shall be deemed to include the feminine and neuter; the singular, the plural; and vice versa. (j) Corporate Successors. The Plan shall not be automatically terminated by a transfer or sale of assets of the Company or by the merger or consolidated of the Company into or with any other corporation or other entity, but the Plan shall be continued after such sale, merger or consolidation only if and to the extent that the transferee, purchaser or successor entity agrees to continue the Plan. (k) Liability Limited. In administering the Plan, neither the Plan Administrator nor any officer, director or employee thereof, shall be liable for any act or omission performed or omitted, as the case may be, by such person with respect to the Plan; provided, that the foregoing shall not relieve any person of liability for gross negligence, fraud or bad faith. The Plan Administrator, its officers, directors and employees shall be entitled to rely conclusively on all tables, valuations, certificates, opinions and reports that shall be furnished by any actuary, accountant, trustee, insurance company, consultant, counsel or other expert who shall be employed or engaged by the Plan Administrator in good faith. (l) Protective Provisions. Each Participant shall cooperate with the Plan Administrator by furnishing any and all information requested by the Plan Administrator in order to facilitate the payment of benefits hereunder, taking such physical examinations as the Plan Administrator may deem necessary and taking such other relevant action as may be requested by the Plan Administrator. If a Participant refuses so to cooperate or makes any material misstatement of information or nondisclosure of medical history, then no benefits will be payable hereunder to such Participant or his IX-2

222 Beneficiary, provided that, in the Plan Administrator's sole discretion, benefits may be payable in an amount reduced to compensate the Company for any loss, cost, damage or expense suffered or incurred by the Company as a result in any way of such action, misstatement or nondisclosure. IN WITNESS WHEREOF, the Company has caused this Plan to be executed by its duly authorized officer on this day of, WALTER ENERGY, INC. By: Title: "COMPANY" IX-3

223 Exhibit WALTER ENERGY EXECUTIVE INCENTIVE PLAN DOCUMENT Plan Year January 1 December 31, 2011 I. The Plan The Walter Energy, Inc. Executive Incentive Plan (the "Plan") is intended to stimulate and reinforce executive actions that support and assure the attainment of key corporate objectives. The Plan facilitates these objectives by providing executive employees the opportunity to earn additional cash compensation if the Company attains its financial and operating objectives during the Plan Year and the employee attains required individual performance levels. II. Definitions 1. Base Salary means an Employee's annual base salary rate (exclusive of commission, overrides, incentive and other cash and non-cash payments) as of the end of the Plan Year. 2. Board means the Board of Directors of Walter Energy, Inc., as it is constituted from time to time. 3. Change in Control applies to those executives who have a change in control agreement or a provision in their employment agreement. 4. Company means Walter Energy, Inc. and its operating units. 5. Committee means the Compensation Committee of the Board of Directors of the Company, as it is constituted from time to time. 6. Corporate Employee or Employees means an Employee or Employees of Walter Energy, Inc. 7. Employee means any regular, full-time salaried employee (including any officer) of the Company. 8. Incentive Fund means the fund created in accordance with Section VII of the Plan. 9. Officer means an executive officer of Walter Energy, Inc., any Operating unit President and any Operating unit Vice- President who reports directly to the Operating unit President or who serves on the Operating unit Executive Committee. 1

224 10. Participant or Participants means an Employee or Employees of the Company, as more fully described in Section IV, who are specifically designated in writing as being eligible to participate in the Plan. 11. Peer Group means a group of companies that are selected for comparison purposes based on set of criteria (e.g., being a direct competitor; the same or similar industry; same or similar size or annual revenues to one or more Subsidiaries or the Company). 12. Performance Goal means the performance goals and their measures that are designated for all Participants or individual Participants so that, if each is attained at 100%, the Participant could receive the Target Incentive Opportunity for such Participant. 13. Plan means the Walter Energy, Inc. Executive Incentive Plan, as it may be modified from time to time. 14. Plan Year means the calendar year unless the Company designates a different fiscal year, in which case the Plan Year will be the Company's fiscal year. 15. Operating unit means a wholly owned subsidiary of Walter Energy, Inc. that has been declared by the Committee to be eligible to participate in the Plan. 16. Operating unit Employee or Employees means an Employee or Employees of an Operating unit. 17. Target Incentive Opportunity means additional cash compensation, expressed as a percent of base salary or equivalent, which may be recommended as an incentive award if all targets are attained at 100%. The actual amount of compensation could increase or decrease as more fully described in Section VIII. III. Administration 1. The Plan shall be administered by the Committee. 2. The Committee shall have sole and complete authority to make awards under the Plan from funds authorized by the Board and to adopt; alter and repeal such administrative rules, guidelines and practices governing the operation of the Plan, as it shall deem advisable from time to time; and to interpret the terms and provisions of the Plan. A majority of the Committee shall constitute a quorum, and the acts of a majority of the members present at any meeting at which a quorum is present, or acts approved in writing by a majority of the Committee without a meeting, shall be the acts of the Committee. 3. Nothing in the Plan or plan document and no representations by the Company shall be construed as creating a contract, oral or written, that guarantees employment of an individual for any period of time, nor is there created any entitlement to receive an 2

225 incentive payment except as determined by the Committee. The decisions and determinations of the Committee shall be final and binding on all Participants. IV. Eligible Participants 1. The following Employees of the Company are eligible to participate in the Plan. A. Officer Group Executive Officers of the Company Operating Unit Presidents Operating Unit Vice-Presidents who report directly to the Operating Unit President or serve on the Operating Unit Executive Committee B. Corporate and Operating unit Staff Group Corporate and Operating Unit Employees, including Mine Managers, who hold positions that are equal to or greater than salary grade 9, or the equivalent, under the Company's job evaluation program. 2. Participants in the Plan may not take part in any other cash incentive or production bonus plan that is sponsored by the Company. 3. Participation in the Walter Energy Employee Stock Purchase Plan is required of all eligible participants in the Plan to receive an incentive award. V. Performance Goals 1. Financial Performance Goals 70% of a Participant's incentive opportunity. From time to time in its discretion with respect to a Plan Year, the Committee will establish one or more Financial Performance Goals based on the annual business plan, improvement over the former year, a Peer Group comparison, or such other criteria as it may determine in its discretion. The Financial Performance Goals may include one or more measures, such as: earnings before taxes (EBT); net income (NI); earnings per share (EPS); operating income (OI); return on net assets (RONA), earnings before interest, taxes, depreciation and amortization (EBITDA); earnings before interest and taxes (EBIT); and/or pricing, production volume, production capacity, cost per ton, etc. that reflect the combined results of one or more of the Company's subsidiaries. If the Committee designates more than one target, it shall assign relative weights to each target so that the sum of all weighting factors is to equal

226 The Committee will have the sole power and authority to review and adjust the Financial Performance Goals during the Plan Year due to unanticipated events, including, but not limited to, windfall gains, disposal of significant assets, catastrophes and other nonrecurring events. 2. Safety Performance Goal 20% of a Participant's incentive opportunity. As soon as practicable at or near the beginning of the Plan Year, the Committee will establish one or more Safety goals for each Operating Unit based on each Operating Unit's safety performance record. Safety goals may include but are not limited to lost time accident (LTA) rate, incident rate, citations issued, etc. If there is more than one goal, relative weights will be assigned to each goal so that the sum of all weighting factors is equal to Operational/Departmental Goals 10% of a Participant's incentive opportunity. As soon as practicable at or near the beginning of the Plan Year, each Operating Unit and Department will establish one or more Departmental Goals. If there is more than one goal, the Department and the manager will assign relative weights to each goal so that the sum of all weighting factors is equal to 1.0. The goals will be reviewed and approved by the next level of executive management. Operational and Departmental Goals will focus on key actions and accomplishments within the department that support the Company's strategic objectives. The goals, in order to be effective, must be specific and measurable, to the greatest extent possible. Examples of Operational/Departmental Goals will relate to operation excellence, growth of our company, employee development, coal production, and cost per metric ton. A Participant's manager shall have the authority, with the written approval of the next level of executive management, to review and adjust the Operational/Departmental Goals during the Plan Year because of unanticipated events, including, but not limited to, windfall gains, disposal of significant assets, catastrophes and other nonrecurring events. VI. Target Incentive Opportunity 1. Participants in the Plan will have Target Incentive Opportunities, as determined by the Committee or in accordance with the Company's compensation policies, for each participant as of the beginning of the Plan Year. 2. A Target Incentive Opportunity represents the amount of additional cash compensation that will be recommended for payment if all the Financial, Safety and Individual Performance Targets are attained at 100%. 4

227 3. Actual payments may increase or decrease from Target Incentive Opportunity depending on actual performance compared to Performance Goals and final determination by the Committee. The maximum award will be a percentage of year-end Base Salary as determined by Company compensation policies. VII. Incentive Fund At the beginning of each Plan Year, the Company will establish an Incentive Fund derived from the aggregate of the Base Salaries of the Participants times their Target Incentive Opportunity. During the course of the year the Company may adjust the size of the Incentive Fund to reflect projected year-end performance, participant changes and resulting year-end incentive payments. VIII. Incentive Awards 1. A Participant's incentive award will be calculated by the sum of the following components: Part A - Financial Performance to Financial Performance Goals Part B - Safety Performance to Safety Performance Goals Part C - Operational and Departmental Goals 2. The Committee shall assign the relative weights to each of the above components at the beginning of the Plan Year, which will remain the same for subsequent Plan Years unless changed by the Committee. 3. The Committee shall approve and adopt at the beginning of the Plan Year a scale to measure increases and decreases from the Performance Goals. 4. The Operational/Departmental manager shall recommend at the beginning of the Plan Year, criteria to measure increases and decreases from the Goals, which criteria shall be approved by the next level of executive management. 5. Minimum Individual Performance Required Performance Appraisal Rating: A Participant who has an overall "Falls short of Performance Expectations" rating under the Company's performance appraisal program is not eligible for an incentive payment until performance improves to meet acceptable standards. A Participant, who is not rated due to being new in the position, is eligible for an incentive payment as long as he is progressing satisfactorily towards expected standards and is meeting the other requirements of the Plan. 6. Incentive awards may not be paid until the completion of the Company's audited financial statements corresponding to the Plan Year and the approval of the Company's Audit Committee has been received. 5

228 7. The calculated awards will be recommended for payment to the Committee. The Committee may use discretion to increase or decrease the size of the award. IX. Method of Payment 1. Each incentive award, once approved, may be paid to the Participant on the next payroll cycle, less required withholdings, or by separate check. 2. Pro rata payments: a. A Participant must be an Employee at the time the bonus is paid in order to receive an incentive payment under the Plan. A Participant whose employment is terminated before the end of the Plan Year will not be eligible for an incentive award for that Plan Year unless the termination was the result of death, disability or retirement under a Company sponsored retirement plan, in which case, a pro rata payment at target (or less than target if actual performance is below target in any area) may be recommended providing the Participant worked at least three months during the Plan Year. The Plan defines "retirement" as the termination of the EIP participant's employment with the Company and its subsidiaries other than for cause and either a) on or after the date on which the employee attains the age of 60, or, b) on a date on which the sum of the employee's age and completed years of employment with the Company and its subsidiaries is at least eighty (80)." b. Participants who are hired, transferred or promoted into an eligible position may be recommended for a pro rata payment, based on their time in the eligible position, as long as they have worked in that position at least three months during the Plan Year. c. Participants who are promoted or transferred from one incentive position to another incentive position will receive a pro rata payment based on the period of time they were in each position and the year-end Base Salary. Any pro rata payment from Part A- Financial Performance and Part B- Safety will be measured and apportioned at the end of the Plan Year. Operational/Departmental Goals must be set and measured for the period in each position. d. If there is a qualifying termination following a change in control of the Company or operating unit, a pro rata portion of the target amount may be paid out unless otherwise specified by an individual employment agreement. 3. A Participant who is eligible for payment of an incentive under the Plan following termination of employment and under the terms of an employment or severance agreement will be paid at a time and frequency specified in the employment or severance 6

229 agreement. If the Participant is a "Specified Employee" as defined under Section 409A of the Internal Revenue Code, the full bonus payment or a portion thereof may be deferred until the first business day after the date that is six (6) months after the severance date in order to comply with the Code. 4. Clawbacks: If any of the Company's financial statements are required to be restated due to errors, omissions, fraud, or misconduct, the Committee may, in its sole discretion but acting in good faith, direct that the Company recover all or a portion of this Award or any past or future compensation from any Participant with respect to any fiscal year of the Company for which the financial results are negatively affected by such restatement. For purposes of this paragraph, errors, omissions, fraud, or misconduct may include and is not limited to circumstances where the Company has been required to prepare an accounting restatement due to material noncompliance with any financial reporting requirement, as enforced by the SEC, and the committee has determined in its sole discretion that a participant had knowledge of the material noncompliance or the circumstances that gave rise to such noncompliance and failed to take reasonable steps to bring it to the attention of the appropriate individuals within the company, or the participant personally and knowingly engaged in practices which materially contributed to the circumstances that enabled a material noncompliance to occur. 1. The Plan shall be effective January 1, X. Effective Date and Duration 2. The Committee may discontinue the Plan, in whole or in part, at any time, or may, from time to time, amend the Plan in any respect that the Committee may deem to be advisable. 7

230 ADDENDUM Acquisition of Western Coal April 1, 2011 The acquisition of Western Coal was effective April 1, Walter Energy agreed to honor Western Coal's established Incentive Plan for The Western Coal "AIP" plan, includes all salaried employees. This will be for 2011 only. The Walter Energy Plan will be in place for eligible employees going forward in

231 Exhibit STOCK OPTION PLAN OPTION AGREEMENT This Option Agreement is entered into between Western Coal Corp. (the "Company") and the Optionee named below pursuant to the Western Coal Stock Option Plan (the "Plan"), a copy of which is attached hereto, and confirms that: 1. on [Date] 2. [Name] (the "Optionee"); 3. was granted the option (the "Option") to purchase [ ] Common Shares (the "Option Shares") of the Company; 4. for the price of $[ ] per share (the "Option Price"); 5. which shall be exercisable ("Vested") in whole or in part in the following amounts on or after the following dates: shares immediately, shares one year from date of grant, 6. terminating on the [Date] at [Time] (Vancouver Time), [Year]. 7. on the terms and subject to the conditions set out in the Plan and the following additional conditions imposed by the Board: For greater certainty, once Options have become Vested, they continue to be exercisable until the termination or cancellation thereof as provided in this Option Agreement and the Plan. The Optionee acknowledges that while the Plan does not permit Options representing more than 5% of the issued and outstanding Shares of the Company on a non-diluted basis be granted to an Insider, the Insider may, because of other shareholdings, hold more than 10% of the Company's issued and outstanding Shares. The Optionee further acknowledges that in the event the Optionee owns more than 10% of the Company's issued and outstanding Shares, the Optionee may be a "specified shareholder" as defined in the Income Tax Act (Canada) and that one consequence of "specified shareholder" status is that the Optionee will not be able to defer tax on the employee stock option benefit upon the exercise of his or her Options. 1

232 By signing this Option Agreement, the Optionee acknowledges that the Optionee has read and understands the Plan and agrees to the terms and conditions of the Plan and this Option Agreement. IN WITNESS WHEREOF the parties hereto have executed this Option Agreement as of the [ ] day of [ ]. OPTIONEE WESTERN COAL CORP. Authorized Signatory 2

233 Exhibit This document constitutes part of the prospectus covering securities that have been registered under the Securities Act of Walter Energy, Inc. Long-Term Incentive Award Plan Restricted Stock Unit Award Agreement THIS AGREEMENT, effective as of the Date of Grant set forth below, represents a grant of restricted stock units ("RSUs") by Walter Energy, Inc., a Delaware corporation (the "Company"), to the Participant named below, pursuant and subject to the provisions of the Amended and Restated 2002 Long-Term Incentive Award Plan of Walter Energy, Inc., as it may be amended from time to time (the "Plan"), and the additional terms set forth in this Agreement. The Participant has been selected to receive a grant of RSUs pursuant to the Plan, as specified below. The Plan provides a complete description of the terms and conditions governing the grant of RSUs. If there is any inconsistency between the terms of this Agreement and the terms of the Plan, except as noted in Section 6 regarding a Change in Control, the Plan's terms shall completely supersede and replace the conflicting terms of this Agreement. All capitalized terms shall have the meanings ascribed to them in the Plan, unless specifically set forth otherwise herein. Participant: [Insert Name] Date of Grant: [Insert Date] Number of RSUs Granted: Number (subject to adjustment as set forth herein and in the Plan) The parties hereto agree as follows: 1. Vesting. Subject to the Participant's continued employment with the Company or any of its Subsidiaries through each of the applicable Vesting Dates (as defined below), the RSUs granted hereunder shall vest in three substantially equal annual installments on each of the first, second and third anniversary of the Date of Grant (i.e., Month and day, of 20, 20 and 20 ) (each such date, a "Vesting Date"). The period from the Date of Grant through (and including) the third anniversary of the Date of Grant shall be referred to herein as the "Period of Restriction." 2. Timing of Payout. Payout of vested RSUs shall occur as soon as administratively feasible after each Vesting Date, but in no event more than thirty (30) days thereafter. 3. Form of Payout. Vested RSUs will be paid out solely in the form of shares of stock of the Company.

234 4. Voting Rights and Dividends. Until such time as the RSUs are paid out in shares of Company stock, the Participant shall not have voting rights. Further, no dividends shall be paid on any RSUs. 5. Termination of Employment. In the event of the Participant's termination of employment with the Company or any of its Subsidiaries for any reason (whether with or without Cause (as defined below), and without regard for any period of notice that may be required under statute, contract, common law or otherwise, to the extent applicable) during the Period of Restriction, all RSUs held by the Participant at the time of termination which are still subject to the Period of Restriction shall be forfeited by the Participant to the Company without consideration as of the termination date and the Participant shall have no further rights with respect thereto. Notwithstanding anything herein to the contrary, the Committee may, in its sole discretion, vest all or any portion of the RSUs held by the Participant. If such vesting occurs, payout shall be made as soon as administratively feasible following the date of the Participant's termination, but in no event more than thirty (30) days thereafter. 6. Change in Control. Notwithstanding anything to the contrary in this Agreement or in the Plan, in the event that the Participant's employment is terminated (x) by the Company or any of its Subsidiaries without Cause (as defined below) other than due to death or Disability (as defined below) or (y) by the Participant for Good Reason (as defined below), in each case, within the twentyfour (24) month period following the consummation of the first Change in Control that occurs during the Period of Restriction and prior to the Participant's termination of employment, (i) the Period of Restriction imposed on the RSUs shall immediately lapse, with all such then unvested RSUs vesting subject to applicable federal and state securities laws and (ii) the RSUs shall be paid out as soon as administratively feasible following the date of the Participant's termination, but in no event more than thirty (30) days thereafter. Notwithstanding the foregoing, a transaction or series of transactions in which the Company separates one or more of its existing businesses, whether by sale, spin-off or otherwise, and whether or not any such transaction or series of transactions requires a vote of the stockholders, shall not be considered a "Change in Control." For purposes of this Section 6, "Cause" shall have the meaning ascribed to it in the letter agreement by and between the Company and the Participant, as it may be amended from time to time (the "Letter Agreement") or, if there is no such Letter Agreement or such term is not defined therein, "Cause" shall mean (a) any form of dishonesty or criminal conduct connected with the employment of the Participant, (b) the refusal of the Participant to comply with the Company's lawful written instructions, policies or rules as approved or mandated by the Board, (c) gross or willful misconduct by the Participant during employment with the Company, or (d) the Participant's conviction of, or plea of guilty or nolo contendere to, a felony. All disputes concerning whether a particular termination is for "Cause" shall be determined in good faith by the Administrator. For purposes of this Section 6, "Disability" shall have the meaning ascribed to it in the Letter Agreement or, if there is no such Letter Agreement or such term is not defined therein, "Disability" shall mean any medical condition whatsoever which leads to the absence of the Participant from his or her job function for a continuous period of six months without the Participant being able to resume such functions on a full time basis at the expiration of such period, it being understood that 2

235 unsuccessful attempts to return to work for periods under thirty days shall not be deemed to have interrupted said continuity. For purposes of this Section 6, "Good Reason" shall have the meaning ascribed to it in the Letter Agreement or, if there is no such Letter Agreement or such term is not defined therein, "Good Reason" shall mean the occurrence of any of the following conditions (in each case arising without the Participant's consent): (a) a material breach of this Agreement by the Company or (b) a material diminution in the Participant's authority, duties or responsibilities. Notwithstanding the foregoing, the Participant's voluntary separation from service shall be for "Good Reason" only if (x) the Participant provides written notice of the facts or circumstances constituting a "Good Reason" condition to the Company within 30 days after the initial existence of the Good Reason condition, (y) the Company does not remedy the Good Reason condition within 30 days after it receives such notice and (z) the voluntary separation from service occurs within 90 days after the initial existence of the Good Reason condition. For purposes of this Agreement, the parties agree that "Good Reason" will not exist solely because the amount of the Participant's annual bonus, if any, fluctuates due to performance considerations under the Company's Executive Incentive Plan, as it may be amended from time to time or other Company incentive plan applicable to the Participant and in effect from time to time. 7. Restrictions on Transfer. Unless and until actual shares of stock of the Company are received upon payout, RSUs granted pursuant to this Agreement may not be sold, transferred, pledged, assigned, or otherwise alienated or hypothecated (a "Transfer"), other than by will or by the laws of descent and distribution, except as provided for in the Plan. If any Transfer, whether voluntary or involuntary, of RSUs is made, or if any attachment, execution, garnishment, or lien shall be issued against or placed upon the RSUs, the Participant's right to such RSUs shall be immediately forfeited by the Participant to the Company, and this Agreement shall lapse. 8. Recapitalization. In the event of any change in the capitalization of the Company such as a stock split or a corporate transaction such as any merger, consolidation, separation, or otherwise, the number and class of RSUs subject to this Agreement shall be equitably adjusted by the Committee, in its sole discretion, to prevent dilution or enlargement of rights. 9. Beneficiary Designation. The Participant may, from time to time, name any beneficiary or beneficiaries (who may be named contingently or successively) to whom any benefit under this Agreement is to be paid in case of his or her death before he or she receives any or all of such benefit. Each such designation shall revoke all prior designations by the Participant, shall be in a form prescribed by the Company, and will be effective only when filed by the Participant in writing with the Secretary of the Company during the Participant's lifetime. In the absence of any such designation, benefits remaining unpaid at the Participant's death shall be paid to the Participant's estate. 10. No Right to Continuation of Employment or Other Equity Awards. This Agreement shall not confer upon the Participant any right to continue employment with the Company or any of its Subsidiaries, nor shall this Agreement interfere in any way with the Company's or any of its Subsidiaries' right to terminate the Participant's employment at any time. In addition, this grant of 3

236 RSUs shall not confer any right upon the Participant to be granted RSUs or other Awards in the future under the Plan. 11. Miscellaneous. (a) (b) (c) This Agreement and the rights of the Participant hereunder are subject to all the terms and conditions of the Plan, as the same may be amended from time to time, as well as to such rules and regulations as the Committee may adopt for administration of the Plan. The Committee shall have the right to impose such restrictions on any shares acquired pursuant to this Agreement, as it may deem advisable, including, without limitation, restrictions under applicable federal securities laws, under the requirements of any stock exchange or market upon which such shares are then listed and/or traded, and under any blue sky, state or provincial securities laws applicable to such shares. It is expressly understood that the Committee is authorized to administer, construe, and make all determinations necessary or appropriate to the administration of the Plan and this Agreement, all of which shall be binding upon the Participant. The Committee may terminate, amend, or modify the Plan; provided, however, that no such termination, amendment, or modification of the Plan may in any material way adversely affect the Participant's rights under this Agreement, without the written consent of the Participant. Notwithstanding the foregoing, the Committee may, without obtaining the written consent of the Participant, amend this Agreement in any manner that it deems necessary or desirable to comply with the requirements of Section 409A of the Code or an exemption thereto. The Participant may elect, subject to any procedural rules adopted by the Committee, to satisfy the withholding requirement, in whole or in part, by having the Company withhold and sell shares having an aggregate Fair Market Value on the date the tax is to be determined, equal to the amount required to be withheld. The Company shall have the power and the right to deduct or withhold from the Participant's compensation, or require the Participant to remit to the Company, an amount sufficient to satisfy federal, state, provincial and local taxes (including the Participant's FICA obligation), domestic or foreign, required by law to be withheld with respect to any payout to the Participant under this Agreement. (d) (e) The Participant agrees to take all steps necessary to comply with all applicable provisions of federal, state and provincial securities laws in exercising his or her rights under this Agreement. This Agreement shall be subject to all applicable laws, rules, and regulations, and to such approvals by any governmental agencies, securities commissions, national securities exchanges or stock exchanges,as may be required. 4

237 (f) (g) (h) (i) This Agreement and the Plan constitute the entire understanding between the Participant and the Company regarding the RSUs granted hereunder. This Agreement and the Plan supersedes any prior agreements, commitments or negotiations concerning the RSUs granted hereunder. All obligations of the Company under the Plan and this Agreement, with respect to the RSUs, shall be binding on any successor to the Company, whether the existence of such successor is the result of a direct or indirect purchase, merger, consolidation, or otherwise, of all or substantially all of the business and/or assets of the Company. To the extent not preempted by federal law, this Agreement shall be governed by, and construed in accordance with, the laws of the state of Delaware. This Agreement may be signed in counterpart, each of which shall be an original, with the same effect as if the signatures thereto and hereto were upon the same instrument. [Rest of Page Intentionally Left Blank.] 5

238 IN WITNESS WHEREOF, the parties have caused this Agreement to be executed effective as of the Date of Grant. Walter Energy, Inc. ATTEST: By: Walter J. Scheller, III Chief Executive Officer 6 Participant

239 Exhibit This document constitutes part of the prospectus covering securities that have been registered under the Securities Act of Walter Energy, Inc. Long-Term Incentive Award Plan Restricted Stock Unit Award Agreement (3-Year Cliff Retention Award) THIS AGREEMENT, effective as of the Date of Grant set forth below, represents a grant of restricted stock units ("RSUs") by Walter Energy, Inc., a Delaware corporation (the "Company"), to the Participant named below, pursuant and subject to the provisions of the Amended and Restated 2002 Long-Term Incentive Award Plan of Walter Energy, Inc., as it may be amended from time to time (the "Plan") and the additional terms set forth in this Agreement. The Participant has been selected to receive a grant of RSUs pursuant to the Plan, as specified below. The Plan provides a complete description of the terms and conditions governing the grant of RSUs. If there is any inconsistency between the terms of this Agreement and the terms of the Plan, except as noted in Section 6 regarding a Change in Control, the Plan's terms shall completely supersede and replace the conflicting terms of this Agreement. All capitalized terms shall have the meanings ascribed to them in the Plan, unless specifically set forth otherwise herein. Participant: Date of Grant: Name April 1, 2011 Economic Grant Value: $Value Number of RSUs Granted: Number (subject to adjustment as set forth herein and in the Plan) The parties hereto agree as follows: 1. Vesting. Subject to the Participant's continued employment with the Company or any of its Subsidiaries through the Vesting Date (as defined below), one hundred percent (100%) of the RSUs granted hereunder shall vest on the third anniversary of the Grant Date (such date, the "Vesting Date"). The period from the Date of Grant through (and including) the Vesting Date shall be referred to herein as the "Period of Restriction." 2. Timing of Payout. Payout of all vested RSUs shall occur as soon as administratively feasible after the Vesting Date, but in no event more than thirty (30) days thereafter. 3. Form of Payout. Vested RSUs will be paid out solely in the form of shares of stock of the Company. 4. Voting Rights and Dividends. Until such time as the RSUs are paid out in shares of Company stock, the Participant shall not have voting rights. Further, no dividends shall be paid on any RSUs. 1

240 5. Termination of Employment. In the event of the Participant's termination of employment with the Company or any of its Subsidiaries for any reason during the Period of Restriction, all RSUs held by the Participant at the time of termination and still subject to the Period of Restriction shall be forfeited by the Participant to the Company without consideration as of the termination date and the Participant shall have no further rights with respect thereto. Notwithstanding anything herein to the contrary, the Committee may, in its sole discretion, vest all or any portion of the RSUs held by the Participant. If such vesting occurs, payout shall be made as soon as administratively feasible following the date of the Participant's termination, but in no event more than thirty (30) days thereafter. 6. Change in Control. Notwithstanding anything to the contrary in the Plan or in Section 1 or Section 2 above and in accordance with the approval of the Board on the Date of Grant, in the event of a Change in Control of the Company during the Period of Restriction and prior to the Participant's termination of employment, a number of RSUs shall (x) vest in an amount equal to the number of RSUs granted hereunder multiplied by a fraction, the numerator of which is the number of days beginning on the Date of Grant and ending on the date of the Change in Control of the Company and the denominator of which is 1095 and (y) be paid out as soon as administratively feasible following the occurrence of a Change in Control of the Company, but in no event more than thirty (30) days thereafter. If the Participant remains employed by the Company or any of its Subsidiaries following the Change in Control of the Company during the Period of Restriction, then the remaining unvested RSUs shall remain outstanding until the earlier to occur of (A) the Vesting Date and (B) the date of the Participant's termination. If the Participant's employment terminates for any reason (other than (1) by the Company or one of its Subsidiaries without Cause (other than due to death or Disability) or (2) by the Participant due to a material change in his position) after a Change in Control of the Company, but prior to the Vesting Date, then any remaining unvested RSUs shall be forfeited by the Participant to the Company without consideration as of the date of the Participant's termination and the Participant shall have no further rights with respect thereto. However if the Participant's employment is terminated (I) by the Company or one of its Subsidiaries without Cause (other than due to death or Disability) or (II) by the Participant due to a material change in his position, in each case, after a Change in Control of the Company, but prior to the Vesting Date, then the remaining unvested RSUs shall be deemed vested on the Participant's termination date and shall be paid out as soon as administratively feasible following the date of the Participant's termination, but in no event more than thirty (30) days thereafter. For purposes of this Section 6, "Cause" shall be determined solely by the Committee in the exercise of good faith and reasonable judgment, and shall mean the occurrence of any one or more of the following: (i) willful and continued refusal to perform the duties of the Participant's position (other than any such failure resulting from the Participant's incapacity due to physical or mental illness); (ii) (iii) (iv) the Participant's conviction or guilty plea of a felony involving fraud or dishonesty; theft or embezzlement by the Participant of property from the Company; or fraudulent preparation by the Participant of financial information of the Company or any subsidiary or affiliate. For purposes of this Section 6, the term "Disability" shall mean any medical condition whatsoever which leads to the Participant's absence from his job function for a continuous period of six (6) months without the Participant being able to resume such functions on a full time basis at the expiration of such period, it being understood that unsuccessful attempts to return to work for periods under thirty (30) days shall not be deemed to have interrupted said continuity. 2

241 7. Non-Compete/Non-Solicit. It is understood and agreed that the Participant has and will continue to have substantial relationships with specific businesses and personnel, prospective and existing, vendors, contractors, customers, and employees of the Company and its Subsidiaries that result in the creation of customer goodwill. Therefore, while the Participant is employed by the Company or any of its Subsidiaries and continuing for a period of twelve (12) months following the date of the Participant's termination of employment, so long as the Company or any affiliate, successor or assign thereof is in the coal mining business or like business within the Restricted Area (defined as mining industries in the geographical areas in which the Company or any of its Subsidiaries competes at the time of the Participant's termination), unless the Board approves an exception, the Participant shall not, directly or indirectly, either personally or on behalf of, or in conjunction with, any other person, persons, company, partnership, corporation, business entity or otherwise: (a) (b) Call upon, solicit, write, direct, divert, influence, or accept business (either directly or indirectly) with respect to any account or customer or prospective customer of the Company or any corporation controlling, controlled by, under common control with, or otherwise related to the Company, including but not limited to any other affiliated companies; or Hire away any independent contractors or personnel of the Company and/or entice any such persons to leave the employ of the Company or its affiliated entities without the prior written consent of the Company. 8. Restrictions on Transfer. Unless and until actual shares of stock of the Company are received upon payout, RSUs granted pursuant to this Agreement may not be sold, transferred, pledged, assigned, or otherwise alienated or hypothecated (a "Transfer"), other than by will or by the laws of descent and distribution, except as provided for in the Plan. If any Transfer, whether voluntary or involuntary, of RSUs is made, or if any attachment, execution, garnishment, or lien shall be issued against or placed upon the RSUs, the Participant's right to such RSUs shall be immediately forfeited by the Participant to the Company, and this Agreement shall lapse. 9. Recapitalization. In the event of any change in the capitalization of the Company such as a stock split or a corporate transaction such as any merger, consolidation, separation, or otherwise, the number and class of RSUs subject to this Agreement shall be equitably adjusted by the Committee, in its sole discretion, to prevent dilution or enlargement of rights. 10. Beneficiary Designation. The Participant may, from time to time, name any beneficiary or beneficiaries (who may be named contingently or successively) to whom any benefit under this Agreement is to be paid in case of his or her death before he or she receives any or all of such benefit. Each such designation shall revoke all prior designations by the Participant, shall be in a form prescribed by the Company, and will be effective only when filed by the Participant in writing with the Secretary of the Company during the Participant's lifetime. In the absence of any such designation, benefits remaining unpaid at the Participant's death shall be paid to the Participant's estate. 11. No Right to Continuation of Employment or Other Equity Awards. This Agreement shall not confer upon the Participant any right to continue employment with the Company or its Subsidiaries, nor shall this Agreement interfere in any way with the Company's or its Subsidiaries' right to terminate the Participant's employment at any time. In addition, this grant of RSUs shall not confer any right upon the Participant to be granted RSUs or other Awards in the future under the Plan. 3

242 12. Miscellaneous. (a) (b) (c) This Agreement and the rights of the Participant hereunder are subject to all the terms and conditions of the Plan, as the same may be amended from time to time, as well as to such rules and regulations as the Committee may adopt for administration of the Plan. The Committee shall have the right to impose such restrictions on any shares acquired pursuant to this Agreement, as it may deem advisable, including, without limitation, restrictions under applicable federal securities laws, under the requirements of any stock exchange or market upon which such shares are then listed and/or traded, and under any blue sky or state securities laws applicable to such shares. It is expressly understood that the Committee is authorized to administer, construe, and make all determinations necessary or appropriate to the administration of the Plan and this Agreement, all of which shall be binding upon the Participant. The Committee may terminate, amend, or modify the Plan; provided, however, that no such termination, amendment, or modification of the Plan may in any material way adversely affect the Participant's rights under this Agreement, without the written consent of the Participant. Notwithstanding the foregoing, the Committee may, without obtaining the written consent of the Participant, amend this Agreement in any manner that it deems necessary or desirable to comply with the requirements of Section 409A of the Code or an exemption thereto. The Participant may elect, subject to any procedural rules adopted by the Committee, to satisfy the withholding requirement, in whole or in part, by having the Company withhold and sell shares having an aggregate Fair Market Value on the date the tax is to be determined, equal to the amount required to be withheld. The Company shall have the power and the right to deduct or withhold from the Participant's compensation, or require the Participant to remit to the Company, an amount sufficient to satisfy federal, state, and local taxes (including the Participant's FICA obligation), domestic or foreign, required by law to be withheld with respect to any payout to the Participant under this Agreement. (d) (e) (f) (g) (h) The Participant agrees to take all steps necessary to comply with all applicable provisions of federal and state securities laws in exercising his or her rights under this Agreement. This Agreement shall be subject to all applicable laws, rules, and regulations, and to such approvals by any governmental agencies or national securities exchanges as may be required. This Agreement and the Plan constitute the entire understanding between the Participant and the Company regarding the RSUs granted hereunder. This Agreement and the Plan supersedes any prior agreements, commitments or negotiations concerning the RSUs granted hereunder. All obligations of the Company under the Plan and this Agreement, with respect to the RSUs, shall be binding on any successor to the Company, whether the existence of such successor is the result of a direct or indirect purchase, merger, consolidation, or otherwise, of all or substantially all of the business and/or assets of the Company. To the extent not preempted by federal law, this Agreement shall be governed by, and construed in accordance with, the laws of the state of Delaware. 4

243 [Rest of Page Intentionally Left Blank.] 5

244 IN WITNESS WHEREOF, the parties have caused this Agreement to be executed effective as of the Date of Grant. Walter Energy, Inc. ATTEST: Chief Executive Officer 6 Recipient Name

245 Exhibit This document constitutes part of the prospectus covering securities that have been registered under the Securities Act of Walter Energy, Inc. Long-Term Incentive Award Plan Restricted Stock Unit Award Agreement (3-Year Cliff Retention Award) THIS AGREEMENT, effective as of the Date of Grant set forth below, represents a grant of restricted stock units ("RSUs") by Walter Energy, Inc., a Delaware corporation (the "Company"), to the Participant named below, pursuant and subject to the provisions of the Amended and Restated 2002 Long-Term Incentive Award Plan of Walter Energy, Inc., as it may be amended from time to time (the "Plan") and the additional terms set forth in this Agreement. The Participant has been selected to receive a grant of RSUs pursuant to the Plan, as specified below. The Plan provides a complete description of the terms and conditions governing the grant of RSUs. If there is any inconsistency between the terms of this Agreement and the terms of the Plan, except as noted in Section 6 regarding a Change in Control, the Plan's terms shall completely supersede and replace the conflicting terms of this Agreement. All capitalized terms shall have the meanings ascribed to them in the Plan, unless specifically set forth otherwise herein. Participant: Date of Grant: [ ] [ ] Economic Grant Value: USD$[ ] Number of RSUs Granted: [ ] (subject to adjustment as set forth herein and in the Plan) The parties hereto agree as follows: 1. Vesting. Subject to the Participant's continued employment with the Company or any of its Subsidiaries through the Vesting Date (as defined below), one hundred percent (100%) of the RSUs granted hereunder shall vest on the third anniversary of the Grant Date (such date, the "Vesting Date"). The period from the Date of Grant through (and including) the Vesting Date shall be referred to herein as the "Period of Restriction." 2. Timing of Payout. Payout of all vested RSUs shall occur as soon as administratively feasible after the Vesting Date, but in no event more than thirty (30) days thereafter. 3. Form of Payout. Vested RSUs will be paid out solely in the form of shares of stock of the Company. 4. Voting Rights and Dividends. Until such time as the RSUs are paid out in shares of Company stock, the Participant shall not have voting rights. Further, no dividends shall be paid on any RSUs. 1

246 5. Termination of Employment. In the event of the Participant's termination of employment with the Company or any of its Subsidiaries for any reason (including termination without cause or notice) during the Period of Restriction, all RSUs held by the Participant at the time of termination and still subject to the Period of Restriction shall be forfeited by the Participant to the Company without consideration as of the termination date and the Participant shall have no further rights with respect thereto. Notwithstanding anything herein to the contrary, the Committee may, in its sole discretion, vest all or any portion of the RSUs held by the Participant. If such vesting occurs, payout shall be made as soon as administratively feasible following the date of the Participant's termination, but in no event more than thirty (30) days thereafter. 6. Change in Control. Notwithstanding anything to the contrary in the Plan and in accordance with the approval of the Board on the Date of Grant, in the event of a Change in Control of the Company during the Period of Restriction and prior to the Participant's termination of employment, the Period of Restriction imposed on the RSUs granted hereunder shall not lapse. 7. Non-Compete/Non-Solicit. It is understood and agreed that the Participant will have substantial relationships with specific businesses and personnel, prospective and existing, vendors, contractors, customers, and employees of the Company and its Subsidiaries that result in the creation of customer goodwill. Therefore, while the Participant is employed by the Company or any of its Subsidiaries and continuing for a period of twelve (12) months following the date of the Participant's termination of employment for any reason, so long as the Company or any affiliate, successor or assign thereof is in the coal mining business or like business, anywhere in (a) Wales, (b) British Columbia or (c) any other Canadian province or territory in which Western Coal Corp. does business on the date of the Participant's termination of employment (collectively, the "Restricted Area"), unless the Board approves an exception, the Participant shall not, directly or indirectly, either personally or on behalf of, or in conjunction with, any other person, persons, company, partnership, corporation, business entity or otherwise: (a) (b) Call upon, solicit, write, direct, divert, influence, or accept business (either directly or indirectly) with respect to any account or customer or prospective customer of the Company or any corporation controlling, controlled by, under common control with, or otherwise related to the Company, including but not limited to any other affiliated companies; or Hire away any independent contractors or personnel of the Company and/or entice any such persons to leave the employ of the Company or its affiliated entities without the prior written consent of the Company. 8. Restrictions on Transfer. Unless and until actual shares of stock of the Company are received upon payout, RSUs granted pursuant to this Agreement may not be sold, transferred, pledged, assigned, or otherwise alienated or hypothecated (a "Transfer"), except to a Permitted Assign. If any Transfer, whether voluntary or involuntary, of RSUs is made, or if any attachment, execution, garnishment, or lien shall be issued against or placed upon the RSUs, the Participant's right to such RSUs shall be immediately forfeited by the Participant to the Company, and this Agreement shall lapse. For purposes of this Agreement, the term "Permitted Assign" shall mean with respect to the Participant: (a) a trustee, custodian or administrator acting on behalf of, or for the benefit of, the Participant, (b) a holding entity of the Participant, (c) a registered retirement savings plan, registered retirement income fund or tax-free savings account of the Participant, (d) a spouse of the Participant, (e) a trustee, custodian or administrator acting on behalf of, or for the benefit of, the spouse of the Participant, (f) a holding entity of the spouse of the Participant, (g) a registered retirement savings plan, registered retirement income fund or tax-free savings account of the spouse of the Participant. 2

247 9. Recapitalization. In the event of any change in the capitalization of the Company such as a stock split or a corporate transaction such as any merger, consolidation, separation, or otherwise, the number and class of RSUs subject to this Agreement shall be equitably adjusted by the Committee, in its sole discretion, to prevent dilution or enlargement of rights. 10. Beneficiary Designation. Subject to Section 8, the Participant may, from time to time, name any beneficiary or beneficiaries (who may be named contingently or successively) to whom any benefit under this Agreement is to be paid in case of his or her death before he or she receives any or all of such benefit. Each such designation shall revoke all prior designations by the Participant, shall be in a form prescribed by the Company, and will be effective only when filed by the Participant in writing with the Secretary of the Company during the Participant's lifetime. In the absence of any such designation, benefits remaining unpaid at the Participant's death shall be paid to the Participant's estate. 11. No Right to Continuation of Employment or Other Equity Awards. This Agreement shall not confer upon the Participant any right to continue employment with the Company or its Subsidiaries, nor shall this Agreement interfere in any way with the Company's or its Subsidiaries' right to terminate the Participant's employment at any time. The participation of the Participant in the Plan is entirely voluntary and not obligatory and shall not be interpreted as conferring upon the Participant any rights or privileges other than those rights and privileges expressly provided in the Plan. In particular, participation in the Plan does not constitute a condition or employment or service, nor a commitment on the part of the Company or its Subsidiaries to ensure the continued employment or service of such Participant. In addition, this grant of RSUs shall not confer any right upon the Participant to be granted RSUs or other Awards in the future under the Plan. 12. Miscellaneous. (a) (b) (c) This Agreement and the rights of the Participant hereunder are subject to all the terms and conditions of the Plan, as the same may be amended from time to time, as well as to such rules and regulations as the Committee may adopt for administration of the Plan. The Committee shall have the right to impose such restrictions on any shares acquired pursuant to this Agreement, as it may deem advisable, including, without limitation, restrictions under applicable federal securities laws, under the requirements of any stock exchange or market upon which such shares are then listed and/or traded, and under any blue sky, state or provincial securities laws applicable to such shares. It is expressly understood that the Committee is authorized to administer, construe, and make all determinations necessary or appropriate to the administration of the Plan and this Agreement, all of which shall be binding upon the Participant. The Committee may terminate, amend, or modify the Plan; provided, however, that no such termination, amendment, or modification of the Plan may in any material way adversely affect the Participant's rights under this Agreement, without the written consent of the Participant. Notwithstanding the foregoing, the Committee may, without obtaining the written consent of the Participant, amend this Agreement in any manner that it deems necessary or desirable to comply with the requirements of Section 409A of the Code or an exemption thereto. The Participant may elect, subject to any procedural rules adopted by the Committee, to satisfy the withholding requirement, in whole or in part, by having the Company withhold and sell shares of Company stock having an aggregate Fair Market Value on the date the tax is to be determined, equal to the amount required to be withheld. 3

248 The Company shall have the power and the right to deduct or withhold from the Participant's compensation, or require the Participant to remit to the Company, an amount sufficient to satisfy federal, state, provincial and local taxes (including the Participant's FICA obligation), domestic or foreign, required by law to be withheld with respect to any payout to the Participant under this Agreement. (d) (e) (f) (g) (h) The Participant agrees to take all steps necessary to comply with all applicable provisions of federal, state and provincial securities laws in exercising his or her rights under this Agreement. This Agreement shall be subject to all applicable laws, rules, and regulations, and to such approvals by any governmental agencies, securities commissions, national securities exchanges or stock exchanges as may be required. This Agreement and the Plan constitute the entire understanding between the Participant and the Company regarding the RSUs granted hereunder. This Agreement and the Plan supersedes any prior agreements, commitments or negotiations concerning the RSUs granted hereunder. All obligations of the Company under the Plan and this Agreement, with respect to the RSUs, shall be binding on any successor to the Company, whether the existence of such successor is the result of a direct or indirect purchase, merger, consolidation, or otherwise, of all or substantially all of the business and/or assets of the Company. To the extent not preempted by federal law, this Agreement shall be governed by, and construed in accordance with, the laws of the state of Delaware. [Rest of Page Intentionally Left Blank.] 4

249 IN WITNESS WHEREOF, the parties have caused this Agreement to be executed effective as of the Date of Grant. Walter Energy, Inc. ATTEST: By: [ ] 5 [Participant]

250 Exhibit Walter Energy, Inc. Long-Term Incentive Award Plan Restricted Stock Unit Award Agreement This document constitutes part of the prospectus covering securities that have been registered under the Securities Act of THIS AGREEMENT, effective as of the Date of Grant set forth below, represents a grant of restricted stock units ("RSUs") by Walter Energy, Inc., a Delaware corporation (the "Company"), to the Independent Director of the Company, hereinafter referred to as the "Participant," named below, pursuant to the provisions of the Amended and Restated 2002 Long-Term Incentive Award Plan of Walter Energy, Inc. (the "Plan"). You have been selected to receive a grant of RSUs pursuant to the Plan, as specified below. The Plan provides a complete description of the terms and conditions governing the grant of RSUs. If there is any inconsistency between the terms of this Agreement and the terms of the Plan, the Plan's terms shall completely supersede and replace the conflicting terms of this Agreement. All capitalized terms shall have the meanings ascribed to them in the Plan, unless specifically set forth otherwise herein. Independent Director: «Name» Date of Grant: April 20, 2011 Number of RSUs Granted: «M_12_RSUs» Purchase Price: None The parties hereto agree as follows: 1. Directorship With the Company. Except as may otherwise be provided in Section 6, the RSUs granted hereunder are granted on the condition that the Participant remains an Independent Director of the Company from the Date of Grant through (and including) the vesting date, as set forth in Section 2 (referred to herein as the "Period of Restriction"). This grant of RSUs shall not confer any right to the Participant (or any other Participant) to be granted RSUs or other Awards in the future under the Plan. 2. Vesting. RSUs shall vest in three installments, and each installment shall consist of one-third (1/3) of the RSUs granted becoming vested on the first, second and third anniversary of the Date of Grant (April 20, 2012, 2013 and 2014). 3. Timing of Payout. Payout of a RSU shall occur within thirty (30) days following the vesting date of such RSU. 4. Form of Payout. Vested RSUs will be paid out solely in the form of shares of stock of the Company.

251 5. Voting Rights and Dividends. Until such time as the RSUs are paid out in shares of Company stock, the Participant shall not have voting rights. Further, no dividends shall be paid on any RSUs. 6. Termination of Directorship. In the event of the Participant's Termination of Directorship with the Company for any reason during the Period of Restriction, including, but not by way of limitation, a termination by resignation, failure to be elected, death or retirement, all RSUs held by the Participant at the time of the Termination of Directorship and still subject to the Period of Restriction shall be forfeited by the Participant to the Company. However, the Board may, in its discretion, vest all or any portion of the RSUs held by the Participant. 7. Change in Control. Notwithstanding anything to the contrary in this Agreement, in the event of a Change in Control of the Company during the Period of Restriction and prior to the Participant's Termination of Directorship, the Period of Restriction imposed on the RSUs shall immediately lapse, with all such RSUs vesting subject to applicable federal and state securities laws. Notwithstanding the foregoing, a transaction or series of transactions in which Walter Energy separates one or more of its existing businesses, whether by sale, spin-off or otherwise, and whether or not any such transaction or series of transactions requires a vote of the stockholders, shall not be considered a "Change in Control." 8. Restrictions on Transfer. Unless and until actual shares of stock of the Company are received upon payout, RSUs granted pursuant to this Agreement may not be sold, transferred, pledged, assigned, or otherwise alienated or hypothecated (a "Transfer"), other than by will or by the laws of descent and distribution, except as provided in the Plan. If any Transfer, whether voluntary or involuntary, of RSUs is made, or if any attachment, execution, garnishment, or lien shall be issued against or placed upon the RSUs, the Participant's right to such RSUs shall be immediately forfeited by the Participant to the Company, and this Agreement shall lapse. 9. Recapitalization. In the event of any change in the capitalization of the Company such as a stock split or a corporate transaction such as any merger, consolidation, separation, or otherwise, the number and class of RSUs subject to this Agreement shall be equitably adjusted by the Administrator, in its sole discretion, to prevent dilution or enlargement of rights. 10. Beneficiary Designation. The Participant may, from time to time, name any beneficiary or beneficiaries (who may be named contingently or successively) to whom any benefit under this Agreement is to be paid in case of his or her death before he or she receives any or all of such benefit. Each such designation shall revoke all prior designations by the Participant, shall be in a form prescribed by the Company, and will be effective only when filed by the Participant in writing with the Secretary of the Company during the Participant's lifetime. In the absence of any such designation, benefits remaining unpaid at the Participant's death shall be paid to the Participant's estate. 11. Participant's Services as a Director. Nothing in this Agreement shall confer upon the Participant any right to continue in the service of the Company or any Subsidiary (as a director or otherwise) or shall interfere with or restrict in any way the right of the Company or its Subsidiaries or stockholders, as the case may be, to increase or decrease the Participant's fees at any time. 2

252 12. Miscellaneous. (a) (b) (c) This Agreement and the rights of the Participant hereunder are subject to all the terms and conditions of the Plan, as the same may be amended from time to time, as well as to such rules and regulations as the Administrator may adopt for administration of the Plan. The Administrator shall have the right to impose such restrictions on any shares acquired pursuant to this Agreement, as it may deem advisable, including, without limitation, restrictions under applicable federal securities laws, under the requirements of any stock exchange or market upon which such shares are then listed and/or traded, and under any blue sky or state securities laws applicable to such shares. It is expressly understood that the Administrator is authorized to administer, construe, and make all determinations necessary or appropriate to the administration of the Plan and this Agreement, all of which shall be binding upon the Participant. The Administrator may terminate, amend, or modify the Plan; provided, however, that no such termination, amendment, or modification of the Plan may in any material way adversely affect the Participant's rights under this Agreement, without the written consent of the Participant. Notwithstanding the foregoing, the Administrator may, without obtaining the written consent of the Participant, amend this Agreement in any manner that it deems necessary or desirable to comply with the requirements of Section 409A of the Code or an exemption thereto. If the Participant is subject to withholding, the Participant may elect, subject to any procedural rules adopted by the Administrator, to satisfy the withholding requirement, in whole or in part, by having the Company withhold and sell shares having an aggregate Fair Market Value on the date the tax is to be determined, equal to the amount required to be withheld. If the Participant is subject to withholding, the Company shall have the power and the right to deduct or withhold from the Participant's compensation, or require the Participant to remit to the Company an amount sufficient to satisfy federal, state, and local taxes (including the Participant's FICA obligation), domestic or foreign, required by law to be withheld with respect to any payout to the Participant under this Agreement. (d) (e) (f) The Participant agrees to take all steps necessary to comply with all applicable provisions of federal and state securities laws in exercising his or her rights under this Agreement. This Agreement shall be subject to all applicable laws, rules, and regulations, and to such approvals by any governmental agencies or national securities exchanges as may be required. This Agreement and the Plan constitute the entire understanding between the Participant and the Company regarding the RSUs granted hereunder. This Agreement and the Plan supersedes any prior agreements, commitments or negotiations concerning the RSUs granted hereunder. 3

253 (g) (h) All obligations of the Company under the Plan and this Agreement, with respect to the RSUs, shall be binding on any successor to the Company, whether the existence of such successor is the result of a direct or indirect purchase, merger, consolidation, or otherwise, of all or substantially all of the business and/or assets of the Company. To the extent not preempted by federal law, this Agreement shall be governed by, and construed in accordance with, the laws of the state of Delaware. IN WITNESS WHEREOF, the parties have caused this Agreement to be executed effective as of the Date of Grant. Walter Energy, Inc. Keith Calder Chief Executive Officer ATTEST: 4 Participant Date:

254 Exhibit NON-QUALIFIED STOCK OPTION AGREEMENT THIS AGREEMENT (the "Agreement"), effective as of DATE (the "Grant Date"), is made by and between Walter Energy, Inc., a Delaware corporation (the "Company"), and Employee Name, an Employee of the Company (or one of its Subsidiaries, as defined herein), hereinafter referred to as the "Optionee". WHEREAS, pursuant to the Amended and Restated 2002 Long-Term Incentive Award Plan of Walter Energy, Inc., as it may be amended from time to time (the "Plan"), the Company has granted to the Optionee, effective as of the Grant Date, an option to purchase a number of shares of its common stock, par value $0.01 per share (the "Common Stock"), on the terms and subject to the conditions set forth in this Agreement and the Plan. NOW, THEREFORE, in consideration of the mutual covenants herein contained and other good and valuable consideration, receipt of which is hereby acknowledged, the parties hereto do hereby agree as follows: ARTICLE I. DEFINITIONS Whenever the following terms are used in this Agreement, they shall have the meaning specified below unless the context clearly indicates to the contrary. Capitalized terms used in this Agreement and not defined below shall have the meaning given such terms in the Plan. The masculine pronoun shall include the feminine, and the singular the plural, where the context so indicates. Section 1.1 "Administrator" shall mean the Committee unless the Board has assumed the authority for administration of the Plan generally as provided in Section 10.2 of the Plan. Section 1.2 "Board" shall mean the Board of Directors of the Company. Section 1.3 "Cause" shall have the meaning ascribed to it in the letter agreement by and between the Company and the Optionee (the "Letter Agreement") or, if there is no such Letter Agreement or such term is not defined therein, "Cause" shall mean (a) any form of dishonesty or criminal conduct connected with the employment of the Optionee, (b) the refusal of the Optionee to comply with the Company's lawful written instructions, policies or rules as approved or mandated by the Board, (c) gross or willful misconduct by the Optionee during employment with the Company, or (d) the Optionee's conviction of, or plea of guilty or nolo contendere to, a felony. All disputes concerning whether a particular termination is for "Cause" shall be determined in good faith by the Administrator. Section 1.4 "Change in Control" shall mean a change in ownership or control of the Company affected through any of the following transactions:

255 (a) (i) Any person or related group of persons (other than the Company or a person that, prior to such transaction, directly or indirectly controls, is controlled by, or is under common control with, the Company or any person which as of the date of adoption of the Plan by the Board, has "beneficial ownership" (within the meaning of Rule 13d-3 under the Exchange Act) of securities possessing more than 30% of the total combined voting power of the Company's outstanding securities) directly or indirectly acquires beneficial ownership of securities possessing more than 40% of the total combined voting power of the Company's outstanding securities, or (ii) Any person or related group of persons (other than the Company or a person that, prior to such transaction, directly or indirectly controls, is controlled by, or is under common control with, the Company) who is not, as of the date of adoption of the Plan by the Board, a beneficial owner of 1% or more of the total combined voting power of the Company's outstanding securities, directly or indirectly acquires beneficial ownership of securities possessing more than 25% of the total combined voting power of the Company's outstanding securities and is, upon the consummation of such acquisition, the beneficial owner of the largest percentage of the total combined voting power of the Company's outstanding securities; or (b) There is a change in the composition of the Board over a period of 36 consecutive months (or less) such that a majority of the Board members (rounded up to the nearest whole number) ceases to be comprised of individuals who either (i) have been Board members continuously since the beginning of such period, or (ii) have been elected or nominated for election as Board members during such period by at least a majority of the Board members described in clause (i) who were still in office at the time such election or nomination was approved by the Board; or (c) The consummation of a merger or consolidation of the Company with any other corporation (or other entity) where such merger or consolidation has been approved by the stockholders of the Company, other than a merger or consolidation which would result in the voting securities of the Company outstanding immediately prior thereto continuing to represent (either by remaining outstanding or by being converted into voting securities of the surviving entity) more than 66-2/3% of the combined voting power of the voting securities of the Company or such surviving entity outstanding immediately after such merger or consolidation; provided, however, that a merger or consolidation effected to implement a recapitalization of the Company (or similar transaction) in which no person acquires more than 25% of the combined voting power of the Company's then outstanding securities shall not constitute a Change in Control; or (d) The stockholders of the Company approve a plan of complete liquidation of the Company or an agreement for the sale, lease or other disposition by the Company of all or substantially all of the Company's assets; provided, however, that, notwithstanding the foregoing, a transaction or series of transactions in which the Company separates one or more of its existing businesses, whether by sale, spin-off or otherwise, and whether or not any such transaction or series of transactions requires a vote of the stockholders, shall not be considered a "Change in Control." 2

256 Section 1.5 "Code" shall mean the Internal Revenue Code of 1986, as amended. Section 1.6 "Committee" shall mean the Compensation and Human Resources Committee of the Board, or another committee or subcommittee of the Board, appointed as provided in Section 10.2 of the Plan. Section 1.7 Section 1.8 "Common Stock" shall mean the common stock of the Company, par value $0.01 per share. "Company" shall mean Walter Energy, Inc., a Delaware corporation. Section 1.9 "Disability" shall have the meaning ascribed to it in the Letter Agreement or, if there is no such Letter Agreement or such term is not defined therein, "Disability" shall mean any medical condition whatsoever which leads to the absence of the Optionee from his or her job function for a continuous period of six months without the Optionee being able to resume such functions on a full time basis at the expiration of such period, it being understood that unsuccessful attempts to return to work for periods under thirty days shall not be deemed to have interrupted said continuity. Section 1.10 "Eligible Representative" shall mean, upon the Optionee's death, the Optionee's personal representative or such other person as is empowered under the deceased Optionee's will or the then applicable laws of descent and distribution to represent the Optionee hereunder. Section 1.11 "Employee" shall mean any officer or other employee (as defined in accordance with Section 3401(c) of the Code) of the Company, or of any corporation which is a Subsidiary. Section 1.12 "Exchange Act" shall mean the Securities Exchange Act of 1934, as amended. Section 1.13 "Good Reason" shall have the meaning ascribed to it in the Letter Agreement or, if there is no such Letter Agreement or such term is not defined therein, "Good Reason" shall mean the occurrence of any of the following conditions (in each case arising without the Optionee's consent): (a) a material breach of this Agreement by the Company or (b) a material diminution in the Optionee's authority, duties or responsibilities. Notwithstanding the foregoing, the Optionee's voluntary separation from service shall be for "Good Reason" only if (x) the Optionee provides written notice of the facts or circumstances constituting a "Good Reason" condition to the Company within 30 days after the initial existence of the Good Reason condition, (y) the Company does not remedy the Good Reason condition within 30 days after it receives such notice and (z) the voluntary separation from service occurs within 90 days after the initial existence of the Good Reason condition. For purposes of this Agreement, the parties agree that "Good Reason" will not exist solely because the amount of the Optionee's annual bonus, if any, fluctuates due to performance considerations under the Company's Executive Incentive Plan, as it may be amended from time to time, or other Company incentive plan applicable to the Optionee and in effect from time to time. 3

257 Section 1.14 "Option" shall mean the non-qualified option to purchase Common Stock granted under this Agreement, which option is not intended to qualify as an "incentive stock option" under Section 422 of the Code. Section 1.15 "Plan" shall mean the Amended and Restated 2002 Long-Term Incentive Award Plan of Walter Energy, Inc., as it may be amended from time to time. Section 1.16 "Retirement" shall mean the time when the employee-employer relationship between the Optionee and the Company or any Subsidiary is terminated (a) other than for Cause, and (b) such termination occurs either (i) on or after the date on which the Optionee attains the age of sixty (60), or (ii) on or after the date on which the sum of the Optionee's age and completed years of employment (as determined by the Administrator in its discretion) with the Company and any Subsidiary is at least eighty (80). Section 1.17 from time to time. Section 1.18 Section 1.19 "Rule 16b-3" shall mean Rule 16b-3 promulgated under the Exchange Act; as such Rule may be amended "Secretary" shall mean the Secretary of the Company. "Securities Act" shall mean the Securities Act of 1933, as amended. Section 1.20 "Subsidiary" shall mean any corporation in an unbroken chain of corporations beginning with the Company if each of the corporations other than the last corporation in the unbroken chain then owns stock possessing 50% or more of the total combined voting power of all classes of stock in one of the other corporations in such chain. Section 1.21 "Termination of Employment" shall mean the time when the employee-employer relationship between the Optionee and the Company or any Subsidiary is terminated for any reason (whether with or without Cause, and without regard for any period of notice that may be required under statute, contract, common law or otherwise, to the extent applicable) including, but not by way of limitation, a termination by resignation, discharge, death, Disability or Retirement; but excluding (a) terminations where there is a simultaneous reemployment or continuing employment of the Optionee by the Company or any Subsidiary, (b) at the discretion of the Administrator, terminations which result in a temporary severance of the employee-employer relationship, and (c) at the discretion of the Administrator, terminations which are followed by the simultaneous establishment of a consulting relationship by the Company or a Subsidiary with the former employee. The Administrator, in its discretion, shall determine the effect of all matters and questions relating to Termination of Employment, including, but not by way of limitation, the question of whether a Termination of Employment resulted from a discharge for Cause, and all questions of whether a particular leave of absence constitutes a Termination of Employment. ARTICLE II. GRANT OF OPTION Section 2.1 Grant of Option. In consideration of the Optionee's agreement to remain in the employ of the Company or its Subsidiaries and for other good and valuable consideration, effective as of the Grant Date, the Company irrevocably grants to the Optionee the option to 4

258 purchase any part or all of an aggregate of # Shares shares of Common Stock (the "Option") (subject to adjustment as set forth in the Plan) upon the terms and conditions set forth in this Agreement. Section 2.2 Options Subject to the Plan. The Option granted hereunder is subject to the terms and provisions of the Plan, including without limitation, Article VI and Sections 11.1, 11.2 and 11.3 thereof, except as expressly provided for herein. In the event of any inconsistency between the terms of this Agreement and the terms of the Plan, except as noted in Section 3.1 regarding a Change in Control, the Plan's terms shall completely supersede and replace the conflicting terms of this Agreement. Section 2.3 Option Price. The purchase price of the shares of Common Stock covered by the Option shall be Price per share (without commission or other charge) (subject to adjustment as set forth in the Plan). Section 2.4 Not a Contract of Employment. Nothing in this Agreement or in the Plan shall confer upon the Optionee any right to continue in the employ of the Company or any of its Subsidiaries or shall interfere with or restrict in any way the rights of the Company or its Subsidiaries, which are hereby expressly reserved, to discharge the Optionee at any time for any reason whatsoever, with or without Cause. ARTICLE III. PERIOD OF EXERCISABILITY Section 3.1 Commencement of Exercisability (a) in three installments as follows: Subject to subsections (b) and (c) and Section 3.3, the Option shall become vested and exercisable (i) The first installment shall consist of one-third (1/3) of the shares covered by the Option and shall become vested and exercisable on the first anniversary of the Grant Date; (ii) The second installment shall consist of one-third (1/3) of the shares covered by the Option and shall become vested and exercisable on the second anniversary of the Grant Date; and (iii) The third installment shall consist of one-third (1/3) of the shares covered by the Option and shall become vested and exercisable on the third anniversary of the Grant Date. (b) Notwithstanding anything to the contrary in the Plan and subsection (a), but subject to subsection (c) and Section 3.3, the Option shall become fully vested and exercisable effective as of the date of the Optionee's Termination of Employment (x) by the Company or any of its Subsidiaries without Cause (other than due to death or Disability) or (y) by the Optionee for Good Reason, in each case, that occurs within the twenty-four (24) month period following the consummation of the first Change in Control. 5

259 become exercisable. (c) No portion of the Option which is unexercisable at Termination of Employment shall thereafter Section 3.2 Duration of Exercisability. The installments provided for in Section 3.1 are cumulative. Each such installment which becomes exercisable pursuant to Section 3.1 shall remain exercisable until it becomes unexercisable under Section 3.3. Section 3.3 Expiration of Option. The Option may not be exercised to any extent by anyone as provided for herein after the first to occur of the following events: (a) The tenth (10 th ) anniversary of the Grant Date; or (b) Except as the Administrator may otherwise approve (subject to compliance with the requirements of Section 409A of the Code related to modifications and extensions of stock rights), the date of the Optionee's Termination of Employment by the Company or any of its Subsidiaries for Cause; or (c) The 90 th day following the date of the Optionee's Termination of Employment for any reason other than by the Company or any of its Subsidiaries for Cause or due to his death, Disability or Retirement; or Disability or Retirement. (d) The third (3 rd ) anniversary of the Optionee's Termination of Employment due to his death, ARTICLE IV. EXERCISE OF OPTION Section 4.1 Person Eligible to Exercise. During the lifetime of the Optionee, only he may exercise the Option or any portion thereof. After the death of the Optionee, any exercisable portion of the Option may, prior to the time when the Option becomes unexercisable under Section 3.3, be exercised by his Eligible Representative. Section 4.2 Partial Exercise. Any exercisable portion of the Option or the entire Option, if then wholly exercisable, may be exercised in whole or in part at any time prior to the time when the Option or portion thereof becomes unexercisable under Section 3.3; provided, however, that each partial exercise shall be for not less than 100 shares (or the total amount then exercisable pursuant to Section 3.1, if a smaller number of shares) and shall be for whole shares only. Section 4.3 Manner of Exercise. The exercise of the Option shall be governed by the terms of this Agreement and the terms of the Plan, including, without limitation, the provisions of Article VI of the Plan. Section 4.4 Conditions to Issuance of Stock Certificates. The Company shall not be required to issue or deliver any certificate or certificates for shares of Common Stock purchased upon the exercise of the Option or portion thereof prior to fulfillment of all of the conditions set forth in Section 6.3 of the Plan. 6

260 Section 4.5 Rights as Shareholder. The holder of the Option shall not be, nor have any of the rights or privileges of, a shareholder of the Company in respect of any shares purchasable upon the exercise of any part of the Option unless and until certificates representing such shares shall have been issued by the Company to such holder. ARTICLE V. OTHER PROVISIONS Section 5.1 Administration. The Administrator shall have the power to interpret this Agreement and to adopt such rules for the administration, interpretation and application of this Option as are consistent therewith and to interpret, amend or revoke any such rules. All actions taken and all interpretations and determinations made by the Administrator in good faith shall be final and binding upon the Optionee, the Company and all other interested persons. No member of the Committee or the Board shall be personally liable for any action, determination or interpretation made in good faith with respect to the Option. Section 5.2 Transferability of Option. Neither the Option nor any interest or right therein or part thereof shall be sold, pledged, assigned, or transferred in any manner other than by will or the laws of descent and distribution, unless and until such Option has been exercised, or the shares underlying such Option have been issued, and all restrictions applicable to such shares have lapsed. Neither the Option nor any interest or right therein or part thereof shall be liable for the debts, contracts or engagements of the Optionee or his successors in interest or shall be subject to disposition by transfer, alienation, anticipation, pledge, encumbrance, assignment or any other means whether such disposition be voluntary or involuntary or by operation of law by judgment, levy, attachment, garnishment or any other legal or equitable proceedings (including bankruptcy), and any attempted disposition thereof shall be null and void and of no effect, except to the extent that such disposition is permitted by the preceding sentence. Section 5.3 Notices. Any notice to be given under the terms of this Agreement to the Company shall be addressed to the Company in care of its Secretary, and any notice to be given to the Optionee shall be addressed to him at the address given beneath his signature hereto. By a notice given pursuant to this Section 5.3, either party may hereafter designate a different address for notices to be given to him. Any notice which is required to be given to the Optionee shall, if the Optionee is then deceased, be given to the Optionee's personal representative if such representative has previously informed the Company of his status and address by written notice under this Section 5.3. Any notice shall be deemed duly given five (5) days after such notice is enclosed in a properly sealed envelope or wrapper addressed as aforesaid, and deposited as Certified Mail or Registered Mail, Return Receipt Requested (with postage prepaid) in a post office or branch post office regularly maintained by the United States Postal Service; provided, however, that any notice to be given by the Optionee relating to the exercise of the Option or any portion thereof shall be deemed duly given upon receipt by the Secretary or his office. Section 5.4 Entire Agreement. This Agreement and the Plan constitute the entire understanding between the Optionee and the Company regarding the Options. This Agreement 7

261 and the Plan supersede any prior agreements, commitments or negotiations concerning the Option. Section 5.5 Titles. Titles are provided herein for convenience only and are not to serve as a basis for interpretation or construction of this Agreement. Section 5.6 Construction. This Agreement shall be administered, interpreted and enforced under the internal laws of the State of Delaware without regard to conflicts of laws thereof. Section 5.7 Conformity to Securities Laws. The Optionee acknowledges that this Option is intended to conform to the extent necessary with all provisions of the Securities Act and the Exchange Act and any and all regulations and rules promulgated by the Securities and Exchange Commission thereunder, including, without limitation, Rule 16b-3. Notwithstanding anything herein to the contrary, the Plan shall be administered, and the Option is granted and may be exercised only in such a manner as to conform to such laws, rules and regulations. To the extent permitted by applicable law, the Plan and this Agreement shall be deemed amended to the extent necessary to conform to such laws, rules and regulations. Section 5.8 Amendments or Terminations. This Agreement and the Plan may be amended or terminated without the consent of the Optionee provided that such amendment or termination would not impair any rights of the Optionee under this Agreement. No amendment or termination of this Agreement shall, without the consent of the Optionee, impair any rights of the Optionee under this Agreement; provided, however, that notwithstanding the foregoing, the Administrator may, without obtaining the written consent of the Optionee, amend this Agreement in any manner that it deems necessary or desirable to comply with the requirements of Section 409A of the Code or an exemption thereto. Section 5.9 Counterparts. This Agreement may be signed in counterparts, each of which shall be an original, with the same effect as if the signatures thereto and hereto were upon the same instrument. [Signature page to follow] 8

262 IN WITNESS WHEREOF, this Agreement has been executed and delivered by the parties hereto. Walter Energy, Inc. By: Walter J. Scheller, III Chief Executive Officer Name of Optionee Date Residence Address 9

263 Exhibit NON-QUALIFIED STOCK OPTION AGREEMENT THIS AGREEMENT (the "Agreement"), dated April 20, 2011 (the "Grant Date"), is made by and between Walter Energy, Inc., a Delaware corporation (the "Company") and <NAME>, an Independent Director of the Company (or one of its Subsidiaries, as defined herein), hereinafter referred to as the "Optionee": WHEREAS, pursuant to the 2002 Long-Term Incentive Award Plan of Walter Energy, Inc. (the "Plan") the Company has granted to the Optionee, effective as of the Grant Date, an option to purchase a number of shares of its common stock, par value $0.01 per share (the "Common Stock") on the terms and subject to the conditions set forth in this Agreement and the Plan; NOW, THEREFORE, in consideration of the mutual covenants herein contained and other good and valuable consideration, receipt of which is hereby acknowledged, the parties hereto do hereby agree as follows: ARTICLE I. DEFINITIONS Whenever the following terms are used in this Agreement, they shall have the meaning specified below unless the context clearly indicates to the contrary. Capitalized terms used in this Agreement and not defined below shall have the meaning given such terms in the Plan. The masculine pronoun shall include the feminine, and the singular the plural, where the context so indicates. Section 1.1 Section 1.2 the following transactions: "Board" shall mean the Board of Directors of the Company. "Change in Control." shall mean a change in ownership or control of the Company effected through any of (a) (i) Any person or related group of persons (other than the Company or a person that, prior to such transaction, directly or indirectly controls, is controlled by, or is under common control with, the Company or any person which as of the date of adoption of this Plan by the Board, has "beneficial ownership" (within the meaning of Rule 13d-3 under the Exchange Act) of securities possessing more than 30% of the total combined voting power of the Company's outstanding securities) directly or indirectly acquires beneficial ownership of securities possessing more than 40% of the total combined voting power of the Company's outstanding securities, or (ii) Any person or related group of persons (other than the Company or a person that, prior to such transaction, directly or indirectly controls, is controlled by, or is under common control with, the Company) who is not, as of the date of adoption of this Plan by the Board, a beneficial owner of 1% or more of the total combined voting power of the Company's outstanding securities, directly or indirectly 1

264 acquires beneficial ownership of securities possessing more than 25% of the total combined voting power of the Company's outstanding securities and is, upon the consummation of such acquisition, the beneficial owner of the largest percentage of the total combined voting power of the Company's outstanding securities; or (b) There is a change in the composition of the Board over a period of 36 consecutive months (or less) such that a majority of the Board members (rounded up to the nearest whole number) ceases to be comprised of individuals who either (i) have been Board members continuously since the beginning of such period, or (ii) have been elected or nominated for election as Board members during such period by at least a majority of the Board members described in clause (i) who were still in office at the time such election or nomination was approved by the Board; or (c) The stockholders of the Company approve a merger or consolidation of the Company with any other corporation (or other entity), other than a merger or consolidation which would result in the voting securities of the Company outstanding immediately prior thereto continuing to represent (either by remaining outstanding or by being converted into voting securities of the surviving entity) more than 66-2/3% of the combined voting power of the voting securities of the Company or such surviving entity outstanding immediately after such merger or consolidation; provided, however, that a merger or consolidation effected to implement a recapitalization of the Company (or similar transaction) in which no person acquires more than 25% of the combined voting power of the Company's then outstanding securities shall not constitute a Change in Control; or (d) Notwithstanding the foregoing, a transaction or series of transactions in which Walter Industries separates one or more of its existing businesses, whether by sale, spin-off or otherwise, and whether or not any such transaction or series of transactions requires a vote of the stockholders, shall not be considered a "Change in Control." (e) The stockholders of the Company approve a plan of complete liquidation of the Company or an agreement for the sale, lease or other disposition by the Company of all or substantially all of the Company's assets. Section 1.3 Section 1.4 Section 1.5 Section 1.6 "Code" shall mean the Internal Revenue Code of 1986, as amended. "Common Stock" shall mean the common stock of the Company, par value $0.01 per share. "Company" shall mean Walter Energy, Inc., a Delaware corporation. "Director" shall mean a member of the Board. Section 1.7 "Eligible Representative" shall mean, upon the Optionee's death, the Optionee's personal representative or such other person as is empowered under the 2

265 deceased Optionee's will or the then applicable laws of descent and distribution to represent the Optionee hereunder. Section 1.8 "Employee" shall mean any officer or other employee (as defined in accordance with Section 3401(c) of the Code) of the Company, or of any corporation which is a Subsidiary. Section 1.9 Section 1.10 "Exchange Act" shall mean the Securities Exchange Act of 1934, as amended. "Independent Director" shall mean a Director who is not an Employee of the Company. Section 1.11 "Option" shall mean the non-qualified option to purchase Common Stock of the Company granted under this Agreement, which option is not intended to qualify as an "incentive stock option" under Section 422 of the Code. Section 1.12 Section 1.13 from time to time. Section 1.14 Section 1.15 "Plan" shall mean the 2002 Long-Term Incentive Award Plan of Walter Energy, Inc. "Rule 16b-3" shall mean Rule 16b-3 promulgated under the Exchange Act, as such Rule may be amended "Secretary" shall mean the Secretary of the Company. "Securities Act" shall mean the Securities Act of 1933, as amended. Section 1.16 "Subsidiary" shall mean any corporation in an unbroken chain of corporations beginning with the Company if each of the corporations other than the last corporation in the unbroken chain then owns stock possessing 50% or more of the total combined voting power of all classes of stock in one of the other corporations in such chain. Section 1.17 "Termination of Directorship" shall mean the time when an Optionee who is an Independent Director ceases to be a Director for any reason, including, but not by way of limitation, a termination by resignation, failure to be elected, death or retirement. The Board, in its discretion, shall determine the effect of all matters and questions relating to Termination of Directorship with respect to Independent Directors. ARTICLE II. GRANT OF OPTION Section 2.1 Grant of Option. In consideration of the Optionee's agreement to remain in the service of the Company or its Subsidiaries and for other good and valuable 3

266 consideration, on the effective date hereof the Company irrevocably grants to the Optionee the option to purchase any part or all of an aggregate of <NUMBER OF SHARES> shares of Common Stock (the "Option") upon the terms and conditions set forth in this Agreement. Section 2.2 Options Subject to the Plan. The Option granted hereunder is subject to the terms and provisions of the Plan, including without limitation, Article VI and Sections 11.1, 11.2 and 11.3 thereof. Section 2.3 Option Price. The purchase price of the shares of Common Stock covered by the Option shall be $ per share (without commission or other charge). Section 2.4 Optionee's Services as a Director. Nothing in this Agreement shall confer upon the Optionee any right to continue in the service of the Company or any Subsidiary (as a director or otherwise) or shall interfere with or restrict in any way the right of the Company or its Subsidiaries or stockholders, as the case may be, to increase or decrease the Optionee's fees at any time. ARTICLE III. PERIOD OF EXERCISABILITY Section 3.1 Commencement of Exercisability (a) Subject to subsections (b), (c) and (d) and Section 3.3, the Option shall become exercisable in three cumulative installments as follows: (i) The first installment shall consist of one-third (1/3) of the shares covered by the Option and shall become exercisable on the first anniversary of the Grant Date; (ii) The second installment shall consist of one-third (1/3) of the shares covered by the Option and shall become exercisable on the second anniversary of the Grant Date; and (iii) The third installment shall consist of one-third (1/3) of the shares covered by the Option and shall become exercisable on the third anniversary of the Grant Date. (b) Notwithstanding subsection (a), but subject to subsection (d) and Section 3.3, the Option shall become fully exercisable upon the date of consummation of the first Change in Control. (c) Notwithstanding subsection (a), but subject to Section 3.3, the Option shall become fully exercisable upon the Optionee's Termination of Directorship for reason of retirement provided that (i) the Optionee is at least age 65 and (ii) the Optionee has served as an Independent Director for at least five years. 4

267 (d) Except as provided for in subsection (c), no portion of the Option which is unexercisable at Termination of Directorship shall thereafter become exercisable. Section 3.2 Duration of Exercisability. The installments provided for in Section 3.1 are cumulative. Each such installment which becomes exercisable pursuant to Section 3.1 shall remain exercisable until it becomes unexercisable under Section 3.3. Section 3.3 the following events: Expiration of Option. The Option may not be exercised to any extent by anyone after the first to occur of (a) The expiration of ten years from the Grant Date; or (b) Except as the Board may otherwise approve (subject to compliance with the requirements of Section 409A related to modifications and extensions of stock rights), the date of the Optionee's Termination of Directorship by reason of termination for "cause" as determined by the Board in its discretion; or (c) or her death; or The expiration of 90 days from the date of the Optionee's Termination of Directorship for any reason other than his death. (d) The expiration of one (1) year from the date of the Optionee's Termination of Directorship by reason of his or her ARTICLE IV. EXERCISE OF OPTION Section 4.1 Person Eligible to Exercise. During the lifetime of the Optionee, only he or she may exercise the Option or any portion thereof. After the death of the Optionee, any exercisable portion of the Option may, prior to the time when the Option becomes unexercisable under Section 3.3, be exercised by his or her Eligible Representative. Section 4.2 Partial Exercise. Any exercisable portion of the Option or the entire Option, if then wholly exercisable, may be exercised in whole or in part at any time prior to the time when the Option or portion thereof becomes unexercisable under Section 3.3; provided, however, that each partial exercise shall be for not less than 100 shares (or the total amount then exercisable pursuant to Section 3.1, if a smaller number of shares) and shall be for whole shares only. Section 4.3 Manner of Exercise. The exercise of the Option shall be governed by the terms of this Agreement and the terms of the Plan, including, without limitation, the provisions of Article VI of the Plan. Section 4.4 Conditions to Issuance of Stock Certificates. The Company shall not be required to issue or deliver any certificate or certificates for shares of stock purchased upon the exercise of the Option or portion thereof prior to fulfillment of all of the conditions set forth in Section 6.3 of the Plan. 5

268 Section 4.5 Rights as Shareholder. The holder of the Option shall not be, nor have any of the rights or privileges of, a shareholder of the Company in respect of any shares purchasable upon the exercise of any part of the Option unless and until certificates representing such shares shall have been issued by the Company to such holder. ARTICLE V. OTHER PROVISIONS Section 5.1 Administration. The Board shall have the power to interpret this Agreement and to adopt such rules for the administration, interpretation and application of this Option as are consistent therewith and to interpret, amend or revoke any such rules. All actions taken and all interpretations and determinations made by the Board in good faith shall be final and binding upon the Optionee, the Company and all other interested persons. No member of the Board shall be personally liable for any action, determination or interpretation made in good faith with respect to the Option. Without limiting the generality of the foregoing, the Board may, without obtaining the written consent of the Optionee, amend this Agreement in any manner that it deems necessary or desirable to comply with the requirements of Section 409A of the Code or an exemption thereto. Section 5.2 Transferability of Option. Neither the Option nor any interest or right therein or part thereof shall be sold, pledged, assigned, or transferred in any manner other than by will or the laws of descent and distribution, unless and until such Option has been exercised, or the shares underlying such Option have been issued, and all restrictions applicable to such shares have lapsed. Neither the Option nor any interest or right therein or part thereof shall be liable for the debts, contracts or engagements of the Optionee or his successors in interest or shall be subject to disposition by transfer, alienation, anticipation, pledge, encumbrance, assignment or any other means whether such disposition be voluntary or involuntary or by operation of law by judgment, levy, attachment, garnishment or any other legal or equitable proceedings (including bankruptcy), and any attempted disposition thereof shall be null and void and of no effect, except to the extent that such disposition is permitted by the preceding sentence. Section 5.3 Notices. Any notice to be given under the terms of this Agreement to the Company shall be addressed to the Company in care of its Secretary, and any notice to be given to the Optionee shall be addressed to him at the address given beneath his signature hereto. By a notice given pursuant to this Section 5.3, either party may hereafter designate a different address for notices to be given to him. Any notice which is required to be given to the Optionee shall, if the Optionee is then deceased, be given to the Optionee's personal representative if such representative has previously informed the Company of his status and address by written notice under this Section 5.3. Any notice shall be deemed duly given five (5) days after such notice is enclosed in a properly sealed envelope or wrapper addressed as aforesaid, and deposited as Certified Mail or Registered Mail, Return Receipt Requested (with postage prepaid) in a post office or branch post office regularly maintained by the United States Postal Service; provided, however, that any notice to be given by the Optionee relating to the exercise of the 6

269 Option or any portion thereof shall be deemed duly given upon receipt by the Secretary or his office. Section 5.4 Entire Agreement. This Agreement and the Plan constitute the entire understanding between Optionee and the Company regarding the Options. This Agreement and the Plan supersedes any prior agreements, commitments or negotiations concerning the Option. Section 5.5 Titles. Titles are provided herein for convenience only and are not to serve as a basis for interpretation or construction of this Agreement. Section 5.6 Construction. This Agreement shall be administered, interpreted and enforced under the internal laws of the State of Delaware without regard to conflicts of laws thereof. Section 5.7 Conformity to Securities Laws. The Optionee acknowledges that this Option is intended to conform to the extent necessary with all provisions of the Securities Act and the Exchange Act and any and all regulations and rules promulgated by the Securities and Exchange Commission thereunder, including, without limitation, Rule 16b-3. Notwithstanding anything herein to the contrary, the Plan shall be administered, and the Option is granted and may be exercised only in such a manner as to conform to such laws, rules and regulations. To the extent permitted by applicable law, the Plan and this Agreement shall be deemed amended to the extent necessary to conform to such laws, rules and regulations. [signature page follows] 7

270 IN WITNESS WHEREOF, this Agreement has been executed and delivered by the parties hereto. WALTER ENERGY, INC. Chief Executive Officer Name of Optionee Residence Address Optionee's Social Security Number: 8

271 Exhibit EXECUTION COPY February 28, 2012 Mr. Robert P. Kerley 138 Intracoastal Drive Madison, AL Dear Robert: As you are aware, you entered into a letter agreement with Walter Energy, Inc. (the "Company"), dated August 31, 2010, outlining the terms and conditions of your employment with the Company (the "Prior Agreement"). Both you and the Company desire to amend the Prior Agreement in certain respects effective on and after the date hereof and to restate the Prior Agreement to read in its entirety as follows. The following outlines the terms of your employment. While employed, you agree to devote your full time and efforts to advancing the Company's interests. 1. As Vice President, Corporate Controller and Chief Accounting Officer of the Company, you will report to and serve at the direction of the Chief Financial Officer of the Company or to such other person as may be designated from time to time. You will be responsible for corporate accounting, preparation of financial statements for the Board of Directors of the Company (the "Board"), filings with the SEC, establishment of accounting policies and procedures for the Company, timely and reliable financial reporting, supervision of the corporate controller's staff, direct line responsibility for the business unit financial staff and duties customarily assigned to the Vice President, Corporate Controller and Chief Accounting Officer of the Company. Such responsibilities may be changed from time to time. 2. Your compensation package will be as follows: (a) (b) Effective March 1, 2011, your base salary is $232,875 per year, which will be subject to review and adjustment by the Compensation and Human Resources Committee of the Board (the "Compensation Committee") and paid in accordance with the payroll practices of the Company, as they may change from time to time. Your annual base salary, as in effect from time to time, is hereinafter referred to as the "Base Salary." You will participate in the Walter Energy, Inc. Executive Incentive Plan, as it may be amended from time to time (the "EIP") and will be eligible to earn an annual target bonus of 35% of your Base Salary (the "Target Bonus"), with an upside potential of 2 times your Target Bonus for top performance. The actual amount of your bonus, if any, will fluctuate based upon actual performance under the performance metrics associated with the EIP. Participation in the bonus pool is dependent upon the achievement of 1

272 the Company's annual performance goals, as well as the accomplishment of individual objectives mutually agreed upon in writing each year. To receive a bonus under the EIP, you must be employed at the time the bonus is paid. A payment under the Executive Incentive Plan will not be paid or be payable in the event you are not employed by the Company on the date Plan payments are paid. Notwithstanding anything in this letter agreement to the contrary, with respect to any bonus to be paid hereunder, such bonus will be paid in accordance with the EIP and, to the extent possible, will be structured to comply with Section 162(m) of the Internal Revenue Code of 1986, as amended (the "Code"), as performance based compensation thereunder; provided however, to the extent not deductible by the Company, such payment will be deferred until it can be paid by the Company on a tax deductible basis. Please note that participation in the Employee Stock Purchase Plan is a condition to participation in the bonus pool under the EIP. (c) (d) Subject to your continued employment with the Company, you will be eligible to participate in the Company's Amended and Restated 2002 Long-Term Incentive Award Plan, as it may be amended and restated from time to time (and any successor long-term incentive award plan) (collectively, the "LTIP"), and will be eligible to receive annual equity grants from the Company. Subject to your continued employment with the Company, you will be eligible for the following additional benefits: Reimbursement for all reasonable out-of-pocket business expenses incurred by you in the performance of your duties hereunder, in accordance with the policies, practices and procedures of the Company relating to reimbursement of business expenses incurred by Company employees in effect at any time during the 12 month period preceding the date you incur the expenses; provided, however, that any such expense reimbursement will be made no later than the last day of the calendar year following the calendar year in which you incur the expense, will not affect the expenses eligible for reimbursement in any other calendar year, and cannot be liquidated or exchanged for any other benefit. Participation in the Company's group life and health insurance benefit programs generally applicable to executives employed in the location in which you are primarily based, in accordance with their terms, as they may change from time to time. Participation in the Company's retirement plan according to their terms as they may change from time to time and in accordance with its terms. Participation in the Company's Employee Stock Purchase Plan, as it may change from time to time and in accordance with its terms. 2

273 Eligibility for twenty days of vacation to be used each year in accordance with policy generally applicable to executives employed the location in which you are primarily based, as it may change from time to time. While this vacation exceeds the Company's current policy for new hires, it is understood that there may be occasions whereby you will not be able to use all of the vacation granted to you due to responsibilities of your job. In most instances, this vacation will not be allowed to be carried over into the following year. The Company will pay for you to have an annual executive physical. Relocation to Birmingham, AL with relocation benefits in accordance with the provisions of the Walter Energy, Inc. Policy for "Relocation Expenses- Transferred Employees." 3. It is agreed and understood that your employment with the Company is to be at will, and either you or the Company may terminate the employment relationship at any time for any reason, with or without cause, and with or without notice to the other; nothing herein or elsewhere constitutes or shall be construed as a commitment to employ you or pay you severance, other than as stated below, for any period of time. 4. Severance Benefits. Subject to (a) your compliance with the restrictive covenants set forth in Sections 6, 7 and 9 below and (b) your execution, delivery and non-revocation of a waiver and release of claims in a form substantially similar to the form attached hereto as Exhibit A (the "Release") on or prior to the 21 st day following the date on which your employment with the Company terminates due to (x) the termination of your employment by the Company, other than for "Cause" (as defined below) or (y) the termination of your employment by you for "Good Reason" (as defined below), but in each case, excluding any separation from service by reason of your death or Disability (as defined below) (such date, the "Severance Date"), you will be entitled to receive the following severance payments and benefits: For the period commencing on the day immediately following the Severance Date and ending on the first anniversary of the Severance Date, monthly pay continuation with each monthly payment equal to one-twelfth (1/12) times the sum of your Base Salary and Target Bonus, in each case, as in effect on the Severance Date. Monthly payments will occur in accordance with the payroll dates in effect on the Severance Date, and such payment dates will not be affected by any subsequent change in payroll practices. Except as provided below, continuation of group medical, dental, vision, group basic term life insurance, accidental death and dismemberment insurance, voluntary term life insurance, voluntary accidental death and dismemberment insurance, dependent life insurance and employee assistance program benefits, 3

274 provided, to the extent applicable, regular contributions are made, at the level in effect on the Severance Date, in each case, for a period (such period, the "Continuation Coverage Period") beginning immediately upon the Severance Date and continuing until the earliest to occur of (A) the first anniversary of the Severance Date, (B) the last date you are eligible to participate in the benefit under applicable law, or (C) the date you are eligible to receive comparable benefits from a subsequent employer, as determined solely by the Company in good faith; provided, however, that if you fail to execute and deliver the Release or revoke the Release, in either case, the Continuation Coverage Period shall cease immediately upon such date. Such benefits shall be provided to you at the same coverage and cost to you as in effect on the Severance Date. To the extent permitted by law, you shall be eligible to qualify for COBRA health care continuation coverage under Section 4980B of the Code, or any replacement or successor provision of United States tax law, beginning following the expiration of the period described above. Notwithstanding the foregoing, your participation in the Employee Stock Purchase Plan and long-term disability insurance plan, and your ability to make deferrals under the 401(k) plan, will cease effective on the Severance Date. For purposes of this subsection, you shall send written notice of the terms and conditions of any subsequent employment and the corresponding benefits earned from such employment and shall provide, or cause to be provided, to the Company, in writing, correct, complete and timely information concerning the same to the extent requested by the Company; provided, however, that the Company shall have the right to cease making such payments and you shall be obligated to repay any such amounts to the Company already paid if you fail to execute and deliver the Release within the time period provided for above or, after timely delivery, revoke it within the time period specified in such Release. For purposes of this letter agreement, the term "Cause" shall mean: (i) material failure to act in accordance with the reasonable instructions of the Chief Executive Officer of the Company or the Board, (ii) conviction of a felony arising from any act of fraud, embezzlement or willful dishonesty in relation to the business or affairs of the Company or any other felonious conduct on your part that is demonstrably detrimental to the best interests of the Company or any subsidiary or affiliate, (iii) being repeatedly under the influence of illegal drugs or alcohol while performing your duties, or (iv) commission of any other willful act that is demonstrably injurious to the financial condition or business reputation of the Company or any subsidiary or affiliate. For purposes of this letter agreement, the term "Good Reason" shall mean the occurrence of any of the following conditions (in each case arising without your consent): (A) a material breach of this letter agreement by the Company or (B) a material diminution in your authority, duties or responsibilities. Notwithstanding the foregoing, your voluntary separation from service shall be for "Good Reason" only if (x) you provide written notice of 4

275 the facts or circumstances constituting a "Good Reason" condition to the Company within 30 days after the initial existence of the Good Reason condition, (y) the Company does not remedy the Good Reason condition within 30 days after it receives such notice, and (z) the voluntary separation from service occurs within 90 days after the initial existence of the Good Reason condition. For purposes of this letter agreement, the parties agree that "Good Reason" will not exist solely because the amount of your bonus fluctuates due to performance considerations under the EIP or other Company incentive plan applicable to you and in effect from time to time. For purposes of this letter agreement, the term "Disability" shall mean any medical condition whatsoever which leads to your absence from your job function for a continuous period of six months without you being able to resume such functions on a full time basis at the expiration of such period, it being understood that unsuccessful attempts to return to work for periods under thirty days shall not be deemed to have interrupted said continuity. 5. You agree that all inventions, improvements, trade secrets, reports, manuals, computer programs, systems, tapes and other ideas and materials developed or invented by you during the period of your employment with the Company, either solely or in collaboration with others, which relate to the actual or anticipated business or research of the Company or any of its subsidiaries or affiliates, or which result from or are suggested by any work you may do for the Company or any of its subsidiaries or affiliates, or which result from use of the Company's or any of its subsidiaries' or affiliates' premises or the Company's, its subsidiaries, its affiliates or its customers' property (collectively, the "Developments") shall be the sole and exclusive property of the Company. You hereby assign to the Company your entire right and interest in any Developments and will hereafter execute any documents in connection therewith that the Company may reasonably request. This section does not apply to any inventions that you made prior to your employment by the Company or any of its predecessors or affiliates, or to any inventions that you develop entirely on your own time without using any of the Company's equipment, supplies, facilities or the Company's or its customers' confidential information and which do not relate to the Company's business, anticipated research and developments or the work you have performed for the Company. 6. Non-Compete/Non-Solicit. It is understood and agreed that the nature and methods employed in the Company's business are such that you will have substantial relationships with specific businesses and personnel, prospective and existing, vendors, contractors, customers and employees of the Company and its subsidiaries that result in the creation of customer goodwill. Therefore, while you are employed by the Company and following the termination of your employment for any reason and continuing for a period of twelve (12) months from the date of such termination, so long as the Company or any affiliate, successor or assigns thereof is in the coal mining business or like business within the Restricted Area (defined as the geographical area in which the Company or any of its subsidiaries competes at the time of your termination), unless the Board approves an exception, you shall not, directly or indirectly, for yourself or on behalf of, or in conjunction with, any other person, persons, company, partnership, corporation, business entity or otherwise: 5

276 (a) Call upon, solicit, write, direct, divert, influence, or accept business (either directly or indirectly) with respect to any account or customer or prospective customer of the Company or any corporation controlling, controlled by, under common control with, or otherwise related to Company, including but not limited to any other affiliated companies; or (b) Hire away any independent contractors or personnel of Company and/or entice any such persons to leave the employ of Company or its affiliated entities, successors or assigns without the prior written consent of the Company. 7. Non-Disparagement. Following the termination of employment for any reason and continuing for so long as the Company or any affiliate, successor or assigns thereof carries on the name or like business within the Restricted Area, you shall not, directly or indirectly, for yourself or on behalf of, or in conjunction with, any other person, persons, company, partnership, corporation, business entity or otherwise: (a) (b) Make any statements or announcements or permit anyone to make any public statements or announcements concerning the termination of your employment with Company, or Make any statements that are inflammatory, detrimental, slanderous, or negative in any way to the interests of the Company or its affiliated entities. 8. As an inducement to the Company to make this offer to you, you represent and warrant that you are not a party to any agreement or obligation for personal services and that there exists no impediment or restraint, contractual or otherwise on your power, right or ability to accept this offer and to perform the duties and obligations specified herein. 9. You acknowledge that the Company expects you to respect and safeguard the trade secrets and confidential information of your former employers. You agree not to disclose to the Company, use in their respective businesses, or cause them to use any information or material that is confidential to any former employer, unless such information is no longer confidential, or the Company or you have obtained the written consent of such former employer to do so. You acknowledge and agree that you will respect and safeguard the Company's and its subsidiaries' property, trade secrets and confidential information. You acknowledge that the Company's electronic communication systems (such as and voic ) are maintained to assist in the conduct of the Company's and its subsidiaries' business and that such systems and data exchanged or stored thereon are Company property. In the event that you leave the employ of the Company, you will not disclose any trade secrets or confidential information you acquired while an employee of the Company to any other person or entity, including without limitation, a subsequent employer, or use such information in any manner. 10. Compensation Recovery Policy. It is understood and agreed that if any of the Company's financial statements are required to be restated due to errors, omissions, fraud, or misconduct, the Compensation Committee may, in its sole discretion but acting in good faith, direct that the 6

277 Company recover all or a portion of any cash incentive, equity compensation or severance plan disbursement paid to you with respect to any fiscal year of the Company for which the financial results are negatively affected by such restatement. For purposes of this provision, errors, omissions, fraud, or misconduct may include and are not limited to circumstances where the Company has been required to prepare an accounting restatement due to material noncompliance with any financial reporting requirement, as enforced by the Securities Exchange Commission, and the Compensation Committee has determined in its sole discretion that you had knowledge of the material noncompliance or the circumstances that gave rise to such noncompliance and failed to take reasonable steps to bring it to the attention of the appropriate individuals within the Company, or you personally and knowingly engaged in practices which materially contributed to the circumstances that enabled a material noncompliance to occur. 11. The Board believes that the Company's executives should have a meaningful equity investment in the Company. In this regard, under the terms of the Company's equity stock ownership policy, and subject to the terms of the policy currently in effect, you are required to acquire and maintain stock in the company having a value equal to three (3) times your annual base salary. 12. This letter agreement is intended to comply with Section 409A of the Code and will be interpreted accordingly. References under this letter agreement to the termination of your employment shall be deemed to refer to the date upon which you have experienced a "separation from service" within the meaning of Section 409A of the Code. Notwithstanding anything in this letter agreement to the contrary, (i) if at the time of your separation from service with the Company you are a "specified employee" as defined in Section 409A of the Code (and any related regulations or other pronouncements thereunder) and the deferral of the commencement of any payments or benefits otherwise payable hereunder or payable under any other compensatory arrangement between you and the Company as a result of such separation from service is necessary in order to prevent any accelerated or additional tax under Section 409A of the Code, then the Company will defer the commencement of the payment of any such payments or benefits hereunder (without any reduction in such payments or benefits ultimately paid or provided to you) until the first business day after the date that is six months following your separation from service (or the earliest date as is permitted under Section 409A of the Code), at which point all payments deferred pursuant to this paragraph shall be paid to you in a lump sum and (ii) if any other payments of money or other benefits due to you hereunder could cause the application of an accelerated or additional tax under Section 409A of the Code, such payments or other benefits shall be deferred if deferral will make such payment or other benefits compliant under Section 409A of the Code, or otherwise such payment or other benefits shall be restructured, to the extent possible, in a manner that does not cause such an accelerated or additional tax. To the extent any reimbursements or in-kind benefits due to you under this letter agreement constitute "deferred compensation" under Section 409A of the Code, any such reimbursements or in-kind benefits shall be paid to you in a manner consistent with Treasury Regulation Section 1.409A-3(i)(1)(iv). For purposes of Section 409A of the Code, each payment made under this letter agreement shall be designated as a "separate payment" within the meaning of Section 409A of the Code. 7

278 13. The Company shall require any successor (whether direct or indirect, by purchase, merger, reorganization, consolidation, acquisition of property or stock, liquidation, or otherwise) of all or a significant portion of the assets of the Company by agreement, in form and substance satisfactory to you, to expressly assume and agree to perform this agreement in the same manner and to the same extent that the Company would be required to perform if no such succession had taken place. 14. It is agreed and understood that this letter agreement, if and when accepted, shall constitute our entire agreement with respect to the subject matter herein and shall supersede all prior agreements, discussions, understandings and proposals (written or oral) relating to your employment with the Company and related business units, including without limitation, the Prior Agreement, but excluding that certain letter agreement between you and the Company, dated July 15, The parties to this letter agreement agree that the existence and terms of this letter agreement will remain confidential, unless it is required to be disclosed under applicable law. 15. The Company shall withhold from any amounts payable hereunder all Federal, state, city or other taxes as legally shall be required. 16. You acknowledge and agree that you have read this letter agreement carefully, have been advised by the Company to consult with an attorney regarding its contents, and that you fully understand the same. [Rest of Page Intentionally Left Blank] 8

279 Robert, we are delighted to have you continue with the Company. If the terms contained within this letter are acceptable, please sign one of the enclosed copies and return it to me in the envelope provided and retain one copy for your records. Best regards, /s/ Walter J. Sheller, III Date 2/28/12 Walter J. Scheller, III Chief Executive Officer Walter Energy, Inc. ACCEPTANCE I have read the foregoing, have been advised to consult with counsel of my choice concerning the same, and I fully understand the same. I approve and accept the terms set forth above as governing my employment relationship with the Company. /s/ Robert P. Kerley Date 2/28/12 Robert P. Kerley 9 Exhibit A WAIVER AND GENERAL RELEASE OF CLAIMS This Waiver and General Release of Claims ("Waiver") is entered into with respect to the mutual promises and the payments, rights and benefits provided under that certain amended and restated letter agreement, dated February 28, 2012, by and between Walter Energy, Inc. ("Employer") and Robert Kerley ("Employee") (the "Letter Agreement"). 1. Employee separated his employment with Employer on. 2. In consideration for the payments, rights and benefits provided under the Letter Agreement, on behalf of himself, his heirs, executors, administrators, and assigns, Employee, to the fullest extent permitted by law, forever releases and discharges Employer and all of its affiliated or related entities, their parent, successors, assigns, officers, directors, agents, and employees from all claims, known or unknown, of any kind which Employee may have relating to Employer (in its capacities as Employee's former employer or otherwise), and the other released parties referred to above and which exist or are based on occurrences which have occurred on or prior to the date of execution by Employee of this Waiver. This release includes, but is not limited to, all liabilities relating to employment and separation from employment, and for the payment of earnings, bonuses, severance pay, salary, relocation benefits, accruals under any vacation, sick leave, or holiday plans, any employee benefits, any charge, claim or lawsuit under any federal, state, or local law, including but not limited to, claims under Title VII of the Civil Rights Act of 1964, 42 U.S.C. 2000(e) et seq., as amended, (specifically, but without limitation, by the Pregnancy Discrimination Act), the Civil Rights Act of 1991, the Civil Rights Act of 1866, the Age Discrimination in Employment Act, as amended by the Older Workers' Benefit Protection Act, 29 U.S.C. 621 et seq., the Americans with Disabilities Act, 42 U.S.C et seq., the Fair Labor Standards Act, 29 U.S.C. 201 et seq., the Family and Medical Leave Act of 1993, 29 U.S.C et seq., the Employee Retirement Income Security Act, 29 U.S.C et seq., the Occupational Safety and Health Act, as amended, 29 U.S.C. 651, et seq., the National Labor Relations Act, as amended, 29 U.S.C. 141, et seq., the Immigration Reform Control Act, as amended, 29 U.S.C. 1801, et seq., and any tort, contract, and quasicontract or other common law claims, including, but not limited to, claims for wrongful termination, discrimination, harassment, retaliation, negligent or intentional infliction of emotional distress, negligent hiring, negligent supervision, negligence, invasion of privacy, defamation, slander, assault, battery, misrepresentation, or conspiracy. 3. Employee represents that he has not filed any charges, including, but not limited to, charges against Employer with the Equal Employment Opportunity Commission ("EEOC"), suits, claims or complaints against Employer or the other released parties referred to above. This Waiver forever bars all actions, claims and suits which arose or might arise in the future from any occurrences arising prior to the date of this Waiver and authorizes any court or administrative agency to dismiss any claim filed by Employee with prejudice. If any administrative agency files any charge, claim or suit on Employee's behalf, Employee agrees to waive all rights to recovery of any equitable or monetary relief and attorneys' fees. 1

280 4. Except as required by law, and unless and until this Waiver is disclosed by Employer or any of its affiliates as may be required by law, the parties to this Waiver agree that the existence and terms of this Waiver will remain confidential; provided that Employee may reveal the terms of the Waiver to his legal, tax and financial advisors, and immediate family, in deciding whether to execute this Waiver, so long as Employee advises each such person that they must keep its terms confidential on the same basis as is required of Employee. 5. Employee acknowledges that during the course of his employment, he has had access to Employer's confidential information. Employee agrees not to use or disclose to any person or entity, at any time, any confidential information of Employer without first obtaining Employer's written consent. The term "confidential information" means any information not generally known which concerns Employer's business or proposed future business and which gives or is intended to give Employer an advantage over its competitors who do not have the information. Employee agrees that he is required to return all severance payments provided under the Letter Agreement if he fails to maintain the confidentiality of the proprietary information of Employer. This amount shall serve as liquidated damages for the failure to maintain the confidentiality of the proprietary information and not as a penalty, and has been agreed to as a fair approximation of the damages likely to result from Employee's failure to act properly with respect to the confidential information, and shall not release Employee from the effect of this Waiver. 6. This Waiver shall not in any way be construed as an admission by Employer that it has acted wrongfully with respect to Employee or that Employee has any rights whatsoever against Employer or the other released parties set forth in paragraph 2 above. 7. Employee specifically acknowledges the following: a. That Employee does not release or waive any right or claim that he may have which arises after the date of this Waiver. b. That he is releasing, among other rights, all claims and rights under the Age Discrimination in Employment Act ("ADEA") and the Older Workers' Benefit Protection Act ("OWBPA"), 29 U.S.C. 621, et seq. c. That he possesses sufficient education and experience to fully understand the terms of this Waiver as it had been written, the legal and binding effect of the Waiver, and the exchange of benefits and promises herein. d. That he understands and agrees that Employer's obligations to perform under the Letter Agreement is conditioned upon Employee's performance of all agreements, releases and covenants to Employer. 2

281 e. That he has twenty-one (21) days to consider this Waiver. f. That he has seven (7) days to revoke this Waiver after acceptance. A revocation must be in writing stating: "I hereby revoke the Waiver and General Release of Claims I executed on [insert date]" and postmarked via certified mail within such seven (7) day period to Walter Energy, Inc. attention Human Resources - Compensation, Post Office Box , Birmingham, Alabama This Waiver shall not become enforceable until the revocation period has expired. If the last day of the revocation period is a Saturday, Sunday or legal holiday in Alabama, then the revocation period (and the deadline for the postmarking of the revocation letter) shall not expire until the next following day which is not a Saturday, Sunday, or legal holiday. g. That he has read this Waiver fully and completely and he understands its significance. h. That he enters into this Waiver knowingly and voluntarily and on his own free will and choice. choice. i. That he has been encouraged and given significant opportunity to consult with an attorney of his 8. Employer and Employee agree that in the event it becomes necessary to enforce any provision of this Waiver, the prevailing party to such action, including appeals, shall be entitled to all their costs and attorneys' fees. 9. This Waiver shall be binding upon Employee and upon Employee's heirs, administrators, representatives, executors, successors and assigns, and shall inure to the benefit of Employer and the other released parties and their successors and assigns. 10. Employee represents that no inducements, statements or representations have been made that are not set out in this Waiver or the Letter Agreement and that Employee does not rely on any inducements, statements or representations not set forth herein or therein. 11. Employee acknowledges that any and all prior understandings and agreements between the parties to this Waiver with respect to the subject matter of this Waiver are merged into this Waiver, which fully and completely expresses the entire Waiver and understanding of the parties to this Waiver with respect to the subject matter hereof. This Waiver may not be orally amended, modified or changed and may be amended, modified or changed only by written instrument or instruments executed by duly authorized officers or other representatives of the parties to this Waiver. 12. This Waiver shall in all respects be interpreted, enforced and governed under the laws of the State of Delaware. The language of all parts of this Waiver shall in all cases be 3

282 construed as a whole, according to its fair meaning, and not strictly for or against any of the parties to this Waiver. 13. Should any provision of this Waiver be declared or be determined by any Court to be illegal or invalid, the validity of the remaining parts, terms or provisions shall not be affected thereby and said illegal or invalid part, term or provision shall be deemed not to be a part of this Waiver. PLEASE READ CAREFULLY. THIS WAIVER INCLUDES A RELEASE OF ALL KNOWN AND UNKNOWN CLAIMS. Name Printed: Date: Date hand delivered to Employee:. 21-day period to consider this Waiver ends:. 4

283 Walter Energy, Inc. P.O. Box Tampa, Florida Exhibit February 2, 2011 Ms. Lisa A. Honnold 4211 W. Boy Scout Blvd. Tampa, FL Dear Lisa: This letter agreement summarizes our discussions regarding your commitment (the "Commitment") to continue serving in your current position with Walter Energy, Inc. ("Walter") through and including June 30, 2011 (the "Commitment Date"). 1. Subject to (x) your Commitment and (y) your execution, delivery and non-revocation of a waiver and release of claims in a form substantially similar to the form attached hereto as Exhibit A (the "Release") on or prior to the 45 th day following the date on which your employment with Walter terminates (such date, the "Severance Date" and the conditions set forth in (x) and (y), collectively, the "Conditions"), you shall be entitled to receive the following payments and benefits: (i) For the period commencing on the day immediately following the Severance Date and ending on December 31, 2011, base salary continuation at the rate in effect as of the Severance Date (which base salary shall be deemed to include any interim supplements you are receiving or may receive for serving in your current position (such base salary, the "Adjusted Base Salary")); provided such Adjusted Base Salary will be paid in accordance with the payroll dates in effect on the Severance Date and such payment dates will not be affected by any subsequent change in payroll practices. In addition, no later than December 31, 2011, payment of an amount equal to one times your target bonus (based upon your Adjusted Base Salary) under the Executive Incentive Plan (or successor annual bonus plan). (ii) For the period commencing on January 1, 2012 and ending on December 31, 2012, payment, in substantially equal installments, of an amount equal to the sum of (x) twelve (12) months of Adjusted Base Salary plus (y) one times your target bonus (based upon your Adjusted Base Salary) under the Executive Incentive Plan (or successor annual bonus plan); provided such payment will be paid in accordance with the payroll dates in effect on the Severance Date and such payment dates will not be affected by any subsequent change in payroll practices. (iii) For the period commencing January 1, 2013 and ending on June 30, 2013, payment, in substantially equal installments, of an amount equal to six (6) months of Adjusted Base Salary; provided such payment will be paid in accordance with the payroll dates in effect on the Severance Date and such payment dates will not be affected by any subsequent change in payroll practices.

284 (iv) Except as provided below, continuation of group medical, dental, vision, group basic term life insurance, accidental death and dismemberment insurance, voluntary term life insurance, voluntary accidental death and dismemberment insurance, dependent life insurance, and employee assistance program benefits, provided, to the extent applicable, regular contributions are made, at the level in effect on the Severance Date, in each case, for a period (such period, the "Continuation Coverage Period") beginning immediately upon the Severance Date and continuing until the earliest to occur of (A) June 30, 2013, (B) the last date you are eligible to participate in the benefit under applicable law, or (C) the date you are eligible to receive comparable benefits from a subsequent employer, as determined solely by Walter in good faith; provided, however, that if you fail to execute and deliver the Release or revoke the Release, in either case, the Continuation Coverage Period shall cease immediately upon such date. Such benefits shall be provided to you at the same coverage and cost to you as in effect on the Severance Date. To the extent permitted by law, you shall be eligible to qualify for COBRA health care continuation coverage under Section 4980B of the Internal Revenue Code of 1986, as amended (the "Code"), or any replacement or successor provision of United States tax law, beginning following the expiration of the period described above. Notwithstanding the foregoing, your participation in the Employee Stock Purchase Plan and long-term disability insurance plan, and your ability to make deferrals under the 401(k) plan, will cease effective on the Severance Date. For purposes of this subsection (iv), you shall send written notice of the terms and conditions of any subsequent employment and the corresponding benefits earned from such employment and shall provide, or cause to be provided, to Walter, in writing, correct, complete and timely information concerning the same to the extent requested by Walter. (v) For a period of twelve (12) months following the Severance Date, Walter agrees to provide you with outplacement services through DBM or such other nationally recognized outplacement firm as may be reasonably selected by Walter; provided, however, that if, prior to the Commitment Date, your employment (A) is terminated by Walter without "Cause" (as defined in the applicable Equity Award Agreement (as defined below)), (B) terminates due to death or "Disability" (as defined in the applicable Equity Award Agreements (as defined below)), or (C) is terminated by you for any reason following (I) (x) the consummation of the transactions contemplated by the Arrangement Agreement, dated December 2, 2010, between Walter and Western Coal Corp. (the "Arrangement Agreement") or (y) the termination of the Arrangement Agreement, in each case, in accordance with the terms set forth in the Arrangement Agreement, and (II) your successor being appointed to the office held by you and a four (4) week transition period following such appointment having expired, during which period you continued to serve as an officer of Walter, you will still be entitled to the payments and benefits provided for under this Paragraph 1; and provided further that Walter shall have the right to cease making such payments and you shall be obligated to repay any such amounts to Walter already paid if you fail to execute and deliver the Release within the time period provided for in this Paragraph 1 or, after timely delivery, revoke it within the time period specified in such Release. 2. In addition to the foregoing, notwithstanding anything to the contrary in (i) that certain Non Qualified Stock Option Agreement, by and between you and Walter, dated February 27, 2008, (ii) that certain Non-Qualified Stock Option Agreement, by and between you and Walter, 2

285 dated February 27, 2009, (iii) that certain Non-Qualified Stock Option Agreement by and between you and Walter, dated March 2, 2010, (iv) that certain Restricted Stock Unit Award Agreement by and between you and Walter, effective as of February 27, 2008, (v) that certain Restricted Stock Unit Award Agreement by and between you and Walter, effective as of February 27, 2009, and (vi) that certain Restricted Stock Unit Award Agreement, effective as of March 2, 2010 (collectively, the "Equity Award Agreements"), but subject to the Conditions (provided, that, for the avoidance of doubt, with respect to clauses (a) and (b) below, you shall not be required to execute and deliver the Release prior to the applicable vesting date set forth in such clauses (a) and (b)): (a) any and all outstanding and unvested stock options and restricted stock units subject to the Equity Award Agreements that are scheduled to vest in 2011 shall be deemed to be fully vested as of the earlier to occur of February 27, 2011 and the Severance Date in connection with the termination of your employment by Walter other than for "Cause" (b) any and all outstanding and unvested stock options and restricted stock units subject to the Equity Award Agreements that are scheduled to vest in 2012 shall be deemed to be fully vested effective as of the earlier to occur of March 31, 2011 and the Severance Date in connection with the termination of your employment by Walter other than for "Cause" and (c) any and all outstanding and unvested stock options and restricted stock units subject to the Equity Award Agreements that are scheduled to vest in 2013 shall be deemed to be fully vested effective as of the Severance Date; provided, however, that if, prior to the Commitment Date, your employment (A) is terminated by Walter without "Cause", (B) terminates due to death or "Disability", or (C) is terminated by you for any reason following (I) (x) the consummation of the transactions contemplated by the Arrangement Agreement or (y) the termination of the Arrangement Agreement, in each case, in accordance with the terms set forth in the Arrangement Agreement and (II) your successor being appointed to the office held by you and a four (4) week transition period following such appointment having expired, during which period you continued to serve as an officer of Walter, you will still be entitled to the rights provided for under clause (c) of this Paragraph 2; Other than the amendments to the vesting schedules as specifically provided for in this paragraph 2, such stock options and restricted stock units shall continue to be subject to, and you shall continue your rights and obligations under, the terms and conditions of the Equity Award Agreements and the Amended and Restated 2002 Long-Term Incentive Award Plan of Walter Energy, Inc. This letter agreement, upon execution by the parties, hereby serves as an amendment to each of the Equity Award Agreements. 3. Notwithstanding anything herein to the contrary and for the avoidance of doubt, you shall not be entitled to the severance payments, rights and benefits under this letter agreement in the event your employment terminates on or prior to the Commitment Date in connection with a Change of Control of the Company (as defined in your Amended and Restated Executive Change-in- Control Severance Agreement, amended and restated December 17, 2008 (the "Change in Control Agreement") that occurs on or prior to the Commitment Date. Severance 3

286 payments, rights and benefits payable in connection with such a termination of employment, if any, shall be determined and paid under such Change in Control Agreement. 4. Except as expressly provided for herein, the severance payments, rights and benefits described in this letter agreement will be the only such payments, rights and benefits you are to receive as a result of the termination of your employment in connection with the relocation of Walter's headquarters from Tampa, Florida to Birmingham, Alabama (the "Relocation") and your election to decline Walter's offer to participate in the Relocation and you agree you are not entitled to any additional payments, rights or benefits not otherwise described in this letter agreement. Any payments, rights or benefits received under this letter agreement will not be taken into account for purposes of determining benefits under any employee benefit plan of Walter, except to the extent required by law, or as otherwise expressly provided by the terms of such plan or this letter agreement. Walter shall withhold from any amounts payable hereunder all Federal, state, city or other taxes as legally shall be required. 5. This letter agreement (x) constitutes the entire agreement between the parties with respect to the termination of your employment in connection with the Relocation and your election to decline Walter's offer of participate in the Relocation, (y) supersedes all other prior written or oral agreements or understandings concerning such subject matter (other than the Change in Control Agreement or the agreements referred to herein) and (z) may only be amended or modified by a written agreement executed by you and Walter (or any of its respective successors). Neither party hereto admits any liability or wrongdoing whatsoever in amicably resolving all maters which are subject to the Release. 6. To the extent that any dispute or question arises concerning the interpretation or applicable of the terms of this letter agreement, any such dispute or question hereunder shall be construed, interpreted and governed in accordance with the laws of the State of Florida without reference to rules relating to conflicts of law. 7. This letter agreement is intended to comply with Section 409A of the Code and will be interpreted accordingly. References under this letter agreement to the termination of your employment shall be deemed to refer to the date upon which you have experienced a "separation from service" within the meaning of Section 409A of the Code. Notwithstanding anything herein to the contrary, (i) if at the time of your separation from service with Walter you are a "specified employee" as defined in Section 409A of the Code (and any related regulations or other pronouncements thereunder) and the deferral of the commencement of any payments or benefits otherwise payable hereunder or payable under any other compensatory arrangement between you and Walter as a result of such separation from service is necessary in order to prevent any accelerated or additional tax under Section 409A of the Code, then Walter will defer the commencement of the payment of any such payments or benefits hereunder (without any reduction in such payments or benefits ultimately paid or provided to you) until the first business day after the date that is six months following your separation from service (or the earliest date as is permitted under Section 409A of the Code), at which point all payments deferred pursuant to this paragraph shall be paid to you in a lump sum and (ii) if any other payments of money or other benefits due to you hereunder could cause the application of an accelerated or additional tax under Section 409A of the Code, such payments or other benefits shall be deferred if deferral will make such payment or other benefits compliant under Section 409A of the Code, or 4

287 otherwise such payment or other benefits shall be restructured, to the extent possible, in a manner that does not cause such an accelerated or additional tax. To the extent any reimbursements or in-kind benefits due to you under this letter agreement constitute "deferred compensation" under Section 409A of the Code, any such reimbursements or in-kind benefits shall be paid to you in a manner consistent with Treasury Regulation Section 1.409A-3(i)(1)(iv). For purposes of Section 409A of the Code, each payment made under this letter agreement shall be designated as a "separate payment" within the meaning of Section 409A of the Code. 8. This letter agreement may be executed by fax or pdf and in any number of counterparts, all of which, when taken together, will constitute one and the same instrument. [The remainder of this page intentionally left blank.] 5

288 If the foregoing terms and conditions are acceptable and agreed to by you, please sign on the line provided below to signify such acceptance and agreement and return the executed copy to the undersigned. WALTER ENERGY, INC. By: Name: Title: /s/ Joseph B. Leonard Joseph B. Leonard Interim Chief Executive Officer Accepted and Agreed /s/ Lisa A. Honnold Lisa A. Honnold 6

289 Exhibit A WAIVER AND GENERAL RELEASE OF CLAIMS This Waiver and General Release of Claims ("Waiver") is entered into with respect to the mutual promises and the payments, rights and benefits provided under that certain letter agreement, dated February 2, 2011, by and between Employer and Employee (the "Letter Agreement"). 1. Employee separated her employment with Employer on, In consideration for the payments, rights and benefits provided under the Letter Agreement, on behalf of herself, her heirs, executors, administrators, and assigns, Employee, to the fullest extent permitted by law, forever releases and discharges Employer and all of its affiliated or related entities, their parent, successors, assigns, officers, directors, agents, and employees from all claims, known or unknown, of any kind which Employee may have relating to Employer (in its capacities as Employee's former employer or otherwise), and the other released parties referred to above and which exist or are based on occurrences which have occurred on or prior to the date of execution by Employee of this Waiver. This release includes, but is not limited to, all liabilities relating to employment and separation from employment, and for the payment of earnings, bonuses, severance pay, salary, relocation benefits, accruals under any vacation, sick leave, or holiday plans, any employee benefits, any charge, claim or lawsuit under any federal, state, or local law, including but not limited to, claims under Title VII of the Civil Rights Act of 1964, 42 U.S.C. 2000(e) et seq., as amended, (specifically, but without limitation, by the Pregnancy Discrimination Act), the Civil Rights Act of 1991, the Civil Rights Act of 1866, the Age Discrimination in Employment Act, as amended by the Older Workers' Benefit Protection Act, 29 U.S.C. 621 et seq., the Americans with Disabilities Act, 42 U.S.C et seq., the Fair Labor Standards Act, 29 U.S.C. 201 et seq., the Family and Medical Leave Act of 1993, 29 U.S.C et seq., the Employee Retirement Income Security Act, 29 U.S.C et seq., the Occupational Safety and Health Act, as amended, 29 U.S.C. 651, et seq., the National Labor Relations Act, as amended, 29 U.S.C. 141, et seq., the Immigration Reform Control Act, as amended, 29 U.S.C. 1801, et seq., the Florida Civil Rights Act, Fla. Stat. 760 et seq., the Florida Equal Pay Act , Florida's Workers' Compensation Anti-Retaliation Provision, , Florida's Wage Rate Provision, , Florida's Attorney's Fees Provision for Successful Litigations in Suits for Unpaid Wages, , the Florida Private and Public Whistleblower Act, et seq., and any tort, contract, and quasi-contract or other common law claims, including, but not limited to, claims for wrongful termination, discrimination, harassment, retaliation, negligent or intentional infliction of emotional distress, negligent hiring, negligent supervision, negligence, invasion of privacy, defamation, slander, assault, battery, misrepresentation, or conspiracy. 3. Employee represents that she has not filed any charges, including charges against Employer with the Equal Employment Opportunity Commission ("EEOC"), the Florida Commission on Human Relations ("FCHR"), the Federal or Florida Department of Labor, suits, claims or complaints against Employer or the other released parties referred to above. This Waiver forever bars all actions, claims and suits which arose or might arise in the future from any occurrences arising prior to the date of this Waiver and authorizes any court or administrative agency to dismiss any claim filed by Employee with prejudice. If any

290 administrative agency files any charge, claim or suit on Employee's behalf, Employee agrees to waive all rights to recovery of any equitable or monetary relief and attorneys' fees. 4. Except as required by law, and unless and until this Waiver is disclosed by Employer or any of its affiliates as may be required by law, the parties to this Waiver agree that the existence and terms of this Waiver will remain confidential; provided that Employee may reveal the terms of the Waiver to her legal, tax and financial advisors, and immediate family, in deciding whether to execute this Waiver, so long as Employee advises each such person that they must keep its terms confidential on the same basis as is required of Employee. 5. Employee acknowledges that during the course of her employment, she has had access to Employer's confidential information. Employee agrees not to use or disclose to any person or entity, at any time, any confidential information of Employer without first obtaining Employer's written consent. The term "confidential information" means any information not generally known which concerns Employer's business or proposed future business and winch gives or is intended to give Employer an advantage over its competitors who do not have the information. Employee agrees that she is required to return all severance payments provided under the Letter Agreement if she fails to maintain the confidentiality of the proprietary information of Employer. This amount shall serve as liquidated damages for the failure to maintain the confidentiality of the proprietary information and not as a penalty, and has been agreed to as a fair approximation of the damages likely to result from Employee's failure to act properly with respect to the confidential information, and shall not release Employee from the effect of this Waiver. 6. This Waiver shall not in any way be construed as an admission by Employer that it has acted wrongfully with respect to Employee or that Employee has any rights whatsoever against Employer or the other released parties set forth in paragraph 2 above. 7. Employee specifically acknowledges the following: a. That Employee does not release or waive any right or claim that she may have which arises after the date of this Waiver. b. That she is releasing, among other rights, all claims and rights under the Age Discrimination in Employment Act ("ADEA") and the Older Workers' Benefit Protection Act ("OWBPA"), 29 U.S.C. 621, et seq. c. That she possesses sufficient education and experience to fully understand the terms of this Waiver as it had been written, the legal and binding effect of the Waiver, and the exchange of benefits and promises herein. d. That she understands and agrees that Employer's obligations to perform under the Letter Agreement is conditioned upon Employee's performance of all agreements, releases and covenants to Employer. e. That she has forty-five (45) days to consider this Waiver. 2

291 f. That she has seven (7) days to revoke this Waiver after acceptance. A revocation must be in writing stating: "I hereby revoke the Waiver and General Release of Claims I executed on [insert date]" and postmarked via certified mail within such seven (7) day period to Walter Energy, Inc. attention Jim Skomp c/o Human Resources, Post Office Box , Birmingham, Alabama This Waiver shall not become enforceable until the revocation period has expired. If the last day of the revocation period is a Saturday, Sunday or legal holiday in Florida, then the revocation period (and the deadline for the postmarking of the revocation letter) shall not expire until the next following day which is not a Saturday, Sunday, or legal holiday. g. That she has read this Waiver fully and completely and she understands its significance. h. That she enters into this Waiver knowingly and voluntarily and on her own free will and choice. choice. i. That she has been encouraged and given significant opportunity to consult with an attorney of her j. That she acknowledges receipt of the information disclosure required by the OWBPA to accompany this Waiver. 8. Employer and Employee agree that in the event it becomes necessary to enforce any provision of this Waiver, the prevailing party to such action, including appeals, shall be entitled to all their costs and attorneys' fees. 9. This Waiver shall be binding upon Employee and upon Employee's heirs, administrators, representatives, executors, successors and assigns, and shall inure to the benefit of Employer and the other released parties and their successors and assigns. 10. Employee represents that no inducements, statements or representations have been made that are not set out in this Waiver or the Letter Agreement and that Employee does not rely on any inducements, statements or representations not set forth herein or therein. 11. Employee acknowledges that any and all prior understandings and agreements between the parties to this Waiver with respect to the subject matter of this Waiver are merged into this Waiver, which fully and completely expresses the entire Waiver and understanding of the parties to this Waiver with respect to the subject matter hereof. This Waiver may not be orally amended, modified or changed and may be amended, modified or changed only by written instrument or instruments executed by duly authorized officers or other representatives of the parties to this Waiver. 12. This Waiver is made and entered into in the State of Florida, and shall in all respects be interpreted, enforced and governed, under the laws of the said state. The language of 3

292 all parts of this Waiver shall in all cases be construed as a whole, according to its fair meaning, and not strictly for or against any of the parties to this Waiver. 13. Should any provision of this Waiver be declared or be determined by any Court to be illegal or invalid, the validity of the remaining parts, terms or provisions shall not be affected thereby and said illegal or invalid part, term or provision shall be deemed not to be a part of this Waiver. PLEASE READ CAREFULLY. THIS WAIVER INCLUDES A RELEASE OF ALL KNOWN AND UNKNOWN CLAIMS. Name Printed: Date: Date hand delivered to Employee:, day period to consider this Waiver ends:,

293 Exhibit April 1, 2011 Mr. Michael T. Madden 3829 South Cove Drive Birmingham, AL Dear Mike, We are pleased that you have accepted the position of Global Head Marketing of Walter Energy, Inc. ("Walter" or the "Company") effective as of the date of the consummation of the transactions contemplated by the Arrangement Agreement, dated December 2, 2010 between Walter and Western Coal Corp. ("Western"). The attached schedules outline the remuneration and benefits and terms and conditions of your employment. As the Global Head Marketing of Walter, you will have such duties, responsibilities and authorities as the Chief Executive Officer of Walter (the "CEO") determines are appropriate for your position. You will report to the CEO or to his designee. It is agreed and understood that this letter agreement (including the schedules and exhibit attached hereto) (collectively, the "Agreement") and the other agreements referred to in this Agreement, including, without limitation, the Amended and Restated Executive Change-in-Control Agreement by and between you and Walter, effective December 17, 2008, and the Amended and Restated Change-in-Control Agreement by and between you and Walter, effective December 18, 2008, as each may be amended from time to time (collectively, the "CIC Agreements") shall constitute our entire agreement with respect to the subject matter hereof and shall supersede all prior agreements, discussions, understandings and proposals (written or oral) relating to your employment with the Company and its affiliates. This Agreement may only be amended or modified by a written agreement executed by you and Walter (or any of its respective successors) and will be interpreted under and in accordance with the laws of the State of Delaware without regard to conflicts of laws.

294 This Agreement may be executed by fax or pdf and in any number of counterparts, all of which, when taken together, will constitute one and the same instrument. Mike, we are delighted that you are remaining with Walter and we look forward to continuing to work with you. If the terms contained within this Agreement are acceptable, please sign one of the enclosed copies and return it to me in the envelope provided. Best regards, /s/ Keith Calder May 3 / 2011 Keith Calder Date Chief Executive Officer Walter Energy, Inc. ACCEPTANCE I have read the Agreement, have been advised to consult with counsel of my choice concerning the same, and I fully understand the same. I approve and accept the terms set forth in the Agreement as governing my employment relationship with Walter. /s/ Michael T. Madden May 26, 2011 Michael T. Madden Date Enclosures: Schedule A Schedule B Remuneration & Benefits Terms and Conditions Initials /s/ 2

295 SCHEDULE A REMUNERATION & BENEFITS Name: Role Title: Role Band: Department: Employer: Date of Appointment: Michael T. Madden Global Head Marketing n/a Corporate Walter Date of consummation of the transaction contemplated by the Arrangement Agreement, dated December 2, 2010 between Walter and Western. This schedule should be read in conjunction with the remainder of the Agreement. The policies covering these benefits and their terms and conditions may be varied from time to time. Base Salary and Remuneration: The remuneration for this position is a base salary of $375,000 per annum which will be subject to review and adjustment by the Compensation and Human Resources Committee of the Board of Directors (the "Compensation Committee") and paid in accordance with Walter's payroll practices, as they may change from time to time. Your annual base salary, as in effect from time to time, is hereinafter referred to as the "Base Salary." The remuneration structure is designed to provide competitive levels of total remuneration for strong individual and corporate performance and achieve a close alignment between personal and business performance and remuneration. Annual Bonus (EIP): You will continue to participate in Walter's Executive Incentive Plan, as it may be amended from time to time (the "EIP") and, in this position, will be eligible to earn an annual target bonus of 70% of your Base Salary (the "Target Bonus"), with an upside potential of 2 times your Target Bonus for top performance. The actual amount of your bonus, if any, will fluctuate based upon actual performance 3

296 under the performance metrics associated with the EIP. Participation in the bonus pool is dependent upon the achievement of Walter's annual performance goals, as well as the accomplishment of (x) individual objectives and/or (y) departmental goals, in each case, as determined and recommended by the management of Walter and subsequently approved by the Compensation Committee. In order to receive a bonus under the EIP, you must be employed at the time the bonus is paid. Notwithstanding anything in this Agreement to the contrary, your bonus, if any, under the EIP, earned in respect of the 2011 fiscal year, will be determined as follows: (i) the portion of your bonus, if any, that relates to your employment with Walter from January 1, 2011 through the day immediately prior to the Date of Appointment will be based solely on the base salary earned by you during such period and your annual target bonus percentage as in effect immediately prior to the Date of Appointment, and (ii) the portion of your bonus, if any, that relates to your employment with Walter from the Date of Appointment through the last day of the 2011 fiscal year will be based solely on the Base Salary earned during such period and your Target Bonus. Notwithstanding anything in this Agreement to the contrary, with respect to any bonus to be paid hereunder, such bonus will be paid in accordance with the EIP and, to the extent possible, will be structured to comply with Section 162(m) of the Internal Revenue Code of 1986, as amended (the "Code") as performance based compensation thereunder; provided however, to the extent not deductible by Walter, such payment will be deferred until it can be paid by Walter on a tax deductible basis. As you are aware, participation in Walter's Employee Stock Purchase Plan is a condition to participation in the bonus pool under the EIP. Long Term Incentive: Subject to your continued employment with Walter, you will remain a participant in Walter's Amended and Restated 2002 Long-Term Incentive Award Plan, as it may be amended and restated from time to time (and any successor long term incentive award plan) (collectively, the "LTIP"), and will remain eligible to receive annual equity grants from Walter. Your annual equity grant in respect of the 2011 fiscal year (which includes the equity grant made by Walter to you on February 16, 2011) will be valued at 90% of Base Salary, 4

297 based on the Black-Scholes value at the date of grant, fifty percent (50%) of which will be in the form of non-qualified stock options and fifty percent (50%) of which will be in the form of restricted stock units. Such equity grants will be awarded under and subject to the terms and conditions of the LTIP and the terms and conditions applicable to other awards granted by Walter under the LTIP to employees of Walter. Company Vehicle: Expenses: Health Care: Retirement Plan: Leave: You will continue to be provided with the use of a company- owned or company-leased vehicle during the term of your employment, subject to Water's policies regarding replacement vehicles and reimbursement for operating costs and maintenance. Continued reimbursement for all reasonable and customary out-of-pocket business expenses incurred by you in the performance of your duties hereunder, in accordance with the policies, practices and procedures of Walter relating to reimbursement of business expenses incurred by Walter employees in effect at any time during the 12 month period preceding the date you incur the expenses; provided, however, that any such expense reimbursement will be made no later than the last day of the calendar year following the calendar year in which you incur the expense, will not affect the expenses eligible for reimbursement in any other calendar year, and cannot be liquidated or exchanged for any other benefit. Continued participation in Walter's life and health insurance benefit programs in accordance with their terms, as they may change from time to time. Continued participation in all Walter's retirement plans that you currently participate in, including, but not limited to, the Pension Plan for Salaried Employees of Walter Industries, Inc. Subsidiaries, Divisions and Affiliates, the Walter Industries, Inc. Supplemental Pension Plan, and the Walter Energy 401(k) Plan, according to their terms as they may change from time to time. Continued eligibility for 20 business days of vacation and 10 company paid holidays to be used each year in accordance with Walter's policy, as it may change from time to time. 5

298 Severance: Subject to (a) your compliance with the restrictive covenants set forth in Sections 5 through 7 of Schedule B and (b) your execution, delivery and non-revocation of a waiver and release of claims in a form substantially similar to the form attached hereto as Exhibit A (the "Release") on or prior to the 21 st day following the date on which your employment with Walter terminates due to (x) the termination of your employment by Walter, other than for "Cause" (as defined below) or (y) the termination of your employment by you for "Good Reason" (as defined below), but in each case, excluding any separation from service by reason of your death or Disability (as defined below) (such date, the "Severance Date"), you will be entitled to receive the following severance payments and benefits: For the period commencing on the day immediately following the Severance Date and ending on the first anniversary of the Severance Date, monthly pay continuation with each monthly payment equal to one-twelfth (1/12) times the sum of your Base Salary and Target Bonus, in each case, as in effect on the Severance Date. Monthly payments will occur in accordance with the payroll dates in effect on the Severance Date, and such payment dates will not be affected by any subsequent change in payroll practices. Except as provided below, continuation of group medical, dental, vision, group basic term life insurance, accidental death and dismemberment insurance, voluntary term life insurance, voluntary accidental death and dismemberment insurance, dependent life insurance and employee assistance program benefits, provided, to the extent applicable, regular contributions are made, at the level in effect on the Severance Date, in each case, for a period (such period, the "Continuation Coverage Period") beginning immediately upon the Severance Date and continuing until the earliest to occur of (A) the first anniversary of the Severance Date, (B) the last date you are eligible to participate in the benefit under applicable law, or (C) the date you are eligible to receive comparable benefits from a subsequent employer, as determined solely by Walter in good faith; provided, however, that if you fail to execute and deliver the Release or revoke the Release, in either case, the Continuation Coverage Period shall cease immediately upon such date. Such benefits 6

299 shall be provided to you at the same coverage and cost to you as in effect on the Severance Date. To' the extent permitted by law, you shall be eligible to qualify for COBRA health care continuation coverage under Section 4980B of the Code, or any replacement or successor provision of United States tax law, beginning following the expiration of the period described above. Notwithstanding the foregoing, your participation in the Employee Stock Purchase Plan and long-term disability insurance plan, and your ability to make deferrals under the 401(k) plan, will cease effective on the Severance Date. For purposes of this subsection, you shall send written notice of the terms and conditions of any subsequent employment and the corresponding benefits earned from such employment and shall provide, or cause to be provided, to Walter, in writing, correct, complete and timely information concerning the same to the extent requested by Walter; provided, however, that Walter shall have the right to cease making such payments and you shall be obligated to repay any such amounts to Walter already paid if you fail to execute and deliver the Release within the time period provided for above or, after timely delivery, revoke it within the time period specified in such Release. Notwithstanding anything in this Agreement to the contrary and for the avoidance of doubt, you shall not be entitled to severance payments or benefits under this Agreement in the event you experience a separation from service within twenty-four (24) months following a Change in Control of the Company (as defined in the CIC Agreements). Severance payments and benefits payable upon a separation from service in connection with such a termination of employment, if any, shall be determined and paid under the CIC Agreements. For purposes of this Agreement, the term "Cause" shall mean: (i) your willful and continued refusal to perform the duties of your position (other than any such failure resulting from your incapacity due to physical or mental illness); (ii) your conviction or guilty plea of a felony involving fraud or dishonesty; (iii) theft or embezzlement by you of property from Walter or any subsidiary or affiliate; or (iv) fraudulent preparation by you of financial 7

300 information of Walter or any subsidiary or affiliate. For purposes of this Agreement, the term "Good Reason" shall mean the occurrence of any of the following conditions (in each case arising without your consent): (A) a material breach of this Agreement by Water or (B) a material diminution in your authority, duties or responsibilities. Notwithstanding the foregoing, your voluntary separation from service shall be for "Good Reason" only if (x) you provide written notice of the facts or circumstances constituting a "Good Reason" condition to Waiter within 30 days after the initial existence of the Good Reason condition, (y) the Company does not remedy the Good Reason condition within 30 days after it receives such notice and (z) the voluntary separation from service occurs within 90 days after the initial existence of the Good Reason condition. For purposes of this Agreement, the parties agree that "Good Reason" will not exist solely because the amount of your bonus fluctuates due to performance considerations under the EIP or other Walter incentive plan applicable to you and in effect from time to time. For purposes of this Agreement, the term "Disability" shall mean any medical condition whatsoever which leads to your absence from your job function for a continuous period of six months without you being able to resume such functions on a full time basis at the expiration of such period, it being understood that unsuccessful attempts to return to work for periods under thirty days shall not be deemed to have interrupted said continuity. Relocation: The location of the Walter Corporate Office will be Chicago, Illinois. You will be provided with relocation assistance under the Walter Energy Relocation policy, a copy of which will be provided under separate cover. 8 SCHEDULE B TERMS AND CONDITIONS 1. It is agreed and understood that your employment with Walter continues to be at will, and either you or Water may terminate the employment relationship at any time for any reason, with or without cause, and with or without notice to the other; nothing in this Agreement or elsewhere constitutes or shall be construed as a commitment to continue to employ you or pay you severance, other than as stated in Schedule A or in the CIC Agreements, for any period of time. 2. Outside Interest. While employed by Walter, you agree to devote your full business time and best efforts to the performance of your duties hereunder and will not engage in any other business, profession or occupation for compensation or otherwise which would conflict or interfere with the rendition of such services either directly or indirectly without the prior written consent of the CEO or his designee. 3. You agree that all inventions, improvements, trade secrets, reports, manuals, computer programs, systems, tapes and other ideas and materials developed or invented by you during the period of your employment with Walter, either solely or in collaboration with others, which relate to the actual or anticipated business or research of Walter or any of its subsidiaries or affiliates, which result from or are suggested by any work you may do for Walter or any of its subsidiaries or affiliates, or which result from use of Walter's or any of its subsidiaries' or affiliates' premises or Walter's, its subsidiaries', its affiliates', or its customers' property (collectively, the "Developments") shall be the sole and exclusive property of Walter. You hereby assign to Walter your entire right and interest in any such Developments, and will hereafter execute any documents in connection therewith that Walter may reasonably request. This section does not apply to any inventions that you made prior to your employment by Walter, or to any inventions that you develop entirely on your own time without using any of Walter's equipment, supplies or facilities, or Walter's or its subsidiaries', affiliates', or customers' confidential information which do not relate to Walter's or its subsidiaries' or its affiliates' business, anticipated research and development, or the work you have performed for Walter and its subsidiaries and affiliates. 4. As an inducement of Walter to make this offer to you, you represent and warrant that there exists no impediment or restraint, contractual or otherwise on your power, right or ability to accept this offer and to perform the duties and obligations specified in this Agreement. 5. Non-Compete/Non-Solicit. It is understood and agreed that you have and will continue to have substantial relationships with specific businesses and personnel, prospective and existing, vendors, contractors, customers, and employees of Walter and its subsidiaries that result in the creation of customer goodwill. Therefore, while you are employed by Walter and following the termination of your employment for any reason and continuing for a period of 12 months from the date of your termination, so long as Walter or any affiliate, 9

301 successor or assigns thereof is in the coal mining business or like business within the Restricted Area (defined as mining industries in the geographical areas in which Walter or any of its subsidiaries competes at the time of your termination), unless the Board of Directors approves an exception, you shall not, directly or indirectly, for yourself or on behalf of, or in conjunction with, any other person, persons, company, partnership, corporation, business entity or otherwise: (a) (b) Call upon, solicit, write, direct, divert, influence, or accept business (either directly or indirectly) with respect to any account or customer or prospective customer of the Company or any corporation controlling, controlled by, under common control with, or otherwise related to Walter, including but not limited to Western or any other affiliated companies; or Hire away any independent contractors or personnel of Walter and/or entice any such persons to leave the employ of Walter or its affiliated entities without the prior written consent of Walter. 6. Non-Disparagement. Following the termination of your employment for any reason and continuing for so long as Walter or any affiliate, successor or assigns thereof carries on the name or like business within the Restricted Area, you shall not, directly or indirectly, for yourself or on behalf of, or in conjunction with, any other person, persons, company, partnership, corporation, business entity or otherwise: (a) (b) Make any statements or announcements or permit anyone to make any public statements or announcements concerning the termination of your employment with Walter, or Make any statements that are inflammatory, detrimental, slanderous, or negative in any way to the interests of Walter or its affiliated entities. 7. You acknowledge and agree that you will respect and safeguard Walter's and its subsidiaries' property, trade secrets and confidential information. You acknowledge that Walter's electronic communication systems (such as and voic ) are maintained to assist in the conduct of Walter's and its subsidiaries' business and that such systems and data exchanged or stored thereon are Walter property. In the event you leave the employ of Walter, you will not disclose any trade secrets or confidential information you acquired while an employee of Walter to any other person or entity, including without limitation, a subsequent employer, or use such information in any manner. 8. Compensation Recovery Policy. You understand and agree that if any of Walter's financial statements are required to be restated due to errors, omissions, fraud or misconduct, the Compensation Committee may, in its sole discretion but acting in good faith, direct that Walter recover all or a portion of any cash incentive, equity compensation or severance disbursements paid to you with respect to any fiscal year of Walter for which the financial results are negatively affected by such restatement. For purposes of this provision, errors, 10

302 omissions, fraud or misconduct may include and are not limited to circumstances where Water has been required to prepare an accounting restatement due to material noncompliance with any financial reporting requirement, as enforced by the Securities and Exchange Commission, and the Compensation Committee has determined in its sole discretion that you had knowledge of the material noncompliance or the circumstances that gave rise to such noncompliance and failed to take reasonable steps to bring it to the attention of the appropriate individuals within Walter, or you personally and knowingly engaged in practices which materially contributed to the circumstances that enabled a material noncompliance to occur. 9. This Agreement is intended to comply with Section 409A of the Code and will be interpreted accordingly. References under this Agreement to the termination of your employment shall be deemed to refer to the date upon which you have experienced a "separation from service" within the meaning of Section 409A of the Code. Notwithstanding anything in this Agreement to the contrary, (i) if at the time of your separation from service with Walter you are a "specified employee" as defined in Section 409A of the Code (and any related regulations or other pronouncements thereunder) and the deferral of the commencement of any payments or benefits otherwise payable hereunder or payable under any other compensatory arrangement between you and Walter as a result of such separation from service is necessary in order to prevent any accelerated or additional tax under Section 409A of the Code, then Walter will defer the commencement of the payment of any such payments or benefits hereunder (without any reduction in such payments or benefits ultimately paid or provided to you) until the first business day after the date that is six months following your separation from service (or the earliest date as is permitted under Section 409A of the Code), at which point ail payments deferred pursuant to this paragraph shall be paid to you in a lump sum and (ii) if any other payments of money or other benefits due to you hereunder could cause the application of an accelerated or additional tax under Section 409A of the Code, such payments or other benefits shall be deferred if deferral will make such payment or other benefits compliant under Section 409A of the Code, or otherwise such payment or other benefits shall be restructured, to the extent possible, in a manner that does not cause such an accelerated or additional tax. To the extent any reimbursements or inkind benefits due to you under this Agreement constitute "deferred compensation" under Section 409A of the Code, any such reimbursements or in-kind benefits shall be paid to you in a manner consistent with Treasury Regulation Section 1.409A-3(i)(l) (iv). For purposes of Section 409A of the Code, each payment made under this Agreement shall be designated as a "separate payment" within the meaning of Section 409A of the Code. 10. Walter shall withhold from any amounts payable hereunder all Federal, state, city or other taxes as legally shall be required. 11. You acknowledge and agree that you have read this Agreement carefully, have been advised by the Company to consult with an attorney regarding its contents, and that you fully understand the same 11

303 Exhibit April 1, 2011 Neil Winklemann 5410 Keith Road West Vancouver BC Canada V7W 2N2 Dear Neil, We are pleased that you have accepted the position of President Walter Energy Canadian & European Operations of Western Coal Corp. ("Western" or the "Company") effective as of the date of the consummation of the transactions contemplated by the Arrangement Agreement, dated December 2, 2010 between Western and Walter Energy, Inc. ("Walter"). The attached schedules outline the remuneration and benefits and terms and conditions of your continued employment in your new position. As the President Canadian & European Operations of Western, you will have such duties, responsibilities and authorities as the Chief Executive Officer of Walter (the "CEO") determines are appropriate for your position. You will report to the CEO or to his designee. It is agreed and understood that this letter agreement (including the schedules and exhibits attached hereto) (collectively, the "Agreement") and the other agreements referred to in this Agreement shall constitute our entire agreement with respect to the subject matter hereof and shall supersede all prior agreements, discussions, understandings and proposals (written or oral) relating to your employment with the Company and its affiliates, including, for the avoidance of doubt, Walter. This Agreement may only be amended or modified by a written agreement executed by you and Western (or any of its respective successors) and will be interpreted under and in accordance with the laws of the Province of British Columbia without regard to conflicts of laws. This Agreement may be executed by fax or pdf and in any number of counterparts, all of which, when taken together, will constitute one and the same instrument.

304 Neil, we are delighted that you have accepted the position of President Walter Energy Canadian & European Operations and we look forward to working with you. If the terms contained within this Agreement are acceptable, please sign one of the enclosed copies and return it to me in the envelope provided. Best regards, /s/ Keith Calder May 3 / 2011 Keith Calder Date Chief Executive Officer Walter Energy, Inc. ACCEPTANCE I have read the Agreement, have been advised to consult with counsel of my choice concerning the same, and I fully understand the same. I approve and accept the terms set forth in the Agreement as governing my employment relationship with Western. /s/ Neil Winklemann 13 May 2011 Neil Winklemann Date Enclosures: Schedule A - Remuneration & Benefits Schedule B - Terms and Conditions Initials /s/ 2

305 SCHEDULE A REMUNERATION & BENEFITS Name: Role Title: Role Band: Department: Employer: Date of Appointment: Neil Winklemann President Walter Energy Canadian & European Operations n/a Corporate Western Date of consummation of the transaction contemplated by the Arrangement Agreement, dated December 2, 2010 between Walter and Western. Continuous Employment Date: July 5, 2010 This schedule should be read in conjunction with the remainder of the Agreement. The policies covering these benefits and their terms and conditions may be varied from time to time by the Company in its sole discretion, with or without notice. Base Salary and Remuneration: The remuneration for this position is a base salary of CDN$400,000 per annum which will be subject to review and adjustment by the Compensation and Human Resources Committee of the Board of Directors of Walter (the "Compensation Committee") and paid in accordance with Western's payroll practices, as they may change from time to time. Your annual base salary, as in effect from time to time, is hereinafter referred to as the "Base Salary." The remuneration structure is designed to provide competitive levels of total remuneration for strong individual and corporate performance and achieve a close alignment between personal and business performance and remuneration. Annual Bonus (EIP): You will continue to participate in the Western annual bonus plan on the same terms and conditions as you currently enjoy until the end of the current fiscal year on June 30, 3

306 2011. Thereafter, you will be eligible to participate in Walter's Executive Incentive Plan, as it may be amended from time to time (the "EIP") and will be eligible to earn an annual target bonus of 80% of your Base Salary (the "Target Bonus"), with an upside potential of 2 times your Target Bonus for top performance. The actual amount of your bonus, if any, will fluctuate based upon actual performance under the performance metrics associated with the EIP. Participation in the bonus pool is dependent upon the achievement of Walter's and Western's annual performance goals, as well as the accomplishment of individual objectives mutually agreed upon in writing each year. In order to receive a bonus under the EIP, you must be employed at the time the bonus is paid. For greater certainty, you will not be entitled to a bonus under the EIP if your employment is terminated for any reason (including without Cause) prior to the date of payment. Notwithstanding anything in this Agreement to the contrary, your bonus, if any, under the EIP, earned in respect of the year ending December 31, 2011, will be pro-rated based upon the percentage of such fiscal year that will have elapsed from July 1, 2011 through the last day of such fiscal year and based solely on the Base Salary actually earned in such fiscal year from your commencement date through the last day of such fiscal year. Please note that participation in Walter's Employee Stock Purchase Plan is a condition to participation in the bonus pool under the EIP. Long Term Incentive: Subject to your continued active employment with Western, you will be eligible to participate in Walter's Amended and Restated 2002 Long-Term incentive Award Plan, as it may be amended and restated from time to time (and any successor long term incentive award plan) (collectively, the "LTIP"), and will be eligible to receive annual equity grants from Walter. Your annual equity grant in respect of the 2011 fiscal year will be valued at 130% of Base Salary, based on the Black-Scholes value at the date of grant, fifty percent (50%) of which will be in the form of non-qualified stock options and fifty percent (50%) of which will be in the form of restricted stock units. Such equity grants will be awarded under and subject to the terms and conditions of the LTIP and the terms and conditions applicable to other awards granted by 4

307 Walter under the LTIP to employees of Walter. For greater certainty, you shall cease to participate in any Western stock option or other long term incentive plans immediately upon the effective date of this Agreement. Expenses: Health Care: Retirement Plan: Vacation: Change in Control: Separation Package: Reimbursement for all reasonable and customary out-of-pocket business expenses incurred by you in the performance of your duties hereunder, in accordance with the policies, practices and procedures of Western relating to reimbursement of business expenses incurred by Western employees in effect at any time during the 12 month period preceding the date you incur the expenses; provided, however, that any such expense reimbursement will be made no later than the last day of the calendar year following the calendar year in which you incur the expense, will not affect the expenses eligible for reimbursement in any other calendar year, and cannot be liquidated or exchanged for any other benefit. You will be eligible to participate in Western's life and health insurance benefit programs made available to other executive employees in Canada. Your participation will be in accordance with the terms of the applicable plan documents, as they may change from time to time. Additional benefit plan information will be available for your review upon request. After you are enrolled in the benefit plans, you and all eligible family members will be eligible for coverage in accordance with the plan terms. You will continue to be eligible to participate in Western's Group RRSP according to its terms as they may change from time to time. Information on the retirement plan will be available for your review upon request. Your vacation entitlement will accrue at the rate of 25 days of paid vacation per year. You will execute an Executive Change-in-Control Severance Agreement in a form substantially similar to the form attached hereto as Exhibit A (the "CIC Agreement"). In the event the CIC Agreement does not apply, and subject to (a) your compliance with the restrictive covenants set forth in Sections 4 through 6 of Schedule B and (b) your 5

308 execution, delivery and non-revocation of a waiver and release of claims in a form substantially similar to the form attached hereto as Exhibit B (the "Release") on or prior to the 10 th day following the date on which your employment with Western terminates due to (x) the termination of your employment by Western, other than for "Cause" (as defined below) or (y) the termination of your employment by you for "Good Reason" (as defined below), but in each case, excluding any cessation of employment by reason of your death or Disability (as defined below) (such date, without regard to any notice period, the "Severance Date"), you will be entitled to receive the following severance payments and benefits: For the period commencing on the day immediately following the Severance Date and ending on the first anniversary of the Severance Date, monthly pay continuation with each monthly payment equal to one-twelfth (1/12) times the sum of your Base Salary and Target Bonus, in each case, as in effect on the Severance Date. Monthly payments will occur in accordance with the payroll dates in effect on the Severance Date, and such payment dates will not be affected by any subsequent change in payroll practices. Except as provided below and subject to the terms of the applicable plans, continuation of group medical, dental, and vision benefits, provided, to the extent applicable, regular contributions are made, at the level in effect on the Severance Date, in each case, for a period (such period, the "Continuation Coverage Period") beginning immediately upon the Severance Date and continuing until the earliest to occur of (A) the first anniversary of the Severance Date, (B) the last date you are eligible to participate in the benefit under applicable statute, or (C) the date you are eligible to receive comparable benefits from a subsequent employer, as determined solely by Western in good faith; provided, however, that if you fail to execute and deliver the Release or revoke the Release, in either case, the Continuation Coverage Period shall cease immediately upon such date. Such benefits shall be provided to you at the same coverage and cost to you as in effect on the Severance Date. Notwithstanding the foregoing, your participation in the Employee Stock Purchase Plan, long-term disability insurance plan and all 6

309 other benefits will cease effective on the Severance Date. For purposes of this subsection, you shall send written notice of the terms and conditions of any subsequent employment and the corresponding benefits earned from such employment and shall provide, or cause to be provided, to Western, in writing, correct, complete and timely information concerning the same to the extent requested by Western. provided, however, that, subject to applicable employment standards legislation, Western shall have the right to cease making such payments and you shall be obligated to repay any such amounts to Western already paid if you fail to execute and deliver the Release within the time period provided for above or, after timely delivery, revoke it within the time period specified in such Release. Notwithstanding anything in this Agreement to the contrary and for the avoidance of doubt, you shall not be entitled to severance payments or benefits under this Severance Package provisions of the Agreement in the event your employment is terminated without Cause within twenty-four (24) months following a Change in Control of the Company (as defined in the CIC Agreement). Severance payments and benefits payable upon such a termination of employment, if any, shall be determined and paid under the CIC Agreement. For purposes of this Agreement, the term "Cause" shall mean any grounds at common law for which an employer is entitled to dismiss an employee summarily, and includes, without limitation, the following: (i) your willful and continued refusal to perform the duties of your position (other than any such failure resulting from your incapacity due to physical or mental illness); (ii) your conviction or guilty plea of an indictable offence involving fraud or dishonesty; (iii) theft or embezzlement by you of property from Walter or any subsidiary or affiliate; or (iv) fraudulent preparation by you of financial information of Walter or any subsidiary or affiliate. For purposes of this Agreement, the term "Good Reason" shall mean the occurrence of any of the following conditions (in each case arising without your consent): (A) a material breach of this Agreement by Western or (B) a 7

310 material diminution in your authority, duties or responsibilities. Notwithstanding the foregoing, your voluntary separation from service shall be for "Good Reason" only if (x) you provide written notice of the facts or circumstances constituting a "Good Reason" condition to Western within 30 days after the initial existence of the Good Reason condition, (y) the Company does not remedy the Good Reason condition within 30 days after it receives such notice and (z) the voluntary separation from service occurs within 90 days after the initial existence of the Good Reason condition. For purposes of this Agreement, the parties agree that "Good Reason" will not exist solely because the amount of your bonus fluctuates due to performance considerations under the EIP or other Walter or Western incentive plan applicable to you and in effect from time to time. For purposes of this Agreement, the term "Disability" shall mean any medical condition whatsoever which leads to your absence from your job function for a continuous period of six months without you being able to resume such functions on a full time basis at the expiration of such period, it being understood that unsuccessful attempts to return to work for periods under thirty days shall not be deemed to have interrupted said continuity. You acknowledge that the Separation Package provided pursuant to this Agreement is reasonable and supersedes and replaces any and all rights to reasonable notice of termination that you might otherwise be entitled to at common law. You agree that the payments include all amounts owing in connection with the termination of your employment, including termination pay, severance pay and/or any vacation pay which may accrue after the Severance Date, whether under any contract, statute (including the British Columbia Employment Standards Act), common law or otherwise. 8

311 SCHEDULE B TERMS AND CONDITIONS 1. Outside Interest. While employed by Western, you agree to devote your full business time and best efforts to the performance of your duties hereunder and will not engage in any other business, profession or occupation for compensation or otherwise which would conflict or interfere with the rendition of such services either directly or indirectly without the prior written consent of the CEO of Walter or his designee. You recognize and agree that you are a fiduciary of Western. 2. You agree that all inventions, improvements, trade secrets, reports, manuals, computer programs, systems, tapes and other ideas and materials developed or invented by you during the period of your employment with Walter, either solely or in collaboration with others, which relate to the actual or anticipated business or research of Walter or any of its subsidiaries or affiliates, which result from or are suggested by any work you may do for Walter or any of its subsidiaries or affiliates, or which result from use of Walter's or any of its subsidiaries' or affiliates' premises or Walter's, its subsidiaries', its affiliates', or its customers' property (collectively, the "Developments") shall be the sole and exclusive property of Walter. You hereby assign to the Company your entire right and interest in any such Developments, and will hereafter execute any documents in connection therewith that Walter may reasonably request. This section does not apply to any inventions that you made prior to your employment by Walter or Western, or to any inventions that you develop entirely on your own time without using any of Walter's or Western's equipment, supplies or facilities, or Walter's or Western's or their respective subsidiaries', affiliates', or customers' confidential information which do not relate to Walter's, Western's, their respective subsidiaries' or its affiliates' business, anticipated research and development, or the work you have performed for Walter, Western and their respective subsidiaries and affiliates. 3. As an inducement of Western to make this offer to you, you represent and warrant that there exists no impediment or restraint, contractual or otherwise on your power, right or ability to accept this offer and to perform the duties and obligations specified in this Agreement. 4. Non-Compete/Non-Solicit. It is understood and agreed that you will have substantial relationships with specific businesses and personnel, prospective and existing, vendors, contractors, customers, and employees of Walter and its subsidiaries that result in the creation of customer goodwill. Therefore, during the term of your employment and for a period of twelve (12) months after your employment terminates for any reason, you shall not anywhere in (a) Wales, (b) British Columbia or (c) any other Canadian province or territory in which Western does business on the Severance Date (collectively, the 9

312 "Restricted Area"): (i) directly or indirectly act in concert or conspire with any person employed by Walter or any of its subsidiaries in order to engage in or prepare to engage in or to have a financial or other interest in any business or any activity which he knows (or reasonably should have known) to be directly competitive with the business of the Company as then being carried on; or (ii) serve as an employee, agent, partner, shareholder, director or consultant for, or in any other capacity participate, engage, or have a financial or other interest in, any business or any activity which he knows (or reasonably should have known) to be directly competitive with the business of the Company as then being carried on (provided, however, that notwithstanding anything to the contrary contained in this Agreement, you may own up to two percent (2%) of the outstanding shares of the capital stock of a company whose securities are publicly traded). In addition, during the term of your employment and for a period of twelve (12) months after your employment terminates for any reason, you shall not employ or retain or solicit for employment or arrange to have any other person, firm, or other entity employ or retain or solicit for employment or otherwise participate in the employment or retention of any person who is an employee or consultant of Walter or any of its subsidiaries. 5. Non-Disparagement. Following the termination of your employment for any reason and continuing for so long as Waiter or any affiliate, successor or assigns thereof carries on the name or like business within the Restricted Area, you shall not, directly or indirectly, for yourself or on behalf of, or in conjunction with, any other person, persons, company, partnership, corporation, business entity or otherwise: (a) (b) Make any statements or announcements or permit anyone to make any public statements or announcements concerning the termination of your employment with Walter, or Make any statements that are inflammatory, detrimental, slanderous, or negative in any way to the interests of Walter or its affiliated entities. 6. You acknowledge and agree that you will respect and safeguard Walter's and its subsidiaries' property, trade secrets and confidential information. You acknowledge that Walter's electronic communication systems (such as and voic ) are maintained to assist in the conduct of Walter's and its subsidiaries' business and that such systems and data exchanged or stored thereon are Walter property. In the event you leave the employ of Walter, you will not disclose any trade secrets or confidential information you acquired while an employee of Walter to any other person or entity, including without limitation, a subsequent employer, or use such information in any manner. 7. Compensation Recovery Policy. You understand and agree that if any of Walter's or Western's financial statements are required to be restated due to errors, omissions, fraud or misconduct, the Compensation Committee may, in its sole discretion but acting in good faith, direct that Walter and/or Western recover all or a portion of any cash incentive, equity compensation or severance disbursements paid to you with respect to any fiscal year for which the financial results are negatively affected by such restatement. For purposes of 10

313 this provision, errors, omissions, fraud or misconduct may include and are not limited to circumstances where Walter or Western has been required to prepare an accounting restatement due to material non-compliance with any financial reporting requirement, as enforced by the Securities and Exchange Commission, and the Compensation Committee has determined in its sole discretion that you had knowledge of the material noncompliance or the circumstances that gave rise to such noncompliance and failed to take reasonable steps to bring it to the attention of the appropriate individuals within Walter, or you personally and knowingly engaged in practices which materially contributed to the circumstances that enabled a material noncompliance to occur. 8. Walter shall withhold from any amounts payable hereunder all Federal, provincial or other taxes as legally shall be required. 9. You acknowledge and agree that you have read this Agreement carefully, have been advised by the Company to consult with an attorney regarding its contents, and that you fully understand the same. 11

314 Exhibit June 24, 2011 Mr. James Griffin 71 Woodcliffe Lake Road Saddle River, NJ Dear Jim, We are pleased that you have accepted the position of Global Head Business Development of Walter Energy, Inc. ("Walter" or the "Company") effective as of April 1, The attached schedules outline the remuneration and benefits and terms and conditions of your employment. As the Global Head Business Development of Walter, you will have such duties, responsibilities and authorities as the Chief Executive Officer of Walter (the "CEO") determines are appropriate for your position. You will report to the CEO or to his designee. It is agreed and understood that this letter agreement (including the schedules and exhibits attached hereto) (collectively, the "Agreement") and the other agreements referred to in this Agreement shall constitute our entire agreement with respect to the subject matter hereof and shall supersede all prior agreements, discussions, understandings and proposals (written or oral) relating to your employment with the Company and its affiliates, including, for the avoidance of doubt, Western Coal Corp. ("Western"). This Agreement may only be amended or modified by a written agreement executed by you and Walter (or any of its respective successors) and will be interpreted under and in accordance with the laws of the State of Delaware without regard to conflicts of laws. This Agreement may be executed by fax or pdf and in any number of counterparts, all of which, when taken together, will constitute one and the same instrument.

315 Jim, we are delighted that you are joining Walter and we look forward to working with you. If the terms contained within this Agreement are acceptable, please sign one of the enclosed copies and return it to me in the envelope provided. Best regards, /s/ Keith Calder July 7/2011 Keith Calder Date Chief Executive Officer Walter Energy, Inc. ACCEPTANCE I have read the Agreement, have been advised to consult with counsel of my choice concerning the same, and I fully understand the same. I approve and accept the terms set forth in the Agreement as governing my employment relationship with Walter. /s/ James Griffin July 7, 2011 James Griffin Date Enclosures: Schedule A Remuneration & Benefits Schedule B Terms and Conditions Initials /s/ 2

316 SCHEDULE A REMUNERATION & BENEFITS Name: James Griffin Role Title: Global Head Business Development Role Band: n/a Department: Corporate Employer: Walter Date of Appointment: April 1,2011 Continuous Employment Date: September 13, 2010 This schedule should be read in conjunction with the remainder of the Agreement. The policies covering these benefits and their terms and conditions may be varied from time to time. Base Salary and Remuneration: The remuneration for this position is a base salary of USD$400,000 per annum which will be subject to review and adjustment by the Compensation and Human Resources Committee of the Board of Directors (the "Compensation Committee") and paid in accordance with Walter's payroll practices, as they may change from time to time. Your annual base salary, as in effect from time to time, is hereinafter referred to as the "Base Salary." The remuneration structure is designed to provide competitive levels of total remuneration for strong individual and corporate performance and achieve a close alignment between personal and business performance and remuneration. Annual Bonus (EIP): You will participate in Walter's Executive Incentive Plan, as it may be amended from time to time (the "EIP") and will be eligible to earn an annual target bonus of 70% of your Base Salary (the "Target Bonus"), with an upside potential of 2 times your Target Bonus for top performance. The actual 3

317 amount of your bonus, if any, will fluctuate based upon actual performance under the performance metrics associated with the EIP. Participation in the bonus pool is dependent upon the achievement of Walter's annual performance goals, as well as the accomplishment of (x) individual objectives and/or (y) departmental goals, in each case, as determined and recommended by the management of Walter and subsequently approved by the Compensation Committee. In order to receive a bonus under the EIP, you must be employed at the time the bonus is paid. Notwithstanding anything in this Agreement to the contrary, your bonus, if any, under the EIP, earned in respect of the 2011 fiscal year, will be pro-rated based upon the percentage of such fiscal year that will have elapsed from your commencement date through the last day of such fiscal year and based solely on the Base Salary actually earned in such fiscal year from your commencement date through the last day of such fiscal year. Notwithstanding anything in this Agreement to the contrary, with respect to any bonus to be paid hereunder, such bonus will be paid in accordance with the EIP and, to the extent possible, will be structured to comply with Section 162(m) of the Internal Revenue Code of 1986, as amended (the "Code") as performance based compensation thereunder; provided however, to the extent not deductible by Walter, such payment will be deferred until it can be paid by Walter on a tax deductible basis. Please note that participation in Walter's Employee Stock Purchase Plan is a condition to participation in the bonus pool under the EIP. Long Term Incentive: Subject to your continued employment with Walter, you will be eligible to participate in Walter's Amended and Restated 2002 Long-Term Incentive Award Plan, as it may be amended and restated from time to time (and any successor long term incentive award plan) (collectively, the "LTIP"), and will be eligible to receive annual equity grants from Walter. Your annual equity grant in respect of the 2011 fiscal year will be valued at 90% of Base Salary, based on the Black-Scholes value at the date of grant, fifty percent (50%) of which will be in the form of non-qualified stock options and fifty percent (50%) of which will be In the form of restricted stock units. Such equity grants will be awarded under and subject to the terms and conditions of the LTIP and the 4

318 terms and conditions applicable to other awards granted by Walter under the LTIP to employees of Walter. Expenses: Health Care: Retirement Plan: Leave: Change in Control: Severance: Reimbursement for all reasonable and customary out-of-pocket business expenses incurred by you in the performance of your duties hereunder, in accordance with the policies, practices and procedures of Walter relating to reimbursement of business expenses incurred by Walter employees in effect at any time during the 12 month period preceding the date you incur the expenses; provided, however, that any such expense reimbursement will be made no later than the last day of the calendar year following the calendar year in which you incur the expense, will not affect the expenses eligible for reimbursement in any other calendar year, and cannot be liquidated or exchanged for any other benefit. Participation in Walter's life and health insurance benefit programs beginning the first day of the month following your commencement date and in accordance with their terms, as they may change from time to time. Additional benefit plan information will be available for your review upon request. After you are enrolled in the U.S. benefit plans, you and all eligible family members will be covered. Participation in Walter's retirement plan according to its terms as they may change from time to time. Information on the retirement plan will be available for your review upon request. Your eligibility to participate will be consistent with the requirements of the Employee Retirement Income Security Act of 1974, as amended. Eligibility for 20 business days of vacation and 10 company paid holidays to be used each year in accordance with Walter's policy, as it may change from time to time. An Executive Change-in-Control Severance Agreement in a form substantially similar to the form attached hereto as Exhibit A (the "CIC Agreement"). Subject to (a) your compliance with the restrictive covenants set forth in Sections 5 through 7 of Schedule B and (b) your execution, delivery and non-revocation of a waiver and release of claims in a form substantially similar to the form attached hereto as Exhibit B (the "Release") on 5

319 or prior to the 21 st day following the date on which your employment with Walter terminates due to (x) the termination of your employment by Walter, other than for "Cause" (as defined below) or (y) the termination of your employment by you for "Good Reason" (as defined below), but in each case, excluding any separation from service by reason of your death or Disability (as defined below) (such date, the "Severance Date"), you will be entitled to receive the following severance payments and benefits: For the period commencing on the day immediately following the Severance Date and ending on the first anniversary of the Severance Date, monthly pay continuation with each monthly payment equal to one-twelfth (1/12) times the sum of your Base Salary and Target Bonus, in each case, as in effect on the Severance Date. Monthly payments will occur in accordance with the payroll dates in effect on the Severance Date, and such payment dates will not be affected by any subsequent change in payroll practices. Except as provided below, continuation of group medical, dental, vision, group basic term life insurance, accidental death and dismemberment insurance, voluntary term life insurance, voluntary accidental death and dismemberment insurance, dependent life Insurance and employee assistance program benefits, provided, to the extent applicable, regular contributions are made, at the level in effect on the Severance Date, in each case, for a period (such period, the "Continuation Coverage Period") beginning immediately upon the Severance Date and continuing until the earliest to occur of (A) the first anniversary of the Severance Date, (B) the last date you are eligible to participate in the benefit under applicable law, or (C) the date you are eligible to receive comparable benefits from a subsequent employer, as determined solely by Walter in good faith; provided, however, that if you fall to execute and deliver the Release or revoke the Release, in either case, the Continuation Coverage Period shall cease immediately upon such date. Such benefits shall be provided to you at the same coverage and cost to you as in effect on the Severance Date. To the extent permitted by law, you shall be eligible to qualify for COBRA health care continuation coverage under Section 4980B of the Code, or any replacement or successor 6

320 provision of United States tax law, beginning following the expiration of the period described above. Notwithstanding the foregoing, your participation in the Employee Stock Purchase Plan and long-term disability insurance plan, and your ability to make deferrals under the 401(k) plan, will cease effective on the Severance Date. For purposes of this subsection, you shall send written notice of the terms and conditions of any subsequent employment and the corresponding benefits earned from such employment and shall provide, or cause to be provided, to Walter, In writing, correct, complete and timely information concerning the same to the extent requested by Walter; provided, however, that Walter shall have the right to cease making such payments and you shall be obligated to repay any such amounts to Walter already paid if you fall to execute and deliver the Release within the time period provided for above or, after timely delivery, revoke it within the time period specified in such Release. If your employment with Walter is terminated by you without Good Reason upon 60 days' prior written notice to the CEO and such termination occurs on or before December 31, 2011, subject to your execution, delivery and non-revocation of the Release on or prior to the 21 st day following the date on which your employment with Walter terminates, you will be entitled to receive a lump sum cash payment in an amount equal to $680,000, payable as soon as administratively feasible following the termination date, but in no event later than December 31, 2011; provided, however, that you shall be obligated to repay any such amounts to Walter already paid if you fall to execute and deliver the Release within the time period provided for above or, after timely delivery, revoke it within the time period specified in such Release. Notwithstanding anything in this Agreement to the contrary and for the avoidance of doubt, you shall not be entitled to severance payments or benefits under this Agreement in the event you experience a separation from service within twentyfour (24) months following a Change in Control of the Company (as defined in the CIC Agreement). Severance payments and benefits payable upon a separation from service in connection with such a 7

321 termination of employment, if any, shall be determined and paid under the CIC Agreement. For purposes of this Agreement, the term "Cause" shall mean: (i) your willful and continued refusal to perform the duties of your position (other than any such failure resulting from your incapacity due to physical or mental illness); (ii) your conviction or guilty plea of a felony involving fraud or dishonesty; (iii) theft or embezzlement by you of property from Walter or any subsidiary or affiliate; or (iv) fraudulent preparation by you of financial information of Walter or any subsidiary or affiliate. For purposes of this Agreement, the term "Good Reason" shall mean the occurrence of any of the following conditions [in each case arising without your consent): (A) a material breach of this Agreement by Walter or (B) a material diminution in your authority, duties or responsibilities. Notwithstanding the foregoing, your voluntary separation from service shall be for "Good Reason" only if (x) you provide written notice of the facts or circumstances constituting a "Good Reason" condition to Walter within 30 days after the initial existence of the Good Reason condition, (y) the Company does not remedy the Good Reason condition within 30 days after it receives such notice and (z) the voluntary separation from service occurs within 90 days after the initial existence of the Good Reason condition. For purposes of this Agreement, the parties agree that "Good Reason" will not exist solely because the amount of your bonus fluctuates due to performance considerations under the EIP or other Walter incentive plan applicable to you and in effect from time to time. For purposes of this Agreement, the term "Disability" shall mean any medical condition whatsoever which leads to your absence from your job function for a continuous period of six months without you being able to resume such functions on a full time basis at the expiration of such period, it being understood that unsuccessful attempts to return to work for periods under thirty days shall not be deemed to have interrupted said continuity. Location: The location of the Walter Corporate Office will be Chicago, Illinois. You will be provided with relocation 8

322 assistance in accordance with the Walter Energy Relocation policy, a copy of which will be provided under separate cover. 9 SCHEDULE B TERMS AND CONDITIONS 1. It is agreed and understood that your employment with Walter is to be at will, and either you or Walter may terminate the employment relationship at any time for any reason, with or without cause, and with or without notice to the other; nothing in this Agreement or elsewhere constitutes or shall be construed as a commitment to employ you or pay you severance, other than as stated in Schedule A or in the CSC Agreement, for any period of time. 2. Outside interest. While employed by Walter, you agree to devote your full business time and best efforts to the performance of your duties hereunder and will not engage in any other business, profession or occupation for compensation or otherwise which would conflict or interfere with the rendition of such services either directly or indirectly without the prior written consent of the CEO or his designee. 3. You agree that all inventions, improvements, trade secrets, reports, manuals, computer programs, systems, tapes and other ideas and materials developed or invented by you during the period of your employment with Walter, either solely or in collaboration with others, which relate to the actual or anticipated business or research of Walter or any of its subsidiaries or affiliates, which result from or are suggested by any work you may do for Walter or any of its subsidiaries or affiliates, or which result from use of Walter's or any of its subsidiaries' or affiliates' premises or Walter's, its subsidiaries', its affiliates', or its customers' property (collectively, the "Developments") shall be the sole and exclusive property of Walter. You hereby assign to Walter your entire right and interest in any such Developments, and will hereafter execute any documents in connection therewith that Walter may reasonably request. This section does not apply to any inventions that you made prior to your employment by Walter or Western, or to any inventions that you develop entirely on your own time without using any of Walter's or Western's equipment, supplies or facilities, or Walter's or Western's or their respective subsidiaries', affiliates', or customers' confidential information which do not relate to Walter's, Western's, their respective subsidiaries' or its affiliates' business, anticipated research and development, or the work you have performed for Walter, Western and their respective subsidiaries and affiliates. 4. As an inducement of Walter to make this offer to you, you represent and warrant that there exists no impediment or restraint, contractual or otherwise on your power, right or ability to accept this offer and to perform the duties and obligations specified in this Agreement. 5. Non-Compete/Non-Solicit. It is understood and agreed that you will have substantial relationships with specific businesses and personnel, prospective and existing, vendors, contractors, customers, and employees of Walter and its subsidiaries that result in the creation of customer goodwill. Therefore, while you are employed by Walter and following 10

323 the termination of your employment for any reason and continuing for a period of 12 months from the date of your termination, so long as Walter or any affiliate, successor or assigns thereof is in the coal mining business or like business within the Restricted Area (defined as mining industries in the geographical areas in which Walter or any of its subsidiaries competes at the time of your termination), unless the Board of Directors approves an exception, you shall not, directly or indirectly, for yourself or on behalf of, or in conjunction with, any other person, persons, company, partnership, corporation, business entity or otherwise; (a) Call upon, solicit, write, direct, divert, influence, or accept business (either directly or indirectly) with respect to any account or customer or prospective customer of the Company or any corporation controlling, controlled by, under common control with, or otherwise related to Walter, including but not limited to Western or any other affiliated companies; or (b) Hire away any independent contractors or personnel of Walter and/or entice any such persons to leave the employ of Walter or its affiliated entities without the prior written consent of Walter. 6. Non-Disparagement. Following the termination of your employment for any reason and continuing for so long as Walter or any affiliate, successor or assigns thereof carries on the name or like business within the Restricted Area, you shall not, directly or indirectly, for yourself or on behalf of, or in conjunction with, any other person, persons, company, partnership, corporation, business entity or otherwise: (a) Make any statements or announcements or permit anyone to make any public statements or announcements concerning the termination of your employment with Walter, or (b) Make any statements that are inflammatory, detrimental, slanderous, or negative in any way to the interests of Walter or its affiliated entities. 7. You acknowledge and agree that you will respect and safeguard Walter's and its subsidiaries' property, trade secrets and confidential information. You acknowledge that Walter's electronic communication systems (such as and voic ) are maintained to assist in the conduct of Walter's and its subsidiaries' business and that such systems and data exchanged or stored thereon are Walter property. In the event you leave the employ of Walter, you will not disclose any trade secrets or confidential information you acquired while an employee of Walter to any other person or entity, including without limitation, a subsequent employer, or use such information in any manner. 8. Compensation Recovery Policy. You understand and agree that if any of Walter's financial statements are required to be restated due to errors, omissions, fraud or misconduct, the Compensation Committee may, in its sole discretion but acting in good faith, direct that Walter recover all or a portion of any cash incentive, equity compensation or severance 11

324 disbursements paid to you with respect to any fiscal year of Walter for which the financial results are negatively affected by such restatement. For purposes of this provision, errors, omissions, fraud or misconduct may include and are not limited to circumstances where Walter has been required to prepare an accounting restatement due to material noncompliance with any financial reporting requirement, as enforced by the Securities and Exchange Commission, and the Compensation Committee has determined in its sole discretion that you had knowledge of the material noncompliance or the circumstances that gave rise to such noncompliance and failed to take reasonable steps to bring it to the attention of the appropriate individuals within Walter, or you personally and knowingly engaged in practices which materially contributed to the circumstances that enabled a material noncompliance to occur. 9. This Agreement is intended to comply with Section 409A of the Code and will be interpreted accordingly. References under this Agreement to the termination of your employment shall be deemed to refer to the date upon which you have experienced a "separation from service" within the meaning of Section 409A of the Code. Notwithstanding anything in this Agreement to the contrary, (i) if at the time of your separation from service with Walter you are a "specified employee" as defined in Section 409A of the Code (and any related regulations or other pronouncements thereunder) and the deferral of the commencement of any payments or benefits otherwise payable hereunder or payable under any other compensatory arrangement between you and Walter as a result of such separation from service is necessary in order to prevent any accelerated or additional tax under Section 409A of the Code, then Walter will defer the commencement of the payment of any such payments or benefits hereunder (without any reduction in such payments or benefits ultimately paid or provided to you) until the first business day after the date that is six months following your separation from service (or the earliest date as is permitted under Section 409A of the Code), at which point all payments deferred pursuant to this paragraph shall be paid to you in a lump sum and (ii) if any other payments of money or other benefits due to you hereunder could cause the application of an accelerated or additional tax under Section 409A of the Code, such payments or other benefits shall be deferred if deferral will make such payment or other benefits compliant under Section 409A of the Code, or otherwise such payment or other benefits shall be restructured, to the extent possible, in a manner that does not cause such an accelerated or additional tax. To the extent any reimbursements or in-kind benefits due to you under this Agreement constitute "deferred compensation" under Section 409A of the Code, any such reimbursements or in-kind benefits shall be paid to you in a manner consistent with Treasury Regulation Section 1.409A-3(i)(l)(iv). For purposes of Section 409A of the Code, each payment made under this Agreement shall be designated as a "separate payment" within the meaning of Section 409A of the Code. 10. Walter shall withhold from any amounts payable hereunder all Federal, state, city or other taxes as legally shall be required. 12

325 11. You acknowledge and agree that you have read this Agreement carefully, have been advised by the Company to consult with an attorney regarding its contents, and that you fully understand the same. 13

326 Exhibit Western Coal Corp. Suite Dunsmuir Street Vancouver, BC V6C 1N5 October 28, 2011 Attention: James (Jim) Griffin RE: Change of Terms and conditions of employment Dear Jim, This is to confirm our conversation earlier this week when I informed you that we are pleased to confirm the following terms: 1. Until December 31, 2012 you will be entitled to 2 family unification trips per month. The Company will meet any tax obligations as a result of this; 2. The Company will continue to provide you with accommodations until December 31, The Company will meet any tax obligations as a result of this; 3. You will be eligible to receive tax consultations with the Company's Canadian tax service provider for the 2011 and 2012 tax years. You are responsible for ensuring that you understand the tax implications directly associated with your personal assets and investments. 4. Your salary will be paid in US dollars; and 5. All benefits, terms and conditions of your employment agreement will remain in effect and unchanged. (except as stated in the extension letter dated Oct. 28, 2011) Please sign a copy of this letter in the space provided and return to Tanya McCarthy, Human Resources Business Partner. Thank you. Sincerely, /s/ Graham Foyle-Twining Graham Foyle-Twining Global Head of HR and Organizational Development I accept the offer as outlined above. /s/ James (Jim) Griffin Nov. 9, 2011 James (Jim) Griffin Date

327 Exhibit June 24, 2011 Mr. Graham Foyle-Twining 558, Ballentree Road West Vancouver, BC Canada V7S 1W3 Dear Graham, We are pleased that you have accepted the position of Global Head Human Resources & Organization Design of Walter Energy, Inc. ("Walter" or the "Company") effective as of April 1, The attached schedules outline the remuneration and benefits and terms and conditions of your employment. As the Global Head Human Resources & Organization Design of Walter, you will have such duties, responsibilities and authorities as the Chief Executive Officer of Walter (the "CEO") determines are appropriate for your position. You will report to the CEO or to his designee. It is agreed and understood that this letter agreement (including the schedules and exhibits attached hereto) (collectively, the "Agreement") and the other agreements referred to in this Agreement shall constitute our entire agreement with respect to the subject matter hereof and shall supersede all prior agreements, discussions, understandings and proposals (written or oral) relating to your employment with the Company and its affiliates, including, for the avoidance of doubt, Western Coal Corp. ("Western"). This Agreement may only be amended or modified by a written agreement executed by you and Walter (or any of its respective successors) and will be interpreted under and in accordance with the laws of the State of Delaware without regard to conflicts of laws. This Agreement is contingent upon your successful application for an immigration Visa allowing you to work in the United States. This Agreement may be executed by fax or pdf and in any number of counterparts, all of which, when taken together, will constitute one and the same instrument.

328 Graham, we are delighted that you are joining Walter and we look forward to working with you. If the terms contained within this Agreement are acceptable, please sign one of the enclosed copies and return it to me in the envelope provided. Best regards, /s/keith Calder Keith Calder Date Chief Executive Officer Walter Energy, Inc. ACCEPTANCE I have read the Agreement, have been advised to consult with counsel of my choice concerning the same, and I fully understand the same. I approve and accept the terms set forth in the Agreement as governing my employment relationship with Walter. /s/ Graham Foyle-Twining 18 July Graham Foyle-Twining Date Enclosures: Schedule A Schedule B Remuneration & Benefits Terms and Conditions Initials /s/ 2

329 SCHEDULE A REMUNERATION & BENEFITS Name: Graham Foyle-Twining Role Title: Global Head Human Resources & Organization Design Role Band: n/a Department: Corporate Employer: Walter Date of Appointment: April 1, 2011 Continuous Employment Date: February 1, 2010 This schedule should be read in conjunction with the remainder of the Agreement. The policies covering these benefits and their terms and conditions may be varied from time to time. Base Salary and Remuneration: The remuneration for this position is a base salary of USD$360,000 per annum which will be subject to review and adjustment by the Compensation and Human Resources Committee of the Board of Directors (the "Compensation Committee") and paid in accordance with Walter's payroll practices, as they may change from time to time. Your annual base salary, as in effect from time to time, is hereinafter referred to as the "Base Salary." The remuneration structure is designed to provide competitive levels of total remuneration for strong individual and corporate performance and achieve a close alignment between personal and business performance and remuneration. Annual Bonus (EIP): You will participate in Walter's Executive Incentive Plan, as it may be amended from time to time (the "EIP") and will be eligible to earn an annual target bonus of 65% of your Base Salary (the "Target Bonus"), with an upside potential of 2 times your Target Bonus for top performance. The actual 3

330 amount of your bonus, if any, will fluctuate based upon actual performance under the performance metrics associated with the EIP. Participation in the bonus pool is dependent upon the achievement of Walter's annual performance goals, as well as the accomplishment of (x) individual objectives and/or (y) departmental goals, in each case, as determined and recommended by the management of Walter and subsequently approved by the Compensation Committee. In order to receive a bonus under the EIP, you must be employed at the time the bonus is paid. Notwithstanding anything in this Agreement to the contrary, your bonus, if any, under the EIP, earned in respect of the 2011 fiscal year, will be pro-rated based upon the percentage of such fiscal year that will have elapsed from your commencement date through the last day of such fiscal year and based solely on the Base Salary actually earned in such fiscal year from your commencement date through the last day of such fiscal year. Notwithstanding anything in this Agreement to the contrary, with respect to any bonus to be paid hereunder, such bonus will be paid in accordance with the EIP and, to the extent possible, will be structured to comply with Section 162(m) of the Internal Revenue Code of 1986, as amended (the "Code") as performance based compensation thereunder; provided however, to the extent not deductible by Walter, such payment will be deferred until it can be paid by Walter on a tax deductible basis. Please note that participation in Walter's Employee Stock Purchase Plan is a condition to participation in the bonus pool under the EIP. Long Term Incentive: Subject to your continued employment with Walter, you will be eligible to participate in Walter's Amended and Restated 2002 Long-Term Incentive Award Plan, as it may be amended and restated from time to time (and any successor long term incentive award plan) (collectively, the "LTIP"), and will be eligible to receive annual equity grants from Walter. Your annual equity grant in respect of the 2011 fiscal year will be valued at 80% of Base Salary, based on the Black-Scholes value at the date of grant, fifty percent (50%) of which will be in the form of non-qualified stock options and fifty percent (50%) of which will be in the form of restricted stock units. Such equity grants will be awarded under and subject to the terms and conditions of the LTIP and the 4

331 terms and conditions applicable to other awards granted by Walter under the LTIP to employees of Walter. Expenses: Health Care: Retirement Plan: Leave: Change in Control: Reimbursement for all reasonable and customary out-of-pocket business expenses incurred by you in the performance of your duties hereunder, in accordance with the policies, practices and procedures of Walter relating to reimbursement of business expenses incurred by Walter employees in effect at any time during the 12 month period preceding the date you incur the expenses; provided, however, that any such expense reimbursement will be made no later than the last day of the calendar year following the calendar year in which you incur the expense, will not affect the expenses eligible for reimbursement in any other calendar year, and cannot be liquidated or exchanged for any other benefit. Participation in Walter's life and health insurance benefit programs beginning the first day of the month following your commencement date and in accordance with their terms, as they may change from time to time. Additional benefit plan information will be available for your review upon request. After you are enrolled in the U.S. benefit plans, you and all eligible family members will be covered. Participation in Walter's retirement plan according to its terms as they may change from time to time. Information on the retirement plan will be available for your review upon request. Your eligibility to participate will be consistent with the requirements of the Employee Retirement Income Security Act of 1974, as amended. Eligibility for 20 business days of vacation and 10 company paid holidays to be used each year in accordance with Walter's policy, as it may change from time to time. An Executive Change-in-Control Severance Agreement in a form substantially similar to the form attached hereto as Exhibit A (the "CIC Agreement"). Severance: Subject to (a) your compliance with the restrictive covenants set forth in Sections 5 through 7 of Schedule B and (b) your execution, delivery and non-revocation of a waiver and release of claims in a form substantially similar to the form attached hereto as Exhibit B (the "Release") on 5

332 or prior to the 21 st day following the date on which your employment with Walter terminates due to (x) the termination of your employment by Walter, other than for "Cause" (as defined below) or (y) the termination of your employment by you for "Good Reason" (as defined below), but in each case, excluding any separation from service by reason of your death or Disability (as defined below) (such date, the "Severance Date"), you will be entitled to receive the following severance payments and benefits: For the period commencing on the day immediately following the Severance Date and ending on the first anniversary of the Severance Date, monthly pay continuation with each monthly payment equal to one-twelfth (1/12) times the sum of your Base Salary and Target Bonus, in each case, as in effect on the Severance Date. Monthly payments will occur in accordance with the payroll dates in effect on the Severance Date, and such payment dates will not be affected by any subsequent change in payroll practices. Except as provided below, continuation of group medical, dental, vision, group basic term life insurance, accidental death and dismemberment insurance, voluntary term life insurance, voluntary accidental death and dismemberment insurance, dependent life insurance and employee assistance program benefits, provided, to the extent applicable, regular contributions are made, at the level in effect on the Severance Date, in each case, for a period (such period, the "Continuation Coverage Period") beginning immediately upon the Severance Date and continuing until the earliest to occur of (A) the first anniversary of the Severance Date, (B) the last date you are eligible to participate in the benefit under applicable law, or (C) the date you are eligible to receive comparable benefits from a subsequent employer, as determined solely by Walter in good faith; provided, however, that if you fail to execute and deliver the Release or revoke the Release, in either case, the Continuation Coverage Period shall cease immediately upon such date. Such benefits shall be provided to you at the same coverage and cost to you as in effect on the Severance Date. To the extent permitted by law, you shall be eligible to qualify for COBRA health care continuation coverage under Section 4980B of the Code, or any replacement or successor 6

333 provision of United States tax law, beginning following the expiration of the period described above. Notwithstanding the foregoing, your participation in the Employee Stock Purchase Plan and long-term disability insurance plan, and your ability to make deferrals under the 401(k) plan, will cease effective on the Severance Date. For purposes of this subsection, you shall send written notice of the terms and conditions of any subsequent employment and the corresponding benefits earned from such employment and shall provide, or cause to be provided, to Walter, in writing, correct, complete and timely information concerning the same to the extent requested by Walter; provided, however, that Walter shall have the right to cease making such payments and you shall be obligated to repay any such amounts to Walter already paid if you fail to execute and deliver the Release within the time period provided for above or, after timely delivery, revoke it within the time period specified in such Release. If your employment with Walter is terminated by you without Good Reason upon 60 days' prior written notice to the CEO and such termination occurs on or before December 31, 2011, subject to your execution, delivery and non-revocation of the Release on or prior to the 21 st day following the date on which your employment with Walter terminates, you will be entitled to receive a lump sum cash payment in an amount equal to $514,000. In addition you will receive a further lump sum cash payment in the amount of $514,000 in recognition of your legacy Western Coal Annual Incentive Plan (AIP) award. These amounts will be payable as soon as administratively feasible following the termination date, but in no event later than December 31, 2011; provided, however, that you shall be obligated to repay any such amounts to Walter already paid if you fail to execute and deliver the Release within the time period provided for above or, after timely delivery, revoke it within the time period specified in such Release Notwithstanding anything in this Agreement to the contrary and for the avoidance of doubt, you shall not be entitled to severance payments or benefits under this 7

334 Agreement in the event you experience a separation from service within twenty-four (24) months following a Change in Control of the Company (as defined in the CIC Agreement). Severance payments and benefits payable upon a separation from service in connection with such a termination of employment, if any, shall be determined and paid under the CIC Agreement. For purposes of this Agreement, the term "Cause" shall mean: (i) your willful and continued refusal to perform the duties of your position (other than any such failure resulting from your incapacity due to physical or mental illness); (ii) your conviction or guilty plea of a felony involving fraud or dishonesty; (iii) theft or embezzlement by you of property from Walter or any subsidiary or affiliate; or (iv) fraudulent preparation by you of financial information of Walter or any subsidiary or affiliate. For purposes of this Agreement, the term "Good Reason" shall mean the occurrence of any of the following conditions (in each case arising without your consent): (A) a material breach of this Agreement by Walter or (B) a material diminution in your authority, duties or responsibilities. Notwithstanding the foregoing, your voluntary separation from service shall be for "Good Reason" only if (x) you provide written notice of the facts or circumstances constituting a "Good Reason" condition to Walter within 30 days after the initial existence of the Good Reason condition, (y) the Company does not remedy the Good Reason condition within 30 days after it receives such notice and (z) the voluntary separation from service occurs within 90 days after the initial existence of the Good Reason condition. For purposes of this Agreement, the parties agree that "Good Reason" will not exist solely because the amount of your bonus fluctuates due to performance considerations under the EIP or other Walter incentive plan applicable to you and in effect from time to time. For purposes of this Agreement, the term "Disability" shall mean any medical condition whatsoever which leads to your absence from your job function for a continuous period of six months without you being able to resume such functions on a full time basis at the expiration of such period, it being understood that unsuccessful attempts to 8

335 return to work for periods under thirty days shall not be deemed to have interrupted said continuity. Relocation: The location of the Walter Corporate Office will be Chicago, Illinois. You will be provided with relocation assistance in accordance with the Walter Energy Relocation policy, a copy of which will be provided under separate cover. 9 SCHEDULE B TERMS AND CONDITIONS 1. It is agreed and understood that your employment with Walter is to be at will, and either you or Walter may terminate the employment relationship at any time for any reason, with or without cause, and with or without notice to the other; nothing in this Agreement or elsewhere constitutes or shall be construed as a commitment to employ you or pay you severance, other than as stated in Schedule A or in the CIC Agreement, for any period of time. 2. Outside Interest. While employed by Walter, you agree to devote your full business time and best efforts to the performance of your duties hereunder and will not engage in any other business, profession or occupation for compensation or otherwise which would conflict or interfere with the rendition of such services either directly or indirectly without the prior written consent of the CEO or his designee. 3. You agree that all inventions, improvements, trade secrets, reports, manuals, computer programs, systems, tapes and other ideas and materials developed or invented by you during the period of your employment with Walter, either solely or in collaboration with others, which relate to the actual or anticipated business or research of Walter or any of its subsidiaries or affiliates, which result from or are suggested by any work you may do for Walter or any of its subsidiaries or affiliates, or which result from use of Walter's or any of its subsidiaries' or affiliates' premises or Walter's, its subsidiaries', its affiliates', or its customers' property (collectively, the "Developments") shall be the sole and exclusive property of Walter. You hereby assign to Walter your entire right and interest in any such Developments, and will hereafter execute any documents in connection therewith that Walter may reasonably request. This section does not apply to any inventions that you made prior to your employment by Walter or Western, or to any inventions that you develop entirely on your own time without using any of Walter's or Western's equipment, supplies or facilities, or Walter's or Western's or their respective subsidiaries', affiliates', or customers' confidential information which do not relate to Walter's, Western's, their respective subsidiaries' or its affiliates' business, anticipated research and development, or the work you have performed for Walter, Western and their respective subsidiaries and affiliates. 4. As an inducement of Walter to make this offer to you, you represent and warrant that there exists no impediment or restraint, contractual or otherwise on your power, right or ability to accept this offer and to perform the duties and obligations specified in this Agreement. 5. Non-Compete/Non-Solicit. It is understood and agreed that you will have substantial relationships with specific businesses and personnel, prospective and existing, vendors, contractors, customers, and employees of Walter and its subsidiaries that result in the creation of customer goodwill. Therefore, while you are employed by Walter and following 10

336 the termination of your employment for any reason and continuing for a period of 12 months from the date of your termination, so long as Walter or any affiliate, successor or assigns thereof is in the coal mining business or like business within the Restricted Area (defined as mining industries in the geographical areas in which Walter or any of its subsidiaries competes at the time of your termination), unless the Board of Directors approves an exception, you shall not, directly or indirectly, for yourself or on behalf of, or in conjunction with, any other person, persons, company, partnership, corporation, business entity or otherwise: (a) (b) Call upon, solicit, write, direct, divert, influence, or accept business (either directly or indirectly) with respect to any account or customer or prospective customer of the Company or any corporation controlling, controlled by, under common control with, or otherwise related to Walter, including but not limited to Western or any other affiliated companies; or Hire away any independent contractors or personnel of Walter and/or entice any such persons to leave the employ of Walter or its affiliated entities without the prior written consent of Walter. 6. Non-Disparagement. Following the termination of your employment for any reason and continuing for so long as Walter or any affiliate, successor or assigns thereof carries on the name or like business within the Restricted Area, you shall not, directly or indirectly, for yourself or on behalf of, or in conjunction with, any other person, persons, company, partnership, corporation, business entity or otherwise: (a) (b) Make any statements or announcements or permit anyone to make any public statements or announcements concerning the termination of your employment with Walter, or Make any statements that are inflammatory, detrimental, slanderous, or negative in any way to the interests of Walter or its affiliated entities. 7. You acknowledge and agree that you will respect and safeguard Walter's and its subsidiaries' property, trade secrets and confidential information. You acknowledge that Walter's electronic communication systems (such as and voic ) are maintained to assist in the conduct of Walter's and its subsidiaries' business and that such systems and data exchanged or stored thereon are Walter property. In the event you leave the employ of Walter, you will not disclose any trade secrets or confidential information you acquired while an employee of Walter to any other person or entity, including without limitation, a subsequent employer, or use such information in any manner. 8. Compensation Recovery Policy. You understand and agree that if any of Walter's financial statements are required to be restated due to errors, omissions, fraud or misconduct, the Compensation Committee may, in its sole discretion but acting in good faith, direct that Walter recover all or a portion of any cash incentive, equity compensation or severance 11

337 disbursements paid to you with respect to any fiscal year of Walter for which the financial results are negatively affected by such restatement. For purposes of this provision, errors, omissions, fraud or misconduct may include and are not limited to circumstances where Walter has been required to prepare an accounting restatement due to material noncompliance with any financial reporting requirement, as enforced by the Securities and Exchange Commission, and the Compensation Committee has determined in its sole discretion that you had knowledge of the material noncompliance or the circumstances that gave rise to such noncompliance and failed to take reasonable steps to bring it to the attention of the appropriate individuals within Walter, or you personally and knowingly engaged in practices which materially contributed to the circumstances that enabled a material noncompliance to occur. 9. This Agreement is intended to comply with Section 409A of the Code and will be interpreted accordingly. References under this Agreement to the termination of your employment shall be deemed to refer to the date upon which you have experienced a "separation from service" within the meaning of Section 409A of the Code. Notwithstanding anything in this Agreement to the contrary, (i) if at the time of your separation from service with Walter you are a "specified employee" as defined in Section 409A of the Code (and any related regulations or other pronouncements thereunder) and the deferral of the commencement of any payments or benefits otherwise payable hereunder or payable under any other compensatory arrangement between you and Walter as a result of such separation from service is necessary in order to prevent any accelerated or additional tax under Section 409A of the Code, then Walter will defer the commencement of the payment of any such payments or benefits hereunder (without any reduction in such payments or benefits ultimately paid or provided to you) until the first business day after the date that is six months following your separation from service (or the earliest date as is permitted under Section 409A of the Code), at which point all payments deferred pursuant to this paragraph shall be paid to you in a lump sum and (ii) if any other payments of money or other benefits due to you hereunder could cause the application of an accelerated or additional tax under Section 409A of the Code, such payments or other benefits shall be deferred if deferral will make such payment or other benefits compliant under Section 409A of the Code, or otherwise such payment or other benefits shall be restructured, to the extent possible, in a manner that does not cause such an accelerated or additional tax. To the extent any reimbursements or in-kind benefits due to you under this Agreement constitute "deferred compensation" under Section 409A of the Code, any such reimbursements or in-kind benefits shall be paid to you in a manner consistent with Treasury Regulation Section 1.409A-3(i)(1)(iv). For purposes of Section 409A of the Code, each payment made under this Agreement shall be designated as a "separate payment" within the meaning of Section 409A of the Code. 10. Walter shall withhold from any amounts payable hereunder all Federal, state, city or other taxes as legally shall be required. 12

338 11. You acknowledge and agree that you have read this Agreement carefully, have been advised by the Company to consult with an attorney regarding its contents, and that you fully understand the same. 13

339 EXHIBIT 21 WALTER ENERGY, INC. Subsidiaries List The following is a list of subsidiaries of the Company as of February 29, Name of Subsidiary or Organization Jurisdiction of Incorporation Atlantic Development & Capital, LLC Atlantic Lease Co., LLC DE DE Belcourt Saxon Coal, Ltd.(1) British Columbia Belcourt Saxon Coal, LP.(2) British Columbia Black Warrior Methane Corp.(3) AL Black Warrior Transmission Corp.(4) AL Blue Creek Coal Sales, Inc. AL Cardem Insurance Co., Ltd. Bermuda Cambrian Investment Holdings, Ltd. United Kingdom Cambrian Marketing, Ltd. Seychelles Cambrian Mining, Ltd. United Kingdom Clearwater Energy, Inc. AL Coal International, Ltd. United Kingdom Deepgreen Minerals Corporation Pty, Ltd. Australia Dream Homes USA, Inc. TX Energy Aggregates, Ltd.(5) United Kingdom Energy Recovery Investments, Ltd.(6) United Kingdom Energybuild, Ltd United Kingdom Energybuild Group, Ltd. United Kingdom Energybuild Holdings, Ltd. United Kingdom Energybuild Mining, Ltd. United Kingdom Energybuild Opencast, Ltd. United Kingdom Falls Mountain Coal, Inc. British Columbia Hamer Properties, Inc. WV J.W. Walter, Inc. DE J.W.I. Holdings Corp. DE Jefferson Warrior Railroad Company, Inc. AL Jim Walter Homes of Arkansas, Inc. AR Jim Walter Homes, LLC FL Jim Walter Resources, Inc. AL JWH Holding Company, LLC DE King-Coal Corporation, Ltd. United Kingdom Kodiak Mining Company, LLC DE Land Holdings Corporation DE Maple Coal Co. DE Maple Coal Co. United Kingdom Mineral Extraction and Handling, Ltd. United Kingdom Pine Valley Coal, Ltd. Alberta Sloss-Sheffield Steel & Iron Company AL SP Machine, Inc. DE Taft Coal Sales & Associates, Inc. AL Tuscaloosa Resources, Inc. AL V Manufacturing Company DE Walter Black Warrior Basin, LLC DE Walter Coke, Inc. DE Walter Exploration & Production, LLC DE

340 Name of Subsidiary or Organization Jurisdiction of Incorporation Walter Energy Canada Holdings, Inc. Walter Home Improvement, Inc. British Columbia FL Walter Land Company DE Walter Minerals, Inc. DE Walter Natural Gas, LLC DE Western Coal Corp. British Columbia Willow Creek Coal Partnership British Columbia Wolverine Coal Ltd. British Columbia B.C. Ltd. British Columbia B.C. Ltd. British Columbia (1) Belcourt Saxon, Ltd. is a joint venture between Western Coal Corp. and Anglo American PLC. Each company owns 50% of the shares of Belcourt Saxon, Ltd. (2) Belcourt Saxon, LP. is a joint venture between Western Coal Corp. and Anglo American PLC. Each company owns 50% of the shares of Belcourt Saxon, LP. (3) Black Warrior Methane Corp. is a joint venture between Jim Walter Resources, Inc. and El Paso Production Company. Each company owns 50% of the stock of Black Warrior Methane Corp. (4) Black Warrior Transmission Corp. is a joint venture between Jim Walter Resources, Inc. and El Paso Production Company. Each company owns 50% of the stock of Black Warrior Transmission Corp. (5) Energy Recovery Investments, Ltd. is a joint venture between Energybuild, Ltd. and Coal Recovery Investments, Ltd. Each company own 50% of the shares of Energy Recovery Investment, Ltd. (6) Energybuild Aggregates, Ltd. is a joint venture between Energybuild, Ltd. and G D Harries & Sons Ltd. Each company owns 50% of the shares of Energybuild Aggregates, Ltd.

341 EXHIBIT 23.1 CONSENT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM We consent to the incorporation by reference in the Registration Statements: (1) Registration Statement (Form S-3 No ) of Walter Energy, Inc., (2) Registration Statement (Form S-8 No ) pertaining to Walter Energy, Inc.'s Employee Stock Purchase Plan and Amended 1995 Long-Term Incentive Stock Plan, (3) Registration Statement (Form S-8 No ) pertaining to Walter Energy, Inc.'s Executive Deferred Compensation Plan, (4) Registration Statement (Form S-8 No ) pertaining to Walter Energy, Inc.'s 2002 Long-Term Incentive Award Plan, (5) Registration Statement (Form S-8 No ) pertaining to Walter Energy, Inc.'s Amended and Restated Employee Stock Purchase Plan, and (6) Registration Statement (Form S-8 No ) pertaining to Amended and Restated Western Stock Option Plan, Coal International plc Stock Option Plan and Cambrian Deed of Option Grant for a Certain Employee of our reports dated February 29, 2012, with respect to the consolidated financial statements of Walter Energy, Inc. and its subsidiaries and the effectiveness of internal control over financial reporting of Walter Energy, Inc. and its subsidiaries included in the Annual Report (Form 10-K) of Walter Energy, Inc. for the year ended December 31, /s/ Ernst & Young LLP Birmingham, AL February 29, 2012

342 EXHIBIT 24 POWER OF ATTORNEY TO SIGN ANNUAL REPORT KNOW ALL MEN BY THESE PRESENTS, that each person whose signature appears below constitutes and appoints Earl H. Doppelt, as his or her true and lawful attorneys-in-fact and agents, with full power of substitution and resubstitution, for him or her in his or her name, place and stead, in any and all capacities, to sign the name of such person in the capacity indicated below opposite the name of each person to the Annual Report for the fiscal year ended December 31, 2011 of Walter Energy, Inc. on Form 10-K and any and all amendments thereto and to file the same with all exhibits thereto, and other documents in connection therewith, with the Securities and Exchange Commission, granting unto said attorneys-in-fact and agent, and each of them, full power and authority to do and perform each and every act and thing requisite and necessary to be done in and about the premises, as fully to all intents and purposes as he or she might or could do in person, hereby ratifying and confirming all that said attorneys-in-fact and agent, or his or his or her substitute or substitutes, may lawfully do or cause to be done by virtue hereof. This Power of Attorney has been signed this 29 th day of February, /s/ David R. Beatty, O.B.E. Director /s/ Howard L. Clark, Jr. Director /s/ Jerry W. Kolb Director /s/ Patrick A. Kriegshauser Director /s/ Joseph B. Leonard Director /s/ Graham Mascall Director /s/ Bernard G. Rethore Director /s/ Michael T. Tokarz Chairman /s/ A.J. Wagner Director

343 QuickLinks -- Click here to rapidly navigate through this document EXHIBIT 31.1 Walter Energy, Inc. Certification Pursuant to Section 302 of the Sarbanes-Oxley Act of 2002 CERTIFICATION OF PERIODIC REPORT I, Walter J. Scheller, III, certify that: I have reviewed this annual report on Form 10-K of Walter Energy, Inc.; Based on my knowledge, this report does not contain any untrue statement of a material fact or omit to state a material fact necessary to make the statements made, in light of the circumstances under which such statements were made, not misleading with respect to the period covered by this report; Based on my knowledge, the financial statements, and other financial information included in this report, fairly present in all material respects the financial condition, results of operations and cash flows of the registrant as of, and for, the periods presented in this report; I am responsible for establishing and maintaining disclosure controls and procedures (as defined in Exchange Act Rules 13a-15(e) and 15d-15(e)) and internal control over financial reporting (as defined in Exchange Act Rules 13a-15(f) and 15d-15(f)) for the registrant and have: (a) (b) (c) (d) Designed such disclosure controls and procedures, or caused such disclosure controls and procedures to be designed under my supervision, to ensure that material information relating to the registrant, including its consolidated subsidiaries, is made known to me by others within those entities, particularly during the period in which this report is being prepared; Designed such internal control over financial reporting, or caused such internal control over financial reporting to be designed under my supervision, to provide reasonable assurance regarding the reliability of financial reporting and the preparation of financial statements for external purposes in accordance with generally accepted accounting principles; Evaluated the effectiveness of the registrant's disclosure controls and procedures and presented in this report my conclusions about the effectiveness of the disclosure controls and procedures, as of the end of the period covered by this report based on such evaluation; and Disclosed in this report any change in the registrant's internal control over financial reporting that occurred during the registrant's most recent fiscal quarter (the registrant's fourth fiscal quarter in the case of an annual report) that has materially affected, or is reasonably likely to materially affect, the registrant's internal control over financial reporting; and 5. I have disclosed, based on my most recent evaluation of internal control over financial reporting, to the registrant's auditors and the audit committee of the registrant's Board of Directors (or persons performing the equivalent functions): (a) (b) All significant deficiencies and material weaknesses in the design or operation of internal control over financial reporting which are reasonably likely to adversely affect the registrant's ability to record, process, summarize and report financial information; and Any fraud, whether or not material, that involves management or other employees who have a significant role in the registrant's internal control over financial reporting. Date: February 29, 2012 /s/ WALTER J. SCHELLER, III Walter J. Scheller, III Chief Executive Officer (Principal Executive Officer)

344 QuickLinks EXHIBIT 31.1 Walter Energy, Inc. Certification Pursuant to Section 302 of the Sarbanes-Oxley Act of 2002 CERTIFICATION OF PERIODIC REPORT

345 QuickLinks -- Click here to rapidly navigate through this document EXHIBIT 31.2 Walter Energy, Inc. Certification Pursuant to Section 302 of the Sarbanes-Oxley Act of 2002 CERTIFICATION OF PERIODIC REPORT I, Robert P. Kerley, certify that: I have reviewed this annual report on Form 10-K of Walter Energy, Inc.; Based on my knowledge, this report does not contain any untrue statement of a material fact or omit to state a material fact necessary to make the statements made, in light of the circumstances under which such statements were made, not misleading with respect to the period covered by this report; Based on my knowledge, the financial statements, and other financial information included in this report, fairly present in all material respects the financial condition, results of operations and cash flows of the registrant as of, and for, the periods presented in this report; I am responsible for establishing and maintaining disclosure controls and procedures (as defined in Exchange Act Rules 13a-15(e) and 15d-15(e)) and internal control over financial reporting (as defined in Exchange Act Rules 13a-15(f) and 15d-15(f)) for the registrant and have: (a) (b) (c) (d) Designed such disclosure controls and procedures, or caused such disclosure controls and procedures to be designed under my supervision, to ensure that material information relating to the registrant, including its consolidated subsidiaries, is made known to me by others within those entities, particularly during the period in which this report is being prepared; Designed such internal control over financial reporting, or caused such internal control over financial reporting to be designed under my supervision, to provide reasonable assurance regarding the reliability of financial reporting and the preparation of financial statements for external purposes in accordance with generally accepted accounting principles; Evaluated the effectiveness of the registrant's disclosure controls and procedures and presented in this report my conclusions about the effectiveness of the disclosure controls and procedures, as of the end of the period covered by this report based on such evaluation; and Disclosed in this report any change in the registrant's internal control over financial reporting that occurred during the registrant's most recent fiscal quarter (the registrant's fourth fiscal quarter in the case of an annual report) that has materially affected, or is reasonably likely to materially affect, the registrant's internal control over financial reporting; and 5. I have disclosed, based on my most recent evaluation of internal control over financial reporting, to the registrant's auditors and the audit committee of the registrant's Board of Directors (or persons performing the equivalent functions): (a) (b) All significant deficiencies and material weaknesses in the design or operation of internal control over financial reporting which are reasonably likely to adversely affect the registrant's ability to record, process, summarize and report financial information; and Any fraud, whether or not material, that involves management or other employees who have a significant role in the registrant's internal control over financial reporting. Date: February 29, 2012 /s/ ROBERT P. KERLEY Robert P. Kerley Chief Accounting Officer, Vice President and Corporate Controller (Interim Principal Financial Officer)

346 QuickLinks EXHIBIT 31.2 Walter Energy, Inc. Certification Pursuant to Section 302 of the Sarbanes-Oxley Act of 2002 CERTIFICATION OF PERIODIC REPORT

347 QuickLinks -- Click here to rapidly navigate through this document EXHIBIT 32.1 Walter Energy, Inc. Certification Pursuant to Section 906 of the Sarbanes-Oxley Act of U.S.C. Section 1350 In connection with the accompanying Annual Report of Walter Energy, Inc. (the "Company") on Form 10-K for the fiscal year ended December 31, 2011, as filed with the Securities and Exchange Commission on the date hereof (the "Report"), I, Walter J. Scheller, III, Chief Executive Officer of the Company, certify, pursuant to 18 U.S.C. Section 1350, as adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002, that: (1) (2) The Report fully complies with the requirements of Section 13(a) or 15(d) of the Securities Exchange Act of 1934; and The information contained in the Report fairly presents, in all material respects, the financial condition and results of operations of the Company. Date: February 29, 2012 /s/ WALTER J. SCHELLER, III Walter J. Scheller, III Chief Executive Officer (Principal Executive Officer)

348 QuickLinks EXHIBIT 32.1 Walter Energy, Inc. Certification Pursuant to Section 906 of the Sarbanes-Oxley Act of U.S.C. Section 1350

349 QuickLinks -- Click here to rapidly navigate through this document EXHIBIT 32.2 Walter Energy, Inc. Certification Pursuant to Section 906 of the Sarbanes-Oxley Act of U.S.C. Section 1350 In connection with the accompanying Annual Report of Walter Energy, Inc. (the "Company") on Form 10-K for the fiscal year ended December 31, 2011, as filed with the Securities and Exchange Commission on the date hereof (the "Report"), I, Robert P. Kerley, Chief Accounting Officer of the Company, certify, pursuant to 18 U.S.C. Section 1350, as adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002, that: (1) (2) The Report fully complies with the requirements of Section 13(a) or 15(d) of the Securities Exchange Act of 1934; and The information contained in the Report fairly presents, in all material respects, the financial condition and results of operations of the Company. Date: February 29, 2012 /s/ ROBERT P. KERLEY Robert P. Kerley Chief Accounting Officer, Vice President and Corporate Controller (Interim Principal Financial Officer)

350 QuickLinks EXHIBIT 32.2 Walter Energy, Inc. Certification Pursuant to Section 906 of the Sarbanes-Oxley Act of U.S.C. Section 1350

351 Exhibit 95 Item5. Other Information Mine Safety and Health Administration Safety Data The Company is committed to the safety of its employees and in achieving a goal of providing a workplace that is incident free. In achieving this goal the company has in place health and safety programs that include regulatory-based training, accident prevention, workplace inspection, emergency preparedness response, accident investigations and program auditing. These programs are designed to comply with regulatory mining-related coking coal safety and environmental standards. Additionally, the programs provide a basis for promoting a best in industry safety practice. The operation of our mines is subject to regulation by the Mine Safety and Health Administration ("MSHA") under the Federal Mine Safety and Health Act of 1977 ("the Mine Act"). MSHA inspects our mines on a continual basis and issues various citations and orders when it believes a violation has occurred under the Mine Act. As required by Section 1503 of the Dodd-Frank Wall Street Reform and Consumer Protection Act, each operator of a coal or other mine is required to include certain mine safety results in its periodic reports filed with the Securities and Exchange Commission. Within this disclosure, we present information regarding certain mining safety and health citations which MSHA has issued with respect to our mining operations. In evaluating this information, consideration should be given to facts such as: (i) the number of citations and orders will vary depending on the size of the coal mine, (ii) the number of citations issued will vary from inspector to inspector and mine to mine, and (iii) citations and orders can be contested and appealed, and in that process, are sometimes dismissed and remaining citations are often reduced in severity and amount. During the calendar year ended December 31, 2011 none of the Company's mining complexes received written notice from MSHA of (i) a pattern of violations of mandatory health or safety standards that are of such nature as could have significantly and substantially contributed to the cause and effect of coal or other mine health or safety hazards under section 104(e) or (ii) the potential to have such a pattern.(1) The table below presents the total number of specific citations and orders issued by MSHA to Walter Energy Inc. and its subsidiaries, together with the total dollar value of the proposed MSHA civil penalty assessments received during the calendar year ended December 31, The second table presents legal actions pending before the Federal Mine Safety and Health Review Commission for each of our mining complexes that had pending legal actions during the calendar year ended December 31, Mining Complex(2) (7) Section 104 S&S Citations Section 104(b) Orders Section 104(d) Citations and Orders Section 110(b)(2) Violations Section 107(a) Orders Proposed MSHA Assessments(5) ($ in thousands) Fatalities JWR No (3) 13 2(4) JWR No. 5 JWR No JWR Central Shop JWR North River Taft Reid School TRI East Brookwood TRI Highway TRI Swann's Crossing Atlantic Leaseco King Coal 1 Mine Atlantic Leaseco King Coal 1 Prep Plant Atlantic Leaseco Black Pearl Atlantic Leaseco Cowen Loadout 0.2 Maple Coal Maple Eagle No (6) Maple Coal Maple Prep Plant Maple Coal Huffman Sycamore SM 18

352 (1) On May 17, 2011, Maple Eagle No. 1 Mine was notified by MSHA that it would not be issued a notice of Pattern of Violations. (2) MSHA assigns an identification number to each coal mine and may or may not assign separate identification numbers to related facilities such as preparation plants. We are providing the information in the table by mining complex rather than MSHA identification number because we believe that this presentation is more useful to investors. For descriptions of each of these mining operations, please refer to the descriptions under Item 1. Description of Business, in Part 1 of our Annual Report on Form-10K for the fiscal year ended December 31, Idle facilities are not included in the table above unless they received a citation, order or assessment by MSHA during the current quarterly reporting period or are subject to pending legal actions. (3) On June 28, 2011, Jim Walter Resources, Inc., ("JWR") a subsidiary of Walter Energy, Inc., and the operator of the Company's No. 4 Mine, received order No (the "b-order") under section 104(b) of the Mine Act. MSHA District 11 notified No. 4 Mine on July 5, 2011 that it was vacating 104(b) Order , after additional review revealed that it had been issued in error. (4) On April 14, 2011, Jim Walter Resources, Inc., ("JWR") a subsidiary of Walter Energy, Inc., and the operator of the Company's No. 4 Mine, received an imminent danger order No (the "Order") under section 107(a) of the Mine Act. No. 4 Mine contested the issuance of the Order in a legal action before the Federal Mine Safety and Health Review Commission, Docket No. SE R. On June 13, 2011, the Secretary of Labor, advised the Court, via to the Court and JWR's Counsel, that she had decided to vacate the Order. The Secretary's action was a unilateral decision on the Secretary's part and was not conditioned upon any action being undertaken by Jim Walter Resources. The Court issued an order dismissing Docket No. SE R on June 13, (5) Amounts listed under this heading include proposed assessments received from MSHA in the current annual reporting period for alleged violations, regardless of the issuance date of the related citation or order. (6) On December 5, 2011, an underground miner at Maple Eagle No. 1 Mine suffered an apparent heart attack while at work. The miner was taken to a local hospital where he died a few days later. MSHA has established policies and procedures for determining whether a fatality is unrelated to mining activity, such as homicides, suicides, and deaths by natural causes (commonly referred to as "non-chargeable" to the mining industry.) The SEC's final rules implementing Section 1503 of the Dodd-Frank Wall Street Reform and Consumer Protection Act specify that disclosure is required of all fatalities, unless the fatality is determined to be "non-chargeable." SEC rules specify that until MSHA's fatality review committee has formally declared a fatality to be "non-chargeable," it must be disclosed. MSHA regulations require mine operators to report to MSHA all fatalities that occur at a mine. MSHA initiated a Non-Chargeable Accident Investigation into the fatality, which is pending. Based on past MSHA practice, Walter Energy is confident that MSHA will declare the fatality to be non-chargeable. (7) The table includes references to specific sections of the Mine Act as follows: Section 104(a) Citations include citations for health or safety standards that could significantly and substantially contribute to serious injury if left unabated. Section 104(b) Orders represent failures to abate a citation under 104(a) within the period of time prescribed by MSHA and that the period of time prescribed for the abatement should not be further extended. This results in an order of immediate withdrawal from the area of the mine affected by the condition until MSHA determines that the violation has been abated. Section 104(d) Citations and Orders are for unwarrantable failure to comply with mandatory health and safety standards where such violation is of such a nature as could significantly or substantially contribute to the cause and effect of a coal or other mine safety or health hazard. Section 110(b)(2) Violations are for flagrant violations. Section 107(a) Orders are for situations in which MSHA determined an imminent danger existed.

353 Mining Complex Legal Actions(1) Pending as of December 31, 2011 Initiated During 2011 Resolved During 2011 JWR No CFR Part 2700, Subpart B CFR Part 2700, Subpart C JWR No CFR Part 2700, Subpart C 1 JWR No CFR Part 2700, Subpart B CFR Part 2700, Subpart C CFR Part 2700, Subpart H JWR North River 29 CFR Part 2700, Subpart B CFR Part 2700, Subpart C Taft Reid School 29 CFR Part 2700, Subpart C 1 1 TRI East Brookwood 29 CFR Part 2700, Subpart C Atlantic Leaseco King Coal 1 Mine 29 CFR Part 2700, Subpart C Atlantic Leaseco Black Pearl 29 CFR Part 2700, Subpart C 13 6 Maple Coal Maple Eagle No CFR Part 2700, Subpart B CFR Part 2700, Subpart C Maple Coal Maple Prep Plant 29 CFR Part 2700, Subpart C 1 Maple Coal Huffman Sycamore SM 29 CFR Part 2700, Subpart C 1 1 (1) Effective January 27, 2011, SEC adopted amendments to its rules to implement Section 1503 of the Dodd-Frank Wall Street Reform and Consumer Protection Act (the "final rule".) The final rule modified previous reporting requirements and requires that the total number of legal actions pending before the Federal Mine Safety and Health Review Commission (FMSHRC) as of the last day of the time period covered by the report be categorized according to type of proceeding, in accordance with the categories established in the Procedural Rules of FMSHRC. SEC rules require that six different categories of pending legal actions be disclosed. Categories for which there is no pending litigation for the respective mine are not listed in the table. The types of proceedings are listed as follows: "29 CFR Part 2700, Subpart B" These legal actions include proceedings initiated under FMSHRC Procedural Rule 29 CFR Part 2700, Subpart B such as contests of citations and orders filed prior to receipt of a proposed penalty assessment from MSHA, contests related to orders for which penalties are not assessed (such as imminent danger orders under Section 107 of the Mine Act), and emergency response plan dispute proceedings. "29 CFR Part 2700, Subpart C" These legal actions include proceedings initiated under FMSHRC Procedural Rule 29 CFR Part 2700, Subpart C and are contests of citations and orders after receipt of proposed penalties.

354

355 "29 CFR Part 2700, Subpart D" These legal actions include proceedings initiated under FMSHRC Procedural Rule 29 CFR Part 2700, Subpart D and are complaints for compensation, which are cases under section 111 of the Mine Act. "29 CFR Part 2700, Subpart E" These legal actions include proceedings initiated under FMSHRC Procedural Rule 29 CFR Part 2700, Subpart E and are complaints of discharge, discrimination or interference and temporary reinstatement under section 105 of the Mine Act. "29 CFR Part 2700, Subpart F" These legal actions include proceedings initiated under FMSHRC Procedural Rule 29 CFR Part 2700, Subpart F such as applications for temporary relief under section 105(b)(2) of the Mine Act from any modification or termination of any order issued thereunder, or from any order issued under section 104 of the Mine Act (other than citations issued under section 104(a) or (f) of the Mine Act). "29 CFR Part 2700, Subpart H" These legal actions include proceedings initiated under under FMSHRC Procedural Rule 29 CFR Part 2700, Subpart H and are appeals of judges' decisions or orders to FMSHRC, including petitions for discretionary review and review by FMSHRC on its own motion.