Exhibit 99.1
NEWS BULLETIN
RE: Headwaters Incorporated
from 10653 South River Front Parkway, Suite 300
South Jordan, UT 84095
FINANCIAL (801) 984-9400
RELATIONS BOARD NASDAQ: HDWR
- --------------------------------------------------------------------------------
FOR FURTHER INFORMATION
AT THE COMPANY: AT FINANCIAL RELATIONS BOARD:
Sharon Madden Tricia Ross
Director of Investor Relations Analyst Contact
(801) 984-9400 (310) 407-6540
FOR IMMEDIATE RELEASE:
September 8, 2004
HEADWATERS INCORPORATED ACQUIRES
TAPCO HOLDINGS, INC.
o Expands Construction Materials Pro Forma Revenue by $237 Million
for LTM Ended June 30, 2004
o Expected Accretion in 2005 of $0.10 to $0.20 Earnings Per Diluted Share
o Fiscal 2005 Earnings Guidance of $2.20 to $2.30 Per Share
SOUTH JORDAN, UTAH, SEPTEMBER 8, 2004 - HEADWATERS INCORPORATED (NASDAQ: HDWR)
today announced that it has acquired Tapco Holdings Inc., ("Tapco") a leading
manufacturer of building products and professional tools used in residential
remodeling and construction for $715 million in cash.
Transaction Overview
- --------------------
o $715 million purchase price
o Purchase price funded with proceeds from senior secured credit facilities
Tapco Highlights
- ----------------
o Leading market share in core markets, primarily wall siding accessories
o Vendor of choice for wholesale and the leading U.S. home improvement
retailers based on:
- Distribution capabilities
- Investment in state-of-the-art manufacturing and logistics systems
o Strong free cash flow and margins
o Demonstrated growth during housing cycle downturns and interest rate
increases - significant presence in the remodeling market
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o Strong management team and extensive industry experience
Transaction Rationale
- ---------------------
o Transaction expected to be earnings accretive in the range of $0.10 to
$0.20 in fiscal 2005
o Further diversifies cash flow and earnings
o Increases operating cash flow that can be used to de-lever and invest in
additional growth opportunities such as nanotechnology
o Expands construction materials platform with product breadth, geographic
strength, distribution and logistics capabilities
o Provides access to Tapco's extensive distribution network comprising over
9,000 ship-to locations including retailers Home Depot and Lowe's
o Enhances the stability of Headwaters' construction materials cash flow
because of Tapco's presence in the less cyclical remodeling market
Forecast Fiscal 2005
- --------------------
o Forecast earnings per share for fiscal 2005 of $2.20 to $2.30
o Integration of new businesses is moving forward appropriately
o Growth in manufactured stone exceeding expectations
o Improved construction materials margins o Solid fly ash performance
Kirk A. Benson, Chairman and CEO of Headwaters, stated, "Tapco has a leading
market position in the building materials market and will allow Headwaters to
further expand in this area. The acquisition of Tapco will strengthen and
diversify Headwaters' construction materials platform with complementary
products, geographical strength, and distribution and logistics capabilities. It
is consistent with Headwaters' strategy of acquiring market-leading companies
with complementary distribution channels and organic growth opportunities. The
acquisition of Tapco, along with the acquisition of Eldorado Stone LLC earlier
in 2004, places Headwaters in what we believe to be two of the highest growth
areas of the siding market: manufactured stone and specialty molded products."
Tapco will become part of Headwaters Construction Materials, an expanding
division of Headwaters that manufactures, distributes and sells manufactured
stone, masonry mortars, blocks, stucco materials, and specialty molded siding
accessories. In the last six months, Headwaters has acquired Eldorado Stone, the
#2 U.S. manufacturer of architectural stone veneer, Southwest Concrete, which
makes Headwaters the largest supplier of concrete block in the Texas market, and
Tapco, the largest U.S. manufacturer of injection-molded siding accessories.
Tapco
- -----
Tapco is a leading designer, manufacturer and marketer of building products and
professional tools used in exterior residential home improvement and
construction. Tapco believes it has a greater than 75% market share in its core
products, based on its survey of the marketplace. These products are primarily
injection-molded from polypropylene and enhance the appearance of homes and
include window shutters (decorative, operational, functional and storm
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protection), gable vents, mounting blocks for exterior fixtures, roof
ventilation, exterior decor products (window headers/mantels, sunbursts, door
surrounds, exterior dentil trim and decorative windows) and specialty siding
products (replica cedar shake and shingle siding). Professional tools include
portable cutting and shaping tools used by contractors on site to fabricate
customized aluminum shapes that complement the installation of exterior siding.
2003 Gross Sales by Product
---------------------------
Shutters $114MM 48%
Exterior Vents $ 33MM 14%
Mounting Blocks $ 31MM 13%
Other $ 30MM 13%
Professional Installation Tools $ 28MM 12%
2003 Gross Sales by Channel
---------------------------
Wholesale $164MM 69%
Retail $ 63MM 27%
Manufactured Housing $ 6MM 3%
International $ 3MM 1%
Tapco's products are sold primarily in the United States and Canada, with less
than 5% of sales in Europe, Australia and Asia, through four principal channels:
one-step distributors, two-step distributors, "do-it-yourself" mass
merchandisers and manufactured housing distributors. Tapco distributes its
products through substantially all major U.S. vinyl siding distributors in the
one-step and two-step channels. In contrast, many of Tapco's competitors
manufacture accessory products as a minor adjunct to their core siding business
and generally only distribute through authorized distributors of their siding
products.
Tapco markets its products under various brands that are differentiated between
the retail and wholesale distribution channels. These brands include: "Tapco
Products," "Mid-America Building Products," "Mid-America Master Series,"
"Builders Edge," "Atlantic Shutter Systems," "Vantage," and "The Foundry."
Sales are currently impacted by growth in the siding market, and more
particularly in the vinyl siding market. Growth in the siding market tends to
increase demand for accessory products as does growth in new product categories
like functional shutters and specialty siding. Headwaters believes the continued
growth in vinyl siding sales is a function of home improvement activity,
construction activity and consumer acceptance. Vinyl siding has continued to
gain acceptance and increased market share among all siding materials,
accounting for nearly 50% of all siding sales in 2002. Tapco, through the
introduction of new products, extensive marketing, logistics management and
acquisitions, has continued to increase its market share of accessories that
accompany vinyl siding sales. Tapco believes that it has the broadest accessory
product line in the industry with more than 140,000 SKUs of accessories
complementing all vinyl siding in the market.
Approximately 75% of Tapco's sales during fiscal 2003 were tied to the home
improvement industry, which is typically less cyclical than new construction
because remodeling is generally less expensive than a new home and is often
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required to preserve the value of a home. During economic downturns, Headwaters
believes remodeling with vinyl siding is often more attractive than remodeling
with wood or brick because of its lower cost. The use of Tapco's products is a
way for contractors to differentiate themselves and maximize sales because the
products are more aesthetically pleasing, easy to install and provide broader
customer choice. As a result, Tapco's products have experienced strong growth
rates during economic downturns. Additionally, Tapco's professional installation
tools are purchased by contractors to allow them to work independently of other
business arrangements when there are fewer over-all jobs, which can mitigate
cyclicality.
"The acquisition of Tapco fits well into our "wall" building products strategy.
Almost all of Tapco's products are accessories associated with exterior wall
construction. It also expands our ability to deliver wall products using a
variety of raw materials and production processes through a greatly expanded
distribution system," said Kirk A. Benson, Headwaters Chief Executive Officer.
The Transaction
- ---------------
The transaction was funded with senior secured credit facilities and balance
sheet cash. The permanent credit facilities were underwritten by Morgan Stanley
and JPMorgan. Morgan Stanley acted as exclusive strategic M&A advisor to
Headwaters on this transaction.
The senior secured credit facilities consist of a $640 million first lien term
loan maturing in April 2011, and a $150 million second lien term loan maturing
in September 2012. The first lien term loan will amortize in quarterly
installments of 1% per year with the remaining balance due in three equal
installments in November, February and April of the final year. The second lien
term loan is due in a single payment at maturity. The senior secured credit
facilities are subject to customary covenants. In connection with the
syndication of the credit facilities the lenders are entitled to make
adjustments to the pricing and other terms of the credit facilities as the lead
arrangers may deem advisable, subject to certain limitations.
The proceeds from the new borrowings and balance sheet cash was used to complete
the acquisition, repay Headwaters' current outstanding senior debt, and pay the
expenses of the transaction. Use of proceeds totals approximately $810 million.
Steven G. Stewart, Chief Financial Officer, commented, "We believe Headwaters'
strong cash flow, coupled with Tapco's operations, provides us with the ability
to meet the debt service requirements of these new higher debt levels. We are
intent on paying down the debt as rapidly as possible as we have always
indicated our preference of operating the business at a level of debt that is 2
to 2.5 times EBITDA. Headwaters strong generation of funds from operations of
our businesses should allow us to substantially reduce the debt to EBITDA ratio
by the end of 2005. Headwaters may consider a future equity offering not to
exceed $175 million to reduce indebtedness, subject to market conditions and the
effects of expected dilution."
Pro forma Information
- ---------------------
The acquisition is expected to be accretive to Headwaters' fiscal 2005 EPS. On a
pro forma basis Tapco would have been approximately $0.20 accretive for the LTM
ended June 30, 2004, if the acquisition had occurred on July 1, 2003. It is
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anticipated that Tapco will be accretive to Headwaters' 2005 EPS in the range of
$0.10 to $0.20. After consummation of the transaction, Headwaters has
approximately $972 million in long-term debt and an indebtedness to EBITDA ratio
of approximately 4.4, based on pro forma LTM results as of June 30, 2004. See
the attached pro forma information and EBITDA reconciliation.
The addition of Tapco continues the diversification of Headwaters' revenue and
provides cash flows for future development of important technological,
operational and strategic initiatives. On a LTM basis, including Tapco,
Headwaters' revenues have increased in the construction materials segment. As
shown in the following table, alternative energy, CCPs and construction
materials represent 21%, 26%, and 53% of total pro forma revenue, respectively.
Alternative Energy - 175,900
CCP's - 220,400
Construction Materials - 438,000
Total - 834,300
Acquisition Benefits
Diversification of Cash Flows. The acquisition of Tapco will further diversify
Headwaters' cash flow stream away from revenue associated with Section 29
business activities. On a pro forma basis, Covol Fuels represents approximately
20% of Headwaters' revenue versus approximately 33% previously. In addition,
Tapco's significant presence in the remodeling market and historical strength
throughout economic cycles provides balanced exposure to both the new
construction and home improvement markets. Consequently, we believe this
transaction will increase the operating cash flows that Headwaters can use to
de-lever and invest in growth opportunities such as HTI's nanotechnology.
Margin Enhancement. Tapco brings economy of scale and manufacturing expertise
that results in some of the lowest manufacturing costs in the siding accessory
industry, which we believe will improve margins in our construction materials
segment.
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Strong Free Cash Flow Generation. We believe that Tapco's strong EBITDA margins
will enhance Headwaters' free cash flow profile.
Established Market Leader. Tapco is the vendor of choice in injection-molded
accessories and adds to Headwaters' portfolio of market-leading building
products brands.
Access to Tapco Distribution Network. Headwaters intends to identify additional
products that we can distribute through Tapco's existing network. Tapco
currently ships to greater than 9,000 distribution points through thousands of
distributors. The Company also may be able to leverage the distribution networks
of Tapco, Eldorado and our masonry products businesses to accelerate sales of
our diverse product portfolio of construction materials. For example, Tapco's
strong distribution and marketing presence in the remodeling industry may create
a marketing and sales opportunity for Eldorado Stone, which is primarily
marketed and distributed to the new construction market. Further, Eldorado's
strong presence in the Southwest United States and our leading regional concrete
block presence in Texas may create new distribution channels for Tapco products.
Experienced Management Team. Tapco brings an energetic management team that has
increased net revenues from $165.9 million in 2001 to $236.9 million for the LTM
ended June 30, 2004.
"We are pleased to combine with Headwaters," said Jack Lawless, President of
Tapco. "We believe that we will have an opportunity to participate with
Headwaters to create one of the finest energy and building products companies in
the world. Tapco's management is committed to a long and productive
relationship."
Future Outlook
- --------------
"Headwaters has normally provided next year guidance after the end of our fiscal
year," stated Steven G. Stewart, Chief Financial Officer. "The Tapco acquisition
is significant and will be important to our fiscal 2005 performance. In
addition, our existing business operations are performing well ahead of our
original expectations. Accordingly, we are pleased to be able to provide a
forecast for 2005 of between $2.20 and $2.30 earnings per diluted share. This
forecast could be adjusted based upon the results of the Emerging Issues Task
Force's review of contingent convertible debt instruments. Reducing our fiscal
2004 earnings forecast of $1.90 earnings per diluted share for the one time
earnings event in the March quarter of $0.25 per share, our 2005 earnings
forecast represents a growth rate of between 33% and 39%. Without the adjustment
for the March quarter the expected growth rate would be 16% to 21%. We are
excited about the financial performance of our businesses, the strong funds
generated from operations, and the addition of Tapco."
Headwaters will hold a conference call and web cast (with slides) today, at 2:30
p.m. ET, to discuss the Tapco acquisition. The call can be accessed live by
calling 800-215-6437 or 706-634-0805 (international). The call will also be
available live via the Internet by accessing Headwaters' web site at
www.hdwtrs.com and clicking on the Investor Relations section. To listen to the
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live broadcast, please go to the web site at least fifteen minutes early to
register, download and install any necessary audio software. For those who
cannot listen to the live broadcast, an online replay will be available for 90
days on www.hdwtrs.com, or a phone replay will be available from one hour after
the call and through September 15, 2004 at 11:59 p.m. ET. You may access the
replay by dialing 800-642-1687 or 706-645-9291 (international) and entering the
passcode 9987359.
About Headwaters Incorporated
- -----------------------------
Headwaters Incorporated is a world leader in creating value through innovative
advancements in the utilization of natural resources. The Company is focused on
providing services to energy companies, conversion of fossil fuels into
alternative energy products, and adding value to energy. Headwaters generates
revenue from managing coal combustion products (CCPs) and from licensing its
innovative chemical technology to produce an alternative fuel. Through its CCP
business, building products business, and its solid alternative fuels business,
the Company earns a growing revenue stream that provides the capital needed to
expand and acquire synergistic new business opportunities.
About Tapco
- -----------
Tapco is a leading designer, manufacturer and marketer of building products and
professional tools used in exterior residential remodeling and construction.
Tapco's products are sold primarily in the United States and Canada, with less
than 5% of sales in Europe, Australia and Asia. Tapco distributes its products
through substantially all major U.S. vinyl siding distributors in the one-step
and two-step channels. Tapco's web site is www.tapcoint.com.
Forward Looking Statements
- --------------------------
Certain statements contained in this report are forward-looking statements
within the meaning of federal securities laws and Headwaters intends that such
forward-looking statements be subject to the safe-harbor created thereby.
Forward-looking statements include Headwaters' expectations as to the managing
and marketing of coal combustion products and building products, operation of
facilities utilizing alternative fuel technologies, the marketing of synthetic
fuels, the receipt of licensing fees, royalties, and product sales revenues, the
development, commercialization, and financing of new technologies and other
strategic business opportunities and acquisitions, and other information about
Headwaters. Such statements that are not purely historical by nature, including
those statements regarding Headwaters' future business plans, the operation of
facilities, the availability of tax credits, the availability of feed stocks,
and the marketability of the coal combustion products, building products, and
synthetic fuel, are forward-looking statements within the meaning of the Private
Securities Litigation Reform Act of 1995 regarding future events and our future
results that are based on current expectations, estimates, forecasts, and
projections about the industries in which we operate and the beliefs and
assumptions of our management. Actual results may vary materially from such
expectations. Words such as "expects," "anticipates," "targets," "goals,"
"projects," "believes," "seeks," "estimates," variations of such words, and
similar expressions are intended to identify such forward-looking statements.
Any statements that refer to projections of our future financial performance,
our anticipated growth and trends in our businesses, and other characterizations
of future events or circumstances, are forward-looking.
In addition to matters affecting the coal combustion products, synthetic fuel
and building products industries or the economy generally, factors which could
cause actual results to differ from expectations stated in forward-looking
statements include, among others, the factors described in the captions entitled
"Forward-looking Statements" and "Risk Factors" in Item 7 in Headwaters' Annual
Report on Form 10-K for the fiscal year ended September 30, 2003, Quarterly
Reports on Form 10-Q, and other periodic filings and prospectuses.
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Although Headwaters believes that its expectations are based on reasonable
assumptions within the bounds of its knowledge of its business and operations,
there can be no assurance that our results of operations will not be adversely
affected by such factors. Unless legally required, we undertake no obligation to
revise or update any forward-looking statements for any reason. Readers are
cautioned not to place undue reliance on these forward-looking statements, which
speak only as of the date of this report.
Our internet address is www.hdwtrs.com. There we make available, free of charge,
our Annual Report on Form 10-K, Quarterly Reports on Form 10-Q, current reports
on Form 8-K and any amendments to those reports, as soon as reasonably
practicable after we electronically file such material with, or furnish it to,
the SEC. Our reports can be accessed through the investor relations section of
our web site.
HEADWATERS INCORPORATED
CONDENSED CONSOLIDATED STATEMENT OF INCOME (Unaudited) for the Nine Months Ended
June 30, 2004 (thousands of dollars and shares, except per-share amounts)
Headwaters
Tapco Eldorado Consolidated Pro Forma
Nine Months Eight Months Nine Months Nine Months
Ended Ended Ended Ended
July 31, 2004 May 31, 2004 June 30, 2004 June 30, 2004
------------- ---------------- ------------- --------------
Revenue: (ACTUAL) (ACTUAL) (ACTUAL) (PRO FORMA)
Sales of chemical reagents $ 98,393 $ 98,393
License fees 59,276 59,276
Coal combustion products revenues 143,363 143,363
Sales of construction materials 171,339 78,491 49,961 299,791
Other revenues 4,315 4,315
------------- ---------------- ------------- --------------
Total revenue 171,339 78,491 355,308 605,138
------------- ---------------- ------------- --------------
Operating costs and expenses:
Cost of chemical reagents sold 66,804 66,804
Cost of coal combustion products revenues 102,835 102,835
Cost of construction materials sold 94,979 54,352 38,921 188,252
Cost of other revenues 362 362
Depreciation and amortization 1,628 4,484 11,056 24,680
Research and development 5,135 5,135
Selling, general and administrative 26,663 14,006 42,340 83,009
------------- ---------------- ------------- --------------
Total operating costs and expenses 123,270 72,842 267,453 471,077
------------- ---------------- ------------- --------------
Operating income 48,069 5,649 87,855 134,061
Interest income (expense), net (19,496) (3,641) (12,253) (48,159)
Other income (expense), net 100 0 (2,118) (2,018)
------------- ---------------- ------------- --------------
Income before income taxes 28,673 2,008 73,484 83,884
Income tax provision (10,601) 0 (28,705) (32,761)
------------- ---------------- ------------- --------------
Net income $ 18,072 $ 2,008 $ 44,779 $ 51,123
============= ================ ============= ==============
Basic earnings per share $ 1.43 $ 1.63
============= ==============
Diluted earnings per share $ 1.38 $ 1.57
============= ==============
Weighted average shares outstanding -- basic 31,287 31,287
============= ==============
Weighted average shares outstanding -- diluted 32,501 32,501
============= ==============
Reconciliation of actual results to pro forma results for the nine months ended
June 30, 2004:
Headwaters' historical net income as originally reported, including one
month of Eldorado net income subsequent to June 2, 2004, date of
acquisition $ 44,779
Eldorado's historical net income prior to date of acquisition 2,008
Tapco's historical net income 18,072
Net increase in amortization expense on acquired intangible assets (7,512)
Net increase in interest expense on new debt facilities (12,769)
Income tax effect of above adjustments 6,545
----------------
Pro forma net income shown above $ 51,123
================
HEADWATERS INCORPORATED
CONDENSED CONSOLIDATED STATEMENT OF INCOME (Unaudited) for the Year Ended
September 30, 2003 (thousands of dollars and shares, except per-share amounts)
Headwaters
Tapco Eldorado Consolidated Pro Forma
Year Ended Year Ended Year Ended Year Ended
October 31, December 31, September 30, September 30,
2003 2003 2003 2003
------------- ---------------- ------------- --------------
Revenue: (ACTUAL) (ACTUAL) (ACTUAL) (PRO FORMA)
Sales of chemical reagents $ 128,375 $ 128,375
License fees 35,726 35,726
Coal combustion products revenues 169,938 169,938
Sales of construction materials 212,816 103,659 49,350 365,825
Other revenues 4,241 4,241
------------- ---------------- ------------- --------------
Total revenue 212,816 103,659 387,630 704,105
------------- ---------------- ------------- --------------
Operating costs and expenses:
Cost of chemical reagents sold 87,386 87,386
Cost of coal combustion products revenues 123,146 123,146
Cost of construction materials sold 126,729 72,060 37,689 236,478
Cost of other revenues 3,919 3,919
Depreciation and amortization 1,870 6,526 12,982 31,395
Research and development 4,674 4,674
Selling, general and administrative 32,785 17,059 40,715 90,559
------------- ---------------- ------------- --------------
Total operating costs and expenses 161,384 95,645 310,511 577,557
------------- ---------------- ------------- --------------
Operating income 51,432 8,014 77,119 126,548
Interest income (expense), net (30,375) (5,349) (15,377) (63,990)
Other income (expense), net (273) 0 (1,661) (1,934)
------------- ---------------- ------------- --------------
Income before income taxes 20,784 2,665 60,081 60,624
Income tax provision (7,042) 0 (23,450) (23,662)
------------- ---------------- ------------- --------------
Net income $ 13,742 $ 2,665 $ 36,631 $ 36,962
============= ================ ============= ==============
Basic earnings per share $ $1.35 $ 1.36
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Diluted earnings per share $ 1.30 $ 1.31
============= ==============
Weighted average shares outstanding -- basic 27,083 27,083
============= ==============
Weighted average shares outstanding -- diluted 28,195 28,195
============= ==============
Reconciliation of actual results to pro forma results for the fiscal year ended
September 30, 2003:
Headwaters' historical net income as reported $ 36,631
Eldorado's historical net income 2,665
Tapco's historical net income 13,742
Net increase in amortization expense on acquired intangible assets (10,017)
Net increase in interest expense on new debt facilities (12,889)
Income tax effect of above adjustments 6,830
----------------
Pro forma net income shown above $ 36,962
================
HEADWATERS INCORPORATED
Reconciliation of Pro Forma EBITDA
for the Last Twelve Months Ended June 30, 2004
(thousands of dollars)
Pro Forma
Consolidated
Twelve Months
Ended June 30,
2004
-------------
Headwaters:
Last twelve months ("LTM") net income $ 56,025
LTM net interest expense 15,717
LTM income taxes 35,205
LTM depreciation and amortization 14,958
-------------
Headwaters LTM EBITDA 121,905
Eldorado:
Pro forma EBITDA for the eleven months ended May 31, 2004 20,702
Tapco:
Pro forma EBITDA for the twelve months ended July 31, 2004 77,836
-------------
Pro forma combined LTM EBITDA $ 220,443
=============
Reconciliation of Eldorado Pro Forma EBITDA:
Pro forma LTM net income $ 3,134
Pro forma LTM net interest expense 6,717
Pro forma LTM income taxes 2,004
Pro forma LTM depreciation and amortization 8,847
-------------
$ 20,702
=============
Reconciliation of Tapco Pro Forma EBITDA:
Pro forma LTM net income $ 7,211
Pro forma LTM net interest expense 41,365
Pro forma LTM income taxes 4,610
Pro forma LTM depreciation and amortization 24,025
Non recurring management fees 625
-------------
$ 77,836
=============