UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D. C. 20549
FORM 8-K/A
AMENDMENT NO. 1
CURRENT REPORT
Pursuant to Section 13 or 15(d) of the
Securities Exchange Act of 1934
Date of Report (Date of earliest event reported): September 8, 2004
Headwaters Incorporated
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(Exact name of registrant as specified in its charter)
Delaware 0-27808 87-0547337
- ----------------------------- -------------- -----------------------
(State or other jurisdiction (Commission (I.R.S. Employer
of incorporation) File Number) Identification Number)
10653 South River Front Parkway, Suite 300
South Jordan, UT 84095
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(Address of principal executive offices) (Zip Code)
Registrant's telephone number, including area code: (801) 984-9400
Not Applicable
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(Former name or former address, if changed since last report)
Check the appropriate box below if the Form 8-K filing is intended to
simultaneously satisfy the filing obligation of the registrant under any of the
following provisions:
[ ] Written communications pursuant to Rule 425 under the
Securities Act (17 CFR 230.425)
[ ] Soliciting material pursuant to Rule 14a-12 under the
Exchange Act (17 CFR 240.14a-12)
[ ] Pre-commencement communications pursuant to Rule 14d-2(b)
under the Exchange Act (17 CFR 240.14d-2(b))
[ ] Pre-commencement communications pursuant to Rule 13e-4(c)
under the Exchange Act (17 CFR 240.13e-4(c))
The purpose of this amendment is to replace in its entirety exhibit 10.89
previously filed and to add additional information to footnotes 2 and 3 to the
Pro Forma Condensed Combined Financial Information.
Item 9.01: Financial Statements and Exhibits.
(a) The following consolidated financial statements of Tapco Holdings,
Inc. are included herein (all previously filed):
Report of Independent Auditors
Consolidated Balance Sheets as of October 31, 2002 and 2003
and Unaudited as of July 31, 2004
Consolidated Statements of Income for the Years Ended
October 31, 2001, 2002 and 2003 and Unaudited Nine Months
Ended July 31, 2003 and 2004
Consolidated Statements of Cash Flows for the Years Ended
October 31, 2001, 2002 and 2003 and Unaudited Nine Months
Ended July 31, 2003 and 2004
Consolidated Statements of Stockholders' Equity (Deficit) and
Comprehensive Income (Loss) for the Years Ended October
31, 2001, 2002 and 2003 and Unaudited Nine Months Ended
July 31, 2004
Notes to Consolidated Financial Statements
(b) The following unaudited pro forma financial information for
Headwaters Incorporated is included herein:
Introduction to Pro Forma Financial Information
Pro Forma Condensed Combined Balance Sheet as of June 30, 2004
Pro Forma Condensed Combined Statement of Income for the Year
Ended September 30, 2003
Pro Forma Condensed Combined Statement of Income for the Nine
Months Ended June 30, 2004
Notes to Pro Forma Condensed Combined Financial Information
(c) Exhibits.
Exhibit 10.89: Agreement and Plan of Merger by and among
Headwaters Incorporated, Headwaters T
Acquisition Corp., and Tapco Holdings, Inc.,
dated as of September 8, 2004
Exhibit 99.1: Press Release dated September 8, 2004
(previously filed).
Exhibit 99.2: Press Release dated September 9, 2004
(previously filed).
HEADWATERS INCORPORATED
INTRODUCTION TO UNAUDITED PRO FORMA CONDENSED
COMBINED FINANCIAL INFORMATION
(dollar and share amounts in thousands)
Eldorado Stone
- --------------
On June 2, 2004, Headwaters acquired 100% of the ownership interests of Eldorado
Stone LLC ("Eldorado") and paid off all of Eldorado's outstanding debt. Eldorado
is based in San Marcos, California and is a leading manufacturer of
architectural manufactured stone. With over 1,600 distributors, Eldorado
provides Headwaters with a national platform for expanded marketing of "green"
building products, such as mortar and stucco made with reclaimed fly ash from
coal combustion. Headwaters expects Eldorado, which is included in its
construction materials segment, to provide critical mass and improved margins in
Headwaters' efforts to expand the use of fly ash in building products.
At the closing of the Eldorado acquisition, Headwaters paid consideration
consisting of cash payments to the owners of Eldorado of approximately $137.0
million and cash payments of approximately $69.6 million to retire Eldorado debt
and related accrued interest, for an aggregate purchase price of $206.6 million,
which together with estimated expenses incurred by Headwaters to consummate the
Eldorado acquisition of approximately $3.8 million, constitutes total
consideration of approximately $210.4 million. Eldorado's results of operations
have been included in Headwaters' consolidated statement of income since June 2,
2004.
In connection with the Eldorado acquisition, Headwaters issued $172,500 of new
convertible senior subordinated debt and also borrowed funds under its senior
secured revolving credit arrangement and an arrangement with an investment
company, the latter two of which were repaid prior to June 30, 2004.
Tapco
- -----
On September 8, 2004, Headwaters acquired 100% of the ownership interests of
Tapco Holdings, Inc. ("Tapco") and paid off all of Tapco's outstanding debt.
Tapco is headquartered in Wixom, Michigan and is a leading designer,
manufacturer and marketer of specialty building products and professional tools
used in exterior residential home improvement and construction throughout the
United States and Canada. Headwaters expects the Tapco acquisition to further
diversify Headwaters' cash flow stream away from its historical reliance on
alternative energy. Tapco brings economy of scale and manufacturing expertise
that results in some of the lowest manufacturing costs in the siding accessory
industry, which is expected to improve margins in Headwaters' construction
materials segment. Headwaters may also be able to leverage Tapco's distribution
networks to accelerate sales of Headwaters' diverse construction materials
product portfolio.
At the closing of the Tapco acquisition, Headwaters paid consideration
consisting of cash payments to the owners of Tapco of approximately $415,000 and
cash payments of approximately $300,000 to retire Tapco debt, preferred stock
and related accrued interest, for an aggregate purchase price of $715,000 which,
together with estimated expenses incurred by Headwaters to consummate the Tapco
acquisition of approximately $8,500, constitutes total consideration of
approximately $723,500.
HEADWATERS INCORPORATED
INTRODUCTION TO UNAUDITED PRO FORMA CONDENSED
COMBINED FINANCIAL INFORMATION
(dollar and share amounts in thousands)
In order to obtain the cash necessary to acquire Tapco, retire the Tapco debt
and preferred stock, and repay Headwaters' existing senior debt, the pro forma
financial information reflects the issuance by Headwaters of $790,000 of debt
consisting of $640,000 of senior secured debt under a first lien with a six and
one-half-year term and a floating interest rate (assumed interest rate of
4.45%), and $150,000 of senior secured debt under a second lien with an
eight-year term and a floating interest rate (assumed interest rate of 7.7%).
Pro Forma Condensed Combined Financial Statements
- -------------------------------------------------
The pro forma condensed combined balance sheet gives effect to the Tapco
acquisition as if it had been completed as of June 30, 2004 and combines the
historical June 30, 2004 balance sheet for Headwaters with the historical July
31, 2004 balance sheet for Tapco. Eldorado's balance sheet is included within
Headwaters' June 30, 2004 historical balance sheet. The pro forma condensed
combined statements of income for the year ended September 30, 2003 and the nine
months ended June 30, 2004 give effect to both acquisitions as if they had
occurred on October 1, 2002.
The pro forma condensed combined statement of income for the year ended
September 30, 2003 combines Headwaters' historical results for the fiscal year
ended September 30, 2003 with Eldorado's historical results for the fiscal year
ended December 31, 2003 and with Tapco's historical results for the fiscal year
ended October 31, 2003. The pro forma condensed combined statement of income for
the nine months ended June 30, 2004 combines Headwaters' historical results,
which include Eldorado's results for June 2004, with Eldorado's historical
results for the eight-month period ended May 31, 2004 and with Tapco's
historical results for the nine-month period ended July 31, 2004. Accordingly,
Eldorado's historical results for the three-month period from October 1, 2003 to
December 31, 2003 are included in both the pro forma condensed combined
statement of income for the year ended September 30, 2003 and the pro forma
condensed combined statement of income for the nine months ended June 30, 2004.
Eldorado revenues and net income for the three-month period ended December 31,
2003 which were included in both of these periods were $28,173 and $894,
respectively.
The pro forma condensed combined information is presented for illustrative
purposes only. Such information does not purport to be indicative of the results
of operations and financial position that actually would have resulted had the
acquisitions occurred on the dates indicated, nor is it indicative of the
results that may be expected in future periods. The pro forma adjustments are
based upon information and assumptions available at the time of filing this Form
8-K.
HEADWATERS INCORPORATED
UNAUDITED PRO FORMA CONDENSED COMBINED BALANCE SHEET
as of June 30, 2004
Historical
---------------------------------- Pro Forma Pro Forma
(thousands of dollars) Headwaters Tapco Adjustments Combined
- ---------------------------------------------------------------------------------------------------------------------------------
June 30, 2004 July 31, 2004
ASSETS
Current assets:
Cash and cash equivalents $ 10,723 $ 259 $ 790,000 A
(415,723) B
(299,277) C
(8,500) D
(17,000) E
(48,750) F $ 11,732
Short-term trading investments 23,635 23,635
Trade receivables, net 75,247 44,995 120,242
Inventories 26,175 19,313 45,488
Other current assets 15,394 2,366 17,760
--------------------------------------------------- ---------------
Total current assets 151,174 66,933 750 218,857
--------------------------------------------------- ---------------
Property, plant and equipment, net 86,693 61,517 148,210
--------------------------------------------------- ---------------
Other assets:
Intangible assets, net of accumulated amortization 127,375 9,355 (9,355) G
185,500 H 312,875
Goodwill 280,656 50,895 (50,895) I
518,107 J 798,763
Debt issue costs and other assets 9,667 4,280 (4,124) K
17,000 L 26,823
--------------------------------------------------- ---------------
Total other assets 417,698 64,530 656,233 1,138,461
--------------------------------------------------- ---------------
Total assets $ 655,565 $ 192,980 $ 656,983 $ 1,505,528
=================================================== ===============
(continued)
See accompanying notes.
HEADWATERS INCORPORATED
UNAUDITED PRO FORMA CONDENSED COMBINED BALANCE SHEET, continued
as of June 30, 2004
Historical
---------------------------------- Pro Forma Pro Forma
(thousands of dollars) Headwaters Tapco Adjustments Combined
- ---------------------------------------------------------------------------------------------------------------------------------
June 30, 2004 July 31, 2004
LIABILITIES AND STOCKHOLDERS' EQUITY
Current liabilities:
Accounts payable $ 21,410 $ 14,518 $ 35,928
Accrued personnel costs 14,770 4,702 19,472
Income taxes 15,672 3,274 18,946
Other accrued liabilities 24,069 24,899 $ (18,580) M 30,388
Current portion of long-term debt 10,299 20,723 (20,657) N
(5,000) O
6,400 P 11,765
Current portion of unamortized non-refundable
license fees 9,559 9,559
--------------------------------------------- -------------
Total current liabilities 95,779 68,116 (37,837) 126,058
--------------------------------------------- -------------
Long-term liabilities:
Long-term debt 219,282 229,228 (229,097) Q
(43,750) R
633,600 S
150,000 T 959,263
Deferred income taxes 49,237 10,870 68,697 U 128,804
Unamortized non-refundable license fees and
other long-term liabilities 5,189 6,579
(6,443) V 5,325
--------------------------------------------- -------------
Total long-term liabilities 273,708 246,677 573,007 1,093,392
--------------------------------------------- -------------
Total liabilities 369,487 314,793 535,170 1,219,450
--------------------------------------------- -------------
Preferred stock 24,500 (24,500) W -
Stockholders' equity (deficit):
Common stock 34 2,530 (2,530) X 34
Capital in excess of par value 233,102 89,097 (89,097) Y 233,102
Retained earnings (accumulated deficit) 56,992 (237,818) 237,818 Z 56,992
Treasury stock, at cost (2,637) (2,637)
Other (1,413) (122) 122 AA (1,413)
--------------------------------------------- -------------
Total stockholders' equity (deficit) 286,078 (146,313) 146,313 286,078
--------------------------------------------- -------------
Total liabilities, preferred stock and stockholders'
equity (deficit) $ 655,565 $ 192,980 $ 656,983 $ 1,505,528
============================================= =============
See accompanying notes.
HEADWATERS INCORPORATED
UNAUDITED PRO FORMA CONDENSED COMBINED STATEMENT OF INCOME
For the year ended September 30, 2003
Historical
(thousands of dollars and shares, -------------------------------------------- Pro Forma Pro Forma
except per share amounts) Headwaters Eldorado Tapco Adjustments Combined
- ----------------------------------------------------------------------------------------------------------------------------------
(Year ended (Year ended (Year ended
Sep. 30, 2003) Dec. 31, 2003) Oct. 31, 2003)
Revenue:
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 49,350 $ 103,659 $ 212,816 365,825
Other revenues 4,241 4,241
-------------------------------------------------------- -----------
Total revenue 387,630 103,659 212,816 704,105
-------------------------------------------------------- -----------
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 37,689 72,060 126,729 236,478
Cost of other revenues 3,919 3,919
Depreciation and amortization 12,982 6,526 1,870 $ (5,881) BB
2,285 CC
(570) DD
14,183 EE 31,395
Research and development 4,674 4,674
Selling, general and administrative 40,715 17,059 32,785 90,559
-------------------------------------------------------- -----------
Total operating costs and expenses 310,511 95,645 161,384 10,017 577,557
-------------------------------------------------------- -----------
Operating income 77,119 8,014 51,432 (10,017) 126,548
-------------------------------------------------------- -----------
Other income (expense):
Interest and net investment income 310 81 391
Interest expense (15,687) (5,349) (30,456) 4,765 FF
584 GG
(886) HH
(1,483) II
(4,959) JJ
29,162 KK
1,294 LL
(2,598) MM
(28,481) NN
1,638 OO
(11,550) PP
(375) QQ (64,381)
Losses on notes receivable and investments (2,436) (2,436)
Other, net 775 (273) 502
-------------------------------------------------------- -----------
Total other expense, net (17,038) (5,349) (30,648) (12,889) (65,924)
-------------------------------------------------------- -----------
Income before income taxes 60,081 2,665 20,784 (22,906) 60,624
Income tax provision (23,450) (7,042) 6,830 RR (23,662)
-------------------------------------------------------- -----------
Net income $ 36,631 $ 2,665 $ 13,742 $ (16,076) $ 36,962
======================================================== ===========
$ 1.35 $ 1.36
============ ===========
$ 1.30 $ 1.31
============ ===========
Basic earnings per common share
Diluted earnings per common share
Weighted-average shares outstanding:
Basic 27,083 27,083
============ ===========
Diluted 28,195 28,195
============ ===========
See accompanying notes.
HEADWATERS INCORPORATED
UNAUDITED PRO FORMA CONDENSED COMBINED STATEMENT OF INCOME
For the nine months ended June 30, 2004
Historical
(thousands of dollars and shares, --------------------------------------------- Pro Forma Pro Forma
except per share amount) Headwaters(1) Eldorado(2) Tapco(3) Adjustments Combined
- ---------------------------------------------------------------------------------------------------------------------------------
Revenue:
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 49,961 $ 78,491 $ 171,339 299,791
Other revenues 4,315 4,315
--------------------------------------------------------- ------------
Total revenue 355,308 78,491 171,339 605,138
--------------------------------------------------------- ------------
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 38,921 54,352 94,979 188,252
Cost of other revenues 362 362
Depreciation and amortization 11,056 4,484 1,628 (4,051) BB
1,523 CC
(597) DD
10,637 EE 24,680
Research and development 5,135 5,135
Selling, general and administrative 42,340 14,006 26,663 83,009
--------------------------------------------------------- ------------
Total operating costs and expenses 267,453 72,842 123,270 7,512 471,077
--------------------------------------------------------- ------------
Operating income 87,855 5,649 48,069 (7,512) 134,061
--------------------------------------------------------- ------------
Other income (expense):
Interest and net investment income 380 3 383
Interest expense (12,633) (3,641) (19,499) 3,252 FF
389 GG
(590) HH
(989) II
(3,306) JJ
18,575 KK
924 LL
(1,949) MM
(21,360) NN
1,229 OO
(8,663) PP
(281) QQ (48,542)
Losses on notes receivable (1,038) (1,038)
Other, net (1,080) - 100 (980)
--------------------------------------------------------- ------------
Total other expense, net (14,371) (3,641) (19,396) (12,769) (50,177)
--------------------------------------------------------- ------------
Income before income taxes 73,484 2,008 28,673 (20,281) 83,884
Income tax provision (28,705) (10,601) 6,545 RR (32,761)
--------------------------------------------------------- ------------
Net income $ 44,779 $ 2,008 $ 18,072 $ (13,736) $ 51,123
========================================================= ============
Basic earnings per common share $ 1.43 $ 1.63
============= ============
Diluted earnings per common share $ 1.38 $ 1.57
============= ============
Weighted-average shares outstanding:
Basic 31,287 31,287
============= ============
Diluted 32,501 32,501
============= ============
See accompanying notes.
(1) Includes Eldorado's results of operations for June 2004
(2) Includes Eldorado's results of operations for the eight-month period ended
May 31, 2004
(3) Represents Tapco's results of operations for the nine-month period ended
July 31, 2004
HEADWATERS INCORPORATED
NOTES TO UNAUDITED PRO FORMA CONDENSED
COMBINED FINANCIAL STATEMENTS
(dollar and share amounts in thousands)
1. Basis of Presentation
The pro forma condensed combined financial statements included herein have been
prepared pursuant to the rules and regulations of the Securities and Exchange
Commission. Certain information and certain footnote disclosures normally
included in financial statements prepared in accordance with accounting
principles generally accepted in the United States have been condensed or
omitted pursuant to such rules and regulations; however, management believes
that the disclosures are adequate to make the information presented not
misleading.
2. Acquisition of Eldorado Stone LLC
On June 2, 2004, Headwaters acquired 100% of the ownership interests of Eldorado
Stone LLC ("Eldorado") and paid off all of Eldorado's outstanding debt. Eldorado
is based in San Marcos, California and is a leading manufacturer of
architectural manufactured stone. With over 1,600 distributors, Eldorado
provides Headwaters with a national platform for expanded marketing of "green"
building products, such as mortar and stucco made with reclaimed fly ash from
coal combustion. Headwaters expects Eldorado, which is included in its
construction materials segment, to provide critical mass and improved margins in
Headwaters' efforts to expand the use of fly ash in building products.
Eldorado's results of operations have been included in Headwaters' consolidated
statement of income since June 2, 2004.
In connection with the Eldorado acquisition, Headwaters issued $172,500 of new
convertible senior subordinated debt and also borrowed funds under its senior
secured revolving credit arrangement and an arrangement with an investment
company, the latter two of which were repaid prior to June 30, 2004.
The following table sets forth the total consideration paid for Eldorado:
Cash paid to Eldorado owners $ 136,982
Cash paid to retire Eldorado debt and related accrued interest 69,650
Costs directly related to acquisition 3,800
-----------
Total consideration at closing $ 210,432
===========
The Eldorado acquisition was accounted for using the purchase method of
accounting. The consideration Headwaters paid for Eldorado was negotiated at
arms length and assets acquired and liabilities assumed were recorded at their
estimated fair values as of June 2, 2004. Eldorado has experienced significant
growth over the last two years. Eldorado sells its products through an extensive
distribution network. In addition, Eldorado employs a group of talented artists
who create the molds used to produce the manufactured stone product. The quality
of these molds adds significant value to the end product. Eldorado's
manufacturing process, market presence and the quality of its product, including
product design and product breadth, are major elements contributing to
Eldorado's high value and related purchase price. These items, combined with
Eldorado's high growth and extensive distribution network are not separable and,
accordingly, contribute to a significant amount of goodwill. Approximately
$8,153 of the purchase price was allocated to identifiable intangible assets,
consisting of non-compete agreements, trade names and trademarks and franchise
contracts with existing franchisees. The intangible assets are being amortized
over estimated useful lives ranging from three to ten years. The remaining
purchase price not attributable to the tangible and identifiable intangible
assets was allocated to goodwill, most of which is expected to be tax
deductible. All of the intangible assets and goodwill have been allocated to
Headwaters' construction materials segment.
Headwaters adjusted the preliminary purchase price allocation from what was
reflected in its Form 8-K filed on May 25, 2004 based on additional information
in more recent valuation reports and additional consideration paid, due
primarily to working capital adjustments at closing. The following table sets
forth the most recent and the preliminary allocations of the total consideration
to the tangible and intangible assets acquired and liabilities assumed:
Most Recent Preliminary
----------- -----------
Tangible assets acquired, net of liabilities assumed $ 41,358 $ 41,643
Intangible assets acquired (useful life):
Franchise contracts with existing franchisees (10 years) 814 2,000
Trademarks and trade names (5 years) 1,087 1,000
Non-compete agreements (3 years) 6,252 7,000
Goodwill (indefinite) 160,921 154,357
--------- ---------
Total consideration at closing $ 210,432 $ 206,000
========= =========
The final purchase price and the allocation thereof will likely differ from that
reflected above after final fixed asset and intangible asset valuation reports
are received, and a detailed review of all assets and liabilities, including
income taxes and potential adjustments to the working capital acquired at
closing, has been completed. Pre-acquisition contingencies, which are not
material, are included in the value of liabilities assumed as of June 2, 2004
and any change from the recorded amounts is expected to be immaterial. The final
purchase price allocation is expected to be completed by March 31, 2005. Any
changes to the purchase price allocation are not expected to materially increase
or decrease depreciation and amortization expense, but may have a material
effect on the amount of recorded goodwill.
3. Acquisition of Tapco Holdings, Inc.
On September 8, 2004, Headwaters acquired 100% of the ownership interests of
Tapco Holdings, Inc. ("Tapco") and paid off all of Tapco's outstanding debt.
Tapco is headquartered in Wixom, Michigan and is a leading designer,
manufacturer and marketer of specialty building products and professional tools
used in exterior residential home improvement and construction throughout the
United States and Canada. Headwaters expects the Tapco acquisition to further
diversify Headwaters' cash flow stream away from its historical reliance on
alternative energy. Tapco brings economy of scale and manufacturing expertise
that results in some of the lowest manufacturing costs in the siding accessory
industry, which is expected to improve margins in Headwaters' construction
materials segment. Headwaters may also be able to leverage Tapco's distribution
networks to accelerate sales of Headwaters' diverse construction materials
product portfolio. Tapco's results of operations will be included in Headwaters'
consolidated statement of income beginning September 8, 2004.
The following table sets forth the estimated consideration to be paid to acquire
Tapco:
Cash paid to Tapco stockholders $ 415,723
Cash paid to retire Tapco debt, preferred stock and
related accrued interest 299,277
Estimated costs directly related to acquisition 8,500
--------------
Total consideration $ 723,500
==============
In order to obtain the cash necessary to acquire Tapco, retire the Tapco debt
and preferred stock, and repay Headwaters' existing senior debt, the pro forma
financial information reflects the issuance by Headwaters of $790,000 of debt
consisting of $640,000 of senior secured debt under a first lien with a six and
one-half-year term and a floating interest rate (assumed interest rate of LIBOR
plus 2.75%, or 4.45%), and $150,000 of senior secured debt under a second lien
with an eight-year term and a floating interest rate (assumed interest rate of
LIBOR plus 6.00%, or 7.7%).
The senior secured first lien credit arrangement also includes a $75,000
revolver available to Headwaters which carries a 0.5% commitment fee on unused
amounts and a floating interest rate of LIBOR plus 2.75%. Headwaters expects to
incur approximately $17,000 of debt issuance costs in connection with the
issuance of the new senior debt, which has an assumed weighted-average effective
interest rate of approximately 5.1%, excluding amortization of the debt issuance
costs and the commitment fee on the unused portion of the revolver.
The consideration Headwaters paid for Tapco was negotiated at arms length and
assets acquired and liabilities assumed will be recorded at their estimated fair
values as of September 8, 2004. Tapco has a leading market share in most of its
product lines with some lines having a market share greater than 75%. Tapco has
the ability to deliver its products within a few days of receiving the order
which is appealing to architects, contractors and end users of the product.
Tapco also offers wide-ranging product choices delivered through an extensive
distribution network throughout the United States. Tapco's products,
manufacturing process and distributors are currently substantially different
than those utilized by Headwaters' other business units and a substantial amount
of sales relate to the remodeling industry. As such, Tapco may further mitigate
the cyclical nature of Headwaters' construction materials business in the
future. Tapco's primary value is due to its significant market presence and
manufacturing efficiencies. These values are largely the result of Tapco's
manufacturing and distribution capacities, product breadth and workforce which
are not separable and, accordingly, contribute to a significant amount of
goodwill.
In accordance with SFAS No. 141, approximately $185,500 of the estimated
purchase price was allocated to estimated identifiable intangible assets
consisting of customer relationships, trade names, patents and non-compete
agreements. The estimated intangible assets have estimated average useful lives
ranging from 2 to 20 years, with an estimated weighted average life of
approximately 13 years. The remaining purchase price not attributable to the
tangible and identifiable intangible assets will be allocated to goodwill, which
is not expected to be tax deductible. All of the intangible assets and goodwill
will be allocated to Headwaters' construction materials segment.
The following table sets forth a preliminary allocation of the total estimated
consideration to the tangible and intangible assets acquired and liabilities
assumed:
Preliminary purchase price allocation:
Tangible assets acquired, net of liabilities assumed $ 19,893
Intangible assets acquired, estimated (useful life):
Customer relationships (15 years) 80,000
Trade names (20 years) 62,000
Patents (10 years) 40,000
Non-compete agreements (2 years) 3,500
Goodwill (indefinite) 518,107
--------------
Total consideration at closing $ 723,500
==============
The final purchase price and the allocation thereof will differ from that
reflected above after final fixed asset and intangible asset valuation reports
are received and a detailed review of all assets and liabilities, including
income taxes, has been completed. The final purchase price allocation is
expected to be completed by June 30, 2005. The final purchase price allocation
may materially increase or decrease depreciation and amortization expense from
the estimated amounts reflected in the pro forma information and may have a
material effect on the amount of recorded goodwill.
4. Pro Forma Financial Statements and Adjustments
The pro forma condensed combined balance sheet gives effect to the Tapco
acquisition as if it had been completed as of June 30, 2004 and combines the
historical June 30, 2004 balance sheet for Headwaters with the historical July
31, 2004 balance sheet for Tapco. Eldorado's balance sheet is included within
Headwaters' June 30, 2004 historical balance sheet. The pro forma condensed
combined statements of income for the year ended September 30, 2003 and the nine
months ended June 30, 2004 give effect to both acquisitions as if they had
occurred on October 1, 2002.
The pro forma condensed combined statement of income for the year ended
September 30, 2003 combines Headwaters' historical results for the fiscal year
ended September 30, 2003 with Eldorado's historical results for the fiscal year
ended December 31, 2003 and with Tapco's historical results for the fiscal year
ended October 31, 2003. The pro forma condensed combined statement of income for
the nine months ended June 30, 2004 combines Headwaters' historical results,
which include Eldorado's results for June 2004, with Eldorado's historical
results for the eight-month period ended May 31, 2004 and with Tapco's
historical results for the nine-month period ended July 31, 2004. Accordingly,
Eldorado's historical results for the three-month period from October 1, 2003 to
December 31, 2003 are included in both the pro forma condensed combined
statement of income for the year ended September 30, 2003 and the pro forma
condensed combined statement of income for the nine months ended June 30, 2004.
Eldorado revenues and net income for the three-month period ended December 31,
2003 which were included in both of these periods were $28,173 and $894,
respectively.
The pro forma condensed combined information is presented for illustrative
purposes only. Such information does not purport to be indicative of the results
of operations and financial position that actually would have resulted had the
acquisitions occurred on the dates indicated, nor is it indicative of the
results that may be expected in future periods. The pro forma adjustments are
based upon information and assumptions available at the time of filing this Form
8-K.
The pro forma condensed combined financial statements give effect to the
following pro forma adjustments:
A Cash proceeds from new issuances of long-term debt by
Headwaters, the proceeds of which were used to pay for the
Tapco acquisition and to retire Headwaters' pre-existing
senior debt.
B Cash paid at closing to previous Tapco owners.
C Cash paid at closing to retire Tapco debt, preferred stock and
related accrued interest.
D Cash to be paid for estimated expenses incurred by Headwaters
for the Tapco acquisition.
E Cash to be paid for estimated debt issuance costs related to
the senior debt of $790,000 borrowed for the acquisition.
F Cash paid to retire Headwaters' existing senior debt.
G Elimination of Tapco's historical intangible assets.
H Adjustment to record new intangible assets, primarily customer
relationships, trade names, patents and non-compete
agreements.
I Elimination of Tapco's historical goodwill.
J Adjustment to record new goodwill, based on estimated fair
values of Tapco assets acquired and liabilities assumed.
K Elimination of Tapco's historical debt issuance costs.
L Capitalization of estimated debt issuance costs related to
issuance of new senior debt for $790,000.
M Payment of current portion of Tapco's accrued interest.
N Payment of current portion of Tapco's long-term debt.
O Payment of current portion of Headwaters' pre-existing senior
debt.
P Current portion of $640,000 senior debt, under a 1st lien,
borrowed for the Tapco acquisition.
Q Payment of Tapco's long-term debt.
R Payment of long-term portion of Headwaters' pre-existing
senior debt.
S Long-term portion of $640,000 senior debt, under a 1st lien,
borrowed for the Tapco acquisition.
T Long-term portion of $150,000 senior debt, under a 2nd lien,
borrowed for the Tapco acquisition.
U Adjustment to record deferred income taxes, on increased value
of Tapco's intangible assets.
V Payment of long-term portion of Tapco's accrued interest
W Redemption of Tapco's preferred stock.
X Elimination of Tapco's historical common stock value.
Y Elimination of Tapco's historical capital in excess of par
value.
Z Elimination of Tapco's historical accumulated deficit.
AA Elimination of Tapco's historical other equity.
BB Elimination of Eldorado's historical amortization of
intangible assets.
CC Adjustment to amortize Eldorado's new intangible assets,
$8,153, over an average life of 43 months. New intangible
assets primarily include non-compete agreements, trademarks
and trade names and franchise contracts with existing
franchisees.
DD Elimination of Tapco's historical amortization of intangible
assets.
EE Adjustment to amortize Tapco's new intangibles, currently
estimated to be approximately $185,500 over an average life of
13 years. New intangibles primarily include customer
relationships, trade names, patents and non-compete
agreements.
FF Elimination of Eldorado's interest on pre-acquisition debt
retired by Headwaters at closing.
GG Elimination of Eldorado's historical amortization of deferred
financing costs.
HH Adjustment to record interest for amortization of new debt
issuance costs of $6,200 on issuance of $172,500 of
convertible senior subordinated debt issued for the Eldorado
acquisition, using an effective seven-year life.
II Adjustment to record interest on $44,000 of long-term senior
debt, issued in connection with the Eldorado acquisition,
using a 3.36% effective interest rate. The effect of a 1/8%
change in the effective interest rate would be approximately
$55.2 per year.
JJ Adjustment to record interest on new $172,500 long-term
convertible senior subordinated debt, issued in connection
with the Eldorado acquisition, using a 2.875% effective
interest rate.
KK Elimination of Tapco's interest on pre-acquisition debt
retired by Headwaters at closing.
LL Elimination of Tapco's historical amortization of deferred
financing costs.
MM Adjustment to record interest for amortization of new debt
issuance costs of $17,000 related to issuance of debt for the
Tapco acquisition as follows: 1) $75 million revolving line of
credit (unused as of date of acquisition), 2) $640 million of
senior debt under a 1st lien and, 3) $150 million of senior
debt under a 2nd lien. The debt issuance costs are amortized
using a weighted-average six and one-half year life.
NN Adjustment to record interest on new $640 million long-term
senior debt, issued for the Tapco acquisition, under a 1st
lien, using a LIBOR plus 2.75%, or 4.45%, effective interest
rate. The effect of a 1/8% change in the effective interest
rate would be approximately $800 per year.
OO Elimination of interest from repayment of Headwaters $48,750
senior debt with a 3.36% interest rate at June 30, 2004.
PP Adjustment to record interest on new $150 million long-term
senior debt, issued for the Tapco acquisition, under a 2nd
lien, using a LIBOR plus 6.0%, or 7.70%, effective interest
rate. The effect of a 1/8% change in the effective interest
rate would be approximately $187.5 per year.
QQ Adjustment to record interest for $75 million revolving line
of credit commitment fee, for new revolver facility issued in
connection with the new senior debt.
RR Combined income tax effect of Eldorado's and Tapco's
historical net income plus the profit and loss-related pro
forma adjustments, calculated using a combined effective
federal and state income tax rate of approximately 39%.
SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of 1934,
the registrant has duly caused this report to be signed on its behalf by the
undersigned hereunto duly authorized.
Date: December 13, 2004 HEADWATERS INCORPORATED
(Registrant)
By /s/ Kirk A. Benson
------------------------------
Kirk A. Benson
Chief Executive Officer
(Principal Executive Officer)