Exhibit 99.1
NEWS BULLETIN
RE: Headwaters Incorporated
FROM: 10653 South Riverfront Parkway, Suite 300
South Jordan, UT 84095
FINANCIAL (801) 984-9400
RELATIONS BOARD NASDAQ: HDWR
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FOR FURTHER INFORMATION
AT THE COMPANY: AT FINANCIAL RELATIONS BOARD:
Sharon Madden Tricia Ross
Director of Investor Relations Analyst Contact
(801) 984-9400 (617) 520-7064
FOR IMMEDIATE RELEASE:
January 20, 2005
HEADWATERS INCORPORATED ANNOUNCES
RESULTS FOR FIRST QUARTER FISCAL 2005
o 115% Increase in Revenues to $218.4 Million
o 29% Increase in Net Income to $13 Million
o First Quarter 2005 Diluted Earnings per Share of $0.34
o Repayment of $50 Million of Senior Secured Debt
o Section 29 Revenue Less Than 24% of Total
o Maintaining 2005 EPS Guidance
SOUTH JORDAN, UTAH, January 20, 2005 - HEADWATERS INCORPORATED (NASDAQ: HDWR),
today announced results for its quarter ended December 31, 2004. Total revenue
for the December 2004 quarter, which includes a full quarter effect of fiscal
2004 acquisitions, was $218.4 million, up 115% from $101.5 million reported in
the December 2003 quarter. Operating income increased 71% to $37.7 million from
$22.0 million for the December 2003 quarter. Net income increased to $13.0
million or $0.34 per diluted share using 40.6 million weighted average shares
outstanding. Net income for the December 2003 quarter was $10.1 million or $0.35
per diluted share using 29.1 million weighted average shares outstanding.
Headwaters Construction Materials Performance
Revenues from the construction materials segment were $113.7 million during the
December 2004 quarter, with a gross margin (gross margin percentage is
calculated as follows: subtract cost of revenues from revenues, and divide the
number so derived by revenues) of 33%, compared to revenue of $11.9 million and
a gross margin of 21% for the December 2003 quarter. The 2005 first quarter
revenues included three full months of operations from Tapco, Eldorado Stone,
and Southwest Concrete Products ("SCP"). There were no revenues from these
acquired entities in the December 2003 quarter. The Construction Materials
segment has a pronounced seasonality. The seasonality has a more significant
impact on net income than on revenues because of the relationship between fixed
and variable costs.
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Headwaters Resources Performance
During the December 2004 quarter, revenues from Headwaters Resources or the coal
combustion products ("CCPs") segment were $53.1 million with a gross margin of
23% compared to revenue of $45.1 million and a gross margin of 26% for the
December 2003 quarter. The December 2004 quarter includes three full months of
operations for VFL Technologies which has historically had lower margins than
Headwaters Resources' legacy business. Margins in the March 2005 quarter should
be comparable to the December quarter with improvements in gross margins in the
June and September quarter as sales increase. Sales of high value coal
combustion products for the December 2004 quarter totaled approximately 1.5
million tons, compared to approximately 1.4 million tons in the December 2003
quarter, resulting in a 7% increase in tons of high value coal combustion
products sold.
Headwaters Energy Services Performance
Chemical reagent sales increased 19% in the December 2004 quarter to $36.8
million, compared to $30.9 million in the December 2003 quarter. Headwaters
Energy Services' license fees for the December 2004 quarter increased 52% to
$14.6 million from $9.6 million in 2003.
During the December 2004 quarter, Energy Services' licensees sold 11.1 million
tons of solid alternative fuel. This compares to 9.9 million tons sold in the
December 2003 quarter and 10.8 million tons sold in the September 2004 quarter.
Energy Services sold 26.9 million pounds of chemical reagent in the December
2004 quarter, compared to 23.4 million pounds in the December 2003 quarter and
25.2 million pounds in the September 2004 quarter. The 11.1 million tons of fuel
sold was produced at 23 of the 28 licensed facilities, resulting in average
quarterly production of 480,000 tons per facility. The highest number of tons
produced from any one facility in the quarter was 880,000, and the lowest was
25,000. Energy Services sold chemical reagent to a total of 34 facilities. Of
the 34 facilities, 18 were licensee facilities and 16 were solely chemical
reagent sale facilities.
During December 2004, Headwaters increased its minority interest in a Section 29
facility currently operating in West Virginia from approximately 9% to 19%.
Energy Services is now providing reagent to the facility. Headwaters is
currently recognizing its portion of the facility's operating expenses, included
in "Other Income (Expense)", and the tax credits generated by the facility,
included in "Income Tax Provision", in the December 2004 quarter. These tax
credits account for the reduction in Headwaters' effective tax rate to 35% as
compared to 38% for the December 2003 quarter. The quarterly effects from
partial ownership of this facility will be more significant in future quarters
as a result of the increase in ownership that occurred in late December 2004.
Cash Flow Diversification
The acquisitions in fiscal 2004 of Tapco, Eldorado Stone, SCP and VFL
significantly broaden the scope of products and services Headwaters offers,
particularly in the construction materials segment. Consistent with Headwaters'
diversification strategy, revenue from the Section 29 business of Energy
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Services has declined as a percentage of total revenue. Headwaters' revenue that
is dependent on Section 29 has declined from approximately 90% in fiscal 2002 to
approximately 23.5% during the quarter ended December 31, 2004. Net income for
the December 2004 quarter increased by 29% when compared to the December 2003
quarter.
New Product Development
Headwaters continues to develop new products and technologies to drive future
earnings growth. Highlights of Headwaters technology development during the
December 2004 quarter include the following:
o Commenced negotiations for commercial scale HC3 test.
o Completed positive pre-combustion coal nano-catalyst pilot plant tests.
o Signed pre-feasibility study agreement with Oil India for direct coal
liquefaction.
o Completed construction of first Flexcrete manufacturing facility.
Indebtedness
In connection with the fiscal 2004 acquisition of Tapco, Headwaters restructured
its debt by entering into a new senior secured credit facility, the details of
which were finalized in October 2004. During the December 2004 quarter,
Headwaters repaid $50 million of its senior secured debt. Required principal
repayments for fiscal 2005 were $48 million. Headwaters believes an additional
$30 million of debt principal can be repaid during fiscal 2005. The major
components of Headwaters' long term senior debt structure as of December 31,
2004 were as follows:
(in millions) Amount Interest Rate Maturity
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Senior secured first lien term loan $590.0 LIBOR + 3.25% April 2011
Second lien term loan $150.0 LIBOR + 5.5% September 2012
Senior subordinated convertible debt $172.5 2.875% June 2011
Senior revolving credit facility
(none of which was outstanding) $60.0 LIBOR + 2.5% September 2009
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To supplement our condensed consolidated financial statements presented in
accordance with generally accepted accounting principles ("GAAP"), we use a
non-GAAP measure called EBITDA. EBITDA is net income adjusted to exclude
depreciation, amortization, net interest expense and income taxes ("EBITDA").
Management uses EBITDA internally to measure the amount of cash generated by
Headwaters as a whole and by our various operating entities, in order to compare
results of the business units to one another and to historical and budgeted
results and to make decisions about where to allocate capital and the amount of
capital expenditures Headwaters will make. EBITDA is also provided to enhance
the user's overall understanding of our current financial performance, our
ability to service our debt, our compliance with current debt covenants and our
ability to fund future growth. Therefore, we believe that EBITDA provides useful
information to our investors regarding our performance and overall results of
operations.
The following table highlights certain debt coverage and balance sheet ratios
using period end balances and the trailing twelve months ("TTM") EBITDA:
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Pro forma Pro forma
9/30/03 9/30/04 12/31/04
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Total Indebtedness to EBITDA(a) 1.53 4.16 3.88
EBITDA to Required Interest Payments(a) 7.73 4.60 4.49
Current Ratio(a) 1.19 1.24 1.39
Total Debt to Equity(a) 0.96 3.16 2.84
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(a) See "Current Ratio" calculations in financial tables that follow.
The pro forma calculations of Total Indebtedness to EBITDA assumes all of the
2004 acquisitions occurred on October 1, 2003. Pro forma EBITDA for the trailing
twelve months ended December 31, 2004 of $237.8 is derived as follows (in
millions of dollars): Net income of $77.1 plus net interest expense of $60.9,
income taxes of $47.2, and depreciation and amortization of $52.6. Pro forma
EBITDA for the trailing twelve months ended September 30, 2004 of $233.8 is
derived as follows: Net income of $72.9 plus net interest expense of $63.1,
income taxes of $45.6, and depreciation and amortization of $52.2.
Commentary and Outlook
Headwaters adopted the required provisions of FASB's EITF pronouncement
concerning contingent convertible debt instruments in the December 2004 quarter
which resulted in the inclusion of 5.75 million additional shares in Headwaters
diluted EPS calculation as a result of its $172.5 million subordinated
convertible debt. This accounting pronouncement change reduced diluted EPS by
approximately $0.03 but has no substantive effect on Headwaters' business
operations, operating income, net income, or cash flow. Headwaters reaffirms its
fiscal 2005 earnings guidance of $2.00 - $2.10 based on fully diluted shares
outstanding of 40.6 million.
In January 2005, Headwaters filed a $175 million shelf registration statement
with the SEC that can be used for future sales of common stock should Headwaters
so choose. This registration statement has not yet been declared effective by
the SEC. A prospectus supplement describing the terms of any securities to be
issued is required to be filed before any offering would commence under the
registration statement. Headwaters could use proceeds from an offering to reduce
long-term debt, or for working capital and other general corporate purposes.
Headwaters' CCP and Construction Materials business has been seasonal. The
acquisitions completed during Fiscal 2004 added to Headwaters' seasonality.
Obtaining operating experience as a single business segment will make estimation
of this seasonality easier in the future. Headwaters' estimated quarterly
revenue and earnings per share for Fiscal 2005, as a percent of the respective
estimated totals, are as follows:
Revenue Earnings Per Share
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December 31, 2004 quarter 21% - 23% 14% - 16%
March 31, 2005 quarter 19% - 21% 12% - 14%
June 30, 2005 quarter 27% - 29% 33% - 35%
September 30, 2005 quarter 29% - 31% 37% - 39%
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Steven G. Stewart, Headwaters' Chief Financial Officer, stated, "The December
2004 quarter starts fiscal 2005 ahead of our expectations. This will help as we
face what is historically our slowest quarter. Our fiscal 2004 acquisitions were
clearly successful in reducing the Company's dependence on Section 29, which is
now less than 24% of Headwaters revenues. Strong operating results and cash flow
allowed us to repay $50 million of Headwaters' senior secured debt,
significantly ahead of required principal repayments. We feel confident in the
strength and stability of our cash flows and our ability to continue to service
our new debt levels."
"Through execution of our acquisition strategy and solid organic growth, our
operations and revenue continued to expand," said Kirk A. Benson, Chairman and
Chief Executive Officer. "We are finding additional synergies as we proceed with
the integration of the companies that are new to Headwaters, and new product
development from our Technology Innovation Group will contribute to further
revenue and earnings diversification. Our strong growth outlook for Fiscal 2005
reflects both our strategic market positioning and leadership in each of our
business segments as well as the value of our business model."
Management will host a conference call with a simultaneous web cast today at
11:00 a.m. Eastern/9:00 a.m. Mountain to discuss the Company's financial results
and business outlook. The call will 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 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 through January 27, 2005 by dialing 800-642-1687 or 706-645-9291
and entering the pass code 3394213.
About Headwaters Incorporated
Headwaters Incorporated is a world leader in creating value through innovative
advancements in the utilization of natural resources. Headwaters is a
diversified growth company providing products, technologies and services to the
energy, construction and home improvement industries. Through its alternative
energy, coal combustion products, and building products businesses, the Company
earns a growing revenue stream that provides the capital needed to expand and
acquire synergistic new business opportunities.
Pro Forma Information
The pro forma financial information is presented for illustrative purposes only
and does not purport to be indicative of the results of operations which
actually would have resulted had the acquisitions occurred on October 1, 2003,
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 as of
the date hereof.
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.
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Forward-looking statements include Headwaters' expectations as to the managing
and marketing of coal combustion products, the production and marketing of
building materials and products, the licensing of technology and chemical sales
to alternative fuel facilities, the receipt of product sales, license fees and
royalty 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 feedstocks, 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 product, alternative 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, 2004, Quarterly
Reports on Form 10-Q, and other periodic filings and prospectuses.
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.headwaters.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.
-Financial Tables to Follow-
HEADWATERS INCORPORATED
CONDENSED CONSOLIDATED STATEMENTS OF INCOME (Unaudited)
(in thousands, except per-share amounts)
Quarter Ended December 31,
2003 2004
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Revenue:
Sales of chemical reagents $ 30,881 $ 36,777
License fees 9,555 14,598
Coal combustion products revenues 45,100 53,052
Sales of construction materials 11,933 113,729
Other revenues 4,000 260
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Total revenue 101,469 218,416
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Operating costs and expenses:
Cost of chemical reagents sold 21,261 24,558
Cost of coal combustion products revenues 33,396 40,995
Cost of construction materials sold 9,474 76,468
Other operating costs 65 97
Amortization 1,720 6,181
Research and development 2,073 2,286
Selling, general and administrative 11,431 30,100
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Total operating costs and expenses 79,420 180,685
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Operating income 22,049 37,731
Interest income (expense), net (5,292) (15,805)
Other income (expense), net (505) (1,918)
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Income before income taxes 16,252 20,008
Income tax provision (6,160) (7,000)
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Net income $ 10,092 $ 13,008
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Basic earnings per share $ 0.36 $ 0.39
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Diluted earnings per share $ 0.35 $ 0.34
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Weighted average shares outstanding -- basic 27,961 33,439
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Weighted average shares outstanding -- diluted 29,082 40,551
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Note: Total depreciation and amortization was $3,302 and $13,670, respectively, for the quarters ended
December 31, 2003 and 2004.
HEADWATERS INCORPORATED
CONDENSED CONSOLIDATED BALANCE SHEETS (Unaudited)
(in thousands)
September 30, December 31,
2004 2004
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Assets:
Current assets:
Cash and short-term investments $ 27,586 $ 0
Trade receivables, net 129,899 108,831
Inventories 43,812 45,778
Other 29,266 17,930
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Total current assets 230,563 172,539
Property, plant and equipment, net 157,611 161,579
Intangible assets, net 298,803 292,686
Goodwill 815,396 815,396
Debt issue costs and other assets 38,406 46,242
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Total assets $1,540,779 $1,488,442
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Liabilities and Stockholders' Equity:
Current liabilities:
Accounts payable $ 29,238 $ 26,004
Accrued liabilities 99,065 78,315
Current portion of long-term debt 57,873 19,682
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Total current liabilities 186,176 124,001
Long-term debt 914,641 902,623
Deferred income taxes 121,469 121,469
Other long-term liabilities 10,338 15,511
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Total liabilities 1,232,624 1,163,604
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Stockholders' equity:
Common stock - par value 34 34
Capital in excess of par value 235,581 239,127
Retained earnings 76,530 89,538
Other, primarily treasury stock (3,990) (3,861)
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Total stockholders' equity 308,155 324,838
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Total liabilities and stockholders' equity $1,540,779 $1,488,442
============================
The current ratio as of September 30, 2004 of 1.24 is derived by dividing total
current assets of $230,563 by total current liabilities of $186,176. The
current ratio as of December 31, 2004 of 1.39 is derived by dividing total
current assets of $172,539 by total current liabilities of $124,001.