Information about http://www.headwaters.com/data/upimages/press/1.29.08DecQ12008II.pdf
N E W S B U L L E T I N FROM: …
Tags: 1 million, coal combustion products, december 31, first quarter, gross profit, headwaters, hw, hydrogen peroxide plant, immediate release january, investor relations, nyse, operating income, parkway suite, quarter ended december, quarter revenue, ross, south jordan utah, tricia, vice president,Pages: 7
Language: english
Created: Tue Jan 29 11:13:50 2008
Display cached document
Page 1
Page 2
Page 3
Page 4
Page 5
Page 6
Page 7
N E W S B U L L E T I N
FROM:
RE: Headwaters Incorporated
10653 South River Front Parkway, Suite 300
South Jordan, UT 84095
(801) 984-9400
NYSE: HW
FOR FURTHER INFORMATION
AT THE COMPANY: AT FINANCIAL RELATIONS BOARD:
Sharon Madden Tricia Ross
Vice President of Investor Relations Analyst Contact
(801) 984-9400 (310) 854-8300
IMMEDIATE RELEASE:
JANUARY 29, 2008
HEADWATERS INCORPORATED ANNOUNCES RESULTS
FOR FIRST QUARTER OF FISCAL 2008
Strong CCP Revenue Growth
Improved Building Products Operating Income
Total December Quarter Revenue of $249 Million
SOUTH JORDAN, UTAH, JANUARY 29, 2008 (NYSE: HW) HEADWATERS
INCORPORATED today announced results for its quarter ended December 31, 2007, the first
quarter of its 2008 fiscal year.
Highlights for the quarter included:
· Continued strong performance from our coal combustion products division
· Building products division operating income grew by 34%
· Successful expansion of Korean hydrogen peroxide plant doubling capacity
· Five coal cleaning facilities were operational at the end of the quarter
Headwaters' total revenue for the December 2007 quarter was $248.9 million, down 9% from
$274.9 million for the December 2006 quarter. Gross profit decreased 21%, from $80.0 million
in the December 2006 quarter to $63.1 million in the December 2007 quarter. Operating income
decreased 46% from $33.9 million to $18.4 million. Net income was $9.9 million and diluted
earnings per share was $0.23, compared to net income of $17.0 million, or $0.37 per diluted
share, in the December 2006 quarter. The decline in net income and earnings per share was
primarily related to high oil prices and the transition away from Section 45K. High oil prices
caused an increase in the Section 45K phase-out, reducing earnings per share by $0.14 in the
December quarter.
Excluding our Section 45K business, Headwaters' total revenue for the December 2007 quarter
was $194.5 million, up 1% from $193.2 million for the December 2006 quarter. Gross profit
excluding Section 45K was $51.1 million in the December 2007 quarter, the same gross profit as
in the prior year quarter. Operating income increased 18% from $5.5 million to $6.5 million. Net
income was $3.5 million and diluted earnings per share was $0.08, compared to a net loss of
$(1.5) million, or $(0.03) per diluted share, in the December 2006 quarter.
Operating Performance
Coal Combustion Products
Revenues from coal combustion products ("CCPs") increased $8.2 million or 12%, from $69.2
million in the December 2006 quarter to $77.4 million in the December 2007 quarter. The gross
margin of 27.8% in 2007 decreased from the 2006 gross margin of 28.5%, and the operating
margin of 18.4% in December 2007 was higher than the operating margin of 18.0% in December
2006. CCPs' performance was influenced by upward pricing trends in several markets, despite
some challenging weather conditions in certain markets near the end of the quarter. We were
awarded several new fly ash contracts, which we anticipate will result in approximately a 5%
increase in supply of high quality fly ash in calendar 2008.
Building Products
Revenues from our building products business for the December 2007 quarter decreased to
$114.8 million, compared to $122.8 million for the December 2006 quarter. In comparing 2006
to 2007 we have continued to improve both gross margins (from 26.2% to 28.7%) and operating
margins (from 5.3% to 7.6%), resulting in a 34% growth in operating income, from $6.5 million
to $8.7 million. We believe our niche strategy and our focus on productivity improvements has
tempered the impact of the severe slow down in new residential construction and remodeling
expenditures on our revenue and margins. We plan to continue to aggressively manage our cost
structure, while investing to maintain and build our strong market positions.
During the quarter we sold our mortar/stucco business, which was not strategic to ongoing
operations. These operations represented approximately $37.0 million in revenue on an
annualized basis. A portion of the proceeds from the sale was used to purchase two Texas block
plants, expanding our productive capacity and market share. These changes will positively
impact the ongoing strategic operations of the building products business in the Texas market.
Alternative Energy Segment
Due to the expiration of Section 45K on December 31, 2007, all synfuel facilities have ceased
operations. In addition, high oil prices negatively affected phase-out of Section 45K tax credits
for calendar 2007, which resulted in significantly reduced tax credit-based license fee revenue in
the December 2007 quarter. Using available information as of December 31, 2007, and
consistent with our historical methodology, we estimate the phase-out percentage for Section
45K tax credits for calendar year 2007 to be approximately 72%, up from 54% calculated as of
September 30, 2007. As a result of these factors, license fee revenue decreased from $22.4
million in the December 2006 quarter to $7.5 million in the December 2007 quarter.
Chemical reagent sales in the December 2007 quarter were also impacted by the events described
above, resulting in a decrease in revenue from $44.5 million in December 2006 to $38.0 million
in December 2007. The gross margin on chemical reagent sales in the December 2007 quarter
was 18.5%, compared to 20.3% in the prior year December quarter.
Headwaters' estimated effective income tax rate for fiscal 2008 is 29%; however, because of
discrete items recorded in the December 2007 quarter, primarily related to Section 45K, the
effective income tax rate for the quarter was 40%.
At December 31, 2007, Headwaters had five coal cleaning facilities at various stages of
operations. Three of the facilities have achieved approximately 75% of capacity, and two of the
facilities are in start up. Four additional facilities are under construction. Accordingly,
Headwaters should be able to achieve its goal of nine to ten coal cleaning facilities in operation
by the end of calendar 2008. Revenue for the fiscal year is now projected to be approximately
$30 million to $40 million from coal cleaning. Also, Headwaters is including credits from coal
cleaning in the calculation of its effective tax rate, although the amount of the credits in the
December quarter was immaterial.
HCATTM, Headwaters' resid hydrocracking catalyst technology, has been proven to increase
conversion of heavy residual oils into lighter, more valuable products. After successfully testing
the technology at two refineries, Headwaters executed agreements with a third refinery for
extended use of its HCAT technology and long term sales of its catalyst precursor, subject to
satisfactory results from a scheduled commercial test. The commercial test was delayed from the
December quarter and is now scheduled for February 2008.
The expansion of our joint venture hydrogen peroxide facility in Ulsan, South Korea, was
completed on budget and slightly ahead of schedule. We have doubled the capacity of the
facility to 75 million tons of annual production. We anticipate delivery of hydrogen peroxide to
SKC Chemical during the March quarter for the manufacture of propylene oxide.
EvonikHeadwaters continues to develop technology related to direct synthesis of hydrogen
peroxide at its German demonstration plant.
Headwaters' revenues are very seasonal. For fiscal 2008, we estimate that approximately 20
percent of our operating income will be generated in the December and March quarters and 80
percent will be generated in the June and September quarters.
Capital Structure / Indebtedness
The components of Headwaters' debt structure as of December 31, 2007 are shown in the
following table:
Amount
(in millions) Outstanding Interest Rate Maturity
Senior secured first lien term loan $210.0 LIBOR + April 2011
2.0%
Senior revolving credit facility ($60.0 $0 Prime + September
million available less outstanding 0.75% 2009
letters of credit of approximately $8.8
million)
Convertible senior subordinated notes $332.5 2.50% and June 2011 and
2.875% February 2014
Total $542.5
Headwaters currently has no debt repayment requirements until 2011. We are in compliance with
all debt covenants and anticipate full compliance with all debt covenants in fiscal 2008.
The following table highlights certain debt coverage and balance sheet ratios using period end
balances and the trailing twelve months ("TTM") EBITDA:
9/30/06 9/30/07 12/31/07
Current Ratio 1.88 1.88 2.41
Total Debt to Equity 0.74 0.65 0.67
Total Indebtedness to TTM EBITDA 2.53 2.09 2.17
TTM EBITDA (in millions) $235.5 $259.6 $249.9
EBITDA is used to make computations of the required debt leverage ratios. Headwaters'
EBITDA, as defined in our senior debt agreement, is calculated as follows:
(in millions) 9/30/06 9/30/07 12/31/07
Net Income $102.1 $ 20.0 $ 13.0
Net Interest Expense 34.0 31.1 28.6
Income Taxes 35.7 38.3 38.8
Depreciation and Amortization 63.7 72.2 71.5
Goodwill Impairment -- 98.0 98.0
TTM EBITDA $235.5 $259.6 $249.9
Commentary and Outlook
Steven G. Stewart, Headwaters' Chief Financial Officer, stated, "High oil prices negatively
impacted our Section 45K operations and our December quarter. This could cause earnings from
Section 45K to be lower than our original estimate of $0.30 earnings per diluted share for fiscal
2008. Section 45K contributed approximately $0.15 earnings per diluted share in the December
quarter and we anticipate that earnings per diluted share in the March quarter will be $0.15 or
less. We reaffirm our guidance for fiscal 2008 of earnings per diluted share of $0.95 to $1.35."
"The down cycle in new residential construction painfully continues, resulting in increased
pressure on revenues. We do not anticipate any improvement in 2008," said Kirk A. Benson,
Chairman and Chief Executive Officer. "However, even in this negative environment our
building products operating margins improved by over 200 basis points resulting in 35 percent
growth in operating income. In addition, our `December quarter combined non-Section 45K
revenue increased over last year. We were able to offset the decline in building products sales
with fly ash growth and the start up of our coal cleaning business."
Management will host a conference call with a simultaneous web cast today at 11:00 a.m.
Eastern, 9:00 a.m. Mountain Time 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.headwaters.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.headwaters.com, or a phone replay will be available
through February 5, 2008, by dialing 800-405-2236 or 303-590-3000 and entering code
11107648.
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 materials businesses, the Company earns a
growing revenue stream that provides the capital needed to expand and acquire synergistic new business
opportunities.
Forward Looking Statements
Certain statements contained in this press release 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, the production and
marketing of building materials and products, the production and marketing of cleaned coal, the production and marketing of
hydrogen peroxide, the licensing of resid hydrocracking technology and catalyst sales to oil refineries, the availability of refined
coal tax credits, 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
feedstocks, and the marketability of the coal combustion products, building products, cleaned coal, hydrogen peroxide, catalysts,
and the availability of tax credits, 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," "plans," variations of such words and similar expressions, are intended to help 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, building products, and alternative energy industries or the economy generally,
factors that could cause actual results to differ from expectations stated in forward-looking statements include, among others, the
factors described in the caption entitled "Risk Factors" in Item 1A in Headwaters' Annual Report on Form 10-K for the fiscal
year ended September 30, 2007, 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
press release. 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.
HEADWATERS INCORPORATED
CONDENSED CONSOLIDATED STATEMENTS OF INCOME (Unaudited)
(in thousands, except per-share amounts)
Quarter Ended December 31,
2006 2007
Revenue:
Construction materials $ 122,755 $ 114,766
Coal combustion products 69,172 77,426
Alternative energy 82,997 56,705
Total revenue 274,924 248,897
Cost of revenue:
Construction materials 90,562 81,836
Coal combustion products 49,447 55,908
Alternative energy 54,870 48,097
Total cost of revenue 194,879 185,841
Gross profit 80,045 63,056
Operating expenses:
Amortization 5,811 5,512
Research and development 3,784 4,141
Selling, general and administrative 36,561 35,029
Total operating expenses 46,156 44,682
Operating income 33,889 18,374
Net interest expense (8,267) (5,844)
Other income (expense), net (2,561) 3,983
Income before income taxes 23,061 16,513
Income tax provision (6,070) (6,600)
Net income $ 16,991 $ 9,913
Basic earnings per share $ 0.40 $ 0.24
Diluted earnings per share $ 0.37 $ 0.23
Weighted average shares outstanding -- basic 42,078 41,888
Weighted average shares outstanding -- diluted 48,375 47,778
Note: Total depreciation and amortization was $17,678 and $16,953 for the quarters ended
December 31, 2006 and 2007, respectively.
HEADWATERS INCORPORATED
CONDENSED CONSOLIDATED BALANCE SHEETS (Unaudited)
(in thousands)
September 30, December 31,
Assets: 2007 2007
Current assets:
Cash and cash equivalents $ 55,787 $ 39,660
Trade receivables, net 188,334 129,103
Inventories 53,201 63,324
Other 51,074 61,571
Total current assets 348,396 293,658
Property, plant and equipment, net 225,700 236,527
Intangible assets, net 238,144 234,032
Goodwill 787,161 784,161
Other assets 56,488 53,215
Total assets $ 1,655,889 $ 1,601,593
Liabilities and Stockholders' Equity:
Current liabilities:
Accounts payable $ 39,379 $ 26,729
Accrued liabilities 145,623 105,497
Total current liabilities 185,002 132,226
Long-term debt 542,500 542,500
Income taxes 91,721 112,455
Other long-term liabilities 6,416 7,423
Total liabilities 825,639 794,604
Stockholders' equity:
Common stock - par value 42 42
Capital in excess of par value 511,496 505,564
Retained earnings 319,920 309,987
Other (1,208) (8,604)
Total stockholders' equity 830,250 806,989
Total liabilities and stockholders' equity $ 1,655,889 $ 1,601,593
Note: The current ratio as of September 30, 2007 of 1.88 is derived by dividing total current assets of $348,396
by total current liabilities of $185,002. The current ratio as of December 31, 2007 of 2.22 is derived by
dividing total current assets of $293,658 by total current liabilities of $132,226.