Headwaters Incorporated Announces Results for First Quarter of Fiscal 2013

  Headwaters Incorporated Announces Results for First Quarter of Fiscal 2013

                           *Revenue of $150 Million
                        *Operating Income Increased 37%
                  *Completed the Acquisition of Kleer Lumber
  *Increasing Forecast for Expected 2013 Adjusted EBITDA

Business Wire

SOUTH JORDAN, Utah -- January 29, 2013

HEADWATERS INCORPORATED (NYSE: HW), a building products company dedicated to
improving lives through innovative advancements in construction materials,
today announced results for its first quarter of fiscal 2013.

First Quarter Highlights

  *Revenue increased 9% to $149.6 million
  *Gross profit increased 8% to $37.2 million
  *Results from continuing operations improved by over 70%
  *Increasing expected 2013 Adjusted EBITDA range by $10 million to $110 to
    $125 million, and on track to achieve first annual net profit since 2007
  *Issued 11.5 million shares of common stock at $7.25 per share, generating
    net cash proceeds of $77.8 million
  *Acquired the assets of Kleer Lumber, Inc. ("Kleer"), adding products in
    key niche markets, increasing distribution channels, and positioning
    Headwaters for increased participation in new residential construction

CEO Commentary

“Benefiting from the recovery in new residential construction, we had a strong
first quarter with revenue increases in both our light building products and
heavy construction materials segments,” said Kirk A. Benson, Chairman and
Chief Executive Officer of Headwaters. “Our year-over-year revenue growth gave
us confidence to increase our Adjusted EBITDA guidance for 2013. Our forecast
anticipates continued momentum in new residential construction spending, as
well as an EBITDA contribution from the recent Kleer acquisition.

“Early in January, we completed a major step in our transition to a pure play
light building products and heavy construction materials company with the sale
of our remaining coal cleaning facilities,” continued Mr. Benson. “2013 is off
to a great start. We are beginning the new year with a more focused,
streamlined business and an improved balance sheet, positioning us to
capitalize on the recovery of the new residential housing and remodeling

First Quarter Summary

Headwaters’ first quarter 2013 revenue increased by 9% to $149.6 million from
$137.4 million for the first quarter of 2012. Gross profit increased by 8% to
$37.2 million in the first quarter of 2013, compared to $34.4 million in the
first quarter of 2012. Operating income improved 37% from $4.4 million in 2012
to $6.0 million in 2013 and Adjusted EBITDA declined slightly to $19.7 million
from $20.4 million. Included in the 2013 results was approximately $2.2
million of compensation expense, compared to less than $0.1 million last year,
tied to performance of the Company's stock price, which increased
approximately 30% in the current quarter. In fiscal year 2013, we anticipate
approximately $1.5 million of incremental compensation expense for each $1.00
of stock price appreciation.

Loss from continuing operations was $(3.9) million, or $(0.06) per diluted
share, for the first quarter of 2013, compared to a loss of $(13.3) million,
or $(0.22) per diluted share, for the first quarter of 2012. Net loss
including discontinued operations was $(5.9) million, or $(0.09) per diluted
share, for the first quarter of 2013, compared to a net loss of $(23.7)
million, or $(0.39) per diluted share, for the first quarter of 2012. In the
first quarter of 2012, we recognized approximately $4.0 of non-recurring other

First Quarter Business Segment Highlights

                                 2013        2013        2012
                                                      Adjusted       Adjusted
Business                2013           Adjusted       EBITDA         EBITDA
Segment              Revenue     EBITDA      Margin      Margin
Light Building       $76.7       $11.9       15.5%       15.4%
Products                million        million
Heavy                   $68.2          $10.8
Construction         million     million     15.8%       21.2%

                                                     2013            2012
                     2013            2012            Operating       Operating
Business             Operating       Operating       Income          Income
Segment           Income       Income       Margin       Margin
Light Building    $3.1         $0.8         4.0%         1.1%
Products             million         million
Heavy                $7.6            $8.7
Construction      million      million      11.1%        13.9%

Light Building Products Segment

Headwaters’ light building products segment is a national brand leader in
innovative building products through superior design, manufacturing and
channel distribution. The segment brands and brings to market a wide variety
of building products, including vinyl siding accessories and manufactured
architectural stone.

First quarter 2013 revenues in the light building products segment increased
$3.4 million, or 5%, to $76.7 million. Quarterly gross margin increased by 180
basis points to 26.3% and operating income improved by over 300% to $3.1
million. Adjusted EBITDA improved to $11.9 million from $11.3 million in 2012.

We experienced revenue growth from our product groups that have primary
exposure to new residential construction, particularly our stone group. In
addition, our concrete block group experienced revenue growth in the quarter
based on increased retail and brick sales, which also serve the residential
markets. Repair and remodel end market revenue was relatively flat in the
quarter, and to achieve our 2013 forecast, we are not anticipating substantial
improvements. We anticipate increased raw material costs over the next several
quarters, particularly in cement and polypropylene. In order to address these
cost pressures, we have raised prices in some of our markets and are improving
efficiencies in manufacturing.

On December 31, 2012, we completed the acquisition of the assets of Kleer.
Kleer manufacturers high quality and eco-friendly cellular PVC products,
including trim boards, millwork, sheet stock, paneling, and moulding, as well
as recently introduced decking and railing products. For fiscal 2013, we
anticipate nine months of revenue contribution from the acquisition of
approximately $30 million. The associated increase in Adjusted EBITDA related
to the acquisition is included in our new range of $110 to $125 million. In
addition to the cost synergies associated with the integration of Kleer into
our siding group, we are excited about the opportunity to increase segment
revenue through the introduction of Kleer's products into our existing
distribution system. Kleer is an excellent bolt-on acquisition that provides
us the opportunity to obtain leadership in an adjacent niche end market.

Heavy Construction Materials Segment

Headwaters Resources is the largest domestic manager and marketer of coal
combustion products (CCPs), including fly ash. Utilization of these materials
improves performance of concrete and concrete construction products while
creating significant environmental benefits.

First quarter 2013 revenues in the heavy construction materials segment
increased by 8% to $68.2 million, compared to $63.1 million for 2012. We
experienced revenue growth in CCP services provided to utilities, as
incremental revenue from new projects more than offset the effect of unplanned
outages and lower electricity demand at other utility sites. Primarily due to
seasonality, CCP service revenue as a percent of total segment revenue is
higher in the December and March quarters, and represented approximately 33%
of total revenue for the December 2013 quarter, compared to 28% for the 2012
fiscal year. Revenues from the sale of fly ash were relatively flat in the
quarter, notwithstanding the impact of normalized winter weather patterns in
the Texas and Midwest markets and the completion of major projects in the

Gross profit decreased by 9% to $14.6 million in the first quarter of 2013,
compared to $16.0 million in 2012 and gross margin decreased by 400 basis
points to 21.4%. Operating income was $7.6 million in 2013 compared to $8.7
million in 2012, and Adjusted EBITDA was $10.8 million compared to $13.3
million. The declines in gross profit, operating income, and Adjusted EBITDA
were primarily due to lower demand for services from certain utilities,
geographic changes in fly ash sales, and to non-recurring high-margin project
revenue recorded in 2012.

The Portland Cement Association (PCA) recently increased its cement
consumption forecast for calendar 2013 to an estimated annual growth rate of
8.1%, citing improved new residential construction as the major driver. The
PCA also indicated that the year-over-year comparison for the March 2013
quarter may not be positive due to a more normal weather pattern in 2013 as
compared to the mild winter conditions in 2012.

EPA Update

During the quarter, there were no further developments in Congress related to
a legislative solution for the EPA's proposed rules for the disposal of fly
ash. A senior EPA official indicated in early January that the EPA still
cannot provide a definitive time line for promulgating final coal ash disposal
regulations. However, the official also said the EPA “wants to continue to
support the safe beneficial reuse of coal ash and believes the safe and
environmentally sound recycling of coal ash is protective of all public health
and provides economic opportunities and jobs. The proposed rule maintains the
regulatory exemption for beneficial reuse.”

We do not anticipate any significant developments in the near term unless
action is required by the courts as a result of litigation filed by
environmental organizations last year. We remain optimistic that the ultimate
outcome of either a legislative solution or rule making by the EPA will
support beneficial use of fly ash.

Energy Technology Segment

For the first quarter of 2013, revenue from continuing operations in our
energy segment was $4.7 million compared to $1.0 million in 2012. Adjusted
EBITDA was $0.7 million in 2013 compared to $(1.5) million in 2012. HCAT sales
in 2013 were at a more normal level than in 2012, when our major customer was
completing a turnaround at its refinery and had inventory on hand to meet its
reduced needs. Currently, two refineries are using HCAT to improve conversion
of heavy oil to lighter liquids.

Discontinued Operations

The loss from discontinued operations for the first quarter of 2013 was $(2.0)
million, compared to a loss of $(10.5) million for the first quarter of 2012,
which included approximately $5.2 million of non-cash accruals.

We sold two coal cleaning plants in October 2012, and sold the remaining eight
coal cleaning plants in January, 2013. Proceeds from the sale of those ten
plants include approximately $3.8 million of cash paid at closing and
approximately $10.0 million of additional cash to be paid by the end of
calendar 2013, including release of bond collateral and certain

Additionally, the buyer agreed to pay Headwaters potential royalties and
deferred purchase price totaling up to $53.4 million over approximately eight
years, subject to the buyer’s production of coal products. The buyer also
assumed certain lease and reclamation obligations. Payment of royalties and
deferred purchase price based upon production is currently scheduled to begin
in the latter part of calendar 2013.

As a part of the sale transaction, Headwaters committed to identify 1 million
tons of feedstock over the next 30 months for one of the facilities.
Headwaters is subject to a $7 per ton liability for each ton that is not
identified, and will work actively with the buyer to secure feedstock to meet
the commitment.

As of January, we have sold all eleven of our coal cleaning facilities and no
longer have any operating assets represented in discontinued operations. This
is an important transition step away from our legacy energy operations and
allows increased focus on our continuing business in light building products
and heavy construction materials. We anticipate recording a gain in the March
quarter from the sale transaction.

Income Taxes

For fiscal year 2013, Headwaters currently expects to record income taxes at
an effective rate of approximately 12%, due to state income taxes in certain
jurisdictions and a small amount of federal alternative minimum tax.
Headwaters is not recognizing income tax benefits attributable to its pre-tax
net operating loss (“NOL”) and tax credits because realization is dependent
upon future income or capital gains from operations. Headwaters currently has
a pre-tax NOL in the amount of $181.3 million and tax credits of $24.6
million, both of which can be carried forward for up to 20 years.


“We are pleased with the underlying improvement in our business and expect to
generate net income from continuing operations in 2013, marking our first
annual profit since 2007,” said Don P. Newman, Headwaters’ Chief Financial
Officer. “We expect our Adjusted EBITDA from continuing operations in 2013 to
be in the range of $110 to $125 million, depending on the level of new housing
starts, changes in stock price, and our ability to effectively manage
increased transportation and raw material costs.

“We have obviously benefited from our financial leverage during what appears
to be the early stages of the housing market recovery. But, our focus remains
on reducing leverage and we have made tremendous progress in de-risking the
business by improving our balance sheet, including the recent equity raise and
the acquisition of Kleer. Since June 30, 2011, we have improved our Net Debt
to Adjusted EBITDA ratio from 6.7 to 4.7 at the end of the current quarter.”

Discussion of EBITDA

Headwaters has historically defined EBITDA as net income plus net interest
expense, income taxes, depreciation and amortization, stock-based
compensation, and goodwill and other impairments. Any additional adjustments
to EBITDA are detailed in the table that follows. EBITDA and Adjusted EBITDA
are used by management to measure operating performance, as a supplement to
our consolidated financial statements presented in accordance with generally
accepted accounting principles (GAAP). EBITDA and Adjusted EBITDA are also
used by investors to measure a company’s ability to service its debt and meet
its other cash needs. The EBITDA and Adjusted EBITDA calculations as reflected
in the following tables are consistent with the definitions Headwaters has
used historically and with the definitions management intends on using in
future periods when measuring operating performance.

Management believes EBITDA and Adjusted EBITDA are helpful in highlighting
trends, because EBITDA excludes certain results of decisions that are outside
the control of operating management and can differ significantly from company
to company depending on long-term strategic decisions regarding capital
structure, tax jurisdictions, and capital investments. Management compensates
for the limitations of using non-GAAP financial measures by using them to
supplement GAAP results to provide a more complete understanding of the
factors and trends affecting the business rather than by using GAAP results

EBITDA and Adjusted EBITDA are not measurements of our financial performance
under GAAP and should not be considered as alternatives to net income,
operating income or any other performance measure derived in accordance with
GAAP or as a measure of our liquidity. Additionally, EBITDA and Adjusted
EBITDA are not intended to be measures of free cash flow available for
management’s discretionary use, as they do not consider certain cash
requirements such as interest payments, tax payments and debt service
requirements. Our presentation of EBITDA and Adjusted EBITDA has limitations
as an analytical tool, and should not be considered in isolation, or as a
substitute for analysis of our results as reported under GAAP. Because the
definition of EBITDA varies among companies and industries, our definition of
EBITDA may not be comparable to other similarly-titled measures used by other

Headwaters’ calculations of Adjusted EBITDA and trailing twelve months (TTM)
Adjusted EBITDA are reflected in the following tables. All amounts which
follow are presented on a continuing operations basis and do not include the
results from coal cleaning for any period. Additionally, due to the sale of
our interest in the Blue Flint Ethanol facility, Adjusted EBITDA does not
include any results from Blue Flint for any period.

Adjusted EBITDA – Consolidated

(in millions)                                   Quarter Ended
                                               12/31/2011    12/31/2012
Loss from continuing operations                 $  (13.3 )    $  (3.9  )
Blue Flint                                        6.0         0.0   
Net interest expense                              12.4        10.4  
Income taxes                                      1.1         (0.5  )
Depreciation, amortization, and stock-based       13.8        12.8  
Restructuring costs                               1.4         0.0   
Thames bankruptcy                                 1.0         0.0   
Gain on early debt repayments                     (2.0  )      0.0   
Kleer acquisition costs                           0.0         0.9   
Adjusted EBITDA                                 $  20.4      $  19.7  
Adjusted EBITDA by segment                                   
Light building products                         $  11.3      $  11.9  
Heavy construction materials                      13.3        10.8  
Energy technology                                 (1.5  )      0.7   
Corporate                                         (2.7  )      (3.7  )
Adjusted EBITDA                                 $  20.4      $  19.7  

Adjusted EBITDA – Light Building Products Segment

(in millions)                               Quarter Ended
                                            12/31/2011     12/31/2012
Operating income                            $ 0.8           $ 3.1
Depreciation, amortization, and              9.1            8.8
stock-based compensation
Restructuring costs                          1.4            0.0
Adjusted EBITDA                             $ 11.3          $ 11.9

Adjusted EBITDA – Heavy Construction Materials Segment

(in millions)                               Quarter Ended
                                            12/31/2011     12/31/2012
Operating income                            $ 8.7           $ 7.6
Depreciation, amortization, and              3.6            3.2
stock-based compensation
Thames bankruptcy                            1.0            0.0
Adjusted EBITDA                             $ 13.3          $ 10.8

Adjusted EBITDA – Energy Technology Segment

(in millions)                             Quarter Ended
                                          12/31/2011      12/31/2012
Operating income (loss)                   $ (2.0       )    $ 0.1
Other income (expense)                     (6.1       )     0.0
Blue Flint                                 6.0             0.0
Depreciation, amortization, and            0.6             0.6
stock-based compensation
Adjusted EBITDA                           $ (1.5       )    $ 0.7

TTM Adjusted EBITDA – Consolidated

(in millions)        Twelve Months Ended
                     9/30/2011      9/30/2012      12/31/2012 
Loss from
continuing           $ (133.9    )    $ (26.5     )    $ (17.1      )
Blue Flint            (4.7      )     6.3            0.3        
Net interest          126.2          52.7           50.7       
Income taxes          (0.2      )     0.7            (0.9       )
amortization, and     57.3           53.2           52.2       
settlement /          15.0           0.0            0.0        
Restructuring         18.0           2.2            0.8        
Thames bankruptcy     0.0            1.0            0.0        
Gain on early         0.0            (2.4      )     (0.4       )
debt repayments
Write-off of R&D      0.0            3.2            3.2        
joint venture
Kleer acquisition     0.0            0.0            0.9        
TTM Adjusted         $ 77.7          $ 90.4          $ 89.7       

TTM Adjusted EBITDA by Segment

Light building products         $ 39.6      $ 63.3      $ 63.9  
Heavy construction materials     46.2       54.8       52.3  
Energy technology                2.5        (3.6  )     (1.4  )
Corporate                        (10.6 )     (24.1 )     (25.1 )
TTM Adjusted EBITDA             $ 77.7      $ 90.4      $ 89.7  

Liquidity and Long-term Debt

The components of our long-term debt (net of discounts) as of December 31,
2012, are shown in the following table:

                            Amount         Interest     
(in millions)               Outstanding    Rate          Maturity
Senior secured notes        $400.0         7.625%        April 2019
Asset based loan                                 LIBOR plus
facility ($70.0 million     0.0            2.75%         October 2014
Convertible senior             52.0              2.50%            February
subordinated notes,                                               2014
net of discounts            49.3           8.75%         February
Total                       $501.3                      

We had approximately $78.4 million of cash on hand at December 31, 2012 and
total liquidity of approximately $116.3 million, which includes the impact of
providing $18.9 million for letters of credit for various purposes.

Conference Call

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. There will also be corresponding slides with the
webcast. 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, 2013 by dialing 1-800-406-7325 or 303-590-3030
and entering the pass code 4592382.

About Headwaters Incorporated

Headwaters Incorporated is improving lives through innovative advancements in
construction materials through application, design, and purpose. Headwaters is
a diversified growth company providing products, technologies and services to
the heavy construction materials, light building products, and energy
technology industries. Through its coal combustion products, building
products, and energy businesses, the Company has been able to improve
sustainability by transforming underutilized resources into valuable products.

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 products, the sale of its discontinued cleaned coal
operations, the licensing of residue 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, 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 “may,” “should,” “intends,”
“plans,” “expects,” “anticipates,” “targets,” “goals,” “projects,” “believes,”
“seeks,” “estimates,” “forecasts,” or variations of such words and similar
expressions, or the negative of such terms, may 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 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, 2012, 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.

(in thousands, except per-share amounts)

                                   Quarter Ended December 31,
                                        2011                 2012
Light building products                 $  73,334                 $ 76,688
Heavy construction materials               63,138                   68,158
Energy technology                         955              4,727    
Total revenue                              137,427                  149,573
Cost of revenue:
Light building products                    55,330                   56,501
Heavy construction materials               47,098                   53,584
Energy technology                         557              2,243    
Total cost of revenue                     102,985          112,328  
Gross profit                               34,442                   37,245
Operating expenses:
Amortization                               5,505                    4,936
Research and development                   1,854                    1,606
Selling, general and                       21,282                   24,671
Restructuring costs                       1,388            0        
Total operating expenses                  30,029           31,213   
Operating income                           4,413                    6,032
Net interest expense                       (12,456  )               (10,472  )
Other income (expense), net               (4,137   )        36       
Loss from continuing
operations before income                   (12,180  )               (4,404   )
Income tax benefit                        (1,100   )        530      
Loss from continuing                       (13,280  )               (3,874   )
Loss from discontinued
operations, net of income                 (10,468  )        (1,998   )
Net loss                                $  (23,748  )       $ (5,872   )
Basic and diluted loss per
From continuing operations              $  (0.22    )             $ (0.06    )
From discontinued operations              (0.17    )        (0.03    )
                                        $  (0.39    )       $ (0.09    )
Weighted average shares
outstanding--basic and                    60,801           61,982   
Operating income (loss) by
Light building products                 $  773                    $ 3,127
Heavy construction materials               8,754                    7,607
Energy technology                          (2,001   )               82
Corporate                                 (3,113   )        (4,784   )
Total                                   $  4,413           $ 6,032    
(in thousands)
                                        September 30,             December 31,
Assets:                                 2012                2012
Current assets:
Cash and cash equivalents               $  53,782                 $ 78,420
Trade receivables, net                     102,006                  70,916
Inventories                                31,588                   39,153
Other                                     27,320           27,506   
Total current assets                       214,696                  215,995
Property, plant and                        159,706                  162,324
equipment, net
Intangible assets, net                     143,911                  138,975
Goodwill                                   116,671                  153,001
Other assets                              45,953           46,435   
Total assets                            $  680,937         $ 716,730  
Liabilities and Stockholders'
Current liabilities:
Accounts payable                        $  17,477                 $ 15,286
Accrued liabilities                       123,691          91,969   
Total current liabilities                  141,168                  107,255
Long-term debt                             500,539                  501,271
Income taxes                               22,079                   22,108
Other long-term liabilities               20,280           16,574   
Total liabilities                         684,066          647,208  
Stockholders' equity:
Common stock - par value                   61                       73
Capital in excess of par                   640,047                  718,622
Retained earnings                          (643,109 )               (648,981 )
(accumulated deficit)
Treasury stock                            (128     )        (192     )
Total stockholders' equity                (3,129   )        69,522   
Total liabilities and                   $  680,937         $ 716,730  
stockholders' equity


Headwaters Incorporated
Sharon Madden
Vice President of Investor Relations
Financial Profiles
Tricia Ross, 916-939-7285
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