Headwaters Incorporated Acquires Tapco Holdings, Inc.SOUTH JORDAN, Utah South Jordan is a city in Salt Lake County in the U.S. state of Utah. The population was 29,437 at the 2000 census. As of September 1, 2007, the population was estimated at 50,109 [1]. South Jordan has been one of the fastest-growing cities in Utah since the early 1990s. -- Headwaters Incorporated (Nasdaq:HDWR): --Expands Construction Materials Pro Forma As a matter of form or for the sake of form. Used to describe accounting, financial, and other statements or conclusions based upon assumed or anticipated facts. The phrase pro forma Revenue by $237 Million for LTM LTM abbr. long-term memory Ended June 30, 2004 --Expected Accretion The act of adding portions of soil to the soil already in possession of the owner by gradual deposition through the operation of natural causes. The growth of the value of a particular item given to a person as a specific bequest under the provisions of a will between the in 2005 of $0.10 to $0.20 Earnings Per Diluted di·lute tr.v. di·lut·ed, di·lut·ing, di·lutes 1. To make thinner or less concentrated by adding a liquid such as water. 2. To lessen the force, strength, purity, or brilliance of, especially by admixture. Share --Fiscal 2005 Earnings Guidance of $2.20 to $2.30 Per Share Headwaters Incorporated (Nasdaq:HDWR) today announced that it has acquired Tapco Holdings Inc., ("Tapco") a leading manufacturer of building products and professional tools used in residential remodeling remodeling /re·mod·el·ing/ (re-mod´el-ing) reorganization or renovation of an old structure. bone remodeling and construction for $715 million in cash. Transaction Overview --$715 million purchase price --Purchase price funded with proceeds from senior secured credit facilities credit facilities npl → facilidades fpl de crédito credit facilities npl → facilités fpl de paiement credit facilities Tapco Highlights --Leading market share in core markets, primarily wall siding accessories --Vendor of choice for wholesale and the leading U.S. home improvement retailers based on: --Distribution capabilities --Investment in state-of-the-art manufacturing and logistics systems --Strong free cash flow and margins --Demonstrated growth during housing cycle downturns and interest rate increases - significant presence in the remodeling market --Strong management team and extensive industry experience Transaction Rationale --Transaction expected to be earnings accretive in the range of $0.10 to $0.20 in fiscal 2005 --Further diversifies cash flow and earnings --Increases operating cash flow Operating cash flow Earnings before depreciation minus taxes. Measures the cash generated from operations, not counting capital spending or working capital requirements. that can be used to de-lever and invest in additional growth opportunities such as nanotechnology --Expands construction materials platform with product breadth, geographic strength, distribution and logistics capabilities --Provides access to Tapco's extensive distribution network comprising over 9,000 ship-to locations including retailers Home Depot The Home Depot (NYSE: HD) is an American retailer of home improvement and construction products and services. Headquartered in Vinings, just outside Atlanta in unincorporated Cobb County, Georgia, Home Depot employs more than 355,000 people and operates 2,164 big-box and Lowe's --Enhances the stability of Headwaters' construction materials cash flow because of Tapco's presence in the less cyclical cyclical Of or relating to a variable, such as housing starts, car sales, or the price of a certain stock, that is subject to regular or irregular up-and-down movements. remodeling market Forecast Fiscal 2005 --Forecast earnings per share for fiscal 2005 of $2.20 to $2.30 --Integration of new businesses is moving forward appropriately --Growth in manufactured stone exceeding expectations --Improved construction materials margins --Solid fly ash fly ash n. Fine particulate ash sent up by the combustion of a solid fuel, such as coal, and discharged as an airborne emission or recovered as a byproduct for various commercial uses. Noun 1. performance Kirk A. Benson, Chairman and CEO (1) (Chief Executive Officer) The highest individual in command of an organization. Typically the president of the company, the CEO reports to the Chairman of the Board. of Headwaters, stated, "Tapco has a leading market position in the building materials Building materials used in the construction industry to create . These categories of materials and products are used by and construction project managers to specify the materials and methods used for . market and will allow Headwaters to further expand in this area. The acquisition of Tapco will strengthen and diversify diversify To acquire a variety of assets that do not tend to change in value at the same time. To diversify a securities portfolio is to purchase different types of securities in different companies in unrelated industries. Headwaters' construction materials platform with complementary products, geographical strength, and distribution and logistics capabilities. It is consistent with Headwaters' strategy of acquiring market-leading companies with complementary distribution channels and organic growth opportunities. The acquisition of Tapco, along with the acquisition of Eldorado Stone LLC (Logical Link Control) See "LANs" under data link protocol. LLC - Logical Link Control earlier in 2004, places Headwaters in what we believe to be two of the highest growth areas of the siding market: manufactured stone and specialty molded mold 1 n. 1. A hollow form or matrix for shaping a fluid or plastic substance. 2. A frame or model around or on which something is formed or shaped. 3. Something that is made in or shaped on a mold. products." Tapco will become part of Headwaters Construction Materials, an expanding division of Headwaters that manufactures, distributes and sells manufactured stone, masonry masonry: see brick; concrete; stonework; tile. masonry Craft of building in stone, brick, or block. By 4000 BC, Egypt had developed an elaborate cut-stone technique. mortars, blocks, stucco stucco (stŭk`ō), in architecture, a term loosely applied to various kinds of plasterwork, both exterior and interior. It now commonly refers to a plaster or cement used for the external coating of buildings, most frequently employed in materials, and specialty molded siding accessories. In the last six months, Headwaters has acquired Eldorado Stone, the #2 U.S. manufacturer of architectural stone veneer veneer (vənēr`), thin leaf of wood applied with glue to a panel or frame of solid wood. The art of veneer developed with early civilization. , Southwest Concrete, which makes Headwaters the largest supplier of concrete block in the Texas market, and Tapco, the largest U.S. manufacturer of injection-molded siding accessories. Tapco Tapco is a leading designer, manufacturer and marketer of building products and professional tools used in exterior residential home improvement and construction. Tapco believes it has a greater than 75% market share in its core products, based on its survey of the marketplace. These products are primarily injection-molded from polypropylene polypropylene (pŏl'ēprō`pəlēn), plastic noted for its light weight, being less dense than water; it is a polymer of propylene. It resists moisture, oils, and solvents. and enhance the appearance of homes and include window shutters a shutter or blind used to close or darken windows. See also: Window (decorative, operational, functional and storm protection), gable gable Triangular section formed by a roof with two slopes, extending from the eaves to the ridge where the two slopes meet. It may be miniaturized over a dormer window or entranceway. vents, mounting blocks A Mounting block, horse block, or in Scots a Loupin'-on-stane is an assistance for mounting and dismounting a horse or cart, especially for the young, elderly or infirm. They were especially useful for women riding pillion. They began to fall into disuse in about 1790. for exterior fixtures, roof ventilation ventilation, process of supplying fresh air to an enclosed space and removing from it air contaminated by odors, gases, or smoke. Proper ventilation requires also that there be a movement or circulation of the air within the space and that the temperature and , exterior decor products (window headers/mantels, sunbursts, door surrounds, exterior dentil den·til n. Architecture One of a series of small rectangular blocks projecting like teeth from a molding or beneath a cornice. [Obsolete French dentille, from Old French, diminutive of trim and decorative windows) and specialty siding products (replica Earlier document exchange software from Farallon Communications, Inc. that converted a Windows or Mac document into a proprietary viewing format. The viewer could be distributed separately or embedded within the document itself, turning it into a single-document viewer. cedar shake and shingle shingle Thin piece of building material made of wood, asphaltic material, slate, metal, or concrete, laid in overlapping rows to shed water. Shingles are widely used as roof covering on residential buildings and sometimes also for siding (see Shingle style). siding). Professional tools include portable cutting and shaping tools used by contractors on site to fabricate customized aluminum shapes that complement the installation of exterior siding.
2003 Gross Sales by Product 2003 Gross Sales by Channel
--------------------------------------- -----------------------------
Shutters $114MM 48% Wholesale $164MM 69%
--------------------------------------- -----------------------------
Exterior Vents $33MM 14% Retail $63MM 27%
--------------------------------------- -----------------------------
Mounting Blocks $31MM 13% International $3MM 1%
--------------------------------------- -----------------------------
Professional Installation Manufactured
Tools $28MM 12% Housing $6MM 3%
---- --
--------------------------------------- -----------------------------
Other $30MM 13%
----- ---
--------------------------------------- -----------------------------
Total $236MM 100%
--------------------------------------- -----------------------------
Total 236MM 100%
--------------------------------------- -----------------------------
Tapco's products are sold primarily in the United States United States, officially United States of America, republic (2005 est. pop. 295,734,000), 3,539,227 sq mi (9,166,598 sq km), North America. The United States is the world's third largest country in population and the fourth largest country in area. and Canada, with less than 5% of sales in Europe, Australia and Asia, through four principal channels: one-step distributors, two-step distributors, "do-it-yourself" mass merchandisers and manufactured housing Manufactured housing (also known as prefab housing) is a type of housing unit that is largely assembled in factories and then transported to sites of use. In the United States, the term "manufactured home" specifically refers to a house built entirely in a protected distributors. Tapco distributes its products through substantially all major U.S. vinyl siding Wikipedia is not the place for advertisement or self-advertising. Vinyl siding, first introduced to the exterior cladding market in the late 1950s, is an alternative to aluminum siding, fiber cement siding, and timber siding. distributors in the one-step and two-step channels. In contrast, many of Tapco's competitors manufacture accessory accessory, in criminal law, a person who, though not present at the commission of a crime, becomes a participator in the crime either before or after the fact of commission. products as a minor adjunct adjunct (aj´ungkt), n a drug or other substance that serves a supplemental purpose in therapy. adjunct to their core siding business and generally only distribute through authorized au·thor·ize tr.v. au·thor·ized, au·thor·iz·ing, au·thor·iz·es 1. To grant authority or power to. 2. To give permission for; sanction: distributors of their siding products. Tapco markets its products under various brands that are differentiated between the retail and wholesale distribution channels. These brands include: "Tapco Products," "Mid-America Building Products," "Mid-America Master Series," "Builders Edge," "Atlantic Shutter (1) An opaque window that is moved in one direction to let light in and in another to close off the light. In fixed-lens cameras, one shutter often suffices for aperture and speed. Systems," "Vantage," and "The Foundry A semiconductor manufacturer that makes chips for third parties. It may be a large chip maker that sells its excess manufacturing capacity or one that makes chips exclusively for other companies. ." Sales are currently impacted by growth in the siding market, and more particularly in the vinyl siding market. Growth in the siding market tends to increase demand for accessory products as does growth in new product categories like functional shutters and specialty siding. Headwaters believes the continued growth in vinyl siding sales is a function of home improvement activity, construction activity and consumer acceptance. Vinyl siding has continued to gain acceptance and increased market share among all siding materials, accounting for nearly 50% of all siding sales in 2002. Tapco, through the introduction of new products, extensive marketing, logistics management Logistics Management is that part of Supply Chain Management that plans, implements, and controls the efficient, effective, forward, and reverse flow and storage of goods, services, and related information between the point of origin and the point of consumption in order to meet and acquisitions, has continued to increase its market share of accessories that accompany vinyl siding sales. Tapco believes that it has the broadest accessory product line in the industry with more than 140,000 SKUs of accessories complementing all vinyl siding in the market. Approximately 75% of Tapco's sales during fiscal 2003 were tied to the home improvement industry, which is typically less cyclical than new construction because remodeling is generally less expensive than a new home and is often required to preserve the value of a home. During economic downturns, Headwaters believes remodeling with vinyl siding is often more attractive than remodeling with wood or brick because of its lower cost. The use of Tapco's products is a way for contractors to differentiate themselves and maximize sales because the products are more aesthetically pleasing, easy to install and provide broader customer choice. As a result, Tapco's products have experienced strong growth rates Growth Rates The compounded annualized rate of growth of a company's revenues, earnings, dividends, or other figures. Notes: Remember, historically high growth rates don't always mean a high rate of growth looking into the future. during economic downturns. Additionally, Tapco's professional installation tools are purchased by contractors to allow them to work independently of other business arrangements when there are fewer over-all jobs, which can mitigate mit·i·gate v. To moderate in force or intensity. mit  i·ga tion n. cyclicality."The acquisition of Tapco fits well into our "wall" building products strategy. Almost all of Tapco's products are accessories associated with exterior wall construction. It also expands our ability to deliver wall products using a variety of raw materials and production processes through a greatly expanded distribution system," said Kirk A. Benson, Headwaters Chief Executive Officer. The Transaction The transaction was funded with senior secured credit facilities and balance sheet cash. The permanent credit facilities were underwritten by Morgan Stanley  To comply with Wikipedia's , the introduction of this article needs a complete rewrite. and JPMorgan. Morgan Stanley acted as
exclusive strategic M&A advisor to Headwaters on this transaction.The senior secured credit facilities consist of a $640 million first lien lien, claim or charge held by one party, on property owned by a second party, as security for payment of some debt, obligation, or duty owed by that second party. term loan maturing in April 2011, and a $150 million second lien A Second lien financing is a form of financing secured on a second ranking basis by (more or less) the same security, which secures the first ranking financing. The first lien lenders and the second lien lenders agree that, in the event of a security enforcement or bankruptcy, the term loan maturing in September 2012. The first lien term loan will amortize amortize To write off gradually and systematically a given amount of money within a specific number of time periods. For example, an accountant amortizes the cost of a long-term asset by deducting a portion of that cost against income in each period. in quarterly installments of 1% per year with the remaining balance due in three equal installments in November, February and April of the final year. The second lien term loan is due in a single payment at maturity. The senior secured credit facilities are subject to customary covenants. In connection with the syndication See syndication format. of the credit facilities the lenders are entitled en·ti·tle tr.v. en·ti·tled, en·ti·tling, en·ti·tles 1. To give a name or title to. 2. To furnish with a right or claim to something: to make adjustments to the pricing and other terms of the credit facilities as the lead arrangers Lead arranger The senior tier of arranger may deem advisable ad·vis·a·ble adj. Worthy of being recommended or suggested; prudent. ad·vis a·bil , subject to certain limitations.The proceeds from the new borrowings and balance sheet cash was used to complete the acquisition, repay Headwaters' current outstanding senior debt, and pay the expenses of the transaction. Use of proceeds totals approximately $810 million. Steven G. Stewart, Chief Financial Officer, commented, "We believe Headwaters' strong cash flow, coupled with Tapco's operations, provides us with the ability to meet the debt service requirements of these new higher debt levels. We are intent on paying down the debt as rapidly as possible as we have always indicated our preference of operating the business at a level of debt that is 2 to 2.5 times EBITDA (Earnings Before Interest, Taxes, Depreciation and Amortization) A metric used to show a company's profitability, but not its cash flow. EBITDA became popular in the 1980s to show the potential profitability of leveraged buyouts, but has become . Headwaters strong generation of funds from operations Funds From Operations (FFO) Used by real estate and other investment trusts to define the cash flow from trust operations; earnings with depreciation and amortization added back. of our businesses should allow us to substantially reduce the debt to EBITDA ratio by the end of 2005. Headwaters may consider a future equity offering not to exceed $175 million to reduce indebtedness INDEBTEDNESS. The state, of being in debt, without regard to the ability or inability of the party to pay the same. See 1 Story, Eq. 343; 2 Hill. Ab. 421. 2. , subject to market conditions and the effects of expected dilution." Pro forma Information The acquisition is expected to be accretive to Headwaters' fiscal 2005 EPS (Encapsulated PostScript) A PostScript file format used to transfer a graphic image between applications and platforms. EPS files contain PostScript code as well as an optional preview image in TIFF, WMF, PICT or EPSI, the latter being an ASCII-only format. . On a pro forma basis Tapco would have been approximately $0.20 accretive for the LTM ended June 30, 2004, if the acquisition had occurred on July 1, 2003. It is anticipated that Tapco will be accretive to Headwaters' 2005 EPS in the range of $0. 10 to $0.20. After consummation CONSUMMATION. The completion of a thing; as the consummation of marriage; (q.v.) the consummation of a contract, and the like. 2. A contract is said to be consummated, when everything to be done in relation to it, has been accomplished. of the transaction, Headwaters has approximately $972 million in long-term debt Long-Term Debt Loans and financial obligations lasting over one year. Notes: For example debts obligations such as bonds and notes which have maturities greater than one year would be considered long-term debt. and an indebtedness to EBITDA ratio of approximately 4.4, based on pro forma LTM results as of June 30, 2004. See the attached pro forma information and EBITDA reconciliation. The addition of Tapco continues the diversification Diversification A risk management technique that mixes a wide variety of investments within a portfolio. It is designed to minimize the impact of any one security on overall portfolio performance. Notes: Diversification is possibly the greatest way to reduce the risk. of Headwaters' revenue and provides cash flows for future development of important technological, operational and strategic initiatives. On a LTM basis, including Tapco, Headwaters' revenues have increased in the construction materials segment. As shown in the following table, alternative energy, CCPs and construction materials represent 21%, 26%, and 53% of total pro forma revenue, respectively.
-------------------- ------------------ ----------------- ------------
Alternative Construction
Energy CCPs Materials Total
-------------------- ------------------ ----------------- ------------
$175,914 $220,365 $438,023 $834,302
-------------------- ------------------ ----------------- ------------
21% 26% 53% 100%
-------------------- ------------------ ----------------- ------------
Acquisition Benefits Diversification of Cash Flows. The acquisition of Tapco will further diversify Headwaters' cash flow stream away from revenue associated with Section 29 business activities. On a pro forma basis, Covol Fuels represents approximately 20% of Headwaters' revenue versus approximately 33% previously. In addition, Tapco's significant presence in the remodeling market and historical strength throughout economic cycles provides balanced exposure to both the new construction and home improvement markets. Consequently, we believe this transaction will increase the operating cash flows that Headwaters can use to de-lever and invest in growth opportunities such as HTI's nanotechnology. Margin Enhancement. Tapco brings economy of scale and manufacturing expertise that results in some of the lowest manufacturing costs in the siding accessory industry, which we believe will improve margins in our construction materials segment. Strong Free Cash Flow Generation. We believe that Tapco's strong EBITDA margins will enhance Headwaters' free cash flow profile. Established Market Leader. Tapco is the vendor of choice in injection-molded accessories and adds to Headwaters' portfolio of market-leading building products brands. Access to Tapco Distribution Network. Headwaters intends to identify additional products that we can distribute through Tapco's existing network. Tapco currently ships to greater than 9,000 distribution points through thousands of distributors. The Company also may be able to leverage the distribution networks of Tapco, Eldorado and our masonry products businesses to accelerate sales of our diverse product portfolio of construction materials. For example, Tapco's strong distribution and marketing presence in the remodeling industry may create a marketing and sales opportunity for Eldorado Stone, which is primarily marketed and distributed to the new construction market. Further, Eldorado's strong presence in the Southwest United States and our leading regional concrete block presence in Texas may create new distribution channels for Tapco products. Experienced Management Team. Tapco brings an energetic management team that has increased net revenues from $165.9 million in 2001 to $236.9 million for the LTM ended June 30, 2004. "We are pleased to combine with Headwaters," said Jack Lawless LAWLESS. Without law; without lawful control. , President of Tapco. "We believe that we will have an opportunity to participate with Headwaters to create one of the finest energy and building products companies in the world. Tapco's management is committed to a long and productive relationship." Future Outlook "Headwaters has normally provided next year guidance after the end of our fiscal year," stated Steven G. Stewart, Chief Financial Officer. "The Tapco acquisition is significant and will be important to our fiscal 2005 performance. In addition, our existing business operations Business operations are those activities involved in the running of a business for the purpose of producing value for the stakeholders. Compare business processes. The outcome of business operations is the harvesting of value from assets are performing well ahead of our original expectations. Accordingly, we are pleased to be able to provide a forecast for 2005 of between $2.20 and $2.30 earnings per diluted share. This forecast could be adjusted based upon the results of the Emerging Issues Task Force's review of contingent convertible debt instruments. Reducing our fiscal 2004 earnings forecast of $1.90 earnings per diluted share for the one time earnings event in the March quarter of $0.25 per share, our 2005 earnings forecast represents a growth rate of between 33% and 39%. Without the adjustment for the March quarter the expected growth rate would be 16% to 21%. We are excited about the financial performance of our businesses, the strong funds generated from operations, and the addition of Tapco." Headwaters will hold a conference call and web cast (with slides) today, at 2:30 p.m. ET, to discuss the Tapco acquisition. The call can be accessed live by calling 800-215-6437 or 706-634-0805 (international). The call will also be available live via the Internet by accessing Headwaters' web site at www.hdwtrs.com and clicking on the Investor Relations Investor relations The process by which the corporation communicates with its investors. 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 from one hour after the call and through September 15, 2004 at 11:59 p.m. ET. You may access the replay by dialing 800-642-1687 or 706-645-9291 (international) and entering the passcode 9987359. About Headwaters Incorporated Headwaters Incorporated is a world leader in creating value through innovative advancements in the utilization of natural resources. The Company is focused on providing services to energy companies, conversion of fossil fuels fossil fuel: see energy, sources of; fuel. fossil fuel Any of a class of materials of biologic origin occurring within the Earth's crust that can be used as a source of energy. Fossil fuels include coal, petroleum, and natural gas. into alternative energy products, and adding value to energy. Headwaters generates revenue from managing coal combustion products Coal combustion products (CCPs) are categorized in four groups, each based on physical and chemical forms derived from coal combustion methods and emission controls:
. 1. (language) CCP - Concurrent Constraint Programming. 2. business, building products business, and its solid alternative fuels business, the Company earns a growing revenue stream that provides the capital needed to expand and acquire synergistic synergistic /syn·er·gis·tic/ (sin?er-jis´tik) 1. acting together. 2. enhancing the effect of another force or agent. syn·er·gis·tic adj. 1. new business opportunities. About Tapco Tapco is a leading designer, manufacturer and marketer of building products and professional tools used in exterior residential remodeling and construction. Tapco's products are sold primarily in the United States and Canada, with less than 5% of sales in Europe, Australia and Asia. Tapco distributes its products through substantially all major U.S. vinyl siding distributors in the one-step and two-step channels. Tapco's web site is www.tapcoint.com. Forward Looking Statements Certain statements contained in this report are forward-looking statements forward-looking statement A projected financial statement based on management expectations. A forward-looking statement involves risks with regard to the accuracy of assumptions underlying the projections. within the meaning of federal securities laws and Headwaters intends that such forward-looking statements be subject to the safe-harbor created thereby. Forward-looking statements include Headwaters' expectations as to the managing and marketing of coal combustion products and building products, operation of facilities utilizing alternative fuel technologies, the marketing of synthetic fuels Synthetic fuel or synfuel is any liquid fuel obtained from coal, natural gas, or biomass. It can sometimes refer to fuels derived from other solids such as oil shale, tar sand, waste plastics, or from the fermentation of biomatter. , the receipt of licensing fees, royalties, and product sales revenues, the development, commercialization, and financing of new technologies and other strategic business opportunities and acquisitions, and other information about Headwaters. Such statements that are not purely historical by nature, including those statements regarding Headwaters' future business plans, the operation of facilities, the availability of tax credits, the availability of feed stocks, and the marketability of the coal combustion products, building products, and synthetic fuel, are forward-looking statements within the meaning of the Private Securities Litigation Reform Act The Private Securities Litigation Reform Act of 1995 (PSLRA) implemented several significant substantive changes affecting certain cases brought under the federal securities laws, including changes related to pleading, discovery, liability, class representation and awards fees and 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 CIRCUMSTANCES, evidence. The particulars which accompany a fact. 2. The facts proved are either possible or impossible, ordinary and probable, or extraordinary and improbable, recent or ancient; they may have happened near us, or afar off; they are public or , are forward-looking. In addition to matters affecting the coal combustion products, synthetic fuel and building products industries or the economy generally, factors which could cause actual results to differ from expectations stated in forward-looking statements include, among others, the factors described in the captions entitled "Forward-looking Statements" and "Risk Factors" in Item 7 in Headwaters' Annual Report on Form 10-K Form 10-K A report required by the SEC from exchange-listed companies that provides for annual disclosure of certain financial information. Form 10-K See 10-K. for the fiscal year ended September 30, 2003, Quarterly Reports on Form 10-Q Form 10-Q See 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 There are two kinds of addresses that are widely used on the Internet. One is a person's e-mail address, and the other is the address of a Web site, which is known as a URL. Following is an explanation of Internet e-mail addresses only. For more on URLs, see URL and Internet domain name. is www.hdwtrs.com. There we make available, free of charge, our Annual Report on Form 10-K, Quarterly Reports on Form 10-Q, current reports on Form 8-K Form 8-K The form required by the SEC when a publicly held company incurs any event that might affect its financial situation or the share value of its stock. Form 8-K See 8-K. and any amendments to those reports, as soon as reasonably practicable practicable adj. when something can be done or performed. after we electronically file such material with, or furnish fur·nish tr.v. fur·nished, fur·nish·ing, fur·nish·es 1. To equip with what is needed, especially to provide furniture for. 2. it to, the SEC. Our reports can be accessed through the investor relations section of our web site.
HEADWATERS INCORPORATED
CONDENSED CONSOLIDATED STATEMENT OF INCOME (Unaudited)
for the Nine Months Ended June 30, 2004
(thousands of dollars and shares, except per-share amounts)
Headwaters
Tapco Eldorado Consolidated Pro Forma
Nine Months Eight Months Nine Months Nine Months
Ended Ended Ended Ended
July 31, May 31, June 30, June 30,
2004 2004 2004 2004
----------- ------------ ------------ -----------
----------- ------------ ------------ -----------
Revenue: (ACTUAL) (ACTUAL) (ACTUAL) (PRO FORMA)
Sales of chemical
reagents $98,393 $98,393
License fees 59,276 59,276
Coal combustion
products revenues 143,363 143,363
Sales of construction
materials 171,339 78,491 49,961 299,791
Other revenues 4,315 4,315
----------- ------------ ------------ -----------
Total revenue 171,339 78,491 355,308 605,138
----------- ------------ ------------ -----------
Operating costs and
expenses:
Cost of chemical
reagents sold 66,804 66,804
Cost of coal
combustion products
revenues 102,835 102,835
Cost of construction
materials sold 94,979 54,352 38,921 188,252
Cost of other revenues 362 362
Depreciation and
amortization 1,628 4,484 11,056 24,680
Research and
development 5,135 5,135
Selling, general and
administrative 26,663 14,006 42,340 83,009
----------- ------------ ------------ -----------
Total operating costs
and expenses 123,270 72,842 267,453 471,077
----------- ------------ ------------ -----------
Operating income 48,069 5,649 87,855 134,061
Interest income
(expense), net (19,496) (3,641) (12,253) (48,159)
Other income
(expense), net 100 0 (2,118) (2,018)
----------- ------------ ------------ -----------
Income before income
taxes 28,673 2,008 73,484 83,884
Income tax provision (10,601) 0 (28,705) (32,761)
----------- ------------ ------------ -----------
Net income $18,072 $2,008 $44,779 $51,123
=========== ============ ============ ===========
Basic earnings per share $1.43 $1.63
============ ===========
Diluted earnings per share $1.38 $1.57
============ ===========
Weighted average shares outstanding -- basic 31,287 31,287
============ ===========
Weighted average shares outstanding -- diluted 32,501 32,501
============ ===========
Reconciliation of actual results to pro forma results for
the nine months ended June 30, 2004:
Headwaters' historical net income as
originally reported, including one
month of Eldorado net income
subsequent to June 2, 2004,
date of acquisition $44,779
Eldorado's historical net
income prior to date of
acquisition 2,008
Tapco's historical net income 18,072
Net increase in amortization
expense on acquired intangible
assets (7,512)
Net increase in interest
expense on new debt facilities (12,769)
Income tax effect of
above adjustments 6,545
------------
Pro forma net income shown above $51,123
============
HEADWATERS INCORPORATED
CONDENSED CONSOLIDATED STATEMENT OF INCOME (Unaudited)
for the Year Ended September 30, 2003
(thousands of dollars and shares, except per-share amounts)
Headwaters
Consolidated Pro Forma
Tapco Eldorado Year Ended Year Ended
Year Ended Year Ended September September
October 31, December 31, 30, 30,
2003 2003 2003 2003
------------ ----------- ------------ -----------
------------ ----------- ------------ -----------
Revenue: (ACTUAL) (ACTUAL) (ACTUAL) (PRO FORMA)
Sales of chemical
reagents $128,375 $128,375
License fees 35,726 35,726
Coal combustion
products revenues 169,938 169,938
Sales of construction
materials 212,816 103,659 49,350 365,825
Other revenues 4,241 4,241
------------ ----------- ------------ -----------
Total revenue 212,816 103,659 387,630 704,105
------------ ----------- ------------ -----------
Operating costs and
expenses:
Cost of chemical
reagents sold 87,386 87,386
Cost of coal combustion
products revenues 123,146 123,146
Cost of construction
materials sold 126,729 72,060 37,689 236,478
Cost of other revenues 3,919 3,919
Depreciation and
amortization 1,870 6,526 12,982 31,395
Research and
development 4,674 4,674
Selling, general
and administrative 32,785 17,059 40,715 90,559
------------ ----------- ------------ -----------
Total operating costs
and expenses 161,384 95,645 310,511 577,557
------------ ----------- ------------ -----------
Operating income 51,432 8,014 77,119 126,548
Interest income
(expense), net (30,375) (5,349) (15,377) (63,990)
Other income
(expense), net (273) 0 (1,661) (1,934)
------------ ----------- ------------ -----------
Income before income
taxes 20,784 2,665 60,081 60,624
Income tax provision (7,042) 0 (23,450) (23,662)
------------ ----------- ------------ -----------
Net income $13,742 $2,665 $36,631 $36,962
============ =========== ============ ===========
Basic earnings per share $1.35 $1.36
============ ===========
Diluted earnings per share $1.30 $1.31
============ ===========
Weighted average shares
outstanding -- basic 27,083 27,083
============ ===========
Weighted average shares
outstanding -- diluted 28,195 28,195
============ ===========
Reconciliation of actual results to pro forma results for
the fiscal year ended September 30, 2003:
Headwaters' historical net
income as reported $36,631
Eldorado's historical
net income 2,665
Tapco's historical
net income 13,742
Net increase in amortization
expense on acquired intangible
assets (10,017)
Net increase in interest expense
on new debt facilities (12,889)
Income tax effect of above
adjustments 6,830
------------
Pro forma net income shown above $36,962
============
HEADWATERS INCORPORATED
Reconciliation of Pro Forma EBITDA
for the Last Twelve Months Ended June 30, 2004
(thousands of dollars)
Pro Forma
Consolidated
Twelve Months
Ended June 30,
2004
--------------
Headwaters:
Last twelve months ("LTM") net income $56,025
LTM net interest expense 15,717
LTM income taxes 35,205
LTM depreciation and amortization 14,958
--------------
Headwaters LTM EBITDA 121,905
Eldorado:
Pro forma EBITDA for the eleven months ended
May 31, 2004 20,702
Tapco:
Pro forma EBITDA for the twelve months ended
July 31, 2004 77,836
--------------
Pro forma combined LTM EBITDA $220,443
==============
Reconciliation of Eldorado Pro Forma EBITDA:
Pro forma LTM net income $3,134
Pro forma LTM net interest expense 6,717
Pro forma LTM income taxes 2,004
Pro forma LTM depreciation and amortization 8,847
--------------
$20,702
==============
Reconciliation of Tapco Pro Forma EBITDA:
Pro forma LTM net income $7,211
Pro forma LTM net interest expense 41,365
Pro forma LTM income taxes 4,610
Pro forma LTM depreciation and amortization 24,025
Non recurring management fees 625
--------------
$77,836
==============
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