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Headwaters Inc. Reports Operating Results (10-Q)

August 05, 2009 | About:
insider

Headwaters Inc. (HW) filed Quarterly Report for the period ended 2009-06-30.

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. Headwaters Inc. has a market cap of $152.8 million; its shares were traded at around $3.61 with and P/S ratio of 0.2. Headwaters Inc. had an annual average earning growth of 11.4% over the past 5 years.

Highlight of Business Operations:

Summary. Our total revenue for 2009 was $175.2 million, down 24% from $230.5 million for 2008. Gross profit decreased 35%, from $64.3 million in 2008 to $42.1 million in 2009. Operating income decreased from $21.1 million in 2008 to $5.4 million in 2009. Net income decreased from $13.7 million, with diluted earnings per share of $0.31, in 2008, to $11.3 million, or $0.27 per diluted share, in 2009.

Net interest expense increased from $5.6 million in 2008 to $10.1 million in 2009 due to several factors, most notably increased interest expense attributed to our convertible debt exchanges that occurred in December 2008 and March and April 2009 that resulted in the extinguishment of $80.9 million of 2.875% convertible notes and the issuance of $63.3 million of 16% convertible notes, and the extinguishment of $39.1 million of 2.50% convertible notes and the issuance of $27.4 million of 14.75% convertible notes (see Note 6 to the consolidated financial statements). In connection with the April 2009 convertible debt exchange, approximately $0.8 million of accelerated debt issue costs were amortized related to the extinguished 2.50% convertible notes. In addition, we experienced higher interest rates on our senior debt as a result of the August 2008 amendment to our senior secured credit agreement. Due to the increased interest rates on our convertible debt and senior debt, we expect interest expense for the remainder of fiscal 2009 and for fiscal 2010 to significantly exceed the respective fiscal 2008 levels.

Summary. Our total revenue for 2009 was $479.1 million, down 26% from $651.3 million for 2008. Gross profit decreased 43%, from $168.7 million in 2008 to $96.4 million in 2009. Operating income decreased from $30.5 million in 2008 to an operating loss of $(482.2) million in 2009. Net income decreased from $14.4 million, with diluted earnings per share of $0.35, in 2008, to a net loss of $(395.9) million, or $(9.53) per diluted share, in 2009. The most significant reason for the change in results from 2008 to 2009 was the goodwill impairment charge totaling approximately $465.7 million in 2009.

In addition to the goodwill impairment charge in 2009, our Section 45K business terminated in fiscal 2008 and we sold the mortar/stucco business in our building products segment in fiscal 2008. Removing the effect of these two profitable operations from the numbers for 2008 and the effect of the goodwill impairment charge for 2009, our total revenue for 2009 was $479.1 million, down 17% from $579.0 million for 2008. Gross profit decreased 34%, from $146.7 million in 2008 to $96.4 million in 2009. Operating income decreased from $9.4 million in 2008 to an operating loss of $(16.5) million in 2009, and net income (loss) decreased from a net loss of $(2.9) million, with diluted earnings (loss) per share of $(0.06), in 2008, to net income of $0.9 million, or $0.02 per diluted share, in 2009.

Operating Expenses. The increase in amortization expense of $1.3 million from 2008 to 2009 was due primarily to accelerated amortization of certain intangible assets and amortization of intangible assets that were acquired in a late fiscal year 2008 acquisition. Research and development expense decreased by $4.0 million from 2008 to 2009, primarily because of decreased spending on our coal-to-liquids and hydrogen peroxide technologies. Selling, general and administrative expenses decreased $22.5 million, or 20%, to $87.8 million in 2009 from $110.3 million in 2008. The decrease in 2009 was due to reduced expenses in every significant category of expense, with the largest contributor being personnel-related costs, including incentive pay expenses, totaling $13.9 million. Incentive pay decreased due to reduced profitability of our operations and other personnel-related costs decreased primarily because of headcount reductions. In addition, in 2008, $3.8 million of restructuring costs related to plant consolidations and other cost improvement projects undertaken in our building products segment were recorded, and such costs in 2009 were minimal.

Net interest expense increased from $17.6 million in 2008 to $27.2 million in 2009 due to several factors, most notably increased interest expense attributed to our convertible debt exchanges that occurred in December 2008 and March and April 2009 that resulted in the extinguishment of $80.9 million of 2.875% convertible notes and the issuance of $63.3 million of 16% convertible notes, and the extinguishment of $39.1 million of 2.50% convertible notes and the issuance of $27.4 million of 14.75% convertible notes (see Note 6 to the consolidated financial statements). In connection with the convertible debt exchanges, approximately $1.9 million of accelerated debt issue costs were amortized related to the extinguished convertible notes. In addition, we experienced higher interest rates on our senior debt as a result of the August 2008 amendment to our senior secured credit agreement.

Read the The complete Report

Rating: 4.0/5 (3 votes)

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