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Headwaters Inc. Reports Operating Results (10-Q)

May 04, 2010 | About:
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10qk

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Headwaters Inc. (HW) filed Quarterly Report for the period ended 2010-03-31.

Headwaters Inc. has a market cap of $353 million; its shares were traded at around $5.84 with and P/S ratio of 0.5. HW is in the portfolios of George Soros of Soros Fund Management LLC.

Highlight of Business Operations:

Summary. Our total revenue for 2010 was $128.2 million, down 7% from $137.7 million for 2009. Gross profit increased 22%, from $22.6 million in 2009 to $27.5 million in 2010. Our operating loss decreased from $(478.3) million in 2009 to $(4.3) million in 2010, and the net loss decreased from $(409.6) million or a diluted loss per share of $(9.86) in 2009, to a net loss of $(13.0) million, or $(0.22) per diluted share, in 2010. Excluding goodwill impairment in 2009, the operating loss decreased from $(12.7) million in 2009 to $(4.3) million in 2010, and the net loss decreased from $(37.3) million or a diluted loss per share of $(0.90) in 2009, to a net loss of $(13.0) million, or $(0.22) per diluted share, in 2010.

Summary. Our total revenue for 2010 was $267.8 million, down 12% from $303.8 million for 2009. Gross profit increased 5%, from $54.3 million in 2009 to $56.9 million in 2010. Our operating loss decreased from $(487.5) million in 2009 to $(10.6) million in 2010, and the net loss decreased from $(412.0) million or a diluted loss per share of $(9.94) in 2009, to a net loss of $(26.9) million, or $(0.45) per diluted share, in 2010. Excluding goodwill impairment in 2009, the operating loss decreased from $(21.9) million in 2009 to $(10.6) million in 2010, and the net loss decreased from $(39.7) million or a diluted loss per share of $(0.98) in 2009, to a net loss of $(26.9) million, or $(0.45) per diluted share, in 2010.

Operating Expenses. The decrease in amortization expense of $0.8 million from 2009 to 2010 was due primarily to accelerated amortization of certain intangible assets in 2009. Research and development expense decreased by $1.5 million from 2009 to 2010, primarily because of decreased spending on our coal-to-liquids and hydrogen peroxide technologies beginning in January 2009. Selling, general and administrative expenses decreased $6.3 million, or 11%, to $52.6 million in 2010 from $58.9 million in 2009. The decrease in 2010 was due to reduced expenses in every significant category of expense except for professional services. The largest contributor of cost savings was personnel-related costs, totaling approximately $6.0 million, which decreased primarily because of headcount reductions. Professional services increased by approximately $4.0 million in 2010 due primarily to $3.3 million of consultation costs related to recapitalization transactions that occurred in 2009 and other periods.

Capital expenditures are limited by the terms of our new ABL Revolver to $60.0 million in fiscal 2010, $55.0 million in 2011 and $60.0 million in 2012. As of March 31, 2010, we were committed to spend approximately $1.3 million on capital projects that were in various stages of completion. In 2009 and 2010, we realized $3.0 million and $3.5 million, respectively, of proceeds from the sale of property, plant and equipment, most of which represented non-strategic assets in our light building products segment. In 2010 we made payments of approximately $7.8 million for primarily long-term deposits related to our energy segment coal cleaning operations. Such payments were $3.3 million in 2009.

Financing Activities. In 2009, we exchanged approximately $80.9 million of our 2.875% convertible senior subordinated notes due 2016 for $63.3 million of new 16% convertible senior subordinated notes due 2016. In March 2009, we exchanged approximately $5.5 million of our 2.50% convertible senior subordinated notes due 2014 for approximately $3.9 million of new 14.75% convertible senior subordinated notes due 2014. Gains of approximately $18.0 million, recorded in other income (expense) in the accompanying consolidated statement of operations for 2009, were recognized on the extinguishments of debt in 2009. Additionally, approximately $1.2 million of unamortized debt issue costs related to the extinguished debt was charged to interest expense in 2009. New debt issue costs of approximately $0.9 million were incurred related to the new 16% and 14.75% convertible notes. In 2009, we borrowed $15.0 million under our revolving credit arrangement and repaid $2.5 million of our former senior secured debt.

The retrospective application of the new rules resulted in the following cumulative changes to the balance sheet as of September 30, 2009: a decrease of $0.7 million in debt issue costs; a decrease of $32.8 million in long-term debt; an increase of $11.8 million in the liability for deferred income taxes; a decrease in retained earnings (increase in accumulated deficit) of $25.7 million; and an increase in additional paid-in capital of $46.0 million. The application of the new rules resulted in an increase in interest expense of $3.6 million for both 2009 and 2010; a decrease in other income of $1.2 million for 2009; an increase in net loss of $4.8 million and $3.6 million for 2009 and 2010, respectively; and an increase in the loss per share of $(0.12) and $(0.03) for 2009 and 2010, respectively. The consolidated statements of cash flows were also affected by the changes in interest expense and other income, which resulted in increases in the reported net losses of $4.8 million and $3.6 million, respectively; increases in non-cash interest expense, of $3.6 million in both periods; and decreases in gain on extinguishment of debt of $1.2 million and $0 million, respectively. There were no changes in the total cash provided by operating activities for either period.

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