Headwaters Incorporated Announces Results for Second Quarter of Fiscal 2008

Business Wire,  April 30, 2008  

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Total March Quarter Revenue of $172.0 Million

Recurring Revenue Down 8% in the March Quarter

Cost Improvement Projects Totaling $20 Million Underway

SOUTH JORDAN, Utah -- HEADWATERS INCORPORATED (NYSE: HW) today announced results for its quarter ended March 31, 2008, the second quarter of its 2008 fiscal year.

Highlights for the quarter included:

* Acquisition of a met coal cleaning facility in West Virginia

* Mortar and stucco sale completed - reducing residential construction exposure

* Non-Section 45K revenue in the Energy Segment grew from $0.7 million to $9.5 million quarter over quarter and from $2.3 million in the December 2007 quarter

* Breakeven operations forecasted in the Energy Segment by September 2008

The decline in net income and earnings per share for the March 2008 quarter and for the six months ended March 2008, as discussed below, is primarily due to the expiration of Section 45K and our related business. Although less significant, poor winter weather and the substantial downturn in residential construction also contributed to the decline.

Headwaters' total revenue for the March 2008 quarter was $172.0 million, down from $274.1 million for the March 2007 quarter. Gross profit decreased from $94.4 million in the March 2007 quarter to $41.3 million in the March 2008 quarter. Operating income decreased from $45.4 million to an operating loss of $(8.9) million. The net loss of $(9.2) million in the March 2008 quarter resulted in diluted loss per share of $(0.22), compared to net income of $27.2 million, or $0.59 per diluted share, in the March 2007 quarter. Excluding a restructuring charge of $3.8 million in our Building Products Segment and $2.6 million of foreign currency losses in our Energy Segment, the quarterly loss would have been $(0.11) per share.

Headwaters' total revenue for the six months ended March 31, 2008 was $420.9 million, down from $549.0 million for the six months ended March 31, 2007. Gross profit decreased from $174.5 million for the six months ended March 31, 2007 to $104.4 million for the six months ended March 31, 2008. Operating income decreased from $79.3 million to $9.5 million. Net income for the six months ended March 31, 2008 was $0.7 million, or $0.02 diluted earnings per share, compared to net income of $44.2 million, or $0.96 per diluted earnings per share, for the six months ended March 31, 2007. Excluding the charges described above, diluted earnings per share for the six months ended March 31, 2008 would have been $0.13.

Excluding our Section 45K business, Headwaters' total revenue for the March 2008 quarter was $164.1 million, down from $178.3 million for the March 2007 quarter. Gross profit excluding Section 45K was $33.9 million in the March 2008 quarter, down from $43.3 million for the March 2007 quarter. Headwaters operating loss increased from $(5.1) million in the March 2007 quarter to $(16.4) million in the March 2008 quarter. After adjustment for the foreign currency loss described above, gross profit decreased by $6.8 million, and operating loss decreased by only $4.9 million when considering both charges. The positive improvement in operating expenses resulted from the initial impact of cost improvement initiatives recently implemented. The net loss for the March 2008 quarter excluding Section 45K was $(13.4) million and diluted loss per share was $(0.33), compared to a net loss of $(8.3) million, or $(0.17) per diluted share, in the March 2007 quarter. After adjustment for the two charges described above, diluted loss per share in the March 2008 quarter would have been $(0.22).

Restructuring and Productivity Improvements

Headwaters is continuing to improve performance in response to the building products down cycle. Our current cost improvement plan affects all units of the company, but most of the activity is in our building products division. In total, we have identified in excess of $20 million annualized cost savings, and have commenced activities to realize these benefits. Areas affected by these improvements include:

* Changes in raw materials and utilization

* Plant closings

* Plant consolidations

* Transportation and freight changes

* Manufacturing changes and process improvements

* Personnel costs

We believe that most of these improvements will result in cost savings realized over the next twelve to twenty-four months.

Operating Performance

Coal Combustion Products

Revenues from coal combustion products ("CCPs") were essentially flat, decreasing $1.1 million, from $62.1 million in the March 2007 quarter to $61.0 million in the March 2008 quarter. The gross margin of 21.9% in 2008 decreased from the 2007 gross margin of 24.6%, and the operating margin of 10.3% in March 2008 was lower than the operating margin of 13.2% in March 2007. CCPs' comparative 2008 performance was influenced by poor weather conditions in certain markets and a change in sales mix among regions and products. We expect conditions to improve as we enter the summer months.