Headwaters Inc. (HW, Financial) filed Quarterly Report for the period ended 2008-12-31.
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 $204.98 million; its shares were traded at around $4.23 with a P/E ratio of 5.5 and P/S ratio of 0.23. Headwaters Inc. had an annual average earning growth of 11.4% over the past 5 years.
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 the 2007 period, our total revenue for 2008 was $166.2 million, down 11% from $186.2 million for 2007. Gross profit decreased 36%, from $49.3 million in 2007 to $31.6 million in 2008. Operating income decreased from $5.3 million in 2007 to an operating loss of $(9.2) million in 2008, and the net loss increased from $(0.4) million, with diluted earnings (loss) per share of $(0.01), to a net loss of $(0.9) million, or $(0.02) per diluted share, in 2008.
Building Products Segment. Sales of building products during 2008 were $88.2 million with a corresponding gross profit of $18.0 million. Sales of building products during 2007 were $114.8 million with a corresponding gross profit of $32.9 million. The decrease in our sales of building products in 2008 was due primarily to the continuing effects of the depressed new housing and residential remodeling market which impacted sales across most of our product lines. Also, in early 2008, we sold certain non-strategic mortar/stucco assets in the building products segment which accounted for approximately $8.3 million of the decrease in revenue from 2007 to 2008. The gross margin percentage declined from 2007 to 2008 due primarily to fewer fixed costs being absorbed as a result of lower sales. We believe our niche strategy and our focus on productivity improvements tempered somewhat the impact of the severe slowdown in new residential construction; however, the recession has resulted in higher unemployment, adding to the home foreclosure rate, putting additional homes on the market and further reducing the demand for new construction.
Operating Expenses. The increase in amortization expense of $0.2 million from 2007 to 2008 was due primarily to intangible assets that were acquired in a fiscal 2008 acquisition. Research and development expense decreased by $0.7 million from 2007 to 2008, primarily because of decreased spending on our coal-to-liquids and hydrogen peroxide technologies. Selling, general and administrative expenses decreased $3.4 million, or 10%, to $31.6 million in 2008 from $35.0 million in 2007. The decrease in 2008 was due primarily to reduced incentive pay expenses and to a lesser extent, other personnel-related costs. Incentive pay decreased due to reduced profitability of our operations and other personnel-related costs decreased due to headcount reductions.
Other Income and Expense. During 2008, we reported net other income of $8.7 million compared to net other expense of $1.9 million during 2007. The change in other income and expense of $10.6 million was comprised of an increase in net interest expense of approximately $2.9 million and an increase in net other income of approximately $13.5 million.
Financing Activities. In 2008, 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. A gain, recorded in other income (expense) in the accompanying consolidated statement of operations for 2008, of approximately $17.6 million was recognized on the extinguishment of debt. Additionally, approximately $1.0 million of unamortized debt issue costs related to the extinguished $80.9 million of debt was charged to interest expense in 2008 and approximately $1.0 million of new debt issue costs were incurred related to the 16% convertible notes. In 2007, financing activities consisted primarily of treasury stock purchases totaling $14.8 million.
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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 $204.98 million; its shares were traded at around $4.23 with a P/E ratio of 5.5 and P/S ratio of 0.23. 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 2008 was $166.2 million, down 33% from $248.9 million for 2007. Gross profit decreased 50%, from $63.1 million in 2007 to $31.6 million in 2008. Operating income decreased from $18.4 million in 2007 to an operating loss of $(9.2) million in 2008. Net income decreased from $9.9 million, with diluted earnings per share of $0.23, to a net loss of $(0.9) million, or $(0.02) per diluted share, in 2008.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 the 2007 period, our total revenue for 2008 was $166.2 million, down 11% from $186.2 million for 2007. Gross profit decreased 36%, from $49.3 million in 2007 to $31.6 million in 2008. Operating income decreased from $5.3 million in 2007 to an operating loss of $(9.2) million in 2008, and the net loss increased from $(0.4) million, with diluted earnings (loss) per share of $(0.01), to a net loss of $(0.9) million, or $(0.02) per diluted share, in 2008.
Building Products Segment. Sales of building products during 2008 were $88.2 million with a corresponding gross profit of $18.0 million. Sales of building products during 2007 were $114.8 million with a corresponding gross profit of $32.9 million. The decrease in our sales of building products in 2008 was due primarily to the continuing effects of the depressed new housing and residential remodeling market which impacted sales across most of our product lines. Also, in early 2008, we sold certain non-strategic mortar/stucco assets in the building products segment which accounted for approximately $8.3 million of the decrease in revenue from 2007 to 2008. The gross margin percentage declined from 2007 to 2008 due primarily to fewer fixed costs being absorbed as a result of lower sales. We believe our niche strategy and our focus on productivity improvements tempered somewhat the impact of the severe slowdown in new residential construction; however, the recession has resulted in higher unemployment, adding to the home foreclosure rate, putting additional homes on the market and further reducing the demand for new construction.
Operating Expenses. The increase in amortization expense of $0.2 million from 2007 to 2008 was due primarily to intangible assets that were acquired in a fiscal 2008 acquisition. Research and development expense decreased by $0.7 million from 2007 to 2008, primarily because of decreased spending on our coal-to-liquids and hydrogen peroxide technologies. Selling, general and administrative expenses decreased $3.4 million, or 10%, to $31.6 million in 2008 from $35.0 million in 2007. The decrease in 2008 was due primarily to reduced incentive pay expenses and to a lesser extent, other personnel-related costs. Incentive pay decreased due to reduced profitability of our operations and other personnel-related costs decreased due to headcount reductions.
Other Income and Expense. During 2008, we reported net other income of $8.7 million compared to net other expense of $1.9 million during 2007. The change in other income and expense of $10.6 million was comprised of an increase in net interest expense of approximately $2.9 million and an increase in net other income of approximately $13.5 million.
Financing Activities. In 2008, 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. A gain, recorded in other income (expense) in the accompanying consolidated statement of operations for 2008, of approximately $17.6 million was recognized on the extinguishment of debt. Additionally, approximately $1.0 million of unamortized debt issue costs related to the extinguished $80.9 million of debt was charged to interest expense in 2008 and approximately $1.0 million of new debt issue costs were incurred related to the 16% convertible notes. In 2007, financing activities consisted primarily of treasury stock purchases totaling $14.8 million.
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