HEADWATERS INC (HW) SPO
|Company Name||HEADWATERS INC|
|Company Address||10701 SOUTH RIVERFRONT PARKWAY
SOUTH JORDAN, UT 84095
|CEO||Kirk A. Benson|
|Employees (as of 9/30/2012)||2520|
|State of Inc||DE|
|Fiscal Year End||9/30|
|Exchange||New York Stock Exchange|
|Shares Over Alloted||0|
|Shareholder Shares Offered||--|
|Lockup Period (days)||180|
|Quiet Period Expiration||1/28/2013|
We estimate that the net proceeds we will receive from the sale of 7,600,000 shares of our common stock that we are offering will be approximately $51.5 million, after deducting the underwriting discounts and commissions and estimated offering expenses payable by us and assuming a public offering price of $7.29 per share (based on the last reported sale price on December 14, 2012). We intend to use the net proceeds from this offering to finance our proposed acquisition of the assets of Kleer Lumber, Inc. Any remaining proceeds will be used for general corporate purposes. If we do not consummate our proposed Kleer Lumber acquisition, the net proceeds we will receive from their offering shall be used for general corporate purposes.
We have a leading market position in our siding accessories business because of our strong ability to manufacture and distribute a broad range of products economically and rapidly. However, our resin-based siding accessory business' strong market position suggests that its future growth will come largely from improved demand for building products when the construction sector of the economy strengthens, not from increasing market share in the siding accessories industry. We have developed a recognized name in the manufactured architectural stone industry and a strong market share because our products have excellent authenticity and broad selection alternatives. Our architectural stone business has a multi-channel distribution network, but faces strong competition from producers that may be closer to certain end markets. Our block business is not national in breadth, although it enjoys a strong regional market position in Texas, facing competition from other Texas block businesses. Our primary competition for resin-based siding products includes Ply Gem and Pinckney in the siding accessories market, and CertainTeed in the specialty siding market. Notwithstanding our national position as a leading producer of manufactured architectural stone, we face significant competition from other national and regional producers of similar products, such as Boral Material Technologies Inc. and Coronado Stone Products. With respect to concrete masonry units, national and regional competition includes Featherlite, IPC Building Products, Pavestone, Revels Block & Brick and Jewell Concrete Products, some of which are larger manufacturers of concrete masonry units than us. Many of our competitors have greater financial and other resources and may be able to take advantage of acquisitions and other opportunities more readily than we can. --- The business of marketing traditional CCPs is highly competitive but we have a strong competitive position due to our long-term utility contracts for the supply of fly ash and our extensive distribution system. Our nationwide CCP distribution system not enjoyed by our competition allows us to effectively compete for long-term exclusive supply contracts with utilities. However, our CCP business is sometimes adversely affected by inclement weather slowing construction using concrete, the largest market for certain high quality CCPs. We also face increasingly aggressive competition in marketing and sales of CCPs. Our CCP business has substantial competition in two main areas: obtaining CCP management contracts with utility and other industrial companies and marketing CCPs and related industrial materials. Our CCP business has a presence in every region in the United States but, because the market for the management of CCPs is fragmented and because the costs of transportation are high relative to sales prices, most of the competition in the CCP management industry is regional. There are many local, regional and national companies that compete for market share with similar CCP products and with numerous other substitute products. Although we have a number of long-term CCP management contracts with our clients, some of these contracts allow for the termination of the contract at the convenience of the utility company upon a specified notice. Our major competitors include Lafarge North America Inc., Boral Material Technologies Inc. and Cemex. Many of our competitors have greater financial, management and other resources and may be able to take advantage of potential acquisitions and other opportunities more readily than we can. --- Each of our energy businesses experiences competition. With respect to our discontinued coal cleaning activities, we face competition from numerous operators of run-of-mine coal production facilities, some of which also prepare and co-produce product from waste or low value coal streams. Further, many industrial coal users are limited in the amount of cleaned coal product they can purchase from us because they have committed to purchase a substantial portion of their coal requirements through long-term contracts for run-of-mine coal. Our heavy oil upgrading, coal liquefaction and catalyst technologies also experience competition from many of the world's major petroleum, chemical and energy companies. Those companies are actively engaged in research and development activities that could result in a competitive slurry catalyst system. For example, Chevron has recently begun marketing a catalyst system that could be competitive with HCAT. Many of our competitors have greater financial and other resources and may be able to take advantage of acquisitions and other opportunities more readily.
Headwaters provides products and services to the light building products and heavy construction materials industries. We have leadership positions in many of the product categories in which we compete, generating revenue by selling building products such as architectural stone, siding accessories,
and concrete blocks. We also sell fly ash as a partial replacement for portland cement in concrete. Our end markets include residential repair and remodeling, new residential, commercial, and infrastructure construction. We conduct our business primarily through our light building products and heavy construction materials segments. Light Building Products We compete in the light building products industry, which is currently our largest reporting segment based on revenue. Our light building products segment generated approximately $339.6 million in revenue and $63.3 million in Adjusted EBITDA during the year ended September 30, 2012, representing an increase of 8% and 60%, respectively, as compared to 2011. Our Adjusted EBITDA margin for the light building products segment grew to 19% in 2012 as compared to 13% for 2011. Our light building products segment has leading positions in several light building product categories. We are a leading designer, manufacturer and marketer of siding accessories used in residential repair and remodeling and new residential construction applications. Our siding accessories include decorative window shutters, gable vents, mounting blocks, roof ventilation, and window and door trim products. We also market functional shutters, specialty siding products, specialty roofing products and window wells. Our siding accessory sales are primarily driven by the residential repair and remodeling construction market and, to a lesser extent, by the new residential construction market. We are a leading producer of manufactured architectural stone. Eldorado Stone, our largest stone brand by revenue, is designed and manufactured to be one of the most realistic manufactured architectural stone products in the world. Our two additional brands are marketed at different price points in the manufactured architectural stone market, allowing us to compete across a broad spectrum of customer profiles. Our manufactured stone sales are driven by new residential construction demand and residential repair and remodeling, as well as commercial construction markets. We are the largest manufacturer of concrete block in the Texas market, which we believe to be one of the largest concrete block markets in the United States. We offer a variety of concrete based masonry unit products and employ a regional branding and distribution strategy. A large portion of our concrete block sales are generated from the institutional construction markets in Texas, including school construction. We have a large customer base for our building products that includes many siding and roofing wholesalers in the United States and a large number of retail customers and lumber yards across the country. Sales are broadly diversified by serving a large variety of customers in various distribution channels. We believe we attract a large base of customers because we emphasize customer satisfaction, high quality and innovative products. Heavy Construction Materials We also compete in the heavy construction materials industry. Our heavy construction materials segment generated approximately $281.7 million in revenue and $54.8 million in Adjusted EBITDA for the year ended September 30, 2012, representing an increase of approximately 11% and 19%, respectively, as compared to 2011. Our Adjusted EBITDA margin for the heavy construction materials segment grew to 19% in 2012 as compared to 18% for 2011. We are the national leader in the management and marketing of fly ash and other coal combustion products ("CCPs"), procuring fly ash from coal-fueled electric generating utilities and supplying it to our customers as a partial replacement for portland cement in the production of concrete. CCPs, such as fly ash and bottom ash, are the non-carbon components of coal that remain after coal is burned. Fly ash is most valuable when it is used as a replacement for a portion of the portland cement used in concrete. Concrete made with fly ash has better performance characteristics than concrete made only from portland cement, including improved durability, decreased permeability and enhanced corrosion-resistance. Further, concrete made with CCPs is easier to work with than concrete made only with portland cement, due in part to its better pumping and forming properties. Because fly ash can be substituted for a portion of the portland cement used in concrete and is generally less expensive per ton than portland cement, the total per cubic yard cost of concrete made with fly ash can be lower than the cost of concrete made exclusively with portland cement. According to a report sponsored by us from the American Road and Transportation Builders Association, the recycling of fly ash into concrete saves Federal and State governments more than $5 billion annually in infrastructure costs, based on the initial price savings of fly ash relative to portland cement and the longer durability of concrete made with fly ash. In order to ensure a steady and reliable supply of CCPs, we enter into long-term and exclusive management contracts with coal-fueled electric generating utilities, maintain 22 stand-alone CCP distribution terminals across North America and support approximately 100 plant-site supply facilities. We own or lease approximately 1,130 rail cars and approximately 220 road-licensed trucks, in addition to contracting with other carriers in order to meet transportation needs for the marketing and disposal of CCPs. Our extensive distribution network, which we believe is the only distribution network with a full national footprint in the United States for the transportation of CCPs, allows us to transport CCPs across the nation, including into states that represent important construction markets but that have a low production of quality CCPs. A substantial majority of our CCP revenue comes from sales to an extensive customer base that uses fly ash as a partial replacement for portland cement in concrete. These customers are primarily ready mix producers, but also include paving contractors and other manufacturers of concrete products. Although our customers typically operate in limited regions because of the high cost of transporting concrete and concrete products, we sell fly ash in multiple regions across the country because of our broad sources of supply and our efficient distribution system. We plan to grow our heavy construction materials business by increasing the percentage of fly ash substituted for portland cement and expanding the use of CCPs through market recognition of the performance, economic and environmental benefits of CCPs. Based on U.S. Geological Survey and American Coal Ash Association data, we estimate that for calendar 2011, fly ash replaced approximately 19% of the portland cement that otherwise would have been used in concrete produced in the United States. Energy Technology We are also involved in legacy activities in heavy oil upgrading processes and liquefaction of coal into liquid fuels, businesses which we intend to exit, and are completing the sale of our coal cleaning business. --- On December 14, 2012, we entered into an agreement to acquire the assets of Kleer Lumber, a manufacturer of high quality and eco-friendly cellular PVC trim board and moulding products. Our acquisition of Kleer Lumber will add a full range of cellular PVC products to our light building products offerings, including trim boards, millwork, sheet stock, paneling, and moulding, as well as the company's recently introduced decking and railing products. Kleer Lumber's trim boards offer the TruEDGE® feature, a proprietary and innovative technology that seals edges, improving trim board performance and appearance. Kleer Lumber's products are manufactured at its Westfield, Massachusetts manufacturing and research and development facility. We believe demand for cellular PVC building products is growing due to the ability to cut, mill, shape, and install in the same manner as wood products, but with the added benefit of cellular PVC requiring significantly less maintenance than wood. We intend to introduce Kleer Lumber's product offerings into our larger distribution network, thus expanding point of sale locations. In addition, Kleer Lumber primarily distributes its products to independent lumber yards and home improvement centers located in the Northeast and Mid-Atlantic states; increased access to this distribution channel for our existing products expands our already extensive light building products distribution networks. Since commencement of operations in 2005, Kleer Lumber has exhibited increasing sales and profit growth despite the recent declines in the broader repair and remodel and new residential construction markets. From 2009 to date, Kleer Lumber's sales increased at a compound annual growth rate of more than 18%, with sales of approximately $38 million for the twelve months ended October 31, 2012. This increase in sales growth reflects a combination of the introduction of new products and an increase in sales of existing products. ------ Our headquarters are located at 10653 South River Front Parkway, Suite 300, South Jordan, Utah 84095. Our telephone number is (801) 984-9400. Headwaters has a website located at www.headwaters.com.
|Auditor||BDO USA, LLP|
|Company Counsel||Pillsbury Winthrop Shaw Pittman LLP|
|Lead Underwriter||Deutsche Bank Securities Inc|
|Lead Underwriter||Stifel Nicolaus & Company, Incorporated|
|Transfer Agent||American Stock Transfer & Trust Company, LLC|
|Underwriter Counsel||Cahill Gordon & Reindel LLP|