Headwaters Incorporated Comments on Sixth Annual Analyst Day Conference

SOUTH JORDAN, Utah--(BUSINESS WIRE)--Headwaters Incorporated (NYSE:HW) announced that it conducted its sixth annual analyst day conference on Friday, February 29^th, at The Grand America Hotel in downtown Salt Lake City. During the half-day meeting, presentations were given by Headwaters’ senior management team addressing Headwaters Energy Services division, Headwaters Building Products division, Headwaters Resources division, as well as an overview on the Company’s proprietary HCAT^TM heavy oil catalyst technology. Steven Stewart, Headwaters’ Chief Financial Officer, reviewed the Company’s financial status, and Kirk Benson, Headwaters’ Chief Executive Officer, presented a general overview. Highlights of the conference are included in this press release.

Coal Cleaning

At the end of calendar year 2007, Headwaters Energy Services (“HES”) was operating three coal cleaning facilities, and had two additional facilities in the start up phase of operations. In February, a sixth facility was acquired in West Virginia to focus on the production of met coal. Combined with the four facilities currently under construction, HES expects to have ten operating facilities by the end of calendar 2008. For 2009, HES is evaluating additional sites, and has more than five sites under detailed review. We have rights to between 350 and 550 million tons of waste coal and anticipate sales of five to seven million tons of coal annually by 2010.

We are continuing to improve our operational performance at the three facilities currently in full operation. We have had operations at levels approaching 90% of expected capacity, and expect near term average operations to be in the range of 75% of capacity. We have had consistent improvement over time in operations as we develop a better understanding of cleaning processes.

Over the last six months, HES has signed agreements with ten utility customers to sell an anticipated 1.4 million tons of coal on an annual basis. In the December quarter, we sold 85,000 tons of coal. In January and through February 15^th, 2008, we sold 100,000 tons, and expect to sell more than 200,000 tons in the March quarter as we ramp up sales. We now have staffed our coal marketing effort and continue to conduct test burns with prospective utility customers. We have eight prospects reviewing offers to purchase 11 million tons total between the fall of 2008 and 2011.

HCAT

Headwaters believes that industry projections of limited future crude oil supplies and refining capacity provide economic tail winds for HCAT’s commercialization. HCAT is a new resid hydrocracking catalyst technology that Headwaters anticipates may be used as an additive or replacement technology for traditional processes used for upgrading residual heavy oil.

We have anticipated running HCAT in an additional refinery, and the HCAT catalyst was introduced into an ebullated bed residue hydrocracking unit at a third refinery in mid-February. After the trial commenced, there arose a technical constraint in the unit and the refinery temporarily suspended the demonstration eight days into the test.

During the eight day trial period, we saw the same positive results previously demonstrated. Specifically, the heat exchanger fouling was greatly reduced and sediment levels in the unconverted residue dropped by over 50 percent. It is another confirmation of HCAT’s positive contribution to ebullated bed technology. We look forward to the reintroduction of HCAT and the conclusion of the testing period.

The Company has successfully completed three previous commercial demonstrations of HCAT with positive results. The first demonstration was in a European refinery that has purchased the HCAT conditioning system and further implementation efforts are expected during calendar 2008. The second refinery ran two separate tests and recently purchased the HCAT conditioning system. Headwaters expects further implementation activities with this refinery in calendar 2008.

There are multiple effects from HCAT that we anticipate will add value in a refinery operation. The Company believes that increased conversion, improved product quality, reaction gain, and utilization through lower sediment levels and fouling are some of the benefits from HCAT. Increased costs incurred by a refinery for use of the HCAT technology include the cost of the catalyst and hydrogen.

Building Products

Weak demand in single family housing has resulted in fewer starts and high levels of inventory of new and existing homes. The Company anticipates that excess housing inventory will be reduced as a result of lower production and increased affordability. But, we believe recovery in new construction will not occur until 2009 at the earliest. Headwaters projects good opportunities in the remodel market in the latter part of 2008 and the beginning of 2009, while in the interim, commercial and institutional sales continue to be strong. The Company feels its core products are well positioned to benefit from the future recovery in new construction. Long-term, Headwaters believes that household formation in the United States will lead to strong demand for new construction, positively impacted by immigration and population growth.

Certain new products and brands, such as Inspire Roofing, Foundry Specialty Siding, and functional shutters grew organically over 20% last year. The compounded average growth rate in new products and brands between fiscal 2004 and 2007 exceeded 70%. A key element of the Company’s strategy is to introduce new products and brands into our distribution system. For example, we introduced a new colored trim board cellular pvc product at the national builders show in February.

Resources

The December 2007 quarter proved to be another record quarter for Headwaters Resources. Demand for coal combustion products, and particularly fly ash, remains strong. Headwaters Resources continues to focus on increasing its supply of high quality fly ash by increasing its storage and distribution capabilities, innovative technology advancements and blending techniques. We have also been awarded several new contracts that will increase our available supply of high value coal combustion products by over 5%.

Green building is one of the reasons the demand for fly ash should continue to increase. Utilizing fly ash in construction projects reduces CO₂ emissions produced when making Portland cement. The U.S. Green Building Council’s LEED (Leadership in Energy & Environmental Design) projects are growing roughly 74% per year, and using fly ash contributes toward LEED certification.

The fly ash industry does, however, have an issue that it may need to address. Over the next several years, some state regulators are implementing rules to control mercury emissions at coal fired power plants. Powdered activated carbon (PAC) can be used to reduce mercury emissions, but the addition of carbon into power plant exhaust streams may have an impact on the quality of fly ash produced. Headwaters Resources has an initiative under way to reduce the potential impact of PAC, and it believes that the impact can be successfully mitigated.

Capital Structure

Headwaters successfully completed a $160 million convertible debt offering in FY2007, with a call spread that raises the conversion premium to $35 per share. The Company reduced its senior secured credit facility during fiscal 2007 by more than $200 million with the proceeds from the convertible debt offering and cash flow from operations. Due to early repayments, no senior debt principal payments are due until 2011. Cash flow from operations in 2008 is expected to exceed $125 million.

Additional information about Headwaters is available in its Annual Report on Form 10-K and other periodic and special reports filed by the Company. Our website is www.headwaters.com which has links to all of our SEC reports. Stockholders may receive a hard copy of the Company’s complete audited financial statements and SEC reports free of charge upon request to Sharon Madden, Vice President of Investor Relations.

About Headwaters Incorporated

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.

Forward-Looking Statements

Certain statements contained in this press release are forward-looking statements within the meaning of federal securities laws and Headwaters intends that such forward-looking statements be subject to the safe-harbor created thereby. Forward-looking statements include Headwaters’ expectations as to the managing and marketing of coal combustion products, the production and marketing of building materials and products, the production and marketing of cleaned coal, the production and marketing of hydrogen peroxide, the licensing of resid hydrocracking technology and catalyst sales to oil refineries, the availability of refined coal tax credits, the development, commercialization, and financing of new technologies and other strategic business opportunities and acquisitions, and other information about Headwaters. Such statements that are not purely historical by nature, including those statements regarding Headwaters’ future business plans, the operation of facilities, the availability of feedstocks, and the marketability of the coal combustion products, building products, cleaned coal, hydrogen peroxide, catalysts, and the availability of tax credits, are forward-looking statements within the meaning of the Private Securities Litigation Reform Act of 1995 regarding future events and our future results that are based on current expectations, estimates, forecasts, and projections about the industries in which we operate and the beliefs and assumptions of our management. Actual results may vary materially from such expectations. Words such as “expects,” “anticipates,” “targets,” “goals,” “projects,” “believes,” “seeks,” “estimates,” ”plans,” variations of such words and similar expressions, are intended to help identify such forward-looking statements. Any statements that refer to projections of our future financial performance, our anticipated growth and trends in our businesses, and other characterizations of future events or circumstances, are forward-looking. In addition to matters affecting the coal combustion products, building products, and alternative energy industries or the economy generally, factors that could cause actual results to differ from expectations stated in forward-looking statements include, among others, the factors described in the caption entitled “Risk Factors” in Item 1A in Headwaters’ Annual Report on Form 10-K for the fiscal year ended September 30, 2007, Quarterly Reports on Form 10-Q, and other periodic filings and prospectuses.

Although Headwaters believes that its expectations are based on reasonable assumptions within the bounds of its knowledge of its business and operations, there can be no assurance that our results of operations will not be adversely affected by such factors. Unless legally required, we undertake no obligation to revise or update any forward-looking statements for any reason. Readers are cautioned not to place undue reliance on these forward-looking statements, which speak only as of the date of this report. Our internet address is www.headwaters.com. There we make available, free of charge, our annual report on Form 10-K, quarterly reports on Form 10-Q, current reports on Form 8-K and any amendments to those reports, as soon as reasonably practicable after we electronically file such material with, or furnish it to, the SEC. Our reports can be accessed through the investor relations section of our web site.