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SHAREHOLDERS PRESENTATION

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Page 1: SHAREHOLDERS PRESENTATION

SHAREHOLDERS PRESENTATION

Page 2: SHAREHOLDERS PRESENTATION

page 2

  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 licensing of residue 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, 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 “may,” “should,” “intends,” “plans,” “expects,” “anticipates,” “targets,” “goals,” “projects,” “believes,” “seeks,” “estimates,” “forecasts,” or variations of such words and similar expressions, or the negative of such terms, may 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 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, 2010, 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 press release. 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.

   

Forward Looking Statements

Page 3: SHAREHOLDERS PRESENTATION

Vision Statement

Headwaters improves sustainability by transforming underutilized resources into valuable products

page 3

Page 4: SHAREHOLDERS PRESENTATION

Business Overview

page 4

Page 5: SHAREHOLDERS PRESENTATION

Headwaters Incorporated

page 5

Low-cost producer of high-quality coalInnovative product developmentStrong momentum in operating trendsWell-positioned alternative energy platformRefined coal products qualify for tax credits

Leading market positionsDiversified revenue streamInnovative product development expertiseUnmatched national distribution networkEfficient manufacturingMargins among highest in peer group

Clear market leader in fly ashIncreasing market shareUnrivaled national footprintAttractive long-term market fundamentalsStrong margins and cash flow

Headwaters Energy Services

(HES)

Revenue Breakdown

Headwaters Light Building Products

(HBP)

Headwaters Resources (HRI)

FY 2010 Revenue of $655 Million

Diversified End Markets

HBP HRI

HES

EBITDA Margins (Before asset impairments)

19.9%

9.1%

16.5%

HBP

HRI

HES

Page 6: SHAREHOLDERS PRESENTATION

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Headwaters LightBuilding Products

FISCAL YEAR 2010 Revenue: $317 million 48% of Total Revenue

2010 EBITDA 2011 EBITDA Q1 – 15.3% Q1 – 9.4% Q2 - 9.3% Q3 – 20.2% Q4 – 18.6%

Page 7: SHAREHOLDERS PRESENTATION

Headwaters Light Building Products

page 7

Offers a variety of concrete based masonry unit products

Regional branding

Regional distribution

Low cost producer

Manufactures one of the most authentic architectural stone products in the world

Multiple national brands for optimal customer segmentation

National manufacturing platform

Provides siding accessories and professional tools for exterior residential home improvement and construction

Low cost competitive manufacturing advantage

Diversified customer base

Major supplier of products to Lowe’s and Home Depot

Defensible Positions in Attractive Markets

Fiscal 2010 Revenue of $317 MillionPercentage of Revenue

Texas Concrete Block

Manufactured Stone

Siding Accessories, Roofing and Tools

48%

23%

29%

Page 8: SHAREHOLDERS PRESENTATION

page 8

Leading Market Positions in Niche Product Categories

Source: management estimates

Siding Accessories Manufactured Stone Texas Concrete Block

29%

21%11%

39%

EldoradoCulturedCoronadoOther

29%

21%11%

39%

EldoradoCulturedCoronadoOther

SWC

Other

Ply GemPly Gem

Core BP

Pinckney

Ply Gem

Girardin

Other

Page 10: SHAREHOLDERS PRESENTATION

Light Building Products Growth Initiatives

Develop and introduce new niche products featuring:– Early stage product life

cycle– Faster than average

growth– Examples

• Specialty siding• Functional Shutters• Dutch Quality and

Stone Craft brands• Synthetic slate roofing

Leverage the most extensive distribution system in the industry

4%

9%

15%

20% 20%22%

0%

5%

10%

15%

20%

25%

2005 2006 2007 2008 2009 2010

Percentage of Total Revenue From New

Products & Brands Since 2005

page 10

Page 11: SHAREHOLDERS PRESENTATION

Sustainability Within Building Products

Headwaters Light Building Products division is committed to continuous improvement in its processes and products

– Tapco utilizes roughly 99% of its internal regrind material in various products

– Foundry is purchasing up to 30% to 35% recycled raw materials

– SCP incorporates fly ash in up to 25% of its products, and internal regrind is added to all gray products

– Eldorado Stone incorporates fly ash and internal regrind into over 20% of its products

page 11

Fly Ash Magnified 90x

Page 12: SHAREHOLDERS PRESENTATION

Headwaters Light Building Products Generates Higher Margins Relative to

Peers

page 12

Average EBITDA margin (2008- 2010)

Note: The peer group median margins reflect the margins of CPG, Trex, Owens Corning, Ply Gem, Masco, Associated Materials, and USG.

0%5%

10%15%20%

HBP Peer group median

15.4%

9.7%

Page 13: SHAREHOLDERS PRESENTATION

New Housing Market – In Process of Stabilizing

page 13

Source: U.S. Census and NAHB

Annualized housing starts have shown multiple consecutive months of positive growth, suggesting that the new housing market is in the process of stabilizing and positioned for growth in 2010

524580 557

609 616 626672

578537 541

608 610

519 534 529

400

500

600

700

Oct

-09

Nov

-09

Dec

-09

Jan-

10

Feb-

10

Mar

-10

Apr-

10

May

-10

Jun-

10

Jul-1

0

Aug-

10

Sep-

10

Oct

-10

Nov

-10

Dec

-10

Hou

sing s

tart

s (0

00

s)

Historical median since 1959: 1.5 million

Annualized monthly Housing Starts Since Oct 2009

Page 14: SHAREHOLDERS PRESENTATION

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Headwaters Resources Heavy Construction Materials

Utilizing Coal Combustion Products

FISCAL YEAR 2010 Revenue: $258 Million 40% of Total Revenue

2010 EBITDA 2011 EBITDA Q1 – 16.8% Q1 – 18.7% Q2 – 12.4% Q3 – 22.3%* Q4 – 24.1%* * Adjusted for asset impairment

Page 15: SHAREHOLDERS PRESENTATION

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Heavy Construction Materials

Converting Residuals Into Valuable Products

Improved product performance– More durable– Greater long-term strength– More workable and pumpable– Mitigates problems caused by

salts, chemicals, and some aggregates

Cost savings– 20% to 60% less expensive

Positive environmental impacts– Reduces landfill utilization– Displaces portland cement

production which emits approximately one ton of CO2 for every ton of product

Why Fly Ash?

Page 16: SHAREHOLDERS PRESENTATION

Heavy Construction Materials

Competitive Advantages

Exclusive long-term contracts– 100 power plants in 35

states– Complete utility service

capabilities

Nationwide infrastructure– 22 terminals– ~100 plant site supply

facilities– ~175 trucks– ~1,100 railcars

Technology advancements – Ammonia Slip– Carbon Fixation

Fly Ash Distribution Terminal,Riviera Beach, Florida

page 16

Page 17: SHAREHOLDERS PRESENTATION

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Boral

Lafarge

Headwaters

Other

* Estimated Industry Data Provided by ACAA

Fly Ash – Leading Market Share

Headwaters Resources’ Fly Ash Shipments Estimated Market Share*

Fly ash has been taking market share from portland cement

– Driven by regulatory initiatives and cost consciousness

Headwaters has increased market share in fly ash

0500

1,0001,5002,0002,5003,0003,5004,0004,5005,0005,5006,0006,500

FY00 FY01 FY02 FY03 FY04 FY05 FY06 FY07 FY08 FY09 FY10

(in thousands)

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Headwaters Resources Market Share – Fly Ash in Concrete

Products

Our capital investments in storage and rail terminals have allowed us to increase market share

* Estimated Industry Total provided by ACAA.

Page 19: SHAREHOLDERS PRESENTATION

Proposed EPA Regulations for Fly Ash

Public comment period ended November 19, 2010 after 8 public hearings and over 400,000 comments submittedBeneficial use of coal ash expected to remain exempt from regulationEPA has informally indicated that it will take 2 years to review comments and formulate a final proposal rule – no formal time line has been setHeadwaters Resources Utility Services Group is likely to benefit from proposed regulationsPotential for litigation over final rule may delay enactment

page 19

Page 20: SHAREHOLDERS PRESENTATION

Headwaters Technology Segment

Revenue: $80 Million 12% of Total Revenue

2010 EBITDA 2011 EBITDA Q1 – (42.0)% Q1 – 15.2%

Q2 - 7.8% Q3 - 26.6% Q4 – 18.7%*

*Without Asset Impairment

FISCAL YEAR 2010

Page 22

Page 21: SHAREHOLDERS PRESENTATION

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Coal Cleaning OverviewConverting Waste Coal Into a Valuable Product

Continuation of our waste coal expertise

Synergies with Headwaters ResourcesLarge addressable market– 3-5 bn tons of waste

Federal tax credit of $6 per tonEnvironmental benefits– Solid waste utilization, land

reclamation, emissions reductions from processed fuel

11 facilities (9 in operation)–Wet and dry processing technologies

Coal Recovery Facility (Dry Technology) Wellington, Utah

Strategic Rationale to be in Coal Cleaning HW Coal Cleaning Assets

Page 22: SHAREHOLDERS PRESENTATION

Coal Cleaning Production & Sales

22

Page 23: SHAREHOLDERS PRESENTATION

Financial Overview

page 23

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REVENUEExcludes Section 45K Results(dollars in millions)

Page 25: SHAREHOLDERS PRESENTATION

Fiscal 2010 EBITDA By Segment

page 25

$52.3 $51.4*

$7.2*

Light Building Products

CCPs - Heavy Construction

Materials

HES

(dollars in millions)

*Without asset impairments

Page 26: SHAREHOLDERS PRESENTATION

CAPITAL STRUCTURE

page 26

(in thousands) Carrying ParDebt Value Value Rate

Senior Secured Debt 325,950$ 328,250$ 11.375%16.0% Convertible Debt 8,773 9,233 16.00%2.5% Convertible Debt 102,485 120,900 2.50%14.75% Convertible Debt 24,986 27,370 14.75%Total Debt 462,194$ 485,753$

EquityOutstanding Shares 60,752

Cash on Hand Dec 31, 2010 $67,998

Page 27: SHAREHOLDERS PRESENTATION

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HEADWATERS

“Improving sustainability by transforming underutilized resources

into valuable products”