Our second quarter was challenging, as continuing recessionary conditions drove revenue declines in our coal combustion products and building products businesses. On a positive note, however, we saw sales momentum in our building products business in March and April, which could signal an improvement in the outlook for this business, particularly in remodeling sales. We also recorded $ 21.2 million of revenue in our energy segment, and we began to see results from our cost cutting initiatives, said Kirk A. Benson, chairman and chief executive officer.

In terms of new business opportunities, we recently announced an exciting new joint venture with the University of Utah to commercialize carbon sequestration opportunities, which we expect will have a positive impact on our financial performance going forward. We also formed an alliance with Criterion to enhance sales opportunities of our HCAT hydrocracking technology, said Benson.

We are taking proactive steps to position Headwaters for the economic recovery ahead. We are continuing to optimize existing lines of business and to pursue new opportunities that could contribute to revenues in the near-term. Our goal is to position the Company for sales growth and earnings leverage as we exit the recession, concluded Benson.

Financial Results for the Six Months Ended March 31, 2009

The company’s total revenue for the six months ended March 31, 2009 was $303.8 million, compared to $420.9 million for the six months ended March 31, 2008. Gross profit has decreased from $104.4 million for the six months ended March 31, 2008 to $54.3 million for the six months ended March 31, 2009. The net loss for the six months ended March 31, 2009 was $(407.1) million, or $(9.82) per diluted share, which compares to net income of $0.7 million or $0.02 per diluted share for the six months ended March 31, 2008. Excluding the goodwill impairment charge, the net loss for the six months ended March 31, 2009 would have been ($ 34.8) million, or ($0.86) per diluted share.

Operating Results Excluding Unusual Items

The unusual items that occurred during the 2008 fiscal year include the termination of Headwaters’ Section 45K business as of December 31, 2007 and the sale of the mortar/stucco business during the six months ended March 31, 2008. In the second quarter of fiscal 2009 quarter, the company recorded goodwill impairments in the building products and energy segments totaling around $465.7 million. The goodwill impairment has no impact on our cash position, cash flow from operating activities or senior debt covenant compliance. Following these impairments, there is no remaining recorded goodwill related to either of these segments. Certain limited deferred tax benefits associated with the goodwill impairment will be deductible for income taxes purposes.

The fourth quarter of fiscal 2008 quarter net loss, adjusted to eliminate the residual Section 45K operations and the mortar/stucco business, was $(16.1) million, and the net loss recorded in the March 2009 quarter, adjusted for the goodwill impairments, was $(34.0) million, details of which are shown in the attached condensed consolidated statements of operations. Gross profit has decreased from $33.3 million in the March 2008 quarter, excluding Section 45K and the mortar/stucco business, to $22.6 million in the March 2009 quarter. The diluted earnings (loss) per share in the March 2009 quarter, excluding the goodwill impairments, was $(0.82), which compares to $(0.39) per diluted share in the March 2008 quarter, excluding Section 45K and the mortar/stucco business.

Business Segment Performance

The company’s business segment performance during the quarter ended March 31, 2009 compared to the quarter ended March 31, 2008, was as follows:

Energy Segment

Headwaters Energy Services adds value to coal while protecting the environment by upgrading waste coal into a marketable product, converting coal into liquid fuels, and utilizing waste heat from a coal-fired power plant in the production of ethanol.

The coal revenue in the March 2009 quarter was a record $21.0 million, compared to $6.2 million in the March 2008 quarter. The company has sold 490 000 tons of coal ( including 122,000 tons in our tolling operations) in the March 2009 quarter, compared to 378,000 tons (including 242,000 tons in tolling operations) in the March 2008 quarter, a 30% increase in merchant facility tons sold. Average revenue per ton for non-tolling product sold in the March 2009 quarter was $56, compared to $40 in the March 2008 quarter.

Operating income was burdened during the quarter as the company incurred ramp- up and initial operating costs at multiple facilities, compounded by lower than anticipated sales. During the fourth quarter of fiscal 2009, the company responded to market conditions by consolidating our coal cleaning operations into our coal combustion products business, and reducing production at our facilities. The company has identified immediate savings through the consolidation of the business operations and expected ongoing annualized savings in the range of $8 to $10 million. Through the second half of the year, the company anticipates flat coal production and a slight increase in revenue as we reduce inventories. The company expected minimal metallurgical coal sales through September 2009.

In the March quarter, the company has formed a joint venture with the University of Utah to begin building a carbon dioxide sequestration business. The venture plans to seek access to part of the $8 billion of funding that has been set aside by the Federal government for carbon capture and storage and to provide leadership in this important new industry.

Recently, the company has formed an alliance with Criterion Catalysts & Technologies to offer our HCAT hydrocracking technology in conjunction with Criterion’s advanced residue upgrading catalysts for ebullated bed hydrocracking. HCAT helps petroleum refiners produce clean fuels from residual bottom-of-the-barrel heavy oil. The company believe that the alliance will enhance Headwaters’ ability to market HCAT. In addition, the company has successfully completed a fifth HCAT run at a major refinery. The refinery industry is showing continuing interest in HCAT as a result of the demonstrated benefits in heavy oil upgrading.

Coal Combustion Products

Revenues from coal combustion products (CCPs) in the March 2009 quarter were $48.1 million, a decline of $12.9 million from the March 2008 quarter. Reduced sales were directly related to severe winter weather in 2009 and weaker markets in California and Florida. Business has remained stable in the remainder of the country.

In spite of the reduction in revenue, gross margins improved by over 200 basis points to 24% in 2009 compared to 22% in the March 2008 quarter. The improvement in gross margin is a direct result of our continuous lean improvement efforts, resulting in higher overall productivity and lower transportation costs. We have identified approximately $9 million of savings through our continuous improvement process. Due to seasonality, we estimate that approximately 40% of our anticipated yearly CCPs revenue was generated in the first half of the year. In the second half of the fiscal year, we expect operating margins will be significantly higher than the 10% operating margins experienced in the March 2009 quarter, due to increased seasonal sales and improved operating efficiencies. In 2008, operating margins for the June and September quarters were 21% and 23%, respectively.