Discontinued Operations

12 Months Ended

Sep. 30, 2013

Discontinued Operations

Discontinued Operations

4. Discontinued Operations

        In September 2011, the Board of Directors committed to a plan to sell the coal cleaning business, which was part of the energy technology segment. At that time the business met all of the criteria for classification as held for sale and presentation as a discontinued operation. The assets and liabilities associated with the coal cleaning business are reflected as held for sale in the accompanying consolidated balance sheet as of September 30, 2012. Current assets held for sale consisted primarily of accounts receivable and inventory. Non-current assets held for sale consisted of approximately $1.9 million of property, plant and equipment and $5.9 million of other assets, all of which were recorded at the lower of historical carrying amount or fair value. Liabilities associated with assets held for sale consisted primarily of accrued liabilities. Following the sale of all remaining coal cleaning facilities in January 2013, there are no remaining assets held for sale.

        The results of operations for Headwaters' coal cleaning business have been presented as discontinued operations for all periods presented. Certain summarized information for the discontinued coal cleaning business is presented in the following table.

(in thousands)	2011			2012			2013
Revenue	$	48,476		$	22,268		$	4,386
Loss from operations of discontinued operations before income taxes	$	(91,615	)	$	(36,210	)	$	(3,752	)
Gain (loss) on disposal		0			267			(55	)
Income tax benefit (provision)		(4,374	)		124			2,659
Loss from discontinued operations, net of income taxes	$	(95,989	)	$	(35,819	)	$	(1,148	)

        During 2011 and 2012, Headwaters recorded impairment charges related to the coal cleaning business totaling $72.0 and $13.0 million, respectively. Headwaters sold one coal cleaning facility during 2012 for cash proceeds of $2.0 million plus potential future consideration and an estimated gain of approximately $0.3 million was recognized on that sale. In 2013, Headwaters sold its remaining ten facilities and again recognized an estimated gain at the time of sale. Subsequent to the dates of sale, some adjustments of the previously recognized estimated gains on the sales transactions were recognized, all of which are included in the reported 2013 loss on disposal reflected in the table above. Headwaters currently expects that additional adjustments to the estimated gains and losses may be recognized in 2014 as certain contingencies are resolved.

        For all sales transactions, a majority of the consideration is in the form of potential production royalties and deferred purchase price, which amounts are dependent upon future plant production levels over several years. While maximum potential future production royalties and deferred purchase price on the sales transactions could total more than $50 million, such potential proceeds were not considered in the gain or loss calculations and will be accounted for in future periods when any such amounts are received. Headwaters currently expects to continue to recognize in discontinued operations any cash receipts or expenditures related to the former coal cleaning business that are received or paid during 2014.

        In accordance with the terms of the asset purchase agreement for one of the sales transactions, the buyer of the coal cleaning facilities agreed to assume the lease and reclamation obligations related to certain of the facilities. Subsequent to the date of sale, Headwaters amended the purchase agreement to provide the buyer with additional time to make payments to Headwaters, as well as fulfill contractual requirements related to the assumed reclamation obligations. The buyer continues to make progress, but as of September 30, 2013, Headwaters remains contingently liable for some of the assumed obligations and accrued approximately $6.7 million to meet those contingent liabilities if necessary. As reflected in Note 5, Headwaters has also reserved certain receivables due from the buyer until such time as collection is more certain.

        Also in connection with the same sales transaction described above, Headwaters agreed to identify 1.0 million tons of feedstock for one of the sold facilities or be subject to a $7 per ton liability for each ton below the 1.0 million ton obligation that was not identified. As of September 30, 2013, this obligation was met and the related remaining liability was eliminated.