15. Condensed Consolidating Financial Information

Headwaters' borrowings under the Term Loan Facility and the 71/4% senior notes are jointly and severally, fully and unconditionally guaranteed by Headwaters Incorporated and by substantially all of Headwaters' 100%-owned domestic subsidiaries. Separate stand-alone financial statements and disclosures for Headwaters Incorporated and each of the guarantor subsidiaries are not presented because the guarantees are full and unconditional and the guarantor subsidiaries have joint and several liability.

There are no significant restrictions on the ability of Headwaters Incorporated to obtain funds from the guarantor subsidiaries nor on the ability of the guarantor subsidiaries to obtain funds from Headwaters Incorporated or other guarantor subsidiaries. Non-guaranteeing entities include subsidiaries that are not 100% owned, foreign subsidiaries and joint ventures in which Headwaters has a non-controlling ownership interest.

CONDENSED CONSOLIDATING BALANCE SHEET—September 30, 2014

(in thousands)	Guarantor Subsidiaries			Non-guarantor Subsidiaries		Parent Company			Eliminations and Reclassifications			Headwaters Consolidated
ASSETS
Current assets:
Cash and cash equivalents	$	33,552		$	5,764	$	113,226		$	—		$	152,542
Trade receivables, net		113,940			5,390								119,330
Inventories		48,482			2,151								50,633
Deferred income taxes		15,509			289		18,427			(23,149	)		11,076
Other		9,286			168		1,082						10,536

Total current assets		220,769			13,762		132,735			(23,149	)		344,117

Property, plant and equipment, net		162,458			10,861		7,979			—			181,298

Other assets:
Goodwill		145,068			30,518								175,586
Intangible assets, net		131,150			28,713								159,863
Investments in subsidiaries							406,327			(406,327	)		—
Intercompany accounts and notes							637,046			(637,046	)		—
Deferred income taxes		41,658					22,928			(64,586	)		—
Other		14,388			2,194		18,860						35,442

Total other assets		332,264			61,425		1,085,161			(1,107,959	)		370,891

Total assets	$	715,491		$	86,048	$	1,225,875		$	(1,131,108	)	$	896,306


LIABILITIES AND STOCKHOLDERS' EQUITY
Current liabilities:
Accounts payable	$	25,643		$	956	$	427		$	—		$	27,026
Accrued personnel costs		13,483			418		35,001						48,902
Accrued interest							18,273						18,273
Current income taxes		23,198			319					(23,149	)		368
Other accrued liabilities		36,811			3,006		1,940						41,757

Total current liabilities		99,135			4,699		55,641			(23,149	)		136,326

Long-term liabilities:
Long-term debt, net							592,458						592,458
Income taxes		65,133			893		21,802			(64,586	)		23,242
Intercompany accounts and notes		191,274			4,061		441,711			(637,046	)		—
Other		16,167			774		11,645						28,586

Total long-term liabilities		272,574			5,728		1,067,616			(701,632	)		644,286

Total liabilities		371,709			10,427		1,123,257			(724,781	)		780,612

Redeemable non-controlling interest in consolidated subsidiary					13,252								13,252

Stockholders' equity:
Common stock							74						74
Capital in excess of par value		458,498			60,453		723,824			(519,127	)		723,648
Retained earnings (accumulated deficit)		(114,716	)		1,916		(620,688	)		112,800			(620,688	)
Treasury stock							(592	)					(592	)

Total stockholders' equity		343,782			62,369		102,618			(406,327	)		102,442

Total liabilities and stockholders' equity	$	715,491		$	86,048	$	1,225,875		$	(1,131,108	)	$	896,306

CONDENSED CONSOLIDATING BALANCE SHEET—September 30, 2015

(in thousands)	Guarantor Subsidiaries		Non- guarantor Subsidiaries			Parent Company			Eliminations and Reclassifications			Headwaters Consolidated
ASSETS
Current assets:
Cash and cash equivalents	$	25,819	$	3,577		$	113,201		$	—		$	142,597
Trade receivables, net		129,095		5,289									134,384
Inventories		52,699		2,375									55,074
Current and deferred income taxes		7,754		3,855			157,832			(145,679	)		23,762
Other		10,666		144			1,017						11,827

Total current assets		226,033		15,240			272,050			(145,679	)		367,644

Property, plant and equipment, net		164,413		9,978			11,327			—			185,718

Other assets:
Goodwill		147,330		30,869									178,199
Intangible assets, net		116,479		27,239									143,718
Investments in subsidiaries		55,844					372,864			(428,708	)		—
Intercompany accounts and notes		57,793					637,046			(694,839	)		—
Deferred income taxes				21,349			67,795			(19,725	)		69,419
Other		11,243		2,291			20,787						34,321

Total other assets		388,689		81,748			1,098,492			(1,143,272	)		425,657

Total assets	$	779,135	$	106,966		$	1,381,869		$	(1,288,951	)	$	979,019


LIABILITIES AND STOCKHOLDERS' EQUITY
Current liabilities:
Accounts payable	$	23,619	$	1,114		$	573		$	—		$	25,306
Accrued personnel costs		14,542		501			37,501						52,544
Accrued interest							2,295						2,295
Current and deferred income taxes		137,646		5,474			2,559			(145,679	)		—
Other accrued liabilities		39,604		6,380			3,502						49,486
Current portion of long-term debt							4,250						4,250

Total current liabilities		215,411		13,469			50,680			(145,679	)		133,881

Long-term liabilities:
Long-term debt, net							558,080						558,080
Income taxes		22,701					3,614			(19,725	)		6,590
Intercompany accounts and notes				178,179			516,660			(694,839	)		—
Other		1,481		13,897			14,808						30,186

Total long-term liabilities		24,182		192,076			1,093,162			(714,564	)		594,856

Total liabilities		239,593		205,545			1,143,842			(860,243	)		728,737

Redeemable non-controlling interest in consolidated subsidiary				12,431									12,431

Stockholders' equity:
Common stock							74						74
Capital in excess of par value		486,069		54,470			728,843			(540,715	)		728,667
Retained earnings (accumulated deficit)		53,473		(165,480	)		(489,889	)		112,007			(489,889	)
Treasury stock							(1,001	)					(1,001	)

Total stockholders' equity		539,542		(111,010	)		238,027			(428,708	)		237,851

Total liabilities and stockholders' equity	$	779,135	$	106,966		$	1,381,869		$	(1,288,951	)	$	979,019

CONDENSED CONSOLIDATING STATEMENT OF INCOME
Year Ended September 30, 2013

(in thousands)	Guarantor Subsidiaries			Parent Company			Eliminations			Headwaters Consolidated
Revenue:
Building products	$	394,324		$	—		$	—		$	394,324
Construction materials		293,000									293,000
Energy technology		15,252									15,252

Total revenue		702,576			—			—			702,576
Cost of revenue:
Building products		283,128									283,128
Construction materials		219,996									219,996
Energy technology		6,970									6,970

Total cost of revenue		510,094			—			—			510,094

Gross profit		192,482			—			—			192,482
Operating expenses:
Selling, general and administrative		96,478			21,363						117,841
Amortization		20,230									20,230

Total operating expenses		116,708			21,363			—			138,071

Operating income (loss)		75,774			(21,363	)		—			54,411
Other income (expense):
Net interest expense		(54	)		(42,512	)					(42,566	)
Intercompany interest income (expense)		(23,434	)		23,434						—
Equity in earnings of subsidiaries					47,117			(47,117	)		—
Other, net		329			35						364

Total other income (expense), net		(23,159	)		28,074			(47,117	)		(42,202	)

Income from continuing operations before income taxes		52,615			6,711			(47,117	)		12,209
Income tax benefit (provision)		(4,350	)		426						(3,924	)

Income from continuing operations		48,265			7,137			(47,117	)		8,285
Loss from discontinued operations, net of income taxes		(1,148	)								(1,148	)

Net income	$	47,117		$	7,137		$	(47,117	)	$	7,137

CONDENSED CONSOLIDATING STATEMENT OF INCOME
Year Ended September 30, 2014

(in thousands)	Guarantor Subsidiaries			Non- guarantor Subsidiaries			Parent Company			Eliminations			Headwaters Consolidated
Revenue:
Building products	$	438,473		$	33,961		$	—		$	—		$	472,434
Construction materials		309,337												309,337
Energy technology		9,676												9,676

Total revenue		757,486			33,961			—			—			791,447
Cost of revenue:
Building products		312,220			24,063									336,283
Construction materials		224,888												224,888
Energy technology		4,583												4,583

Total cost of revenue		541,691			24,063			—			—			565,754

Gross profit		215,795			9,898			—			—			225,693
Operating expenses:
Selling, general and administrative		108,602			4,209			24,839						137,650
Amortization		20,231			1,088									21,319

Total operating expenses		128,833			5,297			24,839			—			158,969

Operating income (loss)		86,962			4,601			(24,839	)		—			66,724
Other income (expense):
Net interest expense		(349	)		(2	)		(45,978	)					(46,329	)
Intercompany interest income (expense)		(22,737	)					22,737						—
Equity in earnings of subsidiaries								62,719			(62,719	)		—
Other, net		(24	)		(324	)								(348	)

Total other income (expense), net		(23,110	)		(326	)		39,478			(62,719	)		(46,677	)

Income from continuing operations before income taxes		63,852			4,275			14,639			(62,719	)		20,047
Income tax benefit (provision)		(3,296	)		(923	)		645						(3,574	)

Income from continuing operations		60,556			3,352			15,284			(62,719	)		16,473
Loss from discontinued operations, net of income taxes		(415	)											(415	)

Net income		60,141			3,352			15,284			(62,719	)		16,058
Net income attributable to non-controlling interest					(774	)								(774	)

Net income attributable to Headwaters Incorporated	$	60,141		$	2,578		$	15,284		$	(62,719	)	$	15,284

CONDENSED CONSOLIDATING STATEMENT OF INCOME
Year Ended September 30, 2015

(in thousands)	Guarantor Subsidiaries			Non-guarantor Subsidiaries			Parent Company			Eliminations			Headwaters Consolidated
Revenue:
Building products	$	479,338		$	44,305		$	—		$	—		$	523,643
Construction materials		352,263												352,263
Energy technology		19,427												19,427

Total revenue		851,028			44,305			—			—			895,333
Cost of revenue:
Building products		335,516			31,647									367,163
Construction materials		249,077												249,077
Energy technology		9,202												9,202

Total cost of revenue		593,795			31,647			—			—			625,442

Gross profit		257,233			12,658			—			—			269,891
Operating expenses:
Selling, general and administrative		115,423			6,174			28,026						149,623
Amortization		16,688			1,473									18,161

Total operating expenses		132,111			7,647			28,026			—			167,784

Operating income (loss)		125,122			5,011			(28,026	)		—			102,107
Other income (expense):
Net interest expense		(205	)					(64,014	)					(64,219	)
Intercompany interest income (expense)		(23,782	)		(280	)		24,062						—
Equity in earnings of subsidiaries								54,350			(54,350	)		—
Other, net		(56	)		(162	)								(218	)

Total other income (expense), net		(24,043	)		(442	)		14,398			(54,350	)		(64,437	)

Income (loss) from continuing operations before income taxes		101,079			4,569			(13,628	)		(54,350	)		37,670
Income tax benefit (provision)		(48,213	)		(1,756	)		144,427						94,458

Income from continuing operations		52,866			2,813			130,799			(54,350	)		132,128
Loss from discontinued operations, net of income taxes		(67	)		(393	)								(460	)

Net income		52,799			2,420			130,799			(54,350	)		131,668
Net income attributable to non-controlling interest					(869	)								(869	)

Net income attributable to Headwaters Incorporated	$	52,799		$	1,551		$	130,799		$	(54,350	)	$	130,799

CONDENSED CONSOLIDATING STATEMENT OF CASH FLOWS
Year Ended September 30, 2013

(in thousands)	Guarantor Subsidiaries			Parent Company			Eliminations			Headwaters Consolidated
Cash flows from operating activities:
Net income (loss)	$	47,117		$	7,137		$	(47,117	)	$	7,137
Adjustments to reconcile net income (loss) to net cash provided by (used in) operating activities:
Depreciation and amortization		52,027			290						52,317
Interest expense related to amortization of debt issue costs and debt discount					5,841						5,841
Stock-based compensation		765			938						1,703
Deferred income taxes		698									698
Net gain on disposition of property, plant and equipment		(649	)								(649	)
Loss on sale of discontinued operations, net of income taxes		55									55
Equity in earnings of subsidiaries					(47,117	)		47,117			0
Increase in trade receivables		(5,035	)								(5,035	)
Decrease in inventories		2,221									2,221
Increase (decrease) in accounts payable and accrued liabilities		(5,637	)		1,419						(4,218	)
Other changes in operating assets and liabilities, net		31,000			(32,507	)					(1,507	)

Net cash provided by (used in) operating activities		122,562			(63,999	)		—			58,563

Cash flows from investing activities:
Business acquisitions		(43,250	)								(43,250	)
Purchase of property, plant and equipment		(26,940	)		(2,179	)					(29,119	)
Proceeds from disposition of property, plant and equipment		791									791
Proceeds from sale of discontinued operations		4,813									4,813
Net decrease (increase) in long-term receivables and deposits		(1,890	)		719						(1,171	)
Net change in other assets		(294	)		(143	)					(437	)

Net cash used in investing activities		(66,770	)		(1,603	)		—			(68,373	)

Cash flows from financing activities:
Proceeds from issuance of common stock					77,957						77,957
Payments on long-term debt					(47,355	)					(47,355	)
Employee stock purchases		539			203						742
Intercompany transfers		(29,695	)		29,695						0

Net cash provided by (used in) financing activities		(29,156	)		60,500			—			31,344

Net increase (decrease) in cash and cash equivalents		26,636			(5,102	)		—			21,534
Cash and cash equivalents, beginning of year		44,111			9,671						53,782

Cash and cash equivalents, end of year	$	70,747		$	4,569		$	—		$	75,316

CONDENSED CONSOLIDATING STATEMENT OF CASH FLOWS
Year Ended September 30, 2014

(in thousands)	Guarantor Subsidiaries			Non- guarantor Subsidiaries			Parent Company			Eliminations			Headwaters Consolidated
Cash flows from operating activities:
Net income	$	60,141		$	3,352		$	15,284		$	(62,719	)	$	16,058
Adjustments to reconcile net income to net cash provided by (used in) operating activities:
Depreciation and amortization		52,716			2,146			272						55,134
Interest expense related to amortization of debt issue costs and debt discount								2,175						2,175
Stock-based compensation		843						1,322						2,165
Deferred income taxes		1,062			604									1,666
Net loss on disposition of property, plant and equipment		44			6			45						95
Gain on sale of discontinued operations, net of income taxes		(2,727	)											(2,727	)
Asset impairments		1,815												1,815
Net loss of unconsolidated joint ventures					529									529
Equity in earnings of subsidiaries								(62,719	)		62,719			0
Decrease (increase) in trade receivables		(90	)		607									517
Decrease (increase) in inventories		(3,927	)		1,580									(2,347	)
Increase (decrease) in accounts payable and accrued liabilities		(17,364	)		828			3,311						(13,225	)
Other changes in operating assets and liabilities, net		33,349			129			(34,956	)					(1,478	)

Net cash provided by (used in) operating activities		125,862			9,781			(75,266	)		—			60,377

Cash flows from investing activities:
Business acquisitions		(10,500	)					(85,104	)					(95,604	)
Investments in unconsolidated joint ventures					(1,875	)								(1,875	)
Purchase of property, plant and equipment		(30,672	)		(829	)		(4,298	)					(35,799	)
Proceeds from disposition of property, plant and equipment		905												905
Proceeds from sale of discontinued operations		4,666												4,666
Net decrease in long-term receivables and deposits		7,145						300						7,445
Net change in other assets		(2,275	)					719						(1,556	)

Net cash used in investing activities		(30,731	)		(2,704	)		(88,383	)		—			(121,818	)

Cash flows from financing activities:
Net proceeds from issuance of long-term debt								146,650						146,650
Payments on long-term debt								(7,792	)					(7,792	)
Dividends paid to non-controlling interest in consolidated subsidiary					(950	)								(950	)
Employee stock purchases		580						179						759
Intercompany transfers		(132,872	)		(397	)		133,269						0

Net cash provided by (used in) financing activities		(132,292	)		(1,347	)		272,306			—			138,667

Net increase (decrease) in cash and cash equivalents		(37,161	)		5,730			108,657			—			77,226
Cash and cash equivalents, beginning of year		70,713			34			4,569						75,316

Cash and cash equivalents, end of year	$	33,552		$	5,764		$	113,226		$	—		$	152,542

CONDENSED CONSOLIDATING STATEMENT OF CASH FLOWS
Year Ended September 30, 2015

(in thousands)	Guarantor Subsidiaries			Non-guarantor Subsidiaries			Parent Company			Eliminations			Headwaters Consolidated
Cash flows from operating activities:
Net income	$	52,799		$	2,420		$	130,799		$	(54,350	)	$	131,668
Adjustments to reconcile net income to net cash provided by (used in) operating activities:
Depreciation and amortization		50,538			2,922			513						53,973
Interest expense related to amortization of debt issue costs and debt discount								6,180						6,180
Stock-based compensation		1,014						1,812						2,826
Deferred income taxes		7,850			(25,808	)		(78,784	)					(96,742	)
Tax benefit from exercise of stock appreciation rights and vesting of restricted stock					(965	)		(578	)					(1,543	)
Net loss (gain) on disposition of property, plant and equipment		(70	)		119									49
Loss on sale of discontinued operations, net of income taxes		45			184									229
Net loss of unconsolidated joint ventures					262									262
Equity in earnings of subsidiaries								(54,350	)		54,350			0
Decrease (increase) in trade receivables		(14,295	)		101									(14,194	)
Increase in inventories		(783	)		(224	)								(1,007	)
Increase (decrease) in accounts payable and accrued liabilities		(2,147	)		3,519			(12,929	)					(11,557	)
Other changes in operating assets and liabilities, net		41,907			17,832			(66,495	)					(6,756	)

Net cash provided by (used in) operating activities		136,858			362			(73,832	)		—			63,388

Cash flows from investing activities:
Business acquisitions		(5,650	)											(5,650	)
Investment in unconsolidated joint venture		(125	)											(125	)
Purchase of property, plant and equipment		(30,972	)		(662	)		(5,225	)					(36,859	)
Proceeds from disposition of property, plant and equipment		906			9									915
Net decrease in long-term receivables and deposits		2,382						1,068						3,450
Net change in other assets		(718	)					121						(597	)

Net cash used in investing activities		(34,177	)		(653	)		(4,036	)		—			(38,866	)

Cash flows from financing activities:
Net proceeds from issuance of long-term debt								414,675						414,675
Payments on long-term debt								(449,799	)					(449,799	)
Dividends paid to non-controlling interest in consolidated subsidiary					(1,690	)								(1,690	)
Employee stock purchases		583			45			176						804
Tax benefit from exercise of stock appreciation rights and vesting of restricted stock					965			578						1,543
Intercompany transfers		(110,997	)		(1,216	)		112,213						0

Net cash provided by (used in) financing activities		(110,414	)		(1,896	)		77,843			—			(34,467	)

Net decrease in cash and cash equivalents		(7,733	)		(2,187	)		(25	)		—			(9,945	)
Cash and cash equivalents, beginning of year		33,552			5,764			113,226						152,542

Cash and cash equivalents, end of year	$	25,819		$	3,577		$	113,201		$	—		$	142,597