Condensed Consolidating Financial Information

6 Months Ended

Mar. 31, 2012

Condensed Consolidating Financial Information

Condensed Consolidating Financial Information

14.Condensed Consolidating Financial Information

Headwaters’ 7-5/8% senior secured notes are jointly and severally, fully and unconditionally guaranteed by Headwaters Incorporated and by all of Headwaters’ wholly-owned domestic subsidiaries. The non-guaranteeing entities include primarily joint ventures in which Headwaters had a non-controlling ownership interest. 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.

CONDENSED CONSOLIDATING BALANCE SHEET — September 30, 2011

	Guarantor			Non- guarantor			Parent			Eliminationsand			Headwaters
(in thousands)	Subsidiaries			Subsidiaries			Company			Reclassifications			Consolidated
ASSETS
Current assets:
Cash and cash equivalents	$	36,122		$	—		$	14,688		$	—		$	50,810
Trade receivables, net	90,931												90,931
Inventories	33,247												33,247
Current and deferred income taxes	13,734						12,720			(23,367		)	3,087
Assets held for sale	6,777												6,777
Other	6,617						337						6,954
Total current assets	187,428			—			27,745			(23,367		)	191,806
Property, plant and equipment, net	164,446			—			263			—			164,709
Other assets:
Intangible assets, net	164,221												164,221
Goodwill	116,671												116,671
Assets held for sale	22,446						2,000						24,446
Investments in subsidiaries and intercompany accounts	321,026			(9,499		)	146,971			(458,498		)	—
Intercompany notes	(637,046		)				637,046						—
Deferred income taxes	89,158						21,670			(110,828		)	—
Other	19,263			24,376			22,745						66,384
Total other assets	95,739			14,877			830,432			(569,326		)	371,722
Total assets	$	447,613		$	14,877		$	858,440		$	(592,693	)	$	728,237
LIABILITIES AND STOCKHOLDERS’ EQUITY
Current liabilities:
Accounts payable	$	18,397		$	—		$	582		$	—		$	18,979
Accrued personnel costs	10,677						12,353						23,030
Accrued interest							18,336						18,336
Liabilities held for sale	7,470												7,470
Current and deferred income taxes	21,981			2,588			(1,202		)	(23,367		)	—
Other accrued liabilities	43,544						1,843						45,387
Current portion of long-term debt							9,014						9,014
Total current liabilities	102,069			2,588			40,926			(23,367		)	122,216
Long-term liabilities:
Long-term debt							518,789						518,789
Deferred income taxes	92,752			(27		)	22,319			(110,828		)	4,216
Unrecognized income tax benefits	7,226						4,467						11,693
Liabilities held for sale	5,507												5,507
Other	3,158						5,922						9,080
Total long-term liabilities	108,643			(27		)	551,497			(110,828		)	549,285
Total liabilities	210,712			2,561			592,423			(134,195		)	671,501
Stockholders’ equity:
Common stock	209,346						61			(209,346		)	61
Capital in excess of par value	249,152						637,547			(249,152		)	637,547
Retained earnings (accumulated deficit)	(221,597		)	12,327			(371,591		)				(580,861		)
Other				(11		)							(11		)
Total stockholders’ equity	236,901			12,316			266,017			(458,498		)	56,736
Total liabilities and stockholders’ equity	$	447,613		$	14,877		$	858,440		$	(592,693	)	$	728,237

CONDENSED CONSOLIDATING BALANCE SHEET — March 31, 2012

	Guarantor			Non- guarantor		Parent			Eliminationsand			Headwaters
(in thousands)	Subsidiaries			Subsidiaries		Company			Reclassifications			Consolidated
ASSETS
Current assets:
Cash and cash equivalents	$	23,786		$	—	$	14,294		$	—		$	38,080
Trade receivables, net	69,089											69,089
Inventories	35,328											35,328
Current and deferred income taxes	13,806					8,952			(20,723		)	2,035
Assets held for sale	4,776											4,776
Other	3,412					10,468						13,880
Total current assets	150,197			—		33,714			(20,723		)	163,188
Property, plant and equipment, net	158,748			—		439			—			159,187
Other assets:
Intangible assets, net	153,758											153,758
Goodwill	116,671											116,671
Assets held for sale	25,366											25,366
Investments in subsidiaries and intercompany accounts	358,926			9,023		91,204			(459,153		)	—
Intercompany notes	(637,046		)			637,046						—
Deferred income taxes	81,586					23,830			(105,416		)	—
Other	19,212					22,541						41,753
Total other assets	118,473			9,023		774,621			(564,569		)	337,548
Total assets	$	427,418		$	9,023	$	808,774		$	(585,292	)	$	659,923
LIABILITIES AND STOCKHOLDERS’ EQUITY
Current liabilities:
Accounts payable	$	13,782		$	—	$	749		$	—		$	14,531
Accrued personnel costs	9,600					13,235						22,835
Accrued interest						16,307						16,307
Current and deferred income taxes	15,903			3,518		4,180			(20,723		)	2,878
Liabilities held for sale	8,062											8,062
Other accrued liabilities	35,645					1,512						37,157
Current portion of long-term debt						9,178						9,178
Total current liabilities	82,992			3,518		45,161			(20,723		)	110,948
Long-term liabilities:
Long-term debt						502,787						502,787
Deferred income taxes	89,087					20,699			(105,416		)	4,370
Unrecognized income tax benefits	7,063			13		3,782						10,858
Liabilities held for sale	7,587											7,587
Other	2,803					6,852						9,655
Total long-term liabilities	106,540			13		534,120			(105,416		)	535,257
Total liabilities	189,532			3,531		579,281			(126,139		)	646,205
Stockholders’ equity:
Common stock	213,812					61			(213,812		)	61
Capital in excess of par value	245,341					638,824			(245,341		)	638,824
Retained earnings (accumulated deficit)	(221,267		)	5,492		(409,392		)				(625,167		)
Total stockholders’ equity	237,886			5,492		229,493			(459,153		)	13,718
Total liabilities and stockholders’ equity	$	427,418		$	9,023	$	808,774		$	(585,292	)	$	659,923

CONDENSED CONSOLIDATING STATEMENT OF OPERATIONS

Three Months Ended March 31, 2011

	Guarantor			Non-guarantor			Parent			Headwaters
(in thousands)	Subsidiaries			Subsidiaries			Company			Consolidated
Revenue:
Light building products	$	62,677		$	—		$	—		$	62,677
Heavy construction materials	45,096									45,096
Energy technology	5,431									5,431
Total revenue	113,204			—			—			113,204
Cost of revenue:
Light building products	51,935									51,935
Heavy construction materials	37,509									37,509
Energy technology	2,683									2,683
Total cost of revenue	92,127			—			—			92,127
Gross profit	21,077			—			—			21,077
Operating expenses:
Amortization	5,606									5,606
Research and development	1,645									1,645
Selling, general and administrative	36,414						4,498			40,912
Restructuring costs	4,819									4,819
Total operating expenses	48,484			—			4,498			52,982
Operating loss	(27,407		)	—			(4,498		)	(31,905		)
Other income (expense):
Net interest expense	(8		)				(82,587		)	(82,595		)
Other, net	12			1,836						1,848
Total other income (expense), net	4			1,836			(82,587		)	(80,747		)
Income (loss) from continuing operations before income taxes	(27,403		)	1,836			(87,085		)	(112,652		)
Income tax benefit (provision)	425			(677		)	(968		)	(1,220		)
Income (loss) from continuing operations	(26,978		)	1,159			(88,053		)	(113,872		)
Loss from discontinued operations, net of income taxes	(42,282		)							(42,282		)
Net income (loss)	$	(69,260	)	$	1,159		$	(88,053	)	$	(156,154	)

CONDENSED CONSOLIDATING STATEMENT OF OPERATIONS

Three Months Ended March 31, 2012

	Guarantor			Non-guarantor			Parent			Headwaters
(in thousands)	Subsidiaries			Subsidiaries			Company			Consolidated
Revenue:
Light building products	$	74,311		$	—		$	—		$	74,311
Heavy construction materials	51,239									51,239
Energy technology	4,082									4,082
Total revenue	129,632			—			—			129,632
Cost of revenue:
Light building products	54,613									54,613
Heavy construction materials	41,380									41,380
Energy technology	2,074									2,074
Total cost of revenue	98,067			—			—			98,067
Gross profit	31,565			—			—			31,565
Operating expenses:
Amortization	5,298									5,298
Research and development	1,616									1,616
Selling, general and administrative	19,622						6,070			25,692
Restructuring costs	757									757
Total operating expenses	27,293			—			6,070			33,363
Operating income (loss)	4,272			—			(6,070		)	(1,798		)
Other income (expense):
Net interest expense	(18		)				(13,509		)	(13,527		)
Other, net	(173		)							(173		)
Total other income (expense), net	(191		)	—			(13,509		)	(13,700		)
Income (loss) from continuing operations before income taxes	4,081			—			(19,579		)	(15,498		)
Income tax benefit (provision)	794			(116		)	(3,408		)	(2,730		)
Income (loss) from continuing operations	4,875			(116		)	(22,987		)	(18,228		)
Loss from discontinued operations, net of income taxes	(2,330		)							(2,330		)
Net income (loss)	$	2,545		$	(116	)	$	(22,987	)	$	(20,558	)

CONDENSED CONSOLIDATING STATEMENT OF OPERATIONS

Six Months Ended March 31, 2011

	Guarantor			Non-guarantor		Parent			Headwaters
(in thousands)	Subsidiaries			Subsidiaries		Company			Consolidated
Revenue:
Light building products	$	132,386		$	—	$	—		$	132,386
Heavy construction materials	108,311								108,311
Energy technology	8,327								8,327
Total revenue	249,024			—		—			249,024
Cost of revenue:
Light building products	105,784								105,784
Heavy construction materials	85,861								85,861
Energy technology	4,473								4,473
Total cost of revenue	196,118			—		—			196,118
Gross profit	52,906			—		—			52,906
Operating expenses:
Amortization	11,153								11,153
Research and development	3,590								3,590
Selling, general and administrative	56,510					8,796			65,306
Restructuring costs	4,819					980			5,799
Total operating expenses	76,072			—		9,776			85,848
Operating loss	(23,166		)	—		(9,776		)	(32,942		)
Other income (expense):
Net interest expense	6					(99,496		)	(99,490		)
Other, net	371			2,451					2,822
Total other income (expense), net	377			2,451		(99,496		)	(96,668		)
Income (loss) from continuing operations before income taxes	(22,789		)	2,451		(109,272		)	(129,610		)
Income tax benefit (provision)	(380		)	41		(2,681		)	(3,020		)
Income (loss) from continuing operations	(23,169		)	2,492		(111,953		)	(132,630		)
Loss from discontinued operations, net of income taxes	(44,211		)						(44,211		)
Net income (loss)	$	(67,380	)	$	2,492	$	(111,953	)	$	(176,841	)

CONDENSED CONSOLIDATING STATEMENT OF OPERATIONS

Six Months Ended March 31, 2012

	Guarantor			Non-guarantor			Parent			Headwaters
(in thousands)	Subsidiaries			Subsidiaries			Company			Consolidated
Revenue:
Light building products	$	147,645		$	—		$	—		$	147,645
Heavy construction materials	114,377									114,377
Energy technology	5,037									5,037
Total revenue	267,059			—			—			267,059
Cost of revenue:
Light building products	109,943									109,943
Heavy construction materials	88,478									88,478
Energy technology	2,631									2,631
Total cost of revenue	201,052			—			—			201,052
Gross profit	66,007			—			—			66,007
Operating expenses:
Amortization	10,803									10,803
Research and development	3,470									3,470
Selling, general and administrative	37,791						9,183			46,974
Restructuring costs	2,145									2,145
Total operating expenses	54,209			—			9,183			63,392
Operating income (loss)	11,798			—			(9,183		)	2,615
Other income (expense):
Net interest expense	(37		)				(25,946		)	(25,983		)
Other, net	(443		)	(5,892		)	2,025			(4,310		)
Total other income (expense), net	(480		)	(5,892		)	(23,921		)	(30,293		)
Income (loss) from continuing operations before income taxes	11,318			(5,892		)	(33,104		)	(27,678		)
Income tax benefit (provision)	1,810			(943		)	(4,697		)	(3,830		)
Income (loss) from continuing operations	13,128			(6,835		)	(37,801		)	(31,508		)
Loss from discontinued operations, net of income taxes	(12,798		)							(12,798		)
Net income (loss)	$	330		$	(6,835	)	$	(37,801	)	$	(44,306	)

CONDENSED CONSOLIDATING STATEMENT OF CASH FLOWS

Six Months Ended March 31, 2011

	Guarantor			Non-guarantor			Parent			Headwaters
(in thousands)	Subsidiaries			Subsidiaries			Company			Consolidated
Cash flows from operating activities:
Net income (loss)	$	(67,380	)	$	2,492		$	(111,953	)	$	(176,841	)
Adjustments to reconcile net income (loss) to net cash provided by (used in) operating activities:
Depreciation and amortization	31,159						56			31,215
Asset impairments and non-cash restructuring costs	39,210						980			40,190
Interest expense related to amortization of debt issue costs and debt discount							14,496			14,496
Stock-based compensation	1,220						817			2,037
Deferred income taxes	8,649			134			(8,390		)	393
Net gain of unconsolidated joint ventures				(2,452		)				(2,452		)
Net gain on disposition of property, plant and equipment	(309		)							(309		)
Decrease in trade receivables	24,394									24,394
Increase in inventories	(2,593		)							(2,593		)
Increase (decrease) in accounts payable and accrued liabilities	1,258						(13,822		)	(12,564		)
Other changes in operating assets and liabilities, net	(19,672		)	15			20,742			1,085
Net cash provided by (used in) operating activities	15,936			189			(97,074		)	(80,949		)
Cash flows from investing activities:
Purchase of property, plant and equipment and payments for acquisitions	(14,643		)							(14,643		)
Proceeds from disposition of property, plant and equipment	413									413
Net decrease in long-term receivables and deposits	526									526
Net change in other assets	(462		)	(189		)	(100		)	(751		)
Net cash used in investing activities	(14,166		)	(189		)	(100		)	(14,455		)
Cash flows from financing activities:
Proceeds from issuance of long-term debt							392,750			392,750
Payments on long-term debt							(338,044		)	(338,044		)
Employee stock purchases	308						95			403
Net cash provided by financing activities	308			—			54,801			55,109
Net increase (decrease) in cash and cash equivalents	2,078			0			(42,373		)	(40,295		)
Cash and cash equivalents, beginning of period	21,168			0			69,816			90,984
Cash and cash equivalents, end of period	$	23,246		$	0		$	27,443		$	50,689

CONDENSED CONSOLIDATING STATEMENT OF CASH FLOWS

Six Months Ended March 31, 2012

	Guarantor			Non-guarantor			Parent			Headwaters
(in thousands)	Subsidiaries			Subsidiaries			Company			Consolidated
Cash flows from operating activities:
Net income (loss)	$	330		$	(6,835	)	$	(37,801	)	$	(44,306	)
Adjustments to reconcile net income (loss) to net cash provided by (used in) operating activities:
Depreciation and amortization	26,140						56			26,196
Non-cash restructuring costs	971									971
Interest expense related to amortization of debt issue costs and debt discount							5,863			5,863
Stock-based compensation	349						574			923
Deferred income taxes	29						(2		)	27
Net loss of unconsolidated joint ventures				6,069						6,069
Net gain on disposition of property, plant and equipment	(429		)							(429		)
Gain on convertible debt repayment							(2,025		)	(2,025		)
Decrease in trade receivables	23,245									23,245
Increase in inventories	(717		)							(717		)
Decrease in accounts payable and accrued liabilities	(13,732		)				(1,311		)	(15,043		)
Other changes in operating assets and liabilities, net	(35,509		)	(7,870		)	50,649			7,270
Net cash provided by (used in) operating activities	677			(8,636		)	16,003			8,044
Cash flows from investing activities:
Purchase of property, plant and equipment	(11,625		)				(207		)	(11,832		)
Proceeds from disposition of property, plant and equipment	1,093									1,093
Proceeds from sale of interest in joint ventures				8,636						8,636
Net decrease (increase) in long-term receivables and deposits	(2,447		)				1,946			(501		)
Net change in other assets	(285		)				(728		)	(1,013		)
Net cash provided by (used in) investing activities	(13,264		)	8,636			1,011			(3,617		)
Cash flows from financing activities:
Payments on long-term debt							(17,441		)	(17,441		)
Employee stock purchases	251						33			284
Net cash provided by (used in) financing activities	251			—			(17,408		)	(17,157		)
Net decrease in cash and cash equivalents	(12,336		)	0			(394		)	(12,730		)
Cash and cash equivalents, beginning of period	36,122			0			14,688			50,810
Cash and cash equivalents, end of period	$	23,786		$	0		$	14,294		$	38,080