Discontinued Operations

9 Months Ended

Jun. 30, 2013

Discontinued Operations

Discontinued Operations

3. 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, and 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. Following the sale of eight 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.

	Three Months Ended June 30,						Nine Months Ended June 30,
(in thousands)	2012			2013			2012			2013
Revenue	$	6,586		$	0		$	16,384		$	4,386
Loss from operations of discontinued operations before income taxes	$	(15,345	)	$	0		$	(28,143	)	$	(3,085	)
Gain (loss) on disposal	267			(952		)	267			2,158
Income tax benefit	0			2,720			0			2,720
Income (loss) from discontinued operations, net of income taxes	$	(15,078	)	$	1,768		$	(27,876	)	$	1,793

During the June 2012 quarter, Headwaters recorded an impairment of the coal cleaning assets totaling $13.0 million, which reduced the remaining book value for the coal cleaning assets, net of liabilities, to near $0 as of June 30, 2012. Current assets reflected as held for sale as of September 30, 2012 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 as of September 30, 2012, 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.

Headwaters sold one coal cleaning facility during the June 2012 quarter for cash proceeds of $2.0 million plus potential future consideration, which amount would be received over a number of years, depending upon future plant production levels. An estimated gain of approximately $0.3 million was recognized on that sale. Headwaters sold two coal cleaning facilities during the December 2012 quarter and eight facilities during the March 2013 quarter, all to one purchaser. No gain or loss was recognized on the December 2012 quarter transaction and an estimated $3.1 million gain was recognized on the March 2013 quarter transaction. As reflected in the table above, some adjustments of the previously recognized gains were made in the June 2013 quarter, which netted to approximately $(1.0) million.

For all of the 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 approximately eight years. While maximum potential future production royalties and deferred purchase price on all of the sales transactions could total more than $50.0 million, such potential proceeds were not considered in the gain calculations and will be accounted for in the periods when such amounts are received. Headwaters will continue to recognize in discontinued operations any cash receipts related to the former coal cleaning business that are received during fiscal 2013.

In accordance with the terms of the asset purchase agreement for the March 2013 sale transaction, the buyer of the coal cleaning facilities agreed to assume certain lease and asset retirement obligations. Headwaters agreed to identify 1.0 million tons of feedstock for one of the sold facilities before July 2015, which date is extended by six months if at least 0.5 million tons have been identified before then. Headwaters is subject to a $7 per ton liability for each ton below the 1.0 million ton obligation that is not identified. As of June 30, 2013, approximately $5.7 million has been accrued for this liability, representing tons that have not yet been identified.