Summary of Significant Accounting Policies	12 Months Ended
Sep. 30, 2016
Summary of Significant Accounting Policies
Summary of Significant Accounting Policies	2. Summary of Significant Accounting Policies Principles of Consolidation — The consolidated financial statements include the accounts of Headwaters, all of its subsidiaries and other entities in which Headwaters has a controlling interest. In accordance with the requirements of Accounting Standards Codification (ASC) Topic 810 Consolidation, Headwaters is required to consolidate any variable interest entities for which it is the primary beneficiary. For investments in entities in which Headwaters has a significant influence over operating and financial decisions (generally defined as owning a voting or economic interest of 20% to 50%), Headwaters applies the equity method of accounting. In instances where Headwaters’ investment is less than 20% and significant influence does not exist, investments are carried at cost. As of September 30, 2016, there are no material variable interest entities or equity‑method investments. All significant intercompany transactions and accounts are eliminated in consolidation. Use of Estimates — The preparation of consolidated financial statements in conformity with U.S. generally accepted accounting principles (GAAP) requires management to make estimates and assumptions that affect i) the reported amounts of assets and liabilities and disclosures of contingent assets and liabilities at the date of the financial statements, and ii) the reported amounts of revenue and expenses during the reporting period. Actual results could differ materially from those estimates. Segment Reporting, Major Customers and Other Concentrations of Risk — Headwaters currently operates three business segments: building products, construction materials and energy technology. Additional information about these segments is presented in Note 3. No customer accounted for over 10% of total revenue in any year presented and less than 10% of Headwaters’ revenue was from sales outside the United States. Approximately 10%, 9% and 9% of Headwaters’ total revenue and cost of revenue was for services in 2014, 2015 and 2016, respectively. Substantially all service‑related revenue for all periods was in the construction materials segment. Headwaters normally purchases a majority of the polypropylene, poly vinyl chloride (PVC) and polyethylene used in its resin‑based building products from a limited number of suppliers; however, these materials could be obtained from other suppliers if necessary and management currently believes any required change in suppliers would not be materially disruptive. Revenue Recognition and Cost of Revenue — Revenue from the sale of building products, CCPs and energy‑related products is recognized upon passage of title to the customer, which coincides with physical delivery and assumption of risk of loss by the customer. Estimated sales rebates and discounts pertaining to the sale of building products are provided for at the time of sale and are based primarily upon established policies and historical experience. Revenues include transportation charges and shipping and handling fees associated with delivering products and materials to customers when the transportation and/or shipping and handling is contractually provided for between the customer and Headwaters. Cost of revenue includes shipping and handling fees. CCP service revenues are primarily earned under long‑term contracts to dispose of residual materials created by coal‑fired electric power generation. Generally, revenues under long‑term site service contracts are recognized concurrently with the removal of material and are based on the volume of material removed at established prices per ton. Certain service revenue under these contracts is recognized on a time and materials basis in the period in which the services are performed. In compliance with contractual obligations, the cost of CCPs purchased from certain utilities is based on a percentage of the “net revenues” from sale of the CCPs purchased. Costs also include landfill fees and transportation charges to deliver non‑marketable CCPs to landfills. Cash and Cash Equivalents — Headwaters considers all short‑term, highly‑liquid investments with a maturity of three months or less when purchased to be cash equivalents. Certain cash and cash equivalents are deposited with financial institutions, and at times such amounts exceed insured depository limits. Receivables — Allowances are provided for uncollectible accounts and notes when deemed necessary. Such allowances are based on an account‑by‑account analysis of collectability or impairment plus a provision for non‑customer specific defaults based upon historical collection experience. Headwaters performs periodic credit evaluations of its customers but collateral is not required for trade receivables. Collateral is generally required for notes receivable, which were not material during the periods presented. Inventories — Inventories are stated at the lower of cost or net realizable value. Cost includes direct material, transportation, direct labor and allocations of manufacturing overhead costs and is determined primarily using the first‑in, first‑out method. Excess and obsolete inventory reserves are based on historical experience and amounts expected to be realized for slow-moving and obsolete inventory. Property, Plant and Equipment — Property, plant and equipment are recorded at cost. For significant self‑constructed assets, cost includes direct labor and interest. Expenditures for major improvements are capitalized; expenditures for maintenance, repairs and minor improvements are charged to expense as incurred. Assets are depreciated using primarily the straight‑line method over their estimated useful lives, limited to the lease terms for improvements to leased assets. The units‑of‑production method is used to depreciate certain building products segment assets. Upon the sale or retirement of property, plant and equipment, any gain or loss on disposition is reflected in results of operations and the related asset cost and accumulated depreciation are removed from the respective accounts. Intangible Assets and Goodwill — Intangible assets consist primarily of identifiable intangible assets obtained in connection with acquisitions. With the exception of certain indefinite-lived trade names, intangible assets are amortized using the straight‑line method, Headwaters’ best estimate of the pattern of economic benefit, over their estimated useful lives. Goodwill consists of the excess of the purchase price for acquired businesses over the fair value of assets acquired, net of liabilities assumed. As described in more detail in Note 6, in accordance with ASC Topic 350 Intangibles—Goodwill and Other, goodwill and indefinite‑lived intangible assets are not amortized, but are tested at least annually for impairment. Amortizable intangible assets are tested for impairment only when an indicator of impairment exists. Valuation of Long‑Lived Assets — Headwaters evaluates the carrying value of long‑lived assets, including amortizable intangible assets, as well as the related depreciation and amortization periods, to determine whether adjustments to carrying amounts or to estimated useful lives are required based on current events and circumstances. The carrying value of a long‑lived asset is considered impaired when the anticipated cumulative undiscounted cash flow from that asset is less than its carrying value. In that event, a loss is recognized based on the amount by which the carrying value exceeds the fair value of the long‑lived asset. Debt Issue Costs and Debt Repayment Premiums — Debt issue costs represent direct costs incurred for the issuance of long‑term debt and, except for costs related to the ABL Revolver (see Note 7), are reflected as a reduction of the carrying value of the respective long-term debt to which they relate. Debt issue costs related to the ABL Revolver are classified in other assets because the ABL Revolver has not been drawn since inception. Debt issue costs are amortized to interest expense over the terms of the respective debt using the effective interest method. When debt is repaid early, the portion of unamortized debt issue costs related to the early principal repayment is written off and included in interest expense. Any premiums associated with the repayment of debt are also charged to interest expense. Financial Instruments — Derivatives are recorded in the consolidated balance sheet at fair value, as required by ASC Topic 815 Derivatives and Hedging. Accounting for changes in the fair value of a derivative depends on the intended use of the derivative, which is established at inception. For derivatives designated as cash flow hedges and which meet the effectiveness guidelines of ASC Topic 815, changes in fair value, to the extent effective, are recognized in other comprehensive income until the hedged item is recognized in earnings. Hedge effectiveness is measured at least quarterly based on the relative changes in fair value between the derivative contract and the hedged item over time. Any change in fair value of a derivative resulting from ineffectiveness, or an excluded component of the gain or loss, is recognized immediately and is recorded as interest expense. Headwaters formally documents all hedge transactions at inception of the contract, including identification of the hedging instruments and the hedged items, as well as its risk management objectives and strategies for undertaking the hedge transaction. This process includes linking the derivatives that are designated as hedges to specific assets, liabilities, firm commitments or forecasted transactions. Headwaters also formally assesses the effectiveness of any hedging instruments on an ongoing basis. Historically, Headwaters has entered into hedge agreements primarily to limit its exposure for interest rate movements and certain commodity price fluctuations. In connection with the issuance of certain convertible senior subordinated notes, Headwaters entered into convertible note hedge and warrant transactions for the purpose of effectively increasing the common stock conversion price. This convertible note hedge terminated when the notes were repaid in full in 2014. Since that time, and as of September 30, 2016, Headwaters has had no material hedge agreements or other derivatives in place. Asset Retirement Obligations — From time to time Headwaters incurs asset retirement obligations associated with the restoration of certain CCP disposal sites. Headwaters records its legal obligations associated with the retirement of long‑lived assets in accordance with the requirements of ASC Topic 410 Asset Retirements and Environmental Obligations. The fair value of a liability for an asset retirement obligation is recognized in the consolidated financial statements when the asset is placed in service. At such time, the fair value of the liability is estimated using discounted cash flows. In subsequent periods, the retirement obligation is accreted to its estimated future value as of the asset retirement date through charges to operating expenses. An asset equal in value to the retirement obligation is also recorded as a component of the carrying amount of the long‑lived asset and is depreciated over the asset’s useful life. As of September 30, 2015 and 2016, CCP asset retirement obligations totaled $0. However, as described in Note 13, one of Headwaters’ subsidiaries is performing permit reclamation responsibilities at a former coal cleaning facility site. As of September 30, 2015 and 2016, approximately $7.4 million and $9.3 million, respectively, was accrued for this reclamation liability. Income Taxes — Headwaters files a consolidated federal income tax return with substantially all of its subsidiaries. Income taxes are determined on an entity‑by‑entity basis and are accounted for in accordance with ASC Topic 740 Income Taxes. Headwaters recognizes deferred tax assets or liabilities for the expected future tax consequences of events that have been recognized in the financial statements or in income tax returns. Deferred tax assets or liabilities are determined based upon the differences between the financial statement and tax bases of assets and liabilities using enacted tax rates expected to apply when the differences are expected to be settled or realized. Deferred income tax assets are periodically reviewed for recoverability based on current events, and valuation allowances are provided as necessary. Expenses for interest and penalties related to income taxes are classified within the income tax provision. Advertising Costs — Advertising costs are expensed as incurred, except for the cost of certain materials which are capitalized and amortized to expense as the materials are distributed. Total advertising costs were approximately $10.3 million, $10.0 million and $11.7 million in 2014, 2015 and 2016, respectively. Warranty Costs — Provision is made for warranty costs at the time of sale, based upon established policies and historical experience. Contingencies — In accounting for legal matters and other contingencies, Headwaters follows the guidance in ASC Topic 450 Contingencies, under which loss contingencies are accounted for based upon the likelihood of an impairment of an asset or the incurrence of a liability. If a loss contingency is “probable” and the amount of loss can be reasonably estimated, it is accrued. If a loss contingency is “probable” but the amount of loss cannot be reasonably estimated, disclosure is made. If a loss contingency is “reasonably possible,” disclosure is made, including the potential range of loss, if determinable. Loss contingencies that are “remote” are neither accounted for nor disclosed. Gain contingencies are given no accounting recognition until realized, but are disclosed if material. Headwaters records legal fees associated with loss contingencies when incurred and does not record estimated future legal fees. Stock‑Based Compensation — Headwaters uses the fair value method of accounting for stock‑based compensation required by ASC Topic 718 Compensation—Stock Compensation. ASC Topic 718 requires companies to expense the value of equity‑based awards. Stock‑based compensation expense is reported within the same expense line items as used for cash compensation expense. Excess tax benefits resulting from exercise of stock options and stock appreciation rights (SARs) are reflected as necessary in the consolidated statement of changes in stockholders’ equity and in financing cash flows in the statement of cash flows. Headwaters recognizes compensation expense equal to the grant‑date fair value of stock‑based awards for all awards expected to vest, over the period during which the related service is rendered by grantees. The fair value of stock‑based awards is determined primarily using the Black‑Scholes‑Merton option pricing model (B‑S‑M model), adjusted where necessary to account for specific terms of awards that the B‑S‑M model does not have the capability to consider; for example, awards which have a cap on allowed appreciation. For such awards, the output determined by the B‑S‑M model has been reduced by an amount determined by a Quasi‑Monte Carlo simulation to reflect the reduction in fair value associated with the appreciation cap or other award feature. The B‑S‑M model was developed for use in estimating the fair value of traded options that have no vesting restrictions and that are fully transferable. Option valuation models require the input of certain subjective assumptions, including expected stock price volatility and expected term. For stock‑based awards, Headwaters primarily uses the “graded vesting” or accelerated method to allocate compensation expense over the requisite service periods. Estimated forfeiture rates are based largely on historical data and were 1% during the periods presented, including as of September 30, 2016. Earnings per Share Calculation — Earnings per share (EPS) has been computed based on the weighted‑average number of common shares outstanding. Diluted EPS computations reflect the increase in weighted‑average common shares outstanding that would result from the assumed exercise of outstanding stock‑based awards calculated using the treasury stock method, and the assumed conversion of convertible securities using the if‑converted method, when such stock‑based awards or convertible securities are dilutive. In accordance with the requirements of ASC Topic 260 Earnings Per Share, the diluted EPS calculations consider all of the following as assumed proceeds in using the treasury stock method to calculate whether and to what extent options and SARs are dilutive: i) the amount employees must pay upon exercise; plus ii) the average amount of unrecognized compensation cost during the period attributed to future service; plus iii) the amount of tax benefits, if any, that would be credited to additional paid‑in capital if the award were to be exercised. Recent Accounting Pronouncements — In September 2015, the Financial Accounting Standards Board (FASB) issued Accounting Standards Update (ASU) 2015-16, Simplifying the Accounting for Measurement-Period Adjustments (ASC Topic 805, Business Combinations). This standard simplifies the accounting for adjustments made to provisional amounts recognized in a business combination so that revisions of previously reported information about the fair values of assets acquired and liabilities assumed need not be recognized retrospectively. Headwaters adopted this standard effective as of October 1, 2016. While there was no effect upon adoption, due to the acquisitions consummated in 2016, some of which have been provisionally accounted for as described in Note 4, the adoption of this standard could have a material effect on how changes to those provisional amounts are accounted for in future periods if adjusted. In November 2015, the FASB issued ASU 2015-17, Balance Sheet Classification of Deferred Taxes (ASC Topic 740). This new rule was issued to simplify the presentation of deferred income taxes to require that all deferred income tax assets and liabilities be classified as noncurrent in the balance sheet. Early application of ASU 2015-17 is permitted and Headwaters elected to adopt the ASU effective as of December 31, 2015, with retrospective application to the September 30, 2015 balance sheet. The effect of the adoption of ASU 2015-17 was to reclassify net deferred income tax assets of approximately $23.4 million as of September 30, 2015 as noncurrent instead of current. Accordingly, total current assets in the September 30, 2015 balance sheet were reduced by that amount, and total other assets were increased by the same amount. There was no effect on total assets or on net income. In August 2016, the FASB issued ASU 2016-15, Classification of Certain Cash Receipts and Cash Payments (ASC Topic 230, Statement of Cash Flows), which addresses the appropriate classification of certain cash flows as operating, investing, or financing. Among other things, ASU 2016-15 addresses classification of debt prepayment or extinguishment costs and contingent consideration payments made following a business combination. Headwaters adopted ASU 2016-15 effective as of September 30, 2016 which required retrospective application for all prior periods presented. The effect of early adoption of ASU 2016-15 was to increase cash flows from operating activities and decrease cash flows from financing activities by approximately $18.3 million in 2015 and by $5.4 million in 2016. In May 2014, the FASB issued ASU 2014-09, Revenue from Contracts with Customers (ASC Topic 606). This new revenue standard creates a single source of revenue guidance for all companies in all industries and is more principles-based than current revenue guidance. In August 2015, the FASB issued ASU 2015-14, Revenue from Contracts with Customers (Topic 606): Deferral of the Effective Date, which deferred the effective date of ASU 2014-09. The mandatory adoption date of ASC 606 for Headwaters is now October 1, 2018. There are two methods of adoption allowed, either a “full” retrospective adoption or a “modified” retrospective adoption. Headwaters currently believes the impact of adopting ASC 606 will not be material to either past or future periods as it relates to the building products and energy technology segments, but is still evaluating the potential impact the new standard will have on the construction materials segment. Adoption of the new standard could require expanded disclosures. In February 2016, the FASB issued ASU 2016-02, Leases (ASC Topic 842). This new standard establishes a right-of-use (ROU) model that requires a lessee to record a ROU asset and a lease liability on the balance sheet for all leases with terms longer than 12 months. Leases will be classified as either finance or operating, with classification affecting the pattern of expense recognition in the Statement of Income. The mandatory adoption date of ASC 842 for Headwaters is October 1, 2019. A modified retrospective transition approach is required for leases existing at, or entered into, after the beginning of the earliest comparative period presented in the financial statements, with certain practical expedients available. Headwaters currently expects that upon adoption of ASC 842, ROU assets and lease liabilities will be recognized in the balance sheet in amounts that will be material. In March 2016, the FASB issued ASU 2016-09, Improvements to Employee Share-Based Payment Accounting (ASC Topic 718, Compensation—Stock Compensation), which changes how companies account for certain aspects of share-based payments to employees. Among other things, the new rules eliminate the requirement to record excess tax benefits in additional paid-in capital and instead require all such tax benefits to be recorded in the income statement. Most of the amendments are mandatory while one, how to account for forfeitures, requires a policy election. Different methods of adoption are required for the various amendments and early adoption is permitted, but all of the amendments must be adopted in the same period. The adoption date for Headwaters can be no later than October 1, 2017, which is when Headwaters currently expects to adopt the new rules. Headwaters continues to evaluate ASU 2016-09 and at the current time does not know what effects adoption of the new standard will have on its financial statements and whether the impact will be material. In October 2016, the FASB issued ASU 2016-16, Intra-Entity Transfers of Assets Other Than Inventory (ASC Topic 740, Income Taxes), which will require an entity to recognize the income tax consequences of an intra-entity transfer of an asset, other than inventory, when the transfer occurs. This ASU is effective for Headwaters on October 1, 2018 with early adoption permitted. Headwaters has not yet evaluated the effect, if any, that ASU 2016-16 will have on its financial statements. Headwaters has reviewed other recently issued accounting standards which have not yet been adopted in order to determine their potential effect, if any, on the results of operations or financial position of Headwaters. Based on the review of these other recently issued standards, Headwaters does not currently believe that any of those accounting pronouncements will have a significant effect on its current or future financial position, results of operations, cash flows or disclosures. Reclassifications — Certain prior period amounts, including the changes described above for the adoption of new accounting standards, have been reclassified to conform to the current period’s presentation. The reclassifications had no effect on net income, but did affect total assets and total liabilities as well as the classification of certain cash flows in the consolidated statements of cash flows.

2. Summary of Significant Accounting Policies

Principles of Consolidation — The consolidated financial statements include the accounts of Headwaters, all of its subsidiaries and other entities in which Headwaters has a controlling interest. In accordance with the requirements of Accounting Standards Codification (ASC) Topic 810 Consolidation, Headwaters is required to consolidate any variable interest entities for which it is the primary beneficiary. For investments in entities in which Headwaters has a significant influence over operating and financial decisions (generally defined as owning a voting or economic interest of 20% to 50%), Headwaters applies the equity method of accounting. In instances where Headwaters’ investment is less than 20% and significant influence does not exist, investments are carried at cost. As of September 30, 2016, there are no material variable interest entities or equity‑method investments. All significant intercompany transactions and accounts are eliminated in consolidation.

Use of Estimates — The preparation of consolidated financial statements in conformity with U.S. generally accepted accounting principles (GAAP) requires management to make estimates and assumptions that affect i) the reported amounts of assets and liabilities and disclosures of contingent assets and liabilities at the date of the financial statements, and ii) the reported amounts of revenue and expenses during the reporting period. Actual results could differ materially from those estimates.

Segment Reporting, Major Customers and Other Concentrations of Risk — Headwaters currently operates three business segments: building products, construction materials and energy technology. Additional information about these segments is presented in Note 3. No customer accounted for over 10% of total revenue in any year presented and less than 10% of Headwaters’ revenue was from sales outside the United States. Approximately 10%, 9% and 9% of Headwaters’ total revenue and cost of revenue was for services in 2014, 2015 and 2016, respectively. Substantially all service‑related revenue for all periods was in the construction materials segment. Headwaters normally purchases a majority of the polypropylene, poly vinyl chloride (PVC) and polyethylene used in its resin‑based building products from a limited number of suppliers; however, these materials could be obtained from other suppliers if necessary and management currently believes any required change in suppliers would not be materially disruptive.

Revenue Recognition and Cost of Revenue — Revenue from the sale of building products, CCPs and energy‑related products is recognized upon passage of title to the customer, which coincides with physical delivery and assumption of risk of loss by the customer. Estimated sales rebates and discounts pertaining to the sale of building products are provided for at the time of sale and are based primarily upon established policies and historical experience. Revenues include transportation charges and shipping and handling fees associated with delivering products and materials to customers when the transportation and/or shipping and handling is contractually provided for between the customer and Headwaters. Cost of revenue includes shipping and handling fees.

CCP service revenues are primarily earned under long‑term contracts to dispose of residual materials created by coal‑fired electric power generation. Generally, revenues under long‑term site service contracts are recognized concurrently with the removal of material and are based on the volume of material removed at established prices per ton. Certain service revenue under these contracts is recognized on a time and materials basis in the period in which the services are performed. In compliance with contractual obligations, the cost of CCPs purchased from certain utilities is based on a percentage of the “net revenues” from sale of the CCPs purchased. Costs also include landfill fees and transportation charges to deliver non‑marketable CCPs to landfills.

Cash and Cash Equivalents — Headwaters considers all short‑term, highly‑liquid investments with a maturity of three months or less when purchased to be cash equivalents. Certain cash and cash equivalents are deposited with financial institutions, and at times such amounts exceed insured depository limits.

Receivables — Allowances are provided for uncollectible accounts and notes when deemed necessary. Such allowances are based on an account‑by‑account analysis of collectability or impairment plus a provision for non‑customer specific defaults based upon historical collection experience. Headwaters performs periodic credit evaluations of its customers but collateral is not required for trade receivables. Collateral is generally required for notes receivable, which were not material during the periods presented.

Inventories — Inventories are stated at the lower of cost or net realizable value. Cost includes direct material, transportation, direct labor and allocations of manufacturing overhead costs and is determined primarily using the first‑in, first‑out method. Excess and obsolete inventory reserves are based on historical experience and amounts expected to be realized for slow-moving and obsolete inventory.

Property, Plant and Equipment — Property, plant and equipment are recorded at cost. For significant self‑constructed assets, cost includes direct labor and interest. Expenditures for major improvements are capitalized; expenditures for maintenance, repairs and minor improvements are charged to expense as incurred. Assets are depreciated using primarily the straight‑line method over their estimated useful lives, limited to the lease terms for improvements to leased assets. The units‑of‑production method is used to depreciate certain building products segment assets. Upon the sale or retirement of property, plant and equipment, any gain or loss on disposition is reflected in results of operations and the related asset cost and accumulated depreciation are removed from the respective accounts.

Intangible Assets and Goodwill — Intangible assets consist primarily of identifiable intangible assets obtained in connection with acquisitions. With the exception of certain indefinite-lived trade names, intangible assets are amortized using the straight‑line method, Headwaters’ best estimate of the pattern of economic benefit, over their estimated useful lives. Goodwill consists of the excess of the purchase price for acquired businesses over the fair value of assets acquired, net of liabilities assumed. As described in more detail in Note 6, in accordance with ASC Topic 350 Intangibles—Goodwill and Other, goodwill and indefinite‑lived intangible assets are not amortized, but are tested at least annually for impairment. Amortizable intangible assets are tested for impairment only when an indicator of impairment exists.

Valuation of Long‑Lived Assets — Headwaters evaluates the carrying value of long‑lived assets, including amortizable intangible assets, as well as the related depreciation and amortization periods, to determine whether adjustments to carrying amounts or to estimated useful lives are required based on current events and circumstances. The carrying value of a long‑lived asset is considered impaired when the anticipated cumulative undiscounted cash flow from that asset is less than its carrying value. In that event, a loss is recognized based on the amount by which the carrying value exceeds the fair value of the long‑lived asset.

Debt Issue Costs and Debt Repayment Premiums — Debt issue costs represent direct costs incurred for the issuance of long‑term debt and, except for costs related to the ABL Revolver (see Note 7), are reflected as a reduction of the carrying value of the respective long-term debt to which they relate. Debt issue costs related to the ABL Revolver are classified in other assets because the ABL Revolver has not been drawn since inception. Debt issue costs are amortized to interest expense over the terms of the respective debt using the effective interest method. When debt is repaid early, the portion of unamortized debt issue costs related to the early principal repayment is written off and included in interest expense. Any premiums associated with the repayment of debt are also charged to interest expense.

Financial Instruments — Derivatives are recorded in the consolidated balance sheet at fair value, as required by ASC Topic 815 Derivatives and Hedging. Accounting for changes in the fair value of a derivative depends on the intended use of the derivative, which is established at inception. For derivatives designated as cash flow hedges and which meet the effectiveness guidelines of ASC Topic 815, changes in fair value, to the extent effective, are recognized in other comprehensive income until the hedged item is recognized in earnings. Hedge effectiveness is measured at least quarterly based on the relative changes in fair value between the derivative contract and the hedged item over time. Any change in fair value of a derivative resulting from ineffectiveness, or an excluded component of the gain or loss, is recognized immediately and is recorded as interest expense.

Headwaters formally documents all hedge transactions at inception of the contract, including identification of the hedging instruments and the hedged items, as well as its risk management objectives and strategies for undertaking the hedge transaction. This process includes linking the derivatives that are designated as hedges to specific assets, liabilities, firm commitments or forecasted transactions. Headwaters also formally assesses the effectiveness of any hedging instruments on an ongoing basis. Historically, Headwaters has entered into hedge agreements primarily to limit its exposure for interest rate movements and certain commodity price fluctuations.

In connection with the issuance of certain convertible senior subordinated notes, Headwaters entered into convertible note hedge and warrant transactions for the purpose of effectively increasing the common stock conversion price. This convertible note hedge terminated when the notes were repaid in full in 2014. Since that time, and as of September 30, 2016, Headwaters has had no material hedge agreements or other derivatives in place.

Asset Retirement Obligations — From time to time Headwaters incurs asset retirement obligations associated with the restoration of certain CCP disposal sites. Headwaters records its legal obligations associated with the retirement of long‑lived assets in accordance with the requirements of ASC Topic 410 Asset Retirements and Environmental Obligations. The fair value of a liability for an asset retirement obligation is recognized in the consolidated financial statements when the asset is placed in service. At such time, the fair value of the liability is estimated using discounted cash flows. In subsequent periods, the retirement obligation is accreted to its estimated future value as of the asset retirement date through charges to operating expenses. An asset equal in value to the retirement obligation is also recorded as a component of the carrying amount of the long‑lived asset and is depreciated over the asset’s useful life. As of September 30, 2015 and 2016, CCP asset retirement obligations totaled $0. However, as described in Note 13, one of Headwaters’ subsidiaries is performing permit reclamation responsibilities at a former coal cleaning facility site. As of September 30, 2015 and 2016, approximately $7.4 million and $9.3 million, respectively, was accrued for this reclamation liability.

Income Taxes — Headwaters files a consolidated federal income tax return with substantially all of its subsidiaries. Income taxes are determined on an entity‑by‑entity basis and are accounted for in accordance with ASC Topic 740 Income Taxes. Headwaters recognizes deferred tax assets or liabilities for the expected future tax consequences of events that have been recognized in the financial statements or in income tax returns. Deferred tax assets or liabilities are determined based upon the differences between the financial statement and tax bases of assets and liabilities using enacted tax rates expected to apply when the differences are expected to be settled or realized. Deferred income tax assets are periodically reviewed for recoverability based on current events, and valuation allowances are provided as necessary. Expenses for interest and penalties related to income taxes are classified within the income tax provision.

Advertising Costs — Advertising costs are expensed as incurred, except for the cost of certain materials which are capitalized and amortized to expense as the materials are distributed. Total advertising costs were approximately $10.3 million, $10.0 million and $11.7 million in 2014, 2015 and 2016, respectively.

Warranty Costs — Provision is made for warranty costs at the time of sale, based upon established policies and historical experience.

Contingencies — In accounting for legal matters and other contingencies, Headwaters follows the guidance in ASC Topic 450 Contingencies, under which loss contingencies are accounted for based upon the likelihood of an impairment of an asset or the incurrence of a liability. If a loss contingency is “probable” and the amount of loss can be reasonably estimated, it is accrued. If a loss contingency is “probable” but the amount of loss cannot be reasonably estimated, disclosure is made. If a loss contingency is “reasonably possible,” disclosure is made, including the potential range of loss, if determinable. Loss contingencies that are “remote” are neither accounted for nor disclosed. Gain contingencies are given no accounting recognition until realized, but are disclosed if material. Headwaters records legal fees associated with loss contingencies when incurred and does not record estimated future legal fees.

Stock‑Based Compensation — Headwaters uses the fair value method of accounting for stock‑based compensation required by ASC Topic 718 Compensation—Stock Compensation. ASC Topic 718 requires companies to expense the value of equity‑based awards. Stock‑based compensation expense is reported within the same expense line items as used for cash compensation expense. Excess tax benefits resulting from exercise of stock options and stock appreciation rights (SARs) are reflected as necessary in the consolidated statement of changes in stockholders’ equity and in financing cash flows in the statement of cash flows.

Headwaters recognizes compensation expense equal to the grant‑date fair value of stock‑based awards for all awards expected to vest, over the period during which the related service is rendered by grantees. The fair value of stock‑based awards is determined primarily using the Black‑Scholes‑Merton option pricing model (B‑S‑M model), adjusted where necessary to account for specific terms of awards that the B‑S‑M model does not have the capability to consider; for example, awards which have a cap on allowed appreciation. For such awards, the output determined by the B‑S‑M model has been reduced by an amount determined by a Quasi‑Monte Carlo simulation to reflect the reduction in fair value associated with the appreciation cap or other award feature.

The B‑S‑M model was developed for use in estimating the fair value of traded options that have no vesting restrictions and that are fully transferable. Option valuation models require the input of certain subjective assumptions, including expected stock price volatility and expected term. For stock‑based awards, Headwaters primarily uses the “graded vesting” or accelerated method to allocate compensation expense over the requisite service periods. Estimated forfeiture rates are based largely on historical data and were 1% during the periods presented, including as of September 30, 2016.

Earnings per Share Calculation — Earnings per share (EPS) has been computed based on the weighted‑average number of common shares outstanding. Diluted EPS computations reflect the increase in weighted‑average common shares outstanding that would result from the assumed exercise of outstanding stock‑based awards calculated using the treasury stock method, and the assumed conversion of convertible securities using the if‑converted method, when such stock‑based awards or convertible securities are dilutive.

In accordance with the requirements of ASC Topic 260 Earnings Per Share, the diluted EPS calculations consider all of the following as assumed proceeds in using the treasury stock method to calculate whether and to what extent options and SARs are dilutive: i) the amount employees must pay upon exercise; plus ii) the average amount of unrecognized compensation cost during the period attributed to future service; plus iii) the amount of tax benefits, if any, that would be credited to additional paid‑in capital if the award were to be exercised.

Recent Accounting Pronouncements — In September 2015, the Financial Accounting Standards Board (FASB) issued Accounting Standards Update (ASU) 2015-16, Simplifying the Accounting for Measurement-Period Adjustments (ASC Topic 805, Business Combinations). This standard simplifies the accounting for adjustments made to provisional amounts recognized in a business combination so that revisions of previously reported information about the fair values of assets acquired and liabilities assumed need not be recognized retrospectively. Headwaters adopted this standard effective as of October 1, 2016. While there was no effect upon adoption, due to the acquisitions consummated in 2016, some of which have been provisionally accounted for as described in Note 4, the adoption of this standard could have a material effect on how changes to those provisional amounts are accounted for in future periods if adjusted.

In November 2015, the FASB issued ASU 2015-17, Balance Sheet Classification of Deferred Taxes (ASC Topic 740). This new rule was issued to simplify the presentation of deferred income taxes to require that all deferred income tax assets and liabilities be classified as noncurrent in the balance sheet. Early application of ASU 2015-17 is permitted and Headwaters elected to adopt the ASU effective as of December 31, 2015, with retrospective application to the September 30, 2015 balance sheet.

The effect of the adoption of ASU 2015-17 was to reclassify net deferred income tax assets of approximately $23.4 million as of September 30, 2015 as noncurrent instead of current. Accordingly, total current assets in the September 30, 2015 balance sheet were reduced by that amount, and total other assets were increased by the same amount. There was no effect on total assets or on net income.

In August 2016, the FASB issued ASU 2016-15, Classification of Certain Cash Receipts and Cash Payments (ASC Topic 230, Statement of Cash Flows), which addresses the appropriate classification of certain cash flows as operating, investing, or financing. Among other things, ASU 2016-15 addresses classification of debt prepayment or extinguishment costs and contingent consideration payments made following a business combination. Headwaters adopted ASU 2016-15 effective as of September 30, 2016 which required retrospective application for all prior periods presented. The effect of early adoption of ASU 2016-15 was to increase cash flows from operating activities and decrease cash flows from financing activities by approximately $18.3 million in 2015 and by $5.4 million in 2016.

In May 2014, the FASB issued ASU 2014-09, Revenue from Contracts with Customers (ASC Topic 606). This new revenue standard creates a single source of revenue guidance for all companies in all industries and is more principles-based than current revenue guidance. In August 2015, the FASB issued ASU 2015-14, Revenue from Contracts with Customers (Topic 606): Deferral of the Effective Date, which deferred the effective date of ASU 2014-09. The mandatory adoption date of ASC 606 for Headwaters is now October 1, 2018. There are two methods of adoption allowed, either a “full” retrospective adoption or a “modified” retrospective adoption. Headwaters currently believes the impact of adopting ASC 606 will not be material to either past or future periods as it relates to the building products and energy technology segments, but is still evaluating the potential impact the new standard will have on the construction materials segment. Adoption of the new standard could require expanded disclosures.

In February 2016, the FASB issued ASU 2016-02, Leases (ASC Topic 842). This new standard establishes a right-of-use (ROU) model that requires a lessee to record a ROU asset and a lease liability on the balance sheet for all leases with terms longer than 12 months. Leases will be classified as either finance or operating, with classification affecting the pattern of expense recognition in the Statement of Income. The mandatory adoption date of ASC 842 for Headwaters is October 1, 2019. A modified retrospective transition approach is required for leases existing at, or entered into, after the beginning of the earliest comparative period presented in the financial statements, with certain practical expedients available. Headwaters currently expects that upon adoption of ASC 842, ROU assets and lease liabilities will be recognized in the balance sheet in amounts that will be material.

In March 2016, the FASB issued ASU 2016-09, Improvements to Employee Share-Based Payment Accounting (ASC Topic 718, Compensation—Stock Compensation), which changes how companies account for certain aspects of share-based payments to employees. Among other things, the new rules eliminate the requirement to record excess tax benefits in additional paid-in capital and instead require all such tax benefits to be recorded in the income statement. Most of the amendments are mandatory while one, how to account for forfeitures, requires a policy election. Different methods of adoption are required for the various amendments and early adoption is permitted, but all of the amendments must be adopted in the same period. The adoption date for Headwaters can be no later than October 1, 2017, which is when Headwaters currently expects to adopt the new rules. Headwaters continues to evaluate ASU 2016-09 and at the current time does not know what effects adoption of the new standard will have on its financial statements and whether the impact will be material.

In October 2016, the FASB issued ASU 2016-16, Intra-Entity Transfers of Assets Other Than Inventory (ASC Topic 740, Income Taxes), which will require an entity to recognize the income tax consequences of an intra-entity transfer of an asset, other than inventory, when the transfer occurs. This ASU is effective for Headwaters on October 1, 2018 with early adoption permitted. Headwaters has not yet evaluated the effect, if any, that ASU 2016-16 will have on its financial statements.

Headwaters has reviewed other recently issued accounting standards which have not yet been adopted in order to determine their potential effect, if any, on the results of operations or financial position of Headwaters. Based on the review of these other recently issued standards, Headwaters does not currently believe that any of those accounting pronouncements will have a significant effect on its current or future financial position, results of operations, cash flows or disclosures.

Reclassifications — Certain prior period amounts, including the changes described above for the adoption of new accounting standards, have been reclassified to conform to the current period’s presentation. The reclassifications had no effect on net income, but did affect total assets and total liabilities as well as the classification of certain cash flows in the consolidated statements of cash flows.