Segment Reporting

6 Months Ended

Mar. 31, 2017

Segment Reporting

Segment Reporting

2.Segment Reporting

Headwaters currently operates three business segments: building products, construction materials and energy technology. These segments are managed and evaluated separately by management due to differences in their operations, products and services. Historically and for all of fiscal 2016, the block product business was a part of the building products segment. However, commencing in the December 2016 quarter, the construction materials segment includes the block product business. This reporting change has been made because of the following changes, as well as others, in management and operations, all of which became operative effective as of October 1, 2016:

· The chief operating decision maker makes operating and resource allocation decisions considering the combined financial information for construction materials and the block group, which have similar economic characteristics;

· The block group management and accounting personnel report to the construction materials segment’s management;

· Certain operational activities for the construction materials and block group are being closely coordinated to capture synergies and improve efficiencies. For example, the transportation groups were brought together to promote backhauling, reduce repair and maintenance costs, and minimize down time. Construction materials management also provides oversight for certain other operational activities; and

· Fly ash storage is being initiated at block production sites to facilitate substitution of fly ash for portland cement used in manufacturing block products.

Revenues for the building products segment consist of product sales to wholesale and retail distributors, contractors and other users of building products. Revenues for the construction materials segment consist primarily of CCP sales to ready-mix concrete businesses, with a smaller amount from commercial construction sales and services provided to coal-fueled electric generating utilities. Continuing revenues for the energy technology segment consist primarily of catalyst sales to oil refineries. As described in Note 12, Headwaters sold all of its coal cleaning facilities in 2012 and 2013 and the results of operations have been reflected as discontinued operations in the accompanying Statements of Income for all periods. Intersegment sales are immaterial.

The following segment information has been prepared in accordance with ASC Topic 280 Segment Reporting. Segment performance is evaluated primarily on revenue and operating income, although other factors are also used, such as Adjusted EBITDA, a non-GAAP financial measure. Headwaters defines Adjusted EBITDA as income from continuing operations plus net interest expense, income taxes, depreciation and amortization, stock-based compensation, cash-based compensation tied to stock price, goodwill and other impairments, and other non-routine adjustments that arise from time to time.

Segment costs and expenses considered in deriving segment operating income include cost of revenue, amortization, and segment-specific selling, general and administrative expenses. Amounts included in the Corporate column represent expenses that are not allocated to any segment and include administrative departmental costs and general corporate overhead. Segment assets reflect those specifically attributable to individual segments and primarily include cash, accounts receivable, inventories, property, plant and equipment, goodwill and intangible assets. Certain other assets are included in the Corporate column. The net operating results of the discontinued coal cleaning business are reflected in the single line item for discontinued operations.

	Three Months Ended March 31, 2016
	Building		Construction		Energy
(in thousands)	products		materials		technology		Corporate		Totals
Segment revenue	$	98,101	$	102,849	$	1,382	$	0	$	202,332
Depreciation and amortization	$	(9,117)	$	(4,523)	$	(324)	$	(151)	$	(14,115)
Operating income (loss)	$	6,344	$	13,691	$	(1,163)	$	(6,692)	$	12,180
Net interest expense										(8,056)
Other income (expense), net										(12)
Income tax provision										(1,500)
Income from continuing operations										2,612
Loss from discontinued operations, net of income taxes										(228)
Net income									$	2,384
Capital expenditures	$	6,854	$	5,487	$	0	$	856	$	13,197
Segment assets as of September 30, 2016	$	676,012	$	385,595	$	43,412	$	133,424	$	1,238,443

	Three Months Ended March 31, 2017
	Building		Construction		Energy
(in thousands)	products		materials		technology		Corporate		Totals
Segment revenue	$	140,716	$	116,037	$	2,540	$	0	$	259,293
Depreciation and amortization	$	(11,867)	$	(5,441)	$	(378)	$	(679)	$	(18,365)
Operating income (loss)	$	11,383	$	15,195	$	(1,489)	$	(10,414)	$	14,675
Net interest expense										(8,222)
Other income (expense), net										1,973
Income tax provision										(3,300)
Income from continuing operations										5,126
Income from discontinued operations, net of income taxes										6
Net income									$	5,132
Capital expenditures	$	9,356	$	4,122	$	58	$	657	$	14,193
Segment assets as of March 31, 2017	$	700,035	$	372,932	$	41,295	$	115,375	$	1,229,637

	Six Months Ended March 31, 2016
	Building		Construction		Energy
(in thousands)	products		materials		technology		Corporate		Totals
Segment revenue	$	199,696	$	219,097	$	1,957	$	0	$	420,750
Depreciation and amortization	$	(17,977)	$	(8,963)	$	(647)	$	(310)	$	(27,897)
Operating income (loss)	$	18,019	$	34,054	$	(2,884)	$	(12,186)	$	37,003
Net interest expense										(16,273)
Other income (expense), net										(81)
Income tax provision										(5,100)
Income from continuing operations										15,549
Loss from discontinued operations, net of income taxes										(444)
Net income									$	15,105
Capital expenditures	$	11,255	$	7,869	$	0	$	1,758	$	20,882

	Six Months Ended March 31, 2017
	Building		Construction		Energy
(in thousands)	products		materials		technology		Corporate		Totals
Segment revenue	$	275,757	$	236,028	$	3,083	$	0	$	514,868
Depreciation and amortization	$	(23,582)	$	(10,706)	$	(533)	$	(1,386)	$	(36,207)
Operating income (loss)	$	22,783	$	33,793	$	(3,302)	$	(19,259)	$	34,015
Net interest expense										(17,141)
Other income (expense), net										2,127
Income tax provision										(7,200)
Income from continuing operations										11,801
Income from discontinued operations, net of income taxes										159
Net income									$	11,960
Capital expenditures	$	20,756	$	7,400	$	78	$	1,499	$	29,733